[Federal Register Volume 85, Number 94 (Thursday, May 14, 2020)]
[Rules and Regulations]
[Pages 29164-29262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10045]



[[Page 29163]]

Vol. 85

Thursday,

No. 94

May 14, 2020

Part III





Department of Health and Human Services





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45 CFR Parts 146, 149, et al.





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

  Federal Register / Vol. 85 , No. 94 / Thursday, May 14, 2020 / Rules 
and Regulations  

[[Page 29164]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

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

[CMS-9916-F]
RIN 0938-AT98


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

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

ACTION: Final rule.

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SUMMARY: This final rule sets forth payment parameters and provisions 
related to the risk adjustment and risk adjustment data validation 
programs; cost-sharing parameters and cost-sharing reductions; and user 
fees for Federally-facilitated Exchanges and State-based Exchanges on 
the Federal platform. It also finalizes changes related to essential 
health benefits and will provide states with additional flexibility in 
the operation and establishment of Exchanges. The rule includes changes 
related to cost sharing for prescription drugs; notice requirements for 
excepted benefit health reimbursement arrangements offered by non-
Federal governmental plan sponsors; Exchange eligibility and 
enrollment; exemptions from the requirement to maintain coverage; 
quality rating information display standards for Exchanges; and other 
related topics. This final rule also repeals regulations relating to 
the Early Retiree Reinsurance Program.

DATES: These regulations are effective July 13, 2020.

FOR FURTHER INFORMATION CONTACT: Usree Bandyopadhyay, (410) 786-6650, 
Kiahana Brooks, (301) 492-5229, or Evonne Muoneke (301) 492-4402, for 
general information.
    David Mlawsky, (410) 786-6851, for matters related to excepted 
benefit health reimbursement arrangements (HRAs).
    Allison Yadsko, (410) 786-1740 or Krutika Amin, (301) 646-2420, for 
matters related to risk adjustment.
    Aaron Franz, (410) 786-8027, for matters related to Federally-
facilitated Exchange (FFE) and State-based Exchange on the Federal 
platform (SBE-FP) user fees and sequestration.
    Joshua Paul, (301) 492-4347 or Allison Yadsko, (410) 786-1740, for 
matters related to risk adjustment data validation (RADV).
    Joshua Paul, (301) 492-4347, for matters related to the premium 
adjustment percentage.
    Alper Ozinal, (301) 492-4178, for matters related to timely 
submission of enrollment reconciliation data and dispute of HHS payment 
and collections reports.
    Rebecca Zimmermann, (301) 492-4396, for matters related to value-
based insurance plan design.
    Becca Bucchieri, (301) 492-4341, for matters related to essential 
health benefit (EHB)-benchmark plans and defrayal of state-required 
benefits.
    Jill Gotts, (202) 603-0480, for matters related to eligibility 
appeals.
    Emily Ames, (301) 492-4246, for matters related to coverage 
effective dates and termination notices.
    Marisa Beatley, (301) 492-4307, for matters related to employer-
sponsored coverage verification and periodic data matching (PDM).
    Carolyn Kraemer, (301) 492-4197, for matters related to special 
enrollment periods under part 155.
    Kendra May, (301) 492-4477, for matters related to terminations.
    LeAnn Brodhead, (410) 786-3943, for matters related to cost-sharing 
requirements.
    Christina Whitefield, (301) 492-4172, for matters related to the 
medical loss ratio (MLR) program.
    Kevin Kendrick, (301) 492-4127, for matters related to the Early 
Retiree Reinsurance Program (ERRP).
    Jenny Chen, (301) 492-5156, Shilpa Gogna, (301) 492-4257 or Nidhi 
Singh Shah, (301) 492-5110), for matters related to quality rating 
information display standards for Exchanges.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
II. Background
    A. Legislative and Regulatory Overview
    B. Stakeholder Consultation and Input
    C. Structure of Final Rule
III. Provisions of the Final Regulations and Analysis and Responses 
to Public Comments
    A. Part 146--Requirements for the Group Health Insurance Market: 
Excepted Benefit HRAs Offered by Non-Federal Governmental Plan 
Sponsors
    B. Part 149--Requirements for the Early Retiree Reinsurance 
Program
    C. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment
    D. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    E. Part 156--Health Insurance Issuer Standards under the 
Affordable Care Act, Including Standards Related to Exchanges
    F. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements
IV. Collection of Information Requirements
    A. Wage Estimates
    B. ICRs Regarding Notice Requirement for Excepted Benefit HRAs 
Offered by Non-Federal Governmental Plan Sponsors
    C. ICRs Regarding Special Enrollment Periods
    D. ICRs Regarding Quality Rating Information Display Standards 
for Plan Years Beginning on or After January 1, 2021
    E. ICRs Regarding State Selection of EHB-Benchmark Plan for Plan 
Years Beginning on or After January 1, 2020
    F. ICRs Regarding Termination of Coverage or Enrollment for 
Qualified Individuals
    G. ICRs Regarding Medical Loss Ratio (MLR)
    H. Summary of Annual Burden Estimate for Final Requirements
V. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Impact Estimates of the Payment Notice Provisions and 
Accounting Table
    D. Regulatory Alternatives Considered
    E. Regulatory Flexibility Act
    F. Unfunded Mandates
    G. Federalism
    H. Congressional Review Act
    I. Reducing Regulation and Controlling Regulatory Costs

I. Executive Summary

    American Health Benefit Exchanges, or ``Exchanges,'' are entities 
established under the Patient Protection and Affordable Care Act \1\ 
(PPACA) through which qualified individuals and qualified employers can 
purchase health insurance coverage in qualified health plans (QHPs). 
Many individuals who enroll in QHPs through individual market Exchanges 
are eligible to receive a premium tax credit (PTC) to reduce their 
costs for health insurance premiums and to receive reductions in 
required cost-sharing payments to reduce out-of-pocket expenses for 
health care services. The PPACA also established the risk adjustment 
program, which is intended to increase the workability of the PPACA 
regulatory changes in the individual and small group markets, both on 
and off Exchanges.
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    \1\ The PPACA (Pub. L. 111-148) was enacted on March 23, 2010. 
The Health Care and Education Reconciliation Act of 2010 (Pub. L. 
111-152), which amended and revised several provisions of the PPACA, 
was enacted on March 30, 2010. In this final rule, we refer to the 
two statutes collectively as the ``Patient Protection and Affordable 
Care Act'' or ``PPACA''.
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    On January 20, 2017, the President issued an Executive Order which 
stated that, to the maximum extent permitted by law, the Secretary of 
HHS and heads of all other executive departments and agencies with 
authorities and

[[Page 29165]]

responsibilities under the PPACA should exercise all authority and 
discretion available to them to waive, defer, grant exemptions from, or 
delay the implementation of any provision or requirement of the PPACA 
that would impose a fiscal burden on any state or a cost, fee, tax, 
penalty, or regulatory burden on individuals, families, health care 
providers, health insurers, patients, recipients of health care 
services, purchasers of health insurance, or makers of medical devices, 
products, or medications. In this final rule, we are, within the 
limitations of current law, finalizing provisions to reduce fiscal and 
regulatory burdens across different program areas and to provide 
stakeholders with greater flexibility.
    In previous rulemakings, we established provisions and parameters 
to implement many PPACA requirements and programs. In this final rule, 
we are amending some of these provisions and parameters, with a focus 
on maintaining a stable regulatory environment. These changes are 
intended to provide issuers with greater predictability for upcoming 
plan years, while simultaneously enhancing the role of states in these 
programs. The provisions will also provide states with additional 
flexibilities, reduce unnecessary regulatory burdens on stakeholders, 
empower consumers, ensure program integrity, and improve affordability. 
In the proposed rule, we solicited comments on modifying the automatic 
re-enrollment process for enrollees who would be automatically re-
enrolled with advance payments of the premium tax credit (APTC) that 
would cover the enrollee's entire premium. We also announced that, 
pending such future rulemaking, HHS will not take enforcement action 
against Exchanges that do not implement a random sampling methodology 
during plan years 2020 and 2021.
    Risk adjustment continues to be a core program in the individual 
and small group markets both on and off Exchanges, and we are 
finalizing the proposals to recalibrate the risk adjustment models used 
in the state payment transfer formula of the HHS-operated risk 
adjustment methodology, among other updates. As a refinement to the 
risk adjustment program, we are finalizing changes intended to improve 
the reliability of risk adjustment data validation (RADV).
    As we do every year in the HHS notice of benefit and payment 
parameters, we are finalizing the user fee rates for issuers offering 
plans through the Exchanges using the Federal platform. For the 2021 
plan year, we are maintaining the Federally-facilitated Exchange (FFE) 
and State-based Exchange on the Federal platform (SBE-FP) user fees at 
the current 2020 plan year rates, 3.0 and 2.5 percent of total monthly 
premiums, respectively, in order to preserve and ensure that the FFE 
has sufficient funding to cover the cost of all special benefits 
provided to FFE issuers during the 2021 plan year.
    As we do every year, we are updating the maximum annual limitation 
on cost sharing for the 2021 benefit year, including those for cost-
sharing reduction (CSR) plan variations. These updates, which are 
required by law, will raise the annual limit on cost sharing, thereby 
increasing cost sharing and out-of-pocket spending for consumers who 
have out-of-pocket spending close to the annual cost-sharing limit.
    We are committed to promoting a consumer-driven health care system 
in which consumers are empowered to select and maintain health care 
coverage of their choosing. To this end, we provide information to QHP 
issuers on ways in which they can implement value-based insurance plan 
designs that would empower consumers to receive high value services at 
lower costs. These value-based insurance plan designs will empower 
consumers and their providers to make evidence-based health decisions.
    We also finalize new rules related to special enrollment periods. 
We will allow Exchange enrollees and their dependents who are enrolled 
in silver plans and become newly ineligible for CSRs to change to a QHP 
one metal level higher or lower, if they choose. We will require 
Exchanges to apply plan category limitations to dependents who are 
currently enrolled in Exchange coverage and whose non-dependent 
household member qualifies for a special enrollment period to newly 
enroll in coverage. We will also shorten the time between the date a 
consumer selects a plan through certain special enrollment periods and 
the effective date of that plan. In addition, we will allow all 
enrollees granted retroactive coverage through a special enrollment 
period the option to select a later effective date and pay for only 
prospective coverage. We also finalize the proposals to allow 
individuals and their dependents who are provided a qualified small 
employer health reimbursement arrangement (QSEHRA) on a non-calendar 
year basis to qualify for the existing special enrollment period for 
individuals enrolled in any non-calendar year group health plan or 
individual health insurance coverage. We will also allow enrollees 
whose requests for termination of their coverage were not implemented 
due to an Exchange technical error to terminate their coverage 
retroactive to the date they attempted the termination, at the option 
of the Exchange.
    To increase transparency in terminations of Exchange coverage or 
enrollment, we will require termination notices be provided in all 
scenarios where Exchange coverage or enrollment is terminated. We also 
will require excepted benefit health reimbursement arrangements (HRAs) 
sponsored by non-Federal governmental entities to provide a notice to 
participants that contains specified information about the benefits 
available under the excepted benefit HRA.
    In addition, we are finalizing changes to the quality rating 
information display requirements for Exchanges. To continue providing 
flexibility for State Exchanges, we are codifying in regulation the 
option for State Exchanges that operate their own eligibility and 
enrollment platforms to display the quality rating information provided 
by HHS or to display quality rating information based upon certain 
state-specific customizations of the quality rating information 
provided by HHS.
    Stable and affordable Exchanges with healthy risk pools are 
necessary for ensuring consumers maintain stable access to health 
insurance options. We are sharing our future plans for rulemaking to 
allow Exchanges to conduct risk-based employer sponsored coverage 
verification and to remove the requirement that Exchanges select a 
statistically random sample of applicants when no electronic data 
sources are available. In order to make it easier for issuers to offer 
wellness incentives to enrollees and promote a healthier risk pool, we 
are finalizing the proposal that explicitly allows issuers to include 
certain wellness incentives as quality improvement activities (QIA) in 
the individual market for MLR reporting and calculation purposes.
    We are also finalizing annual state reporting of state-required 
benefits that are in addition to essential health benefits (EHB), for 
which states are required to defray the costs. This will help to ensure 
that federal APTC dollars are protected and states are appropriately 
compensating enrollees or issuers for services that are in addition to 
EHB.
    We are finalizing changes to the policy regarding whether drug 
manufacturer coupons must be applied towards the annual limitation on 
cost sharing. Specifically, we are revising Sec.  156.130(h) to state 
that, to the extent consistent with applicable state law, amounts paid 
toward reducing the cost

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sharing incurred by an enrollee using any form of direct support 
offered by drug manufacturers for specific prescription drugs may be, 
but are not required to be, counted toward the annual limitation on 
cost sharing. However, we are not finalizing any change to the 
definition of cost sharing.
    We are finalizing additional steps to ensure the proper execution 
of PPACA requirements and to safeguard and conserve federal funds. To 
protect against unnecessary overpayments of APTC funds, we will 
streamline the process for terminating coverage of enrollees who die 
while enrolled in Exchange coverage. In order to ensure that MLR 
reporting and rebate calculations are accurate, we are finalizing the 
proposal that issuers must report expenses for functions outsourced to 
or services provided by other entities consistently with issuers' non-
outsourced expenses, and require issuers to deduct prescription drug 
rebates and price concessions from MLR incurred claims, not only when 
such rebates and price concessions are received by the issuer, but also 
when they are received and retained by an entity that provides pharmacy 
benefit management services to the issuer. Further, we are finalizing 
that where enrollees provide consent for the Exchange to end their QHP 
coverage if they are found to be dually enrolled in other qualifying 
coverage during the Exchange's periodic data matching (PDM) process, 
the Exchange will not be required to redetermine the enrollee's 
eligibility for financial assistance and may discontinue coverage 
consistent with the consent given by the enrollee.
    Finally, we are repealing regulations currently set forth at 45 CFR 
part 149, governing the Early Retiree Reinsurance Program (ERRP) 
program and its implementation. The program sunset by law as of January 
1, 2014.

II. Background

A. Legislative and Regulatory Overview

    Title I of the Health Insurance Portability and Accountability Act 
of 1996 (HIPAA) added a new title XXVII to the Public Health Service 
Act (PHS Act) to establish various reforms to the group and individual 
health insurance markets.
    These provisions of the PHS Act were later augmented by other laws, 
including the PPACA. Subtitles A and C of title I of the PPACA 
reorganized, amended, and added to the provisions of part A of title 
XXVII of the PHS Act relating to group health plans and health 
insurance issuers in the group and individual markets. The term ``group 
health plan'' includes both insured and self-insured group health 
plans.\2\
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    \2\ The term ``group health plan'' is used in title XXVII of the 
PHS Act and is distinct from the term ``health plan'' as used in 
other provisions of title I of PPACA. The term ``health plan'' does 
not include self-insured group health plans.
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    Section 1301(a)(1)(B) of the PPACA directs all issuers of QHPs to 
cover the EHB package described in section 1302(a) of the PPACA, 
including coverage of the services described in section 1302(b) of the 
PPACA, adherence to the cost-sharing limits described in section 
1302(c) of the PPACA, and meeting the actuarial value (AV) levels 
established in section 1302(d) of the PPACA. Section 2707(a) of the PHS 
Act, which is effective for plan or policy years beginning on or after 
January 1, 2014, extends the requirement to cover the EHB package to 
non-grandfathered individual and small group health insurance coverage, 
irrespective of whether such coverage is offered through an Exchange. 
In addition, section 2707(b) of the PHS Act directs non-grandfathered 
group health plans to ensure that cost-sharing under the plan does not 
exceed the limitations described in sections 1302(c)(1) of the PPACA.
    Section 1302 of the PPACA provides for the establishment of an EHB 
package that includes coverage of EHBs (as defined by the Secretary), 
cost-sharing limits, and the levels of coverage for plans subject to 
the EHB requirements, according to their AV. The law directs that EHBs 
be equal in scope to the benefits provided under a typical employer 
plan, and that they cover at least the following 10 general categories: 
ambulatory patient services; emergency services; hospitalization; 
maternity and newborn care; mental health and substance use disorder 
services, including behavioral health treatment; prescription drugs; 
rehabilitative and habilitative services and devices; laboratory 
services; preventive and wellness services and chronic disease 
management; and pediatric services, including oral and vision care. 
Section 1302(d) of the PPACA describes the various levels of coverage 
based on their AV. Consistent with section 1302(d)(2)(A) of the PPACA, 
AV is calculated based on the provision of EHB to a standard 
population. Section 1302(d)(3) of the PPACA directs the Secretary to 
develop guidelines that allow for de minimis variation in AV 
calculations.
    Section 1311(c) of the PPACA provides the Secretary the authority 
to issue regulations to establish criteria for the certification of 
QHPs. Section 1311(e)(1) of the PPACA grants the Exchange the authority 
to certify a health plan as a QHP if the health plan meets the 
Secretary's requirements for certification issued under section 1311(c) 
of the PPACA, and the Exchange determines that making the plan 
available through the Exchange is in the interests of qualified 
individuals and qualified employers in the state. Section 1311(c)(6)(C) 
of the PPACA establishes special enrollment periods and section 
1311(c)(6)(D) of the PPACA establishes the monthly enrollment period 
for Indians, as defined by section 4 of the Indian Health Care 
Improvement Act.\3\
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    \3\ The Indian Health Care Improvement Act (IHCIA), the 
cornerstone legal authority for the provision of health care to 
American Indians and Alaska Natives, was made permanent when 
President Obama signed the bill on March 23, 2010, as part of the 
Patient Protection and Affordable Care Act.
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    Section 1311(c)(3) of the PPACA provides the Secretary with 
authority to develop a system to rate QHPs offered through an Exchange, 
based on relative quality and price. Section 1311(c)(4) of the PPACA 
authorizes the Secretary to establish an enrollee satisfaction survey 
that evaluates the level of enrollee satisfaction of members with QHPs 
offered through an Exchange, for each QHP with more than 500 enrollees 
in the prior year. Further, sections 1311(c)(3) and 1311(c)(4) of the 
PPACA require an Exchange to provide this quality rating information 
\4\ to individuals and employers on the Exchange's website.
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    \4\ The term ``quality rating information'' includes the Quality 
Rating System (QRS) scores and ratings and the results of the 
enrollee satisfaction survey (which is also known as the ``Qualified 
Health Plan (QHP) Enrollee Experience Survey'').
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    Section 1311(d)(3)(B) of the PPACA permits a state, at its option, 
to require QHPs to cover benefits in addition to the EHB. This section 
also requires a state to make payments, either to the individual 
enrollee or to the issuer on behalf of the enrollee, to defray the cost 
of these additional state-required benefits.
    Section 1312(c) of the PPACA generally requires a health insurance 
issuer to consider all enrollees in all health plans (except 
grandfathered health plans) offered by such issuer to be members of a 
single risk pool for each of its individual and small group markets. 
States have the option to merge the individual and small group market 
risk pools under section 1312(c)(3) of the PPACA.
    Sections 1313 and 1321 of the PPACA provide the Secretary with the 
authority to oversee the financial integrity of State Exchanges, their 
compliance with HHS standards, and the efficient and non-

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discriminatory administration of State Exchange activities. Section 
1321 of the PPACA provides for state flexibility in the operation and 
enforcement of Exchanges and related requirements.
    Section 1321(a) of the PPACA provides broad authority for the 
Secretary to establish standards and regulations to implement the 
statutory requirements related to Exchanges, QHPs and other components 
of title I of the PPACA. Section 1321(a)(1) of the PPACA directs the 
Secretary to issue regulations that set standards for meeting the 
requirements of title I of the PPACA for, among other things, the 
establishment and operation of Exchanges. When operating an FFE under 
section 1321(c)(1) of the PPACA, HHS has the authority under sections 
1321(c)(1) and 1311(d)(5)(A) of the PPACA to collect and spend user 
fees and to allocate and manage those funds in order to support 
Exchange operations. Office of Management and Budget (OMB) Circular No. 
A-25 establishes Federal policy regarding user fees and specifies that 
a user charge will be assessed against each identifiable recipient for 
special benefits derived from Federal activities beyond those received 
by the general public.
    Section 1321(d) of the PPACA provides that nothing in title I of 
the PPACA must be construed to preempt any state law that does not 
prevent the application of title I of the PPACA. Section 1311(k) of the 
PPACA specifies that Exchanges may not establish rules that conflict 
with or prevent the application of regulations issued by the Secretary.
    Section 1343 of the PPACA establishes a permanent risk adjustment 
program to provide payments to health insurance issuers that attract 
higher-than-average risk populations, such as those with chronic 
conditions, funded by payments from those that attract lower-than-
average risk populations, thereby reducing incentives for issuers to 
avoid higher-risk enrollees.
    Section 1402 of the PPACA provides for, among other things, 
reductions in cost sharing for EHB for qualified low- and moderate-
income enrollees in silver level health plans offered through the 
individual market Exchanges. This section also provides for reductions 
in cost sharing for Indians enrolled in QHPs at any metal level.
    Section 1411(c) of the PPACA requires the Secretary to submit 
certain information provided by applicants under section 1411(b) of the 
PPACA to other Federal officials for verification, including income and 
family size information to the Secretary of the Treasury.
    Section 1411(d) of the PPACA provides that the Secretary must 
verify the accuracy of information provided by applicants under section 
1411(b) of the PPACA for which section 1411(c) does not prescribe a 
specific verification procedure, in such manner as the Secretary 
determines appropriate.
    Section 1411(f) of the PPACA requires the Secretary, in 
consultation with the Treasury and Homeland Security Department 
Secretaries and the Commissioner of Social Security, to establish 
procedures for hearing and making decisions governing appeals of 
Exchange eligibility determinations.
    Section 1411(f)(1)(B) of the PPACA requires the Secretary to 
establish procedures to redetermine eligibility on a periodic basis, in 
appropriate circumstances, including eligibility to purchase a QHP 
through the Exchange and for APTC and CSRs.
    Section 1411(g) of the PPACA allows the exchange of applicant 
information only for the limited purposes of, and to the extent 
necessary to, ensure the efficient operation of the Exchange, including 
by verifying eligibility to enroll through the Exchange and for APTC 
and CSRs.
    Sections 2722 and 2763 of the PHS Act provide that the requirements 
of title XXVII of the PHS Act generally do not apply to excepted 
benefits. Excepted benefits are described in section 2791 of the PHS 
Act. This provision establishes four categories of excepted benefits. 
One such category is limited excepted benefits, which may include 
limited scope vision or dental benefits, and benefits for long-term 
care, nursing home care, home health care, or community based care. 
Section 2791(c)(2)(C) of the PHS Act, section 733(c)(2)(C) of the 
Employee Retirement Income Security Act (ERISA), and section 
9832(c)(2)(C) of the Internal Revenue Code (the Code) authorize the 
Secretary of Health and Human Services, with the Secretaries of Labor 
and the Treasury (collectively, the Secretaries), to issue regulations 
establishing other, similar limited benefits as excepted benefits. To 
be excepted under the category of limited excepted benefits, section 
2722(c)(1) of the PHS Act provides that limited benefits must either: 
(1) Be provided under a separate policy, certificate, or contract of 
insurance; or (2) otherwise not be an integral part of the plan.
    Section 2718 of the PHS Act, as added by the PPACA, generally 
requires health insurance issuers to submit an annual MLR report to 
HHS, and provide rebates to enrollees if the issuers do not achieve 
specified MLR thresholds.
    Section 5000A of the Code, as added by section 1501(b) of the PPACA 
requires individuals to have minimum essential coverage (MEC) for each 
month, qualify for an exemption, or make an individual shared 
responsibility payment. Under the Tax Cuts and Jobs Act, which was 
enacted on December 22, 2017, the individual shared responsibility 
payment is reduced to $0, effective for months beginning after December 
31, 2018.\5\ Notwithstanding that reduction, certain exemptions are 
still relevant to determine whether individuals age 30 and above 
qualify to enroll in catastrophic coverage under Sec.  155.305(h).
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    \5\ Public Law 115-97, 131 Stat. 2054 (2017).
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1. Premium Stabilization Programs \6\
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    \6\ The term ``premium stabilization programs'' refers to the 
risk adjustment, risk corridors, and reinsurance programs 
established by the PPACA. See 42 U.S.C. 18061, 18062, and 18063.
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    In the July 15, 2011 Federal Register (76 FR 41929), we published a 
proposed rule outlining the framework for the premium stabilization 
programs. We implemented the premium stabilization programs in a final 
rule, published in the March 23, 2012 Federal Register (77 FR 17219) 
(Premium Stabilization Rule). In the December 7, 2012 Federal Register 
(77 FR 73117), we published a proposed rule outlining the benefit and 
payment parameters for the 2014 benefit year to expand the provisions 
related to the premium stabilization programs and set forth payment 
parameters in those programs (proposed 2014 Payment Notice). We 
published the 2014 Payment Notice final rule in the March 11, 2013 
Federal Register (78 FR 15409). In the June 19, 2013 Federal Register 
(78 FR 37032), we proposed a modification to the HHS-operated 
methodology related to community rating states. In the October 30, 2013 
Federal Register (78 FR 65046), we finalized the proposed modification 
to the HHS-operated methodology related to community rating states. We 
published a correcting amendment to the 2014 Payment Notice final rule 
in the November 6, 2013 Federal Register (78 FR 66653) to address how 
an enrollee's age for the risk score calculation would be determined 
under the HHS-operated risk adjustment methodology.
    In the December 2, 2013 Federal Register (78 FR 72321), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2015 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment

[[Page 29168]]

parameters in those programs (proposed 2015 Payment Notice). We 
published the 2015 Payment Notice final rule in the March 11, 2014 
Federal Register (79 FR 13743). In the May 27, 2014 Federal Register 
(79 FR 30240), the FY 2015 sequestration rate for the risk adjustment 
program was announced.
    In the November 26, 2014 Federal Register (79 FR 70673), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2016 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2016 Payment Notice). We published the 2016 Payment Notice 
final rule in the February 27, 2015 Federal Register (80 FR 10749).
    In the December 2, 2015 Federal Register (80 FR 75487), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2017 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2017 Payment Notice). We published the 2017 Payment Notice 
final rule in the March 8, 2016 Federal Register (81 FR 12203).
    In the September 6, 2016 Federal Register (81 FR 61455), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2018 benefit year and to further promote stable premiums in the 
individual and small group markets. We proposed updates to the risk 
adjustment methodology, new policies around the use of external data 
for recalibration of our risk adjustment models, and amendments to the 
RADV process (proposed 2018 Payment Notice). We published the 2018 
Payment Notice final rule in the December 22, 2016 Federal Register (81 
FR 94058).
    In the November 2, 2017 Federal Register (82 FR 51042), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2019 benefit year, and to further promote stable premiums in 
the individual and small group markets. We proposed updates to the risk 
adjustment methodology and amendments to the RADV process (proposed 
2019 Payment Notice). We published the 2019 Payment Notice final rule 
in the April 17, 2018 Federal Register (83 FR 16930). We published a 
correction to the 2019 risk adjustment coefficients in the 2019 Payment 
Notice final rule in the May 11, 2018 Federal Register (83 FR 21925). 
On July 27, 2018, consistent with 45 CFR 153.320(b)(1)(i), we updated 
the 2019 benefit year final risk adjustment model coefficients to 
reflect an additional recalibration related to an update to the 2016 
enrollee-level External Data Gathering Environment (EDGE) dataset.\7\
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    \7\ ``Updated 2019 Benefit Year Final HHS Risk Adjustment Model 
Coefficients.'' July 27, 2018. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2019-Updtd-Final-HHS-RA-Model-Coefficients.pdf.
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    In the July 30, 2018 Federal Register (83 FR 36456), we published a 
final rule that adopted the 2017 benefit year risk adjustment 
methodology as established in the final rules published in the March 
23, 2012 (77 FR 17220 through 17252) and in the March 8, 2016 editions 
of the Federal Register (81 FR 12204 through 12352). This final rule 
set forth additional explanation of the rationale supporting use of 
statewide average premium in the HHS-operated risk adjustment state 
payment transfer formula for the 2017 benefit year, including the 
reasons why the program is operated in a budget-neutral manner. This 
final rule permitted HHS to resume 2017 benefit year risk adjustment 
payments and charges. HHS also provided guidance as to the operation of 
the HHS-operated risk adjustment program for the 2017 benefit year in 
light of publication of this final rule.\8\
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    \8\ ``Update on the HHS-operated Risk Adjustment Program for the 
2017 Benefit Year.'' July 27, 2018. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2017-RA-Final-Rule-Resumption-RAOps.pdf.
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    In the August 10, 2018 Federal Register (83 FR 39644), we published 
a proposed rule seeking comment on adopting the 2018 benefit year risk 
adjustment methodology in the final rules published in the March 23, 
2012 (77 FR 17219) and in the December 22, 2016 editions of the Federal 
Register (81 FR 94058). The proposed rule set forth additional 
explanation of the rationale supporting use of statewide average 
premium in the HHS-operated risk adjustment state payment transfer 
formula for the 2018 benefit year, including the reasons why the 
program is operated in a budget-neutral manner. In the December 10, 
2018 Federal Register (83 FR 63419), we issued a final rule adopting 
the 2018 benefit year HHS-operated risk adjustment methodology as 
established in the final rules published in the March 23, 2012 (77 FR 
17219) and the December 22, 2016 (81 FR 94058) editions of the Federal 
Register. This final rule sets forth additional explanation of the 
rationale supporting use of statewide average premium in the HHS-
operated risk adjustment state payment transfer formula for the 2018 
benefit year, including the reasons why the program is operated in a 
budget-neutral manner.
    In the January 24, 2019 Federal Register (84 FR 227), we published 
a proposed rule outlining updates to the calibration of the risk 
adjustment methodology, the use of EDGE data for research purposes, and 
updates to RADV audits. We published the 2020 Payment Notice final rule 
in the April 25, 2019, Federal Register (84 FR 17454).
    On December 6, 2019, we published the HHS Risk Adjustment Data 
Validation (HHS-RADV) White Paper (2019 RADV White Paper).\9\
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    \9\ The 2019 RADV White Paper is available at https://www.cms.gov/files/document/2019-hhs-risk-adjustment-data-validation-hhs-radv-white-paper.
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2. Program Integrity
    In the June 19, 2013 Federal Register (78 FR 37031), we published a 
proposed rule that proposed certain program integrity standards related 
to Exchanges and the premium stabilization programs (proposed Program 
Integrity Rule). The provisions of that proposed rule were finalized in 
two rules, the ``first Program Integrity Rule'' published in the August 
30, 2013 Federal Register (78 FR 54069) and the ``second Program 
Integrity Rule'' published in the October 30, 2013 Federal Register (78 
FR 65045). In the November 9, 2018 Federal Register (83 FR 56015), we 
published a proposed rule that proposed to amend standards relating to 
oversight of Exchanges established by states, periodic data matching 
frequency and authority, the length of a consumer's authorization for 
the Exchange to obtain updated tax information, and requirements for 
certain issuers related to the collection of a separate payment for the 
premium portion attributable to coverage for certain abortion services. 
Many of the provisions in the proposed rule were finalized (2019 
Program Integrity rule) in the December 27, 2019 Federal Register (84 
FR 71674).
3. Market Rules
    An interim final rule relating to the HIPAA health insurance 
reforms was published in the April 8, 1997 Federal Register (62 FR 
16894). A proposed rule relating to the 2014 health insurance market 
rules was published in the November 26, 2012 Federal Register (77 FR 
70584). A final rule implementing the health insurance market rules was 
published in the February 27, 2013 Federal Register (78 FR 13406) (2014 
Market Rules).
    A proposed rule relating to Exchanges and Insurance Market 
Standards for 2015 and beyond was published in the

[[Page 29169]]

March 21, 2014 Federal Register (79 FR 15808) (2015 Market Standards 
Proposed Rule). A final rule implementing the Exchange and Insurance 
Market Standards for 2015 and Beyond was published in the May 27, 2014 
Federal Register (79 FR 30240) (2015 Market Standards Rule). The 2018 
Payment Notice final rule in the December 22, 2016 Federal Register (81 
FR 94058) provided additional guidance on guaranteed availability and 
guaranteed renewability. In the Market Stabilization final rule that 
was published in the April 18, 2017 Federal Register (82 FR 18346), we 
released further guidance related to guaranteed availability.
4. Exchanges
    We published a request for comment relating to Exchanges in the 
August 3, 2010 Federal Register (75 FR 45584). We issued initial 
guidance to states on Exchanges on November 18, 2010. We proposed a 
rule in the July 15, 2011 Federal Register (76 FR 41865) to implement 
components of the Exchanges, and a rule in the August 17, 2011 Federal 
Register (76 FR 51201) regarding Exchange functions in the individual 
market and Small Business Health Options Program (SHOP), eligibility 
determinations, and Exchange standards for employers. A final rule 
implementing components of the Exchanges and setting forth standards 
for eligibility for Exchanges was published in the March 27, 2012 
Federal Register (77 FR 18309) (Exchange Establishment Rule).
    In the 2014 Payment Notice and in the Amendments to the HHS Notice 
of Benefit and Payment Parameters for 2014 interim final rule, 
published in the March 11, 2013 Federal Register (78 FR 15541), we set 
forth standards related to Exchange user fees. We established an 
adjustment to the FFE user fee in the Coverage of Certain Preventive 
Services under the Affordable Care Act final rule, published in the 
July 2, 2013 Federal Register (78 FR 39869) (Preventive Services Rule).
    In an interim final rule, published in the May 11, 2016 Federal 
Register (81 FR 29146), we made amendments to the parameters of certain 
special enrollment periods (2016 Interim Final Rule). We finalized 
these in the 2018 Payment Notice final rule, published in the December 
22, 2016 Federal Register (81 FR 94058). In the April 18, 2017 Market 
Stabilization final rule Federal Register (82 FR 18346), we amended 
standards relating to special enrollment periods and QHP certification. 
In the 2019 Payment Notice final rule, published in the April 17, 2018 
Federal Register (83 FR 16930), we modified parameters around certain 
special enrollment periods. In the April 25, 2019 Federal Register (84 
FR 17454), the final 2020 Payment Notice established a new special 
enrollment period.
5. Essential Health Benefits
    On December 16, 2011, HHS released a bulletin \10\ that outlined an 
intended regulatory approach for defining EHB, including a benchmark-
based framework. A proposed rule relating to EHBs was published in the 
November 26, 2012 Federal Register (77 FR 70643). We established 
requirements relating to EHBs in the Standards Related to Essential 
Health Benefits, Actuarial Value, and Accreditation Final Rule, which 
was published in the February 25, 2013 Federal Register (78 FR 12833) 
(EHB Rule). In the 2019 Payment Notice, published in the April 17, 2018 
Federal Register (83 FR 16930), we added Sec.  156.111 to provide 
states with additional options from which to select an EHB-benchmark 
plan for plan years 2020 and beyond.
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    \10\ ``Essential Health Benefits Bulletin.'' December 16, 2011. 
Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
---------------------------------------------------------------------------

6. Cost-Sharing Requirements
    In the 2020 Payment Notice, published in the April 25, 2019 Federal 
Register (84 FR 17454), we added Sec.  156.130(h)(1) to clarify that 
issuers are not required to count toward the annual limitation on cost 
sharing any forms of direct support offered by drug manufacturers to 
reduce out-of-pocket costs for brand drugs when a generic drug is 
available and medically appropriate.
7. Excepted Benefit Health Reimbursement Arrangements
    In the October 29, 2018 Federal Register (83 FR 54420), the 
Departments of Health and Human Services, Labor, and the Treasury (the 
Departments) published proposed regulations on HRAs and other account-
based group health plans, including a new excepted benefit referred to 
as an excepted benefit HRA. In the June 20, 2019 Federal Register (84 
FR 28888), the Departments published final regulations on HRAs and 
other account-based group health plans, including excepted benefit HRAs 
(the HRA rule).
8. Medical Loss Ratio (MLR)
    We published a request for comment on section 2718 of the PHS Act 
in the April 14, 2010 Federal Register (75 FR 19297), and published an 
interim final rule with a 60-day comment period relating to the MLR 
program in the December 1, 2010 Federal Register (75 FR 74863). A final 
rule with a 30-day comment period was published in the December 7, 2011 
Federal Register (76 FR 76573). An interim final rule with a 60-day 
comment period was published in the December 7, 2011 Federal Register 
(76 FR 76595). A final rule was published in the Federal Register on 
May 16, 2012 (77 FR 28790). The MLR program requirements were amended 
in final rules published in the March 11, 2014 Federal Register (79 FR 
13743), the May 27, 2014 Federal Register (79 FR 30339), the February 
27, 2015 Federal Register (80 FR 10749), the March 8, 2016 Federal 
Register (81 FR 12203), the December 22, 2016 Federal Register (81 FR 
94183), and the April 17, 2018 Federal Register (83 FR 16930).
9. Early Retiree Reinsurance Program (ERRP)
    In the May 5, 2010 Federal Register (75 FR 24450), we published an 
interim final rule with comment period governing the ERRP. In the April 
5, 2011 Federal Register (76 FR 18766), we published a notice informing 
the public that as of May 5, 2011, the ERRP would stop accepting 
applications for new participants in the program due to the 
availability of funds. In the December 13, 2011 Federal Register (76 FR 
77537), we published a notice informing the public that, due to the 
availability of funds, the ERRP would deny reimbursement requests that 
include claims incurred after December 31, 2011. In the March 21, 2012 
Federal Register (77 FR 16551), we published a notice establishing a 
timeframe within which plan sponsors participating in the program were 
expected to use ERRP reimbursement funds. Specifically, the notice 
informed participating plan sponsors that reimbursement funds should be 
used as early as possible, but not later than January 1, 2014.
10. Quality Rating System (QRS) and Enrollee Satisfaction Survey
    Sections 1311(c)(3) of the PPACA directs the Secretary of HHS to 
develop a quality rating for each QHP offered through an Exchange, 
based on relative quality and price. Further, section 1311(c)(4) of the 
PPACA requires the Secretary to establish an enrollee satisfaction 
survey that evaluates the level of enrollee satisfaction of members 
with QHPs offered through the Exchanges for each QHP with more than 500 
enrollees in the prior year. Exchanges are also required to make 
quality rating and enrollee satisfaction information available to 
individuals and

[[Page 29170]]

employers on their respective websites. Consistent with these statutory 
provisions, in May 2014, HHS issued regulation at Sec. Sec.  155.1400 
and 155.1405 to establish the Quality Rating System (QRS) and the QHP 
Enrollee Experience Survey display requirements for Exchanges and has 
worked towards requiring nationwide the prominent display of quality 
rating information on Exchange websites.\11\ As a condition of 
certification and participation in the Exchanges, HHS requires that QHP 
issuers submit QRS clinical measure data and QHP Enrollee Survey 
response data for their respective QHPs offered through an Exchange in 
accordance with HHS guidance, which has been issued annually for each 
forthcoming plan year.\12\
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    \11\ Patient Protection and Affordable Care Act; Exchange and 
Insurance Market Standards for 2015 and Beyond, Final Rule, 79 FR 
30240 at 30352 (May 27, 2014). Also see the CMS Bulletin on display 
of Quality Rating System (QRS) quality ratings and Qualified Health 
Plan (QHP) Enrollee Survey results for QHPs offered through 
Exchanges (August 15, 2019), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/QualityRatingInformationBulletinforPlanYear2020.pdf.
    \12\ See, for example, Center for Clinical Standards & Quality, 
CMS, The Quality Rating System and Qualified Health Plan Enrollee 
Experience Survey: Technical Guidance for 2020 (October 2019), 
available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/QRS-and-QHP-Enrollee-Survey-Technical-Guidance-for-2020-508.pdf.
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B. Stakeholder Consultation and Input

    HHS has consulted with stakeholders on policies related to the 
operation of Exchanges and the risk adjustment and RADV programs. We 
have held a number of listening sessions with consumers, providers, 
issuers, employers, health plans, advocacy groups and the actuarial 
community to gather public input. We have solicited input from state 
representatives on numerous topics, particularly EHBs, state mandates 
and risk adjustment. We consulted with stakeholders through regular 
meetings with the National Association of Insurance Commissioners 
(NAIC), regular contact with states through the Exchange Establishment 
grant and Exchange Blueprint approval processes, and meetings with 
Tribal leaders and representatives, health insurance issuers, trade 
groups, consumer advocates, employers, and other interested parties. We 
considered all public input we received as we developed the policies in 
this final rule.

C. Structure of Final Rule

    The regulations outlined in this final rule are codified in 45 CFR 
parts 146, 149, 153, 155, 156 and 158.
    The changes to 45 CFR part 146 establish a notice requirement for 
non-Federal governmental plan sponsors that offer an excepted benefit 
HRA.
    The changes to 45 CFR part 149 will delete the regulations related 
to the ERRP, which ended on January 1, 2014.
    The provisions related to 45 CFR part 153 relate to recalibration 
of the risk adjustment models consistent with the approach outlined in 
the 2020 Payment Notice to transition away from the use of 
MarketScan[supreg] data and incorporate the most recent benefit years 
of enrollee-level EDGE data that are available for 2021 and beyond, as 
well as the ICD-10 HHS-HCC reclassification updates. The updates to the 
risk adjustment program also relate to the risk adjustment user fee for 
the 2020 benefit year, and modifications to RADV requirements for the 
states where HHS operates the risk adjustment program.
    We are finalizing an amendment to the definitions applicable to 45 
CFR part 155. We discuss future changes to part 155 that would allow 
Exchanges to implement a verification process for enrollment in or 
eligibility for an eligible employer-sponsored plan based on the 
Exchange's assessment of risk for inappropriate payments of APTC/CSR. 
We also clarify that an Exchange will not redetermine eligibility for 
APTC/CSRs for enrollees found to be dually enrolled in Medicare and QHP 
coverage who direct the Exchange to end their QHP coverage; clarify 
that when an Exchange identifies deceased enrollees via PDM, the 
Exchange will terminate coverage retroactively to the date of death; 
allow enrollees and their dependents eligible for a special enrollment 
period due to becoming newly ineligible for CSRs and are enrolled in a 
silver-level QHP, to change to a QHP one metal level higher or lower if 
they elect to change their QHP enrollment through an Exchange; 
establish that an Exchange must apply plan category limitations to 
currently enrolled dependents whose non-dependent household member 
qualifies for a special enrollment period to newly enroll the non-
dependent household member in Exchange coverage; provide that in the 
FFE, special enrollment periods currently following regular effective 
date rules would instead be effective on the first of the month 
following plan selection; align retroactive effective date and binder 
payment rules; establish that qualified individuals and dependents who 
are provided a QSEHRA with a non-calendar year plan year would qualify 
for the existing special enrollment period for individuals enrolled in 
any non-calendar year group health plan or individual health insurance 
coverage; and allow enrollees blocked from termination due to an 
Exchange technical error to terminate their coverage retroactive to the 
date they attempted the termination.
    As we do every year in the HHS notice of benefit and payment 
parameters, we are updating the required contribution percentage, the 
maximum annual limitation on cost sharing, and the reduced maximum 
annual limitation on cost sharing based on the premium adjustment 
percentage. We are maintaining the FFE and SBE-FP user fees at the 
current 2020 plan year rates, 3.0 and 2.5 percent of total monthly 
premiums, respectively, to preserve and ensure that the FFE has 
sufficient funding to cover the cost of all special benefits provided 
to FFE and SBE-FP QHP issuers during the 2021 plan year. Further, we 
are finalizing a change to 45 CFR part 156 to require QHP issuers to 
send to enrollees a termination notice for all termination events. We 
also are amending the regulation addressing state selection of EHB-
benchmark plans to require the reporting of state-required benefits. We 
also offer QHP issuers the option to design value-based insurance plans 
that would empower consumers to receive high value services at lower 
cost. We are revising Sec.  156.130(h) in its entirety to address how 
any direct support offered by drug manufacturers to enrollees for 
specific prescription drugs may be treated with regard to accrual 
towards the annual limitation on cost sharing.
    The changes to 45 CFR part 158 require issuers, for MLR purposes, 
to report expenses for functions outsourced to or services provided by 
other entities consistently with issuers' non-outsourced expenses, and 
to deduct from incurred claims prescription drug rebates and other 
price concessions received and retained by the issuer and other 
entities providing pharmacy benefit management services to the issuers. 
The changes to the MLR regulations would also explicitly allow issuers 
to report certain wellness incentives as QIA in the individual market.

III. Provisions of the Final Regulations and Analysis and Responses to 
Public Comments

    In the February 6, 2020 Federal Register (85 FR 7088), we published 
the ``Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2021; Notice Requirement for Non-Federal 
Governmental Plans'' proposed rule (proposed 2021 Payment Notice or 
proposed rule). We received 1,082

[[Page 29171]]

comments. Comments were received from state entities, such as 
departments of insurance and state Exchanges; health insurance issuers; 
providers and provider groups; consumer groups; industry groups; 
national interest groups; and other stakeholders. The comments ranged 
from general support of or opposition to the proposed provisions to 
specific questions or comments regarding proposed changes. We received 
a number of comments and suggestions that were outside the scope of the 
proposed rule that are not addressed in this final rule.
    In this final rule, we provide a summary of proposed provisions, a 
summary of the public comments received that directly related to those 
proposals, our responses to these comments, and a description of the 
provisions we are finalizing.
    We first address comments regarding the publication of the proposed 
rule and the comment period.
    Comment: Multiple commenters criticized the length of the comment 
period, stating that a longer comment period is necessary to allow 
stakeholders to review the proposed rule and provide thoughtful 
comments.
    Response: The timeline for publication of this final rule 
accommodates issuer filing deadlines for the 2021 plan year. A longer 
comment period would have delayed the publication of this final rule 
and created significant challenges for states, Exchanges, issuers, and 
other entities operating under strict deadlines related to approval of 
products.
    Comment: Multiple commenters criticized the timing of the release 
of the proposed rule, stating that publishing the proposal for this 
annual rule in February 2020 creates challenges for states, Exchanges, 
issuers, and other entities in implementing changes for plan year 2021.
    Response: We recognize the importance of a timely release of 
updates to our regulations, and make every effort to do so efficiently. 
After the comment period closed, we took steps to expedite the 
publication of this final rule. We will continue to support consumers 
and stakeholders in implementing the changes in this final rule in a 
timely fashion.

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

    We proposed to add a new paragraph (b)(3)(viii)(E) to Sec.  146.145 
to establish notice requirements for excepted benefit HRAs offered by 
non-Federal governmental plan sponsors. We are finalizing the notice 
requirements as proposed, except that we are modifying the 
applicability date so the new notice requirement applies to excepted 
benefit HRAs offered by non-Federal governmental plan sponsors for plan 
years beginning on or after 180 days following the effective date of 
the final rule.
    Excepted benefit HRAs are a new type of excepted benefit the 
Departments recently established in the HRA rule.\13\ As proposed, the 
new paragraph would require sponsors of non-Federal governmental plans 
that offer excepted benefit HRAs to provide a notice to eligible 
participants that contains specified information about the benefits 
available under the excepted benefit HRA.
---------------------------------------------------------------------------

    \13\ 84 FR 28888 (June 20, 2019).
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    In the preamble to the HRA rule, the Departments noted that 
longstanding notice requirements under Part 1 of ERISA already apply to 
private-sector, employment-based plans. The Departments explained that 
under those notice requirements, excepted benefit HRAs that are subject 
to ERISA generally should provide information on eligibility to receive 
benefits, annual or lifetime caps or other limits on benefits under the 
plan, and a description or summary of the benefits. Accordingly, the 
HRA rule included a cross-reference to existing ERISA notice provisions 
for excepted benefit HRAs that are subject to ERISA, to help ensure 
that sponsors of such excepted benefit HRAs are aware of their 
obligations under those provisions. However, the HRA rule did not 
finalize any notice requirements in addition to those ERISA already 
imposes on ERISA-covered plans. It also did not subject plans that are 
not subject to ERISA, such as excepted benefit HRAs sponsored by non-
Federal governmental employers, to similar notice requirements.
    We proposed to add new paragraph (b)(3)(viii)(E) to Sec.  146.145 
under which an excepted benefit HRA offered by a non-Federal 
governmental plan sponsor would be required to provide a notice that 
describes conditions pertaining to eligibility to receive benefits, 
annual or lifetime caps or other limits on benefits under the excepted 
benefit HRA, and a description or summary of the benefits available 
under the excepted benefit HRA. We explained that this is generally 
consistent with the content requirements of Department of Labor (DOL) 
summary plan description regulations that apply to excepted benefit 
HRAs that are subject to ERISA at 29 CFR 2520.102-3(j)(2) and (3), 
although the proposed excepted benefit HRA notice provided by a non-
Federal governmental plan sponsor would be required to be provided 
annually and would not necessarily have to include every data element 
specified in those DOL regulations. We also proposed that the notice 
must be provided in a manner reasonably calculated to ensure actual 
receipt by participants eligible for the excepted benefit HRA, such as 
by providing the notice in the same manner in which the plan sponsor 
provides other notices or plan documents to plan participants.
    Under existing DOL regulations at 29 CFR 2520.104b-2(a), ERISA-
covered plans, including ERISA-covered excepted benefit HRAs, generally 
are required to furnish a copy of the notice to each participant no 
later than 90 days after the employee becomes a participant in the 
plan. Given that ERISA-covered plans and non-Federal governmental plans 
often contract with the same service providers to administer their 
health plans, to increase efficiencies and minimize costs and 
confusion, we proposed that the notice provided by non-Federal 
governmental excepted benefit HRAs must be provided no later than 90 
days after the first day of the excepted benefit HRA plan year, or in 
the case of an employee who becomes a participant after the start of 
the plan year, no later than 90 days after the employee becomes a 
participant in the excepted benefit HRA.
    We further proposed that the notice requirement would be applicable 
to excepted benefit HRA plan years beginning on or after 30 days 
following the effective date of the final rule.
    We solicited comment on all aspects of the proposal, including 
whether to apply a different timing standard than the one proposed for 
the notices for non-Federal governmental excepted benefit HRAs, and any 
logistical, cost, and other challenges that would ensue from applying a 
different timing standard for the notice for such excepted benefit HRAs 
than for those regulated by ERISA. We also solicited comments on the 
proposed applicability date and on ways to mitigate the potential costs 
and burdens this notice requirement may impose on non-Federal 
governmental plan sponsors interested in offering excepted benefit 
HRAs. We also sought comment on whether sponsors of non-Federal 
governmental excepted benefit HRAs should be required to provide the 
notice annually after the initial notice, or whether, after providing 
the initial notice, they should only be required to provide the notice 
with respect to plan years for which the terms of the excepted benefit 
HRA change from the

[[Page 29172]]

previous plan year, and if so, what type or magnitude of change should 
trigger such a subsequent notice.
    We are finalizing the notice requirement as proposed, except for 
the applicability date, which we are extending based on comments 
received. This new notice requirement applies to excepted benefit HRAs 
offered by non-Federal governmental plan sponsors for plan years 
beginning on or after 180 days following the effective date of the 
final rule.
    Comment: We received a relatively small number of comments 
regarding this proposal. Several commenters generally supported a 
notice requirement on excepted benefit HRAs sponsored by non-Federal 
governmental employers, without objecting to the proposed timing of the 
initial notice. Several commenters, while supporting the proposal 
generally, stated that contrary to the proposal, the notice should be 
provided before enrollment in the excepted benefit HRA, so consumers 
can make an informed decision about their coverage.
    Response: We understand that many non-Federal governmental sponsors 
of excepted benefit HRAs may use the same third-party administrators as 
used by sponsors of excepted benefit HRAs that are subject to ERISA's 
timing requirements for excepted benefit HRA notices. In such cases, 
for administrative efficiency, non-Federal governmental sponsors of 
excepted benefit HRAs may prefer to send the notices to participants 
following their enrollment, within 90 days after they enroll in the 
excepted benefit HRA. Therefore, we are finalizing the notice timing 
standard as proposed. Furthermore, we agree that receiving the notices 
before enrollment may be useful for employees. Thus, we clarify that 
the timing standard in Sec.  146.145(b)(3)(viii)(E) does not prohibit 
non-Federal governmental sponsors of excepted benefit HRAs from 
delivering the notice prior to enrollment. For example, a non-Federal 
governmental sponsor of an excepted benefit HRA may provide the notice 
on the 30th day before the start of the plan year and satisfy its 
obligation to provide the notice no later than 90 days after an 
employee becomes a participant. In this example, for employees who are 
not eligible for the excepted benefit HRA on the date the notice is 
otherwise provided, the notice must be provided no later than 90 days 
after the employee becomes a participant. We are not finalizing a limit 
on how early a non-Federal governmental plan sponsor may send the 
notice, but we encourage sponsors that opt to send the notice before 
the start of the excepted benefit HRA plan year to send the notice in a 
timeframe that is reasonably calculated to ensure employees receive the 
notice at a time that would enable them to make an informed decision 
about their coverage.
    Comment: One commenter supported the proposal that non-Federal 
governmental sponsors of excepted benefit HRAs be required to provide 
the notice annually. Another commenter recommended that a subsequent 
notice should be required only when there is a material change to the 
excepted benefit HRA from the previous plan year because without a 
material change, the subsequent notice would be unnecessary and unduly 
burdensome. Another commenter suggested that rather than require an 
annual notice, the regulations should track current ERISA requirements 
regarding subsequent notices, notices of material modifications of 
coverage, and notices of material reductions in covered services.
    Response: We believe that an annual notice will benefit employees 
by ensuring that employees stay informed of their coverage options and 
helping employees understand how to utilize their excepted benefit HRA. 
Although we recognize that an annual notice may be somewhat more 
burdensome than if the notice were only required in certain 
circumstances in subsequent plan years, we do not believe the annual 
requirement will pose a significant burden on non-Federal governmental 
plan sponsors that would outweigh the benefit to employees. Further, to 
the extent there are no changes in the plan design, the burdens 
associated with development of the notice would be minimized for 
subsequent plan years. Therefore, we finalize the requirement that the 
notice be provided annually, as proposed.
    Comment: One commenter stated that the notice requirement should be 
applicable for excepted benefit HRA plan years beginning on or after 1 
year from the effective date of the final rule. The commenter asserted 
that understanding the scope of the notice requirements, identifying 
affected participants, developing the notice language, and delivering 
the notice would take more than 30 days.
    Response: We do not agree that these tasks identified by the 
commenter are so complex as to justify delaying the proposed 
applicability date for 11 months. However, after considering comments 
received, in order to provide additional flexibility and time for non-
Federal governmental plan sponsors to develop and send the notice, we 
are finalizing a later applicability date. As finalized, the notice 
provision is applicable to excepted benefit HRAs offered by non-Federal 
governmental plan sponsors for plan years beginning on or after 180 
days following the effective date of this final rule.

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

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

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

1. Sequestration
    In accordance with the OMB Report to Congress on the Joint 
Committee Reductions for Fiscal Year 2020,\14\ both the transitional 
reinsurance program and the permanent risk adjustment program are 
subject to the fiscal year

[[Page 29173]]

(FY) 2020 sequestration. The Federal Government's 2020 fiscal year 
began October 1, 2019. While the 2016 benefit year was the final year 
of the transitional reinsurance program, there could be reinsurance 
payments in FY 2020 for close-out activities. Therefore, the risk 
adjustment and reinsurance programs will be sequestered at a rate of 
5.9 percent for payments made from FY 2020 resources (that is, funds 
collected during FY 2020).
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    \14\ Available at https://www.whitehouse.gov/wp-content/uploads/2019/03/2020_JC_Sequestration_Report_3-18-19.pdf.
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    HHS, in coordination with OMB, has determined that under section 
256(k)(6) of the Balanced Budget and Emergency Deficit Control Act of 
1985 (Pub. L. 99-177, enacted December 12, 1985), as amended, and the 
underlying authority for the reinsurance and risk adjustment program, 
the funds that are sequestered in FY 2020 from the risk adjustment or 
reinsurance programs will become available for payment to issuers in FY 
2021 without further Congressional action.
    Additionally, in accordance with the OMB Report to Congress on the 
Joint Committee Reductions for Fiscal Year 2021,\15\ the permanent risk 
adjustment program is subject to the FY 2021 sequestration. The Federal 
Government's 2021 fiscal year will begin October 1, 2020. Therefore, 
the risk adjustment program will be sequestered at a rate of 5.7 
percent for payments made from FY 2021 resources (that is, funds 
collected during FY 2021).
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    \15\ Available at https://www.whitehouse.gov/wp-content/uploads/2020/02/JC-sequestration_report_FY21_2-10-20.pdf.
---------------------------------------------------------------------------

    HHS, in coordination with OMB, has determined that, under section 
256(k)(6) of the Balanced Budget and Emergency Deficit Control Act of 
1985 (Pub. L. 99-177, enacted December 12, 1985), as amended, and the 
underlying authority for the risk adjustment program, the funds that 
are sequestered in FY 2021 from the risk adjustment program will become 
available for payment to issuers in FY 2022 without further 
Congressional action. If Congress does not enact deficit reduction 
provisions that replace the Joint Committee reductions, the program 
would be sequestered in future fiscal years, and any sequestered 
funding would become available in the fiscal year following that in 
which it was sequestered.
2. Provisions and Parameters for the Risk Adjustment Program
    In subparts A, B, D, G, and H of part 153, we established standards 
for the administration of the risk adjustment program. The risk 
adjustment program is a permanent program created by section 1343 of 
the PPACA that transfers funds from lower-than-average risk, risk 
adjustment covered plans to higher-than-average risk, risk adjustment 
covered plans in the individual and small group markets (including 
merged markets), inside and outside the Exchanges. In accordance with 
Sec.  153.310(a), a state that is approved or conditionally approved by 
the Secretary to operate an Exchange may establish a risk adjustment 
program, or have HHS do so on its behalf. HHS did not receive any 
requests from states to operate risk adjustment for the 2021 benefit 
year. Therefore, HHS will operate risk adjustment in every state and 
the District of Columbia for the 2021 benefit year.
    Among other things, we proposed changes to recalibrate the risk 
adjustment models consistent with the methodology we finalized for the 
2020 benefit year. For the 2021 benefit year, we proposed to 
incorporate the 3 most recent benefit years of enrollee-level EDGE data 
that are available, and to rely only on enrollee-level EDGE data for 
2021 and beyond for purposes of recalibrating the HHS risk adjustment 
models. We also proposed the risk adjustment user fee for the 2021 
benefit year, and modifications to certain RADV requirements.
a. HHS Risk Adjustment (Sec.  153.320)
    The HHS risk adjustment models predict plan liability for an 
average enrollee based on age, sex, and diagnoses (grouped into 
hierarchical condition categories (HCCs)), producing a risk score. The 
current structure of these models is described in the 2020 Payment 
Notice.\16\ The HHS risk adjustment methodology utilizes separate 
models for adults, children, and infants to account for cost 
differences in each age group. In the adult and child models, the 
relative risk assigned to an individual's age, sex, and diagnoses are 
added together to produce an individual risk score. Additionally, to 
calculate enrollee risk scores in the adult models, we added enrollment 
duration factors beginning with the 2017 benefit year, and prescription 
drug categories (RXCs) beginning with the 2018 benefit year. Infant 
risk scores are determined by inclusion in one of 25 mutually exclusive 
groups, based on the infant's maturity and the severity of diagnoses. 
If applicable, the risk score for adults, children, or infants is 
multiplied by a CSR adjustment that accounts for differences in induced 
demand at various levels of cost sharing.
---------------------------------------------------------------------------

    \16\ See 84 FR 17454 at 17463.
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    The enrollment-weighted average risk score of all enrollees in a 
particular risk adjustment covered plan (also referred to as the plan 
liability risk score) within a geographic rating area is one of the 
inputs into the risk adjustment state payment transfer formula, which 
determines the payment or charge that an issuer will receive or be 
required to pay for that plan for the applicable state market risk 
pool. Thus, the HHS risk adjustment models predict average group costs 
to account for risk across plans, in keeping with the Actuarial 
Standards Board's Actuarial Standards of Practice for risk 
classification.
(1) Updates to Data Used for Risk Adjustment Model Recalibration
    We proposed to discontinue our reliance on MarketScan[supreg] data 
to recalibrate the risk adjustment models. Previously, we used the 3 
most recent years of MarketScan[supreg] data available to recalibrate 
the 2016, 2017, and 2018 benefit year risk adjustment models. For the 
2019 benefit year, we recalibrated the models using 2 years of 
MarketScan[supreg] data (2014 and 2015) with 2016 enrollee-level EDGE 
data. The 2019 benefit year was the first recalibration year that 
enrollee-level EDGE data was used for this purpose. In keeping with our 
previously-stated intention to transition away from the 
MarketScan[supreg] commercial database, we further reduced our use of 
MarketScan[supreg] data in 2020 benefit year model recalibration by 
using only 1 year of MarketScan[supreg] data (2015), and the 2 most 
recent years of available enrollee-level EDGE data (2016 and 2017). 
During all prior recalibrations, we implemented an approach that used 
blended, or averaged, coefficients from 3 years of separately solved 
models to provide stability for the risk adjustment coefficients year-
to-year, while reflecting the most recent years' claims experience 
available.
    Consistent with the policy announced in the 2020 Payment 
Notice,\17\ we proposed to no longer incorporate MarketScan[supreg] 
data in the recalibration process beginning with the 2021 benefit year. 
Rather, we proposed for the 2021 benefit year and beyond to blend the 3 
most recent years of available enrollee-level EDGE data. Specifically, 
we proposed for the 2021 benefit year to blend the enrollee-level EDGE 
data from benefit years 2016, 2017, and 2018 to recalibrate the risk 
adjustment models. We also proposed to maintain the approach of using 
the 3 most recent years of available enrollee-level EDGE data for 
recalibration of the risk

[[Page 29174]]

adjustment models for future benefit years beyond 2021, unless changed 
through rulemaking. We sought comment on these proposals.
---------------------------------------------------------------------------

    \17\ 84 FR 17454 at 17464.
---------------------------------------------------------------------------

    After reviewing the public comments, we are finalizing our proposal 
to determine coefficients for the 2021 benefit year based on a blend of 
separately solved coefficients from the 2016, 2017, and 2018 benefit 
years' enrollee-level EDGE data. This approach will incorporate the 
most recent years' claims experience that is available while 
maintaining stability in risk scores, as the recalibration will 
maintain 2 years of EDGE data that were used in the previous years' 
models. It also will continue our efforts to recalibrate the risk 
adjustment models using data from issuers' individual and small group 
(including merged) market populations and complete the transition away 
from the MarketScan[supreg] commercial database that approximates 
individual and small group (including merged) market populations. 
Additionally, we are finalizing our proposal for future benefit years 
beyond 2021 to blend the 3 most recent years of available enrollee-
level EDGE data.
    Due to the timing of the proposed rule, we noted in the proposed 
rule that we were unable to incorporate the 2018 benefit year enrollee-
level EDGE data in the calculation of the proposed coefficients in that 
rule. Therefore, consistent with the proposed 2017 and 2019 payment 
notices, the draft coefficients in the proposed rule were based on the 
2 most recent years of data available at the time the proposed rule was 
drafted--the 2016 and 2017 benefit year enrollee-level EDGE data. 
Considering that 2 of the 3 years of enrollee-level EDGE data that we 
proposed to use to recalibrate the final 2021 risk adjustment models 
were reflected in the draft coefficients in the proposed rule, we 
explained that we believe that the draft coefficients listed in the 
proposed rule would provide a reasonably close approximation of what 
could be anticipated from blending the 2016, 2017, and 2018 benefit 
years' enrollee-level EDGE data. We noted in the proposed rule that if 
we finalize the proposed recalibration approach, but are unable to 
incorporate the 2018 benefit year EDGE data in time to publish the 
final coefficients in the final rule, we would publish the final 
coefficients for the 2021 benefit year in guidance after the 
publication of the final rule, consistent with our approach in previous 
benefit years.\18\ We were unable to incorporate the 2018 benefit year 
EDGE data in time to publish the final coefficients in this final rule. 
Therefore, consistent with Sec.  153.320(b)(1)(i), we will release the 
final coefficients in guidance by June 2020 to allow for the 
incorporation in final rates for the 2021 benefit year.
---------------------------------------------------------------------------

    \18\ For example, see the HHS Notice of Benefit and Payment 
Parameters for 2018 Final Rule (the 2018 Payment Notice), 81 FR 
94058 (December 22, 2016). Also see 45 CFR 153.320(b)(1)(i).
---------------------------------------------------------------------------

    We summarize and respond to public comments received on these 
proposals below.
    Comment: Most commenters supported the proposal to determine 
coefficients for the 2021 benefit year based on a blend of separately 
solved coefficients from the 2016, 2017, and 2018 benefit years' 
enrollee-level EDGE data. Most commenters also supported maintaining 
the approach of using the 3 most recent years of available enrollee-
level EDGE data for recalibration of the risk adjustment models for 
future benefit years beyond 2021.
    A few commenters expressed concern about when final blended 
coefficients for the risk adjustment models would be published. One 
commenter did not support HHS waiting until the release of the final 
payment notice to publish the final 2021 blended coefficients, and 
suggested HHS use coefficients developed from the 2 most recent years 
of available enrollee-level EDGE data, instead of the 3 most recent 
years, in order to provide two-year blended factors much earlier, 
perhaps even before the proposed rule. Another commenter also suggested 
HHS consider using only the 2 most recent years of data or, if using 3 
years, weighting the most recent year more heavily given the lag in the 
data relative to how quickly changes in medical practice and technology 
impact the cost of care. Other commenters pointed out that issuers need 
the information on proposed coefficients for modeling and pricing much 
earlier than the timing of the proposed payment notice, especially 
given that many states require rate filings as early as May of the 
prior year. Another commenter requested confirmation that HHS will 
continue to publish the proposed coefficients in the proposed rule.
    Response: We believe blending multiple years of data promotes 
stability and certainty for issuers in rate setting, helping to reduce 
year-to-year changes in risk scores and smooth significant differences 
in coefficients solved from any one year's dataset, particularly for 
conditions with small sample sizes. We also believe using the latest 
data available, especially with new drugs and technology coming to 
market, is the best approach to improve overall model accuracy.
    As we explained when finalizing the amendments to Sec.  
153.320(b)(1)(i), due to the fact that some data used to finalize 
coefficients may not be available until after publication of the 
applicable benefit year's final payment notice, we may not be able to 
provide finalized coefficients in the payment notice rulemaking.\19\ 
Instead, in these circumstances, we adopted an approach to release 
draft coefficients based on the 2 most recent years of data available, 
identify the datasets that would be used to calculate the final 
coefficients, and incorporate the additional, more recently available 
year's data in the final coefficients in subsequent guidance. This 
approach was followed in 2017 and 2019, and will also be followed for 
the 2021 benefit year.
---------------------------------------------------------------------------

    \19\ See 81 FR at 94084-94085.
---------------------------------------------------------------------------

    We anticipate publishing the final coefficients for the 2021 
benefit year by June 2020, which is prior to the deadline for final 
rate submissions,\20\ to provide issuers with an opportunity to update 
their rate submissions, if necessary. In determining which data years 
to use, we seek to balance stability in risk scores year-over-year with 
the desire to incorporate the most recent data available on enrollees' 
risk. As some commenters noted, incorporating the most recent available 
year's data allows the risk adjustment models to reflect any changes in 
medical practice and technology (including newer or cheaper 
treatments). Particularly given recent rapid changes in treatment 
costs, we continue to believe incorporating the most recent years of 
data available more accurately reflects enrollees' risk. Using three 
years of data allows stability in model factors from the two prior 
benefit years' recalibration. However, in response to comments, we 
intend to consider whether overweighing the factors solved from the 
most recent data year available is warranted for future benefit years, 
as well as assess using factors solved from only 2 years of enrollee-
level EDGE data available at the time of the proposed rule for future 
benefit years.
---------------------------------------------------------------------------

    \20\ See, for example, https://www.cms.gov/files/document/2020-final-rate-review-timeline-bulletin.pdf.
---------------------------------------------------------------------------

    We also recognize the comments about the impact of delaying 
publication of blended coefficients and the comments requesting the 
final coefficients be made available by the time of initial state rate 
filing submissions. We will continue to look for opportunities to 
update our processes to provide draft and final

[[Page 29175]]

recalibrated coefficients earlier, but we did not propose and are not 
making changes to the current schedule or approach for publication of 
the recalibrated coefficients at this time.
    Comment: Commenters agreed that exclusively using enrollee-level 
EDGE data to recalibrate the HHS risk adjustment models better reflects 
the risk in the individual and small group (including merged) markets. 
One commenter encouraged HHS to continuously monitor and analyze 
potential long-term impacts of using enrollee-level EDGE data. Another 
commenter asked HHS to provide additional information about its 
blending methodology, including whether HHS adjusts the coefficients 
for expected one-time price hikes that would occur in the benefit year 
and not the data experience year or vice versa (for example, patent 
protection on brand drugs, or drugs losing a patent).
    Response: We agree with commenters that exclusively using enrollee-
level EDGE data to recalibrate the risk adjustment models will more 
closely reflect the relative risk differences of individuals in the 
individual and small group (including merged) markets compared to 
MarketScan[supreg] data, which generally reflects the large group 
market and was used in past years before enrollee-level EDGE data was 
available to approximate the HHS risk adjustment covered population.
    As with every recalibration year, we continue to monitor the year-
to-year changes in risk scores related to the data used, and will 
continue to monitor the potential long-term impacts of exclusively 
using enrollee-level EDGE data. HHS trends expenditures in each year's 
data to the applicable benefit year. Beginning with the 2017 benefit 
year, we trended medical services, preventive services, traditional 
(including brand and generic) prescription drug and specialty 
prescription drug expenditures separately based on varying growth rates 
observed in data available, in consultation with actuaries and industry 
reports.\21\ Except for the Hepatitis C drug pricing adjustment, 
discussed below, we do not currently adjust the model coefficients for 
one-time price changes that could occur in the benefit year.
---------------------------------------------------------------------------

    \21\ For further details on trending, see the 2017 Payment 
Notice final rule (81 FR 12204 at 12218), and also the March 31, 
2016 HHS Risk Adjustment Models White Paper, available at https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf.
---------------------------------------------------------------------------

    To further explain our blending methodology, the coefficients are 
separately solved from each of the three years of data used in 
recalibration with applicable trend factors to account for anticipated 
cost changes between the data year and the applicable risk adjustment 
benefit year. The final blended coefficients for the applicable benefit 
year are created by averaging the separately solved coefficients across 
each of the three data years. The blending methodology is an average of 
three years' separately solved factors for each of the models, with 
each of the data years' factors equally weighted in the average as one-
third of the final blended coefficients.\22\
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    \22\ For further details on blending, see the 2016 Payment 
Notice (80 FR 10760), and also the March 31, 2016 HHS Risk 
Adjustment Models White Paper, available at https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf.
---------------------------------------------------------------------------

(2) Updates to Risk Adjustment Model Recalibration
i. Payment Hierarchical Condition Categories (HCCs)
    The HHS-HCC clinical classification is the foundation of the models 
used in calculating transfers under the state payment transfer formula 
in the HHS-operated risk adjustment program established under section 
1343 of the PPACA. Except for annual diagnosis code updates and the 
reconfiguration of one HCC,\23\ the HHS-HCC clinical classification in 
terms of diagnosis code mappings has not been modified since it was 
implemented in the 2014 benefit year.
---------------------------------------------------------------------------

    \23\ As detailed in the 2018 Payment Notice, beginning with the 
2018 benefit year, HCC 37 Chronic Hepatitis was split into two HCCs 
to distinguish the treatment costs of chronic hepatitis C: HCC 37_1 
Chronic Viral Hepatitis C and HCC 37_2 Chronic Hepatitis, Except 
Chronic Viral Hepatitis C. See 81 FR 94058 at 94085 (December 22, 
2016).
---------------------------------------------------------------------------

    In preparation for proposing the changes in the proposed rule, we 
released a paper on June 17, 2019 entitled ``Potential Updates to the 
HHS-HCCs for the HHS-operated Risk Adjustment Program'' (HHS-HCC 
Updates Paper).\24\ This paper described our methodology for reviewing 
and restructuring the HHS-HCC classification to incorporate ICD-10 
diagnosis codes, and our intention to evaluate potential changes to the 
HHS-HCC model classification using enrollee-level EDGE data, which is 
representative of the population for which the models are targeted. Our 
main goal for reclassifying HHS-HCCs is to use them to update the HHS-
HCC models to better incorporate coding changes made in the transition 
to the ICD-10 diagnosis classification system. We also used this 
opportunity to review and use the newly available 2016 and 2017 benefit 
years' enrollee-level EDGE claims data, which reflect the first 2 full 
years of ICD-10 diagnosis coding on claims. While this analysis did not 
consider updates to the RXCs,\25\ it examined other components of the 
clinical classification, including payment and non-payment HCCs, 
certain clinical hierarchies, HCC groups and a priori constraints on 
HCC coefficients, and other HCC interactions affected by potential 
changes.
---------------------------------------------------------------------------

    \24\ The Potential Updates to HHS-HCCs for the HHS-operated Risk 
Adjustment Program (June 17, 2019) paper is available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downoads/Potential-Updates-to-HHS-HCCs-HHS-operated-Risk-Adjustment-Program.pdf.
    \25\ RXCs were not implemented in the HHS-operated risk 
adjustment models until the 2018 benefit year and they currently 
only apply to the adult models.
---------------------------------------------------------------------------

    In the HHS-HCC Updates Paper, we explained our considerations for 
examining potential changes to HCCs and in determining which diagnosis 
codes should be included, how they should be grouped, and how the 
diagnostic groupings should interact for risk adjustment purposes, 
which is a critical step in the development of the HHS-HCC risk 
adjustment models. To guide the reclassification process, we used 10 
principles that were discussed in the proposed 2014 Payment Notice that 
guided the creation of the original HHS-HCC diagnostic classification 
system,\26\ and that were used to develop the HCC classification system 
for the Medicare risk adjustment model.\27\ These principles included:
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    \26\ See the HHS Notice of Benefit and Payment Parameters for 
2014, Proposed Rule, 77 FR 73118 at 73128 (December 7, 2012).
    \27\ Report to Congress: Risk Adjustment in Medicare Advantage 
(December 2018) also discusses these principles in Section 2.3 under 
``Principle for Risk Adjustment Models'' from pages 14-16 and is 
available at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/RTC-Dec2018.pdf.
---------------------------------------------------------------------------

     Principle 1--Diagnostic categories should be 
clinically meaningful.
     Principle 2--Diagnostic categories should 
predict medical (including drug) expenditures.
     Principle 3--Diagnostic categories that will 
affect payments should have adequate sample sizes to permit accurate 
and stable estimates of expenditures.
     Principle 4--In creating an individual's 
clinical profile, hierarchies should be used to characterize the 
person's illness level within each disease process, while the effects 
of unrelated disease processes accumulate.
     Principle 5--The diagnostic classification 
should encourage specific coding.

[[Page 29176]]

     Principle 6--The diagnostic classification 
should not reward coding proliferation.
     Principle 7--Providers should not be penalized 
for recording additional diagnoses (monotonicity).
     Principle 8--The classification system should be 
internally consistent (transitive).
     Principle 9--The diagnostic classification 
should assign all diagnosis codes (exhaustive classification).
     Principle 10--Discretionary diagnostic 
categories should be excluded from payment models.
    Using these principles, we conducted a multi-step analysis of the 
current HHS-HCC classification to develop the list of HCC changes that 
we proposed.
    We began by conducting a comprehensive review of the current HHS-
HCC full classification and risk adjustment model classification, 
including an examination of disease groups with extensive ICD-10 code 
classification changes, HCCs whose counts had changed considerably 
following ICD-10 implementation, clinical areas of interest (for 
example, substance use disorders), and model under-prediction or over-
prediction as identified by predictive ratios. We then examined HCC 
reconfigurations, payment HCC designation, HCC Groups, and hierarchies 
to develop the preliminary regression analyses using 2016 data.\28\ We 
also conducted a series of clinical reviews to inform potential 
changes. Next, we reviewed the payment model and full classification 
regressions to compare frequencies and predicted incremental costs of 
HCCs. Then, we repeated the preliminary regression analyses using 2017 
data, reviewed regression results, and developed the new potential HHS-
HCC reclassification.\29\
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    \28\ Payment HCCs are those included in the HHS-HCC risk 
adjustment models. The full classification includes both payment and 
non-payment HCCs. HCC Groups refers to payment HCCs that are grouped 
together in the HHS-HCC risk adjustment models.
    \29\ To further clarify, in the HHS-HCC Updates Paper, V05 
reflects the current classification model, V06 is the initial 
assessment of potential revisions to the classification model 
developed using the 2016 benefit year data, and V06a is the 
reassessment of potential revisions to the classification model that 
included 2017 benefit year data. In this rule, V06b is the revised 
HCC changes in the proposed rule and V07 is the revised 
classification model being finalized.
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    During our analysis, for some disease groups such as substance use 
disorders and pregnancy, we explored multiple model variations. For 
substance use disorders, we tested different configurations to add new 
drug use disorder HCCs and alcohol use disorder HCCs to the HHS-HCC 
risk adjustment models--a single hierarchy approach; two hierarchies 
(drug and alcohol HCCs being additive); interaction terms; and for each 
of these iterations, grouping HCCs or leaving them ungrouped. For 
pregnancy, we tested different configurations for adding ongoing 
pregnancy HCCs to the model, which already includes miscarriage HCCs 
and completed pregnancy HCCs. These configurations included a single 
hierarchy or separate additive HCCs to distinguish pregnancy care from 
delivery; interactions between completed and ongoing pregnancy HCCs to 
account for when in the episode of care complications occur; and 
removal of or changes to HCC groups to better reflect cost 
distinctions. In evaluating options for reclassification, we considered 
their predictive power, model complexity, and coding incentives.
    Based on this analysis, we proposed to incorporate the HCC changes 
identified in the HHS-HCC Updates Paper beginning with the 2021 benefit 
year risk adjustment models.\30\ As discussed in the proposed rule, the 
main purpose of the proposed HCC changes is to update the HCCs based on 
availability of more recent diagnosis code information and the 
availability of more recent claims data. To provide risk adjustment 
factors that best reflect more recent treatment patterns and costs, we 
proposed to update the HHS-HCC clinical classification in the V05 HHS-
HCC risk adjustment models by using more recent claims data to develop 
updated risk factors, as part of our continued assessment of 
modifications to the HHS-operated risk adjustment program for the 
individual, small group, and merged markets.
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    \30\ As explained in the proposed rule, we proposed one 
modification to the child models from the potential updates 
described in the HHS-HCC Updates Paper. We proposed and are 
finalizing below in this rule that the removal of a constraint for 
HCC 159 Cystic Fibrosis to allow it to have higher predicted costs 
than HCC 158 Lung Transplant Status/Complications.
---------------------------------------------------------------------------

    We proposed to apply all of the HHS-HCC changes at one time for the 
2021 benefit year and beyond to account for all of the ICD-10 coding 
changes. Additionally, to assist commenters in reviewing the code level 
changes, we provided a crosswalk of ICD-10 codes to the proposed HCCs 
under the ``Draft ICD-10 Crosswalk for Potential Updates to the HHS-HCC 
Risk Adjustment Model for the 2021 Benefit Year'', which is available 
at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/index.html.\31\ While we recognized that the number of HHS-HCC changes 
we proposed was significantly higher than in previous annual notices of 
benefit and payment parameters, we noted in the proposed rule that we 
do not expect to make significant HHS-HCC changes each year. We 
solicited comment on all of the proposed HHS-HCC updates. Following our 
review of public comments, we are finalizing our proposal to update the 
HHS-HCC classifications to incorporate ICD-10 diagnosis codes with 
slight modifications to specific payment HCCs as outlined further 
below, referred to as the Version 07 (``V07'') classification.
---------------------------------------------------------------------------

    \31\ The Draft ICD-10 Crosswalk for Potential Updates to the 
HHS-HCC Risk Adjustment Model for the 2021 Benefit Year reflects 
changes proposed in the 2021 Payment Notice proposed rule as 
referenced in this rule as ``V06b.'' This draft crosswalk included 
Table 3, which crosswalks ICD-10 codes to the Condition Categories 
(CCs) in the risk adjustment models, and Table 4, which provides the 
hierarchy rules to apply to the CCs to create HCCs. These Tables are 
similar to the Tables 3 and 4 that HHS includes as part of the HHS-
Developed Risk Adjustment Model Algorithm ``Do It Yourself (DIY)'' 
Software. We expect to replace the draft crosswalk with an updated 
crosswalk based on the V07 changes being finalized in this rule in 
the future, and will make it available on our website as well.
---------------------------------------------------------------------------

    Specifically, we carefully considered comments received regarding 
the HHS-HCC reclassifications and are finalizing certain modifications 
to our proposals in response. First, although we are finalizing our 
proposal to revise the current HCCs 81 (Drug Psychosis) and 82 (Drug 
Dependence) and add separate HCCs related to alcohol use (HCC 83 and 
84), we are not finalizing our proposal to create a fifth HCC, HCC 85 
(Drug Use Disorder, Mild, Uncomplicated, Except Cannabis), in the 
adult, child, or infant models. We agree with commenters that further 
review of HCC 85 is necessary, including within the context of RADV, 
prior to adding to that HCC.
    As also recommended by commenters, we are finalizing the grouping 
of the two drug use disorders (revised HCCs 81 and 82 together) and the 
two alcohol use disorders (HCC 83 and 84 together) in the adult models, 
consistent with the approach proposed for the child models.
    Because we proposed to update the hierarchy positions for mental 
health HCCs, we also proposed to switch the numbering for HCC 88 and 
HCC 89, while also renaming both HCCs. Commenters found the proposed 
number switches for these two HCCs in the child and adult models 
confusing; therefore, we are finalizing the proposed change in 
hierarchy position of these HCCs and the proposed renaming of both 
HCCs, but we are finalizing a modified numbering of these HCCs in V07 
from those proposed in V06b as

[[Page 29177]]

shown in Table 1. Specifically for V07, we are retaining the numbering, 
but renaming HCC 88 (Major Depressive Disorder, Severe, and Bipolar 
Disorders), renumbering and renaming proposed HCC 89 (Reactive and 
Unspecified Psychosis, Delusional Disorders) as HCC 87.2 (Delusional 
and Other Specified Psychotic Disorders, Unspecified Psychosis) because 
it would place HCC 87.2 above HCC 88 in the hierarchy. To accommodate 
this change, we are also renumbering Schizophrenia from HCC 87 to HCC 
87.1 to maintain its place in the hierarchy.

                                        Table 1--Modified V07 Numbering of These HCCs From Those Proposed in V06b
--------------------------------------------------------------------------------------------------------------------------------------------------------
              V05 HCC                     V05 HCC label             V06b HCC             V06b HCC label            V07 HCC             V07 HCC label
--------------------------------------------------------------------------------------------------------------------------------------------------------
87.................................  Schizophrenia.........  87....................  Schizophrenia........  87_1.................  Schizophrenia.
                                                             88....................  Delusional and Other   87_2.................  Delusional and Other
                                                                                      Specified Psychotic                           Specified Psychotic
                                                                                      Disorders,                                    Disorders,
                                                                                      Unspecified                                   Unspecified
                                                                                      Psychosis.                                    Psychosis.
88.................................  Major Depressive and    89....................  Major Depressive       88...................  Major Depressive
                                      Bipolar Disorders.                              Disorder, Severe,                             Disorder, Severe,
                                                                                      and Bipolar                                   and Bipolar
                                                                                      Disorders.                                    Disorders.
89.................................  Reactive and
                                      Unspecified
                                      Psychosis, Delusional
                                      Disorders.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In addition to the above modifications, and consistent with HHS's 
commitment to continuously assess the HHS-operated risk adjustment 
program based on analysis of more recent available data and the 
objectives in the HHS-HCC Updates Paper, we further analyzed the HCC 
classifications using 2018 enrollee-level EDGE data once it was 
available. Based on this review, we determined the costs related to two 
HCCs in the infant models were better aligned with severity level four, 
rather than the proposed classification of severity level three.\32\ In 
addition, we identified two clinically-related HCCs in the child models 
that have small sample sizes. Therefore, consistent with the general 
policy that the models should avoid creating HCCs with low sample sizes 
and possibly unstable estimates, we will group them to improve the 
predictive power and stability of the child models. We also identified 
one new proposed HCC in the child model that has a sufficient sample 
size, and therefore, we will be not be grouping it, as proposed. 
Details on these changes to the infant and child models are described 
below. We note that these additional modifications relate to certain 
HCCs in the infant and child models to further improve the risk 
prediction and stability of the models. These shifts in placement do 
not change the number or type of HCCs included in the infant and child 
models beyond what was proposed. We believe that each change described 
below, while small in effect, will improve risk prediction and ensure 
stability of the models. Therefore, we are finalizing the following 
additional HCC classification changes to the infant and child models:
---------------------------------------------------------------------------

    \32\ The infant models use a categorical approach because 
infants (ages 0-1) have low frequencies for most HCCs, which leads 
to unstable parameter estimates in an additive model. Infants are 
assigned a birth maturity (by length of gestation and birth weight 
as designated by their newborn payment HCC) or age 1 category, and a 
disease severity category (based on HCCs other than birth maturity). 
There are five maturity categories and five disease severity 
categories (based on clinical severity and associated costs).
---------------------------------------------------------------------------

     In the infant models, we are not finalizing the proposed 
move of HCC 73 (Combined and Other Severe Immunodeficiencies) from 
severity level four to severity level three; it will remain classified 
as severity level four. The costs for HCC 73 are better aligned with 
severity level four upon further review of an additional data year.
     In the infant models, we are also moving HCC 30 (Adrenal, 
Pituitary, and Other Significant Endocrine Disorders) from severity 
level three to level four. Upon review of an additional data year, we 
concluded that the costs for HCC 30 are better aligned with severity 
level four.
     In the child models, we are grouping HCC 131 (Acute 
Myocardial Infarction) and HCC 132 (Unstable Angina and Other Acute 
Ischemic Heart Disease) because our review of an additional data year 
identified small sample sizes for these HCCs.
     In the child models, we are finalizing, as proposed, the 
grouping of HCC 210 ((Ongoing) Pregnancy without Delivery with Major 
Complications) with HCC 211 ((Ongoing) Pregnancy without Delivery with 
Complications) due to the small sample sizes associated with these HCCs 
for this population. However, we are not finalizing the proposal to 
group these two HCCs with the proposed new HCC 212 ((Ongoing) Pregnancy 
without Delivery with No or Minor Complications). Upon review of the 
additional data year, we determined the sample size for HCC 212 in the 
child models is sufficient such that grouping it with HCC 210 and HCC 
211 is not necessary.
    Lastly, we are also finalizing one additional diagnosis coding 
update to the adult risk adjustment models in light of the finalized 
updates to the HCCs in this rulemaking. We are including the proposed 
HCC 35.1 (Acute Liver Failure/Disease, Including Neonatal Hepatitis) in 
the RXC-HCC interaction term for RXC 02 (Anti-Hepatitis C (HCV) 
Agents). RXC 02 (Anti-Hepatitis C (HCV) Agents) was previously paired 
with HCC 37.1 (Chronic Viral Hepatitis C), HCC 36 (Cirrhosis of Liver), 
HCC 35.2 (V05 HCC 35, End-Stage Liver Disease), and HCC 34 (Liver 
Transplant Status/Complications), listed in ascending order of position 
in the V05 hierarchy. Anti-Hepatitis C (HCV) Agents are primarily 
prescribed for HCC 37.1 (Chronic Viral Hepatitis C); however, because 
of clinical hierarchies, other HCCs that are clinically more severe 
than the HCC primarily associated with the RXC (HCC 37.1) are also 
included in the RXC-HCC interaction. In the proposed rule, HHS proposed 
to move HCC 38 (Acute Liver Failure/Disease Including Neonatal 
Hepatitis) above HCC 35 (End Stage Liver Disease) in the related HCC 
hierarchy to address cost implications of chronic versus acute liver 
failure. Due to the change in hierarchy positions, we proposed to 
renumber these HCCs to HCC 35.1 (Acute Liver Failure/Disease, Including 
Neonatal Hepatitis), and HCC 35.2 (Chronic Liver Failure/End Stage 
Liver Disorders), respectively. Because HCC 35.1 (Acute Liver Failure/
Disease, Including Neonatal Hepatitis) was proposed and is being 
finalized in the hierarchy above the HCC most closely related to RXC 02 
(Anti-Hepatitis C (HCV) Agents), HCC 37.1 (Chronic Viral Hepatitis C), 
we are adding HCC 35.1 to the RXC 02 interaction term as part of

[[Page 29178]]

the updates finalized in this rulemaking. Therefore, in addition to 
finalizing the below revisions to the liver HCC hierarchy, we are also 
finalizing the addition of this HCC for the RXC 02 interaction term in 
the adult models.
    In the proposed rule, we also proposed one modification to the 
child models from the potential updates described in the HHS-HCC 
Updates Paper. In the paper, we noted that we may re-examine the 
hierarchy violation constraints for non-transplant HCCs in the child 
models that affect the predicted costs of the transplant set. We 
explained that HCC 159 (Cystic Fibrosis) in the child models, which has 
high associated drug costs, has higher predicted costs than HCC 158 
(Lung Transplant Status/Complications). For this reason, a hierarchy 
violation was occurring whereby the higher-cost HCC 159 (Cystic 
Fibrosis) was being constrained to the lower-cost transplant 
coefficients. To improve cost prediction, we proposed to not impose a 
hierarchy violation constraint in the child models beginning with the 
2021 benefit year coefficients for HCC 159 (Cystic Fibrosis), allowing 
it to have higher predicted costs than HCC 158 (Lung Transplant Status/
Complications). We are finalizing this proposed change, and are also 
adding a similar change for parallel reasons. We also will not impose a 
hierarchy violation constraint in the child models beginning with the 
2021 benefit year coefficients for HCC 35.1 (Acute Liver Failure 
Disease, Including Neonatal Hepatitis) and HCC 35.2 (Chronic Liver 
Failure/End-Stage Liver Disorders), allowing them to have higher 
predicted costs than the liver transplant HCC 35 (Liver Transplant 
Status/Complications). Thus, we are finalizing in V07 not to impose 
hierarchy violation constraints in the child models for two sets of 
non-transplant HCCs that have higher associated costs than the 
transplant HCC above them in their hierarchy: (1) Liver failure HCC 
35.1 (Acute Liver Failure Disease, Including Neonatal Hepatitis) and 
HCC 35.2 (Chronic Liver Failure/End-Stage Liver Disorders) and HCC 34 
(Liver Transplant Status/Complications); and (2) HCC 159 (Cystic 
Fibrosis) and HCC 158 (Lung Transplant Status/Complications).
    All of the final payment HCC changes for the 2021 benefit year risk 
adjustment models and beyond, including these additional modifications, 
are reflected in Table 2 and referred to as ``V07'' below. The HCC 
classification for the 2020 benefit year is referred to as ``V05'', the 
classification changes discussed in the HHS-HCC Updates Paper are 
referred to as ``V06a,'' and the classification changes proposed in the 
2021 Payment Notice proposed rule are referred to as ``V06b.''

                       Table 2--Summary of Final Payment HCC Risk Adjustment Model Changes
                                                      [V07]
----------------------------------------------------------------------------------------------------------------
                                                                                   Summary of final payment HCC
               Condition                         Payment HCC final change                     changes
----------------------------------------------------------------------------------------------------------------
                                               Payment HCC Changes
----------------------------------------------------------------------------------------------------------------
Substance Use Disorders................  +2.....................................   Add 2 new HCCs for
                                                                                   alcohol use disorders for all
                                                                                   models \1\ to risk adjust for
                                                                                   a larger number of substance
                                                                                   use diagnoses.
                                                                                   Reconfigure drug
                                                                                   dependence HCC to include
                                                                                   drug use disorders with non-
                                                                                   psychotic complications and a
                                                                                   subset of drug poisoning
                                                                                   (overdose) codes to reflect
                                                                                   the revised conceptualization
                                                                                   of substance use disorders in
                                                                                   ICD-10.
                                                                                   Group the drug use
                                                                                   HCCs (81 and 82) into one
                                                                                   group and the alcohol use
                                                                                   HCCs (83 and 84) in another
                                                                                   group for adult and child
                                                                                   models.
                                                                                   Impose a new combined
                                                                                   hierarchy on drug use and
                                                                                   alcohol use HCCs due to the
                                                                                   high prevalence of both drugs
                                                                                   and alcohol use among those
                                                                                   with alcohol or drug use
                                                                                   disorders.
Pregnancy..............................  +3.....................................   Add 3 (ongoing)
                                                                                   pregnancy-without-delivery
                                                                                   HCCs to child and adult
                                                                                   models. Leave them ungrouped
                                                                                   in the adult models to
                                                                                   reflect differences in costs
                                                                                   by level of complications.
                                                                                   Group the two higher HCCs
                                                                                   (210 and 211) in the child
                                                                                   models to address small
                                                                                   sample sizes and unstable
                                                                                   estimates.
                                                                                   Revise two existing
                                                                                   pregnancy HCC Groups in both
                                                                                   adult and child models,
                                                                                   separating out the ectopic/
                                                                                   molar pregnancy HCC and the
                                                                                   uncomplicated pregnancy-with-
                                                                                   delivery HCC to better
                                                                                   distinguish incremental
                                                                                   costs.
Diabetes...............................  +1.....................................   Add a diabetes type 1
                                                                                   additive HCC to the adult
                                                                                   models to distinguish
                                                                                   additional costs for diabetes
                                                                                   type 1.
                                                                                   Remap hyperglycemia
                                                                                   and hypoglycemia codes from
                                                                                   the ``chronic complications''
                                                                                   HCC to the ``without
                                                                                   complication'' HCC based on
                                                                                   clinical input.
Asthma.................................  +1.....................................   Split current asthma
                                                                                   HCC into two severity-
                                                                                   specific HCCs for all models
                                                                                   given new clinical
                                                                                   distinctions for severity
                                                                                   levels in the ICD-10 and to
                                                                                   distinguish costs by
                                                                                   severity.
                                                                                   Continue to group
                                                                                   asthma HCCs with chronic
                                                                                   obstructive pulmonary disease
                                                                                   HCC in adult models and leave
                                                                                   the 3 HCCs ungrouped to
                                                                                   distinguish costs in child
                                                                                   models.
Fractures..............................  -1, +1.................................   Delete an HCC
                                                                                   (pathological fractures) for
                                                                                   all models to address a
                                                                                   clinical distinction that may
                                                                                   be inconsistently diagnosed/
                                                                                   coded.
                                                                                   Reconfigure an
                                                                                   existing HCC (hip fractures)
                                                                                   to better distinguish
                                                                                   fracture codes by site.
                                                                                   Add a new HCC
                                                                                   (vertebral fractures) for all
                                                                                   models to better predict
                                                                                   vertebral fractures, which
                                                                                   may be indicative of chronic
                                                                                   disease and frailty.
Third Degree Burns and Major Skin        +2.....................................   Reconfigure and add 2
 Conditions.                                                                       HCCs (extensive third degree
                                                                                   burns; major skin burns or
                                                                                   conditions) for all models in
                                                                                   an imposed hierarchy because
                                                                                   these HCCs are currently
                                                                                   being under-predicted,
                                                                                   contain chronic conditions or
                                                                                   are burns that involve long-
                                                                                   term follow up care.
                                                                                   Impose an a priori
                                                                                   constraint \2\ between
                                                                                   extensive third degree burns
                                                                                   and severe head injury in
                                                                                   child models due to small
                                                                                   sample size.
Coma and Severe Head Injury............  +1.....................................   Add a new severe head
                                                                                   injury HCC (represents a
                                                                                   condition with ongoing care
                                                                                   costs; similar to the
                                                                                   inclusion of other injury
                                                                                   HCCs) for all models in a
                                                                                   hierarchy above the coma/
                                                                                   brain compression HCC.
                                                                                   Impose an a priori
                                                                                   constraint between extensive
                                                                                   third degree burns and severe
                                                                                   head injury in the child
                                                                                   models due to small sample
                                                                                   size.

[[Page 29179]]

 
Traumatic Amputations..................  +1.....................................   Add a new HCC in a
                                                                                   hierarchy with the current
                                                                                   amputation status HCC for all
                                                                                   models and reconfigure codes
                                                                                   between the new HCC and
                                                                                   current amputation status HCC
                                                                                   to better distinguish early
                                                                                   treatment and complication
                                                                                   costs from long-term costs.
                                                                                   Leave HCCs ungrouped
                                                                                   in the adult models; group
                                                                                   them in the child models for
                                                                                   coefficient stability
                                                                                   purposes due to small sample
                                                                                   size.
Narcolepsy and Cataplexy...............  +1.....................................   Add a new HCC to both
                                                                                   child and adult models
                                                                                   because these conditions are
                                                                                   currently under-predicted and
                                                                                   have associated treatment
                                                                                   costs.
Exudative Macular Degeneration.........  +1.....................................   Add a new HCC to
                                                                                   adult models because the
                                                                                   condition is currently under-
                                                                                   predicted; costs are
                                                                                   primarily related to drug
                                                                                   treatments.
Congenital Heart Anomalies.............  new to adult...........................   Add 3 new HCCs to
                                                                                   adult models (already in the
                                                                                   child and infant models)
                                                                                   because the conditions are
                                                                                   currently under-predicted.
                                                                                   Group them in the adult
                                                                                   models only.
----------------------------------------------------------------------------------------------------------------
                                       Changes in HCC Groups, Hierarchies
----------------------------------------------------------------------------------------------------------------
Metabolic and Endocrine Disorders......  N/A....................................   Group HCCs 26 and 27
                                                                                   together in both the child
                                                                                   and adult models to
                                                                                   distinguish their
                                                                                   significantly higher
                                                                                   incremental costs from other
                                                                                   HCCs (HCCs 28-30) previously
                                                                                   in the full group (HCCs 26
                                                                                   and 27 are currently under-
                                                                                   predicted in these models due
                                                                                   to grouping).
                                                                                   Ungroup HCCs 29 and
                                                                                   30 in the adult models as
                                                                                   they have adequate sample
                                                                                   sizes and clinical and cost
                                                                                   distinctions.
                                                                                   Group HCCs 28 and 29
                                                                                   in the child models due to
                                                                                   small sample sizes, clinical
                                                                                   similarity, and similar
                                                                                   predicted costs.
                                                                                   Leave HCC 30
                                                                                   ungrouped in the child models
                                                                                   because it is clinically
                                                                                   distinct from HCCs 28 and 29.
Necrotizing Fasciitis..................  N/A....................................   Ungroup the
                                                                                   necrotizing fasciitis HCC
                                                                                   (HCC 54) in the adult models
                                                                                   to better predict higher
                                                                                   incremental costs compared to
                                                                                   HCC 55 (the condition that is
                                                                                   currently grouped with this
                                                                                   HCC).
Blood Disorders........................  N/A....................................   Revise groups in both
                                                                                   adult and child models to
                                                                                   move HCC 69 from its previous
                                                                                   grouping with HCCs 70 and 71
                                                                                   to the group with HCCs 67 and
                                                                                   68 to better reflect clinical
                                                                                   severity and associated
                                                                                   costs.
                                                                                   Reconfigure HCCs 69
                                                                                   and 71 based on clinical
                                                                                   input.
Acute Myocardial Infarction and          N/A....................................   Group HCCs 131 and
 Unstable Angina.                                                                  132 in the child models for
                                                                                   coefficient stability
                                                                                   purposes due to small sample
                                                                                   size.
Mental Health..........................  N/A....................................   Move delusional
                                                                                   disorders/psychosis HCC above
                                                                                   major depressive disorders/
                                                                                   bipolar disorders HCC in the
                                                                                   hierarchy (the HCCs switch
                                                                                   position in the hierarchy)
                                                                                   because the costs and
                                                                                   diagnoses associated with the
                                                                                   delusional disorders/
                                                                                   psychosis HCC are more
                                                                                   aligned with the
                                                                                   schizophrenia HCC. Renumber
                                                                                   the two highest HCCs in the
                                                                                   hierarchy: HCC 87_1
                                                                                   Schizophrenia (had been 87)
                                                                                   and HCC 87_2 Delusional and
                                                                                   Other Specified Psychotic
                                                                                   Disorders, Unspecified
                                                                                   Psychosis (had been 89). HCC
                                                                                   88 Major Depressive Disorder,
                                                                                   Severe, and Bipolar Disorders
                                                                                   retains its same number.
                                                                                   Relabel HCCs to align
                                                                                   with ICD-10 categorizations.
Cerebral Palsy and Spina Bifida........  N/A....................................   Refine hierarchies to
                                                                                   exclude paralysis HCCs for
                                                                                   enrollees with cerebral palsy
                                                                                   HCCs, as ICD-10 coding
                                                                                   guidelines prohibit these
                                                                                   conditions from coding
                                                                                   together.
                                                                                   Refine hierarchies to
                                                                                   exclude hydrocephalus HCC for
                                                                                   enrollees with spina bifida
                                                                                   HCC for similar coding
                                                                                   restriction purposes.
Pancreatitis...........................  N/A....................................   Reconfigure the acute
                                                                                   pancreatitis HCC to move
                                                                                   pancreatic disorders and
                                                                                   intestinal malabsorption out
                                                                                   of the acute pancreatitis HCC
                                                                                   to differentiate higher cost
                                                                                   conditions.
                                                                                   Revise the hierarchy
                                                                                   for pancreas transplant HCC
                                                                                   to remove exclusion of
                                                                                   pancreatitis HCCs because
                                                                                   pancreas transplants are done
                                                                                   primarily for diabetes and
                                                                                   insulin conditions rather
                                                                                   than pancreatitis.
Liver..................................  N/A....................................   Reconfigure codes in
                                                                                   liver HCCs to reflect
                                                                                   clinical distinctions.
                                                                                   Move acute liver
                                                                                   failure HCC above chronic
                                                                                   liver failure HCC in the
                                                                                   hierarchy and renumber HCCs
                                                                                   to address cost implications
                                                                                   of chronic versus acute liver
                                                                                   failure.
----------------------------------------------------------------------------------------------------------------
                                   Summary of the Adult Model Specific Changes
----------------------------------------------------------------------------------------------------------------
Payment HCC change.....................  +16....................................   Net change of 16
                                                                                   HCCs; 17 HCCs added and 1 HCC
                                                                                   deleted (for details see the
                                                                                   above portion of this table).
Severe Illness Interactions............  -1 (other model variable)..............   Remove medium cost
                                                                                   severe illness interaction
                                                                                   term from model because its
                                                                                   parameter estimate is usually
                                                                                   very low or negative.
----------------------------------------------------------------------------------------------------------------
                                   Summary of the Child Model Specific Changes
----------------------------------------------------------------------------------------------------------------
Payment HCC change.....................  +11....................................   Net change of 11
                                                                                   HCCs; 12 HCCs added and 1 HCC
                                                                                   deleted (for details see the
                                                                                   above portion of this table).
Transplant A Priori Constraints........  N/A....................................   Revise a priori
                                                                                   constraints applied to the
                                                                                   transplant HCCs to better
                                                                                   distinguish costs while
                                                                                   improving estimate stability
                                                                                   due to small sample sizes.
                                                                                   Do not impose
                                                                                   hierarchy violation
                                                                                   constraints for two sets of
                                                                                   non-transplant HCCs that have
                                                                                   higher associated costs than
                                                                                   the transplant HCC above them
                                                                                   in their hierarchy: (1) Liver
                                                                                   failure HCCs 35.1 and 35.2
                                                                                   and HCC 34 Liver Transplant
                                                                                   Status/Complications; and (2)
                                                                                   HCC 159 Cystic Fibrosis and
                                                                                   HCC 158 Lung Transplant
                                                                                   Status/Complications.
----------------------------------------------------------------------------------------------------------------

[[Page 29180]]

 
                                  Summary of the Infant Model Specific Changes
----------------------------------------------------------------------------------------------------------------
Payment HCC change.....................  +7.....................................   Net change of 7; 8
                                                                                   HCCs added and 1 HCC deleted
                                                                                   (for details see the above
                                                                                   portion of this table).
Categorical Model......................  N/A....................................   Revise severity level
                                                                                   assignments of a subset of
                                                                                   HCCs to better reflect
                                                                                   clinical severity and costs
                                                                                   and assign new HCCs to
                                                                                   severity levels.
                                                                                   Reconfigure code
                                                                                   assignments to newborn HCCs
                                                                                   for subset of codes whose
                                                                                   weeks gestation
                                                                                   classification in ICD-10
                                                                                   differed from ICD-9.
----------------------------------------------------------------------------------------------------------------
\1\ References to ``all models'' in Table 2 refers to the adult, child and infant models.
\2\ In a priori constraints, the HCC estimates are constrained to be equal to each other. These are applied to
  stabilize high cost estimates that may vary greatly due to small sample size.

    The following is a summary of the public comments we received on 
the proposed ICD-10 HHS-HCC reclassification updates to the HHS risk 
adjustment models.
    Comment: Some commenters requested that HHS provide additional 
transparency about the data used in updating the HCCs, such as the 
alternatives we considered, the criteria used to develop our proposals 
and the impact of changes. Other comments requested that HHS 
demonstrate the contribution of each specific updated or modified HCC 
to the model and how it improves the accuracy of identifying risk 
selection compared to the existing model. Some commenters request that 
the HCC change be tested with the most recent year of EDGE data.
    Response: We agree with commenters about the importance of 
transparency in developing and finalizing HCC updates. We refer 
commenters to the HHS-HCC Updates Paper, released on June 17, 2019, in 
which we provided a preview of the proposed changes with detailed 
estimated costs between the current classification and the proposed 
classification, as well as the impact of the changes on the adult, 
child and infant risk adjustment models. In the HHS-HCC Updates Paper 
and the proposed rule, we outlined the principles (or criteria) used to 
develop the proposed ICD-10 HHS-HCC reclassifications updates.\33\ In 
both documents, we also explained the process we used to develop the 
proposed updates.
---------------------------------------------------------------------------

    \33\ These principles are also repeated earlier in this rule.
---------------------------------------------------------------------------

    We began this process by conducting a comprehensive review of the 
current HHS-HCC full classification and risk adjustment model 
classification, including an examination of disease groups with 
extensive ICD-10 code classification changes, HCCs whose counts had 
changed considerably following ICD-10 implementation, clinical areas of 
interest (for example, substance use disorders), and model under-
prediction or over-prediction as identified by predictive ratios. We 
then examined HCC reconfigurations, payment HCC designation, HCC 
Groups, and hierarchies to develop the preliminary regression analyses 
using 2016 enrollee-level EDGE data.\34\ We also conducted a series of 
clinical reviews to inform potential changes. Next, we reviewed the 
payment model and full classification regressions to compare 
frequencies and predicted incremental costs of HCCs. To validate our 
initial reclassifications, we repeated the preliminary regression 
analyses using 2017 enrollee-level EDGE data, as well as 2016 and 2017 
MarketScan[supreg] data. Results of the initial and validation analyses 
informed the proposed HHS-HCC reclassifications in model V06a, which 
were based on 2016 and 2017 enrollee-level EDGE data. We analyzed 
proposed V06b HCCs on 2018 enrollee-level EDGE data once it became 
available.
---------------------------------------------------------------------------

    \34\ Payment HCCs are those included in the HHS-HCC risk 
adjustment models. The full classification includes both payment and 
non-payment HCCs. HCC Groups refers to payment HCCs that are grouped 
together in the HHS-HCC risk adjustment model.
---------------------------------------------------------------------------

    In the HHS-HCC Updates Paper, we estimated that the impact of 
moving from V05 to V06a \35\ would result in a slight improvement in 
model prediction and a slight increase in the number of enrollees with 
one or more payment HCCs in the adult and child models. Although some 
commenters requested data showing specifically how changes impact 
state-level transfers, we note that we do not extract state identifiers 
in the enrollee-level EDGE data, and therefore, we are unable to 
directly assess state level impacts. Instead, we evaluated impacts at 
the national level. Between the proposed and final rules, we conducted 
an additional analysis of our proposed V06b classifications and the 
resulting impact on average national enrollee risk scores. We estimated 
an increase in national enrollee risk scores of approximately one 
percent.\36\
---------------------------------------------------------------------------

    \35\ To further clarify, in the HHS-HCC Updates Paper, V05 
reflects the current classification model, V06 is the initial 
assessment of potential revisions to the classification model 
developed using the 2016 benefit year data, and V06a is the 
reassessment of potential revisions to the classification model that 
included 2017 benefit year data. V06b is the revised HCC changes in 
the proposed rule and V07 is the revisions to the classification 
model being finalized in this rule. The changes in the proposed rule 
(V06b) were reflected in the ``Draft ICD-10 Crosswalk for Potential 
Updates to the HHS-HCC Risk Adjustment Model for the 2021 Benefit 
Year'', which is available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/index.html. We expect to replace the draft 
crosswalk with an updated crosswalk based on the V07 changes being 
finalized in this rule in the future, and will make it available on 
our website as well.
    \36\ The estimated difference in risk scores was calculated 
between the 2020 benefit year factors and the 2021 benefit year 
factors using the 2017 benefit year enrollee-level EDGE data.
---------------------------------------------------------------------------

    In addition to the HHS-HCC Updates Paper that was posted in June 
2019, we released a crosswalk alongside the proposed rule to allow 
issuers to assess the impact of the proposed changes on the risk scores 
for their plans or enrollees. Commenters did not indicate that they had 
used the crosswalk to analyze claims data.
    Comment: Some commenters requested that we maintain the original 
numbering assignments and labels for certain HCCs or supported using 
decimals for renumbering. In particular, one commenter cited our 
proposal regarding HCCs 88 and 89, where we proposed to rearrange the 
hierarchy between V05 HCC 89 (Reactive and Unspecified Psychosis, 
Delusional Disorders) and HCC 88 (Major Depressive and Bipolar 
Disorders) to reflect higher cost similarities between the V05 HCC 89, 
which described psychotic disorders, and HCC 87 which described 
schizophrenia. In addition to proposing changes to the hierarchy and 
modifications to the names of the HCCs, we also proposed switching the 
numbers for HCCs 88 and 89 so that the numbering sequence between 87, 
88, and 89 would reflect the change in

[[Page 29181]]

hierarchy and the incremental cost differences between schizophrenia, 
delusional disorders, and depression, respectively. This commenter 
recommended that we rename these HCCs using decimals (instead of the 
proposed renumbering).
    Response: As explained above and in Table 1, we proposed to switch 
the numbering for HCC 88 and HCC 89 in response to other updates to the 
hierarchy positions for mental health HCCs. However, after 
consideration of comments received, we are not finalizing the proposed 
renumbering. We agree with commenters that changing the numbering or 
associated labeling of existing HCCs can be confusing and potentially 
lead to unnecessary errors in certain circumstances. In response, we 
are finalizing the revised hierarchy and name changes for these 
conditions as proposed, but we are not finalizing the renumbering of 
these HCCs as proposed. Instead, in V07, we are retaining the previous 
V05 numbering for HCC 88 (Major Depressive and Bipolar Disorders), but 
are renaming it as proposed (Major Depressive Disorder, Severe, and 
Bipolar Disorders), and are renumbering and renaming previous V05 HCC 
89 (Reactive and Unspecified Psychosis, Delusional Disorders) as HCC 
87.2 (Delusional and Other Specified Psychotic Disorders, Unspecified 
Psychosis) to retain its proposed position above HCC 88 in the 
hierarchy. To accommodate these changes, we are also renumbering 
Schizophrenia from the previous V05 numbering of HCC 87 to HCC 87.1 to 
maintain its place in the hierarchy.
    Comment: Some commenters objected to some of the newly added HCCs, 
including those for fractures, third degree burns and major skin 
conditions, coma and severe head injury, traumatic amputations, 
necrotizing fasciitis, and pancreatitis, on the basis that these 
conditions reflect ``acute'' diagnoses that issuers are unable to 
select against and whose associated costs are (or should be) 
incorporated into all issuers' pricing assumptions. A subset of these 
commenters suggested that HHS separate acute and chronic spending in 
the risk adjustment models if HHS finalizes the HCCs for acute 
conditions as proposed.
    Some comments also suggested that adding or revising HCCs to 
include the costs associated with acute conditions would be contrary to 
the risk adjustment program's fundamental principles because they 
represent unpredictable risk that issuers cannot adversely select 
against. One of these commenters stated that the costs associated with 
acute conditions are (or should be) already incorporated into all 
issuers' pricing assumptions. The commenter further stated that adding 
these acute condition HCCs to risk adjustment would likely increase the 
scope of conditions that might affect an issuer's transfer burden, 
especially given the national-level predictions of these conditions. 
The commenter also raised concern that these proposed changes would 
reduce issuer pricing accuracy, thereby, incentivizing issuers to 
increase premiums higher than necessary to ensure risk is mitigated. 
This commenter stated that the incorporation of the cost of acute 
conditions in demographic factors was more consistent with the 
principles of risk adjustment and would reflect the more random 
distribution of acute conditions. One commenter, who supported the 
proposed changes, noted that traumatic amputation is commonly miscoded 
by providers as traumatic when it should have been captured as 
acquired.
    Response: We continue to believe that the conditions identified by 
these commenters (fractures, third degree burns and major skin 
conditions, coma and severe head injury, traumatic amputations, 
necrotizing fasciitis, and pancreatitis) should be included in the risk 
adjustment models and are finalizing these additions and revisions as 
proposed. Based on our analysis, these conditions indicate the presence 
of underlying chronic conditions and frailty, are underpredicted in the 
models, and have high costs in the year after the diagnosis. Therefore, 
we do not agree that including the new and revised HCCs for fractures, 
third degree burns and major skin conditions, coma and severe head 
injury, traumatic amputations, necrotizing fasciitis, and pancreatitis 
challenges the foundational principle of the risk adjustment program. 
There is evidence of ongoing chronic costs associated with these 
conditions, and issuers can potentially adversely select against 
enrollees with a higher risk of developing these conditions in a given 
benefit year. In addition, many of these HCCs are also incorporated in 
Medicare's prospective CMS-HCC models.
    Several HHS-HCCs related to these conditions were reconfigured or 
newly added to the risk adjustment models to better predict costs for 
conditions that have near-term ongoing costs. These included HCC 226 
(Hip and Pelvic Fractures), HCC 228 (Vertebral Fractures without Spinal 
Cord Injury), HCC 218 (Extensive Third Degree Burn), HCC 219 (Major 
Skin Burn or Condition), and HCC 223 (Severe Head Injury). Because 
there are ongoing costs of care for these conditions that present risk 
of adverse selection for plans in the following benefit year, we 
believe that it is important to reconfigure and add these HCCs to the 
risk adjustment models given the coding changes made between the ICD-9 
and ICD-10 and our review of the enrollee-level EDGE data. We also note 
that the proposed adoption of the new or reconfigured HCCs for the 
conditions identified by commenters as ``acute conditions'' aligns with 
the general approach in the current models, which separates out acute 
and chronic spending, if possible, when necessary to improve risk 
prediction. In addition, isolating and omitting the near-term ongoing 
costs for these conditions would reduce the predictive accuracy of the 
model without any benefit in reduced model complexity, as the costs for 
the excluded near-term codes would end up in the associated longer term 
HCCs.
    For example, for the traumatic amputation HCC, which we are 
finalizing for inclusion in the risk adjustment models as proposed, we 
analyzed and considered different configurations of the amputation-
related HCCs during the reclassification process. We proposed and are 
finalizing two amputation related HCCs: HCC 234 (Traumatic Amputations 
and Amputations and Amputation Complications), which is newly added in 
V07, and HCC 254 (Amputation Status, Upper Limb or Lower Limb), which 
was a payment HCC in V05. These HCCs were reconfigured to better 
account for the cost distinctions between the initial treatment, early 
follow-up, and potential early complications, and the much lower long-
term ongoing costs of amputated limbs. Conditions with both acute 
treatment and permanent ongoing care, such as spinal cord injuries and 
major limb amputations, have sets of HCCs containing both initial 
encounter injury codes and additional care and status codes. Since the 
V05 classification included only the amputation status and 
complications payment HCC, some costs of the omitted initial episode 
codes were pulled in via subsequent encounter codes in HCC 254. For 
example, 38 percent of adult enrollees with HCC 234 also had HCC 254, 
and therefore, the prediction for enrollees with only amputation status 
codes were overpredicted, and enrollees with the initial encounter 
codes were underpredicted. To address underprediction of the initial 
encounter codes for traumatic amputations of upper limb or lower limb 
and to better delineate costs between the initial

[[Page 29182]]

episode and those for complications and care for ongoing status care, 
we are finalizing the amputation HCCs as proposed. Additionally, the 
inclusion of HCC 234 is consistent with the Medicare HCC risk 
adjustment models.
    Another example of a payment HCC in the current risk adjustment 
models that reflects what commenters identified as ``acute conditions'' 
is Necrotizing Fasciitis, which is a life-threatening condition that 
may require ongoing care related to the tissue damage. Because of the 
severity of the condition and intensity of treatment, HCC 54 
(Necrotizing Fasciitis) has always been distinguished from the lower 
severity conditions in HCC 55 (Bone/Joint/Muscle Infections/Necrosis) 
but due sample size issues, these HCCs were grouped in the V05 
classification. As noted in the HHS-HCC Updates Paper, we found that 
HCC 54 (Necrotizing Fasciitis) is clinically distinct and has been 
underpredicted in the adult and child models with its incremental 
expenditures that when ungrouped are approximately twice as high as HCC 
55 (Bone/Joint/Muscle Infections/Necrosis), and now HCC 54 (Necrotizing 
Fasciitis) has a sufficient sample size to remove the HCC Group between 
HCC 55 (Bone/Joint/Muscle Infections/Necrosis) and HCC 54 (Necrotizing 
Fasciitis) in the adult models. For these reasons, we proposed and are 
finalizing ungrouping HCC 54 (Necrotizing Fasciitis) and HCC 55 (Bone/
Joint/Muscle Infections/Necrosis) in the adult models to better 
distinguish costs for both HCCs. However, because HCC 54 (Necrotizing 
Fasciitis) has a low sample size in the child models, we are retaining 
the HCC Group for HCC 54 (Necrotizing Fasciitis) and HCC 55 (Bone/
Joint/Muscle Infections/Necrosis) in the child models.
    For the pancreatitis HCCs, on the other hand, we proposed and are 
finalizing a reconfiguration to HCC 47 (Acute Pancreatitis) to 
differentiate higher cost conditions within the HCC and a revision to 
HCC 18 (Pancreas Transplant Status/Complications) to remove the 
pancreatitis HCCs from HCC 18's hierarchy exclusions. We are finalizing 
this exclusion change because pancreas transplants are done primarily 
for diabetes and insulin conditions rather than pancreatitis, and ICD-9 
had a pancreas-specific code for transplant complications, whereas the 
ICD-10 code set for other transplant complications is not restricted to 
pancreas transplants. Additionally, we are relabeling HCC 18 (Pancreas 
Transplant Status/Complications) to HCC 18 (Pancreas Transplant Status) 
to accurately reflect its ICD-10 code content. As described in the HHS-
HCC Updates Paper, these changes resulted in significant changes in the 
count and estimated costs for the pancreatitis HCCs in all models. 
Specifically, the removal of the intestinal malabsorption and other 
pancreatic disorders from the HCC 47 (Acute Pancreatitis) led to large 
shifts in sample size and costs, but we believe this reconfiguration of 
the HCC more accurately captures the risk and costs of acute 
pancreatitis events that may cause adverse selection issues. We are 
therefore finalizing the changes to the pancreatitis HCCs as proposed.
    We also assessed whether HCCs associated with several of the 
proposed HCC conditions \37\ should be added to the models by analyzing 
enrollees with the given HCC in 2009 MarketScan[supreg] data and the 
costs associated with those enrollees in the subsequent year's data, 
2010 Marketscan[supreg] data. The purpose of this analysis was to 
assess whether the enrollee costs for these conditions, including 
several conditions that commenters identified as ``acute conditions,'' 
persisted over both benefit years. We found that enrollees with these 
conditions were characterized by persistently higher costs in the 
subsequent year, 2010.\38\ This analysis further supports our position 
that certain HCCs, including several conditions that commenters 
identified as ``acute conditions,'' involve ongoing follow-up care, 
were identified as being persistently underpredicted in the current 
models and should be modified to improve model prediction and better 
capture the longer-term costs associated with the conditions. This 
evidence of ongoing chronic costs associated with these conditions, 
reaffirms that issuers can potentially adversely select against the 
risk of enrollees with these conditions. Thus, because we believe it is 
important and consistent with the objectives of the risk adjustment 
program to improve model prediction and mitigate risk of adverse 
selection when possible, we believe the newly added or reconfigured 
HCCs discussed above are consistent with our prior framework for 
payment HCCs, and we are finalizing the updates related to ICD-10 
reclassifications of HCCs that are described in this final rule in 
Table 2.
---------------------------------------------------------------------------

    \37\ This analysis assessed the following HCCs: HCC 18 (Diabetes 
with Chronic Complications), HCC 19 (Diabetes without Complication), 
HCC 20 (Type I Diabetes Mellitus), HCC 80 (Coma, Brain Compression/
Anoxic Damage), HCC 161 (Chronic Ulcer of Skin, Except Pressure), 
HCC 162 (Severe Skin Burn or Condition), HCC 163 (Moderate Skin Burn 
or Condition), HCC 166 (Severe Head Injury), HCC 167 (Major Head 
Injury), HCC 169 (Vertebral Fractures without Spinal Cord Injury), 
HCC 170 (Hip Fracture/Dislocation), HCC 173 (Traumatic Amputations 
and Complications), HCC 189 (Amputation Status, Lower Limb/
Amputation Complications), and HCC 190 (Amputation Status, Upper 
Limb).
    \38\ We used MarketScan[supreg] data for this analysis as we 
currently are unable to link enrollees year over year in enrollee-
level EDGE data. In the future, we expect to be able to link 
enrollees year over year in the enrollee-level EDGE data, if the 
individuals are enrolled with the same issuer over the years.
---------------------------------------------------------------------------

    Comment: One commenter stated that severe head injury HCC 223 
(Severe Head Injury) should not be added to the adult and child risk 
adjustment models because associated chronic costs are captured in 
existing HCC 122 (Coma/Brain Compression). Another commenter agreed 
with including the new HCC 223 (Severe Head Injury) but requested that 
we exclude the acute costs from the chronic costs associated with the 
underlying diagnoses.
    Response: We disagree with the comment that HCC 223 (Severe Head 
Injury) should not be added in the models because existing HCC 122 
(Non-Traumatic Coma and Brain Compression/Anoxic Damage) already 
captures the applicable chronic costs associated with these conditions. 
Although there is overlap between HCC 122 and HCC 223, the inclusion of 
HCC 122 alone is not sufficient in representing the costs of Severe 
Head Injury.
    We also note that due to difficulty in distinguishing between acute 
and chronic costs for these HCCs, we are not separating the acute costs 
from chronic costs for these HCCs. We also believe that by including 
the acute costs for these conditions, we are also accounting for the 
ongoing costs of care during the first year.
    In the HHS-HCC Updates Paper, we noted that HCC 223 represents a 
condition with ongoing care costs, similar to other injury HCCs 
currently included in the current risk adjustment models (for example, 
hip fractures and vertebral fractures). We explained that the new HCC 
223 would be included in a hierarchy above HCC 122 (Coma/Brain 
Compression, Anoxic Damage).\39\ In the child models, due to small 
sample size, HCC 223 (Severe Head Injury) would be constrained with a 
priori logic to HCC 218 (Extensive Third Degree Burns) so that the HCCs 
are counted individually, but have the same coefficient. We continue to 
believe that the proposed addition of HCC 223, along with the 
constraints described, are appropriate updates to the HHS-HCC 
reclassification and are similar to the payment HCCs under the Medicare 
risk

[[Page 29183]]

adjustment models. We are therefore finalizing these changes as 
proposed.
---------------------------------------------------------------------------

    \39\ In all models, HCC 122 would be relabeled to ``Coma/Brain 
Compression, Anoxic Damage'' to account for the ongoing inclusion of 
coma codes that may be associated with a traumatic injury.
---------------------------------------------------------------------------

    Comment: While one commenter supported the inclusion of two new 
HCCs for third degree burns with the recommendation to separate acute 
costs from ongoing costs, other commenters opposed the proposed 
changes. Commenters noted that these are random acute events and that 
the chronic costs associated with third degree burns are separately 
identifiable. One commenter also suggested that the inclusion of burn 
HCCs as payment HCCs would lead to upcoding due to higher acute costs 
than ongoing costs.
    Response: In the HHS-HCC Updates Paper, we noted that HCC 218 
(Severe Skin Burn or Condition) and HCC 219 (Moderate Skin Burn or 
Condition) were identified as being underpredicted in the current 
models and contain chronic conditions or burns that involve long-term 
follow-up care. To further explore the relationship between these HCCs 
(HCC 218 and HCC 219) and long term costs, we analyzed 
Marketscan[supreg] data, and found that the presence of these HCCs in 
2009 was associated with persistently higher costs in the subsequent 
year, 2010. The addition of these HCCs to the payment models, as 
proposed, is also consistent with our goals to improve model prediction 
and keep with the risk adjustment goal of identifying chronic or 
systematic conditions that represent insurance risk selection or risk 
segmentation. However, the ability to separate costs associated with 
the acute event and chronic condition can be complex for certain HCCs, 
and in the case of the burn-related HCCs, the enrollees may have 
chronic conditions or burns that require ongoing follow-up care that is 
difficult to separate out. For this reason, we are not separating out 
the costs between the initial acute event and chronic condition.
    We are also finalizing the labeling of these HCCs as proposed to 
reflect the reconfiguration of these HCCs consistent with the ICD-10 
updates. Specifically, we reconfigured HCC 218 (Extensive Third Degree 
Burns, formerly Severe Skin Burn or Condition) to only contain 
extensive third burns and HCC 219 (Major Skin Burn or Condition, 
formerly Moderate Skin Burns or Conditions) to contain less extensive 
third degree burns by site, extensive non-third degree burns, and other 
serious and chronic skin condition. For these reasons, we are 
finalizing these changes as proposed.
    Comment: While one commenter appreciated the proposed updates to 
the substance use HCCs, other commenters opposed the proposed substance 
use HCC changes. Some of the commenters observed that some providers 
are reluctant to use complete and accurate coding for substance use 
disorders due to the sensitive nature of the diagnoses. Other 
commenters also stated that separating out the current V05 HCC 81 (Drug 
Psychosis) and HCC 82 (Drug Dependence) into five separate HCCs with 
distinct, ungrouped, coefficients in the adult models rewards poor 
quality of care and may increase incentives for providers to report 
additional diagnoses. For example, one commenter noted that an issuer 
with a high number of enrollees with proposed HCC 85 (Mild and 
Uncomplicated Drug Use Disorder) to an issuer with some enrollees with 
proposed HCC 82 (Moderate Drug Use Disorder or with Non-Psychotic 
Complications), could be a case where differences with complications 
could be the result of members' selection behavior, poor quality care 
or issuers' ability to influence provider coding or market 
segmentation. Some commenters supported retaining the two current 
substance use HCCs (with constrained coefficients), noting concerns 
that collecting adequate provider documentation at a new more detailed 
level of specificity will be a challenge given that the current two 
HCCs have high error rates in RADV. These commenters also expressed the 
belief that the proposed changes would not add value in measuring an 
issuer's risk level.
    Response: We understand issuers' concerns regarding challenges in 
coding substance use disorders. We do, however, believe it is important 
to distinguish among different types of drug and alcohol use. Our 
analysis of the data (for example, the 2016 and 2017 enrollee-level 
EDGE data) indicates that there is a large difference in the costs 
associated with treatment for an individual with a general, 
nonpsychotic drug use disorder compared with an individual with alcohol 
use disorder, either with or without psychosis. Therefore, we are 
finalizing the proposed revisions to update HCC 81 from Drug Psychosis 
to Drug Use with Psychotic Complications, to update HCC 82 from Drug 
Dependence to Drug Use Disorder, Moderate/Severe, or Drug Use with Non-
Psychotic Complications, as well as to add the new HCC 83 (Alcohol Use 
with Psychotic Complications) and new HCC 84 (Alcohol Use Disorder, 
Moderate/Severe, or Alcohol Use with Specified Non-Psychotic 
Complications), with the exception of modifications described below 
with respect to grouping these HCCs in the adult models. Nevertheless, 
we also agree with commenters that there appears to be limited 
additional benefit at the present time to distinguish mild drug use 
disorder, proposed HCC 85 (Drug Use Disorder, Mild, Uncomplicated, 
Except Cannabis), from other substance use disorders in the revised 
adult, child, and infant models. We also share commenters' concerns 
about the possibility of creating incentives for increased reporting of 
additional diagnoses. We also agree with commenters who suggested that 
further review of HCC 85 is necessary, including within the context of 
RADV, prior to adding to this HCC. Therefore, after consideration of 
comments received, we are not finalizing the addition of HCC 85 in any 
of the models (adult, child, infant).
    In further acknowledgement of commenters' concerns, we are not 
finalizing our proposal to omit grouping of substance use codes in the 
adult models and are instead finalizing the grouping parallel to what 
was proposed for these HCCs in the child models. In both the child and 
adult models that are being finalized in this rule, HCC 81 (Drug Use 
with Psychotic Complications) and HCC 82 (Drug Use Disorder, Moderate/
Severe, or Drug Use with Non-Psychotic Complications) will be grouped, 
and HCC 83 (Alcohol Use with Psychotic Complications) and HCC 84 
(Alcohol Use Disorder, Moderate/Severe, or Alcohol Use with Specified 
Non-Psychotic Complications) will be grouped.\40\ We believe that the 
grouping of drug use and alcohol use HCCs, as finalized in this rule, 
will help to mitigate any potential incentives that could influence 
provider coding of these HCCs.
---------------------------------------------------------------------------

    \40\ Proposed group number G09B included proposed HCCs 83, 84 
and 85.
---------------------------------------------------------------------------

    Comment: Some commenters did not agree with mapping P040 (Newborn 
affected by maternal anesthesia analgesia in pregnancy, labor, and 
delivery) to the revised HCC 82 (Drug Use Disorder, Moderate/Severe, or 
Drug Use with Non-Psychotic Complications), stating that, unlike the 
effects on infants of opioid addiction or fetal alcohol syndrome, 
complications from anesthesia exposure are the product of poor quality 
of care, and that adding it to the models eliminates incentives to 
reduce complications from anesthesia such as reducing unnecessary use. 
One commenter stated that the inclusion of P040 will dilute the 
predictive value of the coefficient when applied to newborns that were 
exposed to opioids or alcohol, potentially creating more selection 
issues.

[[Page 29184]]

    Response: Consistent with the discussion in the HHS-HCC Updates 
Paper, we proposed to continue to include all substance use disorder 
payment HCCs in the infant models. Although most infants who are 
affected by the mother's substance use via placenta or breast milk are 
coded with a newborn-specific ICD-10 code from the P04 set, which in 
the finalized reclassified HHS-HCC updates maps to HCC 82, some infants 
are coded with substance use codes from the ICD-10 F10-F19 code sets, 
which map to payment HCCs 81-84 or to non-payment HCCs in the finalized 
V07 reclassified HHS-HCC updates. To be complete and map the entire set 
of P04 codes consistently, the diagnosis code P040 Newborn affected by 
maternal anesthesia and analgesia in pregnancy, labor and delivery was 
proposed to be added to the infant model within a payment HCC. The 
substance use disorder HCCs include substance use disorder codes and 
codes related to effects of noxious substances on infants. Therefore, 
we are finalizing the substance use disorder payment HCCs with the P040 
code mapped to HCC 82 in the infant models to account for these costs 
and associated risks.
    Comment: One commenter specifically opposed the addition of drug 
poisoning diagnoses to HCC 82 because, they stated, it reflects an 
acute condition with different patterns of claims, costs, and clinical 
behavior than other diagnoses in HCC 82. According to the commenter, 
the majority of drug poisoning diagnoses result from addiction to non-
prescribed opioids, and the absence of a prior claim in such 
circumstances makes the diagnosis difficult to predict. The commenter 
further observed that an episode of drug poisoning offers a unique 
opportunity for the enrollee to receive coordinated, high quality care 
that can help prevent another drug poisoning diagnosis. Lastly, the 
commenter stated that, because a drug poisoning diagnosis is sometimes 
the byproduct of a drug addiction associated with treatment for a 
serious condition, such as cancer, the cost profile for such enrollees 
will differ from other drug poisoning diagnoses.
    Response: We recognize that enrollees with substance use disorders 
require varied and complicated care. As we showed in the HHS-HCC 
Updates Paper, however, our estimate of the cost parameter for the 
revised HCC 82, which includes drug poisoning diagnoses, was not 
markedly different from the estimate for the current HCC 82 from the 
same analysis. We do not agree, therefore, that drug poisoning 
diagnoses are necessarily substantively different in terms of costs 
from other drug use disorders in that HCC. Additionally, the risk 
adjustment models adjust for the costs of additional complicating 
diagnoses, such as cancer, by including HHS-HCCs related to those 
conditions.
    We agree with the commenter that a drug poisoning diagnosis is an 
opportunity for improving care management and coordination for an 
enrollee. The primary objective of the risk adjustment program is to 
improve model prediction and mitigate risk of adverse selection when 
possible and, insofar as the addition of drug poisoning diagnoses to 
HCC 82 represents avoidable risk, we believe it is important to include 
these diagnoses in the models.
    Comment: Some commenters appreciated our proposed modifications to 
HCCs related to pregnancy, in which we added several HCCs to recognize 
ongoing care for pregnancy, distinguishing between severity of 
complications. One commenter requested more data from HHS to 
substantiate the addition of several new HCCs for ongoing pregnancy 
(HCCs 210-212) \41\ with and without delivery, stating that it is 
unclear how this will impact risk selection and future year premiums. 
Another commenter stated that, along with changes to acute conditions, 
the proposed modifications to HCCs related to pregnancy may incentivize 
upcoding. However, this commenter also stated that pregnancy as a 
condition is often planned, and as such, may allow costs associated 
with pregnancy to be predicted early enough that a person has an 
opportunity to enroll or change coverage, providing a rationale for 
including HCCs associated with pregnancy as payment HCCs.
---------------------------------------------------------------------------

    \41\ The new pregnancy related HCCs include HCC 210 for 
(Ongoing) Pregnancy without Delivery with Major Complications, HCC 
211 for (Ongoing) Pregnancy without Delivery with Complications and 
HCC 212 for (Ongoing) Pregnancy without Delivery with No or Minor 
Complications.
---------------------------------------------------------------------------

    Response: We appreciate the comments agreeing with the proposed 
modifications to HCCs related to pregnancy and are finalizing these 
HCCs as proposed. We reconfigured the pregnancy HCCs in the adult and 
child models to reflect the changes in ICD-10 classification systems 
over the prior ICD-9 classification related to episode of care, 
multiple gestation, and ectopic or molar pregnancy complications, as 
described in the HHS-HCC Updates Paper. Our analysis found that the 
current set of pregnancy HCCs in the existing models do not account 
well for a variety of pregnancy scenarios. For example, if an enrollee 
was pregnant during a plan year, with a complicated pregnancy as her 
only HCC, under the current models, she only receives the age-sex 
coefficient, which results in an underprediction of risk. If an 
enrollee had a low severity miscarriage HCC or completed pregnancy HCC, 
she receives one average HCC coefficient (in addition to an age-sex 
coefficient) in the current models, which results in a slight 
overprediction of risk. The primary purpose of the changes to the 
pregnancy HCCs, including the ungrouping of the ectopic/miscarriage-
related HCCs and the delivery and post-partum related HCCs and the 
addition of new HCCs 210-212, is to more precisely account for the 
costs associated with the pregnancy and with delivery/postpartum, as 
complications during pregnancy could be unrelated to complications in 
delivery/postpartum. We are therefore finalizing these changes as 
proposed for the adult models. For the child models, as explained 
above, we are finalizing these changes as proposed, except for the 
removal of HCC 212 from the ongoing pregnancy group because it has 
sufficient sample size for this population.
    Comment: Some commenters generally supported the proposed HCC 
updates, however other commenters did not support the HCC changes to 
the risk adjustment models. Some of these commenters requested that HHS 
delay the implementation of the HCC changes until issuers receive 
additional data to estimate the impact of specific HCC updates, such as 
on statewide average risk scores and payment transfers, and if 
finalized, one commenter suggested that we phase-in the updates. 
Comments also suggested that HHS develop an ongoing monitoring policy 
with respect to claim submissions to identify any possible gaming of 
the revised classifications. Others comments were concerned that the 
HCC changes may only serve to add more volatility to RADV. One 
commenter generally opposed all changes to HCCs and requested that we 
revisit whether the proposed changes violate the principles of risk 
adjustment.
    Some commenters supported specific HCC changes or supported 
specific HCC changes contingent on additional data analysis. For 
example, one commenter asked that HHS provide further information on 
the change to HCC 47, which filters out all but acute pancreatitis. 
Additionally, some commenters wanted analysis on the blood disorder HCC 
changes and metabolic and endocrine disorder changes contingent on 
additional analysis of expensive new treatments

[[Page 29185]]

(such as gene therapy). Some commenters supported the addition of the 
Diabetes Type 1 HCC to the adult models while one commenter did not. 
Likewise, some commenters supported the asthma HCC change, but one 
commenter was concerned that splitting the asthma HCC might create 
opportunities for gaming.
    Response: In considering these concerns, we weighed the competing 
goals of improving predictive power and limiting discretionary coding. 
We believe it is important to implement these changes as soon as 
possible to better reflect the HHS-HCCs with the ICD-10 coding changes, 
which were implemented in 2015. Additionally, some of these changes are 
already in effect for the Medicare risk adjustment program, and the HHS 
classification has lagged in the classification changes associated with 
the ICD-10 coding changes. As such, we are finalizing these changes as 
proposed, with the exception of modifications described above.
    As previously discussed, we provided stakeholders with advance 
notice of potential HCC changes in the HHS-HCC Updates Paper, released 
on June 17, 2019. This paper previewed potential HCC changes with 
detailed estimated costs between the V05 and the V06a classification, 
as well as the impact of the changes on the adult, child and infant 
risk adjustment models. With the proposed rule, we also provided 
stakeholders with a crosswalk of ICD-10 codes to the proposed HCCs 
under the ``Draft ICD-10 Crosswalk for Potential Updates to the HHS-HCC 
Risk Adjustment Model for the 2021 Benefit Year,'' which is available 
at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/index.html.\42\ Furthermore, in the HHS-HCC Updates Paper, we detailed 
the impact of the V06a HCC changes in counts of enrollees with and 
without HCCs. For all of these reasons, we do not believe delaying the 
implementation of these HCCs for additional data is needed.
---------------------------------------------------------------------------

    \42\ The Draft ICD-10 Crosswalk for Potential Updates to the 
HHS-HCC Risk Adjustment Model for the 2021 Benefit Year includes 
Table 4, which crosswalks ICD-10 codes to the Condition Categories 
(CCs) in the risk adjustment models, and Table 5, which provides the 
hierarchy rules to apply to the CCs to create HCCs. These Tables are 
similar to the Tables 3 and 5 that HHS includes as part of the HHS-
Developed Risk Adjustment Model Algorithm ``Do It Yourself (DIY)'' 
Software.
---------------------------------------------------------------------------

    We do not extract state identifiers in the enrollee-level EDGE 
data, and therefore, we are unable to directly assess state level 
impacts. However, we will consider for future rulemaking proposing to 
extract state identifiers in the enrollee-level EDGE data to conduct 
analyses commenters requested and evaluate changes in risk adjustment 
models.
    With respect to monitoring changes in claims submissions associated 
with revised HHS-HCC classifications to identify possible gaming, we 
agree on the importance of maintaining the integrity of the risk 
adjustment program. We note that there are several existing processes 
and programs that are intended to ensure program integrity. In addition 
to RADV, whose principal objective is to identify instances in which a 
diagnosis submitted to an issuer's EDGE server for risk adjustment is 
not supported by clinical documentation, we conduct ongoing quality and 
quantity review of EDGE submissions, and we carefully analyze annual 
enrollee-level EDGE data for shifts in diagnoses and spending. In 
addition, Sec.  153.620(b)(9)(iii) and (iv) provides HHS authority to 
impose civil money penalties for misconduct, as well as the intentional 
or reckless misrepresentation or falsification of information furnished 
to HHS, which could be leveraged if there is evidence of gaming of the 
revised classifications. Should we determine that any changes to the 
HHS-HCC classification or other program requirements are necessary to 
address gaming concerns, we would pursue those modifications through 
notice-and-comment rulemaking.
    In response to comments, we clarify that the V07 changes finalized 
in this rule will not be applicable in RADV until the 2021 benefit year 
(consistent with the adoption of the changes for the 2021 benefit year 
of risk adjustment). As noted above, we believe it is important to 
implement these changes as soon as possible to align the HHS-operated 
risk adjustment models with the ICD-10 coding changes, which were 
implemented in 2015, and do not believe the changes will add more 
volatility to RADV.
ii. Other Updates to Risk Adjustment Model Recalibration
    As discussed in the proposed rule, for the 2020 benefit year adult 
models, we made a pricing adjustment for one RXC coefficient for 
Hepatitis C drugs.\43\ In the 2020 Payment Notice, we stated that we 
intend to reassess this pricing adjustment in future benefit years' 
model recalibrations with additional years of enrollee-level EDGE 
data.\44\ For the 2021 benefit year model recalibration, we reassessed 
the Hepatitis C RXC to consider whether the adjustment was still 
needed, or needed to be modified. We found that the current data for 
the Hepatitis C RXC still does not take into account the significant 
pricing changes due to the introduction of new Hepatitis C drugs and, 
therefore, it does not precisely reflect the average cost of Hepatitis 
C treatments applicable to the benefit year in question. We also 
continue to be cognizant that issuers might seek to influence provider 
prescribing patterns if a drug claim can trigger a large increase in an 
enrollee's risk score and, therefore, make the risk adjustment transfer 
results more favorable for the issuer. For these reasons, we noted that 
we continue to believe that a pricing adjustment is needed for this RXC 
coefficient and proposed to adjust the Hepatitis C RXC for the 2021 
benefit year model recalibration. For the proposed RXC coefficients 
listed in Table 2 of the proposed rule, we constrained the Hepatitis C 
coefficient to the average expected costs of Hepatitis C drugs. Similar 
to the adjustment for the 2020 benefit year model recalibration, this 
has the material effect of reducing the Hepatitis C RXC, and the RXC-
HCC interaction coefficients. For the final 2021 benefit year Hepatitis 
C factors in the adult models, we proposed to make an adjustment to the 
plan liability associated with Hepatitis C drugs to reflect future 
market pricing of these drugs before solving for the adult model 
coefficients. We sought comment on this proposal.
---------------------------------------------------------------------------

    \43\ 84 FR 17454 at 17463 through 17466.
    \44\ Ibid.
---------------------------------------------------------------------------

    In light of the recent recommendation by the U.S. Preventive 
Services Task Force (USPSTF) to expand the use of pre-exposure 
prophylaxis (PrEP) as a preventive service that must be covered without 
cost sharing by applicable health plans for persons who are at high 
risk of HIV acquisition,\45\ we also proposed to incorporate PrEP as a 
preventive service in the simulation of plan liability for HHS's adult 
and child risk adjustment models in the final 2021 benefit year model 
recalibration.\46\ Although preventive services are incorporated in the 
simulation of plan

[[Page 29186]]

liability, they do not directly affect specific HCCs. We incorporate 
preventive services into the models to ensure that 100 percent of the 
cost of those services is reflected in the simulation of plan 
liability; preventive services are applied under relevant recommended 
conditions or groups. We proposed including PrEP as a preventive 
service along with our general updates to preventive services in the 
simulation of plan liability for the HHS risk adjustment models in the 
final 2021 benefit year adult and child models. We sought comment on 
this proposal.
---------------------------------------------------------------------------

    \45\ Final Recommendation Statement on ``Prevention of Human 
Immunodeficiency Virus (HIV) Infection: Preexposure Prophylaxis. 
U.S. Preventive Services Task Force. June 2019. https://www.uspreventiveservicestaskforce.org/Page/Document/RecommendationStatementFinal/prevention-of-human-immunodeficiency-virus-hiv-infection-pre-exposure-prophylaxis.
    \46\ The June 11, 2019 ``Preexposure Prophylaxis for the 
Prevention of HIV Infection: US Preventive Services Task Force 
Recommendations Statement'' published in JAMA states that 
adolescents at high risk of HIV acquisition could benefit from PrEP 
and it is approved for adolescents who weigh at least 35kg (~77 
pounds). https://jamanetwork.com/journals/jama/fullarticle/2735509.
---------------------------------------------------------------------------

    As part of the proposed 2021 model recalibration, we also 
considered whether to add an additional age-sex category for enrollees 
age 65 and over as part of the recalibration of the adult models. 
MarketScan[supreg] data does not include enrollees who are age 65 and 
over, but the enrollee-level EDGE data does. Currently, the risk 
adjustment program incorporates the risk and costs of enrollees age 65 
and over using the 60-64 age-sex coefficients. We originally excluded 
enrollees age 65 and over from recalibration to prevent having 
different methodologies for the MarketScan[supreg] and the enrollee-
level EDGE datasets that were used to solve for the blended 
coefficients for the risk adjustment models.
    Since we proposed to no longer use the MarketScan[supreg] data to 
recalibrate the risk adjustment models beginning with the 2021 benefit 
year, we explained in the proposed rule that we considered whether new 
age-sex coefficients should be created for enrollees age 65 and over 
beginning with the 2021 benefit year adult models. In reviewing the 
enrollee-level EDGE data, we found that over 70 percent of the 
enrollees age 65 and over are within the 65-66 age range, and we 
believe these enrollees are likely transferring into Medicare coverage 
once eligible. Our analysis also found that the enrollees ages 65-66 
have lower average annual expenditures than those enrollees between 
ages 60 and 64. In contrast, we found that enrollees age 67 and over 
have higher average annual expenditures than those between ages 60 and 
64. Due to these two different trends in the age 65 and over 
population, we did not propose to add new age-sex coefficients to the 
adult models at this time and would continue to exclude enrollees age 
65 and over in the adult models' calibration for the 2021 benefit year. 
We also noted that we would continue to monitor expenditures for 
enrollees age 65 and over to determine whether the addition of new age-
sex coefficients to the adult models in a future year is appropriate.
    After reviewing the comments we received, we are finalizing our 
proposal to apply an adjustment to the plan liability for the final 
2021 benefit year Hepatitis C factors in the adult models to ensure 
that enrollees can continue to receive incremental credit for having 
both the RXC and HCC for Hepatitis C, and allow for differential plan 
liability across metal levels. We will release the final RXC 
coefficients that reflect constraining the Hepatitis C coefficient to 
the average expected costs of Hepatitis C drugs in guidance, along with 
the other final 2021 benefit year coefficients, by June 2020 to allow 
for incorporation in final rates for the 2021 benefit year, consistent 
with Sec.  153.320(b)(1)(i).
    We are also finalizing our proposal to incorporate PrEP as a 
preventive service in the simulation of plan liability for HHS's adult 
and child risk adjustment models in the final 2021 benefit year model 
recalibration. We did not propose to add new age-sex coefficients to 
the adult models and are not making any changes to age-sex coefficients 
for enrollees age 65 and over at this time.
    The following is a summary of the public comments we received on 
the proposed pricing adjustment for the Hepatitis C RXC for the adult 
models, the proposal to incorporate PrEP as a preventive service in the 
simulation of plan liability for the adult and child models, and the 
discussion of the age-sex coefficients in the adult models. We also 
respond to other comments suggesting additional modifications to the 
HHS risk adjustment models.
    Comment: Most commenters supported the pricing adjustment for the 
Hepatitis C RXC. These commenters reasoned that this pricing adjustment 
would more accurately reflect the average cost of treatment in the risk 
adjustment models, ensure enrollees can continue to receive incremental 
credit for having both the Hepatitis C RXC and HCC, and account for the 
introduction of new Hepatitis C drugs. One commenter did not support 
this proposal, and suggested HHS avoid artificially constraining plan 
payment until prescription denial rates decrease and to account for 
potential adverse selection associated with treatment for Hepatitis C 
Virus (HCV). This commenter also expressed concern about HHS manually 
adjusting the risk adjustment coefficients downwards, potentially 
penalizing plans that provide better coverage for innovative drugs. 
Another commenter recommended HHS clarify the data source and approach 
it is using to constrain the Hepatitis C RXC coefficient, and cautioned 
against reducing the coefficient more than the expected decrease in 
cost.
    Response: In response to comments, we reassessed the pricing 
adjustment for the Hepatitis C RXC for the 2021 benefit year model 
recalibration and found that the most recent year of data (2018 
enrollee-level EDGE data) for the Hepatitis C RXC still does not take 
into account the significant pricing changes expected due to the 
introduction of newer and cheaper Hepatitis C drugs. Therefore, the 
data that will be used to recalibrate the models does not precisely 
reflect the average cost of Hepatitis C treatments applicable to the 
2021 benefit year. We also continue to be cognizant that issuers might 
seek to influence provider prescribing patterns if a drug claim can 
trigger a large increase in an enrollee's risk score, and therefore, 
make the risk adjustment transfer results more favorable for the 
issuer. Due to the high cost of these drugs reflected in the 2016, 2017 
and 2018 enrollee-level EDGE datasets, without a pricing adjustment to 
plan liability, issuers would be overcompensated for the Hepatitis C 
RXC in the 2021 benefit year, and could be incentivized to encourage 
overprescribing practices and game risk adjustment such that the 
issuer's risk adjustment payment is increased or risk adjustment charge 
is decreased. This pricing adjustment helps avoid perverse incentives, 
and leads to Hepatitis C RXC coefficients that better reflect 
anticipated actual 2021 benefit year plan liability associated with 
Hepatitis C drugs. It is also consistent with the approach adopted for 
the 2020 benefit year recalibration to address these concerns.
    As such, we are finalizing our proposal to make a pricing 
adjustment to more closely reflect the expected average additional plan 
liability of the Hepatitis C RXC for the 2021 benefit year adult risk 
adjustment models. In making this determination, we consulted our 
clinical and actuarial experts, and analyzed the most recent enrollee-
level EDGE data available (2018 benefit year) to further assess whether 
lower cost Hepatitis C drugs can be substituted to ensure that plans 
that cover various treatments would continue to be compensated for 
their incremental plan liability. We intend to continue to reassess 
this pricing adjustment in future benefit years' model recalibrations 
using additional years of available enrollee-level EDGE data.
    Comment: Some commenters asked HHS to monitor the market of new 
expensive therapies and treatments, such as gene therapy drugs, and

[[Page 29187]]

incorporate them into the risk adjustment model factors due to the 
anticipated high costs of these drugs and associated services. These 
commenters expressed concern about adequate issuer compensation for 
these drugs and the potential for adverse selection. The comments noted 
that the costs of very new, high cost treatments will not be reflected 
in prior year EDGE claims data.
    Response: We did not propose to update the risk adjustment model 
factors to reflect the costs of gene therapy drugs in the proposed rule 
and are not finalizing such updates in this rule. We intend to assess 
this issue as additional data becomes available and consider whether 
model updates should be made to address their anticipated costs in the 
future. We note that if an enrollee in an issuer's risk adjustment 
covered plans has gene therapy or other expensive treatments, that 
enrollee would be eligible for the high-cost risk pool payments if 
claims for that enrollee are over $1 million. Therefore, this issuer 
would receive compensation for these high-cost treatments under the 
HHS-operated risk adjustment program in the 2021 benefit year.
    Comment: Most commenters supported our proposal to incorporate PrEP 
as a preventive service in the simulation of plan liability for HHS's 
adult and child risk adjustment models in the final 2021 benefit year 
model recalibration. One commenter sought clarity as to whether issuers 
can offer both the generic and brand drug at $0 cost sharing. Another 
commenter requested more information about the incorporation of PrEP 
into the risk adjustment models, such as how HHS will identify PrEP 
therapies, given the rapid development of new therapies. Several 
commenters recommended incorporating PrEP as a prescription drug factor 
(RXC) in the adult models to adequately compensate plans that 
disproportionately enroll individuals using PrEP and prevent risk 
selection, and one commenter requested that HHS disclose any 
operational issues such as the ability to distinguish between 
antiretroviral therapy that is provided as a result of HIV acquisition 
and antiretroviral therapy that is provided as PrEP using logic that 
would make it difficult to implement an RXC for PrEP. Two commenters 
also encouraged including recommended ancillary services as part of the 
PrEP intervention in the risk adjustment models.
    Response: We proposed to incorporate PrEP as a preventive service 
in the simulation of plan liability in the risk adjustment adult and 
child models with zero cost sharing after careful analysis of 
preventive drugs that are recommended at grade A or B by the USPSTF. We 
were able to distinguish enrollees that met the ``at risk'' 
recommendation in the USPSTF recommendation and were receiving 
antiretroviral therapy for PrEP, rather than as treatment for HIV/AIDS, 
in our analysis of the enrollee-level EDGE datasets. We chose not to 
propose incorporating PrEP as an RXC because, as a general principle, 
RXCs are incorporated into the HHS risk adjustment adult models to 
impute a missing diagnosis or indicate severity of a diagnosis.\47\ 
Currently, PrEP is not incorporated into RXC 1 (Anti-HIV) because PrEP 
does not indicate an HIV/AIDS diagnosis.\48\ Unlike the other 
prescription drugs that we have included in RXCs, PrEP does not 
adequately represent risk due to an active condition. However, we 
proposed and are finalizing the incorporation of 100 percent of the 
PrEP costs for enrollees without HIV diagnosis or treatment in the 
simulation of plan liability for the adult and child models.
---------------------------------------------------------------------------

    \47\ See 81 FR 94058 at 94075. Also see March 31, 2016, HHS-
Operated Risk Adjustment Methodology Meeting Questions & Answers. 
June 8, 2016. Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf.
    \48\ See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Draft-RxC-Crosswalk-Memo-9-18-17.pdf; https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Draft-RxC-Crosswalk-Memo-9-18-17.pdf.
---------------------------------------------------------------------------

    The expected upcoming release of a generic version of PrEP will 
enable issuers to offer both the generic and brand drug at $0 cost 
sharing. We recognize that using past enrollee-level EDGE data may not 
properly predict future costs given the rapid development of new drugs. 
However, we are only able to analyze the enrollee-level EDGE claims 
data we have available when developing our proposals to incorporate new 
preventive services into the risk adjustment models, and do not have 
claims data on the expected new generic PrEP or any other drugs in 
development for use for the 2021 benefit year models. Therefore, while 
our modeling may not identify new PrEP therapies at this time, we were 
able analyze the data to identify enrollees taking PrEP without HCC 1 
(HIV/AIDS) to attribute those costs at 100 percent of simulation of 
plan liability.
    We did not propose and are not finalizing the addition of PrEP as 
an RXC to the adult risk adjustment models. It is difficult to model 
the impact of adding PrEP as an RXC at this time because we expect an 
increase in the number of people taking PrEP after the recent 
recommendation by the USPSTF Task Force to expand the use of PrEP as a 
preventive service, and we anticipate price changes with the expected 
upcoming release of a generic version of PrEP. Further, as noted above, 
as a general principle, RXCs are incorporated into the adult risk 
adjustment models to impute a missing diagnosis or indicate severity of 
a diagnosis. Since the use of PrEP is currently recommended as a 
preventive service for persons who are not infected with HIV and are at 
high risk of HIV infection, the use of PrEP does not indicate a 
diagnosis, and it would be inconsistent with this principle to add it 
as an RXC at this time.
    Additionally, we did not propose changes to the risk adjustment 
methodology related to ancillary services associated with PrEP as 
requested by two commenters. Therefore, we are not finalizing any 
changes to the treatment of ancillary services under the risk 
adjustment models for the 2021 benefit year, but will consider the 
comments as we consider further refinements to the risk adjustment 
models for future years.
    We are finalizing our proposal to incorporate PrEP as a preventive 
service in the simulation of plan liability for HHS's adult and child 
risk adjustment models in the final 2021 benefit year model 
recalibration and will continue to explore potentially including PrEP 
as an RXC in future benefit years.
    Comment: One commenter requested HHS propose adding new age-sex 
coefficients to the adult risk adjustment models for enrollees age 65 
and over in a future rulemaking, as HHS moves to using exclusively 
enrollee-level EDGE data to recalibrate the models. Another commenter 
recommended further analysis of age-sex coefficients for enrollees age 
65 and over and noted factors may need to differ by market or by 
Medicare status.
    Response: We appreciate these comments and intend to continue to 
monitor expenditures for enrollees age 65 and over to determine whether 
the addition of new age-sex coefficients for this cohort of the 
population to the adult models in a future year is appropriate. 
However, we did not propose and are not making any changes to age-sex 
coefficients for enrollees age 65 and over at this time. We will 
continue to exclude enrollees age 65 and over in the adult models' 
calibration for the 2021 benefit year because we believe most of these 
enrollees are likely transferring into Medicare coverage once eligible.

[[Page 29188]]

(3) Improving Risk Adjustment Model Predictions
    In the proposed rule, we solicited comment on different options to 
modify the risk adjustment models to improve model prediction for 
enrollees without HCCs or enrollees with low actual expenditures for 
future benefit years as follow-up from our consideration of these 
issues in the 2018 Payment Notice. More precisely, in the proposed 
rule, we discussed how, based on the use of the MarketScan[supreg] 
data, the HHS-HCC models under-predict for enrollees without HCCs, 
slightly over-predict for enrollees with low HCC counts and under-
predict for enrollees with the highest HCC counts. In the proposed 
rule, we explained that we continued to evaluate potential future 
options to address these issues and the tradeoffs that would need to be 
made in model predictive power among subgroups of enrollees under these 
options and that we continued to believe that further evaluation is 
appropriate before pursuing these options. However, we also recognized 
that additional stakeholder comment was a critical aspect to this 
analysis. Therefore, we outlined and solicited comment on various 
options that we were continuing to consider to improve the models' 
predictive ability for certain subgroups of enrollees in light of 
experience and currently available information.
    The first option that was detailed in the 2018 Payment Notice \49\ 
and in the proposed rule involved a constrained regression approach, 
under which we would estimate the adult risk adjustment models using 
only the age-sex variables, and then, we would re-estimate the models 
using the full set of HCCs, while constraining the value of the age-sex 
coefficients to be the same as those from the first estimation. In the 
2018 Payment Notice, we stated that we believed that this two-step 
estimation approach would result in age-sex coefficients of greater 
magnitude, potentially helping us predict the risk of the healthiest 
subpopulations more accurately. However, as noted in the proposed rule, 
we also found upon further analysis that the mean expenditures of 
individual HCCs under this approach were under-predicted compared to 
the current adult models and the mean expenditures of extremely 
expensive enrollees were more under-predicted under this approach than 
in the current adult models.
---------------------------------------------------------------------------

    \49\ Ibid.
---------------------------------------------------------------------------

    The second option discussed in the proposed rule involved directly 
adjusting plan liability risk scores outside of the models for the 
impacted sub-populations. This approach would involve directly 
increasing underestimated plan liability risk scores or reducing 
overestimated plan liability risk scores in an attempt to better match 
the relative risks of these sub-populations.\50\ Specifically, we 
evaluated using a post-estimation adjustment to the current models' 
individual-level risk scores to address the observed patterns of over- 
and under-prediction for certain sub-populations. In the proposed rule, 
we stated that while we believed modifications of this type could 
improve the model's performance along this specific dimension (deciles 
of predicted expenditures), there was a risk that such modifications 
could unintentionally worsen model performance along other dimensions 
on which the model currently performs well. As described in the 
proposed rule, we recently reassessed this adjustment option given the 
availability of the more recent enrollee-level EDGE data and the 
implementation of several updates to the HHS risk adjustment 
methodology beginning with the 2018 benefit year.\51\ We did not find 
improvements in the predictive ratios when compared to the predictive 
ratios of the current approach. Our analysis of this adjustment option 
showed that the estimates for the lowest-cost decile and top two 
highest-cost deciles of enrollees were more underpredicted under this 
approach as compared to the current model. Additionally, this approach 
resulted in worse prediction along other dimensions, such as for 
subgroups of enrollees with no HCCs and those with 1 or more payment 
HCCs.
---------------------------------------------------------------------------

    \50\ Ibid.
    \51\ For example, we incorporated the high costs risk pool 
parameters into the HHS risk adjustment methodology, added RXCs into 
the adult risk adjustment models, and applied an administrative cost 
reduction to the statewide average premiums in the state payment 
transfer formula starting with the 2018 benefit year. See the 2018 
Payment Notice, 81 FR 94058 (December 22, 2016).
---------------------------------------------------------------------------

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

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


Where:

[Sigma][beta]iHCCi = the sum of payment HCCs 
weighted by their parameter estimates;
p = an exponential factor estimated by the model.

This type of non-linear model would measure the total disease burden by 
a weighted count of HCCs rather than a simple count of the payment 
HCCs, while only requiring one additional parameter. This approach 
would also allow the demographic terms for enrollees with no payment 
HCCs to be better estimated, while using a nonlinearity for the disease 
burden that could keep the model reasonably simple. As such, we 
believed that adding a non-linear term to the models could be a 
reasonable approach to potentially improve the prediction of the 
models.
    For the count model, we considered adding eight indicator variables 
corresponding to 1 to 8-or-more payment HCCs. Under this option, the 
incremental predictions would vary with a person's count of HCCs (from 
1 to 8-or-more payment HCCs) as the incremental predictions for HCCs in 
a HCC count model have two components, the HCC coefficient and the 
change in the number of HCCs (from 1 to 8-or-more payment HCCs). This 
option would also generally be more consistent with other programs 
(Medicare Advantage) than the non-linear model, and has yielded similar 
results in model performance and improvements in the prediction in the 
adult models as the non-linear model. However, similar to the non-
linear model, the count model may not improve the prediction for all 
subpopulations in the models.
    Additionally, in the proposed rule, we discussed potential 
adjustments to the enrollment duration factors in the adult models, as 
well as an assessment of whether such factors should be incorporated 
into the child and infant models. Using the 2016 and 2017 enrollee-
level EDGE data, we investigated heterogeneity in the relationship 
between partial-year enrollment and predicted expenditures. We explored 
heterogeneity according to the presence of certain diagnoses,

[[Page 29189]]

market (individual or small group),\52\ and enrollment circumstances, 
such as enrollment beginning later in the year or ending before the end 
of the year. Our preliminary analysis of 2017 enrollee-level EDGE data 
found that current enrollment duration factors are driven mainly by 
enrollees with HCCs, that is, partial year enrollees with HCCs have 
higher per member per month (PMPM) expenditures on average as compared 
to full year enrollees with HCCs, whereas partial year enrollees 
without HCCs have similar PMPM expenditures compared to their full year 
counterparts. In comparison to the effect of the presence of HCCs on 
enrollment duration factors, enrollment timing (for example, enrollment 
at the beginning of the year compared to enrollment after open 
enrollment period, or drop in enrollment before the end of the year) 
did not appear to affect PMPM expenditures on average. Our analysis 
also found that separate enrollment duration factors by market in the 
adult models may be warranted, given the differences in risk profiles 
of partial year enrollees between the individual and small group 
markets.\53\ However, due to limitations with the extracted enrollee-
level EDGE data for the 2016 and 2017 benefit years that do not permit 
us to connect non-calendar year enrollees in the small group market 
across plan years within the same calendar year, we are unable to 
develop and propose separate enrollment duration factors by market at 
this time. Based on these analyses, because partial-year enrollees with 
HCCs seem to have the most distinctive additional expenditures, we 
explained in the proposed rule that we believed that eliminating the 
enrollment duration factors and replacing them with monthly enrollment 
duration factors (up to 6-months), for those with HCCs, would most 
improve model prediction.
---------------------------------------------------------------------------

    \52\ In the enrollee-level EDGE data, merged market enrollees 
are assigned to the individual or small group market indicator based 
on their plan.
    \53\ In the enrollee-level EDGE data, merged market enrollees 
are assigned to the individual or small group market indicator based 
on their plan.
---------------------------------------------------------------------------

    Additionally, in the proposed rule, we analyzed incorporating 
enrollment duration factors in the child and infant models in the same 
manner as the adult models. We found that partial year enrollees in the 
child models did not have the same risk differences as partial year 
enrollees in the adult models, and partial year enrollees in the child 
models tended to have similar risk to full year enrollees in the child 
models. In the infant models, we found that partial year infants have 
higher expenditures on average compared to their full year 
counterparts. However, we found that the incorporation of enrollment 
duration factors created interaction issues with the current severity 
and maturity factors in the infant models and did not have a meaningful 
impact on the general predictive accuracy of the infant models. As 
such, we did not propose to add partial year factors to the child or 
infant models.
    We solicited comments on all of the alternative modeling approaches 
to help inform our evaluation of the important trade-offs in making 
improvements to risk prediction for these sub-populations and providing 
consistency year-to-year for issuers, but did not propose to 
incorporate any of them as part of the 2021 benefit year risk 
adjustment model recalibration. We also generally solicited comments 
but did not propose any changes to the enrollment duration factors 
(including the potential addition of such factors to the child and 
infant models) for the 2021 benefit year. Instead, as outlined in the 
proposed rule, we intend to use stakeholder comments on these issues to 
aid in consideration of future model updates as we also continue to 
analyze these options using additional years of enrollee-level EDGE 
data, once available. The following is a summary of the public comments 
we received in response to the solicitation of comments on potential 
approaches to improve risk adjustment model prediction.
    Comment: Commenters generally appreciated or supported HHS's 
solicitation of comments on revisions to the risk adjustment models to 
improve model prediction. Some commenters supported evaluating count 
and non-linear models to address the under- and over-prediction of 
costs in the current models or generally supported making changes to 
risk adjustment to better account for enrollees without HCCs and 
enrollees with the highest number of HCCs in the future. Other 
commenters expressed concerns about the count and non-linear methods 
introducing more complexity to the risk adjustment models and creating 
uncertainty in pricing.
    Most commenters wanted additional analyses and various types of 
data, such as issuer and beneficiary level data, on the impact of any 
potential model changes on the current risk adjustment program and the 
improvements in accuracy and predictive power that these models could 
provide to inform whether these types of changes should be pursued. 
Some commenters recommended that HHS release a White Paper on its 
analyses and data prior to rulemaking. Others wanted continued HHS 
engagement with stakeholders on model changes aimed at improving the 
risk adjustment models' predictions. Some commenters recommended more 
interaction and severity terms, such as a diabetes and asthma 
interaction term, in the risk adjustment models as a simpler and more 
stable change to improve model prediction, compared to the count or 
non-linear model specifications. One commenter supported finding viable 
alternative methodologies but urged caution in quickly adopting the 
count or non-linear models before analysis can be fully validated and 
another commenter expressed concern about the count and non-linear 
models given that individual and small group market enrollees have less 
HCCs that could result in smaller sample sizes and bring volatility to 
the models. One commenter did not think that any of the approaches 
described in the proposed rule would impact coding incentives in the 
risk adjustment program beyond those incentives that already inherent 
to the risk adjustment program. One commenter supported including the 
model changes in the 2022 risk adjustment models if the prediction for 
low-risk enrollees is better and stated that it would be helpful if the 
methodology used was similar to Medicare, while another commenter 
suggested providing several years lead time before implementing the 
model change options discussed in the proposed rule.
    Response: We agree with commenters who suggested that further 
evaluation is needed of the model performance before proposing these 
types of changes to the risk adjustment models. Although we did not 
receive many comments that were specific to the model options 
considered, we intend to continue to evaluate alternative modeling 
approaches to improve model prediction as described in the proposed 
rule, and would propose any modifications through future rulemaking.
    As explained in the proposed rule, our initial analyses suggested 
that the non-linear and count models may yield considerable gains in 
predictive accuracy across several groups in the adult models when 
compared to the current linear model. Based on the initial testing of 
both the count and non-linear models' impact on the adult silver risk 
adjustment models, we found that the enrollees with the lowest costs 
have better predictive ratios under both the count and non-linear 
models than under the current model, with the non-linear model slightly 
over-predicting the costs of those enrollees. We also noted that we do 
not believe that the count or non-

[[Page 29190]]

linear models would impact coding incentivizes to code additional HCCs 
in comparison to the current risk adjustment models.
    However, we intend to balance the associated trade-offs of making 
improvements to the models and providing consistency year-to-year for 
issuers in the HHS-operated risk adjustment program. As such, we intend 
to further test the model specifications, incorporating the non-linear 
and count options described above and consider whether we should 
analyze other options that could address model prediction, with an 
additional year of data before considering these model changes for 
future years and will take into consideration the additional analyses 
recommended by commenters. Based on those results, and in response to 
comments, we will also consider what types of analyses or data we could 
release to help stakeholders assess these options and models for any 
potential future incorporation into the risk adjustment models.
    Comment: Commenters generally supported making updates to the 
enrollment duration factors to prevent adverse selection with one 
commenter supporting removal of the enrollment duration factors, 
suggesting it would simplify risk adjustment. Some commenters wanted 
additional analyses and data on the potential changes to the enrollment 
duration factors before modifications were made to the existing 
factors. Some comments supported separate enrollment duration factors 
by market since the adverse selection considerations differ in the 
individual and small group markets or supported applying adjustments 
only to enrollees with HCCs believing this adjustment could help to 
differentiate enrollees selecting coverage during a Special Enrollment 
Period (SEP) from those enrolling during open enrollment and dropping 
coverage early in the year without claims. However, one commenter 
wanted HHS to apply enrollment duration values to the 2021 benefit year 
for the individual market (but not small group market enrollees) to 
capture adverse selection and the differences in churn between markets. 
Some commenters expressed support for incorporation of enrollment 
duration factors in the infant models since partial-year infants have 
higher expenditures on average compared to their full-year 
counterparts.
    Response: As discussed in the proposed rule, due to certain data 
limitations in the 2016 and 2017 enrollee-level EDGE data, we did not 
propose changes to 2021 benefit year existing enrollment duration 
factors for the adult models. However, we intend to continue to review 
the use of enrollment duration factors in the HHS risk adjustment 
models, both with respect to the current factors in the adult models 
and the potential incorporation of such factors in the child and infant 
models. With the availability of more benefit years of enrollee-level 
EDGE data, we will consider potential changes to the enrollment 
duration factors for future benefit years, including whether to make 
changes to the enrollment duration factors to distinguish market type 
differences or to distinguish partial year enrollees with HCCs. As part 
of that analysis, we will also continue to assess the infant models' 
characteristics, and whether we should consider incorporating 
enrollment duration factors into those models. We intend to consider 
recommendations and considerations shared by commenters in response to 
the proposed rule as part of this analysis.
(4) List of Factors To Be Employed in the Risk Adjustment Models (Sec.  
153.320)
    We noted in the proposed rule that if we finalize the proposed 
recalibration approach, we would incorporate the 2018 benefit year 
enrollee-level EDGE data in the final rule or in guidance after 
publication of the final rule, consistent with our approach in previous 
benefit years.\54\ As noted above, we were unable to incorporate the 
2018 benefit year EDGE data in time to publish the final coefficients 
in this final rule. Therefore, for the 2021 benefit year, we will 
release the final list of coefficients, incorporating the 2018 benefit 
year enrollee-level EDGE data, in guidance by June 2020, to allow the 
factors to be incorporated into final rates for the 2021 benefit year.
---------------------------------------------------------------------------

    \54\ See 45 CFR 153.320(b)(1)(i).
---------------------------------------------------------------------------

(5) Cost-Sharing Reduction Adjustments
    We proposed to continue including an adjustment for the receipt of 
CSRs in the risk adjustment models to account for increased plan 
liability due to increased utilization of health care services by 
enrollees receiving CSRs in all 50 states and the District of Columbia. 
For the 2021 benefit year, to maintain stability and certainty for 
issuers, we proposed to maintain the CSR factors finalized in the 2019 
and 2020 Payment Notices.\55\ Consistent with the approach finalized in 
the 2017 Payment Notice,\56\ we also proposed to continue to use a CSR 
adjustment factor of 1.12 for all Massachusetts wrap-around plans in 
the risk adjustment plan liability risk score calculation, as all of 
Massachusetts' cost-sharing plan variations have AVs above 94 percent.
---------------------------------------------------------------------------

    \55\ See 83 FR 16930 at 16953 and 84 FR 17454 at 17478 through 
17479.
    \56\ See 81 FR 12203 at 12228.
---------------------------------------------------------------------------

    We are finalizing the CSR factors as proposed and will maintain the 
same CSR factors finalized for the 2019 and 2020 benefit years for the 
2021 benefit year as shown in Table 3.

               Table 3--Cost-Sharing Reduction Adjustment
------------------------------------------------------------------------
                                                              Induced
         Household income                  Plan AV          utilization
                                                              factor
------------------------------------------------------------------------
                     Silver Plan Variant Recipients
------------------------------------------------------------------------
100-150% of FPL...................  Plan Variation 94%..            1.12
150-200% of FPL...................  Plan Variation 87%..            1.12
200-250% of FPL...................  Plan Variation 73%..            1.00
>250% of FPL......................  Standard Plan 70%...            1.00
------------------------------------------------------------------------
                      Zero Cost Sharing Recipients
------------------------------------------------------------------------
<300% of FPL......................  Platinum (90%)......            1.00
<300% of FPL......................  Gold (80%)..........            1.07
<300% of FPL......................  Silver (70%)........            1.12

[[Page 29191]]

 
<300% of FPL......................  Bronze (60%)........            1.15
------------------------------------------------------------------------
                     Limited Cost Sharing Recipients
------------------------------------------------------------------------
>300% of FPL......................  Platinum (90%)......            1.00
>300% of FPL......................  Gold (80%)..........            1.07
>300% of FPL......................  Silver (70%)........            1.12
>300% of FPL......................  Bronze (60%)........            1.15
------------------------------------------------------------------------

    The following is a summary of the public comments we received on 
the proposed CSR factors in the risk adjustment models.
    Comment: Many commenters supported the CSR adjustment factors for 
the 2021 benefit year and continuing the CSR adjustment factor of 1.12 
for all Massachusetts wrap-around plans. Some commenters wanted HHS to 
analyze the CSR adjustment factors and induced demand factors for 
future benefit years to consider whether changes are needed.
    Response: We are finalizing the CSR adjustment factors as proposed. 
Consistent with the approach finalized in the 2017 Payment Notice,\57\ 
we will continue to use a CSR adjustment factor of 1.12 for all 
Massachusetts wrap-around plans in the risk adjustment plan liability 
risk score calculation for the 2021 benefit year, as all of 
Massachusetts' cost-sharing plan variations have AVs above 94 percent. 
We have previously reviewed the induced utilization factors with the 
availability of the enrollee-level EDGE data, and we continue to 
believe the current CSR adjustments are adequate. However, we will 
continue to reexamine whether changes to the induced demand factors and 
CSR adjustments are warranted in the future.
---------------------------------------------------------------------------

    \57\ See 81 FR 12203 at 12228.
---------------------------------------------------------------------------

(6) Model Performance Statistics
    To evaluate risk adjustment model performance, we examined each 
model's R-squared statistic and predictive ratios. The R-squared 
statistic, which calculates the percentage of individual variation 
explained by a model, measures the predictive accuracy of the model 
overall. The predictive ratio for each of the HHS risk adjustment 
models is the ratio of the weighted mean predicted plan liability for 
the model sample population to the weighted mean actual plan liability 
for the model sample population. The predictive ratio represents how 
well the model does on average at predicting plan liability for that 
subpopulation.
    A subpopulation that is predicted perfectly would have a predictive 
ratio of 1.0. For each of the HHS risk adjustment models, the R-squared 
statistic and the predictive ratios are in the range of published 
estimates for concurrent risk adjustment models.\58\ Because we blended 
the coefficients from separately solved models based on the 2016 and 
2017 benefit years' enrollee-level EDGE data that were available at the 
time of the proposed rule, we published the R-squared statistic for 
each model separately to verify their statistical validity. We noted in 
the proposed rule that if the proposed 2021 benefit year model 
recalibration data was finalized, we intended to publish updated R-
squared statistics to reflect results from the blending of the 2016, 
2017, and 2018 benefit years' enrollee-level EDGE datasets used to 
recalibrate the models for the 2021 benefit year. For the 2021 benefit 
year, we will release the final R-squared statistics along with the 
final coefficients, incorporating the 2018 benefit year enrollee-level 
EDGE data, in guidance by June 2020.
---------------------------------------------------------------------------

    \58\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis 
of Claims-Based Tools for Health Risk Assessment.'' Society of 
Actuaries. April 2007.
---------------------------------------------------------------------------

b. Overview of the Risk Adjustment Transfer Methodology (Sec.  153.320)
    We previously defined the calculation of plan average actuarial 
risk and the calculation of payments and charges in the Premium 
Stabilization Rule. In the 2014 Payment Notice, we combined those 
concepts into a risk adjustment state payment transfer formula.\59\ 
This formula generally calculates the difference between the revenues 
required by a plan, based on the health risk of the plan's enrollees, 
and the revenues that the plan can generate for those enrollees. These 
differences are then compared across plans in the state market risk 
pool and converted to a dollar amount via a cost scaling factor. In the 
absence of additional funding, we established, through notice and 
comment rulemaking,\60\ the HHS-operated risk adjustment program as a 
budget-neutral program to provide certainty to issuers regarding risk 
adjustment payments and charges, which allows issuers to set rates 
based on those expectations. In light of the budget-neutral framework, 
HHS uses statewide average premium as the cost-scaling factor in the 
state payment transfer formula under the HHS-operated risk adjustment 
methodology, rather than a different parameter, such as each plan's own 
premium, which would not have automatically achieved equality between 
risk adjustment payments and charges in each benefit year.\61\
---------------------------------------------------------------------------

    \59\ The state payment transfer formula refers to the part of 
the HHS risk adjustment methodology that calculates payments and 
charges at the state market risk pool level prior to the calculation 
of the high-cost risk pool payment and charge terms that apply 
beginning with the 2018 benefit year.
    \60\ For example, see Standards Related to Reinsurance, Risk 
Corridors, and Risk Adjustment, Proposed Rule, 76 FR 41938 (July 15, 
2011); Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment, Final Rule, 77 FR 17232 (March 23, 2012); and the 2014 
Payment Notice, Final Rule, 78 FR 15441 (March 11, 2013). Also see, 
the 2018 Payment Notice, Final Rule, 81 FR 94058 (December 22, 
2016); and the 2019 Payment Notice, Final Rule, 83 FR 16930 (April 
17, 2018). Also see the Adoption of the Methodology for the HHS-
Operated Permanent Risk Adjustment Program Under the Patient 
Protection and Affordable Care Act for the 2017 Benefit Year, Final 
Rule, 83 FR 36456 (July 30, 2018) and the Patient Protection and 
Affordable Care Act; and Adoption of the Methodology for the HHS-
Operated Permanent Risk Adjustment Program for the 2018 Benefit Year 
Final Rule, 83 FR 63419 (December 10, 2018).
    \61\ See the 2020 Payment Notice for further details on other 
reasons why statewide average premium is the cost-scaling factor in 
the state payment transfer formula. See 84 FR 17454 at 17480 through 
17484.
---------------------------------------------------------------------------

    Risk adjustment transfers (total payments and charges, including 
high-cost risk pool payments and charges) are calculated after issuers 
have completed their risk adjustment EDGE data submissions for the 
applicable benefit year. Transfers (payments and charges) under the 
state payment transfer

[[Page 29192]]

formula are calculated as the difference between the plan premium 
estimate reflecting risk selection and the plan premium estimate not 
reflecting risk selection. The state payment transfer calculation that 
is part of the HHS risk adjustment transfer methodology follows the 
formula:
[GRAPHIC] [TIFF OMITTED] TR14MY20.026

Where:

PS = statewide average premium;
PLRSi = plan i's plan liability risk score;
AVi = plan i's metal level AV;
ARFi = allowable rating factor;
IDFi = plan i's induced demand factor;
GCFi = plan i's geographic cost factor;
si = plan i's share of state enrollment.

    The denominators are summed across all risk adjustment covered 
plans in the risk pool in the market in the state. The state payment 
transfer formula also includes a 14 percent administrative cost 
reduction to the statewide average premium.\62\
---------------------------------------------------------------------------

    \62\ This adjustment applied beginning with the 2018 benefit 
year. See 84 FR 17454 at 17486 for a visual illustration of the 
equation for this adjustment.
---------------------------------------------------------------------------

    The difference between the two premium estimates in the state 
payment transfer formula determines whether a plan pays a risk 
adjustment charge or receives a risk adjustment payment. The value of 
the plan average risk score by itself does not determine whether a plan 
would be assessed a charge or receive a payment--even if the risk score 
is greater than 1.0, it is possible that the plan would be assessed a 
charge if the premium compensation that the plan may receive through 
its rating (as measured through the allowable rating factor) exceeds 
the plan's predicted liability associated with risk selection. Risk 
adjustment transfers under the state payment transfer formula are 
calculated at the risk pool level, and catastrophic plans are treated 
as a separate risk pool for purposes of the risk adjustment state 
payment transfer calculations.\63\ This resulting PMPM plan payment or 
charge is multiplied by the number of billable member months to 
determine the plan payment or charge based on plan liability risk 
scores for a plan's geographic rating area for the risk pool market 
within the state. The payment or charge under the state payment 
transfer formula is thus calculated to balance the state market risk 
pool in question.
---------------------------------------------------------------------------

    \63\ As detailed elsewhere in this final rule, catastrophic 
plans are considered part of the individual market for purposes of 
the national high-cost risk pool payment and charge calculations.
---------------------------------------------------------------------------

    To account for costs associated with exceptionally high-risk 
enrollees we previously added a high-cost risk pool adjustment to the 
HHS risk adjustment transfer methodology. As finalized in the 2020 
Payment Notice,\64\ we intend to maintain the high-cost risk pool 
parameters with a threshold of $1 million and a coinsurance rate of 60 
percent for benefit years 2020 and beyond, unless amended through 
notice-and-comment rulemaking. We did not propose any changes to the 
high-cost risk pool parameters for the 2021 benefit year.
---------------------------------------------------------------------------

    \64\ 84 FR 17454 at 17466 through 17468.
---------------------------------------------------------------------------

    The high-cost risk pool adjustment amount is added to the state 
payment transfer formula to account for: (1) The payment term, 
representing the portion of costs above the threshold reimbursed to the 
issuer for high-cost risk pool payments (HRPi), if 
applicable; and (2) the charge term, representing a percentage of 
premium adjustment, which is the product of the high-cost risk pool 
adjustment factor (HRPCm) for the respective national high-
cost risk pool m (one for the individual market, including 
catastrophic, non-catastrophic and merged market plans, and another for 
the small group market), and the plan's total premiums 
(TPi). For this calculation, we use a percent of premium 
adjustment factor that is applied to each plan's total premium amount.
    The total plan transfers for a given benefit year are calculated as 
the product of the plan's PMPM transfer amount (Ti) 
multiplied by the plan's billable member months (Mi), plus 
the high-cost risk pool adjustments. The total plan transfer (payment 
or charge) amounts under the HHS risk adjustment payment transfer 
formula are calculated as follows:

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

Where:

Total Transferi = Plan i's total HHS risk adjustment 
program transfer amount;
Ti = Plan i's PMPM transfer amount based on the state 
transfer calculation;
Mi = Plan i's billable member months;
HRPi = Plan i's total high-cost risk pool payment;
HRPCm = High-cost risk pool percent of premium adjustment 
factor for the respective national high-cost risk pool m;
TPi = Plan i's total premium amounts.

    We proposed to continue to use the HHS state payment transfer 
formula that was finalized in the 2020 Payment Notice with no 
changes.\65\ We noted in the proposed rule that although the proposed 
HHS state payment transfer formula for the 2021 benefit year is 
unchanged from what was finalized for the previous benefit year, we 
believed it is useful to republish the formula in its entirety in the 
proposed rule. Additionally, we noted that we republished the 
description of the administrative cost reduction to the statewide 
average premium and high-cost risk pool factors, although these factors 
and terms also remain unchanged in the proposed rule.\66\
---------------------------------------------------------------------------

    \65\ 84 FR 17454 at 17480 and 17485.
    \66\ Ibid.
---------------------------------------------------------------------------

    We are finalizing our proposal to use the risk adjustment state 
payment transfer formula finalized in the 2020 Payment Notice for 2021 
benefit year risk adjustment. This includes maintaining the 14 percent 
administrative cost reduction to the statewide average premium for the 
2021 benefit year. We also did not propose and are therefore 
maintaining the threshold of $1 million and coinsurance rate of 60 
percent as the high-cost risk pool parameters for the 2021 benefit 
year. Below is a summary of comments we received on maintaining the 
risk adjustment state payment transfer formula and high-cost risk pool 
parameters finalized in the 2020 Payment Notice.
    Comment: Most commenters supported maintaining the high-cost risk 
pool parameters to promote stability in the risk adjustment program and 
to fulfill its goals of preventing adverse selection while maintaining 
a level playing field and facilitating fair market competition on the 
basis of efficiency and quality of care provided. One commenter did not 
support maintaining the high-cost risk pool due to concerns that 
issuers may try to ``game'' the system by inflating the costs of high-
cost services to push payments over the threshold, and stated that the 
methodology creates another level of uncertainty that issuers will need 
to factor into their premiums. This commenter stated that if HHS wants 
to

[[Page 29193]]

continue the reinsurance program, it should be pursued outside of risk 
adjustment, and suggested HHS should instead create a permanent 
reinsurance program, using Medicare pricing to reprice all claims over 
$1 million and account for geographic pricing variations in its 
calculation of the high-cost risk pool payment and charge terms. 
Another commenter supported exempting new issuers from risk adjustment, 
applying a creditability approach to risk adjustment participation or 
placing an upper bound on risk adjustment transfer charges.
    Response: We did not propose to make changes to the high-cost risk 
pool adjustment or parameters in the proposed rule. In the 2020 Payment 
Notice, we finalized the high-cost risk pool parameters and the 
additional terms to account for the high-cost risk pool in the risk 
adjustment transfer methodology for the 2020 benefit year and for 
future benefit years unless changed in notice-and-comment rulemaking. 
These parameters will therefore continue to apply in the HHS risk 
adjustment methodology until HHS proposes to change them. As explained 
in prior rulemakings, we added a high-cost risk pool adjustment in the 
HHS risk adjustment methodology to better account for the risk 
associated with high-cost enrollees and to allow the risk adjustment 
factors to be calculated without the high-cost risk, since the average 
risk associated with HCCs and RXCs is better accounted for without the 
inclusion of the high-cost enrollees.\67\ We did not propose nor are we 
finalizing the creation of a new, separate reinsurance program.
---------------------------------------------------------------------------

    \67\ See, for example, 84 FR at 17466-17467 and 81 FR at 94080-
94082.
---------------------------------------------------------------------------

    Furthermore, we continue to believe a $1 million threshold and 60 
percent coinsurance rate for the 2021 benefit year and beyond are 
appropriate to incentivize issuers to control costs while improving 
risk prediction under the HHS risk adjustment models and prevent any 
potential gaming of issuers to inflate costs. We also believe the $1 
million threshold and 60 percent coinsurance rate will result in total 
high-cost risk pool payments or charges nationally that are very small 
as a percentage of premiums for issuers, and will prevent states and 
issuers with very high-cost enrollees from bearing a disproportionate 
amount of unpredictable risk. Lastly, we believe that maintaining the 
same threshold and coinsurance rate from year-to-year will help promote 
stability and predictability for issuers.
    As detailed further below, HHS established a new process, beginning 
with the 2020 benefit year, for states to request reductions in 
transfers calculated under the HHS state payment transfer formula.\68\ 
This process was intended in part to aid smaller issuers that owed 
substantial risk adjustment charges that they did not anticipate.\69\ 
However, HHS previously considered and otherwise declined to adopt a 
cap on risk adjustment charges.\70\ We remain concerned that a general 
cap on risk adjustment transfers would reduce the necessary risk 
adjustment payments to issuers with higher-risk enrollees and undermine 
the risk adjustment program's effectiveness.\71\ More specifically, 
given the budget-neutral nature of the HHS program, a cap on charges 
would result in lower payments to issuers with plans with higher-than-
average actuarial risk. The cap may also incentivize small issuers with 
plans that attract healthier-than-average enrollees to underprice 
premiums because they would know their charges would be capped to a 
percentage of premium. As described in a previous section of this 
rulemaking, we are continuing to consider future policy options to 
improve the predictability and accuracy of the risk adjustment models. 
Modifications that improve predictably and accuracy would ultimately 
help new and small issuers. We did not propose and are not finalizing 
exemptions for new issuers or the adoption of a creditability approach 
to participation in the HHS-operated risk adjustment program.
---------------------------------------------------------------------------

    \68\ 83 FR at 16955.
    \69\ 83 FR at 16956.
    \70\ 81 FR at 94101.
    \71\ Ibid.
---------------------------------------------------------------------------

(1) State Flexibility Requests (Sec.  153.320(d))
    In the 2019 Payment Notice, we provided states the flexibility to 
request a reduction to the otherwise applicable risk adjustment 
transfers calculated under the HHS-operated risk adjustment 
methodology, which is calibrated on a national dataset, for the state's 
individual, small group, or merged markets by up to 50 percent to more 
precisely account for differences in actuarial risk in the applicable 
state's market(s). We finalized that any requests received would be 
published in the respective benefit year's proposed notice of benefit 
and payment parameters, and the supporting evidence would be made 
available for public comment.\72\
---------------------------------------------------------------------------

    \72\ 2019 Payment Notice Final Rule, 83 FR 16930 (April 17, 
2018) and 45 CFR 153.320(d)(3).
---------------------------------------------------------------------------

    As finalized in the 2020 Payment Notice, if the state requests that 
HHS not make publicly available certain supporting evidence and 
analysis because it contains trade secrets or confidential commercial 
or financial information within the meaning of the Freedom of 
Information Act (FOIA) regulations at 45 CFR 5.31(d), HHS will make 
available on the CMS website only the supporting evidence submitted by 
the state that is not a trade secret or confidential commercial or 
financial information by posting a redacted version of the state's 
supporting evidence.\73\
---------------------------------------------------------------------------

    \73\ See 45 CFR 153.320(d)(3).
---------------------------------------------------------------------------

    In accordance with Sec.  153.320(d)(2), beginning with the 2020 
benefit year, states must submit such requests with the supporting 
evidence and analysis outlined under Sec.  153.320(d)(1) by August 1st 
of the calendar year that is 2 calendar years prior to the beginning of 
the applicable benefit year. If approved by HHS, state reduction 
requests will be applied to the plan PMPM payment or charge transfer 
amount (Ti in the state payment transfer calculation).
    For the 2021 benefit year, HHS received a request to reduce risk 
adjustment transfers for the Alabama small group market by 50 percent. 
Alabama's request states that the presence of a dominant carrier in the 
small group market precludes the HHS-operated risk adjustment program 
from working as precisely as it would with a more balanced distribution 
of market share. The state regulators stated that their review of the 
risk adjustment payment issuers' financial data suggested that any 
premium increase resulting from a reduction to risk adjustment payments 
of 50 percent in the small group market for the 2021 benefit year would 
not exceed 1 percent, the de minimis premium increase threshold set 
forth in Sec.  153.320(d)(1)(iii) and (d)(4)(i)(B). We solicited 
comment on this request to reduce risk adjustment transfers in the 
Alabama small group market by 50 percent for the 2021 benefit year. The 
request and additional documentation submitted by Alabama are posted 
under the ``State Flexibility Requests'' heading at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/index.html.
    Based on our review of the comments received and HHS's analysis of 
the request submitted by Alabama, HHS is granting Alabama's request to 
reduce transfers in the small group market by 50 percent for the 2021 
benefit year. The following is a summary of the public

[[Page 29194]]

comments we received on Alabama's 2021 state flexibility request.
    Comment: Multiple commenters claimed that waivers diminish the 
effectiveness of the risk adjustment program, and recommend that states 
should implement their own risk adjustment programs instead of seeking 
state flexibility in the HHS-operated risk adjustment program.
    Response: In the 2019 Payment Notice, HHS provided the flexibility 
for these reduction requests when a state elects not to operate the 
PPACA risk adjustment program. For some states, an adjustment to 
transfers calculated by HHS under the state payment transfer formula 
may more precisely account for cost differences attributable to adverse 
selection in the respective state market risk pools. Further, allowing 
these adjustments can account for the effect of state-specific rules or 
unique market dynamics that may not be captured in the HHS methodology, 
which is calibrated on a national dataset, without the necessity for 
states to undertake the burden and cost of operating their own PPACA 
risk adjustment program.
    We reviewed Alabama's supporting evidence regarding the state's 
unique small group market dynamics that it believes warrant an 
adjustment to the HHS calculated risk adjustment small group market 
transfers for the 2021 benefit year. Alabama state regulators noted 
they do not assert that the HHS formula is flawed, only that it results 
in imprecise results in Alabama's small group market that could further 
reduce competition and increase costs for consumers. The state 
regulators provided information demonstrating that the request would 
have a de minimis impact on necessary premium increase for payment 
issuers, consistent with Sec.  [thinsp]153.320(d)(1)(iii).
    We note that HHS reviewed the state's unredacted supporting 
analysis in evaluating Alabama's request, along with other plan-level 
data available to HHS. We found the supporting analysis submitted by 
Alabama to be sufficient for us to evaluate the market-specific 
circumstances validating Alabama's request.
    We agree with Alabama's assessment that any necessary premium 
increase for issuers likely to receive reduced payments as a result of 
the requested reduction to risk adjustment transfers in the Alabama 
small group market for the 2021 benefit year would not exceed 1 
percent. HHS has determined that the state has demonstrated the 
existence of relevant state-specific factors that warrant an adjustment 
to more precisely account for relative risk differences and that the 
adjustment would have a de minimis effect. Therefore, we are approving 
Alabama's requested reduction under Sec.  [thinsp]153.320(d)(4)(i)(B) 
based on the state regulators' identification of unique state-specific 
factors in the Alabama small group market and the supporting analysis 
of a de minimis effect of the reduction requested. The 50 percent 
reduction will be applied to the 2021 benefit year plan PMPM payment or 
charge transfer amount (Ti in the state payment transfer 
calculation above) for the Alabama small group market.
    Comment: Several commenters asked HHS to consider a multi-year 
approval process as it could provide stability to state market risk 
pools seeking these flexibility requests.
    Response: Our regulations currently provide a process for the 
annual review of requests by state regulators seeking a reduction to 
risk adjustment transfers in the state's individual catastrophic risk 
pool, individual non-catastrophic risk pool, small group market or a 
merged market.\74\ Therefore, we review any requests received on an 
annual basis, and currently do not have a process by which a multi-year 
approval process could be evaluated. It is also unclear if a state 
would have the necessary information to be able to submit the required 
justification under Sec.  153.320(d)(1)(iii) in support of a multi-year 
request (as opposed to a request focused only on one upcoming benefit 
year). However, we appreciate the comment and intend to consider 
whether multi-year approval processes are appropriate in the future, 
and would propose any changes to this process in future rulemaking.
---------------------------------------------------------------------------

    \74\ See 45 CFR 153.320(d)(3), requiring HHS to publish state 
requests in the applicable benefit year's notice of benefit and 
payment parameters rulemaking.
---------------------------------------------------------------------------

    Comment: A commenter suggested that when repeat waiver requests 
occur that data from years where such a waiver has already occurred 
that data from past years be released to the public for analysis.
    Response: As explained in the 2020 Payment Notice, we are concerned 
that releasing unredacted information from state flexibility requests 
can reveal market conditions and issuers' private financial data.\75\ 
We believe it is important to protect information that contains trade 
secrets or confidential commercial or financial information within the 
meaning of the HHS FOIA regulations at Sec.  [thinsp]5.31(d) and 
therefore will not post information the state requests HHS not make 
publicly available because it contains such trade secrets or 
confidential commercial or financial information. We note that the 2020 
benefit year is the first year for which a state flexibility request 
was requested and approved (Alabama in the small group market) and we 
will publish more information, such as issuers' transfers amounts, and 
the state average factors, including premiums, in the permanent risk 
adjustment transfers summary report for the 2020 benefit year issued by 
June 30, 2021. As such, this report will reflect the reduced transfers 
in Alabama, and stakeholders will be able to assess the impact of the 
transfers reduction on transfers as a percent of state average premiums 
for Alabama's small group market. We further note that Alabama's 
request for the 2020 benefit year remains posted on the CMS 
website,\76\ such that stakeholders could review it alongside the 
state's new request for the 2021 benefit year.
---------------------------------------------------------------------------

    \75\ See 84 FR at 248-249. Also see 84 FR at 17484-17485
    \76\ https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs.
---------------------------------------------------------------------------

c. Risk Adjustment User Fee for 2021 Benefit Year (Sec.  153.610(f))
    As noted above, if a state is not approved to operate, or chooses 
to forgo operating, its own risk adjustment program, HHS will operate 
risk adjustment on its behalf. For the 2021 benefit year, HHS will 
operate a risk adjustment program in every state and the District of 
Columbia. As described in the 2014 Payment Notice, HHS's operation of 
risk adjustment on behalf of states is funded through a risk adjustment 
user fee.\77\ Section 153.610(f)(2) provides that, where HHS operates a 
risk adjustment program on behalf of a state, an issuer of a risk 
adjustment covered plan must remit a user fee to HHS equal to the 
product of its monthly billable member enrollment in the plan and the 
PMPM risk adjustment user fee specified in the annual HHS notice of 
benefit and payment parameters for the applicable benefit year.
---------------------------------------------------------------------------

    \77\ See 78 FR at 15416-15417.
---------------------------------------------------------------------------

    Our authority to operate risk adjustment on the state's behalf 
arises from sections 1321(c)(1) and 1343 of the PPACA. The authority to 
charge this user fee can be found under sections 1343, 1311(d)(5), and 
1321(c)(1) of the PPACA, and under 31 U.S.C. 9701, which permits a 
Federal agency to establish a charge for a service provided by the 
agency. OMB Circular No. A-25 established Federal policy regarding user 
fees, and specifies that a user charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond

[[Page 29195]]

those received by the general public. The risk adjustment program will 
provide special benefits as defined in section 6(a)(1)(B) of Circular 
No. A-25 to issuers of risk adjustment covered plans because it 
mitigates the financial instability associated with potential adverse 
risk selection. The risk adjustment program also contributes to 
consumer confidence in the health insurance industry by helping to 
stabilize premiums across the individual, merged, and small group 
markets.
    In the 2020 Payment Notice, we calculated the Federal 
administrative expenses of operating the risk adjustment program for 
the 2020 benefit year to result in a risk adjustment user fee rate of 
$0.18 per member per month (PMPM) based on our estimated costs for risk 
adjustment operations and estimated billable member months for 
individuals enrolled in risk adjustment covered plans. For the 2021 
benefit year, we used the same methodology to estimate our 
administrative expenses to operate the program. These costs cover 
development of the model and methodology, collections, payments, 
account management, data collection, data validation, program integrity 
and audit functions, operational and fraud analytics, stakeholder 
training, operational support, and administrative and personnel costs 
dedicated to risk adjustment program activities. To calculate the user 
fee, we divided HHS's projected total annual costs for administering 
the risk adjustment programs on behalf of states by the expected number 
of billable member months in risk adjustment covered plans in states 
where the HHS-operated risk adjustment program will apply in the 2021 
benefit year.
    In the proposed rule, we estimated that the total cost for HHS to 
operate the risk adjustment program on behalf of states for 2021 will 
be approximately $50 million, and the risk adjustment user fee would be 
$0.19 PMPM. We sought comments on the proposed risk adjustment user fee 
rate.
    We received several comments in support of the proposed risk 
adjustment user fee rate, however, we are not finalizing the 2021 
benefit year risk adjustment user fee amount as proposed. At the time 
of the proposed rule, we estimated the 2021 benefit year risk 
adjustment user fee using the best information available on costs, 
allocations, and enrollment projections. However, as explained below, 
in light of new information, we are finalizing the risk adjustment user 
fee amount of $0.25 PMPM for the 2021 benefit year, which reflects our 
updated estimate of $60 million in total costs for HHS to operate the 
2021 benefit year risk adjustment program on behalf of states.
    Based on our analysis of newly available data and further 
evaluation of eligible costs, we now expect estimated risk adjustment 
user fee costs for the 2021 benefit year to increase, resulting in 
total estimated costs of $60 million for program operations for the 
2021 benefit year. We periodically reexamine user fee eligible costs, 
and we reevaluated our allocation of risk adjustment costs after the 
publication of the proposed rule. HHS re-assessed contracts after the 
publication of the proposed rule to evaluate portions of contracts 
spent on risk adjustment program activities. As a result of this 
reexamination, we determined that additional costs were attributable to 
risk adjustment program operations. This includes costs related to 
information technology technical assistance and support, cloud 
computing, collections, payments, program support, data validation, 
program integrity and audit functions, operational and fraud analytics, 
stakeholder training, and operational support activities. Additionally, 
our analysis of interim 2019 benefit year risk adjustment data, which 
was not available prior to publication of the proposed rule, revealed 
enrollment in 2019 benefit year risk adjustment covered plans that were 
lower than previously estimated based on the billable member month 
enrollment observed for the prior benefit years. The combination of the 
decline in enrollment estimates and the increase in risk adjustment 
user fee eligible costs altered our estimates and projections of both 
costs and collections for the 2021 benefit year risk adjustment 
program, resulting in an increase to the risk adjustment user fee 
required to cover the estimated costs of operating the program from the 
amount proposed. We are therefore finalizing a risk adjustment user fee 
amount of $0.25 PMPM for the 2021 benefit year, reflecting our updated 
estimate of $60 million in total costs to operate the program on behalf 
of states for the 2021 benefit year and the estimated decline in 
enrollment in risk adjustment covered plans. We believe finalizing a 
risk adjustment user fee amount of $0.25 PMPM for the 2021 benefit year 
is necessary to ensure the HHS-operated risk adjustment program is 
fully funded with no risk of a shortfall. We also note risk adjustment 
user fee collections are spent on risk adjustment user fee eligible 
costs only, and while we have not had significant funds remaining in 
prior years, any amount collected in excess of those required to fund 
eligible activities would be spent on future years' eligible activities 
and considered in future risk adjustment user fee rate estimates.
3. Risk Adjustment Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)
    We conduct RADV under Sec. Sec.  153.630 and 153.350 in any state 
where HHS is operating risk adjustment on a state's behalf, which for 
the 2021 benefit year includes all 50 states and the District of 
Columbia. The purpose of RADV is to ensure issuers are providing 
accurate and complete risk adjustment data to HHS, which is crucial to 
the purpose and proper functioning of the HHS-operated risk adjustment 
program. The RADV program also ensures that risk adjustment transfers 
reflect verifiable actuarial risk differences among issuers, rather 
than risk score calculations that are based on poor data quality, 
thereby helping to ensure that the HHS-operated risk adjustment program 
assesses charges to issuers with plans with lower-than-average 
actuarial risk while making payments to issuers with plans with higher-
than-average actuarial risk.
    RADV consists of an initial validation audit and a second 
validation audit. Under Sec.  153.630, each issuer of a risk adjustment 
covered plan must engage an independent initial validation auditor. The 
issuer provides demographic, enrollment, and medical record 
documentation for a sample of enrollees selected by HHS to the issuer's 
initial validation auditor for data validation. Each issuer's initial 
validation audit is followed by a second validation audit, which is 
conducted by an entity HHS retains to verify the accuracy of the 
findings of the initial validation audit. In the proposed rule, we set 
forth proposed amendments and clarifications to the RADV program that 
stemmed from issuer feedback and HHS's examination of results from the 
first 2 pilot years and first transfer adjustment year of the program.
    The following is a summary of the general public comments received 
related to RADV. Additional comments related to the application of RADV 
results when HCC counts are low and the designation of a second pilot 
year for the data validation of prescription drugs are discussed later 
in this rule.
    Comment: Many commenters urged HHS to implement certain policy 
options discussed in the ``HHS Risk Adjustment Data Validation (HHS-

[[Page 29196]]

RADV) White Paper,'' \78\ published on December 6th, 2019, with some 
commenters requesting that white paper policy options be incorporated 
into this final rule or that separate rulemaking be initiated to enable 
these provisions to be effective for 2019 RADV. Some of the policy 
options frequently advocated for include policies related to: (1) The 
``payment cliff'' effect that occurs in the current methodology, which 
results in some issuers with similar RADV findings experiencing 
different risk score and transfer adjustments; (2) negative failure 
rates; and (3) the interaction between risk adjustment HCC hierarchies 
and HCC failure rate groups in RADV. One commenter also asked that the 
initial validation audit sample size be varied based on issuer-specific 
parameters or prior RADV results. Another commenter wanted to ensure 
the proposals outlined in the 2019 HHS-RADV White Paper will not impact 
2018 benefit year RADV.
---------------------------------------------------------------------------

    \78\ See https://www.cms.gov/files/document/2019-hhs-risk-adjustment-data-validation-hhs-radv-white-paper.
---------------------------------------------------------------------------

    We also received several comments encouraging HHS to modify RADV 
beyond options discussed in the white paper or in the proposed rule. 
These include subdividing the RADV process so that the individual and 
small group markets are each assessed separately; changing the 
materiality threshold criteria to a percentage of statewide premiums; 
using the current method for determining outliers, but basing 
adjustments on divergence from a state mean rather than a national 
mean; and applying additional scrutiny when issuers' supplemental data 
is dominated by additional diagnoses rather than modified or deleted 
diagnoses.
    Response: We appreciate these comments and recognize the desire for 
further changes to the RADV program requirements to improve their 
reliability and integrity, including implementation of policy options 
explored in the 2019 HHS-RADV White Paper. However, we did not include 
in the proposed rule any of the options explored in the 2019 HHS-RADV 
White Paper and are not finalizing any of those options in this final 
rule. As explained in the 2019 HHS-RADV White Paper, our goal was to 
outline and seek feedback on certain RADV issues to inform future 
policy development.
    HHS is committed to ensuring the integrity and reliability of RADV. 
Although the options explored in the 2019 HHS-RADV White Paper and the 
additional modifications to RADV suggested by commenters are outside of 
the scope of this rule, we continue to explore potential modifications 
to this program and will propose any such changes for future benefit 
years through rulemaking. In response to the comment, we note that we 
do not intend to pursue the options explored in the 2019 HHS-RADV White 
Paper for the 2018 benefit year of RADV.
    Comment: One commenter urged HHS to adopt the HEDIS (Healthcare 
Effectiveness Data and Information Set) audit methodology for RADV, 
which would only require medical record review for supplemental codes 
that the plan pulls from medical records.
    Response: We continue to seek ways to improve RADV for both 
accuracy and user experience, and will continue to examine approaches 
taken by other organizations when making updates to the RADV process 
for future benefit years. However, because the intent of RADV is to 
ensure the integrity of the risk adjustment program by validating all 
diagnoses to confirm the issuer's actuarial risk in a given benefit 
year as measured by the risk adjustment program, we believe that RADV 
should include a sample of all diagnoses, and not simply be limited to 
supplemental diagnoses. Additionally, we note that the HEDIS audit 
methodology is a two-part process that is customized based on an 
organization's informational systems, and we believe that the 
distributed data environment (that is, issuers' EDGE servers) precludes 
the need for such customization. As such, we are maintaining our 
current overall approach for RADV, with the modifications detailed 
below that are finalized in this rule.
    Comment: One commenter requested that HHS use our authority to 
mandate the submission of medical records by providers to initial 
validation auditors for the purposes of RADV.
    Response: Under sections 1321 and 1343 of the PPACA, HHS has 
authority to regulate issuers of risk adjustment covered plans, but not 
providers. However, as explained in the 2019 Payment Notice, we 
appreciate that issuers could experience some level of difficulty 
retrieving medical records. As a result, we updated the RADV error 
estimation methodology, by adopting confidence intervals to identify 
outliers, to account for some level of variation and error in 
validating HCCs.\79\ Only outlier issuers have their risk scores 
adjusted as a result of RADV for this reason. In addition, recognizing 
these challenges exist, we have taken steps to provide assistance to 
issuers with this process. For example, we developed a memorandum \80\ 
that issuers can use to assist in their efforts to obtain medical 
records from providers for the RADV program. The memo explains the 
background and purpose of the RADV program and can be sent to providers 
along with the issuer's request for medical records. We will continue 
to explore other ways we may be able to help issuers encourage provider 
response to medical records requests and whether there are mechanisms 
that would enable us to differentiate between issuers who are outliers 
due to unverified diagnoses or bad data, and those who are outliers due 
to unresponsive providers during medical record retrieval.
---------------------------------------------------------------------------

    \79\ See 83 FR at 16961-16965.
    \80\ Available at https://www.regtap.info/uploads/library/2018_BY_HHS-RADV_Provider_Medical_Record_Request_Memo_073119_5CR_073119.pdf.
---------------------------------------------------------------------------

a. Application of Risk Adjustment Data Validation Adjustments in Cases 
Where HCC Count is Low
    In the 2019 Payment Notice, to avoid adjusting all issuers' risk 
adjustment transfers for expected variation and error, we finalized a 
new methodology to evaluate material statistical deviation in data 
validation failure rates beginning with 2017 benefit year RADV.\81\ 
When an issuer's failure rate within a group of HCCs materially 
deviates from the mean of the failure rate for that HCC group, we apply 
the difference between the mean group failure rate and the issuer's 
calculated failure rate. If all failure rates in a state market risk 
pool do not materially deviate from the national mean failure rates, we 
do not apply any adjustments to issuers' risk scores for that benefit 
year in the respective state market risk pool.\82\
---------------------------------------------------------------------------

    \81\ See 83 FR at 16961-16965.
    \82\ When an issuer is determined to be an outlier in an HCC 
group, the transfers for other issuers in the state market risk pool 
(including those who are not outliers in any HCC group) will also be 
adjusted due to the budget neutral nature of the HHS-operated risk 
adjustment program.
---------------------------------------------------------------------------

    Consistent with the methodology finalized in the 2019 Payment 
Notice, for RADV for 2017 and 2018 benefit years, we calculate the data 
validation failure rate for each HCC in issuers' initial validation 
audit samples as:
[GRAPHIC] [TIFF OMITTED] TR14MY20.027

Where:

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

[[Page 29197]]

enrollees with HCC code h on in initial validation audit results.
FRh is the failure rate of HCC code h.

    HHS then creates three HCC groups based on the HCC failure rates 
derived in the calculation above. These HCC groups are determined by 
first ranking all HCC failure rates and then dividing the rankings into 
three groups, weighted by total observations or frequencies, of that 
HCC across all issuers' initial validation audit samples, to assign 
each unique HCC in the initial validation audit samples to a high, 
medium, or low failure rate group with an approximately even number of 
observations in each group. That is, each HCC group may have an unequal 
number of unique HCCs, but the total observations in each group are 
approximately equal based on total observations of HCCs reflected in 
EDGE data for all issuers' initial validation audit sample enrollees.
    HHS then compares each issuer's failure rate for each HCC group 
based on the number of HCCs validated in the initial validation audit, 
compared to the number of HCCs recorded on EDGE within that HCC group 
for the initial validation audit sample enrollees. The issuer's HCC 
group failure rate is compared to the weighted mean failure rate for 
that HCC group. We calculate an issuer's HCC group failure rate as:
[GRAPHIC] [TIFF OMITTED] TR14MY20.028

Where:

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

    We also calculate the weighted mean failure rate and the standard 
deviation of each HCC group as:
[GRAPHIC] [TIFF OMITTED] TR14MY20.029

Where:

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

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

LBG = m (GFRG) - sigma_cutoff * Sd(GFRG)

UBG = m (GFRG) + sigma_cutoff * Sd(GFRG)

Where:

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

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

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

Where:

FlagiG is the indicator if issuer i's group failure rate for group G 
locates beyond a calculated threshold that we are using to classify 
issuers into ``outliers'' or ``not outliers'' for group G.
AdjustmentiG is the calculated adjustment amount to adjust issuer 
i's EDGE risk scores for all sampled HCCs in group G.
We then compute total adjustments and risk adjustment transfer error 
rates for each issuer based on the sums of the AdjustmentiG.\83\
---------------------------------------------------------------------------

    \83\ See, for example, the 2018 Benefit Year Protocols: PPACA 
HHS Risk Adjustment Data Validation, Version 7.0 (June 24, 2019) 
that are available at https://www.regtap.info/uploads/library/HRADV_2018Protocols_070319_5CR_070519.pdf.

    Although the failure rate and error estimation methodology 
described above is based on the number of HCCs within a sample, our 
sampling methodology samples individual enrollees and varies in size 
for issuers with fewer than 4,000 enrollees,\84\ rather than sampling 
HCCs directly. This difference in unit of analysis between the error 
estimation methodology--which applies to all non-exempt RADV issuers, 
regardless of their size--and the sampling methodology may lead to 
fewer HCCs in an HCC group than are necessary to reliably determine 
whether an issuer is an outlier at the targeted precision and 
confidence levels--that is, whether an issuer is statistically 
different from the national (average) HCC failure rate, as defined by 
an unadjusted 95 percent confidence interval.
---------------------------------------------------------------------------

    \84\ For issuers with fewer than 4,000 enrollees, the sample 
size varies according to a finite population correction (FPC) such 
that nadjusted = noriginal * FPC, where nadjusted is the adjusted 
sample size and noriginal is the original sample size of 200 
enrollees. The FPC is determined by the equation FPC = (N - 
n_original/N, where N is the population size. By these formulae, if 
an issuer's adjusted sample size would be smaller than 50 enrollees, 
that issuer should sample either a minimum of 50 enrollees or their 
entire population of enrollees, whichever is smaller. See Ibid at 
37.
---------------------------------------------------------------------------

    Standard statistical theorems \85\ state that, as sample sizes 
increase, the

[[Page 29198]]

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

    \85\ In other words, the Central Limit Theorem (CLT). For 
background regarding the CLT, see Ivo D. Dinov, Nicolas Christou, 
and Juana Sanchez. ``Central limit theorem: New SOCR applet and 
demonstration activity.'' Journal of Statistics Education 16, no. 2 
(2008). DOI: 10.1080/10691898.2008.11889560.
---------------------------------------------------------------------------

    Taking all of these points into consideration, we conducted an 
analysis in which we simulated the selection of samples from an average 
issuer using progressively smaller HCC counts. By this process we 
identified that, if the number of HCCs per sample of enrollees was 
below 30 HCCs, the implied alpha of our statistical tests for outliers 
was higher than our 5 percent target, thereby failing to meet the 
threshold for statistical significance. Moreover, statistical practice 
often relies on a standard recommendation regarding the determination 
of sample size, which states that sample sizes below 30 observations 
are often insufficient to assume that the sampling distribution is 
normally distributed.\86\
---------------------------------------------------------------------------

    \86\ For example, David C. Howell, ``Hypothesis Tests Applied to 
Means'' In Statistical Methods for Psychology (8th Ed.), 177-228. 
Belmont, CA: Wadsworth, 2010.
---------------------------------------------------------------------------

    Based on these findings, we proposed to amend the outlier 
identification process and not consider as an outlier any issuer's 
failure rate for an HCC group in which that issuer has fewer than 30 
HCCs beginning with 2019 benefit year RADV. Furthermore, we proposed 
that such issuers' data would continue to be included in the 
calculation of national metrics for that HCC group, including the 
national mean failure rate, standard deviation, and upper and lower 
confidence interval bounds. However, the issuer would not have its risk 
score adjusted for that group, even if the magnitude of its failure 
rate appeared to otherwise be very large relative to other issuers. In 
addition, we clarified that this issuer may be considered an outlier in 
other HCC groups in which it has 30 or more HCCs. Under the proposal, 
the adjustment amount for outliers would continue to be the distance 
between issuer i's Group Failure Rate GFRiG and the weighted mean 
m(GFRG calculated as:

If GFRiG > UBG or GFRiG < LBG,
And if Freq_EDGEiG [gteqt] 30:
Then FlagiG = ``outlier'' and AdjustmentiG = GFRiG - m(GFR G)
If GFRiG <= UBG and GFRiG [gteqt] LBG,
Or if Freq_EDGEiG < 30:
Then FlagiG = ``not outlier''and AdjustmentiG = 0
We solicited comments on this proposal.

    After consideration of comments, we are finalizing the policy as 
proposed such that beginning with 2019 benefit year RADV \87\, we will 
not consider issuers with fewer than 30 HCCs in an HCC failure rate 
group to be outliers in that HCC failure rate group, but will continue 
to include such issuers in the calculation of national metrics. In 
addition, these issuers may still be considered outliers in other HCC 
groups in which they have 30 or more HCCs. The following is a summary 
of the public comments we received on this proposed policy.
---------------------------------------------------------------------------

    \87\ As part of the Administration's efforts to combat the 
Coronavirus Disease 2019 (COVID-19), we recently announced the 
postponement of the 2019 benefit year RADV process. We intend to 
provide further guidance by August 2020 on our plans to begin 2019 
benefit year RADV in calendar year 2021. See https://www.cms.gov/files/document/2019-HHS-RADV-Postponement-Memo.pdf.
---------------------------------------------------------------------------

    Comment: All commenters that submitted comments on this topic 
supported the proposed modification to the outlier identification 
process to not consider issuers with fewer than 30 HCCs in an HCC 
failure rate group as outliers in RADV beginning with the 2019 benefit 
year.
    Response: After consideration of comments, we are finalizing the 
policy as proposed such that beginning with 2019 benefit year RADV, we 
will not consider issuers with fewer than 30 HCCs in an HCC failure 
rate group to be outliers in that HCC failure rate group, but will 
continue to include such issuers in the calculation of national 
metrics. In addition, these issuers may still be considered outliers in 
other HCC groups in which they have 30 or more HCCs. We also generally 
remind issuers that when an issuer is determined to be outlier in an 
HCC group, the transfers for other issuers in the state market risk 
pool (including those who are not outliers) will also be adjusted due 
to the budget neutral nature of the HHS-operated risk adjustment 
program.
b. Prescription Drugs for the 2019 Benefit Year Risk Adjustment Data 
Validation
    In the 2020 Payment Notice,\88\ we finalized an approach to 
incorporate RXCs into RADV as a method of discovering materially 
incorrect EDGE server data submissions in a manner similar to how we 
address demographic and enrollment errors discovered during RADV. We 
also finalized an approach to pilot the incorporation of these drugs 
into the RADV process for 2018 benefit year RADV, and stated that RXC 
errors that we identified during the 2018 benefit year RADV RXC pilot 
will not be used to adjust risk scores or transfers. We stated that we 
finalized this policy to treat the incorporation of RXCs into 2018 
benefit year RADV as a pilot year to allow HHS and issuers to gain 
experience in validating RXCs before RXCs are used to adjust issuers' 
risk scores.
---------------------------------------------------------------------------

    \88\ 84 FR 17454 at 17498 through 17503.
---------------------------------------------------------------------------

    Following continued analysis of the issue after publication of the 
2020 Payment Notice, in the proposed rule, we proposed that the 2019 
benefit year RADV would serve as a second pilot year for the purposes 
of prescription drug data validation, in addition to the 2018 benefit 
year RADV pilot for prescription drugs. The proposed second pilot year 
is consistent with the 2 pilot years provided for the 2015 and 2016 
benefit years of the RADV program. We also noted in the proposed rule 
that the proposal was also responsive to issuer concerns that were 
previously expressed in comments to the 2020 Payment Notice.\89\ We 
solicited comments on this proposal.
---------------------------------------------------------------------------

    \89\ See, for example, America's Health Insurance Plans comment 
on HHS Notice of Benefit and Payment Parameters for 2020 Proposed 
Rule, February 19, 2019, https://www.regulations.gov/contentStreamer?documentId=CMS-2019-0006-23013&attachmentNumber=1&contentType=pdf, and BlueCross BlueShield 
Association comment on HHS Notice of Benefit and Payment Parameters 
for 2020 Proposed Rule, February 19, 2019, https://www.regulations.gov/contentStreamer?documentId=CMS-2019-0006-23345&attachmentNumber=1&contentType=pdf.
---------------------------------------------------------------------------

    In light of the comments received, we are finalizing the proposal 
to treat the 2019 benefit year \90\ as a second pilot year for RXC 
validation.
---------------------------------------------------------------------------

    \90\ As noted above, we recently announced the postponement of 
the 2019 benefit year RADV process as part of the Administration's 
efforts to combat COVID-19. See, supra note 87 and https://www.cms.gov/files/document/2019-HHS-RADV-Postponement-Memo.pdf.
---------------------------------------------------------------------------

    We summarize and respond to the public comments received below.
    Comment: All stakeholders who commented on this proposal supported 
a second pilot year for RXC validation. Several commenters encouraged 
HHS to

[[Page 29199]]

provide issuers with additional data and reports of the findings from 
the 2018 benefit year RADV RXC validation pilot.
    Response: As explained in the proposed rule, we recognize that 
there may be more differences between validating HCCs and RXCs that 
need to be considered when incorporating RXCs into RADV than initially 
anticipated and that the metrics to validate a RXC are not the same as 
coding a HCC. A second pilot year for validation of RXCs provides 
additional time to examine these issues and any potential mitigating 
strategies (as may be necessary). Therefore, we are finalizing a second 
pilot year (2019 benefit year) for RXC validation to give HHS and 
issuers more time and experience with the prescription drug data 
validation process before those results will be used to adjust risk 
scores and transfers. Additionally, we intend to provide issuers with 
additional data and analysis from the 2018 benefit year RADV 
prescription drug data validation pilot when we release our 2018 
benefit year RADV error rate results memo in May 2020.
    Comment: One commenter recommended that HHS include the drug name 
in the National Drug Code (``NDC'') to RXC mapping because they 
believed that not all the NDCs in the RXC model are listed in the 
Federal Drug Administration's drug inventory.
    Response: We refer the commenter to the most recent HHS-Development 
Risk Adjustment Model Algorithm ``Do It Yourself (DIY)'' Software,\91\ 
which contains all NDCs that were active at any point during the 
benefit year to which the DIY software refers and that crosswalk to 
RXCs. Some of the Federal Drug Administration's drug reference sources 
use 10-digit NDC codes, but the DIY Software uses 11-digit NDC codes. 
Drug names can be identified from the 11-digit NDC code via the 
National Institutes of Health's RxNorm system.\92\ Some of the NDCs in 
the DIY Software may be marked with an obsolete status in the RxNorm 
system; however, all NDCs are referenced against the EDGE NDC Global 
Reference List for active status at the time of the claim.
---------------------------------------------------------------------------

    \91\ See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/index.
    \92\ See https://www.nlm.nih.gov/research/umls/rxnorm/index.html.
---------------------------------------------------------------------------

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

1. Verification Process Related To Eligibility for Insurance 
Affordability Programs
a. Employer-Sponsored Plan Verification
    We proposed that HHS would not take enforcement action against 
Exchanges that do not perform random sampling as required by Sec.  
155.320(d)(4), when the Exchange does not reasonably expect to obtain 
sufficient verification data as described in Sec.  155.320(d)(2)(i) 
through (iii), for plan years 2020 and 2021. We also proposed that HHS 
would exercise such discretion in anticipation of receiving the results 
of the employer verification study described in the proposed rule. We 
are finalizing this policy as proposed.
    Strengthening program integrity with respect to subsidy payments in 
the individual market continues to be a top priority. Currently, 
Exchanges must verify whether an applicant is eligible for or enrolled 
in an eligible employer-sponsored plan for the benefit year for which 
coverage is requested using available data sources, if applicable, as 
described in Sec.  155.320(d). For any coverage year that an Exchange 
does not reasonably expect to obtain sufficient verification data as 
described in Sec.  155.320(d)(2)(i) through (iii), an alternate 
procedure is required. Specifically, Exchanges must select a 
statistically significant random sample of applicants and meet the 
requirements of Sec.  155.320(d)(4)(i). We discussed in the proposed 
rule that we are exploring a new alternative approach to replace the 
current procedures in Sec.  155.320(d)(4)(i), under which an Exchange 
may design its verification process based on the Exchange's assessment 
of risk for inappropriate eligibility or payment for APTC or CSRs.
    HHS's experience conducting random sampling revealed that employer 
response rates to HHS's request for information were low. The manual 
verification process described in Sec.  155.320(d)(4)(i) requires 
significant resources and government funds, and the value of the 
results ultimately does not appear to outweigh the costs of conducting 
the work because only a small percentage of sampled enrollees have been 
determined by HHS to have received APTC/CSRs inappropriately. We 
discussed in the proposed rule that we believe an approach to verifying 
an applicant's attestation regarding access to an employer-sponsored 
plan should be rigorous, while posing the least amount of burden on 
states, employers, consumers, and taxpayers.
    Based on our experiences with random sampling methodology under 
Sec.  155.320(d)(4)(i), HHS questioned whether this methodology was the 
best approach for all Exchanges to assess the associated risk for 
inappropriate payment of APTC/CSRs. As such, HHS conducted a study to 
(1) determine the unique characteristics of the population with offers 
of employer-sponsored coverage that meets minimum value and 
affordability standards; (2) compare premium and out-of-pocket costs 
for consumers enrolled in employer-sponsored coverage to Exchange 
coverage; and (3) identify the incentives, if any, that drive consumers 
to enroll in Exchange coverage rather than coverage offered through 
their current employer. The results of this study, which HHS expects to 
be finalized sometime in 2020, will inform the approach we would 
propose in future rulemaking to allow Exchanges to design an employer-
sponsored coverage verification based upon their assessment of the risk 
of potential inappropriate payments of APTC/CSRs to those with offers 
of affordable employer-sponsored coverage for Exchanges using the 
Federal eligibility and enrollment platform. HHS also encouraged State 
Exchanges to conduct similar research of their past and current 
enrolled populations in anticipation of this future rulemaking.
    As HHS continues to explore the best options for verification of 
employer-sponsored coverage, we proposed that HHS would not take 
enforcement action against Exchanges that do not perform random 
sampling as required by Sec.  155.320(d)(4), as an alternative to 
performing this verification against the data sources required under 
Sec.  155.320(d)(2)(i) through (iii), for plan years 2020 and 2021. We 
also proposed that HHS would exercise such discretion in anticipation 
of receiving the results of the employer verification study described 
in the proposed rule.
    Comment: All commenters on this topic agreed with HHS's proposal to 
refrain from taking enforcement action against Exchanges that do not 
conduct random sampling to verify whether an applicant has access to or 
received an offer of affordable coverage that meets the minimum value 
standard through their employer. The commenters agreed with HHS's prior 
study findings that the random sampling process requires significant 
resources with little return on investment. Commenters also agreed with 
HHS that an employer-sponsored coverage verification approach should 
provide State Exchanges with flexibility and more opportunities to use

[[Page 29200]]

verification processes that are evidence-based, while imposing the 
least amount of burden on consumers, states, employers, and taxpayers. 
One commenter supported the proposal, but sought clarification on 
whether the non-enforcement policy would apply to State Exchanges with 
corrective active plans currently under Sec.  155.320(d)(4). Another 
commenter suggested that HHS make available a reliable data source for 
verification of employer-sponsored coverage.
    A commenter suggested that, as HHS reviews the results of the study 
discussed in the preamble to the proposed rule, we should consider that 
soliciting additional information from employers and plan sponsors 
regarding employer-sponsored coverage through the random sampling 
process under Sec.  155.320(d)(4) is not necessary because this 
information regarding employer-sponsored coverage for employees is 
already provided annually on Internal Revenue Service (IRS) Form 1095-
C, Employer-Provided Health Insurance Offer and Coverage.
    Response: We agree that the current random sampling process 
required under Sec.  155.320(d)(4)(i) is not only burdensome for 
states, employers, consumers, and taxpayers, but it also does not 
provide enough flexibility to all Exchanges to develop a process for 
employer-sponsored coverage verification that more accurately reflects 
their respective enrolled Exchange populations. As discussed in the 
preamble above and in the proposed rule, HHS shares the same concerns 
regarding the feasibility and effectiveness of random sampling, 
including the effectiveness of employer and employee notices, and the 
impact that such a verification process has on Exchanges' appeals 
processes. We also agree that a verification process should be 
evidence-based and informed by certain risk-factors for inappropriate 
payment of APTC/CSRs. HHS will also continue to explore the 
availability of other data sources that may be used to verify offers of 
employer-sponsored coverage, such as the National Directory of New 
Hires (NDNH), however, access to that database would require statutory 
changes. Finally, we agree that as HHS reviews the results of the study 
discussed earlier in this preamble, we should also continue to explore 
whether there may be information that applicable large employers can 
provide regarding coverage available to employees as we generally agree 
with the premise that HHS should avoid soliciting duplicative 
information, if possible. We note however that Forms 1095-C would have 
limited utility in helping an Exchange to verify a current offer of 
employer-sponsored coverage because they are provided to employees 
after a coverage year has ended.
    In response to comments on the proposed non-enforcement policy, we 
clarify that the non-enforcement of the requirement to conduct the 
random sampling process under Sec.  155.320(d)(4)(i) will apply for 
plan years 2020 and 2021 to all State Exchanges, including those that 
currently have existing corrective action plans under which the State 
Exchange proposed to implement the random sampling process required 
under Sec.  155.320(d)(4)(i) as an alternative to conducting this 
verification using the data sources under Sec.  155.320(d)(2).
    HHS further reminds State Exchanges that they have existing 
flexibility under Sec.  155.320(a)(2) and Sec.  155.315(h) to propose 
an alternative approach to using the verification procedures under 
Sec.  155.320(d)(2), or an alternative to using the random sampling 
process described under Sec.  155.320(d)(4), in order to verify whether 
applicants have received an offer of affordable coverage. We encourage 
states to use this flexibility to explore evidence or risk-based 
approaches to conducting this verification. Finally, these changes do 
not impact State Exchanges that currently verify offers of employer-
sponsored coverage using approved data sources under Sec.  
155.320(d)(2)(i) through (iii) or use the random sampling procedures 
under Sec.  155.320(d)(4), and have determined these methods are the 
appropriate approaches for their Exchanges to meet requirements under 
Sec.  155.320(d).
    Comment: One commenter also supported the proposal, but suggested 
that HHS consider reinstating timely notices from the Exchanges using 
the Federal platform to employers, required under Sec.  155.310(h) and 
referenced at Sec.  155.320(d)(4)(i)(E), regarding employees who are 
receiving APTC/CSRs.
    Response: We did not propose policies or requirements related to 
employer notices under Sec.  155.310(h) or elsewhere, and this comment 
is outside the scope of this rulemaking. However, we wish to clarify 
that there are limitations on the extent to which notification to 
employers regarding employees who are receiving APTC/CSRs under Sec.  
155.310(h) would alleviate the difficulties that employers may face 
with regard to the assessment of employer shared responsibility 
payments (ESRPs) in section 4980H of the Code. Based on HHS's 
experience with the Exchanges issuing such notices to employers, the 
Exchange does not have the capability to distinguish between employers 
that are or are not subject to the ESRP. In addition, HHS found that 
these notices caused substantial confusion among employers, as many 
employers interpreted the notices as an assessment of the ESRP. HHS 
also believes that while these notices could offer employers the 
opportunity to dispute an employee's eligibility for APTC/CSRs, the 
outcome of such a dispute may have no impact on the IRS's assessment of 
the ESRP. IRS's assessment of the ESRP and whether an employer is 
liable for the ESRP, is solely within the purview of the IRS. 
Therefore, HHS believes that the notice and dispute processes 
authorized for Exchanges would not contribute positively to verifying 
whether employees have affordable offers of employer sponsored coverage 
that meet minimum value. Furthermore, per Sec.  155.310(i), the IRS 
currently sends letters to employers, known as ''226-J letters,'' to 
certify to an employer that one or more employees has enrolled for one 
or more months during a year in a QHP with APTC in order to satisfy the 
requirement under section 4980H of the Code.
    After reviewing the public comments, we are finalizing this 
proposal as proposed.
2. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
a. Process for Voluntary Termination Upon a Finding of Dual Enrollment 
via Periodic Data Matching (PDM)
    We proposed to amend Sec.  155.330(e)(2)(i)(D) to provide that 
Exchanges need not redetermine eligibility for APTC or CSRs for 
enrollees who (1) are found to be dually enrolled in QHP coverage and 
MEC consisting of Medicare, Medicaid/CHIP, or, if applicable, the Basic 
Health Program (BHP); (2) have not responded to the Exchange notice to 
provide updated information within 30-days; and (3) have previously 
provided written consent for the Exchange to end their QHP coverage via 
PDM in the event of dual enrollment or eligibility. We are finalizing 
these amendments as proposed.
    In accordance with Sec.  155.330(d)(3), Exchanges must periodically 
examine available data sources (beginning with the 2021 calendar year, 
generally at least twice per calendar year) to determine whether 
enrollees in a QHP through an Exchange who are receiving APTC or CSRs 
have been determined eligible for or are enrolled in other qualifying 
coverage through Medicare, Medicaid, CHIP, or the BHP, if a BHP is 
operating

[[Page 29201]]

in the service area of the Exchange. Individuals enrolled in one of 
these forms of MEC and Exchange coverage are referred to as `dually-
enrolled' consumers and are identified through periodic data matching 
against government and commercial sources, known as periodic data 
matching or PDM.
    Section 155.430(b)(1)(ii) requires an Exchange to provide an 
opportunity at the time of plan selection for an enrollee to choose to 
remain enrolled in QHP coverage or have their QHP coverage terminated 
if the Exchange finds that he or she has become eligible for or 
enrolled in other MEC, or to terminate QHP coverage if the enrollee 
does not choose to remain enrolled in the QHP upon completion of the 
redetermination process. As such, for plan year 2018 and thereafter, 
HHS added language to the single streamlined application generally used 
by the Exchanges using the Federal platform to allow consumers to 
authorize the Exchange to obtain eligibility and enrollment data and, 
if so desired by the consumer, to end their QHP coverage if the 
Exchange finds during PDM that the consumer has become eligible for or 
enrolled in other MEC. A consumer's authorization for the Exchange to 
end QHP coverage is voluntary, as consumers may opt-in to or opt-out of 
permitting the Exchange to process a voluntary termination of QHP 
coverage if the consumers are found to be also enrolled in other MEC, 
via PDM. We note that the PDM operational processes described above 
pertain only to those Exchange enrollees receiving APTC/CSRs in 
accordance with Sec.  155.330(d)(ii).
    We further noted that for plan year 2019 and beyond, the Exchanges 
using the Federal platform will continue to end QHP coverage or 
subsidies for Medicare PDM only; terminations of Exchange coverage 
based on consumer pre-authorization resulting from Medicaid/CHIP PDM 
will be implemented at a time deemed appropriate by HHS to ensure the 
accuracy of the Medicaid/CHIP data before it is utilized for Exchange 
coverage terminations. Additionally, because the Medicaid/CHIP 
population may become eligible or ineligible for Medicaid/CHIP 
throughout a plan year as eligibility for the program is directly tied 
to fluctuations in income, we discussed that HHS will continue to 
evaluate the best manner by which to implement this process for 
Medicaid/CHIP PDM to ensure that Exchange enrollees do not experience 
unnecessary gaps in coverage. Similarly, we suggested that the two 
State Exchanges that operate their own eligibility and enrollment 
platform and that currently offer BHP coverage--New York and 
Minnesota--consider adding the option for consumer pre-authorization of 
terminations of Exchange coverage resulting from BHP PDM.
    Given that enrollees may permit the Exchanges to terminate their 
QHP enrollment upon finding that they are dually-eligible for or 
enrolled in other MEC, in accordance with Sec.  155.330(d), discussed 
above, we proposed to amend Sec.  155.330(e)(2)(i)(D) to provide that 
Exchanges need not redetermine eligibility for APTC or CSRs for 
enrollees who (1) are found to be dually enrolled in QHP coverage and 
MEC consisting of Medicare, Medicaid/CHIP, or, if applicable, the BHP, 
(2) have not responded to the Exchange notice to provide updated 
information within 30-days, as required by Sec.  155.330(e)(2)(i), and 
(3) have provided written consent to the Exchange to act to end their 
QHP coverage via PDM in the event of dual enrollment or eligibility. We 
discussed in the proposed rule that we believe that the revision would 
ensure more efficient Exchange operations and would make clear that a 
voluntary QHP termination conducted as part of PDM under Sec.  
155.430(b)(1)(ii) follows the same process as other enrollee-initiated 
voluntary terminations of QHP coverage. Furthermore, we noted that we 
believe the changes would support HHS's program integrity efforts by 
helping to ensure that APTC or CSRs are not paid inappropriately to 
those enrollees who are ineligible to receive subsidies. Finally, we 
stated that we believe the change would also ensure more efficient 
termination of unnecessary or duplicative coverage for consumers who 
have opted to have their coverage terminated in such circumstances.
    We solicited comment on this proposal.
    Comment: We received multiple comments in support of PDM as an 
effort to improve Exchange program integrity. These commenters agreed 
that the process has a positive impact on consumers as it helps inform 
Exchange enrollees of their enrollment in potentially duplicative other 
MEC, such as certain Medicare and Medicaid coverage, CHIP, or, if 
applicable, the BHP. Commenters also noted that the proposed changes 
help support efficient Exchange operations with respect to the PDM 
process, while minimizing burden on stakeholders such as states, 
issuers, consumers, and taxpayers. Commenters appreciated that the 
proposed changes continue to support flexibility for State Exchanges by 
providing all Exchanges with the option to allow applicants to provide 
written consent for Exchanges to end their QHP coverage if later found 
to be enrolled in Medicare, Medicaid/CHIP, or, if applicable, the BHP. 
A few commenters supported the proposed changes but sought 
clarification regarding whether eligibility determinations for APTC/
CSRs would still be completed for non-impacted members remaining on the 
application. A few commenters suggested improvements that could be made 
to current PDM processes or noted concerns for HHS to consider.
    We also received some mixed comments that supported the overall PDM 
process but cautioned us regarding the impact these proposed changes 
could have for the Medicaid/CHIP population. Commenters urged HHS to 
exercise caution as to not create coverage gaps for this population 
while other comments argued that terminations of QHP coverage through 
the Medicaid/CHIP process is inconsistent with current PDM requirements 
under Sec.  155.330(d). One commenter suggested that we revise the 
current application question where applicants can provide written 
consent for Exchanges to end their QHP coverage through PDM to exclude 
Medicaid/CHIP as this language could be confusing for consumers as 
Exchanges currently do not terminate QHP coverage through Medicaid/CHIP 
PDM.
    Response: We agree with commenters that the PDM process is an 
important tool for Exchange program integrity. We also agree with 
commenters that the PDM process helps inform consumers of their 
enrollment in potentially duplicative other MEC such as certain 
Medicare and Medicaid coverage, CHIP, or BHP, and helps consumers avoid 
a tax liability for having to repay APTC received during months of 
overlapping coverage when reconciling at the time of annual federal 
income tax filing.
    Under current Medicare PDM operations in the Exchanges that use the 
Federal platform, when enrollees on whose behalf APTC or CSRs are being 
provided are identified as being enrolled in both an Exchange QHP and 
in Medicare (dual enrollment), notices are sent to the household 
contact, who may not always be the Medicare dual enrollee. The notice 
includes a list of persons on the household contact's Exchange 
application that the Exchange has identified as dually enrolled in 
Exchange coverage and Medicare. Enrollees have 30 days to respond to 
the Medicare PDM notice before the Exchange takes action to either end 
APTC/CSRs or QHP coverage for the Medicare dual enrollee. For non-dual

[[Page 29202]]

enrollees remaining on the application, to the extent they are eligible 
to continue their coverage, the Exchange will redetermine their 
eligibility for APTC/CSRs, and their coverage will continue with the 
APTC/CSR adjusted, as applicable. The same is true for Medicare dual 
enrollees who do not provide written consent for the Exchange to end 
their QHP coverage. In these cases, the Medicare dual enrollee is no 
longer eligible for APTC/CSRs, and eligibility is redetermined for the 
remaining persons on the application. Furthermore, in both scenarios, 
non-dual enrollees will receive an eligibility determination notice 
reflecting any changes to their eligibility for APTC/CSRs. In cases 
where family members of dual enrollees lose their coverage or their 
financial subsidies as a result of the PDM process described here, a 
special enrollment period may be available.
    We appreciate commenters' concerns regarding QHP terminations for 
the Medicaid/CHIP population through PDM. We share these concerns and 
are exploring ways to implement terminations of QHP coverage for the 
Medicaid/CHIP population and to reduce consumer confusion. For example, 
in 2019, we revised the current application question by which 
applicants may provide written consent for the Exchange to terminate 
their QHP coverage through PDM to ensure that consumers understand the 
consequences of dual enrollment. HHS is also currently exploring ways 
to operationalize terminations through Medicaid/CHIP PDM that are the 
least disruptive for Medicaid/CHIP dual enrollees, as eligibility for 
Medicaid/CHIP may change throughout a plan year due to fluctuations in 
household income. We want to ensure that terminations through Medicaid/
CHIP PDM are developed in a manner that still provides a pathway back 
into QHP coverage should a previously identified Medicaid/CHIP dual 
enrollee no longer be eligible for Medicaid/CHIP and need to be re-
enrolled in an Exchange QHP. We are also exploring ways to improve the 
accuracy of state Medicaid/CHIP data to ensure that Exchange enrollees 
are not erroneously identified as also enrolled in Medicaid/CHIP and 
subsequently lose Exchange QHP coverage due to data errors. We continue 
to monitor data matching results each round of Medicaid/CHIP PDM and 
are working to provide guidance directly to states in instances where 
we believe data matching errors may have occurred.
    Finally, we disagree with commenters that terminations of Exchange 
QHP coverage through Medicaid/CHIP PDM is inconsistent with the current 
regulation at Sec.  155.330(d). As discussed in the preamble, the 
Exchange has authority under Sec.  155.430(b)(1)(ii) to provide the 
opportunity for an enrollee to have their QHP coverage terminated if 
the Exchange finds that they have become eligible for or enrolled in 
other MEC, such as Medicare, Medicaid/CHIP, or, if applicable, the BHP. 
We believe that such terminations through PDM benefit consumers because 
they mitigate the risk that consumers are paying for duplicate coverage 
and the risk that consumers will be required to pay back all or some of 
the APTC received during months of overlapping coverage.
    After reviewing the public comments, we are finalizing the proposal 
as proposed.
b. Effective Date for Termination via Death PDM
    In accordance with Sec.  155.330(e)(2), Exchanges must periodically 
check available data sources to identify Exchange enrollees who are 
deceased and must terminate a deceased person's QHP coverage after 
following the process outlined at Sec.  155.330(e)(2)(i) and after a 
redetermination of eligibility in accordance with Sec.  155.330(e)(1). 
We proposed to amend Sec.  155.330 to allow Exchanges, under 
appropriate circumstances, to terminate a deceased enrollee's coverage 
retroactively to the date of death, with no requirement to redetermine 
the eligibility of the deceased enrollee. We are finalizing this 
amendment as proposed.
    In 2019, Exchanges using the Federal platform conducted one check 
for enrollees who are enrolled in QHP coverage and may have become 
deceased during plan year 2019. For plan year 2019 and beyond, under 
Sec.  155.430(d)(7), Exchanges currently must terminate QHP coverage 
retroactively to the date of death when the Exchange terminates 
coverage due to the death of an enrollee during a plan year. We 
proposed to further amend Sec.  155.330(e)(2)(i)(D) to provide that 
Exchanges are not required to redetermine eligibility of a deceased 
enrollee when the Exchange identifies a deceased enrollee via PDM and 
the enrollee does not respond or contest the updated information within 
the 30-day period specified in paragraph (e)(2)(i)(B). Under such 
circumstances, the Exchange would terminate coverage retroactively to 
the date of death, as specified in Sec.  155.430(d)(7), with no 
requirement to redetermine the eligibility of the deceased enrollee. We 
explained in the proposed rule that we believe this policy will 
strengthen the integrity of the individual market by mitigating the 
risk of unnecessary funds leaving the Treasury in the form of APTC or 
CSRs for enrollees identified as deceased during a plan year.
    We solicited comment on this proposal.
    Comment: All commenters that submitted comments on this topic 
supported our proposal that Exchanges terminate coverage retroactively 
to the date of death without redetermining the eligibility of the 
deceased enrollee as part of PDM. These commenters noted that this 
proposal will support the expeditious termination of deceased enrollees 
and will be helpful to the families of the deceased enrollee, resulting 
in a positive consumer experience.
    Response: We agree that the PDM process is an important tool to 
identify Exchange enrollees who may have become deceased during a plan 
year to ensure that issuers do not receive financial assistance on 
behalf of deceased enrollees and that deceased enrollees are more 
timely removed from QHP coverage. As commenters noted, the death of a 
family member or friend is a stressful time and those impacted may 
delay or forget to end QHP coverage for the deceased enrollee. In these 
instances, we agree that PDM can play an important role for the 
families of deceased enrollees by taking action to terminate QHP 
coverage for the deceased enrollee.
    Comment: One commenter suggested that as part of PDM operations to 
identify deceased enrollees during a plan year, HHS should provide 
issuers with a specific reason code that identifies QHP plan 
terminations due to death.
    Response: No additional reason code is necessary to identify QHP 
plan terminations due to death. In 2019, Exchanges using the federal 
eligibility and enrollment platform began conducting periodic checks 
for deceased enrollees on single member applications and subsequently 
terminated the deceased enrollee's QHP coverage back to the date of 
death. In order to notify issuers of these changes, we developed new 
maintenance reason codes specific to deceased enrollees discovered 
through PDM that issuers may use to identify Exchange enrollees who 
were terminated due to death. Exchange issuers receive these PDM 
specific maintenance reason codes through the 834 transaction process.
    We are finalizing this policy as proposed, to amend Sec.  
155.330(e)(2)(i)(D) to reflect that Exchanges must terminate coverage 
retroactively back to the date of death in accordance with

[[Page 29203]]

Sec.  155.430(d)(7), with no requirement to redetermine eligibility for 
the deceased enrollee.
3. Automatic Re-Enrollment Process
    In the proposed rule, we solicited comment on whether we should 
modify the automatic re-enrollment process such that any enrollee who 
would be automatically re-enrolled with APTC that would cover the 
enrollee's entire premium would instead be automatically re-enrolled 
without APTC or with some lesser amount of APTC. We are not finalizing 
changes to the automatic re-enrollment process in this rule.
    In the proposed rule titled, ``Patient Protection and Affordable 
Care Act; HHS Notice of Benefit and Payment Parameters for 2020'' (84 
FR 227) (proposed 2020 Payment Notice) we explained that enrollees in 
plans offered through Exchanges using the Federal platform can take 
action to re-enroll in their current plan or to select a new plan, or 
they can take no action and be automatically re-enrolled in their 
current plan (or if their current plan is no longer available, a plan 
selected under a hierarchy designed to identify a plan that is similar 
to their current plan).
    Since the Exchange program's inception, Exchanges using the Federal 
platform have maintained an automatic re-enrollment process which 
generally continues enrollment for enrollees who do not take action to 
actively select the same or a different plan. Automatic re-enrollment 
significantly reduces issuer administrative expenses, makes enrolling 
in health insurance more convenient for the consumer, and is consistent 
with general health insurance industry practice. In the open enrollment 
period for 2019 coverage, 1.8 million people in FFE and SBE-FP states 
were automatically re-enrolled in coverage, including about 270,000 
persons who were enrolled in a plan with zero premium after application 
of APTC.
    The proposed 2020 Payment Notice sought comment on automatic re-
enrollment processes and capabilities, as well as additional policies 
or program measures that might reduce eligibility errors and potential 
government misspending. As we noted in the final rule, ``Patient 
Protection and Affordable Care Act; HHS Notice of Benefit and Payment 
Parameters for 2020'' (84 FR 17454) (final 2020 Payment Notice), 
commenters unanimously supported retaining the automatic re-enrollment 
processes. Supporters cited benefits such as the stabilization of the 
risk pool due to the retention of lower-risk enrollees who are least 
likely to actively re-enroll, the increased efficiencies and reduced 
administrative costs for issuers, the reduction of the numbers of 
uninsured, and lower premiums. Commenters believed existing processes, 
such as eligibility redeterminations, electronic and document-based 
verification of eligibility information, PDM, and APTC reconciliations, 
are sufficient safeguards against potential eligibility errors and 
increased federal spending.
    We also noted in the final 2020 Payment Notice that we would 
continue to explore options to improve Exchange program integrity. As 
such, in the proposed 2021 Payment Notice, we solicited comment on 
modifying the automatic re-enrollment process such that any enrollee 
who would be automatically re-enrolled with APTC that would cover the 
enrollee's entire premium would instead be automatically re-enrolled 
without APTC or with a lesser amount of APTC. This modification could 
address concerns that automatic re-enrollment may lead to incorrect 
expenditures of APTC, some of which cannot be recovered through the 
reconciliation process due to statutory caps. We considered that there 
may be particular risk associated with enrollees who are automatically 
re-enrolled with APTC that cover the entire plan premium, since such 
enrollees do not need to make payments to continue coverage. The 
modifications discussed in the proposed rule could help ensure a 
consumer's active involvement in their re-enrollment because the 
consumer would need to return to the Exchange and obtain an updated 
eligibility determination prior to having the full amount of APTC for 
which the consumer was eligible paid to an issuer on their behalf for 
the upcoming year.
    We further discussed in the proposed rule that if APTC for this 
population is reduced to a level that would result in an enrollee 
premium that is greater than zero dollars, the process would ensure a 
consumer's active involvement in re-enrollment because any enrollment 
in a plan with a premium greater than zero would require the enrollee 
to take action by making the premium payment to effectuate or maintain 
coverage and avoid termination of coverage for non-payment. We stated 
in the proposed rule that if we were to implement such a change, we 
would conduct consumer outreach and education alerting consumers to the 
new process and emphasizing the importance of returning to the Exchange 
during open enrollment to update their applications to ensure that 
their income and other information is correct and that they are still 
in the best plan for their needs. This outreach could include fact 
sheets, email or mail outreach depending on preference, and education 
among issuers, agents, brokers, Navigators, and other assisters.
    We noted that under current regulations at Sec.  155.335, each 
Exchange has some flexibility to define its own annual redetermination 
procedures. We solicited comment on whether the approaches discussed 
above should be adopted, and whether they should be adopted only for 
Exchanges using the Federal platform, maintaining automatic re-
enrollment flexibility for State Exchanges that operate their own 
eligibility and enrollment platforms.
    On December 20, 2019, section 1311(c) of PPACA was amended to 
require the Secretary to establish a process to re-enroll persons 
enrolled in 2020 QHP coverage through an FFE who do not actively re-
enroll for plan year 2021 and who do not elect to disenroll for 2021 
coverage during the open enrollment period for 2021.\93\ We believe the 
current automatic re-enrollment process under Sec.  155.335(j) (that 
was in place during the 2020 open enrollment period and prior years) 
will satisfy this requirement for automatic re-enrollment for the 2021 
plan year.
---------------------------------------------------------------------------

    \93\ Further Consolidated Appropriations Act, 2020, Division N, 
title I, subtitle F, section 608 (Pub. L. 116-94: December 20, 2019, 
enacting H.R. 1865).
---------------------------------------------------------------------------

    Comment: All but one commenters on this request for comments 
opposed modifying the current automatic re-enrollment processes for a 
variety of reasons. Many believed that adopting the proposed changes 
could disadvantage the lowest income group of Exchange enrollees by 
taking away financial assistance for which they are eligible without 
evidence that they are at greater risk of incurring overpayments of 
APTC. Others questioned HHS's legal authority to apply an amount of 
APTC other than that determined in accordance with section 36B of the 
Code and sections 1411 and 1412 of the PPACA. Some commenters were 
specifically opposed to any requirement that State Exchanges modify 
their automatic re-enrollment processes because it would require costly 
IT system reconfigurations, consumer noticing changes, and additional 
investments to support increased Exchange customer service capacity 
that would be necessary to address consumer confusion caused by the 
change.
    Most commenters supported the current automatic re-enrollment

[[Page 29204]]

process, citing benefits such as the stabilization of the risk pool due 
to the retention of lower risk enrollees who are least likely to 
actively re-enroll, the increased efficiencies and reduced 
administrative costs for issuers, the reduction of the numbers of 
uninsured, lower premiums, and promotion of continuity of coverage. 
Many commenters believed that existing processes, including annual 
eligibility redetermination, periodic data matching, and APTC 
reconciliation, sufficiently safeguard against potential eligibility 
errors and increased federal spending. Other commenters noted that HHS 
provided no data indicating that the groups targeted by the proposed 
modifications are at a higher risk of receiving APTC overpayments.
    Response: In light of commenters' overwhelming opposition to 
changing our automatic re-enrollment process, we will not change the 
current process at this time. We believe that existing Exchange 
safeguards have mitigated the risk of inappropriate APTC payments. 
These safeguards include requiring checks of the most recent IRS data 
and APTC reconciliation on the annual federal income tax return. HHS 
put into place new `Failure to Reconcile' checks in 2018 that 
discontinued access to APTC for enrollees who did not file an annual 
federal income tax return or who filed an annual federal income tax 
return, but did not reconcile APTC. In addition, recent changes made in 
the 2019 Program Integrity rule require all Exchanges to conduct period 
data matching at least twice per year. We appreciate the comments on 
current processes and we will continue to explore options to improve 
Exchange program integrity going forward.
    Comment: One commenter supported the changes for which HHS 
solicited comment and suggested HHS should end automatic re-enrollment 
for all consumers who are eligible for APTC. The commenter stated that 
requiring consumers who are eligible for APTC to return to the Exchange 
each year will better ensure integrity of government spending on APTC, 
citing concerns around insufficient verifications processes.
    Response: We appreciate this comment. Notwithstanding, given the 
concerns many commenters expressed and the safeguards we have 
implemented to ensure eligibility is verified, we believe it would be 
inappropriate to end automatic re-enrollment for all consumers who are 
eligible for APTC at this time. We will continue to monitor the 
effectiveness of current program integrity safeguards and explore 
options to strengthen them in future rulemaking.
4. Enrollment of Qualified Individuals Into QHPs (Sec.  155.400)
    We proposed revisions to binder payment deadlines under Sec.  
155.400(e)(1)(i) through (iv) to ensure consistency with revisions we 
proposed to Sec.  155.420. Specifically, we proposed that in the 
Exchanges using the Federal platform, special enrollment periods 
currently following regular effective date rules would instead be 
effective on the first of the month following plan selection. We also 
proposed to align the retroactive effective date and binder payment 
rules so that any consumer who is eligible to receive retroactive 
coverage, whether due to a special enrollment period, a favorable 
eligibility appeal decision, or a special enrollment period 
verification processing delay, has the option to pay the premium due 
for all months of retroactive coverage through the first prospective 
month of coverage, or only the premium for 1 month of coverage and 
receive prospective coverage only. We are finalizing these revisions as 
proposed. For a full discussion of the proposals related to prospective 
binder payment rules at Sec.  155.400(e)(1)(i) and (ii), and 
retroactive binder payment rules at Sec.  155.400(e)(1)(iii) and (iv), 
please see the preamble to Sec.  155.420 of the proposed rule.
5. Special Enrollment Periods (Sec.  155.420)
a. Exchange Enrollees Newly Ineligible for Cost-Sharing Reductions
    We proposed to revise Sec.  155.420 to allow silver level QHP 
enrollees and their dependents who become newly ineligible for CSRs to 
change to a QHP that is one metal level higher or lower than their 
current plan. We are finalizing these revisions as proposed, except 
that we are delaying the effective date of the revision related to new 
plans that may be chosen by an enrollee who loses CSR eligibility.
    In 2017, the HHS Market Stabilization Rule preamble explained that 
HHS would move forward with a pre-enrollment verification of 
eligibility for certain special enrollment periods in all states served 
by the Federal platform. This practice was part of an effort to 
stabilize the individual market, and to address concerns that allowing 
individuals to enroll in coverage through a special enrollment period 
without electronic or document-based verification of eligibility could 
negatively affect the individual market risk pool by allowing 
individuals to newly enroll in coverage based on health needs during 
the coverage year, as opposed to enrolling during open enrollment and 
maintaining coverage for a full year.
    To address related concerns that Exchange enrollees were utilizing 
special enrollment periods to change plan metal levels due to health 
needs during the coverage year, which negatively affects the individual 
market risk pool, the Market Stabilization Rule also set forth 
requirements at Sec.  155.420(a)(4) to limit Exchange enrollees' 
ability to change to a QHP of a different metal level when they qualify 
for, or when a dependent(s) newly enrolls in, Exchange coverage through 
most types of special enrollment periods.\94\
---------------------------------------------------------------------------

    \94\ These limitations do not apply to enrollees who qualify for 
certain types of special enrollment periods, including those under 
Sec. Sec.  155.420(d)(4), (8), (9), (10), (12), and (14). While 
special enrollment periods under Sec. Sec.  155.420(d)(2)(i) and 
(d)(6)(i) and (ii) are excepted from Sec.  155.420(a)(4)(iii), Sec.  
155.420(a)(4)(i) and (ii) apply other plan category limitations to 
them. See also the proposals about applicability of plan category 
limitations to certain special enrollment periods in this section of 
this final rule.
---------------------------------------------------------------------------

    We proposed to amend these rules in order to allow enrollees and 
their dependents who become newly ineligible for CSRs while enrolled in 
a silver-level QHP, to change to a QHP one metal level higher or lower 
if they elect to change their QHP enrollment in an Exchange. Generally, 
Sec.  155.420(a)(4) provides that enrollees who newly add a dependent 
through most types of special enrollment periods may add the dependent 
to their current QHP or enroll the dependent in a separate QHP,\95\ and 
that if an enrollee qualifies for certain special enrollment periods, 
the Exchange must allow the enrollee and his or her dependents to 
change to another QHP within the same level of coverage (or one metal 
level higher or lower, if no such QHP is available), as outlined in 
Sec.  156.140(b). To ensure that individuals who are newly eligible for 
CSRs can access this benefit, Sec.  155.420(a)(4)(ii) provides that if 
an enrollee and his or her dependents become newly eligible for CSRs in 
accordance with paragraph Sec.  155.420(d)(6)(i) or (ii) and are not 
enrolled in a silver-level QHP, the Exchange must allow them to change 
to

[[Page 29205]]

a silver-level QHP so that they may access CSRs for which they are 
eligible.
---------------------------------------------------------------------------

    \95\ Section 155.420(a)(4)(i) and (a)(4)(iii)(B) also provide 
that alternatively, if the QHP's business rules do not allow the 
dependent to enroll, the Exchange must allow the enrollee and his or 
her dependents to change to another QHP within the same level of 
coverage (or one metal level higher or lower, if no such QHP is 
available), as outlined in 45 CFR 156.140(b).
---------------------------------------------------------------------------

    However, as discussed in the proposed rule, there was no 
corresponding provision to permit enrollees and their dependents who 
become newly ineligible for CSRs in accordance with Sec.  
155.420(d)(6)(i) or (ii), and who are enrolled in a silver-level QHP, 
to change to a QHP of a different metal level in order to account for 
their change in financial assistance. Instead, if they wish to change 
plans, Sec.  155.420(a)(4)(iii)(A) currently limits them to changing to 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available). As explained in the 
proposed rule, since the implementation of Sec.  155.420(a)(4) in 
states served by the Federal platform, HHS has received questions and 
concerns about this issue from Navigators, agents and brokers, and 
other enrollment assisters. Based on their experiences, consumers who 
lose eligibility for CSRs are often unable to afford cost sharing for 
their current silver-level QHP, and therefore, may need to change to a 
lower-cost QHP in order to maintain their coverage.
    We proposed to redesignate Sec.  155.420(a)(4)(ii) as (a)(4)(ii)(A) 
and add a new Sec.  155.420(a)(4)(ii)(B) in order to allow enrollees 
and their dependents who become newly ineligible for CSRs in accordance 
with paragraph (d)(6)(i) or (ii) of this section, and are enrolled in a 
silver-level QHP, to change to a QHP one metal level higher or lower if 
they elect to change their QHP enrollment in an Exchange. We further 
proposed to modify Sec.  155.420(a)(4)(iii) to include Sec.  
155.420(d)(6)(i) and (ii) for becoming newly ineligible for CSRs in the 
list of trigger events excepted from the limitations at Sec.  
155.420(a)(3)(iii). As discussed, the proposal may help affected 
enrollees' ability to maintain continuous coverage for themselves and 
for their dependents in spite of a potentially significant change to 
their out of pocket costs. For example, an enrollee affected by an 
increase to his or her monthly premium payment could change to a 
bronze-level plan, while an enrollee who has concerns about higher 
copayment or co-insurance cost-sharing requirements could change to a 
gold-level plan. Finally, current regulations at 45 CFR 
147.104(b)(2)(iii) establish that plan category limitations do not 
apply off-Exchange. Therefore, in the case of an individual who loses 
eligibility for CSRs and wishes to use his or her special enrollment 
period to purchase coverage off-Exchange, he or she is not limited to 
any specific metal level(s) of coverage.
    We solicited comments on these proposals.
    Comment: No commenters opposed this proposed change, and many 
commenters supported it for the reasons described above, explaining 
that allowing enrollees the flexibility to change to a plan of a 
different metal level based on a change in their financial assistance 
would allow more individuals to maintain coverage. Several commenters 
suggested that we provide more flexibility for Exchange enrollees to 
change to a different metal level plan. One commenter suggested 
allowing enrollees and their dependents who become newly ineligible for 
CSRs and are enrolled in a silver-level QHP to change to a QHP of any 
metal level. Another commenter suggested that enrollees who lose 
eligibility for APTC during the plan year should also be able to change 
to a plan of a different metal level. Several commenters disagreed with 
the need for plan category limitations in general. Of these commenters, 
one asked that State Exchanges have the option not to implement plan 
category limitations requirements at all. Another commenter noted that 
any loosening of special enrollment period regulations can affect the 
level of adverse selection in the market.
    Response: We are finalizing these changes as proposed, but delaying 
to January 2022 the effective date for the modification of plan 
category limitations to allow Exchanges more time to implement the 
change. We agree with commenters who stated that it will help enrollees 
and their dependents who lose eligibility for CSRs during the plan year 
to stay enrolled in coverage by switching to a new QHP that better 
suits their changed financial situation. We disagree with commenters 
who suggested that the plan category limitation policy is not necessary 
to prevent adverse selection and protect the individual market risk 
pool. However, we acknowledge that enrollees who experience changes in 
their financial situation, such as an increase in income that makes 
them ineligible for APTC, may wish to change to a different metal level 
QHP for reasons that are not health related. Nonetheless, we share 
concerns that incorporating additional flexibility into plan category 
limitations rules could increase the risk of adverse selection; 
therefore, we are not doing so at this time.
    Comment: While supporting this proposal in general, several 
commenters raised concerns that enrollees changing plans mid-coverage 
year might not realize that their out of pocket costs could increase if 
their deductible and other accumulators are re-set.
    Response: HHS acknowledges these concerns, and works to promote 
health insurance literacy including an understanding of the 
implications of changing plans mid-coverage year.
    Comment: One commenter asked that HHS permit and encourage or 
require issuers to preserve progress towards a deductible and other 
accumulators for enrollees who switch to a different metal level plan 
with the same issuer.
    Response: These comments are outside the scope of the proposal; 
however, we clarify that HHS does allow issuers the option to preserve 
or to re-set progress towards accumulators for enrollees who switch 
plans mid-year.
    Comment: Some commenters expressed support for this proposal based 
on a misunderstanding that it would allow Exchange enrollees who become 
newly eligible for CSRs to change to a silver-level QHP if they elect 
to change their QHP.
    Response: We clarify that this flexibility already exists through 
Sec.  155.420(a)(4)(ii), newly designated by this final rule as Sec.  
155.420(a)(4)(ii)(A).
    Comment: Several commenters expressed strong support for providing 
State Exchanges with flexibility related to special enrollment period 
policy implementation, explaining that any special enrollment period 
changes require significant State Exchange effort and potentially 
unpredictable costs. Additionally, several commenters expressed the 
belief that this provision does provide Exchanges with flexibility in 
terms of whether and when to implement it.
    Response: While we generally support flexibility for State 
Exchanges' policy and operations, we will continue to require all 
Exchanges to implement plan category limitations as established at 
Sec.  155.420(a)(4), including changes finalized in this rule. These 
limitations are necessary to prevent adverse selection and to protect 
the individual market risk pool. To provide Exchanges with additional 
time to comply with new plan category limitations finalized in this 
rule, we are delaying the effective date of these changes to January 
2022.
b. Special Enrollment Period Limitations for Enrollees Who Are 
Dependents
    We proposed to apply the same plan category limitations to 
dependents who are currently enrolled in Exchange coverage that applies 
to current, non-dependent Exchange enrollees. We are finalizing this 
policy as proposed.

[[Page 29206]]

    As discussed in the preceding section of this preamble, under Sec.  
155.420(a)(4)(i) and (a)(4)(iii)(B), enrollees who newly add a 
dependent through most types of special enrollment periods may add the 
dependent to their current QHP or enroll the dependent in a separate 
QHP.\96\ Specifically, Sec.  155.420(a)(4)(i) establishes that if an 
enrollee has gained a dependent in accordance with Sec.  
155.420(d)(2)(i), the Exchange must allow the enrollee to add the 
dependent to his or her current QHP. But if the current QHP's business 
rules do not allow the dependent to enroll, the Exchange must allow the 
enrollee and his or her dependents to change to another QHP within the 
same level of coverage (or one metal level higher or lower, if no such 
QHP is available), as outlined in Sec.  156.140(b), or, at the option 
of the enrollee or dependent, enroll the dependent in any separate 
QHP.\97\ Per Sec.  155.420(a)(4)(iii)(B), if a dependent qualifies for 
a special enrollment period not related to becoming a new dependent, 
and an enrollee is adding the dependent to his or her QHP, the Exchange 
must allow the enrollee to add the dependent to his or her current QHP; 
or, if the QHP's business rules do not allow the dependent to enroll in 
that plan, the Exchange must allow the enrollee and his or her 
dependents to change to another QHP within the same level of coverage 
(or one metal level higher or lower, if no such QHP is available), as 
outlined in Sec.  156.140(b), or enroll the new qualified individual in 
a separate QHP. Finally, Sec.  155.420(a)(4)(iii)(A) requires that if 
an enrollee qualifies for certain special enrollment periods, the 
Exchange must allow the enrollee and his or her dependents to change to 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available), as outlined in Sec.  
156.140(b).
---------------------------------------------------------------------------

    \96\ Section 155.420(a)(4)(i) and (a)(4)(iii)(B) also provide 
that alternatively, if the QHP's business rules do not allow the 
dependent to enroll, the Exchange must allow the enrollee and his or 
her dependents to change to another QHP within the same level of 
coverage (or one metal level higher or lower, if no such QHP is 
available), as outlined in 45 CFR 156.140(b).
    \97\ Per Sec.  155.420(a)(2), ``dependent'' has the same meaning 
as it does in 26 CFR 54.9801-2, referring to any individual who is 
or who may become eligible for coverage under the terms of a QHP 
because of a relationship to a qualified individual or enrollee.
---------------------------------------------------------------------------

    Per Sec.  155.420(a)(2), a dependent refers to any individual who 
is or who may become eligible for coverage under the terms of a QHP 
because of a relationship to a qualified individual or enrollee. As 
described in the proposed rule, the rules at Sec.  155.420(a)(4) did 
not previously address all situations in which a current enrollee is a 
dependent of a qualified individual who is newly enrolling in Exchange 
coverage through a special enrollment period. For example, the current 
rules do not explicitly address what limitations apply when a mother 
loses her self-only employer-sponsored coverage, thereby gaining 
eligibility for a special enrollment period for loss of MEC, and seeks 
to be added as an enrollee to the Exchange coverage in which her two 
young children are currently enrolled. Applying the limitations at 
Sec.  155.420(a)(4) to such circumstances is consistent with HHS's 
goals of establishing equivalent treatment for all special enrollment 
period eligible qualified individuals, and preventing enrollees from 
changing plans in the middle of the coverage year based on ongoing or 
newly emerging health issues. Preamble language from the 2017 Market 
Stabilization Proposed Rule explained that the requirement at Sec.  
155.420(a)(4)(iii) would extend to enrollees who are on an application 
where a new applicant is enrolling in coverage through a special 
enrollment period, using general terms to convey that restrictions 
should apply to enrollees and newly-enrolling individuals regardless of 
whether the new enrollee is a dependent.\98\
---------------------------------------------------------------------------

    \98\ 82 FR at 10986.
---------------------------------------------------------------------------

    To ensure that Exchange enrollees and qualified individuals are 
treated consistently under our special enrollment period rules, we 
proposed to apply the same limitations to dependents who are currently 
enrolled in Exchange coverage that applies to current, non-dependent 
Exchange enrollees. Specifically, we proposed to add a new Sec.  
155.420(a)(4)(iii)(C) to establish that the Exchange must allow a 
qualified individual who is not an enrollee, who qualifies for a 
special enrollment period and has one or more dependents who are 
enrollees, to add him or herself to a dependent's current QHP; or, per 
similar existing rules at Sec.  155.420(a)(4)(iii)(B), if the QHP's 
business rules do not allow the qualified individual to enroll in such 
coverage, to enroll with his or her dependent(s) in another QHP within 
the same level of coverage (or one metal level higher or lower, if no 
such QHP is available), as outlined in Sec.  156.140(b), or enroll him 
or herself in a separate QHP.
    As proposed, Sec.  155.420(a)(4)(iii)(C) would be parallel to Sec.  
155.420(a)(4)(iii)(B), which applies plan category limitations to 
current enrollees whose dependent(s) qualify for a special enrollment 
period to newly enroll in coverage, and specifies that the Exchange 
must permit the enrollee to change plans in order to add the dependent 
when the enrollee's current plan's business rules do not permit adding 
the dependent, notwithstanding whether the enrollee also qualifies for 
a special enrollment period. In other words, as proposed, Sec.  
155.420(a)(4)(iii)(C) would apply plan category limitations in allowing 
currently enrolled dependents who are enrolled in a plan that has 
business rules that do not permit the non-dependent to be added to the 
enrollment, to change plans in order to enroll together with the non-
dependent.
    Current regulations at Sec.  147.104(b)(2)(iii) provide that Sec.  
155.420(a)(4) does not apply off-Exchange. Therefore, the existing and 
proposed requirements and restrictions under Sec.  155.420(a)(4) do not 
apply off-Exchange. However, our regulations do not prohibit issuers 
off-Exchange from newly enrolling with currently enrolled dependents a 
non-dependent household member(s) who qualifies for a special 
enrollment period, or from newly enrolling dependent household members 
who qualify for a special enrollment period with currently enrolled 
individuals of whom they are a dependent, to the extent consistent with 
applicable state law.
    Comment: Several commenters supported this proposal based on their 
position that it is appropriate to apply the same limitations to any 
individual seeking to newly enroll in Exchange coverage with a 
currently-enrolled household member(s), and a few supported this 
proposal because it would simplify special enrollment period rules. One 
of these commenters asked that HHS continue not to apply the plan 
category limitations policy to off-Exchange enrollments.
    Response: We agree with these comments, and note that at this time 
we do not plan to apply plan category limitations off-Exchange.
    Comment: Multiple commenters supported this proposal, but 
misunderstood it to be either the creation of a new special enrollment 
period or of a new process for those who qualify for an existing 
special enrollment period to allow parents or guardians to add 
themselves to a dependent's Exchange coverage.
    Response: Here, we clarify that the proposal would not create a new 
special enrollment period or incorporate additional flexibility into 
existing plan category limitations rules; in fact, it clarifies that 
these limitations apply to Exchange enrollees who are dependents in the 
same way that they apply to

[[Page 29207]]

Exchange enrollees who are not dependents.
    Comment: Additionally, one commenter misunderstood the proposal to 
be a change in how the Federally-facilitated Exchanges operationalize 
special enrollment periods for individuals newly enrolling in coverage 
with dependents.
    Response: We clarify that we are not proposing any changes to how 
Exchanges using the Federal platform operationalize special enrollment 
periods for these individuals, including how these Exchanges send this 
type of enrollment to issuers.
    Comment: Several commenters opposed this proposal, citing 
opposition to plan category limitations more generally. As discussed 
above, one commenter asked that HHS provide State Exchanges with 
flexibility in terms of when, and whether, to implement plan category 
limitations.
    Response: While we generally support flexibility for State 
Exchanges' policy and operations, we will continue to require all 
Exchanges to implement plan category limitations as established at 
Sec.  155.420(a)(4), including changes finalized in this rule. These 
limitations are necessary to prevent adverse selection and to protect 
the individual market risk pool.
    Comment: Some commenters stated that a household should be able to 
re-assess plan choice, including choice of metal level, in situations 
where a parent or guardian newly enrolls in Exchange coverage with his 
or her dependents. These commenters expressed doubt that permitting 
this flexibility would cause adverse selection.
    Response: As discussed in the proposed rule, we agree with comments 
that expressed support for applying plan category limitations to all 
Exchange enrollees in the same way. Relatedly, we do not think that 
Exchange enrollees who are dependents are any less likely than 
enrollees who are not dependents to change to a different metal level 
plan through a special enrollment period due to ongoing health needs 
during the coverage year. Therefore we believe it is appropriate to 
apply the same plan category limitations to all enrollees, whether or 
not they are dependents.
    Comment: One commenter requested clarification of the proposed 
regulation text; specifically, how it would impact Exchange enrollees 
who are dependents and whose parent or guardian is newly enrolling in 
coverage with them, and who themselves are also eligible for a special 
enrollment period.
    Response: Exchange enrollees who are dependents and whose parent or 
guardian is newly enrolling in coverage with them through a special 
enrollment period, and who themselves are also eligible for a special 
enrollment period, will be limited based on the rules at Sec.  
155.420(a)(4) that apply to them. For example, if a parent enrolls in 
coverage with her dependent child through a special enrollment period 
due to a move for which they both qualify, then per Sec.  
155.420(a)(4)(iii)(A), the currently-enrolled dependent may change to a 
QHP of the same metal level as his current plan (or one metal level 
higher or lower, if no such QHP is available). Per Sec.  
155.420(a)(iii)(C), the parent may enroll in her child's QHP, or, if 
the QHP's business rules do not allow her to enroll, the Exchange must 
allow her and her child to change to another QHP within the same level 
of coverage (or one metal level higher or lower, if no such QHP is 
available), or enroll herself in a separate QHP of any metal level.
c. Special Enrollment Period Prospective Coverage Effective Dates
    We proposed that in the Exchanges using the Federal platform, 
special enrollment periods currently following regular effective date 
rules would instead be effective on the first of the month following 
plan selection. Specifically, we proposed to amend Sec.  155.420(b)(3) 
for improved clarity and to specify how Exchanges using the Federal 
platform would implement the proposal. We are finalizing these policies 
as proposed, but delaying the effective date until January 2022 to 
allow the sufficient time to implement these changes.
    Under regular special enrollment period effective date rules at 
current Sec.  155.420(b)(1), the Exchange is required to ensure a 
coverage effective date of the first day of the following month for 
individuals who select a QHP between the 1st and the 15th day of any 
month. The Exchange was required to ensure a coverage effective date of 
the first day of the second following month for individuals who select 
a QHP between the 16th and the last day of any month. Under those 
rules, it could take as many as 47 days from plan selection to 
effectuate coverage under a special enrollment period (that is, from 
the 16th of a month to the first of the next following month; or for 
example, from July 16 to September 1). In the Exchanges using the 
Federal platform and pursuant to Sec.  155.420(b)(1), those rules apply 
to special enrollment periods provided under Sec.  155.420(d)(3), 
(d)(6)(i), (ii), (iv), and (v), and (d)(7), (8), (10), and (12). Under 
other special enrollment periods, such as those under Sec.  
155.420(d)(4), (5), and (9), in the Exchanges using the Federal 
platform, the consumer is generally offered a choice of regular 
effective dates that would apply under Sec.  155.420(b)(1), or an 
effective date that is retroactive to the date that would have applied 
if not for the triggering event. In addition, under Sec.  
147.104(b)(5), the coverage effective date rules in Sec.  155.420(b) 
apply to each of those special enrollment periods to the extent they 
apply off-Exchange, as specified in Sec.  147.104(b)(2)(i).
    These regular special enrollment period effective date rules under 
Sec.  155.420(b)(1), along with the initial open enrollment period 
effective date rules under Sec.  155.410(c), were originally designed 
to provide issuers several weeks to collect binder payments, mail 
identification cards, and complete other administrative actions prior 
to the policy's start date. However, QHP issuers that offer coverage 
through the Federal Exchange, already effectuate coverage and process 
changes in circumstance using first-of-the-month rules. In 2017, 
issuers processed 88 percent of special enrollment periods for 
individuals newly enrolling in coverage through Exchanges using the 
Federal platform under accelerated or retroactive effective date 
rules.\99\ HHS internal data on enrollments through Exchanges using the 
Federal platform in 2018 indicates that issuers processed a majority of 
changes in circumstances (including those resulting in special 
enrollment periods) under accelerated or faster effective date rules. 
Because issuers in Exchanges using the Federal platform routinely 
effectuate coverage on a shorter timeframe, we do not anticipate that 
this change would be difficult for issuers to implement.
---------------------------------------------------------------------------

    \99\ Centers for Medicare & Medicaid Services, The Exchanges 
Trends Report (July 2, 2018), available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-3.pdf.
---------------------------------------------------------------------------

    Additionally, we explained that as a program integrity measure, we 
believe any enrollment changes related to changes in eligibility for 
Exchange coverage or for insurance affordability programs should be 
implemented as soon as practicable. This is particularly important for 
consumers with special enrollment periods based on changes in 
eligibility for APTC under Sec.  155.420(d)(6)(i) and (ii), which 
currently follow regular effective date rules in the Exchanges using 
the Federal platform.
    As discussed in the proposed rule, the provision will permit 
Exchanges, including Exchanges using the Federal platform, and issuers 
to more rapidly implement changes in QHP enrollment, particularly those 
related to changes in financial assistance eligibility, and

[[Page 29208]]

would standardize prospective special enrollment period effective dates 
across the Exchanges using the Federal platform, such that consumers 
eligible for prospective coverage would have a single effective date. 
It will also help reduce consumer confusion regarding different 
effective date rules and minimize gaps in coverage.
    Finalizing this proposal will also allow State Exchanges the 
flexibility to retain current special enrollment period regular 
effective date rules or to adopt the approach that will be taken in the 
Exchanges using the Federal platform. State Exchanges already had 
flexibility under Sec.  155.420(b)(3) to effectuate coverage in a 
shorter timeframe if their issuers agree. Several State Exchanges had 
already transitioned to faster than regular effective date rules for 
special enrollment periods. Under these changes, State Exchanges may 
retain their current effective date rules or implement faster ones 
without needing to demonstrate issuer concurrence.
    By reference, the effective-date-of-coverage rules at Sec.  
155.420(b) apply off-Exchange, under Sec.  147.104(b)(5). The proposal 
would continue to provide the applicable state authority with 
flexibility regarding the options for effective dates under current 
rules for off-Exchange coverage.
    This change will also help reduce confusion around binder payment 
deadlines, since these deadlines depend on a policy's coverage 
effective date. Accordingly, we proposed to make updates to binder 
payment deadlines in Sec.  155.400(e)(1)(ii) to ensure that special 
enrollment periods using effective dates under revised Sec.  
155.420(b)(3) would also be subject to the same binder payment rules as 
other special enrollment periods that are effective the first of the 
month following plan selection. Because the Exchanges using the Federal 
platform would no longer be following regular coverage effective dates 
for special enrollment periods under Sec.  155.420(b)(1), we also 
proposed to remove reference to that provision in Sec.  
155.400(e)(1)(i) and to replace ``regular effective dates'' in Sec.  
155.400(e)(1)(iii) with a reference to Sec.  155.420(b)(3). This latter 
change provides that in the Exchanges using the Federal platform, 
coverage would be effective on the first of the month following plan 
selection for consumers who are eligible for retroactive coverage but 
just pay 1 month's premium and receive only prospective coverage. This 
change will help ensure that prospective effective dates across the 
Exchanges using the Federal platform are streamlined under one rule.
    We solicited comments on these proposals.
    Comment: Most commenters supported this proposal, noting that it 
will reduce consumer confusion and minimize gaps in coverage. Several 
commenters stressed the importance of continued flexibility for State 
Exchanges. One commenter cautioned that this provision could create 
operational challenges that are difficult to overcome if it is 
implemented without accounting for a reasonable timeframe for binder 
payment to effectuate coverage. A commenter urged HHS to ensure that 
controls are in place to reduce gaming. Specifically, the commenter 
asked that HHS review current special enrollment period verification 
processes and make any updates needed to verify eligibility for first 
of the month coverage following special enrollment periods.
    Response: We agree with commenters that this provision will help 
reduce coverage gaps for consumers who enroll with a special enrollment 
period and, by harmonizing with coverage effective dates that apply to 
many of the most common special enrollment periods, will also reduce 
consumer confusion regarding enrollment through special enrollment 
periods. As we noted in the preamble to the proposed rule, because 
issuers in Exchanges using the Federal platform routinely effectuate 
coverage on a shorter timeframe, we do not anticipate that this change 
will be difficult for issuers to implement. We continue to monitor the 
special enrollment period verification process. If any changes are 
needed to verify eligibility for special enrollment periods that are 
effective on the first of the month following plan selection, we will 
explore solutions. Further, current special enrollment period 
verification processes require many enrollments submitted through the 
Federal platform to be pended until after verification, after which the 
enrollment will be released to the issuer with the appropriate 
effective date. Therefore, we do not anticipate this change will result 
in additional consumer gaming.
    Comment: One commenter requested that this provision be implemented 
off-Exchange as well, while one commenter asked HHS to confirm that 
proposed changes for on-Exchange enrollments alone do not seek to 
regulate existing off-Exchange practices.
    Response: Because we believe states are generally in the best 
position to determine the effective dates that apply in State Exchanges 
and off-Exchange, we are limiting this provision to QHPs on the 
Exchanges using the Federal platform. States will continue to have the 
same flexibility off-Exchange and in State Exchanges to adopt earlier 
effective dates as they currently have.
    We are finalizing the rule as proposed, but delaying the effective 
date until January 2022 to allow sufficient time to implement these 
changes.
d. Special Enrollment Period Retroactive Coverage Effective Dates
    We proposed to eliminate the option for a consumer whose enrollment 
is delayed until after the verification of the consumer's eligibility 
for a special enrollment period, under certain circumstances, to elect 
a coverage effective date that is no more than 1 month later than the 
effective date the consumer would otherwise have had but for the delay. 
This provision will align the retroactive effective date and binder 
payment rules so that any consumer who is eligible to receive 
retroactive coverage, whether due to a special enrollment period, a 
favorable eligibility appeal decision, or a special enrollment period 
verification processing delay, has the option to pay the premium due 
for all months of retroactive coverage through the first prospective 
month of coverage, or only the premium for 1 month of coverage and 
receive prospective coverage only. Specifically, we proposed to 
eliminate Sec.  155.420(b)(5).
    We are finalizing this policy as proposed.
    Section 155.400(e)(1)(iii) states that for coverage to be 
effectuated under retroactive special enrollment period effective 
dates, as provided for in Sec.  155.420(b)(2), a consumer's binder 
payment must include the premium due for all months of retroactive 
coverage through the first prospective month of coverage. If only the 
premium for 1 month of coverage is paid, only prospective coverage 
should be effectuated, in accordance with regular effective dates. As 
an example, a consumer has a special enrollment period that is not 
subject to verification with a March 1 effective date, but the 
enrollment is delayed due to an Exchange error. The issuer does not 
receive the transaction until April 15. Under this rule, to effectuate 
retroactive coverage beginning March 1, the issuer must receive 
premiums for March, April, and May. If the issuer only receives a 
premium payment for 1 or 2 months of coverage, it must effectuate only 
prospective coverage beginning May 1. This rule was designed to allow 
consumers who might have difficulty paying for retroactive coverage 
through a special enrollment period or a favorable eligibility appeal 
decision to

[[Page 29209]]

enroll with prospective coverage only.\100\
---------------------------------------------------------------------------

    \100\ If the enrollee pays some, but not all, months of 
retroactive premium due (two months in the example above), then the 
issuer would effectuate coverage prospectively. See 2017 Payment 
Notice, 81 FR at 12272. The issuer could then apply any amount paid 
in excess of 1 month's premium but less than the full amount needed 
to effectuate retroactive coverage to the next month's premium, or 
refund the excess amount to the enrollee, at the enrollee's request.
---------------------------------------------------------------------------

    The Market Stabilization Rule added a different set of binder 
payment rules at Sec.  155.400(e)(1)(iv) for retroactive effective 
dates after an enrollment has been delayed due to a prolonged special 
enrollment period verification under Sec.  155.420(b)(5).\101\ Under 
current rules, if a consumer's enrollment is delayed until after the 
verification of the consumer's eligibility for a special enrollment 
period, and the assigned effective date would require the consumer to 
pay 2 or more months of retroactive premium to effectuate coverage or 
avoid cancellation, the consumer has the option to choose a coverage 
effective date that is no more than 1 month later than had previously 
been assigned. If the consumer does not move her effective date, her 
binder payment would be the premium due for all months of retroactive 
coverage through the first prospective month of coverage, consistent 
with other binder payment rules. For instance, if the consumer's 
special enrollment period in the above example were subject to 
verification, and, as above, the March 1 effective date were pended 
until April 15 due to pre-enrollment verification, the consumer's only 
effective date options require payment for retroactive months, unlike 
the previous example. To effectuate coverage under the special 
enrollment period verification rules in current Sec. Sec.  
155.400(e)(1)(iv) and 155.420(b)(5), she could either pay the premiums 
for March, April, and May; or move her effective date forward only 1 
month to April 1, and must still pay for April and May coverage.
---------------------------------------------------------------------------

    \101\ Market Stabilization Rule, 82 FR at 18346.
---------------------------------------------------------------------------

    HHS established the special enrollment period verification 
effective date rules in response to issuer concerns that delays in 
special enrollment period verification and an un-checked ability of 
consumers to move their effective date later (as contemplated in the 
original version of that paragraph in the 2018 Payment Notice) would 
result in adverse selection, with healthier enrollees requesting a 
later effective date and sicker enrollees keeping the original 
retroactive date. However, we have been able to manage our operational 
processes so that delays in special enrollment period verification 
processing have not materialized. As described in the proposed rule, in 
2017, we averaged a response time of 1 to 3 days to review consumer-
submitted special enrollment period verification documents and provide 
consumers a response.\102\ The response time in 2018 was substantially 
similar. Additionally, in 2018 and 2019, we resolved over 800,000 
special enrollment period verifications, and fewer than 300 enrollees 
subject to special enrollment period verification have requested to 
move forward their effective date under Sec. Sec.  155.400(e)(1)(iv) 
and 155.420(b)(5). This indicates that these rules are largely 
unnecessary.
---------------------------------------------------------------------------

    \102\ Centers for Medicare & Medicaid Services, The Exchanges 
Trends Report (July 2, 2018), available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-3.pdf.
---------------------------------------------------------------------------

    We also proposed to remove the corresponding cross-reference at 
Sec.  155.420(b)(1) and the special enrollment period verification 
binder payment rule at Sec.  155.400(e)(1)(iv). Finally, we proposed to 
amend Sec.  155.400(e)(1)(iii) to state more explicitly that any 
consumer who can effectuate coverage with a retroactive effective date, 
including those whose enrollment is delayed until after special 
enrollment period verification, also has the option to effectuate 
coverage with the applicable prospective coverage date by choosing to 
only pay for 1 month of coverage by the applicable deadline, 
notwithstanding the retroactive effective date that the Exchange 
otherwise would be required to ensure.
    Standardizing a single binder payment rule for retroactive 
effective dates will improve operational efficiency for issuers and 
Exchanges using the Federal platform. Issuers have indicated that it is 
difficult to determine the appropriate binder payment rule to apply to 
an enrollment with a retroactive effective date when they receive fewer 
than all retroactive months of premium, because issuers need to discern 
whether the consumer's eligibility stems from an appeal, a non-verified 
special enrollment period, or a special enrollment period with a delay 
in verification processing. For example, if on March 5, an issuer 
receives a plan selection for a mother and child enrolling through an 
adoption special enrollment period with a January 10 effective date, 
and neither the mother nor child are current enrollees with the issuer, 
the issuer has no way of knowing whether this transaction was subject 
to verification. If the issuer in this case only receives 1 month's 
premium, it would not know whether to cancel the enrollment or 
effectuate prospective-only coverage. This change will simplify issuer 
operations by eliminating that complexity.
    Implementing a single set of binder payment rules will help ensure 
all enrollees (including those subject to special enrollment period 
verification) can access affordable coverage without being required to 
pay for months of retroactive coverage that may be prohibitively 
expensive, and during which most providers would have insisted on 
direct payment in order to provide health care services.
    Finally, by reference, the effective-date-of-coverage rules at 
Sec.  155.420(b) apply off-Exchange, in accordance with Sec.  
147.104(b)(5). Therefore, removing Sec.  155.420(b)(5) will also remove 
this requirement off-Exchange.
    We solicited comments on these proposals, including alternative 
approaches to streamlining retroactive effective date rules.
    Comment: Many commenters supported our proposal. One commenter 
suggested that to the extent HHS proceeds with the proposal, HHS should 
afford flexibility to State Exchanges in how they address retroactive 
coverage.
    Response: For the reasons explained elsewhere in this subsection of 
the preamble, this provision, simply reverts retroactive coverage 
effective date policy to the policy that was in place prior to the 2018 
Payment Notice. State Exchanges were previously required to follow 
retroactive special enrollment period effective date rules, and this 
change does not alter that.
    Comment: Several commenters asked that we continue to monitor 
special enrollment period verification speed and return to the earlier 
process should any delays in verification resume. One commenter urged 
us to establish a system whereby the consumer is intentionally 
selecting their effective date on the Exchange and then that date is 
communicated from Exchanges using the Federal platform. A number of 
commenters asked for consumers to be able to select partial or full 
coverage post-appeal, and a group of commenters urged that consumers 
may have valid reasons for requesting partial retroactive coverage.
    Response: HHS will continue to monitor the speed of special 
enrollment period verification and will reconsider this change if there 
is evidence of regular and significant delays. We will consider 
establishing a system whereby a consumer can select their effective 
date in the application for Exchanges using the Federal platform, but 
note that such a program would be operationally complex to implement, 
as would allowing consumers to select partial

[[Page 29210]]

retroactive coverage post-appeal. Such a system might also present 
adverse selection concerns.
    Comment: Several commenters expressed concern that this proposal 
would result in challenges for issuers in determining how to proceed 
with a binder payment in order to effectuate retroactive or prospective 
coverage. One commenter suggested that HHS should specify that this 
option should not be allowed for periods during which an individual 
used covered services.
    Response: Under Sec.  155.400(e)(1)(iv), issuers determine a 
consumer's effective date if the consumer was eligible for retroactive 
coverage, based on the premium paid. That provision states that for 
coverage to be effectuated under retroactive special enrollment period 
effective dates, as provided for in Sec.  155.420(b)(2), a consumer's 
binder payment must include the premium due for all months of 
retroactive coverage through the first prospective month of coverage. 
If only the premium for 1 month of coverage is paid, only prospective 
coverage should be effectuated, in accordance with regular effective 
dates. This proposal would simply streamline all retroactive effective 
date rules, including for consumers who enrollment is pended due to 
special enrollment verification. These rules apply whether or not an 
individual was using covered services.
    After reviewing the public comments, we are finalizing this 
provision as proposed.
e. Enrollees Covered by a Non-Calendar Year Plan Year QSEHRA
    We proposed to codify the policy that qualifying individuals and 
dependents who are provided a qualified small employer HRA (QSEHRA) 
with a non-calendar year plan year would be eligible for the special 
enrollment period at Sec.  155.420(d)(1)(ii) for qualified individuals 
and dependents who are enrolled in any non-calendar year group health 
plan or individual health insurance coverage, to allow the same 
flexibility for employees and dependents who are provided QSEHRAs as is 
available to those who are offered individual coverage HRAs.\103\
---------------------------------------------------------------------------

    \103\ This preamble refers to a QSEHRA being ``provided'' as 
opposed to being ``offered'' because, per Sec.  146.123(c)(4), an 
individual coverage HRA eligible employee has an annual opportunity 
to opt out of and forfeit future payments from the HRA. However, 
this is not the case for employees and dependents with a QSEHRA.
---------------------------------------------------------------------------

    The HRA rule allows employers to offer HRAs and other account-based 
group health plans integrated with individual health insurance coverage 
or Medicare Part A and B or Part C, if certain conditions are 
satisfied.\104\ These are called individual coverage HRAs. Among other 
conditions, an individual coverage HRA must require that the 
participant and any covered dependent(s) be enrolled in individual 
health insurance coverage (either on or off-Exchange) or Medicare Part 
A and B or Part C, for each month that they are covered by the 
individual coverage HRA.\105\
---------------------------------------------------------------------------

    \104\ 84 FR 28888 (June 20, 2019).
    \105\ For purposes of individual coverage HRAs, references to 
individual health insurance coverage do not include individual 
health insurance coverage that consists solely of excepted benefits. 
See 45 CFR 146.123(c)(1)(i).
---------------------------------------------------------------------------

    The HRA rule provides a special enrollment period to employees and 
dependents who newly gain access to an individual coverage HRA to 
enroll in individual health insurance coverage, or to change to other 
individual health insurance coverage in order to maximize the use of 
their individual coverage HRA.\106\ In addition, because employees and 
dependents with a QSEHRA \107\ generally must be enrolled in MEC,\108\ 
and one category of MEC is individual health insurance coverage, the 
HRA rule provides that individuals who are newly provided a QSEHRA also 
qualify for the new special enrollment period.
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    \106\ See Sec.  155.420(d)(14).
    \107\ Section 18001 of the Cures Act amends the Code, ERISA, and 
the PHS Act to permit an eligible employer to provide a QSEHRA to 
its eligible employees. See IRS Notice 2017-67, 2017-11 IRB 1010, 
for related guidance: https://www.irs.gov/pub/irs-drop/n-17-67.pdf.
    \108\ Generally, payments from a QSEHRA to reimburse an eligible 
employee's medical care expenses are not includible in the 
employee's gross income if the employee has coverage that provides 
MEC as defined in Code section 5000A(f), which includes individual 
health insurance coverage.
---------------------------------------------------------------------------

    The HRA rule also solicited and addressed public comments on 
whether the new special enrollment period should be available on an 
annual basis at the beginning of each new plan year of the employee's 
individual coverage HRA or QSEHRA, particularly if the new plan year is 
not aligned with the calendar year.\109\ In the preamble to the HRA 
rule, HHS stated that it had determined that individual coverage HRA or 
QSEHRA enrollees should have the option to re-evaluate their individual 
health insurance coverage for each new HRA plan year, regardless of 
whether the HRA is provided on a calendar year basis. Therefore, while 
the HRA rule did not make the new individual coverage HRA and QSEHRA 
special enrollment period available on an annual basis, it clarified 
that those who are enrolled in an individual coverage HRA with a non-
calendar year plan year--that is, the HRA's plan year begins on a day 
other than January 1--will be eligible annually for the special 
enrollment period under existing regulations at Sec.  
155.420(d)(1)(ii), because individual coverage HRAs are group health 
plans. While the HRA rule did not make any changes to Sec.  
155.420(d)(1)(ii), the preamble of the rule expressed HHS's intention 
to treat a QSEHRA with a non-calendar year plan year as a group health 
plan for the limited purpose of qualifying for this special enrollment 
period, and to codify this interpretation in future rulemaking.\110\
---------------------------------------------------------------------------

    \109\ 84 FR at 28955 through 28956.
    \110\ Id. at 28956.
---------------------------------------------------------------------------

    As HHS explained in the HRA rule, we believe making the non-
calendar year plan year special enrollment period available annually to 
individual market enrollees with a non-calendar year plan year 
individual coverage HRA or QSEHRA appropriately provides employers with 
flexibility to offer individual coverage HRAs or provide QSEHRAs on a 
12-month cycle that meets their needs. The expansion also allows 
employees and their dependents the flexibility to re-assess their 
individual health insurance coverage options at the same time that the 
terms of their individual coverage HRA or QSEHRA may change. We believe 
accessing this non-calendar year plan year special enrollment period 
may be important to some individuals, including those who wish to 
change their individual health insurance plan due to a change in the 
terms of their individual coverage HRA or QSEHRA. However, we 
anticipate that most individuals with an individual coverage HRA or a 
QSEHRA would not seek to change their individual coverage outside of 
the individual market open enrollment period when their new HRA plan 
year starts since doing so would generally cause their accumulators to 
reset. Therefore, we do not anticipate significant additional 
administrative burden for issuers or a significant increase in the 
potential for adverse selection in the individual market associated 
with this special enrollment period. In addition, HHS believes that the 
applicability of plan category limitations to the non-calendar year 
plan year special enrollment period for Exchange enrollees will further 
mitigate the potential risk of adverse selection.
    As discussed in the HRA rule preamble,\111\ under section 2791 of 
the PHS Act, section 733 of ERISA, and section 9831 of the Code, 
QSEHRAs are not group health plans,\112\ and

[[Page 29211]]

employees and their dependents with a QSEHRA do not qualify for the 
non-calendar year special enrollment period as our special enrollment 
period rules are currently written. Therefore, we proposed to amend 
Sec.  155.420(d)(1)(ii) to codify that individuals and dependents who 
are provided a QSEHRA with a non-calendar year plan year may qualify 
for this special enrollment period. We noted that this special 
enrollment period also is incorporated by reference in the guaranteed 
availability regulations at Sec.  147.104(b)(2). Therefore, individuals 
provided a non-calendar year plan year QSEHRA would be entitled to a 
special enrollment period to enroll in or change their individual 
health insurance coverage through or outside of an Exchange.
---------------------------------------------------------------------------

    \111\ 84 FR at 28956.
    \112\ One exception to this general rule is that a QSEHRA 
continues to be treated as a group health plan under the PHS Act for 
purpose of Part C Title XI of the Act. See section 2791(a)(1) of the 
PHS Act.
---------------------------------------------------------------------------

    We solicited comment on this proposal.
    After consideration of the comments received, we are finalizing 
this policy and the accompanying update to Sec.  155.420(d)(1)(ii) as 
proposed.
    Comments: Many commenters supported this proposal. Several 
expressed support because it aligns special enrollment period 
eligibility for consumers whose employer provides them with a QSEHRA 
with that of consumers whose employer offers them an individual 
coverage HRA, and several supported it due to their general support of 
all provisions to promote the use of HRAs. Some commenters supported 
the proposal, but misunderstood it to be the creation of a new special 
enrollment period for consumers who are newly provided with a QSEHRA.
    Response: We clarify that employees and dependents newly provided 
with a QSEHRA are already included in the special enrollment period at 
Sec.  155.420(d)(14), which we established in the HRA Rule for 
individuals, enrollees, and dependents who newly gain access to an 
individual coverage HRA or to a QSEHRA. We appreciate the general 
support for allowing employees and dependents with a non-calendar year 
plan year QSEHRA to change plans annually based on their QSEHRA plan 
year start date, and we are finalizing the policy and the accompanying 
update to Sec.  155.420(d)(1)(ii) as proposed.
6. Termination of Exchange Enrollment or Coverage (Sec.  155.430)
a. Enrollee-Initiated Terminations Upon a Finding of Dual Enrollment in 
Medicare via PDM
    Consistent with our discussion of voluntary terminations upon a 
finding of dual enrollment in the preamble to Sec.  155.330, we 
proposed to revise paragraph (b)(1)(ii) by removing the requirement 
that the Exchange must initiate termination of a Medicare dual 
enrollee's QHP coverage upon completion of the redetermination process 
specified in Sec.  155.330. We also proposed to add to Sec.  
155.330(b)(1)(ii) a reference to the process and authority outlined in 
Sec.  155.330(e)(2) to align with the proposed changes to Sec.  
155.330(e)(2)(i)(D), discussed in the preamble on the proposed rule at 
Sec.  155.330. For more detailed discussions of these proposals, please 
see the preamble discussion in the proposed rule at Sec.  155.330. We 
are finalizing these revisions as proposed.
    Comment: We received multiple comments in support of Medicare PDM 
as an effort to improve Exchange program integrity. These commenters 
agreed that the process has a positive impact on consumers as it helps 
inform Exchange enrollees of their enrollment in potentially 
duplicative other MEC such as certain Medicare. Commenters also noted 
that the proposed changes help support efficient Exchange operations 
with respect to the Medicare PDM process while minimizing burden on 
stakeholders such as states, issuers, consumers, and taxpayers. 
Commenters appreciated that the proposed changes continue to support 
flexibility for State Exchanges by providing all Exchanges with the 
option to allow applicants to provide written consent for Exchanges to 
end their QHP coverage if later found to be enrolled in Medicare.
    Response: We agree with commenters that the Medicare PDM process is 
an important tool for Exchange program integrity. We also agree that 
the process helps inform consumers of their enrollment in potentially 
duplicative other MEC such as certain Medicare and helps consumers 
avoid a tax liability for having to repay APTC received during months 
of overlapping coverage when reconciling at the time of annual federal 
income tax filing.
    After reviewing the public comments, we are finalizing as proposed.
b. Effective Dates for Retroactive Termination of Coverage or 
Enrollment Due to Exchange Error
    In the proposed rule, we proposed to update the rule that defines 
the effective date for enrollees seeking retroactive terminations due 
to a technical error to allow their coverage to end retroactive to the 
date they attempted the termination, without the 14-day advance notice 
requirement that was otherwise eliminated in the 2019 Payment Notice. 
We are finalizing this policy as proposed.
    The 2019 Payment Notice amended Sec.  155.430(d)(2) to allow 
additional flexibility regarding the effective date for enrollee-
initiated terminations. This flexibility included permitting 
Exchanges--at the option of the Exchange--to provide for enrollee-
initiated terminations to be effective on the date on which the 
termination was requested by the enrollee, or on another prospective 
date selected by the enrollee. Previously, enrollees generally had to 
provide 14-days advance notice before termination became effective. 
Corresponding updates to reflect the new flexibilities were not made to 
Sec.  155.430(d)(9), which defines the effective date for retroactive 
terminations due to a technical error as described in paragraph 
(b)(1)(iv)(A). The current provision specifies that termination in 
these circumstances will be no sooner than 14 days after the date that 
the enrollee can demonstrate he or she contacted the Exchange to 
terminate his or her coverage or enrollment through the Exchange, 
unless the issuer agrees to an earlier effective date as set forth in 
Sec.  155.430(d)(2)(iii).
    To ensure that enrollees who suffered technical errors are put in 
the position they would have been absent the technical error, we 
proposed to align Sec.  155.430(d)(9) with the provisions for enrollee-
initiated terminations at Sec.  155.430(d)(2).
    We solicited comment on this proposal.
    Comment: While fewer than 10 commenters commented on this proposal, 
all were in support. A few commenters requested retroactive 
terminations not be granted if the enrollee continued to incur claims.
    Response: This proposal simply addresses the oversight of not 
uniformly removing the 14-day waiting period for terminations in 
previous regulation. It does not revisit eligibility for retroactivity 
under the rule. We expect the number of claims that will be reversed 
for enrollees whose termination was delayed due to technical error will 
be very low, given that most consumers taking independent steps to end 
their coverage would have little reason to keep using it.
    After reviewing the public comments, we are finalizing as proposed.

[[Page 29212]]

7. Eligibility Pending Appeal (Sec.  155.525)
    As discussed in the proposed rule, we are considering whether 
changes to Sec.  155.525 governing eligibility pending appeals are 
necessary or prudent to provide greater clarity to Exchanges, issuers, 
and consumers who appeal Exchange determinations, and asked for public 
comment in the event that we decide to propose regulatory changes in 
the future. As such, we are not finalizing any changes to eligibility 
pending appeal in this rule.
    Under Sec.  155.525, when an appellant accepts eligibility pending 
appeal, an Exchange must continue the appellant's eligibility for 
enrollment in a QHP, APTC, and CSR, as applicable, in accordance with 
the level of eligibility that was in effect immediately before the 
eligibility redetermination that the consumer is appealing. We 
solicited comment on various aspects of the administration of this 
provision, including: (1) The retroactive application of benefits 
relative to an appellant's enrollment and applicability of plan 
category limitations; (2) the advisability of establishing a timeliness 
standard, whether Exchanges should have the flexibility to determine 
their own timeliness standards, and what a reasonable timeliness 
standard should be; (3) how life events and other reported eligibility 
changes interact with eligibility pending appeal; (4) how the 
retroactive implementation of an appeal decision interacts with 
eligibility pending appeal; and (5) how eligibility pending appeal 
interacts with the consequences of non-payment of premiums. While we 
decided against proposing any changes to the regulations at this time, 
we invited comments on this topic. We received the following comments, 
and our response follows.
    Comment: Several commenters were supportive of preserving state 
flexibility in how State Exchanges administer this provision. A few 
commenters noted the current absence of data about appeals generally 
and recommended the provision of data to inform future rulemaking in 
this area. For example, it was observed that issuers do not have 
adequate access to data on enrollees who are appealing an eligibility 
determination, which makes it difficult to offer comment on these 
proposals and recommend guardrails. We also received a comment 
questioning the need for any regulatory changes, stating that the 
current system of administering this provision has been functioning 
largely as intended. Another commenter advised against any changes to 
the regulations that reduce or eliminate consumer flexibility while 
consumers exercise their constitutionally provided due process rights. 
Finally, one commenter expressed a belief that the most accurate 
understanding of eligibility pending appeal is not that the appellant 
is theoretically eligible for certain benefits, but instead that the 
appellant is in fact able to access the benefits for which they were 
eligible immediately before the eligibility determination on appeal. 
This commenter noted that in its state, the provision of eligibility 
pending appeal involves additional state-based premium and cost-sharing 
assistance for qualifying residents below 300 percent of the federal 
poverty level, which are in addition to the APTC and CSRs provided at 
the federal level.
    With respect to the permissibility of changes to plan enrollment, 
we received many comments supporting a policy that would allow 
appellants who are granted eligibility pending appeal to enroll in any 
Exchange plan without regard to issuer or metal level. One of these 
commenters also recommended that an appellant who is receiving 
eligibility pending appeal be permitted to switch plans at the end of 
the appeal, stating that if the appeal is upheld, the appellant will 
experience a termination of the APTC and may want to switch to a lower 
metal level plan. Conversely, another commenter supported the ability 
of appellants who win their appeals to select a different plan from the 
same issuer, stating that there is a need to balance flexibility with 
appropriate controls to ensure that frivolous appeals are not filed for 
individuals who are looking for any opening to change plans, which in 
turn could create financial and premium instability for health plans. 
One commenter was in favor of offering retroactive as well as 
prospective implementation of eligibility pending appeal, while another 
commenter expressed opposition to prospective implementation on the 
grounds that doing so would eliminate the very protection eligibility 
pending appeal is intended to address. One commenter stated that 
unrestricted plan and issuer changes would be extremely confusing to 
consumers, while another commenter recommended robust consumer 
education materials to help individuals understand the implications of 
their plan choices while they are receiving eligibility pending appeal. 
In the context of implementing an appellant's request for eligibility 
pending appeal retroactively, two commenters advised HHS to consider 
the impact of retroactive changes to plans, products, metal levels or 
issuer on adverse selection. These commenters noted that retroactive 
enrollment changes are problematic due to claims reprocessing, changing 
benefits, and state prompt pay laws, and may expose appellants to 
increased out-of-pocket costs for services they already received. 
Finally, we received a comment urging HHS to provide autonomy to states 
in this area, as rules allowing unrestricted plan and issuer changes 
would require substantial technological rule and code changes that 
would likely come with a significant financial burden.
    We received numerous comments in opposition to any timeliness 
standard that would apply to an appellant requesting eligibility 
pending appeal. One of these commenters noted that consumers who had 
initially filed an appeal on their own may later appoint an authorized 
representative or legal counsel who might inform them of this right; 
similarly, consumers who did not elect eligibility pending appeal at 
the outset of the appeal may later encounter a situation necessitating 
the coverage and financial help eligibility pending appeal may provide. 
We also received several comments supporting either a 15-day or 30-day 
timeframe in which to request eligibility pending appeal from the 
receipt date of the appeal request or from the date of the 
acknowledgment notice, with most of these commenters also supporting an 
extension if there were exceptional circumstances precluding a timely 
request. One commenter recommended that Exchanges be permitted to 
establish their own timeliness standard and determine whether to 
establish a good cause exception, while another recommended that HHS 
leave the process as it currently exists in place.
    We received a number of comments recommending that consumers who 
experience a life event during the pendency of the appeal have their 
appeals considered resolved in their favor, with one commenter noting 
that the life event, once reported, may negate the need for an appeal. 
Several commenters noted the importance of appellants being able to 
report life events even while receiving eligibility pending appeal in 
order for appellants and members of the household to access coverage on 
a timely basis. One commenter advised that Exchanges be given the 
flexibility to determine how to proceed with processing these 
eligibility changes. Relatedly, one commenter, drawing on its 
experience administering an Exchange, observed that the hearing 
decision of an independent hearing officer must be implemented as 
issued, in order to preserve the fairness and

[[Page 29213]]

independence of the hearing process. This commenter stated that if a 
hearing officer ordered the Exchange to provide an appellant with the 
option for retroactive coverage at a given level of eligibility, the 
Exchange would do so, in situations where the appellant had been 
receiving eligibility pending appeal at a level less generous than what 
the hearing officer's decision awarded; however, the hearing decision 
would not be implemented retroactively in situations where a less 
generous eligibility level was awarded than the eligibility level 
provided by eligibility pending appeal.
    In response to our request for comments on the applicability of the 
grace period to individuals enrolled in Exchange coverage and receiving 
eligibility pending appeal, we received a number of comments 
recommending a 3-month grace period as well as a general prohibition on 
termination of coverage during the pendency of the appeal. One 
commenter was in favor of the ability of appellants receiving 
eligibility pending appeal to select the effective date of retroactive 
coverage, effectuate the first month of retroactive coverage, and be 
given a reasonable amount of time to bring their payment current. 
Another commenter expressed a belief that the grace period does apply 
and supported a rule clarifying its applicability to the extent that it 
was not sufficiently clear under the existing regulations. Finally, we 
received a comment recommending that the enrollee be required to pay 
the current billed amount and another comment stating that appellants 
should not be treated any differently than non-appellants with respect 
to coverage termination.
    Response: We thank the commenters for the feedback on these issues. 
We did not propose and are not finalizing any changes to rules 
governing eligibility pending appeal. This feedback, however, will help 
inform future policy in this area.
8. Eligibility Standards for Exemptions (Sec.  155.605)
a. Required Contribution Percentage (Sec.  155.605(d)(2))
    In the proposed rule, we used the proposed 2021 premium adjustment 
percentage to calculate the excess of the rate of premium growth over 
the rate of income growth for 2013 to 2020 as 1.3542376277 / 
1.3094029651, or 1.0342405385. This resulted in a proposed required 
contribution percentage for 2021 of 8.00 x 1.0342405385 or 8.27 
percent, when rounded to the nearest one-hundredth of one percent. We 
are finalizing the required contribution percentage as proposed.
    HHS calculates the required contribution percentage for each 
benefit year using the most recent projections and estimates of premium 
growth and income growth over the period from 2013 to the preceding 
calendar year. We proposed to calculate the required contribution 
percentage for the 2021 benefit year, using income and premium growth 
data for the 2013 and 2020 calendar years.
    Under section 5000A of the Code, an individual must have MEC for 
each month, qualify for an exemption, or make an individual shared 
responsibility payment. Under Sec.  155.605(d)(2), an individual is 
exempt from the requirement to have MEC if the amount that he or she 
would be required to pay for MEC (the required contribution) exceeds a 
particular percentage (the required contribution percentage) of his or 
her projected household income for a year. Although the Tax Cuts and 
Jobs Act reduced the individual shared responsibility payment to $0 for 
months beginning after December 31, 2018, the required contribution 
percentage is still used to determine whether individuals above the age 
of 30 qualify for an affordability exemption that would enable them to 
enroll in catastrophic coverage under Sec.  155.305(h).
    The initial 2014 required contribution percentage under section 
5000A of the Code was 8 percent. For plan years after 2014, section 
5000A(e)(1)(D) of the Code and Treasury regulations at 26 CFR 1.5000A-
3(e)(2)(ii) provide that the required contribution percentage is the 
percentage determined by the Secretary of HHS that reflects the excess 
of the rate of premium growth between the preceding calendar year and 
2013, over the rate of income growth for that period. The excess of the 
rate of premium growth over the rate of income growth is also used for 
determining the applicable percentage in section 36B(b)(3)(A) of the 
Code and the required contribution percentage in section 36B(c)(2)(C) 
of the Code.
    As discussed elsewhere in this preamble, we proposed as the measure 
for premium growth the 2021 premium adjustment percentage of 
1.3542376277 (or an increase of about 35.4 percent over the period from 
2013 to 2020). This reflects an increase of about 5.0 percent over the 
2020 premium adjustment percentage (1.3542376277/1.2895211380).
    As the measure of income growth for a calendar year, we established 
in the 2017 Payment Notice that we would use per capita personal income 
(PI). Under the approach finalized in the 2017 Payment Notice using the 
National Health Expenditure Accounts (NHEA) data, the rate of income 
growth for 2021 is the percentage (if any) by which the most recent 
projection of per capita PI for the preceding calendar year ($58,821 
for 2020) exceeds per capita PI for 2013 ($44,922), carried out to ten 
significant digits. The ratio of per capita PI for 2020 over the per 
capita PI for 2013 is estimated to be 1.3094029651 (that is, per capita 
income growth of about 30.9 percent).\113\ This rate of income growth 
between 2013 and 2020 reflects an increase of approximately 4.6 percent 
over the rate of income growth for 2013 to 2019 (1.3094029651/
1.2524152976) that was used in the 2020 Payment Notice. Per capita PI 
includes government transfers, which refers to benefits individuals 
receive from Federal, state, and local governments (for example, Social 
Security, Medicare, unemployment insurance, workers' compensation, 
etc.).\114\
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    \113\ The 2013 and 2020 per capita personal income figures used 
for this calculation reflect the latest NHEA data as of the 
publication of the proposed rule. These data were published on 
February 20, 2019. The series used in the determinations of the 
adjustment percentages can be found in Tables 1 and 17 on the CMS 
website, which can be accessed by clicking the ``NHE Projections 
2018-2027--Tables'' link located in the Downloads section at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html. A detailed description of the 
NHE projection methodology is also available on the CMS website.
    \114\ U.S Department of Commerce Bureau of Economic Analysis 
(BEA) Table 3.12 Government Social Benefits. Available at https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&categories=survey&nipa_table_list=110.
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    Using the 2021 premium adjustment percentage finalized in this 
rule, the excess of the rate of premium growth over the rate of income 
growth for 2013 to 2020 is 1.3542376277 / 1.3094029651, or 
1.0342405385. This results in the required contribution percentage for 
2021 of 8.00 x 1.0342405385 or 8.27 percent, when rounded to the 
nearest one-hundredth of one percent, an increase of 0.04 percentage 
points from 2020 (8.27392-8.23702).
    We solicited comment on the required contribution percentage. After 
reviewing public comments, we are finalizing the required contribution 
percentage for 2021 at 8.00 x 1.0342405385 or 8.27 percent, when 
rounded to the nearest one-hundredth of one percent. The following is a 
summary of the public comments we received on the required contribution 
percentage. We address comments regarding the measures used

[[Page 29214]]

to calculate the excess of the rate of premium growth over the rate of 
income growth in the section of the preamble related to the premium 
adjustment percentage, later in this rule.
    Comment: One commenter asked that we not increase the required 
contribution percentage from the value finalized for 2020, as increases 
to this value reflect increases in the percentage of income enrollees 
may have to contribute toward health care, thereby reducing 
affordability for these consumers. A few other commenters expressed 
concern with the increase in this value as part of their comments on 
the proposed premium adjustment percentage.
    Response: HHS is required to update the required contribution 
percentage annually by section 5000A(e)(1)(D) of the Code. The updated 
contribution percentage is used, among other things, for purposes of 
determining whether individuals above the age of 30 qualify for an 
affordability exemption, so that they can be eligible to enroll in 
catastrophic coverage under Sec.  [thinsp]155.305(h). As such, after 
reviewing the public comments, we are finalizing the required 
contribution percentage for 2021 at 8.00 x 1.0342405385 or 8.27 
percent, when rounded to the nearest one-hundredth of one percent.
9. Quality Rating Information Display Standards for Exchanges 
(Sec. Sec.  155.1400 and 155.1405)
    We proposed to amend Sec. Sec.  155.1400 and 155.1405 to codify the 
flexibility for State Exchanges that operate their own eligibility and 
enrollment platforms, to customize the display of quality rating 
information on their websites to display the quality rating information 
as calculated by HHS or to display quality rating information based 
upon certain state-specific customizations of the quality rating 
information provided by HHS. We are finalizing as proposed.
    To implement sections 1311(c)(3) and 1311(c)(4) of the PPACA, we 
developed the QRS and the QHP Enrollee Experience Survey (collectively 
referred to as the quality rating information). In the Exchange and 
Insurance Market Standards for 2015 and Beyond Final Rule \115\, HHS 
issued regulations at Sec. Sec.  155.1400 and 155.1405 to establish 
quality rating information display standards for Exchanges.\116\ 
Consistent with these regulations, Exchanges must prominently display 
on their websites, in accordance with Sec.  155.205(b)(1)(iv) and (v), 
quality rating information assigned for each QHP \117\, as provided by 
HHS and in a form and manner specified by HHS.
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    \115\ See the Patient Protection and Affordable Care Act; 
Exchange and Insurance Market Standards for 2015 and Beyond; Final 
Rule; (May 27, 2014), 79 FR 30240 at 30310, available at https://www.gpo.gov/fdsys/pkg/FR-2014-05-27/pdf/2014-11657.pdf.
    \116\ Patient Protection and Affordable Care Act; Exchange and 
Insurance Market Standards for 2015 and Beyond, Final Rule, 79 FR 
30240 at 30352 (May 27, 2014).
    \117\ Exchanges can satisfy the requirement to display the QHP 
Enrollee Survey results by displaying the Quality Rating System 
(QRS) quality ratings (which incorporate member experience data from 
the QHP Enrollee Survey). See 79 FR at 30310.
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    To balance HHS's strategic goals of empowering consumers through 
data, minimizing cost and burden on QHP issuers, and supporting state 
flexibility, HHS developed a phased-in approach to display of quality 
rating information across the Exchanges. In particular, during plan 
years 2017, 2018, and 2019, HHS displayed quality rating information on 
HealthCare.gov in a handful of select FFE states as part of a limited 
pilot program. During this time, State Exchanges that operated their 
own eligibility and enrollment platforms were given the option to 
display the quality rating information for their respective QHPs and 
several of these State Exchanges voluntarily elected to display this 
information on their State Exchange websites. The QRS pilot involved 
focused consumer testing of the display of quality rating information 
to maximize the clarity of the information provided and to assess how 
the information was displayed and used on Exchange websites.
    In August 2019, HHS issued a Quality Rating Information Bulletin to 
announce the transition away from the QRS pilot to the public display 
of quality rating information for plan year 2020 by all Exchanges, 
including FFEs, SBE-FPs, and State Exchanges that operate their own 
eligibility and enrollment platform.\118\ This included flexibility for 
State Exchanges that operate their own eligibility and enrollment 
platforms to display QHP quality rating information on their websites 
in the form and manner specified by HHS or with some limited state 
customizations. Based upon experience during the QRS pilot, we 
recognize there are benefits to permitting some flexibility for State 
Exchanges that operate their own eligibility and enrollment platforms 
to customize the quality rating information for their QHPs. As stated 
in the proposed rule, we understand that during the QRS pilot, some 
State Exchanges that operate their own eligibility and enrollment 
platforms displayed the quality rating information as provided by HHS, 
while others displayed the quality rating information with certain 
state-specific customizations in order to best reflect local priorities 
or information. Therefore, we proposed to amend Sec. Sec.  155.1400 and 
155.1405 to codify this flexibility and provide State Exchanges that 
operate their own eligibility and enrollment platforms some flexibility 
to customize the display of quality rating information for their 
respective QHPs.
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    \118\ Quality Rating Information Bulletin for Plan Year 2020. 
Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/QualityRatingInformationBulletinforPlanYear2020.pdf.
---------------------------------------------------------------------------

    For example, we would allow State Exchanges that operate their own 
eligibility and enrollment platform to make state-specific 
customizations, such as to incorporate additional state or local 
quality information or to modify the display names of the QRS quality 
ratings. However, we clarified under this approach State Exchanges that 
operate their own eligibility and enrollment platform could not develop 
their own programs to replace the quality ratings calculated by HHS. 
Consistent with the statute, the Secretary remains responsible for the 
development of the QRS and QHP Enrollee Survey and the calculation of 
quality ratings under these programs across all Exchanges.\119\ We 
further noted that we believe the proposed flexibility supports the 
feedback we received from a Request for Information, entitled 
``Reducing Regulatory Burdens Imposed by the Patient Protection and 
Affordable Care Act and Improving Healthcare Choices to Empower 
Patients'', published in the June 12, 2017 Federal Register (82 FR 
26885), in identifying ways to reduce burden and promote State Exchange 
flexibility. We solicited comment on this proposal.
---------------------------------------------------------------------------

    \119\ See sections 1311(c)(3) and (c)(4) of the PPACA.
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    After consideration of the comments received, we are finalizing 
these changes as proposed.
    Comment: All commenters who provided feedback regarding this 
proposal expressed support for codifying the flexibility for State 
Exchanges that operate their own eligibility and enrollment platforms 
to customize the display of quality rating information for their 
respective QHPs. One commenter urged HHS to clarify that states are not 
permitted to develop their own programs and replace the quality ratings 
developed by HHS in their entirety.
    Response: We are finalizing as proposed and maintain in the final 
rule that State Exchanges that operate their own eligibility and 
enrollment platforms have the flexibility to engage

[[Page 29215]]

in some customization of the display of quality rating information for 
their respective QHPs, such as by incorporating additional state or 
local quality information or by modifying the display names of the QRS 
quality ratings. However, consistent with sections 1311(c)(3) and 
1311(c)(4) of the PPACA, the Secretary of HHS is responsible for the 
development of the QRS and QHP Enrollee Survey and the calculation of 
quality ratings for QHPs across all Exchanges. Although State Exchanges 
may continue to provide additional state or local healthcare quality 
information or display additional state-level quality ratings as part 
of their plan shopping experience, State Exchanges cannot develop their 
own programs to replace the quality ratings calculated by HHS because 
the Secretary remains responsible for the development of the QRS and 
QHP Enrollee Survey and the calculation of quality ratings under these 
programs across all Exchanges.
    Comment: A few commenters requested greater flexibility for State 
Exchanges that operate their own eligibility and enrollment platforms, 
including the option for these State Exchanges to perform their own 
calculations in determining QRS information. One commenter supported 
the need for common national and performance benchmarks, but noted that 
State Exchanges should retain the flexibility to modify the QRS rating 
methodology since periodic and future refinements are expected of the 
federal quality rating methodology. Further, one commenter suggested 
that State Exchanges on the Federal platform should be allowed the same 
flexibility to customize the display of quality rating information.
    Response: We support flexibility for State Exchanges that are 
consistent with the statute and available technical systems. Sections 
1311(c)(3) and 1311(c)(4) of the PPACA require each Exchange to provide 
information to individuals and employers from the rating and enrollee 
satisfaction systems on the Exchange's website. Therefore, the 
information from the QRS and the QHP Enrollee Survey must be displayed 
on each Exchange website. In addition, sections 1311(c)(3) and 
1311(c)(4) direct the Secretary of HHS to develop a rating system and a 
system to assess enrollee satisfaction. Therefore, to be consistent 
with the statute, the greater flexibility for State Exchanges that 
operate their own eligibility and enrollment platforms is related to 
the display of quality rating information and not the development of 
separate quality ratings. This rule finalizes flexibility for State 
Exchanges that operate their own eligibility and enrollment platforms 
to be able to customize the display of quality rating information. 
State Exchanges that use the Federal platform, however, would follow 
the display requirements of the HealthCare.gov system, which is 
currently unable to accommodate state-specific customizations of this 
nature.
    We clarify that, as outlined in the statute and in the 2015 Market 
Standards Rule, HHS will continue to calculate federal quality ratings 
based on data submitted by eligible QHP issuers across Exchanges and 
using a standardized methodology. HHS will also continue providing 
federal quality rating information to State Exchanges that operate 
their own eligibility and enrollment platforms for display on each 
Exchange website. In this final rule, HHS is allowing certain state-
specific modifications to the display of federal quality rating 
information including incorporating additional state or local quality 
information or modifying the display names of the quality ratings, for 
State Exchanges that operate their own eligibility and enrollment 
platforms. This flexibility does not include the ability to recalculate 
or modify the quality ratings provided by HHS. As detailed above, 
sections 1311(c)(3) and 1311(c)(4) of the PPACA assign responsibility 
for the development of the QRS and QHP Enrollee Survey and the 
calculation of quality ratings for QHPs across all Exchanges to the 
Secretary. Therefore, we did not propose and are not finalizing changes 
to permit states greater flexibility to calculate quality ratings for 
QHPs offered through Exchanges.
    We agree that, as with all HHS quality reporting programs and 
initiatives, periodic evaluation of and refinements to the QRS rating 
methodology are appropriate and we expect to continue to improve the 
program with such refinements for future benefit years. HHS will 
continue to transparently communicate program and methodology 
refinements and request stakeholder feedback.
    Comment: Two commenters requested additional clarification from HHS 
regarding how and what QRS information would be displayed, including 
certain state-specific customizations, and on how local and state 
quality ratings could be incorporated into the greater QRS.
    Response: We intend to continue to require display of the QHP 
quality rating information for all Exchanges and will provide guidance 
in a subsequent QRS Bulletin, as in previous years, on the form and 
manner of display of quality rating information by Exchanges and direct 
enrollment entities.\120\ The upcoming QRS Bulletin will clarify the 
quality rating information to be displayed beginning in the individual 
market open enrollment period for the 2021 plan year, which starts on 
November 1, 2020.\121\
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    \120\ As part of the Administration's efforts to combat COVID-
19, we recently announced the suspension of activities related to 
the collection of clinical quality measures for the QRS and survey 
measures for the QHP Enrollee Survey for the 2021 plan year (2020 
ratings year). See the COVID-19 Marketplace Quality Initiatives 
memo, available at: https://www.cms.gov/files/document/covid-qrs-and-marketplace-quality-initiatives-memo-final.pdf.
    \121\ See 45 CFR 155.410(e)(3).
---------------------------------------------------------------------------

    The changes made in this final rule provide flexibility to State 
Exchanges that operate their own eligibility and enrollment platforms 
to make certain state-specific customizations to the quality rating 
information provided by HHS, including the incorporation of additional 
local and state QHP quality information or the modification of the 
display names of the quality ratings. State Exchanges that operate 
their own eligibility and enrollment platforms can determine whether 
and how to take advantage of this flexibility, including if and how to 
incorporate local and state quality rating information.
    Comment: Two commenters provided general recommendations regarding 
the display of quality rating information. One commenter encouraged HHS 
to continue working with issuers and consumers relating to display of 
QRS information in a meaningful manner and to be transparent in 
disclosing information on the use of QRS information during plan 
selection and enrollment. Another commenter requested that if there are 
changes for a specific display format, sufficient time and funding be 
provided to State Exchanges that operate their own eligibility and 
enrollment platforms to implement system changes and that State 
Exchanges be included early in the development process for any 
potential changes.
    Response: We agree that transparency of information will help 
issuers, states and consumers make informed decisions related to QHP 
quality. We will continue working with issuers, consumers, states, 
quality measurement technical experts, and others to help ensure that 
the display of quality rating information for QHPs offered on Exchanges 
is useful, meaningful and understandable to individuals and families 
shopping for a QHP. We intend to conduct focus groups and cognitive 
testing directly with consumers

[[Page 29216]]

regarding the enrollee experience survey measures, some of which are 
part of the QRS. We also anticipate providing consumers with technical 
assistance if needed and additional materials to clarify the details 
and uses of QHP quality rating information. We also agree that State 
Exchanges and other stakeholders should be provided opportunities to 
give input on potential future changes to the display of quality rating 
information. We believe it is important to obtain diverse feedback from 
stakeholders to continue to improve the utility and comprehension of 
displayed QHP quality rating information and to help inform plan 
selection. Since this final rule is providing an additional option to 
State Exchanges that operate their own eligibility and enrollment 
platforms to customize the display of quality rating information for 
their QHPs, we believe that states that elect to take advantage of this 
flexibility will have adequate time to make any changes. Should we 
pursue changes to the formatting or other display requirements in the 
future, we will keep in mind the comments about providing time for 
State Exchanges to make the necessary updates to their respective 
systems to implement any such changes.

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

1. Definitions (Sec.  156.20)
    We proposed to remove the definition of the term ``generic'' at 
Sec.  156.20 because we proposed a revision at Sec.  156.130(h) which 
would no longer use the term ``generic.'' For a discussion of that 
policy, please see the preamble related to Sec.  156.130(h).
    We received no comments on the proposed removal of the term 
``generic''. Therefore, we are finalizing this change as proposed.
2. FFE and SBE-FP User Fee Rates for the 2021 Benefit Year (Sec.  
156.50)
    We proposed maintaining the FFE user fee for all participating FFE 
issuers at 3.0 percent of total monthly premiums. Likewise, we proposed 
maintaining a user fee rate of 2.5 percent of the monthly premium 
charged by the issuer for each policy under plans offered through an 
SBE-FP. These proposed rates were based on internal projections of 
Federal costs for providing special benefits to FFE and SBE-FP issuers 
during the 2021 benefit year, as well as estimates of premium increases 
and enrollment decreases. We stated that we were considering, and we 
solicited comment on, lowering the user fee rates below the proposed 
rates. We are finalizing maintaining the FFE and SBE-FP user fee rates 
at 3.0 percent and 2.5 percent, respectively, as proposed for the 2021 
benefit year.
    Section 1311(d)(5)(A) of the PPACA permits an Exchange to charge 
assessments or user fees on participating health insurance issuers as a 
means of generating funding to support its operations. If a state does 
not elect to operate an Exchange or does not have an approved Exchange, 
section 1321(c)(1) of the PPACA directs HHS to operate an Exchange 
within the state. Accordingly, in Sec.  156.50(c), we specify that a 
participating issuer offering a plan through an FFE or SBE-FP must 
remit a user fee to HHS each month that is equal to the product of the 
annual user fee rate specified in the annual HHS notice of benefit and 
payment parameters for FFEs and SBE-FPs for the applicable benefit year 
and the monthly premium charged by the issuer for each policy where 
enrollment is through an FFE or SBE-FP. In addition, OMB Circular No. 
A-25 establishes Federal policy regarding the assessment of user fee 
charges under other statutes, and applies to the extent permitted by 
law. Furthermore, OMB Circular No. A-25 specifically provides that a 
user fee charge will be assessed against each identifiable recipient of 
special benefits derived from Federal activities beyond those received 
by the general public. Activities performed by the Federal Government 
that do not provide issuers participating in an FFE with a special 
benefit, or that are performed by the Federal government for all QHPs, 
including those offered through State Exchanges, are not covered by 
this user fee. As in benefit years 2014 through 2020, issuers seeking 
to participate in an FFE in the 2021 benefit year will receive two 
special benefits not available to the general public: (1) The 
certification of their plans as QHPs; and (2) the ability to sell 
health insurance coverage through an FFE to individuals determined 
eligible for enrollment in a QHP.
a. FFE User Fee Rate
    For the 2021 benefit year, issuers participating in an FFE will 
receive special benefits from the following Federal activities:
     Provision of consumer assistance tools;
     Consumer outreach and education;
     Management of a Navigator program;
     Regulation of agents and brokers;
     Eligibility determinations;
     Enrollment processes; and
     Certification processes for QHPs (including ongoing 
compliance verification, recertification, and decertification).
    Activities through which FFE issuers receive a special benefit also 
include the Health Insurance and Oversight System (HIOS) and 
Multidimensional Insurance Data Analytics System (MIDAS) platforms, 
which are partially funded by Exchange user fees. Based on estimated 
costs, enrollment (including changes in FFE enrollment resulting from 
anticipated establishment of State Exchanges or SBE-FPs in certain 
states in which FFEs currently are operating), and premiums for the 
2021 plan year, we solicited comment on two alternative proposals. 
First, we proposed maintaining the FFE user fee for all participating 
FFE issuers at 3.0 percent of total monthly premiums in order to 
preserve and ensure that the FFE has sufficient funding to cover the 
cost of all special benefits provided to FFE issuers during the 2021 
benefit year.
    We also solicited comment on an alternate proposal that would 
reduce the FFE user fee rate below the 2020 benefit year level. As 
discussed in the proposed rule, the alternative proposal reflected our 
estimates of premium increases and enrollment decreases for the 2021 
benefit year, as well as potential savings resulting from cost-saving 
measures implemented over the last several years that we expect would 
enable HHS to collect user fees at a lower rate, thereby reducing the 
user fee burden on consumers and creating downward pressure on 
premiums, while still fully funding FFE operations. As discussed in the 
proposed rule, if these savings did not materialize, we would have 
increased user fee rates for the subsequent benefit year, to ensure 
that sufficient funds would be available to cover the costs of special 
benefits provided to FFE issuers. We solicited comment on this 
proposal. We also solicited comment on trends in usage of Exchange 
functions and services, potential efficiencies in Exchange operations, 
and premium and enrollment projections, all of which might inform a 
change in the user fee rate in the final rule. We did not receive any 
comments on the trends in usage of Exchange functions and services, 
potential efficiencies in Exchange operations, and premium and 
enrollment projections.
b. SBE-FP User Fee Rate
    As previously discussed, OMB Circular No. A-25 establishes Federal 
policy regarding user fees, and specifies that a user charge will be 
assessed

[[Page 29217]]

against each identifiable recipient for special benefits derived from 
Federal activities beyond those received by the general public. SBE-FPs 
enter into a Federal platform agreement with HHS to leverage the 
systems established for the FFEs to perform certain Exchange functions, 
and to enhance efficiency and coordination between state and Federal 
programs. Accordingly, in Sec.  156.50(c)(2), we specify that an issuer 
offering a plan through an SBE-FP must remit a user fee to HHS, in the 
timeframe and manner established by HHS, equal to the product of the 
monthly user fee rate specified in the annual HHS notice of benefit and 
payment parameters for the applicable benefit year, unless the SBE-FP 
and HHS agree on an alternative mechanism to collect the funds from the 
SBE-FP or state. The benefits provided to issuers in SBE-FPs by the 
Federal Government include use of the Federal Exchange information 
technology and call center infrastructure used in connection with 
eligibility determinations for enrollment in QHPs and other applicable 
state health subsidy programs, as defined at section 1413(e) of the 
PPACA, and QHP enrollment functions under Sec.  155.400. The user fee 
rate for SBE-FPs is calculated based on the proportion of FFE costs 
that are associated with the FFE information technology infrastructure, 
the consumer call center infrastructure, and eligibility and enrollment 
services, and allocating a share of those costs to issuers in the 
relevant SBE-FPs.
    We proposed a user fee rate of 2.5 percent of the monthly premium 
charged by the issuer for each policy under plans offered through an 
SBE-FP. Similar to our proposal to maintain the FFE user rate 
applicable to benefit year 2020, maintaining the SBE-FP user rate at 
2.5 percent of premium would result in stability in the amount of user 
fees collected.
    We also considered and solicited comment on an alternate proposal 
that would lower the SBE-FP user fee rate below the 2020 benefit year 
level to a level that would reduce the user fee burden on consumers, 
while still covering the costs of the special benefits HHS provides to 
SBE-FP issuers. We discussed that we will continue to examine contract 
cost estimates for the special benefits provided to issuers offering 
QHPs on the Exchanges using the Federal platform for the 2021 benefit 
year as we finalize the FFE and SBE-FP user fee rates. We solicited 
comment on the alternative proposal.
    In addition, we solicited comment on trends in usage of Federal 
platform functions and services, potential efficiencies in Federal 
platform operations, and premium and enrollment projections, all of 
which might inform a change in the user fee level in the final rule.
    After reviewing the public comments, we are finalizing the proposed 
rates of 3.0 percent for the FFE user fee rate and 2.5 percent for the 
SBE-FP user fee rate for the 2021 benefit year.
    The following is a summary of the public comments we received.
    Comment: A group of commenters supported lowering user fee rates 
only if the reduction would not adversely affect FFE operations. 
Another group of commenters supported maintaining current user fee 
rates in favor of HHS re-investing excess user fees into consumer 
outreach and education activities, the improvement of HealthCare.gov, 
or otherwise increasing funding of these activities to 2017 levels. One 
commenter recommended HHS spend additional funding on providing 
additional in-language resources for those with limited English 
proficiency.
    Response: We are finalizing user fee rates at 3.0 percent for FFE 
issuers and 2.5 percent for SBE-FP issuers, which is the same as the 
user fee rates for the 2020 benefit year. These user fees will provide 
ample funding for the full functioning of the Federal platform. Based 
on projected changes in costs, enrollment and premiums, we project that 
we can readily fund Federal platform costs associated with providing 
special benefits to these issuers. HHS remains committed to providing a 
seamless enrollment experience for consumers who enroll in coverage 
through an Exchange that uses the Federal platform. We will continue to 
apply resources to cost-effective, high-impact outreach and marketing 
activities that offer the highest return on investment. Thus, we are 
not committing to increasing funding for outreach and education 
activities in excess of current levels or to levels similar to those 
that existed in prior years, but we will continue to evaluate consumer 
outreach and education needs within the normal annual budget process. 
Consistent with OMB Circular No. A-25, any collections in excess of 
user fee-eligible costs for a given year will be rolled over for 
spending on the subsequent year's user fee-eligible expenses.
    Comment: Some commenters expressed support for lower user fee rates 
for issuers participating in Enhanced Direct Enrollment (EDE), or who 
take on additional administrative functions.
    Response: While we expect long-term economies of scale and cost 
reductions associated with EDE, HHS incurs costs associated with 
building, maintaining and improving the infrastructure associated with 
EDE. However, we will continue to review the costs associated with EDE 
and potential interactions between EDE implementation and user-fee 
eligible costs.
    Comment: One commenter suggested that HHS lower the SBE-FP user fee 
rate to 1.5 percent for SBE-FPs for several reasons. The commenter 
stated that SBE-FP states can take on federal tasks, such as 
eligibility and enrollment processes, Navigator and agents programs, 
and consumer selection tools. The commenter also stated that call 
centers can be reduced since most enrollments are automatic re-
enrollments, and the Federal Platform and call center tasks can be 
taken on by issuers. Further, the commenter stated that the Exchanges 
are not to the benefit of the issuers, since there is no competitive 
advantage to being on the Exchanges, the existence of the Exchanges are 
mandated by law, and the benefits associated with user fees are all to 
the consumers, and not the issuers who pay them.
    Response: We calculated the SBE-FP user fee rate based on the 
proportion of all FFE functions that are also conducted for SBE-FPs. 
The final SBE-FP user fee rate for the 2021 benefit year of 2.5 percent 
of premiums is based on HHS's calculation of the percent of costs of 
the total FFE functions utilized by SBE-FPs--the costs associated with 
the information technology, call center infrastructure, and eligibility 
determinations for enrollment in QHPs and other applicable state health 
subsidy programs, which we estimate to be approximately 85 percent. As 
described in this rule, user fee eligible cost estimates are reviewed 
on an annual basis and developed in advance of the benefit year. 
Setting the SBE-FP user fee rate below the proportion of costs 
associated with benefits provided to SBE-FP issuers would result in FFE 
QHPs subsidizing the functions used by QHPs in SBE-FPs.
    Comment: Several commenters asked HHS to provide more data and 
transparency into how user fee rates are calculated.
    Response: The FFE and SBE-FP user fee rates for the 2021 benefit 
year are based on expected total costs to offer the special benefits to 
issuers offering plans on FFEs or SBE-FPs, and evaluation of expected 
enrollment and premiums for the 2021 benefit year. Annually, HHS and 
CMS also publish detailed information on Federal Exchange Activities 
and budget request estimates,

[[Page 29218]]

including expected Exchange user fee eligible costs.\122\
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    \122\ FY2021 CMS Budget Request is available at https://www.cms.gov/About-CMS/Agency-Information/PerformanceBudget/FY2021-CJ-Final.pdf. and FY2021 HHS Budget Request is available at https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf.
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    User fee eligible costs are estimated in advance of the benefit 
year and are based upon cost targets for specific contracting 
activities that are not yet finalized, and therefore proprietary. We 
will continue to outline user fee eligible functional areas in the 
annual Payment Notices, and will evaluate contract activities related 
to operation of the federal Exchange user fee eligible functions. The 
categories that are considered user fee eligible include activities 
that provide special benefits to issuers offering QHPs through the 
Federal platform, and do not include activities that are provided to 
all QHP issuers. For example, functions related to risk adjustment 
program operations and operations associated with APTC calculation and 
payment, which are provided to all issuers in states where HHS operates 
the risk adjustment program (all 50 states and the District of Columbia 
for the 2021 benefit year), are not included in the FFE or SBE-FP user 
fee eligible costs. However, costs related to Exchange-related 
information technology, health plan review, management and oversight, 
eligibility and enrollment determination functions including the call 
center, and consumer information and outreach are considered FFE user 
fee eligible costs. SBE-FPs conduct their own health plan reviews and 
consumer information and outreach, and therefore, the SBE-FP user fee 
rate is determined based on the portion of FFE costs that are also 
applicable to issuers offering QHPs through SBE-FPs.
3. State Selection of EHB-Benchmark Plan for Plan Years Beginning on or 
after January 1, 2020 (Sec.  156.111)
a. Annual Reporting of State-Required Benefits
    We proposed to amend Sec.  156.111 to require states each year, 
beginning in plan year 2021, to identify required benefits mandated by 
state law and which of those benefits are in addition to EHB in a 
format and by a date specified by HHS. If the state does not comply 
with this annual reporting submission deadline, we proposed that HHS 
will determine which benefits are in addition to EHB for the state. We 
are finalizing the annual reporting of state-required benefits policy 
as proposed, with minor revisions. We are also finalizing as proposed 
that the first annual submission deadline for states to notify HHS of 
their state-required benefits will be July 1, 2021.
    Section 1311(d)(3)(B) of the PPACA permits a state to require QHPs 
offered in the state to cover benefits in addition to the EHB, but 
requires the state to make payments, either to the individual enrollee 
or to the issuer on behalf of the enrollee, to defray the cost of these 
additional state-required benefits. In the EHB final rule,\123\ we 
finalized a standard at Sec.  155.170(a)(2) that specifies benefits 
mandated by state action taking place on or before December 31, 2011, 
even if not effective until a later date, may be considered EHB, such 
that the state is not required to defray costs for these state-required 
benefits. Under this policy, benefits mandated by state action taking 
place after December 31, 2011 are considered in addition to EHB, even 
if the mandated benefits also are embedded in the state's selected EHB-
benchmark plan. In such cases, states must defray the associated costs 
of QHP coverage of such benefits, and those costs should not be 
included in the percentage of premium attributable to coverage of EHB 
for purpose of calculating APTC.
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    \123\ Standards Related to Essential Health Benefits, Actuarial 
Value, and Accreditation, 78 FR 12834, 12837 through 12838 (February 
20, 2013), available at https://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf.
---------------------------------------------------------------------------

    We also finalized in the EHB final rule that, because the Exchange 
is responsible for certifying QHPs, the Exchange would be the entity 
responsible for identifying which additional state-required benefits, 
if any, are in addition to the EHB. We also finalized that it is the 
QHP issuer's responsibility to quantify the cost attributable to each 
additional required benefit based on an analysis performed in 
accordance with generally accepted actuarial principles and 
methodologies conducted by a member of the American Academy of 
Actuaries and to then report this to the state. Although Sec.  155.170 
contemplates issuers conducting the cost analysis independently from 
the state, we now clarify that it would also be permissible for issuers 
to choose to rely on another entity, such as the state, to produce the 
cost analysis, provided the issuer remains responsible for ensuring 
that the quantification has been completed in a manner that complies 
with Sec.  155.170(c)(2)(i) through (iii).
    We also finalized that this calculation should be done 
prospectively to allow for the offset of an enrollee's share of premium 
and for purposes of calculating the PTC and reduced cost sharing. We 
reminded states and issuers that section 36B(b)(3)(D) of the Code 
specifies that the portion of the premium allocable to state-required 
benefits in addition to EHB shall not be taken into account in 
determining a PTC. We also finalized that because states may wish to 
take different approaches with regard to basing defrayal payments on 
either a statewide average or each issuer's actual cost that we were 
not establishing a standard and would permit both options for 
calculating state payments, at the election of the state. As discussed 
in the proposed rule, we clarified that we interpret actual cost to 
refer to the actuarial estimate of what part of the premium is 
attributable to the state-required benefit that is in addition to EHB, 
which is an analysis that should be performed prospectively to the 
extent possible.
    In the 2017 Payment Notice,\124\ we clarified that section 
1311(d)(3)(B) of the PPACA governing defrayal of state-required 
benefits is not specific to state statutes and we thus interpreted that 
section to apply not only in cases of legislative action but also in 
cases of state regulation, guidance, or other state action. We also 
finalized a change to Sec.  155.170(a)(3), designating the state, 
rather than the Exchange, as the entity required to identify which 
benefits mandated by state action are in addition to EHB and require 
defrayal. We also clarified in the 2017 Payment Notice \125\ that there 
is no requirement to defray the cost of benefits added through 
supplementation of the state's base-benchmark plan, as long as the 
state is supplementing the base-benchmark to comply with the PPACA or 
another Federal requirement. We also explained in the 2017 Payment 
Notice that this means benefits mandated by state action after December 
31, 2011 for purposes of compliance with new Federal requirements would 
not require defrayal. Examples of such Federal requirements include: 
requirements to provide benefits and services in each of the ten 
categories of EHB; requirements to cover preventive services; 
requirements to comply with the Paul Wellstone and Pete Domenici Mental 
Health Parity and Addiction Equity Act of 2008 (MHPAEA); and the 
removal of discriminatory age limits from existing benefits.
---------------------------------------------------------------------------

    \124\ 81 FR at 12242.
    \125\ This was originally clarified in the 2016 Payment Notice, 
and reiterated in the 2017 Payment Notice.
---------------------------------------------------------------------------

    In the 2017 Payment Notice, we also affirmed a transitional policy 
originating from the 2016 Payment Notice,

[[Page 29219]]

specifying that Sec.  156.110(f) allows states to determine services 
included in the habilitative services and devices category without 
triggering defrayal if the state's base-benchmark plan does not include 
coverage for that category. We interpreted this to mean that, when a 
state has an opportunity to reselect its EHB-benchmark plan, a state 
may use this as an opportunity to also update its habilitative services 
category within the applicable Federal parameters for doing so as part 
of EHB-benchmark plan reselection. As such, once a state has defined 
its habilitative services category under Sec.  156.110(f), state-
required benefits related to habilitative services may trigger defrayal 
in accordance with Sec.  155.170 if they are in addition to EHB and/or 
outside of an EHB-benchmark plan selection process.
    In the 2019 Payment Notice,\126\ we finalized that, as part of the 
new EHB-benchmark plan selection options for states at Sec.  156.111, 
we would not make any changes to the policies governing defrayal of 
state-required benefits at Sec.  155.170. That is, whether a benefit 
mandated by state action could be considered EHB would continue to 
depend on when the state enacted the mandate (unless the benefit 
mandated was for the purposes of compliance with Federal requirements). 
We reminded states of their obligations in light of the new EHB-
benchmark plan selection options for states at Sec.  156.111 in an 
October 2018 FAQ.\127\ In this FAQ, we also reminded states that, 
although it is the state's responsibility to identify which state-
required benefits require defrayal, states must make such 
determinations using the framework finalized at Sec.  155.170. For 
example, a law requiring coverage of a benefit passed by a state after 
December 31, 2011, is still a state-required benefit requiring defrayal 
even if the text of the law says otherwise. We affirmed that in the 
proposed rule. We also noted that we are monitoring state compliance 
with the defrayal requirements regarding state-required benefits in 
addition to EHB at Sec.  155.170, and that we encouraged states to 
reach out to us concerning any state defrayal questions in advance of 
passing and implementing benefit mandates.
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    \126\ 83 FR 16930, at 16977.
    \127\ Frequently Asked Questions on Defrayal of State Additional 
Required Benefits (October 2018), available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQ-Defrayal-State-Benefits.pdf.
---------------------------------------------------------------------------

    As explained in the proposed rule, HHS is concerned that there may 
be states that are not defraying the costs of the state-required 
benefits in accordance with federal requirements. State noncompliance 
with section 1311(d)(3)(B) of the PPACA, as implemented at Sec.  
155.170, may result in an increase in the percent of premium that QHP 
issuers report as attributable to EHB, more commonly referred to as the 
``EHB percent of premium,'' which is used to calculate PTCs. Due to 
state noncompliance with defrayal of state-required benefits, issuers 
may be covering benefits as EHB that were required by state action 
after December 31, 2011 that actually require defrayal under federal 
requirements, but for which the state is not actively defraying costs. 
As such, to strengthen program integrity and potentially reduce 
improper federal expenditures, we proposed to amend Sec.  156.111(d) 
and to add a new Sec.  156.111(f) to explicitly require states to 
annually notify HHS in a form and manner specified by HHS, and by a 
date determined by HHS, of any state-required benefits applicable to 
QHPs in the individual and/or small group market that are considered to 
be ``in addition to EHB'' in accordance with Sec.  155.170(a)(3). Given 
the proposed changes, we further proposed to rename Sec.  156.111 
``State selection of EHB-benchmark plan for plan years beginning on or 
after January 1, 2020, and annual reporting of state-required 
benefits'' to better reflect its contents.
    After reviewing and carefully considering the comments, we are 
finalizing these policies at Sec.  156.111(d) and (f), but with changes 
explained below. We are also finalizing the revision of the heading of 
Sec.  156.111 so that it accurately describes the new requirements in 
this final rule.
    Comment: Most commenters objected to the proposed annual reporting 
policy as unnecessary and without adequate justification, asking that 
we withdraw the proposed changes entirely. A minority of commenters 
supported the proposed changes, supporting the observation that states 
have not been defraying state benefit requirements consistently. 
Supporting commenters agreed that requiring states to report their 
state benefit requirements to HHS would improve transparency and 
accountability of states that may not be appropriately defraying the 
costs of state benefit requirements in addition to EHB and that this 
reporting policy will help to ensure that Exchange subsidies are 
calculated and used appropriately.
    Commenters objecting to the proposed policy stated that HHS did not 
provide sufficient evidence that states are not complying with federal 
defrayal requirements, and that HHS should first develop a strong 
evidentiary basis that states are not properly compensating issuers or 
enrollees for state-required benefits in addition to EHB before 
imposing onerous new requirements on states. Several commenters 
explained that, contrary to HHS's concerns expressed in the proposed 
rule, states are already regularly making careful assessments about 
whether their state benefit requirements are in addition to EHB and are 
doing so in accordance with federal requirements. One commenter noted 
that its state has coordinated a robust inter-agency process since 2013 
to comply with section 1311 of the PPACA and defrayed the cost of state 
benefit requirements in addition to EHB since 2014. This commenter 
urged HHS to withdraw the proposal, expressing that finalization would 
be disruptive and unnecessary to states such as its own which have 
already set up a fully functional process. Other commenters noted that 
this reporting requirement is unnecessary given that we already publish 
information about state benefit requirements on the CMS website.
    Commenters opposing the reporting policy as unnecessary also stated 
that existing regulations already establish robust requirements for 
states and issuers to follow when a state benefit requirement is in 
addition to EHB and requires defrayal, including performing actuarially 
sound analyses of costs associated with state benefit requirements in 
addition to EHB when calculating APTCs. Commenters also noted that HHS 
already has existing authority to investigate states that are not 
complying with defrayal requirements and that, as such, imposing a 
reporting requirement on states is not necessary for federal oversight 
purposes.
    Many commenters also opposed the annual reporting policy because it 
would be an additional administrative burden on states, the type this 
administration instructed agencies to reduce to the maximum extent 
permitted by law. They also noted the burden states already bear as the 
entities responsible for identifying which mandates require defrayal. 
One commenter recommended that HHS leverage existing reporting related 
to EHB rather than creating a new, duplicative report, though the 
commenter did not provide clarity on what reporting this is. One 
commenter stated that HHS making determinations in the state's place 
about which state-required benefits are in addition to EHB conflicts 
with Executive Order 13865, ``Reducing Regulatory Burdens Imposed by 
the Patient Protection and Affordable Care Act & Improving Healthcare 
Choice To Empower Patients,'' which directs HHS ``to the maximum extent 
permitted

[[Page 29220]]

by law, provide relief from any provision or requirement of the PPACA 
that would impose a fiscal burden on any State. . . .'' \128\ 
Commenters also expressed concern that the annual reporting requirement 
will be so burdensome that it will discourage states from adopting 
changes to provide additional health benefits to consumers or even 
deter states from updating their EHB-benchmark plan.
---------------------------------------------------------------------------

    \128\ Executive Order 13865, ``Reducing Regulatory Burdens 
Imposed by the Patient Protection and Affordable Care Act & 
Improving Healthcare Choice To Empower Patients,'' 82 FR 26885, 
26886 (June 12, 2017) available at  https://www.govinfo.gov/content/pkg/FR-2017-06-12/pdf/2017-12130.pdf.
---------------------------------------------------------------------------

    Response: We continue to have concerns that states are not 
defraying the costs of their state-required benefits in addition to EHB 
in accordance with federal requirements. As a result of this 
noncompliance, QHP issuers may be covering benefits as EHB that 
actually require state defrayal under federal requirements, but for 
which the state is not actively defraying costs, resulting in improper 
expenditures of APTC paid by the federal government. This contravenes 
section 36B(b)(3)(D) of the Code, which specifies that the portion of 
the premium allocable to state-required benefits in addition to EHB 
shall not be taken into account in determining a PTC.
    HHS must ensure that APTC is paid in accordance with federal law. 
We continue to believe that requiring states to annually report their 
state benefit requirements to HHS will strengthen program integrity in 
this regard.
    We note that, contrary to some commenters' assertions, we do not 
currently collect detailed information from states with regard to their 
state benefit requirements. We therefore do not have an existing means 
of assessing whether states are complying with federal defrayal 
requirements or whether federal APTC payments are properly allocated 
solely to EHB. The ``State-Required Benefits'' links listed under each 
state on the ``Information on Essential Health Benefits (EHB) Benchmark 
Plans'' page on the CMS website \129\ are not actively updated by the 
states or by HHS. Those records of state benefit requirements were 
collected in conjunction with state updates to EHB-benchmark plans in 
2015 for plan years beginning in 2017. Furthermore, we do not collect 
detailed information about state-required benefits when states update 
their EHB-benchmark plans pursuant to the new flexibility we finalized 
at Sec.  156.111(a).\130\ Therefore, our records are outdated by 
several years and do not reflect the most current information about 
state benefit requirements in addition to EHB, nor do they contain the 
level of detail we will collect as part of the annual reporting 
requirement we are finalizing here.
---------------------------------------------------------------------------

    \129\ Information on Essential Health Benefits (EHB) Benchmark 
Plans available at https://www.cms.gov/cciio/resources/data-resources/ehb.
    \130\ If a state chooses to utilize the flexibility finalized at 
Sec.  156.111(a) to select a new EHB-benchmark plan starting with 
the 2020 plan year, we currently only ask the selecting state if the 
EHB-benchmark plan includes benefits mandated by state action taking 
place after 2011, other than for purposes of compliance with Federal 
requirements, for which payment is required under Sec.  155.170. For 
more information, please refer to the State Confirmation Template in 
the information collection currently approved under OMB control 
number: 0938-1174 (Essential Health Benefits Benchmark Plans (CMS-
10448)).
---------------------------------------------------------------------------

    State submissions of annual reports on state-required benefits will 
enable HHS to determine whether HHS is paying APTC correctly. The 
information states submit will provide the necessary information to HHS 
for increased oversight over whether states are appropriately 
identifying which state benefit requirements are in addition to EHB and 
whether QHP issuers are properly allocating the portion of premiums 
attributable to EHB for purposes of calculating PTCs.
    We acknowledge that some states may already be appropriately 
identifying which state-required benefits are in addition to EHB and 
require defrayal, and that these states may have developed processes 
for defraying these state-required benefits. However, other states may 
not be doing so. This annual reporting policy will assist in achieving 
greater compliance with Sec.  155.170 in all states, which will help to 
resolve HHS's current program integrity concerns.
    Furthermore, we disagree that requiring already compliant states to 
annually report would be disruptive and unnecessary. Every state should 
already be defraying the costs of state-required benefits in addition 
to EHB. Thus states should already have ready access to the information 
required to be reported to HHS. This reporting requirement should be 
complementary to the process the state already has in place for 
tracking and analyzing state-required benefits. We also note that this 
regulation provides that if the state does not notify HHS of its 
required benefits considered to be in addition to EHB by the annual 
reporting submission deadline, or does not do so in the form and manner 
specified by HHS, HHS will identify the state-mandated benefits it 
believes are in addition to EHB for the applicable plan year. HHS 
prefers for states to provide the required information on their state-
required benefits to support HHS's efforts to determine whether it is 
paying APTC correctly. However, if states choose not to provide this 
information in accordance with Sec.  156.111(d) and (f), HHS must rely 
on its own ability to assess the scope of EHB in that state to ensure 
that only proper federal expenditures of APTC are made by the federal 
government.
    Finalizing an annual reporting requirement for states to provide 
information regarding their state benefit requirements to HHS properly 
aligns with federal requirements for defraying the cost of state-
required benefits; will generally improve transparency with regard to 
the types of benefit requirements states are enacting; and will provide 
the necessary information to HHS for increased oversight over whether 
states are appropriately identifying which state-required benefits 
require defrayal and whether QHP issuers are properly allocating the 
portion of premiums attributable to EHB for purposes of calculating 
PTCs.
    Therefore, we are finalizing Sec.  156.111(d) and (f) as proposed, 
to require states to annually notify HHS of any state-required benefits 
applicable to QHPs in the individual and/or small group market that are 
considered to be ``in addition to EHB'' in accordance with Sec.  
155.170(a)(3). We are also finalizing as proposed that the first annual 
submissions deadline for states to notify HHS of their state-required 
benefits in accordance with Sec.  156.111(d) and (f) will be July 1, 
2021.
    Comment: One commenter stated that HHS should make the 
determination about which benefits require defrayal in every instance, 
because relying on the state's determination does not provide adequate 
program integrity. All other commenters on this topic stated we should 
retain Sec.  155.170(a)(3) as is, designating the state as the entity 
responsible for identifying which mandates are in addition to EHB 
because they believe states are best positioned to make these 
determinations. Some commenters opposed any change making the Exchange 
or HHS the entity responsible for making such determinations, even in 
instances where the state does not submit an annual report to HHS by 
the annual reporting deadline or does not do so in the form and manner 
specified by HHS. Commenters stated that states should be able to 
continue their own processes for reviewing and defraying state-mandated 
benefits, and that to require otherwise would be disruptive and 
unnecessary, especially in states that have set up an already complete 
process for making these determinations and defraying costs when 
necessary.

[[Page 29221]]

    Commenters stated that shifting authority away from the state as 
the entity responsible for making these determinations would be 
inconsistent with the administration's goals of promoting state 
flexibility. For example, one commenter stated that HHS's 
identification of state-required benefits that are in addition to EHB 
conflicts with Executive Order 13865, ``Reducing Regulatory Burdens 
Imposed by the Patient Protection and Affordable Care Act & Improving 
Healthcare Choice To Empower Patients.'' That Executive Order directs 
HHS, ``to the maximum extent permitted by law, to afford the States 
more flexibility and control to create a more free and open health care 
market. . . .'' \131\ One commenter noted that state insurance 
regulation and oversight dates back to the 1800s, has been recognized 
by Congress in the McCarran Ferguson Act,\132\ and that the Supreme 
Court has also recognized states being the primary regulators of 
insurance.
---------------------------------------------------------------------------

    \131\ Executive Order 13865, ``Reducing Regulatory Burdens 
Imposed by the Patient Protection and Affordable Care Act & 
Improving Healthcare Choice To Empower Patients,'' 82 FR 26885, 
26886 (June 12, 2017) available at https://www.govinfo.gov/content/pkg/FR-2017-06-12/pdf/2017-12130.pdf.
    \132\ 15 U.S.C. 1011-1015.
---------------------------------------------------------------------------

    Commenters also stated that shifting authority away from the state 
would be inconsistent with HHS deference to states in other areas of 
EHB policy. Commenters explained that the EHB-benchmark plan selection 
process appropriately relies on state choices to set the EHBs under 
federal guidelines and that, as the primary regulators of individual 
and small group markets, states should continue to maintain the 
authority to mandate certain benefits in those markets and are the best 
positioned entities to determine which, if any, mandated benefits are 
in addition to EHB. One commenter also noted that defrayal 
determinations necessarily rely to some extent on state interpretation 
and judgment. Commenters stated it would be counterproductive for HHS 
to offer the tremendous increase in state flexibility offered through 
the new EHB-benchmark plan selection options finalized at Sec.  
156.111, only to take unprecedented federal control over another aspect 
of EHB in the near future. Commenters emphasized that allowing states 
to continue their own processes supports the administration's general 
approach of deference to states and their expertise in local market 
issues. Commenters also stated that HHS does not have expertise in 
evaluating state-mandated benefit laws and enforcing state 
requirements.
    One commenter also stated that HHS's identification of state-
required benefits that are in addition to EHB when a State chooses not 
to do so is internally inconsistent because Sec.  155.170(a)(3) 
establishes the state's right to identify which state-mandated benefits 
are in addition to the EHB. This commenter therefore questioned how HHS 
acting in the state's place would be consistent with Sec.  
155.170(a)(3).
    Response: We agree that states are uniquely positioned to track and 
analyze state-required benefits and identify which state benefit 
requirements are in addition to EHB and require defrayal. State 
expertise about the unique legislative and regulatory framework 
involving proposing, enacting, and implementing state benefit 
requirements is the reason we also believe states are best situated to 
populate and submit the proposed annual report, which will serve as 
documentation for states, issuers, the federal government, and the 
general public of the state benefit requirements that are in addition 
to EHB.
    We note that the annual reporting policy we are finalizing at Sec.  
156.111(d) and (f) does not restrict the state's ability to mandate any 
particular benefit--it merely requires states to report these state 
actions to HHS in order to assist in ensuring that HHS is not paying 
APTC for portions of premiums attributable to non-EHB.
    We disagree that Sec.  156.111(d)(2) conflicts with the flexibility 
offered to states as part of the new EHB-benchmark plan selection 
process finalized at Sec.  156.111. We believe the annual reporting 
policy we are finalizing is consistent with this goal of state 
flexibility and acknowledges state expertise. In the 2019 Payment 
Notice, we finalized that, as part of the new EHB-benchmark plan 
selection options for states finalized at Sec.  156.111, we would not 
make any changes to the policies governing defrayal of state-required 
benefits at Sec.  155.170. Therefore, whether a benefit mandated by 
state action can be considered EHB continues to depend on when the 
state enacted the mandate (unless the benefit mandated was for the 
purposes of compliance with federal requirements).\133\ Under any of 
the three methods for a state to select a new EHB-benchmark plan at 
Sec.  156.111, the act of selecting a new EHB-benchmark plan does not 
alone create new state mandates, but it also does not relieve the state 
of its obligation to continue defraying the cost of QHPs covering any 
state-mandated benefits that are in addition to EHB. The annual 
reporting policy we are finalizing at Sec.  156.111(d) and (f) does not 
change that standard. In other words, although states will be required 
to provide HHS with additional information with regard to state-
required benefits, the annual reporting policy itself does not affect 
whether a state benefit requirement is or is not in addition to EHB.
    States are already required under Sec.  155.170 to identify which 
state-required benefits are in addition to EHB and to defray the cost 
of those benefits, and states should already be complying with this 
requirement regardless of the annual reporting policy and regardless of 
the EHB-benchmark plan selection options at Sec.  156.111.
    Although there may be states that do not currently have in place an 
effective process for tracking, analyzing, and identifying state-
required benefits for purposes of identifying whether they are in 
addition to EHB and require defrayal, all states should be able to 
readily track, analyze, and identify the requirements they themselves 
have established. For such states, the annual reporting policy may 
restrict perceived flexibility in the state to the extent that this 
annual reporting policy improves the state's compliance with defrayal 
requirements. However, we believe any such restriction in state 
flexibility in these otherwise noncompliant states is illusory because 
states should have already been identifying which benefits require 
defrayal. Further, we believe that this regulatory change is necessary 
to ensure that such noncompliant states are diligent about their 
framework for identifying which mandates are in addition to EHB in 
accordance with Sec.  155.170 and to ultimately strengthen program 
integrity and reduce improper federal expenditures.
    Finally, the policy does not shift responsibility for identifying 
whether a mandate is in addition to EHB from the state to HHS, unless 
the state chooses not to submit an annual report to HHS in accordance 
with Sec.  156.111(d) and (f). Thus, this policy adds flexibility for 
states since HHS will identify required benefits that are in addition 
to EHB only where the state opts not to do so.
    Therefore, we are finalizing the proposal with only a minor 
revision. We originally proposed at Sec.  156.111(d)(2) that for states 
that do not report to HHS by the annual submission deadline in 
accordance with Sec.  156.111(d) and (f), HHS would determine which 
benefits are in addition to EHB consistent with Sec.  155.170(a)(3). We 
agree with the commenter, however, that referring back to Sec.  
155.170(a)(3) is inappropriate because that subsection requires the 
state, not HHS, to identify which state-required benefits are in 
addition to the

[[Page 29222]]

EHB. We are thus finalizing a revision such that Sec.  156.111(d)(2) 
refers instead to Sec.  155.170(a)(2). Section 155.170(a)(2) specifies 
that benefits required by state action taking place on or before 
December 31, 2011, are considered EHB and benefits required by state 
action taking place on or after January 1, 2012, other than for 
purposes of compliance with Federal requirements, are considered in 
addition to EHB.
    Comment: Many commenters expressed concern that HHS is proposing to 
increase its oversight of state compliance with defrayal requirements 
when HHS's policy governing which state benefit requirements are in 
addition to EHB is still unclear. Commenters also stated that HHS has 
not codified or formally clarified comprehensive standards that states 
must use, or that HHS would use under Sec.  156.111(d)(2) to determine 
whether a state mandate is in addition to EHB and subject to defrayal. 
Commenters stated that, in the past, HHS has provided subregulatory 
guidance and verbal technical assistance about defrayal upon which 
states have relied, and upon which HHS should confirm states can still 
rely. Commenters also expressed concern that, because much of this 
guidance provided by HHS was unpublished or vague, HHS interpretation 
of defrayal policy could have since changed without warning to states, 
and therefore, states could be subject to unexpected defrayal costs as 
part of the finalized annual reporting policy. Commenters added that, 
although HHS provides technical assistance to states regarding what 
would be considered a state-required benefit in addition to EHB, states 
have understood these discussions to be examples rather than exhaustive 
or binding guidance. Commenters urged HHS that further clarifying its 
defrayal policies is integral for states and legislatures to make fully 
informed decisions about the consequences of state-required benefits on 
the state budget. Due to this perceived lack of clarity, commenters 
urged HHS to not finalize the proposal, but to clarify its defrayal 
policies and engage in a structured discussion with states to address 
defrayal questions. These commenters stated that only then should HHS 
consider issuing more detailed guidance that can be provided uniformly 
to states moving forward. One commenter recommended that, if this 
provision is finalized, HHS delay the implementation of an annual 
reporting requirement and instead take additional time to determine how 
many states are not complying with defrayal requirements so that HHS 
can better understand the scope of the problem the reporting policy is 
intended to address.
    Several commenters offered specific policy recommendations about 
how HHS should modify its current policy on whether a state benefit 
requirement is in addition to EHB.
    Response: We acknowledge commenters' concerns that they do not 
fully understand when a state-required benefit is in addition to EHB 
and requires defrayal. However, finalizing an annual reporting policy 
is important to help resolve HHS's program integrity concerns regarding 
improper federal expenditures of APTC for benefits that are in addition 
to EHB. The information states provide to HHS in the annual reports 
will assist HHS in identifying whether states are appropriately 
identifying which state-required benefits require defrayal, and 
therefore, whether QHP issuers are properly allocating the portion of 
premiums attributable to EHB for purposes of calculating PTCs.
    In addition to the existing guidance we have provided on defrayal 
through our past regulations and guidance documents, we intend to 
continue to engage with states and provide additional technical 
assistance that helps ensure state understanding of when a state-
benefit requirement is in addition to EHB and requires defrayal. We 
anticipate that this assistance will provide examples and explains how 
a state could operationalize the defrayal process pursuant to federal 
requirements at Sec.  155.170. We believe such technical assistance 
will bolster state compliance with defrayal requirements, as well as 
result in a smoother annual reporting process for states and review 
process for HHS.
    While we appreciate commenters' recommendations on how HHS should 
modify its current policy on whether a state benefit requirement is in 
addition to EHB, such recommendations are outside the scope of this 
rulemaking, which is limited to reporting of state benefit 
requirements.
    Comment: Several commenters raised concerns that this rule does not 
specify how HHS will use the information states provide in the annual 
reports and does not outline what oversight activities HHS will 
conduct. Commenters urged HHS to provide additional transparency into 
how it will use state reported information on benefit requirements to 
enhance its oversight and enforcement of Sec.  155.170. For example, 
one commenter suggested HHS clarify how it will review state 
information from state actions taken prior to the first annual 
reporting submission deadline and clarify whether HHS will take 
retroactive action to determine if previous state benefit requirements 
are in addition to EHB and require defrayal. Several commenters stated 
that the annual reports should only be used to hold states accountable 
prospectively for defrayal of state benefit requirements in addition to 
EHB, and that it would be of great concern to states if HHS's intention 
is to review annual reports for retrospective compliance with defrayal, 
which would have significant practical consequences.
    Other commenters stated that HHS should enhance the already 
existing oversight that would occur if the policy is finalized as 
proposed, by developing and providing details on how it intends to 
ensure that states' annual reports are accurate and complete, for 
example through annual audits of state reports, and requested specific 
information regarding whether HHS will review the reports for prior 
state activity. One commenter suggested that HHS require ``one source 
of truth'' as to which benefit requirements in a given state are in 
addition to EHB and require defrayal so that QHP issuers can be sure 
they have the correct benefits listed as EHBs.
    Many commenters requested that, before the reporting requirement is 
finalized, states understand the potential liabilities the reported 
information could generate (for example, types of remedial action). 
Commenters argued that, although section 1311(d)(3)(B) of the PPACA 
requires states defray the cost of benefits in addition to EHB to 
either the enrollee or the issuer on behalf of the enrollee, it does 
not provide a process for how an HHS determination about a state's 
benefit requirement can substitute the state's own policy conclusion 
with regard to whether that benefit requirement is in addition to EHB. 
Commenters argued that section 1311(d)(3)(B) of the PPACA does not give 
HHS authority to interpret state insurance law. Commenters also 
requested that HHS clarify the process for when HHS reviews a state's 
annual report, or makes the determination for a non-reporting state, 
and the state disagrees with HHS or otherwise refuses to comply with 
HHS's determination and does not defray the cost of the state benefit 
requirement that HHS believes is in addition to EHB. One commenter 
stated that it is not clear what options exist in the event of conflict 
except for HHS to overrule the will of state legislative and executive 
branches, state insurance commissioners' authority, and Exchanges' 
state-based authority.
    Commenters argued that HHS must establish a neutral and fair 
process for

[[Page 29223]]

evaluating state-mandated benefits and resolving disputes between HHS 
and the state. For example, one commenter stated that there needs to be 
a formal appeals process because HHS has a conflict of interest in 
determining whether a mandate requires defrayal since such a 
determination could potentially lower the amount of APTC the government 
needs to pay out, and therefore, this proposal is arbitrary and 
capricious without a formal hearing or appeals process. Other 
commenters expressed concern that there was no proposed dispute 
resolution or appeals process, especially since the remedial action HHS 
would take is unclear.
    Commenters recommended that federal oversight and compliance 
actions over state benefit requirements reported in the annual reports 
remain limited and that retaining the primary authority with the states 
will help avoid circumstances of conflict between the state and HHS 
about whether a benefit requirement is in addition to EHB. One 
commenter stated that there would be far reaching operational problems 
if HHS incorrectly issues a decision about a state benefit requirement 
because that interpretation would interfere with state form review, 
rate review, plan certification, market conduct exams, enforcement, and 
even consumer assistance. Another commenter understood the proposal to 
mean that HHS could also determine the amount to be defrayed by the 
state for a benefit that is in addition to EHB. This commenter stated 
they are unaware of any authority that would allow the federal 
government to access and spend money from a state's treasury.
    Many commenters questioned whether HHS has any available 
enforcement authority to actually require states to defray the cost of 
a state benefit requirements in such situations of disagreement between 
the state and HHS. Commenters stated that there is no legal mechanism 
in place for resolving any disputes HHS may have with a state's 
determination which calls into question the very need for the 
amendments to Sec.  156.111, if HHS has no viable enforcement 
authority.
    One commenter was critical that the proposed rule did not specify 
what the procedure would be for direct enforcement states that do not 
report to HHS. The same commenter argued that HHS making the 
determinations about which state benefit requirements are in addition 
to EHB and require defrayal would be unconstitutional commandeering of 
states, and would violate the Tenth Amendment because it coerces states 
to act. Commenters noted that, different from the authority HHS has to 
implement federal law in states that refuse or are unable to, in this 
case HHS is giving itself authority to interpret state insurance law, 
which is authority that neither the PPACA nor other laws related to 
health insurance provide to HHS. This commenter stated that the PPACA 
requirement to defray is unconstitutional in the first place and that 
HHS should not seek through this rulemaking to further attempt to 
implement this unconstitutional requirement. This commenter further 
stated they are uncertain whether the federal government can compel a 
direct enforcement state to pay a part of anyone's insurance premium or 
even any portion of federal subsidies.
    Response: We acknowledge the discomfort expressed by some 
commenters with regard to how HHS intends to use the information 
included in the annual reports for oversight purposes, especially given 
commenters' stated concerns regarding lack of clarity about the 
defrayal policy itself, and how to identify whether a state benefit 
requirement is in addition to EHB. However, we believe that conducting 
additional technical assistance to states in the interim will assist in 
easing state concerns and uncertainty about identifying which state 
benefit requirements are in addition to EHB and require defrayal.
    We further acknowledge that some states already comply with Sec.  
155.170, making reasoned assessments about state benefit requirements, 
and defraying benefits in addition to EHB. Nonetheless, we still 
believe collecting annual reports for such states is necessary. We also 
believe collecting annual reports from otherwise compliant states will 
improve transparency generally with regard to the types of benefit 
requirements states are enacting.
    HHS will review the information states submit in their reports to 
help determine whether HHS is paying APTC correctly. Without such 
reports, HHS lacks the information necessary to make these assessments. 
Although all information submitted in the reports will be helpful to 
HHS, we anticipate most closely reviewing the information the state 
provides pursuant to Sec.  156.111(f)(2) and (3), regarding whether a 
state-required benefit is or is not in addition to EHB and the basis 
the state provides for why a state-required benefit is not in addition 
to EHB. To the extent that HHS has concerns about the content of a 
state's annual report, or has concerns about a non-reporting state's 
compliance with HHS's identification of which state benefit 
requirements are in addition to EHB and require defrayal, HHS intends 
to first reach out to the state directly to resolve any such concerns.
    To the extent possible, it is our intent to continue the 
collaborative process we have cultivated with states up to this point 
regarding questions states have about defrayal. We continue to believe 
states are best suited to analyze their own state mandates, which is 
why we are finalizing the annual reporting policy in a manner that 
relies first on states to submit information to HHS identifying which 
state-required benefits are in addition to EHB. We also are finalizing 
that HHS will identify, rather than determine, which benefits are in 
addition to EHB in states that opt not to report. We note that, as 
finalized, the annual reporting requirement is the same for all states 
regardless of whether they are an enforcing or direct enforcement 
state. We intend to provide non-reporting states with an opportunity to 
review our identifications prior to releasing the annual reports on the 
CMS website for public viewing in an effort to mitigate the potential 
for disagreement between the state and HHS. We also believe our interim 
outreach with states to clarify defrayal policy more generally will 
assist in states' understanding on what basis HHS will assess whether 
state-required benefits are in addition to EHB in non-reporting states.
    Further, we disagree with commenters' assertions that HHS does not 
have enforcement authority to penalize states that refuse to defray the 
cost of state benefit requirements in addition to EHB in accordance 
with Sec.  155.170. Pursuant to section 1313(a)(4) of the PPACA, if the 
Secretary determines that a state or Exchange has engaged in serious 
misconduct with respect to compliance with requirements under Title I 
of the PPACA, which includes the requirement that states defray the 
cost state benefit requirements in addition to EHB, HHS is authorized 
to rescind up to 1 percent of payments otherwise due to a state per 
year until corrective actions are taken by the state that are 
determined to be adequate by the Secretary. HHS would like to avoid the 
use of such authority, especially as it would not result in a transfer 
of any portion of such amounts to the issuer or consumer who is 
entitled to state defrayal payments under the PPACA. We disagree, 
however, that using this authority would be overstepping HHS authority.
    HHS also disagrees that identifying benefits that are in addition 
to EHB in a state and requiring defrayal violates the Tenth Amendment. 
We

[[Page 29224]]

acknowledge that HHS's identification of state-required benefits that 
are in addition to EHB might conflict with the opinion of a non-
reporting state. However, as previously noted, HHS must ensure that 
APTC is paid in accordance with federal law. If a state is not 
defraying the cost of a state-required benefit that is in addition to 
EHB, resulting in improper federal expenditures, we believe section 
1313(a)(4) of the PPACA provides HHS with the authority to enforce the 
defrayal requirements outlined in statute.
    Program integrity remains a top priority for HHS, and we believe 
exercising our existing authority to address noncompliance with 
defrayal requirements under section 1311(d)(3)(B) of the PPACA and 
Sec.  155.170, if necessary, is warranted to mitigate the risk of 
federal dollars incorrectly leaving the federal Treasury in the form of 
APTC during the year. However, we appreciate commenters' desire for 
further insight into how the notices will play into our policy for 
enforcing the defrayal requirements. We are not adopting any policy 
with regard to whether enforcement of the defrayal requirement will be 
retrospective or prospective in relation to the submission of Sec.  
156.111 reports. The requirement to submit reports under this final 
rule is independent of a state's pre-existing duty under section 
1313(a)(4) of the PPACA to defray costs for state-mandated benefits 
that are in addition to EHB. Whether we discover noncompliance with 
defrayal requirements through submission of the reports required under 
this final rule or through a complaint lodged by a consumer or an 
issuer, HHS will take appropriate action in line with its statutory 
authority. However, as noted earlier, we intend to continue the 
collaborative process we have cultivated with states up to this point. 
We intend to provide non-reporting states with an opportunity to review 
our identifications of state-mandated benefits that are in addition to 
EHB prior to releasing the annual reports on the CMS website for public 
viewing in an effort to mitigate the potential for disagreement between 
the state and HHS.
    Comment: Commenters noted mixed opinions with regard to a public 
comment period. Some commenters stated that they do not think it is 
necessary to allow for a public comment period before publicizing state 
reporting, but suggested HHS develop a procedure to use in the event 
there ever is a mistake in a state's mandated benefit reporting. Other 
commenters stated there should be a public comment period on the annual 
reports. Commenters stated that it is important to allow issuers and 
other stakeholders to provide formal input, and create a public record, 
on which benefit requirements require defrayal given that states have a 
conflict of interest in identifying these mandates themselves, and that 
HHS should review the record of comments when reviewing state-reported 
benefit mandates as part of its oversight review.
    Response: We agree with commenters that it is unnecessary to 
require a public comment period on the annual reports submitted to HHS 
or for the annual reports that HHS completes for non-reporting states. 
State benefit requirements most often originate from the state 
legislature and, upon passage, the question of whether or not the 
benefit requirement is in addition to EHB has a fixed answer. As such, 
the feedback provided to states or HHS from the public or from 
stakeholders during a public comment period could not impact the 
ultimate decision on the part of states, or on the part of HHS for non-
reporting states, about whether a benefit requirement is in addition to 
EHB. Therefore, we do not believe a public comment period would be a 
beneficial use of time or resources.
    Comment: Several commenters had specific recommendations or 
concerns regarding the type of information states would be required to 
submit to HHS by the annual submission deadline in a form and manner 
specified by HHS. One commenter requested that, to support the 
administration's goals of state flexibility, HHS instead allow states 
to submit state mandate information in a form and manner determined by 
the state.
    Other commenters expressed concern that HHS did not provide 
sufficient specificity about the types of data elements states would be 
required to include in the annual report. For example, one commenter 
stated that there is not enough detail in the proposed rule about how 
this reporting process would work and HHS should make the proposed 
templates available for commenters to review. One commenter urged HHS 
to include information on the final annual reporting templates to be 
used by states that would identify whether the state benefit 
requirement doesn't require defrayal because it falls into an exception 
to the defrayal policy. Another commenter requested that, after the 
initial report in the first year of annual reporting, states should 
only identify changes to benefit requirements to make it easier for HHS 
and issuers to identify which benefits are new or modified.
    One commenter argued that states should also be required to report 
these additional benefits to the insurance department or other 
agencies. Another commenter suggested that HHS require states to submit 
their methodologies for conducting their defrayal analysis to require 
additional transparency. A different commenter argued that states 
should not be required to provide a justification or basis for the 
state's defrayal determination as there is no statutory or regulatory 
authority for HHS to impose this burden, but that if it finalizes this 
requirement the commenter agrees such justification should be concise 
(for example citing to the state constitution amendment that gives the 
state department of insurance the authority to oversee insurance). One 
commenter stated that the report should detail the benefits that are 
included as EHBs in the benchmark plan, state mandated benefits that 
are part of the benchmark plan, state mandated benefits that are 
subject to state defrayal, and a list of common benefits that must be 
considered non-EHB by QHPs.
    Response: We appreciate the feedback provided in comments regarding 
ways to improve the annual reporting process and the data elements that 
would be most helpful for HHS to collect. We are finalizing as proposed 
Sec.  156.111(f), which specifies the type of information states are 
required to submit to HHS by the annual submission deadline in a form 
and manner specified by HHS. For a reporting package to be complete, it 
will need to comply with each requirement listed at Sec.  156.111(f)(1) 
through (6). We believe the descriptions of the required data elements 
at Sec.  156.111(f)(1) through (6) provide sufficient detail to states 
regarding the types of information states will be required to include 
in the annual reports such that states and other stakeholders reviewing 
those requirements can understand the scope of the information states 
are required to include in their annual reports without reviewing the 
actual reporting templates. With respect to Sec.  156.111(f)(4), which 
provides for states to submit other information about state-required 
benefits that is necessary for HHS oversight, we reiterate the 
illustrative examples we previously published. Additional information 
that is necessary for HHS oversight may include data such as the date 
of state action imposing the requirement to cover the state-required 
benefit; the effective date of the applicable state action; the market 
it applies to (that is, individual, small group, or both); the

[[Page 29225]]

precise benefit or set of benefits that QHPs in the individual and/or 
small group market are required to cover; any exclusions; and the 
citation to the relevant state action.
    In the first reporting year, this annual report must include a 
comprehensive list of all state benefit requirements applicable to QHPs 
in the individual and/or small group market under state mandates that 
were imposed on or before December 31, 2011 and that were not withdrawn 
or otherwise no longer effective before December 31, 2011, and any 
state benefit requirements under state mandates that were imposed any 
time after December 31, 2011, regardless of whether the state believes 
they require defrayal in accordance with Sec.  155.170.
    The first reporting cycle is intended to set the baseline list of 
state-required benefits applicable to QHPs in the individual and/or 
small group market. Each annual reporting cycle thereafter, the state 
will only be required to update the content in its report to add any 
new benefit requirements, and to indicate whether benefit requirements 
previously reported to HHS have been amended or repealed. State reports 
for subsequent years must be accurate as of 60 days prior to the annual 
reporting submission deadline set by HHS for that year. If a state has 
not imposed, amended, or repealed any state benefit requirements in the 
time period between annual reporting deadlines, the state is still 
required to report to HHS that there have been no changes to state-
required benefits since the previous reporting cycle. In such a 
scenario, we are finalizing that the state should submit the same 
reporting package as the previous reporting cycle and affirmatively 
indicate to HHS that there have been no changes.
    As stated in the proposed rule, HHS will provide template(s) 
reflecting the form and manner of the report that states will be 
required to use for reporting the required information proposed in 
Sec.  156.111(f)(1) through (6). We believe standardizing the form and 
manner of the report and the data elements required is important for 
consistency year after year and for ensuring HHS has the information 
necessary to adequately oversee that states are defraying the cost of 
state-required benefits in addition to EHB consistent with Sec.  
155.170 and to ensure that HHS is not improperly paying APTC for 
portions of premium attributable to non-EHB.
    We still intend to post state submissions of these documents on the 
CMS website prior to the end of the plan year during which the annual 
reporting takes place such that this information is accessible to 
states, QHP issuers, enrollees, stakeholders, and the general public. 
HHS will complete a similar document for non-reporting states and post 
it to the CMS website. As noted above, we intend to provide the non-
reporting state with an opportunity to review the HHS's identifications 
prior to posting the HHS-created report on the CMS website. We do not 
believe it is necessary to explicitly require the state to provide a 
copy of the report to the insurance department, as the report will be 
publicly available on the CMS website.
    We emphasize that this reporting requirement would be independent 
of the state's requirement to defray the cost of QHP coverage of state-
required benefits in addition to EHB in accordance with Sec.  155.170. 
The obligation for a state to defray the cost of QHP coverage of state-
required benefits in addition to EHB is an independent statutory 
requirement under section 1311(d)(3)(B) of the PPACA, as implemented at 
Sec.  155.170, and would remain fully applicable to states regardless 
of whether they annually report state-required benefits to HHS or defer 
to HHS to identify which state-required benefits are in addition to EHB 
and require defrayal. We also note that issuers would still be 
responsible for quantifying the cost of these benefits and reporting 
the cost to the state. States remain responsible for making payments to 
defray the cost of additional required benefits, either to the enrollee 
or to the QHP issuer on behalf of the enrollee.
    Comment: Many commenters expressed concern with the proposed timing 
of the annual reporting requirement. Commenters stated that legislative 
sessions end at different times in different states and that, as such, 
the annual submission deadline being at the same time during the plan 
year for every state is not feasible. For example, for states whose 
legislative sessions end in September, the commenter explained that the 
proposed reporting deadline in July is too early and would mean the 
annual reports would include mandates imposed retrospectively rather 
than prospectively. Another commenter expressed that HHS determinations 
need to give ample opportunity to states to amend their statutes, be 
made in advance of rate filings, and only be made on a prospective 
basis, but that this is impossible given the proposed submission 
deadline in July. The commenter further explained that their state's 
legislature adjourns between May 2021 and January 2023, leaving no 
ability for the state legislature to legislatively respond to 
determinations made by HHS under this reporting policy. Many other 
commenters echoed the request that the annual reporting and defrayal 
requirements be made only on a prospective basis.
    Commenters who supported the entire proposal agreed the reporting 
should occur annually. One commenter noted their appreciation for the 
proposal but argued the reporting requirement should be every two years 
at most to reduce administrative burden and unnecessary costs, given 
that the process for enacting state mandates is often a long one.
    We received no comments on the proposed 60-day cut-off date that 
proposed to require the annual report be accurate as of the day that is 
at least 60 days prior to the annual reporting submission deadline set 
by HHS.
    Response: As stated in the proposed rule, we acknowledge that the 
start and end dates of state legislative sessions vary greatly by 
state, and that many state legislative sessions may not have concluded 
by the annual reporting submission deadline. However, we believe that 
setting the same annual submission deadline for all states is necessary 
to standardize the annual reporting process and publish the annual 
reports on the CMS website at or around the same time each year. We 
agree with commenters that we should require reporting annually and 
that this frequency will best serve HHS's goals of increased oversight 
over state compliance with defrayal requirements than would a less 
frequent collection of annual reports.
    We also still believe it is important to set a cut-off date after 
which states are not expected to report on their state-required 
benefits until the following annual reporting deadline, which is why we 
are finalizing at Sec.  156.111(f)(1) that state annual reports must be 
accurate as of the day that is at least 60 days prior to the annual 
reporting submission deadline set by HHS. We believe that setting this 
cut-off date at least 60 days prior to the submission deadline allows a 
state sufficient time to analyze its state benefit requirements 
imposed, amended, or repealed through state action taken by that date 
and prepare the required documents we are proposing that states submit 
to HHS.
    A state where a legislative session ends after the 60-day cut-off 
date (such as a legislative session that ends in September of that plan 
year) that happens to enact, amend, or repeal a state-required benefit 
after the cut-off date but before the annual reporting submission 
deadline will not be expected to report that state-required

[[Page 29226]]

benefit in that plan year's annual reporting submission. Instead, the 
state is expected to include that state-required benefit in the annual 
reporting package for the following year. States will be permitted to 
submit their reports any time between the 60-day cut-off date and the 
applicable deadline.
    We acknowledge commenters' concerns that, depending when the annual 
reporting submission deadline falls in relation to the state's 
legislative calendar, the state's annual report may be more reflective 
of state mandates passed in previous plan years than reflective of the 
plan year in which the annual reporting submission deadline falls. 
Although we acknowledge this is not ideal, we do not foresee this being 
a problem, as the state will be able to include any state-required 
benefits enacted after the annual submission deadline in the annual 
reporting package for the following year. Further, we again emphasize 
that the annual reporting requirement and the reporting cut-off date do 
not alter a state's obligation to defray the cost of benefits in 
addition to EHB that result from state action taken after the cut-off 
date. In other words, states must defray benefits in addition to EHB in 
accordance with Sec.  155.170 regardless of whether the state benefit 
requirement was imposed, amended, or repealed through state action 
taken before or after the proposed 60-day cut-off date for inclusion in 
that plan year's annual reporting submission. If a state passes a 
benefit requirement after the annual submission deadline that is in 
addition to EHB and requires defrayal, the state should defray the cost 
of that benefit in spite of it not being captured as part of the annual 
report submitted to HHS for that submission year. The annual reporting 
requirement should function as an additional, but complementary step to 
those already in place at Sec.  155.170.
b. States' EHB-Benchmark Plan Options
    We proposed May 7, 2021 as the deadline for states to submit the 
required documents for the state's EHB-benchmark plan selection for the 
2023 plan year pursuant to Sec.  156.111(a), and the deadline for 
states to notify us that they wish to permit between-category 
substitution for the 2023 plan year. We also made some clarifications 
to Sec.  156.111(b)(2) regarding scope of benefits. We are finalizing 
these deadlines as proposed and confirming the scope of benefit 
clarifications.
    In the 2019 Payment Notice, we stated that we believe states should 
have additional choices with respect to benefits and affordable 
coverage. Therefore, we finalized options for states to select new EHB-
benchmark plans starting with the 2020 plan year. Under Sec.  
156.111(a), a state may modify its EHB-benchmark plan by: (1) Selecting 
the EHB-benchmark plan that another state used for the 2017 plan year; 
(2) Replacing one or more EHB categories of benefits in its EHB-
benchmark plan used for the 2017 plan year with the same categories of 
benefits from another state's EHB-benchmark plan used for the 2017 plan 
year; or (3) Otherwise selecting a set of benefits that would become 
the state's EHB-benchmark plan.
    Under any of these three options, the EHB-benchmark plan also has 
to meet additional standards, including EHB scope of benefit 
requirements under Sec.  156.111(b). These requirements include 
providing a scope of benefits that is equal to, or greater than, to the 
extent any supplementation is required to provide coverage within each 
EHB category, the scope of benefits provided under a typical employer 
plan. Section 156.111(b)(2) defines a typical employer plan as either 
(1) one of the selecting state's 10 base-benchmark plan options 
established at Sec.  156.100 from which the state was able to select 
for the 2017 plan year; or (2) the largest health insurance plan by 
enrollment in any of the five largest large group health insurance 
products by enrollment in the selecting state, as product and plan are 
defined at Sec.  144.103, provided that: (a) The product has at least 
10 percent of the total enrollment of the five largest large group 
health insurance products by enrollment in the selecting state; (b) the 
plan provides minimum value; (c) the benefits are not excepted 
benefits; and (d) the benefits in the plan are from a plan year 
beginning after December 31, 2013. The state's EHB-benchmark plan must 
also satisfy the generosity standard at Sec.  156.111(b)(2)(ii), which 
specifies that a state's EHB-benchmark plan must not exceed the 
generosity of the most generous among a set of comparison plans, 
including the EHB-benchmark plan used by the state in 2017, and any of 
the state's base-benchmark plan options for the 2017 plan year, 
supplemented as necessary.
    Additionally, states must document meeting these requirements 
through an actuarial certification and associated actuarial report from 
an actuary who is a member of the American Academy of Actuaries, in 
accordance with generally accepted actuarial principles and 
methodologies. We published the ``Example of an Acceptable Methodology 
for Comparing Benefits of a State's EHB-benchmark Plan Selection in 
Accordance with Sec.  156.111(b)(2)(i) and (ii)'' (example methodology 
guidance), alongside the 2019 Payment Notice.\134\ We finalized that 
the current EHB-benchmark plan selection would continue to apply for 
any year for which a state does not select a new EHB-benchmark plan 
from among these options.
---------------------------------------------------------------------------

    \134\ Example of an Acceptable Methodology for Comparing 
Benefits of a State's EHB-benchmark Plan Selection in Accordance 
with 45 CFR 156.111(b)(2)(i) and (ii), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-Example-Acceptable-Methodology-for-Comparing-Benefits.pdf.
---------------------------------------------------------------------------

    The 2019 Payment Notice stated that we would propose EHB-benchmark 
plan submission deadlines in the HHS annual Notice of Benefit and 
Payment Parameters. Accordingly, we proposed May 7, 2021 as the 
deadline for states to submit the required documents for the state's 
EHB-benchmark plan selection for the 2023 plan year. We emphasized that 
this deadline would be firm, and that states should optimally have one 
of their points of contact who has been predesignated to use the EHB 
Plan Management Community reach out to us using the EHB Plan Management 
Community well in advance of the deadline with any questions. Although 
not a requirement, we recommended states submit applications at least 
30 days prior to the submission deadline to ensure completion of their 
documents by the proposed deadline. We also reminded states that they 
must complete the required public comment period and submit a complete 
application by the deadline. We solicited comment on the proposed 
deadline.
    In the 2019 Payment Notice, we also finalized a policy through 
which states may opt to permit issuers to substitute benefits between 
EHB categories. In the preamble to that rule, we stated that the 
deadline applicable to state selection of a new benchmark plan would 
also apply to this state opt-in process. Therefore, we proposed May 7, 
2021, as the deadline for states to notify us that they wish to permit 
between-category substitution for the 2023 plan year. States wishing to 
make such an election must do so via the EHB Plan Management Community. 
We solicited comment on the proposed deadline.
    We also reiterated the scope of benefits requirements at Sec.  
156.111(b)(2). We finalized the definition of a typical employer plan 
to establish the minimum level of benefits for the state's EHB-
benchmark plan selection and to ensure plans that meet EHB standards 
are equal in scope to a typical employer plan as required under section 
1302(2)(A) of the PPACA, and a generosity standard to establish the

[[Page 29227]]

maximum level of benefits for a state's EHB-benchmark plan selection.
    The generosity standard at Sec.  156.111(b)(2)(ii) balances our 
goal of promoting state flexibility with the need to preserve coverage 
affordability by minimizing the opportunity for a state to select EHB 
in a manner that would make coverage unaffordable for patients and 
increase federal costs. As such, we clarified for states that when 
selecting an updated EHB-benchmark plan from the available options 
listed at Sec.  156.111(a), the new EHB-benchmark plan may not exceed 
the generosity of the most generous among the set of comparison plans 
listed at Sec.  156.111(b)(2)(ii) even by a de minimis amount, and that 
states must clearly demonstrate in their actuarial report to HHS how 
the state's updated EHB-benchmark plan satisfies the generosity test. 
In other words, the generosity of the state's updated EHB-benchmark 
plan may not exceed a 0.0 percentage point actuarial increase above the 
most generous among the set of comparison plans listed at Sec.  
156.111(b)(2)(ii).
    Finally, we clarified that the typical employer plan and generosity 
standard requirements are two separate tests that an EHB-benchmark plan 
must satisfy. However, we recognized that there may be some instances 
in which it may be difficult to design an EHB-benchmark plan that 
satisfies both standards. Therefore, we reminded states that, as we 
stated in the example methodology guidance,\135\ states should consider 
using the same plan as the comparison plan for both tests, to the 
extent possible, to help minimize burden and to mitigate against any 
potential conflict caused by applying each test with a different 
comparison plan.
---------------------------------------------------------------------------

    \135\ Example of an Acceptable Methodology for Comparing 
Benefits of a State's EHB-benchmark Plan Selection in Accordance 
with 45 CFR 156.111(b)(2)(i) and (ii), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-Example-Acceptable-Methodology-for-Comparing-Benefits.pdf.
---------------------------------------------------------------------------

    Comment: Multiple commenters agreed with the proposed submission 
deadlines.
    Response: We are finalizing the deadlines as proposed. The deadline 
for state submission of EHB-benchmark plan changes and to notify HHS 
that the state will allow between-category benefit substitution for the 
2023 plan year is May 7, 2021.
    Comment: Some commenters asked for further clarification on the 
generosity standard when states chose to select a new EHB-benchmark 
plan. Others did not agree with the generosity standard. One commenter 
noted that states could interpret the requirement for a proposed EHB-
benchmark plan not to exceed the generosity of the comparison plan to 
allow a de minimis difference in actuarial value. Another commenter 
stated that the 2019 Payment Notice did not sufficiently emphasize that 
a state could not exceed the generosity standard.
    Response: As provided at Sec.  156.111(e)(2)(ii), the actuary's 
certification and report must affirm that the state's proposed EHB-
benchmark plan does not exceed the generosity of the most generous of 
the plans listed at Sec.  156.111(b)(2)(ii)(A) and (B). Furthermore, 
``does not exceed the generosity'' means that changes to the EHB-
benchmark plan cannot result in an increase in generosity beyond that 
reference plan, no matter how de minimis. Finally, when a state selects 
a new EHB-benchmark plan, the state must, among other requirements, 
provide an actuarial certification and an associated actuarial report 
from an actuary, who is a member of the American Academy of Actuaries, 
in accordance with generally accepted actuarial principles and 
methodologies, that affirms compliance with the generosity standard, 
consistent with Sec.  156.111(e)(2).
    Comment: Several comments were out of the scope of the proposals 
and pertained to EHB benchmark policy in general. Some commenters noted 
opposition to the policy previously finalized at Sec.  156.111 in the 
2019 Payment Notice. Commenters stated that HHS should ensure that 
states strictly comply with the requirement to provide public notice 
and comment on the proposed benchmark plan, including by providing 
detailed information about proposed changes and the actuarial report 
that the state must submit to HHS. They also suggested that we 
implement a federal notice and comment process for state benchmark plan 
changes. Another commenter noted that the comment period should allow 
commenters a significant amount of time to respond to the proposal, 
while another commenter stated that states should notify interested 
stakeholders when proposing changes to the benchmark. One commenter 
suggested allowing states to add additional coverage of habilitative 
services, outside of the process at Sec.  156.111. One commenter urged 
us to implement a notice and comment process when a state wishes to 
permit between-category benefit substitution.
    Response: As these comments do not pertain to the proposals, we 
will take them into consideration for future rulemaking. As stated in 
the 2019 Payment Notice, we expect states to use a reasonable public 
comment period.\136\ As a best practice, we encourage states to use the 
public comment process delineated in any applicable state 
administrative procedure law or regulations. States must submit a 
complete application to HHS by the deadline, which means that the state 
public comment period must have concluded prior to submitting the 
application to HHS, so that the state can consider public comments 
prior to submitting the final application.
---------------------------------------------------------------------------

    \136\ 83 FR at 17017.
---------------------------------------------------------------------------

4. Essential Health Benefits Package (Sec.  156.130)
a. Premium Adjustment Percentage (Sec.  156.130)
    We proposed to update the annual premium adjustment percentage 
using the most recent estimates and projections of per enrollee 
premiums for private health insurance (excluding Medigap and property 
and casualty insurance) from the NHEA, which are calculated by the CMS 
Office of the Actuary. For the 2021 benefit year, the premium 
adjustment percentage will represent the percentage by which this 
measure for 2020 exceeds that for 2013.
    Section 1302(c)(4) of the PPACA directs the Secretary to determine 
an annual premium adjustment percentage, a measure of premium growth 
that is used to set the rate of increase for three parameters detailed 
in the PPACA: (1) The maximum annual limitation on cost sharing 
(defined at Sec.  156.130(a)); (2) the required contribution percentage 
used to determine eligibility for certain exemptions under section 
5000A of the Code (defined at Sec.  155.605(d)(2)); and (3) the 
employer shared responsibility payment amounts under section 4980H(a) 
and (b) of the Code (see section 4980H(c)(5) of the Code). Section 
1302(c)(4) of the PPACA and Sec.  156.130(e) provide that the premium 
adjustment percentage is the percentage (if any) by which the average 
per capita premium for health insurance coverage for the preceding 
calendar year exceeds such average per capita premium for health 
insurance for 2013, and the regulations provide that this percentage 
will be published in the annual HHS notice of benefit and payment 
parameters.
    The 2015 Payment Notice \137\ and 2015 Market Standards Rule \138\ 
established a methodology for estimating the average per capita premium 
for purposes of calculating the premium adjustment percentage for the 
2015 benefit year and beyond.

[[Page 29228]]

Beginning with the 2015 benefit year, the premium adjustment percentage 
was calculated based on the estimates and projections of average per 
enrollee employer-sponsored insurance premiums from the NHEA. In the 
proposed 2015 Payment Notice, we proposed that the premium adjustment 
percentage be calculated based on the projections of average per 
enrollee private health insurance premiums. Based on comments received, 
we finalized the 2015 Payment Notice to instead use per enrollee 
employer-sponsored insurance premiums in the methodology for 
calculating the premium adjustment percentage. We chose employer-
sponsored insurance premiums because they reflected trends in health 
care costs without being skewed by individual market premium 
fluctuations resulting from the early years of implementation of the 
PPACA market reforms. We adopted this methodology in subsequent Payment 
Notices for the 2016 through 2019 benefit years, but noted in the 2015 
Payment Notice that we may propose to change our methodology after the 
initial years of implementation of the market reforms, once the premium 
trend is more stable.
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    \137\ 79 FR 13743.
    \138\ 79 FR 30240.
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    In the 2020 Payment Notice, we adopted a modification of the 
premium measure that we use to calculate the premium adjustment 
percentage. This premium measure captures increases in individual 
market premiums in addition to increases in employer-sponsored 
insurance premiums for purposes of calculating the premium adjustment 
percentage. Specifically, we calculate the premium measures for 2013 
and 2020 as private health insurance premiums minus premiums paid for 
Medicare supplement (Medigap) insurance and property and casualty 
insurance, divided by the unrounded number of unique private health 
insurance enrollees, excluding all Medigap enrollees.
    This premium measure is an adjusted private individual and group 
market health insurance premium measure, which is similar to NHEA's 
private health insurance premium measure. NHEA's private health 
insurance premium measure includes premiums for employer-sponsored 
insurance; ``direct purchase insurance,'' which includes individual 
market health insurance purchased directly by consumers from health 
insurance issuers, both on and off the Exchanges and Medigap insurance; 
and the medical portion of accident insurance (``property and 
casualty'' insurance). The measure we used in the 2020 Payment Notice 
is published by NHEA and includes NHEA estimates and projections of 
employer-sponsored insurance and direct purchase insurance premiums, 
but we excluded Medigap and property and casualty insurance from the 
premium measure since these types of coverage are not considered 
primary medical coverage for individuals who elect to enroll. We used 
per enrollee premiums for private health insurance (excluding Medigap 
and property and casualty insurance) so that the premium measure would 
more closely reflect premium trends for all individuals primarily 
covered in the private health insurance market since 2013, and we 
anticipated that the change to use per enrollee premiums for private 
health insurance (excluding Medigap and property and casualty 
insurance) would additionally reduce Federal PTC expenditures if the 
Department of the Treasury and the IRS adopted the same premium 
measure. The Department of the Treasury and the IRS have since adopted 
the premium growth measure provided in the 2020 Payment Notice for 
purposes of the indexing adjustments under section 36B of the 
Code.\139\
---------------------------------------------------------------------------

    \139\ See Revenue Procedure 2019-29, 2019-32 IRB 620. https://www.irs.gov/pub/irs-drop/rp-19-29.pdf.
---------------------------------------------------------------------------

    We proposed to continue to use the NHEA private health insurance 
premium measure (excluding Medigap and property and casualty insurance) 
for the 2021 benefit year. As such, we proposed that the premium 
adjustment percentage for 2021 be the percentage (if any) by which the 
most recent NHEA projection of per enrollee premiums for private health 
insurance (excluding Medigap and property and casualty insurance) for 
2020 ($6,759) exceeds the most recent NHEA estimate of per enrollee 
premiums for private health insurance (excluding Medigap and property 
and casualty insurance) for 2013 ($4,991).\140\ Using this formula, the 
proposed premium adjustment percentage for the 2021 benefit year was 
1.3542376277 ($6,759/$4,991), which represents an increase in private 
health insurance (excluding Medigap and property and casualty 
insurance) premiums of approximately 35.4 percent over the period from 
2013 to 2020. We sought comments on the proposed premium adjustment 
percentage.
---------------------------------------------------------------------------

    \140\ The 2013 and 2020 per enrollee premiums for private health 
insurance (excluding Medigap and property and casualty insurance) 
figures used for this calculation were published on February 20, 
2019. The series used in the determinations of the adjustment 
percentages can be found in Table 17 on the CMS website, which can 
be accessed by clicking the ``NHE Projections 2018-2027--Tables'' 
link located in the Downloads section at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html. A 
detailed description of the NHE projection methodology is also 
available on the CMS website.
---------------------------------------------------------------------------

    After reviewing public comments, we are finalizing the premium 
adjustment percentage at the proposed value of 1.3542376277, based on 
the NHEA data available at the time of proposal, for the 2021 benefit 
year. The following is a summary of the public comments we received on 
the premium adjustment percentage.
    Comment: We received a few comments regarding the timing of NHEA 
data updates that we use to calculate the premium adjustment percentage 
index (PAPI) and associated payment parameters. For the 2020 Payment 
Notice, these data were updated between the proposed and final rules, 
and in order to reflect the most recent data available, we updated the 
value of the premium adjustment percentage in the final 2020 Payment 
Notice accordingly. Some commenters expressed concern that updates to 
the NHEA data between the proposed and final rules could lead to 
unpredictability in benefit design and pricing. They recommended that 
even if NHEA data are updated between the proposed and final rules, we 
should finalize the premium adjustment percentage using the NHEA data 
that was available when the proposed rule was published.
    Response: We understand some commenters' concern that issuers 
require the payment parameters associated with the NHEA data as early 
as possible prior to rate submissions to develop benefit designs and 
pricing. In light of these comments, we clarify that for the 2021 
benefit year and beyond, we are finalizing payment parameters that 
depend on NHEA data, including the premium adjustment percentage and 
required contribution percentage, based on the data that are available 
as of the publication of the proposed rule for that benefit year, to 
increase the predictability of benefit design. These payment parameters 
include the premium adjustment percentage, the maximum annual 
limitation on cost sharing, the reduced maximum annual limitations on 
cost sharing for silver plan variations, and the required contribution 
percentage. We are finalizing a premium adjustment percentage for the 
2021 benefit year at 1.3542376277, as proposed.
    Comment: All commenters on this proposal expressed concern with the 
rate of increase in the PAPI and related payment parameters. Many 
commenters specifically opposed the use of a premium measure that 
includes individual market premium changes, on

[[Page 29229]]

the grounds that the use of that measure would lead to more rapid 
increases in consumer costs than the ESI-only premium measure utilized 
to calculate the PAPI prior to the 2020 benefit year. Commenters 
expressed concerns that more rapid increases in the premium adjustment 
percentage would lead to lower enrollment. We also received two 
comments suggesting caps to the PAPI such that, if we maintain the 
current measure, we should cap the PAPI to a maximum 3 percent annual 
increase or that we should revise the calculation to allow for a few 
years of transition between the ESI-only premium measure and premium 
measures that include individual market premiums.
    Response: As stated earlier in this preamble, we are finalizing the 
proposed value of the premium adjustment percentage, using the measure 
of premium growth that accounts for individual market health insurance 
premiums, as well as employer-sponsored insurance that we finalized in 
the 2020 Payment Notice, based on the data available at the time of the 
proposal. We believe that a measure that incorporates employer-
sponsored insurance as well as individual market premiums is an 
appropriate, comprehensive measure of premium growth as discussed in 
the 2020 Payment Notice.\141\ As such, we will continue to calculate 
the premium adjustment percentage using NHEA projections of per 
enrollee premiums for private health insurance (excluding Medigap and 
property and casualty insurance).
---------------------------------------------------------------------------

    \141\ See 84 FR 17454 at 17540.
---------------------------------------------------------------------------

(1) Maximum Annual Limitation on Cost Sharing for Plan Year 2021
    We proposed to increase the maximum annual limitation on cost 
sharing for the 2021 benefit year based on the proposed value 
calculated for the premium adjustment percentage for the 2021 benefit 
year. Under Sec.  156.130(a)(2), for the 2021 calendar year, cost 
sharing for self-only coverage may not exceed the dollar limit for 
calendar year 2014 increased by an amount equal to the product of that 
amount and the premium adjustment percentage for 2021. For other than 
self-only coverage, the limit is twice the dollar limit for self-only 
coverage. Under Sec.  156.130(d), these amounts must be rounded down to 
the next lowest multiple of $50.
    Using the premium adjustment percentage of 1.3542376277 for 2021 as 
proposed, and the 2014 maximum annual limitation on cost sharing of 
$6,350 for self-only coverage, which was published by the IRS on May 2, 
2013,\142\ we proposed that the 2021 maximum annual limitation on cost 
sharing would be $8,550 for self-only coverage and $17,100 for other 
than self-only coverage. This represents an approximately 4.9 percent 
increase above the 2020 parameters of $8,150 for self-only coverage and 
$16,300 for other than self-only coverage. We solicited comment on this 
proposal.
---------------------------------------------------------------------------

    \142\ See Revenue Procedure 2013-25, 2013-21 IRB 1110. http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

    After reviewing public comments, we are finalizing the maximum 
annual limitation on cost sharing values at $8,550 for self-only 
coverage and $17,100 for other than self-only coverage, as proposed. 
The following is a summary of the public comments we received on the 
maximum annual limitation on cost sharing.
    Comment: Some commenters requested that HHS work with the IRS to 
align the maximum annual limitation on cost sharing we publish based on 
the PAPI and the maximum out-of-pocket value the IRS publishes 
regarding high-deductible health plans (HDHPs). These commenters are 
concerned that differences between the two maximum out-of-pocket values 
would prevent issuers from offering HDHPs that will allow individuals 
to contribute to health savings accounts (HSAs) as bronze plans.
    Response: We recognize that the different requirements published by 
the IRS and by HHS may result in some issuers being unable to offer 
HSA-eligible HDHPs, in accordance with sections 223(c) and (g) of the 
Code, within the actuarial value range for bronze metal level plans. 
IRS and HHS are required to follow separate statutes for the maximum 
annual limitation on cost sharing. The calculation for the maximum 
annual limitation on cost sharing published by HHS is mandated by 
section 1302(c)(1) of the PPACA and depends on the premium adjustment 
percentage defined by section 1302(c)(4) of the PPACA as a measure of 
growth in average per capita premiums. The annual updates to the HDHP 
maximum out-of-pocket published by the IRS, however, are mandated by 
section 223(g) of the Code and depend on a cost-of-living adjustment 
defined as a measure of growth in the Chained Consumer Price Index for 
all Urban Consumers by section 1(f)(3) of the Code. HHS will continue 
to adhere to the calculation of the maximum annual limitation on cost 
sharing mandated by the PPACA.
b. Reduced Maximum Annual Limitation on Cost Sharing (Sec.  156.130)
    We proposed to continue to use the method we established in the 
2014 Payment Notice for determining the appropriate reductions in the 
maximum annual limitation on cost sharing for cost-sharing plan 
variations to serve enrollees at three ranges of household income below 
250 percent of the federal poverty level (FPL). We are finalizing the 
reductions in the maximum annual limitation on cost sharing as 
proposed.
    Sections 1402(a) through (c) of the PPACA direct issuers to reduce 
cost sharing for EHBs for eligible individuals enrolled in a silver-
level QHP. In the 2014 Payment Notice, we established standards related 
to the provision of these CSRs. Specifically, in part 156, subpart E, 
we specified that QHP issuers must provide CSRs by developing plan 
variations, which are separate cost-sharing structures for each 
eligibility category that change how the cost sharing required under 
the QHP is to be shared between the enrollee and the Federal 
Government. At Sec.  156.420(a), we detailed the structure of these 
plan variations and specified that QHP issuers must ensure that each 
silver-plan variation has an annual limitation on cost sharing no 
greater than the applicable reduced maximum annual limitation on cost 
sharing specified in the annual HHS notice of benefit and payment 
parameters. Although the amount of the reduction in the maximum annual 
limitation on cost sharing is specified in section 1402(c)(1)(A) of the 
PPACA, section 1402(c)(1)(B)(ii) of the PPACA states that the Secretary 
may adjust the cost-sharing limits to ensure that the resulting limits 
do not cause the AV of the health plans to exceed the levels specified 
in section 1402(c)(1)(B)(i) of the PPACA (that is, 73 percent, 87 
percent, or 94 percent, depending on the income of the enrollee).
    As we proposed, the 2021 maximum annual limitation on cost sharing 
would be $8,550 for self-only coverage and $17,100 for other than self-
only coverage. We analyzed the effect on AV of the reductions in the 
maximum annual limitation on cost sharing described in the statute to 
determine whether to adjust the reductions so that the AV of a silver 
plan variation will not exceed the AV specified in the statute. In the 
proposed rule, we described our analysis for the 2021 plan year and our 
proposed results.

[[Page 29230]]

(1) Analysis for Determining the Reduced Maximum Annual Limitation on 
Cost Sharing
    Consistent with our analysis in the 2014 through 2020 Payment 
Notices, we developed three test silver level QHPs, and analyzed the 
impact on AV of the reductions described in the PPACA to the proposed 
estimated 2021 maximum annual limitation on cost sharing for self-only 
coverage ($8,550). The test plan designs are based on data collected 
for 2020 plan year QHP certification to ensure that they represent a 
range of plan designs that we expect issuers to offer at the silver 
level of coverage through the Exchanges. For 2021, the test silver 
level QHPs included a PPO with typical cost-sharing structure ($8,550 
annual limitation on cost sharing, $2,650 deductible, and 20 percent 
in-network coinsurance rate); a PPO with a lower annual limitation on 
cost sharing ($6,800 annual limitation on cost sharing, $3,000 
deductible, and 20 percent in-network coinsurance rate); and an HMO 
($8,550 annual limitation on cost sharing, $4,375 deductible, 20 
percent in-network coinsurance rate, and the following services with 
copayments that are not subject to the deductible or coinsurance: $500 
inpatient stay per day, $500 emergency department visit, $30 primary 
care office visit, and $55 specialist office visit). All three test 
QHPs meet the AV requirements for silver level health plans.
    We then entered these test plans into the draft version of the 2021 
AV Calculator \143\ and observed how the reductions in the maximum 
annual limitation on cost sharing specified in the PPACA affected the 
AVs of the plans. We found that the reduction in the maximum annual 
limitation on cost sharing specified in the PPACA for enrollees with a 
household income between 100 and 150 percent of FPL (\2/3\ reduction in 
the maximum annual limitation on cost sharing), and 150 and 200 percent 
of FPL (\2/3\ reduction), would not cause the AV of any of the model 
QHPs to exceed the statutorily specified AV levels (94 and 87 percent, 
respectively).
---------------------------------------------------------------------------

    \143\ Available at https://www.cms.gov/cciio/resources/
regulations-and-guidance/index.
---------------------------------------------------------------------------

    In contrast, the reduction in the maximum annual limitation on cost 
sharing specified in the PPACA for enrollees with a household income 
between 200 and 250 percent of FPL (\1/2\ reduction), would cause the 
AVs of two of the test QHPs to exceed the specified AV level of 73 
percent. As a result, we proposed that the maximum annual limitation on 
cost sharing for enrollees with a household income between 200 and 250 
percent of FPL be reduced by approximately \1/5\, rather than \1/2\, 
consistent with the approach taken for benefit years 2017 through 2019. 
We further proposed that the maximum annual limitation on cost sharing 
for enrollees with a household income between 100 and 200 percent of 
FPL be reduced by approximately \2/3\, as specified in the statute, and 
as shown in Table 4.
    The proposed reductions in the maximum annual limitation on cost 
sharing must adequately account for unique plan designs that may not be 
captured by our three model QHPs. We also noted that selecting a 
reduction for the maximum annual limitation on cost sharing that is 
less than the reduction specified in the statute would not reduce the 
benefit afforded to enrollees in the aggregate because QHP issuers are 
required to further reduce their annual limitation on cost sharing, or 
reduce other types of cost sharing, if the required reduction does not 
cause the AV of the QHP to meet the specified level.
    In prior years we found, and we continue to find, that for 
individuals with household incomes of 250 to 400 percent of FPL, 
without any change in other forms of cost sharing, the statutory 
reductions in the maximum annual limitation on cost sharing will cause 
an increase in AV that exceeds the maximum 70 percent level in the 
statute. As a result, we did not propose to reduce the maximum annual 
limitation on cost sharing for individuals with household incomes 
between 250 and 400 percent of FPL. We solicited comment on this 
analysis and the proposed reductions in the maximum annual limitation 
on cost sharing for 2021.
    We note that for 2021, as described in Sec.  156.135(d), states are 
permitted to submit for HHS approval state-specific datasets for use as 
the standard population to calculate AV. No state submitted a dataset 
by the September 1, 2019 deadline.

                    Table 4--Reductions in Maximum Annual Limitation on Cost Sharing for 2021
----------------------------------------------------------------------------------------------------------------
                                                                                         Reduced maximum  annual
                                                                Reduced maximum  annual     limitation on cost
                     Eligibility category                          limitation on cost     sharing for other than
                                                                 sharing for self-only   self-only coverage  for
                                                                   coverage for 2021               2021
----------------------------------------------------------------------------------------------------------------
Individuals eligible for CSRs under Sec.   155.305(g)(2)(i)                      $2,850                   $5,700
 (100-150 percent of FPL).....................................
Individuals eligible for CSRs under Sec.   155.305(g)(2)(ii)                      2,850                    5,700
 (151-200 percent of FPL).....................................
Individuals eligible for CSRs under Sec.   155.305(g)(2)(iii)                     6,800                   13,600
 (201-250 percent of FPL).....................................
----------------------------------------------------------------------------------------------------------------

    We received no comments on the reductions in the maximum 
limitations on cost sharing apart from those already discussed in this 
preamble. As such, we are finalizing the 2021 values as proposed 
(reproduced in Table 4).

c. Cost-Sharing Requirements (Sec.  156.130)

    We proposed to revise Sec.  156.130(h) to provide that, 
notwithstanding any other provision on the annual limitation on cost 
sharing, and to the extent consistent with applicable state law, 
amounts paid toward reducing the cost sharing incurred by an enrollee 
using any form of direct support offered by drug manufacturers to 
enrollees for specific prescription drugs are permitted, but not 
required, to be counted toward the annual limitation on cost sharing. 
We also proposed to interpret the definition of cost sharing to exclude 
expenditures covered by direct drug manufacturer support. We are 
generally finalizing the policy as proposed with a minor revision to 
the title of the regulatory provision to reflect its application to all 
forms of direct support provided by drug manufacturers, which include 
coupons for specific prescription drugs. However, we are not finalizing 
the proposed interpretation of the definition of cost sharing to 
exclude these amounts from that term.

[[Page 29231]]

    In the 2020 Payment Notice at Sec.  156.130(h)(1), we finalized 
that, for plan years beginning on or after January 1, 2020, 
notwithstanding any other provision of Sec.  156.130, and to the extent 
consistent with applicable state law, amounts paid toward cost sharing 
using any form of direct support offered by drug manufacturers to 
enrollees to reduce or eliminate immediate out-of-pocket costs for 
specific prescription brand drugs that have an available and medically 
appropriate generic equivalent are not required to be counted toward 
the annual limitation on cost sharing. In that rule, we expressed 
concern that market distortion can exist when a consumer selects a 
higher-cost brand name drug when an equally effective generic drug is 
available.
    Since finalizing Sec.  156.130(h)(1) in that rule, we received 
feedback indicating confusion about whether it requires plans and 
issuers to count the value of all forms of direct support provided by 
drug manufacturers, including drug manufacturers' coupons, toward the 
annual limitation on cost sharing, other than in circumstances in which 
there is a medically appropriate generic equivalent available, 
particularly with regard to large group market and self-insured group 
health plans. On August 26, 2019, HHS and the Departments of Labor and 
the Treasury released FAQ Part 40,\144\ acknowledging the confusion 
among stakeholders and the possibility that the requirement could 
create a conflict with certain rules for HDHPs that are intended to 
allow eligible individuals to establish an HSA.
---------------------------------------------------------------------------

    \144\ Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-40.pdf.
---------------------------------------------------------------------------

    Specifically, Q&A-9 of IRS Notice 2004-50 \145\ states that the 
provision of drug discounts will not disqualify an individual from 
being an eligible individual if the individual is responsible for 
paying the costs of any drugs (taking into account the discount) until 
the deductible under the HDHP is satisfied. Thus, Q&A-9 of IRS Notice 
2004-50 requires an HDHP to disregard drug discounts and other 
manufacturer and provider discounts when determining if the deductible 
for an HDHP has been satisfied, and only allows amounts actually paid 
by the individual to be taken into account for that purpose. Therefore, 
an issuer or sponsor of an HDHP could be put in the position of 
complying with either the requirement under the 2020 Payment Notice for 
limits on cost sharing in the case of direct support provided by drug 
manufacturers for a brand name drug with no available or medically 
appropriate generic equivalent or the IRS rules for minimum deductibles 
for HDHPs, but potentially being unable to comply with both rules 
simultaneously.\146\
---------------------------------------------------------------------------

    \145\ 2004-2 C.B. 196, available at https://www.irs.gov/pub/irs-drop/n-04-50.pdf.
    \146\ FAQs About Affordable Care Act Implementation Part 40. 
August 26, 2019. Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-40.pdf and https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-40.
---------------------------------------------------------------------------

    Accordingly, in FAQ Part 40, we explained that we intended to 
undertake rulemaking in the HHS Notice of Benefit and Payment 
Parameters for 2021, in consultation with the Departments of Labor and 
the Treasury to address the conflict, and that until the 2021 Payment 
Notice is issued and effective, the Departments will not initiate an 
enforcement action if an issuer of group or individual health insurance 
coverage or a group health plan excludes the value of direct support 
provided by drug manufacturers from the annual limitation on cost 
sharing, including in circumstances in which there is no medically 
appropriate generic equivalent available.
    In the proposed rule, we proposed to revise Sec.  156.130(h) in its 
entirety to provide that, notwithstanding any other provision of the 
annual limitation on cost sharing regulation, and to the extent 
consistent with applicable state law, amounts paid toward reducing the 
cost sharing incurred by an enrollee using any form of direct support 
offered by drug manufacturers to enrollees for specific prescription 
drugs are permitted, but not required, to be counted toward the annual 
limitation on cost sharing. Under the proposal, plans and issuers would 
have the flexibility to determine whether to include or exclude dollar 
amounts of direct support provided by drug manufacturers from the 
annual limitation on cost sharing, regardless of whether a generic 
equivalent is available, when otherwise consistent with applicable 
requirements.
    We also proposed to interpret the definition of cost sharing to 
exclude expenditures covered by drug manufacturer coupons, without 
proposing any changes to the regulatory definition of cost sharing 
under Sec.  155.20. Under the proposed interpretation, the value of the 
direct support provided by drug manufacturers would not be required to 
count towards the annual limitation on cost sharing.
    Section 1302(c)(3)(A) of the PPACA defines the term cost sharing to 
include: (1) Deductibles, coinsurance, copayments, or similar charges; 
and (2) any other expenditure required of an insured individual which 
is a qualified medical expense \147\ with respect to EHB covered under 
the plan. Section 1302(c)(1) of the PPACA states that the cost sharing 
incurred under a health plan shall not exceed the annual limitation on 
cost sharing. We explained that, under the proposed interpretation, 
direct support provided by drug manufacturers, including coupon 
amounts, would be viewed as reducing the costs incurred by an enrollee 
under the health plan because they would reduce the amount that the 
enrollee is required to pay in order to obtain coverage for the drug. 
The value of the coupon would not be considered a cost incurred by or 
charged to the enrollee; thus, we explained its value would not be 
required to count toward the annual limitation on cost sharing.
---------------------------------------------------------------------------

    \147\ As defined in section 223(d)(2) of the Code.
---------------------------------------------------------------------------

    Under this proposed interpretation, and to the extent consistent 
with applicable state law, we sought to provide issuers of non-
grandfathered individual and group market coverage, and all non-
grandfathered group health plans subject to section 2707(b) of the PHS 
Act, flexibility to determine whether to include or exclude amounts of 
direct support provided by drug manufacturers from the annual 
limitation on cost sharing, regardless of whether a medically 
appropriate generic equivalent is available.\148\ The proposal would 
enable issuers and group health plans to continue longstanding 
practices with regard to how and whether direct drug manufacturer 
support accrues towards an enrollee's annual limitation on cost 
sharing.\149\
---------------------------------------------------------------------------

    \148\ We note that an issuer or group health plan that elects to 
credit direct drug manufacturer support amounts toward the minimum 
deductible of an HDHP could disqualify an individual from making HSA 
contributions, pursuant to Q&A-9 of Notice 2004-50.
    \149\ The annual limitation on cost sharing under section 
1302(c)(1) of the PPACA is applied to non-grandfathered group health 
plans by section 2707(b) of the PHS Act, which is incorporated by 
reference into ERISA and the Code. Therefore, we generally refer to 
both issuers and group health plans when describing the policy 
regarding the annual limitation on cost sharing in this section of 
the preamble.
---------------------------------------------------------------------------

    As noted, the proposal would also afford issuers of non-
grandfathered individual and group market coverage, and all non-
grandfathered group health plans subject to section 2707(b) of the PHS 
Act, the same opportunity as under the current Sec.  156.130(h)(1) to 
incentivize generic drug usage by excluding the amounts of direct drug 
manufacturer support for brand name drugs from the annual limitation on 
cost sharing when a medically appropriate generic equivalent is 
available. We

[[Page 29232]]

stated that we expect issuers and group health plans to be transparent 
with enrollees and prospective enrollees regarding whether the value of 
direct drug manufacturer support accrues to the annual limitation on 
cost sharing as such policies would affect enrollees' out-of-pocket 
liability under their plans. We also stated we would expect issuers to 
prominently include this information on websites and in brochures, plan 
summary documents, and other collateral material that consumers may use 
to select, plan, and understand their benefits.
    We received many comments on this proposal.
    Comment: Some commenters supported the proposed policy, noting that 
the policy would give health insurance issuers and group health plans 
increased flexibility to address the cost of brand name drugs and lower 
the cost of health insurance overall. Others supported the proposal's 
deference to state law, regulations, and guidance on whether drug 
manufacturer support accrues towards the annual limitation on cost 
sharing. One commenter recommended that the regulation text be revised 
to require that all drug manufacturer financial assistance be treated 
the same way, whether provided directly or through a surrogate 
organization.
    Numerous commenters and individuals opposed permitting insurers to 
exclude direct support from drug manufacturers from amounts enrollees 
have paid toward the annual limitation on cost sharing. These 
commenters urged HHS not to finalize the proposal, and to leave the 
policy established in the 2020 Payment Notice. These commenters 
asserted that the proposal is in direct opposition to the 
administration's stated goals of reducing drug prices for patients. 
Additionally, they expressed concern that patient costs would increase 
dramatically, which could lead to greater non-adherence to medications 
and ultimately impact the life and health of patients.
    Response: For the reasons stated in the proposed rule, and as 
further described in responses to comments in this subsection of the 
preamble, we are generally finalizing this policy as proposed, except 
we are making a non-substantive change to the title of the regulatory 
provision to ``Use of direct support offered by drug manufacturers'' 
and are not finalizing the proposed interpretation of the definition of 
cost sharing to exclude expenditures covered by direct drug 
manufacturer support.
    We agree with commenters who supported the provision of the policy 
that states it is only effective to the extent consistent with state 
law. As finalized, Sec.  156.130(h) provides states with the 
flexibility to promulgate rules that would require direct drug 
manufacturer support amounts to be counted by health insurance issuers 
towards the annual limitation on cost sharing. To the extent states 
want to require health insurance issuers to count direct drug 
manufacturer support amounts towards the annual limitation on cost 
sharing, they can do so when such action would be consistent with other 
applicable laws and rules (for example, federal non-discrimination 
requirements). At the same time, however, states also have flexibility 
to promulgate rules that would mandate exclusion of such amounts from 
the annual limitation on cost sharing.
    We appreciate commenters' concerns that the proposal could raise 
out-of-pocket costs for consumers who use brand name drugs. However, we 
believe the impact of such costs may be limited if issuers that 
currently allow these amounts to be counted toward enrollees' 
deductibles or their annual limitation on cost sharing continue their 
current behavior, which we believe will be the case. \150\ As stated in 
the proposed rule, the flexibility provided under this policy will 
enable issuers and group health plans to continue longstanding 
practices with regard to how and whether direct drug manufacturer 
support accrues towards an enrollee's annual limitation on cost 
sharing. Prior to the 2020 Payment Notice, federal rules did not 
explicitly state whether issuers and group health plans had the 
flexibility to determine how to factor in direct drug manufacturer 
support amounts towards the annual limitation on cost sharing. While 
the policy finalized in the 2020 Payment Notice may have caused 
confusion, FAQ Part 40, released in August 2019, provided issuers and 
group health plans with sufficient notice that issuers and group health 
plans may choose to maintain their existing plan designs for plan year 
2020. This final rule, combined with FAQ Part 40, ensures that issuers 
and group health plans need not make changes to how they have 
historically handled direct drug manufacturer support amounts. Issuers 
and group health plans will continue to have flexibility, subject to 
state law and other applicable requirements (if any), to determine if 
and how to factor in direct drug manufacturer support amounts towards 
the annual limitation on cost sharing. Longstanding practices of 
including these amounts towards the annual limitation on cost sharing 
can continue. Although, consistent with the Administration's efforts to 
combat high and rising out-of-pocket costs for prescription drugs, we 
continue to encourage issuers to find innovative methods to address the 
market distortion that occurs when consumers select a higher-cost brand 
name drug over an equally effective, medically appropriate generic 
drug. This includes, to the extent consistent with state law and other 
applicable requirements, leveraging the flexibility to exclude direct 
drug manufacturer support amounts from the annual limitation on cost 
sharing, given the market distortive effects such support can cause. We 
do not expect any significant increases in patient costs or non-
adherence to medications if issuers choose to continue their current 
behavior. Therefore, we believe the impact to consumers will be minimal 
if issuers choose to continue their current behavior.
---------------------------------------------------------------------------

    \150\ In fact, no comments submitted by the health insurance 
industry on this policy in the 2021 Payment Notice proposed rule 
expressed a desire to change their current practices.
---------------------------------------------------------------------------

    While we believe it is unlikely that issuers will choose to change 
their longstanding practices, we acknowledge the possibility that some 
issuers or group health plans may make changes to their plan designs to 
exclude direct drug manufacturer support amounts from the annual 
limitation on cost sharing. In these limited circumstances, consumers 
enrolled in such plans may see changes to their plan design, such as 
changes to formulary designs or cost-sharing structures, which may 
increase or decrease their out-of-pocket costs for a specific 
prescription drug. Given the multitude of variables and considerations 
that are out of HHS's control, we cannot project this burden with 
sufficient certainty. For issuers and group health plans that do make 
changes to their longstanding practices, we continue to encourage 
transparency with regard to changes in how direct drug manufacturer 
support amounts count towards the annual limitation on cost sharing. 
For example, we encourage issuers to prominently include this 
information on websites and in brochures, plan summary documents, and 
other collateral material that consumers may use to select, plan, and 
understand their benefits. If we find that such transparency is not 
provided, HHS may consider future rulemaking to require that issuers 
provide this information in plan documents and collateral material. We 
also remind issuers that when determining if and how to factor in 
direct drug

[[Page 29233]]

manufacturer support amounts towards the annual limitation on cost 
sharing, such policies must apply in a uniform, non-discriminatory 
manner.\151\ Lastly, while we did not propose and are not finalizing 
policies regarding indirect drug manufacturer support of specific 
drugs, we do intend to continue to monitor the impact of such support.
---------------------------------------------------------------------------

    \151\ See, for example, 45 CFR 146.121, 147.104(e), 147.110, 
156.125, and 156.225, as applicable.
---------------------------------------------------------------------------

    Comment: Some commenters supported the policy, stating that it 
ensures the viability of HSAs that may be paired with HDHPs. Opposing 
commenters expressed concern that HHS's rationale for choosing not to 
maintain and enforce the rule as finalized in the 2020 Payment Notice 
is based on a misinterpretation of Q&A 9 of IRS Notice 2004-50 and that 
no conflict exists. Several commenters questioned whether the scenario 
described in Q&A 9 of IRS Notice 2004-50 referenced in the proposed 
rule applies to direct drug manufacturer support. One commenter noted 
that a ``discount card'' is separate and distinct from a drug maker 
coupon, traditionally used in lieu of health insurance, and therefore, 
was excluded from the calculation of annual deductibles when the IRS 
issued Notice 2004-50. This commenter also noted that copay assistance 
from a drug maker has traditionally counted toward annual deductibles 
and out-of-pocket limits, and therefore, it is highly unlikely that the 
IRS was referring to drug manufacturers' coupons in its notice.
    Many commenters requested that HHS clarify that the rule does not 
conflict with rules relating to HDHPs with HSAs. Many commenters also 
noted that the 2020 Payment Notice could not conflict with IRS Notice 
2004-50 because it is explicitly described as ``guidance on Health 
Savings Accounts,'' and therefore, does not carry the force of law. One 
commenter noted that in section 223(c)(2) of the Code, which defines 
the term ``high deductible health plan,'' that there was no mention in 
the statute of precisely who must bear the cost of the established 
deductible, nor any requirement that assistance with cost sharing, from 
any party, be excluded from the deductible.
    Another commenter was concerned that health plans could 
misinterpret these statements to mean that HHS is directing them to 
exclude manufacturer assistance from patient cost-sharing limits, which 
could accelerate a trend toward ``accumulator adjustment programs,'' 
which are utilization management tools pharmacy benefit managers and 
health plans may use that exclude copay assistance from counting toward 
a patient's deductible or annual limitation on cost sharing.
    Response: As explained in FAQ Part 40, since publication of the 
2020 Payment Notice, the Departments received feedback indicating there 
was confusion about whether the HHS policy finalized in the 2020 
Payment Notice required plans and issuers to count the value of drug 
manufacturers' coupons toward the annual limitation on cost sharing, 
other than in circumstances in which there is a medically appropriate 
generic equivalent available, particularly with regard to large group 
market and self-insured group health plans. The Departments considered 
the information provided by stakeholders and agreed that the federal 
standards regarding the application of drug manufacturers' coupons to 
the annual limitation on cost sharing was ambiguous. FAQ Part 40 also 
explained that the Departments would not initiate an enforcement action 
if an issuer of group or individual health insurance coverage or a 
group health plan excludes the value of direct support provided by drug 
manufacturers from the annual limitation on cost sharing. In the 
proposed rule and this final rule, we seek to clarify the HHS policy 
and address the confusion, including the potential conflict, identified 
by stakeholders.
    Since its enactment, section 223 of the Code has provided that 
individuals covered by an HDHP may not have medical expenses paid by 
other coverage prior to satisfying the deductible and remain eligible 
to contribute to an HSA (with certain limited exceptions, such as 
preventive care or disregarded coverage). There is no requirement that 
individuals covered by an HDHP exclusively pay for medical expenses 
they incur before meeting the deductible (and so, for example, family 
members may provide assistance as a gift to the individual, which may 
include paying for medical expenses on behalf of the individual). 
However, the HDHP is not permitted to credit the deductible in a manner 
that does not reflect the actual cost of medical care to the 
individual.
    Whether or not this principle is directly applicable to a 
particular arrangement, it is consistent with the guidance provided in 
IRS Notice 2004-50. If a third party involved in the provision of a 
service or product that resulted in the medical expense, such as a drug 
manufacturer, has arranged for a rebate or discount for the individual 
tied to the individual incurring the medical expense, whether via a 
drug discount card or a drug coupon, the true economic cost to the 
individual is the net amount incurred. Accordingly, to meet the 
requirements of section 223 of the Code, an HDHP may only take into 
account that net amount when determining whether the individual has 
satisfied the deductible. Therefore, a conflict between the HHS policy 
finalized in the 2020 Payment Notice and the provisions of section 223 
of the Code and IRS guidance may exist for issuers who elect to include 
drug manufacturer support amounts towards the consumer's deductible and 
annual limitation on cost sharing if the consumer is enrolled in an 
HDHP coupled with an HSA. In addition, stakeholders expressed confusion 
about these issues and the possibility that the HHS policy on the 
annual limitation on cost sharing could create a conflict with certain 
IRS rules. For example, stakeholders raised questions related to 
certain administrative issues related to how to determine and apply the 
net amount to the deductible when an individual receives this type of 
payment. The Department of the Treasury and the IRS continue to review 
the comments from stakeholders on the IRS rules on HDHPs to determine 
if additional guidance would assist in lowering plan burdens while 
still ensuring the deductible is applied in compliance with the 
requirements of section 223 of the Code. In this rule, we clarify that 
the HHS policy on the annual limitation on cost sharing is intended to 
provide maximum flexibility and allow issuers to avoid this type of 
conflict for those situations where it may arise.
    Under the policy finalized in this rule, issuers have flexibility, 
when consistent with state law, to determine if and how to factor in 
direct drug manufacturer support amounts towards the annual limitation 
on cost sharing, subject to applicable requirements such as federal 
non-discrimination laws.
    Finally, HHS further clarifies that, under the policy finalized in 
this rule, issuers and group health plans remain free to continue 
longstanding policies with regard to how direct drug manufacturer 
support accrues towards accumulators. We do not require and are not 
directing issuers and group health plans to any specific practice with 
regards to how these amounts are treated with respect towards 
accumulators. However, recognizing the market distortion effects 
related to direct drug manufacturer support amounts when consumers 
select a higher-cost brand name drug over an equally effective, 
medically appropriate generic drug and as part of our efforts

[[Page 29234]]

to combat the high and rising out-of-pocket costs for prescription 
drugs, we encourage issuers and group health plans to consider the 
flexibility to exclude these amounts from the annual limitation on cost 
sharing as one tool that could be used to address these concerns.
    Comment: Multiple commenters expressed concern about our 
interpretation of the term ``cost sharing.'' Most commenters found the 
interpretation of cost sharing in the proposed rule to be inconsistent 
with the definition of ``cost sharing'' in 45 CFR 155.20, which 
provides that ``cost sharing means any expenditure required by or on 
behalf of an enrollee with respect to essential health benefits.'' 
Commenters argued that drug manufacturer coupons offered on behalf of 
plan enrollees fall within the definition of cost sharing. One 
commenter noted the proposed rule failed to acknowledge that many other 
forms of patient assistance exist beyond direct drug manufacturer 
support, such as crowdfunding amounts, durable medical equipment (DME) 
manufacturer support, and waived medical debt, and thus failed to 
explain why the proposal singles out direct drug manufacturer 
assistance, or to explain how the policy, more broadly applied, would 
impact these other types of assistance.
    Response: After consideration of comments, we are not finalizing 
the proposed interpretation to exclude expenditures covered by drug 
manufacturer coupons and other drug manufacturer direct support from 
the definition of cost sharing at 45 CFR 155.20. Excluding such amounts 
from the federal definition of cost sharing would be inconsistent with 
the flexibility we are seeking to provide to issuers in this rulemaking 
and could be seen as a barrier for issuers who want to include these 
amounts towards a consumer's annual limitation on cost sharing when 
otherwise consistent with applicable federal and state requirements.
    As some commenters noted, drug manufacturer coupons offered to plan 
enrollees can be interpreted as falling within the existing definition 
of cost sharing. More specifically, ``cost sharing,'' as defined at 
section 1302(c)(3)(A) of PPACA and implemented at Sec.  155.20, are 
expenditures required by or on behalf of an enrollee with respect to 
EHB, and include deductibles, coinsurance, copayments or similar 
charges. The value of the direct drug manufacturer support can be 
considered part of the overall charges incurred by the enrollee as the 
consumer cannot obtain the drug without providing the full amount owed. 
For example, if a consumer is responsible for a $50 co-pay for a brand 
name drug, the consumer cannot obtain the drug at the point of sale 
without providing the full $50 (whether with $50 cash, or $30 cash with 
the $20 coupon). At the same time, however, as stated in the proposed 
rule, the value of the direct drug manufacturer support could be viewed 
as not representing costs incurred by or charged to enrollees. Instead, 
such amounts could be viewed as representing a reduction, by drug 
manufacturers, in the amount that the enrollee is required to pay at 
the point of sale in order to obtain the drug. We have therefore 
determined that the term ``cost sharing'' is subject to interpretation 
regarding whether these amounts fall under this definition. To provide 
maximum flexibility for states and issuers to decide if and how to 
factor in direct drug manufacturer support amounts towards the annual 
limitation on cost sharing, we are not finalizing the proposed 
interpretation to exclude such amounts from the definition of cost 
sharing.
    For issuers who elect to include these amounts towards a consumer's 
annual limitation on cost sharing, the value of direct drug 
manufacturer support would be considered part of the overall charges 
incurred by the enrollee. For issuers who elect to not count these 
amounts towards the consumer's annual limitation on cost sharing, the 
value of the direct drug manufacturer support would be considered a 
reduction in the amount that the enrollee incurs or is required to pay. 
As we explained above, when determining if and how to factor in direct 
drug manufacturer support amounts towards the annual limitation on cost 
sharing, issuers must apply such policies in a uniform, non-
discriminatory manner. In addition, issuers should be clear and 
transparent in communications with enrollees and prospective enrollees 
regarding whether the value of drug manufacturer support accrues to the 
annual limitation on cost sharing. We encourage issuers to prominently 
include this information on websites and in brochures, plan summary 
documents, and other collateral material that consumers may use to 
select, plan, and understand their benefits.
    We also disagree with comments that the proposed rule did not 
adequately explain the policy or the rationale for tailoring this 
policy to direct support provided by drug manufacturers. We explained 
in the proposed rule that the flexibility afforded under this policy 
was proposed specifically to address market distortion caused by direct 
support, including coupons, from drug manufacturers. As we explained in 
the 2020 Payment Notice proposed rule, we recognize that copayment 
support may help enrollees by encouraging adherence to existing 
medication regimens, particularly when copayments may be unaffordable 
to many patients.\152\ However, the availability of a coupon or other 
direct support may cause physicians and enrollees to choose an 
expensive brand-name drug when a less expensive and equally effective 
generic or other alternative is available. When consumers are relieved 
of copayment obligations, manufacturers are relieved of a market 
constraint on drug prices which can distort the market and the true 
cost of drugs. Such direct support from drug manufacturers can add 
significant long-term costs to the health care system. In some cases, 
this direct support may be increasing overall drug costs and can lead 
to unnecessary spending by issuers, which is passed on to all patients 
in the form of increased premiums and reduced coverage of other 
potentially useful health care interventions. Further, the 
Administration has identified high and rising out-of-pocket costs for 
prescription drugs, among other issues, as a challenge to consumers. 
For these reasons, we pursued a policy that was focused on direct drug 
manufacturer support. We currently have no evidence that the other 
types of support identified by the commenter (for example, crowdfunding 
amounts, waived medical debt, or support toward the purchase of DME) 
has similar distortive effects on the market as manufacturer support 
for brand name prescription drugs.\153\ Further, we are unaware of any 
DME providers that provide financial incentives to compete with 
`generic' versions of their product. Thus, we did not propose and are 
not finalizing cost sharing policies regarding such amounts, but will 
monitor them and their potential impact on the market for potential 
future rulemaking.
---------------------------------------------------------------------------

    \152\ See 84 FR 227 at 290-291.
    \153\ HHS previously identified concerns with respect to cost-
sharing support from hospitals, other healthcare providers and other 
commercial entities. See, for example, https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/third-party-qa-11-04-2013.pdf. We also continue to monitor these practices and their 
impact on the market for potential further action, if necessary.
---------------------------------------------------------------------------

    Comment: Several commenters appreciated the recommendation that 
issuers and group health plans consider adopting the practice of 
excluding any value an enrollee may obtain from a prescription drug 
manufacturer's cost-sharing assistance program and should

[[Page 29235]]

disclose this practice on all websites, brochures, plan documents and 
other collateral materials. However, numerous commenters expressed 
concern that putting the onus on issuers and group health plans to 
inform the consumer about any policy to not count direct drug 
manufacturer support towards the annual limitation on cost sharing 
limit is inadequate. These commenters recommended that HHS require that 
issuers and group health plans clearly communicate to enrollees in 
their summaries of benefits and coverage and in their summary plan 
descriptions that direct drug manufacturer support does not count 
toward their deductibles or out-of-pocket maximums. One commenter 
opposed placing a new notice requirement on issuers and group health 
plans. An additional commenter noted that any efforts aimed at 
supporting transparency must also include a requirement that drug 
manufacturers fully disclose all direct payments they make on behalf of 
plan enrollees.
    Response: We agree with commenters that it is important for issuers 
and group health plans to be clear and transparent with consumers 
regarding whether direct drug manufacturer support amounts will count 
towards the annual limitation on cost sharing, especially when such 
amounts will not be counted towards the annual limitation on cost 
sharing. This information may be essential for a consumer in deciding 
between plans. However, we did not propose such a requirement in the 
proposed rule and are not finalizing such a requirement in this rule. 
We intend to continue to monitor this issue, including how issuers 
disclose such information and may propose further rulemaking to impose 
robust disclosure requirements if we find that enrollees are not 
provided sufficient information on these practices. Further, while we 
encourage drug pricing transparency among drug manufacturers, we did 
not propose a requirement that drug manufacturers fully disclose all 
direct payments that are made on behalf of plan enrollees, and 
therefore this issue is outside of the scope of this rule.
5. Requirements for Timely Submission of Enrollment Reconciliation Data 
(Sec.  156.265)
    In the Establishment of Exchanges and Qualified Health Plans; 
Exchange Standards interim final rule,\154\ we established standards 
for the collection and transmission of enrollment information. At Sec.  
156.265(f), we set forth standards on the enrollment reconciliation 
process, specifying that issuers must reconcile enrollment with the 
Exchange no less than once a month. Issuers in Exchanges using the 
Federal platform, that is, FFEs and SBE-FP, currently update data 
through ongoing processes collectively referred to as Enrollment Data 
Alignment, which includes 834 transactions, the monthly enrollment 
reconciliation cycle, and two dispute processes (enrollment disputes 
and payment disputes) that are used to make enrollment updates that 
cannot be handled through monthly reconciliation. Issuers offering 
plans through State Exchanges update Exchange data through processes 
designed by the State Exchange.
---------------------------------------------------------------------------

    \154\ See 77 FR 18309 at 18425.
---------------------------------------------------------------------------

    Although the regulations in Sec.  156.265 require issuers to 
reconcile enrollment with the Exchange monthly, they do not specify 
standards for the format or quality of these data exchanges, such as 
the manner in which enrollment updates must be reflected in updates of 
previously submitted enrollment data, or the timeframe in which issuers 
should report data updates and data errors to the Exchange. If QHP 
issuers fail to make or report enrollment updates accurately and 
timely, the accuracy of payment, the accuracy of enrollment data that 
the Exchange has available to address consumer questions, and the 
accuracy of the data reported to consumers on their IRS Forms 1095-A, 
Health Insurance Marketplace Statement, after the end of the coverage 
year could be affected. For example, if an issuer does not regularly 
update its enrollment data to reflect retroactive enrollment changes 
throughout the year, and instead submits large volumes of changes to 
the Exchange well after the plan year has ended, these late changes may 
trigger the mailing of corrected Forms 1095-A to consumers after tax 
season, creating consumer burden and confusion.
    To more explicitly state requirements for issuers in the Exchanges, 
we proposed amending Sec.  156.265(f) to require an issuer to include 
in its enrollment reconciliation submission to the Exchange the most 
recent enrollment information that is available and that has been 
verified to the best of its knowledge or belief. We also proposed to 
amend Sec.  156.265(g) to direct QHP issuers to update their enrollment 
records as directed by the Exchange, and to inform the Exchange if any 
such records contain errors, within 30 days. We believe these 
amendments will encourage more timely reconciliation and error 
reporting, resulting in an improved consumer experience. We stated in 
the proposed rule that, for SBE-FPs, references in this section to the 
``Exchange'' should be understood to mean HHS, as administrator of the 
Federal platform. We sought comments on these proposed amendments.
    After reviewing public comments, we are finalizing amendments to 
the enrollment reconciliation data submission requirements in Sec.  
156.265 as proposed to require an issuer to include in its enrollment 
reconciliation submission to the Exchange the most recent enrollment 
information that is available. HHS looks forward to working with 
issuers on improving the reconciliation process to promote the exchange 
of timely and accurate data between QHP issuers and Exchanges.
    Below, we summarize public comments received on these proposals.
    Comment: Several commenters supported the proposal stating it will 
help improve the enrollment reconciliation process allowing both QHPs 
and Exchanges to have timely and accurate data.
    Response: HHS agrees with these comments and is finalizing the 
policy as proposed.
    Comment: One commenter proposed changes to Sec.  156.265(g)(1) and 
(2). This commenter asked that HHS change the word ``confirm'' to 
``verify'' in Sec.  156.265(g)(1). The commenter was concerned that use 
of the word ``confirm'' could be misunderstood as referring to the 
Confirmation/Effectuation ASC X12 Benefit Enrollment and Maintenance 
(834) file. This commenter also suggested that HHS change the word 
``describe'' in Sec.  156.265(g)(2) to ``resolve for'' as ``describe'' 
does not convey that an issuer has the responsibility to make any 
necessary enrollment updates in issuer systems and electronically send 
corresponding enrollment information to update Exchange records.
    Response: HHS agrees with the recommendation regarding Sec.  
156.265(g)(1) and will amend it to avoid any potential 
misunderstanding. HHS does not agree with the suggested change to 
(g)(2). The suggested ``resolve for'' edit implies that it is entirely 
within the issuer's control. While the issuer needs to report the 
problem, resolving it is a joint process that involves both the issuer 
and the Exchange. However, to address the issuer's concern, we are 
adding the language ``and resolved assigned updates'' to Sec.  
156.265(f) to make it clear that the issuer is responsible for 
resolving assigned updates in its own system during reconciliation.
    Comment: One commenter asked HHS to provide additional 
clarification on issuer responsibilities to send updates

[[Page 29236]]

to the Exchange within 30 days of an enrollment dispute. Another 
commenter recommended that issuers continue submitting monthly files as 
part of the enrollment reconciliation process, but should not be 
penalized for failure to report all errors or changes within 30 days.
    Response: QHP issuers should make their best effort to actively 
monitor their enrollment data for accuracy in real time and to report 
all known data errors and changes to the Exchange within 30 days. If 
QHP issuers fail to make or report enrollment updates accurately and 
timely, the accuracy of payment, the accuracy of enrollment data that 
the Exchange has available to address consumer questions, and the 
accuracy of the data reported to consumers on their IRS Form 1095-As 
after the end of the coverage year could be affected. HHS notes that 
some issuers currently review enrollment and payment data for errors 
after the plan year has ended, leading to late payment and Form 1095-A 
corrections, and therefore, we are making this change to clarify that 
issuers have a responsibility to actively review their data on an 
ongoing basis and report corrections timely to HHS. HHS intends to 
monitor compliance with this requirement as a risk factor for targeting 
issuers for payment audits.
6. Promoting Value-Based Insurance Design
    In this section of the proposed rule, we sought to promote a 
consumer-driven health care system in which consumers are empowered to 
select and maintain health care coverage of their choosing. We proposed 
to offer QHP issuers options to assist them design value-based 
insurance plans that would empower consumers to receive high value 
services at lower cost.
    In the 2017, 2018, and 2019 Payment Notices, we sought comment on 
ways in which HHS can foster market-driven programs that can improve 
the management and costs of care and that provide consumers with 
quality, person-centered coverage. We also sought comment on how we may 
encourage value-based insurance design within the individual and small 
group markets and ways to support issuers in using cost sharing to 
incentivize more cost-effective consumer behavior. We solicited 
comments on how HHS can better encourage these types of plan designs, 
and whether any existing regulatory provisions or practices discourage 
such designs.
    We also previously noted our interest in value-based insurance 
designs that: Focus on cost effective drug tiering structures; address 
overused, higher cost health services; provide innovative network 
design that incentivizes enrollees to use higher quality care; and 
promote use of preventive care and wellness services. In response to 
these comment solicitations, we received many comments supporting HHS's 
efforts to explore ways to encourage innovations and value-based 
insurance design.
    In the proposed rule, we stated that we are pursuing strategies 
that will assist in the uptake and offering of value-based insurance 
design by QHP issuers. Specifically, we outlined a ``value-based'' 
model QHP that contains consumer cost-sharing levels aimed at driving 
utilization of high value services and lowering utilization of low 
value services when medically appropriate.
    Currently, under our rules, issuers have considerable discretion in 
the design of cost-sharing structures, subject to certain statutory AV 
requirements, non-discrimination provisions,\155\ and other applicable 
laws such as the MHPAEA (section 2726 of the PHS Act). We did not 
propose any changes to this flexibility. We are providing additional 
specificity around value-based design and how issuers could opt to 
incorporate such design into their QHPs. Offering a value-based 
insurance design QHP would be voluntary and issuers are encouraged to 
select services and cost sharing that work best for their consumers.
---------------------------------------------------------------------------

    \155\ We note that issuers are also subject to federal civil 
rights laws, including Title VI of the Civil Rights Act. Section 504 
of the Rehabilitation Act, the Age Discrimination Act, section 1557 
of the PPACA, and conscience and religious freedom laws.
---------------------------------------------------------------------------

    Borrowing from work provided by the Center for Value-based 
Insurance Design at the University of Michigan \156\ (the Center), 
Table 5 lists high value services and drugs that an issuer may want to 
consider offering with lower or zero cost sharing. Table 5 also 
includes a list of low value services that issuers should consider 
setting at higher consumer cost sharing. High value services are those 
that most people will benefit from and have a strong clinical evidence 
base demonstrating appropriate care. The high value services and drugs 
identified in Table 5 are supported by strong clinical effectiveness 
evidence. Low value services are those services in which the majority 
of consumers would not derive a clinical benefit. The Center considered 
services that have been identified by other aligned efforts, such as 
the Choosing Wisely initiative, the Value-based Insurance Design Health 
Task Force on Low Value Care, the Oregon Public Employee's Benefits 
Board, SmarterCare CA, and the Washington State Health Authority.\157\ 
The Center's research has shown that a silver level of coverage base 
plan could alter the cost sharing as we proposed in Table 5 of the 
proposed rule and could achieve a zero impact on plan premiums, while 
incentivizing the consumer to seek more appropriate care.
---------------------------------------------------------------------------

    \156\ For more information, please see information about the 
VBID-X project available at http://vbidcenter.org/initiatives/vbid-x/ and resulting white paper, available at http://vbidcenter.org/wp-content/uploads/2019/07/VBID-X-Final-Report_White-Paper-7.13.19.pdf.
    \157\ Additional information on data sources considered by the 
Center, please see: https://www.choosingwisely.org/; http://vbidhealth.com/low-value-care-task-force.php; https://www.oregon.gov/oha/pebb/pages/index.aspx; https://www.iha.org/our-work/insights/smart-care-california; https://www.hca.wa.gov.

          Table 5--High and Low Value Services and Drug Classes
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
               High Value Services with Zero Cost Sharing
------------------------------------------------------------------------
Blood pressure monitors (hypertension)
Cardiac rehabilitation
Glucometers and testing strips (diabetes)
Hemoglobin a1c testing (diabetes)
INR testing (hypercoagulability)
LDL testing (hyperlipidemia)
Peak flow meters (asthma)
Pulmonary rehabilitation
------------------------------------------------------------------------
         High Value Generic Drug Classes with Zero Cost Sharing
------------------------------------------------------------------------
ACE inhibitors and ARBs
Anti-depressants
Antipsychotics
Anti-resorptive therapy
Antiretrovirals
Antithrombotics/anticoagulants
Beta blockers
Buprenorphine-naloxone
Glucose lowering agents
Inhaled corticosteroids
Naloxone
Rheumatoid arthritis medications
Statins
Thyroid-related
Tobacco cessation treatments
------------------------------------------------------------------------
        High Value Branded Drug Classes with Reduced Cost Sharing
------------------------------------------------------------------------
Anti-TNF (tumor necrosis factor)
Hepatitis C direct-acting combination
Pre-exposure prophylaxis for HIV (PrEP) \1\
------------------------------------------------------------------------
                 Specific Low Value Services Considered
------------------------------------------------------------------------
Proton beam therapy for prostate cancer
Spinal fusions
Vertebroplasty and kyphoplasty
Vitamin D testing
------------------------------------------------------------------------
    Commonly Overused Service Categories with Increased Cost sharing
------------------------------------------------------------------------
Outpatient specialist services
Outpatient labs

[[Page 29237]]

 
High-cost imaging
X-rays and other diagnostic imaging
Outpatient surgical services
Non-preferred branded drugs
------------------------------------------------------------------------
\1\ Per 26 CFR 54.9815-2713, 29 CFR 2590.715-2713, and 45 CFR 147.130,
  non-grandfathered group health plans and non-grandfathered health
  insurance coverage in the group or individual markets, including QHP
  issuers in the individual market, will be required to cover PrEP
  without imposing any cost-sharing requirements for plan or policy
  years beginning on or after June 11, 2020, in a manner consistent with
  the U.S Preventive Services Task Force (USPSTF) final recommendation
  at https://www.uspreventiveservicestaskforce.org/Page/Document/RecommendationStatementFinal/prevention-of-human-immunodeficiency-virus-hiv-infection-pre-exposure-prophylaxis.

    For issuers in Exchanges using the Federal platform, HHS is not 
currently offering preferential display on HealthCare.gov for QHPs that 
include value-based insurance design. However, we are considering ways 
in which consumers could easily identify a ``value-based'' QHP. We 
solicited comments on ways in which these ``value-based'' QHPs could be 
identified to consumers on HealthCare.gov, how best to communicate 
their availability to consumers, how best to demonstrate how the cost-
sharing structures affect different consumers, and how to assist 
consumers in selecting a value-based QHP if it is an appropriate 
option.
    We also solicited comment on how HHS could collect information from 
issuers in Exchanges using the Federal platform to indicate that their 
QHP includes value-based insurance design. This could include 
collecting the information from the issuer, instructing issuers to 
include ``value-based'' in the plan name, or establishing HHS-adopted 
criteria that an issuer would have to meet in order to be labeled 
value-based.
    We also solicited comment on principles that HHS could adopt to 
establish what constitutes a value-based plan, perhaps establishing 
minimum standards, as well as obstacles to implementation. We are 
interested in additional ways in which HHS could provide operational 
assistance to issuers offering value-based QHPs. We discussed that we 
understand that some states require the use of standardized plan 
designs and may not be able to certify QHPs with alternative cost-
sharing structures. We solicited comment from states that believe their 
cost-sharing laws would not allow for this type of plan design.
    Lastly, we solicited comment on other value-based insurance design 
activities HHS should pursue in the future, including applicable models 
for stand-alone dental plans.
    Comment: The majority of comments received were in support of HHS 
using value-based insurance design as a tool to make coverage more 
affordable and to encourage consumers to seek cost-effective care. 
Commenters supported the approach outlined in the proposed rule as it 
would allow QHP issuers to maintain flexibility while incrementally 
introducing value-based insurance design options for Exchange 
enrollees. Others noted that some issuers are already offering some of 
the proposed cost-sharing options. A few commenters questioned the 
proposed approach noting that using cost sharing as a tool to influence 
consumer behavior could potentially introduce discriminatory benefit 
design or unfairly disadvantage consumers with certain chronic 
conditions.
    Commenters offered numerous suggestions to modify the options 
included in the proposed rule. Specifically, commenters suggested 
alternative value-based approaches that would not require varying 
consumer cost sharing, such as providing incentives to issuers or 
providers to support cost effective care delivery. Several commenters 
supported making ``value-based'' plans required for QHP issuers to 
achieve greater standardization across QHPs. Others requested that HHS 
defer to states to develop specific value-based plan designs as states 
are in the best position to determine the needs of their population. 
Many commenters offered specific suggestions to the services identified 
in Table 5, either requesting additional services be added or 
identifying specific services be removed, most commonly outpatient 
services or non-preferred branded drugs.
    Response: We appreciate the support for the options outlined in the 
proposed rule and are finalizing the options as proposed. We note that 
the option to provide varying cost sharing for any of the services 
identified in Table 5 is at the discretion of the issuer. As we noted 
in the proposed rule, issuers have considerable discretion in the 
design of cost-sharing structures, subject to certain statutory AV 
requirements, non-discrimination provisions,\158\ and other applicable 
laws such as the MHPAEA (section 2726 of the PHS Act). We did not 
propose any changes to this flexibility. We believe that maintaining 
issuer flexibility will allow for issuers to experiment with different 
cost-sharing structures that best meet their enrollee's needs. We are 
not requiring issuers to offer value-based plans required. We expect 
that value-based plans utilizing the cost sharing suggested in Table 5 
would be among many different plan designs offered by QHP issuers to 
meet the needs of consumers and acknowledge that QHP issuers may not 
offer these designs exclusively. We share concerns with commenters that 
varying cost sharing may not meet the needs of all consumers and 
encourage issuers to offer QHPs that meet the needs of a heterogenetic 
population. For this reason, we will not be pursuing or requiring the 
development of a value-based standardized option.
---------------------------------------------------------------------------

    \158\ We note that issuers are also subject to federal civil 
rights laws, including Title VI of the Civil Rights Act. Section 504 
of the Rehabilitation Act, the Age Discrimination Act, section 1557 
of the PPACA, and conscience and religious freedom laws.
---------------------------------------------------------------------------

    While we believe that states have the primary role in assessing the 
needs of their population, we also acknowledge that some states may not 
have the resources or desire to develop value-based plan options. The 
designs offered in this preamble are offered in such a fashion as to 
encourage issuers to engage in value-based plan design without stifling 
innovation or intruding upon state activities to do the same.
    Comment: Commenters offered numerous comments on consumer 
understanding of the concept of value-based plans and how best to 
potentially identify ``value-based'' QHPs. Most commenters were 
concerned that consumers may not understand the differences between 
value-based plans and non-value-based plans without significant 
investment in education, communication, and direct assistance. Because 
of this, some recommended that no changes be made to HealthCare.gov to 
identify value-based plans until more research and education on best 
practices on how to communicate the concept of value to consumers is 
complete. Other commenters suggested search functionalities on 
HealthCare.gov should be enhanced to facilitate the identification of 
value-based plans and to allow for consumers to search for value-based 
services at a granular level and for pre-deductible services. Other 
commenters suggested that HealthCare.gov include static educational 
information for consumers and include a visual designation for 
consumers to easily identify QHPs with value-based cost sharing. Others 
stated value-based plans should be offered preferential display and be 
easily identified by consumers. We did not receive many specific 
comments on how to best demonstrate how the cost-sharing structures 
affect different

[[Page 29238]]

consumers or how to assist consumers in selecting a value-based plan, 
if appropriate, with many commenters suggesting HHS engage with outside 
stakeholders or adopt recommendations produced by other entities to the 
extent they are available. Other consumers requested that price and 
quality data be displayed alongside a value-based indicator.
    Response: At this time, we are evaluating options on how best to 
identify value-based plans on HealthCare.gov and currently have no 
specific plans to introduce an indicator for the 2021 plan year as we 
have yet to develop criteria or minimum standards as to what would 
constitute a value-based plan, as discussed further below. As we 
previously noted, we also will not implement preferential display at 
this time. We agree that consumers will need to be educated on how to 
evaluate differing cost-sharing structures, how those cost-sharing 
structures will impact different consumers, and how best to direct 
certain consumers to value-based plans, if appropriate. We will 
consider the work of external groups in this area and as well as our 
own consumer testing. We will consider our operational priorities in 
evaluating other suggested changes to HealthCare.gov in the future.
    Comment: Commenters suggested modifying the QHP issuer application 
materials to collect from the issuer whether or not the QHP was 
``value-based,'' however many were not supportive of publicly labelling 
plans on HealthCare.gov as ``value-based'' as ``value'' can be 
interpreted differently by different consumers. Other commenters 
appeared supportive of HHS exploring standards for QHP issuers to meet 
in order to be designated as value-based. Commenters also noted that 
issuer tools to design plans, such as the actuarial value calculator 
may need to be modified in order to accommodate value-based plans. Some 
states indicated that they were modifying their existing standardized 
plans to accommodate the cost-sharing options in Table 5. Commenters 
also supported exploring adoption of value-based approaches by stand-
alone dental plans.
    Response: At this time, we will consider options to establish 
criteria for identifying value-based plans in future rulemaking. We 
will also consider the impact of value-based insurance design on the 
actuarial value calculator, if necessary. We will continue to work with 
states that are implementing similar approaches to ensure that we share 
best practices and lessons learned with value-based option adoption.
    Lastly, we will continue to explore opportunities for stand-alone 
dental plans to adopt value-based design.
    After reviewing the public comments, we are finalizing the options 
as proposed.
7. Termination of Coverage or Enrollment for Qualified Individuals 
(Sec.  156.270)
    Under existing Sec.  156.270(b)(1), issuers have been required to 
send termination notices, including the termination effective date and 
reason for termination, to enrollees only for terminations due to (1) 
loss of eligibility for QHP coverage, (2) non-payment of premiums, and 
(3) rescission of coverage. For this purpose, we considered a 
termination of coverage of a consumer whose enrollment would violate 
the anti-duplication provision of section 1882 of the Social Security 
Act (the Act) to be a termination because the enrollee is no longer 
eligible for QHP coverage under Sec.  155.430(b)(2)(i), and therefore, 
issuers are required to send a termination notice under Sec.  
156.270(b)(1) when the consumer's coverage is non-renewed.\159\
---------------------------------------------------------------------------

    \159\ See 3.4.8 Medicare Enrollment and Non-renewals of the 2019 
Federally-facilitated Exchanges (FFEs) and Federally-facilitated 
Small Business Health Options Program (FF-SHOP) Enrollment Manual at 
https://www.regtap.info/uploads/library/ENR_EnrollmentManualForFFEandFF-SHOP_v1_5CR_092519.pdf.
---------------------------------------------------------------------------

    However, there are a number of scenarios where issuers were not 
clearly required to send termination notices, including enrollee-
initiated terminations, the death of the enrollee, the enrollee 
changing from one QHP to another during an annual open enrollment 
period or special enrollment period, and terminations for dual 
enrollment when an enrollee has asked the Exchange to end QHP coverage 
when found in other coverage, such as through Medicare PDM. We proposed 
to amend Sec.  156.270(b)(1) to require QHP issuers to send to 
enrollees a termination notice for all termination events described in 
Sec.  155.430(b), regardless of who initiated the termination. We are 
finalizing this provision as proposed.
    The original version of Sec.  156.270 required a termination notice 
when an enrollee's coverage was terminated ``for any reason,'' \160\ 
with a 30-day advance notice requirement. This requirement was 
eventually replaced with the previous requirement this rule revises. As 
bases for termination in Sec.  155.430(b)(2) were expanded, Sec.  
156.270 was not updated in parallel. Although we recommended that 
issuers send termination notices whenever an enrollee's coverage is 
terminated, questions arose from issuers regarding when termination 
notices were required. Updating our regulations to require issuers to 
send termination notices to enrollees for all termination events, 
regardless of who initiated the termination, will help streamline 
issuer operations and reduce confusion. This change will also help 
promote continuity of coverage by ensuring that enrollees are aware 
that their coverage is ending, as well as the reason for its 
termination and the termination effective date, so that they can take 
appropriate action to enroll in new coverage, if eligible. We solicited 
comments on this proposal.
---------------------------------------------------------------------------

    \160\ Patient Protection and Affordable Care Act; Establishment 
of Exchanges and Qualified Health Plans; Exchange Standards for 
Employers; Final Rule and Interim Final Rule, March 27, 2012 (77 FR 
18310).
---------------------------------------------------------------------------

    Comment: All commenters who weighed in on this proposal supported 
it. Commenters stated that this proposal would avoid member confusion 
and/or unnecessary QHP inquiries and promote continuity of coverage. 
For example, enrollees don't currently receive written confirmation of 
a termination they initiated; commenters stated that it is important 
for the enrollee to have in writing the actual termination date for 
their records, in case of miscommunication with the issuers about the 
preferred date or to later dispute an inaccurate Form 1095-A, and to 
ensure they take appropriate steps to re-enroll in coverage without a 
gap, if eligible.
    Response: We agree with commenters and believe this change will 
help streamline issuer operations and reduce confusion. It will also 
help promote continuity of coverage by ensuring that enrollees are 
aware that their coverage is ending, as well as the reason for their 
termination, and their termination effective date, so that they can 
take appropriate action to enroll in new coverage, if eligible.
    After reviewing the public comments, we are finalizing this 
provision as proposed.
8. Dispute of HHS Payment and Collections Reports (Sec.  156.1210)
    In the 2014 Payment Notice,\161\ we established provisions related 
to confirmation and dispute of payment and collection reports. These 
provisions were written under the assumption that issuers would 
generally be able to provide these confirmations or disputes 
automatically to HHS. However, we found that many issuers prefer to

[[Page 29239]]

research payment errors and use enrollment reconciliation and disputes 
to update their enrollment and payment data, and are unable to complete 
this research and provide confirmation or dispute of their payment and 
collection reports within 15 days, as currently required under Sec.  
156.1210. In addition, because the FFE typically reflects enrollment 
reconciliation updates 1 to 2 months after they have occurred, issuers 
attempting to comply with the 15-day deadline submit disputes that are 
no longer necessary after the reconciliation updates have been 
processed.
---------------------------------------------------------------------------

    \161\ See 78 FR 65045 at 65080.
---------------------------------------------------------------------------

    Therefore, we proposed to amend Sec.  156.1210(a) to lengthen the 
time to report payment inaccuracies from 15 days to 90 days to allow 
issuers more time to research, report, and correct inaccuracies through 
other channels. The longer timeframe also allows for the processing of 
reconciliation updates, which may resolve potential disputes.
    We also proposed to remove the requirement at Sec.  156.1210(a) 
that issuers actively confirm payment accuracy to HHS each month, as 
well as the language in Sec.  156.1210(b) regarding late filed 
discrepancies. Instead, we proposed to amend Sec.  156.1210(b) to 
require an annual confirmation from issuers that the amounts identified 
in the most recent payment and collections report for the coverage year 
accurately reflect applicable payments owed by the issuer to the 
Federal Government and the payments owed to the issuer by the Federal 
Government, or that the issuer has disputed any identified 
inaccuracies, after the end of each payment year, in a form and manner 
specified by HHS. Under the proposed approach, issuers would also have 
an opportunity as part of the annual confirmation process to notify HHS 
of disputes related to identified inaccuracies. In the proposed rule, 
we explained that the changes are based on our experience with current 
enrollment and payment operations, which include frequent updates to 
enrollment and payment data throughout the year that we believe make 
monthly confirmation unnecessarily burdensome. We also explained that 
we believed that the late filed discrepancy process in Sec.  
156.1210(c) was unnecessary and duplicative of the payment process 
modifications proposed in Sec.  156.1210 and the adjustments to the 
enrollment process proposed in Sec.  156.265(f).
    We also explained that HHS intends to work cooperatively with 
issuers that make a good faith effort to comply with these procedures. 
We noted that issuers could demonstrate that they are working in good 
faith cooperatively with HHS by sending regular and accurate enrollment 
reconciliation files and timely enrollment disputes throughout the 
applicable enrollment calendar, submitting payment disputes within the 
90-day dispute window, making timely and regular changes to enrollment 
reconciliation and dispute files to correct past errors, and by 
reaching out to HHS and responding timely to HHS outreach to address 
any issues identified.
    We sought comments on these proposed amendments to Sec.  156.1210. 
After reviewing public comments, we are finalizing the amendments as 
proposed to lengthen the time to report payment inaccuracies from 15 
days to 90 days to allow issuers more time to research, report, and 
correct inaccuracies through other channels. We are also finalizing the 
amendments to Sec.  156.1210(b) and (c) as proposed, to require issuers 
to provide an annual confirmation after the end of the payment year, in 
a form and manner specified by HHS and to remove the language that has 
become duplicative regarding discrepancies to be addressed in future 
reports. HHS intends to continue working with issuers on potential 
further improvements to the payment and collections reports process.
    Comment: Several commenters supported these amendments saying they 
appreciate HHS's interest in removing unnecessary reporting 
requirements to reduce administrative burden for issuers, as well as 
HHS's intention to work cooperatively with issuers that make a good 
faith effort to comply with these requirements. These commenters also 
supported the proposed change from a 15 day to 90 day reporting 
timeframe and appreciate the additional time to report payment 
inaccuracies as this better accounts for monthly billing cycles. One 
commenter recommended that the annual certification process occur after 
March following the applicable benefit year to account for the 90-day 
window for reporting payment inaccuracies.
    Response: We appreciate the comments and are finalizing the 
amendments to Sec.  156.1210 as proposed. We also note that we intend 
to conduct the annual certification process under Sec.  156.1210(b) 
after the final April enrollment reconciliation file is issued. 
Additional details on the form and manner for submission of this annual 
confirmation will be provided in future guidance.

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

1. Reporting Requirements Related to Premiums and Expenditures (Sec.  
158.110)
    We proposed to amend Sec.  158.110(a) to clarify the requirement 
that expenses for functions outsourced to or services provided by other 
entities retained by an issuer must be reported consistently with how 
expenses must be reported when such functions are performed directly by 
the issuer. Such entities include third-party vendors, other health 
insurance issuers, and other entities, whether affiliated or 
unaffiliated with the issuer.
    In the preamble to the proposed rule, we identified several 
technical guidance documents \162\ that HHS released to address 
specific issues and circumstances related to the reporting of third-
party expenses for MLR purposes. The guidance generally specifies that 
the administrative cost and profit component of payments to third-party 
vendors may not be included in an issuer's incurred claims or QIA, 
except in the case of capitation payments to clinical providers or to 
third-party vendors for the provision of clinical services directly to 
enrollees through the vendors' own employees. The guidance also 
generally specifies that payments to third-party vendors to perform 
administrative functions on behalf of the issuer must be reported as a 
non-claims administrative expense. In order to consolidate and clarify 
the MLR treatment of payments to third-party vendors and other 
entities, we proposed to revise Sec.  158.110(a) to capture the 
requirement that expenses for functions outsourced to or services 
provided by other entities retained by an issuer must be reported 
consistently with how expenses must be reported when incurred directly 
by the issuer. We solicited comments on this proposal.
---------------------------------------------------------------------------

    \162\ See May 13, 2011 CCIIO Technical Guidance (CCIIO 2011-002) 
Q&As #8, #11, #12 and #14, available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-guidance-20110513.pdf. Also see July 
18, 2011 CCIIO Technical Guidance (CCIIO 2011-004) Q&A #19, 
available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/20110718_mlr_guidance.pdf.
---------------------------------------------------------------------------

    After considering the public comments, we are finalizing the 
amendment to Sec.  158.110(a) as proposed.
    Comment: Several commenters supported the proposal and agreed that 
it would be beneficial to clarify the regulation to ensure that issuers 
report expenses for functions outsourced to or services provided by 
other entities retained by the issuers in the same manner as expenses 
that issuers incur

[[Page 29240]]

directly. One commenter opposed the proposal because of concern that 
issuers may be required to report confidential and proprietary 
information that is specific to a third-party vendor. One commenter 
asked HHS to clarify whether this provision will encompass risk-based 
payments made by health plans to contracted providers. Another 
commenter requested that we delay the applicability date of the 
proposed amendment to give large group issuers additional time to renew 
outsourced contracts.
    Response: With respect to the comment regarding disclosure of 
confidential and proprietary information, we note that nothing in the 
existing MLR regulations and guidance or the amendments to Sec.  
158.110(a) finalized in this rule requires an issuer to report 
confidential and proprietary information specific to a third-party 
vendor or other entity it retains, as the expenses for functions 
outsourced to or services provided by such entities are reported only 
in the aggregate, generally combined with the issuer's non-outsourced 
expenses, and allocated to the applicable state and market. With 
respect to the question regarding payments to risk-bearing providers, 
we clarify that the amendments to Sec.  158.110(a) do not modify the 
February 10, 2012 CCIIO Technical Guidance (CCIIO 2012-001) \163\ Q&As 
##20-22. That guidance clarified that issuers may include in incurred 
claims payments to certain clinical (but not pricing) risk-bearing 
entities such as Accountable Care Organizations (ACOs), provided 
certain conditions are met, except that payments to such entities for 
administrative functions performed on behalf of the issuer may not be 
included in incurred claims. Finally, regarding the request to delay 
the applicability date for this amendment, we acknowledge the 
commenter's concern but note that the proposal codifies, clarifies, and 
aligns with the approach outlined in existing guidance. Therefore, we 
are not modifying the applicability date and the amendment will be 
applicable as of the effective date for this final rule.
---------------------------------------------------------------------------

    \163\ Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/2012-02-10-guidance-mlr-ipas.pdf.
---------------------------------------------------------------------------

2. Reimbursement for Clinical Services Provided to Enrollees (Sec.  
158.140)
    We proposed to amend Sec.  158.140(b)(1)(i) to require issuers to 
deduct from incurred claims not only prescription drug rebates received 
by the issuer, but also any price concessions received and retained by 
the issuer and any prescription drug rebates and other price 
concessions received and retained by an entity providing pharmacy 
benefit management services (including drug price negotiation services) 
to the issuer, typically a pharmacy benefit manager (PBM). In the 
proposed rule, we explained that the phrase ``price concession,'' when 
used in this context, is intended to capture any time an issuer or an 
entity that provides pharmacy benefit management services to the issuer 
receives something of value related to the provision of a covered 
prescription drug (for example, manufacturer rebate, incentive payment, 
direct or indirect remuneration, etc.) regardless from whom the item of 
value is received (for example, pharmaceutical manufacturer, 
wholesaler, retail pharmacy, vendor, etc.).
    The existing regulatory framework in Sec.  158.140(b)(1)(i) and 
(b)(3)(i) through (iii) did not clearly address the situation where the 
administrative costs and profits related to the provision of pharmacy 
benefits are comprised, in whole or in part, of a portion or all of the 
prescription drug rebates and other price concessions that the issuer 
allows the entity providing pharmacy benefit management services to 
retain. Consequently, enrollees failed to receive the benefit of 
prescription drug rebates and price concessions to the extent these are 
retained by an entity other than the issuer and issuers faced an 
unlevel playing field based on the manner in which they chose to 
compensate entities providing pharmacy benefit management services. The 
existing regulations also did not clearly address situations where the 
issuer received a price concession related to the provision of pharmacy 
benefits other than a rebate.
    Therefore, we proposed to revise Sec.  158.140(b)(1)(i) to require 
adjustments that must be deducted from incurred claims to include not 
only prescription drug rebates received by the issuer, but also any 
price concessions received and retained by the issuer, and any 
prescription drug rebates and other price concessions received and 
retained by an entity providing pharmacy benefit management services 
(including drug price negotiation services) to the issuer that are 
associated with administering the issuer's prescription drug benefits. 
We explained that the proposed amendments would additionally align more 
closely with the MLR provisions that apply to the Medicare Advantage 
organizations and Part D sponsors and Medicaid managed care 
organizations,\164\ both of which require that the full amount of 
prescription drug rebates and price concessions be deducted from 
incurred claims. We further proposed that these amendments would be 
applicable beginning with the 2021 MLR reporting year (reports due by 
July 31, 2022). We solicited comments on all aspects of these 
proposals.
---------------------------------------------------------------------------

    \164\ See the Medicare Advantage program and Prescription Drug 
Benefit program May 23, 2013 final rule (78 FR 31284), as amended by 
the April 16, 2018 final rule (83 FR 16440); and the Medicaid 
managed care May 6, 2016 final rule (81 FR 27497) and the CMCS May 
15, 2019 information bulletin available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib051519.pdf.
---------------------------------------------------------------------------

    After considering the public comments, we are finalizing the 
amendment to Sec.  158.140(b)(1)(i) as proposed to require adjustments 
that must be deducted from incurred claims to include not only 
prescription drug rebates received by the issuer, but also any price 
concessions received and retained by the issuer, and any prescription 
drug rebates and other price concessions received and retained by an 
entity providing pharmacy benefit management services (including drug 
price negotiation services) to the issuer that are associated with 
administering the issuer's prescription drug benefits. However, in 
response to comments, we are delaying the applicability date for these 
amendments to the 2022 MLR reporting year (MLR reports filed in 2023).
    We are also updating the regulatory text to clarify that, 
consistent with the policy outlined in the proposed rule,\165\ the 
amendment to Sec.  158.140(b)(1)(i) requires issuers to subtract from 
incurred claims prescription drug rebates and other price concessions 
when received and retained by an issuer ``and'' an entity providing 
pharmacy benefit management services.
---------------------------------------------------------------------------

    \165\ Namely, that the policy reflected in the amendment to 
Sec.  158.140(b)(1)(i) requires issuers to deduct from incurred 
claims prescription drug rebates and other price concessions not 
only when received and retained by the issuer but also when received 
and retained by an entity providing pharmacy benefit management 
services to the issuer. See 85 FR 7088 at 7139 (February 6, 2020).
---------------------------------------------------------------------------

    Comment: Most commenters supported the proposal and agreed that 
implementing these amendments would more accurately reflect an issuer's 
incurred claims that are included in the MLR rebate and calculation and 
align with the requirements that have been implemented in the Medicare 
and Medicaid MLR programs. Some commenters expressed confidence that 
the amendment would benefit enrollees either by lowering premiums or 
increasing MLR rebates, and some commenters further urged HHS to pursue 
robust enforcement of the

[[Page 29241]]

proposed requirements. A few commenters opposed the proposal, 
expressing concerns that it would reduce the allowable administrative 
costs and disadvantage PBM contracts that do not pass all prescription 
drug rebates and price concessions to issuers, that the amounts for 
prescription drug rebates and other price concessions retained by PBMs 
and similar entities are not readily available to issuers, and that 
amounts that an issuer allows the PBM to retain do not represent an 
issuer's expense.
    Response: As explained in the proposed rule, we believe the 
existing regulatory framework provided an unfair advantage to issuers 
with PBM contracts that did not pass all prescription drug rebates and 
price concessions to issuers, since the regulation currently only 
requires issuers to deduct from incurred claims prescription drug 
rebates received by the issuer. This allowed such issuers to inflate 
incurred claims in the MLR calculation, and thus improperly increase 
the allowable administrative costs, relative to financially identically 
situated issuers who choose to compensate entities providing pharmacy 
management benefit services by paying a fee or inflated pharmacy 
reimbursement amount. Further, as discussed in the proposed rule, it is 
our view that allowing an entity providing pharmacy benefit management 
services to retain some or all of the prescription drug rebates and 
other price concessions that an issuer could have otherwise received is 
a form of compensation provided by the issuer to the entity for 
services that the entity performs for the issuer, and therefore is an 
administrative cost of the issuer. An issuer that does not outsource 
pharmacy benefit management services to another entity would perform 
such services itself, exclude such expenses from incurred claims, and 
report the expenses as an administrative cost. Issuers that do not 
outsource these services and directly negotiate prescription drug 
rebates for enrollees' drug utilization would also deduct from incurred 
claims the full amount of these rebates (as there would be no other 
entity retaining such amounts). Therefore, we view these amendments as 
a way to level the playing field among issuers, promote uniform MLR 
reporting, and ensure that enrollees receive the benefit of these 
rebates and price concessions. We also appreciate the comments urging 
HHS to pursue robust enforcement of the amendments and will continue to 
conduct enforcement activities in the MLR oversight process, which 
would include review of compliance with these requirements (once 
effective). Lastly, we proposed that the amendment would be applicable 
beginning with the 2021 MLR reporting year (reports due by July 31, 
2022) precisely in order to enable issuers to make any adjustments to 
their contracts with entities providing pharmacy benefit management 
services that may be necessary to ensure that issuers are able to 
obtain the information required for accurate reporting and compliance 
with federal MLR requirements. As detailed below, we are finalizing a 
later applicability date in response to comments to provide more time 
for issuers to update their respective contracts, as may be necessary.
    Comment: A number of commenters, including both some that supported 
and some that opposed the proposal, requested that HHS define ``price 
concessions'' more narrowly to align with the definitions in section 
1150A of the Act, as added by the PPACA, which requires PBMs to report 
certain prescription benefit information to HHS and that excludes 
certain types of fees paid to PBMs by drug manufacturers or issuers. 
These commenters additionally requested that HHS codify the definition 
of prescription drug rebates and other price concessions in the 
regulation and recommended that HHS do so through separate rulemaking.
    Response: We appreciate these comments and will consider codifying 
the definition of prescription drug rebates and other price concessions 
through separate rulemaking in advance of the applicability date for 
these new reporting requirements. In addition, in light of these 
comments, and the delayed applicability date discussed below, we are 
not finalizing a definition of ``price concession'' in this rulemaking.
    Comment: Several commenters requested that HHS delay the 
applicability date for these amendments until the 2022 reporting year 
(MLR reports filed in 2023) in order to allow additional time for 
issuers to negotiate contracts with entities providing pharmacy benefit 
management services, as well as to allow additional time for HHS to 
consider alternative definitions for the term ``price concessions''. 
Some commenters noted that some issuers have already executed contracts 
with PBMs and other entities to perform pharmacy benefit management 
services for 2021, such that the proposed applicability of the 2021 
reporting year (MLR reports filed in 2022) may not provide sufficient 
time to update those contracts and allow an issuer to come into 
compliance with the proposed new requirements.
    Response: We acknowledge the practical considerations raised by the 
commenters, including with respect to the timing of contracts, and 
agree with commenters' recommendation to delay the applicability date 
of these amendments to the 2022 reporting year (MLR reports filed in 
2023). This additional time will also allow us to further consider the 
suggested alternative definition for ``price concession''.
3. Activities That Improve Health Care Quality (Sec.  158.150)
    We proposed to amend Sec.  158.150(b)(2)(iv)(A)(5) to clarify that 
issuers in the individual market may include the cost of certain 
wellness incentives \166\ as QIA expenses in the MLR calculation, in 
the same manner as is currently permitted in the group market.\167\ The 
proposal reflected the fact that issuers in the individual market are 
currently permitted to offer participatory wellness programs, provided 
such programs are consistent with applicable state law and available to 
all similarly situated individuals,\168\ and that some issuers in 
participating states may additionally offer health-contingent wellness 
programs under the wellness program demonstration project that HHS 
announced on September 30, 2019.\169\ We proposed that this amendment 
would be applicable beginning with the 2021 MLR reporting year (reports 
due by July 31, 2022). We solicited comments on this proposal.
---------------------------------------------------------------------------

    \166\ For this purpose, the term ``wellness incentive'' has the 
same meaning as the term ``reward'' in Sec.  146.121(f)(1)(i).
    \167\ Under section 2705(j) of the PHS Act and 45 CFR 
146.121(f), health-contingent and participatory wellness programs 
are permitted in the group market. HHS previously recognized that 
participatory wellness programs in the individual market do not 
violate section 2705 and are therefore permitted, provided that such 
programs are consistent with applicable state law and available to 
all similarly situated individuals enrolled in the individual health 
insurance coverage. See 78 FR at 33167. In addition, section 2705(l) 
of the PHS Act authorizes the Secretary to establish a 10-state 
wellness program demonstration project under which issuers may offer 
non-discriminatory wellness programs in the individual market.
    \168\ See the Incentives for Nondiscriminatory Wellness Programs 
in Group Health Plans; Final Rule; 78 FR 33158 at 33167 (June 3, 
2013).
    \169\ https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Wellness-Program-Demonstration-Project-Bulletin.pdf.
---------------------------------------------------------------------------

    After reviewing the public comments, we are finalizing this 
amendment as proposed.
    Comment: We received numerous comments regarding the proposed 
amendment to explicitly allow all issuers in the individual market to

[[Page 29242]]

include certain wellness incentives as QIA in the MLR calculation. Some 
commenters supported the proposal because it would align the treatment 
of wellness programs in the group and individual markets and encourage 
issuers to offer wellness programs in the individual market. While the 
majority of commenters on this proposal expressed opposition, most of 
these commenters cited concerns about wellness programs themselves, 
such as concerns about their effectiveness and potential to 
discriminate, rather than concerns regarding the proposed amendment to 
the MLR rules.
    Response: We appreciate commenters' general concerns about wellness 
programs, but note that we did not propose and are not making any 
changes to the rules regarding wellness programs.\170\ Instead, the 
amendment to Sec.  158.150(b)(2)(iv)(A)(5) is specific to the treatment 
of expenses of certain wellness activities for MLR reporting purposes.
---------------------------------------------------------------------------

    \170\ See 45 CFR 147.121 and 147.110.
---------------------------------------------------------------------------

    We believe this amendment is appropriate and necessary as it 
ensures that the MLR rules are interpreted consistently across the 
individual and group markets, and therefore, would increase consumer 
choice and access to participatory wellness programs that are currently 
allowed in the individual market and any health-contingent wellness 
programs that may be available in a state that is approved to 
participate in the wellness program demonstration project.
4. Other Non-Claims Costs (Sec.  158.160)
    In the proposed rule, we proposed to amend Sec.  158.160(b)(2), to 
conform with the proposed amendments to Sec.  158.140(b)(1)(i), by 
requiring issuers to report the prescription drug rebates received by 
the issuer, as well as any price concessions received and retained by 
the issuer, and any prescription drug rebates and other price 
concessions received and retained by an entity providing pharmacy 
benefit management services (including drug price negotiation services) 
to the issuer that are associated with administering the issuer's 
prescription drug benefits, as non-claims costs.
    After reviewing the public comments, we are finalizing this 
requirement as proposed, except that the requirement will not apply to 
the prescription drug rebates and other price concessions received by 
the issuer. We are also delaying the applicability date of this 
amendment to the 2022 reporting year (MLR reports filed in 2023) to 
align with the applicability date of the amendments to Sec.  
158.140(b)(1)(i).
    Comment: Several commenters pointed out that the proposal 
inadvertently required issuers to report prescription drug rebates and 
other price concessions as an administrative cost regardless of whether 
they are received and retained by the issuer or by the entity providing 
pharmacy benefit management services. The commenters noted that to the 
extent such amounts are received and retained by the issuer, they do 
not represent an administrative fee paid by the issuer to the entity 
providing pharmacy benefit management services, and that adding these 
amounts to non-claims cost may cause them to be double-counted in the 
administrative costs reported by the issuer.
    Response: We agree with the commenters that reporting the 
prescription drug rebates and other price concessions received and 
retained by the issuer as non-claims costs may result in double-
counting in MLR reports, since issuers would already report these 
amounts in non-claims costs to the extent the funds are used for 
administrative expenses. Therefore, we are finalizing this requirement 
as proposed, except that the requirement will not apply to the 
prescription drug rebates and other price concessions received by the 
issuer and will have a delayed applicability date, as detailed above.

IV. Collection of Information Requirements

    This final rule contains information collection requirements (ICRs) 
that are subject to review by OMB. A description of these provisions is 
given in the following paragraphs with an estimate of the annual 
burden, summarized in Table 8. To fairly evaluate whether an 
information collection should be approved by OMB, section 3506(c)(2)(A) 
of the Paperwork Reduction Act of 1995 (PRA) requires that we solicit 
comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We solicited public comment on each of the required issues under 
section 3506(c)(2)(A) of the PRA for the following information 
collection requirements.

A. Wage Estimates

    To derive wage estimates, we generally used data from the Bureau of 
Labor Statistics to derive average labor costs (including a 100 percent 
increase for fringe benefits and overhead) for estimating the burden 
associated with the ICRs.\171\ Table 65 in this final rule presents the 
mean hourly wage, the cost of fringe benefits and overhead, and the 
adjusted hourly wage.
---------------------------------------------------------------------------

    \171\ See May 2018 Bureau of Labor Statistics, Occupational 
Employment Statistics, National Occupational Employment and Wage 
Estimates. Available at https://www.bls.gov/oes/current/oes_stru.htm.
---------------------------------------------------------------------------

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

                             Table 6--Adjusted Hourly Wages Used in Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                   Occupational     Mean hourly    benefits and      Adjusted
                Occupation Title                       code        wage  ($/hr.)   overhead ($/     hourly wage
                                                                                       hr.)           ($/hr.)
----------------------------------------------------------------------------------------------------------------
Chief Executive*................................         11-1011          $96.22          $96.22         $192.44
General and Operations Manager..................         11-1021           59.56           59.56          119.12
Compensation and Benefits Manager...............         11-3111           63.87           63.87          127.74
Lawyer..........................................         23-1011           69.34           69.34          138.68

[[Page 29243]]

 
Legal Support Worker............................         23-2099           34.34           34.34           68.68
----------------------------------------------------------------------------------------------------------------
* Chief executive wage is used to estimate the state official wages.

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

    In Sec.  146.145(b)(3)(viii)(E), we require that an excepted 
benefit HRA offered by a non-Federal governmental plan sponsor must 
provide a notice that describes conditions pertaining to eligibility to 
receive benefits, annual or lifetime caps or other limits on benefits 
under the plan, and a description or summary of the benefits. This 
notice must be provided on an annual basis no later than 90 days after 
the first day of the excepted benefit HRA plan year (or, if a 
participant is not eligible to participate at the beginning of the plan 
year, no later than 90 days after the employee becomes a participant in 
the excepted benefit HRA).
    We estimate that for each excepted benefit HRA sponsored by a non-
Federal governmental plan, a compensation and benefits manager will 
need 1 hour (at $127.74 per hour) and a lawyer will need 0.5 hours (at 
$138.68 per hour) to prepare the notice. The total burden for an HRA 
plan sponsor will be 1.5 hours with an equivalent cost of approximately 
$197. This burden will be incurred the first time the non-Federal 
governmental plan sponsor provides an excepted benefit HRA.
    In subsequent years, if there are changes in benefits, we estimate 
that a compensation and benefits manager will need 0.5 hours (at 
$127.74 per hour) and a lawyer will need 0.25 hours (at $138.68 per 
hour) to update the notice. The total burden for an HRA plan sponsor 
will be 0.75 hours with an equivalent cost of approximately $99. If 
there are no changes in benefits, the burden to update the notice in 
subsequent years is expected to be minimal and therefore is not 
estimated.
    We estimate that approximately 901 state and local government 
entities will offer excepted benefit HRAs each year.\172\ The total 
burden to prepare the notices will be approximately 1,352 hours with an 
equivalent cost of approximately $177,569. We estimate that 
approximately 10 percent of state and local government entities will 
make substantive changes to benefits each year and the total annual 
burden to update the notices will be approximately 68 hours with an 
equivalent cost of approximately $8,879.
---------------------------------------------------------------------------

    \172\ HHS assumes that only 1 percent of state and local 
government entities will offer excepted benefit HRAs.
---------------------------------------------------------------------------

    Non-Federal governmental sponsors of excepted benefit HRAs must 
provide the notice to eligible participants every year. We estimate 
that sponsors will provide printed copies of these notices to 
approximately 193,715 eligible participants annually.\173\ We 
anticipate that the notices will be approximately 1-page long, and the 
cost of materials and printing will be $0.05 per notice. It is assumed 
that these notices will be provided along with other benefits 
information with no additional mailing cost. We assume that 
approximately 54 percent of notices will be provided electronically and 
approximately 46 percent will be provided in print along with other 
benefits information. Therefore, state and local government entities 
providing excepted benefit HRAs to their employees will print 
approximately 89,109 notices at a cost of approximately $4,455 
annually.
---------------------------------------------------------------------------

    \173\ HHS assumes that excepted benefit HRAs will be offered to 
all employees of state and local government entities that offer 
excepted benefit HRAs. This is an upper bound and actual number of 
eligible participants is likely to be lower if excepted benefit HRAs 
are offered to only some employee classes.
---------------------------------------------------------------------------

    The total burden to prepare and send the notices in the first year 
will be approximately $182,000. In subsequent years, these employers 
will incur a cost of $8,879 to update the notices and printing and 
materials costs of approximately $4,455 annually. The average annual 
burden over 3 years will be 496 hours with an equivalent annual cost of 
$65,109, and an average annual total cost of $69,565.

                                        Table 7--Annual Burden and Costs
----------------------------------------------------------------------------------------------------------------
                                     Estimated
                                  number of non-     Estimated                                         Total
                                      federal        number of     Total annual        Total         estimated
              Year                 governmental   notices to all      burden         estimated     printing and
                                     employers       eligible         (hours)       labor cost    materials cost
                                   offering HRAs   participants
----------------------------------------------------------------------------------------------------------------
2020............................             901         193,715           1,352        $177,569          $4,455
2021............................             901         193,715              68           8,879           4,455
2022............................             901         193,715              68           8,879           4,455
3 year Average..................             901         193,715             496          65,109           4,455
----------------------------------------------------------------------------------------------------------------

    We did not receive any comments on the burden estimates. A summary 
of comments and response on whether the notice should be provided 
annually is included previously in the preamble.

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

    We are amending Sec.  155.420(d)(1)(ii) to codify that qualified 
individuals and dependents who are provided a QSEHRA with a non-
calendar year plan year will be eligible for the special enrollment 
period available to qualified individuals and dependents who are 
enrolled in any non-calendar year group health plan or individual 
health insurance coverage. This special enrollment period is subject to 
pre-enrollment eligibility verification for individuals who are newly 
enrolling in

[[Page 29244]]

coverage through the Exchange, and to plan category limitations for 
Exchange enrollees who use the special enrollment period to change to a 
different QHP. While the FFEs make every effort to verify an 
individual's special enrollment period eligibility through automated 
electronic means, including when it is verifying eligibility on behalf 
of SBE-FPs, the FFEs currently cannot electronically verify whether an 
individual has a non-calendar year plan year QSEHRA. Therefore, 
qualifying individuals will be required to provide supporting 
documentation within 30 days of plan selection to confirm their special 
enrollment period triggering event, which is the end date of their 
QSEHRA. Acceptable documents may include a dated letter from their 
employer stating when their QSEHRA plan year ends or a copy of the 
notice that their employer provided them with to comply with section 
9831(d)(4) of the Code.\174\
---------------------------------------------------------------------------

    \174\ Per IRS Notice 2017-67, this notice must include the date 
on which the QSEHRA is first provided to the eligible employee. 
Therefore, it is likely that in some cases it will also include or 
imply the QSEHRA end date.
---------------------------------------------------------------------------

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

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

    At Sec. Sec.  155.1400 and 155.1405, we codify the flexibility for 
State Exchanges that operate their own eligibility and enrollment 
platforms to customize the display of quality rating information for 
their QHPs. The burden related to the proposed requirements was 
previously approved under OMB control number 0938-1312 (Establishment 
of an Exchange by a State and Qualified Health Plans PRA (CMS-10593)); 
the approval expired in August 2019; however, we are in the process of 
reinstating this information collection. The associated 60-day Federal 
Register notice published on February 25, 2020 (85 FR 10701). We do not 
anticipate that the flexibility we are codifying for State Exchanges 
that operate their own eligibility and enrollment platforms regarding 
the display of quality rating information for their QHPs would increase 
burden, as State Exchanges have the choice to pursue (or not pursue) 
this flexibility.

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

    We are finalizing as proposed Sec.  156.111(f) that specifies the 
type of information states are required to submit to HHS by the annual 
submission deadline in a form and manner specified by HHS. For a 
reporting package to be complete, states will need to submit an annual 
report that complies with each requirement listed at Sec.  
156.111(f)(1) through (6). If a state does not submit an annual 
reporting package by the annual submission deadline, HHS will identify 
which benefits are in addition to EHB for the applicable plan year in 
the state. We are also finalizing the proposed reporting schedule, such 
that states will be required to notify HHS for the first year of 
reporting by July 1, 2021, of any benefits in addition to EHB that QHPs 
are required to cover in plan year 2021 or after plan year 2021 by 
state action taken by May 2, 2021 (60 days prior to the annual 
submission deadline).
    HHS will provide the template(s) to states that states are required 
to use for reporting the required information proposed in Sec.  
156.111(f)(1) through (6). Those templates, including the certification 
form, are available for review as part of the information collection we 
are amending under OMB control number: 0938-1174 (Essential Health 
Benefits Benchmark Plans (CMS-10448)), publishing alongside this final 
rule. We intend to post state submission of these documents on the EHB 
website prior to the end of the plan year during which the reporting 
takes place. If the state does not notify HHS of its state-required 
benefits that are in addition to EHB in accordance with the 
requirements at Sec.  156.111(f), HHS will complete a similar document 
for the state and post it to the CMS website.
    As we did not receive any comments that specifically contested the 
estimated state burden associated with the annual reporting requirement 
and no comments regarding the estimated number of states that we 
anticipate will annually report to HHS versus the number we anticipate 
will opt to have HHS identify which benefits are in addition to EHB for 
the applicable plan year in the state, we are finalizing these 
estimates below.
    We continue to anticipate that the majority of states will choose 
to annually report to HHS under this policy, as states are already 
required under Sec.  155.170 to identify which state-required benefits 
are in addition to EHB and to defray the cost of QHP coverage of those 
benefits. Because we believe the information we are requiring that 
states report to HHS as part of this annual reporting should already be 
readily accessible to states, we estimate that approximately ten states 
will not report and the remaining states will annually report to HHS by 
the annual reporting submission deadline. Therefore, we estimate that 
approximately forty-one (41) states will respond to the information 
collection requirements associated with the finalized annual reporting 
policy.
    For the first year in which the annual reporting will take place, 
states will be required to include a comprehensive list of all state-
required benefits applicable to QHPs in the individual and/or small 
group markets under state mandates that were imposed on or before 
December 31, 2011 and that were not withdrawn or otherwise no longer 
effective before December 31, 2011, as well as those state mandates 
that were imposed after December 31, 2011, regardless of whether the 
state believes such state-required benefits require defrayal in 
accordance with Sec.  155.170. Each annual reporting cycle thereafter, 
the state will only need to update the content in its report to add any 
new state benefit requirements, and to indicate whether state benefit 
requirements previously reported to HHS have been amended or repealed. 
Information in states' initial reports must be accurate as of a day 
that is at least 60 days prior to the first reporting submission 
deadline set by HHS. As such, we estimate that the burden estimates for 
states in the first

[[Page 29245]]

year of annual reporting will be higher than in each subsequent year.
    Although we estimate a higher burden in the first year of annual 
reporting of state-required benefits, states are already expected to 
identify which state-required benefits are in addition to EHB and to 
defray the cost of QHP coverage of those benefits in accordance with 
Sec.  155.170. Because we believe the information we are requiring 
states report to HHS should be readily accessible to states, we 
estimate that it will require a legal support worker 25 hours (at a 
rate of $68.68) to pull and review all mandates, transfer this 
information into the HHS provided template, and validate the 
information in the first year of annual reporting. We estimate that it 
will require a general and operations manager 3 hours (at a rate of 
$119.12) to then review the completed template and submit it to HHS in 
the first year of annual reporting. We estimate that it will require a 
state official 2 hours (at a rate of $192.44) in the first year of 
annual reporting to review and sign the required document(s) for 
submission on behalf of the state, to confirm the accuracy of the 
submission. The information will be submitted to HHS electronically at 
minimal cost. Therefore, we estimate that the burden for each state to 
meet this reporting requirement in the first year will be 30 hours, 
with an equivalent cost of approximately $2,459, with a total first 
year burden for all 41 states of 1,230 hours and an associated total 
first year cost of approximately $100,829.
    Because the first year of annual reporting is intended to set the 
baseline list of state-required benefits which states will update as 
necessary in future annual reporting cycles, we believe the burden 
associated with each annual reporting thereafter will be lower than the 
first year. We estimate that for each annual reporting cycle after the 
first year it will require a legal support worker 10 hours (at a rate 
of $68.68) to transfer the information about state-required benefits 
into the HHS provided template and validate the information. We 
estimate that it will require a general and operations manager 2 hours 
(at a rate of $119.12) to review the completed template and submit it 
to HHS each year after the first annual reporting. We estimate that it 
will require a state official 1 hour (at a rate of $192.44) to review 
and sign the required document(s) for submission on behalf of the 
state, to confirm the accuracy of the submission. Therefore, we 
estimate that the burden for each state to meet the annual reporting 
requirement each year after the first year of annual reporting will be 
13 hours with an equivalent cost of approximately $1,117, with a total 
annual burden for all 41 states of 533 hours and an associated total 
annual cost of approximately $45,817. The average annual burden over 3 
years will be approximately 765 hours with an equivalent average annual 
cost of approximately $64,154.
    We are amending the information collection currently approved under 
OMB control number: 0938-1174 (Essential Health Benefits Benchmark 
Plans (CMS-10448)) to include this burden.

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

    The collection of information titled, ``Establishment of Exchanges 
and Qualified Health Plans; Exchange Standards for Employers'' (OMB 
control number 0938-1341 (CMS-10592)) already accounts for burden 
estimates for QHP issuers to provide notice to an enrollee if the 
enrollee's coverage in a QHP is terminated. Consequently, we are not 
making any changes under the aforementioned control number. Since we 
are not making any changes to the submission process or burden, we are 
not making any changes under the aforementioned control number.

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

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

H. Summary of Annual Burden Estimates for Requirements

[[Page 29246]]



                                                TABLE 8--Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Burden per     Total annual
          Regulation section(s)             OMB control      Number of       Number of       response         burden       Labor cost of    Total cost
                                              number        respondents      responses        (hours)         (hours)     reporting  ($)        ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   146.145(b)(3)(viii)(E)...........       0938-1361             901         193,715           0.003             496          65,109          69,565
Sec.   156.111..........................       0938-1174              41              41            18.7             765          64,154          64,154
                                                         -----------------------------------------------------------------------------------------------
    Total...............................  ..............             942         193,756  ..............           1,261         129,263         133,719
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: There are no capital/maintenance costs associated with the information collection requirements contained in this rule; therefore, we have removed
  the associated column from Table 8.

V. Regulatory Impact Analysis

A. Statement of Need

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

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 
804(2)), and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. A regulatory impact analysis (RIA) must be prepared for 
rules with economically significant effects ($100 million or more in 
any 1 year).
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule: 
(1) Having an annual effect on the economy of $100 million or more in 
any 1 year, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. A RIA 
must be prepared for major rules with economically significant effects 
($100 million or more in any 1 year), and a ``significant'' regulatory 
action is subject to review by OMB. HHS has concluded that this rule is 
likely to have economic impacts of $100 million or more in at least 1 
year, and therefore, is expected to be economically significant under 
Executive Order 12866. Therefore, HHS has provided an assessment of the 
potential costs, benefits, and transfers associated with this rule. In 
accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.
    The provisions in this final rule aim to ensure taxpayer money is 
more appropriately spent and that states have flexibility and control 
over their insurance markets. They will reduce regulatory burden, 
reduce administrative costs for issuers and states, and may lower net 
premiums for consumers. Through the reduction in financial uncertainty 
for issuers and increased affordability for consumers, these provisions 
are expected to increase access to affordable health coverage. Although 
there is still some uncertainty regarding the net effect on premiums, 
we anticipate that the provisions of this final rule will help further 
HHS's goal of ensuring that all consumers have access to quality and 
affordable health care and are able to make informed choices, that the 
insurance market offers choices, and that states have more control and 
flexibility over the operation and establishment of Exchanges.
    Affected entities, such as states, will incur costs related to the 
EHB reporting requirement, defrayal of the cost of state-required 
benefits; implementation of new special enrollment period requirements; 
and non-Federal governmental plan sponsors offering excepted benefit 
HRAs will incur expenses associated with providing a notice. Issuers 
will experience a net increase in rebates paid to consumers due to the 
amendments to the MLR requirements. In accordance with Executive Order 
12866, HHS believes that the benefits of this regulatory action justify 
the costs.

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

    In accordance with OMB Circular No. A-4, Table 9 depicts an 
accounting statement summarizing HHS's assessment of the benefits, 
costs, and transfers associated with this regulatory action.
    This final rule implements standards for programs that will have 
numerous effects, including providing consumers with access to 
affordable health insurance coverage, reducing the impact of adverse 
selection, and stabilizing premiums in the individual and small group 
health insurance markets and in an Exchange. We are unable to quantify 
all benefits and costs of this final rule. The effects in Table 9 
reflect qualitative impacts and estimated direct monetary costs and 
transfers resulting from the provisions of this final rule for health 
insurance issuers and consumers. The annual monetized transfers 
described in Table 9 include an increase in risk adjustment user fee 
transfers and the potential net increase in rebates from

[[Page 29247]]

issuers to consumers due to the amendments to MLR requirements.
    We are finalizing the risk adjustment user fee of $0.25 PMPM for 
the 2021 benefit year to operate the risk adjustment program on behalf 
of states,\175\ which we estimate to cost approximately $60 million in 
benefit year 2021, an increase of $10 million from that estimated for 
the 2020 benefit year. We are also finalizing the FFE user fee rate at 
3.0 percent of premiums and the SBE-FP user fee rate at 2.5 percent of 
premiums, which are the same as the user fee rates for the 2020 benefit 
year.
---------------------------------------------------------------------------

    \175\ As noted earlier in this final rule, no state has elected 
to operate the risk adjustment program for the 2021 benefit year; 
therefore, HHS will operate the program for all 50 states and the 
District of Columbia.

                        Table 9--Accounting Table
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Benefits:
------------------------------------------------------------------------
Qualitative:
     Greater market stability resulting from updates to the risk
     adjustment methodology.
     Increase in consumers' understanding of their excepted
     benefit HRA offer.
     Strengthened program integrity related to provisions to
     terminate QHP coverage for Exchange enrollees who have become
     deceased during a plan year and via processing voluntary
     terminations on behalf of Medicare, Medicaid/CHIP, if applicable,
     BHP, dual enrollees via PDM.
     More plan options for Exchange enrollees newly ineligible
     for CSRs, resulting in increased continuous coverage and associated
     benefit to risk pools.
     Streamlined Exchange operations by eliminating certain
     prospective coverage effective date rules and retroactive payment
     rules for special enrollment periods.
------------------------------------------------------------------------


 
                                                     Estimate                      Discount rate      Period
                      Costs                          (million)      Year dollar      (percent)        covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................         -$54.57            2019               7       2020-2024
                                                          -51.51            2019               3       2020-2024
Quantitative:
     Costs incurred by sponsors of non-
     Federal governmental plans and states to
     comply with provisions related to notice
     requirement for excepted benefit HRAs and
     reporting related to state mandated
     benefits, as detailed in the Collection of
     Information Requirements section, estimated
     to be approximately $182,000 in 2020,
     approximately $105,200 in 2021 and
     approximately $59,000 from 2022 onwards....
     Reduction in potential costs to
     Exchanges since they will not be required
     to conduct random sampling as a
     verification process for enrollment in or
     eligibility for employer-based insurance
     when the Exchange reasonably expects that
     it will not obtain sufficient verification
     data, estimated to be one-time savings of
     $48.5 million in 2020 and annual savings of
     $99 million in 2020 and 2021...............
     Regulatory familiarization costs of
     approximately $169,500 in 2020.............
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Increased costs due to increases in
     providing medical services (if health
     insurance enrollment increases)............
     Potentially minor costs to
     Exchanges and DE partners to update the
     application and logic to account for new
     plan options for Exchange enrollees newly
     ineligible for CSRs and enrollees covered
     by a non-calendar plan year QSEHRA.........
     Potential reduction in costs to
     issuers due to elimination of duplicative
     coverage as part of PDM....................
     Potential reduction in costs to
     consumers due to PDM noticing efforts to
     notify enrollees of duplicative coverage
     and risk for tax liability.................
     Potential costs to the Exchanges
     and consumers to comply with the new
     special enrollment period requirements.....
     Potential reduction in burden for
     Exchanges and issuers to comply with the
     special enrollment period prospective
     coverage effective dates...................
----------------------------------------------------------------------------------------------------------------


 
                                                     Estimate                      Discount rate      Period
                    Transfers                        (million)      Year dollar      (percent)        covered
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized ($/year)...........            $7.7            2019               7       2020-2024
                                                             7.9            2019               3       2020-2024
Other Annualized Monetized ($/year).............            10.2            2019               7       2020-2024
                                                            10.6            2019               3       2020-2024
----------------------------------------------------------------------------------------------------------------
Quantitative:
     Federal Transfers: Increase in risk
     adjustment user fee transfers from issuers
     to the federal government by $10 million
     starting in 2021, compared to that
     estimated for the prior benefit year.......

[[Page 29248]]

 
     Other Transfers: Net increase in
     transfers from health insurance issuers to
     consumers in the form of rebates of $18.2
     million per year starting in 2022 MLR
     reporting year, due to amendments to the
     MLR requirements...........................
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Potential decreases in premiums and
     PTCs associated with adjustments to MLR....
     Potential decrease in APTC and CSR
     payments due to reduction in duplicative
     coverage and retroactive termination of
     coverage to the date of death as part of
     PDM and more accurate defrayal of costs for
     state mandated benefits....................
     Transfer of costs from issuers to
     states to the extent that a state will
     newly defray the cost of state-required
     benefits it should have already been
     defraying..................................
----------------------------------------------------------------------------------------------------------------

    This RIA expands upon the impact analyses of previous rules and 
utilizes the Congressional Budget Office's (CBO) analysis of the 
PPACA's impact on Federal spending, revenue collection, and insurance 
enrollment. The PPACA ends the transitional reinsurance program and 
temporary risk corridors program after the benefit year 2016. 
Therefore, the costs associated with those programs are not included in 
Table 9 or 10. Table 10 summarizes the effects of the risk adjustment 
program on the Federal budget from FYs 2020 through 2024, with the 
additional, societal effects of this final rule discussed in this RIA. 
We do not expect the provisions of this final rule to significantly 
alter CBO's estimates of the budget impact of the premium stabilization 
programs that are described in Table 10.
    In addition to utilizing CBO projections, HHS conducted an internal 
analysis of the effects of its regulations on enrollment and premiums. 
Based on these internal analyses, we anticipate that the quantitative 
effects of the provisions in this rule are consistent with our previous 
estimates in the 2020 Payment Notice for the impacts associated with 
the APTCs, the premium stabilization programs, and FFE and SBE-FP user 
fee requirements.

 Table 10--Estimated Federal Government Outlays and Receipts for the Risk Adjustment and Reinsurance Programs From Fiscal Year 2020-2024, in Billions of
                                                                       Dollars \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       Year                               2020             2021             2022             2023             2024          2020-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Adjustment and Reinsurance Program Payments..               5                6                6                6                7               30
Risk Adjustment and Reinsurance Program                          5                6                6                6                7               30
 Collections......................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Reinsurance collections ended in FY 2018 and outlays in subsequent years reflect remaining payments, refunds, and allowable activities.
Note: Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over time.
Source: Congressional Budget Office. Net Federal Subsidies Associated With Health Insurance Coverage, 2020 to 2030: Table From CBO's March 2020
  Baseline. March 6, 2020. Available at https://www.cbo.gov/about/products/baseline-projections-selected-programs#6.

1. Notice Requirement for Excepted Benefit HRAs Offered by Non-Federal 
Governmental Plan Sponsors (Sec.  146.145(b)(3)(viii)(E))
    In Sec.  146.145(b)(3)(viii)(E), we require that an excepted 
benefit HRA offered by a non-Federal governmental plan sponsor must 
provide, on an annual basis, a notice that describes conditions 
pertaining to eligibility to receive benefits, annual or lifetime caps 
or other limits on benefits under the plan, and a description or 
summary of the benefits. This notice will provide employees with clear 
information regarding excepted benefit HRAs offered by their employers. 
Excepted benefit HRAs sponsored by non-Federal governmental entities 
will incur costs to provide the notice as detailed previously in the 
Collection of Information Requirements section.
2. Early Retiree Reinsurance Program (Part 149)
    The provision to remove the regulations at part 149 of title 45 
governing the ERRP will not have any direct regulatory impact since the 
ERRP sunset as of January 1, 2014. However, removing the regulations 
will reduce the volume of Federal regulations.
3. Risk Adjustment
    The risk adjustment program is a permanent program created by 
section 1343 of the PPACA that collects charges from issuers with 
lower-than-average risk populations and uses those funds to make 
payments to issuers with higher-than-average risk populations in the 
individual, small group, and merged markets (as applicable), inside and 
outside the Exchanges. We established standards for the administration 
of the risk adjustment program in subparts A, B, D, G, and H of part 
153.
    If a state is not approved to operate, or chooses to forgo 
operating its own risk adjustment program, HHS will operate risk 
adjustment on its behalf. For the 2021 benefit year, HHS will operate a 
risk adjustment program in every state and the District of Columbia. As 
described in the 2014 Payment Notice, HHS's operation of risk 
adjustment on behalf of states is funded through a risk adjustment user 
fee. For the 2021 benefit year, we have used the same methodology that 
we finalized in the 2020 Payment Notice to estimate our administrative 
expenses to operate the program. Risk adjustment user fee costs for the 
2021 benefit year are expected to increase from the prior 2020 benefit 
year estimates of approximately $50 million to approximately $60 
million. We estimate that the total cost for HHS to

[[Page 29249]]

operate the risk adjustment program on behalf of states and the 
District of Columbia for 2021 will be approximately $60 million, and 
the risk adjustment user fee will be $0.25 PMPM. Because of the 
increase in costs estimated for the 2021 benefit year, we expect the 
final risk adjustment user fee for the 2021 benefit year to increase 
transfers from issuers of risk adjustment covered plans to the Federal 
Government by $10 million.
    Additionally, to use risk adjustment factors that reflect more 
recent treatment patterns and costs, we will recalibrate the HHS risk 
adjustment models for the 2021 benefit year by using more recent claims 
data to develop updated risk factors, as part of our continued 
assessment of modifications to the HHS-operated risk adjustment program 
for the individual and small group (and merged) markets. We will 
discontinue our reliance on MarketScan[supreg] data to recalibrate the 
risk adjustment models, and adopt an approach of using the 3 most 
recent years of available enrollee-level EDGE data for recalibration of 
the risk adjustment models for the 2021 benefit year and beyond. We 
believe that the approach of blending (or averaging) 3 years of 
separately solved coefficients will provide stability within the risk 
adjustment program and minimize volatility in changes to risk scores 
from the 2020 benefit year to the 2021 benefit year due to differences 
in the datasets' underlying populations. We will also incorporate the 
proposed HCC changes beginning with the 2021 benefit year risk 
adjustment models to transition from the ICD-9 to ICD-10 codes. We do 
not expect these changes to affect the absolute value of risk 
adjustment transfers, or impact issuer burden beyond what we previously 
estimated in the 2020 Payment Notice.
4. Risk Adjustment Data Validation (Sec. Sec.  153.350 and 153.630)
    We are making changes to the RADV methodology for identifying 
outliers, which results in adjustments to transfers under Sec.  
153.350. Beginning with the 2019 benefit year of RADV, we will consider 
issuers to be outliers only if they have 30 or more HCCs recorded on 
EDGE for any HCC group in which their failure rate appears anomalous. 
As only a very small number of issuers will be affected by this change, 
and those affected already have small total plan liability risk scores 
for the affected HCC groups due to their low HCC counts, we expect the 
total reduction of burden to issuers to be small. Projections based on 
2017 benefit year RADV adjustments estimate an overall 0.7 percent 
reduction in absolute RADV transfer adjustments across all issuers for 
benefit years to which this change may apply.
    We are also finalizing that the 2019 benefit year RADV will serve 
as a second pilot year for the purposes of prescription drug data 
validation in addition to the 2018 benefit year RADV. This second pilot 
year will provide HHS and issuers with 2 full years of experience with 
the data validation process for prescription drugs before adjusting 
transfers. We do not expect this to affect the magnitude of RADV 
adjustments to risk adjustment transfers, or to impact issuer burden or 
administrative costs beyond what we previously estimated in the 2020 
Payment Notice.
5. Verification Process Related to Eligibility for Insurance 
Affordability Programs (Sec.  155.320)
    We are finalizing the policy that HHS will not take enforcement 
action against Exchanges that do not perform random sampling as 
required by Sec.  155.320(d)(4), when the Exchange does not reasonably 
expect to obtain sufficient verification data as described in Sec.  
155.320(d)(2)(i) through (iii), for plan years 2020 and 2021. In the 
2019 Payment Notice final rule, we discussed the burden associated with 
sampling based in part on the alternative process used for the 
Exchanges. HHS incurred approximately $750,000 in costs to design and 
operationalize a study in 2016 and the study indicated that $353,581 of 
APTC was potentially incorrectly granted to individuals who 
inaccurately attested to their enrollment in or eligibility for a 
qualifying eligible employer-sponsored plan. We placed calls to 
employers to verify 15,125 cases but were only able to verify 1,948 
cases. A large number of employers either could not be reached or were 
unable to verify a consumer's information, resulting in a verification 
rate of approximately 13 percent. The sample-size involved in the 2016 
study did not represent a statistically significant sample of the 
target population and did not fulfill all regulatory requirements for 
sampling under paragraph (d)(4)(i) of Sec.  155.320.
    We estimate that the overall one-time cost of implementing sampling 
would have been approximately $8 million for the Exchanges using the 
Federal platform, and between $2 million and $7 million for other 
Exchanges, depending on their enrollment volume and existing 
infrastructure. Therefore, we estimate that the average per-Exchange 
cost of implementing sampling that resembles the approach taken by the 
Exchanges using the Federal platform would have been approximately $4.5 
million for State Exchanges that operate their own eligibility and 
enrollment platform, for a total cost of $58.5 million for the 13 State 
Exchanges that operate their own eligibility and enrollment platform 
(operating in 12 States and the District of Columbia). However, we are 
aware that 4 State Exchanges that operate their own eligibility and 
enrollment platform have already incurred costs to implement sampling 
and estimate that they have incurred one-time costs of approximately 
$4.5 million per Exchange with a total of $18 million and will only 
experience savings related to recurring costs. Therefore, the one-time 
savings for Exchanges using the Federal platform and the remaining 
State Exchanges that operate their own eligibility and enrollment 
platform will be approximately $48.5 million.
    We estimate the annual costs to conduct sampling on a statistically 
significant sample size of approximately 1 million cases to be 
approximately $8 million for the Exchanges using the Federal platform 
and $7 million on average for each State Exchange that operates its own 
eligibility and enrollment platform. This estimate includes operational 
activities such as noticing, inbound and outbound calls to the 
Marketplace call center, and adjudicating consumer appeals. The total 
annual cost to conduct sampling would have been $91 million for 13 
State Exchanges. Therefore, the total annual cost for the Exchanges 
using the Federal platform and the 13 State Exchanges that operate 
their own eligibility and enrollment platform would have been $99 
million. We estimated that relieving Exchanges of the requirement to 
conduct sampling for plan years 2020 and 2021 will result in annual 
savings of approximately $99 million. We solicited comment on this 
estimate.
    We received no public comments on these proposed cost savings, and 
therefore, we are finalizing as proposed.
6. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
    We are amending Sec.  155.330(e)(2)(i)(D) to clarify that the 
Exchanges will not redetermine eligibility for APTC/CSRs for Medicare, 
Medicaid/CHIP, and, if applicable, BHP for dual enrollees who provide 
written consent for Exchanges to end their QHP coverage prior to 
terminating the coverage. We anticipate that this will benefit dual 
enrollees, as processing a voluntary termination mitigates the risk for 
future tax liability for APTC/CSRs paid inappropriately during months 
of overlapping coverage. It will also streamline the termination

[[Page 29250]]

process. Additionally, we believe this provision will safeguard 
consumers against being enrolled in unnecessary or duplicative 
coverage. This provision may reduce burden on Exchanges by allowing 
them to streamline their PDM operations since eligibility 
redeterminations for APTC/CSRs are not necessary when processing a 
voluntary termination of coverage for a dual enrollee who has permitted 
the Exchange to do so, and will provide Exchanges with more flexibility 
in their operations.
    We solicited comment on the impacts of the proposal. We received no 
public comments on costs or anticipated burden on states with regard to 
the proposed changes. Therefore, we are finalizing as proposed.
    We further amend Sec.  155.330(e)(2)(i)(D) by adding new language 
that clarifies when the Exchange identifies deceased enrollees via PDM, 
the Exchange will follow the process outlined in Sec.  155.430(d)(7) 
and terminate coverage retroactively to the date of death, without the 
need to redetermine the eligibility of the deceased enrollee. We 
believe this change will reduce the amount of time a deceased enrollee 
remains in QHP coverage while receiving APTC/CSRs. Additionally, we 
believe this provision will not increase burden on State Exchanges that 
operate their own eligibility and enrollment platform because we 
believe these changes merely clarify the operational process when 
conducting checks for deceased enrollees and would not impose new 
requirements on State Exchanges that operate their own eligibility and 
enrollment platform. Additionally, this provision may help streamline 
Exchanges' PDM operations, as eligibility redeterminations are not 
necessary when termination of coverage is for a deceased enrollee, and 
will provide Exchanges with more flexibility in their operations.
    We solicited comment on the impacts of the proposal. We received no 
public comments on costs or anticipated burden on states with regard to 
the proposed changes. Therefore, we are finalizing as proposed.
7. Special Enrollment Periods (Sec.  155.420)
a. Exchange Enrollees Newly Ineligible for CSRs
    We are amending Sec.  155.420(a)(4) to allow enrollees who qualify 
for a special enrollment period due to becoming newly ineligible for 
CSRs to change to a QHP one metal level higher or lower, but delaying 
to January 2022 the effective date for this modification to allow 
Exchanges more time to implement the change. We anticipate that this 
will benefit applicable enrollees and dependents by providing them with 
additional flexibility to change to a plan better suited to their needs 
based on changes to their premiums and/or cost-sharing requirements. In 
some cases, this change may help enrollees to maintain continuous 
coverage for themselves and for their dependents when they otherwise 
would have no longer been able to afford higher premiums or increased 
cost-sharing requirements of their current silver-level plan. This 
provision may also provide some benefit to the individual market risk 
pool by making it easier for those affected to maintain continuous 
coverage in spite of potentially significant changes in their out-of-
pocket health care costs. Regardless, we believe that this change will 
not have a negative impact on the individual market risk pool, because 
most applicable enrollees will seek to change coverage based on 
financial rather than health needs. However, this provision will impose 
a small cost to Exchanges that have implemented plan category 
limitations, because it will require a change to application and plan 
selection system logic to permit applicable enrollees and dependents to 
change to gold or bronze level plans after having previously restricted 
them to silver level plans. We solicited comments on the extent to 
which Exchanges would experience burden due to the change, and 
regarding potential burden on FFE Direct Enrollment and Enhanced Direct 
Enrollment partners, as well as more generally on the impact of the 
proposal.
    Several commenters supported providing State Exchanges with 
flexibility related to implementing special enrollment period policy 
changes because they often necessitate resource-intensive work. 
However, a wide range of commenters supported this proposal because 
they believed it would reduce burden on affected Exchange enrollees by 
allowing them to change their QHP selection based on a change to their 
financial circumstances. Some of these commenters noted that this 
change could allow some enrollees to maintain coverage who otherwise 
would not have been able to do so, which supports our belief that this 
provision may have a small but positive impact on the individual market 
risk pool. Therefore, while we are aware that this change will likely 
impose burden on State Exchanges required to implement it, we believe 
that the benefit of finalizing it will outweigh the cost and that 
delaying the effective date for this modification will give Exchanges 
sufficient time to incorporate it into their development priorities and 
allocate resources accordingly.
b. Special Enrollment Period Limitations for Enrollees Who Are 
Dependents
    We believe that the new provision in Sec.  155.420(a)(4)(iii)(C) 
will not impose burden on Exchanges, because it will streamline the 
rules at Sec.  155.420(a)(4) by ensuring that all existing enrollees 
are treated in the same way, and therefore, may simplify 
implementation. We also anticipate that it will help mitigate confusion 
on the part of issuers, Exchanges, and consumers by clarifying that the 
2017 Market Stabilization Rule's intent was to apply the same 
limitations to dependents who are currently enrolled in Exchange 
coverage that it applies to current, non-dependent Exchange enrollees.
    However, we solicited comment from Exchanges on whether this is the 
case, and if not, on the costs that the proposal would impose in terms 
of updates to application system logic, as well as potential consumer 
burden based on the number of enrollees who might be affected by this 
type of plan category limitation.
    Several commenters expressed support for this proposal based on its 
simplification of current regulations. However, several commenters 
opposed this proposal based on their belief that a parent or guardian 
should be able to re-evaluate their household's QHP selection based on 
metal level when newly enrolling in Exchange coverage with currently-
enrolled dependents. Additionally, similar to the other plan category 
limitation-related proposal, we did not receive comments that 
specifically contradicted our understanding that this change would 
impose some limited burden on Exchanges, but several commenters cited 
strong support for providing State Exchanges with flexibility related 
to implementing special enrollment period policy changes because they 
often necessitate resource-intensive work. Some of these commenters 
also voiced strong opposition to plan category limitations more 
generally. While we are sensitive to State Exchange concerns about the 
cost of implementing changes to system logic, we believe that the 
benefit of this provision in terms of simplifying plan category 
limitation rules and ensuring that these rules work as intended will 
outweigh the cost.

[[Page 29251]]

c. Special Enrollment Period Prospective Coverage Effective Dates
    Our revision to transition special enrollment periods previously 
following regular effective date rules to instead be effective on the 
first of the month following plan selection in Exchanges using the 
Federal platform will improve long-term operational efficiency through 
standardization for issuers and the Exchanges using the Federal 
platform, while reducing consumer confusion and minimizing gaps in 
coverage. We do not expect issuers to incur substantial new costs by 
aligning these effective dates, as issuers routinely effectuate 
coverage on the first of the month following plan selection or faster.
    Additionally, because billing is tied to effective dates, 
transitioning to these more expedited effective dates in the Exchanges 
using the Federal platform will simplify issuer billing practices. 
Operationalizing the aligned prospective effective dates may reduce 
system errors and related casework, as well as confusion for consumers, 
issuers, and caseworker and call center staff based on different rules 
applying for different scenarios. Also, we believe eliminating the 
requirement that Exchanges demonstrate that all of their participating 
QHP issuers agree to effectuate coverage in a shorter timeframe will 
reduce burden for both issuers and Exchanges. We did not receive 
comments on this analysis.
d. Special Enrollment Period Retroactive Coverage Effective Dates
    We are eliminating the special rule for retroactive effective dates 
after an enrollment has been pended due to special enrollment period 
verification and to simplify applicability of retroactive effective 
date and binder payment rules to clarify the ability of consumers 
effectuating enrollments with retroactive effective dates to select 
prospective coverage by paying only one month's premium. This will 
improve long-term operational efficiency for issuers and Exchanges, 
while reducing confusion for consumers, issuers, and caseworker and 
call center staff based on different rules for different scenarios. We 
do not expect issuers to incur new costs in streamlining applicability 
of the retroactive effective date rule. Under previous Sec.  
155.400(e)(1)(iii), issuers already received transactions for 
retroactive coverage and assigned coverage effective dates either 
retroactively or prospectively based on consumer payments. This change 
will simply eliminate the complexity for an issuer to have to determine 
the appropriate binder payment rule to apply to an enrollment with a 
retroactive effective date when issuers receive only 1 month's premium. 
Finally, because issuers, not Exchanges using the Federal platform, are 
responsible for assigning effective dates based on premium payments 
received under this policy, Exchanges using the Federal platform will 
not incur costs based on this change. We did not receive comments on 
this analysis.
e. Enrollees Covered by a Non-Calendar Year Plan Year QSEHRA
    We are amending Sec.  155.420(d)(1)(ii) to codify the special 
enrollment period available to qualified individuals and dependents who 
are provided a QSEHRA with a non-calendar year plan year. We expect 
that this will impose some burden on Exchanges and off-Exchange 
individual health insurance issuers that implement pre-enrollment 
eligibility verification for special enrollment periods due to related 
updates to the application and the need to train staff that reviews 
documents from applicants to verify special enrollment period 
eligibility. However, we believe that this burden will be limited 
because the ``non-calendar year plan year special enrollment period'' 
is already subject to pre-enrollment eligibility verification, and 
because individuals who qualify may already be enrolled in Exchange 
coverage, and therefore, not subject to pre-enrollment eligibility 
verification. We also anticipate that this provision will impose 
limited burden on FFE Enhanced Direct Enrollment partners, because 
required changes for these partners will be limited to updating 
application question wording.
    Additionally, while this provision will provide QSEHRA participants 
an opportunity to change their individual health insurance plan, we 
believe that uptake will be limited as most eligible employees will 
likely not want to change to a new QHP during the QHP's plan year 
because such a change would result in their deductibles and other 
accumulators re-setting. Similarly, we believe that burden on issuers 
related to adverse selection will be limited due to low uptake because 
of the disadvantages to enrollees of changing their coverage during its 
plan year, and because the special enrollment period at Sec.  
155.420(d)(1)(ii) is subject to plan category limitations per Sec.  
155.420(a)(4)(iii). We solicited comments on this proposal, including 
from Exchanges, on implementation burden and costs.
    Commenters generally expressed support for this proposal, and we 
did not receive comments that this change would create burden for State 
Exchanges or other key stakeholders.
8. Effective Dates for Terminations (Sec.  155.430)
    As discussed earlier in the preamble to Sec.  155.430, this 
provision will align the provision for termination after an enrollee 
experiences a technical error that does not allow her to terminate her 
coverage or enrollment through the Exchange with all other enrollee-
initiated termination effective date rules under Sec.  155.430. 
Specifically, at the option of the Exchange, the enrollee will no 
longer have to provide 14-days advance notice before the termination 
becomes effective. Exchanges and issuers are not expected to incur new 
costs by aligning these termination dates, as Exchanges and issuers are 
both well acquainted with same-day termination transactions. Further, 
similar to the 2019 updates to Sec.  155.430(d)(2), this provision will 
retain State Exchange flexibility to choose whether to implement this 
change. Operationalizing the aligned termination dates might reduce 
system errors and related casework, as well as confusion for consumers, 
issuers, and caseworker and call center staff based on contradictory 
rules for different scenarios.
9. Quality Rating Information Display Standards for Exchanges 
(Sec. Sec.  155.1400 and 155.1405)
    We are amending Sec. Sec.  155.1400 and 155.1405 to codify the 
flexibility for State Exchanges that operate their own eligibility and 
enrollment platforms, to customize the display of quality rating 
information on their websites. We expect that this will impose minimal 
burden on State Exchanges. In particular, these State Exchanges have 
the choice to pursue this flexibility or to display the quality rating 
information assigned for each QHP as provided by HHS. Further, a few 
State Exchanges during the display pilot have already chosen to display 
quality rating information with some state-specific customizations to 
incorporate additional state or local information or to modify the 
names of the QRS quality ratings.
10. FFE and SBE-FP User Fees (Sec.  156.50)
    For 2021, we considered two alternative proposals. First, we 
proposed to maintain the FFE and the SBE-FP user fee rates at current 
levels, 3.0 and 2.5 percent of premiums, respectively. Alternatively, 
we considered and solicited comment on reducing the user fee rates 
below the 2020 benefit year levels. If the user fees

[[Page 29252]]

are lowered below the 2020 benefit year levels, FFE and SBE-FP user fee 
transfers from issuers to the Federal Government would be lower 
compared to those estimated for the prior benefit year.
    We are finalizing the FFE user fee rate at 3.0 percent of premiums 
and the SBE-FP user fee rate at 2.5 percent of premiums, which are the 
same as the user fee rates for the 2020 benefit year. Therefore, there 
will be no change in user fee transfers.
11. State Selection of EHB-Benchmark Plan for Plan Years Beginning on 
or After January 1, 2020 (Sec.  156.111)
    We are amending Sec.  156.111(d) and adding a new paragraph (f) to 
require states to annually report to HHS any state-required benefits in 
addition to EHB in accordance with Sec.  155.170 that are applicable to 
QHPs in the individual and/or small group markets. As finalized, if the 
state does not report to HHS its state-required benefits considered to 
be in addition to EHB by the annual reporting submission deadline, HHS 
will identify which benefits are in addition to EHB for the state for 
the applicable plan year. We also specify at Sec.  156.111(f)(1) 
through (6) the type of documentation states will be required to submit 
as part of the annual reporting, which among other requirements will 
need to be signed by a state official with authority to make the 
submission on behalf of the state, to confirm the accuracy of the 
submission.
    Comment: Many commenters stated that an annual reporting 
requirement would be an additional administrative burden on states, the 
type the Administration instructed agencies to reduce to the maximum 
extent permitted by law and duplicate the burden states already bear as 
the entities responsible for identifying which mandates require 
defrayal. To ease burden, one commenter recommended that HHS leverage 
the existing reporting related to EHB rather than creating a new, 
duplicative report. For example, one commenter stated that HHS making 
determinations in the states' place about which state-required benefits 
are in addition to EHB conflicts with Executive Order 13865, ``Reducing 
Regulatory Burdens Imposed by the Patient Protection and Affordable 
Care Act & Improving Healthcare Choice To Empower Patients,'' which 
directs HHS ``to the maximum extent permitted by law, provide relief 
from any provision or requirement of the PPACA that would impose a 
fiscal burden on any State. . . .'' \176\ Commenters also expressed 
concerned that the annual reporting requirement will be so burdensome 
that it will discourage states from adopting changes to provide 
additional health benefits to consumers or even deter states from 
updating their EHB-benchmark plan.
---------------------------------------------------------------------------

    \176\ Executive Order 13865, ``Reducing Regulatory Burdens 
Imposed by the Patient Protection and Affordable Care Act & 
Improving Healthcare Choice To Empower Patients,'' 82 FR 26885, 
26886 (June 12, 2017) available at https://www.govinfo.gov/content/pkg/FR-2017-06-12/pdf/2017-12130.pdf.
---------------------------------------------------------------------------

    Response: We recognize that requiring states to annually report to 
HHS will require that states submit additional paperwork to HHS on an 
annual basis. However, because states are already required under Sec.  
155.170 to identify which state-required benefits are in addition to 
EHB and to defray the cost of those benefits, we believe any burden 
experienced by states will be minimal and that this reporting 
requirement will be complementary to the process the state should 
already have in place for tracking and analyzing state-required 
benefits. Additionally, states may opt not to report this information 
and instead let HHS make this determination for them.
    We also believe any such burden is justified to ensure that HHS is 
not paying APTC for portions of premium attributable to non-EHB. We 
continue to be concerned that there are states not defraying the costs 
of their state-required benefits in addition to EHB in accordance with 
Federal requirements. For such states, the burden may be higher to meet 
the annual reporting requirement to the extent it requires the state to 
begin tracking, analyzing, and identifying state-required benefits for 
purposes of determining whether defrayal is required. However, we 
believe the annual reporting requirement is necessary to help states be 
diligent about their framework for determining which mandates are in 
addition to EHB in accordance with Sec.  155.170 and to partner with 
HHS on improving program integrity. This requirement properly aligns 
with Federal requirements for defraying the cost of state-mandated 
benefits, will generally improve transparency with regard to the types 
of benefit requirements states are enacting, and will provide the 
necessary information to HHS for increased oversight over whether 
states are appropriately determining which state-required benefits 
require defrayal and whether QHP issuers are properly allocating the 
portion of premiums attributable to EHB for purposes of calculating 
PTCs.
    We acknowledge that some states may already be appropriately 
identifying which state-required benefits are in addition to EHB, and 
that these states may have already developed an effective process for 
defraying the cost of these state-required benefits. However, we 
believe many other states are not doing so, and that this annual 
reporting policy will assist in achieving greater compliance with Sec.  
155.170 in all states, and therefore, broadly strengthen program 
integrity. Furthermore, we disagree that requiring already compliant 
states to annually report would be disruptive or unnecessarily 
burdensome given that the information included in the annual reports 
should already be readily accessible to states, especially already 
compliant states. We believe any burden will be limited to the 
completion of the HHS templates, validation of that information, and 
submission of the templates to HHS. These costs have been discussed 
previously in the Collection of Information Requirements section. We 
also believe standardizing the form and manner of the report and the 
data elements required (rather than allowing states to determine the 
form and manner of reporting) is important for consistency year after 
year and for ensuring HHS has the information necessary to adequately 
oversee state compliance with Sec.  155.170.
    We do not anticipate these requirements will add any new burden on 
non-reporting states as they will be relying on HHS to make these 
determinations and fill out these templates for them. Because we are 
also finalizing that HHS's identification of which benefits are in 
addition to EHB in non-reporting states will become part of the 
definition of EHB for the applicable state for the applicable year, 
this may require states to defray more benefits than the state 
currently defrays or anticipated having to defray. In this scenario, we 
acknowledge the annual reporting requirement may generate additional 
costs for a state that defers the task of identifying state-mandated 
benefits that require defrayal to HHS in order to properly align the 
state with Federal requirements regarding defrayal.
    To the extent that this provision will cause a state to newly 
defray the cost of state-required benefits, this will represent a 
transfer of costs from the issuer to the state, as the issuer might 
have been previously covering the costs of benefits for which the state 
should have been defraying. In the event that the annual reporting 
requirement causes states to newly identify state-required benefits as 
being in addition to EHB that were previously being incorrectly

[[Page 29253]]

covered as part of EHB, this may decrease the amount of PTC for 
enrollees in the state as the percent of premium allocable to EHB will 
be reduced.
    We again emphasize that section 36B(b)(3)(D) of the Code specifies 
that the portion of the premium allocable to state-required benefits in 
addition to EHB shall not be taken into account in determining a PTC. 
As such, we believe any burden resulting from the finalized annual 
reporting requirement is necessary to ensure that the federal 
government is not paying APTC for portions of premiums attributable to 
non-EHB in violation of this provision.
12. Provisions Related to Cost Sharing (Sec.  156.130)
    The Affordable Care Act provides for the reduction or elimination 
of cost sharing for certain eligible individuals enrolled in QHPs 
offered through the Exchanges. This assistance is intended to help many 
low- and moderate-income individuals and families obtain health 
insurance.
    We are finalizing the reductions in the maximum annual limitation 
on cost sharing for silver plan variations as proposed. Consistent with 
our analysis in previous Payment Notices, we developed three model 
silver level QHPs and analyzed the impact on their AVs of the 
reductions described in the PPACA to the estimated 2021 maximum annual 
limitation on cost sharing for self only coverage of $8,550. We do not 
believe the changes to the maximum annual limitation on cost sharing or 
the reductions in this parameter for silver plan variations will result 
in a significant economic impact.
    We are also finalizing the premium adjustment percentage for the 
2021 benefit year at the proposed value of 1.3542376277, based on the 
NHEA data available at the time of proposal. Section 156.130(e) 
provides that the premium adjustment percentage is the percentage (if 
any) by which the average per capita premium for health insurance 
coverage for the preceding calendar year exceeds such average per 
capita premium for health insurance for 2013. The annual premium 
adjustment percentage sets the rate of increase for three parameters 
detailed in the Affordable Care Act: The annual limitation on cost 
sharing (defined at Sec.  156.130(a)), the required contribution 
percentage used to determine eligibility for certain exemptions under 
section 5000A of the Code, and the assessable payments under sections 
4980H(a) and 4980H(b). In response to comments, we have finalized the 
premium adjustment percentage, required contribution percentage, and 
related parameters based on the NHEA data that were available as of the 
publication of the proposed rule. This approach differs from the 
approach taken by HHS in the 2020 Payment Notice, wherein we updated 
the premium adjustment percentage based on updates to the NHEA data 
that took place between the publication of the proposed rule and the 
publication of the final rule.
    We are finalizing the 2021 premium adjustment percentage as 
proposed without updates to reflect the most recent NHEA data available 
as of the publication of the proposed rule in order to increase the 
transparency and predictability of premium adjustment percentage and 
related parameters for stakeholders.
    We believe that the premium adjustment percentage of 1.3542376277 
based on average per enrollee private health insurance premiums 
(excluding Medigap and property and casualty insurance), and as 
calculated based on NHEA data available as of the publication of the 
proposed rule, is well within the parameters used in the modeling of 
the Affordable Care Act, and we do not expect that these finalized 
values will alter CBO's May 2018 baseline estimates of the budget 
impact beyond the changes described in the 2020 Payment Notice.
13. Cost-Sharing Requirements and Drug Manufacturers Support (Sec.  
156.130)
    We are revising Sec.  156.130(h) in its entirety to state, 
notwithstanding any other provision of the annual limitation on cost 
sharing regulation, and to the extent consistent with state law, 
amounts of direct support offered by drug manufacturers to enrollees 
for specific prescription drugs towards reducing the cost sharing 
incurred by an enrollee using any form are not required to be counted 
toward the annual limitation on cost sharing. We believe that this will 
impose minimal burden, as it reflects the longstanding practice of 
health insurance issuers and group health plans determining whether 
drug manufacturer direct support to enrollees for specific prescription 
drugs counts toward the annual limitation on cost sharing.
    Comment: Some commenters expressed concerns that consumers would 
experience higher health care utilization and greater overall health 
care costs.
    Response: While we appreciate concerns that the proposal may raise 
out-of-pocket costs for consumers, we believe the impact of such costs 
will be limited as issuers and group health plans were provided with 
sufficient notice that longstanding plan designs need not change for 
plan year 2020 with regard to how direct drug manufacturer support 
amounts count towards the annual limitation on cost sharing. By 
finalizing this policy, issuers and group health plans may continue 
their longstanding practices with regard to how and whether direct drug 
manufacturer support accrues towards an enrollee's annual limitation on 
cost sharing. This, combined with FAQ Part 40 released in August 2019, 
should prevent or mitigate changes to how issuers and group health 
plans have historically handled direct drug manufacturer support 
amounts. Therefore, we anticipate that there will be minimal overall 
disruption to consumers.
14. Requirements for Timely Submission of Enrollment Reconciliation 
Data (Sec.  156.265)
    In the Establishment of Exchanges and Qualified Health Plans; 
Exchange Standards interim final rule,\177\ we established standards 
for the collection and transmission of enrollment information. At Sec.  
156.265(f), we set forth standards on the enrollment reconciliation 
process, specifying that issuers must reconcile enrollment with the 
Exchange no less than once a month. Although the regulations in Sec.  
156.265 require issuers to reconcile enrollment with the Exchange 
monthly, they do not specify standards for the format or quality of 
these data exchanges, such as the manner in which enrollment updates 
must be reflected in updates of previously submitted enrollment data, 
or the timeframe in which issuers should report data updates and data 
errors to the Exchange. To clarify these procedures, we are amending 
Sec.  156.265(f) to require a QHP issuer to include in its enrollment 
reconciliation submission to the Exchange the most recent enrollment 
information that is available and that has been verified to the best of 
its knowledge or belief. We are also amending Sec.  156.265(g) to 
direct a QHP issuer to update its enrollment records as directed by the 
Exchange (or for QHP issuers in SBE-FPs, the Federal platform), and to 
inform the Exchange (or for QHP issuers in SBE-FPs, the Federal 
platform) if any such directions are in error within 30 days. In SBE-
FPs, references in this section to the Exchange should be understood to 
mean HHS, as administrator of the Federal platform. We believe these 
amendments will encourage more timely reconciliation and error 
reporting, resulting in an improved consumer

[[Page 29254]]

experience. However, because we believe that issuers are already 
routinely conducting verifications of internal enrollment data at 
various points in the year, we do not believe that these clarifying 
standards on the process for submitting enrollment and reconciliation 
data will materially impact issuer burden, beyond what we estimated in 
the Exchange Establishment rules.
---------------------------------------------------------------------------

    \177\ See 77 FR 18309 at 18425.
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15. Dispute of HHS Payment and Collections Reports (Sec.  156.1210)
    In the 2014 Payment Notice,\178\ we established provisions related 
to confirmation and dispute of payment and collection reports. These 
provisions were written under the assumption that issuers would 
generally be able to provide these confirmations or disputes 
automatically to HHS. We are amending Sec.  156.1210 by lengthening the 
time to report payment errors from 15 days to 90 days to allow issuers 
the option of researching, reporting, and correcting errors through 
other channels. We believe this change will slightly reduce issuer 
burden compared to what was previously estimated in the 2014 Payment 
Notice.
---------------------------------------------------------------------------

    \178\ See 78 FR 65045 at 65080.
---------------------------------------------------------------------------

16. Medical Loss Ratio (Sec. Sec.  158.110, 158.140, 158.150, and 
158.160)
    We are amending Sec.  158.110(a) to clarify that for MLR purposes, 
issuers must report expenses for functions outsourced to or services 
provided by other entities consistently with how issuers must report 
directly incurred expenses. We do not expect this amendment to impact 
issuer burden as it does not fundamentally change the existing 
requirements. We are also amending Sec.  158.140(b)(1)(i) to require 
issuers to deduct from incurred claims not only the prescription drug 
rebates received by the issuer, but also any price concessions received 
and retained by the issuer, as well as any prescription drug rebates 
and other price concessions received and retained by an entity 
providing pharmacy benefit management services (including drug price 
negotiation services) to the issuer. We are making conforming 
amendments to Sec.  158.160(b)(2) to require such amounts to be 
reported as non-claims costs when received and retained by an entity 
providing pharmacy benefit management services. While there does not 
exist comprehensive public data on the amount, prevalence, or retention 
rate for prescription drug rebates and other price concessions retained 
by PBMs or other entities providing pharmacy benefit management 
services, based on data from the 2017 MLR reporting year, including the 
data from issuers who receive and report prescription drug rebates, we 
estimate that this requirement may increase rebate payments from 
issuers to consumers by $18.4 million per year. Since issuers generally 
prefer to set premium rates at a level that avoids rebates, and 
consequently potential rebate increases create a downward pressure on 
premiums, this requirement is also likely to lead to reductions in PTC 
transfers (which are a function of the premium rate for the second 
lowest-cost silver plan applicable to a consumer, the premium rate for 
the plan purchased by the consumer, and the consumer's income level) 
from the Federal Government to certain consumers in the individual 
market. Additionally, we are amending Sec.  158.150(b)(2)(iv)(A)(5) to 
explicitly allow issuers in the individual market to include the cost 
of certain wellness incentives as QIA in the MLR calculation. Based on 
data from the 2017 MLR reporting year, we estimate that this provision 
may decrease rebate payments from issuers to consumers by $0.2 million 
per year.
    We are finalizing these proposals as proposed, except that we are 
delaying the applicability date of the amendments to Sec. Sec.  
158.140(b)(1)(i) and 158.160(b)(2) until the 2022 MLR reporting year 
(MLR reports filed in 2023), and modifying the amendment to Sec.  
158.160(b)(2) to only apply to the prescription drug rebates and price 
concessions received and retained by an entity providing pharmacy 
benefit management services to the issuer.
    Comment: One commenter stated that the amendment to Sec.  
158.140(b)(1)(i) requiring issuers to deduct from incurred claims the 
prescription drug rebates and other price concessions received and 
retained by an entity providing pharmacy benefit management services to 
the issuer would increase, rather than decrease, premiums because 
``retained rebates as currently reported under MLR reduce actual plan 
administrative expenses [and t]he administrative fees paid to PBMs that 
replace the retained rebates would also be subtracted, resulting in the 
same net effect.''
    Response: We respectfully disagree with the commenter's assessment. 
We note that the regulation, both before and after the amendment to 
Sec.  158.140(b)(1)(i), does not allow administrative fees paid by an 
issuer directly to a PBM or a similar entity to be included in incurred 
claims. However, prior to the amendment to Sec.  158.140(b)(1)(i), an 
issuer was able to include in incurred claims compensation provided by 
an issuer to a PBM for administrative or other services by allowing the 
PBM to retain part or all of the prescription drug rebates and other 
prices concessions. Because the amendment to Sec.  158.140(b)(1)(i) 
requires issuers to subtract such prescription drug rebates and other 
prices concessions from incurred claims, the amendment will result in 
lower MLRs for some issuers and will lead such issuers to lower 
premiums or pay higher MLR rebates to enrollees.
17. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this final rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that this rule will be reviewed by 
all affected issuers, states, non-Federal governmental entities 
offering excepted benefit HRAs, and some individuals and other entities 
that commented on the proposed rule. We acknowledge that this 
assumption may understate or overstate the costs of reviewing this 
rule. It is possible that not all commenters reviewed the proposed rule 
in detail, and it is also possible that some reviewers chose not to 
comment on the proposed rule. For these reasons, we consider the number 
of affected entities and past commenters to be a fair estimate of the 
number of reviewers of this final rule.
    We are required to issue a substantial portion of this rule each 
year under our regulations and we estimate that approximately half of 
the remaining provisions would cause additional regulatory review 
burden that stakeholders do not already anticipate. We also recognize 
that different types of entities are in many cases affected by mutually 
exclusive sections of this final rule, and therefore, for the purposes 
of our estimate we assume that each reviewer reads approximately 50 
percent of the rule, excluding the portion of the rule that we are 
required to issue each year.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $109.36 per hour, including overhead and fringe 
benefits.\179\ Assuming an average reading speed, we estimate that it 
would take approximately 1 hours for the staff to review the relevant 
portions

[[Page 29255]]

of this final rule that causes unanticipated burden. We assume that 
approximately 1,550 entities will review this final rule. For each 
entity that reviews the rule, the estimated cost is approximately 
$109.36. Therefore, we estimate that the total cost of reviewing this 
regulation is approximately $169,508 ($109.36 x 1,550 reviewers).
---------------------------------------------------------------------------

    \179\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

D. Regulatory Alternatives Considered

    In developing the policies contained in this rule, we considered 
numerous alternatives to the presented proposals. Below we discuss the 
key regulatory alternatives that we considered.
    For the amendment to part 146, we considered not proposing a 
requirement that a notice be provided to individuals with an offer of 
an excepted benefit HRA from a non-Federal governmental plan. However, 
we believe that a notice will provide these consumers with important 
information about their excepted benefit HRA.
    Instead of deleting the regulations in part 149, governing the 
ERRP, we considered taking no action and leaving the regulations in 
place. We believe that it serves the public interest to reduce the 
volume of federal regulations when doing so will not compromise the 
effectiveness of federal programs, nor detract from the government's 
ability to implement laws or oversee funds appropriated for that 
purpose. Since the ERRP has been fully implemented, and has no ongoing 
functions, costs, or obligations, repealing the regulations will not 
impair the government's ability to implement the program or oversee the 
funds appropriated for that purpose.
    In finalizing the risk adjustment model recalibration in part 153, 
we considered whether to add an additional sex and age category for 
enrollees age 65 and over as part of our recalibration of the HHS 
models, due to our proposal to stop using MarketScan[supreg] data. 
However, upon finding different trends in the age 65 and over 
population, as discussed in the preamble, we did not propose to add 
these additional categories.
    In regards to the proposed changes to Sec.  155.320, we considered 
taking no action to modify the requirement that when an Exchange does 
not reasonably expect to obtain sufficient verification data related to 
enrollment in or eligibility for employer sponsored coverage that the 
Exchange must select a statistically significant random sample of 
applicants and attempt to verify their attestation with the employer 
listed on their Exchange application. However, based on HHS's 
experience conducting sampling, this manual verification process 
requires significant resources for a low return on investment, as using 
this method HHS identified only a small population of applicants who 
received APTC/CSR payments inappropriately. We ultimately determined 
that a verification process for employer-sponsored coverage should be 
one that is evidence or risk-based and that not taking enforcement 
action against Exchanges that do not conduct random sampling was 
appropriate as we anticipate future rulemaking is necessary to ensure 
that Exchanges have more flexibility for such verifications.
    Regarding the changes to Sec. Sec.  155.330 and 155.430, we 
considered taking no action to clarify Exchange operations regarding 
processing voluntary terminations for Exchange enrollees who provide 
written consent to permit the Exchange to end QHP coverage if they are 
later found to also be enrolled in Medicare via PDM. We ultimately 
determined however that these revisions were necessary to clarify that 
eligibility need not be redetermined as part of terminations at the 
request of enrollees resulting from Medicare PDM.
    Additionally, we considered taking no action and proceeding with 
terminating coverage following an eligibility determination when the 
Exchange conducts periodic checks for deceased enrollees rather than 
retroactively terminating back to the date of death. However, we 
determined that the revisions will clarify that eligibility need not be 
redetermined prior to terminating deceased enrollee coverage 
retroactively to the date of death.
    We considered taking no action regarding the proposal to add a new 
Sec.  155.420(a)(4)(ii)(B) in order to allow enrollees and their 
dependents who become newly ineligible for CSRs and are enrolled in a 
silver-level QHP to change to a QHP one metal level higher or lower if 
they elect to change their QHP enrollment. However, based on questions 
and concerns from Navigators and other enrollment assisters, as well as 
from agents and brokers, the current policy likely prevents some 
enrollees from maintaining continuous coverage for themselves and for 
their dependents due to a potentially significant change to their out-
of-pocket costs. Under the provision, an enrollee impacted by an 
increase to his or her monthly premium payment may change to a bronze-
level plan, while an enrollee who has concerns about higher copayment 
or coinsurance cost-sharing requirements may change to a gold-level 
plan. HHS believes that this policy will likely have minimal impact on 
the individual market risk pool because most applicable enrollees will 
be seeking to change coverage based on changes to their financial 
circumstances rather than ongoing or emerging health needs.
    We also considered making no changes regarding our proposal to 
clarify the 2017 Market Stabilization Rule's intent to apply the same 
limitations to dependents who are currently enrolled in Exchange 
coverage that it applies to current, non-dependent Exchange enrollees. 
As discussed in the proposed rule, preamble language from the 2017 
Market Stabilization Proposed Rule explains that the requirement at 
Sec.  155.420(a)(4)(iii) would extend to enrollees who are on an 
application where a new applicant is enrolling in coverage through a 
special enrollment period, using general terms to convey that 
restrictions should apply to enrollees and newly-enrolling individuals 
regardless of the dependent or parent or guardian status of a new 
enrollee. However, because this intended aspect of the limitation is 
not articulated in regulation, we were concerned that the rule's 
current wording would cause confusion among issuers, consumers, and 
Exchanges. Additionally, this change is consistent with HHS's goal to 
establish equivalent treatment for all special enrollment period 
eligible enrollees, and with the policy goal of preventing enrollees 
from changing plans in the middle of the coverage year based on ongoing 
or newly emerging health issues.
    In proposing and finalizing that special enrollment periods 
currently following regular effective date rules would instead be 
effective on the first of the month following plan selection in 
Exchanges using the Federal platform, we considered whether we could 
implement this change through subregulatory guidance, since for many of 
these special enrollment periods, Exchanges have discretion under Sec.  
155.420(b)(2)(i), (iv), and (v) to provide an effective date on the 
first of the month following plan selection, or under Sec.  
155.420(b)(3) to ensure that coverage is effective on an appropriate 
date based on the circumstances of the special enrollment period. 
However, Exchange discretion is not available under current regulations 
for several special enrollment periods that use regular effective 
dates; that is, HHS could not apply faster effective dates in the 
Exchanges using the Federal platform without regulatory changes for 
certain special enrollment periods. These are the special enrollment 
periods available under Sec.  155.420(d)(6)(i), (ii), and (v); (d)(8); 
and (d)(10). Only applying faster effective dates for some, but not 
all, special enrollment periods that currently use regular effective 
date rules would not accomplish our goals of

[[Page 29256]]

standardization and improving long-term operational efficiency. We 
believe this regulatory change is necessary to align all prospective 
special enrollment periods under one effective date rule.
    In proposing and finalizing aligning retroactive effective date and 
binder payment rules under Sec.  155.400(e)(1)(iii), we considered 
eliminating both Sec.  155.400(e)(1)(v) (as we proposed), but revising, 
rather than eliminating, Sec.  155.420(b)(5). Previously, section 
155.420(b)(5) provided that if a consumer's enrollment is delayed until 
after the verification of the consumer's eligibility for a special 
enrollment period, and the assigned effective date would require the 
consumer to pay 2 or more months of retroactive premium to effectuate 
coverage or avoid cancellation, the consumer has the option to choose a 
coverage effective date that is no more than 1 month later than had 
previously been assigned. However, we determined that revising this 
provision would cause more confusion than standardizing retroactive 
effective date and binder payment rules under Sec.  155.400(e)(1)(iii). 
Instead, we are finalizing the proposed amendment to Sec.  
155.400(e)(1)(iii) to state more explicitly that any consumer who can 
effectuate coverage with a retroactive effective date, including those 
whose enrollment is delayed until after special enrollment period 
verification, would also have the option to effectuate coverage with 
the applicable prospective coverage.
    Through this change, a consumer can choose to only pay for 1 month 
of coverage by the applicable deadline, notwithstanding the retroactive 
effective date that the Exchange otherwise would be required to ensure. 
Even though very few consumers wait more than a few days for HHS to 
review their special enrollment period verification documents and 
provide a response (as discussed in the preamble of the proposed rule), 
we want to ensure that those few consumers whose coverage is delayed by 
at least 1 month due to special enrollment period verification would 
have the same options as any other consumers who are eligible to 
receive coverage with a retroactive effective date.
    As described in the HRA rule,\180\ HHS included consumers who are 
newly provided a QSEHRA in the class of persons eligible for a new 
special enrollment period established for qualified individuals, 
enrollees, and dependents who newly gain access to an individual 
coverage HRA. We also expressed our intent to treat a QSEHRA with a 
non-calendar year plan year as a group health plan for the limited 
purpose of the non-calendar year plan year special enrollment period, 
and to codify this interpretation in future rulemaking. Our goal is to 
ensure employees and their dependents with a non-calendar year plan 
year QSEHRA have the same opportunity to change individual health 
insurance coverage outside of the individual market open enrollment 
period as those who are enrolled in a non-calendar year plan year 
individual coverage HRA.
---------------------------------------------------------------------------

    \180\ 84 FR 28888.
---------------------------------------------------------------------------

    In finalizing the annual reporting of state-required benefits in 
addition to EHB, we considered a variety of alternatives, including 
withdrawing the proposal altogether. We also considered instead issuing 
a toolkit or guidance for states to assist with identifying state-
required benefits in addition to EHB and properly defraying the cost of 
those benefits in accordance with Sec.  155.170. However, we do not 
believe that either of these options would alone offer HHS direct 
insight into the frequency with which states require benefits in 
addition to EHB to be covered and whether states are properly defraying 
the costs of state-required benefits in addition to EHB. Therefore, we 
are finalizing the annual reporting policy as proposed, except for a 
minor revision at Sec.  156.111(d)(2). However, to address comments 
regarding the lack of clarity around the current defrayal policy, we 
will also take steps to engage with states to clarify this policy 
before the first annual submission deadline. Through this state 
engagement, we hope to provide additional technical assistance that 
helps ensure state understanding when a state-benefit requirement is in 
addition to EHB and requires defrayal, provides examples, and explains 
how a state could operationalize the defrayal process pursuant to 
federal requirements at Sec.  155.170. We believe additional outreach 
to states prior to the first annual reporting submission deadline of 
July 1, 2021, will strengthen state understanding of defrayal policy 
ahead of the first year of implementation of the annual reporting 
requirement in plan year 2021.
    We also considered revising the policy such that Exchanges would 
again be the entity responsible for identifying which additional state-
required benefits, if any, are in addition to EHB instead of the state. 
However, as noted previously in the 2017 Payment Notice, we changed the 
policy to make the state the entity responsible for identifying state-
required benefits in addition to EHB instead of the Exchange because we 
believe states are generally more familiar with state-required 
benefits. We also considered revising Sec.  155.170 to make HHS the 
entity responsible for identifying which state-required benefits are in 
addition to EHB in every state such that HHS would always identify 
which mandates require defrayal, but the QHP issuers would still be 
responsible for quantifying the costs for these additional mandates and 
reporting them to the state, at which point the state would be expected 
to make payments directly to the enrollee or the QHP issuer. However, 
because we still believe states are generally most familiar with state-
required benefits and, because we support state flexibility, we believe 
that states should remain the entity responsible for identifying state-
required benefits in addition to EHB. We believe the annual reporting 
policy we are finalizing is consistent with this goal of state 
flexibility and acknowledges state expertise, as it would not shift the 
authority from the state to HHS as the entity responsible for 
identifying whether a mandate is in addition to EHB unless the state 
does not submit an annual report to HHS or does not do so in the form 
and manner specified by HHS, in which case only then would HHS identify 
which state-required benefits are in addition to EHB for the state.
    In proposing and finalizing amendments to Sec.  156.270(b)(1) to 
require QHP issuers to send to enrollees a termination notice for all 
termination events, we considered whether to revert to the original 
language in the first iteration of Sec.  156.270, which required a 
termination notice when an enrollee's coverage was terminated ``for any 
reason.'' However, because the termination notice requirement is 
triggered under this paragraph ``[i]f a QHP issuer terminates an 
enrollee's coverage or enrollment in a QHP through the Exchange . . . , 
'' we were concerned that this could be read to require termination 
notices for issuer-initiated terminations only. To be clear that we are 
proposing to require termination notices for the full range of 
termination events described under Sec.  155.430(b), including those 
initiated by an enrollee, our amendments instead refer broadly to the 
reasons listed in Sec.  155.430(b) rather than identifying each 
termination reason under that section.
    For the amendments to Sec.  158.150, we considered making no change 
to the current regulation that does not explicitly allow issuers in the 
individual market to include the cost of certain wellness incentives as 
QIA in the MLR calculation. However, we believe that finalizing the 
changes to this section will ensure that it is

[[Page 29257]]

interpreted consistently across the individual and group markets. We 
also believe that finalizing the changes to this section will generally 
increase consumer choice and access to wellness programs, including any 
health-contingent wellness programs that may be available in a state 
that is approved to participate in the wellness program demonstration 
project.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), (5 U.S.C. 601, et seq.), 
requires agencies to prepare an initial regulatory flexibility analysis 
to describe the impact of the proposed rule on small entities, unless 
the head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are not included in the definition of 
``small entity''. HHS uses a change in revenues of more than 3 to 5 
percent as its measure of significant economic impact on a substantial 
number of small entities.
    In this rule, we finalize standards for the risk adjustment and 
RADV programs, which are intended to stabilize premiums and reduce 
incentives for issuers to avoid higher-risk enrollees. Because we 
believe that insurance firms offering comprehensive health insurance 
policies generally exceed the size thresholds for ``small entities'' 
established by the SBA, we do not believe that an initial regulatory 
flexibility analysis is required for such firms.
    We believe that health insurance issuers and group health plans 
would be classified under the North American Industry Classification 
System code 524114 (Direct Health and Medical Insurance Carriers). 
According to SBA size standards, entities with average annual receipts 
of $41.5 million or less would be considered small entities for these 
North American Industry Classification System codes. Issuers could 
possibly be classified in 621491 (HMO Medical Centers) and, if this is 
the case, the SBA size standard would be $35 million or less.\181\ We 
believe that few, if any, insurance companies underwriting 
comprehensive health insurance policies (in contrast, for example, to 
travel insurance policies or dental discount policies) fall below these 
size thresholds. Based on data from MLR annual report \182\ submissions 
for the 2017 MLR reporting year, approximately 90 out of 500 issuers of 
health insurance coverage nationwide had total premium revenue of $41.5 
million or less. This estimate may overstate the actual number of small 
health insurance companies that may be affected, since over 72 percent 
of these small companies belong to larger holding groups, and many, if 
not all, of these small companies are likely to have non-health lines 
of business that will result in their revenues exceeding $41.5 million. 
Only 10 of these 90 potentially small entities, three of them part of 
larger holding groups, are estimated to experience a change in rebates 
under the amendments to the MLR provisions of this final rule in part 
158. Therefore, we believe that the MLR provisions of this final rule 
will not affect a substantial number of small entities.
---------------------------------------------------------------------------

    \181\ https://www.sba.gov/document/support--table-size-standards.
    \182\ Available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
---------------------------------------------------------------------------

    We believe that a small number of non-Federal government 
jurisdictions with a population of less than 50,000 will offer 
employees an excepted benefit HRA, and therefore, will be subject to 
the proposed notice requirement in part 146. Therefore, we do not 
believe that an initial regulatory flexibility analysis is required for 
such firms.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. This rule will not affect 
small rural hospitals. Therefore, the Secretary has determined that 
this rule will not have a significant impact on the operations of a 
substantial number of small rural hospitals.

F. Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a proposed rule that includes any 
Federal mandate that may result in expenditures in any 1 year by a 
state, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2020, that threshold is approximately $156 million. 
Although we have not been able to quantify all costs, we expect the 
combined impact on state, local, or Tribal governments and the private 
sector to be below the threshold.

G. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a final rule that imposes substantial 
direct costs on state and local governments, preempts state law, or 
otherwise has federalism implications.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the states, we 
have engaged in efforts to consult with and work cooperatively with 
affected states, including participating in conference calls with and 
attending conferences of the NAIC, and consulting with state insurance 
officials on an individual basis.
    While developing this rule, we attempted to balance the states' 
interests in regulating health insurance issuers with the need to 
ensure market stability. By doing so, we complied with the requirements 
of Executive Order 13132.
    Because states have flexibility in designing their Exchange and 
Exchange-related programs, state decisions will ultimately influence 
both administrative expenses and overall premiums. States are not 
required to establish an Exchange or risk adjustment program. For 
states that elected previously to operate an Exchange, those states had 
the opportunity to use funds under Exchange Planning and Establishment 
Grants to fund the development of data. Accordingly, some of the 
initial cost of creating programs was funded by Exchange Planning and 
Establishment Grants. After establishment, Exchanges must be 
financially self-sustaining, with revenue sources at the discretion of 
the state. Current State Exchanges charge user fees to issuers.
    In our view, while this final rule will not impose substantial 
direct requirements or costs on state and local governments, this 
regulation has federalism implications due to potential direct effects 
on the distribution of power and responsibilities among the state and 
Federal governments relating to determining standards relating to 
health insurance that is offered in the individual and small group 
markets. We are also requiring non-Federal governmental plan sponsors 
to provide a notice when offering an excepted benefit HRA, but expect 
state and local governments to incur minimal costs to meet the 
requirements in this rule.

[[Page 29258]]

    We also believe this regulation has federalism implications for the 
PDM process provisions, specifically for QHP terminations resulting 
from Medicare, Medicaid/CHIP, BHP (if applicable) or deceased enrollee 
PDM. In these instances, HHS also believes that the federalism 
implications are substantially mitigated because the requirements 
merely clarify that the Exchange is following termination guidelines 
that differ from the processes when Exchanges are terminating only 
APTC/CSRs as part of the standard PDM processes. Furthermore, these 
clarifications will not impose new requirements on State Exchanges that 
operate their own eligibility and enrollment platform, but rather 
provide guidance that State Exchanges that operate their own 
eligibility and enrollment platform can choose to incorporate into 
their current operations for PDM.
    We believe there may be federalism implications in connection with 
our provisions related to plan category limitations: (1) We added a new 
Sec.  155.420(a)(4)(ii)(B) in order to allow enrollees and their 
dependents who become newly ineligible for CSRs and are enrolled in a 
silver-level QHP, to select a QHP one metal level higher or lower if 
they elect to change their QHP enrollment; and (2) we added a new Sec.  
155.420(a)(4)(iii)(C) to apply the same limitations to dependents who 
are currently enrolled in Exchange coverage that it applies to current, 
non-dependent Exchange enrollees. There may be operational costs to 
State Exchanges that have already implemented plan category limitations 
due to the need to update their application logic to reflect these 
changes. However, given the 2017 Market Stabilization Rule preamble 
language discussed above, it is possible that State Exchanges are 
already in compliance with our proposal to clarify the application of 
the same limitations to dependents who are currently enrolled in 
Exchange coverage that apply to current, non-dependent Exchange 
enrollees. We solicited comment on how many State Exchanges currently 
implement plan category limitations, as well as estimates related to 
how much time and expense would be required to update these systems to 
comply with the two proposals.
    Comment: We did not receive comments describing State Exchanges' 
implementation of plan category limitations, or comments that included 
estimates of time and expense that this proposal would require. 
However, several commenters expressed support for providing State 
Exchanges with flexibility related to special enrollment period policy 
implementation in general, explaining that any special enrollment 
period changes require significant State Exchange effort and 
potentially unpredictable costs.
    Response: Given most commenters' support for allowing enrollees and 
their dependents who become newly ineligible for CSRs and are enrolled 
in a silver-level QHP, to select a QHP one metal level higher or lower 
if they elect to change their QHP enrollment, we believe that the 
benefits of finalizing it as proposed outweigh general concerns about 
implementation. Additionally, we have delayed the effective date for 
this modification to January 2022, which we believe will allow 
Exchanges sufficient time to incorporate the change into their 
development priorities. We also believe that the benefit of simplifying 
plan category limitation rules and ensuring that these rules work as 
intended by applying the same limitations to enrolled dependents that 
apply to non-dependents will outweigh costs associated with 
implementation.
    Additionally, we expect that amendment to Sec.  155.420(d)(1)(ii) 
to codify the special enrollment period for qualified individuals and 
dependents who are provided a QSEHRA with a non-calendar year plan year 
will have some federalism implications, because it will require State 
Exchanges to update the wording of their applications, and to update 
instructions for verifying a special enrollment period due to a loss of 
MEC to include applicants with a non-calendar year plan year QSEHRA. 
Additionally, State Exchanges, as well as FFE Direct Enrollment and 
Enhanced Direct Enrollment partners, may see a nominal increase in the 
number of consumers obtaining coverage through the non-calendar year 
plan year special enrollment period at Sec.  155.420(d)(1)(ii). 
However, we expect this number to be low.
    We do not anticipate any federalism implications related to our 
revision providing that special enrollment periods currently following 
regular effective date rules would instead be effective on the first of 
the month following plan selection in the Exchanges using the Federal 
platform. We believe State Exchanges are best positioned to determine 
which effective date rules meet the needs of their issuers and 
consumers. As such, under our changes, State Exchanges may retain their 
current effective date rules or implement faster ones without needing 
to demonstrate issuer concurrence.
    We do not expect there to be federalism implications related to 
removing the separate retroactive effective date rule for enrollments 
pended due to special enrollment period verification under Sec.  
155.420(b)(5). Neither the retroactive binder payment rule specific to 
enrollments pended due to special enrollment period eligibility 
verification at Sec.  155.400(e)(1)(v), nor the original retroactive 
binder payment rule at Sec.  155.400(e)(1)(iii), applies outside of 
Exchanges using the Federal platform. Although previous Sec.  
155.420(b)(5) did apply to State Exchanges, a State Exchange that has 
implemented special enrollment period verification will retain 
flexibility to apply the policy that if a consumer's enrollment is 
delayed until after the verification of the consumer's eligibility for 
a special enrollment period, and the assigned effective date would 
require the consumer to pay 2 or more months of retroactive premium to 
effectuate coverage or avoid cancellation, the consumer has the option 
to choose a coverage effective date that is no more than 1 month later 
than had previously been assigned.
    We do not anticipate any federalism implications related to our 
requirement for QHP issuers to send to enrollees a termination notice 
for all termination events described in Sec.  155.430(b).
    We do not anticipate any federalism implications related to our 
provision described in Sec.  155.430(d) to align the provision for 
termination after experiencing a technical error that did not allow the 
enrollee to terminate his or her coverage or enrollment through the 
Exchange with all other enrollee-initiated termination effective date 
rules under Sec.  155.430 that, at the option of the Exchange, no 
longer require 14-days advance notice.
    We continue to believe there may be federalism implications related 
to the requirement we are finalizing that states annually report to 
HHS, in a form and manner specified by HHS, any state-required benefits 
in addition to EHB in accordance with Sec.  155.170 that are applicable 
to QHPs in the individual and/or small group market. States that do not 
report to HHS their required benefits considered to be in addition to 
EHB by the annual reporting submission deadline, or do not do so in the 
form and manner specified by HHS, will be relying on HHS to identify 
such benefits. We acknowledge that the state-required benefits HHS 
identifies as in addition to EHB and that therefore require defrayal, 
might conflict with the opinion of a state that does not annually 
report to HHS. However, such concerns are mitigated because states can 
avoid such a result by submitting the report. Further, as previously 
noted, HHS must ensure that APTC is paid in accordance

[[Page 29259]]

with federal law. If a state is not defraying the cost of a state-
required benefit that is in addition to EHB, resulting in improper 
federal expenditures, we believe section 1313(a)(4) of the PPACA 
empowers HHS to take action consistent with its enforcement authorities 
to address a state's failure to comply with the PPACA's defrayal 
requirements. However, as also noted earlier in the preamble, we intend 
to continue the collaborative process we have cultivated with states up 
to this point, and to provide non-reporting states with an opportunity 
to review our identifications prior to releasing the annual reports on 
the CMS website for public viewing in an effort to mitigate the 
potential for disagreement between the state and HHS.

H. Congressional Review Act

    This rule is subject to the Congressional Review Act provisions of 
the Small Business Regulatory Enforcement Fairness Act of 1996 (5 
U.S.C. 801, et seq.), which specifies that before a rule can take 
effect, the Federal agency promulgating the rule shall submit to each 
House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information. 
Therefore, the rule has been transmitted to the Congress and the 
Comptroller. Pursuant to the Congressional Review Act, the Office of 
Information and Regulatory Affairs designated this final rule as a 
``major rule'' as that term is defined in 5 U.S.C. 804(2), because it 
is likely to result in an annual effect on the economy of $100 million 
or more.

I. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. Section 2(a) of 
Executive Order 13771 requires an agency, unless prohibited by law, to 
identify at least two existing regulations to be repealed when the 
agency publicly proposes for notice and comment, or otherwise issues, a 
new regulation. In furtherance of this requirement, section 2(c) of 
Executive Order 13771 requires that the incremental costs associated 
with new regulations shall, to the extent permitted by law, be offset 
by the elimination of existing costs associated with at least two prior 
regulations.
    This final rule is an E.O. 13771 deregulatory action. We estimate 
cost savings of approximately $147.15 million in 2020 and $98.89 
million in 2021 and annual costs of approximately $59,000 thereafter. 
Thus the annualized value of cost savings, as of 2016 and calculated 
over a perpetual time horizon with a 7 percent discount rate, is $11.40 
million.

List of Subjects

45 CFR Part 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 149

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 155

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

45 CFR Part 156

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

45 CFR Part 158

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

    For the reasons set forth in the preamble, under the authority at 5 
U.S.C. 301, the Department of Health and Human Services amends 45 CFR 
subtitle A, subchapter B, as set forth below.

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

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

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


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


Sec.  146.145  Special rules relating to group health plans.

* * * * *
    (b) * * *
    (3) * * *
    (viii) * * *
    (E) Notice requirement. For plan years beginning on or after 
January 11, 2021, the HRA or other account-based group health plan must 
provide a notice that describes conditions pertaining to eligibility to 
receive benefits, annual or lifetime caps, or other limits on benefits 
under the plan, and a description or summary of the benefits. This 
notice must be provided no later than 90 days after an employee becomes 
a participant and annually thereafter, in a manner reasonably 
calculated to ensure actual receipt by participants eligible for the 
HRA or other account-based group health plan.
* * * * *

PART 149--[REMOVED and RESERVED]

0
3. Part 149 is removed and reserved.

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

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

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


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


Sec.  155.330  Eligibility redetermination during a benefit year.

* * * * *
    (e) * * *
    (2) * * *
    (i) * * *
    (D) If the enrollee does not respond contesting the updated 
information within the 30-day period specified in paragraph 
(e)(2)(i)(B) of this section, proceed in accordance with paragraphs 
(e)(1)(i) and (ii) of this section, provided the enrollee has not 
directed the Exchange to terminate his or her coverage under such 
circumstances, in which case the Exchange will terminate the enrollee's 
coverage in accordance with Sec.  155.430(b)(1)(ii), and provided the 
enrollee has not been determined to

[[Page 29260]]

be deceased, in which case the Exchange will terminate the enrollee's 
coverage in accordance with Sec.  155.430(d)(7).
* * * * *

0
6. Section 155.400 is amended by revising paragraphs (e)(1)(i) through 
(iii) and removing paragraph (e)(1)(iv) to read as follows:


Sec.  155.400  Enrollment of qualified individuals into QHPs.

* * * * *
    (e) * * *
    (1) * * *
    (i) For prospective coverage to be effectuated under regular 
coverage effective dates, as provided for in Sec.  155.410(f), the 
binder payment must consist of the first month's premium, and the 
deadline for making the binder payment must be no earlier than the 
coverage effective date, and no later than 30 calendar days from the 
coverage effective date.
    (ii) For prospective coverage to be effectuated under special 
effective dates, as provided for in Sec.  155.420(b)(2) and (3), the 
binder payment must consist of the first month's premium, and the 
deadline for making the binder payment must be no earlier than the 
coverage effective date and no later than 30 calendar days from the 
date the issuer receives the enrollment transaction or the coverage 
effective date, whichever is later.
    (iii) For coverage to be effectuated under retroactive effective 
dates, as provided for in Sec.  155.420(b)(2), including when 
retroactive effective dates are due to a delay until after special 
enrollment period verification, the binder payment must consist of the 
premium due for all months of retroactive coverage through the first 
prospective month of coverage, and the deadline for making the binder 
payment must be no earlier than 30 calendar days from the date the 
issuer receives the enrollment transaction. If only the premium for 1 
month of coverage is paid, only prospective coverage should be 
effectuated, in accordance with Sec.  155.420(b)(3).
* * * * *

0
 7. Section 155.420 is amended by--
0
a. Revising paragraphs (a)(4)(ii) and (iii), (b)(1) introductory text, 
and (b)(3);
0
b. Removing paragraph (b)(5); and
0
c. Revising paragraph (d)(1)(ii).
    The revisions and addition read as follows:


Sec.  155.420  Special enrollment periods.

    (a) * * *
    (4) * * *
    (ii)(A) If an enrollee and his or her dependents become newly 
eligible for cost-sharing reductions in accordance with paragraph 
(d)(6)(i) or (ii) of this section and are not enrolled in a silver-
level QHP, the Exchange must allow the enrollee and his or her 
dependents to change to a silver-level QHP if they elect to change 
their QHP enrollment; or
    (B) Beginning January 2022, if an enrollee and his or her 
dependents become newly ineligible for cost-sharing reductions in 
accordance with paragraph (d)(6)(i) or (ii) of this section and are 
enrolled in a silver-level QHP, the Exchange must allow the enrollee 
and his or her dependents to change to a QHP one metal level higher or 
lower, if they elect to change their QHP enrollment.
    (iii) For the other triggering events specified in paragraph (d) of 
this section, except for paragraphs (d)(2)(i), (d)(4), and (d)(6)(i) 
and (ii) of this section for becoming newly eligible or ineligible for 
CSRs and paragraphs (d)(8), (9), (10), (12), and (14) of this section:
    (A) If an enrollee qualifies for a special enrollment period, the 
Exchange must allow the enrollee and his or her dependents, if 
applicable, to change to another QHP within the same level of coverage 
(or one metal level higher or lower, if no such QHP is available), as 
outlined in Sec.  156.140(b) of this subchapter;
    (B) If a dependent qualifies for a special enrollment period, and 
an enrollee who does not also qualify for a special enrollment period 
is adding the dependent to his or her QHP, the Exchange must allow the 
enrollee to add the dependent to his or her current QHP; or, if the 
QHP's business rules do not allow the dependent to enroll, the Exchange 
must allow the enrollee and his or her dependents to change to another 
QHP within the same level of coverage (or one metal level higher or 
lower, if no such QHP is available), as outlined in Sec.  156.140(b) of 
this subchapter, or enroll the new qualified individual in a separate 
QHP; or
    (C) If a qualified individual who is not an enrollee qualifies for 
a special enrollment period and has one or more dependents who are 
enrollees who do not also qualify for a special enrollment period, the 
Exchange must allow the newly enrolling qualified individual to add 
himself or herself to a dependent's current QHP; or, if the QHP's 
business rules do not allow the qualified individual to enroll in the 
dependent's current QHP, to enroll with his or her dependent(s) in 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available), as outlined in Sec.  
156.140(b) of this subchapter, or enroll himself or herself in a 
separate QHP.
* * * * *
    (b) * * *
    (1) Regular effective dates. Except as specified in paragraphs 
(b)(2) and (3) of this section, for a QHP selection received by the 
Exchange from a qualified individual--
* * * * *
    (3) Option for earlier effective dates. (i) For a QHP selection 
received by the Exchange under a special enrollment period for which 
regular effective dates specified in paragraph (b)(1) of this section 
would apply, the Exchange may provide a coverage effective date that is 
earlier than specified in such paragraph, and, beginning January 2022, 
a Federally-facilitated Exchange or a State Exchange on the Federal 
platform will ensure that coverage is effective on the first day of the 
month following plan selection.
    (ii) For a QHP selection received by the Exchange under a special 
enrollment period for which special effective dates specified in 
paragraph (b)(2)(ii) of this section would apply, the Exchange may 
provide a coverage effective date that is earlier than specified in 
such paragraph.
* * * * *
    (d) * * *
    (1) * * *
    (ii) Is enrolled in any non-calendar year group health plan, 
individual health insurance coverage, or qualified small employer 
health reimbursement arrangement (as defined in section 9831(d)(2) of 
the Internal Revenue Code); even if the qualified individual or his or 
her dependent has the option to renew or re-enroll in such coverage. 
The date of the loss of coverage is the last day of the plan year;
* * * * *

0
8. Section 155.430 is amended by revising paragraphs (b)(1)(ii) and 
(d)(9) to read as follows:


Sec.  155.430  Termination of Exchange enrollment or coverage.

* * * * *
    (b) * * *
    (1) * * *
    (ii) The Exchange must provide an opportunity at the time of plan 
selection for an enrollee to choose to remain enrolled in a QHP if he 
or she becomes eligible for other minimum essential coverage and the 
enrollee does not request termination in accordance with paragraph 
(b)(1)(i) of this section. If an enrollee does not choose to remain 
enrolled in a QHP in such situation, the Exchange must initiate 
termination of his or her enrollment in the QHP upon

[[Page 29261]]

completion of the process specified in Sec.  155.330(e)(2).
* * * * *
    (d) * * *
    (9) In case of a retroactive termination in accordance with 
paragraph (b)(1)(iv)(A) of this section, the termination date will be 
no sooner than the date that would have applied under paragraph (d)(2) 
of this section, based on the date that the enrollee can demonstrate he 
or she contacted the Exchange to terminate his or her coverage or 
enrollment through the Exchange, had the technical error not occurred.
* * * * *

0
9. Section 155.1400 is revised to read as follows:


Sec.  155.1400  Quality rating system.

    The Exchange must prominently display quality rating information 
for each QHP on its website, in accordance with Sec.  155.205(b)(1)(v), 
in a form and manner specified by HHS.

0
 10. Section 155.1405 is revised to read as follows:


Sec.  155.1405  Enrollee satisfaction survey system.

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

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

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

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


Sec.  156.20  [Amended]

0
12. Section 156.20 is amended by removing the definition of 
``Generic''.

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


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

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

0
14. Section 156.130 is amended by revising paragraph (h) to read as 
follows:


Sec.  156.130  Cost-sharing requirements.

* * * * *
    (h) Use of direct support offered by drug manufacturers. 
Notwithstanding any other provision of this section, and to the extent 
consistent with State law, amounts paid toward reducing the cost 
sharing incurred by an enrollee using any form of direct support 
offered by drug manufacturers for specific prescription drugs may be, 
but are not required to be, counted toward the annual limitation on 
cost sharing, as defined in paragraph (a) of this section.

0
15. Section 156.265 is amended by revising paragraphs (f) and (g) to 
read as follows:


Sec.  156.265  Enrollment process for qualified individuals.

* * * * *
    (f) Enrollment reconciliation. A QHP issuer must reconcile 
enrollment files with the Exchange in a format specified by the 
Exchange (or, for QHP issuers in State Exchanges on the Federal 
Platform, the Federal Platform) and resolve assigned updates no less 
than once a month in accordance with Sec.  155.400(d) of this 
subchapter, using the most recent enrollment information that is 
available and that has been verified to the best of the issuer's 
knowledge or belief.
    (g) Timely updates to enrollment records. A QHP issuer offering 
plans through an Exchange must, in a format specified by the Exchange 
(or, for QHP issuers in State Exchanges on the Federal Platform, the 
Federal Platform), either:
    (1) Verify to the Exchange (or, for QHP issuers in State Exchanges 
on the Federal Platform, the Federal Platform) that the information in 
the enrollment reconciliation file received from the Exchange (or, for 
QHP issuers in State Exchanges on the Federal Platform, the Federal 
Platform) accurately reflects its enrollment data for the applicable 
benefit year in its next enrollment reconciliation file submission to 
the Exchange (or, for QHP issuers in State Exchanges on the Federal 
Platform, the Federal Platform), and update its internal enrollment 
records accordingly; or
    (2) Describe to the Exchange (or for QHP issuers in State Exchanges 
on the Federal Platform, the Federal Platform) within one 
reconciliation cycle any discrepancy it identifies in the enrollment 
reconciliation files it received from the Exchange (or for QHP issuers 
in State Exchanges on the Federal Platform, the Federal Platform).

0
16. Section 156.270 is amended by revising paragraph (b) introductory 
text to read as follows:

[[Page 29262]]

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

* * * * *
    (b) Termination of coverage or enrollment notice requirement. If a 
QHP issuer terminates an enrollee's coverage or enrollment in a QHP 
through the Exchange in accordance with Sec.  155.430(b) of this 
subchapter, the QHP issuer must, promptly and without undue delay:
* * * * *

0
17. Section 156.1210 is revised to read as follows:


Sec.  156.1210  Dispute Submission.

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

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

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

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


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


Sec.  158.110  Reporting requirements related to premiums and 
expenditures.

    (a) General requirements. For each MLR reporting year, an issuer 
must submit to the Secretary a report which complies with the 
requirements of this part, concerning premium revenue and expenses 
related to the group and individual health insurance coverage that it 
issued. Reporting requirements of this part that apply to expenses 
incurred directly by the issuer also apply to expenses for functions 
outsourced to or services provided by other entities retained by the 
issuer.
* * * * *

0
20. Section 158.140 is amended by revising paragraph (b)(1)(i) to read 
as follows:


Sec.  158.140  Reimbursement for clinical services provided to 
enrollees.

* * * * *
    (b) * * *
    (1) * * *
    (i)(A) For MLR reporting years before 2022, prescription drug 
rebates received by the issuer;
    (B) Beginning with the 2022 MLR reporting year, prescription drug 
rebates and other price concessions received and retained by the 
issuer, and prescription drug rebates and other price concessions that 
are received and retained by an entity providing pharmacy benefit 
management services to the issuer and are associated with administering 
the issuer's prescription drug benefits.
* * * * *

0
21. Section 158.150 is amended by revising paragraph (b)(2)(iv)(A)(5) 
to read as follows:


Sec.  158.150  Activities that improve health care quality.

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

0
22. Section 158.160 is amended by adding paragraph (b)(2)(vii) to read 
as follows:


Sec.  158.160  Other non-claims costs.

* * * * *
    (b) * * *
    (2) * * *
    (vii) Beginning with the 2022 MLR reporting year, prescription drug 
rebates and other price concessions that are received and retained by 
an entity providing pharmacy benefit management services to the issuer 
and are associated with administering the issuer's prescription drug 
benefits.

    Dated: April 27, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 28, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-10045 Filed 5-7-20; 4:15 pm]
 BILLING CODE 4120-01-P