[Federal Register Volume 85, Number 157 (Thursday, August 13, 2020)]
[Rules and Regulations]
[Pages 49264-49280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17553]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2432-FN]
RIN 0938-ZB56


Basic Health Program; Federal Funding Methodology for Program 
Year 2021

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

ACTION: Final methodology.

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

DATES: The methodology and data sources announced in this notice are 
effective on January 1, 2021.

FOR FURTHER INFORMATION CONTACT: Christopher Truffer, (410) 786-1264; 
or Cassandra Lagorio, (410) 786-4554.

[[Page 49265]]


SUPPLEMENTARY INFORMATION:

I. Background

A. Overview of the Basic Health Program

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

[[Page 49266]]

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

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

    The following sections, arranged by subject area, include a summary 
of the public comments that we received, and our responses. We received 
10 public comments from individuals and organizations, including, but 
not limited to, state Medicaid agencies, other government entities, and 
advocacy groups. In this section, we outline the proposed provisions 
and provide a summary of the public comments received and our 
responses. For a complete and full description of the BHP proposed 
funding methodology for program year 2021, see the ``Basic Health 
Program; Federal Funding Methodology for Program Year 2021'' proposed 
notice published in the February 10, 2020 Federal Register (85 FR 7500) 
(hereinafter referred to as the 2021 proposed BHP Payment Notice).

A. Background

    In the 2021 proposed BHP Payment Notice, we proposed the 
methodology for how the federal BHP payments would be calculated for 
program year 2021.
    We received the following comments on the background information 
included in the 2021 proposed BHP Payment Notice:
    Comment: Several commenters were generally supportive of the BHP. 
Several commenters were generally supportive of the 2021 BHP payment 
methodology described in the 2021 proposed BHP Payment Notice.
    Response: We appreciate the support from these commenters. As 
described further in this final notice, we have largely adopted the 
methodology as described in the 2021 proposed BHP Payment Notice.\3\
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    \3\ As explained in section II.F. of this final notice, we are 
finalizing that a state may notify CMS of its election for the 2021 
program year to base federal BHP payment rates on actual 2021 
premiums or the 2020 premiums trended forward within 60 days of 
publication of this final notice rather than by the proposed May 15, 
2020 deadline. Additionally, as explained in section II.G. of this 
final notice, we are finalizing that a state may submit its optional 
health risk adjustment protocol to CMS within 30 days of publication 
of this final notice rather than by the proposed August 1, 2020 
deadline.
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B. Overview of the Funding Methodology and Calculation of the Payment 
Amount

    We proposed in the overview of the funding methodology to calculate 
the PTC and CSR as consistently as possible and in general alignment 
with the methodology used by Exchanges to calculate the advance 
payments of the PTC (APTC) and CSR, and by the Internal Revenue Service 
(IRS) to calculate the allowable PTC. We proposed four equations (1, 
2a, 2b, and 3) that would, if finalized, compose the overall BHP 
payment methodology.
    We received the following comments on the overview of the funding 
methodology included in the 2021 proposed BHP Payment Notice:
    Comment: One commenter stated that CMS did not have the authority 
to exclude payment for the CSR portion of the BHP payment rate.
    Response: As we explained in the November 2019 final BHP Payment 
Notice for 2019 and 2020 (84 FR 59530, 59534) and in the 2021 proposed 
BHP Payment Notice (85 FR 7502), in light of the Attorney General's 
opinion regarding the unavailability of the permanent appropriation at 
31 U.S.C. 1324 to make CSR payments--and in the absence of any other 
appropriation that could be used to fund CSR payments--HHS directed CMS 
to discontinue CSR payments to issuers until the Congress provides for 
an appropriation. In the absence of a Congressional appropriation for 
federal funding for CSRs, we cannot provide states with a federal 
payment attributable to CSRs that BHP enrollees would have received had 
they been enrolled in a QHP through an Exchange.

C. Federal BHP Payment Rate Cells

    In this section of 2021 proposed BHP Payment Notice, we proposed 
that a state implementing BHP provide us with an estimate of the number 
of BHP enrollees it will enroll in the upcoming BHP program quarter, by 
applicable rate cell, to determine the federal BHP payment amounts. For 
each state, we proposed using rate cells that separate the BHP 
population into separate cells based on the following factors: Age; 
geographic rating area; coverage status; household size; and income. 
For specific discussions of these proposals, please refer to the 2021 
proposed BHP Payment Notice.
    We received no comments on this aspect of the proposed methodology.

[[Page 49267]]

Therefore, we are finalizing these policies as proposed.

D. Sources and State Data Considerations

    We proposed in this section of the 2021 proposed BHP Payment Notice 
to use, to the extent possible, data submitted to the federal 
government by QHP issuers seeking to offer coverage through an Exchange 
that uses HealthCare.gov to determine the federal BHP payment cell 
rates. However, for states operating a State-based Exchange (SBE) that 
do not use HealthCare.gov, we proposed that such states submit required 
data for CMS to calculate the federal BHP payment rates in those 
states. For specific discussions, please refer to the 2021 proposed BHP 
Payment Notice.
    We received no comments on this aspect of the proposed methodology. 
Therefore, we are finalizing these policies as proposed.

E. Discussion of Specific Variables Used in Payment Equations

    In this section of the 2021 proposed BHP Payment Notice, we 
proposed eight specific variables to use in the payment equations that 
compose the overall BHP funding methodology. (seven variables are 
described in section III.D. of this final notice, and the premium trend 
factor is described in section III.E. of this final notice). For each 
proposed variable, we included a discussion on the assumptions and data 
sources used in developing the variables. For specific discussions, 
please refer to 2021 proposed BHP Payment Notice.
    Below is a summary of the public comments we received regarding 
specific factors and our responses.
    Comment: Two commenters recommended that CMS not apply the MTSF in 
the 2021 BHP payment methodology and offered rationales for CMS to not 
include the MTSF. One commenter stated that applying the MTSF would be 
inappropriate because the Essential Plan in New York provides coverage 
with actuarial value that is equivalent to a platinum plan, not a 
bronze plan.
    One commenter stated that applying the MTSF is inappropriate 
because the experience in New York in 2015--before BHP was fully 
implemented--showed that a smaller percentage of enrollees with incomes 
below 200 percent of FPL chose bronze-level QHPs than the percentage of 
such enrollees nationwide who chose bronze-level QHPs nationwide in 
2017. Two commenters cited New York's enrollment assistance efforts as 
the reason for a smaller percentage of enrollees choosing bronze-level 
QHPs in 2015. Further, one commenter noted that the amount of PTC 
reduction for these enrollees in New York in 2015 was about $12 per 
enrollee per month.
    Response: As detailed in the 2021 proposed BHP Payment Notice and 
in section III.D.6. of this final notice, we continue to believe that 
it is appropriate to take the MTSF into account due to several changes 
that occurred following the discontinuance of the CSR payments that 
increased the impact of enrollees' plan choices on the amount of PTC 
paid by the federal government. First, silver-level QHP premiums 
increased at a higher percentage in comparison to the increase in 
premiums of other metal-tier plans in many states starting in 2018 (on 
average, the national average benchmark silver-level QHP premium 
increased about 17 percentage points faster than the national average 
lowest-cost bronze-level QHP premium). Second, there was an increase in 
the percentage of enrollees with incomes below 200 percent of FPL 
choosing bronze-level QHPs. Third, the likelihood that a person 
choosing a bronze-level QHP would pay $0 premium also increased, as the 
difference between the bronze-level QHP premium and the full value of 
PTC widened. Finally, the average estimated reduction in PTC for 
enrollees with incomes below 200 percent of FPL that chose bronze-level 
QHPs increased substantially from 2017 to 2018. Our analysis of 2017 
and 2018 data documents these effects.
    In 2017, prior to the discontinuance of CSR payments, 11 percent of 
QHP enrollees with incomes below 200 percent of FPL elected to enroll 
in bronze-level QHPs, and on average the PTC paid on behalf of those 
enrollees was 11 percent less than the full value of PTC. In 2018, 
after the discontinuance of the CSR payments, 13 percent of QHP 
enrollees with incomes below 200 percent of FPL chose bronze-level 
QHPs, and on average, the PTC paid on behalf of those enrollees was 23 
percent less than the full value of the PTC. In addition, the national 
average silver-level QHP premium was 17 percent higher than the 
national average bronze-level plan premium in 2017. In 2018, this ratio 
increased such that the national average silver-level QHP premium was 
33 percent higher than the national average bronze-level plan premium. 
While the increase in the percentage of QHP enrollees with incomes 
below 200 percent of FPL who elected to enroll in bronze-level QHPs 
between 2017 and 2018 is about 2 percentage points, the accompanying 
percentage reduction of the PTC paid by the federal government for QHP 
enrollees with incomes below 200 percent of FPL more than doubled 
between 2017 and 2018. Consistent with section 1331(d)(3) of the 
Patient Protection and Affordable Care Act, which requires that 
payments to states be based on what would have been provided if BHP 
eligible individuals were allowed to enroll in QHPs, we believe it is 
appropriate to consider how individuals would have chosen different 
plans--including across metal tiers--as part of the BHP payment 
methodology. As such, we are finalizing the application of the MTSF for 
program year 2021 as proposed.
    Regarding comments that New York's experience has differed from the 
national averages, as we discussed in the November 2019 final BHP 
Payment Notice for 2019 and 2020 (84 FR 59533), we recognize there are 
certain unique state characteristics in the New York markets (for 
example, pure community rating); however, the BHP statute directs the 
Secretary to take into consideration the experience of other states 
when developing the payment methodology \4\ and doing so is a 
reasonable basis for calculating the MTSF.
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    \4\ See section 1331(d)(3)(A)(ii) of the Patient Protection and 
Affordable Care Act.
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    We also continue to believe that using 2015 data as the basis for 
the MTSF is not appropriate. Premiums and enrollment patterns have 
changed over time, including the above described changes in bronze-
level and silver-level QHP premiums, changes in the ratio of the 
silver-level to bronze-level QHP premiums, and changes to the amount of 
PTC paid by the federal government. In addition, while the cited 2015 
data provides some evidence of consumer plan selections prior to the 
full implementation of New York's BHP, we do not believe that the 2015 
data should be relied upon for the development of the MTSF for the 
following reasons. First, New York did not begin implementing its BHP 
until April 2015 (and did not fully implement BHP until 2016). Second, 
the 2015 data predates the discontinuance of the CSR payments in 2017 
and the subsequent adjustments to premiums beginning in 2018 
(particularly to silver-level QHP premiums). Therefore, relying on data 
from 2015 does not capture the more recent experience of New York and/
or other states subsequent to the discontinuation of CSRs, which the 
MTSF is intended to reflect.
    In response to comments about New York's enrollment assistance 
efforts, we note that the statute does not require the Secretary to 
address every difference in Exchange operations among the states

[[Page 49268]]

(including, but not limited to, enrollment assistance efforts by 
individual Exchanges). We also believe it is not practicable to address 
every potential difference in Exchange operations, and that not every 
potential difference in Exchange operations would be a relevant factor 
necessary to take into account. In response to the comment that the New 
York Essential Plan provides coverage with actuarial value that is 
equivalent to (or greater than) a platinum plan, not a bronze plan, we 
recognize that BHPs are prohibited from providing bronze-level coverage 
to enrollees. As we discussed in the November 2019 final BHP Payment 
Notice for 2019 and 2020 (84 FR 59533), regarding comments that BHPs 
are prohibited from providing bronze-level coverage to enrollees, and 
thus the BHP payment methodology should not assume enrollees would have 
chosen bronze-level QHPs in the Exchange, section 1331(d)(3)(A)(ii) of 
the Patient Protection and Affordable Care Act directs the Secretary to 
``take into account all relevant factors necessary to determine the 
value of the'' PTCs and CSRs that would have been provided to eligible 
individuals if they would have enrolled in QHPs through an Exchange. We 
further note the statute does not set forth an exhaustive list of what 
those necessary relevant factors are, providing the Secretary with 
discretion and authority to identify and take into consideration 
factors that are not specifically enumerated in the statute. In 
addition, section 1331(d)(3)(A)(ii) of the Patient Protection and 
Affordable Care Act requires the Secretary to ``take into consideration 
the experience of other States with respect to participation on 
Exchanges and such credit and reductions provided to residents of the 
other States, with a special focus on enrollees with income below 200 
percent of poverty.'' We recognize that applying the MTSF would reduce 
BHP funding, but we nonetheless believe that incorporating the MTSF 
into the BHP payment methodology for program year 2021 accurately 
reflects the changes in PTCs after the federal government stopped 
making CSR payments and is consistent with section 1331(d)(3)(A)(ii) of 
the Patient Protection and Affordable Care Act. Regarding the comments 
about the potential impact of reduced BHP funding on benefits available 
under BHPs, we note that the benefits requirements at Sec.  600.405 are 
still applicable and therefore benefits available under BHPs should not 
be impacted.
    Comment: Several commenters opposed or disagreed with our 
alternative options for calculating the MTSF, which included using 
partial 2019 data instead of 2018 data, and making a retrospective 
adjustment under Sec.  600.610(c)(2)(ii) to update the MTSF using 2021 
data once it becomes available. One commenter noted that calculating 
the MTSF retrospectively would introduce uncertainty into the program 
that would make planning difficult.
    Response: After consideration of comments, we are finalizing the 
MTSF as proposed using 2018 data.\5\ As detailed in the 2021 proposed 
BHP Payment Notice, we believe it is reasonable to use the same value 
for the MTSF as was used in the 2020 final payment methodology. Most 
notably, the MTSF reflects the percentage of enrollees choosing bronze-
level QHPs and the accompanying reduction in the PTCs paid and we do 
not expect significant year-to-year differences in these data points 
absent other significant changes to the operations of the Exchanges 
(for example, the discontinuance of CSR payments). Further, we believe 
that states and QHP issuers have not significantly changed their 
approaches to account for the discontinuation of CSR payments, and that 
most states and QHP issuers are using similar approaches as were used 
in 2018.\6\ We also believe that consumers will continue to react to 
these adjustments and increases in silver-level QHP premiums in the 
same manner; meaning that consumers will continue to select bronze-
level QHPs and the impact on PTCs paid by the government will generally 
remain the same.
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    \5\ See section III.D.6. of this final notice for further 
details on the MTSF finalized as part of the 2021 final payment 
methodology.
    \6\ In fact, HHS may not take any action or prohibit or 
otherwise restrict silver loading practices with respect to plan 
year 2021. See Further Consolidated Appropriations Act, 2020, 
Division N, title I, subtitle F, section 609 (Pub. L. 116-94: 
December 20, 2019, enacting H.R. 1865).
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    We appreciate the comments on potential other sources of data 
beyond 2018 that could be used to calculate the MTSF for 2021. We 
recognize that making a retrospective adjustment to update the MTSF 
using 2021 data would introduce some uncertainty into the BHP payments 
because the necessary data would not be available until after the end 
of the 2021 program year and this could create planning challenges for 
states operating BHPs. We also remain concerned about using partial 
2019 data to calculate the MTSF, and we believe that the final end-of-
year data is more reliable than partial data and that the preliminary 
2019 data does not suggest that there would be a substantial change in 
the MTSF value. We are therefore finalizing the MTSF as proposed using 
2018 data, as we discuss in section III.D.6. of this final notice.
    Comment: Several commenters opposed or disagreed with our 
alternative options for calculating the Premium Adjustment Factor 
(PAF), which included using other data sources to calculate the PAF, 
estimating the PAF rather than relying on the information from the QHP 
issuers, and making a retrospective adjustment under Sec.  
600.610(c)(2)(ii) to the PAF for 2021 to reflect actual 2021 experience 
once the necessary data for 2021 becomes available. In addition, one 
commenter noted that calculating the PAF retrospectively would 
introduce uncertainty into the program that would make planning 
difficult.
    Response: After consideration of comments received, we are 
finalizing the PAF value at 1.188 for program year 2021 using 2018 
data, as proposed. As detailed in the 2021 proposed BHP Payment Notice, 
we believe this value for the PAF continues to reasonably account for 
the increase in silver-level premiums and the reduction in PTCs paid 
that took effect after the discontinuance of the CSR payments. As 
explained above, we believe that the impact of the increase in silver-
level premiums in 2021 can reasonably be expected to be similar in 
2018. In addition, we recognize that making a retrospective adjustment 
to update the PAF to reflect actual 2021 experience would create some 
additional uncertainty into the BHP payments because the necessary data 
would not be available until after the end of the 2021 program year, 
and that this could create planning challenges for states operating 
BHPs. We are not pursuing use of the other data sources for determining 
the value of the PAF, as we believe that QHP issuers may not be readily 
able to provide specific data. In addition, this information is not 
typically collected with the issuers' rate filings. We believe this may 
be burdensome on the QHP issuers to provide this information at this 
time (for example, through a survey specifically to request this 
information). We also are not calculating an estimate of the QHP 
premium adjustment. While we believe this could be a reasonable 
approach, we believe that the 2018 experience still provides an 
accurate reflection of the QHP premium adjustment and using 2018 data 
avoids the previously described concerns associated with the identified 
potential alternative data sources. We are

[[Page 49269]]

finalizing the PAF as proposed, as discussed in section III.D.2. of 
this final notice.
    Comment: Regarding the income reconciliation factor (IRF), several 
commenters supported our proposal to calculate the IRF using only the 
value for states that have expanded Medicaid eligibility to 138 percent 
of FPL. In past years, we calculated the IRF as the average of the 
values for states that have expanded Medicaid eligibility and for 
states that have not.
    Response: We appreciate these comments and are finalizing the IRF 
as proposed.

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

    In this section of the 2021 proposed payment notice, we proposed to 
provide states operating a BHP with the option to use the 2020 QHP 
premiums multiplied by a premium trend factor to calculate the federal 
BHP payment rates instead of using the 2021 QHP premiums. We proposed 
to require states to make their election for the 2021 program year by 
May 15, 2020. For specific discussions, please refer to the 2021 
proposed BHP Payment Notice.
    We received no comments on this aspect of the proposed methodology. 
We are finalizing these policies as proposed, with one exception.
    Because we are finalizing the 2021 payment methodology after the 
proposed May 15, 2020 deadline for notifying us of the decision to base 
federal BHP payment rates on actual 2021 premiums or the 2020 premiums 
trended forward, we are finalizing that a state may notify CMS of its 
election within 60 days of publication of this final notice.

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

    In this section of the 2021 proposed BHP Payment Notice, we 
proposed to provide states implementing BHP the option to develop a 
methodology to account for the impact that including the BHP population 
in the Exchange would have had on QHP premiums based on any differences 
in health status between the BHP population and persons enrolled 
through the Exchange. For specific discussions, please refer to the 
2021 proposed BHP Payment Notice.
    We received no comments on this aspect of the methodology. 
Therefore, we are finalizing this policy as proposed, with one change. 
Because we are finalizing the 2021 payment methodology after the 
proposed August 1, 2020 deadline for states to submit their protocols 
to CMS, we are finalizing that a state electing this option must submit 
their protocol to CMS within 30 days of publication of this final 
notice.

III. Provisions of the 2021 BHP Final Methodology

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

    Section 1331(d)(3) of the Patient Protection and Affordable Care 
Act directs the Secretary to consider several factors when determining 
the federal BHP payment amount, which, as specified in the statute, 
must equal 95 percent of the value of the PTC and CSRs that BHP 
enrollees would have been provided had they enrolled in a QHP through 
an Exchange. Thus, the BHP funding methodology is designed to calculate 
the PTC and CSRs as consistently as possible and in general alignment 
with the methodology used by Exchanges to calculate the APTC and CSRs, 
and by the IRS to calculate final PTCs. In general, we have relied on 
values for factors in the payment methodology specified in statute or 
other regulations as available, and have developed values for other 
factors not otherwise specified in statute, or previously calculated in 
other regulations, to simulate the values of the PTC and CSRs that BHP 
enrollees would have received if they had enrolled in QHPs offered 
through an Exchange. In accordance with section 1331(d)(3)(A)(iii) of 
the Patient Protection and Affordable Care Act, the final funding 
methodology must be certified by the Chief Actuary of CMS, in 
consultation with the Office of Tax Analysis (OTA) of the Department of 
the Treasury, as having met the requirements of section 
1331(d)(3)(A)(ii) of the Patient Protection and Affordable Care Act.
    Section 1331(d)(3)(A)(ii) of the Patient Protection and Affordable 
Care Act specifies that the payment determination shall take into 
account all relevant factors necessary to determine the value of the 
PTCs and CSRs that would have been provided to eligible individuals, 
including but not limited to, the age and income of the enrollee, 
whether the enrollment is for self-only or family coverage, geographic 
differences in average spending for health care across rating areas, 
the health status of the enrollee for purposes of determining risk 
adjustment payments and reinsurance payments that would have been made 
if the enrollee had enrolled in a QHP through an Exchange, and whether 
any reconciliation of PTC and CSR would have occurred if the enrollee 
had been so enrolled. Under the payment methodologies for 2015 (79 FR 
13887) (published in March 2014), for 2016 (80 FR 9636) (published in 
February 2015), for 2017 and 2018 (81 FR 10091) (published in February 
2016), and for 2019 and 2020 (84 FR 59529) (published in November 
2019), the total federal BHP payment amount has been calculated using 
multiple rate cells in each state. Each rate cell represents a unique 
combination of age range (if applicable), geographic area, coverage 
category (for example, self-only or two-adult coverage through the 
BHP), household size, and income range as a percentage of FPL, and 
there is a distinct rate cell for individuals in each coverage category 
within a particular age range who reside in a specific geographic area 
and are in households of the same size and income range. The BHP 
payment rates developed also are consistent with the state's rules on 
age rating. Thus, in the case of a state that does not use age as a 
rating factor on an Exchange, the BHP payment rates would not vary by 
age.
    The rate for each rate cell is calculated in two parts. The first 
part is equal to 95 percent of the estimated PTC that would have been 
paid if a BHP enrollee in that rate cell had instead enrolled in a QHP 
in an Exchange. The second part is equal to 95 percent of the estimated 
CSR payment that would have been made if a BHP enrollee in that rate 
cell had instead enrolled in a QHP in an Exchange. These two parts are 
added together and the total rate for that rate cell would be equal to 
the sum of the PTC and CSR rates. We will assign a value of zero to the 
CSR portion of the BHP payment rate calculation, because there is 
presently no available appropriation from which we can make the CSR 
portion of any BHP Payment.
    Equation (1) will be used to calculate the estimated PTC for 
eligible individuals enrolled in the BHP in each rate cell. We note 
that throughout this final notice that when we refer to enrollees and 
enrollment data, we mean data regarding individuals who were enrolled 
in the BHP who had been found eligible for the BHP using the 
eligibility and verification requirements that are applicable in the 
state's most recent certified Blueprint. By applying the equations 
separately to rate cells based on age (if applicable), income and other 
factors, we effectively take those factors into account in the 
calculation. In addition, the equations reflect the estimated 
experience of individuals in each rate cell if enrolled in coverage 
through an Exchange, taking into account additional relevant variables. 
Each of the variables in the equations is

[[Page 49270]]

defined in this section, and further detail is provided later in this 
section of the final notice. In addition, we described how we will 
calculate the adjusted reference premium (ARP) that was used in 
Equation (1) and defined in Equation (2a) and Equation (2b).
Equation 1: Estimated PTC by Rate Cell
    The estimated PTC, on a per enrollee basis, will be calculated for 
each rate cell for each state based on age range (if applicable), 
geographic area, coverage category, household size, and income range. 
The PTC portion of the rate will be calculated in a manner consistent 
with the methodology used to calculate the PTC for persons enrolled in 
a QHP, with 5 adjustments. First, the PTC portion of the rate for each 
rate cell will represent the mean, or average, expected PTC that all 
persons in the rate cell would receive, rather than being calculated 
for each individual enrollee. Second, the reference premium (RP) 
(described in section III.D.1. of this final notice) used to calculate 
the PTC will be adjusted for the BHP population health status, and in 
the case of a state that elects to use 2020 premiums for the basis of 
the BHP federal payment, for the projected change in the premium from 
2020 to 2021, to which the rates in this final payment methodology will 
apply. These adjustments are described in Equation (2a) and Equation 
(2b). Third, the PTC will be adjusted prospectively to reflect the 
mean, or average, net expected impact of income reconciliation on the 
combination of all persons enrolled in the BHP; this adjustment, the 
IRF, as described in section III.D.7. of this final notice, will 
account for the impact on the PTC that would have occurred had such 
reconciliation been performed. Fourth, the PTC will be adjusted to 
account for the estimated impacts of plan selection; this adjustment, 
the MTSF, would reflect the effect of individuals choosing different 
metal tier levels of QHPs on the average PTC. Finally, the rate is 
multiplied by 95 percent, consistent with section 1331(d)(3)(A)(i) of 
the Patient Protection and Affordable Care Act. We note that in the 
situation where the average income contribution of an enrollee would 
exceed the ARP, we will calculate the PTC to be equal to 0 and would 
not allow the value of the PTC to be negative.
    We will use Equation (1) to calculate the PTC rate, consistent with 
the methodology described above:
[GRAPHIC] [TIFF OMITTED] TR13AU20.004

PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
Ih,i,j = Income (in dollars per month) at each 1 percentage-point 
increment of FPL
j = jth percentage-point increment FPL
n = Number of income increments used to calculate the mean PTC
PTCFh,i,j = Premium tax credit formula percentage
IRF = Income reconciliation factor
MTSF = Metal-tier selection factor
Equation (2a) and Equation (2b): Adjusted Reference Premium (ARP) 
Variable (Used in Equation 1)
    As part of the calculations for the PTC component, we will 
calculate the value of the ARP as described below. Consistent with the 
existing approach, we will allow states to choose between using the 
actual current year premiums or the prior year's premiums multiplied by 
the premium trend factor (PTF) (as described in section III.E. of this 
final notice). Below we describe how we will continue to calculate the 
ARP under each option.
    In the case of a state that elected to use the reference premium 
(RP) based on the current program year (for example, 2021 premiums for 
the 2021 program year), we will calculate the value of the ARP as 
specified in Equation (2a). The ARP will be equal to the RP, which will 
be based on the second lowest cost silver plan premium in the 
applicable program year, multiplied by the BHP population health factor 
(PHF) (described in section III.D.3. of this final notice), which will 
reflect the projected impact that enrolling BHP-eligible individuals in 
QHPs through an Exchange would have had on the average QHP premium, and 
multiplied by the premium adjustment factor (PAF) (described in section 
III.D.2. of this final notice), which will account for the change in 
silver-level premiums due to the discontinuance of CSR payments.
[GRAPHIC] [TIFF OMITTED] TR13AU20.007

ARPa,g,c = Adjusted reference premium
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
RPa,g,c = Reference premium
PHF = Population health factor
PAF = Premium adjustment factor

    In the case of a state that elected to use the RP based on the 
prior program year (for example, 2020 premiums for the 2021 program 
year, as described in more detail in section III.E. of this final 
notice), we will calculate the value of the ARP as specified in 
Equation (2b). The ARP will be equal to the RP, which will be based on 
the second lowest cost silver plan premium in 2020, multiplied by the 
BHP PHF (described in section III.D.3. of this final notice), which 
will reflect the projected impact that enrolling BHP-eligible 
individuals in QHPs on an Exchange would have had on the average QHP 
premium, multiplied by the PAF (described in section III.D.2. of this 
final notice), which will account for the change in silver-level 
premiums due to the discontinuance of CSR payments, and multiplied by 
the premium trend factor (PTF) (described in section III.E. of this 
final notice), which will reflect the projected change in the premium 
level between 2020 and 2021.

[[Page 49271]]

[GRAPHIC] [TIFF OMITTED] TR13AU20.008

ARPa,g,c = Adjusted reference premium
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
RPa,g,c = Reference premium
PHF = Population health factor
PAF = Premium adjustment factor
PTF = Premium trend factor
Equation 3: Determination of Total Monthly Payment for BHP Enrollees in 
Each Rate Cell
    In general, the rate for each rate cell will be multiplied by the 
number of BHP enrollees in that cell (that is, the number of enrollees 
that meet the criteria for each rate cell) to calculate the total 
monthly BHP payment. This calculation is shown in Equation (3).
[GRAPHIC] [TIFF OMITTED] TR13AU20.009

    In general, the rate for each rate cell will be multiplied by the 
number of BHP enrollees in that cell (that is, the number of enrollees 
that meet the criteria for each rate cell) to calculate the total 
monthly BHP payment. This calculation is shown in Equation (3).

PMT = Total monthly BHP payment
PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
CSRa,g,c,h,i = Cost-sharing reduction portion of BHP payment rate
Ea,g,c,h,i = Number of BHP enrollees
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)

B. Federal BHP Payment Rate Cells

    Consistent with the previous payment methodologies, a state 
implementing a BHP will provide us an estimate of the number of BHP 
enrollees it projects will enroll in the upcoming BHP program quarter, 
by applicable rate cell, prior to the first quarter and each subsequent 
quarter of program operations until actual enrollment data is 
available. Upon our approval of such estimates as reasonable, they will 
be used to calculate the prospective payment for the first and 
subsequent quarters of program operation until the state has provided 
us actual enrollment data. These data are required to calculate the 
final BHP payment amount, and make any necessary reconciliation 
adjustments to the prior quarters' prospective payment amounts due to 
differences between projected and actual enrollment. Subsequent 
quarterly deposits to the state's trust fund will be based on the most 
recent actual enrollment data submitted to us. Actual enrollment data 
must be based on individuals enrolled for the quarter who the state 
found eligible and whose eligibility was verified using eligibility and 
verification requirements as agreed to by the state in its applicable 
BHP Blueprint for the quarter that enrollment data is submitted. 
Procedures will ensure that federal payments to a state reflect actual 
BHP enrollment during a year, within each applicable category, and 
prospectively determined federal payment rates for each category of BHP 
enrollment, with such categories defined in terms of age range (if 
applicable), geographic area, coverage status, household size, and 
income range, as explained above.
    We will require the use of certain rate cells as part of the 
proposed methodology. For each state, we will use rate cells that 
separate the BHP population into separate cells based on the five 
factors described as follows:
    Factor 1--Age: We will separate enrollees into rate cells by age 
(if applicable), using the following age ranges that capture the widest 
variations in premiums under HHS' Default Age Curve: \7\
---------------------------------------------------------------------------

    \7\ This curve is used to implement the Patient Protection and 
Affordable Care Act's 3:1 limit on age-rating in states that do not 
create an alternative rate structure to comply with that limit. The 
curve applies to all individual market plans, both within and 
outside the Exchange. The age bands capture the principal allowed 
age-based variations in premiums as permitted by this curve. The 
default age curve was updated for 2018 to include different age 
rating factors between children 0-14 and for persons at each age 
between 15 and 20. More information is available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/StateSpecAgeCrv053117.pdf. Both children and 
adults under age 21 are charged the same premium. For adults age 21-
64, the age bands in this notice divide the total age-based premium 
variation into the three most equally-sized ranges (defining size by 
the ratio between the highest and lowest premiums within the band) 
that are consistent with the age-bands used for risk-adjustment 
purposes in the HHS-Developed Risk Adjustment Model. For such age 
bands, see Table 5, ``Age-Sex Variables,'' in HHS-Developed Risk 
Adjustment Model Algorithm Software, June 2, 2014, http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/ra-tables-03-27-2014.xlsx.
---------------------------------------------------------------------------

     Ages 0-20.
     Ages 21-34.
     Ages 35-44.
     Ages 45-54.
     Ages 55-64.
    This provision is unchanged from the current methodology.
    Factor 2--Geographic area: For each state, we will separate 
enrollees into rate cells by geographic areas within which a single RP 
is charged by QHPs offered through the state's Exchange. Multiple, non-
contiguous geographic areas would be incorporated within a single cell, 
so long as those areas share a common RP.\8\ This provision is also 
unchanged from the current methodology.
---------------------------------------------------------------------------

    \8\ For example, a cell within a particular state might refer to 
``County Group 1,'' ``County Group 2,'' etc., and a table for the 
state would list all the counties included in each such group. These 
geographic areas are consistent with the geographic areas 
established under the 2014 Market Reform Rules. They also reflect 
the service area requirements applicable to QHPs, as described in 45 
CFR 155.1055, except that service areas smaller than counties are 
addressed as explained in this notice.
---------------------------------------------------------------------------

    Factor 3--Coverage status: We will separate enrollees into rate 
cells by coverage status, reflecting whether an individual is enrolled 
in self-only coverage or persons are enrolled in family coverage 
through the BHP, as provided in section 1331(d)(3)(A)(ii) of the 
Patient Protection and Affordable Care Act. Among recipients of family 
coverage through the BHP, separate rate cells, as explained below, will 
apply based on whether such coverage involves two adults alone or 
whether it involves children. This provision is unchanged from the 
current methodology.
    Factor 4--Household size: We will continue the current methods for 
separating enrollees into rate cells by household size that states use 
to determine BHP enrollees' household income as a percentage of the FPL 
under Sec.  600.320 (Determination of eligibility for and enrollment in 
a standard health plan). We will require separate rate cells for 
several specific household sizes. For each additional member above the 
largest specified size, we will publish

[[Page 49272]]

instructions for how we will develop additional rate cells and 
calculate an appropriate payment rate based on data for the rate cell 
with the closest specified household size. We will publish separate 
rate cells for household sizes of 1 through 10. This provision is 
unchanged from the current methodology.
    Factor 5--Household Income: For households of each applicable size, 
we will continue the current methods for creating separate rate cells 
by income range, as a percentage of FPL. The PTC that a person would 
receive if enrolled in a QHP through an Exchange varies by household 
income, both in level and as a ratio to the FPL. Thus, separate rate 
cells will be used to calculate federal BHP payment rates to reflect 
different bands of income measured as a percentage of FPL. We will use 
the following income ranges, measured as a percentage of the FPL:
     0 to 50 percent of the FPL.
     51 to 100 percent of the FPL.
     101 to 138 percent of the FPL.\9\
---------------------------------------------------------------------------

    \9\ The three lowest income ranges would be limited to lawfully 
present immigrants who are ineligible for Medicaid because of 
immigration status.
---------------------------------------------------------------------------

     139 to 150 percent of the FPL.
     151 to 175 percent of the FPL.
     176 to 200 percent of the FPL.
    This provision is unchanged from the current methodology.
    These rate cells will only be used to calculate the federal BHP 
payment amount. A state implementing a BHP will not be required to use 
these rate cells or any of the factors in these rate cells as part of 
the state payment to the standard health plans participating in the BHP 
or to help define BHP enrollees' covered benefits, premium costs, or 
out-of-pocket cost-sharing levels.
    We will use averages to define federal payment rates, both for 
income ranges and age ranges (if applicable), rather than varying such 
rates to correspond to each individual BHP enrollee's age and income 
level. This approach will increase the administrative feasibility of 
making federal BHP payments and reduce the likelihood of inadvertently 
erroneous payments resulting from highly complex methodologies. This 
approach should not significantly change federal payment amounts, since 
within applicable ranges, the BHP-eligible population is distributed 
relatively evenly.
    The number of factors contributing to rate cells, when combined, 
can result in over 350,000 rate cells which can increase the complexity 
when generating quarterly payment amounts. In future years, and in the 
interest of administrative simplification, we will consider whether to 
combine or eliminate certain rate cells, once we are certain that the 
effect on payment would be insignificant.

C. Sources and State Data Considerations

    To the extent possible, unless otherwise provided, we will continue 
to use data submitted to the federal government by QHP issuers seeking 
to offer coverage through the Exchange in the relevant BHP state to 
perform the calculations that determine federal BHP payment cell rates.
    States operating a SBE in the individual market, however, must 
provide certain data, including premiums for second lowest cost silver 
plans, by geographic area, for CMS to calculate the federal BHP payment 
rates in those states. States operating a SBE interested in obtaining 
the applicable 2021 program year federal BHP payment rates for its 
state must submit such data accurately, completely, and as specified by 
CMS, by no later than October 15, 2020. If additional state data (that 
is, in addition to the second lowest cost silver plan premium data) are 
needed to determine the federal BHP payment rate, such data must be 
submitted in a timely manner, and in a format specified by us to 
support the development and timely release of annual BHP payment 
notices. The specifications for data collection to support the 
development of BHP payment rates are published in CMS guidance and are 
available in the Federal Policy Guidance section at https://www.medicaid.gov/federal-policy-Guidance/index.html.
    States operating a BHP must submit enrollment data to us on a 
quarterly basis and should be technologically prepared to begin 
submitting data at the start of their BHP, starting with the beginning 
of the first program year. This differs from the enrollment estimates 
used to calculate the initial BHP payment, which states would generally 
submit to CMS 60 days before the start of the first quarter of the 
program start date. This requirement is necessary for us to implement 
the payment methodology that is tied to a quarterly reconciliation 
based on actual enrollment data.
    We will continue the policy first adopted in the February 2016 
payment notice that in states that have BHP enrollees who do not file 
federal tax returns (non-filers), the state must develop a methodology 
to determine the enrollees' household income and household size 
consistently with Marketplace requirements.\10\ The state must submit 
this methodology to us at the time of their Blueprint submission. We 
reserve the right to approve or disapprove the state's methodology to 
determine household income and household size for non-filers if the 
household composition and/or household income resulting from 
application of the methodology are different than what typically would 
be expected to result if the individual or head of household in the 
family were to file a tax return. States currently operating a BHP that 
wish to change the methodology for non-filers must submit a revised 
Blueprint outlining the revisions to its methodology, consistent with 
Sec.  600.125.
---------------------------------------------------------------------------

    \10\ See 81 FR at 10097.
---------------------------------------------------------------------------

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

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
    To calculate the estimated PTC that would be paid if BHP-eligible 
individuals enrolled in QHPs through an Exchange, we must calculate a 
RP

[[Page 49273]]

because the PTC is based, in part, on the premiums for the applicable 
second lowest cost silver plan as explained in section III.D.5. of this 
final notice, regarding the premium tax credit formula (PTCF). 
Accordingly, for the purposes of calculating the BHP payment rates, the 
RP, in accordance with 26 U.S.C. 36B(b)(3)(C), is defined as the 
adjusted monthly premium for an applicable second lowest cost silver 
plan. The applicable second lowest cost silver plan is defined in 26 
U.S.C. 36B(b)(3)(B) as the second lowest cost silver plan of the 
individual market in the rating area in which the taxpayer resides that 
is offered through the same Exchange. We will use the adjusted monthly 
premium for an applicable second lowest cost silver plan in the 
applicable program year (2021) as the RP (except in the case of a state 
that elects to use the prior plan year's premium as the basis for the 
federal BHP payment for 2021, as described in section III.E. of this 
final notice).
    The RP would be the premium applicable to non-tobacco users. This 
is consistent with the provision in 26 U.S.C. 36B(b)(3)(C) that bases 
the PTC on premiums that are adjusted for age alone, without regard to 
tobacco use, even for states that allow insurers to vary premiums based 
on tobacco use in accordance with 42 U.S.C. 300gg(a)(1)(A)(iv).
    Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6), to 
calculate the PTC for those enrolled in a QHP through an Exchange, we 
will not update the payment methodology, and subsequently the federal 
BHP payment rates, in the event that the second lowest cost silver plan 
used as the RP, or the lowest cost silver plan, changes (that is, 
terminates or closes enrollment during the year).
    The applicable second lowest cost silver plan premium will be 
included in the BHP payment methodology by age range (if applicable), 
geographic area, and self-only or applicable category of family 
coverage obtained through the BHP.
    We note that the choice of the second lowest cost silver plan for 
calculating BHP payments relies on several simplifying assumptions in 
its selection. For the purposes of determining the second lowest cost 
silver plan for calculating PTC for a person enrolled in a QHP through 
an Exchange, the applicable plan may differ for various reasons. For 
example, a different second lowest cost silver plan may apply to a 
family consisting of two adults, their child, and their niece than to a 
family with two adults and their children, because one or more QHPs in 
the family's geographic area might not offer family coverage that 
includes the niece. We believe that it is not possible to replicate 
such variations for calculating the BHP payment and believe that in the 
aggregate, they will not result in a significant difference in the 
payment. Thus, we will use the second lowest cost silver plan available 
to any enrollee for a given age, geographic area, and coverage 
category.
    This choice of RP relies on an assumption about enrollment in the 
Exchanges. In previous methodologies for program years 2015 through 
2019, we had assumed that all persons enrolled in the BHP would have 
elected to enroll in a silver level plan if they had instead enrolled 
in a QHP through an Exchange (and that the QHP premium would not be 
lower than the value of the PTC). In the November 2019 final BHP 
Payment Notice, we continued to use the second-lowest cost silver plan 
premium as the RP, but for the 2020 payments we changed the assumption 
about which metal-tier plans enrollees would choose (see section 
III.D.6. on the MTSF in this final notice). Therefore, for the 2021 
payment methodology, we will continue to use the second-lowest cost 
silver plan premium as the RP, but account for how enrollees may choose 
other metal tier plans by applying the MTSF.
    We do not believe it is appropriate to adjust the payment for an 
assumption that some BHP enrollees would not have enrolled in QHPs for 
purposes of calculating the BHP payment rates, since section 
1331(d)(3)(A)(ii) of the Patient Protection and Affordable Care Act 
requires the calculation of such rates as if the enrollee had enrolled 
in a QHP through an Exchange.
    The applicable age bracket (if any) will be one dimension of each 
rate cell. We will assume a uniform distribution of ages and estimate 
the average premium amount within each rate cell. We believe that 
assuming a uniform distribution of ages within these ranges is a 
reasonable approach and would produce a reliable determination of the 
total monthly payment for BHP enrollees. We also believe this approach 
would avoid potential inaccuracies that could otherwise occur in 
relatively small payment cells if age distribution were measured by the 
number of persons eligible or enrolled.
    We will use geographic areas based on the rating areas used in the 
Exchanges. We will define each geographic area so that the RP is the 
same throughout the geographic area. When the RP varies within a rating 
area, we will define geographic areas as aggregations of counties with 
the same RP. Although plans are allowed to serve geographic areas 
smaller than counties after obtaining our approval, no geographic 
areas, for purposes of defining BHP payment rate cells, will be smaller 
than a county. We do not believe that this assumption will have a 
significant impact on federal payment levels and it would simplify both 
the calculation of BHP payment rates and the operation of the BHP.
    Finally, in terms of the coverage category, federal payment rates 
will only recognize self-only and two-adult coverage, with exceptions 
that account for children who are potentially eligible for the BHP. 
First, in states that set the upper income threshold for children's 
Medicaid and CHIP eligibility below 200 percent of FPL (based on 
modified adjusted gross income (MAGI)), children in households with 
incomes between that threshold and 200 percent of FPL would be 
potentially eligible for the BHP. Currently, the only states in this 
category are Idaho and North Dakota.\11\ Second, the BHP will include 
lawfully present immigrant children with household incomes at or below 
200 percent of FPL in states that have not exercised the option under 
sections 1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the Act to qualify all 
otherwise eligible, lawfully present immigrant children for Medicaid 
and CHIP. States that fall within these exceptions would be identified 
based on their Medicaid and CHIP State Plans, and the rate cells would 
include appropriate categories of BHP family coverage for children. For 
example, Idaho's Medicaid and CHIP eligibility is limited to families 
with MAGI at or below 185 percent FPL. If Idaho implemented a BHP, 
Idaho children with household incomes between 185 and 200 percent could 
qualify. In other states, BHP eligibility will generally be restricted 
to adults, since children who are citizens or lawfully present 
immigrants and live in households with incomes at or below 200 percent 
of FPL will qualify for Medicaid or CHIP, and thus be ineligible for a 
BHP under section 1331(e)(1)(C) of the Patient Protection and 
Affordable Care Act, which limits a BHP to individuals who are 
ineligible for minimum essential coverage (as defined in 26 U.S.C. 
5000A(f)).
---------------------------------------------------------------------------

    \11\ CMCS. ``State Medicaid, CHIP and BHP Income Eligibility 
Standards Effective April 1, 2019.''
---------------------------------------------------------------------------

2. Premium Adjustment Factor (PAF)
    The PAF considers the premium increases in other states that took 
effect after we discontinued payments to issuers for CSRs provided to 
enrollees in QHPs offered through Exchanges.

[[Page 49274]]

Despite the discontinuance of federal payments for CSRs, QHP issuers 
are required to provide CSRs to eligible enrollees. As a result, many 
QHP issuers increased the silver-level plan premiums to account for 
those additional costs; adjustments and how those were applied (for 
example, to only silver-level plans or to all metal tier plans) varied 
across states. For the states operating BHPs in 2018, the increases in 
premiums were relatively minor, because the majority of enrollees 
eligible for CSRs (and all who were eligible for the largest CSRs) were 
enrolled in the BHP and not in QHPs on the Exchanges, and therefore 
issuers in BHP states did not significantly raise premiums to cover 
unpaid CSR costs.
    In the Final Administrative Order and the November 2019 final BHP 
Payment Notice, we incorporated the PAF into the BHP payment. 
Similarly, we will include the PAF in the 2021 payment methodology and 
to calculate it in the same manner as in the Final Administrative 
Order.
    Under the Final Administrative Order, we calculated the PAF by 
using information requested from QHP issuers in each state and the 
District of Columbia, and determined the premium adjustment that the 
responding QHP issuers made to each silver level plan in 2018 to 
account for the discontinuation of CSR payments to QHP issuers. Based 
on the data collected, we estimated the median adjustment for silver 
level QHPs nationwide (excluding those in the two BHP states). To the 
extent that QHP issuers made no adjustment (or the adjustment was 0), 
this would be counted as 0 in determining the median adjustment made to 
all silver level QHPs nationwide. If the amount of the adjustment was 
unknown--or we determined that it should be excluded for methodological 
reasons (for example, the adjustment was negative, an outlier, or 
unreasonable)--then we did not count the adjustment towards determining 
the median adjustment.\12\ The median adjustment for silver level QHPs 
is the nationwide median adjustment.
---------------------------------------------------------------------------

    \12\ Some examples of outliers or unreasonable adjustments 
include (but are not limited to) values over 100 percent (implying 
the premiums doubled or more as a result of the adjustment), values 
more than double the otherwise highest adjustment, or non-numerical 
entries.
---------------------------------------------------------------------------

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

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

    To determine the PAF described above, we collected QHP information 
from QHP issuers in each state and the District of Columbia to 
determine the premium adjustment those issuers made to each silver 
level plan offered through the Exchange in 2018 to account for the end 
of CSR payments. Specifically, we requested information showing the 
percentage change that QHP issuers made to the premium for each of 
their silver level plans to cover benefit expenditures associated with 
the CSRs, given the lack of CSR payments in 2018. This percentage 
change was a portion of the overall premium increase from 2017 to 2018.
    According to our records, there were 1,233 silver-level QHPs that 
submitted premiums to operate on Exchanges in 2018. Of these 1,233 
QHPs, 318 QHPs (25.8 percent) responded to our request for the 
percentage adjustment applied to silver-level QHP premiums in 2018 to 
account for the discontinuance of the CSRs. These 318 QHPs operated in 
26 different states, with 10 of those states running SBEs (while we 
requested information only from QHP issuers in states serviced by an 
FFE, many of those issuers also had QHPs in states operating SBEs and 
submitted information for those states as well). Thirteen of these 318 
QHPs were in New York (and none were in Minnesota). Excluding these 13 
QHPs from the analysis, the nationwide median adjustment was 20.0 
percent. Of the 13 QHPs in New York that responded, the state median 
adjustment was 1.0 percent. We believe that this is an appropriate 
adjustment for QHPs in Minnesota as well, based on the observed changes 
in New York's QHP premiums in response to the discontinuance of CSR 
payments (and the operation of the BHP in that state) and our analysis 
of expected QHP premium adjustments for states with BHPs. We calculated 
the proposed PAF as (1 + 20%) / (1 + 1%) (or 1.20/1.01), which results 
in a value of 1.188.
    We will continue to set the PAF equal to 1.188 for program year 
2021. We believe that this value for the PAF continues to reasonably 
account for the increase in silver-level premiums experienced in non-
BHP states that took effect after the discontinuance of the CSR 
payments. We believe that the impact of the increase in silver-level 
premiums in 2021 can reasonably be expected to be similar to that in 
2018, because the discontinuation of CSR payments has not changed.
3. Population Health Factor (PHF)
    The PHF will be included in the methodology to account for the 
potential differences in the average health status between BHP 
enrollees and persons enrolled through the Exchanges. To the extent 
that BHP enrollees would have been enrolled through an Exchange in the 
absence of a BHP in a state, the exclusion of those BHP enrollees in 
the Exchange may affect the average health status of the overall 
population and the expected QHP premiums.
    We currently do not believe that there is evidence that the BHP 
population would have better or poorer health status than the Exchange 
population. At this time, there continues to be a lack of data on the 
experience in the Exchanges, which limits the ability to analyze the 
potential health differences between these groups of enrollees. More 
specifically, Exchanges have been in operation since 2014, and two 
states have operated BHPs since 2015, but data is not available to do 
the analysis necessary to determine if there are differences in the 
average health status between BHP and Exchange enrollees. In addition, 
differences in population health may vary across states. We also do not 
believe that sufficient data would be available to permit us to make a 
prospective adjustment to the PHF under Sec.  600.610(c)(2) for the 
2021 program year.
    Given these analytic challenges and the limited data about Exchange 
coverage and the characteristics of BHP-eligible consumers, the PHF 
will continue to be 1.00 for program year 2021.
    In the previous BHP payment methodologies, we included an option 
for states to include a retrospective population health status 
adjustment. We will provide states with the same option for 2021 to 
include a retrospective population health status adjustment in the 
certified methodology, which is subject to our review and approval. 
This option is described further in section III.F. of this final 
notice. Regardless of whether a state elects to include a retrospective 
population health status adjustment, we anticipate that, in future 
years, when additional data becomes available about Exchange coverage 
and the characteristics of BHP enrollees, we may estimate the PHF 
differently.
    While the statute requires consideration of risk adjustment 
payments and reinsurance payments insofar as they would have affected 
the PTC that would have been provided to

[[Page 49275]]

BHP-eligible individuals had they enrolled in QHPs, we will not require 
that a BHP's standard health plans receive such payments. As explained 
in the BHP final rule, BHP standard health plans are not included in 
the federally-operated risk adjustment program.\13\ Further, standard 
health plans do not qualify for payments under the transitional 
reinsurance program established under section 1341 of the Patient 
Protection and Affordable Care Act for the years the program was 
operational (2014 through 2016).\14\ To the extent that a state 
operating a BHP determines that, because of the distinctive risk 
profile of BHP-eligible consumers, BHP standard health plans should be 
included in mechanisms that share risk with other plans in the state's 
individual market, the state would need to use other methods for 
achieving this goal.
---------------------------------------------------------------------------

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

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

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

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

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

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

           Table 1--Applicable Percentage Table for CY 2020 a
------------------------------------------------------------------------
  In the case of household
   income (expressed as a
  percent of poverty line)     The initial premium    The final premium
 within the following income     percentage is--       percentage is--
            tier:
------------------------------------------------------------------------
Up to 133%..................                  2.06                  2.06
133% but less than 150%.....                  3.09                  4.12
150% but less than 200%.....                  4.12                  6.49
200% but less than 250%.....                  6.49                  8.29
250% but less than 300%.....                  8.29                  9.78

[[Page 49276]]

 
300% but not more than 400%.                  9.78                  9.78
------------------------------------------------------------------------
a IRS Revenue Procedure 2019-29. https://www.irs.gov/pub/irs-drop/rp-19-29.pdf.

6. Metal Tier Selection Factor (MTSF)
    On the Exchange, if an enrollee chooses a QHP and the value of the 
APTC to which the enrollee is entitled is greater than the premium of 
the plan selected, then the APTC is reduced to be equal to the premium. 
This usually occurs when enrollees eligible for larger APTCs choose 
bronze-level QHPs, which typically have lower premiums on the Exchange 
than silver-level QHPs. Prior to 2018, we believed that the impact of 
these choices and plan selections on the amount of PTCs that the 
federal government paid was relatively small. During this time, most 
enrollees in income ranges up to 200 percent FPL chose silver-level 
QHPs, and in most cases where enrollees chose bronze-level QHPs, the 
premium was still more than the PTC. Based on our analysis of the 
percentage of persons with incomes below 200 percent FPL choosing 
bronze-level QHPs and the average reduction in the PTCs paid for those 
enrollees, we believe that the total PTCs paid for persons with incomes 
below 200 percent FPL were reduced by about 1 percent in 2017. 
Therefore, we made no adjustment based on the effect for enrollees 
choosing non-silver-level QHPs in developing the BHP payment 
methodology applicable to program years prior to 2018. However, after 
the discontinuance of the CSR payments in October 2017, several changes 
occurred that increased the expected impact of enrollees' plan 
selection choices on the amount of PTC the government paid. These 
changes led to a larger percentage of individuals choosing bronze-level 
QHPs, and for those individuals who chose bronze-level QHPs, these 
changes also generally led to larger reductions in PTCs paid by the 
federal government per individual. The combination of more individuals 
with incomes below 200 percent of FPL choosing bronze-level QHPs and 
the reduction in PTCs had an impact on PTCs paid by the federal 
government for enrollees with incomes below 200 percent FPL.
    Silver-level QHP premiums for the 2018 benefit year increased 
substantially relative to other metal tier plans in many states (on 
average, by about 20 percent). We believe this contributed to an 
increase in the percentage of enrollees with lower incomes choosing 
bronze-level QHPs, despite being eligible for CSRs in silver-level 
QHPs, because many were able to purchase bronze-level QHPs and pay $0 
in premium; according to CMS data, the percentage of persons with 
incomes between 0 percent and 200 percent of FPL eligible for CSRs 
(those who would be eligible for the BHP if the state operated a BHP) 
selecting bronze level QHPs increased from about 11 percent in 2017 to 
about 13 percent in 2018. In addition, the likelihood that a person 
choosing a bronze-level QHP would pay $0 premium increased, and the 
difference between the bronze-level QHP premium and the available PTC 
widened. Between 2017 and 2018, the ratio of the average silver-level 
QHP premium to the average bronze-level QHP premium increased: the 
average silver level QHP premium was 17 percent higher than the average 
bronze-level QHP premium in 2017, whereas the average silver-level QHP 
premium was 33 percent higher than the average bronze-level QHP premium 
in 2018. Similarly, the average estimated reduction in APTC for 
enrollees with incomes between 0 percent and 200 percent FPL that chose 
bronze level QHPs increased from about 11 percent in 2017 to about 23 
percent in 2018 (after adjusting for the average age of bronze-level 
QHP and silver-level QHP enrollees); that is, in 2017, enrollees with 
incomes in this range who chose bronze-level QHPs received 11 percent 
less than the full value of the APTC, and in 2018, those enrollees who 
chose bronze-level QHPs received 23 percent less than the full value of 
the APTC. The discontinuance of the CSR payments led to increases in 
silver-level QHP premiums (and thus in the total potential PTCs), but 
did not generally increase the bronze-level QHP premiums in most 
states; we believe this is the primary reason for the increase in the 
percentage reduction in PTCs paid by the government for those who 
enrolled in bronze-level QHPs between 2017 and 2018.
    Therefore, we believe that the impacts on the amount of PTC the 
government would pay due to enrollees' plan selection choices are 
larger and thus more significant, and we will include an adjustment 
(the MTSF) in the BHP payment methodology to account for the effects of 
these choices. Section 1331(d)(3) of the Patient Protection and 
Affordable Care Act requires that the BHP payments to states be based 
on what would have been provided if such eligible individuals were 
allowed to enroll in QHPs, and we believe that it is appropriate to 
consider how individuals would have chosen different plans--including 
across different metal tiers--as part of the BHP payment methodology.
    We finalized the application of the MTSF for the first time in the 
2020 payment methodology, and we will calculate the MTSF using the same 
approach as finalized there (84 FR 59543). First, we will calculate the 
percentage of enrollees with incomes below 200 percent of the FPL 
(those who would be potentially eligible for the BHP) in non-BHP states 
who enrolled in bronze-level QHPs in 2018. Second, we will calculate 
the ratio of the average PTC paid for enrollees in this income range 
who selected bronze-level QHPs compared to the average PTC paid for 
enrollees in the same income range who selected silver-level QHPs. Both 
of these calculations will be done using CMS data on Exchange 
enrollment and payments.
    The MTSF will be set to the value of 1 minus the product of the 
percentage of enrollees who chose bronze-level QHPs and 1 minus the 
ratio of the average PTC paid for enrollees in bronze-level QHPs to the 
average PTC paid for enrollees in silver-level QHPs:

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

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

[[Page 49277]]

enrollees to the average PTC paid for silver-level QHP enrollees (76.66 
percent). Thus, the MTSF would be calculated as:

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

    Therefore, the value of the MTSF for 2021 will be 97.04 percent.
7. Income Reconciliation Factor (IRF)
    For persons enrolled in a QHP through an Exchange who receive APTC, 
there will be an annual reconciliation following the end of the year to 
compare the APTC to the correct amount of PTC based on household 
circumstances shown on the federal income tax return. Any difference 
between the latter amounts and the APTC paid during the year would 
either be paid to the taxpayer (if too little APTC was paid) or charged 
to the taxpayer as additional tax (if too much APTC was paid, subject 
to any limitations in statute or regulation), as provided in 26 U.S.C. 
36B(f).
    Section 1331(e)(2) of the Patient Protection and Affordable Care 
Act specifies that an individual eligible for the BHP may not be 
treated as a ``qualified individual'' under section 1312 of the Patient 
Protection and Affordable Care Act who is eligible for enrollment in a 
QHP offered through an Exchange. We are defining ``eligible'' to mean 
anyone for whom the state agency or the Exchange assesses or 
determines, based on the single streamlined application or renewal 
form, as eligible for enrollment in the BHP. Because enrollment in a 
QHP is a requirement for individuals to receive APTC, individuals 
determined or assessed as eligible for a BHP are not eligible to 
receive APTC for coverage in the Exchange. Because they do not receive 
APTC, BHP enrollees, on whom the BHP payment methodology is generally 
based, are not subject to the same income reconciliation as Exchange 
consumers. Nonetheless, there may still be differences between a BHP 
enrollee's household income reported at the beginning of the year and 
the actual household income over the year. These may include small 
changes (reflecting changes in hourly wage rates, hours worked per 
week, and other fluctuations in income during the year) and large 
changes (reflecting significant changes in employment status, hourly 
wage rates, or substantial fluctuations in income). There may also be 
changes in household composition. Thus, we believe that using 
unadjusted income as reported prior to the BHP program year may result 
in calculations of estimated PTC that are inconsistent with the actual 
household incomes of BHP enrollees during the year. Even if the BHP 
adjusts household income determinations and corresponding claims of 
federal payment amounts based on household reports during the year or 
data from third-party sources, such adjustments may not fully capture 
the effects of tax reconciliation that BHP enrollees would have 
experienced had they been enrolled in a QHP through an Exchange and 
received APTC.
    Therefore, in accordance with current practice, we will include in 
Equation 1 an adjustment, the IRF, that will account for the difference 
between calculating estimated PTC using: (a) Household income relative 
to FPL as determined at initial application and potentially revised 
mid-year under Sec.  600.320, for purposes of determining BHP 
eligibility and claiming federal BHP payments; and (b) actual household 
income relative to FPL received during the plan year, as it would be 
reflected on individual federal income tax returns. This adjustment 
will seek prospectively to capture the average effect of income 
reconciliation aggregated across the BHP population had those BHP 
enrollees been subject to tax reconciliation after receiving APTC for 
coverage provided through QHPs offered on an Exchange. Consistent with 
the methodology used in past years, we estimated reconciliation effects 
based on tax data for 2 years, reflecting income and tax unit 
composition changes over time among BHP-eligible individuals.
    The OTA maintains a model that combines detailed tax and other 
data, including Exchange enrollment and PTC claimed, to project 
Exchange premiums, enrollment, and tax credits. For each enrollee, this 
model compares the APTC based on household income and family size 
estimated at the point of enrollment with the PTC based on household 
income and family size reported at the end of the tax year. The former 
reflects the determination using enrollee information furnished by the 
applicant and tax data furnished by the IRS. The latter would reflect 
the PTC eligibility based on information on the tax return, which would 
have been determined if the individual had not enrolled in the BHP. 
Consistent with prior years, we proposed to use the ratio of the 
reconciled PTC to the initial estimation of PTC as the IRF in Equations 
(1a) and (1b) for estimating the PTC portion of the BHP payment rate.
    OTA estimates the IRF separately for states that have implemented 
the Medicaid eligibility expansion and those that have not. In previous 
program years, we used the average of these two values to set the value 
for the IRF. To date, the only states that have operated a BHP are 
states that implemented the Medicaid eligibility expansion. Therefore, 
for 2021, we are using the value only for states that have implemented 
the Medicaid eligibility expansion. For 2021, OTA has estimated that 
the IRF for states that have implemented the Medicaid eligibility 
expansion to cover adults up to 133 percent of the FPL will be 99.23 
percent.

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

    In the interest of allowing states greater certainty in the total 
BHP federal payments for a given plan year, we have given states the 
option to have their final federal BHP payment rates calculated using a 
projected ARP (that is, using premium data from the prior program year 
multiplied by the premium trend factor (PTF), as described in Equation 
(2b). For program years 2015 through 2018, we required states to make 
their election to have their final federal BHP payment rates calculated 
using a projected ARP by May 15 of the year preceding the applicable 
program year. Because this final notice is published after May 15, 
2020, we are requiring states to inform CMS in writing of their 
election for the 2021 program year 60 days following the publication of 
this final notice.
    For Equation (2b), we will define the PTF as follows:
    PTF: In the case of a state that would elect to use the 2020 
premiums as the basis for determining the 2021 BHP payment, it would be 
appropriate to apply a factor that would account for the change in 
health care costs between the year of the premium data and the BHP 
program year. This factor would approximate the change in health care 
costs per enrollee, which would include, but not be limited to, changes 
in the price of health care services and changes in the utilization of 
health care services. This would provide an estimate of the adjusted 
monthly premium for the applicable second lowest cost silver plan that 
would be more accurate and reflective of health care costs in the BHP 
program year.
    For the PTF, we will use the annual growth rate in private health 
insurance expenditures per enrollee from the National Health 
Expenditure (NHE) projections, developed by the Office of the Actuary 
in CMS (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html). For BHP program year 2021, the 
PTF will be 4.8 percent.

[[Page 49278]]

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

    To determine whether the potential difference in health status 
between BHP enrollees and consumers in an Exchange would affect the PTC 
and risk adjustment payments that would have otherwise been made had 
BHP enrollees been enrolled in coverage through an Exchange, we will 
provide states implementing the BHP the option to propose and to 
implement, as part of the certified methodology, a retrospective 
adjustment to the federal BHP payments to reflect the actual value that 
would be assigned to the population health factor (or risk adjustment) 
based on data accumulated during that program year for each rate cell.
    We acknowledge that there is uncertainty with respect to this 
factor due to the lack of available data to analyze potential health 
differences between the BHP and QHP populations, which is why, absent a 
state election, we will use a value for the PHF (see section III.D.3. 
of this final notice) to determine a prospective payment rate which 
assumes no difference in the health status of BHP enrollees and QHP 
enrollees. There is considerable uncertainty regarding whether the BHP 
enrollees will pose a greater risk or a lesser risk compared to the QHP 
enrollees, how to best measure such risk, the potential effect such 
risk would have had on PTC, and risk adjustment that would have 
otherwise been made had BHP enrollees been enrolled in coverage through 
an Exchange. To the extent, however, that a state would develop an 
approved protocol to collect data and effectively measure the relative 
risk and the effect on federal payments of PTCs and CSRs, we will 
permit a retrospective adjustment that would measure the actual 
difference in risk between the two populations to be incorporated into 
the certified BHP payment methodology and used to adjust payments in 
the previous year.
    For a state electing the option to implement a retrospective 
population health status adjustment as part of the BHP payment 
methodology applicable to the state, we will require the state to 
submit a proposed protocol to CMS, which would be subject to approval 
by us and would be required to be certified by the Chief Actuary of 
CMS, in consultation with the OTA. We applied the same protocol for the 
population health status adjustment as what is set forth in guidance in 
Considerations for Health Risk Adjustment in the Basic Health Program 
in Program Year 2015 (http://www.medicaid.gov/Basic-Health-Program/Downloads/Risk-Adjustment-and-BHP-White-Paper.pdf). We proposed to 
require a state to submit its proposed protocol by August 1, 2020. 
Given the publication date of this final notice, we will require a 
state to submit its proposed protocol for the 2021 program year within 
30 days after the publication of this final notice. This submission 
will need to include descriptions of how the state would collect the 
necessary data to determine the adjustment, including any contracting 
contingences that may be in place with participating standard health 
plan issuers. We will provide technical assistance to states as they 
develop their protocols, as requested. To implement the population 
health status adjustment, we must approve the state's protocol by 
December 31, 2020 for the 2021 program year. Finally, the state will be 
required to complete the population health status adjustment at the end 
of the program year based on the approved protocol. After the end of 
the program year, and once data is made available, we will review the 
state's findings, consistent with the approved protocol, and make any 
necessary adjustments to the state's federal BHP payment amounts. If we 
determine that the federal BHP payments were less than they would have 
been using the final adjustment factor, we would apply the difference 
to the state's next quarterly BHP trust fund deposit. If we determine 
that the federal BHP payments were more than they would have been using 
the final reconciled factor, we would subtract the difference from the 
next quarterly BHP payment to the state.

IV. Collection of Information Requirements

    This final methodology for program year 2021 is similar to the 
methodology finalized for program year 2020 in the November 2019 final 
BHP Payment Notice. While we are finalizing one change related to the 
calculation of the Income Reconciliation Factor, the change will not 
revise or impose any new reporting, recordkeeping, or third-party 
disclosure requirements or burden on states operating a BHP, as it 
pertains to any of our active collections of information Although the 
methodology's information collection requirements and burden had at one 
time been approved by OMB under control number 0938-1218 (CMS-10510), 
the approval was discontinued on August 31, 2017, since we adjusted our 
estimated number of respondents below the Paperwork Reduction Act of 
1995 (PRA) (44 U.S.C. 3501 et seq.) threshold of ten or more 
respondents (only New York and Minnesota operate a BHP at this time). 
Since we continue to estimate fewer than ten respondents, the final 
2021 methodology is not subject to the requirements of the PRA.
    We sought comment on whether or not to solicit information from QHP 
issuers on the amount of the adjustment to premiums to account for the 
discontinuance of CSR payments. We noted that we believe that 
soliciting such information would likely impose some additional 
reporting requirements on QHP issuers and sought comments on the amount 
of burden this would create.
    We received no comments on the Collection of Information 
Requirements section of the 2021 proposed BHP Payment Notice, including 
whether or not to solicit information from QHP issuers on the amount of 
the adjustment to premiums to account for the discontinuance of CSR 
payments.

V. Regulatory Impact Analysis

A. Statement of Need

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

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), 
Executive Order 13132 on Federalism (August 4, 1999), the Congressional 
Review Act (5 U.S.C. 804(2) and Executive Order 13771 on Reducing 
Regulation and Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic,

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

C. Anticipated Effects

    The provisions of this final notice are designed to determine the 
amount of funds that will be transferred to states offering coverage 
through a BHP rather than to individuals eligible for federal financial 
assistance for coverage purchased on the Exchange. We are uncertain 
what the total federal BHP payment amounts to states will be as these 
amounts will vary from state to state due to the state-specific factors 
and conditions. For example, total federal BHP payment amounts may be 
greater in more populous states simply by virtue of the fact that they 
have a larger BHP-eligible population and total payment amounts are 
based on actual enrollment. Alternatively, total federal BHP payment 
amounts may be lower in states with a younger BHP-eligible population 
as the RP used to calculate the federal BHP payment will be lower 
relative to older BHP enrollees. While state composition will cause 
total federal BHP payment amounts to vary from state to state, we 
believe that the methodology, like the methodology used in 2020, 
accounts for these variations to ensure accurate BHP payment transfers 
are made to each state.
    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires agencies to prepare an initial regulatory flexibility analysis 
to describe the impact of the 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. 
Individuals and states are not included in the definition of a small 
entity. Few of the entities that meet the definition of a small entity 
as that term is used in the RFA would be impacted directly by this 
methodology.
    Because this final methodology is focused solely on federal BHP 
payment rates to states, it does not contain provisions that would have 
a direct impact on hospitals, physicians, and other health care 
providers that are designated as small entities under the RFA. 
Accordingly, we have determined that the methodology, like the previous 
methodology and the final rule that established the BHP program, will 
not have a significant economic impact on a substantial number of small 
entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a methodology may have a significant economic impact 
on the operations of a substantial number of small rural hospitals. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. For the preceding 
reasons, we have determined that this methodology will not have a 
significant impact on a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act (UMRA) of 2005 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation, by state, 
local, or tribal governments, in the aggregate, or by the private 
sector. In 2020, that threshold is approximately $156 million. States 
have the option, but are not required, to establish a BHP. Further, the 
methodology would establish federal payment rates without requiring 
states to provide the Secretary with any data not already required by 
other provisions of the Patient Protection and Affordable Care Act or 
its implementing regulations. Thus, the final payment methodology does 
not mandate expenditures by state governments, local governments, or 
tribal governments.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a final rule that imposes substantial 
direct effects on states, preempts state law, or otherwise has 
federalism implications. The BHP is entirely optional for states, and 
if implemented in a state, provides access to a pool of funding that 
would not otherwise be available to the state. Accordingly, the 
requirements of Executive Order 13132 do not apply to this final 
notice.

D. Alternative Approaches

    We considered several alternatives in developing the proposed BHP 
payment methodology for 2021, and we discuss some of these alternatives 
below.
    We considered alternatives as to how to calculate the PAF in the 
proposed methodology for 2021. The proposed value for the PAF is 1.188, 
which is the same as was used for 2018, 2019, and 2020. We believe it 
would be difficult to get the updated information from QHP issuers 
comparable to what was used to develop the 2018 factor, because QHP 
issuers may not distinctly consider the impact of the discontinuance of 
CSR payments on the QHP premiums any longer. We do not have reason to 
believe that the value of the PAF would change significantly between 
program years 2018 and 2021. We continued to consider whether or not 
there are other methodologies or data sources we may be able to use to 
develop the PAF. We also considered whether or not to update the value 
of the PAF for 2021 after the end of the 2021 BHP program year.
    We also considered alternatives as how to calculate the MTSF in the 
proposed methodology for 2021. The proposed value for the MTSF is 97.04 
percent, which is the same as was finalized for 2020. We believe that 
we would use the latest data available each year; for example, we 
anticipate data

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

E. Regulatory Reform Analysis Under E.O. 13771

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017 and requires that the 
costs associated with significant new regulations ``shall, to the 
extent permitted by law, be offset by the elimination of existing costs 
associated with at least two prior regulations.'' This final rule, if 
finalized as proposed, is expected to be neither an E.O. 13771 
regulatory action nor an E.O. 13771 deregulatory action.

F. Conclusion

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

    Dated: August 6, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: August 6, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-17553 Filed 8-10-20; 4:15 pm]
BILLING CODE 4120-01-P