[Federal Register Volume 86, Number 127 (Wednesday, July 7, 2021)]
[Rules and Regulations]
[Pages 35615-35631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14393]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2438-FN]
RIN 0938-ZB64


Basic Health Program; Federal Funding Methodology for Program 
Year 2022

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 2022 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 Health Insurance Exchanges, and incorporates 
the effects on such payment amounts the American Rescue Plan Act of 
2021 (ARP).

DATES: The methodology and data sources announced in this document are 
effective on January 1, 2022.

[[Page 35616]]


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

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 is another option for states to provide 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 Health 
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 methodology. 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 
of the Department of Health and Human Services (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 payment 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 final methodology, 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, 
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 methodology 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

[[Page 35617]]

     Any other data required by CMS to properly calculate the 
payment.

B. The 2018 Final Administrative Order, 2019 Payment Methodology, 2020 
Payment Methodology, and 2021 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 New York v. U.S. Dep't of 
Health & Human Servs., No. 18-cv-00683 (RJS) (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) (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\ In the August 13, 2020 
Federal Register (85 FR 49264 through 49280) (hereinafter referred to 
as the August 2020 final BHP Payment Notice), we finalized the payment 
methodology for BHP program year 2021. The 2021 payment methodology is 
the same methodology as the 2020 payment methodology, with one 
adjustment to the income reconciliation factor (IRF). The 2022 final 
payment methodology is the same as the 2021 payment methodology, except 
for the removal of the MTSF.
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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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C. The American Rescue Plan Act and Impact on the Basic Health Program 
Final 2022 Payment Amounts

    On March 11, 2021, President Biden signed the American Rescue Plan 
Act of 2021 (ARP) (Pub. L. 117-2). This action has a significant impact 
on state Medicaid, CHIP, and BHP programs and beneficiaries.\3\ ARP 
also impacts federal payments to states' BHPs.
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    \3\ https://www.medicaid.gov/federal-policy-guidance/downloads/cib060321.pdf.
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    Section 9661 of the ARP temporarily modifies for 2021 and 2022 the 
applicable percentages of household income used to calculate the amount 
of advance payments of the premium tax credit (APTC) that taxpayers are 
eligible to have paid on their behalf for coverage purchased through an 
Exchange under the Patient Protection and Affordable Care Act. The 
applicable percentages determine the maximum amount of an individual's 
household income that can be charged in premiums for purchasing the 
second lowest cost silver plan on the Exchange. The difference between 
the maximum amount of an individual's household income that can be 
charged in premiums and the cost of the second lowest cost silver plan 
is paid to the individual as a PTC. As discussed in section III.D.5. of 
this final notice, the applicable percentages are factored into the 
equation for calculating the amount of PTC provided for individuals 
enrolled in QHPs through the Exchange and, accordingly, the amount of 
the federal BHP payment owed to states. Lower applicable percentages 
result in higher PTCs provided for QHP enrollees and higher federal BHP 
payments for states. Therefore, this ARP provision has the effect under 
the BHP payment methodology of increasing the amount of the federal 
payments owed to states for their BHPs in 2022.
    We published the BHP proposed funding methodology for program year 
2022 in ``Basic Health Program; Federal Funding Methodology for Program 
Year 2022'' in the November 3, 2020 Federal Register (85 FR 69525) 
(hereinafter referred to as the 2022 proposed BHP Payment Notice). In 
the 2022 proposed BHP Payment Notice, we proposed that the applicable 
percentages, as then defined in 26 U.S.C. 36B(b)(3)(A) and 26 CFR 
1.36B-3(g), for calendar year 2021 would be effective for BHP program 
year 2022. Because the applicable percentages have since been amended 
for 2022 by the ARP, we are revising the applicable percentages in the 
final BHP payment notice to comply with the ARP; we discuss this 
further in section III.D.5. of this final notice. We note that updating 
the applicable percentage amounts themselves does not alter the BHP 
payment methodology, but are inputs under that methodology that, when 
changed will impact the payment amounts paid by the federal government 
to the states that operate a BHP under the methodology. In previous 
payment methodologies, we have used the prior year's applicable 
percentages to calculate BHP payments because those were the most 
recently published percentages at the time the methodologies were 
finalized. However, the 2022 applicable percentages are available now 
as a result of section 9661 of ARP, so we are updating the applicable 
percentages in this final notice.
    In addition, in the 2022 proposed BHP Payment Notice, we proposed 
to include the IRF to account for potential differences between BHP 
enrollees' household income reported at the beginning of the year and 
the actual income over the year. This factor is needed because, unlike 
PTC recipients enrolled through Exchanges, BHP enrollees will not 
experience a reconciliation at the end of the tax year. This adjustment 
has been included in the methodology since 2015. In the 2022 proposed 
BHP Payment Notice, we proposed to set the value of the IRF equality to 
99.01. However, due to changes made by the ARP, the Office of Tax 
Analysis (OTA) of the Department of the Treasury has revised its 
estimate for the IRF to be 100.63 percent. Therefore, we are updating 
the value of the IRF to be 100.63, as further

[[Page 35618]]

discussed in section III.D.7 of this final notice.
    In the final payment methodologies for program years 2020 and 2021 
and proposed payment methodology for 2022, we included a factor to 
account for the impact of the discontinuation of CSR payments on 
individuals' selection of metal tier level plans in the Exchange, 
referred to as the Metal Tier Selection Factor. Specifically, the MTSF 
was included to account for the impact of QHP enrollees eligible for 
PTC choosing bronze-level plans (which have lower premiums than silver-
level plans) and receiving less than the full value of the PTC, which 
was amplified after the discontinuation of the CSR payments. However, 
because section 9661 of the ARP reduces the maximum percentage of an 
individual's household income that can be charged in premiums for 
purchasing the second lowest cost silver plan on the Exchange, we 
believe consumer behavior around selecting different metal tier level 
plans likely will change significantly. In other words, we anticipate 
that, as a result of the ARP, more individuals with household income 
below 200 percent FPL will enroll in silver-level plans because these 
plans can now be purchased for a lower premium amount, and for many 
individuals, there will be silver-level plans with $0 premium. 
Therefore, we are removing the MTSF from the final payment methodology 
for program year 2022.

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 
11 public comments from individuals and organizations, including, but 
not limited to, state government agencies, other government agencies, 
and private citizens. 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 2022, see the 2022 proposed BHP 
Payment Notice.

A. Background

    In the 2022 proposed BHP Payment Notice, we proposed the 
methodology for how the federal BHP payments would be calculated for 
program year 2022.
    We received the following comments on the background information 
included in the 2022 proposed BHP Payment Notice:
    Comment: Several commenters were supportive of the 2022 BHP payment 
methodology described in the 2022 proposed BHP Payment Notice.
    Response: We appreciate the support from these commenters. As 
described further in this final notice, we are finalizing the 2022 
methodology as proposed in the 2022 proposed BHP Payment Notice, with 
the exception of the removal of the MTSF and updating the applicable 
percentages of household income used to calculate APTC amounts and the 
value of the IRF, as described in section I.C in this final notice.

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 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 2022 proposed BHP Payment Notice:
    Comment: One commenter recommended CMS apply the proposed 
methodology only when a state initially establishes a BHP. This 
commenter recommended that after a BHP is established, states should be 
allowed to use prior program year premiums for payments. The commenter 
reasoned that simplifying the BHP payment methodology would provide 
administrative relief as well as greater certainty of expected funds 
for states.
    Response: We did not propose and are not adopting the 
recommendation related to the proposed methodology applying only to a 
state's initial program year. We also note that current Federal BHP 
regulations in Sec.  600.605 specify the BHP payment methodology. 
Specifically, Sec.  600.605(c) provides that the Secretary will 
annually adjust the payment methodology on a prospective basis to 
adjust for any changes in the calculation of the PTC and CSR components 
to the extent that necessary data is available. Further, regulations at 
Sec.  600.610 require that a proposed BHP payment methodology be 
published in the Federal Register each October, 2 years prior to the 
applicable program year, and describe the proposed funding methodology 
for the relevant BHP year. The final BHP payment methodology must be 
published in the Federal Register in February, and include the final 
BHP payment methodology, as well as the federal BHP payment rates for 
the applicable BHP program year. Changes to this process, like the one 
suggested by the commenter, would require amendments to existing BHP 
regulations.
    Comment: One commenter recommended that for the purpose of 
calculating BHP payments, CMS assume that American Indian and Alaska 
Native (AI/AN) enrollees in BHPs would have enrolled in the second-
lowest cost bronze-level plan instead of the second-lowest cost silver-
level plan on the Exchanges.
    Response: While AI/AN enrollees may enroll in the second-lowest 
cost bronze-level plan and continue to receive CSRs, PTCs continue to 
be based on the second-lowest cost silver-level QHP. Therefore, BHP 
payments to states for AI/AN and all other enrollees need to continue 
to be based on the second-lowest cost silver QHP.
    We did not propose and are not adopting this recommendation. The 
only portion of the rate affected by the use of the lowest-cost bronze-
level plan is the CSR portion of the BHP payment; due to the 
discontinuance of CSR payments and the accompanying modification to the 
BHP payment methodology, the CSR portion of the payment is assigned a 
value of 0, and therefore, any change to the assumption about which 
bronze-level QHP is used would have no effect on the BHP payments.
    Comment: One commenter recommended that AI/AN premiums in a BHP 
should not exceed the cost of the second-lowest cost bronze-level plan 
and suggested that CMS provide additional BHP funding to states in 
order to ensure that AI/AN populations do not experience a premium 
increase when enrolling in BHP from a bronze-level plan on the 
Exchange.
    Response: We appreciate and understand the commenter's concern 
regarding the premium levels for the AI/AN population. However, section 
1331(a)(2)(A)(i) of the Patient Protection and Affordable Care Act 
requires that states operating BHPs must ensure that individuals do not 
pay a higher monthly premium than they would have if they had been 
enrolled in the second lowest cost silver-level QHP in an Exchange, 
after reduction for any PTCs and CSRs allowable with respect to either 
plan. In addition, as specified in Sec.  600.705(c)(1), BHP states are 
permitted to use BHP trust funds to reduce premiums and cost sharing 
for eligible individuals enrolled in standard health plans under BHP. 
For example, Minnesota does not charge premiums for the AI/AN 
population.

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This premium policy is required by state law and included in 
Minnesota's BHP Blueprint.\4\
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    \4\ Minnesota Statutes, Chapter 256L.15(c).
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C. Federal BHP Payment Rate Cells

    In this section of the 2022 proposed BHP Payment Notice, we 
proposed to continue to require 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 2022 proposed BHP Payment Notice.
    We received no comments on this aspect of the proposed methodology. 
Therefore, we are finalizing these policies as proposed.

D. Sources and State Data Considerations

    We proposed in this section of the 2022 proposed BHP Payment Notice 
to continue 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), 
which do not use HealthCare.gov, we proposed to continue to require 
such states to submit required data for CMS to calculate the federal 
BHP payment rates in those states. For specific discussions, please 
refer to the 2022 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 2022 proposed BHP Payment Notice, we 
proposed to continue to use eight specific variables 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 2022 proposed BHP Payment Notice.
    Below is a summary of the public comments we received regarding 
specific factors and our responses.
    Comment: One commenter supported maintaining the value of the 
premium adjustment factor (PAF) at 1.188 for program year 2022.
    Response: We appreciate the support from this commenter. As 
described further in this final notice, we are finalizing the 
methodology as proposed in the 2022 proposed BHP Payment Notice, and 
will be maintaining the value of the PAF at 1.188 for program year 
2022.
    Comment: One commenter expressed their support of using 2019 data 
to calculate the MTSF as proposed in the 2022 proposed BHP Payment 
Notice. This commenter stated that using partial 2020 data to calculate 
the MTSF would likely not be a reasonable predictor of consumer 
behavior in 2022 due to the impact of the COVID-19 public health 
emergency (PHE).
    Response: We appreciate the support from this commenter. However, 
since publication of the 2022 proposed Payment Notice, Congress passed 
the ARP, which, as discussed in section I.C. of this final notice, 
modifies the applicable percentages of household income used to 
calculate the amount of APTC taxpayers are eligible to have paid on 
their behalf for coverage purchased through an Exchange during taxable 
years 2021 and 2022. We believe that these changes are likely to 
significantly affect enrollees' plan choices starting in 2022. For this 
reason and the reasons discussed in sections I.C. and III.D.6. of this 
final notice, we are not finalizing inclusion of the MTSF in the 2022 
final BHP Payment Notice.

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

    In this section of the 2022 BHP proposed Payment Notice, we 
proposed to continue to provide states operating a BHP with the option 
to use the 2021 QHP premiums multiplied by a premium trend factor to 
calculate the federal BHP payment rates instead of using the 2022 QHP 
premiums. We proposed to require states to make their election for the 
2022 program year by May 15, 2021, or within 60 days of publication of 
the final payment methodology, whichever is later. For specific 
discussions, please refer to the 2022 BHP proposed Payment Notice.
    Below is a summary of the public comments we received regarding 
this section and our responses.
    Comment: One commenter expressed support for the proposed approach 
of using state-specific premiums and giving states the choice of 
applying actual current year premiums or the prior year's premiums 
multiplied by the premium trend factor (PTF). Due to the annual timing 
of this decision, this choice allows the state flexibility in making a 
determination that it believes is consistent with program goals for the 
upcoming year.
    Response: We appreciate the support from this commenter. As 
described further in this final notice, we are finalizing the 
methodology as proposed in the 2022 proposed BHP Payment Notice.

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

    In this section of the 2022 BHP proposed Payment Methodology, 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. We proposed that states would submit their 
optional protocol to CMS by the later of August 1, 2021 or 60 days 
after the publication of the final methodology. For specific 
discussions, please refer to the 2022 BHP proposed Payment Notice.
    We received no comments on this aspect of the methodology. 
Therefore, we are finalizing this policy as proposed. Because we are 
finalizing the 2022 payment methodology within 60 days of August 1, 
2021, a state electing this option must submit their protocol to CMS 
within 60 days of publication of this final notice.

III. Provisions of the 2022 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 APTC and CSRs, and 
by the IRS to calculate PTC

[[Page 35620]]

for the tax year. 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 PTCs 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 APTC and CSR would have occurred if the enrollee 
had been so enrolled. Under the payment methodologies for 2015 (79 FR 
13887 through 14151) (published on March 12, 2014), for 2016 (80 FR 
9636 through 9648) (published on February 24, 2015), for 2017 and 2018 
(81 FR 10091 through 10105) (published on February 29, 2016), for 2019 
and 2020 (84 FR 59529 through) (published on November 5, 2019), and for 
2021 (85 FR 49264 through 49280) (published on August 13, 2020) 
(hereinafter referred to as the 2021 final BHP Payment Notice), the 
total federal BHP payment amount has been calculated using multiple 
rate cells in each state. Each rate cell represents a unique 
combination of age range (if applicable), geographic area, coverage 
category (for example, self-only or two-adult coverage through the 
BHP), household size, and income range as a percentage of FPL, and 
there is a distinct rate cell for individuals in each coverage category 
within a particular age range who reside in a specific geographic area 
and are in households of the same size and income range. The BHP 
payment rates developed also are consistent with the state's rules on 
age rating. Thus, in the case of a state that does not use age as a 
rating factor on an Exchange, the BHP payment rates would not vary by 
age.
    Under the methodology finalized in the August 2020 final BHP 
Payment Notice, the rate for each rate cell is calculated in two parts. 
The first part is equal to 95 percent of the estimated PTC that would 
have been paid if a BHP enrollee in that rate cell had instead enrolled 
in a QHP in an Exchange. The second part is equal to 95 percent of the 
estimated CSR payment that would have been made if a BHP enrollee in 
that rate cell had instead enrolled in a QHP in an Exchange. These two 
parts are added together and the total rate for that rate cell would be 
equal to the sum of the PTC and CSR rates. As noted in the August 2020 
final BHP Payment Notice, we currently assign a value of zero to the 
CSR portion of the BHP payment rate calculation, because there is 
presently no available appropriation from which we can make the CSR 
portion of any BHP Payment.
    We finalize that 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 methodology, when we refer to 
enrollees and enrollment data, we mean data regarding individuals who 
are enrolled in the BHP who have been found eligible for the BHP using 
the eligibility and verification requirements that are applicable in 
the state's most recent certified Blueprint. By applying the equations 
separately to rate cells based on age (if applicable), income and other 
factors, we 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 defined in this section, and 
further detail is provided later in this section of this final 
methodology. In addition, we describe in Equation (2a) and Equation 
(2b) (below) how we will calculate the adjusted reference premium that 
is used in Equation (1).
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 methodology) used to 
calculate the PTC would be adjusted for the BHP population health 
status, and in the case of a state that elects to use 2021 premiums for 
the basis of the BHP federal payment, for the projected change in the 
premium from 2021 to 2022, to which the rates announced in the final 
payment methodology would apply. These adjustments are described in 
Equation (2a) and Equation (2b). Third, the PTC 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 methodology, will account for the impact on the PTC that would 
have occurred had such reconciliation been performed. 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 adjusted reference premium, 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] TR07JY21.071


[[Page 35621]]


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
Equation (2a) and Equation (2b): Adjusted Reference Premium Variable 
(Used in Equation 1)
    As part of the calculations for the PTC component, we will 
calculate the value of the adjusted reference premium 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 PTF (as described in section III.E. 
of this final methodology). Below we describe how we will calculate the 
adjusted reference premium 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, 2022 premiums for 
the 2022 program year), we will calculate the value of the adjusted 
reference premium as specified in Equation (2a). The adjusted reference 
premium 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 methodology), 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 PAF (described in section III.D.2. of this final 
methodology), which will account for the change in silver-level 
premiums due to the discontinuance of CSR payments.
[GRAPHIC] [TIFF OMITTED] TR07JY21.072

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, 2021 premiums for the 2022 program 
year, as described in more detail in section II.E. of this final 
methodology), we will calculate the value of the adjusted reference 
premium as specified in Equation (2b). The adjusted reference premium 
will be equal to the RP, which will be based on the second lowest cost 
silver plan premium in 2021, multiplied by the BHP PHF (described in 
section III.D.3. of this final methodology), 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 methodology), which 
will account for the change in silver-level premiums due to the 
discontinuance of CSR payments, and multiplied by the PTF (described in 
section III.E. of this final methodology), which would reflect the 
projected change in the premium level between 2021 and 2022.
[GRAPHIC] [TIFF OMITTED] TR07JY21.073

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] TR07JY21.074

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)

    In this equation, we will assign a value of zero to the CSR part of 
the BHP payment rate calculation (CSRa,g,c,h,i) because there is 
presently no available appropriation from which we can make the CSR 
portion of any BHP payment. In the event that an appropriation for CSRs 
for 2022 is made, we will determine whether and how to modify the CSR 
part of the BHP payment rate calculation (CSRa,g,c,h,i) or the PAF in 
the payment methodology.

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, we will 
use those estimates

[[Page 35622]]

to calculate the prospective payment for the first and subsequent 
quarters of program operation until the state provides us with actual 
enrollment data for those periods. The actual enrollment data is 
required to calculate the final BHP payment amount and make any 
necessary reconciliation adjustments to the prior quarters' prospective 
payment amounts due to differences between projected and actual 
enrollment. Subsequent quarterly deposits to the state's trust fund 
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 are finalizing our proposal to require the use of certain rate 
cells as part of this final 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's Default Age Curve: \5\
---------------------------------------------------------------------------

    \5\ 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 plan or policy years beginning on 
or after January 1, 2018 to include different age rating factors 
between children 0-14 and for persons at each age between 15 and 20. 
More information is available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/StateSpecAgeCrv053117.pdf. Both children and adults under age 21 are 
charged the same premium. For adults age 21-64, the age bands in 
this notice divide the total age-based premium variation into the 
three most equally-sized ranges (defining size by the ratio between 
the highest and lowest premiums within the band) that are consistent 
with the age-bands used for risk-adjustment purposes in the HHS-
Developed Risk Adjustment Model. For such age bands, see HHS-
Developed Risk Adjustment Model Algorithm ``Do It Yourself (DIY)'' 
Software Instructions for the 2018 Benefit Year, April 4, 2019 
Update, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Updated-CY2018-DIY-instructions.pdf.
---------------------------------------------------------------------------

     Ages 0-20.
     Ages 21-34.
     Ages 35-44.
     Ages 45-54.
     Ages 55-64.
    This provision is unchanged from the current methodology.\6\
---------------------------------------------------------------------------

    \6\ In this document, references to the ``current methodology'' 
refer to the 2021 program year methodology as outlined in the 2021 
final BHP Payment Notice.
---------------------------------------------------------------------------

    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 will be incorporated within a single cell, 
so long as those areas share a common RP.\7\ This provision is also 
unchanged from the current methodology.
---------------------------------------------------------------------------

    \7\ 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 instructions for how we would 
develop additional rate cells and calculate an appropriate payment rate 
based on data for the rate cell with the closest specified household 
size. We will publish separate rate cells for household sizes of 1 
through 10. This finalized 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.\8\
---------------------------------------------------------------------------

    \8\ The three lowest income ranges will 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.
    Consistent with the current methodology, we are finalizing our 
proposal to 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 (if 
applicable) 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.

[[Page 35623]]

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 an 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 BHPs interested in obtaining 
the applicable 2022 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, 2021. 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 
Methodologies. 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 under ``State 
Report for Health Insurance Exchange Premiums.
    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 2016 final BHP 
Payment Methodology 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.\9\ 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 from 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.
---------------------------------------------------------------------------

    \9\ 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 will 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 will have a significant effect on the 
federal BHP payment. The states must maintain data that is consistent 
with CMS' verification requirements, including auditable records for 
each individual enrolled, indicating an eligibility determination and a 
determination of income and other criteria relevant to the payment 
methodology as of the beginning of each quarter.
    Consistent with Sec.  600.610 (Secretarial determination of BHP 
payment amount), the state is required to submit certain data in 
accordance with this notice. We require that this data be collected and 
validated by states operating a BHP, and that this data be submitted to 
CMS.

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
    To calculate the estimated PTC that would be paid if BHP-eligible 
individuals enrolled in QHPs through an Exchange, we must calculate a 
RP because the PTC is based, in part, on the premiums for the 
applicable second lowest cost silver plan as explained in section 
III.D.5. of this final methodology, regarding the premium tax credit 
formula (PTCF). This method is unchanged from the current methodology 
except to update the reference years, and to provide additional 
methodological details to simplify calculations and to deal with 
potential ambiguities. Accordingly, for the purposes of calculating the 
BHP payment rates, the RP, in accordance with 26 U.S.C. 36B(b)(3)(C), 
is defined as the adjusted monthly premium for an applicable second 
lowest cost silver plan. The applicable second lowest cost silver plan 
is defined in 26 U.S.C. 36B(b)(3)(B) as the second lowest cost silver 
plan of the individual market in the rating area in which the taxpayer 
resides that is offered through the same Exchange. We will use the 
adjusted monthly premium for an applicable second lowest cost silver 
plan in the applicable program year (2022) 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 2022, as described in section 
III.E. of this final methodology).
    The RP will 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,

[[Page 35624]]

because one or more QHPs in the family's geographic area might not 
offer family coverage that includes the niece. We believe that it would 
not be possible to replicate such variations for calculating the BHP 
payment and believe that in the aggregate, they 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 the payment methodologies for program years 2015 through 
2019, we had assumed that all persons enrolled in the BHP would have 
elected to enroll in a silver level plan if they had instead enrolled 
in a QHP through an Exchange (and that the QHP premium would not be 
lower than the value of the PTC). In the November 2019 final 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 methodology). In the 2021 payment 
methodology, we continued to account for how enrollees may choose other 
metal tier plans by applying the MTSF. For the 2022 payment 
methodology, we will not continue to account for how enrollees may 
choose other metal tier plans by removing the MTSF as described in 
section III.D.6. of this final methodology.
    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 propose to assume a uniform distribution of ages and 
estimate the average premium amount within each rate cell. We believe 
that assuming a uniform distribution of ages within these ranges is a 
reasonable approach and would produce a reliable determination of the 
total monthly payment for BHP enrollees. We also believe this approach 
will 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 area, 
for purposes of defining BHP payment rate cells, will be smaller than a 
county. We do not believe that this assumption will have a significant 
impact on federal payment levels and it would simplify both the 
calculation of BHP payment rates and the operation of the BHP.
    Finally, in terms of the coverage category, federal payment rates 
only recognize self-only and two-adult coverage, with exceptions that 
account for children who are potentially eligible for the BHP. First, 
in states that set the upper income threshold for children's Medicaid 
and CHIP eligibility below 200 percent of FPL (based on modified 
adjusted gross income (MAGI)), children in households with incomes 
between that threshold and 200 percent of FPL would be potentially 
eligible for the BHP. Currently, the only states in this category are 
Idaho and North Dakota.\10\ 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 will be identified 
based on their Medicaid and CHIP State Plans, and the rate cells will 
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)).
---------------------------------------------------------------------------

    \10\ CMCS. ``State Medicaid, CHIP and BHP Income Eligibility 
Standards Effective October 1, 2020.''
---------------------------------------------------------------------------

2. Premium Adjustment Factor (PAF)
    The PAF considers the premium increases in other states that took 
effect after we discontinued payments to issuers for CSRs provided to 
enrollees in QHPs offered through Exchanges. Despite the discontinuance 
of federal payments for CSRs, QHP issuers are required to provide CSRs 
to eligible enrollees. As a result, many QHP issuers increased the 
silver-level plan premiums to account for those additional costs; 
adjustments and how those were applied (for example, to only silver-
level plans or to all metal tier plans) varied across states. For the 
states operating BHPs in 2018, the increases in premiums were 
relatively minor, because the majority of enrollees eligible for CSRs 
(and all who were eligible for the largest CSRs) were enrolled in the 
BHP and not in QHPs on the Exchanges, and therefore issuers in BHP 
states did not significantly raise premiums to cover unpaid CSR costs.
    In the Final Administrative Order, the 2019 final BHP Payment 
Notice, the 2020 final BHP Payment Notice, and the 2021 final BHP 
Payment Notice we incorporated the PAF into the BHP payment 
methodologies for 2018, 2019, 2020, and 2021 to capture the impact of 
how other states responded to us ceasing to pay CSRs. We will include 
the PAF in the 2022 payment methodology and to calculate it in the same 
manner as in the Final Administrative Order. In the event that an 
appropriation for CSRs for 2022 is made, we would determine whether and 
how to modify the PAF in the payment methodology.
    Under the Final Administrative Order, we calculated the PAF by 
using information sought from QHP issuers in each state and the 
District of Columbia, and determined the premium adjustment that the 
responding QHP issuers made to each silver level plan in 2018 to 
account for the discontinuation of CSR payments to QHP issuers. Based 
on the data collected, we estimated the median adjustment for silver 
level QHPs nationwide (excluding those in the two BHP states). To the 
extent that QHP issuers made no adjustment (or the adjustment was 
zero), this would be counted as zero 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

[[Page 35625]]

determining the median adjustment.\11\ The median adjustment for silver 
level QHPs is the nationwide median adjustment.
---------------------------------------------------------------------------

    \11\ Some examples of outliers or unreasonable adjustments 
include (but are not limited to) values over 100 percent (implying 
the premiums doubled or more because 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 one 
plus the nationwide median adjustment divided by one plus the state 
median adjustment for the BHP state. In other words,

PAF = (1 + Nationwide Median Adjustment) / (1 + State Median 
Adjustment)Q P='02'>
    To determine the PAF described above, we sought to collect QHP 
information from QHP issuers in each state and the District of Columbia 
to determine the premium adjustment those issuers made to each silver 
level plan offered through the Exchange in 2018 to account for the end 
of CSR payments. Specifically, we sought information showing the 
percentage change that QHP issuers made to the premium for each of 
their silver level plans to cover benefit expenditures associated with 
the CSRs, given the lack of CSR payments in 2018. This percentage 
change was a portion of the overall premium increase from 2017 to 2018.
    According to our records, there were 1,233 silver-level QHPs 
operating on Exchanges in 2018. Of these 1,233 QHPs, 318 QHPs (25.8 
percent) responded to our request for the percentage adjustment applied 
to silver-level QHP premiums in 2018 to account for the discontinuance 
of the CSRs. These 318 QHPs operated in 26 different states, with 10 of 
those states running 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 final PAF as (1 + 
20%) / (1 + 1%) (or 1.20/1.01), which results in a value of 1.188.
    We are finalizing our proposal to continue to set the PAF to 1.188 
for program year 2022. 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 2022 can reasonably be expected to be similar 
to that in 2018, because the discontinuation of CSR payments has not 
changed. Moreover, we believe that states and QHP issuers have not 
significantly changed the manner and degree to which they are 
increasing QHP silver-level premiums to account for the discontinuation 
of CSR payments since 2018, and we expect the same for 2022.
    In addition, the percentage difference between the average second 
lowest-cost silver level QHP and the bronze-level QHP premiums has not 
changed significantly since 2018, and we do not expect a significant 
change for 2022. In 2018, the average second lowest-cost silver level 
QHP premium was 41.1 percent higher than the average lowest-cost 
bronze-level QHP premium ($481 and $341, respectively). In 2021, (the 
latest year for which premiums have been published), the difference is 
similar; the average second lowest-cost silver-level QHP premium is 
37.8 percent higher than the average lowest-cost bronze-level QHP 
premium ($452 and $328, respectively).\12\ In contrast, the average 
second lowest-cost silver-level QHP premium was only 23.8 percent 
higher than the average lowest-cost bronze-level QHP premium in 2017 
($359 and $290, respectively).\13\ If there were a significant 
difference in the amounts that QHP issuers were increasing premiums for 
silver-level QHPs to account for the discontinuation of CSR payments 
over time, then we would expect the difference between the bronze-level 
and silver-level QHP premiums to change significantly over time, and 
that this would be apparent in comparing the lowest-cost bronze-level 
QHP premium to the second lowest-cost silver-level QHP premium.
---------------------------------------------------------------------------

    \12\ See Kaiser Family Foundation, ``Average Marketplace 
Premiums by Metal Tier, 2018-2021,'' https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/.
    \13\ See Basic Health Program: Federal Funding Methodology for 
Program Years 2019 and 2020; Final Methodology, 84 FR 59529 at 59532 
(November 5, 2019).
---------------------------------------------------------------------------

3. Population Health Factor (PHF)
    We are finalizing our proposal to include the PHF in the 
methodology to account for the potential differences in the average 
health status between BHP enrollees and persons enrolled through the 
Exchanges. To the extent that BHP enrollees would have been enrolled 
through an Exchange in the absence of a BHP in a state, the exclusion 
of those BHP enrollees in the Exchange may affect the average health 
status of the overall population and the expected QHP premiums.
    We currently do not believe that there is evidence that the BHP 
population would have better or poorer health status than the Exchange 
population. At this time, there continues to be a lack of data on the 
experience in the Exchanges that limits the ability to analyze the 
potential health differences between these groups of enrollees. More 
specifically, Exchanges have been in operation since 2014, and 2 states 
have operated BHPs since 2015, but data is not available to do the 
analysis necessary to determine if there are differences in the average 
health status between BHP and Exchange enrollees. In addition, 
differences in population health may vary across states. We also do not 
believe that sufficient data would be available to permit us to make a 
prospective adjustment to the PHF under Sec.  600.610(c)(2) for the 
2022 program year.
    Given these analytic challenges and the limited data about Exchange 
coverage and the characteristics of BHP-eligible consumers, the PHF 
will be 1.00 for program year 2022.
    In previous years BHP payment methodologies, we included an option 
for states to include a retrospective population health status 
adjustment. States will have same option for 2022 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 methodology. 
Regardless of whether a state elects to include a retrospective 
population health status adjustment, we anticipate that, in future 
years, when additional data becomes available about Exchange coverage 
and the characteristics of BHP enrollees, we may propose a different 
PHF.
    While the statute requires consideration of risk adjustment 
payments and reinsurance payments insofar as they would have affected 
the PTC that would have been provided to BHP-eligible individuals had 
they

[[Page 35626]]

enrolled in QHPs, we are not requiring 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.\14\ Further, standard health plans did 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).\15\ 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.
---------------------------------------------------------------------------

    \14\ See 79 FR at 14131.
    \15\ 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, all BHP Payment Methodologies incorporate household income 
into the calculations of the payment rates through the use of income-
based rate cells. We are finalizing our proposal to define household 
income in accordance with the definition of modified adjusted gross 
income in 26 U.S.C. 36B(d)(2)(B) and consistent with the definition in 
45 CFR 155.300. Income will 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 are finalizing our proposal to use the following income ranges 
measured as a percentage of FPL: \16\
---------------------------------------------------------------------------

    \16\ 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 finalized will 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 one percentage point 
interval of the income range for each federal BHP payment cell and then 
calculate the average of the PTC across all intervals. This calculation 
would rely on the PTC formula described in section III.D.5. of this 
final methodology.
    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 Old-Age, 
Survivors, and Disability Insurance (OASDI) and Medicare Trustees 
Reports.\17\
---------------------------------------------------------------------------

    \17\ See Table IV A1 from the 2020 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/files/document/2020-medicare-trustees-report.pdf.
---------------------------------------------------------------------------

5. Premium Tax Credit Formula (PTCF)
    In Equation 1 described in section III.A.1. of this final 
methodology, we will use the formula described in 26 U.S.C. 36B(b) to 
calculate the estimated PTC that would be paid on behalf of a person 
enrolled in a QHP on an Exchange as part of the BHP payment 
methodology. This formula is used to determine the contribution amount 
(the amount of premium that an individual or household theoretically 
would be required to pay for coverage in a QHP on an Exchange), which 
is based on (A) the household income; (B) the household income as a 
percentage of FPL for the family size; and (C) the schedule specified 
in 26 U.S.C. 36B(b)(3)(A) and shown below.
    The difference between the contribution amount and the adjusted 
monthly premium (that is, the monthly premium adjusted for the age of 
the enrollee) for the applicable second lowest cost silver plan is the 
estimated amount of the PTC that would be provided for the enrollee.
    The PTC amount provided for a person enrolled in a QHP through an 
Exchange is calculated in accordance with the methodology described in 
26 U.S.C. 36B(b)(2). The amount is equal to the lesser of the premium 
for the plan in which the person or household enrolls, or the adjusted 
premium for the applicable second lowest cost silver plan minus the 
contribution amount.
    The applicable percentage is defined in 26 U.S.C. 36B(b)(3)(A) and 
26 CFR 1.36B-3(g) as the percentage that applies to a taxpayer's 
household income that is within an income tier specified in Table 1, 
increasing on a sliding scale in a linear manner from an initial 
premium percentage to a final premium percentage specified in Table 1. 
We are finalizing our proposal to continue to use applicable 
percentages to calculate the estimated PTC that would be paid on behalf 
of a person enrolled in a QHP on an Exchange as part of the BHP payment 
methodology as part of Equation 1.
    As discussed in section I.C. of this final notice, we note that the 
ARP updated the applicable percentages of household income used to 
calculate the PTC that would be paid to an individual enrolled in a QHP 
on an Exchange for calendar years (CY) 2021 and 2022. The applicable 
percentages in Table 1 for CY 2022 will be effective for BHP program 
year 2022. Absent future legislation addressing applicable percentages, 
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 2022 a
------------------------------------------------------------------------
 In the case of household income
   (expressed as a percent of         The initial      The final premium
    poverty line) within the      premium percentage    percentage is--
     following  income tier:             is--
------------------------------------------------------------------------
Up to 150%......................                 0.0                 0.0
150.0% percent up to 200.0%.....                 0.0                 2.0

[[Page 35627]]

 
200.0% up to 250.0%.............                 2.0                 4.0
250.0% up to 300.0%.............                 4.0                 6.0
300.0 percent up to 400.0%......                 6.0                 8.5
400.0% percent and higher.......                 8.5                 8.5
------------------------------------------------------------------------
\a\ section 9661 of the American Rescue Plan Act of 2021.

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 did not seek to make an adjustment based on the effect of 
enrollees choosing non-silver-level QHPs in developing the BHP payment 
methodology applicable to program years prior to 2018. However, after 
the discontinuance of the CSR payments in October 2017, several changes 
occurred that increased the expected impact of enrollees' plan 
selection choices on the amount of PTC the government paid. These 
changes led to a larger percentage of individuals choosing bronze-level 
QHPs, and for those individuals who chose bronze-level QHPs, these 
changes also generally led to larger reductions in PTCs paid by the 
federal government per individual. The combination of more individuals 
with incomes below 200 percent of FPL choosing bronze-level QHPs and 
the reduction in PTCs had an impact on PTCs paid by the federal 
government for enrollees with incomes below 200 percent FPL.
    Therefore, in the 2020 and 2021 payment methodology, we included 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 believed that it was appropriate 
to consider how individuals would have chosen different plans--
including across different metal tiers--as part of the BHP payment 
methodology.
    In the 2022 proposed Payment Notice, we proposed to include the 
MTSF in the payment methodology and calculate its value using the same 
approach as finalized in the 2020 final Payment Notice (84 FR 59543). 
As discussed above, since publication of the 2022 proposed Payment 
Notice, Congress passed the ARP, which, as discussed in section I.C. of 
this final notice, modifies the applicable percentages of household 
income used to calculate the amount of APTC taxpayers are eligible to 
have paid on their behalf for coverage purchased through an Exchange 
during taxable years 2021 and 2022. Also as discussed above, we believe 
that these changes are likely to significantly affect enrollees' plan 
choices starting in 2022. Most notably, individuals with incomes up to 
150 percent of FPL will be able to purchase a silver-level plan with a 
$0 premium, and individuals with incomes between 150 percent and 200 
percent of FPL will be able to purchase a silver-level plan at a lower 
premium than previously. Therefore, we believe that significantly more 
enrollees likely will choose to enroll in silver-level plans (and fewer 
in bronze-level plans) and the amount of PTC foregone therefore will be 
less than it was in previous years. Accordingly, the impact of the MTSF 
likely will be significantly less. Therefore, we are not finalizing our 
proposal to include the MTSF in the 2022 payment methodology.
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

[[Page 35628]]

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 are finalizing 
our proposal to 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. Consistent with the methodology 
used in past years, we will estimate 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 will use the ratio of the reconciled 
PTC to the initial estimation of PTC as the IRF in Equation (1) for 
estimating the PTC portion of the BHP payment rate.
    For 2022, OTA previously estimated that the IRF for states that 
have implemented the Medicaid eligibility expansion to cover adults up 
to 133 percent of the FPL would be 99.01 percent. However, due to 
changes made by the ARP, OTA has revised its estimate for the IRF to be 
100.63 percent. Specifically, section 9661 of the ARP specifies new 
applicable percentages of household income for the purposes of 
calculating the PTC for 2021 and 2022. This would lead to an increase 
in PTC, by reducing the household premium contribution. It also is 
anticipated to have an effect on the income reconciliation for persons 
enrolled in QHPs in the Exchanges, as evidenced by the revised 
estimate.
    We believe that it is appropriate to distinguish between the IRF 
for Medicaid expansion states and non-Expansion states to remove data 
for those with incomes under 138 percent of FPL for Medicaid expansion 
states. This is the same approach that we finalized in the 2021 final 
BHP Payment Notice. For other factors used in the BHP payment 
methodology, it may not always be possible to separate the experiences 
between different types of states and there may not be meaningful 
differences between the experiences of such states. Therefore, we will 
set the value of the IRF for states that have expanded Medicaid equal 
to the value of the IRF for incomes between 138 and 200 percent of FPL 
and the value of the IRF for states that have not expanded Medicaid 
equal to the value of the IRF for incomes between 100 and 200 percent 
of FPL. This gives an IRF of 100.63 percent for states that have 
expanded Medicaid and 100.83 percent for states that have not expanded 
Medicaid for program year 2022.
    We will use this value for the IRF in Equations (1) for calculating 
the PTC portion of the BHP payment rate.

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 adjusted reference premium (that is, using premium data from 
the prior program year multiplied by the premium trend factor (PTF), as 
described in Equation (2b). We will require states to make their 
election to have their final federal BHP payment rates calculated using 
a projected adjusted reference premium by the later of (1) May 15 of 
the year preceding the applicable program year or (2) 60 days after the 
publication of the final notice. Therefore, because we are finalizing 
the 2022 payment methodology after May 15, 2021, states must inform CMS 
in writing of their election for the 2022 program year by 60 days after 
the publication of the final notice.
    For Equation (2b), we will define the PTF, with minor changes in 
calculation sources and methods, as follows:
    PTF: In the case of a state that would elect to use the 2021 
premiums as the basis for determining the 2022 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 are finalizing our proposal to use the annual growth 
rate in private health insurance expenditures per enrollee from the 
National Health Expenditure (NHE) projections, developed by the Office 
of the Actuary in CMS (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected). Based on these projections, we are 
finalizing our proposal that the PTF be 4.7 percent for BHP program 
year 2022.
    We note that the increase in premiums for QHPs from 1 year to the 
next may differ from the PTF developed for the BHP funding methodology 
for several reasons. In particular, we note that the second lowest cost 
silver plan may be different from one year to the next. This may lead 
to the PTF being greater than or less than the actual change in the 
premium of the second lowest cost silver plan.

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

    To determine whether the potential difference in health status 
between BHP enrollees and consumers in an Exchange would affect the PTC 
and risk adjustment payments that would have otherwise been made had 
BHP enrollees been enrolled in coverage through an Exchange, we 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

[[Page 35629]]

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 methodology) 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. However, to the extent 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 are 
finalizing our proposal to permit a retrospective adjustment that will 
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 are finalizing our proposal to 
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 will apply the 
same protocol for the population health status adjustment as what is 
set forth in guidance in Considerations for Health Risk Adjustment in 
the Basic Health Program in Program Year 2015 (http://www.medicaid.gov/Basic-Health-Program/Downloads/Risk-Adjustment-and-BHP-White-Paper.pdf). We proposed to require a state to submit its proposed 
protocol for the 2022 program year by the later of August 1, 2021 or 60 
days after the publication of this final notice. Because this final 
notice is being published within 60 days of August 1, 2021, we are 
finalizing that a state will be required to submit its proposed 
protocol for the 2022 program year by 60 days after the publication of 
this final notice. This submission will also need to include 
descriptions of how the state would collect the necessary data to 
determine the adjustment, including any contracting contingences that 
may be in place with participating standard health plan issuers. We 
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, 2021 
for the 2022 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 the federal BHP payments were less than they would have been 
using the final adjustment factor, we will 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 will subtract the difference from the next 
quarterly BHP payment to the state.

IV. Collection of Information Requirements

    Although the methodology's information collection requirements and 
burden had at one time been approved by the Office of Management and 
Budget (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 2022 methodology is not 
subject to the requirements of the PRA.

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 final methodology provides for the funding 
methodology to determine the federal BHP payment amounts required to 
implement these provisions for program year 2022.

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. 96354), 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), and Subtitle E of 
the Small Business Regulatory Enforcement Fairness Act of 1996 (the 
Congressional Review Act) (5 U.S.C. 801 et seq.).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) (Having 
an annual effect on the economy of $100 million or more in any 1 year, 
or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). As noted in the BHP final rule, the BHP provides states the 
flexibility to establish an alternative coverage program for low-income 
individuals who would otherwise be eligible to purchase coverage on an 
Exchange. To date, two states have established a BHP, and we expect 
state participation to remain static as a result of this payment 
methodology. However, the final payment methodology for program year 
2022 differs from the payment methodology for program year 2021 due to 
the removal of the MTSF, which would increase BHP payments, compared to 
the methodology for program year 2021. OMB Office of

[[Page 35630]]

Information and Regulatory Affairs has determined this rulemaking is 
``economically significant'' as measured by the $100 million threshold 
under Executive Order 12866, and hence also a major rule under the 
Congressional Review Act, 5 U.S.C. 804(2). Accordingly, we have 
prepared a RIA that, to the best of our ability, presents the costs and 
benefits of the rulemaking.

C. Detailed Economic Analysis

    The aggregate economic impact of this payment methodology is 
estimated to be $1,114 million in transfers for CY 2022 (measured in 
real 2022 dollars), which would be an increase in federal payments to 
the state BHPs. For the purposes of this analysis, we have assumed that 
two states would implement BHPs in 2022. This assumption is based on 
the fact that two states have established a BHP to date, and we do not 
have any indication that additional states may implement the program. 
We also assumed there would be approximately 926,000 BHP enrollees in 
2022. The size of the BHP depends on several factors, including the 
number of and which particular states choose to implement or continue a 
BHP, the level of QHP premiums, and the other coverage options for 
persons who would be eligible for the BHP. In particular, while we 
generally expect that many enrollees would have otherwise been enrolled 
in a QHP on the Exchange, some persons may have been eligible for 
Medicaid under a waiver or a state health coverage program. For those 
who would have enrolled in a QHP and thus would have received PTCs, the 
federal expenditures for the BHP would be expected to be more than 
offset by a reduction in federal expenditures for PTCs. For those who 
would have been enrolled in Medicaid, there would likely be a smaller 
offset in federal expenditures (to account for the federal share of 
Medicaid expenditures), and for those who would have been covered in 
non-federal programs or would have been uninsured, there likely would 
be an increase in federal expenditures.
    Projected BHP enrollment and expenditures under the previous 
payment methodology were calculated using the most recent 2021 QHP 
premiums and state estimates for BHP enrollment. We projected 
enrollment for 2022 using the projected increase in the number of 
adults in the U.S. from 2021 to 2022 (0.4 percent), and we projected 
premiums using the NHE projection of premiums for private health 
insurance (4.7 percent). Prior to any changes made in the 2022 BHP 
payment methodology, federal BHP expenditures are projected to be 
$6,738 million in 2022. This projection serves as our baseline scenario 
when estimating the net impact of the 2022 final methodology on federal 
BHP expenditures.
    The change in the PTCF percentages is the most significant change 
in the methodology from the proposed notice, and is prescribed in the 
ARP. To calculate the changes that result from these changes in the 
payment methodology, we compared the results before and after these 
changes using the BHP payment model, we maintain to calculate payments 
to states, with projections used to calculate impacts in 2022. We 
recalculated the BHP payments using the new PTCF percentages to 
calculate the impact of this change, and we estimate that this would 
increase BHP payments by $853 million in 2022 (as compared to using the 
previous PTCF percentages, as described in the proposed methodology). 
The new PTCF percentages can be found in Table 1 in section III.D.5 of 
this final notice. For the change in the methodology to remove the MTSF 
for benefit year 2022, the MTSF was calculated as having a value of 
96.68 percent (as described previously). We recalculated the BHP 
payments excluding the MTSF from the formula, and we estimate this 
would increase BHP payments by $261 million in 2022 (as compared to the 
payments using a methodology including the MTSF factor). The projected 
BHP expenditures after these changes are $7,852 million, which is the 
sum of the prior estimate ($6,738 million) and the impacts of the 
changes to the methodology ($853 million and $261 million).

  Table 2--Estimated Federal Impacts for the Basic Health Program 2022
                           Payment Methodology
                       [Millions of 2022 dollars]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Projected Federal BHP Payments under 2021 Final Methodology..     $6,738
Projected Federal BHP Payment under 2022 Final Methodology...      7,852
Federal costs................................................      1,114
------------------------------------------------------------------------
Totals may not add due to rounding.

    The provisions of this final methodology 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 2021, 
accounts for these variations to ensure accurate BHP payment transfers 
are made to each state.

D. Alternative Approaches

    We considered several alternatives in developing the BHP payment 
methodology for 2022, and we discuss some of these alternatives below.
    We considered alternatives as to how to calculate the PAF in the 
final methodology for 2022. The value for the PAF is 1.188, which is 
the same as was used for 2018, 2019, 2020, and 2021. We believe it 
would be difficult to obtain 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 2022. We are continuing to consider whether or 
not there are other methodologies or data sources we may be able to use 
to calculate the PAF.
    We also considered alternatives as how to calculate the MTSF in the 
final methodology for 2022. Given the changes made to the determination 
of PTC for 2022 in the ARP, we are not including the MTSF in the 2022 
payment methodology, as described in section III.D.6. of this final 
notice.
    We also considered whether to continue to provide states the option 
to develop a protocol for a retrospective adjustment to the 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 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

[[Page 35631]]

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 these options.
    Many of the factors in this final methodology are specified in 
statute; therefore, for these factors we are limited in the alternative 
approaches we could consider. We do have some choices in selecting the 
data sources used to determine the factors included in the methodology. 
Except for state-specific RPs and enrollment data, we will use 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 will use state-specific data rather than national 
data, as we believe state-specific data will produce more accurate 
determinations than national averages. Our responses to public comments 
on these alternative approaches are in section II of this final notice.

E. Accounting Statement and Table

    In accordance with OMB Circular A-4, Table 3 depicts an accounting 
statement summarizing the assessment of the transfers associated with 
these payment methodologies.

         Table 3--Accounting Statement Changes to Federal Payments for the Basic Health Program for 2022
----------------------------------------------------------------------------------------------------------------
                                                                                    Units
                                                           -----------------------------------------------------
                Category                      Estimates                         Discount rate
                                                               Year dollar           (%)         Period covered
----------------------------------------------------------------------------------------------------------------
Transfers: Annualized/Monetized                     $1,114              2022                 7              2022
 ($million/year)........................
                                                     1,114              2022                 3              2022
                                         -----------------------------------------------------------------------
From Whom to Whom.......................           From the Federal Government to States Operating BHPs.
----------------------------------------------------------------------------------------------------------------

F. Regulatory Flexibility Act (RFA)

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires agencies to prepare a final regulatory flexibility analysis to 
describe the impact of the final rule on small 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.
    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. Therefore, the Secretary has determined that this final rule 
will not have a significant economic impact on a substantial number of 
small entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a methodology may have a significant economic impact 
on the operations of a substantial number of small rural hospitals. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. For the preceding 
reasons, we have determined that the methodology will not have a 
significant impact on a substantial number of small rural hospitals. 
Therefore, the Secretary has determined that this final rule will not 
have a significant impact on the operations of a substantial number of 
small rural hospitals.

G. Unfunded Mandates Reform Act (UMRA)

    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 2021, that threshold was approximately $158 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.

H. Federalism

    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 
methodology.

I. Conclusion

    Overall, federal BHP payments are expected to increase by $1,114 
million in 2022 as a result of the changes to the payment methodology. 
The analysis above, together with the remainder of this preamble, 
provides an RIA.
    This final regulation is subject to the Congressional Review Act (5 
U.S.C. 801 et seq.) and has been transmitted to the Congress and the 
Comptroller General for review.

    Dated: June 30, 2021.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2021-14393 Filed 7-2-21; 4:15 pm]
BILLING CODE 4120-01-P