[Federal Register Volume 87, Number 243 (Tuesday, December 20, 2022)]
[Rules and Regulations]
[Pages 77722-77742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27211]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2441-F]
RIN 0938-AU89


Basic Health Program; Federal Funding Methodology for Program 
Year 2023 and Changes to the Basic Health Program Payment Notice 
Process

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of 
Health and Human Services (HHS).

ACTION: Final rule.

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SUMMARY: This rule finalizes the methodology and data sources necessary 
to determine Federal payment amounts to be made for program year 2023 
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.

DATES: This amendments in this rule are effective January 1, 2023. The 
methodology and data sources announced in this rule are effective on 
January 1, 2023.

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 March 23, 2010), as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted 
March 30, 2010) (collectively referred to as the Affordable Care Act or 
ACA), provides States with an option to establish a Basic Health 
Program (BHP). In the States that elect to operate a BHP, the BHP makes 
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).

[[Page 77723]]

    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 ACA is 
based on the amount of the Federal premium tax credit (PTC) allowed and 
payments to cover required 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 14111), we published 
a final rule entitled ``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 ACA, 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 ACA, 
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 rule, 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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    In the 2023 BHP proposed rule, we proposed to revise the schedule 
for issuance of payment notices and allow payment notices to be 
effective for 1 or multiple program years, as determined by and subject 
to the discretion of the Secretary, beginning with the 2023 BHP payment 
methodology. As discussed in section IV. of this final rule, we are 
finalizing this proposal. Thus, the payment methodology described in 
this final rule will be in effect until CMS proposes a new payment 
methodology.
    As described in the BHP final rule, once the final rule 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 rule 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 ACA, the funding methodology 
and payment rates are expressed as an amount per eligible individual 
enrolled in a BHP standard health plan (BHP enrollee) for each month of 
enrollment. These payment rates may vary based on categories or classes 
of enrollees. Actual payment to a State would depend on the actual 
enrollment of individuals found eligible in accordance with a State's 
certified BHP Blueprint eligibility and verification methodologies in 
coverage through the State BHP. A State that is approved to implement a 
BHP must provide data showing quarterly enrollment of eligible 
individuals in the various Federal BHP payment rate cells. Such data 
must include the following:
     Personal identifier;
     Date of birth;
     County of residence;
     Indian status;
     Family size;
     Household income;
     Number of persons in household enrolled in BHP;
     Family identifier;
     Months of coverage;
     Plan information; and
     Any other data required by CMS to properly calculate the 
payment.

B. The 2018 Final Administrative Order and 2019 Through 2022 Payment 
Methodologies

    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 (the Departments) 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 CMS 
to discontinue CSR payments to issuers until Congress provides for an 
appropriation. In the absence of a Congressional appropriation for 
Federal funding for CSR payments, we cannot provide States with a 
Federal payment attributable to CSRs that would have been paid on 
behalf of BHP enrollees 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

[[Page 77724]]

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 \2\ (Final Administrative 
Order) setting forth the payment methodology that would apply to the 
2018 BHP program year.
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    \2\ https://www.medicaid.gov/sites/default/files/2019-11/final-admin-order-2018-revised-payment-methodology.pdf.
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    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).\3\ 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). In the July 7, 
2021 Federal Register (86 FR 35615) (hereinafter referred to as the 
July 2021 final BHP Payment Notice), we finalized the payment 
methodology for BHP program year 2022. The 2022 payment methodology is 
the same as the 2021 payment methodology, which the exception of the 
removal of the MTSF. The 2023 payment methodology is the same as the 
2022 payment methodology, except for the addition of a factor to 
account for a State operating a BHP and implementing an approved State 
Innovation Waiver under section 1332 of the ACA (referred to as a 
section 1332 waiver throughout this final payment methodology).
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    \3\ ``Metal tiers'' refer to the different actuarial value plan 
levels offered on the Exchanges. Bronze-level plans generally must 
provide 60 percent actuarial value; silver-level 70 percent 
actuarial value; gold-level 80 percent actuarial value; and 
platinum-level 90 percent actuarial value. See 45 CFR 156.140.
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II. Summary of the Proposed Provisions and Analysis of and Responses to 
the Public Comments

    In the May 25, 2022 Federal Register (87 FR 31815 through 31833), 
we published the ``Federal Funding Methodology for Program Year 2023 
and Proposed Changes to Basic Health Program Regulations'' proposed 
rule (hereinafter referred to as the 2023 BHP proposed rule).
    We received 7 timely public comments from individuals and 
organizations, including, but not limited to, State government 
agencies, other government agencies, and private citizens. In this 
section, we provide a summary of the provisions of the 2023 BHP 
proposed rule and the public comments and our responses.

A. Background

    In the 2023 BHP proposed rule, we proposed the methodology for how 
the Federal BHP payments would be calculated for program year 2023 and 
subsequent years until a new payment methodology is proposed and 
finalized, in accordance with the policy finalized in section IV of 
this final rule.
    We received the following comments on the background information 
included in the 2023 BHP proposed rule.
    Comment: Several commenters were supportive of the 2023 BHP payment 
methodology described in the 2023 BHP proposed rule.
    Response: We appreciate the support from these commenters. As 
described further in this final rule, we are finalizing the 2023 
methodology as proposed in the 2023 BHP proposed rule.
    Comment: One commenter suggested caution regarding the adoption of 
BHP in new States, as the establishment of a BHP could impact 
affordability for individuals who remain in Marketplace coverage. 
Specifically, the commenter noted that adoption of a BHP could result 
in a loss in overall enrollment in the individual market, higher 
premiums for consumers with incomes above 200 percent FPL who remain in 
the individual market, and a potential reduction in plan choices.
    Response: We appreciate the comment. We believe that States should 
consider how a BHP would impact coverage and affordability for State 
residents as part of its decision to start a BHP.

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

    In the 2023 BHP proposed rule, we proposed in the overview of the 
funding methodology to calculate the PTC and CSR as consistently as 
possible and in general alignment with the methodology used by 
Exchanges to calculate the advance payments of the PTC (APTC) and CSR, 
and by the Internal Revenue Service (IRS) to calculate the allowable 
PTC. We proposed four equations that would, if finalized, compose the 
overall BHP payment methodology. For specific discussions of these 
proposals, please refer to the 2023 BHP proposed rule (87 FR 31817 
through 31819).
    We received no comments on the overview of the funding methodology 
included in the 2023 BHP proposed rule. Therefore, we are finalizing 
these policies as proposed.

C. Federal BHP Payment Rate Cells

    In the 2023 BHP proposed rule, 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 2023 
BHP proposed rule (87 FR 31819 through 31820).
    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

    In the 2023 BHP proposed rule, we proposed 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,

[[Page 77725]]

please refer to the 2023 BHP proposed rule (87 FR 31820 through 31821).
    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 the 2023 BHP proposed rule, we proposed to use eight specific 
variables in the payment equations that compose the overall BHP funding 
methodology:

 Reference Premium (RP)
 Premium Adjustment Factor (PAF)
 Population Health Factor (PHF)
 Household Income (I)
 Premium Tax Credit Formula (PTCF)
 Income Reconciliation Factor (IRF)
 Premium Trend Factor (PTF)
 Section 1332 Waiver Factor (WF)
    For each proposed variable, we included a discussion on the 
assumptions and data sources used in developing the variables. We 
proposed to include a new factor, the WF, to account for a State 
operating a BHP and implementing an approved section 1332 waiver. For 
specific discussions, please refer to 2023 BHP proposed rule (87 FR 
31821 through 31826).
    Below is a summary of the public comments we received regarding 
specific factors and our response.
    Comment: Several commenters were supportive of the inclusion of the 
WF in the payment methodology. Specifically, commenters noted this 
factor will result in more equitable funding for States that have 
chosen to operate a BHP as well as a reinsurance program under section 
1332 of the ACA.
    Response: We appreciate the support from these commenters. After 
consideration of comments, we are finalizing the inclusion of the WF in 
the payment methodology as proposed.

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

    In the 2023 BHP proposed rule, we proposed to continue to provide 
States operating a BHP with the option to use the 2022 QHP premiums 
multiplied by a premium trend factor to calculate the Federal BHP 
payment rates instead of using the 2023 QHP premiums. We proposed to 
require States to make their election for the 2023 program year within 
60 days of publication of the final payment methodology. For specific 
discussions, please refer to the 2023 BHP proposed rule (87 FR 31827).
    We received no comments on this aspect of the proposed methodology. 
Therefore, we are finalizing these policies as proposed.

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

    In the 2023 BHP proposed rule, 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, 2022, or 60 days after the publication of the final rule. We 
proposed that CMS would approve the protocol by December 31, 2022. For 
specific discussions, please refer to the 2023 BHP proposed rule (87 FR 
31827 through 31828).
    We received no comments on this aspect of the methodology. 
Therefore, we are finalizing this policy as proposed, with one 
modification to the date by which CMS will approve the protocol. 
Because we are finalizing the 2023 payment methodology after August 1, 
2022, a State electing this option must submit its operational protocol 
to CMS within 60 days of publication of this final rule. Because 
December 31, 2022, falls within 60 days of publication of this final 
rule, we are finalizing that CMS will review and approve the State's 
protocol within 60 days of receipt of the proposed protocol.

H. Revisions to Basic Health Program Regulations

    In the 2023 BHP proposed rule, we proposed two changes related to 
the timing of publication of the BHP payment methodologies and 
correcting payment errors in Sec.  600.610 (87 FR 31828 through 31829). 
Specifically, we proposed to revise Sec.  600.610(a)(1) to provide for 
issuance of payment methodology that may be effective for only 1 or 
multiple program years, as determined by and subject to the discretion 
of the Secretary, beginning with the 2023 BHP payment methodology and 
then going forward. In addition, we proposed at Sec.  600.610(a)(1) and 
(b)(1) to change the schedule of publication dates for the proposed and 
final BHP payment methodologies. We also proposed changes to Sec.  
600.610(c)(2)(ii) to allow retroactive adjustments to a State's payment 
if the payment was a result of an error in the application of the 
payment methodology, which would allow CMS to correct payments made to 
States in 2019 that were based on an incorrect value for the income 
reconciliation factor.
    Below is a summary of the public comments we received regarding 
these proposals and our responses.
    Comment: Many commenters expressed support for the regulatory 
changes. Specifically, one commenter noted that allowing the payment 
methodology to apply to multiple years will reduce administrative 
burden when there are no changes to the proposed payment methodology.
    Response: We appreciate the support from these commenters. As 
described further in this final rule, we are finalizing the regulations 
as proposed.
    Comment: One commenter requested clarification regarding how CMS 
will notify States of the annual deadlines for electing to use the 
current year's Marketplace premiums or the previous year's Marketplace 
premiums (multiplied by a trend factor) for purposes of calculating BHP 
payments and submitting an optional risk adjustment protocol.
    Response: To maintain consistency with the deadlines established 
for making these elections for previous program years, States will have 
until the later of May 15 of the year preceding the applicable program 
year or 30 days from the release of the subregulatory guidance to elect 
to use the current year's Marketplace premiums or the previous year's 
Marketplace premiums (multiplied by a trend factor) for purposes of 
calculating Federal BHP payments. States will have until the later of 
August 1 of the year preceding the applicable program year or 30 days 
from the release of the subregulatory guidance to submit an optional 
risk adjustment protocol. These dates will be included in the 
subregulatory guidance CMS issues.
    Comment: One commenter requested that CMS issue subregulatory 
guidance updating the values of factors needed to calculate Federal BHP 
payments by January of the year preceding the applicable benefit year.
    Response: We are unable to carry out the commenter's request 
because the value of the factors may not be available in time to 
publish subregulatory guidance annually in January. We anticipate 
releasing subregulatory guidance in the Spring of the year preceding 
the applicable benefit year to the extent possible. As discussed 
previously in this final rule, States will have until the later of May 
15 of the year preceding the applicable program year or 30 days from 
the release of the subregulatory guidance to elect to use the current 
year's Marketplace premiums or the previous year's

[[Page 77726]]

Marketplace premiums (multiplied by a trend factor) for purposes of 
calculating Federal BHP payments.
    Comment: One commenter supported the proposed regulation change 
that would allow CMS to correct the 2019 payments to States that were 
calculated based on an incorrect value for the income reconciliation 
factor.
    Response: We appreciate the support and are finalizing these 
regulation changes as proposed, with minor formatting edits. 
Specifically, we are separating revised Sec.  600.610(a)(1) into Sec.  
600.610(a)(1)(i) and (ii) for improved clarity.
    After consideration of public comments received, we are finalizing 
these regulation changes as proposed.

III. Provisions of the 2023 BHP Payment Methodology

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

    Section 1331(d)(3) of the ACA 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 allowed and CSRs that would have been paid on behalf of BHP 
enrollees 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 advance payments of the PTC (APTC) and 
CSRs, and the methodology used to calculate PTC under 26 U.S.C. 36B, 
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 PTC allowed and CSRs that would have been 
paid on behalf of BHP enrollees if they had enrolled in QHPs offered 
through an Exchange. In accordance with section 1331(d)(3)(A)(iii) of 
the ACA, 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 ACA.
    Section 1331(d)(3)(A)(ii) of the ACA specifies that the payment 
determination shall take into account all relevant factors necessary to 
determine the value of the PTC allowed and CSRs that would have been 
paid on behalf of 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 all 
previous payment methodologies, 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),\4\ 
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.
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    \4\ 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.
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    Under the methodology finalized in the July 2021 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 allowed 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 July 2021 
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 note that throughout this final rule, 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 rule.
    As noted in section II.B. of this final rule, we proposed four 
equations, which we are finalizing as proposed, that would compose the 
overall BHP payment methodology. Equation (1) will be used to calculate 
the estimated PTC for eligible individuals enrolled in the BHP in each 
rate cell. Equation (2a) and Equation (2b) will be used to calculate 
the adjusted reference premium that is used in Equation (1). Equation 
(3) will determine the total monthly payment by rate cell.
Equation 1: Estimated PTC by Rate Cell
    We are finalizing, as proposed, that estimated PTC per enrollee 
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 as defined in 26 CFR 1.36B-3, with five 
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 rule) used to calculate the PTC will be 
adjusted for the BHP population health status. In the case of a State 
that elects to use 2022 premiums for the basis of the BHP Federal 
payment, the RP also will be adjusted for the projected change in the 
premium from 2022 to 2023. These adjustments are described in Equation 
(2a) and Equation (2b). Third, the PTC will be adjusted prospectively 
to reflect the average net expected impact of income reconciliation for 
individuals receiving APTC in the Exchange on the combination of all 
persons enrolled in the BHP; this adjustment, the IRF, which is 
described in section III.D.7. of this final rule, will account for the 
impact on the PTC that would have occurred had such reconciliation been

[[Page 77727]]

performed. Finally, the rate is multiplied by 95 percent, consistent 
with section 1331(d)(3)(A)(i) of the ACA. 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.
    Consistent with the methodology described above, Equation (1), used 
to calculate the PTC portion of the BHP payment for each rate cell, is 
finalized as follows:
[GRAPHIC] [TIFF OMITTED] TR20DE22.000

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 portion of the BHP payment, 
we will calculate the value of the adjusted reference premium as 
described below in Equations (2a) and (2b). We are finalizing these 
equations as proposed. 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 (described in 
section III.E. of this final rule). Below we describe how we will 
calculate the adjusted reference premium under each option.
    In the case of a State that elects to use the reference premium 
(RP) based on the current program year (for example, 2023 premiums for 
the 2023 program year), Equation (2a) will be used to calculate the 
value of the adjusted reference premium. The RP, discussed in more 
detail in section III.D.1. of this final rule, is based on the second 
lowest cost silver plan premium in the applicable program year, in this 
case the current program year. The adjusted reference premium will be 
equal to the RP multiplied by the BHP population health factor (PHF) 
(described in section III.D.3. of this final rule), 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 
rule). The PAF will account for the change in silver-level premiums due 
to the discontinuance of CSR payments. We will also multiply this value 
by the section 1332 waiver factor (WF) (described in section III.D.7 of 
this final rule), as applicable. Equation (2a) is finalized as follows:
[GRAPHIC] [TIFF OMITTED] TR20DE22.001

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
WFg = Section 1332 waiver factor

    In the case of a State that elected to use the RP based on the 
prior program year (for example, 2022 premiums for the 2023 program 
year), Equation (2b) will be used calculate the value of the adjusted 
reference premium. The adjusted reference premium will be equal to the 
RP for the prior program year multiplied by the BHP PHF (described in 
section III.D.3. of this final rule), which will reflect the projected 
impact that enrolling BHP-eligible individuals in QHPs on an Exchange 
would have had on the average QHP premium. It will then be 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. Then, it will be multiplied by the PTF 
(described in section III.E. of this final rule), which would reflect 
the projected change in the premium level between 2022 and 2023. 
Finally, it will be multiplied by the WF (described in section III.D.7 
of this final rule). Equation (2b) is finalized as follows:
[GRAPHIC] [TIFF OMITTED] TR20DE22.002

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
WFg = Section 1332 waiver factor
Equation 3: Determination of Total Monthly Payment for BHP Enrollees in 
Each Rate Cell
    In general, the payment 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), 
which we are finalizing as proposed.

[[Page 77728]]

[GRAPHIC] [TIFF OMITTED] TR20DE22.003

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. Calculating Federal BHP Payment Rates for Each Rate Cells

    We proposed to require the use of certain rate cells in applying 
Equations (1), (2a), (2b), and (3) of the payment methodology. 
Discussed in more detail below, we proposed to separate the BHP 
population into separate rate cells based on five factors (age, 
geographic area, coverage status, household size, and household 
income). We are finalizing use of the proposed rate cells and factors, 
as proposed.
    Consistent with the previous payment methodologies, we also 
proposed that 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 proposed to use those estimates to calculate the 
prospective payment, for deposit in the State's BHP trust fund, 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 BHP 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 whom the State found eligible 
and whose eligibility was verified using eligibility and verification 
requirements elected by the State in its applicable BHP Blueprint for 
the quarter that enrollment data is submitted. These procedures, which 
are finalized as proposed, will ensure that Federal payments to a State 
reflect actual BHP enrollment during a year, within each applicable 
rate cell, and prospectively determine Federal payment rates for each 
category of BHP enrollment.
    We proposed to use rate cells that separate the BHP population in 
each State operating a BHP into separate cells based on the five 
factors described below. We are finalizing all five factors as 
proposed.
    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 ACA'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 rule 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 2022 program year methodology as outlined in the 2022 
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 rule.
---------------------------------------------------------------------------

    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 ACA. 
For individuals enrolled in 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 as a percentage of the FPL as well as by the metal tier level of 
the QHP plans in the Exchange. Thus,

[[Page 77729]]

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 error resulting from highly complex methodologies. 
This approach should not significantly change Federal payment amounts, 
since within applicable ranges the BHP-eligible population is 
distributed relatively evenly.
    The number of factors contributing to rate cells, when combined, 
can result in over 350,000 rate cells, which can increase the 
complexity when generating quarterly payment amounts. In future years, 
and in the interest of administrative simplification, we will consider 
whether to combine or eliminate certain rate cells, once we are certain 
that the effect on payment would be insignificant.

C. Sources and State Data Considerations

    To the extent possible, unless otherwise provided, we will continue 
to use data submitted to the Federal government by QHP issuers seeking 
to offer coverage through the Exchange in the relevant BHP State to 
perform the calculations that determine Federal BHP payment cell rates.
    States operating an SBE in the individual market must provide data 
to support the development of the Federal BHP payment rates in those 
States, for example premiums for their second lowest cost silver plans, 
by geographic area. We proposed that States operating BHPs interested 
in obtaining the applicable 2023 program year Federal BHP payment rates 
for its State must submit the needed data accurately, completely, and 
as specified by CMS, by no later than October 15, 2022. Because we are 
finalizing this rule after October 15, 2022, States must submit this 
data to CMS within 30 days of publication of this final rule. 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 on the Basic Health Program 
page of Medicaid.gov, https://www.medicaid.gov/sites/default/files/2019-11/premium-data-collection-tool.zip.
    States operating a BHP should be technologically prepared to begin 
submitting actual enrollment data at the start of their BHP, starting 
with the beginning of the first program year. States must submit actual 
enrollment data to CMS on a quarterly basis thereafter. 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 are finalizing our proposal to 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 Exchange requirements.\9\ The 
State must submit this methodology, which is subject to CMS approval, 
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 ``Basic Health Program; Federal Funding Methodology for 
Program Years 2017 and 2018,'' 81 FR 10091 at 10097, February 29, 
2016.
---------------------------------------------------------------------------

    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 final rule. 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)
    As explained in section III.D.5. of this final rule, the PTC is 
based, in part, on the premiums for the applicable second lowest cost 
silver plan offered through the Exchange operating in the state. To 
calculate the estimated PTC that would be paid if BHP-eligible 
individuals enrolled in QHPs through an Exchange, we must calculate a 
RP. 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

[[Page 77730]]

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 (2023) 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 rule). 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.
    The RP used for purposes of calculating the Federal BHP payment 
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, the second lowest cost silver plan for a family consisting of 
two adults, their child, and their niece may be different than the 
second lowest cost silver plan for a family with two adults and their 
children, because one or more QHPs in the family's geographic area 
might not offer family coverage that includes a 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, by adding the 
Metal Tier Selection Factor (MTSF). In the final 2022 payment 
methodology, we removed the MTSF. We will continue the approach taken 
in the final 2022 payment methodology and not apply the MTSF in this 
2023 payment 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 ACA 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 proposed 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 have used this approach 
starting since the 2015 program year. We believe that other approaches 
(that is, other than assuming uniform age distribution) could skew the 
calculation of the payment rates for each rate cell. Given the number 
of rate cells and the fact that in some cases the number of enrollees 
in a cell may be small (particularly for less common family sizes, 
smaller counties, etc.), we believe that using estimates of age 
distribution or historical data also could skew results. We also 
believe a uniform age distribution is reasonably simple to use and 
avoids increasing burden on States to report data to CMS. We have found 
this approach reliable to date.
    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 believe that the benefits of simplifying both the 
calculation of BHP payment rates and the operation of the BHP justify 
any impacts on Federal payment levels.
    Finally, in terms of the coverage category, Federal payment rates 
will only recognize self-only and two-adult coverage, with exceptions 
that account for children who are potentially eligible for the BHP. 
First, in States that set the upper income threshold for children's 
Medicaid and CHIP eligibility below 200 percent of FPL (based on 
modified adjusted gross income (MAGI)), children in households with 
incomes between that threshold and 200 percent of FPL would be 
potentially eligible for the BHP. Currently, the only States in this 
category are Idaho and North Dakota.\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

[[Page 77731]]

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 ACA, which 
limits a BHP to individuals who are ineligible for minimum essential 
coverage (as defined in 26 U.S.C. 5000A(f)).
---------------------------------------------------------------------------

    \10\ Center for Medicaid and CHIP Services (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 costs related to 
HHS not making CSR payments.
    In the Final Administrative Order and the 2019 through 2022 final 
BHP Payment Notices, we incorporated the PAF into the BHP payment 
methodologies to capture the impact of how other States responded to us 
ceasing to make CSR payments. We will include the PAF in the 2023 
payment methodology and will calculate it in the same manner as in the 
Final Administrative Order. In the event that an appropriation for CSRs 
for 2023 is made, we would determine whether and how to modify the PAF 
in the payment methodology.
    Under the Final Administrative Order,\11\ we calculated the PAF by 
using information sought from QHP issuers in each State and the 
District of Columbia, and we 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 determining the median adjustment.\12\ The median adjustment 
for silver level QHPs is the nationwide median adjustment.
---------------------------------------------------------------------------

    \11\ https://www.medicaid.gov/sites/default/files/2019-11/final-admin-order-2018-revised-payment-methodology.pdf.
    \12\ 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).

    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 2023, with one limited exception as described below. 
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 2023.
    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 2023. 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 2022, (the latest 
year for which premiums have been published), the difference was 
modestly lower; the average second lowest cost silver level QHP premium 
was 33.1 percent higher than the average lowest cost bronze level QHP 
premium ($438 and $329, respectively).\13\ 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

[[Page 77732]]

$290, respectively).\14\ 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.
---------------------------------------------------------------------------

    \13\ Kaiser Family Foundation, ``Average Marketplace Premiums by 
Metal Tier, 2018-2022,'' https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/. [Accessed 
August 1, 2022.]
    \14\ See Basic Health Program: Federal Funding Methodology for 
Program Years 2019 and 2020; Final Methodology, 84 FR 59529 at 59532 
(November 5, 2019).
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    We are finalizing our proposal to make one limited exception in 
setting the value of the PAF, for States in the first year of 
implementing a BHP. In the case of a State in the first year of 
implementing a BHP, if the State chooses to use prior year second 
lowest cost silver level QHP premium to determine the BHP payment (for 
example, the 2022 premiums for the 2023 program year), we will set the 
value of the PAF to 1.00. In this case, we believe that adjustment to 
the QHP premiums to account for the discontinuation of CSR payments 
would be included fully in the prior year premiums. If the State 
chooses to use the prior year premiums, then no further adjustment 
would be necessary for the BHP payments; therefore, the value of the 
PAF will be 1.00.
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 
2023 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 2023.
    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 2023 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 rule. Regardless 
of whether a State elects to include a retrospective population health 
status adjustment, we anticipate that, in future years, when additional 
data becomes available about Exchange coverage and the characteristics 
of BHP enrollees, we may propose a different PHF.
    While the statute requires consideration of risk adjustment 
payments and reinsurance payments insofar as they would have affected 
the PTC that would have been provided to BHP-eligible individuals had 
they enrolled in QHPs, we are not 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.\15\ Further, standard health plans did not 
qualify for payments under the transitional reinsurance program 
established under section 1341 of the ACA for the years the program was 
operational (2014 through 2016).\16\ 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.
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    \15\ See 79 FR 14131.
    \16\ 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'').
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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:\17\
---------------------------------------------------------------------------

    \17\ 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 are finalizing our proposal to 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 rule.
    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

[[Page 77733]]

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.\18\
---------------------------------------------------------------------------

    \18\ 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 rule, we 
are finalizing our proposal to use the formula described in 26 U.S.C. 
36B(b) to calculate the estimated PTC that would be paid on behalf of a 
person enrolled in a QHP on an Exchange as part of the BHP payment 
methodology. This formula is used to determine the contribution amount 
(the amount of premium that an individual or household theoretically 
would be required to pay for coverage in a QHP on an Exchange), which 
is based on (A) the household income; (B) the household income as a 
percentage of FPL for the family size; and (C) the schedule specified 
in 26 U.S.C. 36B(b)(3)(A) and shown below.
    The difference between the contribution amount and the adjusted 
monthly premium (that is, the monthly premium adjusted for the age of 
the enrollee) for the applicable second lowest cost silver plan is the 
estimated amount of the PTC that would be provided for the enrollee.
    The PTC amount provided for a person enrolled in a QHP through an 
Exchange is calculated in accordance with the methodology described in 
26 U.S.C. 36B(b)(2). The amount is equal to the lesser of the premium 
for the plan in which the person or household enrolls, or the adjusted 
premium for the applicable second lowest cost silver plan minus the 
contribution amount.
    The applicable percentage is defined in 26 U.S.C. 36B(b)(3)(A) and 
26 CFR 1.36B-3(g) as the percentage that applies that applies to a 
taxpayer's household income that is within an income tier, increasing 
on a sliding scale in a linear manner from an initial premium 
percentage to a final premium percentage. 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 described in section II.D.5 of the 2023 BHP proposed rule, we 
are finalizing our proposal to use the formula described in 26 U.S.C. 
36B(b) to calculate the estimated PTC that would be paid on behalf of a 
person enrolled in a QHP in the Marketplace as part of the BHP payment 
methodology. In 2021 and 2022, the applicable percentages defined in 26 
U.S.C. 36B(b)(3)(A) and 26 CFR 1.36B-3(g) were set in the American 
Rescue Plan Act of 2021 (Pub. L. 117-2, enacted March 11, 2021). We 
used those applicable percentages for program years 2021 and 2022. 
Section 12001 of Subtitle C of the Inflation Reduction Act of 2022 
(Pub. L. 117-169, enacted August 16, 2022) extended these applicable 
percentages for the years 2023 through 2025. Therefore, we will use the 
applicable percentages in Table 1 for the 2023 BHP program year.
    The updated applicable percentages, which are described in Table 1, 
increase on a sliding scale in a linear manner from the premium 
percentage applicable to individuals with income at the lowest end of 
the premium band to the premium percentage applicable to individuals 
with income at the highest end of the premium band.

            Table 1--Applicable Percentage Table for CY 2023
       Under Section 12001 of the Inflation Reduction Act of 2022
------------------------------------------------------------------------
  In the case of household income
(expressed as a percent of poverty     The initial     The final premium
 line) within the following income       premium         percentage is--
               tier:                 percentage is--
------------------------------------------------------------------------
Up to 150%........................                0.0                0.0
150.0% percent up to 200.0%.......                0.0                2.0
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
------------------------------------------------------------------------

6. Income Reconciliation Factor (IRF)
    For persons who enroll, or enroll a family member, in a QHP through 
an Exchange for which APTC is paid, a reconciliation is required by 26 
U.S.C. 36B(f) following the end of the coverage year. The 
reconciliation requires the enrolling individual (the taxpayer) to 
compare the total amount of APTC paid on behalf of the taxpayer or a 
family member of the taxpayer for the year of coverage to the total 
amount of PTC allowed for the year of coverage, based on household 
circumstances shown on the Federal income tax return. If the amount of 
a taxpayer's PTC exceeds the APTC paid on behalf of the taxpayer, the 
difference reduces the taxpayer's tax liability for the year of 
coverage or results in a refund to the extent it exceeds the taxpayer's 
tax liability. If the APTC exceeds the PTC allowed, the taxpayer must 
increase his or her tax liability for the year of coverage by the 
difference, subject to certain limitations in statute and regulation.
    Section 1331(e)(2) of the ACA specifies that an individual eligible 
for the BHP may not be treated as a ``qualified individual'' under 
section 1312 of the ACA who is eligible for enrollment in a QHP offered 
through an Exchange. We are defining ``eligible for the BHP'' 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 are not subject to the same income reconciliation 
as Exchange enrollees.
    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

[[Page 77734]]

in employment status, hourly wage rates, or substantial fluctuations in 
income). There may also be changes in household composition. Thus, we 
believe that using unadjusted income as reported prior to the BHP 
program year may result in calculations of estimated PTC that are 
inconsistent with the actual household incomes of BHP enrollees during 
the year. Even if the BHP adjusts household income determinations and 
corresponding claims of Federal payment amounts based on household 
reports during the year or data from third-party sources, such 
adjustments may not fully capture the effects of tax reconciliation 
that BHP enrollees would have experienced had they been enrolled in a 
QHP through an Exchange with 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.
    We are finalizing our proposal 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 and 
2022 final BHP Payment Notices. Therefore, we proposed to 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 100.66 percent for States that have expanded Medicaid and 
101.63 percent for States that have not expanded Medicaid for program 
year 2023. Both current States operating a BHP have expanded Medicaid 
eligibility, and therefore we finalize the value of the IRF to be 
100.66 percent.
    We will use this value for the IRF in Equation (1) for calculating 
the PTC portion of the BHP payment rate.
7. Section 1332 Waiver Factor (WF)
    Section 1332 of the ACA permits States to apply for a waiver from 
certain ACA requirements to pursue innovative strategies for providing 
their residents with access to high quality, affordable health 
insurance coverage while retaining the basic protections of the ACA. 
Section 1332 of the ACA authorizes the Secretary of HHS and the 
Secretary of the Treasury (collectively, the Secretaries) to approve a 
State's request to waive all or any of the following requirements 
falling under their respective jurisdictions for health insurance 
coverage within a State for plan years beginning on or after January 1, 
2017: (1) Part I of subtitle D of Title I of the ACA (relating to the 
establishment of QHPs); (2) Part II of subtitle D of Title I of the ACA 
(relating to consumer choices and insurance competition through Health 
Benefit Exchanges); (3) Section 1402 of the ACA (relating to reduced 
cost sharing for individuals enrolling in QHPs); and (4) Sections 36B 
(relating to refundable credits for coverage under a QHP), 4980H 
(relating to shared responsibility for employers regarding health 
coverage), and 5000A (relating to the requirement to maintain minimum 
essential coverage) of the Internal Revenue Code (Code).
    Under section 1332 of the ACA, the Secretaries may exercise their 
discretion to approve a request for a section 1332 waiver only if the 
Secretaries determine that the proposal for the section 1332 waiver 
meets the following four requirements, referred to as the statutory 
guardrails: (1) The proposal will provide coverage that is at least as 
comprehensive as coverage defined in section 1302(b) of the ACA and 
offered through Exchanges established under title I of the ACA, as 
certified by the Office of the Actuary of CMS, based on sufficient data 
from the State and from comparable States about their experience with 
programs created by the ACA and the provisions of the ACA that would be 
waived; (2) the proposal will provide coverage and cost-sharing 
protections against excessive out-of-pocket spending that are at least 
as affordable for the State's residents as would be provided under 
title I of the ACA; (3) the proposal will provide coverage to at least 
a comparable number of the State's residents as would be provided under 
title I of the ACA; and (4) the proposal will not increase the Federal 
deficit.\19\
---------------------------------------------------------------------------

    \19\ See section 1332(b)(1)(A) through (D) of the ACA, 45 CFR 
155.1308(f)(3)(iv)(A) through (D), and 31 CFR 33.108(f)(3)(iv)(A) 
through (D).
---------------------------------------------------------------------------

    The Secretaries retain their discretionary authority under section 
1332 of the ACA to deny waivers when appropriate given consideration of 
the application as a whole, even if an application meets the four 
statutory guardrails. Eighteen (18) States have approved section 1332 
waivers for plan year 2023.\20\
---------------------------------------------------------------------------

    \20\ See the CMS section 1332 waiver website for information on 
approved waivers: https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Section_1332_State_Innovation_Waivers-.
---------------------------------------------------------------------------

    Section 1332(a)(3) of the ACA directs the Secretaries to pay pass-
through funding to the State for the purpose of implementing the 
State's section 1332 waiver. Under an approved section 1332 waiver, a 
State may receive pass-through funding associated with the resulting 
reductions in Federal spending on Exchange financial assistance (PTC, 
CSRs, and small business tax credits (SBTC)) consistent with the 
statute and reduced as necessary to ensure deficit neutrality. These 
payments are made in compliance with the applicable waiver plans, the 
specific terms and conditions governing the waiver, and accompanying 
statutory and regulatory requirements. Specifically, section 1332(a)(3) 
of the ACA provides that pass-through funding shall be paid to States 
for purposes of implementing the States' waiver plans. The specific 
impacts of the waivers on premiums and PTCs vary across States and plan 
years, depending, in part, on the State's approved section 1332 waiver 
plan and

[[Page 77735]]

the design of the State's program.\21\ The regulations at 31 CFR 33.122 
and 45 CFR 155.1322 specify that pass-through funding amounts will be 
calculated annually by the Departments for States with approved 
waivers.\22\ Additionally, section 1332(a)(4)(B)(v) of the ACA requires 
that the Secretaries issue regulations that provide a process for 
periodic evaluations by the Secretaries of the program under the 
waiver.\23\ As implemented by the Departments, the periodic evaluations 
include evaluation of pass-through funding and associated reporting and 
methodologies. Information on the pass-through funding amounts is made 
available publicly on the CMS website.\24\
---------------------------------------------------------------------------

    \21\ For example, some State reinsurance programs under a 
section 1332 waiver have reduced Statewide average QHP premiums by 4 
percent to 40 percent compared to what premiums would have been 
without the waiver. See Data Brief on Section 1332 waivers: State-
based reinsurance programs available here https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Downloads/1332-Data-Brief-Aug2021.pdf.
    \22\ See section 1332(a)(3) of the ACA. See also Patient 
Protection and Affordable Care Act; Updating Payment Parameters and 
Improving Health Insurance Markets for 2022 and Beyond; Final Rule, 
86 FR 53412 at 53482-53483 (Sep 27, 2021).
    \23\ See 31 CFR 33.128 and 45 CFR 155.1328.
    \24\ See the CMS section 1332 website for information on pass-
through funding here: https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Section_1332_State_Innovation_Waivers-.
---------------------------------------------------------------------------

    For a State that operates a BHP and an approved section 1332 
waiver, the Federal BHP can have an impact on section 1332 waiver pass-
through funding for that State. For example, the existence of a Federal 
BHP impacts aggregate PTC amounts in the State because BHP moves some 
individuals, who would otherwise be eligible for PTC, out of Exchange 
coverage. Similarly, as the section 1332 waiver may impact the 
benchmark QHP premiums and the PTCs in a State, the waiver may also 
have an effect on the calculation of Federal BHP payments in a State 
operating a BHP.
    If the section 1332 waiver reduces premiums for eligible enrollees, 
then this can lead to a reduction in the amount of PTC available for 
eligible enrollees (in particular, if the second lowest-cost silver QHP 
premium is reduced). While this may not have an effect on particular 
subsidized QHP enrollees, as their share of the premium would remain 
unchanged, it would reduce the amount of Federal outlays for PTC. With 
respect to a State's approved section 1332 waiver, the amount of 
Federal pass-through funding would equal the difference between (1) the 
amount, determined annually by the Secretaries, of PTC under section 
36B of the Code, the SBTC under section 45R of the Code, or CSRs under 
part I of subtitle E of the ACA (collectively referred to as Exchange 
financial assistance) that individuals and small employers in the State 
would otherwise be eligible for had the State not received approval for 
its section 1332 waiver and (2) the amount of Exchange financial 
assistance that individuals and small employers are eligible for with 
the approved section 1332 waiver in place. The section 1332 waiver 
pass-through amount would not be increased to account for any savings 
or decreases in Federal spending other than the reduction in Exchange 
financial assistance. This pass-through amount for the section 1332 
waiver would be reduced by any net increase in Federal spending or net 
decrease in Federal revenue if necessary to ensure deficit neutrality. 
The State must use this pass-through funding only for purposes of 
implementing the plan associated with the State's approved section 1332 
waiver. Therefore, in States that operate only an approved section 1332 
waiver, the net expected Federal spending is the same, even though the 
amount of PTC paid by the Federal government is lower.
    However, for a State that operates a BHP and a section 1332 waiver, 
a reduction in the expected Federal PTC payments due to the operation 
of the waiver leads directly to a reduction in Federal BHP funding to 
the State under the current BHP methodology. The amount of PTC and CSRs 
individuals are eligible for in the Exchange is dependent on the cost 
of the second lowest cost silver plan premium, and the cost of the 
second lowest cost silver plan premium is the basis for determining the 
amount of Federal funding for its BHP program. Therefore, a reduction 
in second lowest cost silver plan premium due to a section 1332 waiver, 
also reduces the Federal BHP payment. These reductions may be 
substantial. For example, in Minnesota in 2021, the State's section 
1332 waiver resulted in a State-wide average premium reduction of 21.3 
percent compared to without the waiver. This led to a similar reduction 
in PTC paid, and thus a similar reduction in Federal BHP funding. While 
the PTC allowed for persons eligible for subsidized coverage in the 
Exchange is lower with the section 1332 waiver in place, the reduction 
in premiums means that the net benefit to those individuals has not 
decreased--rather, Federal funding has been shifted from PTC in part to 
pass-through payments made to the State.
    On January 28, 2021, President Biden issued Executive Order (E.O.) 
14009 directing HHS, and the heads of all other executive departments 
and agencies with authorities and responsibilities related to Medicaid 
and the ACA, to review all existing regulations, orders, guidance 
documents, policies, and any other similar agency actions to determine 
whether such agency actions are inconsistent with the policy set forth 
in section 1 of E.O. 14009 to protect and strengthen the ACA.\25\ As 
part of this review, we considered the impact of approved section 1332 
waivers on Federal BHP funding and vice versa in States that elect to 
operate both a BHP and an approved section 1332 waiver, including the 
impact in Minnesota, as previously discussed.
---------------------------------------------------------------------------

    \25\ 86 FR 7793 (February 2, 2021).
---------------------------------------------------------------------------

    We determined it is appropriate to account for the impact of an 
approved section 1332 waiver when calculating Federal BHP payments. 
This is necessary for consistency with E.O. 14009 and this 
Administration's goal of protecting and strengthening the ACA and 
making high-quality, affordable health care accessible for every 
American. We believe that it is appropriate to consider the amount of 
pass-through funding associated with the section 1332 waiver as part of 
the PTC for the purpose of determining the BHP payments. As described 
previously, while the PTC allowed may be reduced under the section 1332 
waiver, the benefit to the persons eligible for such subsidized 
coverage has not decreased. Considering the section 1332 pass-through 
funding as part of the PTC for purposes of determining the BHP payment 
also counteracts the reduction in Federal BHP funding for States that 
lawfully exercise the flexibility Congress provided to implement both 
of the alternative State programs under sections 1331 and 1332 of the 
ACA. Therefore, we are finalizing our proposal to add the section 1332 
WF for the 2023 BHP payment methodology. This factor will be calculated 
as the ratio of (1) the second lowest cost silver plan premium that 
would have been in place without the waiver in place for the plan year 
to (2) the second lowest cost silver plan in place with the waiver in 
place for the plan year, as determined for the purposes of calculating 
the section 1332 waiver pass-through payment.\26\ This factor will be

[[Page 77736]]

calculated specific to each State and geographic area, to the extent 
that the factor may vary across geographic areas. The second lowest 
cost silver plan premiums with and without the waiver, as provided by 
the State as part of the section 1332 waiver information submitted to 
the Secretaries, will be reviewed by CMS and used to calculate the 
factor. In the event that the State's section 1332 waiver second lowest 
cost silver plan with- and without-waiver information is not available 
prior to the calculation of the Federal BHP payments in the fall prior 
to the start of the BHP program year, we are finalizing our proposal to 
temporarily use values from the prior year's waiver reporting, and then 
retroactively update the payment rates and payments once the values for 
the applicable plan year are known. In the case that prior-year data is 
not available, such as in the case of a new waiver or waiver amendment 
that could delay the timeline by which the State would receive BHP 
funding, we are finalizing our proposal to initially calculate the 
rates without adjustment for the section 1332 WF, and then to 
retroactively adjust payment rates and payments using the updated 
waiver data once it becomes available.\27\
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    \26\ Office of Tax Analysis, Department of Treasury, ``Method 
for Calculation of Section 1332 Reinsurance Waiver 2021 Premium Tax 
Credit Pass-through Amounts,'' March 2021.
    \27\ 42 CFR 600.610(c)(2)(iii).
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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 60 days after the publication 
of this final rule.
    With the addition of the section 1332 WF, there is the possibility 
that using the previous year's QHP premiums multiplied by the PTF could 
lead to unexpected results if there are significant changes to the 
State's approved section 1332 waiver, including changes that could 
occur at the start or the end of the waiver. For example, if a State 
were to implement a section 1332 waiver in 2023 that lowered premiums 
significantly, and the State then chose to use the prior year's 
premiums (that is, 2022 plan year premiums) multiplied by the PTF, this 
could lead to BHP payment well in excess of what would have been paid 
in the Exchanges when the WF is added to the methodology. Similarly, if 
a State were to end its section 1332 waiver and choose to use the prior 
year's premiums, the BHP payment could be less than what would 
otherwise be expected.
    We are finalizing our proposal that in the following cases, the 
current year QHP premiums would have to be used for calculating BHP 
payments with regard to section 1332 waivers: (1) A State implements a 
new section 1332 waiver that begins at the start of the BHP program 
year; (2) a State ends a section 1332 waiver in the year prior to the 
start of the BHP program year; or (3) the percentage difference between 
the with and without waiver premiums used to determine the section 1332 
waiver pass-through funding amount (and used to determine the WF) 
changes by 5 or more percentage points from the prior year. The 
percentage difference would be measured based on the enrollment-
weighted average of the with and without waiver premiums. We believe 
that these three scenarios (the start of a new waiver, the end of a 
waiver, and a significant change to a waiver) reflect all relevant 
scenarios in which changes to a section 1332 waiver would lead to a 
significant error in the calculation of BHP payments if the prior year 
premiums were used in the BHP payment methodology. We believe that the 
requirement to use the current year QHP premiums in these limited 
circumstances would avoid an incorrect calculation of BHP payments due 
to changes related to the section 1332 waiver.
    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 2022 
premiums as the basis for determining the 2023 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 4.6 percent for BHP program 
year 2023.
    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 1 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 for this factor due to the 
lack of available data to analyze potential health differences between 
the BHP and QHP populations, which is why, absent a State election, we 
are finalizing our proposal to use a value for the PHF (see section 
III.D.3. of this final rule) 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

[[Page 77737]]

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 are finalizing 
our proposal to apply the same protocol for the population health 
status adjustment as what is set forth in guidance in ``Considerations 
for Health Risk Adjustment in the Basic Health Program in Program Year 
2015'' (https://www.medicaid.gov/sites/default/files/2019-11/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, 2022 or 60 days after the publication of this final rule. 
Because this final rule is being published within 60 days of August 1, 
2022, 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 rule. 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. We proposed that we must approve the State's 
protocol by December 31, 2022, for the 2023 program year. Due to the 
publication date of this final rule, we are finalizing that we will 
approve the State's protocol within 50 days of receipt of the proposed 
protocol. 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. Revisions to Basic Health Program Regulations

    We proposed two changes related to the timing of publication of the 
BHP payment methodologies under 42 CFR 600.610. Specifically, we 
proposed to revise Sec.  600.610(a)(1) to provide for issuance of 
payment notices that may be effective for only one or multiple program 
years, as determined by and subject to the discretion of the Secretary, 
beginning with the 2023 BHP payment methodology and then going forward. 
In addition, we proposed at Sec.  600.610(a)(1) and (b)(1) to change 
the schedule of publication dates for the proposed and final BHP 
payment notices. As stated in section II.H. of this final rule, we 
received several comments in support of these proposed changes. 
Therefore, we are finalizing these regulations as proposed, with minor 
formatting edits to separate Sec.  600.610(a)(1) into Sec.  
600.610(a)(1)(i) and (ii) for increased clarity.
    We also proposed to revise Sec.  600.610(c)(2)(ii) such that a 
State's payment amount may be retroactively revised due to a 
mathematical error in the development or application of the BHP funding 
methodology. We discussed that CMS recently became aware of an error in 
calculating the IRF for program year 2019, resulting in an underpayment 
of Federal funds to States for their BHPs. In reviewing the model used 
to calculate the IRF, CMS and OTA found an error in the computation of 
the IRF. Working with OTA, we developed a new value for the IRF for 
2019. Previously, the IRF for the 2019 BHP payment methodology was 
98.03 percent. The corrected value for the IRF for program year 2019 
was recalculated as the median of the impact of income reconciliation 
on PTC for persons with incomes between 100 percent and 200 percent of 
FPL (102.36 percent) and the impact for persons with incomes between 
133 percent and 200 percent of FPL (101.66 percent), which is 102.01 
percent. Using the median of the two values is the same approach as we 
used to calculate the original IRF value in 2019, and the difference 
between the values is attributable to a mathematical error made during 
the development of the BHP payment methodology for program year 2019. 
As stated in section II.H. of this final rule, we received comments in 
support of this regulation change, which would also allow us to issue 
corrected payments to states for 2019. We are finalizing this 
regulation change as proposed. We will issue further guidance to states 
on the timing of receiving the updated payments for 2019.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.), we are required to provide 60-day notice in the Federal Register 
and solicit public comment before a ``collection of information'' 
requirement is submitted to the Office of Management and Budget (OMB) 
for review and approval. For the purpose of the PRA and this section of 
the preamble, collection of information is defined under 5 CFR 
1320.3(c) of the PRA's implementing regulations.
    To fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the PRA requires that we 
solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the May 25, 2022 BHP proposed rule (87 FR 31815), we solicited 
public comment on each of these issues for that rule's proposed 
collection of information requirements and burden estimates. We did not 
receive such comments and are finalizing those requirements and burden 
estimates as proposed. The finalized requirements and burden estimates 
follow.

A. Wage Estimates

    To derive average costs, we used data from the U.S. Bureau of Labor 
Statistics' (BLS) May 2021 National Occupational Employment and Wage 
Estimates for our salary estimates (https://www.bls.gov/oes/current/oes_nat.htm). In this regard, Table 2 presents BLS' mean hourly wage, 
our estimated cost of fringe benefits and overhead, and our adjusted 
hourly wage.

[[Page 77738]]



                          Table 2--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                    Occupation      Mean hourly    benefits and      Adjusted
                Occupation title                       code        wage  ($/hr)    overhead  ($/    hourly wage
                                                                                        hr)           ($/hr)
----------------------------------------------------------------------------------------------------------------
Business Operations Specialists.................         13-1000           38.64           38.64           77.25
General and Operations Managers.................         11-1021           55.41           55.41          110.82
----------------------------------------------------------------------------------------------------------------

    To derive the average cost estimates, we also adjusted BLS' mean 
hourly wage by a factor of 100 percent. This is necessarily a rough 
adjustment, both because fringe benefits and overhead costs vary 
significantly from employer to employer, and because methods of 
estimating these costs vary widely from study to study. Therefore, we 
believe that doubling the hourly wage to estimate total cost is a 
reasonably accurate estimation method.

B. Information Collection Requirements (ICRs)

    When ready, the following changes will be submitted to OMB for 
approval under control number 0938-1218 (CMS-10510). Consistent with 
the May 25, 2022 (87 FR 31815) proposed rule, we are in the process of 
reinstating that control number as our previous approval was 
discontinued on August 31, 2017, based on our estimated number of 
respondents. We are reinstating the control number based on 5 CFR 
1320.3(c)(4)(i) using the standard non-rule PRA process which includes 
the publication of 60- and 30-day Federal Register notices. In addition 
to the reinstatement, we are also in the process of proposing changes 
that are associated with the March 12, 2014 (79 FR 14112) BHP final 
rule that have not previously received PRA approval. The following 
finalized burden estimates are also included in our reinstatement 
effort. The 60-day notice published in the Federal Register on August 
4, 2022 (87 FR 47750). The collection of information request will be 
submitted to OMB for approval subsequent to the publication of the 30-
day Federal Register notice.
1. ICRs Regarding the Submission of Estimated and Actual Quarterly 
Enrollment Data
    In sections II.A. and III.B. of this final rule, we finalized that 
a State that is approved to implement a BHP must provide CMS with an 
estimate of the number of BHP enrollees its 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 
after actual enrollment data is available. Enrollment data must be 
submitted by age range (if applicable), geographic area, coverage 
status, household size, and income range.
    We estimate that it will take a business operations specialist 10 
hours at $77.25/hr and a general manager 2 hours at $110.82/hr to 
compile and submit the quarterly estimated enrollment data to CMS. For 
2023, we estimate that two States will operate a BHP and will submit 
the required estimated enrollment data to CMS. In aggregate, we 
estimate an annual burden of 96 hours (2 States x 12 hr/response x 4 
responses/yr) at a cost of $7,953 [2 States x 4 responses/yr ((10 hr x 
$77.25/hr) + (2 hr x $110.82/hr)).
    In sections II.A. and III.B. of this final rule, we also finalized 
that, following each BHP program quarter, a State operating a BHP must 
submit actual enrollment data to CMS. 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. Actual 
enrollment data must include a personal identifier, date of birth, 
county of residence, Indian status, family size, household income, 
number of persons in the household enrolled in BHP, family identifier, 
months of coverage, plan information, and any other data required by 
CMS to properly calculate the payment. This may include the collection 
of data related to eligibility for other coverage, marital status (for 
calculating household composition), or more precise residence location.
    We estimate that it will take a business operations specialist 100 
hours at $77.25/hr and a general manager 10 hours at $110.82/hr to 
compile and submit the quarterly actual enrollment data to CMS. For 
2023, we estimate that two States will operate a BHP and will submit 
the required actual enrollment data to CMS. In aggregate, we estimate 
an annual burden of 880 hours (2 States x 110 hr/response x 4 
responses/yr) at a cost of $70,666 [2 States x 4 responses/yr ((100 hr 
x $77.25/hr) + (10 hr x $110.82/hr)).
2. ICRs Regarding Submission of Qualified Health Plan Data
    In section III.C. of this final rule, we finalized that States 
operating an SBE in the individual market must provide certain data, 
including premiums for second lowest cost silver plans, by geographic 
area, for CMS to calculate the Federal BHP payment rates in those 
States. We proposed that States operating BHPs interested in obtaining 
the applicable 2023 program year Federal BHP payment rates for its 
State must submit the data to CMS by October 15, 2022. Because we are 
finalizing this rule after October 15, 2022, we have changed the 
submission deadline from ``October 15, 2022'' to read ``within 30 days 
of publication of this final rule.''
    We estimate that it will take a business operations specialist 20 
hours at $77.25/hr and a general manager 2 hours at $110.82/hr to 
compile and submit the required data to CMS. In aggregate, we estimate 
an annual burden of 44 hours (2 States x 22 hr/response) at a cost of 
$3,533 [2 States x ((20 hr x $77.25/hr) + (2 hr x $110.82/hr))].

C. Summary of Requirements and Annual Burden Estimates

                                              Table 3--Summary of Requirements and Annual Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Total
  Section under Title 42 of the CFR    OMB control No.  (CMS ID     Number of       Total        Time per        time     Labor cost  ($/hr)     Total
                                                 No.)              respondents    responses   response  (hr)     (hr)                          cost  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
600.610 (projected number of BHP       0938-1218 (CMS-10510)...               2            8              12         96  Varies..............      7,953
 enrollees).
600.610 (actual number of BHP          0938-1218 (CMS-10510)...               2            8             110        880  Varies..............     70,666
 enrollees).
600.610 (qualified health plan data).  0938-1218 (CMS-10510)...               2            2              22         44  Varies..............      3,533
                                                                ----------------------------------------------------------------------------------------

[[Page 77739]]

 
    Total............................  ........................               2           18          Varies      1,020  Varies..............     82,152
--------------------------------------------------------------------------------------------------------------------------------------------------------

VI. Regulatory Impact Analysis

A. Statement of Need

    Section 1331 of the ACA (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 ACA, the Secretary shall 
transfer to the State Federal BHP payments described in section 
1331(d)(3) of the ACA. This final rule provides for the funding 
methodology to determine the Federal BHP payment amounts required to 
implement these provisions for program year 2023.

B. Overall Impact

    We have examined the impacts of this rule as required by E.O. 12866 
on Regulatory Planning and Review (September 30, 1993), E.O. 13563 on 
Improving Regulation and Regulatory Review (January 18, 2011), the 
Regulatory Flexibility Act (RFA) (Pub. L. 96354, enacted September 19, 
1980), section 1102(b) of the Act, section 202 of the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4, enacted March 22, 1995), E.O. 13132 
on Federalism (August 4, 1999), and the Congressional Review Act (5 
U.S.C. 804(2)).
    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 significant regulatory action(s) or with economically significant 
effects ($100 million or more in any 1 year). Based on our estimates, 
OMB's Office of Information and Regulatory Affairs has determined this 
rulemaking is ``economically significant'' as measured by the $100 
million threshold. Accordingly, we have prepared a Regulatory Impact 
Analysis 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 final payment methodology is 
estimated to be $357 million in transfers for calendar years (CY) 2022 
and 2023 (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 2023. 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 a BHP in CY 2023. Of these two States, only one (Minnesota) 
currently has an approved section 1332 waiver.
    Projected BHP enrollment and expenditures under the previous 
payment methodology were calculated using the most recent 2022 QHP 
premiums and State estimates for BHP enrollment. We projected 
enrollment for 2023 using the projected increase in the number of 
adults in the U.S. from 2022 to 2023 (0.4 percent), and we projected 
premiums using the NHE projection of premiums for private health 
insurance (4.6 percent). Prior to any changes made in the 2023 BHP 
payment methodology, Federal BHP expenditures are projected to be 
$8,340 million in 2023, which are described in detail below. This 
projection serves as our baseline scenario when estimating the net 
impact of the 2023 methodology on Federal BHP expenditures.
    The incorporation of the WF is the most significant change in this 
final 2023 payment methodology from the final 2022 payment methodology. 
To calculate the impact of adding the WF to the methodology, we took 
the following steps. First, we calculated the estimated value of the WF 
using the most recently available section 1332 waiver premium data for 
2021.\28\ In Minnesota, the average percentage difference between the 
``with waiver'' second lowest cost silver plan premiums and the 
``without waiver'' second lowest cost silver plan premiums for 2021 is 
27.3 percent (calculated as the average of the ``without waiver'' 
second lowest cost silver plan premium divided by the ``with waiver'' 
second lowest cost silver plan premium, averaged across all rating 
areas). We then increased the RPs in the model for Minnesota by 27.3 
percent, which represents the impact of the WF. The resulting Federal 
BHP payments were 28.2 percent higher incorporating this adjustment. 
The projected BHP expenditures after these changes are $8,154 million, 
which is the sum of the prior estimate ($8,021 million) and the impacts 
of the changes to the methodology ($133 million). For Minnesota, 
estimated payments would increase from $470 million to $603 million in 
2023.
---------------------------------------------------------------------------

    \28\ https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Downloads/1332-State-Specific-Premium-Data-Feb-2021.xlsx.

[[Page 77740]]



  Table 4--Estimated Federal Impacts for the Basic Health Program 2023
                           Payment Methodology
                       [Millions of 2022 dollars]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Projected Federal BHP Payments under 2022 Final                   $8,021
 Methodology............................................
Projected Federal BHP Payment under 2023 Final                     8,154
 Methodology............................................
Federal costs...........................................             133
------------------------------------------------------------------------
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. In this case, the exact value of the 
WF and the effects of the section 1332 waiver in 2023 are currently 
unknown. The value of the WF could be higher or lower than estimated 
here as a result. In addition, projected BHP expenditures and 
enrollment may also differ from our current estimates, which may also 
lead to costs being higher or lower than estimated here.
    In addition, the final methodology will allow for a retrospective 
correction to the BHP payment methodology for errors that occurred 
during the development or application of the BHP funding methodology. 
For 2019, we are finalizing our proposal to correct the value of the 
IRF from 98.03 percent to 102.01 percent. Actual Federal BHP 
expenditures in 2019 were $5,591 million, including payment 
reconciliations that have occurred as of March 2022. Calculating the 
payments with the corrected IRF value increases the payments by about 
$224 million. The actual amount may differ as we continue to reconcile 
2019 payments based on actual enrollment.

  Table 5--Estimated Federal Impacts for the Basic Health Program 2023
         Payment Methodology To Apply Retrospective Corrections
                       [Millions of 2022 dollars]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Projected Federal BHP Payments under 2022 Final                   $5,591
 Methodology............................................
Projected Federal BHP Payment under 2023 Final                     5,815
 Methodology............................................
Federal costs...........................................             224
------------------------------------------------------------------------
Totals may not add due to rounding.

    The total estimated impact of this final methodology is $357 
million ($133 million for the addition of the section 1332 waiver 
factor, and $224 million for the correction to the income 
reconciliation factor for 2019).

D. Alternative Approaches

    We considered several alternatives in developing the BHP payment 
methodology for 2023, and we discuss some of these alternatives below.
    We considered alternatives as to how to calculate the PAF in the 
final methodology for 2023. The value for the PAF is 1.188, which is 
the same as was used for 2018 through 2022. 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 2023. 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 2023. Given the changes made to the determination 
of PTC for 2022 in the ARP, we are not including the MTSF in the 2023 
payment methodology, as described in section III.D.6. of this final 
rule.
    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 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.
    We also considered whether or not to include a factor to address 
the impacts of State Innovation Waivers. In previous methodologies, we 
have not addressed the potential impacts of State Innovation Waivers on 
BHP payments. We believe it is appropriate to include such a factor for 
this payment methodology. We also considered other approaches to 
calculating the factor, including whether or not to use each State's 
experience separately or to look at the impacts across all States. We 
believe it is more accurate to use each State's experience separately, 
as applicable.
    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

[[Page 77741]]

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 rule.

E. Accounting Statement and Table

    In accordance with OMB Circular A-4, Table 6 depicts an accounting 
statement summarizing the assessment of the transfers associated with 
these payment methodologies.

                                               Table 6--Accounting Statement: Federal Transfers to States
                                                                      [$ millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Units
                                                              Primary                                    -----------------------------------------------
                        Category                             estimate      Low estimate    High estimate                   Discount rate      Period
                                                                                                            Year dollar         (%)           covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized monetized transfers from Federal government              $180            $163            $197            2022               7       2022-2023
 to States..............................................
                                                                     179             162             196            2022               3       2022-2023
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As required by OMB Circular A-4 (available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf), we have prepared an accounting statement in 
Table 6 showing the classification of the transfer payments from the 
Federal Government to States associated with the provisions of this 
final rule. Table 6 provides our best estimates of the transfer 
payments outlined in the section IV.C. of this final rule. These 
estimates assume that costs in 2022 could be 5 percent above and below 
the primary estimate (from $212 million to $235 million in 2022 
dollars) and that costs in 2023 could be 18 percent above and below the 
primary estimate ($109 million to $156 million in 2022 dollars, which 
reflects a waiver factor that could be 5 percentage points higher or 
lower than assumed in the analysis).

F. Regulatory Flexibility Act (RFA)

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires agencies to analyze options for regulatory relief of small 
entities, if a rule has a significant impact on a substantial number of 
small entities. For purposes of the RFA, we estimate that no small 
entities will be impacted as that term is used in the RFA (include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions). The great majority of hospitals and most other health 
care providers and suppliers are small entities, either by being 
nonprofit organizations or by meeting the Small Business Administration 
definition of a small business (having revenues of less than $8.0 
million to $41.5 million). Individuals and States are not included in 
the definition of a small entity. As its measure of significant 
economic impact on a substantial number of small entities, HHS uses a 
change in revenue of more than 3 to 5 percent. We do not believe that 
this threshold will be reached by the requirements in this final rule.
    Because this methodology is focused solely on Federal BHP payment 
rates to States, it does not contain provisions that would have a 
direct impact on hospitals, physicians, and other health care providers 
that are designated as small entities under the RFA. Accordingly, we 
have determined that the methodology, like the previous methodology and 
the final rule that established the BHP program, will not have a 
significant economic impact on a substantial number of small entities. 
Therefore, the Secretary has determined that this 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. 
This analysis must conform to the provisions of section 604 of the RFA. 
For purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. 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 1995 
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 2022, that threshold is approximately $165 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 ACA or its implementing regulations. Thus, the 
final payment methodology does not mandate expenditures by State 
governments, local governments, or tribal governments.

H. Federalism

    E.O. 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 E.O. 13132 do not apply to this final rule.

I. Conclusion

    We believe that this final BHP payment methodology is effectively 
the same methodology as finalized for 2022, with the exception of the 
addition of the WF. In addition, we are finalizing the proposal to 
update the regulation to clarify that errors in the application and the 
development of the methodology may be corrected retroactively. BHP 
payment rates may change as the values of the factors change, most 
notably the QHP premiums for 2022 or 2023. We do not anticipate this 
final methodology to have any significant effect on BHP enrollment in 
2023.

[[Page 77742]]

    In accordance with the provisions of E.O. 12866, this regulation 
was reviewed by the Office of Management and Budget.
    Chiquita Brooks-LaSure, Administrator of the Centers for Medicare & 
Medicaid Services, approved this document on November 23, 2022.

List of Subjects in 42 CFR Part 600

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

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR part 600 as set forth below:

PART 600--ADMINISTRATION, ELIGIBILITY, ESSENTIAL HEALTH BENEFITS, 
PERFORMANCE STANDARDS, SERVICE DELIVERY REQUIREMENTS, PREMIUM AND 
COST SHARING, ALLOTMENTS, AND RECONCILIATION

0
1. The authority citation for part 600 continues to read as follows:

    Authority:  Section 1331 of the Patient Protection and 
Affordable Care Act of 2010 (Pub. L. 111-148, 124 Stat. 119), as 
amended by the Health Care and Education Reconciliation Act of 2010 
(Pub. L. 111-152, 124 Stat 1029).


0
2. Amend Sec.  600.610--
0
a. By revising paragraphs (a)(1) and (b)(1); and
0
b. In paragraph (c)(2)(ii) by removing the phrase ``during the 
application of the BHP funding methodology'' and adding in its place 
the phrase ``during the application or development of the BHP funding 
methodology''.
    The revisions read as follows:


Sec.  600.610  Secretarial determination of BHP payment amount.

    (a) * * *
    (1) Beginning in FY 2015, the Secretary will determine and publish 
in a Federal Register document the BHP payment methodology for the next 
calendar year or, beginning in calendar year 2022, for multiple 
calendar years. Beginning in calendar year 2023--
    (i) In years in which the Secretary does not publish a new BHP 
methodology, the Secretary will update the values of factors needed to 
calculate the Federal BHP payments via sub regulatory guidance, as 
appropriate.
    (ii) In years that the Secretary publishes a revised payment 
methodology, the Secretary will publish a proposed BHP payment 
methodology upon receiving certification from the Chief Actuary of CMS.
* * * * *
    (b) * * *
    (1) Beginning in calendar year 2023, in years that the Secretary 
publishes a revised payment methodology, the Secretary will determine 
and publish the final BHP payment methodology and BHP payment amounts 
in a Federal Register document.
* * * * *

    Dated: December 12, 2022.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2022-27211 Filed 12-16-22; 11:15 am]
BILLING CODE 4120-01-P