Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2015
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CFR Part: "45 CFR Parts 144, 147, 153, 155, and 156"
RIN Number: "RIN 0938-AR89"
Citation: "78 FR 72322"
Document Number: "CMS-9954-P"
"Proposed Rules"
SUMMARY: This proposed rule sets forth payment parameters and oversight provisions related to the risk adjustment, reinsurance, and risk corridors programs; cost-sharing parameters and cost-sharing reductions; and user fees for Federally-facilitated Exchanges. It also proposes additional standards with respect to composite rating, privacy and security of personally identifiable information, the annual open enrollment period for 2015, the actuarial value calculator, the annual limitation in cost sharing for stand-alone dental plans, the meaningful difference standard for qualified health plans offered through a Federally-facilitated Exchange, patient safety standards for issuers of qualified health plans, and the Small Business Health Options Program.
   DATES: To be assured consideration, comments must be received at one of the addresses provided below, no later than
   ADDRESSES: In commenting, please refer to file code CMS-9954-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.
   You may submit comments in one of four ways (please choose only one of the ways listed):
   1. Electronically. You may submit electronic comments on this regulation to http://www.regulations.gov. Follow the "Submit a comment" instructions.
   2. By regular mail. You may mail written comments to the following address ONLY:
   Please allow sufficient time for mailed comments to be received before the close of the comment period.
   3. By express or overnight mail. You may send written comments to the following address ONLY:
   4. By hand or courier. Alternatively, you may deliver (by hand or courier) your written comments ONLY to the following addresses prior to the close of the comment period:
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   Comments erroneously mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.
   For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.
   FOR FURTHER INFORMATION CONTACT: For general information:
   For matters related to student health insurance coverage and composite rating:
   For matters related to the risk adjustment program generally, the small group counting requirements, the risk adjustment methodology, and the methodology for determining the reinsurance contribution rate and payment parameters:
   For matters related to reinsurance generally, oversight of the premium stabilization programs, distributed data collection, and administrative appeals:
   For matters related to reinsurance contributions:
   For matters related to risk corridors: Jaya Ghildiyal, (301) 492-5149.
   For matters related to cost-sharing reductions, the premium adjustment percentage, and Federally-facilitated Exchange user fees:
   For matters related to the annual limitation on cost sharing for stand-alone dental plans, privacy and security of personally identifiable information, the annual open enrollment period for the 2015 benefit year, and the meaningful difference standard:
   For matters related to the Small Business Health Options Program:
   For matters related to the actuarial value calculator:
   For matters related to patient safety standards for issuers of qualified health plans:
   For matters related to netting of payments and charges:
   SUPPLEMENTARY INFORMATION:
   Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to view public comments.
   Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the
Table of Contents
I. Executive Summary
II. Background
   A. Legislative Authority
   B. Stakeholder Consultation and Input
   C. Structure of Proposed Rule
III. Provisions of the Proposed HHS Notice of Benefit and Payment Parameters for 2015
   A. Part 144--Requirements Relating to Health Insurance Coverage
   B. Part 147--Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets
   1. Composite Rating
   2. Student Health Insurance Coverage
   C. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment under the Affordable Care Act
   1. Provisions and Parameters for the Permanent Risk Adjustment Program
   a. Risk adjustment user fees
   b. HHS risk adjustment methodology considerations
   c. Small group determination for risk adjustment
   d. Risk adjustment data validation
   e. HHS audits of issuers of risk adjustment covered plans
   2. Provisions and Parameters for the Transitional Reinsurance Program
   a. Major medical coverage
   b. Self-insured plans without third party administrators
   c. Uniform reinsurance contribution rate
   d. Uniform reinsurance payment parameters
   e. Adjustment options
   f. Deducting cost-sharing reduction amounts from reinsurance payments
   g. Audits
   h. Same covered life
   i. Reinsurance contributions and enrollees residing in the territories
   j. Form 5500 counting method
   3. Provisions for the Temporary Risk Corridors Program
   a. Definitions
   b. Compliance with risk corridors standards
   c. Participation in the risk corridors program
   e. Adjustment options for transitional policy
   4. Distributed Data Collection for the HHS-operated Risk Adjustment and Reinsurance Programs
   a. Discrepancy resolution process
   b. Default risk adjustment charge
   D. Part 155--Exchange Establishment Standards and Other Related Standards under the Affordable Care Act
   1. Election to Operate an Exchange after 2014
   2. Ability of States to Permit Agents and Brokers to Assist Qualified Individuals, Qualified Employers, or Qualified Employees Enrolling in Qualified Health Plans
   3. Privacy and Security of Personally Identifiable Information
   4. Annual Open Enrollment Period for 2015
   5. Functions of a Small Business Health Options Program
   6. Eligibility Determination Process for SHOP
   7. Application Standards for SHOP
   E. Part 156--Health Insurance Issuer Standards under the Affordable Care Act, Including Standards Related to Exchanges
   1. Provisions Related to Cost Sharing
   a. Premium adjustment percentage
   b. Reduced maximum annual limitation on cost sharing
   c. Design of cost-sharing reduction plan variations
   d. Advance payments of cost-sharing reductions
   2. Provisions on User Fees for a Federally-facilitated Exchange
   a. FFE user fee for the 2015 benefit year
   b. Adjustment of FFE user fee
   3. Actuarial Value Calculation for Determining Level of Coverage
   4. National Annual Limit on Cost Sharing for Stand-alone Dental Plans in an Exchange
   5. Additional Standards Specific to SHOP
   6. Meaningful Difference Standard for Qualified Health Plans in the FFEs
   7. Quality Standards: Establishment of Patient Safety Standards for QHPs Issuers
   8. Financial Programs
   a. Netting of payments and charges
   b. Confirmation of HHS payment and collections reports
   c. Administrative appeals
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Analysis
   A. Statement of Need
   B. Overall Impact
   C. Impact Estimates of the Payment Notice Provisions
   D. Regulatory Flexibility Act
   E. Unfunded Mandates
   F. Federalism
   G. Congressional Review Act
VII. Regulations Text
Acronyms
   Affordable Care Act--The collective term for the Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152)
   AV--Actuarial Value
   CFR--Code of Federal Regulations
   CMS--Centers for
   EHB--Essential Health Benefits
   ERISA--Employee Retirement Income Security Act of 1974 (Pub. L. 93-406)
   FFE--Federally-facilitated Exchange
   FF-SHOP--Federally-facilitated Small Business Health Options Program
   FPL--Federal poverty level
   HCC--Hierarchical condition category
   HHS--
   HIPAA--Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191)
   IRS--Internal Revenue Service
   MLR--Medical Loss Ratio
   NAIC--
   OMB--Office of Management and Budget
   OPM--
   PHS Act--Public Health Service Act
   PII--Personally identifiable information
   PSO--
   PRA--Paperwork Reduction Act of 1985
   PSES--Patient safety evaluation system
   QHP--Qualified health plan
   SHOP--Small Business Health Options Program
   The Code Internal Revenue Code of 1986
I. Executive Summary
   Qualified individuals and qualified employers are now able to purchase private health insurance coverage that begins as early as
   FOOTNOTE 1 The word "Exchanges" refers to both State Exchanges, also called State-based Exchanges, and Federally-facilitated Exchanges (FFEs). In this proposed rule, we use the terms "State Exchange" or "FFE" when we are referring to a particular type of Exchange. When we refer to "FFEs," we are also referring to State Partnership Exchanges, which are a form of FFE. END FOOTNOTE
   HHS has previously outlined the major provisions and parameters related to the advance payments of the premium tax credit, cost-sharing reductions, and premium stabilization programs. This proposed rule proposes additional provisions related to the implementation of these programs. Specifically, we propose certain oversight provisions for the premium stabilization programs, as well as key payment parameters for the 2015 benefit year.
   The Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014 final rule (78 FR 15410) (2014 Payment Notice) finalized the risk adjustment methodology that HHS will use when it operates risk adjustment on behalf of a State. This proposed rule proposes minor updates to this risk adjustment methodology for 2014 to account for certain private market
   Using the methodology set forth in the 2014 Payment Notice for determining the uniform reinsurance contribution rate and uniform reinsurance payment parameters, we propose in this rule a 2015 uniform reinsurance contribution rate of
   We also propose several provisions related to cost sharing. First, we propose a methodology for estimating average per capita premium and for calculating the premium adjustment percentage for 2015 which is used to set the rate of increase for several parameters detailed in the Affordable Care Act, including the maximum annual limitation on cost sharing and the maximum annual limitation on deductibles for health plans in the small group market for 2015. We also propose to set the same reduced maximum annual limitations on cost sharing for the 2015 benefit year as we established for the 2014 benefit year for cost-sharing reduction plan variations. Additionally, we are proposing certain modifications to the methodology for calculating advance payments for cost-sharing reductions for the 2015 benefit year. We also propose standards for updating the actuarial value (AV) calculator.
   This proposed rule provides for a 2015 Federally-facilitated Exchange (FFE) user fee rate of 3.5 percent of premium. Additionally, we propose a user fee adjustment allowance for administrative costs in the 2015 benefit year to reimburse third party administrators that provide payment for contraceptive services for enrollees in certain self-insured group health plans that receive an accommodation from the obligation to cover these services in 2014.
   On
   FOOTNOTE 2 Letter to Insurance Commissioners,
   Issuers have set their 2014 premiums for individual and small group market plans by estimating the health risk of enrollees across all of their plans in the respective markets, in accordance with the single risk pool requirement at 45 CFR 156.80. These estimates assumed that individuals currently enrolled in the transitional plans described above would participate in the single risk pools applicable to all non-grandfathered individual and small group plans, respectively (or a merged risk pool, if required by the State). Individuals who elect to continue coverage in a transitional plan (forgoing premium tax credits and cost-sharing reductions that might be available through an Exchange plan, and the essential health benefits package offered by plans compliant with the 2014 market rules, and perhaps taking advantage of the underwritten premiums offered by the transitional plan) may have lower health risk, on average, than enrollees in individual and small group plans subject to the 2014 market rules.
   If lower health risk individuals remain in a separate risk pool, the transitional policy could increase an issuer's average expected claims cost for plans that comply with the 2014 market rules. Because issuers would have set premiums for QHPs in accordance with 45 CFR 156.80 based on a risk pool assumed to include the potentially lower health risk individuals that enroll in the transitional plans, an increase in expected claims costs could lead to unexpected losses.
   To help address the effects of this transitional policy on the risk pool, we are exploring modifications to a number of programs. We have outlined various options under consideration throughout this proposed rule, including adjustments to the reinsurance and risk corridors programs. We are seeking comment on these proposals, as well as soliciting suggestions for alternate proposals. As the impact of the transitional policy becomes clearer, we will determine what, if any, adjustments are appropriate.
   The success of the premium stabilization programs depends on a robust oversight program. This proposed rule expands on provisions of the Premium Stabilization Rule (77 FR 17220), the 2014 Payment Notice (78 FR 15410), and the first and second final Program Integrity Rules (78 FR 54070 and 78 FR 65046). In this proposed rule, we propose that HHS may audit State-operated reinsurance programs, contributing entities, and issuers of risk adjustment covered plans and reinsurance eligible-plans. We also clarify participation standards for the risk corridors program, and outline a proposed process for validating risk corridors data submissions and enforcing compliance with the provisions of the risk corridors program.
   We also propose several provisions regarding the HHS-operated risk adjustment data validation process. On
   FOOTNOTE 3 Available at: https://www.regtap.info/uploads/library/ACA_HHS_OperatedRADVWhitePaper_062213_5CR_062213.pdf END FOOTNOTE
II. Background
A. Legislative and Regulatory Overview
   The Patient Protection and Affordable Care Act (Pub. L. 111-148) was enacted on
   Section 1302 of the Affordable Care Act directs the Secretary of
   Section 1311(b)(1)(B) of the Affordable Care Act directs that the SHOP assist qualified small employers in facilitating the enrollment of their employees in QHPs offered in the small group market. Under section 1312(f)(2)(B) of the Affordable Care Act, beginning in 2017, States will have the option to allow issuers to offer QHPs in the large group market through the SHOP.
   Section 1311(c)(6)(B) of the Affordable Care Act states that the Secretary is to require an Exchange to provide for annual open enrollment periods for calendar years after the initial enrollment period.
   Section 1311(h)(1) of the Affordable Care Act specifies that a QHP may contract with health care providers and hospitals with more than 50 beds only if they meet certain patient safety standards, including use of a patient safety evaluation system, a comprehensive hospital discharge program, and implementation of health care quality improvement activities. Section 1311(h)(2) of the Affordable Care Act also provides the Secretary flexibility to establish reasonable exceptions to these patient safety requirements and section 1311(h)(3) of the Affordable Care Act allows the Secretary flexibility to issue regulations to modify the number of beds described in section 1311(h)(1)(A) of the Affordable Care Act.
   Section 1313 of the Affordable Care Act, combined with section 1321 of the Affordable Care Act, provides the Secretary with the authority to oversee the financial integrity of State Exchanges, their compliance with HHS standards, and the efficient and non-discriminatory administration of State Exchange activities. Section 1321(a) of the Affordable Care Act provides general authority for the Secretary to establish standards and regulations to implement the statutory requirements related to Exchanges, QHPs, and other components of Title I of the Affordable Care Act.
   When operating an FFE under section 1321(c)(1) of the Affordable Care Act, HHS has the authority under sections 1321(c)(1) and 1311(d)(5)(A) of the Affordable Care Act to collect and spend user fees. In addition, 31 U.S.C. 9701 permits a Federal agency to establish a charge for a service provided by the agency.
   Section 1341 of the Affordable Care Act requires the establishment of a transitional reinsurance program in each State to help pay the cost of treating high-cost enrollees in the individual market from 2014 through 2016. Section 1342 of the Affordable Care Act directs the Secretary to establish a temporary risk corridors program that provides for the sharing in gains or losses resulting from inaccurate rate setting from 2014 through 2016 between the Federal government and certain participating plans. Section 1343 of the Affordable Care Act establishes a permanent risk adjustment program that is intended to provide increased payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, and thereby reduce incentives for issuers to avoid higher-risk enrollees. Sections 1402 and 1412 of the Affordable Care Act establish a program for reducing cost sharing for individuals with lower household income and Indians.
   Section 1411(g) of the Affordable Care Act provides that any person who receives information specified in section 1411(b) provided by an applicant or information specified in section 1411(c), (d), or (e) from a Federal agency must use the information only for the purpose of and to the extent necessary to ensure the efficient operation of the Exchange, and may not disclose the information to any other person except as provided in that section. Section 6103(l)(21)(C) of the Code additionally provides that return information disclosed under section 6103(l)(21)(A) or (B) may be used only for the purpose of and to the extent necessary in establishing eligibility for participation in the Exchange, verifying the appropriate amount of any premium tax credit or cost-sharing reduction, or determining eligibility for participation in a health insurance affordability program as described in that section.
1. Premium Stabilization Programs
   In the
   As discussed above, we published a white paper on risk adjustment data validation on
2. Program Integrity
   In the
3. Exchanges, Essential Health Benefits, Actuarial Value
   A proposed rule relating to EHBs and AV was published in the
   We set forth standards related to Exchange user fees in the 2014 Payment Notice. We also established an adjustment to the FFE user fee in the Coverage of Certain Preventive Services Under the Affordable Care Act final rule, published in the
   A Request for Comment relating to Exchanges was published in the
4. Market Rules
   Provisions relating to the 2014 market reforms and rate review were published in Patient Protection and Affordable Care Act; Health Insurance Market Rules; Rate Review proposed rule in the
5. Medical Loss Ratio
   We published a request for comment on PHS Act section 2718 in the
   In addition to seeking advice from the public on risk adjustment data validation, HHS has consulted with stakeholders on policies related to the operation of Exchanges, including the SHOP and the premium stabilization programs. HHS has held a number of listening sessions with consumers, providers, employers, health plans, the actuarial community, and State representatives to gather public input. HHS consulted with stakeholders through regular meetings with the
C. Structure of Proposed Rule
   The regulations outlined in this proposed rule would be codified in 45 CFR parts 144, 147, 153, 155 and 156. The proposed regulations in parts 144 and 147 propose amendments relating to student health insurance coverage. The proposed regulations in part 147 also outline market-wide provisions regarding composite rating. The proposed regulations in part 153 outline the 2015 uniform contribution rate and uniform reinsurance payment parameters for the 2015 benefit year and oversight provisions related to the premium stabilization programs, such as provisions related to risk adjustment data validation, risk corridors data validation, and HHS's authority to audit entities participating in these programs. The proposed regulations in part 153 propose that excess reinsurance contributions collected for a benefit year be used for claims for that benefit year.
   The proposed regulations in part 155 propose to reduce the time that States that elect to establish and operate an Exchange after 2014 must have in effect an approved or conditionally approved Exchange Blueprint and readiness assessment from 12 months to 6.5 months prior to the Exchange's first effective date of coverage. The proposed regulations also include a change to the annual open enrollment period for the 2015 benefit year and certain proposals related to the SHOP Exchanges, which we discuss in greater detail below. We also propose in part 155 to amend
   The proposed regulations in part 156 set forth provisions related to cost sharing, including the premium adjustment percentage, the maximum annual limitation on cost sharing, the maximum annual limitation on deductibles for health plans in the small group market, the reductions in the maximum annual limitation for cost sharing plan variations, and the methodology to calculate advance payments of cost-sharing reductions for 2015. They also outline the 2015 FFE user fee rate and propose a user fee adjustment to reimburse third party administrators that pay for contraceptive services for enrollees in certain self-insured group health plans that receive an accommodation from the obligation to cover these services. They also include provisions related to parameters for making updates to the AV calculator in future plan years. The proposed 2015 AV Calculator and a proposed 2015 AV Calculator methodology, which would supersede the 2014 versions of these documents incorporated by reference in the EHB Rule, are being incorporated by reference in this proposed rule. In part 156 we also propose a meaningful difference standard for QHPs offered through an FFE and patient safety standards for issuers of QHPs. Finally, we propose an administrative appeals process applicable to the premium stabilization, cost-sharing reduction, advance payments of the premium tax credit, and FFE user fee programs.
   In parts 155 and 156, we also propose the following provisions related to the SHOP:
    * We propose to permit all SHOPs performing premium aggregation to establish one or more standard processes for premium calculation, payment, and collection.
    * We propose that in the FF-SHOPs, for plan years when premium aggregation is available, employers be required to make premium payments to the FF-SHOP according to a timeline and process established by HHS. We further propose that for plan years beginning on or after
    * We propose a standard premium pro-rating methodology for the FF-SHOPs, for plan years when premium aggregation is available, providing that groups will be charged for the portion of the month for which an enrollee is enrolled.
    * We propose to make explicit our interpretation of current regulations that no SHOPs would be permitted to collect information on a SHOP application unless that information is necessary to determine SHOP eligibility or effectuate enrollment through the SHOP.
    * We propose that no SHOPs would be permitted to perform individual market Exchange eligibility determinations or verifications.
    * We propose that a qualified employer that becomes a large employer but continues to purchase coverage through a SHOP would continue to be rated as a small employer.
    * We propose to limit the employer and employee eligibility adjustment periods to circumstances when the SHOP has an optional verification process, and collects information through that verification process that is inconsistent with the information provided by an employer or employee on a SHOP application.
    * We propose for plan years beginning on or after
    * We propose to limit the availability of composite premiums in the FF-SHOPs after employee choice and premium aggregation become available.
    * We propose methods for employers in the FF-SHOPs to offer stand-alone dental coverage after employee choice becomes available in those SHOPs.</p>
    * We propose for plan years beginning on or after
   We note that nothing in these proposed regulations would limit the authority of the
III. Provisions of the Proposed HHS Notice of Benefit and Payment Parameters for 2015
A. Part 144--Requirements Relating to Health Insurance Coverage
   In SEC 144.103, the term "policy year," as amended by the second final Program Integrity Rule, is defined as: (1) With respect to a grandfathered health plan offered in the individual health insurance market, the 12-month period that is designated as the policy year in the policy documents of the individual health insurance coverage. If there is no designation of a policy year in the policy document (or no such policy document is available), then the policy year is the deductible or limit year used under the coverage. If deductibles or other limits are not imposed on a yearly basis, the policy year is the calendar year; and (2) with respect to a non-grandfathered health plan offered in the individual health insurance market, or in a market in which the State has merged the individual and small group risk pools (merged market), for coverage issued or renewed beginning
   Under regulations at
1. Composite Rating
   Section 2701 of the PHS Act, as added by section 1201 of the Affordable Care Act, establishes permissible rating factors that may be used to vary the premium rate charged by a health insurance issuer for non-grandfathered health insurance coverage (including QHPs) in the individual and small group markets beginning in 2014. /4/ The factors are: family size, rating area, age, and tobacco use (within limits). Section 2701(a)(4) of the PHS Act provides that with respect to family coverage under a group health plan or health insurance coverage, any rating variation for age or tobacco use must be applied based on the proportion of the premium attributable to each family member covered under the plan or coverage.
   FOOTNOTE 4 Beginning in 2017, States will have the option to allow issuers to offer QHPs in the large group market through the SHOP. If a State elects this option, the rating rules in section 2701 and its implementing regulations will apply to all coverage offered in such State's large group market (except for self-insured group health plans) under to section 2701(a)(5) of the PHS Act. END FOOTNOTE
   In the Market Reform Rule, we applied the per-member rating requirement of PHS Act section 2701(a)(4) in both the individual and small group markets. Thus, at
   FOOTNOTE 5 States that do not permit rating for age or tobacco use may require health insurance issuers in the individual and small group markets to use uniform family tiers and corresponding multipliers established by the State.
   We recognized that in the small group market it is common industry billing practice to charge an employer a uniform premium for a given family composition by adding the per-member rates and dividing by the total number of employees covered under the employer's health insurance plan. We indicated that nothing prevents an issuer from converting per-member rates into average enrollee premium amounts (calculated composite premiums), provided that the total group premium is the same total amount derived in accordance with the process established by the regulations.
   Because calculated composite premiums are average rates for a particular group, changes in employee census would typically cause a change in the average rate. For example, a new average rate per enrollee would typically result from employees adding or dropping coverage during the course of the plan year, causing employer and employee contributions to change as well. We have been asked about such mid-year changes in group composition and how issuers should address the resulting changes in the calculated composite premium for the group.
   In this proposed rule, we propose to add a provision at
   FOOTNOTE 6 In cases where the composite premium does not incorporate the age or tobacco use rating factor, an issuer would be required to accept the group's composite premium, calculated based on applicable employee enrollment at the beginning of the plan year, multiplied by any applicable age or tobacco rating factor, as the applicable premium for any new individual who enrolls in the plan during the plan year. Under
   This proposed policy would generally apply to health insurance issuers offering non-grandfathered health insurance coverage in the small group market, through a SHOP or outside of a SHOP, for plan years beginning on or after
   We are considering establishing a uniform tiered-composite rating structure that would apply market wide unless a State requires and HHS approves an alternate tiered-composite rating methodology. Under the approach we are considering, a small group market issuer offering composite rating would calculate the composite premium for different tiers of enrollees covered under the employer's plan. For example, in a two-tier structure, one composite premium would be calculated for covered adults (employees and adult dependents) and another composite premium would be calculated for covered children. Alternatively, in a three-tier structure, there would be one composite premium for covered employees, a second composite premium for covered adult dependents, and a third composite premium for covered children. The premium for a given family composition would simply be determined by summing the applicable tiered-composite rates. We believe a tiered-composite approach would promote simplicity for issuers and employers, and ensure that premiums for family coverage appropriately reflect the lower rates for children.
   We seek comments on all aspects of this approach to composite rating. We also seek comments on whether to establish a default uniform tiered-composite rating structure, including the appropriate number and types of enrollee tiers (for example, an employee-only tier, an adult dependent tier, and a child dependent tier).
2. Student Health Insurance Coverage
   As discussed above, under
1. Provisions and Parameters for the Permanent Risk Adjustment Program
   The risk adjustment program is a permanent program created by section 1343 of the Affordable Care Act that transfers funds from lower risk, non-grandfathered plans to higher risk, non-grandfathered plans in the individual and small group markets, inside and outside the Exchanges. In subparts D and G of the Premium Stabilization Rule, we established standards for the administration of the risk adjustment program. A State that is approved or conditionally approved by the Secretary to operate an Exchange may establish a risk adjustment program, or have HHS do so on its behalf.
a. Risk Adjustment User Fees
   If a State is not approved to operate or chooses to forgo operating its own risk adjustment program, HHS will operate risk adjustment on the State's behalf. As described in the 2014 Payment Notice, HHS's operation of risk adjustment on behalf of States is funded through a risk adjustment user fee. Section 153.610(f)(2) provides that an issuer of a risk adjustment covered plan must remit a user fee to HHS for each month equal to the product of its monthly enrollment in the plan and the per-enrollee-per-month risk adjustment user fee specified in the annual HHS notice of benefit and payment parameters for the applicable benefit year.
   OMB Circular No. A-25R establishes Federal policy regarding user fees, and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. The risk adjustment program will provide special benefits as defined in section 6(a)(1)(b) of Circular No. A-25R to an issuer of a risk adjustment covered plan because it will mitigate the financial instability associated with risk selection as other market reforms go into effect. The risk adjustment program also will contribute to consumer confidence in the health insurance industry by helping to stabilize premiums across the individual and small group health insurance markets.
   In the 2014 Payment Notice, we estimated Federal administrative expenses of operating the risk adjustment program to be
   We estimate that the total cost for HHS to operate the risk adjustment program on behalf of States for 2015 will be approximately
b. HHS Risk Adjustment Methodology Considerations
   In the 2014 Payment Notice, we finalized the methodology that HHS will use when operating a risk adjustment program on behalf of a State in 2014. We propose to use the same methodology in 2015. In this proposed rule, we propose to clarify the treatment of premium assistance
(i) Incorporation of Premium Assistance Medicaid Alternative Plans in the HHS Risk Adjustment Methodology
   Section 1343(c) of the Affordable Care Act provides that risk adjustment applies to non-grandfathered health insurance coverage offered in the individual and small group markets. In some States, expansion of
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(ii) Adjustment to the Geographic Cost Factor
   As finalized in the 2014 Payment Notice, the geographic cost factor is an adjustment in the payment transfer formula to account for plan costs such as input prices that vary geographically and are likely to affect plan premiums. For the metal-level risk pool, it is calculated based on the observed average silver plan premium in a geographic area relative to the statewide average silver plan premium. It is separately calculated for catastrophic plans in a geographic area relative to the statewide catastrophic pool. However, several States have defined a large number of rating areas. Less populous rating areas raise concerns about the accuracy and stability of the calculation of the geographic cost factor because in less populous rating areas the geographic cost factor might be calculated based on a small number of plans. Inaccurate or unstable geographic cost factors could distort premiums and the stability of the risk adjustment model.
   We seek comment on how to best adjust the geographic cost factors or geographic rating areas in future years to address these potential premium distortions. We also seek comments on how this adjustment should be implemented for a separately risk adjusted pool of catastrophic plans. We do not intend to make this adjustment for 2014.
c. Small Group Determination for Risk Adjustment
   For a plan to be subject to risk adjustment, according to section 1343(c) of the Affordable Care Act and the definition of a "risk adjustment covered plan" in
   Section 1304(a)(3) of the Affordable Care Act, in defining "small group market," references the definition of a "small employer" in section 1304(b)(2) of the Affordable Care Act. That definition provides that an employer with an average of at least 1 but not more than 100 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year will be considered a "small employer." However, section 1304(b)(3) of the Affordable Care Act provides that, for plan years beginning before
   In the 2014 Payment Notice, we stated that we believe that the Affordable Care Act requires the use of a counting method that accounts for part-time employees, and that the full-time equivalent method described in section 4980H(c)(2)(E) of the Code is a reasonable method to apply. Thus, we believe that the risk adjustment program must also use a counting method that takes employees that are not full-time into account when determining whether a group health plan must participate in that program.
   However, we also recognize that, because risk adjustment is intended to stabilize premiums by mitigating the effects of the rating rules, it is important that the program be available to plans that are subject to the rating rules, to the extent permissible under the Affordable Care Act. We recognize that a number of States, which have primary enforcement jurisdiction over the market rules, may use counting methods that do not take non-full-time employees into account.
   Thus, we propose to clarify that in determining which group health plans participate as small group plans in the risk adjustment program, we would apply the applicable State counting method, unless the State counting method does not take into account employees that are not full-time. In that circumstance, we would apply the full-time equivalent method described in section 4980H(c)(2)(E) of the Code. /7/ We believe that this approach defers to State counting methods and aligns with State enforcement of rating rules, within the bounds of what is permissible under the Affordable Care Act. We seek comment on our interpretation of the permissible counting rules for purposes of risk adjustment, the approach described above, and on alternate counting methods that may be preferable. We also seek comment on whether we should codify these risk adjustment counting rules in regulation text.
   FOOTNOTE 7 We note that the
d. Risk Adjustment Data Validation
   The 2014 Payment Notice established a risk adjustment data validation program that HHS will use when operating risk adjustment on behalf of a State. In the 2014 Payment Notice, we specified a framework for this program that includes six stages: (1) Sample selection; (2) initial validation audit; (3) second validation audit; (4) error estimation; (5) appeals; and (6) payment adjustments.
   To develop the details of the program, we sought the input of issuers, consumer advocates, providers, and other stakeholders. We issued the "Affordable Care Act HHS-Operated Risk Adjustment Data Validation Process White Paper" on
   In this proposed rule, we propose provisions for the risk adjustment data validation process and methodology that reflect our analysis of the white paper comments and our discussions with stakeholders. We note that a State operating a risk adjustment program is not required to adopt these standards. These proposed rules are consistent with the white paper and lessons drawn from our experience with
(i) Sample Selection
   The first stage in the HHS-operated risk adjustment data validation process is the selection of a sample of an issuer's enrollees whose risk adjustment data will be validated. In the proposed 2014 Payment Notice, we stated that HHS would choose a sample size of enrollees such that the estimated risk score errors would be statistically sound and the enrollee-level risk score distributions would reflect enrollee characteristics for each issuer. We stated that in determining the appropriate sample size for data validation, we recognized the importance of striking a balance between ensuring statistical soundness of the sample and minimizing the operational burden on issuers, providers, and HHS. Additionally, we stated that we would ensure that the sample would cover critical subpopulations of enrollees for each risk adjustment covered plan, such as enrollees with and without hierarchical condition categories (HCCs). To develop a proposed sample size for the first year of the HHS risk adjustment data validation program, we propose to use the methodology outlined in the white paper. Our goal in determining the enrollee sample size for the initial 2 years of risk adjustment data validation is to propose a statistically valid sample large enough to inform us to the dynamics of the risk adjustment data validation process in operation and estimation of risk score accuracy. As we established in the 2014 Payment Notice, for HHS to observe and optimize the risk adjustment data validation process, no payment adjustments will be made based on the risk adjustment data validation process for the initial 2 years of HHS-operated risk adjustment.
   In general, we propose to select the initial validation audit sample for a given benefit year by dividing the relevant population into a number of "strata," representing different demographic and risk score bands. We are proposing that, for the initial 2 years of the risk adjustment data validation program, the initial validation audit sample will consist of 200 enrollees from each issuer. We stated in the 2014 Payment Notice that the overall sample will reflect a disproportionate selection of enrollees with HCCs. Here, we discuss in detail our proposed sampling methodology, including our proposal to group enrollees to account for age characteristics and health status. Some commenters on the white paper suggested that we also consider sampling based on plan types and other characteristics. We will consider other sampling strategies in the future, but believe that we do not yet have enough experience with the risk adjustment process to determine the most appropriate sampling groups at this time.
   Therefore, we are proposing a simple age and risk score stratification for at least the initial 2 years of the program. Following the division of the relevant population into strata, we propose to use the following formulas to calculate a proposed sample size for the initial validation audit each year. In general, the proposed formula for the overall sample size for an issuer (n) is:
See Illustration in Original Document.
Where:
H is the number of strata;
N h is the population size of the hth stratum;
Y is the average risk score of the population, adjusted based upon the estimated risk score error;
S h represents the standard deviation of risk score error for the hth stratum;
Prec represents the desired precision level (for example, 10 percent, meaning a 10 percent margin of error in the estimated risk score); and
z-value is the z-value associated with the desired confidence level (for example, 1.96 for a two-sided 95 percent confidence level).</p>
   As noted above, we propose a sample size of 200 enrollees from each issuer for the initial 2 years of the program. The formula above would be used after this initial 2-year period to calculate a more precise, issuer-specific sample size for each issuer.
   The proposed formula for calculating the sample size for each stratum is:
See Illustration in Original Document.
Where:
   N h is the population size of the hth stratum;
   n is the overall sample size; and
   S h represents the standard deviation of risk score error for the hth stratum.
   For the 2014 benefit year, the parameters listed above were developed using data from two principal sources:
   We also chose to use the MarketScan(R) expenditure database because of the comprehensiveness of the database, which was the primary source for calibration for the HHS risk adjustment models. The database contains enrollee-specific claims utilization, expenditures, and enrollment across inpatient, outpatient, and prescription drug services from a selection of large employers and health plans. The database includes de-identified data from approximately 100 payers, and contains more than 500 million claims from insured employees, spouses, and dependents.
   We used enrollee predicted expenditure results from our risk adjustment model calibration, which was based on the MarketScan(R) data, to stratify the population (by age group for enrollees with HCCs, and within a single group for enrollees with no HCCs), then calculated risk scores for the predicted expenditures to relate them to the average expenditures. To estimate a sample size for each issuer, an average issuer size was estimated based on the total expected insured population and the total expected number of issuers. The average issuer population containing enrollees with and without HCCs was assumed to be split 20 percent with HCCs and 80 percent without HCCs, consistent with the MarketScan(R) data.
   We propose to group each issuer's enrollee population into 10 strata based on age group, risk level, and presence of HCCs, as follows:
    * Strata 1-3 would include low, medium, and high risk adults with the presence of at least one HCC.
    * Strata 4-6 would include low, medium, and high risk children with the presence of at least one HCC.
    * Strata 7-9 would include low, medium, and high risk infants with the presence of at least one HCC.
    * Stratum 10 will include the No-HCC population, which will not be further stratified by age or risk level, because we assume this stratum has a uniformly low error rate.
   We calculated a predicted risk score for each individual in each stratum by dividing the predicted expenditures for that individual by the average predicted expenditures for the entire population. Using these individual predicted risk scores, we calculated the overall average risk score for all individuals in each risk-based stratum. This calculation was performed nine times for the HCC population--once for each of the three risk-based strata within each of the three age groups. We set the minimum risk score for enrollees without HCCs in the tenth stratum.
   This method of stratification is similar to that used in the
   We propose to use the lowest error rate across all HCC strata as the error rate for the stratum of enrollees without HCCs, and we propose to use the variance associated with that error rate to calculate the standard deviation of the error for the stratum of enrollees without HCCs. If error rates and variances are smaller than assumed for this stratum, the resulting sampling precision may increase.
   Because the
   The formulas identified above require data on error rates and standard deviations for the strata, and also a target confidence interval and sampling precision level (or margin of error). For the initial year, we propose to use a 10 percent relative sampling precision at a two-sided 95 percent confidence level. That is, we wish to obtain a sample size such that 1.96 /8/ multiplied by the standard error, divided by the estimated adjusted risk score, equals 10 percent or less. After actual data are collected from the initial year, we will test and evaluate the data for use in determining the sample size in future years.
   FOOTNOTE 8 Critical value for the two-sided 95 percent confidence level. END FOOTNOTE
   Once the proposed overall sample size is calculated, the enrollee count will be distributed among the population based on the second formula above for calculating the sample size of each stratum. Because strata with enrollees with HCCs have a higher standard deviation of risk score error, the overall sample will be disproportionately allocated to enrollees with HCCs (Strata 1-9), helping to ensure adequate coverage of the higher risk portion of the enrollee population.
   In the proposed rule for the 2014 Payment Notice, we suggested that an issuer's initial validation audit sample for risk adjustment data validation would consist of approximately 300 enrollees. After conducting the calculations described above, we believe that we can achieve acceptable sampling precision with a sample size of 200 enrollees for the initial years of HHS-operated risk adjustment data validation. Therefore, we are proposing a sample size of 200 enrollees in the initial 2 years of the program. As noted above, we may provide for different, or issuer-specific, sample sizes in future years.
   When data becomes available from the program's first year, we expect to examine our sampling assumptions using actual enrollee data. We anticipate that at least in the initial years of the risk adjustment data validation program, the stratification design will remain consistent with the design outlined above--nine HCC strata and one No-HCC stratum. However, the specific size and allocation of the sample to each stratum may be refined based on average issuer enrollee risk score distributions. For example, in future years, we are considering using larger sample sizes for larger issuers or issuers with higher variability in their enrollee risk scores, and smaller sample sizes for smaller issuers or issuers with lower variability in their enrollee risk scores. The sampling design may also consist of a minimum and maximum sample size per stratum for each average issuer (large, medium, small) to follow when selecting the sample.
   We seek comments on this approach, including our proposed sample size of 200 enrollees for the initial 2 years of HHS-operated risk adjustment data validation.
(ii) Initial Validation Audit
   The second stage of the HHS-operated risk adjustment data validation process is the initial validation audit. In
   FOOTNOTE 9 Whether any given organization is a HIPAA business associate is a fact-specific inquiry. We expect that most independent auditors operating on behalf of an issuer of a health plan would be performing activities that would render them a business associate of the covered plan, and would be required to enter into and maintain a business associate agreement with the health plan. END FOOTNOTE
(1) Initial Validation Auditor
   The 2014 Payment Notice established certain standards for the initial validation auditor. In
   In the white paper, we elaborated on options for ensuring that an initial validation auditor meets these criteria, including standardized auditor certification processes and promulgation of best practices. Many commenters sought additional information and guidance regarding initial validation auditor selection and requested that HHS define conflicts of interest between an issuer and the initial validation auditor. We propose certain guidance on these topics here.
   We are considering the following criteria for assessing conflicts of interest between the issuer and the initial validation auditor:
    * Neither the issuer nor any member of its management team (or any member of the immediate family of such a member) may have any material financial or ownership interest in the initial validation auditor, such that the financial success of the initial validation auditor could be seen as materially affecting the financial success of the issuer or management team member (or immediate family member) and the impartiality of the initial validation audit process could reasonably be called into question, or such that the issuer or management team member (or immediate family member) could be reasonably seen as having the ability to influence the decision-making of the initial validation auditor;
    * Neither the initial validation auditor nor any member of its management team or data validation audit team (or any member of the immediate family of such a member) may have any material financial or ownership interest in the issuer, such that the financial success of the issuer could be reasonably seen as materially affecting the financial success of the initial validation auditor or management team or audit team member (or immediate family member) and the impartiality of the initial validation audit process could reasonably be called into question, or such that the initial validation auditor or management or audit team member (or immediate family member) could be seen as having the ability to influence the decision-making of the issuer;
    * Owners, directors and officers of the issuer may not be owners, directors or officers of the initial validation auditor, and vice versa;
    * Members of the data validation audit team of the initial validation auditor may not be married to, in a domestic partnership with, or otherwise be in the same immediate family as an owner, director, officer, or employee of the issuer; and
    * The initial validation auditor may not have had a role in establishing any relevant internal controls of the issuer related to the risk adjustment data validation process when HHS is operating risk adjustment on behalf of a State, or serve in any capacity as an advisor to the issuer regarding the initial validation audit. In addition, we are considering standards under which issuers would verify that no key individuals involved in supervising or performing the initial validation audit have been excluded from working with either the
   We note that we intend to review the initial validation auditor's qualifications and relationship to the issuer to verify that the initial validation auditor is qualified to perform the audit, and that the issuer and initial validation auditor are free of actual or apparent conflicts of interest, including those stated above. We note that HHS could gather information through external reporting to support that review. Although we are confident that most issuers will exercise diligence in selecting an initial validation auditor that will be able to comply with HHS audit standards, we intend to monitor the performance of initial validation auditors to determine whether certification or additional safeguards are necessary.
   We propose to amend
   Once the audit sample is selected by HHS, we expect issuers would ensure that the initial validation audit is conducted in the following manner:
    * The issuer would provide the initial validation auditor with source enrollment and source medical record documentation to validate issuer-submitted risk adjustment data for each sampled enrollee;
    * The issuer and initial validation auditor would determine a timeline and information-transfer methodology that satisfies data security and privacy requirements, including the applicable provisions of HIPAA, and enables the initial validation auditor to meet HHS established timelines;
    * The initial validation auditor would analyze the enrollment and medical record data to validate the demographic information, plan or plan variation enrollment, and health status of each enrollee in the sample in accordance with the standards established by HHS; and
    * The initial validation auditor would provide HHS with the final results from the initial validation audit and all requested information for the second validation audit.
   We note that
(2) Standards for the Initial Validation Audit
   We propose to add a new paragraph (b)(5) to
(3) Validation of Enrollees' Risk Scores
   An enrollee's risk score is derived from demographic and health status factors, which requires the use of enrollee identifiable information. Thus, we propose to add paragraph (b)(6) to
   We also propose to add paragraph (b)(7) to
   FOOTNOTE 10 Issuers and State Exchanges use the ASC X12 Standards for Electronic Data Interchange Technical Report Type 3--Benefit Enrollment and Maintenance (834),
   The sample audit pool will consist of enrollees with and without risk adjustment-eligible diagnoses within eligible dates of service. For each enrollee in the sample with risk adjustment HCC scores, the initial validation auditor would validate diagnoses through a review of the relevant risk adjustment-eligible medical records. We consider medical record documentation generated with respect to dates of service that occurred during the benefit year at issue to be relevant for these purposes. For enrollees without risk adjustment HCCs for whom the issuer has submitted a risk adjustment-eligible claim or encounter, we would require the initial validation auditor to review all medical record documentation for those risk adjustment-eligible claims or encounters, as provided by the issuer, to determine if HCC diagnoses should be assigned for risk score calculation, provided that the documentation meets the requirements for the risk adjustment data validation audits. Documents used to validate all components of the risk score must reflect dates of service during the applicable benefit year. In the initial years of the data validation program, we plan to accept certain supplemental documentation, such as health assessments, to support the risk adjustment diagnosis. We expect to provide additional details on acceptable supplemental documentation in future guidance. /11/
   FOOTNOTE 11 See "HHS-Operated Data Collection Policy FAQ" for a discussion of chart review as an acceptable source of supplemental diagnosis codes. Additional detail will be provided in future guidance. https://www.regtap.info/uploads/library/HHS_OperatedDataCollectionPolicyFAQs_062613. END FOOTNOTE
   Therefore, in
   In SEC 153.630(b)(7)(iii), we propose that medical record review and abstraction be performed in accordance with industry standards for coding and reporting. Current industry standards are set forth in the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM), or the International Statistical Classification of Diseases and Related Health Problems, Tenth Revision, 4th Edition (ICD-10-CM) guidelines for coding and reporting.
(4) Confirmation of Risk Adjustment Errors
   We note that the data validation audit processes may identify various discrepancies, many of which will have no impact on an enrollee's risk score. For example, if a medical diagnosis underlying an enrollee's HCC was present on a claim but was not supported by medical record documentation, but the same HCC was supported by the medical record for a different diagnosis, we propose that no risk adjustment error be assessed for the enrollee's HCC. However, if none of the medical record documentation supports a particular HCC diagnosis for an enrollee, we propose that a risk adjustment error be assessed.
   We consider a risk adjustment error to occur when a discrepancy uncovered in the data validation audit process results in a change to the enrollee's risk score. A risk adjustment error may result from incorrect demographic data, an unsupported HCC diagnosis, or a new HCC diagnosis identified during the medical record review. An unsupported HCC diagnosis could be the result of missing medical record documentation, medical record documentation that does not reflect the diagnosis, or invalid medical record documentation (such as an unauthenticated record or a record that does not meet risk adjustment data collection standards for the applicable benefit year).
   We propose in
(5) Review Consistency and Reliability
   Validation audits typically include methods of evaluating review consistency and reliability. We believe such processes help to ensure the integrity of the data validation process and strengthen the validity of audit results. In
(iii) Second Validation Audit
   The initial validation audit will be followed by a second validation audit, which will be conducted by an auditor retained by HHS to verify the accuracy of the findings of the initial validation audit.
   We propose to select a subsample of the initial validation audit sample enrollees for review by the second validation auditor. The second validation auditor would perform the data validation audit of the enrollee subsample, adhering to the same audit standards applicable to the initial validation audit described above, but would only review enrollee information that was originally presented during the initial validation audit. In
   As discussed in the white paper, we are considering selecting the second validation audit subsample using a sampling methodology that will allow for pair-wise means testing to establish statistical difference between the initial and second validation audit results. If the pair-wise means test results suggest that the difference in enrollee results between the initial validation audit and second validation audit is not statistically significant, the initial validation audit error results would be used for error estimation and calculation of adjustments for plan average risk score. If the test results suggest a statistical difference, the second validation auditor would perform another validation audit on a larger subsample of the enrollees previously subject to the initial validation audit. The results from the second validation audit of the larger subsample would again be compared to the results of the initial validation audit using the pair-wise means test. Again, if no statistical difference is found between the initial validation audit and the second validation audit conducted on the larger subsample, HHS would apply the initial validation audit error results for error estimation using all enrollees selected for the initial validation audit sample. However, if a statistical difference is found based on the second validation audit on the larger subsample, HHS would apply the second validation audit error results to modify the risk scores of the issuer's enrollees, as discussed below. We are considering using a 95 percent confidence interval, but seek comment on the appropriate confidence interval to use with respect to these pair-wise means tests.
   As discussed in the white paper, we are considering a number of ways to expedite the second validation audit and the subsequent appeals processes. One possibility would be to begin the second validation audit on those enrollees for which the initial validation audit is complete, even if the entire initial validation audit has not been completed. For example, an issuer could allow its initial validation auditor to submit data validation documentation and results a number of months in advance of the HHS established deadline for submission of initial validation audit results. The second validation auditor would thus be able to begin its review earlier, permitting more time to provide feedback to the issuer on the results of that review and allowing for more opportunity for discussion prior to finalizing the second validation audit findings. Prior to finalizing the risk score adjustment based on the second validation audit findings, the second validation auditor may request discussions with the initial validation auditor to identify the source of the differences, or may review the initial validation auditor's processes. If the initial validation audits are substantiated, the second validation auditor may adjust its risk scores accordingly. This process would not allow for any additional documentation to be submitted on those enrollees for which the second validation audit began early. The appeals decision from the expedited, concurrent process would be final and binding, but would provide issuers the opportunity to begin the process earlier. If HHS establishes a concurrent second validation audit and appeals process, we would need to develop intermediate timelines for initial validation auditor submission of audit documentation and data to the second validation auditor. We seek comments on this approach for establishing a concurrent second validation audit and appeals process.
(iv) Error Estimation
   The fourth stage in the HHS risk adjustment data validation process is error estimation. Upon completion of the initial and second validation audits, HHS will derive an issuer-level risk score adjustment and confidence interval. This adjustment would be used to adjust the average risk score for each risk adjustment eligible plan offered by the issuer. HHS intends to provide each issuer with enrollee-level audit results and the error estimates.
   We are proposing a two-phase procedure to accept or correct the results of the initial validation audit based on the results of the second validation audit. In phase one, as described above, we conduct a pair-wise statistical test for consistency between the initial validation and second validation audit results (as described above for second validation audits). In phase two, if we determine that the results of the two audits are inconsistent, we would adjust the initial validation audit results based on the second validation audit results. For phase two, we describe two options for using second validation audit results to derive an estimate of an overall corrected risk score for each issuer.
Phase One: Consistency Test between Initial and Second Validation Audit
   In phase one, a pair-wise statistical test would be performed to determine if the initial validation audit sample results should be adjusted using the results of the second validation audit. To illustrate the underlying statistical test, consider the following notations:
   xi is the i th initial validation audit risk score observation in the second validation audit sample of n observations;
   yi is the i th second validation audit risk score observation in the second validation audit sample of n observations;
   di is the difference between yi and xi within the second validation audit sample;
   d is the mean of all di observations within the second validation audit sample; and
   Sx is standard deviation of all di observations within the second validation audit sample.
   Assume an issuer submits enrollment and claims data to its dedicated distributed data environment that are used to compute a set of "original" risk scores. As required by the risk adjustment data validation process, the issuer engages an independent validation auditor, who reviews N enrollee records, as sampled by HHS, and validates the original enrollee risk scores.
   From the N enrollees in the initial validation audit sample, HHS selects a smaller second validation audit subsample of n enrollees. For each second validation audit selected record, HHS calculates the difference, di = yi - xi. HHS then conducts a pair-wise means test to determine whether the mean difference, d , is statistically significant (that is, unlikely to be zero). Specifically, HHS would conduct a statistical test to determine if zero (0) is contained within the range,
See Illustration in Original Document.
If so, HHS would conclude that there is no statistically significant difference between risk scores determined by the initial and second validation audit processes, and would accept the results of the initial validation audit.
   However, if zero (0) is not contained within this range (that is, the difference between d and zero is statistically significant), HHS would expand the second validation audit subsample to select a larger subset of N, have the second validation auditor review the enrollee files, and again conduct a pair-wise means test using this larger subsample. If the statistical test shows no statistically significant difference, HHS would accept the results of the initial validation audit. If the statistical test shows a statistically significant difference between the initial and larger subsample second validation audit findings, HHS would conduct phase two to adjust the full initial validation audit sample based on the larger subsample second validation audit findings.
Phase Two: Adjustment to the Initial Validation Audit Sample
   In phase two, we propose that if the difference between the initial and second validation audits is found to be statistically significant, then HHS would utilize the risk score error rate calculated from the larger second validation audit subsample to adjust the full initial validation audit sample, which could in turn be used to adjust the average risk scores for each plan. This approach would adjust the entire initial validation audit sample using a one-for-one replacement for the enrollees reviewed by the second validation audit, and a uniform adjustment for the enrollees that were not. We also considered another option, as discussed in the white paper and below. Under this alternate approach, we would use the error rate from the larger second validation audit subsample directly in our determination of whether and by how much to adjust the risk scores of all enrollees in the issuer's risk adjustment covered plans. This approach would disregard all enrollees in the initial validation audit sample that were not reviewed as part of the larger second validation audit subsample.
   To illustrate these two options under the phase two adjustment process, consider the following notations:
   M is the total number of enrollees in the risk adjustment covered plan;
   N is the initial validation audit sample size;
   n is the size of the larger second validation audit subsample;
   y N is the mean of the initial validation audit-adjusted risk scores in the initial validation audit sample N;
   y n is the mean of the second validation audit-adjusted risk scores in the second validation audit sample n;
   x N is the mean of the original risk scores in the initial validation audit sample N;
   x n is the mean of the original risk scores in the second validation audit sample n;
   X M is the original risk score total across all M records;
   Y N is the projected correct risk score across all M records using the initial validation error rate; and
See Illustration in Original Document.
   y n is the projected correct risk score across all M records using the error rate from the larger second validation audit subsample.
See Illustration in Original Document.
   Under this proposed approach, we would undertake the following steps to adjust the risk scores in the initial validation audit samples:
   (1) Replace the initial validation audit-adjusted risk scores with the second validation audit-adjusted risk scores in the n records that were sampled from N (one-for-one risk score adjustment).
   (2) Apply a uniform adjustment factor,
See Illustration in Original Document.
to the initial validation audit-adjusted risk scores in the (N - n) records not reviewed by the second validation audit.
   Under the alternate approach, the second validation audit-adjusted risk scores in the n records in the larger second validation audit subsample would be used as the basis for adjustment of plan-level average risk scores.
   Considering the comments in response to the white paper, and in order to estimate error using a narrower confidence interval, we are proposing to use the larger second validation audit subsample to adjust the initial validation audit sample (by direct replacement for enrollees reviewed by the second validation audit, and by proportional adjustment for the other enrollees), whose adjusted error rate could be used as a basis to adjust plan average risk scores for all risk adjustment covered plans of the issuer. We seek comment on our proposed approach.
Adjusted Risk Score Projections
   Based on the proposals described above, the results of the initial or second validation audits could be used as the basis for projecting a corrected risk score for each issuer's population. The projections described above would be performed on a stratum-by-stratum level and weighted accordingly to achieve an estimate of the corrected risk score for each issuer. As described in the white paper, a stratified separate ratio estimator /12/ would be used to estimate the corrected average risk score for each issuer. To compute the stratified separate ratio estimator, HHS would first extrapolate the total correct risk score within each stratum, then sum the stratum-specific projected correct risk scores for all strata, with the total sum divided by the total enrollee count to arrive at the corrected average risk score. The projected risk score error could then be calculated as the difference between the recorded average risk score across the entire population and the point estimate.
   FOOTNOTE 12 For a discussion of stratified separate ratio estimators,
   The stratified separate ratio estimator of the total correct risk score is calculated using the following equation:
See Illustration in Original Document.
Where:
   YR is used to estimate the correct risk score;
   yh is the sample mean of the correct risk score in stratum h;
   xh is the sample mean of the original risk score in stratum h;
   X h is the total sum of the original risk score in stratum h; and
   H is the total number of strata.
   Y R would then be normalized by the enrollment count to derive a corrected average risk score for the issuer.
   To estimate the variance of the point estimate, HHS will first estimate the variance within each stratum and then sum the stratum-specific variances for all strata. The estimated variance of the stratified separate ratio estimate for the correct risk score is calculated as follows:
See Illustration in Original Document.
Where:
   n h is the number of enrollees sampled in stratum h;
   N h is the population frequency in stratum h;
   y ih is the corrected risk score for the i th sampled enrollee in stratum h;
   x ih is the original risk score for the i th sampled enrollee in stratum h; and
See Illustration in Original Document.
The square root of the estimated variance is the standard error (SE).
   We are proposing to use the issuer's corrected average risk score to compute an adjustment factor, based on the ratio between the corrected average risk score and the original average risk score that could be applied to adjust plan average risk for all risk adjustment eligible plans within the issuer. We are considering two options for applying the adjustment factor. Under the first option, we are considering directly applying an adjustment factor to all of the issuer's risk adjustment covered plans. Under the second option, we are considering applying this adjustment only if the corrected average risk score and the recorded average risk score are statistically different.
   Were we to implement the second option, a critical parameter of the statistical test would be the target confidence interval, which would determine the stringency of the test. For example, we could perform the statistical test at the 90, 95, or 99 percent confidence interval. We note that the
   The choice among these options poses a tradeoff between reducing issuers' incentives to aggressively report or code diagnoses, and increasing the variability of issuers' risk adjustment payments. Under the first option, an issuer that reports data that systematically overstates its risk score would, on average, assuming the corrected risk scores are unbiased estimates of the true risk scores, receive a downward adjustment to its reported risk score equal in magnitude to the degree of overstatement. As a result, this option could eliminate an issuer's incentive to overstate its risk score. On the other hand, due to sampling variation, the first option would routinely introduce significant variability in issuers' risk scores (both up and down), even if the issuer was making no attempt to manipulate its risk scores. While these adjustments would make such an issuer's risk adjustment payments less predictable in any given year, they would not introduce systematic bias in risk scores (assuming the corrected risk scores are unbiased estimates of the true risk scores).
   The second option, in contrast, would only adjust an issuer's risk scores when it is very likely that the reported risk scores deviated from the true values, so issuers' risk adjustment payments would be more predictable. However, particularly if the confidence level of the statistical test were set at a high threshold, this approach would often fail to make adjustments when an issuer does in fact overstate its risk score.
   Based on commenters' feedback on the white paper, we are proposing to use the second approach described above--we would adjust the plan average risk scores of an issuer based upon the ratio between the correct average risk score estimate and recorded average risk score only if the difference between the estimated and recorded average risk scores were determined to be statistically significant. We are proposing to use a 95 percent confidence interval to determine if the adjusted average risk score and the recorded average risk score are statistically different. Nevertheless, we welcome comments on both options discussed above and on the appropriate tradeoff between reducing issuers' incentive to aggressively report or code diagnoses and increasing the variability of issuers' risk adjustment payments. In addition, regarding the proposed approach in particular, we seek comments on the appropriate confidence interval to apply when determining whether an adjustment to an issuer's plan average risk score is necessary.
Error Estimation Example
   To illustrate the corrected average risk score and error estimation process described above, assume that a sample of 200 enrollees is selected for initial validation audit review for a particular issuer. From this sample, assume that a subsample of 20 enrollees is selected for second validation audit review. Assume the issuer's average recorded population risk score is 1.60 and the projected correct population risk score from the sample of 200 is 1.40, with a two-sided 95 percent confidence interval of 1.30 to 1.50.
   The first step in the error estimation process will determine if the initial validation audit results should be corrected based on the second validation audit review or accepted without adjustment. We would perform a pair-wise means test to compare the projected risk scores for the sample of 200 enrollees and the subsample of 20 enrollees.
   For this example, assume that the statistical test fails (that is, there is a statistically significant difference between the projected risk scores in the sample of 200 and the subsample of 20). /13/ We would then select an expanded subsample from the original sample of 200 enrollees. Assume that the larger sample is a sample of 100 enrollees. Following completion of the larger second validation audit, we would perform the pair-wise means test again. Assume the test fails again (that is, there is a statistically significant difference in the projected risk scores between the sample of 200 and the larger subsample of 100). We would conclude that the risk scores in the sample of 200 enrollees need to be adjusted.
   FOOTNOTE 13 If the test passes, then no adjustments would be made to the sample of 200 and the projected results from this sample would be used to adjust average plan liability risk scores. END FOOTNOTE
   In the second step of error estimation, HHS would adjust the risk scores in the sample of 200 using a one-for-one replacement for the risk scores of the enrollees reviewed by the second validation auditor, and a uniform adjustment for the other enrollees in the initial validation audit sample. The one-for-one replacement will replace the risk scores calculated based on initial validation audit findings, with the risk scores calculated based on the second validation audit findings for the larger subsample of 100. The remaining 100 enrollees that were not included in the second validation audit subsample would be adjusted based on the ratio of two projections: (1) the projected correct population risk score using the second validation audit findings in the subsample of 100 (assume this projected risk score is 1.50, with a two-sided 95 percent confidence interval of 1.30 to 1.70); divided by (2) the projected correct population risk score using the initial validation audit findings in the sample of 200 (equal to 1.40 based on the assumption noted above). The adjustment ratio is equal to 1.07 = 1.50/1.40. Therefore, the risk scores of the remaining 100 enrollees not included in the second validation audit subsample would be increased by 7 percent.
   The projected correct population risk score from the revised sample of 200 would therefore be 1.45, with a two-sided 95 percent confidence interval of 1.35 to 1.55.
(v) Appeals
   We anticipate that the risk adjustment data validation appeals process would occur annually, beginning in the spring of the year in which the error rate will be applied to adjust risk scores and affect risk adjustment payments and charges. Because we are not applying error rates to adjust payments and charges for the initial 2 years of the risk adjustment program, the first year for which payments and charges would apply would be 2016. Risk scores and initial payments and charges would be calculated in the spring of 2017 for that payment cycle. We anticipate the appeals process will begin in the spring of 2018, prior to the 2017 payment transfers. We will provide additional guidance on the appeals process and schedule in future rulemaking.
(vi) Payment Transfer Adjustments
   Risk adjustment payment transfer amounts will be based on adjusted plan average risk scores. The data validation audits would be used to develop a risk score error adjustment for each issuer, as described above. Each issuer's risk score adjustment would be applied to adjust the plan average risk score for each of the issuer's risk adjustment covered plans. This adjustment would be applied on a prospective basis beginning with the risk adjustment data for benefit year 2016 (that is, the adjustments would take effect in 2018, during payment transfers for 2017). Because an issuer's adjusted plan average risk score is normalized as part of the risk adjustment payment calculation, the effect of an issuer's risk score error adjustment will depend upon its magnitude and direction compared to the average risk score error adjustment and direction for the entire market.
   We are considering reporting the following summary findings to issuers for the initial 2 years of the program:
    * State- or market-wide error rates.
    * Issuer error rates.
    * Initial validation audit or error rates.
    * Projected financial impact of the proposed risk adjustments, as determined by the initial and second validation auditors.
    * The 2-year interval before risk adjustment data validation adjustments are applied to risk scores and affect payments and charges will provide initial validation auditors and issuers the opportunity to reform existing processes prior to the implementation of HHS payment transfer adjustments for the 2016 benefit year. We believe that the reports described above will help issuers and initial validation auditors better understand the likely effects of the risk adjustment data validation program in States where HHS operates risk adjustment. We seek comment on considerations for reporting error rates and any additional information that could improve transparency in the markets.
(vii) Oversight
   The second final Program Integrity Rule outlined selected oversight provisions related to the premium stabilization programs, such as maintenance of records, sanctions for failing to establish a dedicated distributed data environment, and the application of a default risk adjustment charge to issuers in the individual and small group market that fail to provide data necessary for risk adjustment. We are proposing to expand on these provisions to include oversight related to risk adjustment data validation when HHS operates risk adjustment on behalf of a State.
   Section 153.620 provides that an issuer that offers risk adjustment covered plans must comply with any data validation requests by the State or HHS on behalf of the State, and that an issuer that offers risk adjustment covered plans must also maintain documents and records, whether paper, electronic, or in other media, sufficient to enable the evaluation of the issuer's compliance with applicable risk adjustment standards, and must make that evidence available upon request to HHS,
   Based on our authority under section 1321(c)(2) of the Affordable Care Act, we are proposing in
   We also note that HHS will not perform the initial validation audit for an issuer that does not hire an initial validation auditor or otherwise does not submit initial validation audit results that comply with the regulations in subpart G and subpart H of part 153. For these issuers, we propose in
   Issuers may request technical assistance from HHS at any stage of the risk adjustment data validation process. HHS may also offer such assistance directly if we become aware of technical issues arising at any time during the risk adjustment data validation process. We plan to provide further assistance and clarification around the risk adjustment data validation process through a range of vehicles, including additional guidance, training materials, webinars, and user group calls. We welcome comment on these proposals.
(viii) Data Security
   We recognize that the risk adjustment data validation process outlined here will require the transmission of sensitive data and documents between the issuer and the initial and second validation auditors. HHS takes seriously the importance of safeguarding protected health information and personally identifiable information. As outlined in the white paper, we believe that it will be necessary to specify standards for safeguarding this information through proper information storage and transmission methods.
   We note that
(ix) Implementation Timeline
   For the 2014 benefit year, we expect to implement risk adjustment data validation activities in early 2015. Implementation activities would begin with issuers submitting the identity of their initial validation auditor to HHS in accordance with
   We expect that the risk adjustment data validation implementation activities would follow a similar schedule for each subsequent benefit year. The 2016 benefit year would be the first year when payments and charges are adjusted. Those adjustments would occur after the conclusion of risk adjustment data validation activities for the 2016 benefit year, in the summer of 2018.
e. HHS Audits of Issuers of Risk Adjustment Covered Plans
   In order to safeguard Federal funds, we propose in
   We also propose that if an audit results in a finding of material weakness or significant deficiency (as these terms are defined in GAAS issued by the
   FOOTNOTE 14 See Government Auditing Standards (2011 Revision), available at: http://www.gao.gov/yellowbook. For public companies, the
   To reduce the burden on issuers and HHS, to the extent practical, we intend to coordinate any audits of issuers of risk adjustment covered plans with related audits of Exchange financial programs and premium stabilization programs, such as reinsurance. We seek comment on this proposal, including the standards that should govern these audits.
2. Provisions and Parameters for the Transitional Reinsurance Program
   The Affordable Care Act directs that a transitional reinsurance program be established in each State to help stabilize premiums for coverage in the individual market from 2014 through 2016. In the 2014 Payment Notice, we expanded on the standards set forth in subparts C and E of the Premium Stabilization Rule and established the reinsurance payment parameters and uniform reinsurance contribution rate for the 2014 benefit year. In this proposed rule, we propose the reinsurance payment parameters and uniform reinsurance contribution rate for the 2015 benefit year and certain oversight provisions related to the operation of the reinsurance program.
a. Major Medical Coverage
   Section 1341(b)(3)(B)(i) of the Affordable Care Act states that "the contribution amount for each issuer [must] proportionally reflect each issuer's fully insured commercial book of business for all major medical products . . ." In the preamble to the 2014 Payment Notice (78 FR 15456), we included a general description of major medical coverage for reinsurance purposes based on the comprehensiveness of the coverage provided (for example, a range of medical, surgical, and preventive services) and the settings in which the coverage is provided (for example, inpatient and outpatient settings). Commenters requested that HHS codify a definition of major medical coverage for purposes of reinsurance contributions in regulation text.
   Codification in regulation text of a more specific definition of major medical coverage for reinsurance contributions purposes would provide additional clarification for some contributing entities. Therefore, we propose to add a definition of major medical coverage in
   We believe that because minimum value is calculated on a broad set of services--comparable to the essential health benefits applicable to individual and small group coverage--it is a reasonable measure of comprehensiveness of coverage. Minimum essential coverage under an employer-sponsored plan generally will provide minimum value if the plan's share of total allowed costs of benefits provided under the plan exceeds 60 percent of such costs (see section 36B(c)(2)(C)(II) of the Code). The minimum value standards established under
b. Self-insured Plans Without Third Party Administrators
   Section 1341(b)(1)(A) of the Affordable Care Act provides that "health insurance issuers and third party administrators on behalf of group health plans" must make reinsurance contributions. We recognize that some self-insured group health plans self-administer the benefits and services provided under the plan, and do not use the services of a third party administrator. We believe that section 1341(b)(1)(A) of the Affordable Care Act clearly applies to both issuers of insured plans as well as to self-insured plans that use third party administrators. However, our continued study of this issue leads us to believe that this provision may reasonably be interpreted in one of two ways--it may be interpreted to mean that self-insured, self-administered plans must make reinsurance contributions, or it may be interpreted to mean that such plans are excluded from the obligation to make reinsurance contributions. For the reasons discussed below, we propose to modify the definition of a "contributing entity" for the 2015 and 2016 benefit years to exclude self-insured group health plans that do not use a third party administrator in connection with claims processing or adjudication (including the management of appeals) or plan enrollment.
   Following consideration of the comments submitted with respect to the 2014 Payment Notice and the proposed Program Integrity Rule, we propose that for the 2015 and 2016 benefit years, the phrase "third party administrators on behalf of group health plans" not include self-insured, self-administered group health plans. An insured plan and a self-insured plan administered by a third party administrator are similar in that each arrangement involves an employer and an outside commercial entity--an issuer or a third party administrator (which is often an insurance company or an affiliate)--for the administration of the core health insurance functions of claims processing and plan enrollment. We note that under section 1341(b)(3)(B) of the Affordable Care Act and
   Therefore, we propose that for the 2015 and 2016 benefit years, a "contributing entity" would mean: (a) A health insurance issuer; or (b) a self-insured group health plan (including a group health plan that is partially self-insured and partially insured, where the health insurance coverage does not constitute major medical coverage) that uses a third party administrator in connection with claims processing or adjudication (including the management of appeals) or plan enrollment. The proposed modification for the 2015 and 2016 benefit years would exclude from the obligation to make reinsurance contributions those self-insured plans that do not use a third party administrator for their core administrative processing functions--adjudicating, adjusting, and settling claims (including the management of appeals), and processing and communicating enrollment information to plan participants and beneficiaries. This proposed amendment would recognize that some self-insured group health plans, which we believe would generally not be considered to be using the core services of a third party administrator, may use third parties for ancillary administrative support, and we would consider these plans to be self-administered for purposes of the reinsurance program.
   For purposes of the definition of "contributing entity," we propose to consider a third party administrator to be, with respect to a self-insured group health plan, an entity that is not under common ownership or control with the self-insured group health plan or its sponsor that provides administrative services to the self-insured group health plan in connection with claims processing or adjudication (including the management of appeals) or plan enrollment. We seek comment on this definition, and whether certain types of service providers, such as an attorney providing legal advice in connection with claims adjudication, or an issuer administering an insured component of a group health plan that is partially self-insured and partially insured should be considered a third party administrator for these purposes.
   In addition, we seek comment on whether the core administrative functions that we have described above--claims processing or adjudication (including the management of appeals) and plan enrollment--are the appropriate criteria for this revised definition, and what other administrative functions, such as medical management services, provider network development, or other support tasks, should be considered in determining whether a self-insured group health plan uses a third party administrator. We also seek comment on whether a self-insured plan must perform these core administrative functions for all healthcare benefits and services provided to enrollees under the plan in order not to be considered to be using a third party administrator, or whether certain benefits or services, such as pharmaceutical benefits or behavioral health benefits, or a de minimis or small percentage of all benefits and services may be performed by an unaffiliated service provider. If so, we seek comment on which benefits or services should be excluded from this criterion, or how such a de minimis amount or small percentage should be measured.
   While, upon further consideration of the issue, we believe the statutory language can reasonably be read to support the proposition that self-insured group health plans that do not use third party administrators for the functions described above should not be obligated to make reinsurance contributions, we also recognize, as a public policy matter, that it would be disruptive to plans and issuers to modify the definition of "contributing entity" for the 2014 benefit year at this late date. Health insurance issuers have already set premiums and developed operational processes based on the definition of "contributing entity" that was previously finalized in the 2014 Payment Notice. To prevent lower reinsurance payments, the contribution rate would have to be raised for other contributing entities, many of whom have already set their 2014 premiums based on the contribution rate finalized in
   Therefore, we do not propose to change the definition of a "contributing entity" for the 2014 benefit year. That definition will remain as provided for in the second final Program Integrity Rule--a health insurance issuer or a self-insured group health plan (including a group health plan that is partially self-insured and partially insured, where the health insurance coverage does not constitute major medical coverage), regardless of whether the group health plan uses a third party administrator. The modification to the definition of "contributing entity" described above would be effective only for the 2015 and 2016 benefit years.
   Finally, we note that our proposed change to the definition of a contributing entity may have implications for our plan aggregation rules at
c. Uniform Reinsurance Contribution Rate
(i) Uniform Reinsurance Contribution Rate for the 2015 Benefit Year
   Section 153.220(c) provides that HHS is to publish in the annual HHS notice of benefit and payment parameters the uniform reinsurance contribution rate for the upcoming benefit year. Section 1341(b)(3)(B)(iii) of the Affordable Care Act specifies that
   As discussed in the 2014 Payment Notice, each year, the uniform reinsurance contribution rate will be calculated by dividing the sum of the three amounts (the reinsurance payment pool, the U.S. Treasury contribution, and administrative costs) by the estimated number of enrollees in plans that must make reinsurance contributions:
See Illustration in Original Document.
As discussed in greater detail below, we are proposing to collect
(ii) Timing of Collection of Reinsurance Contributions
   As set forth in the 2014 Payment Notice, under
   We recognize that the reinsurance collections provided for in the Affordable Care Act--
   Under this proposal, the first of the two installments each year would include the reinsurance contribution amounts allocated to reinsurance payments and administrative expenses. We propose in
   The second installment would cover the portion of the reinsurance contribution amount allocated to the payments for the U.S. Treasury to be paid for a benefit year. We propose in
   For example, for the 2014 benefit year, of the
   We propose that for the 2015 benefit year, the proposed
   We plan to establish the uniform reinsurance contribution rate for the 2016 benefit year in the HHS notice of benefit and payment parameters for 2016.
   We seek comment on this proposal. We note that we are considering a variation of this proposal under which contributing entities would be provided the option of paying the entire reinsurance contribution amount with the first installment, at the beginning of the calendar year following the applicable benefit year. We also clarify that the two installment payments (or one, should a contributing entity be permitted and elect to make the entire payment with the first installment) would be reported with 2014 data for purposes of the risk corridors and MLR calculations due
(iii) Allocation of Uniform Reinsurance Contribution Rate
   Section 153.220(c) provides that HHS is to set in the annual HHS notice of benefit and payment parameters for the applicable benefit year the proportion of contributions collected under the uniform reinsurance contribution rate to be allocated to reinsurance payments, payments to the U.S. Treasury, and administrative expenses. In the 2014 Payment Notice, we stated that reinsurance contributions collected for 2014 will be allocated pro rata to the reinsurance pool, administrative expenses, and the U.S. Treasury, up to
Table HH-2 to Subpart HH of Part 98--U.S. Per Capita Waste Disposal Rates Year Waste per capita ton/cap/yr 1950 0.63 1951 0.63 1952 0.63 1953 0.63 1954 0.63 1955 0.63 1956 0.63 1957 0.63 1958 0.63 1959 0.63 1960 0.63 1961 0.64 1962 0.64 1963 0.65 1964 0.65 1965 0.66 1966 0.66 1967 0.67 1968 0.68 1969 0.68 1970 0.69 1971 0.69 1972 0.70 1973 0.71 1974 0.71 1975 0.72 1976 0.73 1977 0.73 1978 0.74 1979 0.75 1980 0.75 1981 0.76 1982 0.77 1983 0.77 1984 0.78 1985 0.79 1986 0.79 1987 0.80 1988 0.80 1989 0.83 1990 0.82 1991 0.76 1992 0.74 1993 0.76 1994 0.75 1995 0.70 1996 0.68 1997 0.69 1998 0.75 1999 0.75 2000 0.80 2001 0.91 2002 1.02 2003 1.02 2004 1.01 2005 0.98 2006 0.95 2007 0.95 2008 0.95 2009 and all later years 0.95
   As shown in Table 2, if the total amount of contributions collected is less than or equal to
   To provide that all reinsurance contributions collected for a benefit year are paid out for claims for that benefit year, we propose to amend
   For example, for 2014, if HHS collects
   We seek comment on this payment proposal, including on whether any excess collections should be allocated to increasing coinsurance rates above 100 percent, or whether such funds should be used instead to change other reinsurance parameters or used for future benefit years.
   Because our proposal above would provide that all reinsurance contributions collected for a benefit year are paid out for claims for that benefit year, we propose to delete and reserve
(iv) Administrative Expenses
   In the 2014 Payment Notice, we estimated that the Federal administrative expenses of operating the reinsurance program would be
   We estimate this amount to be approximately
   For the 2014 benefit year, we allocated the administrative expenses equally between contribution and payment-related activities. Because we anticipate that our additional activities in the 2015 benefit year, including our program integrity and audit activities, will also be divided approximately equally between contribution and payment-related activities, we again propose to allocate the total administrative expenses equally between these two functions. Therefore, as shown in Table 3, we expect to apportion the annual per capita amount of
Table HH-4 to Subpart HH of Part 98--Landfill Methane Oxidation Fractions Under these conditions: Use this landfill methane oxidation fraction: I. For all reporting years prior to the 2013 reporting year C1: For all landfills regardless of cover type or methane flux 0.10 II. For the 2013 reporting year and all subsequent years C2: For landfills that have a geomembrane (synthetic) cover with 0.0 less than 12 inches of cover soil for the majority of the landfill area containing waste C3: For landfills that do not meet the conditions in C2 above, and 0.10 for which you elect not to determine methane flux C4: For landfills that do not meet the conditions in C2 above and 0.10 that do not have a soil cover of at least 24 inches for a majority of the landfill area containing waste C5: For landfills that have a soil cover of at least 24 inches for 0.35 a majority of the landfill area containing waste and for which the methane flux rate is less than 10 grams per square meter per day (g/m *2 /d) C6: For landfills that have a soil cover of at least 24 inches for 0.25 a majority of the landfill area containing waste and for which the methane flux rate is 10 to 70 g/m *2 /d C7: For landfills that have a soil cover of at least 24 inches for 0.10 a majority of the landfill area containing waste and for which the methane flux rate is greater than 70 g/m *2 /d *a Methane flux rate (in grams per square meter per day; g/m *2 /d) is the mass flow rate of methane per unit area at the bottom of the surface soil prior to any oxidation and is calculated as follows:
   If HHS operates the reinsurance program on behalf of a State, HHS would retain the annual per capita fee to fund HHS's performance of all reinsurance functions, which would be
d. Uniform Reinsurance Payment Parameters
   Our goal in setting the reinsurance payment parameters is to achieve the greatest impact on rate setting, and therefore premiums, through reductions in plan risk, while complementing the current commercial reinsurance market. Section 1341(b)(2)(B) of the Affordable Care Act directs the Secretary, in establishing standards for the transitional reinsurance program, to include a formula for determining the amount of reinsurance payments to be made to issuers for high-risk individuals that provides for the equitable allocation of funds. In the Premium Stabilization Rule, we provided that reinsurance payments to eligible issuers will be made for a portion of an enrollee's claims costs paid by the issuer (the coinsurance rate, meant to reimburse a proportion of claims while giving issuers an incentive to contain costs) that exceeds an attachment point (when reinsurance would begin), subject to a reinsurance cap (when the reinsurance program stops paying claims for a high-cost individual). The coinsurance rate, attachment point, and reinsurance cap together constitute the uniform reinsurance payment parameters.
   Given the smaller pool of reinsurance contributions to be collected for the 2015 benefit year, we are proposing that the uniform reinsurance payment parameters for the 2015 benefit year be established at an attachment point of
   As discussed in the 2014 Payment Notice, to assist with the development of the uniform reinsurance payment parameters and the premium adjustment percentage index, HHS developed the Affordable Care Act Health Insurance Model (ACAHIM). The ACAHIM estimates market enrollment, incorporating the effects of State and Federal policy choices, and accounting for the behavior of individuals and employers. The outputs of the ACAHIM, especially the estimated enrollment and expenditure distributions, were used to analyze a number of policy choices relating to the uniform reinsurance contribution rate and uniform reinsurance payment parameters proposed in this rule.
   The ACAHIM generates a range of national and State-level outputs for 2015, including the level and composition of enrollment across markets given the eligible population in each State. The ACAHIM is described below in two sections: (1) the approach for estimating 2015 enrollment; and (2) the approach for estimating 2015 expenditures. The ACAHIM uses recent
   Specifically, the ACAHIM assigns each individual to a single health insurance market as his or her baseline (pre-Affordable Care Act) insurance status. In addition to assuming that individuals currently in
   Estimated expenditure distributions from the ACAHIM are used to set the uniform reinsurance payment parameters so that estimated contributions from all contributing entities equal estimated payments for all reinsurance-eligible plans. The ACAHIM uses the
e. Adjustment Options
   In the 2014 Payment Notice, we finalized the following uniform reinsurance payment parameters for the 2014 benefit year--a
f. Deducting Cost-Sharing Reduction Amounts From Reinsurance Payments
   Subpart H of 45 CFR part 153 governs the submission of reinsurance claims to an issuer's dedicated distributed data environment. Under
   As specified in
   FOOTNOTE 15 We note an increase in reinsurance claims spread evenly across the individual market may not necessarily result in higher reinsurance payments to all issuers in aggregate. However, increased requests for reinsurance payments may result in a higher pro rata reduction to be applied to all reinsurance payments because total reinsurance payments for a benefit year cannot exceed the reinsurance contributions collected for reinsurance payments (See 45 CFR 153.230(d)). END FOOTNOTE
   Under the Secretary's authority under section 1341(b)(2)(B) of the Affordable Care Act to establish a payment formula for the reinsurance program, we propose a method through which HHS intends to account for cost-sharing reduction payments when calculating reinsurance payments for QHP issuers for reinsurance-eligible plans offered in an individual market. We seek to avoid requiring QHP issuers to engage in a complicated re-adjudication of claims to determine cost-sharing reduction amounts multiple times throughout the year. We believe that the proposed methodology set forth below will accurately estimate those cost-sharing reduction payments while also alleviating the burden on both QHP issuers and HHS.
   We propose that for each enrollee enrolled in a QHP plan variation, we will subtract from the QHP issuer's total plan paid amounts for the enrollee in a reinsurance-eligible plan the difference between the annual limitation on cost sharing for the standard plan and the annual limitation on cost sharing for the plan variation. Because reinsurance payments are made for enrollees only when the issuer's total plan paid amounts exceeds the attachment point (for example,
   FOOTNOTE 16 We note that because the annual limitation on cost sharing applies only to in-network services, it is possible that an enrollee could incur additional cost-sharing reductions on out-of-network services. However, except in the case of zero cost sharing plan variations, an issuer is not required to reduce cost sharing out-of-network, and we believe that an issuer will rarely choose to do so because the AV calculator does not recognize any change in AV due to a reduction in out-of-network cost sharing. Although it is possible that an enrollee in a zero cost sharing plan variation could incur significant out-of-network cost-sharing reductions beyond the standard plan's annual limitation on cost sharing, we believe such a circumstance will be relatively rare because of the substantial out-of-pocket costs an enrollee would likely incur in the form of balance billing. END FOOTNOTE
   For policies with multiple enrollees, such as family policies, we propose to allocate the difference in annual limitation in cost sharing across all enrollees covered by the family policy in proportion to the enrollees' QHP issuer total plan paid amounts. We believe that such an approach is intuitive and will be easy to operationalize. We considered an alternative approach that would allocate the difference in annual limitation in cost sharing equally across all enrollees in a family policy, with any difference in annual limitations on cost sharing that exceeds the total plan paid amounts for a particular enrollee to be reallocated equally across the other enrollees. That approach would tend to result in a higher allocation of cost sharing on low-claims-cost individuals, which we believe is unrealistic.
   In contrast, we propose not to reduce the QHP issuer's plan paid amounts for purposes of calculating reinsurance payments for an Indian in a limited cost sharing plan variation. We note that such enrollees will have the same annual limitation on cost sharing as individuals enrolled in standard plans, and thus, an approach that calculates the difference in annual limitations on cost sharing would yield estimated cost-sharing reductions of zero. We believe that this result is reasonable for individuals with plan paid amounts greater than the attachment point because those individuals are likely to have incurred significant claims costs with providers for which cost sharing is not reduced--that is, providers other than the
   We also considered an alternative approach that would require issuers to re-adjudicate claims periodically throughout the year to calculate cost-sharing reductions provided to date for an Indian enrolled in a limited cost sharing plan, but believe that such an approach would be burdensome to QHP issuers and only slightly improve the accuracy of cost-sharing reduction estimates. Finally, we considered an approach under which QHP issuers would submit an estimate of the effective annual limitation on cost sharing for limited cost sharing plans. However, we believe that this will be difficult for a QHP issuer to estimate due to the lack of cost-sharing reduction data for the early years of the Exchanges.
g. Audits
(i) HHS Audits of State-Operated Reinsurance Programs
   To safeguard the use of Federal funds in the transitional reinsurance program, we propose in
   Under the proposed rule, HHS may conduct targeted audits of State-operated reinsurance programs based on the State summary report provided to HHS for each benefit year described in
   We propose in
   FOOTNOTE 17 See Government Auditing Standards (2011 Revision), available at: http://www.gao.gov/yellowbook. For public companies, the
(ii) HHS Audits of Contributing Entities
   We propose in
   We seek comment on this proposal, including the standards that should govern these audits.
(iii) HHS Audits of Issuers of Reinsurance-Eligible Plans
   We propose in
    * Within 30 calendar days of the issuance of the final audit report, provide a written corrective action plan to HHS for approval;
    * Implement that corrective action plan; and
    * Provide to HHS written documentation of the corrective actions once taken.
   If HHS determines as the result of an audit that the issuer of a reinsurance-eligible plan has received reinsurance payments to which it was not entitled, it may require the issuer to pay such amounts back to the Federal government.
   We anticipate conducting targeted audits of issuers of reinsurance-eligible plans based on, among other criteria and sources, the data provided to HHS through the dedicated distributed data environment and any previous history of noncompliance with these standards. We will provide further details on this audit program, including timelines, procedures, and substantive requirements, in future rulemaking and guidance. We anticipate that this audit will focus on claims records validating the requests for reinsurance payments submitted to the dedicated distributed data environments, as well as records indicating the plan was a reinsurance-eligible plan. To reduce the burden on issuers and HHS, to the extent practical, we intend to coordinate any audits of issuers of reinsurance-eligible plans with related audits of Exchange financial programs and premium stabilization programs, such as risk adjustment.
   We seek comment on this proposal, including the standards that should govern these audits.
h. Same Covered Life
   In the second final Program Integrity Rule (78 FR 65057), we stated that it is our intent not to require payment of reinsurance contributions more than once for the same covered life. We stated that we recognize that certain complex group health plan arrangements can lead to situations in which lives are covered by multiple arrangements, where it is unclear whether more than one health plan or issuer must make reinsurance contributions, and that we intended to provide clarity on the matter in future rulemaking.
   Therefore, we propose to make two changes to
   In addition, we propose to add paragraph (vi) to
   If it is not clear from the terms of the health plans which group health plan is supplemental, we propose, in keeping with
   We seek comment on these proposals, including which entity should be responsible for the reinsurance contributions, how that responsibility should be determined, and what arrangements should be required between the entities to assure efficient coordination of the responsibility for the reinsurance contributions, and what other situations we should address in which reinsurance contributions might be required to achieve the goal of preventing more than one contribution per covered life.
i. Reinsurance Contributions and Enrollees Residing in the Territories
   Section 1323(a)(1) of the Affordable Care Act provides that a U.S. territory may establish an Exchange, and any territory that elects to establish an Exchange will be "treated as a State" for purposes of the Exchange standards in sections 1311 through 1313 of the Affordable Care Act. In a letter dated
   In this proposed rule, we propose that a contributing entity is not required to make reinsurance contributions on behalf of enrollees who reside in a territory that does not operate a reinsurance program. We propose to add in
   We propose that a contributing entity may use any reasonable method to determine the primary residence of an enrollee, including using the last-known mailing address of the principal subscriber on the enrollee's policy. We seek comment on other methods that would be acceptable for determining the primary residence of an enrollee, including the principal work location of the principal subscriber on the enrollee's policy.
   We note that a contributing entity is required to allocate its covered lives by primary residence between the territories, on the one hand, and the 50 States and the
j. Form 5500 Counting Method
   In the 2014 Payment Notice (78 FR 15463), we established counting methods for calculating the annual enrollment for determining reinsurance contributions for self-insured group health plans, fully insured health plans, and plans that are partially insured and partially self-insured. One of the allowable methods for a self-insured group health plan is the Form 5500 counting method in
   FOOTNOTE 18 Plan year as defined in 45 CFR 155.20 as a consecutive 12 month period during which a health plan provides coverage for health benefits. A plan year may be a calendar year or otherwise. END FOOTNOTE
3. Provisions for the Temporary Risk Corridors Program
a. Definitions
   In the first final Program Integrity Rule, we provided that, in 45 CFR part 153, subpart F, regarding risk corridors, any reference to a "qualified health plan" or "QHP" includes plans that are the "same" as a QHP or "substantially the same" as a QHP. We noted that plans that are substantially the same as a QHP will continue to be considered substantially the same even if they differ in terms of benefits, premium, provider network or cost-sharing structure, provided that the differences are tied directly and exclusively to Federal or State requirements or prohibitions on the coverage of benefits that apply differently to plans depending on whether they are offered through an Exchange or outside of an Exchange.
   In the first final Program Integrity Rule, we recognized that OPM might issue additional standards for multi-State plan (MSP) issuers in the future (for example, standards related to provider networks) that could create situations analogous to the ones we discuss above. We are considering whether a plan that differs from a QHP (as defined at
b. Compliance With Risk Corridors Standards
   The risk corridors program requires the Federal government and participating plans to share in profits or losses resulting from inaccurate rate setting for benefit years 2014 through 2016. A robust oversight process is critical for this program because risk corridors payments are Federal funds. In this proposed rule, we outline our proposed process for validating risk corridors data submissions and enforcing compliance with the risk corridors requirements in subpart F of 45 CFR part 153. Because the MLR program and the risk corridors program will require similar data, we propose to closely align the data submission, data validation, audit provisions, and sanctions for the two programs. We note that the risk corridors oversight provisions will apply to all plans, including QHPs and plans that are substantially the same as QHPs (as defined in the first final Program Integrity Rule) that are subject to the risk corridors program, whether these plans are offered through the Exchange or outside of the Exchange.
   For the 2014 benefit year, we propose to collect risk corridors data through the same form used for MLR data collection, at the same time (
   To ensure the integrity of risk corridors data reporting, we propose in
   The second final Program Integrity Rule provides that a QHP issuer on an FFE that fails to comply with the risk corridors provisions may be subject to decertification or civil money penalties (CMPs), but does not extend this remedy to a QHP issuer on a State Exchange. State Exchange issuers that fail to submit risk corridors charges, and consequently owe HHS money, would be subject to the Federal debt collection processes; however, without risk corridors data, HHS will be unable to determine whether a debt is owed or the amount of a debt. Therefore, in
   FOOTNOTE 19 We note that the good faith provision at
c. Participation in the Risk Corridors Program
   Because the premium stabilization programs, including the risk corridors program, are intended to mitigate pricing uncertainty associated with the 2014 market reforms, particularly the rating rules at section 2701 of the PHS Act and
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   We believe that this approach is consistent with how QHPs have determined their pricing for the 2014 benefit year. We note that a QHP that must adhere to the premium rating rules as a condition of participation on the SHOP is a plan that is "subject to the rating rules" for the purposes of this policy.
   We are also proposing that the employee counting method applicable under State law would determine whether a plan is considered to be offered in the small group market for purposes of the risk corridors program even if the State definition does not take non-full-time employees into account, and thus could include some employers as small employers that would be large employers under the Federal definition. Given our broad authority to establish the risk corridors program, we believe that we have the discretion to include such employers in the program even if they do not meet the Federal definition of small employer that would apply for other purposes. We believe that the inclusion of such employers in the definition of small employers for purposes of the risk corridors program would maintain consistency between the risk corridors calculation and implementation of the single risk pool provision, which is generally enforced by the State. We further believe that clearly specifying the employee counting method that is specific to the risk corridors program would provide clarity for QHP issuers with plans that could either be excluded from or subject to the risk corridors program, depending on the employee counting method used. We note that permitting the use of a State employee counting method that is inconsistent with Federal law for purposes of the risk corridors program differs from the approach taken under the MLR program and the proposed counting method for the risk adjustment program that is described elsewhere in this proposed rule. Under these programs, non-full-time employees must be counted. We note that the State's employee counting method would also be used to determine whether a plan that is not a QHP is part of the non-grandfathered individual or small group market within a State, and would, therefore, be part of a QHP issuer's risk corridors data submission under
   We seek comment on our proposal that a QHP must be subject to the market reform rules in order to participate in the risk corridors program. We also seek comment on our proposal to use the State employee counting method to define plans in the small group market for purposes of determining which plans participate in the risk corridors program, even where that would include employers that would be large employers under the Federal definition, or whether we should instead use the counting method used for the MLR program and proposed for risk adjustment purposes. We also seek comments on whether we should explicitly codify the applicable counting rules for each program in regulations text.
d. Adjustment Options for Transitional Policy
   As discussed earlier, on
   FOOTNOTE 20 Letter to Insurance Commissioners,
   Therefore, for the 2014 benefit year, we are considering whether we should make an adjustment to the risk corridors formula that would help to further mitigate any unexpected losses for issuers of plans subject to risk corridors that are attributable to the effects of the transition policy. One potential option we are considering would be to implement an adjustment to the risk corridors formula set forth in subpart F of part 153 for each of the individual and small group markets by increasing the profit margin floor (from 3 percent of after-tax profits) and the allowable administrative costs ceiling (from 20 percent of after-tax profits) in an amount sufficient to offset the effects of the transitional policy upon the claims costs of a model plan (that is, a plan with an 80 percent allowable costs-to-premium ratio). This adjustment could serve to increase a QHP issuer's risk corridors ratio and its risk corridors payment amount to help offset the loss in premium revenue and profit that might occur under the transitional policy as a result of predicted increased claims costs that were not accounted for when setting 2014 premiums. We are considering applying this adjustment only to plans whose allowable costs (as defined at 45 CFR 153.500) are at least 80 percent of their after-tax premiums, because issuers under this threshold would generally be required to pay out rebates to consumers. We note that for plans whose ratio of allowable costs to after-tax premium are below 80 percent, the 3 percent risk corridors profit margin and 20 percent allowable administrative cost ceiling would continue to apply for these plans.
   The effect on the risk pool of plans compliant with the 2014 market rules may vary significantly from State to State, depending upon the extent to which each State elects not to enforce the 2014 market rules, as recommended under the transition policy, and upon the market dynamics of the health insurance market within the State. We believe that the State-wide effect on this risk pool will increase with the increase in the percentage enrollment in transitional plans in the State, and so we are considering having the State-specific percentage adjustment to the risk corridors formula also vary with the percentage enrollment in these transitional plans in the State.
   We are considering calculating the State-specific percentage adjustment by analyzing the effects of the transitional policy upon a plan with specified characteristics. For example, our actuaries believe the following are reasonable plan assumptions: allowable costs (including claims) equal to 80 percent of premiums, federal income taxes equal to 35 percent of pre-tax profits, other tax liability equal to 7.5 percent of premiums, and other administrative costs equal to 8 percent of premiums.
   We are considering calculating the State-specific percentage adjustment to the risk corridors profit margin floor and allowable administrative costs ceiling in a manner that would help to offset the effects of the transitional policy upon the model plan's claims costs.
   We propose to estimate the effect of the transitional policy upon the model plan's claims costs by assuming that allowable costs (including claims) among the transitional plans are 80 percent of the allowable costs that would have resulted from the broad risk pool, in the absence of the transitional policy. After consulting our actuaries, we believe that this assumption is a reasonable reflection of the effects of underwriting on the transitional plans. To estimate this State-specific effect of the transitional policy on average claims costs, we propose to require all issuers participating in the individual and small group markets in a State to submit to HHS a member-month enrollment count for transitional plans and non-transitional plans in the individual and small group markets. This submission would occur in 2015 prior to the risk corridors submission. HHS would analyze that data, and publish the State-specific adjustments that issuers would use in the risk corridors calculations for the 2014 benefit year.
   We have proposed a State-wide adjustment for reasons of administrative simplicity and due to the analytical difficulty in estimating this effect on an issuer-by-issuer basis. Although the adjustment that we are considering would affect each issuer differently, depending on its particular claims experience and administrative cost rate, we believe that, on average, the adjustment would suitably offset the losses that a standard issuer might experience as a result of the transitional policy. We also note that, because the risk corridors program applies only to certain plans defined to be qualified health plans at 45 CFR 153.500, the extent to which an issuer may receive the full effect of this adjustment would depend upon the portion of an issuer's individual and small group enrollees in plans subject to risk corridors.
   Another option we are considering would be to make a similar modification to the medical loss ratio formula. We would use our authority under section 2718(c) of the Public Health Service Act to "take into account . . . special circumstances of different types of plans" to ensure that the proposed adjustment to the risk corridor program does not distort the implementation of MLR requirements, so that the rebates that would be owed absent the transitional policy and this adjustment would not substantially change. We seek comment on the best way to make such a modification, and whether such a modification is required.
   We request comment on all aspects of these potential approaches to help mitigate any potential impact of the transitional policy. As we continue to analyze its potential impacts, we will determine whether such approaches and modifications are warranted. We seek comment on alternate ways of implementing adjustments to current risk corridors and reinsurance program policy that would help offset issuers for any unexpected losses that might be incurred as a result of the transitional policy. In particular, we seek comment on whether this risk corridors adjustment should depend upon State-wide market characteristics, as we have proposed, or whether it should be national, tailored to each issuer, or based upon different State-wide characteristics.
   We also seek comment on whether the characteristics of the standard plan we have outlined above are the appropriate characteristics to use for our modeling. We seek comment on the data that we should collect to measure the key characteristics for this adjustment, and who we should collect that data from. We seek comment on whether particular ceilings and floors should be placed upon the amount of the adjustment. We also seek comment on whether the adjustment should apply to QHP issuers with allowable costs that are below 80 percent of after-tax premiums.
4. Distributed Data Collection for the HHS-operated Risk Adjustment and Reinsurance Programs
a. Discrepancy Resolution Process
(i) Confirmation of HHS Dedicated Distributed Data Environment Reports
   Because the accuracy of the data on an issuer's dedicated distributed data environment is critical to the accuracy of the HHS-operated risk adjustment and reinsurance calculations, we are proposing an iterative discrepancy reporting process that would allow an issuer of a risk adjustment covered plan or a reinsurance-eligible plan to notify HHS in a timely fashion of data and calculation discrepancies related to the data the issuer uploaded to its dedicated distributed data environment. We anticipate that this process would allow HHS and issuers sufficient time to resolve discrepancies, prior to HHS notifying issuers of final risk adjustment payments and charges and reinsurance payments. This process would also enable HHS to identify and address issues that affect multiple issuers throughout the benefit year.
   Interim dedicated distributed data environment reports: Beginning in 2014, HHS anticipates sending interim dedicated distributed data environment reports to issuers of risk adjustment covered plans and reinsurance-eligible plans that have loaded data onto their dedicated distributed data environments. (We also intend to issue these interim reports to issuers of risk adjustment covered plans and reinsurance-eligible plans that do not load data, to verify this result.) We anticipate that issuers of risk adjustment covered plans would receive interim reports that include preliminary risk scores based on this data. We anticipate that issuers of reinsurance-eligible plans would receive interim reports that include an estimate of the issuer's aggregated total claims eligible for reinsurance payments based on this data. Therefore, we propose in
   We note that under
   We note that, as part of the process for making these files available to HHS on a dedicated distributed data environment, we anticipate providing an issuer a transactional process report that will identify data that has been attempted to be uploaded, but that has been rejected. To fulfill its obligation to make these files available to HHS, an issuer would be required to either correct or accept the rejection of this data for the submission process to be considered complete.
   Final dedicated distributed data environment report: We propose that HHS would provide issuers with a final dedicated distributed data environment report following the applicable benefit year, after the
   Notification of payments and charges: Last, as required under
(ii) Reporting of Payments and Charges Under Reconsideration
   Because risk adjustment payment and charge amounts and reinsurance payment amounts are factors in an issuer's risk corridors and MLR calculations, a delay in resolving final risk adjustment payments and charges and reinsurance payments could make it difficult for issuers to comply with reporting requirements under the risk corridors and MLR programs. Therefore, to clarify how issuers are to comply with these reporting requirements, we propose in
   If the amount of cost-sharing reductions a QHP issuer has provided is at issue because the issuer requested reconsideration of a cost-sharing reduction reconciliation payment or charge under the process proposed in
   Finally, we propose in
   We seek comment on these proposals.
b. Default Risk Adjustment Charge
   As described in the second final Program Integrity Rule, if an issuer does not establish a dedicated distributed data environment or submits inadequate risk adjustment data, HHS would not have the required risk adjustment data from the issuer to calculate risk scores or payment transfers for the issuer. As a result, HHS would not be able to properly calculate risk adjustment payments and charges for the entire applicable market for the State. Under
   As described in the second final Program Integrity Rule, the total risk adjustment default charge for a risk adjustment covered plan would equal a per member per month (PMPM) amount multiplied by the plan's enrollment.
<p>   T n = C n x E n
   Where:
   T n = total default risk adjustment charge for a plan n;
   C n = the PMPM amount for plan n; and
   E n = the total enrollment (total billable member months) for plan n.
   In the second final Program Integrity Rule, we provided that E n could be calculated using an enrollment count provided by the issuer, using enrollment data from the issuer's MLR and risk corridors filings for the applicable benefit year, or using other reliable data sources.
   We are considering several methods to calculate C n --the PMPM amount for a plan. As discussed in the proposed Program Integrity Rule, one method would be to set a PMPM amount that is equal to the highest PMPM transfer charge that HHS calculates based on risk adjustment data submitted by risk adjustment covered plans in the applicable risk pool in the applicable market in the State. Such a method could yield a PMPM amount that would reflect a PMPM charge that reflects the high end of the PMPM distribution in certain States. However, in a situation in which the risk adjustment covered plans that provide the necessary risk adjustment data have very similar risk scores, a PMPM amount calculated under this method may yield a relatively low risk adjustment charge, and fail to provide adequate incentive for prompt establishment of a compliant distributed data system.
   A second option would be to assess a PMPM amount based on the standard deviation of the PMPM charge among all risk adjustment covered plans in the applicable risk pool in the applicable market in the State. The PMPM amount used to calculate the default risk adjustment charge would be an amount equal to the mean PMPM amount plus two such standard deviations. Such an approach could also yield a PMPM amount that is high but reflects the PMPM distribution in certain situations, but, again, low in others. The amount might also be quite unpredictable ex ante.
   A third option would be to assess a charge equal to a fixed percentage of the State-wide weighted average premium, which would be calculated as the enrollment-weighted mean of all plan average premiums of risk adjustment covered plans in the applicable risk pool in the applicable market in the State. This option might be relatively straightforward to implement, but would yield a charge that is not linked to the distribution of PMPM amounts within the relevant risk pool in the market in the State.
   We note the many possible variations of these methods. For example, instead of the highest PMPM amount in the risk pool in the market in the State, the PMPM amount could be a fixed percentile along the distribution of PMPM charges for the risk pool in the market in the State--thus, we could use the 75th percentile or an amount equal to 10 percent above the 100th percentile, for example. Instead of the amount based on the mean PMPM amount and two standard deviations, a different number of standard deviations could be used. Also, instead of using a fixed percentage of the State-wide weighted average premium, a fixed percentage of the plan's premium, or a fixed percentage of the average premium of a subpopulation of risk adjustment covered plans in the State, such as those plans in the applicable risk pool, or those plans paying risk adjustment charges, could be used.
   Commenters to the proposed Program Integrity Rule also suggested an approach under which the PMPM amount would be the highest amount calculated under each of the three methods described above. Finally, to ensure that a total default charge is not excessive for a particular plan, we are considering setting an upper limit on the total default charge for a plan based on a percentage of the plan's own total premiums. We seek comment on these methods, or other appropriate methods for calculating a default risk adjustment charge.
1. Election to Operate an Exchange After 2014
   HHS has learned through the process of approving or conditionally approving the first generation of State Exchanges that it is challenging to make an accurate assessment of a State's progress and ability to complete an Exchange build 10 months prior to open enrollment and a year prior to the first date that coverage would become effective. We are therefore proposing to reduce the time that the State must have in effect an approved or conditionally approved Exchange Blueprint and readiness assessment from 12 months to 6.5 months prior to the Exchange's first effective date of coverage. We propose to amend
2. Ability of States to Permit Agents and Brokers to Assist Qualified Individuals, Qualified Employers, or Qualified Employees Enrolling in QHPs
   In SEC 155.220, we propose to add new paragraph (i) to provide that current paragraph (c)(3), which addresses enrollment through an Internet Web site of an agent or broker, and currently applies only to the individual market Exchanges, would apply to the SHOPs for plan years beginning on or after
3. Privacy and Security of Personally Identifiable Information
   Section 1411(g)(2)(A) of the Affordable Care Act provides that Exchanges may use information provided by an applicant ". . . only for the purposes of, and to the extent necessary in, ensuring the efficient operation of the Exchange . . ." Section 155.260(a)(1) provides the specific circumstances under which an Exchange may use or disclose PII the Exchange creates or collects for the purposes of determining eligibility for enrollment in a QHP; determining eligibility for other insurance affordability programs as defined at
   We anticipate that there may be uses or disclosures of eligibility and enrollment PII that present additional opportunities to ensure the efficient operation of the Exchange, consistent with the strict protections of section 1411(g)(2)(A) of the Affordable Care Act. Therefore, we propose in
   Further, in
   We further recognize the imperative to maintain safeguards for eligibility and enrollment PII when it is used or disclosed to support functions beyond those described in
   In light of the proposed amendments to
   Section 155.260(a)(3) provides that Exchanges must establish and implement privacy and security standards consistent with the eight principles in
   In SEC 155.260(b)(1), we propose that any individual or entity that gains access to PII submitted to an Exchange or collects, uses or discloses PII gathered directly from applicants, qualified individuals, or enrollees while that individual or entity is performing the functions agreed to with the Exchange, be considered a non-Exchange entity, such that a non-Exchange entity is defined based on access to PII and not based on a representative or exhaustive list of entities. As clarification, we believe that entities that would qualify as "non-Exchange entities" based on this proposed definition include, but are not limited to,
   At SEC 155.260(b)(2), we propose to maintain the existing requirement for Exchanges to enter into a contract or agreement with non-Exchange entities, while providing more details regarding the required elements of these contracts and agreements. We propose that the contract or agreement between an Exchange and a non-Exchange entity must include at least five elements. First, we believe it is important to define in this contract or agreement the functions that the non-Exchange entity will perform so that both parties agree to the circumstances and tasks during which the privacy and security standards will be applicable, and propose to include this requirement in
   Currently,
   Different non-Exchange entity functions can result in variation in both the amount and type of access to PII (as an example, a Certified Application Counselor's access to consumer PII is different than the access a consumer's agent or broker would have) and the technical characteristics of the non-Exchange entity's environment (as an example, some non-Exchange entities, such as
   As applied to non-Exchange entity privacy standards, the introduction of this flexibility is not anticipated to result in any weakening of Exchange privacy standards. Variation is not anticipated in the stringency of the particular privacy standard but in how it is implemented. As an example, a written policy and procedure document as required by
   Currently SEC 155.280 establishes the regulatory authority for oversight and monitoring of Exchanges and non-Exchange entities with regard to privacy and security standards. We anticipate additional proposed rulemaking on oversight, monitoring and enforcement during 2014. We invite comment on alternative ways to address the challenge of implementing effective enforcement while allowing the proposed flexibility.
   These proposed requirements in
   The first criterion is set out in
   The second criterion proposed in
   The third criterion proposed in
   Section 155.260(b)(3)(iii)(B) requires standards be relevant and applicable to the non-Exchange entity's duties and activities in relation to the Exchange. The introduction of the concept of `relevant and applicable' is intended to address the various responsibilities assumed by non-Exchange entities, and the associated technical infrastructures.
   Although the proposed approach affords greater flexibility to Exchanges, this flexibility carries with it an Exchange's responsibility to perform an assessment of the non-Exchange entity's duties, activities, and environment and the standards to which it will bind non-Exchange entities to ensure that the standards satisfy
   We seek comments on the proposed amendments to
4. Annual Open Enrollment Period for 2015
   In 45 CFR 155.410, as finalized in the Exchange Establishment Rule, we set forth provisions for initial and annual open enrollment periods. We now propose amending
   In paragraph (e), we propose adding a paragraph that would change the annual open enrollment period for the 2015 benefit year. We propose that for all Exchanges, annual open enrollment would begin on
   In paragraph (f), we propose adding a paragraph to address coverage effective dates for plan selections made during the annual open enrollment period for the 2015 benefit year. We propose that coverage must be effective
5. Functions of a SHOP
   For plan years beginning before
   We propose revising
   We also propose adding a new paragraph
   We considered several options for methods by which a qualified employer participating in an FF-SHOP could offer SADPs to its employees and their dependents: the employer could offer a single SADP, the employer could offer all SADPs at a given dental AV level (under 45 CFR 156.150(b)), the employer could offer all SADPs in an FF-SHOP, or the employer could offer a subset of SADPs available in an FF-SHOP. All of these options would allow an employer flexibility to provide its employees and their dependents with standalone dental coverage. The single SADP option would enable an employer to choose the plan offered, and may be more administratively appealing to an employer already used to offering a single plan in the current market. This option would have the benefit of administrative ease for an FF-SHOP and issuer, but it would limit the selection for employees more than other options.
   Allowing the option for qualified employers to offer all SADPs at a given dental AV level option would also enable an employer to make decisions about the type of plans offered to employees while retaining some administrative simplicity by only requiring a choice between the two dental AV levels (high and low) that were established for the 2014 benefit year. This option would also help advance the goal of increased choice and competition and is similar to employee choice of QHPs where an employer selects a metal tier and employees may select any QHP within that tier. However, the proposed changes to
   Allowing qualified employers to offer all SADPs available in an FF-SHOP would provide an employer with maximum flexibility to offer its employees and their dependents the ability to choose an SADP that best fits their needs. Additionally, it would allow an employer to make an offer of coverage without needing to compare and select among plans or tiers. This approach would most advance the goals of increased choice and competition within the small group market, but might create concerns among issuers about potential adverse selection arising from higher risk employees electing to enroll in certain SADPs.
   Finally, we considered an option that would allow an employer to make an offer to its employees and their dependents from a defined subset of SADPs in an FF-SHOP. In this option, an FF-SHOP would define a subset of SADPs from which an employer could choose. For example, an employer might be allowed to offer any two plans from the same issuer. This option would allow an employer additional flexibility in offering dental plans while maintaining some control over the particular plans offered to its employees and their dependents. Although less administratively simple, this option could provide some increased level of choice for employers and their employees.
   After considering the options described above, we are proposing that a qualified employer in an FF-SHOP could offer its employees (and, if desired, their dependents) either a single SADP or a choice of all SADPs available in an FF-SHOP after employee choice becomes available in the FF-SHOPs. We note that an employer could choose either option under this proposal regardless of whether it offers one QHP or all QHPs available in an FF-SHOP to its employees and their dependents under
   We also propose to re-designate
   We also propose provisions related to the processes FF-SHOPs would establish for premium calculation, payment, and collection under proposed new
   At proposed
   In the proposed 2014 Payment Notice, we proposed at
   FOOTNOTE 21 See 78 FR 15502.
   We note that under this proposal, a decision by an employer to define different contribution levels for full-time and non-full-time employees offered coverage through the SHOP may potentially have small business tax credit implications. However, the
   We also propose amending
6. Eligibility Determination Process for SHOP
   We propose to amend paragraph (c)(4) to replace a reference to sections 1411(b)(2) and (c) of the Affordable Care Act with a reference to Subpart D of 45 CFR part 155, and to add a reference to eligibility verifications as well as to eligibility determinations. The proposed changes would prohibit a SHOP from performing any individual market eligibility determinations or verifications as described in Subpart D, which, for example, includes making eligibility determinations for advance payments of the premium tax credit and cost sharing reductions in the individual market Exchange. HHS already interprets existing regulations at
   We propose amending paragraph (d) to address when SHOP eligibility adjustment periods would be triggered. Under current paragraph (d)(1), an eligibility adjustment period for an employer would be triggered whenever the employer submits information on the SHOP single employer application that is inconsistent with the eligibility standards described in
   A SHOP applicant who is determined ineligible could always resolve the reasons for that negative eligibility determination and re-file the application to obtain a favorable eligibility determination. As written, the current eligibility adjustment periods could delay this process in ways that might complicate the enrollment of all employees being offered coverage by an employer, because they could delay the SHOP's final eligibility determination for an employer or for individual employees, in order to give the SHOP time to resolve issues that may be relatively straightforward for employers or employees to address without the SHOP's intervention, in a newly filed application. However, if the SHOP has opted, under
   Our proposed amendments to the eligibility adjustment periods would eliminate the potential for unnecessary delay created under the current regulation, while providing SHOP applicants with an opportunity to address inconsistencies between a submitted application and trusted third-party data sources that a SHOP might utilize to verify eligibility under the optional verification process established in
7. Application Standards for SHOP
   HHS already interprets existing regulations at
1. Provisions Related to Cost Sharing
   In this section, we propose several provisions and parameters for the 2015 benefit year related to cost sharing.
a. Premium Adjustment Percentage
   Section 1302(c)(4) of the Affordable Care Act directs the Secretary to determine an annual premium adjustment percentage, which is used to set the rate of increase for four parameters detailed in the Affordable Care Act: The maximum annual limitation on cost sharing (defined at
   We propose to establish a methodology for estimating average per capita premium for purposes of calculating the premium adjustment percentage. In selecting this methodology, we considered the following four criteria:
   (1) Comprehensiveness--the premium adjustment percentage should be calculated based on the average per capita premium for health insurance coverage for the entire market, including the individual and group markets, and both fully insured and self-insured group health plans;
   (2) Availability--the data underlying the calculation should be available by the summer of the year prior to the calendar year so that the premium adjustment percentage can be published in the annual HHS notice of benefit and payment parameters in time for issuers to develop their plan designs;
   (3) Transparency--the methodology for estimating the average premium should be easily understandable and predictable; and
   (4) Accuracy--the methodology should have a record of accurately estimating average premiums.
   Based on these criteria, we propose that the premium adjustment percentage be calculated based on the projections of average per enrollee private health insurance premiums from the National Health Expenditure Accounts (NHEA), which is calculated by the
   To calculate the premium adjustment percentage for the 2015 calendar year, we propose to use the most recent NHEA projections of average per enrollee private health insurance spending for 2013 and 2014 (
   FOOTNOTE 22 See http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology2012.pdf and Table 17 in http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf for additional information. END FOOTNOTE
   Maximum Annual Limitation on Cost Sharing for Calendar Year 2015. Under
   FOOTNOTE 23 See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf. END FOOTNOTE
   Maximum Annual Limitation on Deductibles for Plans in the Small Group Market for Calendar Year 2015. Under
b. Reduced Maximum Annual Limitation on Cost Sharing
   Sections 1402(a) through (c) of the Affordable Care Act direct issuers to reduce cost sharing for EHBs for eligible individuals enrolled in a silver level QHP. In the 2014 Payment Notice, we set forth standards related to the provision of these cost-sharing reductions. Specifically, in 45 CFR part 156 subpart E, we specified that QHP issuers must provide cost-sharing reductions by developing plan variations, which are separate cost-sharing structures for each eligibility category that change how the cost sharing required under the QHP is to be shared between the enrollee and the Federal government. At
   Reduced Maximum Annual Limitation on Cost Sharing for Benefit Year 2015. Consistent with our analysis in the 2014 Payment Notice, we developed three model silver level QHPs and analyzed the impact on their AVs of the reductions described in the Affordable Care Act to the estimated maximum annual limitation on cost sharing for self-only coverage (
   We then entered these model plans into the proposed 2015 AV calculator developed by HHS and observed how the reductions in the maximum annual limitation on cost sharing specified in the Affordable Care Act affected the AVs of the plans. We found that the reduction in the maximum annual limitation on cost sharing specified in the Affordable Care Act for enrollees with a household income between 100 and 150 percent of the Federal poverty line (FPL) (2/3 reduction in the maximum annual limitation on cost sharing), and 150 and 200 percent of the FPL (2/3 reduction), would not cause the AV of any of the model QHPs to exceed the statutorily specified AV level (94 and 87 percent, respectively). In contrast, the reduction in the maximum annual limitation on cost sharing specified in the Affordable Care Act for enrollees with a household income between 200 and 250 percent of FPL (1/2 reduction), would cause the AVs of two of the model QHPs to exceed the specified AV level of 73 percent. As a result, we propose that the maximum annual limitation on cost sharing for enrollees in the 2015 benefit year with a household income between 200 and 250 percent of FPL be reduced by approximately 1/5, rather than 1/2. We further propose that the maximum annual limitation on cost sharing for enrollees with a household income between 100 and 200 percent of the FPL be reduced by 2/3, as specified in the statute, and as shown in Table 4. These proposed reductions in the maximum annual limitation on cost sharing align with the 2014 reductions and should adequately account for unique plan designs that may not be captured by our three model QHPs. Applying the same parameters as those specified for 2014 would reduce the administrative burden for issuers related to designing new plans, and provide greater continuity for enrollees. Furthermore, as noted in the preamble to the 2014 Payment Notice, selecting a reduction for the maximum annual limitation on cost sharing that is less than the reduction specified in the statute would not reduce the benefit afforded to enrollees in aggregate because QHP issuers are required to further reduce their annual limitation on cost sharing, or reduce other types of cost sharing, if the required reduction does not cause the AV of the QHP to meet the specified level. We welcome comment on this analysis and the proposed reductions in the maximum annual limitation on cost sharing for 2015. We note that for 2015, as described in
Table MM-1 to Subpart MM of Part 98--Default Factors for Petroleum Products and Natural Gas Liquids *1 *2 Products Column A: density Column B: carbon Column C: emission (metric tons/bbl) share factor (% of mass) (metric tons CO<2>/bbl) * * * * * * * Other Petroleum Products and Natural Gas Liquids * * * * * * * Ethane *3 0.0579 79.89 0.170 Ethylene *4 0.0492 85.63 0.154 Propane *3 0.0806 81.71 0.241 Propylene *3 0.0827 85.63 0.260 Butane *3 0.0928 82.66 0.281 Butylene *3 0.0972 85.63 0.305 Isobutane *3 0.0892 82.66 0.270 Isobutylene *3 0.0949 85.63 0.298 * * * * * * * *3 The density and emission factors for components of LPG determined at 60 degrees Fahrenheit and saturation pressure (LPGs other than ethylene). *4 The density and emission factor for ethylene determined at 41 degrees Fahrenheit and saturation pressure.
c. Design of Cost-sharing Reduction Plan Variations
   In the 2014 Payment Notice, we established standards in
   Following our implementation of Exchange operations for 2014, we have learned that a number of issuers designed QHPs with cost-sharing parameters that apply to both EHB and benefits that are not EHB. For example, one issuer sought to establish a common deductible across all benefits. For the zero cost sharing plan variation of this QHP, this would result in a substantial deductible being applied entirely to benefits that are not EHB. We are proposing to remove the standards in
   We believe these proposed modifications strike the appropriate balance between protecting consumers and providing QHP issuers with flexibility. Each cost-sharing reduction plan variation would continue to provide the most cost savings for which an enrollee is eligible; however, QHP issuers would be able to reduce out-of-pocket spending for benefits that are not EHB for enrollees in plan variations. We believe some issuers may want to provide such reductions so as to offer a simpler cost-sharing design that is consistent across EHB and benefits that are not EHBs. We note, however, that in accordance with section 1402(d)(4) of the Affordable Care Act, any reductions in out-of-pocket spending for benefits that are not EHB would not be reimbursed by the Federal government because payments for cost-sharing reductions only apply to EHB.
   We seek comment on this proposal, including on whether our proposal should offer less flexibility.
d. Advance Payments of Cost-sharing Reductions
   Section 1402(c)(3) of the Affordable Care Act directs a QHP issuer to notify the Secretary of cost-sharing reductions made under the statute, and directs the Secretary to make periodic and timely payments to the QHP issuer equal to the value of those reductions. Section 1412(c)(3) of the Affordable Care Act permits advance payments of cost-sharing reduction amounts to QHP issuers based upon amounts specified by the Secretary. Under these authorities, we established a payment approach in the 2014 Payment Notice under which monthly advance payments made to issuers to cover projected cost-sharing reduction amounts are reconciled after the end of the benefit year to the actual cost-sharing reduction amounts.
   To implement this approach, we specified in
   Based on our experience implementing this process for the 2014 benefit year, we propose certain modifications to SUBSEC 155.1030, 156.430, and 156.470. We believe these modifications will simplify the process and improve the accuracy of the calculations. Specifically, we are proposing to remove the requirement detailed in
   For the 2015 benefit year, we are proposing that the Exchanges use a methodology for calculating the advance payment amounts that will not require QHP issuers to submit an estimate of the value of cost-sharing reductions to be provided or the EHB portion of expected allowed claims costs, as previously required under
   Cost-Sharing Reduction Plan Variation Multiplier = Factor to Remove Administrative Costs * Factor to Convert to Allowed Claims Cost * Induced Utilization Factor * (Plan Variation AV--Standard Plan AV)
   Where,
   Factor to Remove Administrative Costs = 0.8 for all plan variations, because issuers in the individual market must have a medical loss ratio of at least 80 percent, under
   Factor to Convert to Allowed Claims Costs = the quotient of 1 and the AV for the standard plan, not accounting for de minimis variation;
   Induced Utilization Factor = one of the following factors, depending on the plan variation:
Table NN-1 to Subpart NN of Part 98--Default Factors for Calculation Methodology 1 of This Subpart Fuel Default higher heating value Default *1 CO&ihel2; emission factor (kg CO&ihel2;/MMBtu) Natural Gas 1.026 MMBtu/Mscf 53.06 Propane 3.84 MMBtu/bbl 62.87 Normal butane 4.34 MMBtu/bbl 64.77 Ethane 2.85 MMBtu/bbl 59.60 Isobutane 4.16 MMBtu/bbl 64.94 Pentanes plus 4.62 MMBtu/bbl 70.02 *1 Conditions for higher heating values presented in MMBtu/bbl are 60 [degrees] F and saturation pressure.
   Standard Plan AV = the AV specified for each level of coverage at
   Plan Variation AV = one of the following actuarial values, depending on the plan variation, not accounting for de minimis variation:
Table NN-2 to Subpart NN of Part 98--Default Values for Calculation Methodology 2 of This Subpart Fuel Unit Default CO&ihel2; emission value (MT CO&ihel2;/Unit) *1 Natural Gas Mscf 0.0544 Propane Barrel 0.241 Normal butane Barrel 0.281 Ethane Barrel 0.170 Isobutane Barrel 0.270 Pentanes plus Barrel 0.324 *1 Conditions for emission value presented in MT CO&ihel2;/bbl are 60 [degrees] F and saturation pressure.
   The proposed induced utilization factors are consistent with those factors established in the 2014 Payment Notice. For the limited cost sharing plan variations, we derived the induced utilization factors based on the actuarial values proposed above, and the same assumptions used to develop the induced utilization factors for the other plan variations. We will propose updates to the induced utilization factors for all plan variations in future rulemaking as more data becomes available, and at that time will consider applying them to the risk adjustment methodology that HHS will use when operating risk adjustment on behalf of a State. We welcome comment on these induced utilization factors.
   The proposed methodology also utilizes the actuarial values of the standard plans and plan variations, not accounting for de minimis variation. Although this may slightly reduce the accuracy of the calculations, we believe it would have little overall impact, and would reduce administrative burden on Exchanges because Exchanges will not need to develop specific multipliers for each QHP and associated plan variations. However, this approach would require us to estimate an actuarial value for each type of limited cost sharing plan variation. We estimate that on average, the AV of the limited cost sharing plan variations of bronze and silver QHPs will be 87 percent, and the AV of the limited cost sharing plan variations of gold and platinum QHPs will be 94 percent. We developed these estimates based on the data submitted by QHP issuers seeking advance payments for limited cost sharing plan variations that will be offered in benefit year 2014. We welcome comment on these actuarial values.
   Overall, we believe this proposed methodology would improve the accuracy of the advance payments because it is based on the total premium for each policy, which in accordance with the rating rules described in SUBSEC 147.102 and 156.80, is based on expected allowed claims costs, adjusted for the plan design and provider network, the number of individuals covered by the policy, rating area, age, and tobacco use. Although we acknowledge that there may be some limitations to the multiplier (for example, the multiplier does not make a plan-specific adjustment for the cost of non-EHB, or account precisely for costs for large families with children not accounted for in the premium), we believe that a very small number of QHPs would be affected by these limitations, and any inaccuracies in the advance payments would be corrected through the cost-sharing reduction reconciliation process. We welcome comment on this proposed methodology for the 2015 benefit year, and suggestions for alternative methodologies, including whether the methodology for the 2014 benefit year would be more appropriate.
   We are also proposing conforming modifications to SUBSEC 155.1030(b)(1) and 156.470(a), to delete the obligation for QHP issuers to submit, and Exchanges to review, the EHB allocation of the expected allowed claims costs for the plans, because this data would not be used in the proposed 2015 methodology for calculating cost-sharing reduction advance payments.
   Lastly, we are proposing to modify
2. Provisions on FFE User Fees
a. FFE User fee for the 2015 Benefit Year
   Section 1311(d)(5)(A) of the Affordable Care Act contemplates an Exchange charging assessments or user fees to participating health insurance issuers to generate funding to support its operations. If a State does not elect to operate an Exchange or does not have an approved Exchange, section 1321(c)(1) of the Affordable Care Act directs HHS to operate an Exchange within the State. In addition, 31 U.S.C. 9701 permits a Federal agency to establish a charge for a service provided by the agency. Accordingly, at
   OMB Circular No. A-25R establishes Federal policy regarding user fees, and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. As in benefit year 2014, issuers seeking to participate in an FFE in benefit year 2015 will receive two special benefits not available to the general public: (1) the certification of their plans as QHPs; and (2) the ability to sell health insurance coverage through an FFE to individuals determined eligible for enrollment in a QHP. These special benefits are provided to participating issuers through the following Federal activities in connection with the operation of FFEs:
    * Provision of consumer assistance tools.
    * Consumer outreach and education.
    * Management of a Navigator program.
    * Regulation of agents and brokers.
    * Eligibility determinations.
    * Administration of advance payments of the premium tax credit and cost-sharing reductions.
    * Enrollment processes.
    * Certification processes for QHPs (including ongoing compliance verification, recertification and decertification).
    * Administration of a SHOP Exchange.
   Activities performed by the Federal government that do not provide issuers participating in an FFE with a special benefit will not be covered by this user fee.
   OMB Circular No. A-25R further states that user charges should generally be set at a level so that they are sufficient to recover the full cost to the Federal government of providing the service when the government is acting in its capacity as sovereign (as is the case when HHS operates an FFE). Accordingly, we propose to set the 2015 user fee rate for all participating issuers at 3.5 percent. This rate is the same as the 2014 user fee rate. /24/ Because we expect enrollment to increase in 2015 as awareness of the Exchanges grows, and costs to decrease as operations become more efficient, we believe this user fee rate may allow HHS to recover the full cost to the Federal government of providing the special benefits to issuers participating in an FFE in 2015.
   FOOTNOTE 24 OMB granted HHS an exception to the policy in Circular No. A-25R, allowing HHS to set the user fee rate for 2014 at 3.5 percent, rather than a higher rate which would have allowed HHS to recover full costs. This rate was chosen because we wished to encourage issuers to offer plans on FFEs and to align with the administrative cost structure of State-based Exchanges. END FOOTNOTE
b. Adjustment of FFE User Fee
   Section 2713(a)(4) of the PHS Act, as added by the Affordable Care Act and incorporated into the Employee Retirement Income Security Act (ERISA) and the Code, requires that non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage provide benefits for certain women's preventive health services without cost sharing. /25/ The Preventive Services Rule (78 FR 39870,
   FOOTNOTE 25 The women's preventive health services referenced by PHS Act section 2713(a)(4) are provided for in comprehensive guidelines supported by the
   FOOTNOTE 26 Under the Preventive Services Rule, an eligible organization is an organization that: (1) Opposes providing coverage for some or all of the contraceptive services required to be covered under section 2713 of the PHS Act and the companion provisions of ERISA and the Code on account of religious objections; (2) is organized and operates as a nonprofit entity; (3) holds itself out as a religious organization; and (4) self-certifies that it satisfies the first three criteria. END FOOTNOTE
   Each organization seeking to be treated as an eligible organization under the Preventive Services Rule is required to self-certify that it meets the definition of an eligible organization. In the case of an eligible organization with a self-insured plan, the self-certification must be provided to the plan's third party administrator. A third party administrator that receives a copy of the self-certification must provide or arrange for separate payments for certain contraceptive services for participants and beneficiaries in the plan without cost sharing, premium, fee, or other charge to plan participants or beneficiaries, or to the eligible organization or its plan. The third party administrator can provide such payments on its own, or it can arrange for an issuer or other entity to provide such payments. In either case, the third party administrator can make arrangements with an issuer offering coverage through an FFE to obtain reimbursement for its costs (including an allowance for administrative costs and margin) through an adjustment to the FFE user fee paid by the issuer.
   At SEC 156.50(d), we established standards related to the administration of the user fee adjustment. Specifically, in
   For user fee adjustments sought in 2015 for the cost of payments for contraceptive services provided in 2014, we propose an allowance for administrative costs and margin that is equal to 15 percent of the total dollar amount of the payments for contraceptive services defined in
   FOOTNOTE 27 We note that the submission of the dollar amount of the payments for contraceptive services is subject to the oversight standards detailed at 45 CFR 156.50(d)(7), as well as the False Claims Act, 31 U.S.C. 3729-3733. END FOOTNOTE
3. AV Calculation for Determining Level of Coverage
   Section 2707(a) of the PHS Act and Section 1302 of the Affordable Care Act direct non-grandfathered health insurance coverage in the individual and small group markets, including QHPs, to ensure that plans meet a level of coverage specified in section 1302(d)(1) of the Affordable Care Act and codified at SEC 156.140(b). On
   The AV Calculator uses national claims data to reflect plans of various levels of generosity as the underlying standard population. This standard population is represented in the calculator as tables of aggregated data called continuance tables. The AV methodology document that was incorporated by reference in the EHB Rule provides an overview of the development of these continuance tables and the AV Calculator logic.
   As stated in the EHB Rule, HHS does not anticipate making annual changes to the AV Calculator logic or the underlying standard population reflected in the continuance tables. However, HHS recognizes that certain routine changes will on occasion need to be made to facilitate the AV Calculator's ongoing operation by ensuring that it can accommodate changes in the marketplace or product design over time and due to the changing cost of providing health care services. Here, we propose to provide for authority to update certain aspects of the AV Calculator on a regular basis, but no more frequently than annually, based on changes to applicable standards or the availability of new data that could make the AV Calculator more accurate. These types of changes include:
   (1) Updating the annual limit on cost sharing and related functions in the calculator: Section 1302(c) of the Affordable Care Act, codified at SEC 156.130, imposes an annual limit on cost sharing on non-grandfathered plans in the individual and small group markets. We note that, in accordance with section 1302(c)(4) of the Affordable Care Act and SEC 156.130(e), starting in 2015, HHS will publish the premium adjustment percentage in the annual HHS notice of benefit and payment parameters for purposes of calculating the required indexing of the annual limit on cost sharing. Because this limit is included in the AV Calculator and impacts the range of the AV Calculator, we propose to update the AV Calculator to include an estimated annual limit on cost sharing. In order to allow issuers the most time possible to develop plans, HHS may make available prior to the annual HHS notice of benefit and payment parameters the AV Calculator that would project an estimated annual limit on cost sharing for the given plan year. Issuers would still be required to adhere to the annual limit on cost sharing that is published in the applicable HHS notice of benefit and payment parameters. The intention in using an estimated annual limit on cost sharing in the AV Calculator is to ensure flexibility of the AV Calculator for issuers. Since we may make the AV Calculator available prior to the finalization of the annual limit on cost sharing for a given plan year, we are proposing to use an estimated annual limit on cost sharing in the AV Calculator, to ensure that the final AV Calculator does not contain an annual limit on cost sharing that is lower than the finalized one. Accordingly, in the proposed 2015 AV Calculator, we propose an estimated annual limit on cost sharing of
   (2) Updating the continuance tables to reflect more current enrollment data: Starting in 2016, HHS expects to have sets of actual enrollment data from 2014 and to receive the subsequent year's data on an annual basis thereafter. These data could be used to reweight the standard population in the continuance tables that run the AV Calculator to more accurately reflect true enrollment trends and as a result project claims spending. We anticipate that during the first several years of operation, the demographic mix of the enrolled population will likely change and may need to be reweighted in the AV Calculator annually. After a few years, the population may stabilize and begin matching the claims data to the point where reweighing the AV Calculator may not be necessary on an annual basis.
   We propose to analyze the most recently available data on the enrolled population every year, starting in 2016, and in cases where we determine that the enrolled population has materially changed, we propose to reweight the continuance tables in the AV Calculator to continue to accurately reflect enrollment data. We are proposing to consider a material change in gender or age in the enrolled population as more than a 5 percent change. We propose to determine this change based on a combined measurement of the effects of shifts in gender or age statistics. We solicit comment on this 5 percent standard and whether it should be a higher or lower percentage, as well as how this change should be determined. For the proposed 2015 AV Calculator, we did not have actual enrollment data to analyze and therefore, we are not proposing to reweight the calculator based on enrollment data at this time.
   (3) Updating the algorithms behind the AV Calculator to adapt to new industry practices and plan designs: As discussed in the EHB Rule, because the AV Calculator is intended to account for the vast majority of plan designs in the market, in order to ensure that the AV Calculator will be available to plans and issuers, it will likely need to be periodically adapted. To do this, we are proposing to make technical, non-substantive updates to the AV Calculator algorithms as industry practices change and as technology advances, including adding features to the AV Calculator. For example, for the proposed 2015 AV Calculator, we are able to make improvements to the algorithms to allow for additional functionality to apply the deductible first and then copayments. Adding this feature would allow the calculator to be applicable for more types of plans and would not substantively affect other plan designs using the AV calculator. Such an adaptation of the AV Calculator to allow more types of plan designs to use the calculator without adjustment and to accommodate new types of plan designs in the market would be the basis for making these non-substantive changes. The standard that we propose to apply in making such adaptations would be to have the minimum impact possible on the outcomes produced by the AV Calculator generally while still allowing it to be adaptable to the new types of plan designs and allowing more types of plan designs to use the AV Calculator. We propose to make such adaptations under the provisions of this proposed rule if the adaptations can be based on actuarially sound principles and these adaptions would only involve minor modifications to the AV Calculator that would result in only a limited or no impact on the majority of plan designs that use the AV Calculator. We invite public comment on suggestions for ways in which this standard could best be achieved.
   To identify new industry practices and technical advances, we propose to consult annually with the
   (4) Updating the continuance tables to reflect more current claims data: HHS is proposing to update the claims data underlying the continuance tables, including refreshing the national claims database data with new data, as well as trending the AV Calculator to account for changes in the unit prices, utilization and intensity of services used. A trending factor could be a historical trend factor making use of actual premiums that reflect utilization and unit price increases, a factor based on emerging trends changing the demographic, or be based on the premiums of the new product designs with unique features. Data on these changes in insurance could be used to develop a trending factor that could be applied to the claims data to make adjustments in the continuance tables of the AV Calculator. For future plan years, we propose to use two sources of data, one to reflect the individual market and one to reflect the small group market, to develop a single trend factor that could be applied to the AV Calculator. For the individual market, we propose to use the premium rate data and/or the standard population data compared from year to year, and for the small group market, we proposed to use similar premium rate data and/or the standard population data compared from year to year to develop a trending factor that we could apply to the claims data in the AV Calculator, adjusted for key changes, such as the reduction in transitional reinsurance that will occur from 2014 through 2016. In years when we are planning to update the claims data from the national claims database system in the AV Calculator, we are proposing to trend the AV Calculator based on the new claims data with the dataset currently being used in the calculator to ensure that the trend factor and claims data are reconciled.
   In considering the factors in adjusting the claims data and trending the calculator, we recognize the importance of market stability for both issuers and consumers from year-to-year. At the same time, we recognize the importance of the AV Calculator reflecting the current market. By pursuing the approach of not updating the claims data every year, we would be providing greater stability in an emerging market. For these reasons, we are proposing to update the baseline claims data no more than every 3 and no less than every 5 years. This proposal of no more than every 3 years reflects the duration of the transitional reinsurance program and the temporary risk corridors program.
   We are also proposing to consider trending the AV calculator every year and in cases, where the trend factor is cumulatively more than 5 percent different from the previous time the AV Calculator was updated, we would implement the trend factor. By considering whether to trend the AV Calculator every year, we would be helping to ensure that the AV Calculator more accurately reflects the current market and to avoid having any steep "cliff" changes in the AV Calculator every few years. Under the methodology proposed above, we are proposing to trend the AV Calculator on premium data and/or the standard population data in years when the underlying claims data are not being updated in the AV Calculator, and in years where the claims data are being updated, we are proposing to trend the calculator based on the updated claims data. We seek comments on this proposed approach, including our proposed approach to updating the claims data. We are proposing to provide details of our consideration of the trending factor each year in the AV Methodology. For 2015, we do not propose to trend the AV Calculator since the necessary 2 years of data were not available to make the adjustment per our proposed policy.
   (5) Updating the AV Calculator user interface: HHS is proposing to update the AV Calculator user interface as needed to improve the user's experience. An example of this type of change, which we included in the proposed 2015 AV Calculator, is adding the ability for the user to save AV calculations. The 2014 AV Calculator did not incorporate this function, but based on comments received, we recognized the importance for users to have this feature. In the future, we anticipate that there will be other ways in which we could continue to make improvements to the AV Calculator's user interface to assist users and we anticipate that we will continue to receive feedback from various stakeholders to inform future proposed improvements to the AV Calculator user experience. HHS may consider making changes when an improvement would be useful to a broad group of users of the AV Calculator, would not affect the function of the AV Calculator, and would be technically feasible. These changes would simplify the process for providing users with features that could help save time and improve processes.
   When making updates to the AV Calculator in accordance with this proposed rule, we propose to update the AV Calculator through guidance that will be posted on our CCIIO Web site. This guidance will include an updated AV Calculator Methodology to explain the changes that were made to the AV Calculator, along with the updated AV Calculator. We also expect that we would make any updates that will affect the AV Calculator in advance of the benefit year for which issuers are using the AV Calculator, with the intention of making the AV Calculator available no later than the end of the first quarter of the preceding the benefit year.
   We are soliciting comments on all of the above types of updates and the accompanying criteria that would be used to identify the need for and to implement these updates. Outside of the above types of updates, we are also soliciting comments on whether other types of updates should be considered routinely for the AV calculator. To clarify, we are proposing that, to comply with SEC 156.135(a), issuers would be required to use the AV Calculator published by HHS for a given benefit year or, in cases where a State has obtained HHS approval to use State specific data in the AV Calculator, issuers would be required to use that AV Calculator HHS has published for the given benefit year, adjusted to use the State's data (State AV Calculator). The purpose of requiring that the issuers use the AV Calculator of the given benefit year or the State AV Calculator is to ensure that the AV calculation is being more accurately calculated on the most recent data each year and that there is only one AV Calculator (or State AV Calculator) applicable for each benefit year. We are also soliciting comments on the proposed 2015 AV Calculator and AV Calculator methodology that would supersede the 2014 versions of these documents. In accordance with our proposed policy, we provide an explanation of the changes that were made in the proposed 2015 AV Calculator in the proposed 2015 AV Methodology. For the 2015 AV Calculator, HHS is only proposing to make minor changes to the design and inputs into the AV Calculator. While plans' AV calculations may be impacted by the updated AV Calculator, our testing has shown that this impact will be limited for the vast majority of plans and that only in certain cases will plans see a significant change in AV. We encourage stakeholders to test the proposed 2015 AV Calculator and submit technical comments on it during the comment period.
   In the preamble to the EHB Rule, we discussed the calculation of AV for health plans with family cost-sharing features. In addition we provided guidance in the "2014 Letter to Issuers on Federally-facilitated and State Partnership Exchanges" /28/ on accounting for family plans for 2014. Since the AV Calculator claims data are based on individual claims data that did not include family cost-sharing information, HHS is seeking the necessary empirical data to develop the code that can incorporate family plans into future versions of the AV Calculator. We are now seeking comment on how to account for these family plan designs and we are particularly interested in information regarding potential data source options.
   FOOTNOTE 28 "Letter to Issuers on Federally-facilitated and State Partnership Exchanges,"
4. National Annual Limit on Cost Sharing for Stand-Alone Dental Plans in an Exchange
   The EHB Rule established an annual limit on cost sharing for the pediatric dental essential health benefit offered by stand-alone dental plans (SADPs) in the Exchanges that is separate from the annual limit on cost sharing that applies to QHPs that offer comprehensive medical benefits. The EHB Rule established that Exchanges should set a "reasonable" annual limit on cost sharing for SADPs. The CMS Letter to Issuers on Federally-facilitated and State Partnership Exchanges, published on
   We propose a revised policy for the 2015 benefit year and beyond in response to significant public interest in establishing a policy that is consistent across Exchanges and that minimizes a consumer's total annual limit on cost sharing. HHS also seeks to minimize the differences between a consumer's total annual limit on cost sharing when purchasing essential health benefits through a QHP that includes coverage of the pediatric dental essential health benefits or through a combination of a QHP and an SADP. Thus, we are proposing in this rule an amendment to SEC 156.150 that would establish an annual limit on cost sharing for SADPs that would be applicable in all Exchanges. For the 2015 benefit year, the new proposed paragraph (a)(1) would impose an annual limit on cost sharing for the pediatric dental EHB when offered through an SADP of
   We understand that under the current rules, some State Exchanges have interpreted a reasonable annual limit on cost sharing to be higher than what is proposed in this proposed rule. For example, at least two State Exchanges have established an annual limit on cost sharing for SADPs of
   HHS considered several other alternatives to minimize a consumer's total annual limit on cost sharing when purchasing the pediatric dental EHB through a SADP, including: Requiring issuers of SADPs to consider the annual limit on cost sharing to be met once the consumer reaches the annual limit on cost sharing for the QHP; requiring issuers of QHPs without the pediatric dental EHB to reduce the annual limit on cost sharing by the amount of annual limit on cost sharing permitted for SADPs; and, requiring issuers of QHPs and SADPs to track out of pocket costs for a shared consumer and jointly consider a consumer's out of pocket commitments to be met once a total number has been reached. We note that HHS is generally concerned with the administrative costs of implementing a policy that requires coordination of claims to a single annual limit on cost sharing. We seek comments on these alternatives.
5. Additional Standards Specific to SHOP
   We propose to add new paragraph (a)(4)(i) to SEC 156.285 to provide that a qualified employer in the SHOP that becomes a large employer would continue to be rated as a small employer. Under section 1304(b)(4)(D) of the Affordable Care Act, a small employer that ceases to be a small employer by reason of an increase in the number of employees continues to be treated as a small employer for purposes of Subtitle D of Title I of the statute. Included within Subtitle D are the provisions governing the SHOP and the premium stabilization rules. However, the fair health insurance premium provisions at section 2701 are not contained in Title D. To assure consistency of pricing within the SHOP, /29/ we propose to require a QHP offered through the SHOP to comply with the rating rules described in SEC 147.102. We note that nothing in this proposal prevents such an employer from choosing to buy a guaranteed issue new policy (without small group rating rules) in the large group market outside of the SHOP.
   FOOTNOTE 29 In the 2014 Payment Notice (78 FR 15418), we provided that risk adjustment would not apply to a plan unless it was subject to certain market reform rules, including the rating rules. Elsewhere in this proposed rule, at SEC 153.510(f), we propose a similar approach with respect to risk corridors. Our proposed approach here for the SHOP would provide that a SHOP QHP that grows into a large group plan would continue to receive the protections of the risk adjustment and risk corridors programs. END FOOTNOTE
   We believe that, when employee choice becomes available in FF-SHOPs for plan years beginning on or after
   If the proposed amendments to SEC 155.705(b)(4) summarized above are finalized as proposed, all SHOPs would be permitted to establish standard methods for premium payment under SEC 155.705(b)(4), as part of carrying out the premium aggregation function, and HHS would establish through guidance a process and timeline for employers to follow when remitting premium payments to the FF-SHOPs once premium aggregation becomes available in the FF-SHOPs. We anticipate that after premium aggregation becomes available in the FF-SHOPs, an FF-SHOP would transmit premium payments--both initial and subsequent--to issuers on a regular schedule and anticipate that this would be no more frequently than once a week. We recognize that under this approach, an issuer might not receive an employer's initial premium payment from the FF-SHOP prior to the coverage effective date even though the employer has remitted payment to the FF-SHOP consistent with the HHS-established timeline. We understand that issuers may be concerned about effectuating coverage prior to receiving payment from a FF-SHOP. To address this concern, if the FF-SHOP has not received the initial premium payment in accordance with the payment timeline and process established in accordance with proposed SEC 155.705(b)(4)(ii)(A), the FF-SHOP will send an enrollment cancellation transaction to the issuer to ensure that coverage is not effectuated. Accordingly, we propose that if the issuer does not receive an enrollment cancellation transaction, it should effectuate coverage. We considered whether an FF-SHOP could, alternatively, send an issuer a notice confirming that it should effectuate coverage when the FF-SHOP received an employer's initial premium payment but the issuer would not receive that payment prior to the coverage effective date. However, it would be simpler administratively and operationally for issuers to assume they should effectuate coverage and proceed to effectuate coverage unless an FF-SHOP cancels the enrollment. Therefore, we propose adding SEC 156.285(c)(7)(iii) to establish that a QHP issuer offering a QHP through an FF-SHOP would be required to enroll a qualified employee unless it receives a cancellation notice from the FF-SHOP. We note that this operational scenario would arise only in the case of an employer's initial premium payment. For regular monthly payments from a participating SHOP employer, the requirements of the payment timeline and process established in accordance with proposed SEC 155.705(b)(4)(ii)(A) and the termination provisions of SEC 155.735 would apply. We seek through this proposal to balance issuers' concerns about receiving payment with the need for timely FF-SHOP enrollment and operational efficiency. We welcome comment on the proposed approach, as well as on the alternative approach discussed above which we considered but rejected, and encourage commenters to suggest additional alternatives.
6. Meaningful Difference Standard for QHPs in the FFEs
   Section 1311(e)(1)(B) of the Affordable Care Act, codified at SEC 155.1000(c)(2), sets forth the standard that the Exchange may certify a health plan as a QHP if it determines that making the plan available through the Exchange is in the interests of qualified individuals and qualified employers in the State or States in which such Exchange operates. Therefore, as a means of ensuring that all QHPs offered through an FFE are in the interest of qualified individuals and qualified employers, we propose that, to be certified as a QHP in an FFE, a plan must be considered "meaningfully different" from all other plans offered by the same issuer through the same Exchange, and we propose a standard for what is meant by the term "meaningfully different."
   Based on feedback from stakeholders and HHS' experience from administering the Medicare program, HHS believes that it is in the interests of consumers to have an Exchange with meaningfully different plan choices, as meaningful difference has important benefits to consumers, such as ensuring the ability to readily differentiate and compare plan choices, leading to informed decisions. /30/ A single issuer offering a number of plans that lack meaningful difference could take virtual "shelf space" from other competitors and stifle competition. Therefore, conducting a review for meaningful difference will ensure that consumers are able to make informed selections among an ample--but manageable--number of QHPs, while allowing for plan innovation. The approach outlined below for a meaningful difference requirement would allow time for HHS to see how the market develops, assess the consumer need for a more specific meaningful difference standard, and consider options to meet this potential need. HHS does not intend to set numerical limits on the number of QHPs that may be offered; rather, the proposed approach would serve to avoid having an issuer offering multiple QHPs that appear the same through an Exchange.
   FOOTNOTE 30 Research suggests that consumers may prefer more limited arrays of choices. See Iyengar, S.; Lepper,
   In SEC 156.298(a), we propose that the FFEs and FF-SHOPs will impose a meaningful difference requirement when approving a QHP application for certification of multiple QHPs within a service area and level of coverage in the Exchange from a single issuer. Due to the special characteristics of the stand-alone dental plan market, HHS proposes not to require meaningful difference as a condition for certification among stand-alone dental plans at this time. HHS seeks comment on this approach. We propose, in SEC 156.298(b), that a plan within a service area and metal tier (bronze, silver, gold, or platinum, and catastrophic coverage) is considered meaningfully different from other plans if a reasonable consumer (the typical consumer buying health insurance coverage) would be able to identify at least two material differences among eight key characteristics between the plan and other plans to be offered by the same issuer. The key characteristics are proposed in paragraphs (b)(1)-(b)(7), and would include (1) Cost sharing; (2) provider networks; (3) covered benefits (including prescription drugs); (4) plan type (for example, HMO or PPO); (5) premiums; (6) health savings account eligibility; and (7) self-only, non-self-only, or child-only coverage offerings. At a minimum, two or more of the characteristics proposed at SEC 156.298(b) must be different in order to pass the meaningful difference test. Therefore, within a service area and level of coverage in an Exchange, if two plans submitted by a single issuer seeking QHP certification vary among their cost sharing and covered benefits features but have the same premiums, the plans may be deemed as having met the meaningful difference test.
   Furthermore, to ensure that consumers have an adequate number of plan options across all metal levels of coverage, we propose at SEC 156.298(c), that if HHS determines that the plan offerings at a particular metal level (including catastrophic plans) within a county are limited, plans submitted for certification at that level within that county will not be subject to the meaningful difference requirement.
   To provide flexibility for issuers that merge with or acquire another issuer that is a separate legal entity, HHS proposes in SEC 156.298(d), a 2-year meaningful difference transition period starting from the date on which a QHP issuer (acquiring entity) obtains or merges with another issuer. We propose in paragraph (d) that during the first 2 plan years after a merger or acquisition, the acquiring entity can offer plans that were recently obtained or merged from another issuer that do not meet the meaningful difference standard. After the 2-year transition period, HHS may approve a QHP application for certification that is being offered by the acquiring entity only if HHS finds that the plan's benefit package or costs are meaningfully different from other QHPs offered by the acquiring entity and the plan meets all other certification requirements. We believe that this transition timeframe provides ample time for issuers to ensure that benefit packages being offered are meaningfully different without stifling market transactions.
   We seek comment on the proposed approach to reviewing meaningful difference for QHP certification and whether this standard should be expanded to all Exchanges, including State Exchanges. We also seek comment on whether this authority granted to the Exchange by section 1311(e)(1) of the Affordable Care Act, to act in the interests of qualified individuals and qualified employers, should be used by the Secretary, in conjunction with the authority granted by section 1311(e)(2) of the Affordable Care Act, to limit an issuer's participation in the FFEs should there be significantly different rate increases for its QHPs and non-QHPs. While the transitional policy regarding renewals of certain coverage announced in
7. Quality Standards: Establishment of Patient Safety Standards for QHP Issuers
   Section 1311(h)(1)(A) of the Affordable Care Act specifies that, beginning on
   FOOTNOTE 31 See http://www.pso.ahrq.gov/regulations/fnlrule01.pdf. END FOOTNOTE
   As discussed in the National Strategy for Quality Improvement in Health Care (National Quality Strategy), HHS seeks to improve the overall quality of health care by making health care more patient-centered, reliable, accessible, and safe. /32/ One of the main priorities of the National Quality Strategy is making care safer by reducing harm caused in the delivery of care. In addition, section 1311(h) of the Affordable Care Act aims to strengthen quality improvement and patient safety for consumers in Exchanges. To effectively balance the priorities for making quality health care accessible and safe in the Exchanges, we propose to implement these patient safety standards for QHP issuers over time, under the Secretary's authority in section 1311(h)(2) of the Affordable Care Act. We believe that implementing all of the requirements described in section 1311(h) by
   FOOTNOTE 32 See Report to Congress: National Strategy for Quality Improvement in Health Care available at http://www.healthcare.gov/law/resources/reports/quality03212011a.html. END FOOTNOTE
   Currently, there are 79 listed PSOs nationwide operating in 29 States and the District of Columbia. /33/ PSOs carry out a variety of patient safety activities with the goal to improve patient safety and the quality of health care delivery. PSOs are able to collect, aggregate, and analyze patient safety events and information that is protected under privilege and confidentiality standards. However, it is not entirely clear that there is sufficient capacity to enable all hospitals subject to this provision to contract with a PSO at this time. HHS recognizes the continuously-growing capacity of the PSO program and the potential to accommodate U.S. hospitals subject to SEC 156.1110 within the proposed phase-in period. HHS recognizes the significant burden and time constraints for hospitals to enter into agreements with PSOs for appropriate services to improve patient safety, especially for particular hospital settings and populations. HHS also recognizes the significant resources that QHP issuers would need to invest to track such initiatives, such as ensuring that the hospitals and health care providers the QHP issuer contracts with have appropriate agreements with PSOs and adequate hospital discharge planning activities. Consequently, we believe that this proposed rule would provide an opportunity for QHP issuers to meaningfully comply with section 1311(h) of the Affordable Care Act and consider how PSOs will work with their network hospitals and health care providers. This proposal would also provide time for hospitals and healthcare providers to demonstrate to a QHP issuer that they meet the patient safety standards in accordance with section 1311(h). Moreover, we believe that this proposed approach to implementation of section 1311(h) would ensure that QHP issuers have sufficient hospitals and health care providers to contract with, while providing consumers with access to health care that meets adequate safety and quality standards.
   FOOTNOTE 33 See http://www.pso.ahrq.gov/listing/geolist.htm. END FOOTNOTE
   In phase one, which would become effective for QHP issuer plan years beginning on or after
   FOOTNOTE 34 Section 1861(e) of the Social Security Act: http://www.ssa.gov/OP_Home/ssact/title18/1861.htm. END FOOTNOTE
   In SEC 156.1110(a), we propose that a QHP issuer may contract with hospitals that have more than 50 beds, only if they are Medicare-certified or have been issued a Medicaid-only CCN, both of which are subject to Medicare Hospital Conditions of Participation (CoPs) standards found in 42 CFR part 482. /35/ Specifically, such hospitals must develop, implement, and maintain an effective, ongoing, hospital-wide, data-driven quality assessment and performance improvement (QAPI) program, as described in 42 CFR 482.21. In addition, a hospital that is Medicare-certified or participates in the Medicaid program must have in effect a discharge planning process that applies to all patients, as described in 42 CFR 482.43. HHS believes that the standards of QAPI and discharge planning in the Medicare hospital CoPs represent the most efficient way to balance the need to have a sufficient number of hospitals available for QHP issuers to contract with, and the statutory intent of section 1311(h) to provide for adequate patient safety standards. In addition, based on our preliminary research, the vast majority of hospitals with greater than 50 beds are Medicare-certified or are Medicaid-only hospitals and must comply with the health and patient safety standards in the Medicare hospital CoPs. Hospitals may be deemed to meet the CoP standards if accredited per section 1865 of the Social Security Act. Therefore, the proposed approach would not significantly limit hospital participation in QHP networks and would provide consumers access to health care services from an adequate number of hospitals through QHPs in the Exchanges.
   FOOTNOTE 35 Hospital Conditions of Participation: http://www.cms.gov/Regulations-and-Guidance/Legislation/CFCsAndCoPs/Hospitals.html. END FOOTNOTE
   In SEC 156.1110(b), we propose to direct QHP issuers to maintain documentation, including but not limited to the CCN for each hospital. Since both Medicare-certified hospitals and Medicaid-only hospitals are issued CCNs, such documentation would demonstrate that a QHP issuer's contracted hospital is Medicare-certified or has a Medicaid-only CCN and are subject to the Medicare hospital CoP standards as required in paragraph (a). We believe that collecting and maintaining data such as the CCN would not be burdensome for QHP issuers. In SEC 156.1110(c), we propose that a QHP issuer must make this documentation available to the Exchange, upon request by the Exchange, and in a time and manner specified by the Exchange. We intend to include all Exchange types when referring to the Exchange in SEC 156.1110, including a State-based Exchange. We anticipate using the data collected as part of information used to evaluate and oversee QHP issuers in FFEs. We note that multi-State plans, as defined in SEC 155.1000(a), are subject to these provisions. OPM would determine the time and manner for multi-State plans to submit the documentation.
   In SEC 156.1110(d), we propose that a QHP issuer must ensure that each of its QHPs meets the patient safety standards in accordance with paragraph (a) of this section for plan or policy years beginning on or after
   We seek comment regarding our proposal to apply Medicare hospital CoP standards for implementation of section 1311(h) of the Affordable Care Act. We also request comment on the proposed 2-year time period for the first phase of implementation. Additionally, we propose to maintain the statutory distinction between hospitals with 50 or fewer beds and hospitals with more than 50 beds, but we request comment for phase one implementation on whether HHS should adjust the number of hospital beds to be greater or less than the standard under section 1311(h)(3) of the Affordable Care Act. We also seek comment regarding whether the proposed standards in SEC 156.1110 should be applicable to hospitals other than Medicare-certified and Medicaid-only hospitals. We further request comment on whether any other documentation would be reasonable to require QHP issuers to collect and maintain to meet the proposed standards described in SEC 156.1110(c).
   For the next phase of implementation, we are considering requiring QHP issuers to ensure that their contracted hospitals have agreements with PSOs and comprehensive hospital discharge programs, and that their health care providers implement health care quality activities. We recognize the various important patient safety initiatives, including discharge planning activities, with which hospitals, health care providers, and issuers are already involved. In future rulemaking, we intend to consider whether and which reasonable exceptions under section 1311(h)(2) of the Affordable Care Act should be made. We seek comment on:
    * What core aspects should be included in hospital patient safety programs.
    * What a comprehensive hospital discharge planning program should require for each patient.
    * What health care quality improvement activities should be implemented by health care providers.
   Specifically, we request comment on how QHP issuers could effectively track patient safety information, such as hospital agreements with a PSO, related to their contracted hospitals and provider networks. We also seek comment regarding specific, comparable activities that may be included as reasonable exceptions to the patient safety standards, in accordance with section 1311(h)(2) of the Affordable Care Act.
8. Financial Programs
a. Netting of Payments and Charges
   In the 2014 Payment Notice, HHS established a monthly payment and collections cycle for the advance payments of the premium tax credit, cost-sharing reductions, and FFE user fees, and an annual payment and collections cycle for the premium stabilization programs and reconciliation of cost-sharing reductions. For 2014, to streamline our payments and collections process, we propose in SEC 156.1215(a) that each month we would determine amounts owed to or by a QHP issuer by netting amounts owed by the QHP issuer to the Federal government against payments due to the QHP issuer for advance payments of the premium tax credit, advance payments of cost-sharing reductions, and payment of FFE user fees. In addition to this netting across these programs, as further described below, the monthly calculation of amounts due would also reflect current information related to enrollment for past months, including information related to excess payments previously made. Finally, we propose that amounts owed to or by a QHP issuer would be netted across all entities operating under the same taxpayer identification number (TIN). This process would permit HHS to calculate amounts owed each month, and pay or collect those amounts from issuers more efficiently. When netting occurs, HHS would demand amounts due only when there is a balance due to the Federal government.
   In addition to the monthly payment flows under the programs described above, a number of annual payment flows will begin in 2015 for the risk adjustment program, the reinsurance program, the risk corridors program, and cost-sharing reduction reconciliation. To streamline payment and charge flows from all of these programs--advance payments of the premium tax credit, advance payments and reconciliation of cost-sharing reductions, FFE user fees, and the premium stabilization programs--we propose in SEC 156.1215(b) that HHS may net amounts owed to the Federal government against payments due to an issuer (or an affiliated issuer under the same TIN) under these programs in 2015 and later years. We believe that this process will enable HHS to operate a monthly payment cycle that will be efficient for both issuers and HHS.
   In SEC 156.1215(c), we propose that any amount owed to the Federal government by an issuer and its affiliates for advance payments of the premium tax credit, advance payments of and reconciliation of cost-sharing reductions after netting be the basis for calculating a debt owed to the Federal government. We propose that payments and collections under all of these programs would occur under an integrated monthly payment and collection cycle.
   We seek comment on these proposals, including on the appropriate payment timeframes for these charges so that amounts may be netted and invoiced as part of an orderly, monthly payment cycle.
b. Confirmation of HHS Payment and Collections Reports
   As discussed in the preamble to SEC 156.1210 of the second final Program Integrity Rule, HHS anticipates sending a monthly payment and collections report--the HIX 820--to issuers describing the advance payments of the premium tax credit and advance payments of cost-sharing reductions that an issuer is to receive on behalf of eligible enrollees, and the FFE user fee charges that the issuer must pay. These amounts are based on enrollments previously confirmed by the issuer as part of the enrollment transaction process and the resultant HIX 820 discrepancy reporting process described in SEC 156.1210. Under SEC 156.1210 (a), an issuer must respond to the payment and collections report within 15 calendar days of receipt of the report by either confirming the report or notifying HHS if there is a discrepancy between the data provided in the payment and collections report and the data that the issuer has. Under SEC 156.1210(b), if an issuer reports a discrepancy in a payment and collections report later than 15 calendar days after receipt of the report, HHS will work with the issuer to resolve the discrepancy as long as the late reporting was not due to misconduct on the part of the issuer. As described below, any resolution to such an identified discrepancy would be reflected in a later payment and collections report and the invoice generated under that later report would not affect the debt established by the invoice generated in connection with the earlier report.
   We propose that an issuer that notifies HHS of a discrepancy under SEC 156.1210 will trigger an administrative discrepancy resolution process. Following the end of the benefit year, if the issuer remains dissatisfied with the results of that process, the issuer may make a request for reconsideration as proposed below in SEC 156.1220(a).
   We intend that this discrepancy resolution process would permit HHS to work with issuers to resolve outstanding discrepancies in a cooperative manner. Because of the number and timing of the daily flows of enrollment and premium-related data and confirmations between HHS, the Exchange, and the issuer, we anticipate that there would be frequent adjustments to the enrollment counts and therefore the amounts of the advance payments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees. To decrease the administrative burden on issuers, HHS, and the Exchanges, and in recognition of the number and timing of the data flows involved, we propose not to retroactively adjust previous months' payment and collections reports and amounts previously due. Consistent with our approach in the Medicare Advantage program, the invoice for a particular month would be calculated on the monthly payment cycle. We propose that the amount thus invoiced for a particular month, which would reflect netted amounts as described above, constitute an amount owed to the Federal government. As more accurate data become available to HHS, the Exchange, and the issuer, we propose that this later information not reduce or increase the previous determination of an amount owed. Rather, the information would be captured in subsequent months and reflected in subsequent payment cycles, and reflected in later invoices.
   Thus, an issuer would be required to pay the full amount of any invoice issued in connection with a payment and collection report for a month even if the issuer notes a discrepancy that may later be resolved as a credit in a later invoice.
   Therefore, we propose to add paragraph (c) to SEC 156.1210 to provide that discrepancies in payment and collections reports identified to HHS under that section would be addressed in subsequent payment and collections reports, and would not be used to change debts determined pursuant to invoices generated under previous payment and collections reports.
   We seek comment on this approach.
c. Administrative Appeals
   We propose an administrative appeals process designed to address any unresolved discrepancies for advance payments of the premium tax credit, advance payments of cost-sharing reductions, FFE user fee payments, payments and charges for the premium stabilization programs, cost-sharing reduction reconciliation payments and charges, and any assessments under SEC 153.740(b) of a default risk adjustment charge. This administrative appeals process is similar to that utilized to address payment disputes in the Medicare Part D program, in which an appeal to a CMS hearing officer, and then the Administrator of CMS, if desired, may be filed after a request for reconsideration.
   In SEC 156.1220(a), we propose that an issuer may file a request for reconsideration of what the issuer believes is a processing error by HHS, /36/ HHS's incorrect application of the relevant methodology, or HHS's mathematical error only with respect to: (1) Advance payments of the premium tax credit, advance payment of cost-sharing reductions and FFE user fee charges; (2) risk adjustment payments or charges for a benefit year, including an assessment of risk adjustment user fees; (3) reinsurance payments for a benefit year; (4) a risk adjustment default charge for a benefit year; (5) a reconciliation payment or charge for cost-sharing reductions for a benefit year; or (6) risk corridors payments or charges for a benefit year. For a dispute regarding advance payments of the premium tax credit, advance payments of cost-sharing reductions, or FFE user fee amounts for a benefit year, we propose that a request for reconsideration must be filed within 30 calendar days after the issuer receives a final reconsideration notification specifying the aggregate amount of advance payments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees for the applicable benefit year. We anticipate that this final reconsideration notification would be provided in the summer of the year following the benefit year. We believe that the constant flow of enrollment data for payments under these programs will lead to difficulty in finalizing a precise, final calculation for a benefit year, and propose to finalize payments under these programs including for purposes of appeal by the late summer of the following year. We are considering permitting reconsideration only for material errors. We seek comment on this proposal, including on the minimum materiality threshold that should be required to seek reconsideration. For example, we are considering a minimum materiality threshold of 1 percent or 5 percent of total payments made to the issuer for the year for advance payments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees, or a minimum dollar amount such as
   FOOTNOTE 36 We note that under proposed SEC 156.1220(a)(3)(i)-(ii), an issuer may not submit data for consideration in the appeal if the data was not submitted prior to the applicable data submission deadline, but may submit documentary evidence that certain data was timely submitted. END FOOTNOTE
   For a dispute regarding a risk adjustment payment or charge, including an assessment of risk adjustment user fees, a reinsurance payment, a default risk adjustment charge, a cost-sharing reduction reconciliation payment or charge, or a risk corridors payment or charge, we propose that a request for reconsideration must be filed within 30 calendar days of receipt of the applicable notification of payments and charges provided by HHS. We believe that because the interim and final dedicated distributed data environment reporting process proposed at SEC 153.710(d) and (e) would permit an issuer an extended period of time in which to review risk adjustment and reinsurance data and because the cost-sharing reduction reconciliation and risk corridors payments or charges are based on data provided by the issuer, 30 calendar days should be sufficient for an issuer to review the notification and make a request for reconsideration. We seek comment on this timeline.
   In SEC 156.1220(a)(3)(i), we propose that the request for reconsideration specify the findings or issues that the issuer challenges and the reasons for the challenge. In SEC 156.1220(a)(3)(ii), we propose that a reconsideration with respect to a processing error by HHS, HHS's incorrect application of the relevant methodology, or HHS's mathematical error may be requested only if, to the extent the issue could have been previously identified by the issuer to HHS under SEC 153.710(d)(2) or (e)(2), it was so identified and remains unresolved. Similarly, in SEC 156.1220(a)(3)(iii), we propose that a reconsideration with respect to advance payments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees may be requested only if, to the extent the issue could have been previously identified by the issuer to HHS under SEC 156.1210, it was so identified and remains unresolved. We propose to clarify that an issuer may request reconsideration if it previously identified an issue under SEC 156.1210 after the 15-calendar-day deadline, but late discovery of the issue was not due to misconduct on the part of the issuer.
   In SEC 156.1220(a)(3)(iv), we propose that the issuer may include in the request for reconsideration additional documentary evidence that HHS should consider. Such documents may not include data that was to have been filed by the applicable data submission deadline, but may include evidence of the timely submission of such documents.
   In SEC 156.1220(a)(4), we propose that in conducting the reconsideration, HHS would review the payment determination, the evidence and findings upon which it was based, and any additional documentary evidence submitted by the issuer. HHS would also have the discretion to review any other evidence it believes is relevant in deciding the reconsideration (and would provide the issuer a reasonable opportunity to review and rebut the evidence), and would then inform the issuer of the final decision in writing. We propose that an issuer would be required to prove its case by a preponderance of the evidence with respect to issues of fact.
   In SEC 156.1220(a)(5), we propose that a reconsideration decision would be final and binding for decisions regarding the advance payments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees. A reconsideration with respect to other matters would be subject to the outcome of a request for informal hearing filed in accordance with proposed SEC 156.1220(b). Because the monthly iterative discrepancy report process is available until the reconsideration notice is sent and because of the simplicity of the calculation of advance payments of the premium tax credit, advance payments of cost-sharing reductions, or FFE user fees, we believe that providing one level of administrative appeal for advance payments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees is sufficient. We propose in SEC 156.1220(b) that an issuer that elects to challenge the reconsideration decision for the final risk adjustment payment or charge, including an assessment of risk adjustment user fees; reinsurance payment; default risk adjustment charge; cost-sharing reduction reconciliation payment or charge; or risk corridors payment or charge for a benefit year provided under paragraph (a) of proposed SEC 156.1220 would be entitled to an informal hearing before a CMS hearing officer. In SEC 156.1220(b)(1), we propose that a request for an informal hearing be made in writing and filed with HHS within 15 calendar days of the date the issuer receives the reconsideration decision. In SEC 156.1220(b)(2), we propose that the request for an informal hearing must include a copy of the reconsideration decision and must specify the findings or issues in the decision that the issuer is challenging and its reasons for the challenge. We also propose that HHS may submit for review by the CMS hearing officer a statement of the reasons supporting the reconsideration decision.
   In SEC 156.1220(b)(3)(i), we propose that the issuer receive a written notice of the time and place of the informal hearing at least 15 calendar days before the scheduled date. In SEC 156.1220(b)(3)(ii), we propose that the CMS hearing officer would neither receive testimony nor accept any new evidence that was not presented with the reconsideration request or in any statement provided by HHS. We propose that the scope of the CMS hearing officer's review would be limited to the statements provided by the issuer and HHS and the record that was before HHS in making the reconsideration determination. We would require that the issuer prove its case by clear and convincing evidence with respect to issues of fact and would permit the issuer to be represented by counsel in the informal hearing.
   In SEC 156.1220(b)(4), we propose that, following the informal hearing, the CMS hearing officer would send the decision and the reasons for the decision to the issuer. We propose that this decision would be final and binding, but subject to any Administrator's review initiated in accordance with proposed SEC 156.1220(c).
   We propose in SEC 156.1220(c)(1) that if the CMS hearing officer upholds the reconsideration decision, the issuer may request a review by the Administrator of CMS within 15 calendar days of receipt of the CMS hearing officer's decision. The request for a review by the Administrator of CMS must specify the findings or issues in the decision that the issuer is challenging, and the reasons for the challenge. We propose that HHS may submit for review by the Administrator of CMS a statement supporting the decision of the CMS hearing officer.
   In SEC 156.1220(c)(2), we propose that the Administrator of CMS or a delegate would review the hearing officer's decision, any written documents submitted by HHS or the issuer, as well as any other information included in the record of the CMS hearing officer's decision, and would determine whether to uphold, reverse, or modify the CMS hearing officer's decision. We propose that the issuer would be required to prove its case by clear and convincing evidence with respect to issues of fact. We propose that the Administrator's determination would be considered final and binding.
   We believe that the administrative appeals process outlined above would give issuers reasonable opportunity for reconsideration and review of their payments and charges. Furthermore, building on established procedures utilized by HHS in Medicare Part D will provide a structure for administrative appeals with which issuers are already familiar. We seek comment on the proposed reconsideration and administrative appeals process.
IV. Collection of Information Requirements
   Under the Paperwork Reduction Act of 1995, we are required to provide 30-day notice in the
    * The need for the information collection and its usefulness in carrying out the proper functions of our agency.
    * The accuracy of our estimate of the information collection burden.
    * The quality, utility, and clarity of the information to be collected.
    * Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.
   We are soliciting public comment on each of these issues for the following sections of this proposed rule that contain ICRs. We generally used data from the
A. ICRs Related to HHS Audits of State-operated Reinsurance Programs ( SEC 153.270)
   In SEC 153.270, we propose that HHS or its designee may conduct a financial and programmatic audit of a State-operated reinsurance program to assess compliance with reinsurance program requirements. We also propose that, if an audit results in a finding of material weakness or significant deficiency, a State must ensure that the applicable reinsurance entity provides a written corrective action plan to HHS for approval within 60 calendar days of the issuance of the final audit report. The burden associated with meeting this third party disclosure requirement includes the burden for a State that establishes a reinsurance program to ensure that its applicable reinsurance entity and any relevant contractors, subcontractors, or agents cooperate with and take appropriate actions in connection with any audit, and the burden associated with preparing and submitting a corrective action plan to HHS for approval. Because only two States will operate reinsurance in the 2014 benefit year, this collection is exempt from the PRA under 44 U.S.C. 3502(3)(A)(i), and we are not seeking approval from OMB for this information collection requirement. We discuss the impact associated with HHS audits of State-operated reinsurance programs in the Regulatory Impact Analysis section of this proposed rule.
B. ICRs Regarding Issuer and Entity Administrative Burden Related to Audits for the Premium Stabilization Programs ( SEC 153.405(i); SEC 153.540(a); SEC 153.410(d); SEC 153.620(c))
   We propose that HHS or its designee would have the authority to audit QHP issuers, contributing entities, and issuers of risk adjustment covered plans or reinsurance-eligible plans to assess compliance with the requirements of subparts E, F, G and H of part 153, as applicable. As mentioned earlier in this proposed rule, where possible, we intend to align the risk corridors audit process with the audits conducted for the MLR program. Therefore, we believe that the issuer burden associated with the risk corridors audit is already accounted for as part of the Supporting Statement for the MLR program approved under OMB control number 0938-1164.
   For issuers of risk adjustment covered plans and issuers of reinsurance-eligible plans, these provisions would result in a third party disclosure requirement for issuers to prepare and compile the financial and programmatic information necessary to comply with the audit. For each onsite review, we estimate that it will take an average of 40 hours for administrative work to assemble the requested information, 19.5 hours to review the information for completeness, and 30 minutes to submit the information to HHS in preparation for an onsite review. We estimate that an onsite review would require an additional 2 hours to schedule the onsite activities with the compliance reviewer (at an hourly wage rate of
   For contributing entities, we estimate that the disclosure burden would be substantially less because the audit would be simpler. We estimate the burden to be approximately one-quarter of that of an issuer of a risk adjustment covered plan or a reinsurance-eligible plan, or approximately 22.5 hours at a cost of approximately
C. ICRs Regarding Potential Adjustments for Transitional Plans ( SEC 153.500- SEC 153.540)
   For the 2014 benefit year, we are considering adjustments to the premium stabilization programs that would help to further mitigate any unexpected losses for QHP issuers with plans that are affected by the transitional policy. To effectuate potential adjustments, we must estimate the State-specific effect on average claims costs. We therefore propose to require all issuers participating in the individual and small group markets in a State to submit to HHS a member-month enrollment count for transitional plans and non-transitional plans in the individual and small group markets. This submission would occur in 2015 prior to the risk corridors
   We estimate that there will be approximately 2,400 issuers in the individual and small group market in the 2014 benefit year, and that it would take an insurance analyst approximately 30 minutes (at an hourly wage rate of
D. ICRs Regarding Risk Corridors Data Validation ( SEC 153.530 and SEC 153.540)
   For the 2014 benefit year, we propose to collect risk corridors data by using the same form as is used for MLR data collection, at the same time (
   Because the MLR program and the risk corridors program will require similar data, we estimate that submitting the data elements required for the risk corridors program will impose limited additional burden on issuers. We estimate that it will take each QHP issuer approximately 1.5 hours, representing 1 hour for an insurance analyst (at an hourly wage rate of
   In SEC 153.540(b), we propose that HHS may impose CMPs on QHP issuers on a State Exchange that do not comply with the risk corridors requirements in Subpart F. We note that we would impose any CMP in accordance with the procedures set forth in 45 CFR156.805. Although the processes set forth in SEC 156.805 would result in information collection requirements that are subject to PRA, we expect to impose CMPs on fewer than 10 entities in a year. Therefore, we believe that this collection is exempt from the PRA under 44 U.S.C. 3502(3)(A)(i).
E. ICRs Regarding Data Validation Requirements When HHS Operates Risk Adjustment ( SEC 153.630)
   In SEC 153.630(b)(1), we propose that an issuer of a risk adjustment covered plan must engage one or more independent auditors to perform an initial validation audit of a sample of its risk adjustment data selected by HHS. This provision also proposes that the issuer provide HHS with the identity of the initial validation auditor, and attest to the absence of conflicts of interest between the initial validation auditor (or the members of its audit team, owners, directors, officers, or employees) and the issuer (or its owners, directors, officers, or employees), in a timeframe and manner to be specified by HHS. We previously estimated the cost to issuers to conduct an initial validation audit in the 2014 Payment Notice and the associated information collection request approved under OMB Control Number 0938-1155 with an
   In SEC 153.630(b)(8), we propose that the initial validation auditor measure and report to the issuer and HHS, in a manner and timeframe specified by HHS, the inter-rater reliability rates among its reviewers. Also in this provision, we propose that the initial validation auditor to achieve a minimum consistency measure of 95 percent for demographic, enrollment, and health status review outcomes. We believe establishing standards for inter-rater reliability among reviewers is standard practice in the industry and will not result in extra cost for the initial validation auditor. Therefore, the burden associated with this reporting requirement is the time and effort for the initial validation auditor to report the inter-rater reliability rate to the issuer and to HHS. We estimate it will take an insurance operations analyst (at an hourly wage rate of
F. ICRs Regarding Quarterly Data Submissions ( SEC 153.700(a))
   Section 153.700 provides that issuers of a risk adjustment covered plan or a reinsurance-eligible plan must establish a dedicated distributed data environment and provide data access to HHS, in a manner and timeframe specified by HHS, for any HHS-operated risk adjustment and reinsurance program. In this proposed rule, we clarify this timeframe, proposing that an issuer must make good faith efforts to make complete, current enrollment and claims files accessible through its dedicated distributed data environments no less frequently than quarterly, once the issuer's dedicated distributed data environment is established.
   Based on HHS's most recent estimate of fully insured issuers in the individual and small group markets, we estimate that 2,400 issuers will be subject to the requirement to establish a dedicated data environment to either receive reinsurance payments or make risk adjustment transfers. Although we are clarifying in this proposed rule that issuers must make this data available to HHS on a quarterly basis, the aggregate burden associated with this requirement is already accounted for under the Premium Stabilization Rule Supporting Statement that is approved under OMB control number 0938-1155 with an
G. ICRs Related to Confirmation of Dedicated Distributed Data Environment Reports ( SEC 153.700(d) and (e))
   We propose in SEC 153.710(d) that within 30 calendar days of the date of an interim dedicated distributed data environment report from HHS, an issuer of a reinsurance-eligible or risk adjustment covered plan must either confirm to HHS that the information in the interim reports for the risk adjustment and reinsurance programs accurately reflect the data to which the issuer has provided access to HHS through its dedicated distributed data environment in accordance with SEC 153.700(a) for the timeframe specified in the report, or describe to HHS any inaccuracy it identifies in the interim report. Similar to the interim report process, we propose in SEC 153.710(e) that the issuer either confirm to HHS that the information in the final dedicated distributed data environment report accurately reflects the data to which the issuer has provided access to HHS through its dedicated distributed data environment in accordance with SEC 153.700(a) for the benefit year specified in the report, or describe to HHS any inaccuracy it identifies in the final dedicated distributed data environment report within 15 calendar days of the date of the report.
   We estimate that 2,400 issuers of risk adjustment covered plans and reinsurance-eligible plans will be subject to this requirement, and that issuers will compare enrollee condition codes with risk scores and analyze claims costs to confirm information in the interim and final dedicated distributed data environment reports. On average, we estimate that it will take an insurance operations analyst (at an hourly wage rate of
H. ICRs Regarding Privacy and Security of Personally Identifiable Information ( SEC 155.260(a))
   In SEC 155.260(a), we propose that an Exchange may submit to the Secretary a proposed use or disclosure of eligibility and enrollment PII. The Exchange submitting such a request must provide a detailed description of the use or disclosure and how the proposed use or disclosure will ensure the efficient operation of the Exchanges consistent with section 1411(g)(2)(A) of the Affordable Care Act. The requesting Exchange must also describe how the information to be used or disclosed will be protected in compliance with the privacy and security standards established by the Exchange. We estimate fewer than 10 states will submit such proposals on a yearly basis. While this reporting requirement is subject to the PRA, we believe the associated burden is exempt under 5 CFR 1320.3(c)(4) and 44 U.S.C. 3502(3)(A)(i), since fewer than 10 entities would be affected. Therefore, we are not seeking approval from OMB for these information collection requirements. We seek comment on this estimate from states that are contemplating any uses of eligibility and enrollment PII for which they would submit such a proposal.
I. ICRs Regarding Quality Standards: Establishment of Patient Safety Standards for QHP Issuers ( SEC 156.1110)
   In SEC 156.1110, we describe the information collection, recordkeeping, and disclosure requirements that a QHP issuer must meet to demonstrate compliance with these proposed patient safety standards. The burden estimate associated with these standards includes the time and effort required for QHPs to maintain and submit hospital CMS Certification Numbers and any other information to the Exchange that demonstrates that each of its contracted hospitals with greater than 50 beds meets the patient safety standards required in SEC 156.1110(a). In the near future, HHS intends to publish a rule proposing more specific quality standards for Exchanges and QHPs and will solicit public comment. At that time and per requirements outlined in the PRA, we intend to estimate the burden on QHPs to comply with the patient safety provisions of SEC 156.1110. Until that time, we are soliciting comments on the burden for QHPs to maintain and submit such documentation to demonstrate meeting the patient safety standards proposed here.
J. ICRs Regarding Administrative Appeals ( SEC 156.1220)
   In SEC 156.1220, we propose an administrative appeals process to address unresolved discrepancies for advance payment of the premium tax credit, advance payment and reconciliation of cost-sharing reductions, FFE user fees, and the premium stabilization programs, as well as any assessment of a default risk adjustment charge under SEC 153.740(b).
   In SEC 156.1220(a), we propose that an issuer may file a request for reconsideration to contest a processing error by HHS, HHS's incorrect application of the relevant methodology, or HHS's mathematical error for the amount of: (1) Advance payment of the premium tax credit, advance payment of cost-sharing reductions or Federally-facilitated user fees charge for a particular month; (2) risk adjustment payments or charges for a benefit year, including an assessment of risk adjustment user fees; (3) reinsurance payments for a benefit year; (4) a risk adjustment default charge for a benefit year; (5) a reconciliation payment or charge for cost-sharing reductions for a benefit year; or (6) risk corridors payments or charges for a benefit year. While the hours involved in a request for reconsideration may vary, for the purpose of this burden estimate we estimate that it will take an insurance operations analyst 1 hour (at an hourly wage rate of
   In SEC 156.1220(b), we propose that an issuer that is dissatisfied with the reconsideration decision regarding: (1) Risk adjustment payments and charges, including an assessment of risk adjustment user fees; (2) reinsurance payments; (3) default risk adjustment charge; (4) reconciled cost-sharing reduction amounts; or (5) risk corridors payments or charges, provided under paragraph (a) of SEC 156.1220, is entitled to an informal hearing before a CMS hearing officer, if a request is made in writing within 15 calendar days of the date the issuer receives the reconsideration decision. Further review is available from the Administrator of CMS. However, we believe these processes will occur extremely infrequently. Since collections from fewer than 10 entities are exempt from the PRA under 44 U.S.C. 3502(3)(A)(i), we are not seeking PRA approval for this information collection requirement.
[TB] Table 7--Annual Reporting, Recordkeeping and Disclosure Burden Regulation Section(s) Number of Responses Burden per Total annual respondents response burden (hours) (hours) S. 153.405 226 226 22.50 5,085 S. 153.410; S. 120 120 90.00 10,800 153.620 S. 153.500- S. 2,400 2,400 0.50 1,200 153.540- S. 153.540 1,200 1,200 1.50 1,200 S. 153.630(b)(1) 2,400 2,400 0.50 1,200 S. 153.630(b)(8) 2,400 2,400 0.50 1,200 (S. 153.700(d) and 2,400 2,400 8.00 19,200 (e)) S. 156.1220 24 24 1.00 24 Total *a 3,970 [TE][TB] Table 7--Annual Reporting, Recordkeeping and Disclosure Burden Regulation Section(s) Hourly labor Total labor Total Total cost cost of cost of capital/ ( ] reporting reporting maintenance ( ] ( ] costs ( ] S. 153.405 53.75 273,319 0 273,319 S. 153.410; 53.75 580,500 0 580,500 S. 153.620 S. 153.500- 38.49 46,200 46,200 S. 153.540- S. 153.540 51.33 92,394 0 92,394 S. 153.630(b)(1) 57.75 69,300 0 69,300 S. 153.630(b)(8) 57.75 69,300 0 69,300 (S. 153.700(d) and 38.49 739,008 0 739,008 (e)) S. 156.1220 38.49 924 0 924 Total 1,870,945 0 1,870,945 *a ICRs associated with S. 153.500, S. 153.630(b)(1), S. 153.630(b)(8) and S. 153.700(d) and (e) apply to the same respondents, so the total number of unique respondents is 3,970.[TE]
   We have submitted an information collection request to OMB for review and approval of the ICRs contained in this proposed rule. The requirements are not effective until approved by OMB and assigned a valid OMB control number.
   To obtain copies of the supporting statement and any related forms for the paperwork collections referenced above, access CMS's Web site at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html or email your request, including your address, phone number, OMB number, and CMS document identifier, to [email protected], or call the Reports Clearance Office at 410-786-1326.
   If you comment on these information collection requirements, please do either of the following:
   1. Submit your comments electronically as specified in the ADDRESSES section of this proposed rule; or
   2. Submit your comments to the
V. Response to Comments
   Because of the large number of public comments we normally receive on
VI. Regulatory Impact Statement (or Analysis)
A. Statement of Need
   This proposed rule proposes standards related to the premium stabilization programs (risk adjustment, reinsurance, and risk corridors) that will protect issuers from the potential effects of adverse selection and protect consumers from increases in premiums due to issuer uncertainty. The Premium Stabilization Rule and 2014 Payment Notice provided detail on the implementation of these programs, including the specific parameters applicable to these programs. This proposed rule also proposes additional standards with respect to composite rating, privacy and security of personally identifiable information, the open enrollment period for 2015, the actuarial value calculator, the annual limitation on cost sharing for stand-alone dental plans, the meaningful difference standard for qualified health plans offered through a Federally-facilitated Exchange, patient safety standards for issuers of qualified health plans, the Small Business Health Options Program, cost sharing parameters, cost-sharing reductions, and FFE user fees.
B. Overall Impact
   We have examined the impacts of this rule as required by Executive Order 12866 on Regulatory Planning and Review (
   Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. A regulatory impact analysis (RIA) must be prepared for rules with economically significant effects (
   OMB has determined that this proposed rule is "economically significant" within the meaning of section 3(f)(1) of Executive Order 12866, because it is likely to have an annual effect of
   Although it is difficult to discuss the wide-ranging effects of these provisions in isolation, the overarching goal of the premium stabilization and Exchange-related provisions and policies in the Affordable Care Act is to make affordable health insurance available to individuals who do not have access to affordable employer-sponsored coverage. The provisions within this proposed rule are integral to the goal of expanding coverage. For example, the premium stabilization programs decrease the risk of financial loss that health insurance issuers might otherwise expect in 2015 and the advance payments of the premium tax credit and cost-sharing reduction programs assist low- and moderate-income consumers and Indians in purchasing health insurance. The combined impacts of these provisions affect the private sector, issuers, and consumers, through increased access to health care services including preventive services, decreased uncompensated care, lower premiums, establishment of patient safety standards, and increased plan transparency. Through the reduction in financial uncertainty for issuers and increased affordability for consumers, these provisions are expected to increase access to health coverage.
   In this RIA, we discuss the requirements in this proposed rule related to cost sharing and FFE user fees, as well as new oversight provisions for the premium stabilization programs.
C. Impact Estimates of the Payment Notice Provisions and Accounting Table
   In accordance with OMB Circular A-4, Table 8 below depicts an accounting statement summarizing HHS's assessment of the benefits, costs, and transfers associated with this regulatory action.
   This proposed rule implements standards for programs that will have numerous effects, including providing consumers with affordable health insurance coverage, reducing the impact of adverse selection, and stabilizing premiums in the individual and small group health insurance markets and in an Exchange. We are unable to quantify certain benefits of this proposed rule--such as increased patient safety and improved health and longevity due to increased insurance enrollment--and certain costs--such as the cost of providing additional medical services to newly-enrolled individuals. The effects in Table 8 reflect qualitative impacts and estimated direct monetary costs and transfers resulting from the provisions of this proposed rule for contributing entities, States, Exchanges, and health insurance issuers. The annualized monetized costs described in Table 8 reflect direct administrative costs (including costs associated with labor, capital, overhead, and fringe benefits) to States and health insurance issuers as a result of the proposed provisions, and include administrative costs estimated in the Collection of Information section of this proposed rule. We note estimated transfers in Table 8 do not reflect any user fees paid by insurance issuers for FFEs because we cannot estimate those fee totals. We also note that, while we are proposing a 2015 reinsurance contribution rate that is lower than the 2014 reinsurance contribution rate, total reinsurance administrative expenses, including the reinsurance contribution rate, will increase from 2014 to 2015.
[TB] Table 8--Accounting Table Benefits: Qualitative: *Increased enrollment in the individual market leading to improved access to health care for the previously uninsured, especially individuals with medical conditions, which will result in improved health and protection from the risk of catastrophic medical expenditures. *A common marketing standard covering the entire insurance market, reducing adverse selection and increasing competition. *Robust oversight of programs that use Federal funds to ensure proper use of taxpayer dollars. *Access to higher quality health care through the establishment of patient safety standards *Increasing coverage options for small employers and part-time employees while mitigating the effect of adverse selection. Costs: Estimate Year Discount Period (in dollar rate covered millions) (percent) Annualized Monetized ( $/year) 1.75 2013 7 2014-2017 1.82 2013 3 2014-2017 Qualitative: *Costs incurred by issuers and contributing entities to comply with provisions in the proposed rule. *Costs incurred by States for complying with audits of State-operated reinsurance programs. Transfers: Estimate Year Discount Period (in dollar rate covered millions) (percent) Annualized Monetized ( $/year) 11.59 2013 7 2014-2017 12.04 2013 3 2014-2017 *Transfers reflect incremental cost increases from 2014-2015 for reinsurance administrative expenses and the risk adjustment user fee, which are transfers from contributing entities and health insurance issuers to the Federal government. *Unquantified: Lower premium rates in the individual market due to the improved risk profile of the insured, competition, and pooling. [TE]
   This RIA expands upon the impact analyses of previous rules and utilizes the Congressional Budget Office's (CBO) analysis of the Affordable Care Act's impact on Federal spending, revenue collection, and insurance enrollment. The CBO's estimates remain the most comprehensive for provisions pertaining to the Affordable Care Act, and include Federal budget impact estimates for provisions that HHS has not independently estimated. The CBO's
   FOOTNOTE 37 "Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act," Congressional Budget Office,
   In addition to utilizing CBO projections, HHS conducted an internal analysis of the effects of its regulations on enrollment and premiums. Based on these internal analyses, we anticipate that the quantitative effects of the provisions proposed in this rule are consistent with our previous estimates in the 2014 Payment Notice for the impacts associated with the cost-sharing reduction program, the advance payments of the premium tax credit program, the premium stabilization programs, and FFE user fee requirements for health insurance issuers.
[TB] Table 9--Estimated Federal Government Outlays and Receipts for the Risk Adjustment and Reinsurance Programs From FY 2013-2017, in Billions of Dollars Year 2013 2014 2015 2016 2017 2013-2017 Risk Adjustment -- 6 17 18 20 61 and Reinsurance Program Payments Risk Adjustment -- 13 16 18 18 65 and Reinsurance Program Collections * * Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over time. Source: Congressional Budget Office. 2012. Letter to Hon. John Boehner.
Risk Adjustment
   The risk adjustment program is a permanent program created by the Affordable Care Act that transfers funds from lower risk, non-grandfathered plans to higher risk, non-grandfathered plans in the individual and small group markets, inside and outside the Exchanges. In subparts D and G of the Premium Stabilization Rule and the 2014 Payment Notice, we established standards for the administration of the risk adjustment program.
   A State approved or conditionally approved by the Secretary to operate an Exchange may establish a risk adjustment program, or have HHS do so on its behalf. As described in the 2014 Payment Notice, if HHS operates risk adjustment on behalf of a State, it will fund its risk adjustment program operations by assessing a risk adjustment user fee on issuers of risk adjustment covered plans. For the 2015 benefit year, we estimate that the total cost for HHS to operate the risk adjustment program on behalf of States for 2015 will be approximately
   In this proposed rule, we propose in SEC 153.620(c) that HHS or its designee may audit an issuer of a risk adjustment covered plan, when HHS operates risk adjustment on behalf of a State, to assess the issuer's compliance with the requirements of subparts G and H of 45 CFR part 153. As discussed above, HHS intends to fund risk adjustment operations (not including Federal personnel costs), including risk adjustment program integrity and audit functions, by collecting a per capita user fee from issuers of risk adjustment covered plans. Therefore, we believe that the costs to the Federal government associated with the risk adjustment audit activities in this proposed rule would be covered through the risk adjustment user fee, and that there would be no impact for the Federal government as a result of the proposed audit provisions. The proposed audit provision would result in additional costs for issuers of risk adjustment covered plans related to gathering information and preparing for an audit. We discuss the administrative costs associated with this proposed requirement for issuers in the Collection of Information section of this proposed rule.
   Although this proposed rule would result in some additional administrative burden for issuers of risk adjustment covered plans as a result of the proposed requirements for risk adjustment data validation and submission of discrepancy reports in response to interim and final dedicated distributed data environment reports, we note that much of the impact associated with establishing a dedicated distributed data environment and a risk adjustment data validation process has previously been estimated in the Premium Stabilization Rule and the 2014 Payment Notice. We do not believe that provisions contained within this proposed rule substantially alter the previous estimates. We describe these administrative costs in the Collection of Information Requirements section of this proposed rule.
Reinsurance
   The Affordable Care Act directs that a transitional reinsurance program be established in each State to help stabilize premiums for coverage in the individual market from 2014 through 2016. In the 2014 Payment Notice, we expanded upon the standards set forth in subparts C and E of the Premium Stabilization Rule and established the 2014 uniform reinsurance payment parameters and national contribution rate. In this proposed rule, we set forth the 2015 uniform reinsurance payment parameters and contribution rate, and oversight provisions related to the operation of the reinsurance program.
   Section 153.220(c) provides that HHS will publish the uniform per capita reinsurance contribution rate for the upcoming benefit year in the annual HHS notice of benefit and payment parameters. Section 1341(b)(3)(B)(iii) of the Affordable Care Act specifies that
   If HHS operates the reinsurance program on behalf of a State, HHS would retain
   To safeguard the use of Federal funds in the transitional reinsurance program, we propose in SEC 153.270(a) that HHS or its designee may conduct a financial and programmatic audit of a State-operated reinsurance program to assess compliance with the requirements of subparts B and C of 45 CFR part 153. As discussed above, HHS intends to fund reinsurance operations (not including Federal personnel costs), including program integrity and audit functions, by collecting as part of the uniform contribution rate, administrative expenses associated with operating the reinsurance program from all reinsurance contributing entities. Therefore, we believe that the costs to the Federal government associated with the reinsurance audit activities in this proposed rule would be covered through the reinsurance contribution rate, and that there would be no net budget impact for the Federal government as a result of the proposed audit provisions. Because this proposed audit requirement would direct a State that establishes a reinsurance program to ensure that its applicable reinsurance entity and any relevant contractors, subcontractors, or agents cooperate with an audit, and would direct the State to provide to HHS for approval a written corrective action plan; implement the plan; and provide to HHS written documentation of the corrective actions once taken, if the audit resulted in a finding of material weakness or significant deficiency, the proposed requirement would impose a cost on States operating reinsurance. We believe that State-operated reinsurance programs would already electronically maintain the information necessary for an audit as part of their normal business practices and as a result of the maintenance of records requirement set forth in SEC 153.240(c), no additional time or effort will be necessary to develop and maintain audit information. We estimate that it will take a compliance analyst (at an hourly wage rate of
   In SEC 153.405(i) and SEC 153.410(d), we propose that HHS may audit contributing entities and issuers of reinsurance-eligible plans to assess compliance with reinsurance program requirements. We discuss the costs to contributing entities and issuers of reinsurance-eligible plans as a result of this proposed requirement in the Collection of Information section of this proposed rule. We intend to combine issuer audits for the premium stabilization programs whenever practicable to reduce the financial burden of these audits on issuers. Consequently, we anticipate that, because issuers of reinsurance-eligible plans may also be subject to risk adjustment requirements, we would conduct these audits in a manner that avoids overlapping review of information that is required for both programs.
Risk Corridors
   The Affordable Care Act creates a temporary risk corridors program for the years 2014, 2015, and 2016 that applies to QHPs, as defined in SEC 153.500. The risk corridors program creates a mechanism for sharing risk for allowable costs between the Federal government and QHP issuers. The Affordable Care Act establishes the risk corridors program as a Federal program; consequently, HHS will operate the risk corridors program under Federal rules with no State variation. The risk corridors program will help protect against inaccurate rate setting in the early years of the Exchanges by limiting the extent of issuer losses and gains.
   As mentioned elsewhere in this proposed rule, for the 2014 benefit year, we are proposing an adjustment to the risk corridors formula that would help to further mitigate potential QHP issuers' unexpected losses that are attributable to the effects of the transition policy. This proposed adjustment may increase the total amount of risk corridors payments that the Federal government will make to QHP issuers, and reduce the amount of risk corridors receipts; however, we are considering a number of approaches that would limit the impact of the policy on the Federal budget. Because of the difficulty associated with predicting State enforcement of 2014 market rules and estimating the enrollment in transitional plans and in QHPs, we cannot estimate the magnitude of this impact on aggregate risk corridors payments and charges at this time. We also estimate that this proposed adjustment would result in direct administrative costs for individual and small group market issuers that are discussed in the Collection of Information section of this proposed rule.
   To ensure the integrity of risk corridors data reporting, we propose in SEC 153.540(a) to establish HHS authority to conduct post-payment audits of QHP issuers. We are contemplating several ways to reduce issuer burden, such as conducting the risk corridors audits using the existing MLR audit process or conducting risk corridors audits under an overall issuer audit program. Therefore, as described in the Collection of Information section of this proposed rule, we believe that the cost for issuers that would result from this proposed audit requirement is already accounted for as part of the MLR audit process.
   We also propose in SEC 153.540(c) to extend our CMP authority under sections 1321(a)(1) and (c)(2) of the Affordable Care Act to all QHP issuers that fail to provide timely, accurate, and complete data necessary for risk corridors calculations, or that otherwise do not comply with the standards in subpart F of 45 CFR part 153. We propose to assess CMPs on QHP issuers in State Exchanges in accordance with the same enforcement and sanction procedures that apply to QHP issuers on an FFE under SEC 156.805.
   As set forth in SEC 156.805(c), HHS will impose a maximum penalty amount of
Provisions Related to Cost Sharing
   The Affordable Care Act provides for the reduction or elimination of cost sharing for certain eligible individuals enrolled in QHPs offered through the Exchanges. This assistance will help many low- and moderate-income individuals and families obtain health insurance--for many people, cost sharing is a barrier to obtaining needed health care. /38/
   FOOTNOTE 38 Brook, Robert H., John E. Ware, William H. Rogers, Emmett B. Keeler, Allyson Ross Davies, Cathy D. Sherbourne, George A. Goldberg, Kathleen N. Lohr, Patricia Camp and Joseph P. Newhouse. The Effect of Coinsurance on the Health of Adults: Results from the RAND Health Insurance Experiment. Santa Monica, CA:
   To support the administration of the cost-sharing reduction program, we set forth in this proposed rule the reductions in the maximum annual limitation on cost sharing for silver plan variations and a modified methodology for calculating advance payments for cost-sharing reductions. For benefit year 2015, we propose to require the same reductions in the maximum annual limitation on cost sharing as were finalized for benefit year 2014. We note that we are proposing certain modifications to the methodology for calculating advance payments for cost-sharing reductions, but we do not believe these changes will result in a significant economic impact. Therefore, we do not believe the provisions related to cost-sharing reductions in this proposed rule will have an impact on the program established by and described in the 2014 Payment Notice.
   We also proposed a methodology for estimating average per capita premium, and proposed the premium adjustment percentage for the 2015 benefit year. Section 156.130(e) provides that the premium adjustment percentage is the percentage (if any) by which the average per capita premium for health insurance coverage for the preceding calendar year exceeds such average per capita premium for health insurance for 2013, and that this percentage will be published annually in the HHS notice of benefit and payment parameters. The annual premium adjustment percentage that is issued sets the rate of increase for four parameters detailed in the Affordable Care Act: the annual limitation on cost sharing (defined at SEC 156.130(a)), the annual limitation on deductibles for plans in the small group (defined at SEC 156.130(b)), and the section 4980H(a) and section 4980H(b) assessable payment amounts (proposed at 26 CFR 54.4980H in the "Shared Responsibility for Employers Regarding Health Coverage," published in the
Annual Open Enrollment Period
   We propose amendments to SEC 155.410(e) and (f) to amend the dates for the annual open enrollment period and related coverage effective dates. These proposed amendments would benefit issuers at no additional cost, as Exchanges would delay their QHP certification dates by at least one month, giving issuers additional time. Because open enrollment dates would be moved forward, Exchanges would still have the same amount of time for the QHP certification process, and we do not anticipate that this would come at an additional cost to Exchanges. Consumers would have the benefit of a more beneficial open enrollment period, without any additional demand placed on them.
Calculation of Plan Actuarial Value
   Issuers may incur minor administrative costs associated with altering cost-sharing parameters of their plan designs to ensure compliance with AV requirements when utilizing the AV calculator from year-to-year. These requirements are established in the EHB Rule and are in accordance with the proposed provisions in this proposed rule. Since issuers have extensive experience in offering products with various levels of cost sharing and since these modifications are expected to be relatively minor for most issuers, HHS expects that the process for computing AV with the AV Calculator will not demand many additional resources.
User Fees
   To support the operation of FFEs, we require in SEC 156.50(c) that a participating issuer offering a plan through an FFE must remit a user fee to HHS each month equal to the product of the monthly user fee rate specified in the annual HHS notice of benefit and payment parameters for the applicable benefit year and the monthly premium charged by the issuer for each policy under the plan where enrollment is through an FFE. For the 2015 benefit year, we propose a monthly user fee rate equal to 3.5 percent of the monthly premium. We do not have an aggregate estimate of the collections from the user fee at this time because we do not yet have a count of the number of States in which HHS will run an FFE or FF-SHOP in 2015.
SHOP
   The SHOPs facilitate the enrollment of eligible employees of small employers into small group health insurance plans. A qualitative analysis of the costs and benefits of establishing a SHOP was included in the RIA published in conjunction with the Exchange Establishment Rule. /39/ This RIA addresses the additional costs and benefits of the proposed modifications in this proposed rule to the SHOP sections of the Exchange Establishment Rule.
   FOOTNOTE 39 Available at: http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf END FOOTNOTE
   In this proposed rule, we propose revising paragraph SEC 155.705(b)(1), which lists the rules regarding eligibility and enrollment to which the SHOPs must adhere, to include mention of additional provisions regarding termination of coverage in SHOPs and SHOP employer and employee eligibility appeals that were finalized in the first final Program Integrity Rule. We propose that an employer in the FF-SHOPs would have the option to offer its employees either a single SADP or a choice of all SADPs available in an FF-SHOP for plan years beginning on or after
   We also propose amendments to SEC 155.705(b)(4) that would allow SHOPs performing premium aggregation to establish a standard method for premium calculation, payment, and collection. We propose that in the FF-SHOPs, after premium aggregation becomes available in plan years beginning on or after
   We also propose amendments to SEC 155.705(b)(11) that would provide additional flexibility to an employer's ability to define a percentage contribution toward premiums under the employer selected reference plan in the FF-SHOPs. Although we proposed and rejected a similar approach in the 2014 Payment Notice because we concluded it was inconsistent with the uniformity provisions established in Internal Revenue Service Notice 2010-82, which require employers to contribute a uniform percentage to employee premiums in order to claim a small business tax credit, we believe small employers are best able to determine whether offering different contribution levels would be in the best interest of the business and its employees. We believe that this additional flexibility would bring the FF-SHOPs more in line with current small group market practices and provide an additional incentive for small employers to participate in the FF-SHOPs. Additionally, we believe that providing a mechanism that would allow different contribution levels based on full-time or non-full-time status may encourage some employers to offer coverage to non-full-time employees.
   In SEC 155.715, we propose amendments that would provide for SHOP eligibility adjustment periods for both employers and employees only when there is an inconsistency between information provided by an applicant and information collected through optional verification methods under SEC 155.715(c)(2) rather than when an employer submits information on the SHOP single employer application that is inconsistent with the eligibility standards described in SEC 155.710 or when the SHOP receives information on the employee's application that is inconsistent with the information provided by the employer, as current paragraph SEC 155.715(d) provides. We also propose to amend paragraph (c)(4) to replace a reference to sections 1411(b)(2) and (c) of the Affordable Care Act with a reference to Subpart D of 45 CFR part 155, and to add a reference to eligibility verifications as well as to eligibility determinations. The proposed changes would prohibit a SHOP from performing any individual market Exchange eligibility determinations or verifications as described in Subpart D, which, for example, includes making eligibility determinations for advance payments of the premium tax credit and cost sharing reductions in the individual market Exchange.
   In SEC 155.730 we propose to provide that SHOPs are not permitted to collect information from applicants, employers, or employees in the SHOP if that information is not necessary to determine SHOP eligibility or effectuate enrollment through a SHOP. Limiting the information required of an applicant helps to protect consumer privacy and promote efficiency and streamlining of the SHOP application process.
   In SEC 155.220, we propose for plan years beginning on or after
   In SEC 156.285, we propose that when premium aggregation becomes available in FF-SHOPs for plan years beginning on or after
   We do not expect the proposed policies related to the SHOP to create any new significant costs for small businesses, employees, or the FF-SHOPs.
Patient Safety
   The proposed patient safety requirements would be implemented in phases, to ensure that QHP issuers contract with hospitals that meet adequate safety and quality standards in their networks. The proposed rule would require QHP issuers to collect and maintain CCNs for each of its contracted hospitals that are certified for more than 50 beds. It also would require that this documentation, if requested by the Exchange, be submitted in a form and manner specified by the Exchange. QHP issuers would already have established procedures and relationships to contract with hospitals including obtaining hospital identification information. Therefore, HHS believes that there would not be a significant additional cost for a QHP issuer to collect and maintain CCNs. QHP issuers would incur costs to submit this information, if requested, to the Exchange. We discuss the burden associated with submitting this information in the Collection of Information section of this proposed rule.
D. Regulatory Alternatives Considered
   We considered a number of alternatives to our proposed approach to program integrity for the premium stabilization programs. For example, although we finalized in previous rulemaking our framework for the risk adjustment data validation program to be used when we operate risk adjustment on behalf of a State, the preamble to this proposed rule discusses and seeks comment on a number of alternative approaches to the detailed methodology proposed here. For example, we have suggested a number of options for confidence intervals and whether to use tests of statistical significance in determining plan average risk score adjustments. We have also suggested an expedited second validation audit approach to permit more time for inter-auditor discussions and appeals. We have suggested a number of ways to calculate a default risk adjustment charge for an issuer that fails to provide initial validation audits.
   In the preamble discussion of our proposed modifications to the risk adjustment methodology, we considered not providing for an induced demand adjustment for Medicaid expansion plan variations, but we believe that not doing so would underestimate the risk in those plans, potentially leading to higher premiums in those plans.
   In SEC 153.270, we propose that HHS may audit State-operated reinsurance programs to ensure appropriate use of Federal funds. We also considered not proposing that HHS have such authority. However, we believe that because HHS will collect reinsurance contributions and because a State's issuers' reinsurance requests affect the availability of reinsurance funds for issuers in other States, we think it is critical for HHS to have the authority to perform these audits, so that issuers and States are confident that they will receive the correct allocation of the reinsurance payments. We also considered proposing that HHS have the authority to audit a State-operated risk adjustment program. However, we decided not to do so because those programs do not take in Federal funds and those programs have little impact on the health insurance markets in other States.
   We considered not proposing that HHS have the authority to assess CMPs on QHP issuers for non-compliance with the risk corridors standards. This would reduce the burden on QHP issuers on State Exchanges and would have reduced Federal oversight costs. However, we determined that similar standards and oversight were appropriate for all issuers of QHPs, regardless of whether the QHPs were offered through FFEs or State Exchanges, in order to ensure compliance with the risk corridors program and the proper use of Federal funds.
   In the preamble discussion of the 2015 reinsurance payment parameters, we also considered, when setting forth the proposed 2015 reinsurance payment parameters, a set of uniform reinsurance payment parameters that would have substantially raised the attachment point or lowered the reinsurance cap, but believe those uniform reinsurance payment parameters would have raised the complexity of estimating the effects of reinsurance for issuers.
   As detailed in the preamble discussion regarding our proposed approach to estimating cost-sharing reduction amounts in connection with reinsurance calculations, we considered a number of alternative approaches to this estimation. Finally, we considered a number of different approaches to the discrepancy and administrative appeals process proposed in SEC 153.710 and SEC 156.1220. Some of these approaches would have provided for lengthier and more formal administrative appeals processes, including for advance payments of the premium tax credit, advance payment for cost-sharing reductions, and FFE user fees in 2014. We did not adopt that approach for these 2014 programs, and instead rely on operational discrepancy reports and one-level of administrative appeals--a request for reconsideration, because we believe that this approach will be simpler and less expensive, and will permit operations specialists, issuers and HHS to resolve most problems more quickly. We considered relying solely on a simpler operational discrepancy report process for the premium stabilization programs and cost-sharing reductions reconciliation in 2015--but decided that due to the complexity of the calculations involved in these programs and the potential magnitude of the payment flows, issuers would prefer that these calculations be subject to more formal administrative processes.
   Multiple alternatives were considered to the proposed SHOP approaches and are discussed in detail above.
E. Regulatory Flexibility Act
   The Regulatory Flexibility Act (5 U.S.C.
   In this proposed rule, we propose provisions for the risk adjustment, reinsurance, and risk corridors programs, which are intended to stabilize premiums as insurance market reforms are implemented and Exchanges facilitate increased enrollment. Because we believe that insurance firms offering comprehensive health insurance policies generally exceed the size thresholds for "small entities" established by the SBA, we do not believe that an initial regulatory flexibility analysis is required for such firms.
   For purposes of the RFA, we expect the following types of entities to be affected by this proposed rule:
    * Health insurance issuers.
    * Group health plans.
    * Reinsurance entities.
   We believe that health insurance issuers and group health plans would be classified under the North American Industry Classification System (NAICS) code 524114 (Direct Health and Medical Insurance Carriers). According to SBA size standards, entities with average annual receipts of
   In this proposed rule, we proposed requirements on employers that choose to participate in a SHOP Exchange. The SHOPs are limited by statute to employers with at least one but not more than 100 employees. For this reason, we expect that many employers who would be affected by the proposals would meet the SBA standard for small entities. We do not believe that the proposals impose requirements on employers offering health insurance through the SHOP that are more restrictive than the current requirements on small employers offering employer sponsored insurance. Additionally, as discussed in the RIA, we believe the proposed policy will provide greater choice for both employees and employers. We believe the processes that we have established constitute the minimum amount of requirements necessary to implement the SHOP program and accomplish our policy goals, and that no appropriate regulatory alternatives could be developed to further lessen the compliance burden.
   We believe that a substantial number of sponsors of self-insured group health plans could qualify as "small entities." This proposed rule provides HHS with the authority to audit these entities. However, we do not believe that the burden of these audits is likely to reflect more than 3 to 5 percent of such an entity's revenues.
F. Unfunded Mandates
   Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a proposed rule that includes any Federal mandate that may result in expenditures in any 1 year by a State, local, or Tribal governments, in the aggregate, or by the private sector, of
G. Federalism
   Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule that imposes substantial direct costs on State and local governments, preempts State law, or otherwise has Federalism implications. Because States have flexibility in designing their Exchange and Exchange-related programs, State decisions will ultimately influence both administrative expenses and overall premiums. States are not required to establish an Exchange or risk adjustment or reinsurance program. For States electing to operate an Exchange, risk adjustment or reinsurance program, much of the initial cost of creating these programs will be funded by Exchange Planning and Establishment Grants. After establishment, Exchanges will be financially self-sustaining, with revenue sources at the discretion of the State. Current State Exchanges charge user fees to issuers.
   In HHS's view, while this proposed rule did not impose substantial direct requirement costs on State and local governments, this regulation has Federalism implications due to direct effects on the distribution of power and responsibilities among the State and Federal governments relating to determining standards relating to health insurance that is offered in the individual and small group markets. Each State electing to establish an Exchange must adopt the Federal standards contained in the Affordable Care Act and in this proposed rule, or have in effect a State law or regulation that implements these Federal standards. However, HHS anticipates that the Federalism implications (if any) are substantially mitigated because under the statute, States have choices regarding the structure and governance of their Exchanges and risk adjustment and reinsurance programs. Additionally, the Affordable Care Act does not require States to establish these programs; if a State elects not to establish any of these programs or is not approved to do so, HHS must establish and operate the programs in that State.
   In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have Federalism implications or limit the policy making discretion of the States, HHS has engaged in efforts to consult with and work cooperatively with affected States, including participating in conference calls with and attending conferences of the
   Throughout the process of developing this proposed rule, HHS has attempted to balance the States' interests in regulating health insurance issuers, and Congress' intent to provide access to Affordable Insurance Exchanges for consumers in every State. By doing so, it is HHS's view that we have complied with the requirements of Executive Order 13132.
H. Congressional Review Act
   This proposed rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C.
List of Subjects
   45 CFR Part 144
   Health care, Health insurance, Reporting and recordkeeping requirements.
   45 CFR Part 147
   Health care, Health insurance, Reporting and recordkeeping requirements, and State regulation of health insurance.
   45 CFR Part 153
   Administrative practice and procedure, Adverse selection, Health care, Health insurance, Health records, Organization and functions (Government agencies), Premium stabilization, Reporting and recordkeeping requirements, Reinsurance, Risk adjustment, Risk corridors, Risk mitigation, State and local governments.
   45 CFR Part 155
   Administrative practice and procedure, Health care access, Health insurance, Reporting and recordkeeping requirements, State and local governments, Cost-sharing reductions, Advance payments of premium tax credit, Administration and calculation of advance payments of the premium tax credit, Plan variations, Actuarial value.
   45 CFR Part 156
   Administrative appeals, Administrative practice and procedure, Administration and calculation of advance payments of premium tax credit, Advertising, Advisory Committees, Brokers, Conflict of interest, Consumer protection, Cost-sharing reductions, Grant programs-health, Grants administration, Health care, Health insurance, Health maintenance organization (HMO), Health records, Hospitals, American Indian/Alaska Natives, Individuals with disabilities, Loan programs-health, Organization and functions (Government agencies), Medicaid, Payment and collections reports, Public assistance programs, Reporting and recordkeeping requirements, State and local governments, Sunshine Act, Technical assistance, Women, and Youth.
   For the reasons set forth in the preamble, the
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
   1. The authority citation for part 144 continues to read as follows:
   Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public Health Service Act 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92.
   2. Section 144.103 is amended by revising the first sentence in paragraph (1) of the definition of "Policy year" to read as follows:
SEC 144.103 Definitions.
* * * * *
   Policy year * * *
   (1) A grandfathered health plan offered in the individual health insurance market and student health insurance coverage, the 12-month period that is designated as the policy year in the policy documents of the individual health insurance coverage. * * *
* * * * *
PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND INDIVIDUAL HEALTH INSURANCE MARKETS
   3. The authority citation for part 147 continues to read as follows:
   Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92), as amended.
&#160;  4. Section 147.102 is amended by revising paragraph (c)(3) to read as follows:
SEC 147.102 Fair health insurance premiums.
* * * * *
   (c) * * *
   (3) Application to small group market. In the case of the small group market, the total premium charged to the group is determined by summing the premiums of covered participants and beneficiaries in accordance with paragraph (c)(1) or (2) of this section, as applicable. Nothing in this section precludes a State from requiring issuers to offer, or an issuer from voluntarily offering, to a group premiums that are based on average enrollee premium amounts, provided that the total group premium is the same total amount derived in accordance with paragraph (c)(1) or (2) of this section, as applicable. In such case, effective for plan years beginning on or after
* * * * *
   5. Section 147.145 is amended by revising paragraph (b)(1)(ii) to read as follows:
SEC 147.145 Student health insurance coverage.
* * * * *
   (b) * * *
   (1) * * *
   (ii) For purposes of section 2702 of the Public Health Service Act, a health insurance issuer that offers student health insurance coverage is not required to accept individuals who are not students or dependents of students in such coverage, and, notwithstanding the requirements of SEC 147.104(b), is not required to establish open enrollment periods or coverage effective dates that are based on a calendar policy year or to offer policies on a calendar year basis.
* * * * *
PART 153--STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT
   6. The authority citation for part 153 continues to read as follows:
   Authority: Secs. 1311, 1321, 1341-1343, Pub. L. 111-148, 24 Stat. 119.
   7. Section 153.20 is amended by revising the definition of "contributing entity" and adding a definition of "major medical coverage" to read as follows:
SEC 153.20 Definitions.
* * * * *
   Contributing entity means--
   (1) A health insurance issuer; or
   (2) For the 2014 benefit year, a self-insured group health plan (including a group health plan that is partially self-insured and partially insured, where the health insurance coverage does not constitute major medical coverage), whether or not it uses a third party administrator; and for the 2015 and 2016 benefit years, a self-insured group health plan (including a group health plan that is partially self-insured and partially insured, where the health insurance coverage does not constitute major medical coverage) that uses a third party administrator in connection with claims processing or adjudication (including the management of appeals) or plan enrollment. A self-insured group health plan that is a contributing entity is responsible for the reinsurance contributions, although it may elect to use a third party administrator or administrative services-only contractor for transfer of the reinsurance contributions.
* * * * *
   Major medical coverage means, for purposes only of the requirements related to reinsurance contributions under section 1341 of the Affordable Care Act, health coverage for a broad range of services and treatments provided in various settings that provides minimum value in accordance with SEC 156.145 of this subchapter.
* * * * *
   8. Section 153.230 is amended by revising paragraph (d) to read as follows:
SEC 153.230 Calculation of reinsurance payments made under the national contribution rate.
* * * * *
   (d) Uniform adjustment to national reinsurance payments. If HHS determines that all reinsurance payments requested under the national payment parameters from all reinsurance-eligible plans in all States for a benefit year will not be equal to the amount of all reinsurance contributions collected for reinsurance payments under the national contribution rate in all States for an applicable benefit year, HHS will determine a uniform pro rata adjustment to be applied to all such requests for reinsurance payments for all States. Each applicable reinsurance entity, or HHS on behalf of a State, must reduce or increase the reinsurance payment amounts for the applicable benefit year by any adjustment required under this paragraph (d).
   9. Section 153.235 is amended by removing and reserving paragraph (b).
SEC 153.235 Allocation and distribution of reinsurance contributions.
* * * * *
   (b) [Reserved]
   10. Section 153.270 is added to subpart C to read as follows:
SEC 153.270 HHS audits of State-operated reinsurance programs.
   (a) Audits. HHS or its designee may conduct a financial and programmatic audit of a State-operated reinsurance program to assess compliance with the requirements of this subpart or subpart B of this part. A State that establishes a reinsurance program must ensure that its applicable reinsurance entity and any relevant contractors, subcontractors, or agents cooperate with any audit under this section.
   (b) Action on audit findings. If an audit results in a finding of material weakness or significant deficiency with respect to compliance with any requirement of this subpart or subpart B, the State must ensure that the applicable reinsurance entity:
   (1) Within 60 calendar days of the issuance of the final audit report, provides a written corrective action plan to HHS for approval;
   (2) Implements that plan; and
   (3) Provides to HHS written documentation of the corrective actions once taken.
   11. Section 153.400 is amended by revising paragraph (a)(1) introductory text and adding paragraphs (a)(1)(v) and (vi) to read as follows:
SEC 153.400 Reinsurance contribution funds.
   (a) * * *
   (1) In general, reinsurance contributions are required for major medical coverage that is considered to be part of a commercial book of business, but are not required to be paid more than once with respect to the same covered life. In order to effectuate that principle, a contributing entity must make reinsurance contributions for lives covered by its self-insured group health plans and health insurance coverage except to the extent that:
* * * * *
   (v) Such plan or coverage applies to individuals with primary residence in a territory that does not operate a reinsurance program.
   (vi) In the case of employer-provided group health coverage:
   (A) Such coverage applies to individuals with individual market health insurance coverage for which reinsurance contributions are required; or
   (B) Such coverage is supplemental or secondary to group health coverage for which reinsurance contributions must be made for the same covered lives.
* * * * *
   12. Section 153.405 is amended by revising paragraphs (c) and (e)(3) and adding paragraph (i) to read as follows:
SEC 153.405 Calculation of reinsurance contributions.
* * * * *
   (c) Notification and payment. (1) Following submission of the annual enrollment count described in paragraph (b) of this section, HHS will notify the contributing entity of the reinsurance contribution amount allocated to reinsurance payments and administrative expenses to be paid for the applicable benefit year.
   (2) In the fourth quarter of the calendar year following the applicable benefit year, HHS will notify the contributing entity of the portion of the reinsurance contribution amount allocated for payments to the U.S. Treasury for the applicable benefit year.
   (3) A contributing entity must remit reinsurance contributions to HHS within 30 days after the date of a notification.
* * * * *
   (e) * * *
   (3) Using the number of lives covered for the most current plan year calculated based upon the "Annual Return/Report of Employee Benefit Plan" filed with the
* * * * *
   (i) Audits. HHS or its designee may audit a contributing entity to assess its compliance with the requirements of this subpart.
   13. Section 153.410 is amended by adding paragraph (d) to read as follows:
SEC 153.410 Requests for reinsurance payment.
* * * * *
   (d) Audits. HHS or its designee may audit an issuer of a reinsurance-eligible plan to assess its compliance with the requirements of this subpart and subpart H. The issuer must ensure that its relevant contractors, subcontractors, or agents cooperate with any audit under this section. If an audit results in a finding of material weakness or significant deficiency with respect to compliance with any requirement of this subpart or subpart H, the issuer must complete all of the following:
   (1) Within 30 calendar days of the issuance of the final audit report, provide a written corrective action plan to HHS for approval.
   (2) Implement that plan.
   (3) Provide to HHS written documentation of the corrective actions once taken.
   14. Section 153.510 is amended by adding paragraph (f) to read as follows:
SEC 153.510 Risk corridors establishment and payment methodology.
* * * * *
   (f) Eligibility under health insurance market rules. The provisions of this subpart apply only for plans offered by a QHP issuer in the SHOP or the individual or small group market, as determined according to the employee counting method applicable under State law, that are subject to the following provisions: SUBSEC 147.102, 147.104, 147.106, 147.150, 156.80, and subpart B of part 156 of this subchapter.
   15. Section 153.540 is added to subpart F to read as follows:
SEC 153.540 Compliance with risk corridors standards.
   (a) Audits. HHS or its designee may audit a QHP issuer to assess its compliance with the requirements of this subpart. HHS will conduct an audit in accordance with the procedures set forth in SEC 158.402(a) through (e) of this subchapter.
   (b) Enforcement actions. If an issuer of a QHP on a State-based Exchange fails to comply with the requirements of this subpart, HHS may impose civil money penalties in accordance with the procedures set forth in SEC 156.805 of this subchapter.
   16. Section 153.620 is amended by adding paragraph (c) to read as follows:
SEC 153.620 Compliance with risk adjustment standards.
* * * * *
   (c) Audits. HHS or its designee may audit an issuer of a risk adjustment covered plan to assess its compliance with the requirements of this subpart and subpart H of this part. The issuer must ensure that its relevant contractors, subcontractors, or agents cooperate with any audit under this section. If an audit results in a finding of material weakness or significant deficiency with respect to compliance with any requirement of this subpart or subpart H of this part, the issuer must complete all of the following:
   (1) Within 30 calendar days of the issuance of the final audit report, provide a written corrective action plan to HHS for approval.
   (2) Implement that plan.
   (3) Provide to HHS written documentation of the corrective actions once taken.
   17. Section 153.630 is amended by revising paragraph (b)(1) and adding paragraphs (b)(5) through (10) to read as follows:
SEC 153.630 Data validation requirements when HHS operates risk adjustment.
* * * * *
   (b) * * *
   (1) An issuer of a risk adjustment covered plan must engage one or more independent auditors to perform an initial validation audit of a sample of its risk adjustment data selected by HHS. The issuer must provide HHS with the identity of the initial validation auditor, and must attest to the absence of conflicts of interest between the initial validation auditor (or the members of its audit team, owners, directors, officers, or employees) and the issuer (or its owners, directors, officers, or employees), in a timeframe and manner to be specified by HHS.
* * * * *
   (5) An initial validation audit must be conducted by medical coders certified as such and in good standing by a nationally recognized accrediting agency.
   (6) An issuer must provide the initial validation auditor and the second validator auditor with all relevant source enrollment documentation, all claims and encounter data, and medical record documentation from providers of services to each enrollee in the applicable sample without unreasonable delay and in a manner that reasonably assures confidentiality and security in transmission.
   (7) The risk score of each enrollee in the sample must be validated by--
   (i) Validating the enrollee's enrollment data and demographic data through review of source enrollment documentation;
   (ii) Validating enrollee health status through review of all relevant medical record documentation. Medical record documentation must originate from the provider of the services and align with dates of service for the medical diagnoses, and reflect permitted providers and services. For purposes of this section, "medical record documentation" means clinical documentation of hospital inpatient or outpatient treatment or professional medical treatment from which enrollee health status is documented and related to accepted risk adjustment services that occurred during a specified period of time. Medical record documentation must be generated under a face-to-face or telehealth visit documented and authenticated by a permitted provider of services;
   (iii) Validating medical records according to industry standards for coding and reporting; and
   (iv) Having a senior reviewer confirm any enrollee risk adjustment error discovered during the initial validation audit. For purposes of this section, a "senior reviewer" is a reviewer certified as a medical coder by a nationally recognized accrediting agency who possesses at least 5 years of experience in medical coding.
   (8) The initial validation auditor must measure and report to the issuer and HHS, in a manner and timeframe specified by HHS, its inter-rater reliability rates among its reviewers. The initial validation auditor must achieve a consistency measure of at least 95 percent for demographic, enrollment, and health status review outcomes.
   (9) Enforcement actions: If an issuer of a risk adjustment covered plan fails to engage an initial validation auditor or to submit the results of an initial validation audit to HHS, HHS may impose civil money penalties in accordance with the procedures set forth in SEC 156.805 of this subchapter.
   (10) Default data validation charge: If an issuer of a risk adjustment covered plan fails to engage an initial validation auditor or to submit the results of an initial validation audit to HHS, HHS will impose a default risk adjustment charge.
* * * * *
   18. Section 153.710 is amended by adding paragraphs (d), (e), (f), and (g) to read as follows:
SEC 153.710 Data requirements.
* * * * *
   (d) Interim dedicated distributed data environment reports. Within 30 calendar days of the date of an interim dedicated distributed data environment report from HHS, the issuer must, in a format specified by HHS, either:
   (1) Confirm to HHS that the information in the interim report accurately reflects the data to which the issuer has provided access to HHS through its dedicated distributed data environment in accordance with SEC 153.700(a) for the timeframe specified in the report; or
   (2) Describe to HHS any discrepancy it identifies in the interim dedicated distributed data environment report.
   (e) Final dedicated distributed data environment report. Within 15 calendar days of the date of the final dedicated distributed data environment report from HHS, the issuer must, in a format specified by HHS, either:
   (1) Confirm to HHS that the information in the final report accurately reflects the data to which the issuer has provided access to HHS through its dedicated distributed data environment in accordance with SEC 153.700(a) for the benefit year specified in the report; or
   (2) Describe to HHS any discrepancy it identifies in the final dedicated distributed data environment report.
   (f) Unresolved discrepancies. If a discrepancy first identified in an interim or final dedicated distributed data environment report in accordance with paragraphs (d)(2) or (e)(2) of this section remains unresolved after the issuance of the notification of risk adjustment payments and charges or reinsurance payments under SEC 153.310(e) or SEC 153.240(b)(1)(ii), respectively, an issuer of a risk adjustment covered plan or reinsurance-eligible plan may make a request for reconsideration regarding such discrepancy under the process set forth in SEC 156.1220(a).
   (g) Risk corridors and medical loss ratio reporting. (1) Notwithstanding any discrepancy report made under paragraph (d)(2) or (e)(2) of this section, or any request for reconsideration under SEC 156.1220(a) with respect to any risk adjustment payment or charge, including an assessment of risk adjustment user fees; reinsurance payment; cost-sharing reconciliation payment or charge; or risk corridors payment or charge, unless the dispute has been resolved, an issuer must report, for purposes of the risk corridors and medical loss ratio programs:
   (i) The risk adjustment payment to be made or charge assessed, including an assessment of risk adjustment user fees, by HHS in the notification provided under SEC 153.310(e);
   (ii) The reinsurance payment to be made by HHS in the notification provided under SEC 153.240(b)(1)(ii);
   (iii) A cost-sharing reduction amount equal to the amount of the advance payments of cost-sharing reductions paid to the issuer by HHS for the benefit year; and
   (iv) For medical loss ratio report only, the risk corridors payment to be made or charge assessed by HHS as reflected in the notification provided under SEC 153.510(d).
   (2) An issuer must report any adjustment made following any discrepancy report made under paragraph (d)(2) or (e)(2) of this section, or any request for reconsideration under SEC 156.1220(a) with respect to any risk adjustment payment or charge, including an assessment of risk adjustment user fees; reinsurance payment; cost-sharing reconciliation payment or charge; or risk corridors payment or charge; or following any audit, where such adjustment has not be accounted for in a prior risk corridors or medical loss ratio report, in the next following risk corridors or medical loss ratio report.
PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED STANDARDS UNDER THE AFFORDABLE CARE ACT
   19. Authority citation for part 155 is revised to read as follows:
   Authority: Title I of the Affordable Care Act, sections 1301, 1302, 1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 1332, 1334, 1402, 1411, 1412, 1413, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18021-18024, 18031-18033, 18041-18042, 18051, 18054, 18071, and 18081-18083).
   20. Section 155.106 is amended by revising paragraph (a)(2) to read as follows:
SEC 155.106 Election to operate an Exchange after 2014.
   (a) * * *
   (2) Have in effect an approved, or conditionally approved, Exchange Blueprint and operational readiness assessment at least 6.5 months prior to the Exchange's first effective date of coverage; and
* * * * *
   21. Section 155.220 is amended by adding paragraph (i) as follows:
SEC 155.220 Ability of States to permit agents and brokers to assist qualified individuals, qualified employers, or qualified employees enrolling in QHPs.
* * * * *
   (i) For plan years beginning on or after
   22. Section 155.260 is amended by revising paragraphs (a)(1), (a)(2) and (b) to read as follows:
SEC 155.260 Privacy and security of personally identifiable information.
   (a) * * *
   (1) Where the Exchange creates or collects personally identifiable information for the purposes of determining eligibility for enrollment in a qualified health plan; determining eligibility for other insurance affordability programs, as defined in SEC 155.20; or determining eligibility for exemptions from the individual responsibility provisions in section 5000A of the Code, the Exchange may only use or disclose such personally identifiable information to the extent such information is necessary:
   (i) For the Exchange to carry out the functions described in SEC 155.200;
   (ii) For the Exchange to carry out other functions not described in paragraph (a)(1)(i) of this section, which the Secretary determines to be in compliance with section 1411(g)(2)(A) of the Affordable Care Act and for which an individual provides consent for his or her information to be used or disclosed; or
   (iii) For the Exchange to carry out other functions not described in paragraphs (a)(1)(i) and (ii) of this section, for which an individual provides consent for his or her information to be used or disclosed, and which the Secretary determines are in compliance with section 1411(g)(2)(A) of the Affordable Care Act under the following substantive and procedural requirements:
   (A) Substantive requirements. The Secretary may approve other uses and disclosures of personally identifiable information created or collected as described in paragraph (a)(1) of this section that are not described in paragraphs (a)(1)(i) or (a)(1)(ii) of this section, provided that HHS determines that the information will be used only for the purposes of and to the extent necessary in ensuring the efficient operation of the Exchange consistent with section 1411(g)(2)(A) of the Affordable Care Act, and that the uses and disclosures are also permissible under relevant law and policy.
   (B) Procedural requirements for approval of a use or disclosure of personally identifiable information. To seek approval for a use or disclosure of personally identifiable information created or collected as described in paragraph (a)(1) of this section that is not described in paragraphs (a)(1)(i) or (a)(1)(ii), the Exchange must submit the following information to HHS:
   ( 1) Identity of the Exchange and appropriate contact persons;
   ( 2) Detailed description of the proposed use or disclosure, which must include, but not necessarily be limited to, a listing or description of the specific information to be used or disclosed and an identification of the persons or entities that may access or receive the information;
   ( 3) Description of how the use or disclosure will ensure the efficient operation of the Exchange consistent with section 1411(g)(2)(A) of the Affordable Care Act; and
   ( 4) Description of how the information to be used or disclosed will be protected in compliance with privacy and security standards that meet the requirements of this section or other relevant law, as applicable.
   (2) The Exchange may not create, collect, use, or disclose personally identifiable information unless the creation, collection, use, or disclosure is consistent with this section.
* * * * *
   (b) Application to non-Exchange entities. (1) Non-Exchange entities. A non-Exchange entity is any individual or entity that:
   (i) Gains access to personally identifiable information submitted to an Exchange; or
   (ii) Collects, uses, or discloses personally identifiable information gathered directly from applicants, qualified individuals, or enrollees while that individual or entity is performing functions agreed to with the Exchange.
   (2) Prior to any person or entity becoming a non-Exchange entity, Exchanges must execute with the person or entity a contract or agreement that includes:
   (i) A description of the functions to be performed by the non-Exchange entity;
   (ii) A provision(s) binding the non-Exchange entity to comply with the privacy and security standards and obligations adopted in accordance with paragraph (b)(3) of this section, and specifically listing or incorporating those privacy and security standards and obligations;
   (iii) A provision requiring the non-Exchange entity to monitor, periodically assess, and update its security controls and related system risks to ensure the continued effectiveness of those controls in accordance with paragraph (a)(5) of this section;
   (iv) A provision requiring the non-Exchange entity to inform the Exchange of any change in its administrative, technical, or operational environments defined as material within the contract; and
   (v) A provision that requires the non-Exchange entity to bind any downstream entities to the same privacy and security standards and obligations to which the non-Exchange entity has agreed in its contract or agreement with the Exchange.
   (3) When collection, use or disclosure is not otherwise required by law, the privacy and security standards to which an Exchange binds non-Exchange entities must:
   (i) Be consistent with the principles and requirements listed in paragraphs (a)(1) through (a)(6) of this section, including being at least as protective as the standards the Exchange has established and implemented for itself in compliance with paragraph (a)(3) of this section;
   (ii) Comply with the requirements of paragraphs (c), (d), (f) and (g) of this section; and
   (iii) Take into specific consideration:
   (A) The environment in which the non-Exchange entity is operating;
   (B) Whether the standards are relevant and applicable to the non-Exchange entity's duties and activities in connection with the Exchange; and
   (C) Any existing legal requirements to which the non-Exchange entity is bound in relation to its administrative, technical, and operational controls and practices, including but not limited to, its existing data handling and information technology processes and protocols.
* * * * *
   23. Section 155.410 is amended by revising paragraphs (e) and (f) to read as follows:
SEC 155.410 Initial and annual open enrollment periods.
* * * * *
   (e) Annual open enrollment period. For benefit years beginning--
   (1) On
   (2) On or after
   (f) Effective date for coverage after the annual open enrollment period. For the benefit years beginning--
   (1) On
   (i)
   (ii)
   (2) On or after
* * * * *
   24. Section 155.705 is amended by:
   a. Revising paragraph (b)(1);
   b. Adding paragraph (b)(3)(v);
   c. Redesignating paragraph (b)(4)(ii) as (b)(4)(iii);
   d. Adding new paragraph (b)(4)(ii); and
   e. Revising paragraphs (b)(11)(ii)(C) and (D).
   The additions and revisions read as follows:
SEC 155.705 Functions of a SHOP.
* * * * *
   (b) * * *
   (1) Enrollment and eligibility functions. The SHOP must adhere to the requirements outlined in SUBSEC 155.710, 155.715, 155.720, 155.725, 155.730, 155.735, and 155.740.
* * * * *
   (3) * * *
   (v) For plan years beginning on or after
   (A) The employer may choose to make available a single stand-alone dental plan.
&#160;  (B) The employer may choose to make available all stand-alone dental plans offered through the Federally-facilitated SHOP.
   (4) * * *
   (ii) The SHOP may establish one or more standard processes for premium calculation, premium payment, and premium collection.
   (A) Qualified employers in a Federally-facilitated SHOP must make premium payments according to a timeline and process established by HHS;
   (B) For a Federally-facilitated SHOP, the premium for coverage lasting less than 1 month must equal the product of:
   ( 1) The premium for 1 month of coverage divided by the number of days in the month; and
   ( 2) The number of days for which coverage is being provided in the month described in paragraph (b)(4)(ii)(B)( 1) of this section.
* * * * *
   (11) * * *
   (ii) * * *
   (C) The employer will define a percentage contribution toward premiums for employee-only coverage under the reference plan and, if dependent coverage is offered, a percentage contribution toward premiums for dependent coverage under the reference plan. To the extent permitted by other applicable law, for plan years beginning on or after
   (D) In a Federally-facilitated SHOP, for plan years beginning on or after
* * * * *
   25. Section 155.715 is amended by revising paragraphs (c)(4), (d)(1) introductory text, and (d)(2) introductory text to read as follows:
SEC 155.715 Eligibility determination process for SHOP.
* * * * *
   (c) * * *
   (4) May not perform individual market Exchange eligibility determinations or verifications described in subpart D of this part.
   (d) * * *
   (1) When the information submitted on the SHOP single employer application is inconsistent with information collected from third-party data sources through the verification process described in SEC 155.715(c)(2), the SHOP must--
* * * * *
   (2) When the information submitted on the SHOP single employee application is inconsistent with information collected from third-party data sources through the verification process described in SEC 155.715(c)(2), the SHOP must--
* * * * *
   26. Section 155.730 is amended by redesignating paragraph (g) as paragraph (g)(1) and by adding paragraph (g)(2) to read as follows:
SEC 155.730 Application standards for SHOP.
* * * * *
   (g) * * *
   (1) * * *
   (2) The SHOP is not permitted to collect information on the single employer or single employee application unless that information is necessary to determine SHOP eligibility or effectuate enrollment through the SHOP.
   27. Section 155.1030 is amended by revising paragraphs (b)(1), (3), and (4) to read as follows:
SEC 155.1030 QHP certification standards related to advance payments of the premium tax credit and cost-sharing reductions.
* * * * *
   (b) * * *
   (1) The Exchange must collect and review annually the rate allocation and the actuarial memorandum that an issuer submits to the Exchange under SEC 156.470 of this subchapter, to ensure that the allocation meets the standards set forth in SEC 156.470(c) and (d).
* * * * *
   (3) The Exchange must use the methodology specified in the annual HHS notice of benefit and payment parameters to calculate advance payment amounts for cost-sharing reductions, and must transmit the advance payment amounts to HHS, in accordance with SEC 156.340(a).
   (4) HHS may use the information provided to HHS by the Exchange under this section for oversight of advance payments of cost-sharing reductions and premium tax credits.
* * * * *
PART 156--HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE CARE ACT, INCLUDING STANDARDS RELATED TO EXCHANGES
   28. The authority citation for part 156 is revised to read as follows:
   Authority: Title I of the Affordable Care Act, sections 1301-1304, 1311-1312, 1321-1322, 1324, 1334, 1342-1343, 1401-1402, and 1412, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18021-18024, 18031-18032, 18041-18042, 18044, 18054, 18061, 18063, 18071, 18082, 26 U.S.C. 36B, and 31 U.S.C. 9701).
   29. Section 156.135 is amended by revising paragraph (a) and adding paragraph (g) to read as follows:
SEC 156.135 AV calculation for determining level of coverage.
   (a) Calculation of AV. Subject to paragraphs (b) and (d) of this section, to calculate the AV of a health plan, the issuer must use the AV Calculator developed and made available by HHS for the given benefit year.
* * * * *
   (g) Updates to the AV calculator. HHS will update the AV Calculator as follows, HHS will:
   (1) Update the annual limit on cost sharing and related functions based on a projected estimate to enable the AV Calculator to comply with SEC 156.130(a)(2);
   (2) Update the continuance tables to reflect more current enrollment data when HHS has determined that the enrolled population has materially changed;
   (3) Update the algorithms when HHS has determined the need to adapt the AV Calculator for use by additional plan designs or to allow the AV Calculator to accommodate potential new types of plan designs, where such adaptations can be based on actuarially sound principles and will not have a substantial effect on the AV calculations performed by the then current AV Calculator;
   (4) Update the continuance tables to reflect more current claims data no more than every 3 and no less than every 5 years and to annually trend the claims data when the trending factor is more than 5 percent different, calculated on a cumulative basis; and
   (5) Update the AV Calculator user interface when a change would be useful to a broad group of users of the AV Calculator, would not affect the function of the AV Calculator, and would be technically feasible.
   30. Section 156.150 is revised to read as follows:
SEC 156.150 Application to stand-alone dental plans inside the Exchange.
   (a) Annual limitation on cost-sharing. For a stand-alone dental plan covering the pediatric dental EHB under SEC 155.1065 of this subchapter in any Exchange, cost sharing may not exceed
   (b) [Reserved]
   31. Section 156.285 is amended by adding paragraph (a)(4) and revising paragraph (c)(7) to read as follows:
SEC 156.285 Additional standards specific to SHOP.
   (a) * * *
   (4)(i) Adhere to the premium rating standards described in SEC 147.102 regardless of whether the QHP is sold in the small group market or the large group market; and
   (ii) Effective in plan years beginning on or after
* * * * *
   (c) * * *
   (7) A QHP issuer must enroll a qualified employee only if the SHOP--
   (i) Notifies the QHP issuer that the employee is a qualified employee;
   (ii) Transmits information to the QHP issuer as provided in SEC 155.400(a) of this subchapter; and
   (iii) Effective for QHPs offered through a Federally-facilitated SHOP in plan years beginning on or after
* * * * *
   32. Section 156.298 is added to subpart C to read as follows:
SEC 156.298 Meaningful difference standard for Qualified Health Plans in the Federally-facilitated Exchanges.
   (a) General. Subject to paragraph (b)(2) of this section, starting in the 2015 coverage year, in order to be certified as a QHP offered through a Federally-facilitated Exchange, a plan must be meaningfully different from all other QHPs offered by the same issuer of that plan within a service area and level of coverage in the Exchange, as defined in paragraph (b) of this section.
   (b) Meaningful difference standard. A plan is considered meaningfully different from another plan in the same service area and metal tier (including catastrophic plans) if a reasonable consumer would be able to identify two or more material differences among the following characteristics between the plan and other plan offerings:
   (1) Cost sharing;
   (2) Provider networks;
   (3) Covered benefits;
   (4) Plan type;
   (5) Premiums;
   (6) Health Savings Account eligibility; or
   (7) Self-only, non-self-only, or child-only coverage offerings.
   (c) Exception for limited plan availability. If HHS determines that the plan offerings at a particular metal level (including catastrophic plans) within a county are limited, plans submitted for certification in that particular metal level (including catastrophic plans) within that county will not be subject to the meaningful difference requirement set forth in paragraph (b) of this section.
   (d) Two-year transition period for issuers with new acquisitions. During the first 2 years after a merger or acquisition in which an acquiring issuer obtains or merges with another issuer, the FFEs may certify plans as QHPs that were previously offered by the acquired or merged issuer without those plans meeting the meaningful difference standard set forth in paragraph (b) of this section.
   33. Section 156.420 is amended by revising paragraphs (c), (d), and (e) to read as follows:
SEC 156.420 Plan variations.
* * * * *
   (c) Benefit and network equivalence in silver plan variations. A standard silver plan and each silver plan variation thereof must cover the same benefits and providers. Each silver plan variation is subject to all requirements applicable to the standard silver plan (except for the requirement that the plan have an AV as set forth in SEC 156.140(b)(2)).
   (d) Benefit and network equivalence in zero and limited cost sharing plan variations. A QHP and each zero cost sharing plan variation or limited cost sharing plan variation thereof must cover the same benefits and providers. The out-of-pocket spending required of enrollees in the zero cost sharing plan variation of a QHP for a benefit that is not an essential health benefit from a provider (including a provider outside the plan's network) may not exceed the corresponding out-of-pocket spending required in the limited cost sharing plan variation of the QHP, and the out-of-pocket spending required of enrollees in the limited cost sharing plan variation of the QHP for a benefit that is not an essential health benefit from a provider (including a provider outside the plan's network) may not exceed the corresponding out-of-pocket spending required in the QHP with no cost-sharing reductions. A limited cost sharing plan variation must have the same cost sharing for essential health benefits not described in paragraph (b)(2) of this section as the QHP with no cost-sharing reductions. Each zero cost sharing plan variation or limited cost sharing plan variation is subject to all requirements applicable to the QHP (except for the requirement that the plan have an AV as set forth in SEC 156.140(b)).
   (e) Decreasing cost sharing and out-of-pocket spending in higher AV silver plan variations. The cost sharing or out-of-pocket spending required of enrollees under any silver plan variation of a standard silver plan for a benefit from a provider (including a provider outside the plan's network) may not exceed the corresponding cost sharing or out-of-pocket spending required in the standard silver plan or any other silver plan variation thereof with a lower AV.
* * * * *
   34. Section 156.430 is amended by removing and reserving paragraph (a) and by revising paragraph (b)(1) to read as follows:
SEC 156.430 Payment for cost-sharing reductions.
   (b) * * *
   (1) A QHP issuer will receive periodic advance payments based on the advance payment amounts calculated in accordance with SEC 155.1030(b)(3).
* * * * *
   35. Section 156.470 is amended by revising paragraph (a) to read as follows:
SEC 156.470 Allocation of rates for advance payments of the premium tax credit.
   (a) Allocation to additional health benefits for QHPs. An issuer must provide to the Exchange annually for approval, in the manner and timeframe established by HHS, for each health plan at any level of coverage offered, or intended to be offered, in the individual market on an Exchange, an allocation of the rate for the plan to:
   (1) EHB, other than services described in SEC 156.280(d)(1); and
   (2) Any other services or benefits offered by the health plan not described in paragraph (a)(1) of this section.
* * * * *
   36. Section 156.1110 is added to Subpart L to read as follows:
SEC 156.1110 Establishment of patient safety standards for QHP issuers.
   (a) Patient safety standards. A QHP issuer that contracts with a hospital with greater than 50 beds must verify that the hospital, as defined in section 1861(e) of the Social Security Act, is Medicare-certified or has been issued a Medicaid-only CMS Certification Number (CCN) and is subject to the Medicare Hospital Condition of Participation requirements for--
   (1) A quality assessment and performance improvement program as specified in 42 CFR 482.21; and
   (2) Discharge planning as specified in 42 CFR 482.43.
   (b) Documentation. A QHP issuer must collect, from each of its contracted hospitals with greater than 50 beds, information that demonstrates that those hospitals meet patient safety standards required in paragraph (a) of this section including, but not limited to, the CCN.
   (c) Reporting. (1) A QHP issuer must make available to the Exchange the documentation referenced in paragraph (b) of this section, upon request by the Exchange, in a time and manner specified by the Exchange.
   (2) Issuers of multi-State plans, as defined in SEC 155.1000(a) of this subchapter, must provide the documentation described in paragraph (b) of this section to the
   (d) Effective date. A QHP issuer must ensure that each QHP meets patient safety standards in accordance with paragraph (a) of this section effective for plan years beginning on or after
   37. Section 156.1210 is amended by adding paragraph (c) to read as follows:
SEC 156.1210 Confirmation of HHS payment and collections reports.
* * * * *
   (c) Discrepancies to be addressed in future reports. Discrepancies in payment and collections reports identified to HHS under this section will be addressed in subsequent payment and collections reports, and will not be used to change debts determined pursuant to invoices generated under previous payment and collections reports.
   38. Section 156.1215 is added to Subpart M to read as follows:
SEC 156.1215 Payment and collections processes.
   (a) Netting of payments and charges for 2014. In 2014, as part of its monthly payment and collections process, HHS will net payments owed to QHP issuers and their affiliates under the same taxpayer identification number against amounts due to the Federal government from the QHP issuers and their affiliates under the same taxpayer identification number for advance payments of the premium tax credit, advance payments of cost-sharing reductions, and payment of Federally-facilitated Exchange user fees.
   (b) Netting of payments and charges for later years. In 2015 and later years, as part of its payment and collections process, HHS may net payments owed to issuers and their affiliates operating under the same tax identification number against amounts due to the Federal government from the issuers and their affiliates under the same taxpayer identification number for advance payments of the premium tax credit, advance payments of and reconciliation of cost-sharing reductions, payment of Federally-facilitated Exchange user fees, and risk adjustment, reinsurance, and risk corridors payments and charges.
   (c) Determination of debt. Any amount owed to the Federal government by an issuer and its affiliates for advance payments of the premium tax credit, advance payments of and reconciliation of cost-sharing reductions, Federally-facilitated Exchange user fees, risk adjustment, reinsurance, and risk corridors, after HHS nets amounts owed by the Federal government under these programs, is a determination of a debt.
   39. Section 156.1220 is added to subpart M to read as follows:
SEC 156.1220 Administrative appeals.
   (a) Requests for reconsideration. (1) Matters for reconsideration. An issuer may file a request for reconsideration under this section to contest a processing error by HHS, HHS's incorrect application of the relevant methodology, or HHS's mathematical error only with respect to the following:
   (i) The amount of advance payment of the premium tax credit, advance payment of cost-sharing reductions or Federally-facilitated Exchange user fees charge for a benefit year;
   (ii) The amount of a risk adjustment payment or charge for a benefit year, including an assessment of risk adjustment user fees;
   (iii) The amount of a reinsurance payment for a benefit year;
   (iv) The amount of a risk adjustment default charge for a benefit year;
   (v) The amount of a reconciliation payment or charge for cost-sharing reductions for a benefit year; or
   (vi) The amount of a risk corridors payment or charge for a benefit year.
   (2) Time for filing a request for reconsideration. The request for reconsideration must be filed in accordance with the following timeframes:
   (i) For advance payments of the premium tax credit, advance payments of cost-sharing reductions, or Federally-facilitated Exchange user fee charges, within 30 calendar days after the issuer receives a final reconsideration notification specifying the aggregate amount of advance payments of the premium tax credit, advance payments of cost-sharing reductions, and Federally-facilitated Exchange user fees for the applicable benefit year;
   (ii) For a risk adjustment payment or charge, including an assessment of risk adjustment user fees, within 30 calendar days of receipt of the notification provided by HHS under SEC 153.310(e);
   (iii) For a reinsurance payment, within 30 calendar days of receipt of the notification provided by HHS under SEC 153.240(b)(1)(ii);
   (iv) For a default risk adjustment charge, within 30 calendar days of receipt of the notification of the default risk adjustment charge;
   (v) For reconciliation of cost-sharing reductions, within 30 calendar days of receipt of the notification provided by HHS of the cost-sharing reduction reconciliation payment or charge; and
   (vi) For a risk corridors payment or charge, within 30 calendar days of receipt of the notification provided by HHS under SEC 153.510(d).
   (3) Content of request. (i) The request for reconsideration must specify the findings or issues specified in paragraph (a)(1) of this section that the issuer challenges, and the reasons for the challenge.
   (ii) Notwithstanding paragraph (a)(3)(i) of this section, a reconsideration with respect to a processing error by HHS, HHS's incorrect application of the relevant methodology, or HHS's mathematical error may be requested only if, to the extent the issue could have been previously identified by the issuer to HHS under SEC 153.710(d)(2) or (e)(2) of this subchapter, it was so identified and remains unresolved.
   (iii) Notwithstanding paragraph (a)(3)(i) of this section, a reconsideration with respect to advance payments of the premium tax credit, advance payments of cost-sharing reductions, and Federally-facilitated Exchange user fees may be requested only if, to extent the issue could have been previously identified by the issuer to HHS under SEC 156.1210 of this subpart, it was so identified and remains unresolved. An issuer may request reconsideration if it previously identified an issue under SEC 156.1210 of this subpart after the 15-calendar-day deadline, but late discovery of the issue was not due to misconduct on the part of the issuer.
   (iv) The issuer may include in the request for reconsideration additional documentary evidence that HHS should consider. Such documents may not include data that was to have been filed by the applicable data submission deadline, but may include evidence of timely submission.
   (4) Scope of review for reconsideration. In conducting the reconsideration, HHS will review the appropriate payment and charge determinations, the evidence and findings upon which the determination was based, and any additional documentary evidence submitted by the issuer. HHS may also review any other evidence it believes to be relevant in deciding the reconsideration, which will be provided to the issuer with a reasonable opportunity to review and rebut the evidence. The issuer must prove its case by a preponderance of the evidence with respect to issues of fact.
   (5) Reconsideration decision. HHS will inform the issuer of the reconsideration decision in writing. A reconsideration decision is final and binding for decisions regarding the advance payments of the premium tax credit, advance payment of cost-sharing reductions, or Federally-facilitated Exchange user fees. A reconsideration decision with respect to other matters is subject to the outcome of a request for informal hearing filed in accordance with paragraph (b) of this section.
   (b) Informal hearing. An issuer may request an informal hearing before a CMS hearing officer to appeal HHS's reconsideration decision.
   (1) Manner and timing for request. A request for an informal hearing must be made in writing and filed with HHS within 15 calendar days of the date the issuer receives the reconsideration decision under paragraph (a)(5) of this section.
   (2) Content of request. The request for informal hearing must include a copy of the reconsideration decision and must specify the findings or issues in the decision that the issuer challenges, and its reasons for the challenge. HHS may submit for review by the CMS hearing officer a statement of its reasons for the reconsideration decision.
   (3) Informal hearing procedures. (i) The issuer will receive a written notice of the time and place of the informal hearing at least 15 calendar days before the scheduled date.
   (ii) The CMS hearing officer will neither receive testimony nor accept any new evidence that was not presented with the reconsideration request and HHS statement under paragraph (b) of this section. The CMS hearing officer will review only the documentary evidence provided by the issuer and HHS, and the record that was before HHS when HHS made its reconsideration determination. The issuer may be represented by counsel in the informal hearing, and must prove its case by clear and convincing evidence with respect to issues of fact.
   (4) Decision of the CMS hearing officer. The CMS hearing officer will send the informal hearing decision and the reasons for the decision to the issuer. The decision of the CMS hearing officer is final and binding, but is subject to the results of any Administrator's review initiated in accordance with paragraph (c) of this section.
   (c) Review by the Administrator. (1) If the CMS hearing officer upholds the reconsideration decision, the issuer may request review by the Administrator of CMS within 15 calendar days of receipt of the CMS hearing officer's decision. The request for review must specify the findings or issues that the issuer challenges. HHS may submit for review by the Administrator a statement supporting the decision of the CMS hearing officer.
   (2) The Administrator will review the CMS hearing officer's decision, the statements of the issuer and HHS, and any other information included in the record of the CMS hearing officer's decision, and will determine whether to uphold, reverse, or modify the CMS hearing officer's decision. The issuer must provide its case by clear and convincing evidence with respect to issues of fact. The Administrator will send the decision and the reasons for the decisions to the issuer.
   (3) The Administrator's determination is final and binding.
   Dated:
Marilyn Tavenner,
Administrator,
   Approved:
Kathleen Sebelius,
Secretary,
[FR Doc. 2013-28610 Filed 11-25-13;
BILLING CODE 4120-01-P
Copyright: | (c) 2013 Federal Information & News Dispatch, Inc. |
Wordcount: | 77265 |
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