[Federal Register Volume 77, Number 63 (Monday, April 2, 2012)]
[Rules and Regulations]
[Pages 19522-19525]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-7835]
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OFFICE OF PERSONNEL MANAGEMENT
5 CFR Part 890
48 CFR Parts 1602, 1615, 1632, and 1652
RIN 3206-AM39
Federal Employees Health Benefits Program: New Premium Rating
Method for Most Community Rated Plans
AGENCY: U.S. Office of Personnel Management.
ACTION: Final rule.
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SUMMARY: The U.S. Office of Personnel Management (OPM) is issuing a
final regulation amending the Federal Employees Health Benefits (FEHB)
regulations and also the Federal Employees Health Benefits Acquisition
Regulation (FEHBAR). This final regulation makes minor changes to an
interim final regulation on the same subject published June 29, 2011.
The rule replaces the procedure by which premiums for community rated
FEHB carriers are compared with the rates charged to a carrier's
similarly sized subscriber groups (SSSGs). The new procedure utilizes a
medical loss ratio (MLR) threshold, analogous to that defined in both
the Affordable Care Act (ACA), and in Department of Health and Human
Services (HHS) regulations and replaces the outdated SSSG methodology
with a more modern and transparent calculation while still ensuring
that the FEHB Program is receiving a fair rate. This will result in a
more streamlined process for plans and increased competition and plan
choice for enrollees. The new process will apply to all community rated
plans, except those required by their state to use traditional
community rating (TCR). This new process will be phased in over two
years, with optional participation for non-TCR plans in the first year.
DATES: This final rule is effective May 2, 2012.
FOR FURTHER INFORMATION CONTACT: Louise Dyer, Senior Policy Analyst,
(202) 606-0770.
SUPPLEMENTARY INFORMATION: The Office of Personnel Management is
issuing a final regulation to establish a new rate-setting procedure
for most FEHB plans that are subject to community rating. This final
rule makes minor changes to an interim final rule published June 29,
2011 that replaced the current rate negotiation process with a
requirement that most community rated plans meet an FEHB-specific
medical loss ratio (MLR) target. Plans that are required to use
traditional community rating (TCR) per their state regulator will be
exempt from this new rate-setting procedure. This final rule makes
several changes to the interim final rule published June 29, 2011.
First, OPM has removed a clause that said that the previous year's MLR
would have no effect on the current plan year. The change was added in
response to public comments and is intended to give OPM appropriate
flexibility to determine a fair and accurate MLR for each plan in each
year. Second, OPM has laid out a deadline for publishing the FEHB-
specific MLR threshold. Third, OPM made technical changes to a
certificate attesting to accurate pricing in order to accommodate a
change in timing. Fourth, clarifying language explains that OPM will
substitute its own credibility adjustment for that defined by HHS.
Analysis of and Responses to Public Comments
We received two comment letters on the interim final rule from FEHB
carriers and carrier groups. The comments and OPM's responses are
detailed below.
Comment: A commenter noted that FEHB carriers will need as much
advance notice of the MLR threshold for the following year as possible.
This commenter recommended early notice by OPM, even in advance of the
annual Call Letter, to allow carriers to plan for rating actions and
complete filings.
Response: For the first years of MLR-based rate negotiation, OPM
will be gathering information about FEHB carrier MLRs which will aid in
setting future MLR thresholds. OPM will make every effort to provide
such advance notice as the rate negotiation methodology matures. This
final regulation text states that OPM will make the MLR threshold
public no later than twelve calendar months before plan years beginning
with 2014.
Comment: A commenter raised the need for clarity and consistency
regarding the identification and allocation of costs and revenues for
the MLR calculation. Specifically, the commenter asked for additional
clarification on what can be included as expenses, such as fees and
charges related to Affordable Care Act implementation.
Response: As stated in the interim final regulation, OPM will adopt
the HHS definition of MLR for purposes of MLR-based rate negotiation in
FEHB. We anticipate that any clarifications around this calculation
that are offered by HHS will be adopted by OPM. OPM will only allow
costs for items that are allowed by the FEHB contract to be included in
the MLR calculation.
Comment: Both commenters raised concerns about the subsidization
penalty reserve account. One commenter stated that using penalty funds
to subsidize other plans is inconsistent with both the current
similarly sized subscriber group (SSSG) methodology and the ACA MLR
rebates. Another commenter stated that OPM needs to be sure that this
reserve does not act as a disincentive for carriers to operate in the
most efficient way possible.
Response: OPM has intentionally structured the subsidization
penalty differently from either the SSSG adjustments or the ACA MLR
rebates. The subsidization penalties are to be shared among community
rated plans in order to avoid a plan paying a penalty into an account
from which it can solely benefit.
In response to the concern about the subsidization penalty reserve
acting as a disincentive to efficiency, OPM feels the penalty will
encourage plans to offer a fair rate at the time of proposal and
therefore will not act as a disincentive to efficiency.
Comment: Both commenters expressed concern about OPM's plan to
calculate MLR using one year of data, as compared to a three year
average for the HHS calculation. The commenters were concerned about
large FEHB plans having to manage between the two methodologies. One
commenter mentioned that an annual MLR calculation would not allow FEHB
plans to mitigate variation when carriers engage in activities that
entail large one-time start up costs.
Response: Regarding the commenters concern about managing two
methodologies, OPM feels applying an MLR calculation similar to the ACA
required calculation, instead of the SSSG methodology, provides more
consistency than there would have been without this regulatory change.
OPM must balance its goal of negotiating the best rate for FEHB
payers every year with the concerns of FEHB carriers about managing
variation. For example, OPM may consider the MLR for one or more
previous years when calculating the current year's MLR. This allows OPM
the flexibility to prevent carriers who have historically offered
favorable rates from being overly penalized for an unusually low MLR in
[[Page 19523]]
a given year. OPM issues its annual rate instructions to plans well in
advance of contract negotiations which would contain any variations
required to address such concerns.
Comment: A commenter stated the need for advance knowledge and
understanding of the criteria that will be applied during the annual
reconciliation audit. Specifically, the commenter asked to better
understand the factors that will be considered and the potential
outcomes of the reconciliation process itself once applied.
Additionally, the commenter would like to understand the roles of OPM
and the OPM Inspector General in audit oversight.
Response: OPM does not have plans to change any element of the
audit process as a result of this regulation. As such, OPM will not add
any information about the audit process to this regulation.
Comment: A commenter raised a concern about how the ACA MLR rebates
will be treated in calculating the FEHB MLR. Specifically, the
commenter wanted to be sure that disregarding the ACA MLR payments from
the FEHB MLR calculation will not result in inappropriate duplicative
payments and suggested that the methodology be revised to include any
ACA rebate in the numerator along with medical costs.
Response: The ACA rebate for a carrier reflects a three year
average MLR for their entire book of business and is not specific to
the FEHB. OPM wants the FEHB MLR to be representative of only FEHB
experience. Its purpose is to ensure the FEHB is receiving a fair rate
each year. Including data that is not specific to FEHB claims
experience and premiums would diminish OPM's ability to do this.
Duplicative payments should not result because any amounts paid to the
subsidization penalty reserve should be captured in the following
year's ACA MLR calculation.
Comment: A commenter recommended that OPM permit plans to aggregate
premiums by parent company when calculating the MLR to mitigate wide
variation in MLRs among a parent company's plan offerings.
Response: The regulation allows for this recommendation through the
rate instructions if OPM deems it to be appropriate. We do not expect
to allow for aggregation within the first few years of implementing
MLR, but will consider this option as the MLR experience matures.
Comment: One commenter expressed concern about OPM's plan to use a
different form than HHS for submitting MLR information. The commenter
is concerned about the administrative burden of the two forms and
recommends that OPM follow the model of the HHS form and make it public
before the end of 2011.
Response: Because formula for calculating the MLR required in this
context is the same as that outlined in 45 CFR part 158, OPM intends to
model its form closely on the HHS form.
Comment: One commenter recommended that OPM implement a credibility
adjustment for small or new plans for the MLR calculation in the 2012
pilot year.
Response: OPM agrees that such an adjustment is appropriate once
the new methodology is fully implemented in 2013 and beyond. OPM does
not plan to use such an adjustment in the 2012 pilot year since plans
requiring an adjustment can choose not to use the new methodology. OPM
intends to adjust the calculation for small or new plans for years 2013
and beyond.
Comment: A commenter recommended that OPM issue guidance for those
plans that choose to participate in the 2012 MLR pilot. Specifically,
the commenter would like guidance confirming that the FEHB MLR
calculation will follow the HHS methodology in treatment of Federal
income taxes, not-for-profit community benefits, and assessments on
health insurers to support medical centers.
Response: OPM has been speaking with FEHB carriers participating in
the 2012 MLR pilot about their specific concerns and has offered some
guidance in that context. OPM will continue conversations with FEHB
carriers as needed. OPM intends to be consistent with the HHS
methodology unless doing so conflicts with the FEHB contract.
Changes Made Since the Interim Final Rule Was Published
The interim final regulation on this subject published June 29,
2011 (76 FR 38282). In Sec. 1602.170-14(b), the first sentence of the
interim final rule read ``The FEHB-specific MLR will be calculated on
an annual basis with the prior year's ratio having no effect on the
current plan year.'' In this final rule, OPM removed the clause ``with
the prior year's ratio having no effect on the current plan year''
since OPM may use an adjustment taking previous year's experience into
account.
Also in Sec. 1602.170-14(b), this final rule states that OPM will
put forth the FEHB-specific MLR threshold no later than 12 calendar
months before the beginning of plan years beginning with 2014. The
final rule states that OPM will publish the 2013 threshold no later
than 8 months before the beginning of that plan year. In Sec.
1602.170-14(c), this final rule explains that OPM will set a
credibility adjustment in place of the one defined by HHS at 45 CFR
158.230-158.232.
In the interim final rule, the supplementary information included a
sentence stating that ``To complete the FEHB-specific MLR threshold
calculation after the carrier calculated the ACA-required MLR, FEHB
carriers will report claims incurred in the plan year and paid through
March 31 of the following year.'' OPM has determined that a longer
period of claims data would create a more stable calculation for
carriers and therefore OPM will request through rate instructions that
carriers submit claims through June 30 of the following year. To
accommodate the change in timing, carriers using the MLR methodology
will have to submit a ``Certificate of Accurate Cost or Pricing Data
for Community-Rated Carriers'' followed by a ``Certificate of Accurate
MLR Calculation'' at a later date. In the interim final rule there was
only one certificate for all carriers. The new certificate language is
in Sec. 1615.406-2.
Regulatory Impact Analysis
OPM has examined the impact of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review) and
Executive Order 13563, which directs 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). A regulatory impact
analysis must be prepared for major rules with economically significant
effects of $100 million or more in any one year. This rule is not
considered a major rule because OPM estimates that premiums paid by
Federal employees and agencies will be very similar under the old and
new payment methodologies. This rule will be cost-neutral. OPM's
intention is to keep FEHB premiums stable and sustainable using this
more transparent methodology.
List of Subjects
5 CFR Part 890
Government employees, Health facilities, Health insurance, Health
professions, Hostages, Iraq, Kuwait, Lebanon, Military personnel,
Reporting and recordkeeping requirements, Retirement.
48 CFR Parts 1602, 1615, 1632, and 1652
Government employees, Government procurement, Health insurance,
[[Page 19524]]
Reporting and recordkeeping requirements.
U.S. Office of Personnel Management.
John Berry,
Director.
For the reasons set forth in the preamble, OPM is adopting the
interim rule published June 29, 2011, at 76 FR 38282 as final with the
following changes:
TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
Chapter 16--Office of Personnel Management Federal Employees Health
Benefits Acquisition Regulation
Subchapter A--General
PART 1602--DEFINITIONS OF WORDS AND TERMS
0
1. The authority citation for part 1602 continues to read as follows:
Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.
0
2. Revise Sec. 1602.170-14 to read as follows:
Sec. 1602.170-14 FEHB-specific medical loss ratio threshold
calculation.
(a) Medical Loss Ratio (MLR) means the ratio of plan incurred
claims, including the issuer's expenditures for activities that improve
health care quality, to total premium revenue determined by OPM, as
defined by the Department of Health and Human Services in 45 CFR part
158.
(b) The FEHB-specific MLR will be calculated on an annual basis.
This FEHB-specific MLR will be measured against an FEHB-specific MLR
threshold to be put forth by OPM no later than 12 calendar months
before the beginning of plan years 2014 and beyond. OPM will publish
the FEHB-specific MLR threshold no later than 8 months before the
beginning of plan year 2013.
(c) In place of the credibility adjustment at 45 CFR 158.230-
158.232, OPM will set a separate credibility adjustment to account for
the special circumstances of small FEHB plans in annual rate
instructions to carriers.
Subchapter C--Contracting Methods and Contract Types
PART 1615--CONTRACTING BY NEGOTIATION
0
3. The authority citations for part 1615 continue to read as follows:
Authority: Audit and records--5 U.S.C. 8913; 40 U.S.C. 486(c);
48 CFR 1.301. Negotiation--5 U.S.C. 8902.
0
4. In Sec. 1615.402, revise paragraph (c)(3)(ii)(A) to read as
follows:
Sec. 1615.402 Pricing policy.
* * * * *
(c) * * *
(3) * * *
(ii) * * *
(A) For contracts with 1,500 or more enrollee contracts for which
the FEHB Program premiums for the contract term will be at or above the
threshold at FAR 15.403-4(a)(1), OPM will require the carrier to
provide the data and methodology used to determine the FEHB Program
rates. OPM will also require the data and methodology used to determine
the medical loss ratio (MLR) as defined in the ACA (Pub. L. 111-148)
and as defined by HHS in 45 CFR part 158 for all FEHB community rated
plans other than those required by state law to use Traditional
Community Rating. The carrier will provide cost or pricing data, as
well as the FEHB-specific MLR threshold data required by OPM in its
rate instructions for the applicable contract period. OPM will evaluate
the data to ensure that the rate is reasonable and consistent with the
requirements in this chapter. If necessary, OPM may require the carrier
to provide additional documentation.
* * * * *
0
5. Revise Sec. 1615.406-2 to read as follows:
Sec. 1615.406-2 Certificates of accurate cost or pricing data for
community rated carriers.
(a) The contracting officer will require a carrier with a contract
meeting the requirements in 1615.402(c)(2) or (3) to execute one or
more of the Certificates contained in this section. A carrier with a
contract meeting the requirements in 1615.402(c)(2) will complete the
appropriate Certificate(s) and keep such on file at the carrier's place
of business in accordance with 1652.204-70. A carrier with a contract
meeting the requirements in 1615.402(c)(3) will complete and submit the
appropriate certificate(s) to OPM.
(b) A carrier using the SSSG methodology described in
1615.402(c)(3)(i) will submit the ``Certificate of Accurate Cost or
Pricing Data for Community-Rated Carriers (SSSG methodology)'' along
with its rate reconciliation during the first quarter of the applicable
contract year. A carrier using the MLR methodology described in
1615.402(c)(3)(ii) will submit two forms. The ``Certificate of Accurate
Cost or Pricing Data for Community-Rated Carriers (MLR methodology)''
will be submitted along with the rate reconciliation during the first
quarter of the applicable contract year. The ``Certificate of Accurate
MLR Calculation'' will be submitted when the carrier submits its FEHB-
specific MLR calculation to OPM.
(Beginning of first certificate)
Certificate of Accurate Cost or Pricing Data for Community-Rated
Carriers (SSSG methodology)
This is to certify that, to the best of my knowledge and belief:
(1) The cost or pricing data submitted (or, if not submitted,
maintained and identified by the carrier as supporting documentation)
to the Contracting officer or the Contracting officer's representative
or designee, in support of the ------*FEHB Program rates were developed
in accordance with the requirements of 48 CFR Chapter 16 and the FEHB
Program contract and are accurate, complete, and current as of the date
this certificate is executed; and (2) the methodology used to determine
the FEHB Program rates is consistent with the methodology used to
determine the rates for the carrier's Similarly Sized Subscriber
Groups.
*Insert the year for which the rates apply.
Firm:------------------------------------------------------------------
Name:------------------------------------------------------------------
Signature:-------------------------------------------------------------
Date of Execution:-----------------------------------------------------
(End of first certificate)
(Beginning of second certificate)
Certificate of Accurate Cost or Pricing Data for Community-Rated
Carriers (MLR methodology)
This is to certify that, to the best of my knowledge and belief:
(1) The cost or pricing data submitted (or, if not submitted,
maintained and identified by the carrier as supporting documentation)
to the Contracting officer or the Contracting officer's representative
or designee, in support of the ------*FEHB Program rates were developed
in accordance with the requirements of 48 CFR Chapter 16 and the FEHB
Program contract and are accurate, complete, and current as of the date
this certificate is executed;
*Insert the year for which the rates apply.
Firm:------------------------------------------------------------------
Name:------------------------------------------------------------------
Signature:-------------------------------------------------------------
Date of Execution:-----------------------------------------------------
(End of second certificate)
(Beginning of third certificate)
Certificate of Accurate MLR Calculation
This is to certify that, to the best of my knowledge and belief:
the determination of the carrier's FEHB-
[[Page 19525]]
specific medical loss ratio for * is accurate, complete, and consistent
with the methodology as stated in Sec. 1615.402(c)(3)(ii).
*Insert the year for which the MLR calculation applies.
Firm:------------------------------------------------------------------
Name:------------------------------------------------------------------
Signature:-------------------------------------------------------------
Date of Execution:-----------------------------------------------------
(End of certificate)
Subchapter H--Clauses and Forms
PART 1652--CONTRACT CLAUSES
0
6. The authority citation for Part 1652 continues to read as follows:
Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.
0
7. In Sec. 1652.216-70, revise paragraph (b)(4) to read as follows:
Sec. 1652.216-70 Accounting and price adjustment.
* * * * *
(b) * * *
(4) If rates are determined by comparison with the FEHB-specific
MLR threshold, then if the MLR for the carrier's FEHB plan is found to
be lower than the published FEHB-specific MLR threshold, the carrier
must pay a subsidization penalty equal to the difference into a
subsidization penalty account.
* * * * *
[FR Doc. 2012-7835 Filed 3-30-12; 8:45 am]
BILLING CODE 6325-64-P