[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]
[Rules and Regulations]
[Pages 28788-28790]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11773]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 158

[CMS-9998-IFC3]


Health Insurance Issuers Implementing Medical Loss Ratio (MLR) 
Under the Patient Protection and Affordable Care Act; Correcting 
Amendment

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

ACTION: Interim final rule; correcting amendment.

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SUMMARY: This document corrects technical errors that appeared in the 
interim final rule published in the Federal Register on December 1, 
2010, entitled ``Health Insurance Issuers Implementing Medical Loss 
Ratio (MLR) Requirements under the Patient Protection and Affordable 
Care Act'' and in the correction notice published in the Federal 
Register on December 30, 2010, entitled ``Health Insurance Issuers 
Implementing Medical Loss Ratio (MLR) Requirements Under the Patient 
Protection and Affordable Care Act; Corrections to the Medical Loss 
Ratio Interim Final Rule With Request for Comments.''

DATES: Effective date: This document is effective on May 16, 2012.
    Applicability date: The corrections are applicable on January 1, 
2011.

FOR FURTHER INFORMATION CONTACT: Carol Jimenez, (301) 492-4457, 
MLRQuestions@cms.hhs.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    In FR Doc. 2010-29596 of December 1, 2010 (75 FR 74864) and FR Doc. 
2010-32466 of December 30, 2010 (75 FR 82277), there were a number of 
technical errors that are identified and corrected in the ``Correction 
of Errors'' section below.

A. Regulatory Overview

    On December 1, 2010, we published an interim final rule in the 
Federal Register (75 FR 74864) (hereinafter referred to as the ``2010 
MLR rule'') to implement medical loss ratio (MLR) requirements for 
health insurance issuers under section 2718 of the Public Health 
Service Act, as added by the Patient Protection and Affordable Care 
Act. The regulations in the 2010 MLR rule became effective January 1, 
2011.
    On December 30, 2010, we published a correction notice in the 
Federal Register (75 FR 82277) (hereinafter referred to as the ``2010 
MLR correction notice'') to correct several regulations set forth in 
the 2010 MLR rule. The regulations in the 2010 MLR correction notice 
became effective January 1, 2011, as if they had been included in the 
2010 MLR interim final rule.
    The provisions in this correcting amendment are also effective as 
if they had been included in the 2010 MLR interim final rule. 
Accordingly, the corrections are effective January 1, 2011.

B. Overview of the Deadline for Issuers To Report Their Annual 
Experience

    The 2010 MLR rule established details regarding an issuer's 
obligation under section 2718 to report information (for the prior 
calendar year) to the Department of Health and Human Services (HHS) by 
June 1st of each year on how it used its premium revenue. The first 
such report is due on June 1, 2012. This information is used by HHS to 
determine the issuer's MLR for the year in question, which reflects the 
percentage of premium revenue expended on medical claims and health 
care quality improvement. Section 2718 establishes MLR standards for 
the percentage that must be spent on such costs: 80 percent for the 
individual and small group insurance markets and 85 percent for the 
large group market. An issuer that fails to meet the applicable MLR 
standard must pay a premium rebate to policyholders. To assist the 
issuer with reporting its experience, HHS developed and published an 
MLR Annual Reporting Form, with instructions, that the issuer must 
complete and submit. This correcting amendment makes minor revisions to 
the regulations to help clarify how an issuer will capture and report 
its 2011 experience. Because these corrections merely clarify the terms 
of the 2010 MLR interim final rule that took effect on January 1, 2011, 
the changes in this correcting amendment are applicable on January 1, 
2011.

II. Summary of Errors

A. Corrections of Errors in the 2010 MLR Rule Preamble

    We are making several technical and clarifying changes to the 2010 
MLR rule. On page 74868, in the section regarding small group market 
and large group

[[Page 28789]]

market, the 2010 MLR rule described how the PHS Act defined ``small 
group'' before the enactment of the Affordable Care Act, without 
explicitly addressing how to determine the number of employees for 
purposes of that definition. Therefore, we are revising the preamble 
language to reflect the fact that the PHS Act defined a group in terms 
of the number of employees on the last day of the calendar year with 
``2 to 50 employees in a small group and 51 or more employees in a 
large group.'' This change will eliminate any ambiguity resulting from 
the fact that Federal and State law may differ on how an issuer 
determines the number of employees an employer has, and accurately 
reflects that the Employee Retirement Income Security Act (ERISA) of 
1974 governs this issue and ERISA instructs an issuer or employer to 
use the last day of the year to determine the number of employees.
    On page 74884, in the section regarding de minimis rebates, the 
2010 MLR rule stated that issuers must aggregate the de minimis rebates 
and distribute them in equal amounts to all then-current enrollees who 
receive a premium credit. We are revising the preamble language by 
removing the words ``then current'' before ``enrollees'' because these 
words are technically inaccurate and conflict with language elsewhere 
in the preamble, as there are circumstances when those receiving 
rebates are no longer enrollees at the time of the rebate. In addition, 
we are deleting the words ``premium credit'' and replacing them with 
the word ``rebate.'' This change reflects the fact that, as made clear 
elsewhere in the rule, the rebate may be provided in one of several 
ways and not just by a premium credit.

B. Corrections of Errors in the Regulations Text

1. Errors in the 2010 MLR Rule
    On page 74922, in Sec.  158.103 ``Definitions,'' for clarity we are 
renaming ``Multi State Blended rate'' to read as ``Blended Rate.'' This 
change corrects an inadvertent error in this section that qualifies 
``blended rate'' by the words ``multi-State.'' As clear from other 
parts of the 2010 MLR rule, an issuer can take advantage of this 
provision even if the employer's employees are in the same State as 
long as the coverage meets the remaining elements of the definition and 
the rate is blended.
    On pages 74922 through 74923, we are revising Sec.  158.120(d)(1) 
to make explicit that where the individual market business is sold 
through an association or a trust, the experience of the issuer must be 
included in the State report for the issue State of the certificate of 
coverage. As made clear elsewhere in the 2010 MLR rule, an individual 
policy may also be issued to a trustee who is the policyholder, and 
thus the word ``trust'' should be added to Sec.  158.120(d)(1). We are 
also revising Sec.  158.120(d)(2) to state that for employer business 
issued through a group trust or multiple employer welfare association 
(MEWA), the experience of the issuer must be included in the State 
report for the State where the employer (if sold through a trust) or 
the MEWA (if the MEWA is the policyholder) has its principal place of 
business. These changes reflect in the text of Sec.  158.120(d)(2) when 
it is appropriate to report the policy's experience based on the situs 
of the employer versus that of the MEWA.
    On page 74923, we are revising Sec.  158.130(b)(3) to specify that 
earned premium must include adjustments to account for any experience 
rating refund when it is incurred, rather than when it is paid, and 
revising Sec.  158.140(a), General requirements, to specify that the 
report required in Sec.  158.110, which includes reserves for 
contingent benefits, include any incurred experience rating refunds 
(rather than just those that are paid or received). These changes are 
necessary in order to make the language in Sec.  158.130(b)(3) 
consistent with the National Association of Insurance Commissioners 
(NAIC's) recommendations, which in the preamble we stated that we were 
adopting.
    On page 74923, we are also revising Sec.  158.140(a), General 
requirements, to make our intent explicit that the report required in 
Sec.  158.110 only include the medical claim portion of the total 
amount claimed in lawsuits, and not claims for pain and suffering 
damages, legal fees, court costs, punitive damages or anything other 
than the underlying medical claim. We are also adding language to Sec.  
158.140(a) referencing a 3-month run out period for incurred claims, 
which was inadvertently omitted. This correction is needed to make this 
provision consistent with the NAIC's recommendations to the Secretary, 
dated October 27, 2010, which contain a 3-month run-out for incurred 
claims, and with our statements in the 2010 MLR rule that we were 
following the NAIC's recommendations to the Secretary. For the same 
reason, we are further clarifying that although there is a 3-month run-
out period for incurred and paid claims, contract reserves should still 
be determined as of the last day of the reporting year as there is no 
parallel 3-month extension for calculating contract reserves.
    On page 74923, in Sec.  158.140(a)(5), we inadvertently used the 
word ``paid'' and omitted the word ``incurred'' before the words 
``exclude rebates paid as required''. Therefore, we are correcting this 
typographical error.
    On page 74924, in Sec.  158.150(b)(2)(i)(A)(1), we mistakenly made 
an incorrect reference to ``section 3606 of the Affordable Care Act'' 
when it is clear from context that the reference was to ``section 3502 
of the Affordable Care Act''. Therefore, we are correcting this error.
    On page 74925, in Sec.  158.150(c)(14), we mistakenly made an 
incorrect cross reference to ``paragraph (c)'' instead of referencing 
``paragraphs (a) or (b).'' The correction makes clear that items not 
included as activities to improve health care quality are exclusions.
    On page 74928, in Sec.  158.232(c)(1)(i), we are revising the 
calculation of the per-person deductible for a policy that covers a 
subscriber and the subscriber's dependents to mirror the NAIC's 
recommendations, which we indicated in the 2010 MLR rule.
2. Error in the 2010 MLR Correction Notice
    The 2010 MLR rule established Sec.  158.120(d)(1), describing 
exceptions. This section was amended by the 2010 MLR correction notice 
(see 75 FR 82278) and currently reads: ``For individual market business 
sold through an association, the experience of the issuer must be 
included in the State report for the issue State of the certificate of 
coverage.'' In this correcting amendment, we further amend Sec.  
158.120(d)(1) by adding the words ``or trust'' after the word 
``association'' to reflect the fact that under the 2010 MLR rule the 
exception also applies to individual market business sold through a 
trust.

III. Correction of Errors in the Preamble

    In FR Doc 2010-29596 of December 1, 2010, make the following 
corrections:
    1. On page 74868, third column, second full paragraph--
    A. In line 21, insert the phrase ``the number of employees on the 
last day of the calendar year, with'' before ``2 to 50 employees.''
    B. In lines 21 and 22, insert the phrase ``in a small group and 51 
or more employees'' before ``and a large group.'' Remove the word 
``and'' before ``a large group'' and the words ``in terms of 51 or more 
employees'' after the words ``a large group.''

[[Page 28790]]

    2. On page 74884, third column, fifth full paragraph--
    A. In line 14, remove the words ``then current.''
    B. In line 15, revise the phrase ``premium credit'' to read 
``rebate.''

IV. Waiver of Proposed Rulemaking and Delay in Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect in accordance with section 553(b) of 
the Administrative Procedure Act (APA) (5 U.S.C. 553(b)), and section 
553(d) of the APA ordinarily requires a 30-day delay in effective date 
of final rules after the date of their publication in the Federal 
Register. These requirements may be waived, however, if an agency finds 
for good cause that the delay is impracticable, unnecessary, or 
contrary to the public interest, and the agency incorporates a 
statement of the findings and its reasons in the rule issued.
    In this case, we believe that it is unnecessary to provide for a 
public comment period or to delay implementing these corrections, as 
they clarify provisions of a final rule that has been subjected to 
notice and comment procedures and do not make any substantive changes 
to it.

List of Subjects in 45 CFR Part 158

    Administrative practice and procedure, Claims, Health care, Health 
insurance, Health plans, Penalties, Reporting and recordkeeping 
requirements.

    Accordingly, 45 CFR part 158 is corrected by making the following 
correcting amendments:

PART 158--ISSUER USE OF PREMIUM REVENUE: REPORTING AND REBATE 
REQUIREMENTS

0
1. The authority citation for part 158 continues to read as follows:

    Authority: Sec. 2718 of the Public Health Service Act (42 U.S.C. 
300gg-18, as amended).


0
2. Amend Sec.  158.103 as follows:
0
A. Remove the definition for ``Multi-State blended rate.''
0
B. Add a new definition for ``Blended rate'' in alphabetical order.
    The addition reads as follows:


Sec.  158.103  Definitions.

* * * * *
    Blended rate means a single rate charged for health insurance 
coverage provided to a single employer through two or more of an 
issuer's affiliated companies for employees in one or more States.
* * * * *

0
3. Amend Sec.  158.120 by revising paragraphs (d)(1) and (d)(2) to read 
as follows:


Sec.  158.120  Aggregate reporting.

* * * * *
    (d) * * *
    (1) For individual market business sold through an association or 
trust, the experience of the issuer must be included in the State 
report for the issue State of the certificate of coverage.
    (2) For employer business issued through a group trust or multiple 
employer welfare association (MEWA), the experience of the issuer must 
be included in the State report for the State where the employer (if 
sold through a trust) or the MEWA (if the MEWA is the policyholder) has 
its principal place of business.
* * * * *


Sec.  158.130  [Amended]

0
4. In Sec.  158.130(b)(3) remove the words ``paid or received'' and add 
the word ``incurred'' in their place.
0
5. Amend Sec.  158.140 by revising paragraph (a) introductory text and 
paragraph (a)(5) to read as follows:


Sec.  158.140  Reimbursement for clinical services provided to 
enrollees.

    (a) General requirements. The report required in Sec.  158.110 must 
include direct claims paid to or received by providers, including under 
capitation contracts with physicians, whose services are covered by the 
policy for clinical services or supplies covered by the policy. In 
addition, the report must include claim reserves associated with claims 
incurred during the MLR reporting year, the change in contract 
reserves, reserves for contingent benefits and the medical claim 
portion of lawsuits, and any incurred experience rating refunds. 
Reimbursement for clinical services, as defined in this section, is 
referred to as ``incurred claims.'' All components of and adjustments 
to incurred claims, with the exception of contract reserves, must be 
calculated based on claims incurred only during the MLR reporting year 
and paid through March 31st of the following year. Contract reserves 
must be calculated as of December 31st of the applicable year.
* * * * *
    (5) Incurred claims must include incurred experience rating refunds 
and exclude rebates paid as required by Sec.  158.240 based upon prior 
MLR reporting year experience.
* * * * *


Sec.  158.150  [Amended]

0
6. Amend Sec.  158.150 as follows:
0
A. In paragraph (b)(2)(i)(A)(1), remove ``section 3606'' and add in its 
place ``section 3502.''
0
B. In paragraph (c)(14), remove the reference ``paragraph (c) of this 
section'' and add in its place the reference ``paragraph (a) or (b) of 
this section.''

0
7. Amend Sec.  158.232 by revising paragraph (c)(1)(i) to read as 
follows:


Sec.  158.232  Calculating the credibility adjustment.

* * * * *
    (c) * * *
    (1) * * *
    (i) The per person deductible for a policy that covers a subscriber 
and the subscriber's dependents shall be the lesser of: The sum of the 
deductible applicable to each of the individual family members; or the 
overall family deductible for the subscriber and subscriber's family, 
divided by two (regardless of the total number of individuals covered 
through the subscriber).
* * * * *

    Dated: May 10, 2012.
Jennifer Cannistra,
Executive Secretary to the Department.
[FR Doc. 2012-11773 Filed 5-15-12; 8:45 am]
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