[Federal Register Volume 78, Number 47 (Monday, March 11, 2013)]
[Rules and Regulations]
[Pages 15541-15552]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04904]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 153 and 156

[CMS-9964-IFC]
RIN 0938-AR74


Patient Protection and Affordable Care Act; Amendments to the HHS 
Notice of Benefit and Payment Parameters for 2014

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

ACTION: Interim final rule with comment.

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SUMMARY: This interim final rule with comment builds upon standards set 
forth in the HHS Notice of Benefit and Payment Parameters for 2014, 
published elsewhere in this issue of the Federal Register. This 
document will adjust risk corridors calculations that would align the 
calculations with the single risk pool provision, and set standards 
permitting issuers of qualified health plans the option of using an 
alternate methodology for calculating the value of cost-sharing 
reductions provided for the purpose of reconciliation of advance 
payments of cost-sharing reductions.

DATES: Effective date: These regulations are effective on April 30, 
2013.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on April 30, 2013.

ADDRESSES: In commenting, please refer to file code CMS-9964-IFC. 
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: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-9964-IFC, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    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: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-9964-IFC, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    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:
    a. For delivery in Washington, DC--
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    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: Sharon Arnold, (301) 492-4286; Laurie 
McWright, (301) 492-4311; or Jeff Wu, (301) 492-4305, for general 
information. Jaya Ghildiyal, (301) 492-5149 for matters relating to 
risk corridors. Johanna Lauer, (301) 492-4397 for matters relating to 
cost-sharing reductions.

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 be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Executive Summary
    A. Purpose
    B. Summary of Provisions
    C. Costs and Benefits
II. Background
III. Provisions of the Interim Final Rule
    A. Calculation of Allowable Costs for the Risk Corridors Program
    B. Submission of Actual Amounts of Cost-Sharing Reductions
IV. Waiver of Proposed Rulemaking
V. Collection of Information Requirements
VI. Response to Comments
VII. Regulatory Impact Analysis

I. Executive Summary

A. Purpose

    Beginning in 2014, individuals and small businesses will be able to 
purchase private health insurance--qualified health plans--through 
competitive marketplaces, called Affordable Insurance Exchanges, 
``Exchanges,'' or ``Marketplaces.'' Section 1342 of the Affordable Care 
Act provides for a temporary risk corridors program. The program, which 
is Federally administered and in effect from 2014 through 2016, is 
intended to protect against uncertainty in rate setting for qualified 
health plans (QHPs) by limiting the extent of issuer losses and gains. 
In the rule entitled ``Standards Related to Reinsurance, Risk 
Adjustment and Risk Corridors'' (77 FR 17220) (Premium Stabilization 
Rule), we set forth a regulatory framework for this program. In the HHS 
Notice of Benefit and Payment Parameters for 2014 (2014 Payment Notice) 
published elsewhere in this issue of the Federal Register, we expanded 
upon these standards, and stated that we are publishing this

[[Page 15542]]

interim final rule with comment. In this interim final rule with 
comment, we will amend the requirements governing the risk corridors 
program to better align it with the single risk pool requirement we 
established in the rule entitled ``Health Insurance Market Reforms; 
Rate Review,'' which was made available for public inspection at the 
Office of the Federal Register on February 22, 2013. The Market Reform 
Rule sets forth standards at Sec.  156.80 to implement section 1312(c) 
of the Affordable Care Act, which directs an issuer to use a single 
risk pool for a market (the individual market, small group market, or 
merged individual and small group market) when developing rates and 
premiums for coverage effective beginning in 2014. Under the single 
risk pool provision, an issuer will develop a market-wide index rate 
(average rate) based on the total combined essential health benefits 
(EHB) claims experience of all enrollees in all non-grandfathered plans 
in the market. After setting the index rate, the issuer will make a 
market-wide adjustment based on the expected aggregated payments and 
charges under the risk adjustment and reinsurance programs in a State. 
The premium rate for any given plan may not vary from the resulting 
adjusted market-wide index rate, except for plan specific adjustments 
specified under Sec.  156.80. To address a potential incongruity 
between the current risk corridors calculation methodology and the 
single risk pool requirement in section 1312(c) of the Affordable Care 
Act, we are modifying our interpretation of the definition of 
``allowable costs'' found in section 1342(c)(1)(A) of the Affordable 
Care Act and are changing the corresponding regulatory definition 
accordingly. We are also making certain conforming changes to the risk 
corridors attribution and allocation rules in Sec.  153.520.
    This interim final rule with comment establishes alternate 
standards for the administration and payment to issuers of the value of 
cost-sharing reductions provided to eligible individuals. Section 1402 
of the Affordable Care Act provides for reductions in cost sharing for 
certain individuals enrolled in QHPs purchased on the Exchanges, and 
section 1412(c) of the Affordable Care Act provides for the advance 
payment of these reductions to issuers. This assistance will help 
eligible low- and moderate-income qualified individuals and families 
afford the out-of-pocket spending associated with health care services 
provided through Exchange-based QHP coverage. The Affordable Care Act 
directs issuers to reduce cost sharing for EHB for low- and moderate-
income individuals who are enrolled in a silver level QHP through an 
individual market Exchange and are eligible for advance payments of the 
premium tax credit under Section 36B of the Internal Revenue Code. The 
statute also directs issuers to eliminate cost sharing for Indians (as 
defined in Section 4(d) of the Indian Self-Determination and Education 
Assistance Act) with a household income at or below 300 percent of the 
Federal poverty level (FPL) who are enrolled in a QHP of any ``metal'' 
level (that is, bronze, silver, gold, or platinum) through the 
individual market in the Exchange, and does not allow issuers of QHPs 
to require cost sharing for Indians, regardless of household income, 
for items or services furnished directly by the Indian Health Service, 
an Indian Tribe, a Tribal Organization, or an Urban Indian 
Organization, or through referral under contract health services.
    To implement these cost-sharing reductions, we published a rule 
entitled ``Establishment of Exchanges and Qualified Health Plans; 
Exchange Standards for Employers'' (77 FR 18310) (Exchange 
Establishment Rule), which established eligibility standards for these 
cost-sharing reductions. We published a bulletin outlining an intended 
regulatory approach to calculating actuarial value and implementing 
cost-sharing reductions on February 24, 2012 (the AV/CSR Bulletin).\1\ 
The AV/CSR Bulletin specifically outlined an intended regulatory 
approach for de minimis variation standards, silver plan variations for 
individuals eligible for cost-sharing reductions, and advance payments 
of cost-sharing reductions to issuers, among other topics. The HHS 
Notice of Benefit and Payment Parameters for 2014 (the 2014 Payment 
Notice), published concurrently with this interim final rule with 
comment, establishes standards governing the administration of cost-
sharing reductions and provided specific payment parameters for the 
program. In this interim final rule with comment, we establish an 
alternate, optional methodology for calculating the value of cost-
sharing reductions provided for the purpose of reconciliation of 
advance payments of cost-sharing reductions.
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    \1\ Available at: http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.
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B. Summary of Provisions

    This interim final rule with comment amends the standards 
established by the Premium Stabilization Rule and the 2014 Payment 
Notice for the risk corridors and cost-sharing reductions programs.
    Risk Corridors: The temporary risk corridors program provides for 
the Federal government to share a QHP's profits or losses resulting 
from inaccurate rate setting from 2014 to 2016. In this interim final 
rule with comment, we are modifying our interpretation of the 
definition of ``allowable costs'' in section 1342(c)(1)(A) of the 
Affordable Care Act, as reflected in Sec.  153.500, so that a QHP's 
allowable costs are determined on the basis of its pro-rata share of a 
pooled claims cost amount. This approach is consistent with the single 
risk pool provision established in Sec.  156.80, which directs each 
issuer to develop its premiums based on its pooled claim experience for 
all of its non-grandfathered health plans in a market within a State.
    Cost-Sharing Reductions: Section 1402(c)(3) of the Affordable Care 
Act directs a QHP issuer to notify the Secretary of HHS of cost-sharing 
reductions made under the statute for qualified individuals, and 
directs the Secretary to make periodic and timely payments to the QHP 
issuer equal to the value of those reductions. Section 1402(c)(3)(B) of 
the Affordable Care Act also permits the Secretary to establish a 
capitated payment system to carry out these payments. Similarly, 
section 1402(d)(3) of the Affordable Care Act requires the Secretary to 
pay the QHP issuer an amount necessary to reflect the increase in 
actuarial value of the plan due to the reduction in cost sharing 
provided to Indians. Further, 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, the 2014 Payment Notice finalizes a 
payment approach under which we will make monthly advance payments to 
QHP issuers to cover projected cost-sharing reduction amounts, and then 
reconcile those advance payments to the actual cost-sharing reduction 
amounts provided during the benefit year. In the 2014 Payment Notice, 
we explained that the reconciliation will happen after the close of the 
2014 benefit year. As part of the notice and comment process for the 
2014 Payment Notice, we received comments suggesting alternatives for 
the reconciliation and identifying drawbacks to the use of actual cost-
sharing reduction amounts. Those comments led us to finalize here 
additional subparagraphs in Sec.  156.430(c) to include an alternate 
methodology for calculating the amounts of cost-sharing

[[Page 15543]]

reductions provided, against which the advanced payments to QHP issuers 
will be reconciled. We believe that this alternate methodology will 
provide QHP issuers with additional flexibility, and reduce the 
administrative burden for some issuers of participating in the cost-
sharing reductions program. Under this regulation, issuers of QHPs will 
be permitted to choose one of two methodologies for calculating the 
amount of cost-sharing reductions provided. The first methodology 
(referred to as the ``standard methodology'') was finalized in the 2014 
Payment Notice. Under the standard methodology, QHP issuers calculate 
the cost sharing that an enrollee would have paid under the standard 
plan without cost-sharing reductions by applying the cost-sharing 
requirements for the standard plan to the allowed costs for each 
policy; in effect, each claim would be processed twice: Using the cost-
sharing structure that would have been in place if the individual were 
not eligible for cost-sharing reductions, and using the reduced cost-
sharing structure in the applicable plan variation for which the 
individual is eligible. Under the second methodology established here 
(referred to as the ``simplified methodology''), QHP issuers calculate 
the value of the cost-sharing reductions provided by using a formula 
based on certain summary cost-sharing parameters of the standard plan, 
applied to the total allowed costs for each policy.

C. Costs and Benefits

    The provisions of this interim final rule with comment, combined 
with other provisions in the Affordable Care Act and related rules, 
will make health insurance more affordable and accessible to millions 
of Americans who currently do not have affordable options available to 
them. The shortcomings of the individual market today have been widely 
documented.\2\
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    \2\ Michelle M. Doty et al., Failure to Protect: Why the 
Individual Insurance Market Is Not a Viable Option for Most U.S. 
Families: Findings from the Commonwealth Fund Biennial Health 
Insurance Survey, 2007, The Commonwealth Fund, July 2009; Sara R. 
Collins, Invited Testimony: Premium Tax Credits Under The Affordable 
Care Act: How They Will Help Millions Of Uninsured And Underinsured 
Americans Gain Affordable, Comprehensive Health Insurance, The 
Commonwealth Fund, October 27, 2011.
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    We believe that this interim final rule with comment, combined with 
other provisions of the Affordable Care Act, will improve the 
functioning of both the individual and the small group markets while 
stabilizing premiums. The risk corridors program is intended to protect 
QHP issuers in the individual and small group markets against 
inaccurate rate setting, and to permit issuers to offer lower rates by 
not adding a risk premium to account for perceived uncertainties in the 
2014 through 2016 markets.
    Provisions addressing cost-sharing reductions will help provide for 
the reduction or elimination of cost sharing for certain individuals 
enrolled in individual market QHPs offered through the Exchanges. This 
assistance is expected to help many low- and moderate-income 
individuals and families, as well as Indians, obtain health care. For 
many people, cost sharing is a barrier to obtaining needed health 
care.\3\
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    \3\ 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: RAND 
Corporation, 1984. Available at: http://www.rand.org/pubs/reports/R3055.
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II. Background

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010. The Health Care and Education 
Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. We 
refer to the two statutes collectively as the Affordable Care Act in 
this interim final rule with comment.
    Premium Stabilization: The Premium Stabilization Rule, (77 FR 
17220), which implemented the health insurance premium stabilization 
programs (that is, risk adjustment, reinsurance, and risk corridors), 
was published in the Federal Register on March 23, 2012.
    Cost-Sharing Reductions and Actuarial Value: The AV/CSR Bulletin, 
published on February 24, 2012, outlined an intended regulatory 
approach for the design of plan variations for individuals eligible for 
cost-sharing reductions and advance payments and reimbursement of cost-
sharing reductions to issuers, among other issues. A notice of proposed 
rulemaking relating to EHB and actuarial value was published in a 
November 26, 2012 Federal Register proposed rule entitled ``Standards 
Related to Essential Health Benefits, Actuarial Value, and 
Accreditation'' (77 FR 70644). The final version of that rule was 
published by the Office of the Federal Register on February 25, 2013 
(78 FR 12834). A notice of proposed rulemaking relating to parameters 
and provisions governing the risk adjustment, reinsurance, and risk 
corridors programs; cost-sharing reductions; user fees for Federally-
facilitated Exchanges; advance payments of the premium tax credit; and 
the medical loss ratio program was published in a December 7, 2012 
Federal Register proposed rule entitled ``HHS Notice of Benefit and 
Payment Parameters for 2014'' (77 FR 73118). The final version of that 
rule is published elsewhere in this issue of the Federal Register.
    Market Reform Rules: A notice of proposed rulemaking relating to 
market reforms and effective rate review was published in a November 
26, 2012 Federal Register proposed rule entitled ``Health Insurance 
Market Reforms; Rate Review'' (78 FR 70584). The final version of that 
rule was made available for public inspection at the Office of the 
Federal Register on February 22, 2013.
    Tribal Consultations: This interim final rule with comment may be 
of interest to, and affect, American Indians/Alaska natives. Therefore, 
we plan to consult with Tribes during the comment period and prior to 
adopting the final rule.

III. Provisions of the Interim Final Rule

A. Calculation of Allowable Costs for the Risk Corridors Program

    The Affordable Care Act established the temporary risk corridors 
program to help stabilize premiums in the early years of the Exchanges 
and the market reform rules. The risk corridors program compares a 
plan's allowable costs (claims costs with certain adjustments) against 
a plan's target amount (total premiums reduced by administrative 
costs), and is designed to share the risk of inaccurate rate-setting 
between QHP issuers and the Federal government. Issuers must establish 
their premiums based on the single risk pool requirement set forth at 
Sec.  156.80, which directs each issuer to develop its premiums based 
on its pooled claim experience for all of its non-grandfathered health 
plans in a market (that is, the individual market, the small group 
market, or the merged market) within a State, as adjusted for the 
pooled amount of net risk adjustment transfers and reinsurance payments 
it expects. Therefore, under the current risk corridors and single risk 
pool regulations, risk corridors would compare plan-specific allowable 
costs based on plan-specific claims costs against a target amount that 
reflects the issuer's market-wide premiums.
    We received a number of comments to our draft 2014 Payment Notice 
noting the discrepancy. One commenter indicated that the current policy 
of calculating risk corridors at the plan level was inconsistent with 
the single

[[Page 15544]]

risk pool requirement because, as noted above, it would require a 
comparison of plan-specific claims costs to market-wide premiums. We 
agree that a risk corridors calculation based on unpooled claims costs 
may create an incongruity with the single risk pool requirement that 
could lessen the premium stabilizing effect of the risk corridors 
program. We recognize that in the Premium Stabilization Rule (77 FR 
17220), in response to a comment similarly recommending that risk 
corridors be calculated at the issuer level, we stated that the statute 
did not afford the necessary flexibility. However, in light of the 
comments we have received on this issue, we have concluded that section 
1342 of the Affordable Care Act provides the flexibility to calculate 
risk corridors payments and charges based on pooled claims and 
premiums.
    We believe the approach to the risk corridors calculation that we 
describe here is consistent with section 1342(a) of the Affordable Care 
Act, which requires QHPs to ``participate in a payment adjustment 
system based on the ratio of the allowable costs of the plan to the 
plan's aggregate premiums.'' We further believe that we can interpret 
the statutory definition of ``allowable costs,'' which refers to total 
costs other than administrative costs ``of the plan'' in providing 
benefits ``under the plan,'' to mean the plan's proportional share of 
total claims costs.
    As a result of our proposed modification of our interpretation of 
the statute, we are amending the regulatory definition of allowable 
costs so that allowable costs for a QHP are equal to the pro rata 
portion of the QHP issuer's incurred claims (subject to adjustments for 
any direct or indirect remuneration as described in Sec.  158.40, costs 
related to improving health care quality set forth in Sec.  158.150, 
health information technology expenditures set forth in Sec.  158.151, 
and other applicable adjustments consistent with Sec.  153.530(b)) for 
all of its non-grandfathered health plans in a market within a State, 
allocated to the QHP based on premiums earned by the issuer in the 
applicable market. We are retaining the adjustments and costs described 
in Sec.  158.40, Sec.  158.150, Sec.  158.151, and Sec.  153.530(b) 
within the regulatory definition of allowable costs in order to 
maintain consistency with the MLR formula.
    Below, we describe an example of the manner in which we will 
allocate allowable costs to and among an issuer's QHPs in proportion to 
the amount of the QHP's premiums. Assume that Issuer I has three plans 
in the individual market within the State, QHP A and QHP B which are 
QHPs, and Plan X which is a non-grandfathered health plan. QHP A earns 
50 percent of the issuer's premiums in the market, QHP B earns 20 
percent, and Plan X earns 30 percent. Assume total allowable costs 
across all three of I's plans of $10 million. On these facts, $5 
million of allowable costs would be allocated to QHP A, $2 million to 
QHP B, and $3 million to Plan X. The risk corridors calculation would 
compare those allowable costs to the QHPs' target amounts.
    Finally, we are modifying the rule related to attribution and 
allocation of revenue and expense items in Sec.  153.520 to conform to 
the changes above for the risk corridors calculation. We are clarifying 
that these rules, which require that each item of revenue and expense 
in the risk corridors calculation be reasonably attributable to the 
operation of the QHP based on a generally accepted accounting method, 
will apply to the target amount (and therefore allowable administrative 
expenses), but not to allowable costs. This modification aligns with 
the approach described above, which requires a QHP issuer to pool 
allowable costs across all its plans and allocate these costs to each 
QHP based on the QHP's premiums earned as a share of the premiums 
earned of all non-grandfathered plans in the relevant market. A number 
of commenters to the proposed 2014 Payment Notice requested that risk 
corridors be conducted at the issuer level. We note that under the 
approach implemented in this interim final rule with comments an issuer 
may reasonably allocate, in accordance with Sec.  153.520, allowable 
administrative costs across its business pro rata by premiums earned, 
leading to an issuer-level risk corridors calculation for its QHP 
business.
    As noted above, we believe the approach to the risk corridors 
calculation that we describe here is consistent with section 1342(a) of 
the Affordable Care Act and implements the statutory intent of the risk 
corridors program. In addition, we believe it is comprehensible to 
stakeholders, and is administratively straightforward to implement. We 
seek comments on this approach.

B. Submission of Actual Amounts of Cost-Sharing Reductions

    As described in the 2014 Payment Notice, HHS will make monthly 
advance payments to QHP issuers to cover projected cost-sharing 
reduction amounts, and then reconcile those advance payments after the 
end of the benefit year to the cost-sharing reductions provided. This 
approach is similar to the one employed for the low-income subsidy 
under Medicare Part D. To implement this payment approach, Sec.  
156.430(c) directs QHP issuers to report to HHS the amount of cost-
sharing reductions provided during the benefit year. This submission 
must be made on the timeframe and in the manner identified by HHS. We 
anticipate collecting this information after the end of the benefit 
year.
    In response to the proposed 2014 Payment Notice, we received a 
number of comments suggesting that the reporting requirements for QHP 
issuers under the proposed Sec.  156.430(c) would be operationally 
challenging, in large part due to the short timeframe for 
implementation and other information technology challenges facing 
issuers in 2013 and 2014. Commenters noted that although the reporting 
and reconciliation process is appropriate for the Medicare Part D Low-
Income Subsidy Program, medical benefits are more complex than 
pharmaceutical benefits and often have a longer time lag between 
submission and adjudication. Commenters stated that to meet the 
reporting requirements under proposed Sec.  156.430(c), QHP issuers 
could need to re-adjudicate each claim for enrollees receiving cost-
sharing reductions in order to determine the difference in cost sharing 
between the applicable plan variation and standard plan. This process 
could require the development of new information systems in a short 
period of time.
    As an alternative, several commenters suggested that HHS should 
allow QHP issuers to estimate the value of the cost-sharing reductions 
provided using a formula similar to that used for the advance payments, 
but based on the actual claims experience of the enrollees. These 
calculated amounts could be used as part of cost-sharing reduction 
reconciliation, lessening the administrative burden on issuers.
    Considering those comments, we modified Sec.  156.430(c) in the 
2014 Payment Notice, and establish additional standards in this interim 
final rule with comment to allow QHP issuers greater flexibility in the 
manner in which cost-sharing reduction amounts are calculated. With 
this policy, we seek to balance the need to safeguard Federal funds 
with the goal of lessening the administrative burden on QHP issuers.
    Under Sec.  156.430(c)(1) and (2), finalized in the 2014 Payment 
Notice, a QHP issuer must submit to HHS, for each policy of each plan 
variation offered on an Exchange, the total allowed costs for EHB 
charged for the

[[Page 15545]]

policy for the benefit year, broken down by: (i) The amount the issuer 
paid; (ii) the amount the enrollee(s) paid; and (iii) the amount the 
enrollee(s) would have paid under the standard plan without cost-
sharing reductions, which must be calculated using the standard 
methodology, by applying the actual cost-sharing requirements for the 
standard plan to the allowed costs for essential health benefits under 
the enrollee's policy for the benefit year. HHS will use this 
information to calculate the difference between the amount the 
enrollee(s) paid and the amount that the enrollee(s) would have paid 
under the standard plan without cost-sharing reductions, and reconcile 
this amount against the advance payments provided to the QHP issuer 
pursuant to Sec.  156.430(a) and (b). We noted in the 2014 Payment 
Notice, that we anticipate that QHP issuers will submit this 
information several months after the close of the benefit year. We also 
clarified that the amount the enrollee paid should include any cost 
sharing paid by a third party, including a State, on behalf of the 
enrollee.
    In this interim final rule with comment, we build on the standards 
finalized in the 2014 Payment Notice and add paragraphs (c)(3) and (4). 
In Sec.  156.430(c)(3), we establish new standards to permit QHP 
issuers greater flexibility in the manner in which cost-sharing 
reduction amounts are calculated. We specify that QHP issuers may 
choose to calculate the amounts that would have been paid under the 
standard plan without cost-sharing reductions using a simplified 
methodology, as an alternative to the standard methodology. We 
anticipate that after an appropriate transition period, all QHP issuers 
will be required to use the standard methodology. We seek comment on 
the appropriate length of a transition period permitting the use of the 
simplified methodology for consideration when we finalize this rule.
    In paragraph (3)(i), we provide that the QHP issuer must notify HHS 
prior to the start of each benefit year whether or not it selects the 
simplified methodology for the benefit year. We will provide guidance 
in the future on the manner and timeframe for this submission. In 
paragraph (3)(ii), we specify that if the QHP issuer selects the 
simplified methodology, it must apply the simplified methodology to all 
plan variations it offers on the Exchange for a benefit year. Since the 
simplified methodology is intended to be used by issuers whose systems 
are not yet capable of implementing the standard methodology, in 
paragraph (3)(iii) we specify that the QHP issuer may not select the 
simplified methodology if it did not select the simplified methodology 
for the prior benefit year. We also set forth standards for selecting a 
methodology if a QHP issuer merges with or acquires another issuer of 
QHPs on the Exchange, or acquires a QHP offered on the Exchange from 
another issuer. In paragraph (c)(3)(iv), we provide that if each of the 
affected parties had selected a different methodology for the benefit 
year, then notwithstanding paragraphs (3)(ii) and (3)(iii), for the 
benefit year in which the merger or acquisition took place, the QHP 
issuer must continue to use the methodology selected prior to the start 
of the benefit year for each plan variation (whether or not the 
selection was made by that issuer), and for the next benefit year, the 
QHP issuer may select either methodology subject to the requirement in 
paragraph (3)(ii) that a QHP issuer select the same methodology for all 
plan variations it offers on the Exchange for the benefit year. We seek 
comment on these provisions, and in particular, the administrative 
implications for QHP issuers.
    We believe that the approach described above will allow QHP issuers 
to choose the methodology that best aligns with their operational 
practices, which should reduce the administrative burden on issuers in 
the initial years of the Exchanges and provide additional time for 
systems implementation. In later years, we will consider alternative 
approaches for reimbursing QHP issuers. For example, once more data is 
available, we could change to a capitated payment system as permitted 
in section 1402(c)(3)(B) of the Affordable Care Act. However, such a 
change would require access to data on the utilization and cost-sharing 
patterns of individuals eligible for cost-sharing reductions. We 
believe that providing a transition period on an interim basis now 
addresses issuers' operational needs and will permit us to explore a 
capitated payment approach for future implementation. We will provide 
QHP issuers with sufficient notice and seek comment prior to proposing 
any such changes.
    In Sec.  156.430(c)(4), we set forth a methodology for calculating 
the value of the amount that the enrollee(s) would have paid under the 
standard plan without cost-sharing reductions. We believe this 
methodology will reduce the administrative burden for certain QHP 
issuers, yet continue to provide a relatively accurate accounting of 
the cost-sharing reductions provided. Specifically, Sec.  156.430(c)(4) 
provides, subject to Sec.  156.430(c)(4)(iv) as described below, that a 
QHP issuer selecting the simplified methodology will calculates the 
amount that the enrollee(s) would have paid under the standard plan by 
applying certain summary, or ``effective,'' cost-sharing parameters for 
the standard plan--the effective deductible, the effective pre-
deductible coinsurance rate, the effective post-deductible coinsurance 
rate, and the effective claims ceiling--to the total allowed costs paid 
for EHB under the policy (that is, the policy with cost-sharing 
reductions) for the benefit year. In Sec.  156.430(c)(4)(i), we detail 
the process for calculating the amount that the enrollee(s) would have 
paid under the standard plan under the simplified methodology, 
depending on the utilization pattern under the policy. We describe 
these calculations here using Formulas A, B, and C, which build upon 
each other and use common terms. In Sec.  156.430(c)(4)(ii) we define 
the effective cost-sharing parameters for the standard plan, which must 
be calculated separately for both self-only coverage and other than 
self-only coverage. Below we provide instructions for determining these 
effective parameters.
    Under the simplified methodology, QHP issuers will calculate the 
amount that the enrollee(s) would have paid under the standard plan for 
policies with total allowed costs for EHB for the benefit year that are 
less than or equal to the effective deductible in accordance with 
paragraph (c)(4)(i)(A), and illustrated below with Formula A. The 
definitions for all of the terms used in the formula are defined below.

Formula A: C = TACi * PreD

Where,

C = the amount that the enrollee(s) in a particular policy would 
have paid under the standard plan without cost-sharing reductions;
TACi = the total allowed costs for EHB under the policy 
with cost-sharing reductions for the benefit year; and
PreD = the effective pre-deductible coinsurance rate.

    Secondly, QHP issuers must calculate the amount that the 
enrollee(s) would have paid under the standard plan for policies with 
cost-sharing reductions with total allowed costs for EHB for the 
benefit year that are greater than the effective deductible but less 
than the effective claims ceiling (that is, the estimated amount of 
total allowed claims for a policy that results in enrollee cost sharing 
that meets the annual limitation on cost sharing) in accordance with 
paragraph (c)(4)(i)(B), and illustrated below with Formula B. The 
method for calculating the effective claims ceiling is described below.


[[Page 15546]]


Formula B: C = D + ((TACi-D) * PostD)

Where,

D = the effective deductible; and
PostD = the effective post-deductible coinsurance rate.

    Lastly, QHP issuers must calculate the amount that the enrollee(s) 
would have paid under the standard plan for policies with cost-sharing 
reductions with total allowed costs for EHB for the benefit year that 
are greater than the effective claims ceiling in accordance with 
paragraph (c)(4)(i)(C), and illustrated below with Formula C.

Formula C: C = D + ((EC-D) * PostD)

Where,

EC = the effective claims ceiling.

    We request comment on these formulas for calculating the amount 
that the enrollee(s) would have paid under the standard plan, and 
whether this methodology appropriately divides policies based on 
utilization patterns. We welcome suggestions for alternative 
methodologies, which may provide a more accurate approach to estimating 
the amount that the enrollee(s) would have paid under the standard 
plan, while balancing the administrative burden on QHP issuers.
    In Sec.  156.430(c)(4)(ii), we set forth instructions for 
determining the effective cost-sharing parameters for the standard 
plan. These parameters are similar to the actual cost-sharing 
requirements for the standard plan, but are simplified and adjusted 
based on the utilization of the enrollees in the standard plan. This 
adjustment allows QHP issuers to calculate enrollee liability under the 
standard plan in a simple, standardized format. We also specify that 
QHP issuers must develop separate effective cost-sharing parameters for 
self-only coverage and other than self-only coverage, though we group 
together coverage for different size families under the category 
``other than self-only coverage.'' However, we seek comment on whether 
utilization patterns differ for self-only coverage and other than self-
only coverage such that separate effective cost-sharing parameters 
would yield more accurate calculations, and whether different family 
sizes should also be analyzed separately. We also note that if a QHP 
issuer has entirely separate cost-sharing parameters for pharmaceutical 
and medical services, the QHP issuer may elect to develop separate sets 
of effective cost-sharing parameters for pharmaceutical and medical 
services.
    Effective Deductible: In Sec.  156.430(c)(4)(ii)(A), we provide 
instructions for determining the effective deductible for the standard 
plan. If the standard plan has no deductible (and only copays or 
coinsurance), the effective deductible is zero. If the standard plan 
has only one deductible, the effective deductible is that deductible. 
If the standard plan has more than one deductible (for example, one 
deductible for certain or all in-network services, and another 
deductible for certain or all out-of-network services), the effective 
deductible is the weighted average deductible, weighted by allowed 
claims for EHB for either self-only or other than self-only coverage, 
as appropriate, under the plan for the benefit year that fall within 
each deductible category. For example, if a standard plan has a $500 
deductible for certain in-network services and a $1,000 deductible for 
certain out-of-network services, and 65 percent of allowed costs under 
the standard plan were for the certain in-network services subject to 
the in-network deductible and 30 percent were for the certain out-of-
network services subject to the out-of-network deductible, the weighted 
average deductible would be equal to approximately $658 (that is, 
(0.65*500+0.3*1000)/0.95).
    We note that services that are not subject to any deductible 
(including services subject to copays or coinsurance but not subject to 
the deductible) should not be incorporated into the weighted average 
calculation of the effective deductible. The estimated cost sharing 
liability for such services is captured in the effective pre-deductible 
coinsurance rate, discussed below. Similarly, services that are subject 
to the deductible only to a limited extent, for example a service for 
which the first three instances are subject to a copay instead of the 
deductible, but for which the fourth and each instance thereafter are 
subject to the deductible, should be incorporated into the weighted 
average calculation of the effective deductible to the extent the 
service is subject to the deductible (that is, the fourth and each 
later instance should be so incorporated), and should be incorporated 
into the calculation of the pre-deductible coinsurance rate (as 
calculated as described below) to the extent the service is not (that 
is, the first three instances should be so incorporated).
    Effective Pre-Deductible Coinsurance Rate: In Sec.  
156.430(c)(4)(ii)(B), we provide instructions for determining the 
effective pre-deductible coinsurance rate for the standard plan. We 
specify that the effective pre-deductible coinsurance rate must be 
calculated using the cost data from those standard plan policies that 
have total allowed costs for EHB for the benefit year that are less 
than or equal to the effective deductible. The effective pre-deductible 
coinsurance rate would be calculated as the proportion of the total 
allowed costs for EHB under the standard plan for the benefit year 
incurred for those standard plan enrollees and payable as cost sharing 
(including as copays or coinsurance on services with such cost sharing 
but not subject to the deductible, as discussed above). The effective 
pre-deductible coinsurance rate for the standard plan without cost-
sharing reductions must be calculated separately for both self-only 
coverage and other than self-only coverage. We note that although the 
pre-deductible coinsurance rate may be high, it will likely not be 100 
percent as certain services, including those preventative services 
described in Sec.  147.130, will have no cost-sharing requirements. The 
higher the utilization is for these services, the lower the effective 
pre-deductible coinsurance rate.
    Effective Post-Deductible Coinsurance Rate: In Sec.  
156.430(c)(4)(ii)(C), we provide instructions for determining the 
effective post-deductible coinsurance rate for the standard plan. We 
specify that the effective post-deductible coinsurance rate must be 
calculated using the cost data from those standard plan policies that 
have total allowed costs for EHB for the benefit year that are above 
the effective deductible, but for which associated cost sharing is less 
than the annual limitation on cost sharing. The effective post-
deductible coinsurance rate for the standard plan without cost-sharing 
reductions must be calculated separately for both self-only coverage 
and other than self-only coverage. The effective post-deductible 
coinsurance rate will then be calculated using the following formula:

PostD = (CSp)/(TACp-D)

Where,

PostD = the effective post-deductible coinsurance rate;
CSp = the average allowed costs for EHB for the benefit 
year incurred for those enrollee(s) on the policies and payable as 
cost sharing other than through a deductible (for example, 
coinsurance and copayments on services not subject to a deductible 
or for services after the applicable deductible has been met);
D = the effective deductible; and
TACp = the average total allowed costs for EHB for the 
policies of the standard plan for the benefit year (we distinguish 
TACp from the TACi; TACp refers to 
the average of total allowed costs for EHB for all the policies in 
the population that is part of the calculation--which in this case, 
are the standard plan policies with total allowed costs for EHB for 
the benefit year that are above the effective deductible, but for 
which associated cost

[[Page 15547]]

sharing is less than the annual limitation on cost sharing--while 
TACi refers to the total allowed costs for EHB for a 
particular policy).

    For example, a standard plan has one deductible of $1,000, and 
therefore, an effective deductible of $1,000. The average total allowed 
costs for EHB for the policies included in this calculation (that is, 
standard plan policies, for either self-only or other than self-only 
coverage, as appropriate, with total allowed costs for EHB for the 
benefit year that are above the effective deductible but for which 
associated cost sharing is less than the annual limitation on cost 
sharing) is $2,000, and the average total allowed cost payable by the 
enrollees as cost sharing other than through a deductible is $290. 
Therefore, the effective post-deductible coinsurance rate is equal to 
approximately 29 percent (that is, (290)/(2,000-1,000)).
    Effective Claims Ceiling: In Sec.  156.430(c)(4)(ii)(D), we provide 
instructions for determining the effective claims ceiling for the 
standard plan (that is, the estimated amount of total allowed claims 
for a policy that results in enrollee cost sharing that meets the 
annual limitation on cost sharing). We specify that the effective 
claims ceiling is to be calculated using the following formula:

EC = D + ((AL-D)/PostD)

Where,

EC = the effective claims ceiling;
AL = the standard plan's annual limitation on cost sharing;
PostD = the effective post-deductible coinsurance rate; and
D = the effective deductible.

    Therefore, continuing the example from above, where a standard plan 
has an effective deductible of $1,000 and an effective post-deductible 
coinsurance rate of 29 percent, assume the standard plan also has an 
annual limitation on cost sharing of $6,000. The effective claims 
ceiling would be $18,241 (that is, 1,000 + ((6,000 - 1,000)/0.29)).
    We request comment on these instructions for determining the 
effective cost-sharing parameters of a standard plan, including their 
ability to accurately characterize the experience of an enrollee in the 
standard plan, and the potential administrative burden associated with 
the calculations. We also welcome comment on alternative methods for 
estimating the cost sharing required under the standard plan. For 
example, we also considered whether simply using the proportion of 
total allowed costs that were payable as cost sharing under the 
standard plan would be an appropriate estimate of the amount the 
enrollee(s) would have paid under the standard plan. We seek comment on 
this alternative approach, as well as other alternatives.
    In Sec.  156.430(c)(4)(iii), we establish additional standards for 
QHP issuers that elect to use the simplified methodology. These 
provisions will allow HHS to ensure that QHP issuers are appropriately 
developing the effective cost-sharing parameters based on the actual 
experience of the enrollees in the standard plan. Specifically, we 
specify that QHP issuers submit to HHS, in the manner and timeframe 
established by HHS, the following information for each standard plan, 
for both self-only coverage and other than self-only coverage offered 
by the QHP issuer in the individual market through the Exchange: the 
effective deductible; the effective pre-deductible coinsurance rate; 
the effective post-deductible coinsurance rate; the effective claims 
ceiling; and a memorandum developed by a member of the American Academy 
of Actuaries in accordance with generally accepted actuarial principles 
and methodologies that describes how the QHP issuer calculated the 
effective cost-sharing parameters for the standard plan. We seek 
comment on whether HHS should require any other data submissions or 
establish any additional standards to oversee these provisions.
    We recognize that because the effective pre- and post-deductible 
coinsurance rates are calculated based on the average experience of the 
enrollees in the standard plan, low enrollment in the standard plan 
could lead to inaccurate effective coinsurance rates. Therefore, we 
provide additional standards related to the simplified methodology in 
Sec.  156.430(c)(4)(iv) to address credibility concerns that may result 
from low enrollment in the standard plan. We establish that if a 
standard plan has an enrollment during the benefit year of fewer than 
12,000 member months (that is, the sum of the months that each enrollee 
is covered by the plan) in any of the four subgroups delineated below, 
and the QHP issuer has selected the simplified methodology, then the 
QHP issuer must calculate the amount that the enrollee(s) would have 
paid under the standard plan for enrollees in all subgroups by applying 
the standard plan's actuarial value, as calculated under Sec.  156.135, 
to the allowed costs for EHB for the enrollee(s) for the benefit year. 
We establish four subgroups to align with the policy implemented in 
Sec.  156.430(c)(4)(iii), which requires that the effective cost-
sharing parameters be calculated separately for self-only and other 
than self-only coverage. The subgroups are enrollees in the standard 
plan with: (1) Self-only coverage with total allowed costs for EHB for 
the benefit year that are less than or equal to the effective 
deductible; (2) other than self-only coverage with total allowed costs 
for EHB for the benefit year that are less than or equal to the 
effective deductible; (3) self-only coverage with total allowed costs 
for EHB for the benefit year that are greater than the effective 
deductible, but below the effective claims ceiling; and (4) other than 
self-only coverage with total allowed costs for EHB for the benefit 
year that are greater than the effective deductible, but below the 
effective claims ceiling. A subgroup is not necessary for the enrollees 
with total allowed costs for EHB for the benefit year that are greater 
than the effective claims ceiling because the experience of this 
population is not used to calculate the effective cost-sharing 
parameters.
    The credibility standard of 12,000 member months aligns with a 
similar standard used by the Medicare Part D program; however, we seek 
comment on the appropriate amount of member months to achieve credible 
use of the simplified methodology. We believe that a population with 
member months below this standard would not provide adequate data on 
which to base the effective cost-sharing parameters. If a QHP issuer 
does not have adequate enrollment in any of the four subgroups, we 
believe the standard plan's actuarial value will provide an adequate 
substitute for the effective cost-sharing parameters if applied to all 
policies in all four subgroups. We seek comment on the credibility 
standard of 12,000 member months, and whether the standard plan's 
actuarial value applied to the allowed costs for EHB for the 
enrollee(s) for the benefit year will provide an appropriate estimate 
of the amount of cost sharing that the enrollee(s) would have paid 
under the standard plan without cost-sharing reductions. We seek 
comment on alternative approaches for QHP issuers with low enrollment 
for estimating the amount of cost sharing that the enrollee(s) would 
have paid under the standard plan. We also seek comment on the 
composition of these subgroups and whether they appropriately divide 
enrollees based on their utilization patterns, or whether any subgroups 
are required at all. We seek comment on whether low enrollment in one 
subgroup should prompt the QHP issuer to use the actuarial value for 
enrollees in all subgroups or just the subgroup with low enrollment.
    We appreciate the possibility that, for a very small number of 
plans with

[[Page 15548]]

unique cost-sharing structures, the amounts that enrollees would have 
been paid under the plan cannot fairly be estimated using the 
simplified methodology described in paragraph (c). We are considering a 
process in which a QHP issuer of such a plan may notify HHS if it 
believes that such is the case for one or more of its plans. We are 
considering requiring such a notification within ninety days of the 
beginning of the applicable benefit year, and we are considering 
requiring the QHP issuer to provide information on the unique plan 
design supporting the QHP issuer's assessment.
    Under this approach, if HHS were to agree with the assessment, we 
are considering requiring that the QHP issuer calculate the amount that 
the enrollee(s) would have paid under the standard plan without cost-
sharing reductions by applying the standard plan's actuarial value, as 
calculated pursuant to Sec.  156.135, to the allowed costs for 
essential health benefits for the enrollee(s) for the benefit year. If 
HHS were to disagree with the issuer's assessment, the QHP issuer would 
calculate such amounts using the effective cost-sharing parameters 
under the approach described in paragraphs (4)(i) through (4)(iii) or 
(4)(iv), if applicable, of Sec.  156.430.
    We seek comment on whether we should adopt such an approach, and on 
the specifics outlined above. In particular, we seek comment on the 
types of plans, if any, for which it will be difficult to fairly 
calculate the amount that the enrollee(s) would have paid under the 
standard plan without cost-sharing reductions using the simplified 
methodology, and their prevalence. We seek comment on the standard that 
should apply for determining whether the plan will be exempted from 
using the simplified methodology, and how HHS should make that 
determination. Finally, we seek comment on what estimation methodology 
should be used if the plan is determined to be exempt, and if it is 
not. Section 156.430(c)(5), finalized in the 2014 Payment Notice, 
provides that in the case of a benefit for which the QHP issuer 
compensates an applicable provider in whole or in part on a fee-for-
service basis, allowed costs associated with the benefit may be 
included in the calculation of the amount that an enrollee(s) would 
have paid under the standard plan without cost-sharing reductions only 
to the extent the amount was either payable by the enrollee(s) as cost 
sharing under the plan variation or was reimbursed to the provider by 
the QHP issuer. We note that this provision applies to calculations 
using either the standard methodology or the simplified methodology.

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. However, under section 553(b) of the Administrative 
Procedure Act (APA) (5 U.S.C. 551 et seq.), a general notice of 
proposed rulemaking is not required when an agency, for good cause, 
finds that notice and public comment thereon are impracticable, 
unnecessary, or contrary to the public interest, and incorporates a 
statement of the finding and its reasons in the rule issued. The 
Secretary has determined that it would be impracticable to delay 
finalizing the provisions of this regulation until a public notice and 
comment process is complete.
    Section 1321(b) of the Affordable Care Act directs that Exchanges 
be operational by January 1, 2014, and section 1311(b)(6) of the 
Affordable Care Act directs that the Exchanges permit individuals to 
apply for coverage during annual open enrollment periods. Accordingly, 
Sec.  155.410(b) establishes that Exchanges must be available to enroll 
individuals in QHPs beginning October 1, 2013. In order to meet this 
enrollment deadline and offer QHPs on the Exchange, QHP issuers must 
develop premium rates and plan offerings for QHPs to be offered on the 
Exchanges. Issuers must then seek and obtain approval of their rates 
and plan offerings from the applicable State Departments of Insurance, 
and submit their rates and plan offerings to the Exchange beginning 
April 1, 2013. In order to meet these statutorily driven deadlines, 
final rulemaking relating to the risk corridors program and the cost-
sharing reduction program must be in effect so that QHP issuers can 
take these programs appropriately into account when developing their 
rates. The temporary risk corridors program will protect against 
uncertainty in rates for QHPs by limiting the extent of issuer losses 
and gains and will permit issuers to offer lower rates by not adding a 
risk premium to account for perceived uncertainties in the 2014 through 
2016 markets. If the provisions of this regulation were proposed under 
a standard 60-day notice and comment process, QHP issuers would not 
have the information needed to develop rates and products for the 
Exchanges and meet the October 1, 2013 deadline for open enrollment.
    Additionally, because the cost-sharing reduction provisions 
implemented in this regulation provide issuers with information that 
will affect how they prepare their information systems to process cost-
sharing reductions, any delay in the effective date of those provisions 
would adversely affect issuers' operational readiness. For the reasons 
described above, we believe that issuing this regulation on an interim 
final basis is necessary in order to avoid regulatory confusion for the 
affected industry and to ensure effective compliance with existing 
regulations.
    HHS solicited public comment on the risk corridors program in the 
proposed Premium Stabilization Rule and the proposed Payment Notice. 
HHS solicited public comment on the cost-sharing reductions program in 
the AV/CSR Bulletin, and in the proposed Payment Notice. Comments in 
response to these documents were considered in the development of this 
regulation. In light of these comments and based on the Secretary's 
determination that a delay of these rules would be impracticable, the 
Secretary finds good cause to waive the notice of proposed rulemaking 
and to issue this final rule on an interim basis. As a result of the 
timing constraints, we are providing a 60-day public comment period, 
and intend to address comments received.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a control 
number assigned by OMB.
    This interim final rule with comment modifies some of the 
information collections listed in the 2014 Payment Notice, and adds one 
additional information collection. We plan to seek OMB approval at a 
later date for these information collections. HHS will issue future 
Federal Register notices to seek comments on those information 
collections, as required by 3506(c)(2)(A) of the Paperwork Reduction 
Act. Included among such information collections for which HHS plans to 
seek later approval are those described below.

[[Page 15549]]

    The amendments we make for the risk corridors program in this 
interim final rule with comment will not increase the information 
collection burden of the program established by and described in the 
Premium Stabilization Rule and the HHS Notice of Benefit and Payment 
Parameters for 2014. This interim final rule with comment modifies the 
calculation of allowable costs in the risk corridors calculation, but 
does not establish any information collection requirements beyond those 
already established in Sec.  153.530. The information collection 
process and instruments associated with the risk corridors program data 
submission requirements under Sec.  153.530 are currently under 
development. We will seek OMB approval and solicit public comments upon 
their completion.
    In this interim final rule with comment, we build on the standards 
finalized in the 2014 Payment Notice related to the administration of 
cost-sharing reductions and add provisions to paragraphs (c)(3) and (4) 
of Sec.  156.430. We provide standards to permit QHP issuers greater 
flexibility in the manner in which the value of cost-sharing reduction 
amounts are calculated. In paragraph (c)(3), we specify that QHP 
issuers may choose to calculate the amounts that would have been paid 
under the standard plan without cost-sharing reductions using a 
simplified methodology, as an alternative to the standard methodology 
described in the 2014 Payment Notice final rule at Sec.  156.430(c)(2). 
In addition, we establish a new information collection requirement in 
paragraph (3)(i), under which a QHP issuer must notify HHS prior to the 
start of each benefit year whether or not it selects the simplified 
methodology for the benefit year. While this information collection 
requirement is subject to the Paperwork Reduction Act, the information 
collection process and instruments associated with this requirement are 
currently under development. We will seek OMB approval and solicit 
public comments upon their completion. We estimate that the burden 
associated with the information collection requirement will be no more 
than one million dollars (assuming 1,200 issuers participate in an 
Exchange nationally, and each issuer has a reporting burden of 
approximately $700, which primarily represents the cost of the analysis 
performed by the QHP issuer to determine whether or not to use the 
simplified methodology).
    In Sec.  156.430(c)(4) we set forth a simplified methodology for 
calculating the value of the amount that the enrollee(s) would have 
paid under the standard plan without cost-sharing reductions. We 
believe this methodology will reduce the administrative burden for 
certain QHP issuers, yet continue to provide a relatively accurate 
accounting of the cost-sharing reductions provided. If a QHP issuer 
uses the simplified methodology, the QHP issuer must also submit 
estimated cost-sharing parameters and an actuarial memorandum, as 
described in Sec.  156.430(c)(4)(iii); however, we expect this 
information collection to require a limited amount of analysis by a QHP 
issuer's actuaries. These information collections associated with these 
provisions are subject to the Paperwork Reduction Act; however, the 
information collection process and instruments associated with this 
requirement are currently under development. We will seek OMB approval 
and solicit public comments upon their completion. Below we provide an 
initial estimate of the incremental burden associated with the 
provisions in Sec.  156.430(c)(4). Under the provisions finalized in 
the 2014 Payment Notice, all QHP issuers must use the standard 
methodology; however, the provisions in this interim final rule with 
comment provide a choice of methodologies. To estimate the incremental 
effect of the simplified methodology, we compare the burden of the 
standard methodology to the simplified methodology for those issuers 
that we assume select the simplified methodology.
    As discussed in the Collection of Information section in the 2014 
Payment Notice, we estimate that 1,200 issuers will participate in an 
Exchange nationally and will incur total costs of approximately $138 
million using the standard methodology. In contrast, we estimate that 
each issuer using the simplified methodology set forth in this interim 
final rule with comment will incur labor costs of 40 hours of work by 
an actuary and (at a wage rate of $56.89) and 20 hours of work by an 
insurance manager (at a wage rate of $67.44) to develop the effective 
cost-sharing parameters and actuarial memorandum, and calculate the 
amount of cost-sharing reductions provided, resulting in a cost of 
approximately $3,624 per issuer.\4\ Although we cannot predict the 
precise number of issuers that will select either the standard or 
simplified methodology, we estimate that approximately half of QHP 
issuers (600 issuers) will implement the simplified methodology. 
Therefore, we estimate that the provisions of this rule will result in 
an incremental savings of approximately $57,825,600 ($60 million that 
would have been incurred by these issuers under the standard 
methodology, minus 600 multiplied by $3,624) by reducing the overall 
administrative costs that issuers incur.
---------------------------------------------------------------------------

    \4\ HHS relied on the Bureau of Labor Statistics, U.S. 
Department of Labor, National Compensation Survey Occupational 
Earnings in the United States, 2011, for estimates of job 
descriptions and wages.
---------------------------------------------------------------------------

VI. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

VII. Regulatory Impact Analysis

    This interim final rule with comment implements amendments to the 
calculation of allowable costs under the risk corridors program and to 
the methodology for calculating the amounts of cost-sharing reductions 
provided. The amendments to the risk corridors program are needed to 
align that program with the single risk pool requirements at Sec.  
156.80 so that both allowable costs and the target amount in that 
calculation are calculated based on a QHP's share of total amounts 
pooled across an issuer's non-grandfathered plans in a market. This 
change will permit the program to have its intended effect--to share in 
profits or losses resulting from inaccurate rate setting from 2014 to 
2016. Without these changes, pooled premiums would be compared against 
unpooled claims costs, which we believe was not the intent of the 
statute because it would lessen the effect of the risk corridors 
program on stabilizing premiums. The amendments to the cost-sharing 
reduction standards are needed to lessen the burden of participating in 
that program for QHP issuers who cannot easily alter their information 
technology systems to calculate the amount of cost-sharing reductions 
provided according to the methodology specified in the 2014 Payment 
Notice.
    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995

[[Page 15550]]

(March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism 
(August 4, 1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any one 
year). As discussed in the Collection of Information Requirements 
section, we believe that Sec.  156.430(c)(3) will add approximately $1 
million in reporting burden. We also believe that the addition of 
paragraph (c)(4) to Sec.  156.430 will reduce the administrative burden 
associated with complying with Sec.  156.430(c)(1) in the specified 
timeframe, particularly for smaller issuers, by approximately 
$66,825,600.
    In addition, although this interim final rule with comment amends 
Sec.  153.500 to modify the manner in which QHP issuers will calculate 
allowable costs for the purposes of the risk corridors calculation, we 
do not believe that this change to the risk corridors calculation 
method will have a significant effect on the aggregate amount of risk 
corridors payments made in any one year. Additionally, we do not 
believe that these amendments will substantially alter the analysis 
provided in previous impact analyses of the risk corridors program in 
the Premium Stabilization Rule and the 2014 Payment Notice.
    We conclude that this interim final rule with comment does not 
reach the economic threshold and thus is not considered a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$7 million to $35.5 million in any one year. Individuals and States are 
not included in the definition of a small entity. We are not preparing 
an analysis for the RFA because we have determined, and the Secretary 
certifies, that this interim final rule with comment would not have a 
significant economic impact on a substantial number of small entities.
    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires agencies to prepare a final regulatory flexibility analysis to 
describe the impact of the final rule on small entities, unless the 
head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are not included in the definition of 
``small entity.'' HHS uses a change in revenues of more than three to 
five percent as its measure of significant economic impact on a 
substantial number of small entities.
    This final rule contains rules for health plan issuers regarding 
the temporary risk corridors program and the cost-sharing reduction 
program. We believe that health insurance issuers and plan sponsors 
would be classified under the North American Industry Classification 
System (NAICS) code 524114. According to SBA size standards, an entity 
with average annual receipts of $7 million or less would be considered 
small entities for this NAICS code. We believe that few insurance firms 
offering comprehensive health insurance policies fall below this size 
threshold for ``small entities'' established by the SBA. Therefore, we 
are not preparing a regulatory flexibility analysis because we have 
determined, and the Secretary certifies, that this interim final rule 
with comment will not have a significant impact on the operations of a 
substantial number of small entities.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any one year by 
State, local, or Tribal governments, or by the private sector, of $100 
million in 1995 dollars, updated annually for inflation. In 2013, that 
threshold is approximately $141 million. Since the impact on State, 
local, and Tribal governments, and the private sector is below this 
threshold, no analysis under UMRA is required.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a rule that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. This interim final rule 
with comment does not impose any costs on State or local governments 
and does not preempt State law. The amendments to the cost-sharing 
reduction program set forth in this rule have no Federalism 
implications, but the amendments to the risk corridors program have the 
effect of complementing a State's authority to regulate and enforce the 
single risk pool requirement. Thus, we believe this interim final rule 
with comment has positive Federalism implications.
    This interim final rule with comment is subject to the 
Congressional Review Act provisions of the Small Business Regulatory 
Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.), which 
specifies that before a rule can take effect, the Federal agency 
promulgating the rule shall submit to each House of the Congress and to 
the Comptroller General a report containing a copy of the rule along 
with other specified information, and has been transmitted to Congress 
and the Comptroller General for review.

List of Subjects

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 156

    Administrative practice and procedure, Advertising, Advisory 
Committees, Brokers, Conflict of interest, Consumer protection, 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, 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 Department of Health 
and Human Services amends 45 CFR parts 153 and 156 as set forth below:

[[Page 15551]]

PART 153--STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND 
RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT

0
1. The authority citation for part 153 continues to read as follows:

    Authority:  Secs. 1321, 1341-1343, Pub. L. 111-148, 24 Stat. 
119.


0
2. Section 153.500 is amended by revising the definition of ``Allowable 
costs'' to read as follows:


Sec.  153.500  Definitions.

* * * * *
    Allowable costs means, with respect to a QHP, an amount equal to 
the pro rata portion of the sum of incurred claims within the meaning 
of Sec.  158.140 of this subchapter (including adjustments for any 
direct and indirect remuneration), expenditures by the QHP issuer for 
the QHP for activities that improve health care quality as set forth in 
Sec.  158.150 of this subchapter, expenditures by the QHP issuer for 
the QHP related to health information technology and meaningful use 
requirements as set forth in Sec.  158.151 of this subchapter, and the 
adjustments set forth in Sec.  153.530(b); in each case for all of the 
QHP issuer's non-grandfathered health plans in a market within a State, 
allocated to the QHP based on premiums earned.
* * * * *

0
3. Section 153.520 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec.  153.520  Attribution and allocation of revenue and expense items.

    (a) Attribution to QHP. Each item of revenue or expense in the 
target amount with respect to a QHP must be reasonably attributable to 
the operation of the QHP, with the attribution based on a generally 
accepted accounting method, consistently applied. To the extent that an 
issuer utilizes a specific method for allocating expenses for purposes 
of Sec.  158.170 of this subchapter, the method used for purposes of 
this paragraph must be consistent.
    (b) Allocation across plans. Each item of revenue or expense in the 
target amount must be reasonably allocated across a QHP issuer's plans, 
with the allocation based on a generally accepted accounting method, 
consistently applied. To the extent that an issuer utilizes a specific 
method for allocating expenses for purposes of Sec.  158.170 of this 
subchapter, the method used for purposes of this paragraph must be 
consistent.
* * * * *

PART 156--HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE 
CARE ACT, INCLUDING STANDARDS RELATED TO EXCHANGES

0
4. The authority citation for part 156 continues 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).


0
5. Section 156.430 is amended by adding paragraphs (c)(3) and (c)(4) to 
read as follows:


Sec.  156.430  Payment for cost-sharing reductions.

* * * * *
    (c) * * *
    (3) Selection of methodology. Notwithstanding paragraph (c)(2) of 
this section, a QHP issuer may choose to calculate the amounts that 
would have been paid under the standard plan without cost-sharing 
reductions using a simplified methodology specified in paragraph (c)(4) 
of this section.
    (i) The QHP issuer must notify HHS prior to the start of each 
benefit year, in the manner and timeframe established by HHS, whether 
or not it selects the simplified methodology for the benefit year.
    (ii) If the QHP issuer selects the simplified methodology, it must 
apply the simplified methodology to all plan variations it offers on 
the Exchange for a benefit year.
    (iii) The QHP issuer may not select the simplified methodology 
described in paragraph (c)(4) of this section for a benefit year if the 
QHP issuer did not select the simplified methodology for the prior 
benefit year.
    (iv) Notwithstanding paragraphs (c)(3)(ii) and (c)(3)(iii) of this 
section, if a QHP issuer merges with or acquires another issuer of QHPs 
on the Exchange, or acquires a QHP offered on the Exchange from another 
QHP issuer, and if one, but not all, of the merging, acquiring, or 
acquired parties had selected the simplified methodology for the 
benefit year, then for the benefit year in which the merger or 
acquisition took place, the QHP issuer must calculate the amounts that 
would have been paid using the standard methodology described in 
paragraph (c)(2) of this section, or as calculated under the simplified 
methodology, as applicable, if selected prior to the start of the 
benefit year for each plan variation (even if the selection was not 
made by that QHP issuer). For the next benefit year, the QHP issuer may 
select the simplified methodology (subject to paragraph (c)(3)(ii) of 
this section but, for that benefit year, not paragraph (c)(3)(iii) of 
this section) or the methodology specified in paragraph (c)(2) of this 
section.
    (4) Simplified methodology. Subject to paragraph (c)(4)(iv) of this 
section, a QHP issuer that selects the simplified methodology described 
in this paragraph (c)(4) must calculate the amount that the enrollee(s) 
would have paid under the standard plan without cost-sharing reductions 
by applying the standard plan's effective cost-sharing parameters (as 
calculated under paragraph (c)(4)(ii) of this section) to the total 
allowed costs for essential health benefits under each policy for the 
benefit year (as described in paragraph (c)(4)(i) of this section).
    (i) For policies with total allowed costs for essential health 
benefits for the benefit year that are--
    (A) Less than or equal to the effective deductible, the amount that 
the enrollee(s) would have paid under the standard plan is equal to the 
total allowed costs for essential health benefits under the policy for 
the benefit year multiplied by the effective pre-deductible coinsurance 
rate.
    (B) Greater than the effective deductible but less than the 
effective claims ceiling, the amount that the enrollee(s) would have 
paid under the standard plan is equal to the sum of (x) the effective 
deductible, plus (y) the product of the allowed costs for essential 
health benefits under the policy for the benefit year above the 
effective deductible, multiplied by the effective post-deductible 
coinsurance rate.
    (C) Greater than the effective claims ceiling, the amount that the 
enrollee(s) would have paid under the standard plan is equal to the sum 
of (x) the effective deductible, plus (y) the product of the allowed 
costs for essential health benefits between the effective deductible 
and the effective claims ceiling, multiplied by the effective post-
deductible coinsurance rate.
    (ii) The effective cost-sharing parameters for the standard plan 
without cost-sharing reductions must be calculated separately for both 
self-only coverage and other than self-only coverage as follows--
    (A) If the standard plan has no deductible, the effective 
deductible of the standard plan is zero. If the standard plan has only 
one deductible, the effective deductible of the standard plan is that 
deductible amount. If the standard plan has more than one

[[Page 15552]]

deductible, the effective deductible is the weighted average 
deductible, weighted by allowed claims for essential health benefits 
under the plan for the benefit year that are subject to each separate 
deductible. Services that are not subject to any deductible (including 
services subject to copays or coinsurance but not subject to the 
deductible) are not to be incorporated into the weighted average 
calculation of the effective deductible.
    (B) The effective pre-deductible coinsurance rate is based on 
standard plan policies with total allowed costs for essential health 
benefits for the benefit year that are less than or equal to the 
effective deductible, and calculated as the proportion of the total 
allowed costs for essential health benefits under the standard plan for 
the benefit year incurred for those standard plan enrollees and payable 
as cost sharing.
    (C) The effective post-deductible coinsurance rate is based on 
standard plan policies with total allowed costs for essential health 
benefits for the benefit year that are above the effective deductible 
but for which associated cost sharing is less than the annual 
limitation on cost sharing, and calculated as the quotient of (x) the 
portion of average allowed costs for essential health benefits for the 
benefit year incurred for those enrollee(s) and payable by the 
enrollees as cost sharing other than through a deductible, divided by 
(y) the average allowed costs for essential health benefits for the 
benefit year above the effective deductible.
    (D) The effective claims ceiling is calculated as the effective 
deductible plus the quotient of (x) the difference between the annual 
limitation on cost sharing and the effective deductible, divided by (y) 
the effective post-deductible coinsurance rate.
    (iii) Submission of effective cost-sharing parameters. If a QHP 
issuer uses the simplified methodology described in this paragraph 
(c)(4), the QHP issuer must also submit to HHS, in the manner and 
timeframe established by HHS, the following information for each 
standard plan, for both self-only coverage and other than self-only 
coverage, offered by the QHP issuer in the individual market through 
the Exchange--
    (A) The effective deductible.
    (B) The effective pre-deductible coinsurance rate.
    (C) The effective post-deductible coinsurance rate.
    (D) The effective claims ceiling.
    (E) A memorandum developed by a member of the American Academy of 
Actuaries in accordance with generally accepted actuarial principles 
and methodologies that describes how the QHP issuer calculated the 
effective cost-sharing parameters for the standard plan.
    (iv) Minimum credibility. Notwithstanding paragraphs (c)(4)(i) 
through (c)(4)(iii) of this section, if the standard plan without cost-
sharing reductions has an enrollment during the benefit year of fewer 
than 12,000 member months in any of the following four subgroups, and 
the QHP issuer has selected the simplified methodology described in 
this paragraph (c)(4), then the QHP issuer must calculate the amount 
that the enrollee(s) would have paid under the standard plan without 
cost-sharing reductions for all subgroups by applying the standard 
plan's actuarial value, as calculated under Sec.  156.135, to the 
allowed costs for essential health benefits for the enrollee(s) for the 
benefit year. For purposes of this paragraph (c)(4)(iv), the four 
subgroups are:
    (A) Enrollees in the standard plan with self-only coverage with 
total allowed costs for essential health benefits for the benefit year 
that are less than or equal to the effective deductible.
    (B) Enrollees in the standard plan with other than self-only 
coverage with total allowed costs for essential health benefits for the 
benefit year that are less than or equal to the effective deductible.
    (C) Enrollees in the standard plan with self-only coverage with 
total allowed costs for essential health benefits for the benefit year 
that are greater than the effective deductible, but below the effective 
claims ceiling.
    (D) Enrollees in the standard plan with other than self-only 
coverage with total allowed costs for essential health benefits for the 
benefit year that are greater than the effective deductible, but below 
the effective claims ceiling.
* * * * *

    Dated: February 25, 2013.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: February 27, 2013.

Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-04904 Filed 3-1-13; 11:15 am]
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