[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Rules and Regulations]
[Pages 42159-42322]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16271]



[[Page 42159]]

Vol. 78

Monday,

No. 135

July 15, 2013

Part II





Department of Health and Human Services





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 Centers for Medicare & Medicaid Services





42 CFR Parts 431, 435, 436, et al.





Office of the Secretary

45 CFR Parts 155 and 156





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Medicaid and Children's Health Insurance Programs: Essential Health 
Benefits in Alternative Benefit Plans, Eligibility Notices, Fair 
Hearing and Appeal Processes, and Premiums and Cost Sharing; Exchanges: 
Eligibility and Enrollment; Final Rule

Federal Register / Vol. 78 , No. 135 / Monday, July 15, 2013 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 431, 435, 436, 438, 440, 447, and 457

Office of the Secretary

45 CFR Parts 155 and 156

[CMS-2334-F]
RIN 0938-AR04


Medicaid and Children's Health Insurance Programs: Essential 
Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair 
Hearing and Appeal Processes, and Premiums and Cost Sharing; Exchanges: 
Eligibility and Enrollment

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements provisions of the Patient 
Protection and Affordable Care Act and the Health Care and Education 
Reconciliation Act of 2010 (collectively referred to as the Affordable 
Care Act. This final rule finalizes new Medicaid eligibility 
provisions; finalizes changes related to electronic Medicaid and the 
Children's Health Insurance Program (CHIP) eligibility notices and 
delegation of appeals; modernizes and streamlines existing Medicaid 
eligibility rules; revises CHIP rules relating to the substitution of 
coverage to improve the coordination of CHIP coverage with other 
coverage; and amends requirements for benchmark and benchmark-
equivalent benefit packages consistent with sections 1937 of the Social 
Security Act (which we refer to as ``alternative benefit plans'') to 
ensure that these benefit packages include essential health benefits 
and meet certain other minimum standards. This rule also implements 
specific provisions including those related to authorized 
representatives, notices, and verification of eligibility for 
qualifying coverage in an eligible employer-sponsored plan for 
Affordable Insurance Exchanges. This rule also updates and simplifies 
the complex Medicaid premium and cost sharing requirements, to promote 
the most effective use of services, and to assist states in identifying 
cost sharing flexibilities. It includes transition policies for 2014 as 
applicable.

DATES: The effective date for the additions of 42 CFR 435.118, 435.603, 
435.911, 435.949, 435.956, 435.1200, 457.315, 457.330 and 457.348; 
amendments to 42 CFR 431.10, 431.11, 435.110, 435.116, 435.119, 
435.907, 435.916, 435.940, 435.945, 435.948, 435.952, 457.340 and 
457.350; the removal of 42 CFR 435.953 and 435.955; and the 
redesignation of 42 CFR 435.911 through 435.914 as 42 CFR 435.912 
through 435.915 in CMS-2349 (FR Doc. 2012-6560) published on March 23, 
2012, which were to become effective in January 1, 2014 are now 
effective October 1, 2013.
    Other provisions of this final rule that are codified in title 42 
of the Code of Federal Regulations are effective January 1, 2014 with 
the exception of amendments to the following which are effective on 
October 1, 2013: 42 CFR 431.10, 431.11, 431.201, 431.205, 431.206, 
431.211, 431.213, 431.230, 431.231, 431.240, 435.119, 435.603, 435.907, 
435.918, 435.1200, 457.110, 457.348, and 457.350; and the addition of 
42 CFR 435.1205 and 457.370, which are effective on October 1, 2013.
    Regulations in this final rule that are codified in title 45 of 
Code of Federal Regulations are effective on September 13, 2013.

FOR FURTHER INFORMATION CONTACT: 
Sarah deLone, (410) 786-0615, or Stephanie Kaminsky, (410) 786-4653, 
for provisions related to revisions to eligibility notice and fair 
hearing appeal processes and additional eligibility changes for 
Medicaid and CHIP.
Melissa Harris, (410) 786-3397, for provisions related to essential 
health benefits.
Leigha Basini, (301) 492-4307, for provisions related to Affordable 
Insurance Exchanges.

SUPPLEMENTARY INFORMATION: 

 Executive Summary

    This final rule implements provisions of the Patient Protection and 
Affordable Care Act and the Health Care and Education Reconciliation 
Act of 2010 (collectively referred to as the Affordable Care Act). This 
rule reflects new statutory eligibility provisions, implements changes 
related to Medicaid and the Children's Health Insurance Program (CHIP) 
eligibility notices, delegation of appeals, and other related 
administrative procedures with similar procedures used by other health 
coverage programs authorized under the Affordable Care Act. This final 
rule also modernizes and streamlines existing rules.
    This final rule amends the requirements applicable to Medicaid 
benefit packages that provide benchmark or benchmark-equivalent 
coverage, to include requirements to meet new minimum standards, 
including the provision of essential health benefits, as required by 
the Affordable Care Act. In an effort to bring consistency and clarity 
to part 440, we are removing the terms ``benchmark and benchmark-
equivalent plan'' where they appear together and are replacing these 
terms with ``Alternative Benefit Plan'' (ABP).
    Beginning in calendar year 2014, individuals and small businesses 
will be able to purchase private health insurance through competitive 
marketplaces called Affordable Insurance Exchanges, or ``Exchanges.'' 
This final rule: (1) Specifies standards related to authorized 
representatives, (2) outlines criteria related to the verification of 
enrollment in and eligibility for minimum essential coverage through an 
eligible employer-sponsored plan, and (3) further specifies or amends 
other eligibility and enrollment provisions. This final rule does not 
address proposed provisions regarding Exchange eligibility appeals, to 
provide additional time for the careful development of standards that 
can be effectively implemented, particularly for those regarding 
coordination with Medicaid and CHIP. Additionally, this final rule does 
not address proposed provisions regarding the Children's Health 
Insurance Program Reauthorization Act of 2009 (CHIPRA), certified 
application counselors in an Exchange and SHOP coordination with 
individual market Exchanges. We intend to address these provisions in a 
future issuance. The intent of this final rule is to afford each state 
substantial discretion in the design and operation of the Exchange 
established by the state, with greater standardization provided where 
directed by the statute or where there are compelling practical, 
efficiency or consumer protection reasons.
    This final rule also updates and simplifies the complex Medicaid 
premium and cost sharing requirements to promote the most effective use 
of services and to assist states in identifying cost sharing 
flexibilities.
    Finally, this final rule provides notice that we are considering, 
for purposes of the initial open enrollment period for enrollment in a 
Qualified Health Plan through the Exchange, whether various provisions 
of the Medicaid and CHIP regulations should be effective October 1, 
2013, or whether a later effective date is appropriate.
    In this final rule, we do not address all of the proposed 
regulatory changes to 42 CFR parts 431, 435 and 457. We are focusing on 
those changes that are most

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needed to implement the changes made by the Affordable Care Act 
starting in 2014. We intend to address certain of the other provisions 
in future rulemaking.

Table of Contents

    To assist readers in referencing sections contained in this 
document, we are providing the following table of contents.

Executive Summary

I. Background
    A. Medicaid Eligibility Final Rule Part II
    B. Essential Health Benefits in Alternative Benefit Plans
    C. Exchanges: Eligibility and Enrollment
    D. Medicaid Premiums and Cost Sharing
II. Provisions of the Proposed Regulations and Analysis of and 
Responses to Public Comments
    A. Medicaid Eligibility Expansion Part II
    1. Responses to General Comments
    2. Appeals--Delegation of Authority To Conduct Medicaid Fair 
Hearings
    3. Notices
    4. Medicaid Enrollment Changes Under the Affordable Care Act 
Needed to Achieve Coordination with the Exchange
    5. Medicaid Eligibility Requirements and Coverage Options 
Established by Other Federal Statutes
    6. Coordinated Medicaid/CHIP Open Enrollment Process
    7. Children's Health Insurance Program Changes
    8. Premium Assistance
    9. Changes to Modified Adjusted Gross Income and MAGI Screen
    10. Single State Agency--Delegation of Eligibility 
Determinations to Exchanges
    11. Conversion of Federal Minimum Income Standards for Section 
1931 of the Act
    B. Essential Health Benefits in Alternative Benefit Plans
    1. General Comments
    2. Alignment With Essential Health Benefits Provisions
    3. Modifications in Applying the Provisions of This Final Rule 
to Medicaid
    4. All Other Title XIX Provisions Apply
    5. Preventive Services as an EHB
    6. Other Changes To Simplify, Modernize, and Clarify Medicaid 
Benchmark Requirements and Coverage Requirements
    7. Summary
    C. Exchanges: Eligibility and Enrollment
    1. Definitions
    2. Approval of a State Exchange
    3. Functions of an Exchange
    4. Authorized Representatives
    5. General Standards for Exchange Notices
    6. Definitions and General Standards for Eligibility 
Determinations
    7. Options for Conducting Eligibility Determinations
    8. Eligibility Standards
    9. Eligibility Process
    10. Verification Process Related to Eligibility for Enrollment 
in a QHP Through the Exchange
    11. Verifications Related to Eligibility for Insurance 
Affordability Programs
    12. Eligibility Redetermination During a Benefit Year
    13. Annual Eligibility Redetermination
    14. Administration of Advance Payments of the Premium Tax Credit 
and Cost-Sharing Reductions
    15. Coordination With Medicaid, CHIP, the Basic Health Program, 
and the Pre-Existing Condition Insurance Plan
    16. Special Eligibility Standards and Process for Indians
    17. Enrollment of Qualified Individuals Into QHP's
    18. Special Enrollment Periods
    19. Termination of Coverage
    D. Medicaid Premiums and Cost Sharing
    1. Responses to General Comments
    2. Definitions
    3. Update to Maximum Nominal Cost Sharing
    4. Higher Cost Sharing Permitted for Individuals With Incomes 
Above 100 Percent of the FPL
    5. Cost Sharing for Drugs
    6. Cost Sharing for Emergency Department (ED) Services
    7. Premiums
    8. Limitations on Premiums and Cost Sharing
    9. Beneficiary and Public Notice Requirements
III. Provisions of the Final Regulations
IV. Collection of Information Requirements
V. Regulatory Impact Analysis

Regulations Text

Acronyms and Terms

    Because of the many organizations and terms to which we refer by 
acronym in this final rule, we are listing these acronyms and their 
corresponding terms in alphabetical order below:

[the] Act Social Security Act
    Affordable Care Act The Affordable Care Act of 2010 (which is 
the collective term for the Patient Protection and Affordable Care 
Act (Pub. L. 111-148) and the Health Care and Education 
Reconciliation Act (Pub. L. 111-152))
AFDC Aid to Families with Dependent Children
BBA Balanced Budget Act of 1997
BHP Basic Health Program
CHIP Children's Health Insurance Program
CHIPRA Children's Health Insurance Program Reauthorization Act of 
2009
CMS Centers for Medicare & Medicaid Services
[the]Code Internal Revenue Code of 1986
DHS Department of Homeland Security
DOL U.S. Department of Labor
DRA Deficit Reduction Act of 2005
EITC Earned Income Tax Credit
EPSDT Early and periodic screening, diagnosis, and treatment
FEHBP Federal Employees Health Benefits Program (5 U.S.C. 8901, et 
seq.)
FFE Federally-facilitated Exchange
FFP Federal financial participation
FMAP Federal medical assistance percentage
FPL Federal poverty level
HCERA Health Care and Education Reconciliation Act of 2010 (Pub. L. 
111-152, enacted March 30, 2010)
HHS [U.S. Department of] Health and Human Services
IHS Indian Health Service
INA Immigration and Nationality Act
IRA Individual Retirement Account
IRC Internal Revenue Code of 1986
IRS Internal Revenue Service
MAGI Modified adjusted gross income
MEC Minimum Essential Coverage
MMEA Medicare & Medicaid Extenders Act of 2010 (Pub. L. 111-309, 
enacted December 15, 2010)
OMB Office of Management and Budget
OPM U.S. Office of Personnel Management
PHS Act Public Health Service Act
PRA Paperwork Reduction Act of 1995
PRWORA Personal Responsibility and Work Opportunity Reconciliation 
Act of 1996
QHP Qualified Health Plan
Secretary Secretary of HHS
SEP Special enrollment period
SHOP Small Business Health Options Program
SMD State Medicaid Director
SNAP Supplemental Nutrition Assistance Program
SPA State Plan Amendment
SSA Social Security Administration
SSI Supplemental Security Income
SSN Social Security number
TANF Temporary Assistance for Needy Families

I. Background

A. Medicaid Eligibility Final Rule Part II

    The Patient Protection and Affordable Care Act (Pub. L. 111-148, 
enacted on March 23, 2010), was amended by the Health Care and 
Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 
30, 2010). These laws are collectively referred to as the Affordable 
Care Act. In addition, section 205 of the Medicare & Medicaid Extenders 
Act of 2010 (Pub. L. 111-309, enacted December 15, 2010) (MMEA) and the 
Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96, 
enacted February 22, 2012) made additional amendments to the Social 
Security Act (the Act) provisions affected by the Affordable Care Act.
    The Affordable Care Act extends and simplifies Medicaid 
eligibility, and on March 23, 2012, we issued a final rule (referred to 
as the ``Medicaid Eligibility final rule'') addressing certain key 
Medicaid and CHIP eligibility, enrollment, and renewal issues.
    This final rule provides states with additional flexibility and 
guidance for delegation of appeals and implementation of electronic 
notices, and modernizes administrative procedures to further promote 
coordination across multiple health coverage programs, including 
enrollment in a qualified health plan

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through the Exchange with advance payments of the premium tax credits 
and cost-sharing reductions, as authorized by the Affordable Care Act, 
Medicaid and the Children's Health Insurance Program (CHIP). These 
coverage programs are collectively referred to as ``insurance 
affordability programs.'' For more information on the legislative 
overview, please refer to the Medicaid, CHIP, and Exchanges proposed 
rule (78 FR 4594).

B. Essential Health Benefits in Alternative Benefit Plans

    For plan, policy, or coverage years (as applicable) beginning in 
2014, most health insurance coverage \1\ in the individual and small 
group markets, Medicaid benchmark and benchmark-equivalent plans (now 
also known as Alternative Benefit Plans (ABPs)), and Basic Health 
Programs (if applicable) will be required to cover essential health 
benefits (EHBs), consistent with the definition under section 1302 of 
the Affordable Care Act and implementing regulations at 45 CFR Parts 
147, 155, and 156, Patient Protection and Affordable Care Act; 
Standards Related to Essential Health Benefits, Actuarial Value, and 
Accreditation; Final Rule. Under that definition, EHBs include items 
and services in 10 statutory benefit categories, such as 
hospitalization, prescription drugs, and maternity and newborn care, 
and are equal in scope of benefits to a typical employer plan, which 
will constitute minimum coverage in an ABP.
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    \1\ For more information on status as a grandfathered health 
plans under the Affordable Care Act, please see Interim Final Rule, 
``Group Health Plans and Health Insurance Coverage Relating to 
Status as a Grandfathered Health Plan Under the Patient Protection 
and Affordable Care Act.'' Available at http://cciio.cms.gov/resources/regulations/index.html#gp.
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C. Exchanges: Eligibility and Enrollment

1. Legislative Overview
    Section 1311(b) and section 1321(b) of the Affordable Care Act 
provide that each state has the opportunity to establish an Exchange 
that: (1) Facilitates the purchase of insurance coverage by qualified 
individuals through qualified health plans (QHPs); (2) assists 
qualified employers with the enrollment of their employees in QHPs; and 
(3) meets other standards specified in the Affordable Care Act. Section 
1311(k) of the Affordable Care Act specifies that Exchanges may not 
establish rules that conflict with or prevent the application of 
regulations promulgated by the Secretary under subtitle D of title I of 
the Affordable Care Act. Section 1311(d) of the Affordable Care Act 
describes the minimum functions of an Exchange, including the 
certification of QHPs.
    Section 1321 of the Affordable Care Act discusses state flexibility 
in the operation and enforcement of Exchanges and related requirements. 
Section 1321(c)(1) directs the Secretary to establish and operate an 
Exchange within each state that either: (1) does not elect to establish 
an Exchange, or (2) as determined by the Secretary on or before January 
1, 2013, will not have an Exchange operational by January 1, 2014. 
Section 1321(a) also provides broad authority for the Secretary to 
issue regulations setting standards to implement the statutory 
requirements related to Exchanges, QHPs, and other standards under 
title I of the Affordable Care Act.
    Section 1401 of the Affordable Care Act creates new section 36B of 
the Internal Revenue Code of 1986 (the Code), which provides for a 
premium tax credit for eligible individuals who enroll in a QHP through 
an Exchange. Section 1402 of the Affordable Care Act establishes 
requirements for reducing the cost-sharing obligations of eligible 
individuals who enroll in a QHP through an Exchange, including special 
cost-sharing rules for certain Indians.
    Under section 1411 of the Affordable Care Act, the Secretary is 
directed to establish a program for determining whether an individual 
meets the eligibility standards for enrollment in QHPs through the 
Exchange, advance payments of the premium tax credit, cost-sharing 
reductions, and exemptions from the shared responsibility payment under 
section 5000A of the Code.
    Sections 1412 and 1413 of the Affordable Care Act and section 1943 
of the Social Security Act (the Act), as added by section 2201 of the 
Affordable Care Act, contain additional provisions regarding 
eligibility for advance payments of the premium tax credit and cost-
sharing reductions, as well as provisions regarding simplification and 
coordination of eligibility determinations and enrollment with other 
insurance affordability programs.
    This final rule supplements and amends provisions originally 
published as the March 27, 2012 rule titled ``Patient Protection and 
Affordable Care Act; Establishment of Exchanges and Qualified Health 
Plans; Exchange Standards for Employers'' (hereafter referred to as 
``Exchange Final Rule'') (77 FR 18310) which encompasses key functions 
of Exchanges related to eligibility and enrollment.
    Unless otherwise specified, the provisions in this final rule 
related to the establishment of minimum functions of an Exchange are 
based on the general authority of the Secretary under section 
1321(a)(1) of the Affordable Care Act.
2. Stakeholder Consultation and Input
    HHS has consulted with interested stakeholders on policies related 
to the eligibility provisions and Exchange functions. HHS held a number 
of listening sessions with consumers, providers, employers, health 
plans, and state representatives to gather public input, and released 
several documents for public review and comment. HHS also released a 
bulletin that outlined our intended regulatory approach to verifying 
access to employer-sponsored coverage and sought public comment on the 
specific approaches.
    Finally, HHS consulted with stakeholders through regular meetings 
with the National Association of Insurance Commissioners (NAIC), 
regular contact with states through the Exchange grant process, 
consultation with Medicaid directors, and meetings with tribal leaders 
and representatives, health insurance issuers, trade groups, consumer 
advocates, employers, and other interested parties.
    We considered input from these stakeholder meetings and in response 
to the bulletin on verifying access to employer-sponsored coverage, as 
well as comments provided in response to the proposed rule as we 
developed the policies in this final rule.
3. Structure of the Final Rule
    The regulations related to Exchanges and QHPs outlined in this 
final rule are codified at 45 CFR parts 155 and 156. Part 155 outlines 
the standards related to eligibility for insurance affordability 
programs to facilitate a streamlined process for eligibility for 
enrollment in a QHP through the Exchange and in insurance affordability 
programs. Part 156 outlines the standards for health insurance issuers 
for participation in an Exchange. This final rule:
     Revises existing definitions and finalizes new definitions 
to 45 CFR part 155 subpart A.
     Provides a technical correction to 45 CFR part 155 subpart 
B.
     Finalizes standards related to authorized representatives 
under 45 CFR part 155 subpart C.
     Finalizes standards related to eligibility determinations 
for enrollment in a QHP and for insurance affordability programs under 
45 CFR part 155 subpart D.
     Finalizes standards related to enrollment-related 
transactions, special enrollment periods, and terminations under 45 CFR 
part 155 subpart E.

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     Finalizes standards related to termination of coverage 
under 45 CFR part 156 subpart C.
4. Alignment With Related Rules and Published Information
    As noted above, on March 27, 2012, we published the Exchange final 
rule. This final rule revises and supplements the Exchange final rule, 
including by finalizing Exchange and Medicaid provisions associated 
with the eligibility changes under the Affordable Care Act of 2010.

D. Medicaid Premiums and Cost Sharing

    Section 1916 of the Act describes long-standing limitations and 
requirements applicable in states that elect to provide for premiums 
and other cost sharing under Medicaid. Under section 1916 of the Act, 
certain individuals are protected from premiums and cost sharing, and 
cost sharing cannot be imposed on certain services. Permissible cost 
sharing under section 1916 of the Act is limited to ``nominal'' amounts 
(except in some circumstances for non-emergency use of a hospital 
emergency room). Section 1916 of the Act also establishes authority for 
states to impose premiums on medically needy beneficiaries and specific 
groups of individuals with family incomes above 150 percent of the 
federal poverty level (FPL). The Deficit Reduction Act of 2005 (DRA) 
established a new section 1916A of the Act, which gives states 
additional flexibility, allowing for alternative premiums and cost 
sharing beyond what is permitted under section 1916 of the Act for 
somewhat higher income beneficiaries. Such alternative cost-sharing 
approaches may be targeted to specific groups of individuals and 
payment may be required as a condition of providing services. All 
premiums and cost sharing imposed under sections 1916 and 1916A of the 
Act cannot exceed 5 percent of a family's income. For more background 
information on the streamlined and expanded flexibility regarding 
premiums and cost sharing, please refer to (78 FR 4657 and 78 FR 4658).
    We initially implemented the DRA authorities through regulations 
that mirrored the dual statutory provisions by adding a set of 
additional regulations on alternative cost sharing under section 1916A 
of the Act to existing regulations setting forth the framework for cost 
sharing under section 1916 of the Act. We believe states found this 
duality confusing and, in this final rule, we have integrated the two 
statutory authorities for premiums and cost sharing (sections 1916 and 
1916A of the Act) into a unified framework.

II. Provisions of the Proposed Rule and Analysis of and Responses to 
Public Comments

A. Medicaid Eligibility Part II Final Rule

    In the January 22, 2013 Federal Register (78 FR 4594), we published 
the proposed rule entitled ``Essential Health Benefits in Alternative 
Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes 
for Medicaid and Exchange Eligibility Appeals and Other Provisions 
Related to Eligibility and Enrollment for Exchanges, Medicaid and CHIP, 
and Medicaid Premiums and Cost Sharing.''
    We received a total of 741 timely comments from individuals, state 
Medicaid and CHIP agencies, advocacy groups, tribes and tribal 
organizations, policy and research organizations, health care 
providers, employers, insurers, and health care associations. The 
comments ranged from general support or opposition to the proposed 
provisions to very specific questions or comments regarding the 
proposed changes.
    In this final rule, we are only addressing some of the provisions 
of the proposed rule. We are reserving action on other provisions and 
intend to address those provisions in a subsequent final rule. We 
discuss below only those public comments associated with provisions 
addressed in this final rule.
    We have revised some of the proposed regulations after careful 
consideration of the comments received. Some comments were outside the 
scope of the proposed rule, and therefore, are not addressed in this 
final rule. In some instances, commenters raised policy or operational 
issues that will be addressed through forthcoming regulatory and 
subregulatory guidance to be provided subsequent to this final rule; 
therefore, some, but not all comments are addressed in the preamble to 
this final rule.
    Brief summaries of the proposed provisions that are being finalized 
in this rule, a summary of the public comments we received on those 
provisions (except specific comments on the paperwork burden or the 
economic impact analysis), and our responses to the comments are as 
follows. Comments related to the paperwork burden and the impact 
analyses are addressed in the ``Collection of Information 
Requirements'' and ``Regulatory Impact Analysis'' sections in this 
final rule.
    The following sections summarize comments about the rule in 
general, as well as specific comments about certain policies. It should 
be noted that the summarized comments are structured to explain the 
provisions being finalized and do not necessarily follow the order of 
the regulation text:
1. Responses to General Comments
    Generally, commenters were supportive of the policies in the 
proposed rule to continue the process of streamlining Medicaid and CHIP 
eligibility rules, policies and procedures; to support a consumer 
friendly approach, and provide increased flexibility for states.
    Comment: Several commenters were concerned about the complexity of 
the proposed rules and the significance of the changes that need to be 
made to fully implement the provisions of the Affordable Care Act. Many 
commenters were concerned about the short timeframes for implementation 
and about states' ability to make needed changes to policy, operations, 
and information technology systems.
    Response: We recognize that the timing of this final rule may 
result in implementation challenges, especially from a systems 
perspective. As such, we have evaluated the provisions of the January 
proposed rule and are finalizing in this rule only those provisions 
that we believe states are already in the process of implementing or 
must be finalized to meet statutory deadlines. The remaining provisions 
of the proposed rule will be addressed at a later date.
    We will continue to work with states to support their 
implementation efforts, ensure successful partnerships between states 
and the federal government. We will also continue to offer intensive 
technical assistance and support to states, and facilitate sharing of 
experience and knowledge across states. Consistent with one commenter's 
recommendation, we will also utilize other tools, including 
subregulatory guidance and the State Operations and Technical 
Assistance (SOTA) initiative to address additional state questions that 
arise.
2. Appeals--Delegation of Authority To Conduct Medicaid Fair Hearings
    We proposed to implement sections 1413 and 2201 of the Affordable 
Care Act in part through procedures to coordinate Medicaid fair 
hearings under section 1902(a)(3) of the Act concerning eligibility for 
populations whose income is determined using modified adjusted gross 
income (MAGI)-based methodologies of the Act with appeals

[[Page 42164]]

of eligibility determinations that are made using MAGI-based 
methodologies by Exchanges for advance payment of premium tax credits 
and cost-sharing reductions under section 1411(f) of the Affordable 
Care Act. Consistent with the requirements to streamline and coordinate 
eligibility determinations, under section 1943(b)(3) of the Act, as 
added by section 2201 of the Affordable Care Act, we proposed to 
provide states with an option to delegate the authority to conduct 
appeals to an Exchange or Exchange appeals entity. The option is 
similar to the option states have to delegate Medicaid eligibility 
determinations to an Exchange under Sec.  431.10. We also proposed 
changes to existing regulations at part 431 subpart E to support 
further modernization and streamlining of the Medicaid fair hearing 
process.
    In this final rule, we are finalizing the provisions of our 
proposed rule related to delegation of authority to conduct Medicaid 
fair hearings to an Exchange and an Exchange appeals entity at sections 
Sec. Sec.  431.10, 431.205(b), 431.206(d) and (e), 431.240 and the 
proposed rule related to reinstatement of an application at Sec. Sec.  
435.907(h) and 457.340(a). As discussed in section II.A.3. of this 
final rule (relating to notices), we also are adopting proposed 
revisions to the current regulations at sections Sec. Sec.  431.211, 
431.213, 431.230, and 431.231, related to modernizing the process of 
providing notices to applicants and beneficiaries of their fair hearing 
rights and decisions. In addition to providing substantive comments on 
the proposed regulations related to coordination of appeals across the 
Exchange, Medicaid and CHIP, a number of commenters requested delayed 
implementation of those provisions. To provide states with additional 
time to consider and effectuate implementation of such coordination, as 
well as to provide us with additional time to consider the comments 
received, we are not addressing proposed provisions at Sec. Sec.  
431.200, 431, 201, 431.205(e), 431.206(b), (c)(2), (e) as it relates to 
accessibility under Sec.  435.905(b), 431.210, 431.220, 431.221, 
431.224, 431.232, 431.241, 431.242, or 431.244. Further, we are not 
addressing the definitions related to appeals proposed in 435.4, nor 
the provisions related to coordination of appeals in Sec.  435.1200. We 
expect to address these proposed provisions in a subsequent rulemaking. 
Until final regulations are released, current rules in part 431, 
subpart E continue to apply. We note that while we are not finalizing 
our proposed rules relating to accessibility in the fair hearing 
process or as it relates appeals and notices at Sec.  431.205(e) and 
Sec.  431.206(e) at this time, fair hearing processes and notices must 
continue to be provided in an accessible manner in accordance with 
relevant federal statutes, including the Americans with Disabilities 
Act and Title VI of the Civil Rights Act of 1964, as well as any 
applicable state laws.
    We received the following comments regarding the proposed 
regulations related to delegation of fair hearings and reinstatement of 
applications in certain circumstances, which we are addressing in this 
rulemaking:
    Comment: Many commenters supported our approach to permit 
delegation of fair hearings to an Exchange or Exchange appeals entity 
so that an integrated hearing could be conducted to address Medicaid 
and Exchange-related eligibility issues together. We also received 
comments supporting the proposals to streamline and simplify our 
current fair hearings rules. While not providing specific 
recommendations, the commenters asked that we consider additional 
measures to coordinate Medicaid and Exchange eligibility appeals even 
more effectively. A few commenters requested that the final rule 
maintain state flexibility for states to retain the Medicaid appeals 
function within the Medicaid agency.
    Several commenters were concerned that our proposed rules require 
duplicative processes because states must maintain the infrastructure 
and capacity to hear MAGI-based appeals, even if the state delegates 
the authority to conduct fair hearings to an Exchange. One commenter 
requested that we eliminate the requirement at proposed Sec.  
431.10(c)(1)(ii) and Sec.  431.205(b)(1)(ii) that an individual be 
provided an opportunity to request a fair hearing before the Medicaid 
agency when the state has otherwise delegated authority to conduct the 
individual's fair hearing to the Exchange, and instead make this 
provision a state option. The commenter believed that this requirement 
would undermine the efficiencies achieved through delegation. Another 
commenter recommended that only one hearing opportunity be made 
available to individuals, instead of requiring a hearing if determined 
ineligible for Medicaid and a hearing related to the eligibility for 
advance payment of premium tax credits and cost-sharing reductions.
    Response: We appreciate the support for the proposal to permit 
states to delegate MAGI-based eligibility appeals to an Exchange or 
Exchange appeals entity. We note that such delegation is at state 
option. States are not required to delegate such authority, but may 
continue to have the Medicaid agency conduct all Medicaid fair 
hearings.
    We understand commenters' concern about duplication of effort in 
requiring that Medicaid agencies retain an infrastructure independent 
of the Exchange appeals process to conduct MAGI-based Medicaid 
eligibility appeals when the state has delegated authority for MAGI-
based eligibility appeals to an Exchange. There are two key reasons why 
the Medicaid agency must maintain its own appeals infrastructure. 
First, an individual whose application for Medicaid is denied or not 
acted upon with reasonable promptness has a right under section 
1902(a)(3) of the Act to an opportunity for a fair hearing before the 
Medicaid agency. We do not anticipate that individuals will necessarily 
prefer to have their appeal heard by the Medicaid agency, but the 
statute requires that the option be provided in such delegation through 
our regulations. Second, in a state where the Federally-facilitated 
Exchange (FFE) is operating, the HHS appeals entity will only conduct 
appeals related to MAGI-based eligibility determinations made by the 
FFE. Thus, in states where the FFE is operating, the Medicaid agency 
will need to conduct all Medicaid fair hearings related to MAGI-based 
eligibility determinations made by the Medicaid agency. For these 
reasons, we are finalizing the requirement as proposed.
    States have options to streamline the appeals infrastructure and 
reduce the number of appeals that will come before the Medicaid agency, 
in addition to the options to delegate Medicaid appeals authority under 
this final rule as discussed above. In a state that has established a 
state-based Exchange, the state Medicaid agency may delegate authority 
to conduct fair hearings of MAGI-based determinations to the state-
based Exchange by requesting a waiver under the Intergovernmental 
Cooperation Act of 1968 (ICA), as long as the state-based Exchange is a 
state agency and the state can assure sufficient oversight of the 
delegated fair hearing process. As we noted in the preamble to the 
proposed rule, when a state has an ICA waiver permitting delegation of 
fair hearings to another state agency, the state is not required to 
offer individuals an option to have their hearing conducted by the 
Medicaid agency.
    In states where the FFE is operating, a state Medicaid agency that 
allows the FFE to make a Medicaid eligibility

[[Page 42165]]

determination delegating such authority under Sec.  431.10(c)(1)(i) has 
appeal delegation options not available to a State that proceeds with 
the assessment model. If the Medicaid agency authorizes the FFE to make 
MAGI-based eligibility determinations, the agency may also delegate 
authority to the HHS appeals entity to conduct fair hearings related to 
determinations of Medicaid ineligibility made by the FFE, establishing 
an integrated appeals process with simultaneous appeals related to a 
determination of advance payments of the premium tax credits or cost-
sharing reductions. The Medicaid agency would still need to maintain 
the ability to conduct fair hearings for eligibility determinations and 
denials made by the Medicaid agency, as well as when delegations are 
made under these regulations for individuals who opt out of a 
coordinated appeal before the Exchange or Exchange appeals entity, and 
specifically request a hearing before the Medicaid agency. States will 
also need to continue to conduct fair hearings related to non-MAGI 
based eligibility determinations, as well as fair hearings related to 
termination, suspension, or reduction of covered benefits and other 
adverse determinations.
    Finally, with respect to the recommendation that a right to only 
one hearing be made available, we note that there are two separate 
statutory authorities for appeals related to Medicaid and enrollment in 
a QHP and eligibility for APTC and cost sharing reductions, at section 
1902(a)(3) of the Act and section 1411(f) of the Affordable Care Act, 
respectively. While we permit states to integrate these hearings and 
processes as much as possible, both state Medicaid agencies and the 
Exchange have distinct responsibilities to provide for such hearings, 
and we do not have authority to eliminate individuals' statutory 
rights, or a Medicaid agency's or Exchange's statutory responsibility. 
We note that we are not addressing in this final rule the proposed 
requirements relating to coordination of notices. Those proposed rules 
will be addressed in future rulemaking.
    Comment: Several commenters requested clarification of our 
proposals on delegation of Medicaid appeals to the FFE, a state-based 
Exchange, or a state with a partnership with the FFE. In addition, 
commenters sought clarification regarding when an individual's appeals 
rights are triggered in states which have delegated authority to make 
Medicaid eligibility determinations to the Exchange versus states in 
which the Exchange will make only an assessment of potential Medicaid 
eligibility. A few commenters requested clarification about whether a 
delegation of authority to conduct Medicaid fair hearings to a state-
based Exchange would extend to an appeal to the HHS appeals entity. The 
commenters were concerned that appeals could not be coordinated at the 
HHS appeals entity, rendering meaningless any efforts to achieve 
coordination at the state level.
    Response: States may choose to delegate authority to conduct 
Medicaid fair hearings for MAGI-based eligibility determinations to the 
Exchange operating in the state regardless of whether the Exchange is 
the FFE, the state-based Exchange or a partnership between the state 
and the FFE in accordance with the final rules at Sec.  431.10(c) and 
(d). There is no difference in the delegation authority under the 
regulations, as proposed or as finalized, based on the type of 
Exchange. In accordance with such delegation, the Exchange or Exchange 
appeals entity may provide a fair hearing on Medicaid issues, but 
individuals must have the option to have their Medicaid fair hearing 
heard directly before the single state agency. As discussed below, 
states with state-based Exchanges that are state governmental agencies 
also have an additional way to coordinate appeals, beyond delegation 
under our rules, through a waiver granted under the Intergovernmental 
Cooperation Act. Under such a waiver, individuals would not have a 
right to have their Medicaid appeal heard by the single state agency.
    In a state that has delegated authority to the Exchange to make 
Medicaid eligibility determinations based on MAGI, individuals have the 
right to request a fair hearing when the Exchange has determined the 
individual ineligible for Medicaid based on MAGI. Thus, the 
determination of ineligibility by the Exchange will trigger the 
individual's appeal rights. If the state has delegated authority to the 
Exchange to conduct fair hearings under these regulations, such an 
individual found ineligible for Medicaid by the Exchange could request 
a fair hearing at the Exchange or Exchange appeals entity so that there 
would be one integrated hearing conducting the Exchange-related and 
Medicaid appeals at the same time, or the individual may instead 
request his or her Medicaid issue be heard at the Medicaid agency. If, 
an individual who is found by the Exchange to be not eligible for 
Medicaid based on MAGI seeks a determination based on non-MAGI 
criteria, the individual's electronic account is transferred to the 
Medicaid agency for a full evaluation by the agency in accordance with 
Sec.  155.345(b) or (c) of the March 2012 Exchange eligibility final 
rule. If the Medicaid agency still determines the individual 
ineligible, he or she would be able to appeal that decision using the 
Medicaid agency's fair hearing process.
    In states in which the Exchange will make an assessment of Medicaid 
eligibility, and will not make final Medicaid eligibility 
determinations or denials, an assessment of ineligibility for Medicaid 
based on MAGI will not trigger Medicaid appeal rights. This is because 
an assessment is not a final Medicaid eligibility determination. As 
indicated in Sec.  155.302(b)(4) of the March 2012 Exchange rule, as 
revised in this rulemaking, applicants assessed by the Exchange as not 
potentially eligible for Medicaid based on MAGI but as potentially 
eligible for Medicaid on another basis will be transferred to the 
Medicaid agency for a full Medicaid determination; for these 
applicants, Medicaid appeal rights will be triggered when the Medicaid 
agency makes a final eligibility determination. Under Sec.  
155.302(b)(4), applicants assessed as not potentially eligible for 
Medicaid on any basis will have a choice whether to withdraw their 
Medicaid application or obtain a full determination by the Medicaid 
agency. If the applicant withdraws his or her Medicaid application, a 
final determination or denial of Medicaid will not be made, and 
therefore no appeal rights arise at that point. (The applicant will 
have the ability to reinstate their Medicaid application in certain 
circumstances, discussed more fully below). When an applicant obtains a 
formal determination by the Medicaid agency, the Medicaid agency's 
determination will trigger appeal rights, if applicable.
    Finally, if a state agency delegates authority to conduct MAGI-
based eligibility appeals to an Exchange, including a state-based 
Exchange, in accordance with Sec.  431.10(c) and (d) of this final 
rule, such a delegation would extend to any government agency 
adjudicating an Exchange appeal, including the HHS appeals entity. We 
note, however, that if a state delegates authority to conduct fair 
hearings through an ICA waiver to another state agency, including a 
state-based Exchange or state-based Exchange appeals entity, Medicaid 
decisions made by that entity could not be appealed to the HHS appeals 
entity. The ICA waiver is a waiver of single state agency requirements 
that permits alternative arrangements of state agency functions to 
another state agency. Once

[[Page 42166]]

such an agency has issued a decision after a Medicaid fair hearing, 
that Medicaid decision would be the final decision of the Medicaid 
agency and thus no further right of appeal would be available to the 
individual. If the individual decided to appeal his or her advance 
payment of premium tax credit, cost-sharing reduction or Exchange 
eligibility decision to the HHS appeals entity, that entity would need 
to adhere to the Medicaid appeals entity decision under Sec.  
155.302(b)(5), as revised in this final rule, and Sec.  155.345(h) 
which will prevent inconsistent decisions between the HHS appeals 
entity and the state-based Exchange or Exchange appeals entity.
    Comment: Many commenters requested clarification on the scope of 
fair hearings that may be delegated from a Medicaid agency to an 
Exchange or Exchange appeals entity. Commenters specifically requested 
clarification regarding whether fair hearings of eligibility 
determinations on bases other than MAGI may be delegated to an Exchange 
or Exchange appeals entity, and whether findings other than MAGI-based 
income determinations may be delegated to an Exchange or Exchange 
appeals entity.
    Response: The term ``MAGI-based determinations'' is used to refer 
to determinations in which financial eligibility is determined using 
the MAGI-based methods described in Sec.  435.603 of the March 2012 
final Medicaid eligibility rule. However, in accordance with Sec.  
435.911(c) of the March 2012 final Medicaid eligibility rule, a 
determination of eligibility based on MAGI also entails a determination 
that an individual meets the non-financial conditions of eligibility, 
including state residency and citizenship or satisfactory immigration 
status, and the denial of eligibility for an individual considered for 
coverage under a MAGI-based eligibility group may be based on failure 
to meet any of the financial or non-financial conditions of 
eligibility. A delegation of fair hearing authority under Sec.  
431.10(c)(1)(ii) to an Exchange or Exchange appeals entity regarding a 
denial of MAGI-based eligibility will need to address any or all of the 
bases of denial, just as a fair hearing conducted by the Medicaid 
agency would. We note that we have made some technical modifications to 
the regulation text at Sec.  431.10(c)(1)(ii) to help clarify this 
point. As also noted in the preamble to the proposed rule, we remind 
states that while all appeals for an individual with a MAGI-based 
eligibility determination may be delegated to an Exchange or Exchange 
appeals entity under the regulation at Sec.  431.10(c)(1)(ii), the FFE 
will only accept a delegation of appeals involving determinations 
rendered by the FFE.
    The permissible scope of delegation under Sec.  431.10(c)(1)(ii) to 
an Exchange or Exchange appeals entity is limited to appeals of MAGI-
based eligibility determinations. Appeals related to denials of 
eligibility for individuals excepted from application of MAGI-based 
methodologies (for example, eligibility based on disability) may not be 
delegated under the regulation. As discussed above, states may delegate 
such appeals to another state agency, including a state-based Exchange, 
by requesting an ICA waiver.
    Comment: One commenter asked whether there is a timeframe under 
which the individual must request a fair hearing before the Medicaid 
agency to effectuate the requirement under Sec.  431.10(c)(1)(ii) that 
the state agency must provide an individual an option to have his or 
her Medicaid appeal conducted at the Medicaid agency when delegating 
authority to conduct fair hearings to an Exchange or Exchange appeals 
entity.
    Response: An individual must be provided the opportunity to opt to 
have his or her Medicaid appeal adjudicated at a hearing conducted at 
the Medicaid agency, instead of having his or her appeal for both 
enrollment in a QHP and eligibility for APTC and CSR and eligibility 
for Medicaid addressed at an integrated hearing at the Exchange or 
Exchange appeals entity. Section 431.206(d) specifies that the 
individual must be informed of how to exercise this right. We note that 
we clarify our proposed regulation at Sec.  431.206(d) to require that 
individuals must be informed of this option in writing. We are revising 
the regulation text at Sec.  431.10(c)(1)(ii) to clarify that the 
request for a hearing before the Medicaid agency would need to be 
requested instead of the Exchange hearing. While we are not specifying 
a specific timeframe, we would expect that if an individual was opting 
for a hearing before the Medicaid agency, that request would be made at 
the time that the individual is requesting a hearing. Thus, we finalize 
these proposed regulations with these minor modifications.
    Comment: Many commenters believed that delegation of fair hearing 
authority under the regulation should be permitted. Some of the 
commenters emphasized the need to permit delegation only in the 
simplest manner reducing burden to the consumer, and without any 
duplication of appeals processes. A few commenters suggested we permit 
delegation under the regulation only to an independent state agency 
employing Administrative Law Judges, and that delegation to any other 
state agency still require an ICA waiver to ensure transparency and 
opportunity for stakeholder input. A few commenters asked for 
clarification of the conditions and process required when requesting an 
ICA waiver. One commenter opposed delegation of authority to conduct 
fair hearings to any other state or Exchange entity stating that any 
delegation is duplicative, as state agencies still will be required to 
conduct Medicaid MAGI-based hearings.
    Response: Under proposed Sec.  431.10(c)(1)(ii), states would be 
able to delegate authority to conduct MAGI-based fair hearings to an 
Exchange or Exchange appeals entity, but to delegate Medicaid fair 
hearings to another state agency, states would need to request an ICA 
waiver. We sought comment on whether states also should be permitted to 
delegate authority to conduct fair hearings to another state agency 
under the regulation.
    The purpose of the proposed rule is to promote coordination of 
appeals and simplification of the appeals process by permitting 
delegation of Medicaid appeals to the Exchange or Exchange appeals 
entity. Because coordination between insurance affordability programs 
is a key goal of the Affordable Care Act, we are finalizing, with minor 
modifications, the proposed regulations at Sec.  431.10(c)(1)(ii) and 
at Sec.  431.205(b)(1)(ii) to permit delegation of authority to conduct 
Medicaid fair hearings for denials of MAGI-based eligibility to the 
Exchange or Exchange appeals entity, including the FFE, state-based 
Exchange or HHS or state-based Exchange appeals entity, provided these 
entities are government agencies or public authorities that maintain 
personnel standards on a merit basis. After consideration of the 
comments, we have determined not to extend authority to delegate 
Medicaid fair hearings to state agencies other than a state-based 
Exchange or an Exchange appeals entity under the regulations because it 
is already allowed through an ICA waiver. We note that the main goal 
and justification for the delegation of fair hearings under the 
regulation is to achieve coordination across insurance affordability 
programs, something which would not be served by delegation to another 
state agency. Furthermore, Medicaid agencies already can delegate 
conduct of fair hearings to other state agencies through an ICA waiver, 
and there is nothing additional that states would be able to accomplish

[[Page 42167]]

through delegation under the regulation as opposed to an ICA waiver. 
Indeed, the flexibility available to states under an ICA waiver is 
greater than that which is available under the regulation since 
delegation of fair hearings under an ICA waiver does not require that 
states provide individuals a right to opt for a hearing before the 
Medicaid agency, nor would the delegation be limited to MAGI-related 
appeals.
    We have and will continue to apply similar conditions to the 
delegation of fair hearings under an ICA waiver as those we require 
under Sec.  431.10(c) and (d). As explained in the proposed rule, an 
ICA waiver may be requested through a straightforward process using a 
state plan amendment (SPA), and CMS staff is available to provide 
technical assistance to states in completing that process. We note that 
our rules relating to hearing officers do not require that hearing 
officers be Administrative Law Judges or set any particular 
qualifications for hearing officers other than impartiality. States 
have flexibility to set such requirements in implementing fair hearings 
as they see appropriate. Thus, we do not set standards regarding the 
qualifications of hearing officers for states that delegate authority 
to conduct fair hearings or specify rules if the state agency employs 
Administrative Law Judges in this final rule.
    Comment: One commenter expressed concern that the proposal to 
remove Sec.  431.10(e)(2) and (e)(3) weakens the single state agency 
authority when delegating authority to conduct appeals to another 
agency. Other commenters supported the removal of those paragraphs 
because they are inconsistent with the goals of delegation of authority 
of appeals.
    Response: We are finalizing our proposal to remove paragraphs Sec.  
431.10(e)(2) and (e)(3) as they are inconsistent with the option to 
delegate the authority to conduct fair hearings to an Exchange. We 
believe that the proposed language in Sec.  431.10(e), which we are 
finalizing without modification, clearly provides that only the 
Medicaid agency may develop and issue rules and policy related to the 
Medicaid program.
    Comment: Several commenters requested clarification of the kinds of 
conclusions of law that could be subject to review by the agency under 
Sec.  431.10(c)(3)(iii). They also asked how the agency review process 
a state may establish to decisions made by an Exchange or Exchange 
appeals entity conducting Medicaid fair hearings under this provision 
relates to the ``trumping rule'' at Sec.  155.302(b)(5), which provides 
that if an appeals decision rendered by the Exchange or Exchange 
appeals entity conflicts with a fair hearing decision concerning the 
same individual rendered by the Medicaid agency, the Exchange must 
adhere to the Medicaid fair hearing decision. A number of commenters 
supported the limitation of the agency review process to conclusions of 
law. One commenter requested that the option be extended to findings of 
fact. Others recommend that the option be eliminated altogether. These 
commenters discussed that any review by the state agency of a hearing 
officer's legal or factual conclusions would violate the due process 
protections afforded under Goldberg v. Kelly to have the appeal decided 
by a neutral arbiter. One commenter suggested that the regulation at 
Sec.  431.10(c) specify the timeframe in which the Exchange or Exchange 
appeals entity be required to issue a decision for the state agency to 
complete its review within the time limits set forth in Sec.  431.244.
    Response: We are finalizing this provision as proposed with minor 
revisions to clarify the scope of the review process. We note the 
provision at Sec.  431.10(c)(3)(iii) is a state option for Medicaid 
agencies to establish a process that permits a limited review of the 
decisions made by the Exchange or Exchange appeals entity to ensure 
Medicaid fair hearings are made with the proper application of federal 
and state Medicaid law and regulations, including subregulatory 
guidance and written interpretive policies. The proposed regulation 
text is being revised to clarify the scope of what the agency may 
review would be limited to the legal conclusions made during the fair 
hearing to ensure that they appropriately apply federal and state 
Medicaid law and regulations, including subregulatory guidance and 
written interpretive policies properly and that the review process be 
conducted by an impartial official who was not directly involved in the 
initial determination.
    By way of example, suppose that the Exchange hearing officer finds 
that an individual has $800 in wages and $200 in child support income 
each month and, based on these amounts, concludes that the individual's 
MAGI-based household income is $1,000 per month. Suppose also that the 
applicable income standard for the applicable household size for this 
individual is $900 per month, and that the hearing officer upholds the 
initial denial of eligibility. The findings of $800 in wages and $200 
of child support per month would be factual findings, which the 
Medicaid agency could not review under the option provided at Sec.  
431.10(c)(3)(iii). However, the hearing officer's inclusion of the 
wages and child support income in total MAGI-based household income 
involves an application of MAGI-based methodologies, described in Sec.  
435.603 of the March 2012 Medicaid eligibility final rule, as 
implemented by the state, which would be reviewable as a conclusion of 
law. In this case, the inclusion of wages would be correct, but the 
inclusion of child support income would be incorrect, and the agency 
upon finding such an erroneous application of state or federal rules 
could reverse the hearing officer's decision to conclude that, based on 
household income of $800, the individual is Medicaid eligible.
    Because of the important role that an impartial hearing officer 
plays in evaluating evidence and weighing credibility in making 
findings of fact, we are not extending the option at Sec.  
431.10(c)(3)(iii) to include agency review of findings of fact. We note 
that fair hearings conducted under a delegation of authority in 
accordance with Sec.  431.10(c)(1)(ii) must be conducted in accordance 
with Sec.  431.10(d)(1), which requires that the delegation agreement 
between the agency and the Exchange or Exchange appeals entity must set 
forth the responsibilities of each party to effectuate the provisions 
of part 431 subpart E of the regulations. Section 431.205(d) provides 
that the fair hearing process under subpart E must meet the due process 
standards set forth in Goldberg v. Kelly, 397 U.S. 254 (1970), which 
requires that any review process be conducted by an impartial official, 
and be based solely on the information and evidence in the record. We 
have made a minor modification to Sec.  431.205(b)(1)(ii) to clarify 
that the hearing process provided through delegation of authority to 
conduct a fair hearing to an Exchange or Exchange appeals entity would 
include the review by the agency of the Exchange or Exchange appeal 
entity's application of federal and state Medicaid law and regulations, 
if such review is elected by the state under Sec.  431.10(c)(3)(iii) 
and conducted by an impartial official who was not directly involved in 
the initial determination. We note also that the state's election under 
Sec.  435.10(c)(3)(iii) to conduct this limited review does not create 
a right for the individual to request or receive a de novo hearing 
before the agency.
    The review process that can be established under Sec.  
431.10(c)(3)(iii) functions completely independently from the 
``trumping rule'' at Sec.  155.302(b)(5) of the Exchange proposed rule. 
The former comes into

[[Page 42168]]

play when an individual's fair hearing has been delegated to, and is 
heard by, the Exchange or Exchange appeals entity. The ``trumping 
rule'' at Sec.  155.302(b)(5) as modified by this rulemaking and at 
Sec.  155.345(h) is invoked when the Medicaid agency has conducted the 
Medicaid fair hearing relating to the appeal of a denial of Medicaid 
eligibility and the Exchange or Exchange appeals entity also has 
conducted a hearing related to an appeal of an award of advance 
payments of premium tax credits. Similar to the ``trumping rule'' at 
Sec.  155.302(b)(5) of the March 2012 Exchange final rule relating to 
initial eligibility determinations, if the Medicaid agency's fair 
hearing decision conflicts with the Exchange appeals decision, the 
Exchange must adhere to the Medicaid agency or fair hearing decision 
for Medicaid eligibility under Sec.  155.302(b)(5) and Sec.  
155.345(h).
    Finally, we do not believe it is necessary to require in the 
Medicaid regulations specified timeframes within which an Exchange, in 
conducting a delegated fair hearing, must transmit a decision to the 
Medicaid agency. Instead, as part of the agreement required under Sec.  
431.10(d), in delegating the fair hearing authority to the Exchange or 
Exchange appeals entity, the parties will need to stipulate each 
party's responsibilities to ensure that the time frames established 
under Sec.  431.244(f) are met.
    Comment: One commenter sought clarification of whether the review 
process of appeal decisions made by the Exchange which the commenter 
expressed as ``required'' at Sec.  431.10(c)(3)(iii) is considered in 
the agency's quality assurance Payment Error Rate Measurement (PERM) 
sampling.
    Response: The regulation at Sec.  431.10(c)(3)(iii) does not set a 
requirement, but provides states an option to establish a review 
process of appeal decisions as a part of its oversight of the 
delegation of authority to conduct fair hearings to an Exchange or 
Exchange appeals entity. We note the agency has other means to oversee 
its delegation of authority to conduct hearings. Implications for PERM 
are beyond the scope of this regulation; we intend to issue additional 
guidance on PERM.
    Comment: Many commenters supported the reinstatement of an 
individual's Medicaid application at Sec.  435.907(h) when the 
individual had withdrawn his or her application after an assessment of 
Medicaid ineligibility by the Exchange, appealed the level of APTC and 
CSR awarded by the Exchange, and the Exchange or Exchange appeals 
entity reversed the initial assessment and found the individual to be 
potentially eligible for Medicaid. A few commenters sought 
clarification regarding the retroactive nature of the reinstatement 
effective as of the date the individual submitted the application to 
the Exchange. Another commenter asked how this provision relates to the 
timeliness requirements for Medicaid agencies to process an application 
under Sec.  435.912 of the March 2012 Medicaid eligibility final rule. 
A few commenters raised a concern that if an Exchange appeals entity 
hearing officer upholds the finding of eligibility for advance payment 
for premium tax credit, the reinstatement would not take effect. These 
commenters recommended that the Medicaid application be reinstated 
whenever an individual files an appeal with the Exchange or Exchange 
appeals entity to capture a broader set of individuals who may be 
eligible for Medicaid or CHIP.
    Response: We appreciate the support for the provision at Sec.  
435.907(h) to reinstate the Medicaid application of an individual who 
has withdrawn his or her Medicaid application upon initial assessment 
of Medicaid ineligibility by the Exchange, but who is subsequently 
assessed as potentially Medicaid eligible following an appeal related 
to an award of advance payments of the premium tax credits or cost 
sharing reductions. We are finalizing this provision as proposed, 
except to clarify that the 45-day or 90-day timeliness standards do not 
apply to these reinstated applications. By the time the Exchange appeal 
decision is rendered, 45 or 90 days from the date of application may 
already have elapsed, making compliance by the Medicaid agency 
unrealistic. Instead we clarify that the timeliness standards required 
under Sec.  435.912 of the March 2012 Medicaid eligibility final rule 
apply based on the date the application is reinstated. However, we note 
that the 45 and 90 days prescribed in the regulation represent the 
outer limit for all applications. In the case of a reinstated 
application which has been the subject of an Exchange appeal, we would 
expect that the individual's electronic account would be comprehensive, 
and that considerably less time would be needed for the Medicaid agency 
to act on the case. We would expect states to take this into account in 
establishing timeliness standards for prompt determinations on 
reinstated applications under Sec.  435.911(c) and Sec.  435.912 of the 
March 2012 Medicaid eligibility final rule. The reinstated application 
must be made effective retroactive to the date the individual submitted 
his or her application to the Exchange (not the date the application is 
reinstated) to protect the effective date of coverage required under 
Sec.  435.914 of the current regulations (redesignated at Sec.  435.915 
in the March 2012 Medicaid eligibility final rule). We also proposed a 
similar application reinstatement provision for CHIP at Sec.  
457.340(a), which we are finalizing as proposed with a minor 
modification to remove the reference to Sec.  435.909 which was 
inadvertently inserted in the proposed rule and has no relationship to 
CHIP. We note that states also will need to develop reasonable 
timeliness standards for such reinstated applications in accordance 
with Sec.  457.340(d) of the March 2012 Medicaid eligibility final 
rule.
    We have not modified the proposed regulation text to reinstate the 
Medicaid or CHIP application of every individual who has withdrawn his 
or her Medicaid or CHIP application in accordance with Sec.  
155.302(b)(4) of the March 2012 Exchange final eligibility rule and who 
then subsequently appeals the determination of eligibility for advance 
payments of the premium tax credits or cost-sharing reductions at Sec.  
435.907(h) and Sec.  457.340(a). We believe that the interests of 
individuals filing an Exchange appeal who should have been assessed as 
potentially Medicaid eligible by the Exchange, but who nonetheless 
withdrew their Medicaid application following the Exchange's 
assessment, will be protected through the Exchange appeals process 
because the Medicaid application for those assessed potentially 
Medicaid eligible will be reinstated, and their account transferred to 
the Medicaid agency for a full determination. On the other hand, to 
reinstate the Medicaid application of every applicant for whom the 
Exchange appeals processes ultimately confirms the initial assessment 
of Medicaid ineligibility made by the Exchange--regardless of how high 
above the Medicaid income standard the individual's income may be--
would create confusion for individuals and impose, we believe, 
unnecessary administrative burden on state Medicaid agencies. We expect 
to work closely with Exchanges to ensure accurate assessments of 
Medicaid and CHIP eligibility in accordance with federal regulations.
    Comment: One commenter sought clarification of when Medicaid 
agencies will have to decide whether or not to delegate eligibility 
determinations or fair hearings to the Exchange, and whether there will 
be additional

[[Page 42169]]

requirements if the agency chooses not to delegate such responsibility.
    Response: There is no deadline to elect to delegate eligibility 
determinations or appeals to an Exchange or Exchange appeals entity. As 
discussed in section II.A.6. of preamble, the regulation permitting 
delegation of eligibility and fair hearings goes into effect on October 
1, 2013. Once a state decides to delegate authority to conduct 
eligibility or appeals, it must indicate such an election through the 
state plan, establish a written agreement with the Exchange or Exchange 
appeals entity, and otherwise comply with the provisions set forth in 
the regulation. A state may revoke its delegation at a later time 
through the same process. Whether or not a state chooses to delegate 
authority, it must comply with the provisions of Sec.  435.1200, Sec.  
457.348 and Sec.  457.350, issued in the March 2012 Medicaid 
eligibility final rule, to ensure coordination across all insurance 
affordability programs and a seamless consumer experience. We proposed 
revisions to these provisions in the January 2013 proposed rule to 
address the agencies' responsibilities to coordinate notices and 
appeals, but are not finalizing them in this final rule.
    Comment: One commenter questioned whether a state might be able to 
obtain the enhanced matching funds for systems enhancement at a 90/10 
match for enhancement of their appeals systems. Another commenter asked 
for clarification as to whether federal financial participation (FFP) 
would be available for appeals delegated to an Exchange.
    Response: The enhanced FFP match rate of 90/10 for the design, 
development, and installation of eligibility systems is available only 
for components of the Medicaid Management Information System (MMIS), 
including eligibility and enrollment systems through the end of 2015, 
subject to meeting the seven conditions and standards outlined in the 
April 19, 2011 final rule at 74 FR 21950. A 75/25 match rate is 
available for operations and maintenance of these systems. Appeals 
systems do not qualify for enhanced funding under these rules. Instead, 
FFP at a 50/50 rate is available. For more details on 75/25 match rate 
discussion, see http://www.medicaid.gov/State-Resource-Center/FAQ-Medicaid-and-CHIP-Affordable-Care-Act-ACA-Implementation/Downloads/Affordable-Care-Act_-Newest-Version.pdf. The availability of FFP and 
responsibility for funding subject to cost allocation rules applies to 
administration of fair hearings in the same manner as any other context 
and is not affected by the state's delegation decision.
    Comment: A few commenters suggested that we revise Sec.  431.240 to 
require that hearing officers who adjudicate Medicaid fair hearings 
abide by specific ethical standards, either the National Association of 
Hearing Officials' Model Code of Ethics or the National Association of 
Administrative Law Judiciary's Model Code of Judicial Conduct for State 
Administrative Law Judges. We did not receive any comments related to 
our proposed modification of Sec.  431.240 related to access to 
information.
    Response: As discussed above, existing regulation at Sec.  431.240 
require hearing officers to be impartial. Additionally, existing 
regulations at Sec.  431.205 require hearing systems to comport with 
due process standards of Goldberg v. Kelly, 397 U.S. 254 (1970). 
Current regulations do not require hearing officers to belong to a 
particular profession, and we did not propose to modify this policy in 
the proposed rule. Therefore, we are not making any changes to Sec.  
431.240 in response to this comment. However, as noted above, we are 
addressing this comment, in part, by including that an impartial 
decision-maker must be used if a state is electing to establish a 
review process of legal conclusions made by hearing officers operating 
under delegated fair hearing authority. We also encourage states to 
examine this issue further and to ensure that the requirement to 
utilize impartial hearing officers at Sec.  431.240 are adhered to when 
conducting fair hearings. We finalize Sec.  431.240(c) without 
modification.
3. Notices
a. Electronic Notices (Sec.  435.918)
    Current notice regulations require paper-based, written notices. To 
establish a more timely and effective notification process, proposed 
Sec.  435.918 would direct states to provide individuals with the 
option to receive notices through a secure, electronic format in lieu 
of written notice by regular mail. Consumer safeguards were proposed to 
ensure that individuals make a conscious choice to receive notices in 
electronic format, and would be able to opt-in and opt-out of their 
election. We solicited comments regarding the proposed consumer 
safeguards. In addition, we requested comments on whether other types 
of communications, in addition to eligibility notices, should be 
offered in electronic format. We are finalizing Sec.  431.206(e), to 
permit beneficiaries to receive notices regarding fair hearings 
electronically, consistent with proposed Sec.  435.918. We note that we 
are not addressing in this final rule comments related to accessibility 
of fair hearing notices. We will consider these comments and this 
portion of Sec.  431.206(e) when we finalize our rules related to 
accessibility for individuals who are limited English proficient and 
individuals with disabilities in a future rulemaking. We also proposed 
modifications to Sec. Sec.  431.211, 431.213, 431.230, and 431.231 to 
update and modernize the language in the regulation to remove the term 
``mail'' and instead use ``send,'' to reflect the option for 
beneficiaries to receive notices electronically, consistent with the 
consumer protections in proposed Sec.  435.918. We proposed in Sec.  
457.110(a)(1) the same consumer option and protections for electronic 
notices in CHIP, and we are making technical changes in the final rule 
to better align the provisions. A modification was also proposed to 
paragraph (a) in Sec.  457.110 regarding the accessibility of 
information for individuals who are limited English proficient and 
individuals with disabilities. However, we will finalize this provision 
in future rulemaking.
    We received many comments regarding the requirement to provide 
individuals with the option to receive notices electronically, the 
majority of which supported this option as an important part of 
modernizing the notification process provided that strong consumer 
protections are in place.
    Comment: We received many comments regarding proposed Sec.  
435.918(a)(1), which would require the agency to confirm by regular 
mail the individual's election to receive notices electronically. Some 
commenters recommended, instead, allowing electronic confirmation for 
individuals applying on-line. One commenter suggested that in states 
with a FFE, the FFE should be responsible for issuing all mailed 
confirmations. Also, several commenters were concerned that the 
proposed written confirmation actually required individuals to choose 
receipt of electronic notices twice, and that this would be confusing 
and burdensome for the agency and these consumers. Many other 
commenters encouraged CMS to maintain the requirement to confirm an 
individual's election through regular mail to ensure that individuals 
have made an informed decision, and to provide them with an opportunity 
to change their election. One commenter suggested that the mailed 
confirmation include a list of the types of notices that

[[Page 42170]]

the agency will send in electronic format.
    Response: Proposed section Sec.  435.918(a)(1), redesignated Sec.  
435.918(b)(1) in our final rule, requires the agency to send, via 
regular mail, written confirmation that an individual has elected to 
receive electronic notices and that forthcoming notices will be 
delivered electronically. This communication must also instruct the 
individual on how to change this election if the individual made the 
initial choice inadvertently or wishes to change his or her mind. The 
purpose of the mailed communication is to affirm the individual's 
choice and allow the individual an early opportunity to opt-out of 
receiving notices in electronic format. The individual does not have to 
respond to this written notice to complete his or her election to 
receive electronic notices; he or she need only respond if he or she 
wanted to change the initial election. Therefore, there will not be any 
need for individuals to request electronic notices twice, as some 
commenters thought. We are clarifying at Sec.  435.918(b)(1) of the 
final regulation that it is the agency's responsibility to ensure that 
the individual's election to receive notices electronically is 
confirmed by regular mail, since the individual will receive all future 
communication from the Medicaid agency including information on how to 
establish an electronic account with the state, if he or she has not 
already done so. If a different arrangement makes more sense in a given 
state, the Medicaid agency and Exchange can delegate this 
responsibility to the other agency in the agreement entered into under 
Sec.  435.1200(b)(3). We are not requiring that this communication 
specify which types of notices will be delivered in electronic format, 
but suggest that states take this under consideration as it would 
enable individuals to better anticipate the type of notices that will 
be posted to an electronic account. We anticipate, based on one state's 
experience piloting electronic notices, few individuals will revert 
back to paper notices. However, given that electronic notification will 
be a new approach for many individuals, we believe this is an important 
consumer protection to ensure that individuals make a deliberate choice 
regarding the format in which they receive information. In future 
years, when electronic notices are more prevalent, we will revisit 
whether written confirmation of the individuals choice to receive 
notices in electronic format is still a relevant consumer protection.
    Comment: Several commenters requested that electronic notices be 
the default method for notice delivery such that if an individual fails 
to indicate whether he or she prefers an electronic or paper format for 
notices, notices would automatically be provided electronically. One 
commenter suggested that electronic notices should be the default for 
specific populations, such as those individuals determined eligible 
through an Exchange Web site.
    Response: We maintain that electronic notices should be provided 
only if the individual affirmatively opts for such notices. The default 
approach makes an assumption that the individual has the technology to 
regularly retrieve notices posted to his or her electronic account. 
Even if an individual applies through an Exchange Web site, the 
individual may not have regular access to technology to enable ongoing 
retrieval of electronic notices. Consequently, we do not believe this 
change is appropriate at this time as it could pose a barrier to 
applicants and beneficiaries with limited access to technology.
    Comment: Several commenters recommended that Medicaid and CHIP 
eligibility notices be provided in both electronic and in paper format 
until an individual indicates in writing that they no longer wish to 
receive such notices by regular mail. Some commenters also recommended 
that all notices regarding adverse actions always be sent in paper 
format via regular mail to allow for additional protection against 
delivery error. One commenter recommended that hearing scheduling 
notices should always be sent via regular mail to ensure adequate 
hearing slot availability.
    Response: We are concerned that requiring agencies to provide dual 
electronic and paper notices may pose an administrative burden for some 
states. While we require that agencies provide individuals with a 
choice to receive notices in electronic format in lieu of paper format, 
at state option, all notices or a subset of notices, such as those 
relating to adverse actions, could be provided in dual formats. We 
appreciate the concern expressed for ensuring consumer protections 
against delivery error. In Sec.  435.918(a)(4), the agency is required 
to send an email or other electronic communication alerting the 
individual that a notice has been posted to his or her account. To 
guard against delivery error, if the required alert is returned as 
undeliverable, the agency must send such notice by regular mail within 
three business days of the date of the failed electronic communication. 
This requirement has been further clarified by a revision to Sec.  
435.918(a)(5). We believe that electronic notices are likely to 
increase receipt of important eligibility information, as individuals 
will have greater flexibility to access notices regardless of changes 
to their postal address.
    Comment: We received a few comments that recommended we amend Sec.  
435.918 to include specific language noting the importance of ensuring 
that the notice must be accessible to persons who are limited English 
proficient and individuals with disabilities.
    Response: We agree that all eligibility notices must be accessible 
to persons who are limited English proficient and individuals with 
disabilities, and we will be addressing such rules in future 
rulemaking.
    Comment: One commenter requested clarification on what constitutes 
an ``undeliverable'' communication in Sec.  435.918(a)(5).
    Response: ``Non-delivery reports'' are system messages that report 
the delivery status to the sender. We expect that if the agency 
receives a non-delivery report, this constitutes an undeliverable 
communication.
    Comment: One commenter requested clarification regarding how to 
date a paper version of an electronic notice. When an electronic 
communication is undeliverable, indicating an individual may not be 
aware of an electronic notice posted to his or her account, Sec.  
435.918(a)(5) requires that the agency send a paper version of the 
electronic notice within three business days. The commenter, noting the 
ability to send the paper version of the electronic notice within 24 
hours, supported maintaining the same date on both notices.
    Response: It is important for the date of the paper notice to 
reflect the date it is sent, not the date of the undelivered electronic 
notice. We anticipate that while some states may be able to issue a 
paper version of the electronic notice within 24 hours, other states 
may take up to the required limit of 3 days. Individuals are given a 
limited time to take action, such as requesting a date for a hearing, 
and this is based on the date the notice is sent to the individual.
    Comment: One commenter requested clarification as to whether 
agencies are required to monitor an individual's account to determine 
if a notice was accessed.
    Response: We are not requiring that agencies monitor accounts to 
determine whether notices are accessed. If the electronic alert is not 
undeliverable, the agency should assume an individual is able to access 
his or her notice.
    Comment: One commenter recommended that we include a

[[Page 42171]]

requirement that allows the agency to limit the number of times an 
individual can request that an electronic notice be provided in paper 
format.
    Response: We believe that it is an important consumer protection to 
allow individuals to request notices in a paper format. Some 
individuals may not have the technology available to readily print 
notices from an electronic account.
    Comment: A number of commenters supported offering additional types 
of communications through an electronic format. In addition to 
eligibility notices and information specified in subpart E of part 431, 
there are other communications that occur between an individual and the 
Medicaid or CHIP agency. Some of these communications include requests 
for additional information, annual renewal forms and reminders, premium 
payment information, and information on covered services.
    Response: We do not believe it is necessary to amend Sec.  
435.918(a) to include other types of communications. In Sec.  
435.918(a), we specify that eligibility notices and information in part 
435, and notices and information required under subpart E of part 431, 
be provided in electronic format. For example, information on covered 
services must be available electronically in addition to paper format, 
as required by Sec.  435.905(a). Annual renewal forms must also be 
offered in electronic format in accordance with Sec.  435.916. We do 
not think it is appropriate or operationally feasible to require other 
types of communications to be provided electronically. We encourage 
states with the capacity to provide additional communications 
electronically, and with beneficiaries preferring that mode of 
communication, to do so, as long as in compliance with any existing 
regulations that govern the type of communication.
    Comment: One commenter asked whether proposed Sec.  435.918(b), 
which asserts that the agency may only provide electronic notices if 
the individual elected to receive electronic notices and must be 
permitted to change such election at any time, is duplicative of 
paragraph Sec.  435.918(a).
    Response: We agree with the commenter, and the provision has been 
amended by removing redundant language in Sec.  435.918(b)(1) and Sec.  
435.918(b)(2).
    Comment: A number of commenters requested a later effective date 
for implementing electronic notices.
    Response: We recognize that states are at different places in the 
development of their eligibility and enrollment systems, and that the 
technology needs to be in place to offer beneficiaries and applicants 
the option to receive notices electronically. We have amended Sec.  
435.918(a) to delay the requirement to provide notices electronically 
until January 1, 2015, but permit states to implement October 1, 2013 
if their systems are ready.
    Comment: One commenter suggested that we clarify whether ``send'' 
in Sec.  431.230 means send by mail or in electronic format consistent 
with Sec.  435.918.
    Response: Under proposed Sec.  431.206(e), all information required 
under subpart E of part 431 must be provided in electronic format in 
accordance with Sec.  435.918, if an individual elects to receive such 
information in electronic format. To further clarify, we have added to 
Sec.  431.201, that the definition of ``send'' means deliver by mail or 
in electronic format consistent with Sec.  435.918.
    Comment: One commenter requested clarification regarding Sec.  
431.231(c)(2), which provides beneficiaries 10 days to request a 
hearing from receipt of the notice of action. The date on which the 
notice is received is considered to be 5 days after the date on the 
notice, unless the beneficiary shows that he or she did not receive the 
notice within the 5-day period. The commenter specifically requested 
clarification regarding how an individual might show proof that they 
did not receive an electronic notice within the 5-day time period.
    Response: We understand the concern expressed by the commenter, but 
do not believe that this issue is specific to the receipt of electronic 
notices, but receipt of notices in general. It is challenging for an 
individual to provide proof of a negative, however, it is important to 
provide individuals with the opportunity to demonstrate that they did 
not receive notices. One example of how an individual might demonstrate 
that he did not receive an electronic eligibility notice is by 
providing documentation that he closed the email account on record with 
the agency. If an individual cannot receive the emailed alert that a 
notice is posted to the electronic account, the individual is not in 
receipt of the notice.
    Comment: A few commenters requested that we define whether the ``5 
days'' Sec.  431.231(c)(2) refers to calendar days or business days.
    Response: We are not defining whether the ``5 days'' refers to 
calendar days or business days, but allow states the flexibility to 
define this in their operating procedures.
b. Coordinated Notices (Sec.  435.1200)
    For individuals whose electronic account is transferred to the 
Medicaid agency for a determination of eligibility from another 
insurance affordability program, Sec.  435.1200(d)(6) of the March 2012 
Medicaid eligibility final rule directs that the Medicaid agency notify 
such other program of its final determination of eligibility or 
ineligibility only for individuals who have enrolled in the other 
program pending completion of the agency's final determination. We 
proposed to redesignate and modify this requirement at Sec.  
435.1200(d)(5) to require that the Medicaid agency notify the other 
program of the final determination of Medicaid eligibility or 
ineligibility for all individuals whose electronic account was 
transferred from another insurance affordability program. The same 
requirement was proposed for CHIP at Sec.  457.348(d)(5). No comments 
were received regarding these specific provisions. We also proposed a 
number of other changes to Sec.  435.1200 and Sec.  457.348 relating to 
coordination of notices and appeals. In this final rule, we are 
codifying Sec.  435.1200(d)(5) of the proposed rule at paragraph Sec.  
435.1200(d)(6). Other proposed changes to Sec.  435.1200 of the March 
2012 Medicaid final eligibility rule, including the redesignation of 
paragraph (d)(6), as appropriate, will be addressed in subsequent 
rulemaking. We are also finalizing proposed Sec.  457.348(d)(5) as 
Sec.  457.348(c)(6), but other proposed changes to Sec.  457.348 will 
be addressed in subsequent rulemaking.
4. Medicaid Enrollment Changes Under the Affordable Care Act Needed To 
Achieve Coordination With the Exchange
a. Certified Application Counselors (Sec.  435.908 and Sec.  457.340)
    Many state Medicaid and CHIP agencies have a long history of 
supporting providers and other organizations to assist individuals in 
applying for and maintaining coverage. Commonly referred to as 
``application assisters'' and referred to in this rulemaking as 
``certified application counselors,'' these organizations and 
individuals provide direct assistance to individuals seeking coverage, 
and can play a key role in promoting enrollment among low-income 
individuals. The proposed regulations at Sec.  435.908(c) sought to 
ensure that certified application counselors, whom we expect to 
continue to play an important role in facilitating enrollment in the 
expanded coverage options available under the Affordable Care Act, will 
have

[[Page 42172]]

the training and skills necessary to provide reliable, effective 
assistance to consumers. We proposed basic standards for states to 
certify application counselors, which we believe are consistent with 
the practice in many states today. These standards include proposed 
procedures to ensure that these trained certified application 
counselors have clear authority to access and protect confidential 
information about individuals they serve, and with that authority have 
a special relationship with the Medicaid agency that enables the 
counselors to track and monitor applications. The proposed regulations 
at Sec.  435.908(c), as finalized in this rulemaking, are applicable to 
CHIP, as well under Sec.  457.340(a) of the March 2012 Medicaid 
eligibility final rule; no revisions are needed or made to Sec.  
457.340(a). We received the following comments concerning the proposed 
certified application counselor provisions:
    Comment: We received a few comments expressing support for the 
proposed requirement that states have a designated web portal for use 
by certified application counselors that has a secure mechanism for 
granting rights for only those activities the certified application 
counselor is certified to perform. Commenters stated that such a portal 
will increase the proportion of applications that are submitted 
electronically, thereby providing more applicants with access to 
electronic verification and real-time eligibility while increasing the 
state's administrative efficiency. Other commenters also recommended a 
clarification that states may use the same portal for Navigators and 
non-Navigator assistance personnel authorized under 45 CFR 155.205(d) 
and (e) with proper assignment of rights and functionality.
    Response: We appreciate the support for the establishment of a 
designated web portal for use only by properly trained and certified 
application counselors. However, given the systems challenges states 
face in preparing for the initial open enrollment period and starting 
up the new system of insurance affordability programs, we are concerned 
that requiring such a portal could disrupt well-functioning application 
counselor programs that exist today. Therefore, while we encourage 
states to consider such portals as an effective vehicle for 
administering and overseeing certified application counselor programs, 
we are removing from the final rule the requirement that such portals 
be established as proposed at Sec.  435.908(c)(3)(i). Although not 
required, states may elect to develop these portals to support the work 
of certified application counselors.
    Comment: One commenter requested that we issue guidance on the 
availability of federal funding to help support grants or payments to 
certified application counselors--in particular information about how 
Medicaid administrative claiming can be used to match community-based 
investments in application assistance.
    Response: FFP is available for state expenditures to certify and 
support certified application counselors, but, since community-based 
application counselors are not state or local employees, FFP is not 
available for salaries or other direct costs of certified application 
counselors.
    Comment: Many commenters requested that we require that certified 
application counselors be trained to provide culturally and 
linguistically competent services. They believed that it is not 
sufficient to remind Medicaid and CHIP agencies of their responsibility 
to ensure access to individuals with limited English proficiency and 
those living with disabilities, and urged us to provide states with 
specific guidance and examples of how to fulfill this responsibility. 
Some commenters recommended that to be certified, application 
counselors must be trained in providing culturally and linguistically 
appropriate services. Some commenters recommended that we require 
training for application counselors include accommodating the health 
care needs of specific populations, such as children.
    Response: Consistent with title VI of the Civil Rights Act of 1964, 
the Americans with Disabilities Act, and other civil rights laws, state 
Medicaid and CHIP agencies must ensure that their programs are 
accessible to individuals with limited English proficiency and 
individuals with disabilities. This responsibility is codified, in 
part, at Sec.  435.905(b), Sec.  435.907(g), Sec.  435.908(a), and 
Sec.  457.330 (incorporating by reference the requirements of Sec.  
435.907) of the March 2012 Medicaid eligibility final rule, and is also 
contained in non-Medicaid specific regulations implementing the 
Americans with Disabilities Act and other civil rights laws. Note that 
clarifying changes were proposed in the January 2013 proposed rule to 
the accessibility standard in Sec.  435.905(b); those proposed changes 
are not addressed in this final rule, but we intend to address them in 
subsequent rulemaking. State agencies can use certified application 
counselors as a tool in meeting their responsibilities to make their 
programs accessible to individuals with limited English proficiency and 
individuals with disabilities. But, while some organizations providing 
application assistance to individuals applying for coverage under an 
insurance affordability program may be subject to civil rights laws 
independent of the fact that they are serving as a certified 
application assistor (for example, as a condition of accepting federal 
funding), we do not believe it appropriate to hold them responsible for 
meeting the accessibility standards established for state Medicaid and 
CHIP agencies under our regulations.
    Moreover, to require a community organization or provider with a 
mission to provide targeted assistance to one segment of the population 
to also be able to provide assistance to all others, would threaten the 
participation of valuable state partners in maximizing enrollment 
across the state's entire population.
    Comment: Some commenters supported the option provided to states to 
certify application counselors. These commenters pointed to existing 
programs in which states work with community organizations to expand 
enrollment, and that state flexibility to continue current, successful 
programs is important. Other commenters recommended that certification 
of application counselors be required for all Medicaid and CHIP 
agencies. These commenters discussed that there will be organizations 
providing application assistance in every state, that these 
organizations need to be trained, and that consumers need to know who 
is available to provide competent assistance.
    Response: We agree that a network of application counselors can be 
a valuable asset and can support states' outreach and enrollment 
efforts. We urge all states to consider working with interested 
organizations and providers in creating an application counselor 
program. However, we believe states are best able to determine the need 
for such a program, and we do not believe it is necessary to require 
that state Medicaid programs create such programs.
    Comment: We received a number of comments on certified application 
counselors and requirements related to conflicts of interest. Some 
commenters stated that in addition to receiving training on conflict of 
interests, certified application counselors should be contractually 
required to serve in the best interests of clients and to disclose any 
existing relationships with qualified health plans or insurance 
affordability

[[Page 42173]]

programs to consumers. Some commenters recommended that health 
insurance issuers, their subsidiaries and licensed insurance brokers 
and agents be explicitly excluded from being certified as certified 
application counselors given their inherent financial conflict of 
interest.
    Response: We are clarifying the language in Sec.  
435.908(c)(1)(iii) to make clear that certified application counselors 
must adhere to all rules prohibiting conflicts of interest. States may 
not certify any organization or individual who does not meet this 
standard, or who may be motivated to act in a manner contrary to best 
interest of the individual being helped. Thus, any organization that 
the state finds to have an inherent conflict could not, under the 
proposed regulation, be certified as an application counselor. We do 
not believe it necessary or appropriate to identify specific types of 
organizations as categorically barred from serving as application 
counselors and are finalizing this regulation as proposed.
    Comment: A few commenters requested that we require states to 
maintain a current list of certified application counselors on the 
agency Web site, and the list should include any limitations on 
services that they are certified to provide. Commenters suggested that 
it will be important for consumers to not only be informed of the 
functions and responsibilities of certified application assisters, as 
required in Sec.  435.908(c)(3)(i), but to also know who is certified 
and whether there are any limitations on the services each certified 
application counselor is certified to provide.
    Response: We encourage states to adopt the practice recommended by 
the commenter, as an effective mechanism to connect consumers with 
needed assistance. However, utilization of certified application 
counselors is at state option, and while we believe such a mechanism 
will enhance consumers' ability to identify resources available to help 
with applications we do not think it appropriate to require states to 
post a current list of counselors on their Web site. We note that such 
a requirement could deter some states from creating or expanding their 
application counselor program if they do not have the resources to 
create and maintain such a list.
    Comment: A commenter asked CMS to clarify that states can meet 
their outstationing requirements under Sec.  435.904 with application 
counselors at the appropriate locations. They suggested that given the 
overlap of functions described it would seem inefficient to maintain 
separate systems of assistance.
    Response: States may be able to use certified application 
counselors to help meet the outstationing requirements set forth in 
current regulations at Sec.  435.904, under which state Medicaid 
agencies are required to provide pregnant women and children an 
opportunity to apply for coverage at designated ``outstation 
locations.'' Section 435.904(e) requires that, except for outstation 
locations that are infrequently used by the pregnant women and children 
targeted under the regulation, the state agency must have staff 
available at each outstation location. Under paragraph (e)(3) of that 
section, properly trained provider or contractor staff or volunteers--
which could include organizations, staff and volunteers certified as 
application counselors--may be used in lieu of, or as a supplement to, 
agency staff to meet this requirement, subject to certain conditions 
set forth in the regulation.
    Comment: Commenters asked for clarification on the overlap of 
functions and certification requirements between certified application 
counselors in Medicaid and application counselors as proposed for the 
Exchange at Sec.  155.225.
    Response: Although the exact language of the Exchange application 
counselor regulation at proposed 45 CFR 155.225 (which is not being 
finalized in this rulemaking) and that of the Medicaid regulation at 
Sec.  435.908(c) differ, the policies reflected are consistent. The 
main substantive difference is that the Exchange regulation at proposed 
45 CFR 155.225 would not permit certified application counselors to 
limit the activities that they agree to perform, but instead would 
require them to perform all assistance activities identified in the 
regulation, whereas states can permit Medicaid and CHIP application 
counselors to elect to limit the activities which they will perform for 
applicants.
    As noted in the preamble to the proposed rule, we remind the 
commenters that state Medicaid and CHIP agencies and the Exchange are 
charged under Sec.  435.1200 and Sec.  457.348 of the Medicaid 
eligibility final rule and proposed Sec.  155.345 of the Exchange rule 
to enter into agreements with each other to create a seamless and 
coordinated application and enrollment process across all insurance 
affordability programs, and the state agencies and the Exchange should 
consider such coordination in developing their application counselor 
programs. States could elect, for example, to create a single 
certification process for all insurance affordability programs, or each 
program could accept application counselors certified by another 
program. To the extent to which an application counselor is certified 
by one program but not the other, the counselor would assist the 
individual in submitting the single streamlined application for all 
insurance affordability programs to the entity by which they are 
certified. It is important to note that regardless of the entity to 
which the application counselor submits the application, the 
application will be evaluated for eligibility in QHPs and all insurance 
affordability programs.
    Comment: One commenter requested more information about the 
development and review of training materials for certified application 
counselors. This commenter stated that although the regulations provide 
that any individual providing customer service must be trained in a 
host of areas related to the insurance affordability programs, no 
specificity is provided about the development and review of the 
materials, and they requested clarification on whether states will have 
the opportunity to review and comment on materials prior to their use. 
We also received comments that recommended we require certified 
application counselors to apply for recertification annually or 
biannually to ensure that they are qualified and up to date on changes 
in policy and procedures.
    Response: Under Sec.  435.908(c)(1)(ii) and (iii), states must 
ensure that application counselors are properly trained prior to 
certification, and we expect states will need to develop training and 
any training materials to be used to satisfy this requirement. We note 
that materials will be developed by HHS for use by certified 
application counselors registered with an FFE, including State 
Partnership Exchanges, and state Medicaid and CHIP agencies may adapt 
such materials to support their training efforts. FFP is available for 
costs to the state of conducting training or testing of certified 
application counselors, including any costs to the state for 
preparation and assembly of training materials. Being effectively 
trained in the rules and regulations of the different insurance 
affordability programs in accordance with Sec.  435.908(c)(1)(ii) 
necessarily requires keeping abreast of any pertinent changes in those 
rules, and under these regulations states will need to ensure that 
application counselors are kept up-to-date. However, there are 
different ways to accomplish this goal--annual or periodic 
recertification is one-way, refresher trainings or written 
communications may be another--and we believe states should have 
flexibility

[[Page 42174]]

in determining the process that best works in each state.
    Comment: A few commenters recommended that applicants and enrollees 
be able to opt to designate their certified application counselor to 
receive copies of notices, or to access electronic notices in the 
client account.
    Response: As discussed in the preamble of the proposed rule, the 
certified application counselor program is not designed to provide the 
level of personal assistance to applicants and beneficiaries that is 
provided by an authorized representative, discussed in the next section 
in the preamble. However, there is nothing to prevent an applicant or 
beneficiary from designating a certified application counselor to also 
serve as his or her authorized representative, and for such counselor 
to assume that function, in accordance with Sec.  435.923, as finalized 
in this rulemaking.
    Comment: One commenter suggested that regulations governing 
application assistance are not necessary. The commenter believed that, 
absent any evidence that application counselors currently working in 
states to help individuals apply for Medicaid do not have the training 
and skills necessary to provide reliable, effective assistance to 
consumers, or would not meet confidentiality requirements, there is no 
reason to regulate state practices in this area.
    Response: We recognize the successful development of application 
assistor, or application counselor, programs by many states without the 
existence of federal regulations, and have aimed to develop regulations 
that will not disrupt existing, successful programs and practice. 
However, given the significant changes to the availability of and 
access to affordable health coverage created under the Affordable Care 
Act--including the advent of coverage in a QHP through the Exchange, 
with premium tax credits and cost sharing reductions available to 
qualifying individuals, the coordinated eligibility and enrollment 
process required across all insurance affordability programs, and the 
expansion in use of online applications, with the possibility 
confidential information being returned to consumers in real time 
through an electronic interface--we believe that establishment of 
baseline federal standards, to be applied consistently across states 
and programs, is important to safeguarding consumer interests and 
ensuring the integrity of the assistance provided.
b. Authorized Representatives (Sec.  435.923)
    We proposed regulations intended to be consistent with current 
state policy and practice, regarding the definition, designation, and 
responsibilities of ``authorized representatives'' to act on behalf of 
applicants and beneficiaries in applying for and maintaining coverage. 
Authorized representatives have historically provided valuable support 
to individuals needing help navigating the application and enrollment 
process, as well as ongoing communications with the agency, 
particularly to seniors and individuals with disabilities, and we 
expect their role to continue. We proposed to define the term 
``authorized representative'' as an individual or organization that 
acts responsibly on behalf of an applicant or beneficiary in assisting 
with the individual's application and renewal of eligibility and other 
ongoing communications with the Medicaid or CHIP agency. Under current 
regulations at Sec.  435.907, retained in the March 2012 Medicaid 
eligibility final rule, states must accept applications from authorized 
representatives acting on behalf of an applicant. We received the 
following comments concerning proposed provisions relating to 
authorized representatives:
    Comment: One commenter requested clarification on whether states 
may enforce additional requirements not specifically listed in the 
federal regulations on authorized representatives. An example of this 
would be state specific regulations governing who may serve as an 
authorized representative for individuals who are not medically or 
legally competent.
    Response: Under proposed Sec.  435.923(a), legal documentation of 
authority to act on behalf of an applicant or beneficiary under state 
law, such as a court order establishing legal guardianship or power of 
attorney may serve in place of a written designation from the applicant 
or beneficiary, signed and submitted in accordance with Sec.  
435.923(f). Under the regulation, however, states may not limit 
authorized representatives to individuals identified in such a legal 
document or granted authorization under operation of state law or 
otherwise impose requirements other than those listed in Sec.  435.923 
on other individuals whom an applicant or beneficiary wishes to have 
serve as his or her authorized representative. We have separated the 
regulation text as proposed at Sec.  435.923(a) at Sec.  435.923(a)(1) 
and Sec.  435.923(a)(2).
    Comment: We received a number of comments regarding who may serve 
as an authorized representative. One commenter recommended that 
organizations should not be permitted to be designated as authorized 
representatives. Another commenter recommended that we allow states to 
decide whether to permit organizations to be authorized 
representatives. The commenter suggested that by permitting only 
individuals to serve as authorized representatives, states will be 
better able to ensure transparency and accountability of the authorized 
representative. Another commenter recommended that we add a definition 
of organization to Sec.  435.923(e) to clarify what types of 
organizations may act as authorized representatives, for example, only 
non-profit organizations.
    Response: We believe that there are situations in which an 
individual may need an organization to serve as his or her authorized 
representative and it is appropriate for an organization to serve in 
this capacity, such as for individuals residing in a nursing home who 
do not have family available to assist them. We are finalizing the 
regulation as proposed in this regard. Protections at proposed Sec.  
435.923(e), finalized in this rulemaking, are designed to ensure that 
organizations serving as an authorized representative adhere to laws 
and regulations relating to conflicts of interest and act in the best 
interest of the individual.
    Comment: We received a number of comments related to the timeframe 
for designation of authorized representatives. One commenter 
recommended that states be given options or flexibility in this area, 
explaining that states may wish to make the designation of the 
authorized representative last for 12 months by default, for example, 
unless the applicant or beneficiary designates otherwise. Another 
commenter recommended that we add that the authorization is valid until 
the application is denied or benefits are terminated and the appeal 
process is completed.
    Response: Our regulations clearly state that applicants and 
beneficiaries are able to change authorized representatives at any 
time. States may not make a designation automatically expire such that 
an individual would need to redesignate an authorized representative 
after a given period of time. However, they are allowed to provide 
beneficiaries with the opportunity to change their authorized 
representative at the renewal point. For example, states can indicate 
that a beneficiary has an authorized

[[Page 42175]]

representative and remind the individual that they may keep or change 
the representative on the renewal document.
    Comment: One commenter asked for clarification on whether the scope 
of the authorization is defined by the beneficiary or applicant, or 
whether, once invoked, the representative assumes all of the duties 
named in the regulations, including ``all other matters'' with either 
agency.
    Response: We clarify that the scope of the authorization is defined 
by the Medicaid applicant or beneficiary.
    Comment: We received a number of comments on Sec.  435.923(c), 
specifically related to the fact that the designation of an authorized 
representative can only be revoked in writing. Commenters suggested 
that it would be more appropriate and efficient to allow the 
designation to be revoked by all of the modalities by which it can be 
made in the first place.
    Response: We agree with the commenter's suggestion and have revised 
the regulation text accordingly.
    Comment: One commenter requested clarification on whether the 
permissions given the authorized representative may be granted in part, 
for example in tiers, if an applicant so chooses. The commenter 
suggested that an applicant may wish to authorize someone to sign his 
or her application, but not to receive his or her notices, for example.
    Response: We are clarifying that the permissions given to the 
authorized representative may be granted in part. The proposed 
regulation allows applicants and beneficiaries to designate an 
individual or organization to act on their behalf and that the scope of 
authorization is defined by the applicant or beneficiary.
    Comment: One commenter asked us to confirm that the definition 
provided for authorized representatives is the same definition that the 
Social Security Administration uses.
    Response: We clarify that the definition is not the same.
    Comment: A few commenters requested additional clarification 
regarding situations in which an individual is unable to personally 
elect an authorized representative due to medical incapacity. One 
commenter agreed that written designation by the individual or legal 
documentation should be obtained in most instances, but the proposed 
rule may be overly restrictive in that it could result in unreasonable 
delay in determining some individuals' eligibility for Medicaid. The 
commenter recommends that states be given the authority to waive this 
regulation in instances when obtaining legal documentation to allow 
individuals or organizations to act as authorized representatives would 
be difficult. Another commenter suggested that legal documentation of 
authority to act on behalf of an application or beneficiary under state 
law, such as court order establishing legal guardianship or a power of 
attorney, should serve in place of written authorizations by the 
applicant or beneficiary.
    Response: Under section Sec.  435.923(a), legal documentation of 
authority to act on behalf of an applicant or beneficiary under state 
law, such as a court order establishing legal guardianship or power of 
attorney may serve in place of the applicant or beneficiary's 
designation. The option to submit such documentation is intended to 
enable applicants who do not have the capacity to provide a signature 
to authorize representation.
5. Medicaid Eligibility Requirements and Coverage Options Established 
by Other Federal Statutes
a. Presumptive Eligibility for Children (Sec.  435.1102)
    We proposed to revise existing regulations to align with the 
adoption of MAGI-based methodologies.
    Comment: One commenter suggested that presumptive eligibility could 
be better streamlined by using only a gross income standard for 
eligibility determinations.
    Response: Current regulations allow states to use either gross 
income or to have qualified entities make a closer approximation of the 
countable family income, which would be used for a regular 
determination by the state agency, by applying simple disregards. We 
believe it is appropriate to retain this flexibility for states once 
MAGI-based methodologies are in place. Therefore, we are codifying the 
flexibility of states in Sec.  435.1102(a), as proposed, to direct 
qualified entities to use either gross income or to apply simplified 
methods, as prescribed by the state, to better approximate MAGI-based 
household income, as defined in Sec.  435.603 of the March 2012 final 
rule.
    Comment: Many commenters objected to the state option to obtain an 
attestation of citizenship or satisfactory immigration status, or state 
residency as part of a presumptive eligibility determination. They 
suggested that requiring an attestation of immigration status would 
likely deter some potentially eligible individuals who often need 
urgent access to health care services from receiving care. Further the 
commenters suggested that the rules on immigration status are detailed 
and complex, and qualified entities cannot reasonably be expected to 
understand or explain them to individuals being asked to attest their 
status. Some commenters stated that states should have the option to 
request self-attestation of citizenship.
    Response: We clarify that our proposed rule gave states the option 
to require qualified entities or qualified hospitals to request this 
information but did not require it. We believe that this option is 
important in the context of extending the ability to conduct 
presumptive eligibility determinations to hospitals because it limits 
the possibility that individuals who are not citizens or qualified 
immigrants or residents of the state are found eligible on a 
presumptive basis, receive expensive services, only ultimately to be 
determined ineligible for Medicaid. Therefore, we are retaining the 
language as proposed and maintain this provision as a state option.
    Comment: One commenter requested that we add current foster care 
children as a presumptive eligibility group in our final regulation.
    Response: We clarify that former foster children are already a 
population that is eligible to be determined presumptively eligible. We 
do not currently have the authority to add current foster care children 
as a presumptive eligibility group, but this is unnecessary because 
current foster children are automatically eligible for Medicaid and do 
not need to be determined presumptively eligible.
b. Presumptive Eligibility for Other Individuals (Sec.  435.1103)
    Comment: Some commenters stated that states should have the option 
to elect how many presumptive eligibility periods should be allowed for 
each pregnancy. Others supported our proposed rule to permit only one 
presumptive eligibility period per pregnancy.
    Response: We believe that providing pregnant women with one 
presumptive eligibility period per pregnancy is reasonable in 
accordance with section 1920 of the Act, under which pregnant women may 
receive ambulatory prenatal care during a presumptive eligibility 
period, defined as continuing through the date a full Medicaid 
determination is made under the State plan, or, if a woman does not 
submit a regular application through the end of the month following the 
month during which the presumptive eligibility determination was made. 
Therefore, we are finalizing the regulation as proposed to provide one 
presumptive eligibility

[[Page 42176]]

period for pregnant women per pregnancy.
c. Presumptive Eligibility Determined by Hospitals (Sec.  435.1110)
    We proposed to add Sec.  435.1110 to implement section 
1902(a)(47)(B) of the Act, added by the Affordable Care Act, to give 
hospitals the option to determine presumptive eligibility for Medicaid. 
The statute provides hospitals participating in Medicaid with this 
option whether or not the state has elected to permit qualified 
entities of the state's selection to make presumptive eligibility 
determinations for children, pregnant women or other specific 
populations under other sections of the statute.
    We received the following comments concerning the hospital 
presumptive eligibility provisions:
    Comment: We received many comments related to the establishment of 
standards under proposed Sec.  435.1110(d)(1) for hospitals that opt to 
make presumptive eligibility determinations. Some commenters encouraged 
CMS to provide states with maximum flexibility to implement presumptive 
eligibility standards for hospitals, while other commenters stated that 
the Secretary should establish federal standards applicable to 
hospitals making presumptive eligibility determinations in all states. 
Other commenters supported the flexibility given to state agencies to 
establish standards, and some stated that states should have even 
broader authority to establish clear criteria and qualifications which 
hospitals would have to meet to make presumptive eligibility 
determinations. Some believe that the Secretary should establish 
minimum federal standards and qualifications, with the state option to 
impose additional standards. Commenters generally requested additional 
guidance to states on how they must work with hospitals that elect to 
make presumptive eligibility determinations. Finally, some commenters 
stated that the Secretary should establish federal standards for 
hospitals that opt to make presumptive eligibility determinations under 
Sec.  435.1110 of the regulations, related to the proportion of 
individuals determined presumptively eligible by the hospital that 
submits a regular application and the percent of such individuals who 
are ultimately determined eligible by the agency. Commenters suggested 
that states should use the federal standards to determine which 
hospitals are capable of making presumptive eligibility determinations.
    Response: We are finalizing Sec.  435.1110(d)(1) as proposed. 
Oversight of qualified entities making presumptive eligibility 
determinations, including qualified hospitals under Sec.  435.1110, is 
a state responsibility. Under Sec.  435.1110(d)(1), states may 
establish state-specific standards for qualified hospitals that conduct 
presumptive eligibility determinations related to the success of 
assisting individuals determined presumptively eligible who submit a 
regular application and/or are approved for eligibility by the agency. 
We believe this is an area more appropriate for state flexibility, than 
for imposition of a uniform federal standard for all participating 
hospitals across all states. Therefore, we are finalizing Sec.  
435.1110(d), as proposed. We will monitor implementation and consider 
whether further guidance is warranted.
    Per Sec.  435.1110(d)(2), which we also are finalizing as proposed, 
state agencies are required to take appropriate correction action for 
any hospital that does not meet the standards established by the state 
or which the state otherwise determines is not making, or is not 
capable or making, presumptive eligibility determinations in accordance 
with state policies and procedures. In fulfilling their responsibility 
under Sec.  435.1110(d)(2), states may develop other proficiency 
standards, training and audits, with which hospitals would need to 
comply, to be authorized to make presumptive eligibility determinations 
in the state.
    Comment: We received many comments on the populations for which 
hospitals can make presumptive eligibility determinations. Some 
commenters stated that hospitals should be allowed to make presumptive 
eligibility determinations for all of the patient populations they 
serve. Some commenters recommended that states be given the option to 
elect and limit the populations that may be determined presumptively 
eligible by hospitals. Some commenters stated that the preamble did not 
align with the regulation text relating to this issue in the proposed 
rule. Many commenters requested additional clarification on the 
populations for which hospitals may make presumptive eligibility 
determinations.
    Response: We intended to propose that qualified hospitals must be 
permitted to make presumptive eligibility determinations based on 
income for all of the populations for which presumptive eligibility may 
be available in accordance with Sec.  435.1102 and Sec.  435.1103. The 
specific reference to children, pregnant women, parents and caretaker 
relatives, and other adults in proposed Sec.  435.1110(c)(1) was not 
intended to eliminate presumptive eligibility determinations by 
hospitals for other populations included in Sec.  435.1103 (that is, 
former foster care recipients or women with breast or cervical cancer 
or individuals seeking coverage of family planning services). We are 
revising the regulation text at Sec.  435.1110(c)(1) to clarify that 
states electing to limit the presumptive eligibility determinations 
which hospitals can make must permit the hospitals to make presumptive 
eligibility determinations based on income for all of the populations 
included in Sec.  435.1102 and Sec.  435.1103. Under Sec.  
435.1110(c)(2), which we finalize as proposed in this rulemaking, 
states may also permit hospitals to make presumptive eligibility 
determinations for populations for which income is not the only factor 
of eligibility (for example, for individuals who may be eligible under 
an eligibility group based on disability, or individuals eligible under 
a demonstration project approved under section 1115 of the Act).
    Comment: A commenter expressed that hospitals wishing to make 
presumptive eligibility determinations should be required to attend 
training on policies and procedures established by the states. The 
commenter suggested that this was important to maximize the likelihood 
that eligible individuals complete the full Medicaid eligibility 
process. They supported the proposed rule that states may require 
hospitals electing to make presumptive eligibility determinations to 
assist individuals in completing and submitting the full application 
and understanding any documentation requirements.
    Response: In accordance with Sec.  435.1110(a) of the proposed 
rule, finalized as proposed in this rulemaking, states are required to 
provide Medicaid during a presumptive eligibility period, to 
individuals who are determined to be presumptively eligible by a 
qualified hospital, subject to the same requirements as apply to the 
State options under Sec. Sec.  435.1102 and 435.1103 regardless of 
whether the state otherwise has opted to provide Medicaid during a 
presumptive eligibility period under either of those sections. While 
not necessarily requiring establishment of a formal training program, 
current regulations at Sec.  435.1102(b) require states to provide 
qualified entities with information on relevant state policies and 
procedures and how to fulfill their responsibilities in making 
presumptive eligibility determinations. This requirement is unchanged 
in this rulemaking and will apply in the case of hospitals electing to

[[Page 42177]]

be a qualified hospital under Sec.  435.1110. If a hospital does not 
follow state policies and procedures, or is not successful in helping 
individuals to submit regular applications in accordance with standards 
established by the state, proposed Sec.  435.1110(d)(2) would require 
states to institute appropriate corrective action, including (but not 
requiring) termination of the hospital as a qualified hospital. We are 
revising proposed Sec.  435.1110(d) by adding paragraph (d)(3) to 
provide that the agency may disqualify a hospital as a qualified 
hospital only after it has first provided the hospital with additional 
training or taken other reasonable corrective action measures.
    Comment: A few commenters requested that states should be able to 
receive 100 percent FMAP for any recoupments or disallowances CMS may 
seek related to an improper eligibility determination by a hospital. 
One commenter questioned whether a state can make a qualified hospital 
liable when a presumptive eligibility determination results in a denial 
for a full Medicaid category.
    Response: Under existing regulations, there is no recoupment for 
Medicaid provided during a presumptive eligibility period resulting 
from erroneous determinations made by qualified entities. Payment for 
services is guaranteed during a presumptive eligibility period; without 
such a guarantee, providers could not rely on the determination. Under 
this provision, states will not be permitted to recoup money from the 
hospital (and CMS will not recoup FFP from the state). However, under 
Sec.  425.1110(d)(2), a state may disqualify a hospital from conducting 
presumptive eligibility determinations if the state finds that the 
hospital is not making, or is not capable of making, accurate 
presumptive eligibility determinations in accordance with applicable 
state policies and procedures. Such a disqualification is permitted 
only after the state has provided additional training or taken 
reasonable corrective action measures to address the issue. Finally, we 
clarify that states may not make a qualified hospital liable when an 
individual who was found presumptively eligible by the hospital submits 
a full application and is subsequently denied Medicaid eligibility.
    Comment: Some commenters requested that for individuals determined 
presumptively eligible by a hospital for the adult group under Sec.  
435.119 of the March 2012 Medicaid final eligibility rule, a state 
should receive 100 percent federal funding for services provided unless 
and until the individual completes the eligibility process and is 
determined not ``newly eligible'' or eligible for coverage under the 
adult group. Commenters suggested that enhanced federal funding is 
necessary because there will not be sufficient information available to 
determine whether the presumptively eligible individual should be 
claimed at 100 percent federal funding or the state's regular FMAP at 
the time of the initial presumptive eligibility determination.
    Response: While we understand the commenters' concerns, there is no 
basis to provide the 100 percent FMAP during a presumptive eligibility 
period. The state would receive the increased FMAP provided under the 
Affordable Care Act only for individuals who the state determines 
actually (not presumptively) qualify for Medicaid under the adult group 
and are determined to be ``newly eligible.'' The methodology for such 
claims is set forth in the final FMAP regulation (78 FR 19918). 
However, states may retroactively adjust claiming to receive the 
enhanced matching rate for individuals determined presumptively 
eligible who subsequently complete a regular application, are 
determined by the state to be eligible for Medicaid under the adult 
group and are found to be ``newly eligible.'' Such retroactive 
adjustment may extend back to the first month of the month in which the 
regular application was filed or up to 3 months prior to the month of 
application in accordance with Sec.  435.914 of the regulations 
(redesignated at Sec.  435.915 in the March 2012 Medicaid final 
eligibility rule).
    Comment: One commenter requested that we confirm that Sec.  
435.1110(b)(2) of the proposed rule gives states the option to require 
that to participate as a qualified hospital, a hospital must assist 
individuals in completing and submitting the full application and help 
individuals understand any documentation requirements. The commenter 
suggested that this function is the same as that of an application 
counselor and requests clarification on whether a state could also 
require that a hospital that performs presumptive eligibility 
determinations must follow regulations in Sec.  435.908 relating to 
certified application counselors.
    Response: Although we are not requiring hospitals that perform 
presumptive eligibility determinations to also furnish services of 
certified application counselors, states may impose specific 
requirements on hospitals to ensure that they fulfill their role in 
assisting individuals with completing and submitting the full 
application. At a minimum, states have a responsibility to ensure that 
an individual determined presumptively eligible by qualified hospitals 
is informed about how to apply and can obtain an application.
    Comment: We received several comments on the viability of 
presumptive eligibility determinations with the advent of real-time 
eligibility determinations. One commenter recommended that states 
should have the latitude to require hospitals to use the state's online 
application system and determine presumptive eligibility only if a 
real-time full eligibility determination cannot be made. Another 
commenter suggested that if eligibility can be determined in real-time, 
then there is no need for presumptive eligibility, and asked us to 
clarify whether the state could terminate use of presumptive 
eligibility without violating the Affordable Care Act's Maintenance of 
Medicaid Eligibility requirements, as added by section 2001(b) of the 
Affordable Care Act (codified at sections 1902(a)(74) and 1902(gg) of 
the Social Security Act (the Act).
    Response: We agree that the promise of real-time eligibility 
determinations makes the role of presumptive eligibility different than 
it has been in the past. In situations in which the individual files a 
regular application right away, the presumptive eligibility period 
would likely be considerably shorter--and eliminated altogether, as a 
practical matter, if a real-time determination is made. However, even 
with the most modernized systems, there inevitably will be individuals 
for whom a real-time eligibility determination will not be possible. 
There also will be individuals who will not be comfortable with the 
online application, and will instead opt to use the paper application. 
In such situations and for such individuals, presumptive eligibility 
remains a useful tool to facilitate prompt coverage and enrollment in 
the program. States have flexibility to minimize the length of 
presumptive eligibility periods by requiring that hospitals and other 
qualified entities assist individuals in submitting the single 
streamlined application online. States may not terminate use of 
presumptive eligibility for pregnant women or individuals with breast 
or cervical cancer prior to 2014 or for children prior to October 1, 
2019 without violating maintenance of effort.
    Comment: One commenter requested clarification on how hospital 
presumptive eligibility will interact with eligibility in breast and 
cervical cancer groups.

[[Page 42178]]

    Response: If a state has elected to provide presumptive eligibility 
for individuals with breast or cervical cancer under Sec.  
435.1103(c)(2), it can limit qualified entities under that section to 
providers which conduct screenings for breast and cervical cancer under 
the state's Centers for Disease Control and Prevention (CDC) breast and 
cervical cancer early detection program (BCCEDP), and if it has done 
so, the state may limit hospitals which may determine presumptive 
eligibility for individuals with breast or cervical cancer on that 
basis to hospitals that conduct screenings under the state's BCCEDP. In 
states that do not opt to provide presumptive eligibility for 
individuals with Breast or Cervical Cancer under Sec.  435.1103(c), 
states similarly may limit hospitals' ability to determine presumptive 
eligibility for individuals with breast or cervical cancer under Sec.  
435.1110 to those that conduct screenings under the state's BCCEDP.
6. Coordinated Medicaid/CHIP Open Enrollment Process (Sec.  435.1205 
and Sec.  457.370)
    We proposed to implement section 1943 of the Act and section 1413 
of the Affordable Care Act to require that Medicaid and CHIP agencies 
begin accepting the single streamlined application during the initial 
open enrollment period to ensure a coordinated transition to new 
coverage that will become available in Medicaid and through the 
Exchange in 2014. Our proposed rule seeks to ensure that no matter 
where applicants submit the single, streamlined application during the 
initial open enrollment period, they will receive an eligibility 
determination for all insurance affordability programs and be able to 
enroll in appropriate coverage for 2014, if eligible, without delay.
    Comment: Many commenters supported the proposal in Sec.  
435.1205(c)(1) that Medicaid and CHIP agencies to begin accepting the 
single streamlined application and MAGI determinations from the 
Exchange and to process MAGI eligibility starting in October 2013. 
Commenters believe this is necessary to ensure coordination with the 
Exchange, and to facilitate a seamless transition to the new coverage 
that will become available in Medicaid and through the Exchanges in 
2014. Many commenters acknowledged that the public will be hearing 
about new coverage options throughout the summer and fall of 2013, and 
expressed concern that it would result in confusion if, when people 
went to apply for coverage and were found eligible for Medicaid (or 
their children eligible for Medicaid or CHIP), they were told to return 
several months later and submit a new application.
    Response: We agree with the commenters that acceptance of the 
single streamlined application by state Medicaid and CHIP agencies 
starting in October 2013 is needed to ensure coordination with the 
Exchange, and in facilitating new coverage that will be available to 
Medicaid-eligible eligible individuals in January 2014. Therefore, we 
are finalizing the rule as proposed and confirm that individuals may 
not be required to return in January to reapply.
    Comment: Some commenters expressed concern that it is unreasonable 
to require states to comply with the prescribed time frames for 
coordinated enrollment with the Exchange in the proposed rule. They 
noted that states must make major policy, operations, and systems 
changes to implement federal requirements, which will impact agency 
eligibility staff, vendors, clients, and other stakeholders. Pending 
final and complete federal guidance, it is a significant challenge for 
states to develop policies, design efficient business processes, build 
systems and new interfaces, and effectively communicate changes to 
clients and stakeholders by the proposed federal implementation dates. 
One commenter noted that its state legacy system cannot process or 
transfer electronic accounts, which means that the proposed rule has 
effectively shortened the timeframe to implement its new eligibility 
system by 3 months. Another commenter noted that Medicaid eligibility 
systems, policies and staff are not structured to operate in a time-
limited open enrollment environment or to apply competing eligibility 
criteria concurrently, and cannot be changed to do so with only a few 
months' notice.
    Commenters recommended that Medicaid agencies not be required to 
begin accepting streamlined applications or determinations from the 
Exchange prior to January 1, 2014. Instead, during the initial open 
enrollment from October 1, 2013 to December 31, 2013, commenters 
requested that at state option, individuals may be required to apply 
separately to the Medicaid agency and to the Exchange and to have their 
eligibility determined by the corresponding agency. One state 
suggested, as an alternative, the information exchanged will be limited 
to only the Medicaid-specific information that is included in the 
single streamlined application.
    Response: We appreciate the operational challenges states face in 
preparing for implementation of the Affordable Care Act, but we believe 
that these effective dates are central to the success of open 
enrollment and we have consistently targeted the October 1 date as we 
have worked with states to finance and develop their IT systems. We 
have identified a set of seven critical success factors that states 
must meet by October 1 in an attempt to prioritize what must be 
accomplished within this timeframe. We have regularly shared these with 
states via webinars, on the CALT at https://calt.cms.gov/sf/go/doc16369?nav=1, through State Operational Technical Assistance (SOTA) 
calls and in IT gate reviews. These include the following: (1) Ability 
to accept application data, (2) MAGI rules engine in eligibility 
system, (3) MAGI Conversion, (4) Submission of state income thresholds 
and flexibilities, (5) Connection to Federally Facilitated Exchange (or 
establishment of State Based Exchange), (6) Connection to Federal Data 
Services Hub, and (7) Ability to confirm Minimum Essential Coverage.
    We recognize the efforts that states are making across a broad 
range of areas, and have released regulations, information technology 
(IT) guidance, funding opportunities, business process models and other 
tools to assist states as they design, develop, implement, and operate 
new systems. We will continue to help states fully comply with all 
relevant eligibility and enrollment changes, as well as achieve the 
necessary degree of interoperability between IT components in the 
federal and state entities that work together to provide health 
insurance coverage through Medicaid and CHIP, and Exchanges. We are 
finalizing the regulation as proposed.
    Comment: Several commenters expressed concern that, in the states 
which are relying on the FFE and will not be ready to implement the 
single, streamlined application by October 2013, there is a significant 
risk that people who apply for coverage through the FFE will be told 
that they are likely eligible for Medicaid or CHIP, and be sent away 
without any real opportunity to enroll in coverage or complete the 
application process. These commenters recommended that HHS strengthen 
this provision by setting forth a specific timeframe and set of 
procedures that states must follow to ensure that they are ready to 
implement the single, streamlined application when open enrollment 
begins in October 2013. Specifically, they recommended modifying the 
final rule to require states

[[Page 42179]]

relying on the FFE to submit information, by September 1, 2013, on 
whether they intend to: (1) accept the FFE's determinations of 
Medicaid/CHIP eligibility; or (2) to treat the FFE's finding as an 
assessment and complete the eligibility determination themselves. In 
addition, they recommend including a provision to clearly outline that 
before a state can elect the option to treat the FFE's findings as an 
assessment, the state must demonstrate that it is (or will be by 
October 2013) capable of acting upon such assessments in full 
accordance with federal law.
    Response: We have a process in place for working with states on 
implementation, including the adoption of mitigation strategies where 
necessary. We do not believe that a change in the regulations is needed 
to effectuate these strategies.
    Comment: Many commenters believe that it would be time-consuming 
and impractical to require states to evaluate all cases for eligibility 
effective in 2013, but that there is a subset of cases that states 
should be required to evaluate. Specifically, parents whose MAGI-based 
income falls very close to the state's current income eligibility 
threshold for parents should be evaluated based on 2013 eligibility 
rules. Commenters suggested HHS provide guidance to states on the 
appropriate MAGI income threshold to use for determining whether an 
individual appears to be potentially eligibility under 2013 rules and 
should be assessed for eligibility using those rules. Some commenters 
also believe that states should be required to inform people when it 
appears that their children qualify for coverage under 2013 Medicaid 
and CHIP rules because families are more likely to pursue applications 
if they believe that their children will be found eligible for 
coverage. Finally, a few commenters believed states should be given the 
option to notify a subset of applicants about the process to apply for 
coverage with an effective date in 2013 (for example, only those 
applicants who appear to be potentially eligible under 2013 rules based 
on the available information provided on the single streamlined 
application).
    Some commenters stated that they are already planning for an 
October 2013 implementation date of MAGI eligibility and requested that 
states be given this option without need for a waiver. These commenters 
recommend states have flexibility in handling applications based on 
2013 rules for assessing 2014 coverage. States should be allowed to 
request applicants submit supplemental form that includes additional 
information to make MAGI determination, or to redirect applicants to 
new application; or, states should have flexibility to process 
applications using 2013 rules and determine eligibility based on MAGI 
proxy when possible.
    Response: We recognize the challenge of appropriately evaluating 
all applications submitted during the open enrollment period under both 
the MAGI-based rules effective January 1, 2014 and under rule in effect 
in 2013. However, all applicants must have the opportunity to have 
their Medicaid eligibility assessed based on existing Medicaid rules 
for 2013 as well as for prospective enrollment effective January 2014. 
At a minimum under the regulation at Sec.  435.1205(c)(4)(ii), states 
must inform individuals who submit the single streamlined application 
during October-December 2013 that coverage may be available in 2013, 
but that a different application will need to be completed for 
consideration of such coverage, and how the individual can obtain and 
submit such application. Alternatively, under Sec.  435.1205(c)(4)(i), 
states can use the information on the single streamlined application 
submitted to make a determination of eligibility effective in 2013, 
based on 2013 rules, following up with the individual to obtain 
additional information if needed through additional questions or use of 
a supplemental form, if needed. States also can pursue a combination of 
these strategies--using the process outlined in Sec.  435.1205(c)(4)(i) 
for targeted individuals more likely to be found eligible under 2013 
rules (for example, parents and caretaker relatives with MAGI-based 
income within a threshold margin of the applicable income standard and 
individuals indicating potential disability on the single streamlined 
application), while directing those not seen as likely-eligible under 
the 2013 rules to submit a separate application in accordance Sec.  
435.1205(c)(4)(ii).
    States may wish to avoid having to operate two sets of rules for 
children, parents and caretaker relatives, pregnant women and other 
non-disabled, non-elderly adults that may be eligible for Medicaid 
enrollment during this period. To address this, we are offering states 
the opportunity to begin using the new MAGI-based methodology for these 
populations effective October 1, 2013, to coincide with the start of 
the open enrollment period. See State Health Official Letter 
13-003: Facilitating Medicaid and CHIP Enrollment and Renewal 
in 2014 at http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/SHO-13-003.pdf.
    Comment: One commenter stated that requiring post-eligibility data 
matching to ensure continued eligibility as of January 1, 2014 for 
individuals determined not eligible in October-December but eligible in 
January, creates an enormous burden during a time when new systems are 
being implemented and states will be experiencing the largest influx of 
newly eligible individuals into their system. The commenter noted this 
would create duplication of efforts when an individual who was 
determined eligible prior to January is already notified of their 
reporting requirements and states should be allowed to rely on 
recipients reporting rather than handling the same cases twice in a 3-4 
month timeframe.
    Response: Post-eligibility data matching is an option for states to 
ensure continued eligibility as of January 1, 2014 and/or through the 
first regularly-scheduled renewal. It is not required. The agency also 
has the option to schedule the first renewal for individuals who apply 
during the open enrollment period, and determined eligible effective 
January 1, 2014, to occur anytime between 12 months from the date of 
application and January 1, 2015. Consistent with Sec.  435.916, 
beneficiaries are required to report any change in circumstances that 
may impact their eligibility. In the absence of any reported change 
that could affect eligibility, no post-eligibility data matching is 
required.
    Comment: One commenter requested that CMS clarify Sec.  
435.1205(c)(3)(ii) that this state option [to schedule the first 
renewal under Sec.  435.916 to occur anytime between 12 months from the 
date of application and January 1, 2015] authorizes less than annual 
periods of coverage/eligibility before renewal in instances where 
renewal date is set before January 1, 2015.
    Response: This option does allow for less than 1 year of coverage 
for a limited time. For example, if someone applies on November 1, 
2013, and is determined eligible for coverage to begin January 1, the 
state may schedule renewal on November 1, 2014. This would result in 
less than a year of coverage. This one-time option is intended to 
provide for ease of administration in the renewal of coverage for a 
large number of individuals whose coverage begins on January 1, 2014 
and would otherwise need to be renewed at the same time.
    Comment: We sought comments in the proposed rule on which sections 
of both this rulemaking as well as the March 2012 Medicaid eligibility 
final regulation need to be effective October 1, 2013 (as opposed to 
January 1, 2014) to enable states to meet their

[[Page 42180]]

responsibilities under Sec.  435.1205 and Sec.  457.370 of this 
rulemaking. We received no comments in response to this request.
    Response: In the absence of any comments regarding this question, 
we have determined that the following provisions of the March 2012 
Medicaid eligibility final rule are effective October 1, 2013 for 
purposes of effectuating Sec.  435.1205 and Sec.  457.370 of this final 
regulation during the initial open enrollment period beginning October 
1, 2013:
     Sections 435.603, 435.911, 435.1200, 457.315, 457.330 and 
457.348;
     Amendments to Sec. Sec.  431.10, 431.11, 435.110, 435.116, 
435.119, 435.907, 435.916, 435.940-435.956, 457.340 and 457.350, and 
the redesignation of Sec.  435.911 through Sec.  435.914 as Sec.  
435.912 through Sec.  435.915.
    In addition, the following provisions of this final rule are 
effective October 1, 2013: Sec. Sec.  435.918, 435.1205, 457.370, and 
revisions to Sec. Sec.  431.10, 431.11, 431.201, 431.205, 431.206, 
431.211, 431.213, 431.230, 431.231, 431.240, 435.119, 435.603, 435.907, 
435.1200, 457.110(a)(1), 457.348, and 457.350.
    Although effective for purposes of codification in the Code of 
Federal Regulations October 1, 2013 for application during the initial 
October 1-December 31 open enrollment period, absent a waiver under 
Sec.  1115 of the Social Security Act approved by the Secretary, 
financial eligibility based on MAGI-based methodologies codified at 
Sec.  435.603 and Sec.  457.315 and eligibility for adults under Sec.  
435.119 are not effective under the Affordable Care Act until January 
1, 2014. Technical revisions to Sec.  435.119 to retain the 
applicability date of January 1, 2014, even as the effective date of 
that section is moved to October 1, 2013, are made in this rulemaking. 
No revisions to Sec.  435.603 or Sec.  457.315 are required, as those 
sections, as published in the March 2012 Medicaid final eligibility 
rule, already provide for the January 1 applicability date.
7. Children's Health Insurance Program Changes
a. CHIP Waiting Periods (Sec.  457.340, Sec.  457.350, Sec.  457.805 
and Sec.  457.810)
    We proposed revisions to existing regulations regarding prevention 
of substitution of coverage at Sec.  457.805 to limit the use of CHIP 
waiting periods to a maximum of 90 days. This policy aligns with 
section 1201 of the Affordable Care Act, which amended section 2708 of 
the Public Health Service Act to prohibit waiting periods exceeding 90 
days for health plans and health insurance issuers offering group or 
individual coverage. This standard, though not directly applicable to 
CHIP, is currently exceeded in roughly half of the states that impose 
CHIP waiting periods today. We also proposed to require several 
exemptions to waiting periods, consistent with policies that many 
states have in place today, such as for individuals working for 
employers that stopped offering coverage of dependents. We received the 
following comments on our proposed waiting period policy as described 
below.
    Comment: Many commenters urged CMS to eliminate waiting periods on 
January 1, 2014, rather than permit states to continue to impose 
waiting periods of any length of time for children. A few commenters 
encouraged CMS to retain its current policy of providing states with 
the discretion to maintain waiting periods and establish their own 
procedures to minimize displacement of private insurance, and some 
states expressed their intent to eliminate waiting periods in their 
CHIP programs in 2014. One commenter suggested that waiting periods be 
applied only to children with family incomes above 200 percent of the 
FPL. Commenters' concerns with the proposed 90-day waiting period were 
related to the administrative burden of waiting periods for state CHIP 
agencies and Exchanges, potential hindrances to streamlined and 
coordinated enrollment, disruptions in continuity of care for children 
and a lack of evidence of substitution.
    Response: While we acknowledge the commenters' concerns related to 
the continuation of waiting periods for children in 2014, we also see a 
need to permit states flexibility to determine an appropriate 
substitution prevention strategy, with a full range of options from 
monitoring to imposition of waiting periods up to 90 days. Some states 
have already eliminated their CHIP waiting periods and we encourage 
other states to consider taking this step. Nothing in this final rule 
precludes a state from doing so. States may also elect to eliminate 
waiting periods specifically for children at lower income levels and/or 
identify additional exemptions to the waiting period beyond those 
required in this rule. Therefore, to maintain states' flexibility in 
identifying substitution strategies while also limiting the period of 
time a child may not be eligible for CHIP due to a waiting period, we 
are finalizing the provisions at Sec.  457.350, Sec.  457.805 and Sec.  
457.810 as proposed to permit states to impose a waiting period of no 
more than 90 days, with certain specified exemptions. We note that this 
policy is consistent with the 90-day maximum waiting period described 
in Section 1201 of the Affordable Care Act.
    Comment: Many commenters were concerned that the proposed policy 
for a maximum 90-day waiting period would require states and Exchanges 
to set up administratively complicated processes to temporarily enroll 
children in QHPs and to receive APTCs and CSRs while awaiting CHIP 
eligibility during the waiting period. Several commenters expressed 
concerns with the administrative complexity of the interactions that 
must occur between the Exchange and the CHIP agency if a waiting period 
is in place, including the requirement at Sec.  457.350 for the CHIP 
agency to send the electronic record back to the Exchange for 
enrollment in a QHP if the child is determined not eligible for CHIP. 
These commenters also expressed concern that these potential 
complications do not align with the streamlined eligibility and 
enrollment process envisioned by the Affordable Care Act. Many 
commenters stated that requiring the change to a 90-day maximum waiting 
period policy would be administratively burdensome and costly to states 
at a time when information technology systems are already overburdened 
in preparation for significant eligibility changes in 2014. Some 
commenters highlighted that it is likely that some state systems will 
not have the capacity to track children who are locked out of CHIP 
during a waiting period and others expressed concern as to whether 
states or the Federal government have the capacity to smoothly 
implement waiting periods in the manner suggested in the proposed rule 
without a disruption in coverage for children. Some commenters also 
indicated that if waiting periods were to exist in 2014, state CHIP 
agencies would need to both track when these children would become 
eligible for CHIP and also initiate action to enroll children in the 
program.
    Response: For states that opt to apply a waiting period in 2014, we 
agree that transitioning a child from one insurance affordability 
program to another upon the conclusion of a 90-day waiting period may 
present operational challenges. States must take into consideration 
their system capabilities and weigh the perceived benefits of opting to 
have a waiting period against any additional administrative or system 
requirements needed to effectuate a seamless transition of such 
children from coverage in the Exchange and APTC to the state's CHIP at 
the conclusion of the 90-day period. We agree that CHIP agencies will 
need to track when these children become

[[Page 42181]]

eligible for CHIP as required at Sec.  457.350. In addition, we have 
further clarified at Sec.  457.340(d)(4), that without requiring new 
applications or information previously provided, CHIP agencies must 
implement processes to ensure a smooth transition for children from 
coverage through the Exchange to CHIP at the end of a waiting period, 
as well as facilitate the enrollment of otherwise CHIP-eligible 
children who have satisfied the waiting period, but who were not 
covered in the Exchange. For example, a state could automatically 
enroll a previously determined CHIP-eligible child at the end of the 
waiting period without requesting any additional information from the 
family. Another option would be for a state to suspend applications for 
all children subject to a waiting period. Once these children have 
completed the waiting period, the state would then reactivate the 
application and determine whether the child is eligible for CHIP based 
on the information previously provided on the application. There is 
nothing in the above options that precludes a state from checking data 
sources for updated information or processing a change in circumstances 
reported by the family.
    Comment: Many commenters stressed that waiting periods of any 
length could negatively impact children's access to continuous and 
coordinated health coverage. For example, commenters expressed concern 
that the proposed rule permitting CHIP-eligible children to enroll in 
qualified health plans (QHPs) in the Exchange during a waiting period, 
and subsequently enroll in CHIP at the end of a waiting period, will 
stimulate churning between QHPs and CHIP. These commenters emphasized 
that disruptions in coverage will impact the health status of children 
who are left uninsured and/or may have to change plans or providers. 
Some commenters stated that movement between plans and programs will 
inhibit the QHPs' ability to measure the quality of care provided to 
children, and makes it difficult to hold plans accountable for 
improvements in quality outcomes for children over time.
    Response: We acknowledge that the use of waiting periods may create 
delays in eligibility for CHIP and increase the likelihood of churning 
between the Exchange and CHIP, which could result in disruptions in 
coverage that could negatively impact the health status of children. 
Therefore, this final rule confirms states' ability to eliminate 
waiting periods to accommodate these concerns. In addition, the final 
rule codifies the limitation of waiting periods to a maximum of 90 
days, to be consistent with waiting periods under section 1201 of the 
Affordable Care Act. We encourage states to examine the costs and 
benefits of imposing a waiting period in the context of the Affordable 
Care Act. To make the transition from Exchange coverage to CHIP as 
smooth as possible for children, states that do choose to maintain 
waiting periods will need to meet the requirements at Sec.  457.350(i), 
including providing notification to the appropriate insurance 
affordability program (for example, the Exchange) promptly and without 
undue delay of the date on which the waiting period will end and the 
child will be eligible to enroll in CHIP. We will provide states with 
technical assistance in this area.
    Comment: Several commenters indicated that while there were initial 
concerns upon implementation of CHIP in the late 1990s that the 
incentives for substitution of public coverage for private coverage 
would be significant, states and researchers have had ample opportunity 
to examine this issue over the last 15 years. These commenters stated 
that numerous studies have shown that substitution is difficult to 
measure, there continues to be much conjecture regarding the degree to 
which substitution occurs, and that there is no evidence that 
procedures like waiting periods actually prevent substitution. These 
commenters also noted that there is evidence that uninsured children, 
including children in waiting periods, frequently forego medical 
services due to high out-of-pocket costs.
    One state reported that during an almost 15-year period, there has 
been no evidence that crowd out is a concern, including for children at 
higher income levels. The commenter reported that the percentage of 
children in families who dropped their employer sponsored coverage and 
substituted it for CHIP has been consistently below 2 percent since the 
inception of CHIP. This commenter recommended that we permit monitoring 
of crowd out at all income levels rather than continuing to require a 
substitution strategy, such as a waiting period, for higher income 
children. Another commenter stated that in their experience in 
operating CHIP, nearly all families with former employer-sponsored 
insurance meet at least one of the exemptions to waiting periods 
included in its CHIP state plan.
    Response: We recognize that there is a robust but inconclusive 
evidence base in the literature calling into question the prevalence of 
substitution. And, we are therefore, revising our existing regulations 
to provide states with flexibility to determine how best to operate 
their CHIP programs. The preamble of the existing regulation (66 FR 
2490, January 11, 2001) required that states that provide CHIP coverage 
to children at or below 200 percent of the Federal poverty level (FPL) 
must have procedures for monitoring the rate of substitution of 
coverage, between 200 and 250 percent of the FPL must monitor 
substitution and identify specific strategies to limit substitution if 
levels become unacceptable, and for coverage above 250 percent of the 
FPL states must describe how substitution is monitored and implement 
specific strategies to prevent substitution. We clarify in this final 
rule that effective January 1, 2014, monitoring of substitution is a 
sufficient approach for addressing substitution at all income levels. 
We expect that if this monitoring demonstrates a high rate of 
substitution, a state will consider strategies such as improving public 
outreach about the range of health coverage options that are available 
in that state.
    Comment: Some commenters requested that CMS provide clarity 
regarding the criteria for specific exemptions (for example, children 
with special health care needs), and suggested additional types of 
mandatory exemptions at the Federal level (for example, employees that 
have employers that have changed health plans or products). Some 
commenters noted that states have previously implemented many of the 
proposed required exemptions and that the majority of applicants 
already qualify for state-identified exemptions to the waiting period.
    Response: As noted by some commenters, many of the mandatory 
exemptions in the proposed rule have previously been instituted by 
states on a voluntary basis and have been effective. Therefore, we are 
adopting in our final rule the proposed exemptions at Sec.  457.805. In 
addition, and as discussed in the preamble of our proposed rule, we are 
adding an affordability exemption at Sec.  457.805(a)(i) for cases when 
a child's parent is determined eligible for APTC for enrollment in a 
QHP through the Exchange because the employer-sponsored insurance (ESI) 
in which the family was enrolled is determined unaffordable in 
accordance with 26 CFR 1.36B-2(c)(3)(v). We consider this exemption to 
be essential to preventing families from having to choose between 
continuing ESI that has been determined to be unaffordable for the 
parent, and thereby forgoing premium tax credits and cost-sharing 
reductions for enrollment in an QHP, or dropping the ESI and allowing 
their child to go without coverage for a period of time to

[[Page 42182]]

qualify for CHIP. We note that states continue to have the flexibility 
to provide additional exemptions beyond those specified in this final 
rule, but other than the affordability exemption at Sec.  
457.805(a)(i), there will be no additional exemptions added in this 
final rule. We note that we intend to issue further sub-regulatory 
guidance related to criteria for required waiting period exemptions.
    Comment: One commenter requested that CMS delay the effective date 
of this provision to give states adequate time to make the necessary 
changes related to its waiting period policy, such as a change in state 
law and/or budget.
    Response: This provision will be effective on January 1, 2014 
unless a change in state law is needed for a state to comply with this 
provision. Specifically, for states with annual legislative sessions, 
the effective date for the application of the 90-day maximum waiting 
period and required exemptions must be no later than the first day of 
the next fiscal year beginning after the close of the first regular 
session of the 2014 state legislature. For states that have a 2-year 
legislative session, each year of the session is considered a separate 
regular session for this purpose.
b. Limiting CHIP Premium Lock-Out Periods (Sec.  457.570)
    We proposed to define a CHIP premium lock-out as a period not 
exceeding 90 days when, at state option, a CHIP eligible child may not 
be permitted to reenroll in coverage if they have unpaid premiums or 
enrollment fees. Following a premium lock-out period, we proposed that 
the child must be permitted to enroll without regard to past due 
premiums. We proposed at Sec.  457.570 to permit states to impose 
premium lock-out periods only for families that have not paid 
outstanding premiums or enrollment fees, and only up to a 90-day 
period. We also specified that a premium lock-out period must end once 
a family has paid the premium or enrollment fee. We also invited 
comments on any alternative late payment policies to encourage families 
to make their CHIP premium payments in a timely manner to avoid gaps in 
coverage. We received the following comments concerning the proposed 
lock-out period provision.
    Comment: The majority of commenters supported the proposed rule 
requiring reasonable notice of non-payment, limiting the use of lock-
outs only for non-payment of premiums (and only as long as the non-
payment continues, and subject to a 90-day maximum), and disallowing 
states from requiring payment of outstanding premiums at the end of the 
lock-out period before re-enrollment. In particular, commenters 
strongly supported that the CHIP agency must review the family's 
circumstances (Sec.  435.570(b)) to determine if their income has 
declined, making the child eligible for Medicaid or a lower cost-
sharing category. Some commenters also strongly opposed the imposition 
of lock-out periods for any length of time for a CHIP child, and urged 
CMS to modify Sec.  457.570 to ban lock-out periods. These commenters 
indicated that lock-outs are contrary to the goals of a reformed health 
system, as well as the health of children. Some commenters stressed 
that a quarter of a year without health insurance can have a 
significant impact on a child's healthy development, a child should not 
be subject to penalties for a failure to pay by another family member, 
and the Affordable Care Act recognizes that children should connect 
with their medical home eight times in the first year of life alone. 
One commenter also stated that lock-out periods in CHIP create 
disruptions in care, burdens on families, unnecessarily increase 
administrative costs, and that the elimination of lock-out periods is 
an important consumer protection.
    A few commenters asked whether the process of premium collection 
and debt forgiveness will be aligned with the premium collection 
regulations for the Exchange.
    Response: In response to the support of our proposed rule by the 
majority of commenters, and comments received by states related to the 
need to continue to have non-payment of premium policies in place to 
manage program costs (as described below), we are adopting in our final 
rule the proposed provisions that authorized states to institute a 
maximum 90-day lock-out period for non-payment of premiums. Lock-outs 
are permitted for non-payment of premiums, but only as long as the non-
payment continues and subject to a 90-day maximum. We also want to 
clarify that requirements related to reasonable notice of nonpayment, 
and review of the family's circumstances to determine if their income 
has declined (for example, making the child eligible for Medicaid or a 
lower cost-sharing category), are existing regulatory provisions that 
we have not modified by this rulemaking.
    We appreciate the concerns expressed by some commenters with regard 
to the potential impact of any lock-out period on children, and for 
these reasons, we also adopted in the final rule the proposed 
restriction that lock-out periods may only apply to families who have 
not paid their premiums, and must end if a family pays its past due 
premium. We have also maintained the requirement that children must be 
permitted to enroll in CHIP subsequent to a 90-day lock-out period 
regardless of whether the family continues to owe past due premiums. In 
addition, we are also including requirements for non-payment of premium 
that are intended to align CHIP policies with policies applicable in 
the Exchange, to the extent possible. In CHIP and for those individuals 
with APTC in the Exchange, individuals are provided with a premium 
payment grace period, may be disenrolled for non-payment of premiums, 
and will not be required to pay past due premiums to reenroll in 
coverage. Exchange eligible individuals will have a longer grace period 
(90 days as opposed to 30 days) than CHIP, but will not be permitted to 
enroll in coverage until the next open enrollment period. Therefore, 
the amount of time an individual may have to wait before reenrollment 
in a Qualified Health Plan will vary, depending on when the premiums 
are missed in relation to the next scheduled open enrollment period, 
but will be no longer than 90 days for a child in CHIP.
    We note that neither CHIP nor the Exchange have explicit rules 
governing debt forgiveness policies. More information on the Exchange 
rules related to non-payment of premiums is available at http://www.gpo.gov/fdsys/pkg/FR-2012-03-27/pdf/2012-6125.pdf.
    Comment: A few commenters requested clarification on policies 
governing non-payment of premiums. They requested clarification on 
policies related to ``forgiving'' past due premiums and enrollment 
fees, as well as whether a state can continue to try to obtain the 
outstanding premium amount without affecting eligibility. One commenter 
indicated that funds should be recoverable using a debt collection 
process. The same commenter also asked how many cycles of premium 
forgiveness would be allowed for an individual. Another commenter asked 
CMS to generally clarify what steps states and health plans would be 
permitted to take in situations in which a CHIP enrollee re-enrolls 
after a lock-out period and again does not pay premiums.
    Response: We believe that disenrolling a child from coverage and 
potentially requiring a child to go without coverage up to 90 days 
(assuming the family has not paid the premium or enrollment fee), is a 
significant deterrence to prevent a family from establishing a pattern 
of non-payment of premiums and re-enrollment. Therefore, this rule does 
not place a limit/cap on the number of times

[[Page 42183]]

an individual may be re-enrolled after non-payment of their premiums. 
Nothing in this rule precludes a state from electing to establish 
policies for collecting debt from families that have not made their 
premium payments. Nor does this rule preclude states and health plans 
from offering incentives to encourage timely payment of premiums.
    Comment: Some commenters recommended that states only be permitted 
to terminate coverage during a continuous eligibility period for 
failure to pay premiums as proposed at Sec.  457.342(b) after complying 
with the disenrollment protections at Sec.  457.570. Several commenters 
stressed that the proposed rule should be strengthened to capture the 
intent noted in the preamble that ``prohibiting a child from enrollment 
after the family pays the unpaid premium or enrollment fee is counter 
to promoting enrollment in and continual coverage.'' Some commenters 
also recommended that the final rule specify that if a family pays its 
outstanding premium between the end of their payment grace period and 
before the end of the lock-out period, the child be reinstated back to 
the effective end date with no gap in coverage and no loss of 12-month 
continuous eligibility (if applicable).
    Response: We agree that coverage terminations occurring during a 
continuous eligibility period for failure to pay premiums can be 
implemented only after complying with the disenrollment protections at 
Sec.  457.570, and we have modified Sec.  457.342(b) to clarify this 
requirement. In addition to the preamble language describing that 
families that pay their premiums or enrollment fees prior to the end of 
a lock-out period must be re-enrolled in CHIP, we have also specified 
this requirement at Sec.  457.570(c)(2) under this final rule. Section 
2103(e)(3) of the Act describes a statutory premium grace period during 
which CHIP enrollees may pay their monthly premiums before being 
disenrolled. This provision requires States to grant individuals 
enrolled in separate child health programs a 30-day grace period, from 
the beginning of a new coverage period, to pay any required premium 
before enrollment may be terminated. The new coverage period begins the 
month following the last period for which a premium was paid. Aside 
from these requirements, states have, and will continue to have, 
flexibility to determine when coverage can be reinstated. As specified 
in our proposed rule at Sec.  457.342(b), continuous eligibility may be 
terminated for failure to pay required premiums or enrollment fees.
    Comment: Some commenters expressed concerns for potential 
unintended consequences of the proposed policies. One commenter stated 
that the proposed rule creates an incentive for individuals who are 
otherwise able to pay their premium to cycle through CHIP eligibility 
every other three month period and encourages gaps in access to medical 
services for children, who may subsequently present to the CHIP with 
higher acuity levels and higher cost needs. The commenter also stated 
that the proposed rule increases costs for states and the federal 
government, and diminishes health outcomes for children. The commenter 
encouraged CMS to continue to require member accountability in the CHIP 
program by allowing the collection of outstanding premiums in the 
presence of a 90-day grace period. Another commenter objected to the 
proposed rule to limit lock-out periods to 90 days and allow an 
individual to re-enroll upon payment of past due premiums, regardless 
of whether the lock-out period has expired. The commenter stated that 
this approach creates adverse selection, in that families may stop 
paying their premium when they may not have immediate health care 
needs, and then again pay their premiums only when they are in need of 
health care. Additionally, this commenter stated individuals should be 
required to pay any past due premiums as a condition of retaining 
eligibility for CHIP, even after a lock-out period has been satisfied. 
This commenter also stated that the proposed rule discards the plain 
statutory authority of title XXI that delegates this policy to states. 
Another commenter noted that CHIP is a ``stepping stone'' between 
Medicaid and employer-sponsored insurance or Exchange coverage, and 
that premiums in its current CHIP are minimal in comparison to 
employer-based coverage and private coverage. The commenter requested 
that premiums not be waived in states with requirement to repay 
outstanding premiums and no lock-out period. The commenter stated that 
waiving premiums does not promote responsibility, intrinsic value, or 
the effective management of program costs for states.
    Response: The goal of allowing coverage for families that make 
current payments must be balanced with the concern that families will 
game the system to try to obtain coverage without paying premiums. We 
agree that there may be situations where families either elect, or are 
unable to pay their premiums multiple times during a given year. 
However, we are not aware of any evidence that these situations 
represent a significant number of cases. And, as stated in our response 
to the comment above, as long as states adhere to regulations at Sec.  
457.570, nothing in this rule precludes a state from continuing to 
establish policies for collecting debt from families that have not made 
their premium payments. We also encourage states to continue 
implementing approaches for simplifying premium payment arrangements 
and coping with administrative concerns families may have, and we 
continue to encourage states in this area to minimize the number of 
families that are disenrolled for non-payment of premiums.
    Comment: One commenter stated that if CHIP lock-out periods are 
allowed in 2014, CMS should prohibit states that use this option from 
requiring children subject to a lock-out period to reapply for coverage 
and that a child returning to coverage following a lock-out period 
should be handled in the same manner as a renewal. The commenter 
believes that because such children were eligible for CHIP apart from 
non-payment of premiums or enrollment fees, the state agency should be 
able to reassess eligibility based on available electronic data sources 
and families should only be asked for additional information if what 
has already been provided and currently available electronic data are 
not sufficient to establish eligibility.
    Response: While we encourage states to consider the potential 
administrative cost savings and reduced burden on families that could 
result from assigning a pending eligibility status to a child for non-
payment of premiums rather than requiring a new application, we will 
continue to permit states to have the flexibility to make this 
decision.
    Comment: One commenter requested clarification on whether a child 
can receive APTC or CSR during a premium lock-out period.
    Response: We anticipate that this issue will be addressed in 
further guidance from the Department of Treasury.
    Comment: The preamble to our proposed rule specified that a state 
may not require the collection of past due premiums or enrollment fees 
as a condition of eligibility for reenrollment once the lock-out period 
has expired, regardless of the length of the lock-out period. One 
commenter recommended that this policy also be specified in Sec.  
457.570(c)(2).
    Response: Section 457.570(c)(2) clearly specifies that ``a state 
may not require the collection of past due premiums or enrollment fees 
as a condition of eligibility for reenrollment

[[Page 42184]]

once the State-defined lock out period has expired, regardless of the 
length of the lock-out period.'' We have not made any modifications to 
this section.
    Comment: Some commenters indicated that providing multiple ways to 
pay premiums and sending multiple, non-threatening payment due 
reminders are helpful in encouraging payment. These commenters 
suggested that CMS consider future sub-regulatory guidance to states to 
promote best practices in premium payments.
    Response: Most CHIPs report efforts to facilitate payment of 
premiums and enrollment fees, easing the process for families, and the 
majority of states also send multiple payment due reminders and allow a 
variety of payment methods (such as allowing families to make payments 
at multiple locations). We will consider issuing further sub-regulatory 
guidance in this area.
8. Premium Assistance (Sec.  435.1015)
    We proposed to codify the last sentence of section 1905(a) of the 
Act that authorizes payment of ``other insurance premiums for medical 
or any other type of remedial care or the cost thereof'' to support 
enrollment of individuals eligible for Medicaid in plans in the 
individual market, including enrollment in QHPs doing business on the 
Exchange. Premium assistance is one mechanism for facilitating the 
coordinated system of coverage between Medicaid, CHIP, and the Exchange 
in 2014. It provides an option for states to assist families who wish 
to enroll in the same health plan when some family members are eligible 
for either Medicaid or CHIP while other family members obtain coverage 
in the Exchange with advance payments of the premium tax credit, and it 
can provide a way to minimize the extent to which individuals have to 
change plans when their circumstances change such that their 
eligibility for an affordable health insurance plan changes. The 
proposed rule reflected longstanding statutory provisions in light of 
the new coverage options available in 2014. We received the following 
comments to proposed premium assistance provisions:
    Comment: Many commenters were supportive of states' ability to use 
premium assistance authority to purchase private insurance coverage for 
health plans in the individual market, including QHPs doing business on 
the Exchange. At the same time, however, they emphasized the importance 
of ensuring that Medicaid and CHIP-eligible individuals receive the 
full scope of services to which they are guaranteed in Medicaid and 
CHIP, such as the full range of pediatric services provided in Medicaid 
and CHIP. Commenters urged CMS to take steps to ensure that states 
provide families and individuals with all of the information they need 
regarding the benefits to which they are entitled. They noted that the 
information states track to ensure cost-effectiveness should also be 
used to assess whether children and adults are receiving the full 
package of Medicaid or CHIP services. One commenter suggested that 
states should be required to ensure that beneficiaries experience a 
seamless enrollment process and that they have a single insurance card 
and point of contact for all benefits.
    Response: Under all premium assistance arrangements, Medicaid and 
CHIP-eligible individuals remain Medicaid or CHIP beneficiaries and 
continue to be entitled to all Medicaid/CHIP benefits and cost sharing 
protections. Thus, we require at Sec.  435.1015(a)(2) and (a)(3) that 
the state agency furnish all benefits covered under the state plan that 
are not available through the individual health plan and also that the 
individual does not incur any cost sharing in excess of that allowed in 
Medicaid. We expect states to have mechanisms in place to ensure that 
beneficiaries understand their available choices of either direct state 
plan coverage or coverage through premium assistance for an individual 
health plan, including a QHP in the Exchange, under the premium 
assistance option, as well as how to access any additional benefits or 
cost sharing assistance. Therefore, we have revised Sec.  435.1015(b) 
to include provisions requiring informed choice and information on the 
process for accessing additional benefits and help with cost sharing, 
if the individual elects to receive coverage through the premium 
assistance option. We do not believe, however, that it is appropriate 
to direct through rulemaking the specific procedures states must employ 
to provide any necessary ``wraparound'' benefits or cost sharing; under 
the state plan option, states have the flexibility to determine how 
best to meet these cost sharing and benefit responsibilities. We have 
also clarified in Sec.  435.1015(b) that states must require that 
individuals who have elected to receive premium assistance must obtain 
covered items and services through the individual health plan to the 
extent that the insurer is contractually or otherwise responsible to 
pay for such benefits.
    Comment: Some commenters expressed specific concerns about cost 
sharing policies and urged CMS to consider putting additional 
beneficiary protections in place specific to premium assistance to 
ensure that people understand the cost sharing differences between 
Medicaid and CHIP and QHPs. They recommended that we create 
requirements for coordination between Medicaid and the QHP issuer to 
ensure that people do not exceed permissible cost sharing and asked CMS 
to provide guidance on how to monitor cost sharing.
    Response: We expect states to have mechanisms in place to provide 
benefits that wrap around health plan coverage to the extent that the 
health plan offers fewer benefits, or has greater cost sharing 
requirements than in Medicaid or CHIP. These mechanisms will need to be 
coordinated with the health plan to successfully implement a premium 
assistance program. As noted above, we are requiring at Sec.  
435.1015(b) that states inform individuals how to access additional 
benefits not provided by the insurer, and also inform individuals how 
to receive cost sharing assistance. We are not proposing any specific 
requirements about the way in which such coordination can be 
effectuated, however, because we believe that states should have 
flexibility to develop effective coordination procedures consistent 
with state systems and procedures, including variation in state health 
care delivery systems.
    Comment: Many commenters requested clarification of the cost-
effectiveness test for premium assistance. They stressed the importance 
of a strong cost-effectiveness test to ensure that taxpayer dollars are 
spent wisely and also that beneficiaries do not lose important benefits 
and cost sharing protections. They were concerned that the proposed 
rule could be interpreted to include only the cost of premiums to 
purchase coverage and not to include in the test the costs associated 
with paying copayments, deductibles, and other cost sharing 
requirements. They believe that this should be clarified in the final 
rule to explicitly include cost sharing. Other commenters stated that 
this cost-effective analysis should be performed on an annual basis to 
ensure that the premium assistance program remains cost-effective even 
if Medicaid and the individual market experience different rates of 
cost growth.
    Response: Consistent with our approach to cost-effectiveness in all 
premium assistance authorities, we intend for states to consider the 
cost sharing requirements of the private health plan (and therefore the 
cost of providing the cost sharing protections) when determining 
whether premium assistance is a cost-effective option, and we agree 
that this should be clarified. Therefore, we are revising Sec.  
435.1015(a)(4) accordingly. States

[[Page 42185]]

implementing premium assistance must describe their cost-effectiveness 
methodology, and to the extent that such a methodology relies on annual 
per person costs, we would expect states to be re-running the analysis 
at least annually, as new cost data is available.
    Comment: Many commenters requested additional detail on how the 
option would be operationalized by state Medicaid agencies, Exchanges, 
and QHPs. One noted that successful premium assistance programs require 
robust data sharing, data mining, automated calculations using cost-
effective algorithms, and strong relationships with private insurers. 
Some commenters requested that CMS provide states with a template or 
other tools to simplify the implementation of premium assistance.
    Response: We will continue to provide technical assistance to 
states on the operational aspects of pursuing this premium assistance 
approach, relying on the experience states have had over the years 
implementing premium assistance.
    Comment: Some commenters stated that families should have the 
choice of either premium assistance or direct Medicaid state plan 
coverage, even when premium assistance is cost-effective for the state, 
and they supported the proposed rule's provision that states may not 
require enrollment in premium assistance as a condition of Medicaid 
eligibility. Other commenters requested that CMS remove the voluntary 
participation requirement either entirely, or if this requirement is 
retained, they asked that states be allowed to make participation in 
premium assistance mandatory for certain Medicaid enrollees, such as 
adults up to 138 percent of the FPL who would be part of the state's 
Medicaid expansion population, or for pregnant women with incomes above 
133 percent of the FPL.
    Response: Consistent with the statute, we are retaining the 
provision at Sec.  435.1015(b) that states may not require a Medicaid-
eligible individual, as a condition of receiving Medicaid benefits, to 
enroll in a health plan in the individual market through a premium 
assistance arrangement. Enrollment in individual market coverage is not 
a statutory condition for eligibility. We are also clarifying in Sec.  
435.1015(b) that states must require that individuals who have elected 
to receive premium assistance must obtain covered items and services 
through the individual health plan to the extent that the insurer is 
contractually or otherwise responsible to pay for such benefits. This 
is consistent with the provision in section 1902(a)(17) of the Act 
that, in determining the amount of medical assistance, states may 
consider available resources, and the provision in section 1902(a)(25) 
of the Act that requires that states ensure that liable third parties 
pay primary to Medicaid. We address the issue of requiring enrollment 
in premium assistance for certain populations in the last response in 
this section.
    Comment: Several commenters expressed concern that permitting state 
Medicaid programs to establish premium assistance programs could affect 
premiums in the Exchange. Some commenters recommended that CMS revise 
the proposed Sec.  435.1015(a)(4) to require that premium assistance 
not increase federal costs and not increase premiums in the individual 
market.
    Response: Medicaid beneficiaries enrolled in a QHP would be 
included in the individual market single risk pool of the health 
insurance issuer of the plan in which they are enrolled, just as any 
other individual obtaining coverage through such plans. Sec.  
435.1015(a)(4) requires the cost of premium assistance to be 
``comparable'' to the cost of providing direct coverage under the state 
plan. We do not use a more restrictive word to allow flexibility 
because the amount, duration, and scope of the QHP coverage, or the 
nature of the QHP service delivery system, might be different from 
direct coverage under the state plan.
    Comment: Some commenters stated that CMS must take additional steps 
to ensure that states do not steer family members of Medicaid-eligible 
individuals into less expensive plans to accommodate a premium 
assistance model and also to ensure that any enrollees who will be 
using premium tax credits have sufficient choice in QHPs. The 
commenters stated that regulations should require states to remain 
impartial in providing all available information on all QHPs so the 
family can choose the best plan or plans for the entire family, and 
also that Navigators, application assisters, and application counselors 
must be trained on the premium assistance program and provide impartial 
assistance to families.
    Response: As noted above (and at Sec.  435.1015(b)), when a state 
implements the state plan premium assistance option, the beneficiary's 
participation must be voluntary. We also expect states to ensure that 
application assisters and certified application counselors comply with 
the requirements in Sec.  435.908 of this part and Sec.  457.340 under 
subpart C of part 457, which include requirements that they be 
effectively trained in the eligibility and benefits rules and 
regulations governing enrollment in a QHP through the Exchange and all 
insurance affordability programs operated in the state. In addition, 
the Exchange regulations at 45 CFR 155.210 require that Exchange 
Navigators provide impartial information and assistance. A Medicaid or 
CHIP enrollee who is receiving benefits in whole or in part through a 
premium assistance arrangement with a QHP will not be eligible for a 
premium tax credit under section 36B of the Internal Revenue Code 
because such credits are not available to individuals who, for the 
coverage month, are eligible for minimum essential coverage through 
Medicaid or CHIP.
    Comment: A few commenters questioned whether section 1905(a)(29) of 
the Act creates the authority for premium assistance in the individual 
market. Many commenters recommended that CMS eliminate the proposed 
policy to allow premium assistance for plans in the individual market, 
or otherwise tightly circumscribe it, citing cost concerns, as well as 
concerns about the operational complexity and potential consumer 
confusion for consumers created by the ``wrap'' requirement.
    Response: As we stated in the preamble of the proposed rule (78 FR 
4624 and 4625), in section 1905(a)(29) of the Act, ``medical 
assistance'' is defined to include payment of part or all of the cost 
of ``other insurance premiums for medical or any other type of remedial 
care or the cost thereof.'' We have interpreted this provision to 
permit payment of FFP for premiums for health plans for Medicaid-
eligible individuals, provided the state determines it cost-effective 
to do so. CMS has approved state premium assistance programs under this 
authority prior to the enactment of the Affordable Care Act. The 
Affordable Care Act provided for new rules regulating the operation of 
the individual and small group insurance markets, and expanded access 
to insurance coverage through QHPs participating in the Exchange. This 
results in new opportunities for states to deliver Medicaid coverage 
through the purchase of private health insurance in the individual 
market. Our goal is to work with states to ensure that their premium 
assistance approaches result in a cost-effective, seamless, and 
coordinated system of health care for beneficiaries.
    Comment: Several commenters recommended delaying implementation of 
premium assistance until rates are determined for QHPs in the Exchange, 
and the individual market has settled from the changes it will 
experience in

[[Page 42186]]

2014, and states have experience implementing the Medicaid expansion.
    Response: As we noted above, premium assistance is an option 
available under current law. Some states have already expressed 
interest in using the premium assistance model to deliver benefits to 
their Medicaid expansion beneficiaries through QHPs doing business on 
the Exchange. In addition, beginning in 2014, some low-income children 
will be covered by Medicaid or CHIP while their parents obtain coverage 
in the Exchange with advance payments of the premium tax credit, and 
premium assistance provides an opportunity for state Medicaid and CHIP 
programs to offer coverage to such families through the same plan, even 
if supported by different payers. It also provides opportunities for 
continuity of care by increasing the likelihood that individuals could 
remain in the same health plan when moving back and forth between 
Medicaid and Exchange coverage due to fluctuations in income or other 
changes in circumstances. We are not establishing new authority but 
rather ensuring that the existing authority reflects the new coverage 
options in the individual and small group markets established by the 
Affordable Care Act.
    Comment: Many commenters supported the retention of the proposed 
regulation text that makes FFP available for payment of health plan 
premiums for ``individuals'' eligible for Medicaid. They believe that 
this language supports the enrollment of Medicaid-eligible individuals 
in individual market plans, including plans offering family coverage, 
while not incorporating limiting definitions of ``family'' that would 
unnecessarily limit the benefits of the rule to individuals in families 
that do not comprise a taxpayer household. One commenter asked for CMS 
to clarify the meaning of ``family'' as used in the premium assistance 
section of the preamble of the proposed rule. The commenter also 
questioned whether this option is limited to Medicaid and CHIP-eligible 
individuals who have family members enrolled in an individual health 
plan, and if so, asked if we proposed to limit this option to members 
of the same tax household, MAGI assistance group, or to immediate 
family members.
    Response: We have not proposed a definition of ``family'' that is 
unique to premium assistance. Regulations at Sec.  435.603 of this part 
(and at Sec.  457.301 and Sec.  457.315 under subpart C of part 457 for 
CHIP) contain definitions and requirements related to family size, 
household, and MAGI-based income for the purposes of Medicaid and CHIP 
eligibility determinations.
    The premium assistance option permits Medicaid or CHIP funds to be 
used to deliver coverage to Medicaid or CHIP-eligible individuals 
through the purchase of private health insurance, and it is not limited 
to Medicaid or CHIP-eligible individuals who have family members 
enrolled in a QHP. In some cases, the Medicaid or CHIP beneficiary 
could be enrolled in a health plan that provides individual coverage 
only, while in other situations, the Medicaid or CHIP beneficiary would 
be enrolled in a health plan that provides family coverage, depending 
on the categories of family coverage offered in the Exchange.
    Comment: Some commenters, who were in favor of the continued 
authorization of premium assistance programs, stated that states should 
be allowed to determine how to make the concept work and urged CMS to 
allow complete state flexibility in designing and implementing benefit 
structures and cost sharing requirements.
    Response: Individuals receiving coverage through premium assistance 
are Medicaid beneficiaries and are entitled to the full range of 
protections, including benefits and cost sharing, available under the 
law. States have flexibility under the state plan option to design how 
they will effectuate the coverage that is required while meeting 
applicable statutory and regulatory requirements. To the extent a state 
needs additional flexibility, the state may wish to explore 
demonstration options under section 1115 of the Act.
    Comment: Several commenters recommended that premium assistance 
programs might require, or best be operated under, a Medicaid section 
1115 demonstration.
    Response: States have the flexibility to adopt premium assistance 
as an option under the state plan if it is voluntary for beneficiaries 
and adheres to all applicable statutory and regulatory provisions. 
Enrollment in individual market coverage is not a statutory condition 
of eligibility. Some states have expressed interest in submitting 
proposals for section 1115 demonstrations to require enrollment in 
premium assistance and to allow for consideration of a broader range of 
factors when cost-effectiveness is assessed. In response to these 
inquiries, we will consider approving a limited number of premium 
assistance demonstrations that are determined to further the objectives 
of the Medicaid program and which will test these new arrangements and 
inform policy. For states that implement premium assistance through a 
section 1115 demonstration, which could include mandatory enrollment 
into premium assistance, we will only consider demonstrations under 
which states make arrangements with the health plan to provide 
wraparound benefits and cost sharing assistance. For further 
information on the section 1115 option, including guidelines for 
proposals, please refer to Premium Assistance Frequently Asked 
Questions (FAQs) that CMS issued on March 29, 2013, available at http://medicaid.gov/State-Resource-Center/FAQ-Medicaid-and-CHIP-Affordable-Care-Act-ACA-Implementation/Downloads/FAQ-03-29-13-Premium-Assistance.pdf
9. Changes to Modified Adjusted Gross Income and MAGI Screen
    We proposed to implement sections 1902(e)(14) and 1943 of the Act, 
and section 1413 of the Affordable Care Act as they pertain to the 
definition of ``modified adjusted gross income'' (MAGI) and ``household 
income'' in section 36B(d)(2) of the Internal Revenue Code of 1986 
(``36B definitions''). We also proposed a modification to previously 
issued regulations implementing section 1902(e)(14)(I) of the Act. The 
proposed rule applied the 5 percent disregard established by the Act 
for purposes of determining the income eligibility of an individual for 
medical assistance whose eligibility is determined based on MAGI, 
provided the determination was for the eligibility group with the 
highest income standard under which the individual could be determined 
eligible using MAGI-based methodologies. The proposed changes are 
discussed in more detail in the January 22, 2013 Medicaid Eligibility 
proposed rule (78 FR 4625 through 4627). We received the following 
comments concerning the proposed changes to MAGI provisions:
    Comment: Some commenters supported the proposal to apply the 5 
percent disregard only to the highest income threshold under a MAGI-
group available for the individual and the related impact on the number 
of individuals for whom states will be able to claim the ``newly 
eligible'' enhanced match rate.
    Response: The Affordable Care Act established a 5 percentage point 
of the FPL disregard ``for the purposes of determining income 
eligibility'' for individuals whose eligibility is based on MAGI. The 
objective of the proposal is to balance giving beneficiaries the 
benefit of the disregard for eligibility purposes, with the intent to 
give states the opportunity to claim enhanced match for all newly 
eligible individuals

[[Page 42187]]

if the state chooses to extend coverage to the new adult group. We 
propose doing so by ensuring that the disregard is applied to the 
income calculation of individuals for whom the disregard matters for a 
determination of eligibility for Medicaid under MAGI-based rules--that 
is, those for whom the application of the disregard means the 
difference between being eligible for Medicaid and being ineligible. 
These individuals are those whose income is within 5 FPL percentage 
points of the highest net income standard for which they can obtain 
Medicaid eligibility under MAGI-based income rules. The disregard would 
not be applied for a determination of eligibility for a particular 
eligibility group, but rather for eligibility for Medicaid.
    Comment: One commenter questioned whether the proposed policy is 
consistent with federal law, which the commenter views as entitling all 
applicants to the 5 percent disregard. The commenter stated that our 
proposed policy could affect beneficiaries' cost sharing or benefits 
because it could result in a change in their eligibility groups. Some 
commenters noted that, for example, some parents could receive ABP 
coverage instead of the traditional Medicaid benefit package. The 
commenters noted, however, that this concern should be minimal since 
newly eligible adults who are medically frail and likely to need 
additional services covered under the regular Medicaid benefit package 
would have a choice of benefit package, between what is offered through 
an ABP that is based on section 1937 requirements, inclusive of EHB's, 
and ABP coverage that is not subject to section 1937 requirements, and 
includes the services approved in the state's Medicaid plan. Other 
commenters cited concerns about pregnant women and categories that 
offer only limited pregnancy-related services.
    Response: The proposal to apply the 5 percent disregard to 
determine Medicaid eligibility rather than eligibility for a particular 
category is consistent with section 1902(e)(14)(I) of the Act. It is 
not necessarily the case that not applying the 5 percent disregard for 
purposes of determining eligibility category would result in moving 
individuals into a different eligibility group with different benefit 
and possibly cost-sharing rules because if the 5 percent disregard were 
applied as a general disregard, states would set income eligibility 
standards at levels that would compensate for that impact. For example, 
if the 5 percent disregard was applied generally, states might set the 
income eligibility standard for parents at a level 5 percent less than 
they would otherwise. Moreover, any adverse impact of a shift of 
beneficiaries from the parent group to the new adult group with 
coverage through an ABP will be minimized by the medically frail 
exception to benchmark coverage limitations. For pregnant women with 
income at the border between full benefits and pregnancy-related 
benefits, although the absence of the disregard may result in a 
pregnancy-related benefit package instead of full benefits, our March 
2012 rule revised Sec.  435.116(d)(3) to clarify that a State's 
coverage of pregnancy-related services must be consistent with Sec.  
440.210(a)(2) and Sec.  440.250(p), which allows States to provide 
additional services related to pregnancy to pregnant women (see 77 FR 
17149).
    Comment: Several commenters recommended that CMS not revise the 
MAGI disregard rules. They raised concerns that there is too little 
time for states to make the systems and business process updates 
required to comply with the October 1, 2013 open enrollment period. 
They noted that the proposed rule requires more complex programming 
compared to simply adding 5 percent to all MAGI-based categories and 
that this policy could impact a state's ability to implement the MAGI 
requirements timely. In addition, they noted that although the 90/10 
matching funds are available to make such systems-related changes, 
states must still finance 10 percent of the cost of these changes 
despite experiencing severe budgetary issues.
    Response: We understand that many states relied upon the March 2012 
final eligibility rule when planning their eligibility system builds 
for 2014. We appreciate that it may be difficult at this point in time 
to make programming changes for eligibility systems and have those 
changes take effect by January 1, 2014. In light of this challenge, we 
are finalizing our proposal, but we will not take any compliance 
actions for states whose systems cannot accommodate this eligibility 
determination requirement. We will approve eligibility determination 
systems even if as of January 1, 2014, the system applies the 5 percent 
disregard across the board to all individuals whose eligibility is 
determined using MAGI-based rules, based on a state's assurance that by 
January 1, 2015 the state will update the system to apply the disregard 
only for a determination of eligibility for Medicaid under MAGI-based 
rules.
    Comment: Some commenters requested that states that are not 
expanding to cover the new adult group--and thus not claiming enhanced 
FMAP--should have the option to use the new calculation and continue to 
apply the 5 percent across- the-board disregard. Others requested that 
all states be given the option to apply the 5 percent disregard only to 
the highest income threshold under MAGI as proposed in our proposed 
rule.
    Response: We believe that applying the 5 percent FPL disregard to 
determine eligibility based on overall eligibility rather than 
eligibility group is the best interpretation of section 1902(e)(14)(I) 
of the Act. Therefore, we are adopting our proposed policy as final, 
subject to the flexibility in implementation schedules discussed above.
    Comment: One commenter asked whether the 5 percent MAGI income 
disregard would be applicable to only eligibility for the coverage 
group or whether it would also be applicable to cost-sharing or premium 
determinations --within the coverage group.
    Response: Under this final rule, the 5 percent disregard under 
section 1902(e)(14)(I) of the Act applies to income determinations 
relative to Medicaid eligibility. It does not apply to determine into 
which eligibility group an individual should be placed. Nor is it 
intended to be applied to determine income for premium or cost-sharing 
payments.
    Comment: One commenter requested clarification about whether, in a 
state that implements the eligibility expansion under section 2001 of 
the Affordable Care Act (that is, adopts the adult group), the state 
would need to apply the 5 percent disregard to a parent or caretaker 
relative age 65 or older that was not eligible for the expansion group.
    Response: The 5 percent disregard is not applied based on an 
eligibility group, but based on whether the disregard would affect 
MAGI-based income eligibility for Medicaid as stated above. In the case 
of a parent or caretaker relative age 65 or older, the 5 percent 
disregard would be applied in determining MAGI-based income if the 
individual would otherwise be ineligible based on income. For example, 
if the parent/caretaker eligibility standard in a state was 80 percent 
of FPL and the individual's income before application of the disregard 
put them over the 80 percent standard, the 5 percent disregard would be 
applied and the individual would be eligible if the disregard brought 
their countable income below 80 percent of the FPL.
    Comment: Another commenter asked for clarification of whether the 5 
percent is only applied when an individual would not be eligible in 
another group

[[Page 42188]]

or if it would apply to all individuals being determined for 
eligibility in the group. The commenter specifically asked about 
whether the 5 percent disregard would be applied to keep family 
coverage in the Transitional Medical Assistance (TMA) group.
    Response: TMA is beyond the scope of this rulemaking. TMA will be 
addressed in future guidance.
    Comment: Several commenters questioned whether applying the 5 
percent disregard to the MAGI income standards equivalent being 
produced through the process generally referred to as `MAGI conversion' 
creates a double counting of the disregard. Other commenters asked 
whether states are being required to expand their income levels for 
pregnant women and children by 5 percent due to application of the 
disregard.
    Response: We considered carefully the requirements in section 
1902(e)(14)(A) of the Act in our December 2012 guidance to states on 
the establishment of converted MAGI-based income standards equivalent 
to levels used at the enactment of the Affordable Care Act (``MAGI 
conversion''). See http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO12003.pdf. Under this guidance, converted MAGI-based 
income standards are set without regard to the 5 percent disregard, 
since the MAGI income conversion requirements in section 1902(e)(14)(A) 
of the Act are independent of the 5 percent disregard at section 
1902(e)(14)(I) of the Act. MAGI-equivalent income standards are 
established taking into account disregards that are currently in effect 
but which will no longer be in effect under MAGI. As a result, there is 
no double-counting of the 5 percent disregard. The 5 percent disregard 
would apply once when calculating an individual's MAGI-based income if 
the individual would otherwise be ineligible.
    Comment: Several commenters requested clarification regarding how 
the 5 percent disregard under MAGI applies to applicants under a 
separate CHIP program. Similarly, commenters asked how the 5 percent 
disregard is applied to individuals at the boundary between Medicaid 
and CHIP eligibility.
    Response: The 5 percent disregard should be applied to individuals 
who may be eligible for the highest income standard under the 
applicable Title of the Act (for example, Title XIX or Title XXI) for 
which the individual may be determined eligible using MAGI-based 
methodologies. Therefore, in states that have separate CHIP programs, 
the income disregard should be applied both for the highest Title XIX 
eligibility group available to the child, as well as to the separate 
CHIP program to cover similarly situated children at a higher income 
standard. The result would be that children with a MAGI in the 5 
percent band above the Medicaid income standard at issue would be 
determined eligible for Medicaid. To clarify, we are modifying the 
language in the final rule at Sec.  435.603(d)(4) to specify that the 5 
percent disregard should be applied to the highest income standard in 
the applicable Title of the Act under which the individual may be 
determined eligible using MAGI-based methodologies. We do not believe 
this will impact the children for whom the state can claim enhanced 
match, because the state can claim enhanced match for any child whose 
income is greater than the upper income threshold under Medicaid on 
March 31, 1997, whether that child is covered under Title XIX or Title 
XXI.
    Comment: One commenter asked whether there is any reason it would 
not be permissible for a state to program its eligibility system to 
build in the 5 percent disregard and effectively set the income limit 
at 5 percent higher than the state's established limit for MAGI related 
eligibility groups.
    Response: Because the disregard is applied at the individual level, 
increasing the eligibility income standard for a group would not be the 
best way to program an eligibility system. Furthermore, doing so would 
be inconsistent with the statutory purpose of developing a uniform 
income determination methodology applicable in all states, which could 
be applied by the Exchange as well as the State Medicaid or CHIP 
agency. Therefore, this would not be permissible. Instead if the 
eligibility system cascades sequentially through possible eligibility 
options, it should apply the 5 percent as one last eligibility step, 
only when the system has returned a determination of ineligibility 
because the individual is over scale for income.
10. Single State Agency--Delegation of Eligibility Determinations to 
Exchanges (Sec.  431.10 and Sec.  431.11)
    We proposed to revert to the policy proposed in the Medicaid 
eligibility proposed rule published on August 17, 2011 (76 FR 51148), 
that single state Medicaid agencies will be limited to delegating 
eligibility determinations to Exchanges that are government agencies 
maintaining personnel standards on a merit basis. We retained many of 
the provisions strengthening the control and oversight responsibilities 
of the single state agency including the authority to issue policies, 
rules and regulations on program matters and to exercise discretion in 
the administration or supervision of the plan. We also proposed to make 
changes to Sec.  431.11 regarding state organization. We received the 
following comments concerning the proposed changes to the single state 
agency provisions:
    Comment: The majority of commenters strongly support the decision 
to revert to the policy originally proposed in the August 2011 Medicaid 
eligibility rule that delegation of the authority to determine 
eligibility for Medicaid is limited to Exchanges that are government 
agencies maintaining personnel standards on a merit basis. One state 
specifically commented that it supports this change as it allows states 
to maintain program integrity. Several other commenters noted that this 
construct has been a consistent legal interpretation for many decades. 
Other commenters noted that many state Medicaid employees are trained 
social workers who have the knowledge and experience to help our 
country's most vulnerable citizens, ensuring consistency and 
accessibility to benefits.
    Response: We appreciate commenters support for our proposed policy, 
and therefore, we are adopting in this final rule the policy that 
delegation of the authority to determine eligibility for Medicaid is 
limited to Exchanges that are government agencies maintaining personnel 
standards on a merit basis. This is the policy that we originally 
proposed in our August 2011 proposed rule and that was re-proposed in 
the January 2013 proposed rule. We believe that under the best read of 
the statute, determining Medicaid eligibility is an inherently 
governmental function that must be performed by governmental agencies.
    For purposes of delegation, we are treating a quasi-governmental 
entity or public authority running an Exchange and employing merit 
system protection principles as a government agency such that 
delegation to it would be permitted. Although we were explicit in the 
proposed regulation at Sec.  431.10(c)(1)(i)(B), Sec.  431.10(c)(2) and 
Sec.  431.10(c)(3)(i) regarding authority to delegate to public 
authorities, we are deleting these references to public authorities in 
the final rule to conform with the Exchange regulation which only 
explicitly requires at Sec.  155.20 that Exchanges be governmental 
agencies or non-profit entities established by a state.
    Comment: Some commenters wrote that they especially appreciate the 
recognition that Medicaid agencies would not be parties to contractual

[[Page 42189]]

relationships between the Exchange and an entity engaged by the 
Exchange to determine eligibility, which would make it impossible for 
the Medicaid agency to provide appropriate oversight. They support 
maintaining the requirement that the Medicaid agency provide oversight 
when responsibility for the eligibility determination is delegated to 
another agency, because monitoring and oversight is necessary 
regardless of whether the delegation is to a government or non-
government agency. They recommended that such oversight should include 
review of a sample of eligibility decisions made by the Exchange, 
scrutiny of the ``logic'' used in information technology systems to 
ensure that Medicaid policy is being applied in an accurate manner, 
regular observations of the processes used by the Exchange in making 
eligibility determinations, participation by Medicaid agency staff in 
training of Exchange staff, and monitoring of complaints and appeals. 
Many commenters suggested more specific requirements in regulation that 
should be added to Sec.  431.10(d), specifying the oversight and 
monitoring required in the agreement between the Medicaid agency and 
Exchange or Exchange appeals entity include training for the Exchange 
or Exchange appeals entity, as well as monitoring of the systems being 
built.
    Response: We agree that the single state agency should be required 
to provide oversight when responsibility for the eligibility 
determination is delegated to another agency and are finalizing our 
proposal requiring this. We appreciate the commenter's various 
suggestions regarding quality control and oversight by the Medicaid 
agency and believe they are within the ambit of what is intended by 
Sec.  431.10(c)(3)(ii), requiring the Medicaid agency to exercise 
appropriate oversight over the eligibility determinations and appeals 
decisions made by such agencies to ensure compliance with paragraphs 
(c)(2) and (c)(3)(i) of this section and institute corrective action as 
needed. We believe Sec.  431.10(c)(3)(ii) can be exercised in various 
ways including those suggested by the commenters. We also agree that 
participation by Medicaid agency staff in training of Exchange staff 
would be valuable. We believe that the requirements in Sec.  431.10(d) 
which specify the requirements for the agreement between the Medicaid 
agency and the Exchange or Exchange appeals entity include the 
requisite quality control and oversight language.
    Comment: Many commenters recommended ways to ensure a coordinated 
system by engaging non-profits and private contractors in the process 
of supporting the Medicaid and CHIP eligibility determination, while 
not allowing them to determine eligibility. Recommendations included 
providing assistance to consumers with the application and enrollment 
process as certified application counselors and operating call centers, 
providing basic information to potential applicants. One commenter 
suggested that any contract over the amount of $1 million entered into 
by the State for services which support eligibility determination, such 
as data-matching or application/eligibility screening, be submitted to 
the Department of Health and Human Services for review.
    Response: We agree that certified application counselors and call 
center administration are ways to engage non-profits and private 
contractors in the Medicaid eligibility process while assuring all 
final eligibility determinations are made by governmental entities. 
However, we do not believe it necessary to subject state contracts for 
support services related to eligibility determinations to special 
oversight rules. We believe that the single state agency's 
responsibility for determining and/or overseeing eligibility 
determinations includes oversight of such support functions.
    Comment: One commenter noted that, while there is value in 
continuing the role of public employees in Medicaid eligibility 
determinations, this decision can be expected to have the inadvertent 
effect of requiring ``hand offs'' in some states between privatized 
Exchanges and Medicaid agencies. Specifically, in states operating a 
privatized Exchange, the Exchange will now be unable to conduct a full 
Medicaid determination, which means that an individual who applies for 
coverage via an Exchange and is found likely eligible for Medicaid will 
be ``bounced'' to the Medicaid agency for a final determination. 
Families with children, in particular, are likely to be ``bounced'' 
because they are eligible for Medicaid or CHIP at far higher income 
levels than adults in all states. As a result the commenter recommended 
that Sec.  435.1200(d) include a new subpart requiring states to report 
to HHS and to make publicly available data on the share of applicants 
who are determined potentially eligible for Medicaid or CHIP by an 
Exchange who are eventually enrolled. Moreover, they recommended that 
procedures should be outlined for HHS to evaluate the data and take 
corrective action if data revealed that significant numbers of people 
are ``falling through the cracks'' because they must navigate multiple 
agencies when trying to secure coverage for themselves or their 
children.
    Response: States will be required to establish performance 
standards in their state plans in accordance with Sec.  435.912. To 
further this work, earlier this year, we issued a request for 
information (RFI) regarding performance indicators for Medicaid and 
CHIP business functions. The RFI explained that CMS intends to begin 
collecting and reporting on information including data regarding 
individual (applicant and beneficiary) experience with eligibility and 
enrollment. One of the indicators proposed under the eligibility and 
enrollment domain was ``accurate eligibility determinations,'' 
including a proposed ``accurate transfer rate''. The accurate transfer 
rate would be measured by the percent of individuals transferred to 
Medicaid, CHIP, or the Exchange, as applicable, who are determined 
eligible by that agency. We are currently reviewing the comments 
received and finalizing our proposal for implementation of performance 
reporting. For further information about the RFI, see our Web site at 
http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Data-and-Systems/Downloads/RFI-Performance-Indicators-1-24-13.pdf.
    Comment: One commenter requested that we provide public access to 
agreements between the Medicaid agency and other entities conducting 
determinations. Some commenters also requested that we require public 
posting of the agreements on internet Web sites.
    Response: We have provided in Sec.  431.10(d) that agreements with 
federal, state or local entities making eligibility determinations or 
appeals decisions be available to the Secretary upon request. To the 
extent that the Secretary requests and obtains a copy of an agreement 
under Sec.  431.10(d), the public can request a copy of the agreement 
through the Freedom of Information Act, 5 U.S.C. 552. These agreements 
may also be obtained at the state level under state freedom of 
information act laws.
    Comment: Some commenters opposed this policy reversal from the 
previous Medicaid eligibility rule, and noted that, since that rule was 
issued, several states have relied on it to inform their decisions on 
establishing a State-Based Exchange, as well as to plan for Exchange 
and Medicaid systems and operations in future years. They believe these 
decisions and activities cannot easily be amended or changed in a short 
timeframe, and this policy change could have a major impact on the work 
states have completed, as well as their future

[[Page 42190]]

plans. They requested that CMS revoke the proposed change.
    Response: We appreciate the challenges facing states, which is why 
we signaled nearly a year ago on May 16, 2012, in guidance titled 
``General Guidance on Federally-facilitated Exchanges'' our intent, in 
light of public comments received on the final Medicaid and Exchange 
eligibility regulations, to propose further comment regarding ways that 
States could ensure coordinated systems when engaging non-profits and 
private contractors in the process of making Medicaid eligibility 
evaluations, while having government agencies make eligibility 
determinations. See http://cciio.cms.gov/resources/files/ffe_guidance_final_version_051612.pdf. We have also shared our intent to 
propose revised rules in webinars with states on the eligibility rules 
and in individual state meetings.
11. Conversion of Federal Minimum Income Standards for Section 1931 of 
the Act (Sec.  435.110 and Sec.  435.116)
    We proposed to require conversion of the federal minimum income 
standard for section 1931 of the Act to comport with the new rules 
regarding modified adjusted gross income (MAGI) that will take effect 
on January 1, 2014. Sections 1902(e)(14)(A) and (E) of the Act ensure 
that, in the aggregate, individuals who would have been eligible under 
Medicaid rules in effect prior to the Affordable Care Act remain 
eligible once the new MAGI-based methodologies go into effect. Our 
proposal to direct conversion of the federal minimum standard for 
section 1931 implements the conversion requirements in the statute more 
consistently, which is particularly important in light of the Supreme 
Court's decision in National Federation of Independent Business v. 
Sebelius, ---- U.S. ----; 132 S. Ct. 2566; 183 L.Ed. 2d 450 (2012). The 
proposed changes are discussed in more detail in the January 22, 2013 
proposed rule (78 FR 4628 and 4629).
    We received no comments on our proposed policy to convert the 
federal minimum standard for section 1931 of the Act, and therefore, 
are finalizing our proposal in Sec.  435.110. This policy relates to 
the coverage levels for parents and caretaker relatives in states that 
do not implement the eligibility expansion in section 2001 of the 
Affordable Care Act to provide coverage for the low-income adult group. 
In addition, because pregnancy benefits for pregnant women under Sec.  
435.116(d)(4)(i) are tied to the same May 1, 1988 AFDC income standard 
for the applicable family size, we are finalizing our proposal in Sec.  
435.116 that this income limit should also be converted.

B. Essential Health Benefits in Alternative Benefit Plans

    Section 1937 of the Act provides states with the flexibility to 
amend their Medicaid state plans to provide for the use of benefit 
packages other than the standard Medicaid state plan benefit package 
offered in that state, for certain populations defined by the state. 
These ABPs are based on benchmark or benchmark-equivalent packages. 
There are four benchmark packages described in section 1937 of the Act:
     The benefit package provided by the Federal Employees 
Health Benefit plan (FEHB) Standard Blue Cross/Blue Shield Preferred 
Provider Option;
     State employee health coverage that is offered and 
generally available to state employees;
     The health insurance plan offered through the Health 
Maintenance Organization (HMO) with the largest insured commercial non-
Medicaid enrollment in the state; and
     Secretary-approved coverage, which is a benefit package 
the Secretary has determined to provide coverage appropriate to meet 
the needs of the population provided that coverage.
    Benchmark-equivalent coverage is provided when the aggregate 
actuarial value of the proposed benefit package is at least actuarially 
equivalent to the coverage provided by one of the benefit packages 
described above, for the identified Medicaid population to which it 
will be offered. Section 1937 of the Act further provides that certain 
categories of benefits must be provided in any benchmark-equivalent 
plan, and other categories of benefits must include ``substantial 
actuarial value'' compared to the benchmark package.
    That said, we appreciate that it may be difficult at this point to 
make changes to the ABP that take effect by January 1, 2014. In light 
of this challenge, we will partner with states to work as quickly as 
possible to come into full compliance with these provisions. We do not 
intend to pursue compliance actions on these issues to the extent that 
states are working toward but have not completed a transition to the 
new ABPs on January 1, 2014.
Conforming Changes to Medicaid To Align With Essential Health Benefits
    We proposed to implement section 2001(c) of the Affordable Care Act 
that modifies the benefit provisions of section 1937 of the Act. 
Specifically, section 2001(c) of the Affordable Care Act added mental 
health benefits and prescription drug coverage to the list of benefits 
that must be included in benchmark-equivalent coverage; required the 
provision of Essential Health Benefits (EHBs) beginning in 2014; and 
directed that section 1937 benefit plans that include medical/surgical 
benefits and mental health and/or substance use disorder benefits 
comply with the Paul Wellstone and Pete Domenici Mental Health Parity 
and Addiction Equity Act of 2008 (MHPAEA).
    In addition, we proposed to implement section 1902(k)(1) of the 
Act, which requires that medical assistance for, the new eligibility 
adult group for low-income adults under section 1902(a)(10)(A)(i)(VIII) 
of the Act must receive medical assistance provided through an ABP 
(which must include coverage of EHBs as of the same date).
    We also proposed to implement section 1937(a)(2)(B)(viii) of the 
Act, which provides that individuals in the new mandatory eligibility 
group for former foster care children under age 26 are exempt from 
mandatory enrollment in an ABP.
    We proposed to implement section 1937(b)(7) of the Act, which 
provides that medical assistance to individuals described in section 
1905(a)(4)(C) of the Act (individuals of child bearing age) through 
enrollment in an ABP shall include family planning services and 
supplies.
    We proposed to codify in Sec.  440.345(e) the process to determine 
how often states would need to update ABPs after December 31, 2015.
    We also proposed to add a new Sec.  440.347 to incorporate section 
2001(c)(5) of the Affordable Care Act.
    Furthermore, anti-discrimination provisions found at section 
1302(b)(4) of the Affordable Care Act were proposed to be codified 
Sec.  440.347(e).
1. General Comments
    Comment: One commenter stated they support the structure for 
implementing EHBs as proposed.
    Response: CMS appreciates the support.
2. Alignment With Essential Health Benefits Provisions
a. Scope of Alternative Benefit Plans (Sec.  440.305)
    We proposed to add the new adult eligibility group as an 
eligibility group that must receive benefits consistent with section 
1937 of the Act. We also proposed that groups provided ABP coverage 
under section 1937 of the Act may be identified based on individual 
characteristics and not by the amount or level of FMAP funding.

[[Page 42191]]

    Comment: Many commenters commended the addition of language 
prohibiting states from targeting Medicaid expansion populations solely 
on the basis of applicable matching rate. In addition, many commenters 
applauded language proposing to codify the flexibility HHS has given to 
states to use the Secretary-approved option in section 1937 of the Act 
to extend comprehensive Medicaid coverage to the newly-eligible 
expansion population. The commenters further urged CMS to partner with 
states to ensure that this population's full range of mental health and 
substance use needs and other health needs will be met.
    Response: We thank the commenters for their support.
    Comment: One commenter questioned the inclusion of the sentence 
which states, ``Enrollment in ABPs must be based on the characteristics 
of the individual rather than the amount or level of federal matching 
funds.'' The commenter stated this to be an unnecessary statement since 
eligibility for FMAP is based on eligibility category. It is unclear 
why enrollment in a benchmark plan would impact FMAP.
    Response: People who qualify for eligibility under the new adult 
eligibility group will be determined to be either newly eligible or 
already eligible. For Medicaid coverage provided to the newly eligible 
population, the state will receive 100 percent FMAP in 2014 and for 
those who are determined to be eligible under December 2009 state 
rules, the state will receive its otherwise applicable FMAP. We 
included this language to clarify that states may not design different 
benefit packages based on the level of FFP they will receive, but 
rather the benefit package should be designed based on the medical 
needs of the population being served.
    Comment: One commenter believed that the use of ABPs will assist 
states with expanding coverage in a meaningful way. However, the new 
adult population may have unique health care needs, including a high 
incidence of behavioral health and social issues. The commenter 
believed that the use of the ABPs would be most beneficial if they are 
used to tailor the scope of services and alignment of benefits to 
ensure adequate delivery systems for high need populations.
    Response: Section 1937 of the Act offers flexibility for states to 
provide medical assistance by designing different benefit packages plan 
for different groups of eligible individuals. We agree with the 
commenter that ABPs can be successfully designed to meet the needs of 
the new adult population, including those with varying health care 
needs. As long as each benefit package contains all of the EHBs, much 
flexibility exists for states to meet the needs of beneficiaries.
    Comment: One commenter was concerned that individuals age 50 to 64 
may not be provided EHBs that are at least equal to those available to 
high-income individuals who purchase coverage on the commercial 
markets.
    Response: We understand that there could be some variation in EHBs 
as defined for the individual market and for Medicaid based on the 
selection of different benchmark plans to define EHBs. But the 
flexibility to select different benchmark plans to define EHBs for 
Medicaid ABPs will allow states to address the unique needs of each 
circumstance and promote administrative simplicity, while still 
providing a floor for coverage. As long as that floor is met, Medicaid 
beneficiaries in the new adult group can also receive benefits from the 
selected coverage options under section 1937 of the Act or through 
substitution of benefits.
    Comment: One commenter stated it is important that all individuals 
obtaining Medicaid coverage under the Affordable Care Act receive 
health coverage appropriate for their needs, including strong coverage 
for mental health and substance use disorders. The commenter also wrote 
it is important that traditionally Medicaid eligible populations that 
may be enrolled in ABPs are guaranteed adequate coverage.
    Response: ABP flexibility is an option that states can choose to 
use in redesigning their current Medicaid benefit program. The 
requirement that ABPs include EHBs and comply with mental health parity 
requirements ensures a minimum level of sufficiency of the coverage.
    Comment: One commenter requested that HHS require or give states 
the option to provide EPSDT coverage to 19- and 20-year olds who 
qualify for the new adult group.
    Response: The existing provisions of Sec.  440.345 require states 
to make available EPSDT services as defined in section 1905(r) of the 
Act that are medically necessary for those individuals under age 21 who 
are covered under the State plan. We did not propose to change this 
requirement. To the extent that any medically necessary EPSDT services 
are not covered through the ABP plan, states must supplement the ABP 
plan to ensure access to these services. EPSDT provisions apply to 19- 
and 20-year olds who qualify for the new adult group.
    Comment: One commenter believed that the Affordable Care Act 
provided an unprecedented opportunity to improve access to somatic and 
behavioral health treatment for the ``jail-involved'' population. The 
commenter noted that up to 6 million incarcerated individuals have 
income below 133 percent which would make them newly eligible for 
Medicaid under the Affordable Care Act. These individuals could 
represent up to \1/3\ of the newly eligible population, underscoring 
the importance of considering the particular circumstances of 
incarcerated individuals in implementation of the Affordable Care Act.
    Response: Paragraph (A) following section 1905(a)(29) of the Act 
and implementing regulations at Sec.  435.1009, specify that Medicaid 
is prohibited from making payments for care or services for any 
individual who is an inmate of a public institution, except as an 
inpatient in a medical institution. We read this prohibition to apply 
generally to medical assistance, whether provided through the regular 
coverage plan or through an ABP. Regular coverage or regular Medicaid 
benefit package is defined as Medicaid state plan services including 
services defined in section 1905(a), 1915(i), 1915(j) and 1945 
authorities. Thus, while we agree with the commenter that incarcerated 
individuals may be eligible for Medicaid, they would not be entitled to 
ABP benefits inconsistent with the payment exclusion. We note that this 
is consistent with the exclusion of incarcerated individuals from 
eligibility to enroll in coverage through the Exchanges. It is also 
consistent with the responsibility under the Eighth Amendment of the 
United States Constitution of governmental entities to provide 
necessary medical care to individuals who they are holding as inmates, 
which effectively creates a liable third party for such care.
    States should suspend, rather than terminate, the Medicaid 
eligibility of individuals who are enrolled in Medicaid when entering a 
public institution, so as to ensure ease of reinstitution of coverage 
post-release. Additionally, if an individual is not already enrolled in 
Medicaid, states can enroll eligible individuals prior to their release 
so that the individual can receive Medicaid covered services in a 
timely manner upon discharge.
    Comment: One commenter believed that the new eligibility category 
is likely to attract younger and healthier populations than traditional 
Medicaid. The commenter believed that a percentage of those who are 
newly eligible will acquire a condition or

[[Page 42192]]

disability after they are enrolled in an ABP. The commenter recommended 
that HHS standardize an effective process for ensuring that 
beneficiaries whose health status changes have the opportunity to 
access in a timely manner other ABP or traditional state Medicaid plans 
which meet their needs. The following standards were suggested: A 
process for participants to request and receive clinically appropriate 
benefits not routinely covered by the plan; a process for participants 
to request and receive coverage for benefits beyond the limits set by 
the plan where extraordinary circumstances exist; and a process for 
participants to request and receive coverage of specialty care not 
routinely coverage by the plan when medically necessary and 
appropriate.
    Response: As noted, states have the flexibility to define different 
benefit packages to meet the needs of disparate populations. In 
addition, individuals in the new adult group meeting the exemption 
criterion found in section 1937 of the Act have the ability to choose 
between ABP benchmark coverage designed by the state using the rules of 
section 1937 of the Act including EHBs as a minimum level of coverage, 
or ABP benchmark coverage defined as the state's approved regular state 
plan benefit package, which is not subject to the requirements of 
section 1937 of the Act.
    Comment: One commenter supported providing states with flexibility 
to add state plan benefits and services found in base-benchmark plans 
to benchmark-equivalent benefits. The commenter also believed it would 
helpful to clarify that adding such benefits would be possible and 
appropriate for individuals in the Medicaid expansion group.
    Response: We appreciate the commenter's support, and clarify here 
that individuals in the new adult group can receive benchmark-
equivalent coverage or Secretary-approved coverage which can include a 
broader range of services than in public employee or commercial 
benchmark coverage options.
    Comment: One commenter interpreted the proposed rule to say that 
individuals who are newly eligible adults--and not deemed medically 
frail--do not qualify for additional services above and beyond what is 
required under section 1937 of the Act and the EHB. Based on that 
interpretation, if a state wanted to provide wrap around services for a 
particular population, in which some of the newly eligible would fall 
under, it would not be allowable unless the state created a Secretary-
approved plan that incorporates the benefits into the underlying plan. 
The commenter requested that CMS clarify and/or confirm the 
interpretation of this provision.
    Response: We confirm that the individual's interpretation is 
correct. Section 1902(k)(1) of the Act provides that individuals in the 
new adult group receive benchmark or benchmark-equivalent coverage 
subject to the requirements of section 1937 of the Act (except that 
individuals who would otherwise be exempt may choose to receive 
benchmark or benchmark-equivalent coverage that is not limited by 
section 1937 of the Act, and thus have the option of benchmark or 
benchmark-equivalent coverage that is equal to the Medicaid benefit 
package otherwise available). Such coverage can be in the form of 
Secretary-approved coverage, which may, at state option, include a 
broader range of services than public employee or commercial benchmark 
options.
    Comment: Many commenters requested CMS clarify that the federal 
matching rate is based on the individual and not the services provided. 
A few commenters requested clarification that services provided through 
the Secretary-approved ABP process for Medicaid expansion individuals 
will be covered at the enhanced rate and that Medicaid expansion 
individuals who are exempted into traditional Medicaid coverage will 
also be covered at the enhanced rate.
    Response: We clarify that the enhanced FMAP rate for newly eligible 
individuals is available for all services they receive. The matching 
rate is based on the individual, not on the services provided to them.
    Comment: One commenter urged HHS to clarify the flexibility that 
states will have to design multiple ABPs targeting specific 
populations. The commenter understands this provision will allow states 
to put in place ABPs for sub-populations within the newly eligible 
group (that is, people living with chronic viral hepatitis or other 
chronic conditions) and urges CMS to clarify that this is an 
appropriate use of the ABP flexibility.
    Response: Section 1937 of the Act provides states with significant 
flexibility to design Medicaid benefit coverage under the State plan. 
There are many options in selecting an ABP, and states may offer 
different ABPs to different targeted populations (except that, as 
discussed elsewhere, targeting cannot be based on the amount or level 
of federal matching funding). Section 1937 of the Act provides states 
with the statutory construct to provide an ABP without regard to 
requirements at sections 1902(a)(1) (related to state-wideness) and 
1902(a)(10)(B) (related to comparability) of the Act. This flexibility 
is provided at Sec.  440.376 and Sec.  440.380, respectively.
    Comment: One commenter was unclear why the term ABP is being used. 
The Affordable Care Act references ABPs specifically for evaluation of 
the ABPs as required under the Class Independence Advisory Council. 
Other sections reference alternative benefits or programs specifically 
under section 1937 of the Act or the establishment of Basic Health 
Plans. The commenter believed the use of the term is confusing and 
unnecessary since benchmark plans are not alternative plans or programs 
as originally identified in the law. Another commenter found Sec.  
440.305 confusing as paragraph (a) refers to ``benchmark and benchmark-
equivalent'' however paragraph (b) refers to ABP. The commenter 
suggested revising paragraph (a) by replacing benchmark and benchmark-
equivalent with ABP.
    Response: The Deficit Reduction Act of 2005 amended the Act by 
adding a new section 1937 of the Act to provide for the use of benefit 
packages other than the standard benefit package, namely benchmark and 
benchmark-equivalent packages. The Affordable Care Act made statutory 
changes to section 1937 of the Act, one of which is the requirement 
that section 1937 coverage packages include EHBs. We issued regulations 
outlining how the precise parameters of EHBs will be established in the 
non-grandfathered plans in the individual and small group markets and, 
to some degree, how they will be implemented in section 1937 coverage 
plans. In that regulation, the term ``base-benchmark'' was used to 
refer to the base plan used by states to determine EHBs for coverage 
plans in the non-grandfathered plans in the individual and small group 
markets. That base-benchmark plan becomes the EHB-benchmark plan after 
it is supplemented with any missing categories of EHBs. In an effort to 
prevent confusion between the term ``benchmark'' used for the non-
grandfathered plans in the individual and small group markets, and the 
use of ``benchmark'' by section 1937 coverage plans, we chose from the 
statutory construct of section 1937 of the Act the term ``Alternative 
Benefit Plan'' (ABP) to hereafter refer to Medicaid benchmark and 
benchmark-equivalent plans as ABP.
    Comment: One commenter indicated that there was no adult group 
under section 1902(a)(10)(A)(i)(VIII) of the Act on or before February 
8, 2006 so the

[[Page 42193]]

exception in subsection (b) does not appear to fit.
    Response: Section 6044 of the Deficit Reduction Act of 2005 amended 
Title XIX by adding a new section 1937 of the Act that allows States to 
amend their Medicaid State plan to provide for ABPs and limits 
application of this provision to individuals whose eligibility is based 
on an eligibility category under section 1905(a) of the Act that could 
have been covered under the State's plan on or before February 8, 2006. 
In 2010, section 2001(a)(1) of the Affordable Care Act amended Title 
XIX to establish a new optional adult eligibility group for low-income 
adults age 19 to 64. Effective January 1, 2014, States that implement 
this new eligibility group must provide medical assistance for that 
group through an ABP. As specified, all provisions of section 1937 of 
the Act apply to the new adult eligibility group except that those 
individuals in the new adult group who meet the exemption criteria will 
have a choice between ABP benchmark benefits as defined by the state 
under the rules of section 1937 of the Act and ABP benchmark benefits 
defined as the state's approved Medicaid state plan, without regards to 
the rules of section 1937 of the Act.
    Comment: A few commenters believed the final rule should clarify 
that an ABP designed for individuals within the new adult eligibility 
group can align with traditional Medicaid coverage through the process 
of designing of a Secretary-approved plan.
    Response: We understand the importance of this issue, and reiterate 
guidance here. Secretary-approved coverage, which can include the full 
regular Medicaid state plan benefit package, is one of the four 
statutorily specified coverage benchmarks available under section 1937 
of the Act. States can choose to use Secretary-approved coverage to 
significantly align the benefits offered to the new adult eligibility 
group with the regular state Medicaid package. Like with the other 
three statutorily specified coverage benchmarks, the Secretary-approved 
coverage must include EHBs as described in section 1302(b) of the 
Affordable Care Act and applicable regulations. In all cases, EHBs are 
first defined as the benefits from the base benchmark plan and 
supplemented with benefits from other base benchmark plans as 
necessary. CMS is clarifying in this rule that substitution of benefits 
as defined at Sec.  156.115(b) is applicable to EHBs in ABPs. We 
believe that states will appreciate this added flexibility. 
Substitution of benefits can occur benefit by benefit. The benefits 
must fit into the same EHB category and the benefits being interchanged 
must be actuarially equivalent. Benefits do not have to be similar in 
nature, they must only be in the same EHB category and actuarially 
equivalent. Furthermore, states may substitute more than one benefit 
that when combined are actuarially equivalent to a single benefit. 
States may use their Medicaid state plan benefits for substitution if 
the state plan benefit is actuarially equivalent and in the same EHB 
category of benefit that will be replaced.
    Comment: Consistent with the provisions of sections 1902(k)(1) and 
1903(i)(36) of the Act, the commenter requested that CMS confirm that 
the coverage for individuals eligible only through section 
1902(a)(10)(A)(i)(VIII) of the Act is limited to benchmark or 
benchmark-equivalent coverage.
    Response: That is correct. This still leaves states with 
significant flexibility to design coverage using the options of 
benchmark coverage, which includes Secretary-approved coverage, and 
benchmark equivalent coverage. Section 1937 of the Act must also 
provide EHBs, which through selection of a base-benchmark plan, 
supplementation and substitution, will be used to define the EHBs. EHBs 
are then incorporated with the section 1937 benchmark coverage to lead 
to a complete benefit package.
    Comment: Several commenters stated that the option to offer 
specialized benefit packages, in the form of more than one ABP, to 
different target populations creates an administrative burden and 
confusion for families. The option to offer specialized benefit 
packages might require more than one design process and public notice; 
additional actuarial analyses of the different benefit packages for 
rate setting; an extra process for tracking individuals; and a state's 
contracted MCOs would have to manages different benefit packages.
    Response: The flexibility to provide specialized benefit packages 
to one or more targeted populations is at the option of the state. Each 
state will determine whether it is appropriate or administratively 
feasible to design and offer different benefit packages for different 
groups of beneficiaries.
    Comment: One commenter was concerned with the disparities in 
coverage that the proposed EHB policy would create. That is, the 
guidance suggests that the policy only mandatorily applies to the newly 
eligible category of adults. In states that wish to take up the new 
expansion option this creates a situation in which the higher income 
expansion population will receive a more generous benefit package than 
the existing population would receive.
    Response: We understand the commenter's concern, and it is true 
that the benefit package may be different because of the requirement 
that ABPs provide EHBs. However, it is not clear that the ABP benefit 
package provided to the new adult eligibility group will be more 
generous than the existing Medicaid benefit package. In addition, we 
remind readers that the EHB requirements apply to all individuals 
receiving services through an ABP, not just those in the new adult 
group.
    Summary: We did not make any changes to proposed regulation text as 
a result of comments in this section.
b. Exempt Individuals (Former Foster Care Children) (Sec.  440.315)
    We proposed to implement section 1937(a)(2)(B)(viii) of the Act, 
added by section 2004 of the Affordable Care Act, as amended by section 
10201(a) of the Affordable Care Act, by providing that individuals 
eligible under section 1902(a)(10)(A)(i)(IX) of the Act will be exempt 
from mandatory enrollment in an ABP.
    Comment: Many commenters commended HHS for confirming that the new 
former foster care children group is exempt from mandatory enrollment. 
Many other commenters expressed support for affirming at Sec.  
440.315(h) that former foster care children are statutorily exempt from 
mandatory enrollment in an ABP, and therefore, can access the full 
Medicaid benefit, including EPSDT services, up to age 21.
    Response: We appreciate commenter support. Individuals under age 21 
receive EPSDT either through the ABP or as additional coverage that 
supplements the ABP.
    Comment: One commenter wrote that while the proposed rule clarifies 
that former foster care youth up to age 26 are eligible for full 
Medicaid benefits, may not be mandated into an ABP, and will have 
access to full EPSDT services up to age 21, after age 21, former foster 
care youth will no longer have access to EPSDT benefits and requested 
clarification as to the meaning of ``full Medicaid benefits.'' 
According to the commenter, the American Academy of Pediatrics recently 
reported that children in foster care experience significantly higher 
rates of medical and mental health challenges, and therefore, believes 
that youth aging out of foster care require comprehensive health 
coverage that recognizes their unique needs. Once a youth turns 21 they 
lose EPSDT coverage but continue to have the same health needs. The 
commenter

[[Page 42194]]

therefore requested that CMS define ``full Medicaid benefits'' to 
include benefits akin to EPSDT, including dental coverage, mental 
health services and physical health care.
    One commenter stated she appreciates the clarification that former 
foster care children are exempt from mandatory enrollment in an ABP and 
that they will receive full Medicaid benefits. However, it is not clear 
whether this means they can receive EPSDT. The commenter urged CMS to 
consider mandating, or at a minimum, allowing states to provide EPSDT 
benefits for this at risk population because in a majority of states 
oral health is not part of the adult Medicaid benefit package and 
evidence suggests that roughly 35 percent of children in foster care 
have significant oral health problems. Making sure oral health issues 
are addressed as former foster care youth move into adulthood will have 
a significant impact.
    Response: We acknowledge that children in foster care generally 
experience significantly higher rates of medical and mental health 
challenges and that these health challenges often continue after aging 
out of foster care. For this reason, Congress provided statutory 
protection for an individual who receives aid or assistance under part 
B of title IV of the Act for children in foster care or an individual 
for whom adoption or for whom foster care assistance is made available 
under part E of title IV of the Act, without regard to age, by 
exempting these individuals from mandatory enrollment in an ABP.
    Under the existing provisions of Sec.  440.345, States must make 
available EPSDT services, as defined in section 1905(r) of the Act, for 
those individuals under age 21 who are enrolled in an ABP. To the 
extent that medically necessary EPSDT services are not otherwise 
covered through the ABP for individuals under 21, states are required 
to supplement the ABP to ensure access to these services. However, 
there is no statutory authority to require states to provide EPSDT 
services beyond age 21. We note that states have the flexibility to 
design an ABP targeted to former foster care children that provides a 
more comprehensive array of health coverage than is provided through 
the regular state plan and to offer voluntary enrollment in such a 
plan. Through the ABP option, states can provide this population with 
oral health and other services not otherwise available to adults 
through State plan coverage.
    Summary: We have not changed proposed regulation text as a result 
of comments received in this section.
c. Benchmark-Equivalent Health Benefits Coverage (Prescription Drugs 
and Mental Health Benefits) (Sec.  440.335)
    We proposed to implement section 2001(c) of the Affordable Care Act 
that added mental health benefits and prescription drug coverage to the 
list of benefits that must be included in benchmark-equivalent 
coverage.
    Comment: Many commenters were supportive of paragraphs (b)(7) and 
(b)(8) implementing the statutory requirements for benchmark-equivalent 
coverage to include prescription drugs and mental health benefits. A 
few commenters commended the broad list of services included in the 
proposed rule.
    Response: We agree that the inclusion of prescription drugs and 
mental health benefits as defined within ABPs are important and 
necessary and we appreciate the support of commenters regarding the 
coverage of the benchmark-equivalent health benefits.
    Comment: A few commenters were pleased that HHS listed services 
that can be vital to people with disabilities and chronic health 
conditions as allowable in benchmark-equivalent and Secretary-approved 
coverage.
    Response: We acknowledge the special medical needs of individuals 
with chronic health conditions. The final rule provides a clear path to 
coverage for chronic disease management under Sec.  440.347.
    Comment: A number of commenters requested that CMS clarify 
paragraph (c)(1). The commenters believed that CMS is suggesting it 
will use a similar policy for benchmark-equivalent coverage as it does 
for Secretary-approved coverage and, thus, allow addition of benefits 
through the benchmark-equivalent coverage process. The commenters 
believed there is no legal impediment to this approach and supported 
it. The commenters urged CMS to confirm this interpretation.
    Response: We confirm this interpretation. The rule provides states 
the flexibility to include coverage for benefits beyond the required 
coverage and allows for states to create benchmark-equivalent coverage 
that can include benefits not available through the benchmark options.
    Comment: Numerous commenters were confused by the language in Sec.  
440.335(c)(1) allowing addition of services available in ``2 or more'' 
benchmark options, as opposed to the language of ``1 or more'' which 
appears in Sec.  440.330 and in current regulation. The commenters 
believed this may be a clerical error and recommended the ``1 or more'' 
language to maximize state flexibility.
    Response: A clerical error was made in Sec.  440.335(c)(1). The 
regulation has been corrected to read, ``. . . for any additional 
benefits of the type which are covered in 1 or more of the standard 
benchmark . . .''
    Comment: One commenter was concerned that only provision Sec.  
440.335(c)(1) was being amended leaving (c)(2) and (c)(3) intact. The 
commenter believed this will result in conflict with newly added Sec.  
440.335(b)(7) and (8) as these provisions provided that four benefits 
(prescription drugs, mental health, vision and hearing services) must 
represent 75 percent of the actuarial value and are not required to be 
covered.
    Response: We disagree that the existing provision Sec.  
440.335(c)(2) will conflict with Sec.  440.335(b)(7) and (b)(8). The 
actuarial value of the coverage for prescription drugs, mental health 
services; vision services; and hearing services must still be at least 
75 percent of the actuarial value of the coverage for that category of 
service in the benchmark plan used for comparison by the state.
    However, provision Sec.  440.335(c)(3) is in conflict with Sec.  
440.335(b)(7) and (b)(8). The state will, by default, meet the 
conditions of (c)(3) because prescription drugs and mental health 
services are now required benchmark-equivalent coverage and states will 
not have an option to provide such coverage as regulation currently 
allows. States also have the ability to add vision and hearing services 
through new requirements for additional coverage at Sec.  440.335(c), 
for individuals not in the new adult group. Individuals in the new 
adult group can receive these vision and hearing services, at state 
option, through the use of Secretary-approved coverage. Therefore, we 
have stricken Sec.  440.335(c)(3) from the final rule.
    Summary: As a result of comments received in response to the 
proposed regulation, CMS has deleted Sec.  440.335(c)(3) from the final 
rule. Additionally, an error was made in Sec.  440.335(c)(1). The 
regulation has been corrected to read, ``. . . for any additional 
benefits of the type which are covered in 1 or more of the standard 
benchmark coverage packages described in Sec.  440.330(a) through (c) 
of this part or State plan benefits . . .'' Otherwise, CMS has not made 
any changes to this section.
d. EPSDT and Other Required Benefits (Family Planning Services and 
Supplies) (Sec.  440.345)
    We proposed to codify section 2303(c) of the Affordable Care Act by 
adding

[[Page 42195]]

paragraph (b) to Sec.  440.345 to provide that ABP coverage provided to 
individuals described in section 1905(a)(4)(C) of the Act (individuals 
of child bearing age), include family planning services and supplies.
    Comment: Many commenters thanked CMS for codifying the important 
provision requiring that ABP coverage provided to individuals of child-
bearing age include family planning services and supplies. This will 
help insure that Medicaid beneficiaries can access essential family 
planning services and supplies regardless of the type of Medicaid plan 
in which they are enrolled.
    Response: We thank the commenters for their support.
    Comment: One commenter requested further clarification as to the 
specific services and supplies that fall into this category. 
Clarification was also requested on which services are covered for 
individuals of child bearing age, including minors who can be 
considered to be sexually active, who are eligible under the state 
plan, and who want such services required under section 1905(a)(4)(C) 
of the Act. Because family planning services are not clearly defined in 
federal law or regulation, the commenter urged CMS to clarify in this 
rule that family planning services and supplies include but are not be 
limited to: examination and treatment by medical professionals; 
medically appropriate laboratory examinations and tests; counseling 
services and patient education; medically approved methods; procedures, 
pharmaceutical supplies; and devices to prevent contraception and 
infertility services, including sterilization reversal.
    Several recommended HHS clarify family planning to specify coverage 
of section 1905(a)(4)(C) of the Act services and supplies and require 
states to assure compliance with section 1902(a)(23) of the Act freedom 
of choice for family planning services and supplies, since it is likely 
that many states will contract with managed care organizations, some of 
which may have no Medicaid experience. They believe that explicitly 
requiring freedom of choice will increase the likelihood that all plans 
will comply with the freedom of choice requirement.
    Response: Family planning services and supplies are described in 
section 1905(a)(4)(C) of the Act. We have chosen not to use this rule 
as the vehicle for issuing additional guidance on family planning 
services, as such guidance would need to have broader implications than 
this rule provides. In addition, we do not believe it is necessary to 
address issues relating to beneficiary choice of family planning 
provider in this provision, since this provision deals only with 
coverage issues under an ABP, and not with issues such as freedom of 
choice of provider. That issue is separately addressed in our 
regulations at Sec.  431.51 and Sec.  441.20.
    Comment: One commenter addressed section 2(B)(1) of the preamble, 
specifically the statement ``Consistent with the current law, states 
have the flexibility within those statutory and regulatory constructs 
to adopt prior authorization and other utilization control measures, as 
well as policies that promote the use of generic drugs.'' The commenter 
is concerned that the interpretation of this statement could provide 
too much flexibility for states in the use of utilization control 
measures, creating a barrier to necessary family planning supplies for 
Medicaid enrollees, as women need access to the full range of 
contraceptive methods to utilize the method most effective for them. 
The commenter requested HHS to issue sub-regulatory guidance that 
prohibits barriers to the full range of FDA-approved contraceptive 
methods guaranteed under the Affordable Care Act.
    Response: Prior authorization and utilization control measures are 
common practices used within regular Medicaid, public employee, and 
commercial insurance products. Benefit packages designed within ABPs 
also have this flexibility. These approaches should not be used as a 
barrier to needed services. This proposed rule and final rule added the 
Affordable Care Act requirement that all ABPs must include coverage of 
family planning services and supplies. Nothing in the final rule 
authorizes deviation from the protection of beneficiary free choice of 
family planning provider, consistent with section 1902(a)(23) of the 
Act and Sec.  431.51, or an exception to the requirement at Sec.  
441.20 that the state plan provide that beneficiaries are protected 
from coercion or mental pressure and are free to choose the method of 
family planning to be used.
    Comment: One commenter wrote that discrimination in benefit plan 
design is a persistent practice in the insurance industry and the 
exclusion of treatment for infertility is one example. Infertility 
affects an estimated 12 percent of women of child bearing age and 
infertility treatments are more commonly prescribed for women than for 
men. Another commenter recommended that the list of required categories 
of services for benchmark-equivalent coverage incorporate each of the 
benefits including family planning services and supplies required under 
EHB as specified in Sec.  440.347(a) for consistency and clarity and to 
ensure consumer protections.
    Response: Coverage of infertility services is generally at the 
option of the state. However, coverage of infertility services becomes 
part of the ABP benefit package either: (1) if the state selects a 
coverage plan under section 1937 of the Act that includes such coverage 
or chooses to include such coverage as part of a benchmark-equivalent 
coverage plan; or, (2) if the base-benchmark plan chosen by the State 
to define EHBs covers infertility treatment in an EHB category, unless 
the state elects the option set forth in 45 CFR 156.115(b) to 
substitute actuarially equivalent benefits in defining EHBs. We are 
reiterating here that CMS is clarifying in this rule that substitution 
of benefits as defined at 45 CFR 156.115(b) is applicable to EHBs in 
ABPs. We believe that states will appreciate this added flexibility. 
Under 45 CFR 156.115(b)(1), substitution of benefits can occur benefit 
by benefit. The benefits must fit into the same EHB category and the 
benefits being interchanged must be actuarially equivalent. 
Furthermore, states may substitute more than one benefit that when 
combined are actuarially equivalent to a single benefit. States may use 
their Medicaid state plan benefits for substitution if the state plan 
benefit is actuarially equivalent and in the same category of benefit 
that will be replaced. We do believe it is necessary to explicitly list 
the EHB categories in the regulation text for benchmark-equivalent 
coverage, as section 1937 of the Act was amended to require both 
benchmark and benchmark-equivalent coverage to include all EHBs. States 
will identify substituted benefits in the ABP SPA when submitted to 
CMS.
    Summary: We will not be making changes to proposed regulation text 
as a result of comments received.
e. EPSDT and Other Required Benefits (Mental Health Parity) (Sec.  
440.345)
    Section 2001(c) of the Affordable Care Act directed that benefit 
plans under section 1937 of the Act that include medical and surgical 
benefits and mental health and/or substance use disorder benefits 
comply with MHPAEA and we codified this at Sec.  440.345(c) in the 
proposed rule.
    Comment: Almost all commenters expressed support for the 
requirement in Sec.  440.345(c) requiring that mental health or 
substance abuse benefits must be provided by ABPs and must comply with 
MHPAEA. Many also commended CMS for clarifying that ABPs must include 
mental health parity as this will

[[Page 42196]]

lead to the provision of necessary services to millions of individuals. 
A number of commenters wrote about how extremely important it is that 
all individuals gaining Medicaid eligibility under the Affordable Care 
Act receive coverage appropriate for their needs including strong 
coverage of mental health and substance use disorders. Many expressed 
their appreciation for CMS's strong support for this provision. Many 
stated that they appreciated the proposed rule's explicit recognition 
of the Affordable Care Act requirement that ABPs must provide the EHBs, 
including mental health and substance use disorder (MH/SUD) services.
    Response: CMS thanks the commenters for their support on the 
language in the regulation.
    Comment: Some commenters asked CMS to provide additional detail on 
how the requirements of MHPAEA apply to ABPs including details on how 
to supplement benchmark or benchmark-equivalent coverage to bring it 
into compliance with parity and how to identify violations in parity 
compliance. Commenters requested clarification that MHPAEA requires 
ABPs to offer the same scope of MH/SUD services as medical services, 
including adequate prescription drug coverage.
    Response: On January 16, 2013, CMS released a State Health Official 
Letter regarding the application of MHPAEA to Medicaid MCOs, CHIP, and 
ABPs. This guidance specifically states that all Medicaid ABPs 
(including Secretary-approved coverage) must meet the parity 
requirements, regardless of whether services are delivered in managed 
care or non-managed care arrangements. This includes ABPs for 
individuals in the new low-income Medicaid expansion group, effective 
January 1, 2014.
    Comment: Many commenters wrote that more than just requiring 
compliance was needed in this final rule because of the documented 
disparity between coverage of medical surgical benefits and coverage of 
MH/SUD services in commercial and employer health coverage. With about 
one quarter of adults suffering from a diagnosed mental health 
disorder, disparity in services and cost sharing has wide ranging 
impact. Some stated that studies and literature indicate deficits in 
employer coverage of mental health benefits and that limits on MH/SUD 
services were lower than those for medical surgical benefits. Some 
commenters stated that in clarifying the application of mental health 
parity CMS should make clear that if psychiatric rehabilitation 
services are provided, so must psychiatric habilitation be required, 
and that CMS should assure that a robust package of mental health 
coverage is part of ABPs. Commenters indicated that supplementation, 
substitution, parity and other protections are the best approaches for 
EHBs to meet the complex health needs of the low-income adults who will 
gain Medicaid eligibility under expansion. The commenters encouraged 
CMS to do whatever is within its authority to encourage all plans to 
expand their mental health and substance use disorder treatment to 
provide better care by providing the full range of MH/SUD services and 
to ultimately reduce costs and unnecessary loss of productivity and 
life.
    Response: States must offer services in all ten EHB categories, 
including MH/SUD services, and must provide such MH/SUD services in a 
manner that complies with the parity requirements of MHPAEA. We do not 
intend to require or request states to include specific services within 
EHB categories offered by their ABP. As states determine their ABP 
service package, states must use all of the EHB services from the base-
benchmark plan selected by the state to define EHBs for Medicaid, 
substituting or supplementing as necessary. We believe this will allay 
concerns expressed by commenters, as commercial plans must also adhere 
to mental health parity requirements.
    Comment: One commenter wrote that final MHPAEA regulations are not 
yet released, and therefore, CMS should provide a detailed framework 
for determining and enforcing parity compliance in this final rule. The 
commenter recommended that HHS establish a clear process for how states 
can modify a plan to ensure parity compliance if it is not compliant; 
clarify that the term ``treatment limitation'' includes both 
quantitative and non-quantitative treatment limitations and includes 
limits on scope of service and duration of treatment; require full 
disclosure of benefit and medical management criteria from states and 
plans to ensure MHPAEA compliance in ABPs; ensure that ABPs may not 
apply a financial requirement or treatment limitation, as specified in 
MHPAEA; include examples of parity violations and detailed information 
on how to supplement coverage that falls short of the parity 
requirements; and review all ABPs to ensure compliance with MHPAEA.
    Response: The January 16, 2013 CMS State Health Officials Letter 
provided a framework for States to apply MHPAEA to ABPs. Since the 
release of this State Health Officials Letter, we have also provided 
technical assistance to states regarding the application of MHPAEA to 
ABPs prior to submission of the ABP state plan amendments.
    Comment: A commenter requested that we clarify the applicability of 
mental health parity to Medicaid managed care organizations that 
provide benchmark or benchmark-equivalent coverage. The commenter 
wanted to know if states would be required to provide services (for 
example; rehabilitation, habilitation, substance abuse services, etc.) 
that are optional services for Medicaid programs if they are not 
currently covered.
    Response: The January 16, 2013 State Health Official Letter 
specifically states that all Medicaid ABPs (including Secretary-
approved coverage) must meet the parity requirements, regardless of 
whether services are delivered in managed care or non-managed care 
arrangements. In addition, under Sec.  440.347, ABPs must include MH/
SUD services regardless of whether they are currently covered in the 
state's Medicaid plan.
    Comment: One commenter requested that CMS clarify the guidelines 
concerning ABP benefit substitutions that involve mental health 
benefits. One wrote that substitutions should not be allowed if they 
would diminish the value of the mental health coverage provided by the 
EHB-benchmark plan on which ABP benefits are based. The commenter 
recommended that this issue be carefully monitored; if possible, CMS 
should develop an easily applied, objective test to evaluate whether a 
proposed benefit substitution would reduce the value of mental health 
coverage compared to the mental health coverage provided by the EHB 
benchmark plan. Additionally, some commenters stated there still is 
confusion about how to apply the parity requirements. Commenters 
encouraged CMS to issue explicit guidance on whether benchmark plans 
will be evaluated for compliance with parity requirements as necessary 
before they are approved by CMS as ABPs.
    Response: As discussed above and below in the summary, substitution 
will be allowed according to provisions at 45 CFR 156.115(b) except 
that states will perform substitution rather than issuers. We will 
review all ABP state plan amendment requests from states against 
applicable federal laws and regulations, including MHPAEA.
    Comment: Some commenters wrote that because they are not 
specifically enumerated in MHPAEA, inpatient mental health substance 
abuse disorder (MH/SUD) services are often not

[[Page 42197]]

covered. Many commenters stated that the definition of ``inpatient'' in 
the Interim Final Rules implementing MHPAEA leaves the definition up to 
the state and insurance companies. This is important and unfortunate 
because it allows for avoidance of MHPAEA and invites litigation. A 
number of commenters stated that HHS can easily rectify this deficiency 
by explicitly mandating residential coverage as an ``inpatient service 
which must be offered on par with medical/surgical coverage.'' Some 
urged CMS to explicitly restate the requirement that all Medicaid ABPs 
must cover MH/SUD services. A number of comments stated that inpatient 
services must be defined as including residential services, including 
Institutions for Mental Diseases (IMDs). HHS can improve the 
interpretation of relevant definitions by incorporating by reference 
those definitions as set forth by the American Psychiatric Association 
in its Diagnostic and Statistical Manual of Mental Disorders. By 
offering a federal floor of required services states can take comfort 
that they have met the mandated requirement. One commenter wrote that 
IMD restrictions present an access barrier for the expansion population 
and the Affordable Care Act is clear that ABPs should include the EHB 
hospitalization and mental health services that are included in 
commercial coverage that must cover EHB. Another commenter wrote that 
HHS should prohibit ABPs from including mental health benefits that are 
subject to higher limitations on amount, scope, and duration than 
benefits intended for physical/medical conditions, or narrowly 
specifying that mental health services cannot be a component of other 
EHB categories, such as the mental health rehabilitation needs that are 
required following a traumatic medical event.
    Response: States must offer services in all ABPs that reflect the 
ten EHB categories, including MH/SUD services. We do not intend to 
require states to include specific services within EHB categories 
offered through an ABP. Nor are we specifically requiring coverage of 
any particular residential mental health services as part of 
``inpatient services,'' provided that the coverage complies with 
MHPAEA. States may, however, be required to provide residential mental 
health services that are included in the section 1937 coverage plan 
that is the basis for the ABP, or that is included in the base-
benchmark plan selected by states to define EHBs for Medicaid.
    We clarify, however, that the IMD payment exclusion does apply to 
all medical assistance, even medical assistance furnished through an 
ABP. This means that FFP is not available for any services, including 
services provided through an ABP, furnished to an individual under age 
65 who resides in an IMD, except for inpatient psychiatric hospital 
services furnished to individuals under age 21. Finally, we clarify 
that the requirement that all ABPs comply with MHPAEA includes 
compliance with MHPAEA requirements regarding treatment limits.
    Comment: A commenter wrote that under the traditional Medicaid 
program, the term ``medical assistance'' does not include care or 
services for any individual who is a patient in an institution for 
mental disease, but benchmark coverage does not have an express 
exclusion of care and services for such individuals. The commenter 
asserted that for benchmark coverage, which includes coverage for EHBs, 
exclusion of these same services for patients residing in an IMD would 
directly conflict with the plain language of the law because section 
1937 of the Act provides for no exception for individuals between ages 
of 21 and 65 residing in an IMD, but does contain an exemption from 
other provisions of Title XIX (to which the IMD exclusion applies). The 
commenter states that just as an ABP is exempt from complying with the 
requirements related to state-wideness and comparability in the 
Medicaid statute because they conflict with the benchmark authority, so 
too is the plan exempt from complying with the IMD exclusion which 
cannot be applied in a consistent manner with the EHB requirements. The 
commenter also added that, just as application of the IMD exclusion to 
an ABP would be ``directly contrary'' to a state's ability to offer 
EHBs, the exclusion is also contrary to any of the benchmark/benchmark-
equivalent coverage described in the statute. Another commenter argued 
the same points and also stated that the IMD exclusion is not 
consistent with the definition of an ABP to include, among a selection 
of plans, the health insurance plan offered through the HMO that has 
the largest insured commercial non-Medicaid enrollment in the state. As 
such coverage would necessarily be available on par to individuals 
residing inside and outside of an IMD, the commenter asserted that 
Congress never intended the IMD exclusion to apply to Medicaid 
beneficiaries enrolled in an ABP.
    Response: We do not agree with the commenters' statements that the 
IMD exclusion does not apply to medical assistance furnished through an 
ABP. The IMD exclusion is not a service or benefit exclusion. It is a 
payment exclusion that applies to all Medicaid services provided to an 
individual residing in an IMD, not solely a payment exclusion for 
services provided in or by an IMD. The statute excludes services 
furnished to residents of an IMD from the term ``medical assistance,'' 
and we read this exclusion to apply whether medical assistance is 
furnished through regular coverage or through an ABP. (Above we clarify 
that we have a parallel reading of the similar payment exclusion for 
inmates of a public institution.) Thus, we clarify that the IMD payment 
exclusion applies to coverage offered through ABPs. Benefits furnished 
through ABPs can be structured so that individuals have inpatient 
options for mental health treatment outside of IMDs, but to the extent 
that an individual resides in an IMD, the IMD exclusion would apply. We 
are not aware of any contrary congressional intent, and this position 
is consistent with the express statutory exclusion from the definition 
of medical assistance.
    Comment: A few commenters stated that MH/SUD services are sometimes 
provided in facilities that are considered an institution of mental 
disease for which FFP is excluded and requested that CMS reconcile the 
requirement that these services must be provided as an EHB.
    Response: For the reasons discussed above, we are clarifying that 
the IMD payment exclusion does apply to medical assistance furnished 
through ABPs. We expect that ABPs will ensure that coverage for MH/SUD 
services is available consistent with MHPAEA and the final regulations 
that govern EHBs under Medicaid. There may be options for inpatient 
services other than inpatient services in IMDs that states may wish to 
consider to meet MHPAEA obligations under ABPs.
    Comment: One commenter stated that exclusions for otherwise-covered 
benefits such as mental health services that treat eating disorders and 
gender disorders should not be permitted, as these exclusions carve out 
coverage explicitly on the basis of health condition and are 
discriminatory.
    Response: We will review ABP state plan amendments to ensure their 
compliance with applicable federal statutes and regulations, including 
MHPAEA, and EHB anti-discrimination provisions.
    Comment: One commenter stated that healthcare providers who provide 
MH/SUD treatment services were encouraged by the passage of MHPAEA but 
many states and insurance companies are ``stonewalling'' implementation 
and inclusion of MH/

[[Page 42198]]

SUD treatment as a mandate. EHB requirements will not correct this 
problem unless HHS rules provide better clarity regarding 
implementation of parity, in particular inclusion of inpatient 
services.
    Response: MHPAEA does not require the provision of specific MH/SUD 
services. Rather, it requires these services to be provided in parity 
with medical/surgical services, when benefit packages include both sets 
of services. The release of the January 13, 2013 State Health Official 
Letter has provided initial guidance to states and managed care plans 
regarding the application of MHPAEA to the Medicaid program. We believe 
that guidance provides useful information to states regarding their 
efforts to apply MHPAEA to their Medicaid ABPs. In addition, CMS is 
reminding commenters that inpatient hospitalization is a required EHB 
for ABPs.
    Comment: One commenter stated that Medicaid regulations should 
employ the same disorder carve-outs for the expansion population as 
used for existing populations and remain in compliance with federal 
parity laws. Further, states should not be required to provide 
different or additional MH/SUD benefits to the expansion populations 
than what is furnished to existing beneficiaries.
    Response: This regulation does not prohibit states from using their 
current delivery systems or designing new delivery systems to offer 
EHBs, including MH/SUD services. States are required to offer MH/SUD 
services consistent with the process set forth in this regulation 
regarding the development of ABPs and MHPAEA. Because of the need to 
select a public employee or commercial plan to define EHBs for 
Medicaid, there could be differences between the ABP benefit package 
and the services otherwise offered in the regular Medicaid coverage 
package.
    Comment: Many commenters strongly urged CMS to release final MHPAEA 
regulations as soon as possible and to include how to apply parity to 
EHBs and ABPs and to give examples of violations. A commenter stated 
that without the final rule on MHPAEA, effective compliance will not be 
possible. Another commenter requested prompt release of additional 
guidance referenced in the January 13, 2013 State Health Official 
Letter, concerning any requirements to apply parity principles across 
multiple managed care delivery systems and urged a flexible approach to 
measuring parity in carve-out setting in promotion of continuity for 
existing arrangements and authorities.
    Response: A response on the timing of a final MHPAEA regulation is 
beyond the scope of this regulation.
    Comment: One commenter wrote that insurance companies have sought 
to avoid implementation of MHPAEA and states that do not currently 
require mental health parity may be concerned that compliance will 
result in the state incurring the costs associated with the expansion 
of state mandates. Two commenters stated that there are lingering 
concerns with some of the parity language in the proposed regulation, 
which states in Sec.  440.345 that ABPs that provide both medical and 
surgical benefits, and mental health or substance use disorder 
benefits, must comply with MHPAEA. CMS should revise this language to 
make it clearer and more accurate. The commenters asserted that MHPAEA 
does not apply to coverage under section 1937 of the Act that is 
delivered in a non-managed care arrangement; rather the Affordable Care 
Act extended the protections of MHPAEA to this coverage without 
amending MHPAEA. Specifically, regarding coverage under section 1937 of 
the Act, the Affordable Care Act requires that ``the financial 
requirements and treatment limitations applicable to such mental health 
or substance use disorder benefits comply with the requirements of 
section 2705(a) of the PHS Act (MHPAEA) in the same manner as such 
requirements apply to a group health plan'' and the final rule should 
include similar language.
    Response: It is unclear exactly what the commenter is asking, in 
terms of incurring expenses associated with state benefit requirements. 
Therefore, we will not be able to respond to this comment at this time. 
We disagree with the commenters' assertion that mental health parity 
requirements do not apply to ABPs using non-managed care delivery 
systems. Parity requirements apply to all ABPs, regardless of the use 
of managed care.
    Comment: One commenter wrote that because of changes in the income 
eligibility standards we expect Medicaid expansion is more likely to 
enroll individuals who are working but have no insurance and who need 
this coverage to access treatment to maintain employment. People with 
addictions enter treatment at different phases and will use different 
parts of the continuum, and elimination of any part of the continuum 
would violate MHPAEA and cost human lives. The commenter urged CMS to 
adopt the same standards set forth in the proposed rule for the 
Affordable Care Act standards related to EHB, Actuarial Value, and 
Accreditation for purposes of Medicaid ABPs. Additionally, the 
commenter stated that MHPAEA holds out the promise that everyone will 
be able to get help but strong enforcement of MHPAEA is necessary.
    Response: It is unclear exactly what the commenter is asking. 
Therefore, we will not be able to respond to this comment at this time.
    Comment: A commenter wrote that this rule as proposed rule fails to 
link MHPAEA compliance to adherence to the Interim Final Rule which 
operationalizes MHPAEA. The previously issued Proposed Rule for 
Standards Related to Essential Health Benefits, which addressed the 
design of EHBs for commercial market insurance beneficiaries, made 
specific reference to the Interim Final Rule effectuating MHPAEA. The 
proposed rule simply says the EHBs of ABPs must comply with MHPAEA. The 
commenter questioned whether this lack of direct reference to the 
existing law mean Medicaid ABPS need not comply with all provisions of 
the Interim Rule. The commenter strongly urges CMS to clarify whether 
or not these ABPs must comply with all provisions of the Interim Final 
Rule and what if any law, in whole, or in part, it will use to assess 
ABP compliance with MHPAEA.
    Response: On January 16, 2013, CMS released a State Health Official 
Letter regarding the application of MHPAEA to Medicaid MCOs, CHIP, and 
ABPs. This guidance specifically states that all Medicaid ABPs, 
including Secretary-approved coverage, must meet the parity 
requirements, regardless of whether services are delivered in managed 
care or non-managed care arrangements.
    Comment: Several commenters wrote that exclusions of mental health, 
substance use disorders and behavioral health treatments that fail to 
meet the parity standards required by MHPAEA are discriminatory. 
Despite existing parity requirements state implementation and 
enforcement of MHPAEA has varied widely and patients seeking metal 
health services are frequently subjected to excessive and inappropriate 
non-quantitative limitations. Another commenter stated that CMS should 
identify a standard to determine whether the coverage provided complies 
with non-discrimination provisions of the Affordable Care Act.
    Response: As stated in the January 13th State Health Official 
Letter, ABPs must comply with MHPAEA.
    Comment: One commenter suggested that the goal of Affordable Care 
Act coverage was to include the 10 EHBs including mental health and 
substance use disorder services.

[[Page 42199]]

    Response: We agree with the commenter that one goal of Affordable 
Care Act coverage was to include coverage of the 10 EHB categories, 
including mental health and substance use disorder services in ABPs. We 
support providing a floor of coverage to Medicaid beneficiaries. As 
mental health parity also applies, this will lead to parity among 
mental health and substance use services and other medical and surgical 
services.
    Summary: We will not be making changes to proposed regulation text 
as a result of these comments. However, we are clarifying that the 
payment exclusion for services provided to individuals residing in an 
institute of mental disease (IMD) continues to apply to all individuals 
participating in ABPs. This is important because many commercial 
products offer coverage of residential services in settings that for 
Medicaid purposes are considered IMDs, and federal matching funds will 
not be available for medical assistance for individuals who reside in 
such settings.
f. EPSDT and Other Required Benefits (ABPs Include EHBs and All Updates 
and Modifications) (Sec.  440.345)
    We proposed at Sec.  440.345(d) the requirement that ABPs provide 
EHBs and include all updates and modifications thereafter by the 
Secretary to the definition of EHBs.
    Comment: Several commenters wrote that the revisions make Federally 
Qualified Health Center (FQHC) requirements within ABPs less clear. The 
EHBs are the floor of ABP coverage and that the requirement to provide 
EHBs within ABP does not circumvent existing requirements within 
section 1937 of the Act, which includes coverage of FQHCs. The 
commenter stated to identify that the regulation as drafted is 
confusing as subsections (a) describing the requirement that at least 
the ten categories of EHBs be included in section 1937 of the Act and 
(b) describing the requirements to include the benefits covered in one 
of the state selected benchmark plans and subsection (a) does not 
indicate that it is a floor. The commenters requested that CMS 
reiterate or clarify revisions to the regulation to reaffirm this.
    Response: There are several benefits specified by section 1937 of 
the Act that are required in addition to EHBs. We did not change Sec.  
440.365, which reflects section 1937(b)(4) of the Act, providing that 
states must assure access to these services through the benchmark or 
benchmark-equivalent coverage or otherwise, to rural health clinic 
services and FQHC services, even if the state does not contract with an 
FQHC or rural health clinic and that payment for these services must be 
made in accordance with the payment provisions of section 1902(bb) of 
the Act. The inclusion of EHBs within section 1937 of the Act 
establishes a minimum level for benefits, to which other benefits 
required as part of section 1937 of the Act are added.
    Comment: Many commenters were supportive of the Affordable Care 
Act's application of EHB requirements to ABPs and providing a floor of 
benefits. Some commenters also supported inclusion of updates and 
modifications made thereafter. Some commenters went further to support 
the inclusion of mental health and substance use disorder benefits as 
consistent with the MHPAEA.
    One commenter generally supported implementing EHBs in ABPs to 
provide a stable set of core services for people receiving benefits in 
the ABP, and to help align the rules for patients and providers to 
ensure continuity of care. This is important for people who will churn 
between Medicaid, the commercial markets and potentially a state basic 
health plan.
    Response: CMS appreciates the support of commenters.
    Comment: A few commenters identified that EHB definitions will 
affect how individuals maintain access to health care, services and 
drugs and biologicals that they need.
    Response: We agree with these commenters. The new coverage will 
likely be different from the coverage that beneficiaries receive today. 
States will have discretion regarding how to define EHBs using the 
process outlined in this regulation, namely selecting the base-
benchmark plan to define EHBs. For Medicaid, we remind readers that 
EHBs are only the floor for coverage, and states have options for 
offering coverage that exceeds this floor. States can also add 
additional coverage for beneficiaries receiving ABPs who are not 
eligible for the new adult group.
    Comment: One commenter suggested that home care services should be 
included in the Medicaid ABP to the same extent that they are included 
in the existing regular Medicaid program.
    Response: The rules for establishing coverage are different between 
the regular state Medicaid program and flexibility provided within 
section 1937 of the Act. States must provide home health services as a 
mandatory benefit in the regular Medicaid state plan. This is not a 
minimum requirement for coverage under of section 1937 of the Act and 
is not required as an element of EHBs.
    Comment: One commenter requested clarification that the Affordable 
Care Act established a floor of coverage using EHBs. Benefits should 
not be limited solely to EHBs as no ceiling was established. The 
Affordable Care Act only restricts costs for state mandated benefits 
from being passed onto the federal government via the EHBs.
    Response: Yes, EHBs are considered a minimum level of coverage. 
ABPs are not limited solely to EHB benefits; ABPs are constructed based 
on the coverage plan under section 1937 of the Act selected by the 
state, including EHBs based on the state selected base benchmark plan, 
supplemented as necessary and subject to substitution of actuarially 
equivalent benefits as permitted under 45 CFR 156.115(b). The section 
1937 coverage plan selected by the state can include a Secretary-
approved coverage plan that may include benefits that are not available 
under other section 1937 coverage options. Furthermore, ABPs are 
required to cover certain benefits including rural health clinics, 
FQHCs, and family planning services and supplies. EPSDT services for 
individuals below age 21 also apply within section 1937 of the Act. 
MHPAEA also applies to the provision of MH/SUD services.
    Comment: One commenter requested that CMS consider adding an EHB 
requirement for hospitals and pediatricians to conduct risk assessments 
of all newborns for severe respiratory syncytial virus (RSV) disease.
    Response: These services can be covered if states select coverage 
options that cover such services. Furthermore, children must receive 
all EPSDT services as part of the ABP, and states may consider such 
risk assessments to be part of the required EPSDT screening services. 
For the new adult group, only 19- and 20-year olds will be covered by 
EPSDT. There are both requirements and flexibility for states in both 
selecting plans and constructing EHBs and section 1937 coverage 
options. Please refer to the summary at the end of this section for 
further discussion of these steps and flexibilities.
    Summary: We have not made any changes to regulation text, based on 
public comments received.
g. EPSDT and Other Required Benefits (Process for Updating EHBs) (Sec.  
440.345)
    In Sec.  440.345(e), we proposed that the ABPs that include EHBs 
will remain effective through December 31, 2015 without a need for 
updating. We also proposed that we will consult with states and 
stakeholders and evaluate the

[[Page 42200]]

process to determine updates to the ABPs after that date.
    Comment: Several commenters offered support of the intent of our 
proposed policy concerning the updating of ABPs that have been 
determined to include EHBs as of January 1, 2014. One commenter 
supported the Department's intent to issue future guidance for updating 
EHB benefits for 2016 and subsequent years. Similarly, another 
commenter indicated support of the alignment of the transition period 
for updating ABPs with the transition period designated for updating 
EHBs in 45 CFR Part 156.
    Response: We appreciate the support.
    Comment: A few commenters indicated concern that imposing a 
requirement to update section 1937 benchmark plans would add 
significant new workload for states. One commenter believed that there 
is currently no statutory requirement to make updates to section 1937 
plans, and suggested that the Secretary allow for grandfathering of 
currently offered section 1937 benchmark benefit plans. Many commenters 
also recommended that HHS reserve some authority to resolve significant 
problems with the benefits package during this time period by revising 
the proposed provision to add that states with approved ABPs as of 
January 1, 2014 do not have to update benefits until December 31, 2015, 
``unless the Secretary determines that there are exceptional 
circumstances to update a plan.'' Several commenters urged the 
Department to set up a formal mechanism to ensure that adequate data is 
collected for ABPs in 2014 and 2015 to inform updating benefits in 2016 
through a transparent process in which consumers help guide any 
necessary changes. Similarly, several other commenters urged the 
Department to consider a more robust stakeholder engagement in all 
aspects of processes used to assess the current EHB approach and 
whether to adopt a new approach in 2016.
    Response: CMS has been working with states to submit state plan 
amendments using a standardized template that includes the information 
needed for approval from CMS. The CMS review process allows for 
resolution of issues identified within the ABP prior to approval. We 
aligned the timeframes with CMS policy to allow for implementation 
efficiencies. As we develop the process, we will take into account 
balancing potential workload of the state and CMS and the need for 
information to keep the ABP current with changing commercial market 
products. It is important for ABPs to stay current with changes in the 
base-benchmark as well as with public employee or commercial plans that 
may have been selected as section 1937 coverage options. Commercial 
plans are usually updated annually. All ABP SPAs are required to have 
public notice and approved SPAs will be placed on a CMS Web site. We 
are also updating the Medicaid Statistical Information System (MSIS) to 
improve the quality, accuracy, and timeliness of data submitted to CMS 
by states. That said, we appreciate that it may be difficult at this 
point to make changes to the ABP that take effect by January 1, 2014. 
In light of this challenge, we will partner with states to work as 
quickly as possible to come into full compliance with these provisions. 
We do not intend to pursue compliance actions on these issues to the 
extent that states are working toward but have not completed a 
transition to the new ABPs on January 1, 2014.
    Comment: One commenter indicated that the applicability of the 
proposed provision was unclear when applied to states that choose not 
to expand coverage as of January 1, 2014, but might choose to offer a 
benchmark benefit plan prior to December 31, 2015.
    Response: These provisions apply to all existing and new ABPs that 
have an effective date of January 1, 2014 or later.
    Summary: We will not be making changes to proposed regulation text 
as a result of comments received.
h. Essential Health Benefits (Sec.  440.347)
    We proposed to add EHBs within section 1937 of the Act and that 
individuals in the new adult group who meet the criteria for exemption 
from mandatory enrollment will receive a choice of benchmark coverage 
defined as the benefit package using section 1937 rules or the state's 
approved Medicaid state plan that is not subject to the section 1937 
rules. We proposed a process for establishing EHBs within an ABP that 
is consistent with the general provisions for established EHBs in the 
individual and small group market, but reflects the particular 
circumstances of Medicaid. In particular, the process reflects the fact 
that the state establishes coverage rather than an insurance issuer, 
and that the coverage is consistent with the requirements of section 
1937 of the Act. We also proposed that, while EHBs will be defined by 
the state using a selected base benchmark from the list of those plans 
that can be chosen to define EHBs in the individual and small group 
market, the base benchmark plan for defining EHBs for Medicaid can be 
different than the base benchmark plan chosen for the commercial 
market. We further proposed that there could be more than one base 
benchmark plan for defining EHBs for Medicaid ABPs.
    Comment: One commenter stated they support the structure for 
implementing Essential Health Benefits as proposed.
    Response: CMS appreciates the support.
    Comment: One commenter supported Sec.  440.347, which allows states 
to have more than one ABP to reflect the health care needs of a 
targeted population and use a different base benchmark plan for each 
ABP. A few commenters supported HHS implementing the statutory 
requirements to at a minimum include EHBs. One commenter supported the 
general approach to coverage of EHBs. Another commenter supported 
states having broad flexibility to choose a benchmark plan, including 
the same options available in the commercial market and the ability to 
use a different plan from the one that was selected for the state's 
commercial plans. This commenter also recommended that the state's 
Medicaid State Plan be considered for Secretary-approved coverage for 
the ABPs. They requested clarification of the timeframe for approval of 
Secretary-approved plans.
    Response: We appreciate the support of our policy to allow states 
the flexibility to use different base benchmarks in Medicaid from those 
used for the non-grandfathered plans in the individual and small group 
markets.
    We confirm that Secretary-approved coverage is part of the ABP 
template, and can include the full coverage otherwise available under 
the approved state plan, as long as all requirements of this regulation 
are met. The entire template is considered a state plan amendment to be 
completed and submitted by the state to CMS for approval. The timing of 
action on state plan amendments is addressed in our regulations at 
Sec.  430.16, which include one 90-day review period, the option for 
CMS to request additional information, and an additional 90-day review 
period.
    Comment: One commenter requested that HHS clarify that states can 
design ABPs for subpopulations within the newly eligible group.
    Response: We confirm that states can offer different ABPs to 
subpopulations within the newly eligible group. Under section 
1937(a)(1)(A) of the Act, coverage through an ABP can be offered to 
``groups specified by the State'' without regard to the comparability 
or statewideness requirements at section 1902(a)(10)(B) of the Act and 
Sec.  440.240. (Other requirements, such as civil rights protections, 
still apply and may affect the nature of the groups that a state may 
specify.) As a result, states may offer ABPs that are appropriate for 
the unique

[[Page 42201]]

characteristics of subgroups of the new adult group; for example, 
states may offer different ABPs to individuals in different geographic 
regions, or to individuals who have particular medical, service or 
support needs.
    Comment: The flexibility for states to select EHBs at Sec.  
440.347(b) and (c) to achieve targeting of populations causes more harm 
than good according to some commenters. The commenters believe that 
states already have significant flexibility to target ABPs through the 
Secretary-approved process and the targeting flexibility adds little 
but creates confusion. CMS would be better served in terms of 
administrative simplicity, oversight, and consumer understanding if one 
EHB standard was applicable in the commercial markets and ABPs. These 
commenters recommend that HHS require states to use the state-selected 
base benchmark plan that applies for the commercial markets for ABPs as 
well. Another commenter believes that EHBs should establish a minimum 
floor of coverage and that all plans should be required to use the 
state-selected base-benchmark plan that applies for the commercial 
markets for purposes of section 1937 of the Act as well. This will 
reduce administrative burden and better align standards between EHB in 
the commercial markets and in Medicaid.
    Response: The flexibility provided at Sec.  440.347(b) and (c) 
permits states to design different benefit packages that at a minimum 
include EHBs. Alternatively, one benefit package could be used for 
multiple populations. States also have the choice to use the same base 
benchmark in ABPs and the commercial markets, which would result in 
aligning standards for EHB in coverage under ABPs and the commercial 
markets. We have adopted policies that would maximize state flexibility 
while ensuring sufficient coverage for beneficiaries.
    Comment: One commenter is seeking clarification of the phrase set 
forth in Sec.  440.347 ``consistent with the requirements set forth in 
45 CFR [part] 156'', particularly if it adds obligations to the 
requirement to select a benchmark plan that includes benefits in each 
of the ten EHB categories. A few commenters request clarification of 
the specific provisions of 45 CFR Part 156 related to EHB that apply.
    Response: This regulation is consistent with the EHB requirements 
under 45 CFR Part 156, but specifically addresses the application of 
those requirements for purposes of compliance with section 1937 of the 
Act as amended by section 2001(c) of the Affordable Care Act. The base-
benchmark plans for defining EHBs include the same choices in both 
Medicaid and the non-grandfathered plans in the individual and small 
group markets. States may choose a different base benchmark plan for 
Medicaid than for the individual and small group markets. But, 
recognizing that Medicaid coverage is provided in a different context 
than coverage in the individual and small group markets, we provide 
that states may choose a different base benchmark plan for Medicaid 
than the individual and small group markets, and may choose more than 
one base benchmark plan for Medicaid. We also provide that states 
exercise the options available in the individual and small group market 
to insurance issuers. This regulation identifies those aspects of 45 
CFR part 156 that are modified within Medicaid under the section of the 
preamble entitled ``Modifications in Applying the Provisions of This 
Proposed Rule to Medicaid.''
    Comment: Several commenters suggested that the list of required 
categories of services for benchmark-equivalent coverage include the 
EHBs as specified in Sec.  440.347(a) for consistency and clarity as 
ABP coverage must include at least the EHBs. Another commenter 
suggested that CMS should pursue parity between Medicaid state plan 
benefits and the new ABP for newly eligible adults to assist with 
``churn'' between Medicaid and the commercial markets.
    Response: Section 1302 of the Affordable Care Act establishes EHBs 
that must be provided as part of benchmark benefit coverage. A 
benchmark-equivalent benefit package must be actuarially equivalent to 
the benchmark plan that is chosen. We do not believe it is necessary to 
specifically add the EHB categories to benchmark-equivalent coverage 
because we are instead setting out procedures to ensure that coverage 
includes EHBs that govern both benchmark and benchmark-equivalent 
coverage.
    Comment: Section 440.347(c) allows states to select more than one 
EHB option for ABPs. A few commenters urged CMS to limit states to 
choosing a single EHB option for Medicaid to provide a floor of 
benefits. They asserted that Congress intended consistency among ABPs 
by applying EHB requirements to them. Some commenters asserted that 
allowing for selection of multiple options will create unnecessary 
administrative burdens on state Medicaid programs and this commenter 
suggests that there should be only one EHB benchmark option for ABPs. 
But other commenters agreed with our proposed rule that, because ABPs 
serve a different population than private health plans, the single EHB 
benchmark does not need to be the same as the one chosen for the 
state's individual and small group market. Another commenter asked that 
CMS clarify that states do not have the flexibility to vary amount, 
duration, and scope of benefits within populations on a plan-by-plan 
basis as currently allowed, which would only increase complexity. This 
commenter also requested clarification related to whether the limited 
authority provided through the DRA and now expanded through this rule 
can be superseded by section 1115 authority. This commenter also 
responded that a state may try to combine flexibilities for EHB, ABP, 
premium assistance, and amount, duration, and scope to shift to a model 
that has not been adequately explored for unintended consequences.
    Response: While it is true that coverage of EHBs will be required 
for non-grandfathered plans offered in both the individual and small 
group markets and Medicaid, we think it is important to provide states 
flexibility to define EHBs as appropriate in each context. In the non-
grandfathered plans offered in the individual and small group markets, 
states have some flexibility to define EHBs through selection of a base 
benchmark plan. For Medicaid coverage, we believe that additional 
flexibility will enable states to tailor coverage to the needs of the 
Medicaid population. While states can, for simplicity, choose one 
standard to determine EHB in both the individual and group markets and 
in Medicaid, they are not required to do so. We are permitting states 
flexibility to choose a single standard or multiple standards for EHB 
in Medicaid to ensure a full range of coverage options. States must 
determine whether multiple standards would result in administrative 
burdens. We are reminding states that the floor of coverage is EHBs 
defined by the benefits, including limitations on amount, duration, and 
scope, from the selected base benchmark plan (but states may be 
required to, or may have options to, cover benefits above that floor 
consistent with section 1937 of the Act). Please refer to the summary 
at the end of this section for further discussion of these steps and 
flexibilities.
    Comment: Several commenters recommend that the Department ensure 
that Secretary-approved coverage is actuarially equivalent to the other 
benchmark coverage options. These commenters support the clarification 
that Secretary-approved coverage must provide robust benefits. However, 
these commenters indicate that it is important

[[Page 42202]]

for Secretary-approved coverage to provide the same level of coverage 
as other benchmark plan options to prevent newly eligible people from 
receiving lesser coverage.
    Response: This rule is not intended to change the assessment of 
Secretary-approved coverage, except to the extent that it must include 
EHBs. The standard that we apply for assuring the sufficiency of the 
benefit package established using Secretary-approved coverage is 
whether the benefits are appropriate to meet the needs of the 
population provided that coverage, as outlined in Sec.  440.330(d). 
EHBs establish a floor of benefits for ABP populations and must be 
provided with Secretary-approved coverage as with any ABP. Secretary-
approved coverage permits states flexibility to design a benefit plan 
that might differ from the other options available under section 1937 
of the Act. As mentioned previously, in all cases a state must first 
select a base benchmark to define EHBs. The EHBs in the base benchmark 
plan serve as the minimum floor of coverage that is supplemented for 
any missing EHBs. Using substitution, states may achieve a benefit 
package that includes benefits from the regular state plan.
    Comment: One commenter believed that extending full Medicaid 
benefits to the newly-eligible expansion population, supplemented as 
needed to comply with the EHB, parity, and other protections in the 
law, is the best approach for meeting the complex health needs of low-
income adults who will gain Medicaid eligibility under the expansion. 
The commenter urged CMS to work with States to ensure that this 
population's full range of substance use disorders and mental health 
needs and other health needs will be met. The commenter further 
suggested that CMS include language in the final rule that explicitly 
restates the requirement that all Medicaid ABPs must cover mental 
health services and substance use disorder services for all enrollees.
    Response: States have much flexibility, but are not required to use 
benefits from their regular Medicaid benefit package for the new adult 
coverage group, as long as EHBs are assured. The statute and regulation 
direct that mental health parity requirements and EHB requirements, 
including the provision of mental health and substance use services, be 
met. In some circumstances, we anticipate that the coverage furnished 
to the new adult coverage group may include certain benefits, such as 
certain substance abuse treatment services, that the state has elected 
not to cover under the state's regular Medicaid benefit package.
    Comment: The commenter stated general agreement with the approach 
that CMS has recommended for the ABP to be offered to certain 
populations under the expansion of Medicaid. The commenter requested 
clarification that the state would choose an ABP from four benchmark 
packages and would compare that choice to the private market EHB, 
supplementing coverage of the ABP if necessary to ensure that all EHB 
categories are included.
    Response: There are both requirements and flexibility for states in 
constructing EHBs and section 1937 coverage options. Please refer to 
the summary at the end of this section for further discussion of these 
steps and flexibilities.
    Comment: One commenter would like to underscore the importance of 
promoting seamless coverage among low-income individuals. Many of the 
individuals newly eligible for Medicaid in 2014 are likely to have 
fluctuations in income, and therefore are likely to ``churn'' between 
Medicaid and subsidized Exchange insurance coverage. This churn could 
result in treatment disruptions among patients and create 
administrative complexity for Exchanges, plans, and providers. Thus, 
promoting seamless coverage for this population and ensuring 
coordination of care during coverage transitions will be critical.
    Response: We appreciate the circumstances that the commenter 
identified for individuals that may have fluctuations in income. States 
have options for minimizing treatment disruptions and CMS will work 
with states to promote continuity of care.
    Comment: One commenter urges CMS to consider revising certain 
sections of the proposed rule to allow states the greatest opportunity 
to develop ABPs that are reflective of the population that they serve 
and ensure the long-term financial sustainability of this category of 
eligibility. This commenter believes that the proposed regulations 
create a cumbersome and confusing process and appear to strongly 
incentivize states to essentially mirror state plan benefits. This 
commenter wants maximum creativity to define the benefit package that 
will be provided to the newly eligible population, and encourages CMS 
to use this opportunity to allow for greater innovation at the state 
level by allowing design of benefit packages that simply take pieces of 
both Medicaid and the commercial market while also covering all EHBs. 
This approach will lead states to compare Medicaid to private and 
commercial market benefits and potentially add benefits to the Medicaid 
state plan.
    Response: We believe that the regulations offer significant 
flexibility for states to create benefit packages for all or for 
different groups of its newly eligible population. Appropriate benefit 
package design for the population's needs may contribute to long-term 
financial stability.
    Comment: A few commenters were concerned with disparities in 
coverage as the guidance suggests that the policy only mandatorily 
applies to the newly eligible category of adults. In states that expand 
their Medicaid programs to include these new categories of eligibility, 
they note that a higher income expansion population will receive a more 
generous package than existing populations. This will create a churn in 
Medicaid where states will likely have to expand coverage for all adult 
populations within Medicaid to prevent churn. They assert that this 
would result in significant financial cost to states to expand benefits 
to all adults as new benefits for the existing population are 
ineligible for the enhanced match offered under the Affordable Care Act 
for the newly eligible expansion population.
    Response: The Medicaid statute provides that coverage may be 
different for those people who receive coverage through an ABP 
established under section 1937 and those who receive regular Medicaid 
coverage. People in the new adult group must receive benchmark or 
benchmark-equivalent benefits, including EHBs. Consistent with the 
statute, the rules promulgated in this regulation will apply to all 
ABPs, not just for those people in the new adult group. As long as ABP 
(including EHB) requirements are met, states have significant 
flexibility in designing benefit package options that approximate 
regular state plan benefits.
    Comment: Many commenters recommended that ABPs provide appropriate 
coverage to meet the needs of the population in all ten EHB categories 
as per the general requirements of Sec.  440.330. These commenters 
suggest that the lack of a minimum standard in each of the ten 
categories is a flaw in the Exchange EHB standard that gets further 
magnified in Medicaid. For women's health, this is particularly 
important in terms of preventive services, prescription drugs, and 
maternity care. Several commenters support the EHB requirement as a 
strong floor for ABPs and indicate that states should have ample 
flexibility to add to the floor. These commenters also provided 
recommended regulatory language for Sec.  440.347(a) through (c).
    Response: EHBs are a floor to coverage and states have flexibility 
to

[[Page 42203]]

design an ABP that includes coverage above the minimum level of EHBs. 
Section 1302(b)(2) of the Affordable Care Act directs the Secretary to 
determine EHBs by reference to benefits typically offered in the group 
market, which is the same standard that we are applying in Medicaid by 
requiring that states determine EHBs by selecting a base benchmark from 
among the regulatory options described in Sec.  156.100. All benefits 
within the base benchmark that defines EHBs will need to be 
incorporated into the ABP, supplemented as necessary and subject to 
substitution of actuarially equivalent benefits as permitted under 45 
CFR 156.115(b). But the ABP can include other benefits based on the 
state choice of coverage option.
    For groups other than those in the new adult group, states can also 
offer additional benefits to supplement the benchmark or benchmark 
equivalent coverage that includes EHB and other required services. 
Sections 1902(k)(1) and 1903(i)(26) clarify that individuals in the new 
adult group receive benchmark or benchmark-equivalent coverage (that 
includes EHB and other required services and, as we explain below, for 
individuals who would otherwise be exempt from enrollment in an ABP, 
the option to receive an ABP that consists of regular Medicaid 
coverage). We intend to issue an ABP state plan amendment template and 
corresponding implementation guides for the states to use when 
submitting ABP state plan amendments.
    Comment: One commenter supports requiring coverage of all ten EHBs, 
as this will go a long way toward ensuring that Medicaid participants 
have adequate health care coverage. They request that HHS define the 
scope and services within each of the ten benefit categories to ensure 
that the covered services are at a minimum the same and provide a level 
of guaranteed coverage. This is necessary to ensure that there is 
adequate coverage within categories and balance between categories, and 
necessary to determine if ABPs are equivalent to the EHB package and 
comply with Affordable Care Act.
    Response: We thank the commenter for the support.
    Comment: One commenter indicated that ABPs should include an array 
of home care services that exist in traditional Medicaid benefit 
programs to comply with the American with Disabilities Act and Supreme 
Court Olmstead decision. To the extent that EHBs include institutional 
care or inpatient settings, a state must offer a choice of ``the least 
restrictive environment.'' Similarly, states that choose to provide 
services to individuals enrolled in ABPs that involve care in an 
institution should be required to include home and community-based care 
as well.
    Response: Section 1902(k)(1) of the Act provides that medical 
assistance for the new adult eligibility group is limited to benchmark 
and benchmark-equivalent coverage. Section 1902(k)(1) of the Act also 
provides an exception to the requirements of section 1937 of the Act 
for individuals who would be described in the exemptions at section 
1937(a)(2) of the Act. This means that individuals in the new adult 
eligibility group that otherwise meet the exemption criteria are 
required to be enrolled in benchmark or benchmark-equivalent coverage, 
but their benchmark or benchmark-equivalent coverage is not limited by 
the requirements of section 1937 of the Act. Therefore, these 
individuals must have a choice to receive ABP benefits as defined by 
the state applying the requirements of section 1937 of the Act using 
benchmark or benchmark-equivalent coverage (including EHBs and other 
required coverage) or ABP benefits defined without regard to the 
requirements of section 1937 of the Act, which consists of regular 
Medicaid coverage under the state plan. Home care is not a standardized 
term in Medicaid, so clarification would be needed to determine which 
Medicaid benefit category is actually applicable.
    We agree that states are obligated to comply with the Americans 
with Disabilities Act and the Olmstead decision.
    Comment: One commenter requests that crisis services be included in 
the mental health and substance abuse services category in the EHB 
package. This commenter requests that it be offered by qualified health 
plans and in new Medicaid expansion benefits in each state. These are 
important services to the safety net and for 24/7 crisis care, suicide 
prevention and access to emergency health care services, especially in 
communities where emergency mental health clinics or mobile health 
services are unavailable.
    Response: CMS is not requiring specific services to be included in 
any of the EHB categories, but all ABPs must include all EHBs defined 
through the process described in our regulations.
    Comment: Several commenters suggest that EHBs should comply with a 
consistent standard across ABPs as they are concerned that the proposed 
rule allows for states to select more than one option for establishing 
EHB to implement multiple ABPs for targeted populations. These 
commenters also recognize the need for states to target populations to 
address specific health care needs.
    Response: We are providing flexibility for states to select base 
benchmark plans in Medicaid that are different than the one selected 
for the individual and small group market, and to select multiple base 
benchmark plans, to maximize the ability for states to define ABPs that 
serve the unique needs of Medicaid populations and subpopulations.
    Comment: One commenter requested CMS include autism coverage in the 
EHB package to correct the omission. Lack of coverage can create 
significant financial burden on families and discourages autism 
professionals from practice. Families also may decide to not pursue 
treatment.
    Response: States have choices in determining in the benefit package 
that will be covered in their state within federal guidelines, but all 
ABPs must provide for coverage of EPSDT services for individuals under 
the age of 21. We expect that services to treat autism may be covered 
through a variety of coverage categories and many would be included in 
a state's ABP either because the services are within the section 1937 
coverage option or included as part of EHBs.
    Comment: One commenter applauds HHS for including coverage of the 
full package of EHBs, as it includes coverage of screening and brief 
counseling for domestic and interpersonal violence, in the Medicaid 
ABPs.
    Response: We thank the commenter for the support. While it is not 
certain that every ABP will include counseling for domestic and 
interpersonal violence, such services will be provided if they are part 
of the EHBs.
    Comment: One commenter believes that strong and comprehensive 
oversight and enforcement of EHBs and nondiscrimination standards at 
the state and federal level will help ensure consistent coverage of 
transplant benefits and eliminate discriminatory insurance practices. 
Therefore, the commenter asserted, ABPs must cover all EHB categories 
without discrimination for people who have or will acquire health 
conditions that lead to end stage organ failure. The commenter stated 
that a wide range of medical services are required during the 
transplant process and fall under the categories of ambulatory 
services, hospitalization, chronic disease management, mental health 
services, rehabilitative services, and prescription drugs. The 
commenter urged that all of these treatments must be covered under 
ABPs.

[[Page 42204]]

    Response: If transplant services are covered as part of the 
coverage option chosen by the state, or the benefits under the selected 
base benchmark plan, as supplemented (and subject to permissible 
substitution of benefits), then they will be covered as part of the 
ABP.
    Comment: According to one commenter, the Affordable Care Act 
specifies that entities covered under section 340B(a)(4) of the Public 
Health Services Act, which includes federally recognized Hemophilia 
Treatment Centers, be designated as essential community providers and 
that designation requires that qualified health plan networks to 
include Hemophilia Treatment Centers. This commenter requests that 
state Medicaid programs be encouraged or required to include essential 
community providers in their networks.
    Response: Coverage through an ABP remains subject to requirements 
under the state plan to provide for beneficiary free choice of 
provider, and provider payment rates that are consistent with 
efficiency, economy, and quality of care and assure sufficient access 
to services. States have options to limit free choice of provider in 
some circumstances, for example, managed care service delivery 
consistent with section 1932 of the Act, or through selective 
contracting arrangements authorized under a waiver under either section 
1915 of the Act or section 1115(a) of the Act. In any of these cases, 
states must assure sufficient beneficiary access to services.
    Comment: Several commenters suggested that the review of EHB, in 
the private insurance market and Medicaid, consider whether limits in 
coverage and changes in medical evidence or scientific advancement 
affect whether enrollees have difficulty accessing services. The EHB 
should be based on the most recent and reliable clinical evidence 
available and a process should be developed to inform and shape EHBs 
based on these factors over time. If not available, there should be an 
allowance for some physician discretion.
    Response: Consistent with the provisions of section 1302(b) of the 
Affordable Care Act, CMS has in the regulations at 45 CFR part 156 
defined EHBs by reference to coverage plans available in the commercial 
market.
    Comment: Several commenters also requested that review of EHBs be 
disaggregated to include demographic categories. HHS should require 
states to report enrollees' race, ethnicity, language, sex, and 
disability status data uniformly, as well as data on other demographic 
areas such as sexual orientation and gender identity, as described in 
section 4302 of the Affordable Care Act.
    Response: This information does not appear to be related to the 
review of EHBs. We note, however, that we are developing a Transformed 
Medicaid Statistical Information System that will include expanded data 
elements regarding beneficiaries, claims and providers per Affordable 
Care Act.
    Comment: One commenter supports inclusion of all ten EHB to reflect 
appropriate balance in each category and requested that anesthesia and 
pain management services be included in the ten categories of benefits 
covered by the ABPs. This commenter also requested that CRNAs and other 
non-physician providers who bill for Medicare Part B be included in 
Medicaid ABPs.
    Response: The coverage of particular services will depend upon the 
coverage option selected by the state, and the EHBs that are determined 
based on the state-selected base benchmark plan, as supplemented (and 
subject to substitution of actuarially equivalent benefits) consistent 
with the process described in 45 CFR part 156. This rule will not 
affect the ability of states to set provider qualifications for covered 
services.
    Comment: One commenter requested that dollar limits on a specific 
category of benefits and targeted use of utilization management 
techniques be prohibited.
    Response: Annual dollar limits are prohibited in the public 
employee or commercial plans that are the basis for coverage options 
and the base benchmark options according to section 2711 of the Public 
Health Service Act. Utilization management techniques are common 
practice for benefit management and will continue to be allowed in 
Medicaid. We expect that these practices will be non-discriminatory and 
not impede access to needed, covered services.
    Comment: One commenter indicated that HHS should specify in the 
final rule that to meet the health care needs of diverse segments of 
the population, an ABP must provide a process for participants to 
request and receive: clinically appropriate benefits not routinely 
covered by the plan, especially when the ABP is less costly than the 
covered benefit; coverage for benefits beyond limits set by the plan; 
coverage of specialty care not routinely covered by the plan when 
medically necessary and appropriate.
    Response: We are specifying in the final rule that, if an 
individual in the new adult group meets the criteria for exemption from 
mandatory enrollment in an ABP that would otherwise be applicable, then 
the individual would have a choice of an ABP that includes at least the 
EHBs, and is subject to the requirements of section 1937 of the Act, or 
benchmark or benchmark-equivalent coverage that is not subject to the 
requirements of section 1937 of the Act, and thus, includes all regular 
Medicaid state plan benefits. Other individuals do not have that choice 
but this rule does not affect their right to appeal denials of coverage 
through the state's fair hearing system.
    Comment: Commenters requested clarification and further guidance on 
the supplementation process established in both the proposed rule for 
the EHBs in the commercial market and the proposed rule for EHBs in 
Medicaid ABPs. Many commenters requested that CMS clarify what benefits 
would constitute coverage in each category and identify a threshold to 
trigger supplementation of a benefit category. It appears that a single 
service could be determined to be sufficient to define an EHB in 
Medicaid and therefore would not achieve MHPAEA compliance. A few 
commenters also stated that a single service would not meet non-
discrimination requirements in addition to the balance requirement, 
which requires a much stronger minimum set of benefits in each 
category. One commenter requested clarification of the Medicaid EHB 
supplementation process including the extent to which the scope of 
services in one EHB category must be consistent with services offered 
other health service categories. Several commenters believe that 
additional provisions need to be added to ensure that the level of 
benefits in each EHB category are meaningful and adequate to meet the 
needs of the population. Several commenters also requested that CMS 
clarify what benefits would constitute coverage in each category and 
explain how CMS would enforce the non-discrimination and balance 
requirements.
    Response: Supplementation occurs when a base-benchmark plan does 
not include items or services within one or more of the categories of 
EHB. Benefits from the base benchmark that are determined to be EHBs 
must be included as an EHB, unless substituted by the state. While the 
rules at Sec.  156.115(b) indicates that the ``issuer'' may substitute 
benefits, in Medicaid, the state functions as the issuer and we thus 
provide that the state can exercise the option to substitute benefits. 
We indicated that requirements at Sec.  156.110 apply unless we 
specifically modified the approach in Medicaid. Section 156.110(e) that 
specifies balance requirements also apply to EHBs

[[Page 42205]]

established in Medicaid. All benefits within the section 1937 coverage 
option must also be provided. CMS will conduct a review of all ABP SPAs 
to determine appropriateness for approval.
    There are both requirements and flexibility for states in 
constructing EHBs and section 1937 coverage options. Please refer to 
the summary at the end of this section for further discussion of these 
steps and flexibilities.
    Comment: The HHS February 17, 2012 Bulletin allows for substitution 
of services within the rehabilitative and habilitative benefit, 
allowing the plan to facilitate substitution of services at the 
provider level based on patient need not predetermined by the issuer, 
according to one commenter. The November 20, 2012 Patient Protection 
and Affordable Care Act; Standards related to Essential Health 
Benefits, Actuarial Value, and Accreditation proposed rule indicated 
that the issuer would create a substituted benefit plan, which would 
leave providers with no choice but to provide services in the benefit 
package and potentially lead to an individual choosing a plan that does 
not cover the services that they need.
    Response: States, not issuers, define benefits within section 1937 
of the Act. Section 156.115(b) outlines the substitution policy that 
will also be applicable to Medicaid except that, in Medicaid, states 
have the role of issuers and will indicate the substituted benefits. 
Substitution requires that benefits be in the same EHB category and 
that they are actuarially equivalent. This means that a state for 
example, could substitute a personal care benefit for an in vitro 
fertilization benefit in the EHB Ambulatory Services category, as long 
as they were actuarially equivalent. Within the rehabilitative and 
habilitative services and devices EHB, benefits can be substituted as 
long as the resulting benefits still provide for coverage of both 
rehabilitative and habilitative services. We expect that the benefit 
design will result in clinically appropriate services based on medical 
necessity. The resulting ABP, which includes EHBs that have been 
supplemented if necessary, individual benefits that have at state 
option been substituted, and benefits from the section 1937 coverage 
option, must be approved by CMS. Once approved, a description of the 
benefits included in the final ABP should be publicly available so that 
beneficiaries are knowledgeable of the benefits to which they are 
entitled. That said, we appreciate that it may be difficult at this 
point to make changes to the ABP that take effect by January 1, 2014. 
In light of this challenge, we will partner with states to work as 
quickly as possible to come into full compliance with these provisions. 
We do not intend to pursue compliance actions on these issues to the 
extent that states are working toward but have not completed a 
transition to the new ABPs on January 1, 2014.
    Comment: Many commenters are concerned that there is no requirement 
regarding adequacy of benefits. These commenters specifically requested 
that HHS provide a cross-reference to Sec.  440.230(b) and state 
explicitly that the requirement that every service offered through the 
Medicaid state plan ``be sufficient in amount, duration, and scope to 
reasonably achieve its purpose'' also applies to EHBs in the ABPs. A 
few commenters recommended that the regulations be revised to require 
states to supplement the benefits in a benchmark plan if any service in 
the EHB category is not sufficient in amount, duration, or scope to 
reasonably achieve its purpose.
    Response: Under section 1937of the Act, states are authorized to 
offer ABPs that include benefits derived from public employee or 
commercial market products, essential health benefits and certain other 
required benefits. Sufficiency standards applicable to the traditional 
Medicaid benefit package generally do not apply to ABPs. If Secretary-
approved coverage is chosen as the section 1937 coverage option, 
however, then we would require that the benefit package must ``provide 
appropriate coverage to meet the needs of the population provided that 
coverage'' under Sec.  440.330(d). Sufficiency standards at Sec.  
440.230 will be applied in our review of proposed Secretary-approved 
coverage.
    Comment: Many commenters requested that CMS reconsider the proposed 
approach and define comprehensive federal EHBs for section 1937 
coverage that all states would be required to use to supplement their 
chosen benchmark or benchmark-equivalent coverage. They urged that CMS 
should go further and require states to cover comprehensive benefits in 
each of the EHB categories and work with states to ensure that minimum 
coverage is met. One commenter went further to suggest that CMS and HHS 
adopt a comprehensive, national EHB in 2016, when the trial period for 
the current approach is complete.
    Response: EHBs in Medicaid will generally be defined in the same 
fashion as they are defined in the individual and small group market, 
except for certain EHB categories discussed in the proposed rule and 
this final rule. This approach allows the public employee or commercial 
market plan selected by the state to define EHBs for Medicaid to set 
the floor for EHB coverage (with supplementation as needed and 
substituted as desired). States then have the authority to offer other 
services (including through Secretary-approved coverage for the new 
adult group).
    Comment: One commenter requested that HHS clarify that the 
requirement for balance among EHB categories ensures robust coverage in 
each category and cannot be used to lower other categories if one or 
more categories lacks robust coverage.
    Response: Consistent with the requirements of 45 CFR 156.110, EHB 
categories must be appropriately balanced to ensure that benefits are 
not unduly weighted toward any category. Any benefits that are 
determined to be EHBs from the base benchmark plan must be provided. 
Section 1937 of the Act also has an ``equal to'' standard that 
indicates that all benefits from a section 1937 coverage option must be 
provided. When Secretary-approved coverage is used, benefits must meet 
Medicaid sufficiency standards as well as the requirement that the 
benefit package be appropriate to meet the needs of the population.
    Comment: Many commenters reiterated concerns regarding the EHB 
proposed rule and EHB benchmark plan standards. This concern remains 
for ABPs as the Department does not sufficiently define the scope of 
coverage in any statutorily required category specifically maternity 
care. The base benchmark plans may include coverage of maternity 
services, but the plan documents do not specify which services define 
maternity coverage or provide details on coverage including limits. The 
lack of clear definitions further complicates the substitution and 
supplementation methodology. Several commenters want the Department to 
establish clear standards for what must be covered as required by 
sections 1302(b)(1) and 1302(b)(4)(C) of the Affordable Care Act to 
ensure a comprehensive standard. The adoption of coverage should not 
result in a discriminatory benchmark.
    One commenter expressed concerns related to the ambiguously defined 
EHB categories and encouraged HHS to definitively confirm the extent to 
which cost effective, clinically effective nutrition care services such 
as medical nutrition therapy are included as EHBs within Medicaid 
benchmark and benchmark-equivalent plans. This commenter requests 
adequate federal oversight and approval of benchmark plan selection by 
HHS to reflect the vital and unique role that nutrition plays in

[[Page 42206]]

improving and maintaining health for all Americans, but also recognizes 
the need to define EHBs flexibly. This commenter seeks clarification in 
the final rule on the metrics and bases upon which HHS will determine 
whether a benchmark or benchmark-equivalent plan meets the EHBs 
mandated by Affordable Care Act.
    Response: Section 1937 of the Act permits states to offer coverage 
through an ABP without regard to sufficiency requirements that are 
applicable to regular state plan benefits, except that we would apply 
sufficiency standards in our review of proposed Secretary-approved 
coverage as the section 1937 coverage option. Substitution is allowed 
in section 1937 of the Act using requirements found at 45 CFR 
156.115(b) except that the state will be exercising the option for 
substitution rather than an individual market issuer.
    Comment: Commenters requested that CMS provide clear regulatory 
guidance to states to ensure that the process for supplementing 
coverage to meet the additional requirements of Affordable Care Act is 
clear. This is especially important given that EHBs are not universally 
covered well by state Medicaid programs such as mental health and 
substance use services. Furthermore, for states that choose to use 
benchmark-equivalent coverage, this commenter requests that CMS 
establish clear limits on states' ability to use benchmark-equivalent 
coverage to undermine the EHB protections as it appears that under the 
proposed rule that they can reduce the value of EHBs under the 
benchmark-equivalent option to anything short of elimination. These 
commenters request that CMS ensure the comprehensiveness of the 
benefits for all beneficiaries covered by section 1937 of the Act 
regardless of the ABP chosen by the state.
    Response: Benchmark-equivalent benefit packages must be at least 
actuarially equivalent to one of the section 1937 benchmark coverage 
options and must include benefits within certain categories of basic 
services. In addition, the Affordable Care Act amended section 1937 of 
the Act to require the provision of EHBs in benchmark equivalent 
coverage, so we do not believe that use of this section 1937 coverage 
authority will undermine the EHB protections. The process for 
supplementation is found at 45 CFR 156.110(b)(1) through (4) and 
substitution requirements are at Sec.  156.110(b). All benchmark-
equivalent coverage packages must adhere to section 1937 requirements, 
and must not violate the EHB anti-discrimination principles.
    Comment: One commenter recommended that HHS specify in the final 
rule that ABPs must include benefits routinely covered by the benchmark 
plan, regardless of whether those benefits are listed in the data 
collection template used to report base benchmark benefits to HHS. 
Furthermore, all benefits within categories of care that list more than 
one benefit must be covered. For example, an ABP should be required to 
cover as three distinct benefits rehabilitative services, habilitative 
services, and rehabilitative and habilitative devices as opposed to 
only covering one of them.
    Response: We intend to develop a template for states to use to 
define the ABP in Medicaid that will result in the submission of a 
state plan amendment. This is a different process than the one used for 
states to submit the base benchmark benefits for the individual and 
small group market. A state can select a different base benchmark plan 
for the individual and small group market than it does for Medicaid 
purposes. We anticipate issuing further guidance on these operational 
issues.
    Comment: One commenter strongly encourages CMS to provide further 
guidance on alignment issues during the plan comparison and 
supplementation process. This commenter encourages CMS to clarify that 
during supplementation, states must create the most comprehensive 
benefit package possible, drawing from services covered in either the 
section 1937 coverage option or the comparison base benchmark plan, 
which could include drawing across categories if necessary to create a 
robust set of services that will result in adequate coverage of EHBs.
    Response: To clarify, the ABP must include as a floor the EHBs 
covered by the base benchmark plan selected by the state to define EHBs 
for Medicaid, supplemented as necessary and subject to substitution of 
actuarially equivalent benefits as permitted under 45 CFR 156.115(b). 
Balance requirements of 45 CFR 156.110(e) also apply. In addition, the 
ABP must include any benefits from the section 1937 coverage option 
that are not in the base benchmark plan, whether they are EHBs or not. 
If the section 1937 coverage option that is one of the three public 
employee or commercial products provides a service in a greater amount, 
duration, or scope than the EHB provided in the base benchmark plan, 
the state must utilize that section 1937 standard for that service. If 
the section 1937 coverage option is Secretary-approved coverage, then 
the state may choose which benefit to use.
    Comment: One commenter requests that HHS specify that appropriate 
balance of EHB coverage includes coverage of benefits across the care 
continuum, prohibits substitution between categories of EHB (for 
example, prohibit coverage of rehab therapy but include drug coverage) 
and between benefits (cover wheelchairs instead of rehabilitative 
hospital care to restore a person's ability to walk), cover all EHBs 
within the settings and by specialists which provide the current 
standard of care, and protect patients' access to appropriate and 
medically necessary care as provided by skilled medical professionals.
    Response: Substitution of benefits can be achieved when defining 
the EHBs according to 45 CFR 156.115(b). Benefits must be in the same 
EHB category and actuarially equivalent. Balance requirements at 45 CFR 
156.110(e) apply, as CMS did not indicate that they do not apply in 
Medicaid. CMS will be reviewing each state plan submission. As with all 
Medicaid services, states will establish medical necessity criteria for 
the receipt of ABP services.
    Comment: A commenter indicated understanding that benefit 
substitution among EHB categories would be prohibited for ABPs as it is 
prohibited for Exchange plans. However, this commenter believes that 
substitution even within benefit categories could be extremely 
problematic for children's and pregnant women's access to needed 
services. Commenters urged HHS to prohibit substitutions or at a 
minimum give states the flexibility to disallow substitutions. If 
benefit substitution within categories is retained, this commenter 
recommends that a more restrictive standard than an actuarial 
equivalence test on the value of the benefits compared to the EHB 
benchmark plan be implemented.
    Response: Substitution of benefits within EHB categories will be at 
state option, according to parameters described in 45 CFR 156.115(b). 
This process will be the same for Exchange plans and ABPs, except that 
states will be in the role of the health insurance issuer for purposes 
of substitution.
    Comment: Commenters note that in some states the EHB benchmark 
covers services beyond those included in the Medicaid state plan. They 
argue that requiring states to supplement coverage to make it 
comparable to the EHB benchmark is not a workable solution for states, 
particularly for states that wish to expand in 2014. They further 
assert that some of the immediate operational challenges include the 
need to enroll new providers, set reimbursement rates, design claims 
and

[[Page 42207]]

payment rules, and incorporate those rules into systems, and if managed 
care is used, new capitation rates will need to be designed, which will 
result in a large administrative burden.
    Response: It is true that ABPs under section 1937 of the Act will 
contain different benefits than those offered in regular Medicaid, 
based on the coverage options and EHBs that a state elects. These 
differences are inherent in the statutory design. While EHBs will 
establish a minimum level of benefits, that level may result in greater 
or lesser benefits than are available under regular Medicaid. ABPs 
require that benefits that are based on commercial insurance products 
include the benefit, the benefit description and limitations on amount, 
duration, and scope as the minimum standard. States have been working 
with CMS toward defining EHBs and ABPs and as part of that process 
states may need to undertake contracting activities and system changes 
to offer and administer the ABP.
    Comment: In the proposed rule concerning EHBs, requirements could 
be different in different states according to one commenter. Since two 
of the four benchmarks are tied to what is available to state employees 
in the state and what is available from the largest HMO in the state, 
employers may have confusion about the requirements in a particular 
state. This commenter requests identification of who oversees an 
employer that has employees with a principle place of employment in 
multiple states, and wonders whether it would be the Department of 
Labor.
    Response: The standards discussed in this regulation relate to the 
implementation of EHBs for Medicaid. Employers do not offer Medicaid as 
part of their offerings to employees and therefore, this question is 
outside the scope of this regulation.
    Comment: One commenter asked if, given the requirement that states 
must supplement the benchmark package if EHBs are not covered, states 
would be required to add these benefits to the state plan under the 
Secretary-approved coverage option that is based on state plan 
coverage. The commenter asserted that it is unclear if the state must 
supplement services that are covered in the base-benchmark selection 
for the Exchange, and that it is unclear if supplementation is only for 
the benchmark plans provided to newly eligible individuals or if states 
that are seeking to provide a Secretary-approved benchmark plan to 
newly eligible individuals will be required to amend the state plan to 
add the new EHB services not otherwise covered. The commenter also 
asked whether states would now be required to add services that are not 
currently covered and categorized as optional, and also wondered if EHB 
supplementation only applies to benefits for newly eligible people or 
must the state meet this requirement for all benchmarks offered 
regardless of population.
    Response: States are required as part of the ABP to cover all EHBs. 
While most of the EHBs are also included under regular Medicaid 
coverage, there may be exceptions. For example, substance abuse 
services and habilitative services may not be part of a State's regular 
Medicaid benefit. The EHB requirement applies to any ABP offered by the 
state, including those based on Secretary-approved coverage.
    Comment: One commenter indicated that the regulatory language fails 
to specify that states must supplement missing categories. This 
commenter recommends that the Department clarify that states must 
follow the process established in 45 CFR part 156 to ensure that any 
missing categories are supplemented in the final rule. The Department 
should also ensure that benefit design in ABPs does not result in less 
comprehensive benefits than the private insurance market, and 
therefore, ABPs should be required to include benefits at least as 
robust as those in the state's full EHB package.
    Response: EHBs establish a floor of benefits for ABPs offered under 
section 1937 of the Act and are based on commercial market products, 
which means at a minimum EHBs will include benefits at least as robust 
as those in the base benchmark chosen by the state. The supplementation 
process in section 1937 of the Act will follow 45 CFR 156.110(b).
    Comment: Several commenters generally supported the proposed 
process to designing the Medicaid ABP. However, HHS must establish 
transparent, minimum standards for states using ``Secretary-approved'' 
coverage. It will be critical to ensure that the state cannot develop 
an ABP based on the weakest benefit level available at each step of the 
process. The commenters expressed concern that the rule offers very 
little guidance about what the ABP must cover to meet the ten 
categories of EHBs required by Affordable Care Act and the scope of 
required coverage. They indicated that this lack of clarity may lead to 
people in the Medicaid expansion group not receiving the full range of 
services available to people at higher income levels accessing private 
market or Exchange coverage in their state. An additional commenter 
expressed that the youngest and most vulnerable citizens, the birth to 
three population, need to have access to all necessary high quality, 
comprehensive physical, developmental, mental health and medical care 
to ensure positive growth and development.
    Response: Current and proposed regulation at Sec.  440.335(d) 
states that Secretary-approved coverage must be appropriate to meet the 
needs of the population being served. CMS will review proposed 
Secretary-approved coverage against that standard. And CMS will apply 
the sufficiency standards of Sec.  440.230 in evaluating benefits 
included in Secretary-approved coverage. In addition, all ABPs, 
including Secretary-approved, must include the full range of EPSDT 
services for individuals under age 21, which ensures that they will 
have access to comprehensive screening and necessary medical care.
    Comment: Several commenters expressed concern regarding the process 
proposed by CMS to demonstrate compliance with EHB, saying it is too 
burdensome and applying the EHB definition that was created for small 
group health plans for commercial products in the private market 
needlessly complicates section 1937 of the Act. They asserted that 
requiring that states begin by using one of the ten commercial 
benchmark plans as the EHB base is not useful for states that want to 
use the full Medicaid benefit set under Secretary-approved coverage. 
They argued that using the full Medicaid benefit set allows all 
Medicaid clients to receive the same benefit set and states would not 
have to operationalize a post-eligibility review process to screen 
people for opting out of the ABP for the traditional state plan. Their 
position was that, given the number of changes that states must 
implement in 2014, maintaining a single benefit set reduces 
administrative burden and confusion for clients and minimizes the 
number of required system changes. According to one commenter, it is 
essential that the new adult group have the same benefit set as the 
full state Medicaid benefit set. Furthermore, the commenter asserted 
that the mandatory Medicaid benefit set should be an option to serve as 
the basis for demonstrating EHB compliance under the Secretary-approved 
option without supplementation. A few commenters recommend that HHS 
create a second definition of EHB compliance that would be based on the 
Medicaid mandatory benefit set, limit that definition to the ABP in 
Medicaid programs, and allow states to use this benefit set as the 
basis to build a

[[Page 42208]]

coverage option for Secretary-approved coverage.
    Response: Section 2001(c) inserted new paragraph (b)(5) into 
section 1937 of the Act. This amendment requires that benchmark and 
benchmark-equivalent benefit packages must provide EHBs described in 
section 1302(b) of the Affordable Care Act, beginning January 1, 2014. 
The same process to define EHBs applies to both commercial plans and 
Medicaid, with adjustments only to reflect the unique nature of 
Medicaid. Thus, EHBs must be established within section 1937 using one 
of the state options for base benchmark plans as set forth in 45 CFR 
part 156. States may still elect to offer Medicaid state plan benefits 
in their section 1937 coverage option using Secretary-approved 
coverage, as long as all requirements of this regulation are met.
    Comment: Many commenters indicated that states electing state plan 
benefits using the Secretary-approved option should not be required to 
supplement with additional EHB services. Although they acknowledged 
that section 1937 of the Act requires inclusion of EHBs as defined 
under section 1302(b) of the Affordably Care Act, they asserted that 
this does not mandate importation of entire segments of coverage from 
private plans nor does it require a wholesale matching of these 
offerings in Medicaid. They asserted that implementing EHBs in section 
1937 of the Act in this way is onerous and could result in the 
relatively less vulnerable, higher income expansion group as compared 
with Medicaid beneficiaries receiving more generous benefits such as 
substance use disorder services. They further asserted that Congress 
certainly could not have intended for the new enrollees to end up 
receiving more robust coverage than the categorically needy base. They 
stated that this also creates administrative complexity for states and 
a situation where incoming beneficiaries who may be disabled must 
choose between disparate benefit schedules. The commenters believed 
that the only way to mitigate disparate benefit schedules is for states 
to expand all benefits for existing and new eligible beneficiaries, 
something states are not in a fiscal position to do. They further 
asserted that the Affordable Care Act did not authorize a departure 
from long standing state discretion under Title XIX to develop 
appropriately balanced benefits and suggested that, if states must 
expand all benefits for existing and newly eligible beneficiaries, then 
states must receive 100 percent FFP for these benefits.
    Response: We believe that our response to the question above also 
responds to this question; the statute requires that all ABPs, even 
Secretary-approved coverage, include EHBs. There are both requirements 
and flexibilities for states in constructing EHBs and section 1937 
coverage options. The process for defining and including EHBs is the 
process used under section 1302(b) of the Affordable Care Act, adapted 
to the unique circumstances of the Medicaid program.
    Comment: One commenter indicated that the intersection of Sec.  
440.345(d) and Sec.  440.347(a) is confusing, and recommends that CMS 
clarify in regulation that EHBs form a floor for the ABPs and do not 
supplant any preexisting requirements under section 1937 of the Act and 
42 CFR part 440, subpart C. Regulations would be clearer if Sec.  
440.347 were worded as a definition of EHB rather than a restatement of 
the mandate to include EHB in an ABP and for clarity should simply 
reference relevant provisions in 45 CFR part 156.
    Response: Section 440.345(d) is intended to establish the universe 
of benefits required within the ABPs. In addition, state must assure 
access to RHC and FQHC services and transportation to and from 
medically necessary services as set forth at Sec.  440.365 and Sec.  
440.390 respectively. Section 440.347 is intended to specify the 
categories of EHBs and the process by which those EHBs are established 
within the ABP. Both sections should be read in conjunction to the 
other.
    Summary: We are adopting the following approach for treatment of 
individuals in the new adult group who meet the exemption criteria from 
mandatory enrollment in benchmark or benchmark-equivalent coverage in 
the final rule. If an individual in the new adult population meets the 
criteria for exemption, then they have a choice of the ABP based on 
benchmark or benchmark-equivalent coverage including at least the EHBs, 
or an ABP with coverage defined as the state's approved Medicaid 
traditional state plan, which is not subject to any other requirement 
of section 1937 of the Act, including EHB requirements. We are not 
making any changes as a result of these comments.
i. Essential Health Benefits (Non-Discrimination Policy) (Sec.  
440.347)
    Section 1302(b)(4) of the Affordable Care Act provides that benefit 
design cannot discriminate and CMS codified this section of the 
Affordable Care Act at Sec.  440.347(e). Benefit design discrimination 
policies do not prevent states from using targeting criteria to group 
people together to receive specific benefit packages.
    Comment: One commenter expressed support for the inclusion of the 
new provision clarifying that individuals cannot be discriminated 
against based on their ``age, expected length of life, or an 
individual's present or predicted disability, degree of medical 
dependency, or quality of life or other health conditions.'' The 
commenter seeks age-appropriate care and benefits for children, whether 
through family or child-only coverage.
    Response: We appreciate the support.
    Comment: Several commenters indicated that while they understand 
that section 1937 of the Act allows states the flexibility to amend 
Medicaid state plans to provide certain populations (as defined by the 
state) with benefits packages other than those offered in the standard 
Medicaid state plan, HHS must closely monitor this and ensure there is 
no discrimination in benefit design for certain populations.
    Response: Benefit design should not discriminate against 
individuals who receive a benefit package under section 1937 of the Act 
based on age, disability, life expectancy or condition but may include 
benefits designed to meet the special medical needs of segments of the 
covered population. Benefit packages designed in section 1937 of the 
Act include the same oversight as the regular Medicaid state plan. 
Aside from the EHB anti-discrimination requirements, Sec.  440.230(c) 
indicates that state Medicaid agencies cannot arbitrarily deny or 
reduce the amount, duration, or scope of a required service to an 
otherwise eligible recipient based solely on diagnosis, type of illness 
or condition.
    Comment: Several commenters expressed support of the requirement 
that EHB benefit design cannot discriminate on the basis of an 
individual's age, expected length of life, or an individual's present 
or predicted disability, degree of medical dependency, or quality of 
life or other health conditions. The commenters believe these non-
discrimination provisions will require vigorous monitoring and strong 
enforcement.
    Response: We thank the commenters for their support. We expect 
states to comply with these provisions and implement benefit packages 
that do not discriminate. ABPs will be subject to the same monitoring 
process as currently used in the Medicaid state plan.
    Comment: Many commenters expressed support for the inclusion of a 
non-discrimination provision in Sec.  440.347(e). But some commenters 
pointed out that, while the proposed

[[Page 42209]]

rule recognized the importance of non-discriminatory plan design Sec.  
440.347(e) fails to state the full range of nondiscrimination 
protections applicable to the EHB. Many commenters expressed concern 
that the preamble only references section 1302(b)(4) of the Act and the 
requirements proposed in Sec.  440.347(e) state only the protections 
under that statutory provision. Therefore the commenters believe that 
the requirements in Sec.  440.347(e) reflect an incomplete and 
insufficient standard. The commenters believe that the protections 
under section 1557 of the Affordable Care Act also apply, and the final 
rule must expressly state a comprehensive and consistent 
nondiscrimination standard, explicitly requiring EHB benefit design to 
comply with section 1557 of the Affordable Care Act. The commenters 
recommend the final rule be revised to include the language used in the 
nondiscrimination standard set out in the proposed EHB rule. The 
commenters believe that without the additional requirements the 
benefits of both section 1557 and the Affordable Care Act as a whole in 
ensuring comprehensive coverage for all individuals will be undermined. 
Lastly, the commenters also requested the regulation prohibit ABPs from 
including all of the following:
     Participant cost-sharing designs that are more burdensome 
on some benefits than others.
     Unreasonable and arbitrary visit and dollar limits on a 
specific category of benefits, so as to discourage participation by 
individuals with brain injury.
     Targeted use of utilization management techniques for some 
benefits, and not to others.
     Defining the benefits in such a way to exclude coverage 
for those services based upon age, disability, expected length of life, 
or the willingness or capacity to participate in wellness programs or 
behavioral incentive programs.
    Response: Some of the protections sought by commenters are already 
contained in laws applicable to state Medicaid programs. Section 430.2, 
an existing regulation, identifies other regulations applicable to 
state Medicaid programs including 45 CFR part 80, which requires that 
programs receiving federal assistance, through the Department of Health 
and Human Services, include effectuation of Title VI of the Civil 
Rights Act of 1964 and 45 CFR part 84, which implements Section 504 of 
the Rehabilitation Act of 1973, prohibiting disability discrimination. 
In addition, state Medicaid programs are subject to the Age 
Discrimination Act of 1975. Therefore, these protections are already 
applicable to Medicaid.
    We appreciate commenters pointing out deficiencies in Sec.  
440.347(e) and have revised it to align with the regulation 
implementing EHBs in the Exchanges.
    Comment: A few commenters indicated appreciation of CMS's work to 
revise current Medicaid rules such that they incorporate statutory non-
discrimination provisions from section 1302(b)(4). The commenters 
strongly encourage CMS to also codify all statutory non-discrimination 
provisions applicable to issuers of QHPs that meet EHB requirements. 
CMS should specify that Sec.  156.200 and Sec.  156.225 also apply to 
ABPs. Section 156.200 specifically prohibits discrimination based on 
factors including but not limited to race, disability, and age. Section 
156.225 codifies section 1311(c)(1)(A) of the Affordable Care Act which 
prohibits marketing practices and benefit designs that result in 
discrimination against individuals with significant or high cost health 
care needs. The commenters believe that all Affordable Care Act non- 
discrimination provisions applicable to QHPs issuers and EHB standards 
must similarly apply to ABPs in Medicaid to ensure consistency of 
standards across all forms of all health care coverage.
    Response: The requirements in 45 CFR part 156 apply to QHP issuers 
and not Medicaid managed care plans. However, there are similar 
protections in place in the regulations governing Medicaid managed care 
plans. If ABPs are delivered through a Medicaid managed care plan, 
those protections, including marketing, appeals and grievances, 
beneficiary information, and non-discrimination based on health status 
will apply to the Medicaid managed care plans providing ABP benefits. 
There are similar protections on many of these issues for Medicaid fee 
for service delivery systems, requiring fair hearing, free choice of 
provider, and beneficiary information.
    We take this opportunity to clarify that States have the 
flexibility to use managed care to deliver ABP benefits without regard 
to statewideness and comparability of services. Further, freedom of 
choice of provider may also be disregarded to the extent the State can 
demonstrate that freedom of choice would be contrary to the effective 
and efficient implementation of an ABP.
    Comment: Many commenters also recommended Sec.  440.347(e) be 
amended as follows: EHBs cannot be based on a benefit design or 
implementation of a benefit design that discriminated on the basis of 
an individual's race, color, national origin, sex, sexual orientation, 
gender identity, age expected length of life, or of an individual's 
present or predicted disability, degree of medical dependency, or 
quality of life or other health conditions. Other commenters 
recommended Sec.  440.347(e) be amended as follows: (e) EHBs cannot be 
based on a benefit design or implementation of a benefit design that 
discriminates on the basis of an individual's age, expected length of 
life, an individual's present or predicted disability, degree of 
medical dependency, or quality of life or other health conditions, 
race, color, national origin, language, sex, sexual orientation or 
gender identity.
    Response: The suggested change to Sec.  440.347(e) is unnecessary 
because the protections described are already reflected in existing 
Medicaid regulations.
    Comment: Many commenters expressed concern about the lack of 
guidance under the proposed rule for monitoring and enforcement of the 
proposed nondiscrimination provisions, and believe that the final rule 
must better define how individual states will assess, monitor, and 
enforce the law's nondiscrimination provisions. Moreover, the 
commenters do not believe it is sufficient to delegate all monitoring 
and enforcement to states. The commenters recommend the final rule 
define how CMS will take enforcement action when states are not 
ensuring compliance with the nondiscrimination standards established 
under the Affordable Care Act. The commenters also recommend that CMS 
develop a clear standard for what constitutes a discriminatory benefit 
design. This standard must address both individual cases of intentional 
discrimination and benefit designs that are facially neutral but that 
have the effect of systematically disadvantaging members of protected 
classes. Ultimately, this standard must make clear that the 
determination of whether a coverage limitation or exclusion is 
discriminatory should turn on the degree to which the benefit design is 
based on sound standards of clinical appropriateness rather than on 
arbitrary distinctions between health conditions or personal 
characteristics. To assist federal and state regulators in rectifying 
discrimination in benefit design, CMS should follow up on the final 
rule with sub-regulatory guidance explaining how to evaluate products 
for impermissible discrimination and providing examples of 
discriminatory benefit designs such as those listed above. In addition, 
CMS should require trained evaluators in each state to regularly and 
transparently review

[[Page 42210]]

coverage available through ABPs for discriminatory benefit designs and 
to ensure identified instances of discrimination are remedied in an 
expedient manner. Where CMS determines that a state Medicaid agency is 
not fulfilling its responsibilities in this area, CMS should establish 
a review procedure to focus on ensuring that all services deemed part 
of the EHBs are available to all eligible individuals for whom they are 
medically necessary, without arbitrary discrimination on the basis of 
any protected personal characteristic.
    Response: ABPs are Medicaid state plan amendments and are subject 
to the same monitoring and oversight that occurs in the Medicaid state 
plan. Under this process, states review applicable requirements and 
design their program, including ABPs. The proposed design is submitted 
to CMS for approval, and CMS reviews the proposal for compliance with 
federal requirements. If approved, CMS may also review state 
implementation for compliance with federal requirements. In addition, 
issues can be raised by beneficiaries through the fair hearing process 
if services are denied. As with any Medicaid service, we recognize the 
important role that all stakeholders play in making CMS aware of any 
perceived ABP noncompliance. We will consider issuing further guidance 
on this topic.
    Comment: One commenter is concerned that the proposed rule does not 
establish sufficiently robust oversight or enforcement framework to 
provide states with essential guidance to implement such a program. The 
regulatory text does not expressly require the Exchanges, states or OPM 
to monitor plans for compliance with the prohibition on discrimination. 
This commenter urges CMS to adopt an express requirement in the 
regulatory text of the rule that the Exchanges, states and OPM monitor 
for non-discrimination.
    Response: Medicaid is a federal and state partnership and as such, 
states have the first line of responsibility to design and implement 
their program in compliance with federal requirements, including the 
non-discrimination requirements. Federal oversight is implemented using 
the existing state plan process, as well as ongoing monitoring of 
program operations.
    Comment: Several commenters expressed concern that applying the EHB 
standard to prescription drug coverage in Medicaid would not provide 
appropriate protections for people with chronic conditions like cancer, 
diabetes, Parkinson's, HIV/AIDS, schizophrenia, epilepsy, obesity and 
organ transplant recipients. The commenters believe that focusing on a 
number of drugs covered, as opposed to ensuring a breadth of drugs are 
covered, could result in a selection of drugs that meets the minimum 
requirement but discriminates against potential enrollees.
    Response: While we understand the commenters' concerns, the statute 
permits states a certain amount of flexibility in determining and 
structuring ABPs that meet the needs of enrollees and are consistent 
with overall state objectives. We must clarify a statement in the 
preamble to the proposed rule, indicating that requirements under 
section 1927 of the Act are applicable to ABPs under section 1937 of 
the Act. Section 1927 of the Act does not affect the flexibility of 
states to define ABP benefit packages consistent with a coverage 
benchmark and including EHBs. The amount, duration, and scope of 
prescription drug coverage would thus be governed by the requirements 
of section 1937 of the Act. To the extent that a prescription drug is 
within the scope of the ABP benefit as a covered outpatient drug, 
section 1927 of the Act is then applicable. For such covered outpatient 
drugs, since payment is available under the state plan, all drug rebate 
obligations under the rebate agreement are required for drug 
manufacturers under 1927(b) of the Act.
    To explain in more detail, the amount, duration, and scope of 
coverage for an ABP is determined under section 1937 of the Act, which 
authorizes benchmark or benchmark-equivalent coverage ``notwithstanding 
any other provision that would be directly contrary.'' But, the drug 
rebate obligation applies under section 1927 of the Act when payment is 
made under the Medicaid state plan for covered outpatient drugs as part 
of the ABP. In addition, to the extent that covered outpatient drugs 
are within the scope of ABP coverage, the protections and limitations 
for such coverage under section 1927 of the Act apply. So, for example, 
to the extent that coverage under an ABP includes a class of covered 
outpatient drugs, a state could impose limitations on that coverage 
only consistent with the provisions of section 1927(d) of the Act. In 
general the requirements for prescription drug coverage under section 
1937 of the Act, through the requirement for coverage of EHBs, will 
mean that ABPs will meet existing section 1927 requirements for 
Medicaid payment of covered outpatient drugs, which we believe will 
address the commenters' concerns. We discuss the interaction between 
the requirements for prescription drug coverage under section 1937 of 
the Act with the requirements for covered outpatient drugs under 
section 1927 of the Act in further detail later in this final rule.
    Comment: Some of the commenters are concerned that CMS allows 
states to place limitations on amount, duration, and scope and adopt 
prior authorization and other utilization control measures, as well as 
policies that promote the use of generic drugs. The commenters believe 
that for people living with chronic conditions, use of utilization 
management techniques can have a detrimental impact and inhibit people 
from accessing needed treatments. The commenters also believe that 
these limitations can violate the non-discrimination requirements in 
the law.
    In particular, commenters indicated that it is imperative that non-
discrimination protections found in Sec.  440.347 are strictly and 
clearly applied to the ABP prescription drug benefit. HIV care and 
treatment standards maintained by Federal agencies recommend a 
combination of medications for effective management of HIV disease (see 
http://www.aidsinfo.nih.gov). Quantitative limits on the number of 
drugs covered per month are discriminatory against people with HIV and 
others whose quality of life and health depend on access to a specific 
regimen of multiple prescription drugs to treat both HIV and co-
occurring conditions as recommended by their medical provider. The 
application of the non-discrimination provisions should prohibit states 
from applying quantitative limits on monthly drug coverage for the 
expansion population, and the commenters urged that this standard also 
be applied to the traditional Medicaid population. If monthly drug 
limits are considered, there must be provisions to allow for a timely 
override process that does not delay immediate and uninterrupted access 
to the medications when recommended by a medical provider.
    Commenters also requested that CMS adopt a more robust standard for 
evaluating limitations on amount, duration, and scope and prior 
authorization and utilization control measures that may be 
discriminatory by design. These evaluations should be specific to the 
population and based on sound medical evidence regarding the 
prescription drugs necessary to provide adequate coverage. Restrictions 
to prescription drug coverage in Medicaid, such as monthly drug limits, 
could leave some Medicaid beneficiaries with less comprehensive 
coverage than that offered to individuals covered in the

[[Page 42211]]

Exchange because of limitations that are discriminatory based on health 
care need.
    A few commenters also expressed concern that the proposed rule does 
not discuss the circumstances in which a limitation on drug coverage 
could violate the non-discrimination requirement. CMS should provide 
additional guidance about its interpretation of the nondiscrimination 
rule and its enforcement strategies, particularly for prescription 
drugs. The commenters believe that this should include oversight 
functions to actively monitor and test for discriminatory plan design 
and implementation, and to report such activities to CMS. For instance, 
the implications of plan substitutions within a category of EHBs or 
prescription drug cost-sharing designs for high risk enrollees should 
be considered.
    Response: States have considerable flexibility in implementing the 
provision of Medicaid services through ABPs. While this flexibility 
permits states in some instances to limit prescription drug coverage 
based on the coverage offered under other public employee or commercial 
plans, it also includes the ability to exceed the amount, duration, and 
scope of prescription drugs covered by those plans, as long as the 
services provided are consistent with the Medicaid requirements.
    The non-discrimination provisions adopted in this final rule at 
Sec.  440.347 require that states will need to assess whether their ABP 
benefits, including any limitations placed on the amount, duration and 
scope of any benefit, discriminate on the basis of the individual's 
age, expected length of life or any individual's present or predicted 
disability, degree of medical dependency, or quality of life or other 
health conditions. We will consider whether additional sub-regulatory 
guidance on these matters is needed.
    Comment: One commenter stated that private market carriers argue 
that exclusions for services or drugs commonly provided for the 
treatment of conditions such as HIV/AIDS are not discriminatory because 
they apply to all plan enrollees, regardless of their specific negative 
effect on people with these conditions.
    Response: Under the law, states must assess whether their ABP 
benefit designs, including service or drug exclusions that are applied 
to all beneficiaries, discriminate based on an individual's age, 
expected length of life, or an individual's present or predicted 
disability, degree of medical dependency, or quality of life or other 
health condition contrary to the non-discrimination provisions being 
adopted in this final rule at Sec.  440.347.
    Comment: One commenter suggested that in developing an analysis 
framework to aid in testing for discriminatory plan benefits, CMS must 
ensure that ABPs refrain from using benefit designs that treat patients 
in a disparate manner based on age. For example, where FDA approves a 
drug or biologic for use in patients within a certain population, such 
as pediatrics, the commenter argued that ABPs should not be permitted 
to restrict coverage or employ varying utilization techniques for 
children of different age ranges within that pediatric population. The 
commenter requested CMS' vigilant oversight to protect children from 
being subject to age-based discrimination in accessing FDA-approved 
products.
    Response: The non-discrimination provisions adopted in this final 
rule at Sec.  440.347 require that states will need to assess whether 
their ABP benefits, including any limitations placed on the amount, 
duration and scope of any benefit, discriminate on the basis of the 
individual's age, expected length of life or any individual's present 
or predicted disability, degree of medical dependency, or quality of 
life or other health conditions. A limitation on medically necessary 
care provided to pediatric patients would violate the requirement under 
section 1937 of the Act that ABPs include the full range of medically 
necessary EPSDT screening and treatment services. Thus, the issue would 
not be one of benefit design but of compliance in providing a covered 
benefit.
    Comment: A few commenters stated that CMS should adopt similar 
guidance and review processes as required under Medicare Part D program 
in the Medicaid EHB final rule. These proven non-discrimination 
policies and processes have been critically important in assuring that 
all Medicare beneficiaries--from the healthiest beneficiaries to the 
most vulnerable beneficiaries with serious and chronic illnesses--can 
obtain affordable Part D coverage that meets their individual needs. 
Additionally, CMS' experience assessing Medicare Advantage plans' cost-
sharing and benefit designs for discriminatory effects may help point 
the way.
    Response: We appreciate the comments regarding the use of Part D 
non-discrimination standards and will consider those standards as we 
evaluate these issues and the need for further guidance.
    Comment: Several commenters indicated that meaningful non-
discrimination protections will require a thoughtful and thorough 
review of preferred drug lists (PDLs). They stated that the following 
approaches could help ensure meaningful access: (1) PDLs should only be 
permitted to categorize a drug as non-preferred when there are genuine 
therapeutic alternatives classified as preferred; (2) PDLs should allow 
for appropriate access to drugs or drug classes needed for adherence to 
widely accepted treatment guidelines; (3) The most commonly used 
medications (or therapeutically similar medications) for conditions 
with high prevalence in the Medicaid population should be categorized 
as preferred drugs; and (4) Most importantly, medications used by 
particularly vulnerable Medicaid beneficiaries, such as those living 
with HIV/AIDS, cancer or serious mental illness, should be largely 
available as preferred drugs, given the importance of avoiding medical 
complications and interruptions in therapy for individuals with those 
conditions.
    Response: For covered outpatient drugs, a PDL is permitted under 
section 1927 of the Act, as long as it is under a prior authorization 
program that meets the requirements of section 1927(d)(5) of the Act. 
Furthermore, as we discuss in the cost sharing sections of this final 
rule, a PDL may also be established for cost sharing purposes.
    Comment: Many commenters expressed concern that the regulation did 
not provide examples of what would be considered discriminatory benefit 
design. The commenters request CMS identify a clear standard to 
determine whether the coverage provided complies with the non-
discrimination provisions of the Affordable Care Act. Additionally, the 
commenters believe that CMS should provide examples to States of what 
would constitute violations, monitor ABP coverage for compliance with 
the non-discrimination requirements, and enforce these provisions of 
the law. Many other commenters added that the rule also did not 
establish a process to bring discriminatory benefit design or practice 
into compliance. CMS should consider developing more detail in the 
final regulation defining these protections. This should include a 
process for bringing a State's chosen benchmark or benchmark-equivalent 
option into compliance with the law.
    Response: States will submit Medicaid state plan amendments for 
federal approval to implement ABPs and receive FFP. The state will 
assure in that submission that they will comply with non-discriminatory 
requirements as set forth in Sec.  440.347(e). If issues are

[[Page 42212]]

detected with adherence to these requirements, we will pursue 
appropriate action with the state to rectify the issues. As always, we 
appreciate the ongoing input of stakeholders to help inform states and 
CMS of concerns relating to these matters.
    Comment: One commenter indicated that it is unclear how the 
requirement that EHBs cannot be based on a benefit design or 
implementation of a benefit design that discriminates on the basis of 
an individual's age, expected length of life, or of an individual's 
present or predicted disability, degree of medical dependency, or 
quality of life or other health condition will be evaluated in the 
context of benchmark plans for specified population. It is unclear 
whether targeting permitted under other sections such as section 
1915(i) of the Act would be permitted. The commenter wondered whether 
it would preclude the establishment of specialty plans based on 
diagnosis.
    Response: Section 1937 of the Act does allow for a waiver of 
comparability at Sec.  440.230(c); thus permitting states to identify 
groups of people, populations, based on certain characteristics such as 
presence of a chronic condition. States can then design benefit 
packages that are suitable for the population, but this activity does 
not permit benefit designs that are inherently discriminatory.
    Comment: A few commenters expressed concern that neither earlier 
rules on EHB nor this proposed rule specifically define 
``discrimination'' in the context of discriminatory benefit design. The 
commenters urge HHS to develop and promulgate a definition of 
``discrimination'' that will allow states to evaluate health plans 
uniformly. The proposed rule delegates entirely to states the task of 
evaluating EHB for discriminatory design or intent with no further 
guidance at all. The absence of a definition of discrimination will 
inevitably lead to a 50-state patchwork of definitions. The commenters 
strongly believe that the definition of discriminatory benefit design 
should not vary among states.
    Response: Medicaid is a federal and state partnership that allows 
states to design state-specific programs within broad federal 
guidelines and, more generally, that allocates responsibilities to both 
states and the federal government. By identifying states as accountable 
for determining that benefit design is not discriminatory, we recognize 
their important role in assuring compliance with this important 
statutory directive. Such accountability does not negate federal 
responsibility. As noted, we will consider whether further guidance on 
discrimination benefit design would be useful.
    Comment: One commenter pointed to the Affordable Care Act's 
provision barring discrimination in EHB as prohibiting disability-based 
discrimination in making decisions about coverage, reimbursement rates, 
establishing incentive programs, and designing benefits, and the 
commenters believe those requirements should apply to Medicaid ABPs. 
The commenter recommends the Department provide additional guidance 
concerning applications of the Affordable Care Act EHB non-
discrimination mandate to ABPs. The commenter believes the Department 
should also identify a minimum scope of services that plans must cover 
to comply with the Affordable Care Act's parity and nondiscrimination 
requirements and the requirement that EHB take into account the ``needs 
of diverse segments of the population, including . . . persons with 
disabilities.''
    Response: The United State Supreme Court decision in Olmstead v. 
L.C. rendered on June 22, 1999 held that unjustified segregation of 
people with disabilities constitutes discrimination in violation of 
Title II of the ADA. Public agencies must provide services to people in 
the community when services are appropriate, people do not oppose 
services in the community, and the community-based services can be 
reasonably accommodated, taking into account the resources available to 
the entity and the needs of others who are receiving disability 
services from the entity. Medicaid beneficiaries must receive services 
in the most integrated setting appropriate. We agree with the commenter 
that benefit design, including rate structures, should not create a 
pathway to institutionalization or segregation. Setting is not an 
appropriate targeting criterion, because it is potentially 
discriminatory as different benefits could be designed based on where 
individuals live and therefore, it would not be acceptable as a waiver 
of comparability.
    Comment: Many commenters recommend CMS use the following data to 
determine compliance with the non-discrimination requirements:
     Medical necessity requirements for Medicaid must be 
evaluated and standardized, and HHS should monitor state implementation 
of medical necessity to ensure that people living with HIV, chronic 
disabilities and other chronic and complex conditions have unimpeded 
access to essential care and treatment.
     Utilization management techniques, exclusions, and service 
limits must be closely monitored to ensure that plans have not put in 
place barriers to services or excluded or limited certain items or 
services solely to deny access to care for people with chronic and 
complex health conditions. The commenters urge HHS to develop a list of 
practices that amount to discrimination to help guide monitoring and 
enforcement activities. For instance, requiring step therapy for HIV 
treatment without a medical override provision is a discriminatory 
utilization management technique that should be barred. Similarly, a 
monthly limit on prescription drugs (for example, several states have 
monthly limits of three or four prescription drugs) is also per-se 
discriminatory, as applied to people living with HIV and other chronic 
conditions.
     Physician network size and composition must be evaluated 
to ensure that Medicaid managed care plan networks include providers 
that are able to deliver quality care for people living with HIV and 
other chronic and complex conditions. A plan network that excludes HIV 
providers violates network adequacy standards outlined in qualified 
health plan standards and is a discriminatory plan design practice that 
forecloses access to EHB services. In addition, patient protections 
(for example, standing out-of-network referrals) will be necessary to 
ensure a smooth transition to coverage and to support continuity in 
care. The commenters strongly urge CMS to require Medicaid managed care 
plans to contract with Essential Community Providers, including Ryan 
White medical providers.
     For chronic and complex conditions, where the standard of 
care is rapidly evolving, reference to clinical guidelines is 
particularly important to ensure that coverage decisions are based on 
established medically accepted guidelines.
    Response: Thank you for your suggestions. We agree that Medicaid 
managed care provider networks need to be adequate to provide services 
to all of their members. It is at state discretion to include (or not) 
standards for managed care providers in the contracts that the state 
holds with the managed care organizations in the state. Managed care 
entities can contract with any provider operating within the scope of 
their license to provide services.
    Comment: A few commenters recommend ongoing procedures for states 
to monitor and share data on how they are meeting their benefit design 
and anti-discrimination obligations over time, and make this 
information transparent and readily available in at

[[Page 42213]]

least an aggregate fashion to HHS, the public, and to health advocates.
    Response: We appreciate the comments. We are currently redesigning 
data collection procedures and standards and will consider these 
comments.
    Comment: One commenter is requesting that any coverage under the 
Affordable Care Act, including Medicaid Programs, adequately cover 
therapies that cancer patients absolutely must take whether or not 
there is an actuarial equivalent at a lower cost. Coverage of drugs and 
services related to cancer care should not create cost barriers to 
patients through cost-sharing schemes such as burdensome co-pays and 
co-insurance. To do so would be unfairly discriminatory, and could 
impact a patient's ability to access their care, particularly low-
income patients enrolled in Medicaid. The commenter would like to see 
strong protections and oversight established to prevent discrimination.
    Response: We agree that a patient's ability to pay cost sharing 
imposed for a service can affect a patient's access to care and that 
low-income patients are particularly sensitive to such costs. Medicaid 
cost sharing rules at Sec.  447.52 generally and Sec.  447.53 for drugs 
apply to ABPs. States design cost sharing for therapies and drugs using 
those rules, and cost sharing rules may not be implemented in a manner 
that would be discriminatory. Annual dollar limits on services will not 
be allowed on benefits in the public employee or commercial plans that 
are the basis for the base benchmark options used to define EHBs per 
section 2711 of the Affordable Care Act.
    Comment: A few commenters believe that Sec.  440.347(e) sets out a 
strong non-discrimination requirement. However, the commenters also 
believe that there will be times when individuals are going to need 
access to legal advocacy to seek redress from discrimination and 
enforce these due process protections. The commenters recommend that 
the states be required to assist individuals to use the due process and 
appeals processes, this would include: (1) Information and assistance 
in pursuing complaints and appeals; (2) negotiation and mediation; (3) 
case advocacy assistance in interpreting relevant law; (4) reporting on 
patterns of non-compliance by plans as appropriate; and (5) individual 
case advocacy in administrative hearings and court proceedings relating 
to program benefits.
    Response: We appreciate these suggestions; however, they are 
outside the scope of this regulation.
    Comment: Many commenters representing the Lesbian Gay Bi-Sexual and 
Transgender (LGBT) community stated that the final rules must also 
address gaps in enforcement of this prohibition on discriminatory 
exclusions by providing clear guidance to state Medicaid agencies on 
implementation of these nondiscrimination standards. Enforcement is a 
major concern for these commenters in two areas: (i) instances of 
discrimination against individual enrollees, and (ii) discriminatory 
benefit design. The former is very important for LGBT enrollees, and 
they encourage CMS to work with state Medicaid Directors to ensure that 
robust and transparent appeals procedures are equally available to all 
individuals who need them. With regard to discriminatory benefits 
design, they are particularly concerned about enforcement in the 
context of potential disagreement as to what kinds of benefit 
limitations and exclusions constitute impermissible discrimination in 
benefit design.
    Response: We appreciate the concerns expressed by these commenters. 
We intend to work with states on these matters as well as consider ways 
in which discrimination for LGBT enrollees may be rooted in benefit 
limitations and exclusions as well as in appeals processes.
    Comment: Several commenters stated that the proposed rule requires 
that a Medicaid benchmark plan's benefit design cannot be 
discriminatory, and the final regulation must ensure adequate 
protections against discrimination. The commenters recommend the 
regulation require the following non-discrimination standards:
     Processes for review of plan benefits design to avoid 
discrimination caused by unfair utilization management techniques or 
other plan design elements.
     Requirements for plans to disclose to all prospective and 
current members all utilization management techniques as well as all 
limits on services.
     Final authority at the federal level to approve any state 
non-discrimination review processes to ensure appropriate measures are 
in place to guarantee that plans are meeting the requirements of this 
section.
     Federal monitoring programs to ensure appropriate checks 
are in place to guarantee that plans are meeting federal requirements.
    In addition, the commenters urge CMS to clarify that Medicaid cost-
sharing limits apply to the managed care organizations participating in 
the Medicaid program. For more details on non-discrimination standards, 
the commenters refer CMS to its proposed regulatory language for a 
comprehensive set of patient protections.
    Response: In Medicaid, utilization management processes are at 
state discretion. States have flexibility to design and implement the 
Medicaid program in the state according to state policies and 
procedures. States will assure in the state plan amendment submission 
that anti-discrimination practices at Sec.  440.347(e) are met. We 
clarify here that Medicaid cost sharing parameters apply to services 
provided in a managed care delivery system. Furthermore, we have 
oversight responsibility of state programs to insure that federal rules 
and requirements are being followed.
    Comment: One commenter pointed out that Sec.  440.347 deals 
exclusively with patient non-discrimination. The commenter indicated 
that there is also provider discrimination within health plans, where 
sometimes entire classes of healthcare professionals are excluded from 
providing services under the benefit solely based on their licensure or 
certification. The commenter believes such discrimination can limit or 
deny patient choice and access to a range of beneficial, safe and cost-
efficient healthcare professionals, impairing competition, patient 
access to care, and optimal healthcare delivery. The commenter 
recommends the rule require ABPs offering EHBs to align payment systems 
to adhere to existing state provider non-discrimination laws as 
applicable, and to the federal provider non-discrimination provision in 
the Patient Protection and Affordable Care Act (Sec. 1201, Subpart 1, 
creating a new Public Health Service Act Sec. 2706, ``Non-
Discrimination in Health Care'', 42 U.S.C. 300gg-5) slated to take 
effect January 1, 2014.
    Response: We require that all providers are operating within the 
scope of their licensure or certification when providing services to 
Medicaid beneficiaries.
    Summary: We appreciate the comments and suggestions and may 
consider further guidance. No change in the substance of the regulatory 
text is needed. However, CMS made grammatical changes to the regulation 
text at Sec.  440.347(e) as a result of comments received in this 
section.
3. Modifications in Applying the Provisions of This Final Rule to 
Medicaid
    We proposed in the implementation of section 1937 of the Act and 
the provisions in the Affordable Care Act relating to EHBs, a process 
in Medicaid

[[Page 42214]]

for designing ABPs. The Affordable Care Act modified section 1937 of 
the Act to implement two standards for minimum coverage provision; not 
only must EHBs, as defined by the Secretary, be provided, but all 
requirements of section 1937 of the Act continue to apply. Furthermore, 
we outlined expectations for specific EHBs as they are implemented in 
Medicaid including: habilitative services; pediatric or and vision 
services; prescription drugs; preventive services as an EHB; and the 
fact that all other Title XIX provisions apply.
a. Essential Health Benefits (Rehabilitative and Habilitative Services 
and Devices) (Sec.  440.347)
    The proposed rule requested comment on an approach for defining 
habilitative services in Medicaid and we reserved regulatory text to do 
so. We received varied comments, and are adopting in this final rule 
the requirement that services covered by the base benchmark are the 
floor of EHB coverage, substituted as desired by the state. Under 45 
CFR 156.110(f), if no habilitative services and devices are included in 
the base benchmark, states have the option to determine generally the 
required EHB services that are in the category of habilitative services 
and devices. If the state has done so, the base benchmark, and coverage 
under the ABP, must reflect that determination. If the state has not 
made a general determination of the habilitative services that are 
required for this EHB category, the state must exercise the option set 
forth in 45 CFR 156.115(a)(5) to determine EHB for the specific ABP. 
Under that option, habilitative services and devices must be included 
as EHBs either in an amount, duration, and scope no more restrictive in 
terms of treatment and benefit limitations than rehabilitative services 
and devices, or otherwise to an extent determined by the state and 
reported to HHS. In other words, if the base benchmark does not include 
habilitative services and devices, ABP coverage must, at a minimum, be 
based on the general state determination of habilitative services and 
devices that are included in EHBs, or on a Medicaid-specific 
determination for the particular ABP.
    While we are not prescribing a specific definition of habilitative 
services and devices for purposes of ABP coverage of EHB, we clarify 
here that states may choose to adopt service definitions similar to 
those issued by the National Association of Insurance Commissioners 
(NAIC), as follows: rehabilitative services and devices are defined as 
services and devices provided to assist a person to prevent 
deterioration and regain or maintain a skill or function acquired and 
then lost or impaired due to illness, injury or disabling conditions. 
The NAIC also defines habilitative services and devices as services and 
devices provided for a person to prevent deterioration or attain or 
maintain a skill or function never learned or acquired due to a 
disabling condition. CMS will consider the need for future guidance, 
once experience is gained in implementing these EHB services and 
devices. We also note that while there is a definition of habilitative 
services under existing sections 1915(c) and 1915(i) of the Act, this 
definition is not necessarily applicable and may in fact not be 
appropriate for the population covered under ABPs.
    Comment: A number of commenters believed that by requiring coverage 
of habilitative services in the ten mandatory EHB categories, Congress 
clearly indicated its intent to meet the health needs of individuals 
with functional limitations following illness, injury, disability or 
due to a chronic condition. The commenters recommended that HHS develop 
an objective minimum national standard for habilitative services based 
on ``appropriate coverage to meet the needs of the population,'' and 
allow states flexibility to add to this minimum for purposes of 
innovation.
    A few commenters recommended HHS better define this category of 
services including providing clarity as to how plan definitions and 
scope of coverage will be assessed to ensure compliance with non-
discrimination provisions. A number of commenters requested HHS cover 
habilitation at parity with rehabilitation, with some comments 
suggesting this standard also require habilitative services under 
Medicaid to be at least as generously defined as in the private market.
    Many commenters requested that HHS require coverage of habilitative 
devices without arbitrary restrictions and caps that limit the 
effectiveness of the benefit.
    Several commenters recommended HHS include a set of habilitative 
services specifying the minimum type of services to be provided and 
specify that these services are a floor.
    Many commenters recommended that habilitation be covered separate 
and distinct from rehabilitation. For example, the plan cannot 
substitute rehabilitation for habilitation or apply only a single visit 
limit to both benefits. Each benefit must have separate and distinct 
limits which are applied based on medical necessity, not an arbitrary 
cap.
    One commenter requested that HHS recognize that habilitative 
services are similar in type and scope to rehabilitative services (for 
example, physical therapy, occupational therapy, speech-language 
pathology). One commenter believed that habilitation should be covered 
in the same setting and include the same type of providers and 
specialists as covered in the rehabilitation benefit.
    A number of commenters believed that setting clear, comprehensive, 
and uniform standards for habilitative services will prevent non-
aligned localized definitions that could create serious problems across 
programs and states. A few commenters requested formal guidance on what 
the minimal expectation is for habilitative services.
    A few commenters believed that when states adopt the habilitative 
benefit for ABP, HHS require that they do not impose financial 
requirements, quantitative treatment limitations, or financial 
limitations that are more restrictive than the predominant requirements 
or limitations that apply to all other benefit categories.
    Response: We believe the provision of habilitative services is in 
addition to rehabilitative services and devices as an EHB. As EHBs are 
based on commercial market products, we are interpreting rehabilitative 
services as an EHB to more closely align with commercial market 
definitions, rather than the broader definition of rehabilitation in 
Medicaid. We therefore, are establishing that the commercial market 
definition of EHBs is the floor of coverage, subject to substitution 
flexibilities. If the commercial market coverage is not adequate, 
states, not issuers, define the benefit. At state discretion, as 
indicated above, states may offer coverage of habilitative services and 
devices that is no more restrictive in terms of amount, duration, and 
scope than rehabilitative services and devices. We expect that the 
services will be clinically appropriate to meet the needs of 
individuals based on medical necessity. We have added this flexibility 
for states to define a minimum standard of coverage if the commercial 
market benefits are not adequate. We are suggesting, but not requiring, 
definitions of rehabilitative and habilitative services and devices, as 
indicated above, and will consider needs for future guidance. We are 
reiterating that the benefit flexibility under an ABP allows states 
considerable latitude to define the benefit package for each population 
and there may be services that are covered in some settings but not in 
other settings, or that are covered when furnished by some 
practitioners but not others. This is

[[Page 42215]]

flexibility that exists currently in the commercial marketplace, and is 
extended to state Medicaid programs under section 1937 of the Act.
    Comment: One commenter recommended that the coverage and medical 
necessity determinations for habilitative services and devices should 
be based on clinical judgment of the effectiveness of the therapy, 
service, or device to address the deficit. In addition, HHS should make 
clear that such benefits are to cover maintenance of function not just 
improvements, to assure that individuals in need have access to care 
that prevents deterioration of their conditions.
    One commenter requested that HHS inform states that habilitative 
services need to be medically necessary and plans must be clear on how 
they define and determine medical necessity.
    Response: States may require that all services covered under 
Medicaid be medically necessary. Determining the specific coverage of 
habilitative services and devices will be done by the state, based on 
services found in the base benchmark plan selected by the state to 
define EHBs for Medicaid, and substituted as desired. If a base 
benchmark plan does not include habilitative services, consistent with 
45 CFR 156.110(f) and 156.115(f), States will determine which services 
are included as EHB in the habilitative services and devices category. 
We agree with the commenter that habilitative services, generally 
speaking, cover acquisition and maintenance of skills, while 
rehabilitative services cover restoration of previously acquired 
skills, but we are not setting forth a specific definition of these 
terms at this time.
    Comment: One commenter recommended that HHS look to state Medicaid 
programs as a guide for defining what habilitation services should be 
covered under the EHB. A number of commenters requested that HHS 
require states and plans to adopt the definition of habilitative 
services put forth by the NAIC, which was included in the Department's 
proposed rule defining medical and insurance terminology. Many 
commenters recommend that if the NAIC definition is not used, an 
alternate definition to consider is provided in Medicaid law under 
section 1915(c)(5)(A) of the Act.
    Response: We appreciate these suggestions and find the definitions 
of rehabilitative services and devices and habilitative services and 
devices extremely useful. Habilitative services and devices as 
described in the base benchmark plan is the floor of coverage, subject 
to substitution flexibility. If a base benchmark plan does not include 
habilitative services, consistent with 45 CFR 156.110(f) and 
156.115(f), States will determine which services are included as EHB in 
the habilitative services and devices category. States may choose to 
offer habilitative services and devices in no more restrictive in terms 
of amount, duration, and scope of treatment than is applied for 
rehabilitative services and devices.
    Comment: One commenter requested the state-defined habilitative 
benefit definition, as applied to section 1937 ABP in Medicaid, should 
not be extended to QHPs on the Exchange. This commenter indicated that 
in many states, Medicaid takes an expansive view of habilitative 
services, and there is a risk that if applied to the commercial market, 
this could raise costs on QHPs in the Exchange. States should have the 
option to either separately define habilitative services for Medicaid 
or apply the state-defined habilitative definition for the Exchange to 
the Medicaid programs, but not apply a broad Medicaid habilitative 
service definition to QHPs in the Exchange.
    Response: This regulation is focused on the parameters of the 
habilitative services and devices that are EHBs for purposes of section 
1937 ABPs under the Medicaid program and, this regulation does not 
apply to QHPs.
    Comment: Many commenters recommended that states should be allowed 
to define habilitative services for their Medicaid program.
    Response: We are adopting the position in this final rule that 
states will have the ability to define habilitative services and 
devices. If the base benchmark plan selected by the state to define 
EHBs, does not include habilitative services and devices, states will 
define the habilitative services and devices that will be regarded as 
this EHB category and must be covered in the ABP. In so doing, states 
can choose to offer habilitative services and devices that are at a 
minimum no more restrictive in terms of amount, duration, and scope 
than rehabilitative services and devices.
    Comment: One commenter requested that HHS continue to allow states 
and issuers the flexibility to define habilitative services for the 
individual and small group markets as proposed in the EHB proposed rule 
and not be required to follow Medicaid definitions.
    Response: We reiterate that this regulation applies only to the 
Medicaid program, and has no bearing on the provision of habilitative 
services in the individual and small group markets.
    Comment: One commenter requested HHS clarify that states will be 
deemed to cover habilitation if they provide ABP enrollees with such 
services through a section 1915(c) waiver program.
    Response: The new adult eligibility group is not eligible for 
enrollment in section 1915(c) waivers. However, states may also add 
section 1915(i) services to the ABP using Secretary-approved coverage, 
which may include some habilitative services and devices. But we do not 
see a reason to ``deem'' compliance with the habilitative services and 
devices EHB requirements just because a state may include some 
habilitative services and devices in those ways. The state must still 
determine habilitative services and devices that are EHBs in accordance 
with this regulation.
     Comment: A few commenters recommended that if HHS does not use a 
national standard for Medicaid habilitative service benefits, then 
states should be required to base their definitions on documented and 
evidence-based criteria, such as those endorsed by a relevant national 
academy of providers or national disease group; and states should not 
automatically be allowed to use their Exchange habilitative services 
definitions unless it independently meets the criteria stated above.
    Response: We expect that states will consider the efficacy of 
services, evidence-based criteria, and the needs of the populations 
being served as they are designing habilitative services, based on the 
services found in the base benchmark selected by the state to define 
EHBs for Medicaid, and supplemented and substituted as necessary and 
desired.
    Comment: Many commenters recommended that the state-defined 
habilitative services for Exchanges should not apply to Medicaid. 
Instead, some commenters indicated that states should be required to 
define habilitative services through a public process that establishes 
minimum standards for coverage, while taking into account unique 
circumstances of the Medicaid population, including the impact of a 
restrictive definition on access to critical services in early 
intervention and special education. One commenter believed that states 
should have the option to offer parity.
    Response: In terms of complying with EHB requirements, the same 
basic framework applies to both ABPs and plans in the individual and 
small group markets. But that basic framework includes considerable 
flexibility that states can exercise in the Medicaid context. While 
states will ultimately determine coverage of habilitative services we 
encourage states to do so in recognition of the unique needs of the

[[Page 42216]]

Medicaid population. As states work to identify coverable habilitative 
services, they are expected to consider input from the public in making 
the decisions. ABPs are subject to public notice requirements in Sec.  
440.386.
    Comment: One commenter requested that the final rule ensure that 
the state's Medicaid definition of habilitation is at least as generous 
as the definition used for Exchange plans.
    Response: While we believe that the procedures we are adopting to 
determine habilitative services included in EHB for Medicaid will 
generally be at least as generous as the parallel procedures for the 
individual and group market, we are not requiring that result. We 
believe that the procedures for Medicaid will lead to appropriate 
coverage for Medicaid beneficiaries while recognizing the state's role 
in designing Medicaid coverage.
    Comment: Many commenters recommended against HHS allowing any of 
the potential flexibility, authorized in the Exchange, for issuers to 
define the habilitative benefit. Commenters were concerned that issuers 
would limit the range of services too narrowly.
    Response: States will retain flexibility to design services covered 
within the rehabilitative and habilitative services and devices EHB 
consistent with the procedures set forth in this final regulation.
    Comment: A few commenters recommended HHS require states to 
establish the same definition of habilitative services for ABP, QHPs, 
and Exchange, due to the significant amount of churn associated with 
the population being served. One commenter believed that habilitative 
services should have a common definition, but that definition should 
not necessarily determine what is covered by the Exchange or Medicaid. 
Those habilitative services that are to be covered should be separately 
established by the Exchange and by Medicaid, since this is a question 
of affordability and comprehensiveness.
    Response: We recognize the possibility for churn between Medicaid 
and the individual and small group markets. We believe the flexibility 
reflected in this regulation provides the basis for continuity between 
the commercial market and Medicaid. We are also allowing states to use 
provider qualifications from the commercial market plans to help 
minimize the possibility for provider changes if a person's plan 
changes.
    Comment: One commenter indicated that currently under Medicaid, 
habilitation services are defined in statute and provided as an 
alternative to institutional services such as nursing home care. As 
noted in the regulation, employers do not cover the service consistent 
with Medicaid requirements. As a result, if parity is required without 
consideration of the scope of habilitation services offered, the result 
could be states exceeding the EHB standard. States should be provided 
the flexibility to define and provide coverage of habilitation 
services.
    Response: Habilitative services and devices are coverable services 
under the section 1915(c) waiver program and the waiver program does 
provide a suggested definition. Section 1915(i) also allows coverage of 
habilitative services and devices where states define the service. We 
are giving states flexibility to define habilitative services and 
devices within the standards finalized in this regulation. In addition, 
states may offer either habilitative or rehabilitative services in 
excess of these standards.
    Comment: Numerous commenters believed that states should not be 
allowed to define habilitative services through parity with 
rehabilitative services since the two service sets have totally 
distinct purposes and impact different sets of individuals. They 
asserted that parity is a poor standard because there is no certainty 
that the rehabilitative services level is itself adequate to begin 
with.
    Response: We appreciate the commenters' concerns. We are 
establishing that the state may determine the ABP-covered benefit 
beyond the benefits included in the base benchmark plan,. To the extent 
that the base benchmark has no habilitative services, the state may 
elect to include as the EHB category habilitative services and devices 
coverage that is no more restrictive in amount, duration, and scope 
than the coverage of rehabilitative services and devices. We 
acknowledge that this standard does not guarantee provision of any 
particular habilitative or rehabilitative service. This will be in 
large part determined by the services offered in the plan selected by 
the state to define EHBs for Medicaid.
    Comment: One commenter requested HHS, at a minimum, afford 
flexibility to issuers allowing them to either provide parity by 
covering habilitative services in the same manner as rehabilitative 
services or report the services it decides to cover to HHS.
    Response: The procedures we have adopted recognize that states have 
the role that issuers have in the individual and small group market. 
Federal Medicaid works directly with state governments and not issuers. 
Therefore, we believe that having states define the habilitative 
services benefit instead of issuers, using the procedures finalized 
here, is the most appropriate approach.
    Comment: One commenter believed that habilitative services 
complement rehabilitative services and are integral to ensuring that 
the beneficiary receives comprehensive care that restores him/her to 
maximum functional levels. This commenter stated that both substitution 
among and parity between these services could be problematic if the 
beneficiary's medical condition requires significantly more 
rehabilitative services than habilitative services and vice versa.
    Response: States may implement utilization management processes 
that allow for individuals who need additional services beyond the 
limits established in the ABP to receive such services based on medical 
necessity. States could substitute rehabilitative services for 
rehabilitative services and habilitative services for habilitative 
services.
    Comment: A number of commenters recommended that HHS remove the 
requirement that state Medicaid programs cover habilitative services, 
as this is not a separate mandated category of EHB services. Instead, a 
Section 1937 plan that covers either rehabilitative or habilitative 
services should be deemed to cover items and services within the 
general EHB category for rehabilitative-habilitative services.
    Alternatively, a few commenters recommended that HHS clarify that 
ABPs must cover all of the benefits within categories of care that list 
more than one benefit, as is the case for rehabilitative and 
habilitative services and devices. In particular, a plan should not be 
considered to meet the requirement of covering all EHBs unless it 
covers, as three distinct benefits, rehabilitative services, 
habilitative services, and rehabilitative and habilitative devices, as 
opposed to covering only one of the many benefits included in this 
category.
    Response: Habilitative services are listed as a required benefit 
category of EHB at section 1302(b)(1)(G) of the Affordable Care Act. It 
is part of a category of EHBs, but is distinct from rehabilitative 
services and devices. Both rehabilitative and habilitative services and 
devices must be offered in all ABPs.
    Comment: A number of commenters supported access to habilitative 
services and devices including autism services, durable medical 
equipment, orthotics, prosthetics, low vision aides, hearing aids, 
augmentative communication devices that aid in speech and hearing, and 
other assistive technology and supplies that are often critical to 
ensure

[[Page 42217]]

individuals are able to function independently in the community.
    Response: We appreciate the comment and agree that these types of 
services could assist people with living in the community. We are not 
requiring any specific services to be offered within this EHB category.
    Comment: A number of commenters requested that HHS require coverage 
of services without age restrictions. They indicated that a pediatric-
only habilitative benefit is inadequate, especially as the new 
eligibility category is for adults only.
    Response: EHBs including rehabilitative and habilitative services 
and devices apply to all individuals who receive a benefit package in 
ABPs, regardless of age. For the new adult group, only individuals who 
are ages 19 and 20 will qualify for EPSDT services.
    Comment: A few commenters requested HHS prohibit the exclusion of 
specific conditions or diagnoses from accessing the benefit.
    Response: ABPs allow for comparability to be waived, which results 
in allowing for targeting of individuals to specific benefit packages. 
However, all individuals in the new adult group and other individuals 
the state either mandates or offers voluntary enrollment into an ABP 
must receive all EHBs, including habilitative and rehabilitative 
services and devices.
    Comment: A few commenters recommended that states should define 
habilitation using EPSDT criteria.
    Response: Section 1905(a) of the Act does not include a service 
category for ``habilitation services'' so it is not useful to look to 
EPSDT coverage for guidance and EPSDT criteria do not apply under law 
to adults. For children, however, the EPSDT benefit must provide 
eligible individuals with any medically necessary service that is 
coverable under a section 1905(a) service category. Consistent with the 
law, these regulations extend the EPSDT benefit, which also includes 
children covered in an ABP. Therefore, children in an ABP should 
receive any covered section 1905(a) benefits that they require based on 
medical necessity.
    Comment: A few commenters requested that HHS cover habilitation 
services, which maintain an individual's functional status, as defined 
by the HHS Summary of Benefits and Coverage regulations.
    Response: The HHS Summary of Benefits and Coverage regulations 
apply to private insurance markets, which do not include Medicaid.
    Comment: A few commenters cautioned against restricting services in 
EHB plans without allowing for an exception process.
    Response: States do have the flexibility to allow for exception 
processes for utilization management of the benefit; such exceptions 
must be based on medical need.
    Comment: One commenter recommended that the habilitative benefit 
cover the full array of health and ancillary service needs of children 
with special health care needs. The commenter believed that this is 
especially important for children aging out of foster care, as these 
children are at greater risk of having a chronic condition requiring 
habilitative services.
    A few commenters indicated that it is inappropriate for any one 
service to satisfy the requirement for a benchmark plan covering 
habilitative services. For example, providing only Applied Behavioral 
Analysis to children under the benchmark plan is inadequate to satisfy 
the full requirement of coverage of habilitative services. These 
commenters requested that the benchmark plan utilized be as 
comprehensive in its coverage as feasible. One commenter recommended 
defining habilitation and contrasting it with rehabilitation to help 
clarify the distinction between the two benefits.
    Response: We remind readers that states must not only comply with 
the standards finalized in this regulation, but must also include all 
habilitative services covered in the public employee or commercial plan 
selected by the state to define EHBs for Medicaid, supplemented and 
substituted as necessary and permitted.
    Comment: One commenter believed there should be no exclusion for 
services that may be educationally-relevant, as is the current policy 
in Medicaid.
    Response: Payment for Medicaid services must be for services that 
are medical or remedial in nature as specified by the particular 
authority from which the service is derived.
    Comment: One commenter requested HHS provide states a description 
of maintenance programs and clarify at what point services are no 
longer covered.
    Response: The level at which services no longer have clinical value 
is determined by the state through medical necessity criteria.
    Comments: One commenter requested that HHS clarify the clinical 
settings in which habilitative services may be covered and ensure that 
there is a prohibition against ``school'' exclusions.
    Response: Settings in which services are furnished are largely 
determined by the providers authorized by the state to deliver 
services. Practitioners within schools can become Medicaid providers if 
they meet the provider qualifications as established by the state. In 
ABPs, states may use provider qualifications for the benefit as defined 
for the commercial market, Medicaid provider qualification rules for 
the benefit, or a combination of both.
    Comment: A few commenters requested information related to the cost 
of adding habilitative services.
    Response: Habilitative services are not included in the benefit 
package typically included in the Medicaid state plan, and our limited 
experience does not allow for extrapolation for a nationally required 
service. States will initially receive 100 percent FMAP starting 
January 1, 2014 to cover the cost of providing services to individuals 
who are considered newly eligible in the new adult group, and that 
funding will decline to 90 percent FMAP in 2020. For individuals who 
are considered not newly eligible in the new adult group and those who 
are not in the new adult group, FMAP will be provided at the state's 
regular FMAP rate.
    Comment: Many commenters recommended that HHS prohibit the use of 
cost-sharing requirements or utilization management tools which target 
the habilitation benefit and are not applied to other EHB benefits.
    Response: We are not accepting this comment because states have the 
flexibility to impose cost sharing consistent with the exemptions and 
beneficiary protections set forth in sections 1916 and 1916A of the 
Act, which we address separately in this final rule. There is no 
exemption under those provisions for habilitation services. In 
determining how to exercise the flexibility to impose cost sharing, 
however, we recognize that states must consider their obligations under 
the Americans with Disabilities Act and must not implement a 
discriminatory benefit design.
    Comment: A few commenters were disappointed that HHS has chosen not 
to provide states any guidance regarding the habilitation benefit in 
ABP.
    Response: In the proposed rule, we solicited public comments on the 
EHB requirements for rehabilitative and habilitative services, 
including devices. We received considerable numbers of comments, and 
considered those comments carefully. We weighed concerns about burden 
and cost of expansive coverage against the benefits of wider access for 
beneficiaries to needed care. We also considered the treatment of these 
benefits in the commercial market. Based on this consideration, we are 
issuing in this

[[Page 42218]]

final regulation the policy for coverage of rehabilitative and 
habilitative services, including devices. We hope that these policies 
provide the guidance requested by commenters.
    Comment: Many commenters requested HHS stipulate in the final 
regulation an ongoing process for data collection and evaluation 
related to ABP and Exchange coverage of habilitative services and 
devices. If this data were compared to the model definition of 
habilitation, that would give parameters for determining the adequacy 
of coverage for the first year of ABP and exchange operation.
    Response: CMS collects data from states in a variety of ways. The 
data will be available to help states, CMS and others determine what 
services are actually being provided, and it will help to inform us for 
future coverage decisions.
    Comment: One commenter indicated that states should be able to 
include as Medicaid state plan services any habilitative services 
included in either its Exchange EHB benchmark or ABP.
    Response: Habilitative services are only required in the Medicaid 
program for individuals in an ABP. Many states cover habilitative 
services under their section 1915(c) waivers. States interested 
offering habilitative services in other contexts should initiate 
conversations with CMS.
    Comment: One commenter believed the habilitative benefit proposed 
to be defined in the November 20, 2012 EHB proposed regulation is 
wholly inadequate and urged HHS to pursue promulgation of a strong, 
uniform definition of habilitative services for ABPs, as well as those 
offered through the Exchange.
    Response: The scope of this regulation is related to the definition 
of habilitation services as EHBs for purposes of Medicaid ABPs under 
section 1937 of the Act. This regulation does not extend to the 
definition of habilitation services as EHBs for purposes of the 
individual and small group markets.
    Comment: One commenter recommended that HHS have the authority to 
amend state defined coverage of habilitative services should evidence 
show that they provide insufficient coverage for users.
    Response: We anticipate that states will provide appropriate 
coverage of this service but section 1937 of the Act gives states a 
certain amount of flexibility to define ABPs that include the minimum 
coverage defined as EHBs.
    Comment: One commenter believed that by requiring section 1937 
plans to cover habilitative services, CMS is creating a disconnect 
between the scope of services offered under the state plan and section 
1937 coverage, in essence making the section 1937 plans more generous 
than current Medicaid state plans (which goes against congressional 
intent).
    Response: The Affordable Care Act established habilitative services 
as part of the EHB category ``Rehabilitative and Habilitative Services 
and Devices.'' EHBs are required to be offered as part of ABPs and are 
not required in other Medicaid state plan benefits for adults. ABP 
benefit packages will be different from those defined as the Medicaid 
state plan.
    Comment: One commenter believed that requiring habilitative 
coverage does little to ensure that appropriate services are available 
to individuals, as those requiring habilitative services are likely to 
be considered ``medically frail'', exempting them from mandatory 
enrollment in the benchmark package.
    Response: Individuals in the new adult group who meet the criteria 
to otherwise be determined to be exempt for medical frailty, will have 
a choice between ABP coverage that is defined in accordance with the 
requirements of section 1937 of the Act, including the EHB 
requirements, or ABP coverage that is defined as the coverage available 
under the state's approved Medicaid state plan. People who are not in 
the new adult group and are eligible for voluntary enrollment may be 
given a choice by the state between the benefit package defined using 
the ABP or the state's approved Medicaid state plan. An individual who 
has such an election may obtain needed habilitation services if the 
state has elected to provide such coverage under the state plan under 
section 1915(i) of the Act. If not, such individuals who need 
habilitative services may wish to voluntarily enroll in an ABP defined 
under section 1937 of the Act, if the EHB benefit package, inclusive of 
habilitative services, meets their needs.
    Summary: We solicited public comments related to this provision in 
the proposed rule. We clarify in regulation text that the state will 
define rehabilitative and habilitative services. Services covered by 
the base benchmark are the floor of EHB coverage, substituted as 
desired by the state. Under 45 CFR 156.110(f), if no habilitative 
services and devices are included in the base benchmark, states have 
the option to determine generally the required EHB services that are in 
the category of habilitative services and devices. If the state has 
done so, the base benchmark, and coverage under the ABP, must reflect 
that determination. If the state has not made a general determination 
of the habilitative services that are required as this EHB category, 
the state must exercise the option set forth in 45 CFR 156.115(a)(5) to 
determine EHB for the specific ABP. Under that option, habilitative 
services and devices must be included as EHBs either in an amount, 
duration, and scope no more restrictive in terms of treatment and 
benefit limitations than rehabilitative services and devices, or 
otherwise to an extent determined by the state and reported to HHS. In 
other words, if the base benchmark does not include habilitative 
services and devices, ABP coverage must, at a minimum, be based on the 
general state determination of habilitative services and devices that 
are included in EHBs, or on a Medicaid-specific determination for the 
particular ABP.
b. Pediatric Oral and Vision and EPSDT Services
    For Medicaid, medically necessary services, including pediatric 
oral and vision services, must be provided to eligible individuals 
under the age of 21 according to requirements of the EPSDT benefit. We 
clarified in the proposed rule that any limitations relating to 
pediatric services that may apply in the individual or small group 
market does not apply to Medicaid. In this final rule, we made no 
change from the proposed rule.
    Comment: Several commenters expressed appreciation for and support 
of the clarifying language in the preamble that confirmed that 
medically necessary services provided to eligible beneficiaries under 
the age of 21 must be provided under the EPSDT program, and that any 
limitation relating to pediatric services based on benchmarks would not 
apply to Medicaid for children enrolled in ABPs.
    One commenter added that the EPSDT benefit ensures that Medicaid 
eligible children have access to a complete range of medically 
necessary services, concluding that this will prove especially 
important for children with chronic conditions.
    A separate commenter believed that the pediatric services category 
for benchmark plans for all populations must include a comprehensive 
pediatric services benefit modeled after EPSDT.
    Response: We generally agree with these commenters, that the EPSDT 
benefit is important in offering increased access and a comprehensive 
range of medically necessary services for children under the age of 21. 
For children enrolled in Medicaid, all medically necessary services in 
general, including pediatric oral and vision

[[Page 42219]]

services, are covered under the Medicaid EPSDT benefit, which applies 
to every section 1937 ABP. As a result, EHB supplementation for 
pediatric services is not necessary in Medicaid.
    When assuring access to EPSDT services, a state has the option to 
offer medically necessary services to eligible children through either 
benchmark and benchmark-equivalent plan benefits without limitation or, 
alternatively, a state may meet the ESPDT requirement by providing 
services in combination with an eligible individual's benchmark or 
benchmark-equivalent plan as additional benefits. The state Medicaid 
program must assure that eligible individuals enrolled in ABP coverage 
receive EPSDT services that can be accessed in the most beneficial and 
seamless manner for the population being served.
    Comment: One commenter believed that subjecting ABP benefit 
categories to EPSDT requirement, such as preliminary screening, would 
water down ABP benefit packages and serve as an artificial barrier to 
care that children need. The commenter believed that a robust pediatric 
vision services benefit, as envisioned by Congress in the Affordable 
Care Act, based on coverage typical in the commercial market, should 
not be interrupted by imposing a harmful screening requirement.
    Response: We disagree. The commenter may have a misunderstanding of 
the EPSDT screening requirements. States are required to adopt EPSDT 
screenings (that is, preventive visits) for well-child, vision, 
hearing, and dental services. States may also adopt a national 
periodicity schedule such as Bright Futures (the Guidelines for health 
of the American Academy of Pediatrics). Services are provided based on 
these periodicity schedules and at other intervals as determined 
medically necessary. The inclusion of screening requirements as part of 
the EPSDT mandate should not in any way ``water down'' benefits 
provided under ABPs to individuals under the age of 21. It should serve 
to ensure that children receive the necessary screenings and any 
additional services and treatments according to appropriate standards 
of care.
    Summary: No changes were made. CMS clarified in regulation text 
that EPSDT applies to pediatric services including oral and vision care 
as a result of comments received in this section.
c. Essential Health Benefits (Prescription Drugs) (Sec.  440.347)
    In the proposed rule, we proposed to add a new paragraph (b)(7) to 
include benchmark-equivalent health benefits coverage for prescription 
drugs. We also indicated in the preamble that section 1927 of the Act 
requirements for covered outpatient drugs also apply to such 
prescription drug benefits as an EHB. As we previously discussed, we 
are clarifying in this final rule that this statement may have been 
over-inclusive, since section 1927 requirements do not apply to ABPs to 
the extent that they conflict with the flexibility under section 1937 
of the Act for states to define the amount, duration, and scope of the 
benefit for covered outpatient drugs. We received the following 
comments:
    Comment: A few commenters expressed support of paragraph (b)(7) of 
Sec.  440.335, which implements the statutory requirements for 
benchmark equivalent coverage of prescription drugs.
    Response: We appreciate the commenters' support for the coverage of 
prescription drugs as required under section 1937 of the Act.
    Comment: A few commenters indicated that in the current Medicaid 
program, states limit the number of drugs and include other utilization 
control measures that are harmful to patients and deny them the 
therapies that meet their health needs as prescribed by their 
physician. Some state Medicaid programs limit patients to two to four 
brand name drugs per month. Such limitations clearly do not meet 
patients' needs and the commenter urges CMS not to allow states to 
adopt them for the expansion population. Patients should be able to 
access the medications that they need as prescribed by their 
physicians. If they are not able to access appropriate medications, 
patients may become ill, impacting healthcare spending in the long run.
    The commenters further seek clarification on what is being proposed 
in the rule's recommendation regarding prescription drug limits. While 
the rule proposes that the ABP has to meet the benefits in the state-
selected EHB for the private market, the rule separately appears to 
replace the ABPs EHB drug benefit category with that described in 
section 1927 of the Act. In the final rule, the commenters ask for 
clarification on this matter and specifically on whether the ABP drug 
benefit is trumped by what is outlined in section 1927 of the Act, 
including with respect to any limitations. Furthermore, they are 
greatly concerned by the seemingly open ended ability of states to 
impose limits, and recommend that quantity limitations not apply to the 
ABP.
    Another commenter states that CMS' final rule must clearly specify 
all the drug access protections that apply to Medicaid ABPs. The 
commenter believes that these protections are essential in the Medicaid 
context because Medicaid beneficiaries represent a vulnerable 
population that tends to have lower health status and fewer resources 
to obtain needed care.
    Response: States have considerable flexibility in designing benefit 
packages for ABPs, including in the process of ensuring coverage of 
EHBs. While this flexibility permits states in some instances to limit 
prescription drug coverage based on the coverage offered under other 
public employee or commercial plans, it also includes the ability to 
exceed the amount, duration, and scope of prescription drugs covered 
under those plans. We also clarify that nothing in the commercial 
market implementation of EHBs, including prescription drugs, directly 
prohibits the utilization of monthly quantity limits. In developing 
ABPs, states must include prescription drug coverage to at least 
reflect the EHB-benchmark plan standards, including the requirement to 
have procedures in place that allow an enrollee to request and gain 
access to clinically appropriate drugs not otherwise covered. We 
believe these requirements will result in coverage that is similar to 
the coverage otherwise required under regular Medicaid state plan 
coverage.
    Comment: A few commenters stated that they support the rules 
governing coverage of prescription drugs under Medicaid (section 1927 
of the Act) applying to the ABP requiring coverage of nearly all of the 
drugs produced by manufacturers who participate in the Medicaid drug 
rebate program. The breadth of coverage offered by the Medicaid drug 
benefit is important to meet the medication needs of people with HIV 
who rely on a complex and unique drug regimen to treat HIV infection 
and manage serious co-occurring conditions, such as heart disease, 
serious mental illnesses and hepatitis B or C. However, they have 
serious concerns regarding the flexibility afforded to states to apply 
quantitative limits on drug coverage, particularly given that these 
limits are not common practice in the private insurance market. 
Allowing these types of limits in ABPs threatens access to lifesaving 
care and treatment and undermines the letter and spirit of the 
Affordable Care Act's EHB requirements for newly eligible Medicaid 
beneficiaries. It will also have the effect of undermining the adequacy 
of prescription drug coverage for those

[[Page 42220]]

with chronic health needs. The commenters recommend that HHS apply the 
section 1927 requirement for the range of covered medications, but 
prohibit additional authority for quantitative limits or other limits 
except as legally applicable based on the underlying ABP and EHB 
benchmarks. The commenters further recommend that Sec.  440.347 be 
amended to read: ``(e)Prescription drugs. Prescription drugs will be 
offered at a minimum in accordance with the requirements of section 
1927 of the Act and implementing regulations.''
    Response: While drug rebate obligations under section 1927(b) of 
the Act are applicable to payment for covered outpatient drugs covered 
through an ABP, the amount, duration and scope of coverage for an ABP 
is determined under section 1937 of the Act, which authorizes benchmark 
or benchmark-equivalent coverage ``notwithstanding any other provisions 
that would be directly contrary.'' This being the case, we do not have 
the authority to require states, when establishing its benefits under 
its ABP, to meet the coverage requirements of section 1927 of the Act. 
Doing so would be directly contrary to flexibility with respect to the 
amount, duration, and scope of coverage provided under section 1937 of 
the Act. As for the commenters' concerns with the limits provided under 
section 1927 of the Act as they apply to the Medicaid population, 
especially on disease specific or chronic care populations, we note 
that states have considerable discretion in the provision of Medicaid 
services including the ability to define the amount, duration, and 
scope of prescription drugs covered under ABPs. We also clarify that 
nothing in the commercial market implementation of EHBs, including 
prescription drugs, prohibits the utilization of monthly quantity 
limits.
    Comment: One commenter stated that in 2014, the Affordable Care Act 
requires that ABPs cover at ``least essential health benefits, as 
described in section 1302(b) of Affordable Care Act''. The commenter 
continues that while CMS proposes that the EHB requirements described 
in its November 2012 EHB proposed rule apply to ABPs, the Medicaid EHB 
proposed rule does not spell out the minimum prescription drug coverage 
requirements that will govern ABPs.
    The commenter requests CMS clarify that Medicaid ABPs must cover at 
least the same number of drugs in a particular United States 
Pharmacopeia (USP) class that the state-selected benchmark plan 
pertinent to the ABP covers, consistent with the ``Standards Related to 
Essential Health Benefits, Actuarial Value, and Accreditation'' 
proposed rule. The commenter also requests that CMS consider 
identifying classes of drugs in which broad access to different drugs 
within the class is essential to assure that vulnerable patients have 
prompt access to the right medicine for a serious illness, and bolster 
the drug coverage requirements for those drug classes accordingly.
    Response: As indicated above, states have considerable discretion 
in the provision of Medicaid services including the ability to define 
the amount, duration, and scope of prescription drug coverage under an 
ABP. In developing ABPs, states must include prescription drug coverage 
consistent with the EHB-benchmark plan standards. These standards are 
set forth at 45 CFR 156.122 and include the requirement that health 
plans have procedures in place that allow an enrollee to request and 
gain access to clinically appropriate drugs not covered by the health 
plan. We believe such requirements will result in coverage that is 
similar to the coverage otherwise required under regular Medicaid state 
plan coverage.
    Comment: One commenter is concerned with the adequacy of the EHB 
prescription drug benefit, which will apply to Medicaid beneficiaries 
enrolled in ABPs effective January 1, 2014. Medicaid beneficiaries in 
ABPs including those low-income adults who are newly eligible for 
Medicaid under Affordable Care Act are entitled to coverage for EHB. 
The proposed rule codifies this requirement and incorporates the 
definitions and standards that were specified for EHB coverage in the 
individual and small group market in the EHB proposed rule that CMS 
published on November 26, 2012, including CMS' proposed formulary 
standard for the prescription drug benefit. While the final rule states 
that USP will be used at least through ``the years 2014 and 2015 during 
the transitional EHB policy'' and thus it applies to the Medicaid ABPs 
during that time, the commenter urges CMS reconsider the use of the USP 
system as it is currently structured after 2015 given that many 
significant concerns remain. The commenter lists the following concerns 
regarding the EHB prescription drug benefit:
     The inadequacy of the USP to represent the full range of 
categories and classes of drugs needed by the populations covered by 
the EHB, including Medicaid beneficiaries enrolled in ABPs, because the 
USP was created as a classification system to be used by Medicare Part 
D plans;
     The need to incorporate specific protections for 
vulnerable populations to ensure appropriate access to vital 
medications;
     The need to expand the USP categories and classes and 
include more detail to adequately represent the drugs needed by 
enrollees in plans subject to EHB;
     The inability of USP categories and classes to capture all 
medical benefit drugs, including physician-administered drugs, and the 
need for CMS to specify that plans must offer robust coverage of drugs 
that are included as part of a comprehensive medical benefit, including 
a wider range of therapies, and should not rely on the USP categories 
and classes when determining coverage for physician-administered 
therapies;
     A requirement that new therapies be reviewed and added to 
plan formularies within 90 to 180 days through a process that mirrors 
the review process performed by independent Pharmacy and Therapeutic 
Committees in Medicare Part D to support timely access to new and 
innovative medications;
     A requirement for specific appeals and exceptions 
procedures to ensure that patients have access to needed treatments, 
and the application of these procedures also apply to drugs that are 
covered as part of a comprehensive medical benefit; and,
     The need for CMS to provide specific guidance about 
Medicaid ABPs regarding acceptable and unacceptable utilization 
management techniques, without which there is a real risk that plans 
could apply utilization management tools in a way that discriminates 
against individuals with more significant health care needs.
    Response: We appreciate the comments submitted regarding the 
application of the EHB requirements to ABPs, including the commenter's 
concerns with the use of the USP classification system. As stated 
above, states have considerable discretion in the provision of Medicaid 
services including the ability to define the amount, duration, and 
scope of coverage under an ABP. We also clarify that nothing in the 
commercial market implementation of EHBs, including prescription drugs, 
prohibits the use of utilization management tools. In developing ABPs, 
states must include prescription drug coverage to reflect the EHB-
benchmark plan standards, including the requirements at section 45 CFR 
156.122. We believe these requirements will result in coverage that

[[Page 42221]]

is similar to the coverage otherwise required under regular state plan 
coverage.
    Comment: A few commenters indicated that the preamble to the 
proposed rule says that all drugs of the companies that participate in 
the drug rebate program should be included in the ABP; however that 
language is not included in the language of the proposed regulation. 
The commenters recommended that the regulatory language be amended to 
correct that omission. Additionally, commenters agreed with HHS' legal 
conclusion, stated at 78 FR 4631, that section 1927 of the Act applies 
to ABPs and believe that this is a critical protection requiring 
coverage of a range of drugs necessary to meet the needs of the 
Medicaid population. The commenter recommends that HHS' explicitly 
state this requirement in the regulation.
    Response: As noted earlier, we must clarify a statement in the 
preamble to the proposed rule, indicating that coverage requirements 
under section 1927 of the Act are applicable to ABPs under section 1937 
of the Act. While drug rebate obligations under the rebate agreement 
are required for drug manufacturers under section 1927(b) of the Act, 
the amount, duration and scope of drug coverage under an ABP is 
determined under section 1937 of the Act. The drug rebate obligation 
applies because payment is made under the Medicaid state plan for 
covered outpatient drugs as part of the ABP. The amount, duration, and 
scope of coverage for an ABP are determined under section 1937 of the 
Act, which authorizes benchmark or benchmark-equivalent coverage 
``notwithstanding any other provision that would be directly 
contrary.'' That said, to the extent that covered outpatient drugs are 
within the scope of coverage, the non-coverage provisions under section 
1927(d) of the Act would apply. For example, states will continue to be 
permitted to apply certain permissible restrictions such as prior 
authorization. However, when establishing such programs, states must 
continue to adhere to the requirements that states must respond within 
24 hours for pre-authorization requests, except for excluded drugs 
listed at section 1927(d)(2) of the Act, and that at least a 72-hour 
supply of a covered outpatient prescription drug must be dispensed in 
an emergency situation. Further, we are revising Sec.  440.345 to add a 
new paragraph (f) that states that when states pay for covered 
outpatient drugs under their ABP's prescription drug coverage, they 
must comply with the requirements of section 1927 of the Act.
    Comment: A few commenters believed that ABPs are required by 
statute to include all outpatient drugs in the Medicaid drug rebate 
program, as well as meet the requirements for prescription drugs as 
proposed in the EHB proposed rule for the commercial market. These 
commenters also believe that in the absence of prescription drug 
coverage in a particular category or class, the ABP benefit must 
include at least one drug. They also recommend that the final rule 
clarify that prescription drug coverage within ABPs must provide the 
greater of the statutorily required coverage described in section 1927 
of the Act, or the required EHB coverage described in the proposed rule 
issued November 26, 2012. Another commenter recommended that CMS 
require each ABP's coverage of prescription drugs to be consistent with 
the state's EHB standard.
    Response: As indicated above, states have considerable flexibility 
in implementing the provision of Medicaid services through ABPs. In 
developing ABPs, states must include prescription drug coverage to 
reflect the EHB-benchmark plan standards at section 45 CFR 156.122 for 
prescription drug coverage. We believe these requirements will result 
in coverage that is similar to the coverage otherwise required under 
regular state plan coverage.
    Comment: A few commenters indicated that the regulatory text is 
correct at part 440, but the preamble is not, in that the rebate 
statute section 1927 of the Act does not apply to ABPs. They reasoned 
that the benefits under section 1937 of the Act are mandatory benefits, 
and they explicitly refer to the prescription drugs of the essential 
health benefits and not to the covered outpatient drugs of the 
voluntary Medicaid benefit to which section 1927 of the Act applies. 
Thus, the EHB's prescription drug coverage, which requires the greater 
of one drug in a class or the number of drugs in the class in the 
benchmark plan, should apply to ABPs. If it is determined that section 
1927 of the Act applies, then all the requirements and protections of 
section 1927 of the Act should apply to ABPs.
    A commenter stated that the rebate statute applies exclusively to 
covered outpatient drugs; it requires manufacturers to pay rebates on 
covered outpatient drugs (when they are paid for under a state Medicaid 
plan); and it limits the restrictions that states can place on access 
to covered outpatient drugs. The statute defines a ``covered outpatient 
drug'' in terms of what is included in the definition and what is 
excluded. This commenter believes the term ``covered outpatient drug'' 
is a well understood term of art meaning those drugs to which the 
Medicaid rebate statute applies. If Congress had intended the Medicaid 
rebate statute to apply to Medicaid ABPs, then Congress would have 
stated this explicitly and described the drugs covered under an ABP as 
``covered outpatient drugs.'' When Congress decided to apply the rebate 
statute to Medicaid managed care organizations, Congress made its 
decision clear and took the steps necessary to make its decision 
workable. For example, Congress explicitly revised the rebate statute 
to provide that covered outpatient drugs for which payment was made 
under the state Medicaid plan includes ``such drugs as dispensed to 
individuals enrolled with a Medicaid managed care organization if the 
organization is responsible for coverage of such drugs,'' among other 
changes.
    By contrast, the commenters assert that Congress took an entirely 
different approach with Medicaid ABPs. Unlike in the Medicaid MCO case, 
Congress never mentioned Medicaid rebates in the statutory provision 
authorizing ABPs, never mentioned ABPs in the Medicaid rebate statute, 
never established any mechanism for ABPs to report drug utilization 
data to states and for states to include this data in manufacturers' 
rebate invoices, and never provided that state payments to ABPs would 
be premised on the understanding that states would collect Medicaid 
rebates.
    Similarly, the commenters indicate that section 1937 of the Act 
makes no mention of covered outpatient drugs. Instead, the drug-related 
provisions in section 1937 of the Act provide only that (1) benchmark-
equivalent coverage must include ``prescriptions drugs'' (among other 
basic services required in benchmark-equivalent plans) and (2) starting 
in 2014, all ABPs must provide ``at least essential health benefits as 
described in section 1302(b) of Affordable Care Act, which benefits 
include prescription drugs.'' Thus in both of the statutory provisions 
referencing ABPs' drug coverage, Congress omitted the term denoting 
those drugs that are subject to the Medicaid rebate statute and instead 
incorporated different terms with no connection to the rebate statute. 
And Congress' decision to omit ``covered outpatient drug'' terminology 
is consistent with its decisions: (1) not to require to authorize 
reporting of ABP drug utilization data to states and manufacturers; and 
(2) not to address any implications of state rebate collection on ABP 
payments. Congress'

[[Page 42222]]

decision not to apply the rebate statute also is consistent with the 
purpose of section 1937 of the Act, which is to give State Medicaid 
programs more flexibility and allow them to operate more like 
commercial payers.
    Another commenter stated that the prescription drug benefit to be 
provided to Medicaid beneficiaries under section 1937 of the Act is not 
the same benefit as the ``prescribed drugs'' provided under a State 
plan under section 1905(a)(12) of the Act. Indeed, the coverage for 
prescription drugs made available to the Medicaid expansion population 
is derived from a different statutory authority than the traditional 
Medicaid option to provide coverage for ``prescribed drugs.'' The 
benefit under section 1905(a)(12) of the Act is optional for a State, 
while the prescription drug provided by an ABP is mandatory in accord 
with EHB requirements established by Affordable Care Act. Therefore, 
the commenter contends, and urges CMS to clarify in the final rule, 
that there is no statutory basis to apply section 1927 of the Act to 
these ABPs.
    In short, the commenters believe the statutory evidence 
demonstrates that Congress decided not to apply the Medicaid rebate 
statute to ABPs. When a word or phrase has become a term of art with a 
specialized meaning, that specialized meaning governs. Likewise, when 
Congress uses a term of art in one statutory provision but omits it in 
another (like section 1937 of the Act), then Congress intends a 
different meaning; ``where Congress includes particular language in one 
section of a statute but omits it in another . . ., it is generally 
presumed that Congress acts intentionally and purposefully in disparate 
inclusion or exclusion.'' Accordingly, applying the rebate statute to 
ABPs would be directly contrary to section 1937 of the Act and thus 
prohibited.
    Response: Drug rebate obligations are required for drug 
manufacturers under 1927(b) of the Act when payment occurs for covered 
outpatient drugs covered through an ABP. However, the amount, duration, 
and scope of drug coverage under an ABP are determined under section 
1937 of the Act. That is, the drug rebate obligation applies because 
payment is made under the Medicaid state plan for covered outpatient 
drugs provided as part of the ABP prescription drug benefit. The 
amount, duration, and scope of coverage for an ABP are determined under 
section 1937 of the Act, which authorizes benchmark or benchmark-
equivalent coverage ``notwithstanding any other provision that would be 
directly contrary.'' That said, to the extent that covered outpatient 
drugs are within the scope of coverage, the non-coverage provisions of 
section 1927 of the Act would apply.
    Comment: A commenter indicated that they anticipate that requiring 
ABPs to satisfy the requirements of both section 1927 of the Act and 
the EHB formulary standard may present significant practical challenges 
for the ABPs. The proposed rule does not explain how these two sets of 
requirements will fit together or whether and when the requirements of 
section 1927 of the Act will take precedence over the EHB formulary 
standard. For example, section 1927 of the Act requires manufacturers 
and the Secretary to enter into an agreement under which manufacturers 
must pay rebates to state Medicaid agencies for utilization of the 
manufacturer's covered outpatient drugs, in return for the state 
coverage of such drugs, which may be restricted only within the set 
confines of section 1927(d) of the Act. The proposed EHB prescription 
drug benefit, by contrast, requires coverage of at least the greater of 
(1) one drug in every USP category and class; or (2) the same number of 
drugs in each category and class as the EHB benchmark plan.
    Response: As we stated earlier, there is no authority to require 
states to meet requirements of section 1927 of the Act related to the 
amount, duration and scope of covered outpatient drugs under an ABP. 
States have some discretion in the provision of Medicaid services 
including the ability to define the amount, duration, and scope of 
coverage under an ABP. In developing ABPs, states must include 
prescription drug coverage to reflect the standards used to define EHBs 
for Medicaid. As stated earlier, we believe these requirements at 45 
CFR 156.122 will result in coverage that is similar to the coverage 
otherwise required under regular Medicaid state plan coverage.
    Comment: A few commenters indicated that to the extent that CMS 
nonetheless decides to apply section 1927 to ABPs, it is of the utmost 
importance that CMS apply and stringently enforce both the coverage and 
access requirements of that section. CMS should explicitly indicate 
that the section 1927 safeguards on coverage and exclusions apply, in 
addition to the prescription drug benefit requirements of the EHB 
proposed rule. Any requirements for payment of rebates under section 
1927 of the Act without adherence to the coverage and exclusion 
limitations violates the intent and spirit of that section.
    Another commenter indicated that the Medicaid rebate statute 
requires states that provide payment for drugs to cover all ``covered 
outpatient drugs'' of manufacturers that sign a Medicaid rebate 
agreement, subject to certain limitations on coverage that the statute 
describes very specifically. The rebate statute explicitly lists the 
limited circumstances in which a State Medicaid program may exclude or 
otherwise restrict coverage of a drug manufactured by a company with a 
Medicaid rebate agreement.
    Response: While drug rebate obligations under the rebate agreement 
with drug manufacturers under section 1927(b) of the Act are applicable 
to covered outpatient drugs covered through an ABP, the amount, 
duration, and scope of drug coverage under an ABP are determined under 
section 1937 of the Act alone. The drug rebate obligation applies when 
payment is made for covered outpatient drugs in accordance under the 
Medicaid state plan, including a state's ABP. The amount, duration, and 
scope of coverage for an ABP is determined under section 1937 of the 
Act, which authorizes benchmark or benchmark-equivalent coverage 
``notwithstanding any other provision that would be directly 
contrary.''
    Comment: One commenter recommended that the prescription drug 
benefit under ABPs should include all over-the-counter and prescription 
medications approved by the FDA to treat tobacco cessation. The 
commenter continues that tobacco cessation medications are currently on 
the list of ``drugs subject to restriction'' in section 1927(d) of the 
Act, and therefore, states are allowed to exclude coverage of these 
drugs.
    Response: Effective January 1, 2014, section 1927(d) of the Act 
requires states to provide coverage of non-prescription and 
prescription covered outpatient drugs used to treat tobacco cessation 
for all Medicaid beneficiaries. Notwithstanding that requirement, we 
note that there is no authority to require states to meet requirements 
of section 1927 of the Act related to the amount, duration, and scope 
of covered outpatient drugs under an ABP. States have considerable 
discretion in the provision of Medicaid services including the ability 
to define the amount, duration, and scope of coverage under an ABP. In 
developing ABPs, states must include prescription drug coverage to 
reflect the standards for defining EHBs in Medicaid. As stated earlier, 
we believe these requirements at 45 CFR 156.122 will result in coverage 
that is similar to the coverage otherwise required under regular 
Medicaid state plan coverage.

[[Page 42223]]

    Comment: A few commenters indicated that the agency says that the 
states have the flexibility to ``adopt prior authorization and other 
utilization control measures, as well as policies that promote use of 
generic drugs.'' The commenters believe there is potential for conflict 
between the prescription drug coverage of an ABP supplemented by the 
states' essential health benefit standard, and a drug benefit that is 
consistent with the State's Medicaid program. The commenter urged 
clarification of the coverage standard accompanied by protections to 
ensure that patients can appeal utilization controls that might prevent 
them from receiving necessary medications.
    One commenter recommended that CMS monitor the implementation of 
traditional Medicaid and ABP PDLs and utilization management 
techniques, and act to stop burdensome limitations that reduce access 
to care and could impact patient health because of limited access to 
needed drugs. The commenter also recommends requiring that decisions 
regarding PDLs take into account evidence-based clinical practice 
guidelines, and not just of drugs; and that CMS require that states 
only be permitted to classify a drug as non-preferred when there are 
genuine therapeutic alternatives classified as preferred.
    Response: Prescription drug coverage under an ABP is still subject 
to the provisions related to drug rebates, as well as the non-coverage 
provisions under section 1927(d) of the Act. Therefore, states will 
continue to be permitted to apply certain permissible restrictions such 
as prior authorization. However, when establishing such programs, 
states must continue to adhere to the requirements that states must 
respond within 24 hours for pre-authorization requests, except for 
excluded drugs listed at section 1927(d)(2) of the Act, and that at 
least a 72-hour supply of a covered outpatient prescription drug must 
be dispensed in an emergency situation.
    Furthermore, a state Medicaid agency's Pharmacy and Therapeutics 
(P&T) Committee typically makes decisions on inclusion of preferred 
drugs in a therapeutic class when establishing a state's PDL. 
Specifically, the P&T Committee reviews evidence-based information, 
along with review of comparative clinical trials to make such decisions 
regarding a state's PDL. A PDL is permitted under section 1927 of the 
Act, as long as it is under a prior authorization program that meets 
the requirements of section 1927(d)(5) of the Act.
    Comment: One commenter recommends that individuals have access to 
the full range of available clotting factors without limitation through 
restrictive drug formularies, which negatively impacts patient care. 
Patients and physicians should make the choice of which therapy is 
appropriate. The commenter also noted that hemophilia patients should 
have access to a range of specialty pharmacy providers. Several 
commenters recommend that CMS require states to implement beneficiary 
protections consistent with Medicare Part D, including consideration of 
specific drugs, tiering, and utilization management strategies used in 
each formulary.
    Response: As we stated earlier, there is no authority to require 
states to meet requirements of section 1927 of the Act related to the 
amount, duration and scope of covered outpatient drugs under an ABP. 
States have considerable discretion in the provision of Medicaid 
services including the ability to define the amount, duration, and 
scope of coverage under an ABP. In developing ABPs, states must include 
prescription drug coverage to reflect the standards for defining EHBs 
in Medicaid. As we have noted in prior responses, we believe these 
requirements will result in coverage that is similar to the coverage 
otherwise required under regular Medicaid state plan coverage.
    Comment: One commenter stated that section 2001(c) of Affordable 
Care Act modified the benefit provisions of section 1937 of the Act. 
Among other things, section 2001(c) of the Affordable Care Act added 
mental health benefits and prescription drug coverage to the list of 
benefits that must be included in benchmark equivalent coverage; and 
directed that ABPs that include medical/surgical benefits and mental 
health and/or substance use disorder benefits comply with the Mental 
Health Parity and Addiction Equity Act of 2008.
    This being the case, the commenter encourages CMS to clarify and 
strengthen the guidance on drug formularies in the current parity 
regulations which make it difficult to determine whether a formulary 
satisfies the law's parity standards.
    Response: While we appreciate the commenter's concern, the Interim 
Final Regulation regarding the Mental Health Parity and Addiction 
Equity Act of 2008 is not the subject of this final rule.
    Comment: One commenter suggested that CMS provide guidance to 
states on medication assisted treatment of substance abuse disorder. 
Specifically, states should be required to cover Methadone, 
Buprenorphine, Vivitrol, etc., in the EHB and that where needed states 
should expand the formulary to include all FDA approved medications for 
the treatment of substance use disorders.
    Response: CMS is not providing guidance regarding specific services 
offered in each of the ten essential health benefits in this final 
rule.
    Comment: One commenter requests that CMS encourage state Medicaid 
programs to utilize the 340B drug purchasing program provided by 
hemophilia treatment centers or HTCs so that individuals with 
hemophilia can receive their pharmacy services from their HTC. HTCs 
with 340B programs integrate clinical and pharmacy services to provide 
comprehensive high-quality care to patients and closely monitor drug 
utilization, allowing for more immediate changes in treatment and 
better management of treatment costs. Patients benefit from lower cost 
prescriptions that reduce out-of-pocket spending and accumulation of 
costs towards caps on health insurance expenditures and ongoing 
education and support to ensure that they appropriately assess their 
treatment needs. Medicaid programs will benefit from better management 
of overall treatment costs through close monitoring of bleeds and 
factor use to reduce complications.
    Response: We appreciate the comments regarding the 340B program and 
coverage of drugs for hemophilia; however, the State's utilization of 
the 340B drug purchasing program is outside the scope of this rule.
    Comment: CMS should establish clear requirements to assure that 
utilization data for populations eligible to receive Medicaid rebates 
is maintained separately from data from other lines of business. That 
is, the final regulation must provide clear rules to assure that plans 
maintain data on prescription drug claims appropriately and do not mix 
data from populations eligible for Medicaid rebates with data for other 
enrollees not eligible for Medicaid rebates. Because many plans may 
offer products in the exchanges as well as participate in Medicaid 
managed care (under either section 1903(m) of the Act, as well as 
Medicaid ABPs) the potential for confusion is high and clear rules are 
needed to assure that utilization for rebate-eligible patients is 
maintained separately from data for other lines of business.
    Response: If the state administers its ABP via a Medicaid MCO, the 
state will need to ensure the MCO distinguishes these claims from its 
other lines of business for the purpose of claiming

[[Page 42224]]

Medicaid rebates consistent with the current requirement for such 
claims under section 1927 of the Act. CMS expects to issue 
subregulatory guidance on collecting manufacturer rebates for ABPs. 
Manufacturers are not required under section 1927 of the Act to pay 
rebates absent a Medicaid payment for the drugs, which would not be 
present in the case of drugs dispensed to Medicaid beneficiaries that 
are enrolled in qualified health plans where the only Medicaid payment 
was premium assistance for the beneficiary.
    Summary: Based upon the comments requesting clarification as to 
whether or not section 1927 of the Act applies to prescription drug 
coverage provided under a state's ABP, we will be adding paragraph (f) 
to Sec.  440.345 to require that when states pay for covered outpatient 
drugs under their ABP's prescription drug coverage, states must comply 
with the requirements under section 1927 of the Act.
4. All Other Title XIX Provisions Apply
    We clarified in the proposed rule that all other Title XIX of the 
Act provisions apply unless, as spelled out in section 1937 of the Act, 
a state can satisfactorily demonstrate that implementing such other 
provisions would be directly contrary to their ability to implement 
ABPs under section 1937 of the Act.
    Comment: We received one comment requesting that CMS elaborate on 
what is meant by the preamble language that all other provisions under 
title XIX of the Act apply, and whether states are required to cover 
the current mandatory Medicaid benefits, and ensure non-emergency 
transportation, when using an ABP for the new adult expansion group.
    Response: The Medicaid benchmark and benchmark-equivalent coverage 
was first authorized by the DRA, which included language stating that 
``notwithstanding any other provision of title XIX'' states can offer 
medical assistance to certain Medicaid beneficiaries through benchmark 
or benchmark-equivalent benefit packages. As a result of CHIPRA changes 
to the DRA, CMS regulations were revised to implement this change in 
law. CHIPRA language provides clearly that a state's benchmark or 
benchmark-equivalent programs may vary only from statutory requirements 
explicitly waived in section 1937 of the Act (statewideness and 
comparability), unless states can demonstrate that other provisions not 
identified in section 1937 of the Act would be directly contrary to 
their ability to implement ABP. As such, in the proposed rule, we 
offered clarifying language in the preamble to reiterate that this 
current policy continues to apply. Due to statutory requirements, 
states may not disregard any provisions of title XIX and are therefore 
required to assure that all populations receiving ABPs, including the 
new adult expansion group, have access to transportation necessary to 
obtain Medicaid covered services.
    Summary: No changes will be made to the proposed regulation as a 
result of comments received in this section.
5. Preventive Services as an EHB
    The EHB Final rule specified that, to provide EHB, a plan must 
provide coverage of preventive services. This requires plans to cover a 
broad range of preventive services including ``A'' or ``B'' services 
recommended by the United States Preventive Services Task Force; 
Advisory Committee for Immunization Practices recommended vaccines; 
preventive care and screening of infants, children and adults recommend 
by HRSA's Bright Futures program, and additional preventive services 
for women recommended by the Institute of Medicine. We proposed that 
Title XIX premium and cost sharing provisions apply to preventive 
services for adults, but not for children.
    Comment: Many commenters commended HHS for including in ABPs the 
full range of preventive services required in the EHB, including all of 
the services specified in section 2713 of the PHS Act. The commenters 
believed this is a critical provision for vulnerable populations and 
will help achieve the Affordable Care Act objective of shifting health 
care emphasis from expensive interventions to cost-effective 
prevention. The commenters requested that HHS explicitly state this 
requirement (currently in the preamble at 78 FR 4631) in the regulation 
itself.
    Response: The language in the preamble to the proposed rule, 
originating in section 2713 of the PHS Act, was included as a reference 
to the requirement to cover preventive services as part of providing 
EHB, which has been implemented by regulation codified at 45 CFR 
147.130. We do not believe this requires further clarification in this 
final rule.
    Comment: A number of commenters asked CMS to clarify its preamble 
language, ``Title XIX premium and cost sharing provisions apply to 
preventive services.'' Specifically, CMS should clarify whether it 
intends this to apply to the ABPs for the new expansion population and/
or to current state Medicaid plan services.
    Response: We agree that this issue needs to be clarified, 
particularly in light of the issuance of the final rules implementing 
EHB requirements for the individual and small group markets. In the 
final regulations issued February 25, 2013 at 78 FR 12835, the 
provision of EHB was defined at 45 CFR 156.115(a)(4) to ``include 
preventive health services described in [45 CFR] Sec.  147.130''. That 
cross referenced provision describes the requirement for coverage of 
preventive services without cost sharing. As explained in the preamble 
to the proposed regulations, at 77 FR 70644, 70651 (Nov. 26, 2012), the 
intent was to include in the EHB coverage obligation the prohibition on 
cost sharing for preventive health services. Thus, while Medicaid cost 
sharing provisions at sections 1916 and 1916A of the Act apply 
generally to preventive services provided in ABPs, cost sharing may not 
be applied to preventive services that are within the definition of 
EHBs (described in 45 CFR 147.130). An ABP may include preventive 
services beyond the floor of coverage required as EHBs, and cost 
sharing may be applied to such preventive services at state option to 
the extent permissible under sections 1916 and 1916A of the Act.
    Comment: One commenter requested clarification on whether the full 
range of United States Preventive Services Task Force (USPSTF) ``A'' 
and ``B'' services is specific to benchmark benefits offered to 
individuals that are newly eligible.
    Response: These services, along with IOM-recommended women's 
preventive services, ACIP-recommended vaccines, and HRSA's Bright 
Futures recommendations, comprise the preventive services EHB category 
that will be provided to all individuals in an ABP, including those in 
the new adult group. In addition, coverage of USPSTF ``A'' and ``B'' 
preventive services under section 4106 of the Affordable Care Act 
applies, at state option, to preventive services furnished under the 
regular state plan. States implementing the preventive services EHB in 
their ABP without cost sharing will be eligible for the additional 1 
percentage point of FMAP (for newly eligible individuals, this 
increased FMAP will be available once Federal reimbursement of services 
drops below 100 percent).
    Comment: A few commenters were concerned that other preventive 
screenings recommended by the CDC are not included in the proposed 
rule. The commenters recommended the inclusion of all CDC hepatitis B 
and C screening recommendations as required components of Medicaid's 
ABPs.
    Response: CMS recognizes the importance of CDC recommendations 
related to preventive services. The proposed rule was not meant to be 
an

[[Page 42225]]

exhaustive list of all recommendations made by government agencies such 
as the USPSTF. States have the option to adopt CDC recommendations as 
long as they are in line with EHB preventive service statutory and 
regulatory guidance.
    Comment: A few commenters requested that HHS clearly define which 
tobacco cessation treatments are required to be covered as a preventive 
service under EHB. The commenters believed this definition should be 
comprehensive, and include--and require--all tobacco cessation 
medications approved by the FDA as well as individual, group and phone 
counseling. The commenters believed it should be based on and reference 
the most recent version of the Public Health Service Guideline Treating 
Tobacco Use and Dependence, to ensure that when and if the guideline is 
updated the benefit will be revised as appropriate.
    Response: We appreciate the commenter's recommendations. Tobacco 
cessation programs are important preventive services. However, states 
have been given latitude on how to furnish this service within the 
bounds of statute, regulation, and sub-regulatory guidance. Tobacco 
cessation for pregnant women is defined in section 4107 of Affordable 
Care Act and is located at section 1905(a)(4)(D) of the Act. We also 
issued a letter to State Medicaid Directors dated June 24, 2011 that 
clarified policy related to this provision. The only tobacco cessation 
services required to be furnished in the EHB package are those 
recommended by the entities designated in section 2713 of the Public 
Health Service Act.
    Comment: Many commenters requested greater definition of the 
preventive services that states are required to cover to meet the EHB 
requirement. The commenters found it difficult to determine what 
preventive health services are covered and what the scope and limits of 
the coverage may be.
    Response: The definition of preventive services as an EHB includes 
a broad range of preventive services including: ``A'' or ``B'' services 
recommended by the United States Preventive Services Task Force; 
Advisory Committee for Immunization Practices (ACIP) recommended 
vaccines; preventive care and screening for infants, children and 
adults recommended by HRSA's Bright Futures program/project; and 
additional preventive services for women recommended by Institute of 
Medicine (IOM). Further definition was not provided as these standards 
were established by experts in the field of prevention.
    Comment: A few commenters requested that HHS provide the following 
guidance:
     Clarify in the language of the final rule that Medicaid 
ABP must cover all section 2713 services.
     Clarify that section 2713 coverage requirements apply even 
where there is overlap with EHB categories.
     Create standards to ensure that section 2713 preventive 
service coverage offers meaningful incentives to providers.
     Encourage states to align traditional Medicaid coverage 
with the section 2713 preventive services requirement.
    Response: We appreciate the commenters' request to include further 
descriptions within the final rule. The rule, as written, requires 
states to provide a robust set of preventive services that align with 
Sec.  147.130. The Affordable Care Act established Sec.  4106 effective 
January 1, 2013 within regular Medicaid coverage, which includes a 
subset of the services implemented in Sec.  2713 of the Public Health 
Service Act (PHSA). A State Medicaid Director Letter on Sec.  4106 was 
released on February 1, 2013 (http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SMD-13-002.pdf).
    Comment: One commenter requested clarification regarding the 
interval after which a preventive service rated with an A or B by the 
USPSTF must be included in EHBs for Medicaid plans. The commenter 
encouraged HHS to establish an interval of no later than the 1-year 
minimum specified in section 2713(b)(1) of the Public Health Service 
Act, irrespective of any other timetable HHS choose for updating the 
EHBs more broadly over time.
    Response: Section 2713(b)(1) and (2) of the Public Health Service 
Act set forth the interval between the date on which a recommendation 
described in subsection (a)(1) or (a)(2) or a guideline under 
subsection (a)(3) is issued and the plan year for which of the 
requirements described in subsection (a) is effective for the service 
described in such recommendation or guideline. We believe that such an 
interval is appropriate for applicable preventive services included in 
the ABP.
    Comment: One commenter requested specificity around the process by 
which USPSTF recommendations will be incorporated into EHBs over time 
and the process for determining the frequency and intensity of USPSTF-
recommended behavioral interventions.
    Response: A broad range of preventive services including all ``A'' 
or ``B'' services recommended by the United States Preventive Services 
Task Force must be incorporated in the EHB and are required to be 
implemented according to the effective date of the submitted SPA. If 
states want an effective date of January 1, 2014 for the entire ABP 
including these preventive services, then a SPA will need to be 
submitted by the end of the first calendar quarter of 2014. States are 
expected to keep abreast of changes to the USPSTF-recommended services 
to ensure provision of a current array of services.
    Comment: One commenter indicated that, to the extent that HHS does 
not specify the number of covered visits to registered dietician 
specialists for medical nutrition therapy, national practice guidelines 
should determine appropriate coverage.
    Response: We encourage states to consult and rely on national 
practice guidelines, as they design their benefit packages.
    Comment: One commenter requested that while HHS may be reluctant to 
explicitly require coverage of obesity treatment, HHS should clarify 
whether management of obesity and metabolic disorders are chronic 
disease management services and are therefore covered services under 
the ``Preventive and Wellness Services and Chronic Disease Management'' 
category of the EHB package. One commenter believed that beneficiaries 
affected by severe obesity should have access to bariatric surgery with 
comprehensive pre- and post-surgery nutrition evaluation and counseling 
to ensure the efficacy and cost effectiveness of the bariatric surgery 
benefit over the long term.
    Response: ``A'' or ``B'' services recommended by the United States 
Preventive Services Task Force must be incorporated in the EHB. Current 
USPSTF guidelines provide for the screening and counseling for obesity 
in both children and adults. Aside from the services specified at 
section 2713 of the Public Health Service Act, we are not mandating the 
provision of specific services through the EHB package. We agree that 
bariatric surgery, complete with appropriate counseling, can be a 
valuable service, and it will covered in the ABP if it is included in 
EHB definitions of the public employee or commercial plan selected by 
the state to define EHBs for Medicaid, supplemented and substituted as 
necessary and permitted. States may also choose to add this service to 
their ABP.
    Comment: One commenter asked HHS to clarify whether a state that 
chooses to use its current state plan as the ABP would need to add 
services to the state plan for ABP recipients if not all preventive 
services are included. The

[[Page 42226]]

commenter also asked whether states would need to amend the state plan 
and provide these services for all Medicaid recipients of the state 
plan services.
    Response: The regular state plan does not need to be amended to 
reflect the breadth and depth of required preventive service coverage 
in an ABP. States will have to comply with the definition of preventive 
services for the EHB category within the ABP. States using Secretary-
approved coverage to implement a benefit package similar to their 
Medicaid state plan would need to ensure provision of all EHB 
preventive services through the ABP, even if such services are not 
available under the state plan. A state plan amendment will be required 
to implement an ABP for the new adult group and for any other 
categorically needy eligibility groups that a state may wish to enroll 
in an ABP.
    Comment: A number of commenters recommended that HHS apply the PHS 
Act 2713 cost-sharing prohibition for preventive services under section 
2713 of the PHS Act to the same preventive services covered by ABPs. 
The commenters believed these protections are essential to provide 
meaningful coverage to vulnerable population and avoid the unfair 
outcome of greater cost-sharing for poorer individuals. The commenters 
believed cost sharing on preventive services should be prohibited based 
on the authority of section 2713 of the PHS Act. One commenter believed 
that cost-sharing for preventive services is prohibited under the 
definition of EHB in regulations at 45 CFR 156.115, which state that 
the EHB include ``preventive health services described in [45 CFR] 
Sec.  147.30.'' The commenter explained that this section lists the 
services included in the definition of preventive health services and 
states that insurers ``may not impose any cost-sharing requirements 
(such as copayment, coinsurance, or deductible) for those items or 
services.'' The commenter believed the definition of preventive 
services in the EHB is unique in that it incorporated a prohibition on 
cost-sharing in the definition of the benefit. The commenter believed 
that by requiring EHB in ABPs, Congress intended to carry that 
prohibition on cost-sharing into Medicaid's ABPs. A number of 
commenters believed that prohibiting cost sharing for preventive 
services is consistent with the provision giving states a percentage 
point increase in their FMAP under section 4106 of the Affordable Care 
Act.
    Response: We appreciate the concerns commenters raised regarding 
cost sharing for preventive services and we are adopting their 
suggested policies in light of the provisions of the recently issued 
EHB regulations for the individual and group markets at 45 CFR 
156.115(a)(4). As stated above, states may not impose cost sharing for 
preventive services included in ABPs that are within the scope of EHBs, 
as defined at 45 CFR 147.130, but may impose cost sharing consistent 
with sections 1916 and 1916A of the Act on preventive services that go 
beyond that scope. This is because the definition of preventive 
services for purposes of the EHBs precludes cost sharing, and Medicaid 
ABPs must include EHBs. We clarify that the broader prohibitions on 
cost sharing for preventive services at section 2713 of the PHS Act 
apply only to group health plans and health insurance issuers providing 
group or individual health insurance coverage, and do not apply to 
Medicaid. For preventive health services beyond the scope of EHBs, we 
note that cost sharing is not allowed for preventive services provided 
to children under sections 1916 and 1916A(b)(ii) of the Act. We agree 
with commenters that this preclusion of cost sharing for preventive 
service EHBs is consistent with the policies set forth in section 4106 
of the Affordable Care Act, which added section 1905(b)(5) to the Act, 
giving states an increase in the federal medical assistance percentage 
for preventive services if the state did not impose cost sharing on 
such services.
    Comment: A number of commenters believe that cost sharing should 
not be applied to the EPSDT population.
    Response: While we discuss cost sharing issues at greater length in 
discussing the streamlined cost sharing regulations being issued in 
this final rule, for EPSDT for individuals enrolled in ABPs, we note 
that sections 1916 and 1916A(b)(ii) of the Act preclude cost sharing 
for individuals under age 18 who are mandatorily eligible, and preclude 
cost sharing for preventive services (such as well baby and well child 
care and immunizations) provided to children under 18 years of age 
regardless of family income. Section 1916(b)(2)(a) of the Act further 
states that cost sharing cannot be imposed under the plan for services 
furnished to individuals under 18 years of age (and, at the option of 
the State, individuals under 21, 20, or 19 years of age, or any 
reasonable category of individuals 18 years of age or over). These 
provisions also apply to ABPs.
    Summary: No changes will be made to the proposed regulation as a 
result of comments received in this section.
6. Other Changes To Simplify, Modernize, and Clarify Medicaid Benchmark 
Requirements and Coverage Requirements
    We proposed to make certain changes to the regulations to promote 
simplification and clarification where needed, and provide some 
additional flexibilities to states regarding benefit options. We 
received the following comments:
a. Diagnostic, Screening, Preventive, and Rehabilitative Services 
(Preventive Services) (Sec.  440.130)
    We proposed to conform our regulatory definition of preventive 
services at Sec.  440.130(c) with the statute relating to the issue of 
who can be providers of preventive services. Our current regulation 
states that preventive services must be provided by a physician or 
other licensed practitioner. This is not in alignment with the 
statutory provision at section 1905(a)(13) of the Act that defines 
``services . . . recommended by a physician or other licensed 
practitioner of healing arts within the scope of their practice under 
state law.'' We proposed to change the rule to make clear that 
physicians or other licensed practitioners may recommend these 
services. In our proposed rule, we inadvertently used punctuation that 
would have had the effect of eliminating the other three prongs of the 
preventive services definition, and we are restoring those prongs in 
this final rule.
    Comment: Many commenters commended HHS for conforming the 
regulatory definition relating to who can provide preventive services 
at section 1905(a)(13) of the Act that defines ``services . . . 
recommended by a physician or other licensed practitioner of healing 
arts within the scope of their practice under State law.'' Many 
commenters believed this change will improve access to preventive 
services, expand access to evidence based practices, and provide 
greater partnership between providers and advocates. The commenters 
urged CMS to preserve this important provision in the final rule.
    Response: We agree that the amended regulatory definition of who 
can provide preventive services will result in improved access to 
preventive services and facilitate partnership between providers and 
advocates. This provision has been codified in the final rule.
    Comment: A number of commenters believed that the amended 
regulatory definition will be especially important to low-income people 
who disproportionately access care through

[[Page 42227]]

community-based and support services and may experience significant 
stigma and lower trust levels with other providers.
    One commenter believed current Medicaid regulations surrounding 
Sec.  440.130(c) have significantly limited the available care and 
treatment for Medicaid and CHIP-enrolled children who suffer from 
chronic diseases.
    Response: The amended definition may result in greater access for 
individuals who suffer from chronic disease as the pool of providers 
could increase significantly.
    Comment: A few commenters commended HHS for making reference to 
this regulatory change in a February 1, 2013 letter to State Medicaid 
Director. The letter stated that if the proposed regulatory change is 
finalized, then preventive services recommended by USPSTF or ACIP, and 
provided by practitioners other than physicians or other licensed 
practitioners, are eligible for the 1 percentage point FMAP increase 
established under the Affordable Care Act.
    Response: We attempt to provide as much notice as possible related 
to rule making and appreciate the commenter's support.
    Comment: One commenter believed the proposed language, ``(c) 
Preventive services means services recommended by a physician or other 
licensed practitioner of the healing arts acting within the scope of 
authorized practice under state law'', was overly broad.
    Response: The regulation is consistent with statutory language in 
section 1905(a)(13) of the Act. The final rule increases the number of 
providers able to furnish services. We are not changing regulation text 
at Sec.  440.130(c)(1) through (c)(3).
    Comment: One commenter believed that the proposed new definition in 
the rule represents a far broader view of the term ``preventive 
services'' than Congress contemplated in Affordable Care Act. For 
purposes of describing what services are included in EHB, ``preventive 
services'' are already extensively described at Sec.  147.130. The 
proposed revision in the definition of ``preventive services'' at Sec.  
440.130 would not primarily affect the scope of preventive services 
required to be offered as EHB in the state benchmark plans. Rather, the 
amendment would greatly expand the scope of the preventive services 
benefit that may be offered as an optional service under standard state 
MA plans.
    Response: This change is not based on an interpretation of 
``preventive services'' as it is used in the Affordable Care Act for 
purposes of EHB, but an interpretation of the coverage of preventive 
services under regular Medicaid under section 1905(a)(13) of the Act. 
This regulatory change will primarily impact the provision of 
preventive services under the regular state Medicaid plan. Section 4106 
of the Affordable Care Act, `Improving Access to Preventive Services 
for Eligible Adults in Medicaid,' broadens the section 1905(a)(13) 
preventive services benefit by providing a 1 percentage point FMAP 
increase on clinical preventive services that are assigned a grade of A 
or B by the USPSTF.
    Comment: A number of commenters believed the new definition could 
have a significant fiscal impact on states' Medicaid programs because, 
as a part of EPSDT, the expanded scope of services must be offered to 
recipients under age of 21.
    Response: While we acknowledge that this change will result in 
additional providers being authorized to provide preventive services, 
it accurately reflects the statutory language for the preventive 
services benefit. In addition, broadening the scope of providers who 
can provide preventive services in the Medicaid program may reduce, 
rather than increase, program expenditures by making available services 
in the most efficient and effective settings. Providing broader access 
to these types of providers and benefits may assist individuals with 
improved health.
    Comment: A number of commenters requested clarification on 
preventive services. The commenters believed that the definition 
provided (Sec.  440.130) is broad and will be difficult for states to 
operationalize without more detail. The commenters requested a more 
precise definition that includes the current procedural terminology 
codes for each preventive service and that HHS work with states to 
develop preventive definitions. Without such guidance states and the 
federal government could end up inappropriately paying for air 
conditioners, ineffective weight loss programs, or similar services 
which are simply not appropriate.
    Response: States still have the ability to restrict preventive 
services to direct patient care that is medically necessary and is for 
the purpose of preventing disease, disability and other health 
conditions or their progression, prolonging life and promoting physical 
and mental health and efficiency. The commenters may have been confused 
because we inadvertently proposed to eliminate these other prongs of 
the preventive services definition, which we preserve in this final 
rule. States also have some options in determining coverage of 
preventive services, and can specify the options, and specific billing 
codes, for covered preventive services using the state plan amendment 
process.
    Comment: One commenter urged HHS to retain the current regulatory 
definition which established that the allowable providers of preventive 
services are physicians or other licensed practitioners. The commenter 
disagreed that the provider requirements for preventive services under 
the Affordable Care Act should be aligned with Medicaid provider 
requirements for the optional benefit category as established under 
section 1905(a)(13) of the Act. The commenter stated that the benefits 
are distinctly different and have different purposes, particularly for 
children up to the age 21.
    Response: We disagree with this position. Both section 1905(a)(13) 
of the Act and Affordable Care Act provide for a more robust set of 
preventive services than the current regulations, in allowing a broader 
pool of providers to deliver such services. In making this change in 
the final rule, we are aligning our regulation with the statutory 
coverage provision. States will continue to have some flexibility to 
determine the scope of covered preventive services in their state by 
submitting a SPA to do so.
    Comment: Many commenters were concerned that this broad language 
would allow for unlimited services as recommended by health care 
providers and other providers of the healing arts. These commenters 
requested that this be clarified to impose reasonable limits on 
services.
    Response: Under existing rules, states can establish limitations on 
amount, duration, and scope, on the optional preventive services 
provided the resulting benefit is sufficient to meet the purpose of the 
benefit. CMS reviews each state plan amendment submitted by states to 
determine the sufficiency of the benefit.
    Comment: One commenter recommended closer integration of community 
prevention and lifestyle changes into the Medicare and Medicaid 
programs, as an important opportunity to both effectively and often 
less expensively treat and prevent chronic disease, such as heart 
disease and diabetes.
    Response: We agree that greater coordination between Medicare and 
Medicaid will provide efficiencies and health outcomes for individuals 
with chronic disease as well as other conditions. Medicaid continues to 
build closer and more integrated community preventive services with 
Medicare.
    Comment: One commenter believed that Registered Dieticians should 
be designated as the recognized providers

[[Page 42228]]

of nutrition services, including medical nutrition therapy and 
nutrition counseling because of RD's demonstrated competency and 
effectiveness. This commenter stated that nutrition counseling is 
medically necessary for chronic disease states in which dietary 
adjustment has a therapeutic role, when it is prescribed by a physician 
and furnished by qualified provider.
    Response: We believe that Registered Dieticians have an important 
role in furnishing nutrition services. All preventive services should 
be furnished by qualified providers within their scope of practice.
    Comment: One commenter urged HHS to clarify that Sec.  440.130 of 
the proposed regulation does not dictate who can provide preventive 
services; it merely dictates what providers can recommend them, 
consistent with the totality of the statute.
    Response: The proposed regulation does not dictate who can provide 
preventive services; it defines who can recommend such services. States 
will have discretion to determine which providers will provide the 
service using the state plan amendment process.
    Summary: No changes to the proposed regulation will be made as a 
result of comments received in this section.
b. Public Notice (Sec.  440.386)
    The proposed rule added a new provision to allow states greater 
flexibility when required to publish public notice associated with an 
ABP state plan amendment (SPA). We proposed modifying the public notice 
requirement for ABPs to require that such notice be given prior to 
implementing a SPA when the new ABP provides individuals with a benefit 
package equal to or enhanced beyond the state's approved state plan, or 
adds additional services to an existing ABP. We proposed the 
requirement to publish public notice no less than two weeks prior to 
submitting a SPA that establishes an ABP that provides coverage that is 
less than the coverage by a state's approved state plan or includes 
cost sharing of any type. Based on public comment, we are negating what 
we proposed, as we do not believe that 2 weeks is a sufficient time 
period. We will be reverting back to our existing policy of requiring 
the states to provide ``a reasonable opportunity to comment'' on all 
ABP SPAs prior to their submission to CMS.
    Comment: Many commenters supported requiring states to give public 
notice before implementation of a SPA that established an ABP. The 
commenters also commended HHS for requiring states to provide public 
notice regarding how they must comply with the requirement that 
children have access to EPSDT.
    Many commenters believed that the proposed public notice 
requirements at Sec.  440.386 are problematic and HHS should not use 
them as a model for all SPAs. Some commenters believed proposed Sec.  
440.386 repeats the language of Sec.  440.305(d) requiring a 
``reasonable opportunity'' for public comment, but then limits the 
public comment period to just two weeks for certain ABPs which the 
state Medicaid agency determines provide less coverage or higher cost 
sharing than existing benchmark plans, and other commenters believed 
that two weeks is an inadequate amount of time for meaningful 
stakeholder consideration and input.
    Many commenters believed HHS should require an advance notice and 
comment period of no less than 30 days as this aligns with other 
comment periods (such as the state comment period for section 1115 
waivers) and is particularly important because of the time and effort 
required to conduct the benefit-by-benefit comparisons between non-
aligned Medicaid state plans, ABP proposals and EHBs which will be 
necessary to provide meaningful input.
    Response: We have considered all of the comments concerning the 
requirement for public notice and agree with the commenters that two 
weeks is not sufficient to allow for a meaningful timeframe in which 
public comments can be solicited and considered. We are therefore 
revising Sec.  440.386 to revert to our existing ABP public notice 
policy currently found at Sec.  440.305(d). We would also like to 
clarify that the public notice requirements at Sec.  440.386 are 
applicable only to section 1937 ABPs.
    Comment: A number of commenters requested HHS require a mandatory 
15-day period (sometimes referred to as a ``cool down'' period) for 
states to review comments received and incorporate suggestions into the 
final ABP submission.
    A few commenters believed that Sec.  440.386 creates a two tiered 
process whereby the state's own evaluation of an ABP determines whether 
it is subject to public notice and comment. The commenters believed 
this kind of agency determination defeats the very purpose of 
transparency and stakeholder input.
    Many commenters believed that there is no compliance provision to 
help ensure meaningful participation by the public, unlike the 
reporting requirement of Sec.  431.412(viii) for section 1115 
demonstrations. The commenters requested that any SPAs, including those 
establishing ABPs, should be subject to the same transparency and 
public input procedures and reporting requirement modeled upon those 
governing section 1115 demonstrations to help ensure meaningful 
participation by the public, and that HHS understands the issues raised 
at the state level when making the SPA approval decision.
    Response: In revising Sec.  440.386 to revert to our existing 
policy, we believe that we have provided a minimum floor that allows 
sufficient time for stakeholder feedback and state review.
    Comment: Numerous commenters requested that at a minimum, SPAs that 
materially change a state Medicaid program should be subject to 
increased transparency and stakeholder input requirements.
    Response: States will be required to follow existing public notice 
requirements, which requires that the state must have provided the 
public with advance notice of the State plan amendment and reasonable 
opportunity to comment prior to the submission of the SPA.
    Comment: A few commenters recommended that states should be 
required to provide detailed information on the ABP options under 
consideration.
    Response: The state is required to provide information regarding 
the ABP through the public notice process.
    Comment: A number of commenters requested that HHS include specific 
requirements for adequate public posting of the proposal, including 
that it be posted on an internet Web site, as well as a clear 
description of the process and timeline for comment submission.
    Response: We believe that states should have the flexibility to 
determine how best to provide public notice to the populations in their 
state.
    Comment: One commenter believed that notice and stakeholder 
engagement requirements should explicitly include HIV/AIDS programs 
within health departments.
    Response: We believe that all stakeholder groups, including HIV/
AIDS, will be served by the public notice policy.
    Comment: One commenter noted that there were a number of different 
sources of information for public notice (including 59 FR 49249 
(September 27, 1994); Sec.  447.205; and new transparency requirements 
for waiver and waiver renewals (see State Health Official (SHO) Letter 
12-001)) and HHS could achieve efficiencies by streamlining 
notice requirements.

[[Page 42229]]

    Response: While there are various methods for providing public 
notice across programs, we believe that each serves its own purpose for 
that program. The public notice regulations under Sec.  440.386 provide 
the most efficient and effective policy for ABPs.
    Comment: One commenter proposed that HHS further define 
``substantial'', which triggers the ``notice and comment'' requirement. 
The commenter requested that HHS adopt a universal definition of 
``substantial'' so that there is no confusion of the word's meaning.
    Response: ``Substantial'' is used in the ABP public notice 
requirements. It means that eligibility, enrollment, benefits, cost 
sharing, payment methodologies, or delivery systems have changed 
significantly to affect beneficiaries.
    Comment: One commenter believed that requiring public notice for a 
SPA when an ABP provides a benefit package equal to or enhanced beyond 
a state's approved state plan was puzzling. The commenter believed it 
added yet another public notice requirement with questionable return, 
particularly when this occurs prior to implementation. The commenter 
agreed that prior public notice should be required when providing a 
lesser benefit package than the approved State Plan, adding cost 
sharing or reducing benefits.
    Response: We believe, for the purpose of transparency, ABPs should 
be disseminated to the public. We believe it is important that all 
beneficiaries are made aware of changes being made to ABPs.
    Comment: One commenter requested that when a SPA is submitted 
providing less coverage the public should have at least 30 days to 
submit comments and the agency should provide a summary of the comments 
it receives and how the comments were addressed when it submits the SPA 
to CMS for approval.
    Response: Based on comments related to this section of the 
regulation, we will be continuing with the existing ABP public notice 
requirements. Requiring the state to provide a summary of the comments 
it receives and how the comments were addressed when it submits the SPA 
to CMS for approval could be too onerous to operationalize depending on 
the magnitude of comments received. CMS reserves the right to request, 
when appropriate, specific information on public comments.
    Comment: A few commenters requested that HHS publically release all 
ABPs selected and allow an opportunity for public comment to ensure 
plan adequacy.
    Response: All approved SPAs are public documents. If the commenter 
would like to comment on a particular SPA they may contact their 
specific state.
    Comment: Many commenters recommended HHS amend Sec.  430.12 by 
adding new paragraph (d) or deleting Sec.  440.386 (a) and (b) and 
replacing them with language that would require a 30 day public comment 
period and a 15 day review period for the state and outlined the detail 
to be included in the public notice. These commenters also included 
requirements for publication of public notice and information to be 
included in the SPA.
    Response: We appreciate the commenters' thorough language 
recommendations. However, we believe that the current public notice 
policy sufficiently balances the need for transparency while preventing 
the impediment of the approval of SPAs in a timely manner.
    Comment: One commenter requested that HHS monitor the public 
information on Medicaid programs and State-Based Exchange, provide and 
consider issuing guidance on how to communicate benefit packages to 
enrollees and plan members in a clear and effective way, incorporating 
low literacy-level principles. The commenter suggested that HHS should 
consider requiring states to undergo a public stakeholder review 
process for these materials.
    Response: We thank the commenter for these recommendations and will 
take them under further review however they are beyond the scope of 
this regulation.
    Comment: One commenter requested that HHS require all state plan 
amendments be made public and subject to comment.
    Response: While we agree it is a good practice for states to place 
SPAs online; requiring states to do so is beyond the scope of this 
regulation.
    Comment: One commenter asked if HHS was going to require additional 
public notice requirements on anything that is related to cost-sharing.
    Response: Cost sharing of any type requires public notice per Sec.  
440.386.
    Comment: One commenter believed there was a technical error made in 
the Part 440-services. The commenter noted that the general provisions 
section Sec.  440.305 to Sec.  440.386 is not mentioned in the 
description of the changes to either Sec.  440.305 or Sec.  440.386.
    Response: CMS will take this opportunity to delete Sec.  440.305(d) 
as a new Sec.  440.386 has been added for public notice.
    Summary: CMS will delete Sec.  440.305(d), which was the section 
describing public notice requirements, as a new Sec.  440.386 has been 
added for public notice. We have reverted to our existing public notice 
requirements based on public comment on this section of the rule.
c. Exempt Individuals (Modifying Definition of Medically Frail) (Sec.  
440.315)
    The proposed rule updated the definition of the ``medically frail'' 
category of individuals exempted from mandatory enrollment, and 
solicited comment about whether to add SUD to the definition. The final 
rule adds individuals with chronic SUDs to the definition of 
``medically frail'', based on the overwhelming support in public 
comments.
    Comment: Many commenters strongly supported CMS's definition of 
exempt individuals and clarification of medically frail. In supporting 
the definition of medically, many commenters also thanked the Secretary 
for including in the definition of medically frail, individuals with 
serious or disabling mental illness, (including children with serious 
emotional disturbances), and individuals with physical, intellectual or 
developmental disabilities that significantly impair their ability to 
perform one or more activities of daily living; many commenters agreed 
that individuals with a disability determination based on Social 
Security criteria should be exempted from mandatory enrollment in an 
ABP.
    One commenter stated that medically frail are an identifiable 
population with unique care and cost characteristics and this 
definition provides an opportunity for these individuals through 
practices that may not be included in the products offered through 
state exchanges.
    Response: We are pleased with the overwhelming support for the 
clarified definition of ``medically frail'' displayed in the majority 
of comments.
    Comment: Many of the commenters urged CMS to include individuals 
with substance use disorders in the definition of medically frail 
because individuals with substance use disorders (SUD) have similar 
health needs as those with the other complex conditions included in the 
definition, and ABP coverage may be less likely to provide needed 
services and supports typically provided by Medicaid.
    Many commenters also pointed out that individuals with SUD cannot 
be considered disabled under Social Security law if SUD is a 
contributing

[[Page 42230]]

factor material to the determination that the individual is disabled, 
regardless of the severity of the SUD. Particular concern was raised 
about benchmark coverage in states that may choose the weakest 
available benchmark plan option in an effort to limit perceived 
financial risk for the state, or to avoid political risk. Concern was 
also raised that beneficiaries living in states offering fewer benefits 
``suffer'' from placement in clinically inappropriate levels of care 
resulting in poor outcomes and higher federal costs.
    One commenter wrote that SUD should be included in the definition 
of medically frail because scientific research indicates that addiction 
is a chronic brain disorder with intrinsic behavioral and social 
components, similar to other forms of mental illness.
    In supporting clarification of the definition of medically frail, a 
commenter wrote that the definition should include all those with 
disabling conditions because the reference plans that may serve as the 
model for benefits in ABPs are employer-sponsored insurance plans and 
may not be adequate to serve the needs of those who are too medically 
frail to work.
    Another commenter wrote that it supported clarifying the definition 
of medically frail by including all those with disabling conditions. 
Medicaid should provide more comprehensive benefits for individuals and 
this language will allow it to do so since employer sponsored plans 
often inadequately cover substance use disorders, therefore the 
commenter supports adding SUD to the definition of medically frail.
    Alternatively, a few commenters recommended that CMS not require 
that individuals with SUD be considered exempt from mandatory ABP 
enrollment. This commenter wrote that because states must design their 
ABPs to include a comprehensive array of mental and behavioral health 
services, inclusive of substance use treatment at parity with physical 
health services, it seems unnecessary and overly prescriptive to 
mandate the exemption of individuals with SUDs.
    Response: Since publication, in 2010, of the Final Rule: State 
Flexibility for Medicaid Benefit Packages, numerous stakeholders have 
raised concern that individuals with SUD may not be appropriate for 
enrollment in an ABP because ABPs may not provide the same level of 
care provided by the standard Medicaid State plan. Individuals with a 
substance use disorder may have chronic health conditions and need an 
expanded array of behavioral health and possibly long term services and 
supports.
    Considering the overwhelming support for including SUD in the 
definition of medically frail, we have modified Sec.  440.315(f) to 
include as medically frail, individuals with chronic SUD. While we 
recognize that substance use is among the EHBs, we believe that 
individuals with this condition could be medically frail and should 
have the choice to elect voluntary enrollment in an ABP or receive full 
state plan benefits (for individuals in the new adult group, through an 
ABP that consists of full state plan benefits).
    Comment: One commenter wrote that while the definition of 
``medically frail'' appropriately clarifies that individuals with 
serious mental illnesses and children with serious emotional 
disturbances are included among ``individuals with disabling mental 
disorders'' it inappropriately excludes people with psychiatric 
disabilities from another listed group--``individuals with a physical, 
intellectual or developmental disability that significantly impairs 
their ability to perform one or more activities of daily living.'' 
People with psychiatric disabilities should continue to be included in 
that group. Particularly due to the lack of clarity about what may 
count as a ``serious mental illness,'' it is important to ensure that 
people with mental illness have the same opportunity as people with 
other disabilities to qualify for exemption on the grounds that their 
disability significantly impairs their ability to perform one or more 
daily living activities.
    Response: We acknowledge that individuals with serious mental 
illness tend to have significant co-morbid conditions that are going to 
require a different array of mental health and medical services, and 
long term services and supports that may not be available through an 
ABP. However, we do not believe it is necessary to explicitly specify 
that individuals with psychiatric disorders also qualify for 
``medically frail'' due to deficiencies in activities of daily living. 
Individuals only need to meet one criterion within this definition to 
qualify for the exemption to mandatory enrollment. Section 440.315(f) 
provides states with a minimum standard for identifying individuals who 
are medically frail and states have the flexibility to expand this 
definition.
    Comment: A commenter wrote that the term medically frail should be 
replaced with individuals with disabilities.
    Response: We are retaining the term medically frail in our 
regulations because that term is specified in section 1937 of the Act 
and we believe it would be confusing to use a different term for the 
exemption.
    Comment: One commenter stated that CMS should avoid defining any 
new categories of medically frail as the concept of medically frail as 
outlined in the proposed rule is incomplete and unworkable, and more 
time and thought needs to be put into this before moving forward with 
final rules. The commenter believes there are both operational and 
implementation challenges to the new concept of medically frail 
contained in the proposed rule and since there is no clear definition 
of medically frail, or guidance on how a state would go about making 
that determination, if the rules were implemented as written, the 
likely result would be a significant disruption of the eligibility 
process and a large number of appeals.
    Response: Section 440.315 provides states with a minimum standard 
for exempting specified categories of individuals from mandatory 
enrollment in an ABP. We do not expect these exemptions to mandatory 
enrollment to be disruptive to the eligibility process as eligibility 
determination occurs first as a separate process. States will not need 
to determine whether a beneficiary qualifies as medically frail upfront 
but will need to have a process for identifying individuals who cannot 
be mandatorily enrolled into an ABP.
    Comment: We received many comments requesting that CMS provide 
further clarification regarding the operationalization and coverage 
implications of the proposed revision to the definition of medically 
frail, as well as clarifying how the revised definition will impact 
implementation.
    One commenter indicated that states have limited experience with 
ABP coverage under section 1937 of the Act, and it is unclear how 
exemption from mandatory enrollment in an ABP for individuals defined 
as medically frail (and other categories of exempt individuals) would 
be operationalized on a broader scale. Further, it may be operationally 
challenging to identify the range of individuals included in the 
proposed definition as medically frail, prior to eligibility 
determination and plan enrollment, particularly for individuals with 
SUDs.
    Several commenters requested CMS to provide clear, objective 
standards for defining medically frail, such as the criteria used to 
determine eligibility for Supplemental Security Income. One comment 
also expressed concern that

[[Page 42231]]

any approach to identifying individuals who could be exempt from 
mandatory enrollment in an ABP not stigmatize individuals or create 
unintended barriers to seeking treatment. Several commenters wrote that 
the definition of medically frail is vague and will be difficult for 
states to operationalize. Another wrote that the impact of the 
medically frail definition will be significantly mitigated if CMS 
clarifies that a state's existing Medicaid benefit package will be 
deemed to meet the ABP standards under the Secretary-approved coverage 
option.
    One commenter expressed concern that the definition of medically 
frail is so broad that there could be confusion, inconsistency, and 
costly implications to having such a broad set of individuals eligible 
for exemption and recommended that CMS should clearly and carefully 
define the set of individuals who would be exempt and not include 
individuals with chemical dependency in the definition.
    A number of commenters encouraged HHS to develop a systemic plan 
for how the medically frail that are enrolled into an ABP, based on the 
streamlined application collecting minimal information about disability 
or function, will be identified for exemption and stated HHS must 
develop requirements and supports for states to identify exemption 
eligibility.
    Several commenters expressed concern that the process of ensuring 
that all exempt individuals are identified and enrolled in the benefit 
plan that best service their health care needs (either an ABP or 
traditional Medicaid) will be very burdensome or difficult for states 
and asked that CMS provide further guidance on how this can be 
accomplished. Several of these commenters stated that ABPs are not well 
aligned with traditional Medicaid and urged CMS to provide further 
guidance to states on methods and strategies for identifying exempted 
individuals through the streamlined application process and enrolling 
them in the appropriate coverage.
    Another commenter envisioned situations where it may be beneficial 
for a medically frail individual to have access to an ABP rather than 
traditional Medicaid and urged CMS to design processes that ensure that 
individuals have the ability to make an informed choice about their 
Medicaid benefit options.
    Another commenter voiced concern that the proposed rule does not 
require a process to ensure that individuals are appropriately 
identified as potentially exempt when they apply for coverage. This 
commenter pointed out that individuals with serious mental illnesses 
and disabilities may not realize that they may qualify as exempt if 
they do not receive clear notification concerning (1) The possibility 
that they may be exempt, (2) the process for determining whether they 
are exempt, and (3) how to opt out of enrollment in an ABP if they are 
exempt. The final rule should require this type of notice and process.
    Response: CMS acknowledges that many states will not have prior 
experience with implementation of an ABP, or with identifying 
individuals who are exempt from mandatory enrollment or who meet the 
criteria for exemption. We anticipate that for existing eligible 
individuals the state, if it chooses, will be able to screen 
beneficiaries it intends to enroll to identify exempt individuals by 
eligibility category and through the use of historic medical encounter 
data.
    For newly enrolled individuals, who are eligible based on income 
rather than disability, the state will not initially have information 
concerning their current health status or historic encounter data. 
Therefore, the enrollment process could be important to identifying if 
an individual meets the criteria of the statutory exemptions. One 
appropriate screening option includes beneficiaries identifying 
themselves as meeting the exemption criteria. We encourage states to 
implement a process to screen for exempt individuals using this minimum 
standard for identifying individuals who are medically frail. Proposed 
regulations that were not finalized as part of this rule at Sec.  
435.917(b) and (c) set forth the information that must be provided to 
an individual regarding benefits and services and provide that the 
information must be sufficient to enable the individual to make an 
informed choice. Sample beneficiary notices will be provided to the 
states by CMS, incorporating questions posed to beneficiaries to aide 
in the self-identification process. While the individual is being 
provided with this information through options counseling, the 
individual could be initially enrolled in benchmark or benchmark-
equivalent coverage that is subject to section 1937 requirements.
    Comment: One commenter wrote that the phrase ``disabling mental 
disorders'' relies on non-measurable terms. The commenter believes that 
specific disorders, including SUDs, should be added if they meet a 
defined disability test. CMS should provide states with the flexibility 
to define medically frail or provide states with general guidelines 
that an individual would have to meet to qualify and allow states to 
set defined criteria.
    Response: To ensure appropriate service protection for individuals 
with disabilities and special medical needs, we have included a basic 
definition of medically frail that we anticipate will ensure that 
vulnerable individuals with special medical needs are not mandatorily 
enrolled in an ABP that may not provide appropriate medical treatment 
for their individual medical condition. Section 440.315(f) provides 
states with a minimum standard for defining medically frail 
populations.
    Comment: Several commenters stated that the underlying goal of the 
exemption from mandatory enrollment of vulnerable populations is to 
protect access to needed services. There may be instances where amount, 
duration and scope limitations are more restrictive under the Medicaid 
state plan rather than under the ABP, highlighting the need for 
beneficiaries to receive easily understandable information that allows 
them to compare coverage options.
    Response: CMS thanks the commenters' for acknowledging the 
underlying purpose for exempting certain populations from mandatory 
enrollment in an ABP and concurs with this comment. Beneficiaries need 
to make individualized determinations of the benefit package (either 
the ABP or the regular state plan) that best meets their needs.
    Comment: Several commenters requested CMS provide further guidance 
on the enrollment and selection process for medically frail 
beneficiaries as this will be critical for those who qualify to be able 
to select the benefit plan that best meets their health care needs. The 
commenter wants to assure that, depending on the circumstances, 
medically frail individuals will not be forced into a plan that 
provides fewer benefits than the traditional Medicaid plan or the ABP.
    Response: The purpose of the criteria for the exempt categories is 
to assure that individuals with special medical needs will be enrolled 
in a coverage plan that best provides necessary services. The design 
and implementation of a process to determine medical frailty will 
likely be specific to each state. However, states will have to follow 
proposed regulations that were not finalized as part of this rule at 
Sec.  435.917(b) and (c) in that sufficient information must be 
provided to an individual about benefits and services to enable the 
individual to make an informed choice.
    Comment: One commenter requested that CMS allow states to define 
the

[[Page 42232]]

exempt medically frail population using objective measurable criteria.
    Response: Section 440.315 provides states with a minimum set of 
criteria for exempting specified categories of individuals from 
mandatory enrollment in an ABP or for individuals in the new adult 
group, a choice between benchmark coverage that is either coverage 
defined in the ABP or benchmark coverage that is the state's regular 
approved Medicaid state plan.
    Comment: One commenter recommended that the definition of 
``medically frail'' include individuals that meet the Medicaid Health 
Home eligibility requirements in section 2703 of the Affordable Care 
Act.
    Response: We believe that many enrollees in health homes, as they 
are individuals with chronic conditions that are serious and complex, 
will be covered by the existing definition of medically frail. But not 
all health home enrollees have that level of medical need, and we have 
determined that the suggested revision would not serve the limited 
purposes of the exemption.
    Comment: One commenter requested that the definition of medically 
frail include all people with disabilities, because this definition is 
one of the most essential provisions among all of the proposed rules, 
and because persons with disabilities would be imperiled as a result of 
mandatory enrollment in an ABP modeled after a commercial plan.
    One commenter stated that inclusion of individuals with SSI appears 
to broaden the definition of medically fragile for which there is 
currently no standard definition and historically states have been able 
to define. As a result, determinations for SSI will likely differ as 
other considerations are included in the determination.
    Response: In defining medically frail, Sec.  440.315 (f) covers a 
wide range of populations that will be determined to be eligible for 
voluntary enrollment, or in the case of individuals determined eligible 
for the new adult group, eligible to choose to receive benchmark 
benefits as defined in the ABP or benchmark benefits that are the 
state's approved Medicaid state plan, assuring that these individuals 
will receive care that is appropriate to their medical needs. As 
proposed, Sec.  440.315(f) specifically includes individuals with 
disabling mental disorders (including children with serious emotional 
disturbances and adults with serious mental illness), individuals with 
serious and complex medical conditions, individuals with a physical, 
intellectual or developmental disability that significantly impairs 
their ability to perform one or more activities of daily living, and 
individuals with a disability determination, based on Social Security 
criteria, or in states that apply more restrictive criteria than the 
Supplemental Security Income (SSI) program, as the state plan criteria. 
Sufficient information must be provided to an individual about benefits 
and services to enable the individual to make an informed choice 
according to proposed regulations that were not finalized as part of 
this rule at Sec.  435.917(b) and (c).
    Section 440.315(f) provides states with a minimum standard for 
identifying individuals who are medically frail and states have the 
flexibility to expand this definition.
    Comment: One commenter wrote that, by including in the final rule 
such a broad description of medically frail, CMS could substantially 
increase the number of individuals who would be exempt from mandatory 
enrollment in section 1937 benefit plans. The commenter asserted that 
this would allow the states less flexibility in creating plans to best 
meet the needs of these individuals. The commenter wrote that this is 
particularly true if individuals with SUDs were to be included in the 
definition and strongly recommended not including people with SUD in 
the medically frail category as mental health and SUD services are 
required benefits under the EHB benefits package. The commenter also 
questioned the reasoning behind including people with SUD in the 
definition of medically frail.
    Response: We do not agree that the definition of medically frail is 
too expansive and will unduly limit state flexibility. Nor do we think 
that inclusion of individuals with SUDs will be problematic. We 
recognize that a broader definition of medically frail individuals will 
mean that such individuals will only elect to enroll in an ABP if the 
benefits are designed to meet their needs at least as well as regular 
state plan coverage.
    Comment: One commenter wrote that if newly eligible individuals 
meet the criteria for exemption and are exempt from section 1937 of the 
Act, the Federal government needs to clarify if the enhanced funding 
for this group would be available for all services provided to those 
individuals.
    Response: Yes, enhanced FMAP is available for all services provided 
to a newly eligible individual, whether that person chooses the ABP 
based on a benchmark or benchmark equivalent package that includes the 
EHBs in compliance with section 1937 of the Act, or chooses an ABP 
equal to the state's approved regular state plan.
    Comment: A number of commenters expressed concern how individuals 
who are exempt will be identified and requested further guidance on 
enrollment and selection process for medically frail so that those 
exempt can select the plan that best meets their needs. Several 
commenters recommended adding a requirement that the notice provided to 
individuals who have been found eligible for the expansion group 
include detailed information regarding how one can qualify for an 
exemption and the services and supports that would be available to a 
person who is exempt from mandatory enrollment in an ABP, and should 
include information regarding how to request and receive an exemption. 
A commenter suggested that this requirement should be added to Sec.  
435.917. Another stated that those who may be exempt will need clear, 
consumer friendly information and decision support to help them 
understand their choices.
    Another commenter voiced concern that the proposed rule does not 
require a process to ensure that individuals are appropriately 
identified as potentially exempt when they apply for coverage. 
Individuals with serious mental illnesses and disabilities may not 
realize that they may qualify as exempt if they do not receive clear 
notification concerning (1) The possibility that they may be exempt, 
(2) the process for determining whether they are exempt, and (3) how to 
opt out of enrollment in an ABP if they are exempt. The final rule 
should require this type of notice and process.
    A commenter expressed concern that the proposed rule does not issue 
requirements outlining the process states should use to identify people 
who are exempt and this is particularly pertinent given the ongoing 
confusion about whether or not states will be able to claim enhanced 
federal match for Medicaid expansions individuals who are exempt from 
ABP enrollment. The commenter fears states will incur high 
administrative costs managing different federal match rates for 
different Medicaid expansion individuals, creating an incentive to 
develop processes that implicitly or explicitly discourage exempt 
individuals from taking advantage of their right to enroll in 
traditional Medicaid.
    One commenter voiced concern that including in the definition of 
medically frail individuals with disabling mental disorders, 
individuals with serious and complex medical conditions, individuals 
with physical and intellectual or developmental disabilities that 
significantly impair

[[Page 42233]]

their ability to perform one or more activities of daily living, or 
individuals with a disability determination based on Social Security 
criteria does not appear to be couched entirely within SSA disability 
criteria and that some individuals with substance use disorders who are 
not otherwise considered ``disabled'' under Medicaid may be viewed as 
medically frail and exempt for ABP. Therefore, individuals with SUDs 
would be included in a higher-level, comprehensive Medicaid benefit 
package, thereby increasing costs to the state without the benefit of 
the higher federal match under the Medicaid expansion to newly eligible 
adults.
    Response: We intend that, as amended, Sec.  440.315 may expand the 
number of individuals who will qualify as exempt beyond the scope of 
those who are otherwise considered disabled to include other 
individuals whose medical needs mean that they are medically frail. We 
also agree that exempt individuals will need clear, consumer friendly 
information and decision support to help them understand their choices. 
For Medicaid beneficiaries who are not in the new adult group, existing 
requirements at Sec.  440.320 requires the state to provide each 
individual considering voluntary enrollment in an ABP a comparison of 
the ABP option versus the State plan option before the individual 
chooses to enroll. The comparison must also include information on the 
cost-sharing obligations of beneficiaries. CMS has proposed 
requirements that were not finalized as part of this rule at Sec.  
435.917(b) and (c) that an individual must receive information based on 
eligibility regarding benefits and services that are available to them. 
Information must be sufficient for the individual to make an informed 
choice. Proposed regulations that were not finalized as part of this 
rule at Sec.  435.917(b) and (c) will apply to all Medicaid 
beneficiaries including adults in the new eligibility group. 
Individuals in the new adult group who otherwise meet criteria for 
exemption from mandatory enrollment may be enrolled in benchmark or 
benchmark-equivalent coverage subject to section 1937 requirements 
during the options counseling period to insure coverage during this 
time.
    Comment: Several commenters stated that CMS should further clarify 
which medical conditions are considered ``serious and complex'' and 
urged CMS to specify that chronic conditions such as HIV/AIDS and viral 
hepatitis, which may have co-morbidities, are serious and complex and 
individuals with serious and complex conditions should be exempted from 
mandatory enrollment in an ABP. Many commenters strongly recommended 
that HHS also include in the definition of medically frail or special 
medical needs, individuals with chronic health conditions because 
individuals with chronic illness should not be forced into an ABP 
package that will not meet their predictable needs, as this may lead to 
higher long term costs associated with poorly managed chronic 
conditions.
    One commenter indicated it was assumed that chronic kidney disease 
and end stage renal disease were considered to be chronic diseases and 
another commenter indicated that individuals with Cystic Fibrosis fall 
squarely within the medically frail definition.
    Another commenter wrote that it was assumed that long term cancer 
survivors managing complex treatment or a complicated set of late and 
long-term effects would fit the description of complex medical 
conditions and therefore could choose the most appropriate benefit 
plan.
    Some commenters also stated that being forced into a health plan 
that does not meet the needs of a person with chronic illness may lead 
to higher long-term costs associated with poorly managed chronic 
conditions.
    One of the commenters urged CMS to specifically include in the 
definition of medically frail individuals with chronic viral hepatitis.
    Response: The exemption categories established by statute and the 
proposed clarification in Sec.  440.315 are intended to provide states 
with a minimum standard for exempting vulnerable populations. We agree 
with the commenters that illnesses such as HIV/AIDS, viral hepatitis, 
cancer and end stage renal disease are all serious chronic medical 
conditions. It would not be possible for CMS to include an exhaustive 
list of conditions that should qualify as medically frail, but we 
believe that the criteria as currently drafted is broad enough to 
include individuals for whom a choice of service package is most 
appropriate.
    Comment: Several commenters suggested that benchmark exempt 
populations are vulnerable and best serviced by traditional Medicaid.
    Response: We expect the exemptions process or the process designed 
for individuals in the new adult group will provide these individuals 
with an informed choice of the benefit package that best meets their 
needs.
    Comment: A commenter wrote that the current exemption definition 
would create the need for a new frailty determination process for all 
newly eligible adults for states that implement an ABP that is 
different from the standard benefit. This is a concern for one state as 
it becomes an administration burden for the consumer and the state 
system with considerable fiscal implications and proposes a common 
benefit for adult populations in Medicaid that would avoid the frailty 
determination and exemption process.
    Response: We acknowledge the writer's concerns, and are not 
requiring any specific processes for implementing the exemptions 
criteria for the new adult group. We provided a minimum standard for 
identification of individuals who are medically frail and proposed 
regulations that were not finalized as part of this rule at Sec.  
435.917(b) and (c) regarding benefits option counseling should be 
followed. Individuals may receive benchmark or benchmark-equivalent 
coverage subject to 1937 requirements during the options counseling 
period to insure coverage during this time.
    Comment: Two commenters wrote that some states have Medicaid and 
other public health care programs that have developed special 
initiatives designed to meet the needs of enrollees who have substance 
use disorders. They indicated that these initiatives may include 
provision of care management series, discouraging drug-seeking behavior 
by requiring care to be provide by a specified doctor and hospital, 
etc. The commenters asserted that exempting these individuals from 
mandatory ABP enrollment would make it far more difficult for Medicaid 
Programs to meet these individuals' health care needs. While the 
writers agree with the characterization of a substance use disorder as 
``medically frail'', and thereby exempting them from mandatory 
enrollment in an ABP, it would make it more difficult for Medicaid 
Programs to meet these individuals' care needs.
    Response: We appreciate the commenters' concern but do not agree 
that exempting individuals with chronic SUD from mandatory ABP 
enrollment would make it more difficult for Medicaid programs to meet 
the individuals' health care needs. Section 1937 of the Act provides 
states with the flexibility to redesign current Medicaid benefit 
coverage to provide unique programs for targeted populations and 
encourages states to be creative in the design of its coverage 
packages. The exemption of individuals with chronic SUD is not an 
impediment to providing quality care that meets the specific needs of 
this population. Conversely, the flexibility provided by ABPs

[[Page 42234]]

encourages states to design comprehensive benefit packages that would 
encourage voluntary enrollment.
    Comment: One commenter wrote that states should be able to employ 
traditional Medicaid disability assessments in evaluating medically 
frail exemption and limit receipt of long term care services and 
supports to those undergoing asset testing. To ensure long term 
stability and a fiscally sound expansion, the commenter requested 
sufficient flexibility to limit receipt of non-EHB services including 
long term care services, to the non-expansion population via state plan 
amendment or section 1915(c) waiver and recommended revision to the 
medically frail exemption to align with the disability assessments 
already in use within Medicaid.
    Response: We disagree with this commenter. We believe the current 
construct of the medically frail exemption category is in keeping with 
legislative construct
    Comment: A commenter wrote that the proposed revision to the 
definition of medically frail seems to run against the Affordable Care 
Act's benefit design for the expansion population, that is, coverage 
tied to section 1937 of the Act and incorporation of an EHB standard 
from the individual and small group markets, which excludes coverage 
from long-term care and supports. The commenter asserted that 
Affordable Care Act congressional goals to contain the costs of the 
Medicaid expansion may be jeopardized if states are faced with 
widespread eligibility for long term care services without the 
traditional program integrity tools used to filter such services based 
on objective need. The commenter further asserted that existing ABP 
rules already exempt a broad range of vulnerable individuals as 
compared to traditional disability assessment and that within what is 
likely to be a large exempted class, these beneficiaries will access 
benefits otherwise excluded from the EHB standard, namely institutional 
or long term care through the state plan, at sizable cost to states and 
the federal government. Of particular concern to the commenter is the 
application of personal care services to a large exempt segment of the 
new adult group and these long-term care benefits would be accessed in 
the streamlined MAGI enrollment where asset evaluation would be 
prohibited.
    Response: The Affordable Care Act did not change the categories of 
individuals exempted from mandatory enrollment, and added the provision 
at section 1902(k)(1) of the Act, which contemplates that individuals 
who meet the conditions for exemption would receive ABP coverage that 
is not subject to the requirements of section 1937 of the Act. There is 
nothing in the Affordable Care Act that would preclude us from 
clarifying and amplifying the term ``medically frail'' to include 
populations that have high medical needs resulting from disabling 
mental disorders, substance use disorders, serious and complex medical 
conditions, or disabilities. We are clarifying in this final rule that 
the exemptions to benchmark or benchmark-equivalent coverage do not 
directly apply to the new adult population, but if an individual in the 
new adult population meets the criteria for exemption, then that 
individual has a choice of an ABP based on benchmark or benchmark-
equivalent coverage including EHBs, or an ABP defined as the state's 
approved Medicaid regular state plan, which is not subject to EHB 
requirements. Please see more detailed response above for additional 
information related to this provision.
    Summary: We changed the proposed regulation language at Sec.  
440.315(f) by adding ``chronic substance use disorders'' to the 
definition of the medically frail exemption category.
d. Benchmark Health Benefits Coverage (Adding Benefits to Secretary-
Approved Coverage) (Sec.  440.330)
    In the proposed rule, we amended Sec.  440.330(d) by broadening the 
benefits available as Secretary-approved coverage from section 1905(a) 
benefits to benefits of the type that are available under 1 or more of 
the standard benchmark coverage packages or state plan benefits 
described in sections 1905(a), 1915(i), 1915(j), 1915(k) or 1945 of the 
Act, or any other Medicaid state plan benefits enacted under Title XIX, 
or benefits available under base benchmark plans described in Sec.  
156.100.
e. Secretary-Approved Health Benefits Coverage and Sec.  440.330(d) and 
State Plan Requirements for Providing Additional Services (Adding 
Benefits to Additional Coverage) (Sec.  440.335)
    Comment: Many commenters offered general support for the 
flexibility allowed in the proposed rule to include a broader range of 
selected benefits through a Secretary-approved coverage package.
    Some commenters noted that the ability of states to select coverage 
corresponding to their full traditional Medicaid benefit as their ABP, 
which would be presented under the Secretary-approved coverage option, 
offers a clear distinction between the section 1937 benchmark options 
and the EHB benchmark options set forth in 45 CFR part 156.
    Many commenters believed that the proposed language correctly 
offered states the option to use the Secretary-approved option in 
section 1937 of the Act to extend comprehensive Medicaid coverage to 
the new adult expansion group and that extending full Medicaid benefits 
to this population, supplemented as needed to comply with the EHBs, 
mental health parity and other protections in the law, is the best 
approach for meeting the complex health needs of the low-income adults 
who will gain Medicaid eligibility under the expansion.
    Response: The proposed provisions for defining Secretary-approved 
coverage sought to balance statutory requirements for establishing a 
minimum coverage standard through ABP with the flexibility that states 
may need when considering the appropriate range of ABP coverage 
relative to the medical needs of the population being served. States 
may also substitute benefits using the state's approved Medicaid state 
plan benefits as long as the benefits are in the same EHB category and 
they are actuarially equivalent. We appreciate the commenters' support.
    Comment: Some commenters were not clear on which state plan 
benefits may be included and, thus, urged HHS to clarify that state 
plan benefits enacted under Title XIX are available for inclusion 
through the Secretary-approved process irrespective of whether they 
have otherwise been implemented in a particular state Medicaid program. 
As an example, those commenters noted that a state that may conceivably 
want to design a Medicaid benchmark targeting vulnerable populations, 
such as individuals with dementia, and include a particularly relevant 
home support service that is not an otherwise available service in the 
state's Medicaid program.
    Response: We wish to clarify for commenters that any benefits 
described in sections 1905(a), 1915(i), 1915(j), 1915(j) or 1945 of the 
Act, and any benefits included in a selected benchmark coverage option 
may be included in an ABP whether or not those benefits are offered 
through a particular Medicaid program.
    Comment: Many commenters requested that, in addition to the 
provisions that Secretary-approved coverage must meet the needs of the 
target population, HHS revise language to require that the final 
Secretary-approved benefits package be at least actuarially equivalent 
to one of the first

[[Page 42235]]

three benchmark options, indicating that this would ensure that states 
use the Secretary-approved option to provide a benefit that is 
innovative and comprehensive, and not solely to provide a benefit that 
is lesser.
    Many of the same commenters recommend amending Sec.  440.330(d) to 
read as follows: Any other health benefits coverage that the Secretary 
determines, upon application by a State, provides appropriate coverage 
to meet the needs of the population provided that coverage, and is at 
least actuarially equivalent to one of the benchmark options in 
paragraphs (a), (b), or (c). Secretarial coverage may include benefits 
of the type that are available under 1 or more of the standard 
benchmark coverage packages defined in Sec.  440.330(a) through (c) of 
this chapter, State plan benefits described in sections 1905(a), 
1915(i), 1915(j), 1915(k), and 1945 of the Act (whether actually 
covered in the state plan or not), any other Medicaid State plan 
benefits enacted under title XIX, or benefits available under base 
benchmark plans described in Sec.  156.100.
    Response: For commenters requesting that we require an actuarial 
equivalence study for Secretary-approved coverage against one of the 
three benchmark options at Sec.  440.330(a) through (c), the statute 
defines Secretary-approved coverage as one of the minimum standards for 
benchmark coverage, and as such, the benchmark options in Sec.  
440.330(a) through (d) should serve as a reference for states 
considering the benchmark-equivalent coverage option offered in other 
regulatory provisions at Sec.  440.335. Section 1937 of the Act does 
not expressly mandate an actuarial study of Secretary-approved coverage 
Therefore, we are adopting Sec.  440.330(d) as proposed, and we believe 
that our clarification here will serve to clarify that a state plan 
benefit need not be offered through the regular state Medicaid program 
for its inclusion in benchmark coverage, or benchmark-equivalent 
coverage.
    Comment: Many commenters indicated support of the intent to revise 
Sec.  440.335(c)(1) to similarly align policy for benchmark-equivalent 
coverage as it does for Secretary-approved coverage and, thus, allow 
addition of benefits through the benchmark-equivalent coverage process. 
Commenters believed that there are no legal impediments to this 
approach and urged HHS to finalize the revision.
    Similarly, other commenters commended the Secretary for continuing 
to allow states the option for coverage of additional benefits in 
excess of the minimum required coverage for benchmark-equivalent plans 
and for revising the language to include home and community-based 
services available under state plan options among these potential 
additional benefits.
    Many other commenters applauded HHS's inclusion of various options 
for LTSS and care coordination support. Commenters generally offered 
strong support and commended the decision to enable states the 
flexibility necessary to align ABPs with state-plan options for home 
and community-based services, self-directed personal assistance 
services and attendant services, and other state Medicaid plan benefits 
described in section 1915(i), (j), (k) and section 1945 of the Act.
    One commenter indicated that the flexibility to offer such services 
may provide states further opportunity to offer home and community-
based services to particular populations since the proposed rule 
retains the section 1937 waiver of comparability that allows states to 
choose target populations for receipt of specialized benefit packages. 
The commenter offered an example of a state that could design benefit 
packages that help support community living, including employment for 
persons with disabilities.
    One commenter was concerned that states may not take advantage of 
this flexibility, and suggested that CMS consider issuing additional 
guidance to states regarding the ability to cover services critical to 
chronic care management for the new adult eligibility group, such as 
the new health home benefit.
    Similarly, another commenter requested that CMS clarify how 
authorities at sections 1915(i) and 1945 will be used given that 
individuals that would most likely benefit from these authorities will 
be exempt from enrollment:
    Response: CMS is providing states with additional options to craft 
benefit packages that most appropriately meet the needs of the 
population being served. Benefits that can now be included as 
Secretary-approved coverage may in fact assist people who do not yet 
qualify as medically frail. For instance, if someone needs assistance 
with medication administration, they may not yet meet the definition of 
medically frail, but they may benefit significantly from the service 
and in fact avoid progression toward that exemption group or meeting 
the associated criteria. We are in support of melding regular medical/
surgical benefits with home- and community-based services that support 
people living the community and potentially avoiding or delaying 
hospitalization or institutionalization.
    Comment: One commenter indicated recognition that section 1915(i) 
of the Act has proven to be a particularly critical tool available to 
states to expand home and community based services and supports to 
cover a broad array of services that enable individuals with mental 
illnesses to succeed in their own homes.
    Response: We are in agreement with the commenter that section 
1915(i) of the Act can serve as a critical tool available to states to 
expand an array of services that enable individuals with chronic 
condition to succeed independently. For this reason, we will finalize 
regulations to include section 1915(i) of the Act as a viable state 
plan option that states may consider for inclusion when selecting an 
ABP.
    Comment: A few commenters requested clarification from CMS that 
states may include section 1915(c) of the Act and other waiver-based 
services in their ABPs. Commenters stated concern that states may need 
flexibility to include additional services, such as personal care and 
other services that enable Medicaid beneficiaries to remain in their 
homes to their ABPs because section 1915(c) of the Act was not 
referenced in Sec.  440.360.
    Similarly, many state Medicaid agencies stated that the regulatory 
sections should expressly specify that states may provide ABP enrollees 
with access to section 1915(c) programs. The commenters indicated 
belief that section 1915(c) services are ``state plan benefits enacted 
under Title XIX'' given that section 1915(c) is found in Title XIX and 
offers services that a state plan may include as ``medical assistance 
under such a plan.'' The commenters also requested that CMS confirm 
their reading of Sec. Sec.  440.330, 440.360, allowing states the 
option to provide enrollees with section 1915(c) waiver services either 
as part of Secretary-approved ABP or as ``additional services'' 
available to non-expansion enrollees.
    Response: Section 1915(c) of the Act is not a state plan benefit, 
and therefore, is not consistent with our general principle that 
Secretary-approved or additional coverage consists of coverage under 
one of the benchmark coverage options or regular state plan benefits. 
Because the same services provided under section 1915(c) of the Act may 
be provided under section 1915(i) of the Act, which can be offered in 
an ABP, we do not see any reason to add section 1915(c) benefits as an 
exception to this general principle.

[[Page 42236]]

    Summary: No changes to the proposed regulation were made as a 
result of these comments.
f. Benchmark-Equivalent Health Benefits Coverage and Sec.  440.360 
State Plan Requirements for Providing Additional Services (Adding 
Benefits to Additional Coverage) (Sec.  440.335)
    In the proposed rule, we amended Sec.  440.335(c) and Sec.  440.360 
by broadening the benefits available as additional coverage from 
section 1905(a) benefits to benefits of the type that are available 
under 1 or more of the standard benchmark coverage packages or state 
plan benefits described in sections 1905(a), 1915(i), 1915(j), 1915(k) 
or 1945 of the Act, or any other Medicaid state plan benefits enacted 
under Title XIX, or benefits available under base benchmark plans 
described in Sec.  156.100.
    Comment: Many commenters believed that the proposed rule would 
prohibit states from providing wrap-around or other additional benefits 
to newly-eligible adults, but would allow states to provide additional 
benefits for other populations in ABPs.
    Many commenters shared the belief that the Affordable Care Act does 
not appear to prohibit states from providing additional services to the 
newly-eligible populations and that CMS should allow states flexibility 
to provide additional services to the newly eligible population without 
having to go through the additional process required for Secretary-
approved coverage. Those commenters believed that if CMS determines 
that the law prohibits states from providing additional benefits to the 
newly-eligible population, it should allow states the ability to simply 
add these benefits using a streamlined process under the Secretary-
approved option or through another mechanism.
    Several commenters urged CMS to clarify through the final rule that 
states may provide additional benefits to ABPs for those eligible 
through section 1902(a)(10)(A)(i)(VIII) of the Act through the 
Secretary-approved coverage option, so as to not implicate the 
restriction on additional coverage for the new adult group contained 
through Sec.  440.360. Those commenters believed that the proposed 
language is misleading and could be interpreted that the expansion 
population is not able to receive additional benefits in any 
circumstances, noting that the intent of the proposed rule is that the 
expansion group is limited to benchmark ABP coverage.
    A number of commenters requested that CMS allow states the 
flexibility to provide additional benefits beyond what is minimally 
required in the benchmark to any or all populations in ABPs, including 
the expansion population.
    Similarly, another commenter urged CMS to allow states to be as 
expansive as they want to be in offering health care services to all 
beneficiaries of ABPs, including the newly eligible Medicaid expansion 
population, beyond what is minimally required within each state's ABP.
    Other commenters noted that states may identify deficiencies and 
gaps in the commercial benchmark plan options that fall outside parity, 
non-discrimination, EHB and other requirements. In this situation, 
commenters believed that a state should be able to add benefits easily 
for its expansion population and CMS should provide states with all 
available flexibility to do so.
    Response: Section 1902(k)(1) of the Act is very clear that 
individuals eligible through the new adult expansion group are limited 
to benchmark or benchmark-equivalent coverage. In addition, there is a 
payment exclusion under section 1903(i)(26) of the Act for FFP in any 
additional coverage. ``Additional services'' authorized under section 
1937 fall outside benchmark and benchmark-equivalent coverage. But we 
are addressing this concern by allowing states increased flexibility 
under this final rule to include broader benefits and services that are 
appropriate for the population being covered and that are similar to 
the benefit types listed in Sec.  440.360, through Secretary-approved 
coverage or benchmark-equivalent coverage.
    Comment: Many commenters indicated strong support for HHS' proposed 
policy and commended the Department for clarifying the authority for 
states to provide a wide range of benefits in developing Secretary-
approved coverage. In continuing, those commenters noted that many 
consumer stakeholders have misunderstood the allowance for inclusion of 
benefits under Secretary-approved coverage due to the general 
prohibition on adding services to Medicaid benchmarks and requested 
that the Department clarify that benefits can be added, but only 
through the Secretary-approved process.
    Other commenters urged CMS to consolidate these sections and 
clarify that, despite the prohibition on adding services to Medicaid 
benchmarks, states have the flexibility to offer additional and richer 
benefits to all those enrolled in ABPs, including the expansion group, 
by choosing the Secretary-approved coverage option. Those commenters 
also requested clarification that the federal match otherwise available 
for these populations is available for the additional benefits when 
they are approved by the Secretary.
    Similarly, other commenters requested that CMS clarify and confirm 
that the interpretation of this provision within the proposed rule is 
that if a state wanted to provide wrap-around services for a particular 
population that some of the ``newly eligible'' population may fall 
under, it does not appear that would be allowed unless the state 
creates a Secretary-approved plan that incorporates the benefits into 
the underlying plan itself.
    One commenter indicated that it would be helpful for CMS to clarify 
that adding additional benefits is possible for individuals in the 
newly eligible group, and that the prohibition on additional coverage 
for the expansion group at Sec.  440.360 only applies to benefits that 
have not been included in the benchmark package selected by the state. 
The commenter also suggested that both benchmark-equivalent coverage 
and Secretary-approved coverage provide the state flexibility to 
include benefits that can be covered through a Medicaid state plan or a 
base benchmark option available to the state.
    Response: We reassert the statutory construct that does not allow 
the new adult group to received ``additional'' services. However, the 
broadening of Secretary-approved coverage to include the same options 
for services accomplishes the goal of allowing individuals in the new 
adult group access to that same robust benefit package. We reiterate 
that services provided under an ABP do not have to be offered under the 
regular state plan.
    Comment: Several commenters recognized that the Secretary's 
clarification that additional benefits may include those available 
under base benchmark plans (described in Sec.  156.100), in additional 
to standard benchmark coverage packages or standard state plan 
benefits. Those commenters were concerned about flexibility for states 
to model ABPs after any base benchmark, noting that not every base 
benchmark plan option may provide appropriate benefit levels for the 
Medicaid population.
    One commenter familiar with the needs of underserved and poor 
populations with chronic conditions was appreciative that the EHB rules 
builds upon protections already offered through existing rules that 
allow states to enroll certain populations in Medicaid benchmark plans, 
and grants states significant flexibility through regulations at Sec.  
440.360 to develop a more comprehensive benefits package

[[Page 42237]]

that will better meet the needs of people with HIV and others with 
chronic conditions.
    Response: As mentioned in previous responses, we believe the 
statute requires states to balance the appropriateness of the ABP 
package when considering the population being covered. Therefore, we 
believe our regulations encourage states to consider other options if 
their analysis reveals that the base benchmark options elected do not 
provide an appropriate level of benefits relative to the population 
being covered.
    Comment: A few commenters wished to emphasize that section 1937 of 
the Act requires states to provide FQHC services to beneficiaries who 
receive ABP coverage in the same manner as CMS previously stated and 
conveyed in the agency's April 30, 2010 final rule. The commenters 
emphasized that for situations where no FQHCs are available to section 
1902(a)(10)(A)(i)(VII) of the Act enrollees under their managed care 
plan, then the state must provide the beneficiary enrolled in ABP 
coverage with FQHC services on a per-visit basis as required by section 
1902(bb) of the Act. Alternatively, if a managed care entity is able to 
provide FQHC services to any beneficiary receiving ABP coverage, 
payments for such services must be made on a cost-related prospective 
payment system basis, with state supplemental payments provided where 
the PPS payment would exceed the amount provided under the managed care 
contract.
    Commenters indicated concern that because Sec.  440.360 is silent 
on states' obligation to provide FQHC and RHC services as part of 
benchmark or benchmark-equivalent coverage, the proposed regulation 
fails to distinguish clearly between required and ``additional 
benefits'' for the section 1937 package and that the omission of FQHC 
services from the list creates the impression that these services are 
not a required benefit within section 1937 coverage.
    Several commenters recommended that CMS clarify the FQHC services 
requirement by: (a) Consolidating Sec.  440.365 into Sec.  440.345; or 
(b) independently reference Sec.  440.365 in Sec.  440.360 by having 
the first sentence of regulatory provision Sec.  440.360 read, ``In 
addition to the requirements of Sec.  440.345 and Sec.  440.365.''
    Response: We agree with the commenters that regulations at Sec.  
440.365 continue to require that the state must provide that 
individuals enrolled in an ABP have access, through that coverage or 
otherwise, to rural health clinic services and FQHC services. Such 
required services are required as part of Sec.  440.365 and a state 
must assure to CMS that they are providing these services, which is 
different than adding additional services described at Sec.  440.360. 
FQHCs are considered Essential Community Providers in the commercial 
market, and we anticipate these entities playing a critical role in 
Medicaid ABPs as well. When these providers are part of the ABP 
provider network, reimbursement to them must adhere to statutory 
requirements.
    Summary: Minor grammatical edits to the proposed regulation were 
made as a result of these comments.
g. Other Comments Received
    We received various other comments that did not relate specifically 
to provisions proposed in the proposed rule.
    Comment: One commenter stated that to realize the opportunity 
presented by the Affordable Care Act, it is essential that individuals 
who are admitted to jail and are eligible for Medicaid be enrolled in 
Medicaid either during incarceration or immediately upon release to the 
community. By law federal Medicaid matching funds are not available for 
the costs of needed items and services for individuals who are enrolled 
in Medicaid while they are inmates, unless they are admitted to a 
medical institution for treatment during the period of incarceration. 
Nonetheless, the suspension of benefits does not affect the Medicaid 
eligibility of inmates or their ability to enroll in the program if 
eligible.
    Response: Paragraph (A) following section 1905(a)(29) of the Act 
and implementing regulations at Sec.  435.1009, exclude from the 
definition of medical assistance care or services for any individual 
who is an inmate of a public institution, except as an inpatient in a 
medical institution. We read this exclusion to apply generally to 
medical assistance, whether provided through the regular coverage plan 
or through an ABP. Thus, while we agree with the commenter that 
incarcerated individuals may be eligible for Medicaid, they would not 
be entitled to benefits inconsistent with the exclusion. We note that 
this is consistent with the exclusion of incarcerated individuals from 
eligibility to enroll in coverage through the Exchange. It is also 
consistent with the responsibility under the Eighth Amendment of the 
United States Constitution of governmental entities to provide 
necessary medical care to individuals who they are holding as inmates, 
which effectively creates a liable third party for such care.
    Individuals who are enrolled in Medicaid when entering a public 
institution should have their eligibility suspended, rather than 
terminated, as they remain eligible. This also ensures ease of 
reinstitution of coverage post-release. Additionally, if an individual 
is not already enrolled in Medicaid, states are encouraged to enroll 
eligible individuals prior to their release so that the individual can 
receive Medicaid covered services in a timely manner upon discharge.
    Comment: A commenter requested additional guidance as to what type 
of information CMS will need to approve an ABP state plan amendment and 
how CMS will determine if mental health parity has been met.
    Response: We will be issuing a template for states to use to submit 
ABPs as a state plan amendment. At this time, mental health parity will 
be determined to be met with an assurance by the state. We will be 
developing more specific policy related to this topic in the near 
future.
    Comment: One commenter requested CMS clarify what Medicaid category 
the EHBs are applicable. The commenter wondered whether EHBs only apply 
to the expansion population and ABPs or does it also apply to 
individuals who are currently eligible for Medicaid. The commenter 
questioned whether, for example, current Medicaid benefits would need 
to be adjusted to include habilitative services.
    Response: EHBs apply only to section 1937 of the Act and were not 
extended into regular Medicaid. Therefore, regular Medicaid state plan 
benefits will not include the EHBs.
    Summary: No changes to the proposed regulation were made as a 
result of these comments.
7. Summary
    ABPs are intended to offer states flexibility in designing benefit 
packages for the Medicaid population that are benchmarked to public 
employee or commercial plans. To ensure coverage of the kinds of 
services that will also be assured for those purchasing coverage in the 
individual and small group market, the law also requires that ABPs 
cover the ten EHBs specified by law.
    Recognizing that states face challenges in administering both their 
state plan benefits and ABPs, we have sought to provide as much 
flexibility in aligning those packages as possible. That said, we 
appreciate that it may be difficult at this point to make changes to 
the ABP that take effect by January 1, 2014. In light of this 
challenge, we will partner with states to work as quickly as possible 
to come into full compliance

[[Page 42238]]

with these provisions. We do not intend to pursue compliance actions on 
these issues to the extent that states are working toward but have not 
completed a transition to the new ABPs on January 1, 2014. To establish 
its base benchmark for EHBs for Medicaid, the state can select the same 
or a different plan than the base benchmark used for the Exchanges. 
Once having selected the base benchmark plan for EHBs, the state maps 
the benefits to EHB categories, and then can engage in supplementation 
and/or substitution:
     Through supplementation at 45 CFR 156.110, the state must 
add EHBs to a base benchmark plan that is missing a required category 
of EHBs. States can supply the missing EHBs from other base benchmark 
plans.
     Through substitution at 45 CFR 156.115(b), the state can 
replace one or more of the benefits within each category of EHB, as 
long as it maps appropriately to the category and the services are 
actuarially equivalent to the services that are being substituted. 
State Medicaid programs can use this process to substitute Medicaid 
state plan benefits for public employee or commercial plan benefits, 
for example, as long as applicable requirements are met. States must 
provide notification to CMS that they have engaged in substitution and 
have an actuarial certification and analysis available for inspection.
    States must assure, as they evaluate their base benchmark for EHBs 
and take these steps that they also properly account for special 
Medicaid considerations discussed in this rule. When states pay for 
covered outpatient drugs under the ABP prescription drug benefit, they 
must comply with the requirements under section 1927 of the Act. 
Habilitative services and devices are defined by what is in the state 
selected base benchmark plan, substituted as desired. If not defined in 
the base benchmark, the state will define the benefit. For example, 
states may offer coverage of habilitative services and devices that is 
no more restrictive in terms of amount, duration, and scope than the 
rehabilitative services and devices covered under the applicable 
benchmark plan. We expect that the services will be clinically 
appropriate to meet the needs of individuals based on medical 
necessity. Pediatric oral and vision care must follow requirements of 
the EPSDT benefit.
    The final base benchmark plan for EHBs for Medicaid, after 
completion of these steps, provides the floor for Medicaid coverage to 
individuals in the ABP.
    States also select a section 1937 coverage option. If the section 
1937 coverage option and the plan initially selected as the base 
benchmark for EHBs are the same, the state will meet all requirements 
by specifying as the final ABP the final base benchmark, as 
supplemented and subject to permissible substitution, and further 
supplemented to the extent necessary to ensure coverage required under 
section 1937 of the Act, including EPSDT services, family planning 
services, and FQHC and RHC services.
    If the section 1937 coverage option and the selected base benchmark 
plan are different (including when the state elects Secretary approved 
coverage option or benchmark equivalent coverage), states have to take 
the following steps to construct their final ABP:
     If any other benefits are available in the section 1937 
coverage option, add that benefit.
     For any benefits in common from the section 1937 public 
employee or commercial market plan options, but with one having more 
robust qualities related to amount, duration, or scope, the benefit 
with the more robust coverage.
     For any benefits in common from the section 1937 
Secretary-approved coverage option, but with one having more robust 
qualities related to amount, duration, or scope, determine whether to 
apply the benefit with the more robust coverage.
    Alternatively, a state can first determine their ultimate goal in 
creating their benefit package (for example, wanting to create an ABP 
that mirrors the state's regular Medicaid state plan benefit package as 
much as possible), and develop their ABP starting first with the 
selection of their 1937 coverage option. This would entail comparing 
the state plan benefit package with the base benchmark benefit package, 
supplementing the state plan benefit with EHBs as necessary, and 
applying permissible substitution of benefits consistent with 45 CFR 
156.115(b) to better align with state plan benefits.

C. Exchanges: Eligibility and Enrollment

    Throughout this proposed rule, we proposed technical corrections to 
regulation sections in part 155 to replace references to section 36B of 
the Code with the corresponding sections to the Department of 
Treasury's final rule, Health Insurance Premium Tax Credit (26 CFR 
1.36B-0 et seq.), published in the May 23, 2012 Federal Register (77 FR 
30377). We are finalizing these technical corrections as proposed.
1. Definitions (Sec.  155.20)
    In Sec.  155.20, we proposed technical corrections to the 
definitions of ``advance payments of the premium tax credit'' and 
``application filer,'' and added a definition of ``catastrophic plan'' 
by referencing the appropriate statutory provision within the 
Affordable Care Act. We did not receive specific comments on these 
technical corrections, and are thus finalizing them as proposed.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.20 of the 
proposed rule with a technical correction to the definition of advance 
payments of the premium tax credit, which we clarify refers to the 
payment of the tax credit authorized by 26 U.S.C. 36B and its 
implementing regulations.
2. Approval of a State Exchange (Sec.  155.105)
    In Sec.  155.105, we proposed a technical correction to replace the 
reference to section 36B of the Code to the applicable Treasury 
regulation. We did not receive specific comments on this section, and 
are thus finalizing the provision as proposed.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.105 of the 
proposed rule without modification.
3. Functions of an Exchange (Sec.  155.200)
    In Sec.  155.200, we proposed to clarify that the Exchange must 
also perform the minimum functions described in subpart F concerning 
appeals. The only comments we received supported this clarification.
Summary of Regulatory Changes
    We intend to finalize the clarification to paragraph (a) at a 
future date when subpart F is finalized, and so thus maintain the 
previous language from the Exchange final rule.
4. Authorized Representatives (Sec.  155.227)
    We proposed to add Sec.  155.227, establishing minimum requirements 
for the designation of authorized representatives who may act on an 
applicant's or enrollee's behalf in the individual and small group 
markets. We noted in the preamble that the proposed rule for authorized 
representatives for Exchanges closely tracks the proposed rule for 
authorized representatives for Medicaid.
    In paragraph (a), we proposed that the Exchange must permit 
applicants and enrollees in the individual and small

[[Page 42239]]

group markets to designate an individual person or organization to act 
on that applicant or enrollee's behalf. We also proposed that an 
applicant or enrollee may have such a representative through operation 
of state law, subject to applicable privacy and security requirements. 
We also proposed that the Exchange must not restrict the option to 
designate an authorized representative to only certain groups of 
applicants or enrollees. We noted that the Exchange should ensure that 
the authorized representative agrees to maintain, or be legally bound 
to maintain, the confidentiality of any information regarding the 
applicant or enrollee provided by the Exchange, and that authorized 
representatives should adhere to applicable authentication and data 
security standards. Additionally, we proposed that the Exchange should 
ensure that the authorized representative is responsible for fulfilling 
all responsibilities encompassed within the scope of the authorized 
representation, as described in this section, to the same extent as the 
person he or she represents.
    In paragraph (b), we proposed the situations when the Exchange must 
permit an applicant or enrollee to designate an authorized 
representative. We also proposed that the single, streamlined 
application described in Sec.  155.405 will provide applicants the 
opportunity to designate an authorized representative and will collect 
the information necessary for such representative to enter into any 
associated agreements with the Exchange as part of the application 
process. We noted that applicants and enrollees who do not designate an 
authorized representative on their applications will subsequently be 
able to do so through electronic, paper formats, and other modalities, 
as described in Sec.  155.405(c)(2). We also noted that legal 
documentation of authority to act on behalf of an applicant or enrollee 
under state law, such as a court order establishing legal guardianship 
or a power of attorney, may serve in the place of the applicant or 
enrollee's designation.
    In paragraph (c), we proposed that the Exchange must permit an 
applicant or enrollee to authorize a representative to--(1) Sign the 
application on the individual's behalf; (2) submit an update or respond 
to a redetermination for the individual; (3) receive copies of the 
individual's notices and other communications from the Exchange; and 
(4) act on behalf of the individual in all other matters with the 
Exchange.
    In paragraph (d), we proposed that the Exchange must permit an 
applicant or enrollee to change or withdraw an authorization at any 
time. We also noted the authorized representative also may withdraw his 
or her representation by notifying the Exchange and the applicant or 
enrollee.
    In paragraph (e), we proposed that an authorized representative 
acting as either a staff member or volunteer of an organization and the 
organization itself must sign an agreement meeting the requirements 
proposed in regards to Exchange certified application counselors. We 
noted that while the protections afforded by such an agreement are 
important when an authorized representative is a member or volunteer of 
an organization, we believe that they are not logical in cases where an 
authorized representative is not acting on behalf of an organization. 
We sought comments on applying the protections in paragraph (e) to 
authorized representatives more broadly.
    In paragraph (f), we proposed that the Exchange require authorized 
representatives to comply with any applicable state and federal laws 
concerning conflicts of interest and confidentiality of information.
    In paragraph (g), we proposed that the designation of an authorized 
representative must be in writing, including a signature, or through 
another legally binding format, and be accepted through all of the 
modalities described in Sec.  155.405(c) of this part.
    We received the following comments concerning the proposed 
authorized representative provisions.
    Comment: Several commenters recommended that the Exchange be 
required to make clear the powers and duties authorized representatives 
may have with respect to the Exchange, as well as all other 
requirements of Sec.  155.227, in a manner that is easily 
understandable by both the authorized representative and applicant or 
enrollee.
    Response: In the final rule, we added a provision to paragraph (a) 
specifying that the Exchange must provide information regarding the 
powers and duties that an authorized representative may have with 
respect to Exchange activities to both the applicant or enrollee and 
the authorized representative.
    Comment: Several commenters suggested that an authorized 
representative should have an affirmative duty to notify the Exchange 
and the applicant or enrollee on whose behalf he or she is acting of 
any revocation or material change in the authorized representative's 
legal authority to act on behalf of the applicant or enrollee. These 
commenters also suggested that such a material change or revocation 
should result in revocation of the authorized representative's 
authority to act on behalf of the consumer for Exchange purposes.
    Response: We have clarified in Sec.  155.227(d)(2) of the final 
rule that an authorized representative must notify the Exchange and the 
applicant or enrollee on whose behalf he or she is acting when the 
authorized representative no longer has legal authority to act on 
behalf of the applicant or enrollee.
    Comment: Several commenters asked HHS to clarify which legal 
documentation may serve in the place of an affirmative representation 
to designate an authorized representative. Other commenters recommended 
clarifying that a power of attorney may be used for such a purpose only 
if it authorizes the holder to act in the types of activities permitted 
under Sec.  155.227(c). One commenter recommended that legal 
documentation to act as an authorized representative be required, as 
opposed to optional, to protect vulnerable applicants or enrollees. 
Another commenter recommended adding language that authorizes the 
Exchange to dictate the form or manner of the authorization. A few 
commenters also expressed concerns about the proposed requirement that 
the designation of an authorized representative be in writing including 
a signature or other legally binding format.
    Response: In paragraph (a)(2), we outline the form and manner of 
how an applicant or enrollee may designate another person as his or her 
authorized representative, specifying that this designation should be 
in a legally binding format. We also provide examples of legal 
documentation that could be used to designate an authorized 
representative in lieu of a signed document, including, but not limited 
to, a court order establishing legal guardianship or a power of 
attorney. While we do not require that legal documentation be provided 
before the Exchange may recognize an individual as an authorized 
representative, we anticipate that Exchanges will have procedures in 
place to ensure that applicants and enrollees have control over whom 
they designate as an authorized representative. For example, Exchanges 
have flexibility to require that the designation should occur through a 
signed agreement or legally binding document. In general, an Exchange 
could accept any document that is valid for designating an authorized

[[Page 42240]]

representative in the state, and that permits the holder to perform the 
activities specified in Sec.  155.227(c), in place of an affirmative 
representation to designate an authorized representative. We emphasize 
that to be used in this manner, documentation has to give the authority 
needed to be an authorized representative for the activities specified 
in Sec.  155.227(c).
    Comment: A few commenters inquired about the relationship between 
an authorized representative designated through the Exchange and a QHP 
issuer, and recommended that an applicant or enrollee be required to 
complete a separate authorization form to designate a representative to 
act on his or her behalf in interactions with the QHP issuer. 
Commenters expressed an understanding that QHP issuers would be 
responsible for developing and executing the authorized representative 
forms that govern interactions between the enrollee and the issuer.
    Response: Subject to applicable law, we believe that the authorized 
representative designated by an applicant or enrollee through the 
Exchange process should also be able to serve in the same capacity with 
the QHP issuer, and that streamlining this process is important to 
minimize the burden on applicants or enrollees who need authorized 
representation. Therefore, we would urge QHP issuers to allow an 
Exchange authorized representative to serve in the same capacity with 
the QHP issuer. We note that the companion guide \2\ that will be used 
by all Exchanges for sending enrollment data to QHP issuers has fields 
that may accommodate this information.
---------------------------------------------------------------------------

    \2\ Standard Companion Guide Transaction Information, (March 22, 
2013). Available at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/companion-guide-for-ffe-enrollment-transaction-v15.pdf.
---------------------------------------------------------------------------

    Comment: Some commenters suggested that HHS develop some conflict 
of interest standards to ensure that consumers are protected when 
interacting with entities that may benefit from becoming an authorized 
representative. Other commenters suggested banning all organizations 
from becoming authorized representatives, because some entities may 
benefit from becoming an authorized representative.
    Response: We appreciate the comments and plan to monitor 
organizations acting as authorized representatives over time to 
determine whether more specificity is needed. Additionally, Sec.  
155.227(e) of the final rule clarifies that authorized representatives 
must comply with applicable state and federal laws regarding conflicts 
of interest.
    Comment: Several commenters recommended that an applicant or 
enrollee should be able to authorize their representative to engage in 
fewer than all of the activities described in the proposed rule.
    Response: In the final rule, we maintain language specifying that 
an Exchange must allow applicants and enrollees to authorize a 
representative to perform the full range of activities listed in the 
rule. We also add language to Sec.  155.227(c) clarifying that the 
Exchange may (but need not) permit consumers to authorize fewer than 
all of the listed activities, so long as the Exchange is able to track 
the specific permissions for each authorized representative. We note 
that for plan years beginning before January 1, 2015, the FFE will not 
have the operational capacity to support the authorization of 
representatives to perform less than the full range of activities 
listed in the rule.
    Comment: Several commenters urged that the provision in proposed 
Sec.  155.227(d) that the applicant or enrollee notify both the 
Exchange and the representative that the representative is no longer 
authorized to act on his or her behalf be removed. Other commenters 
suggested that the applicant or enrollee should notify only the 
Exchange.
    Response: In the final rule, we clarify that the responsibility for 
notifying a representative whose authorization has been discontinued by 
an applicant or enrollee falls only on the Exchange.
    Comment: One commenter expressed support for a policy that would 
permit the Exchange to terminate a designation after a given period of 
time to be determined by the Exchange. This commenter noted that this 
aligns with the 5-year limit on authorizations from enrollees to allow 
Exchanges to request tax information for conducting annual 
redeterminations in accordance with Sec.  155.335(k).
    Response: In the final rule, we have added a provision specifying 
that authorized representatives will notify the Exchange if they are no 
longer authorized to act in that capacity. As long as a person has the 
authority to act as an authorized representative, there is no need to 
terminate or reauthorize that relationship after a set amount of time. 
An applicant or enrollee may also modify the authorization at any time.
    Comment: A commenter suggested that compliance agreements for 
authorized representatives should be available directly from HHS, 
instead of Exchanges, for entities such as multi-employer plans that 
are subject to federal regulation under ERISA, the Code, and the Taft-
Hartley Act, but not to state insurance regulation. The commenter noted 
that the relationships between plans and plan participants and 
beneficiaries established under the Taft-Hartley Act should continue to 
be recognized in regulations implementing the Affordable Care Act.
    Response: We expect that authorized representatives will be used 
primarily by applicants and enrollees who are unable to represent 
themselves or who are seriously challenged in representing themselves 
in their relationship with the Exchange. Accordingly, authorized 
representatives' agreements are between an applicant or enrollee and 
his or her authorized representative regarding representation before 
the Exchange.
    Comment: One commenter sought clarification on whether staff or 
volunteers of organizations must be trained and certified as Exchange 
certified application counselors under proposed Sec.  155.225(b) to 
serve as authorized representatives.
    Response: The rule does not require authorized representatives to 
be trained and certified as certified application counselors. The role 
of an authorized representative is distinct from the role of a 
certified application counselor. Specifically, certified application 
counselors, for which standards will be finalized in a future 
regulation, provide guidance and assistance to applicants and enrollees 
who will interact with the Exchange on their own behalf, while 
authorized representatives are commonly used by applicants or enrollees 
who are unable to represent themselves, and have the legal authority to 
actually sign for an applicant or enrollee and make other decisions on 
his or her behalf.
    Comment: Several commenters suggested that requiring organizations 
to enter into agreements and follow a set of standards as proposed in 
Sec.  155.227(e) will lead to disruptions in the availability of 
assistance and lead to real harm to persons who need assistance. Other 
commenters expressed concerns that every authorized representative 
would have to be certified.
    Response: In light of the commenters' concerns, and the protections 
for consumers that already apply to all Exchange authorized 
representatives, we have not finalized the proposed requirement that 
organizations and staff and volunteers of organizations sign a separate 
agreement. We recognize that authorized representatives are given 
significant authority, and accordingly, we need to ensure that the 
privacy and security of applicants' and enrollees' personal data are 
protected. We note

[[Page 42241]]

that all authorized representatives, not just organizations and those 
working for organizations, will be subject to the privacy and security 
standards established and implemented by the Exchange consistent with 
45 CFR 155.260 through agreements, as is required by 45 CFR 
155.260(b)(2). This will be further clarified in subregulatory 
guidance. Since all authorized representatives will be subject to 
privacy and security standards, in this final rule, we removed the 
requirement for organizations and staff and volunteers of organizations 
to sign a separate agreement.
    We have also not finalized the provision in the proposed rule that 
would have subjected authorized representatives who are staff and 
volunteers of organizations, and their organizations, to the proposed 
standards for Exchange certified application counselors. This proposal 
was motivated in large part by a concern that staff and volunteers of 
such organizations might be likely to have conflicts of interest. This 
concern, however, is addressed by Sec.  155.227(e), which clarifies 
that authorized representatives must comply with applicable state and 
federal laws regarding conflicts of interest.
    Comment: One commenter suggested requiring legal documentation when 
an applicant or enrollee changes or withdraws his or her authorization.
    Response: Applicants and enrollees will not always have legal 
documents to substantiate discontinuing an authorization. When an 
applicant or enrollee appoints a new authorized representative, 
including to replace an existing authorized representative, he or she 
should follow the same process as an applicant or enrollee who appoints 
an authorized representative for the first time.
    Comment: Another commenter recommended that an enrollee should not 
be able to designate an authorized representative if he or she failed 
to do so during the application process.
    Response: We see no need to limit an applicant or enrollee's 
ability to designate an authorized representative solely to the 
application process, particularly as some enrollees may develop a need 
for an authorized representative after submitting an application, 
choosing a plan, and maintaining coverage for many years.
    Comment: Several commenters sought clarification about whether an 
applicant or enrollee who applies through the Exchange with the 
assistance of an authorized representative and is subsequently 
transferred to the state Medicaid agency would need to redesignate his 
or her authorized representative.
    Response: If the application is transferred to the state Medicaid 
agency, the authorized representative designation would be transferred 
as well.
    Comment: One commenter inquired about whether the Exchange will be 
deemed liable for any breaches of confidentiality that are beyond the 
control of the Exchange. A commenter also requested that HHS modify 
language to make it clear that it is the legal duty of the authorized 
representative to maintain confidentiality in daily practice.
    Response: We appreciate this comment and recognize that this issue 
applies more broadly. There are potentially some instances in which a 
person that provides application assistance, including an authorized 
representative, could negligently disclose an applicant's or enrollee's 
information under circumstances that the Exchange could not have 
prevented. We note that authorized representatives will need to comply 
with the same privacy and security standards that the Exchange adopts 
consistent with Sec.  155.260, or with more stringent standards, 
pursuant to Sec.  155.260(b). Additionally, paragraph (e) of the final 
rule requires authorized representatives to comply with applicable 
state and federal laws concerning conflicts of interest and 
confidentiality of information.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.227 of the 
proposed rule, with a few modifications. For clarity and consistency 
with the terminology defined in Sec.  155.20, and to make it clear that 
we intend authorized representatives to provide assistance both in the 
SHOP Exchanges and in the individual market Exchanges, we replaced the 
terms ``individual'' and/or ``employee'' with the terms ``applicant'' 
and/or ``enrollee'' to describe the people helped by authorized 
representatives. To further indicate that we intend authorized 
representatives to provide assistance both in the SHOP and in the 
individual market Exchanges, we clarify in Sec.  155.227(a) that an 
applicant or enrollee can designate an authorized representative in the 
individual or small group market Exchange and have added ``subpart H'' 
to the regulation text to account for the functions that an authorized 
representative may perform in a SHOP. To avoid confusion with the 
defined term ``qualified individual,'' we use the term ``person'' 
instead of ``individual'' in the final rule when describing individual 
persons acting as an authorized representative.
    We added paragraph (a)(5) to specify that the Exchange must provide 
information about the powers and duties of an authorized representative 
both to the applicant or enrollee and to the authorized representative. 
We redesignated proposed paragraphs (c)(1) through (c)(4) as (c)(1)(i) 
through (c)(1)(iv), and added a new paragraph (c)(2), which allows an 
Exchange to permit an applicant or enrollee to authorize a 
representative to perform fewer than all of the activities described in 
paragraph (c)(1) of this section, provided that the Exchange tracks the 
specific permissions of each authorized representative. Additionally, 
we removed paragraph (d)(1), and redesignated proposed paragraphs 
(d)(2) and (d)(3) as paragraphs (d)(1) and (d)(2). We modified the 
language in redesignated paragraph (d)(1) to explain that the Exchange, 
not the applicant or enrollee, will notify the authorized 
representative when an applicant or enrollee notifies the Exchange that 
he or she is no longer represented by his or her previously authorized 
representative. We further modified redesignated paragraph (d)(2) to 
clarify that an authorized representative will notify the Exchange and 
the applicant or enrollee on whose behalf he or she is acting when the 
authorized representative no longer has legal authority to act on 
behalf of the applicant or enrollee. We also deleted paragraph (e) and 
redesignated paragraphs (f) and (g) as (e) and (f), respectively. We 
also made the following technical corrections. We made a technical 
correction in paragraph (a)(1) to specify that authorized 
representatives are permitted to assist individuals apply for 
eligibility determinations or redeterminations for exemptions from the 
shared responsibility payment under subpart G of this part. We made 
technical corrections in paragraphs (a)(2) and (g) to clarify that the 
designation of an authorized representative must be in a written 
document signed by the applicant or enrollee instead of saying it must 
be in writing, including a signature. We also added the word ``must'' 
to paragraphs (a)(3), (a)(4), and (f) to clarify that the activities 
described in those paragraphs are required Exchange functions. We made 
a technical correction in paragraph (d) to move the words ``the 
applicant or enrollee notifies'' to the paragraph they modify. Finally, 
we made a technical correction in paragraph (f), to clarify what is 
meant by legally binding format

[[Page 42242]]

by adding ``as described in Sec.  155.227(a)(2).''
5. General Standards for Exchange Notices (Sec.  155.230)
    In Sec.  155.230, we proposed to make a technical correction in 
paragraph (a) to clarify that the general standards for notices apply 
to all notices sent by the Exchange to individuals or employers.
    We also proposed to revise paragraph (a) by redesignating paragraph 
(a)(1) as paragraph (a)(4) and redesignating paragraph (a)(2) as 
paragraph (a)(5). We proposed to revise redesignated (a)(2) to change 
``; and'' to ``.'' We proposed to add new paragraph (a)(1) to indicate 
that any notice required to be sent by the Exchange to individuals or 
employers must be written and include an explanation of the action that 
is reflected in the notice, including the effective date of the action, 
and we proposed to add new paragraph (a)(2) to require the notice to 
include any factual findings relevant to the action. We proposed to 
revise paragraph (a)(3) to clarify that the notice must include the 
citation to, or identification of, the relevant regulations that 
support the action. We note that the contents of notices are subject to 
privacy and security provisions in Sec.  155.260, including the 
limitations on disclosure of information.
    Furthermore, we proposed to add paragraph (d) to allow the Exchange 
to provide notices either through standard mail, or if an individual or 
employer elects, electronically, provided that standards for use of 
electronic notices are met as set forth in Sec.  435.918, which 
contains a parallel provision. We did not propose that the standards 
specifically described under proposed paragraph (d) would apply to the 
SHOP, and sought comment regarding this issue. We received the 
following comments concerning the proposed provisions for standards for 
Exchange notices:
    Comment: Several commenters supported our proposal to clarify that 
the general standards for notices under Sec.  155.230 apply to notices 
sent by the Exchange to both individuals and employers, and they 
supported the changes and additions proposed under paragraph (a). Many 
commenters indicated that the Exchange should be required to include 
contact information for both customer service and consumer assistance 
resources in notices, and commenters indicated that HHS should make 
copies of the applicable statute or regulation available upon request 
by consumers. One commenter stated the notice needs to include a clear 
explanation of any next steps and the timeframe by which action needs 
to be taken, while another commenter emphasized that notices should 
contain information about where individualized and unbiased counseling 
is available for the individual. Lastly, a few commenters suggested 
that we add ``laws or regulations'' to Sec.  155.230(a)(3).
    Response: In response to comments received, we clarify that while 
the standards under Sec.  155.230 generally do apply to notices sent by 
the individual market Exchange to both individuals and employers, HHS 
does not expect that the Exchange will have the information necessary 
to provide an employer with a choice to receive the notice specified in 
Sec.  155.310(h) regarding eligibility for advance payments of the 
premium tax credit electronically, as we do not expect that individuals 
will provide email information for employers on the application. 
Accordingly, we expect that notices sent from the Exchange to employers 
will likely be provided by standard mail, at least in the early years 
of program implementation. We will continue to work with employers 
regarding how best to implement notices from the Exchange to employers 
in an efficient manner.
    We intend to consider the suggestions regarding notice content in 
the development of model notices, and encourage Exchanges to do the 
same in developing notices they will use. We expect that notices will 
include clear information about next steps and timeframe by which 
action needs to be taken. We acknowledge the value of including contact 
information for both customer service and consumer assistance resources 
in notices. We recognize that including a list of all available 
consumer assistance resources will make the notice longer, and so note 
that this is an area in which Exchanges have flexibility. We also note 
that applicable federal regulations are and will remain available 
through public Web sites.
    Comment: Several commenters reinforced their support for the use of 
plain language to help notify enrollees of their rights and to properly 
explain health coverage options that may be available to consumers. One 
commenter recommended the notice include clear information about how to 
get help if the individual does not understand the notice, as well as 
clear information that an individual does not have to take the premium 
tax credit in advance.
    Response: All notices specified under 45 CFR parts 155 and 156 are 
required to meet the accessibility standards described under Sec.  
155.205(c), which specify that information must be provided in plain 
language and in a manner accessible to limited English proficient 
individuals. We expect Exchanges to make consumers aware of the 
reconciliation process applicable to advance payments of the premium 
tax credit as a part of the initial Exchange educational materials, as 
well as at the time that an individual selects a QHP. HHS is working 
with states to identify all key messages that should be communicated to 
individuals through notices and other Exchange processes, and will take 
these comments into consideration for implementation.
    Comment: Commenters generally expressed support for the electronic 
notice standards proposed under Sec.  155.230(d), while some expressed 
concerns or suggestions related to the proposed standards. Commenters 
raised a variety of concerns about how consumers who elect to receive 
electronic notices may not actually receive them, including as a result 
of not checking email regularly. One commenter urged that Exchanges 
should be required to change the enrollee's delivery method for notices 
if the Exchange finds that electronic notices are not being opened. One 
commenter suggested that written notifications should cease only after 
clear and unambiguous expression from an enrollee that they no longer 
wish to receive paper notifications, and that the Exchange should be 
required to track whether electronic notices are delivered and opened 
by an enrollee. Another commenter recommended that individuals be 
allowed to decide which notices they receive electronically or by mail. 
One commenter suggested that electronic notices should be in addition 
to, rather than replace, mailed paper notices. Lastly, one commenter 
recommended modifying the notice provision so that if an individual 
elects to receive electronic notices, the Exchange also always would 
send a mailed notice in addition to the electronic notice when the 
Exchange is taking an adverse action or when the consumer is required 
to take an additional action to maintain his or her eligibility for 
enrollment in a QHP, advance payments of the premium tax credit, or 
cost-sharing reductions.
    Response: We do not expect that the Exchange will track and monitor 
when an individual opens emails and electronic notices. As described in 
the electronic notice standards under Sec.  435.918, which are 
incorporated by reference under Sec.  155.230(d), applicants will 
receive paper notices by mail until they affirmatively elect to receive 
electronic notices. We expect Exchanges to remain consistent in their 
overall

[[Page 42243]]

approach to distributing notices, as required under Sec.  155.230(d). 
Individuals will be able to control how they receive notices. 
Additionally, under Sec.  435.918(b)(6), an individual will be able to 
request any notice posted in the individual's electronic account to be 
sent through regular mail. Furthermore, nothing precludes the Exchange 
from providing an individual with the choice to receive some types of 
notices electronically and others through regular mail (for example, 
notices concerning adverse actions). Accordingly, we are finalizing 
this provision as proposed, with one modification to allow the 
individual market Exchange to choose to delay the implementation of the 
process described in 42 CFR 435.918(b)(1) regarding sending a mailed 
confirmation of the choice to receive electronic notices, given the 
time available for implementation.
    Comment: Some commenters supported the exclusion of the SHOP 
Exchange from the electronic notice standards under Sec.  155.230(d), 
while others expressed support for the SHOP being able to send all 
notices electronically. Many commenters urged that employers in the 
SHOP should have a choice regarding to how they receive notices, and 
some expressed concern about employers not having a choice. One 
commenter recommended that the SHOP be allowed to choose between 
offering both written and electronic notices, to allow qualified 
employers and employees to select which method they prefer; or to only 
offer paper notices. The commenter noted that allowing states to adopt 
an electronic-only approach for notice delivery might be problematic 
for some employers. Another commenter indicated that the proposed rule 
is not clear about what the default format would be for notices sent by 
the SHOP.
    Response: Based on the comments received and because we believe it 
is important for employers to be able to choose how they receive 
notices, we are modifying the proposed rule to allow an employer or 
employee in any SHOP to elect to receive electronic notices, provided 
that the standards for electronic notices in Sec.  435.918(b)(2), 
(b)(3), (b)(4), and (b)(5) are met for the employer or employee. 
Accordingly, the SHOP must: (1) Permit the employer or employee to 
change such election, at any time, and inform the employer or employee 
of this right; (2) Post notices to the employer or employee's 
electronic account within one business day of notice generation; (3) 
Send an email or other electronic communication alerting the employer 
or employee when a notice has been posted; and (4) If an electronic 
communication is undeliverable, send the notice by regular mail within 
three business days of the date of the failed electronic communication.
    Comment: Several commenters asked for clarification regarding how 
electronic notice standards apply to QHP issuers, and they suggested 
that QHP issuers also be allowed to offer enrollees the option of 
receiving electronic notices. Some commenters recommended that the 
Exchange adopt electronic notice standards for QHP issuers similar to 
those applicable to the individual market Exchange. One commenter 
recommended that the single, streamlined application include an option 
for applicants to elect to receive notices from the QHP issuer 
electronically, in addition to the election to receive notices from the 
Exchange electronically. One commenter requested that a provision be 
added permitting managed care organizations to provide electronic 
notices.
    Response: The provisions related to electronic notice standards 
under part 155 of the proposed rule apply to the individual market and 
SHOP Exchange. We acknowledge the importance of QHP issuers being able 
to send, and enrollees being able to choose to receive, electronic 
notices, and we clarify that nothing in this regulation precludes QHP 
issuers from offering their enrollees the option to receive notices 
electronically. We understand that most QHP issuers already make 
electronic notices available as an option to their current enrollees, 
and we are supportive of QHP issuers continuing to make this option 
available to enrollees when they are participating in the Exchange.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.230 of the 
proposed rule with a few modifications. We renumber proposed paragraph 
(d) as paragraph (d)(1) and modify it to specify the electronic notice 
standards for an individual market Exchange, while also adding 
paragraph (d)(2) to establish the electronic notice standards for a 
SHOP. We also add language to allow the individual market Exchange to 
choose to delay the implementation of the process described in 42 CFR 
435.918(b)(1) regarding sending a mailed confirmation of the choice to 
receive electronic notices. We provide in paragraph (d)(2) that an 
employer or employee in any SHOP may elect to receive electronic 
notices, provided that the requirements for electronic notices in Sec.  
435.918(b)(2), (b)(3), (b)(4), and (b)(5) are met for the employer or 
employee.
6. Definitions and General Standards for Eligibility Determinations 
(Sec.  155.300)
    In Sec.  155.300, we proposed technical corrections in paragraph 
(a) to the definitions of ``minimum value,'' ``modified adjusted gross 
income,'' and ``qualifying coverage in an eligible employer-sponsored 
plan,'' and also removed the definition of ``adoption taxpayer 
identification number.'' We are finalizing the technical corrections as 
proposed, with an additional technical correction to specify the 
appropriate definition of minimum value.
    Comment: Several commenters recommended that HHS should not cross-
reference in Sec.  155.300 to the affordability standard for eligible 
employer-sponsored coverage in the Department of the Treasury's premium 
tax credit regulation, 26 CFR 1.36B-0 et seq., as the Department of the 
Treasury regulation is based on individual rather than family coverage.
    Response: The Department of the Treasury maintains the legal 
authority to interpret and implement the eligibility standards for the 
premium tax credit, including those related to affordability and 
minimum value of coverage in an eligible employer-sponsored plan, 
because those are based on provisions of the Code. The proposed 
technical corrections do not revise the policy regarding the Exchange's 
determination of the affordability of eligible employer-sponsored 
coverage, but simply update the cross-reference to align with the 
Department of the Treasury's implementing regulation. As such, we are 
finalizing the technical corrections as proposed.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.300 of the 
proposed rule with a technical correction to specify the appropriate 
definition of minimum value.
7. Options for Conducting Eligibility Determinations (Sec.  155.302(a) 
and (b), and (d))
    In Sec.  155.302, we promulgated provisions as interim final with 
request for comments in the Exchange final rule (77 FR 18310, at 18451-
52). We proposed to modify some of the provisions in Sec.  155.302 in 
the proposed rule (78 FR 4594, 4635).
    In paragraph (a) of the interim final rule, we provided that the 
Exchange may fulfill its minimum functions under this subpart by either 
executing all eligibility functions, directly or through contracting 
arrangements described in

[[Page 42244]]

Sec.  155.110(a), or through a combination of this approach and one or 
both of the approaches identified in paragraphs (b) and (c), which 
apply when other entities make eligibility determinations for insurance 
affordability programs. We proposed a revision to the interim final 
rule in paragraph (a)(1) to specify that Medicaid and CHIP eligibility 
determinations made by the Exchange may only be made by a government 
agency that maintains personnel standards on a merit basis.
    In paragraph (b) of the interim final rule, we provided that the 
Exchange may conduct an assessment of eligibility for Medicaid and CHIP 
rather than an eligibility determination for Medicaid and CHIP, 
provided that the Exchange make such an assessment based on the 
applicable Medicaid and CHIP MAGI-based income standards and 
citizenship and immigration status, using verification rules and 
procedures consistent with Medicaid and CHIP regulations, without 
regard to how such standards are implemented by the state Medicaid and 
CHIP agencies.
    In paragraph (b)(2) of the interim final rule, we provided that 
notices and other activities that must be conducted in connection with 
an eligibility determination for Medicaid or CHIP would be conducted by 
the Exchange consistent with the standards identified in this subpart 
or by the applicable state Medicaid or state CHIP agency consistent 
with applicable law.
    In paragraph (b)(3) of the interim final rule, we provided that if 
the Exchange assesses an applicant potentially eligible for Medicaid or 
CHIP, the Exchange would transmit such the applicant's information to 
the State Medicaid or CHIP agency for a formal determination of 
eligibility for such insurance affordability program. We explained in 
the preamble to the interim final rule that the Exchange would consider 
the applicant ineligible for Medicaid or CHIP for purposes of 
eligibility for advance payments of the premium tax credit and cost-
sharing reductions until the state Medicaid or CHIP agency notified the 
Exchange that the applicant was eligible for Medicaid or CHIP.
    In paragraph (b)(4) of the interim final rule, we proposed that if 
the Exchange assesses an applicant not potentially eligible for 
Medicaid or CHIP based on the applicable Medicaid and CHIP MAGI-based 
income standards, the Exchange must consider such an applicant as 
ineligible for Medicaid or CHIP for purposes of determining eligibility 
for advance payments of the premium tax credit and cost-sharing 
reductions, and notify the applicant and provide him or her with the 
opportunity to withdraw his or her application for Medicaid and CHIP or 
request a full determination of eligibility for Medicaid and CHIP from 
the applicable state agencies. To the extent that an applicant 
withdraws his or her application for Medicaid and CHIP, the applicant 
would not receive a formal approval or denial for Medicaid and CHIP.
    We proposed a revision to the interim final rule in paragraph 
(b)(4)(i)(A) to specify that, if an applicant who is not assessed as 
potentially eligible for Medicaid or CHIP by the Exchange withdraws his 
or her application for Medicaid or CHIP, and then appeals his or her 
eligibility determination for advance payments of the premium tax 
credit or cost-sharing reductions and is found potentially eligible for 
Medicaid or CHIP, the Medicaid or CHIP application is not considered 
withdrawn. The purpose of this revision is to reinstate the Medicaid 
and CHIP application date, which is used in determining the effective 
date of coverage under Medicaid and CHIP.
    We provided in paragraph (b)(4)(i)(B) that the Exchange must notify 
and provide an applicant who is assessed as not potentially eligible 
for Medicaid and CHIP with the opportunity to request a full 
determination of eligibility for Medicaid and CHIP by the applicable 
state Medicaid and CHIP agencies. For an applicant who requests a full 
Medicaid and CHIP determination, we provided that the Exchange must 
transmit all information provided as part of the application, update, 
or renewal that initiated the assessment, and any information obtained 
or verified by the Exchange to the state Medicaid and CHIP agency. We 
provided that the Exchange must consider such an applicant as 
ineligible for Medicaid or CHIP for purposes of determining eligibility 
for advance payments of the premium tax credit and cost-sharing 
reductions until the state Medicaid or CHIP agency notifies the 
Exchange that the applicant has been determined eligible for Medicaid 
or CHIP.
    We provided in paragraph (b)(5) that, under an assessment model 
discussed above, the Exchange must adhere to the eligibility 
determination for Medicaid or CHIP made by the Medicaid or CHIP agency. 
We provided in paragraph (b)(6) that the Exchange and the applicable 
state Medicaid and CHIP agencies must enter into an agreement 
specifying their respective responsibilities in connection with 
eligibility determinations for Medicaid and CHIP, which requirement 
complements the standards in Sec.  435.1200(d). In accordance with 
these standards, when the Exchange performs an assessment and 
transmitted it to the state Medicaid or CHIP agency, and the Exchange 
is providing advance payments of premium tax credits pending an 
eligibility determination for Medicaid and CHIP, the Exchange will 
receive a notification of the final determination of eligibility for 
Medicaid and CHIP made by the receiving agency. This approach helps 
avoid duplicative requests for information from applicants and 
verification of information.
    We proposed a revision to the interim final rule in paragraph 
(b)(5) to specify that the Exchange also will adhere to the appeals 
decision for Medicaid or CHIP eligibility determinations made by the 
state Medicaid or CHIP agency or appeals entity for such agency.
    In paragraph (d) of the interim final rule, we provided the 
standards to which the Exchange must adhere when assessments of 
eligibility for Medicaid and CHIP based on MAGI and eligibility 
determinations for advance payments of the premium tax credit and cost-
sharing reductions are made in accordance with paragraphs (b) and (c); 
such standards include that all eligibility processes are streamlined 
and coordinated across applicable agencies, that such arrangement does 
not increase administrative costs and burden on applicants, enrollees, 
beneficiaries, or application filers, or increase delay, and that 
applicable requirements under part 155 and section 6103 of the Code are 
met.
    Comment: Several commenters raised concerns regarding Sec.  
155.302(a) as promulgated in the interim final rule, as they believed 
it could permit non-public agencies to conduct eligibility 
determinations for Medicaid and CHIP, which they worried would have a 
negative impact on consumer assistance, timeliness, accuracy, and the 
potential for conflicts of interest. Some commenters wanted to ensure 
that agreements between state Medicaid agencies and private entities 
related to the eligibility determination process would be relayed to 
HHS for appropriate review. Several commenters recommended clear 
language to specify that a private Exchange is not permitted to make 
final determinations regarding an applicant's eligibility for Medicaid 
and CHIP. One commenter wanted HHS to strengthen the conflict of 
interest language and specify that the Exchange may not contract out 
eligibility determinations for advance payments of the premium tax 
credit and cost-sharing reductions due to such determinations being 
inherently governmental.
    Response: We appreciate these comments regarding the interim final 
rule, as well as comments received

[[Page 42245]]

regarding the proposed revisions to paragraph (a)(1) of the interim 
final rule that would specify that any contracting arrangement for 
eligibility determinations for Medicaid and CHIP is subject to the 
standards in 42 CFR 431.10(c)(2). In response to these comments, we are 
finalizing Sec.  155.302(a) with the proposed revision to paragraph 
(a)(1), with a minor clarification to specify that the reference to 42 
CFR 431.10(c)(2) is specific to contracting arrangements for 
eligibility determinations for Medicaid and CHIP. Specifically, this 
means that an Exchange contractor may make eligibility determinations 
for Medicaid and CHIP if it is a government agency or public authority 
that maintains personnel standards on a merit basis. We note that 42 
CFR 431.10(d) specifies that agreements regarding the delegation of 
eligibility determinations by state Medicaid agencies must be available 
to the Secretary, upon request. Exchanges are permitted to contract 
eligibility determinations for advance payments of the premium tax 
credit and cost-sharing reductions in accordance with Sec.  155.110(a).
    Comment: Many commenters expressed concerns about the potential 
bifurcation of the eligibility process under Sec.  155.302(b) for 
Medicaid, CHIP, and advance payments of the premium tax credit and 
cost-sharing reductions in terms of its impact on various stakeholders. 
Commenters urged that HHS maintain the ``no wrong door'' approach 
envisioned by the Affordable Care Act to ensure that an individual is 
appropriately screened for all relevant insurance affordability 
programs. As such, some commenters requested that by 2016, HHS revisit 
the decision to allow states to implement eligibility systems in the 
manner as described in the interim final rule, while also evaluating 
whether more Exchanges move from making assessments to determinations 
during the intervening time period. Commenters recommended that, if HHS 
retains this provision, HHS should specify that states must demonstrate 
they have the capacity to manage electronic accounts and applicant 
information in so as not to increase the burden on individuals and 
families by requesting duplicate information or increase the 
administrative costs for state Medicaid and CHIP agencies related to 
file transfers or unnecessarily duplicative verification processes. 
Some commenters wanted HHS to require the Exchange to notify the 
transferring program that it had received the electronic account and 
report its final eligibility determination, to protect applicants. 
Furthermore, commenters urged HHS to establish a process for monitoring 
and enforcing the standards, as well as educating the public, regarding 
the division of eligibility responsibilities between the Exchange and 
relevant Medicaid and CHIP agencies. Commenters stated that if such 
monitoring uncovers noncompliance with performance standards or other 
requirements, HHS should require the Exchanges and state Medicaid and 
CHIP agencies to submit corrective action plans.
    Response: We appreciate the suggestions from commenters, and note 
that many of these recommendations are already included in the interim 
final rule. We intend to monitor the efficiency of how states implement 
assessment or determination models to determine whether to propose 
revisions in future years. We believe that the existing language in 
Sec.  155.302(b) is augmented by Sec.  155.345(g) and 42 CFR 435.1200, 
which specify that the Exchange and the state Medicaid and CHIP 
agencies must have the capacity to manage electronic accounts, and also 
that the Exchange will notify the transferring Medicaid or CHIP agency 
regarding the receipt of an electronic account as well as of its final 
eligibility determination. Accordingly, we do not modify this provision 
further to address these comments. Although we do not establish a 
formal process for monitoring and taking enforcement action for 
noncompliance with these standards in the regulation text, HHS will 
continue to evaluate the need for such processes during the 
implementation of these regulations.
    Comment: Several commenters suggested that states should adopt 
procedures that would allow Exchanges to assess eligibility for 
Medicaid based on factors other than MAGI, and potentially also 
allowing the Exchange to assess eligibility for other programs, 
including the Supplemental Nutritional Assistance Program. Some 
commenters urged HHS to require Exchanges to develop appropriate 
screening standards to identify vulnerable populations that might be 
eligible for certain programs on a basis other than MAGI.
    Response: This comment is outside the scope of Sec.  155.302(b) of 
the interim final rule, as this provision only concerns the use of MAGI 
determinations, while Sec.  155.345(b) concerns the duties of the 
Exchange for Medicaid eligibility based on factors other than MAGI. We 
note that Exchanges are not precluded from entering into agreements 
with Medicaid and CHIP agencies to make eligibility determinations for 
Medicaid based on factors other than MAGI.
    Comment: Some commenters requested that HHS provide greater 
specificity throughout Sec.  155.302(b) to indicate that contracting 
agreements, verifications rules and standards, notices, and other 
activities discussed must adhere to the specific standards of 
Sec. Sec.  155.302(d) and 155.345(g), and 42 CFR part 431, subpart E.
    Response: As noted earlier, Sec.  155.302(b) only applies in place 
of the standards elsewhere in subpart D that specify that the Exchange 
will make eligibility determinations for Medicaid and CHIP based on 
MAGI, rather than assessments; it does not conflict with standards 
provided elsewhere in subpart D that address other components of the 
eligibility process that are unaffected by whether the Exchange is 
making assessments or determinations of eligibility for Medicaid and 
CHIP. As such, Exchanges are still guided by other provisions in 
subpart D, such as Sec.  155.345(g). Provisions in 42 CFR part 431 
concern standards for Medicaid agencies, which continue to apply to 
Medicaid agencies in accordance with that part notwithstanding the role 
of the Exchange for Medicaid eligibility. Finally, Sec.  155.302(a)(2) 
already specifically states that use of the option in Sec.  155.302(b) 
is subject to Sec.  155.302(d), so we do not believe that it is 
necessary to add further references to Sec.  155.302(d).
    Comment: Some commenters supported the increased level of 
flexibility for the Exchange to make assessments of eligibility for 
Medicaid and CHIP based on MAGI, rather than determinations. However, 
these commenters expressed concerns about relying on applicants who are 
not assessed as potentially eligible for Medicaid or CHIP based on MAGI 
to self-identify as potentially eligible based on non-MAGI standards or 
proactively request a full determination from the state Medicaid and 
CHIP agencies, as opposed to placing greater burden on the Exchange to 
take additional steps to proactively identify applicants who might be 
Medicaid eligible based on non-MAGI standards. One commenter also asked 
HHS to clarify that in cases where an Exchange conducts an assessment 
of Medicaid eligibility; the assessment must include an assessment of 
Medicaid eligibility on bases other than MAGI. These commenters 
suggested that HHS encourage states to utilize a process whereby 
individuals who enroll in a QHP, but are subsequently determined 
eligible for Medicaid, are able to transition into the same carrier's 
Medicaid product if the

[[Page 42246]]

QHP also operates a Medicaid health plan.
    Response: We appreciate the concerns regarding how to create a 
streamlined process that is minimally burdensome on individuals and 
families, and results in accurate eligibility determinations. Under 
Sec.  155.345(b) and (c), the Exchange will evaluate applications for 
applicants who are not eligible for Medicaid based on MAGI for possible 
Medicaid eligibility based on factors other than MAGI, and must provide 
an opportunity for applicants and enrollees to request a full 
determination of Medicaid eligibility based on factors other than MAGI. 
If the Exchange evaluates an applicant as potentially eligible for 
Medicaid based on factors other than MAGI, or the applicant or enrollee 
requests a full determination of Medicaid eligibility, Sec.  155.345(d) 
specifies that the Exchange will transmit the applicant's information 
to the state Medicaid agency for a full determination. The Exchange has 
the same responsibilities regarding eligibility for Medicaid based on 
factors other than MAGI under the assessment and the determination 
models, which we believe is appropriate because the single, streamlined 
application that will be used by the Exchange does not request all the 
information necessary to conduct a full determination of Medicaid 
eligibility based on factors other than MAGI. Rather, it includes an 
opportunity for an application filer to indicate that an applicant has 
limitations in daily activities or lives in a medical facility or 
nursing home, which are factors that are considered in determining 
eligibility for Medicaid based on factors other than MAGI. If answered 
affirmatively, the Exchange will trigger a referral to the applicable 
state Medicaid agency such that the state Medicaid agency can determine 
the applicant's eligibility for Medicaid, including based on factors 
other than MAGI. Further, we note that the assessment of eligibility 
for Medicaid based on MAGI is designed to be a robust evaluation, and 
we expect that the number of applicants who will receive an assessment 
that is inconsistent with the final determination will be limited. We 
note that while comments related to HHS encouraging a process to help 
individuals transition between QHPs and Medicaid products of the same 
carrier is outside the scope of this regulation, Exchanges maintain the 
flexibility to pursue such an option.
    Comment: Some commenters noted the need for high levels of 
coordination between the Exchange and state Medicaid and CHIP agencies. 
A few commenters also wanted HHS to provide guidance with a view toward 
minimizing the situations in which an individual will enroll in a QHP 
through the Exchange pending the outcome of a Medicaid or CHIP 
eligibility determination and then be subsequently determined eligible 
for Medicaid or CHIP.
    Response: We agree that a high degree of coordination is needed to 
manage an assessment model, and believe that the language in Sec.  
155.302(b) and (d), as well as Sec.  155.345, prescribes an appropriate 
set of standards. We recognize the challenges that may occur related to 
individuals who enroll in a QHP pending the outcome of a Medicaid or 
CHIP eligibility determination, but we believe that these are 
outweighed by the benefits associated with providing eligible 
individuals with health coverage pending the completion of an 
eligibility determination for Medicaid or CHIP, and we note that 
enrolling in a QHP through the Exchange during such a period is the 
individual's choice. With that, we expect that as states implement 
their Exchanges and as eligibility systems for the Exchange, Medicaid, 
and CHIP mature, the need for multiple entities to take part in 
processing an application will lessen, and the time needed to complete 
the entire eligibility process will also decrease, which will reduce 
the need for interim coverage.
    Comment: One commenter worried that the remainder of subpart D 
concerning the eligibility process was not updated to reflect Sec.  
155.302(b).
    Response: We note that Sec.  155.302(b) provides that the Exchange 
may conduct an assessment of MAGI-based eligibility for Medicaid and 
CHIP, rather than a determination of eligibility for Medicaid and CHIP, 
in accordance with the specified standards, ``[n]otwithstanding the 
requirements of this subpart[.]'' In view of this language, we did not 
update other provisions in subpart D to reflect Sec.  155.302(b). We 
note that Sec.  155.302(b) does not supersede other provisions, such as 
those in Sec.  155.345, that set additional standards for Exchanges in 
coordinating with Medicaid and CHIP agencies.
    Comment: Some commenters worried that the Exchange assessment 
provision would allow the Exchange the assess eligibility without 
applying Medicaid rules and procedures. Commenters recommended that, 
under an assessment model, the Exchange should provide presumptive 
eligibility for Medicaid, which they believed was particularly 
important for children and pregnant women, while the application is 
transferred to the Medicaid and CHIP agencies and a determination is 
made. One commenter suggested HHS develop a universal model for 
tracking children as they move from one coverage type to another, which 
Exchanges should be required to implement.
    Response: Section 155.302(b)(1) specifies that an assessment will 
be made based on, ``the applicable Medicaid and CHIP MAGI-based income 
standards and citizenship and immigration status, using verification 
rules consistent with 42 CFR parts 435 and 457, without regard to how 
such standards are implemented by the State Medicaid and CHIP 
agencies.'' We maintain this language in this final rule, which ensures 
that the Exchange will use standard Medicaid rules and procedures in 
making an eligibility assessment. We appreciate the commenter's 
recommendations related to presumptive eligibility, but note that HHS' 
approach in establishing an assessment model was premised on having the 
Medicaid or CHIP agency make all eligibility determinations that result 
in the provision of benefits under Medicaid or CHIP. Accordingly, we do 
not specify that the Exchange will make presumptive determinations 
under an assessment model. HHS will continue to work with Exchanges and 
Medicaid and CHIP agencies to ensure that vulnerable populations, such 
as children and pregnant women, receive the correct eligibility 
determinations for insurance affordability programs in a timely 
fashion.
    Comment: Some commenters recommended that the interim final rule be 
amended to eliminate or strictly limit differences between the 
procedures used by Exchanges in assessing eligibility for Medicaid and 
CHIP, and those used by state Medicaid and CHIP agencies in determining 
eligibility, with HHS permitting Federally-facilitated Exchanges and 
State Partnership Exchanges to have slightly more flexibility for 
differences than State-based Exchanges.
    Response: We agree that the differences between the procedures used 
by Exchanges and their partner Medicaid and CHIP agencies in conducting 
eligibility determinations should be limited, and believe that Sec.  
155.302(b)(1) already accomplishes this to a significant extent. We 
reiterate that an assessment under Sec.  155.302(b) will be robust and 
will involve the execution of detailed MAGI-based eligibility rules and 
verification procedures. Further, we believe that there is little 
reason for the use of an assessment model in a state that operates a 
state-based Exchange, given the availability of shared information 
technology services and the status of the

[[Page 42247]]

state-based Exchange as a state, rather than a federal, entity. We 
intend to continue to work closely with states to ensure that systems 
and processes are appropriately integrated, with the goal of reducing 
administrative costs, burden on consumers, and the time needed to 
complete the eligibility process.
    Comment: Several commenters recommended that HHS set a specific 
timeliness standard regarding the electronic transmission of the 
application along with all relevant information collected from either 
the application or available electronic data sources from the Exchange 
to the state Medicaid or CHIP agency to ensure that eligibility 
determinations are provided without undue delay. Some commenters 
requested that HHS specify that an Exchange must complete an 
eligibility determination in no more than 30 days (with up to 60 days 
for evaluations based on factors other than MAGI under Sec.  
155.345(b)) and complete the transfer of an individual's electronic 
file, where required, within one business day; some commenters also 
urged greater alignment between Exchange and Medicaid timeliness and 
other performance standards.
    Response: In Sec.  155.302(b)(3) and (b)(4)(ii)(A), we specify that 
information will be transferred promptly, and without undue delay. 
Further, in Sec.  155.310(e)(1), we specify that the Exchange will make 
an eligibility determination promptly, and without undue delay. We 
believe that this is an appropriate approach to initial timeliness 
standards, given the fact that this is an entirely new program, and we 
intend to work closely with states to monitor and improve the 
timeliness of all aspects of the eligibility and enrollment process. 
Further, we note that we agree with the commenter's suggestion 
regarding the alignment of performance standards, and intend to issue 
future guidance on this topic.
    Comment: Several commenters suggested that HHS modify Sec.  
155.302(b)(6) related to the standards for agreements entered into 
between the Exchange and state Medicaid and CHIP agencies to provide 
greater specificity regarding eligibility determinations, transfer 
procedures, notice and appeals processes, and consumer assistance. 
Additionally, these commenters asked that the agreements be made 
readily available to the public in addition to HHS, while also 
providing a period for public review and comments on the agreements 
prior to their approval by HHS.
    Response: We finalize Sec.  155.302(b)(6) from the interim final 
rule with a clarification that, like the agreements specified in Sec.  
155.345(a), the agreement under Sec.  155.302(b)(6) will be made 
available to HHS upon request. To the extent that the Secretary 
requests and obtains a copy of an agreement under Sec.  155.302(b)(6), 
the public can request the agreement through the Freedom of Information 
Act, 5 U.S.C. 552. The public may also obtain copies of these 
agreements under applicable state freedom of information laws. We 
believe that there are ample opportunities for public input for 
Exchange operations, particularly given that the standards that will 
govern the content of these agreements are specified in this 
regulation. We also note again that Sec.  155.302(b) does not supersede 
other provisions, such as those in Sec.  155.345, that set additional 
standards for Exchanges in coordinating with Medicaid and CHIP 
agencies.
    Comment: One commenter wanted to ensure that HHS would review and 
approve all state Medicaid verification plans.
    Response: This comment is outside of the scope of this regulation. 
We note, however, that as described in 42 CFR 435.945(j), state 
Medicaid verification plans must be available to the Secretary of HHS 
upon request, thereby enabling appropriate oversight of verification 
standards.
    Comment: One commenter sought clarification as to whether an 
Exchange could choose to perform neither an assessment nor a 
determination for Medicaid and CHIP.
    Response: We clarify that the Exchange must make either 
determinations or assessments for Medicaid and CHIP based on MAGI for 
applications that include a request for an eligibility determination 
for insurance affordability programs. However, we note that the 
Exchange is permitted to contract with an eligible contracting entity, 
including the state Medicaid agency, to conduct eligibility 
determinations for Medicaid and CHIP, consistent with Sec.  155.302(a).
    Comment: Several commenters recommended that an applicant who 
appears to be eligible for Medicaid based on factors other than MAGI be 
flagged by the Exchange early in the process, and if the Exchange does 
not assess such an applicant as potentially eligible for Medicaid or 
CHIP based on MAGI, the applicant should not have to request a full 
eligibility determination from the state agency under Sec.  
155.302(b)(4)(i)(B) to receive an eligibility determination for 
Medicaid based on factors other than MAGI.
    Response: As noted above, Sec.  155.302(b) does not supersede Sec.  
155.345(b), which specifies that the Exchange will assess information 
provided on an application by an applicant who is not eligible for 
Medicaid based on MAGI to determine whether he or she is potentially 
eligible for Medicaid based on factors other than MAGI. We clarify that 
this provision applies in an Exchange that is implementing the option 
under Sec.  155.302(b), such that if the Exchange does not assess an 
applicant as potentially eligible for Medicaid based on MAGI, it will 
then examine the application to determine whether to transfer the 
applicant to the state Medicaid agency for consideration of Medicaid 
eligibility based on other factors.
    Comment: Commenters recommended that the provision at Sec.  
155.302(b)(4)(i)(A), allowing an individual the opportunity to withdraw 
his or her Medicaid and CHIP application, be eliminated or modified to 
allow only individuals above a certain income threshold to withdraw 
their Medicaid and CHIP applications. Others commenters were concerned 
that language notifying an individual of his or her opportunity to 
withdraw would be confusing and lead to individuals being dissuaded 
from pursuing a Medicaid or CHIP eligibility determination.
    Response: When an applicant requests an eligibility determination 
for insurance affordability programs, the single, streamlined 
application is an application for Medicaid and CHIP (as well as for 
eligibility for enrollment in a QHP through the Exchange, and related 
insurance affordability programs), so it needs to end in either a final 
determination of eligibility for Medicaid or CHIP (approval or denial), 
or a withdrawal of the application as it relates to Medicaid and CHIP. 
When a state Medicaid or CHIP agency elects to have the Exchange make 
assessments of Medicaid or CHIP eligibility, rather than 
determinations, the Exchange is unable to provide a final determination 
of Medicaid or CHIP eligibility, including a denial of Medicaid or CHIP 
eligibility. Accordingly, withdrawal allows the assessment model to 
function such that an applicant does not require a formal, final denial 
of Medicaid and CHIP from the state Medicaid or CHIP agency to gain 
eligibility for advance payments of the premium tax credit and cost-
sharing reductions, if otherwise eligible. This approach provides 
significant efficiencies for consumers by not requiring multiple 
eligibility determinations, as well as for Exchanges and Medicaid and 
CHIP agencies. Given that the proposed approach preserves the 
application date for purposes of

[[Page 42248]]

Medicaid and CHIP in the event of an appeal, we note that the only 
implication of withdrawing an application in this context is that the 
applicant can no longer request a determination from the state Medicaid 
or CHIP agency based on the withdrawn application, and would instead 
need to submit another application to be considered for those programs 
(other than on appeal).
    We acknowledge commenters' concerns regarding the potential for 
confusion when an applicant is given the opportunity to withdraw his or 
her Medicaid and CHIP application. To reduce the potential for consumer 
confusion and administrative burden on the consumer and the Exchange 
associated with this requirement, we offer the following option in 
implementing this provision. Upon notifying an applicant that the 
Exchange has assessed him or her as not potentially eligible for 
Medicaid or CHIP, the Exchange will provide an opportunity for the 
applicant to request a determination of Medicaid or CHIP eligibility 
from the state Medicaid or CHIP agency. Rather than expressly asking 
the applicant if he or she wants to withdraw the application for 
purposes of Medicaid or CHIP eligibility (instead of requesting a 
determination from the state agencies), the Exchange may consider the 
application withdrawn for purposes of Medicaid and CHIP eligibility if 
the applicant does not affirmatively request a determination from the 
state Medicaid or CHIP agency within a time period specified in the 
notice to the applicant, provided that the notice that communicates the 
opportunity to request a determination from the state Medicaid or CHIP 
agency and the time limit for doing so also specifies that the Exchange 
will take this approach to withdrawal. This will allow an appropriate 
disposition for each application, as it relates to Medicaid and CHIP, 
and will help alleviate any confusion associated with the opportunity 
to expressly withdraw an application, without creating any adverse 
impacts for consumers.
    Comment: A few commenters requested language that explicitly 
preserves the date of application when an applicant withdraws his or 
her Medicaid or CHIP application.
    Response: Provisions related to preserving the date of the Medicaid 
or CHIP application are contained in this final rule at 42 CFR 
435.907(h).
    Comment: Commenters supported the inclusion of language that 
requires the application to not be considered withdrawn if, upon 
appeal, the applicant is found potentially eligible for Medicaid or 
CHIP. A few commenters requested that any subsequent review finding 
potential eligibility for Medicaid or CHIP be sufficient to nullify the 
withdrawal.
    Response: We are finalizing proposed language requiring the 
application to not be considered withdrawn if, upon appeal, the 
applicant is found potentially eligible for Medicaid or CHIP. The 
additional suggestions to amend this provision would expand the scope 
of the provision beyond its intended scope. Further, it would be 
impossible to administer the commenters' suggestion to nullify a 
withdrawal when any future review finds potential eligibility for 
Medicaid or CHIP eligibility, beyond the parameters established in this 
rule, since subsequent eligibility determinations and redeterminations 
will not necessarily be connected to the withdrawn application.
    Comment: Commenters supported the additional proposed language in 
Sec.  155.302(b)(5) requiring the Exchange to adhere to State Medicaid 
or CHIP agency appeals decisions.
    Response: We are finalizing the proposed language with a 
modification such that the Exchange appeals entity, in addition to the 
Exchange, will adhere to the eligibility determination or appeals 
decision for Medicaid or CHIP made by the Medicaid or CHIP agency, or 
the appeals entity for such agency.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.302(a) with 
one clarification that any contracting arrangement for eligibility 
determinations for Medicaid and CHIP is subject to the standards in 
Sec.  431.10(c)(2). We are finalizing the provision proposed in Sec.  
155.302(b)(5) with a slight technical modification to add ``Exchange 
appeals entity.'' We are finalizing Sec.  155.302(b)(6) of the interim 
final rule issued at 77 FR 18310, 18451-52 with a modification to 
specify that the agreement under Sec.  155.302(b)(6) must be made 
available to HHS upon request. We are finalizing the provisions 
proposed in paragraph (d) of the proposed rule without modification. We 
are otherwise finalizing the other provisions of the interim final rule 
with the exception of Sec.  155.302(c), which we are not finalizing at 
this time. We are leaving the text of Sec.  155.302(c) as an interim 
final rule as published at 77 FR 18310, 18451-52.
8. Eligibility Standards (Sec.  155.305)
    In Sec.  155.305, we proposed to add paragraph (a)(3)(v) regarding 
residency standards for eligibility for enrollment in a QHP when an 
individual attests to being temporarily absent from the service area of 
the Exchange but intends to return to the service area of the Exchange 
and otherwise meets the residency standards, unless another Exchange 
verifies that the individual meets the residency standard in that 
Exchange. We also proposed technical corrections within paragraph (f) 
to replace the references to section 36B of the Code to the application 
Treasury regulations.
    We proposed to amend paragraph (f)(3) to clarify the availability 
of advance payments of the premium tax credit and cost-sharing 
reductions to applicants enrolled in a QHP, that is not a catastrophic 
plan, through the Exchange. We did not receive specific comments on 
this amendment, and we are thus finalizing the provision as proposed.
    We also proposed to add paragraph (h) to codify the eligibility 
standards for enrollment through the Exchange in a QHP that is a 
catastrophic plan, which are based on age or having in effect a 
certificate of exemption from the shared responsibility payment under 
section 5000A of the Code in specific categories. We proposed that all 
Exchanges must conduct eligibility determinations for a QHP that is a 
catastrophic plan within the Exchange.
    Comment: Commenters generally offered support for the provision at 
Sec.  155.305(a)(3)(v) specifying that the Exchange not deny or 
terminate an individual's eligibility for enrollment in a QHP through 
the Exchange if he or she meets the residency standards described in 
paragraph (a)(3) but for a temporary absence from the service area of 
the Exchange. A few commenters recommended deleting the phrase that 
allowed the Exchange to deny or terminate eligibility if another 
Exchange verifies that the individual meets the residency standard of 
such Exchange; others suggested rephrasing the provision to allow an 
individual to maintain residency in the Exchange service area unless he 
or she is enrolled in another Exchange. Commenters recommending 
revisions disagreed with how this language would limit an applicant's 
ability to establish residency, under the rules described in Sec.  
155.305(a)(3), in more than one Exchange.
    Response: We are finalizing the provision without the proposed 
clause ``unless another Exchange verifies that the individual meets the 
residency standard of such Exchange.'' As commenters pointed out, under 
some circumstances, certain individuals may

[[Page 42249]]

establish residency for purposes of Exchange enrollment in multiple 
Exchange service areas simultaneously (for example, under Sec.  
155.305(a)(3)(iv)(B), if a parent expects to claim a child who lives in 
another state on the parent's tax return, the child may enroll in a QHP 
through the Exchange either in the child's state of residence, or the 
parent's state of residence). Accordingly, while generally, applicants 
will establish residency in the Exchange service area in which they 
intend to reside, since there are exceptions to this general principle, 
this clause limiting residency to one Exchange service area is 
unnecessary.
    Comment: In response to the provision proposed at Sec.  
155.305(a)(3)(v), some commenters expressed concern about operational 
challenges specific to providing and coordinating coverage while 
individuals are temporarily residing outside the Exchange service area. 
A few commenters asked that we further define the term ``temporary'' to 
ensure that the term is used consistently across Exchanges, and to help 
reduce consumer confusion and administrative inefficiencies.
    Response: We acknowledge that coordinating care for applicants 
while they are temporarily absent from the service area of the Exchange 
through which they enroll in a QHP may present challenges for QHP 
issuers. However, we believe this challenge is outweighed by the 
importance of maintaining continuity of coverage while an individual is 
temporarily absent from a particular Exchange service area. 
Additionally, in paragraph (a)(3)(v), we specify that ``temporarily 
absent'' means the applicant must intend to return to the Exchange 
service area when the purpose of the absence has been accomplished, so 
we do not believe that further definition is required in regulation. To 
ensure that applicants understand the implications of applying for 
coverage through a particular Exchange, we encourage Exchanges to 
notify applicants that they may want to apply for coverage through the 
Exchange where they meet the residency requirements and wish to most 
frequently access benefits.
    Furthermore, this provision should not be construed to impose any 
additional requirements on QHP issuers related to maintaining networks 
outside the Exchange service area or coordinating care for applicants 
temporarily absent from the Exchange service area.
    Comment: Commenters were divided regarding the Exchange's role in 
determining eligibility for catastrophic plans inside and outside the 
Exchange, as some expressed support for what they interpreted as HHS 
limiting enrollment for catastrophic coverage to enrollment through the 
Exchange in QHPs that are catastrophic plans and urged flexibility for 
an Exchange to decide not to conduct eligibility determinations for 
catastrophic plans, while other commenters requested that the Exchange 
conduct eligibility determinations for QHPs that are catastrophic plans 
for enrollment both through and not through the Exchange. Commenters 
also urged HHS to clarify that an applicant still must be determined 
eligible for a QHP to enroll in a catastrophic plan through the 
Exchange. Commenters wanted to ensure that the Exchange would provide 
clear information to applicants considering purchasing different QHPs, 
including by describing the significance of enrolling in a catastrophic 
plan for applicants who are also determined eligible for advance 
payments of the premium tax credit.
    Response: We note that paragraph (h) only concerns eligibility for 
enrollment through the Exchange in a QHP that is a catastrophic plan. 
The Exchange will not be conducting eligibility determinations for 
enrollment outside the Exchange, including in a catastrophic plan. In 
finalizing this provision, we are modifying the provision from its 
proposed form to clarify that an individual must be determined eligible 
for enrollment in a QHP through the Exchange in accordance with Sec.  
155.305(a) in addition to meeting the specific eligibility standards 
for enrollment in a catastrophic QHP through the Exchange. We believe 
that maintaining the provision specifying that the Exchange will 
determine eligibility for a QHP that is a catastrophic plan through the 
Exchange preserves flexibility for young adults and people for whom 
coverage would otherwise be unaffordable to have access to health 
coverage, and thus confirm that Exchanges will conduct determinations 
of eligibility for enrollment in a QHP that is a catastrophic plan 
through the Exchange. We expect that Exchanges will fully inform 
qualified individuals regarding the implications of enrolling in a QHP 
that is a catastrophic plan through the Exchange as they consider 
various health coverage options, particularly as it affects their 
eligibility for insurance affordability programs.
    Comment: Some commenters wanted us to clarify that Exchanges would 
grant certificates of exemption to all applicants eligible for 
enrollment in a catastrophic plan, which applicants could use to enroll 
in catastrophic plans outside the Exchange (at least temporarily), and 
suggested that issuers of catastrophic plans outside the Exchange 
should be permitted to rely solely on an attestation by the applicant 
that he or she is eligible to enroll in a catastrophic plan.
    Response: This provision does not concern catastrophic plans 
offered outside of the Exchange. As discussed in the Market Reforms 
final rule at 78 FR 13423, the statutory provisions related to 
eligibility for catastrophic plans apply to such coverage offered both 
inside and outside an Exchange. We maintain that approach and clarify 
that nothing in this proposal modifies the Market Reforms final rule 
related to the eligibility standards for a catastrophic plan. 
Similarly, the eligibility standards for catastrophic plans generally 
are specified at Sec.  156.155(a)(5), which provides that a 
catastrophic plan can only cover an individual who has either not 
attained the age of 30 prior to the first day of the plan or policy 
year, or has received a certificate of exemption in specified 
categories. While we specify that the Exchange will only conduct 
determinations of eligibility for enrollment through the Exchange in a 
QHP that is a catastrophic plan, in HHS' Exemptions and Miscellaneous 
Minimum Essential Coverage proposed rule, at 78 FR 7368, we propose 
that the Exchange will determine eligibility for exemptions from the 
shared responsibility payment, and will provide a notice and an 
exemption certificate number to any individual determined eligible for 
such an exemption. If that provision is finalized as proposed, an 
issuer of a catastrophic plan offered outside the Exchange could 
request a copy of this notice from an applicant to validate his or her 
eligibility for enrollment in the catastrophic plan.
    Comment: Some commenters requested that the Exchange's eligibility 
standards for enrollment through the Exchange in a QHP that is a 
catastrophic plan align with preamble language in the Market Reforms 
proposed rule at 77 FR 70601 such that an enrollee who turns 30 in the 
middle of a coverage year would remain enrolled in the catastrophic 
plan for the duration of the plan year. One commenter also sought 
clarification that for coverage obtained through the Exchange, the 
first day of the plan year will always be the first of the year.
    Response: The eligibility standards related to age described in 
this provision follow the approach discussed within the Market Reforms 
proposed

[[Page 42250]]

rule at 77 FR 70601. As such, we clarify that an enrollee turning 30 in 
the middle of a coverage year could remain enrolled in a QHP that is a 
catastrophic plan through the Exchange for that particular coverage 
year as long as he or she was not 30 prior to beginning of the plan 
year. We note that Sec.  147.104(b)(1)(ii) clarifies that in the 
individual market, the coverage effective dates must align with Sec.  
155.410 regarding initial open enrollment, and as such, for coverage 
obtained in the individual market through the Exchange, the first day 
of the plan year will always be the first day of the calendar year.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.305 of the 
proposed rule with two slight modifications: to remove the clause 
``unless another Exchange verifies that the individual meets the 
residency standard of such Exchange'' in paragraph (a)(3)(v), and to 
revise paragraph (h)(1) to clarify an applicant must be eligible for 
enrollment in a QHP through the Exchange to be determined eligible for 
enrollment through the Exchange in a QHP that is a catastrophic plan.
9. Eligibility Process (Sec.  155.310)
    In Sec.  155.310, we proposed to add paragraph (i) regarding a 
certification program under the Secretary's program for determining 
eligibility for advance payments of the premium tax credit and cost-
sharing reductions in accordance with section 1411(a) of the Affordable 
Care Act. We noted that this certification program would be distinct 
from the notice to employers required by section 1411(e)(4)(B)(iii) of 
the Affordable Care Act and paragraph (h) of Sec.  155.310. We proposed 
that the certification to the employer would consist of methods adopted 
by the Secretary of Treasury as part of the determination of potential 
employer liability under section 4980H of the Code. We clarified that 
the certification program would address not only individuals on whose 
behalf advance payments of the premium tax credit and cost-sharing 
reductions are provided, but also individuals claiming the premium tax 
credit only on their tax returns. We solicited comments on this 
proposal.
    We proposed to amend previous language from paragraphs (i) and 
(i)(1), and combine those paragraphs in new paragraph (j), to align 
with proposed revisions in Sec.  155.335, which specified that the 
Exchange will redetermine eligibility on an annual basis for all 
qualified individuals, not only enrollees. We proposed to remove the 
previous paragraph (i)(2), which addressed situations in which a 
qualified individual did not select a plan before the date on which his 
or her eligibility would have been redetermined as a part of the annual 
redetermination process. Due to the proposed change to Sec.  
155.335(a), this paragraph would no longer be necessary. We received 
the following comments concerning the proposed provisions:
    Comment: One commenter expressed support for the proposal to 
implement a certification process consisting of methods adopted by the 
Secretary of Treasury as part of the determination of potential 
employer liability under section 4980H of the Code, as described in 
proposed Sec.  155.310(i). In addition, several commenters expressed 
concern over the disclosure of applicant information to the employer 
for use in the certification process. Commenters were concerned that 
disclosing names in this context could have a chilling effect on 
employees who wish to seek Exchange coverage, making it less likely 
that individuals would enroll.
    Response: For purposes of the certification program proposed and 
finalized in Sec.  155.310(i), we believe that only the minimum 
personally identifiable information necessary should be released to an 
employer. Additional information regarding the certification program is 
found in the regulations associated with Sec.  4980H of the Code.
    Comment: Commenters recommended removing the provision specifying 
that the Exchange will have an applicant attest to the accuracy of the 
information on file for him or her when he or she was previously 
determined eligible for enrollment in a QHP through the Exchange, did 
not select a QHP during his or her enrollment period, or was ineligible 
for an enrollment period, and then seeks a new enrollment period prior 
to his or her annual redetermination. Commenters characterized this as 
an undue burden on qualified individuals, since enrollees are not 
required to make the same attestation about their eligibility criteria 
remaining constant.
    Response: This provision was largely carried over from the Exchange 
final rule, with modifications to address changes proposed in Sec.  
155.335. It is important for the Exchanges to ensure all eligibility 
criteria are satisfied with accurate information, before determining 
eligibility for benefits, some of which the enrollee could be liable to 
repay if eligibility information is not accurate at the time of 
enrollment. Moreover, enrollees are required to report changes that may 
affect their eligibility based on the standards in Sec.  155.305 
throughout the year, and thus no additional burden is being placed on 
qualified individuals. Lastly, one alternative to this proposal would 
be to require qualified individuals who do not enroll in coverage when 
initially determined eligible to file a new application, which would be 
more burdensome than the approach in Sec.  155.310(j). Accordingly, we 
are finalizing Sec.  155.310(j) as proposed, with a slight technical 
correction for clarity to note that this paragraph only refers to an 
applicant who is determined eligible for enrollment in a QHP through 
the Exchange.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.310 of the 
proposed rule with a technical correction to specify that paragraph (j) 
only refers to an applicant who is determined eligible for enrollment 
in a QHP through the Exchange .
10. Verification Process Related to Eligibility for Enrollment in a QHP 
Through the Exchange (Sec.  155.315)
    In Sec.  155.315, we proposed a technical correction in paragraph 
(b)(2) to clarify the procedures for an Exchange when the Social 
Security Administration indicates an individual is deceased.
    We proposed to clarify the circumstances that trigger the 
inconsistency process described in paragraph (f)(1) and (2), such as 
when required electronic data is not contained within the electronic 
data source, and when sources of required data are not reasonably 
expected to be available within two days of the initial attempt to 
reach the data source. We also proposed to amend paragraph (f)(4) to 
clarify that during the clerical error resolution period provided in 
paragraph (f)(1), as well as during the period provided in paragraph 
(f)(2)(ii), the Exchange proceeds with the eligibility determination 
and provides eligibility for enrollment in a QHP and advance payments 
of the premium tax credit and cost-sharing reductions, as applicable, 
during such period, to the extent the applicant is otherwise qualified 
and meets the standards specified in paragraph (f)(4).
    We proposed to add paragraph (j) concerning the verification 
process related to eligibility for enrollment through the Exchange in a 
QHP that is a catastrophic plan. We proposed that the Exchange may 
either accept the applicant's attestation of age without further 
verification or examine available

[[Page 42251]]

electronic data sources that have been approved by HHS for this 
purpose. To verify an applicant's exemption from the shared 
responsibility payment, we proposed that this would be accomplished 
either through use of the Exchange's records, or through verification 
of paper documentation if the certificate was issued by a different 
Exchange. In terms of the inconsistency process described in paragraph 
(f) of this section, we noted that applicant would not be determined 
eligible for enrollment through the Exchange in a QHP that is a 
catastrophic plan until verification of necessary information can be 
completed. We received comments that addressed both the eligibility 
standards and verification process related to QHPs that are 
catastrophic plans offered through the Exchange, and have addressed 
those comments above the preamble to Sec.  155.305(h). As such, we are 
finalizing this paragraph as proposed.
    Comment: Several commenters supported our proposed technical 
correction in paragraph (b)(2) regarding situations in which the Social 
Security Administration indicates that an individual is deceased. 
Others recommended allowing additional time, and many commenters 
suggested providing an additional 90 days when an applicant has 
demonstrated a good faith effort to resolve the issue. Some commenters 
sought clarification on the availability of appeal rights regarding 
inconsistencies with Social Security Administration data, specifically, 
whether individuals had the right to appeal during the 90-day period or 
whether they must wait until after a final determination has been made.
    Response: As noted in Sec.  155.315(f)(3), the Exchange has the 
authority to extend the inconsistency period within Sec.  
155.315(f)(2)(ii) based on a good faith effort on the part of the 
applicant. We note that an applicant will not be able to appeal an 
eligibility decision until he or she receives a notice containing an 
approval or denial of eligibility. Further details regarding appeals 
will be provided in subsequent rulemaking. We continue to work with the 
Social Security Administration and other federal agencies to determine 
the role of other federal agencies in the appeals process. Accordingly, 
we are finalizing the provision as proposed.
    Comment: Some commenters disagreed with the proposal at Sec.  
155.315(f) that specifies that the Exchange must trigger the 
inconsistency period when electronic data is required but it is not 
reasonably expected that data sources will be available within 2 days 
of the initial request to the data source. Commenters recommended that 
if verification cannot occur promptly, or in ``real time,'' the 
inconsistency period should be triggered immediately, along with the 
provision of eligibility based on an applicant's attestation. Some 
commenters mentioned specifically that an inability to verify 
citizenship and immigration status through electronic data should lead 
to the immediate trigger of the inconsistency period, to align with 
Medicaid regulations.
    Commenters supported timelines according to which the Exchange 
should be required to contact the application filer for documentation 
or additional information when data sources are unavailable. Some 
commenters supported the requirement of a 2-day period prior to 
requesting information from the application filer, and some recommended 
extending it to 5 days. Commenters also recommended that the Exchange 
continue to attempt data matches after notifying the application filer 
so the entire burden is not immediately shifted to the application 
filer.
    Response: Since the publication of the proposed rule, we have 
confirmed that data from IRS, SSA, and DHS should be available every 
day. Accordingly, we are modifying the proposed provision to finalize 
the rule to reduce the waiting period reduced from 2 days to 1 day. 
Further, we also add new paragraph (f)(6) to clarify the applicability 
of Sec.  155.315(f).
    First, in paragraph (f)(6), we specify that that the Exchange will 
not apply such a waiting period when electronic data to support the 
verifications specified in Sec.  155.315(d) (residency), or Sec.  
155.320(b) (minimum essential coverage, other than minimum essential 
coverage in an eligible employer-sponsored plan) is required but it is 
not reasonably expected that electronic data sources will be available 
within 1 day of the initial request to the data source; instead, the 
Exchange will accept the applicant's attestation regarding the factor 
of eligibility for which the unavailable data source is relevant. While 
the data matching described in this subpart for these factors of 
eligibility is important, we do not believe that it should hold up an 
eligibility determination or cause the eligibility process to default 
to paper documentation when electronic data sources are unavailable. We 
also note that the use of electronic data as a primary method of 
verification of residency is an option for Exchanges. In addition, we 
clarify that Sec.  155.320(d)(3)(iii) specifies that when the Exchange 
does not have information from data sources for the verifications 
related to enrollment in an eligible employer-sponsored plan and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan, the Exchange will move forward with a sampling process.
    Second, we clarify that Sec.  155.320(c)(3) (family size and income 
for purposes of eligibility for advance payments of the premium tax 
credit and cost-sharing reductions) already specifies procedures to 
address situations in which electronic data sources with information 
about current, MAGI-based income are unavailable. We believe that these 
procedures should continue to govern these situations.
    We acknowledge commenters' concerns about providing eligibility 
determinations in a timely fashion when electronic data sources are 
delayed in responding or do not respond. The proposed language at Sec.  
155.315(f) minimizes the administrative and consumer burden associated 
with requesting documentation and providing coverage for a short period 
of time (when electronic data sources may quickly become available and 
indicate eligibility for a different insurance affordability program), 
with the need to provide prompt eligibility determinations. 
Accordingly, when electronic data from IRS, SSA, or DHS is necessary 
but unavailable, and it is reasonably expected that the necessary 
electronic data source will be available within 1 day, the Exchange 
will wait 1 day before making an eligibility determination, so as to 
not generate an eligibility determination that may be shown to be 
invalid less than 24 hours later. This approach also avoids the need to 
request documentation when an electronic data match will make the 
documentation request unnecessary less than 24 hours later. If it is 
not reasonably expected that the necessary electronic data source will 
be available within 1 day, or it is reasonably expected that the 
necessary electronic data source will be available within 1 day, but 
this expectation proves incorrect, then the Exchange will determine the 
applicant's eligibility using his or her attestation regarding the 
factor of eligibility for which the electronic data source is 
unavailable, and will follow the remaining procedures in Sec.  
155.315(f) to attempt to complete the verification. We believe this 
approach is responsive to commenters' concerns and satisfies the need 
to reduce administrative burden and the burden on application filers 
while still ensuring accurate eligibility determinations. We also note 
that the Exchange has the flexibility to continue checking whether such 
data sources

[[Page 42252]]

have become available leading up to the triggering of the inconsistency 
period and during such inconsistency period.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.315 of the 
proposed rule, with a few modifications. We are modifying paragraph (f) 
to provide that if key electronic data sources are unavailable and not 
reasonably expected to be available within 1 day, the Exchange will 
make an eligibility determination based on an applicant's attestation 
and trigger the inconsistency period in paragraph (f). The proposed 
language specified a 2-day period. We also added a new paragraph (f)(6) 
to clarify that the Exchange will accept an applicant's attestation 
regarding three specific factors of eligibility when electronic data is 
required but it is not reasonably expected that data sources will be 
available within 1 day of the initial request to the data source. We 
are also modifying paragraph(f)(5) of this section by deleting 
paragraph (f)(5)(ii) and combining paragraph (f)(5)(i) with paragraph 
(f)(5), because the language that previously appeared in paragraph 
(f)(5)(ii) regarding effective dates conflicted with the requirements 
under Sec.  155.330(f). Lastly, we modify the language in paragraph (j) 
related to the verification of eligibility for enrollment through the 
Exchange in a QHP that is a catastrophic plan for purposes of clarity.
11. Verifications Related to Eligibility for Insurance Affordability 
Programs (Sec.  155.320)
    In Sec.  155.320, we proposed to amend and make technical 
corrections in paragraph (c)(1), in accordance with the legislative 
change made by Public Law 112-56 concerning the treatment of Social 
Security benefits related to MAGI, to incorporate Social Security 
benefits when verifying projected annual household income. We also 
proposed to remove language concerning an adoption taxpayer 
identification number, and to replace references to section 36B of the 
Code with the applicable Treasury regulation. We received comments 
supporting these revisions without further suggestions, and are thus 
finalizing the amendments and technical corrections as proposed.
    We proposed to amend and make technical corrections in paragraph 
(c)(3) to specify that the Exchange verify that neither advance 
payments of the premium tax credit nor cost-sharing reductions are 
already provided on behalf of an individual, and align with the revised 
policy that the Exchange incorporate Social Security benefits when 
verifying projected annual household income. We did not receive 
specific comments regarding the proposed changes to paragraph (c)(3), 
and are thus finalizing the changes as proposed.
    We proposed to clarify when additional verification is necessary as 
part of the process to verify an expected increase in projected annual 
household income when compared to annual income data. We proposed to 
add language regarding the circumstances under which annualized current 
income data will be sufficient to support an expected decrease in 
projected annual household income. We also proposed to replace 
references to section 36B of the Code with references to the applicable 
Treasury regulation.
    We proposed to consolidate paragraphs (d) and (e), currently 
entitled ``Verification related to enrollment in an eligible employer-
sponsored plan'' and ``Verification related to eligibility for 
qualifying coverage in an eligible employer-sponsored plan,'' 
respectively, into new paragraph (d). The standards proposed in 
paragraph (d) set forth the rules for verifying enrollment in an 
eligible employer-sponsored plan and eligibility for qualifying 
coverage in an eligible employer-sponsored plan. We proposed that the 
Exchange must verify whether an applicant reasonably expects to be 
enrolled in an eligible employer-sponsored plan or is eligible for 
qualifying coverage in an eligible employer-sponsored plan for the 
benefit year for which coverage is requested. As a result of the 
proposed consolidation of paragraphs (d) and (e), we proposed to 
redesignate paragraph (f) as paragraph (e).
    In paragraph (d)(2), we proposed the data sources the Exchange will 
use to verify access to employer-sponsored coverage, which include (1) 
Data about enrollment in an eligible employer-sponsored plan and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan from any electronic data sources that are available to the 
Exchange and which have been approved by HHS for this purpose based on 
evidence showing that such data sources are sufficiently current, 
accurate, and minimize administrative burden; (2) data regarding 
enrollment in an eligible employer-sponsored plan or eligibility for 
qualifying coverage in an eligible employer-sponsored plan based on 
federal employment obtained by transmitting identifying information 
specified by HHS to HHS; (3) data from the SHOP that operates in the 
state in which the Exchange is operating; and (4) any available data 
regarding the employment of an applicant and the members of his or her 
household, as defined in 26 CFR 1.36B-1(d), from any electronic data 
sources that are available to the Exchange and have been approved by 
HHS for this purpose, based on evidence showing that such data sources 
are sufficiently current, accurate, and minimize administrative burden.
    We proposed that data regarding employment would not be used to 
identify inconsistencies that need to be resolved to maintain 
eligibility, and would instead only be used to determine whether an 
individual should be part of the pool of individuals from which a 
sample is taken for review. We solicited comment on whether data 
regarding employment should only be used as a point of information for 
applicants to help prompt accurate attestations, and not as a point of 
comparison for the purposes of identifying inconsistencies as part of 
the verification described in this paragraph, since these data sources 
do not directly address enrollment in an eligible employer-sponsored 
plan or eligibility for qualifying coverage in an eligible employer-
sponsored plan. We also solicited comment on the feasibility of making 
the necessary systems connections by October 1, 2013, and whether 
alternative approaches should be considered for the first year of 
operations.
    To verify enrollment in an eligible employer-sponsored plan and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan, we proposed that the Exchange follow the inconsistency process 
specified in Sec.  155.315(f) if an applicant's attestation is not 
reasonably compatible with information from a data source authorized by 
HHS, data regarding federal employment, data from SHOP, or other 
information provided by the application filer or in the records of the 
Exchange. Further, if the Exchange does not have any of the information 
from a data source authorized by HHS, from data regarding federal 
employment, or from data from the SHOP for an applicant, and either 
does not have any available electronic data regarding the employment of 
an applicant and the members of his or her household or an applicant's 
attestation is not reasonably compatible with any available data 
regarding the employment of an applicant and the members of his or her 
household, we proposed that the Exchange would place the applicant into 
a pool of applicants from which it would select a statistically-
significant sample of applicants, from whose employers the Exchange 
would request information regarding enrollment in an

[[Page 42253]]

eligible employer-sponsored plan and eligibility for qualifying 
coverage in an eligible employer-sponsored plan.
    We solicited comments on whether handling inconsistencies with any 
available data regarding the employment of an applicant and the members 
of his or her household through the sampling process, rather than 
through the procedures specified in Sec.  155.315(f), is a suitable 
approach.
    We requested comments on a methodology by which an Exchange could 
generate a statistically significant sample of applicants and whether 
there are ways to focus the sample on individuals who are most likely 
to have access to affordable, minimum value coverage.
    In clause (d)(3)(iii)(A), we proposed that the Exchange would 
provide notice to an applicant who is selected as part of the sample 
indicating that the Exchange would be contacting any employer 
identified on the application for the applicant and the members of his 
or her household, as defined in 26 CFR 1.36B-1(d), to verify whether 
the applicant is enrolled in an eligible employer-sponsored plan or is 
eligible for qualifying coverage in an eligible employer-sponsored plan 
for the benefit year for which coverage is requested. We sought comment 
on ways the Exchange may communicate this sampling process to consumers 
with the intention of minimizing confusion.
    We proposed that the Exchange would proceed with all other elements 
of the eligibility determination using the applicant's attestation 
while the sample-based review is occurring, and provide eligibility for 
enrollment in a QHP through the Exchange to the extent that an 
applicant is otherwise qualified. Consistent with Sec.  155.315(f), we 
proposed that during the sample-based review, the Exchange would ensure 
that advance payments of the premium tax credit and cost-sharing 
reductions are provided on behalf of an applicant who is otherwise 
qualified for such payments and reductions, as described in under Sec.  
155.305 of this subpart, if the tax filer attests to the Exchange that 
he or she understands that any advance payments of the premium tax 
credit paid on his or her behalf are subject to reconciliation.
    When an applicant is selected for the sample-based review, we 
proposed in clause (d)(3)(iii)(D) that the Exchange make reasonable 
attempts to contact any employer identified on the application for the 
applicant and the members of his or her household, as defined in 26 CFR 
1.36B-1(d), to verify whether the applicant is enrolled in an eligible 
employer-sponsored plan or is eligible for qualifying coverage in an 
eligible employer-sponsored plan for the benefit year for which 
coverage is requested.
    We discussed one alternative approach, under which the Exchange 
would request documentation from consumers who were selected as part of 
the sample, instead of attempting to contact their employers. We chose 
not to propose this approach since the application will already solicit 
all necessary information from consumers, so it is unclear what would 
be gained through a second information request to consumers. We 
solicited comment on this alternative and other alternatives to 
implement this process while minimizing burden on consumers, employers, 
and Exchanges. We also sought comment on ways the Exchange can most 
efficiently interact with employers, including other entities that 
employers may rely upon to support this process, such as third-party 
administrators.
    In clause (d)(3)(iii)(E), we proposed that if the Exchange receives 
any information from an employer relevant to the applicant's enrollment 
in an eligible employer-sponsored plan or eligibility for qualifying 
coverage in an eligible employer-sponsored plan as a result of the 
sample-based review, the Exchange would determine the applicant's 
eligibility based on such information and in accordance with the 
effective dates specified in Sec.  155.330(f) of this subpart and, if 
such information changes the applicant's eligibility determination, 
notify the applicant and his or her employer or employers of such 
determination in accordance with the notice requirements specified in 
Sec.  155.310(g) and (h) of this part.
    We also proposed that if, after a period of 90 days from the date 
on which the notice specified in clause (d)(3)(iii)(A) is sent to the 
applicant, the Exchange is unable to obtain the necessary information 
from an employer, the Exchange will determine the applicant's 
eligibility based on his or her attestation regarding that employer. We 
solicited comment on this proposal to not provide an additional notice 
to the applicant and his or her employer when the applicant's 
eligibility does not change as a result of the sample-based review and 
whether it is preferable to include an additional notice to the 
applicant and employer at the end of the 90-day period.
    In clause (d)(3)(iii)(G), we proposed that to carry out the 
sampling process described above, the Exchange must only disclose an 
individual's information to an employer to the extent necessary for the 
employer to identify the employee. We solicited comments on this 
proposed approach and whether there are ways these procedures can 
further minimize burden on the Exchange, employers, and consumers.
    We also highlighted steps we are taking to help consumers with 
providing information related to access to employer-sponsored coverage 
on the application. We suggested the use of a voluntary pre-enrollment 
template to assist applicants in gathering the information about access 
to coverage through an eligible employer-sponsored plan as required by 
the Exchange to determine eligibility for advance payments of the 
premium tax credit and cost-sharing reductions. We sought comments on 
the use of this pre-enrollment template and ways it could be used to 
assist consumers with providing the necessary information to complete 
the verification described in paragraph (d) while minimizing burden on 
employers.
    Lastly, in paragraph (d)(4), we also proposed that the Exchange may 
rely on HHS to conduct this verification. We proposed that under this 
option, the Exchange would send applicant information to HHS; HHS would 
take on all verification activities specified in regulation, including 
data matching with the Office of Personnel Management (OPM), SHOP, 
available employment data, and the sample-based review; and the 
Exchange would integrate the result into its eligibility process and 
send the individual and employer notices described in Sec.  155.310(g) 
and (h) of this part. Further, we proposed that under such an 
arrangement, the Exchange and HHS would enter into an agreement 
specifying their respective responsibilities in connection with the 
verifications described in paragraph (d); other activities required in 
connection with the verifications described are performed by the 
Exchange in accordance with the standards identified in this subpart or 
by HHS in accordance with the agreement; and the Exchange provides all 
relevant application information to HHS through a secure, electronic 
interface, promptly and without undue delay. We solicited comments on 
this proposed option.
    Comment: In reference to the proposed language at Sec.  
155.320(c)(3)(vi)(C), which specifies that the Exchange will request 
additional information regarding projected annual household income when 
an application filer's attestation is in excess of annual income data, 
but below annualized current income data by a ``significant amount,'' 
commenters recommended that the phrase ``significant amount'' be 
replaced with a percent threshold. Some commenters

[[Page 42254]]

recommended a threshold of 20 percent, specifically.
    Response: To preserve the Exchange's flexibility to determine what 
may constitute a significant amount, we are finalizing this provision 
as proposed.
    Comment: Commenters recommended replacing the standard ``not 
reasonably compatible'' with the term ``significantly and materially 
incompatible,'' defined further by commenters as ``making an important 
change to the outcome.'' Such commenters suggested only using the 
process described in Sec.  155.315(f) if an attestation is 
significantly and materially incompatible with other information. 
Further, commenters suggested easing verification rules for individuals 
who comply with information requests, including attestations, and for 
whom required data is not available.
    Response: In Sec.  155.300(d) of the Exchange final rule, we 
include in the definition of ``reasonably compatible'' that the 
``difference or discrepancy does not impact the eligibility of the 
applicant, including the amount of advance payments of the premium tax 
credits or category of cost-sharing.'' This definition allows for 
Exchange flexibility in verifying application information, and where 
appropriate, the final rule provides for a more prescriptive reasonable 
compatibility standard, in reference to specific verifications. We 
believe it is an ideal approach to provide flexibility in the case of 
many verifications, but for areas in which the outcome of the 
eligibility determination is sensitive to small changes, provide a more 
specific approach. Therefore, we finalize the reasonable compatibility 
standards used in Sec.  155.320(c), with some changes described herein, 
and without changing the overall definition of ``reasonable 
compatibility,'' defined in Sec.  155.300(d), which is used throughout 
Exchange and Medicaid regulations.
    For income verification, for the first year of operations, we are 
providing Exchanges with temporarily expanded discretion to accept an 
attestation of projected annual household income without further 
verification, as described below. Under current regulations, when data 
described in paragraph (c)(1)(i) of this section is available for the 
tax household but the attested annual household income is more than 10 
percent below the annual income computed in accordance with clause 
(c)(3)(ii)(A) of this section, the Exchange must use annualized data 
from the MAGI-based income sources, specified in paragraph (c)(1)(ii), 
to the extent it is available, to verify the attestation of annual 
household income. If such data is not available or does not support the 
attestation, clause (c)(3)(vi)(C) specifies that the Exchange must 
follow the procedures specified in Sec.  155.315(f)(1) through (4), 
which includes requesting documentation to verify the attestation of 
project annual household income. The attestation is not supported by 
the data when the attestation is more than 10 percent below the annual 
income as computed using data sources. For the first year of 
operations, we will exercise enforcement discretion under this 
provision such that each Exchange will have the option, only when the 
attestation under (c)(3)(ii)(B) is greater than ten percent below the 
annual household income computed in accordance with clause 
(c)(3)(ii)(A) and MAGI-based income data from the sources specified in 
paragraph (c)(1)(ii) is unavailable to request a reasonable explanation 
for the discrepancy from the applicant, and if such explanation is 
insufficient, follow the procedures specified in Sec.  155.315(f)(1) 
through (4) for a statistically significant sample of the population 
that would otherwise be subject to such procedures under clause 
(c)(3)(vi)(D). For those individuals who are not part of this sample, 
the Exchange may accept the attestation of projected annual household 
income without further verification for purposes of the Exchange's 
eligibility determination. We expect that any Exchange that exercises 
this option will monitor the process closely and adjust the targeting 
and size of the sampled population as needed to ensure an effective 
verification process. We note that we believe this exercise of 
enforcement discretion concerning the Exchange's obligations to verify 
income information in these specific circumstances is made in the 
context of all information--including the actual household income 
amounts for 2014--being available at the end of the year for the 
reconciliation performed under section 36B(f) of the Code.
    Comment: We received comments that asked if, following the 90-day 
inconsistency period under Sec.  155.315(f), when invoked under clause 
(c)(3)(vi)(C) of this section, the applicant has not responded and data 
sources indicate that the applicant is eligible for Medicaid or CHIP, 
the Exchange should notify the applicant and offer to enroll him or her 
in Medicaid or CHIP, in states where the Exchange can make that 
determination, or transmit the file to the Medicaid or CHIP agency if 
the Exchange cannot make that determination.
    Response: This recommendation is not specific to Sec.  
155.320(c)(3). However, we note that, under Sec.  155.320(c)(3)(iii), 
an attestation that reflects an increase compared to the tax data would 
generally be accepted without further verification (for purposes of 
eligibility for advance payments of the premium tax credit and cost-
sharing reductions); therefore, if an applicant attests to a projected 
annual household income that would qualify him or her for advance 
payments of the premium tax credit or cost-sharing reductions but MAGI-
based income sources indicate that income is lower than the applicant's 
attestation, even if such data indicates Medicaid or CHIP eligibility, 
the attestation would be accepted without further verification. We note 
that this scenario assumes that the applicant has not attested to 
projected annual household income that would be consistent with 
eligibility for Medicaid or CHIP under the applicable MAGI standard.
    Comment: One commenter expressed support for continuing to examine 
ways in which employer reporting under the Affordable Care Act can be 
streamlined both in timeframe and in the number of elements to prevent 
inefficient or duplicative reporting.
    Response: We agree with the commenter. As stated in the proposed 
rule, the Administration will continue to consider ways to streamline 
reporting under the Affordable Care Act.
    Comment: One commenter recommended that applicants should first 
attest to whether or not they have any offer of coverage. The commenter 
suggested it is unnecessary to verify enrollment in or eligibility for 
qualifying coverage in an eligible employer-sponsored plan for everyone 
who applies for insurance affordability programs. Another commenter 
recommended that the Exchange only ask for general information about 
employee contributions to the employer-sponsored plan, eligibility for 
the plan, and whether the plan provides minimum value rather than 
specifically identifying to the employer the particular employee who 
has requested premium tax credits.
    Response: We appreciate the commenter's suggestion regarding ways 
to expedite the application process, and are working to consider 
similar suggestions received based on the public comment period for the 
single, streamlined application. To this end, we have designed the 
employer-sponsored coverage section of the single, streamlined 
application to ask a threshold question of whether the individual has 
an offer of coverage through a job, including an offer through a spouse 
or parent's job and then if the answer is ``no,'' allow the

[[Page 42255]]

individual to skip the remaining employer-sponsored coverage questions 
on the application. We will also collect employer contact information 
as necessary to send the employer notice described in Sec.  155.310(h). 
The paper application for enrollment in a QHP through the Exchange and 
insurance affordability programs can be found at: http://www.cciio.cms.gov/resources/other/Files/AttachmentC_042913.pdf.
    Comment: We received several comments regarding available data 
sources proposed in Sec.  155.320(d)(2). Some commenters suggested that 
HHS work on developing an employer-sponsored coverage data source that 
would be available to states at a significantly reduced cost.
    One commenter specifically recommended that data sources that 
reflect information regarding employment be used as a point of 
information for applicants only, and not as a basis for identifying an 
inconsistency that must be resolved to maintain eligibility. The 
commenter suggested that relying on employment data to support the 
verification of enrollment in an eligible employer-sponsored plan and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan may create a barrier to coverage and unduly delay enrollment of 
eligible applicants.
    One commenter requested that data regarding federal employment as 
specified in Sec.  155.320(d)(2)(ii) be made available through the 
federal data services hub and requested that HHS release a technical 
description of the service as soon as possible.
    Response: As one commenter noted, HHS conducted an extensive search 
of available data sources and found that no comprehensive data source 
will be available by October 1, 2013. Current legislative and 
operational barriers prohibit HHS from requiring employers to report 
information directly to Exchanges or requiring Exchanges to obtain 
employer data from the Internal Revenue Service. The proposed rule 
included an interim solution to support this verification until a more 
robust verification process can be developed. We remain committed to 
working with any interested parties on solutions that make employer 
reporting more efficient.
    We agree with the comment above suggesting that employment data not 
be used as the basis for generating inconsistencies or identifying 
individuals for inclusion in the sample-based review, since it is not 
specific to employer-sponsored coverage. Accordingly, we do not believe 
that it is necessary to specify the use of employment data, and so are 
removing paragraph (d)(2)(iv) and modifying paragraph (d)(3)(iii) to 
remove the provision specifying that the Exchange will obtain 
employment data. We clarify that notwithstanding this deletion, 
Exchanges may use employment data as a tool to assist consumers in 
providing accurate attestations to the Exchange regarding employer-
sponsored coverage.
    Lastly, we are currently working with our federal partners at the 
Office of Personnel Management to develop a service through the hub to 
verify data regarding federal employment as is necessary to implement 
proposed 155.320(d)(2)(ii). We expect to release a detailed technical 
description of this service in the near future.
    Comment: We received several comments on the pre-enrollment 
template developed to assist consumers with collecting information 
related to eligibility for qualifying coverage in an eligible employer-
sponsored plan. Many commenters expressed support for the voluntary 
template and efforts to facilitate employers reporting such information 
to Exchanges. One commenter suggested that employers pre-populate the 
form and distribute it online to employees without being specifically 
requested to do so by individual employees. Another commenter expressed 
concern over asking employees to gather information from employers, 
suggesting that it could pose problems and force employees not to seek 
Exchange coverage.
    A few commenters suggested ways to implement the template including 
providing the template on the date of hire or in conjunction with other 
information about employer-sponsored coverage provided by the employer 
to employees. One commenter suggested large employers have an incentive 
to report this information to employees to avoid having employees 
request information from them on an individual basis. Another commenter 
suggested that the template would need to allow employers to report 
multiple premium contributions and/or plan actuarial values.
    Response: We developed the pre-enrollment template, which is a tool 
to help an individual complete the questions related to employer-
sponsored coverage on the single, streamlined application, based on 
extensive input from employers and other stakeholders. While the use of 
the template is voluntary, we believe it will facilitate the collection 
of related employer-sponsored coverage information from employers, and 
in doing so, streamline the application process, and increase the 
accuracy of eligibility determinations. To this end, we also note that 
employers have the option of combining the employer coverage tool with 
the notice specified under section 18B of the Fair Labor Standards Act, 
as added by section 1512 of the Affordable Care Act found at this link, 
http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf. As noted in the proposed 
rule, we also anticipate that employers will find additional ways to 
provide this information to their employees, including posting this 
pre-populated tool on a company Web site, or making this information 
available during benefit fairs, and we are supportive of additional 
efforts by employers to disseminate this information efficiently. The 
employer coverage tool can be found at: http://cciio.cms.gov/resources/other/Files/AttachmentC_042913.pdf.
    Comment: Several commenters generally supported the sampling 
approach proposed in Sec.  155.320(d)(3)(iii) and noted that contacting 
the employer directly is the most accurate and efficient way to verify 
information regarding access to qualifying employer-sponsored coverage. 
One commenter specifically supported the proposed approach to rely on 
the Exchange to reach out to employers for information about employer-
sponsored coverage rather than relying on individuals to get the 
information from their employer.
    Some commenters expressed concern over the sampling approach, 
suggesting the process was burdensome for employers and Exchanges. 
Commenters urged HHS to develop sampling procedures that are as 
unobtrusive as possible and do not create confusion for an individual 
or an individual's employer. One commenter urged the Administration to 
encourage States to use uniform processes in conjunction with HHS. One 
commenter recommended that final regulations specify timelines and 
specific information required for employer responses under Sec.  
155.320(d)(3)(iii). Another commenter also recommended that final 
regulations permit employers to designate third-party administrators to 
respond and act on their behalf for the sample-based review.
    Some noted that contacts to employers create risks for employees 
who may have a very weak position or status with employers. Some 
commenters suggested that employees should be able to opt out of having 
the Exchange contact their employer. One commenter suggested that any 
verification process adopted by HHS should not invite retaliation 
against employees in any way. Another commenter suggested that the 
notice to

[[Page 42256]]

employers in Sec.  155.310(h) communicate that employers are explicitly 
prohibited from retaliating against employees and provide accessible 
information about how employees may pursue a complaint or seek redress, 
including the time limit for filing a complaint.
    Response: We believe the sampling approach proposed in Sec.  
155.320(d)(3)(iii) is the best interim approach for effectively 
completing this verification while minimizing burden on Exchanges and 
employers. As noted in the proposed rule, we believe that employers are 
in the best position to provide information regarding the employer-
sponsored coverage that they offer to their employees. We maintain the 
approach of relying on Exchanges to reach out to a select number of 
employers to verify applicant information with some minor 
clarifications.
    We also appreciate the concerns raised related to burden on 
Exchanges and employers. We intend for Exchanges to contact employers 
in a standardized manner and only ask for information that is necessary 
for verifying access to qualifying employer-sponsored coverage. We do 
not include a timing standard for employers to respond to Exchange 
inquiries; however we expect that employers will respond to Exchange 
inquiries in a timely manner. With that stated, as proposed and 
finalized in Sec.  155.320(d)(3)(iii)(F), after a period of 90 days, 
the Exchange will conclude the sample-based review.
    Regarding the recommendation that final regulations permit 
employers to designate third-party administrators to respond and act on 
their behalf for this verification, we note that this rule finalizes 
standards related to Exchanges and therefore standards regarding 
activities of employers are outside the scope of this regulation. 
However, we believe that this would be a feasible approach, as long as 
it is consistent with any other authorities that may govern the 
delegation of employer responsibilities to other entities.
    We also acknowledge the comment expressing the concern that 
contacting employers might create risks for employees who may have a 
very weak position or status with employers. Section 18C of the Fair 
Labor Standards Act, as added by section 1558 of the Affordable Care 
Act, provides protections for employees that prohibit discrimination 
because the employee has received advance payments of the premium tax 
credit or cost-sharing reductions, and for other specified reasons.
    Allowing an individual to opt out of the sampling process under 
Sec.  155.320(d)(3)(iii) would prevent the Exchange from receiving 
accurate information for some individuals and increase the potential 
for a tax liability for the tax filer at tax filing. The opt-out 
process would also compromise the randomness, and potentially the 
statistical validity of the sample. Accordingly, we do not adopt this 
suggestion.
    Comment: We received several comments strongly supporting the 
approach in Sec.  155.320(d)(3)(iii)(C), reflecting the statutory 
requirement in section 1411(e)(4) of the Affordable Care Act, allowing 
an individual to receive advance payments of the premium tax credits 
and cost-sharing reductions during the 90-day sampling period if the 
individual is otherwise qualified. One commenter supported the 
recognition that applicants should be made aware that any advance 
payments of the premium tax credit could be subject to reconciliation. 
We also received comments in support of the provision in Sec.  
155.320(d)(3)(iii)(F) allowing the Exchange to use an applicant's 
attestation if no information is received from the employer. Another 
commenter noted that the burden of resolving inconsistencies should 
fall first on the Exchanges and only reach individuals when the 
Exchanges have exhausted all available means to resolve the 
inconsistency.
    Response: We believe it is important for the eligibility 
determination process to be consistent in how and when the Exchange 
requests supporting documentation throughout the eligibility 
determination process and to avoid unnecessary delay in eligibility 
determinations. We agree with commenters regarding the importance of 
collecting an attestation from a tax filer regarding his or her 
understanding of reconciliation prior to making advance payments of the 
premium tax credit, and therefore maintain this in the final rule. 
Additionally, we are finalizing our proposal to rely on an applicant's 
attestation if the Exchange is unable to obtain the necessary 
information from an employer.
    Comment: One commenter was concerned that the timeframe for 
employers to provide information (within 90 days of notice regarding 
the Exchange's intent to verify the applicant's enrollment in an 
eligible employer-sponsored plan or eligibility for qualifying coverage 
through an eligible employer-sponsored plan) is too long and 
recommended shortening this period to 30 days.
    Response: In proposed section Sec.  155.320(d)(3)(iii), which we 
maintain in the final rule, we provide that an Exchange will proceed 
with an applicant's eligibility determination during the sampling 
process and ensure that advance payments of the premium tax credit and 
cost-sharing reductions are provided on behalf of an applicant who is 
otherwise qualified for such payments and reductions. This process is 
intended to ensure that eligibility determinations are not delayed due 
to the Exchange not being able to contact an employer. Under our 
authority under section 1411(a) and (d) of the Affordable Care Act and 
after consideration of a shorter timeframe, we came to the conclusion 
that 90 days is consistent with other similar processes, such as the 
inconsistency period specified in Sec.  155.315(f), and will also allow 
an appropriate opportunity for receiving a response from employers.
    Comment: Commenters supported the option to allow an Exchange to 
fulfill the requirements of this verification by relying on HHS to 
perform it. One commenter noted that this option is particularly 
helpful as no acceptable data sources will be available in their state 
by October 1, 2013. One commenter was pleased with this provision, 
noting that it welcomed efforts to reduce administrative and cost 
burdens involved with Exchange eligibility determination processes. One 
commenter expressed the need for more information from HHS specifying 
the steps it will take to complete this verification, and detail on the 
particular information HHS anticipates it will need. One commenter 
suggested a provision be included in the agreement between HHS and the 
Exchange to hold applicants harmless if a glitch in communication 
occurs. The commenter also suggested that consumers should not be 
required to submit duplicative information. One commenter asked that 
HHS consider expanding its employer-sponsored plan enrollment and 
eligibility verification process to include the sending of notices to 
individuals and employers described in Sec.  155.310(g) and (h), which 
occurs after an eligibility determination is made.
    Response: After reviewing and considering the appropriate public 
comments and completing a technical analysis, we have concluded that 
the service described in the proposed rule is not feasible for 
implementation for the first year of operations. This service would 
involve a large amount of systems development on both the state and 
federal side, which cannot occur in time for October 1, 2013. As such, 
in the final rule, we maintain the proposed language, with a 
clarification that the option to rely on HHS to perform this 
verification is effective for eligibility

[[Page 42257]]

determinations that are effective on or after January 1, 2015--meaning 
that the Exchange will be able to rely on HHS to perform this function 
as part of the eligibility determination system under section 1411 of 
the Affordable Care Act beginning with open enrollment for the 2015 
plan year.
    To provide relief to state-based Exchanges that were planning to 
rely on this service, we note that we are also delaying the date by 
which an Exchange must implement the sample-based review. For 
eligibility determinations for insurance affordability programs that 
are effective before January 1, 2015, we added paragraph (d)(3)(iv) to 
specify that if the Exchange does not have any of the information 
specified in Sec.  155.320(d)(2)(i) through (d)(2)(iii) for an 
applicant, the Exchange may accept the applicant's attestation 
regarding enrollment in an eligible employer-sponsored plan and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan for the benefit year for which coverage is requested without 
further verification, instead of following the procedure in Sec.  
155.320(d)(3)(iii).
    While we believe it is important for Exchanges to implement the 
procedure in Sec.  155.320(d)(3)(iii) to support program integrity and 
minimize financial risks on behalf of the tax filer at reconciliation, 
we acknowledge that some Exchanges may not have the resources and 
operational capability to conduct the sampling process in the first 
year. We note that the FFE will implement the verification process as 
specified in Sec.  155.320(d).
    For October 1, 2013, we expect that Exchanges will use OPM data 
provided by HHS and available through the hub and SHOP data available 
through the SHOP that corresponds to the individual market Exchange to 
identify inconsistencies with attested information, and follow the 
process established in Sec.  155.315(f) to resolve any such 
inconsistencies. We plan to continue working closely with Exchanges, 
and may propose regulatory amendments as necessary, to implement an 
increasingly effective verification process over time.
    We also note that we considered whether the distribution of notices 
could be part of a future service performed by HHS. The eligibility 
notices cited by the commenter involve information beyond what is 
involved with this verification service, including individual 
eligibility results, and the commenter's proposal therefore would add 
significant complexity to an already-complex service. Accordingly, we 
are finalizing this provision as proposed.
    Comment: We solicited comment regarding the feasibility of making 
the necessary systems connections to support the verification of 
enrollment in an eligible employer-sponsored plan and eligibility for 
qualifying coverage in an eligible employer-sponsored plan by October 
1, 2013, and whether alternative approaches should be considered for 
the first year of operations. Several commenters expressed general 
support of the approach to verifying access to qualifying employer-
sponsored coverage. However, one commenter expressed concern over the 
complexity of the verification procedures and questioned whether 
Exchanges will be able to implement these processes consistently by 
October 1, 2013. A small number of commenters recommended that HHS 
consider limiting verification to those situations in which it is 
essential to comply with the Affordable Care Act. One commenter agreed 
with the recommendation that the proposed strategy for verification 
should be temporary and that it should be revisited in 2016 when more 
data become available.
    Response: We appreciate feedback from commenters on the proposed 
approach. We acknowledge the timing concerns with implementing the 
policies in the proposed rule for October 1, 2013 and will continue to 
work with Exchanges to develop interim solutions within the general 
construct of these regulations and related guidance. We believe that 
the proposed approach is minimally burdensome, particularly based on 
the approval of use of a sample-based review provided in Sec.  
155.320(d)(3)(iii) instead of an inconsistency process, and another 
approach would necessitate manual review for a larger number of 
individuals. Accordingly, in the final rule, we maintain the provisions 
proposed in Sec.  155.320(d) with continued anticipation that the 
strategy will evolve as additional data and data sources become 
available and as more information is gained when the sample-based 
review is implemented.
    Comment: One commenter recommended that HHS allow Exchanges the 
flexibility to define the factors that would trigger the sample-based 
review and how to conduct the necessary investigations. Another 
commenter proposed that Exchanges should have flexibility to use 
whatever information they have at their disposal to identify 
individuals who are likely to have employer-sponsored coverage and to 
conduct a minimum number of follow up reviews.
    Response: We recognize that some Exchanges may have access to 
additional data sources that could be useful for these purposes. We 
note that proposed Sec.  155.320(d)(2)(i), which we are finalizing as 
proposed, allows the use of electronic data sources that are approved 
by HHS, which could include state-based or state-developed data 
sources. We encourage states to work with HHS to incorporate these data 
sources and other existing processes into the Exchange verification 
process.
    Comment: We received several comments on standards related to 
notices proposed throughout Sec.  155.320. Commenters suggested that 
any notices be clearly written in plain language at an appropriate 
reading level for employees with limited education and LEP individuals. 
One commenter recommended that notice of applicants' appeal rights be 
provided to applicants if information from an employer results in a 
change to their eligibility status.
    Specifically regarding the notice described in Sec.  
155.320(d)(3)(iii), one commenter suggested the notice clearly specify 
that the employee was selected as part of a purely random sample, 
rather than due to any indication of misinformation or inappropriate 
action on the part of the employee. Additionally, one commenter 
supported HHS developing notices and otherwise educating employers to 
help employers understand their potential tax liabilities. Finally, one 
commenter urged Exchange personnel, Navigators, certified application 
counselors and all consumer assistance personnel to be trained on these 
verification procedures.
    Response: All notices described in this part are subject to the 
general notices standards under Sec.  155.230, which include standards 
related content provided in the notice, including notice of appeal 
rights, and that the notices must conform to accessibility and 
readability standards. We agree that information regarding this 
verification will be important for Navigators and other entities 
helping consumers apply for coverage and intend to include information 
about this verification process related in training materials and other 
guidance documents produced by HHS.
    Comment: One commenter raised concerns over the potential for 
confusion that could result from unnecessary notifications to employers 
by Exchanges, for example, when employers receive the notice specified 
in Sec.  155.310(h) regarding potential tax liability under Sec.  4980H 
of the Code even

[[Page 42258]]

though the employer may not in fact have any tax liability.
    Response: The proposed rule did not modify the requirements related 
to the employer notice as described in Sec.  155.310(h) and therefore 
the comment is outside of the scope of this rule.
    Comment: One commenter recommended that the verification process 
and information supplied should be considered confidential, and 
recommended that the final rule include language clarifying this and 
prohibiting the sharing of this information with anyone not directly 
required to verify the information. The commenter specified that the 
employer representative verifying the information at request of the 
Exchange should be prohibited from sharing the Exchange's request for 
the information with any person not directly responsible for providing 
the information.
    Response: We agree with the suggestion that information supplied 
during the verification process described in Sec.  155.320(d)(3)(iii) 
should be protected and not disclosed to unauthorized parties. When an 
Exchange reaches out to an employer to confirm whether an applicant is 
enrolled in an eligible employer-sponsored plan or eligible for 
qualifying coverage in an eligible employer-sponsored plan, we do not 
intend for the Exchange staff to disclose the employee's household 
income or any other taxpayer information, except the employee's name or 
other identifying information. The employer would need to identify the 
employee to provide the Exchange with information about the plan 
options available to the employee. The Exchange would rely on 
information provided by the employee or employer when communicating 
with the employer, so that only the appropriate employer 
representatives are consulted during the sample-based review. We also 
note that like all information created, collected, used, or disclosed 
by the Exchange, information regarding employer-sponsored coverage is 
subject to the privacy and security protections established in Sec.  
155.260.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.320(c) 
without modification. We are finalizing the provisions proposed in 
Sec.  155.320(d), with a few modifications. In paragraph (d)(2)(iii), 
we clarify that the Exchange must obtain any available data from the 
SHOP that corresponds to the state in which the Exchange is operating. 
In paragraph (d)(3)(iii), we modify language to specify that the 
Exchange must select a statistically significant random sample of 
applicants for whom the Exchange does not have any of the information 
specified in paragraphs (d)(2)(i) through (d)(2)(iii). Based on 
comments suggesting that employment data only be used to prompt 
applicants to encourage accurate attestations, we removed paragraph 
(d)(2)(iv). Additionally, we clarified paragraph (d)(4) to specify that 
the ability for the Exchange to satisfy the provisions of paragraph (d) 
by relying on HHS is effective for eligibility determinations for 
advance payments of the premium tax credit and cost-sharing reductions 
that are effective on or after January 1, 2015, and to clarify that the 
division of responsibilities under this option is subject to guidance 
issued by the Secretary. To accommodate this change, we added paragraph 
(d)(3)(iv) to clarify that for eligibility determinations for advance 
payments of the premium tax credit and cost-sharing reductions that are 
effective before January 1, 2015, if the Exchange does not have any of 
the information specified in paragraphs (d)(2)(i) through (d)(2)(iii) 
for an applicant, the Exchange may accept an applicant's attestation 
regarding enrollment in an eligible employer-sponsored plan and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan for the benefit year for which coverage is requested, without 
further verification under paragraph (d)(3)(iii) of this section. 
Additionally, we deleted paragraph (d)(4)(iv) to remove the agreement 
associated with having HHS conduct this verification. Finally, we 
removed paragraph (e) and redesignated paragraph (f) as paragraph (e). 
As a result of the consolidation of former paragraphs (d) and (e) in 
paragraph (d) of this final rule, we also make a technical correction 
to Sec.  155.615(f)(2)(i) to modify the cross-reference in that 
provision to reference Sec.  155.320(d).
12. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
    In Sec.  155.330, we proposed to amend paragraph (d)(1) to clarify 
that the Exchange would only conduct periodic examination of data 
sources to identify eligibility determinations for Medicare, Medicaid, 
CHIP, or the BHP, for enrollees on whose behalf advance payments of the 
premium tax credit or cost-sharing reductions are being provided. We 
also proposed revising paragraph (e) to specify how the Exchange would 
proceed when data matching indicates that an individual is deceased, 
such that the Exchange would modify eligibility status to account for 
the data after 30 days without a response to the notice sent. In 
situations where the Exchange identifies updated information regarding 
income, family size, or family composition, except information 
regarding death, we clarified that the enrollee-reported information 
would be subject to verification.
    We also solicited comments about adding a provision to specify that 
Exchanges would include language in the eligibility determination 
notice after a redetermination resulting in a change in an enrollee's 
level of cost-sharing reductions to also describe the specific changes 
to an enrollee's deductible, co-pays, coinsurance, and other forms of 
cost-sharing reductions if they remained enrolled in the same QHP.
    We proposed to amend paragraph (f) to incorporate changes as a 
result of eligibility appeals decisions, as well as changes that affect 
only enrollment or premiums, but do not affect eligibility. The 
proposed changes to paragraph (f) were designed to align eligibility 
effective dates and enrollment effective dates with one another, and to 
accommodate the limited situations in which retroactive eligibility may 
be necessary.
    In paragraph (f)(1), we proposed that changes resulting from a 
redetermination, from an appeal decision, or affecting enrollment or 
premiums only, be implemented on the first day of the month following 
notice of the change. In paragraph (f)(2), we proposed that the 
Exchange may determine a reasonable point in a month, no earlier than 
the 15th, after which a change will not be effective until the first 
day of the month after the month specified in paragraph (f)(1).
    In paragraph (f)(3), we proposed that the Exchange must implement 
changes resulting in a decreased amount of advance payments of the 
premium tax credit or cost-sharing reductions that occur after the 15th 
of the month, on the first day of the month after the month specified 
in paragraph (f)(1). In paragraph (f)(4), we proposed that the Exchange 
must implement changes that result in an increased level of cost-
sharing reductions that occur after the 15th of the month, on the first 
day of the month after the month specified in paragraph (f)(1). Changes 
that result in an increased amount of advance payments of the premium 
tax credit would be implemented under paragraphs (f)(1) and (f)(2).
    In paragraph (f)(5), we proposed that the Exchange implement a 
change associated with birth, adoption, placement for adoption, 
marriage, or loss of minimum essential coverage, on the coverage 
effective dates described in Sec.  155.420(b)(2)(i) and (ii). In 
paragraph

[[Page 42259]]

(f)(6), we proposed that the Exchange may implement a change associated 
with the events described in Sec.  155.420(d)(4), (d)(5), and (d)(9) on 
an effective date that is based on the specific circumstances of each 
situation. In redesignated paragraph (f)(7), we proposed to maintain 
the existing language of what was originally paragraph (f)(3).
    Comment: Commenters expressed general support for HHS' proposal 
regarding when the Exchange determines through periodic data matching 
that an individual is deceased. One commenter sought clarification 
about whether the Exchange could terminate coverage retroactively to 
the date of death to align with non-group market standards.
    Response: In response to comments, we clarify in finalizing Sec.  
155.430(d) that the Exchange will terminate coverage retroactively to 
the date of death. This revision is discussed in more detail in the 
response to comments regarding that provision below.
    Comment: Multiple commenters expressed strong support for including 
a provision in the final rule such that Exchange would include language 
regarding a change in an enrollee's level of cost-sharing reductions as 
a result of a redetermination in the eligibility determination notice 
sent to the enrollee. Several commenters requested that the notice also 
include information about the enrollee's eligibility for a special 
enrollment period as well as the deadline to make a decision to select 
a new plan if they so desired. Commenters also recommended that the 
notice include the potentially negative financial impact of changing 
QHPs. One commenter requested additional guidance regarding the 
implementation of cost-sharing reductions generally, and another stated 
that it could not comply with such a proposed change in Exchange design 
at this stage.
    Response: We clarify that Sec.  155.230(a)(1) specifies that the 
Exchange will provide language in the eligibility determination notice 
to the enrollee explaining the action reflected in the notice, which in 
this case includes the fact that an enrollee has been determined 
eligible for a new cost-sharing reduction level, his or her eligibility 
for a special enrollment period, the requisite deadlines, and the 
possible ramifications if an enrollee decides to change QHPs (for 
example, deductible resetting, whereby an individual who had accrued 
expenses towards the deductible cap for his or her previous QHP would 
have to start again from $0 in making cost-sharing payments towards the 
deductible and out-of-pocket limit). Since regulations do not specify 
that the Exchange will provide detailed, plan-specific information on 
cost-sharing reductions after initial plan selection, we will not 
require that it be provided by the Exchange when a change occurs. 
Rather, we expect that QHPs will make this information available. We 
will also not specify that the Exchange will describe the specific 
changes that could occur in different plans, which could require as 
many variations as there are plans. Exchanges maintain the flexibility 
to provide more detail. HHS provided general guidance regarding the 
implementation of cost-sharing reductions in subpart E of the final 
Payment Notice at 78 FR 15410, 15474 et. seq.
    Comment: Commenters generally supported the effective dates we 
proposed in Sec.  155.330(f). Several commenters urged HHS to 
prioritize continuity of coverage in defining effective dates. Other 
commenters cautioned against requiring eligibility effective dates that 
would necessitate the return or repayment of claims, premiums, advance 
payments of the premium tax credit, or cost-sharing reduction payments.
    Response: We appreciate the importance of continuity of coverage, 
as well as the importance of clarity for consumers. As such, we are 
finalizing the provisions proposed in Sec.  155.330(f), with two 
modifications for clarity. First, we consolidate the provisions 
formerly proposed in Sec.  155.330(f)(3) and Sec.  155.330(f)(4) into a 
single provision covering decreases in advance payments of the premium 
tax credit and changes in cost-sharing reductions. Second, we remove 
the requirement formerly proposed in Sec.  155.330(f)(7), because the 
termination of coverage requirement in Sec.  155.430(d)(3) renders 
Sec.  155.330(f)(7) duplicative.
    Comment: Commenters requested that HHS require transparency and 
plain language in communicating effective dates to consumers, given the 
complexity of changing benefits, programs, and coverage.
    Response: We agree that transparency and plain language are of the 
upmost importance, and urge states and QHP issuers to share successful 
communication strategies among one another. We note that Sec.  
155.230(b) specifies that all notices will be in plain language. HHS 
will also share model notice language for Exchanges to adapt to their 
specific needs.
    Comment: Some commenters questioned why advance payments of the 
premium tax credit and cost-sharing reductions could not always be 
implemented as of the first of the following month.
    Response: The 15th-of-the-month cutoff specified in Sec.  
155.330(f)(3) concerning changes that result in a decreased amount of 
advance payments of the premium tax credit and changes in levels of 
eligibility for cost-sharing reductions aims to prevent consumers from 
incurring financial liabilities that may result from such changes in 
eligibility, which could also be very problematic for QHP issuers to 
implement. However, as noted above, Exchanges have flexibility to set a 
reasonable cut-off date for implementing changes that result in an 
increased level of advance payments of the premium tax credit, such 
that they could always be implemented on the first day of the following 
month, Accordingly, we are finalizing this provision as proposed.
    Comment: Some commenters sought reassurance that Exchanges would 
remain the system of record--the final authority on applicants' and 
enrollees' eligibility for enrollment through the Exchange and receipt 
of advance payments of the premium tax credit and cost-sharing 
reductions--and that all changes would be communicated to QHP issuers. 
Some commenters also requested flexibility for issuers to communicate 
changes to enrollees, consistent with current practices.
    Response: Exchanges are intended to be the final authority on 
applicants' and enrollees' eligibility for enrollment in a QHP through 
the Exchange, advance payments of the premium tax credit, and cost-
sharing reductions (subject to applicable appeals). As specified in 
Sec.  155.310(g) and Sec.  155.400(b)(1), Exchanges will communicate 
information about all eligibility and enrollment changes to both 
enrollees and their health insurance issuers in a timely fashion. We 
also encourage QHP issuers to communicate transparently with enrollees 
regarding changes to their coverage, including how changes in an 
enrollee's eligibility for cost-sharing reductions may affect the 
enrollee's out-of-pocked costs related to coverage, provided that such 
communications are not confusing for consumers.
    Comment: Commenters supported our proposal in paragraph (f)(4) of 
this section to align enrollment effective dates with eligibility 
effective dates, but sought clarification on eligibility effective 
dates for individuals who opt not to select a new plan upon 
experiencing one of the special enrollment period triggering events 
described in Sec.  155.420(b)(2).
    Response: We clarify that the eligibility effective dates in

[[Page 42260]]

Sec.  155.330(f)(4) apply only in situations in which an individual 
uses the special enrollment period to select a plan upon experiencing 
one of the triggering events described in Sec.  155.420(b)(2). 
Eligibility for individuals who experience a change related to 
marriage, birth, adoption, placement in foster care, or loss of minimum 
essential coverage, and who opt to maintain their existing QHP, follows 
the effective dates otherwise specified within Sec.  155.330(f).
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.330, with 
some modifications. First, we clarified that the effective dates in 
paragraph (f)(1)(ii) are based on the date specified in the appeal 
decision, and removed cross-references to appeals provisions in 
paragraph (f)(1)(ii), as we are not finalizing provisions related to 
eligibility appeals at this time. However, we maintain the substance of 
the provision, and intend to replace the cross-references when we 
finalize subpart F. Second, we consolidated the provisions formerly 
proposed in Sec.  155.330(f)(3) and Sec.  155.330(f)(4) into a single 
requirement in paragraph (f)(3) for decreases in advance payments of 
the premium tax credit and changes in cost-sharing reductions. Third, 
we modified newly designated (f)(4) to clarify that the Exchange will 
implement a change associated with the events described in Sec.  
155.420(b)(2)(i) and (ii) of this part on the effective dates described 
in Sec.  155.420(b)(2)(i) and (ii) of this part respectively, instead 
of on the first day of the following month. Fourth, we removed the 
requirement formerly proposed in Sec.  155.330(f)(7), because the 
termination of coverage requirement in Sec.  155.430(d)(3) renders 
Sec.  155.330(f)(7) duplicative.
13. Annual Eligibility Redetermination (Sec.  155.335)
    In Sec.  155.335, we proposed to amend paragraphs (a), (b), (c), 
(e), (f), (g), (h), (k), and (l) of this section to specify that 
subject to the limitations specified in paragraph (l) and new paragraph 
(m), the Exchange will conduct an annual eligibility redetermination 
for all qualified individuals, not only those who are enrolled in a 
QHP. Our proposal was to replace the word ``enrollee'' with the term 
``qualified individual'' in these paragraphs.
    We proposed to amend paragraph (b) to include data regarding Social 
Security benefits as defined under 26 CFR 1.36B-1(e)(2)(ii). This 
reflects the revision we proposed to make in Sec.  155.320(c)(1)(i)(A).
    We proposed to make technical corrections to paragraph (l) to 
specify that, if the Exchange does not have authorization to use a 
qualified individual's tax information, the Exchange will redetermine 
the qualified individual's eligibility only for enrollment in a QHP 
through the Exchange.
    We proposed to add new paragraph (m), which would provide that, if 
a qualified individual does not select a QHP before the redetermination 
described in this section, and is not enrolled in a QHP through the 
Exchange at any time during the benefit year for which such 
redetermination is made, the Exchange must not automatically conduct a 
subsequent redetermination of his or her eligibility for a future 
benefit year.
    Comment: Commenters supported HHS' proposal to allow all qualified 
individuals to be redetermined for eligibility for enrollment in a QHP 
through the Exchange, regardless of whether they have enrolled in a QHP 
through the Exchange during the coverage year. Several commenters 
recommended omitting Sec.  155.335(m), the special rule, to allow 
states to continue redeterminations for non-enrolled qualified 
individuals, for at least 3 more years.
    Response: We continue to believe that one redetermination for a 
qualified individual who does not select a QHP represents an 
appropriate balance between providing consumers with a streamlined 
ability to obtain coverage and the burden on the Exchange associated 
with redeterminations and on consumers who are not interested in 
enrolling. We intend to monitor take-up rates within the FFE and 
encourage state-based Exchanges to do the same, as this data will 
inform whether changes to this policy might be appropriate in the 
future. Accordingly, we are finalizing this provision as proposed.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.335 of the 
proposed rule without modification, except we reserve paragraphs (c)(1) 
and (c)(2) as we continue to evaluate the appropriate information that 
will be included in the annual redetermination notice, and modify 
paragraph (c)(3) such that the previous reference to paragraph (c)(1), 
which is now reserved, instead refers to paragraph (b), which 
accurately refers to the updated information being retrieved by the 
Exchange.
14. Administration of Advance Payments of the Premium Tax Credit and 
Cost-Sharing Reductions (Sec.  155.340)
    In Sec.  155.340, we proposed technical corrections in paragraphs 
(b) and (c) to replace the reference to section 36B of the Code to the 
applicable Treasury regulation. We did not receive specific comments on 
this section, and are thus finalizing the provision as proposed.
Summary of Regulatory Changes
    We are finalizing the technical corrections proposed in Sec.  
155.340 of the proposed rule to specify the appropriate definition of 
minimum value.
15. Coordination With Medicaid, CHIP, the Basic Health Program, and the 
Pre-existing Condition Insurance Plan (Sec.  155.345)
    In Sec.  155.345, we proposed to make a technical correction to 
paragraph (a) to clarify that the agreements that the Exchange enters 
into with the agencies administering Medicaid, CHIP, and the BHP, if 
applicable, must include a clear delineation of the responsibilities of 
each ``agency'' as opposed to each ``program.'' We proposed to amend 
paragraph (a)(2) to specify that the agreement the Exchange enters into 
with other agencies administering insurance affordability programs 
addresses the responsibilities of each agency to ensure prompt 
determinations of eligibility and enrollment in the appropriate program 
without undue delay, based on the date the application is submitted to, 
or redetermination is initiated by, the Exchange or another agency 
administering an insurance affordability program. We proposed to change 
the ordering of agencies listed for purposes of clarity. We also 
proposed to redesignate paragraph (a)(3) as paragraph (a)(4), and add a 
new paragraph (a)(3) to ensure that, as of January 1, 2015, the 
agreement delineates responsibilities for the provision of a combined 
eligibility notice, as defined in Sec.  435.4, to individuals and 
members of the same household, to the extent feasible, for enrollment 
in a QHP through the Exchange and for all insurance affordability 
programs. Section 155.345(a)(3)(i) proposed that prior to January 1, 
2015, the notice include coordinated content, as defined in Sec.  
435.4, while Sec.  155.345(a)(3)(ii) and (g)(7) addressed the 
implementation of a combined eligibility notice requirement as of 
January 1, 2015.
    We proposed a phased-in approach for the provision of a combined 
eligibility notice in cases where the Exchange is performing 
assessments of

[[Page 42261]]

eligibility for Medicaid and CHIP based on MAGI.
    We noted that, based on the operational readiness of the Exchange 
and other agencies administering insurance affordability programs, 
combined eligibility notices may be implemented earlier that January 1, 
2015, but that in states where the FFE is conducting assessments rather 
than final determinations of eligibility, the FFE will only be able to 
provide an eligibility notice that includes coordinated content prior 
to January 1, 2015 (and not combined eligibility notices) for 
eligibility determinations made by the FFE.
    We proposed to make a technical correction in paragraph (f) to cite 
to the applicable Treasury regulation instead of Section 36B of the 
Code.
    We proposed a series of technical corrections throughout paragraphs 
(f) and (g) to clarify various provisions and to redesignate paragraphs 
as necessary to accommodate the changes described in the proposed rule. 
We proposed to add paragraph (g)(7) to require combined eligibility 
notices effective January 1, 2015.
    Comment: We received comments recommending that notices be 
consolidated and coordinated for all family members applying together 
even when individuals are eligible for different programs, at the very 
least for the initial eligibility determination notice. Commenters 
suggested that all notices need to clearly state by name all 
individuals to whom the notice applies, especially when notices are 
regarding termination. Some commenters indicated that the notice with 
coordinated content should clearly inform an individual what he or she 
is or may be eligible for, and should never begin with the 
ineligibility information. Commenters suggested that all agreements 
between the Exchange and the agencies administering Medicaid and CHIP 
be approved by HHS and be made publicly available, including on a 
public Web site. Some commenters stated that the public should be given 
an opportunity to provide input on the agreements and any changes that 
are made to the agreements.
    Response: We are finalizing this section as proposed, with minor 
modifications to reserve two provisions for finalization at a future 
date. We anticipate that initial eligibility determination notices will 
be consolidated for family members who apply together. Additionally, we 
expect that information about the program for which an individual is 
eligible, if any, will be displayed in notices before information about 
programs for which the individual is not eligible. We are reserving 
paragraphs (a)(3) and (g)(7), regarding coordinated content and 
combined notices, respectively, which we intend to finalize at a later 
date with the parallel Medicaid provisions. The Federally-facilitated 
Exchange will provide coordinated content in notices for October 1, 
2013. We will take these recommendations into consideration as we 
develop model eligibility determination notices. We are not specifying 
that agreements between Medicaid and CHIP agencies and Exchanges be 
approved by HHS, as we think that the standards included in regulation 
represent an appropriate level of federal oversight at this time. 
However, we will work with Exchanges to monitor operations over time, 
and reevaluate this decision as needed.
    Comment: Many commenters expressed support for combined eligibility 
notices. Some commenters expressed general support of the phased in 
approach for combined eligibility notices, but strongly recommended 
minimizing the delay in the implementation of combined notices so that 
it only affects the initial annual open enrollment period. Commenters 
suggested that the requirement for a combined eligibility notice should 
be effective for redetermination notices and eligibility notices for 
the open enrollment period beginning on October 15, 2014. Some 
commenters were supportive of the January 1, 2015 implementation date 
of combined eligibility notices, while others recommended a January 1, 
2016 implementation date. One commenter recommended that the effective 
date be set as January 1, 2014, and that HHS allow those states that 
cannot update their technology in time for January 2014 to seek 
approval from HHS for delaying implementation, rather than a nationwide 
delay in implementation. Many commenters asked HHS to reiterate that 
the phased-in approach does not diminish the principles of the 
Affordable Care Act to promote coordination between the Exchange, 
Medicaid, and CHIP, beginning in October 2013.
    Response: We appreciate commenters' suggestions. We intend to 
finalize this provision at a future date with the parallel Medicaid 
provision, and so have reserved paragraph (g)(7) for the purposes of 
this rule. The Federally-facilitated Exchange will provide coordinated 
content in notices for October 1, 2013.
    Comment: Several commenters noted that state flexibility is 
important in determining when to issue combined or separate, 
coordinated eligibility notices. One commenter opposed the requirement 
for agencies administering insurance affordability programs to provide 
coordinated content in notices before January 1, 2014, and specifically 
recommended that at initial annual open enrollment each agency should 
be responsible for issuing its own eligibility determination notice 
based on the eligibility determination completed for the program or 
programs that agency administers, without regard for the other 
insurance affordability programs. Many other commenters, however, 
expressed support for a coordinated eligibility notice prior to the 
implementation of a combined eligibility notice. Another commenter 
believed that the state is best suited to determine which agency should 
provide the notice of eligibility determination, and opposed to the 
requirement under Sec.  155.345(a)(3)(ii) that the combined eligibility 
notice be provided by the agency that makes the last determination of 
eligibility. One commenter noted that HHS should consider additional 
situations where a combined eligibility notice is feasible, but not 
beneficial to the applicant(s). Another commenter suggested that HHS 
consider additional flexibility for notices to be sent immediately for 
consumers who receive a final eligibility determination, and include an 
explanation in the notice about the status of any other determinations 
that are in progress for other applicants in the household.
    Many commenters stated that HHS should ensure that the combined 
eligibility notice includes complete information about Medicaid appeal 
rights. Other commenters stated that the combined eligibility notice 
should include a statement that the individual might be eligible for 
additional benefits and more affordable coverage through Medicaid, and 
specify how the individual can be screened for Medicaid eligibility.
    Response: In the proposed rule, HHS noted two situations in which 
the combined eligibility notice would not be advantageous for 
consumers, and HHS sought comment on additional situations in which the 
combined eligibility notice would not be advantageous. As one commenter 
suggested, HHS explained one situation in which a combined eligibility 
notice is not appropriate is where multiple family members apply 
together, and some members receive a final eligibility determination 
while other members need to be transferred to a different agency for a 
final determination to be made for other insurance affordability 
programs. We will work closely with states to determine when the 
issuance of

[[Page 42262]]

a combined eligibility notice is not appropriate, including situations 
in which it is not advantageous for the last agency that makes a 
determination of eligibility based on MAGI to issue a combined 
eligibility notice. Furthermore, we clarify that while the Exchange 
will make determinations or assessments of MAGI-based eligibility for 
Medicaid and CHIP in accordance with Sec.  155.305(c) and (d), and 
Sec.  155.302(b), the Exchange is not required to complete the Medicaid 
and CHIP enrollment process for eligible individuals.
    We expect that combined eligibility notices will include a 
description of appeal rights in accordance with Sec.  155.230(a)(5), 
including Medicaid appeal rights, as well as information about how an 
individual can request a full eligibility determination from the state 
Medicaid or CHIP agency. And, as noted above, we intend to finalize 
paragraphs (a)(3) and (g)(7) at a future date alongside parallel 
Medicaid provisions, and we are reserving these paragraphs for the 
purposes of this final rule.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.345 of the 
proposed rule with a few minor modifications. We reserve Sec. Sec.  
155.345(a)(3) and (g)(7) for finalization at a later date. Pursuant to 
the discussion in the preamble associated with 42 CFR 431.10(c) and 
(d), we add new paragraph (h) to clarify that the Exchange and the 
Exchange appeals entity must adhere to the eligibility determination or 
appeals decision for Medicaid or CHIP made by the State Medicaid or 
CHIP agency, or the appeals entity for such agency, which is consistent 
regardless of whether the Exchange is making eligibility determinations 
or assessments for Medicaid and CHIP. Accordingly, we redesignate 
previous paragraphs (h) and (i) as paragraphs (i) and (j).
16. Special Eligibility Standards and Process for Indians (Sec.  
155.350)
    In Sec.  155.350, we proposed to make a technical correction in 
paragraph (a)(1) to replace the reference to section 36B of the Code 
with a reference to the applicable Treasury regulation. We did not 
receive specific comments on this section, and are thus finalizing the 
provision as proposed.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.350 of the 
proposed rule without modification.
17. Enrollment of Qualified Individuals Into QHP's (Sec.  155.400)
    In Sec.  155.400, we proposed to add paragraph (b)(3) to clarify 
the requirement that the Exchange send updated eligibility and 
enrollment information for all enrollment-related transactions to HHS 
promptly and without undue delay. This added further specificity to the 
existing requirement that the Exchange send eligibility and enrollment 
information to HHS under paragraph (b)(1) of this section. After 
considering several comments in response to this proposal, we are 
finalizing the provision as proposed.
    Comment: Commenters were supportive of the proposal that the 
Exchange would send updated information for all enrollment-related 
transactions to HHS promptly and without undue delay. One commenter 
sought clarification about cancellations, and wanted to ensure that QHP 
issuers did not violate the Affordable Care Act's ban on discrimination 
in coverage of benefits related to preexisting conditions. Another 
commenter inquired about whether the specific issuer reporting 
requirements associated with this provision may vary according to the 
different Exchange models.
    Response: We note that the cancellations by QHP issuers referred to 
in the preamble to this provision in the proposed rule could occur for 
various reasons, such as when an individual voluntarily cancels his or 
her health insurance selection before the coverage effective date. In 
terms of issuer reporting requirements, each Exchange maintains 
flexibility to determine its own issuer reporting requirements relative 
to enrollment transactions, consistent with the law and applicable 
regulations. This provision specifically addresses only the requirement 
that the Exchanges report updated eligibility and enrollment 
information to HHS.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.400 of the 
proposed rule without modification.
18. Special Enrollment Periods (Sec.  155.420)
    In Sec.  155.420, we proposed to clarify the scope of the special 
enrollment periods throughout this section and add paragraph (a)(2) 
clarifying that our usage of ``dependent'' refers to any individual who 
is or who may become eligible for coverage under the terms of a QHP 
because of a relationship to a qualified individual enrollee.
    We proposed to amend paragraph (b) to specify that the effective 
dates described therein apply both to qualified individuals first 
enrolling in a QHP through the Exchange through a special enrollment 
period, as well as to current enrollees. As the effective dates 
regarding advance payments of the premium tax credit and cost-sharing 
reductions are now addressed in Sec.  155.330(f), we proposed removing 
such language in paragraph (b)(2)(i). We also solicited comments as to 
whether we should expand the special effective dates in paragraph 
(b)(2)(i) concerning birth, adoption, or placement of adoption to cover 
children placed in foster care as well, which would also necessitate a 
corresponding change to the triggering events described within 
paragraph (d)(2) that specifically address that special enrollment 
period.
    We proposed to add paragraph (b)(2)(iii) regarding the effective 
dates for a special enrollment period under paragraphs (d)(4), (d)(5), 
and (d)(9) to align with a similar provision proposed in Sec.  
155.330(f). This would ensure that the Exchange could tailor an 
effective date based on the circumstances surrounding an error by the 
Exchange, a contract violation by the QHP issuer, or other 
``exceptional circumstances''.
    To align the effective dates under this section with the effective 
dates for eligibility as proposed in Sec.  155.330(f), we proposed to 
add paragraph (b)(4) to ensure that the Exchange adhere the modified 
effective dates related to advance payments of the premium tax credit 
and cost-sharing reductions proposed in Sec.  155.330(f). As such, we 
proposed to remove language in paragraphs (b)(2) and (b)(3) that 
previously addressed this issue.
    We also proposed to amend paragraph (d) to specify which triggering 
events will allow a qualified individual or enrollee, or his or her 
dependent to qualify for a special enrollment period. This was designed 
to permit all members of a household, in certain situations, to enroll 
in or change QHP's together in response to an event experienced by one 
member of the household, and we proposed technical corrections 
throughout paragraph (d) to ensure that the revised language allows for 
the dependent to qualify for a special enrollment period as well, 
subject to whether the QHP covers the dependent. While we did not 
modify the scope of each triggering event described within paragraph 
(d), we solicited comments regarding whether we should permit such 
movement of related individuals for other special enrollment periods.
    We proposed to add language specifying that the triggering event in 
the case of a QHP decertification is the date of the notice of 
decertification,

[[Page 42263]]

whereas the triggering event in all other cases associated with a 
qualified individual or his or her dependent losing minimum essential 
coverage is the date the individual or dependent loses eligibility for 
minimum essential coverage.
    We also proposed to amend paragraphs (d)(6)(i) and (ii) to specify 
that the Exchange will provide a special enrollment period for an 
enrollee or his or her dependent enrolled in the same QHP who is 
determined newly eligible or newly ineligible for advance payments of 
the premium tax credit or who experiences a change in eligibility for 
cost-sharing reductions. We also modified the language within paragraph 
(d)(6)(iii) to allow a qualified individual or his or her dependent who 
is enrolled in qualifying coverage in an eligible employer-sponsored 
plan and who are determined newly eligible for advance payments of the 
premium tax credit to qualify for this special enrollment period prior 
to when he or she will cease to be eligible for qualifying coverage in 
an eligible employer-sponsored plan, provided that eligibility for 
advance payments of the premium tax credit and cost-sharing reductions 
are not available for an individual who is enrolled in an eligible 
employer-sponsored plan. Allowing these qualified individuals or 
dependents to be determined eligible for this special enrollment period 
up to 60 days prior to the end of his or her employer-sponsored 
coverage protects them from potential gaps in coverage.
    Finally, we proposed to add a new paragraph (d)(10) to provide a 
special enrollment period for a qualified individual or his or her 
dependent that is enrolled in an eligible employer-sponsored plan that 
does not provide qualifying coverage, and is allowed to terminate his 
or her existing coverage. The Exchange would allow such an individual 
to access this special enrollment period up to 60 days prior to the end 
of his or her coverage in an eligible employer-sponsored plan, to 
protect them from potential gaps in coverage.
    Comment: Several commenters supported our clarification in 
paragraph (a) aligning the definition of ``dependent'' to refer to 
those family members that would be eligible to enroll in coverage under 
a QHP, and commended HHS for allowing dependents to change QHPs or 
enroll in a new QHP together with their family members for certain 
special enrollment periods when eligible. Some commenters wanted to 
ensure that family members would be adequately informed about the 
benefits of enrolling in plans together as well as the potential 
drawbacks of failing to do so. However, several comments also raised 
concerns that this proposed definition was too plan-specific and would 
ultimately lead to greater confusion among families in terms of 
eligibility for special enrollment periods. Other commenters sought 
flexibility for the definition of ``dependent'' to correspond with 
state law, as opposed to a potentially narrower definition set by a QHP 
issuer.
    Response: We believe that clarifying that the meaning of 
``dependent'' aligns with 26 CFR 54.9801-2, the regulation implementing 
section 9801(f) of the Code, throughout this section, including for the 
special enrollment periods not specified in section 9801(f) of the 
Code, helps to promote efficient operations and uniform standards to 
guide QHP issuers and Exchanges. Furthermore, this will ensure that 
state laws regarding the definition of ``dependent'' will be maintained 
within the Exchange, as this does not contradict state laws, but rather 
corresponds with state laws that already require issuers cover certain 
dependents. We intend to provide the appropriate information through 
the eligibility determination notice to an individual and their family 
members to adequately inform them of all of their options when 
determined eligible for a special enrollment period.
    Comment: Some commenters supported our proposal to expand certain 
special enrollment periods to dependents to allow family members to 
enroll in a new QHP together in response to an event experience by one 
member of the tax household, while others sought clarification or an 
expansion of this approach to other triggering events. Commenters 
requested clarification as to whether the proposed rules sought to 
limit the applicability of special enrollment periods to dependents 
enrolled in the same QHP with an enrollee, or to members of the tax 
household who may be receiving a portion of the advance payments of the 
premium tax credit, as well as if paragraph (d)(2) limited the special 
enrollment period to only the qualified individual and the ``new'' 
dependent. Other commenters recommended that the special enrollment 
period in paragraph (d)(3) related to citizenship or immigration status 
should apply both to the individual who is newly qualified along with 
eligible dependents.
    Response: As noted above regarding the definition of ``dependent'', 
family members eligible to enroll in a QHP are determined eligible for 
a special enrollment period when specified in paragraph (d) of this 
section. This is not limited to only those members of a tax household 
on whose behalf advance payments of the premium tax credit are provided 
or who are enrolled in the same QHP. When a family member who 
experiences any of the triggering events in paragraph (d) of this 
section, that includes dependents in addition to qualified individuals 
or enrollees, selects a QHP as part of a special enrollment period, the 
Exchange will permit all members of the tax household to enroll 
together assuming they are all eligible to enroll in the particular 
QHP. If a specific family member experiences a triggering event, but 
fails to select a QHP within the relevant special enrollment period, 
his or her dependent does not have the ability to choose a different 
QHP during this period separately. Furthermore, in response to 
comments, we clarify that the special enrollment period in paragraph 
(d)(3) of this section, related to citizenship or immigration status, 
will apply to both the individual who is newly qualified as well as his 
or her dependents, if eligible for coverage under a QHP. We note that 
the special enrollment period described in paragraph (d)(3) only 
applies to an individual who was not previously a citizen, national, or 
lawfully present, as opposed to an individual switching between one of 
these statuses.
    Comment: In response to HHS' solicitation for comments regarding 
modifying the special effective dates in paragraph (b)(2), which 
correspond directly to the triggering events described within paragraph 
(d)(2), many commenters urged HHS to include the placement of a foster 
child as a triggering event within the special enrollment period. 
Several commenters also raised concerns about our proposed 
modifications to the triggering event for the special enrollment period 
described in paragraph (d)(6), related to being newly eligible or 
ineligible for advance payments of the premium tax credit, or a change 
in eligibility for cost-sharing reductions. Some commenters opposed our 
proposal that only enrollees would be eligible for this special 
enrollment period if newly eligible or ineligible for advance payments 
of the premium tax credit instead of qualified individuals at any point 
during the coverage year, and recommended that we not finalize this 
proposal in favor of retaining the language adopted in the Exchange 
final rule.
    Response: We appreciate the comments regarding placement in foster 
care as it related to special effective dates, and will add language in 
paragraph (b)(2) to include the placement of a foster child as one of 
the triggering events listed therein, as well as make the corresponding 
change

[[Page 42264]]

regarding the special enrollment period in paragraph (d)(2). We note, 
however, that due to the availability of Medicaid to foster children, 
it is unclear how frequently this special enrollment period will be 
used. Due to ongoing considerations regarding the risk pool, we are 
finalizing our proposed modifications to paragraph (d)(6) to specify 
that this special enrollment period only applies to those individuals 
who are already enrolled in a QHP through the Exchange.
    Comment: Multiple commenters expressed general support for the 
modifications we proposed to special enrollment periods throughout 
paragraph (d), including our proposal to allow a prospective special 
enrollment period for qualified individuals enrolled in eligible 
employer-sponsored coverage to prevent gaps in coverage. In regards to 
the proposed revision to paragraph (d)(6)(iii) related to employer-
sponsored coverage, some commenters suggested that the triggering event 
should not be limited to when an individual is enrolled in employer-
sponsored coverage, but should also cover non-enrolled individuals 
whose offer of employer-sponsored coverage does not meet the 
affordability or minimum value standards. Other commenters wanted HHS 
to allow a qualified individual to be determined eligible for advance 
payments of the premium tax credit within the window of their special 
enrollment period, but prior to when their employer-sponsored coverage 
ended.
    Response: We believe that individuals with an affordable offer of 
employer-sponsored coverage that meets minimum value should be 
encouraged to enroll in a plan with their employer. If after enrolling, 
their lowest-cost self-only plan option changes during the coverage 
year such that it no longer meets the affordability and minimum value 
standards, and an individual reports this to the Exchange, the Exchange 
will accordingly determine them eligible for a special enrollment 
period under paragraph (d)(6). As such, this provision creates 
incentives for individuals to enroll in affordable employer-sponsored 
coverage, while also minimizing potential gaps in coverage if a change 
in coverage occurs during the year such that an applicant would be 
newly eligible for advance payments of the premium tax credit if their 
employer terminates coverage or changes their plan options. In 
addition, we are consolidating proposed paragraph (d)(10), which 
provided a special enrollment period to an individual who was enrolled 
in non-qualifying coverage in an eligible employer-sponsored plan, into 
paragraph (d)(6) and modifying it to clarify that consistent with the 
eligibility standards for advance payments of the premium tax credit, 
the special enrollment period is available for an individual who is 
enrolled in any eligible employer-sponsored plan, and is not eligible 
for qualifying coverage in an eligible employer-sponsored plan. For 
example, this modification ensures that an individual who is enrolled 
in family coverage but for whom the lowest-cost self-only plan is 
unaffordable in accordance with the Code can access this special 
enrollment period, as intended in the proposed regulation. We will 
maintain the prospective ability for an enrollee to select a QHP up to 
60 days before their eligible employer-sponsored coverage ends or their 
employer allows him or her to drop coverage if the lowest-cost self-
only plan offer is non-qualifying. We note that the Exchange cannot 
provide an individual with advance payments of the premium tax credit 
while he or she is enrolled in eligible employer-sponsored coverage, as 
specified in 26 CFR 1.36B-2(a)(2).
    Comment: A few commenters raised concerns regarding the notice that 
individuals would receive if determined eligible for a special 
enrollment period, and wanted to ensure that the notice would prevent 
confusion by providing clear guidance to individuals by helping them 
understand the premiums they would be responsible for, and to help them 
enroll in a QHP in a timely fashion.
    Response: The Exchange will not have information regarding actual 
premiums at the time of an initial eligibility determination notice, 
since an individual will not have selected a plan at that point. HHS 
also developed model notices, released alongside this final rule, that 
reflect how an Exchange should clearly communicate an individual's 
eligibility for an SEP and the instructions for how he or she can 
enroll in a QHP.
    Comment: Several commenters also urged HHS to specify additional 
triggering events for special enrollment periods. Some commenters 
recommended additional triggering events described in Medicare Part D, 
unaffordable rate increases, and misinformation provided to an 
individual regarding minimum essential coverage or advance payments of 
the premium tax credit or cost-sharing reductions. One commenter wanted 
HHS to include any change in family size as a triggering event, raising 
particular concerns about pregnancy to allow a woman enrolled in a 
catastrophic plan to change QHPs prior to the birth of a newborn. 
Several commenters requested that HHS clarify that certain triggering 
events would qualify as a special enrollment period under ``exceptional 
circumstances'' described in paragraph (d)(9) of this section, such as 
provider religious objections to covering certain health services to 
women.
    Response: We believe that the current special enrollment periods 
previously proposed appropriately account for changes in circumstances 
that necessitate when individuals would need to select a new or 
different QHP and balance these needs with considerations regarding the 
risk pool. In addition, we note that Sec.  147.104(b)(2) specifies that 
in 2014, an Exchange must provide a special enrollment period for 
individuals enrolled in non-calendar year individual health insurance 
policies beginning on the date that is 30 days prior to the date the 
policy year ends in 2014.
    Furthermore, a state may establish additional special enrollment 
periods to supplement those described in this section as long as they 
are more consumer protective than those contained in this section and 
otherwise comply with applicable laws and regulations.
    HHS intends to issue further guidance related to how Exchanges will 
determine the triggering events that constitute ``exceptional 
circumstances'' under paragraph (d)(9) of this section. For the issue 
raised regarding provider religious objections, we believe that there 
are other remedies available to consumers who encounter such 
situations.
    Comment: One commenter sought clarification that the special 
enrollment periods only apply to the individual market as opposed to 
the small group market.
    Response: We confirm that the language in Sec.  155.420 regarding 
special enrollment periods only applies in its entirety to the 
individual market. Separate provisions pertain to the small group 
market as discussed at Sec.  155.725(a)(3), which excludes Sec.  
155.420(d)(3) and (d)(6).
    Comment: Some commenters raised concerns regarding our proposals 
within this section that pertain to effective dates. Commenters 
requested clarification on whether the effective dates related to 
errors by the Exchange or contract violations by QHP issuers would 
involve setting retroactive enrollment dates. Some commenters suggested 
that the Exchange provide flexibility to individuals related to 
retroactivity for errors as some

[[Page 42265]]

individuals may not want the Exchange to implement an earlier effective 
date. If allowing for retroactivity, commenters urged that the 
Exchange's flexibility related to errors or contract violations should 
only be provided to correct the unfair outcome. Commenters asked that 
the effective date be set for the individual on what it would have been 
without the error, and requested that the Exchange only set the 
effective date according to paragraph (b)(1) of this section if the 
date on which the determination would have been effective without the 
error cannot be ascertained. Several commenters also raised concerns 
about HHS' proposal to remove the language about effective dates for 
advance payments of the premium tax credit and cost-sharing reductions 
within this section. Some commenters worried about an Exchange 
instituting earlier effective dates under paragraph (b)(3) of this 
section, particularly the FFE in 2014.
    Response: Outside of a technical correction within paragraph (b)(3) 
of this section, we did not propose any changes to the provision 
related to the Exchange instituting earlier effective dates if all 
participating QHP issuers agree to effectuate coverage in a shorter 
timeframe. We believe that there are sufficient regulatory safeguards 
for QHP issuers in 2014 if they inform the Exchange that they are not 
prepared to institute earlier effective dates. In terms of the 
Exchange's flexibility related to retroactive eligibility and 
enrollment in cases of errors or contract violations, we note that the 
outcome is still contingent on an individual selecting a QHP when 
determined eligible for a special enrollment period. This preserves the 
ability for an individual to choose to enroll on a particular date, or 
to choose not to enroll.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.420 of the 
proposed rule with the following modifications. First, in paragraphs 
(b)(2)(i) and (d)(2), we expand the special enrollment period and 
special effective dates for birth, adoption, and placement for adoption 
to also include placement in foster care. Second, in paragraph (d)(3), 
we clarify that the special enrollment period for an individual who was 
not a citizen, national, or lawfully present non-citizen and gains such 
status also applies to his or her dependents, if eligible under the 
Exchange eligibility rules. Third, we modify paragraph (d)(6) to 
incorporate the special enrollment period proposed in paragraph 
(d)(10), with modifications to reflect that it accommodates individuals 
who are enrolled in an eligible employer-sponsored plan, but are not 
eligible for qualifying coverage in an eligible employer-sponsored 
plan. Accordingly, we delete paragraph (d)(10).
19. Termination of Coverage (Sec.  155.430)
    In Sec.  155.430, we proposed to amend paragraph (b)(1) to clarify 
that it specifically refers to enrollee-initiated terminations. We 
proposed to add paragraph (b)(1)(i) to account for circumstances in 
which, through periodic data matching, an Exchange finds an enrollee 
eligible for other minimum essential coverage, thus resulting in the 
enrollee's ineligibility for advance payments of the premium tax 
credit. We also proposed in paragraph (b)(1)(ii), that at the time of 
plan selection, the Exchange would provide a qualified individual with 
the opportunity to choose to remain enrolled in a QHP if the Exchange 
identifies that he or she has become eligible for other minimum 
essential coverage, and the enrollee does not request a termination in 
accordance with paragraph (b)(1)(i).
    We proposed to amend paragraph (d)(1) to specify that changes in 
advance payments of the premium tax credit and cost-sharing reductions, 
including terminations, adhere to the effective dates specified in 
Sec.  155.330(f).
    Comment: Several commenters cautioned against requiring retroactive 
termination effective dates that would necessitate the return or 
repayment of claims, premiums, advance payments of the premium tax 
credit, or cost-sharing reduction payments. However, other commenters 
urged HHS to modify termination effective dates in Sec.  155.430(d) 
such that for qualified individuals who gained, or were going to gain 
other coverage, the termination effective dates would be the day before 
the other coverage begins, regardless of when the enrollee notifies the 
Exchange of his or her other coverage.
    Response: We appreciate the comments concerning this provision, and 
have modified the termination effective date at Sec.  
155.430(d)(2)(iii) for enrollee-requested terminations such that QHP 
issuers and Exchanges may only terminate coverage effective on or after 
the date on which the enrollee requests termination, and not 
retroactively. We have also clarified in Sec.  155.430(d)(2)(iv) that 
the last day of coverage in a QHP for an enrollee who is determined 
eligible for Medicaid, CHIP or the BHP is the day before the individual 
is determined eligible for such coverage, rather than retroactive to 
the Medicaid or CHIP eligibility effective date.
    Comment: One commenter recommended amending Sec.  155.430(d) to 
specify that changes in eligibility, including terminations, must 
adhere to the effective dates specified in Sec.  155.330(f), to ensure 
alignment of processes.
    Response: We agree with the commenter, and have modified the 
termination effective dates in Sec.  155.430(d)(3) to cross-reference 
Sec.  155.330(f).
    Comment: Commenters sought clarification of why an enrollee who is 
eligible for other minimum essential coverage would elect to remain 
enrolled in a QHP without advance payments of the premium tax credit.
    Response: While 26 CFR 1.36B-2 specifies that premium tax credits 
are not available to support enrollment in a QHP through the Exchange 
for an individual who is eligible for other minimum essential coverage, 
such an individual is free to remain enrolled in a QHP through the 
Exchange, without advance payments of the premium tax credit and cost-
sharing reductions, if he or she remains eligible for enrollment in a 
QHP through the Exchange. It is possible that an individual would want 
to maintain enrollment without advance payments of the premium tax 
credit and cost-sharing reductions for continuity of coverage reasons. 
As we proposed in 155.430(b)(2)(ii), the Exchange must provide an 
opportunity at the time of QHP selection for an individual to choose to 
remain enrolled in a QHP if he or she has become eligible for other 
minimum essential coverage. If the individual does not choose to remain 
enrolled in a QHP upon such a change, the Exchange would initiate 
termination upon completion of the redetermination process specified in 
Sec.  155.330.
    Comment: Commenters recommended that in addition to the opportunity 
at plan selection, enrollees should be given a second opportunity to 
elect to remain enrolled in a QHP without advance payments of the 
premium tax credit and cost-sharing reductions when the Exchange finds 
the enrollee is eligible for other minimum essential coverage through a 
periodic data match.
    Response: Exchanges are free to provide additional opportunities 
for individuals to request termination, or to request to remain 
enrolled in a QHP without advance payments of the premium tax credit or 
cost-sharing reductions, upon losing eligibility for such benefits. In 
paragraph (b)(1)(ii), we have clarified that the opportunity provided 
at the time of plan selection is effective both in cases of periodic 
data matching as well as when an enrollee reports gaining eligibility 
for other

[[Page 42266]]

minimum essential coverage that would make him or her ineligible for 
advance payments of the premium tax credit and cost-sharing reductions.
    Comment: A commenter raised a concern that the proposed revision to 
the termination provision in Sec.  155.430(b)(2) broadly permits an 
individual whose coverage was already effectuated during the initial 
open enrollment period to notify the Exchange or QHP issuer of his or 
her termination of coverage, and switch QHPs.
    Response: Individuals are free to terminate enrollment in a QHP 
through the Exchange at any time. Individuals who wish to begin other 
coverage in a QHP through the Exchange must be within an open or 
special enrollment period to do so. Each Exchange has the flexibility 
to decide whether to allow enrollees for whom coverage has been 
effectuated to change QHPs during any remaining time in an open or 
special enrollment period. For October 1, 2013, the FFE will not permit 
an enrollee to change QHPs in such a situation. As noted above, such an 
individual may qualify for a new special enrollment period as specified 
in 45 CFR 155.420.
    Comment: One commenter noticed that the proposed provisions did not 
clarify whether the Exchange would be permitted to terminate coverage 
retroactively to the date of death. The commenter recommended that the 
Exchanges have the flexibility to align with non-group market 
standards, and allow for retroactive terminations when the Exchange 
obtains updated information regarding a death.
    Response: We agree with the commenter, and have added paragraph 
Sec.  155.430(d)(7) to clarify that in the case of termination due to 
death, the last day of coverage is the date of death, which means that 
coverage could be terminated retroactively.
    Comment: A commenter noticed that there were conflicting provisions 
regarding terminations at Sec.  155.430 and Sec.  156.270(b). Section 
156.270(b) specifies that QHP issuers must notify both the Exchange and 
enrollees of the effective date and reason for termination at least 30 
days prior to the last day of coverage, and Sec.  155.430(d) specifies 
that in some cases, QHP issuers may effectuate termination in fewer 
than 30 days.
    Response: We have modified Sec.  156.270(b) in this final rule to 
align the coverage termination standards for Exchanges and QHP issuers. 
We have also clarified that QHP issuers will promptly notify both 
enrollees and the Exchange of the termination reason and termination 
effective date when the QHP initiates a termination.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.430 of the 
proposed rule, with the following modifications: We modified paragraph 
(b)(1)(ii) to specify that the opportunity provided by the Exchange at 
the time of plan selection for an individual to choose to remain 
enrolled in a QHP if he or she becomes eligible for other minimum 
essential coverage applies both to situations in which eligibility for 
other minimum essential coverage is identified via a periodic data 
match, as well as situations in which the individual reports the change 
to the Exchange. We modified the termination effective date provision 
at paragraph (d)(2)(iii), for enrollee-requested terminations, such 
that QHP issuers and Exchanges may only terminate prospectively, not 
retroactively. We modified paragraph (d)(2)(iv), which concerns 
terminations for enrollees who are determined eligible for Medicaid, 
CHIP or the BHP, such that the last day of coverage is the day before 
the individual is determined eligible for such coverage, rather than 
retroactive to the Medicaid or CHIP eligibility effective date. We also 
modified the termination effective dates in paragraph (d)(3) to cross-
reference Sec.  155.330(f). We added paragraph (d)(7) to clarify that 
in the case of termination due to death, the last day of coverage is 
the date of death. In addition, we are finalizing an amendment to Sec.  
156.270(b) to align the coverage termination requirements for Exchanges 
and QHP issuers.

D. Medicaid Premiums and Cost Sharing

1. Responses to General Comments (Sec.  447.51 through Sec.  447.57)
    Comment: Many commenters supported the streamlined and consolidated 
approach to the revised cost sharing rules. One commenter believed that 
removing the distinction between the requirements of sections1916 and 
1916A of the Act was confusing and lost some of the differences in the 
statutory provisions. The commenter was also concerned that under the 
revised rules, states will no longer have to explicitly invoke the use 
of alternative (section 1916A of the Act) cost sharing through the 
state plan amendment process. One commenter stated that CMS should not 
provide more specific requirements in the regulations to give states 
more flexibility.
    Response: We maintain the streamlined and consolidated structure in 
the final regulation, which we believe is consistent with the 
flexibilities and limitations provided in both sections 1916 and 1916A 
of the Act. We believe that consolidation will simplify the rules for 
beneficiaries, providers, and states, and will also simplify the state 
plan amendment (SPA) process. States will continue to be required to 
submit a SPA to impose new or revised cost sharing or premiums, and CMS 
will review such SPAs to ensure compliance with the regulations and 
statute.
    Comment: Two commenters recommended that rather than remove current 
Sec.  447.58 and reserve it, this provision should be used to implement 
the long-standing statutory provision that the cost sharing provisions 
of sections 1916 and 1916A of the Act cannot be waived unless a state 
meets the criteria required under section 1916(f) of the Act.
    Response: The terms of section 1916(f) of the Act, relating to the 
requirements states must meet for the Secretary to approve a waiver of 
the cost sharing provisions of sections 1916 and 1916A of the Act are 
clear. We do not believe it is necessary at this time to issue 
regulations setting forth the Secretary's substantive authority under 
section 1115 of the Act, and such an action would be outside of the 
scope of this rulemaking. We note that we issued procedural regulations 
at 77 FR 11678 (Feb. 27, 2012) governing demonstration applications in 
accordance with section 1115(d) of the Act (as added by section 
10201(i) of the Affordable Care Act).
    Comment: One commenter stated that given the statutory constraints 
implemented in the regulations, states should be given additional 
flexibility through the use of a standard waiver template applicable to 
newly eligible adults. One commenter stated that for MAGI-based 
eligibility groups, states should be able to impose premiums and cost 
sharing on individuals with income over 100 percent of the FPL that is 
equivalent to what those individuals would be subject to if they were 
enrolled in the Exchange.
    Response: Section 1916A of the Act and these regulations provide 
considerable flexibility for states to impose cost sharing on 
individuals with income over 100 percent of the FPL, including the 
ability to target cost sharing, charge higher amounts, and make the 
cost sharing enforceable. But the statute provides for cost sharing 
protections for the Medicaid population that are not the same as the 
protections for individuals enrolled in coverage through the Exchange. 
To waive the

[[Page 42267]]

Medicaid cost sharing requirements and go beyond the flexibilities 
provided in section 1916A of the Act for individuals covered under the 
state plan, the Secretary must find that the requirements of section 
1916(f) of the Act have been met. We do not believe that a template for 
waiving the cost sharing requirements in accordance with section 
1916(f) of the Act is needed at this time. Except for certain specified 
eligibility groups, sections 1916 and 1916A of the Act limit premiums 
imposed under the state plan on those with income over 150 percent of 
the FPL.
    Comment: One commenter noted that it appears we left in place 
Sec. Sec.  447.66 through 447.82 of the current regulations and 
suggested that CMS remove these sections.
    Response: This was a drafting error and we have removed those 
sections in the final rule. Those sections reflected alternative 
premiums and cost sharing requirements under section 1916A of the Act 
that have been integrated into new streamlined cost sharing regulations 
that reflect both sections 1916 and 1916A of the Act.
2. Definitions (Sec.  447.51)
    We proposed to add a definition for premiums, which includes 
enrollment fees and other similar charges. We also proposed to add a 
definition for cost sharing to encompass deductibles, copayments, 
coinsurance, and other similar charges. Because each of these charges 
would be included within cost sharing, we proposed to remove separate 
requirements related to deductibles, copayments, and coinsurance; 
instead all cost sharing would be subject to a single set of rules. We 
also proposed new definitions for purposes of the premium and cost 
sharing regulations for preferred drugs, emergency and non-emergency 
services, and alternative non-emergency service providers, since the 
cost sharing rules vary for these items and services. We received the 
following comments concerning the proposed definitions:
    Comment: Several commenters recommended that we revise the 
definition of alternative non-emergency service provider at Sec.  
447.54 to mean ``a Medicaid-participating provider, such as a 
physician's office, health care clinic, community health center, 
hospital outpatient department, or similar provider that is actually 
available and accessible and can provide clinically appropriate 
services for the diagnosis or treatment of a non-emergency condition in 
a timely manner.''
    Response: We are finalizing the definition as proposed in Sec.  
447.51. The revisions suggested by the commenters regarding the 
alternative non-emergency provider being available and accessible and 
being able to provide for the diagnosis or treatment of a non-emergency 
condition are implicit in the requirements that must be met at Sec.  
447.54(d) before the imposition of cost sharing for non-emergency use 
of the ED. However, we have revised the definition of non-emergency 
services for clarity; this revision is not a substantive change.
    Comment: Several commenters recommended that we remove the term 
``coinsurance'' from the definition of cost sharing at Sec.  447.51, 
since few states charge coinsurance and the statute does not use the 
term. They discussed that eliminating the term ``coinsurance'' would 
further the goal of simplification.
    Response: We agree that very few states elect the option to charge 
coinsurance, but it is still an option available to states under the 
statute, which allows for other ``similar charges.'' Therefore we are 
maintaining the term ``coinsurance'' in the definition of cost sharing 
in the final rule. With the streamlining of the regulations in this 
final rule, states that do elect to charge coinsurance must ensure it 
does not exceed the limits defined in Sec.  447.52-54.
    Comment: We solicited comments on whether we should add definitions 
of ``inpatient stay'' and ``outpatient services'' to take into account 
situations in which an individual is discharged and soon thereafter 
returns to an inpatient facility for continued treatment of the same 
condition. One commenter supported the inclusion of a definition of 
``inpatient stay'' and recommended that we adopt the approach taken in 
Medicare to define a ``benefit period'' and prohibit a second copay for 
any inpatient stay within the same benefit period. Some commenters also 
supported the addition of a definition of ``outpatient services'' 
giving states broad flexibility to determine which services may be 
subject to cost sharing. No commenters opposed adding definitions of 
these terms.
    Response: We are adding a definition of ``inpatient stay'' in the 
final rule at Sec.  447.51 to mean the services received during a 
continuous period of inpatient days in either a single medical 
institution or multiple medical institutions, and also to include a 
return to an inpatient institution after a brief period when the return 
is for treatment of a condition that was present in the initial period. 
We also add that the definition of ``inpatient'' has the same meaning 
as in Sec.  440.2. We believe this is in the best interest of 
beneficiaries with chronic conditions who may have frequent visits to 
the hospital or other institution for treatment of the same condition, 
and is consistent with the limitations on cost sharing established in 
the statute. We also add a definition of ``outpatient services'' for 
purposes of cost sharing to mean any service or supply not meeting the 
definition of an inpatient stay. This definition will include cost 
sharing for any services outside an institutional setting, not 
otherwise exempt by statute or regulations, excluding drugs and non-
emergency use of the hospital emergency department which are defined 
separately. We note that these definitions are applicable only to cost 
sharing and do not constitute any change in definition specific to the 
provision of benefits or services.
    Comment: One commenter requested CMS provide additional information 
to states regarding how the proposed definition of cost sharing will 
affect the offset to expenses that states can report for Medicaid FFP 
(Sec.  447.51).
    Response: Nothing in the definition of ``cost sharing'' at Sec.  
447.51 changes the rule related to FFP. Per Sec.  447.56(e), which is 
unchanged from current rules, no FFP is available for any premiums or 
cost sharing that should have been paid by the beneficiary, except for 
amounts that the agency pays as bad debts of providers who are paid in 
accordance with Medicare reasonable cost principles.
    Comment: One commenter recommended revising the definition of a 
premium at Sec.  447.51 to exclude enrollment fees because premiums are 
generally applied on an annual or periodic basis whereas enrollment 
fees are generally a onetime payment. The commenter recommends that 
states should have the flexibility to require an enrollment fee in 
addition to premiums.
    Response: The statute defines a premium to include any enrollment 
fee or similar charge, and therefore the limitations on total premium 
charges include both premiums and enrollment fees. As the Secretary 
does not have the authority to change this requirement, we are 
finalizing the definition of premiums as proposed. States do have the 
flexibility to impose both a monthly premium and an initial enrollment 
fee within the limitations for premiums described in this rule.
3. Update to Maximum Nominal Cost Sharing (Sec.  447.52)
    We proposed to implement sections 1916(a)(3) and (b)(3) of the Act 
relating

[[Page 42268]]

to nominal cost sharing, and to revise the maximum amount of nominal 
cost sharing for outpatient services. For beneficiaries with incomes at 
or below 100 percent of the FPL, cost sharing for outpatient services 
may not exceed nominal. For those with income above 100 percent of the 
FPL, cost sharing can either be limited to nominal or may extend up to 
10 or 20 percent of the cost of the service, depending on the income of 
the beneficiary. Currently, maximum allowable nominal cost sharing is 
tied to what the agency pays for the service, not to exceed $3.90 for 
services for which the state pays more than $50. Because this can be 
confusing and burdensome for states, providers, and beneficiaries, we 
proposed to allow instead a flat $4 maximum allowable charge for 
outpatient services. This is a modest $0.10 increase from the current 
maximum, and as we noted as a basis for the proposed rule, the majority 
of state services are reimbursed at more than $50. The proposed changes 
are discussed in more detail in the January 22, 2013 Medicaid 
Eligibility Expansion proposed rule (78 FR 4658 and 4659). We received 
the following comments concerning the proposed update to the maximum 
nominal cost sharing provisions:
    Comment: Many commenters wanted CMS to eliminate cost sharing for 
Medicaid beneficiaries altogether because of the extensive research 
showing that cost sharing on low-income populations creates barriers to 
accessing needed care, with particular consequence for those with 
special health care needs. One commenter recommended that CMS revise 
the cost sharing regulations to align with the lowest eligibility 
threshold for Medicaid based on modified adjusted gross income created 
by the Affordable Care Act (for example, 133 percent of the FPL) and 
create two tiers of cost sharing--one for those with income at or below 
133 percent of the FPL and one for those with income above 133 percent 
of the FPL. One other commenter recommended that individuals with 
income below 133 percent of the FPL should be exempt from cost sharing.
    Response: We recognize the studies indicating that cost sharing may 
impact beneficiaries' access to needed and prescribed services, given 
the low incomes of most of those who are enrolled in Medicaid. However, 
the statute authorizes states to impose cost sharing, subject to 
certain limitations. Additionally, the Affordable Care Act did not 
modify the cost sharing provisions of sections 1916 and 1916A of the 
Act. Section 1916A of the Act distinguishes between individuals with 
income at or below 100 percent of the FPL, those with income above 100 
and at or below 150 percent of the FPL, and those with income above 150 
percent of the FPL. We do not have the authority to revise the income 
thresholds set out in statute or to preclude states from imposing cost 
sharing on individuals with income under 133 percent of the FPL 
consistent with the limitations in sections 1916 and 1916A of the Act, 
as implemented in these regulations. States do not, of course, have to 
implement cost sharing to the extent authorized by the statute, and 
most do not do so. We note that in Sec.  447.51 of the final rule we 
add a definition of Federal poverty level (FPL) to use the acronym 
throughout the regulation. No substantive change is intended.
    Comment: Several commenters stated that cost sharing is unnecessary 
in the context of managed care because the point of managed care is to 
manage utilization and ensure care is provided in the most appropriate 
settings. The commenters argue that managed care already achieves the 
goals that states are attempting to achieve through cost sharing and 
that cost sharing interferes with the medical management effectuated 
through managed care programs. Another commenter believed the rules did 
not provide enough flexibility in the managed care context. One 
commenter requested that CMS clarify that Medicaid agencies can permit 
managed care organizations to not impose cost sharing on enrollees.
    Response: While managed care can play a role in ensuring more 
appropriate utilization of health care services, the statute does not 
limit the imposition of cost sharing to fee-for-service delivery 
systems. In general, states may not establish different cost sharing 
requirements for beneficiaries served by a fee-for-service versus a 
managed care delivery system unless all beneficiaries have the same 
opportunity to participate in fee-for-service versus managed care and 
to enjoy the benefits of lower cost sharing imposed under one service 
delivery mechanism versus the other. Section 4708(b) of the Balanced 
Budget Act of 1997 specifically removed the statutory cost sharing 
exemption for enrollees in managed care organizations. Managed care 
organizations may choose not to impose state plan cost sharing on their 
members, but the state must still consider the amount of cost sharing 
under the state plan in determining the actuarial soundness of the 
capitated payment to the managed care organization. Section 1916A of 
the Act allows states to target cost sharing to specified eligibility 
groups, as described at Sec.  447.52(d) of this final rule, and states 
may target cost sharing specifically to those eligibility groups who 
may be enrolled in managed care, but the targeting must be based on the 
eligibility group and not solely on the basis of enrollment in managed 
care. However, states may charge different co-pays to incentivize the 
use of certain care models--for example lower co-pays to encourage use 
of primary care medical homes or other patient-centered coordinated 
care models--to the extent that those models provide a different 
service from those offered at a more traditional medical provider, and 
the particular model of care is broadly available to beneficiaries. 
This is permissible because the state is differentiating co-payments 
based on the service provided, and because all individuals have the 
choice to receive such services, comparability is met.
    Comment: Some commenters recommended that CMS should restore the 
use of the term ``nominal,'' as that term is used in the existing 
regulations. They argue that the Act specifically limits cost sharing 
to ``nominal'' amounts and directs the Secretary to determine what 
constitutes a ``nominal'' amount each year to ensure that cost sharing 
amounts are not onerous for beneficiaries.
    Response: The streamlining proposed does not negate the 
requirements at section 1916 of the Act that cost sharing for certain 
populations be nominal in amount. Section 1916 of the Act gives the 
Secretary authority to define nominal cost sharing, which we do at 
proposed Sec. Sec.  447.52, 447.53 and 447.54. The amounts described in 
these sections are the maximum that can be imposed on individuals with 
income at or below 100 percent of the FPL, since these individuals may 
not be subject to the higher cost sharing allowable under section 1916A 
of the Act. The proposed amounts will be updated annually based on the 
CPI-U, starting October 1, 2015. As mentioned, in streamlining the 
regulations implementing sections 1916 and 1916A of the Act, we did not 
use the term ``nominal'' in the regulatory text, but the amounts 
permitted were set based on the determination that they were nominal 
amounts.
    Comment: Many commenters agreed with severing the tie between 
maximum cost sharing amounts and what the agency pays for the service 
but believed that a flat $4 maximum amount proposed at Sec.  447.52 was 
too burdensome for Medicaid beneficiaries with income at or below 100 
percent of the FPL. Many commenters recommended that CMS should set 
maximum cost sharing amounts based on the income and health status of 
the

[[Page 42269]]

beneficiaries and recommended using Medicare as a model, which 
establishes two tiers for Part D copayments for individuals with income 
at or below 100 percent of the FPL and individuals with incomes over 
100 percent of the FPL, and recommend the Medicaid cost sharing maximum 
should be limited to $2.10 for those at or below 100 percent of the FPL 
which is the approximate average of the FY 2013 maximum copayment 
amounts.
    Response: Sections 1916 and 1916A of the Act allow for different 
levels of cost sharing for individuals with income at or below 100 
percent of the FPL versus those with income over 100 percent of the 
FPL, similar to the two-tiered structure established for Medicare Part 
D which the commenters recommend. Section 1916A of the Act further 
differentiates maximum cost sharing levels for those with income above 
100 or at or below 150 percent of the FPL and those with income over 
150 percent of the FPL. Current regulations already allow states to 
charge all non-exempt beneficiaries up to $3.90 for many services, and 
as described previously, we believe the $4 maximum charge is 
comparable, particularly given that the next update to this nominal 
amount has been postponed under this rule until October 1, 2015. We 
also note that while this is the maximum level at which states may set 
their cost sharing obligations, they may establish lower levels of cost 
sharing.
    We note that under current regulations at Sec.  447.56, states have 
the option to establish different cost sharing charges for individuals 
at different income levels. We inadvertently omitted this section from 
the proposed rule and are restoring this option in the final rule at 
Sec.  447.52(g). We specify in the final rule that if the state imposes 
cost sharing charges that vary by income, it must ensure that lower 
income individuals have lesser cost sharing than higher income 
individuals.
    Comment: One commenter expressed concern that the simplified $4 
maximum for individuals with income at or below 100 percent of the FPL 
would create a disparity with the percentage-based maximum cost sharing 
for individuals with income above 100 percent of the FPL.
    Response: It was not our intent to establish a cost sharing system 
under which lower income beneficiaries could be subjected to higher 
cost sharing than their higher income counterparts. Our intent was to 
define maximum nominal cost sharing, as described under sections 
1916(a)(3) and (b)(3) of the Act, as $4 for outpatient services. If a 
state seeks to use the authority provided under section 1916 of the Act 
to impose nominal cost sharing on individuals with income at or below 
100 percent of the FPL, such cost sharing must also be applied to 
individuals with income above 100 percent of the FPL. Section 1916 of 
the Act does not allow for targeted cost sharing on different groups of 
individuals, so any cost sharing established under this authority is 
applicable to all non-exempt individuals. The 10 and 20 percent 
maximums established for individuals with income over 100 percent of 
the FPL are specific to cost sharing established under the authority of 
section 1916A of the Act. This authority specifically allows for cost 
sharing of up to 10 percent of the cost of the service for individuals 
above 100 and at or below 150 percent of the FPL and 20 percent for 
individuals with income above 150 percent of the FPL, with slightly 
different maximums for drugs and non-emergency use of the emergency 
department. For a specific outpatient service, a state may establish 
nominal cost sharing under the authority of section 1916 of the Act for 
all non-exempt individuals covered under the state plan in an amount 
not to exceed $4 (as adjusted for inflation), and the state may also 
establish targeted cost sharing for specified individuals under section 
1916A of the Act for that same outpatient service, in an amount not to 
exceed 10 percent of the cost of the service. In such a case, the cost 
sharing imposed under the section 1916 authority may not exceed 10 
percent of the cost of the service if that amount is less than the 
maximum nominal amount allowed for individuals with income under 100 
percent of the FPL, because the state must ensure that lower income 
individuals are charged less than individuals with higher income, as 
described at Sec.  447.52(g).
    Comment: We solicited comments on the best approach to cost sharing 
for an inpatient stay for individuals with income at or below 100 
percent of the FPL. We indicated we were considering a maximum cost 
sharing amount less than what is allowed in current regulation. Most 
commenters believed that the current regulations allowing cost sharing 
of up to 50 percent of what the agency pays for the first day of 
inpatient care was too great a burden for individuals at this income 
level. A few commenters recommended a maximum copayment of $10, one 
commenter recommended $100, and many recommended that the cost sharing 
for inpatient care should be the same as for outpatient services and be 
limited to $4.
    Response: We are revising the regulations to limit maximum cost 
sharing charges for an inpatient stay, for individuals with income at 
or below 100 percent the FPL, to $75. This $75 limit will encompass 
most hospital cost sharing established by state Medicaid programs today 
and will align with the ratio of cost sharing for inpatient versus 
outpatient services with similar charges provided under private 
insurance plans. To provide a transition period for the small number of 
states with existing inpatient cost sharing exceeding $75, we are 
adding a new paragraph at Sec.  447.52(b)(2). Under paragraph (b)(2), 
states with inpatient cost sharing that exceeds $75, as of July 15, 
2013, must submit a plan to CMS that provides for reducing inpatient 
cost sharing to $75 by July 1, 2017. We redesignate the succeeding 
paragraphs, accordingly.
    Comment: We solicited comments on whether we should define nominal 
cost sharing differently for community-based long term services and 
supports (LTSS) due to the frequency with which these services are 
provided and utilized by beneficiaries. Many commenters supported a 
separate approach to LTSS because they are concerned about the 
financial burden that an individual needing these services could face 
if a state were allowed to charge up to $4 for each service and most 
recommended that such services be exempted from cost sharing. 
Commenters were also concerned that allowing cost sharing for LTSS 
would discourage individuals from utilizing LTSS and leave many to opt 
for institutional care, which is more costly for states in the long 
run. Some commenters recommended that consideration be given to 
limiting the number of copayments permitted per week, month, or other 
specified timeframe for those with significant service needs, including 
adults with serious mental illness. One commenter opposed establishing 
different limits for community-based long term services and supports as 
it would be administratively burdensome for states. This commenter also 
pointed out that no specific mention is made in the regulations to 
long-term care community-based services provided under sections 
1915(c), 1915(d), 1915(i), or 1915(k) of the Act. The commenter 
suggested that perhaps these defined packages are the more appropriate 
starting place if separate cost-sharing rules for these services are 
considered, but we need to take into account the fact that some 
individuals already contribute to the cost of these services in 
accordance with the post-eligibility treatment of income rules under 
part 435 subpart H.
    Response: We agree with commenters that additional protections for 
non-

[[Page 42270]]

exempt individuals receiving community-based LTSS are appropriate to 
ensure that receiving care in the community, rather than in an 
institution, remains a financially viable option for such individuals, 
but the statute does not authorize the Secretary to require an 
exemption. We note that few states now impose cost sharing on LTSS. We 
encourage all states to consider the significant consequences of 
imposing cost sharing on such services, and remind states that they are 
required to comply with the Americans with Disabilities Act and Section 
504 of the Rehabilitation Act as interpreted in the Olmstead v. L.C. 
and E.W (``Olmstead'') to ensure they are not placing individuals at 
risk of institutionalization. While we are not directing an exemption 
for LTSS, we agree with commenters that additional protections are 
necessary for individuals with high service needs, and we are revising 
the proposed aggregate limit for premiums and cost sharing to protect 
all beneficiaries with high medical needs. As discussed further under 
Sec.  447.56, the 5 percent aggregate limit applies to all individuals 
regardless of income. In addition, if premiums and cost sharing could 
exceed 5 percent of family income, states are required to have a 
mechanism to track such premiums and cost sharing in a manner that does 
not rely on beneficiaries. To provide protections to individuals with 
high service needs and ensure their cost sharing does not exceed the 
aggregate limit, we encourage states to consider prospectively ending a 
beneficiary's cost sharing obligation at a specified time of the 
applicable month or quarter given the frequency of utilization and the 
predictability of services provided under an approved plan of care, for 
example. We note that such an approach must take into account the cost 
sharing for items or services that may be received outside the plan of 
care, such as drugs for example, which would also contribute to the 5 
percent aggregate limit.
    We considered different options for a separate definition of 
nominal cost sharing specific to LTSS but have determined the most 
effective way to ensure ongoing affordability of care for beneficiaries 
who are frequent and regular consumers of care, including but not 
limited to those who need LTSS, is to ensure that there is an effective 
aggregate cap on cost sharing. Aggregate out of pocket limits are a 
common practice in the commercial market and we believe the extension 
of the aggregate limit is consistent with industry practice and will 
provide the greatest protections for beneficiaries, consistent with 
statutory provisions, while still maintaining states' flexibility to 
establish appropriate cost sharing mechanisms for their programs.
    Comment: One commenter believed that proposed Sec.  447.52(b)(2), 
which relates to maximum allowable cost sharing when the state does not 
have fee-for-service payment rates, is confusing and could be read to 
only apply to those with income at or below 100 percent of the FPL.
    Response: We agree and have revised the paragraph, redesignated in 
this final rule as Sec.  447.52(b)(3), to be clear that, ``in states 
that do not have fee-for-service payment rates, any cost sharing 
imposed on individuals at any income level may not exceed the maximum 
amount established for individuals with income at or below 100 percent 
of the FPL.'' The same clarification to the regulation text is made at 
Sec.  447.53(c).
    Comment: Some commenters recommended that the Secretary provide 
states the flexibility to determine the cost sharing methodology that 
best aligns with their delivery system and provider categories, for 
example allowing flat co-payments and premiums, co-payments based on a 
percentage of what the agency pays for the service, or premiums 
calculated as a percentage of family income.
    Response: The regulations at proposed Sec. Sec.  447.52, 447.53 and 
447.54 establish maximum limits on the cost sharing that states can 
impose. While we are no longer requiring that the maximum cost sharing 
amounts be based on what the agency pays for the service, nothing in 
the regulations preclude states from setting their cost sharing amounts 
on such basis provided that the amounts charged do not exceed maximum 
permissible levels. Similarly, provided that the specific limits set 
out in the statute and codified in the regulations--including the 
aggregate limit not to exceed 5 percent of family income--are 
respected, states have the flexibility under Sec.  447.55 to structure 
premiums in the manner suggested, although, as noted, statutory 
authority to impose premiums is limited.
    Comment: We received several comments suggesting we clarify that 
states can apply different levels of cost sharing for their current 
Medicaid populations as compared to adults who will become eligible 
under the adult group.
    Response: In general, any cost sharing established under the state 
plan must apply to all beneficiaries who are not specifically exempted 
per the requirements at Sec.  447.56(a) to ensure comparability. There 
are two exceptions to this requirement, as follows. First, states may 
vary the cost sharing obligation by income level, reflected at Sec.  
447.52(g) of the final rule, such that individuals with family income 
below a certain threshold could be subject to lower cost sharing than 
those at higher income levels. A state could, for example, decide not 
to impose cost sharing on individuals with incomes below 50 percent of 
the FPL, and to impose a $1 copayment on individuals with income above 
50 percent of the FPL. We note that states should have adequate 
processes in place to ensure providers and beneficiaries are aware of 
who can be charged what cost sharing so it is appropriately applied. 
Second, reflected at Sec.  447.52(d), as redesignated in the final 
rule, states may establish different levels of cost sharing for 
targeted groups of individuals with income above 100 percent of the 
FPL. In this final rule, we clarify that for cost sharing imposed for 
non-preferred drugs and non-emergency services furnished in an ED, 
states may target to specified individuals with income below 100 
percent of the FPL as well as those above, as discussed below. Thus, 
states could impose different cost sharing on individuals eligible in 
the new Adult group, or any other eligibility group, with income 
greater than 100 percent of the FPL than that imposed on other 
beneficiaries.
    Comment: One commenter stated that proposed Sec.  447.52(f), which 
lists the information that must be included in the state plan for each 
cost sharing charge imposed, is revised from the current regulations 
atSec.  447.53(d) but that we did not provide a rationale for the 
revisions.
    Response: We consolidated the state plan requirements currently 
contained in Sec. Sec.  447.53(d) and 447.68 into one new section, 
redesignated as Sec.  447.52(i) in the final regulation. The state plan 
requirements for tracking beneficiary cost sharing related to the 
aggregate limit are contained in Sec.  447.56(f)(2) of this final rule. 
In consolidating the state plan requirements for cost sharing under the 
authority of both sections 1916 and 1916A of the Act, we sought 
generally to maintain the current requirements, while removing any 
unnecessary regulatory provisions. For example, we removed the 
requirement that states describe the basis for determining the charge, 
because these regulations no longer require states to base their cost 
sharing charges on what the agency pays for the service and this 
provision was no longer necessary. We note that we are making minor 
technical changes to paragraph Sec.  447.52(i)(4) to improve the 
structure of the paragraph

[[Page 42271]]

and delete extraneous language. No substantive changes are intended.
    Comment: One commenter recommended that CMS require that state 
plans identify whether a cost sharing charge is being imposed under the 
authority of section 1916 or section 1916A of the Act.
    Response: With the streamlining of the regulations we do not 
believe it is necessary for states to specify what authority they are 
relying on to impose cost sharing. In their state plan, the states 
seeking to impose or continue cost sharing will need to detail who will 
be subject to cost sharing, for what service, how much, and whether 
providers may deny services for lack of payment. We will review state 
plan amendments to ensure compliance with sections 1916 and 1916A of 
the Act and these regulations.
    Comment: One commenter requested that we clarify that the 
regulation authorizes states to allow providers to deny services for 
nonpayment of cost sharing, but does not confer authority on states to 
require providers to do so. One commenter recommended that we include a 
provision that providers are not prevented from reducing or waiving the 
application of a cost sharing requirement on a case-by-case basis.
    Response: The requirements at Sec. Sec.  447.52(e)(1) and (e)(2), 
as redesignated in this final rule, are clear that, while states may 
allow providers to deny services to individuals with income above 100 
percent of the FPL who have failed to pay cost sharing charges, states 
are not required to permit providers to do so (and providers may only 
deny services if the state opts to permit them to do so). Further, 
Sec.  447.52(e)(3) is clear that even if the state exercises this 
option, providers are not prohibited from nonetheless electing to 
provide the service to individuals who do not pay their cost sharing 
obligations. This is not at state option--it is a provider option--and 
we do not believe it is necessary to be included in the state plan.
    Comment: A few commenters suggested that the regulations authorize 
states to allow providers to deny services for non-payment of cost 
sharing charges in more situations, including for those with income at 
or below 100 percent of the FPL. The commenters believe that such 
provider enforcement, particularly in the context of nonemergency use 
of the emergency room, would be appropriate.
    Response: We are unable to extend the scope of the regulations 
beyond the statutory authority provided in sections 1916 and 1916A of 
the Act, both of which only allow states to impose provider-enforceable 
cost sharing to non-exempt individuals with income over 100 percent of 
the FPL and thereby assure the provision of services to lower income 
individuals who may not be able to afford the charge. These provisions 
of sections 1916 and 1916A of the Act cannot be waived unless the state 
meets the requirements of section 1916(f) of the Act.
    Comment: One commenter recommended that the table at Sec.  
447.52(b) be clarified to clearly specify that the amounts are maximum 
amounts to correspond with the language in Sec.  447.52(b).
    Response: We agree with the commenter and have made the revision to 
Sec. Sec.  447.52(b), 447.53(b) and 447.54(b).
    Comment: One commenter asked if cost sharing must be imposed or if 
it is an allowable activity.
    Response: States are not required to impose cost sharing, it is an 
option. Some states do not impose cost sharing. Furthermore, if a state 
does impose cost sharing, it has the option to charge less than the 
maximum amounts. Many states do so today.
    Comment: One commenter requested clarification as to whether Sec.  
447.52(e) (relating to the prohibition against multiple charges) 
includes premiums.
    Response: Sec.  447.52(e) has been redesignated as Sec.  447.52(f) 
in this final rule and pertains to cost sharing only, which is defined 
in Sec.  447.51 to include any copayment, coinsurance, deductible or 
similar charge. Premiums are not encompassed in this definition, and 
states may impose both a premium and cost sharing on a given individual 
subject to the applicable conditions on such charges.
    Comment: One commenter recommended revising the rule to allow 
states to waive or reduce cost-sharing for outpatient services 
delivered by designated high-value providers or in high-value care 
settings, even if those services may otherwise be subject to cost-
sharing. One commenter requested clarification that the cost sharing 
rules may not be applied to different types of practitioners based on 
their licensure and that cost sharing within a category of services is 
not used to discriminate against health care practitioners acting 
within their state-defined licensure.
    Response: Nothing in the regulations prevents a state from 
determining which services are subject to cost sharing and the amount 
charged, or by what type of provider the service is delivered. As 
suggested by the commenter, states could differentiate cost sharing for 
services provided by a designated high value provider as long as the 
state ensures that all beneficiaries have access to such providers.
    Comment: One commenter recommended that we include in the final 
rule, language currently at Sec.  447.60 that was omitted from the 
proposed rule, which requires that any cost sharing charges imposed by 
managed care organization on Medicaid enrollees be in accordance with 
the requirements set forth in the regulations.
    Response: We agree with the commenter. The omission of this 
provision was not intentional and we have included this requirement in 
the final rule at Sec.  447.52(h).
    Comment: One commenter believed that if deductibles are an option 
for a state, they should be administered at an individual level on an 
annual basis because the commenter believes monthly and/or family-level 
deductibles are complex, confusing, and not the standard generally used 
by health plans especially when combined with other cost sharing.
    Response: Deductibles are permitted at an individual level under 
the statute and these regulations. Any deductible imposed by a state 
must be within the maximum amounts established in Sec. Sec.  447.52-54, 
and subject to the aggregate limit described in Sec.  447.56(f) of this 
final rule.
4. Higher Cost Sharing Permitted for Individuals With Incomes Above 100 
Percent of the FPL (Sec.  447.52)
    We proposed to consolidate the current multiple cost sharing rules 
implementing sections 1916 and 1916A of the Act, respectively, into one 
set of streamlined cost sharing regulations for both statutory 
authorities at proposed Sec.  447.52. Under section 1916 of the Act, 
states may impose nominal cost sharing on individuals not exempted by 
the statute. Under section 1916A of the Act, statute states may impose 
cost sharing at higher than nominal levels for nonexempt individuals 
with incomes above 100 percent of the FPL. For individuals with income 
above 100 and at or below 150 percent of the FPL, section 1916A of the 
Act permits cost sharing for nonexempt services up to 10 percent of the 
cost paid by the state for such services. (Different rules, discussed 
below, pertain to cost sharing for drugs and emergency department 
services). For individuals with income above 150 percent of the FPL, 
such cost sharing may not exceed 20 percent of the cost paid by the 
state. We received the following comments concerning the proposed 
provision for higher cost sharing permitted for individuals with 
incomes above 100 percent of the FPL:

[[Page 42272]]

    Comment: A few commenters were concerned that we proposed to permit 
cost sharing for children.
    Response: We did not propose new policy in the proposed rule 
related to cost sharing for children. Section 1916A of the Act permits 
states to impose cost sharing on certain children by exempting children 
covered under mandatory eligibility categories. This statutory option, 
implemented at Sec.  447.70 of the current regulations, is retained in 
this rulemaking at Sec.  447.56(a)(1)(i) through (VI). We revised the 
description of children who are exempt from premiums and cost sharing 
at Sec.  447.56(a)(1)(i)(iii) to reflect the consolidation of different 
statutory eligibility groups for children under a single regulatory 
section at Sec.  435.118 of the March 2012 final rule. We also made a 
technical change to the description of children exempt from premiums 
and cost sharing under Sec.  447.56(a)(1)(i)(iv) to reflect the changes 
in the types of assistance available under Title IV-E of the Act. These 
are not substantive changes and are intended solely to assist states in 
appropriately identifying those children who may be charged premiums 
and cost sharing and exempting those who may not, as described in the 
statute.
    Comment: One commenter recommended that CMS specify health centers' 
statutory responsibility related to the grants provided under section 
330 of the Public Health Services Act (PHSA) to provide services 
regardless of ability to pay and clarify that states may not impose on 
health centers any obligations that conflict with these requirements. 
The same commenter also recommended that CMS add an exception at Sec.  
447.56(c)(3), entitling FQHCs to full Medicaid payment in situations in 
which they are required to collect cost sharing that would directly 
conflict with the section 330 requirements to waive a portion of the 
Medicaid cost sharing, and at Sec.  447.56(e)(1) to authorize FFP for 
cost sharing amounts waived by an FQHC. At a minimum, the commenter 
recommends that CMS and HRSA issue joint guidance to minimize the 
tension between the Medicaid and section 330 of the PHSA regulations 
concerning patient payment obligations for services provided by FQHCs.
    Response: The obligations of FQHCs related to their section 330 
grants, as well as reimbursement to FQHCs, are beyond the scope of this 
regulation. This regulation does not require that FQHCs bill patients 
for cost sharing, but it does require that the payment to the provider 
take into account the cost sharing obligation. This requirement that 
states deduct a beneficiary's cost sharing obligation from the payment 
to providers is not new policy. It is contained in current regulations 
at Sec. Sec.  447.57 and 447.82, redesignated at Sec.  447.56(c) in 
this final rule. FQHC services are not specified as exempt from cost 
sharing under sections 1916 or 1916A of the Act and we do not believe 
that the Secretary has authority to mandate that states nonetheless 
exempt such services from cost sharing based on FQHCs' section 330 
obligations. States, however, do have the flexibility to exempt 
particular services (including FQHC services) from cost sharing and/or 
to adjust the amount of cost sharing imposed, consistent with the 
regulations.
    Comment: Some commenters recommended permitting flat-dollar 
copayments for all income groups, which they think would be easiest for 
enrollees and providers to understand and for Medicaid plans to 
administer. One commenter requested that we clarify how a limit based 
on 10 percent of the cost the agency pays for the service for 
individuals with family income above 100 percent but at or below 150 
percent of the FPL and 20 percent of the cost the agency pays for the 
service for individuals with income over 150 percent of the FPL, would 
apply to FQHC services reimbursed under the prospective payment system 
(PPS). The commenter is concerned that because the amount of 
reimbursement under the PPS varies by health center, the maximum 
allowable cost sharing obligation for a particular service or visit 
would differ from health center to health center, and that this would 
be administratively burdensome for states, managed care plans, and 
providers; inequitable for beneficiaries; and could impede access to 
FQHC services. The commenter recommends that we revise the rule to 
provide that the maximum cost sharing for all individuals for FQHC 
services reimbursed under the PPS rate be the same as the maximum rate 
for individuals with income at or below 100 percent of the FPL.
    Response: Section 1916A of the Act sets the maximum allowable cost 
sharing for individuals with income over 100 percent and at or below 
150 percent of the FPL at 10 percent of what the agency pays for the 
service and for individuals with income over 150 percent of the FPL, at 
20 percent of what the agency pays. We do not have the authority to 
change the maximum amount to a flat fee. We note that these percentages 
represent the maximum allowable charges. States have the flexibility to 
establish lesser cost sharing amounts for any service, and they may use 
a flat fee as long as it does not exceed the maximum level permitted. 
In determining the cost sharing for a particular service, states also 
can use the average payment made for the service across providers or 
units of the service to develop a consistent cost sharing amount within 
the maximum amount allowed by statute and regulation.
    Comment: One commenter asked for clarification regarding the 
definitions of income that states should use in setting cost sharing 
charges, other than to say that the definitions of household income in 
Sec.  435.603 should be used in determining the aggregate limit on 
cost-sharing. The commenter sought further clarification on the meaning 
of ``family income'' and suggested that states be required to describe 
their methodology in their state plan for approval by the Secretary as 
reasonable.
    Response: In the interest of streamlining the requirements and 
reducing administrative burden, we are not requiring states to include, 
in their state plans, the methodology for determining income specific 
to premiums and cost sharing. For individuals whose financial 
eligibility is determined based on modified adjusted gross income 
(MAGI), ``family income'' for the purposes of imposing premiums or cost 
sharing or for defining the aggregate limit means ``household income'' 
using MAGI-based methods, as set forth in Sec.  435.603. For 
individuals who are exempt from MAGI under section 1902(e)(14)(D) of 
the Act, implemented at Sec.  435.603(j) of the regulations, we are 
still examining options related to income determinations.
    Comment: One commenter stated that we do not have the authority to 
allow targeted cost sharing because it would violate comparability and 
recommended that we delete proposed Sec.  447.52(c), relating to 
``targeted cost sharing.'' Another commenter stated that additional 
targeting and variation of cost sharing within groups would add 
unnecessary complexity and should not be used.
    Response: We are retaining the option for states to target cost 
sharing to specified groups of individuals. Comparability is required 
for cost sharing imposed under section 1916 of the Act. However, 
section 1916A(a)(1) of the Act provides that, ``a State, at its option 
and through a state plan amendment, may impose premiums and cost 
sharing for any group of individuals (as specified by the State) and 
for any type of services . . . and may vary such premiums and cost 
sharing among such groups or types, consistent with the limitations 
established under this

[[Page 42273]]

section.'' This provision is codified in current regulations at Sec.  
447.62(a). Therefore, at redesignated Sec.  447.52(d) of the final rule 
states may apply targeted cost sharing on specified groups of 
individuals; such cost sharing is limited to individuals with income 
over 100 percent of the FPL, per the requirements of section 1916A of 
the Act. We have revised Sec.  447.52(d), adding paragraphs (1) and (2) 
to clarify that for cost sharing imposed for non-preferred drugs and 
non-emergency services furnished in an ED, the state may target to 
individuals below 100 percent of the FPL as well as those above, as 
allowed by section 1916A of the Act.
    Comment: We solicited comments on whether the regulations should 
specify ways in which states may target different defined groups of 
individuals (with income over 100 percent of the FPL) for differential 
cost sharing under proposed Sec.  447.52(c). One commenter suggested 
that the regulation should make it clear that targeting must be 
reasonable, that individuals with lower incomes may not be charged more 
than those with higher incomes, and that targeting may not discriminate 
based on gender, physical or mental disability, age, race, ethnicity, 
or any other protected classification. Another commenter requested that 
the Secretary include criteria that must be considered by states in 
targeting cost sharing to particular types of beneficiaries.
    Response: Section 1916A of the Act gives states authority to target 
premiums and cost sharing to any group of individuals with income above 
100 percent of the FPL (for cost sharing imposed for non-preferred 
drugs or non-emergency use of the emergency department, states can 
target to individuals at all income levels as discussed above), and to 
vary such premiums and cost sharing among the groups. In examining all 
the possible ways in which targeting could be applied, we believe 
targeting based on eligibility group or income level are the only 
targeting methods consistent with section 1916A of the Act, which will 
not lead to discriminatory practices. Thus, states can choose to impose 
premiums or cost sharing on individuals with income above 100 percent 
of the FPL in particular eligibility groups and to vary them by income 
level within the group. States may not target solely on the basis of 
delivery system--managed care, fee-for-service, and primary care case 
management--but may target eligibility groups covered through a 
specific service delivery system like managed care. States may not 
target based on disease-type or chronic condition. We note that states 
can impose cost sharing on whichever non-exempt service they choose for 
individuals at any income level subject to limitations in the 
regulations, and are not required to impose cost sharing on all non-
exempt services in the state plan. For the recommendation regarding 
lower income versus higher income individuals, as noted above, we added 
Sec.  447.52(g) to specify that if a state imposes income-related 
charges, it may not impose a higher charge for lower-income individuals 
than is charged for higher-income individuals.
5. Cost Sharing for Drugs (Sec.  447.53)
    We proposed to establish a single provision governing cost sharing 
for drugs which would apply to nonexempt individuals at all income 
levels. To provide additional flexibility to states, and to further 
encourage the use of preferred drugs, we proposed to define ``nominal 
cost sharing'' as no more than $8 for non-preferred drugs and $4 for 
preferred drugs for individuals with income at or below 150 percent of 
the FPL. For individuals with family income above 150 percent of the 
FPL, per section 1916A(c) of the Act, a higher cost sharing charge may 
be established for non-preferred drugs, not to exceed 20 percent of the 
cost the agency pays for the drug. While states may not impose cost 
sharing on exempt individuals for preferred drugs, states may elect to 
impose cost sharing for non-preferred drugs on individuals who are 
otherwise exempt up to the nominal cost sharing amount. Cost sharing 
for a non-preferred drug must be limited to the amount imposed for a 
preferred drug if the individual's prescribing provider determines that 
the preferred drug for treatment of the same condition either will be 
less effective for the individual or will have adverse effects for the 
individual or both. Under the proposed rule, states would have the 
flexibility to apply differential cost sharing for preferred versus 
non-preferred drugs. For example, a state may charge $1 for preferred 
and $5 for non-preferred drugs or $0 for preferred and $8 for non-
preferred drugs. We received the following comments concerning the 
proposed cost sharing for drugs provisions:
    Comment: A few commenters suggested we take an approach that 
distinguishes between formulary generic and formulary brand drugs 
(instead of preferred and non-preferred). One commenter noted that this 
approach may be more helpful in the managed care context. One commenter 
requested clarification as to whether the requirement that all drugs be 
considered preferred for cost sharing purposes if the agency does not 
differentiate between preferred and non-preferred, is a de facto 
preferred status. The commenter was concerned that this could result in 
lower cost sharing for more expensive brand name drugs that are not 
identified by the state as non-preferred. One commenter was opposed to 
the definition of preferred drugs at proposed Sec.  447.51 to include 
all drugs if the agency does not differentiate between preferred and 
non-preferred drugs.
    Response: Section 1916A of the Act allows states to have different 
cost sharing levels for preferred and non-preferred drugs, but does not 
speak to generic versus brand name drugs. States may use a variety of 
methods to determine preferred and non-preferred drugs including 
whether the drug is a brand or generic. States also maintain other cost 
control measures, such as mandatory generic substitution policies. The 
definition of preferred drugs, which includes all drugs if the agency 
does not differentiate between preferred and non-preferred drugs, is 
consistent with section 1916A(c) of the Act and current regulations at 
Sec.  447.70(a).
    Comment: Several commenters disagreed with the proposed policy to 
allow cost sharing for up to $4 for preferred drugs and $8 for non-
preferred drugs. They described research showing that even low 
prescription drug copayments may cause very low income people to defer 
filling prescriptions. The commenters argue that Medicaid beneficiaries 
cannot be incentivized to select a preferred drug, as is accomplished 
with some success among middle class consumers; instead, with such high 
cost sharing differentials, Medicaid enrollees will go without the 
``non-preferred'' drug even if it is medically necessary and would work 
far more effectively than a preferred drug. These commenters recommend 
that CMS define nominal drug cost sharing in relation to the income and 
health status of the Medicaid population and amend the table at Sec.  
447.53(b) to establish maximum cost sharing as follows: individuals 
with family income at or below 150 percent of the FPL--Preferred drugs: 
$1.10, Non-preferred drugs: $3.30; individuals with family income 
exceeding 150 percent of the FPL--Preferred drugs: $1.10; Non-preferred 
drugs: $4.20. Two other commenters expressed concern with the $8 copay 
for non-preferred drugs if states have latitude to classify most or all 
of the brand-name drugs in a therapeutic class as non-preferred. One 
commenter stated the proposed increase in cost sharing is unnecessary 
because states already have many tools to

[[Page 42274]]

control prescription drug costs and have high utilization of generic 
drugs. Other commenters appreciated the flexibility proposed for cost 
sharing. One commenter welcomed the increased maximum cost sharing, and 
one commenter stated that allowing states to charge higher cost sharing 
for non-preferred drugs, when effective, lower-cost alternatives are 
available, is a reasonable policy.
    Response: We agree that cost sharing is just one of many tools that 
states may use to manage drug utilization, and states may determine 
that higher cost sharing does not enhance their efforts to promote the 
use of preferred drugs. However, we also agree that it is a tool 
permitted under the statute. In the final rule we are maintaining the 
option for states to impose cost sharing of up to $4 for preferred 
drugs and $8 for non-preferred drugs for all individuals, including 
those with income at or below 150 percent of the FPL, and for those 
with income above 150 percent of the FPL, to continue to establish 
higher non-preferred drug cost sharing of up to 20 percent of the cost 
of the drug. As described at Sec.  447.53(e), as revised in the final 
rule, if a prescriber finds that the non-preferred drug is medically 
necessary, the state must have a process in place to limit cost sharing 
for that drug to the amount for preferred drugs.
    Comment: One commenter suggested that the final rule require a cap 
on cost sharing for non-preferred drugs as a necessary protection for 
this vulnerable population.
    Response: The 5 percent aggregate limit on cost sharing in the 
current regulation and included in this final regulation at Sec.  
447.56(f) applies to all cost sharing, including that for non-preferred 
drugs. States have the option to establish additional cost sharing 
limits for particular services, such as drugs at Sec.  447.56(f)(5) of 
the final rule, but we do not have the authority to mandate a cost 
sharing cap specific to non-preferred drugs.
    Comment: A few commenters stated that CMS was circumventing the 
statutory requirements of section 1916A of the Act by setting two 
different maximum ``nominal'' amounts for preferred and non-preferred 
drugs because the Act requires that cost sharing for all drugs imposed 
on individuals with income under 150 percent of the FPL must not exceed 
the ``nominal'' cost sharing as otherwise determined under section 1916 
of the Act. Additionally, the commenter notes that section 1916A of the 
Act explicitly allows states to charge up to twice the nominal amount 
for non-emergency care furnished in an emergency department, so if 
Congress intended to allow the same for non-preferred drugs, Congress 
would have provided such an option in the statute.
    Response: Section 1916 of the Act gives the Secretary the authority 
to define nominal cost sharing. There is nothing in the statute which 
requires a single definition of what is considered to be nominal. 
Moreover, the general cost differential between preferred and non-
preferred drugs merits a different nominal maximum for each type, 
therefore we believe it is appropriate to establish a $4 nominal 
maximum for preferred drugs and an $8 nominal maximum for non-preferred 
drugs.
    Comment: One commenter expressed concern for vulnerable populations 
that require certain classes of drugs, such as HIV antiretroviral 
drugs, and recommended they be available at the ``preferred'' drug 
cost-sharing level.
    Response: States have the discretion to designate which covered 
drugs within each class of drugs will be considered preferred or non-
preferred. Beneficiaries must always have access to necessary drugs at 
the preferred drug rate because a given drug cannot be considered non-
preferred unless the state has an equivalent drug available at the 
preferred rate. In addition, Sec.  447.53(e), as revised in this final 
rule, requires states to provide a non-preferred drug at the preferred 
drug cost sharing level, if the prescribing provider determines that 
the preferred drug would be less effective or have adverse effects on 
the individual.
    Comment: A few commenters recommended that we convert the non-
preferred prescription drug copayment to a flat dollar amount for 
individuals with incomes over 150 percent of the FPL instead of basing 
cost sharing on what the agency pays for the drug.
    Response: As discussed above, section 1916A of the Act sets the 
maximum allowable non-preferred drug cost sharing level for individuals 
with income over 150 percent of the FPL at 20 percent of what the 
agency pays for the drug. CMS does not have the authority to change the 
maximum amount allowed to a flat fee, but states may construct their 
charges as flat fees as long as such fees are within the maximums 
established by law.
    Comment: One commenter supported the proposed increase of allowable 
cost sharing for non-preferred drugs when Medicaid recipients and not 
Medicaid pharmacy providers bear responsibility for the higher cost 
sharing. The commenter requested that, when enhanced cost sharing for 
prescription drugs is implemented, we mandate states to condition 
services on the payment of such cost sharing. Alternatively, the 
commenter requested that CMS mandate states to develop a mechanism 
whereby participating pharmacies can submit unpaid cost sharing amount 
to the state for payment. One commenter recommended that HHS require 
states to implement cost sharing provisions for prescription drugs and 
to permit providers to withhold medication (whether preferred or non-
preferred) from beneficiaries for failure to pay cost sharing.
    Response: The imposition of premiums or cost sharing is an option 
permitted states under sections 1916 and 1919A of the Act and cannot be 
mandated by the Secretary. The statute stipulates that providers, 
including pharmacies, may not deny services to individuals with income 
at or below 100 percent of the FPL due to inability to pay their cost 
sharing obligation. States have the option to allow providers to deny 
services to individuals with income over 100 percent of the FPL if they 
do not pay required cost sharing. If a state opts to allow providers to 
deny services if the individual does not pay the cost sharing, this 
must be indicated in their state plan. Regardless of whether an 
individual pays the cost sharing, states must deduct the payment made 
to the provider by the amount of the individual's cost sharing 
obligation in accordance with Sec.  447.56(c) of this final rule. We do 
not have the statutory authority to alter these requirements in the 
manner being suggested by the commenters.
    Comment: One commenter requested clarification as to whether states 
have the option to impose cost sharing for non-preferred drugs on 
individuals otherwise exempt from cost sharing. One commenter 
recommended that states should have the option to impose cost sharing 
on exempt individuals for certain classes of prescription drugs that 
the state identifies as elective or controversial, such as narcotics.
    Response: Section 1916A of the Act allows states to impose cost 
sharing for non-preferred drugs on otherwise exempt individuals, 
provided that such cost sharing does not exceed a nominal amount. At 
Sec.  447.53(b) of the final rule, we have defined nominal cost sharing 
for preferred drugs as no more than $4 and for non-preferred drugs at 
no more than $8. We are revising Sec.  447.53(d) in the final rule to 
clarify that cost sharing for non-preferred drugs imposed on otherwise 
exempt populations cannot exceed the nominal amount defined in Sec.  
447.53(b) in accordance with section 1916A(c) of the Act. While states 
may impose cost sharing on some drugs and not other drugs, all cost 
sharing must be

[[Page 42275]]

consistent with the requirements of Sec.  447.53(b) and, if there are 
no drugs identified as non-preferred drugs in a class, cost sharing for 
drugs in that class cannot exceed the nominal amounts for preferred 
drugs. Identification of ``elective'' or ``controversial'' drugs is 
beyond the scope of this regulation.
    Comment: A few commenters stated that the proposed cost-
effectiveness standard for determining which drugs are non-preferred is 
inappropriate and does not include the anti-discrimination protections 
contained in the Affordable Care Act. The commenter believed that this 
standard would threaten access to needed treatment and would result in 
broad, one-size-fits-all policies that do not reflect important 
differences in individual beneficiary needs and circumstances. One 
commenter recommended that the definition of preferred drugs not be 
restricted to low-cost or exclusively generic agents, and should 
encourage the inclusion of high-value brand agents, especially when a 
generic equivalent is not available. The commenter believed that 
preferred and non-preferred drugs should be chosen based on clinical 
value, not solely on the basis of acquisition price. One commenter 
recommended that the definition of preferred and non-preferred drugs be 
determined based on clinical assessment of the individual. One 
commenter recommended that the definition of preferred drugs be 
expanded to include the generic equivalent of brand named drugs.
    Response: The definition of preferred drugs for cost sharing 
purposes at Sec.  447.51 does not prescribe the type of drugs that the 
state designates as preferred or non-preferred, and requiring the 
inclusion of certain drugs on a state's preferred drug list is beyond 
the scope of this regulation. However we do not believe that preferred 
drug programs limit individuals' access to necessary drugs. These 
regulations require that states establish a process through which a 
beneficiary can access a non-preferred drug, which his or her provider 
has determined to be medically necessary for the beneficiary, with cost 
sharing limited to the amount applicable to preferred drugs. We believe 
that this policy would not violate any non-discrimination standards 
since all beneficiaries are subject to the Medicaid requirements of the 
preferred drug list, which direct that it be developed in a manner that 
does not discriminate against any particular class of individual, or 
type of disability or disease. In addition, as previously noted in 
guidance (SMDL 04-006, September 9, 2004), states need to 
assure that patients continue to have access to needed medications so 
in addition to cost considerations, a preferred drug list should be 
based on clinical criteria that considers the efficacy of the drug to 
others in that class.
    Comment: Several commenters were concerned that allowing states to 
impose cost sharing of up to 20 percent of what the agency pays for a 
non-preferred drug, for individuals with income over 150 percent of the 
FPL, would be overly burdensome for individuals with chronic 
conditions.
    Response: Section 1916A(2)(B) of the Act provides for the 
flexibility to impose cost sharing at these levels for individuals with 
incomes above 150 percent of the FPL. We did not propose to change this 
flexibility, which is codified at Sec.  447.74 of the current 
regulations, and is moved to Sec.  447.53 in this final rule. The 
Secretary does not have the authority to change or reduce the 
percentage of the cost of the item or service that is the maximum 
allowable cost sharing because the statute is clear. We note that such 
cost sharing is subject to the aggregate limit codified at Sec.  
447.56(f) of this final rule.
    Comment: Several commenters suggested that we revise Sec.  
447.53(e) to provide more detailed requirements for the process states 
must have in place to allow for cost sharing at the preferred drug 
level, in the case of a non-preferred drug that the prescribing 
provider has determined would be less effective or may adversely affect 
the individual. The commenters stated that any process should take into 
account the electronic claims processing used by pharmacies and 
pharmacists and should be easy for the prescriber to invoke. Several 
commenters also recommended that states be required to describe their 
process in the state plan and provider manuals. One commenter believed 
that this requirement undermined the intent of the regulations to 
encourage the use of less expensive preferred drugs because for a state 
to actually cover a non-preferred drug, the prescriber already has to 
receive prior-authorization, meaning most, if not all non-preferred 
drugs would have to be provided at the lower cost sharing amount.
    Response: States must have a process in place for providing prior 
authorization of medically necessary drugs that meets the existing 
requirements at section 1927(d)(5) of the Act, therefore we are not 
prescribing additional requirements in this regulation or requiring 
states to describe the process in their state plan. However, we are 
revising the final rule to add the word ``timely'' to the process 
states must use to allow for cost sharing at the preferred drug level 
in accordance with the section 1927 of the Act. We will monitor state 
implementation and determine whether additional guidance is necessary.
6. Cost Sharing for Emergency Department (ED) Services (Sec.  447.54)
    Sections 1916(a)(3) and 1916(b)(3) of the Act, allow states to 
obtain a waiver to impose cost sharing for non-emergency use of the ED 
that does not exceed twice the nominal amount for other outpatient 
services. Section 1916A(e)(2)(A) of the Act also allows cost sharing 
for individuals with income above 100 percent of the FPL and at or 
below 150 percent the FPL in an amount not to exceed twice the nominal 
amount as determined by the Secretary. We proposed to consolidate 
current regulations at Sec.  447.54(b) and Sec.  447.72 related to non-
emergency use of the ED into proposed Sec.  447.54. To facilitate 
states' ability to utilize flexibility provided in existing 
regulations, for all individuals with income at or below 150 percent of 
the FPL, we proposed to allow cost sharing of no more than $8, which 
represents twice nominal, for non-emergency use of the ED without 
requiring a waiver. The proposed changes are discussed in more detail 
in the January 22, 2013 Medicaid Eligibility Expansion proposed rule 
(78 FR 4659 and 4660). We received the following comments concerning 
the proposed provision for cost sharing specific to non-emergency use 
of the ED:
    Comment: Many commenters opposed the policy to allow up to $8 for 
non-emergency use of the ED because it might cause individuals with 
incomes at or below 150 percent of the FPL to forego necessary 
services, including potentially lifesaving services, and because many 
Medicaid beneficiaries go to the ED because they lack access to regular 
sources of primary care. Foregoing necessary services may result in 
adverse health outcomes requiring more expensive care later. Many 
commenters recommended that the maximum allowable cost sharing should 
be set at $3.30 for individuals with family income at or below 100 
percent of the FPL, $6.30 for individuals with family income from 101-
150 percent of the FPL and $12.00 for individuals with family income 
above 150 percent of the FPL. Several other commenters recommended that 
the maximum allowable cost sharing amount for non-emergency use of the 
ED be limited to $4 to align with what is proposed for other services. 
Several commenters recommended that CMS allow states the flexibility to 
impose cost sharing for

[[Page 42276]]

non-emergency use of the ED that exceeds $8, to decrease inappropriate 
use of the ED. One commenter recommended that up to three times the 
outpatient services copayment (rather than two) should be allowed in 
states that are working to expand access to alternative options for 
care. Many commenters recommended that for individuals with family 
income at or below 100 percent of the FPL, we revise the regulations to 
allow cost sharing for non-emergency use of the ED, only when no cost 
sharing (rather than lesser cost sharing) is imposed to receive such 
care through an outpatient department or other alternative health care 
provider in the geographic area of the hospital ED involved.
    Response: We believe it is important for states to have options to 
incentivize care in the most appropriate settings and to encourage 
individuals to develop a regular source of care, to the extent that 
beneficiaries are assured timely access to needed care. One option to 
achieve this is through cost sharing initiatives, therefore, we are 
finalizing Sec.  447.54(b) as proposed, however we note that we have 
made some minor technical changes in the final rule to spell out the 
term emergency department instead of using the acronym ED and to refer 
to non-emergency services instead of treatment. The technical changes 
are for clarification only and are not intended to be substantive. The 
$8 maximum for non-emergency use of the ED is twice the nominal amount 
for outpatient services, which is the maximum allowable cost sharing 
permitted under sections 1916 and 1916A of the Act for individuals with 
income at or below 150 percent of the FPL. The statute does not limit 
the amount states can impose for non-emergency use of the ED on 
individuals with income over 150 percent of the FPL (other than through 
the aggregate cap of 5 percent of family income), and we do not have 
the authority to limit such cost sharing through regulation. Section 
1916 of the Act requires that there be an accessible alternative 
provider to provide the services, but does not require that there be no 
cost sharing for such services and section 1916A of the Act requires 
there be lesser cost sharing for services provided by the alternative 
provider, or no cost sharing if the cost sharing is being applied to an 
otherwise exempt individual. To streamline the requirements to make it 
administratively feasible for states to meet this requirement, we are 
maintaining the proposed policy in the final rule that services 
provided by an alternative provider must be available with lesser cost 
sharing or no cost sharing only if the individual is otherwise exempt 
from cost sharing. We note that for individuals with income at or below 
100 percent of the FPL the state may not allow a provider--including a 
hospital ED--to deny services in the event that an individual is unable 
to pay the cost sharing.
    We note that in the final rule we are deleting Sec.  431.57 of this 
subchapter relating to the waiver of cost sharing requirements for 
states to impose cost sharing for non-emergency services furnished in 
an ED. This language is redundant with Sec.  447.54(b) of the final 
rule, which allows states may impose cost sharing up to twice the 
nominal amount for such services through the state plan. In addition to 
this technical change, we updated the citations to the cost sharing 
regulations at Sec. Sec.  435.121, 435.831, 436.831, 438.108, 440.250, 
447.15, 447.20, and 457.540.
    Comment: One commenter recommended that CMS make public the amount 
of documented Medicaid savings in states that have imposed cost sharing 
for non-emergency use of the ED.
    Response: We are not revising the rule to require states to 
document savings. However, we will examine available options for 
sharing best practices and other data available from states with 
successful ED diversion programs.
    Comment: Several commenters noted a drafting error at Sec.  
447.54(c), which they believe should be revised to read: ``. . . not to 
exceed the maximum amount established in paragraph (b) of this section. 
. .'' The commenters also believed we made an error in Sec.  447.54(d), 
which they think should read ``. . . to impose cost sharing under 
paragraph (a), (b) or (c) of this section of non-emergency. . . .''
    Response: We agree that there was a drafting error in paragraph (c) 
and have corrected the provision in this final rule. However, paragraph 
(d) was written as intended, and is finalized as proposed. Paragraphs 
(a) and (c) provide the authority to impose cost sharing, while 
paragraph (b) describes the maximum allowable amounts.
    Comment: One commenter recommended that cost sharing for non-
emergency use of the ED should be permitted for any visit to the ED 
that does not result an inpatient stay.
    Response: Sections 1916 and 1916A of the Act prohibit cost sharing 
for emergency services. As there are many emergency conditions and 
services that do not result in an inpatient stay, the commenters' 
suggested policy would violate the statute.
    Comment: Many commenters recommended that states that impose cost 
sharing for non-emergency services provided in an ED be required to 
permit newly-enrolled individuals to make at least one non-emergency ED 
visit before requiring them to pay this cost-sharing obligation.
    Response: States have the option to establish such a policy under 
current regulations and the new rule as finalized, but we do not think 
it appropriate to require it.
    Comment: Some commenters suggested that we designate underserved 
areas and/or certain periods of time in which insufficient access 
warrants exemption from cost sharing for non-emergency use of the ED.
    Response: Per Sec.  447.54(d), before imposing cost sharing for 
non-emergency use of the ED, the hospital must provide the individual 
with a name of and location of an available and accessible provider and 
provide a referral to coordinate scheduling. If geographical or other 
circumstances prevent the hospital from meeting this requirement, the 
cost sharing may not be imposed.
    Comment: Several commenters asked that we refrain from adding more 
specificity or requirements in the regulation itself, for example 
imposing further requirements or pre-conditions on a state's authority 
to impose cost sharing for non-emergency services provided in an ED, 
which they believed would limit the ability of states to account for 
variation across states. A few commenters were concerned that we had 
added a new requirement in stipulating that hospitals ensure that an 
alternative provider is available to provide needed services with 
lesser or no cost sharing. They were concerned the use of the term 
``ensure'' in proposed Sec.  447.54(d)(2)(ii) would require hospitals 
to ``ensure'' something beyond their control, presenting unnecessary 
administrative burden for state administrators and hospitals. Many 
commenters stated that CMS should remove the requirements at proposed 
Sec.  447.54(d)(2)(iii) that ED staff provide a referral and coordinate 
scheduling with an available and accessible alternative non-emergency 
services provider, because it is administratively burdensome and takes 
time and resources away from patient care. In addition, they argue that 
compliance is infeasible given hospitals' limited access to current, 
accurate information on the availability of appointments with other 
providers. The commenters believed that these requirements will make it 
difficult for states to take up the

[[Page 42277]]

option afforded under the statute and that it would be less costly for 
an ED to provide treatment for the non-emergency conditions than to 
coordinate a referral. One commenter stated that the requirement to 
provide a referral is unnecessary because in many state managed care 
programs, every enrollee has a primary care provider and 24-hour call-
in lines are available, enabling hospitals providing the care to 
contact either the enrollee's primary care provider or the 24-hour 
call-in line as an alternative to following the steps listed in Sec.  
447.54(d). Another commenter stated that the language in proposed Sec.  
447.54(d)(2)(iii) differs from the requirement at current Sec.  
447.80(b)(2)(iii), and that the revised language would impose 
additional burdens on states' ability to effectively implement cost 
sharing. The commenter noted that current Sec.  447.80(b)(2)(iii) 
requires hospitals to provide ``a referral to coordinate scheduling of 
treatment by an available and accessible alternative non-emergency 
services provider,'' while proposed Sec.  447.54(d)(2)(iii) requires 
hospitals to ``coordinate scheduling and provide a referral for 
treatment by this provider.''
    Response: We did not intend to add additional requirements for 
hospitals related to cost sharing for non-emergency use of the ED. 
Rather, our intent was to clarify the existing language. To eliminate 
any confusion, we are replacing the word ``ensure'' with ``determine'' 
in Sec.  447.54(d)(2)(iii), as redesignated in the final regulation. 
This is consistent with the statutory requirement that before 
collecting cost sharing for non-emergency use of the ED, hospitals must 
provide individuals with the name and location of an available and 
accessible provider that can provide the service with lesser or no cost 
sharing. States share in this responsibility, of course, and will need 
to work with hospitals to ensure that hospitals are able to determine 
whether such care is available and accessible. The goal underlying the 
policy is to ensure that the right care is provided at the right time 
in an appropriate setting.
    The language in proposed Sec.  447.54(d)(2)(iii), redesignated at 
Sec.  447.54(d)(2)(iv) of this final rule, was intended to clarify the 
referral requirement, which is in current regulation at Sec.  
447.80(b)(2), and which reflects statutory language. We did not intend 
to change the substance of the rule. However, to avoid any confusion we 
are revising Sec.  447.54(d)(2)(iv) to reinstate the language from the 
current rule that hospitals must provide a referral to coordinate 
scheduling for treatment by an alternative provider. To confirm that 
the alternative non-emergency services provider is ``actually available 
and accessible'' as required by statute, it is important that 
scheduling be done onsite, with the beneficiary present, to the maximum 
extent possible. We recognize that this may not be possible during 
certain hours of the night, in which case follow-up scheduling may be 
necessary. Hospitals can and should take advantage of the existence of 
a call line and assigned primary care providers in satisfying the 
coordination requirements in the statute and regulations, and states 
should assure, before imposing such cost sharing, that procedures are 
in place that can facilitate hospitals' ability to carry out these 
responsibilities, including outside of regular business hours.
    Comment: One commenter requested clarification of the referral 
requirement, including whether a patient should have a scheduled 
appointment, or just the information necessary to make an appointment, 
with an alternative provider when he or she leaves the hospital; 
whether community clinics or FQHCs may serve as alternative, non-
emergency providers for referral from the ED; and the appropriate 
process for completing a referral when physician offices are closed. 
One commenter requested that we define ``timely manner'' in proposed 
Sec.  447.54(d)(2)(ii).
    Response: The regulations are not prescriptive on the exact process 
to be used by hospitals. States have flexibility to establish processes 
to meet the coordination goals in the statute and regulations in a 
manner that best accommodates their systems and provider networks. The 
extent to which a state relies on managed care or establishes patient 
centered medical homes, for example, may impact how a state would meet 
the requirements in the regulation. As noted above, whenever possible, 
hospitals should attempt to schedule the appointment while the patient 
is present, but if that is not feasible, the hospital would need to 
follow up to ensure that an alternative provider is ``actually 
available and accessible'' in a timely manner, as required by statute.
    Section 1916A (e)(4)(B) of the Act describes an alternative non-
emergency services provider as one ``that can provide clinically 
appropriate services for the diagnosis or treatment of a condition 
contemporaneously with the provision of the non-emergency services that 
would be provided in an emergency department.'' Any Medicaid 
participating providers, including clinics that can do so, are 
acceptable. Because we do not think that there is a uniform definition 
of timeliness that is appropriate for all situations, we are not 
defining ``timely manner'' in the regulation. In meeting a general 
timeliness standard, however, states should direct hospitals to 
consider the medical needs of the individual to assess (1) whether care 
is needed right away or if a short delay in treatment would be 
sufficient, and (2) any particular challenges the person may face in 
accessing follow-up care, such as leave from employment, child care, or 
ability to receive language assistance services or accessible care for 
people with disabilities. States will need to work with the hospitals, 
non-emergency providers, and managed care organizations participating 
in their Medicaid programs to design a referral network and system that 
fulfills the statutory requirements prior to imposing cost sharing 
amounts for non-emergency services provided by a hospital ED. The 
intent of this provision is to provide an additional tool to ensure 
that care is provided in a timely and appropriate manner to drive 
better quality at lower costs. It is not to be implemented in a way 
that results in people not getting the care they need.
    Comment: One commenter believed that we omitted from proposed Sec.  
447.54(d) some of the statutory requirements that hospitals must meet 
before collecting cost sharing for non-emergency use of the ED, 
including the obligation to inform the recipient that he or she does 
not have an emergency medical condition and the requirement to notify 
the recipient of the applicable cost sharing for treatment of a non-
emergency condition in the ED.
    Response: We did not omit any of the statutory requirements in the 
proposed rule. The requirement that the hospital inform individuals 
whether or not they need emergency services, and of the cost sharing 
obligation to receive services in the ED is implicit in the 
requirements that the assessment be performed and that the hospital 
provide the individual with the name and location of an available and 
accessible alternative provider that can provide services with lesser 
or no cost sharing. We do not see a need to state as much explicitly in 
the text of the regulation. However, for clarity, we have added a new 
paragraph (i) at Sec.  447.54(d)(2) requiring hospitals to ``inform the 
individual of the amount of his or her cost sharing obligation for non-
emergency services provided in the emergency department.'' Proposed 
Sec. Sec.  447.54(d)(2)(i) through (iii) are redesignated in this final 
rule as Sec. Sec.  447.54(d)(2)(ii) through (iv), respectively.

[[Page 42278]]

    Comment: A few commenters recommended that the Secretary ensure 
that the safeguards at Sec.  447.54(d) are observed by states that 
impose cost sharing for non-emergency use of the ED.
    Response: We will ensure through the state plan amendment process 
that the requirements of Sec.  447.54(d) are met, and expect to oversee 
implementation to the extent feasible.
    Comment: One commenter recommended that the final rule include 
requirements for oversight and reporting to ensure that higher cost-
sharing is not imposed without verification of the availability of 
alternative providers able to furnish non-emergency care. In addition, 
the commenter recommended enhanced requirements for verification in 
rural and other areas with a shortage of primary care physicians and 
specialists that will see Medicaid patients that there is available and 
accessible care by an alternative provider. A few commenters 
recommended that, at a minimum, the ED should be required to specify 
what the particular patient's cost-sharing obligation will be, 
including in the case of a patient with income above 150 percent of the 
FPL, that the patient may be responsible for 100 percent of the 
charges. The commenter also believed that, prior to an emergency room 
providing non-emergency care to a Medicaid beneficiary the hospital 
should be required to obtain written consent from the individual to 
receive the non-emergency care in the ED and to take responsibility for 
any cost-sharing obligation for such care.
    Response: The statute, codified at Sec.  447.54(d) in this 
rulemaking, sets forth clear requirements that states must effectuate 
to establish cost sharing for non-emergency use of the ED, including a 
requirement that hospitals provide information on available and 
accessible providers who can provide the needed non-emergency services 
with lesser or no cost sharing. States must ensure that hospitals are 
able to meet these requirements, whether in a rural, suburban, or urban 
setting. We ensure that states are in compliance with the statute and 
regulations through the state plan amendment process and will consider 
whether further reporting is necessary for oversight purposes. For cost 
sharing for individuals with income above 150 percent of the FPL, we 
note that the statute does not require states to make such patients 
responsible for 100 percent of the charges for non-emergency use of the 
ED, but also does not limit the cost sharing that states can impose on 
individuals in this income bracket for non-emergency use of the ED. At 
proposed Sec.  447.52(b)(3), finalized in this rulemaking at Sec.  
447.52(c), any cost sharing imposed for any service may not equal or 
exceed the amount the agency pays for the service; such cost sharing is 
also limited by the 5 percent aggregate limit described at Sec.  
447.56(f).
    Comment: Several commenters stated that the rule does not provide a 
clear methodology for determining ``non-emergency'' status. One 
commenter highlighted the preamble discussion in the proposed 
regulation about the difficulty in determining whether a service is 
needed to address an emergency situation based on Current Procedural 
Terminology (CPT) codes alone, and the lack of guidance on other 
standards that could be used, and requested that CMS more clearly 
define ``non-emergency'' or provide states latitude to define as 
needed. Another commenter shared our concerns about CPT codes and noted 
that, while the imposition of non-emergency ED cost sharing is not 
administratively feasible without some type list, any protocols must 
also avoid violation of the emergency screening requirements under the 
Emergency Medical Treatment and Active Labor Act (EMTALA). One 
commenter stated that the EMTALA requirements are sufficient to 
determine which individuals should be subject to cost sharing for non-
emergency use of the ED, and that states should not have to describe 
the processes in the state plan. Another commenter expressed concern 
about beneficiaries' general ability to distinguish between 
``emergency'' and ``non-emergency'' symptoms. The commenter was 
concerned that adequate protections be in place to ensure that 
beneficiaries are not punished for seeking emergency care when doing so 
is appropriate under a prudent layperson standard. Another commenter 
agreed that in distinguishing between ``emergency'' and ``non-
emergency'' conditions, hospitals must use the prudent layperson 
definition, not a discharge diagnosis. One commenter stated clinical 
reviews of ER claims to look at presenting conditions such as chest 
pain seem would be administratively burdensome, and could delay 
treatment, referral, or payment to providers. Other commenters 
requested that we either clearly define ``non-emergency'' services or 
provide states with the latitude to define them as needed, and several 
commenters asked us to maintain the maximum level of flexibility in the 
rule to facilitate appropriate and feasible implementation of non-
emergency ED cost sharing.
    Response: ``Non-emergency'' services are defined at Sec.  447.51, 
which cross references to the current definition of emergency services 
at Sec.  438.114. This definition relies on a prudent layperson 
standard, in that a medical condition manifests itself by acute 
symptoms of sufficient severity that a prudent layperson that possesses 
an average knowledge of health and medicine could deduce that they need 
emergency medical attention. We agree that it is difficult to implement 
a system to differentiate non-emergency from emergency services for 
cost sharing purposes in a way that ensures beneficiary protections 
consistent with the prudent layperson standard. We continue to believe 
that the use of diagnosis and procedure codes alone is not an 
appropriate process for determining non-emergency services, as doing so 
would not adequately protect beneficiaries legitimately seeking ED 
services based on the prudent layperson standard, for whom a CPT code 
assigned after care is provided may indicate a non-emergency condition. 
We sought comments on feasible methodologies for states and hospitals 
to use to make this distinction, but did not receive any 
recommendations. Therefore, we are not making any revisions in the 
final rule to prescribe how states can and should distinguish between 
``emergency'' and ``non-emergency'' conditions for cost sharing 
purposes. We remain open to states' proposals for distinguishing 
between ``emergency'' and ``non-emergency'' conditions and will review 
such proposals through the state plan amendment process. As successful 
models emerge we will develop further guidance.
    Comment: One commenter asked if would be reasonable to have the 
Medicaid agency reimburse hospitals for the medical screening that they 
must conduct. Another commenter asked if a hospital could be reimbursed 
for providing a referral and giving advice on other appropriate 
providers.
    Response: To the extent the provider properly bills the Medicaid 
agency for an assessment or evaluation conducted on a Medicaid 
beneficiary, the provider would be entitled to payment for the service 
as provided for in the state's Medicaid State plan. States may also 
establish payment specifically for the medical screening exam required 
by EMTALA and/or for coordination of referrals to alternative non-
emergency services providers.
    Comment: One commenter suggested that CMS allow hospitals to charge 
the maximum allowable cost-sharing amount for non-emergent care, and 
then refund the beneficiary if needed. The

[[Page 42279]]

commenter expressed concern that hospitals will not be able to impose 
cost sharing on beneficiaries after they have left the ED.
    Response: The statute requires that before providing and imposing 
cost sharing for non-emergency services in an ED, the hospital must 
inform the beneficiary of the cost sharing obligation tied to those 
services and provide the name and location of an available, accessible, 
alternative provider that can provide the services with no or lesser 
cost sharing. This allows the beneficiary to forgo treatment in the ED 
if they do not have the ability to pay the cost sharing. If the 
individual decides to stay and receive the services at the ED, the 
hospital can impose the cost sharing while the person is still present.
    Comment: One commenter stated that for hospitals, the collection of 
Medicaid cost-sharing amounts for non-emergency care in ED settings can 
prove difficult, leading to lack of payment and increases in bad debt.
    Response: The statute allows states to impose cost sharing for non-
emergency care in an ED and sets out the requirements that hospitals 
must meet to collect such cost sharing. We do not have the authority to 
take away this option or ignore the statutory requirements and will 
work with states and the hospital community to share best practices and 
potentially issue further guidance.
    Comment: One commenter requested clarification as to whether urgent 
care centers are subject to the guidelines for cost sharing for non-
emergency use of the ED.
    Response: No, this rule only pertains to non-emergency services 
furnished in an ED.
    Comment: A few commenters supported what they believed was a new 
option regarding cost sharing for non-emergency services provided in 
the ED to beneficiaries who are otherwise exempt from cost sharing.
    Response: This is not a new option. This is a statutory option 
described at section 1916A(e)(2)(B) of the Act and codified in current 
regulations at Sec.  447.70(b).
    Comment: One commenter stated that instead of focusing on cost 
sharing, which could result in harm to patients, we should focus on 
best practices for medically sound ways of reducing unnecessary 
emergency department visits, such as electronic exchange of patient 
information, care coordination, patient education on appropriate use of 
the ED, and guidelines for prescribing narcotics. One commenter was 
concerned that focusing on cost sharing does not address why patients 
seek care in an ED, and that hospitals trying to decrease non-emergency 
ED use will inadvertently run afoul of either EMTALA or their state's 
emergency access rules. The commenter recommended that some form of 
safe harbor be established for hospitals trying, in good faith, to 
encourage the most appropriate use of resources for non-emergency care.
    Response: We agree that there are many strategies which states can 
and have implemented to address the problem of non-emergency use of 
hospital EDs. However, whether or not cost sharing is the most 
effective way to address non-emergency use of the ED, it is an option 
provided to states in the statute. We are available to work with all 
states in exploring the full range of options to reduce non-emergency 
use of the ED, and to share best practices which emerge.
7. Premiums (Sec.  447.55)
    We proposed one simplified, consolidated section of the regulations 
to implement the options authorized under sections 1916 and 1916A of 
the Act relating to the imposition of premiums on individuals with 
family income above 150 percent of the FPL, and describe the options to 
impose premiums for specific populations. The proposed changes are 
discussed in more detail in the January 22, 2013 Medicaid Eligibility 
Expansion proposed rule (78 FR 4660). We received the following 
comments concerning the proposed premiums provisions:
    Comment: Several commenters recommended that we revise proposed 
Sec.  447.55(a)(2) to clarify that states are allowed to impose 
premiums on qualified disabled and working individuals if the 
individual's income exceeds 150 percent of FPL. The commenters also 
noted that proposed Sec.  447.55(c) does not reflect statutory 
requirements in section 1916 of the Act that limit aggregate premium 
expenses for individuals provided medical assistance under section 
1902(a)(10)(A)(ii)(XV) or 1902(a)(10)(A)(ii)(XVI) of the Act and the 
Ticket to Work and Work Incentives Improvement Act of 1999 (TWWIIA), to 
no more than 7.5 percent of the individual's family income for those 
whose annual income does not exceed 450 percent of the FPL.
    Response: We agree with the commenters. Due to a drafting error, 
the allowable premiums and limitations described at proposed Sec.  
447.55 were not clear. We have revised paragraph (a) and paragraph (c) 
(redesignated as paragraph (b) for clarity), of Sec.  447.55 to address 
this error. Paragraph (b)(1) describes the limitations on prepayment; 
paragraph (b)(2) describes the options for terminating an individual 
for failure to pay, paragraph (b)(3) describes the statutory 
requirements noted by the commenter for individuals receiving medical 
assistance under TWWIIA, and paragraph (b)(4) describes the state's 
option to waive premiums for any individual or family. In addition to 
these clarifications, we revised the description of pregnant women who 
may be charged premiums at Sec.  447.55(a)(1) to reflect the 
consolidation of different statutory eligibility groups for pregnant 
women under a single regulatory section at Sec.  435.116 of the March 
2012 final rule. This is not a substantive change and is intended 
solely to assist states in appropriately identifying those 
beneficiaries who may be charged premiums, as described in the statute. 
As noted above, we made a similar revision to the description of 
children who are exempt from premiums and cost sharing at Sec.  
447.56(a)(1)(i) through (iii) of this final rule.
    Comment: Several commenters recommended that Sec.  447.55 be 
revised to clarify that premiums can only be imposed on medically needy 
individuals after their spend-down amount is met and they are receiving 
Medicaid; they cannot be included as part of the spend down.
    Response: An individual cannot be subject to a premium unless he or 
she is eligible for Medicaid. States may not impose a premium until the 
month in which the individual has met his or her spend-down and becomes 
eligible.
    Comment: Several commenters recommended that the regulations 
require a process for waiving premiums in cases of undue hardship; and 
that the process adopted by a state should be set forth in the state 
plan and reflected in state law and other public documents. One 
commenter asked for CMS to provide examples of ``hardship.''
    Response: The decision to waive premiums due to hardship is a 
matter of state policy. Such policies do not require prior 
authorization from the Secretary. Therefore we are not revising the 
regulations as suggested.
    Comment: One commenter stated that ``sliding scale'' premiums 
imposed on the medically needy under Sec.  457.55 must actually 
``slide'' so that there is a lowest-income group of individuals for 
whom there is no premium and that premiums for higher income 
individuals increase linearly or quasi-linearly up to $20 for those at 
or near 150 percent of the FPL. One commenter stated the $20 allowable 
premium should be removed from the regulation.

[[Page 42280]]

    Response: Section 1916 of the Act expressly permits states to 
impose premiums on medically needy individuals on a sliding scale, but 
does not require that the lowest income medically needy individuals are 
charged $0 premiums. Current regulations at Sec.  447.52 allow for 
premiums on a sliding-scale basis up to $19, and we are finalizing the 
proposal to increase that amount to $20. We have revised the 
regulations at Sec.  447.55(a)(5) to clarify that, if premiums are 
imposed on medically needy individuals on a sliding scale, the agency 
must impose an appropriately higher premium for individuals at higher 
levels of income, with $20 being the maximum allowable premium at the 
highest income level. States may choose to set their highest premium at 
a level below $20.
    Comment: One commenter asked for clarification of the consequences 
for ``non-payment'' that are described at proposed Sec.  
447.55(c)(1)(ii) and (2)(ii). The commenter recommends that termination 
be allowed for failure to make full payment, and that partial payment 
is not adequate to prevent termination from the program.
    Response: As noted previously, due to a drafting error, we have 
revised Sec.  447.55(c) (redesignated as paragraph (b) of the final 
rule) to clarify the consequences for non-payment for all individuals 
subject to premiums. As described in paragraph (2), except for 
medically needy individuals, states have the option to terminate any 
individual who has failed to pay all or part of his or her premium 
obligation. The state may not terminate an individual prior to 60 days 
after the failure to pay the premium. The state may not terminate an 
individual who, during that time period, has paid the premium due in 
full. To reiterate current policy, we also added a new paragraph (5) to 
Sec.  447.56(b) to indicate that no further consequences can be applied 
for non-payment of Medicaid premiums, including ``lock-out'' periods. 
We note that we redesignated paragraph (c) as paragraph (b) in the 
final rule to move the state plan requirements after the section 
related to consequences for non-payment. This change is to improve the 
flow of the regulation and is not intended to be substantive.
    Comment: One commenter was concerned that proposed Sec.  447.55(c) 
would permit states to terminate Medicaid coverage for failure to pay 
premiums for as little as 60 days. While the commenter calls this an 
improvement over the current regulation, which they believe does not 
establish any minimum grace period, the commenter believed that states 
should be encouraged to work with beneficiaries on a payment schedule 
to avoid a termination.
    Response: Proposed Sec.  447.55(c), redesignated as Sec.  447.55(b) 
in the final rule, does not represent new policy. This option, 
established under both sections 1916 and 1916A of the Act, is currently 
codified at Sec.  447.80 for individuals with income over 150 percent 
of the FPL who are subject to premiums under section 1916A of the Act. 
In this final rule, we are simply codifying the requirements as they 
relate to premiums imposed under the authority of section 1916(c) of 
the Act.
8. Limitations on Premiums and Cost Sharing (Sec.  447.56)
    We proposed a single streamlined approach to implement the 
limitations on premium and cost sharing established under sections 1916 
and 1916A of the Act wherever the policies align. Sections 1916(a), 
(b), and (j), and 1916A(b)(3) of the Act specify certain groups of 
individuals as exempt from premiums and/or cost sharing, including 
certain children, pregnant women, certain American Indians and Alaska 
Natives (AI/ANs), certain individuals residing in an institution, 
individuals receiving hospice care and individuals eligible under the 
optional eligibility group for individuals with breast and cervical 
cancer under Sec.  435.213 of this part. The proposed changes are 
discussed in more detail in the January 22, 2013 Medicaid Eligibility 
Expansion proposed rule (78 FR 4660 and 4661). We received the 
following comments concerning the proposed limitations on premiums and 
cost sharing provisions:
    Comment: Two commenters recommended that proposed Sec.  447.54(c), 
which permits states to impose cost sharing for non-emergency use of 
the ED on individuals otherwise exempt from cost sharing, should not 
apply to AI/AN beneficiaries who are exempt from cost sharing.
    Response: We are finalizing the regulation as proposed. Sections 
1916A(c)(2)(B) and 1916A(e)(2)(B) of the Act permit states to charge 
nominal cost sharing to individuals otherwise exempt from cost sharing 
under section 1916A(b)(3)(B) of the Act for non-preferred drugs and 
non-emergency use of an ED. There is no differential treatment under 
the statute for AI/ANs as compared to other individuals who are 
otherwise exempt from cost sharing. However, such cost sharing must be 
limited to the nominal and neither a pharmacy nor a hospital ED may 
deny services if the individual does not pay the cost sharing.
    Comment: We solicited comments about requiring states to 
periodically renew an AI/AN's cost sharing exemption based on current 
or previous use of a service from an Indian health care provider or 
through referral under contract health services. A number of commenters 
supported proposed Sec.  447.56(a)(1)(vii) to exempt AI/ANs who are 
currently receiving, or have ever received a service from an Indian 
health care provider or through referral under contract health services 
from any cost sharing. Several commenters were concerned that requiring 
renewal of status for the exemption would be administratively 
burdensome for both AI/AN individuals and state Medicaid agencies and 
could lead to exempt individuals being subject to impermissible cost 
sharing. A few commenters recommended that if renewal of the AI/AN 
exemption status is required, that such renewal be limited to no more 
than once every three years, which is the period of time used by IHS 
for determining ``active users'' in an IHS or tribal service unit. No 
commenters supported a renewal policy for AI/AN exemption.
    Response: We are adopting the AI/AN exemption as proposed because 
we do not see any particular utility in requiring renewal of status, 
since the underlying eligibility for IHS or tribal health services is 
unlikely to change, and we agree that renewal of status can be 
burdensome for both the beneficiary and the provider. Once the 
exemption for an individual at Sec.  447.56(a)(1)(x), as redesignated 
in this final rule, is established, a renewal of such exemption will 
not be necessary. We note that we added a definition of contract health 
service at Sec.  447.51 for clarity and made a technical correction 
under the definition of Indian to reflect revised citations to 25 U.S.C 
due to changes made by the Affordable Care Act. We do not intend these 
to be substantive changes to the regulations.
    Comment: One commenter recommended we permit states to implement 
specific processes to track separate cost sharing for AI/ANs related to 
the 5 percent aggregate limit as permitted by current regulation.
    Response: We do not see a need for states to separately track cost 
sharing for AI/AN beneficiaries, the majority of whom are exempt from 
cost sharing under the regulations. For any individuals permissibly 
subject to cost sharing, the same 5 percent aggregate limit applied to 
other beneficiaries, and the same requirement to track cost sharing 
charges, would apply.

[[Page 42281]]

    Comment: A few commenters suggested states should have broad 
latitude in applying verification procedures to exempt AI/ANs who are 
eligible for or currently or have ever received a service from an 
Indian provider or through referral under contract health services 
(CHS) from premiums and cost sharing respectively, and that procedures 
that create the least burden on individuals, including electronic 
processes, be employed by states. They recommended that self-
attestation of status for the AI/AN cost sharing exemption be 
permitted, that if verification is required that electronic data 
matching should be used to the maximum extent possible, and that we 
provide a list of possible documents which states could use when 
electronic verification is not available.
    Response: There are no specific federal requirements regarding the 
process for verifying premiums and cost sharing exemptions for AI/ANs. 
States have flexibility to establish their own processes for verifying 
who is eligible to receive or has ever received a service from an 
Indian provider or through referral under CHS, including the use of 
self-attestation, electronic data matches or reasonable paper 
documentation, as long as the process is not unduly burdensome on AI/
ANs.
    Comment: One commenter requested that CMS clarify that family 
planning supplies are exempt from differential cost-sharing for non-
preferred drugs. Another commenter recommended that CMS clarify that 
the limitations on premiums and cost sharing also apply to family 
planning-related services, including office visits. Commenters believed 
that this clarification is particularly important for coverage of 
family planning under the state plan, permitted under section 
1902(a)(10)(A)(ii)(XXI) of the Act, as added by section 2303 of the 
Affordable Care Act, which defines ``medical assistance'' covered under 
this option to include both family planning and family planning-related 
services.
    Response: Under sections 1916 and 1916A of the Act and Sec.  447.53 
and Sec.  447.70 of the current regulation, family planning services 
and supplies, including contraceptives and pharmaceuticals for which 
the state properly claims or could claim at an enhanced federal match, 
are exempt from cost sharing. We did not propose any changes to this 
exemption, which is codified at Sec.  447.56(a)(2)(ii) of this final 
rule. We do not have the statutory authority to require states to 
exempt ``family planning-related services,'' which are a separate 
category of services, but states have the option to do so.
    Comment: One commenter requested that we clarify that pregnant 
women receiving services during a period of presumptive eligibility are 
also exempt from premiums and cost sharing.
    Response: Individuals who are receiving benefits during a 
presumptive eligibility period, but who have not yet been determined 
Medicaid eligible by the agency, based on a regular application, 
including pregnant women, may not be subjected to the premiums. In 
addition, all pregnancy-related services are exempt from cost sharing, 
including during a period of presumptive eligibility. As described in 
the March 2012 final eligibility rule, ``Pregnancy related services'' 
is presumed to include all services otherwise covered under the state 
plan unless the state has justified classification of a service as not 
pregnancy-related in its state plan.
    Comment: Many commenters supported the provision in proposed Sec.  
447.56(a)(1)(v) to give states the option to exempt individuals from 
cost sharing if they are receiving long term services and supports in a 
home or community-based setting and are required to contribute to the 
cost of care in a manner similar to the post-eligibility treatment of 
income for institutionalized individuals under part 435 subpart H of 
the regulations. Many commenters recommended that we require states to 
exempt such individuals because imposing cost sharing could push 
individuals into more restrictive settings in violation of the 
requirements of the Americans with Disabilities Act (ADA), as applied 
by the Supreme Court in the Olmstead decision. A few commenters 
recommended that we require states to exempt all individuals receiving 
services in a home and community-based setting regardless of whether 
they are required to contribute to the cost of their care. Finally, one 
commenter asked that we clarify that we are not proposing to extend the 
same post-eligibility treatment of income rules used for institutional 
services to individuals receiving services in a home and community-
based setting who, in addition to any contribution for the cost of 
their care, also generally have to cover other basic living expenses, 
such as for housing and food, and would not be able to cover such 
expenses if they were required to contribute all but a nominal amount 
of their income to cover the cost of the services received, as is the 
case for institutionalized individuals.
    Response: As noted above, we do not see a statutory basis to 
require this exemption, therefore in the final rule, at Sec.  
447.56(a)(1)(viii), as redesignated, we maintain the option for states 
to exempt individuals receiving services in a home and community-based 
setting, whose medical assistance is reduced by amounts reflecting 
available income other than required for personal needs. This option is 
consistent with state authority under section 1916A of the Act to 
target cost sharing to specified groups. In addition, states may target 
cost sharing at particular types of services, and could determine not 
to impose cost sharing on home and community-based services. We also 
note that if an individual has his or her medical assistance reduced to 
account for available income, the individual would be able to deduct 
any premiums or cost sharing from the calculation of available income 
used to determine the level of medical assistance provided. There would 
be no modification of current regulations relating to post-eligibility 
treatment of income or share-of-cost. Again, we remind states of their 
obligations under Olmstead.
    Comment: One commenter recommended that former foster care children 
covered under Sec.  435.150 should be exempt from premiums and cost 
sharing. Several commenters recommended that states be given the 
express option to exclude medically frail individuals from cost 
sharing.
    Response: While we understand that these are populations upon which 
states may not wish to impose cost sharing, we do not see a clear basis 
to support a federally-mandated exemption. States are free to use 
targeted cost sharing, in accordance with Sec.  447.52(d), to limit the 
impact of cost sharing as needed to address issues of non-exempt 
populations that the state determines are particularly vulnerable.
    Comment: One commenter requested clarification on the provision at 
Sec.  447.56(c)(3), which is specific to providers that the agency 
reimburses under Medicare reasonable cost reimbursement principles. The 
commenter asked whether the policy that an agency may increase its 
payment to offset uncollected deductible, coinsurance, copayment, or 
similar charges that are bad debts of such providers was a change or 
consistent with current law.
    Response: This policy is contained in the current regulations at 
Sec.  447.57(b). However, consistent with the new definition of cost 
sharing included at Sec.  447.51 of this final rule, we are replacing 
the reference to ``deductible, coinsurance, copayment, or similar'' 
with ``cost sharing'' in the final rule.

[[Page 42282]]

    Comment: Many commenters recommended that we amend sections 1916 
and 1916A of the Act to clarify that the preventive services included 
in the EHBs are exempt from cost sharing, because low income 
individuals enrolled in Medicaid ABPs may be responsible for cost 
sharing for some of the preventive services that are available to 
higher income individuals in the private market with no cost sharing.
    Response: Section 1916A of the Act and the final rule at Sec.  
447.56(a)(2)(iii) do require exemption of preventive services for 
children under age 18. At a minimum such services must include those 
specified at Sec.  457.520, which reflect the well-baby and well child 
care and immunizations in the Bright Futures guidelines issued by the 
American Academy of Pediatrics. We do not see a basis to broaden this 
statutory exemption under the Medicaid program to extend to preventive 
services for older individuals. States have the flexibility to exempt 
additional services from cost sharing and could determine to exempt 
preventive services for all beneficiaries.
    Comment: Many commenters recommended that we exempt services 
associated with ``never events'' from cost sharing.
    Response: We agree with commenters that services associated with 
``never events'' should not be subject to cost sharing. In accordance 
with Sec.  447.26(c)(1), ``no medical assistance will be paid for 
``provider preventable conditions'' as defined in this section. We 
interpret medical assistance in this context to include any state plan 
imposed cost sharing, and providers, who are not permitted to claim 
reimbursement from the agency for these services, also are not entitled 
to charge the beneficiary any cost sharing amount. To clarify this 
requirement, we have included provider-preventable services, also known 
as ``never events,'' among the list of exempted services at Sec.  
447.56(a)(2)(v).
    Comment: One commenter recommended that we revise Sec.  
447.56(a)(2)(iv) to require that all services provided to pregnant 
women be considered as pregnancy-related, except those services 
specifically identified in the state plan as not being related to the 
pregnancy, only if the state is able to justify and the Secretary 
concurs, that the service is not pregnancy-related.
    Response: States have the discretion to determine pregnancy-related 
services within the parameters of Sec.  440.210(a)(2). We are seeking 
to align the standard related to cost sharing with what is required for 
the provision of pregnancy-related services, and maintain in the final 
rule that all services provided to pregnant women will be considered 
pregnancy related unless the state has justified classification of a 
service as not pregnancy-related in its state plan.
    Comment: One commenter asked that we clarify what is meant by 
``nonexempt'' and ``otherwise exempt populations,'' per the reference 
to allowing states to impose cost-sharing at higher than nominal levels 
for nonexempt individuals and applying cost sharing to otherwise exempt 
populations at Sec.  447.56.
    Response: Exempt populations are defined at sections 1916(a), (b) 
and (j) and 1916A(b) of the Act and at Sec.  447.53 and Sec.  447.70 of 
the current regulations. These populations are exempt from cost sharing 
under section 1916 and 1916A(a) of the Act, respectively, but are not 
exempt from cost sharing under section 1916A(c) or (e) of the Act, 
which pertain to alternative cost sharing for non-preferred drugs and 
non-emergency use of the ED. These exemptions were consolidated at 
Sec.  447.56(a) of the proposed rule and maintained in the final rule. 
When using the term ``nonexempt'' we are referring to beneficiaries who 
do not fall into one of the groups exempted under Sec.  447.56(a) of 
the final rule and therefore may be subject to cost sharing. 
``Otherwise exempt populations'' refers to those populations that are 
generally required to be exempted from cost sharing but are not exempt 
from cost sharing under section 1916A(c) or (e) of the Act. Section 
1916A of the Act allows states to impose cost sharing for drugs and 
non-emergency use of the ED on ``otherwise exempt populations,'' 
meaning that such cost sharing may be imposed on beneficiaries who are 
exempted from all other cost sharing per Sec.  447.56(a).
    Comment: Many commenters were concerned that the aggregate limit 
described in proposed Sec.  447.56(f) does not apply to individuals 
with income at or below 100 percent of the FPL. Another commenter was 
concerned that these rules created a new requirement for states to 
apply the aggregate limit to cost sharing imposed under section 1916 of 
the Act. A few commenters urged the Secretary to lower the aggregate 
limit to something less than 5 percent.
    Response: Under sections 1916 and 1916A of the Act, aggregate 
premiums and cost sharing imposed may not exceed 5 percent of an 
individual's income. This is a statutory limit and we do not have the 
authority to require states to apply a lower cap. However, we are 
revising the final regulation at Sec.  447.56(f)(1), and redesignating 
the succeeding paragraphs accordingly, to provide that the aggregate 
limit applies to all premiums and cost sharing incurred by all 
individuals in the Medicaid household, at all income levels. At Sec.  
447.56(f)(2) of the final rule, we maintain the requirement in current 
regulation that states must track all incurred Medicaid premiums and 
cost sharing for all members of the Medicaid household, if such 
premiums and cost sharing could place any family member at risk of 
reaching the aggregate limit.
    Comment: Many commenters recommended we revise proposed Sec.  
447.56(f)(3) to require states to inform beneficiaries, at risk of 
reaching the aggregate limit, of the automated process used to track 
premiums and cost sharing, and how they can obtain ongoing information 
about how far they are from reaching the limit.
    Response: Section 447.56(f)(2), as redesignated in this final rule, 
requires that if a state imposes cost sharing that could result in 
individuals reaching the aggregate limit, the state must describe their 
process for tracking the premiums and cost sharing in their state plan. 
Current regulations at Sec.  447.64(d)(2), redesignated atSec.  
447.56(f)(3) in this final rule, do require the state to notify 
beneficiaries and providers when the beneficiary reaches the cap. We 
are revising this paragraph to restore language currently in Sec.  
447.68(d) that was inadvertently removed in the proposed rule 
indicating that the state must inform beneficiaries and providers of 
the beneficiaries' aggregate limit. States must also have a process in 
place for beneficiaries to request a reassessment of their aggregate 
limit. We believe these rules provide the best balance between 
minimizing administrative burden on states and modernizing the Medicaid 
program to ensure beneficiaries are not charged amounts in excess of 
the aggregate. We do not believe these rules prevent states from 
establishing processes by which beneficiaries can regularly check their 
status regarding the aggregate limit. To allow states flexibility, we 
are not specifying the mechanisms by which such notifications must 
occur.
    Comment: One commenter recommended that the regulation should use a 
single, annual (not monthly) cost sharing maximum, such as that used 
for the Part D low-income subsidy, since renewals are completed on an 
annual basis, and therefore cost-sharing maximums are most effectively 
implemented on a well-established calendar-year basis.
    Response: Section 1916A of the Act requires that the aggregate 
limit be applied on a monthly or quarterly basis

[[Page 42283]]

as determined by the state; an annual limit is not permitted under the 
statute.
    Comment: One commenter requested that we clarify what is meant by 
``premiums or cost sharing rules that could place beneficiaries at risk 
of reaching the aggregate family limit'' in proposed Sec.  
447.56(f)(3).
    Response: If a state imposes premiums and/or cost sharing at a 
level that could result in cumulative premiums and cost sharing 
exceeding 5 percent of a beneficiary's family income (for all family 
members on Medicaid, over the course of a month or quarter as 
determined by the state), the state must implement an effective 
tracking mechanism to ensure the cap is not exceeded. For example, a 
state may establish a prescription drug copayment targeted to 
individuals with family income above 150 percent of the FPL, and set 
the copay at $1 for preferred drugs and $2 for non-preferred drugs. If 
this is the only cost sharing to which these individuals are subject, 
and they do not pay a premium, then it is unlikely that any beneficiary 
would accumulate cost sharing charges in excess of 5 percent of his or 
her family income, and the state would not have to establish a tracking 
mechanism. However, if these same beneficiaries were also assessed a 
premium of 4 percent of family income, beneficiaries may be at risk of 
reaching the aggregate limit and the state would need to establish a 
tracking mechanism. Anyone with income under 100 percent of the FPL, 
who is subject to any cost sharing would likely be at risk of reaching 
the aggregate limit and a tracking mechanism would likely be required. 
We will work with states to determine their need for a tracking 
mechanism through the state plan amendment process.
    We note that if more than one Medicaid beneficiary resides in a 
household, then the premiums or copayments of each beneficiary in the 
household would count toward the aggregate limit. We do not 
specifically define when cost sharing may place beneficiaries at risk 
of reaching the aggregate limit, because of the many different 
combinations of cost sharing and premium charges which it would be 
possible for states to impose. We will monitor state compliance through 
the state plan amendment process.
    Comment: One commenter requested further guidance on ways to track 
cost sharing for beneficiaries who change plans during the year.
    Response: For individuals who change plan mid-year, the state must 
establish a mechanism to continue tracking through the transition to 
ensure that they do not exceed the cap. Alternatively, a state could 
suspend any additional cost sharing until the next monthly or quarterly 
period begins. We have in the past encouraged, and continue to 
encourage, states to track cost sharing through their Medicaid 
Management Information System (MMIS). As we review state plan 
amendments and conduct audits, we will share best practices that emerge 
among states to promote effective and efficient tracking systems.
    Comment: Many commenters recommended that we remove the requirement 
at proposed Sec.  447.56(f)(3) that states have an automated mechanism 
for tracking each family's incurred premiums and cost sharing because 
it is costly and presents a substantial administrative and operational 
burden on state Medicaid agencies, their contractors, and providers. 
Instead, the commenters recommended that the state should have an 
opportunity to develop its own mechanism for tracking a Medicaid 
enrollee's premium and cost sharing spending. A few commenters also 
recommended that states should have the option of having the enrollees 
track their own information. One commenter asked that we clarify that a 
state that delegates responsibility for the administration of cost 
sharing to managed care organizations must ensure the availability of 
complete and timely information necessary for performing this role.
    Response: We have revised Sec.  447.56(f)(2) in this final rule to 
remove the word ``automated'' and replace it with ``effective.'' CMS 
will review state proposals through the state plan amendment process to 
ensure that tracking mechanisms employed by states are effective in 
ensuring that incurred premiums and cost sharing do not exceed the 
aggregate limit and that the tracking mechanism does not rely on 
beneficiaries. We note that under current regulations states must 
account for cost sharing amounts in their MMIS to ensure appropriate 
provider payment and must calculate each family's aggregate limit--from 
data in the state's eligibility system--and provide that information to 
the beneficiary. States may claim federal matching funds to update 
their MMIS and eligibility systems as necessary to implement a tracking 
system that uses the data already available in their systems to 
implement the aggregate limit. States have the flexibility to develop 
any effective process that does not rely on beneficiaries, and contains 
timely and accurate information so that beneficiaries do not exceed 
their aggregate limits. In addition, a state may delegate this 
responsibility, as appropriate, to their managed care organizations 
although we are not requiring that they do so. Tracking of premiums and 
cost sharing is standard industry practice among health plans, 
including those that participate in the Medicaid program, and is 
consistent with implementing the requirements of the Affordable Care 
Act out-of-pocket limits for all Americans, which will require tracking 
by all private health insurance plans.
    Comment: One commenter stated that the flexibilities provided in 
the proposed rule, including the higher cost sharing limits, are 
negated by the continued application of the aggregate limit. The 
commenter argues that the high cost sharing limits effectively will 
serve as a provider rate cut, which will trigger further decrease in 
access to health care for Medicaid beneficiaries. The commenter 
recommends that we allow exceptions to the 5 percent aggregate limit 
and the automated tracking requirements, allowing states to propose in 
their state plan reasonable assumptions and methodologies to limit 
maximum out-of-pocket costs at an individual or family level. The 
commenter believed such an approach, coupled with provisions for 
exceptions and an appeals process involving clear timelines to preserve 
access to care, would be consistent with the spirit of the statute.
    Response: We do not understand the connection that the commenter is 
making between the aggregate limit and effective provider reimbursement 
rates. Once the limit is reached, the beneficiary may not be charged 
any cost sharing amounts, and providers will be paid the full 
reimbursement rate by the state. Regardless, the application of an 
aggregate limit, which is common practice in commercial insurance as 
well, is required by section 1916A of the Act, as added by the Deficit 
Reduction Act of 2005; we do not have authority to eliminate this 
requirement through regulation.
9. Beneficiary and Public Notice Requirements (Sec.  447.57)
    We proposed to codify existing policy to ensure that beneficiaries, 
providers, and the general public all have access to effective notice 
of Medicaid premium and cost sharing charges. Appropriate vehicles for 
providing notice might include the agency Web site, newspapers with 
wide circulation, web, and print media reaching racial, ethnic, and 
linguistic minorities, stakeholder meetings, and formal notice and 
comment in accordance with the state's

[[Page 42284]]

administrative procedures. We received the following comments 
concerning the proposed provisions for beneficiary and public notice 
requirements:
    Comment: One commenter asked for clarification on what constitutes 
a method to which applicants, beneficiaries, and providers are ``likely 
to have access,'' and whether publication on a state Web site would be 
an acceptable method. One commenter strongly disagreed that state 
legislative hearings do not provide sufficient public, beneficiary and 
provider notice and recommended that such hearings be included as one 
of the options for providing sufficient notice.
    Response: To allow flexibility for different state processes while 
ensuring provision of meaningful notice, we are not prescribing the 
particular method or format that states must use to provide the 
required notice, but instead proposed parameters at Sec.  447.57, 
finalized with one revision (discussed below) in this rulemaking, 
regarding what constitutes sufficient notice. We provided examples of 
acceptable methods in the preamble to the proposed rule, including 
notice on the state agency's Web site. As stated in the preamble to the 
proposed rule, we do not believe that legislation discussed at a 
hearing or posted on a Web site is adequate, since state legislation 
and legislative hearings often are not accessible or understandable to 
many beneficiaries, providers or other interested members of the 
public.
    Comment: Many commenters supported the proposal to require that 
states provide additional public notice if proposed cost sharing is 
substantially modified during the state plan amendment (SPA) approval 
process. Many of these same commenters also recommended that we require 
states to provide at least a 30-day comment period on any revisions to 
a SPA involving premiums or cost sharing charges. A few commenters were 
concerned that the proposed rule would be too burdensome on states and 
recommended that no additional public notice requirements be imposed on 
states.
    Response: We have revised the regulations at Sec.  447.57(c) to 
require states to provide additional public notice if proposed cost 
sharing is substantially modified during the SPA approval process. We 
are also applying this rule to premiums that are substantially modified 
during the SPA process. We are not, however, accepting the 
recommendation that states should have to provide a second 30 day 
comment period for any revisions made to the state's cost sharing 
policy during the SPA approval process, as we believe this would be 
overly burdensome on states and significantly delay the SPA process.

III. Provisions of the Final Regulations

    For the most part, this final rule incorporates the provisions of 
the proposed rule. We received many comments about the complexity of 
the proposed rules and the significance of the changes that need to be 
made to fully implement the provisions of the Affordable Care Act. Many 
commenters were concerned about the short timeframes for implementation 
and about states' ability to make needed changes to policy, operations, 
and information technology systems. We recognize that the timing of 
this rule may result in implementation challenges, especially from a 
systems perspective. Therefore, we have evaluated the provisions of the 
January proposed rule that are necessary to meet the deadlines and are 
finalizing in this rule only those provisions that we believe states 
will be reasonably able to (or have already been planning to) implement 
by January 1, 2014. Remaining provisions will be finalized in future 
rulemaking. Those provisions, included in this final rule, that differ 
from the proposed rule are as follows:

Change to Sec.  431.10

     Clarified responsibilities of single state agency related 
to delegation of fair hearings.

Change to Sec.  431.201

     Added the definition of ``send.''

Change to Sec.  431.205

     Clarified language in Sec.  431.205(b).

Change to Sec.  431.206

     Clarified in Sec.  431.206(d) that an individual has a 
right to a hearing before the Medicaid agency instead of the Exchange 
or Exchange appeals entity.

Change to Sec.  435.603

     Specified in Sec.  435.603(d)(4) that the 5 percent 
disregard should be applied to the highest income standard in the 
applicable Title of the Act under which the individual may be 
determined eligible using MAGI-based methodologies.

Change to Sec.  435.908

     Deleted paragraph Sec.  435.908(c)(3)(i).

Change to Sec.  435.918

     Allowed for delayed implementation of electronic notices 
and required that the Agency ensure that an individual's election to 
receive notices electronically is confirmed by regular mail and that 
the individual is informed of his or her right to change such election.

Change to Sec.  435.923

     Clarified in Sec.  435.923(a) that any authorization 
granted under operation of state law may serve in place of written 
authorization by the applicant or beneficiary.

Change to Sec.  435.1015

     Clarified that states are required to consider the cost 
sharing requirements of the private health plan when determining 
whether premium assistance is a cost-effective option.

Changes to Sec.  435.1110

     Revised Sec.  435.1110(c)(1) to make clear that states 
electing to limit the presumptive eligibility determinations which 
hospitals can make must permit the hospitals to make presumptive 
eligibility determinations based on income for all of the populations 
included in Sec.  435.1102 and Sec.  435.1103.
     Adding paragraph (d)(3) to provide that the agency may 
disqualify a hospital as a qualified hospital only after it has first 
provided the hospital with additional training or taken other 
reasonable corrective action measures.

Change to Sec.  435.1200

     Codified Sec.  435.1200(d)(5) of proposed rule at Sec.  
435.1200(d)(6).

Changes to Sec.  447.51

     Added definition of ``inpatient stay'' and ``outpatient 
services.''
     Added definition of Federal poverty level (FPL) to use the 
acronym throughout the regulation. No substantive change is intended.
     Added a definition of contract health service, for clarity 
(not a substantive change to the regulations).

Changes to Sec.  447.52

     Revised the maximum cost sharing allowed for an inpatient 
stay to $75 and added a new paragraph at (b)(2), to require states with 
inpatient cost sharing that exceeds the amount in the final rule, as of 
July 15, 2013, to submit a plan to CMS that provides for reducing 
inpatient cost sharing to $75 on or before July 1, 2017.
     Revised paragraph (b)(3) to be clear that, ``in states 
that do not have fee-for-service payment rates, any cost sharing 
imposed on individuals at any income level may not exceed the maximum 
amount established for individuals with income at or below 100 percent 
of the FPL.

[[Page 42285]]

     Revised Sec.  447.52(d), adding paragraphs (1) and (2) to 
clarify that for cost sharing imposed for non-preferred drugs and for 
non-emergency services provided in a hospital emergency department 
under, the agency may target to a specified group of individuals 
regardless of income.
     Added and amended paragraph (g) to restore the option to 
establish different cost sharing charges for individuals at different 
income levels.
     Added paragraph (h) to restore requirement that any cost 
sharing charges imposed by managed care organization on Medicaid 
enrollees be in accordance with the requirements set forth in the 
regulations.
     Added paragraph (i) to consolidate the state plan 
requirements currently contained in Sec.  447.53(d) and Sec.  447.68.

Changes to Sec.  447.53

     Revised paragraph (d) to clarify that cost sharing for 
non-preferred drugs imposed on otherwise exempt populations cannot 
exceed the nominal amount defined in Sec.  447.53(b) in accordance with 
section 1916A(c) of the Act.
     Revised paragraph (e) to require that states must have a 
timely process to allow for cost sharing at the preferred drug level if 
the prescribing provider determines that the preferred drug would be 
less effective or have adverse effects on the individual to ensure that 
access to necessary drugs is not delayed.

Changes to Sec.  447.54

     Amended paragraph (d)(2)(iii) to replace the word 
``ensure'' with ``determine.''
     Added new paragraph (i) at Sec.  447.54(d)(2) requiring 
hospitals to inform the individual of the amount of his or her cost 
sharing obligation for non-emergency services provided in the ED.

Changes to Sec.  447.55

     Due to a drafting error we revised this section to 
accurate reflect who can be charged premiums and what consequences for 
non-payment exist for specified groups.
     Revised at paragraph (a)(1) the description of pregnant 
women who can be charged premiums to reflect the consolidation of 
different statutory eligibility groups for pregnant women under a 
single regulatory section at Sec.  435.116 of the March 2012 final 
rule. This is not a substantive change and is intended solely to assist 
states in appropriately identifying those pregnant women who may be 
charged as described in the statute.
     Revised paragraph (a)(5) to clarify that, if premiums are 
imposed on a sliding scale, the agency must impose an appropriately 
higher premium for individuals at higher levels of income, with $20 
being the maximum allowable premium at the highest income level.
     Added a new paragraph (5) to Sec.  447.55(b) to indicate 
that no further consequences can be applied for non-payment of Medicaid 
premiums, including ``lock-out'' periods.

Changes to Sec.  447.56

     Revised at paragraph (a)(1)(i) the description of children 
who are exempt from premiums and cost sharing at Sec.  447.56(a)(1)(i) 
through (iii) and (iv) to reflect the consolidation of different 
statutory eligibility groups for children under a single regulatory 
section at Sec.  435.118 of the March 2012 final rule, and to reflect 
the changes in the types of assistance available under Title IV-E of 
the Act. These are not substantive changes and are intended solely to 
assist states in appropriately identifying those children who may be 
charged premiums and cost sharing and exempting those who may not, as 
described in the statute.
     Amended paragraph (a)(2)(v) to include provider-
preventable services, also known as ``never events,'' among the list of 
exempted services.
     Revised paragraph (f)(2) to restore language currently in 
Sec.  447.68(d) that was inadvertently removed in the proposed rule 
indicating that the state must inform beneficiaries and providers of 
the beneficiaries' aggregate limit.

Changes to Sec.  447.57

     Revised language at paragraph (c) to require states to 
provide additional public notice if proposed cost sharing is 
substantially modified during the SPA approval process.

Change to Sec.  457.110

     Required that states provide individuals with a choice to 
receive notices and information required under this subpart and subpart 
K of this part, in electronic format or by regular mail.

Change to Sec.  457.570

     Adding paragraph (c)(2).

Change to Sec.  457.810

     Added language requiring protections against substitution 
of coverage in states that operate premium assistance programs.

Changes to Sec.  155.20

     Clarifies the definition of advance payments of the 
premium tax credit.

Changes to Sec.  155.200

     Removes the reference to subpart F, as it will be 
finalized in a future rule.

Changes to Sec.  155.227

     Clarifies that for the purpose of Sec.  155.227, the terms 
``applicant'' and ``enrollee'' describe people on whose behalf 
authorized representatives are acting, and that the term ``person'' 
describes an individual acting as an authorized representative.
     Clarifies that authorized representatives are permitted to 
provide assistance in the individual and SHOP Exchanges, as well as for 
individuals seeking an exemption from the shared responsibility 
payment.
     Adds language ensuring that the Exchange provides 
information to both the applicant or enrollee and the authorized 
representative regarding the powers and duties of an authorized 
representative.
     Adds language allowing an Exchange to permit an applicant 
or enrollee to authorize their representative to perform fewer than all 
of the activities described in this section, provided that the Exchange 
tracks the specific permissions of each authorized representative.
     Clarifies that an authorized representative will notify 
the Exchange and the applicant or enrollee on whose behalf he or she is 
acting when the authorized representative no longer has legal authority 
to act on behalf of the applicant or enrollee.
     Clarifies that the Exchange, not the applicant or 
enrollee, will notify the authorized representative when an applicant 
or enrollee notifies the Exchange that an authorized representative is 
no longer acting on his or her behalf.
     Removes the provision that organizations as well as staff 
and volunteers of organizations must enter an agreement with the 
Exchange.

Changes to Sec.  155.230

     Clarifies electronic notice standards for an individual 
market Exchange, and specifies that the individual market Exchange may 
choose to delay the implementation of the process described in Sec.  
435.918(b)(1) regarding sending a mailed confirmation of the choice to 
receive electronic notices.
     Adds standards to distinguish notice standards for a SHOP 
and adds language to allow an employer or employee in any SHOP to elect 
to receive electronic notices.

[[Page 42286]]

Changes to Sec.  155.300

     Clarifies the appropriate cross-reference for the 
definition of minimum value.

Changes to Sec.  155.302

     Clarifies that any contracting arrangement for eligibility 
determinations for Medicaid and CHIP is subject to the standards in 
Sec.  431.10(c)(2).
     Clarifies that the Exchange appeals entity, in addition to 
the Exchange, must adhere to the eligibility determination or appeals 
decision for Medicaid or CHIP made by the Medicaid or CHIP agency, or 
the appeals entity for such agency.
     Specifies that the agreement under Sec.  155.302(b)(6) 
will be made available to HHS upon request.

Changes to Sec.  155.305

     Removes the clause ``unless another Exchange verifies that 
the individual meets the residency standard of such Exchange'' related 
to temporary residence.
     Clarifies that an applicant must be eligible for 
enrollment in a QHP through the Exchange to be determined eligible for 
enrollment through the Exchange in a QHP that is a catastrophic plan.

Changes to Sec.  155.310

     Clarifies that the provision regarding duration of 
eligibility determinations without enrollment only refers to an 
applicant who is determined eligible for enrollment in a QHP through 
the Exchange.

Changes to Sec.  155.315

     Modifies procedures for situations in which key data 
sources are unavailable and not reasonably expected to be available 
within 1 day, such that the Exchange will make an eligibility 
determination based on an applicant's attestation and trigger the 
inconsistency period in paragraph (f).
     Clarifies that the Exchange will accept an applicant's 
attestation regarding three specific factors of eligibility when 
electronic data is required but it is not reasonably expected that data 
sources will be available within 1 day of the initial request to the 
data source, and that for purposes of eligibility for advance payments 
of the premium tax credit and cost-sharing reductions, other sections 
in this subpart already address situations in which data regarding 
MAGI-based income is unavailable.
     Clarifies that paragraph (f)(5)(i) of this section will 
follow the effective dates specified in Sec.  155.330(f).
     Modifies the language concerning the verification related 
to eligibility for enrollment through the Exchange in a QHP that is a 
catastrophic plan for the purpose of clarity.

Changes to Sec.  155.320

     Clarifies that the Exchange must obtain any available data 
from the SHOP that corresponds to the State in which the Exchange is 
operating.
     Modifies language to specify that the Exchange must select 
a statistically significant random sample of applicants for whom the 
Exchange does not have any of the information specified in paragraphs 
(d)(2)(i) through (d)(2)(iii).
     Removes language specifying that the Exchange must use any 
available data regarding employment of an applicant and members of his 
or her household.
     Specifies that for eligibility for enrollment in a QHP 
through the Exchange that is effective before January 1, 2015, if the 
Exchange does not have any of the information specified in paragraphs 
(d)(2)(i) through (d)(2)(iii) for an applicant, the Exchange may accept 
an applicant's attestation regarding enrollment in an eligible 
employer-sponsored plan and eligibility for qualifying coverage in an 
eligible employer-sponsored plan for the benefit year for which 
coverage is requested without further verification, instead of 
following sampling procedures.
     Clarifies that the ability for the Exchange to satisfy the 
provisions of paragraph (d) of this section by relying on HHS is 
effective for eligibility for enrollment in a QHP through the Exchange 
that is effective on or after January 1, 2015, and clarifies that the 
division of responsibilities under this option is subject to guidance 
issued by the Secretary.
     Removes language concerning the agreement associated with 
having HHS conduct this verification.

Changes to Sec.  155.330

     Removes cross-references to appeals provisions, and 
clarifies that an Exchange must implement changes resulting from an 
appeal decision on the date specified in the appeal decision.
     Consolidates standards for decreases in advance payments 
of the premium tax credit and changes in cost-sharing reductions.
     Specifies that a change associated with birth, adoption, 
placement for adoption and placement in foster care must be implemented 
on the coverage effective date described in Sec.  155.420(b)(2)(i) and 
(ii).
     Removes duplicative cross-references regarding termination 
of coverage.

Changes to Sec.  155.340

     Clarifies the appropriate cross-reference for the minimum 
value standard.

Changes to Sec.  155.345

     Reserves paragraphs (a)(3) and (g)(7) for future 
finalization.
     Clarifies that the Exchange and Exchange appeals entity 
will adhere to the eligibility determination or appeals decision 
relating to an individual's eligibility for Medicaid or CHIP made by 
the state's Medicaid or CHIP agency or the appeals entity for such 
agency.

Changes to Sec.  155.420

     Clarifies that the special effective dates for birth, 
adoption, and placement for adoption also apply to placement in foster 
care.
     Expands special enrollment period for birth, adoption, and 
placement for adoption to also include placement in foster care.
     Clarifies that the special enrollment period for an 
individual who was not a citizen, national, or lawfully present non-
citizen and gains such status also applies to his or her dependents, if 
eligible for coverage through the Exchange.
     Modifies the special enrollment period for enrollees newly 
eligible or ineligible for advance payments of the premium tax credit 
or who experience a change in eligibility for cost-sharing reductions 
to reflect that the special enrollment period accommodates individuals 
enrolled in an eligible employer-sponsored plan, but not eligible for 
qualifying coverage in an eligible employer-sponsored plan.

Changes to Sec.  155.430

     Modifies language to allow applicants and enrollees to 
request termination from their QHP, in the event they report access to 
other minimum essential coverage and become ineligible for advance 
payments of the premium tax credit and cost-sharing reductions.
     Modifies standards for enrollee-requested termination 
effective dates, such that QHP issuers and Exchanges may only terminate 
prospectively, and not retroactively.
     Clarifies that terminations for enrollees who are 
determined eligible for Medicaid, CHIP or the BHP, such that the last 
day of coverage is the day before the individual is determined eligible 
for such coverage, rather than

[[Page 42287]]

retroactive to the Medicaid or CHIP eligibility effective date.
     Aligns termination effective dates to appropriately cross-
reference with eligibility effective dates.
     Adds language to clarify that in the case of termination 
due to death, the last day of coverage is the date of death.

Changes to Sec.  156.270

     Modifies coverage termination requirements such that 
standards for QHP issuers align with those for Exchanges.

IV. 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. To 
fairly evaluate whether an information collection should be approved by 
OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 
requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the January 22, 2013 (78 FR 4593) proposed rule, we requested 
public comment on each of the rule's information collection 
requirements (ICRs). The comments and our response are discussed below.

Background

    This final rule continues to implement key provisions of the 
Affordable Care Act including the completion of the streamlining of 
eligibility for children, pregnant women, and adults that were 
initiated in the Medicaid eligibility final rule published on March 23, 
2012 (77 FR 17144). This rule also modifies CHIP rules relating to 
substitution of coverage and premium lock-out periods, which are 
important to a coordinated system of coverage across programs. Finally, 
this rule includes provisions related to authorized representatives, 
the procedures for verifying access to qualifying employer-sponsored 
coverage, catastrophic coverage and other provisions related to 
eligibility and enrollment.
    The policies in this rule will result in a reduction in burden for 
individuals applying for and renewing coverage, as well as for states. 
The Medicaid program and CHIP will be made easier for states to 
administer and for individuals to navigate by streamlining Medicaid 
eligibility and simplifying Medicaid and CHIP eligibility rules for 
most individuals. Even though there are short-term burdens associated 
with the implementation of the final rule, the Medicaid program and 
CHIP will be easier for states to administer over time due to the 
streamlined eligibility and coordinated efforts for Medicaid, CHIP, and 
the new affordable insurance exchanges.
    The final rule also continues to implement provisions related to 
the establishment of Exchanges. This final rule: (1) Specifies 
standards related to authorized representatives, (2) outlines criteria 
related to the verification of enrollment in and eligibility for 
minimum essential coverage through an eligible employer-sponsored plan, 
and (3) further specifies or amend standards related to other 
eligibility and enrollment provisions. The description of the burden 
estimates associated with these provisions is included in the 
information collection requirements outlined in section D.
    Section A outlines the information collection requirements that 
involve Medicaid and CHIP eligibility and enrollment. Section B 
outlines the information collection requirements that involve Exchange 
eligibility and enrollment.
    We used data from the Bureau of Labor Statistics to derive average 
costs for all estimates of salary in establishing the information 
collection requirements. Salary estimates include the cost of fringe 
benefits, calculated at 35 percent of salary, which is based on the 
June 2012 Employer Costs for Employee Compensation report by the U.S. 
Bureau of Labor Statistics.

A. Medicaid and CHIP Information Collection Requirements (ICRs) To Be 
Addressed Through Separate Notices and Comment Process Under the 
Paperwork Reduction Act

1. ICRs Regarding State Plan Amendments
1a. Sections 431.10, 431.11, 431.206, 431.211, 431.213, 431.230, 
431.231, 431.240, 435.110, 435.116, 435.603, 435.907, 435.908, 435.918, 
435.1101, 435.1102, 435.1103, 435.1110, 435.1200, 435.1205, 440.130, 
440.210, 440.220, 440.305, 440.315, 440.330, 440.335, 440.345, 447.52-
54, 457.110, 457.340, 457.350, 457.351, 457.355, 457.570, and 457.805
    These amendments to the Medicaid and CHIP state plans are necessary 
to reflect changes in statute and federal policy. While we are aware of 
the need to estimate the PRA burden associated with the submission of 
state plan amendments related to the provisions identified above, those 
amendments will be addressed as part of the electronic state plan 
filing process being developed by CMS (the MACPro system) and submitted 
to OMB for approval under OCN 0938-1188 (CMS-10434).
1b. Sections 435.113, 435.114, 435.223, and 435.510
    Since we are eliminating the provisions in Sec. Sec.  435.113, 
435.114, 435.223, and 435.510, states will no longer be required to 
submit state plan amendments related to those provisions. The 
provisions have been approved by OMB under OCN 0938-1147).

B. Medicaid Eligibility and Enrollment

1. ICRs Regarding Delegation of Eligibility Determinations and Appeals 
(Sec. Sec.  431.10(c), 431.11. and 457.1120)
    In Sec.  431.10(c), a state may delegate authority to make 
eligibility determinations and to conduct fair hearings. States 
generally have written agreements with various entities for similar 
purposes. Under this final rule, agreements may need to be modified or 
new agreements established. However, states that use the same agency to 
administer more than one program (for example, Medicaid and the 
Exchange) will not need an agreement for the determination of 
eligibility by that agency.
    Delegation of eligibility determinations was approved under OMB 
control number 0938-1147. This rule sets out changes in the existing 
requirement related to the type of agencies that can make Medicaid and 
CHIP eligibility determinations. These amendments do not change the 
burden associated with the requirement. Medicaid and CHIP agencies will 
need to establish new agreements to delegate authority to conduct 
eligibility appeals. The burden associated with the delegation of 
appeals is the time and effort necessary for the Medicaid and CHIP 
agencies to create and execute the agreements with the organization to 
which they are delegating authority.
    There are 53 Medicaid agencies (the 50 states, the District of 
Columbia, Northern Mariana Islands, and American Samoa) and 43 CHIP 
agencies, for a total of 96 agencies. For the

[[Page 42288]]

purpose of developing the cost, we estimate that half of these agencies 
will establish an agreement with an organization to conduct fair 
hearings. We estimate a one-time burden of 50 hours to develop an 
agreement that can be used with the organization. It will take an 
additional 10 hours for Medicaid and 10 hours for a separate CHIP 
agency to negotiate and execute the agreement with the organization for 
a total time burden of 2,880 hours [(53 + 43)/2 x (50 + 10)] across all 
agreements. For the purpose of the cost, we estimate it will take a 
health policy analyst 40 hours at $49.35 an hour and a senior manager 
10 hours at $79.08 an hour to complete the model agreement (for a total 
of $2,764.80) plus 10 additional hours ($49.35) for a health policy 
analyst to execute a completed agreement with each organization. The 
estimated cost for each agreement is $3,258.30 for a total cost of 
$156,398.40.
2. ICRs Regarding Fair Hearing Processes (Sec. Sec.  431.205(e), and 
431.206(d) and (e))
    In Sec. Sec.  431.205(e) and 431.206(e), the hearing system and 
information must be accessible to persons who are limited English 
proficient and to persons with disabilities. While states are required 
to make the hearing system accessible, we believe the associated burden 
is exempt from the PRA (see 5 CFR 1320.3(b)(2)) since we believe that 
the time, effort, and financial resources necessary to comply with this 
requirement will be incurred by persons during the normal course of 
their activities and should, therefore, be considered as a usual and 
customary business practice.
    In Sec.  431.206(d), states are required to inform individuals that 
they may have their hearing before the agency (instead of the Exchange 
or the Exchange appeals entity) and the method by which the individual 
may make such election. There are 53 Medicaid agencies (the 50 states, 
the District of Columbia, Northern Mariana Islands, and American Samoa) 
and 43 CHIP agencies for a total of 96 agencies that will be subject to 
this requirement. The burden associated with providing this choice is 
developing the process and workflow to enable the choice and sending 
the request for the fair hearing to the appropriate agency. We estimate 
it will take each agency an average of 70 hours to create the process 
and workflow required in providing the choice. For the purpose of the 
cost, we estimate it will take a health policy analyst 40 hours at 
$49.35 an hour, a senior manager 10 hours at $79.08 an hour, and a 
computer programmer 20 hours at $52.50 to complete the process and 
workflow. The estimated cost for each agency is $3814.80. The total 
estimated cost is $366,220.80.
3. ICRs Regarding Application Counselors (Sec.  435.908(c))
    In Sec.  435.908(c), states have the option to authorize certain 
staff and volunteers of organizations to act as certified application 
counselors. The burden associated with the requirements to assist 
individuals with the application process is the time and effort 
necessary for the state to create agreements with these organizations, 
to create a registration process for assistors, and to train staff on 
the eligibility and confidentiality rules and requirements and how to 
assist applicants with the completing the application.
    We estimate the 50 states, the District of Columbia, Northern 
Mariana Islands, and American Samoa will establish agreements with on 
average 20 organizations in their state or territory for a total of 
1,060 agreements related to application assistance. As part of this 
estimate, we assumed that state Medicaid and CHIP agencies will be 
party to the same agreements and, therefore, will not establish 
separate agreements.
    The first burden associated with this provision is the time and 
effort necessary for the state Medicaid and CHIP agencies to establish 
an agreement. To develop an agreement, we estimate that it will take 
each of the 53 states and territories 50 hours to develop a model 
agreement. For the purpose of the cost, we estimate it will take a 
health policy analyst 40 hours at $49.35 an hour and a senior manager 
10 hours at $79.08 to develop an agreement. The estimated cost is 
$2,764.80 (per state) or $146,534.40 (total) while the total annual 
hour burden is 2,650 hours.
    To negotiate and complete the agreement, we estimate that each of 
the 53 states/territories will execute 20 agreements. For the purpose 
of the cost, we estimate it will take a health policy analyst 10 hours 
at $49.35 an hour to execute each agreement. The estimated cost is 
$9,870 (per state) or $523,110 (total) while the total annual hour 
burden is 10,600 hours.
    To develop and execute the model agreements, the total cost is 
$669,644.40 for 13,250 hours of labor.
    The next burden associated with this provision is the time and 
effort necessary for the 53 states and territories to establish the 
registration process and workflow for the application counselors. We 
estimate it will take each state or territory an average of 70 hours 
(3,710 total hours) to create the registration process and workflow for 
the application counselors. For the purpose of the cost, we estimate it 
will take a health policy analyst 40 hours, at $49.35 an hour, a senior 
manager 10 hours, at $79.08 an hour, and a computer programmer 20 hours 
at $52.50 to complete the registration process and workflow. The 
estimated cost for each state or territory is $3,814.80. The total 
estimated cost is $202,184.40.
    The next burden associated with this provision is the time and 
effort necessary for the 53 state Medicaid and CHIP agencies to provide 
training to the application counselors. For the purpose of the cost, we 
estimate it will take a training specialist 40 hours at $26.64 an hour 
and a training and development manager 10 hours at $64.43 an hour to 
develop training materials for the application counselors, for a total 
time burden of 2,650 hours. The estimated cost for each state or 
territory is $1,709.90. The total estimated cost is $90,624.70.
    Lastly, we estimate that each state or territory will offer 50 
hours of training sessions to train individuals to assist applicants 
with Medicaid and CHIP applications for a total time burden of 2650 
hours. For the purpose of the cost, we estimate it will take a training 
specialist 50 hours at $26.64 an hour to train the application 
counselors. The estimated cost for each agency is $1,332. The total 
estimated cost is $70,596.
4. ICRs Regarding Eligibility Determination Notices (Sec.  435.918, 
Sec.  457.110)
    In Sec.  435.918 and Sec.  457.110, states must electronically 
provide notices to individuals when elected.
    The burden associated with the requirements to deliver notices is 
the time necessary for the state staff to: (1) Familiarize themselves 
with the requirements related to notices; (2) develop the language for 
approval, denial, termination, suspension, and change of benefits 
notices; and (3) program the language in the Medicaid and CHIP notice 
systems so that the notice can be populated and generated based on the 
outcome of the eligibility determination and be delivered in an 
electronic format.
    We estimate 53 state Medicaid agencies (the 50 states, the District 
of Columbia, Northern Mariana Islands, and American Samoa) and 43 CHIP 
agencies (in states that have a separate or combination CHIP), totaling 
96 agencies, will be subject to this requirement. We estimate that it 
will take each Medicaid and CHIP agency 194 hours annually to develop,

[[Page 42289]]

automate, and distribute the notice of eligibility determination. For 
the purpose of the cost burden, we estimate it will take a health 
policy analyst 138 hours at $49.35 an hour, a senior manager 4 hours at 
$79.08, an attorney 20 hours at $90.14, and a computer programmer 32 
hours at $52.50 to complete the notices. The estimated cost burden for 
each agency is $10,609.42. The total estimated cost burden is 
$1,018,504.30, and the total annual hour burden is 18,624 hours.
5. ICRs Regarding Authorized Representatives (Sec.  435.923(a))
    Section 435.923(a) sets out minimum requirements for the 
designation of authorized representatives. We are also applying these 
provisions to state CHIP agencies through the addition of a cross 
reference in Sec.  457.340.
    We are aware of the need to estimate the PRA burden associated with 
the collection of information related to authorizing an individual to 
act as a representative of an applicant, to permit self-attestation for 
individuals who do not have access to documentation, and the 
citizenship and immigration verification requirements. These 
requirements were addressed as part of the single, streamlined 
application under OCN 0938-1191 (CMS-10440).
6. ICRs Regarding Presumptive Eligibility Determined by Hospitals 
(Sec.  435.1110)
    Under Sec.  435.1110(d)(1), states may establish state-specific 
standards for qualified hospitals that conduct presumptive eligibility 
determinations related to the success of assisting individuals 
determined presumptively eligible who submit a regular application and/
or are approved for eligibility by the agency. States also have a great 
deal of flexibility in determining and implementing the standards 
appropriate for their programs as well as appropriate corrective action 
measures for hospitals which do not meet the state standards.
    This change is necessary to reflect changes in federal policy. A 
state's election of state-specific standards will affect their Medicaid 
state plan. While we are aware of the need to estimate the burden 
associated with the submission of the state plan amendment, that 
amendment will be addressed under the electronic state plan filing 
process being developed by CMS (the MACPro system) and submitted to OMB 
for approval under OCN 0938-1188 (CMS-10434). The amendment and its 
estimated burden will also be made available for public comment through 
the PRA process.
    In Sec. Sec.  435.1101(b) and 457.355 (by reference to Sec.  
435.1101), states are required to provide qualified entities with 
training in all applicable policies and procedures related to 
presumptive eligibility. The burden associated with this provision is 
the time and effort necessary for the states and territories to provide 
training to the hospitals. We estimate 50 states, the District of 
Columbia, Northern Mariana Islands, and American Samoa will be subject 
to this requirement. As part of this estimate, we assumed that state 
Medicaid agencies and CHIP agencies, where there are separate agencies, 
will develop and use the same training.
    For the purpose of the cost, we estimate it will take a training 
specialist 40 hours at $26.64 an hour and a training and development 
manager 10 hours at $64.43 an hour to develop training materials for 
the qualified entities, for a total time burden of 2,650 hours. The 
estimated cost for each state or territory is $1,709.90. The total 
estimated cost is $90,624.70.
    We also estimate that each state or territory will offer 50 hours 
of training sessions to qualified entities, for a total time burden of 
2,650 hours. For the purpose of the cost, we estimate it will take a 
training specialist 50 hours at $26.64 an hour to train the qualified 
entities. The estimated cost for each agency is $1,332. The total 
estimated cost is $70,596.
7. ICRs Regarding ABP SPA-Related Requirements (Sec. Sec.  440.305, 
440.315, 440.330, 440.335, 440.345, 440.347, 440.360, and 440.386)
    In the proposed rule, CMS requested comment on habilitative 
services (Sec.  440.347(d)) and on the ``medically frail'' definition 
(Sec.  440.315(f)). Comments and CMS' response can be found in section 
B.3.a of this preamble. We also requested comment on essential health 
benefits (rehabilitative and habilitative services and devices) (Sec.  
440.347). See section II.B. of this preamble for the comments and our 
response. Additional comments were solicited for exempt individuals 
(modifying definition of ``medically frail'') (Sec.  440.315). Comments 
and CMS' response can be found in the ABP portion of this preamble.
    CMS also received many comments on the proposed changes to: (1) The 
public notice requirement in Sec.  440.386 (see section II.B.7.b. of 
this preamble for the comment and our response); (2) public notice in 
Sec.  440.386 and prescription drug coverage in Sec.  440.345(f) (see 
section II.B.3.i. of this preamble for the comment and our response); 
(3) essential health benefits (non-discrimination policy) under Sec.  
440.347 (see section II.B.2.d of this preamble); and (4) EPSDT and 
other required benefits (family planning services and supplies) under 
Sec.  440.345 (see the comments and responses section of the ABP 
portion of this preamble). As a result of comments received, CMS is 
finalizing the public notice requirements in this final rule without 
change.
    We also received a number of comments requesting clarification to 
our statement in the preamble that the section 1927 requirements apply 
to the ABP prescription drug benefit. Specifically, commenters 
requested clarification, as part of this final rule, as to how section 
1927 of the Act applies to prescription drug coverage under the ABP 
since ABP requirements for prescription drug coverage must meet the 
minimum EHB prescription drug requirements at section 1937 of the Act. 
Based upon those comments, we have clarified in the regulation that 
when states pay for covered outpatient drugs under a state's ABP, the 
section 1927 requirements apply. There is no additional information 
collection burden associated with this clarification.
    While this rule has finalized policy related to these provisions, 
these policies do not result in any additional information collection 
requirements. Rather, the policy clarifications are interpretations of 
information that is already being collected.
    The information collection requirements and burden estimates 
associated with Sec. Sec.  440.305, 440.315, 440.330, 440.335, 440.345, 
440.347, 440.360, and 440.386 have been approved by OMB through March 
31, 2016, under OCN 0938-1188 (CMS-10434). This rule will not impose 
any new or revised SPA-related reporting, recordkeeping, or third party 
disclosure requirements and, therefore, does not require additional OMB 
review under the authority of the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501 et seq.).
8. ICRs Regarding Cost Sharing and Premiums (Sec. Sec.  447.52, 447.53, 
447.54, 447.55 and 447.56)
    The Deficit Reduction Act of 2005 (DRA) established a new section 
1916A of the Act, which gives states additional flexibility, allowing 
for alternative premiums and cost sharing, beyond what is allowed under 
section 1916 of the Act, for somewhat higher income beneficiaries. Such 
alternative cost sharing may be targeted to specific groups of 
beneficiaries and payment may be required as a condition of

[[Page 42290]]

providing services. Thus, in accordance with the DRA we reviewed and 
made changes to the current cost sharing and premiums regulations under 
Sec. Sec.  447.52 through 447.56.
    In a review of these sections we found that 45 states including the 
District of Columbia impose cost-sharing and 40 states impose premiums 
on beneficiaries. While these provisions are subject to the PRA, we 
believe that any changes a state makes to its current state plan under 
any of these sections is a usual and customary practice under 5 CFR 
1320.3(b)(2) and, as such, the burden associated with it is exempt from 
the PRA.
    For those states electing to impose cost-sharing or premiums for 
the first time will only need to submit a state plan amendment one time 
for review. We estimate it will take each agency in this circumstance 
an average of 2 hours to fill out the state plan pre-print for either 
cost-sharing or premiums and submit it for approval. Thus we anticipate 
six states may impose cost-sharing and 11 states and the District of 
Columbia may impose premiums on beneficiaries. For the purpose of the 
cost burden, we estimate it will take a health policy analyst 1 hour at 
$49.35 an hour and a senior manager 1 hour at $79.08 an hour to 
complete the process and submission of each new state plan amendment. 
The estimated cost burden for each agency is $128.43. The total 
estimated cost burden is $2,183.31.
9. ICRs Regarding Beneficiary and Public Notice Requirements (Sec.  
447.57)
    In Sec.  447.57(a), 53 Medicaid agencies will be required to make 
available a public schedule describing current premiums and cost 
sharing requirements containing the information in paragraphs (a)(1) 
through (6). In Sec.  447.57(b), agencies are required to make the 
public schedule available to those identified in paragraphs (b)(1) 
through (4).
    Prior to submitting a SPA for Secretary approval to establish or 
modify existing premiums or cost sharing or change the consequences for 
non-payment, Sec.  447.57(c) requires that the state: (1) Provide the 
public with advance notice of the SPA (specifying the amount of 
premiums or cost sharing and who is subject to the charges); (2) 
provide a reasonable opportunity to comment on SPAs that propose to 
substantially modify premiums and cost sharing; (3) submit 
documentation to demonstrate that these requirements were met; and (4) 
provide additional public notice if cost sharing is modified during the 
SPA approval process.
    In Sec.  447.57(d), the information must be provided in a manner 
that ensures that affected beneficiaries and providers are likely to 
have access to the notice and are able to provide comments on proposed 
state plan amendments.
    We estimate it will take each Medicaid agency an average of 6 hours 
to create the process and workflow required in providing the schedule 
and notice. For the purpose of the cost burden, we estimate it will 
take a health policy analyst 4 hours at $49.35 an hour and a senior 
manager 2 hours at $79.08 an hour to complete the process and workflow. 
The estimated cost burden for each agency is $355.56. The total 
estimated cost burden is $18,844.68.

C. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act

    For purposes of presenting an estimate of paperwork burden, we 
reflect the participation of 18 State-Based Exchanges. It is important 
to note that the Exchange provisions found in part 155, subparts D and 
E discussed below involve several information collections that will 
occur through the single, streamlined application for enrollment in a 
QHP and for insurance affordability programs described in Sec.  
155.405. We have accounted for the burden associated with these 
collections in the Supporting Statement for Data Collection to Support 
Eligibility Determinations for Insurance Affordability Programs and 
Enrollment through Health Benefits Exchanges, Medicaid, and Children's 
Health Insurance Program Agencies (CMS-10440; OCN 0938-1191).
    We also highlight that the Supporting Statement includes several 
information collections from regulatory provisions finalized in the 
Exchange final rule (77 FR 18310). We have included these information 
collections in this PRA package to address PRA requirements related to 
those provisions as they were not included in the information 
collection section of the Exchange final rule.
    Lastly, we have not included information regarding information 
collections associated with certified application counselors, 
eligibility appeals, and SHOP coordination with individual market 
Exchanges, which we will finalize at a future date with the 
corresponding regulatory provisions.
1. ICRs Regarding Authorized Representatives (Sec.  155.227)
    Section 155.227(a) provides that an applicant or enrollee, subject 
to applicable privacy and security requirements, may designate an 
individual person or organization as his or her authorized 
representative. One method for designating an authorized representative 
is by submitting legal documentation of the representative's authority. 
Exchanges have the option to make available an ``Appointment of 
Authorized Representative Form'' at the time of application or anytime 
thereafter for an individual to designate an authorized representative. 
Such a form would collect identifying and contact information about the 
applicant, enrollee, and requested authorized representative. Requested 
data elements would include the following for both the applicant or 
enrollee and the requested representative: name, address, phone number, 
email address, date of birth, and relationship. The applicant, 
enrollee, or authorized representative could obtain the form from the 
Exchange Web site or from an assister (such as a Navigator, non-
Navigator in-person assister, etc.), and could submit it to the 
Exchange by mail or online at any time. We expect that the Exchange 
would use this information to authorize the authorized representative 
to act on behalf of the applicant or enrollee. An authorized 
representative could also submit this form if the applicant or enrollee 
is unable to do so.
    HHS is currently developing a model Appointment of Authorized 
Representative Form to be used by the Federally-facilitated Exchanges 
and will make that form available to State-based Exchanges, which would 
also decrease the burden on State-based Exchanges to develop such a 
form. If a state opts not to use the form provided by HHS, we estimate 
the burden associated for the time and effort necessary for a State-
based Exchange to develop the Appointment of Authorized Representative 
Form to be 30 hours. This includes a 10 hours from a mid-level health 
policy analyst at an hourly cost of $49.35 and 10 hours from an 
operations analyst at an hourly cost of $54.45 for drafting the form 
with 4 hours of managerial oversight at an hourly cost of $79.08 and 6 
hours of legal review at an hourly cost of $90.14. The estimated cost 
per State-based Exchange is $1,895, for a total cost of $34, 113 for 18 
State-based Exchanges.
    For an applicant, enrollee, or prospective authorized 
representative, we estimate that it will take up to 5 minutes to review 
instructions and complete an Appointment of Authorized Representative 
Form. While we expect most applicants, enrollees, or prospective 
authorized representatives to complete the Authorized Representative 
Form, an applicant, enrollee, or prospective authorized

[[Page 42291]]

representative may also comply with this provision by providing the 
necessary information online, by phone, by mail, or in-person. We 
expect a similar burden on the applicant, enrollee, or authorized 
representative to comply with this provision through such means. If the 
applicant, enrollee, or authorized representative chooses to submit an 
``Appointment of Authorized Representative Form,'' the burden for a 
State-based Exchange to process the submitted information will be 
approximately 10 minutes at a cost of $3.39 per submission. We 
anticipate that an eligibility support staff person will scan, 
digitize, and link the form to an applicant's or enrollee's account, 
review the submitted information, and update the authorized 
representative's and applicant's or enrollee's account, if applicable.
2. ICRs Regarding Notices (Sec. Sec.  155.302, 155.310, 155.315, 
155.320, 155.330, 155.335, 155.345, 155.355, 155.410, 155.715, 155.720, 
155.725, and 155.1080)
    Several provisions in subparts D and E outline specific scenarios 
in which the Exchange will send a notice to individuals and employers 
throughout the eligibility and enrollment process. HHS is currently 
developing model eligibility determination notices and several other 
models for notices described in 45 CFR parts 155, 156, and 157 which 
will decrease the burden on Exchanges to establish such notices. For 
some notices, the Exchange will include specific notice text in another 
notice, such as the eligibility determination notice, rather than send 
an entirely separate notice (effectively, two notices are combined into 
one). The purpose of these notices is to alert the individuals and 
employers who receive the notice of actions taken by the Exchange. When 
possible, we anticipate that the Exchange will consolidate notices when 
multiple members of a household are applying together and receive an 
eligibility determination at the same time. The notice may be in paper 
or electronic format but must be in writing and sent after an 
eligibility determination has been made by the Exchange. We anticipate 
that a large volume of enrollees will request electronic notification 
while others will opt to receive the notice by mail. As a result of 
certain enrollees opting to receiving the notice by mail in some 
instances, we estimated the associated mailing costs for the time and 
effort needed to mail notices in bulk to enrollees as appropriate.
    We expect that the electronic eligibility determination notice will 
be dynamic and include information tailored to all possible outcomes of 
an application throughout the eligibility determination process. To 
develop the paper and electronic notices, Exchange staff will need to 
learn eligibility rules and draft notice text for various decision 
points, follow up, referrals, and appeals procedures. A health policy 
analyst, senior manager, and legal counsel will review the notice. The 
Exchange will then engage in review and editing to incorporate changes 
from the consultation and user testing including review to ensure 
compliance with plain writing, translation, and readability standards. 
We intend that Exchanges will work closely with the state Medicaid or 
CHIP agency to develop coordinated notices. Finally, a developer will 
program the template notice into the eligibility system so that the 
notice may be populated and generated in the correct format according 
to an individual's preference to receive notices, via paper or 
electronically, as the applicant moves through the eligibility process.
    If a state opts not to use the model notices provided by HHS, we 
estimate that the Exchange effort related to the development and 
implementation of the eligibility notice will necessitate 44 hours from 
a health policy analyst at an hourly cost of $49.35 to learn 
eligibility rules and draft notice text; 20 hours from an attorney at 
an hourly cost of $90.14 and 4 hours from a senior manager at an hourly 
cost of $79.08 to review the notice; and 32 hours from a computer 
programmer at an hourly cost of $52.50 to conduct the necessary 
development. In total, we estimate that this will take a total of 100 
hours for each Exchange, at a cost of approximately $5,971 per Exchange 
and a total cost of $107,478 for 18 State-Based Exchanges. We expect 
that the burden on the Exchange to maintain this notice will be 
significantly lower than to develop it.
    Section 155.310(h) specifies that the Exchange will notify an 
employer that an individual in an employee's tax household has been 
determined eligible for advance payments of the premium tax credit and/
or cost-sharing reductions based in part on the employer not offering 
minimum essential coverage or not offering qualifying coverage in an 
eligible employer-sponsored plan. Upon making such an eligibility 
determination, the Exchange will send a notice to the employer with 
information identifying the employee, along with a notification that 
the employer may be liable for the payment under section 4980H of the 
Code, and that the employer has a right to appeal this determination. 
Because this notice will be sent to an employer at the address as 
provided by an application filer on the application, we anticipate all 
of these notices will be sent by mail. As a result, we estimated the 
associated mailing costs for the time and effort needed to mail notices 
in bulk to employers. Like the eligibility notice, the employer notice 
above will be developed and programmed into the eligibility system. 
However, unlike the eligibility notice, we expect the information on 
the employer notice to be minimal in comparison to the eligibility 
notice and therefore the burden on the Exchange to develop the notice 
to be substantially less. Further, as with the individual eligibility 
notice, HHS will provide model notice text for Exchanges to use in 
developing this notice.
3. ICRs Regarding Verification of Enrollment in an Eligible Employer-
Sponsored Plan and Eligibility for Qualifying Coverage in an Eligible 
Employer-Sponsored Plan (Sec.  155.320)
    Section 155.320(d) proposes the process for the verification of 
enrollment in an eligible employer-sponsored plan and eligibility for 
qualifying coverage in an eligible employer-sponsored plan. Paragraph 
(d)(2) specifies that the Exchange will obtain relevant data from any 
electronic data source available to the Exchange which has been 
approved by HHS, as well as data from certain specified electronic data 
sources. This will involve the development and execution of data 
sharing agreements; however, this burden is already captured in the 
data sharing agreements described in Sec.  155.315. As these 
verification activities will all be electronic, we do not expect for 
there to be any additional burden than that which is required to design 
the overall eligibility and enrollment system.
    Paragraph (d)(3)(iii)(A) proposes that the Exchange provide notice 
to certain applicants indicating that the Exchange will be contacting 
any employer identified on the application to verify whether the 
applicant is enrolled in an eligible employer-sponsored plan or is 
eligible for qualifying coverage in an eligible employer-sponsored plan 
for the benefit year for which coverage is requested. The burden 
associated with this notice to certain applicants is addressed in 
155.310(g) as this will not be a separate notice, but incorporated into 
the eligibility determination notice described in the above paragraph.
    In paragraph (d)(3)(iii)(D), we propose that the Exchange make 
reasonable attempts to contact any employer to which the applicant 
attested

[[Page 42292]]

employment to verify whether the applicant is enrolled in an eligible 
employer-sponsored plan or is eligible for qualifying coverage in an 
eligible employer-sponsored plan for the benefit year for which 
coverage is requested. We note that the flexibility we provide to 
State-Based Exchanges for the first year of operations will 
significantly reduce the burden of this information collection in the 
first year.
    It is difficult to estimate the burden associated with this 
information collection as the calculation involves identifying the 
number of individuals for whom employer-sponsored coverage information 
will be unavailable. As such, below, we estimate the time and cost 
associated with the Exchange making a reasonable attempt to contact one 
employer. We estimate the time associated with this information 
collection to be a total of 2.2 hours per employer at a total cost of 
$34.
4. ICRs Regarding Electronic Transmissions (Sec. Sec.  155.310, 
155.315, 155.320, and 155.340)
    Sections 155.310, 155.315, 155.320, 155.330, and 155.340 involve 
the electronic transmission of data to determine eligibility for 
enrollment in a QHP and for insurance affordability programs. Section 
155.310(d)(3) specifies that the Exchange must notify the state 
Medicaid or CHIP agency and transmit all information from the records 
of the Exchange for an applicant determined eligible for Medicaid or 
CHIP to the Medicaid or CHIP agency to ensure that the Medicaid or CHIP 
agency can provide the applicant with coverage promptly and without 
undue delay. This applicant information will be transmitted 
electronically from the Exchange to the agency administering Medicaid 
or CHIP once a determination has been made that the applicant is 
eligible for such program. The purpose of this data transmission is to 
notify the agency administering Medicaid or CHIP that an individual is 
newly eligible and thus the agency should facilitate enrollment in a 
plan or delivery system. Data will be transmitted through a secure 
electronic interface.
    Sections 155.315 and 155.320 include transactions necessary to 
verify applicant information. We expect there to be no transactional 
burden associated with the electronic transactions needed to implement 
Sec. Sec.  155.315 and 155.320. As these transmission functions will 
all be electronic, we do not expect for there to be any additional 
burden than that which is required to design the overall eligibility 
and enrollment system.
    In Sec.  155.340, the Exchange must provide the relevant 
information, such as the dollar amount of the advance payment and the 
cost-sharing reductions eligibility category, to enable advance 
payments of the premium tax credit and cost-sharing reductions, 
reconciliation of the advance payments of the premium tax credit, and 
administration of the employer responsibility requirements. As we 
anticipate that these transmissions of information will all be 
electronic, we do not expect for there to be any additional burden than 
that which is required to design the overall eligibility and enrollment 
system.
5. ICRs Regarding Reporting Changes (Sec. Sec.  155.315, 155.330, and 
155.335)
    Section 155.315(f) outlines the process for resolving 
inconsistencies identified through the verification process. In Sec.  
155.330(c)(1), we state that the Exchange will verify any information 
reported by an enrollee in accordance with the processes specified in 
Sec. Sec.  155.315 and 155.320 prior to using such information in an 
eligibility redetermination. Section 155.335(e) provides that the 
Exchange will require a qualified individual to report any changes for 
the information listed in the notice described in Sec.  155.335(c) of 
this section within 30 days from the date of the notice. It is not 
possible at this time to provide estimates for the number of applicants 
for whom a reported change will necessitate the adjudication of 
documentation, but we anticipate that this number will decrease as 
applicants become more familiar with the eligibility process and as 
more data become available. As such, for now, we note that the burden 
associated with this provision is one hour for an individual to collect 
and submit documentation, and 12 minutes (or 0.2 hours) for eligibility 
support staff at an hourly cost of $28.66 to review the documentation.
6. ICRs Regarding Enrollment and Termination (Sec. Sec.  155.400, 
155.405, and 155.430)
    In part 155, subpart E, we describe the requirements for Exchanges 
in connection with enrollment and disenrollment of qualified 
individuals through the Exchange. These information collections are 
associated with sending eligibility and enrollment information to QHP 
issuers and to HHS, maintaining records of all enrollments in QHPs 
through the Exchange, reconciling enrollment information with QHP 
issuers and HHS, and retaining and tracking coverage termination 
information. The burden estimates associated with these provisions 
include the time and cost to meet these record requirements. We 
estimate that it will take 142 hours annually for an Exchange to meet 
these recordkeeping requirements for a total of 2,556 hours for 18 
State-Based Exchanges.
    In the case of the requirement related to termination standards, 
the burden includes estimates related to the maintenance and 
transmission of coverage termination information, as well as the time 
and effort needed to develop the system to collect and store the 
information. We estimate that it will take 30 hours of a health policy 
analyst at an hourly rate of $58.05, 20 hours for a computer programmer 
at an hourly rate of $52.50, and 20 hours for an operations analyst at 
an hourly rate of $54.45 for a total of 70 hours annually per Exchange 
and a total of 1,260 hours for 18 Exchanges, for the time and effort to 
meet this standard. We estimate a cost of $3,881 for one Exchange and a 
total cost of 69,858 for 18 State-Based Exchanges.
7. ICRs Regarding Agreements (Sec. Sec.  155.302 and 155.345)
    Section 155.345(a) specifies that an Exchange and the corresponding 
state Medicaid and CHIP agencies will enter in to an agreement 
regarding the coordination of eligibility determinations, and Sec.  
155.302(b)(6) specifies that to the extent that an Exchange is making 
assessments of eligibility for Medicaid and CHIP, rather than 
determinations, the Exchange will enter into an agreement with the 
state Medicaid and CHIP agencies regarding this arrangement. These 
agreements are necessary to minimize burden on individuals, ensure 
prompt determinations of eligibility and enrollment in the appropriate 
program without undue delay and to provide standards for transferring 
an application between the Exchange and other entities administering 
insurance affordability programs. The specific number of agreements 
needed may vary depending on how states choose to divide 
responsibilities regarding eligibility determinations; where the 
Exchange is making assessments, we expect that the agreement described 
in Sec.  155.302(b)(6) will be combined with the agreement in Sec.  
155.345(a).
    The burden associated with this provision is the time and effort 
necessary for the Exchange to establish or modify an agreement for 
eligibility determinations and coordination of eligibility and 
enrollment functions. If an Exchange chooses to draft separate 
agreements for each insurance affordability program, then the estimate 
will likely increase.

[[Page 42293]]

    In either case, we estimate it will take each Exchange an average 
of 105 hours to create a new agreement, although we assume that such 
agreements will be largely standardized across states, and that HHS 
will provide model agreements for state Medicaid and CHIP agencies and 
the Exchange to use. This includes a mid-level health policy analyst 
and an operations analyst reviewing the agreement with managerial 
oversight and comprehensive review of the agreement by operations 
analyst. We estimate a cost of $6,733 per Exchange.
8. ICRs Regarding Notices From QHP Issuers (Sec. Sec.  156.260, 
156.265, 156.270, and 156.290)
    First, Sec.  156.260(b) provides that QHP issuers will notify a 
qualified individual of his or her effective date of coverage, in 
accordance with the effective dates of coverage established by the 
Exchange in accordance with Sec.  155.410(c) and (f). Second, under 
Sec.  156.270(b), QHP issuers will send a notice of termination of 
coverage to an enrollee if the enrollee's coverage in the QHP is being 
terminated in accordance with Sec.  155.430(b)(1)(i), (b)(2)(ii) or 
(b)(2)(iii). Third, Sec.  156.270(f) provides that QHP issuers will 
provide enrollees with a notice about the grace period for non-payment 
of premiums. QHP issuers will send this notice to enrollees who are 
delinquent on premium payments. Fourth, Sec.  156.265(e) provides that 
QHP issuers will provide new enrollees with an enrollment information 
package, which we anticipate that issuers may combine with the 
notification of coverage effective date described in Sec.  156.260(b). 
Lastly, under Sec.  156.290(b), QHP issuers will provide a notice to 
enrollees if the issuer elects not to seek recertification of a QHP.
    We anticipate that some of the above QHP issuer required notices 
are similar in nature to the notices that issuers currently send to 
enrollees. For example, it is standard practice for issuers to provide 
new enrollees with information about their enrollment in a plan, their 
effective date of coverage, and if and when their coverage is 
terminating. Accordingly, we anticipate that QHP issuers will review, 
update, and revise notice templates that they utilize currently as they 
work to address the notice requirements described below and to ensure 
that the notices include the appropriate information. Similar to 
notices that will be issued by the Exchange, we expect that for QHP-
issued notices, an analyst will develop text, and a peer analyst, 
manager, and legal counsel for the issuer will review the notices, 
including a review to ensure compliance with plain writing, language 
access, and readability standards as required under Sec.  156.250(c). 
Finally, a developer will need to incorporate programming changes into 
the issuer's noticing system to account for the changes and updates 
that will be necessary to ensure that the QHP issuer is in compliance 
with the notice standards set forth in this rule and to ensure the 
notice can be populated and generated according to an individual's 
preference to receive notices. We estimate that the burden related to 
the development and implementation of this notice will necessitate 44 
hours from a health policy analyst at an hourly cost of $49.35 to learn 
appeals rules and draft notice text; 20 hours from an attorney at an 
hourly cost of $90.14 and four hours from a senior manager at an hourly 
cost of $79.08 to review the notice; and 32 hours from a computer 
programmer at an hourly cost of $52.50 to conduct the necessary 
development. In total, we estimate that this will take a total of 100 
hours for each QHP issuer, at a cost of approximately $5,971 per 
issuer. We expect that the burden on QHP issuers to maintain this 
notice will be significantly lower than to develop it.
    However, we believe that the burden estimate described under Sec.  
155.310(g) likely represents an upper bound estimate of the burden on 
issuers to develop each of these notices as in some cases the notice 
described under Sec.  155.310(g) will be somewhat more dynamic to 
address the additional information we expect to be included in that 
notice.
    Since the above estimate applies to one notice, and we described 5 
notices under part 156, the total burden estimate is $40,710. Due to 
uncertainty regarding the number of individuals who will choose to 
receive paper notices, as well as some uncertainty regarding the 
frequency of circumstances that will trigger notices in accordance with 
this part, we have only included an estimate of the printing and 
mailing costs for a QHP issuer to send one notice to a qualified 
individual or enrollee.
9. ICRs Regarding Notices and Third-Party Disclosures in the SHOP 
(Sec. Sec.  157.205(e) and (f))
    45 CFR part 157 includes several instances in which qualified 
employers participating in the SHOP Exchange will need to provide 
information to employees or to the SHOP Exchange. We include the data 
elements for these notifications in appendix A of this PRA package. For 
the individual market Exchange, we anticipate that a large share of 
enrollees will elect to receive electronic notices while the rest will 
receive notices by mail. We do not make this assumption for notices 
described here as we expect that qualified employers would provide 
notices to employees in whatever format the qualified employer usually 
provides notices to employees; in paper, electronically, or in a 
combination of both formats. We estimate that the associated printing 
costs for paper notices will be approximately $0.10 per notice. We do 
not take mailing costs into consideration for notices provided by 
qualified employers, as we expect that if qualified employers provide 
notices in paper format, the employer may provide the employee with the 
notice in person, instead of mailing the notice. We do not have a 
reasonable way to estimate total printing costs for notices provided by 
qualified employers in the SHOP Exchange due to uncertainty regarding 
the number of employees who will choose to receive paper notices, as 
well as some uncertainty regarding the frequency of circumstances that 
will trigger notices in accordance with this part.
    First, Sec.  157.205(e) specifies that a qualified employer provide 
an employee with information about the enrollment process. A qualified 
employer will inform each employee that he or she has an offer of 
coverage through the SHOP Exchange, and instructions for how the 
employee can apply for and enroll in coverage. We anticipate that the 
qualified employer will also provide information about the acceptable 
formats in which an employee may submit an application; online, on 
paper, or by phone, as described under Sec.  157.205(c). If the 
employee being offered coverage was hired outside an initial or annual 
enrollment period, the notice will also inform the employee if he or 
she is qualified for a special enrollment period. Second, in Sec.  
157.205(f) we provide that a qualified employer will notify the SHOP 
Exchange regarding an employee's change in eligibility for enrollment 
in a QHP through the SHOP Exchange, including when a dependent or 
employee is newly eligible, or is no longer eligible.
    We expect that the information that qualified employers will 
provide to employees and the SHOP Exchange, as described above, will be 
somewhat standardized. Additionally, we anticipate that qualified 
employers will generate notices using a manual process. We expect that 
for a qualified employer to establish a notice, the qualified employer 
will need 20 hours from a human resources specialist at an hourly cost 
of $40.68 to develop the text; and

[[Page 42294]]

four hours from a human resources manager at an hourly cost of $75.01 
and ten hours from an attorney at an hourly cost of $90.14 to review 
the notices. We do not anticipate that a developer will be needed to 
develop the notices described in this part since we expect that in most 
cases, these notices will be manually generated on demand. Accordingly, 
we expect that the burden hours for developing each of the notices will 
be approximately 34 hours, for a total of 68 hours per qualified 
employer, at a total cost of $4,030. We expect that the burden on the 
qualified employer to maintain the notices will be significantly lower 
than to develop the notices.

D. Summary of Annual Burden Estimates

                                            Table 1--Proposed Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Burden per
     Regulation section(s)         OMB & CMS ID      Respondents      Responses       response      Total annual       Labor cost of      Total cost ($)
                                    s                         (total)         (hours)     burden (hours)      reporting ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
42 CFR 431.10, 431.11, and      OCN 0938-New; CMS-             48              48              60           2,880  3,258 (per                    156,398
 457.1120.                       10456.                                                                             respondent).
Sec.  Sec.   435.917, 435.918,  OCN 0938-New; CMS-             96              96             194          18,624  10,609 (per                 1,018,504
 457.110, and 457.340.           10456.                                                                             respondent).
Sec.  Sec.   435.923 and        OCN 0938-New; CMS-             53            1060            12.5          13,250  12,635 (per                   669,644
 457.340 (develop and execute    10456.                                                                             respondent).
 agreements).
Sec.  Sec.   435.923 and        OCN 0938-New; CMS-             53              53              70           3,710  3,815 (per                    202,184
 457.340 (create registration    10456.                                                                             respondent).
 process and work flow).
Sec.  Sec.   435.923 and        OCN 0938-New; CMS-             53              53              50           2,650  1,710 (per                     90,625
 457.340 (develop training       10456.                                                                             respondent).
 materials).
Sec.  Sec.   435.923 and        OCN 0938-New; CMS-             53              53              50           2,650  1,332 (per                     70,596
 457.340 (train application      10456.                                                                             respondent).
 assistors).
Sec.  Sec.   435.1101(b) and    OCN 0938-New; CMS-             53              53              50           2,650  1,710 (per                     90,625
 457.355.                        10456.                                                                             respondent).
Sec.   447.57.................  0938-New; CMS-                 53              53               6             318  210 (per respondent).          11,130
                                 10456.
Sec.   155.227 (ICRs Regarding  OCN 0938-New; CMS-             18              18              30             540  1,895 (per                     34,113
 Authorized Representatives).    10400.                                                                             respondent).
Sec.  Sec.   155.302, 155.310,  OCN 0938-New; CMS-             18              18             100           1,800  5,971 (per                    107,478
 155.315, 155.320, 155.330,      10400.                                                                             respondent).
 155.335, 155.345, 155.410,
 155.715, 155.720, 155.725,
 and 155.1080 (ICRs Regarding
 Notices).
Sec.   155.320 (ICRs Regarding  OCN 0938-New; CMS-              1  ..............             2.2  ..............  34 (for one            ..............
 Verification of Enrollment in   10400.                                                                             respondent).
 an Eligible Employer-
 Sponsored Plan and
 Eligibility for Qualifying
 Coverage in an Eligible
 Employer-Sponsored Plan).

[[Page 42295]]

 
Sec.  Sec.   155.315, 155.      OCN 0938-New; CMS-             18              18              .2  ..............  29 (for one                      5.73
 330, 155.335 (ICRs Regarding    10400.                                                                             respondent).
 Reporting Changes).
Sec.  Sec.   155.400 and 405    OCN 0938-New; CMS-             18              18             142           2,556  7,254 (per                    136,314
 (ICRs Regarding Enrollment).    10400.                                                                             respondent).
Sec.   155.430 (ICRs Regarding  OCN 0938-New; CMS-             18              18              70           1,260  3,881 (per                     69,858
 Termination).                   10400.                                                                             respondent).
Sec.  Sec.   155.302, 155.345   OCN 0938-New; CMS-             18              18             105           1,890  6,733 (per                    121,194
 (ICRs Regarding Agreements).    10400.                                                                             respondent).
Sec.  Sec.   156.260, 156.265,  OCN 0938-New; CMS-             18              18             100           1,800  5,971 (per                    107,478
 156.270, and 156.290 (ICRs      10400.                                                                             respondent).
 Regarding Notices from QHP
 Issuers).
Sec.   157.205(e) and (f)       OCN 0938-New; CMS- ..............  ..............              68  ..............  4,030 (per             ..............
 (ICRs Regarding Notices and     10400.                                                                             respondent).
 Third Party Disclosures in
 the SHOP).
                               -------------------------------------------------------------------------------------------------------------------------
    Total.....................  .................  ..............  ..............  ..............          55,578  .....................    2,886,146.73
--------------------------------------------------------------------------------------------------------------------------------------------------------

E. Submission of PRA-Related Comments

    We have submitted a copy of this final rule to OMB for its review 
of the rule's information collection and recordkeeping requirements. 
These requirements are not effective until they have been approved by 
the OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced above, access the CMS 
Web site at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html, or call the Reports 
Clearance Office at 410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you comment on these information collection and 
recordkeeping requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this final rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
(CMS-2334-P) Fax: (202) 395-6974; or Email: OIRA_submission@omb.eop.gov. PRA-specific comments must be received by 
August 5, 2013.

V. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993) and 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011). 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 rules with 
economically significant effects ($100 million or more in any 1 year). 
The Office of Management and Budget has determined that this rulemaking 
is ``economically significant'' within the meaning of section 3(f)(1) 
of Executive Order 12866, because it is likely to have an annual effect 
of $100 million in any one year. Accordingly, we have prepared a 
Regulatory Impact Analysis that presents the costs and benefits of this 
rulemaking. The RIA published with the March 2012 Medicaid eligibility 
final rule detailed the impact of the Medicaid eligibility changes 
related to implementation of the Affordable Care Act. The majority of 
Medicaid eligibility provisions included in this final rule were 
described in that detailed RIA and do not need to be repeated here. In 
the April 30, 2010 final rule on State Flexibility for Medicaid Benefit 
Packages, the assumptions utilized in modeling the estimated economic 
impact of the associated provisions took into perspective the costs of 
the benefit package for the new adult group. Coverage of these benefits 
was already accounted for in the April 30, 2010 final rule, and 
therefore, does not need to be repeated here.
    For coverage beginning on or after January 1, 2014, individuals and 
small businesses will be able to purchase private health insurance--
known as qualified health plans--through competitive marketplaces 
called Affordable Insurance Exchanges, or ``Exchanges.'' This final 
rule: (1) outlines criteria related to the verification of enrollment 
in an eligible employer-sponsored plan and eligibility for qualifying 
coverage in an eligible

[[Page 42296]]

employer-sponsored plan in connection with advance payments of the 
premium tax credit and cost-sharing reductions; and (2) further 
specifies or amends other eligibility and enrollment provisions to 
provide detail necessary for state implementation. This rule continues 
to afford states substantial discretion in the design and operation of 
the Exchange established by a state, with greater standardization 
provided where directed by the statute or where there are compelling 
practical, efficiency or consumer protection reasons.

B. Estimated Impact of the Medicaid Premium and Cost Sharing Provisions

    The provisions in this final rule related to Medicaid premiums and 
cost sharing clarify and update existing flexibilities and provide new 
flexibility for states for cost sharing for outpatient services, drugs, 
and non-emergency use of the emergency department. As states 
contemplate the changes required under the Affordable Care Act, more 
states may consider utilizing these flexibilities to either establish 
or expand cost sharing. We believe these proposed policies will 
encourage less costly care and decreased use of unnecessary services, 
which will reduce state and federal costs for the specified services. 
The following chart summarizes our estimate of the anticipated effects 
of this final rule.

                                Table 2--Estimated Total Impact of Changes in Maximum Medicaid Cost Sharing, FY 2014-2018
                                                                [In millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Year                            2014              2015              2016              2017              2018            2014-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal.....................................               -25               -45               -70               -70               -70              -280
State.......................................               -15               -30               -45               -45               -50              -185
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................               -40               -75              -115              -115              -120              -465
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CMS' Office of the Actuary

    We estimate that this final rule will result in total savings of 
$465 million over 5 years, including $280 million in cost savings to 
the federal government and $185 million in savings to states. These 
savings may be attributed primarily to the increased maximum allowable 
cost sharing for outpatient services, drugs, and non-emergency use of 
the emergency department. Such savings are offset only nominally by the 
decreased maximum allowable cost sharing for an inpatient stay. In 
addition to direct savings from increased cost sharing, we assume some 
declines in utilization as enrollees subject to new cost sharing 
requirements choose to decrease their use of services.

C. Estimated Impact of Exchange Provisions

    The provisions in this final rule amend select provisions of the 
Exchange Establishment final rule (77 FR 18319, March 27, 2012). Our 
approach in this regulatory impact analysis was to build off of the 
analysis presented in the Exchange Establishment final rule, available 
at http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf. We do not believe the provisions in this final rule 
significantly alter our prior estimates of the impact of Exchanges on 
the budget or on enrollment in health insurance, and therefore, this 
final rule does not significantly alter the regulatory impact analysis 
drafted as part of such rulemaking. This section summarizes benefits 
and costs of the Exchange provisions presented in this final rule.
1. Methods of Analysis
    The estimates in this analysis reflect estimates from the FY 2014 
President's Budget for State Planning and Establishment Grants, which 
incorporate the costs associated with state implementation of the 
provisions proposed in this rule.
2. Benefits of the Proposed Regulation
    The provisions included in this final rule amend provisions of the 
Exchange Establishment final rule. We do not believe the modifications 
made significantly alter the benefits associated with these provisions. 
Therefore, we refer to the benefits discussion included in the 
regulatory impact analysis associated with the Exchange Establishment 
final rule for a full analysis. The Exchange Establishment final rule 
regulatory impact analysis can be found at http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf.
3. Costs of the Proposed Regulation
    The Affordable Care Act and the implementing regulations found in 
subpart D of this final rule and the Exchange Establishment final rule 
provide for a streamlined system based on simplified eligibility rules, 
and an expedited process that will facilitate enrollment of eligible 
individuals and minimize costs to states, Exchanges and to the federal 
government. To support this new eligibility structure, states seeking 
to operate Exchanges are expected to build new or modify existing 
information technology (IT) systems. We believe that how each state 
builds and assembles the components necessary to support its Exchange 
and Medicaid infrastructure will vary and depend on the level of 
maturity of current systems, current governance and business models, 
size, and other factors. It is important to note that, although states 
have the option to establish and operate an Exchange, there is no 
federal requirement that each state establish an Exchange. We believe 
the proposed provisions provide options and flexibility to states that 
minimize costs and burden on Exchanges, consumers, employers and other 
entities. We also believe that overall administrative costs may 
increase in the short term as states build IT systems; however, in the 
long term, states may see savings through the use of more efficient 
systems.
    Any administrative costs incurred in the development of IT 
infrastructure to support the Exchange may be funded through Exchange 
Planning and Establishment Grants to states. The federal government 
expects that these grants will fund the development of IT systems that 
can be used by many states who either develop their own Exchanges or 
who partner with the federal government to provide a subset of Exchange 
services.\3\ Costs for IT infrastructure that will also support 
Medicaid must be allocated to Medicaid, but are eligible for a 90 
percent federal matching rate to assist in development.\4\
---------------------------------------------------------------------------

    \3\ For example, CMS has awarded a number of Early Innovator 
grants to develop efficient and replicable IT systems that can 
provide the foundation for other states' work in this area. These 
amounts vary from $6 million to $48 million per state.
    \4\ Medicaid Program; Federal Funding for Medicaid Eligibility 
Determination and Enrollment Activities, Final rule, 75 FR 21950 
(April 19, 2011).

---------------------------------------------------------------------------

[[Page 42297]]

    In general, as noted in our discussion of benefits, we anticipate 
that the final rule will increase take-up of health insurance; 
therefore, one type of rule-induced cost will be associated with 
providing additional medical services to newly-enrolled individuals. A 
recent study found that insured individuals received more hospital care 
and more outpatient care than their uninsured counterparts.\5\
---------------------------------------------------------------------------

    \5\ Finkelstein, A. et al., (2011). The Oregon Health Insurance 
Experiment: Evidence from the First Year,'' National Bureau of 
Economic Research Working Paper Series, 17190.
---------------------------------------------------------------------------

    Below we include estimated federal government payments related to 
grants for Exchange startup. States' initial costs due to the creation 
of Exchanges will be funded by these grants. Performing eligibility 
determinations is a minimum function of the Exchange; therefore the 
Exchange costs to develop the infrastructure for the provisions 
included in this final rule are covered by these grant outlays.

       Table 3--Estimated Federal Government Outlays for the Affordable Insurance Exchanges FY 2013-FY2017
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
            Year                  2013          2014          2015          2016          2017        2013-2017
----------------------------------------------------------------------------------------------------------------
Grant Authority for Exchange          1.5           2.1           1.7           0.8           0.2           6.2
 Start up \a\...............
----------------------------------------------------------------------------------------------------------------
\a\ FY 2014 President's Budget.

D. Alternatives Considered

    We considered two alternatives to the Exchange provisions.
     Alternative #1: Require paper documentation to verify 
access to employer-sponsored coverage.
    Section 155.320(d) of the final rule provides a process for 
verification related to enrollment in an eligible employer-sponsored 
plan and eligibility for qualifying coverage in an eligible employer-
sponsored plan. The proposed process relies on available electronic 
data sources, with the use of paper documentation in situations in 
which information submitted by an applicant is not reasonably 
compatible with information in electronic data sources, along with a 
sample-based review for situations in which no data is available.
    The alternative model we considered would require the Exchange to 
require individuals to submit paper documentation to verify this 
information in all circumstances. This may increase the burden on 
individuals to submit this documentation to the Exchange, which may not 
be readily available to the applicant, but on employers, who will have 
to produce this information at the request of applicants, and will also 
require additional time and resources for Exchanges to accept and 
process the paper documentation needed for an eligibility 
determination. In addition, it could ultimately increase the amount of 
time it will take for an individual to receive health coverage through 
the Exchange or an insurance affordability program, could reduce the 
number of states likely to operate an Exchange due to increased 
administrative costs, and could dissuade individuals from seeking 
coverage through the Exchange.
     Alternative #2: Require Paper Notices from the Exchange
    In Sec.  155.230(d), we provide that the Exchange will provide the 
option to an individual or employer to receive notices electronically. 
We anticipate that this will be accommodated by the Exchange generating 
electronic notices, storing them on a secure Web site, and notifying 
individuals and employers through a generic email or text message 
communication that a notice is available for review.
    The alternative model would require the Exchange to send all 
notices in paper form via US mail. This would significantly increase 
administrative costs for printing and mailing, and also generate 
significant volumes of undeliverable mail which would be returned to 
the Exchange.
Summary of Costs for Each Alternative
    The paper-driven process outlined under alternatives 1 and 2 would 
ultimately increase the amount of time it would take for an individual 
to receive health coverage through the Exchange or an insurance 
affordability program, would increase administrative costs, and would 
dissuade individuals from seeking coverage through the Exchange.

E. Limitations of the Analysis

    A number of challenges face estimators in projecting the Exchange, 
Medicaid, and CHIP benefits and costs under the Affordable Care Act and 
its implementing regulations, including this final rule. Health care 
cost growth is difficult to project, especially for people who are 
currently not in the health care system--the population targeted for 
the Medicaid eligibility changes and new insurance affordability 
programs. Such individuals could have pent-up demand and thus have 
costs that may be initially higher than other enrollees in health 
coverage, while they might also have better health status than those 
who have found a way (for example, ``spent down'') to enroll in 
Medicaid.
    For the Exchange provisions, we use the President's Fiscal Year 
2014 Budget as an estimate of the costs associated with the Exchange 
provisions. It is difficult to isolate the effects associated with 
these particular provisions of the Affordable Care Act, and therefore, 
in this analysis, we discuss the evidence relating to the provisions of 
this final rule in combination with related provisions of the 
Affordable Care Act. Further, with limited previous data and 
experiences, there is even greater uncertainty than in estimating the 
implications of modifying a previously existing program. Accordingly, 
we supplement the regulatory impact analysis with a qualitative 
discussion on the specific provisions of this rule.

F. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4/), in Table X we have 
prepared an accounting statement table showing the classification of 
the impacts associated with implementation of this final rule.

[[Page 42298]]



               Table 4--Accounting Statement: Classification of Estimated Net Costs and Transfers
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                                                    Units
              Category                     Estimates       -----------------------------------------------------
                                                               Year dollar      Discount rate    Period covered
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/      Not Estimated........              2012                7%         2013-2017
 year).
                                     Not Estimated........              2012                3%         2013-2017
----------------------------------------------------------------------------------------------------------------
Qualitative........................    The Exchanges, combined with other actions being taken to implement the
                                          Affordable Care Act, will improve access to health insurance, with
                                       numerous positive effects, including reduced morbidity and fewer medical
                                       bankruptcies. The Exchange will also serve as a distribution channel for
                                           insurance reducing administrative costs as a part of premiums and
                                         providing comparable information on health plans to allow for a more
                                                            efficient shopping experience.
----------------------------------------------------------------------------------------------------------------
                                                     Costs*
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/      1,311................              2012                7%         2013-2017
 year).
                                     1,283................              2012                3%         2013-2017
----------------------------------------------------------------------------------------------------------------
Qualitative........................     Unquantified costs include State implementation costs above the amount
                                        covered by Federal grants; and increased medical costs associated with
                                                    more widespread enrollment in health insurance.
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/      54.4.................              2013                7%         2014-2018
 year).
                                     55.3.................              2013                3%         2014-2018
----------------------------------------------------------------------------------------------------------------
From Whom to Whom..................                      Beneficiaries to Federal Government
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/      35.8.................              2013                7%         20