[Federal Register Volume 78, Number 231 (Monday, December 2, 2013)]
[Proposed Rules]
[Pages 72321-72392]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28610]



[[Page 72321]]

Vol. 78

Monday,

No. 231

December 2, 2013

Part IV





Department of Health and Human Services





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45 CFR Parts 144, 147, 153, et al.





Patient Protection and Affordable Care Act; HHS Notice of Benefit and 
Payment Parameters for 2015; Proposed Rule

Federal Register / Vol. 78 , No. 231 / Monday, December 2, 2013 / 
Proposed Rules

[[Page 72322]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 147, 153, 155, and 156

[CMS-9954-P]
RIN 0938-AR89


Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2015

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth payment parameters and oversight 
provisions related to the risk adjustment, reinsurance, and risk 
corridors programs; cost-sharing parameters and cost-sharing 
reductions; and user fees for Federally-facilitated Exchanges. It also 
proposes additional standards with respect to composite rating, privacy 
and security of personally identifiable information, the annual open 
enrollment period for 2015, the actuarial value calculator, the annual 
limitation in cost sharing for stand-alone dental plans, the meaningful 
difference standard for qualified health plans offered through a 
Federally-facilitated Exchange, patient safety standards for issuers of 
qualified health plans, and the Small Business Health Options Program.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on December 26, 
2013.

ADDRESSES: In commenting, please refer to file code CMS-9954-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-9954-P, P.O. Box 8016, Baltimore, MD 
21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-9954-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    a. For delivery in Washington, DC--
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: For general information: Sharon 
Arnold, (301) 492-4286; Laurie McWright, (301) 492-4311; or Jeff Wu, 
(301) 492-4305.
    For matters related to student health insurance coverage and 
composite rating: Jacob Ackerman, (301) 492-4179.
    For matters related to the risk adjustment program generally, the 
small group counting requirements, the risk adjustment methodology, and 
the methodology for determining the reinsurance contribution rate and 
payment parameters: Kelly Horney, (410) 786-0558.
    For matters related to reinsurance generally, oversight of the 
premium stabilization programs, distributed data collection, and 
administrative appeals: Adrianne Glasgow, (410) 786-0686.
    For matters related to reinsurance contributions: Adam Shaw, (410) 
786-1019.
    For matters related to risk corridors: Jaya Ghildiyal, (301) 492-
5149.
    For matters related to cost-sharing reductions, the premium 
adjustment percentage, and Federally-facilitated Exchange user fees: 
Johanna Lauer, (301) 492-4397.
    For matters related to the annual limitation on cost sharing for 
stand-alone dental plans, privacy and security of personally 
identifiable information, the annual open enrollment period for the 
2015 benefit year, and the meaningful difference standard: Leigha 
Basini, (301) 492-4380.
    For matters related to the Small Business Health Options Program: 
Scott Dafflitto, (301) 492-4198.
    For matters related to the actuarial value calculator: Allison 
Wiley at (410)786-1740.
    For matters related to patient safety standards for issuers of 
qualified health plans: Nidhi Singh Shah, (301) 492-5110.
    For matters related to netting of payments and charges: Pat Meisol, 
(410) 786-1917.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Executive Summary
II. Background
    A. Legislative Authority
    B. Stakeholder Consultation and Input
    C. Structure of Proposed Rule
III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2015
    A. Part 144--Requirements Relating to Health Insurance Coverage
    B. Part 147--Health Insurance Reform Requirements for the Group 
and Individual Health Insurance Markets
    1. Composite Rating

[[Page 72323]]

    2. Student Health Insurance Coverage
    C. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment under the Affordable Care Act
    1. Provisions and Parameters for the Permanent Risk Adjustment 
Program
    a. Risk adjustment user fees
    b. HHS risk adjustment methodology considerations
    c. Small group determination for risk adjustment
    d. Risk adjustment data validation
    e. HHS audits of issuers of risk adjustment covered plans
    2. Provisions and Parameters for the Transitional Reinsurance 
Program
    a. Major medical coverage
    b. Self-insured plans without third party administrators
    c. Uniform reinsurance contribution rate
    d. Uniform reinsurance payment parameters
    e. Adjustment options
    f. Deducting cost-sharing reduction amounts from reinsurance 
payments
    g. Audits
    h. Same covered life
    i. Reinsurance contributions and enrollees residing in the 
territories
    j. Form 5500 counting method
    3. Provisions for the Temporary Risk Corridors Program
    a. Definitions
    b. Compliance with risk corridors standards
    c. Participation in the risk corridors program
    e. Adjustment options for transitional policy
    4. Distributed Data Collection for the HHS-operated Risk 
Adjustment and Reinsurance Programs
    a. Discrepancy resolution process
    b. Default risk adjustment charge
    D. Part 155--Exchange Establishment Standards and Other Related 
Standards under the Affordable Care Act
    1. Election to Operate an Exchange after 2014
    2. Ability of States to Permit Agents and Brokers to Assist 
Qualified Individuals, Qualified Employers, or Qualified Employees 
Enrolling in Qualified Health Plans
    3. Privacy and Security of Personally Identifiable Information
    4. Annual Open Enrollment Period for 2015
    5. Functions of a Small Business Health Options Program
    6. Eligibility Determination Process for SHOP
    7. Application Standards for SHOP
    E. Part 156--Health Insurance Issuer Standards under the 
Affordable Care Act, Including Standards Related to Exchanges
    1. Provisions Related to Cost Sharing
    a. Premium adjustment percentage
    b. Reduced maximum annual limitation on cost sharing
    c. Design of cost-sharing reduction plan variations
    d. Advance payments of cost-sharing reductions
    2. Provisions on User Fees for a Federally-facilitated Exchange
    a. FFE user fee for the 2015 benefit year
    b. Adjustment of FFE user fee
    3. Actuarial Value Calculation for Determining Level of Coverage
    4. National Annual Limit on Cost Sharing for Stand-alone Dental 
Plans in an Exchange
    5. Additional Standards Specific to SHOP
    6. Meaningful Difference Standard for Qualified Health Plans in 
the FFEs
    7. Quality Standards: Establishment of Patient Safety Standards 
for QHPs Issuers
    8. Financial Programs
    a. Netting of payments and charges
    b. Confirmation of HHS payment and collections reports
    c. Administrative appeals
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Impact Estimates of the Payment Notice Provisions
    D. Regulatory Flexibility Act
    E. Unfunded Mandates
    F. Federalism
    G. Congressional Review Act
VII. Regulations Text

Acronyms

    Affordable Care Act--The collective term for the Patient 
Protection and Affordable Care Act (Pub. L. 111-148) and the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152)
    AV--Actuarial Value
    CFR--Code of Federal Regulations
    CMS--Centers for Medicare & Medicaid Services
    EHB--Essential Health Benefits
    ERISA--Employee Retirement Income Security Act of 1974 (Pub. L. 
93-406)
    FFE--Federally-facilitated Exchange
    FF-SHOP--Federally-facilitated Small Business Health Options 
Program
    FPL--Federal poverty level
    HCC--Hierarchical condition category
    HHS--United States Department of Health and Human Services
    HIPAA--Health Insurance Portability and Accountability Act of 
1996 (Pub. L. 104-191)
    IRS--Internal Revenue Service
    MLR--Medical Loss Ratio
    NAIC--National Association of Insurance Commissioners
    OMB--Office of Management and Budget
    OPM--United States Office of Personnel Management
    PHS Act--Public Health Service Act
    PII--Personally identifiable information
    PSO--Patient Safety Organization
    PRA--Paperwork Reduction Act of 1985
    PSES--Patient safety evaluation system
    QHP--Qualified health plan
    SHOP--Small Business Health Options Program
    The Code Internal Revenue Code of 1986

I. Executive Summary

    Qualified individuals and qualified employers are now able to 
purchase private health insurance coverage that begins as early as 
January 1, 2014, through competitive marketplaces called Affordable 
Insurance Exchanges, or ``Exchanges'' (also called Health Insurance 
Marketplaces, or ``Marketplaces'').\1\ Individuals who enroll in 
qualified health plans (QHPs) through individual market Exchanges may 
receive premium tax credits to make health insurance more affordable 
and financial assistance to reduce cost sharing for health care 
services. In 2014, HHS will also operationalize the premium 
stabilization programs established by the Affordable Care Act--the risk 
adjustment, reinsurance, and risk corridors programs--which are 
intended to mitigate the impact of possible adverse selection and 
stabilize the price of health insurance in the individual and small 
group markets. We believe that these programs, together with other 
reforms of the Affordable Care Act, will make high-quality health 
insurance affordable and accessible to millions of Americans.
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    \1\ The word ``Exchanges'' refers to both State Exchanges, also 
called State-based Exchanges, and Federally-facilitated Exchanges 
(FFEs). In this proposed rule, we use the terms ``State Exchange'' 
or ``FFE'' when we are referring to a particular type of Exchange. 
When we refer to ``FFEs,'' we are also referring to State 
Partnership Exchanges, which are a form of FFE.
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    HHS has previously outlined the major provisions and parameters 
related to the advance payments of the premium tax credit, cost-sharing 
reductions, and premium stabilization programs. This proposed rule 
proposes additional provisions related to the implementation of these 
programs. Specifically, we propose certain oversight provisions for the 
premium stabilization programs, as well as key payment parameters for 
the 2015 benefit year.
    The Patient Protection and Affordable Care Act; HHS Notice of 
Benefit and Payment Parameters for 2014 final rule (78 FR 15410) (2014 
Payment Notice) finalized the risk adjustment methodology that HHS will 
use when it operates risk adjustment on behalf of a State. This 
proposed rule proposes minor updates to this risk adjustment 
methodology for 2014 to account for certain private market Medicaid 
expansion plans, and seeks comment on how to adjust the geographic cost 
factor in the payment transfer formula to account for less populous 
rating areas in future benefit years. In this proposed rule, we also 
propose to clarify the counting methods for determining small

[[Page 72324]]

group size for participation in the risk adjustment and risk corridors 
programs.
    Using the methodology set forth in the 2014 Payment Notice for 
determining the uniform reinsurance contribution rate and uniform 
reinsurance payment parameters, we propose in this rule a 2015 uniform 
reinsurance contribution rate of $44 annually per capita, and the 2015 
uniform reinsurance payment parameters--a $70,000 attachment point, a 
$250,000 reinsurance cap, and a 50 percent coinsurance rate. We also 
propose to decrease the attachment point for 2014 from $60,000 to 
$45,000. Additionally, in order to maximize the financial effect of the 
transitional reinsurance program, we propose that if reinsurance 
contributions collected for a benefit year exceed the requests for 
reinsurance payments for the benefit year, we would increase the 
coinsurance rate on our reinsurance payments, ensuring that all of the 
contributions collected for a benefit year are expended for claims for 
that benefit year.
    We also propose several provisions related to cost sharing. First, 
we propose a methodology for estimating average per capita premium and 
for calculating the premium adjustment percentage for 2015 which is 
used to set the rate of increase for several parameters detailed in the 
Affordable Care Act, including the maximum annual limitation on cost 
sharing and the maximum annual limitation on deductibles for health 
plans in the small group market for 2015. We also propose to set the 
same reduced maximum annual limitations on cost sharing for the 2015 
benefit year as we established for the 2014 benefit year for cost-
sharing reduction plan variations. Additionally, we are proposing 
certain modifications to the methodology for calculating advance 
payments for cost-sharing reductions for the 2015 benefit year. We also 
propose standards for updating the actuarial value (AV) calculator.
    This proposed rule provides for a 2015 Federally-facilitated 
Exchange (FFE) user fee rate of 3.5 percent of premium. Additionally, 
we propose a user fee adjustment allowance for administrative costs in 
the 2015 benefit year to reimburse third party administrators that 
provide payment for contraceptive services for enrollees in certain 
self-insured group health plans that receive an accommodation from the 
obligation to cover these services in 2014.
    On November 14, 2013, the Federal government announced a policy 
under which it will not consider certain non-grandfathered health 
insurance coverage in the individual or small group market renewed 
between January 1, 2014, and October 1, 2014, under certain conditions 
to be out of compliance with specified 2014 market rules, and requested 
that States adopt a similar non-enforcement policy.\2\
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    \2\ Letter to Insurance Commissioners, Center for Consumer 
Information and Insurance Oversight, November 14, 2013. See http://www.cms.gov/CCIIO/Resources/Letters/Downloads/commissioner-letter-11-14-2013.PDF.
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    Issuers have set their 2014 premiums for individual and small group 
market plans by estimating the health risk of enrollees across all of 
their plans in the respective markets, in accordance with the single 
risk pool requirement at 45 CFR 156.80. These estimates assumed that 
individuals currently enrolled in the transitional plans described 
above would participate in the single risk pools applicable to all non-
grandfathered individual and small group plans, respectively (or a 
merged risk pool, if required by the State). Individuals who elect to 
continue coverage in a transitional plan (forgoing premium tax credits 
and cost-sharing reductions that might be available through an Exchange 
plan, and the essential health benefits package offered by plans 
compliant with the 2014 market rules, and perhaps taking advantage of 
the underwritten premiums offered by the transitional plan) may have 
lower health risk, on average, than enrollees in individual and small 
group plans subject to the 2014 market rules.
    If lower health risk individuals remain in a separate risk pool, 
the transitional policy could increase an issuer's average expected 
claims cost for plans that comply with the 2014 market rules. Because 
issuers would have set premiums for QHPs in accordance with 45 CFR 
156.80 based on a risk pool assumed to include the potentially lower 
health risk individuals that enroll in the transitional plans, an 
increase in expected claims costs could lead to unexpected losses.
    To help address the effects of this transitional policy on the risk 
pool, we are exploring modifications to a number of programs. We have 
outlined various options under consideration throughout this proposed 
rule, including adjustments to the reinsurance and risk corridors 
programs. We are seeking comment on these proposals, as well as 
soliciting suggestions for alternate proposals. As the impact of the 
transitional policy becomes clearer, we will determine what, if any, 
adjustments are appropriate.
    The success of the premium stabilization programs depends on a 
robust oversight program. This proposed rule expands on provisions of 
the Premium Stabilization Rule (77 FR 17220), the 2014 Payment Notice 
(78 FR 15410), and the first and second final Program Integrity Rules 
(78 FR 54070 and 78 FR 65046). In this proposed rule, we propose that 
HHS may audit State-operated reinsurance programs, contributing 
entities, and issuers of risk adjustment covered plans and reinsurance 
eligible-plans. We also clarify participation standards for the risk 
corridors program, and outline a proposed process for validating risk 
corridors data submissions and enforcing compliance with the provisions 
of the risk corridors program.
    We also propose several provisions regarding the HHS-operated risk 
adjustment data validation process. On June 22, 2013, we issued ``The 
Affordable Care Act HHS-operated Risk Adjustment Data Validation 
Process White Paper'' \3\ and on June 25, 2013, we held a public 
meeting to discuss how to best ensure the accuracy and consistency of 
the data we will use when operating the risk adjustment program on 
behalf of a State. In this proposed rule, we propose standards for risk 
adjustment data validation, including a sampling methodology for the 
initial validation audit and detailed audit standards. These proposed 
standards would be tested for 2 years before they are used as a basis 
for payment adjustments. This proposed rule also includes a proposal to 
implement, over time, the requirements related to patient safety 
standards that QHP issuers must meet, and proposes reducing the time 
period for which a State electing to operate an Exchange after 2014 
must have in effect an approved, or conditionally approved, Exchange 
Blueprint and operational readiness assessment from at least 12 months 
to 6.5 months prior to the Exchange's first effective date of coverage. 
We also propose provisions related to the privacy and security of 
personally identifiable information (PII), the annual open enrollment 
period for 2015, the annual limitation on cost sharing for stand-alone 
dental plans, and the meaningful difference standards for QHPs offered 
through an FFE. We also propose certain standards for the Small 
Business Health Options Program (SHOP) and for composite rating in the 
small group market.
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    \3\ Available at: https://www.regtap.info/uploads/library/ACA_HHS_OperatedRADVWhitePaper_062213_5CR_062213.pdf
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II. Background

A. Legislative and Regulatory Overview

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted

[[Page 72325]]

on March 23, 2010. The Health Care and Education Reconciliation Act of 
2010 (Pub. L. 111-152), which amended and revised several provisions of 
the Patient Protection and Affordable Care Act, was enacted on March 
30, 2010. In this proposed rule, we refer to the two statutes 
collectively as the ``Affordable Care Act.''
    Section 1302 of the Affordable Care Act directs the Secretary of 
Health and Human Services (referred to throughout this rule as the 
Secretary) to define EHBs and provides for cost-sharing limits and AV 
requirements. Sections 1302(d)(1) and (d)(2) of the Affordable Care Act 
describe the determination of the levels of coverage based on AV. 
Consistent with section 1302(d)(2)(A) of the Affordable Care Act, AV is 
calculated based on the provision of EHB to a standard population. 
Section 1302(d)(3) of the Affordable Care Act directs the Secretary to 
develop guidelines that allow for de minimis variation in AV 
calculations.
    Section 1311(b)(1)(B) of the Affordable Care Act directs that the 
SHOP assist qualified small employers in facilitating the enrollment of 
their employees in QHPs offered in the small group market. Under 
section 1312(f)(2)(B) of the Affordable Care Act, beginning in 2017, 
States will have the option to allow issuers to offer QHPs in the large 
group market through the SHOP.
    Section 1311(c)(6)(B) of the Affordable Care Act states that the 
Secretary is to require an Exchange to provide for annual open 
enrollment periods for calendar years after the initial enrollment 
period.
    Section 1311(h)(1) of the Affordable Care Act specifies that a QHP 
may contract with health care providers and hospitals with more than 50 
beds only if they meet certain patient safety standards, including use 
of a patient safety evaluation system, a comprehensive hospital 
discharge program, and implementation of health care quality 
improvement activities. Section 1311(h)(2) of the Affordable Care Act 
also provides the Secretary flexibility to establish reasonable 
exceptions to these patient safety requirements and section 1311(h)(3) 
of the Affordable Care Act allows the Secretary flexibility to issue 
regulations to modify the number of beds described in section 
1311(h)(1)(A) of the Affordable Care Act.
    Section 1313 of the Affordable Care Act, combined with section 1321 
of the Affordable Care Act, provides the Secretary with the authority 
to oversee the financial integrity of State Exchanges, their compliance 
with HHS standards, and the efficient and non-discriminatory 
administration of State Exchange activities. Section 1321(a) of the 
Affordable Care Act provides general authority for the Secretary to 
establish standards and regulations to implement the statutory 
requirements related to Exchanges, QHPs, and other components of Title 
I of the Affordable Care Act.
    When operating an FFE under section 1321(c)(1) of the Affordable 
Care Act, HHS has the authority under sections 1321(c)(1) and 
1311(d)(5)(A) of the Affordable Care Act to collect and spend user 
fees. In addition, 31 U.S.C. 9701 permits a Federal agency to establish 
a charge for a service provided by the agency. Office of Management and 
Budget (OMB) Circular A-25 Revised establishes Federal policy regarding 
user fees and specifies that a user charge will be assessed against 
each identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public.
    Section 1341 of the Affordable Care Act requires the establishment 
of a transitional reinsurance program in each State to help pay the 
cost of treating high-cost enrollees in the individual market from 2014 
through 2016. Section 1342 of the Affordable Care Act directs the 
Secretary to establish a temporary risk corridors program that provides 
for the sharing in gains or losses resulting from inaccurate rate 
setting from 2014 through 2016 between the Federal government and 
certain participating plans. Section 1343 of the Affordable Care Act 
establishes a permanent risk adjustment program that is intended to 
provide increased payments to health insurance issuers that attract 
higher-risk populations, such as those with chronic conditions, and 
thereby reduce incentives for issuers to avoid higher-risk enrollees. 
Sections 1402 and 1412 of the Affordable Care Act establish a program 
for reducing cost sharing for individuals with lower household income 
and Indians.
    Section 1411(g) of the Affordable Care Act provides that any person 
who receives information specified in section 1411(b) provided by an 
applicant or information specified in section 1411(c), (d), or (e) from 
a Federal agency must use the information only for the purpose of and 
to the extent necessary to ensure the efficient operation of the 
Exchange, and may not disclose the information to any other person 
except as provided in that section. Section 6103(l)(21)(C) of the Code 
additionally provides that return information disclosed under section 
6103(l)(21)(A) or (B) may be used only for the purpose of and to the 
extent necessary in establishing eligibility for participation in the 
Exchange, verifying the appropriate amount of any premium tax credit or 
cost-sharing reduction, or determining eligibility for participation in 
a health insurance affordability program as described in that section.
1. Premium Stabilization Programs
    In the July 15, 2011 Federal Register (76 FR 41930), we published a 
proposed rule outlining the premium stabilization programs. We 
implemented the premium stabilization programs in a final rule, 
published in the March 23, 2012 Federal Register (77 FR 17220) (Premium 
Stabilization Rule). In the December 7, 2012 Federal Register (77 FR 
73118), we published a proposed rule outlining the benefit and payment 
parameters for 2014 to expand the provisions related to the premium 
stabilization programs and set forth payment parameters in those 
programs (proposed 2014 Payment Notice). We published the 2014 Payment 
Notice in the March 11, 2013 Federal Register (78 FR 153410).
    As discussed above, we published a white paper on risk adjustment 
data validation on June 22, 2013, and hosted a public meeting on June 
25, 2013, to discuss the white paper.
2. Program Integrity
    In the June 19, 2013 Federal Register (78 FR 37032), we published a 
proposed rule that proposed certain program integrity standards related 
to Exchanges and the premium stabilization programs (proposed Program 
Integrity Rule). The provisions of that proposed rule were finalized in 
two rules, the ``first final Program Integrity Rule'' published in the 
August 30, 2013 Federal Register (78 FR 54070) and the ``second final 
Program Integrity Rule'' published in the October 30, 2013 Federal 
Register (78 FR 65046).
3. Exchanges, Essential Health Benefits, Actuarial Value
    A proposed rule relating to EHBs and AV was published in the 
November 26, 2012 Federal Register (77 FR 70644). We proposed standards 
related to the premium adjustment percentage in the Standards Related 
to Essential Health Benefits, Actuarial Value, and Accreditation Final 
Rule, published in the February 25, 2013 Federal Register (78 FR 12834) 
(EHB Rule). We established standards for the administration and payment 
of cost-sharing reductions and the SHOP in the 2014 Payment Notice and 
in the Amendments to the HHS Notice of Benefit and Payment Parameters 
for 2014 interim final rule, published in the

[[Page 72326]]

March 11, 2013 Federal Register (78 FR 15541). The provisions 
established in the interim final rule were finalized in the second 
final Program Integrity Rule.
    We set forth standards related to Exchange user fees in the 2014 
Payment Notice. We also established an adjustment to the FFE user fee 
in the Coverage of Certain Preventive Services Under the Affordable 
Care Act final rule, published in the July 2, 2013 Federal Register (78 
FR 39870) (Preventive Services Rule).
    A Request for Comment relating to Exchanges was published in the 
August 3, 2010 Federal Register (75 FR 45584). An Initial Guidance to 
States on Exchanges was issued on November 18, 2010. A proposed rule 
was published in the July 15, 2011 Federal Register (76 FR 41866) to 
implement components of the Exchange. A proposed rule regarding 
Exchange functions in the individual market, eligibility 
determinations, and Exchange standards for employers was published in 
the August 17, 2011 Federal Register (76 FR 51202). A final rule 
implementing components of the Exchanges and setting forth standards 
for eligibility for Exchanges was published in the March 27, 2012 
Federal Register (77 FR 18310) (Exchange Establishment Rule).
4. Market Rules
    Provisions relating to the 2014 market reforms and rate review were 
published in Patient Protection and Affordable Care Act; Health 
Insurance Market Rules; Rate Review proposed rule in the November 26, 
2012 Federal Register (77 FR 70584). A final rule implementing these 
provisions was published in the February 27, 2013 Federal Register (78 
FR 13406) (Market Reform Rule).
5. Medical Loss Ratio
    We published a request for comment on PHS Act section 2718 in the 
April 14, 2010 Federal Register (75 FR 19297), and published an interim 
final rule with a 60-day comment period relating to the medical loss 
ratio (MLR) program on December 1, 2010 (75 FR 74864). A final rule 
with a 30-day comment period was published in the December 7, 2011 
Federal Register (76 FR 76574).

B. Stakeholder Consultation and Input

    In addition to seeking advice from the public on risk adjustment 
data validation, HHS has consulted with stakeholders on policies 
related to the operation of Exchanges, including the SHOP and the 
premium stabilization programs. HHS has held a number of listening 
sessions with consumers, providers, employers, health plans, the 
actuarial community, and State representatives to gather public input. 
HHS consulted with stakeholders through regular meetings with the 
National Association of Insurance Commissioners (NAIC), regular contact 
with States through the Exchange Establishment grant and Exchange 
Blueprint approval processes, and meetings with Tribal leaders and 
representatives, health insurance issuers, trade groups, consumer 
advocates, employers, and other interested parties. We considered all 
of the public input as we developed the policies in this proposed rule.

C. Structure of Proposed Rule

    The regulations outlined in this proposed rule would be codified in 
45 CFR parts 144, 147, 153, 155 and 156. The proposed regulations in 
parts 144 and 147 propose amendments relating to student health 
insurance coverage. The proposed regulations in part 147 also outline 
market-wide provisions regarding composite rating. The proposed 
regulations in part 153 outline the 2015 uniform contribution rate and 
uniform reinsurance payment parameters for the 2015 benefit year and 
oversight provisions related to the premium stabilization programs, 
such as provisions related to risk adjustment data validation, risk 
corridors data validation, and HHS's authority to audit entities 
participating in these programs. The proposed regulations in part 153 
propose that excess reinsurance contributions collected for a benefit 
year be used for claims for that benefit year.
    The proposed regulations in part 155 propose to reduce the time 
that States that elect to establish and operate an Exchange after 2014 
must have in effect an approved or conditionally approved Exchange 
Blueprint and readiness assessment from 12 months to 6.5 months prior 
to the Exchange's first effective date of coverage. The proposed 
regulations also include a change to the annual open enrollment period 
for the 2015 benefit year and certain proposals related to the SHOP 
Exchanges, which we discuss in greater detail below. We also propose in 
part 155 to amend Sec.  155.260 to allow the Secretary to determine 
that additional uses or disclosures of PII not specifically permitted 
by Sec.  155.260 ensure the efficient operation of the Exchange. In 
addition, we propose to establish a process under which Exchanges may 
seek the Secretary's approval for other uses of applicant PII not 
specifically permitted by Sec.  155.260. We also propose to amend Sec.  
155.260 to more specifically define the term ``non-Exchange entity'' 
and to provide a baseline for the privacy and security standards to 
which Exchanges must bind non-Exchange entities through written 
contracts or agreements.
    The proposed regulations in part 156 set forth provisions related 
to cost sharing, including the premium adjustment percentage, the 
maximum annual limitation on cost sharing, the maximum annual 
limitation on deductibles for health plans in the small group market, 
the reductions in the maximum annual limitation for cost sharing plan 
variations, and the methodology to calculate advance payments of cost-
sharing reductions for 2015. They also outline the 2015 FFE user fee 
rate and propose a user fee adjustment to reimburse third party 
administrators that pay for contraceptive services for enrollees in 
certain self-insured group health plans that receive an accommodation 
from the obligation to cover these services. They also include 
provisions related to parameters for making updates to the AV 
calculator in future plan years. The proposed 2015 AV Calculator and a 
proposed 2015 AV Calculator methodology, which would supersede the 2014 
versions of these documents incorporated by reference in the EHB Rule, 
are being incorporated by reference in this proposed rule. In part 156 
we also propose a meaningful difference standard for QHPs offered 
through an FFE and patient safety standards for issuers of QHPs. 
Finally, we propose an administrative appeals process applicable to the 
premium stabilization, cost-sharing reduction, advance payments of the 
premium tax credit, and FFE user fee programs.
    In parts 155 and 156, we also propose the following provisions 
related to the SHOP:
     We propose to permit all SHOPs performing premium 
aggregation to establish one or more standard processes for premium 
calculation, payment, and collection.
     We propose that in the FF-SHOPs, for plan years when 
premium aggregation is available, employers be required to make premium 
payments to the FF-SHOP according to a timeline and process established 
by HHS. We further propose that for plan years beginning on or after 
January 1, 2015, unless the QHP issuer receives a cancellation notice 
from the FF-SHOP, the issuer would be required to effectuate coverage.
     We propose a standard premium pro-rating methodology for 
the FF-SHOPs, for plan years when premium aggregation is available, 
providing that groups will be charged for the portion

[[Page 72327]]

of the month for which an enrollee is enrolled.
     We propose to make explicit our interpretation of current 
regulations that no SHOPs would be permitted to collect information on 
a SHOP application unless that information is necessary to determine 
SHOP eligibility or effectuate enrollment through the SHOP.
     We propose that no SHOPs would be permitted to perform 
individual market Exchange eligibility determinations or verifications.
     We propose that a qualified employer that becomes a large 
employer but continues to purchase coverage through a SHOP would 
continue to be rated as a small employer.
     We propose to limit the employer and employee eligibility 
adjustment periods to circumstances when the SHOP has an optional 
verification process, and collects information through that 
verification process that is inconsistent with the information provided 
by an employer or employee on a SHOP application.
     We propose for plan years beginning on or after January 1, 
2015 to give SHOPs in States that permit this activity under State law, 
the option of permitting enrollment in a SHOP through the Internet Web 
site of an agent or broker.
     We propose to limit the availability of composite premiums 
in the FF-SHOPs after employee choice and premium aggregation become 
available.
     We propose methods for employers in the FF-SHOPs to offer 
stand-alone dental coverage after employee choice becomes available in 
those SHOPs.
     We propose for plan years beginning on or after January 1, 
2015 to permit FF-SHOPs to give employers the flexibility to define 
different premium percentage contributions for full-time employees and 
non-full-time employees.
    We note that nothing in these proposed regulations would limit the 
authority of the Office of the Inspector General (OIG) as set forth by 
the Inspector General Act of 1978 or other applicable law.

III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2015

A. Part 144--Requirements Relating to Health Insurance Coverage

    In Sec.  144.103, the term ``policy year,'' as amended by the 
second final Program Integrity Rule, is defined as: (1) With respect to 
a grandfathered health plan offered in the individual health insurance 
market, the 12-month period that is designated as the policy year in 
the policy documents of the individual health insurance coverage. If 
there is no designation of a policy year in the policy document (or no 
such policy document is available), then the policy year is the 
deductible or limit year used under the coverage. If deductibles or 
other limits are not imposed on a yearly basis, the policy year is the 
calendar year; and (2) with respect to a non-grandfathered health plan 
offered in the individual health insurance market, or in a market in 
which the State has merged the individual and small group risk pools 
(merged market), for coverage issued or renewed beginning January 1, 
2014, a calendar year for which health insurance coverage provides 
coverage for health benefits. Further, Sec.  147.104, as amended by the 
second final Program Integrity Rule, establishes individual market open 
enrollment periods based on a calendar policy year and provides that 
non-grandfathered coverage in the individual or merged markets must be 
offered on a calendar year basis, with a policy year beginning on 
January 1 and ending on December 31 of each year.
    Under regulations at Sec.  147.145(a), student health insurance 
coverage is defined as individual health insurance coverage. Section 
147.145(b), however, exempts student health insurance coverage from 
certain PHS Act and Affordable Care Act requirements that apply to 
individual health insurance coverage, including certain guaranteed 
availability provisions of section 2702 of the PHS Act, implemented at 
Sec.  147.104. As discussed below, because student health insurance 
coverage is traditionally offered on a school year basis (for example, 
a policy year beginning on September 1 of each year and ending on 
August 30 of the following year), we are proposing to modify Sec.  
147.145 to exempt student health insurance coverage from the 
requirement under section 2702 to establish open enrollment periods and 
coverage effective dates that are based on a calendar policy year, 
including the requirement that non-grandfathered coverage in the 
individual and merged markets be offered on a calendar year basis. We 
are also proposing conforming amendments to the definition of ``policy 
year'' to reflect that student health insurance coverage would not be 
required to be offered on a calendar year basis. We seek comment on 
this proposal.

B. Part 147--Health Insurance Reform Requirements for the Group and 
Individual Health Insurance Markets

1. Composite Rating
    Section 2701 of the PHS Act, as added by section 1201 of the 
Affordable Care Act, establishes permissible rating factors that may be 
used to vary the premium rate charged by a health insurance issuer for 
non-grandfathered health insurance coverage (including QHPs) in the 
individual and small group markets beginning in 2014.\4\ The factors 
are: family size, rating area, age, and tobacco use (within limits). 
Section 2701(a)(4) of the PHS Act provides that with respect to family 
coverage under a group health plan or health insurance coverage, any 
rating variation for age or tobacco use must be applied based on the 
proportion of the premium attributable to each family member covered 
under the plan or coverage.
---------------------------------------------------------------------------

    \4\ Beginning in 2017, States will have the option to allow 
issuers to offer QHPs in the large group market through the SHOP. If 
a State elects this option, the rating rules in section 2701 and its 
implementing regulations will apply to all coverage offered in such 
State's large group market (except for self-insured group health 
plans) under to section 2701(a)(5) of the PHS Act.
---------------------------------------------------------------------------

    In the Market Reform Rule, we applied the per-member rating 
requirement of PHS Act section 2701(a)(4) in both the individual and 
small group markets. Thus, at Sec.  147.102(c), we generally directed 
that issuers calculate a separate premium for each individual covered 
under the plan or coverage based on allowable rating factors including 
age and tobacco use, and sum the individual rates to determine the 
total premium charged by the issuer to a family or to a group health 
plan.\5\
---------------------------------------------------------------------------

    \5\ States that do not permit rating for age or tobacco use may 
require health insurance issuers in the individual and small group 
markets to use uniform family tiers and corresponding multipliers 
established by the State. Sec.  147.102(c)(2).
---------------------------------------------------------------------------

    We recognized that in the small group market it is common industry 
billing practice to charge an employer a uniform premium for a given 
family composition by adding the per-member rates and dividing by the 
total number of employees covered under the employer's health insurance 
plan. We indicated that nothing prevents an issuer from converting per-
member rates into average enrollee premium amounts (calculated 
composite premiums), provided that the total group premium is the same 
total amount derived in accordance with the process established by the 
regulations.
    Because calculated composite premiums are average rates for a 
particular group, changes in employee

[[Page 72328]]

census would typically cause a change in the average rate. For example, 
a new average rate per enrollee would typically result from employees 
adding or dropping coverage during the course of the plan year, causing 
employer and employee contributions to change as well. We have been 
asked about such mid-year changes in group composition and how issuers 
should address the resulting changes in the calculated composite 
premium for the group.
    In this proposed rule, we propose to add a provision at Sec.  
147.102(c)(3) clarifying that if an issuer offers a composite premium 
calculated when the employer obtains or renews coverage, the issuer 
must ensure that such amount does not vary for any plan participant or 
beneficiary during the plan year with respect to the particular plan 
involved. Under this approach, an issuer would be required to accept 
the group's composite premium, calculated based on applicable employee 
enrollment at the beginning of the plan year, as the applicable premium 
rate for any new individual who enrolls in the plan during the plan 
year.\6\ Terminations of coverage during the plan year also would not 
change the composite premium. At the time of renewal, the issuer would 
recalculate a group's composite premium based on plan enrollment at 
that time for subsequent coverage. This will allow calculated composite 
premiums, and thus employer and employee contributions to coverage, to 
remain stable during the plan year, regardless of changes in the 
group's composition.
---------------------------------------------------------------------------

    \6\ In cases where the composite premium does not incorporate 
the age or tobacco use rating factor, an issuer would be required to 
accept the group's composite premium, calculated based on applicable 
employee enrollment at the beginning of the plan year, multiplied by 
any applicable age or tobacco rating factor, as the applicable 
premium for any new individual who enrolls in the plan during the 
plan year. Under Sec.  147.102(a)(1)(iv), rating for tobacco use is 
subject to the nondiscrimination and wellness provisions under 
section 2705 of the PHS Act and its implementing regulations, 
regardless of whether the composite premium incorporates the tobacco 
use rating factor.
---------------------------------------------------------------------------

    This proposed policy would generally apply to health insurance 
issuers offering non-grandfathered health insurance coverage in the 
small group market, through a SHOP or outside of a SHOP, for plan years 
beginning on or after January 1, 2015. However, we encourage issuers to 
voluntarily adopt this approach for plan years beginning in 2014. As 
discussed in more detail below, we propose a limited exception to this 
policy in Sec.  155.705(b)(11)(ii)(D) and Sec.  156.285(a)(4)(ii) of 
this proposed rule, under which composite rating would not be available 
when an employer participating in a Federally-facilitated SHOP elects 
to offer its employees all QHPs within a single level of coverage under 
Sec.  155.705(b)(3)(iv)(A).
    We are considering establishing a uniform tiered-composite rating 
structure that would apply market wide unless a State requires and HHS 
approves an alternate tiered-composite rating methodology. Under the 
approach we are considering, a small group market issuer offering 
composite rating would calculate the composite premium for different 
tiers of enrollees covered under the employer's plan. For example, in a 
two-tier structure, one composite premium would be calculated for 
covered adults (employees and adult dependents) and another composite 
premium would be calculated for covered children. Alternatively, in a 
three-tier structure, there would be one composite premium for covered 
employees, a second composite premium for covered adult dependents, and 
a third composite premium for covered children. The premium for a given 
family composition would simply be determined by summing the applicable 
tiered-composite rates. We believe a tiered-composite approach would 
promote simplicity for issuers and employers, and ensure that premiums 
for family coverage appropriately reflect the lower rates for children.
    We seek comments on all aspects of this approach to composite 
rating. We also seek comments on whether to establish a default uniform 
tiered-composite rating structure, including the appropriate number and 
types of enrollee tiers (for example, an employee-only tier, an adult 
dependent tier, and a child dependent tier).
2. Student Health Insurance Coverage
    As discussed above, under Sec.  147.145(a), student health 
insurance coverage is defined as a type of individual health insurance 
coverage. However, Sec.  147.145(b) provides that for purposes of the 
guaranteed availability requirements of section 2702 of the PHS Act, a 
health insurance issuer that offers student health insurance coverage 
is not required to accept individuals who are not students or 
dependents of student in such coverage. Because student health 
insurance coverage is traditionally offered on a school year basis that 
does not align with the calendar year, we do not believe student health 
insurance should be required to establish open enrollment periods and 
coverage effective dates under Sec.  147.104(b)(1) and (2) that are 
based on a calendar policy year, including the requirement that non-
grandfathered coverage in the individual and merged markets be offered 
on a calendar year basis. Accordingly, we are proposing to amend Sec.  
147.145(b)(1)(ii) to exempt student health insurance coverage from 
these guaranteed availability requirements. We seek comments on this 
proposal and whether other modifications are necessary for student 
health insurance coverage.

C. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment under the Affordable Care Act

1. Provisions and Parameters for the Permanent Risk Adjustment Program
    The risk adjustment program is a permanent program created by 
section 1343 of the Affordable Care Act that transfers funds from lower 
risk, non-grandfathered plans to higher risk, non-grandfathered plans 
in the individual and small group markets, inside and outside the 
Exchanges. In subparts D and G of the Premium Stabilization Rule, we 
established standards for the administration of the risk adjustment 
program. A State that is approved or conditionally approved by the 
Secretary to operate an Exchange may establish a risk adjustment 
program, or have HHS do so on its behalf.
a. Risk Adjustment User Fees
    If a State is not approved to operate or chooses to forgo operating 
its own risk adjustment program, HHS will operate risk adjustment on 
the State's behalf. As described in the 2014 Payment Notice, HHS's 
operation of risk adjustment on behalf of States is funded through a 
risk adjustment user fee. Section 153.610(f)(2) provides that an issuer 
of a risk adjustment covered plan must remit a user fee to HHS for each 
month equal to the product of its monthly enrollment in the plan and 
the per-enrollee-per-month risk adjustment user fee specified in the 
annual HHS notice of benefit and payment parameters for the applicable 
benefit year.
    OMB Circular No. A-25R establishes Federal policy regarding user 
fees, and specifies that a user charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public. The risk 
adjustment program will provide special benefits as defined in section 
6(a)(1)(b) of Circular No. A-25R to an issuer of a risk adjustment 
covered plan because it will mitigate the financial instability 
associated with risk selection as other market reforms go into effect. 
The risk

[[Page 72329]]

adjustment program also will contribute to consumer confidence in the 
health insurance industry by helping to stabilize premiums across the 
individual and small group health insurance markets.
    In the 2014 Payment Notice, we estimated Federal administrative 
expenses of operating the risk adjustment program to be $0.96 per 
enrollee per year, based on our estimated contract costs for risk 
adjustment operations. For the 2015 benefit year, we propose to use the 
same methodology to estimate our administrative expenses to operate the 
program. These contracts cover development of the model and 
methodology, collections, payments, account management, data 
collection, data validation, program integrity and audit functions, 
operational and fraud analytics, stakeholder training, and operational 
support. We do not propose to set the user fee to cover costs 
associated with Federal personnel. To calculate the user fee, we would 
divide HHS's projected total costs for administering the risk 
adjustment programs on behalf of States by the expected number of 
enrollees in risk adjustment covered plans (other than plans not 
subject to market reforms and student health plans, which are not 
subject to payments and charges under the risk adjustment methodology 
HHS uses when it operates risk adjustment on behalf of a State) in HHS-
operated risk adjustment programs for the benefit year.
    We estimate that the total cost for HHS to operate the risk 
adjustment program on behalf of States for 2015 will be approximately 
$27.3 million, and that the per capita risk adjustment user fee would 
be no more than $1.00 per enrollee per year. We seek comment on this 
proposed assessment of user fees to support HHS-operated risk 
adjustment programs.
b. HHS Risk Adjustment Methodology Considerations
    In the 2014 Payment Notice, we finalized the methodology that HHS 
will use when operating a risk adjustment program on behalf of a State 
in 2014. We propose to use the same methodology in 2015. In this 
proposed rule, we propose to clarify the treatment of premium 
assistance Medicaid alternative plans in this risk adjustment 
methodology, and seek comment on potential adjustments to the 
geographic cost factor in the HHS risk adjustment model for future 
years.
(i) Incorporation of Premium Assistance Medicaid Alternative Plans in 
the HHS Risk Adjustment Methodology
    Section 1343(c) of the Affordable Care Act provides that risk 
adjustment applies to non-grandfathered health insurance coverage 
offered in the individual and small group markets. In some States, 
expansion of Medicaid benefits under section 2001(a) of the Affordable 
Care Act may take the form of enrolling newly Medicaid-eligible 
enrollees into individual market plans. For example, these enrollees 
could be placed into silver plan variations--either the 94 percent 
silver plan variation or the zero cost sharing plan variation--with a 
portion of the premiums and cost sharing paid for by Medicaid on their 
behalf. Because individuals in these types of Medicaid expansion plans 
receive significant cost-sharing assistance, they may utilize medical 
services at a higher rate. To address this induced utilization in the 
context of cost-sharing reduction plan variations in the HHS risk 
adjustment methodology, we increase the risk score for individuals in 
plan variations by a certain factor. We propose to use the same factor 
for individuals enrolled in the corresponding Medicaid expansion plan 
variations. Table 1 shows the cost-sharing adjustments for both 94 
percent silver plan variation enrollees and zero cost-sharing plan 
variation enrollees for silver QHPs as finalized in the 2014 Payment 
Notice. We propose to implement these adjustments for 2014. We plan to 
evaluate these adjustments in the future, after data from the initial 
years of risk adjustment is available. We seek comment on this 
approach.

               Table 1--Cost-Sharing Reduction Adjustments
------------------------------------------------------------------------
                                                   Induced utilization
                 Plan variation                           factor
------------------------------------------------------------------------
94 percent Plan Variation......................                     1.12
Zero Cost-Sharing Plan Variation of Silver QHP.                     1.12
------------------------------------------------------------------------

(ii) Adjustment to the Geographic Cost Factor
    As finalized in the 2014 Payment Notice, the geographic cost factor 
is an adjustment in the payment transfer formula to account for plan 
costs such as input prices that vary geographically and are likely to 
affect plan premiums. For the metal-level risk pool, it is calculated 
based on the observed average silver plan premium in a geographic area 
relative to the statewide average silver plan premium. It is separately 
calculated for catastrophic plans in a geographic area relative to the 
statewide catastrophic pool. However, several States have defined a 
large number of rating areas. Less populous rating areas raise concerns 
about the accuracy and stability of the calculation of the geographic 
cost factor because in less populous rating areas the geographic cost 
factor might be calculated based on a small number of plans. Inaccurate 
or unstable geographic cost factors could distort premiums and the 
stability of the risk adjustment model.
    We seek comment on how to best adjust the geographic cost factors 
or geographic rating areas in future years to address these potential 
premium distortions. We also seek comments on how this adjustment 
should be implemented for a separately risk adjusted pool of 
catastrophic plans. We do not intend to make this adjustment for 2014.
c. Small Group Determination for Risk Adjustment
    For a plan to be subject to risk adjustment, according to section 
1343(c) of the Affordable Care Act and the definition of a ``risk 
adjustment covered plan'' in Sec.  153.20, a plan must be offered in 
the ``individual or small group market.'' The definition of small group 
market in Sec.  153.20 references the definition at section 1304(a)(3) 
of the Affordable Care Act.
    Section 1304(a)(3) of the Affordable Care Act, in defining ``small 
group market,'' references the definition of a ``small employer'' in 
section 1304(b)(2) of the Affordable Care Act. That definition provides 
that an employer with an average of at least 1 but not more than 100 
employees on business days during the preceding calendar year and who 
employs at least 1 employee on the first day of the plan year will be 
considered a ``small employer.'' However, section 1304(b)(3) of the 
Affordable Care Act provides that, for plan years beginning before 
January 1, 2016, a State may elect to limit ``small employer'' to mean 
an employer with at least 1 but not more than 50 employees.
    In the 2014 Payment Notice, we stated that we believe that the 
Affordable Care Act requires the use of a counting method that accounts 
for part-time employees, and that the full-time equivalent method 
described in section 4980H(c)(2)(E) of the Code is a reasonable method 
to apply. Thus, we believe that the risk adjustment program must also 
use a counting method that takes employees that are not full-time into 
account when determining whether

[[Page 72330]]

a group health plan must participate in that program.
    However, we also recognize that, because risk adjustment is 
intended to stabilize premiums by mitigating the effects of the rating 
rules, it is important that the program be available to plans that are 
subject to the rating rules, to the extent permissible under the 
Affordable Care Act. We recognize that a number of States, which have 
primary enforcement jurisdiction over the market rules, may use 
counting methods that do not take non-full-time employees into account.
    Thus, we propose to clarify that in determining which group health 
plans participate as small group plans in the risk adjustment program, 
we would apply the applicable State counting method, unless the State 
counting method does not take into account employees that are not full-
time. In that circumstance, we would apply the full-time equivalent 
method described in section 4980H(c)(2)(E) of the Code.\7\ We believe 
that this approach defers to State counting methods and aligns with 
State enforcement of rating rules, within the bounds of what is 
permissible under the Affordable Care Act. We seek comment on our 
interpretation of the permissible counting rules for purposes of risk 
adjustment, the approach described above, and on alternate counting 
methods that may be preferable. We also seek comment on whether we 
should codify these risk adjustment counting rules in regulation text.
---------------------------------------------------------------------------

    \7\ We note that the IRS has published a proposed regulation 
that contains further details that would apply to this calculation 
(54.4980H-2(c)).
---------------------------------------------------------------------------

d. Risk Adjustment Data Validation
    The 2014 Payment Notice established a risk adjustment data 
validation program that HHS will use when operating risk adjustment on 
behalf of a State. In the 2014 Payment Notice, we specified a framework 
for this program that includes six stages: (1) Sample selection; (2) 
initial validation audit; (3) second validation audit; (4) error 
estimation; (5) appeals; and (6) payment adjustments.
    To develop the details of the program, we sought the input of 
issuers, consumer advocates, providers, and other stakeholders. We 
issued the ``Affordable Care Act HHS-Operated Risk Adjustment Data 
Validation Process White Paper'' on June 22, 2013. That white paper 
discussed and sought comments on a number of potential considerations 
for the development of the risk adjustment data validation methodology. 
On June 25, 2013, we held a public meeting to discuss the topics 
considered in the white paper. We received submissions from 53 
commenters, including issuers, issuer trade groups, advocacy groups, 
and consultants. As we noted in the white paper, our overall goals are 
to promote consistency and a level playing field by establishing 
uniform audit requirements, and to protect private information by 
limiting data transfers during the data validation process.
    In this proposed rule, we propose provisions for the risk 
adjustment data validation process and methodology that reflect our 
analysis of the white paper comments and our discussions with 
stakeholders. We note that a State operating a risk adjustment program 
is not required to adopt these standards. These proposed rules are 
consistent with the white paper and lessons drawn from our experience 
with Medicare Advantage risk adjustment data validation and thus should 
be familiar to issuers.
(i) Sample Selection
    The first stage in the HHS-operated risk adjustment data validation 
process is the selection of a sample of an issuer's enrollees whose 
risk adjustment data will be validated. In the proposed 2014 Payment 
Notice, we stated that HHS would choose a sample size of enrollees such 
that the estimated risk score errors would be statistically sound and 
the enrollee-level risk score distributions would reflect enrollee 
characteristics for each issuer. We stated that in determining the 
appropriate sample size for data validation, we recognized the 
importance of striking a balance between ensuring statistical soundness 
of the sample and minimizing the operational burden on issuers, 
providers, and HHS. Additionally, we stated that we would ensure that 
the sample would cover critical subpopulations of enrollees for each 
risk adjustment covered plan, such as enrollees with and without 
hierarchical condition categories (HCCs). To develop a proposed sample 
size for the first year of the HHS risk adjustment data validation 
program, we propose to use the methodology outlined in the white paper. 
Our goal in determining the enrollee sample size for the initial 2 
years of risk adjustment data validation is to propose a statistically 
valid sample large enough to inform us to the dynamics of the risk 
adjustment data validation process in operation and estimation of risk 
score accuracy. As we established in the 2014 Payment Notice, for HHS 
to observe and optimize the risk adjustment data validation process, no 
payment adjustments will be made based on the risk adjustment data 
validation process for the initial 2 years of HHS-operated risk 
adjustment.
    In general, we propose to select the initial validation audit 
sample for a given benefit year by dividing the relevant population 
into a number of ``strata,'' representing different demographic and 
risk score bands. We are proposing that, for the initial 2 years of the 
risk adjustment data validation program, the initial validation audit 
sample will consist of 200 enrollees from each issuer. We stated in the 
2014 Payment Notice that the overall sample will reflect a 
disproportionate selection of enrollees with HCCs. Here, we discuss in 
detail our proposed sampling methodology, including our proposal to 
group enrollees to account for age characteristics and health status. 
Some commenters on the white paper suggested that we also consider 
sampling based on plan types and other characteristics. We will 
consider other sampling strategies in the future, but believe that we 
do not yet have enough experience with the risk adjustment process to 
determine the most appropriate sampling groups at this time.
    Therefore, we are proposing a simple age and risk score 
stratification for at least the initial 2 years of the program. 
Following the division of the relevant population into strata, we 
propose to use the following formulas to calculate a proposed sample 
size for the initial validation audit each year. In general, the 
proposed formula for the overall sample size for an issuer (n) is:

[[Page 72331]]

[GRAPHIC] [TIFF OMITTED] TP02DE13.008


Where:

H is the number of strata;
Nh is the population size of the hth stratum;
Y is the average risk score of the population, adjusted based upon 
the estimated risk score error;
Sh represents the standard deviation of risk score error 
for the hth stratum;
Prec represents the desired precision level (for example, 10 
percent, meaning a 10 percent margin of error in the estimated risk 
score); and
z-value is the z-value associated with the desired confidence level 
(for example, 1.96 for a two-sided 95 percent confidence level).

    As noted above, we propose a sample size of 200 enrollees from each 
issuer for the initial 2 years of the program. The formula above would 
be used after this initial 2-year period to calculate a more precise, 
issuer-specific sample size for each issuer.
    The proposed formula for calculating the sample size for each 
stratum is:
[GRAPHIC] [TIFF OMITTED] TP02DE13.009

Where:

    Nh is the population size of the hth stratum;
    n is the overall sample size; and
    Sh represents the standard deviation of risk score error for the 
hth stratum.

    For the 2014 benefit year, the parameters listed above were 
developed using data from two principal sources: Medicare Advantage 
risk adjustment data validation net error rates and variances; and 
expenditures data from the Truven Health Analytics 2010 
MarketScan[supreg] Commercial Claims and Encounters database 
(MarketScan[supreg]). We chose to use Medicare Advantage error rates 
because Medicare Advantage utilizes an HCC-based methodology similar to 
the one used for HHS risk adjustment, and because it uses a similar 
risk adjustment data validation process to determine payment error 
rates.
    We also chose to use the MarketScan[supreg] expenditure database 
because of the comprehensiveness of the database, which was the primary 
source for calibration for the HHS risk adjustment models. The database 
contains enrollee-specific claims utilization, expenditures, and 
enrollment across inpatient, outpatient, and prescription drug services 
from a selection of large employers and health plans. The database 
includes de-identified data from approximately 100 payers, and contains 
more than 500 million claims from insured employees, spouses, and 
dependents.
    We used enrollee predicted expenditure results from our risk 
adjustment model calibration, which was based on the MarketScan[supreg] 
data, to stratify the population (by age group for enrollees with HCCs, 
and within a single group for enrollees with no HCCs), then calculated 
risk scores for the predicted expenditures to relate them to the 
average expenditures. To estimate a sample size for each issuer, an 
average issuer size was estimated based on the total expected insured 
population and the total expected number of issuers. The average issuer 
population containing enrollees with and without HCCs was assumed to be 
split 20 percent with HCCs and 80 percent without HCCs, consistent with 
the MarketScan[supreg] data.
    We propose to group each issuer's enrollee population into 10 
strata based on age group, risk level, and presence of HCCs, as 
follows:
     Strata 1-3 would include low, medium, and high risk adults 
with the presence of at least one HCC.
     Strata 4-6 would include low, medium, and high risk 
children with the presence of at least one HCC.
     Strata 7-9 would include low, medium, and high risk 
infants with the presence of at least one HCC.
     Stratum 10 will include the No-HCC population, which will 
not be further stratified by age or risk level, because we assume this 
stratum has a uniformly low error rate.
    We calculated a predicted risk score for each individual in each 
stratum by dividing the predicted expenditures for that individual by 
the average predicted expenditures for the entire population. Using 
these individual predicted risk scores, we calculated the overall 
average risk score for all individuals in each risk-based stratum. This 
calculation was performed nine times for the HCC population--once for 
each of the three risk-based strata within each of the three age 
groups. We set the minimum risk score for enrollees without HCCs in the 
tenth stratum.
    This method of stratification is similar to that used in the 
Medicare Advantage risk adjustment data validation program. That 
program divides enrollees into three strata, representing low, medium, 
and high risk expenditures. Error rates and variances are calculated 
for each of these strata. In the initial year, before error rate and 
standard deviation data for the population subject to the HHS-operated 
risk adjustment program are available, we propose to use the Medicare 
Advantage error rates and variances to calculate sample sizes. After 
the initial year, we will evaluate whether sufficient HHS-operated risk 
adjustment error rate and standard deviation data are available to 
calculate sample sizes.
    We propose to use the lowest error rate across all HCC strata as 
the error rate for the stratum of enrollees without HCCs, and we 
propose to use the variance associated with that error rate to 
calculate the standard deviation of the error for the stratum of 
enrollees without HCCs. If error rates and variances are smaller than 
assumed for this stratum, the resulting sampling precision may 
increase.
    Because the Medicare Advantage error rates and variances are not 
calculated for different age bands, and therefore are available only 
for three risk-score differentiated subgroups, we used the same risk 
score error rates and standard

[[Page 72332]]

deviation for the age bands for a risk category. Thus, we used the same 
risk score error rate and standard deviation assumptions for the adult, 
child, and infant strata associated with each risk score band. We do 
not anticipate the expected risk score error rate and variance to be 
uniform for all age groups; however, in the absence of data, we made 
this simplifying assumption. In general, we believe the Medicare 
Advantage error rates and variances likely overstate the corresponding 
error rates and assumptions for the HHS risk adjusted population, and 
therefore, the estimated precision of our error estimates may be 
understated.
    The formulas identified above require data on error rates and 
standard deviations for the strata, and also a target confidence 
interval and sampling precision level (or margin of error). For the 
initial year, we propose to use a 10 percent relative sampling 
precision at a two-sided 95 percent confidence level. That is, we wish 
to obtain a sample size such that 1.96 \8\ multiplied by the standard 
error, divided by the estimated adjusted risk score, equals 10 percent 
or less. After actual data are collected from the initial year, we will 
test and evaluate the data for use in determining the sample size in 
future years.
---------------------------------------------------------------------------

    \8\ Critical value for the two-sided 95 percent confidence 
level.
---------------------------------------------------------------------------

    Once the proposed overall sample size is calculated, the enrollee 
count will be distributed among the population based on the second 
formula above for calculating the sample size of each stratum. Because 
strata with enrollees with HCCs have a higher standard deviation of 
risk score error, the overall sample will be disproportionately 
allocated to enrollees with HCCs (Strata 1-9), helping to ensure 
adequate coverage of the higher risk portion of the enrollee 
population.
    In the proposed rule for the 2014 Payment Notice, we suggested that 
an issuer's initial validation audit sample for risk adjustment data 
validation would consist of approximately 300 enrollees. After 
conducting the calculations described above, we believe that we can 
achieve acceptable sampling precision with a sample size of 200 
enrollees for the initial years of HHS-operated risk adjustment data 
validation. Therefore, we are proposing a sample size of 200 enrollees 
in the initial 2 years of the program. As noted above, we may provide 
for different, or issuer-specific, sample sizes in future years.
    When data becomes available from the program's first year, we 
expect to examine our sampling assumptions using actual enrollee data. 
We anticipate that at least in the initial years of the risk adjustment 
data validation program, the stratification design will remain 
consistent with the design outlined above--nine HCC strata and one No-
HCC stratum. However, the specific size and allocation of the sample to 
each stratum may be refined based on average issuer enrollee risk score 
distributions. For example, in future years, we are considering using 
larger sample sizes for larger issuers or issuers with higher 
variability in their enrollee risk scores, and smaller sample sizes for 
smaller issuers or issuers with lower variability in their enrollee 
risk scores. The sampling design may also consist of a minimum and 
maximum sample size per stratum for each average issuer (large, medium, 
small) to follow when selecting the sample.
    We seek comments on this approach, including our proposed sample 
size of 200 enrollees for the initial 2 years of HHS-operated risk 
adjustment data validation.
(ii) Initial Validation Audit
    The second stage of the HHS-operated risk adjustment data 
validation process is the initial validation audit. In Sec.  
153.630(b)(1), we require an issuer of a risk adjustment covered plan 
to engage one or more independent auditors to perform an initial 
validation audit of a sample of its risk adjustment data selected by 
HHS, which will include individually identifiable health information 
subject to HIPAA.\9\ In this section of this proposed rule, we discuss 
proposed standards and guidelines regarding the qualifications of the 
initial validation auditor, including conflict of interest standards, 
standards for the initial validation audit, rater consistency and 
reliability, and confirmation of risk adjustment errors. As discussed 
in the white paper, we considered existing best practices and standards 
for independent auditors, such as those of Medicare Quality Improvement 
Organizations and the National Committee for Quality Assurance, when 
establishing our standards for initial validation auditors.
---------------------------------------------------------------------------

    \9\ Whether any given organization is a HIPAA business associate 
is a fact-specific inquiry. We expect that most independent auditors 
operating on behalf of an issuer of a health plan would be 
performing activities that would render them a business associate of 
the covered plan, and would be required to enter into and maintain a 
business associate agreement with the health plan.
---------------------------------------------------------------------------

(1) Initial Validation Auditor
    The 2014 Payment Notice established certain standards for the 
initial validation auditor. In Sec.  153.630(b)(2) and (b)(3), we 
direct the issuer to ensure that the initial validation auditor is 
reasonably capable of performing an initial validation audit, and is 
reasonably free of conflicts of interest, such that it is able to 
conduct the initial validation audit in an impartial manner with its 
impartiality not reasonably open to question.
    In the white paper, we elaborated on options for ensuring that an 
initial validation auditor meets these criteria, including standardized 
auditor certification processes and promulgation of best practices. 
Many commenters sought additional information and guidance regarding 
initial validation auditor selection and requested that HHS define 
conflicts of interest between an issuer and the initial validation 
auditor. We propose certain guidance on these topics here.
    We are considering the following criteria for assessing conflicts 
of interest between the issuer and the initial validation auditor:
     Neither the issuer nor any member of its management team 
(or any member of the immediate family of such a member) may have any 
material financial or ownership interest in the initial validation 
auditor, such that the financial success of the initial validation 
auditor could be seen as materially affecting the financial success of 
the issuer or management team member (or immediate family member) and 
the impartiality of the initial validation audit process could 
reasonably be called into question, or such that the issuer or 
management team member (or immediate family member) could be reasonably 
seen as having the ability to influence the decision-making of the 
initial validation auditor;
     Neither the initial validation auditor nor any member of 
its management team or data validation audit team (or any member of the 
immediate family of such a member) may have any material financial or 
ownership interest in the issuer, such that the financial success of 
the issuer could be reasonably seen as materially affecting the 
financial success of the initial validation auditor or management team 
or audit team member (or immediate family member) and the impartiality 
of the initial validation audit process could reasonably be called into 
question, or such that the initial validation auditor or management or 
audit team member (or immediate family member) could be seen as having 
the ability to influence the decision-making of the issuer;
     Owners, directors and officers of the issuer may not be 
owners, directors

[[Page 72333]]

or officers of the initial validation auditor, and vice versa;
     Members of the data validation audit team of the initial 
validation auditor may not be married to, in a domestic partnership 
with, or otherwise be in the same immediate family as an owner, 
director, officer, or employee of the issuer; and
     The initial validation auditor may not have had a role in 
establishing any relevant internal controls of the issuer related to 
the risk adjustment data validation process when HHS is operating risk 
adjustment on behalf of a State, or serve in any capacity as an advisor 
to the issuer regarding the initial validation audit. In addition, we 
are considering standards under which issuers would verify that no key 
individuals involved in supervising or performing the initial 
validation audit have been excluded from working with either the 
Medicare or Medicaid program, are on the Office of the Inspector 
General exclusion list, or are under investigation with respect to any 
HHS programs.
    We note that we intend to review the initial validation auditor's 
qualifications and relationship to the issuer to verify that the 
initial validation auditor is qualified to perform the audit, and that 
the issuer and initial validation auditor are free of actual or 
apparent conflicts of interest, including those stated above. We note 
that HHS could gather information through external reporting to support 
that review. Although we are confident that most issuers will exercise 
diligence in selecting an initial validation auditor that will be able 
to comply with HHS audit standards, we intend to monitor the 
performance of initial validation auditors to determine whether 
certification or additional safeguards are necessary.
    We propose to amend Sec.  153.630(b)(1) to specify that the issuer 
of a risk adjustment covered plan must provide HHS with the identity of 
the initial validation auditor, and must attest to the absence of 
conflicts of interest between the initial validation auditor (or the 
members of its audit team, owners, directors, officers, or employees) 
and the issuer (or its owners, directors, officers, or employees). We 
propose to consider any individual with a significant ownership stake 
in an entity such that the individual could reasonably be seen to have 
the ability to influence the decision making of the entity to be an 
``owner,'' and propose to consider any individual that serves on the 
governing board of an entity to be a director of the entity. We are 
contemplating beginning the initial validation process at the end of 
the first quarter of the year following the benefit year, with the 
issuer's submission of the initial validation auditor's identity. We 
expect to identify the enrollee sample for the initial validation audit 
in the summer of the year following the benefit year. We are 
contemplating requiring delivery of the initial validation audit 
findings to HHS in the fourth quarter of that year. We include a 
proposed schedule of the risk adjustment data validation process at the 
end of this section.
    Once the audit sample is selected by HHS, we expect issuers would 
ensure that the initial validation audit is conducted in the following 
manner:
     The issuer would provide the initial validation auditor 
with source enrollment and source medical record documentation to 
validate issuer-submitted risk adjustment data for each sampled 
enrollee;
     The issuer and initial validation auditor would determine 
a timeline and information-transfer methodology that satisfies data 
security and privacy requirements, including the applicable provisions 
of HIPAA, and enables the initial validation auditor to meet HHS 
established timelines;
     The initial validation auditor would analyze the 
enrollment and medical record data to validate the demographic 
information, plan or plan variation enrollment, and health status of 
each enrollee in the sample in accordance with the standards 
established by HHS; and
     The initial validation auditor would provide HHS with the 
final results from the initial validation audit and all requested 
information for the second validation audit.
    We note that Sec.  153.630(f)(2) is not changed by this proposal, 
and that the issuer would be required to ensure that its initial 
validation auditor comply with the security standards described at 45 
CFR 164.308, 164.310, and 164.312 in connection with the initial 
validation audit. We seek comments on these proposals.
(2) Standards for the Initial Validation Audit
    We propose to add a new paragraph (b)(5) to Sec.  153.630, in which 
we propose that an initial validation audit review of enrollee health 
status be conducted by medical coders certified after examination by a 
nationally recognized accrediting agency for medical coding, such as 
the American Health Information Management Association (AHIMA) or the 
American Academy of Professional Coders (AAPC). We seek comment on 
other nationally recognized accrediting agencies that may be 
appropriate to certify medical coders who are performing the initial 
validation audit review of enrollee health status.
(3) Validation of Enrollees' Risk Scores
    An enrollee's risk score is derived from demographic and health 
status factors, which requires the use of enrollee identifiable 
information. Thus, we propose to add paragraph (b)(6) to Sec.  153.630, 
to require an issuer to provide the initial validation auditor and the 
second validation auditor with all relevant information on each sampled 
enrollee, including source enrollment documentation, claims and 
encounter data, and medical record documentation (defined below) from 
providers of services to enrollees in the applicable sample without 
unreasonable delay and in a manner that reasonably assures 
confidentiality and security of data in transmission (``data in 
transit''). We note that existing privacy and security standards, such 
as standards under HIPAA and those detailed at Sec.  153.630(f)(2), 
would apply. This information will be used to validate the enrollment, 
demographic, and health status data of each enrollee. Only source 
documentation for encounters with dates of services within the 
applicable benefit year would be considered relevant. This would 
require issuers to collect the appropriate enrollment and claims 
information from their own systems, as well as from all relevant 
providers (particularly with respect to medical record documentation). 
We note that only a very small percentage of an issuer's records 
containing personally identifiable information would be made available 
to auditors as part of the risk adjustment data validation process, and 
that similar transmissions are required today for data validation for 
the Medicare Advantage program. As we describe in this section at 
(viii), regarding data security standards, we are seeking comment on 
the applicability and effectiveness of current standards, as well as 
what other standards HHS should promulgate to ensure data security and 
privacy protections.
    We also propose to add paragraph (b)(7) to Sec.  153.630 to 
describe the standards for validating each factor of an enrollee's risk 
score. In paragraph (b)(7)(i), we propose that the initial validation 
auditor must validate demographic data and enrollment information by 
reviewing plan source enrollment documentation, such as the

[[Page 72334]]

834 transaction,\10\ which is the HIPAA-standard form used for plan 
benefit enrollment and maintenance transactions. These enrollment 
transactions reflect the data the issuer captured for an enrollee's 
age, name, sex, plan of enrollment, and enrollment periods in the plan. 
We note that certain identifying information from these enrollment 
transactions, such as the enrollee's name, would be used to ensure that 
the appropriate medical documentation has been provided.
---------------------------------------------------------------------------

    \10\ Issuers and State Exchanges use the ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Benefit 
Enrollment and Maintenance (834), August 2006, ASC X12N/005010X220, 
as referenced in Sec.  162.1502, or ``834 form'' to transmit and 
update enrollment and eligibility to HHS as often as daily but at 
least monthly. In Federal operations, HHS and the issuer exchange 
and update data via this same form.
---------------------------------------------------------------------------

    The sample audit pool will consist of enrollees with and without 
risk adjustment-eligible diagnoses within eligible dates of service. 
For each enrollee in the sample with risk adjustment HCC scores, the 
initial validation auditor would validate diagnoses through a review of 
the relevant risk adjustment-eligible medical records. We consider 
medical record documentation generated with respect to dates of service 
that occurred during the benefit year at issue to be relevant for these 
purposes. For enrollees without risk adjustment HCCs for whom the 
issuer has submitted a risk adjustment-eligible claim or encounter, we 
would require the initial validation auditor to review all medical 
record documentation for those risk adjustment-eligible claims or 
encounters, as provided by the issuer, to determine if HCC diagnoses 
should be assigned for risk score calculation, provided that the 
documentation meets the requirements for the risk adjustment data 
validation audits. Documents used to validate all components of the 
risk score must reflect dates of service during the applicable benefit 
year. In the initial years of the data validation program, we plan to 
accept certain supplemental documentation, such as health assessments, 
to support the risk adjustment diagnosis. We expect to provide 
additional details on acceptable supplemental documentation in future 
guidance.\11\
---------------------------------------------------------------------------

    \11\ See ``HHS-Operated Data Collection Policy FAQ'' for a 
discussion of chart review as an acceptable source of supplemental 
diagnosis codes. Additional detail will be provided in future 
guidance. https://www.regtap.info/uploads/library/HHS_OperatedDataCollectionPolicyFAQs_062613.
---------------------------------------------------------------------------

    Therefore, in Sec.  153.630(b)(7)(ii), we propose that the 
validation of enrollee health status (that is, the medical diagnoses) 
occur through medical record review, that the validation of medical 
records include a check that the records originate from the provider of 
the medical services, that they align with the dates of service for the 
medical diagnosis, and that they reflect permitted providers and 
services. In this paragraph, we also propose, for purposes of Sec.  
153.630, that ``medical record documentation'' mean: ``clinical 
documentation of hospital inpatient or outpatient treatment or 
professional medical treatment from which enrollee health status is 
documented and related to accepted risk adjustment services that 
occurred during a specified period of time.'' Medical record 
documentation must be generated in the course of a face-to-face or 
telehealth visit documented and authenticated by a permitted provider. 
We expect to provide additional guidance on telehealth services in 
future guidance.
    In Sec.  153.630(b)(7)(iii), we propose that medical record review 
and abstraction be performed in accordance with industry standards for 
coding and reporting. Current industry standards are set forth in the 
International Classification of Diseases, Ninth Revision, Clinical 
Modification (ICD-9-CM), or the International Statistical 
Classification of Diseases and Related Health Problems, Tenth Revision, 
4th Edition (ICD-10-CM) guidelines for coding and reporting.
(4) Confirmation of Risk Adjustment Errors
    We note that the data validation audit processes may identify 
various discrepancies, many of which will have no impact on an 
enrollee's risk score. For example, if a medical diagnosis underlying 
an enrollee's HCC was present on a claim but was not supported by 
medical record documentation, but the same HCC was supported by the 
medical record for a different diagnosis, we propose that no risk 
adjustment error be assessed for the enrollee's HCC. However, if none 
of the medical record documentation supports a particular HCC diagnosis 
for an enrollee, we propose that a risk adjustment error be assessed.
    We consider a risk adjustment error to occur when a discrepancy 
uncovered in the data validation audit process results in a change to 
the enrollee's risk score. A risk adjustment error may result from 
incorrect demographic data, an unsupported HCC diagnosis, or a new HCC 
diagnosis identified during the medical record review. An unsupported 
HCC diagnosis could be the result of missing medical record 
documentation, medical record documentation that does not reflect the 
diagnosis, or invalid medical record documentation (such as an 
unauthenticated record or a record that does not meet risk adjustment 
data collection standards for the applicable benefit year).
    We propose in Sec.  153.630(b)(7)(iv) that a senior reviewer must 
confirm any finding of a risk adjustment error. We believe that a 
senior reviewer is a reviewer with substantial expertise in medical 
record coding such that the initial validation auditor would consider 
the senior reviewer to be the standard against which to measure inter-
rater reliability and coding consistency. As such, we propose to define 
a senior reviewer as a medical coder certified by a nationally 
recognized accrediting agency who possesses at least 5 years of 
experience in medical coding. We seek comment on the credentials and 
expertise that should be required of a senior reviewer.
(5) Review Consistency and Reliability
    Validation audits typically include methods of evaluating review 
consistency and reliability. We believe such processes help to ensure 
the integrity of the data validation process and strengthen the 
validity of audit results. In Sec.  153.630(b)(8), we propose that the 
initial validation auditor measure and report to the issuer and HHS its 
inter-rater reliability rates among its reviewers. Such processes 
measure the degree of agreement among reviewers. We propose to set the 
threshold for the acceptable level of consistency among reviewers at 95 
percent for both demographic and enrollment data review, and health 
status data review outcome. Reviews should be performed using rater-to-
standard procedures whereby reviews conducted by reviewers with 
extensive qualifications and credentials are used to establish testing 
thresholds or standards for consistency.
(iii) Second Validation Audit
    The initial validation audit will be followed by a second 
validation audit, which will be conducted by an auditor retained by HHS 
to verify the accuracy of the findings of the initial validation audit.
    We propose to select a subsample of the initial validation audit 
sample enrollees for review by the second validation auditor. The 
second validation auditor would perform the data validation audit of 
the enrollee subsample, adhering to the same audit standards applicable 
to the initial validation audit described above, but would only review 
enrollee information that was originally presented during the initial 
validation audit. In Sec.  153.630(c),

[[Page 72335]]

we established standards for issuers of risk adjustment covered plans 
related to HHS's second validation audit. In Sec.  153.630(b)(4), we 
established that issuers must submit (or ensure that their initial 
validation auditor submits) data validation information, as specified 
by HHS, from their initial validation audit for each enrollee included 
in the initial validation sample. Issuers must transmit all information 
to HHS or its second validation auditor in a timeframe and manner to be 
determined by HHS. The second validation auditor would inform the 
issuer of error findings based on its review of enrollees in the second 
validation audit subsample. We will provide additional guidance on the 
manner and timeframe of these submissions in the future.
    As discussed in the white paper, we are considering selecting the 
second validation audit subsample using a sampling methodology that 
will allow for pair-wise means testing to establish statistical 
difference between the initial and second validation audit results. If 
the pair-wise means test results suggest that the difference in 
enrollee results between the initial validation audit and second 
validation audit is not statistically significant, the initial 
validation audit error results would be used for error estimation and 
calculation of adjustments for plan average risk score. If the test 
results suggest a statistical difference, the second validation auditor 
would perform another validation audit on a larger subsample of the 
enrollees previously subject to the initial validation audit. The 
results from the second validation audit of the larger subsample would 
again be compared to the results of the initial validation audit using 
the pair-wise means test. Again, if no statistical difference is found 
between the initial validation audit and the second validation audit 
conducted on the larger subsample, HHS would apply the initial 
validation audit error results for error estimation using all enrollees 
selected for the initial validation audit sample. However, if a 
statistical difference is found based on the second validation audit on 
the larger subsample, HHS would apply the second validation audit error 
results to modify the risk scores of the issuer's enrollees, as 
discussed below. We are considering using a 95 percent confidence 
interval, but seek comment on the appropriate confidence interval to 
use with respect to these pair-wise means tests.
    As discussed in the white paper, we are considering a number of 
ways to expedite the second validation audit and the subsequent appeals 
processes. One possibility would be to begin the second validation 
audit on those enrollees for which the initial validation audit is 
complete, even if the entire initial validation audit has not been 
completed. For example, an issuer could allow its initial validation 
auditor to submit data validation documentation and results a number of 
months in advance of the HHS established deadline for submission of 
initial validation audit results. The second validation auditor would 
thus be able to begin its review earlier, permitting more time to 
provide feedback to the issuer on the results of that review and 
allowing for more opportunity for discussion prior to finalizing the 
second validation audit findings. Prior to finalizing the risk score 
adjustment based on the second validation audit findings, the second 
validation auditor may request discussions with the initial validation 
auditor to identify the source of the differences, or may review the 
initial validation auditor's processes. If the initial validation 
audits are substantiated, the second validation auditor may adjust its 
risk scores accordingly. This process would not allow for any 
additional documentation to be submitted on those enrollees for which 
the second validation audit began early. The appeals decision from the 
expedited, concurrent process would be final and binding, but would 
provide issuers the opportunity to begin the process earlier. If HHS 
establishes a concurrent second validation audit and appeals process, 
we would need to develop intermediate timelines for initial validation 
auditor submission of audit documentation and data to the second 
validation auditor. We seek comments on this approach for establishing 
a concurrent second validation audit and appeals process.
(iv) Error Estimation
    The fourth stage in the HHS risk adjustment data validation process 
is error estimation. Upon completion of the initial and second 
validation audits, HHS will derive an issuer-level risk score 
adjustment and confidence interval. This adjustment would be used to 
adjust the average risk score for each risk adjustment eligible plan 
offered by the issuer. HHS intends to provide each issuer with 
enrollee-level audit results and the error estimates.
    We are proposing a two-phase procedure to accept or correct the 
results of the initial validation audit based on the results of the 
second validation audit. In phase one, as described above, we conduct a 
pair-wise statistical test for consistency between the initial 
validation and second validation audit results (as described above for 
second validation audits). In phase two, if we determine that the 
results of the two audits are inconsistent, we would adjust the initial 
validation audit results based on the second validation audit results. 
For phase two, we describe two options for using second validation 
audit results to derive an estimate of an overall corrected risk score 
for each issuer.

Phase One: Consistency Test between Initial and Second Validation Audit

    In phase one, a pair-wise statistical test would be performed to 
determine if the initial validation audit sample results should be 
adjusted using the results of the second validation audit. To 
illustrate the underlying statistical test, consider the following 
notations:
    xi is the ith initial validation audit risk score observation in 
the second validation audit sample of n observations;
    yi is the ith second validation audit risk score observation in the 
second validation audit sample of n observations;
    di is the difference between yi and xi within the second validation 
audit sample;
    d is the mean of all di observations within the second validation 
audit sample; and
    Sx is standard deviation of all di observations within the second 
validation audit sample.
    Assume an issuer submits enrollment and claims data to its 
dedicated distributed data environment that are used to compute a set 
of ``original'' risk scores. As required by the risk adjustment data 
validation process, the issuer engages an independent validation 
auditor, who reviews N enrollee records, as sampled by HHS, and 
validates the original enrollee risk scores.
    From the N enrollees in the initial validation audit sample, HHS 
selects a smaller second validation audit subsample of n enrollees. For 
each second validation audit selected record, HHS calculates the 
difference, di = yi - xi. HHS then conducts a pair-wise means test to 
determine whether the mean difference, d, is statistically significant 
(that is, unlikely to be zero). Specifically, HHS would conduct a 
statistical test to determine if zero (0) is contained within the 
range,
[GRAPHIC] [TIFF OMITTED] TP02DE13.010

If so, HHS would conclude that there is no statistically significant 
difference between risk scores determined by the initial and second 
validation audit

[[Page 72336]]

processes, and would accept the results of the initial validation 
audit.
    However, if zero (0) is not contained within this range (that is, 
the difference between d and zero is statistically significant), HHS 
would expand the second validation audit subsample to select a larger 
subset of N, have the second validation auditor review the enrollee 
files, and again conduct a pair-wise means test using this larger 
subsample. If the statistical test shows no statistically significant 
difference, HHS would accept the results of the initial validation 
audit. If the statistical test shows a statistically significant 
difference between the initial and larger subsample second validation 
audit findings, HHS would conduct phase two to adjust the full initial 
validation audit sample based on the larger subsample second validation 
audit findings.

Phase Two: Adjustment to the Initial Validation Audit Sample

    In phase two, we propose that if the difference between the initial 
and second validation audits is found to be statistically significant, 
then HHS would utilize the risk score error rate calculated from the 
larger second validation audit subsample to adjust the full initial 
validation audit sample, which could in turn be used to adjust the 
average risk scores for each plan. This approach would adjust the 
entire initial validation audit sample using a one-for-one replacement 
for the enrollees reviewed by the second validation audit, and a 
uniform adjustment for the enrollees that were not. We also considered 
another option, as discussed in the white paper and below. Under this 
alternate approach, we would use the error rate from the larger second 
validation audit subsample directly in our determination of whether and 
by how much to adjust the risk scores of all enrollees in the issuer's 
risk adjustment covered plans. This approach would disregard all 
enrollees in the initial validation audit sample that were not reviewed 
as part of the larger second validation audit subsample.
    To illustrate these two options under the phase two adjustment 
process, consider the following notations:
    M is the total number of enrollees in the risk adjustment covered 
plan;
    N is the initial validation audit sample size;
    n is the size of the larger second validation audit subsample;
    yN is the mean of the initial validation audit-adjusted risk scores 
in the initial validation audit sample N;
    yn is the mean of the second validation audit-adjusted risk scores 
in the second validation audit sample n;
    xN is the mean of the original risk scores in the initial 
validation audit sample N;
    xn is the mean of the original risk scores in the second validation 
audit sample n;
    XM is the original risk score total across all M records;
    YN is the projected correct risk score across all M records using 
the initial validation error rate; and
[GRAPHIC] [TIFF OMITTED] TP02DE13.011

    yn is the projected correct risk score across all M records using 
the error rate from the larger second validation audit subsample.
[GRAPHIC] [TIFF OMITTED] TP02DE13.012

    Under this proposed approach, we would undertake the following 
steps to adjust the risk scores in the initial validation audit 
samples:
    (1) Replace the initial validation audit-adjusted risk scores with 
the second validation audit-adjusted risk scores in the n records that 
were sampled from N (one-for-one risk score adjustment).
    (2) Apply a uniform adjustment factor,
    [GRAPHIC] [TIFF OMITTED] TP02DE13.013
    
to the initial validation audit-adjusted risk scores in the (N-n) 
records not reviewed by the second validation audit.
    Under the alternate approach, the second validation audit-adjusted 
risk scores in the n records in the larger second validation audit 
subsample would be used as the basis for adjustment of plan-level 
average risk scores.
    Considering the comments in response to the white paper, and in 
order to estimate error using a narrower confidence interval, we are 
proposing to use the larger second validation audit subsample to adjust 
the initial validation audit sample (by direct replacement for 
enrollees reviewed by the second validation audit, and by proportional 
adjustment for the other enrollees), whose adjusted error rate could be 
used as a basis to adjust plan average risk scores for all risk 
adjustment covered plans of the issuer. We seek comment on our proposed 
approach.

Adjusted Risk Score Projections

    Based on the proposals described above, the results of the initial 
or second validation audits could be used as the basis for projecting a 
corrected risk score for each issuer's population. The projections 
described above would be performed on a stratum-by-stratum level and 
weighted accordingly to achieve an estimate of the corrected risk score 
for each issuer. As described in the white paper, a stratified separate 
ratio estimator \12\ would be used to estimate the corrected average 
risk score for each issuer. To compute the stratified separate ratio 
estimator, HHS would first extrapolate the total correct risk score 
within each stratum, then sum the stratum-specific projected correct 
risk scores for all strata, with the total sum divided by the total 
enrollee count to arrive at the corrected average risk score. The 
projected risk score error could then be calculated as the difference 
between the recorded average risk score across the entire population 
and the point estimate.
---------------------------------------------------------------------------

    \12\ For a discussion of stratified separate ratio estimators, 
see Cochran, William G., Sampling Techniques, third edition, John 
Wiley & Sons, 1977, at 164.
---------------------------------------------------------------------------

    The stratified separate ratio estimator of the total correct risk 
score is calculated using the following equation:
[GRAPHIC] [TIFF OMITTED] TP02DE13.014


Where:
    YR is used to estimate the correct risk score;
    yh is the sample mean of the correct risk score in stratum h;
    xh is the sample mean of the original risk score in stratum h;
    Xh is the total sum of the original risk score in stratum h; and
    H is the total number of strata.

    YR would then be normalized by the enrollment count to derive a 
corrected average risk score for the issuer.
    To estimate the variance of the point estimate, HHS will first 
estimate the variance within each stratum and then sum the stratum-
specific variances for all strata. The estimated variance of the 
stratified separate ratio estimate for the correct risk score is 
calculated as follows:

[[Page 72337]]

[GRAPHIC] [TIFF OMITTED] TP02DE13.015

Where:

    nh is the number of enrollees sampled in stratum h;
    Nh is the population frequency in stratum h;
    yih is the corrected risk score for the ith sampled enrollee in 
stratum h;
    xih is the original risk score for the ith sampled enrollee in 
stratum h; and

[GRAPHIC] [TIFF OMITTED] TP02DE13.016

The square root of the estimated variance is the standard error (SE).
    We are proposing to use the issuer's corrected average risk score 
to compute an adjustment factor, based on the ratio between the 
corrected average risk score and the original average risk score that 
could be applied to adjust plan average risk for all risk adjustment 
eligible plans within the issuer. We are considering two options for 
applying the adjustment factor. Under the first option, we are 
considering directly applying an adjustment factor to all of the 
issuer's risk adjustment covered plans. Under the second option, we are 
considering applying this adjustment only if the corrected average risk 
score and the recorded average risk score are statistically different.
    Were we to implement the second option, a critical parameter of the 
statistical test would be the target confidence interval, which would 
determine the stringency of the test. For example, we could perform the 
statistical test at the 90, 95, or 99 percent confidence interval. We 
note that the HHS Office of the Inspector General performs certain 
similar data validation tests using a 90 percent confidence interval, 
while the Medicare Advantage risk adjustment data validation program 
uses a 99 percent confidence interval. We also note that even if the 
statistical test finds the two risk scores to be statistically 
different, we could apply the adjustment factor to adjust plan average 
risk scores based upon using the point estimate of the adjusted average 
risk score, or some other value within an interval around the point 
estimate, such as the upper or lower bound of a 95 percent confidence 
interval around the point estimate.
    The choice among these options poses a tradeoff between reducing 
issuers' incentives to aggressively report or code diagnoses, and 
increasing the variability of issuers' risk adjustment payments. Under 
the first option, an issuer that reports data that systematically 
overstates its risk score would, on average, assuming the corrected 
risk scores are unbiased estimates of the true risk scores, receive a 
downward adjustment to its reported risk score equal in magnitude to 
the degree of overstatement. As a result, this option could eliminate 
an issuer's incentive to overstate its risk score. On the other hand, 
due to sampling variation, the first option would routinely introduce 
significant variability in issuers' risk scores (both up and down), 
even if the issuer was making no attempt to manipulate its risk scores. 
While these adjustments would make such an issuer's risk adjustment 
payments less predictable in any given year, they would not introduce 
systematic bias in risk scores (assuming the corrected risk scores are 
unbiased estimates of the true risk scores).
    The second option, in contrast, would only adjust an issuer's risk 
scores when it is very likely that the reported risk scores deviated 
from the true values, so issuers' risk adjustment payments would be 
more predictable. However, particularly if the confidence level of the 
statistical test were set at a high threshold, this approach would 
often fail to make adjustments when an issuer does in fact overstate 
its risk score.
    Based on commenters' feedback on the white paper, we are proposing 
to use the second approach described above--we would adjust the plan 
average risk scores of an issuer based upon the ratio between the 
correct average risk score estimate and recorded average risk score 
only if the difference between the estimated and recorded average risk 
scores were determined to be statistically significant. We are 
proposing to use a 95 percent confidence interval to determine if the 
adjusted average risk score and the recorded average risk score are 
statistically different. Nevertheless, we welcome comments on both 
options discussed above and on the appropriate tradeoff between 
reducing issuers' incentive to aggressively report or code diagnoses 
and increasing the variability of issuers' risk adjustment payments. In 
addition, regarding the proposed approach in particular, we seek 
comments on the appropriate confidence interval to apply when 
determining whether an adjustment to an issuer's plan average risk 
score is necessary.

Error Estimation Example

    To illustrate the corrected average risk score and error estimation 
process described above, assume that a sample of 200 enrollees is 
selected for initial validation audit review for a particular issuer. 
From this sample, assume that a subsample of 20 enrollees is selected 
for second validation audit review. Assume the issuer's average 
recorded population risk score is 1.60 and the projected correct 
population risk score from the sample of 200 is 1.40, with a two-sided 
95 percent confidence interval of 1.30 to 1.50.
    The first step in the error estimation process will determine if 
the initial validation audit results should be corrected based on the 
second validation audit review or accepted without adjustment. We would 
perform a pair-wise means test to compare the projected risk scores for 
the sample of 200 enrollees and the subsample of 20 enrollees.
    For this example, assume that the statistical test fails (that is, 
there is a statistically significant difference between the projected 
risk scores in the sample of 200 and the subsample of 20).\13\ We would 
then select an expanded subsample from the original sample of 200 
enrollees. Assume that the larger sample is a sample of 100 enrollees. 
Following completion of the larger second validation audit, we would 
perform the pair-wise means test again. Assume the test fails again 
(that is, there is a statistically significant difference in the 
projected risk scores between the sample of 200 and the larger 
subsample of 100). We would conclude that the risk scores in the sample 
of 200 enrollees need to be adjusted.
---------------------------------------------------------------------------

    \13\ If the test passes, then no adjustments would be made to 
the sample of 200 and the projected results from this sample would 
be used to adjust average plan liability risk scores.

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

[[Page 72338]]

    In the second step of error estimation, HHS would adjust the risk 
scores in the sample of 200 using a one-for-one replacement for the 
risk scores of the enrollees reviewed by the second validation auditor, 
and a uniform adjustment for the other enrollees in the initial 
validation audit sample. The one-for-one replacement will replace the 
risk scores calculated based on initial validation audit findings, with 
the risk scores calculated based on the second validation audit 
findings for the larger subsample of 100. The remaining 100 enrollees 
that were not included in the second validation audit subsample would 
be adjusted based on the ratio of two projections: (1) the projected 
correct population risk score using the second validation audit 
findings in the subsample of 100 (assume this projected risk score is 
1.50, with a two-sided 95 percent confidence interval of 1.30 to 1.70); 
divided by (2) the projected correct population risk score using the 
initial validation audit findings in the sample of 200 (equal to 1.40 
based on the assumption noted above). The adjustment ratio is equal to 
1.07 = 1.50/1.40. Therefore, the risk scores of the remaining 100 
enrollees not included in the second validation audit subsample would 
be increased by 7 percent.
    The projected correct population risk score from the revised sample 
of 200 would therefore be 1.45, with a two-sided 95 percent confidence 
interval of 1.35 to 1.55.
(v) Appeals
    We anticipate that the risk adjustment data validation appeals 
process would occur annually, beginning in the spring of the year in 
which the error rate will be applied to adjust risk scores and affect 
risk adjustment payments and charges. Because we are not applying error 
rates to adjust payments and charges for the initial 2 years of the 
risk adjustment program, the first year for which payments and charges 
would apply would be 2016. Risk scores and initial payments and charges 
would be calculated in the spring of 2017 for that payment cycle. We 
anticipate the appeals process will begin in the spring of 2018, prior 
to the 2017 payment transfers. We will provide additional guidance on 
the appeals process and schedule in future rulemaking.
(vi) Payment Transfer Adjustments
    Risk adjustment payment transfer amounts will be based on adjusted 
plan average risk scores. The data validation audits would be used to 
develop a risk score error adjustment for each issuer, as described 
above. Each issuer's risk score adjustment would be applied to adjust 
the plan average risk score for each of the issuer's risk adjustment 
covered plans. This adjustment would be applied on a prospective basis 
beginning with the risk adjustment data for benefit year 2016 (that is, 
the adjustments would take effect in 2018, during payment transfers for 
2017). Because an issuer's adjusted plan average risk score is 
normalized as part of the risk adjustment payment calculation, the 
effect of an issuer's risk score error adjustment will depend upon its 
magnitude and direction compared to the average risk score error 
adjustment and direction for the entire market.
    We are considering reporting the following summary findings to 
issuers for the initial 2 years of the program:
     State- or market-wide error rates.
     Issuer error rates.
     Initial validation audit or error rates.
     Projected financial impact of the proposed risk 
adjustments, as determined by the initial and second validation 
auditors.
     The 2-year interval before risk adjustment data validation 
adjustments are applied to risk scores and affect payments and charges 
will provide initial validation auditors and issuers the opportunity to 
reform existing processes prior to the implementation of HHS payment 
transfer adjustments for the 2016 benefit year. We believe that the 
reports described above will help issuers and initial validation 
auditors better understand the likely effects of the risk adjustment 
data validation program in States where HHS operates risk adjustment. 
We seek comment on considerations for reporting error rates and any 
additional information that could improve transparency in the markets.
(vii) Oversight
    The second final Program Integrity Rule outlined selected oversight 
provisions related to the premium stabilization programs, such as 
maintenance of records, sanctions for failing to establish a dedicated 
distributed data environment, and the application of a default risk 
adjustment charge to issuers in the individual and small group market 
that fail to provide data necessary for risk adjustment. We are 
proposing to expand on these provisions to include oversight related to 
risk adjustment data validation when HHS operates risk adjustment on 
behalf of a State.
    Section 153.620 provides that an issuer that offers risk adjustment 
covered plans must comply with any data validation requests by the 
State or HHS on behalf of the State, and that an issuer that offers 
risk adjustment covered plans must also maintain documents and records, 
whether paper, electronic, or in other media, sufficient to enable the 
evaluation of the issuer's compliance with applicable risk adjustment 
standards, and must make that evidence available upon request to HHS, 
OIG, the Comptroller General, or their designee, or in a State where 
the State is operating risk adjustment, the State or its designee to 
any such entity.
    Based on our authority under section 1321(c)(2) of the Affordable 
Care Act, we are proposing in Sec.  153.630(b)(9) that, when HHS 
operates risk adjustment on behalf of a State, an issuer of a risk 
adjustment covered plan that does not engage an initial validation 
auditor within the timeframe specified by HHS of the year following the 
benefit year, or that otherwise does not arrange for a risk adjustment 
initial validation audit that complies with applicable regulations, may 
be subject to civil money penalties. We note that we intend to apply 
the proposed sanction so that the level of the enforcement action would 
be proportional to the level of the violation. While we would reserve 
the right to impose penalties up to the maximum amounts proposed in 
Sec.  156.805(c), as a general principle, we intend to work 
collaboratively with issuers to address problems in conducting the risk 
adjustment data validation process. In our application of the proposed 
sanction, we would take into account the totality of the issuer's 
circumstances, including such factors as an issuer's previous record 
(if any), the frequency and level of the violation, and any aggravating 
or mitigating circumstances. Our intent is to encourage issuers to 
address non-compliance and not to severely affect their business, 
especially where the issuer demonstrates good faith in monitoring 
compliance with applicable standards, identifies any suspected 
occurrences of non-compliance, and attempts to remedy any non-
compliance.
    We also note that HHS will not perform the initial validation audit 
for an issuer that does not hire an initial validation auditor or 
otherwise does not submit initial validation audit results that comply 
with the regulations in subpart G and subpart H of part 153. For these 
issuers, we propose in Sec.  153.630(b)(10) to assign a default risk 
adjustment charge. We are considering whether this charge should be the 
same charge as contemplated in Sec.  153.740(b), should be based on a 
default error rate, or should be calculated based on some other 
methodology. We will propose a

[[Page 72339]]

methodology for computing the default error rate or default charge in 
future rulemaking.
    Issuers may request technical assistance from HHS at any stage of 
the risk adjustment data validation process. HHS may also offer such 
assistance directly if we become aware of technical issues arising at 
any time during the risk adjustment data validation process. We plan to 
provide further assistance and clarification around the risk adjustment 
data validation process through a range of vehicles, including 
additional guidance, training materials, webinars, and user group 
calls. We welcome comment on these proposals.
(viii) Data Security
    We recognize that the risk adjustment data validation process 
outlined here will require the transmission of sensitive data and 
documents between the issuer and the initial and second validation 
auditors. HHS takes seriously the importance of safeguarding protected 
health information and personally identifiable information. As outlined 
in the white paper, we believe that it will be necessary to specify 
standards for safeguarding this information through proper information 
storage and transmission methods.
    We note that Sec.  153.630(f)(2) requires issuers to ensure that it 
and its initial validation auditor comply with the security standards 
described at 45 CFR 164.308, 164.310, and 164.312 in connection with 
the initial validation audit, the second validation audit, and any 
appeal. In addition to these requirements, we are considering defining 
standards and expectations that would apply to issuers and initial and 
second validation auditors pertaining to data security, management, and 
transmission. These standards could require systems to safeguard and 
encrypt data ``at rest'' and ``in transit,'' and to authenticate 
identities of users. They could also prohibit the auditors from using 
or disclosing the information they receive for any purpose other than 
the audit and oversight. Similar standards have been implemented under 
the Medicare Advantage risk adjustment data validation process. We 
intend to address these issues and the treatment of initial and second 
validation auditors under HIPAA in future rulemaking or guidance, and 
seek comment on the applicability and effectiveness of current 
standards, as well as what other standards HHS should promulgate to 
ensure data security and privacy protections.
(ix) Implementation Timeline
    For the 2014 benefit year, we expect to implement risk adjustment 
data validation activities in early 2015. Implementation activities 
would begin with issuers submitting the identity of their initial 
validation auditor to HHS in accordance with Sec.  153.630(b)(1). In 
the spring of 2015, we would utilize the data submitted by issuers for 
risk adjustment payments and charges and apply the sampling methodology 
described above to select the audit sample for each issuer for the 
initial validation audit. During the same timeframe, we would train 
issuers and initial validation auditors on the risk adjustment data 
validation process and the applicable standards for performing the 
initial validation audit, which would begin in the summer of 2015. Once 
the initial validation audit has concluded in the fall of 2015, HHS 
would begin the second validation audit process, which would continue 
into 2016. Risk adjustment data validation implementation activities 
for the 2014 benefit year data would conclude in 2016 after 
distribution of HHS findings to issuers, processing of appeals, and 
estimation and reporting of final risk scores. Since the 2014 benefit 
year is the first year of implementation of risk adjustment data 
validation, we expect to report on lessons learned from these 
activities, and to use this information to improve the risk adjustment 
data validation process.
    We expect that the risk adjustment data validation implementation 
activities would follow a similar schedule for each subsequent benefit 
year. The 2016 benefit year would be the first year when payments and 
charges are adjusted. Those adjustments would occur after the 
conclusion of risk adjustment data validation activities for the 2016 
benefit year, in the summer of 2018.
e. HHS Audits of Issuers of Risk Adjustment Covered Plans
    In order to safeguard Federal funds, we propose in Sec.  153.620(c) 
that HHS or its designee may audit an issuer of a risk adjustment 
covered plan, when HHS operates risk adjustment on behalf of a State, 
to assess the issuer's compliance with the requirements of subparts G 
and H of 45 CFR part 153. The issuer must also ensure that its relevant 
contractors, subcontractors, or agents cooperate with the audit. We 
anticipate conducting targeted audits of issuers of risk adjustment 
covered plans informed by, among other criteria and sources, the data 
provided to HHS through the dedicated distributed data environment and 
any previous history of noncompliance with these standards. We will 
provide further details on this audit program, including timelines, 
procedures, and substantive requirements, in future rulemaking and 
guidance. This audit will focus on those aspects of the risk adjustment 
program that are not validated through the risk adjustment data 
validation program, described above in this proposed rule. In 
particular, we anticipate that the audit will focus on records 
documenting that the plan was a risk adjustment covered plan. For 
example, the audit might seek to review records evidencing the type of 
plan at issue (for example, an individual market metal level plan 
versus a catastrophic plan), the plan renewal date (to ensure the plan 
was subject to the market reform rules during the time periods for 
which data was submitted to the dedicated distributed data 
environment), and, in the case of an insured group health plan, the 
plan size (to ensure the plan was a small employer plan).
    We also propose that if an audit results in a finding of material 
weakness or significant deficiency (as these terms are defined in GAAS 
issued by the American Institute of Certified Public Accountants, and 
Government Auditing Standards issued by the Government Accountability 
Office (GAO) \14\) for compliance with any requirement of subpart G or 
H of 45 CFR part 153, the issuer: (i) Within 30 calendar days of the 
issuance of the final audit report, must provide a written corrective 
action plan to HHS for approval; (ii) implement that corrective action 
plan; and (iii) provide to HHS written documentation of the corrective 
actions once taken. If HHS determines as the result of an audit that 
the issuer of the risk adjustment covered plan was required to pay 
additional risk adjustment charges or has received risk adjustment 
payments to which it was not entitled, it may require the issuer to pay 
such amounts to the Federal government.
---------------------------------------------------------------------------

    \14\ See Government Auditing Standards (2011 Revision), 
available at: http://www.gao.gov/yellowbook. For public companies, 
the Public Company Accounting Oversight Board (PCAOB) sets audit 
standards. See http://pcaobus.org/Standards/Auditing/Pages/default.aspx. For non-public companies, the AICPA sets audit 
standards. See http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.
---------------------------------------------------------------------------

    To reduce the burden on issuers and HHS, to the extent practical, 
we intend to coordinate any audits of issuers of risk adjustment 
covered plans with related audits of Exchange financial programs and 
premium stabilization programs, such as reinsurance. We seek comment on 
this proposal, including

[[Page 72340]]

the standards that should govern these audits.
2. Provisions and Parameters for the Transitional Reinsurance Program
    The Affordable Care Act directs that a transitional reinsurance 
program be established in each State to help stabilize premiums for 
coverage in the individual market from 2014 through 2016. In the 2014 
Payment Notice, we expanded on the standards set forth in subparts C 
and E of the Premium Stabilization Rule and established the reinsurance 
payment parameters and uniform reinsurance contribution rate for the 
2014 benefit year. In this proposed rule, we propose the reinsurance 
payment parameters and uniform reinsurance contribution rate for the 
2015 benefit year and certain oversight provisions related to the 
operation of the reinsurance program.
a. Major Medical Coverage
    Section 1341(b)(3)(B)(i) of the Affordable Care Act states that 
``the contribution amount for each issuer [must] proportionally reflect 
each issuer's fully insured commercial book of business for all major 
medical products . . .'' In the preamble to the 2014 Payment Notice (78 
FR 15456), we included a general description of major medical coverage 
for reinsurance purposes based on the comprehensiveness of the coverage 
provided (for example, a range of medical, surgical, and preventive 
services) and the settings in which the coverage is provided (for 
example, inpatient and outpatient settings). Commenters requested that 
HHS codify a definition of major medical coverage for purposes of 
reinsurance contributions in regulation text.
    Codification in regulation text of a more specific definition of 
major medical coverage for reinsurance contributions purposes would 
provide additional clarification for some contributing entities. 
Therefore, we propose to add a definition of major medical coverage in 
Sec.  153.20 to mean health coverage for a broad range of services and 
treatments provided in various settings that provides minimum value in 
accordance with Sec.  156.145.
    We believe that because minimum value is calculated on a broad set 
of services--comparable to the essential health benefits applicable to 
individual and small group coverage--it is a reasonable measure of 
comprehensiveness of coverage. Minimum essential coverage under an 
employer-sponsored plan generally will provide minimum value if the 
plan's share of total allowed costs of benefits provided under the plan 
exceeds 60 percent of such costs (see section 36B(c)(2)(C)(II) of the 
Code). The minimum value standards established under Sec.  156.145 also 
deem coverage that meets any of the levels of coverage requirements 
described in Sec.  156.140 to satisfy this requirement. Because the 
calculation of minimum value is an objective process, we believe that 
the use of the concept of minimum value is a reasonable way to clarify 
the definition of major medical coverage and reduce uncertainty as to 
whether reinsurance contributions are required of certain unique plan 
arrangements. In addition, we believe that the concept of minimum value 
will be familiar to stakeholders, and will not add undue burden to the 
determination of whether a plan offers major medical coverage for 
reinsurance purposes. It is important to note that this definition of 
major medical coverage only applies for determining reinsurance 
contributions under section 1341 of the Affordable Care Act. We seek 
comment on this proposed definition.
b. Self-insured Plans Without Third Party Administrators
    Section 1341(b)(1)(A) of the Affordable Care Act provides that 
``health insurance issuers and third party administrators on behalf of 
group health plans'' must make reinsurance contributions. We recognize 
that some self-insured group health plans self-administer the benefits 
and services provided under the plan, and do not use the services of a 
third party administrator. We believe that section 1341(b)(1)(A) of the 
Affordable Care Act clearly applies to both issuers of insured plans as 
well as to self-insured plans that use third party administrators. 
However, our continued study of this issue leads us to believe that 
this provision may reasonably be interpreted in one of two ways--it may 
be interpreted to mean that self-insured, self-administered plans must 
make reinsurance contributions, or it may be interpreted to mean that 
such plans are excluded from the obligation to make reinsurance 
contributions. For the reasons discussed below, we propose to modify 
the definition of a ``contributing entity'' for the 2015 and 2016 
benefit years to exclude self-insured group health plans that do not 
use a third party administrator in connection with claims processing or 
adjudication (including the management of appeals) or plan enrollment.
    Following consideration of the comments submitted with respect to 
the 2014 Payment Notice and the proposed Program Integrity Rule, we 
propose that for the 2015 and 2016 benefit years, the phrase ``third 
party administrators on behalf of group health plans'' not include 
self-insured, self-administered group health plans. An insured plan and 
a self-insured plan administered by a third party administrator are 
similar in that each arrangement involves an employer and an outside 
commercial entity--an issuer or a third party administrator (which is 
often an insurance company or an affiliate)--for the administration of 
the core health insurance functions of claims processing and plan 
enrollment. We note that under section 1341(b)(3)(B) of the Affordable 
Care Act and Sec.  153.400(a)(1)(ii), reinsurance contribution amounts 
are to reflect a ``commercial book of business.'' Our consideration of 
these comments leads us to believe that a group health plan 
administered by a third party administrator would normally be viewed as 
part of the third party administrator's ``commercial book of 
business,'' but that a self-insured, self-administered plan would not 
normally be viewed as part of any entity's ``commercial book of 
business.''
    Therefore, we propose that for the 2015 and 2016 benefit years, a 
``contributing entity'' would mean: (a) A health insurance issuer; or 
(b) a self-insured group health plan (including a group health plan 
that is partially self-insured and partially insured, where the health 
insurance coverage does not constitute major medical coverage) that 
uses a third party administrator in connection with claims processing 
or adjudication (including the management of appeals) or plan 
enrollment. The proposed modification for the 2015 and 2016 benefit 
years would exclude from the obligation to make reinsurance 
contributions those self-insured plans that do not use a third party 
administrator for their core administrative processing functions--
adjudicating, adjusting, and settling claims (including the management 
of appeals), and processing and communicating enrollment information to 
plan participants and beneficiaries. This proposed amendment would 
recognize that some self-insured group health plans, which we believe 
would generally not be considered to be using the core services of a 
third party administrator, may use third parties for ancillary 
administrative support, and we would consider these plans to be self-
administered for purposes of the reinsurance program.
    For purposes of the definition of ``contributing entity,'' we 
propose to consider a third party administrator to be, with respect to 
a self-insured group

[[Page 72341]]

health plan, an entity that is not under common ownership or control 
with the self-insured group health plan or its sponsor that provides 
administrative services to the self-insured group health plan in 
connection with claims processing or adjudication (including the 
management of appeals) or plan enrollment. We seek comment on this 
definition, and whether certain types of service providers, such as an 
attorney providing legal advice in connection with claims adjudication, 
or an issuer administering an insured component of a group health plan 
that is partially self-insured and partially insured should be 
considered a third party administrator for these purposes.
    In addition, we seek comment on whether the core administrative 
functions that we have described above--claims processing or 
adjudication (including the management of appeals) and plan 
enrollment--are the appropriate criteria for this revised definition, 
and what other administrative functions, such as medical management 
services, provider network development, or other support tasks, should 
be considered in determining whether a self-insured group health plan 
uses a third party administrator. We also seek comment on whether a 
self-insured plan must perform these core administrative functions for 
all healthcare benefits and services provided to enrollees under the 
plan in order not to be considered to be using a third party 
administrator, or whether certain benefits or services, such as 
pharmaceutical benefits or behavioral health benefits, or a de minimis 
or small percentage of all benefits and services may be performed by an 
unaffiliated service provider. If so, we seek comment on which benefits 
or services should be excluded from this criterion, or how such a de 
minimis amount or small percentage should be measured.
    While, upon further consideration of the issue, we believe the 
statutory language can reasonably be read to support the proposition 
that self-insured group health plans that do not use third party 
administrators for the functions described above should not be 
obligated to make reinsurance contributions, we also recognize, as a 
public policy matter, that it would be disruptive to plans and issuers 
to modify the definition of ``contributing entity'' for the 2014 
benefit year at this late date. Health insurance issuers have already 
set premiums and developed operational processes based on the 
definition of ``contributing entity'' that was previously finalized in 
the 2014 Payment Notice. To prevent lower reinsurance payments, the 
contribution rate would have to be raised for other contributing 
entities, many of whom have already set their 2014 premiums based on 
the contribution rate finalized in March 2013. Excluding self-insured, 
self-administered group health plans from the set of entities that must 
provide reinsurance contributions for the 2014 benefit year, without 
raising the rate on other entities, would decrease the funds available 
for reinsurance payments for that benefit year, and thus upset settled 
estimates with respect to expected reinsurance payments that were used 
to establish premiums.
    Therefore, we do not propose to change the definition of a 
``contributing entity'' for the 2014 benefit year. That definition will 
remain as provided for in the second final Program Integrity Rule--a 
health insurance issuer or a self-insured group health plan (including 
a group health plan that is partially self-insured and partially 
insured, where the health insurance coverage does not constitute major 
medical coverage), regardless of whether the group health plan uses a 
third party administrator. The modification to the definition of 
``contributing entity'' described above would be effective only for the 
2015 and 2016 benefit years.
    Finally, we note that our proposed change to the definition of a 
contributing entity may have implications for our plan aggregation 
rules at Sec.  153.405(g), and seek comment on whether a plan sponsor 
that maintains two or more group health plans covering the same covered 
lives, where one or more group health plans are insured and one or more 
are self-insured and do not use a third party administrator for core 
administrative functions, should be required to treat the multiple 
plans as a single group health plan for purposes of calculating any 
reinsurance contribution amount due.
c. Uniform Reinsurance Contribution Rate
(i) Uniform Reinsurance Contribution Rate for the 2015 Benefit Year
    Section 153.220(c) provides that HHS is to publish in the annual 
HHS notice of benefit and payment parameters the uniform reinsurance 
contribution rate for the upcoming benefit year. Section 
1341(b)(3)(B)(iii) of the Affordable Care Act specifies that $10 
billion for reinsurance contributions are to be collected from 
contributing entities in 2014 (the reinsurance payment pool), $6 
billion in 2015, and $4 billion in 2016. Additionally, sections 
1341(b)(3)(B)(iv) and 1341(b)(4) of the Affordable Care Act direct that 
$2 billion in funds are to be collected for contribution to the U.S. 
Treasury in 2014, $2 billion in 2015, and $1 billion in 2016. Finally, 
section 1341(b)(3)(B)(ii) of the Affordable Care Act allows for the 
collection of additional amounts for administrative expenses. Taken 
together, these three components make up the total dollar amount to be 
collected from contributing entities for each of the 3 years of the 
reinsurance program under the uniform reinsurance contribution rate.
    As discussed in the 2014 Payment Notice, each year, the uniform 
reinsurance contribution rate will be calculated by dividing the sum of 
the three amounts (the reinsurance payment pool, the U.S. Treasury 
contribution, and administrative costs) by the estimated number of 
enrollees in plans that must make reinsurance contributions:
[GRAPHIC] [TIFF OMITTED] TP02DE13.017

As discussed in greater detail below, we are proposing to collect $25.4 
million for administrative expenses for the 2015 benefit year (or 0.4 
percent of the $6 billion to be dispersed). Therefore, the total amount 
to be collected would be approximately $8.025 billion. Our estimate of 
the number of enrollees in plans that must make reinsurance 
contributions yields an annual per capita contribution rate of $44 for 
the 2015 benefit year.

[[Page 72342]]

(ii) Timing of Collection of Reinsurance Contributions
    As set forth in the 2014 Payment Notice, under Sec.  153.405(b), no 
later than November 15 of the 2014, 2015, and 2016 benefit years, as 
applicable, a contributing entity must submit an annual enrollment 
count of the number of covered lives of reinsurance contribution 
enrollees for the applicable benefit year to HHS. Under Sec.  
153.405(c)(1), HHS is to notify the contributing entity of the 
reinsurance contribution amount to be paid for the applicable benefit 
year within 30 days of the submission of the annual enrollment count, 
or by December 15 of the applicable benefit year. Under Sec.  
153.405(c)(2), a contributing entity is to remit reinsurance 
contributions to HHS within 30 days after the date of the notification.
    We recognize that the reinsurance collections provided for in the 
Affordable Care Act--$12 billion for 2014, $8 billion for 2015, and $5 
billion for 2016--will result in substantial up-front payments from 
contributing entities for the reinsurance program. Therefore, we are 
proposing to modify our collection schedule for the program, so that we 
would collect the reinsurance contribution amounts for reinsurance 
payments and for administrative expenses earlier in the calendar year 
following the applicable benefit year, approximately in accordance with 
the schedule currently described in Sec.  153.405(c), but collect the 
reinsurance contribution amounts for payments to the U.S. Treasury in 
the last quarter of the calendar year following the applicable benefit 
year. Therefore, we propose to modify Sec.  153.405(c) so that a 
contributing entity would make reinsurance contributions in two 
installments to HHS--one at the beginning of the calendar year 
following the applicable benefit year, and one at the end. As noted in 
the second final Program Integrity Rule, the proposed policy is 
designed to alleviate the upfront burden of the reinsurance 
contribution, allowing contributing entities additional time to make 
the payment. We note that the proposed change in the collection 
schedule would not affect the amount of funds collected for reinsurance 
payments. Additionally, the amounts allocated to reinsurance payments 
and administrative expenses are needed to operate the reinsurance 
program, while the amounts allocated for payments to the U.S. Treasury 
are not needed for the operation of the transitional reinsurance 
program. Therefore, collecting the amounts allocated to payments to the 
U.S. Treasury later in the calendar year following the applicable 
benefit year will not affect the reinsurance program, and will 
alleviate a contributing entity's upfront financial burden.
    Under this proposal, the first of the two installments each year 
would include the reinsurance contribution amounts allocated to 
reinsurance payments and administrative expenses. We propose in Sec.  
153.405(c)(1) that following submission of the annual enrollment count, 
HHS would notify a contributing entity of the reinsurance contribution 
amount allocated to reinsurance payments and administrative expenses to 
be paid for the applicable benefit year. If the enrollment count is 
timely submitted, HHS intends to notify the contributing entity by 
December of benefit year 2014, 2015, or 2016, as applicable. We note 
that, due to our desire to align the notification of reinsurance 
contributions due with our monthly payment and collections cycle, this 
schedule differs slightly from the schedule currently set forth in 
Sec.  153.405(c)(3), which provides for notification by the later of 30 
days of the submission of the annual enrollment count or by December 
15. We propose in Sec.  153.405(c)(3) that the contributing entity 
remit this amount within 30 days after the date of the first 
notification.
    The second installment would cover the portion of the reinsurance 
contribution amount allocated to the payments for the U.S. Treasury to 
be paid for a benefit year. We propose in Sec.  153.405(c)(2), that in 
the fourth quarter of the calendar year following the applicable 
benefit year, HHS would notify the contributing entity of the portion 
of the reinsurance contribution amount allocated for payments to the 
U.S. Treasury for the applicable benefit year. Again, under proposed 
Sec.  153.405(c)(3), a contributing entity would remit this amount 
within 30 days after the date of this second notification. We note that 
the contributing entity would be required to submit an annual 
enrollment count only once for each benefit year under Sec.  
153.405(b).
    For example, for the 2014 benefit year, of the $63.00 annual per 
capita contribution rate, $52.50 would be allocated towards reinsurance 
payments and administrative expenses, and $10.50 towards payments to 
the U.S. Treasury. Thus, we contemplate that if a contributing entity 
submits its enrollment count for the 2014 benefit year in a timely 
manner (by November 15, 2014), a reinsurance contribution payment of 
$52.50 per covered life would be invoiced in December 2014, and payable 
in January, 2015. Another reinsurance contribution payment of $10.50 
per covered life would be invoiced in the fourth quarter of 2015, and 
payable late in the fourth quarter of 2015.
    We propose that for the 2015 benefit year, the proposed $44 annual 
per capita contribution rate be allocated $33 towards reinsurance 
payments and administrative expenses, and $11 towards payments to the 
U.S. Treasury. These amounts would similarly be payable in January 2016 
and late in the fourth quarter of 2016, respectively.
    We plan to establish the uniform reinsurance contribution rate for 
the 2016 benefit year in the HHS notice of benefit and payment 
parameters for 2016.
    We seek comment on this proposal. We note that we are considering a 
variation of this proposal under which contributing entities would be 
provided the option of paying the entire reinsurance contribution 
amount with the first installment, at the beginning of the calendar 
year following the applicable benefit year. We also clarify that the 
two installment payments (or one, should a contributing entity be 
permitted and elect to make the entire payment with the first 
installment) would be reported with 2014 data for purposes of the risk 
corridors and MLR calculations due July 31, 2015, despite the fact that 
the later installment would not have been paid at that time. This has 
the effect of leaving the MLR and risk corridors calculations 
unchanged.
(iii) Allocation of Uniform Reinsurance Contribution Rate
    Section 153.220(c) provides that HHS is to set in the annual HHS 
notice of benefit and payment parameters for the applicable benefit 
year the proportion of contributions collected under the uniform 
reinsurance contribution rate to be allocated to reinsurance payments, 
payments to the U.S. Treasury, and administrative expenses. In the 2014 
Payment Notice, we stated that reinsurance contributions collected for 
2014 will be allocated pro rata to the reinsurance pool, administrative 
expenses, and the U.S. Treasury, up to $12.02 billion. In Table 2, we 
specify these proportions (or amounts, as applicable):

[[Page 72343]]



  Table 2--Proportion of Reinsurance Contributions Collected Under the
   Uniform Reinsurance Contribution Rate for the 2015 Benefit Year for
 Reinsurance Payments, Payments to the U.S. Treasury, and Administrative
                                Expenses
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Proportion or amount for:......  If total             If total
                                  contribution         contribution
                                  collections under    collections under
                                  the uniform          the uniform
                                  reinsurance          reinsurance
                                  contribution rate    contribution rate
                                  are less than or     are more than
                                  equal to $8.025      $8.025 billion.
                                  billion.
Reinsurance payments...........  74.8 percent ($6     The difference
                                  billion/$8.025       between total
                                  billion).            collections and
                                                       those
                                                       contributions
                                                       allocated to the
                                                       U.S. Treasury and
                                                       administrative
                                                       expenses.
Payments to the U.S. Treasury..  24.9 percent ($2     $2 billion.
                                  billion/$8.025
                                  billion).
Administrative expenses........  0.3 percent ($25.4   $25.4 million.
                                  million/$8.025
                                  billion).
------------------------------------------------------------------------

    As shown in Table 2, if the total amount of contributions collected 
is less than or equal to $8.025 billion, we propose to allocate 
approximately 74.8 percent of the reinsurance contributions collected 
to reinsurance payments, 24.9 percent of the reinsurance contributions 
collected to the U.S. Treasury, and 0.3 percent of the reinsurance 
contributions collected to administrative expenses. We note that the 
proposed method of collection would not affect the allocation to 
reinsurance payments, administrative expenses, and payments to the U.S. 
Treasury.
    To provide that all reinsurance contributions collected for a 
benefit year are paid out for claims for that benefit year, we propose 
to amend Sec.  153.230(d) to provide that if HHS determines that the 
amount of all reinsurance payments requested under the national payment 
parameters from all reinsurance-eligible plans in all States for a 
benefit year will not be equal to the amount of all reinsurance 
contributions collected for reinsurance payments under the national 
contribution rate in all States for an applicable benefit year, HHS 
will determine a uniform pro rata adjustment (up or down) to be applied 
to all such requests for reinsurance payments for all States. We 
propose that each applicable reinsurance entity, or HHS on behalf of a 
State, must reduce or increase the reinsurance payment amounts for the 
applicable benefit year by any adjustment required under that 
paragraph.
    For example, for 2014, if HHS collects $9 billion for the 
reinsurance payments pool and $10 billion in reinsurance payments are 
requested, HHS and each applicable reinsurance entity would reduce all 
reinsurance payments by 10 percent (effectively decreasing the 
coinsurance rate). If HHS collects $11 billion for the reinsurance 
payments pool and $10 billion in reinsurance payments are requested, 
HHS and each applicable reinsurance entity would increase all 
reinsurance payments by 10 percent (effectively increasing the 
coinsurance rate).
    We seek comment on this payment proposal, including on whether any 
excess collections should be allocated to increasing coinsurance rates 
above 100 percent, or whether such funds should be used instead to 
change other reinsurance parameters or used for future benefit years.
    Because our proposal above would provide that all reinsurance 
contributions collected for a benefit year are paid out for claims for 
that benefit year, we propose to delete and reserve Sec.  153.235(b), 
which currently provides that any excess reinsurance contributions 
collected from contributing entities for any benefit year but unused 
for the applicable benefit year must be used for reinsurance payments 
in subsequent benefit years. For years beyond the 2014 benefit year 
(for which we propose to pay out all reinsurance contributions 
collected, as described above), we seek comment on whether we should 
have the flexibility to use excess contributions collected in the 
applicable benefit year for that benefit year or in a subsequent 
benefit year.
(iv) Administrative Expenses
    In the 2014 Payment Notice, we estimated that the Federal 
administrative expenses of operating the reinsurance program would be 
$20.3 million, based on our estimated contract and operational costs. 
We propose to use the same methodology to estimate the administrative 
expenses for the 2015 benefit year. These estimated costs would cover 
the costs related to contracts for developing the uniform reinsurance 
payment parameters and the uniform reinsurance contribution rate, 
collecting reinsurance contributions, making reinsurance payments, and 
conducting account management, data collection, program integrity and 
audit functions, operational and fraud analytics, training for entities 
involved in the reinsurance program, and general operational support. 
We propose to exclude from these administrative expenses the costs 
associated with work performed by Federal personnel. To calculate our 
proposed reinsurance administrative expenses for 2015, we divided HHS's 
projected total costs for administering the reinsurance programs on 
behalf of States by the expected number of enrollees in reinsurance-
eligible plans for the benefit year.
    We estimate this amount to be approximately $25.4 million for the 
2015 benefit year. This estimate has increased for the 2015 benefit 
year because we will be making reinsurance payments in the 2015 benefit 
year for the 2014 benefit year, and as discussed below, will engage in 
program integrity and audit-related activity in 2015 to oversee the 
reinsurance program. We believe that this figure reflects the Federal 
government's significant economies of scale, which helps to decrease 
the costs associated with operating the reinsurance program. Based on 
our estimate of covered lives for which reinsurance contributions are 
to be made for 2015, we are proposing a uniform reinsurance 
contribution rate of $0.14 annually per capita for HHS administrative 
expenses. We provide details below on the methodology we used to 
develop the 2015 enrollment estimates.
    For the 2014 benefit year, we allocated the administrative expenses 
equally between contribution and payment-related activities. Because we 
anticipate that our additional activities in the 2015 benefit year, 
including our program integrity and audit activities, will also be 
divided approximately equally between contribution and payment-related 
activities, we again propose to allocate the total administrative 
expenses equally between these two functions. Therefore, as shown in 
Table 3, we expect to apportion the annual per capita amount of $0.14 
of administrative expenses as follows: (a) $0.07 of the total amount 
collected per capita for administrative expenses for the collection of 
contributions from health insurance issuers and group health plans; and 
(b) $0.07 of the total amount collected per capita for administrative 
expenses for

[[Page 72344]]

reinsurance payment activities, supporting the administration of 
payments to issuers of reinsurance-eligible plans.

   TABLE 3--Breakdown of Administrative Expenses (annual, per capita)
------------------------------------------------------------------------
                                                             Estimated
                       Activities                            expenses
------------------------------------------------------------------------
Collecting reinsurance contributions from health                   $0.07
 insurance issuers and group health plans...............
Calculation and disbursement of reinsurance payments....            0.07
Total annual per capita expenses for HHS to perform all             0.14
 reinsurance functions..................................
------------------------------------------------------------------------

    If HHS operates the reinsurance program on behalf of a State, HHS 
would retain the annual per capita fee to fund HHS's performance of all 
reinsurance functions, which would be $0.14. If a State establishes its 
own reinsurance program, HHS would transfer $0.07 of the per capita 
administrative fee to the State for purposes of administrative expenses 
incurred in making reinsurance payments, and retain the remaining $0.07 
to offset the costs of collecting contributions. We note that the 
administrative expenses for reinsurance payments will be distributed to 
those States that operate their own reinsurance program in proportion 
to the State-by-State total requests for reinsurance payments made 
under the uniform reinsurance payment parameters.
d. Uniform Reinsurance Payment Parameters
    Our goal in setting the reinsurance payment parameters is to 
achieve the greatest impact on rate setting, and therefore premiums, 
through reductions in plan risk, while complementing the current 
commercial reinsurance market. Section 1341(b)(2)(B) of the Affordable 
Care Act directs the Secretary, in establishing standards for the 
transitional reinsurance program, to include a formula for determining 
the amount of reinsurance payments to be made to issuers for high-risk 
individuals that provides for the equitable allocation of funds. In the 
Premium Stabilization Rule, we provided that reinsurance payments to 
eligible issuers will be made for a portion of an enrollee's claims 
costs paid by the issuer (the coinsurance rate, meant to reimburse a 
proportion of claims while giving issuers an incentive to contain 
costs) that exceeds an attachment point (when reinsurance would begin), 
subject to a reinsurance cap (when the reinsurance program stops paying 
claims for a high-cost individual). The coinsurance rate, attachment 
point, and reinsurance cap together constitute the uniform reinsurance 
payment parameters.
    Given the smaller pool of reinsurance contributions to be collected 
for the 2015 benefit year, we are proposing that the uniform 
reinsurance payment parameters for the 2015 benefit year be established 
at an attachment point of $70,000, a reinsurance cap of $250,000, and a 
coinsurance rate of 50 percent. We estimate that these uniform 
reinsurance payment parameters will result in total requests for 
reinsurance payments of approximately $6 billion for the 2015 benefit 
year. We believe setting the coinsurance rate at 50 percent and 
increasing the attachment point allows for the reinsurance program to 
help pay for nearly the same group of high-cost enrollees as was the 
case for the 2014 benefit year, while still encouraging issuers to 
contain costs. We believe that maintaining the reinsurance cap for the 
2015 benefit year while ensuring that the coinsurance rate sufficiently 
compensates issuers for high risk individuals will make it easier for 
issuers to estimate the effects of reinsurance. We believe that these 
uniform reinsurance payment parameters will support the reinsurance 
program's goals of promoting nationwide premium stabilization and 
market stability while providing issuers incentives to continue to 
effectively manage enrollee costs. We intend to continue to monitor 
individual market enrollment and claims patterns to appropriately 
disburse reinsurance payments throughout each of the benefit years of 
the transitional reinsurance program.
    As discussed in the 2014 Payment Notice, to assist with the 
development of the uniform reinsurance payment parameters and the 
premium adjustment percentage index, HHS developed the Affordable Care 
Act Health Insurance Model (ACAHIM). The ACAHIM estimates market 
enrollment, incorporating the effects of State and Federal policy 
choices, and accounting for the behavior of individuals and employers. 
The outputs of the ACAHIM, especially the estimated enrollment and 
expenditure distributions, were used to analyze a number of policy 
choices relating to the uniform reinsurance contribution rate and 
uniform reinsurance payment parameters proposed in this rule.
    The ACAHIM generates a range of national and State-level outputs 
for 2015, including the level and composition of enrollment across 
markets given the eligible population in each State. The ACAHIM is 
described below in two sections: (1) the approach for estimating 2015 
enrollment; and (2) the approach for estimating 2015 expenditures. The 
ACAHIM uses recent Current Population Survey (CPS) data adjusted for 
small populations at the State level, exclusion of undocumented 
immigrants, and population growth in 2015 to assign individuals to the 
various coverage markets.
    Specifically, the ACAHIM assigns each individual to a single health 
insurance market as his or her baseline (pre-Affordable Care Act) 
insurance status. In addition to assuming that individuals currently in 
Medicare, TRICARE, or Medicaid will remain in such coverage, the ACAHIM 
takes into account the probability that a firm will offer employment-
based coverage based on the CPS distribution of coverage offers for 
firms of a similar size and industry. Generally, to determine the 
predicted insurance enrollment status for an individual or family (the 
``health insurance unit'' or ``HIU''), the ACAHIM calculates the 
probability that the firm will offer insurance, then models Medicaid 
eligibility, and finally models eligibility for advance payments of the 
premium tax credit and cost-sharing reductions under the Exchange. 
Whenever a transition to another coverage market is possible, the 
ACAHIM takes into account the costs and benefits of the decision for 
the HIU and assigns a higher probability of transition to those with 
the greatest benefit. The ACAHIM assumptions of the rate at which 
uninsured individuals will take up individual market coverage are based 
on current take-up rates of insurance across States, varied by 
demographics and incomes and adjusted for post-Affordable Care Act 
provisions, such as advance payments of the premium tax credit and 
cost-sharing reductions.
    Estimated expenditure distributions from the ACAHIM are used to set 
the uniform reinsurance payment parameters so that estimated 
contributions from all contributing entities equal estimated payments 
for all reinsurance-eligible plans. The ACAHIM uses the Health 
Intelligence Company, LLC (HIC) database from calendar year 2010, with 
the claims data trended to 2015 to estimate total medical expenditures 
per enrollee by age, gender, and area of residence. The expenditure 
distributions are further adjusted to take into account plan benefit 
design, or ``metal'' level (that is, ``level of coverage,'' as defined 
in

[[Page 72345]]

Sec.  156.20) and other characteristics of individual insurance 
coverage in an Exchange. To describe a State's coverage market, the 
ACAHIM computes the pattern of enrollment using the model's predicted 
number and composition of participants in a coverage market. These 
estimated expenditure distributions were the basis for the uniform 
reinsurance payment parameters.
e. Adjustment Options
    In the 2014 Payment Notice, we finalized the following uniform 
reinsurance payment parameters for the 2014 benefit year--a $60,000 
attachment point, a $250,000 reinsurance cap, and an 80 percent 
coinsurance rate. However, updated information, including the actual 
premiums for reinsurance-eligible plans, as well as recent policy 
changes, suggest that our prior estimates of the payment parameters may 
overestimate the total covered claims costs of individuals enrolled in 
reinsurance-eligible plans in 2014. To account for this, we propose to 
decrease the 2014 attachment point to $45,000. We seek comment on this 
proposal.
f. Deducting Cost-Sharing Reduction Amounts From Reinsurance Payments
    Subpart H of 45 CFR part 153 governs the submission of reinsurance 
claims to an issuer's dedicated distributed data environment. Under 
Sec.  156.410, if an individual is determined eligible to enroll in a 
QHP in the individual market offered through an Exchange and elects to 
do so, the QHP issuer must assign the individual to a standard plan or 
cost-sharing plan variation based on the enrollment and eligibility 
information submitted by the Exchange. Issuers of QHPs offered in an 
individual market through an Exchange will receive cost-sharing 
reduction payments for enrollees in their plan variations. Therefore, 
in the 2014 Payment Notice (78 FR 15499), we stated that the enrollee-
level data submitted by an issuer of a reinsurance-eligible plan must 
include claims data and data related to determining cost-sharing 
reductions provided through a cost-sharing plan variation, to permit 
HHS to calculate an issuer's plan paid amounts on behalf of an 
enrollee. Here, we propose to explain the methodology HHS would use to 
deduct the amount of cost-sharing reductions paid on behalf of an 
enrollee enrolled in a QHP in an individual market through an Exchange. 
In this section, we first set forth a methodology for policies that 
cover only one enrollee, then policies with more than one enrollee, 
such as family plans, and finally, for policies under a limited cost 
sharing plan variation.
    As specified in Sec.  153.230, HHS will calculate reinsurance 
payments by applying the uniform reinsurance payment parameters for the 
applicable benefit year to the issuer's plan paid amounts on behalf of 
each enrollee in a reinsurance-eligible plan for the benefit year. 
However, this calculation may not always account for the cost-sharing 
reduction payments the QHP issuer receives for an enrollee, resulting 
in an issuer receiving payments twice for the same enrollee's total 
costs. We believe that the cost-sharing amounts provided by HHS to a 
QHP issuer for an enrollee in a plan variation should be deducted from 
the total plan paid amounts to avoid ``double payment'' \15\ to the QHP 
issuer of the reinsurance-eligible plan because the QHP issuer is 
already being reimbursed for the value of the cost-sharing reductions 
provided.
---------------------------------------------------------------------------

    \15\ We note an increase in reinsurance claims spread evenly 
across the individual market may not necessarily result in higher 
reinsurance payments to all issuers in aggregate. However, increased 
requests for reinsurance payments may result in a higher pro rata 
reduction to be applied to all reinsurance payments because total 
reinsurance payments for a benefit year cannot exceed the 
reinsurance contributions collected for reinsurance payments (see 45 
CFR 153.230(d)).
---------------------------------------------------------------------------

    Under the Secretary's authority under section 1341(b)(2)(B) of the 
Affordable Care Act to establish a payment formula for the reinsurance 
program, we propose a method through which HHS intends to account for 
cost-sharing reduction payments when calculating reinsurance payments 
for QHP issuers for reinsurance-eligible plans offered in an individual 
market. We seek to avoid requiring QHP issuers to engage in a 
complicated re-adjudication of claims to determine cost-sharing 
reduction amounts multiple times throughout the year. We believe that 
the proposed methodology set forth below will accurately estimate those 
cost-sharing reduction payments while also alleviating the burden on 
both QHP issuers and HHS.
    We propose that for each enrollee enrolled in a QHP plan variation, 
we will subtract from the QHP issuer's total plan paid amounts for the 
enrollee in a reinsurance-eligible plan the difference between the 
annual limitation on cost sharing for the standard plan and the annual 
limitation on cost sharing for the plan variation. Because reinsurance 
payments are made for enrollees only when the issuer's total plan paid 
amounts exceeds the attachment point (for example, $60,000 in the 2014 
benefit year), we believe that it is highly unlikely that an enrollee 
for which a QHP issuer is eligible for reinsurance payments will not 
have reached the annual limitation on cost sharing. Therefore, the 
difference between the two annual limitations on cost sharing is likely 
to be an accurate estimate of cost-sharing reduction payments provided 
by HHS to the QHP issuer.\16\ We propose to apply this approach to 
calculating the amounts of cost-sharing reductions provided for an 
enrollee in a silver plan variation or a zero cost sharing plan 
variation.
---------------------------------------------------------------------------

    \16\ We note that because the annual limitation on cost sharing 
applies only to in-network services, it is possible that an enrollee 
could incur additional cost-sharing reductions on out-of-network 
services. However, except in the case of zero cost sharing plan 
variations, an issuer is not required to reduce cost sharing out-of-
network, and we believe that an issuer will rarely choose to do so 
because the AV calculator does not recognize any change in AV due to 
a reduction in out-of-network cost sharing. Although it is possible 
that an enrollee in a zero cost sharing plan variation could incur 
significant out-of-network cost-sharing reductions beyond the 
standard plan's annual limitation on cost sharing, we believe such a 
circumstance will be relatively rare because of the substantial out-
of-pocket costs an enrollee would likely incur in the form of 
balance billing.
---------------------------------------------------------------------------

    For policies with multiple enrollees, such as family policies, we 
propose to allocate the difference in annual limitation in cost sharing 
across all enrollees covered by the family policy in proportion to the 
enrollees' QHP issuer total plan paid amounts. We believe that such an 
approach is intuitive and will be easy to operationalize. We considered 
an alternative approach that would allocate the difference in annual 
limitation in cost sharing equally across all enrollees in a family 
policy, with any difference in annual limitations on cost sharing that 
exceeds the total plan paid amounts for a particular enrollee to be 
reallocated equally across the other enrollees. That approach would 
tend to result in a higher allocation of cost sharing on low-claims-
cost individuals, which we believe is unrealistic.
    In contrast, we propose not to reduce the QHP issuer's plan paid 
amounts for purposes of calculating reinsurance payments for an Indian 
in a limited cost sharing plan variation. We note that such enrollees 
will have the same annual limitation on cost sharing as individuals 
enrolled in standard plans, and thus, an approach that calculates the 
difference in annual limitations on cost sharing would yield estimated 
cost-sharing reductions of zero. We believe that this result is 
reasonable for individuals with plan paid amounts greater than the 
attachment point because those individuals are likely to have incurred 
significant claims costs with providers for which cost sharing is not 
reduced--that is, providers other

[[Page 72346]]

than the Indian Health Service and facilities operated by an Indian 
Tribe, Tribal Organization, or Urban Indian Organization. Thus, we 
believe that these individuals are likely to have reached the full 
annual limitation on cost sharing for the standard plan.
    We also considered an alternative approach that would require 
issuers to re-adjudicate claims periodically throughout the year to 
calculate cost-sharing reductions provided to date for an Indian 
enrolled in a limited cost sharing plan, but believe that such an 
approach would be burdensome to QHP issuers and only slightly improve 
the accuracy of cost-sharing reduction estimates. Finally, we 
considered an approach under which QHP issuers would submit an estimate 
of the effective annual limitation on cost sharing for limited cost 
sharing plans. However, we believe that this will be difficult for a 
QHP issuer to estimate due to the lack of cost-sharing reduction data 
for the early years of the Exchanges.
g. Audits
(i) HHS Audits of State-Operated Reinsurance Programs
    To safeguard the use of Federal funds in the transitional 
reinsurance program, we propose in Sec.  153.270(a) that HHS or its 
designee may conduct a financial and programmatic audit of a State-
operated reinsurance program to assess compliance with the requirements 
of subparts B and C of 45 CFR part 153. A State that establishes a 
reinsurance program must ensure that its applicable reinsurance entity 
and any relevant contractors, subcontractors, or agents cooperate with 
an audit of its reinsurance program by HHS or its designee.
    Under the proposed rule, HHS may conduct targeted audits of State-
operated reinsurance programs based on the State summary report 
provided to HHS for each benefit year described in Sec.  153.260(b), 
the results of the independent external audit conducted for each 
benefit year under Sec.  153.260(c), and issuer input, among other 
factors. Such audits may, for example, examine the receipt and 
expenditure of reinsurance funds, as well as funds received from HHS 
for administrative expenses. The audits may also examine the 
reinsurance program's compliance with the requirements for the State 
and the program under subparts B and C of 45 CFR part 153. We will 
provide further details on our audit program, including timelines, 
procedures, and substantive requirements, in future rulemaking and 
guidance.
    We propose in Sec.  153.270(b) that if an audit by HHS results in a 
finding of material weakness or significant deficiency (as these terms 
are defined in GAAS issued by the American Institute of Certified 
Public Accountants, and Government Auditing Standards issued by the 
Government Accountability Office (GAO) \17\) with respect to the State-
operated reinsurance program's compliance with any requirement of 
subparts B or C of 45 CFR part 153, the State must ensure that its 
applicable reinsurance entity provide a written corrective action plan 
to HHS for approval within 60 calendar days of the issuance of the 
final audit report. The applicable reinsurance entity must implement 
the plan and provide to HHS written documentation of the corrective 
actions once taken. We seek comment on this proposal, including the 
standards that should govern these audits.
---------------------------------------------------------------------------

    \17\ See Government Auditing Standards (2011 Revision), 
available at: http://www.gao.gov/yellowbook. For public companies, 
the Public Company Accounting Oversight Board (PCAOB) sets audit 
standards. See http://pcaobus.org/Standards/Auditing/Pages/default.aspx. For non-public companies, the AICPA sets audit 
standards. See http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.
---------------------------------------------------------------------------

(ii) HHS Audits of Contributing Entities
    We propose in Sec.  153.405(i) that HHS or its designee may audit a 
contributing entity to assess its compliance with the requirements of 
subpart E of 45 CFR part 153. We anticipate conducting targeted audits 
of contributing entities based on, among other criteria and sources, 
data provided to HHS through the annual enrollment count submitted 
under Sec.  153.405(b) and any previous history of noncompliance with 
these standards. We will provide further details on this audit program, 
including timelines, procedures, and substantive requirements, in 
future rulemaking and guidance. We anticipate that these audits will 
focus on records relating to the enrollment of the applicable self-
insured or insured plan, to confirm that the number of covered lives 
was correctly counted and that the correct amount of reinsurance 
contributions was paid. Audits may also identify entities that were 
required to but did not make reinsurance contributions. If HHS 
determines as the result of an audit that a contributing entity was 
required to pay additional reinsurance contributions, it may require 
the contributing entity to pay such amounts to the Federal government. 
If the contributing entity is an issuer subject to an audit for other 
Exchange financial programs or premium stabilization programs, such as 
risk adjustment, we intend to coordinate these audits, to the extent 
practical, to reduce the burden on both the contributing entity and 
HHS.
    We seek comment on this proposal, including the standards that 
should govern these audits.
(iii) HHS Audits of Issuers of Reinsurance-Eligible Plans
    We propose in Sec.  153.410(d) that HHS or its designee may audit 
an issuer of a reinsurance-eligible plan to assess its compliance with 
the requirements of subparts E and H of 45 CFR part 153, and that if an 
audit results in a finding of material weakness or significant 
deficiency, the issuer must:
     Within 30 calendar days of the issuance of the final audit 
report, provide a written corrective action plan to HHS for approval;
     Implement that corrective action plan; and
     Provide to HHS written documentation of the corrective 
actions once taken.
    If HHS determines as the result of an audit that the issuer of a 
reinsurance-eligible plan has received reinsurance payments to which it 
was not entitled, it may require the issuer to pay such amounts back to 
the Federal government.
    We anticipate conducting targeted audits of issuers of reinsurance-
eligible plans based on, among other criteria and sources, the data 
provided to HHS through the dedicated distributed data environment and 
any previous history of noncompliance with these standards. We will 
provide further details on this audit program, including timelines, 
procedures, and substantive requirements, in future rulemaking and 
guidance. We anticipate that this audit will focus on claims records 
validating the requests for reinsurance payments submitted to the 
dedicated distributed data environments, as well as records indicating 
the plan was a reinsurance-eligible plan. To reduce the burden on 
issuers and HHS, to the extent practical, we intend to coordinate any 
audits of issuers of reinsurance-eligible plans with related audits of 
Exchange financial programs and premium stabilization programs, such as 
risk adjustment.
    We seek comment on this proposal, including the standards that 
should govern these audits.
h. Same Covered Life
    In the second final Program Integrity Rule (78 FR 65057), we stated 
that it is our intent not to require payment of reinsurance 
contributions more than once for the same covered life. We

[[Page 72347]]

stated that we recognize that certain complex group health plan 
arrangements can lead to situations in which lives are covered by 
multiple arrangements, where it is unclear whether more than one health 
plan or issuer must make reinsurance contributions, and that we 
intended to provide clarity on the matter in future rulemaking.
    Therefore, we propose to make two changes to Sec.  153.400. In 
Sec.  153.400(a)(1), we propose to clarify the general principle that 
reinsurance contributions are required for major medical coverage that 
is considered to be part of a commercial book of business, but are not 
required to be paid more than once with respect to the same covered 
life.
    In addition, we propose to add paragraph (vi) to Sec.  
153.400(a)(1), which would provide that no reinsurance contributions 
would be required in the case of employer-provided group health 
coverage where (A) such coverage applies to individuals who are also 
enrolled in individual market health insurance coverage for which 
reinsurance contributions are required; or (B) such coverage is 
supplemental or secondary to group health coverage for which 
reinsurance contributions must be made for the same covered lives. This 
language would address situations in which a person covered under a 
group health plan also obtains individual market coverage, and in which 
multiple group health plans cover the same lives, such as if a union 
offers a plan that supplements a group health plan offered by the 
employer. It would also address a situation in which two spouses are 
each covered as dependents by the respective group health plans offered 
by their two independent employers.
    If it is not clear from the terms of the health plans which group 
health plan is supplemental, we propose, in keeping with Sec.  
153.400(a)(3), that the group health plan that offers the greater 
portion of inpatient hospitalization benefits be deemed the primary 
health plan. If it is not clear from the terms of the health plans 
which group health plan is primary and which is secondary, we propose 
to defer to the arrangements on primary and secondary liability worked 
out by the respective plan sponsors, in accordance with applicable 
State coordination of benefit laws and regulations. In such a 
situation, we would hold a plan sponsor harmless from non-compliance 
actions for failure to pay reinsurance contributions to the extent the 
sponsor relied in good faith upon a written representation by the other 
sponsor that the other sponsor's coverage has primary liability for 
claims for particular covered lives.
    We seek comment on these proposals, including which entity should 
be responsible for the reinsurance contributions, how that 
responsibility should be determined, and what arrangements should be 
required between the entities to assure efficient coordination of the 
responsibility for the reinsurance contributions, and what other 
situations we should address in which reinsurance contributions might 
be required to achieve the goal of preventing more than one 
contribution per covered life.
i. Reinsurance Contributions and Enrollees Residing in the Territories
    Section 1323(a)(1) of the Affordable Care Act provides that a U.S. 
territory may establish an Exchange, and any territory that elects to 
establish an Exchange will be ``treated as a State'' for purposes of 
the Exchange standards in sections 1311 through 1313 of the Affordable 
Care Act. In a letter dated December 10, 2012 to the governors of the 
U.S. territories (Territories Letter), HHS stated that ``if a territory 
establishes an approved Exchange, it may elect to establish a 
transitional reinsurance program . . . consistent with the provisions 
in section 1341 . . . of the Affordable Care Act.'' The Territories 
Letter further stated that if a territory does not establish a 
transitional reinsurance program, HHS would not do so on the 
territory's behalf, and that in order to operate a reinsurance program 
for the 2014 benefit year, the territory was required to notify HHS of 
its intention to do so by March 1, 2013. No territory has notified HHS 
of an intention to operate a reinsurance program.
    In this proposed rule, we propose that a contributing entity is not 
required to make reinsurance contributions on behalf of enrollees who 
reside in a territory that does not operate a reinsurance program. We 
propose to add in Sec.  153.400(a)(1)(v) an exception for when a 
contributing entity must make reinsurance contributions for its self-
insured group health plans and health insurance coverage. To the extent 
that the coverage applies to enrollees with primary residence in a 
territory when that territory does not operate a reinsurance program, a 
contributing entity would not be required to make reinsurance 
contributions for those enrollees. We believe that this proposal aligns 
with the goals of the reinsurance program because reinsurance 
contributions would only be required with respect to those 
jurisdictions that benefit from the premium stabilization effects of 
the reinsurance program.
    We propose that a contributing entity may use any reasonable method 
to determine the primary residence of an enrollee, including using the 
last-known mailing address of the principal subscriber on the 
enrollee's policy. We seek comment on other methods that would be 
acceptable for determining the primary residence of an enrollee, 
including the principal work location of the principal subscriber on 
the enrollee's policy.
    We note that a contributing entity is required to allocate its 
covered lives by primary residence between the territories, on the one 
hand, and the 50 States and the District of Columbia, on the other 
hand, only if it wishes to exclude covered lives from reinsurance 
contributions under proposed Sec.  153.400(a)(1)(v).
j. Form 5500 Counting Method
    In the 2014 Payment Notice (78 FR 15463), we established counting 
methods for calculating the annual enrollment for determining 
reinsurance contributions for self-insured group health plans, fully 
insured health plans, and plans that are partially insured and 
partially self-insured. One of the allowable methods for a self-insured 
group health plan is the Form 5500 counting method in Sec.  
153.405(e)(3). In this proposed rule, we seek to clarify Sec.  
153.405(e)(3), by changing the references from ``benefit year'' to 
``plan year'' \18\ to clarify that a self-insured group health plan may 
use the enrollment set forth in the Form 5500 even if the group health 
plan is based on a plan year other than the benefit year, which is 
defined in Sec.  153.20 and Sec.  155.20 as a calendar year for which a 
health plan provides coverage for health benefits. Therefore, a self-
insured group health plan that chooses to use the Form 5500 counting 
method and offers self-only coverage would calculate the number of 
lives covered by adding the total participants covered at the beginning 
and end of the most current plan year, as reported on the Form 5500, 
then dividing by two. A self-insured group health plan that offers both 
self-only coverage and coverage other than self-only coverage would 
calculate the number of lives covered by adding the total participants 
covered at the beginning and the end of the most current plan year, as 
reported on the Form 5500.
---------------------------------------------------------------------------

    \18\ Plan year as defined in 45 CFR 155.20 as a consecutive 12 
month period during which a health plan provides coverage for health 
benefits. A plan year may be a calendar year or otherwise.

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

[[Page 72348]]

3. Provisions for the Temporary Risk Corridors Program
a. Definitions
    In the first final Program Integrity Rule, we provided that, in 45 
CFR part 153, subpart F, regarding risk corridors, any reference to a 
``qualified health plan'' or ``QHP'' includes plans that are the 
``same'' as a QHP or ``substantially the same'' as a QHP. We noted that 
plans that are substantially the same as a QHP will continue to be 
considered substantially the same even if they differ in terms of 
benefits, premium, provider network or cost-sharing structure, provided 
that the differences are tied directly and exclusively to Federal or 
State requirements or prohibitions on the coverage of benefits that 
apply differently to plans depending on whether they are offered 
through an Exchange or outside of an Exchange.
    In the first final Program Integrity Rule, we recognized that OPM 
might issue additional standards for multi-State plan (MSP) issuers in 
the future (for example, standards related to provider networks) that 
could create situations analogous to the ones we discuss above. We are 
considering whether a plan that differs from a QHP (as defined at Sec.  
155.20) based on these standards would be considered to be 
``substantially the same'' as a QHP for the purposes of participating 
in the risk corridors program, and are considering amending the 
definition of a QHP at Sec.  153.500 in response. We seek comment on 
this approach.
b. Compliance With Risk Corridors Standards
    The risk corridors program requires the Federal government and 
participating plans to share in profits or losses resulting from 
inaccurate rate setting for benefit years 2014 through 2016. A robust 
oversight process is critical for this program because risk corridors 
payments are Federal funds. In this proposed rule, we outline our 
proposed process for validating risk corridors data submissions and 
enforcing compliance with the risk corridors requirements in subpart F 
of 45 CFR part 153. Because the MLR program and the risk corridors 
program will require similar data, we propose to closely align the data 
submission, data validation, audit provisions, and sanctions for the 
two programs. We note that the risk corridors oversight provisions will 
apply to all plans, including QHPs and plans that are substantially the 
same as QHPs (as defined in the first final Program Integrity Rule) 
that are subject to the risk corridors program, whether these plans are 
offered through the Exchange or outside of the Exchange.
    For the 2014 benefit year, we propose to collect risk corridors 
data through the same form used for MLR data collection, at the same 
time (July 31 of the year following the applicable benefit year). We 
note that we would modify the collection instrument and adjust the 
operational aspects of data submission as necessary to ensure that the 
data collection process adheres to the requirements for both programs. 
We would leverage data validation procedures that are used by the MLR 
program to uncover data inconsistencies, and would add additional 
validation steps that would allow us to identify QHP issuers and verify 
QHP-specific premium information. In addition, we are considering 
conducting an internal quality check of risk corridors data to ensure 
that the information submitted is consistent with information submitted 
for other programs (for example, premiums and claims reported in the 
dedicated distributed data environment). Similar to the MLR process, we 
anticipate requiring issuers to resubmit corrected data after risk 
corridors data errors are identified. We request comment on this 
approach.
    To ensure the integrity of risk corridors data reporting, we 
propose in Sec.  153.540(a) to establish HHS authority to conduct post-
payment audits of QHP issuers. Because similar data is used in the risk 
corridors and MLR calculations, we are considering conducting the risk 
corridors audits using the existing MLR auditing process set forth at 
Sec.  158.402 to reduce the time and expense (for both HHS and issuers) 
of conducting multiple audits on similar data. We are further 
contemplating conducting risk corridors audits under an overall issuer 
audit program so that we may simultaneously obtain the financial 
information necessary to determine compliance with other programs, such 
as the risk adjustment and reinsurance programs. We believe that this 
may further reduce the overall audit burden on issuers. Some States 
already review data and audit issuer information related to MLR 
reporting and rebate obligations; HHS does not intend to review 
information that would be duplicative of a review that has been 
completed by a State. However, because States may not examine all data 
required to be examined for the risk corridors program, HHS could audit 
a QHP issuer's risk corridors data to the extent not examined by the 
State. We request comments on all aspects of this approach, including 
appropriate criteria for identifying issuers for audit in any 
particular benefit year.
    The second final Program Integrity Rule provides that a QHP issuer 
on an FFE that fails to comply with the risk corridors provisions may 
be subject to decertification or civil money penalties (CMPs), but does 
not extend this remedy to a QHP issuer on a State Exchange. State 
Exchange issuers that fail to submit risk corridors charges, and 
consequently owe HHS money, would be subject to the Federal debt 
collection processes; however, without risk corridors data, HHS will be 
unable to determine whether a debt is owed or the amount of a debt. 
Therefore, in Sec.  153.540(b) we propose to extend our CMP authority 
under sections 1321(a)(1) and (c)(2) of the Affordable Care Act to all 
QHP issuers that fail to provide timely, accurate, and complete data 
necessary for risk corridors calculations, or that otherwise do not 
comply with the standards in subpart F of 45 CFR part 153. We propose 
to assess CMPs on QHP issuers in State Exchanges in accordance with the 
same enforcement and sanction procedures that apply to QHP issuers on 
FFEs, under Sec.  156.805. For purposes of calculating the maximum CMP 
amount, we may consider using enrollment information acquired from 
other internal sources (for example, risk adjustment and reinsurance 
enrollment data from the dedicated distributed data environment). Under 
this approach, we would either use enrollment information from all of 
an issuer's non-grandfathered plans within a State market, or would 
limit calculation of the CMP amount to the number of enrollees in an 
issuer's QHPs (including enrollees in plans that are substantially the 
same as a QHP). We note that, consistent with our general approach 
relating to the application of sanctions, we would take various factors 
into account when determining the amount of a CMP, including an 
issuer's record of prior compliance with risk corridors requirements, 
the gravity and the frequency of the violation, and the issuer's 
demonstrated success in correcting violations that HHS has identified 
(for example, errors identified in corrective action plans).\19\ We 
request comments on all aspects of this approach, particularly for the 
methodology that we should use to determine a CMP amount for a QHP

[[Page 72349]]

issuer that does not comply with risk corridors data requirements.
---------------------------------------------------------------------------

    \19\ We note that the good faith provision at Sec.  156.800(c) 
will not be applicable in this context because risk corridors 
activities, such as data submission and payment, occur beginning in 
2015.
---------------------------------------------------------------------------

c. Participation in the Risk Corridors Program
    Because the premium stabilization programs, including the risk 
corridors program, are intended to mitigate pricing uncertainty 
associated with the 2014 market reforms, particularly the rating rules 
at section 2701 of the PHS Act and Sec.  147.102, we believe that the 
protections of these programs should be for plans that are subject to 
the premium rating rules. Therefore, in the 2014 Payment Notice, we 
clarified that under the methodology HHS will use when operating risk 
adjustment on behalf of a State, a plan that is not subject to the 
market reform rules, including the premium rating rules, is not a risk 
adjustment covered plan. In the second final Program Integrity Rule, we 
further clarified that stand-alone dental plans would not be subject to 
the risk corridors program because they are not subject to the premium 
rating rules, and therefore do not require the protections of the risk 
corridors program. In this proposed rule, we are similarly proposing to 
amend the risk corridors rules to provide that a plan that is not 
subject to the market reform rules and premium rating rules would not 
participate in the risk corridors program. We propose to add a 
paragraph (f) to Sec.  153.510 to provide that the risk corridors 
program would apply only to qualified health plans, as defined in Sec.  
153.500, including all plans offered through the individual market 
Exchange or SHOP, regardless of employer size, that are subject to the 
following provisions within title 45 of the CFR:
     Sec.  147.102 (fair health insurance premiums).
     Sec.  147.104 (guaranteed availability of coverage).
     Sec.  147.106 (guaranteed renewability of coverage).
     Sec.  147.150 (essential health benefits).
     Sec.  156.80 (single risk pool) and subpart B of 45 CFR 
part 156 (essential health benefits package).
    We believe that this approach is consistent with how QHPs have 
determined their pricing for the 2014 benefit year. We note that a QHP 
that must adhere to the premium rating rules as a condition of 
participation on the SHOP is a plan that is ``subject to the rating 
rules'' for the purposes of this policy.
    We are also proposing that the employee counting method applicable 
under State law would determine whether a plan is considered to be 
offered in the small group market for purposes of the risk corridors 
program even if the State definition does not take non-full-time 
employees into account, and thus could include some employers as small 
employers that would be large employers under the Federal definition. 
Given our broad authority to establish the risk corridors program, we 
believe that we have the discretion to include such employers in the 
program even if they do not meet the Federal definition of small 
employer that would apply for other purposes. We believe that the 
inclusion of such employers in the definition of small employers for 
purposes of the risk corridors program would maintain consistency 
between the risk corridors calculation and implementation of the single 
risk pool provision, which is generally enforced by the State. We 
further believe that clearly specifying the employee counting method 
that is specific to the risk corridors program would provide clarity 
for QHP issuers with plans that could either be excluded from or 
subject to the risk corridors program, depending on the employee 
counting method used. We note that permitting the use of a State 
employee counting method that is inconsistent with Federal law for 
purposes of the risk corridors program differs from the approach taken 
under the MLR program and the proposed counting method for the risk 
adjustment program that is described elsewhere in this proposed rule. 
Under these programs, non-full-time employees must be counted. We note 
that the State's employee counting method would also be used to 
determine whether a plan that is not a QHP is part of the non-
grandfathered individual or small group market within a State, and 
would, therefore, be part of a QHP issuer's risk corridors data 
submission under Sec.  153.530. We also note that the State's employee 
counting method would determine whether any plan offered outside of an 
Exchange that is the ``same'' as or ``substantially similar'' to an 
Exchange QHP (under the definition set forth in Sec.  153.500) would be 
part of the individual or small group market for purposes of the risk 
corridors program, and, therefore whether it is eligible to receive or 
make risk corridors payments. This proposed approach would serve to 
align the market-wide rating rules with the protections of the premium 
stabilization programs. However, the approach could likely lead to a 
more complex data submission for risk corridors and MLR, because we may 
not be able to align the market definitions between the two programs.
    We seek comment on our proposal that a QHP must be subject to the 
market reform rules in order to participate in the risk corridors 
program. We also seek comment on our proposal to use the State employee 
counting method to define plans in the small group market for purposes 
of determining which plans participate in the risk corridors program, 
even where that would include employers that would be large employers 
under the Federal definition, or whether we should instead use the 
counting method used for the MLR program and proposed for risk 
adjustment purposes. We also seek comments on whether we should 
explicitly codify the applicable counting rules for each program in 
regulations text.
d. Adjustment Options for Transitional Policy
    As discussed earlier, on November 14, 2013, the Federal government 
announced a policy under which it will not consider certain health 
insurance coverage in the individual or small group market between 
January 1, 2014, and October 1, 2014, under certain conditions to be 
out of compliance with specified 2014 market rules, and requested that 
States adopt a similar non-enforcement policy.\20\ CMS noted in a 
letter to the insurance commissioners of the 50 States and the District 
of Columbia that while this transitional policy would not have been 
anticipated by issuers in setting rates for 2014, the risk corridors 
program should ameliorate the effect of this policy. We also stated 
that we intended to explore ways to modify the risk corridors program 
to address any unanticipated effects of this policy.
---------------------------------------------------------------------------

    \20\ Letter to Insurance Commissioners, Center for Consumer 
Information and Insurance Oversight, November 14, 2013. See http://www.cms.gov/CCIIO/Resources/Letters/Downloads/commissioner-letter-11-14-2013.PDF.
---------------------------------------------------------------------------

    Therefore, for the 2014 benefit year, we are considering whether we 
should make an adjustment to the risk corridors formula that would help 
to further mitigate any unexpected losses for issuers of plans subject 
to risk corridors that are attributable to the effects of the 
transition policy. One potential option we are considering would be to 
implement an adjustment to the risk corridors formula set forth in 
subpart F of part 153 for each of the individual and small group 
markets by increasing the profit margin floor (from 3 percent of after-
tax profits) and the allowable administrative costs ceiling (from 20 
percent of after-tax profits) in an amount sufficient to offset the 
effects of the transitional policy upon the claims costs of a model 
plan (that is, a plan with an 80 percent allowable costs-to-premium 
ratio). This adjustment could serve to

[[Page 72350]]

increase a QHP issuer's risk corridors ratio and its risk corridors 
payment amount to help offset the loss in premium revenue and profit 
that might occur under the transitional policy as a result of predicted 
increased claims costs that were not accounted for when setting 2014 
premiums. We are considering applying this adjustment only to plans 
whose allowable costs (as defined at 45 CFR 153.500) are at least 80 
percent of their after-tax premiums, because issuers under this 
threshold would generally be required to pay out rebates to consumers. 
We note that for plans whose ratio of allowable costs to after-tax 
premium are below 80 percent, the 3 percent risk corridors profit 
margin and 20 percent allowable administrative cost ceiling would 
continue to apply for these plans.
    The effect on the risk pool of plans compliant with the 2014 market 
rules may vary significantly from State to State, depending upon the 
extent to which each State elects not to enforce the 2014 market rules, 
as recommended under the transition policy, and upon the market 
dynamics of the health insurance market within the State. We believe 
that the State-wide effect on this risk pool will increase with the 
increase in the percentage enrollment in transitional plans in the 
State, and so we are considering having the State-specific percentage 
adjustment to the risk corridors formula also vary with the percentage 
enrollment in these transitional plans in the State.
    We are considering calculating the State-specific percentage 
adjustment by analyzing the effects of the transitional policy upon a 
plan with specified characteristics. For example, our actuaries believe 
the following are reasonable plan assumptions: allowable costs 
(including claims) equal to 80 percent of premiums, federal income 
taxes equal to 35 percent of pre-tax profits, other tax liability equal 
to 7.5 percent of premiums, and other administrative costs equal to 8 
percent of premiums.
    We are considering calculating the State-specific percentage 
adjustment to the risk corridors profit margin floor and allowable 
administrative costs ceiling in a manner that would help to offset the 
effects of the transitional policy upon the model plan's claims costs.
    We propose to estimate the effect of the transitional policy upon 
the model plan's claims costs by assuming that allowable costs 
(including claims) among the transitional plans are 80 percent of the 
allowable costs that would have resulted from the broad risk pool, in 
the absence of the transitional policy. After consulting our actuaries, 
we believe that this assumption is a reasonable reflection of the 
effects of underwriting on the transitional plans. To estimate this 
State-specific effect of the transitional policy on average claims 
costs, we propose to require all issuers participating in the 
individual and small group markets in a State to submit to HHS a 
member-month enrollment count for transitional plans and non-
transitional plans in the individual and small group markets. This 
submission would occur in 2015 prior to the risk corridors submission. 
HHS would analyze that data, and publish the State-specific adjustments 
that issuers would use in the risk corridors calculations for the 2014 
benefit year.
    We have proposed a State-wide adjustment for reasons of 
administrative simplicity and due to the analytical difficulty in 
estimating this effect on an issuer-by-issuer basis. Although the 
adjustment that we are considering would affect each issuer 
differently, depending on its particular claims experience and 
administrative cost rate, we believe that, on average, the adjustment 
would suitably offset the losses that a standard issuer might 
experience as a result of the transitional policy. We also note that, 
because the risk corridors program applies only to certain plans 
defined to be qualified health plans at 45 CFR 153.500, the extent to 
which an issuer may receive the full effect of this adjustment would 
depend upon the portion of an issuer's individual and small group 
enrollees in plans subject to risk corridors.
    Another option we are considering would be to make a similar 
modification to the medical loss ratio formula. We would use our 
authority under section 2718(c) of the Public Health Service Act to 
``take into account . . . special circumstances of different types of 
plans'' to ensure that the proposed adjustment to the risk corridor 
program does not distort the implementation of MLR requirements, so 
that the rebates that would be owed absent the transitional policy and 
this adjustment would not substantially change. We seek comment on the 
best way to make such a modification, and whether such a modification 
is required.
    We request comment on all aspects of these potential approaches to 
help mitigate any potential impact of the transitional policy. As we 
continue to analyze its potential impacts, we will determine whether 
such approaches and modifications are warranted. We seek comment on 
alternate ways of implementing adjustments to current risk corridors 
and reinsurance program policy that would help offset issuers for any 
unexpected losses that might be incurred as a result of the 
transitional policy. In particular, we seek comment on whether this 
risk corridors adjustment should depend upon State-wide market 
characteristics, as we have proposed, or whether it should be national, 
tailored to each issuer, or based upon different State-wide 
characteristics.
    We also seek comment on whether the characteristics of the standard 
plan we have outlined above are the appropriate characteristics to use 
for our modeling. We seek comment on the data that we should collect to 
measure the key characteristics for this adjustment, and who we should 
collect that data from. We seek comment on whether particular ceilings 
and floors should be placed upon the amount of the adjustment. We also 
seek comment on whether the adjustment should apply to QHP issuers with 
allowable costs that are below 80 percent of after-tax premiums.
4. Distributed Data Collection for the HHS-operated Risk Adjustment and 
Reinsurance Programs
a. Discrepancy Resolution Process
(i) Confirmation of HHS Dedicated Distributed Data Environment Reports
    Because the accuracy of the data on an issuer's dedicated 
distributed data environment is critical to the accuracy of the HHS-
operated risk adjustment and reinsurance calculations, we are proposing 
an iterative discrepancy reporting process that would allow an issuer 
of a risk adjustment covered plan or a reinsurance-eligible plan to 
notify HHS in a timely fashion of data and calculation discrepancies 
related to the data the issuer uploaded to its dedicated distributed 
data environment. We anticipate that this process would allow HHS and 
issuers sufficient time to resolve discrepancies, prior to HHS 
notifying issuers of final risk adjustment payments and charges and 
reinsurance payments. This process would also enable HHS to identify 
and address issues that affect multiple issuers throughout the benefit 
year.
    Interim dedicated distributed data environment reports: Beginning 
in 2014, HHS anticipates sending interim dedicated distributed data 
environment reports to issuers of risk adjustment covered plans and 
reinsurance-eligible plans that have loaded data onto their dedicated 
distributed data environments. (We also intend to issue these interim 
reports to issuers of risk adjustment covered plans and reinsurance-
eligible plans that do not load data, to verify this result.) We 
anticipate that issuers of risk adjustment covered plans would receive 
interim

[[Page 72351]]

reports that include preliminary risk scores based on this data. We 
anticipate that issuers of reinsurance-eligible plans would receive 
interim reports that include an estimate of the issuer's aggregated 
total claims eligible for reinsurance payments based on this data. 
Therefore, we propose in Sec.  153.710(d) that within 30 calendar days 
of the receipt of an interim dedicated distributed data environment 
report from HHS, the issuer must either confirm to HHS that the 
information in the interim report accurately reflects the data to which 
the issuer has provided access to HHS through its dedicated distributed 
data environment in accordance with Sec.  153.700(a) for the timeframe 
specified in the report, or else must describe to HHS any discrepancy 
it identifies in the interim report. Following the identification of a 
discrepancy in an interim dedicated distributed data environment 
report, HHS would review the evidence submitted by the issuer, along 
with any other relevant data, and would determine if the preliminary 
risk score or estimated payment amount at issue was properly calculated 
using the applicable data. We believe that the 30-calendar-day 
timeframe would provide sufficient opportunity for an issuer to verify 
the preliminary risk scores and estimated reinsurance payment amounts, 
but note that an issuer may notify HHS of a newly discovered 
discrepancy in connection with responses to later interim or final 
dedicated distributed environment reports until 15 calendar days after 
the final dedicated distributed data environment report is issued, as 
discussed below. We anticipate that the interim dedicated distributed 
data environment reports would allow issuers to proactively address any 
data discrepancies regarding the data the issuer made accessible to HHS 
on the dedicated distributed data environment and HHS's analysis of the 
data.
    We note that under Sec.  153.700(a), an issuer of a risk adjustment 
covered plan or a reinsurance-eligible plan in a State where HHS 
operates the risk adjustment or reinsurance program on behalf of the 
State, must establish a dedicated distributed data environment and 
provide data access to HHS, in a manner and timeframe specified by HHS, 
for any HHS-operated risk adjustment or reinsurance program. For the 
issuer and HHS to effectively address and resolve discrepancies through 
the proposed interim reporting process, we propose that once an 
issuer's dedicated distributed data environment is established, the 
issuer would be required, on a quarterly basis, to make a complete and 
current enrollment file accessible to HHS through the dedicated 
distributed data environment, and would be required to make good faith 
efforts to make accurate and current claims files accessible to HHS 
through the dedicated distributed data environment. An issuer may later 
(up until April 30 of the year after the benefit year, as provided for 
in Sec.  153.730) adjust these files with the most current information 
to account for changing enrollments or more current adjudications of 
claims in later periods. However, we believe it is critical for issuers 
to provide quarterly uploads of enrollment and claims files to permit 
issuers and HHS to monitor data collection.
    We note that, as part of the process for making these files 
available to HHS on a dedicated distributed data environment, we 
anticipate providing an issuer a transactional process report that will 
identify data that has been attempted to be uploaded, but that has been 
rejected. To fulfill its obligation to make these files available to 
HHS, an issuer would be required to either correct or accept the 
rejection of this data for the submission process to be considered 
complete.
    Final dedicated distributed data environment report: We propose 
that HHS would provide issuers with a final dedicated distributed data 
environment report following the applicable benefit year, after the 
April 30 data submission deadline. The final dedicated distributed data 
environment report would include final risk scores and claims amounts 
eligible for reinsurance payments, each calculated from the issuer's 
data that was timely loaded onto the dedicated distributed data 
environment. As with the interim reports discussed above, we propose in 
Sec.  153.710(e) that the issuer be required, within 15 calendar days 
of receipt of the final report, to either confirm to HHS that the 
information in the final dedicated distributed data environment report 
accurately reflects the data to which the issuer has provided access to 
HHS through its dedicated distributed data environment in accordance 
with Sec.  153.700(a) for the benefit year specified in the report, or 
to describe to HHS any discrepancy it identifies in the final dedicated 
distributed data environment report. The shorter 15-calendar-day 
reporting timeframe for the final dedicated distributed data 
environment report is necessary so that HHS can notify issuers of their 
final risk adjustment payments and charges and final reinsurance 
payments by June 30 of the year following the applicable benefit year, 
as required under Sec.  153.310(e) and Sec.  153.240(b)(1)(ii). We seek 
comment on these proposals.
    Notification of payments and charges: Last, as required under Sec.  
153.310(e) and Sec.  153.240(b)(1)(ii), HHS will provide issuers a 
report detailing their final risk adjustment payments and charges and 
reinsurance payments for the applicable benefit year by June 30 of the 
year following the applicable benefit year. We also anticipate 
providing a report on cost-sharing reduction reconciliation payments 
and charges for that benefit year in the same timeframe. Although we 
anticipate that the interim and final dedicated distributed data 
environment reports would permit HHS and issuers to resolve most data 
and payment discrepancies for risk adjustment and reinsurance before 
the June 30 report is issued, we recognize that some discrepancies 
might remain unresolved. Therefore, we propose in Sec.  153.710(f) that 
if a discrepancy that is first identified in an interim or final 
dedicated distributed data environment report in accordance with 
proposed Sec.  153.710(d)(2) or Sec.  153.710(e)(2) remains unresolved 
after issuance of the June 30 report, an issuer of a risk adjustment 
covered plan or reinsurance-eligible plan may make a request for 
reconsideration using the process proposed in Sec.  156.1220(a). To 
promote the goals of the premium stabilization programs and to ensure 
that risk adjustment and reinsurance payments are provided to an issuer 
of a risk adjustment covered plan or reinsurance-eligible plan in a 
timely fashion, HHS would assess charges and make payments based on the 
amounts listed in the June 30 report, whether or not the issuer had 
submitted a request for reconsideration under proposed Sec.  
156.1220(a), and would later correct any charges or payments determined 
to be inaccurate under the reconsideration or administrative appeals 
process.
(ii) Reporting of Payments and Charges Under Reconsideration
    Because risk adjustment payment and charge amounts and reinsurance 
payment amounts are factors in an issuer's risk corridors and MLR 
calculations, a delay in resolving final risk adjustment payments and 
charges and reinsurance payments could make it difficult for issuers to 
comply with reporting requirements under the risk corridors and MLR 
programs. Therefore, to clarify how issuers are to comply with these 
reporting requirements, we propose in Sec.  153.710(g)(1) that, 
notwithstanding any discrepancy report made under paragraph Sec.  
153.710(d)(2) or (e)(2), or any request for

[[Page 72352]]

reconsideration under Sec.  156.1220(a), unless the dispute has been 
resolved, an issuer must report, as applicable, for purposes of the 
risk corridors and the MLR program, the risk adjustment or reinsurance 
payment to be made to the Federal government, or the risk adjustment 
charge assessed by the Federal government, as reflected in the June 30 
report.
    If the amount of cost-sharing reductions a QHP issuer has provided 
is at issue because the issuer requested reconsideration of a cost-
sharing reduction reconciliation payment or charge under the process 
proposed in Sec.  156.1220(a), we propose that for the purposes of the 
risk corridors and the MLR program, a QHP issuer would be required to 
report a cost-sharing reduction amount equal to the amount of the 
advance payments of cost-sharing reductions paid to the issuer by HHS 
for the benefit year as reflected in the HHS report on cost-sharing 
reduction reconciliation payments and charges. Additionally, if a QHP 
issuer requests reconsideration of risk corridors payments or charges 
under the process proposed in Sec.  156.1220(a), then for purposes of 
MLR reporting, the QHP issuer would be required to report the risk 
corridors payment to be made to the Federal government or charge 
assessed by the Federal government as reflected in the notification 
provided under Sec.  153.510(d).
    Finally, we propose in Sec.  153.710(g)(2) that an issuer must 
report any adjustment made following any discrepancy report made under 
paragraph (d)(2) or (e)(2), or any request for reconsideration under 
Sec.  156.1220(a) with respect to any risk adjustment payment or 
charge, including an assessment of risk adjustment user fees, 
reinsurance payment, cost-sharing reconciliation payment or charge, or 
risk corridors payment or charge, or following any audit, where the 
adjustment has not been accounted for in a prior risk corridors or 
medical loss ratio report, in the next following risk corridors and 
medical loss ratio report.
    We seek comment on these proposals.
b. Default Risk Adjustment Charge
    As described in the second final Program Integrity Rule, if an 
issuer does not establish a dedicated distributed data environment or 
submits inadequate risk adjustment data, HHS would not have the 
required risk adjustment data from the issuer to calculate risk scores 
or payment transfers for the issuer. As a result, HHS would not be able 
to properly calculate risk adjustment payments and charges for the 
entire applicable market for the State. Under Sec.  153.740(b), if an 
issuer of a risk adjustment covered plan fails to establish a dedicated 
distributed data environment or fails to provide HHS with access to 
risk adjustment data in such environment by April 30 of the year 
following the applicable benefit year in accordance with Sec. Sec.  
153.610(a), 153.700, 153,710, or 153.730, such that HHS cannot apply 
its Federally certified risk adjustment methodology to calculate the 
plan's risk adjustment payment transfer amount in a timely fashion, HHS 
will assess a default risk adjustment charge.
    As described in the second final Program Integrity Rule, the total 
risk adjustment default charge for a risk adjustment covered plan would 
equal a per member per month (PMPM) amount multiplied by the plan's 
enrollment.
    Tn = Cn x En
    Where:
    Tn = total default risk adjustment charge for a plan n;
    Cn = the PMPM amount for plan n; and
    En = the total enrollment (total billable member months) for 
plan n.

    In the second final Program Integrity Rule, we provided that En 
could be calculated using an enrollment count provided by the issuer, 
using enrollment data from the issuer's MLR and risk corridors filings 
for the applicable benefit year, or using other reliable data sources.
    We are considering several methods to calculate Cn--the PMPM amount 
for a plan. As discussed in the proposed Program Integrity Rule, one 
method would be to set a PMPM amount that is equal to the highest PMPM 
transfer charge that HHS calculates based on risk adjustment data 
submitted by risk adjustment covered plans in the applicable risk pool 
in the applicable market in the State. Such a method could yield a PMPM 
amount that would reflect a PMPM charge that reflects the high end of 
the PMPM distribution in certain States. However, in a situation in 
which the risk adjustment covered plans that provide the necessary risk 
adjustment data have very similar risk scores, a PMPM amount calculated 
under this method may yield a relatively low risk adjustment charge, 
and fail to provide adequate incentive for prompt establishment of a 
compliant distributed data system.
    A second option would be to assess a PMPM amount based on the 
standard deviation of the PMPM charge among all risk adjustment covered 
plans in the applicable risk pool in the applicable market in the 
State. The PMPM amount used to calculate the default risk adjustment 
charge would be an amount equal to the mean PMPM amount plus two such 
standard deviations. Such an approach could also yield a PMPM amount 
that is high but reflects the PMPM distribution in certain situations, 
but, again, low in others. The amount might also be quite unpredictable 
ex ante.
    A third option would be to assess a charge equal to a fixed 
percentage of the State-wide weighted average premium, which would be 
calculated as the enrollment-weighted mean of all plan average premiums 
of risk adjustment covered plans in the applicable risk pool in the 
applicable market in the State. This option might be relatively 
straightforward to implement, but would yield a charge that is not 
linked to the distribution of PMPM amounts within the relevant risk 
pool in the market in the State.
    We note the many possible variations of these methods. For example, 
instead of the highest PMPM amount in the risk pool in the market in 
the State, the PMPM amount could be a fixed percentile along the 
distribution of PMPM charges for the risk pool in the market in the 
State--thus, we could use the 75th percentile or an amount equal to 10 
percent above the 100th percentile, for example. Instead of the amount 
based on the mean PMPM amount and two standard deviations, a different 
number of standard deviations could be used. Also, instead of using a 
fixed percentage of the State-wide weighted average premium, a fixed 
percentage of the plan's premium, or a fixed percentage of the average 
premium of a subpopulation of risk adjustment covered plans in the 
State, such as those plans in the applicable risk pool, or those plans 
paying risk adjustment charges, could be used.
    Commenters to the proposed Program Integrity Rule also suggested an 
approach under which the PMPM amount would be the highest amount 
calculated under each of the three methods described above. Finally, to 
ensure that a total default charge is not excessive for a particular 
plan, we are considering setting an upper limit on the total default 
charge for a plan based on a percentage of the plan's own total 
premiums. We seek comment on these methods, or other appropriate 
methods for calculating a default risk adjustment charge.

D. Part 155--Exchange Establishment Standards and Other Related 
Standards under the Affordable Care Act

1. Election to Operate an Exchange After 2014
    HHS has learned through the process of approving or conditionally 
approving

[[Page 72353]]

the first generation of State Exchanges that it is challenging to make 
an accurate assessment of a State's progress and ability to complete an 
Exchange build 10 months prior to open enrollment and a year prior to 
the first date that coverage would become effective. We are therefore 
proposing to reduce the time that the State must have in effect an 
approved or conditionally approved Exchange Blueprint and readiness 
assessment from 12 months to 6.5 months prior to the Exchange's first 
effective date of coverage. We propose to amend Sec.  155.106(a)(2) by 
moving the deadline for the approval of the Exchange Blueprint for 
States electing to establish and operate an Exchange after 2014 to June 
15th of the previous plan year rather than January 1st of the previous 
plan year. We believe that this proposal will give States more time 
prior to approval of the Blueprint to prepare for the transition from 
an FFE or State Partnership Exchange to a State Exchange. It will also 
enable HHS to gauge the State's actual technical, business and 
operational progress as more indicative milestones should be reached by 
June 15th. It should be noted that Sec.  155.106(a)(2) sets the date by 
which a State electing to operate an Exchange after 2014 must ``[h]ave 
in effect'' an ``approved, or conditionally approved, Exchange 
Blueprint and operational readiness assessment'' and that the rule is 
silent about the date by which such a State must submit the Exchange 
Blueprint. HHS, therefore, proposes to extend the date by which a State 
must submit the Exchange Blueprint from November 15th to June 1st.
2. Ability of States to Permit Agents and Brokers to Assist Qualified 
Individuals, Qualified Employers, or Qualified Employees Enrolling in 
QHPs
    In Sec.  155.220, we propose to add new paragraph (i) to provide 
that current paragraph (c)(3), which addresses enrollment through an 
Internet Web site of an agent or broker, and currently applies only to 
the individual market Exchanges, would apply to the SHOPs for plan 
years beginning on or after January 1, 2015. Agents and brokers have 
traditionally assisted employers in the small group market, and many of 
them use Internet Web sites to assist employers. Permitting an employer 
to complete QHP selection through the Internet Web site of an agent or 
broker would provide an additional potential SHOP enrollment option for 
small employers. Under this proposal, employers that have not 
traditionally worked with agents and brokers but have, in the past, 
utilized Internet Web sites of agents and brokers for purchasing 
insurance would have another option to learn about and participate in 
the SHOPs, in a manner similar to that already available in the current 
market. We propose to allow SHOPs, in States that allow this activity 
under State law, to permit enrollment in a SHOP QHP through an Internet 
Web site of an agent or broker under the standards outlined in Sec.  
155.220(c)(3) if a State SHOP or the FF-SHOP has the technical 
capability to make this possible. We invite comment on this proposal.
3. Privacy and Security of Personally Identifiable Information
    Section 1411(g)(2)(A) of the Affordable Care Act provides that 
Exchanges may use information provided by an applicant ``. . . only for 
the purposes of, and to the extent necessary in, ensuring the efficient 
operation of the Exchange . . .'' Section 155.260(a)(1) provides the 
specific circumstances under which an Exchange may use or disclose PII 
the Exchange creates or collects for the purposes of determining 
eligibility for enrollment in a QHP; determining eligibility for other 
insurance affordability programs as defined at Sec.  155.20; or 
determining eligibility for exemptions from the individual 
responsibility provisions in section 5000A of the Code (collectively 
referred to as ``eligibility and enrollment PII''). We believe, based 
on considerations that have been brought to our attention by States as 
we work together to implement the Exchanges, that Sec.  155.260(a)(1) 
unduly limits the ability of an Exchange to ensure its efficient 
operation. We therefore propose to amend Sec.  155.260(a)(1) to permit 
an Exchange to use or disclose eligibility and enrollment PII to ensure 
the efficient operation of an Exchange through uses or disclosures that 
may not be directly connected to the Exchange minimum functions 
described at Sec.  155.200, subject to privacy and security standards.
    We anticipate that there may be uses or disclosures of eligibility 
and enrollment PII that present additional opportunities to ensure the 
efficient operation of the Exchange, consistent with the strict 
protections of section 1411(g)(2)(A) of the Affordable Care Act. 
Therefore, we propose in Sec.  155.260(a)(1)(ii) that the Secretary may 
approve other uses and disclosures of eligibility and enrollment PII, 
provided that HHS determines that the information will be used only for 
the purposes of and to the extent necessary in ensuring the efficient 
operation of the Exchange consistent with section 1411(g)(2)(A) of the 
Affordable Care Act and determines that the use or disclosure is 
appropriate and permissible under relevant law and policy. In addition, 
prior to an Exchange using eligibility and enrollment PII for such an 
approved function, the individual would need to provide consent before 
his or her eligibility and enrollment PII could be used or disclosed 
for this additional function. We anticipate providing additional 
information in future guidance about uses or disclosures determined by 
the Secretary that ensure the efficient operation of the Exchange while 
maintaining information privacy and security, and we seek comment on 
such uses and disclosures.
    Further, in Sec.  155.260(a)(1)(iii) we propose a process under 
which Exchanges may seek approval from the Secretary for uses or 
disclosures of eligibility and enrollment PII not explicitly described 
in Sec.  155.260(a)(1)(i) or (ii). Requestors must show that the 
proposed use or disclosure will ensure the efficient operation of the 
Exchanges consistent with section 1411(g)(2)(A) of the Affordable Care 
Act and describe how the information to be used or disclosed will be 
protected by privacy and security standards that are compliant with 
Sec.  155.260. In addition, any time an Exchange is using eligibility 
and enrollment PII for such an approved function, the individual would 
need to provide consent before his or her eligibility and enrollment 
PII could be used or disclosed. We anticipate providing additional 
information in future guidance about this process and about the facts 
and circumstances that will be considered in determining whether a 
proposed use or disclosure will ensure the efficient operation of an 
Exchange while maintaining information privacy and security and is also 
an appropriate and permissible use or disclosure under relevant law and 
policy. We seek comment on this proposed process, as well as other 
factors or information that should be considered when determining 
whether a proposed use or disclosure should be approved pursuant to 
this proposed process.
    We further recognize the imperative to maintain safeguards for 
eligibility and enrollment PII when it is used or disclosed to support 
functions beyond those described in Sec.  155.200. Exchanges would be 
required to limit the disclosure of eligibility and enrollment PII to 
the extent necessary to accomplish the proposed function and obtain an 
individual's consent. The proposed use and disclosure would be

[[Page 72354]]

subject to privacy and security standards that Sec.  155.260 requires 
Exchanges to establish in relation to non-Exchange entities.
    In light of the proposed amendments to Sec.  155.260(a)(1), we 
further propose to amend Sec.  155.260(a)(2) to delete the specific 
reference to Sec.  155.200 minimum functions and to indicate that all 
permitted uses under Sec.  155.260(a)(1) must be consistent with Sec.  
155.260.
    Section 155.260(a)(3) provides that Exchanges must establish and 
implement privacy and security standards consistent with the eight 
principles in Sec.  155.260(a)(3)(i) through (a)(3)(viii). Section 
155.260(b) addresses situations in which Exchanges share PII with 
``non-Exchange entities,'' including ``. . . individuals or entities, 
such as Navigators, agents, and brokers.'' Through public comment to 
the Program Integrity Proposed Rule, we received requests for 
clarification on the definition of ``non-Exchange entities'' and also 
received questions asking if the regulatory language ``individuals or 
entities, such as Navigators, agents, and brokers,'' was meant to be an 
exhaustive list. In the preamble to the first final Program Integrity 
Rule (78 FR 54082), we stated that we would issue further guidance on 
this topic. We now propose to amend the regulation text to address 
these questions.
    In Sec.  155.260(b)(1), we propose that any individual or entity 
that gains access to PII submitted to an Exchange or collects, uses or 
discloses PII gathered directly from applicants, qualified individuals, 
or enrollees while that individual or entity is performing the 
functions agreed to with the Exchange, be considered a non-Exchange 
entity, such that a non-Exchange entity is defined based on access to 
PII and not based on a representative or exhaustive list of entities. 
As clarification, we believe that entities that would qualify as ``non-
Exchange entities'' based on this proposed definition include, but are 
not limited to, Medicaid agencies; CHIP agencies; Certified Application 
Counselors; in person assisters; agents and brokers, including Web-
brokers; QHP issuers; Navigators; and other third party contractors. We 
feel very strongly about the importance of requiring privacy and 
security standards and believe that this proposed definition of non-
Exchange entity makes even more clear which entities are subject to 
these standards.
    At Sec.  155.260(b)(2), we propose to maintain the existing 
requirement for Exchanges to enter into a contract or agreement with 
non-Exchange entities, while providing more details regarding the 
required elements of these contracts and agreements. We propose that 
the contract or agreement between an Exchange and a non-Exchange entity 
must include at least five elements. First, we believe it is important 
to define in this contract or agreement the functions that the non-
Exchange entity will perform so that both parties agree to the 
circumstances and tasks during which the privacy and security standards 
will be applicable, and propose to include this requirement in Sec.  
155.260(b)(2)(i). This requirement already exists in Sec.  
155.260(b)(2), where reference is made to a non-Exchange entity 
performing the functions outlined in the agreement with the Exchange. 
Second, we propose in Sec.  155.260(b)(2)(ii) that in the required 
contract or agreement, the Exchange must impose a requirement for 
compliance with privacy and security standards and specifically list or 
incorporate by reference the privacy and security standards and 
obligations with which the non-Exchange entity must comply. A similar 
requirement also already exists in the current text of Sec.  
155.260(b), where an Exchange must require the same or more stringent 
privacy and security standards as a condition of contract or agreement 
with the non-Exchange entity. The nature of these standards will be 
discussed in greater detail in the next paragraph. Third, we propose in 
Sec.  155.260(b)(2)(iii) that in the contract or agreement, the 
Exchange must require the non-Exchange entity to monitor, periodically 
assess, and update its security controls and related system risks to 
ensure the continued effectiveness of those controls in accordance with 
Sec.  155.260(a)(5). It is assumed that the Exchange would expect this 
type of assessment to occur any time the non-Exchange entity has a 
major change in the operational or technical environment employed to 
meet the duties outlined in their contracts or agreements with the 
Exchange, and at the time of renewal of the contract or agreement. 
Fourth, we propose in Sec.  155.260(b)(2)(iv) that in the contract or 
agreement, the Exchange must require the non-Exchange entity to inform 
the Exchange of any change in its administrative, technical, or 
operational environment defined within the contract that would require 
an alteration of the standards within the contract or agreement. The 
intent of this requirement is to provide an opportunity to assess and 
revise standards to ensure that the standards remain relevant. We seek 
comment on other mechanisms that could be more effective in keeping 
standards aligned with operating environments. Fifth, we propose in 
Sec.  155.260(b)(2)(iv) that the contract or agreement include a 
requirement that the non-Exchange entity, in a written contract or 
agreement, must require any downstream entities that also meet the 
definition established in Sec.  155.260(b)(1) to comply with the same 
privacy and security standards with which the non-Exchange entity 
agrees to comply under its contract or agreement with the Exchange. We 
feel it is important that the privacy and security standards continue 
to apply to PII as it moves to additional downstream entities.
    Currently, Sec.  155.260(b) states that an Exchange must require 
the same or more stringent privacy and security standards as a 
condition of contract or agreement with individuals or entities that 
gain access to PII submitted to an Exchange. In Sec.  155.260(b)(3), we 
maintain the specification for an Exchange to require privacy and 
security standards as a condition of contract or agreement with non-
Exchange entities and we propose criteria for the establishment of 
these standards that allow Exchanges flexibility in setting standards 
for non-Exchange entities that will provide equivalent or more 
stringent protection while aligning more closely to the functions the 
non-Exchange entity is performing and the operating environment under 
which the non-Exchange entity is performing. Because the definition for 
non-Exchange entities is broad and includes a variety of entities, we 
recognize that there can be variation between non-Exchange entities.
    Different non-Exchange entity functions can result in variation in 
both the amount and type of access to PII (as an example, a Certified 
Application Counselor's access to consumer PII is different than the 
access a consumer's agent or broker would have) and the technical 
characteristics of the non-Exchange entity's environment (as an 
example, some non-Exchange entities, such as Medicaid agencies, may 
have a connection to the Data Services Hub, whereas others, such as 
Navigators, do not). Additionally, some non-Exchange entities already 
are required by law to meet other industry-recognized security 
standards for the environment in which they will perform Exchange-
related functions. Currently there is no mechanism within the 
regulation to take environment variations or already existing security 
requirements into account, resulting in an operational burden for non-
Exchange entities that does not result in additional protections for 
applicants.

[[Page 72355]]

    As applied to non-Exchange entity privacy standards, the 
introduction of this flexibility is not anticipated to result in any 
weakening of Exchange privacy standards. Variation is not anticipated 
in the stringency of the particular privacy standard but in how it is 
implemented. As an example, a written policy and procedure document as 
required by Sec.  155.260(d) regarding the collection, use, and 
disclosure of PII may take a different form based on a non-Exchange 
entity's duties and operations. A non-Exchange entity that is a QHP 
issuer currently obligated to follow the HIPAA security rule might seek 
to negotiate a contract with the Exchange under which it is permitted 
to follow the HIPAA security rules in place of the specific security 
standards followed by the Exchange. It would then be incumbent upon the 
Exchange to evaluate whether this arrangement would meet all of the 
criteria established for privacy and security standards under Sec.  
155.260(b)(3). We intend for these standards to provide the same level 
of protection and safeguards as the current Sec.  155.260(b) affords.
    Currently Sec.  155.280 establishes the regulatory authority for 
oversight and monitoring of Exchanges and non-Exchange entities with 
regard to privacy and security standards. We anticipate additional 
proposed rulemaking on oversight, monitoring and enforcement during 
2014. We invite comment on alternative ways to address the challenge of 
implementing effective enforcement while allowing the proposed 
flexibility.
    These proposed requirements in Sec.  155.260(b)(3) are intended to 
provide a foundation that Exchanges must use to define privacy and 
security standards for non-Exchange entities that afford a level of 
protection equal to that provided by the standards the Exchanges adopt 
for themselves. We have put forth three criteria that must be met by 
the privacy and security standards to which an Exchange must bind non-
Exchange entities, and require that these standards take into specific 
consideration the environment in which the non-Exchange entity is 
operating.
    The first criterion is set out in Sec.  155.260(b)(3)(i) and 
requires that any privacy and security standards must be as protective 
as the standards that the Exchange sets for itself and must be 
consistent with all of the principles and requirements listed under 
Sec.  155.260(a). This includes the principles of (a)(3), as well as 
the requirements established by (a)(1) through (a)(6).
    The second criterion proposed in Sec.  155.260(b)(3)(ii) requires 
that any privacy and security standards must also comply with the 
requirements for workforce compliance, written policies and procedures, 
compliance with the IRS code, and the consequences of improper use and 
disclosure of information established by Sec.  155.260(c), (d), (f) and 
(g).
    The third criterion proposed in Sec.  155.260(b)(3)(iii) requires 
that the privacy and security standards to which non-Exchange entities 
are bound take several factors into consideration. Section 
155.260(b)(3)(iii)(A) requires that an Exchange take into consideration 
the operational and technical environment in which the non-Exchange 
entity is operating. These environments, and the standards themselves, 
should be assessed in light of the requirement established by Sec.  
155.260(a)(5) to monitor, periodically assess, and update the security 
controls and related system risks to ensure the continued effectiveness 
of those controls. Should the environment change, the standards should 
change accordingly as required by proposed Sec.  155.260(b)(2)(iii) and 
Sec.  155.260(b)(2)(iv). We would expect that an Exchange's contracts 
and agreements with non-Exchange entities provide an opportunity for 
such changes.
    Section 155.260(b)(3)(iii)(B) requires standards be relevant and 
applicable to the non-Exchange entity's duties and activities in 
relation to the Exchange. The introduction of the concept of `relevant 
and applicable' is intended to address the various responsibilities 
assumed by non-Exchange entities, and the associated technical 
infrastructures.
    Although the proposed approach affords greater flexibility to 
Exchanges, this flexibility carries with it an Exchange's 
responsibility to perform an assessment of the non-Exchange entity's 
duties, activities, and environment and the standards to which it will 
bind non-Exchange entities to ensure that the standards satisfy Sec.  
155.260 requirements. For example, assuming Sec.  155.260 is finalized 
as proposed, the FFE will incorporate privacy and security standards 
into non-Exchange entity contracts and agreements only after 
determining that the standards satisfy the criteria proposed under 
Sec.  155.260(b)(3)(i), (ii) and (iii), and thereby meet the 
requirements of Sec.  155.260 and the Affordable Care Act. We expect to 
publish guidance to provide additional details regarding the process 
the FFE will follow to evaluate privacy and security standards to which 
non-Exchange entities will be bound.
    We seek comments on the proposed amendments to Sec.  155.260 and on 
alternate ways to ensure protection for information while not imposing 
irrelevant or unnecessarily burdensome requirements on non-Exchange 
entities.
4. Annual Open Enrollment Period for 2015
    In 45 CFR 155.410, as finalized in the Exchange Establishment Rule, 
we set forth provisions for initial and annual open enrollment periods. 
We now propose amending Sec.  155.410(e) and (f), which pertain to the 
annual open enrollment period and effective date for coverage after the 
annual open enrollment period.
    In paragraph (e), we propose adding a paragraph that would change 
the annual open enrollment period for the 2015 benefit year. We propose 
that for all Exchanges, annual open enrollment would begin on November 
15, 2014 and extend through January 15, 2015. This proposed change 
would give health insurance issuers an additional month in 2014 before 
they would need to begin accepting plan selections for the upcoming 
plan year. It also staggers the start of open enrollment for the 
Exchange from that for Medicare Advantage. It would give consumers the 
ability to have coverage starting January 1, 2015, or if they need more 
time, until January 15, 2015 to shop for, and select a QHP for the 2015 
plan year. If finalized, all Exchanges would be expected to delay their 
QHP certification dates by at least one month. This would give health 
insurance issuers additional time to monitor 2014 enrollments, prior to 
submitting their 2015 rates. First-year challenges in enrolling 
individuals may mean higher than expected enrollment toward the end of 
the initial open enrollment period which, under the current schedule, 
coincides with the first day in which applications for 2015 can be 
submitted to the FFE. This compressed schedule would add uncertainty to 
setting rates for 2015 and potentially higher premiums without change. 
This proposed change is applicable for only the 2015 coverage year. We 
seek comments on this proposed amendment.
    In paragraph (f), we propose adding a paragraph to address coverage 
effective dates for plan selections made during the annual open 
enrollment period for the 2015 benefit year. We propose that coverage 
must be effective January 1, 2015, for plan selections received by the 
Exchange on or before December 15, 2014. We propose that coverage must 
be effective February 1, 2015, for plan selections received by the 
Exchange from December 16, 2014 through January 15, 2015. In accordance 
with 45 CFR 155.335(j), qualified individuals

[[Page 72356]]

already enrolled in a QHP through the Exchange in 2014 who maintain the 
same eligibility would have their coverage continue into 2015, but they 
would have the ability to change QHPs until January 15, 2015. We seek 
comments regarding whether issuers should accept payments up until the 
31st of a given month, in order to effectuate coverage by the first of 
the following month. We also seek comment on whether there should be 
retrospective coverage to January 1, 2015, for any individual who signs 
up after December 15, 2014 in the open enrollment period to ensure 
continuity of coverage.
5. Functions of a SHOP
    For plan years beginning before January 1, 2015, qualified 
employers participating in a Federally-facilitated SHOP (``FF-SHOP'') 
are able to select a single QHP to offer to their employees. For plan 
years beginning on or after January 1, 2015, employers participating in 
the FF-SHOPs will also have the option to select a level of coverage as 
described in section 1302(d)(1) of the Affordable Care Act, and make 
all QHPs within that level available to their qualified employees 
(``employee choice''). Additionally, the FF-SHOPs will begin performing 
premium aggregation services under Sec.  155.705(b)(4) for plan years 
beginning on or after January 1, 2015--corresponding with the beginning 
of employee choice in the FF-SHOPs. Several of the amendments proposed 
below would take effect when employee choice and premium aggregation 
become available, including a requirement that employers make premium 
payments to the FF-SHOPs according to a timeline and process set by 
HHS, a standard premium pro-rating methodology in the FF-SHOPs 
providing that groups will be charged for the portion of the month for 
which an enrollee is enrolled, a prohibition on composite premiums in 
the FF-SHOPs when an employer utilizes employee choice, methods for 
employers in the FF-SHOPs to offer stand-alone dental coverage, and 
flexibility for employers in the FF-SHOPs to define different premium 
contributions for full-time employees and non-full-time employees.
    We propose revising Sec.  155.705(b)(1), which lists the rules 
regarding eligibility and enrollment to which the SHOP must adhere, to 
include mention of additional provisions regarding termination of 
coverage in the SHOPs and SHOP employer and employee eligibility 
appeals that were finalized in the first final Program Integrity Rule. 
This provision would become effective when this proposed rule is 
finalized and becomes effective.
    We also propose adding a new paragraph Sec.  155.705(b)(3) to 
provide qualified employers with options to offer dental coverage after 
employee choice becomes available in the FF-SHOPs. We propose that for 
plan years beginning on or after January 1, 2015, a qualified employer 
participating in an FF-SHOP would have two methods by which to offer 
stand-alone dental plans (SADPs) to its employees and their dependents. 
This proposal would provide employers with options for offering SADPs 
while preserving the flexibility not to contribute to SADP coverage. 
For example, an employer that elects to offer a single QHP that lacks 
the pediatric dental benefit may want to ensure that its employees with 
child dependents have the option to enroll in pediatric dental 
coverage.
    We considered several options for methods by which a qualified 
employer participating in an FF-SHOP could offer SADPs to its employees 
and their dependents: the employer could offer a single SADP, the 
employer could offer all SADPs at a given dental AV level (under 45 CFR 
156.150(b)), the employer could offer all SADPs in an FF-SHOP, or the 
employer could offer a subset of SADPs available in an FF-SHOP. All of 
these options would allow an employer flexibility to provide its 
employees and their dependents with standalone dental coverage. The 
single SADP option would enable an employer to choose the plan offered, 
and may be more administratively appealing to an employer already used 
to offering a single plan in the current market. This option would have 
the benefit of administrative ease for an FF-SHOP and issuer, but it 
would limit the selection for employees more than other options.
    Allowing the option for qualified employers to offer all SADPs at a 
given dental AV level option would also enable an employer to make 
decisions about the type of plans offered to employees while retaining 
some administrative simplicity by only requiring a choice between the 
two dental AV levels (high and low) that were established for the 2014 
benefit year. This option would also help advance the goal of increased 
choice and competition and is similar to employee choice of QHPs where 
an employer selects a metal tier and employees may select any QHP 
within that tier. However, the proposed changes to Sec.  156.150 in 
this proposed rule would remove the AV standards for stand-alone dental 
plans; thus, this option would not be possible if Sec.  156.150 is 
finalized as proposed.
    Allowing qualified employers to offer all SADPs available in an FF-
SHOP would provide an employer with maximum flexibility to offer its 
employees and their dependents the ability to choose an SADP that best 
fits their needs. Additionally, it would allow an employer to make an 
offer of coverage without needing to compare and select among plans or 
tiers. This approach would most advance the goals of increased choice 
and competition within the small group market, but might create 
concerns among issuers about potential adverse selection arising from 
higher risk employees electing to enroll in certain SADPs.
    Finally, we considered an option that would allow an employer to 
make an offer to its employees and their dependents from a defined 
subset of SADPs in an FF-SHOP. In this option, an FF-SHOP would define 
a subset of SADPs from which an employer could choose. For example, an 
employer might be allowed to offer any two plans from the same issuer. 
This option would allow an employer additional flexibility in offering 
dental plans while maintaining some control over the particular plans 
offered to its employees and their dependents. Although less 
administratively simple, this option could provide some increased level 
of choice for employers and their employees.
    After considering the options described above, we are proposing 
that a qualified employer in an FF-SHOP could offer its employees (and, 
if desired, their dependents) either a single SADP or a choice of all 
SADPs available in an FF-SHOP after employee choice becomes available 
in the FF-SHOPs. We note that an employer could choose either option 
under this proposal regardless of whether it offers one QHP or all QHPs 
available in an FF-SHOP to its employees and their dependents under 
Sec.  155.705(b)(3)(iv). We believe this proposal provides the best 
balance of advancing the Affordable Care Act's goals of increased 
choice and competition in the small group market, providing employers 
with an administratively simple way to offer stand-alone dental 
coverage, providing employees with increased dental coverage options, 
and maintaining consistency with employee choice. We seek comment on 
these options, including on the option of offering all plans at a 
dental AV level if the proposal to eliminate dental AV levels is not 
finalized.
    We also propose to re-designate Sec.  155.705(b)(4)(ii) as 
(b)(4)(iii) and to

[[Page 72357]]

add new paragraph (b)(4)(ii) to allow all SHOPs, both FF-SHOPs and 
State SHOPs, to establish one or more standard processes for premium 
calculation, payment, and collection after the SHOP makes premium 
aggregation available. Many States do not have standardized prorating, 
payment, and collection practices, and within a given State, issuers 
may have varying practices. In this environment, a standard method of 
handling premiums may be necessary for a SHOP to successfully and 
efficiently implement and operate the premium aggregation services 
described in Sec.  155.705(b)(4)(i).
    We also propose provisions related to the processes FF-SHOPs would 
establish for premium calculation, payment, and collection under 
proposed new Sec.  155.705(b)(4)(ii). Consistent with Sec.  155.720(b), 
which establishes that all SHOPs must establish a uniform enrollment 
timeline and process, including establishment of effective dates of 
employee coverage, for all QHP issuers and qualified employers to 
follow, and consistent with Sec.  155.720(d), which establishes that 
all SHOPs must follow the requirements set forth at Sec.  
155.705(b)(4), we are proposing at Sec.  155.705(b)(4)(ii)(A) that, 
after premium aggregation becomes available in the FF-SHOPs, employers 
in the FF-SHOPs would be required to make all premium payments--initial 
and subsequent--according to a timeline and process that HHS will 
establish through guidance. We intend for this proposed timeline and 
process to include all premium payments and considered whether to 
include ``all'' in the regulation text, but we decided that including 
the word ``all'' would be unnecessary. In developing this timeline and 
process, HHS will consider its interest in operating and administering 
the FF-SHOPs efficiently, as well as issuers' interests in ensuring 
timely payment of premiums, and issuers' and employers' interests in 
establishing a fair and workable premium payment process. We anticipate 
that this payment timeline would require employers to make an initial 
premium payment at least two days prior to the employer's desired 
coverage effectuation date, in order to provide a reasonable window of 
time for the relevant banks to process the payment transaction. 
However, we solicit comments about whether such a time frame would be 
reasonable for employers or issuers, about alternative time frames that 
might be more appropriate, and about the payment timeline and process 
for the FF-SHOPs generally, including the considerations HHS should 
factor into the development of the payment timeline and process. We are 
also proposing a conforming amendment to Sec.  156.285(c)(7)(iii), 
discussed in greater detail below, to establish that an FF-SHOP issuer 
would be required to effectuate coverage unless it has received an 
enrollment cancellation from the FF-SHOP, and explain in the preamble 
discussion related to that proposal that if the FF-SHOP has not 
received an employer's initial premium payment in accordance with the 
payment timeline and process established under proposed Sec.  
155.705(b)(4)(ii)(A), the FF-SHOP will send the issuer an enrollment 
cancellation.
    At proposed Sec.  155.705(b)(4)(ii)(B), we also propose a 
methodology for prorating premiums in FF-SHOPs after premium 
aggregation becomes available in those SHOPs in plan years beginning on 
or after January 1, 2015. Because it would be impractical for FF-SHOPs 
to accommodate the existing variation in premium methodologies that 
exists across States and issuers, we propose a standard methodology 
such that groups will be charged for the portion of the month for which 
the enrollee is enrolled. We considered several methods for prorating 
partial month payment in the FF-SHOPs, including not charging for a 
partial month's coverage, charging a full month's premium if coverage 
is effective prior to the 15th of the month, or not charging any 
premium if coverage is effective after the 15th of the month. We 
propose that in the FF-SHOPs, premiums for coverage of less than 1 
month will be prorated by multiplying the number of days of coverage in 
the partial month by the premium for 1 month divided by the number of 
days in the month. We believe this approach to be the fairest for both 
consumers and issuers because the issuer will charge for only the 
portion of coverage provided for a partial month. We invite comments 
about this methodology, as well as comments about whether a 
standardized methodology regarding prorating premiums for partial month 
enrollment should be adopted across all individual market Exchanges as 
well.
    In the proposed 2014 Payment Notice, we proposed at Sec.  
155.705(b)(11)(ii)(D) to permit a qualified employer participating in 
an FF-SHOP to establish, to the extent allowed by Federal and State 
law, different premium contribution percentages for different employee 
categories. In the 2014 Payment Notice, we did not finalize this 
proposal because we concluded that it would be inconsistent with the 
uniformity provisions established in Internal Revenue Service Notice 
2010-82, which requires employers to contribute a uniform percentage to 
all employee premiums in order to claim a small business tax credit for 
health insurance premiums paid.\21\ In this proposed rule, we propose 
at paragraph (b)(11)(ii)(C) to provide FF-SHOPs, in plan years 
beginning on or after January 1, 2015, with the option of permitting a 
qualified employer to define a different percentage contribution for 
full-time employees (as defined in Sec.  155.20 and section 4980H(c)(4) 
of the Code) from the percentage contribution it defines for employees 
that are not full-time employees under that definition, to the extent 
permitted by applicable law. This proposal would also allow a FF-SHOP 
to permit an employer to define different percentage contributions 
toward premiums for dependent coverage for full-time and non-full-time 
employees. We note that, to the extent permitted by applicable law, the 
percentage contributions established for dependent coverage under this 
proposal could be different from the premium contribution percentages 
established for employee-only coverage, consistent with current 
paragraph (b)(11)(ii)(C). Thus, an FF-SHOP under this proposal could 
allow an employer to define up to four different contribution levels: 
full-time employee-only, full-time employee dependent, non-full-time 
employee-only, and non-full-time employee dependent.
---------------------------------------------------------------------------

    \21\ See 78 FR 15502. IRS recently proposed regulations 
addressing the uniform premium contribution requirement for 2014 at 
78 FR 52719, 52721 (Aug. 26, 2013).
---------------------------------------------------------------------------

    We note that under this proposal, a decision by an employer to 
define different contribution levels for full-time and non-full-time 
employees offered coverage through the SHOP may potentially have small 
business tax credit implications. However, the IRS, not HHS administers 
the small business tax credit. Therefore, if the proposal is finalized 
as proposed, employers considering taking this option should consider 
consulting with the IRS and/or their tax advisors about the 
implications of such a decision. Even so, we believe that this proposal 
would provide employers with additional flexibility to choose whether 
offering different contribution levels would be in the best interest of 
the business and its employees. Further, this additional flexibility 
would bring the FF-SHOP more in line with current small group market 
practices and provide an additional incentive for small employers to 
participate in the FF-SHOP. Finally, providing for different 
contribution

[[Page 72358]]

levels based on full-time or non-full-time status may encourage some 
employers to offer coverage to employees who do not meet the Exchange 
definition of a ``full-time employee.''
    We also propose amending Sec.  155.705(b)(11)(ii)(D). When an 
employer offering SHOP coverage elects to base premium contributions on 
a composite premium, that premium is calculated based on the average 
per-member premiums for the employees who initially enroll in coverage. 
Under Sec.  155.705(b)(6)(ii), the average employee premium rate is 
locked in for the entire plan year, regardless of whether any employees 
enter or leave the group during the plan year. Additionally, as 
described above, we are proposing in this rulemaking to amend Sec.  
147.102(c) to establish that if an issuer offers a composite premium, 
the premium amount would not be permitted to vary for any participant 
during the plan year with respect to a particular plan, even if the 
composition of the group changes. For example, if several older 
employees joined the group or several employees terminated their 
coverage, the composite premium would remain the same until renewal. 
After employee choice becomes effective in the FF-SHOPs, if an employer 
participating in an FF-SHOP elects to offer employees all plans at a 
single metal level of coverage, that employer might have employees 
enrolled in several different plans. In that circumstance, mid-year 
changes to the group's composition without a corresponding change to 
the composite rate may adversely affect issuers that gain a significant 
number of older employees once a plan year has started, without a 
resulting change in premiums to reflect the potentially higher risk. 
Because any risk related to a change in the group's composition is 
divided among issuers in an employee choice environment, they would be 
taking on proportionately more risk than in a single plan environment 
where the issuer would be assuming the risk--good and bad--for the 
entire group. We believe this uncertainty may make issuers more 
hesitant to offer QHPs in FF-SHOPs after employee choice is available 
in them--which risks undermining the Affordable Care Act's goals of 
increased choice and competition in the small group market. 
Accordingly, we propose a limited scope prohibition on composite rating 
in the FF-SHOPs when an employer elects to select a level of coverage 
and make all QHPs within that level available to its employees. We 
acknowledge that this proposal would create a limited exception to 
Sec.  147.102(c)(3) and that it would preempt State laws requiring or 
permitting composite rating in the small group market, but we believe 
this proposal to be limited in scope and tailored to provide for 
administrative efficiency and uniformity, system compatibility among 
the FF-SHOPs, and increased competition and choice in the small group 
market. Therefore, we propose amending Sec.  155.705(b)(11)(ii)(D) to 
not allow an employer or State to require that employer premium 
contributions in an FF-SHOP be based on a calculated composite premium 
if the employer elects to offer its employees all QHPs within the 
employer's selected level of coverage under Sec.  155.705(b)(3)(iv)(A), 
that is, after employee choice is available in the FF-SHOPs and when an 
employer elects that option. State-based SHOPs may set their own 
policies. We are considering extending the prohibition on composite 
rating to SADPs in the FF-SHOPs, and we invite comment on whether such 
a prohibition should be adopted, how this policy might affect current 
market practices on composite rating of dental plans, whether a 
prohibition on composite rating should apply to all SADP offering 
methods or just when an employer chooses to offer more than a single 
SADP, and how such a prohibition would affect choice and competition in 
the small group dental market. Finally, we seek comment on whether the 
calculation of user fees for the FF-SHOP should be calculated based 
upon composite premiums or premiums calculated on per-member buildup.
6. Eligibility Determination Process for SHOP
    We propose to amend paragraph (c)(4) to replace a reference to 
sections 1411(b)(2) and (c) of the Affordable Care Act with a reference 
to Subpart D of 45 CFR part 155, and to add a reference to eligibility 
verifications as well as to eligibility determinations. The proposed 
changes would prohibit a SHOP from performing any individual market 
eligibility determinations or verifications as described in Subpart D, 
which, for example, includes making eligibility determinations for 
advance payments of the premium tax credit and cost sharing reductions 
in the individual market Exchange. HHS already interprets existing 
regulations at Sec.  155.715(c)(3) and (4) and Sec.  155.730 to 
prohibit SHOPs from performing these types of determinations or 
verifications and from collecting through the SHOP application process 
any information other than what is required to make SHOP eligibility 
determinations or effectuate enrollment through the SHOP. However, we 
wish to make the prohibitions explicit in regulation text. We propose 
this amendment because the SHOPs are designed to assist small employers 
and employees of small businesses in accessing health insurance 
coverage, whereas the individual market Exchanges are designed to 
assist individual consumers. We believe that this proposal would create 
efficiencies for the SHOP and enable it to focus solely on small 
businesses. Additionally, we believe the prohibitions in this proposal, 
in conjunction with the proposed amendments to Sec.  155.730, would 
help to protect SHOP consumers' privacy. This provision would become 
effective when this proposed rule is finalized and becomes effective.
    We propose amending paragraph (d) to address when SHOP eligibility 
adjustment periods would be triggered. Under current paragraph (d)(1), 
an eligibility adjustment period for an employer would be triggered 
whenever the employer submits information on the SHOP single employer 
application that is inconsistent with the eligibility standards 
described in Sec.  155.710, which effectively means that the 
inconsistency period is triggered whenever an employer would be 
determined ineligible. Under current paragraph (d)(2), an eligibility 
adjustment period would be triggered for employees if the SHOP receives 
information on the employee's application that is inconsistent with the 
information provided by the employer. We are proposing to provide 
instead for eligibility adjustment periods for both employers and 
employees only when there is an inconsistency between information 
provided by an applicant and information collected through optional 
verification methods under Sec.  155.715(c)(2).
    A SHOP applicant who is determined ineligible could always resolve 
the reasons for that negative eligibility determination and re-file the 
application to obtain a favorable eligibility determination. As 
written, the current eligibility adjustment periods could delay this 
process in ways that might complicate the enrollment of all employees 
being offered coverage by an employer, because they could delay the 
SHOP's final eligibility determination for an employer or for 
individual employees, in order to give the SHOP time to resolve issues 
that may be relatively straightforward for employers or employees to 
address without the SHOP's intervention, in a newly filed application. 
However, if the SHOP has

[[Page 72359]]

opted, under Sec.  155.715(c)(2), to establish additional verification 
methods, and has, as part of that process, decided to verify SHOP 
applicant eligibility by checking applicant-provided information 
against information obtained from a trusted third-party data source 
(such as quarterly wage report data), the applicant might be denied 
eligibility because of an inconsistency between the information the 
SHOP received from that applicant and information contained in a third-
party data source. Such inconsistencies might be difficult for 
applicants to identify and resolve on their own.
    Our proposed amendments to the eligibility adjustment periods would 
eliminate the potential for unnecessary delay created under the current 
regulation, while providing SHOP applicants with an opportunity to 
address inconsistencies between a submitted application and trusted 
third-party data sources that a SHOP might utilize to verify 
eligibility under the optional verification process established in 
Sec.  155.715(c)(2). Under the proposal, the applicability of SHOP 
eligibility adjustment periods would be limited to circumstances where 
such a discrepancy occurs, and the applicant would be provided an 
opportunity to submit documentation proving the information submitted 
on the application is correct without having to initiate a formal 
eligibility appeal. For example, if an employer provided its commonly 
used business name on the application but that name varies slightly 
from the registered business name listed in an unemployment insurance 
data source used by a SHOP to verify eligibility under Sec.  
155.715(c)(2), or if an employee provides a nickname on an application 
that differs from his or her formal name in quarterly wage report data 
source used by a SHOP to verify eligibility under Sec.  155.715(c)(2), 
the applicants would be able to use the adjustment period to address 
the inconsistencies between their applications and the third-party data 
sources. If a SHOP does not collect information through optional 
verification methods under Sec.  155.715(c)(2), the employer and 
employee would not have to go through the eligibility adjustment period 
before re-filing their applications, but would still have the right to 
appeal an adverse eligibility determination under Sec.  155.740. 
Accordingly, we propose to amend paragraphs (d)(1) and (d)(2) to 
provide for eligibility adjustment periods when information submitted 
on an application is inconsistent with information collected through an 
optional verification process under Sec.  155.715(c)(2). This provision 
would become effective when this proposed rule is finalized and becomes 
effective. We seek comments on this proposal, including comments on 
whether the current eligibility adjustment periods should remain in 
place.
7. Application Standards for SHOP
    HHS already interprets existing regulations at Sec.  155.715(c)(3) 
and (c)(4) and Sec.  155.730 to prohibit SHOPs from collecting through 
the SHOP application process any information other than what is 
required to make SHOP eligibility determinations or effectuate 
enrollment through the SHOP. We propose amendments to Sec.  155.730 
that would expressly state this prohibition in regulation text. 
Specifically, we propose to re-designate paragraph (g) as paragraph 
(g)(1) and add new paragraph (g)(2) to provide that a SHOP is not 
permitted to collect information on the single employer or single 
employee application that is not necessary to determine SHOP 
eligibility or effectuate enrollment through the SHOP. In conjunction 
with the amendments we are proposing to Sec.  155.715(c)(4), which 
would prohibit a SHOP from performing any individual market eligibility 
determinations or verifications as described in Subpart D of 45 CFR 
part 155, this proposal seeks to ensure that SHOPs are not collecting 
information on the single employer or single employee applications that 
is not pertinent to a determination of SHOP eligibility or effectuation 
of enrollment. For example, a SHOP could not request through the single 
employee application the income information necessary for determining 
eligibility for advance payments of the premium tax credit in the 
individual market Exchange. Limiting the information required of an 
applicant helps to protect privacy and promote efficiency and 
streamlining of the SHOP application process. This provision would 
become effective when this proposed rule is finalized and becomes 
effective.

E. Part 156--Health Insurance Issuer Standards Under the Affordable 
Care Act, Including Standards Related to Exchanges

1. Provisions Related to Cost Sharing
    In this section, we propose several provisions and parameters for 
the 2015 benefit year related to cost sharing.
a. Premium Adjustment Percentage
    Section 1302(c)(4) of the Affordable Care Act directs the Secretary 
to determine an annual premium adjustment percentage, which is used to 
set the rate of increase for four parameters detailed in the Affordable 
Care Act: The maximum annual limitation on cost sharing (defined at 
Sec.  156.130(a)), the maximum annual limitation on deductibles for 
plans in the small group market (defined at Sec.  156.130(b)), and the 
assessable payment amounts under section 4980H(a) and (b) of the Code 
(proposed at 26 CFR 54.4980H in the ``Shared Responsibility for 
Employers Regarding Health Coverage,'' published in the January 2, 2013 
Federal Register (78 FR 218)). Section 156.130(e) provides that the 
premium adjustment percentage is the percentage (if any) by which the 
average per capita premium for health insurance coverage for the 
preceding calendar year exceeds such average per capita premium for 
health insurance for 2013, and that this percentage will be published 
annually in the HHS notice of benefit and payment parameters.
    We propose to establish a methodology for estimating average per 
capita premium for purposes of calculating the premium adjustment 
percentage. In selecting this methodology, we considered the following 
four criteria:
    (1) Comprehensiveness--the premium adjustment percentage should be 
calculated based on the average per capita premium for health insurance 
coverage for the entire market, including the individual and group 
markets, and both fully insured and self-insured group health plans;
    (2) Availability--the data underlying the calculation should be 
available by the summer of the year prior to the calendar year so that 
the premium adjustment percentage can be published in the annual HHS 
notice of benefit and payment parameters in time for issuers to develop 
their plan designs;
    (3) Transparency--the methodology for estimating the average 
premium should be easily understandable and predictable; and
    (4) Accuracy--the methodology should have a record of accurately 
estimating average premiums.
    Based on these criteria, we propose that the premium adjustment 
percentage be calculated based on the projections of average per 
enrollee private health insurance premiums from the National Health 
Expenditure Accounts (NHEA), which is calculated by the CMS Office of 
the Actuary. We considered several other sources of premium data, 
including the Medical Expenditure Panel Survey (administered by the 
Agency for Healthcare Research and Quality), the Employer Health 
Benefits Survey (administered by the Kaiser

[[Page 72360]]

Family Foundation and the Health Research and Educational Trust), and 
the Federal Employees Health Benefits Program. However, we believe the 
NHEA projections, which are partially based on several of the other 
data sources that we considered, best meet the selection criteria 
described above and will provide the most accurate estimate of the 
average per capita premium for the entire health insurance market. We 
welcome comment on the criteria for selecting a methodology, any 
additional sources of premium data that we should consider, and the 
choice of methodology. As additional data on health insurance premiums 
become available through the Exchanges and other sources, we plan to 
review the accuracy of the NHEA projections, and if necessary, propose 
any changes to the methodology for estimating the average premium 
through the annual Payment Notice.
    To calculate the premium adjustment percentage for the 2015 
calendar year, we propose to use the most recent NHEA projections of 
average per enrollee private health insurance spending for 2013 and 
2014 ($5,128 and $5,435, respectively).\22\ Therefore, we are proposing 
that the premium adjustment percentage for 2015 be (5,435-5,128)/5,128, 
and we propose to round the result of this formula to the nearest 
decimal point, which, in this case, would be 6.0 percent. We are also 
proposing the following cost-sharing parameters for calendar year 2015, 
based on our proposed premium adjustment percentage for 2015.
---------------------------------------------------------------------------

    \22\ See http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology2012.pdf and Table 17 in http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf for 
additional information.
---------------------------------------------------------------------------

    Maximum Annual Limitation on Cost Sharing for Calendar Year 2015. 
Under Sec.  156.130(a)(2), for the 2015 calendar year, cost sharing for 
self-only coverage may not exceed the product of the maximum annual 
limitation on cost sharing for calendar year 2014 and the premium 
adjustment percentage for 2015, and for other than self-only coverage, 
the limit is twice the dollar limit for self-only coverage. Under Sec.  
156.130(d), these amounts must be rounded to the next lowest multiple 
of 50. Using the proposed premium adjustment percentage of 6.0 percent 
and the 2014 maximum annual limitation on cost sharing of $6,350 for 
self-only coverage, which was published by the IRS on May 2, 2013,\23\ 
we propose that the 2015 maximum annual limitation on cost sharing be 
$6,750 for self-only coverage and $13,500 for other than self-only 
coverage.
---------------------------------------------------------------------------

    \23\ See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

    Maximum Annual Limitation on Deductibles for Plans in the Small 
Group Market for Calendar Year 2015. Under Sec.  156.130(b)(2), for the 
2015 calendar year, the annual deductible for a health plan in the 
small group market may not exceed, for self-only coverage, the product 
of the maximum annual limitation on deductibles for calendar year 2014 
and the premium adjustment percentage for 2015, and for other than 
self-only coverage, the limit is twice the dollar limit for self-only 
coverage. Under Sec.  156.130(d), these amounts must be rounded to the 
next lowest multiple of 50. Using the proposed premium adjustment 
percentage of 6.0 percent and the 2014 maximum annual limitation on 
deductibles of $2,000 for self-only coverage, as specified in Sec.  
156.130(b)(1)(i), we propose that the 2015 maximum annual limitation on 
deductibles be $2,150 for self-only coverage and $4,300 for other than 
self-only coverage.
b. Reduced Maximum Annual Limitation on Cost Sharing
    Sections 1402(a) through (c) of the Affordable Care Act direct 
issuers to reduce cost sharing for EHBs for eligible individuals 
enrolled in a silver level QHP. In the 2014 Payment Notice, we set 
forth standards related to the provision of these cost-sharing 
reductions. Specifically, in 45 CFR part 156 subpart E, we specified 
that QHP issuers must provide cost-sharing reductions by developing 
plan variations, which are separate cost-sharing structures for each 
eligibility category that change how the cost sharing required under 
the QHP is to be shared between the enrollee and the Federal 
government. At Sec.  156.420(a), we detailed the structure of these 
plan variations and specified that QHP issuers must ensure that each 
silver plan variation has an annual limitation on cost sharing no 
greater than the applicable reduced maximum annual limitation on cost 
sharing specified in the annual HHS notice of benefit and payment 
parameters. Although the amount of the reduction in the maximum annual 
limitation on cost sharing is specified in section 1402(c)(1)(A) of the 
Affordable Care Act, section 1402(c)(1)(B)(ii) of the statute states 
that the Secretary may adjust the cost-sharing limits to ensure that 
the resulting limits do not cause the AVs of the health plans to exceed 
the levels specified in 1402(c)(1)(B)(i) (that is, 73 percent, 87 
percent or 94 percent, depending on the income of the enrollee(s)). 
Accordingly, in the 2014 Payment Notice, we set forth a process for 
determining the appropriate reductions in the maximum annual limitation 
on cost sharing. First, we identified the maximum annual limitation on 
cost sharing applicable to all plans that will offer the EHB package. 
As noted above, we propose the 2015 maximum annual limitation on cost 
sharing be $6,750 for self-only coverage and $13,500 for other than 
self-only coverage. Second, we analyzed the effect on AV of the 
reductions in the maximum annual limitation on cost sharing described 
in the statute. Last, we adjusted the reductions in the maximum annual 
limitation on cost sharing, if necessary, to ensure that the AV of a 
silver plan variation will not exceed the AV specified in the statute. 
Below, we describe our analysis for the 2015 benefit year and our 
proposed results.
    Reduced Maximum Annual Limitation on Cost Sharing for Benefit Year 
2015. Consistent with our analysis in the 2014 Payment Notice, we 
developed three model silver level QHPs and analyzed the impact on 
their AVs of the reductions described in the Affordable Care Act to the 
estimated maximum annual limitation on cost sharing for self-only 
coverage ($6,750). However, using data collected for QHP certification 
for 2014, we updated the model plan designs to ensure that they 
continue to represent a range of plan designs that we expect issuers to 
offer at the silver level of coverage through an Exchange. For 2015, 
the model silver level QHPs would include a PPO with a typical cost-
sharing structure ($6,750 annual limitation on cost sharing, $1,700 
deductible, and 20 percent in-network coinsurance rate), a PPO with a 
lower annual limitation on cost sharing ($4,500 annual limitation on 
cost sharing, $2,000 deductible, and 20 percent in-network coinsurance 
rate), and an HMO ($6,750 annual limitation on cost sharing, $2,100 
deductible, 20 percent in-network coinsurance rate, and the following 
services with copays that are not subject to the deductible or 
coinsurance: $500 inpatient stay per day, $350 emergency department 
visit, $25 primary care office visit, and $50 specialist office visit). 
All three model QHPs meet the AV requirements for silver health plans.
    We then entered these model plans into the proposed 2015 AV 
calculator developed by HHS and observed how

[[Page 72361]]

the reductions in the maximum annual limitation on cost sharing 
specified in the Affordable Care Act affected the AVs of the plans. We 
found that the reduction in the maximum annual limitation on cost 
sharing specified in the Affordable Care Act for enrollees with a 
household income between 100 and 150 percent of the Federal poverty 
line (FPL) (2/3 reduction in the maximum annual limitation on cost 
sharing), and 150 and 200 percent of the FPL (2/3 reduction), would not 
cause the AV of any of the model QHPs to exceed the statutorily 
specified AV level (94 and 87 percent, respectively). In contrast, the 
reduction in the maximum annual limitation on cost sharing specified in 
the Affordable Care Act for enrollees with a household income between 
200 and 250 percent of FPL (1/2 reduction), would cause the AVs of two 
of the model QHPs to exceed the specified AV level of 73 percent. As a 
result, we propose that the maximum annual limitation on cost sharing 
for enrollees in the 2015 benefit year with a household income between 
200 and 250 percent of FPL be reduced by approximately 1/5, rather than 
1/2. We further propose that the maximum annual limitation on cost 
sharing for enrollees with a household income between 100 and 200 
percent of the FPL be reduced by 2/3, as specified in the statute, and 
as shown in Table 4. These proposed reductions in the maximum annual 
limitation on cost sharing align with the 2014 reductions and should 
adequately account for unique plan designs that may not be captured by 
our three model QHPs. Applying the same parameters as those specified 
for 2014 would reduce the administrative burden for issuers related to 
designing new plans, and provide greater continuity for enrollees. 
Furthermore, as noted in the preamble to the 2014 Payment Notice, 
selecting a reduction for the maximum annual limitation on cost sharing 
that is less than the reduction specified in the statute would not 
reduce the benefit afforded to enrollees in aggregate because QHP 
issuers are required to further reduce their annual limitation on cost 
sharing, or reduce other types of cost sharing, if the required 
reduction does not cause the AV of the QHP to meet the specified level. 
We welcome comment on this analysis and the proposed reductions in the 
maximum annual limitation on cost sharing for 2015. We note that for 
2015, as described in Sec.  156.135(d), States are permitted to submit 
for approval by HHS State-specific data sets for use as the standard 
population to calculate AV. If States submit such data sets, we intend 
to analyze their effects on the reductions we propose here, and we will 
adjust the reductions in the maximum annual limitation on cost sharing 
if necessary in the final rule.

                    Table 4--Reductions in Maximum Annual Limitation on Cost Sharing for 2015
----------------------------------------------------------------------------------------------------------------
                                                         Reduced maximum annual        Reduced maximum annual
                                                       limitation on cost sharing    limitation on cost sharing
                Eligibility category                   for self-only coverage for     for other than self-only
                                                                  2015                    coverage for 2015
----------------------------------------------------------------------------------------------------------------
Individuals eligible for cost-sharing reductions                            $2,250                        $4,500
 under Sec.   155.305(g)(2)(i) (that is, 100-150
 percent of FPL)....................................
Individuals eligible for cost-sharing reductions                            $2,250                        $4,500
 under Sec.   155.305(g)(2)(ii) (that is, 150-200
 percent of FPL)....................................
Individuals eligible for cost-sharing reductions                            $5,200                       $10,400
 under Sec.   155.305(g)(2)(iii) (that is, 200-250
 percent of FPL)....................................
----------------------------------------------------------------------------------------------------------------

c. Design of Cost-sharing Reduction Plan Variations
    In the 2014 Payment Notice, we established standards in Sec.  
156.420(c)-(e) to ensure that each cost-sharing reduction plan 
variation would always provide the most cost savings for which an 
enrollee is eligible while providing the same benefits and provider 
network as a plan without cost-sharing reductions. In this proposed 
rule, we are proposing certain modifications to clarify how these 
standards would apply to out-of-pocket spending required of an enrollee 
for benefits other than essential health benefits (EHBs).
    Following our implementation of Exchange operations for 2014, we 
have learned that a number of issuers designed QHPs with cost-sharing 
parameters that apply to both EHB and benefits that are not EHB. For 
example, one issuer sought to establish a common deductible across all 
benefits. For the zero cost sharing plan variation of this QHP, this 
would result in a substantial deductible being applied entirely to 
benefits that are not EHB. We are proposing to remove the standards in 
Sec.  156.420(c) and (d) that require that a QHP and each of its plan 
variations have the same out-of-pocket spending for benefits other than 
EHB. Instead, we propose that the standard in Sec.  156.420(e)--that 
cost sharing for an essential health benefit from a provider (including 
a provider outside the plan's network) required of an enrollee in a 
silver plan variation may not exceed the corresponding cost sharing 
required in the standard silver plan or any other silver plan variation 
of that plan with a lower AV--would also apply to out-of-pocket 
spending required of enrollees in silver plan variations for a benefit 
that is not an EHB. Similarly, we propose in Sec.  156.420(d) that the 
out-of-pocket spending required of enrollees in the zero cost sharing 
plan variation of a QHP for a benefit that is not an EHB from a 
provider (including a provider outside the plan's network) may not 
exceed the corresponding out-of-pocket spending required in the limited 
cost sharing plan variation of the QHP, which in turn may not exceed 
the corresponding out-of-pocket spending required in the QHP with no 
cost-sharing reductions.
    We believe these proposed modifications strike the appropriate 
balance between protecting consumers and providing QHP issuers with 
flexibility. Each cost-sharing reduction plan variation would continue 
to provide the most cost savings for which an enrollee is eligible; 
however, QHP issuers would be able to reduce out-of-pocket spending for 
benefits that are not EHB for enrollees in plan variations. We believe 
some issuers may want to provide such reductions so as to offer a 
simpler cost-sharing design that is consistent across EHB and benefits 
that are not EHBs. We note, however, that in accordance with section 
1402(d)(4) of the Affordable Care Act, any reductions in out-of-pocket 
spending for benefits that are not EHB would not be reimbursed by the 
Federal government because payments for cost-sharing reductions only 
apply to EHB.
    We seek comment on this proposal, including on whether our proposal 
should offer less flexibility.

[[Page 72362]]

d. Advance Payments of Cost-sharing Reductions
    Section 1402(c)(3) of the Affordable Care Act directs a QHP issuer 
to notify the Secretary of cost-sharing reductions made under the 
statute, and directs the Secretary to make periodic and timely payments 
to the QHP issuer equal to the value of those reductions. Section 
1412(c)(3) of the Affordable Care Act permits advance payments of cost-
sharing reduction amounts to QHP issuers based upon amounts specified 
by the Secretary. Under these authorities, we established a payment 
approach in the 2014 Payment Notice under which monthly advance 
payments made to issuers to cover projected cost-sharing reduction 
amounts are reconciled after the end of the benefit year to the actual 
cost-sharing reduction amounts.
    To implement this approach, we specified in Sec.  156.430(a) that a 
QHP issuer must provide to the Exchange, for approval by HHS, an 
estimate of the dollar value of the cost-sharing reductions to be 
provided over the benefit year, calculated in accordance with the 
methodology specified by HHS in the annual HHS notice of benefit and 
payment parameters. In the 2014 Payment Notice, we specified that the 
estimates of the cost-sharing reductions must be calculated using data 
that issuers submit under Sec. Sec.  156.420 and 156.470, including the 
AV of the standard plan and plan variation, and the EHB portion of 
expected allowed claims costs. If an issuer seeks advance payments for 
the cost-sharing reductions provided under the limited cost sharing 
plan variation of a health plan it offers, we specified that the issuer 
must submit an estimate of the dollar value of the cost-sharing 
reductions to be provided. As described in Sec.  156.430(b)(1), HHS 
uses these estimates to determine the monthly advance payments for 
cost-sharing reductions.
    Based on our experience implementing this process for the 2014 
benefit year, we propose certain modifications to Sec. Sec.  155.1030, 
156.430, and 156.470. We believe these modifications will simplify the 
process and improve the accuracy of the calculations. Specifically, we 
are proposing to remove the requirement detailed in Sec.  156.430(a) 
that issuers develop estimates of the dollar value of the cost-sharing 
reductions to be provided, and instead propose to modify Sec.  
155.1030(b)(3) to specify that the Exchange must use the methodology 
specified in the annual HHS notice of benefit and payment parameters to 
calculate advance payment amounts for cost-sharing reductions, and must 
transmit the advance payment amounts to HHS, in accordance with Sec.  
156.340(a). We anticipate that this transmission would occur using the 
834 enrollment transaction. As proposed in Sec.  156.430(b)(1), HHS 
will provide periodic advance payments to QHP issuers based on the 
amounts transmitted by the Exchange.
    For the 2015 benefit year, we are proposing that the Exchanges use 
a methodology for calculating the advance payment amounts that will not 
require QHP issuers to submit an estimate of the value of cost-sharing 
reductions to be provided or the EHB portion of expected allowed claims 
costs, as previously required under Sec.  156.470(a), nor will it 
require Exchanges to transfer data on advance payment amounts to HHS 
prior to the start of the benefit year. Specifically, we propose that 
Exchanges calculate the monthly advance payment amount for a specific 
policy as the product of (x) the total monthly premium for the specific 
policy, and (y) a cost-sharing reduction plan variation multiplier. The 
cost-sharing reduction plan variation multiplier would convert the 
monthly premium into the appropriate monthly advance payment amount, 
based on the following formula:
    Cost-Sharing Reduction Plan Variation Multiplier = Factor to Remove 
Administrative Costs * Factor to Convert to Allowed Claims Cost * 
Induced Utilization Factor * (Plan Variation AV--Standard Plan AV)
    Where,
    Factor to Remove Administrative Costs = 0.8 for all plan 
variations, because issuers in the individual market must have a 
medical loss ratio of at least 80 percent, under Sec.  158.210(c);
    Factor to Convert to Allowed Claims Costs = the quotient of 1 
and the AV for the standard plan, not accounting for de minimis 
variation;
    Induced Utilization Factor = one of the following factors, 
depending on the plan variation:

        Table 5--Induced Utilization Factors for Plan Variations
------------------------------------------------------------------------
                                                   Induced utilization
     Cost-sharing reduction plan variation                factor
------------------------------------------------------------------------
73 percent AV silver plan variation............                     1.00
87 percent AV silver plan variation............                     1.12
94 percent AV silver plan variation............                     1.12
Limited cost sharing plan variation of bronze                       1.15
 QHP...........................................
Limited cost sharing plan variation of silver                       1.12
 QHP...........................................
Limited cost sharing plan variation of gold QHP                     1.07
Limited cost sharing plan variation of platinum                     1.00
 QHP...........................................
Zero cost sharing plan variation of bronze QHP.                     1.15
Zero cost sharing plan variation of silver QHP.                     1.12
Zero cost sharing plan variation of gold QHP...                     1.07
Zero cost sharing plan variation of platinum                        1.00
 QHP...........................................
------------------------------------------------------------------------

    Standard Plan AV = the AV specified for each level of coverage 
at Sec.  156.140(b), not accounting for de minimis variation (that 
is, 60, 70, 80, or 90 percent for a bronze, silver, gold, or 
platinum QHP, accordingly); and
    Plan Variation AV = one of the following actuarial values, 
depending on the plan variation, not accounting for de minimis 
variation:

              TABLE 6--Actuarial Values for Plan Variations
------------------------------------------------------------------------
   Cost-Sharing Reduction Plan Variation          Plan Variation AV
------------------------------------------------------------------------
73 percent AV silver plan variation.......  73 percent
87 percent AV silver plan variation.......  87 percent
94 percent AV silver plan variation.......  94 percent
Limited cost sharing plan variation of      87 percent
 bronze QHP.

[[Page 72363]]

 
Limited cost sharing plan variation of      87 percent
 silver QHP.
Limited cost sharing plan variation of      94 percent
 gold QHP.
Limited cost sharing plan variation of      94 percent
 platinum QHP.
Zero cost sharing plan variation of bronze  100 percent
 QHP.
Zero cost sharing plan variation of silver  100 percent
 QHP.
Zero cost sharing plan variation of gold    100 percent
 QHP.
Zero cost sharing plan variation of         100 percent
 platinum QHP.
------------------------------------------------------------------------

    The proposed induced utilization factors are consistent with those 
factors established in the 2014 Payment Notice. For the limited cost 
sharing plan variations, we derived the induced utilization factors 
based on the actuarial values proposed above, and the same assumptions 
used to develop the induced utilization factors for the other plan 
variations. We will propose updates to the induced utilization factors 
for all plan variations in future rulemaking as more data becomes 
available, and at that time will consider applying them to the risk 
adjustment methodology that HHS will use when operating risk adjustment 
on behalf of a State. We welcome comment on these induced utilization 
factors.
    The proposed methodology also utilizes the actuarial values of the 
standard plans and plan variations, not accounting for de minimis 
variation. Although this may slightly reduce the accuracy of the 
calculations, we believe it would have little overall impact, and would 
reduce administrative burden on Exchanges because Exchanges will not 
need to develop specific multipliers for each QHP and associated plan 
variations. However, this approach would require us to estimate an 
actuarial value for each type of limited cost sharing plan variation. 
We estimate that on average, the AV of the limited cost sharing plan 
variations of bronze and silver QHPs will be 87 percent, and the AV of 
the limited cost sharing plan variations of gold and platinum QHPs will 
be 94 percent. We developed these estimates based on the data submitted 
by QHP issuers seeking advance payments for limited cost sharing plan 
variations that will be offered in benefit year 2014. We welcome 
comment on these actuarial values.
    Overall, we believe this proposed methodology would improve the 
accuracy of the advance payments because it is based on the total 
premium for each policy, which in accordance with the rating rules 
described in Sec. Sec.  147.102 and 156.80, is based on expected 
allowed claims costs, adjusted for the plan design and provider 
network, the number of individuals covered by the policy, rating area, 
age, and tobacco use. Although we acknowledge that there may be some 
limitations to the multiplier (for example, the multiplier does not 
make a plan-specific adjustment for the cost of non-EHB, or account 
precisely for costs for large families with children not accounted for 
in the premium), we believe that a very small number of QHPs would be 
affected by these limitations, and any inaccuracies in the advance 
payments would be corrected through the cost-sharing reduction 
reconciliation process. We welcome comment on this proposed methodology 
for the 2015 benefit year, and suggestions for alternative 
methodologies, including whether the methodology for the 2014 benefit 
year would be more appropriate.
    We are also proposing conforming modifications to Sec. Sec.  
155.1030(b)(1) and 156.470(a), to delete the obligation for QHP issuers 
to submit, and Exchanges to review, the EHB allocation of the expected 
allowed claims costs for the plans, because this data would not be used 
in the proposed 2015 methodology for calculating cost-sharing reduction 
advance payments.
    Lastly, we are proposing to modify Sec.  155.1030(b)(4) to clarify 
that in accordance with the proposed paragraph (b)(3), the Exchange 
would not be required to submit issuers' advance payment estimates to 
HHS for approval prior to the start of the benefit year. We believe 
such an approval process would no longer be necessary because under the 
proposed approach, the advance payments will be calculated based on the 
cost-sharing reduction plan variation multiplier specified by HHS, and 
the premium for the policy, which is reviewed by the Exchange, in 
accordance with Sec.  155.1020. HHS would simply validate that the 
advance payment amounts were calculated in accordance with the 
methodology specified by HHS, prior to providing advance payments to 
QHP issuers. This process will ensure the protection of Federal funds, 
while also limiting the administrative burden on QHP issuers and 
Exchanges. We welcome comment on these proposed modifications. In 
future years, as more data becomes available, we will review the 
methodology for calculating advance payments of cost-sharing 
reductions, and will propose additional modifications if necessary.
2. Provisions on FFE User Fees
a. FFE User fee for the 2015 Benefit Year
    Section 1311(d)(5)(A) of the Affordable Care Act contemplates an 
Exchange charging assessments or user fees to participating health 
insurance issuers to generate funding to support its operations. If a 
State does not elect to operate an Exchange or does not have an 
approved Exchange, section 1321(c)(1) of the Affordable Care Act 
directs HHS to operate an Exchange within the State. In addition, 31 
U.S.C. 9701 permits a Federal agency to establish a charge for a 
service provided by the agency. Accordingly, at Sec.  156.50(c), we 
specified that a participating issuer offering a plan through an FFE 
must remit a user fee to HHS each month that is equal to the product of 
the monthly user fee rate specified in the annual HHS notice of benefit 
and payment parameters for the applicable benefit year and the monthly 
premium charged by the issuer for each policy under the plan where 
enrollment is through an FFE.
    OMB Circular No. A-25R establishes Federal policy regarding user 
fees, and specifies that a user charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public. As in benefit 
year 2014, issuers seeking to participate in an FFE in benefit year 
2015 will receive two special benefits not available to the general 
public: (1) the certification of their plans as QHPs; and (2) the 
ability to sell health insurance coverage through an FFE to individuals 
determined eligible for enrollment in a QHP. These special benefits are 
provided to participating issuers through the following Federal 
activities in connection with the operation of FFEs:
     Provision of consumer assistance tools.
     Consumer outreach and education.
     Management of a Navigator program.
     Regulation of agents and brokers.
     Eligibility determinations.
     Administration of advance payments of the premium tax 
credit and cost-sharing reductions.
     Enrollment processes.
     Certification processes for QHPs (including ongoing 
compliance verification, recertification and decertification).
     Administration of a SHOP Exchange.
    Activities performed by the Federal government that do not provide 
issuers

[[Page 72364]]

participating in an FFE with a special benefit will not be covered by 
this user fee.
    OMB Circular No. A-25R further states that user charges should 
generally be set at a level so that they are sufficient to recover the 
full cost to the Federal government of providing the service when the 
government is acting in its capacity as sovereign (as is the case when 
HHS operates an FFE). Accordingly, we propose to set the 2015 user fee 
rate for all participating issuers at 3.5 percent. This rate is the 
same as the 2014 user fee rate.\24\ Because we expect enrollment to 
increase in 2015 as awareness of the Exchanges grows, and costs to 
decrease as operations become more efficient, we believe this user fee 
rate may allow HHS to recover the full cost to the Federal government 
of providing the special benefits to issuers participating in an FFE in 
2015.
---------------------------------------------------------------------------

    \24\ OMB granted HHS an exception to the policy in Circular No. 
A-25R, allowing HHS to set the user fee rate for 2014 at 3.5 
percent, rather than a higher rate which would have allowed HHS to 
recover full costs. This rate was chosen because we wished to 
encourage issuers to offer plans on FFEs and to align with the 
administrative cost structure of State-based Exchanges.
---------------------------------------------------------------------------

b. Adjustment of FFE User Fee
    Section 2713(a)(4) of the PHS Act, as added by the Affordable Care 
Act and incorporated into the Employee Retirement Income Security Act 
(ERISA) and the Code, requires that non-grandfathered group health 
plans and health insurance issuers offering non-grandfathered group or 
individual health insurance coverage provide benefits for certain 
women's preventive health services without cost sharing.\25\ The 
Preventive Services Rule (78 FR 39870, July 2, 2013) established 
accommodations with respect to the contraceptive coverage requirement 
for health coverage established or maintained or arranged by eligible 
organizations.\26\
---------------------------------------------------------------------------

    \25\ The women's preventive health services referenced by PHS 
Act section 2713(a)(4) are provided for in comprehensive guidelines 
supported by the Health Resources and Services Administration 
(HRSA). On August 1, 2011, HRSA adopted and released guidelines for 
women's preventive health services based on recommendations of the 
independent Institute of Medicine.
    \26\ Under the Preventive Services Rule, an eligible 
organization is an organization that: (1) Opposes providing coverage 
for some or all of the contraceptive services required to be covered 
under section 2713 of the PHS Act and the companion provisions of 
ERISA and the Code on account of religious objections; (2) is 
organized and operates as a nonprofit entity; (3) holds itself out 
as a religious organization; and (4) self-certifies that it 
satisfies the first three criteria.
---------------------------------------------------------------------------

    Each organization seeking to be treated as an eligible organization 
under the Preventive Services Rule is required to self-certify that it 
meets the definition of an eligible organization. In the case of an 
eligible organization with a self-insured plan, the self-certification 
must be provided to the plan's third party administrator. A third party 
administrator that receives a copy of the self-certification must 
provide or arrange for separate payments for certain contraceptive 
services for participants and beneficiaries in the plan without cost 
sharing, premium, fee, or other charge to plan participants or 
beneficiaries, or to the eligible organization or its plan. The third 
party administrator can provide such payments on its own, or it can 
arrange for an issuer or other entity to provide such payments. In 
either case, the third party administrator can make arrangements with 
an issuer offering coverage through an FFE to obtain reimbursement for 
its costs (including an allowance for administrative costs and margin) 
through an adjustment to the FFE user fee paid by the issuer.
    At Sec.  156.50(d), we established standards related to the 
administration of the user fee adjustment. Specifically, in Sec.  
156.50(d)(3)(ii), we stated that the user fee adjustment will include 
an allowance for administrative costs and margin that is no less than 
10 percent of the total dollar amount of the payments for contraceptive 
services, and that HHS would specify the allowance for a particular 
calendar year in the annual HHS notice of benefit and payment 
parameters.
    For user fee adjustments sought in 2015 for the cost of payments 
for contraceptive services provided in 2014, we propose an allowance 
for administrative costs and margin that is equal to 15 percent of the 
total dollar amount of the payments for contraceptive services defined 
in Sec.  156.50(d)(3)(i).\27\ We propose this allowance based on our 
analysis of the administrative costs that we expect each entity 
involved in the arrangement to incur. For example, the third party 
administrator will likely incur certain variable administrative costs, 
including the cost of provider and medical management, and the cost of 
processing payments to providers of the contraceptive services. 
However, because payments for contraceptive services are not a separate 
insurance product and because the third party administrator will have 
an existing arrangement with the self-insured group health plan of the 
eligible organization, we do not expect any additional costs related to 
marketing, broker fees, enrollment, or billing. We accounted for the 
cost of submitting data to HHS under Sec.  156.50(d)(2), and the cost 
of exchanging data between entities involved in the arrangement. We 
also added an allowance for margin in proportion to the total costs 
that we expect each entity to incur. We seek comment on the allowance 
for administrative costs and margin, including the appropriate 
percentage and alternative methods for future determinations of the 
allowance.
---------------------------------------------------------------------------

    \27\ We note that the submission of the dollar amount of the 
payments for contraceptive services is subject to the oversight 
standards detailed at 45 CFR 156.50(d)(7), as well as the False 
Claims Act, 31 U.S.C. 3729-3733.
---------------------------------------------------------------------------

3. AV Calculation for Determining Level of Coverage
    Section 2707(a) of the PHS Act and Section 1302 of the Affordable 
Care Act direct non-grandfathered health insurance coverage in the 
individual and small group markets, including QHPs, to ensure that 
plans meet a level of coverage specified in section 1302(d)(1) of the 
Affordable Care Act and codified at Sec.  156.140(b). On February 25, 
2013, HHS published the EHB Rule implementing section 1302(d) of the 
Affordable Care Act, which sets forth the requirement that, to 
determine the level of coverage for a given metal tier level, the 
calculation of AV be based upon the provision of EHB to a standard 
population. Section 156.135(a) establishes that AV is to be calculated 
using the AV Calculator developed and made available by HHS.
    The AV Calculator uses national claims data to reflect plans of 
various levels of generosity as the underlying standard population. 
This standard population is represented in the calculator as tables of 
aggregated data called continuance tables. The AV methodology document 
that was incorporated by reference in the EHB Rule provides an overview 
of the development of these continuance tables and the AV Calculator 
logic.
    As stated in the EHB Rule, HHS does not anticipate making annual 
changes to the AV Calculator logic or the underlying standard 
population reflected in the continuance tables. However, HHS recognizes 
that certain routine changes will on occasion need to be made to 
facilitate the AV Calculator's ongoing operation by ensuring that it 
can accommodate changes in the marketplace or product design over time 
and due to the changing cost of providing health care services. Here, 
we propose to provide for authority to update certain aspects of the AV 
Calculator on a regular basis, but no more frequently than annually, 
based on changes to applicable standards or the availability of new 
data that could

[[Page 72365]]

make the AV Calculator more accurate. These types of changes include:
    (1) Updating the annual limit on cost sharing and related functions 
in the calculator: Section 1302(c) of the Affordable Care Act, codified 
at Sec.  156.130, imposes an annual limit on cost sharing on non-
grandfathered plans in the individual and small group markets. We note 
that, in accordance with section 1302(c)(4) of the Affordable Care Act 
and Sec.  156.130(e), starting in 2015, HHS will publish the premium 
adjustment percentage in the annual HHS notice of benefit and payment 
parameters for purposes of calculating the required indexing of the 
annual limit on cost sharing. Because this limit is included in the AV 
Calculator and impacts the range of the AV Calculator, we propose to 
update the AV Calculator to include an estimated annual limit on cost 
sharing. In order to allow issuers the most time possible to develop 
plans, HHS may make available prior to the annual HHS notice of benefit 
and payment parameters the AV Calculator that would project an 
estimated annual limit on cost sharing for the given plan year. Issuers 
would still be required to adhere to the annual limit on cost sharing 
that is published in the applicable HHS notice of benefit and payment 
parameters. The intention in using an estimated annual limit on cost 
sharing in the AV Calculator is to ensure flexibility of the AV 
Calculator for issuers. Since we may make the AV Calculator available 
prior to the finalization of the annual limit on cost sharing for a 
given plan year, we are proposing to use an estimated annual limit on 
cost sharing in the AV Calculator, to ensure that the final AV 
Calculator does not contain an annual limit on cost sharing that is 
lower than the finalized one. Accordingly, in the proposed 2015 AV 
Calculator, we propose an estimated annual limit on cost sharing of 
$6,850, compared to the proposed annual limit for cost sharing for 
2015, which is $6,750.
    (2) Updating the continuance tables to reflect more current 
enrollment data: Starting in 2016, HHS expects to have sets of actual 
enrollment data from 2014 and to receive the subsequent year's data on 
an annual basis thereafter. These data could be used to reweight the 
standard population in the continuance tables that run the AV 
Calculator to more accurately reflect true enrollment trends and as a 
result project claims spending. We anticipate that during the first 
several years of operation, the demographic mix of the enrolled 
population will likely change and may need to be reweighted in the AV 
Calculator annually. After a few years, the population may stabilize 
and begin matching the claims data to the point where reweighing the AV 
Calculator may not be necessary on an annual basis.
    We propose to analyze the most recently available data on the 
enrolled population every year, starting in 2016, and in cases where we 
determine that the enrolled population has materially changed, we 
propose to reweight the continuance tables in the AV Calculator to 
continue to accurately reflect enrollment data. We are proposing to 
consider a material change in gender or age in the enrolled population 
as more than a 5 percent change. We propose to determine this change 
based on a combined measurement of the effects of shifts in gender or 
age statistics. We solicit comment on this 5 percent standard and 
whether it should be a higher or lower percentage, as well as how this 
change should be determined. For the proposed 2015 AV Calculator, we 
did not have actual enrollment data to analyze and therefore, we are 
not proposing to reweight the calculator based on enrollment data at 
this time.
    (3) Updating the algorithms behind the AV Calculator to adapt to 
new industry practices and plan designs: As discussed in the EHB Rule, 
because the AV Calculator is intended to account for the vast majority 
of plan designs in the market, in order to ensure that the AV 
Calculator will be available to plans and issuers, it will likely need 
to be periodically adapted. To do this, we are proposing to make 
technical, non-substantive updates to the AV Calculator algorithms as 
industry practices change and as technology advances, including adding 
features to the AV Calculator. For example, for the proposed 2015 AV 
Calculator, we are able to make improvements to the algorithms to allow 
for additional functionality to apply the deductible first and then 
copayments. Adding this feature would allow the calculator to be 
applicable for more types of plans and would not substantively affect 
other plan designs using the AV calculator. Such an adaptation of the 
AV Calculator to allow more types of plan designs to use the calculator 
without adjustment and to accommodate new types of plan designs in the 
market would be the basis for making these non-substantive changes. The 
standard that we propose to apply in making such adaptations would be 
to have the minimum impact possible on the outcomes produced by the AV 
Calculator generally while still allowing it to be adaptable to the new 
types of plan designs and allowing more types of plan designs to use 
the AV Calculator. We propose to make such adaptations under the 
provisions of this proposed rule if the adaptations can be based on 
actuarially sound principles and these adaptions would only involve 
minor modifications to the AV Calculator that would result in only a 
limited or no impact on the majority of plan designs that use the AV 
Calculator. We invite public comment on suggestions for ways in which 
this standard could best be achieved.
    To identify new industry practices and technical advances, we 
propose to consult annually with the American Academy of Actuaries to 
determine what new adaptations are needed in the AV Calculator as the 
basis for those changes. Under Sec.  156.135(b), the American Academy 
of Actuaries' members play a critical role in determining the AV of 
plan designs that are not compatible with the AV Calculator and would 
have insight into adjustments that are needed in the AV Calculator to 
meet the needs of the involving market and to allow more plan designs 
to use the AV Calculator. We also propose taking into consideration 
stakeholder feedback on adjustments to the AV Calculator that are 
submitted to the CMS Actuarial Value email address at 
actuarialvalue@cms.hhs.gov. To accomplish this goal, we propose 
aggregating this information annually and assessing which modifications 
would benefit the most issuers, are feasible in the AV Calculator, and 
will not substantively impact other functions of the calculator. If an 
algorithm change meets these criteria, and standards set forth above, 
we would consider incorporating it into the AV Calculator's algorithms. 
Changes that are made to the algorithms would be described in the AV 
Calculator Methodology that would be released with any updated AV 
Calculator.
    (4) Updating the continuance tables to reflect more current claims 
data: HHS is proposing to update the claims data underlying the 
continuance tables, including refreshing the national claims database 
data with new data, as well as trending the AV Calculator to account 
for changes in the unit prices, utilization and intensity of services 
used. A trending factor could be a historical trend factor making use 
of actual premiums that reflect utilization and unit price increases, a 
factor based on emerging trends changing the demographic, or be based 
on the premiums of the new product designs with unique features. Data 
on these changes in insurance could be used to develop a trending 
factor that could be applied to the claims data to make adjustments in 
the continuance tables of the AV Calculator. For future plan years,

[[Page 72366]]

we propose to use two sources of data, one to reflect the individual 
market and one to reflect the small group market, to develop a single 
trend factor that could be applied to the AV Calculator. For the 
individual market, we propose to use the premium rate data and/or the 
standard population data compared from year to year, and for the small 
group market, we proposed to use similar premium rate data and/or the 
standard population data compared from year to year to develop a 
trending factor that we could apply to the claims data in the AV 
Calculator, adjusted for key changes, such as the reduction in 
transitional reinsurance that will occur from 2014 through 2016. In 
years when we are planning to update the claims data from the national 
claims database system in the AV Calculator, we are proposing to trend 
the AV Calculator based on the new claims data with the dataset 
currently being used in the calculator to ensure that the trend factor 
and claims data are reconciled.
    In considering the factors in adjusting the claims data and 
trending the calculator, we recognize the importance of market 
stability for both issuers and consumers from year-to-year. At the same 
time, we recognize the importance of the AV Calculator reflecting the 
current market. By pursuing the approach of not updating the claims 
data every year, we would be providing greater stability in an emerging 
market. For these reasons, we are proposing to update the baseline 
claims data no more than every 3 and no less than every 5 years. This 
proposal of no more than every 3 years reflects the duration of the 
transitional reinsurance program and the temporary risk corridors 
program.
    We are also proposing to consider trending the AV calculator every 
year and in cases, where the trend factor is cumulatively more than 5 
percent different from the previous time the AV Calculator was updated, 
we would implement the trend factor. By considering whether to trend 
the AV Calculator every year, we would be helping to ensure that the AV 
Calculator more accurately reflects the current market and to avoid 
having any steep ``cliff'' changes in the AV Calculator every few 
years. Under the methodology proposed above, we are proposing to trend 
the AV Calculator on premium data and/or the standard population data 
in years when the underlying claims data are not being updated in the 
AV Calculator, and in years where the claims data are being updated, we 
are proposing to trend the calculator based on the updated claims data. 
We seek comments on this proposed approach, including our proposed 
approach to updating the claims data. We are proposing to provide 
details of our consideration of the trending factor each year in the AV 
Methodology. For 2015, we do not propose to trend the AV Calculator 
since the necessary 2 years of data were not available to make the 
adjustment per our proposed policy.
    (5) Updating the AV Calculator user interface: HHS is proposing to 
update the AV Calculator user interface as needed to improve the user's 
experience. An example of this type of change, which we included in the 
proposed 2015 AV Calculator, is adding the ability for the user to save 
AV calculations. The 2014 AV Calculator did not incorporate this 
function, but based on comments received, we recognized the importance 
for users to have this feature. In the future, we anticipate that there 
will be other ways in which we could continue to make improvements to 
the AV Calculator's user interface to assist users and we anticipate 
that we will continue to receive feedback from various stakeholders to 
inform future proposed improvements to the AV Calculator user 
experience. HHS may consider making changes when an improvement would 
be useful to a broad group of users of the AV Calculator, would not 
affect the function of the AV Calculator, and would be technically 
feasible. These changes would simplify the process for providing users 
with features that could help save time and improve processes.
    When making updates to the AV Calculator in accordance with this 
proposed rule, we propose to update the AV Calculator through guidance 
that will be posted on our CCIIO Web site. This guidance will include 
an updated AV Calculator Methodology to explain the changes that were 
made to the AV Calculator, along with the updated AV Calculator. We 
also expect that we would make any updates that will affect the AV 
Calculator in advance of the benefit year for which issuers are using 
the AV Calculator, with the intention of making the AV Calculator 
available no later than the end of the first quarter of the preceding 
the benefit year.
    We are soliciting comments on all of the above types of updates and 
the accompanying criteria that would be used to identify the need for 
and to implement these updates. Outside of the above types of updates, 
we are also soliciting comments on whether other types of updates 
should be considered routinely for the AV calculator. To clarify, we 
are proposing that, to comply with Sec.  156.135(a), issuers would be 
required to use the AV Calculator published by HHS for a given benefit 
year or, in cases where a State has obtained HHS approval to use State 
specific data in the AV Calculator, issuers would be required to use 
that AV Calculator HHS has published for the given benefit year, 
adjusted to use the State's data (State AV Calculator). The purpose of 
requiring that the issuers use the AV Calculator of the given benefit 
year or the State AV Calculator is to ensure that the AV calculation is 
being more accurately calculated on the most recent data each year and 
that there is only one AV Calculator (or State AV Calculator) 
applicable for each benefit year. We are also soliciting comments on 
the proposed 2015 AV Calculator and AV Calculator methodology that 
would supersede the 2014 versions of these documents. In accordance 
with our proposed policy, we provide an explanation of the changes that 
were made in the proposed 2015 AV Calculator in the proposed 2015 AV 
Methodology. For the 2015 AV Calculator, HHS is only proposing to make 
minor changes to the design and inputs into the AV Calculator. While 
plans' AV calculations may be impacted by the updated AV Calculator, 
our testing has shown that this impact will be limited for the vast 
majority of plans and that only in certain cases will plans see a 
significant change in AV. We encourage stakeholders to test the 
proposed 2015 AV Calculator and submit technical comments on it during 
the comment period.
    In the preamble to the EHB Rule, we discussed the calculation of AV 
for health plans with family cost-sharing features. In addition we 
provided guidance in the ``2014 Letter to Issuers on Federally-
facilitated and State Partnership Exchanges'' \28\ on accounting for 
family plans for 2014. Since the AV Calculator claims data are based on 
individual claims data that did not include family cost-sharing 
information, HHS is seeking the necessary empirical data to develop the 
code that can incorporate family plans into future versions of the AV 
Calculator. We are now seeking comment on how to account for these 
family plan designs and we are particularly interested in information 
regarding potential data source options.
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    \28\ ``Letter to Issuers on Federally-facilitated and State 
Partnership Exchanges,'' April 5, 2013, available at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2014_letter_to_issuers_04052013.pdf.
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4. National Annual Limit on Cost Sharing for Stand-Alone Dental Plans 
in an Exchange
    The EHB Rule established an annual limit on cost sharing for the 
pediatric dental essential health benefit offered by

[[Page 72367]]

stand-alone dental plans (SADPs) in the Exchanges that is separate from 
the annual limit on cost sharing that applies to QHPs that offer 
comprehensive medical benefits. The EHB Rule established that Exchanges 
should set a ``reasonable'' annual limit on cost sharing for SADPs. The 
CMS Letter to Issuers on Federally-facilitated and State Partnership 
Exchanges, published on April 5, 2013, established that CMS's 
interpretation of a reasonable SADP annual limit on cost sharing for 
the FFEs is $700 for an SADP with one child enrollee and $1,400 for an 
SADP with two or more children enrollees.
    We propose a revised policy for the 2015 benefit year and beyond in 
response to significant public interest in establishing a policy that 
is consistent across Exchanges and that minimizes a consumer's total 
annual limit on cost sharing. HHS also seeks to minimize the 
differences between a consumer's total annual limit on cost sharing 
when purchasing essential health benefits through a QHP that includes 
coverage of the pediatric dental essential health benefits or through a 
combination of a QHP and an SADP. Thus, we are proposing in this rule 
an amendment to Sec.  156.150 that would establish an annual limit on 
cost sharing for SADPs that would be applicable in all Exchanges. For 
the 2015 benefit year, the new proposed paragraph (a)(1) would impose 
an annual limit on cost sharing for the pediatric dental EHB when 
offered through an SADP of $300 for one covered child and $400 for two 
or more covered children. We request comment on the proposed annual 
limits on cost sharing, and specifically whether a higher or lower 
limit would be appropriate for the pediatric dental EHB. Further, due 
to the limited variation in cost sharing with a decreased annual limit 
on cost sharing, we propose removing the actuarial value requirement 
SADPs offered through the Exchanges by deleting paragraph (b) of Sec.  
156.150. We request comment on the removal of the AV standard as well.
    We understand that under the current rules, some State Exchanges 
have interpreted a reasonable annual limit on cost sharing to be higher 
than what is proposed in this proposed rule. For example, at least two 
State Exchanges have established an annual limit on cost sharing for 
SADPs of $1,000 for one covered child and $2,000 for two or more 
covered children. We therefore request comment on whether the annual 
limit on cost sharing should be consistent nationally, which would be 
more straightforward for consumers and issuers, or set by each 
Exchange, which allows for State flexibility to adjust to specific 
market standards and whether the limits proposed here are appropriate. 
As stated above, we propose to establish the $300/$400 annual limit on 
cost-sharing as a national maximum annual limit on cost sharing 
applicable in all Exchanges. For those States that currently have 
annual limits on cost sharing of $1,000/$2,000, we request comment on 
whether there should be a more gradual decrease in the annual limit in 
cost sharing that would ultimately reach the national level, but would 
result in a less significant one-time decrease.
    HHS considered several other alternatives to minimize a consumer's 
total annual limit on cost sharing when purchasing the pediatric dental 
EHB through a SADP, including: Requiring issuers of SADPs to consider 
the annual limit on cost sharing to be met once the consumer reaches 
the annual limit on cost sharing for the QHP; requiring issuers of QHPs 
without the pediatric dental EHB to reduce the annual limit on cost 
sharing by the amount of annual limit on cost sharing permitted for 
SADPs; and, requiring issuers of QHPs and SADPs to track out of pocket 
costs for a shared consumer and jointly consider a consumer's out of 
pocket commitments to be met once a total number has been reached. We 
note that HHS is generally concerned with the administrative costs of 
implementing a policy that requires coordination of claims to a single 
annual limit on cost sharing. We seek comments on these alternatives.
5. Additional Standards Specific to SHOP
    We propose to add new paragraph (a)(4)(i) to Sec.  156.285 to 
provide that a qualified employer in the SHOP that becomes a large 
employer would continue to be rated as a small employer. Under section 
1304(b)(4)(D) of the Affordable Care Act, a small employer that ceases 
to be a small employer by reason of an increase in the number of 
employees continues to be treated as a small employer for purposes of 
Subtitle D of Title I of the statute. Included within Subtitle D are 
the provisions governing the SHOP and the premium stabilization rules. 
However, the fair health insurance premium provisions at section 2701 
are not contained in Title D. To assure consistency of pricing within 
the SHOP,\29\ we propose to require a QHP offered through the SHOP to 
comply with the rating rules described in Sec.  147.102. We note that 
nothing in this proposal prevents such an employer from choosing to buy 
a guaranteed issue new policy (without small group rating rules) in the 
large group market outside of the SHOP.
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    \29\ In the 2014 Payment Notice (78 FR 15418), we provided that 
risk adjustment would not apply to a plan unless it was subject to 
certain market reform rules, including the rating rules. Elsewhere 
in this proposed rule, at Sec.  153.510(f), we propose a similar 
approach with respect to risk corridors. Our proposed approach here 
for the SHOP would provide that a SHOP QHP that grows into a large 
group plan would continue to receive the protections of the risk 
adjustment and risk corridors programs.
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    We believe that, when employee choice becomes available in FF-SHOPs 
for plan years beginning on or after January 1, 2015, allowing 
composite rating when an employer chooses to offer all plans within a 
metal tier under Sec.  155.705(b)(3)(iv)(A) could result in issuers 
becoming more hesitant to offer QHPs in an employee choice 
environment--undermining the ACA's goals of increased choice and 
competition. As discussed in more detail above with regard to proposed 
Sec.  155.705(b)(11)(ii)(D), composite rating when an employer takes 
advantage of employee choice could result in an issuer taking on 
proportionately more risk from mid-year changes to the employer's 
roster than in a single plan environment and, therefore, deny an issuer 
the premiums that would otherwise be due in a per-member premium 
calculation for the group. We proposed in Sec.  155.705(b)(11)(ii)(D) 
to prohibit composite rating in the FF-SHOPs when an employer chooses a 
level of coverage and make all QHPs within that level available to its 
employees, and we propose in Sec.  156.285(a)(4)(ii) to subject issuers 
to the same prohibition, to assure that issuers understand that 
composite billing is not allowed in the FF-SHOPs when employee choice 
becomes available and an employer selects a level of coverage and not a 
single plan. As with proposed Sec.  155.705(b)(11)(ii)(D), we are 
considering extending the prohibition on composite rating to SADPs in 
the FF-SHOPs, and we invite comment on whether such a prohibition 
should be adopted, how this policy might affect current market 
practices on composite rating of dental plans, whether a prohibition on 
composite rating should apply to all SADP offering methods or just when 
an employer chooses to offer more than a single SADP, and how such a 
prohibition would affect choice and competition in the small group 
dental market. We acknowledge that this proposal provides a limited 
exception to Sec.  147.102(c)(3) and note that this proposal would 
preempt State law in

[[Page 72368]]

this context, but we believe this proposal to be limited in scope and 
tailored to provide for administrative efficiency and uniformity, 
system compatibility among the FF-SHOPs, and increased competition and 
choice in the small group market.
    If the proposed amendments to Sec.  155.705(b)(4) summarized above 
are finalized as proposed, all SHOPs would be permitted to establish 
standard methods for premium payment under Sec.  155.705(b)(4), as part 
of carrying out the premium aggregation function, and HHS would 
establish through guidance a process and timeline for employers to 
follow when remitting premium payments to the FF-SHOPs once premium 
aggregation becomes available in the FF-SHOPs. We anticipate that after 
premium aggregation becomes available in the FF-SHOPs, an FF-SHOP would 
transmit premium payments--both initial and subsequent--to issuers on a 
regular schedule and anticipate that this would be no more frequently 
than once a week. We recognize that under this approach, an issuer 
might not receive an employer's initial premium payment from the FF-
SHOP prior to the coverage effective date even though the employer has 
remitted payment to the FF-SHOP consistent with the HHS-established 
timeline. We understand that issuers may be concerned about 
effectuating coverage prior to receiving payment from a FF-SHOP. To 
address this concern, if the FF-SHOP has not received the initial 
premium payment in accordance with the payment timeline and process 
established in accordance with proposed Sec.  155.705(b)(4)(ii)(A), the 
FF-SHOP will send an enrollment cancellation transaction to the issuer 
to ensure that coverage is not effectuated. Accordingly, we propose 
that if the issuer does not receive an enrollment cancellation 
transaction, it should effectuate coverage. We considered whether an 
FF-SHOP could, alternatively, send an issuer a notice confirming that 
it should effectuate coverage when the FF-SHOP received an employer's 
initial premium payment but the issuer would not receive that payment 
prior to the coverage effective date. However, it would be simpler 
administratively and operationally for issuers to assume they should 
effectuate coverage and proceed to effectuate coverage unless an FF-
SHOP cancels the enrollment. Therefore, we propose adding Sec.  
156.285(c)(7)(iii) to establish that a QHP issuer offering a QHP 
through an FF-SHOP would be required to enroll a qualified employee 
unless it receives a cancellation notice from the FF-SHOP. We note that 
this operational scenario would arise only in the case of an employer's 
initial premium payment. For regular monthly payments from a 
participating SHOP employer, the requirements of the payment timeline 
and process established in accordance with proposed Sec.  
155.705(b)(4)(ii)(A) and the termination provisions of Sec.  155.735 
would apply. We seek through this proposal to balance issuers' concerns 
about receiving payment with the need for timely FF-SHOP enrollment and 
operational efficiency. We welcome comment on the proposed approach, as 
well as on the alternative approach discussed above which we considered 
but rejected, and encourage commenters to suggest additional 
alternatives.
6. Meaningful Difference Standard for QHPs in the FFEs
    Section 1311(e)(1)(B) of the Affordable Care Act, codified at Sec.  
155.1000(c)(2), sets forth the standard that the Exchange may certify a 
health plan as a QHP if it determines that making the plan available 
through the Exchange is in the interests of qualified individuals and 
qualified employers in the State or States in which such Exchange 
operates. Therefore, as a means of ensuring that all QHPs offered 
through an FFE are in the interest of qualified individuals and 
qualified employers, we propose that, to be certified as a QHP in an 
FFE, a plan must be considered ``meaningfully different'' from all 
other plans offered by the same issuer through the same Exchange, and 
we propose a standard for what is meant by the term ``meaningfully 
different.''
    Based on feedback from stakeholders and HHS' experience from 
administering the Medicare program, HHS believes that it is in the 
interests of consumers to have an Exchange with meaningfully different 
plan choices, as meaningful difference has important benefits to 
consumers, such as ensuring the ability to readily differentiate and 
compare plan choices, leading to informed decisions.\30\ A single 
issuer offering a number of plans that lack meaningful difference could 
take virtual ``shelf space'' from other competitors and stifle 
competition. Therefore, conducting a review for meaningful difference 
will ensure that consumers are able to make informed selections among 
an ample--but manageable--number of QHPs, while allowing for plan 
innovation. The approach outlined below for a meaningful difference 
requirement would allow time for HHS to see how the market develops, 
assess the consumer need for a more specific meaningful difference 
standard, and consider options to meet this potential need. HHS does 
not intend to set numerical limits on the number of QHPs that may be 
offered; rather, the proposed approach would serve to avoid having an 
issuer offering multiple QHPs that appear the same through an Exchange.
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    \30\ Research suggests that consumers may prefer more limited 
arrays of choices. See Iyengar, S.; Lepper, M. Journal of 
Personality and Social Psychology, Vol. 79(6), Dec 2000, 995-1006.
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    In Sec.  156.298(a), we propose that the FFEs and FF-SHOPs will 
impose a meaningful difference requirement when approving a QHP 
application for certification of multiple QHPs within a service area 
and level of coverage in the Exchange from a single issuer. Due to the 
special characteristics of the stand-alone dental plan market, HHS 
proposes not to require meaningful difference as a condition for 
certification among stand-alone dental plans at this time. HHS seeks 
comment on this approach. We propose, in Sec.  156.298(b), that a plan 
within a service area and metal tier (bronze, silver, gold, or 
platinum, and catastrophic coverage) is considered meaningfully 
different from other plans if a reasonable consumer (the typical 
consumer buying health insurance coverage) would be able to identify at 
least two material differences among eight key characteristics between 
the plan and other plans to be offered by the same issuer. The key 
characteristics are proposed in paragraphs (b)(1)-(b)(7), and would 
include (1) Cost sharing; (2) provider networks; (3) covered benefits 
(including prescription drugs); (4) plan type (for example, HMO or 
PPO); (5) premiums; (6) health savings account eligibility; and (7) 
self-only, non-self-only, or child-only coverage offerings. At a 
minimum, two or more of the characteristics proposed at Sec.  
156.298(b) must be different in order to pass the meaningful difference 
test. Therefore, within a service area and level of coverage in an 
Exchange, if two plans submitted by a single issuer seeking QHP 
certification vary among their cost sharing and covered benefits 
features but have the same premiums, the plans may be deemed as having 
met the meaningful difference test.
    Furthermore, to ensure that consumers have an adequate number of 
plan options across all metal levels of coverage, we propose at Sec.  
156.298(c), that if HHS determines that the plan offerings at a 
particular metal level (including catastrophic plans) within a county 
are limited, plans submitted for certification at that level within 
that county will not be subject to the meaningful difference 
requirement.

[[Page 72369]]

    To provide flexibility for issuers that merge with or acquire 
another issuer that is a separate legal entity, HHS proposes in Sec.  
156.298(d), a 2-year meaningful difference transition period starting 
from the date on which a QHP issuer (acquiring entity) obtains or 
merges with another issuer. We propose in paragraph (d) that during the 
first 2 plan years after a merger or acquisition, the acquiring entity 
can offer plans that were recently obtained or merged from another 
issuer that do not meet the meaningful difference standard. After the 
2-year transition period, HHS may approve a QHP application for 
certification that is being offered by the acquiring entity only if HHS 
finds that the plan's benefit package or costs are meaningfully 
different from other QHPs offered by the acquiring entity and the plan 
meets all other certification requirements. We believe that this 
transition timeframe provides ample time for issuers to ensure that 
benefit packages being offered are meaningfully different without 
stifling market transactions.
    We seek comment on the proposed approach to reviewing meaningful 
difference for QHP certification and whether this standard should be 
expanded to all Exchanges, including State Exchanges. We also seek 
comment on whether this authority granted to the Exchange by section 
1311(e)(1) of the Affordable Care Act, to act in the interests of 
qualified individuals and qualified employers, should be used by the 
Secretary, in conjunction with the authority granted by section 
1311(e)(2) of the Affordable Care Act, to limit an issuer's 
participation in the FFEs should there be significantly different rate 
increases for its QHPs and non-QHPs. While the transitional policy 
regarding renewals of certain coverage announced in November 2013 and 
described earlier in this preamble was intended to allow for continuity 
of coverage, it was not intended to promote adverse selection through 
significantly higher rates for QHPs.
7. Quality Standards: Establishment of Patient Safety Standards for QHP 
Issuers
    Section 1311(h)(1)(A) of the Affordable Care Act specifies that, 
beginning on January 1, 2015, a QHP may contract with hospitals with 
greater than 50 beds only if the hospitals meet certain patient safety 
standards, including use of a patient safety evaluation system (PSES) 
as described in part C of Title IX of the PHS Act, and a comprehensive 
hospital discharge program. A PSES means the collection, management, or 
analysis of information for reporting to or by a patient safety 
organization (PSO).\31\ Section 1311(h)(1)(B) of the Affordable Care 
Act specifies that a QHP may contract with health care providers that 
implement health care quality mechanisms, if any are required by the 
Secretary in regulations. Section 1311(h)(2) of the Affordable Care Act 
provides the Secretary with the authority and flexibility to establish 
reasonable exceptions to these requirements and section 1311(h)(3) of 
the Affordable Care Act allows the Secretary to issue regulations to 
modify the number of beds described in section 1311(h)(1)(A).
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    \31\ See http://www.pso.ahrq.gov/regulations/fnlrule01.pdf.
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    As discussed in the National Strategy for Quality Improvement in 
Health Care (National Quality Strategy), HHS seeks to improve the 
overall quality of health care by making health care more patient-
centered, reliable, accessible, and safe.\32\ One of the main 
priorities of the National Quality Strategy is making care safer by 
reducing harm caused in the delivery of care. In addition, section 
1311(h) of the Affordable Care Act aims to strengthen quality 
improvement and patient safety for consumers in Exchanges. To 
effectively balance the priorities for making quality health care 
accessible and safe in the Exchanges, we propose to implement these 
patient safety standards for QHP issuers over time, under the 
Secretary's authority in section 1311(h)(2) of the Affordable Care Act. 
We believe that implementing all of the requirements described in 
section 1311(h) by January 1, 2015 could result in a shortage of 
qualified hospitals and providers available for contracting with QHPs.
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    \32\ See Report to Congress: National Strategy for Quality 
Improvement in Health Care available at http://www.healthcare.gov/law/resources/reports/quality03212011a.html.
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    Currently, there are 79 listed PSOs nationwide operating in 29 
States and the District of Columbia.\33\ PSOs carry out a variety of 
patient safety activities with the goal to improve patient safety and 
the quality of health care delivery. PSOs are able to collect, 
aggregate, and analyze patient safety events and information that is 
protected under privilege and confidentiality standards. However, it is 
not entirely clear that there is sufficient capacity to enable all 
hospitals subject to this provision to contract with a PSO at this 
time. HHS recognizes the continuously-growing capacity of the PSO 
program and the potential to accommodate U.S. hospitals subject to 
Sec.  156.1110 within the proposed phase-in period. HHS recognizes the 
significant burden and time constraints for hospitals to enter into 
agreements with PSOs for appropriate services to improve patient 
safety, especially for particular hospital settings and populations. 
HHS also recognizes the significant resources that QHP issuers would 
need to invest to track such initiatives, such as ensuring that the 
hospitals and health care providers the QHP issuer contracts with have 
appropriate agreements with PSOs and adequate hospital discharge 
planning activities. Consequently, we believe that this proposed rule 
would provide an opportunity for QHP issuers to meaningfully comply 
with section 1311(h) of the Affordable Care Act and consider how PSOs 
will work with their network hospitals and health care providers. This 
proposal would also provide time for hospitals and healthcare providers 
to demonstrate to a QHP issuer that they meet the patient safety 
standards in accordance with section 1311(h). Moreover, we believe that 
this proposed approach to implementation of section 1311(h) would 
ensure that QHP issuers have sufficient hospitals and health care 
providers to contract with, while providing consumers with access to 
health care that meets adequate safety and quality standards.
---------------------------------------------------------------------------

    \33\ See http://www.pso.ahrq.gov/listing/geolist.htm.
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    In phase one, which would become effective for QHP issuer plan 
years beginning on or after January 1, 2015, the patient safety 
standards proposed in Sec.  156.1110 would apply to hospitals, as 
defined in section 1861(e) of the Social Security Act,\34\ that are 
Medicare-certified, and to Medicaid-only hospitals which have been 
issued a Medicaid-only CMS Certification Number (CCN). These standards 
would apply to such hospitals that have been certified for greater than 
50 beds. For the reasons described above, HHS is not proposing 
requirements regarding the patient safety standards described in 
section 1311(h)(1)(B) at this time. HHS is currently in the process of 
researching the establishment of appropriate quality and patient safety 
standards for QHP issuers contracting with health care providers as 
described in section 1311(h)(1)(B).
---------------------------------------------------------------------------

    \34\ Section 1861(e) of the Social Security Act: http://www.ssa.gov/OP_Home/ssact/title18/1861.htm.
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    In Sec.  156.1110(a), we propose that a QHP issuer may contract 
with hospitals that have more than 50 beds, only if they are Medicare-
certified or have been issued a Medicaid-only CCN, both of which are 
subject to Medicare Hospital Conditions of Participation (CoPs)

[[Page 72370]]

standards found in 42 CFR part 482.\35\ Specifically, such hospitals 
must develop, implement, and maintain an effective, ongoing, hospital-
wide, data-driven quality assessment and performance improvement (QAPI) 
program, as described in 42 CFR 482.21. In addition, a hospital that is 
Medicare-certified or participates in the Medicaid program must have in 
effect a discharge planning process that applies to all patients, as 
described in 42 CFR 482.43. HHS believes that the standards of QAPI and 
discharge planning in the Medicare hospital CoPs represent the most 
efficient way to balance the need to have a sufficient number of 
hospitals available for QHP issuers to contract with, and the statutory 
intent of section 1311(h) to provide for adequate patient safety 
standards. In addition, based on our preliminary research, the vast 
majority of hospitals with greater than 50 beds are Medicare-certified 
or are Medicaid-only hospitals and must comply with the health and 
patient safety standards in the Medicare hospital CoPs. Hospitals may 
be deemed to meet the CoP standards if accredited per section 1865 of 
the Social Security Act. Therefore, the proposed approach would not 
significantly limit hospital participation in QHP networks and would 
provide consumers access to health care services from an adequate 
number of hospitals through QHPs in the Exchanges.
---------------------------------------------------------------------------

    \35\ Hospital Conditions of Participation: http://www.cms.gov/Regulations-and-Guidance/Legislation/CFCsAndCoPs/Hospitals.html.
---------------------------------------------------------------------------

    In Sec.  156.1110(b), we propose to direct QHP issuers to maintain 
documentation, including but not limited to the CCN for each hospital. 
Since both Medicare-certified hospitals and Medicaid-only hospitals are 
issued CCNs, such documentation would demonstrate that a QHP issuer's 
contracted hospital is Medicare-certified or has a Medicaid-only CCN 
and are subject to the Medicare hospital CoP standards as required in 
paragraph (a). We believe that collecting and maintaining data such as 
the CCN would not be burdensome for QHP issuers. In Sec.  156.1110(c), 
we propose that a QHP issuer must make this documentation available to 
the Exchange, upon request by the Exchange, and in a time and manner 
specified by the Exchange. We intend to include all Exchange types when 
referring to the Exchange in Sec.  156.1110, including a State-based 
Exchange. We anticipate using the data collected as part of information 
used to evaluate and oversee QHP issuers in FFEs. We note that multi-
State plans, as defined in Sec.  155.1000(a), are subject to these 
provisions. OPM would determine the time and manner for multi-State 
plans to submit the documentation.
    In Sec.  156.1110(d), we propose that a QHP issuer must ensure that 
each of its QHPs meets the patient safety standards in accordance with 
paragraph (a) of this section for plan or policy years beginning on or 
after January 1, 2015. We anticipate that this first phase of 
implementation of QHP-related quality standards would be for 2 years 
beginning January 1, 2015 or until we issue further regulations based 
on a reassessment of the Exchange market, whichever is later.
    We seek comment regarding our proposal to apply Medicare hospital 
CoP standards for implementation of section 1311(h) of the Affordable 
Care Act. We also request comment on the proposed 2-year time period 
for the first phase of implementation. Additionally, we propose to 
maintain the statutory distinction between hospitals with 50 or fewer 
beds and hospitals with more than 50 beds, but we request comment for 
phase one implementation on whether HHS should adjust the number of 
hospital beds to be greater or less than the standard under section 
1311(h)(3) of the Affordable Care Act. We also seek comment regarding 
whether the proposed standards in Sec.  156.1110 should be applicable 
to hospitals other than Medicare-certified and Medicaid-only hospitals. 
We further request comment on whether any other documentation would be 
reasonable to require QHP issuers to collect and maintain to meet the 
proposed standards described in Sec.  156.1110(c).
    For the next phase of implementation, we are considering requiring 
QHP issuers to ensure that their contracted hospitals have agreements 
with PSOs and comprehensive hospital discharge programs, and that their 
health care providers implement health care quality activities. We 
recognize the various important patient safety initiatives, including 
discharge planning activities, with which hospitals, health care 
providers, and issuers are already involved. In future rulemaking, we 
intend to consider whether and which reasonable exceptions under 
section 1311(h)(2) of the Affordable Care Act should be made. We seek 
comment on:
     What core aspects should be included in hospital patient 
safety programs.
     What a comprehensive hospital discharge planning program 
should require for each patient.
     What health care quality improvement activities should be 
implemented by health care providers.
    Specifically, we request comment on how QHP issuers could 
effectively track patient safety information, such as hospital 
agreements with a PSO, related to their contracted hospitals and 
provider networks. We also seek comment regarding specific, comparable 
activities that may be included as reasonable exceptions to the patient 
safety standards, in accordance with section 1311(h)(2) of the 
Affordable Care Act.
8. Financial Programs
a. Netting of Payments and Charges
    In the 2014 Payment Notice, HHS established a monthly payment and 
collections cycle for the advance payments of the premium tax credit, 
cost-sharing reductions, and FFE user fees, and an annual payment and 
collections cycle for the premium stabilization programs and 
reconciliation of cost-sharing reductions. For 2014, to streamline our 
payments and collections process, we propose in Sec.  156.1215(a) that 
each month we would determine amounts owed to or by a QHP issuer by 
netting amounts owed by the QHP issuer to the Federal government 
against payments due to the QHP issuer for advance payments of the 
premium tax credit, advance payments of cost-sharing reductions, and 
payment of FFE user fees. In addition to this netting across these 
programs, as further described below, the monthly calculation of 
amounts due would also reflect current information related to 
enrollment for past months, including information related to excess 
payments previously made. Finally, we propose that amounts owed to or 
by a QHP issuer would be netted across all entities operating under the 
same taxpayer identification number (TIN). This process would permit 
HHS to calculate amounts owed each month, and pay or collect those 
amounts from issuers more efficiently. When netting occurs, HHS would 
demand amounts due only when there is a balance due to the Federal 
government.
    In addition to the monthly payment flows under the programs 
described above, a number of annual payment flows will begin in 2015 
for the risk adjustment program, the reinsurance program, the risk 
corridors program, and cost-sharing reduction reconciliation. To 
streamline payment and charge flows from all of these programs--advance 
payments of the premium tax credit, advance payments and reconciliation 
of cost-sharing reductions, FFE user fees, and the premium 
stabilization programs--we propose in Sec.  156.1215(b)

[[Page 72371]]

that HHS may net amounts owed to the Federal government against 
payments due to an issuer (or an affiliated issuer under the same TIN) 
under these programs in 2015 and later years. We believe that this 
process will enable HHS to operate a monthly payment cycle that will be 
efficient for both issuers and HHS.
    In Sec.  156.1215(c), we propose that any amount owed to the 
Federal government by an issuer and its affiliates for advance payments 
of the premium tax credit, advance payments of and reconciliation of 
cost-sharing reductions after netting be the basis for calculating a 
debt owed to the Federal government. We propose that payments and 
collections under all of these programs would occur under an integrated 
monthly payment and collection cycle.
    We seek comment on these proposals, including on the appropriate 
payment timeframes for these charges so that amounts may be netted and 
invoiced as part of an orderly, monthly payment cycle.
b. Confirmation of HHS Payment and Collections Reports
    As discussed in the preamble to Sec.  156.1210 of the second final 
Program Integrity Rule, HHS anticipates sending a monthly payment and 
collections report--the HIX 820--to issuers describing the advance 
payments of the premium tax credit and advance payments of cost-sharing 
reductions that an issuer is to receive on behalf of eligible 
enrollees, and the FFE user fee charges that the issuer must pay. These 
amounts are based on enrollments previously confirmed by the issuer as 
part of the enrollment transaction process and the resultant HIX 820 
discrepancy reporting process described in Sec.  156.1210. Under Sec.  
156.1210 (a), an issuer must respond to the payment and collections 
report within 15 calendar days of receipt of the report by either 
confirming the report or notifying HHS if there is a discrepancy 
between the data provided in the payment and collections report and the 
data that the issuer has. Under Sec.  156.1210(b), if an issuer reports 
a discrepancy in a payment and collections report later than 15 
calendar days after receipt of the report, HHS will work with the 
issuer to resolve the discrepancy as long as the late reporting was not 
due to misconduct on the part of the issuer. As described below, any 
resolution to such an identified discrepancy would be reflected in a 
later payment and collections report and the invoice generated under 
that later report would not affect the debt established by the invoice 
generated in connection with the earlier report.
    We propose that an issuer that notifies HHS of a discrepancy under 
Sec.  156.1210 will trigger an administrative discrepancy resolution 
process. Following the end of the benefit year, if the issuer remains 
dissatisfied with the results of that process, the issuer may make a 
request for reconsideration as proposed below in Sec.  156.1220(a).
    We intend that this discrepancy resolution process would permit HHS 
to work with issuers to resolve outstanding discrepancies in a 
cooperative manner. Because of the number and timing of the daily flows 
of enrollment and premium-related data and confirmations between HHS, 
the Exchange, and the issuer, we anticipate that there would be 
frequent adjustments to the enrollment counts and therefore the amounts 
of the advance payments of the premium tax credit, advance payments of 
cost-sharing reductions, and FFE user fees. To decrease the 
administrative burden on issuers, HHS, and the Exchanges, and in 
recognition of the number and timing of the data flows involved, we 
propose not to retroactively adjust previous months' payment and 
collections reports and amounts previously due. Consistent with our 
approach in the Medicare Advantage program, the invoice for a 
particular month would be calculated on the monthly payment cycle. We 
propose that the amount thus invoiced for a particular month, which 
would reflect netted amounts as described above, constitute an amount 
owed to the Federal government. As more accurate data become available 
to HHS, the Exchange, and the issuer, we propose that this later 
information not reduce or increase the previous determination of an 
amount owed. Rather, the information would be captured in subsequent 
months and reflected in subsequent payment cycles, and reflected in 
later invoices.
    Thus, an issuer would be required to pay the full amount of any 
invoice issued in connection with a payment and collection report for a 
month even if the issuer notes a discrepancy that may later be resolved 
as a credit in a later invoice.
    Therefore, we propose to add paragraph (c) to Sec.  156.1210 to 
provide that discrepancies in payment and collections reports 
identified to HHS under that section would be addressed in subsequent 
payment and collections reports, and would not be used to change debts 
determined pursuant to invoices generated under previous payment and 
collections reports.
    We seek comment on this approach.
c. Administrative Appeals
    We propose an administrative appeals process designed to address 
any unresolved discrepancies for advance payments of the premium tax 
credit, advance payments of cost-sharing reductions, FFE user fee 
payments, payments and charges for the premium stabilization programs, 
cost-sharing reduction reconciliation payments and charges, and any 
assessments under Sec.  153.740(b) of a default risk adjustment charge. 
This administrative appeals process is similar to that utilized to 
address payment disputes in the Medicare Part D program, in which an 
appeal to a CMS hearing officer, and then the Administrator of CMS, if 
desired, may be filed after a request for reconsideration.
    In Sec.  156.1220(a), we propose that an issuer may file a request 
for reconsideration of what the issuer believes is a processing error 
by HHS,\36\ HHS's incorrect application of the relevant methodology, or 
HHS's mathematical error only with respect to: (1) Advance payments of 
the premium tax credit, advance payment of cost-sharing reductions and 
FFE user fee charges; (2) risk adjustment payments or charges for a 
benefit year, including an assessment of risk adjustment user fees; (3) 
reinsurance payments for a benefit year; (4) a risk adjustment default 
charge for a benefit year; (5) a reconciliation payment or charge for 
cost-sharing reductions for a benefit year; or (6) risk corridors 
payments or charges for a benefit year. For a dispute regarding advance 
payments of the premium tax credit, advance payments of cost-sharing 
reductions, or FFE user fee amounts for a benefit year, we propose that 
a request for reconsideration must be filed within 30 calendar days 
after the issuer receives a final reconsideration notification 
specifying the aggregate amount of advance payments of the premium tax 
credit, advance payments of cost-sharing reductions, and FFE user fees 
for the applicable benefit year. We anticipate that this final 
reconsideration notification would be provided in the summer of the 
year following the benefit year. We believe that the constant flow of 
enrollment data for payments under these programs will lead to 
difficulty in finalizing a precise, final calculation for a benefit 
year, and propose to finalize payments under these programs

[[Page 72372]]

including for purposes of appeal by the late summer of the following 
year. We are considering permitting reconsideration only for material 
errors. We seek comment on this proposal, including on the minimum 
materiality threshold that should be required to seek reconsideration. 
For example, we are considering a minimum materiality threshold of 1 
percent or 5 percent of total payments made to the issuer for the year 
for advance payments of the premium tax credit, advance payments of 
cost-sharing reductions, and FFE user fees, or a minimum dollar amount 
such as $10,000.
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    \36\ We note that under proposed Sec.  156.1220(a)(3)(i)-(ii), 
an issuer may not submit data for consideration in the appeal if the 
data was not submitted prior to the applicable data submission 
deadline, but may submit documentary evidence that certain data was 
timely submitted.
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    For a dispute regarding a risk adjustment payment or charge, 
including an assessment of risk adjustment user fees, a reinsurance 
payment, a default risk adjustment charge, a cost-sharing reduction 
reconciliation payment or charge, or a risk corridors payment or 
charge, we propose that a request for reconsideration must be filed 
within 30 calendar days of receipt of the applicable notification of 
payments and charges provided by HHS. We believe that because the 
interim and final dedicated distributed data environment reporting 
process proposed at Sec.  153.710(d) and (e) would permit an issuer an 
extended period of time in which to review risk adjustment and 
reinsurance data and because the cost-sharing reduction reconciliation 
and risk corridors payments or charges are based on data provided by 
the issuer, 30 calendar days should be sufficient for an issuer to 
review the notification and make a request for reconsideration. We seek 
comment on this timeline.
    In Sec.  156.1220(a)(3)(i), we propose that the request for 
reconsideration specify the findings or issues that the issuer 
challenges and the reasons for the challenge. In Sec.  
156.1220(a)(3)(ii), we propose that a reconsideration with respect to a 
processing error by HHS, HHS's incorrect application of the relevant 
methodology, or HHS's mathematical error may be requested only if, to 
the extent the issue could have been previously identified by the 
issuer to HHS under Sec.  153.710(d)(2) or (e)(2), it was so identified 
and remains unresolved. Similarly, in Sec.  156.1220(a)(3)(iii), we 
propose that a reconsideration with respect to advance payments of the 
premium tax credit, advance payments of cost-sharing reductions, and 
FFE user fees may be requested only if, to the extent the issue could 
have been previously identified by the issuer to HHS under Sec.  
156.1210, it was so identified and remains unresolved. We propose to 
clarify that an issuer may request reconsideration if it previously 
identified an issue under Sec.  156.1210 after the 15-calendar-day 
deadline, but late discovery of the issue was not due to misconduct on 
the part of the issuer.
    In Sec.  156.1220(a)(3)(iv), we propose that the issuer may include 
in the request for reconsideration additional documentary evidence that 
HHS should consider. Such documents may not include data that was to 
have been filed by the applicable data submission deadline, but may 
include evidence of the timely submission of such documents.
    In Sec.  156.1220(a)(4), we propose that in conducting the 
reconsideration, HHS would review the payment determination, the 
evidence and findings upon which it was based, and any additional 
documentary evidence submitted by the issuer. HHS would also have the 
discretion to review any other evidence it believes is relevant in 
deciding the reconsideration (and would provide the issuer a reasonable 
opportunity to review and rebut the evidence), and would then inform 
the issuer of the final decision in writing. We propose that an issuer 
would be required to prove its case by a preponderance of the evidence 
with respect to issues of fact.
    In Sec.  156.1220(a)(5), we propose that a reconsideration decision 
would be final and binding for decisions regarding the advance payments 
of the premium tax credit, advance payments of cost-sharing reductions, 
and FFE user fees. A reconsideration with respect to other matters 
would be subject to the outcome of a request for informal hearing filed 
in accordance with proposed Sec.  156.1220(b). Because the monthly 
iterative discrepancy report process is available until the 
reconsideration notice is sent and because of the simplicity of the 
calculation of advance payments of the premium tax credit, advance 
payments of cost-sharing reductions, or FFE user fees, we believe that 
providing one level of administrative appeal for advance payments of 
the premium tax credit, advance payments of cost-sharing reductions, 
and FFE user fees is sufficient. We propose in Sec.  156.1220(b) that 
an issuer that elects to challenge the reconsideration decision for the 
final risk adjustment payment or charge, including an assessment of 
risk adjustment user fees; reinsurance payment; default risk adjustment 
charge; cost-sharing reduction reconciliation payment or charge; or 
risk corridors payment or charge for a benefit year provided under 
paragraph (a) of proposed Sec.  156.1220 would be entitled to an 
informal hearing before a CMS hearing officer. In Sec.  156.1220(b)(1), 
we propose that a request for an informal hearing be made in writing 
and filed with HHS within 15 calendar days of the date the issuer 
receives the reconsideration decision. In Sec.  156.1220(b)(2), we 
propose that the request for an informal hearing must include a copy of 
the reconsideration decision and must specify the findings or issues in 
the decision that the issuer is challenging and its reasons for the 
challenge. We also propose that HHS may submit for review by the CMS 
hearing officer a statement of the reasons supporting the 
reconsideration decision.
    In Sec.  156.1220(b)(3)(i), we propose that the issuer receive a 
written notice of the time and place of the informal hearing at least 
15 calendar days before the scheduled date. In Sec.  
156.1220(b)(3)(ii), we propose that the CMS hearing officer would 
neither receive testimony nor accept any new evidence that was not 
presented with the reconsideration request or in any statement provided 
by HHS. We propose that the scope of the CMS hearing officer's review 
would be limited to the statements provided by the issuer and HHS and 
the record that was before HHS in making the reconsideration 
determination. We would require that the issuer prove its case by clear 
and convincing evidence with respect to issues of fact and would permit 
the issuer to be represented by counsel in the informal hearing.
    In Sec.  156.1220(b)(4), we propose that, following the informal 
hearing, the CMS hearing officer would send the decision and the 
reasons for the decision to the issuer. We propose that this decision 
would be final and binding, but subject to any Administrator's review 
initiated in accordance with proposed Sec.  156.1220(c).
    We propose in Sec.  156.1220(c)(1) that if the CMS hearing officer 
upholds the reconsideration decision, the issuer may request a review 
by the Administrator of CMS within 15 calendar days of receipt of the 
CMS hearing officer's decision. The request for a review by the 
Administrator of CMS must specify the findings or issues in the 
decision that the issuer is challenging, and the reasons for the 
challenge. We propose that HHS may submit for review by the 
Administrator of CMS a statement supporting the decision of the CMS 
hearing officer.
    In Sec.  156.1220(c)(2), we propose that the Administrator of CMS 
or a delegate would review the hearing officer's decision, any written 
documents submitted by HHS or the issuer, as well as any other 
information included in the record of the CMS hearing officer's

[[Page 72373]]

decision, and would determine whether to uphold, reverse, or modify the 
CMS hearing officer's decision. We propose that the issuer would be 
required to prove its case by clear and convincing evidence with 
respect to issues of fact. We propose that the Administrator's 
determination would be considered final and binding.
    We believe that the administrative appeals process outlined above 
would give issuers reasonable opportunity for reconsideration and 
review of their payments and charges. Furthermore, building on 
established procedures utilized by HHS in Medicare Part D will provide 
a structure for administrative appeals with which issuers are already 
familiar. We seek comment on the proposed reconsideration and 
administrative appeals process.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the 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. This 
proposed rule contains information collection requirements (ICRs) that 
are subject to review by OMB. A description of these provisions is 
given in the following paragraphs with an estimate of the annual 
burden, summarized in Table 6. 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.
    We are soliciting public comment on each of these issues for the 
following sections of this proposed rule that contain ICRs. We 
generally used data from the Bureau of Labor Statistics to derive 
average labor costs (including capital costs, overhead, and fringe 
benefits) for estimating the burden associated with the ICRs.

A. ICRs Related to HHS Audits of State-operated Reinsurance Programs 
(Sec.  153.270)

    In Sec.  153.270, we propose that HHS or its designee may conduct a 
financial and programmatic audit of a State-operated reinsurance 
program to assess compliance with reinsurance program requirements. We 
also propose that, if an audit results in a finding of material 
weakness or significant deficiency, a State must ensure that the 
applicable reinsurance entity provides a written corrective action plan 
to HHS for approval within 60 calendar days of the issuance of the 
final audit report. The burden associated with meeting this third party 
disclosure requirement includes the burden for a State that establishes 
a reinsurance program to ensure that its applicable reinsurance entity 
and any relevant contractors, subcontractors, or agents cooperate with 
and take appropriate actions in connection with any audit, and the 
burden associated with preparing and submitting a corrective action 
plan to HHS for approval. Because only two States will operate 
reinsurance in the 2014 benefit year, this collection is exempt from 
the PRA under 44 U.S.C. 3502(3)(A)(i), and we are not seeking approval 
from OMB for this information collection requirement. We discuss the 
impact associated with HHS audits of State-operated reinsurance 
programs in the Regulatory Impact Analysis section of this proposed 
rule.

B. ICRs Regarding Issuer and Entity Administrative Burden Related to 
Audits for the Premium Stabilization Programs (Sec.  153.405(i); Sec.  
153.540(a); Sec.  153.410(d); Sec.  153.620(c))

    We propose that HHS or its designee would have the authority to 
audit QHP issuers, contributing entities, and issuers of risk 
adjustment covered plans or reinsurance-eligible plans to assess 
compliance with the requirements of subparts E, F, G and H of part 153, 
as applicable. As mentioned earlier in this proposed rule, where 
possible, we intend to align the risk corridors audit process with the 
audits conducted for the MLR program. Therefore, we believe that the 
issuer burden associated with the risk corridors audit is already 
accounted for as part of the Supporting Statement for the MLR program 
approved under OMB control number 0938-1164.
    For issuers of risk adjustment covered plans and issuers of 
reinsurance-eligible plans, these provisions would result in a third 
party disclosure requirement for issuers to prepare and compile the 
financial and programmatic information necessary to comply with the 
audit. For each onsite review, we estimate that it will take an average 
of 40 hours for administrative work to assemble the requested 
information, 19.5 hours to review the information for completeness, and 
30 minutes to submit the information to HHS in preparation for an 
onsite review. We estimate that an onsite review would require an 
additional 2 hours to schedule the onsite activities with the 
compliance reviewer (at an hourly wage rate of $53.75), 4 hours for 
introductory meeting, 8 hours to tour reviewers onsite, 10 hours of 
interview time, 2 hours to walk through processes with the reviewer, 
and 4 hours for concluding meetings, resulting in a total of 
approximately 60 hours of preparation time and an additional 30 hours 
of onsite time for each issuer. We estimate that it will take 90 hours 
at a cost of approximately $4,838 for each issuer to make information 
available to HHS for an onsite review. Because we have not finalized 
our audit protocols, it is difficult to accurately estimate an audit 
rate. However, we believe that it would be reasonable to assume that 
approximately 120 issuers, representing roughly 5 percent of issuers of 
risk adjustment covered plans or reinsurance-eligible plans would be 
audited. Therefore, we estimate an aggregate burden of 10,800 hours and 
$580,500 for issuers as a result of this requirement.
    For contributing entities, we estimate that the disclosure burden 
would be substantially less because the audit would be simpler. We 
estimate the burden to be approximately one-quarter of that of an 
issuer of a risk adjustment covered plan or a reinsurance-eligible 
plan, or approximately 22.5 hours at a cost of approximately $1,209 for 
each contributing entity. Similarly, because we have not finalized the 
audit protocols, it is difficult to accurately estimate an audit rate. 
However, we estimate that approximately 1 percent of contributing 
entities would be audited, representing 226 contributing entities. 
Therefore, we estimate an aggregate burden of 5,085 hours, or $273,319, 
as a result of this proposed requirement. We will revise the 
information collection currently approved under OMB Control Number 
0938-1155 with an October 31, 2015 expiration date to account for this 
additional burden.

C. ICRs Regarding Potential Adjustments for Transitional Plans (Sec.  
153.500-Sec.  153.540)

    For the 2014 benefit year, we are considering adjustments to the 
premium stabilization programs that would help to further mitigate any 
unexpected losses for QHP issuers with plans that are affected by the 
transitional policy. To effectuate potential adjustments, we must 
estimate the State-specific effect on average claims costs. We 
therefore

[[Page 72374]]

propose to require all issuers participating in the individual and 
small group markets in a State to submit to HHS a member-month 
enrollment count for transitional plans and non-transitional plans in 
the individual and small group markets. This submission would occur in 
2015 prior to the risk corridors July 31, 2015 data submission 
deadline. HHS would analyze that enrollment data, and publish the 
State-specific adjustments that issuers would use in the risk corridors 
calculations for the 2014 benefit year. To reduce the burden on 
issuers, we are considering coordinating this data collection with 
other data collections for the premium stabilization programs. We 
request comment on data collection methods and the potential effect on 
issuers' administrative costs.
    We estimate that there will be approximately 2,400 issuers in the 
individual and small group market in the 2014 benefit year, and that it 
would take an insurance analyst approximately 30 minutes (at an hourly 
wage rate of $38.49) to estimate enrollment in transitional plans and 
non-transitional plans and submit this information to HHS. Therefore, 
we estimate a cost of approximately $19.25 for each issuer, and an 
aggregate cost of $46,200 for all individual and small group market 
issuers (though this cost may be lower depending upon the data 
collection method we adopt). Because we anticipate collecting this 
information in 2015, and because we expect to issue additional 
clarifying guidance on this proposed policy, will seek OMB approval and 
solicit public comment on this information collection requirement at a 
future date.

D. ICRs Regarding Risk Corridors Data Validation (Sec.  153.530 and 
Sec.  153.540)

    For the 2014 benefit year, we propose to collect risk corridors 
data by using the same form as is used for MLR data collection, at the 
same time (July 31st of the year following the applicable benefit 
year). We intend to modify the MLR collection form for benefit year 
2015, approved under OMB control number 0938-1164, to add reporting 
elements (for example, QHP-specific premium amounts) that are required 
under the risk corridors data submission requirements under Sec.  
153.530. We intend to include these data elements in an amendment to 
the information collection approved under OMB control number 0938-1164 
for MLR data submission that we will publish for public comment and 
advance for OMB approval in the future.
    Because the MLR program and the risk corridors program will require 
similar data, we estimate that submitting the data elements required 
for the risk corridors program will impose limited additional burden on 
issuers. We estimate that it will take each QHP issuer approximately 
1.5 hours, representing 1 hour for an insurance analyst (at an hourly 
wage rate of $38.49) and 30 minutes for a senior manager (at an hourly 
wage rate of $77), to input and review data that is specific to the 
risk corridors program in the MLR and risk corridors reporting form for 
benefit year 2015. We estimate that 1,200 QHP issuers will submit risk 
corridors data for the 2014 benefit year in the 2015 risk corridors and 
MLR reporting cycle. Therefore, we estimate an aggregate burden of 
1,800 hours (at a total cost of approximately $92,394) for QHP issuers 
as a result of this requirement. We will revise the information 
collection currently approved OMB Control Number 0938-1155 with an 
October 31, 2015 expiration date to account for this additional burden.
    In Sec.  153.540(b), we propose that HHS may impose CMPs on QHP 
issuers on a State Exchange that do not comply with the risk corridors 
requirements in Subpart F. We note that we would impose any CMP in 
accordance with the procedures set forth in 45 CFR156.805. Although the 
processes set forth in Sec.  156.805 would result in information 
collection requirements that are subject to PRA, we expect to impose 
CMPs on fewer than 10 entities in a year. Therefore, we believe that 
this collection is exempt from the PRA under 44 U.S.C. 3502(3)(A)(i).

E. ICRs Regarding Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)

    In Sec.  153.630(b)(1), we propose that an issuer of a risk 
adjustment covered plan must engage one or more independent auditors to 
perform an initial validation audit of a sample of its risk adjustment 
data selected by HHS. This provision also proposes that the issuer 
provide HHS with the identity of the initial validation auditor, and 
attest to the absence of conflicts of interest between the initial 
validation auditor (or the members of its audit team, owners, 
directors, officers, or employees) and the issuer (or its owners, 
directors, officers, or employees), in a timeframe and manner to be 
specified by HHS. We previously estimated the cost to issuers to 
conduct an initial validation audit in the 2014 Payment Notice and the 
associated information collection request approved under OMB Control 
Number 0938-1155 with an October 1, 2015 expiration date. Therefore, 
the burden associated with this reporting requirement is the time and 
effort necessary to report the auditor's identity to HHS. We estimate 
it will take an insurance operations analyst (at an hourly wage rate of 
$38.49) and a senior manager (at an hourly wage rate of $77) each 
approximately 15 minutes to prepare and send an electronic report to 
HHS. Therefore, for 2,400 risk adjustment covered issuers, the 
aggregate burden associated with this requirement is 1,200 hours, at an 
approximate cost of $69,300.
    In Sec.  153.630(b)(8), we propose that the initial validation 
auditor measure and report to the issuer and HHS, in a manner and 
timeframe specified by HHS, the inter-rater reliability rates among its 
reviewers. Also in this provision, we propose that the initial 
validation auditor to achieve a minimum consistency measure of 95 
percent for demographic, enrollment, and health status review outcomes. 
We believe establishing standards for inter-rater reliability among 
reviewers is standard practice in the industry and will not result in 
extra cost for the initial validation auditor. Therefore, the burden 
associated with this reporting requirement is the time and effort for 
the initial validation auditor to report the inter-rater reliability 
rate to the issuer and to HHS. We estimate it will take an insurance 
operations analyst (at an hourly wage rate of $38.49) and a senior 
manager (at an hourly wage rate of $77) each approximately 15 minutes 
to report the inter-rater reliability rate to the issuer and to HHS. 
Therefore, assuming that 2,400 issuers of risk adjustment covered plans 
each engage one independent auditor to perform the initial validation 
audit, the aggregate burden associated with this requirement is 1,200 
hours, at an approximate cost of $69,300. We will revise the 
information collection currently approved under OMB Control Number 
0938-1155 with an October 31, 2015 expiration date to account for this 
additional burden.

F. ICRs Regarding Quarterly Data Submissions (Sec.  153.700(a))

    Section 153.700 provides that issuers of a risk adjustment covered 
plan or a reinsurance-eligible plan must establish a dedicated 
distributed data environment and provide data access to HHS, in a 
manner and timeframe specified by HHS, for any HHS-operated risk 
adjustment and reinsurance program. In this proposed rule, we clarify 
this timeframe, proposing that an issuer must make good faith efforts 
to make complete, current enrollment and claims files accessible 
through its

[[Page 72375]]

dedicated distributed data environments no less frequently than 
quarterly, once the issuer's dedicated distributed data environment is 
established.
    Based on HHS's most recent estimate of fully insured issuers in the 
individual and small group markets, we estimate that 2,400 issuers will 
be subject to the requirement to establish a dedicated data environment 
to either receive reinsurance payments or make risk adjustment 
transfers. Although we are clarifying in this proposed rule that 
issuers must make this data available to HHS on a quarterly basis, the 
aggregate burden associated with this requirement is already accounted 
for under the Premium Stabilization Rule Supporting Statement that is 
approved under OMB control number 0938-1155 with an October 31, 2015 
expiration date. We will revise that supporting statement to specify 
that issuers must comply with this information collection requirement 
on a quarterly basis.

G. ICRs Related to Confirmation of Dedicated Distributed Data 
Environment Reports (Sec.  153.700(d) and (e))

    We propose in Sec.  153.710(d) that within 30 calendar days of the 
date of an interim dedicated distributed data environment report from 
HHS, an issuer of a reinsurance-eligible or risk adjustment covered 
plan must either confirm to HHS that the information in the interim 
reports for the risk adjustment and reinsurance programs accurately 
reflect the data to which the issuer has provided access to HHS through 
its dedicated distributed data environment in accordance with Sec.  
153.700(a) for the timeframe specified in the report, or describe to 
HHS any inaccuracy it identifies in the interim report. Similar to the 
interim report process, we propose in Sec.  153.710(e) that the issuer 
either confirm to HHS that the information in the final dedicated 
distributed data environment report accurately reflects the data to 
which the issuer has provided access to HHS through its dedicated 
distributed data environment in accordance with Sec.  153.700(a) for 
the benefit year specified in the report, or describe to HHS any 
inaccuracy it identifies in the final dedicated distributed data 
environment report within 15 calendar days of the date of the report.
    We estimate that 2,400 issuers of risk adjustment covered plans and 
reinsurance-eligible plans will be subject to this requirement, and 
that issuers will compare enrollee condition codes with risk scores and 
analyze claims costs to confirm information in the interim and final 
dedicated distributed data environment reports. On average, we estimate 
that it will take an insurance operations analyst (at an hourly wage 
rate of $38.49) approximately 2 hours to respond to an interim report 
and 6 hours to respond to the final dedicated distributed data 
environment report. Therefore, we estimate an aggregate burden of 
19,200 hours and $739,008 for 2,400 issuers as a result of this 
requirement. We will revise the information collection currently 
approved under OMB Control Number 0938-1155 with an October 31, 2015 
expiration date to account for this additional burden.

H. ICRs Regarding Privacy and Security of Personally Identifiable 
Information (Sec.  155.260(a))

    In Sec.  155.260(a), we propose that an Exchange may submit to the 
Secretary a proposed use or disclosure of eligibility and enrollment 
PII. The Exchange submitting such a request must provide a detailed 
description of the use or disclosure and how the proposed use or 
disclosure will ensure the efficient operation of the Exchanges 
consistent with section 1411(g)(2)(A) of the Affordable Care Act. The 
requesting Exchange must also describe how the information to be used 
or disclosed will be protected in compliance with the privacy and 
security standards established by the Exchange. We estimate fewer than 
10 states will submit such proposals on a yearly basis. While this 
reporting requirement is subject to the PRA, we believe the associated 
burden is exempt under 5 CFR 1320.3(c)(4) and 44 U.S.C. 3502(3)(A)(i), 
since fewer than 10 entities would be affected. Therefore, we are not 
seeking approval from OMB for these information collection 
requirements. We seek comment on this estimate from states that are 
contemplating any uses of eligibility and enrollment PII for which they 
would submit such a proposal.

I. ICRs Regarding Quality Standards: Establishment of Patient Safety 
Standards for QHP Issuers (Sec.  156.1110)

    In Sec.  156.1110, we describe the information collection, 
recordkeeping, and disclosure requirements that a QHP issuer must meet 
to demonstrate compliance with these proposed patient safety standards. 
The burden estimate associated with these standards includes the time 
and effort required for QHPs to maintain and submit hospital CMS 
Certification Numbers and any other information to the Exchange that 
demonstrates that each of its contracted hospitals with greater than 50 
beds meets the patient safety standards required in Sec.  156.1110(a). 
In the near future, HHS intends to publish a rule proposing more 
specific quality standards for Exchanges and QHPs and will solicit 
public comment. At that time and per requirements outlined in the PRA, 
we intend to estimate the burden on QHPs to comply with the patient 
safety provisions of Sec.  156.1110. Until that time, we are soliciting 
comments on the burden for QHPs to maintain and submit such 
documentation to demonstrate meeting the patient safety standards 
proposed here.

J. ICRs Regarding Administrative Appeals (Sec.  156.1220)

    In Sec.  156.1220, we propose an administrative appeals process to 
address unresolved discrepancies for advance payment of the premium tax 
credit, advance payment and reconciliation of cost-sharing reductions, 
FFE user fees, and the premium stabilization programs, as well as any 
assessment of a default risk adjustment charge under Sec.  153.740(b).
    In Sec.  156.1220(a), we propose that an issuer may file a request 
for reconsideration to contest a processing error by HHS, HHS's 
incorrect application of the relevant methodology, or HHS's 
mathematical error for the amount of: (1) Advance payment of the 
premium tax credit, advance payment of cost-sharing reductions or 
Federally-facilitated user fees charge for a particular month; (2) risk 
adjustment payments or charges for a benefit year, including an 
assessment of risk adjustment user fees; (3) reinsurance payments for a 
benefit year; (4) a risk adjustment default charge for a benefit year; 
(5) a reconciliation payment or charge for cost-sharing reductions for 
a benefit year; or (6) risk corridors payments or charges for a benefit 
year. While the hours involved in a request for reconsideration may 
vary, for the purpose of this burden estimate we estimate that it will 
take an insurance operations analyst 1 hour (at an hourly wage rate of 
$38.49) to make the comparison and submit a request for reconsideration 
to HHS. We estimate that 24 issuers, representing approximately 1 
percent of all issuers that may be eligible for reinsurance payments, 
risk adjustment payments or charges (including any assessment of risk 
adjustment user fees or a default risk adjustment charge), advance 
payment and reconciliation of cost-sharing reductions, advance payment 
of the premium tax credit, and FFE user fees, will submit a request for 
reconsideration, resulting in a total aggregate burden of approximately 
$924.

[[Page 72376]]

We will revise the information collection currently approved OMB 
Control Number 0938-1155 with an October 31, 2015 expiration date to 
account for this additional burden.
    In Sec.  156.1220(b), we propose that an issuer that is 
dissatisfied with the reconsideration decision regarding: (1) Risk 
adjustment payments and charges, including an assessment of risk 
adjustment user fees; (2) reinsurance payments; (3) default risk 
adjustment charge; (4) reconciled cost-sharing reduction amounts; or 
(5) risk corridors payments or charges, provided under paragraph (a) of 
Sec.  156.1220, is entitled to an informal hearing before a CMS hearing 
officer, if a request is made in writing within 15 calendar days of the 
date the issuer receives the reconsideration decision. Further review 
is available from the Administrator of CMS. However, we believe these 
processes will occur extremely infrequently. Since collections from 
fewer than 10 entities are exempt from the PRA under 44 U.S.C. 
3502(3)(A)(i), we are not seeking PRA approval for this information 
collection requirement.

                                             Table 7--Annual Reporting, Recordkeeping and Disclosure Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Hourly labor   Total labor      Total
                                           Number of                   Burden per   Total annual     cost of       cost of      capital/     Total cost
         Regulation Section(s)            respondents     Responses     response        burden      reporting     reporting    maintenance       ($)
                                                                         (hours)       (hours)         ($)           ($)       costs  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   153.405........................             226           226         22.50         5,085         53.75       273,319             0       273,319
Sec.   153.410; Sec.   153.620........             120           120         90.00        10,800         53.75       580,500             0       580,500
Sec.   153.500-Sec.   153.540-........           2,400         2,400          0.50         1,200         38.49        46,200  ............        46,200
Sec.   153.540........................           1,200         1,200          1.50         1,200         51.33        92,394             0        92,394
Sec.   153.630(b)(1)..................           2,400         2,400          0.50         1,200         57.75        69,300             0        69,300
Sec.   153.630(b)(8)..................           2,400         2,400          0.50         1,200         57.75        69,300             0        69,300
(Sec.   153.700(d) and (e))...........           2,400         2,400          8.00        19,200         38.49       739,008             0       739,008
Sec.   156.1220.......................              24            24          1.00            24         38.49           924             0           924
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total.............................       \a\ 3,970  ............  ............  ............  ............     1,870,945             0     1,870,945
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ ICRs associated with Sec.   153.500, Sec.   153.630(b)(1), Sec.   153.630(b)(8) and Sec.   153.700(d) and (e) apply to the same respondents, so the
  total number of unique respondents is 3,970.

    We have submitted an information collection request to OMB for 
review and approval of the ICRs contained in this proposed rule. The 
requirements are not effective until approved by OMB and assigned a 
valid OMB control number.
    To obtain copies of the supporting statement and any related forms 
for the paperwork collections referenced above, access CMS's Web site 
at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html or email your request, 
including your address, phone number, OMB number, and CMS document 
identifier, to Paperwork@cms.hhs.gov, or call the Reports Clearance 
Office at 410-786-1326.
    If you comment on these information collection requirements, please 
do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
CMS-9972-F. Fax: (202) 395-5806; or Email: OIRA_submission@omb.eop.gov.

V. Response to Comments

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

VI. Regulatory Impact Statement (or Analysis)

A. Statement of Need

    This proposed rule proposes standards related to the premium 
stabilization programs (risk adjustment, reinsurance, and risk 
corridors) that will protect issuers from the potential effects of 
adverse selection and protect consumers from increases in premiums due 
to issuer uncertainty. The Premium Stabilization Rule and 2014 Payment 
Notice provided detail on the implementation of these programs, 
including the specific parameters applicable to these programs. This 
proposed rule also proposes additional standards with respect to 
composite rating, privacy and security of personally identifiable 
information, the open enrollment period for 2015, the actuarial value 
calculator, the annual limitation on cost sharing for stand-alone 
dental plans, the meaningful difference standard for qualified health 
plans offered through a Federally-facilitated Exchange, patient safety 
standards for issuers of qualified health plans, the Small Business 
Health Options Program, cost sharing parameters, cost-sharing 
reductions, and FFE user fees.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 
804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety

[[Page 72377]]

effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. A 
regulatory impact analysis (RIA) must be prepared for rules with 
economically significant effects ($100 million or more in any 1 year).
    OMB has determined that this proposed rule is ``economically 
significant'' within the meaning of section 3(f)(1) of Executive Order 
12866, because it is likely to have an annual effect of $100 million in 
any 1 year. Accordingly, we have prepared a RIA that presents the costs 
and benefits of this proposed rule.
    Although it is difficult to discuss the wide-ranging effects of 
these provisions in isolation, the overarching goal of the premium 
stabilization and Exchange-related provisions and policies in the 
Affordable Care Act is to make affordable health insurance available to 
individuals who do not have access to affordable employer-sponsored 
coverage. The provisions within this proposed rule are integral to the 
goal of expanding coverage. For example, the premium stabilization 
programs decrease the risk of financial loss that health insurance 
issuers might otherwise expect in 2015 and the advance payments of the 
premium tax credit and cost-sharing reduction programs assist low- and 
moderate-income consumers and Indians in purchasing health insurance. 
The combined impacts of these provisions affect the private sector, 
issuers, and consumers, through increased access to health care 
services including preventive services, decreased uncompensated care, 
lower premiums, establishment of patient safety standards, and 
increased plan transparency. Through the reduction in financial 
uncertainty for issuers and increased affordability for consumers, 
these provisions are expected to increase access to health coverage.
    In this RIA, we discuss the requirements in this proposed rule 
related to cost sharing and FFE user fees, as well as new oversight 
provisions for the premium stabilization programs.

C. Impact Estimates of the Payment Notice Provisions and Accounting 
Table

    In accordance with OMB Circular A-4, Table 8 below depicts an 
accounting statement summarizing HHS's assessment of the benefits, 
costs, and transfers associated with this regulatory action.
    This proposed rule implements standards for programs that will have 
numerous effects, including providing consumers with affordable health 
insurance coverage, reducing the impact of adverse selection, and 
stabilizing premiums in the individual and small group health insurance 
markets and in an Exchange. We are unable to quantify certain benefits 
of this proposed rule--such as increased patient safety and improved 
health and longevity due to increased insurance enrollment--and certain 
costs--such as the cost of providing additional medical services to 
newly-enrolled individuals. The effects in Table 8 reflect qualitative 
impacts and estimated direct monetary costs and transfers resulting 
from the provisions of this proposed rule for contributing entities, 
States, Exchanges, and health insurance issuers. The annualized 
monetized costs described in Table 8 reflect direct administrative 
costs (including costs associated with labor, capital, overhead, and 
fringe benefits) to States and health insurance issuers as a result of 
the proposed provisions, and include administrative costs estimated in 
the Collection of Information section of this proposed rule. We note 
estimated transfers in Table 8 do not reflect any user fees paid by 
insurance issuers for FFEs because we cannot estimate those fee totals. 
We also note that, while we are proposing a 2015 reinsurance 
contribution rate that is lower than the 2014 reinsurance contribution 
rate, total reinsurance administrative expenses, including the 
reinsurance contribution rate, will increase from 2014 to 2015.

                                            Table 8--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Benefits:
----------------------------------------------------------------------------------------------------------------
Qualitative:
   *Increased enrollment in the individual market leading to improved access to health care for the previously
    uninsured, especially individuals with medical conditions, which will result in improved health and
    protection from the risk of catastrophic medical expenditures.
   *A common marketing standard covering the entire insurance market, reducing adverse selection and increasing
    competition.
   *Robust oversight of programs that use Federal funds to ensure proper use of taxpayer dollars.
   *Access to higher quality health care through the establishment of patient safety standards
   *Increasing coverage options for small employers and part-time employees while mitigating the effect of
    adverse selection.
----------------------------------------------------------------------------------------------------------------
Costs:                                                          Estimate       Year       Discount      Period
                                                                      (in       dollar      rate       covered
                                                                millions)                 (percent)
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)                                        1.75         2013            7    2014-2017
                                                             ---------------------------------------------------
                                                                     1.82         2013            3    2014-2017
----------------------------------------------------------------------------------------------------------------
Qualitative:
   *Costs incurred by issuers and contributing entities to comply with provisions in the proposed rule.
   *Costs incurred by States for complying with audits of State-operated reinsurance programs.
----------------------------------------------------------------------------------------------------------------
Transfers:                                                      Estimate       Year       Discount      Period
                                                                      (in       dollar      rate       covered
                                                                millions)                 (percent)
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)                                       11.59         2013            7    2014-2017
                                                             ---------------------------------------------------
                                                                    12.04         2013            3    2014-2017
----------------------------------------------------------------------------------------------------------------

[[Page 72378]]

 
   *Transfers reflect incremental cost increases from 2014-2015 for reinsurance administrative expenses and the
    risk adjustment user fee, which are transfers from contributing entities and health insurance issuers to the
    Federal government.
   *Unquantified: Lower premium rates in the individual market due to the improved risk profile of the insured,
    competition, and pooling.
----------------------------------------------------------------------------------------------------------------

    This RIA expands upon the impact analyses of previous rules and 
utilizes the Congressional Budget Office's (CBO) analysis of the 
Affordable Care Act's impact on Federal spending, revenue collection, 
and insurance enrollment. The CBO's estimates remain the most 
comprehensive for provisions pertaining to the Affordable Care Act, and 
include Federal budget impact estimates for provisions that HHS has not 
independently estimated. The CBO's May 2013 baseline projections 
estimated that 22 million enrollees will enroll in Exchange coverage by 
2016, including approximately 18 million Exchange enrollees who will be 
receiving subsidies.\37\ Participation rates among potential enrollees 
are expected to be lower in the first few years of Exchange 
availability as employers and individuals adjust to the features of the 
Exchanges. Table 9 summarizes the effects of the risk adjustment and 
reinsurance programs on the Federal budget from fiscal years 2014 
through 2017, with the additional, societal effects of this proposed 
rule discussed in this RIA. We do not expect the provisions of this 
proposed rule to significantly alter CBO's estimates of the budget 
impact of the risk adjustment and reinsurance programs that are 
described in Table 9. For this RIA, we are shifting the estimates for 
the risk adjustment and reinsurance programs to reflect the 4-year 
period from fiscal years 2014 through 2017, because CBO's scoring of 
the risk adjustment and reinsurance programs assumed that payments and 
charges would begin in 2014, when in fact these payments and charges 
will begin in 2015. CBO did not separately estimate the program costs 
of risk corridors, but assumed aggregate collections from some issuers 
would offset payments made to other issuers. We note that transfers 
associated with the risk adjustment and reinsurance programs were 
previously estimated in the Premium Stabilization Rule; therefore, to 
avoid double-counting, we do not include them in the accounting 
statement for this proposed rule (Table 8).
---------------------------------------------------------------------------

    \37\ ``Updated Estimates for the Insurance Coverage Provisions 
of the Affordable Care Act,'' Congressional Budget Office, May 2013.
---------------------------------------------------------------------------

    In addition to utilizing CBO projections, HHS conducted an internal 
analysis of the effects of its regulations on enrollment and premiums. 
Based on these internal analyses, we anticipate that the quantitative 
effects of the provisions proposed in this rule are consistent with our 
previous estimates in the 2014 Payment Notice for the impacts 
associated with the cost-sharing reduction program, the advance 
payments of the premium tax credit program, the premium stabilization 
programs, and FFE user fee requirements for health insurance issuers.

Table 9--Estimated Federal Government Outlays and Receipts for the Risk Adjustment and Reinsurance Programs From
                                      FY 2013-2017, in Billions of Dollars
----------------------------------------------------------------------------------------------------------------
                     Year                          2013       2014       2015       2016       2017    2013-2017
----------------------------------------------------------------------------------------------------------------
Risk Adjustment and Reinsurance Program                --          6         17         18         20         61
 Payments.....................................
Risk Adjustment and Reinsurance Program                --         13         16         18         18         65
 Collections \*\..............................
----------------------------------------------------------------------------------------------------------------
* Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over
  time. Source: Congressional Budget Office. 2012. Letter to Hon. John Boehner. July 24, 2012.

Risk Adjustment
    The risk adjustment program is a permanent program created by the 
Affordable Care Act that transfers funds from lower risk, non-
grandfathered plans to higher risk, non-grandfathered plans in the 
individual and small group markets, inside and outside the Exchanges. 
In subparts D and G of the Premium Stabilization Rule and the 2014 
Payment Notice, we established standards for the administration of the 
risk adjustment program.
    A State approved or conditionally approved by the Secretary to 
operate an Exchange may establish a risk adjustment program, or have 
HHS do so on its behalf. As described in the 2014 Payment Notice, if 
HHS operates risk adjustment on behalf of a State, it will fund its 
risk adjustment program operations by assessing a risk adjustment user 
fee on issuers of risk adjustment covered plans. For the 2015 benefit 
year, we estimate that the total cost for HHS to operate the risk 
adjustment program on behalf of States for 2015 will be approximately 
$27.3 million, and that the per capita risk adjustment user fee would 
be less than $1.00 per year for HHS to operate the risk adjustment 
program on behalf of States for 2015.
    In this proposed rule, we propose in Sec.  153.620(c) that HHS or 
its designee may audit an issuer of a risk adjustment covered plan, 
when HHS operates risk adjustment on behalf of a State, to assess the 
issuer's compliance with the requirements of subparts G and H of 45 CFR 
part 153. As discussed above, HHS intends to fund risk adjustment 
operations (not including Federal personnel costs), including risk 
adjustment program integrity and audit functions, by collecting a per 
capita user fee from issuers of risk adjustment covered plans. 
Therefore, we believe that the costs to the Federal government 
associated with the risk adjustment audit activities in this proposed 
rule would be covered through the risk adjustment user fee, and that 
there would be no impact for the Federal government as a result of the 
proposed audit provisions. The proposed audit provision would result in 
additional costs for issuers of risk adjustment covered plans related 
to gathering information and preparing for an audit. We discuss the 
administrative costs associated with this proposed requirement for 
issuers in the Collection of Information section of this proposed rule.

[[Page 72379]]

    Although this proposed rule would result in some additional 
administrative burden for issuers of risk adjustment covered plans as a 
result of the proposed requirements for risk adjustment data validation 
and submission of discrepancy reports in response to interim and final 
dedicated distributed data environment reports, we note that much of 
the impact associated with establishing a dedicated distributed data 
environment and a risk adjustment data validation process has 
previously been estimated in the Premium Stabilization Rule and the 
2014 Payment Notice. We do not believe that provisions contained within 
this proposed rule substantially alter the previous estimates. We 
describe these administrative costs in the Collection of Information 
Requirements section of this proposed rule.
Reinsurance
    The Affordable Care Act directs that a transitional reinsurance 
program be established in each State to help stabilize premiums for 
coverage in the individual market from 2014 through 2016. In the 2014 
Payment Notice, we expanded upon the standards set forth in subparts C 
and E of the Premium Stabilization Rule and established the 2014 
uniform reinsurance payment parameters and national contribution rate. 
In this proposed rule, we set forth the 2015 uniform reinsurance 
payment parameters and contribution rate, and oversight provisions 
related to the operation of the reinsurance program.
    Section 153.220(c) provides that HHS will publish the uniform per 
capita reinsurance contribution rate for the upcoming benefit year in 
the annual HHS notice of benefit and payment parameters. Section 
1341(b)(3)(B)(iii) of the Affordable Care Act specifies that $10 
billion for reinsurance contributions is to be collected from 
contributing entities in 2014 (the reinsurance payment pool), $6 
billion in 2015, and $4 billion in 2016. Additionally, sections 
1341(b)(3)(B)(iv) and 1341(b)(4) of the Affordable Care Act direct that 
$2 billion in funds is to be collected for contribution to the U.S. 
Treasury in 2014, $2 billion in 2015, and $1 billion in 2016. Finally, 
section 1341(b)(3)(B)(ii) of the Affordable Care Act allows for the 
collection of additional amounts for administrative expenses. Taken 
together, these three components make up the total dollar amount to be 
collected from contributing entities for each of the 3 years of the 
reinsurance program under the uniform per capita contribution rate.
    If HHS operates the reinsurance program on behalf of a State, HHS 
would retain $0.14 as an annual per capita fee to fund HHS's 
performance of all reinsurance functions. If a State establishes its 
own reinsurance program, HHS would transfer $0.07 of the per capita 
administrative fee to the State for purposes of administrative expenses 
incurred in making reinsurance payments, and retain the remaining $0.07 
to offset the costs of contribution collection.
    To safeguard the use of Federal funds in the transitional 
reinsurance program, we propose in Sec.  153.270(a) that HHS or its 
designee may conduct a financial and programmatic audit of a State-
operated reinsurance program to assess compliance with the requirements 
of subparts B and C of 45 CFR part 153. As discussed above, HHS intends 
to fund reinsurance operations (not including Federal personnel costs), 
including program integrity and audit functions, by collecting as part 
of the uniform contribution rate, administrative expenses associated 
with operating the reinsurance program from all reinsurance 
contributing entities. Therefore, we believe that the costs to the 
Federal government associated with the reinsurance audit activities in 
this proposed rule would be covered through the reinsurance 
contribution rate, and that there would be no net budget impact for the 
Federal government as a result of the proposed audit provisions. 
Because this proposed audit requirement would direct a State that 
establishes a reinsurance program to ensure that its applicable 
reinsurance entity and any relevant contractors, subcontractors, or 
agents cooperate with an audit, and would direct the State to provide 
to HHS for approval a written corrective action plan; implement the 
plan; and provide to HHS written documentation of the corrective 
actions once taken, if the audit resulted in a finding of material 
weakness or significant deficiency, the proposed requirement would 
impose a cost on States operating reinsurance. We believe that State-
operated reinsurance programs would already electronically maintain the 
information necessary for an audit as part of their normal business 
practices and as a result of the maintenance of records requirement set 
forth in Sec.  153.240(c), no additional time or effort will be 
necessary to develop and maintain audit information. We estimate that 
it will take a compliance analyst (at an hourly wage rate of $53.75) 40 
hours to gather the necessary information required for an audit, 5 
hours to prepare a corrective action plan based on the audit findings 
and 64 hours to implement and document the corrective actions taken if 
necessary. We also estimate a senior manager (at an hourly wage rate of 
$77) will take 5 hours to oversee the transmission of audit information 
to HHS and to review the corrective action plan prior to submission to 
HHS, and 16 hours to oversee implementation of any corrective actions 
taken. Therefore, we estimate a total administrative cost of 
approximately $7,476 for each State-operated reinsurance program as a 
result of this proposed audit requirement. For the two States that will 
operate reinsurance for the 2014 benefit year, we estimate an aggregate 
burden of approximately $14,952 as a result of this requirement. 
Although we have estimated the cost of a potential audit in this RIA, 
we note that we will not audit all State-operated reinsurance programs, 
and may not audit any of these programs.
    In Sec.  153.405(i) and Sec.  153.410(d), we propose that HHS may 
audit contributing entities and issuers of reinsurance-eligible plans 
to assess compliance with reinsurance program requirements. We discuss 
the costs to contributing entities and issuers of reinsurance-eligible 
plans as a result of this proposed requirement in the Collection of 
Information section of this proposed rule. We intend to combine issuer 
audits for the premium stabilization programs whenever practicable to 
reduce the financial burden of these audits on issuers. Consequently, 
we anticipate that, because issuers of reinsurance-eligible plans may 
also be subject to risk adjustment requirements, we would conduct these 
audits in a manner that avoids overlapping review of information that 
is required for both programs.
Risk Corridors
    The Affordable Care Act creates a temporary risk corridors program 
for the years 2014, 2015, and 2016 that applies to QHPs, as defined in 
Sec.  153.500. The risk corridors program creates a mechanism for 
sharing risk for allowable costs between the Federal government and QHP 
issuers. The Affordable Care Act establishes the risk corridors program 
as a Federal program; consequently, HHS will operate the risk corridors 
program under Federal rules with no State variation. The risk corridors 
program will help protect against inaccurate rate setting in the early 
years of the Exchanges by limiting the extent of issuer losses and 
gains.
    As mentioned elsewhere in this proposed rule, for the 2014 benefit 
year, we are proposing an adjustment to the risk corridors formula that 
would help

[[Page 72380]]

to further mitigate potential QHP issuers' unexpected losses that are 
attributable to the effects of the transition policy. This proposed 
adjustment may increase the total amount of risk corridors payments 
that the Federal government will make to QHP issuers, and reduce the 
amount of risk corridors receipts; however, we are considering a number 
of approaches that would limit the impact of the policy on the Federal 
budget. Because of the difficulty associated with predicting State 
enforcement of 2014 market rules and estimating the enrollment in 
transitional plans and in QHPs, we cannot estimate the magnitude of 
this impact on aggregate risk corridors payments and charges at this 
time. We also estimate that this proposed adjustment would result in 
direct administrative costs for individual and small group market 
issuers that are discussed in the Collection of Information section of 
this proposed rule.
    To ensure the integrity of risk corridors data reporting, we 
propose in Sec.  153.540(a) to establish HHS authority to conduct post-
payment audits of QHP issuers. We are contemplating several ways to 
reduce issuer burden, such as conducting the risk corridors audits 
using the existing MLR audit process or conducting risk corridors 
audits under an overall issuer audit program. Therefore, as described 
in the Collection of Information section of this proposed rule, we 
believe that the cost for issuers that would result from this proposed 
audit requirement is already accounted for as part of the MLR audit 
process.
    We also propose in Sec.  153.540(c) to extend our CMP authority 
under sections 1321(a)(1) and (c)(2) of the Affordable Care Act to all 
QHP issuers that fail to provide timely, accurate, and complete data 
necessary for risk corridors calculations, or that otherwise do not 
comply with the standards in subpart F of 45 CFR part 153. We propose 
to assess CMPs on QHP issuers in State Exchanges in accordance with the 
same enforcement and sanction procedures that apply to QHP issuers on 
an FFE under Sec.  156.805.
    As set forth in Sec.  156.805(c), HHS will impose a maximum penalty 
amount of $100 per day on a QHP issuer for each violation, for each 
individual adversely affected by the non-compliance. As noted in the 
preamble to Sec.  153.540 in this proposed rule, for violations of 
subpart F where the number of individuals adversely affected by the 
non-compliance cannot be determined, we propose giving HHS the 
authority to estimate the number of individuals likely to be adversely 
affected by the non-compliance. We note that CMPs will be imposed only 
for serious issues of non-compliance. We expect to provide technical 
assistance to issuers, as appropriate, to assist them in maintaining 
compliance with the applicable standards. We also plan to coordinate 
with States and the MLR program in our oversight and enforcement 
activities to avoid inappropriately duplicating enforcement efforts. 
Consequently, we anticipate that CMPs will be rare, and that the impact 
of this proposed requirement on QHP issuers will be negligible.
Provisions Related to Cost Sharing
    The Affordable Care Act provides for the reduction or elimination 
of cost sharing for certain eligible individuals enrolled in QHPs 
offered through the Exchanges. This assistance will help many low- and 
moderate-income individuals and families obtain health insurance--for 
many people, cost sharing is a barrier to obtaining needed health 
care.\38\
---------------------------------------------------------------------------

    \38\ Brook, Robert H., John E. Ware, William H. Rogers, Emmett 
B. Keeler, Allyson Ross Davies, Cathy D. Sherbourne, George A. 
Goldberg, Kathleen N. Lohr, Patricia Camp and Joseph P. Newhouse. 
The Effect of Coinsurance on the Health of Adults: Results from the 
RAND Health Insurance Experiment. Santa Monica, CA: RAND 
Corporation, 1984. Available at: http://www.rand.org/pubs/reports/R3055.
---------------------------------------------------------------------------

    To support the administration of the cost-sharing reduction 
program, we set forth in this proposed rule the reductions in the 
maximum annual limitation on cost sharing for silver plan variations 
and a modified methodology for calculating advance payments for cost-
sharing reductions. For benefit year 2015, we propose to require the 
same reductions in the maximum annual limitation on cost sharing as 
were finalized for benefit year 2014. We note that we are proposing 
certain modifications to the methodology for calculating advance 
payments for cost-sharing reductions, but we do not believe these 
changes will result in a significant economic impact. Therefore, we do 
not believe the provisions related to cost-sharing reductions in this 
proposed rule will have an impact on the program established by and 
described in the 2014 Payment Notice.
    We also proposed a methodology for estimating average per capita 
premium, and proposed the premium adjustment percentage for the 2015 
benefit year. Section 156.130(e) provides that the premium adjustment 
percentage is the percentage (if any) by which the average per capita 
premium for health insurance coverage for the preceding calendar year 
exceeds such average per capita premium for health insurance for 2013, 
and that this percentage will be published annually in the HHS notice 
of benefit and payment parameters. The annual premium adjustment 
percentage that is issued sets the rate of increase for four parameters 
detailed in the Affordable Care Act: the annual limitation on cost 
sharing (defined at Sec.  156.130(a)), the annual limitation on 
deductibles for plans in the small group (defined at Sec.  156.130(b)), 
and the section 4980H(a) and section 4980H(b) assessable payment 
amounts (proposed at 26 CFR 54.4980H in the ``Shared Responsibility for 
Employers Regarding Health Coverage,'' published in the Federal 
Register January 2, 2013 (78 FR 218)). We believe that the proposed 
premium adjustment percentage is well within the parameters used in the 
modeling of the Affordable Care Act, and do not expect that these 
proposed provisions will alter CBO's May 2013 baseline estimates of the 
budget impact.
Annual Open Enrollment Period
    We propose amendments to Sec.  155.410(e) and (f) to amend the 
dates for the annual open enrollment period and related coverage 
effective dates. These proposed amendments would benefit issuers at no 
additional cost, as Exchanges would delay their QHP certification dates 
by at least one month, giving issuers additional time. Because open 
enrollment dates would be moved forward, Exchanges would still have the 
same amount of time for the QHP certification process, and we do not 
anticipate that this would come at an additional cost to Exchanges. 
Consumers would have the benefit of a more beneficial open enrollment 
period, without any additional demand placed on them.
Calculation of Plan Actuarial Value
    Issuers may incur minor administrative costs associated with 
altering cost-sharing parameters of their plan designs to ensure 
compliance with AV requirements when utilizing the AV calculator from 
year-to-year. These requirements are established in the EHB Rule and 
are in accordance with the proposed provisions in this proposed rule. 
Since issuers have extensive experience in offering products with 
various levels of cost sharing and since these modifications are 
expected to be relatively minor for most issuers, HHS expects that the 
process for computing AV with the AV Calculator will not demand many 
additional resources.

[[Page 72381]]

User Fees
    To support the operation of FFEs, we require in Sec.  156.50(c) 
that a participating issuer offering a plan through an FFE must remit a 
user fee to HHS each month equal to the product of the monthly user fee 
rate specified in the annual HHS notice of benefit and payment 
parameters for the applicable benefit year and the monthly premium 
charged by the issuer for each policy under the plan where enrollment 
is through an FFE. For the 2015 benefit year, we propose a monthly user 
fee rate equal to 3.5 percent of the monthly premium. We do not have an 
aggregate estimate of the collections from the user fee at this time 
because we do not yet have a count of the number of States in which HHS 
will run an FFE or FF-SHOP in 2015.
SHOP
    The SHOPs facilitate the enrollment of eligible employees of small 
employers into small group health insurance plans. A qualitative 
analysis of the costs and benefits of establishing a SHOP was included 
in the RIA published in conjunction with the Exchange Establishment 
Rule.\39\ This RIA addresses the additional costs and benefits of the 
proposed modifications in this proposed rule to the SHOP sections of 
the Exchange Establishment Rule.
---------------------------------------------------------------------------

    \39\ Available at: http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf
---------------------------------------------------------------------------

    In this proposed rule, we propose revising paragraph Sec.  
155.705(b)(1), which lists the rules regarding eligibility and 
enrollment to which the SHOPs must adhere, to include mention of 
additional provisions regarding termination of coverage in SHOPs and 
SHOP employer and employee eligibility appeals that were finalized in 
the first final Program Integrity Rule. We propose that an employer in 
the FF-SHOPs would have the option to offer its employees either a 
single SADP or a choice of all SADPs available in an FF-SHOP for plan 
years beginning on or after January 1, 2015. In Sec.  
155.705(b)(11)(ii)(D) we propose prohibiting an employer in an FF-SHOP 
from basing its contribution on composite rates when employee choice 
becomes available and the employer elects to offer its employees all 
plans in a metal tier selected by the employer.
    We also propose amendments to Sec.  155.705(b)(4) that would allow 
SHOPs performing premium aggregation to establish a standard method for 
premium calculation, payment, and collection. We propose that in the 
FF-SHOPs, after premium aggregation becomes available in plan years 
beginning on or after January 1, 2015, employers would be required to 
remit premiums to the FF-SHOP in accordance with a payment timeline and 
process established by HHS through guidance, and that premiums for 
coverage of less than 1 month would be prorated by multiplying the 
number of days of coverage in the partial month by the premium for 1 
month divided by the number of days in the month. In developing the 
premium payment timeline and process, HHS will consider its interest in 
operating and administering the FF-SHOPs efficiently, as well as 
issuers' interests in ensuring timely payment of premiums, and issuers' 
and employers' interests in establishing a fair and workable premium 
payment process. We believe the proposed approach to prorating to be 
the fairest for both consumers and issuers because an enrollee will pay 
for the portion of coverage provided for a partial month.
    We also propose amendments to Sec.  155.705(b)(11) that would 
provide additional flexibility to an employer's ability to define a 
percentage contribution toward premiums under the employer selected 
reference plan in the FF-SHOPs. Although we proposed and rejected a 
similar approach in the 2014 Payment Notice because we concluded it was 
inconsistent with the uniformity provisions established in Internal 
Revenue Service Notice 2010-82, which require employers to contribute a 
uniform percentage to employee premiums in order to claim a small 
business tax credit, we believe small employers are best able to 
determine whether offering different contribution levels would be in 
the best interest of the business and its employees. We believe that 
this additional flexibility would bring the FF-SHOPs more in line with 
current small group market practices and provide an additional 
incentive for small employers to participate in the FF-SHOPs. 
Additionally, we believe that providing a mechanism that would allow 
different contribution levels based on full-time or non-full-time 
status may encourage some employers to offer coverage to non-full-time 
employees.
    In Sec.  155.715, we propose amendments that would provide for SHOP 
eligibility adjustment periods for both employers and employees only 
when there is an inconsistency between information provided by an 
applicant and information collected through optional verification 
methods under Sec.  155.715(c)(2) rather than when an employer submits 
information on the SHOP single employer application that is 
inconsistent with the eligibility standards described in Sec.  155.710 
or when the SHOP receives information on the employee's application 
that is inconsistent with the information provided by the employer, as 
current paragraph Sec.  155.715(d) provides. We also propose to amend 
paragraph (c)(4) to replace a reference to sections 1411(b)(2) and (c) 
of the Affordable Care Act with a reference to Subpart D of 45 CFR part 
155, and to add a reference to eligibility verifications as well as to 
eligibility determinations. The proposed changes would prohibit a SHOP 
from performing any individual market Exchange eligibility 
determinations or verifications as described in Subpart D, which, for 
example, includes making eligibility determinations for advance 
payments of the premium tax credit and cost sharing reductions in the 
individual market Exchange.
    In Sec.  155.730 we propose to provide that SHOPs are not permitted 
to collect information from applicants, employers, or employees in the 
SHOP if that information is not necessary to determine SHOP eligibility 
or effectuate enrollment through a SHOP. Limiting the information 
required of an applicant helps to protect consumer privacy and promote 
efficiency and streamlining of the SHOP application process.
    In Sec.  155.220, we propose for plan years beginning on or after 
January 1, 2015 to allow SHOPs, in States that permit this activity 
under State law, to permit enrollment in a SHOP QHP through the 
Internet Web site of an agent or broker under the standards set forth 
in Sec.  155.220(c)(3). Permitting an employer to complete QHP 
selection through the Internet Web site of an agent or broker is an 
additional potential enrollment channel that would provide small 
employers with another avenue to the SHOPs.
    In Sec.  156.285, we propose that when premium aggregation becomes 
available in FF-SHOPs for plan years beginning on or after January 1, 
2015, if an issuer does not receive an enrollment cancellation 
transaction from the FF-SHOP, it should effectuate coverage even if the 
issuer would not receive an employer's initial premium payment from the 
FF-SHOP prior to the coverage effective date. We also propose that a 
qualified employer in the SHOP that becomes a large employer would 
continue to be rated as a small employer and propose to prohibit 
issuers from composite billing in the FF-SHOPs when employee choice 
becomes available and an employer selects a level of coverage and not a 
single plan.
    We do not expect the proposed policies related to the SHOP to 
create

[[Page 72382]]

any new significant costs for small businesses, employees, or the FF-
SHOPs.
Patient Safety
    The proposed patient safety requirements would be implemented in 
phases, to ensure that QHP issuers contract with hospitals that meet 
adequate safety and quality standards in their networks. The proposed 
rule would require QHP issuers to collect and maintain CCNs for each of 
its contracted hospitals that are certified for more than 50 beds. It 
also would require that this documentation, if requested by the 
Exchange, be submitted in a form and manner specified by the Exchange. 
QHP issuers would already have established procedures and relationships 
to contract with hospitals including obtaining hospital identification 
information. Therefore, HHS believes that there would not be a 
significant additional cost for a QHP issuer to collect and maintain 
CCNs. QHP issuers would incur costs to submit this information, if 
requested, to the Exchange. We discuss the burden associated with 
submitting this information in the Collection of Information section of 
this proposed rule.

D. Regulatory Alternatives Considered

    We considered a number of alternatives to our proposed approach to 
program integrity for the premium stabilization programs. For example, 
although we finalized in previous rulemaking our framework for the risk 
adjustment data validation program to be used when we operate risk 
adjustment on behalf of a State, the preamble to this proposed rule 
discusses and seeks comment on a number of alternative approaches to 
the detailed methodology proposed here. For example, we have suggested 
a number of options for confidence intervals and whether to use tests 
of statistical significance in determining plan average risk score 
adjustments. We have also suggested an expedited second validation 
audit approach to permit more time for inter-auditor discussions and 
appeals. We have suggested a number of ways to calculate a default risk 
adjustment charge for an issuer that fails to provide initial 
validation audits.
    In the preamble discussion of our proposed modifications to the 
risk adjustment methodology, we considered not providing for an induced 
demand adjustment for Medicaid expansion plan variations, but we 
believe that not doing so would underestimate the risk in those plans, 
potentially leading to higher premiums in those plans.
    In Sec.  153.270, we propose that HHS may audit State-operated 
reinsurance programs to ensure appropriate use of Federal funds. We 
also considered not proposing that HHS have such authority. However, we 
believe that because HHS will collect reinsurance contributions and 
because a State's issuers' reinsurance requests affect the availability 
of reinsurance funds for issuers in other States, we think it is 
critical for HHS to have the authority to perform these audits, so that 
issuers and States are confident that they will receive the correct 
allocation of the reinsurance payments. We also considered proposing 
that HHS have the authority to audit a State-operated risk adjustment 
program. However, we decided not to do so because those programs do not 
take in Federal funds and those programs have little impact on the 
health insurance markets in other States.
    We considered not proposing that HHS have the authority to assess 
CMPs on QHP issuers for non-compliance with the risk corridors 
standards. This would reduce the burden on QHP issuers on State 
Exchanges and would have reduced Federal oversight costs. However, we 
determined that similar standards and oversight were appropriate for 
all issuers of QHPs, regardless of whether the QHPs were offered 
through FFEs or State Exchanges, in order to ensure compliance with the 
risk corridors program and the proper use of Federal funds.
    In the preamble discussion of the 2015 reinsurance payment 
parameters, we also considered, when setting forth the proposed 2015 
reinsurance payment parameters, a set of uniform reinsurance payment 
parameters that would have substantially raised the attachment point or 
lowered the reinsurance cap, but believe those uniform reinsurance 
payment parameters would have raised the complexity of estimating the 
effects of reinsurance for issuers.
    As detailed in the preamble discussion regarding our proposed 
approach to estimating cost-sharing reduction amounts in connection 
with reinsurance calculations, we considered a number of alternative 
approaches to this estimation. Finally, we considered a number of 
different approaches to the discrepancy and administrative appeals 
process proposed in Sec.  153.710 and Sec.  156.1220. Some of these 
approaches would have provided for lengthier and more formal 
administrative appeals processes, including for advance payments of the 
premium tax credit, advance payment for cost-sharing reductions, and 
FFE user fees in 2014. We did not adopt that approach for these 2014 
programs, and instead rely on operational discrepancy reports and one-
level of administrative appeals--a request for reconsideration, because 
we believe that this approach will be simpler and less expensive, and 
will permit operations specialists, issuers and HHS to resolve most 
problems more quickly. We considered relying solely on a simpler 
operational discrepancy report process for the premium stabilization 
programs and cost-sharing reductions reconciliation in 2015--but 
decided that due to the complexity of the calculations involved in 
these programs and the potential magnitude of the payment flows, 
issuers would prefer that these calculations be subject to more formal 
administrative processes.
    Multiple alternatives were considered to the proposed SHOP 
approaches and are discussed in detail above.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires agencies to prepare an initial regulatory flexibility analysis 
to describe the impact of the proposed rule on small entities, unless 
the head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) A proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are not included in the definition of 
``small entity.'' HHS uses a change in revenues of more than 3 to 5 
percent as its measure of significant economic impact on a substantial 
number of small entities.
    In this proposed rule, we propose provisions for the risk 
adjustment, reinsurance, and risk corridors programs, which are 
intended to stabilize premiums as insurance market reforms are 
implemented and Exchanges facilitate increased enrollment. Because we 
believe that insurance firms offering comprehensive health insurance 
policies generally exceed the size thresholds for ``small entities'' 
established by the SBA, we do not believe that an initial regulatory 
flexibility analysis is required for such firms.
    For purposes of the RFA, we expect the following types of entities 
to be affected by this proposed rule:
     Health insurance issuers.

[[Page 72383]]

     Group health plans.
     Reinsurance entities.
    We believe that health insurance issuers and group health plans 
would be classified under the North American Industry Classification 
System (NAICS) code 524114 (Direct Health and Medical Insurance 
Carriers). According to SBA size standards, entities with average 
annual receipts of $35.5 million or less would be considered small 
entities for these NAICS codes. Issuers could possibly be classified in 
621491 (HMO Medical Centers) and, if this is the case, the SBA size 
standard would be $30 million or less.
    In this proposed rule, we proposed requirements on employers that 
choose to participate in a SHOP Exchange. The SHOPs are limited by 
statute to employers with at least one but not more than 100 employees. 
For this reason, we expect that many employers who would be affected by 
the proposals would meet the SBA standard for small entities. We do not 
believe that the proposals impose requirements on employers offering 
health insurance through the SHOP that are more restrictive than the 
current requirements on small employers offering employer sponsored 
insurance. Additionally, as discussed in the RIA, we believe the 
proposed policy will provide greater choice for both employees and 
employers. We believe the processes that we have established constitute 
the minimum amount of requirements necessary to implement the SHOP 
program and accomplish our policy goals, and that no appropriate 
regulatory alternatives could be developed to further lessen the 
compliance burden.
    We believe that a substantial number of sponsors of self-insured 
group health plans could qualify as ``small entities.'' This proposed 
rule provides HHS with the authority to audit these entities. However, 
we do not believe that the burden of these audits is likely to reflect 
more than 3 to 5 percent of such an entity's revenues.

F. Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a proposed rule that includes any 
Federal mandate that may result in expenditures in any 1 year by a 
State, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2013, that threshold is approximately $141 million. 
Although we have not been able to quantify the user fees that will be 
associated with this proposed rule, the combined administrative cost 
and user fee impact on State, local, or Tribal governments and the 
private sector may be above the threshold. Earlier portions of this RIA 
constitute our UMRA analysis.

G. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule that imposes 
substantial direct costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. Because States have 
flexibility in designing their Exchange and Exchange-related programs, 
State decisions will ultimately influence both administrative expenses 
and overall premiums. States are not required to establish an Exchange 
or risk adjustment or reinsurance program. For States electing to 
operate an Exchange, risk adjustment or reinsurance program, much of 
the initial cost of creating these programs will be funded by Exchange 
Planning and Establishment Grants. After establishment, Exchanges will 
be financially self-sustaining, with revenue sources at the discretion 
of the State. Current State Exchanges charge user fees to issuers.
    In HHS's view, while this proposed rule did not impose substantial 
direct requirement costs on State and local governments, this 
regulation has Federalism implications due to direct effects on the 
distribution of power and responsibilities among the State and Federal 
governments relating to determining standards relating to health 
insurance that is offered in the individual and small group markets. 
Each State electing to establish an Exchange must adopt the Federal 
standards contained in the Affordable Care Act and in this proposed 
rule, or have in effect a State law or regulation that implements these 
Federal standards. However, HHS anticipates that the Federalism 
implications (if any) are substantially mitigated because under the 
statute, States have choices regarding the structure and governance of 
their Exchanges and risk adjustment and reinsurance programs. 
Additionally, the Affordable Care Act does not require States to 
establish these programs; if a State elects not to establish any of 
these programs or is not approved to do so, HHS must establish and 
operate the programs in that State.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have Federalism 
implications or limit the policy making discretion of the States, HHS 
has engaged in efforts to consult with and work cooperatively with 
affected States, including participating in conference calls with and 
attending conferences of the National Association of Insurance 
Commissioners, and consulting with State insurance officials on an 
individual basis.
    Throughout the process of developing this proposed rule, HHS has 
attempted to balance the States' interests in regulating health 
insurance issuers, and Congress' intent to provide access to Affordable 
Insurance Exchanges for consumers in every State. By doing so, it is 
HHS's view that we have complied with the requirements of Executive 
Order 13132.

H. Congressional Review Act

    This proposed rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can 
take effect, the Federal agency promulgating the rule shall submit to 
each House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information, 
and has been transmitted to Congress and the Comptroller General for 
review.

List of Subjects

45 CFR Part 144

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

45 CFR Part 153

    Administrative practice and procedure, Adverse selection, Health 
care, Health insurance, Health records, Organization and functions 
(Government agencies), Premium stabilization, Reporting and 
recordkeeping requirements, Reinsurance, Risk adjustment, Risk 
corridors, Risk mitigation, State and local governments.

45 CFR Part 155

    Administrative practice and procedure, Health care access, Health 
insurance, Reporting and recordkeeping requirements, State and local 
governments, Cost-sharing reductions, Advance payments of premium tax 
credit, Administration and calculation of advance payments of the 
premium tax credit, Plan variations, Actuarial value.

[[Page 72384]]

45 CFR Part 156

    Administrative appeals, Administrative practice and procedure, 
Administration and calculation of advance payments of premium tax 
credit, Advertising, Advisory Committees, Brokers, Conflict of 
interest, Consumer protection, Cost-sharing reductions, Grant programs-
health, Grants administration, Health care, Health insurance, Health 
maintenance organization (HMO), Health records, Hospitals, American 
Indian/Alaska Natives, Individuals with disabilities, Loan programs-
health, Organization and functions (Government agencies), Medicaid, 
Payment and collections reports, Public assistance programs, Reporting 
and recordkeeping requirements, State and local governments, Sunshine 
Act, Technical assistance, Women, and Youth.
    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR parts 147, 153, 155, and 
156, and proposes to further amend 45 CFR parts 144, 153, and 156, as 
amended October 30, 2013, at 78 FR 65091, effective December 30, 2013, 
as set forth below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
1. The authority citation for part 144 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.

0
2. Section 144.103 is amended by revising the first sentence in 
paragraph (1) of the definition of ``Policy year'' to read as follows:


Sec.  144.103  Definitions.

* * * * *
    Policy year * * *
    (1) A grandfathered health plan offered in the individual health 
insurance market and student health insurance coverage, the 12-month 
period that is designated as the policy year in the policy documents of 
the individual health insurance coverage. * * *
* * * * *

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
3. The authority citation for part 147 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended.

0
4. Section 147.102 is amended by revising paragraph (c)(3) to read as 
follows:


Sec.  147.102  Fair health insurance premiums.

* * * * *
    (c) * * *
    (3) Application to small group market. In the case of the small 
group market, the total premium charged to the group is determined by 
summing the premiums of covered participants and beneficiaries in 
accordance with paragraph (c)(1) or (2) of this section, as applicable. 
Nothing in this section precludes a State from requiring issuers to 
offer, or an issuer from voluntarily offering, to a group premiums that 
are based on average enrollee premium amounts, provided that the total 
group premium is the same total amount derived in accordance with 
paragraph (c)(1) or (2) of this section, as applicable. In such case, 
effective for plan years beginning on or after January 1, 2015, an 
issuer must ensure that average enrollee premium amounts calculated 
based on applicable employee enrollment at the beginning of the plan 
year do not vary for any participant or beneficiary during the plan 
year.
* * * * *
0
5. Section 147.145 is amended by revising paragraph (b)(1)(ii) to read 
as follows:


Sec.  147.145  Student health insurance coverage.

* * * * *
    (b) * * *
    (1) * * *
    (ii) For purposes of section 2702 of the Public Health Service Act, 
a health insurance issuer that offers student health insurance coverage 
is not required to accept individuals who are not students or 
dependents of students in such coverage, and, notwithstanding the 
requirements of Sec.  147.104(b), is not required to establish open 
enrollment periods or coverage effective dates that are based on a 
calendar policy year or to offer policies on a calendar year basis.
* * * * *

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

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

    Authority:  Secs. 1311, 1321, 1341-1343, Pub. L. 111-148, 24 
Stat. 119.

0
7. Section 153.20 is amended by revising the definition of 
``contributing entity'' and adding a definition of ``major medical 
coverage'' to read as follows:


Sec.  153.20  Definitions.

* * * * *
    Contributing entity means--
    (1) A health insurance issuer; or
    (2) For the 2014 benefit year, a self-insured group health plan 
(including a group health plan that is partially self-insured and 
partially insured, where the health insurance coverage does not 
constitute major medical coverage), whether or not it uses a third 
party administrator; and for the 2015 and 2016 benefit years, a self-
insured group health plan (including a group health plan that is 
partially self-insured and partially insured, where the health 
insurance coverage does not constitute major medical coverage) that 
uses a third party administrator in connection with claims processing 
or adjudication (including the management of appeals) or plan 
enrollment. A self-insured group health plan that is a contributing 
entity is responsible for the reinsurance contributions, although it 
may elect to use a third party administrator or administrative 
services-only contractor for transfer of the reinsurance contributions.
* * * * *
    Major medical coverage means, for purposes only of the requirements 
related to reinsurance contributions under section 1341 of the 
Affordable Care Act, health coverage for a broad range of services and 
treatments provided in various settings that provides minimum value in 
accordance with Sec.  156.145 of this subchapter.
* * * * *
0
8. Section 153.230 is amended by revising paragraph (d) to read as 
follows:


Sec.  153.230  Calculation of reinsurance payments made under the 
national contribution rate.

* * * * *
    (d) Uniform adjustment to national reinsurance payments. If HHS 
determines that all reinsurance payments requested under the national 
payment parameters from all reinsurance-eligible plans in all States 
for a benefit year will not be equal to the amount of all reinsurance 
contributions collected for reinsurance payments under the national 
contribution rate in all States for an applicable benefit year, HHS 
will determine a uniform pro rata adjustment to be applied to all such 
requests for reinsurance payments for all States. Each applicable 
reinsurance entity, or HHS on behalf of a State, must reduce or 
increase the reinsurance payment amounts for the applicable

[[Page 72385]]

benefit year by any adjustment required under this paragraph (d).
0
9. Section 153.235 is amended by removing and reserving paragraph (b).


Sec.  153.235  Allocation and distribution of reinsurance 
contributions.

* * * * *
    (b) [Reserved]
0
10. Section 153.270 is added to subpart C to read as follows:


Sec.  153.270  HHS audits of State-operated reinsurance programs.

    (a) Audits. HHS or its designee may conduct a financial and 
programmatic audit of a State-operated reinsurance program to assess 
compliance with the requirements of this subpart or subpart B of this 
part. A State that establishes a reinsurance program must ensure that 
its applicable reinsurance entity and any relevant contractors, 
subcontractors, or agents cooperate with any audit under this section.
    (b) Action on audit findings. If an audit results in a finding of 
material weakness or significant deficiency with respect to compliance 
with any requirement of this subpart or subpart B, the State must 
ensure that the applicable reinsurance entity:
    (1) Within 60 calendar days of the issuance of the final audit 
report, provides a written corrective action plan to HHS for approval;
    (2) Implements that plan; and
    (3) Provides to HHS written documentation of the corrective actions 
once taken.
0
11. Section 153.400 is amended by revising paragraph (a)(1) 
introductory text and adding paragraphs (a)(1)(v) and (vi) to read as 
follows:


Sec.  153.400  Reinsurance contribution funds.

    (a) * * *
    (1) In general, reinsurance contributions are required for major 
medical coverage that is considered to be part of a commercial book of 
business, but are not required to be paid more than once with respect 
to the same covered life. In order to effectuate that principle, a 
contributing entity must make reinsurance contributions for lives 
covered by its self-insured group health plans and health insurance 
coverage except to the extent that:
* * * * *
    (v) Such plan or coverage applies to individuals with primary 
residence in a territory that does not operate a reinsurance program.
    (vi) In the case of employer-provided group health coverage:
    (A) Such coverage applies to individuals with individual market 
health insurance coverage for which reinsurance contributions are 
required; or
    (B) Such coverage is supplemental or secondary to group health 
coverage for which reinsurance contributions must be made for the same 
covered lives.
* * * * *
0
12. Section 153.405 is amended by revising paragraphs (c) and (e)(3) 
and adding paragraph (i) to read as follows:


Sec.  153.405  Calculation of reinsurance contributions.

* * * * *
    (c) Notification and payment. (1) Following submission of the 
annual enrollment count described in paragraph (b) of this section, HHS 
will notify the contributing entity of the reinsurance contribution 
amount allocated to reinsurance payments and administrative expenses to 
be paid for the applicable benefit year.
    (2) In the fourth quarter of the calendar year following the 
applicable benefit year, HHS will notify the contributing entity of the 
portion of the reinsurance contribution amount allocated for payments 
to the U.S. Treasury for the applicable benefit year.
    (3) A contributing entity must remit reinsurance contributions to 
HHS within 30 days after the date of a notification.
* * * * *
    (e) * * *
    (3) Using the number of lives covered for the most current plan 
year calculated based upon the ``Annual Return/Report of Employee 
Benefit Plan'' filed with the Department of Labor (Form 5500) for the 
last applicable time period. For purposes of this paragraph (e)(3), the 
number of lives covered for the plan year for a plan offering only 
self-only coverage equals the sum of the total participants covered at 
the beginning and end of the plan year, as reported on the Form 5500, 
divided by 2, and the number of lives covered for the plan year for a 
plan offering self-only coverage and coverage other than self-only 
coverage equals the sum of the total participants covered at the 
beginning and the end of the plan year, as reported on the Form 5500.
* * * * *
    (i) Audits. HHS or its designee may audit a contributing entity to 
assess its compliance with the requirements of this subpart.
0
13. Section 153.410 is amended by adding paragraph (d) to read as 
follows:


Sec.  153.410  Requests for reinsurance payment.

* * * * *
    (d) Audits. HHS or its designee may audit an issuer of a 
reinsurance-eligible plan to assess its compliance with the 
requirements of this subpart and subpart H. The issuer must ensure that 
its relevant contractors, subcontractors, or agents cooperate with any 
audit under this section. If an audit results in a finding of material 
weakness or significant deficiency with respect to compliance with any 
requirement of this subpart or subpart H, the issuer must complete all 
of the following:
    (1) Within 30 calendar days of the issuance of the final audit 
report, provide a written corrective action plan to HHS for approval.
    (2) Implement that plan.
    (3) Provide to HHS written documentation of the corrective actions 
once taken.
0
14. Section 153.510 is amended by adding paragraph (f) to read as 
follows:


Sec.  153.510  Risk corridors establishment and payment methodology.

* * * * *
    (f) Eligibility under health insurance market rules. The provisions 
of this subpart apply only for plans offered by a QHP issuer in the 
SHOP or the individual or small group market, as determined according 
to the employee counting method applicable under State law, that are 
subject to the following provisions: Sec. Sec.  147.102, 147.104, 
147.106, 147.150, 156.80, and subpart B of part 156 of this subchapter.
0
15. Section 153.540 is added to subpart F to read as follows:


Sec.  153.540  Compliance with risk corridors standards.

    (a) Audits. HHS or its designee may audit a QHP issuer to assess 
its compliance with the requirements of this subpart. HHS will conduct 
an audit in accordance with the procedures set forth in Sec.  
158.402(a) through (e) of this subchapter.
    (b) Enforcement actions. If an issuer of a QHP on a State-based 
Exchange fails to comply with the requirements of this subpart, HHS may 
impose civil money penalties in accordance with the procedures set 
forth in Sec.  156.805 of this subchapter.
0
16. Section 153.620 is amended by adding paragraph (c) to read as 
follows:


Sec.  153.620  Compliance with risk adjustment standards.

* * * * *
    (c) Audits. HHS or its designee may audit an issuer of a risk 
adjustment covered plan to assess its compliance with the requirements 
of this subpart and subpart H of this part. The issuer must ensure that 
its relevant contractors, subcontractors, or agents cooperate with any 
audit under this section. If an audit results in a finding

[[Page 72386]]

of material weakness or significant deficiency with respect to 
compliance with any requirement of this subpart or subpart H of this 
part, the issuer must complete all of the following:
    (1) Within 30 calendar days of the issuance of the final audit 
report, provide a written corrective action plan to HHS for approval.
    (2) Implement that plan.
    (3) Provide to HHS written documentation of the corrective actions 
once taken.
0
17. Section 153.630 is amended by revising paragraph (b)(1) and adding 
paragraphs (b)(5) through (10) to read as follows:


Sec.  153.630  Data validation requirements when HHS operates risk 
adjustment.

* * * * *
    (b) * * *
    (1) An issuer of a risk adjustment covered plan must engage one or 
more independent auditors to perform an initial validation audit of a 
sample of its risk adjustment data selected by HHS. The issuer must 
provide HHS with the identity of the initial validation auditor, and 
must attest to the absence of conflicts of interest between the initial 
validation auditor (or the members of its audit team, owners, 
directors, officers, or employees) and the issuer (or its owners, 
directors, officers, or employees), in a timeframe and manner to be 
specified by HHS.
* * * * *
    (5) An initial validation audit must be conducted by medical coders 
certified as such and in good standing by a nationally recognized 
accrediting agency.
    (6) An issuer must provide the initial validation auditor and the 
second validator auditor with all relevant source enrollment 
documentation, all claims and encounter data, and medical record 
documentation from providers of services to each enrollee in the 
applicable sample without unreasonable delay and in a manner that 
reasonably assures confidentiality and security in transmission.
    (7) The risk score of each enrollee in the sample must be validated 
by--
    (i) Validating the enrollee's enrollment data and demographic data 
through review of source enrollment documentation;
    (ii) Validating enrollee health status through review of all 
relevant medical record documentation. Medical record documentation 
must originate from the provider of the services and align with dates 
of service for the medical diagnoses, and reflect permitted providers 
and services. For purposes of this section, ``medical record 
documentation'' means clinical documentation of hospital inpatient or 
outpatient treatment or professional medical treatment from which 
enrollee health status is documented and related to accepted risk 
adjustment services that occurred during a specified period of time. 
Medical record documentation must be generated under a face-to-face or 
telehealth visit documented and authenticated by a permitted provider 
of services;
    (iii) Validating medical records according to industry standards 
for coding and reporting; and
    (iv) Having a senior reviewer confirm any enrollee risk adjustment 
error discovered during the initial validation audit. For purposes of 
this section, a ``senior reviewer'' is a reviewer certified as a 
medical coder by a nationally recognized accrediting agency who 
possesses at least 5 years of experience in medical coding.
    (8) The initial validation auditor must measure and report to the 
issuer and HHS, in a manner and timeframe specified by HHS, its inter-
rater reliability rates among its reviewers. The initial validation 
auditor must achieve a consistency measure of at least 95 percent for 
demographic, enrollment, and health status review outcomes.
    (9) Enforcement actions: If an issuer of a risk adjustment covered 
plan fails to engage an initial validation auditor or to submit the 
results of an initial validation audit to HHS, HHS may impose civil 
money penalties in accordance with the procedures set forth in Sec.  
156.805 of this subchapter.
    (10) Default data validation charge: If an issuer of a risk 
adjustment covered plan fails to engage an initial validation auditor 
or to submit the results of an initial validation audit to HHS, HHS 
will impose a default risk adjustment charge.
* * * * *
0
18. Section 153.710 is amended by adding paragraphs (d), (e), (f), and 
(g) to read as follows:


Sec.  153.710  Data requirements.

* * * * *
    (d) Interim dedicated distributed data environment reports. Within 
30 calendar days of the date of an interim dedicated distributed data 
environment report from HHS, the issuer must, in a format specified by 
HHS, either:
    (1) Confirm to HHS that the information in the interim report 
accurately reflects the data to which the issuer has provided access to 
HHS through its dedicated distributed data environment in accordance 
with Sec.  153.700(a) for the timeframe specified in the report; or
    (2) Describe to HHS any discrepancy it identifies in the interim 
dedicated distributed data environment report.
    (e) Final dedicated distributed data environment report. Within 15 
calendar days of the date of the final dedicated distributed data 
environment report from HHS, the issuer must, in a format specified by 
HHS, either:
    (1) Confirm to HHS that the information in the final report 
accurately reflects the data to which the issuer has provided access to 
HHS through its dedicated distributed data environment in accordance 
with Sec.  153.700(a) for the benefit year specified in the report; or
    (2) Describe to HHS any discrepancy it identifies in the final 
dedicated distributed data environment report.
    (f) Unresolved discrepancies. If a discrepancy first identified in 
an interim or final dedicated distributed data environment report in 
accordance with paragraphs (d)(2) or (e)(2) of this section remains 
unresolved after the issuance of the notification of risk adjustment 
payments and charges or reinsurance payments under Sec.  153.310(e) or 
Sec.  153.240(b)(1)(ii), respectively, an issuer of a risk adjustment 
covered plan or reinsurance-eligible plan may make a request for 
reconsideration regarding such discrepancy under the process set forth 
in Sec.  156.1220(a).
    (g) Risk corridors and medical loss ratio reporting. (1) 
Notwithstanding any discrepancy report made under paragraph (d)(2) or 
(e)(2) of this section, or any request for reconsideration under Sec.  
156.1220(a) with respect to any risk adjustment payment or charge, 
including an assessment of risk adjustment user fees; reinsurance 
payment; cost-sharing reconciliation payment or charge; or risk 
corridors payment or charge, unless the dispute has been resolved, an 
issuer must report, for purposes of the risk corridors and medical loss 
ratio programs:
    (i) The risk adjustment payment to be made or charge assessed, 
including an assessment of risk adjustment user fees, by HHS in the 
notification provided under Sec.  153.310(e);
    (ii) The reinsurance payment to be made by HHS in the notification 
provided under Sec.  153.240(b)(1)(ii);
    (iii) A cost-sharing reduction amount equal to the amount of the 
advance payments of cost-sharing reductions paid to the issuer by HHS 
for the benefit year; and
    (iv) For medical loss ratio report only, the risk corridors payment 
to be made or charge assessed by HHS as reflected

[[Page 72387]]

in the notification provided under Sec.  153.510(d).
    (2) An issuer must report any adjustment made following any 
discrepancy report made under paragraph (d)(2) or (e)(2) of this 
section, or any request for reconsideration under Sec.  156.1220(a) 
with respect to any risk adjustment payment or charge, including an 
assessment of risk adjustment user fees; reinsurance payment; cost-
sharing reconciliation payment or charge; or risk corridors payment or 
charge; or following any audit, where such adjustment has not be 
accounted for in a prior risk corridors or medical loss ratio report, 
in the next following risk corridors or medical loss ratio report.

PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED 
STANDARDS UNDER THE AFFORDABLE CARE ACT

0
19. Authority citation for part 155 is revised to read as follows:

    Authority:  Title I of the Affordable Care Act, sections 1301, 
1302, 1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 1332, 1334, 
1402, 1411, 1412, 1413, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 
18021-18024, 18031-18033, 18041-18042, 18051, 18054, 18071, and 
18081-18083).

0
20. Section 155.106 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  155.106  Election to operate an Exchange after 2014.

    (a) * * *
    (2) Have in effect an approved, or conditionally approved, Exchange 
Blueprint and operational readiness assessment at least 6.5 months 
prior to the Exchange's first effective date of coverage; and
* * * * *
0
21. Section 155.220 is amended by adding paragraph (i) as follows:


Sec.  155.220  Ability of States to permit agents and brokers to assist 
qualified individuals, qualified employers, or qualified employees 
enrolling in QHPs.

* * * * *
    (i) For plan years beginning on or after January 1, 2015, in States 
that permit this activity under state law, a SHOP may permit agents and 
brokers to use an Internet Web site to assist qualified employers and 
facilitate enrollment of qualified employees in a QHP through the 
Exchange, under paragraph (c)(3) of this section.
0
22. Section 155.260 is amended by revising paragraphs (a)(1), (a)(2) 
and (b) to read as follows:


Sec.  155.260  Privacy and security of personally identifiable 
information.

    (a) * * *
    (1) Where the Exchange creates or collects personally identifiable 
information for the purposes of determining eligibility for enrollment 
in a qualified health plan; determining eligibility for other insurance 
affordability programs, as defined in Sec.  155.20; or determining 
eligibility for exemptions from the individual responsibility 
provisions in section 5000A of the Code, the Exchange may only use or 
disclose such personally identifiable information to the extent such 
information is necessary:
    (i) For the Exchange to carry out the functions described in Sec.  
155.200;
    (ii) For the Exchange to carry out other functions not described in 
paragraph (a)(1)(i) of this section, which the Secretary determines to 
be in compliance with section 1411(g)(2)(A) of the Affordable Care Act 
and for which an individual provides consent for his or her information 
to be used or disclosed; or
    (iii) For the Exchange to carry out other functions not described 
in paragraphs (a)(1)(i) and (ii) of this section, for which an 
individual provides consent for his or her information to be used or 
disclosed, and which the Secretary determines are in compliance with 
section 1411(g)(2)(A) of the Affordable Care Act under the following 
substantive and procedural requirements:
    (A) Substantive requirements. The Secretary may approve other uses 
and disclosures of personally identifiable information created or 
collected as described in paragraph (a)(1) of this section that are not 
described in paragraphs (a)(1)(i) or (a)(1)(ii) of this section, 
provided that HHS determines that the information will be used only for 
the purposes of and to the extent necessary in ensuring the efficient 
operation of the Exchange consistent with section 1411(g)(2)(A) of the 
Affordable Care Act, and that the uses and disclosures are also 
permissible under relevant law and policy.
    (B) Procedural requirements for approval of a use or disclosure of 
personally identifiable information. To seek approval for a use or 
disclosure of personally identifiable information created or collected 
as described in paragraph (a)(1) of this section that is not described 
in paragraphs (a)(1)(i) or (a)(1)(ii), the Exchange must submit the 
following information to HHS:
    (1) Identity of the Exchange and appropriate contact persons;
    (2) Detailed description of the proposed use or disclosure, which 
must include, but not necessarily be limited to, a listing or 
description of the specific information to be used or disclosed and an 
identification of the persons or entities that may access or receive 
the information;
    (3) Description of how the use or disclosure will ensure the 
efficient operation of the Exchange consistent with section 
1411(g)(2)(A) of the Affordable Care Act; and
    (4) Description of how the information to be used or disclosed will 
be protected in compliance with privacy and security standards that 
meet the requirements of this section or other relevant law, as 
applicable.
    (2) The Exchange may not create, collect, use, or disclose 
personally identifiable information unless the creation, collection, 
use, or disclosure is consistent with this section.
* * * * *
    (b) Application to non-Exchange entities. (1) Non-Exchange 
entities. A non-Exchange entity is any individual or entity that:
    (i) Gains access to personally identifiable information submitted 
to an Exchange; or
    (ii) Collects, uses, or discloses personally identifiable 
information gathered directly from applicants, qualified individuals, 
or enrollees while that individual or entity is performing functions 
agreed to with the Exchange.
    (2) Prior to any person or entity becoming a non-Exchange entity, 
Exchanges must execute with the person or entity a contract or 
agreement that includes:
    (i) A description of the functions to be performed by the non-
Exchange entity;
    (ii) A provision(s) binding the non-Exchange entity to comply with 
the privacy and security standards and obligations adopted in 
accordance with paragraph (b)(3) of this section, and specifically 
listing or incorporating those privacy and security standards and 
obligations;
    (iii) A provision requiring the non-Exchange entity to monitor, 
periodically assess, and update its security controls and related 
system risks to ensure the continued effectiveness of those controls in 
accordance with paragraph (a)(5) of this section;
    (iv) A provision requiring the non-Exchange entity to inform the 
Exchange of any change in its administrative, technical, or operational 
environments defined as material within the contract; and
    (v) A provision that requires the non-Exchange entity to bind any 
downstream entities to the same privacy and security standards and 
obligations

[[Page 72388]]

to which the non-Exchange entity has agreed in its contract or 
agreement with the Exchange.
    (3) When collection, use or disclosure is not otherwise required by 
law, the privacy and security standards to which an Exchange binds non-
Exchange entities must:
    (i) Be consistent with the principles and requirements listed in 
paragraphs (a)(1) through (a)(6) of this section, including being at 
least as protective as the standards the Exchange has established and 
implemented for itself in compliance with paragraph (a)(3) of this 
section;
    (ii) Comply with the requirements of paragraphs (c), (d), (f) and 
(g) of this section; and
    (iii) Take into specific consideration:
    (A) The environment in which the non-Exchange entity is operating;
    (B) Whether the standards are relevant and applicable to the non-
Exchange entity's duties and activities in connection with the 
Exchange; and
    (C) Any existing legal requirements to which the non-Exchange 
entity is bound in relation to its administrative, technical, and 
operational controls and practices, including but not limited to, its 
existing data handling and information technology processes and 
protocols.
* * * * *
0
23. Section 155.410 is amended by revising paragraphs (e) and (f) to 
read as follows:


Sec.  155.410  Initial and annual open enrollment periods.

* * * * *
    (e) Annual open enrollment period. For benefit years beginning--
    (1) On January 1, 2015, the annual open enrollment period begins 
November 15 of 2014, and extends through January 15 of 2015.
    (2) On or after January 1, 2016, the annual open enrollment period 
begins October 15 of the preceding calendar year, and extends through 
December 7 of the preceding calendar year.
    (f) Effective date for coverage after the annual open enrollment 
period. For the benefit years beginning--
    (1) On January 1, 2015, the Exchange must ensure coverage is 
effective--
    (i) January 1, 2015, for plan selections received by the Exchange 
on or before December 15, 2014.
    (ii) February 1, 2015, for plan selections received by the Exchange 
from December 16, 2015 through January 15, 2015.
    (2) On or after January 1, 2016, the Exchange must ensure coverage 
is effective as of the first day of the following benefit year for a 
qualified individual who has made a QHP selection during the annual 
open enrollment period.
* * * * *
0
24. Section 155.705 is amended by:
0
a. Revising paragraph (b)(1);
0
b. Adding paragraph (b)(3)(v);
0
c. Redesignating paragraph (b)(4)(ii) as (b)(4)(iii);
0
d. Adding new paragraph (b)(4)(ii); and
0
e. Revising paragraphs (b)(11)(ii)(C) and (D).
    The additions and revisions read as follows:


Sec.  155.705  Functions of a SHOP.

* * * * *
    (b) * * *
    (1) Enrollment and eligibility functions. The SHOP must adhere to 
the requirements outlined in Sec. Sec.  155.710, 155.715, 155.720, 
155.725, 155.730, 155.735, and 155.740.
* * * * *
    (3) * * *
    (v) For plan years beginning on or after January 1, 2015, a 
Federally-facilitated SHOP will provide a qualified employer a choice 
of two methods to make stand-alone dental plans available to qualified 
employees and their dependents:
    (A) The employer may choose to make available a single stand-alone 
dental plan.
    (B) The employer may choose to make available all stand-alone 
dental plans offered through the Federally-facilitated SHOP.
    (4) * * *
    (ii) The SHOP may establish one or more standard processes for 
premium calculation, premium payment, and premium collection.
    (A) Qualified employers in a Federally-facilitated SHOP must make 
premium payments according to a timeline and process established by 
HHS;
    (B) For a Federally-facilitated SHOP, the premium for coverage 
lasting less than 1 month must equal the product of:
    (1) The premium for 1 month of coverage divided by the number of 
days in the month; and
    (2) The number of days for which coverage is being provided in the 
month described in paragraph (b)(4)(ii)(B)(1) of this section.
* * * * *
    (11) * * *
    (ii) * * *
    (C) The employer will define a percentage contribution toward 
premiums for employee-only coverage under the reference plan and, if 
dependent coverage is offered, a percentage contribution toward 
premiums for dependent coverage under the reference plan. To the extent 
permitted by other applicable law, for plan years beginning on or after 
January 1, 2015, the Federally-facilitated SHOP may permit an employer 
to define a different percentage contribution for full-time employees 
from the percentage contribution it defines for non-full-time 
employees, and it may permit an employer to define a different 
percentage contribution for dependent coverage for full-time employees 
from the percentage contribution it defines for dependent coverage for 
non-full-time employees.
    (D) In a Federally-facilitated SHOP, for plan years beginning on or 
after January 1, 2015, if the employer elects to offer coverage to its 
employees under Sec.  155.705(b)(3)(iv)(A), neither State law nor the 
employer may require that employer contributions be based on a 
calculated composite premium for the reference plan for employees, for 
adult dependents of employees, and for dependents of employees under 
age 21.
* * * * *
0
25. Section 155.715 is amended by revising paragraphs (c)(4), (d)(1) 
introductory text, and (d)(2) introductory text to read as follows:


Sec.  155.715  Eligibility determination process for SHOP.

* * * * *
    (c) * * *
    (4) May not perform individual market Exchange eligibility 
determinations or verifications described in subpart D of this part.
    (d) * * *
    (1) When the information submitted on the SHOP single employer 
application is inconsistent with information collected from third-party 
data sources through the verification process described in Sec.  
155.715(c)(2), the SHOP must--
* * * * *
    (2) When the information submitted on the SHOP single employee 
application is inconsistent with information collected from third-party 
data sources through the verification process described in Sec.  
155.715(c)(2), the SHOP must--
* * * * *
0
26. Section 155.730 is amended by redesignating paragraph (g) as 
paragraph (g)(1) and by adding paragraph (g)(2) to read as follows:


Sec.  155.730  Application standards for SHOP.

* * * * *
    (g) * * *
    (1) * * *

[[Page 72389]]

    (2) The SHOP is not permitted to collect information on the single 
employer or single employee application unless that information is 
necessary to determine SHOP eligibility or effectuate enrollment 
through the SHOP.
0
27. Section 155.1030 is amended by revising paragraphs (b)(1), (3), and 
(4) to read as follows:


Sec.  155.1030  QHP certification standards related to advance payments 
of the premium tax credit and cost-sharing reductions.

* * * * *
    (b) * * *
    (1) The Exchange must collect and review annually the rate 
allocation and the actuarial memorandum that an issuer submits to the 
Exchange under Sec.  156.470 of this subchapter, to ensure that the 
allocation meets the standards set forth in Sec.  156.470(c) and (d).
* * * * *
    (3) The Exchange must use the methodology specified in the annual 
HHS notice of benefit and payment parameters to calculate advance 
payment amounts for cost-sharing reductions, and must transmit the 
advance payment amounts to HHS, in accordance with Sec.  156.340(a).
    (4) HHS may use the information provided to HHS by the Exchange 
under this section for oversight of advance payments of cost-sharing 
reductions and premium tax credits.
* * * * *

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

0
28. The authority citation for part 156 is revised to read as follows:

    Authority:  Title I of the Affordable Care Act, sections 1301-
1304, 1311-1312, 1321-1322, 1324, 1334, 1342-1343, 1401-1402, and 
1412, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18021-18024, 18031-
18032, 18041-18042, 18044, 18054, 18061, 18063, 18071, 18082, 26 
U.S.C. 36B, and 31 U.S.C. 9701).

0
29. Section 156.135 is amended by revising paragraph (a) and adding 
paragraph (g) to read as follows:


Sec.  156.135  AV calculation for determining level of coverage.

    (a) Calculation of AV. Subject to paragraphs (b) and (d) of this 
section, to calculate the AV of a health plan, the issuer must use the 
AV Calculator developed and made available by HHS for the given benefit 
year.
* * * * *
    (g) Updates to the AV calculator. HHS will update the AV Calculator 
as follows, HHS will:
    (1) Update the annual limit on cost sharing and related functions 
based on a projected estimate to enable the AV Calculator to comply 
with Sec.  156.130(a)(2);
    (2) Update the continuance tables to reflect more current 
enrollment data when HHS has determined that the enrolled population 
has materially changed;
    (3) Update the algorithms when HHS has determined the need to adapt 
the AV Calculator for use by additional plan designs or to allow the AV 
Calculator to accommodate potential new types of plan designs, where 
such adaptations can be based on actuarially sound principles and will 
not have a substantial effect on the AV calculations performed by the 
then current AV Calculator;
    (4) Update the continuance tables to reflect more current claims 
data no more than every 3 and no less than every 5 years and to 
annually trend the claims data when the trending factor is more than 5 
percent different, calculated on a cumulative basis; and
    (5) Update the AV Calculator user interface when a change would be 
useful to a broad group of users of the AV Calculator, would not affect 
the function of the AV Calculator, and would be technically feasible.
0
30. Section 156.150 is revised to read as follows:


Sec.  156.150  Application to stand-alone dental plans inside the 
Exchange.

    (a) Annual limitation on cost-sharing. For a stand-alone dental 
plan covering the pediatric dental EHB under Sec.  155.1065 of this 
subchapter in any Exchange, cost sharing may not exceed $300 for one 
covered child and $400 for two or more covered children.
    (b) [Reserved]
0
31. Section 156.285 is amended by adding paragraph (a)(4) and revising 
paragraph (c)(7) to read as follows:


Sec.  156.285  Additional standards specific to SHOP.

    (a) * * *
    (4)(i) Adhere to the premium rating standards described in Sec.  
147.102 regardless of whether the QHP is sold in the small group market 
or the large group market; and
    (ii) Effective in plan years beginning on or after January 1, 2015, 
a QHP issuer in a Federally-facilitated SHOP may not offer to an 
employer premiums that are based on average enrollee amounts under 
Sec.  147.102(c)(3), if the employer elects to offer coverage to its 
employees under Sec.  155.705(b)(3)(iv)(A).
* * * * *
    (c) * * *
    (7) A QHP issuer must enroll a qualified employee only if the 
SHOP--
    (i) Notifies the QHP issuer that the employee is a qualified 
employee;
    (ii) Transmits information to the QHP issuer as provided in Sec.  
155.400(a) of this subchapter; and
    (iii) Effective for QHPs offered through a Federally-facilitated 
SHOP in plan years beginning on or after January 1, 2015, does not send 
a cancellation notice to the QHP issuer prior to the effective date of 
coverage.
* * * * *
0
32. Section 156.298 is added to subpart C to read as follows:


Sec.  156.298  Meaningful difference standard for Qualified Health 
Plans in the Federally-facilitated Exchanges.

    (a) General. Subject to paragraph (b)(2) of this section, starting 
in the 2015 coverage year, in order to be certified as a QHP offered 
through a Federally-facilitated Exchange, a plan must be meaningfully 
different from all other QHPs offered by the same issuer of that plan 
within a service area and level of coverage in the Exchange, as defined 
in paragraph (b) of this section.
    (b) Meaningful difference standard. A plan is considered 
meaningfully different from another plan in the same service area and 
metal tier (including catastrophic plans) if a reasonable consumer 
would be able to identify two or more material differences among the 
following characteristics between the plan and other plan offerings:
    (1) Cost sharing;
    (2) Provider networks;
    (3) Covered benefits;
    (4) Plan type;
    (5) Premiums;
    (6) Health Savings Account eligibility; or
    (7) Self-only, non-self-only, or child-only coverage offerings.
    (c) Exception for limited plan availability. If HHS determines that 
the plan offerings at a particular metal level (including catastrophic 
plans) within a county are limited, plans submitted for certification 
in that particular metal level (including catastrophic plans) within 
that county will not be subject to the meaningful difference 
requirement set forth in paragraph (b) of this section.
    (d) Two-year transition period for issuers with new acquisitions. 
During the first 2 years after a merger or acquisition in which an 
acquiring issuer obtains or merges with another issuer, the FFEs may 
certify plans as QHPs that were previously offered by the acquired

[[Page 72390]]

or merged issuer without those plans meeting the meaningful difference 
standard set forth in paragraph (b) of this section.
0
33. Section 156.420 is amended by revising paragraphs (c), (d), and (e) 
to read as follows:


Sec.  156.420  Plan variations.

* * * * *
    (c) Benefit and network equivalence in silver plan variations. A 
standard silver plan and each silver plan variation thereof must cover 
the same benefits and providers. Each silver plan variation is subject 
to all requirements applicable to the standard silver plan (except for 
the requirement that the plan have an AV as set forth in Sec.  
156.140(b)(2)).
    (d) Benefit and network equivalence in zero and limited cost 
sharing plan variations. A QHP and each zero cost sharing plan 
variation or limited cost sharing plan variation thereof must cover the 
same benefits and providers. The out-of-pocket spending required of 
enrollees in the zero cost sharing plan variation of a QHP for a 
benefit that is not an essential health benefit from a provider 
(including a provider outside the plan's network) may not exceed the 
corresponding out-of-pocket spending required in the limited cost 
sharing plan variation of the QHP, and the out-of-pocket spending 
required of enrollees in the limited cost sharing plan variation of the 
QHP for a benefit that is not an essential health benefit from a 
provider (including a provider outside the plan's network) may not 
exceed the corresponding out-of-pocket spending required in the QHP 
with no cost-sharing reductions. A limited cost sharing plan variation 
must have the same cost sharing for essential health benefits not 
described in paragraph (b)(2) of this section as the QHP with no cost-
sharing reductions. Each zero cost sharing plan variation or limited 
cost sharing plan variation is subject to all requirements applicable 
to the QHP (except for the requirement that the plan have an AV as set 
forth in Sec.  156.140(b)).
    (e) Decreasing cost sharing and out-of-pocket spending in higher AV 
silver plan variations. The cost sharing or out-of-pocket spending 
required of enrollees under any silver plan variation of a standard 
silver plan for a benefit from a provider (including a provider outside 
the plan's network) may not exceed the corresponding cost sharing or 
out-of-pocket spending required in the standard silver plan or any 
other silver plan variation thereof with a lower AV.
* * * * *
0
34. Section 156.430 is amended by removing and reserving paragraph (a) 
and by revising paragraph (b)(1) to read as follows:


Sec.  156.430  Payment for cost-sharing reductions.

    (b) * * *
    (1) A QHP issuer will receive periodic advance payments based on 
the advance payment amounts calculated in accordance with Sec.  
155.1030(b)(3).
* * * * *
0
35. Section 156.470 is amended by revising paragraph (a) to read as 
follows:


Sec.  156.470  Allocation of rates for advance payments of the premium 
tax credit.

    (a) Allocation to additional health benefits for QHPs. An issuer 
must provide to the Exchange annually for approval, in the manner and 
timeframe established by HHS, for each health plan at any level of 
coverage offered, or intended to be offered, in the individual market 
on an Exchange, an allocation of the rate for the plan to:
    (1) EHB, other than services described in Sec.  156.280(d)(1); and
    (2) Any other services or benefits offered by the health plan not 
described in paragraph (a)(1) of this section.
* * * * *
0
36. Section 156.1110 is added to Subpart L to read as follows:


Sec.  156.1110  Establishment of patient safety standards for QHP 
issuers.

    (a) Patient safety standards. A QHP issuer that contracts with a 
hospital with greater than 50 beds must verify that the hospital, as 
defined in section 1861(e) of the Social Security Act, is Medicare-
certified or has been issued a Medicaid-only CMS Certification Number 
(CCN) and is subject to the Medicare Hospital Condition of 
Participation requirements for--
    (1) A quality assessment and performance improvement program as 
specified in 42 CFR 482.21; and
    (2) Discharge planning as specified in 42 CFR 482.43.
    (b) Documentation. A QHP issuer must collect, from each of its 
contracted hospitals with greater than 50 beds, information that 
demonstrates that those hospitals meet patient safety standards 
required in paragraph (a) of this section including, but not limited 
to, the CCN.
    (c) Reporting. (1) A QHP issuer must make available to the Exchange 
the documentation referenced in paragraph (b) of this section, upon 
request by the Exchange, in a time and manner specified by the 
Exchange.
    (2) Issuers of multi-State plans, as defined in Sec.  155.1000(a) 
of this subchapter, must provide the documentation described in 
paragraph (b) of this section to the U.S. Office of Personnel 
Management, in the time and manner specified by the U.S. Office of 
Personnel Management.
    (d) Effective date. A QHP issuer must ensure that each QHP meets 
patient safety standards in accordance with paragraph (a) of this 
section effective for plan years beginning on or after January 1, 2015.
0
37. Section 156.1210 is amended by adding paragraph (c) to read as 
follows:


Sec.  156.1210  Confirmation of HHS payment and collections reports.

* * * * *
    (c) Discrepancies to be addressed in future reports. Discrepancies 
in payment and collections reports identified to HHS under this section 
will be addressed in subsequent payment and collections reports, and 
will not be used to change debts determined pursuant to invoices 
generated under previous payment and collections reports.
0
38. Section 156.1215 is added to Subpart M to read as follows:


Sec.  156.1215  Payment and collections processes.

    (a) Netting of payments and charges for 2014. In 2014, as part of 
its monthly payment and collections process, HHS will net payments owed 
to QHP issuers and their affiliates under the same taxpayer 
identification number against amounts due to the Federal government 
from the QHP issuers and their affiliates under the same taxpayer 
identification number for advance payments of the premium tax credit, 
advance payments of cost-sharing reductions, and payment of Federally-
facilitated Exchange user fees.
    (b) Netting of payments and charges for later years. In 2015 and 
later years, as part of its payment and collections process, HHS may 
net payments owed to issuers and their affiliates operating under the 
same tax identification number against amounts due to the Federal 
government from the issuers and their affiliates under the same 
taxpayer identification number for advance payments of the premium tax 
credit, advance payments of and reconciliation of cost-sharing 
reductions, payment of Federally-facilitated Exchange user fees, and 
risk adjustment, reinsurance, and risk corridors payments and charges.
    (c) Determination of debt. Any amount owed to the Federal 
government by an issuer and its affiliates for advance payments of the 
premium tax credit, advance payments of and reconciliation of cost-
sharing reductions, Federally-facilitated Exchange user fees, risk 
adjustment,

[[Page 72391]]

reinsurance, and risk corridors, after HHS nets amounts owed by the 
Federal government under these programs, is a determination of a debt.
0
39. Section 156.1220 is added to subpart M to read as follows:


Sec.  156.1220  Administrative appeals.

    (a) Requests for reconsideration. (1) Matters for reconsideration. 
An issuer may file a request for reconsideration under this section to 
contest a processing error by HHS, HHS's incorrect application of the 
relevant methodology, or HHS's mathematical error only with respect to 
the following:
    (i) The amount of advance payment of the premium tax credit, 
advance payment of cost-sharing reductions or Federally-facilitated 
Exchange user fees charge for a benefit year;
    (ii) The amount of a risk adjustment payment or charge for a 
benefit year, including an assessment of risk adjustment user fees;
    (iii) The amount of a reinsurance payment for a benefit year;
    (iv) The amount of a risk adjustment default charge for a benefit 
year;
    (v) The amount of a reconciliation payment or charge for cost-
sharing reductions for a benefit year; or
    (vi) The amount of a risk corridors payment or charge for a benefit 
year.
    (2) Time for filing a request for reconsideration. The request for 
reconsideration must be filed in accordance with the following 
timeframes:
    (i) For advance payments of the premium tax credit, advance 
payments of cost-sharing reductions, or Federally-facilitated Exchange 
user fee charges, within 30 calendar days after the issuer receives a 
final reconsideration notification specifying the aggregate amount of 
advance payments of the premium tax credit, advance payments of cost-
sharing reductions, and Federally-facilitated Exchange user fees for 
the applicable benefit year;
    (ii) For a risk adjustment payment or charge, including an 
assessment of risk adjustment user fees, within 30 calendar days of 
receipt of the notification provided by HHS under Sec.  153.310(e);
    (iii) For a reinsurance payment, within 30 calendar days of receipt 
of the notification provided by HHS under Sec.  153.240(b)(1)(ii);
    (iv) For a default risk adjustment charge, within 30 calendar days 
of receipt of the notification of the default risk adjustment charge;
    (v) For reconciliation of cost-sharing reductions, within 30 
calendar days of receipt of the notification provided by HHS of the 
cost-sharing reduction reconciliation payment or charge; and
    (vi) For a risk corridors payment or charge, within 30 calendar 
days of receipt of the notification provided by HHS under Sec.  
153.510(d).
    (3) Content of request. (i) The request for reconsideration must 
specify the findings or issues specified in paragraph (a)(1) of this 
section that the issuer challenges, and the reasons for the challenge.
    (ii) Notwithstanding paragraph (a)(3)(i) of this section, a 
reconsideration with respect to a processing error by HHS, HHS's 
incorrect application of the relevant methodology, or HHS's 
mathematical error may be requested only if, to the extent the issue 
could have been previously identified by the issuer to HHS under Sec.  
153.710(d)(2) or (e)(2) of this subchapter, it was so identified and 
remains unresolved.
    (iii) Notwithstanding paragraph (a)(3)(i) of this section, a 
reconsideration with respect to advance payments of the premium tax 
credit, advance payments of cost-sharing reductions, and Federally-
facilitated Exchange user fees may be requested only if, to extent the 
issue could have been previously identified by the issuer to HHS under 
Sec.  156.1210 of this subpart, it was so identified and remains 
unresolved. An issuer may request reconsideration if it previously 
identified an issue under Sec.  156.1210 of this subpart after the 15-
calendar-day deadline, but late discovery of the issue was not due to 
misconduct on the part of the issuer.
    (iv) The issuer may include in the request for reconsideration 
additional documentary evidence that HHS should consider. Such 
documents may not include data that was to have been filed by the 
applicable data submission deadline, but may include evidence of timely 
submission.
    (4) Scope of review for reconsideration. In conducting the 
reconsideration, HHS will review the appropriate payment and charge 
determinations, the evidence and findings upon which the determination 
was based, and any additional documentary evidence submitted by the 
issuer. HHS may also review any other evidence it believes to be 
relevant in deciding the reconsideration, which will be provided to the 
issuer with a reasonable opportunity to review and rebut the evidence. 
The issuer must prove its case by a preponderance of the evidence with 
respect to issues of fact.
    (5) Reconsideration decision. HHS will inform the issuer of the 
reconsideration decision in writing. A reconsideration decision is 
final and binding for decisions regarding the advance payments of the 
premium tax credit, advance payment of cost-sharing reductions, or 
Federally-facilitated Exchange user fees. A reconsideration decision 
with respect to other matters is subject to the outcome of a request 
for informal hearing filed in accordance with paragraph (b) of this 
section.
    (b) Informal hearing. An issuer may request an informal hearing 
before a CMS hearing officer to appeal HHS's reconsideration decision.
    (1) Manner and timing for request. A request for an informal 
hearing must be made in writing and filed with HHS within 15 calendar 
days of the date the issuer receives the reconsideration decision under 
paragraph (a)(5) of this section.
    (2) Content of request. The request for informal hearing must 
include a copy of the reconsideration decision and must specify the 
findings or issues in the decision that the issuer challenges, and its 
reasons for the challenge. HHS may submit for review by the CMS hearing 
officer a statement of its reasons for the reconsideration decision.
    (3) Informal hearing procedures. (i) The issuer will receive a 
written notice of the time and place of the informal hearing at least 
15 calendar days before the scheduled date.
    (ii) The CMS hearing officer will neither receive testimony nor 
accept any new evidence that was not presented with the reconsideration 
request and HHS statement under paragraph (b) of this section. The CMS 
hearing officer will review only the documentary evidence provided by 
the issuer and HHS, and the record that was before HHS when HHS made 
its reconsideration determination. The issuer may be represented by 
counsel in the informal hearing, and must prove its case by clear and 
convincing evidence with respect to issues of fact.
    (4) Decision of the CMS hearing officer. The CMS hearing officer 
will send the informal hearing decision and the reasons for the 
decision to the issuer. The decision of the CMS hearing officer is 
final and binding, but is subject to the results of any Administrator's 
review initiated in accordance with paragraph (c) of this section.
    (c) Review by the Administrator. (1) If the CMS hearing officer 
upholds the reconsideration decision, the issuer may request review by 
the Administrator of CMS within 15 calendar days of receipt of the CMS 
hearing officer's decision. The request for review must specify the 
findings or issues that the issuer challenges. HHS may submit for 
review by the Administrator a statement supporting the decision of the 
CMS hearing officer.

[[Page 72392]]

    (2) The Administrator will review the CMS hearing officer's 
decision, the statements of the issuer and HHS, and any other 
information included in the record of the CMS hearing officer's 
decision, and will determine whether to uphold, reverse, or modify the 
CMS hearing officer's decision. The issuer must provide its case by 
clear and convincing evidence with respect to issues of fact. The 
Administrator will send the decision and the reasons for the decisions 
to the issuer.
    (3) The Administrator's determination is final and binding.

    Dated: November 21, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 21, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-28610 Filed 11-25-13; 4:15 pm]
BILLING CODE 4120-01-P