[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Proposed Rules]
[Pages 77399-77413]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30435]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2380-PN]


Basic Health Program: Proposed Federal Funding Methodology for 
Program Year 2015

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

ACTION: Proposed methodology.

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SUMMARY: This document provides the methodology and data sources 
necessary to determine federal payment amounts made to states that 
elect to establish a Basic Health Program certified by the Secretary 
under section 1331 of the Patient Protection and Affordable Care Act 
(the Affordable Care Act) to offer health benefits coverage to low-
income individuals otherwise eligible to purchase coverage through 
Affordable Insurance Exchanges.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on January 22, 2014.

ADDRESSES: In commenting, refer to file code CMS-2380-PN. 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-2380-PN, P.O. Box 8016, 
Baltimore, MD 21244-8016.

[[Page 77400]]

    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-2380-PN, 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 ONLY to the following addresses: 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: Christopher Truffer, (410) 786-1264; 
or Jessica Schubel, (410) 786-3032.

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. Background
II. Provisions of the Proposed Methodology
    A. Overview of the Funding Methodology and Calculation of the 
Federal Payment Amount
    1. Equation 1: Estimated PTC by Rate Cell
    2. Equation 2: Estimated CSR by Rate Cell
    3. Equation 3: Adjusted Reference Premium Variable
    4. Equation 4: Determination of Total Monthly Payment for BHP 
Enrollees in Each Rate Cell
    B. Required Rate Cells
    C. Sources and State Data Considerations
    D. Discussion of Specific Variables Used in Payment Equations
    1. Reference Premium (RP)
    2. Premium Trend Factor (PTF)
    3. Population Health Factor (PHF)
    4. Income (I)
    5. Premium Tax Credit Formula (PTCF)
    6. Income Reconciliation Factor (IRF)
    7. Tobacco Rating Adjustment Factor (TRAF)
    8. Factor for Removing Administrative Costs (FRAC)
    9. Actuarial Value (AV)
    10. Induced Utilization Factor (IUF)
    11. Change in Actuarial Value ([Delta]AV)
    E. Adjustments for American Indians and Alaska Natives
    F. Example Application of the BHP Funding Methodology
III. Collection of Information
IV. Response to Comments
V. Regulatory Impact Statement
    A. Overall Impact
    1. Need for Notice
    2. Alternative Approaches
    3. Transfers
    B. Unfunded Mandates Reform Act
    C. Regulatory Flexibility Act
    D. Federalism

I. Background

    The Affordable Care Act provides for the establishment of state 
Affordable Insurance Exchanges (Exchanges, also called the Health 
Insurance Marketplace) that provide access to affordable health 
insurance coverage offered by qualified health plans (QHPs) for most 
individuals under age 65 who are not eligible for health coverage under 
other federally supported health benefits programs or through 
affordable employer-sponsored insurance coverage, and who have incomes 
above 100 percent of the federal poverty line (FPL), or whose income is 
below that level but are lawfully present non-citizens ineligible for 
Medicaid because of immigration status. Individuals enrolled through 
Exchanges in coverage offered by QHPs with incomes below 400 percent of 
the FPL may qualify for the federal premium tax credit (PTC) and 
federally-funded cost-sharing reductions (CSRs) based on their 
household income, to ensure that such coverage meets certain standards 
for affordability.
    In the states that elect to operate a Basic Health Program (BHP), 
BHP will make affordable health benefits coverage available for 
individuals under age 65 with household incomes between 133 percent and 
200 percent of the FPL who are not otherwise eligible for Medicaid, the 
Children's Health Insurance Program (CHIP), or affordable employer 
sponsored coverage. (For many states, the lower income threshold for 
BHP eligibility is effectively 138 percent due to the application of a 
required 5 percent income disregard in determining the upper limits of 
Medicaid income eligibility.) Federal funding would be available for 
BHP based on the amount of PTC and CSRs that BHP enrollees would have 
received had they been enrolled in QHPs through Exchanges.
    In the September 25, 2013 Federal Register (78 FR 59122), we 
published a proposed rule entitled the ``Basic Health Program: State 
Administration of Basic Health Programs; Eligibility and Enrollment in 
Standard Health Plans; Essential Health Benefits in Standard Health 
Plans; Performance Standards for Basic Health Programs; Premium and 
Cost Sharing for Basic Health Programs; Federal Funding Process; Trust 
Fund and Financial Integrity'' proposed rule (hereinafter referred to 
as the BHP proposed rule) implementing section 1331 of the Patient 
Protection and Affordable Care Act (Pub. L. 111-148, enacted on March 
23, 2010), together with the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010 collectively 
referred as the Affordable Care Act, which requires the establishment 
of BHP. The BHP proposed rule proposes to establish the requirements 
for state and federal administration of BHP, including provisions 
regarding eligibility and enrollment, benefits, cost-sharing 
requirements and oversight activities. While the BHP proposed rule 
proposed to codify the overall statutory requirements and basic 
procedural framework for the funding methodology, it does not contain 
the specific information necessary to determine federal payments. We 
anticipated that the methodology would be based on

[[Page 77401]]

data and assumptions that would reflect ongoing operations and 
experience of BHP programs as well as the operation of the Exchanges. 
For this reason, the BHP proposed rule indicated that the development 
and publication of the funding methodology, including any data sources, 
would be addressed in a separate annual Payment Notice process.
    In the BHP proposed rule, we proposed that the BHP Payment Notice 
process would include the annual publication of both a proposed and 
final BHP Payment Notice. The proposed BHP Payment Notice would be 
published in the Federal Register each October, and would describe the 
proposed methodology for the upcoming BHP program year, including how 
the Secretary considered the factors specified in section 1331(d)(3) of 
the Affordable Care Act, along with the proposed data sources used to 
determine the federal BHP payment rates. The final BHP Payment Notice 
would be published in the Federal Register in February, and would 
include the final BHP funding methodology, as well as the federal BHP 
payment rates for the next BHP program year. For example, payment rates 
published in February 2015 would apply to BHP program year 2016, 
beginning in January 2016. State data, as discussed further below, 
needed to calculate the federal BHP payment rates for the final BHP 
Payment Notice must be submitted to CMS.
    Once the final methodology has been published, no modifications to 
the methodology will occur during the program year. As described in the 
BHP proposed rule, we will only make modifications to the BHP funding 
methodology on a prospective basis. Adjustments could be made to the 
payment rates to correct errors in applying the methodology (such as 
mathematical errors).
    Under section 1331(d)(3)(ii) of the Affordable Care Act, the 
funding methodology and payment rates are expressed as an amount per 
BHP enrollee for each month of enrollment, and could vary based on 
categories or classes of enrollees. Actual payment to a state would 
depend on the actual enrollment in coverage through the state BHP. A 
state that is approved to implement BHP will be required to provide 
data showing quarterly enrollment corresponding to the federal BHP 
payment rate cells. The data submission requirements associated with 
this will be provided in a future CMS notice.
    Given that BHP will be available for states to implement effective 
January 1, 2015, we intend to modify the publication dates of the BHP 
Payment Notices for the first year of BHP implementation. Specifically, 
we intend to publish the final BHP Payment Notice, which will contain 
the final 2015 BHP funding methodology and payment rates, concurrently 
with our intended schedule to publish the final BHP regulation in March 
2014.

II. Provisions of the Proposed Methodology

A. Overview of the Funding Methodology and Calculation of the Payment 
Amount

    Section 1331(d)(3) of the Affordable Care Act directs the Secretary 
to consider several factors when determining the federal BHP payment 
amount, which, as specified in the statute, must equal 95 percent of 
the value of the PTC and CSRs that BHP enrollees would have been 
provided had they enrolled in a QHP through an Exchange. Thus, the 
proposed BHP funding methodology is designed to calculate the PTC and 
CSRs as consistently as possible and in general alignment with the 
methodology used by Exchanges to calculate the advance payments of the 
PTC and CSRs, and by the Internal Revenue Service (IRS) to calculate 
final PTCs. In general, we propose to rely on values for factors in the 
payment methodology specified in statute or other regulations as 
available, and we propose to develop values for other factors not 
otherwise specified in statute, or previously calculated in other 
regulations, to simulate the values of the PTC and CSRs that BHP 
enrollees would have received if they had enrolled in QHPs offered 
through an Exchange. In accordance with section 1331(d)(3)(A)(iii) of 
the Affordable Care Act, the final funding methodology must be 
certified by the Chief Actuary of CMS, in consultation with the Office 
of Tax Analysis of the Department of the Treasury, as having met the 
requirements of section 1331(d)(3)(A)(ii) of the Affordable Care Act.
    Section 1331(d)(3)(A)(ii) of the Affordable Care Act specifies that 
the payment determination ``shall take into account all relevant 
factors necessary to determine the value of the premium tax credits and 
cost-sharing reductions that would have been provided to eligible 
individuals . . . including the age and income of the enrollee, whether 
the enrollment is for self-only or family coverage, geographic 
differences in average spending for health care across rating areas, 
the health status of the enrollee for purposes of determining risk 
adjustment payments and reinsurance payments that would have been made 
if the enrollee had enrolled in a qualified health plan through an 
Exchange, and whether any reconciliation of the credit or cost-sharing 
reductions would have occurred if the enrollee had been so enrolled.'' 
The proposed payment methodology takes each of these factors into 
account.
    We propose that the total federal BHP payment amount would be based 
on multiple ``rate cells'' in each state. Each ``rate cell'' would 
represent a unique combination of age range, geographic area, coverage 
category (for example, self-only or two-adult coverage through BHP), 
household size, and income range as a percentage of FPL. Thus, there 
would be distinct rate cells for individuals in each coverage category 
within a particular age range who reside in a specific geographic 
rating area and are in households of the same size and income range. We 
note that for states that do not use age as a rating factor on the 
Exchange, the BHP payment rates would be consistent with those states' 
Exchange rules. Thus, for a state that does not use age as a rating 
factor on the Exchange, the BHP payment rates would not vary by age.
    The proposed rate for each rate cell would be calculated in two 
parts. The first part would equal 95 percent of the estimated PTC that 
would have been paid if a BHP enrollee in that rate cell had instead 
enrolled in a QHP in the Exchange. The second part would equal 95 
percent of the estimated CSR payment that would have been made if a BHP 
enrollee in that rate cell had instead enrolled in a QHP in the 
Exchange. These two parts would be added together and the total rate 
for that rate cell would be equal to the sum of the PTC and CSR rates.
    We propose that Equation (1) would be used to calculate the 
estimated PTC for individuals in each rate cell and Equation (2) would 
be used to calculate the estimated CSR payments for individuals in each 
rate cell. By applying the equations separately to rate cells based on 
age, income and other factors, we would effectively take those factors 
into account in the calculation. In addition, the equations would 
reflect the estimated experience of individuals in each rate cell if 
enrolled in coverage through the Exchange, taking into account 
additional relevant variables. Each of the variables in the equations 
is defined below, and further detail is provided later in this section 
of the payment notice.
    In addition, we describe how we propose to calculate the adjusted 
reference premium (described later in this section of the payment 
notice) that

[[Page 77402]]

is used in Equations (1) and (2). This is defined below in Equation 
(3). This calculation would take into account a number of variables, 
including a premium trend factor to adjust currently available premium 
rates to estimate the rate for the applicable BHP program year.
1. Equation 1: Estimated PTC by Rate Cell
    We propose that the estimated PTC, on a per enrollee basis, would 
be calculated for each rate cell for each state based on age range, 
geographic area, coverage category, household size, and income range. 
The PTC portion of the rate would be calculated in a manner consistent 
with the methodology used to calculate the PTC for persons enrolled in 
a QHP, with three adjustments. First, the PTC portion of the rate for 
each rate cell would represent the mean, or average, expected PTC that 
all persons in the rate cell would receive, rather than being 
calculated for each individual enrollee. Second, the reference premium 
used to calculate the PTC (described in more detail later in the 
section) would be adjusted for BHP population health status and for the 
projected change in the premium from the current year (that is, the 
year of the final payment notice) to the following year, to which the 
rates announced in the final payment notice would apply. These 
adjustments are described in Equation (3) below. Third, the PTC would 
be adjusted prospectively to reflect the mean, or average, net expected 
impact of income reconciliation on the combination of all persons 
enrolled in BHP; this adjustment, as described further below, would 
account for the impact on the PTC that would have occurred had such 
reconciliation been performed. Finally, the rate is multiplied by 95 
percent, consistent with section 1331(d)(3)(A)(i) of the Affordable 
Care Act. We note that in the situation where the average income 
contribution of an enrollee would exceed the adjusted reference 
premium, we would calculate the PTC to be equal to 0 and not let the 
PTC be negative.
    We are soliciting comments regarding the methodology that we are 
proposing to calculate the value of PTC rate, which is defined in 
Equation (1):
[GRAPHIC] [TIFF OMITTED] TP23DE13.000

PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
Ih,i,j = Income (in dollars per month) at each 1 percentage-point 
increment of FPL
j = jth percentage-point increment FPL
n = Number of income increments used to calculate the mean PTC
PTCFh,i,j = Premium Tax Credit Formula percentage
IRF = Income reconciliation factor
2. Equation 2: Estimated CSR Payment by Rate Cell
    We propose that the CSR portion of the rate would be calculated for 
each rate cell for each state based on age range, geographic area, 
coverage category, household size, and income range defined as a 
percentage of FPL. The CSR portion of the rate would be calculated in a 
manner consistent with the methodology used to calculate the 
prospective CSR advance payments for persons enrolled in a QHP, as 
described in the HHS Notice of Benefit and Payment Parameters for 2015 
proposed rule, with three principal adjustments. (We further propose a 
separate calculation that includes different adjustments for American 
Indian/Alaska Native BHP enrollees, as described in section E.) For the 
first adjustment, the CSR rate, like the PTC rate, would represent the 
mean, or average, expected CSR subsidy that would be paid on behalf of 
all persons in the rate cell, instead of the CSR subsidy being 
calculated for each individual enrollee. Second, this calculation would 
be based on the adjusted reference premium, as described below. Third, 
as explained earlier, this equation uses an adjusted reference premium 
that reflects premiums charged to non-tobacco users, rather than the 
actual premium that is charged to tobacco users to calculate CSR 
advance payments for tobacco users enrolled in a QHP. Accordingly, we 
propose that the equation include a tobacco rating adjustment factor 
that would account for BHP enrollees' estimated tobacco-related health 
costs that are outside the premium charged to non-tobacco-users. As a 
practical matter, this would only affect states that allow tobacco use 
as a rating factor. Finally, the rate would be multiplied by 95 
percent, as provided in section 1331(d)(3)(A)(i) of the Affordable Care 
Act. We propose using Equation (2) to calculate the CSR rate, 
consistent with the methodology described above.
[GRAPHIC] [TIFF OMITTED] TP23DE13.001

CSRa,g,c,h,i = Cost-sharing reduction subsidy portion of BHP payment 
rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
TRAF = Tobacco rating adjustment factor
FRAC = Factor removing administrative costs
AV = Actuarial value of plan (as percentage of allowed benefits 
covered by the applicable QHP without a cost-sharing reduction 
subsidy)
IUFh,i = Induced utilization factor
[Delta]AVh,i = Change in actuarial value (as percentage of allowed 
benefits)
3. Equation 3: Adjusted Reference Premium Variable (Used in Equations 1 
and 2)
    As part of these calculations for both the PTC and CSR components, 
we propose to calculate the value of the adjusted reference premium, 
described below, as specified in Equation (3). The adjusted reference 
premium would be equal to the reference premium, which would be based 
on the second lowest cost silver plan premium, multiplied by the 
premium trend factor, which would reflect the projected change in the 
premium level between the current year and the next year (including the 
estimated impact of changes resulting from the transitional reinsurance 
program established in section 1341 of the Affordable Care Act), and 
the BHP population health factor, described

[[Page 77403]]

below in section D, which would reflect the projected impact that 
enrolling BHP-eligible individuals in QHPs on an Exchange would have 
had on the average QHP premium.
[GRAPHIC] [TIFF OMITTED] TP23DE13.002

ARPa,g,c = Adjusted reference premium
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
RPa,g,c = Reference premium
PTF = Premium trend factor
PHF = Population health factor

    4. Equation 4: Determination of Total Monthly Payment for BHP 
Enrollees in Each Rate Cell
    In general, the rate for each rate cell would be multiplied by the 
number of BHP enrollees in that cell (that is, the number of enrollees 
that meet the criteria for each rate cell) to calculate the total 
monthly BHP payment. This calculation is shown in Equation 4 below.
[GRAPHIC] [TIFF OMITTED] TP23DE13.003

PMT = Total monthly BHP payment
PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
CSRa,g,c,h,i = Cost-sharing reduction subsidy portion of BHP payment 
rate
Ea,g,c,h,i = Number of BHP enrollees
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)

B. Required Rate Cells

    We propose that a state implementing BHP provide us an estimate of 
the number of BHP enrollees it projects will enroll in the upcoming BHP 
program year, by applicable rate cell, prior to the first quarter of 
program operations. Upon our approval of such estimates as reasonable, 
they would be used to calculate the prospective payment for the first 
and subsequent quarters of program operation until the state has 
provided us actual enrollment data. These data would be required to 
calculate the final BHP payment amount, and make any necessary 
reconciliation adjustments to the prior quarters' prospective payment 
amounts due to differences between projected and actual enrollment. 
Subsequent quarterly deposits to the state's trust fund would be based 
on the most recent actual enrollment data submitted to us. Procedures 
will ensure that federal payments to a state reflect actual BHP 
enrollment during a year, within each applicable category, and 
prospectively determined federal payment rates for each category of BHP 
enrollment, with such categories defined in terms of age range, 
geographic area, coverage status, household size, and income range, as 
explained above.
    We propose requiring the use of certain rate cells as part of the 
proposed methodology. For each state, we propose using rate cells that 
separate the BHP population into separate cells based on the five 
factors described below.
    Factor 1--Age: We propose separating enrollees into rate cells by 
age, using the following age ranges that capture the widest variations 
in premiums under HHS's Default Age Curve: \1\
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    \1\ This curve is used to implement the Affordable Care Act's 
3:1 limit on age-rating in states that do not create an alternative 
rate structure to comply with that limit. The curve applies to all 
individual market plans, both within and outside the Exchange. The 
age bands capture the principal allowed age-based variations in 
premiums as permitted by this curve. More information can be found 
at http://www.cms.gov/CCIIO/Resources/Files/Downloads/market-reforms-guidance-2-25-2013.pdf. Both children and adults under age 
21 are charged the same premium. For adults age 21-64, the age bands 
in this document divide the total age-based premium variation into 
the three most equally-sized ranges (defining size by the ratio 
between the highest and lowest premiums within the band) that are 
consistent with the age-bands used for risk-adjustment purposes in 
the HHS-Developed Risk Adjustment Model. For such age bands, see 
Table 5, ``Age-Sex Variables,'' in HHS-Developed Risk Adjustment 
Model Algorithm Software, May 7, 2013, http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/ra_tables_04_16_2013xlsx.xlsx.
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     Ages 0-20.
     Ages 21-44.
     Ages 45-54.
     Ages 55-64.
    Factor 2--Geographic area: For each state, we propose separating 
enrollees into rate cells by geographic areas within which a single 
reference premium is charged by QHPs offered through the state's 
Exchange. Multiple, non-contiguous geographic rating areas would be 
incorporated within a single cell, so long as those areas share a 
common reference premium.\2\
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    \2\ For example, a cell within a particular state might refer to 
``County Group 1,'' ``County Group 2,'' etc., and a table for the 
state would list all the counties included in each such group. These 
geographic areas are consistent with the geographic rating areas 
established under the 2014 Market Reform Rules. They also reflect 
the service area requirements applicable to qualified health plans, 
as described in 45 CFR Sec.  155.1055, except that service areas 
smaller than counties are addressed as explained below.
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    Factor 3--Coverage status: We propose separating enrollees into 
rate cells by coverage status, reflecting whether an individual is 
enrolled in self-only coverage or persons are enrolled in family 
coverage through BHP, as provided in section 1331(d)(3)(A)(ii) of the 
Affordable Care Act. Among recipients of family coverage through BHP, 
separate rate cells, as explained below, would apply based on whether 
such coverage involves two adults alone or whether it involves 
children.
    Factor 4--Household size: We propose separating enrollees into rate 
cells by household size that states use to determine BHP enrollees' 
income as a percentage of the FPL under proposed 42 CFR 600.320. We are 
proposing to require separate rate cells for several specific household 
sizes. For each additional member above the largest specified size, we 
propose to publish instructions for how to develop additional rate 
cells and calculate an appropriate payment rate based on data for the 
rate cell with the closest specified household size. We are currently 
proposing to publish separate rate cells for household sizes 1, 2, 3, 
4, and 5, as unpublished analyses of American Community Survey data 
conducted by the Urban Institute, which take into account unaccepted 
offers of employer-sponsored insurance as well as income, Medicaid and 
CHIP eligibility, citizenship and immigration status, and current 
health coverage status, find that less than 1 percent of

[[Page 77404]]

all BHP-eligible persons live in households of size 5 or greater.
    Factor 5--Income: For households of each applicable size, we 
propose creating separate rate cells by income range, as a percentage 
of FPL. The PTC that a person would receive if enrolled in a QHP varies 
by income, both in level and as a ratio to the FPL, and the CSR varies 
by income as a percentage of FPL. Thus, we propose that separate rate 
cells would be used to calculate federal BHP payment rates to reflect 
different bands of income measured as a percentage of FPL. We propose 
using the following income ranges, measured as a ratio to the FPL:
     0 To 50 percent of the FPL.
     51 to 100 percent of the FPL.
     101 to 138 percent of the FPL.\3\
---------------------------------------------------------------------------

    \3\ The three lowest income ranges would be limited to lawfully 
present immigrants who are ineligible for Medicaid because of 
immigration status.
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     139 to 150 percent of the FPL.
     151 to 175 percent of the FPL.
     176 to 200 percent of the FPL.
    These rate cells would only be used to calculate the federal BHP 
payment amount. A state implementing BHP would not be required to use 
these rate cells or any of the factors in these rate cells as part of 
the state payment to the standard health plans participating in BHP or 
to help define BHP enrollees' covered benefits, premium costs, or out-
of-pocket cost-sharing levels.
    We propose using averages to define federal payment rates, both for 
income ranges and age ranges, rather than varying such rates to 
correspond to each individual BHP enrollee's age and income level. We 
believe that the proposed approach will increase the administrative 
feasibility of making federal BHP payments and reduce the likelihood of 
inadvertently erroneous payments resulting from highly complex 
methodologies. We believe that this approach should not significantly 
change federal payment amounts, as within applicable ranges, the BHP-
eligible population is distributed relatively evenly.
    We welcome comments on whether these are the appropriate factors 
for developing rate cells, whether there are other factors that should 
be considered as part of developing the rate cells, whether the ranges 
or categories specified above (including the width of the age bands) 
are appropriate, and whether (as proposed) we should assume even 
distributions, by age and income, in each cell or modify those 
distributions to reflect data about the precise distribution of BHP-
eligible individuals. We also welcome comments on the form in which 
federal payment rates are displayed. Given the number of rating factors 
used to calculate the BHP payments, we would welcome comments if 
producing a smaller subset of tables would be more useful than a more 
complete set of tables; in no case would the choices about the list of 
rates to publish affect the actual calculation of the payment rate.

C. Sources and State Data Considerations

    To the extent possible, we intend to use data submitted to the 
federal government by QHP issuers seeking to offer coverage through an 
Exchange to perform the calculations that determine federal BHP payment 
cell rates.
    States operating a State Based Exchange (SBE) in the individual 
market, however, must provide certain data, including premiums for 
second lowest cost silver plans, by geographic area, in order for CMS 
to calculate the federal BHP payment rates in those states. An SBE 
state interested in obtaining the applicable federal BHP payment rates 
for its state must submit such data accurately, completely, and as 
specified by CMS, by no later than January 20, 2014, in order for CMS 
to calculate the applicable rates and include them in the intended 
publication of the final BHP Payment Notice for 2015. If additional 
state data (that is, in addition to the second lowest cost silver plan 
premium data) are needed to determine the federal BHP payment rate, 
such data must be submitted in a timely manner, and in a format 
specified by CMS to support the development and timely release of 
annual BHP payment notices. The specifications for data collection to 
support the development of BHP payment rates for 2015 will be published 
in a separate CMS notice.
    If a state operating a SBE provides the necessary data accurately, 
completely, and as specified by CMS, but after the date specified 
above, we anticipate publishing federal payment rates for such a state 
in a subsequent Payment Notice. As noted in the BHP proposed rule, a 
state may elect to implement its BHP after a program year has begun. In 
such an instance, we propose that the state, if operating a SBE, submit 
its data no later than 30 days after the Blueprint submission for CMS 
to calculate the applicable federal payment rates. We further propose 
that the BHP Blueprint itself must be submitted for Secretarial 
certification with an effective date of no sooner than 120 days after 
submission of the BHP Blueprint. In addition, the state must ensure 
that its Blueprint include a detailed description of how the state will 
coordinate with other insurance affordability programs to transition 
and transfer BHP-eligible individuals out of their existing QHP 
coverage, consistent with the requirements set forth in proposed in 42 
CFR 600.330 and Sec.  600.425. We believe that this 120-day period is 
necessary to establish the requisite administrative structures and 
ensure that all statutory and regulatory requirements are satisfied.

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
    In order to calculate the estimated PTC that would be paid if 
individuals enrolled in QHPs through the Exchange, we must calculate a 
reference premium (RP) because the PTC is based, in part, on the 
premiums for the second lowest cost silver plan as explained below in 
section II.C.5 regarding the Premium Tax Credit Formula (PTCF). 
Accordingly, for the purposes of calculating the BHP payment rates, the 
reference premium, in accordance with 26 U.S.C. 36B (b)(3)(C), is 
defined as the adjusted monthly premium for an applicable second lowest 
cost silver plan. The applicable second lowest cost silver plan is 
defined in 26 U.S.C. 36B (b)(3)(B) as the second lowest cost silver 
plan of the individual market in the rating area in which the taxpayer 
resides, which is offered through the same Exchange.
    The reference premium would be the premium applicable to non-
tobacco users. This is consistent with the provision in 26 U.S.C. 36B 
(b)(3)(C) that bases the PTC on premiums that are adjusted for age 
alone, without regard to tobacco use, even for states that allow 
insurers to vary premiums based on tobacco use pursuant to 42 U.S.C. 
300gg (a)(1)(A)(iv).
    Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6) to 
calculate the PTC for those enrolled in a QHP through an Exchange, we 
propose not to update the payment methodology, and subsequently the 
federal BHP payment rates, in the event that the second lowest cost 
silver plan used as the reference premium changes (that is, terminates 
or closes enrollment during the year).
    The applicable second lowest cost silver plan premium will be 
included in the BHP payment methodology by age range, geographic area, 
and self-only or applicable category of family coverage obtained 
through BHP.
    We would note that the choice of the second lowest cost silver plan 
for

[[Page 77405]]

calculating BHP payments would rely on several simplifying assumptions 
in its selection. For the purposes of determining the second lowest 
cost silver plan for calculating PTC for a person enrolled in a QHP 
through an Exchange, the applicable plan may differ for various 
reasons. For example, a different second lowest cost silver plan may 
apply to a family consisting of two adults, their child, and their 
niece than to a family with two adults and their children, because one 
or more QHPs in the family's geographic area might not offer family 
coverage that includes the niece. We believe that it would not be 
possible to replicate such variations for calculating the BHP payment 
and believe that in aggregate they would not result in a significant 
difference in the payment. Thus, we propose to use the second lowest 
cost silver plan available to any enrollee for a given age, geographic 
area, and coverage category.
    This choice of reference premium relies on two assumptions about 
enrollment in the Exchanges. First, we assume that all persons enrolled 
in BHP would have elected to enroll in a silver level plan if they had 
instead enrolled in a QHP through the Exchanges. It is possible that 
some persons would have chosen not to enroll at all or would have 
chosen to enroll in a different metal-level plan (in particular, a 
bronze level plan with a premium that is less than the PTC for which 
the person was eligible). We do not believe it is appropriate to adjust 
the payment for an assumption that some BHP enrollees would not have 
enrolled in QHPs for purposes of calculating the BHP payment rates, 
since Affordable Care Act section 1331(d)(3)(A)(ii) requires the 
calculation of such rates as ``if the enrollee had enrolled in a 
qualified health plan through an Exchange.''
    Second, we assume that, among all available silver plans, all 
persons enrolled in BHP would have selected the second-lowest cost 
plan. Both this and the prior assumption allow an administratively 
feasible determination of federal payment levels. They also have some 
implications for the CSR portion of the rate. If persons were to have 
enrolled in a bronze level plan through the Exchange, they would not be 
eligible for the CSR, unless they were an eligible American Indian or 
Alaska Native; thus, assuming that all persons enroll in silver level 
plan, rather than a plan with a different metal level, would increase 
the BHP payment. Assuming that all persons enroll in the second lowest 
cost silver plan for the purposes of calculating the CSR portion of the 
rate may result in a different level of CSR payments than would have 
been paid if the persons were enrolled in different silver level plans 
on the Exchanges (with either lower or higher premiums). We believe it 
would not be reasonable at this point to estimate how BHP enrollees 
would have enrolled in different silver level QHPs, and thus propose to 
use the second lowest cost silver plan as the basis for the reference 
premium and calculating the CSR portion of the rate. For American 
Indian/Alaska Native BHP enrollees, we propose to use the lowest cost 
bronze plan as the basis for the reference premium as described further 
in section E.
    The applicable age bracket will be one dimension of each rate cell. 
We propose to assume a uniform distribution of ages and estimate the 
average premium amount within each rate cell. We believe that assuming 
a uniform distribution of ages within these ranges is a reasonable 
approach and would produce a reliable determination of the PTC and CSR 
components. We also believe this approach would avoid potential 
inaccuracies that could otherwise occur in relatively small payment 
cells if age distribution were measured by the number of persons 
eligible or enrolled. We propose to use the same geographic areas as 
specified for the Exchanges in each state within which the same second 
lowest cost silver level premium is charged. Although plans are allowed 
to serve geographic areas smaller than counties after obtaining our 
approval, we propose that no geographic area, for purposes of defining 
BHP payment rate cells, will be smaller than a county. We do not 
believe that this assumption will have a significant impact on federal 
payment levels and it would likely simplify both the calculation of BHP 
payment rates and the operation of BHP.
    Finally, in terms of the coverage category, we propose that federal 
payment rates only recognize self-only and two-adult coverage, with 
exceptions that account for children who are potentially eligible for 
BHP. First, in states that set the upper income threshold for 
children's Medicaid and CHIP eligibility below 200 percent of FPL 
(based on modified adjusted gross income), children in households with 
incomes between that threshold and 200 percent of FPL would be 
potentially eligible for BHP. Currently, the only states in this 
category are Arizona, Idaho, and North Dakota.\4\ Second, BHP would 
include lawfully present immigrant children with incomes at or below 
200 percent of FPL in states that have not exercised the option under 
the sections 1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the Social Security 
Act (the Act) to qualify all otherwise eligible, lawfully present 
immigrant children for Medicaid and CHIP. States that fall within these 
exceptions would be identified based on their Medicaid and CHIP State 
Plans, and the rate cells would include appropriate categories of BHP 
family coverage for children. For example, Idaho's Medicaid and CHIP 
eligibility is limited to families with MAGI at or below 185 percent 
FPL. If Idaho implemented BHP, Idaho children with incomes between 185 
and 200 percent could qualify. In other states, BHP eligibility will 
generally be restricted to adults, since children who are citizens or 
lawfully present immigrants and who live in households with incomes at 
or below 200 percent of FPL will qualify for Medicaid or CHIP and thus 
be ineligible for BHP under section 1331 (e)(1)(C) of the Affordable 
Care Act, which limits BHP to individuals who are ineligible for 
minimum essential coverage (as defined in section 5000A(f) of the 
Internal Revenue Code of 1986).
---------------------------------------------------------------------------

    \4\ CMCS. ``State Medicaid and CHIP Income Eligibility Standards 
Effective January 1, 2014.''
---------------------------------------------------------------------------

2. Premium Trend Factor (PTF)
    In Equation 3, we calculate an adjusted reference premium (ARP) 
based on the application of certain relevant variables to the reference 
premium (RP), including a premium trend factor (PTF). At the time we 
issue the final federal payment notice, the adjusted monthly premium 
for the applicable second lowest cost silver plan will be known only 
for the year prior to the applicable BHP program year. For example, 
when federal payments are set for the 2015 BHP program year, the 
adjusted monthly premium for the applicable second lowest cost silver 
plan will be known only for 2014. It is appropriate to apply a factor 
that would account for the change in health care costs between the year 
of the premium data and the BHP plan year. We are defining this as the 
premium trend factor in the BHP payment methodology. This factor should 
approximate the change in health care costs per enrollee, which would 
include, but is not limited to, changes in the price of health care 
services and changes in the utilization of health care services. This 
would provide an estimate of the adjusted monthly premium for the 
applicable second lowest cost silver plan that would be more accurate 
and reflective of health care costs in the BHP program year, which will 
be the year following

[[Page 77406]]

issuance of the final federal payment notice.
    There are several ways to develop this factor. One option would be 
to use a projection of national health care cost trends on a per capita 
or a per enrollee basis. Other options include using historical trends 
from Exchanges once available--for example, the average annual rate of 
growth of the applicable second lowest cost silver plans over the last 
5 years, or the projected change in national health care cost trends, 
adjusted for observed differences between growth rates experienced by 
such silver plans and those for private health insurance expenditures 
overall.
    In addition, we believe that it is appropriate to adjust the trend 
factor for the estimated impact of changes to the transitional 
reinsurance program on the average QHP premium. To the extent that 
changes in the operation of that program will affect QHP premiums in 
predictable ways that go beyond private insurance cost trends as a 
whole, such changes will be incorporated into the premium trend factor.
    We believe that for the 2015 BHP program year the most reliable and 
appropriate approach would use projected national health care cost 
trends. Therefore, we propose to use the annual growth rate in private 
health insurance expenditures per enrollee from the National Health 
Expenditure projections. The National Health Expenditure Accounts and 
Projections are developed annually by the Office of the Actuary of CMS. 
Over the last 10 years, the average annual increase in private health 
insurance premiums per enrollee has been 6.55 percent per year, ranging 
from 3.22 percent to 11.55 percent.
    Future changes in private health insurance premiums per enrollee 
may differ from historical experience for many reasons, including 
changes in use of health care services, provider reimbursement rates, 
net costs of insurance, the health status of the people with private 
health insurance, and the demographics of the U.S. population. 
Moreover, the change in the cost of the premium of the second lowest 
cost silver plan may differ from the increase in the average private 
health insurance premium; in particular, the second lowest cost silver 
plan in a region may be offered by different insurers year to year. 
There may also be some differences between the rate of premium 
increases in QHPs on the Exchanges and other forms of private health 
insurance (for example, employer-sponsored insurance). In addition, 
there may be regional differences in the change in health care premiums 
(that is, different regions of the country may see premium increases 
smaller or larger than the national average).
    In future years, we propose to evaluate whether historical data and 
projections related specifically to the QHPs offered on the Exchanges 
at a national level could produce a more reliable estimate of future 
changes to QHP reference premiums, compared to historical data and 
projections for private insurance in general.
    We particularly invite comments concerning methods for addressing 
significant changes in the cost of the second lowest cost silver plan 
premium in a geographic rating area from one year to the next, due to 
changes in local Exchange structure rather than broader trends in 
health insurance costs. For example, if a certain second lowest cost 
silver plan offered on an Exchange serves a particular geographic 
rating area in one year but not the next, the identity of the second 
lowest cost plan in that area could change, with potentially 
significant effects on PTC amounts. Such changes would not be captured 
using the kind of premium trend factor discussed here.
3. Population Health Factor (PHF)
    We considered including an explicit population health factor in 
each rate cell that varies based on the characteristics of BHP 
enrollees within that cell, but we are not proposing such a variable, 
for several reasons. We believe that because BHP-eligible consumers' 
are eligible to enroll in QHPs in 2014, the 2014 QHP premiums already 
account for the health status of BHP-eligible consumers, as explained 
in further detail below. Also, the function of this factor is to 
provide a reference premium amount that reflects the premiums that QHPs 
would have charged without the implementation of BHP, taking into 
account both the risk profile of BHP-eligible consumers in the state 
and the operation of risk-adjustment and reinsurance mechanisms in the 
Exchanges. Our proposed approach to the population health factor seeks 
to achieve this goal based on the characteristics of the state's BHP-
eligible consumers as a whole.
    In the BHP proposed rule, we described in preamble what we believed 
to be the most appropriate approach to account for potential 
differences in health status between BHP enrollees and consumers in the 
individual market, including those obtaining coverage through the 
Exchange--that is, including a risk adjustment factor in the BHP 
funding methodology. We believe that it is appropriate to consider 
whether or not to develop a population health adjustment to account for 
potential differences in health status between persons eligible for BHP 
and those enrolled in the individual market, as the two populations may 
not have the same average health status.
    Accordingly, we have considered applying a population-wide 
adjustment for health status in the BHP payment calculation to account 
for the impact on a state's Exchange premiums, hence the PTC and the 
value of CSRs, of changes to average risk levels in the state's 
individual market that result from BHP implementation. Our proposed 
approach to the adjustment for population health status seeks to have 
the federal BHP payment reflect the premium that would have been 
charged if BHP-eligible consumers were allowed to purchase QHPs in 
their state's Exchange, rather than the premium that is being charged 
in the Exchange without the inclusion of BHP consumers. This factor 
would be greater than 1.00 if BHP enrollees in a state are, on average, 
in poorer health status than those covered through the state's 
individual market, and thus Exchange premiums would have been higher 
had the state not implemented BHP. This factor would be less than 1.00 
if BHP enrollees in a state are, on average, in better health status 
than those covered through the state's individual market, and thus 
Exchange premiums would have been lower if the state had not 
implemented BHP.
    We propose that the population health adjustment for the 2015 BHP 
program year would equal 1.00. Most BHP-eligible consumers will be able 
to purchase coverage in the individual market during 2014, or the 
``measurement year''--that is, the year that precedes implementation of 
BHP and that provides the basis for estimating unadjusted reference 
premiums; thus, making no adjustment to the premiums for differences in 
BHP-eligible enrollees' health would be appropriate. As a result, BHP-
eligible consumers' health status is already included in the premiums 
that would be used to calculate the federal BHP payment rates.
    In states where significant numbers of BHP-eligible persons are 
covered outside of the individual market in 2014, it may be possible to 
estimate differences in expected health status between persons who are 
eligible for BHP and persons otherwise eligible for coverage in the 
individual market. However, we believe that the different levels of 
federal subsidies based on household income for coverage for persons 
enrolled in a QHP through an

[[Page 77407]]

Exchange may have a substantial influence on the participation rate of 
enrollees. This may result in relatively healthier persons with higher 
levels of subsidies enrolling in coverage, and this effect may 
partially or entirely offset some other differences in the health 
status between BHP-eligible persons and those otherwise covered in the 
individual market.
    On the Exchanges, premiums in most states will vary based on age, 
which research has shown is directly correlated to average health cost. 
Because the reference premium used to calculate BHP federal payment 
rates will vary by age, some of the difference in average health costs 
would be addressed by this approach to calculating the BHP payment. 
However, this does not further simplify the task of estimating the 
remaining adjustment needed to compensate for any impact of BHP 
implementation on average risk levels in the state's individual market. 
Given these analytic challenges, the existing role played by age-rated 
premiums in compensating for risk, and the limited data about Exchange 
coverage and the characteristics of BHP-eligible consumers that will 
available by the time we establish federal payment rates for 2015, we 
believe that the most appropriate adjustment for 2015 would be 1.00, 
including in states that cover BHP-eligible persons outside the 
individual market in 2014. We anticipate that, in future years, when 
additional data become available about Exchange coverage and the 
characteristics of BHP enrollees, we may estimate this factor 
differently. We invite comment on whether methods are currently 
available to accurately and reliably estimate this factor for 2015, in 
general and in states that will cover BHP-eligible persons outside 
their individual markets in 2014.
    Finally, while the statute requires consideration of risk 
adjustment payments and reinsurance payments insofar as they would have 
affected the PTC and CSRs that would have been provided to BHP-eligible 
individuals had they enrolled in QHPs, this does not mean that a BHP 
program's standard health plans receive such payments. As explained in 
the BHP proposed rule, BHP standard health plans are not included in 
the risk adjustment program operated by HHS on behalf of states. 
Further, standard health plans do not qualify for payments from the 
transitional reinsurance program established under section 1341 of the 
Affordable Care Act.\5\ To the extent that a state operating a BHP 
determines that, because of the distinctive risk profile of BHP-
eligible consumers, BHP standard health plans should be included in 
mechanisms that share risk with other plans in the state's individual 
market, the state would need to use other methods for achieving this 
goal.
---------------------------------------------------------------------------

    \5\ See 45 CFR 153.400(a)(2)(iv) (BHP standard health plans are 
not required to submit reinsurance contributions), 153.20 
(definition of ``Reinsurance-eligible plan'' as not including 
``health insurance coverage not required to submit reinsurance 
contributions''), Sec.  153.230(a) (reinsurance payments under the 
national reinsurance parameters are available only for 
``Reinsurance-eligible plans'').
---------------------------------------------------------------------------

4. Income (I)
    Household income is a significant determinant of the amount of the 
PTC and CSRs that are provided for persons enrolled in a QHP through 
the Exchange. Accordingly, the proposed BHP payment methodology 
incorporates income into the calculations of the payment rates through 
the use of income-based rate cells. We propose defining income in 
accordance with the definition of modified adjusted gross income in 26 
U.S.C. 36B(d)(2)(B) and consistent with the definition in 45 CFR 
155.300. Income would be measured relative to the FPL, which is updated 
periodically in the Federal Register by the Secretary of Health and 
Human Services under the authority of 42 U.S.C. 9902(2), based on 
annual changes in the consumer price index for all urban consumers 
(CPI-U). In our proposed methodology, household size and income as a 
percentage of FPL would be used as factors in developing the rate 
cells. We propose using the following income ranges measured as a 
percentage of FPL: \6\
---------------------------------------------------------------------------

    \6\ These income ranges and this analysis of income apply to the 
calculation of the PTC. Many fewer income ranges and a much simpler 
analysis apply in determining the value of CSRs, as specified below.
---------------------------------------------------------------------------

     0-50 percent.
     51-100 percent.
     101-138 percent.
     139-150 percent.
     151-175 percent.
     176-200 percent.
    We further propose to assume a uniform income distribution for each 
federal BHP payment cell. We believe that assuming a uniform income 
distribution for the income ranges proposed would be reasonably 
accurate for the purposes of calculating the PTC and CSR components of 
the BHP payment and would avoid potential errors that could result if 
other sources of data were used to estimate the specific income 
distribution of persons who are eligible for or enrolled in BHP within 
rate cells that may be relatively small. Thus, when calculating the 
mean, or average, PTC for a rate cell, we propose to calculate the 
value of the PTC at each one percentage point interval of the income 
range for each federal BHP payment cell and then calculate the average 
of the PTC across all intervals. This calculation would rely on the PTC 
formula described below.
    As the PTC for persons enrolled in QHPs would be calculated based 
on their income during the open enrollment period, and that income 
would be measured against the FPL at that time, we propose to adjust 
the FPL by multiplying the FPL by a projected increase in the CPI-U 
between the time that the BHP payment rates are published and the QHP 
open enrollment period, if the FPL is expected to be updated during 
that time. We propose that the projected increase in the CPI-U would be 
based on the intermediate inflation forecasts from the most recent 
OASDI and Medicare Trustees Reports.\7\
---------------------------------------------------------------------------

    \7\ See Table IV A1 from the 2013 reports in  http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf.
---------------------------------------------------------------------------

5. Premium Tax Credit Formula (PTCF)
    In Equation 1, we propose to use the formula described in 26 U.S.C. 
36B(b) to calculate the estimated PTC that would be paid on behalf of a 
person enrolled in a QHP on an Exchange as part of the BHP payment 
methodology. This formula is used to determine the amount of premium 
that an individual or household would be required to pay to enroll in a 
QHP on an Exchange, which is based on (A) the household income; (B) the 
household income measured as a percentage of FPL; and (C) the schedule 
specified in 26 U.S.C. 36B(b)(3)(A) and shown below. The difference 
between the amount of premium a person or a household is required to 
pay and the adjusted monthly premium for the applicable second lowest 
cost silver plan is the estimated amount of the PTC that would be 
provided for the enrollee.
    The PTC amount provided for a person enrolled in a QHP through an 
Exchange is calculated in accordance with the methodology described in 
26 U.S.C. 36B(b)(2) as the amount equal to the lesser of: (A) The 
monthly premiums for such month of one or more QHPs offered in the 
individual market within a state that cover the taxpayer, the 
taxpayer's spouse, or any dependent (as defined in section 26 U.S.C. 
152) of the taxpayer and that the taxpayer and spouse or dependents 
were enrolled in through an Exchange; or (B) the excess (if any) of (i) 
the adjusted monthly premium for such month for the

[[Page 77408]]

applicable second lowest cost silver plan for the taxpayer over (ii) an 
amount equal to 1/12 of the product of the applicable percentage 
(described below) and the taxpayer's household income for the taxable 
year.
    The applicable percentage is defined in 26 U.S.C. 36B(b)(3)(A) and 
26 CFR 1.36B-3(g) as the percentage that applies to a taxpayer's 
household income that is within an income tier specified in the table, 
increasing on a sliding scale in a linear manner from an initial 
premium percentage to a final premium percentage specified in the table 
(see Table 1):

                                Table 1:
------------------------------------------------------------------------
   In the case of household
income (expressed as a percent      The initial       The final  premium
 of poverty line)  within the   premium  percentage    percentage is--
    following income tier:         is--(percent)          (percent)
------------------------------------------------------------------------
Up to 133%....................                 2.0                  2.0
133 but less than 150%........                 3.0                  4.0
150 but less than 200%........                 4.0                  6.3
200 but less than 250%........                 6.3                  8.05
250 but less than 300%........                 8.05                 9.5
300 but not more than 400%....                 9.5                  9.5
------------------------------------------------------------------------

    These are the applicable percentages for CY 2014. The applicable 
percentages will be updated in future years in accordance with 26 
U.S.C. 36B(b)(3)(A)(ii).
6. Income Reconciliation Factor (IRF)
    For persons enrolled in a QHP through an Exchange who receive an 
advance payment of the PTC (APTC), there will be an annual 
reconciliation following the end of the year to compare such payment to 
the correct amount of PTC based on household circumstances shown on the 
federal income tax return. Any difference between the latter amounts 
and the credit received during the year would either be paid to the 
taxpayer (if the enrollee received less in APTC than they were entitled 
to receive) or charged to the taxpayer as additional tax (if the 
enrollee received more in APTC than they were entitled to receive, 
subject to any limitations in statute or regulation), as provided in 26 
U.S.C. 36B(f).
    Section 1331(e)(2) of the Affordable Care Act specifies that 
individuals enrolled in BHP may not be treated as a qualified 
individual under section 1312 eligible for enrollment in a QHP offered 
through an Exchange. Therefore, BHP enrollees are not eligible to 
receive an APTC to purchase coverage in the Exchange. Because they do 
not receive APTC, BHP enrollees are not subject to the same income 
reconciliation as Exchange consumers. Nonetheless, there may still be 
differences between a BHP enrollee's household income reported at the 
beginning of the year and the actual income over the year. These may 
include small changes (reflecting changes in hourly wage rates, hours 
worked per week, and other fluctuations in income during the year) and 
large changes (reflecting significant changes in employment status, 
hourly wage rates, or substantial fluctuations in income). There may 
also be changes in household composition. Thus, we believe that using 
unadjusted income as reported prior to the BHP program year may result 
in calculations of estimated PTC that are inconsistent with the actual 
incomes of BHP enrollees during the year. Even if the BHP program 
adjusts household income determinations and corresponding claims of 
federal payment amounts based on household reports during the year or 
data from third-party sources, such adjustments may not fully capture 
the effects of tax reconciliation that BHP enrollees would have 
experienced had they been enrolled in a QHP through an Exchange and 
received an APTC.
    Therefore, we propose including in Equation 1 an income adjustment 
factor that would account for the difference between calculating 
estimated PTC using: (a) Income relative to FPL as determined at 
initial application and potentially revised mid-year, under proposed 42 
CFR 600.320, for purposes of determining BHP eligibility and claiming 
federal BHP payments; and (b) actual income relative to FPL received 
during the plan year, as it would be reflected on individual federal 
income tax returns. This adjustment would seek prospectively to capture 
the average effect of income reconciliation aggregated across the BHP 
population had those BHP enrollees been subject to tax reconciliation 
after receiving APTC for coverage provided through QHPs. For 2015, we 
propose estimating reconciliation effects based on tax data for two 
years, reflecting income and tax unit composition changes over time 
among BHP-eligible individuals.
    Specifically, the Office of Tax Analysis (OTA) at the Department of 
the Treasury maintains a model which combines detailed tax and other 
data, including Exchange enrollment and PTC claimed, to project 
Exchange premiums, enrollment, and tax credits. For each enrollee, this 
model compares the APTC estimated at the point of enrollment with the 
PTC based on household income and family size reported at the end of 
the tax year. The former reflects the determination using enrollee 
information furnished by the applicant. The latter would reflect the 
PTC eligibility based on information on the tax return, which would 
have been determined if the individual had not enrolled in BHP. The 
ratio of the reconciled premium tax credit to the initial determination 
of premium tax credit will be used as the income reconciliation factor 
in Equation (1) for estimating the PTC portion of the BHP payment rate. 
We invite comment on this approach.
7. Tobacco Rating Adjustment Factor (TRAF)
    As described above, the reference premium is estimated, for 
purposes of determining both the PTC and related federal BHP payments, 
based on premiums charged for non-tobacco users, including in states 
that allow premium variations based on tobacco use, as provided in 42 
U.S.C. 300gg (a)(1)(A)(iv). In contrast, as proposed in the HHS Notice 
of Benefit and Payment Parameters for 2015, the CSR advance payments 
are based on the total premium for a policy, including any adjustment 
for tobacco use. Accordingly, we propose to incorporate a tobacco 
rating adjustment factor into Equation 2 that reflects the average 
percentage increase in health care costs that results from tobacco use 
among the BHP-eligible population and that would not be reflected in 
the premium charged to non-users. This factor will also take into 
account the estimated proportion of

[[Page 77409]]

tobacco users among BHP-eligible consumers.
    To estimate the average effect of tobacco use on health care costs 
(not reflected in the premium charged to non-users), we propose to 
calculate the ratio between premiums that silver level QHPs charge for 
tobacco users to the premiums they charge for non-tobacco users at 
selected ages. To calculate estimated proportions of tobacco users, we 
propose to use data from the Centers for Disease Control and Prevention 
to estimate tobacco utilization rates by state and relevant population 
characteristic.\8\ For BHP program year 2015, we would compare these 
tobacco utilization rates to the characteristics of BHP-eligible 
consumers, as shown by national and state survey data. We invite 
comments on this approach.
---------------------------------------------------------------------------

    \8\ See http://www.cdc.gov/nchs/nhis/tobacco.htm; http://apps.nccd.cdc.gov/statesystem/default/DataSource.aspx.
---------------------------------------------------------------------------

    We also propose to consider differentiating this factor by the rate 
cell factors, if there are significant variations in either (a) the 
difference in health care costs for tobacco users and non-tobacco users 
or (b) the prevalence of tobacco use along any of these dimensions 
(including age range, state, geographic area, and income range). For 
example, if the differences in the tobacco and non-tobacco user rates 
in a state vary by age group, we would consider applying different 
adjustments to different rate cells by age.
8. Factor for Removing Administrative Costs (FRAC)
    The Factor for Removing Administrative Costs (FRAC) represents the 
average proportion of the total premium that covers allowed health 
benefits, and we propose including this factor in our calculation of 
estimated CSRs in Equation 2. The product of the reference premium and 
the FRAC would approximate the estimated amount of EHB claims that 
would be expected to be paid by the plan. This step is needed because 
the premium also covers such costs as taxes, fees, and QHP 
administrative expenses. We are proposing to set this factor equal to 
0.80, which is proposed for calculating CSR advance payments for 2015 
in the HHS Notice of Benefit and Payment Parameters for 2015.
9. Actuarial Value (AV)
    The actuarial value is defined as the percentage paid by a health 
plan of the total allowed costs of benefits, as defined under 45 CFR 
156.20. (For example, if the average health care costs for enrollees in 
a health insurance plan were $1,000 and that plan has an actuarial 
value of 70 percent, the plan would be expected to pay on average $700 
($1,000 x 0.70) for health care costs per enrollee, on average.) By 
dividing such estimated costs by the actuarial value in the proposed 
methodology, we would calculate the estimated amount of total EHB-
allowed claims, including both the portion of such claims paid by the 
plan and the portion paid by the consumer for in-network care. (To 
continue with that same example, we would divide the plan's expected 
$700 payment of the person's EHB-allowed claims by the plan's 70 
percent actuarial value to ascertain that the total amount of EHB-
allowed claims, including amounts paid by the consumer, is $1,000.)
    For the purposes of calculating the CSR rate in Equation 2, we 
propose to use the standard actuarial value of the silver level plans 
in the individual market, which is equal to 70 percent.
10. Induced Utilization Factor (IUF)
    The induced utilization factor is proposed as a factor in 
calculating estimated CSRs in Equation 2 to account for the increase in 
health care service utilization associated with a reduction in the 
level of cost sharing a QHP enrollee would have to pay, based on the 
cost-sharing reduction subsidies provided to enrollees.
    In the HHS Notice of Benefit and Payment Parameters for 2015 
proposed rule, we proposed induced utilization factors for the purposes 
of calculating cost-sharing reduction advance payments for 2015. The 
induced utilization factor for all persons who would enroll in a silver 
plan and qualify for BHP based on their household income as a 
percentage of FPL is 1.12; this would include persons with household 
income between 100 percent and 200 percent of FPL, lawfully present 
non-citizens below 100 percent of FPL who are ineligible for Medicaid 
because of immigration status, and persons with household income under 
300 percent of FPL, not subject to any cost-sharing. Thus, we propose 
to use the induced utilization factor equal to 1.12 for the BHP payment 
methodology.
    We would note that for CSRs for QHP, there will be a final 
reconciliation at the end of the year and the actual level of induced 
utilization could differ from the factor proposed in the rule. Our 
proposed methodology for BHP funding would not include any 
reconciliation for utilization and thus may understate or overstate the 
impact of the effect of the subsidies on health care utilization.
11. Change in Actuarial Value ([Delta]AV)
    The increase in actuarial value would account for the impact of the 
cost-sharing reduction subsidies on the relative amount of EHB claims 
that would be covered for or paid by eligible persons, and we propose 
including it as a factor in calculating estimated CSRs in Equation 2.
    The actuarial values of QHPs for persons eligible for cost-sharing 
reduction subsidies are defined in 45 CFR 156.420(a), and eligibility 
for such subsidies is defined in 45 CFR 155.305(g)(2)(i) through (iii). 
For QHP enrollees with household incomes between 100 percent and 150 
percent of FPL, and those below 100 percent of FPL who are ineligible 
for Medicaid because of their immigration status, CSRs increase the 
actuarial value of a QHP silver plan from 70 percent to 94 percent. For 
QHP enrollees with household incomes between 150 percent and 200 
percent of FPL, CSRs increase the actuarial value of a QHP silver plan 
from 70 percent to 87 percent.
    We propose to apply this factor by subtracting the standard AV from 
the higher AV allowed by the applicable cost-sharing reduction. For BHP 
enrollees with household incomes at or below 150 percent of FPL, this 
factor would be 0.24 (94 percent minus 70 percent); for BHP enrollees 
with household incomes more than 150 percent but not more than 200 
percent of FPL, this factor would be 0.17 (87 percent minus 70 
percent).

E. Adjustments for American Indians and Alaska Natives

    There are several exceptions made for American Indians and Alaska 
Natives enrolled in QHPs through an Exchange to calculate the PTC and 
CSRs. Thus, we propose adjustments to the payment methodology described 
above to be consistent with the Exchange rules.
    We propose the following adjustments:
    1. We propose that the adjusted reference premium for use in the 
CSR portion of the rate would use the lowest cost bronze plan instead 
of the second lowest cost silver plan, with the same adjustments for 
the premium trend factor and population health factor. American Indians 
and Alaska Natives are eligible for CSRs with any metal level plan, and 
thus we believe that eligible persons would be more likely to select a 
bronze level plan instead of a silver level plan. (It is important to 
note that this would not change the PTC, as that is the maximum 
possible PTC payment, which is always based on the

[[Page 77410]]

second lowest cost silver plan.) We invite comments as to whether other 
assumptions are warranted about the distribution, among bronze plans 
charging various premiums, of American Indian and Alaska Native BHP-
eligible individuals.
    2. We propose that the actuarial value for use in the CSR portion 
of the rate would be 0.60 instead of 0.70, which is consistent with the 
actuarial value of a bronze level plan.
    3. We propose that the induced utilization factor for use in the 
CSR portion of the rate would be 1.15, which is consistent with the 
proposed HHS Notice of Benefit and Payment Parameters for 2015 induced 
utilization factor for calculating advance CSR payments for persons 
enrolled in bronze level plans and eligible for CSRs up to 100 percent 
of actuarial value.
    4. We propose that the change in the actuarial value for use in the 
CSR portion of the rate would be 0.40. This reflects the increase from 
60 percent actuarial value of the bronze plan to 100 percent actuarial 
value, as American Indians and Alaska Natives are eligible to receive 
CSRs up to 100 percent of actuarial value.

F. Example Application of the BHP Funding Methodology

    This example of the proposed approach involves 1-person households 
with incomes between 138 and 150 percent FPL who obtain single coverage 
through BHP in a particular geographic rating area located in a state 
that permits insurers to increase premiums for tobacco users. To 
determine federal BHP payment rates, we begin by analyzing single-
adult, silver-level coverage offered through the Exchange in that area. 
A particular QHP charges the ``reference premium''--that is, the second 
lowest cost premium among those charged by all silver-level plans 
offered in the area, for a specific age range, without premium 
increases for tobacco users. Within the following age ranges, the mean 
value of that reference premium for 2014, assuming every age in the 
range is equally represented, is as follows in our example:
     $132.34 for 0-20 year olds.
     $243.39 for 21-44 year olds.
     $385.37 for 45-54 year olds.
     $571.49 for 55-64 year olds.
    We multiply these reference premiums by the premium trend factor--
that is, by the expected increase in average private health insurance 
costs from 2014 to 2015. The most recent National Health Expenditure 
projections from the CMS Office of the Actuary estimate that, from 2014 
to 2015, private health insurance costs per enrollee will rise by an 
average of 3.5 percent.\9\ Accordingly, for purposes of calculating 
2015 federal BHP payments, reference premium amounts will be adjusted 
to:
---------------------------------------------------------------------------

    \9\ http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf.
---------------------------------------------------------------------------

     $136.97 for 0-20 year olds.
     $251.91 for 21-44 year olds.
     $398.86 for 45-54 year olds.
     $591.50 for 55-64 year olds.
    We then multiply these amounts by the population health factor, 
reflecting the amount by which premiums in the Exchange would have 
increased or decreased, relative to actual levels, if all BHP-eligible 
consumers had been allowed to obtain coverage through QHPs, rather than 
BHP. In this particular state, the amounts charged in the Exchange for 
2014 assume the inclusion of BHP-eligible consumers, so no adjustment 
needs to be made for BHP program year 2015.\10\ As a result, this 
factor is 1.00, so the final premiums listed above, by age, are the 
adjusted reference premiums.
---------------------------------------------------------------------------

    \10\ If the state implements BHP in 2015, this factor may change 
as early as BHP program year 2016 if state or national data 
demonstrate, based on differences between average risk scores for 
individual market participants below and above 200 percent FPL, that 
adding BHP-eligible consumers to the state's 2015 individual market 
would have changed the reference premiums charged in the state's 
Exchange.
---------------------------------------------------------------------------

    We then factor in the effects of household size, FPL, and the PTC 
formula. We take current FPL guidelines (which are for 2013) \11\ and 
trend them forwards to 2015, based on the intermediate inflation 
forecasts from the most recent Medicare Trustees Report.\12\ 
Accordingly, for purposes of calculating federal BHP payments, we 
assume that 100 percent of FPL will be $12,024 a year ($1,002 a month) 
for a 1-person household in 2015.
---------------------------------------------------------------------------

    \11\ https://www.federalregister.gov/articles/2013/01/24/2013-01422/annual-update-of-the-hhs-poverty-guidelines.
    \12\ See Table IV A1 in http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf. This forecast involves an increase in the 
Consumer Price Index of 2.2 percent in 2014 and 2.4 percent in 2015. 
Compounded, this results in a 4.65 percent increase from 2013 to 
2015.
---------------------------------------------------------------------------

    With each household size and FPL range, we determine the average 
(mean) PTC amount. For purposes of this example, we calculate the 
amount that BHP-eligible consumers with incomes between 138 and 150 
percent FPL in 1-person households would pay, after receiving a premium 
tax credit, for an adjusted-reference-premium plan at every FPL 
percentage point level included in that range--at 138 percent FPL, 139 
percent FPL, 140 percent FPL, etc., up to and including 150 percent 
FPL. Household payments throughout this range average $38.28 (Table 2). 
Subtracting this payment level from the 2015 adjusted reference premium 
amounts shown above yields the following estimated premium tax credits, 
by age range, for 1-person households between 138 and 150 percent FPL:
     $98.69 for 0-20 year olds.
     $213.63 for 21-44 year olds.
     $360.58 for 45-54 year olds.
     $553.22 for 55-64 year olds.
    If the best estimates from modeling show that, taking into account 
tax reconciliation effects across the entire BHP-eligible population, 
the net impact of reconciliation is to reduce tax credit amounts by an 
average (mean) of 2.00 percent, then the income reconciliation 
adjustment for 2015 would be 0.98. Between that adjustment and 
including 95 rather than 100 percent of the estimated premium tax 
credit within the federal BHP payment rate, the above amounts are 
multiplied by 0.931, resulting in the premium tax components of federal 
BHP payments as follows for 1-person households between 138 and 150 
percent FPL receiving single coverage through BHP:
     $91.88 for 0-20 year olds.
     $198.89 for 21-44 year olds.
     $335.70 for 45-54 year olds.
     $515.05 for 55-64 year olds.
    In calculating the cost-sharing reduction subsidy component of 
federal BHP payments, we begin with the above adjusted reference 
premiums for 2015, including the premium trend factor and the 
population health factor ($136.97 for 0-20 year olds, etc.). We then 
multiply those premiums by the following additional factors, with the 
results shown in Table 3:
     The Factor for Removing Administrative Costs, which is 
0.80;
     A standard actuarial value (AV) factor, which is 1 over 
the standard actuarial value of 70 percent for silver-level plans, or 
1.4286;
     The tobacco rating adjustment factor, which we assume, for 
purposes of this example, would be found to be 1.30, following a 
determination of: (a) Weighted-average premiums charged by silver level 
QHPs to tobacco users and non-users, by age; and (b) CDC estimates of 
tobacco usage within the state's BHP-eligible population, by age;
     An induced utilization factor of 1.12;
     The increase in actuarial value (by income), which is 0.24 
for BHP enrollees in the applicable income range (138 to 150 percent 
FPL); and
     0.95.
    Table 4 concludes this example by showing both the premium tax 
credit

[[Page 77411]]

component and the cost-sharing reduction subsidy component of federal 
BHP payments for 1-person households between 138 and 150 percent FPL 
who obtain single coverage through BHP.

Table 2--Household Premium Charges, After Receiving Premium Tax Credits,
  for 1-Person Households Between 138-150 Percent FPL Buying Reference-
               Premium Single Coverage in the Marketplace
------------------------------------------------------------------------
                                             Household premium charges
                                         -------------------------------
                   FPL                         As a
                                          percentage  of    In dollars
                                              income         per month
------------------------------------------------------------------------
138.....................................            2.29           31.72
139.....................................            2.35           32.77
140.....................................            2.41           33.83
141.....................................            2.47           34.91
142.....................................            2.53           35.99
143.....................................            2.59           37.09
144.....................................            2.65           38.19
145.....................................            2.71           39.31
146.....................................            2.76           40.45
147.....................................            2.82           41.59
148.....................................            2.88           42.75
149.....................................            2.94           43.91
150.....................................            3.00           45.09
                                         -------------------------------
    Average.............................  ..............           38.28
------------------------------------------------------------------------
Note: This table assumes a hypothesized geographic area that: (a) Is
  within a state that permits insurers to increase premiums for tobacco
  users; and (b) has mean premiums for the second-lowest-cost silver-
  level QHP, calculated for non-tobacco users assuming an even age
  distribution, as follows in 2014: $132.34 for 0-20 year olds; $243.39
  for 21-44 year olds; $385.37 for 45-54 year olds; and $571.49 for ages
  55-64 year olds.


  TABLE 3--Calculating the Monthly Cost-Sharing Reduction Subsidy Component of Federal BHP Payments for 1-Person Households Between 138 and 150 Percent
                                                        FPL Receiving Single Coverage Through BHP
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         After application of factor (by name and amount)                   Final  BHP
                                                         --------------------------------------------------------------------------------  CSR  subsidy
                                             Adjusted       Factor for     Standard  AV       Tobacco         Induced      Increased  AV    component
                                             reference       removing         factor          rating        utilization  -------------------------------
                   Age                     premium  for   administrative ----------------   adjustment   ----------------
                                               2015            costs                     ----------------
                                                         ----------------      1.43                            1.12            0.24            0.95
                                                                0.8                             1.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
0-20....................................         $136.97         $109.58         $156.69         $203.70         $228.15          $54.76          $52.02
21-44...................................          251.91          201.53          288.19          374.64          419.60          100.70           95.67
45-54...................................          398.86          319.09          456.30          593.18          664.37          159.45          151.48
55-64...................................          591.50          473.20          676.68          879.68          985.24          236.46          224.63
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: See note to Table 2.


  TABLE 4--Total Monthly and Quarterly Federal BHP Payments for 1-Person Households Between 138 and 150 Percent
                                    FPL Receiving Single Coverage Through BHP
----------------------------------------------------------------------------------------------------------------
                                                  Monthly components              Total BHP
                                         ------------------------------------   payments per
                   Age                                        Cost-sharing        enrollee          Quarterly
                                            Premium  tax        reduction    ------------------
                                               credit            subsidy           Monthly
----------------------------------------------------------------------------------------------------------------
0-20....................................            $91.88            $52.02           $143.90           $431.69
21-44...................................            198.89             95.67            294.56            883.67
45-54...................................            335.70            151.48            487.18          1,461.53
55-64...................................            515.05            224.63            739.68          2,219.05
----------------------------------------------------------------------------------------------------------------
Note: See note to Table 2.

III. Collection of Information Requirements

    While this document contains collection of information requirements 
that are subject to the Paperwork Reduction Act, CMS is seeking 
emergency OMB review and approval of those requirements under 5 CFR 
1320.13. The notice setting out the proposed requirements and burden 
estimates is publishing in today's Federal Register under CMS-10510 
(OCN 0938--New). That notice also sets out instructions for submitting 
public comment, as well as the comment due date.

[[Page 77412]]

IV. 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.

V. Regulatory Impact Statement

A. 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 1102(b) of the Social Security Act, 
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 effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). As noted in the BHP proposed rule, BHP provides states the 
flexibility to establish an alternative coverage program for low-income 
individuals who would otherwise be eligible to purchase coverage 
through the Exchange. We are uncertain, as described further below, as 
to whether the effects of the proposed rulemaking, and subsequently, 
this document, will be ``economically significant'' as measured by the 
$100 million threshold, and hence not a major rule under the 
Congressional Review Act. We seek comment on the analysis provided 
below to help inform this assessment by the time of concurrent 
publication of the final BHP rule and final payment notice. In 
accordance with the provisions of Executive Order 12866, this document 
was reviewed by the Office of Management and Budget.
1. Need for the Notice
    Section 1331 of the Affordable Care Act (codified at 42 U.S.C. 
18051) requires the Secretary to establish a Basic Health Program, and 
subsection (d)(1) specifically provides that if the Secretary finds 
that a state ``meets the requirements of the program established under 
subsection (a) [of section 1331], the Secretary shall transfer to the 
State'' federal BHP payments described in subsection (d)(3). This 
document provides for the funding methodology to determine the federal 
BHP payment amounts required to implement these provisions.
2. Alternative Approaches
    Many of the factors proposed in this document are specified in 
statute; therefore, we are limited in the alternative approaches we 
could consider. One area in which we had a choice was in selecting the 
data sources used to determine the factors included in the proposed 
methodology. Except for state-specific reference premiums and 
enrollment data, we propose using national rather than state-specific 
data. This is due to the lack of currently available state-specific 
data needed to develop the majority of the factors included in the 
proposed methodology. We believe the national data will produce 
sufficiently accurate determinations of payment rates. In addition, we 
believe that this approach will be less burdensome on states. With 
respect to reference premiums and enrollment data, we propose using 
state-specific data rather than national data as we believe state-
specific data will produce more accurate determinations than national 
averages.
3. Transfers
    The provisions of this document are designed to determine the 
amount of funds that will be transferred to states offering coverage 
through a Basic Health Program rather than to individuals eligible for 
premium and cost-sharing reductions for coverage purchased on the 
Exchange. We are uncertain what the total federal BHP payment amounts 
to states will be as these amounts will vary from state to state due to 
the varying nature of state composition. For example, total federal BHP 
payment amounts may be greater in more populous states simply by virtue 
of the fact that they have a larger BHP-eligible population and total 
payment amounts are based on actual enrollment. Alternatively, total 
federal BHP payment amounts may be lower in states with a younger BHP-
eligible population as the reference premium used to calculate the 
federal BHP payment will be lower relative to older BHP enrollees. 
While state composition will cause total federal BHP payment amounts to 
vary from state to state, we believe that the proposed methodology 
accounts for these variations to ensure accurate BHP payment transfers 
are made to each state.

B. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation, by state, 
local, or tribal governments, in the aggregate, or by the private 
sector. In 2013, that threshold is approximately $141 million. States 
have the option, but are not required, to establish a BHP. Further, the 
proposed methodology would establish federal payment rates without 
requiring states to provide the Secretary with any data not already 
required by other provisions of the Affordable Care Act or its 
implementing regulations. Thus, this proposed payment notice does not 
mandate expenditures by state governments, local governments, or tribal 
governments.

C. 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.

[[Page 77413]]

The Act 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. Individuals and states are not included in the definition of a 
small entity. Few of the entities that meet the definition of a small 
entity as that term is used in the RFA would be impacted directly by 
this document.
    Because this document is focused on the proposed funding 
methodology that will be used to determine federal BHP payment rates, 
it does not contain provisions that would have a significant direct 
impact on hospitals, and other health care providers that are 
designated as small entities under the RFA. However, the provisions in 
this document may have a substantial, positive indirect effect on 
hospitals and other health care providers due to the substantial 
increase in the prevalence of health coverage among populations who are 
currently unable to pay for needed health care, leading to lower rates 
of uncompensated care at hospitals. The Department cannot determine 
whether this document would have a significant economic impact on a 
substantial number of small entities, and we request public comment on 
this issue.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a document may have a significant economic impact on 
the operations of a substantial number of small rural hospitals. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. As indicated in the 
preceding discussion, there may be indirect positive effects from 
reductions in uncompensated care. Again, the Department cannot 
determine whether this document would have a significant economic 
impact on a substantial number of small rural hospitals, and we request 
public comment on this issue.

D. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct effects on states, preempts 
state law, or otherwise has federalism implications. The BHP is 
entirely optional for states, and if implemented in a state, provides 
access to a pool of funding that would not otherwise be available to 
the state.
    We have consulted with states to receive input on how the 
Affordable Care Act provisions codified in this document would affect 
states. We have participated in a number of conference calls and in 
person meetings with state officials.
    We continue to engage in ongoing consultations with states that 
have expressed interest in implementing a BHP through the BHP Learning 
Collaborative, which serves as a staff level policy and technical 
exchange of information between CMS and the states. Through 
consultations with this Learning Collaborative, we have been able to 
get input from states on many of the specific issues addressed in this 
document.

    Authority: Section 1331(d)(3) of the Affordable Care Act.

    Dated: November 20, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 22, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-30435 Filed 12-18-13; 4:15 pm]
BILLING CODE 4120-01-P