Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2019

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 147, 153, 154, 155, 156, 157, and 158

[CMS-9930-P]

RIN 0938-AT12

Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2019

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

This proposed rule sets forth payment parameters and provisions related to the risk adjustment and risk adjustment data validation programs; cost-sharing parameters and cost-sharing reductions; and user fees for Federally-facilitated Exchanges and State-based Exchanges on the Federal platform. It proposes changes that would enhance the role of States as related to essential health benefits (EHB) and qualified health plan (QHP) certification; and would provide States with additional flexibility in the operation and establishment of Exchanges, including the Small Business Health Options Program (SHOP) Exchanges. It includes proposed changes to standards related to Exchanges; the required functions of the SHOPs; actuarial value for stand-alone dental plans; the rate review program; the medical loss ratio program; eligibility and enrollment; exemptions; and other related topics.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on November 27, 2017.

ADDRESSES:

In commenting, please refer to file code CMS-9930-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1.

Electronically.

You may submit electronic comments on this regulation to

http://www.regulations.gov

. Follow the “Submit a comment” instructions.

2.

By regular mail.

You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9930-P, P.O. Box 8016, Baltimore, MD 21244-8016.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.

By express or overnight mail.

You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9930-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.

By hand or courier.

Alternatively, you may deliver (by hand or courier) your written comments ONLY to the following addresses prior to the close of the comment period: a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments erroneously mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION, CONTACT:

Lindsey Murtagh, (301) 492-4106, Rachel Arguello, (301) 492-4263, or Alper Ozinal, (301) 492-4178, for general information.

Krutika Amin, (301) 492-5153, for matters related to risk adjustment, and Federally-facilitated Exchange and State-based Exchange on the Federal platform user fees.

Adrianne Patterson, (410) 786-0686 or Abigail Walker, (410) 786-1725, for matters related to sequestration and administrative appeals of financial transfers.

Melissa Jaffe, (301) 492-4129 or Adam Shaw, (410) 786-1091, for matters related to risk adjustment data validation.

Lisa Cuozzo, (410)-786-1746, for matters related to rate review.

Jenny Chen, (301)-492-5156, for matters related to establishing a State-based Exchange, and State-based Exchanges on the Federal platform.

Emily Ames, (301) 492-4246, for matters related to Navigators and non-Navigator assistance personnel.

Elissa Dines, (301) 492-4388, for matters related to employer-sponsored coverage verification.

Kendra May, (301) 492-4477, for matters related to the requirement to file an income tax return and reconcile APTC and terminations.

Carolyn Kraemer, (301) 492-4197, for matters related to special enrollment periods under part 155.

Amanda Brander, (202) 690-7892, for matters related to exemptions from the shared responsibility payment.

Terence Kane, (301) 492-4449, for matters related to income inconsistencies.

Jacob Schnur, (410) 786-7703, for matters related to direct enrollment.

Laura Eldon, (301) 492-4372, for matters related to the Federally-facilitated SHOP.

Shilpa Gogna, (301) 492-4257, for matters related to SHOP in State-based Exchanges.

Leigha Basini, (301) 492-4380, Rebecca Zimmermann, (301) 492-4396, or Allison Yadsko, (410) 786-1740, for matters related to standardized options, essential health benefits, stand-alone dental plans and other standards for QHP issuers.

Pat Meisol, (410) 786-1917, for matters related to cost-sharing reductions, and the premium adjustment percentage.

Christina Whitefield, (301) 492-4172, for matters related to the medical loss ratio program.

Cam Moultrie Clemmons, (206) 615-2338, for matters related to minimum essential coverage.

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.

Acronyms

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

APTC Advance payments of the premium tax credit

AV Actuarial value

CBO Congressional Budget Office

CFR Code of Federal Regulations

CHIP Children's Health Insurance Program

CMP Civil money penalties

CMS Centers for Medicare & Medicaid Services

Code Internal Revenue Code of 1986 (26 U.S.C. 1,

et seq.

)

EDGE External Data Gathering Environment

EHB Essential health benefits

FFE Federally-facilitated Exchange

FF-SHOP Federally-facilitated Small Business Health Options Program

FPL Federal poverty level

FR Federal Register

FTI Federal tax information

HCC Hierarchical condition category

HHS United States Department of Health and Human Services

HIPAA Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191)

ICR Information collection requirements

IRS Internal Revenue Service

MEC Minimum essential coverage

MLR Medical loss ratio

NAIC National Association of Insurance Commissioners

NHEA National Health Expenditure Accounts

OIG Office of the Inspector General

OMB Office of Management and Budget

PHS Act Public Health Service Act

PMPM Per member per month

Patient Protection and Affordable Care Act or PPACA The collective term for the Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), as amended

PRA Paperwork Reduction Act of 1995

PTC Premium tax credit

QIA Quality improvement activities

QHP Qualified health plan

RBC Risk-based capital

RXCs Prescription drug utilization factors

SADPs Stand-alone dental plans

SBE State-based Exchange

SBE-FP State-based Exchange on the Federal platform

SHOP Small Business Health Options Program

SSA Social Security Administration

Table of Contents

I. Executive Summary

II. Background

A. Legislative and Regulatory Overview

B. Stakeholder Consultation and Input

C. Structure of Proposed Rule

III. Provisions of the Proposed HHS Notice of Benefit and Payment Parameters for 2019

A. Part 147—Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets

B. Part 153—Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment Under the Affordable Care Act

C. Part 154—Health Insurance Issuer Rate Increases: Disclosure and Review Requirements

D. Part 155—Exchange Establishment Standards and Other Related Standards Under the Affordable Care Act

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

F. Part 157—Employer Interactions With Exchanges and SHOP Participation

G. Part 158—Issuer Use of Premium Revenue: Reporting and Rebate Requirements

IV. Collection of Information Requirements

A. Wage Estimates

B. ICRs Regarding Updates to the Risk Adjustment Model

C. ICRs Regarding Small Group Market Flexibility for Risk Adjustment

D. ICRs Regarding Risk Adjustment Data Validation and 500 Billable Member Months

E. ICRs Regarding Health Insurance Issuer Rate Increases: Disclosure and Review Requirements—Applicability

F. ICRs Regarding Rate Increases Subject to Review

G. ICRs Regarding the Small Business Health Options Program

H. ICRs Regarding States Defining the Essential Health Benefits

I. ICRs Regarding Medical Loss Ratio

J. Summary of Annual Burden Estimates for Proposed Requirements

K. Submission of PRA-Related Comments

V. Response to Comments

VI. Regulatory Impact Analysis

A. Statement of Need

B. Overall Impact

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

D. Regulatory Alternatives Considered

E. Regulatory Flexibility Act

F. Unfunded Mandates

G. Federalism

H. Congressional Review Act

I. Reducing Regulation and Controlling Regulatory Costs

I. Executive Summary

American Health Benefit Exchanges, or “Exchanges” (also called “Marketplaces”) are entities established under the Patient Protection and Affordable Care Act (PPACA) through which qualified individuals and qualified employers can purchase health insurance coverage. Many individuals who enroll in qualified health plans (QHPs) through individual market Exchanges are eligible to receive a premium tax credit (PTC) to reduce their costs for health insurance premiums, and receive reductions in required cost-sharing payments to reduce out-of-pocket expenses for healthcare services. The PPACA also established the risk adjustment program, which is intended to mitigate the potential impact of adverse selection and stabilize the price of health insurance in the individual and small group markets, both on and off Exchanges.

Over time, issuer exits and increasing insurance rates have threatened the stability of the individual and small group Exchanges in many geographic areas. In previous rulemaking, we established provisions and parameters to implement many PPACA provisions and programs. In this proposed rule, we propose to amend these provisions and parameters, with a focus on enhancing the role of States in these programs and providing States with additional flexibilities, reducing unnecessary regulatory burden on stakeholders, empowering consumers, and improving affordability.

On January 20, 2017, the President issued an Executive Order which stated that, to the maximum extent permitted by law, the Secretary of HHS and heads of all other executive departments and agencies with authorities and responsibilities under the PPACA should exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the PPACA that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications. In this proposed rule, we are proposing, within the limitations of the current statute, to reduce fiscal and regulatory burdens across different program areas, and to support innovative health insurance models.

We propose several changes that would significantly expand the role of States in the administration of the PPACA. We propose to provide States with additional flexibility in the definition of essential health benefits (EHBs) and outline potential future directions for defining EHBs. In addition to granting States more flexibility regulating their markets, we believe this change would permit States to modify EHBs to increase affordability of health insurance in the individual and small group markets. We also propose to explore additional ways to support State-based Exchanges (SBEs) in adopting innovative approaches to

operating and sustaining their Exchanges, and to make the State-based Exchanges on the Federal platform (SBE-FP) model a more appealing and viable model for States. We propose that States assume a larger role in the QHP certification process for the Federally-facilitated Exchanges (FFEs). This would confirm States' traditional role in overseeing their health insurance markets, and reduce the issuer burden associated with having to comply with duplicative State and Federal reviews.

This proposed rule also contains several policies that would provide States with greater flexibility. We propose to provide States with significantly more flexibility in how they operate a Small Business Health Options Program (SHOP), permitting them to operate these Exchanges more efficiently, potentially benefitting States, issuers, employers and employees. We propose changes that would allow for a more efficient SHOP, such that employers and employees could enroll in SHOP coverage by working with a QHP issuer or SHOP-registered agent or broker. Additionally, we propose to provide States more flexibility regarding risk adjustment transfers in their markets. We also propose to make it easier for States to apply for and be granted an adjustment to the individual market medical loss ratio (MLR) standard in their State. We believe this change would provide States with an additional tool to help stabilize and provide relief in their individual markets. Additionally, we seek comment related to the inclusion of Federal and State taxes in MLR and rebate calculation, and we propose other changes to the MLR program to reduce the burden on issuers.

Risk adjustment continues to be a core program for stabilizing the individual and small group markets both on and off Exchanges, and we propose recalibrated parameters for the HHS risk adjustment methodology. We also propose several changes related to the risk adjustment data validation program that are intended to ensure the integrity of the results of risk adjustment, while alleviating issuer burden associated with participating in risk adjustment data validation.

As we do every year in the HHS notice of benefit and payment parameters, we propose updated parameters applicable in the individual and small group markets. We propose the user fee rate for issuers participating on FFEs and SBE-FPs for 2019 to be 3.5 and 3.0 percent of premiums, respectively. We propose to update the premium adjustment percentage for 2019, which is used to set the rate of increase for several parameters detailed in the PPACA, including the maximum annual limitation on cost sharing for 2019, the required contribution percentage used to determine eligibility for certain exemptions under section 5000A of the Code, and the assessable payment amounts under section 4980H(a) and (b) of the Code. We propose to update the maximum annual limitations on cost sharing for the 2019 benefit year for cost-sharing reduction plan variations. We also propose changes to the cost-sharing reduction reconciliation process.

We propose a number of changes related to rate review that are intended to provide States with greater flexibility in the rate filing process and reduce regulatory burden. Specifically, we propose to exempt student health insurance coverage from Federal rate review requirements, and to provide States with more flexibility regarding timing of the rate review process established under 45 CFR part 154. We also propose to modify the 10 percent threshold for reasonableness review to a 15 percent default threshold, with States continuing to have the flexibility to establish a different threshold.

Recognizing that Exchanges, including the FFEs, face resource constraints, we also propose changes to the requirements regarding Navigators, and the requirements regarding non-Navigator assistance personnel subject to § 155.215, to enable Exchanges to more easily operate these programs with limited resources. Similarly, we also propose to allow an agent, broker or issuer participating in direct enrollment to have its selected third-party entity conduct operational readiness reviews, rather than requiring those reviews to be conducted by entities approved by HHS.

In this proposed rule, we propose relatively minor adjustments to our programs and rules as we do each year. We propose a number of incremental amendments to our policies around coverage, eligibility, enrollment, and affordability exemptions.

We continue to be very interested in exploring ways to improve Exchange program integrity. In this rule, we seek comment on a number of program integrity items, including whether we should consider shortening the length of time the Exchanges are authorized to obtain enrollee tax information, as well as ways to prompt more timely consumer reporting of changes in circumstances during the benefit year that may impact an individual's eligibility for coverage and financial assistance. In addition, we ask for comment on any additional program integrity improvements that have not been outlined in this rule, but could be beneficial in a future rulemaking.

Finally, we note that we intend to consider proposals in future rulemaking that would help reduce drug costs and promote drug price transparency. We also note that we intend to provide guidance on other aspects of Exchange eligibility in the near future. In particular, we intend to reconsider the appropriate thresholds for changes in income that will trigger a data matching inconsistency, processes for denying eligibility for advance subsidies for individuals who fail to reconcile advance payments of the premium tax credit (APTC) on their Federal income tax return, processes for matching enrollment data with the Medicare and Medicaid programs, and the appropriate manner of recalculating APTC following a midyear change in eligibility, and seek comments on each of these issues as we prepare proposed rules on these topics.

Instituting strong program safeguards to ensure that only individuals who are eligible are enrolled in Exchange coverage, and that they are only receiving the amount of financial assistance they are eligible for, is essential to ensuring that the Exchanges operate as intended, and is also a key priority for the Administration. We have already taken action to strengthen safeguards around Exchange eligibility, most recently through the implementation of the Special Enrollment Verification initiative; however, we continue to be interested in exploring ways to further safeguard Federal tax dollars flowing through Exchanges.

II. Background

A. Legislative and Regulatory Overview

The Patient Protection and Affordable Care Act (Pub. L. 111-148) was enacted on March 23, 2010. The Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised several provisions of the Patient Protection and Affordable Care Act, was enacted on March 30, 2010. In this proposed rule, we refer to the two statutes collectively as the “Patient Protection and Affordable Care Act” or “PPACA.”

Subtitles A and C of title I of the PPACA reorganized, amended, and added to the provisions of part A of title XXVII of the Public Health Service Act (PHS Act) relating to group health plans and health insurance issuers in the group and individual markets.

Section 2701 of the PHS Act, as added by the PPACA, restricts the variation in premium rates charged by a health insurance issuer for non-grandfathered

health insurance coverage in the individual or small group market to certain specified factors. These factors are family size, rating area, age and tobacco use.

Section 2701 of the PHS Act operates in coordination with section 1312(c) of the PPACA. Section 1312(c) of the PPACA generally requires a health insurance issuer to consider all enrollees in all health plans (except for grandfathered health plans) offered by such issuer to be members of a single risk pool for each of its individual and small group markets. States have the option to merge the individual market and small group market risk pools under section 1312(c)(3) of the PPACA.

Section 2702 of the PHS Act, as added by the PPACA, requires health insurance issuers that offer health insurance coverage in the group or individual market in a State to offer coverage to and accept every employer and individual in the State that applies for such coverage unless an exception applies.

1

1

Before enactment of the Patient Protection and Affordable Care Act, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) amended the PHS Act (formerly section 2711) to generally require guaranteed availability of coverage for employers in the small group market.

Section 2703 of the PHS Act, as added by the PPACA, and sections 2712 and 2741 of the PHS Act, as added by HIPAA prior to the enactment of the PPACA, require health insurance issuers that offer health insurance coverage in the group or individual market to renew or continue in force such coverage at the option of the plan sponsor or individual unless an exception applies.

Section 2718 of the PHS Act, as added by the PPACA, generally requires health insurance issuers to submit an annual MLR report to HHS, and provide rebates to enrollees if the issuers do not achieve specified MLR thresholds.

Section 2794 of the PHS Act, as added by the PPACA, directs the Secretary of HHS (the Secretary), in conjunction with the States, to establish a process for the annual review of “unreasonable increases in premiums for health insurance coverage.”

2

The law also requires health insurance issuers to submit to the Secretary and the applicable State justifications for unreasonable premium increases prior to the implementation of the increases. Section 2794(b)(2) of the PHS Act further specifies that beginning with plan years starting in 2014, the Secretary, in conjunction with the States, will monitor premium increases of health insurance coverage offered through an Exchange and outside of an Exchange.

2

The implementing regulations in part 154 limit the scope of the requirements under section 2794 of the PHS Act to health insurance issuers offering health insurance coverage in the individual market or small group market. See Rate Increase Disclosure and Review; Final Rule, 76 FR 29964, 29966 (May 23, 2011).

Section 1252 of the PPACA provides that any standard or requirement adopted by a State under title I of the PPACA, or any amendment made by title I of the PPACA, is to be applied uniformly to all health plans in each insurance market to which the standard and requirement apply.

Section 1302 of the PPACA provides for the establishment of an essential health benefits package that includes coverage of EHB (as defined by the Secretary), cost-sharing limits, and actuarial value requirements. The law directs that EHBs be equal in scope to the benefits provided under a typical employer plan, and that they cover at least the following 10 general categories: Ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.

Section 1301(a)(1)(B) of the PPACA directs all issuers of QHPs to cover the EHB package described in section 1302(a) of the PPACA, including coverage of the services described in section 1302(b) of the PPACA, to adhere to the cost-sharing limits described in section 1302(c) of the PPACA and to meet the AV levels established in section 1302(d) of the PPACA. Section 2707(a) of the PHS Act, which is effective for plan or policy years beginning on or after January 1, 2014, extends the coverage of the EHB package to non-grandfathered individual and small group health insurance coverage, irrespective of whether such coverage is offered through an Exchange. In addition, section 2707(b) of the PHS Act directs non-grandfathered group health plans to ensure that cost sharing under the plan does not exceed the limitations described in sections 1302(c)(1) of the PPACA.

Section 1302(d) of the PPACA describes the various levels of coverage based on actuarial value (AV). Consistent with section 1302(d)(2)(A) of the PPACA, AV is calculated based on the provision of EHB to a standard population. Section 1302(d)(3) of the PPACA directs the Secretary to develop guidelines that allow for

de minimis

variation in AV calculations.

Section 1311(b)(1)(B) of the PPACA directs that the Small Business Health Options Program assist qualified small employers in facilitating the enrollment of their employees in QHPs offered in the small group market. Sections 1312(f)(1) and (2) of the PPACA define qualified individuals and qualified employers. Under section 1312(f)(2)(B) of the PPACA, beginning in 2017, States have the option to allow issuers to offer QHPs in the large group market through an Exchange.

3

Section 1312(a)(2) of the PPACA provides that in a SHOP, a qualified employer may select a level of coverage, and that employees may then, in turn, choose SHOP plans within the level selected by the qualified employer.

3

If a State elects this option, the rating rules in section 2701 of the PHS Act and its implementing regulations will apply to all coverage offered in such State's large group market (except for self-insured group health plans) pursuant to section 2701(a)(5) of the PHS Act.

Section 1311(c)(1)(B) of the PPACA requires the Secretary to establish minimum criteria for provider network adequacy that a health plan must meet to be certified as a QHP.

Section 1311(c)(5) of the PPACA requires the Secretary to continue to operate, maintain, and update the Internet portal developed under section 1103 of the PPACA to provide information to consumers and small businesses on affordable health insurance coverage options.

Sections 1311(d)(4)(K) and 1311(i) of the PPACA direct all Exchanges to establish a Navigator program.

Section 1311(c)(6)(C) of the PPACA establishes special enrollment periods and section 1311(c)(6)(D) of the PPACA establishes the monthly enrollment period for Indians, as defined by section 4 of the Indian Health Care Improvement Act.

Section 1312(e) of the PPACA directs the Secretary to establish procedures under which a State may permit agents and brokers to enroll qualified individuals and qualified employers in QHPs through an Exchange and to assist individuals in applying for financial assistance for QHPs sold through an Exchange.

Section 1321(a) of the PPACA provides broad authority for the Secretary to establish standards and regulations to implement the statutory requirements related to Exchanges, QHPs and other components of title I of the PPACA. Section 1321(a)(1) of the PPACA directs the Secretary to issue regulations that set standards for meeting the requirements of title I of the PPACA with respect to, among other

things, the establishment and operation of Exchanges.

Sections 1313 and 1321 of the PPACA provide the Secretary with the authority to oversee the financial integrity of State Exchanges, their compliance with HHS standards, and the efficient and non-discriminatory administration of State Exchange activities. Section 1321 of the PPACA provides for State flexibility in the operation and enforcement of Exchanges and related requirements.

When operating an FFE under section 1321(c)(1) of the PPACA, HHS has the authority under sections 1321(c)(1) and 1311(d)(5)(A) of the PPACA to collect and spend user fees. In addition, 31 U.S.C. 9701 permits a Federal agency to establish a charge for a service provided by the agency. Office of Management and Budget (OMB) Circular A-25 Revised establishes Federal policy regarding user fees and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public.

Section 1321(c)(2) of the PPACA authorizes the Secretary to enforce the Exchange standards using civil money penalties (CMPs) on the same basis as detailed in section 2723(b) of the PHS Act. Section 2723(b) of the PHS Act authorizes the Secretary to impose CMPs as a means of enforcing the individual and group market reforms contained in Part A of title XXVII of the PHS Act when a State fails to substantially enforce these provisions

Section 1321(d) of the PPACA provides that nothing in title I of the PPACA should be construed to preempt any State law that does not prevent the application of title I of the PPACA. Section 1311(k) of the PPACA specifies that Exchanges may not establish rules that conflict with or prevent the application of regulations issued by the Secretary.

Section 1343 of the PPACA establishes a permanent risk adjustment program to provide increased payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, funded by payments from those that attract lower-risk populations; thereby, reducing incentives for issuers to avoid higher-risk enrollees.

Section 1402 of the PPACA provides for, among other things, reductions in cost sharing for essential health benefits for qualified low- and moderate-income enrollees in silver level health plans offered through the individual market Exchanges. This section also provides for reductions in cost sharing for Indians enrolled in QHPs at any metal level.

Section 5000A of the Code, as added by section 1501(b) of the PPACA, requires all applicable individuals to maintain minimum essential coverage (MEC) for each month or make an individual shared responsibility payment. Section 5000A(f) of the Code defines MEC as any of the following: (1) Coverage under a specified government sponsored program; (2) coverage under an eligible employer-sponsored plan; (3) coverage under a health plan offered in the individual market within a State; and (4) coverage under a grandfathered health plan. Section 5000A(f)(1)(E) of the Code authorizes the Secretary of HHS, in coordination with the Secretary of the Treasury, to designate other health benefits coverage as MEC.

The Protecting Affordable Coverage for Employees Act (Pub. L. 114-60) amended section 1304(b) of the PPACA and section 2791(e) of the PHS Act to amend the definition of small employer in these statutes to mean, in connection with a group health plan with respect to a calendar year and a plan year, an employer who employed an average of at least 1 but not more than 50 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year. It also amended these statutes to make conforming changes to the definition of large employer, and to provide that a State may treat as a small employer, with respect to a calendar year and a plan year, an employer who employed an average of at least 1 but not more than 100 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year.

1. Premium Stabilization Programs

4

4

By premium stabilization program, we are referring to the risk adjustment, risk corridors and reinsurance programs established by the PPACA.

In the July 15, 2011

Federal Register

(76 FR 41929), we published a proposed rule outlining the framework for the premium stabilization programs. We implemented the premium stabilization programs in a final rule, published in the March 23, 2012

Federal Register

(77 FR 17219) (Premium Stabilization Rule). In the December 7, 2012

Federal Register

(77 FR 73117), we published a proposed rule outlining the benefit and payment parameters for the 2014 benefit year to expand the provisions related to the premium stabilization programs and set forth payment parameters in those programs (proposed 2014 Payment Notice). We published the 2014 Payment Notice final rule in the March 11, 2013

Federal Register

(78 FR 15409).

In the December 2, 2013

Federal Register

(78 FR 72321), we published a proposed rule outlining the benefit and payment parameters for the 2015 benefit year to expand the provisions related to the premium stabilization programs, setting forth certain oversight provisions and establishing the payment parameters in those programs (proposed 2015 Payment Notice). We published the 2015 Payment Notice final rule in the March 11, 2014

Federal Register

(79 FR 13743).

In the November 26, 2014

Federal Register

(79 FR 70673), we published a proposed rule outlining the benefit and payment parameters for the 2016 benefit year to expand the provisions related to the premium stabilization programs, setting forth certain oversight provisions and establishing the payment parameters in those programs (proposed 2016 Payment Notice). We published the 2016 Payment Notice final rule in the February 27, 2015

Federal Register

(80 FR 10749).

In the December 2, 2015

Federal Register

(80 FR 75487), we published a proposed rule outlining the benefit and payment parameters for the 2017 benefit year to expand the provisions related to the premium stabilization programs, setting forth certain oversight provisions and establishing the payment parameters in those programs (proposed 2017 Payment Notice). We published the 2017 Payment Notice final rule in the March 8, 2016

Federal Register

(81 FR 12203).

In the September 6, 2016

Federal Register

(81 FR 61455), we published a proposed rule outlining the benefit and payment parameters for the 2018 benefit year, and to further promote stable premiums in the individual and small group markets. We proposed updates to the risk adjustment methodology, new policies around the use of external data for recalibration of our risk adjustment models, and amendments to the risk adjustment data validation process (proposed 2018 Payment Notice). We published the 2018 Payment Notice final rule in the December 22, 2016

Federal Register

(81 FR 94058).

2. Program Integrity

In the June 19, 2013

Federal Register

(78 FR 37031), we published a proposed rule that proposed certain program integrity standards related to Exchanges and the premium stabilization programs (proposed Program Integrity Rule). The provisions of that proposed rule were finalized in two rules, the “first Program Integrity Rule” published in the August

30, 2013

Federal Register

(78 FR 54069) and the “second Program Integrity Rule” published in the October 30, 2013

Federal Register

(78 FR 65045).

3. Exchanges

We published a request for comment relating to Exchanges in the August 3, 2010

Federal Register

(75 FR 45584). We issued initial guidance to States on Exchanges on November 18, 2010. We proposed a rule in the July 15, 2011

Federal Register

(76 FR 41865) to implement components of the Exchanges, and a rule in the August 17, 2011

Federal Register

(76 FR 51201) regarding Exchange functions in the individual market and SHOP, eligibility determinations, and Exchange standards for employers. A final rule implementing components of the Exchanges and setting forth standards for eligibility for Exchanges was published in the March 27, 2012

Federal Register

(77 FR 18309) (Exchange Establishment Rule).

We established additional standards for SHOP in the 2014 Payment Notice and in the Amendments to the HHS Notice of Benefit and Payment Parameters for 2014 interim final rule, published in the March 11, 2013

Federal Register

(78 FR 15541). The provisions established in the interim final rule were finalized in the second Program Integrity Rule. We also set forth standards related to Exchange user fees in the 2014 Payment Notice. We established an adjustment to the FFE user fee in the Coverage of Certain Preventive Services Under the Affordable Care Act final rule, published in the July 2, 2013

Federal Register

(78 FR 39869) (Preventive Services Rule).

In a final rule published in the July 17, 2013

Federal Register

(78 FR 42823), we established standards for Navigators and non-Navigator assistance personnel in FFEs and for non-Navigator assistance personnel funded through an Exchange establishment grant. This final rule also established a certified application counselor program for Exchanges and set standards for that program.

In an interim final rule, published in the May 11, 2016

Federal Register

(81 FR 29146), we made amendments to the parameters of certain special enrollment periods (2016 Interim Final Rule). We finalized these in the 2018 Payment Notice final rule in the December 22, 2016

Federal Register

(81 FR 94058). In the April 18, 2017 Market Stabilization final rule

Federal Register

(82 FR 18346), we amended standards relating to special enrollment periods and QHP certification.

4. Essential Health Benefits and Actuarial Value

On December 16, 2011, HHS released a bulletin

5

(the EHB Bulletin) that outlined an intended regulatory approach for defining EHB, including a benchmark-based framework. HHS also published a bulletin that outlined its intended regulatory approach to calculations of AV on February 24, 2012.

6

A proposed rule relating to EHBs and AVs was published in the November 26, 2012

Federal Register

(77 FR 70643). We established requirements relating to EHBs and AVs in the Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation Final Rule, which was published in the February 25, 2013

Federal Register

(78 FR 12833) (EHB Rule). In the April 18, 2017 Market Stabilization final rule (82 FR 18346), we expanded the de minimis range applicable to plan metal levels.

5

“Essential Health Benefits Bulletin.” December 16, 2011. Available at

https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf

.

6

“Actuarial Value and Cost-Sharing Reductions Bulletin.” February 24, 2012. Available at

https://www.cms.gov/CCIIO/Resources/Files/Downloads/Av-csr-bulletin.pdf

.

5. Minimum Essential Coverage

In the February 1, 2013

Federal Register

(78 FR 7348), we published a proposed rule that designates other health benefits coverage as MEC and outlines substantive and procedural requirements that other types of coverage must fulfill in order to be recognized as MEC. The provisions were finalized in the July 1, 2013

Federal Register

(78 FR 39494).

In the November 26, 2014

Federal Register

(79 FR 70674), we published a proposed rule seeking comments on whether State high risk pools should be permanently designated as MEC or whether the designation should be time-limited. In the February 27, 2015

Federal Register

(80 FR 10750), we designated State high risk pools established on or before November 26, 2014 as MEC.

6. Market Rules

A proposed rule relating to the 2014 health insurance market rules was published in the November 26, 2012

Federal Register

(77 FR 70584). A final rule implementing the health insurance market rules was published in the February 27, 2013

Federal Register

(78 FR 13406) (2014 Market Rules).

A proposed rule relating to Exchanges and Insurance Market Standards for 2015 and Beyond was published in the March 21, 2014

Federal Register

(79 FR 15808) (2015 Market Standards Proposed Rule). A final rule implementing the Exchange and Insurance Market Standards for 2015 and Beyond was published in the May 27, 2014

Federal Register

(79 FR 30240) (2015 Market Standards Rule). The 2018 Payment Notice final rule in the December 22, 2016

Federal Register

(81 FR 94058) provided additional guidance on guaranteed availability and guaranteed renewability. In the April 18, 2017 Market Stabilization final rule (82 FR 18346), we released further guidance related to guaranteed availability.

7. Rate Review

A proposed rule to establish the rate review program was published in the December 23, 2010

Federal Register

(75 FR 81003). A final rule with comment period implementing the rate review program was published in the May 23, 2011

Federal Register

(76 FR 29963) (Rate Review Rule). The provisions of the Rate Review Rule were amended in final rules published in the September 6, 2011

Federal Register

(76 FR 54969), the February 27, 2013

Federal Register

(78 FR 13405), the May 27, 2014

Federal Register

(79 FR 30239), the February 27, 2015

Federal Register

(80 FR 10749), the March 8, 2016

Federal Register

(81 FR 12203) and the December 22, 2016

Federal Register

(81 FR 94058).

8. Medical Loss Ratio

We published a request for comment on section 2718 of the PHS Act in the April 14, 2010

Federal Register

(75 FR 19297), and published an interim final rule with a 60-day comment period relating to the MLR program on December 1, 2010 (75 FR 74863). A final rule with a 30-day comment period was published in the December 7, 2011

Federal Register

(76 FR 76573). An interim final rule with a 60-day comment period was published in the December 7, 2011

Federal Register

(76 FR 76595). A final rule was published in the

Federal Register

on May 16, 2012 (77 FR 28790). The medical loss ratio program requirements were amended in final rules published in the March 11, 2014

Federal Register

(79 FR 13743), the May 27, 2014

Federal Register

(79 FR 30339), the February 27, 2015

Federal Register

(80 FR 10749), the March 8, 2016

Federal Register

(81 FR 12203), and the December 22, 2016

Federal Register

(81 FR 94183).

B. Stakeholder Consultation and Input

HHS has consulted with stakeholders on policies related to the operation of Exchanges, including the SHOP, and the premium stabilization programs. We

have held a number of listening sessions with consumers, providers, employers, health plans, and the actuarial community to gather public input. We have solicited input from State representatives on numerous topics, particularly essential health benefits, QHP certification and Exchange establishment. We consulted with stakeholders through regular meetings with the National Association of Insurance Commissioners (NAIC), regular contact with States through the Exchange Establishment grant and Exchange Blueprint approval processes, and meetings with Tribal leaders and representatives, health insurance issuers, trade groups, consumer advocates, employers, and other interested parties. We considered all public input we received as we developed the policies in this proposed rule.

HHS also received several thousand unique comments in response to a request for information, entitled “Reducing Regulatory Burdens Imposed by the Patient Protection and Affordable Care Act and Improving Healthcare Choices to Empower Patients”, published in the June 12, 2017

Federal Register

(82 FR 26885) (Request for Information). Review of these comments is ongoing, and we anticipate continuing to address comments in future rulemaking and guidance.

C. Structure of Proposed Rule

The regulations outlined in this proposed rule would be codified in 45 CFR parts 147, 153, 154, 155, 156, 157, and 158.

The proposed regulations in part 147 would amend the rules regarding fair health insurance premiums and guaranteed availability to reflect proposed changes related to the SHOPs and special enrollment periods.

The proposed regulations in part 153 propose to recalibrate the risk adjustment models consistent with the methodology finalized for the 2018 benefit year with slight modifications to the drug classes included in the 2019 benefit year adult models and the incorporation of blended MarketScan® and the most recent enrollee-level External Data Gathering Environment (EDGE) data. The proposed regulations address high-cost risk pooling, where we are proposing to implement the same parameters that applied to the 2018 benefit year to the 2019 benefit year. The proposed regulations in part 153 also include the risk adjustment user fee and modifications to risk adjustment data validation. We also propose State flexibility to the risk adjustment transfers starting for the 2019 benefit year.

The proposed regulations in part 154 propose certain modifications to enhance State flexibility for the rate review program. We propose to exempt student health insurance coverage from Federal rate review requirements. We propose to raise the default threshold for review of reasonableness in the rate review process from 10 percent to 15 percent. We also propose to allow States with Effective Rate Review Programs to set later submission deadlines for rate filings from issuers that offer non-QHPs only. In addition, we propose to change the notification period for States with Effective Rate Review Programs to notify HHS prior to posting rate increases (from 30 days to 5 business days).

The proposed regulations in part 155 include modifications to the functions of an Exchange, and a new approach to operational readiness reviews for direct enrollment partners which would allow agents, brokers, and issuers to select their own third-party entities for conducting those reviews. We propose modifications to the rules around verification of eligibility. We also propose to increase flexibility in the Navigator program by removing the requirement that each Exchange must have at least two Navigator entities, one of which must be a community and consumer focused non-profit, and to remove the standard requiring physical presence of the Navigator entity in the Exchange service area. We propose to modify the parameters around certain special enrollment periods. We propose to modify the effective date options for enrollee-initiated terminations, and amend the affordability exemption so that it may be based on the lowest cost Exchange plan if there is no bronze level plan sold through the Exchange in that rating area.

The proposed regulations in part 156 include changes to essential health benefits and the QHP certification process. The proposed regulations in part 156 set forth proposals related to cost sharing, including the premium adjustment percentage, the maximum annual limitation on cost sharing, and the reductions in the maximum annual limitation for cost-sharing plan variations for 2019. We propose to update the FFE and SBE-FP user fee rates for the 2019 benefit year for all issuers participating on the FFEs or SBE-FPs. The proposed regulations in part 156 would designate as MEC Children's Health Insurance Program (CHIP) buy-in programs that provide identical coverage to the State's CHIP program under title XXI of the Social Security Act. The regulations at part 156 also include proposals related to actuarial value for stand-alone dental plans (SADPs) and the administrative appeals right with respect to the amount of the advance payment of cost-sharing reductions.

The proposed amendments to the regulations in parts 155, 156, and 157 include proposals that would provide SHOPs with additional operational flexibility, and would modify the requirements for issuers, employers, and employees interacting with SHOPs.

The proposed amendments to the regulations in part 158 propose revisions related to reporting quality improvement activity expenses as part of the formula for calculating MLR, and revisions related to State requests for adjustment to the individual market MLR standard.

III. Provisions of the Proposed HHS Notice of Benefit and Payment Parameters for 2019

A. Part 147—Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets

1. Fair Health Insurance Premiums (§ 147.102)

As discussed elsewhere in this proposed rule, we are proposing substantial changes to the requirements applicable to SHOPs to provide those programs with the flexibility to operate in a leaner fashion, a flexibility that we intend to utilize in the FF-SHOPs. As part of these changes and as discussed in the preamble to §§ 156.285 and 156.286, we are proposing that, effective on the effective date of the final rule, if finalized as proposed, the requirement in § 156.285(a)(4)(ii) regarding premium rating standards in the FF-SHOPs would not apply for plan years beginning on or after January 1, 2018. Therefore, we propose to delete from § 147.102(c)(3)(iii)(D) a reference to § 156.285(a)(4), and to replace the reference to FF-SHOPs with a reference to SHOPs generally, to reflect that, under the proposed approach for SHOPs, some SHOPs may want to prohibit issuers from offering average enrollee premiums. We seek comment on this proposal and on whether issuers offering coverage through SHOPs should always be required to offer average enrollee premiums, or do so only if required under applicable State law.

2. Guaranteed Availability of Coverage (§ 147.104)

As discussed elsewhere in this proposed rule, we are proposing substantial changes to the requirements applicable to SHOPs to provide them with the flexibility to operate in a leaner

fashion, a flexibility that we intend to utilize in the FF-SHOPs. Among those changes, we propose that, effective on the effective date of the final rule, if finalized as proposed, the requirements in § 156.285 would apply for plan years starting before January 1, 2018. We also propose a new § 156.286, which specifies those requirements contained in § 156.285 that, effective on the effective date of the final rule, if finalized as proposed, would continue to apply for plan years starting on or after January 1, 2018. Among those requirements is the requirement in § 156.285(e) which permits a QHP offered in the SHOP to apply group participation rules under certain circumstances. This provision is listed in proposed § 156.286(e). The marketwide regulations at § 147.104(b)(1)(i)(B) currently reference § 156.285(e), and we propose to add a reference to § 156.286(e), to clarify that, effective on the effective date of the final rule, if finalized as proposed, for plans years that start after January 1, 2018, QHPs offered in the SHOP may restrict the availability of coverage with respect to a group health plan that cannot comply with group participation rules, to an annual enrollment period of November 15 through December 15 of each calendar year.

These regulations also propose to remove the small group coverage effective dates that are found in the SHOP regulations at § 155.725 with respect to plan years beginning on or after January 1, 2018, effective on the effective date of the final rule, if finalized as proposed. However, there are currently requirements in § 147.104(b)(1)(i)(C) that, by cross-referencing § 155.725, apply those same requirements marketwide, and we do not propose to remove that marketwide requirement. We propose changes to § 147.104 to reflect these proposed changes. Specifically, we propose to eliminate, from § 147.104(b)(1)(i)(C), the cross-reference to § 155.725. We propose in place of the cross-reference to explicitly specify in § 147.104(b)(1)(i)(C) those same coverage effective dates for coverage in the small group market, and for the large group market if such coverage is offered through a SHOP, that would be eliminated from the SHOP regulations under our proposal for § 155.725.

We propose to remove paragraph § 147.104(b)(1)(iii), along with the cross-reference to it in § 147.104(b)(1)(ii), as paragraph (b)(1)(iii) applies to plan selections made in 2013, and is therefore no longer necessary.

Section 147.104(b)(2)(i) extends several of the special enrollment periods that apply to issuers on the Exchange, to all issuers in the individual market. Although § 147.104(b)(2)(i) is intended to specify which special enrollment periods offered through the Exchange must also be offered by health insurance issuers with respect to coverage offered outside of an Exchange, the paragraph as currently written could be read to apply the exceptions to any coverage offered by a health insurance issuer in the individual market. We recognize the potential for confusion, as coverage offered through an Exchange is offered by “a health insurance issuer in the individual market,” but this coverage is subject to the special enrollment rule at § 155.420(d), which is intended to require special enrollment periods for triggers including those listed in the exceptions in paragraph (b)(2)(i). Therefore, for purposes of clarification, we propose to amend that phrase in § 147.104(b)(2)(i) to clarify that the exceptions in the paragraph only apply with respect to coverage offered outside of the Exchange in the individual market.

With respect to the subset of special enrollment periods in § 155.420 that apply off-Exchange, current regulations at § 147.104(b)(2)(ii) state that, in applying § 147.104(b)(2), a reference in § 155.420 to a “QHP” is deemed to refer to a plan, a reference to “the Exchange” is deemed to refer to the applicable State authority, and a reference to a “qualified individual” is deemed to refer to an individual in the individual market. As discussed in the preamble to § 155.420, we are proposing a change to § 155.420(a)(5) to exempt qualified individuals from the prior coverage requirement that applies to certain special enrollment periods if for at least 1 of the 60 days prior to the date of their qualifying event they lived in a service area where there were no QHPs offered through an Exchange. Section 155.420(a)(5) applies to qualifying individuals seeking off-Exchange coverage through an applicable special enrollment period, so we propose that this exception for individuals living in a service area where there were no QHPs offered through an Exchange would also apply.

7

However, in this instance the reference to “QHP” should not be deemed to refer to a plan for purposes of applying § 147.104(b)(2). Therefore, we propose to amend § 147.104(b)(2)(ii) to state that a reference in § 155.420

(other than in § 155.420(a)(5))

to a “QHP” is deemed to refer to a plan, a reference to “the Exchange” is deemed to refer to the applicable State authority, and a reference to a “qualified individual” is deemed to refer to an individual in the individual market.

7

As stated in the preamble to § 155.420, the exception to the requirement to have previous coverage is intended to relieve individuals of that requirement when there was no

affordable

coverage (that is, coverage that could be purchased through an Exchange to which APTC might apply) available in their previous service area. We believe affordability is key to this exception, and therefore, that the scope of the exception should apply equally, regardless of whether the individual is seeking to purchase coverage inside

or

outside an Exchange during the special enrollment periods for which this exception applies; that is, the exception should apply if there was no such affordable coverage available in the individual's previous service area (regardless of whether or not any coverage was being actively marketed in that service area outside the Exchange). Also, when an individual seeks to purchase coverage outside an Exchange during such a special enrollment period, we believe it might be unreasonably difficult for an issuer to determine if at least one issuer was actively marketing coverage in the individual's previous service area outside the Exchange, as opposed to determining if at least one issuer was making coverage available in that service area specifically through an Exchange. We solicit comments on this approach.

We seek comment on these proposals.

Among the special enrollment periods in § 155.420 that apply off-Exchange are those specified in § 155.420(d)(2)(i), under which a qualified individual gains a dependent or becomes a new dependent through marriage, birth, adoption, placement for adoption, or placement in foster care, or through a child support order or other court order. As applied to on-Exchange coverage under these special enrollment periods, an existing dependent may enroll in or change their QHP enrollment through these special enrollment periods when a qualified individual gains a dependent or becomes a new dependent under the circumstances described in § 155.420(d)(2)(i) and the requirement in § 155.420(a)(4)(i) that the new dependent must be allowed to enroll in the QHP in which the family is already enrolled is not applicable. Under the HIPAA special enrollment provisions that continue to apply to group health plans and health insurance issuers in connection with group health coverage, there are similar special enrollment periods when a child becomes a dependent of the employee through marriage, birth, adoption, or placement for adoption.

8

The HIPAA regulations specify that, under such circumstances, those special enrollment periods apply only to dependents

who become a dependent

through marriage, birth, adoption, or placement for adoption (that is,

new

dependents). We seek comment on whether, in the off-Exchange individual market, the special enrollment periods for when an individual gains a dependent or

becomes a new dependent under the circumstances described in § 155.420(d)(2)(i) should apply to new

and

existing dependents (as is the case in the Exchanges when the requirement in § 155.420(a)(4)(i) that the new dependent must be allowed to enroll in the QHP in which the family is currently enrolled is not applicable), whether they should apply only to new dependents (consistent with the HIPAA group market regulations), or whether we should adopt some other approach, such as affording the special enrollment periods to some, but not all categories of existing dependents.

8

See § 146.117(b).

B. Part 153—Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment Under the Affordable Care Act

1. Sequestration

In accordance with the OMB Report to Congress on the Joint Committee Reductions for Fiscal Year 2018,

9

both the transitional reinsurance program and permanent risk adjustment program are subject to the fiscal year 2018 sequestration. The Federal government's 2018 fiscal year begins October 1, 2017. Although the 2016 benefit year is the final year of the transitional reinsurance program, HHS will continue to make reinsurance payments in the 2018 fiscal year, as the second contribution collection deadline for the 2016 benefit year is November 15, 2017. Therefore, the reinsurance program will be sequestered at a rate of 6.6 percent for payments made from fiscal year 2018 resources (that is, funds collected during the 2018 fiscal year). The risk adjustment program will also be sequestered at a rate of 6.6 percent for payments made from fiscal year 2018 resources (that is, funds collected during the 2018 fiscal year).

9

Available at

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/sequestration_reports/2018_jc_sequestration_report_may2017_potus.pdf

.

HHS, in coordination with the OMB, has determined that, under section 256(k)(6) of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, and the underlying authority for the reinsurance and risk adjustment programs, the funds that are sequestered in fiscal year 2018 from the reinsurance and risk adjustment programs will become available for payment to issuers in fiscal year 2019 without further Congressional action. If Congress does not enact deficit reduction provisions that replace the Joint Committee reductions, these programs would be sequestered in future fiscal years, and any sequestered funding would become available in the fiscal year following that in which it was sequestered.

2. Provisions and Parameters for the Risk Adjustment Program

In subparts D and G of part 153, we established standards for the administration of the risk adjustment program. The risk adjustment program is a permanent program created by section 1343 of the PPACA that transfers funds from lower risk, non-grandfathered plans to higher risk, non-grandfathered plans in the individual and small group markets, inside and outside the Exchanges. In accordance with § 153.310(a), a State that is approved or conditionally approved by the Secretary to operate an Exchange may establish a risk adjustment program, or have HHS do so on its behalf. HHS will be operating risk adjustment in every State beginning for the 2017 benefit year, and did not receive any applications from States to operate risk adjustment for the 2019 benefit year.

HHS continues to evaluate the risk adjustment program, including by reviewing comments received in response to the Request for Information, and intends to propose changes in a manner that promotes transparency, considers stakeholder feedback and provides adequate notice to issuers, while upholding the integrity and accuracy of the program.

a. Overview of the HHS Risk Adjustment Model (§ 153.320)

The HHS risk adjustment model predicts plan liability for an average enrollee based on that person's age, sex, and diagnoses (risk factors), producing a risk score. The HHS risk adjustment methodology utilizes separate models for adults, children, and infants to account for cost differences in each of these age groups. In each of the adult and child models, the relative risk assigned to an individual's age, sex, and diagnoses are added together to produce an individual risk score. Additionally, in the adult models, we added enrollment duration factors beginning for the 2017 benefit year, and prescription drug utilization factors (RXCs) beginning for the 2018 benefit year, in the calculation of enrollees' risk scores. Infant risk scores are determined by inclusion in one of 25 mutually exclusive groups, based on the infant's maturity and the severity of diagnoses. If applicable, the risk score for adults, children or infants is multiplied by a cost-sharing reductions adjustment.

The enrollment-weighted average risk score of all enrollees in a particular risk adjustment covered plan (also referred to as the plan liability risk score) within a geographic rating area is one of the inputs into the risk adjustment payment transfer formula, which determines the payment or charge that an issuer will receive or be required to pay for that plan. Thus, the HHS risk adjustment model predicts average group costs to account for risk across plans, which accords with the Actuarial Standards Board's Actuarial Standards of Practice for risk classification.

b. Proposed Updates to the Risk Adjustment Model (§ 153.320)

For the 2019 benefit year risk adjustment model, HHS will continue to incorporate the methodological improvements finalized in previous rulemaking, such as incorporating preventive services in our simulation of plan liability, using more granular trend rates to better reflect the growth in specialty drug expenditures and drugs generally as compared to medical and surgical expenditures, accounting for partial year enrollment in the adult models, including prescription drug utilization factors in the adult models, adjusting the risk adjustment model and transfers to account for high-cost enrollees, and removing a portion of the premiums in the transfer formula to account for a portion of administrative costs that do not vary with claims. For the 2019 benefit year, we propose to recalibrate the risk adjustment models using the methodology finalized for the 2018 benefit year, with small modifications to the drug classes included in the 2019 benefit year adult models, and incorporation of the 2016 benefit year EDGE data in the 2019 benefit year risk adjustment model recalibration.

We seek comment on these proposals.

i. Recalibration Using EDGE Data

To recalibrate the 2016, 2017 and 2018 benefit year risk adjustment models, we used the three most recent years of Truven MarketScan® data. This approach allowed for using the blended, or averaged, coefficients from 3 years of separately solved models, which promotes stability for the risk adjustment coefficients year-to-year, particularly for rare conditions with small sample sizes. We finalized in the 2018 Payment Notice the collection of enrollee-level EDGE data and the recalibration of the risk adjustment model for the 2019 benefit year using 2016 benefit year EDGE data. We believe that blending the coefficients calculated from the 2016 benefit year EDGE enrollee-level data with MarketScan® data will provide stability within the risk adjustment program and minimize

volatility in changes to risk scores from the 2018 to 2019 benefit years due to differences in the datasets' underlying populations. As such, we propose blending 3 years of data to recalibrate the coefficients used in the risk adjustment model and, for the 2019 benefit year, blending separately solved coefficients from the 2016 benefit year EDGE enrollee-level data and the 2014 and 2015 MarketScan® data using the methodology that will be finalized in the 2019 Payment Notice final rule. Given the timing of the 2019 Payment Notice and the significant analysis necessary to develop the 2016 benefit year EDGE recalibration dataset, we are not able to incorporate the 2016 benefit year EDGE data in this proposed rule. Therefore, we use the 2014 and 2015 MarketScan® data for the coefficients in this proposed rule. We propose to finalize the 2019 benefit year blended coefficients with the separately solved models from the 2016 benefit year EDGE enrollee-level data with the 2014 and 2015 MarketScan® data. This approach is similar to our approach in previous years, in which we updated the final coefficients using data from the most recently available benefit year.

10

We expect to publish the final risk adjustment model coefficients for the 2019 benefit year in the final rule. However, we seek comment on whether we should publish the final risk adjustment model coefficients in guidance in the spring of 2018, prior to rate setting for the 2019 benefit year, similar to our approach for publishing the 2018 benefit year risk adjustment coefficients, if we need additional time to analyze the 2016 enrollee-level EDGE data. Under either approach, the final risk adjustment model coefficients for the 2019 benefit year would be determined using the methodology that we finalize in the 2019 Payment Notice final rule, and would be published either in the final rule or in guidance prior to the 2019 benefit year rate setting. Additionally, if we find significant demographic or distributional differences in the enrollee-level EDGE data compared to the MarketScan data, we seek comment on whether we should make adjustments to the risk adjustment recalibration model age-sex, HCC and RXC categories for the final 2019 benefit year. In such a case, we would make adjustments to the models to better align them with the enrollee-level EDGE data, to improve the prediction of plan liability. The risk adjustment model coefficients listed in Tables 2, 4, and 5 are blended coefficients using the 2014 and 2015 MarketScan® data.

10

See, for example, 2018 Payment Notice final rule, 81 FR 94058 (December 22, 2016).

We seek comment on our proposal to determine coefficients based on a blend of 2014 and 2015 MarketScan® data and 2016 enrollee-level EDGE data using the methodology that will be finalized in the 2019 Payment Notice final rule in the final rule or through guidance. We also seek comment on the proposed methodology to equally weight the separately solved model coefficients from the 2014 MarketScan®, 2015 MarketScan®, and 2016 enrollee-level EDGE data for the final coefficients, instead of using only the 2016 enrollee-level EDGE data to recalibrate the risk adjustment model coefficients for the 2019 benefit year.

ii. Prescription Drugs

In the 2018 Payment Notice, we finalized the inclusion of twelve RXCs that interact with diagnoses (hierarchical condition categories (HCCs)), or drug-diagnosis (RXC-HCC) pairs, in the adult risk adjustment models for the 2018 benefit year. Ten of the RXC-HCC pairs have three levels of incremental predicted costs (diagnosis-only, prescription drug-only, and both diagnosis and prescription drug), indicating that they can be used to impute a particular diagnosis. The 2018 benefit year risk adjustment adult models also included two RXC-HCC pairs that are used for severity-only—that is, they predict incremental costs for enrollees with the diagnosis-only, or with both the diagnosis and the prescription drug. For enrollees without the associated diagnoses documented for these severity-only RXC-HCC pairs, the presence of the drug alone would not lead to the imputation of additional plan liability costs attributed to the plan.

For the 2019 benefit year, we propose to remove the two severity-only RXCs (RXC 11: Ammonia Detoxicants, and RXC 12: Diuretics, Loop and Select Potassium-Sparing). Both severity-only RXCs have low average costs per enrollee per year and were constrained to the average cost of the drugs to avoid overcompensating issuers for these RXCs. Constraining these RXCs removed overprescribing or gaming incentives to prescribe a low-cost drug to receive a much larger risk adjustment payment. However, after constraints, the two severity-only RXCs have extremely small coefficients that no longer predict meaningful incremental plan risk associated with a severe health condition. Therefore, we propose eliminating these two RXCs from the model. We believe that the remaining RXCs do not engender significant gaming concerns due to the cost and side-effects of the drugs if prescribed without cause. As we noted in the 2018 Payment Notice, where the risk of unintended effects on provider prescribing behavior is low, we are continuing to include a small number of prescription drug classes as predictors of risk and plan liability. For the remaining RXCs, there is a high rate of presence of a diagnosis code in the associated HCC in the MarketScan® data, indicating a positive predictive value for using these RXCs to impute missing diagnoses. Additionally, as we have previously noted, we intend to monitor prescription drug utilization for unintended effects, and may propose to remove drug classes based on such evidence in future rulemaking. Table 1 contains the proposed list of prescription drug factors for the 2019 benefit year risk adjustment model. We will evaluate the effects of incorporating prescription drugs in the adult models to determine whether to continue, broaden or reduce the impact of this set of factors on the HHS risk adjustment models. Additionally, we note that commenters on the Request for Information support the inclusion of prescription drugs in the risk adjustment methodology.

We seek comment on this proposal.

Table 1—Proposed Drug-Diagnosis (RXC-HCC) Pairs for the 2019 Adult Model

RXC

RXC label

HCC

HCC label

Proposed RXC use

RXC 01

Anti-HIV Agents

001

HIV/AIDS

imputation/severity.

RXC 02

Anti-Hepatitis C (HCV) Agents

037C, 036, 035, 034

Chronic Hepatitis C, Cirrhosis of Liver, End-Stage Liver Disease, and Liver Transplant Status/Complications

imputation/severity.

RXC 03

Antiarrhythmics

142

Specified Heart Arrhythmias

imputation/severity.

RXC 04

Phosphate Binders

184, 183, 187, 188

End Stage Renal Disease, Kidney Transplant Status, Chronic Kidney Disease, Stage 5, Chronic Kidney Disease, Severe (Stage 4)

imputation/severity.

RXC 05

Inflammatory Bowel Disease Agents

048, 041

Inflammatory Bowel Disease, Intestine Transplant Status/Complications

imputation/severity.

RXC 06

Insulin

019, 020, 021, 018

Diabetes with Acute Complications; Diabetes with Chronic Complications; Diabetes without Complication, Pancreas Transplant Status/Complications

imputation/severity.

RXC 07

Anti-Diabetic Agents, Except Insulin and Metformin Only

019, 020, 021, 018

Diabetes with Acute Complications, Diabetes with Chronic Complications, Diabetes without Complication, Pancreas Transplant Status/Complications

imputation/severity.

RXC 08

Multiple Sclerosis Agents

118

Multiple Sclerosis

imputation/severity.

RXC 09

Immune Suppressants and Immunomodulators

056, 057, 048, 041

Rheumatoid Arthritis and Specified Autoimmune Disorders, Systemic Lupus Erythematosus and Other Autoimmune Disorders, Inflammatory Bowel Disease, Intestine Transplant Status/Complications

imputation/severity.

RXC 10

Cystic Fibrosis Agents

159, 158

Cystic Fibrosis, Lung Transplant Status/Complications

imputation/severity.

iii. High-Cost Risk Pool Adjustment

HHS finalized a high-cost risk pool adjustment in the 2018 Payment Notice to account for the incorporation of risk associated with high-cost enrollees in the risk adjustment model. Specifically, we finalized adjusting the risk adjustment model for high-cost enrollees beginning for the 2018 benefit year by excluding a percentage of costs above a certain threshold level in the calculation of enrollee-level plan liability risk scores so that risk adjustment factors are calculated without the high-cost risk, because the average risk associated with HCCs and RXCs is better accounted for without the inclusion of the high-cost enrollees. In addition, to account for issuers' risk associated with the high-cost enrollees, issuers will be compensated for a percentage of costs above the threshold. We set the threshold and percentage of costs at a level that would continue to incentivize issuers to control costs while improving the risk prediction of the risk adjustment model. Issuers with high-cost enrollees will receive a payment for the percentage of costs above the threshold in their respective transfers. Using claims data submitted to the EDGE server by issuers of risk adjustment covered plans, HHS will calculate the total amount of paid claims costs for high-cost enrollees based on the threshold and the coinsurance rate. HHS will then calculate a charge as a percentage of the issuers' total premiums in the individual (including catastrophic and non-catastrophic plans and merged market plans), or small group markets, which will be applied to the total transfer amount in that market, maintaining the balance of payments and charges within the risk adjustment program. In the 2018 Payment Notice, we finalized a threshold of $1 million and a coinsurance rate of 60 percent across all States for the individual (including catastrophic and non-catastrophic plans and merged market plans) and small group markets for the 2018 benefit year.

For the 2019 benefit year, we are proposing to maintain the same parameters that would apply to the 2018 benefit year. Therefore, we propose to maintain a $1 million threshold and 60 percent coinsurance rate for the high-cost risk pool for the 2019 benefit year risk adjustment program. We believe this threshold and coinsurance rate would result in total payments or charges nationally that are very small as a percentage of premiums for issuers, and will prevent States and issuers with very high-cost enrollees from bearing a disproportionate amount of unpredictable risk. We seek comment on the proposed parameters of the high-cost risk pool for the 2019 benefit year risk adjustment model.

Comments in response to the Request for Information noted the benefits of incorporating the high-cost risk pool in the risk adjustment methodology. We have also received feedback from stakeholders on the structure of the high-cost risk pool, including that the pool should be multi-tiered, with multiple thresholds and increased coinsurance as the thresholds increase to account for the reduced number of enrollees at higher thresholds where costs to an issuer are catastrophic. We seek comment on alternative methods for reimbursing issuers for exceptionally high-cost enrollees through the high-cost risk pool and improving the calculation of plan liability in the HHS-operated risk adjustment models for future benefit years.

c. List of Factors To Be Employed in the Risk Adjustment Model (§ 153.320)

The proposed factors resulting from the blended factors from the 2014 and 2015 MarketScan® data separately solved models (with the incorporation of the partial year enrollment adjustment and prescription drugs reflected in the adult models only) are shown in the Tables 2, 4, and 5. The adult, child, and infant models have been truncated to account for the high-cost enrollee pool payment parameters ($1 million threshold, 60 percent coinsurance) finalized in the 2018 Payment Notice. As discussed in the preceding section, we are proposing to keep the 2019 benefit year high-cost enrollee risk pool payment parameters the same as those finalized for the 2018 benefit year.

Table 2 contains factors for each adult model, including the age-sex, HCCs, RXCs and HCC-RXC interaction coefficients. As we have previously noted,

11

some interactions of RXCs and HCCs have negative coefficients; however, this does not mean that an enrollee's risk score decreases due to the presence of an RXC, an HCC, or both.

11

2018 Benefit Year Final HHS Risk Adjustment Model Coefficients. April 18, 2017. Available at

https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/2018-Benefit-Year-Final-HHS-Risk-Adjustment-Model-Coefficients.pdf

.

Table 3 contains the HHS HCCs in the severity illness indicator variable. Table 4 contains the factors for each child model. Table 5 contains the factors for each infant model. Tables 6 and 7 contain the HCCs included in the infant model maturity and severity categories, respectively.

Table 2—Proposed Adult Risk Adjustment Model Factors for 2019 Benefit Year

A

HCC or RXC No.

Factor

Platinum

Gold

Silver

Bronze

Catastrophic

Demographic Factors

Age 21-24, Male

0.174

0.138

0.094

0.052

0.050

Age 25-29, Male

0.151

0.116

0.073

0.030

0.028

Age 30-34, Male

0.191

0.147

0.093

0.039

0.036

Age 35-39, Male

0.252

0.198

0.132

0.065

0.062

Age 40-44, Male

0.321

0.258

0.182

0.104

0.101

Age 45-49, Male

0.385

0.313

0.227

0.138

0.134

Age 50-54, Male

0.510

0.428

0.328

0.222

0.217

Age 55-59, Male

0.577

0.483

0.372

0.253

0.247

Age 60-64, Male

0.647

0.538

0.411

0.271

0.264

Age 21-24, Female

0.286

0.232

0.163

0.093

0.090

Age 25-29, Female

0.323

0.261

0.185

0.104

0.100

Age 30-34, Female

0.449

0.372

0.281

0.188

0.184

Age 35-39, Female

0.540

0.454

0.355

0.257

0.253

Age 40-44, Female

0.598

0.502

0.392

0.281

0.276

Age 45-49, Female

0.607

0.506

0.390

0.268

0.263

Age 50-54, Female

0.686

0.581

0.456

0.323

0.317

Age 55-59, Female

0.674

0.565

0.436

0.294

0.288

Age 60-64, Female

0.699

0.579

0.441

0.285

0.277

Diagnosis Factors

HCC001

HIV/AIDS

0.520

0.434

0.349

0.275

0.271

HCC002

Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock

8.152

7.980

7.865

7.920

7.924

HCC003

Central Nervous System Infections, Except Viral Meningitis

5.518

5.438

5.379

5.405

5.407

HCC004

Viral or Unspecified Meningitis

4.063

3.867

3.741

3.677

3.676

HCC006

Opportunistic Infections

5.606

5.522

5.468

5.439

5.438

HCC008

Metastatic Cancer

21.369

20.985

20.694

20.753

20.756

HCC009

Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia

12.190

11.902

11.689

11.686

11.687

HCC010

Non-Hodgkin's Lymphomas and Other Cancers and Tumors

5.316

5.119

4.971

4.910

4.907

HCC011

Colorectal, Breast (Age < 50), Kidney, and Other Cancers

4.295

4.100

3.948

3.888

3.885

HCC012

Breast (Age 50+) and Prostate Cancer, Benign/Uncertain Brain Tumors, and Other Cancers and Tumors

2.528

2.386

2.275

2.212

2.209

HCC013

Thyroid Cancer, Melanoma, Neurofibromatosis, and Other Cancers and Tumors

1.195

1.076

0.976

0.869

0.864

HCC018

Pancreas Transplant Status/Complications

4.522

4.340

4.216

4.238

4.239

HCC019

Diabetes with Acute Complications

0.624

0.555

0.490

0.416

0.412

HCC020

Diabetes with Chronic Complications

0.624

0.555

0.490

0.416

0.412

HCC021

Diabetes without Complication

0.624

0.555

0.490

0.416

0.412

HCC023

Protein-Calorie Malnutrition

11.390

11.380

11.365

11.434

11.438

HCC026

Mucopolysaccharidosis

2.122

2.025

1.949

1.887

1.884

HCC027

Lipidoses and Glycogenosis

2.122

2.025

1.949

1.887

1.884

HCC029

Amyloidosis, Porphyria, and Other Metabolic Disorders

2.122

2.025

1.949

1.887

1.884

HCC030

Adrenal, Pituitary, and Other Significant Endocrine Disorders

2.122

2.025

1.949

1.887

1.884

HCC034

Liver Transplant Status/Complications

10.018

9.924

9.866

9.856

9.856

HCC035

End-Stage Liver Disease

5.862

5.675

5.548

5.558

5.559

HCC036

Cirrhosis of Liver

2.158

2.040

1.962

1.918

1.916

HCC037_1

Chronic Viral Hepatitis C

0.430

0.327

0.283

0.259

0.258

HCC037_2

Chronic Hepatitis, Other/Unspecified

0.430

0.327

0.283

0.259

0.258

HCC038

Acute Liver Failure/Disease, Including Neonatal Hepatitis

4.242

4.105

4.008

3.986

3.985

HCC041

Intestine Transplant Status/Complications

29.207

29.126

29.062

29.112

29.112

HCC042

Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis

9.688

9.465

9.302

9.321

9.323

HCC045

Intestinal Obstruction

5.465

5.238

5.087

5.089

5.090

HCC046

Chronic Pancreatitis

4.522

4.340

4.216

4.238

4.239

HCC047

Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption

2.204

2.054

1.947

1.882

1.880

HCC048

Inflammatory Bowel Disease

2.094

1.926

1.795

1.702

1.698

HCC054

Necrotizing Fasciitis

5.492

5.329

5.207

5.219

5.220

HCC055

Bone/Joint/Muscle Infections/Necrosis

5.492

5.329

5.207

5.219

5.220

HCC056

Rheumatoid Arthritis and Specified Autoimmune Disorders

3.393

3.217

3.077

3.031

3.029

HCC057

Systemic Lupus Erythematosus and Other Autoimmune Disorders

1.032

0.923

0.831

0.726

0.720

HCC061

Osteogenesis Imperfecta and Other Osteodystrophies

2.586

2.421

2.290

2.217

2.213

HCC062

Congenital/Developmental Skeletal and Connective Tissue Disorders

2.586

2.421

2.290

2.217

2.213

HCC063

Cleft Lip/Cleft Palate

1.108

0.963

0.856

0.777

0.773

HCC066

Hemophilia

43.857

43.613

43.412

43.412

43.412

HCC067

Myelodysplastic Syndromes and Myelofibrosis

11.329

11.211

11.123

11.130

11.132

HCC068

Aplastic Anemia

11.329

11.211

11.123

11.130

11.132

HCC069

Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn

7.452

7.322

7.217

7.188

7.187

HCC070

Sickle Cell Anemia (Hb-SS)

7.452

7.322

7.217

7.188

7.187

HCC071

Thalassemia Major

7.452

7.322

7.217

7.188

7.187

HCC073

Combined and Other Severe Immunodeficiencies

5.031

4.913

4.827

4.827

4.827

HCC074

Disorders of the Immune Mechanism

5.031

4.913

4.827

4.827

4.827

HCC075

Coagulation Defects and Other Specified Hematological Disorders

2.419

2.339

2.274

2.237

2.235

HCC081

Drug Psychosis

3.864

3.647

3.486

3.379

3.373

HCC082

Drug Dependence

3.864

3.647

3.486

3.379

3.373

HCC087

Schizophrenia

3.093

2.866

2.702

2.629

2.626

HCC088

Major Depressive and Bipolar Disorders

1.545

1.407

1.297

1.191

1.186

HCC089

Reactive and Unspecified Psychosis, Delusional Disorders

1.545

1.407

1.297

1.191

1.186

HCC090

Personality Disorders

1.055

0.948

0.846

0.736

0.731

HCC094

Anorexia/Bulimia Nervosa

2.381

2.241

2.130

2.064

2.061

HCC096

Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes

2.057

1.952

1.870

1.810

1.807

HCC097

Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes

0.845

0.758

0.679

0.599

0.595

HCC102

Autistic Disorder

1.055

0.948

0.846

0.736

0.731

HCC103

Pervasive Developmental Disorders, Except Autistic Disorder

1.055

0.948

0.846

0.736

0.731

HCC106

Traumatic Complete Lesion Cervical Spinal Cord

9.063

8.932

8.834

8.822

8.821

HCC107

Quadriplegia

9.063

8.932

8.834

8.822

8.821

HCC108

Traumatic Complete Lesion Dorsal Spinal Cord

7.368

7.239

7.144

7.121

7.120

HCC109

Paraplegia

7.368

7.239

7.144

7.121

7.120

HCC110

Spinal Cord Disorders/Injuries

5.019

4.833

4.698

4.663

4.662

HCC111

Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease

2.107

1.911

1.772

1.707

1.705

HCC112

Quadriplegic Cerebral Palsy

0.433

0.289

0.181

0.108

0.107

HCC113

Cerebral Palsy, Except Quadriplegic

0.364

0.264

0.181

0.108

0.107

HCC114

Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies

0.016

0.000

0.000

0.000

0.000

HCC115

Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy

5.116

4.991

4.900

4.882

4.881

HCC117

Muscular Dystrophy

2.109

1.970

1.873

1.783

1.778

HCC118

Multiple Sclerosis

8.046

7.788

7.595

7.579

7.578

HCC119

Parkinson's, Huntington's, and Spinocerebellar Disease, and Other Neurodegenerative Disorders

2.109

1.970

1.873

1.783

1.778

HCC120

Seizure Disorders and Convulsions

1.423

1.288

1.183

1.100

1.096

HCC121

Hydrocephalus

4.823

4.717

4.628

4.597

4.596

HCC122

Non-Traumatic Coma, and Brain Compression/Anoxic Damage

8.085

7.965

7.866

7.861

7.860

HCC125

Respirator Dependence/Tracheostomy Status

27.074

27.045

27.016

27.096

27.100

HCC126

Respiratory Arrest

8.400

8.265

8.168

8.241

8.245

HCC127

Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes

8.400

8.265

8.168

8.241

8.245

HCC128

Heart Assistive Device/Artificial Heart

27.593

27.404

27.268

27.331

27.336

HCC129

Heart Transplant

27.593

27.404

27.268

27.331

27.336

HCC130

Congestive Heart Failure

2.847

2.758

2.693

2.686

2.686

HCC131

Acute Myocardial Infarction

8.501

8.214

8.005

8.114

8.120

HCC132

Unstable Angina and Other Acute Ischemic Heart Disease

4.515

4.281

4.129

4.132

4.133

HCC135

Heart Infection/Inflammation, Except Rheumatic

5.135

5.022

4.938

4.908

4.907

HCC142

Specified Heart Arrhythmias

2.365

2.241

2.148

2.080

2.077

HCC145

Intracranial Hemorrhage

7.686

7.448

7.279

7.270

7.270

HCC146

Ischemic or Unspecified Stroke

2.324

2.176

2.085

2.079

2.079

HCC149

Cerebral Aneurysm and Arteriovenous Malformation

3.171

3.011

2.895

2.840

2.837

HCC150

Hemiplegia/Hemiparesis

4.396

4.314

4.257

4.306

4.309

HCC151

Monoplegia, Other Paralytic Syndromes

2.634

2.522

2.444

2.414

2.413

HCC153

Atherosclerosis of the Extremities with Ulceration or Gangrene

9.113

9.051

9.004

9.096

9.101

HCC154

Vascular Disease with Complications

6.411

6.255

6.143

6.133

6.133

HCC156

Pulmonary Embolism and Deep Vein Thrombosis

3.132

2.995

2.895

2.850

2.848

HCC158

Lung Transplant Status/Complications

25.523

25.380

25.270

25.354

25.358

HCC159

Cystic Fibrosis

11.222

10.969

10.767

10.781

10.782

HCC160

Chronic Obstructive Pulmonary Disease, Including Bronchiectasis

0.859

0.766

0.683

0.595

0.591

HCC161

Asthma

0.859

0.766

0.683

0.595

0.591

HCC162

Fibrosis of Lung and Other Lung Disorders

1.724

1.629

1.562

1.510

1.507

HCC163

Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections

5.920

5.866

5.827

5.835

5.836

HCC183

Kidney Transplant Status

7.636

7.438

7.304

7.276

7.276

HCC184

End Stage Renal Disease

31.427

31.237

31.086

31.232

31.238

HCC187

Chronic Kidney Disease, Stage 5

1.369

1.313

1.276

1.285

1.286

HCC188

Chronic Kidney Disease, Stage 4

1.369

1.313

1.276

1.285

1.286

HCC203

Ectopic and Molar Pregnancy, Except with Renal Failure, Shock, or Embolism

1.219

1.074

0.947

0.745

0.733

HCC204

Miscarriage with Complications

1.219

1.074

0.947

0.745

0.733

HCC205

Miscarriage with No or Minor Complications

1.219

1.074

0.947

0.745

0.733

HCC207

Completed Pregnancy With Major Complications

3.243

2.827

2.608

2.399

2.398

HCC208

Completed Pregnancy With Complications

3.243

2.827

2.608

2.399

2.398

HCC209

Completed Pregnancy with No or Minor Complications

3.243

2.827

2.608

2.399

2.398

HCC217

Chronic Ulcer of Skin, Except Pressure

1.958

1.865

1.801

1.788

1.788

HCC226

Hip Fractures and Pathological Vertebral or Humerus Fractures

8.626

8.433

8.291

8.324

8.326

HCC227

Pathological Fractures, Except of Vertebrae, Hip, or Humerus

2.240

2.124

2.033

1.957

1.954

HCC251

Stem Cell, Including Bone Marrow, Transplant Status/Complications

23.527

23.526

23.520

23.544

23.544

HCC253

Artificial Openings for Feeding or Elimination

8.149

8.067

8.005

8.041

8.043

HCC254

Amputation Status, Lower Limb/Amputation Complications

3.928

3.819

3.740

3.770

3.772

Interaction Factors

SEVERE × HCC006

Severe illness × Opportunistic Infections

8.221

8.406

8.532

8.658

8.663

SEVERE × HCC008

Severe illness × Metastatic Cancer

8.221

8.406

8.532

8.658

8.663

SEVERE × HCC009

Severe illness × Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia

8.221

8.406

8.532

8.658

8.663

SEVERE × HCC010

Severe illness × Non-Hodgkin's Lymphomas and Other Cancers and Tumors

8.221

8.406

8.532

8.658

8.663

SEVERE × HCC115

Severe illness × Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy

8.221

8.406

8.532

8.658

8.663

SEVERE × HCC135

Severe illness × Heart Infection/Inflammation, Except Rheumatic

8.221

8.406

8.532

8.658

8.663

SEVERE × HCC145

Severe illness × Intracranial Hemorrhage

8.221

8.406

8.532

8.658

8.663

SEVERE × G06

Severe illness × HCC group G06 (G06 is HCC Group 6 which includes the following HCCs in the blood disease category: 67, 68)

8.221

8.406

8.532

8.658

8.663

SEVERE × G08

Severe illness × HCC group G08 (G08 is HCC Group 8 which includes the following HCCs in the blood disease category: 73, 74)

8.221

8.406

8.532

8.658

8.663

SEVERE × HCC035

Severe illness × End-Stage Liver Disease

1.816

1.916

1.979

2.088

2.092

SEVERE × HCC038

Severe illness × Acute Liver Failure/Disease, Including Neonatal Hepatitis

1.816

1.916

1.979

2.088

2.092

SEVERE × HCC153

Severe illness × Atherosclerosis of the Extremities with Ulceration or Gangrene

1.816

1.916

1.979

2.088

2.092

SEVERE × HCC154

Severe illness × Vascular Disease with Complications

1.816

1.916

1.979

2.088

2.092

SEVERE × HCC163

Severe illness × Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections

1.816

1.916

1.979

2.088

2.092

SEVERE × HCC253

Severe illness × Artificial Openings for Feeding or Elimination

1.816

1.916

1.979

2.088

2.092

SEVERE × G03

Severe illness × HCC group G03 (G03 is HCC Group 3 which includes the following HCCs in the musculoskeletal disease category: 54, 55)

1.816

1.916

1.979

2.088

2.092

Enrollment Duration Factors

One month of enrollment

0.491

0.431

0.385

0.363

0.363

Two months of enrollment

0.439

0.384

0.337

0.317

0.316

Three months of enrollment

0.356

0.308

0.264

0.245

0.244

Four months of enrollment

0.302

0.261

0.222

0.204

0.204

Five months of enrollment

0.263

0.229

0.195

0.179

0.178

Six months of enrollment

0.220

0.193

0.164

0.148

0.147

Seven months of enrollment

0.217

0.191

0.164

0.148

0.147

Eight months of enrollment

0.160

0.141

0.121

0.109

0.109

Nine months of enrollment

0.121

0.107

0.095

0.088

0.088

Ten months of enrollment

0.106

0.098

0.090

0.086

0.086

Eleven months of enrollment

0.097

0.091

0.085

0.083

0.083

Prescription Drug Factors

RXC 01

Anti-HIV Agents

7.903

7.394

7.016

6.869

6.863

RXC 02

Anti-Hepatitis C (HCV) Agents

42.192

41.724

41.357

41.522

41.530

RXC 03

Antiarrhythmics

0.115

0.115

0.115

0.115

0.115

RXC 04

Phosphate Binders

0.640

0.640

0.640

0.640

0.640

RXC 05

Inflammatory Bowel Disease Agents

1.926

1.751

1.620

1.446

1.437

RXC 06

Insulin

1.520

1.384

1.235

1.059

1.049

RXC 07

Anti-Diabetic Agents, Except Insulin and Metformin Only

0.499

0.437

0.369

0.282

0.277

RXC 08

Multiple Sclerosis Agents

20.967

20.276

19.754

19.796

19.801

RXC 09

Immune Suppressants and Immunomodulators

12.856

12.303

11.895

11.956

11.959

RXC 10

Cystic Fibrosis Agents

10.619

10.340

10.149

10.250

10.255

RXC 01 × HCC001

Additional effect for enrollees with RxC 01 (Anti-HIV Agents) and HCC 001 (HIV/AIDS)

2.849

2.926

2.995

3.292

3.306

RXC 02 × HCC037_1, 036, 035, 034

Additional effect for enrollees with RxC 02 (Anti-Hepatitis C (HCV) Agents) and (HCC 037_1 (Chronic Viral Hepatitis C) or 036 (Cirrhosis of Liver) or 035 (End-Stage Liver Disease) or 034 (Liver Transplant Status/Complications))

3.993

4.162

4.267

4.300

4.301

RXC 03 × HCC142

Additional effect for enrollees with RxC 03 (Antiarrhythmics) and HCC 142 (Specified Heart Arrhythmias)

0.000

0.000

0.000

0.000

0.000

RXC 04 × HCC184, 183, 187, 188

Additional effect for enrollees with RxC 04 (Phosphate Binders) and (HCC 184 (End Stage Renal Disease) or 183 (Kidney Transplant Status) or 187 (Chronic Kidney Disease, Stage 5) or 188 (Chronic Kidney Disease, Severe Stage 4))

0.000

0.000

0.000

0.000

0.000

RXC 05 × HCC048, 041

Additional effect for enrollees with RxC 05 (Inflammatory Bowel Disease Agents) and (HCC 048 (Inflammatory Bowel Disease) or 041 (Intestine Transplant Status/Complications))

−1.002

−0.915

−0.829

−0.721

−0.715

RXC 06 × HCC018, 019, 020, 021

Additional effect for enrollees with RxC 06 (Insulin) and (HCC 018 (Pancreas Transplant Status/Complications) or 019 (Diabetes with Acute Complications) or 020 (Diabetes with Chronic Complications) or 021 (Diabetes without Complication))

0.444

0.410

0.463

0.550

0.555

RXC 07 × HCC018, 019, 020, 021

Additional effect for enrollees with RxC 07 (Anti-Diabetic Agents, Except Insulin and Metformin Only) and (HCC 018 (Pancreas Transplant Status/Complications) or 019 (Diabetes with Acute Complications) or 020 (Diabetes with Chronic Complications) or 021 (Diabetes without Complication))

−0.174

−0.161

−0.129

−0.129

−0.130

RXC 08 × HCC118

Additional effect for enrollees with RxC 08 (Multiple Sclerosis Agents) and HCC 118 (Multiple Sclerosis)

−4.718

−4.268

−3.935

−3.822

−3.819

RXC 09 × HCC056 or 057 and 048 or 041

Additional effect for enrollees with RxC 09 (Immune Suppressants and Immunomodulators) and (HCC 048 (Inflammatory Bowel Disease) or 041 (Intestine Transplant Status/Complications)) and (HCC 056 (Rheumatoid Arthritis and Specified Autoimmune Disorders) or 057 (Systemic Lupus Erythematosus and Other Autoimmune Disorders))

−0.505

−0.528

−0.536

−0.574

−0.576

RXC 09 × HCC056

Additional effect for enrollees with RxC 09 (Immune Suppressants and Immunomodulators) and HCC 056 (Rheumatoid Arthritis and Specified Autoimmune Disorders)

−2.712

−2.470

−2.285

−2.173

−2.168

RXC 09 × HCC057

Additional effect for enrollees with RxC 09 (Immune Suppressants and Immunomodulators) and HCC 057 (Systemic Lupus Erythematosus and Other Autoimmune Disorders)

−0.434

−0.272

−0.144

0.012

0.020

RXC 09 × HCC048, 041

Additional effect for enrollees with RxC 09 (Immune Suppressants and Immunomodulators) and (HCC 048 (Inflammatory Bowel Disease) or 041 (Intestine Transplant Status/Complications))

1.311

1.573

1.744

1.909

1.917

RXC 10 × HCC159, 158

Additional effect for enrollees with RxC 10 (Cystic Fibrosis Agents) and (HCC 159 (Cystic Fibrosis) or 158 (Lung Transplant Status/Complications))

29.675

29.853

29.949

29.967

29.967

A

The proposed risk adjustment model factors for the 2019 benefit year include blended coefficients based on separately solved 2014 and 2015 MarketScan® data. We are proposing to finalize the 2019 benefit year risk adjustment model factors based on blended factors from separately solved models using the 2014 and 2015 MarketScan® data, and the 2016 benefit year enrollee-level EDGE data.

Table 3—HHS HCCs in the Severity Illness Indicator Variable

Description

Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock

Peritonitis/Gastrointestinal Perforation/Necrotizing Enter colitis

Seizure Disorders and Convulsions

Non-Traumatic Coma, Brain Compression/Anoxic Damage

Respirator Dependence/Tracheostomy Status

Respiratory Arrest

Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes

Pulmonary Embolism and Deep Vein Thrombosis

Table 4—Proposed Child Risk Adjustment Model Factors for 2019 Benefit Year

Factor

Platinum

Gold

Silver

Bronze

Catastrophic

Demographic Factors

Age 2-4, Male

0.194

0.139

0.077

0.023

0.020

Age 5-9, Male

0.130

0.091

0.043

0.004

0.002

Age 10-14, Male

0.199

0.156

0.099

0.056

0.054

Age 15-20, Male

0.268

0.218

0.156

0.102

0.100

Age 2-4, Female

0.147

0.100

0.047

0.007

0.005

Age 5-9, Female

0.104

0.069

0.029

0.002

0.001

Age 10-14, Female

0.189

0.147

0.095

0.057

0.055

Age 15-20, Female

0.298

0.239

0.167

0.100

0.097

Diagnosis Factors

HIV/AIDS

5.744

5.340

5.034

4.949

4.944

Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock

13.174

13.022

12.922

12.938

12.940

Central Nervous System Infections, Except Viral Meningitis

7.345

7.194

7.085

7.094

7.095

Viral or Unspecified Meningitis

3.062

2.879

2.757

2.629

2.625

Opportunistic Infections

16.688

16.642

16.604

16.594

16.593

Metastatic Cancer

30.079

29.879

29.711

29.715

29.715

Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia

9.654

9.442

9.264

9.190

9.186

Non-Hodgkin's Lymphomas and Other Cancers and Tumors

8.104

7.883

7.707

7.615

7.611

Colorectal, Breast (Age <50), Kidney, and Other Cancers

2.866

2.706

2.572

2.460

2.454

Breast (Age 50+) and Prostate Cancer, Benign/Uncertain Brain Tumors, and Other Cancers and Tumors

2.866

2.706

2.572

2.460

2.454

Thyroid Cancer, Melanoma, Neurofibromatosis, and Other Cancers and Tumors

1.218

1.090

0.977

0.858

0.852

Pancreas Transplant Status/Complications

21.519

21.274

21.082

21.114

21.116

Diabetes with Acute Complications

2.422

2.129

1.939

1.683

1.672

Diabetes with Chronic Complications

2.422

2.129

1.939

1.683

1.672

Diabetes without Complication

2.422

2.129

1.939

1.683

1.672

Protein-Calorie Malnutrition

11.421

11.335

11.264

11.302

11.304

Mucopolysaccharidosis

8.584

8.361

8.176

8.141

8.139

Lipidoses and Glycogenosis

8.584

8.361

8.176

8.141

8.139

Congenital Metabolic Disorders, Not Elsewhere Classified

8.584

8.361

8.176

8.141

8.139

Amyloidosis, Porphyria, and Other Metabolic Disorders

8.584

8.361

8.176

8.141

8.139

Adrenal, Pituitary, and Other Significant Endocrine Disorders

8.584

8.361

8.176

8.141

8.139

Liver Transplant Status/Complications

21.519

21.274

21.082

21.114

21.116

End-Stage Liver Disease

11.016

10.865

10.767

10.761

10.761

Cirrhosis of Liver

6.158

6.041

5.950

5.916

5.914

Chronic Viral Hepatitis C

6.888

6.742

6.621

6.604

6.604

Chronic Hepatitis, Other/Unspecified

1.679

1.571

1.470

1.385

1.381

Acute Liver Failure/Disease, Including Neonatal Hepatitis

10.719

10.579

10.476

10.479

10.480

Intestine Transplant Status/Complications

21.519

21.274

21.082

21.114

21.116

Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis

10.481

10.202

9.989

9.995

9.996

Intestinal Obstruction

3.953

3.763

3.613

3.521

3.518

Chronic Pancreatitis

10.876

10.686

10.549

10.567

10.569

Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption

2.107

1.992

1.891

1.793

1.788

Inflammatory Bowel Disease

6.687

6.344

6.085

5.986

5.981

Necrotizing Fasciitis

3.868

3.678

3.524

3.459

3.456

Bone/Joint/Muscle Infections/Necrosis

3.868

3.678

3.524

3.459

3.456

Rheumatoid Arthritis and Specified Autoimmune Disorders

4.271

4.056

3.872

3.782

3.778

Systemic Lupus Erythematosus and Other Autoimmune Disorders

1.227

1.111

0.999

0.872

0.867

Osteogenesis Imperfecta and Other Osteodystrophies

1.364

1.258

1.162

1.079

1.075

Congenital/Developmental Skeletal and Connective Tissue Disorders

1.364

1.258

1.162

1.079

1.075

Cleft Lip/Cleft Palate

1.407

1.241

1.107

0.982

0.977

Hemophilia

55.787

55.354

55.012

54.989

54.988

Myelodysplastic Syndromes and Myelofibrosis

12.015

11.906

11.825

11.801

11.800

Aplastic Anemia

12.015

11.906

11.825

11.801

11.800

Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn

6.603

6.387

6.217

6.130

6.126

Sickle Cell Anemia (Hb-SS)

6.603

6.387

6.217

6.130

6.126

Thalassemia Major

6.603

6.387

6.217

6.130

6.126

Combined and Other Severe Immunodeficiencies

6.007

5.869

5.759

5.696

5.693

Disorders of the Immune Mechanism

6.007

5.869

5.759

5.696

5.693

Coagulation Defects and Other Specified Hematological Disorders

4.186

4.074

3.976

3.905

3.902

Drug Psychosis

5.541

5.318

5.157

5.092

5.090

Drug Dependence

5.541

5.318

5.157

5.092

5.090

Schizophrenia

4.669

4.332

4.086

3.973

3.968

Major Depressive and Bipolar Disorders

1.809

1.621

1.462

1.283

1.275

Reactive and Unspecified Psychosis, Delusional Disorders

1.681

1.507

1.356

1.179

1.171

Personality Disorders

0.678

0.582

0.476

0.338

0.332

Anorexia/Bulimia Nervosa

2.792

2.619

2.478

2.413

2.409

Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes

2.339

2.176

2.067

2.032

2.031

Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes

1.838

1.693

1.582

1.491

1.487

Autistic Disorder

1.513

1.364

1.228

1.070

1.063

Pervasive Developmental Disorders, Except Autistic Disorder

0.737

0.640

0.528

0.382

0.375

Traumatic Complete Lesion Cervical Spinal Cord

12.154

12.087

12.058

12.138

12.142

Quadriplegia

12.154

12.087

12.058

12.138

12.142

Traumatic Complete Lesion Dorsal Spinal Cord

10.641

10.489

10.347

10.348

10.348

Paraplegia

10.641

10.489

10.347

10.348

10.348

Spinal Cord Disorders/Injuries

3.473

3.289

3.147

3.055

3.051

Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease

7.137

6.947

6.796

6.711

6.706

Quadriplegic Cerebral Palsy

3.125

2.921

2.787

2.797

2.797

Cerebral Palsy, Except Quadriplegic

0.730

0.588

0.484

0.395

0.391

Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies

1.219

1.108

1.019

0.949

0.946

Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy

8.961

8.809

8.687

8.653

8.652

Muscular Dystrophy

2.675

2.515

2.397

2.310

2.307

Multiple Sclerosis

9.417

9.117

8.880

8.847

8.846

Parkinson's, Huntington's, and Spinocerebellar Disease, and Other Neurodegenerative Disorders

2.675

2.515

2.397

2.310

2.307

Seizure Disorders and Convulsions

1.887

1.743

1.611

1.470

1.463

Hydrocephalus

3.800

3.697

3.620

3.605

3.605

Non-Traumatic Coma, and Brain Compression/Anoxic Damage

5.359

5.248

5.156

5.116

5.114

Respirator Dependence/Tracheostomy Status

31.233

31.127

31.052

31.184

31.190

Respiratory Arrest

9.997

9.799

9.667

9.653

9.653

Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes

9.997

9.799

9.667

9.653

9.653

Heart Assistive Device/Artificial Heart

21.519

21.274

21.082

21.114

21.116

Heart Transplant

21.519

21.274

21.082

21.114

21.116

Congestive Heart Failure

5.652

5.562

5.482

5.438

5.435

Acute Myocardial Infarction

4.541

4.481

4.446

4.422

4.421

Unstable Angina and Other Acute Ischemic Heart Disease

4.541

4.481

4.446

4.422

4.421

Heart Infection/Inflammation, Except Rheumatic

11.390

11.285

11.206

11.181

11.179

Hypoplastic Left Heart Syndrome and Other Severe Congenital Heart Disorders

5.172

5.012

4.857

4.735

4.729

Major Congenital Heart/Circulatory Disorders

1.451

1.360

1.244

1.128

1.122

Atrial and Ventricular Septal Defects, Patent Ductus Arteriosus, and Other Congenital Heart/Circulatory Disorders

0.894

0.810

0.707

0.612

0.609

Specified Heart Arrhythmias

3.536

3.385

3.253

3.178

3.175

Intracranial Hemorrhage

12.297

12.087

11.936

11.925

11.925

Ischemic or Unspecified Stroke

6.626

6.537

6.482

6.494

6.494

Cerebral Aneurysm and Arteriovenous Malformation

3.425

3.247

3.122

3.047

3.043

Hemiplegia/Hemiparesis

3.713

3.626

3.568

3.555

3.555

Monoplegia, Other Paralytic Syndromes

2.871

2.748

2.664

2.635

2.635

Atherosclerosis of the Extremities with Ulceration or Gangrene

10.177

9.954

9.794

9.715

9.712

Vascular Disease with Complications

15.267

15.144

15.047

15.063

15.063

Pulmonary Embolism and Deep Vein Thrombosis

12.509

12.400

12.319

12.358

12.360

Lung Transplant Status/Complications

21.519

21.274

21.082

21.114

21.116

Cystic Fibrosis

21.519

21.274

21.082

21.114

21.116

Chronic Obstructive Pulmonary Disease, Including Bronchiectasis

0.364

0.303

0.220

0.128

0.123

Asthma

0.364

0.303

0.220

0.128

0.123

Fibrosis of Lung and Other Lung Disorders

3.740

3.635

3.537

3.471

3.469

Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections

8.744

8.694

8.652

8.688

8.690

Kidney Transplant Status

13.420

13.163

12.976

12.979

12.978

End Stage Renal Disease

33.178

33.107

33.050

33.146

33.150

Chronic Kidney Disease, Stage 5

1.895

1.768

1.660

1.557

1.555

Chronic Kidney Disease, Severe (Stage 4)

1.895

1.768

1.660

1.557

1.555

Ectopic and Molar Pregnancy, Except with Renal Failure, Shock, or Embolism

1.049

0.899

0.765

0.553

0.542

Miscarriage with Complications

1.049

0.899

0.765

0.553

0.542

Miscarriage with No or Minor Complications

1.049

0.899

0.765

0.553

0.542

Completed Pregnancy With Major Complications

2.784

2.404

2.197

1.961

1.958

Completed Pregnancy With Complications

2.784

2.404

2.197

1.961

1.958

Completed Pregnancy with No or Minor Complications

2.784

2.404

2.197

1.961

1.958

Chronic Ulcer of Skin, Except Pressure

2.025

1.939

1.854

1.785

1.781

Hip Fractures and Pathological Vertebral or Humerus Fractures

5.331

5.100

4.905

4.806

4.802

Pathological Fractures, Except of Vertebrae, Hip, or Humerus

1.417

1.296

1.168

1.028

1.019

Stem Cell, Including Bone Marrow, Transplant Status/Complications

21.519

21.274

21.082

21.114

21.116

Artificial Openings for Feeding or Elimination

11.532

11.432

11.368

11.481

11.487

Amputation Status, Lower Limb/Amputation Complications

7.235

7.007

6.844

6.738

6.734

Table 5—Proposed Infant Risk Adjustment Model Factors for 2019 Benefit Year

Group

Platinum

Gold

Silver

Bronze

Catastrophic

Extremely Immature * Severity Level 5 (Highest)

268.917

267.690

266.660

266.665

266.666

Extremely Immature * Severity Level 4

164.057

162.851

161.848

161.805

161.804

Extremely Immature * Severity Level 3

34.929

34.068

33.319

33.095

33.090

Extremely Immature * Severity Level 2

34.929

34.068

33.319

33.095

33.090

Extremely Immature * Severity Level 1 (Lowest)

34.929

34.068

33.319

33.095

33.090

Immature * Severity Level 5 (Highest)

163.691

162.498

161.499

161.501

161.503

Immature * Severity Level 4

72.779

71.594

70.608

70.581

70.582

Immature * Severity Level 3

33.416

32.404

31.556

31.393

31.387

Immature * Severity Level 2

24.515

23.529

22.711

22.500

22.490

Immature * Severity Level 1 (Lowest)

24.515

23.529

22.711

22.500

22.490

Premature/Multiples * Severity Level 5 (Highest)

118.666

117.511

116.565

116.511

116.512

Premature/Multiples * Severity Level 4

26.998

25.884

24.983

24.819

24.815

Premature/Multiples * Severity Level 3

13.865

13.000

12.294

11.914

11.898

Premature/Multiples * Severity Level 2

7.702

7.015

6.435

5.861

5.832

Premature/Multiples * Severity Level 1 (Lowest)

5.180

4.663

4.139

3.538

3.508

Term * Severity Level 5 (Highest)

94.243

93.167

92.263

92.087

92.080

Term * Severity Level 4

14.247

13.396

12.715

12.261

12.242

Term * Severity Level 3

5.672

5.124

4.602

3.974

3.940

Term * Severity Level 2

3.403

2.987

2.524

1.843

1.808

Term * Severity Level 1 (Lowest)

1.530

1.305

0.896

0.365

0.345

Age1 * Severity Level 5 (Highest)

49.506

48.891

48.377

48.287

48.283

Age1 * Severity Level 4

8.229

7.779

7.399

7.151

7.141

Age1 * Severity Level 3

2.945

2.674

2.388

2.123

2.112

Age1 * Severity Level 2

1.913

1.697

1.446

1.161

1.147

Age1 * Severity Level 1 (Lowest)

0.513

0.420

0.276

0.179

0.175

Age 0 Male

0.575

0.533

0.515

0.461

0.456

Age 1 Male

0.115

0.100

0.088

0.060

0.059

Table 6—HHS HCCs Included in Infant Model Maturity Categories

Maturity category

HCC/description

Extremely Immature

Extremely Immature Newborns, Birthweight <500 Grams.

Extremely Immature

Extremely Immature Newborns, Including Birthweight 500-749 Grams.

Extremely Immature

Extremely Immature Newborns, Including Birthweight 750-999 Grams.

Immature

Premature Newborns, Including Birthweight 1,000-1,499 Grams.

Immature

Premature Newborns, Including Birthweight 1,500-1,999 Grams.

Premature/Multiples

Premature Newborns, Including Birthweight 2,000-2,499 Grams.

Premature/Multiples

Other Premature, Low Birthweight, Malnourished, or Multiple Birth Newborns.

Term

Term or Post-Term Singleton Newborn, Normal or High Birthweight.

Age 1

All age 1 infants.

Table 7—HHS HCCs Included in Infant Model Severity Categories

Severity category

HCC

Severity Level 5 (Highest)

Metastatic Cancer.

Severity Level 5

Pancreas Transplant Status/Complications.

Severity Level 5

Liver Transplant Status/Complications.

Severity Level 5

End-Stage Liver Disease.

Severity Level 5

Intestine Transplant Status/Complications.

Severity Level 5

Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis.

Severity Level 5

Respirator Dependence/Tracheostomy Status.

Severity Level 5

Heart Assistive Device/Artificial Heart.

Severity Level 5

Heart Transplant.

Severity Level 5

Congestive Heart Failure.

Severity Level 5

Hypoplastic Left Heart Syndrome and Other Severe Congenital Heart Disorders.

Severity Level 5

Lung Transplant Status/Complications.

Severity Level 5

Kidney Transplant Status.

Severity Level 5

End Stage Renal Disease.

Severity Level 5

Stem Cell, Including Bone Marrow, Transplant Status/Complications.

Severity Level 4

Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock.

Severity Level 4

Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia.

Severity Level 4

Mucopolysaccharidosis.

Severity Level 4

Major Congenital Anomalies of Diaphragm, Abdominal Wall, and Esophagus, Age <2.

Severity Level 4

Myelodysplastic Syndromes and Myelofibrosis.

Severity Level 4

Aplastic Anemia.

Severity Level 4

Combined and Other Severe Immunodeficiencies.

Severity Level 4

Traumatic Complete Lesion Cervical Spinal Cord.

Severity Level 4

Quadriplegia.

Severity Level 4

Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease.

Severity Level 4

Quadriplegic Cerebral Palsy.

Severity Level 4

Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy.

Severity Level 4

Non-Traumatic Coma, Brain Compression/Anoxic Damage.

Severity Level 4

Respiratory Arrest.

Severity Level 4

Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes.

Severity Level 4

Acute Myocardial Infarction.

Severity Level 4

Heart Infection/Inflammation, Except Rheumatic.

Severity Level 4

Major Congenital Heart/Circulatory Disorders.

Severity Level 4

Intracranial Hemorrhage.

Severity Level 4

Ischemic or Unspecified Stroke.

Severity Level 4

Vascular Disease with Complications.

Severity Level 4

Pulmonary Embolism and Deep Vein Thrombosis.

Severity Level 4

Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections.

Severity Level 4

Chronic Kidney Disease, Stage 5.

Severity Level 4

Hip Fractures and Pathological Vertebral or Humerus Fractures.

Severity Level 4

Artificial Openings for Feeding or Elimination.

Severity Level 3

HIV/AIDS.

Severity Level 3

Central Nervous System Infections, Except Viral Meningitis.

Severity Level 3

Opportunistic Infections.

Severity Level 3

Non-Hodgkin's Lymphomas and Other Cancers and Tumors.

Severity Level 3

Colorectal, Breast (Age <50), Kidney and Other Cancers.

Severity Level 3

Breast (Age 50+), Prostate Cancer, Benign/Uncertain Brain Tumors, and Other Cancers and Tumors.

Severity Level 3

Lipidoses and Glycogenosis.

Severity Level 3

Adrenal, Pituitary, and Other Significant Endocrine Disorders.

Severity Level 3

Acute Liver Failure/Disease, Including Neonatal Hepatitis.

Severity Level 3

Intestinal Obstruction.

Severity Level 3

Necrotizing Fasciitis.

Severity Level 3

Bone/Joint/Muscle Infections/Necrosis.

Severity Level 3

Osteogenesis Imperfecta and Other Osteodystrophies.

Severity Level 3

Cleft Lip/Cleft Palate.

Severity Level 3

Hemophilia.

Severity Level 3

Disorders of the Immune Mechanism.

Severity Level 3

Coagulation Defects and Other Specified Hematological Disorders.

Severity Level 3

Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes.

Severity Level 3

Traumatic Complete Lesion Dorsal Spinal Cord.

Severity Level 3

Paraplegia.

Severity Level 3

Spinal Cord Disorders/Injuries.

Severity Level 3

Cerebral Palsy, Except Quadriplegic.

Severity Level 3

Muscular Dystrophy.

Severity Level 3

Parkinson's, Huntington's, and Spinocerebellar Disease, and Other Neurodegenerative Disorders.

Severity Level 3

Hydrocephalus.

Severity Level 3

Unstable Angina and Other Acute Ischemic Heart Disease.

Severity Level 3

Atrial and Ventricular Septal Defects, Patent Ductus Arteriosus, and Other Congenital Heart/Circulatory Disorders.

Severity Level 3

Specified Heart Arrhythmias.

Severity Level 3

Cerebral Aneurysm and Arteriovenous Malformation.

Severity Level 3

Hemiplegia/Hemiparesis.

Severity Level 3

Cystic Fibrosis.

Severity Level 3

Fibrosis of Lung and Other Lung Disorders.

Severity Level 3

Pathological Fractures, Except of Vertebrae, Hip, or Humerus.

Severity Level 2

Viral or Unspecified Meningitis.

Severity Level 2

Thyroid, Melanoma, Neurofibromatosis, and Other Cancers and Tumors.

Severity Level 2

Diabetes with Acute Complications.

Severity Level 2

Diabetes with Chronic Complications.

Severity Level 2

Diabetes without Complication.

Severity Level 2

Protein-Calorie Malnutrition.

Severity Level 2

Congenital Metabolic Disorders, Not Elsewhere Classified.

Severity Level 2

Amyloidosis, Porphyria, and Other Metabolic Disorders.

Severity Level 2

Cirrhosis of Liver.

Severity Level 2

Chronic Pancreatitis.

Severity Level 2

Inflammatory Bowel Disease.

Severity Level 2

Rheumatoid Arthritis and Specified Autoimmune Disorders.

Severity Level 2

Systemic Lupus Erythematosus and Other Autoimmune Disorders.

Severity Level 2

Congenital/Developmental Skeletal and Connective Tissue Disorders.

Severity Level 2

Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn.

Severity Level 2

Sickle Cell Anemia (Hb-SS).

Severity Level 2

Drug Psychosis.

Severity Level 2

Drug Dependence.

Severity Level 2

Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes.

Severity Level 2

Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies.

Severity Level 2

Seizure Disorders and Convulsions.

Severity Level 2

Monoplegia, Other Paralytic Syndromes.

Severity Level 2

Atherosclerosis of the Extremities with Ulceration or Gangrene.

Severity Level 2

Chronic Obstructive Pulmonary Disease, Including Bronchiectasis.

Severity Level 2

Chronic Ulcer of Skin, Except Pressure.

Severity Level 1 (Lowest)

Chronic Hepatitis.

Severity Level 1

Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption.

Severity Level 1

Thalassemia Major.

Severity Level 1

Autistic Disorder.

Severity Level 1

Pervasive Developmental Disorders, Except Autistic Disorder.

Severity Level 1

Multiple Sclerosis.

Severity Level 1

Asthma.

Severity Level 1

Chronic Kidney Disease, Severe (Stage 4).

Severity Level 1

Amputation Status, Lower Limb/Amputation Complications.

Severity Level 1

No Severity HCCs.

d. Cost-Sharing Reductions Adjustments (§ 153.320)

We propose to continue including an adjustment for the receipt of cost-sharing reductions in the model to account for increased plan liability due to increased utilization of healthcare services by enrollees receiving cost-sharing reductions (induced demand) in all States where HHS operates risk adjustment. The proposed cost-sharing reductions adjustment factors for the 2019 benefit year risk adjustment are unchanged from those finalized in the 2018 Payment Notice, and are set forth in Table 8. These adjustments would be effective for 2016, 2017, 2018, and 2019 risk adjustment, and would be multiplied against the sum of the demographic, diagnosis, and interaction factors, and enrollment and prescription drug utilization factors (for the adult model). We anticipate adjusting these factors in the annual HHS notice of benefit and payment parameters for the 2020 benefit year as enrollee-level data from the individual market will be available in time for proposal in that rulemaking.

We seek comment on this approach.

Table 8—Cost-Sharing Reductions Adjustment

Household income

Plan AV

Induced

utilization

factor

Silver Plan Variant Recipients

100-150% of FPL

Plan Variation 94%

1.12

150-200% of FPL

Plan Variation 87%

1.12

200-250% of FPL

Plan Variation 73%

1.00

>250% of FPL

Standard Plan 70%

1.00

Zero Cost-Sharing Recipients

<300% of FPL

Platinum (90%)

1.00

<300% of FPL

Gold (80%)

1.07

<300% of FPL

Silver (70%)

1.12

<300% of FPL

Bronze (60%)

1.15

Limited Cost-Sharing Recipients

>300% of FPL

Platinum (90%)

1.00

>300% of FPL

Gold (80%)

1.07

>300% of FPL

Silver (70%)

1.12

>300% of FPL

Bronze (60%)

1.15

e. Model Performance Statistics (§ 153.320)

To evaluate the model's performance, we examined its R-squared statistic and predictive ratios. The R-squared statistic, which calculates the percentage of individual variation explained by a model, measures the predictive accuracy of the model overall. The predictive ratios measure the predictive accuracy of a model for different validation groups or subpopulations. The predictive ratio for each of the HHS risk adjustment models is the ratio of the weighted mean predicted plan liability for the model sample population to the weighted mean actual plan liability for the model sample population. The predictive ratio represents how well the model does on average at predicting plan liability for that subpopulation. A subpopulation that is predicted perfectly would have a predictive ratio of 1.0. For each of the HHS risk adjustment models, the R-squared statistic and the predictive ratios are in the range of published estimates for concurrent risk adjustment models.

12

Because we are proposing to blend the coefficients from separately solved models based on MarketScan® 2014 and 2015 data in the proposed rule, we are publishing the R-squared statistic for each model and benefit year separately to verify their statistical validity. The R-squared statistic for each model is shown in Table 9.

12

Winkleman, Ross and Syed Mehmud. “A Comparative Analysis of Claims-Based Tools for Health Risk Assessment.” Society of Actuaries. April 2007.

Table 9—R-Squared Statistic for Proposed HHS Risk Adjustment Models

Risk adjustment model

R-squared statistic

2014

2015

Platinum Adult

0.4221

0.4212

Platinum Child

0.293

0.3314

Platinum Infant

0.3284

0.3329

Gold Adult

0.4179

0.4164

Gold Child

0.2883

0.3269

Gold Infant

0.3264

0.3309

Silver Adult

0.4143

0.4123

Silver Child

0.2841

0.3227

Silver Infant

0.325

0.3295

Bronze Adult

0.4117

0.4095

Bronze Child

0.2805

0.3188

Bronze Infant

0.3247

0.3292

Catastrophic Adult

0.4115

0.4094

Catastrophic Child

0.2803

0.3186

Catastrophic Infant

0.3247

0.3292

f. Overview of the Payment Transfer Formula (§ 153.320)

i. Accounting for High-Cost Risk Pool in the Transfer Formula

We previously defined the calculation of plan average actuarial risk and the calculation of payments and charges in the Premium Stabilization Rule. In the 2014 Payment Notice, we combined those concepts into a risk adjustment payment transfer formula. Risk adjustment transfers (total payments and charges including outlier pooling) will be calculated after issuers have completed risk adjustment data reporting. The payment transfer formula includes a set of cost adjustment terms that require transfers to be calculated at the geographic rating area level for each plan (that is, HHS will calculate two separate transfer amounts for a plan that operates in two rating areas). The payment transfer formula is designed to provide a per member per month (PMPM) transfer amount. The PMPM transfer amount derived from the payment transfer formula would be multiplied by each plan's total member months for the benefit year to determine the total payment due or charge owed by the issuer for that plan in a rating area. The total payment or charge is thus calculated to balance the State market risk pool in question. In addition to the total charge collected and payment made for the State market risk pool, in the 2018 Payment Notice, we added to the risk adjustment methodology additional transfers that would reflect the payments and charges assessed with respect to the costs of high-risk enrollees. To account for costs associated with high-risk enrollees, we added transfer terms (a payment term and a charge term) that would be calculated separately from the State transfer formula. Thus, the non-high cost pooling portion of plan risk would continue to be calculated as the member month weighted average of individual enrollee risk scores. Beginning for the 2018 benefit year, we added one term that reflects 60 percent of costs above $1 million, the threshold for our payments for these high-risk enrollees, and another term that reflects a percentage of PMPM premium adjustment to the transfer formula for the high-cost enrollee pool to maintain the balance of payment and charges within the risk adjustment program. For the 2019 benefit year we propose to maintain this adjustment to the risk adjustment transfers with the threshold of $1 million and a coinsurance rate of 60 percent, as finalized for the 2018 benefit year.

ii. Administrative Cost Reduction to Statewide Average Premium

Additionally, we propose to continue the policy finalized in the 2018 Payment Notice to reduce the Statewide average premium in the risk adjustment transfer formula by 14 percent to account for the proportion of administrative costs that do not vary with claims for the 2019 benefit year and future benefit years until changed in rulemaking. As a note, we define unadjusted Statewide average premiums as the sum of average premium per member month of plan (

P

i

) multiplied by plan

i

's share of Statewide enrollment in the market in the risk pool (

S

i

). For the 2019 benefit year, the Statewide average premium, which will be used for the transfer formula finalized beginning for the 2018 benefit year, will be calculated based on the formula below:

EP02NO17.001

Where:

s

i

= plan

i

's share of Statewide enrollment in the market in the risk pool;

P

i

= average premium per member month of plan

i

.

iii. State Flexibility

The HHS risk adjustment payment transfer formula generally transfers amounts from issuers with lower than average actuarial risk to those with higher than average actuarial risk. Such risk adjustment transfers are widely used in health insurance markets and recognized as critical in mitigating the effects of adverse selection, ensuring financial viability of plans that enroll a higher proportion of high-risk enrollees, and thus, fostering competitive health insurance markets. The HHS risk adjustment program transfers are scaled with the Statewide average premium in the applicable State market. In the 2018 Payment Notice, we noted that compared to other scaling factors, such as, plans' own premiums, our analyses found Statewide average premium proves to be a more accurate means of scaling the transfers for differences in relative actuarial risk, particularly in the context of a budget-neutral system. We also finalized in the 2018 Payment Notice an administrative cost adjustment to the statewide average premium to remove a portion of administrative costs that did not vary based on claims differences from the Statewide average premium and base the transfers on the portion of the premiums that vary with claims.

13

Nevertheless, we acknowledge that, for some States that deviate significantly from the national dataset used, a further adjustment to the Statewide average premium may more precisely account for differences between the plan premium estimate reflecting adverse selection and the plan premium estimate not reflecting selection in the respective State market risk pools.

13

81 FR 94099, 94100. (December 22, 2016). Available at

https://www.gpo.gov/fdsys/pkg/FR-2016-12-22/pdf/2016-30433.pdf

.

In the 2016 Interim Final Rule,

14

HHS recognized some State regulators' desire to reduce the magnitude of risk adjustment charge amounts for some issuers. We acknowledged that States are the primary regulators of their insurance markets, and as such, we encouraged States to examine whether any local approaches under State legal authority are warranted to help ease the transition to new health insurance markets.

14

91 FR 29146, 29152. (May 11, 2016). Available at

https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-11017.pdf

.

In the small group market, employers select the plans offered to their employees and often pay a significant portion of employees' premiums to encourage enrollment. Depending on the participation rules and market dynamics within a particular State, risk selection can be significantly less in a State's small group market compared to

its individual market. The HHS methodology calculates relative risk scores between issuers in a State market, and in the case of the small group market, the differences between risk scores for issuers within State markets are generally smaller, leading to a smaller magnitude of risk adjustment transfers in the small group market as compared to the individual market. However, certain States have opined that the HHS risk adjustment methodology, which is calibrated on a national dataset, may in some circumstances, overcompensate for risk differences in the small group market for their particular State. In such cases, the States have the statutory authority to operate their own State risk adjustment program under a Federally-certified alternate risk adjustment methodology as they deem fit. We believe that allowing certain State-by-State adjustments to the HHS risk adjustment program can account for such State-specific differences in risk without the necessity for States to undertake operation of their own risk adjustment program. Therefore, in the case of small group markets, where States can demonstrate that the actuarial risk differences due to adverse selection are mitigated by the small group market dynamics described above, to tailor the risk adjustment methodology to particularities of reduced risk selection in a State's small group market, we are proposing to permit States' primary insurance regulators to request a percentage adjustment in the calculation of the risk adjustment transfer amounts in the small group market in their State, beginning for the 2019 benefit year.

Under this proposal, beginning in the 2019 benefit year and beyond, HHS would require any State that intends to request this flexibility to submit its proposal for an adjustment to the Statewide average premium in the small group market within 30 calendar days after publication of the proposed HHS notice of benefit and payment parameters for the applicable benefit year in order to permit issuers to incorporate any such adjustment into their proposed rates. For example, for the 2019 benefit year risk adjustment transfers, which will be calculated in the 2020 calendar year, State proposals would be submitted to HHS no later than 30 days after publication of this proposed HHS notice of benefit and payment parameters for the 2019 benefit year, similar to the public comment deadline for the proposed rule. In order to promote transparency and solicit feedback from consumers and stakeholders on the proposed adjustment to the HHS risk adjustment transfer formula, HHS would publish the requested State adjustments for public comment in guidance while it begins its initial review of the State proposal. HHS would then make final determinations of approval of State requests by March 1 of the benefit year prior to the applicable benefit year, in time for issuers' initial rate setting deadline. That is, for the 2019 benefit year, HHS would make final determinations of approval by March 1, 2018. The proposed timing of the State adjustment request submission, publication of HHS guidance, the public notice and comment period and HHS request approval process will permit plans to incorporate approved adjustments in their rates for the applicable benefit year.

HHS would consider requests from State regulators to reduce the calculation of the Statewide average premium used in the HHS risk adjustment transfer formula by up to 50 percent for the applicable benefit year. As noted above, Statewide average premium is defined as unadjusted Statewide average premium reduced by 14 percent, to account for a portion of administrative costs, or as 86 percent of unadjusted Statewide average premium. Transfers in the small group market could be reduced by up to an additional 43 percent (or 50 percent of the transfer amounts, after the 14 percent reduction for a portion of administrative costs to the Statewide average premium). We believe this adjustment would proportionally reduce the magnitude of risk adjustment transfers in the small group market. We seek comment on all aspects of this proposal, including the permissible extent of the adjustment, the timing of the submission, any evidence the State should be required to provide, and what procedural requirements should be in place.

We also seek comment on whether we should establish a similar process through which States could request an adjustment to the calculation of Statewide average premiums for risk adjustment in the individual market similarly to the proposed small group market adjustment. Although adverse selection in the individual market is not mitigated by group enrollment or minimum participation requirements that require a minimum percentage of employees to enroll in coverage as is the selection in the small group market, a State may believe the HHS risk adjustment methodology, which is calibrated on a national dataset, disproportionately accounts for relative actuarial risk differences in its individual market risk pool. We seek comment on whether, if a State can demonstrate such a difference in calculated relative actuarial risk, we should reduce States' administrative burden in operating its own risk adjustment program by allowing some flexibility in the HHS risk adjustment methodology to the extent permissible under the statute. Therefore, we seek comment on whether the adjustment described above for the small group market should also apply to the individual market, what individual market features would justify such an adjustment, and what additional submissions a State should provide in order to justify such a departure for that market. For example, to accommodate a State with particular State rating practices that serve to mitigate risk selection, we might require a statistical or actuarial study demonstrating the extent to which transfer amounts calculated pursuant to the HHS risk adjustment methodology finalized for the applicable benefit year would overstate differentials in uncompensated predicted risk in the individual market.

As noted above, a State that wishes to make an adjustment for the magnitude of these transfers in the individual and small group markets may take temporary, reasonable measures under State authority to mitigate effects under their own authority.

We seek comment on these proposals.

iv. The Payment Transfer Formula

Except as proposed above, the payment transfer formula would be unchanged from what was finalized in the 2014 Payment Notice (78 FR 15430 through 15434). We believe it useful to republish the formula in its entirety, since, as noted above, we are proposing to recalibrate the HHS risk adjustment model. Transfers (payments and charges) will be calculated as the difference between the plan premium estimate reflecting risk selection and the plan premium estimate not reflecting risk selection. As finalized in the 2014 Payment Notice, the HHS risk adjustment payment transfer formula is:

EP02NO17.000

Where:

P

s

= Statewide average premium;

PLRS

i

= plan

i

's plan liability risk score;

AV

i

= plan

i

's metal level AV;

ARF

i

= allowable rating factor;

IDF

i

= plan

i'

s induced demand factor;

GCF

i

= plan

i'

s geographic cost factor;

s

i

= plan

i'

s share of State enrollment.

The denominator is summed across all plans in the risk pool in the market in the State.

The difference between the two premium estimates in the payment transfer formula determines whether a plan pays a risk adjustment charge or receives a risk adjustment payment. Note that the value of the plan average risk score by itself does not determine whether a plan would be assessed a charge or receive a payment—even if the risk score is greater than 1.0, it is possible that the plan would be assessed a charge if the premium compensation that the plan may receive through its rating (as measured through the allowable rating factor) exceeds the plan's predicted liability associated with risk selection. Risk adjustment transfers are calculated at the risk pool level, and catastrophic plans are treated as a separate risk pool for purposes of risk adjustment.

This existing formula would be multiplied by the number of member months to determine the total payment or charge assessed with respect to plan average risk scores for a plan's geographic rating area for the market within the State, and this payment or charge will be added to the transfer terms described above to account for the costs of high-risk enrollees.

g. Risk Adjustment Data Validation Requirements When HHS Operates Risk Adjustment (§ 153.630)

HHS will conduct risk adjustment data validation under § 153.630 in any State where HHS is operating risk adjustment on a State's behalf.

15

The purpose of risk adjustment data validation is to ensure issuers are providing accurate high-quality information to HHS, which is crucial for the proper functioning of the risk adjustment program. Risk adjustment data validation consists of an initial validation audit and a second validation audit. Under § 153.630, each issuer of a risk adjustment covered plan must engage an independent initial validation audit entity. The issuer provides demographic, enrollment, and medical record documentation for a sample of enrollees selected by HHS to its initial validation auditor for data validation. Set forth below are proposed amendments and clarifications to the risk adjustment data validation program in light of experience and feedback from issuers during the first pilot year.

15

Starting with the 2017 benefit year, no State has elected to operate a risk adjustment program. Therefore, HHS operates risk adjustment in all States.

i. Payment Adjustments for Error Rates

Under § 153.350(c), HHS may adjust risk adjustment payments and charges to all issuers of risk adjustment covered plans based on adjustments to the average actuarial risk of a risk adjustment plan due to errors discovered during risk adjustment data validation. We believe that some variation and error should be expected in the compilation of data for risk scores, because providers' documentation of enrollee health status varies across provider types and groups. Our experiences with the Medicare Advantage risk adjustment data validation program and the HHS risk adjustment data validation pilot for the 2015 benefit year reinforce this belief.

We propose evaluating material statistical deviation in error rates in applying error rates to risk scores beginning with the 2017 benefit year risk adjustment data validation. We are considering adjusting an issuer's risk score only when the issuer's error rate materially deviates from a statistically meaningful value, such as the central tendency (a mean or typical value) of errors, nationally. HHS could also evaluate error rates within each HCC, or groups of HCCs, and then only apply error rates to outlier issuers' risk scores within each HCC or group of HCCs. When an error rate materially deviates from the central tendency, we propose to apply the difference between the mean error rate or the confidence interval around the population's central tendency and the calculated error rate instead of the full error rate. If all error rates in a State risk pool do not materially deviate from the national central tendency of error rates, we propose to not apply any adjustments to issuers' risk scores for that benefit year in the respective State risk pool.

We believe the implementation of any of the alternative evaluations and subsequent adjustments we propose here would reduce issuer burden, streamline the risk adjustment data validation process, improve issuers' ability to predict risk adjustment transfers, and promote confidence and stability in the budget-neutral payment transfer methodology while ensuring the integrity and quality of data provided by issuers.

We seek comment on this proposal and alternatives to evaluating material deviation in error rates for applying error rates to risk scores beginning with the 2017 benefit year risk adjustment data validation.

ii. Payment Adjustments for Issuers That Have Exited the Market

In the 2015 Payment Notice, we established that HHS will use a prospective approach to adjust risk scores and payment transfers based on the results of risk adjustment data validation. Specifically, HHS will apply the error rate calculated through the risk adjustment data validation process for the applicable benefit year to plan risk scores in the subsequent benefit year, and then make risk adjustment payment transfers based on adjusted plan average risk scores in that subsequent benefit year. However, in some cases, an issuer of a risk adjustment covered plan may have exited a State market during or at the end of the benefit year being audited and therefore would not have risk scores or payment transfers in the subsequent benefit year to which HHS could make adjustments.

As previously noted, the purpose of data validation for risk adjustment is to promote confidence in the budget-neutral payment transfer methodology by ensuring the integrity and quality of data provided from issuers. HHS believes that the prospect of not receiving payment adjustments based on the results of risk adjustment data validation results could undermine these goals by eliminating the incentive for an exiting issuer to carefully and accurately submit risk adjustment data for its final benefit year in the market. Not only could this type of inaccuracy result in overpayments to the exiting issuer, it could also cause the other issuers in the market to be over or undercompensated for the actual risk of their enrollee populations. Therefore, we propose that HHS would use the error rate derived from the risk adjustment data validation process to adjust the payment transfer for the issuer's final benefit year in the State market, which would be concurrent with the benefit year being audited, for issuers that exit a State market during or

at the end of the benefit year being audited. Because risk adjustment transfers for a given benefit year are calculated and paid before the risk adjustment data validation process for that benefit year is completed, this approach would require HHS to make a retroactive adjustment to the issuer's payment transfer for its final benefit year and reallocate the adjusted transfer amount to the other issuers in the State market in that year.

HHS believes that the proposed retroactive adjustment to an exited issuer's payment transfer would help ensure that an issuer with inaccurate data does not benefit from this error and that other issuers in the State market are not harmed by it. However, we acknowledge that this approach could reduce issuers' confidence in the finality of risk adjustment transfers for any given benefit year because of the potential for retroactive adjustments for an issuer that has exited the market. In addition, the calculation of payment transfers could become increasingly complex for 2018 benefit year risk adjustment transfers and beyond, because HHS could be adjusting payment transfers based on the results of data validation, even if transfers were already adjusted retroactively for an exited issuer's data validation adjustment (for example, 2018 benefit year risk adjustment transfers would be adjusted for 2017 benefit year risk adjustment data validation, and would also be adjusted for 2018 risk adjustment benefit year data validation if an issuer exits the market at the end of the 2018 benefit year). However, we believe the payment adjustment proposal for error rates that is discussed above could result in some exiting issuers not being adjusted at all, alleviating some of the complexity associated with retroactively adjusting transfers. We seek comment on this proposal to make retroactive adjustments to payment transfers for issuers that have exited the market based on the results of risk adjustment data validation for the most recent benefit year in which they participated in risk adjustment.

iii. 500 Billable Member Months

Numerous small issuers have expressed concern regarding the regulatory burden and cost associated with complying with the risk adjustment data validation program. HHS has previously considered these concerns and provided relief where possible. For example, in the 2017 Payment Notice, we included a lower, separate default risk adjustment charge for small issuers with 500 billable member months or fewer beginning with the 2016 benefit year in light of the high operational burden associated with compliance for these issuers.

We propose that, beginning with 2017 benefit year risk adjustment data validation, issuers with 500 billable member months or fewer that elect to establish and submit data to an EDGE server would not be subject to the requirement to hire an initial validation auditor or submit initial validation audit results. Issuers at or below the 500 billable member months threshold would have their risk score adjusted by a default error rate equal to the lower of either the national average negative error rate, or the average negative error rate within a State, as set forth in the 2018 Payment Notice. We believe exempting issuers with 500 billable member months or fewer from the requirement to hire an initial validation auditor is appropriate because issuers of this size would have a disproportionately high operational burden for compliance with risk adjustment data validation. We note that, beginning with 2018 benefit year risk adjustment data validation, these issuers would not be subject to random sampling under the materiality threshold discussed below, and would continue to not be subject to the requirement to hire an initial validation auditor or submit initial validation audit results, but would have their risk scores adjusted by a default error rate annually. We note that if the proposal discussed above to implement a central tendency approach to payment adjustments is finalized, then it is possible no adjustment would occur for issuers below this threshold. We seek comment on the proposed exemption from risk adjustment data validation, including the 500 billable member months threshold.

iv. Materiality Threshold for Risk Adjustment Data Validation

In the 2018 Payment Notice, HHS implemented a materiality threshold for risk adjustment data validation to ease the burden of annual audit requirements for smaller issuers of risk adjustment covered plans. Specifically, we stated that issuers with total annual premiums at or below $15 million (calculated based on the premiums of the benefit year being validated) will not be subject to

annual

initial validation audit requirements, beginning with the 2017 benefit year, but will still be subject to an initial validation audit approximately every 3 years. HHS based the timeline for enforcement of the materiality threshold on the expectation that we would begin making payment adjustments based on the results of 2016 benefit year risk adjustment data validation, effectively requiring all issuers of risk adjustment covered plans to participate in the first benefit year for which risk adjustment payments are adjusted. However, in light of our subsequent decision to convert the 2016 benefit year to another pilot year,

16

we propose to postpone application of the materiality threshold to the 2018 benefit year. Therefore, all issuers of risk adjustment covered plans would be required to conduct an initial validation audit for the 2017 benefit year risk adjustment data validation, other than issuers with 500 billable member months or fewer as discussed above. Beginning with the 2018 benefit year, issuers below the $15 million premium threshold would not be required to conduct an initial validation audit every year. Under this proposal, HHS would still conduct random and targeted sampling under which issuers below the materiality threshold would be subject to an initial validation audit approximately every 3 years, beginning with 2018 benefit year risk adjustment data validation. In addition, issuers below the $15 million threshold that are not selected for the random and targeted sampling would have their risk adjustment transfers adjusted by a default error rate equal to the lower of the average negative error rate nationally, or the average negative error rate within a State. We note that if the proposal to implement a central tendency approach to payment adjustments discussed above is finalized, then it is possible no adjustment would occur for issuers below this threshold. We seek comment on this proposal.

16

“HHS-Operated Risk Adjustment Data Validation (HHS-RADV)—2016 Benefit Year Implementation and Enforcement.” May 3, 2017. Available at

https://www.regtap.info/uploads/library/HRADV_PilotGuidance_5CR_050317.pdf.

v. Data Validation Sampling Methodology

Section 153.350(a) requires that a statistically valid sample of enrollees from each issuer of risk adjustment covered plans be validated. In the 2015 Payment Notice, HHS finalized its methodology for selecting the sample of enrollees for the initial validation audit for each issuer of a risk adjustment covered plan. We established a sample size per issuer for each State in which the issuer offers risk adjustment covered plans and clarified that the sample would include 200 enrollees per issuer for each risk pool in which the issuer participates, not 200 enrollees per plan. However, HHS will not calculate a risk

score, or apply risk adjustment payment transfers except for high-cost risk pool transfers beginning with the 2018 benefit year, on behalf of a State in a market and risk pool when there is only one issuer in the market and risk pool. That issuer may participate in another market in the State where it is not the sole issuer and, as such, would still participate in risk adjustment and risk adjustment data validation for the applicable benefit year. In this circumstance, data from the risk pools in which the issuer was the sole issuer would not be part of a State market risk pool payment transfer, and would not be subject to the same quality controls as data used to calculate risk scores and payment transfers; consequently, the data could not be validated with the same confidence that data used for payment can be validated. Therefore, HHS would not require the issuer to validate data for its plans in a risk pool that was not risk adjusted against another issuer in the State risk pool in the applicable benefit year. We propose to change the sampling methodology so that, beginning with the 2017 benefit year data validation, the initial data validation audit sample will only include enrollees from State risk pools in which there was more than one issuer and where HHS conducted risk adjustment on behalf of the State for the benefit year being validated.

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We seek comment on this proposal.

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For the 2018 and future benefit years, HHS would not require the sole issuer in the State market to include high-cost risk pool enrollees in its sample for data validation, as these payments will be subject to a separate audit process.

vi. Mental and Behavioral Health Records

Under § 153.630(b)(6), the issuer of a risk adjustment covered plan must provide the initial validation auditor and second validation auditor with all relevant source enrollment documentation, all claims and encounter data, and medical record documentation from providers of services to each enrollee in the applicable sample without unreasonable delay and in a manner that reasonably assures confidentiality and security in transmission. Issuers have advised HHS that certain States' medical privacy laws may limit providers' ability to furnish mental and behavioral health records for risk adjustment data validation purposes. We believe that section 1343 of the PPACA and associated regulations require issuers of risk adjustment covered plans to furnish any records needed for purposes of the risk adjustment program, including mental and behavioral health records. We believe that the HIPAA Privacy Rule at 45 CFR 164.512(a) generally permits disclosures of protected health information that are required by law within the meaning of 45 CFR 164.103. Nevertheless, we recognize that some State and Federal privacy laws impose requirements for mental and behavioral health information that are different from, and potentially more restrictive than, the HIPAA regulations. However, without the necessary mental and behavioral health information, the diagnosis code for an applicable enrollee cannot be validated and, therefore, it would be rejected during risk adjustment data validation.

To address these potential issues, we propose to amend § 153.630(b)(6) to provide that, if a provider is prohibited from furnishing a full mental or behavioral health record by State or Federal privacy laws, the provider instead may furnish a mental or behavioral health assessment that providers routinely prepare, for validation of a mental or behavioral health diagnosis. Although HHS needs the full content of the mental or behavioral health record to ensure full validation of the accuracy of diagnosis codes, we believe that we can still perform some risk adjustment data validation based on the information contained in mental or behavioral health assessments in those instances in which State or Federal law prohibits submission of the full record. For risk adjustment data validation purposes, we would expect a mental or behavioral health assessment to be signed by a qualified provider who is licensed by the State to diagnose mental illness and, to the extent permissible under governing privacy and confidentiality laws, to contain: (i) The enrollee's name; (ii) gender; (iii) date of birth; (iv) current status of all mental or behavioral health diagnoses; and (v) dates of service. We note that “psychotherapy notes,” a subset of mental and behavioral health information that receives special protections under the HIPAA Privacy Rule, are not required for the purposes of risk adjustment data validation.

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We also note that some State and Federal privacy laws require that providers obtain patient consent before disclosing mental or behavioral health records, and that these consent requirements may apply to mental or behavioral health assessments. We clarify that we do not view a State or Federal law requiring patient consent as inconsistent with the risk adjustment data validation requirements to furnish a mental or behavioral health record or assessment. Additionally, we note that certain substance use disorder patient records are subject to the Federal confidentiality law

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