Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2026; and Basic Health Program

Federal RegisterJan 15, 2025

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Parts 153, 155, 156, and 158

[CMS-9888-F]

RIN 0938-AV41

Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2026; and Basic Health Program

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule includes payment parameters and provisions related to the HHS-operated risk adjustment and risk adjustment data validation (HHS-RADV) programs, as well as 2026 benefit year user fee rates for issuers that participate in the HHS-operated risk adjustment program and the 2026 benefit year user fee rates for issuers offering qualified health plans (QHPs) through Federally-facilitated Exchanges (FFEs) and State-based Exchanges on the Federal platform (SBE-FPs). This final rule also includes requirements related to modifications to the calculation of the Basic Health Program (BHP) payment; and changes to the Initial Validation Audit (IVA) sampling approach and Second Validation Audit (SVA) pairwise means test for HHS-RADV. It also addresses HHS' authority to engage in compliance reviews of and take enforcement action against lead agents of insurance agencies for violations of HHS' Exchange standards and requirements; HHS' system suspension authority to address noncompliance by agents and brokers; an optional fixed-dollar premium payment threshold; permissible plan-level adjustment to the index rate to account for cost-sharing reductions (CSRs); reconsideration standards for certification denials; changes to the approach for conducting Essential Community Provider (ECP) certification reviews; a policy to publicly share aggregated, summary-level Quality Improvement Strategy (QIS) information on an annual basis; and revisions to the medical loss ratio (MLR) reporting and rebate requirements for qualifying issuers that meet certain standards.

DATES:

These regulations are effective on January 15, 2025.

FOR FURTHER INFORMATION CONTACT:

Jeff Wu, (301) 492-4305, Rogelyn McLean, (301) 492-4229, Grace Bristol, (410) 786-8437, for general information.

Ayesha Anwar, (301) 492-4000 or Joshua Paul, (301) 492-4347 for matters related to HHS-operated risk adjustment.

Leanne Scott, (410) 786-1045 or Ayesha Anwar, (301) 492-4000 for matters related to HHS-operated risk adjustment data validation.

Preeti Juturu, (301) 450-3234 or Leanne Scott, (410) 786-1045, for matters related to user fees.

Lisa Cuozzo (410) 786-1746, for matters related to the single risk pool.

Brian Gubin, (410) 786-1659, for matters related to agent, broker, and web-broker guidelines.

Zarin Ahmed, (301) 492-4400, for matters related to enrollment of qualified individuals into QHPs and termination of Exchange enrollment or coverage for qualified individuals.

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

Preeti Hans, (301) 492-5144, for matters related to Quality Improvement Strategy.

Ken Buerger, (410) 786-1190, for matters related to certification standards for QHPs.

Nikolas Berkobien, (667) 290-9903, for matters related to standardized plan options, non-standardized plan option limits and exceptions, and financial requirements for issuers of QHPs on the FFEs.

Adelaide Balenger, (667) 414-0691, for matters related to the Actuarial Value Calculator.

Mary Evans, (470) 890-4113, for matters related to the Failure to File and Reconcile process.

Chris Truffer, (410) 786-1264, for matters related to the Basic Health Program (BHP) provision.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary

II. Background

A. Legislative and Regulatory Overview

B. Summary of Major Provisions

III. Summary of the Provisions of the Proposed Regulations and Analysis of and Responses to Public Comments

A. 42 CFR Part 600—BHP Methodology Regarding the Value of the Premium Adjustment Factor (PAF)

B. 45 CFR Part 153—Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment

C. 45 CFR Part 155—Exchange Establishment Standards and Other Related Standards Under the Affordable Care Act

D. 45 CFR Part 156—Health Insurance Issuer Standards Under the Affordable Care Act, Including Standards Related to Exchanges

E. 45 CFR Part 158—Issuer Use of Premium Revenue: Reporting and Rebate Requirements

F. Severability

IV. Waiver of Delay in Effective Date

V. Collection of Information Requirements

A. Wage Estimates

B. ICRs Regarding the Initial Validation Audit (IVA) Sample—Enrollees Without HCCs, Removal of the FPC, and Neyman Allocation (§ 153.630(b))

C. ICRs Regarding Engaging in Compliance Reviews and Taking Enforcement Actions Against Lead Agents for Insurance Agencies (§ 155.220)

D. ICRs Regarding Agent and Broker System Suspension Authority (§ 155.220(k))

E. ICRs Regarding Updating the Model Consent Form (§ 155.220)

F. ICRs Regarding Notification of 2-Year Failure To File and Reconcile Population (§ 155.305)

G. ICRs Regarding General Program Integrity and Oversight Requirements (§ 155.1200)

H. ICRs Regarding Essential Community Provider Certification Reviews (§ 156.235)

I. ICRs Regarding Quality Improvement Strategy Information (§ 156.1130)

J. ICRs Regarding Medical Loss Ratio (§§ 158.103, 158.140, 158.240)

K. Summary of Annual Burden Estimates for Finalized Requirements

L. Submission of PRA-Related 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 (RFA)

F. Unfunded Mandates Reform Act (UMRA)

G. Federalism

H. Congressional Review Act

I. Executive Summary

We are finalizing changes to the provisions and parameters implemented through prior rulemaking to implement the ACA.

These requirements are published under the authority granted to the Secretary by the ACA and the Public Health Service (PHS) Act.

In this final rule, we are finalizing changes related to some of the ACA provisions and parameters we previously

implemented and are finalizing new provisions. Our goal with these requirements is to provide quality, affordable coverage to consumers while minimizing administrative burden and ensuring program integrity. The changes in this final rule are intended to help advance health equity, mitigate health disparities, and alleviate discrimination.

The Patient Protection and Affordable Care Act (Pub. L. 111-148, 124 Stat. 119) was enacted on March 23, 2010. The Healthcare and Education Reconciliation Act of 2010 (Pub. L. 111-152, 124 Stat. 1049), which amended and revised several provisions of the Patient Protection and Affordable Care Act, was enacted on March 30, 2010. In this rulemaking, the two statutes are referred to collectively as the “Patient Protection and Affordable Care Act,” “Affordable Care Act,” or “ACA.”

See sections 1301, 1302, 1311, 1312, 1313, 1321, 1331, and 1343 of the ACA and sections 2718 and 2792 of the PHS Act.

II. Background

A. Legislative and Regulatory Overview

Title I of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) added a new title XXVII to the PHS Act to establish various reforms to the group and individual health insurance markets. These provisions of the PHS Act were later augmented by other laws, including the ACA. Subtitles A and C of title I of the ACA reorganized, amended, and added to the provisions of part A of title XXVII of the PHS Act relating to group health plans and health insurance issuers in the group and individual markets. The term “group health plan” includes both insured and self-insured group health plans.

Below, we summarize sections of the PHS Act and ACA that are relevant to this final rule.

Section 2718 of the PHS Act, as added by the ACA, generally requires health insurance issuers offering group or individual health insurance coverage to submit an annual medical loss ratio (MLR) report to HHS and provide rebates to enrollees if the issuers do not achieve specified MLR thresholds.

Section 1301(a)(1)(B) of the ACA directs all issuers of qualified health plans (QHPs) to cover the essential health benefits (EHB) package described in section 1302(a) of the ACA, including coverage of the services described in section 1302(b) of the ACA, adherence to the cost-sharing limits described in section 1302(c) of the ACA, and meeting the Actuarial Value (AV) levels established in section 1302(d) of the ACA. Section 2707(a) of the PHS Act, which is effective for plan or policy years beginning on or after January 1, 2014, extends the requirement to cover 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 section 1302(c)(1) of the ACA.

Section 1302 of the ACA provides for the establishment of an EHB package that includes coverage of EHBs (as defined by the Secretary of HHS), cost-sharing limits, and AV 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.

Sections 1302(b)(4)(A) through (D) of the ACA establish that the Secretary must define EHB in a manner that: (1) reflects appropriate balance among the 10 categories; (2) is not designed in such a way as to discriminate based on age, disability, or expected length of life; (3) takes into account the health care needs of diverse segments of the population; and (4) does not allow denials of EHBs based on age, life expectancy, disability, degree of medical dependency, or quality of life.

Section 1302(d) of the ACA describes the various levels of coverage based on AV. Consistent with section 1302(d)(2)(A) of the ACA, AV is calculated based on the provision of EHB to a standard population. Section 1302(d)(3) of the ACA directs the Secretary of HHS to develop guidelines that allow for de minimis variation in AV calculations.

Section 1311(c) of the ACA provides the Secretary the authority to issue regulations to establish criteria for the certification of QHPs. Section 1311(c)(1)(B) of the ACA requires, among the criteria for certification that the Secretary must establish by regulation, that QHPs ensure a sufficient choice of providers. Section 1311(d)(4)(A) of the ACA requires the Exchange to implement procedures for the certification, recertification, and decertification of health plans as QHPs, consistent with guidelines developed by the Secretary under section 1311(c) of the ACA. Section 1311(e)(1) of the ACA grants the Exchange the authority to certify a health plan as a QHP if the health plan meets the Secretary's requirements for certification issued under section 1311(c) of the ACA, and the Exchange determines that making the plan available through the Exchange is in the interests of qualified individuals and qualified employers in the State. Section 1311(c)(6)(C) of the ACA directs the Secretary of HHS to require an Exchange to provide for special enrollment periods and section 1311(c)(6)(D) of the ACA directs the Secretary of HHS to require an Exchange to provide for a monthly enrollment period for Indians, as defined by section 4 of the Indian Health Care Improvement Act.

Section 1311(d)(3)(B) of the ACA permits a State, at its option, to require QHPs to cover benefits in addition to EHB. This section also requires a State to make payments, either to the individual enrollee or to the issuer on behalf of the enrollee, to defray the cost of these additional State-required benefits.

Section 1312(c) of the ACA generally requires a health insurance issuer to consider all enrollees in all health plans (except 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 and small group market risk pools under section 1312(c)(3) of the ACA.

Section 1312(e) of the ACA provides the Secretary with the authority to establish procedures under which a State may allow agents or brokers to (1) enroll qualified individuals and qualified employers in QHPs offered through Exchanges and (2) assist individuals in applying for advance payments of the premium tax credit (APTC) and CSRs for QHPs sold through an Exchange.

Section 1312(f)(1)(B) of the ACA provides that an individual shall not be treated as a qualified individual for enrollment in a QHP if, at the time of enrollment, the individual is incarcerated, other than incarceration pending the disposition of charges.

Sections 1313 and 1321 of the ACA 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 1313(a)(5)(A) of the ACA provides the Secretary with the authority to implement any measure or procedure that the Secretary determines is appropriate to reduce fraud and abuse in the administration of the Exchanges. Section 1321 of the ACA provides for State flexibility in the operation and enforcement of Exchanges and related requirements.

Section 1321(a) of the ACA 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 ACA,

including such other requirements as the Secretary determines appropriate. When operating an FFE under section 1321(c)(1) of the ACA, HHS has the authority under sections 1321(c)(1) and 1311(d)(5)(A) of the ACA to collect and spend user fees. 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 public.

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

Section 1331 of the ACA provides States with an option to establish a Basic Health Program (BHP). In the States that elect to operate a BHP, the BHP makes affordable health benefits coverage available for individuals under age 65 with household incomes between 133 percent and 200 percent of the Federal poverty level (FPL) who are not otherwise eligible for Medicaid, the Children's Health Insurance Program (CHIP), or affordable employer-sponsored coverage, or for individuals whose income is equal to or below 200 percent of FPL but are lawfully present non-citizens ineligible for Medicaid. For those States that have expanded Medicaid coverage under section 1902(a)(10)(A)(i)(VIII) of the Social Security Act (the Act), the lower income threshold for BHP eligibility is effectively 138 percent of the FPL due to the application of a required 5 percent income disregard in determining the upper limits of Medicaid income eligibility (section 1902(e)(14)(I) of the Act).

Section 1343 of the ACA establishes a permanent risk adjustment program to provide payments to health insurance issuers that attract higher-than-average risk populations, such as those with chronic conditions, funded by charges collected from those issuers that attract lower-than-average risk populations, thereby reducing incentives for issuers to avoid higher-risk enrollees. Section 1343(b) of the ACA provides that the Secretary, in consultation with States, shall establish criteria and methods to be used in carrying out the risk adjustment activities under this section. Consistent with section 1321(c) of the ACA, the Secretary is responsible for operating the HHS risk adjustment program in any State that fails to do so.

In the 2014 through 2016 benefit years, HHS operated the risk adjustment program in every State and the District of Columbia, except Massachusetts. Beginning with the 2017 benefit year, HHS has operated the risk adjustment program in all 50 States and the District of Columbia.

Section 1401(a) of the ACA added section 36B to the Internal Revenue Code (the Code), which, among other things, requires that a taxpayer reconcile APTC for a year of coverage with the amount of the premium tax credit (PTC) the taxpayer is allowed for the year.

Section 1402 of the ACA provides for, among other things, reductions in cost sharing for EHB for qualified low- and moderate-income enrollees in silver level QHPs 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 1411(f) of the ACA requires the Secretary, in consultation with the Secretary of the Treasury and the Secretary of Homeland Security, and the Commissioner of Social Security, to establish procedures for hearing and making decisions governing appeals of Exchange eligibility determinations. Section 1411(f)(1)(B) of the ACA requires the Secretary to establish procedures to redetermine eligibility on a periodic basis, in appropriate circumstances, including eligibility to purchase a QHP through the Exchange and for APTC and CSRs.

Section 1411(g) of the ACA allows the use of applicant information only for the limited purpose of, and to the extent necessary for, ensuring the efficient operation of the Exchange, including by verifying eligibility to enroll through the Exchange and for APTC and CSRs, and limits the disclosure of such information.

Section 1413 of the ACA directs the Secretary to establish, subject to minimum requirements, a streamlined enrollment process for enrollment in QHPs and all insurance affordability programs.

Section 5000A of the Code, as added by section 1501(b) of the ACA, requires individuals to have minimum essential coverage (MEC) for each month, qualify for an exemption, or make an individual shared responsibility payment. Under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, the individual shared responsibility payment is reduced to $0, effective for months beginning after December 31, 2018. Notwithstanding that reduction, certain exemptions are still relevant to determine whether individuals aged 30 and above qualify to enroll in catastrophic coverage under §§ 155.305(h) and 156.155(a)(5).

Section 1902(r)(2)(A) of the Act permits States to apply less restrictive methodologies than cash assistance program methodologies in determining eligibility for certain eligibility groups.

1. Premium Stabilization Programs

The premium stabilization programs refer to the risk adjustment, risk corridors, and reinsurance programs established by the ACA.

For past rulemaking, we refer readers to the following rules:

See section 1341 of the ACA (transitional reinsurance program), section 1342 of the ACA (risk corridors program), and section 1343 of the ACA (risk adjustment program).

• In the March 23, 2012

Federal Register

(77 FR 17219) (Premium Stabilization Rule), we implemented the premium stabilization programs.

• In the March 11, 2013

Federal Register

(78 FR 15409) (2014 Payment Notice), we finalized 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.

• In the October 30, 2013

Federal Register

(78 FR 65046), we finalized the modification to the HHS risk adjustment methodology related to community rating States.

• In the November 6, 2013

Federal Register

(78 FR 66653), we issued a correcting amendment to the 2014 Payment Notice to address how an enrollee's age for the risk score calculation would be determined under the HHS risk adjustment methodology.

• In the March 11, 2014

Federal Register

(79 FR 13743) (2015 Payment Notice), we finalized the benefit and payment parameters for the 2015 benefit year to expand the provisions related to the premium stabilization programs, set forth certain oversight provisions, and establish payment parameters in those programs.

• In the May 27, 2014

Federal Register

(79 FR 30240), we announced the fiscal year 2015 sequestration rate for the HHS-operated risk adjustment program.

• In the February 27, 2015

Federal Register

(80 FR 10749) (2016 Payment Notice), we finalized the benefit and payment parameters for the 2016 benefit year to expand the provisions related to the premium stabilization programs, set forth certain oversight provisions, and establish the payment parameters in those programs.

• In the March 8, 2016

Federal Register

(81 FR 12203) (2017 Payment

Notice), we finalized the benefit and payment parameters for the 2017 benefit year to expand the provisions related to the premium stabilization programs, set forth certain oversight provisions, and establish the payment parameters in those programs.

• In the December 22, 2016

Federal Register

(81 FR 94058) (2018 Payment Notice), we finalized the benefit and payment parameters for the 2018 benefit year, added the high-cost risk pool parameters to the HHS risk adjustment methodology, incorporated prescription drug factors in the adult models, established enrollment duration factors for the adult models, and finalized policies related to the collection and use of enrollee-level External Data Gathering Environment (EDGE) data.

• In the April 17, 2018

Federal Register

(83 FR 16930) (2019 Payment Notice), we finalized the benefit and payment parameters for the 2019 benefit year, created the State flexibility framework permitting States to request a reduction in risk adjustment State transfers calculated by HHS, and adopted a new error rate methodology for HHS-RADV adjustments to transfers.

• In the May 11, 2018

Federal Register

(83 FR 21925), we issued a correction to the 2019 HHS risk adjustment coefficients in the 2019 Payment Notice.

• On July 27, 2018, consistent with 45 CFR 153.320(b)(1)(i), we updated the 2019 benefit year final HHS risk adjustment model coefficients to reflect an additional recalibration related to an update to the 2016 enrollee-level EDGE data set.

CMS. (2018).

Updated 2019 Benefit Year Final HHS Risk Adjustment Model Coefficients. https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2019-Updtd-Final-HHS-RA-Model-Coefficients.pdf

• In the July 30, 2018

Federal Register

(83 FR 36456), we adopted the 2017 benefit year HHS risk adjustment methodology as established in the final rules issued in the March 23, 2012 (77 FR 17220 through 17252) and March 8, 2016 (81 FR 12204 through 12352) editions of the

Federal Register

. The final rule set forth an additional explanation of the rationale supporting the use of Statewide average premium in the State payment transfer formula for the 2017 benefit year, including the reasons why the program is operated by HHS in a budget-neutral manner. The final rule also permitted HHS to resume 2017 benefit year HHS risk adjustment payments and charges. HHS also provided guidance as to the operation of the HHS-operated risk adjustment program for the 2017 benefit year in light of the publication of the final rule.

• In the December 10, 2018

Federal Register

(83 FR 63419), we adopted the 2018 benefit year HHS risk adjustment methodology as established in the final rules issued in the March 23, 2012 (77 FR 17219) and the December 22, 2016 (81 FR 94058) editions of the

Federal Register

. In the rule, we set forth an additional explanation of the rationale supporting the use of Statewide average premium in the State payment transfer formula for the 2018 benefit year, including the reasons why the program is operated by HHS in a budget-neutral manner.

• In the April 25, 2019

Federal Register

(84 FR 17454) (2020 Payment Notice), we finalized the benefit and payment parameters for the 2020 benefit year, as well as the policies related to making the enrollee-level EDGE data available as a limited data set for research purposes and expanding the HHS uses of the enrollee-level EDGE data, approval of the request from Alabama to reduce HHS risk adjustment transfers by 50 percent in the small group market for the 2020 benefit year, and updates to HHS-RADV program requirements.

• On May 12, 2020, consistent with § 153.320(b)(1)(i), we issued the 2021 Benefit Year Final HHS Risk Adjustment Model Coefficients on the CCIIO website.

CMS. (2020). Final 2021 Benefit Year Final HHS Risk Adjustment Model Coefficients.

https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-2021-Benefit-Year-Final-HHS-Risk-Adjustment-Model-Coefficients.pdf

• In the May 14, 2020

Federal Register

(85 FR 29164) (2021 Payment Notice), we finalized the benefit and payment parameters for the 2021 benefit year, as well as adopted updates to the HHS risk adjustment models' hierarchical condition categories (HCCs) to transition to the 10th revision of the International Classification of Diseases (ICD-10) codes, approved the request from Alabama to reduce HHS risk adjustment transfers by 50 percent in the small group market for the 2021 benefit year, and modified the outlier identification process under the HHS-RADV program.

• In the December 1, 2020

Federal Register

(85 FR 76979) (Amendments to the HHS-Operated Risk Adjustment Data Validation Under the Patient Protection and Affordable Care Act's HHS-Operated Risk Adjustment Program (2020 HHS-RADV Amendments Rule)), we adopted the creation and application of Super HCCs in the sorting step that assigns HCCs to failure rate groups, finalized a sliding scale adjustment in HHS-RADV error rate calculation, and added a constraint for negative error rate outliers with a negative error rate. We also established a transition from the prospective application of HHS-RADV adjustments to apply HHS-RADV results to risk scores from the same benefit year as that being audited.

• In the September 2, 2020

Federal Register

(85 FR 54820), we issued an interim final rule containing certain policy and regulatory revisions in response to the COVID-19 public health emergency (PHE), wherein we set forth HHS risk adjustment reporting requirements for issuers offering temporary premium credits in the 2020 benefit year.

• In the May 5, 2021

Federal Register

(86 FR 24140) (part 2 of the 2022 Payment Notice), we finalized a subset of proposals from the December 4, 2020

Federal Register

(85 FR 78572) (the 2022 Payment Notice proposed rule), including policy and regulatory revisions related to the HHS-operated risk adjustment program, finalization of the benefit and payment parameters for the 2022 benefit year, and approval of the request from Alabama to reduce HHS risk adjustment transfers by 50 percent in the individual and small group markets for the 2022 benefit year. In addition, this final rule established a revised schedule of collections for HHS-RADV and updated the provisions regulating second validation audit (SVA) and initial validation audit (IVA) entities.

• On July 19, 2021, consistent with § 153.320(b)(1)(i), we released Updated 2022 Benefit Year Final HHS Risk Adjustment Model Coefficients on the CCIIO website, announcing some minor revisions to the 2022 benefit year final HHS risk adjustment adult model coefficients.

CMS. (2021). 2022 Benefit Year Final HHS Risk Adjustment Model Coefficients.

https://www.cms.gov/files/document/updated-2022-benefit-year-final-hhs-risk-adjustment-model-coefficients-clean-version-508.pdf

• In the May 6, 2022

Federal Register

(87 FR 27208) (2023 Payment Notice), we finalized revisions related to the HHS-operated risk adjustment program, including the benefit and payment parameters for the 2023 benefit year, HHS risk adjustment model recalibration, and policies related to the collection and extraction of enrollee-level EDGE data. We also finalized the adoption of the interacted HCC count specification for the adult and child models, along with modified enrollment duration factors for the adult models, beginning with the 2023 benefit year.

We also repealed the ability for States, other than prior participants, to request a reduction in HHS risk adjustment State transfers starting with the 2024 benefit year. In addition, we approved a 25 percent reduction to 2023 benefit year HHS risk adjustment transfers in Alabama's individual market and a 10 percent reduction to 2023 benefit year HHS risk adjustment transfers in Alabama's small group market. We also finalized further refinements to the HHS-RADV error rate calculation methodology beginning with the 2021 benefit year.

CMS (2022). 2023 Benefit Year Final HHS Risk Adjustment Model Coefficients.

https://

www.cms.gov/files/document/2023-benefit-year-final-hhs-risk-adjustment-model-coefficients.pdf

• In the April 27, 2023

Federal Register

(88 FR 25740) (2024 Payment Notice), we finalized the benefit and payment parameters for the 2024 benefit year, amended the EDGE discrepancy materiality threshold and data collection requirements, and reduced the risk adjustment user fee. For the 2024 benefit year, we approved 50 percent reductions to HHS risk adjustment transfers for Alabama's individual and small group markets and repealed prior participant States' ability to request reductions of their risk adjustment transfers for the 2025 benefit year and beyond. We finalized several refinements to HHS-RADV program requirements, such as shortening the window to confirm SVA findings or file a discrepancy report, changing the HHS-RADV materiality threshold for random and targeted sampling, and no longer exempting exiting issuers from adjustments to risk scores and HHS risk adjustment transfers when they are negative error rate outliers. We also announced the discontinuance of the Lifelong Permanent Condition List (LLPC) and Non-EDGE Claims (NEC) in HHS-RADV beginning with the 2022 benefit year.

• In the April 15, 2024

Federal Register

(89 FR 26218) (2025 Payment Notice), we finalized the benefit and payment parameters for the 2025 benefit year, including the 2025 risk adjustment models and updated the adjustment factors for the receipt of CSRs for the American Indian and Alaska Native (AI/AN) subpopulation who are enrolled in zero and limited cost-sharing plans to improve prediction in the HHS risk adjustment models. In addition, we finalized that in certain cases, we may require a corrective action plan (CAP) to address an observation identified in an HHS risk adjustment program audit.

2. Program Integrity

We have finalized program integrity standards related to the Exchanges and premium stabilization programs in two rules: the “first Program Integrity Rule” issued in the August 30, 2013

Federal Register

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

Federal Register

(78 FR 65045). We also refer readers to the 2019 Patient Protection and Affordable Care Act; Exchange Program Integrity final rule (2019 Program Integrity Rule) issued in the December 27, 2019

Federal Register

(84 FR 71674).

In the April 27, 2023

Federal Register

(88 FR 25740) (2024 Payment Notice), we finalized a policy to implement improper payment pre-testing and assessment (IPPTA) requirements for State Exchanges to ensure adherence to the Payment Integrity Information Act of 2019. In addition, we finalized allowing additional time for HHS to review evidence submitted by agents and brokers to rebut allegations pertaining to Exchange Agreement suspensions or terminations. We also introduced consent and eligibility application documentation requirements for agents, brokers, and web-brokers that assist Exchange consumers in FFE and SBE-FP States.

3. Market Rules

In the February 27, 2013

Federal Register

(78 FR 13406), we issued the health insurance market rules, including provisions related to the single risk pool. We amended requirements related to index rates under the single risk pool provision in a final rule issued in the July 2, 2013

Federal Register

(78 FR 39870). In the October 30, 2013

Federal Register

(78 FR 65046), we clarified when issuers may establish and update premium rates. In the March 8, 2016

Federal Register

(81 FR 12203), we clarified single risk pool provisions related to student health insurance coverage. We finalized minor adjustments to the single risk pool regulations in the 2018 Payment Notice, issued in the December 22, 2016

Federal Register

(81 FR 94058).

4. Exchanges

We requested 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. In the March 27, 2012

Federal Register

(77 FR 18310) (Exchange Establishment Rule), we implemented the Affordable Insurance Exchanges (Exchanges), consistent with title I of the ACA, to provide competitive marketplaces for individuals and small employers to directly compare available private health insurance options based on price, quality, and other factors. This included implementation of components of the Exchanges and standards for eligibility for Exchanges, as well as network adequacy and ECP certification standards.

In the August 17, 2011

Federal Register

(76 FR 51201), we issued a proposed rule regarding eligibility determinations, including the regulatory requirement to verify incarceration status. In the March 27, 2012

Federal Register

(77 FR 18310), we finalized the regulatory requirement to verify incarceration attestation using an approved electronic data source that is current and accurate, and to resolve the inconsistency when attestations are not reasonably compatible with information in an approved data source. We also established requirements regarding accessible communications for individuals with disabilities and those with LEP.

In the 2014 Payment Notice and the Amendments to the HHS Notice of Benefit and Payment Parameters for 2014 interim final rule, issued in the March 11, 2013

Federal Register

(78 FR 15541), we set forth standards related to Exchange user fees. We established an adjustment to the FFE user fee in the Coverage of Certain Preventive Services under the Affordable Care Act final rule, issued in the July 2, 2013

Federal Register

(78 FR 39869) (Preventive Services Rule).

In the 2016 Payment Notice, we also set forth the ECP certification standard at § 156.235, with revisions in the 2017 Payment Notice in the March 8, 2016

Federal Register

(81 FR 12203) and the 2018 Payment Notice in the December 22, 2016

Federal Register

(81 FR 94058).

In the 2018 Payment Notice, issued in the December 22, 2016

Federal Register

(81 FR 94058), we set forth the standards for the request for reconsideration of denial of certification specific to the FFEs at § 155.1090.

In an interim final rule, issued 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, issued in the December 22, 2016

Federal Register

(81 FR 94058).

In the Market Stabilization final rule, issued in the April 18, 2017

Federal Register

(82 FR 18346), we amended standards relating to special enrollment periods and QHP certification. In the 2019 Payment Notice, issued in the April 17, 2018

Federal Register

(83 FR 16930), we modified parameters around certain special enrollment periods. In the April 25, 2019

Federal Register

(84 FR 17454), the 2020 Payment Notice

established a new special enrollment period.

In the May 14, 2020

Federal Register

(85 FR 29164) (2021 Payment Notice), we finalized revisions to the parameters of special enrollment periods and the quality rating information display standards for State Exchanges and amended the periodic data matching requirements.

In the January 19, 2021

Federal Register

(86 FR 6138) (part 1 of the 2022 Payment Notice), we finalized only a subset of the proposals in the 2022 Payment Notice proposed rule. In the May 5, 2021

Federal Register

(86 FR 24140), we issued part 2 of the 2022 Payment Notice. In part 3 of the 2022 Payment Notice, issued in the September 27, 2021

Federal Register

(86 FR 53412), in conjunction with the Department of the Treasury, we finalized amendments to certain policies in part 1 of the 2022 Payment Notice.

In the May 6, 2022

Federal Register

(87 FR 27208), we finalized changes to maintain the user fee rate for issuers offering plans through the FFEs and maintain the user fee rate for issuers offering plans through the SBE-FPs for the 2023 benefit year. We also finalized various policies to address certain agent, broker, and web-broker practices and conduct. We also finalized updates to the requirement that all Exchanges conduct special enrollment period verifications.

In the 2024 Payment Notice, issued in the April 27, 2023

Federal Register

(88 FR 25740), we revised Exchange Blueprint approval timelines, lowered the user fee rate for QHPs in the FFEs and SBE-FPs, and amended re-enrollment hierarchies for enrollees. We also finalized policies to update FFE and SBE-FP standardized plan options; reduce the risk of plan choice overload on the FFEs and SBE-FPs by limiting the number of non-standardized plan options that issuers may offer through Exchanges on the Federal platform to four for Plan Year (PY) 2024 and to two for PY 2025 and subsequent years; and ensure correct QHP information. In addition, we amended coverage effective date rules, lengthened the special enrollment period from 60 to 90 days for those who lose Medicaid coverage, and prohibited QHPs on FFEs and SBE-FPs from terminating coverage mid-year for dependent children who reach the applicable maximum age. We also finalized policies on verifying consumer income and permitting door-to-door assisters to solicit consumers. To ensure provider network adequacy, we finalized provider network and ECP policies for QHPs. We revised the failure to file and reconcile process to ensure enrollees would not lose APTC eligibility until they or their tax filer failed to file their Federal income taxes and reconcile APTC for 2 consecutive tax years.

In the 2025 Payment Notice, issued in the April 15, 2024

Federal Register

(89 FR 26218), we required a State seeking to operate a State Exchange to first operate an SBE-FP for at least one PY, revised Exchange Blueprint requirements for States transitioning to a State Exchange, established additional minimum standards for Exchange call center operations, required an Exchange to operate a centralized eligibility and enrollment platform on its website, and finalized various policies for web-brokers and direct enrollment entities. In addition, we required State Exchanges and State Medicaid agencies to remit payment to HHS for their use of certain income data, amended re-enrollment hierarchies for enrollees enrolled in catastrophic coverage, revised the parameters around a State Exchange adopting an alternative open enrollment period, and extended the availability of a special enrollment period for APTC-eligible qualified individuals with a projected annual household income no greater than 150 percent of the Federal Poverty Level (FPL). To ensure provider network adequacy in State Exchanges and SBE-FPs, we finalized provider network adequacy policies applicable to such Exchanges for PY 2026 and subsequent plan years. We also further lowered the user fee rate for QHPs in the FFEs and SBE-FPs. In addition, we finalized the policy to maintain FFE and SBE-FP standardized plan option metal levels from the 2024 Payment Notice and finalized an exceptions process to the limitation on non-standardized plan options in FFEs and SBE-FPs. We also finalized the requirement for Exchanges to provide notification to enrollees or their tax filers who have failed to file their Federal income taxes and reconcile APTC for 1 tax year.

5. Essential Health Benefits

We established requirements relating to EHBs in the Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation Final Rule, which was issued in the February 25, 2013

Federal Register

(78 FR 12834) (EHB Rule). We established at § 156.135(a) that AV is generally to be calculated using the AV Calculator developed and made available by HHS for a given benefit year. In the 2015 Payment Notice (79 FR 13743), we established at § 156.135(g) provisions for updating the AV Calculator in future plan years. In the 2017 Payment Notice (81 FR 12349), we amended the provisions at § 156.135(g) to allow for additional flexibility in our approach and options for updating of the AV Calculator.

In the 2025 Payment Notice, issued in the April 15, 2024

Federal Register

(89 FR 26218), we revised § 155.170(a) to codify that benefits covered in a State's EHB-benchmark plan are not considered in addition to EHB, even if they had been required by State action taking place after December 31, 2011, other than for purposes of compliance with Federal requirements. We finalized three revisions to the standards for State selection of EHB-benchmark plans for benefit years beginning on or after January 1, 2026: we revised the typicality standard at § 156.111 for States to demonstrate that their new EHB-benchmark plan provides a scope of benefits that is equal to that of a typical employer plan in the State and removed the generosity standard; removed the requirement for States to submit a formulary drug list as part of their application unless they are changing their prescription drug EHBs; and consolidated the options for States to change their EHB-benchmark plans. We also removed the regulatory prohibition at § 156.115(d) on issuers from including routine non-pediatric dental services as an EHB beginning with PY 2027.

In addition, we revised § 156.122 to codify that prescription drugs in excess of those covered by a State's EHB-benchmark plan are considered EHB. We also stated that the 2025 Payment Notice does not address the application of this policy to large group market health plans and self-insured group health plans, and that HHS and the Departments of Labor and the Treasury intend to propose rulemaking that would align the standards applicable to large group market health plans and self-insured group health plans with those applicable to individual and small group market plans, so that all group health plans and health insurance coverage subject to sections 2711 and 2707(b) of the PHS Act, as applicable, would be required to treat prescription drugs covered by the plan or coverage in excess of the applicable EHB-benchmark plan as EHB for purposes of the prohibition of lifetime and annual limits and the annual limitation on cost sharing, which would further strengthen the consumer protections in the ACA.

6. Medical Loss Ratio (MLR)

We requested comment on section 2718 of the PHS Act in the April 14, 2010

Federal Register

(75 FR 19297)

and issued an interim final rule with a 60-day comment period relating to the MLR program on December 1, 2010 (75 FR 74864). A final rule with a 30-day comment period was issued in the December 7, 2011

Federal Register

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

Federal Register

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

Federal Register

on May 16, 2012 (77 FR 28790). The MLR program requirements were amended in final rules issued 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), the December 22, 2016

Federal Register

(81 FR 94183), the April 17, 2018

Federal Register

(83 FR 16930), the May 14, 2020

Federal Register

(85 FR 29164), the May 5, 2021

Federal Register

(86 FR 24140), the May 6, 2022

Federal Register

(87 FR 27208), and an interim final rule that was issued in the September 2, 2020

Federal Register

(85 FR 54820).

7. Quality Improvement Strategy

We issued regulations in § 155.200(d) to direct Exchanges to evaluate quality improvement strategies, and § 156.200(b) to direct QHP issuers to implement and report on a quality improvement strategy or strategies consistent with section 1311(g) standards as QHP certification criteria for participation in an Exchange. In the 2016 Payment Notice, issued in the February 27, 2015

Federal Register

(80 FR 10749), we finalized regulations at § 156.1130 to establish standards and the associated timeframe for QHP issuers to submit the necessary information to implement quality improvement strategy standards for QHPs offered through an Exchange.

8. Basic Health Program

In the March 12, 2014,

Federal Register

(79 FR 14111), we issued a final rule entitled the “Basic Health Program: State Administration of Basic Health Programs; Eligibility and Enrollment in Standard Health Plans; Essential Health Benefits in Standard Health Plans; Performance Standards for Basic Health Programs; Premium and Cost Sharing for Basic Health Programs; Federal Funding Process; Trust Fund and Financial Integrity” (hereinafter referred to as the BHP final rule) implementing section 1331 of the ACA, which governs the establishment of BHPs. The BHP final rule established the standards for State and Federal administration of BHPs, including provisions regarding eligibility and enrollment, benefits, cost-sharing requirements and oversight activities. In the BHP final rule, we specified that the BHP Payment Notice process would include the annual publication of both a proposed and final BHP payment methodology.

On October 11, 2017, the Attorney General of the United States provided HHS and the Department of the Treasury (the Departments) with a legal opinion

indicating that the permanent appropriation at 31 U.S.C. 1324, from which the Departments had historically drawn funds to make CSR payments, cannot be used to fund CSR payments to insurers. In light of this opinion—and in the absence of any other appropriation that could be used to fund CSR payments—HHS directed CMS to discontinue CSR payments to issuers until Congress provides for an appropriation. As a result of this opinion, CMS discontinued CSR payments to issuers in the States operating a BHP (that is, New York and Minnesota). The States then sued the Secretary for declaratory and injunctive relief in the United States District Court for the Southern District of New York.

On May 2, 2018, the parties filed a stipulation requesting a stay of the litigation so that HHS could issue an administrative order revising the 2018 BHP payment methodology. After consideration of the States' comments on the administrative order revising the payment methodology, we issued a Final Administrative Order on August 24, 2018 (Final Administrative Order) setting forth the payment methodology that would apply to the 2018 BHP program year.

Sessions, J. (2017, Oct. 11).

Legal Opinion Re: Payments to Issuers for Cost Sharing Reductions (CSRs).

Office of the Attorney General.

https://www.hhs.gov/sites/default/files/csr-payment-memo.pdf

See Complaint,

New York

U.S. Dep't of Health & Human Servs.,

No. 1:18-cv-00683 (RJS) (S.D.N.Y. filed Jan. 26, 2018).

In the November 5, 2019

Federal Register

(84 FR 59529) (hereinafter referred to as the November 2019 final BHP Payment Notice), we finalized the payment methodologies for BHP program years 2019 and 2020.

The 2019 payment methodology is the same payment methodology described in the Final Administrative Order. The 2020 payment methodology is the same methodology as the 2019 payment methodology with one additional adjustment to account for the impact of individuals selecting different metal tier level plans in the Exchange, referred to as the Metal Tier Selection Factor (MTSF).

In the August 13, 2020

Federal Register

(85 FR 49264) (hereinafter referred to as the August 2020 final BHP Payment Notice), we finalized the payment methodology for BHP program year 2021. The 2021 payment methodology is the same methodology as the 2020 payment methodology, with one adjustment to the income reconciliation factor (IRF). In the July 7, 2021

Federal Register

(86 FR 35615) (hereinafter referred to as the July 2021 final BHP Payment Notice), we finalized the payment methodology for BHP program year 2022. The 2022 payment methodology is the same as the 2021 payment methodology, with the exception of the removal of the Metal Tier Selection Factor.

BHP program year means a calendar year for which a standard health plan provides coverage for BHP enrollees.

See

42 CFR 600.5.

“Metal tiers” refer to the different actuarial value plan levels offered on the Exchanges. Bronze-level plans generally must provide 60 percent actuarial value; silver-level 70 percent actuarial value; gold-level 80 percent actuarial value; and platinum-level 90 percent actuarial value. See 45 CFR 156.140.

In the December 20, 2022

Federal Register

(87 FR 77722) (hereafter referred to as the 2023 final BHP Payment Notice), we finalized the payment methodology for BHP program year 2023. The 2023 payment methodology is the same as the 2022 payment methodology, except for the addition of a factor to account for a State operating a BHP and implementing an approved State Innovation Waiver under section 1332 of the ACA; this is the section 1332 waiver factor (WF). In the 2023 final BHP Payment Notice (87 FR 77722), we also revised the schedule for issuance of payment notices and allowed payment notices to be effective for 1 or multiple program years, as determined by and subject to the direction of the Secretary, beginning with the 2023 payment methodology. In the 2025 Payment Notice, issued in the April 15, 2024

Federal Register

(89 FR 26218), we finalized that States may start BHP applicants' effective date of eligibility on the first day of the month following the date of application. In addition, we finalized that, subject to HHS approval, a State may establish its own effective date of eligibility for enrollment policy.

B. Summary of Major Provisions

The regulations outlined in the final rule are codified in 42 CFR part 600 and 45 CFR parts 153, 155, 156, and 158.

1. 42 CFR Part 600

We are finalizing changes to the methodology regarding the premium adjustment factor (PAF), which is used to calculate the adjusted reference

premium (ARP) for BHP payment. We are finalizing maintaining the PAF value at 1.188 for States that have fully implemented BHP and are using Second Lowest Cost Silver Plan (SLCSP) premiums from a year in which BHP was fully implemented. As previously clarified, for States in their first year of implementing BHP and choosing to use prior year SLCSP premiums to determine BHP payment, the PAF value will be set to 1.00. We are finalizing that if a State is using SLCSP premiums from a year in which BHP was not fully implemented, the PAF is calculated by determining the CSR adjustment that QHP issuers included in the SLCSP premiums, reporting the CSR adjustments for the SLCSP for each region in the State to CMS, and then CMS calculating the PAF as 1.20 divided by 1 plus the adjustment. Additionally, we are finalizing a technical clarification for BHP payment rates in cases of multiple SLCSP premiums in an area.

2. 45 CFR Part 153

In accordance with the OMB Report to Congress on the Joint Committee Reductions for Fiscal Year 2025, the HHS-operated risk adjustment program is subject to the fiscal year 2025 sequestration.

Therefore, the HHS-operated risk adjustment program will sequester payments made from fiscal year 2025 resources (that is, funds collected during the 2025 fiscal year) at a rate of 5.7 percent.

OMB. (2024). OMB Report to

the

Congress on

the

BBEDCA

251A

Sequestration for

Fiscal Year

2025.

https://www.whitehouse.gov/wp-content/uploads/2024/03/BBEDCA_251A_Sequestration_Report_FY2025.pdf

We are unable to complete the calculations for the final coefficients for the 2026 benefit year in time to publish them in this final rule. Therefore, consistent with § 153.320(b)(1)(i), we are finalizing the datasets to be used to calculate the final coefficients in this rule and will publish the final coefficients for the 2026 benefit year in guidance after the publication of this final rule. Starting with the 2026 benefit year, we are finalizing the proposal to begin phasing out the market pricing adjustment to the plan liability associated with Hepatitis C drugs in the HHS risk adjustment models (see, for example, 84 FR 17463 through 17466). We are also finalizing the incorporation of pre-exposure prophylaxis (PrEP) as a separate, new type of factor called an Affiliated Cost Factor (ACF) in the HHS risk adjustment adult and child models starting with the 2026 benefit year. We are finalizing a risk adjustment user fee for the 2026 benefit year of $0.20 per member per month (PMPM).

Beginning with the 2025 benefit year of HHS-RADV, we are finalizing the proposals to exclude enrollees without HCCs, which includes adult enrollees with only prescription drug categories (RXCs), from the IVA sample, remove the Finite Population Correction (FPC) from the IVA sampling methodology, and replace the source of the Neyman allocation data used for HHS-RADV sampling with the most recent 3 consecutive years of HHS-RADV data. In addition, beginning with the 2024 benefit year of HHS-RADV, we are finalizing the proposals to modify the SVA pairwise means test, which tests for statistically significant differences between the IVA and SVA results, to use a bootstrapped 90 percent confidence interval methodology and to increase the initial SVA subsample size from 12 enrollees to 24 enrollees.

3. 45 CFR Part 155

We address our authority to investigate and undertake compliance reviews and enforcement actions in response to misconduct or noncompliance with applicable agent, broker, and web-broker Exchange requirements or standards occurring at the insurance agency level and how we intend to hold lead agents of insurance agencies accountable for such misconduct or noncompliance.

We are finalizing revisions at § 155.220(k)(3) to reflect our authority to suspend an agent's or broker's ability to transact information with the Exchange in instances where HHS discovers circumstances that pose unacceptable risk to accuracy of Exchange eligibility determinations, Exchange operations, applicants, or enrollees, or Exchange information technology systems, including but not limited to risk related to noncompliance with the standards of conduct under § 155.220(j)(2)(i), (ii) or (iii) and the privacy and security standards under § 155.260, until the circumstances of the incident, breach, or noncompliance are remedied or sufficiently mitigated to HHS' satisfaction.

We are finalizing updates to the model consent form that agents, brokers, and web-brokers can use to obtain and document consumer consent.

The updates expand the resource to include a standardized form that agents, brokers, and web-brokers can use to document the consumer's review and confirmation of the accuracy of information in their Exchange eligibility application, which is a new standard of conduct that was also implemented as part of the 2024 Payment Notice (88 FR 25809 through 25814). The updates also add scripts that agents, brokers, and web-brokers may utilize to meet the consumer consent and eligibility application review requirements finalized in the 2024 Payment Notice via an audio recording.

CMS. (2022, December 14).

CMS Model Consent Form for Marketplace Agents and Brokers.

PRA package (CMS-10840, OMB Control Number 0938-1438).

https://www.cms.gov/files/document/cms-model-consent-form-marketplace-agents-and-brokers.pdf

We are finalizing, in connection with the failure to file and reconcile process at § 155.305(f)(4), that Exchanges are required to send notices to tax filers or their enrollees for the second year in which they have been determined to have failed to reconcile APTC explaining that they risk being determined ineligible for APTC. A notice to the tax filer may specifically explain that if they fail to file and reconcile for a second consecutive year, they risk being determined ineligible for APTC. Alternatively, an Exchange may send a more general notice to the enrollee or their tax filer explaining that they are at risk of losing APTC, without the additional detail that the tax filer has failed to file and reconcile APTC.

We are finalizing the addition of § 155.400(d)(1) to codify HHS' guidance that requires that, within 60 calendar days after a State Exchange receives a data inaccuracy from an issuer operating in an State Exchange that includes a description of an inaccuracy that meets the requirements at § 156.1210(a) through (c) and all the information that the State Exchange requires or requests to properly assess the inaccuracy, State Exchanges must review and resolve the State Exchange issuer's enrollment data inaccuracies and submit to HHS a description of the resolution of any inaccuracies described by the State Exchange issuer that the State Exchange confirms to be inaccuracies in a format and manner specified by HHS.

OMB Control No: 0938-1312 and 0938-1341.

We are finalizing a provision at § 155.400(g) to allow issuers to adopt a fixed-dollar payment threshold of $10 or less, to be adjusted for inflation by annual agency guidance, under which issuers would not be required to trigger a grace period or terminate enrollment for enrollees who fail to pay the full amount of their portion of premium owed, provided they do not owe more than the threshold amount. We are also finalizing a provision allowing issuers to adopt a gross percentage-based premium threshold of 98 percent or higher, which similarly would not require issuers to trigger a grace period

or terminate enrollment for enrollees who fail to pay the full amount of their portion of premium owed, provided they do not owe more than the threshold amount. In addition, we are finalizing a provision that permits issuers to set the premium payment threshold based on net premium owed by the enrollee at 95 percent or higher of the net premium, rather than providing for a “reasonable” standard as is currently set forth in regulation. We are finalizing a policy limiting application of the fixed-dollar payment threshold and gross premium percentage-based threshold to premium payments after coverage is effectuated. Issuers will be allowed to apply the fixed-dollar payment threshold and/or one of two percentage-based thresholds (but not both percentage-based thresholds). Issuers will be required to apply all chosen premium payment thresholds uniformly to all enrollees and without regard to their health status.

We are finalizing a provision at § 155.505(b) to codify an option for application filers as defined under § 155.20 to file appeals on behalf of applicants and enrollees on the application filer's Exchange application.

We are finalizing amendments at § 155.1000 to state explicitly that an Exchange may deny certification to any plan that does not meet the general certification criteria at § 155.1000(c). We also finalize amending § 155.1090 with refinements to the standards for a request for the reconsideration of a denial of certification specific to the FFEs.

We are finalizing that in addition to collecting the information and data currently provided by State Exchanges under § 155.1200 to monitor performance and compliance, we would use the information and data that State Exchanges submit to increase transparency into Exchange operations and to promote program improvements. We anticipate publicly releasing the State Exchange spending on outreach (including Navigators), Open Enrollment call center metrics (call center volume, average wait time, average call abandonment rate), and website visits and visitors. We are stating in this final rule that we no longer intend to publicly release the State Exchanges' annual State-based Marketplace Annual Reporting Tools (SMARTs). In addition, we intend to only post those metrics for which we also have reasonably comparable data from Exchanges on the Federal platform.

4. 45 CFR Part 156

We are finalizing 2026 benefit year FFE and SBE-FP user fee rates of 2.5 percent and 2.0 percent of total monthly premiums, respectively. We are also finalizing alternative 2026 benefit year FFE and SBE-FP user fee rates of 2.2 percent and 1.8 percent of total monthly premiums, respectively, if enhanced PTC subsidies,

at the level currently enacted or at a higher level, are extended through the 2026 benefit year by July 31, 2025.

ARP, Public Law 117-2, 135 Stat. 4 (2021). These enhanced subsidies were extended under the IRA, Public Law 117-169, 136 Stat. 1818 (2022) and are scheduled to expire after the 2025 calendar year.

We are finalizing amendments to § 156.80(d)(2)(i) to affirm that CSR loading practices that are permitted by State regulators are permissible under Federal law to the extent that they are actuarially justified and provided the issuer does not otherwise receive reimbursement for such CSR amounts.

We are finalizing changes to the method for updating the AV Calculator, starting with the 2026 AV Calculator. Under this approach, for a plan year, we will only release a single, final version of the AV Calculator.

We are finalizing minor updates to the standardized plan option designs for PY 2026 to ensure these plans continue to have AVs within the permissible

de minimis range

for each metal level and to maintain a high degree of continuity with the approaches to standardized plan options finalized in the 2023, 2024, and 2025 Payment Notices. In response to comments requesting the expanded bronze metal level designs revert to the 50 percent coinsurance rate used in previous years, we have revised this plan design to maintain this consistency, instead of raising it to 60 percent for PY 2026, as proposed. We made several additional modifications to both sets of plan designs at the expanded bronze metal.

In addition, we are finalizing amendments at § 156.201 to require issuers that offer multiple standardized plan options within the same product network type, metal level, and service area to meaningfully differentiate these plans from one another in terms of included benefits, provider networks, included prescription drugs, or a combination of some or all these factors.

We are finalizing amendments at § 156.202(b) and (d) to properly reflect the flexibility that issuers have been operationally permitted since these requirements were introduced to vary the inclusion of the distinct adult dental benefit coverage, pediatric dental benefit coverage, and adult vision benefit coverage categories under the non-standardized plan option limit in accordance with § 156.202(c)(1) through (3).

We are finalizing conducting ECP certification reviews of plans for which issuers submit QHP certification applications in FFEs in States performing plan management functions, beginning in PY 2026.

We are finalizing the proposal to share aggregated, summary-level QIS information publicly on an annual basis beginning on January 1, 2026, with information QHP issuers submit during the PY 2025 QHP Application Period.

We are finalizing an amendment to § 156.1220(a) to introduce a new materiality threshold for HHS-RADV appeals, such that we will rerun HHS-RADV results and adjust HHS-RADV adjustments to State transfers in response to a successful appeal when the impact of that appeal to the filer's HHS-RADV adjustments to State transfers is greater than or equal to $10,000.

5. 45 CFR Part 158

We are finalizing amendments to § 158.140(b)(4)(ii) to allow qualifying issuers to not adjust incurred claims by the net payments or receipts related to the risk adjustment program for MLR reporting and rebate calculation purposes beginning with the 2026 MLR reporting year (MLR reports due in 2027), with certain modifications. Specifically, we are finalizing that at the option of qualifying issuers, earned premium would account for net risk adjustment receipts by simply adding these net receipts to total premium, without subsequently subtracting them from adjusted earned premium, such that these net receipts would impact the MLR denominator rather than MLR numerator. We are also finalizing an amendment to § 158.103 to add a definition of “qualifying issuer,” with certain clarifications.

We also are finalizing amendments to § 158.240(c) to add an illustrative example of how qualifying issuers that opt to apply risk adjustment transfer amounts as described in § 158.140(b)(4)(ii) will calculate the amount of rebate owed to each enrollee to accurately reflect how such issuers will incorporate the net risk adjustment transfer amounts into the MLR and rebate calculations differently from other issuers, as well as a conforming amendment to clarify that the current illustrative example in paragraph (c)(2) will apply to issuers that are not qualifying issuers and to qualifying issuers that do not opt to apply risk

adjustment transfer amounts as described in § 158.140(b)(4)(ii).

III. Summary of the Provisions of the Proposed Regulations and Analysis of and Responses to Public Comments

A. 42 CFR Part 600—BHP Methodology Regarding the Value of the Premium Adjustment Factor (PAF)

1. Overview of the Payment Methodology and Calculation of the Payment Amount

In the HHS Notice of Benefit and Payment Parameters for 2026 proposed rule (89 FR 82308, 82317), we proposed to make a change to the calculation of the PAF starting in program year 2026. Section 1331(d)(3) of the ACA directs the Secretary to consider several factors when determining the Federal BHP payment amount, which, as specified in the statute, must equal 95 percent of the value of the PTC under section 36B of the Code and CSRs under section 1402 of the ACA that would have been paid on behalf of BHP enrollees had they enrolled in a QHP through an Exchange. Thus, the BHP payment methodology is designed to calculate the PTC and CSRs as consistently as possible and in general alignment with the methodology used by Exchanges to calculate advance payments of the PTC (APTC) and CSRs, and the methodology used to reconcile APTC with the amount of the PTC allowed for the tax year under section 36B of the Code. In accordance with section 1331(d)(3)(A)(iii) of the ACA, the final payment methodology must be certified by the Chief Actuary of CMS, in consultation with the Office of Tax Analysis (OTA) of the Department of the Treasury, as having met the requirements of section 1331(d)(3)(A)(ii) of the ACA.

Section 1331(d)(3)(A)(ii) of the ACA specifies that the payment determination shall take into account all relevant factors necessary to determine the value of the PTC and CSRs that would have been paid on behalf of eligible individuals, including but not limited to, the age and income of the enrollee, whether the enrollment is for self-only or family coverage, geographic differences in average spending for health care across rating areas, the health status of the enrollee for purposes of determining risk adjustment payments and reinsurance payments that would have been made if the enrollee had enrolled in a QHP through an Exchange, and whether any reconciliation of APTC and CSR would have occurred if the enrollee had been enrolled. Under all previous payment methodologies, the total Federal BHP payment amount has been calculated using multiple rate cells in each BHP State. Each rate cell represents a unique combination of age range (if applicable), geographic area, coverage category (for example, self-only or two-adult coverage through the BHP), household size, and income range as a percentage of FPL, and there is a distinct rate cell for individuals in each coverage category within a particular age range who reside in a specific geographic area and are in households of the same size and income range. The BHP payment rates developed are also consistent with the State's rules on age rating. Thus, in the case of a State that does not use age as a rating factor on an Exchange, the BHP payment rates would not vary by age.

Under the methodology finalized in the July 2021 final BHP Payment Notice, the rate for each rate cell is calculated in two parts. The first part is equal to 95 percent of the estimated PTC that would have been allowed if a BHP enrollee in that rate cell had instead enrolled in a QHP in an Exchange. The second part is equal to 95 percent of the estimated CSR payment that would have been made if a BHP enrollee in that rate cell had instead enrolled in a QHP in an Exchange. These two parts are added together and the total rate for that rate cell would be equal to the sum of the PTC and CSR rates. As noted in the July 2021 final BHP Payment Notice, we currently assign a value of zero to the CSR portion of the BHP payment rate calculation, because there is presently no available appropriation from which we can make the CSR portion of any BHP payment.

The 2023 final BHP Payment Notice provides a detailed description of the structure of the BHP payments, including the equations, factors, and the values of the factors used to calculate the BHP payments. We proposed one change to the methodology regarding the premium adjustment factor (PAF).

The PAF is used to calculate the adjusted reference premium (ARP) that is used to calculate the BHP payment. The ARP is used to calculate the BHP payment. The ARP is used to calculate the estimated PTC that would be allowed if BHP-eligible individuals enrolled in QHPs through an Exchange and is based on the premiums for the applicable second lowest cost silver plan during the applicable plan year. The PAF considers the premium increases in other States that took effect after we discontinued payments to issuers for CSRs provided to enrollees in QHPs offered through Exchanges. Despite the discontinuance of Federal payments for CSRs, QHP issuers are required to provide CSRs to eligible enrollees. As a result, many QHP issuers increased the silver-level plan premiums to account for those additional costs; these premium adjustments and how they were applied (for example, to only silver-level plans or to all metal tier plans) varied across States. For the States operating BHPs in 2018, the increases in premiums were relatively minor, because the majority of enrollees eligible for CSRs (and all who were eligible for the largest CSRs) were enrolled in the BHP and not in QHPs on the Exchanges, and therefore, issuers in BHP States did not significantly raise premiums to cover costs related to HHS not making CSR payments.

In the Final Administrative Order and the 2019 through 2023 final BHP Payment Notices, we incorporated the PAF into the BHP payment methodologies to capture the impact of how other States responded to HHS ceasing to make CSR payments.

We also reserved the right that in the case an appropriation for CSR payments is made for a future year, to determine whether and how to modify the PAF in the payment methodology.

https://www.medicaid.gov/sites/default/files/2019-11/final-admin-order-2018-revised-payment-methodology.pdf.

Under the Final Administrative Order, we calculated the PAF by using information sought from QHP issuers in each State and the District of Columbia and determined the premium adjustment that the responding QHP issuers made to each silver level plan in 2018 to account for the discontinuation of CSR payments to QHP issuers. Based on the data collected, we estimated the median adjustment for silver level QHPs nationwide (excluding those in the two BHP States). To the extent that QHP issuers made no adjustment (or the adjustment was zero), this was counted as zero in determining the median adjustment made to all silver level QHPs nationwide. If the amount of the adjustment was unknown—or we determined that it should be excluded for methodological reasons (for example, the adjustment was negative, an outlier, or unreasonable)—then we did not count the adjustment towards determining the median adjustment.

The median adjustment for silver level QHPs is referred to as the nationwide median adjustment.

Some examples of outliers or unreasonable adjustments include (but are not limited to) values over 100 percent (implying the premiums doubled or more because of the adjustment), values more than double the otherwise highest adjustment, or non-numerical entries.

For each of the two BHP States, we determined the median premium adjustment for all silver level QHPs in that State, which we refer to as the State

median adjustment. The PAF for each BHP State equaled one plus the nationwide median adjustment divided by one plus the State median adjustment for the BHP State. In other words,

PAF = (1 + Nationwide Median Adjustment) ÷ (1 + State Median Adjustment).

To determine the PAF described above, we sought to collect QHP information from QHP issuers in each State and the District of Columbia to determine the premium adjustment those issuers made to each silver level plan offered through the Exchange in 2018 to account for the end of CSR payments. Specifically, we sought information showing the percentage change that QHP issuers made to the premium for each of their silver level plans to cover benefit expenditures associated with the CSRs, given the lack of CSR payments in 2018. This percentage change was a portion of the overall premium increase from 2017 to 2018.

According to our 2018 records, there were 1,233 silver-level QHPs operating on Exchanges in 2018. Of these 1,233 QHPs, 318 QHPs (25.8 percent) responded to our request for the percentage adjustment applied to silver-level QHP premiums in 2018 to account for the discontinuance of HHS making CSR payments. These 318 QHPs operated in 26 different States, with 10 of those States running State Exchanges (while we requested information only from QHP issuers in States serviced by an FFE, many of those issuers also had QHPs in State Exchanges and submitted information for those States as well). Thirteen of these 318 QHPs were in New York (and none were in Minnesota). Excluding these 13 QHPs from the analysis, the nationwide median adjustment was 20.0 percent. Of the 13 QHPs in New York that responded, the State median adjustment was 1.0 percent. We believed that this was an appropriate adjustment for QHPs in Minnesota, as well, based on the observed changes in New York's QHP premiums in response to the discontinuance of CSR payments (and the operation of the BHP in that State) and our analysis of expected QHP premium adjustments for States with BHPs. We calculated the proposed PAF as (1 + 20 percent) ÷ (1 + 1 percent) (or 1.20/1.01), which results in a value of 1.188.

We set the value of the PAF to 1.188 for all program years for 2018 through 2024, with limited exceptions.

We believe that this value for the PAF continues to reasonably account for the increase in silver-level premiums experienced in non-BHP States that took effect after the discontinuance of the CSR payments.

See the

Federal Funding Methodology for Program Year 2023 and Changes to the Basic Health Program Payment Notice Process

at 87 FR 77722, 77731, 77737.

Starting in 2023, we made one limited exception in setting the value of the PAF as part of the 2023 final BHP Payment Notice.

In the case of a State in the first year of implementing a BHP, if the State chooses to use prior year second lowest cost silver plan (SLCSP) premiums to determine the BHP payment (for example, the 2025 premiums for the 2026 program year), we set the value of the PAF to 1.00. In this case, we believe that adjustment to the QHP premiums to account for the discontinuation of CSR payments would be included fully in the prior year premiums, and no further adjustment would be necessary.

Id. at 77731-32.

We proposed to make a change to the calculation of the PAF starting in program year 2026. There are cases in which a State may not have fully implemented BHP for a full program year. For example, a State may operate BHP for only a portion of the year (in other words, less than 12 months); there may be other such cases in which a State would be deemed to have partially implemented BHP for a program year.

For a State that initially only partially implemented BHP, it is likely that, in the year (or years) when the BHP is only partially implemented, the percentage adjustment to the premiums for the program year to account for the discontinuation of CSR payments may be significantly higher than the 1 percent adjustment we determined for BHP States in 2018. In these cases, it is probable that QHP issuers would include a larger premium adjustment (that is, greater than 1 percent) because more individuals would be eligible for CSRs (and individuals eligible for relatively larger CSRs) would be enrolled in a QHP on the Exchange, for part or all of the initial implementation year. If premiums with a larger CSR adjustment are used as a basis for calculating the BHP payments and the current value of the PAF (1.188) is used, it is likely that this would “double count” a portion of the adjustment and lead to an effective CSR adjustment over 20 percent.

For example, assume a State implements BHP for only 6 months in a program year. As a result, QHP issuers may include a 10 percent adjustment to the premiums to account for the discontinuation of the CSR for the portion of the year when CSR eligible individuals would have QHP coverage. The issuers would be liable for roughly half of the CSR amounts they would have had to provide if there was no BHP in place. Under the previous BHP payment methodology, if these premiums that already partially account for CSRs are used to calculate the BHP payment, we would increase the reference premium by 18.8 percent for the PAF, leading to an effective increase of 30.68 percent (1.188 multiplied by 1.10 minus 1). This is significantly larger than the 20 percent adjustment we determined as the basis for the PAF for States that have operated their BHP for more than 2 full program years.

Under the Secretary's general authority to account for all relevant factors necessary to determine the value of the premium and cost-sharing reductions that would have been provided to eligible individuals now enrolled in BHP coverage

and to avoid such an overpayment, we proposed the following changes to the PAF:

Section 1331(d)(3)(A)(ii) of the PHS Act.

(1) If a State has fully implemented BHP and is using SLSCP premiums for a year in which the BHP was fully implemented, then the value of the PAF would remain 1.188, as described above.

(2) If a State is in the first year of implementing a BHP and the State chooses to use prior year SLCSP premiums to determine the BHP payment (for example, the 2025 premiums for the 2026 program year), we set the value of the PAF to 1.00. This is the same approach described in the 2023 final BHP Payment Notice.

(3) If a State is using SLCSP premiums from a year in which BHP was not fully implemented, then the PAF is calculated as follows:

First, the State must determine the CSR adjustment that QHP issuers included in the SLSCP premiums for individual market Exchange plans. The State should identify the SLSCP in each region, as defined for the Exchange. For each SLSCP, the State should determine the CSR adjustment that the QHP issuer included in the premium. This may be done by (1) reviewing any materials submitted by the QHP issuer describing the calculation of the premium; or (2) requesting that the QHP issuer provide the adjustment, or an estimate of the adjustment used in calculating the premium. Second, the State should report the CSR adjustments for the SLCSP for individual market Exchange

plans for each region in the State to CMS. Third, CMS will take this percentage adjustment and calculate the PAF as 1.20 divided by 1 plus the adjustment. For example, if the percentage adjustment for the CSR is 5 percent, the PAF would be (1.20 ÷ 1.05), or 1.143. The maximum value of the PAF would be 1.188, and the minimum value of the PAF would be 1.00.

We noted in the proposed rule (89 FR 82319) that this approach would apply based on the premium year, not necessarily the program year. If the State has fully implemented BHP but is using the prior year premiums and BHP was not fully implemented in that year, this modified approach would still apply. For example, if a State partially implemented BHP in 2026 and fully implemented BHP in 2027, when determining the BHP payments for 2027, we would then use 1.188 for the value of the PAF if the State elected to use 2027 QHP premiums to determine the payment; if the State elected to use the 2026 QHP premiums, then we would use the modified PAF calculation described in this section. CMS would make a determination of whether or not a BHP was fully implemented based on a review of the Blueprint and provide that determination to the State.

We also noted in the proposed rule (89 FR 82319) that we considered other approaches to the modified PAF. We considered whether or not CMS would collect data on the underlying CSR adjustment in the SLCSP premiums; however, we believe that such activities fall within States roles as BHP administrators and States are better able to work with QHP issuers to administer this data collection process. We also considered if States should survey all QHP issuers (not just those with the SLSCP premium). We believe that only using the CSR adjustment from individual market Exchange plans with the SLCSPs would be a more reasonable approach and would minimize the burden on States and QHP issuers by only requiring the State to work with one issuer in each region, as opposed to all issuers in each region. We also considered whether or not we should make further changes to the PAF, but we believe that this approach balances maintaining accurate BHP payments with stability and limited burden for BHP States. We requested comments on this approach or alternative approaches to calculating the PAF.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing the approach to calculating the PAF as proposed. We summarize and respond to public comments received on the proposed change to the calculation of the PAF below.

Comment:

Several commenters were supportive of the change to adjust the PAF for BHP in program years in which States have not fully implemented BHP.

Response:

We appreciate these comments in support of the proposed change.

Comment:

One commenter noted “relying on silver CSR loads from 2018 in the development of the population adjustment factor may not reflect actual silver loads because these 2018 premiums are based on experience from a time when CSRs were fully funded,” while also acknowledging there are other factors “including state-specified loads, the impact of States' 1332 waivers, the effects of the COVID-19 pandemic and related Medicaid coverage policies, and other factors” that may affect these adjustments in States.

Response:

We acknowledge that there are limitations to relying on the 2018 CSR loads for calculation of the PAF. We also agree that other factors that may affect CSR loads and these factors complicate updating the PAF. We did not propose and are not making any changes to the standard calculation of the PAF in this final rule.

2. Technical Clarification for Calculation of BHP Payment Rates in Cases of Multiple Second Lowest Cost Silver Plan Premiums in an Area

The BHP payment rates are based on the second lowest cost silver plan premium among individual market QHPs operating on the Exchanges in each rating area (or county) in a State. This is the basis for the reference premium (or RP) in the BHP payment methodology.

In general, we expect that each county would have a unique second lowest cost silver plan premium, which is used to calculate the payment rates for residents of that county for the BHP payment. However, in some cases, we have found that States may have more than one second lowest cost silver plan within a county. This may occur in cases where the State has allowed QHPs to operate in only a portion of the county instead of the entire county on the Exchange.

In our previous BHP payment methodologies, we do not describe how such a case would be handled for calculating BHP payments. In our technical guidance to States,

we have instructed States to report the premiums for the second lowest cost silver plan operating in the largest part of the county as measured by total population.

CMS. (September 15, 2023).

Basic Health Program; Federal Funding Methodology for Program Year 2024.

Accessed at:

https://www.medicaid.gov/federal-policy-guidance/downloads/cib091523.pdf.

for the 2026 payment methodology and all subsequent years, we proposed to clarify that in cases where there are more than one second lowest cost silver plans in a county, the BHP payment would be based on the premium of the second lowest cost silver plan applicable to the largest portion of the county as measured by total population. We sought comment on this approach.

Section 1331(d)(3)(A)(ii) of the PHS Act.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed clarification of the correct premiums to use below.

Comment:

Several commenters were supportive of the clarification for which second lower cost silver plan premiums to use in these cases for the purposes of calculating the Federal BHP payment.

Response:

We appreciate these comments in support of the proposed change.

Comment:

Two commenters noted that in one State that has operated a BHP, the State is using a different silver plan premium (the third lowest cost silver plan premium) in cases when there are two or more second lowest cost silver plan premiums in an area. Commenters noted that using the proposed approach would present operational challenges for the State. The commenters requested flexibility on this in the BHP payment methodology.

Response:

We appreciate the comments and understand that there may be some operational issues; however, we believe that these issues can be easily addressed, and we note that other BHP States have been able to determine premiums in accordance with these requirements. In addition, we do not believe there is any basis to use any premiums other than the second lowest cost silver plans (even if there are two or more in an area) for the purposes of the BHP payment methodology.

B. 45 CFR Part 153—Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment

In subparts A, B, D, G, and H 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 ACA that transfers funds from issuers of lower-than-average risk, risk adjustment covered plans to issuers of higher-than-average risk, risk adjustment covered plans in the individual, small group markets, or merged 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 did not receive any requests from States to operate risk adjustment for the 2026 benefit year. Therefore, HHS will operate risk adjustment in every State and the District of Columbia for the 2026 benefit year.

See also 42 U.S.C. 18041(c)(1).

1. Sequestration

In accordance with the OMB Report to Congress on the Joint Committee Reductions for Fiscal Year 2025, the HHS-operated risk adjustment program is subject to the fiscal year 2025 sequestration.

The Federal Government's 2025 fiscal year began on October 1, 2024. Therefore, the HHS-operated risk adjustment program is sequestered at a rate of 5.7 percent for payments made from fiscal year 2025 resources (that is, funds collected during the 2025 fiscal year).

OMB. (2024). OMB Report to the Congress on the BBEDCA 251A Sequestration for Fiscal Year 2025.

https://www.whitehouse.gov/wp-content/uploads/2024/03/BBEDCA_251A_Sequestration_Report_FY2025.pdf.

HHS, in coordination with OMB, has determined that, under section 256(k)(6) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA),

as amended, and the underlying authority for the HHS-operated risk adjustment program, the funds that are sequestered in fiscal year 2025 from the HHS-operated risk adjustment program will become available for payment to issuers in fiscal year 2026 without further Congressional action. If the Congress does not enact deficit reduction provisions that replace the Joint Committee reductions, the program 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.

Public Law 99-177, 99 Stat. 1037 (1985).

Additionally, we note that the Infrastructure Investment and Jobs Act

amended section 251A(6) of the BBEDCA and extended sequestration for the HHS-operated risk adjustment program through fiscal year 2031 at a rate of 5.7 percent per fiscal year.

Public Law 117-58, 135 Stat. 429 (2021).

2 U.S.C. 901a.

One comment was received on this section of the proposed rule that acknowledges the fiscal year 2025 sequestration rate. Therefore, after consideration of this comment and for reasons outlined in the proposed rule and this final rule, the HHS-operated risk adjustment program will sequester payments made from fiscal year 2025 resources at a rate of 5.7 percent.

2. HHS Risk Adjustment (§ 153.320)

The HHS risk adjustment models predict plan liability for an average enrollee based on that person's age, sex, and diagnoses (also referred to as HCCs) producing a risk score. The State payment transfer formula

that is part of the HHS Federally certified risk adjustment methodology utilizes separate models for adults, children, and infants to account for clinical and cost differences in each age group. In 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, to calculate enrollee risk scores in the adult models, we added enrollment duration factors beginning with the 2017 benefit year,

and prescription drug categories (RXCs) beginning with the 2018 benefit year.

Starting with the 2023 benefit year, we removed the severity illness factors in the adult models and added interacted HCC count factors (that is, additional factors that express the presence of a severity or transplant HCC in combination with a specified number of total payment HCCs or HCC groups on the enrollee's record) to the adult and child models

applicable to certain severity and transplant HCCs.

The State payment transfer formula refers to part of the Federally certified risk adjustment methodology that applies in States where HHS is responsible for operating the program. The formula calculates payments and charges at the State market risk pool level (prior to the calculation of the high-cost risk pool payment and charge terms that apply beginning with the 2018 benefit year). See, for example, 81 FR 94080.

For the 2017 through 2022 benefit years, there was a set of 11 binary enrollment duration factors in the adult models that decreased monotonically from 1 to 11 months, reflecting the increased annualized costs associated with fewer months of enrollments. See, for example, 81 FR 94071 through 94074. These enrollment duration factors were replaced beginning with the 2023 benefit year with HCC-contingent enrollment duration factors for up to 6 months in the adult models. See, for example, 87 FR 27228 through 27230.

For the 2018 benefit year, there were 12 RXCs, but starting with the 2019 benefit year, the two severity-only RXCs were removed from the adult models. See, for example, 83 FR 16941.

See Table 4 in the proposed rule for a list of draft factors in the adult models, and Table 5 in the proposed rule for a list of draft factors in the child models.

See 87 FR 27224-28. Also see Table 6 in the proposed rule.

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 CSR adjustment factor. 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 (PLRS)) within a geographic rating area is one of the inputs into the State payment transfer formula, which determines the State transfer payment or charge that an issuer will receive or be required to pay for that plan for the applicable State market risk pool for a given benefit year. Thus, the HHS risk adjustment models predict average group costs to account for risk across plans, in keeping with the Actuarial Standards Board's Actuarial Standards of Practice for risk classification.

a. Data for HHS Risk Adjustment Model Recalibration for the 2026 Benefit Year

In the HHS Notice of Benefit and Payment Parameters for 2026 proposed rule (89 FR 82308, 82320 through 82321), we proposed to recalibrate the 2026 benefit year HHS risk adjustment models with the 2020, 2021, and 2022 enrollee-level EDGE data. In the proposed rule, we noted the history of recalibrating the risk adjustment models, the transition to use of enrollee-level EDGE data for this purpose, and why we use 3 years of blended data for recalibration.

Given this history and reasoning, we proposed to determine coefficients for the 2026 benefit year based on a blend of separately solved coefficients from the 2020, 2021, and 2022 benefit years' enrollee-level EDGE data, with the costs of services identified from the data trended between the relevant year of data and the 2026 benefit year.

We sought

comment on the proposal to determine 2026 benefit year coefficients for the HHS risk adjustment models based on a blend of separately solved coefficients from the 2020, 2021, and 2022 enrollee-level EDGE data.

See 89 FR 82308, 82320-21.

As described in the

2016 Risk Adjustment White Paper

(

https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf

) and the 2017 Payment Notice (81 FR 12218), we subdivide expenditures into traditional drugs, specialty drugs, medical services, and preventive services and

determine trend factors separately for each category of expenditure. In determining these trend factors, we consult our actuarial experts, review relevant Unified Rate Review Template submission data, analyze multiple years of enrollee-level EDGE data, and consult National Health Expenditure Accounts (NHEA) data as well as external reports and documents published by third parties. In this process, we aim to determine trends that reflect changes in cost of care rather than gross growth in expenditures. As such, we believe the trend factors we used for each expenditure category for the 2026 benefit year models are appropriate for the most recent changes in cost of care that we have seen.

After consideration of comments and for the reasons outlined in the proposed rule and our responses to comments, we are finalizing the approach to use the 2020, 2021 and 2022 enrollee-level EDGE data to calculate the 2026 benefit year coefficients as proposed. We summarize and respond to public comments received on the proposed enrollee-level EDGE data to be used for HHS risk adjustment model recalibration for the 2026 benefit year below. Because we were unable to complete the calculations for the final coefficients in time to publish them in this final rule, we will publish the final 2026 benefit year coefficients in guidance after the publication of this final rule consistent with § 153.320(b)(1)(i). We will release this guidance by the spring of 2025, in time for rate setting for the 2026 benefit year.

Comment:

A few commenters supported utilizing the 2020, 2021, and 2022 enrollee-level EDGE data to recalibrate the HHS risk adjustment models for the 2026 benefit year as proposed. Other commenters opposed or noted concern about using these years of enrollee-level EDGE data due to concerns about the potential impact of the COVID-19 PHE on 2020 and 2021 benefit year enrollee-level EDGE data.

Response:

We are finalizing the use of the 2020, 2021, and 2022 enrollee-level EDGE data to recalibrate the 2026 benefit year HHS risk adjustment models as proposed. As described in the proposed rule (89 FR 82308, 82320) and detailed further below, our analyses found the 2020 and 2021 benefit year enrollee-level EDGE data is sufficiently similar to prior years of enrollee-level EDGE data such that exclusion of these data years from the risk adjustment model recalibration is not warranted.

We recognize that if a benefit year of enrollee-level EDGE data has significant changes that differentially impact certain conditions or populations relative to others or is sufficiently anomalous relative to expected future patterns of care, we should carefully consider what impact that benefit year of data could have if it is used in the annual recalibration of the HHS risk adjustment models.

This includes consideration of whether to exclude or adjust that benefit year of data to increase the models' predictive validity or otherwise limit the impact of anomalous trends. For this reason, as described in the 2026 Payment Notice proposed rule,

we conducted extensive analysis on the 2020 benefit year enrollee-level EDGE data to consider its inclusion in the recalibration of the 2024 benefit year risk adjustment models. For example, in the 2024 Payment Notice proposed rule

and final rule

we discussed our analysis of the 2020 benefit year data to identify possible impacts of the COVID-19 PHE.

Likewise, when we conducted recalibration of the 2025 benefit year risk adjustment models, we conducted similar analyses on the 2021 benefit year enrollee-level EDGE data as we did to the 2020 benefit year enrollee-level EDGE data to examine the potential impact of the COVID-19 PHE.

We did not find any notable anomalous trends, and determined that deviations identified in 2020 or 2021 benefit year data were within the expected level for any individual data year. Further, we believe the blending of the coefficients from the separately solved models for benefit years 2020 and 2021 with benefit year 2022 for purposes of the 2026 benefit year model recalibration sufficiently stabilizes any differences resulting from the COVID-19 PHE in the 2020 or 2021 datasets. As the 2020 and 2021 benefit years' enrollee-level EDGE data used to recalibrate the 2025 benefit year risk adjustment models are identical to the 2020 and 2021 enrollee-level EDGE data used to recalibrate the 2026 benefit year risk adjustment models, the analyses and conclusions discussed in prior rulemaking equally apply to the recalibration of the risk adjustment models for the 2026 benefit year.

Since the start of model calibration for the HHS risk adjustment models in benefit year 2014, the COVID-19 PHE has been the only such situation to date. Other events and policy changes have not risen to the same level of uniqueness or potential impact.

89 FR 82308, 82320.

87 FR 78214-18.

88 FR 25749-54.

This analysis included assessing how the 2020 benefit year enrollee-level EDGE recalibration data compares to 2019 benefit year enrollee-level EDGE recalibration data.

See the 2025 Payment Notice Final Rule, 89 FR 26218, 26236-37.

Comment:

One commenter noted decreases in the risk adjustment model R-squared values for the 2022 benefit year enrollee-level EDGE data relative to prior benefit years as presented in Table 10 of the proposed rule.

This commenter requested information regarding any analysis HHS has conducted concerning the reduction in this model performance statistic.

89 FR 82308, 82347.

Response:

First, as demonstrated by Table 10 of the proposed rule,

each individually solved model that contributes to the blended HHS risk adjustment models has an R-squared statistic within the expected range for concurrent claims-based risk scoring models

such as the models used for the HHS-operated risk adjustment program. Nevertheless, we are aware of and intend to continue monitoring the slight decrease in the R-squared values for the HHS risk adjustment models over the past few years of enrollee-level EDGE data which indicates that the models are explaining slightly less of the variation in plan liability for the 2022 benefit year enrollee-level EDGE data compared to prior benefit years of enrollee-level EDGE data. In our quality control assessments of the recalibration process for the proposed draft 2026 benefit year coefficients, we explored two possible explanations for this decrease in R-squared values—a shift in enrollment and the presence of outlier enrollees with very high costs in the enrollee-level EDGE data.

See 89 FR 82308, 82347.

See Hileman, G., & Steele, S. (2016). Accuracy of Claims-Based Risk Scoring Models. Society of Actuaries.

https://www.soa.org/4937b5/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf.

Our analysis found that the largest percentage decreases in R-squared values between the 2022 benefit year and the 2019 (or 2020)

benefit year of enrollee-level EDGE data for adult enrollees were for enrollees without HCCs, enrollees with only 1 month of enrollment, and new enrollees (that is, enrollees new to an issuer, whose system identifier was not present for the issuer in the prior year).

We interpret these results to be consistent with a hypothesis that new enrollees and a greater proportion of relatively healthier enrollees in 2022 were partially

responsible for a decrease in model R-squared values between the 2022 benefit year and the 2019 through 2021 benefit years of enrollee-level EDGE data, in that the R-squared value decreases are largest for subgroups that are likely to contain more new enrollees or are difficult to predict, for example, new enrollees to an issuer and enrollees without HCCs.

HHS was unable to incorporate an analysis of new enrollees for the 2019 benefit year of enrollee-level of EDGE data at the time of the analysis of R-squared changes. As such, R-squared changes for new enrollees only considered the difference between 2020 benefit year and 2022 benefit year R-squared values.

Ibid.

Likewise, our analysis found that the removal of outlier enrollees always resulted in an increase in R-squared values and the impacts were notably higher for 2020, 2021, and 2022 enrollee-level EDGE data than for 2019 enrollee-level EDGE data. We interpret these results to imply that recent data years have exhibited more influential high-cost enrollees. However, we do not see the presence of cost outliers in the enrollee-level EDGE data to be problematic at this time because we generally expect the number of cost outliers to vary from year to year, and we did not find evidence that suggests a clear data error exists related to any of these outliers.

In short, although we were able to identify likely contributing factors to the observed slight decrease in R-squared values and will continue to monitor the R-squared values in the future, the R-squared values for 2026 benefit year risk adjustment model recalibration remain high and within the expected range of R-squared values for the type of model used for the HHS-operated risk adjustment program. We remain confident the HHS risk adjustment models continue to operate effectively and appropriately predict plan liability for an average enrollee.

After consideration of comments and for the reasons outlined in the proposed rule, this final rule, the 2024 Payment Notice, the 2025 Payment Notice,

and our responses to comments above, we are finalizing this approach as proposed. However, to account for the incorporation of the human immunodeficiency virus (HIV) pre-exposure prophylaxis (PrEP) affiliated cost factor (ACF) with the generic drug exclusion and hierarchy specifications finalized in this rule, we were unable to complete the calculations for the final coefficients in time to publish them in this final rule. Therefore, consistent with § 153.320(b)(1)(i), we are finalizing the use of the 2020, 2021 and 2022 enrollee-level data to calculate the 2026 benefit year coefficients and will publish the final coefficients for the 2026 benefit year in guidance after the publication of this final rule. We will release this guidance in time for rate setting for the 2026 benefit year.

See, supra, notes 22-24, and 26.

b. Pricing Adjustment for the Hepatitis C Drugs

In the HHS Notice of Benefit and Payment Parameters for 2026 proposed rule (89 FR 82308, 82321), we proposed that beginning with the 2026 benefit year, we would begin phasing out the market pricing adjustment

to the plan liability associated with Hepatitis C drugs in the HHS risk adjustment models and start trending Hepatitis C drugs consistent with the other drugs

in the HHS risk adjustment models. Since the 2020 benefit year HHS risk adjustment models, we have included a market pricing adjustment to the plan liability associated with Hepatitis C drugs to reflect future market pricing prior to solving for coefficients for the models.

The purpose of this market pricing adjustment was to account for significant pricing changes between the data years used for recalibrating the models and the applicable benefit year of risk adjustment as a result of the introduction of new and generic Hepatitis C drugs.

For the reasons and history described in the proposed rule, we proposed to adopt a multi-year phase out approach to transition the Hepatitis C drugs' trending to move away from the current unique market pricing adjustment for these drugs and align Hepatitis C drugs' trending with the trending approach for specialty drugs.

To begin this transition for the 2026 benefit year HHS risk adjustment models, we proposed to apply the specialty drug trend to 1 year of trending Hepatitis C treatment costs (that is, the trend from 2025 to 2026) for all 3 years of enrollee-level EDGE data used in recalibration (that is, 2020, 2021, and 2022 enrollee-level EDGE data). As such, 2026 benefit year recalibration data for Hepatitis C would reflect 1 year of growth in the cost of treatment at the same rate as other specialty drugs. To continue the transition of phasing out the Hepatitis C drug pricing adjustment in future benefit years' annual model recalibration, we proposed to annually increase the number of years for which we would use the specialty drug trend and decrease the number of years that would use the unique market pricing adjustment for Hepatitis C drugs. We proposed to continue this approach until such time as all enrollee-level EDGE data years used for the recalibration of the HHS risk adjustment models are from benefit year 2025 or later, at which time the specialty drug cost trend would be fully applied to Hepatitis C drug costs consistent with other specialty drugs in the HHS risk adjustment models and we would stop applying the separate market pricing adjustment for Hepatitis C drugs as part of the annual model recalibration.

For discussion relating to the Hepatitis C Pricing Adjustment for previous benefit years,

see,

for example, 89 FR 26218, 26237-38.

See 81 FR 12204, 12218-19.

The Hepatitis C drugs market pricing adjustment to plan liability is applied for all enrollees taking Hepatitis C drugs in the data used for recalibration.

See Milligan, J. (2018). A perspective from our CEO: Gilead Subsidiary to Launch Authorized Generics to Treat HCV. Gilead.

https://www.gilead.com/news-and-press/company-statements/authorized-generics-for-hcv.

See also AbbVie. (2017). AbbVie Receives U.S. FDA Approval of MAVYRETTM (glecaprevir/pibrentasvir) for the Treatment of Chronic Hepatitis C in All Major Genotypes (GT 1-6) in as Short as 8 Weeks. Abbvie.

https://news.abbvie.com/news/abbvie-receives-us-fda-approval-mavyret-glecaprevirpibrentasvir-for-treatment-chronic-hepatitis-c-in-all-major-genotypes-gt-1-6-in-as-short-as-8-weeks.htm.

See also Silseth, S., & Shaw, H. (2021). Analysis of prescription drugs for the treatment of hepatitis C in the United States [White paper]. Milliman.

https://www.milliman.com/-/media/milliman/pdfs/2021-articles/6-11-21-analysis-prescription-drugs-treatment-hepatitis-c-us.ashx.

See 89 FR 82308, 82321-23.

We sought comment on our proposal to begin to phase out the Hepatitis C drugs market pricing adjustment and trend Hepatitis C drugs consistent with other specialty drugs starting with the annual recalibration of the 2026 benefit year HHS risk adjustment models.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposal to begin to phase out the market pricing adjustment for Hepatitis C drugs starting with the 2026 benefit year below.

Comment:

Many commenters supported the proposal to begin to phase out the market pricing adjustment and trend Hepatitis C drugs consistent with other specialty drugs starting with the annual recalibration of the 2026 benefit year HHS risk adjustment models. Many of these commenters agreed with HHS' assessment that the cost trend for Hepatitis C drugs has begun to rise alongside the expected cost of other specialty drugs. A couple of commenters recommended close monitoring of costs and utilization of Hepatitis C drugs to ensure that access to these drugs is not interrupted for enrollees.

Response:

We are finalizing the phasing out of the market pricing adjustment for Hepatitis C drugs starting with the 2026 benefit year as proposed. We agree with commenters that the cost

trend for Hepatitis C drugs has changed and resulted in the need to reexamine the treatment of these drugs in the HHS risk adjustment models, including consideration of phasing out the market pricing adjustment for these drugs. We also note that the policy adopted in this final rule to phase out the market pricing adjustment for these drugs will allow Hepatitis C drug costs to increase as appropriate alongside other specialty drugs in the simulation of plan liability used for annual HHS risk adjustment model recalibration. Starting this transition beginning with the 2026 benefit year and appropriately accounting for price increases of Hepatitis C drugs in the HHS risk adjustment models alongside other specialty drugs in the simulation of plan liability responds to these observed emerging trends and will better reflect the actuarial risk of an issuer's population, especially for issuers that attract a large number of enrollees using Hepatitis C drugs, helping to prevent adverse selection and the associated perverse incentives. As such, we are finalizing the policy to begin phasing out of the Hepatitis C market pricing adjustment starting with the 2026 benefit year recalibration of the HHS risk adjustment models as proposed, but we will also continue to monitor costs and utilization of drugs, including Hepatitis C drugs, as part of our ongoing efforts to examine ways to continually improve the HHS risk adjustment models for future benefit years.

Comment:

One commenter requested that HHS continue to review the costs associated with specialty drugs and consider whether market pricing adjustments may be warranted for GLP-1 drugs, gene therapies, or other unique, high-cost drugs that may drive the cost of treating a particular condition in a given benefit year significantly higher than those reflected in the enrollee-level EDGE data years used in recalibration for that benefit year. One commenter noted recently available expensive gene therapies for sickle cell disease as an example of this phenomenon and requested that HHS consider a market pricing adjustment for sickle cell disease treatments.

Response:

We did not propose to change the treatment of high-cost drugs, such as GLP-1 drugs, sickle cell disease treatments, or other gene and cellular therapies, in the 2026 benefit year HHS risk adjustment models and are not finalizing such updates in this final rule. As we discussed in the 2022 Payment Notice

and 2025 Payment Notice,

we recognize that the data used to recalibrate the HHS risk adjustment models lag by several benefit years behind the applicable benefit year for risk adjustment and therefore may not account for the costs of new, expensive drugs, such as gene therapy drugs, that are expected to be available in the market by the applicable benefit year of risk adjustment. Thus, we continue to consider ways that we could better account for high-cost drugs in the risk adjustment models and, as part of this effort, analyze new data as they become available.

See 86 FR 24140, 24163.

See 89 FR 26218, 26247-48.

With specific regard to new gene therapies for sickle cell disease, when we were previously analyzing the changes to the sickle cell disorder related HCCs in the 2025 benefit year risk adjustment models,

we considered whether to add an RXC for existing high-cost sickle cell drugs and new gene therapy treatments, but determined that we need to continue to analyze the evolution and availability of drug treatments for sickle cell disease. Specifically, the new gene therapy drugs for sickle cell disease were not approved for the market until December 2023.

Therefore, the first full year of claims data in which these new sickle cell disease treatments may be reflected will not be available until the 2024 benefit year enrollee-level EDGE data is available. We therefore continue to find that we do not have enough information at the present time to account for these treatments in the HHS risk adjustment models because of the general lack of data on the utilization and cost of gene therapy drugs for sickle cell disease in the individual, small group, and merged markets. We are committed to continuing to analyze new data as they become available and, consistent with § 153.320(b)(1), we would propose the addition of any market pricing adjustments or other changes to the risk adjustment models to account for these treatments through notice-and-comment rulemaking, as appropriate. We also note that if an enrollee in an issuer's risk adjustment covered plan has claims for gene therapy, other high-cost drugs, or other expensive treatments, that enrollee would be eligible for the high-cost risk pool payments if claims for that enrollee are over $1 million.

Ibid.

See

https://www.fda.gov/news-events/press-announcements/fda-approves-first-gene-therapies-treat-patients-sickle-cell-disease.

For example, the new sickle cell gene therapy treatments are expected to exceed the high-cost risk pool payment threshold. See, DeMartino P, Haag MB, Hersh AR, Caughey AB, Roth JA. A Budget Impact Analysis of Gene Therapy for Sickle Cell Disease: The Medicaid Perspective. JAMA Pediatr. 2021 Jun 1;175(6):617-623. doi: 10.1001/jamapediatrics.2020.7140. Erratum in: JAMA Pediatr. 2021 Jun 1;175(6):647. PMID: 33749717; PMCID: PMC7985816. Accessed at

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7985816/.

Considering the absence of adequate data, we did not propose and are not finalizing a new market pricing adjustment or other model adjustments for sickle cell gene therapy drugs for the 2026 benefit year. We intend to continue to assess sickle cell gene therapy drugs and other high-cost drugs to consider whether model updates for future benefit years are warranted.

We also intend to work with interested parties to continue to analyze plan liability for sickle cell disease and the impact of gene and cell therapy treatments, as well as explore the availability of alternative data sources that could be used to monitor utilization and costs outside of currently available enrollee-level EDGE data.

As explained in the 2025 Payment Notice (89 FR 26249), we also recently examined the treatment of GLP-1 drugs in the HHS risk adjustment models using the 2022 benefit year enrollee-level EDGE data and found that, at this time, a change was not warranted to the current mapping of GLP-1 drugs to RXC 07 (Anti Diabetic Agents, Except Insulin and Metformin Only).

We understand GLP-1 drug utilization patterns are changing and will continue to assess these trends as additional benefit years of enrollee-level EDGE data become available for potential targeted refinements to the HHS risk adjustment models in future benefit years, as appropriate.

As background, RXC 07 (Anti Diabetic Agents, Except Insulin and Metformin Only) is a pharmacotherapeutic class of drugs, which contains a broad array of anti-diabetic medications that vary in cost. RXC 07 (Anti Diabetic Agents, Except Insulin and Metformin Only) does not include all GLP-1 drugs currently on the market; drugs that carry an FDA indication for chronic weight management are excluded from RXC 07 (Anti Diabetic Agents, Except Insulin and Metformin Only). The RXC 07 (Anti Diabetic Agents, Except Insulin and Metformin Only) coefficient in the HHS risk adjustment adult models is meant to reflect the average enrollee cost for individuals being treated by any of the drugs in this class.

Comment:

One commenter requested additional information on how HHS defines generic and specialty drugs and what trend assumptions HHS uses for each of these two categories, asserting that this information would help interested parties better evaluate the proposal to begin to phase out the Hepatitis C market pricing adjustment against costs experienced by issuers.

Response:

Since the 2017 benefit year, we have subdivided expenditures into traditional drugs, specialty drugs, medical services, and preventive

services and determine trend factors separately for each category of expenditure.

In determining these trend factors, we consult our actuarial experts, review relevant URRT submission data, analyze multiple years of enrollee-level EDGE data, and consult NHEA data as well as external reports and documents

published by third parties. As described in the 2024 Payment Notice,

in this process, we aim to determine trends that reflect changes in cost of care rather than gross growth in expenditures. We believe the trend factors we used for each expenditure category for the 2026 benefit year are appropriate for the most recent changes in cost of care that we have seen in the market. We further note that, for the purposes of annual risk adjustment model recalibration activities, our definitions of what drugs qualify as either traditional (for example, low-cost and generic drugs) or specialty are also informed by consultations with actuarial experts and by reviewing price data for these drugs. Specific thresholds and criteria may vary according to the class of drugs or the conditions they are intended to treat, but we generally use the Part D specialty-tier cost threshold, which is updated periodically, to differentiate between traditional and specialty drugs.

See 81 FR 12218. See also the 2016 Risk Adjustment White Paper, available at:

https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf.

See, for example, “How much is health spending expected to grow?” by the Peterson-Kaiser Family Foundation, available at

https://www.healthsystemtracker.org/chart-collection/how-much-is-health-spending-expected-to-grow/.

See also “Medical cost trend: Behind the numbers 2024” by PwC Health Research Institute, available at

https://www.pwc.com/us/en/industries/health-industries/library/assets/pwc-behind-the-numbers-2024.pdf.

See also “MBB Health Trends 2024” by MercerMarsh Benefits, available at

https://www.marsh.com/na/services/employee-health-benefits/insights/health-trends-report.html.

See 88 FR 25740, 25754-55.

For example, the specialty-tier cost threshold specified in the Contract Year (CY) 2023 Final Part D Bidding Instructions (available at:

https://www.cms.gov/files/document/2023partdbiddinginstructions.pdf

) will be used to divide prescription drug claims into traditional versus specialty drugs for 2023 enrollee-level EDGE data when they become available.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments above, we are finalizing the proposal to begin phasing out the market pricing adjustment for Hepatitis C drugs starting with the 2026 benefit year, as proposed. However, to account for the incorporation of the PrEP ACF with the generic drug exclusion and hierarchy specifications finalized in this final rule, we were unable to complete the calculations for the final coefficients in time to publish them in this final rule. Therefore, consistent with § 153.320(b)(1)(i), we will publish the final coefficients for the 2026 benefit year in guidance after the publication of this final rule. We will release this guidance in time for rate setting for the 2026 benefit year.

c. Inclusion of Pre-Exposure Prophylaxis (PrEP) in the HHS Risk Adjustment Adult and Child Models as an Affiliated Cost Factor (ACF)

In the HHS Notice of Benefit and Payment Parameters for 2026 proposed rule (89 FR 82308, 82323), we proposed to incorporate human immunodeficiency virus (HIV) pre-exposure prophylaxis (PrEP) as a separate, new type of factor called an Affiliated Cost Factor (ACF) in the HHS risk adjustment adult and child models starting with the 2026 benefit year. As proposed, the change would reflect an evolution in our approach to defining the factors used in the HHS risk adjustment models to include a factor that is not indicative of an active medical condition and would change our current policy that models the costs of PrEP alongside other preventive services.

As explained in the proposed rule (89 FR 82324), as a general principle, we currently incorporate preventive services (including PrEP

) into the HHS risk adjustment models to ensure that 100 percent of the cost of those services are reflected in the simulation of plan liability. In the simulation of plan liability, services are only counted as preventive when they occur in the recommended circumstances (for example, age) to the extent we can identify such circumstances from enrollee-level EDGE data. In addition to PrEP drugs, like other preventive services,

ancillary services related to PrEP care (for example, HIV screenings) qualify as preventive services and as such are also currently calibrated at 100 percent plan liability in the recalibration of the HHS risk adjustment adult and child models.

See 85 FR 28164, 29185-87.

For example, colonoscopies typically require a combination of several services between the drugs needed for the colonoscopy and the professional and institutional claims for the visit and procedure itself. Likewise, contraception coverage often requires a doctor's visit to obtain a prescription for the contraception.

See 86 FR 24140, 24164.

However, as a part of our commitment to consider ways to continually improve the HHS risk adjustment models, we continued to monitor and assess different ways to more accurately assess the actuarial risk and costs associated with PrEP in the HHS risk adjustment models. In this regard, we stated in the proposed rule (89 FR 82324) that because of PrEP's high costs relative to other preventive services, PrEP services can pose a unique risk of adverse selection to the extent that utilization of PrEP services differs between plans. Our analysis of 2022 benefit year enrollee-level data

found that the costs of PrEP services remained high, in contrast to our initial assumptions about expected pricing decreases as generics entered the market, and that there are statistically significant, substantial differences in PrEP prevalence between issuers in rating areas where PrEP use is most common, indicating that the addition of a PrEP factor in the adult and child risk adjustment models would be appropriate and would have a meaningful impact on risk adjustment State transfers. Our analysis also found that other considerations that helped inform the current approach (such as the expected decrease in costs as generics entered the market and gained market share) have not addressed the uniquely high costs of PrEP as a preventive service as we previously expected. For these reasons, we proposed to incorporate a non-RXC and non-HCC model factor for PrEP in the HHS risk adjustment adult and child models to capture differences in costs for PrEP utilizers relative to the average enrollee. To signify that the proposed new factor would not indicate the presence of a specific active medical condition, we referred to the proposed new type of factor as an “affiliated cost factor” (ACF), thereby distinguishing this new type of factor from RXCs and HCCs. Furthermore, we proposed a set of seven principles to guide our development of any new ACF variable.

Prior to the 2021 Benefit Year, Plan ID and Rating Area were not included as part of the enrollee-level data extracted from issuers' EDGE data submissions. As finalized in the 2023 Payment Notice (87 FR 27208, 27241-51), we now extract these fields as part of the enrollee-level EDGE dataset and are able to include them in our analyses. As such, this recent analysis reflects our earliest opportunity to reliably detect differences in prevalence within rating areas for any medical and prescription drug expenditures, including PrEP.

We stated in the proposed rule (89 FR 82324) that in developing an ACF variable reflecting PrEP, we considered whether PrEP satisfies those principles and what approaches were necessary to appropriately balance all seven principles. As described in the proposed rule, a PrEP ACF would easily satisfy the principles of clinical meaningfulness and specificity,

meaningful and predictable costs,

sufficient sample size, and low risk of inappropriate prescribing. However, we also stated in the proposed rule that that the creation of a PrEP ACF variable would require further careful consideration in assessing the other three proposed principles: specifically, the principles of hierarchical factor definitions, monotonicity, and mutually exclusive classification.

As discussed later in this section, it may be appropriate to remove generic drugs to ensure homogeneity of costs within a PrEP ACF.

We stated in the proposed rule (89 FR 82327) that to address the HHS risk adjustment adult modeling concerns we identified regarding these three principles; we considered two alternative approaches. First, we could modify the current definition of RXC 1 (Anti-HIV Agents) by treating PrEP NDCs as RXC 1 NDCs in limited circumstances based on individual enrollee characteristics. Operationally, to capture these cases, the adult enrollees with a PrEP prescription claim would receive the RXC 1 flag instead of the ACF only in cases where the enrollee has both a PrEP prescription claim and an HIV diagnosis but does not have a typical RXC 1 prescription claim because the enrollee did not begin treatment for HIV, or because their treatment medication was provided at no cost to the issuer and therefore no claim was submitted to the issuer's EDGE server. Alternatively, we explained we could place the PrEP ACF in a hierarchy with RXC 1 but define no hierarchical restrictions between PrEP and HCC 1 (HIV/AIDS). This alternative would allow adult enrollees without RXC 1 to receive the PrEP ACF along with HCC 1 in cases where the enrollee has both a PrEP prescription claim and an HCC 1 diagnosis in their medical records for the benefit year. We solicited comments on addressing these hierarchy, monotonicity, and mutual exclusivity concerns, and both alternative approaches designed to address those concerns.

We also sought comment on our proposal to create a new ACF category of model factors for incorporation into the HHS risk adjustment models to account for unique medical expenses or services (such as PrEP) that do not meet the criteria to qualify as HCC or RXC factors, but impact the actuarial risk presented to issuers of risk adjustment covered plans. In addition, we sought comment on our proposal to modify the treatment of PrEP in the HHS risk adjustment adult and child models beginning with the 2026 benefit year, as well as how to methodologically define a potential ACF category of model factors that accounts for PrEP (or other unique medical expenses or services) and what other considerations should be part of the analysis and modeling for this proposed new category of model factors (such as the availability of drug rebates

or differences in medication adherence for PrEP). Furthermore, we sought comment regarding the principles to guide inclusion of potential ACF factors and the alternative approaches for defining a PrEP ACF's hierarchical relationship to HCC 1 and RXC1 to address the concerns related to hierarchical factor definitions, violations of monotonicity, and violations of mutually exclusive classification in the HHS risk adjustment adult models.

For example, we believe there are likely substantial rebates for Descovy that are not captured in issuers' EDGE data submissions. See, for example, Dickson, S., Gabriel, N., and Hernandez, I. Estimated changes in price discounts for tenofovir-inclusive HIV treatments following introduction of tenofovir alafenamide. AIDS. 2022 Dec 1;36(15):2225-2227. doi: 10.1097/QAD.0000000000003401. See, also, Krakower, D. and Marcus, J.L. Commercial Determinants of Access to HIV Preexposure Prophylaxis.

JAMA Network Open.

2023;6(11):e2342759. doi:

10.1001/jamanetworkopen.2023.42759.

See, also, McManus, K.A., et al. Geographic Variation in Qualified Health Plan Coverage and Prior Authorization Requirements for HIV Preexposure Prophylaxis.

JAMA Network Open.

2023;6(11):e2342781. doi:

10.1001/jamanetworkopen.2023.42781.

Additionally, we solicited comments on whether generic versions of PrEP medication should be excluded from the definition of the proposed ACF for PrEP. As we stated in the proposed rule (89 FR 82326), we found that a large disparity exists between the costs of generic PrEP medication and the costs of brand name PrEP medication.

We explained that due to this disparity, if we include all PrEP medications in the definition of an ACF, the estimated coefficient would likely lead to overprediction for enrollees receiving generic medications and underprediction for enrollees receiving brand name medications. Therefore, an exclusion of low-cost generics from the PrEP ACF could improve predictions for enrollees receiving either generic or brand name PrEP medication and has precedent in our adoption of other factors in the HHS risk adjustment models.

See, supra, note 53.

We previously excluded generic drugs from RXC 9, Immune Suppressants and Immunomodulators, due to concern over patient access and health plan selection behavior. See the 2019 Payment Notice (83 FR 16942).

Lastly, we sought comment concerning whether there are any similar medical expenses or services that we should consider for potential new ACFs alongside PrEP.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing the addition of PrEP as an ACF in the HHS risk adjustment adult and child models, but are excluding generic versions of PrEP from the ACF at this time, and are placing the PrEP ACF in the adult models in a hierarchy below RXC 1 (Anti-HIV Agents) without defining any hierarchical relationship between the PrEP ACF and HCC 1 (HIV/AIDS). In the child models, which do not contain RXCs, we are finalizing the placement of the PrEP ACF in a hierarchy with HCC 1. We summarize and respond to public comments received on the proposed addition of PrEP as an ACF in the HHS risk adjustment adult and child models starting with the 2026 benefit year below.

Comment:

Many commenters supported the proposal to add PrEP to the HHS risk adjustment adult and child models as an ACF. Many of these commenters noted agreement with HHS' determination that PrEP presents a unique risk of adverse selection among preventive services and that the addition of PrEP to the HHS risk adjustment adult and child models would mitigate perverse incentives for issuers to minimize their exposure to enrollees who can benefit from PrEP despite the mandate to cover preventive services with no enrollee cost sharing. Several commenters stated that this addition to the HHS risk adjustment adult and child models will better align issuers' incentives with the public health benefit of preventing HIV transmission. A few commenters acknowledged that PrEP may be appropriate to include in the HHS risk adjustment adult and child models but noted doubt that a new class of factors (that is, ACFs) was necessary.

Response:

We agree with commenters that PrEP should be properly represented in the HHS risk adjustment adult and child models to mitigate the potential for adverse selection and appreciate the support for the addition of a new PrEP ACF to these models beginning with the 2026 benefit year. As explained in the proposed rule (89 FR 82308, 82323-24), we believe that creating a new class of factors is necessary and appropriate at this time to capture actuarial risks and costs that may contribute to adverse selection but are not indicative of an active medical condition, as is the case with PrEP, and therefore would not be reflected in the

HCC and RXC factors used in the HHS risk adjustment models.

Although this new ACF class of model factors is guided by similar principles

for inclusion as the existing RXC class of model factors,

we feel that it is conceptually appropriate to distinguish between these two classes. As stated in the 2018 Payment Notice,

RXCs were specifically incorporated into the HHS risk adjustment models as separate factors from HCCs (which indicate the presence of a diagnosis directly) to impute a missing diagnosis or indicate severity of a diagnosis. Because the PrEP ACF (and any potential future ACFs) are not intended to be related to a diagnosis for any medical condition, we believe it is appropriate to distinguish such model factors from RXCs and HCCs.

See 89 FR 82308, 82324-31.

See 81 FR 94058, 94074-80. See also the 2016 HHS Risk Adjustment White Paper. Available at

https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf

Ibid. See also the March 31, 2016,

HHS-Operated Risk Adjustment Methodology Meeting Questions & Answers.

June 8, 2016. Available at

https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf.

Comment:

One commenter opposed the proposal to add PrEP to the HHS risk adjustment adult and child models as an ACF on the basis that the commenter believes including PrEP in the HHS risk adjustment adult and child models is discriminatory, expressing a belief that risk adjustment and the assignment of risk scores to enrollees based on health conditions is discriminatory in general.

Response:

HHS takes seriously our obligation to protect individuals from discrimination and generally disagrees that the use of factors based on enrollees' age, sex, and health conditions or utilization of services and treatments in risk adjustment is inappropriate. Consistent with section 1343 of the ACA, the HHS-operated risk adjustment program reduces the incentives for issuers to avoid higher-than-average risk enrollees, such as those with chronic conditions, by using charges collected from issuers that attract lower-than-average risk enrollees to provide payments to health insurance issuers that attract higher-than-average risk enrollees. The ACA limits issuers' ability to establish or charge premiums on the basis of age and prohibits issuers' ability to do so on the basis of sex or any individual health characteristic other than tobacco use.

However, the cost of care for and actuarial risk of enrollees is, in part, correlated with their age, sex, health conditions (or severity thereof), and likelihood to utilize services and treatments. As such, without the inclusion of factors related to age, sex, health conditions, and use of services and treatments in the HHS risk adjustment models, some issuers would be incentivized to design plans that are less attractive to potential enrollees whose age-sex category, health conditions, or use of services and treatments is predicted to create a higher liability for the issuer. The various factors in the HHS risk adjustment models help alleviate this incentive by ensuring that the actuarial risk of an issuers' enrollee population in a State market risk pool, including issuers that enroll a higher-than-average proportion of enrollees who fall into a high-cost age-sex category or are likely utilizers of high-cost preventive services (PrEP, for example), are appropriately assessed as part of the calculations under the State payment transfer formula. The use of factors associated with age, sex, health conditions, and the use of services and treatments (including expensive preventive services, such as PrEP) in the HHS risk adjustment models is therefore necessary, appropriate, and helps reduce the likelihood that discrimination based on any of these factors will occur with respect to health insurance coverage issued or renewed in the individual and small group (including merged) markets.

See section 2701 of the Public Health Service Act (42 U.S.C. 300gg) as amended by section 1201 of the ACA. See also the Market Rules and Rate Review final rule (78 FR 13406, 13411-13).

Comment:

One commenter opposed the proposal due to concerns that the addition of ACFs would increase risk adjustment model complexity. A few commenters urged caution in implementing the proposal or requested that HHS implement the addition of the PrEP ACF on a pilot basis. A few commenters requested a technical paper be published on the ACF concept.

Response:

We appreciate commenters' interest in carefully considering the impact of the addition of a PrEP ACF to the HHS risk adjustment adult and child models. We will continue to monitor the performance of the HHS risk adjustment models, including the impact of the new PrEP ACF. Although the HHS risk adjustment models are made more complex by the addition of any new model factor, we believe that the seven principles for considering new ACFs discussed in the proposed rule,

as well as the existing principles for consideration of HCCs

and RXCs,

are sufficient to ensure that new model factors are only added when appropriate. In particular, we note that the addition of the PrEP ACF satisfies the principles of clinical meaningfulness and specificity, meaningful and predictable costs, sufficient sample size, and low risk of inappropriate prescribing. Therefore, we determined that the addition of the PrEP ACF is likely to improve the predictive validity of the models with respect to the portion of the enrollee population that are eligible for PrEP. With the specifications finalized in this rule to address the principles of hierarchical factor definitions, monotonicity, and mutually exclusive factor definitions, we believe that the benefits of adding a new PrEP ACF outweighs the concerns about model complexity. In addition, our recent analysis of 2022 benefit year enrollee-level EDGE data confirmed there is sufficiently robust data to justify the addition of the PrEP ACF and calculate its coefficients for the HHS risk adjustment adult and child models beginning with the 2026 benefit year such that a pilot period for the PrEP ACF is unnecessary.

See 89 FR 82308, 82325-27.

See the 2014 Payment Notice Proposed Rule (77 FR 73118, 73128) and the 2014 Payment Notice Final Rule (78 FR 15410, 15420). See also Kautter, J. et al (2014). The HHS-HCC Risk Adjustment Model for Individual and Small Group Markets under the Affordable Care Act.

Medicare and Medicaid Research Review, 4

(3). Available at:

https://www.cms.gov/mmrr/Downloads/MMRR2014_004_03_a03.pdf.

See also the 2016 HHS Risk Adjustment White Paper (available at:

https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf

) and the 2021 RA Technical Paper (available at:

https://www.cms.gov/files/document/2021-ra-technical-paper.pdf

See the 2018 Payment Notice Proposed Rule (81 FR 61456, 61470-71) and the 2018 Payment Notice Final Rule (81 FR 94058, 94075-80).

As always, as part of our ongoing efforts to continually improve the precision of the HHS risk adjustment models, we will seek input from interested parties through notice-and-comment rulemaking or other appropriate vehicles (including technical papers, as appropriate) on potential changes to the HHS risk adjustment models, including any potential new ACFs we may consider in the future. However, in light of the rationale and data discussed in the proposed rule, and in response to the comments in support of adding the PrEP ACF to the HHS risk adjustment adult and child models beginning with the 2026 benefit year, we do not believe a technical paper is warranted before finalizing the addition of the PrEP ACF to the HHS risk adjustment adult and child models.

Comment:

Several commenters expressed a preference for excluding generic drugs from the definition of the PrEP ACF, noting the vast difference in prices between brand name and generic drugs. One commenter noted that their experience showed that prices for brand name PrEP drugs can be as much as 100 times the cost of generic PrEP drugs. A few commenters stated that excluding generics would better support patients as advances in PrEP come to market, with a few commenters specifically noting that newer branded forms of PrEP drugs that are more effective, more tolerable, and long-acting will likely be the predominant form of PrEP in the near future. Furthermore, a few commenters were concerned that including generics in the PrEP ACF definition would overcompensate plans that prescribe more generics than average or would otherwise contribute to adverse selection incentives.

Several other commenters noted a preference for generic drugs to be included in the definition of the PrEP ACF on the basis that excluding generics may incentivize prescription of brand name drugs and inefficient care patterns. A few of these commenters noted that issuers are likely receiving considerable manufacturer rebates for PrEP that may not be reflected in the enrollee-level EDGE data that HHS uses for risk adjustment model recalibration.

One commenter who supported the exclusion of generics requested that step-therapy requirements be instituted for PrEP drugs that have both a generic and brand name formulation. A few commenters noted an interest in splitting the PrEP ACF into two ACFs according to brand name/generic status or based on oral/injectable form.

Response:

We appreciate the comments and agree with the position that the vast difference in costs between brand name and generic PrEP drugs warrants an exclusion for generic drugs from the definition of the PrEP ACF. Although excluding generic drugs from the definition of a model factor may, in many cases, encourage the prescription of brand name drugs over generic drugs and encourage inefficient care patterns, we do not believe this is especially likely in the case of PrEP due to the very large difference in price between the only generic form of PrEP available on the market and the multiple brand name forms available. Moreover, we are concerned that the inclusion of generic drugs would lead to an overpayment for coverage of generic drugs and an underpayment for coverage of brand name drugs, potentially incentivizing issuers to limit access to brand name drugs. Because there is presently only one form of generic PrEP available on the market (a daily oral regimen), barriers to accessing brand name drugs, including step-therapy requirements, would only limit access to newer and more tolerable formulations, including long-acting injectable forms of PrEP. Additionally, step-therapy requirements would be inconsistent with recently released guidance relating to coverage of preventive services under section 2713 of the PHS Act specifying that issuers must cover, without cost sharing, all three FDA-approved PrEP formulations (two oral and one injectable) and are not permitted to use medical management techniques to direct individuals prescribed PrEP to utilize one formulation over another.

As such, to further limit the influence of perverse incentives, to align with the recent guidance, and in recognition of the very large difference in price between generic and brand name forms of PrEP, beginning with the 2026 benefit year, we are finalizing the addition of the PrEP ACF to the HHS risk adjustment adult and child models with an exclusion of generic versions of PrEP medication from the definition of the PrEP ACF. We will continue to monitor the impact of the new PrEP ACF, as well as the cost and utilization of PrEP drugs in the market, and may consider alterations to the new PrEP ACF if the prices of generic and brand name forms of PrEP become more comparable, additional generic forms of PrEP enter the market, or we observe market distortions or other impacts resulting from the addition of the new PrEP ACF to the adult and child models that should be addressed.

See

https://www.cms.gov/files/document/faqs-implementation-part-68.pdf.

We may also consider the potential addition of a separate generic drug PrEP ACF in the future, but would need to consider whether the inclusion of an ACF for generic drugs would satisfy the principles finalized in this rule to guide the adoption of potential additional ACFs in the future. In particular, we would need to consider whether a generic drug PrEP ACF would satisfy the principle of meaningful and predictable costs (Principle 2), as the cost of the generic version of PrEP currently available on the market is fairly low and may not produce a meaningful coefficient if incorporated into the HHS risk adjustment adult and child models. As part of this future analysis, we may also consider whether a distinction between oral and injectable PrEP is warranted. However, we note that the annual costs of brand name oral and injectable forms are currently similar and that the only generic form of PrEP currently available is an oral form. Therefore, the splitting of the PrEP ACF into oral and injectable forms may still necessitate the exclusion of generic PrEP due to the cost disparity between the generic and brand name oral forms, which would continue to lead to overprediction for the generic form, incentivizing issuers to use medical management techniques to direct individuals prescribed oral PrEP to utilize the generic oral formulation over other branded oral forms that may have fewer side effects or otherwise be more appropriate for the enrollee. We would seek input from interested parties through notice-and-comment rulemaking or other appropriate vehicles on any such potential changes.

Regarding the comments related to manufacturer rebates, we acknowledge that manufacturer rebates are common and may impact drug prices for a wide variety of prescription drugs.

We note that issuers are currently instructed that they do not need to adjust the reported Plan Paid Amount to reflect manufacturer rebates in the data made available to HHS through issuers' EDGE servers.

As such, using enrollee-level EDGE data to precisely account for manufacturer rebates for any prescription drugs in the HHS risk adjustment adult and child models may necessitate changes to issuers' data submission practices. We continue to consider these issues and different ways to potentially account for these rebates in the HHS risk adjustment models in future benefit years.

See, for example, Shepherd, Joanna. (2020). Pharmacy benefit managers, rebates, and drug prices: conflicts of interest in the market for prescription drugs.

Yale Law & Policy Review, 38(2),

360-396. Available at:

https://heinonline.org/HOL/P?h=hein.journals/yalpr38&i=390.

See the EDGE Server Business Rules, Version 25 (December 2024). Available at:

https://regtap.cms.gov/reg_librarye.php?i=3765

Comment:

All commenters on the two hierarchy options set forth in the proposed rule preferred the alternative approach in which HHS would allow adult enrollees with HIV to receive credit for PrEP and place the PrEP ACF in the adult models in a hierarchy below RXC 1 (Anti-HIV Agents). Commenters noted that this approach is the most straightforward approach, that it maintains a strong adherence to the seven principles for developing a new ACF factor set forth in the proposed rule, and that it ensures that the HHS risk adjustment models can distinguish between preventive use of PrEP and treatment of active HIV infection, thus mitigating overlap issues and preserving the integrity of the classification system.

One commenter suggested that if the ACF for PrEP is added to the HHS risk adjustment child models, RXC 1 (Anti-HIV Agents) should also be added to the child models with the same hierarchy specifications as the adult models. This commenter asserted that without this modification, it may be difficult to differentiate enrollees subject to the child models who are on PrEP from those who are taking antiretrovirals to manage active HIV infections.

Response:

We agree that the alternative hierarchy approach for the adult models set forth in the proposed rule is straightforward and would appropriately address the hierarchy concerns identified in the proposed rule with regards to the adult models, namely the violations of the hierarchical factor definitions principle (Principle 4), the monotonicity principle (Principle 5), and the mutually exclusive classification system principle (Principle 6).

Because we are able to appropriately address these violations through the adoption of the alternative hierarchy approach, we also agree that the adult models will be able to appropriately distinguish between the preventive use of PrEP and the treatment of an active HIV infection. Therefore, in the HHS risk adjustment adult models we are finalizing the hierarchy option that places the PrEP ACF below RXC 1 in a hierarchy without defining any hierarchical relationship between the PrEP ACF and HCC 1 (HIV/AIDS). Under this approach, adult enrollees without RXC 1 will receive the PrEP ACF along with HCC 1 in cases where the enrollee has both a PrEP prescription claim and an HCC 1 diagnosis in their medical records for the benefit year. Further, under this approach, an adult enrollee with a PrEP prescription claim in their medical records for the benefit year who later tests positive for HIV in the same benefit year would have an increase in their risk score for that year as a result of the additional diagnosis, appropriately satisfying the principles of additivity (Principle 4) and monotonicity (Principle 5).

This alternative hierarchy approach satisfies the intent of Principle 6 (mutually exclusive classification) by using similar considerations and filtering steps to those we currently use in our simulation of plan liability for PrEP.

Regarding the comment requesting the addition of RXC 1 to the child models with the same hierarchy specifications as the adult models, we did not propose and are not finalizing the addition of any RXCs to the HHS risk adjustment child models. Currently, only the HHS risk adjustment adult models include RXCs. Determining whether it is appropriate to add any RXCs to the child models would require careful analysis and consideration, and we would want to solicit public comment on such analysis, which was not possible between the receipt of these comments and publication of this final rule. For example, similar to the development of the RXC-HCC pairs for the HHS risk adjustment adult models, we would need to work with clinicians to analyze, select, and tailor the RXCs that could be used to impute diagnoses and to indicate the severity of diagnoses otherwise indicated through medical coding as appropriate for the child models.

We would also need to propose and solicit comments on such potential draft factors in the applicable HHS notice of benefit and payment parameters.

For information on the development of the RXC-HCC pairs for the adult models, including the guiding principles and other considerations, see the 2018 Payment Notice Proposed Rule (81 FR 61456, 61470-71), the 2018 Payment Notice Final Rule (81 FR 94058, 94075-80), and the 2019 Payment Notice Final Rule (83 FR 16930, 16941-43). Also see Chapter 4, 2016 HHS Risk Adjustment White Paper, available at:

https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf.

However, we agree with the commenter that there is an important issue with the hierarchy specification(s) related to the addition of the PrEP ACF in the child models that needs to be addressed when finalizing these new factors for the models. To explain, we first note that because the HHS risk adjustment child models do not contain RXCs, the costs of HIV treatment (inclusive of the HIV treatment medication regimens captured in RXC 1 in the adult models) are accounted for in the HCC 1 coefficient in the child models. As such, in contrast to the adult models, where the RXC 1 coefficient is generally larger than the PrEP ACF or HCC 1 coefficient, with the HCC 1 coefficient having the smallest coefficient of the three adult model factors, the absence of RXC 1 in the child models generally results in a higher coefficient for HCC 1 than the PrEP ACF coefficient. As such, without a hierarchy specification limiting the application of the PrEP ACF in the child models, an enrollee subject to the child models who was on PrEP for part of a benefit year, but was later diagnosed with HIV (and would therefore likely be prescribed treatment for an active HIV infection instead) would receive a large increase to their risk score (approximately 3.993, per the draft silver coefficient for HCC 1 in the child models as reflected in Table 5 of the proposed rule)

because the enrollee would be receiving risk score components associated with both prevention and treatment of HIV. However, in the context of the adult model PrEP ACF and hierarchy specification finalized in this rule, a similar enrollee subject to the adult models who was on PrEP for part of a benefit year, but was later diagnosed with HIV and started to take an RXC 1 drug for treatment would receive a much smaller increase to their risk score (approximately 1.962 per the silver coefficients for the adult models as reflected in Tables 2 and 4 of the proposed rule)

because the enrollee's risk score would only reflect the difference in cost associated with treatment relative to prevention.

See 89 FR 82308, 82328-41. Note that these values are approximate and presented here only for illustrative purposes. We note that the proposed rule estimates included generic drugs in the definition of the PrEP ACF but in this rule we are finalizing that generic drugs will be excluded from PrEP ACF definition for both the adult and child models. As such, these values should be taken only as rough estimates of the impact of the hierarchy specification on the example enrollee.

Ibid.

Pending further research and consideration on the impact of adding RXCs (such as RXC 1) to the child models, to better align the representation of risk between the adult and child models and more appropriately reflect the cost of enrollees who receive both PrEP and HIV treatment in the same benefit year in the child models, we believe that an appropriate approach

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