Vol. 78 Wednesday, No. 39 February 27, 2013

Part II

Department of Health and Human Services

45 CFR Parts 144, 147, 150, et al. Patient Protection and Affordable Care Act; Health Insurance Market Rules; Rate Review; Final Rule

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DEPARTMENT OF HEALTH AND A. Part 144—Requirements Relating to Federal Register proposed rule entitled HUMAN SERVICES Health Insurance Coverage ‘‘Patient Protection and Affordable Care 1. Subpart A—General Provisions Act; Health Insurance Market Rules; 45 CFR Parts 144, 147, 150, 154 and B. Part 147—Health Insurance Reform Rate Review’’ (77 FR 70584). These 156 Requirements for the Group and Individual Health Insurance Markets standards apply to health insurance [CMS–9972–F] 1. Fair Health Insurance Premiums issuers offering non-grandfathered 2. State Reporting health insurance coverage both inside RIN 0938–AR40 3. Guaranteed Availability of Coverage and outside of the new competitive 4. Guaranteed Renewability of Coverage marketplaces called Affordable Patient Protection and Affordable Care C. Part 150—CMS Enforcement in Group Insurance Exchanges, or ‘‘Exchanges.’’ Act; Health Insurance Market Rules; and Individual Insurance Markets This final rule: (1) Provides that Rate Review D. Part 154—Health Insurance Issuer Rate health insurance issuers may vary the Increases: Disclosure and Review AGENCY: Department of Health and premium rate for health insurance Requirements coverage in the individual and small Human Services. 1. Subpart B—Disclosure and Review ACTION: Final rule. Provisions group markets only based on family 2. Subpart C—Effective Rate Review size, geography, and age and tobacco SUMMARY: This final rule implements Programs use within limits; (2) directs health provisions related to fair health E. Part 156—Health Insurance Issuer insurance issuers to offer coverage to insurance premiums, guaranteed Standards Under the Affordable Care and accept every employer or individual availability, guaranteed renewability, Act, Including Standards Related to who applies for coverage in the group single risk pools, and catastrophic Exchanges and individual market, subject to certain plans, consistent with title I of the 1. Subpart A—General Provisions exceptions; (3) directs health insurance Patient Protection and Affordable Care 2. Subpart B—Standards for Essential issuers to renew or continue in force Health Benefits, Actuarial Value, and Act, as amended by the Health Care and Cost Sharing coverage in the group and individual Education Reconciliation Act of 2010, F. Applicability to Special Plan Types market, subject to certain exceptions; (4) referred to collectively as the Affordable III. Modification of Effective Date of Certain codifies the requirement that issuers Care Act. The final rule clarifies the Provisions maintain a single risk pool for the approach used to enforce the applicable IV. Provisions of the Final Regulations individual market and a single risk pool requirements of the Affordable Care Act V. Collection of Information Requirements for the small group market (unless a with respect to health insurance issuers A. ICRs Regarding State Disclosures state decides to merge the markets into and group health plans that are non- B. ICRs Regarding Rate Increase Disclosure a single risk pool); and (5) outlines federal governmental plans. This final and Review standards for enrollment in catastrophic VI. Regulatory Impact Analysis rule also amends the standards for A. Summary plans for young adults and people who health insurance issuers and states B. Executive Orders cannot otherwise afford health regarding reporting, utilization, and 1. Need for Regulatory Action insurance. collection of data under the federal rate 2. Summary of Impacts Finally, this rule amends the review program, and revises the 3. Anticipated Benefits, Costs, and standards under the rate review program timeline for states to propose state- Transfers in 45 CFR part 154. The amendments specific thresholds for review and C. Regulatory Alternatives revise the timeline for states to propose approval by the Centers for Medicare & D. Regulatory Flexibility Act state-specific thresholds for review and Medicaid Services (CMS). E. Unfunded Mandates approval by CMS. The amendments also F. Federalism direct health insurance issuers to submit DATES: Effective Date. This rule is G. Congressional Review Act effective on April 29, 2013, except 45 data relating to proposed rate increases CFR 147.103 and the amendments to 45 Executive Summary: Beginning in in a standardized format specified by CFR part 154 are effective on March 29, 2014, health insurance issuers will be the Secretary of HHS (the Secretary), 2013. prohibited from denying coverage to any and modify criteria and factors for states Applicability Dates. The provisions of American because of a pre-existing to have an effective rate review program. this final rule generally apply to health condition, and from charging These changes are necessary to reflect insurance coverage for plan or policy individuals and small employers higher the new market reform provisions years beginning on or after January 1, premiums based on health status or discussed above and to fulfill the 2014. The provisions of 45 CFR 147.103 gender. In addition, health insurance statutory requirement beginning in 2014 apply on March 29, 2013. The issuers will no longer be able to segment that the Secretary, in conjunction with amendments to 45 CFR part 154 apply enrollees into separate rating pools in the states, monitor premium increases of on April 1, 2013. order to charge high-risk individuals health insurance coverage offered FOR FURTHER INFORMATION CONTACT: more than low-risk individuals. These through an Exchange and outside of an Jacob Ackerman, (410) 786–1565 (or by reforms, combined with other Exchange. The provisions are also email: [email protected]), provisions in the Affordable Care Act, designed to streamline data collection concerning the health insurance market will improve the functioning of both the for issuers, states, Exchanges, and HHS. The substantive authority for these rules; Douglas Pennington, (410) 786– individual and small group markets and final rules is generally sections 2701, 1553 (or by email: [email protected]), make health insurance affordable and 2702, 2703, 2723 and 2794 of the Public concerning rate review. accessible to millions of individuals and families who currently lack affordable Health Service Act (PHS Act) and SUPPLEMENTARY INFORMATION: coverage options. sections 1302(e), 1312(c), and 1560(c) of Table of Contents The Department of Health and Human the Affordable Care Act. PHS Act Services (HHS) published proposed section 2792 authorizes rulemaking as I. Background A. Legislative Overview standards to implement the 2014 market necessary or appropriate to carry out the B. Structure of the Final Rule reform provisions of the Affordable Care provisions of title XXVII of the PHS Act, II. Provisions of the Proposed Rule and Act and to amend the federal rate including sections 2701, 2702, 2703, Analysis and Responses to Comments review program in a November 26, 2012 2723, and 2794. Section 1321(a) of the

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Affordable Care Act authorizes does not establish such areas, the statute Section 2701 applies to health rulemaking with respect to sections authorizes the Secretary to establish insurance issuers offering health 1302(e), 1312(c), and 1560(c). rating areas for that state. Section insurance coverage in the individual 2701(a)(3) directs the Secretary, in and small group markets, and in the I. Background consultation with the National large group market if a state, beginning A. Legislative Overview Association of Insurance Commissioners in 2017, allows health insurance issuers The Patient Protection and Affordable (NAIC), to define permissible age bands in the large group market to offer Care Act (Pub. L. 111–148) was enacted for rating purposes. Section 2701(a)(4) qualified health plans (QHPs) in such on March 23, 2010. The Health Care and provides that, for purposes of family market through an Exchange pursuant to Education Reconciliation Act of 2010 coverage, any rating variation for age section 1312(f)(2)(B) of the Affordable 3 (Pub. L. 111–152) was enacted on March and tobacco use must be applied based Care Act. Sections 2702 and 2703 30, 2010. We refer to the two statutes on the portion of the premium apply to issuers in the individual and collectively as the ‘‘Affordable Care attributable to each family member. group (small and large) markets. These Act’’ in this final rule. Section 2702 of the PHS Act directs provisions apply to health insurance Subtitles A and C of title I of the a health insurance issuer offering health coverage in the respective markets Affordable Care Act reorganized, insurance coverage in the group or regardless of whether the coverage is a amended, and added to the provisions individual market in a state to accept QHP offered on Exchanges. Section of part A of title XXVII of the PHS Act every employer and individual in the 1255 of the Affordable Care Act relating to health insurance issuers in state that applies for the coverage, provides that sections 2701, 2702, and the group and individual markets and to subject to certain exceptions. These 2703 of the PHS Act are effective for group health plans that are non-federal exceptions allow issuers to restrict plan years (in the individual market, governmental plans.1 As relevant here, enrollment in coverage: (1) To open and policy years) beginning on or after 4 these PHS Act provisions include special enrollment periods as described January 1, 2014. Section 1251(a)(2) of section 2701 (fair health insurance in section 2702(b); (2) to employers with the Affordable Care Act provides that premiums), section 2702 (guaranteed eligible individuals who live, work, or these PHS Act sections do not apply to availability of coverage), section 2703 reside in the service area of a network grandfathered health insurance (guaranteed renewability of coverage), plan as described in section coverage. and section 2794 (ensuring that 2702(c)(1)(A); and (3) in certain Section 1302 of the Affordable Care consumers get value for their dollars). In situations involving limited network Act specifies levels of coverage or addition, subtitle D of title I of the capacity and limited financial capacity ‘‘actuarial values’’ that health plans in Affordable Care Act includes section as described in section 2702(c)(1)(B) and the individual and small group markets, 1302(e) (catastrophic plans) and section (d). both inside and outside of an Exchange, 1312(c) (single risk pool). These Section 2703 of the PHS Act requires will meet as part of the requirement to provisions will establish a federal floor a health insurance issuer to renew or cover an essential health benefits (EHB) that ensures individuals and employers continue in force any coverage in the package beginning in 2014. These plans in all states have certain basic group or individual market at the option will provide a bronze, silver, gold, or protections with respect to the of the plan sponsor or the individual. platinum level of coverage as described availability and affordability of health Exceptions to this requirement in section 1302(d), or a catastrophic insurance coverage. described in section 2703(b) allow the plan in the individual market as Section 2701(a)(1) of the PHS Act issuer to nonrenew or discontinue described in section 1302(e) for young regarding fair health insurance coverage for nonpayment of premiums, adults and people who cannot otherwise premiums provides that the premium fraud, or violation of participation or afford health insurance. rate charged by a health insurance contribution rules under state law. The Section 1312(c)(1) and (2) of the issuer for health insurance coverage law also permits an issuer to cease to Affordable Care Act directs a health offered in the individual or small group offer either a particular type of product insurance issuer to consider all market may vary with respect to a or all coverage in a particular market, to enrollees in all health plans (other than particular plan or coverage only based refuse to renew coverage if all of the grandfathered health plans) offered by on the following factors: (1) Whether the plan’s enrollees leave the service area of such issuer to be members of a single plan or coverage covers an individual or a network plan, or if group health plan risk pool for a market (the individual family; (2) rating area; (3) age (within a coverage is provided through a bona market or small group market). Section ratio of 3:1 for adults); and (4) tobacco fide association and the employer’s 1312(c)(3) gives states the option to use (within a ratio of 1.5:1). Section association membership ends. Finally, merge the individual and small group 2701(a)(2) directs each state to establish an exception outlined in section 2703(d) markets within the state into a single one or more rating areas and charges the permits a health insurance issuer, at the risk pool. Section 1312(c) applies to Secretary with reviewing the adequacy time of coverage renewal, to modify the health plans offered both inside and of state-established rating areas. If the coverage offered to a group health plan outside of an Exchange for plan years Secretary determines that a state’s rating in the large group market, or in the (in the individual market, policy years) areas are not adequate, or that a state small group market if, for coverage that beginning on or after January 1, 2014. It is available in such market other than does not apply to grandfathered health 1 The Affordable Care Act also added section through one or more bona fide plans, and explicitly preempts state law 715(a)(1) to the Employee Retirement Income Security Act of 1974 (ERISA) and section 9815(a)(1) associations, the modification is to the Internal Revenue Code (the Code) to consistent with state law and effective 3 The applicable definitions for ‘‘individual incorporate the provisions of part A of title XXVII on a uniform basis among group health market,’’ ‘‘small group market,’’ and ‘‘large group of the PHS Act into ERISA and the Code, and to plans with that product.2 market’’ are found in PHS Act section 2791(e) and make them applicable to group health plans other section 1304(a) of the Affordable Care Act. than non-federal governmental group health plans. 4 See 45 CFR 144.103 for definitions of ‘‘plan The market reform provisions discussed in this 2 Section 2742 of the PHS Act provides a year’’ and ‘‘policy year.’’ These terms are defined final rule apply only to health insurance issuers corresponding exception for the uniform differently from ‘‘plan year’’ and ‘‘benefit year’’ as offering health insurance coverage. modification of coverage in the individual market. defined in 45 CFR 155.20 with respect to QHPs.

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requiring grandfathered health plans to 147, 150, 154, and 156. Part 144 outlines Comment: Several commenters be included in a single risk pool. standards regarding the basis, scope, supported the clarifications proposed in Section 1003 of the Affordable Care and applicability of 45 CFR parts 144 Part 144. In particular, commenters Act adds a new section 2794 of the PHS through 148. Part 147 outlines standards supported the clarifications concerning Act, which directs the Secretary, in for health insurance issuers in the group coverage sold through associations, conjunction with the states, to establish and individuals markets related to noting that they would ensure such a process for the annual review of health insurance reforms. Part 150 coverage complies with the market ‘‘unreasonable increases in premiums outlines standards regarding reform protections of the Affordable for health insurance coverage.’’ The enforcement. Part 154 outlines Care Act. statute provides that health insurance standards for health insurance issuers in Response: Based on the comments issuers must submit to the Secretary and the small group and individual markets received, we are finalizing the proposed the applicable state justifications for with respect to rate increase disclosure provisions in § 144.101 and § 144.102 of unreasonable premium increases prior and review. Part 156 outlines standards the proposed rule without modification. to the implementation of the increases. for issuers of QHPs, including with Comment: A few commenters asked Section 2794(b)(2) also specifies that in respect to participation in an Exchange. for clarification about how to determine plan years beginning in 2014, the whether a group policy should be Secretary, in conjunction with the II. Provisions of the Proposed Rule and treated as large group or small group states, shall monitor premium increases Analysis and Responses to Comments coverage for purposes of applying the of health insurance coverage offered HHS published standards under the PHS Act requirements when employer through an Exchange and outside of an statutory provisions discussed in group size fluctuates between the Exchange. Section 2794 of the PHS Act section I.A. of the preamble in a definition of large employer and small does not, by its own terms, apply to November 26, 2012 Federal Register employer. grandfathered health insurance coverage proposed rule entitled ‘‘Patient Response: We intend to issue future or to self-funded plans. Regulations at Protection and Affordable Care Act; guidance on counting employees for 45 CFR 154.101(b) further limit the Health Insurance Market Rules; Rate determining market size of a group scope of review to small group and Review’’ (77 FR 70584). HHS received health plan. individual market coverage. approximately 500 comment letters in Section 1563 of the Affordable Care B. Part 147—Health Insurance Reform response to the November 26, 2012 Act amended the Health Insurance Requirements for the Group and Portability and Accountability Act of proposed rule. Commenters represented Individual Health Insurance Markets 1996 (HIPAA) enforcement provision a wide variety of stakeholders, including states, tribal organizations, 1. Fair Health Insurance Premiums that previously governed group health (§ 147.102) insurance coverage and non-federal consumers, health insurance issuers, Section 147.102 of this final rule governmental group health plans by health care providers, employers, implements section 2701 the PHS Act, expanding its scope to include members of the public, and others. which specifies that the only rating individual health insurance coverage Additionally, HHS consulted with the factors that may be used to vary and by renumbering the provision as NAIC through its Health Care Reform premium rates for health insurance section 2723 of the PHS Act. Actuarial (B) Working Group to define The preemption provisions of PHS permissible age bands and consulted coverage in the individual and small Act section 2724(a)(1) apply so that the with and requested formal, written group markets are (1) Family size; (2) requirements of part A of title XXVII of comments from tribal leaders and geographic rating area; (3) age (within a the PHS Act are not to be ‘‘construed to representatives about the provisions of ratio of 3:1 for adults); and (4) tobacco 67 supersede any provision of state law this rule that impact tribes. use (within a ratio of 1.5:1). which establishes, implements, or This section summarizes the Comment: We received several continues in effect any standard or provisions of the November 26, 2012 comments requesting flexibility in the requirement solely relating to health proposed rule and discusses and application of section 2701. For insurance issuers in connection with provides responses to the comments. example, some commenters suggested individual or group health insurance that we allow states and issuers to phase A. Part 144—Requirements Relating to coverage except to the extent that such in the premium rating rules, specifically standard or requirement prevents the Health Insurance Coverage the 3:1 age rating factor. One commenter application of a requirement’’ of part A 1. Subpart A—General Provisions recommended issuer flexibility to of title XXVII of the PHS Act. Section (§ 144.101 and § 144.102) transition to the new per-member-rating 1321(d) of the Affordable Care Act methodology in states without applies the same preemption principle HHS proposed technical changes in community rating. Further, some to the requirements of title I of the § 144.101 and § 144.102 to clarify commenters noted that small businesses Affordable Care Act.5 enforcement of the health insurance in Massachusetts are permitted to form reform requirements added by the B. Structure of the Final Rule Affordable Care Act and implemented 6 All non-grandfathered health insurance The regulations outlined in this final in 45 CFR part 147. In § 144.102(c), HHS coverage offered through associations and through multiple employer welfare arrangements (MEWAs) rule are codified in 45 CFR parts 144, also proposed to clarify how to is subject to the premium rating rules applicable to determine whether insurance coverage the appropriate market, as defined by PHS Act 5 In addition, section 1252 of the Affordable Care sold through associations is group or section 2791(e)(1), (3), and (5) (definitions of Act provides that any standard or requirement individual coverage under the PHS Act. individual market, large group market, and small adopted by a state pursuant to title I of the group market, respectively). Affordable Care Act (or an amendment made by Comments received regarding HHS’s 7 The age, tobacco use, and geographic rating title I) must be applied uniformly to all health plans enforcement processes and regarding factors are multiplicative. For example, the in each insurance market to which the standard and bona fide associations are addressed in maximum variation for age and tobacco use is 4.5:1 requirements apply. Sections 1302(e) and 1312(c) of (3 times 1.5:1). The family rate calculation could be the Affordable Care Act and the amendments to other sections of the preamble that we additive or multiplicative, depending on whether a PHS Act sections 2701, 2702, and 2703 are all deemed to be more relevant to the per-member- or family-tier-rating methodology is found in title I of the Affordable Care Act. substance of the comments. used, as discussed later in this preamble.

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group health insurance purchasing whether to set standards governing the whether there is a limit on the number cooperatives and receive premium minimum categories of family members of family-tier categories permitted in discounts based on other factors that, that issuers must include in setting rates community rated states. while permitted by state law, were not for family policies or to defer to states Response: PHS Act section 2701(a)(4) explicitly included in the proposed rule. and issuers to make this determination. compels per-member rating because the Response: We do not have the legal We also solicited comment on the types age and tobacco use factors must be authority to permit any rating factors in of individuals who are typically attributable to individuals. Thus, only the final rule other than those explicitly included under family coverage, community rated states, which do not permitted by section 2701 of the PHS including types of covered individuals allow rating based on age or tobacco Act. Further, we do not have the legal who would not meet the classification use, are able to implement family-tier- authority to provide for a phase-in of of tax dependents under the Code. rating structures consistent with PHS certain rating provisions such as the 3:1 Comment: Many commenters Act section 2701(a)(4). Those states may age factor or the per-member-rating remarked on the proposed three-person require all health insurance issuers in methodology. rating cap for family members under age the individual and small group markets 21. Several commenters supported the to use a standard family-tier a. Family Rating cap, while some commenters expressed methodology with corresponding In § 147.102(c)(1), we proposed that concern that it would increase rates for multipliers and will have the discretion issuers develop premiums for family individuals and smaller families. Other to set the number of tiers in the family- coverage by adding up the rate of each commenters believed the cap would tier structure. If a state has community covered family member.8 Under this increase rates for larger families and rating but does not adopt a uniform proposal, the rates of no more than the requested that no more than two family-tier structure (with three oldest family members under age children under age 21 be rated for corresponding multipliers), per-member 21 would be taken into account in family coverage. Several commenters rating will apply in that state. computing the family premium. There recommended clarifying that only the Comment: Numerous commenters would be no cap on the number of three oldest ‘‘dependent children’’ recommended that the final rule defer to family members age 21 and older whose under age 21 would be taken into the states (and to issuers if permitted by per-member rates would be added into account in computing the family state law) on the categories of family the family premium. We solicited premium, so that policyholders and members that must be included on a comment on the number of family spousal dependents under age 21 would family policy, noting that state law members that should be included in this not be counted toward the three-person typically provides the basis for defining rating cap, as well as the appropriate age cap. Other commenters suggested familial status. Other commenters urged limit for the cap. raising the age limit for the cap to age that HHS adopt a broad definition of We noted that rating based on 26, to better align with the rules family coverage that accounts for all specified family tiers, and other family regarding extension of dependent family compositions, including opposite rating practices that fail to apply the age coverage under section 2714 of the PHS sex and same sex domestic partners; and tobacco use factors proportionately Act. biological, adoptive, step, foster, and to individual family members, would Response: The final rule maintains grandchildren (if under the care of a generally be impermissible pursuant to the cap at three persons, but clarifies grandparent); children under PHS Act section 2701(a)(4), which that the cap applies only to the rates of guardianship arrangements; and any requires that any rating variation for age no more than the three oldest ‘‘covered other child who would be considered a and tobacco use be apportioned to each children’’ under age 21. This will tax dependent under the Code. family member’s premium. However, in mitigate premium increases for larger Response: The final rule does not § 147.102(c)(2), we proposed flexibility families accustomed to family tier rating specify the minimum categories of for community rated states that do not structures and allow for more accurate family members that must be rated permit rating based on age or tobacco rating of families with spouses under together on a family policy. We use to require issuers to use a standard the age of 21. We maintain age 21 as the recognize that state laws differ with family-tier methodology with age limit for the cap given that the respect to marriage, adoption, and corresponding multipliers. We solicited medical risk associated with individuals custody and believe that states are best comment on whether instead of between age 21 and 26 is higher than positioned to make decisions regarding permitting such flexibility, states with the risk associated with individuals family coverage practices. Accordingly, pure community rating should also use under the age of 21. Further, this states have the flexibility to require the per-member approach that would be approach maintains consistency with issuers to include specific types of used in states that allow rating for age our approach to child and adult rates for individuals on a family policy and and tobacco use. purposes of applying the age rating nothing in these final rules precludes We noted that health insurance factor. this ability. We note that if an issuers currently have flexibility in Comment: Many commenters individual is not eligible for family determining how to set rates for family supported the proposed per-member- coverage, he or she will be able to policies and in defining which family rating methodology and the flexibility purchase individual coverage on a members may be on the same policy, for states with community rating to guaranteed availability basis. require health insurance issuers to use subject to federal and state laws b. Small Group Rating requiring coverage of certain a standard family-tier methodology with individuals. We solicited comment on corresponding multipliers. Some In § 147.102(c)(3), we proposed that commenters suggested that all states issuers in the small group market 8 Under this approach, the issuer would charge should have the option to use a family- calculate rates for employee and the same per-member premium for all family tier structure, while other commenters dependent coverage on a per-member members of the same age and tobacco use status. supported applying per-member rating basis, and calculate the group premium The issuer could not charge different rates for family members of the same age and tobacco use uniformly across all states, including by totaling the premiums attributable to status based on their status, for example, as the those with community rating. A few each covered individual. States may policyholder, spouse, or dependent. commenters requested clarification of require issuers to base small group

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premiums on an average amount for would also be permitted to use other standards are intended to provide each employee in the group, provided actuarially justified geographic sufficient flexibility to states to establish that the total group premium equals the divisions, or a number of rating areas rating areas that are responsive to local premium that would be derived through greater than seven, with approval from market conditions, while protecting the per-member-rating approach. HHS to ensure adequacy. In the event consumers from potentially Furthermore, employers would retain that states do not exercise the option to discriminatory rating practices. flexibility to decide how to allocate establish rating areas (or a state’s rating Section 147.102(b)(3) of this final rule employer contributions to health areas were determined to be provides that a state’s rating areas must coverage. inadequate), we proposed that the be based on one the following Comments: Many commenters default would be a single rating area for geographic divisions: Counties, three- supported applying per-member rating the entire state or one of the other digit zip codes, or MSAs and non- in the small group market, especially in proposed geographic standards as MSAs, and will be presumed adequate the Small Business Health Options determined by HHS in consultation if they meet either of the following Program (SHOP) where an ‘‘employee with the state, local issuers, and other conditions: (1) As of January 1, 2013, choice’’ model would make composite interested stakeholders. the state had established by law, rule, rating difficult to administer. However, The November 26, 2012 proposed rule regulation, bulletin, or other executive some commenters recommended requested comment on various aspects action uniform geographic rating areas allowing composite rating in the small concerning the proposed geographic for the entire state; or (2) After January group market outside the SHOP, and for rating area standards, namely comments 1, 2013, the state establishes by law, ‘‘employer choice’’ coverage inside the concerning the use of other geographic rule, regulation, bulletin, or other SHOP where permitted, to minimize divisions or factors; the maximum executive action for the entire state no disruption in current issuer rating number of rating areas within a state more geographic rating areas than the practices. Other comments raised that would be presumed adequate; number of MSAs in the state plus one. concern that moving to per-member whether states with existing rating areas Under these standards, geographic rating may increase premiums for older would have to make changes to conform rating areas may be noncontiguous, but workers. to the proposed standards; whether to the area encompassed by a geographic Response: The final rule directs that establish minimum geographic size and rating area must be separate and distinct issuers use the per-member-rating population requirements; and the from areas encompassed by other methodology in the small group market. appropriate schedules and procedures geographic rating areas. As mentioned, As discussed in the November 26, 2012 for states to modify their rating areas in rating areas must be based on counties, proposed rule, per-member rating the future. three-digit zip codes, or MSAs/non- assures compliance with the Comment: While some commenters MSAs. While we proposed the requirement that age and tobacco rating supported the proposed rating area possibility that HHS might approve only be apportioned to an individual standards, many expressed concern that rating areas based on other existing family member’s premium, enhances HHS would not extend a presumption of geographic divisions, we have employee choice inside the SHOP, and adequacy if a state established more determined that these are the only promotes the accuracy of the risk than seven rating areas. Commenters geographic boundaries that would be adjustment methodology. Nothing in asserted that the threshold of seven feasible for purposes of implementing these final rules precludes a state from rating areas may not be high enough to the premium tax credit under Code requiring issuers to offer (or a small reflect actuarially justified differences in section 36B. We note that if a state had employer from electing to offer) health care costs and utilization established geographic rating areas on or premiums based on average employee patterns, particularly in states with large before January 1, 2013 that did not amounts where every employee in the and diverse health care markets, and follow these geographic boundaries, the group is charged the same premium. We noted that issuers today use more than state would have an opportunity to note that the age bands, as implemented seven rating areas in some states. These adjust their proposed rating areas before by the per-member-rating methodology, commenters recommended that states the default rating area is applied. have flexibility to establish rating areas We recognize that a greater number of are only generally applicable to health that reflect local market conditions and rating areas than the number of MSAs insurance coverage in the individual that minimize disruption. Others in the state plus one may in some cases and small group markets and are commenters were concerned about be actuarially justified. Therefore, states consistent with the Age Discrimination discrimination against rural, have the option pursuant to in Employment Act of 1967, 29 U.S.C. underserved, or high-cost populations. § 147.102(b)(4) of this final rule to seek 621. Response: Following review of the approval from HHS of a greater number c. Geographic Rating comments submitted on this issue, we of rating areas as long as the areas are In § 147.102(b), we proposed that each have determined that it is appropriate to based on counties, three-digit zip codes, state establish rating areas, which would modify the standards in § 147.102(b) to or MSAs and non-MSAs. We will be presumed adequate if they meet one provide states with additional flexibility review such state proposals to ensure of the following options: one rating area to establish rating areas under section they are actuarially justified and non- for the entire state, or no more than 2701 of the PHS Act. The revised discriminatory as discussed below. seven rating areas based on counties, standards recognize that in many cases, Comment: A few commenters three-digit zip codes (that is, areas in states established rating areas after an requested that HHS specify the criteria which all zip codes share the same first open and transparent dialogue with it will use to assess the adequacy of three digits), or metropolitan statistical stakeholders. Further, the revised state rating area proposals. Response: As mentioned above, states areas (MSAs) and non-MSA geographic economic integration with the core. MSAs are may seek approval from HHS of a divisions.9 We proposed that states always established along county boundaries, but number of geographic rating areas that may include counties from more than one state. The 9 MSAs encompass at least one urban core with 367 MSAs in the United States include is greater than the number of MSAs in a population of at least 50,000 people, plus adjacent approximately one-third of the counties and 83 the state plus one, provided they are territory that has a high degree of social and percent of the population of the United States. based on counties, three-digit zip codes,

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or MSAs/non-MSAs. HHS will review based on factors such as price, provider Response: Although the November 26, the state proposals pursuant to the agreements, utilization patterns, and 2012 proposed rule suggested flexibility criteria described in § 147.102(b)(5) of access to care and technology—not in applying either a single statewide this final rule. We will determine that based on size or population. By contrast, rating area or another geographic a state’s rating areas are adequate if a few commenters argued minimum standard as the default, in response to they: (1) Are actuarially justified; (2) are geographic size and population comments, we are modifying not unfairly discriminatory; (3) reflect requirements were necessary to ensure § 147.102(b)(2) to specify that if a state significant differences in health care that rating areas are not excessive in does not establish rating areas (or does unit costs by rating area; (4) lead to small or sparsely populated states. not provide information to CMS about stability in rates over time; (5) apply Response: This final rule does not such rating areas in accordance with the uniformly to all health insurance issuers establish minimum geographic size or state reporting requirements discussed in a market; and (6) are based on one of population requirements. We believe in section II.B.2. of the preamble), or a the geographic boundaries described the geographic standards and criteria set state’s rating areas are determined to be above. We believe these are the forth in this final rule provide the inadequate, the default will be one appropriate criteria to ensure state appropriate basis for ensuring that state rating area for each MSA in the state rating areas are adequate and not rating areas are actuarially justified and and one rating area for all other non- designed to isolate high-cost non-discriminatory. MSA portions of the state, as defined by populations of the state. Comment: A few commenters argued the Office of Management and Budget Comment: One commenter requested that states should have the flexibility to (http://www.census.gov/population/ clarification as to whether PHS Act align rating areas with service areas to metro/data/def.html). We believe MSA/ section 2701 prevents a state from prevent issuer ‘‘cherry-picking’’ of non-MSA designations will sufficiently setting limits on the permissible service areas. Commenters expressed reflect actuarially justified differences in variation in a rating area factor. concern that if issuers are able to choose health care unit costs by geography and Response: Section 2701 of the PHS to write business in only the lower cost ensure rating areas are established Act does not limit the amount by which areas within geographic rating areas, timely, providing certainty to issuers. rates may vary based on geography. there could be reduced competition and We encourage states to establish rating Therefore, states and issuers may consumer access issues. areas as soon as possible but not later determine the appropriate variation for Response: While the final rule does than 30 days following publication of the geographic rating area factor. We not require that geographic rating areas this final rule. note, however, that a rating area factor be aligned with service areas, we Comment: With respect to the process should be actuarially justified to ensure recommend that states consider aligning for updating state-established rating that individuals and employers are not both rating and service areas. As we areas, several commenters suggested charged excessively high premiums that noted in the March 27, 2012 Federal that states have flexibility to render meaningless the guaranteed Register final rule entitled ‘‘Patient periodically review and modify their availability protections of section 2702 Protection and Affordable Care Act; geographic rating areas (including of the PHS Act. Establishment of Exchange and default rating areas) as necessary or Comment: A few commenters Qualified Health Plans; Exchange appropriate. Some commenters requested clarification of whether states Standards for Employers’’ (77 FR suggested that rating areas be reviewed must apply geographic rating areas 18309), herein referred to as the on a regular basis, such as annually or uniformly across the individual and Exchange final rule, Exchanges have biannually, while other commenters small group markets in a state. Other flexibility on several elements of the suggested less frequent reviews, subject commenters asked whether rating areas QHP certification process, including the to the discretion of the states. Several may vary by product, noting that contracting model, so that Exchanges commenters noted that insurance provider contracting varies can appropriately adjust to local market products and rates are often developed geographically between Preferred conditions and consumer needs. To the a year or more in advance and Provider Organization (PPO) and Health extent issuers operate within such emphasized that issuers must be given Maintenance Organization (HMO) plans, uniform service areas or operate adequate time to incorporate any and also between broad and narrow statewide, this policy would facilitate changes to rating areas into their networks. consumers’ ability to compare health pricing. Response: PHS Act section 2701 does insurance premiums, promoting Response: As discussed in section not prevent a state from establishing competition within the market. II.B.2. of the preamble, § 147.103 of this different rating areas for the individual Furthermore, aligning rating areas with final rule provides for the Secretary to or small group markets. However, to QHP service areas in the Exchange may issue guidance that will establish a preserve the integrity of the single risk simplify consumer understanding and process and timeline for states to update pool requirement, rating areas must Exchange administration of eligibility their rating areas (including default apply uniformly within each market and determinations for premium tax credits, rating areas). HHS anticipates this may not vary by product. If a state which may be complex if QHP service process will provide sufficient notice to merges its individual and small group areas are highly individualized. health insurance issuers in advance of markets pursuant to section 1312(c) of Comment: Many commenters state rate filing deadlines. the Affordable Care Act, rating areas expressed concern that applying a single will apply uniformly to both the statewide rating area as the default d. Age Rating individual and small group markets in standard would not be appropriate in In 147.102(a)(1)(iii), we proposed that the state. many states. Commenters suggested the premium rate charged by a health Comment: Several commenters various alternatives, such as defaulting insurance issuer for non-grandfathered suggested that HHS should not establish to county, three-digit zip code, or MSA health insurance coverage in the minimum geographic size and boundaries; defaulting to existing state individual or small group market may population standards for rating areas. or issuer rating areas; or defaulting to vary by age, except that such rate may Commenters noted that geographic the rating areas of the state’s EHB base not vary by more than 3:1 for adults, as differences in health care costs are benchmark plan. set forth by the statute. We proposed to

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define adults as individuals age 21 and maximum 3:1 ratio for age rating applies own risk adjustment programs should older for purposes of this provision. For to adults age 21 and older. PHS Act have flexibility to establish age bands individuals under age 21, we proposed section 2701(a)(1)(A)(iii) provides that and to determine whether they must be that rates must be actuarially justified age rating with respect to adults must be standardized across a market. Other based on a standard population. consistent with section 2707(c) relating commenters urged HHS to apply the Further, we proposed that an enrollee’s to child-only plans available to same age-band structure to both the age for rating purposes be determined at individuals up to age 21. Accordingly, individual and small group markets to the time of policy issuance and renewal the 3:1 age rating factor applies to all align more closely with per-member and requested comment on whether individuals age 21 and older, including rating, minimize rate disruption when other measurement points, such as those who may be eligible for Medicare individuals move between the two birthdays, were appropriate. based on age. The 3:1 age factor ratio markets, and facilitate states’ ability to After consulting with the NAIC, we does not apply to individuals under age merge the individual and small group proposed the following standard age 21. markets into a single risk pool if they bands for use in all states and markets Comment: Nearly all commenters determine it appropriate. subject to section 2701 of the PHS Act: expressed support for the proposal to Response: The uniform age bands in • Children: A single age band for establish single-year age bands for this final rule apply in all states and children ages 0 through 20. adults age 21 through 63. However, markets subject to section 2701 of the • Adults: One-year age bands for some commenters suggested that PHS Act: the individual and small adults ages 21 through 63. multiple age bands for children were group markets in all states, and the large • Older adults: A single age band for necessary to reflect the fact that claims group market in states that, beginning in adults ages 64 and older. costs for children vary by age, 2017, permit health insurance issuers in We solicited comment on the proposed particularly children age 0 to 1, who the large group market to offer QHPs in age bands, including comment on have much higher health care costs than such market through an Exchange. whether single or multiple age bands for older children. Applying age bands consistently children were appropriate. Response: The final rule maintains a nationwide simplifies identification of Finally, we proposed that health single age band for children to keep the second lowest cost silver plan for insurance issuers in a state and market rates level between ages 0 through 1 and calculation of the premium tax credit use a uniform age rating curve ages 2 through 20. This will avoid under Code section 36B. As indicated established by the state, specifying the higher premiums for newborns and below, states are welcome to establish relative distribution of rates across all provide for easier price comparisons their own age rating curve provided the age bands. We proposed an HHS between different plans. A single band curve incorporates the uniform age standard default age curve that would for children also simplifies and bands. A state may establish separate apply in both the individual and small promotes efficiency of the risk age curves for the individual and small group markets in states that do not adjustment methodology. group markets. exercise the option to establish their Comment: Most commenters Comment: With respect to HHS’s own age curve. We requested comment supported determining an enrollee’s age proposed default standard age curve, on the default age rating curve, for rating purposes once a year at the several commenters recommended including comment on the premium time of policy issuance or renewal. smoothing the age curve to avoid a impact of the transition from the child Commenters stated that such annual significant premium differential age curve to the adult age curve. determination is generally consistent between the child age curve at age 20 Comment: Many commenters with current issuer rating practices, and the adult age curve at age 21, while supported applying the maximum 3:1 helps enrollees to understand and plan another commenter recommended age rating factor to adults defined as for rate increases, and promotes smoothing the age curve for older individuals age 21 and older. Some administrative efficiency for issuers. In adults. One commenter suggested that commenters, however, recommended instances where a family member is issuers should have flexibility to set defining the adult age as beginning at added to a family policy or an employee their own age curves. Another age 19 to better align with the definition is added to a group health plan outside commenter supported the default age of ‘‘pediatric services’’ in the November of policy issuance or renewal, a few rating curve as proposed, suggesting that 26, 2012 Federal Register proposed rule commenters requested issuer flexibility it will enhance the transparency, entitled ‘‘Patient Protection and to apply an age rating factor based on predictability, and accuracy of risk Affordable Care Act; Standards Related the new enrollee’s age at the time of adjustment. A few commenters urged to Essential Health Benefits, Actuarial enrollment. that HHS not make frequent changes to Value, and Accreditation’’ (77 FR Response: Based on the comments the default age curve and that issuers be 70644), herein referred to as the EHB/ received, we are finalizing the provision provided sufficient time to respond to AV/Accreditation proposed rule. Other that for rating purposes an enrollee’s age any updates. commenters recommended that adult be determined at the time of policy Response: As we stated in the rating begin at age 26, consistent with issuance or renewal. We clarify that for November 26, 2012 proposed rule, the the rules regarding dependent coverage individuals who are added to the plan 0.635 age rating factor for children age of children to age 26 under section 2714 or coverage other than on the date of 0 through 20 is supported by HHS’s of the PHS Act.10 Several commenters policy issuance or renewal, the analysis of data available through suggested we allow issuers to develop enrollee’s age may be determined as of HealthCare.gov and an examination of rates for individuals age 65 and older the date such individuals are added or the large group insurance market. outside of the 3:1 age rating factor due enrolled in the coverage. Although the shift from the child age to the higher health care costs Comment: A few commenters curve to the adult age curve could result associated with this population. requested state flexibility to use in a premium differential that is not Response: We are finalizing the different age-band structures, such as reflected in current issuer rating proposed requirement that the five-year bands in the small group practices, we do not believe the market. One commenter specifically differential will result in a significant 10 45 CFR 147.120. recommended that states operating their financial burden on consumers, given

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the low premiums for individuals in e. Tobacco Rating self-reporting, a defined amount of these age groups, as well as the relative In § 147.102(a)(1)(iv), we proposed tobacco use within a specified look-back premium stability from ages 21 through that the premium rate charged by a period, regular tobacco use, or tobacco 30. health insurance issuer for non- use of sufficient frequency so as to be HHS will establish in guidance a grandfathered health insurance coverage addicted to nicotine. We also solicited default age rating curve that will apply offered in the individual or small group comment on use of the single in both the individual and small group market may vary for tobacco use, except streamlined application under 45 CFR markets in states that do not exercise the that such rate may not vary by more 155.405 to collect information on option to establish their own age curve than 1.5:1, as set forth by the statute. tobacco use. (or that do not provide information to States or issuers would have flexibility Comments: Numerous commenters CMS about their age curve in within these limits to determine the supported establishing a clear definition accordance with the state reporting appropriate tobacco rating factor for and standard application questions to requirements discussed in section II.B.2. different age groups (for example, determine tobacco use. Commenters of the preamble). We intend to adopt in younger enrollees could be charged a stated that in defining tobacco use, it would be important for HHS to specify guidance the default age curve as lower tobacco use factor than older the types of tobacco products that proposed in the November 26, 2012 enrollees provided the tobacco use would be included, establish a proposed rule for states that allow a factor does not exceed 1.5:1 for any age minimum frequency of usage, define the maximum 3:1 ratio for age rating. For group). appropriate look-back period, and states that adopt narrower ratios for age Further, we proposed to coordinate clarify permissible assessment methods. rating, the default age curve established application of the tobacco rating rules of For example, some commenters by HHS would take into account the PHS Act section 2701 with the recommended a broad definition that permissible rating variation for age nondiscrimination and wellness includes any form of tobacco use in the under state law. We intend to revise the program rules of PHS Act section 2705. Specifically, we proposed that a health past 12 months, while other default age curve periodically, but no commenters suggested considering only more frequently than annually, to reflect insurance issuer in the small group market would be required to offer a the most common types of tobacco market patterns in the individual and products used within a 30-day look- tobacco user the opportunity to avoid small group markets following back period. Additionally, some paying the full amount of the tobacco implementation of the 2014 market commenters recommended relying on rating factor permitted under PHS Act reforms. self-reporting, while other commenters section 2701 if he or she participates in Comment: One commenter requested sought flexibility for issuers to use a wellness program meeting the clarification of whether issuers may additional methods to verify accuracy standards of section 2705 of the PHS establish their own, actuarially justified and prevent fraud, such as cotinine Act and its implementing regulations.11 child age factor based on a standard testing, attestations, health assessments, We solicited comment on this proposal population, rather than using the 0.635 and physician affidavits. Several child age factor in the HHS default and on whether and how the same commenters urged HHS to consult with standard age curve. wellness incentives promoting tobacco experts and use planned consumer cessation could apply in the individual Response: Health insurance issuers testing of the single streamlined market. application to develop precise and within a market and state must use the We proposed that the definition of narrow language and questions about uniform age rating curve established by ‘‘tobacco use’’ for purposes of section tobacco use. A few commenters each state or the HHS default standard 2701 be consistent with the approach representing tribal organizations age curve in instances where a state taken with respect to health-contingent suggested that a uniform definition of does not establish a uniform age curve, wellness programs designed to prevent specifying the relative distribution of tobacco use include an express or reduce tobacco use under section exemption for religious and ceremonial rates for all age bands, including the 2705. We noted that a common child age band. As discussed in the uses. One commenter suggested that definition of ‘‘tobacco use’’ does not states have flexibility to determine what November 26, 2012 proposed rule, the currently exist among the states, age factor associated with the child age constitutes tobacco use. resulting in wide variation in how Response: The National Health band must be actuarially justified based health insurance issuers define and on a standard population. Interview Survey, administered by the assess tobacco use in insurance Centers for Disease Control and Comment: A few commenters asked applications. We solicited comment on Prevention, asks survey respondents if HHS to clarify how age rating applies to how to define ‘‘tobacco use’’ for they use tobacco products ‘‘every day, child-only plans. For example, some purposes of both section 2701 and some days, or not at all?’’ 12 In this final commenters requested clarification that section 2705 and suggested several rule, we establish a definition of the child age band and age curve apply possible approaches, such as reliance on ‘‘tobacco use’’ that is based on the only to dependent children on family National Health Interview Survey, while policies, not to children enrolled in 11 The Departments of HHS, Labor, and the setting forth the meaning of ‘‘some child-only plans. Treasury published proposed rules under PHS Act section 2705 entitled ‘‘Incentives for days’’ to ensure clarity for issuers and Response: The child age band and Nondiscriminatory Wellness Programs in Group consumers. Specifically, for purposes of child age curve apply to child-only Health Plans’’ in the November 26, 2012 Federal this final rule, we define ‘‘tobacco use’’ plans in the same manner that they Register (77 FR 70620). The rules proposed that the as use of tobacco on average of four or additional increase in the size of the reward for apply to all other individual and small wellness programs designed to prevent or reduce more times per week within no longer group market coverage. Thus, for tobacco use would not be limited to the small group than the past six months. Further, example, a 10-year-old child would be market, to provide consistency across markets and charged the same rate based on age to provide large group, self-insured, and 12 Centers for Disease Control and Prevention, whether the child was a dependent on grandfathered employment-based plans the same Cigarette Smoking Among Adults—United States, additional flexibility to promote tobacco-free 1992, and Changes in the Definition of Current a family policy or enrolled in a child- workforces as small, insured non-grandfathered Cigarette Smoking, MMWR Weekly 43(19); 342– only plan. health plans. 346, May 20, 1994.

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tobacco use must be defined in terms of Tobacco use is not a material fact for coverage offered in the large group when a tobacco product was last used. which an issuer may rescind coverage if market in a state that, beginning in Tobacco includes all tobacco products. there is a misrepresentation because 2017, allows health insurance issuers to However, religious or ceremonial uses these regulations already provide the offer QHPs in such market through an of tobacco (for example, by American remedy of recouping the tobacco Exchange. Indians and Alaska Natives) are premium surcharge that should have Comment: Some commenters specifically exempt under this final been paid since the beginning of the supported the proposal allowing issuers rule. This approach establishes a plan or policy year. Accordingly, it is to vary tobacco rating by age. Other minimum standard to assure the view of the Department of HHS, commenters suggested that tobacco consistency in the individual and small Labor, and the Treasury (which share rating should apply only with respect to group health insurance markets and interpretative jurisdiction over section individuals age 18 and older, the age at simplifies administration of the tobacco 2712 of the PHS Act) that this remedy which people can begin to legally use rating factor. For example, an individual of recoupment renders any tobacco products in most states. Other could be asked the following two misrepresentation with regard to commenters expressed concern that questions about tobacco use: (1) Within tobacco use no longer a ‘‘material’’ fact tobacco rating would disproportionally the past six months, have you used for purposes of rescission under PHS impact low-income populations and tobacco regularly (four or more times Act section 2712 and its implementing recommended that HHS prohibit per week on average excluding religious regulations.13 Additionally, under tobacco rating altogether. or ceremonial uses)? (2) If yes, when guaranteed availability of coverage Response: PHS Act section 2701 was the last time you used tobacco rules, an issuer may not deny an permits rating for tobacco use within a regularly? Issuers will have flexibility enrollee or their covered dependents an ratio of 1.5:1. While we do not have within the federal definition and as enrollment period described in this final authority to prohibit the imposition of permitted by applicable state law to rule because an enrollee provided false the 1.5:1 tobacco rating factor, we agree shorten the applicable period of time or incorrect information about their that tobacco rating should be limited to from the last regular use of tobacco. tobacco use. legal use of tobacco products under Because ‘‘four or more’’ as well as ‘‘six Comments: Several commenters federal and state law, which generally is months’’ are federal thresholds, states remarked on the proposed rules limited to those 18 years and older. We have the ability to define both the concerning tobacco rating and wellness clarify our interpretation in the final frequency of use per week and the look- programs in the small group market. rule. Consistent with these rules and back period in ways that are more Some commenters objected to the rules, subject to applicable state law, issuers consumer protective (that is, a arguing that participation in a tobacco will have the flexibility to vary tobacco frequency of more than four times per cessation program does not necessarily rating by age, provided the tobacco use week and a look-back period of less than result in an actual reduction in the factor does not exceed 1.5:1 for any age six months). This definition is specific financial risk associated with band. transitional. We intend to consult with tobacco use, and that issuers need to be Comment: Several commenters sought experts, use experience with the above able to rate for the higher expected clarification that states may require a definition, and study the interaction claims costs of tobacco users. Several narrower ratio than 1.5:1 for tobacco use effects with the permanent risk other commenters supported the or prohibit tobacco rating altogether. adjustment program to develop a more proposed link between tobacco rating Response: Pursuant to section evidenced-based definition of tobacco and wellness programs, noting that 2724(a)(1) of the PHS Act, a state law use through future rulemaking or tobacco cessation programs are more with respect to health insurance issuers guidance. We also intend to conduct effective in addressing tobacco use than is not preempted unless it prevents the consumer testing of language and a premium surcharge, and suggesting application of a federal requirement. questions about tobacco use. that the rules should be expanded to Section 2701 provides that the premium Comment: Several commenters include participation in a broader array rate charged by a health insurance requested additional consequences for of tobacco cessation programs offered issuer in the individual or small group individuals who fail to disclose tobacco outside of one’s workplace, including in market cannot vary for tobacco use by use during the application process, such the individual market. more than 1.5:1. Therefore, a state law as allowing issuers to collect additional Response: We finalize our proposal that prescribes a narrower ratio (for premiums or other penalties, to rescind that a health insurance issuer in the example, 1.25:1) or prohibits varying the policy in the case of intentional small group market may impose the rates for tobacco use altogether would misrepresentation or fraud, and to tobacco rating factor under section 2701 not be preempted, since such law would determine the individual to be ineligible only in connection with a wellness not prevent the application of section for certain enrollment periods. In program meeting the requirements 2701. Because states may generally addition, commenters suggested there under section 2705, allowing a tobacco impose requirements on health should be clear and prominent warnings user the opportunity to avoid paying the insurance issuers that are more to applicants about the consequences of full amount of the tobacco rating factor consumer protective than those imposed failing to answer questions about by participating in a wellness program by federal law, the language in proposed tobacco use truthfully. meeting the standards of section 2705(j) § 147.102(a)(1)(iv) providing that states Response: If an enrollee is found to and its implementing regulations. We may use narrower tobacco rating factors have reported false or incorrect note that wellness rules already apply in is unnecessary, and we remove it from information about their tobacco use, the the group market. Additionally, the use the final rule. (We make parallel issuer may retroactively apply the of tobacco cessation programs may help revisions in proposed § 147.102(a)(1)(iii) appropriate tobacco use rating factor to alleviate underreporting of tobacco use. with respect to state laws that use the enrollee’s premium as if the correct Pursuant to section 2701(a)(5) of the narrower age rating factors). information had been accurately PHS Act, these rules will apply to reported from the beginning of the plan 2. State Reporting (§ 147.103) year. However, an issuer must not 13 26 CFR 54.9815–2712T, 29 CFR 2590.715– In various provisions throughout rescind the coverage on this basis. 2712, and 45 CFR 147.128. proposed § 147.102, we proposed that

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no later than 30 days after publication consumer protection rules under the notice of special enrollment rights is of the final rule, states submit certain Affordable Care Act, we proposed that currently required to be provided to rating information to CMS generally to this requirement include non- group health plan participants and support the accuracy of the risk grandfathered closed blocks of business beneficiaries under HIPAA and solicited adjustment methodology. This included and solicited comment on our proposal. comment on whether issuers in the information about the following, as We also proposed that issuers individual market should provide a applicable: establish enrollment periods during similar notice to individual market • The use of a narrower age rating which they would allow individuals enrollees. ratio than 3:1 for adults age 21 and and employers to purchase health Additionally, we proposed rules older. insurance coverage. We proposed to governing the circumstances under • The use of a narrower tobacco align the initial and annual open which issuers are permitted to deny rating ratio than 1.5:1 for individuals enrollment periods outside the coverage to individuals and employers. who use tobacco. Exchanges with those inside the These rules would allow issuers to deny • State-established rating areas. Exchanges. Specifically, we proposed a coverage to an employer whose eligible • State-established age rating curves. continuous open enrollment period in individuals do not live, work, or reside • In states with community rating, the the group market and a fixed open in the service area of a network plan (or use of uniform family tiers and enrollment period in the individual to an individual who does not live or corresponding multipliers. • market based on a calendar policy year, reside in the service area of a network A requirement that premiums be consistent with the Exchange and SHOP plan) and in certain situations involving based on average enrollee amounts in standards outlined in 45 CFR 155.410 limited network capacity and limited the small group market. and 155.725. Effective dates of coverage financial capacity. In addition, in § 156.80(c), we would also follow those in the Exchange We also proposed that issuers in the proposed that a state inform CMS of its and SHOP. We solicited comment on small group market would be permitted decision to merge the individual and how to address the open enrollment to require small employers to satisfy small group markets in a state into a needs of individual market enrollees minimum contribution or group single risk pool. whose coverage renews on a non- participation requirements, to the extent We received no comments about the calendar year basis. allowed by state law or, in the case of proposed reporting process. We proposed that issuers in the a QHP offered in the SHOP, as Accordingly, we are finalizing the state individual and group markets establish permitted by § 156.285(c), and to reporting process as proposed. However, special enrollment periods for decline to offer coverage if these for organization and clarity, we are individuals and plan participants and standards were not met. This policy was consolidating these reporting beneficiaries to enroll in coverage intended to prevent adverse selection. requirements in a new § 147.103 of this outside of the annual open enrollment Specifically, we were concerned that a final rule. Section 147.103(a) provides period as a result of qualifying events small employer could take advantage of that for the 2014 plan or policy year, triggering eligibility for COBRA the continuous open enrollment states will submit information no later continuation coverage under section 603 opportunity under the proposed rule to than 30 days following publication of of ERISA.15 These special enrollment wait to purchase a group policy. the final rule, in a form and manner periods are in addition to those in We also addressed the issue of specified by the Secretary. Section section 2704(f) of the PHS Act and other whether there could be an exception 147.103(b) provides for the Secretary to federal law. from the guaranteed availability issue future guidance that would We proposed that a participant, requirements allowing coverage sold establish a process and timeline for beneficiary, or enrollee would have 30 through bona fide associations to be states to submit information for plan or calendar days from the date of a limited to members of the association. policy years after 2014 (or for updating qualifying event (generally consistent We contrasted the existing provisions in a state standard that applies in 2014). As with the HIPAA standard) to request section 2703(b) (which retained a described in § 156.80(c), states will special enrollment, but invited guaranteed renewability exception follow the same process with respect to comment on whether to establish a permitting coverage to be limited to a state decision to merge the individual longer election period, such as 60 members of a bona fide association) and small group markets in a state into calendar days (generally consistent with with the provisions in section 2702 a single risk pool. the Exchange standard). We proposed (where the exception had not been 3. Guaranteed Availability of Coverage special enrollment period effective dates included in the statute), and proposed (§ 147.104) that followed the effective dates of that there was no basis for an exception from the guaranteed availability In § 147.104, we proposed that a coverage for QHP special enrollment requirement for coverage sold through health insurance issuer offering health periods in § 155.420(b). We noted that a insurance coverage in the individual or bona fide associations. We invited group market in a state must offer to any 15 For employees, COBRA events include a loss of comment, however, on whether and coverage due to voluntary or involuntary individual or employer in the state all how a transition or exception process termination of employment for reasons other than for bona fide association coverage could of the issuer’s products that are gross misconduct and reduction in the number of approved for sale in the applicable hours of employment. For spouses of covered be structured to minimize disruption. To ensure consistency in the market, and accept any individual or employees, these events include a loss of coverage due to reasons that would make the employee marketing of health plans inside and employer that applies for those eligible for COBRA, the employee’s becoming outside of the Exchange and to products.14 Consistent with other entitled to Medicare, divorce or legal separation of the covered employee, and death of the covered minimize adverse selection, we 14 Other federal laws may restrict the health employee. For children of covered employees, these proposed to extend to the entire health insurance coverage products available to certain events include a loss of coverage due to reasons that insurance market the Exchange individuals. For example, individuals must meet would make the employee eligible for COBRA, the marketing standard applicable to QHPs certain requirements related to residency, employee’s becoming entitled to Medicare, divorce under § 156.225. This standard requires citizenship/immigration status, and non- or legal separation of the covered employee, death incarceration in order to buy QHPs through an of the covered employee, and loss of dependent that an issuer comply with state Exchange (45 CFR 155.305(a)). child status under plan rules. marking standards and not employ

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marketing practices or benefit designs issuers would be allowed to decline to participation requirements, for which that will have the effect of discouraging offer coverage to small employers for the enrollment period may be limited to the enrollment of individuals with failure to satisfy minimum contribution the annual enrollment period described significant health needs in health or group participation requirements above, from November 15 through insurance coverage. under state law or the SHOP standards. December 15. This approach addresses Finally, we solicited comment about Several commenters expressed support concerns about adverse selection in a how to prevent potential gaming of for the policy and recommended manner that is consistent with the guaranteed availability rights and about extending it to the large group market. statutory provisions. We do not extend strategies to minimize the risk of One commenter emphasized that this provision to the large group market adverse selection. minimum participation and because large employers generally do Comment: Several commenters asked contribution standards must be not present the same adverse selection that the term ‘‘offer’’ in section 2702 be reasonable and not burdensome to the risk as small employers. interpreted to mean ‘‘actively point that small employers are Comment: Several commenters voiced marketed,’’ so that issuers would not be discouraged from offering coverage. concerns about the potential for required to reopen closed blocks of Response: Upon further consideration individuals with histories of non- business. Commenters expressed of this issue, we have determined that payment to game guaranteed concern about having to develop small employers cannot be denied availability. Some commenters enrollment materials for closed guaranteed availability of coverage for suggested that we take action to both products. In addition, some commenters failure to satisfy minimum participation prevent individuals with histories of were concerned that this requirement or contribution requirements. As in the non-payment from taking advantage of would make it difficult for issuers to case of the bona fide association guaranteed availability and to prevent bring existing products into compliance exception discussed above, while individuals from dropping in and out of with the Affordable Care Act in a Congress left in place an exception for coverage based on medical need. Other manner that minimizes consumer failure to meet contribution or commenters, including the NAIC, confusion, and ultimately prompt some participation requirements under the recommended that states have the issuers to terminate closed products. guaranteed renewability requirement in flexibility to develop an environment Some commenters argued that the section 2703(b), it provided no such that will discourage adverse selection requirement is not necessary because exception from the guaranteed and suggested that there are a number starting in 2014, individuals will have availability requirement in section 2702. of tools available to states to limit choices beyond closed blocks, To the contrary, language in the adverse selection. Some of the tools alleviating many of the concerns about guaranteed availability provision for identified by commenters included: (1) closed blocks in today’s market. Other group health plans that was in place Allowing issuers to require pre-payment commenters requested flexibility for before the Affordable Care Act was not of premiums each month; (2) allowing states to determine the best policy for included in section 2702. Accordingly, issuers to require payment of all addressing closed blocks. the proposed approach would conflict outstanding premiums before enrollees Response: Section 2702 provides that with the guaranteed availability can re-enroll in coverage after each health insurance issuer that offers provisions in section 2702 of the PHS termination due to non-payment of health insurance coverage in the group Act. Moreover, permitting issuers to premiums; (3) allowing late enrollment or individual market in a state must deny coverage altogether to a small penalties or surcharges (similar to those accept every employer or individual in employer with between 50 and 100 in Medicare Parts B and D); (4) allowing the state that applies for such coverage. employees based on a failure to meet issuers to establish waiting periods or We have interpreted the term ‘‘offer’’ as minimum participation or contribution delayed effective dates of coverage; (5) used throughout the title XXVII requirements could subject such allowing issuers to offset claims requirements of the PHS Act as added employer to a shared responsibility payments by the amount of any owed by the Affordable Care Act (which apply payment under section 4980H of the premiums; (6) allowing issuers to to ‘‘a health insurance issuer offering Code for a failure to offer coverage to its prohibit individuals who have canceled health insurance coverage’’) to refer to employees. coverage or failed to renew from an issuer offering both new as well as While section 2702 contains no enrolling until the second open existing coverage. Accordingly, this exception to guaranteed availability enrollment period after their coverage final rule does not interpret the term based on a failure to meet contribution ceased (unless they replace coverage ‘‘offer’’ in section 2702 to mean or minimum participation requirements, with other creditable coverage); (7) ‘‘actively marketing.’’ We note that section 2702(b)(1) permits an issuer to restricting product availability (for while this provision requires an issuer limit enrollment in coverage to open example, to a catastrophic, bronze, or to accept any individual or employer and special enrollment periods. Under silver level plan) outside of enrollment that applies for coverage, it does not our authority in section 2702(b)(3) to periods to prevent high-risk individuals require closed blocks to be actively define ‘‘open enrollment periods,’’ we from enrolling in more generous marketed. Furthermore, we clarify that are providing in this final rule that, in coverage when medical needs arise; and only non-grandfathered plans are the case of a small employer that fails (8) allowing individuals to move up one subject to guaranteed availability. to meet contribution or minimum metal level each year through the Comment: Several commenters participation requirements, an issuer Exchange shopping portal. remarked on the application of the may limit its offering of coverage to an Response: We appreciate the various guaranteed availability requirements to annual open enrollment period, which strategies suggested by commenters and coverage sold through bona fide we set forth in this final rule as the agree that states have flexibility to associations. period beginning November 15 and implement policies to address adverse Response: We refer readers to section extending through December 15 of each selection. We encourage states to II.F.2. of the preamble for discussion of year. As such, the group market will consider approaches to discourage this issue. have continuous open enrollment, adverse selection while ensuring Comment: We received a few except for small employers that fail to consumers’ guaranteed availability comments about the proposal that meet contribution or minimum rights are protected since state policies

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that limit guaranteed availability are coverage that complies with 2014 We note that if a health insurance issuer preempted by this law. We intend to market reform provisions; requiring in the individual market allows for address permissible strategies to limit individuals whose coverage begins on a enrollment outside of an open or special adverse selection in future guidance. date other than January 1 to re-enroll enrollment period, the issuer must still Comment: Several commenters during the next open enrollment period; comply with all of the individual suggested that the language in proposed and allowing a rating adjustment for market provisions of the PHS Act, § 147.104(e), which prohibits marketing individual health insurance policies including the prohibition against pre- practices or benefit designs that will covering less than a full year to reflect existing condition exclusions and the have the effect of discouraging the that fact that enrollees will have less prohibition against discrimination based enrollment of individuals with than 12 months to reach the annual on health status. An issuer cannot significant health needs in health deductible. Other commenters selectively offer enrollment in a plan to insurance coverage, be broadened to recommended that states have flexibility individuals outside of open or special apply to all forms of discrimination to set their open enrollment periods and enrollment periods in a manner that prohibited by the March 27, 2012 effective dates. discriminates among individuals based Exchange final rule and section 1557 of Response: We maintain the proposed on a pre-existing medical condition or the Affordable Care Act, such as open enrollment periods in health status. discrimination based on age, disability, § 147.104(b)(1) of this final rule. We Comment: A number of commenters race, ethnicity, gender, and sexual believe that consistent open enrollment recommended providing additional orientation, not just discrimination periods will help minimize adverse special enrollment periods to those against individuals with significant or selection between the Exchanges and described in proposed § 147.104(b)(2), high cost health care needs. One the outside market, reduce consumer which incorporated the special commenter urged HHS to provide confusion, and allow issuer marketing enrollment periods for COBRA guidance about marketing practices and to be focused on a single enrollment qualifying events under section 603 of benefit designs that would be campaign. Rolling open enrollment ERISA. Specifically, several commenters considered discriminatory under this periods with individual-specific dates, recommended adding the guaranteed standard. Another commenter asked by contrast, would add complexity for renewability exceptions in § 147.106(b) HHS to remind states of their families and increase risk selection. We through (d), for which an enrollee responsibility to monitor issuer agree with commenters that a one-time experiences a loss in coverage through marketing practices. open enrollment period will allow no fault of their own, as explicit triggers Response: As noted in the November individuals with non-calendar year permitting special enrollment. A few 26, 2012 proposed rule, discriminatory plans to transition to a calendar-year commenters recommended including marketing practices or benefit designs plan upon their renewal date in 2014 special enrollment periods for represent a failure by issuers to comply and provide for such enrollment pregnancy. One commenter suggested with the guaranteed availability opportunity as discussed below. States providing a special enrollment period requirements. In response to comments, may wish to consider other strategies to when individuals permanently move we revise § 147.104(e) of this final rule ease the transition, such as directing into the issuer’s service area, consistent to make clear that a health insurance issuers to pro-rate premiums for policies with the Exchange standard. issuer and its officials, employees, covering less than a full year, among Response: We agree that it is agents and representatives must not other transitional measures. appropriate to provide additional employ marketing practices or benefit Comment: One commenter noted that enrollment opportunities for individuals designs that will have the effect of his state currently allows individuals to experiencing certain significant life discouraging the enrollment of purchase individual health insurance changes, including several of those individuals in health insurance coverage on a guarantee-issue basis at suggested by commenters. To provide coverage based on these factors. This any time during the year and requested consistency across the individual standard will ensure consistency with clarification as to whether state market, we believe these events should the prohibition on discrimination with standards would be preempted by the follow the special enrollment periods respect to EHB in § 156.125, the non- federal standards. Another commenter for individuals seeking coverage discrimination standards applicable to urged HHS to ensure that issuers apply through the Exchanges, as described in QHPs under § 156.200(e), and the consistent rules when offering coverage the March 27, 2012 Exchange final rule. marketing standards in § 156.225. outside of open enrollment. The Because PHS Act section 2702 provides Comment: Numerous commenters commenter expressed concern that some for ‘‘special’’ enrollment periods for expressed support for aligning open issuers would attempt to employ ‘‘qualifying events’’ under ERISA, we enrollment periods inside and outside selective marketing practices designed are providing for additional ‘‘limited’’ of the Exchange to promote consistency to attract low-risk individuals (for open enrollment periods in the between markets and minimize the example, for enrollment in catastrophic individual market under our authority potential for adverse selection. plans). in PHS Act section 2702(b)(3) to However, some commenters were Response: Section 2724(a)(1) of the promulgate regulations with respect to concerned that establishing open PHS Act provides that nothing in part open enrollment periods. These limited enrollment periods and effective dates A or part C of title XXVII of the PHS Act open enrollment periods are equivalent of coverage in the individual market should be construed to preempt any to special enrollment periods in terms of based on a calendar policy year would state law that does not prevent the the limited scope and nature of their not align with many individual policies, application of a federal requirement. applicability, and coverage obtained which are currently offered on a non- Therefore, these final rules do not during such limited open enrollment calendar-year basis. Commenters preclude the application of stronger period will become effective consistent suggested various approaches to consumer protections provided by state with the dates described in § 155.420(b). resolving the transition, such as law including, for example, open Accordingly, in § 147.104(b)(2) of this providing to individuals whose enrollment periods that allow final rule, we cross-reference the coverage renews mid-2014 a one-time individuals to purchase coverage more enrollment periods in § 155.420(d) of special enrollment period to purchase frequently than the federal standards. the March 27, 2012 Exchange finale rule

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(except as discussed below). Thus, (d)(9) of § 155.420. With the exception issuers, we do not in this final rule under § 147.104(b)(2), limited open of these triggering events, limited open require a notice of special enrollment in enrollment periods are triggered in the enrollment periods are the same inside the individual market. QHP issuers are individual market by the following and outside the Exchange in the already subject to various notice events: individual and the small group market. requirements through the Exchange • An individual and any dependents We note that states may create special which will allow enrollees to make losing minimum essential coverage. enrollment periods or limited open timely and informed coverage decisions. • An individual gaining or becoming enrollment periods in addition to those Furthermore, to ensure consistency with a dependent through marriage, birth, established by this final rule. Exchanges and to avoid confusion, we adoption, or placement for adoption. Comment: Many commenters do not extend a notice requirement to • An individual experiencing an error supported establishing 60-day special the broader individual market. in enrollment. enrollment periods, consistent with Comment: One commenter • An individual adequately those in the Exchange, to reduce recommended that special enrollment demonstrating that the plan or issuer consumer confusion, facilitate orderly periods not apply to individual family substantially violated a material enrollment, and ease the administrative members who do not otherwise qualify provision of the contract in which he or burden on states and issuers. One for special enrollment. The commenter she is enrolled. commenter recommended 30-day stated, for example, that an individual • An individual becoming newly special enrollment periods, consistent who loses minimum essential coverage eligible or newly ineligible for advance with the HIPAA standard. A few should be allowed to obtain new payments of the premium tax credit or commenters recommended a 63-day coverage, but should not be allowed to experiencing a change in eligibility for election period. Other commenters obtain coverage for other dependents cost-sharing reductions. recommended that individuals be that were not covered on the previous • New coverage becoming available to permitted to begin the special policy. an individual or enrollee as a result of enrollment process 30 days prior to a Response: If an individual a permanent move. known qualifying event. experiences an event that triggers a Additionally, the final rule provides Response: We agree that 60-day limited open or special enrollment right that an individual enrolled in a non- enrollment periods will promote pursuant to § 147.104(b)(2) or (b)(3) of calendar year plan is entitled to a consistency with the Exchanges and this final rule, the individual has the limited open enrollment period will give consumers the time they need option to choose any family coverage beginning 30 calendar days prior to the to explore coverage options following a offered in the individual market to cover individual’s policy renewal date outside change in life circumstances. Therefore, members of his or her family. Pursuant the open enrollment period for 2014. we provide a 60-day election period for to existing HIPAA regulations at This one-time limited open enrollment the special and limited open enrollment § 146.117, this right already exists in the period will allow individuals with non- periods in the individual market. group market. calendar year policies in the individual However, to avoid inconsistency with Comment: Some commenters market to transition to a calendar year the statutory requirement in PHS Act recommended that issuers offering policy that complies with 2014 market section 2704(f)(1) that individuals losing individual health insurance coverage be reform requirements of the Affordable group health coverage must request required to offer family coverage, while Care Act. special enrollment not later than 30 one commenter recommended clarifying We clarify that loss of minimum days after the loss of coverage, we that offering family coverage is not essential coverage triggering a limited maintain 30-day special enrollment required under the guaranteed open enrollment period does not periods for the group market. We note availability provisions. include failure to pay premiums on a that the March 27, 2012 Exchange final Response: The final rule does not timely basis, including COBRA rule (§ 155.725(a)(3)) currently provides require an issuer to offer family premiums prior to expiration of COBRA for 60-day special enrollment periods coverage. While issuers are required to coverage, or situations allowing for a with respect to the SHOP. We intend to offer all products that are approved for rescission as specified in 45 CFR revise the SHOP special enrollment sale in a market, an issuer is not 147.128. periods to be consistent with the required to offer a family coverage We also note that these limited open election period in group market under option with every policy form. enrollment periods do not include the PHS Act section 2704(f)(1) and this final 4. Guaranteed Renewability of Coverage events described in paragraphs (d)(3), rule. We also note that we will monitor (§ 147.106) (d)(8), or (d)(9) of § 155.420 of the March the effects the 60-day election period 27, 2012 Exchange final rule has on the individual market and In § 147.106, we proposed to (concerning citizenship status, Indians, whether or not is necessary to move to implement the guaranteed renewability and exceptional circumstances). The a 30-day election period to be consistent provisions of section 2703 of the PHS enrollment periods for events described with the group market. Act. We proposed that an issuer offering in paragraphs (d)(3) and (d)(8) are Comment: In response to our request health insurance coverage in the group related to specific Exchange eligibility for comment, many commenters or individual market must renew or criteria and therefore are not supported a requirement that issuers in continue in force such coverage at the appropriate for the broader market. The the individual market provide a notice option of the plan sponsor or enrollment periods in paragraph (d)(9) of special enrollment rights to individual. The exceptions to this arising from exceptional circumstances individual market enrollees, similar to requirement include: (1) Nonpayment of are not similar enough to those what is provided to group health plan premiums; (2) fraud; (3) violation of discussed in the November 26, 2012 participants and beneficiaries under minimum employer participation or proposed rule for HHS to include in the HIPAA. contribution rules, as permitted under final rule. We would initiate future Response: Following review of the applicable state law; (4) termination of rulemaking if we were to establish a comments submitted on this issue and a particular type of product or all limited open enrollment period based further consideration of the additional coverage in a market; (5) enrollees’ on the triggering event in paragraph burden that would be imposed on QHP movement outside the service area of a

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network plan; and (6) for coverage individual market, including any regulation text explicitly permitting provided through a bona fide product being offered by the same issuer issuers to discontinue or uniformly association, an employer’s loss of that offered the QHP. modify coverage at renewal, even if membership in the association.16 We Comment: A few commenters such discontinuance or modification is noted that under the March 27, 2012 recommended clarifying that coverage not permitted under applicable state Exchange final rule at § 155.430, QHP may be non-renewed for loss of law. issuers are permitted to terminate eligibility. For example, commenters Response: State laws that prevent coverage in additional circumstances suggested that for consistency with issuers from uniformly modifying (for example, decertification of the QHP § 156.155 regarding catastrophic plans, a coverage, as permitted by sections 2703 in the Exchange) and requested non-renewal provision would apply at and 2742 of the PHS Act, to comply comment on whether issuers in such the end of the policy year in which the with federal standards in title XXVII of circumstances should be required to person was no longer eligible for the PHS Act would, in effect, prevent renew coverage on a non-QHP basis coverage. the application of such standards and, outside the Exchange. Response: Individuals may only therefore, be preempted under section We also proposed standards qualify for enrollment in some plans (for 2724(a)(1) of the PHS Act. governing the discontinuance of a example, catastrophic plans or QHPs in the Exchange) if they meet certain C. Part 150—CMS Enforcement in particular product or all health Group and Individual Insurance Market insurance coverage in the group or eligibility criteria. While we do not individual market, consistent with the include this clarification explicitly in We proposed technical changes in 45 statute. § 147.106 of the final rule, we note that CFR part 150 to reflect that the HIPAA Finally, we proposed that issuers in issuers are not required to renew enforcement standard, as originally the group market may uniformly modify coverage if an individual is not codified in PHS Act section 2722 and coverage at the time of coverage renewal otherwise eligible for such coverage. redesignated as section 2723 by the and noted that parallel provisions in Comment: One commenter Affordable Care Act, applies to the section 2742 of the PHS Act allow for recommended that issuers be permitted market reform provisions of the PHS Act the uniform modification of coverage in to non-renew coverage when an enrollee created by the Affordable Care Act. the individual market. We stated that becomes covered by other minimum Pursuant to section 2723, states have the the uniform modification of coverage essential coverage to prevent primary enforcement authority with provisions would allow issuers to make individuals from over-insuring. respect to health insurance issuers in Response: Consistent with PHS Act the group and individual markets. HHS cost-sharing adjustments and benefit section 2703, the final rule does not has secondary enforcement authority design changes to come into compliance include enrollment in other coverage as and will enforce a provision in a state with the requirements of the Affordable an exception for guaranteed only if the state advises us that it does Care Act that become effective in 2014 renewability. We note that state not have authority to enforce the and requested comment on whether coordination of benefit laws may apply provision or if the state fails to such interpretation should be in instances where individuals are substantially enforce a provision. incorporated explicitly into regulation enrolled in more than one type of Comment: Several commenters text. requested a safe harbor from Comment: Many commenters coverage. Comment: With respect to the enforcement, at least for the first year of supported allowing enrollees in a QHP discontinuation of coverage provisions implementation, as long as issuers are that terminates or is decertified in the in § 147.106(d)(1), one commenter making good faith efforts to comply and Exchange to elect to renew coverage on suggested that HHS recognize the large implement the new requirements. a non-QHP basis outside the Exchange. group and small group segments of the Special concern was raised in the Some commenters supported applying group market so that an issuer is not instance where state law conflicts with such standard with respect to all QHP required to exit both segments of the federal law. termination events. Other commenters group market when exercising the Response: As stated in previous suggested enrollees should be notified option to discontinue all coverage in a Affordable Care Act guidance, our in such instances that continuing market. approach to implementation is marked coverage outside of the Exchange will Response: PHS Act section by an emphasis on assisting (rather than affect their eligibility for advance 2703(c)(2)(A) permits an issuer to non- imposing penalties on) issuers and payments of the premium tax credit and renew or discontinue coverage if the others that are working diligently and in cost-sharing reductions. One commenter issuer discontinues offering all health good faith to understand and comply asserted that renewing coverage on a insurance coverage in the ‘‘group with the law.17 While the final rule does non-QHP basis may be unnecessary, market.’’ Thus, the issuer must not provide an enforcement safe harbor since an enrollee’s loss of coverage in a withdraw from the entire group market for the market reform provisions, HHS QHP will in most instances trigger a in order to satisfy this exception to will continue to work closely with special enrollment right, and argued guaranteed renewability. The final rule issuers and states in the implementation that decisions about coverage renewal implements the statute without of these provisions. are best left to the states. modification. Comment: One commenter questioned Response: As discussed above, if an Comment: Several commenters noted HHS’s authority to extend this individual loses minimum essential that the guaranteed renewability laws in enforcement standard to the provisions coverage because, for example, a QHP is some states would prevent issuers from of the Affordable Care Act including the decertified, individuals enrolled in the making plan design changes and cost- market reform provisions. QHP will have a limited open sharing adjustments necessary to bring Response: Title I of the Affordable enrollment right for any policy in the existing, non-grandfathered coverage Care Act amends title XXVII of the PHS into compliance with the requirements 16 Section 2742(b)(5) of the PHS Act provides an 17 See, for example, Affordable Care Act exception to guaranteed renewability for an of the Affordable Care Act that become Implementation FAQs—Set 1 Q1, available at individual market enrollee’s loss of membership in effective in 2014. Commenters urged http://cciio.cms.gov/resources/factsheets/ a bona fide association. HHS to incorporate language into aca_implementation_faqs.html.

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Act. Specifically, the market reform enable states to have enough commenter suggested that the proposal provisions are enumerated in sections information to assess their markets would allow both CMS and states to 2701, 2702, and 2703 of title XXVII of appropriately. We note that the January monitor rate trends and identify the PHS Act, which are subject to the 1 effective date for state-specific patterns that could indicate market enforcement provisions of PHS Act thresholds only means that rate filings disruption. section 2723. submitted on or after January 1 will be Response: Section 2794(b)(2)(A) of the Comment: One commenter requested subject to any potential state-specific PHS Act, as added by the Affordable clarification regarding the process HHS threshold and not necessarily rate Care Act, requires the Secretary to uses to determine that a state is not increases that are effective January 1. monitor premium increases of health substantially enforcing a provision of insurance coverage offered both inside title XXVII of the PHS Act. b. Submission of Rate Filing Justification (§ 154.215) and outside an Exchange, for plan years Response: We refer readers to 45 CFR beginning in 2014. Accordingly, we 150.203, et. seq. for regulations Section 2794(b)(2(A) of the PHS Act proposed that issuers offering health describing HHS’s enforcement directs that beginning in 2014, the insurance coverage in the small group or processes. Secretary, in conjunction with the individual markets report information states, shall monitor premium increases D. Part 154—Health Insurance Issuer about all rate increases. We believe that of health insurance coverage offered Rate Increases: Disclosure and Review standardizing the reporting process will through an Exchange and outside an reduce administrative burden and 1. Subpart B—Disclosure and Review Exchange. To enable the Secretary to duplication over time and enable both Provisions carry out this new monitoring function states and CMS to evaluate information a. State-specific Thresholds (§ 154.200) and to streamline data collection for about the single risk pool, actuarial programs beginning in 2014, we value, essential health benefits, and In § 154.200(a)(2) and (b), we proposed revisions in § 154.215 that proposed that states seeking state- other market reforms beginning in 2014. would direct health insurance issuers to This reporting will also assist states and specific thresholds submit proposals to submit data and documentation CMS by August 1 of each year. The CMS in monitoring the market inside regarding rate increases on a and outside the Exchange for adverse Secretary would publish a Federal standardized form determined by the Register notice not later than September selection. Therefore, we are finalizing Secretary. We also proposed that the the requirement to report all rate 1 of each year concerning whether a rate review standards be modified by state-specific threshold applies in a increases in § 154.215 as proposed. We extending the requirement that health note that when new business is state. If approved, a state-specific insurance issuers report information threshold would become effective on included in the unified rate review about rate increases to all rate increases, template, the issuer must demonstrate January 1 of the year following the not just those above the review all premium and claims projections for Secretary’s notice. threshold. States would continue to the new products and plans as provided Comment: A few commenters were have the authority to collect additional in guidance. Historical experience is concerned that proposed timeline information above this baseline to only required for existing product/plan would not give issuers sufficient time to conduct more thorough reviews or rate combinations represented on the unified file rates before January 1. monitoring. Furthermore, the review rate review template. We also note that, Response: We are finalizing the threshold in § 154.200 would continue in response to comments received revised timeline in § 154.200(a)(2) and to be used to determine which rates through the PRA process, we have made (b) as proposed because the new dates must be reviewed rather than just changes to the uniform rate review increase consistency inside and outside reported. of the Exchange. We are working to Under the Paperwork Reduction Act template to both remove data elements align the market with the QHP of 1995 (PRA) process (44 U.S.C. and to make some optional in the first submission schedule and with the 2014 chapter 35), we proposed a ‘‘unified rate two years of applicability. As discussed market reforms. Since QHP filings are review’’ template for health insurance in more detail in section V. of the due April 30 of each year, moving the issuers to use for submitting data for preamble, we estimate that these state-specific threshold application date rate increases. In this final rule, we have changes reduce the number of required to August 1 will give states the revised the text of § 154.215 to reflect data elements by approximately 45 appropriate amount of time to analyze the ‘‘unified rate review’’ terminology. percent. the QHP information they receive and to We also have added language explicitly Comment: Several commenters request a state-specific threshold if they reflecting the fact that the premium remarked on the content of the proposed believe one is necessary. We will be rates subject to rate review reporting are unified rate review template. moving the state-specific threshold shaped by the premium rating standards Response: We address these determination deadline from June 1 to implemented under the single risk pool comments in section V. of the preamble September 1, with any potential state- requirement and the applicability of the regarding collection of information specific threshold going into effect guaranteed availability and renewability requirements. As mentioned above, we January 1 of the following year. Under requirements. We clarify that states are have made changes to the template in the May 23, 2011 rate review final rule not specifically required to use the response to comments to ensure (76 FR 29964), the Secretary was to unified rate review template in order to streamlined and efficient data publish a notice about state-specific have an effective rate review program. collection. thresholds by June 1, and the effective Comment: Several commenters 2. Subpart C—Effective Rate Review date of any state-specific threshold was remarked on the proposal to expand Programs September 1 of the same year. Under reporting of all rate increases using the this final rule, issuers will still have unified rate review template. Some a. Determination of Effective Rate three months to prepare to file rates commenters supported the expanded Review Programs (§ 154.301) under any potential state-specific reporting requirement, while other To account for the market reform threshold. Therefore, we are shifting the commenters were concerned about the changes in 2014, we proposed to modify entire timeline forward three months to administrative burden on issuers. One the standards in § 154.301(a)(3) for

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states to have an effective rate review effective rate review programs should future rulemaking if we intend to use program with respect to rate filings have flexibility to use either the unified the data for any other purpose. subject to review. Specifically, we rate review template or their own Comment: Some commenters proposed that a state with an effective templates and formats for collecting expressed concern about the public rate review program review the information from issuers. One release of information. Commenters following additional elements as part of commenter suggested that CMS should recommended disclosing only a its rate review process: (1) the accept state regulators’ attestations that minimal amount of information and that reasonableness of assumptions used by they are reviewing the required an issuer to estimate the rate impact of information, but not necessarily require such disclosure not include confidential the reinsurance and risk adjustment that states incorporate the unified rate or proprietary information. programs; and (2) issuer data related to review template into their review Response: As mentioned in the implementation and ongoing utilization process. preamble of the November 26, 2012 of a market-wide single risk pool, Response: We finalize the proposed proposed rule, we will release only essential health benefits, actuarial amendments in § 154.301 except that, in information collected that is determined values, and other market reform order to limit additional factors to only not to include trade secrets and is provisions of the Affordable Care Act. those that reflect the 2014 market approved for release under the Freedom We did not propose to modify the 10 reforms, we do not require states to of Information Act (FOIA). In general, percent subject to review threshold as consider ‘‘other standardized ratio tests all information collected by HHS is finalized in § 154.200. recommended or required by statute, subject to FOIA. In accordance with the We also proposed to revise regulation, or best practices’’ to have an HHS’s FOIA implementing regulations § 154.301(a)(4) by adding additional effective rate review program. Although factors that states would take into at 45 CFR 5.65(c), health insurance states will likely consider these ratio issuers may designate part or all of the consideration when conducting their tests as part of their review processes, examinations, including (1) in information submitted as exempt from we intend to minimize the criteria and disclosure under Exemption 4 of the reviewing the impact of cost-sharing factors for states to have an effective rate changes, the impact on the actuarial FOIA if the issuer believes the review program in order to give states information is commercial or financial value of the health plan in light of the the maximum flexibility to conduct information that is confidential or requirement under section 1302(d) of reviews. Further, this final rule does not privileged. If there is a FOIA request, we the Affordable Care Act that a plan meet require states to incorporate the unified will follow the pre-disclosure one of the AV levels; and (2) in rate review template into their review reviewing benefit changes to a plan, the process. States will retain the flexibility notification procedures found at 45 CFR impact of the changes on the plan’s to use other collection tools, provided 5.65(d) through (e) to seek issuer input essential health benefits and non- they collect the information necessary to on the applicability of Exemption 4 essential health benefits. conduct effective reviews. States cannot before disclosure is made. If the Additionally, we proposed that states rely on issuer attestation alone in information has previously been take into account, to the extent possible, conducting these reviews. Issuers in all published or made generally available to the following additional factors when states, including those with effective the public, it will not be considered conducting an examination of a rate rate review programs, must still under confidential or privileged for purposes review filing: this final rule submit information to of Exemption 4. In addition, as • Other standardized ratio tests (in CMS using the unified rate review discussed in section II.E.1.a. of the addition to the medical loss ratio) template. We note that states and issuers preamble, issuers will set their index recommended or required by statute, will have an incentive to use the rates and plan-specific pricing once per regulation, or best practices; • The impact of geographic factors collection tools provided by CMS to year upon filing their rates with state and variations; ensure streamlined and efficient data insurance departments, and information • The impact of changes within a collection. would only be released after the QHP single risk pool to all products or plans This approach strikes the appropriate submission process is concluded. within the risk pool; and balance between maintaining state Accordingly, we believe that public • The impact of reinsurance and risk flexibility and allowing CMS to carry disclosure of certain rate review adjustment payments and charges. out functions related to: (1) The information will not undermine Finally, we proposed revisions in monitoring of premium increases of competitive market dynamics. § 154.301(b) to ensure that a state with health insurance coverage offered an effective rate review program make through an Exchange and outside an b. Rate Filing Justification (§ 154.225 available on its Web site, at a minimum, Exchange as required by section and § 154.330) the same amount of information in Parts 2794(b)(2)(A) of the PHS Act; (2) We proposed to amend § 154.225 and I, II, and III of each Rate Filing Exchanges such as QHP certification § 154.330 by replacing the term Justification that CMS makes available and premium tax credit and cost-sharing on its Web site. We proposed that a state reduction verification; and (3) the risk ‘‘Preliminary Justification’’ with the may, instead of providing access to the adjustment and reinsurance programs. term ‘‘Rate Filing Justification,’’ to information contained in Parts I, II, and We note that even without the reflect more appropriately the rate filing III or each Rate Filing Justification, administrative efficiencies associated information that would be reported. We provide a link to CMS’s Web site where with using the information collected received no comments regarding this consumers can find such information. through rate review authority for the proposed change. Accordingly, we are Comment: Several commenters second and third functions listed above, finalizing proposed § 154.225 and remarked on the proposed additional the same data would be needed and § 154.330 without modification. criteria for states to have an effective collected to carry out the first function rate review program. Some commenters by itself. We also clarify that we will use supported the additional criteria, while the information collected only for these others suggested that states with specified purposes and will initiate

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E. Part 156—Health Insurance Issuer across the market and protect against markets) should set their index rates Standards Under the Affordable Care adverse selection. Other commenters and plan-specific pricing once per year, Act, Including Standards Related to urged that any flexibility in product upon filing their rates with the state’s Exchanges pricing not result in de facto experience department of insurance. Permitting rating based on health status. A few changes in these markets to the index 1. Subpart A—General Provisions commenters opposed our proposal to rate throughout the year could a. Single Risk Pool (§ 156.80) pool Exchange user fees across all plans effectively lead to premium pricing in In § 156.80, we proposed standards to in a market within a state because they violation of the rules described above. implement the requirement in section believed that this would unfairly We believe that these rates should apply 1312(c) of the Affordable Care Act that increase costs for members that are not to new and renewing enrollees during an issuer use a single risk pool for a enrolled in the Exchange. Other the course of the year. market (the individual market, small commenters supported the proposal to Comment: Several commenters requested clarification on whether group market, or merged market) when pool Exchange user fees across all of an adjustments to the index rate could developing rates and premiums for issuer’s plans in a relevant market reflect differences in health status. Some coverage effective beginning in 2014. within a state. Response: We agree with commenters commenters also requested that issuers We proposed that an issuer develop a urging the pooling of Exchange user fees be permitted to make an adjustment to market-wide index rate (average rate) across the market as these costs are not the index rate to account for induced based on the total combined EHB claims related to the unique efficiencies or utilization. Other commenters requested experience of all enrollees in all non- designs of a particular plan. that HHS enforce the single risk pool grandfathered plans in the risk pool. Accordingly, the final rule directs requirement so that the index rate and After setting the index rate, the issuer issuers to make a market-wide plan-specific rates set by issuers do not would make a market-wide adjustment adjustment to the index rate for reflect differences in enrollee health based on the expected aggregated Exchange user fees. This will ensure status. payments and charges under the risk that Exchange user fees are spread Response: As indicated in the adjustment and reinsurance programs in evenly across the market, creating a preamble of the November 26, 2012 a state. The premium rate for any given level playing field inside and outside proposed rule, we believe that the plan could not vary from the resulting the Exchange, and further protecting purpose of the single risk pool is to adjusted market-wide index rate, except against adverse selection. Further, this prevent issuers from segregating for the following factors: The actuarial policy is consistent with the treatment enrollees into separate rating pools value and cost-sharing structure of the of Exchange user fees for medical loss based on health status. In this final rule, plan; the plan’s provider network, ratio (MLR) and rebate calculations we confirm that plan-specific delivery system characteristics, and under 45 CFR 158.161(a).18 adjustments to the market-wide index utilization management practices; plan As for distribution costs and other rate must not reflect differences in benefits in addition to EHB; and with administrative costs (other than health status or risk selection. In respect to catastrophic plans, the Exchange user fees), we believe that addition, we exclude induced demand expected impact of specific eligibility issuers should be allowed to make from the index rate adjustments because categories for those plans. The index actuarially justified adjustments to the of the actuarial difficulty of measuring rate, the market-wide adjustment to the market-wide index rate at the individual whether differences in total plan index rate, and the plan-specific plan level for those costs. This will expenditures are due to risk selection or adjustments would have to be allow pricing to vary among individual induced demand. actuarially justified and implemented plans by administrative costs reasonably Comment: Several commenters transparently, consistent with federal allocable to those plans, ensuring that requested clarification on whether the and state rate review processes. administrative efficiencies are priced term ‘‘actuarial value’’ for the purpose We invited comment on the set of accurately and promoting market of the individual plan adjustment to the allowable plan-specific adjustments and competition. The final rule therefore index rate has the same meaning as the whether to allow flexibility in product includes administrative costs (other term ‘‘actuarial value’’ in the Actuarial pricing in 2016 after issuers had gained than Exchange user fees) as an Value (AV) calculator in the November sufficient experience with the reformed additional factor that issuers may use to 26, 2012 EHB/AV/Accreditation market. Additionally, in the ‘‘HHS modify the market-wide index rate at proposed rule. Several commenters also Notice of Benefit and Payment the individual plan level. requested clarification on the method Parameters for 2014’’ proposed rule (77 Comment: Several commenters for applying plan-specific premium FR 73118), we solicited comment on requested issuer flexibility in product factors, particularly whether issuers whether Exchange user fees or other pricing to adequately adjust for the risk may adjust the index rate for anticipated administrative costs should be spread of their enrollees. Commenters opposed difference in utilization, risk adjustment across all plans in a market as a market- any restriction to making actuarially payments and reinsurance payments wide adjustment to the index rate. justified adjustments to the index rate through plan design, and the allowable Comment: Several commenters for new and renewing businesses during adjustment for catastrophic plans. suggested that issuers should be allowed the course of the year. Other Response: The calculation of the to reflect distribution costs and other commenters suggested issuers adjust the actuarial value through the AV administrative costs associated with index rate on a consistent, annual basis. calculator is based on data sets provided different products in their premiums to Response: Issuers in the individual or by HHS reflecting a standard promote administrative efficiency. One combined markets (in states that have population, utilization, and unit prices. commenter recommended allowing a merged the individual and small group For the purpose of developing an market-wide adjustment to the index adjustment to the market-wide index rate for Exchange user fees, as well as 18 CCIIO Technical Guidance (CCIIO 2012–002): rate for individual plans, we would distribution costs, agent and broker Questions and Answers Regarding the Medical Loss expect health insurance issuers to Ratio Regulation, Q&A #34 (Apr. 20, 2012), commissions, and all administrative available at http://cciio.cms.gov/resources/files/mlr- utilize pooled allowable claims data as costs, to spread these costs evenly qna-04202012.pdf. a basis for calculating the plan-specific

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actuarial value. By using the claims data affect the rating methodology. Other cost-sharing requirements for preventive of their pooled population, issuers can commenters requested clarification services identified in section 2713 of the develop more accurate adjustments to about how the single risk pool would PHS Act. the index rate for individual plans. In apply if a state elected to merge its We also proposed to codify the the absence of data, issuers of new plans individual and small group markets. statutory criteria identified in section would have the option of calculating Response: If a state exercises the 1302(e)(2) of the Affordable Care Act pooled allowable claims using option to merge its individual and small listing the two categories of individuals actuarially reasonable projections. group markets, an issuer must, in eligible to enroll in a catastrophic plan. Additionally, we would expect accordance with § 156.80(d) of this final The first category includes individuals issuers to proportionally allocate rule, calculate the market-wide index who are younger than age 30 before the anticipated reinsurance and risk rate and plan-specific adjustments based beginning of the plan year. The second adjustment payments and charges based on the merged market. As only non- category includes individuals who have on plan premium by applying the risk grandfathered individual market plans been certified as exempt from the adjustment/reinsurance adjustment are eligible for payments under the individual responsibility payment factor as a constant multiplicative factor transitional reinsurance program, in a because they cannot afford minimum across plans. We believe that this merged market, the pooled reinsurance essential coverage or because they are modification would prevent issuers adjustment should be based only on the eligible for a hardship exemption. from differentially allocating risk portion of the issuer’s individual market Finally, we proposed that if a adjustment and reinsurance payments business eligible for reinsurance catastrophic plan covers more than one and charges across plans in a manner payments. person (such as a catastrophic family that would reintroduce risk selection Comment: Numerous commenters plan), each individual enrolled must differences into plan premiums. requested clarification of whether the satisfy at least one of these two Finally, with respect to catastrophic single risk pool is to be maintained at eligibility criteria. plans, we clarify that issuers may make the holding company level or at the Comment: A few commenters a plan-specific adjustment to the individual licensee level. requested clarification as to whether the market-wide index rate that accounts for Response: Section 1312(c) of the provisions regarding catastrophic plans differences between catastrophic and Affordable Care Act requires a health apply only to coverage offered through non-catastrophic plans in expected insurance issuer to maintain a single an Exchange. average enrollee gross spending and risk pool in the individual market and Response: Section 1301(a)(1)(B) of the expected average risk adjustment a single risk pool in the small group Affordable Care Act directs a QHP to payment transfers. This plan-specific market (unless a state requires both provide the EHB package described in adjustment would be uniform across all pools to be merged). Section 1301(b)(2) section 1302(a) that, subject to section 1302(e), meets the actuarial value (AV) of an issuer’s catastrophic plans (that is, of the Affordable Care Act provides that levels described in section 1302(d) risk across all catastrophic plans must the term ‘‘health insurance issuer’’ has (bronze, silver, gold, or platinum levels be pooled). This adjustment for the meaning given the term in section of coverage). Section 1302(e) describes catastrophic plans should not include 2791(b) of the PHS Act, which defines an exception to the AV requirements for plan liability differences due to a health insurance issuer as an entity catastrophic plans. These provisions are actuarial value, because actuarial value that is licensed to conduct the business incorporated by reference in section differences should be accounted for in of insurance in a state. Accordingly, the 2707(a) of the PHS Act, which extends the actuarial value adjustment. single risk pool is to be maintained at Comment: A few commenters coverage of the EHB package required the licensed entity level. requested flexibility in the claims data under section 1302(a) to health that could be used to determine the 2. Subpart B—Standards for Essential insurance issuers offering non- index rate for the initial years of Health Benefits, Actuarial Value, and grandfathered coverage in the Exchange operation. One commenter Cost Sharing individual and small group markets. specifically recommended that issuers Accordingly, the provisions regarding a. Enrollment in Catastrophic Plans be permitted to use the claims catastrophic plans apply to coverage (§ 156.155) experience from grandfathered books of offered both inside and outside of an business when developing initial rates. In § 156.155, we proposed standards Exchange. Response: We recognize that lack of for catastrophic plans offered in the Comment: One commenter robust EHB claims experience may individual market, consistent with recommended clarifying that create challenges for issuers in setting section 1302(e) of the Affordable Care individuals are eligible for enrollment rates in the initial years of Act. Specifically, we proposed that a in a catastrophic plan (offered through implementation. We clarify that in the health plan is a catastrophic plan if it: or outside the Exchange) if they have absence of applicable claims data, an (1) Meets all applicable requirements for obtained from the Exchange a hardship issuer may use any reasonable source of health insurance coverage in the exemption based on inability to afford claims data, including claims individual market; (2) does not offer or obtain coverage. experience from grandfathered books of coverage at the bronze, silver, gold, or Response: As discussed in the business or claims data from actuarial platinum levels of coverage described in February 1, 2013 Federal Register rate manuals (to the extent available), to section 1302(d) of the Affordable Care proposed rule entitled ‘‘Patient establish its index rate, as long as those Act; (3) does not provide coverage of Protection and Affordable Care Act; data are used to actuarially estimate the essential health benefits until the Exchange Functions: Eligibility for portion of claims data associated with enrolled individual reaches the annual Exemptions; Miscellaneous Minimum providing coverage for EHB as required limitation in cost sharing in section Essential Coverage Provisions’’ (78 FR to establish the index rate. 1302(c)(1) of the Affordable Care Act; 7348), herein referred to as the Comment: A few commenters and (4) covers at least three primary care Minimum Essential Coverage proposed expressed concern that merging the visits per year before reaching the rule, only the Exchange may issue individual and small group markets deductible. Further, we proposed that a certificates of exemption based on could cause market disruption and catastrophic plan may not impose any hardship. Under the Minimum Essential

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Coverage proposed rule, there are F. Applicability to Special Plan Types Commenters expressed concern that several situations where an Exchange pooling the risk of student enrollees 1. Student Health Insurance Coverage would grant a certificate of exemption with other individual market enrollees (§ 147.145) for hardship based on an inability to could increase student health insurance afford or obtain coverage. One category Section 1560(c) of the Affordable Care premiums and potentially discourage of the hardship exemption is based on Act provides that nothing in title I of the some universities from offering student the Exchange determining that an Affordable Care Act, or an amendment health insurance plans. Commenters applicant, or another individual in the made by title I, ‘‘shall be construed to also noted that student health insurance applicant’s family, is unable to afford prohibit an institution of higher issuers typically do not underwrite coverage for a calendar year based on education (as such term is defined for students on an individual basis, but the applicant’s projected household purposes of the Higher Education Act of rather offer coverage to institutions of income. This specific category would 1965) from offering a student health higher education at a group community allow individuals to receive a hardship insurance plan, to the extent that such rate. These commenters requested exemption in lieu of the statutory requirement is otherwise permitted flexibility with respect to the premium unaffordability exemption based on the under applicable federal, state, or local rating rules of PHS Act section 2701 so individual’s actual household income. law.’’ HHS has interpreted section that issuers may continue to consider We agree that, consistent with the above 1560(c) to mean that if particular characteristics such as the educational discussion of section 2707(a) of the PHS requirements of the Affordable Care Act institution’s claims experience, Act, individuals granted a certificate of would have, as a practical matter, the enrollment method, demographics, and exemption from the Exchange based on effect of prohibiting an institution of availability of on-campus services when hardship may use such exemption higher education from offering a student developing rates and premiums for determination to establish eligibility to health plan otherwise permitted under student health insurance coverage. federal, state, or local law, these purchase a catastrophic plan outside of Response: We recognize that student requirements would be inapplicable the Exchange. health insurance coverage generally is pursuant to section 1560(c). Comment: One commenter stated that HHS published a final rule in the rated and administered differently than with respect to a catastrophic family March 21, 2012 Federal Register other forms of individual health plan, only one member of a family entitled ‘‘Student Health Insurance insurance coverage. Issuers of student should have to meet the eligibility Coverage’’ (77 FR 16453), which health insurance coverage typically criteria rather than all family members. clarified that for purposes of federal contract with a college or university to issue a ‘‘blanket’’ health insurance Response: Section 1302(e)(1)(A) of the law, student health insurance coverage policy, from which students can buy Affordable Care Act provides that the is defined as a type of individual health coverage, and the policy is generally only individuals who are eligible to insurance coverage and therefore rated on a group basis based on the total enroll in a catastrophic plan are those generally subject to the individual expected claims experience of the individuals who meet specific eligibility market requirements of title XXVII of college’s or university’s students criteria described in section 1302(e)(2). the PHS Act and title I of the Affordable enrolled in the plan. Accordingly, under Therefore, we do not accept the Care Act. However, pursuant to section HHS’s authority in section 1560(c) of commenter’s suggestion that all 1560(c) of the Affordable Care Act, the the Affordable Care Act to ensure that members of a family may enroll in a March 21, 2012 final rule exempted the law’s requirements would not catastrophic plan if only one family student health insurance coverage from effectively prohibit the offering of a member is eligible to enroll. the guaranteed availability and guaranteed renewability requirements of student health insurance plan otherwise Comment: We received several PHS Act sections 2741(e)(1) and permitted under federal, state, or local comments about the requirement that 2742(b)(5) added by HIPAA. law, and to minimize market disruption catastrophic plans must provide Consistent with that policy, the in the initial transition to the reformed coverage for at least three primary care November 26, 2012 proposed rule market, this final rule provides that non- visits before reaching the annual outlined similar exemptions for student grandfathered student health insurance deductible. Some commenters health insurance coverage from the coverage is not subject to the single risk recommended clarifying that issuers guaranteed availability and guaranteed pool requirement of section 1312(c) of must cover at least three primary care renewability requirements of PHS Act the Affordable Care Act. visits in addition to the preventive sections 2702 and 2703 added by the Student health insurance is subject services required to be covered without Affordable Care Act to ensure that under these final rules to the premium cost sharing under section 2713 of the enrollment in student health insurance rating requirements of section 2701 of PHS Act, and that issuers may not plans may be limited only to students the PHS Act. We note, however, that impose any cost-sharing requirements and their dependents. Further, we given the exemption from single risk for these visits. Other commenters solicited comment on whether issuers pool requirement, the premium rate recommended clarifying that primary should be permitted to maintain a charged by an issuer offering student care visits include visits to obstetrical or separate risk pool for student health health insurance coverage may be based gynecological providers. insurance coverage and whether on a school-specific group community Response: Health insurance issuers different premium rating rules should rate if, consistent with section 2701, the providing catastrophic coverage must apply. issuer offers the coverage without rating fully comply with PHS Act section 2713 Comment: While some commenters for age or tobacco use. This provides and its implementing regulations in recommended including student health flexibility to student health insurance addition to providing coverage for at insurance coverage in the general issuers with respect to the per-member- least three primary care visits. The individual market risk pool, many rating provisions of PHS Act section classification of who is a primary care commenters urged HHS to recognize the 2701(a)(4) and § 147.102(c)(1), while provider for the purpose of the primary unique characteristics of student health ensuring that student enrollees and their care visits is determined by the terms of insurance plans by allowing separate dependents are not charge more based the health plan or by state law. risk pooling of such coverage. on their health status or gender.

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The treatment of student health cautioned that as long as issuers offering Affordable Care Act, including these insurance coverage under these final coverage through bona fide associations final rules, to expatriate policies. rules will serve as a transitional policy. are able to limit coverage to association 4. State High Risk Pools We intend to monitor student health members, they effectively will be able to insurance coverage as the insurance select healthy applicants and refuse Comment: We received several market transitions to the 2014 market applicants with high health care costs. comments as to whether states may reforms and revisit this policy in the Response: Section 1563 of the continue their high risk pools beyond future. Affordable Care Act deleted the 2014. Many commenters supported state Comment: Several commenters exception contained in section 2711(f) flexibility to transition high risk pools supported the proposal to exempt of the PHS Act that existed prior to the as a means of minimizing premium student health insurance coverage from amendments made by the Affordable disruption and promoting continuity of the guaranteed availability and Act, which exempted small group care. A few commenters noted that high renewability requirements of the coverage sold through bona fide risk pool enrollees will have a right to Affordable Care Act. One commenter associations from having to guarantee guaranteed availability and stated such specifically recommended with respect issue policies to anyone other than individuals must not be prohibited from to the guaranteed availability provisions members of the association. Therefore, enrolling in other coverage offered in of the November 26, 2012 proposed rule the final rule implements the Affordable the individual market, particularly that open enrollment periods for student Care Act, which does not recognize an through the Exchange. Some health insurance plans be permitted to exception from guaranteed availability commenters suggested that enrollees coincide with college and university for bona fide association coverage. We who maintain high risk pool coverage enrollment periods. note that while starting in 2014, health should be eligible for premium tax Response: In this final rule, we insurance issuers may not limit credits and cost-sharing reductions and finalize our proposal to exempt student coverage sold through associations only notified about new coverage options. health insurance coverage from the to association members, nothing Other commenters requested guaranteed availability requirements prevents an issuer from renewing clarification about whether state high under PHS Act section 2702 and the existing association coverage. risk pools are subject to the market guaranteed renewability requirements Furthermore, as discussed in the reform provisions of the Affordable Care under PHS Act section 2703. Therefore, November 26, 2012 proposed rule, the Act. the special and open enrollment periods exception for limited network capacity Response: Many states currently have under section 2702 do not apply to could provide a basis for limiting high risk insurance pools as their state issuers of student health insurance enrollment in certain products to bona alternative mechanism to provide coverage. Student health insurance fide association members. issuers may work with colleges and insurance coverage for individuals who universities to determine appropriate 3. Expatriate Plans meet enrollment criteria and who do not enrollment periods for student enrollees Comment: A few commenters urged otherwise have access to group or and their dependents. HHS to exempt expatriate coverage from individual health insurance coverage. the market reform provisions of the Since state high risk pool coverage is 2. Bona Fide Association Coverage Affordable Care Act, including the not provided through insurance and is As mentioned above, we proposed, guaranteed availability, guaranteed not group health plan coverage, state consistent with PHS Act section 2702, renewability, premium rating, and rate high risk pool coverage is not subject to that non-grandfathered health insurance review provisions, arguing that title XXVII of the PHS Act. However, coverage made available in the expatriate plans face special some states, as their state alternative individual or group market through a circumstances and considerations in mechanism, require issuers (or certain bona fide association must be complying with these provisions of issuers of last resort) to guarantee the guaranteed available to all individuals federal law. For example, commenters availability of a product or specific or employers in a state and market. stated that expatriate policies are benefit design. If the state alternative These proposed rules represented a designed to meet the unique coverage mechanism is individual market change from existing law permitting needs of employees while working insurance coverage, it is subject to title coverage sold through bona fide outside of the United States (and their XXVII of the PHS Act. Individuals associations to be limited only to dependents). Commenters also noted enrolled in state high risk pools will association members; therefore, we that the rates for expatriate policies have the same rights as others to invited comment on whether and how must accommodate the regulatory guaranteed availability for any products a transition or exception process for requirements and health care costs of offered inside and outside of the state bona fide association coverage could be other countries; reflect benefits that are Exchange, and states may not prevent structured to minimize disruption. particularly important to expatriates individuals from moving to other Comment: Several commenters noted (such as medical evacuation coverage, products or to a state’s Exchange. States that the Affordable Care Act preserved war risk coverage, and currency will continue to have the discretion to an exception for coverage sold through fluctuation); and maintain global determine whether each state continues bona fide associations from the competitiveness with non-U.S. issuers to have a high risk pool in order to ease guaranteed renewability provisions of offering expatriate coverage. the transition of enrollees to other sections 2703 and 2742 of the PHS Act Accordingly, commenters recommended products, consistent with the February and urged HHS to recognize a similar that enrollment in expatriate policies be 1, 2013 Minimum Essential Coverage exception for bona fide associations limited to expatriate employees and proposed rule, which proposed to from the guaranteed availability their dependents, and that the rules designate state high risk pools as provisions of section 2702. Some reflect the unique rating requirements minimum essential coverage for a commenters recommended providing a faced by expatriate plans. period of time to be determined by the transition period during which issuers Response: We plan to issue future Secretary.19 could close association coverage to new guidance on the applicability of the enrollment, while other commenters market reform provisions of the 19 78 FR 7348.

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III. Modification of Effective Date for approval by HHS. The amendments also Additionally, clarifies that issuers may Certain Provisions direct health insurance issuers to submit vary rates for tobacco use only with The Congressional Review Act, 5 data relating to proposed rate increases respect to individuals who may legally in a standardized format specified by use tobacco under federal and state law. U.S.C. 801(a)(3), ordinarily requires that • the effective date of a ‘‘major rule’’ such the Secretary of HHS, and modify Gives states additional flexibility to establish geographic rating areas that as this final rule be at least 60 days from criteria and factors for states to have an would be presumed adequate. the date of publication. However, 5 effective rate review program. These • Modifies the default rating area U.S.C. 808(2) permits the federal agency changes are necessary to reflect the new market reform provisions and to fulfill standard such that there would be one promulgating the rule to determine an rating area for each metropolitan effective date, notwithstanding this the statutory requirement beginning in 2014 that the Secretary, in conjunction statistical area and one rating area otherwise applicable 60-day comprising all non-metropolitan requirement, when an agency ‘‘for good with the states, monitor premium increases of health insurance coverage statistical areas in the state. cause finds (and incorporates the offered through an Exchange and • Clarifies the criteria that HHS will finding and a brief statement of reasons outside of an Exchange. The provisions use to determine whether proposed state therefore in the rule issued) that notice are also designed to streamline data rating areas are adequate. and public procedure thereon are • collection for issuers, states, Exchanges, Clarifies that the cap on the number impracticable, unnecessary, or contrary and HHS. Since health insurance issuers of individuals under age 21 taken into to the public interest.’’ While this final will be submitting their 2014 rate filings account when computing the family rule is generally effective 60 days from in states starting April 1, 2013, these premium applies to the three oldest the date of publication, we have amendments must be effective at that ‘‘covered children’’ under age 21. determined for 45 CFR 147.103, which • point for consumers to experience the Deletes language in paragraphs specifies the timing for state reporting of full benefits in 2014 of the rate review (a)(1)(iii) and (a)(1)(iv) providing that rating factors, and the amendments to process both inside and outside the states may use narrower age and tobacco 45 CFR part 154 governing rate review, use factors to avoid confusion. Exchanges. • an effective date 30 days from the date Furthermore, HHS and the states must Consolidates state reporting of publication of this rule. have the ability to collect, beginning requirements in a new § 147.103. Section 147.103 directs states to April 1, 2013, rate data from health Changes to § 147.104 (Guaranteed report to HHS within 30 days after insurance issuers relating to the 2014 availability of coverage) publication of this rule certain rating market reforms to ensure effective • Adds events triggering limited open factors required by § 147.102, including implementation of the market reforms but not limited to: the age rating ratio enrollment periods in the individual starting January 1, 2014. For example, if market, consistent with Exchange if a state adopts a ratio narrower than the data submission requirement for all 3:1 for adults; the tobacco rating ratio if special enrollment periods, as well as a rate increases is not in place by April 1, one-time limited open enrollment a state adopts a ratio narrower than 1.5 2013, states and HHS will have very to 1; a uniform age rating curve if a state period for the 2014 calendar year for little ability to gauge whether issuers individuals with non-calendar year adopts any; and geographical rating have combined all of their products into areas if the state establishes any. It is individual policies. a single risk pool in either the • Establishes 60-day special and imperative that HHS receive these data individual or small group markets. from the states within 30 days of limited open enrollment periods in the Issuers could, therefore, implement individual market; maintains 30-day publication of this final rule in order to different index rates and allowable implement timely the risk adjustment special enrollment periods in the group modifiers without fear of being observed market. methodology set forth in section 1343 of by a regulator for some time, which • the Affordable Care Act and its Ensures consistency of the would have the potential effect of prohibition against employing implementing regulations. Should these issuers continuing to rate for health data not be received within 30 days of discriminatory marketing practices and status in 2014. benefit designs with the prohibition on publication of this final rule, HHS’s risk Accordingly, for the reasons stated discrimination with respect to EHB in adjustment scores for use on January 1, above, 45 CFR 147.103 of this final rule § 156.125 and the non-discrimination 2014 would have to be calculated using and the amendments to 45 CFR part 154 standards applicable to QHPs under assumed rating factors based on the are effective 30 days after publication of § 156.200(e). limitations set forth in this final rule, this final rule. which could result in inaccurate risk Changes to § 147.145 (Student health adjustment payments to health IV. Provisions of the Final Regulations insurance coverage) insurance issuers in states that have For the most part, this final rule • Exempts student health insurance developed different rating factors. This incorporates the provisions of the coverage from the single risk pool may in turn lead to imbalance in the proposed rule. Those provisions of this requirements of Affordable Care Act insurance markets in those states with final rule that differ from the proposed section 1312(c). different rating factors. Furthermore, rule are as follows: health insurance issuers are required to Changes to § 154.215 (Submission of submit their applications by April 30, Changes to § 147.102 (Fair health Rate Filing Justification) 2013 to the Exchanges to be certified as insurance premiums) • Clarifies that if any product is QHPs in 2014. In order to submit • Clarifies that tobacco use means use subject to a rate increase, an issuer must accurate information on their of tobacco on average four or more times submit a Rate Filing Justification for all applications, the issuers will need to per week within no longer than the past products in the single risk pool, know what rating factors in a state will six months, including all tobacco including new or discontinuing be effective starting January 1, 2014. products but excluding religious and products. The amendments to 45 CFR part 154 ceremonial uses of tobacco. Further, • Replaces the term ‘‘standardized revise the timeline for states to propose tobacco use must be defined in terms of data template’’ with ‘‘unified rate state-specific thresholds for review and when a tobacco product was last used. review template’’ each place it appears.

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Changes to § 156.80 (Single risk pool) risk pools, we have estimated the that information to CMS. We estimate • Clarifies that the index rate for the burden for one state. that it will take one hour for a state to single risk pool must be adjusted on a The burden associated with this prepare and submit the report on small market-wide basis for Exchange user requirement is the time involved for group market premiums to CMS, for a fees and may be adjusted at the plan- states to provide to CMS information on burden of one hour and a cost of level for distribution costs and other the rating factors and requirements approximately $31. administrative costs. applicable to their small group and We assume that each report will be individual markets. If a state adopts prepared by clerical staff (at a cost of Changes to § 156.155 (Enrollment in narrower rating ratios for age or tobacco approximately $31 per hour) and will be catastrophic plans) use, or chooses to merge their reviewed by a senior manager (using 1 • Makes a technical correction in individual and small group market risk hour of labor at approximately $65 per paragraph (c) of this section that each pools, the state will inform CMS. We hour) prior to submission to CMS. The enrolled individual in the case of a estimate that it will take 20 minutes for total burden for all disclosures is eight catastrophic plan covering multiple a state to prepare and submit a report to hours (seven by clerical staff and one by individuals must meet the eligibility CMS for each of these disclosures, for a a senior manager) and approximately criteria outlined in paragraph ‘‘(a)(5)’’ of total burden of one hour and a cost of $279 per state, if a state needs to prepare this section. approximately $31 for all three reports and submit a report in all of these areas. combined. We expect that states that already V. Collection of Information This final rule provides that a state’s have established a narrower age or Requirements rating areas must be based on the tobacco rating ratio, family tier structure In the November 26, 2012 proposed geographic divisions of counties, three- and requirements for small group rule (77 FR 70584), we solicited public digit zip codes, or MSAs and non-MSAs market premiums to be based on average comments on each of the sections and will be presumed adequate if either enrollee amounts, will retain them and identified as containing information of the following conditions are met: (1) simply incur the burden of reporting collection requirements (ICRs). In this As of January 1, 2013, the state had them. Based on our interactions with final rule, we are restating our summary established by law, rule, regulation, state officials and review of publicly of the information collection bulletin, or other executive action available studies prepared by actuarial requirements and providing summaries uniform geographic rating areas for the firms on the impact of the Affordable of the comments received and our entire state; or (2) After January 1, 2013, Care Act on the health insurance market responses to those comments. Regarding the state establishes by law, rule, in various states, we believe that many wage data, we generally used data from regulation, bulletin, or other executive states have already studied the issue of the Bureau of Labor Statistics to derive action for the entire state no more merging their individual and small average labor costs (including fringe geographic rating areas than the number group market risk pools and would only benefits) for estimating the burden of MSAs in the state plus one. We incur the burden of reporting. We associated with the ICRs. anticipate that states that currently have anticipate that few states will choose to geographical rating areas will retain establish their own age rating curve or A. ICRs Regarding State Disclosures them. For states that establish rating establish new geographical rating areas (§ 147.102(b), § 147.102(e), § 147.103, areas, we estimate that it will take one and incur related administrative costs. If § 156.80(c)) hour for a state to prepare and submit a state chooses to establish its own age The final rule directs states to submit a report to CMS on its geographical rating curve (§ 147.102(e)), it is likely to to CMS certain information as rating areas, for a burden of one hour engage an actuarial consultant. We applicable about their rating and risk and a cost of approximately $31. estimate that it will require pooling requirements. A state will If a state develops an age rating curve, approximately 100 hours of effort by an inform CMS if it adopts a narrower age the state will report the state’s age rating actuary (at a cost of $225 per hour) and rating ratio than 3:1 or adopts a curve to CMS. We anticipate that HHS’s 23 hours of combined labor by state narrower rating ratio for tobacco use default standard age rating curve will actuaries (10 hours at a cost of than 1.5:1. A state will also submit apply in most states. Only one state approximately $50 per hour) and senior information to CMS regarding state- commented that it would establish its management (13 hours at a cost of established geographic rating areas and own age rating curve. For states that approximately $65 an hour) to establish state-established uniform age rating designate their own curve, we estimate an age curve. The total burden will be curves. A state with pure community that it will take three hours for each 123 hours and approximately $24,000. If rating will submit information to CMS state to prepare and submit a report on a state chooses to establish geographical about its uniform family tiers and its age rating curve, for a burden of three rating areas (§ 147.102(b)), if they corresponding multipliers, if any. A hours and a cost of $93. haven’t already done so, staff actuaries state will also inform CMS if it requires If a state is community rated and are likely to conduct an analysis and premiums to be based on average designates a uniform family tier prepare a report for management (30 enrollee amounts in the small group structure with corresponding hours at a cost of approximately $50 per market (§ 147.103). Finally, a state will multipliers, the state will report family hour) and senior management will inform CMS if it elects to merge its tier structure information to CMS. We review the reports and make a decision individual and small group market risk estimate that very few states will (2 hours at a cost of approximately $65 pools (§ 156.80(c)). Because we do not designate family tier structures and that an hour). The total burden would be 32 know how many states will choose to it will take one hour to prepare and hours and approximately $1,600. establish their own geographical rating submit a report to CMS. The burden for areas, age rating curves, and family tier reporting family tier structure B. ICRs Regarding Rate Increase structures; adopt narrower age or information is estimated to be one hour, Disclosure and Review (§ 154.215, tobacco rating factors; require premiums and a cost of approximately $31. § 154.301) to be based on average enrollee amounts If a state requires premiums in the This final rule directs that health in the small group market; or merge small group market to be based on insurance issuers use a unified rate their individual and small group market average enrollee amounts, it will submit review template, as specified by the

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Secretary, to report information about a seeking rate increases below the review market level. We estimate that an issuer proposed rate increase to CMS. States threshold will be approximately $16 would need, on average, 40 hours of with effective rate review programs have million, with an average of $7,000 per work by a programmer (at a cost of the option to incorporate this template issuer. It should be noted that there are approximately $50 per hour) to develop into their rate review process. The administrative efficiencies gained by a program that will extract the necessary existing information collection helping issuers to avoid significant data from its systems. The total one-time requirement (OMB Control Number duplication of effort for filings subject to cost to all issuers for developing a 0938–1141) includes a standardized review by using the same standardized program to extract the necessary data template that is currently used by template for all issuers offering health will be approximately $4.6 million, with issuers seeking rate increases to submit insurance coverage in the small group or an average cost of approximately $2,000 data to CMS. CMS published an individual markets across all states, and per issuer. updated rate review template for public because the vast majority of states For filings subject to review, states comment, in accordance with the currently require all rate increases to be with effective rate review programs may Paperwork Reduction Act of 1995 (44 filed. These efficiencies are not use the data submissions in their U.S.C. chapter 35). quantified in this rule. reviews; however, this is not expected A few commenters remarked that the to increase review costs. Health insurance issuers seeking rate costs related to rate review template Based on comments received and increases will submit data using the submission have been underestimated. discussions with issuers and states, we unified rate review template and will An industry group also provided have made changes to the proposed incur administrative costs to prepare estimates of the number of submissions and submit the data. Based on CMS’s and related costs. According to industry template to address concerns that have experience with the 2011 MLR reporting feedback received by CMS, the current been raised. We have both removed data year, there are 2,010 health insurance rate review template being used requires elements from the uniform rate review issuers (company/state combinations, only one to four hours of actuarial labor template and identified information that including territories) offering coverage to complete. The unified rate review will be optional in the first two years of in the individual market in all states template includes more data and we applicability. We estimate that through and 1,050 issuers offering coverage in estimate that it would take an actuary 11 these changes we have reduced the the small group market in all states, hours, on average, to complete. Issuers number of required data elements by while there are 2,294 unique issuers will have to submit only one approximately 45 percent. States may offering products in one or both consolidated report for all their collect additional information above markets. Most issuers already have to products in a market, unlike the current this baseline. We expect that the unified provide this information to their template in use which requires a rate review template will not respective states. We anticipate a total of separate submission for each product. significantly increase the burden on 7,650 submissions for rate review Additionally, issuers seeking rate states or industry; rather, the data increases annually in both markets. increases may need to adjust their requested in the template will assist Based on past experience, we anticipate systems to provide the data required in states and industry in complying with that approximately 1,200 of these the unified rate review template and the market rules. submissions will be for rate increases at incur one-time costs. One commenter In addition, the final rule gives states or above the subject to review threshold provided a range of anticipated costs with effective rate review programs the and the remaining 6,450 submissions obtained from an industry survey. discretion to choose whether to will be for rate increases below the However, we do not expect many incorporate the unified rate review review threshold. We assume that each issuers to undertake major systems template in their rate review processes submission will require 11 hours of changes to prepare the rate review or whether to use their own rate review work by an actuary (at a cost of $225 per submissions. Most of the data elements templates. Issuers in states with hour), including minimal time required specified in the new template are effective rate review programs that do for recordkeeping. The total cost for all currently captured by issuers and most not require the federal template will still submissions will be approximately $19 of the changes will involve categorizing be required to submit information about million. Therefore, the increase in the data into new categories and all rate increases to CMS on the administrative costs for all issuers aggregating the information to the template.

TABLE V.1—ANNUAL REPORTING, RECORDKEEPING AND DISCLOSURE BURDEN*

Total Hourly labor Total labor Total capital/ Regulation Number of Burden per annual cost of cost of maintenance Total cost Section(s) respondents Responses response burden reporting reporting costs ($) (hours) (hours) ($) ($) ($)

Age Ratio, To- bacco Ratio, Rating areas, Family Tier, Small Group Market Pre- mium, Age rat- ing curve: § 147.103; Risk Pool Merger: § 156.80 (c)...... 1 8 1 8 35 279 0 279 Age curve (§ 147.102(e)) ... 1 1 123 123 194 24,000 0 24,000

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TABLE V.1—ANNUAL REPORTING, RECORDKEEPING AND DISCLOSURE BURDEN*—Continued

Total Hourly labor Total labor Total capital/ Regulation Number of Burden per annual cost of cost of maintenance Total cost Section(s) respondents Responses response burden reporting reporting costs ($) (hours) (hours) ($) ($) ($)

Geographical Rat- ing Area (§ 147.102(b)) ... 1 1 32 32 51 1,600 0 1,600 Rate Increase Dis- closure and Re- view (§ 154.215, § 154.301) ** ..... 2,294 7,650 11 84,150 225 19,000,000 0 19,000,000

Total ...... 84,313 ...... 19,025,879 ...... 19,025,879 * Not included in this table is a 4.6 million upfront burden related to rate increase disclosures. ** Of the $19 million labor cost of reporting, only $16.3 million is attributable to this rule.

We have submitted an information costs, and transfers that may stem from ‘‘significant regulatory action.’’ Even collection request to OMB for review this final rule. though it is uncertain whether it is and approval of the ICRs contained in likely to have economic impacts of $100 B. Executive Orders 13563 and 12866 this final rule. The requirements are not million or more in any one year, CMS effective until approved by OMB and Executive Order 12866 (58 FR 51735) has provided an assessment of the assigned a valid OMB control number. directs agencies to assess all costs and potential costs, benefits, and transfers benefits of available regulatory associated with this final regulation. VI. Regulatory Impact Analysis alternatives and, if regulation is 1. Need for Regulatory Action In accordance with the provisions of necessary, to select regulatory Executive Order 12866, this final rule approaches that maximize net benefits Sections 1302(e) and 1312(c) of the was reviewed by the Office of (including potential economic, Patient Protection and Affordable Care Management and Budget. environmental, public health and safety Act (Affordable Care Act), and sections effects; distributive impacts; and 2701, 2702, and 2703 of the Public A. Summary equity). Executive Order 13563 (76 FR Health Service Act (PHS Act), as added 3821, January 21, 2011) is supplemental and amended by the Affordable Care As stated earlier in this preamble, this to and reaffirms the principles, Act, create certain standards related to final rule implements the Affordable structures, and definitions governing fair health insurance premiums, Care Act’s requirements on health regulatory review as established in guaranteed availability, guaranteed insurance coverage related to fair health Executive Order 12866. renewability, risk pools, and insurance premiums, guaranteed Section 3(f) of Executive Order 12866 catastrophic plans applicable to non- availability, guaranteed renewability, defines a ‘‘significant regulatory action’’ grandfathered health insurance coverage single risk pools, and catastrophic as an action that is likely to result in a starting in 2014. These final regulations plans. These provisions are generally final rule—(1) Having an annual effect provide the necessary guidance to effective for plan or policy years on the economy of $100 million or more implement these important consumer beginning on or after January 1, 2014. In in any one year, or adversely and protections. The current individual and addition, this final rule amends the materially affecting a sector of the small group health insurance markets standards for health insurance issuers economy, productivity, competition, generally are viewed as dysfunctional, and states regarding reporting, jobs, the environment, public health or placing consumers at a disadvantage utilization, and collection of data under safety, or state, local or tribal due to the high cost of health insurance the rate review program. governments or communities (also coverage, resulting from factors such as CMS has crafted this final rule to referred to as ‘‘economically lack of competition, adverse selection, implement the protections intended by significant’’); (2) creating a serious and limited transparency. In addition to Congress in an economically efficient inconsistency or otherwise interfering affordability concerns, many people manner. We have examined the effects with an action taken or planned by have difficulty finding and enrolling in of this final rule as required by another agency; (3) materially altering coverage options. If employer-based Executive Order 13563 (76 FR 3821, the budgetary impacts of entitlement coverage is not available, a person may January 21, 2011), Executive Order grants, user fees, or loan programs or the find that affordable individual market 12866 (58 FR 51735, September 1993, rights and obligations of recipients coverage is not available due to medical Regulatory Planning and Review), the thereof; or (4) raising novel legal or underwriting. The provisions of this Regulatory Flexibility Act (RFA) policy issues arising out of legal final rule, combined with other (September 19, 1980, Pub. L. 96–354), mandates, the President’s priorities, or provisions in the Affordable Care Act, the Unfunded Mandates Reform Act of the principles set forth in the Executive will improve the functioning of both the 1995 (Pub. L. 104–4), Executive Order Order. individual and the small group markets 13132 on Federalism, and the A regulatory impact analysis (RIA) and make insurance affordable and Congressional Review Act (5 U.S.C. must be prepared for rules with accessible to millions of Americans who 804(2)). In accordance with OMB economically significant effects (for currently do not have affordable options Circular A–4, CMS has quantified the example, $100 million or more in any 1 available to them. In addition, this final benefits, costs, and transfers where year), and a ‘‘significant’’ regulatory rule would amend the existing rate possible, and has also provided a action is subject to review by the OMB. review standards to reflect the new qualitative discussion of the benefits, OMB has designated this final rule as a market conditions in 2014.

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2. Summary of Impacts group markets. Individuals who are and health outcomes and protection In accordance with OMB Circular A– currently unable to obtain affordable from the risk of catastrophic medical 4, Table VI.1 below depicts an coverage because of their medical expenditures, leading to financial accounting statement summarizing history, health status, gender, or age will security. In addition, an issuer seeking CMS’s assessment of the benefits, costs, be able to obtain such coverage under a rate increase will submit data and and transfers associated with this these final rules, along with other documentation about the rate increase regulatory action. The period covered by provisions of the Affordable Care Act, using a unified rate review template, the RIA is 2013–2017. leading to an increase in the number of which will provide CMS the data CMS anticipates that the provisions of people with health insurance. Newly necessary for monitoring rate increases. these final regulations would ensure insured individuals and individuals In accordance with Executive Order increased access and improve with expanded coverage will have 12866, CMS expects that the benefits of affordability of health insurance increased access to health care, this final regulatory action justify the coverage in the individual and small improving utilization of preventive care costs.

TABLE VI.1—ACCOUNTING TABLE

Qualitative: Benefits:

* Increase in enrollment in the individual and small group market leading to improved access to health care for the previously uninsured, espe- cially individuals with medical conditions, which will result in improved health and protection from the risk of catastrophic medical expenditures * A common marketing standard covering the entire insurance market, reducing adverse selection, improving market oversight and competition and reducing search costs for consumers. * Decrease in administrative costs for issuers due to elimination of medical underwriting and coverage exclusions. * Prevent duplication of effort for rate review filings subject to review by setting forth a unified rate review template for all issuers offering health insurance coverage in the small group or individual markets. * Provide state departments of insurance with more capacity to conduct meaningful rate review and approval of products sold inside and outside an Exchange by using a unified rate review template. * Extend the availability and affordability of student health coverage as a transitional policy.

Costs ...... Estimate ...... Year dollar Discount rate Period covered

Annualized Monetized ($/year) ...... $ 17.3 million ...... 2012 7% 2013–2017 $17.3 million ...... 2012 3% 2013–2017

Administrative costs related to submission of data by issuers seeking rate increases below the rate review threshold, one-time fixed costs to issuers related to rate review data extraction, disclosure of state rating requirements and costs incurred by states choosing to establish rating areas and age rating curves.

Qualitative: * Additional costs incurred by issuers to comply with provisions in the final rule. * Costs related to possible increases in utilization of health care for the newly insured. * Costs incurred by states for disclosure of rate increases, if applicable.

Transfers:

Qualitative: * Lower rates for individuals in the individual and small group market who are older and/or in relatively poor health, and women; and potentially higher rates for some young men which will be mitigated by provisions such as premium tax credits, risk stabilization programs, access to catastrophic plans, and the minimum essential coverage provision. * Reduction in uncompensated care for providers who treat the uninsured and increase in payments from issuers. * Decrease in out-of-pocket expenditures by the newly insured and increase in health care spending by issuers, which may be more than offset by an increase in premium revenue.

3. Anticipated Benefits, Costs and that result in wide variation in premium the District of Columbia have rate Transfers rates (henceforth referred to as ‘‘rates’’) bands, which allow issuers to vary rates and coverage for individual and group only within a certain range of the In developing this final rule, CMS health insurance markets. Regarding the average rate, two states prohibit rating carefully considered its potential effects individual market, only five states have based on age, and five states prohibit including both costs and benefits. One both guaranteed availability for at least rating based on tobacco use in the commenter suggested providing individual market.21 In the small group additional quantitative estimates of some products and modified or pure market, 36 states and the District of benefits, costs and transfers. Because of community rating requirements, while Columbia have rate bands, 12 states data limitations, CMS did not attempt to in other states, issuers can deny health have community rating requirements, quantify all of the benefits, costs, and insurance coverage or charge higher two states do not allow rating based on transfers resulting from this final rule. premiums to people with medical 20 age and 16 do not allow rating based on Nonetheless, CMS was able to identify conditions. Currently, 11 states and several potential impacts which are tobacco use. In many states, women are discussed qualitatively below. 20 GAO, Private Health Insurance: Estimates of Individuals with Preexisting Conditions Range from 21 Kaiser Family Foundation, Focus on Health There are diverse state laws and 36 Million to 122 Million, GAO–12–439, March Reform: Health Insurance Market Reforms: Rate industry practices currently in place 2012. Restrictions, June 2012.

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charged higher premiums than men: though not all of them are the focus of proposed rate increase to CMS. States Only 14 states prohibit gender rating in this final rule. It should be noted that will continue to have the authority to the individual market while 15 states do the impact of these provisions may vary collect additional information above not allow gender rating in the small between states, because of the this baseline to conduct more thorough group market. Of the states that prohibit differences in current regulatory reviews or rate monitoring. gender rating in the individual market, frameworks. a. Benefits only three of those states require A few commenters referred to maternity coverage in all policies, actuarial studies that include estimates In 2011, 48.6 million people in the meaning that women in the other states of premium changes in different states United States were uninsured.25 In can be charged additional premiums for and markets.23 Actuarial studies that addition, an estimated 29 million adults maternity coverage. conclude that premiums will increase were underinsured in 2010.26 Studies Currently, only five states have for certain markets or age groups have shown that people without health guaranteed availability in the individual generally do not take into account all insurance have reduced access to health market. Studies show that 48 states the provisions of the Affordable Care care, higher out-of-pocket costs, higher require guaranteed renewability in the Act and factors that would affect mortality rates and receive less small group market while all 50 states premiums and also assume that the risk preventive care.27 Uninsured and provide some level of guaranteed pool will worsen as a result of these underinsured people are also more renewability in the individual market. provisions. However, we, along with likely to be unable to pay their medical In addition, HIPAA already provides CBO, anticipate that the risk pool will bills, have medical debt, and experience guaranteed renewability of coverage to improve. Different provisions of the financial difficulties. individuals and employers, irrespective Affordable Care Act can have opposing The provisions of this final rule and of state law. Therefore, this provision is effects on premiums. Some of the other other changes implemented by the not expected to have any significant provisions, in addition to the ones Affordable Care Act will increase effect in that regard. mentioned above, that will also affect enrollment in the individual and small Starting in 2014, issuers in the premiums are essential health benefits, group markets. According to CBO, there individual and small group markets will medical loss ratio requirements, risk will be approximately 26 million only be allowed to vary rates based on adjustment, temporary risk corridors enrollees in Exchange coverage by 2017. age and tobacco use within specified and the transitional reinsurance CBO estimates that, by 2017, the ranges, family size, and geography (the programs. There are also factors such as number of uninsured will be reduced by fair health insurance premium benefit improvements; competition 27 million.28 Access to catastrophic requirement). Issuers generally will among issuers in the Exchanges to be plans is likely to further increase the accept every individual and employer the second lowest cost silver plan; number of insured. The provisions of that applies for health insurance migration of current membership to this final rule will also preserve coverage (the guaranteed availability more efficient, lower premium plans affordability and availability of student requirement), and, subject to certain due to increased transparency; new plan health insurance coverage. Newly exceptions, must also renew or continue design offerings such as Accountable insured individuals and individuals health insurance coverage at the option Care Organizations and issuers re- with expanded coverage will have of the plan sponsor or individual (the contracting with providers to obtain lower unit prices due to reduction in 25 Source: U.S. Census Bureau, Current guaranteed renewability requirement). Population Survey, 2012 Annual Social and In addition, issuers must have single uncompensated or charity care. In Economic Supplement, Table HI01. Health risk pools for each of the individual and addition, studies that focus on Insurance Coverage Status and Type of Coverage by small group markets, or a single merged premiums do not take into account the Selected Characteristics: 2011. risk pool, if a state so elects, which will decrease in out-of-pocket costs for 26 Cathy Schoen, Michelle M. Doty, Ruth H. consumers. According to a study, in Robertson and Sara R. Collins, Affordable Care Act include all individuals enrolled in non- Reforms Could Reduce The Number Of grandfathered plans in the applicable 2010, 49 million working-age adults Underinsured US Adults by 70 Percent, Health market (the single risk pool spent at least 10 percent of their income Affairs, 30, no.9 (2011):1762–1771. requirement). on health insurance premiums and out- 27 The Henry J. Kaiser Family Foundation, The The provisions of the final rule will of-pocket costs and 20 million working- Uninsured: A Primer, Key Facts About Americans age adults’ out-of-pocket costs were so Without Health Insurance, Washington, DC, 2011, affect the characteristics of enrollees, citing a number of studies on the effects of being enrollment, and premium rates in the high compared to their income that they uninsured; ASPE, The Value of Health Insurance: individual and small group markets. In were effectively underinsured.24 Few of the Uninsured Have Adequate Resources to addition, several other related Increased access will lead to a decrease Pay Potential Hospital Bills, 2011 (http:// in out-of-pocket costs for these aspe.hhs.gov/health/reports/2011/ provisions of the Affordable Care Act valueofinsurance/rb.shtml); Sara R. Collins, Ruth that will be effective in 2014, such as individuals. Robertson, Tracy Garber, and Michelle M. Doty, The establishment of the Exchanges, This final rule directs that health Income Divide in Health Care: How the Affordable premium tax credits, and the minimum insurance issuers use a unified rate Care Act Will Help Restore Fairness to the U.S. review template, as specified by the Health System, The Commonwealth Fund, February essential coverage provision, will 2012 ; J. Doyle, Health Insurance, Treatment and improve access to and affordability of Secretary, to report information about a Outcomes: Using Auto Accidents as Health Shocks, health insurance coverage. The Review of Economics and Statistics, 87(2): 256–270, Congressional Budget Office (CBO) 23 For example, studies on the Alaska Individual 2005 ; S. Dorn, Uninsured and Dying Because of It: Market by Lewis & Ellis, Indiana Individual Market Updating the Institute of Medicine Analysis on the estimates that, by 2017, the number of by Milliman, Maine Small Group Market by Impact of Uninsurance on Mortality, Urban uninsured will be reduced by 27 Jonathan Gruber & Gorman Actuarial, LLC and Institute, 2008; Cathy Schoen, Michelle M. Doty, million.22 Therefore, it is appropriate to Wisconsin Small Group Market by Jonathan Gruber Ruth H. Robertson and Sara R. Collins, Affordable take into consideration the effect of all & Gorman Actuarial, LLC. Care Act Reforms Could Reduce The Number Of 24 Sara R. Collins, Invited Testimony: Premium Underinsured US Adults by 70 Percent, Health these provisions in this analysis, even Tax Credits Under The Affordable Care Act: How Affairs, 30, no.9 (2011):1762–1771. They Will Help Millions Of Uninsured And 28 ‘‘CBO’s February 2013 Estimate of the Effects 22 ‘‘CBO’s February 2013 Estimate of the Effects Underinsured Americans Gain Affordable, of the Affordable Care Act on Health Insurance of the Affordable Care Act on Health Insurance,’’ Comprehensive Health Insurance, The Coverage,’’ Congressional Budget Office, February Congressional Budget Office, February 2013. Commonwealth Fund, October 27, 2011. 2013.

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access to better health care and premium and guaranteed availability estimated that relatively more new experience a reduction in out-of-pocket provisions of the Affordable Care Act. enrollees in the individual market costs. Ample research demonstrates that The GAO study estimated that health would be younger and healthier and access to insurance coverage improves care expenditures for adults with likely to use less medical care, and the utilization of preventive care, improves medical conditions are, on average, addition of new enrollees would result health outcomes, and creates less between $1,504 and $4,844 more per in average premium rates in the market financial debt, which would lead to year than for other adults. Similarly, a being 7 to 10 percent lower in 2016 better financial security.29 The State of study by HHS found that there are compared to what they would have been Massachusetts passed similar health between 50 million and 129 million in the absence of the Affordable Care reforms in 2006, and now has the lowest non-elderly individuals with a medical Act, all else held constant. According to uninsured rate in the country. In 2011, condition, including between 4 and 17 CBO and JCT, the characteristics of only 3.4 percent of Massachusetts million children under age 18, and up people in the small group market would residents were uninsured.30 This has to 25 million of these adults and change slightly, and projected premium resulted in increased access to health children are uninsured.33 A study found rate changes could decrease up to 1 care, including preventive care and that, in 2010, 35 percent of nonelderly percent. fewer individuals with high out-of- adults who shopped for health Currently, health insurance issuers pocket spending.31 insurance coverage in the individual may maintain several blocks of Research shows that individuals in market were denied coverage or business, or ‘‘pools,’’ for their relatively poor health experience received coverage exclusions for individual and small group market difficulty obtaining health insurance medical conditions.34 The Affordable business. Most states place some coverage. This results in lack of Care Act’s provision on guaranteed restrictions on the number of small adequate access to health care and availability will prohibit issuers from group blocks of business. However, the higher out-of-pocket expenses for these denying coverage to individuals based individual market generally has not individuals. According to a recent study on their health status or any other been subject to similar restrictions. In by U.S. Government Accountability factor, and the provision on fair the past, some issuers used separate Office (GAO), between 36 million and insurance premiums will prevent pools to segment risks, resulting in large 122 million adults age 19 to 64 years old issuers from charging a higher premium rate increases for less-healthy enrollees. (or between 20 and 66 percent of the to individuals based on health status. A single risk pool will tend to lower adult population) have medical The final rule will ensure that rates for relatively unhealthy conditions that could result in issuers individuals who would have been participants in the individual market by denying them coverage or charging denied coverage or charged excessively including younger, healthier individuals higher premiums.32 Of these, an high premium rates, for reasons such as in the pool and ensuring that newer and estimated 88 to 89 percent live in states medical conditions or high expected more long-term policyholders are that do not have insurance protections medical costs, will now be able to pooled together. In the small group provided by the fair health insurance obtain health insurance at an affordable market, a single risk pool will stabilize cost. In addition, young adults and rates. 29 T. Gross and Notowidigdo, Health Insurance people for whom coverage would The guaranteed availability provision and the Consumer Bankruptcy Decision: Evidence from Expansions of Medicaid, Journal of Public otherwise be unaffordable will have may result in some adverse selection— Economics, 95(7–8):767–778, 2011; J. Doyle, Health access to a catastrophic plan that will individuals with poor health who Insurance, Treatment and Outcomes: Using Auto have a lower premium, protect against would have been denied coverage before Accidents as Health Shocks, Review of Economics high out-of-pocket costs, and cover in some states will now be able to obtain and Statistics, 87(2): 256–270, 2005; Amy Finkelstein, et al., The Oregon Health Insurance recommended preventive services health insurance. However, according to Experiment: Evidence from the First Year, National without cost sharing. CBO and JCT,36 adverse selection will Bureau of Economic Research Working Paper No. The provisions of this final rule and be mitigated principally by the 17190, July 2011; Institute of Medicine, Care other changes implemented by the minimum essential coverage provision without coverage: Too little, too late, National Affordable Care Act will increase Academies Press, 2002; J. Ayanian et al., Unmet and the availability of premium tax Health Needs of Uninsured Adults in the United enrollment in the individual market. An credits, which will make insurance States, JAMA 284(16):2061–9, 2000; Andrew P. analysis by CBO and the staff of the affordable for millions of Americans for Wilper, et al., Health Insurance and Mortality in US Joint Committee on Taxation (JCT) 35 whom it is currently unaffordable. Other Adults. American Journal of Public Health, 99(12) estimated that the characteristics of 2289–2295, 2009; S. Dorn, Uninsured and Dying factors such as fixed open enrollment Because of It: Updating the Institute of Medicine enrollees in the individual market will periods will also help to mitigate Analysis on the Impact of Uninsurance on be significantly different, especially due adverse selection. The Affordable Care Mortality, Urban Institute, 2008; Jack Hadley, to the addition of people who would Act also establishes a transitional Insurance Coverage, Medical Care Use, and Short- have been uninsured in the absence of term Health Changes Following an Unintentional reinsurance program, a temporary risk Injury or the Onset of a Chronic Condition, JAMA. the Affordable Care Act. CBO and JCT corridor program, and a permanent risk 2007;297(10):1073–1084. doi: 10.1001/ adjustment program, which will provide jama.297.10.1073; K. Cook et al., Does major illness 33 ASPE, At Risk: Preexisting Conditions Could payments to issuers providing coverage cause financial catastrophe?, Health Services Affect 1 in 2 Americans: 129 Million People Could Research 45, no. 2, 2010. Be Denied Affordable Coverage Without Health to high-risk individuals, to mitigate the 30 Source: U.S. Census Bureau, Current Reform, November 2011. potential effects of adverse selection. Population Survey, 2012 Annual Social and 34 Sara R. Collins, Invited Testimony: Premium These programs will provide payment Economic Supplement, Table HI06. Health Tax Credits Under The Affordable Care Act: How stability to issuers and reduce Insurance Coverage Status by State for All People: They Will Help Millions Of Uninsured And uncertainty in insurance risk in the 2011. Underinsured Americans Gain Affordable, 31 Kaiser Family Foundation, Focus on Health Comprehensive Health Insurance, The individual market and in the small Reform: Massachusetts Health Care Reform: Six Commonwealth Fund, October 27, 2011. Years Later, June 2012. 35 Congressional Budget Office, Letter to 36 Congressional Budget Office, Letter to 32 GAO, Private Health Insurance: Estimates of Honorable Evan Bayh, providing an Analysis of Honorable Evan Bayh providing An Analysis of Individuals with Preexisting Conditions Range from Health Insurance Premiums Under the Patient Health Insurance Premiums Under the Patient 36 Million to 122 Million, GAO–12–439, March Protection and Affordable Care Act, November 30, Protection and Affordable Care Act, November 30, 2012. 2009. 2009.

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group market, in the case of the divisions of counties, three-digit zip $16 million, with an average of $7,000 permanent risk adjustment program. codes, or MSAs and non-MSAs and will per issuer. It should be noted that the Administrative costs for issuers will be presumed adequate if either of the vast majority of states currently require be lowered because of the elimination of following conditions are met: (1) As of all rate increases to be filed and that medical underwriting and the ban on January 1, 2013, the state had administrative efficiencies can be coverage exclusions. Costs should established by law, rule, regulation, gained by avoiding significant issuer decrease for processing new bulletin, or other executive action duplication of effort for filings subject to applications for coverage and uniform geographic rating areas for the review by using the same standardized implementing the coverage exclusions entire state; or (2) After January 1, 2013, template for all issuers offering health the state establishes by law, rule, in the individual and small group insurance coverage in the small group or regulation, bulletin, or other executive markets. This, in turn, could contribute individual markets across all states, and action for the entire state no more to lower premium rates. because the vast majority of states The final rule also requires all health geographic rating areas than the number currently require all rate increases to be insurance issuers marketing group or of MSAs in the state plus one. States filed. These efficiencies are not individual health insurance coverage to have the option to seek approval from comply with the same marketing CMS of a greater number of rating areas quantified in this rule. standards as issuers offering QHPs as long as the areas are based on Additionally, issuers seeking rate within the Exchanges. This minimizes counties, three-digit zip codes, or MSAs increases may need to adjust their the potential for the adverse selection and non-MSAs. We anticipate that few systems to provide the data required in that could result if plans sold through states will incur costs related to the standardized template format. The Exchanges were subject to different establishing rating areas and estimate total one-time cost to all issuers for marketing standards from plans sold that related costs will be approximately developing a program to extract the outside of the Exchanges. A common $1,600 each for those that do. necessary data from their systems is In addition to these administrative standard covering the entire insurance estimated at approximately $4.6 million, costs, insurance coverage can lead to market will also ensure consistency in with an average cost of approximately increased utilization of health services market oversight, increase competition, $2,000 per issuer. and reduce search costs for for individuals who become newly consumers.37 insured. While a portion of this For filings subject to review, states The amendments to the rate review increased utilization may be with effective rate review programs may standards will help avoid significant economically inefficient, studies that use the data submissions in their issuer duplication of effort for filings estimated the effects of Medicare found reviews; however, it is not expected to subject to review by using the same that the cost of this inefficiency is likely increase review costs. more than offset by the benefit of risk standardized template for all issuers c. Transfers offering health insurance coverage in reduction.38 39 the small group or individual markets. The final rule also directs states to As discussed elsewhere in the Additionally, the use of the unified rate provide information to CMS about their preamble, most aspects of rating rating and risk pooling practices in review template will provide the methodologies today are left to the several key areas, as applicable. They necessary information to conduct the discretion of health insurance issuers, review and approval of products sold include: Age and tobacco rating factors, age rating curves, family tier structure, subject to oversight by the states. In inside and outside an Exchange, most states, issuers may vary premium monitor rates to detect patterns that composite rating in the small group market, geographical rating areas, and rates based on a number of factors such could signal market disruption, and as age, health status, and gender. In oversee the market-wide rules. combined individual and small group market risk pools. As discussed in 2010, 60 percent of non-elderly adults b. Costs section V. of the preamble, we estimate who shopped for insurance coverage in a total burden of approximately $279 for the individual market had difficulty Under the final rule, issuers will 40 likely incur some one-time, fixed costs a state to submit information in all finding affordable coverage. Also, as a in order to comply with the provisions seven areas. This estimate does not result of current gender rating, premium of this final rule, including include the costs of establishing age rates for women are significantly higher administrative expenditures for systems curves and geographical rating areas, than those for men. According to a and software updates and changes in which are discussed above. study by the National Women’s Law marketing. In addition, states may incur Health insurance issuers seeking rate Center, 92 percent of best-selling plans costs in order to establish geographic increases below the subject to review currently practice gender rating.41 The rating areas and uniform age rating threshold will submit data using the provision of fair premiums will allow curves. We do not anticipate that many unified rate review template and incur issuers to vary rates based on only a states will establish their own age curve: administrative costs to prepare and limited number of factors and within Only one state has indicated that it submit the data. As discussed in section specified ranges. Since rating based on would establish its own age rating V. of the preamble, we estimate that the gender and health will no longer be curve. As discussed in section V. of the increase in administrative costs for all preamble, we estimate that a state issuers seeking rate increases below the would incur approximately $24,000 in review threshold will be approximately 40 Sara R. Collins, Invited Testimony: Premium costs to establish its own age curve. The Tax Credits Under The Affordable Care Act: How 38 Finkelstein, A, McKnight R: ‘‘What Did They Will Help Millions Of Uninsured And final rule provides that a state’s rating Medicare Do? The Initial Impact of Medicare on Underinsured Americans Gain Affordable, areas must be based on the geographic Mortality and Out Of Pocket Medical Spending ’’ Comprehensive Health Insurance, The Journal of Public Economics 2008, 92:1644–1668. Commonwealth Fund, October 27, 2011. 37 R. Cebul et al., Unhealthy Insurance Markets: 39 Finkelstein, A., ‘‘The Aggregate Effects of 41 National Women’s Law Center, Turning to Search Frictions and the Cost and Quality of Health Health Insurance: Evidence from the Introduction of Fairness: Insurance discrimination against women Insurance, American Economic Review 101(5): Medicare,’’ National Bureau of Economic Research. today and the Affordable Care Act, Washington, DC, 1842–1847, 2011. Working Paper No. 11619, Sept, 2005. March 2012.

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allowed, rates for some older, less age rating curve, however, improves the it was determined that there were few, healthy adults and women may accuracy of risk adjustment, provides if any, insurance firms underwriting decrease. While these rules could for easier price comparisons between comprehensive health insurance increase rates for younger, healthier different plans, and simplifies policies (in contrast, for example, to adults and for some men, other factors identification of the second lowest cost travel insurance policies or dental will mitigate the effects of reformed silver plan for purposes of determining discount policies) that fell below the rating practices, such as choices of and premium tax credits. size thresholds for ‘‘small’’ business competition among plans on Exchanges, CMS also considered the alternatives established by the SBA (currently $7 greater pooling of risks through the of including a tobacco component for million in annual receipts for health Exchanges, premium tax credits, the risk the rating curve and keeping the rating issuers).43 stabilization programs, access to factor for tobacco use separate from the In addition, CMS used the data from catastrophic plans, and the minimum wellness program rules. These Medical Loss Ratio (MLR) annual report essential coverage provision. alternatives would reduce flexibility for submissions for the 2011 MLR reporting As people who were previously the issuers with respect to rating for year to develop an estimate of the uninsured obtain coverage, their out-of- tobacco use and would provide no number of small entities that offer pocket expenses are expected to alternative to the tobacco surcharge comprehensive major medical coverage. decrease while the issuers’ spending which could discourage disclosure of These estimates may overstate the actual will increase, which is expected to be tobacco use. Under the final rule, a number of small health insurance mitigated by an increase in premium health insurance issuer in the small issuers that would be affected, since collections. Expansion in health group market may implement the they do not include receipts from these insurance coverage will also reduce the tobacco use surcharge only in companies’ other lines of business. It is amount of uncompensated care for connection with a wellness program estimated that there are 22 small entities providers that treat the uninsured. that effectively allows tobacco users to each with less than $7 million in earned Millions of people without health reduce their premiums to the level of premiums that offer individual or group insurance now use health care services non-tobacco users by participating in a health insurance coverage and would for which they do not fully pay, shifting tobacco cessation program or satisfying therefore be subject to the requirements the uncompensated cost of their care to another reasonable alternative. This of this final regulation. These small health care providers, people who do provision will help to alleviate entities account for less than five have insurance (in the form of higher underreporting of tobacco use and percent of the estimated 466 companies premiums), and state and local promote tobacco cessation strategies offering health insurance coverage in governments.42 Providers of that improve health and reduce health the individual or group markets in uncompensated care try to recover the care costs. different states that would be affected by CMS believes that the provisions of money by increasing the amounts the provisions of this rule. Thirty six this final rule strike the best balance of charged to insurance companies, which percent of these small entities belong to extending protections of the Affordable results in higher premiums for holding groups, and many if not all of Care Act to consumers while preserving individuals with private insurance. The these small entities are likely to have the availability of such coverage and cost of uncompensated care for the other lines of business that would result minimizing market disruptions to the previously uninsured will be transferred in their revenues exceeding $7 million. extent possible. from the providers (for example, For these reasons, CMS expects that this hospitals and physicians), governmental D. Regulatory Flexibility Act final rule will not affect small issuers. programs and charitable organizations The Regulatory Flexibility Act (RFA) The requirements in this final rule to the individuals and issuers of their requires agencies that issue a rule to may affect health insurance premiums health insurance coverage. Reduction in analyze options for regulatory relief of in the small group market. We expect the number of uninsured would reduce small businesses if a rule has a that many employers that purchase the amount of uncompensated care and significant impact on a substantial health insurance coverage in the small could lead, all else held equal, to a number of small entities. The RFA group market would meet the SBA decrease in private health insurance generally defines a ‘‘small entity’’ as— standard for small entities. As rates. (1) A proprietary firm meeting the size mentioned earlier in the impact analysis, the impact on premiums is C. Regulatory Alternatives standards of the Small Business Administration (SBA), (2) a nonprofit likely to be small and may even lead to Under Executive Order 12866, CMS is organization that is not dominant in its lower rates in the small group market. required to consider alternatives to field, or (3) a small government CMS will monitor premium changes in issuing rules and alternative regulatory jurisdiction with a population of less the small group market through the rate approaches. than 50,000 (states and individuals are review program. Under the final rule, all issuers in a not included in the definition of ‘‘small E. Unfunded Mandates Reform Act state and market will use a uniform age entity’’). CMS uses as its measure of rating curve. CMS considered the significant economic impact on a Section 202 of the Unfunded alternative of allowing issuers to set substantial number of small entities a Mandates Reform Act (UMRA) of 1995 their own rating curve. Under the change in revenues of more than 3 to 5 requires that agencies assess anticipated alternative, issuers would have more percent. costs and benefits before issuing any flexibility and might incur lower As discussed in the Web Portal final final rule that includes a federal upfront, fixed costs (for example, rule published on May 5, 2010 (75 FR mandate that could result in any systems and software updates) to 24481), CMS examined the health expenditure in any one year by state, comply with the final rule. A uniform insurance industry in depth in the local or tribal governments, in the Regulatory Impact Analysis we prepared 42 Families USA, Hidden Health Tax: Americans 43 Table of Small Business Size Standards Pay a Premium (Washington, DC: Families USA, for the final rule on establishment of the Matched to North American Industry Classification 2009) (http://familiesusa2.org/assets/pdfs/hidden- Medicare Advantage program (69 FR System Codes, effective March 26, 2012, U.S. Small health-tax.pdf). 46866, August 3, 2004). In that analysis Business Administration, available at www.sba.gov.

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aggregate, or by the private sector, of a state does meet the criteria, then CMS 45 CFR Part 150 $100 million in 1995 dollars, updated will adopt that state’s determination of annually for inflation. In early 2013, whether a rate increase is unreasonable. Administrative practice and that threshold level is approximately States will continue to apply state law procedure, Health care, Health $139 million. requirements regarding rate and policy insurance, Penalties, Reporting and UMRA does not address the total cost filings. State requirements that are more recordkeeping requirements. of a final rule. Rather, it focuses on stringent than the federal requirements 45 CFR Part 154 certain categories of cost, mainly those would be not be preempted by this final ‘‘federal mandate’’ costs resulting rule. Accordingly, states have Administrative practice and from—(1) imposing enforceable duties significant latitude to impose procedure, Claims, Health care, Health on state, local, or tribal governments, or requirements with respect to health insurance, Health plans, Penalties, on the private sector; or (2) increasing insurance coverage that are more Reporting and recordkeeping the stringency of conditions in, or restrictive than the federal law. requirements. decreasing the funding of, state, local, or In compliance with the requirement 45 CFR Part 156 tribal governments under entitlement of Executive Order 13132 that agencies programs. examine closely any policies that may Administrative practice and This final rule gives state have Federalism implications or limit procedure, Advertising, Advisory governments the option to establish the policymaking discretion of the committees, Brokers, Conflict of rating areas within the state and states, CMS has engaged in efforts to interest, Consumer protection, Grant uniform age rating curves. There are no consult with and work cooperatively programs-health, Grants administration, mandates on local or tribal with affected states, including Health care, Health insurance, Health governments. State governments may consulting with National Association of maintenance organization (HMO), incur administrative cost related to the Insurance Commissioners. Health records, Hospitals, Indians, option of establishing rating areas and Throughout the process of developing Individuals with disabilities, Loan uniform age rating curves. However, if this final rule, CMS has attempted to programs-health, Organization and the state government does not act, CMS balance the states’ interests in regulating functions (Government agencies), will establish the rating areas and health insurance issuers and Congress’s Medicaid, Public assistance programs, uniform age rating curve in that state. intent to provide uniform protections to Reporting and recordkeeping State governments will also incur consumers in every state. By doing so, requirements, Safety, State and local administrative costs related to it is CMS’s view that it has complied governments, Sunshine Act, Technical disclosure of rating and pooling with the requirements of Executive Assistance, Women, and Youth. requirements to CMS, which are Order 13132. Under the requirements For the reasons set forth in the estimated to be $279 per state. The set forth in section 8(a) of Executive preamble, the Department of Health and private sector (for example, health Order 13132, and by the signatures Human Services amends 45 CFR parts insurance issuers) will incur affixed to this rule, HHS certifies that 144, 147, 150, 154, and 156 as set forth administrative costs related to the the CMS Center for Consumer below: implementation of the provisions in this Information and Insurance Oversight final rule. This final rule does not has complied with the requirements of PART 144—REQUIREMENTS impose an unfunded mandate on local Executive Order 13132 for the attached RELATING TO HEALTH INSURANCE or tribal governments. However, final rule in a meaningful and timely COVERAGE consistent with policy embodied in manner. UMRA, this final rule has been designed ■ 1. The authority citation for part 144 to be low-burden alternative for state, G. Congressional Review Act continues to read as follows: local and tribal governments, and the This final rule is subject to the private sector while achieving the Authority: Secs. 2701 through 2763, 2791, Congressional Review Act provisions of and 2792 of the Public Health Service Act (42 objectives of the Affordable Care Act. the Small Business Regulatory U.S.C. 300gg through 300gg–63, 300gg–91, F. Federalism Enforcement Fairness Act of 1996 (5 and 300gg–92). Executive Order 13132 establishes U.S.C. 801, et seq.), which specifies that ■ 2. Amend § 144.101 by revising certain requirements that an agency before a rule can take effect, the federal paragraphs (d)(1) and (d)(2) to read as must meet when it promulgates a final agency promulgating the rule shall follows: rule that imposes substantial direct submit to each House of the Congress § 144.101 Basis and Purpose. requirement costs on state and local and to the Comptroller General a report governments, preempts state law, or containing a copy of the rule along with * * * * * otherwise has Federalism implications. other specified information, and has (d) * * * been transmitted to Congress and the As discussed earlier in the preamble, (1) States that fail to substantially Comptroller General for review. states are the primary regulators of enforce one or more provisions of part health insurance coverage. States will List of Subjects 146 concerning group health insurance, continue to apply state laws regarding one or more provisions of part 147 45 CFR Part 144 health insurance coverage. However, if concerning group or individual health any state law or requirement prevents Health care, Health insurance, insurance, or the requirements of part the application of a federal standard, Reporting and recordkeeping 148 of this subchapter concerning then that particular state law or requirements. individual health insurance. requirement would be preempted. If 45 CFR Part 147 (2) Insurance issuers in States CMS determines that a state does not described in paragraph (d)(1) of this meet the criteria for an effective rate Health care, Health insurance, section. review program, then CMS will review Reporting and recordkeeping a rate increase subject to review to requirements, and State regulation of * * * * * determine whether it is unreasonable. If health insurance. ■ 3. Revise § 144.102 to read as follows:

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§ 144.102 Scope and applicability. (1) The rate may vary with respect to non-metropolitan statistical areas in the (a) For purposes of 45 CFR parts 144 the particular plan or coverage involved state, as defined by the Office of through 148, all health insurance only by determining the following: Management and Budget. coverage is generally divided into two (i) Whether the plan or coverage (3) A state’s rating areas must be markets—the group market and the covers an individual or family. based on the following geographic (ii) Rating area, as established in individual market. The group market is boundaries: Counties, three-digit zip accordance with paragraph (b) of this codes, or metropolitan statistical areas further divided into the large group section. and non-metropolitan statistical areas, market and the small group market. (iii) Age, except that the rate may not as defined by the Office of Management (b) The protections afforded under 45 vary by more than 3:1 for like and Budget, and will be presumed CFR parts 144 through 148 to individuals of different age who are age adequate if either of the following individuals and employers (and other 21 and older and that the variation in conditions are satisfied: sponsors of health insurance offered in rate must be actuarially justified for (i) The state established by law, rule, connection with a group health plan) individuals under age 21, consistent regulation, bulletin, or other executive are determined by whether the coverage with the uniform age rating curve under action uniform rating areas for the entire involved is obtained in the small group paragraph (e) of this section. For state as of January 1, 2013. market, the large group market, or the purposes of identifying the appropriate (ii) The state establishes by law, rule, individual market. age adjustment under this paragraph regulation, bulletin, or other executive (c) Coverage that is provided to and the age band under paragraph (d) of action after January 1, 2013 uniform associations, but not related to this section applicable to a specific rating areas for the entire state that are employment, and sold to individuals is enrollee, the enrollee’s age as of the date no greater in number than the number not considered group coverage under 45 of policy issuance or renewal must be of metropolitan statistical areas in the CFR parts 144 through 148. If the used. state plus one. coverage is offered to an association (iv) Subject to section 2705 of the (4) Notwithstanding paragraph (b)(3) member other than in connection with Public Health Service Act and its of this section, a state may propose to a group health plan, or is offered to an implementing regulations (related to CMS for approval a number of rating association’s employer-member that is prohibiting discrimination based on areas that is greater than the number maintaining a group health plan that has health status and programs of health described in paragraph (b)(3)(ii) of this fewer than two participants who are promotion or disease prevention) as section, provided such rating areas are current employees on the first day of the applicable, tobacco use, except that based on the geographic boundaries plan year, the coverage is considered such rate may not vary by more than specified in paragraph (b)(3) of this individual health insurance coverage for 1.5:1 and may only be applied with section. purposes of 45 CFR parts 144 through respect to individuals who may legally (5) In determining whether the rating 148. The coverage is considered use tobacco under federal and state law. areas established by each state under coverage in the individual market, For purposes of this section, tobacco use paragraph (b)(4) of this section are regardless of whether it is considered means use of tobacco on average four or adequate, CMS will consider whether group coverage under state law. If the more times per week within no longer the state’s rating areas are actuarially health insurance coverage is offered in than the past 6 months. This includes justified, are not unfairly connection with a group health plan as all tobacco products, except that tobacco discriminatory, reflect significant defined at 45 CFR 144.103, it is use does not include religious or differences in health care unit costs, considered group health insurance ceremonial use of tobacco. Further, lead to stability in rates over time, apply coverage for purposes of 45 CFR parts tobacco use must be defined in terms of uniformly to all issuers in a market, and 144 through 148. when a tobacco product was last used. are based on the geographic boundaries (2) The rate must not vary with of counties, three-digit zip codes, or (d) Provisions relating to CMS respect to the particular plan or metropolitan statistical areas and non- enforcement of parts 146, 147, and 148 coverage involved by any other factor metropolitan statistical areas. are contained in part 150 of this not described in paragraph (a)(1) of this (c) Application of variations based on subchapter. section. age or tobacco use. With respect to PART 147—HEALTH INSURANCE (b) Rating area. (1) A state may family coverage under health insurance REFORM REQUIREMENTS FOR THE establish one or more rating areas coverage, the rating variations permitted GROUP AND INDIVIDUAL HEALTH within that state, as provided in under paragraphs (a)(1)(iii) and (a)(1)(iv) INSURANCE MARKETS paragraphs (b)(3) and (b)(4) of this of this section must be applied based on section, for purposes of applying this the portion of the premium attributable section and the requirements of title ■ 4. The authority citation for part 147 to each family member covered under XXVII the Public Health Service Act and continues to read as follows: the coverage. title I of the Patient Protection and (1) Per-member rating. The total Authority: Secs. 2701 through 2763, 2791, Affordable Care Act. premium for family coverage must be and 2792 of the Public Health Service Act (42 (2) If a state does not establish rating determined by summing the premiums U.S.C. 300gg through 300gg–63, 300gg–91, areas as provided in paragraphs (b)(3) for each individual family member. and 300gg–92), as amended. and (b)(4) of this section or provide With respect to family members under ■ 5. A new § 147.102 is added to part information on such rating areas in the age of 21, the premiums for no more 147 to read as follows: accordance with § 147.103, or CMS than the three oldest covered children determines in accordance with must be taken into account in § 147.102 Fair health insurance premiums. paragraph (b)(5) of this section that a determining the total family premium. (a) In general. With respect to the state’s rating areas under paragraph (2) Family tiers under community premium rate charged by a health (b)(4) of this section are not adequate, rating. If a state does not permit any insurance issuer for health insurance the default will be one rating area for rating variation for the factors described coverage offered in the individual or each metropolitan statistical area in the in paragraphs (a)(1)(iii) and (a)(1)(iv) of small group market— state and one rating area comprising all this section, the state may require that

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premiums for family coverage be ■ 6. A new § 147.103 is added to part (1) Open enrollment periods—(i) determined by using uniform family 147 to read as follows: Group market. A health insurance issuer tiers and the corresponding multipliers in the group market must allow an established by the state. If a state does § 147.103 State reporting. employer to purchase health insurance not establish uniform family tiers and (a) 2014. If a state has adopted or coverage for a group health plan at any the corresponding multipliers, the per- intends to adopt for the 2014 plan or point during the year. In the case of member-rating methodology under policy year a standard or requirement health insurance coverage offered in the paragraph (c)(1) of this section will described in this paragraph, the state small group market, a health insurance apply in that state. must submit to CMS information about issuer may limit the availability of (3) Application to small group market. such standard or requirement in a form coverage to an annual enrollment period In the case of the small group market, and manner specified in guidance by that begins November 15 and extends the total premium charged to the group the Secretary no later than March 29, through December 15 of each year in the is determined by summing the 2013. A state standard or requirement is case of a plan sponsor that is unable to premiums of covered participants and described in this paragraph if it includes comply with a material plan provision beneficiaries in accordance with any of the following: relating to employer contribution or paragraph (c)(1) or (c)(2) of this section, (1) A ratio narrower than 3:1 in group participation rules as defined in as applicable. Nothing in this section connection with establishing rates for § 147.106(b)(3), pursuant to applicable precludes a state from requiring issuers individuals who are age 21 and older, state law and, in the case of a QHP to offer, or an issuer from voluntarily pursuant to § 147.102(a)(1)(iii). offered in the SHOP, as permitted by offering, to a group premiums that are (2) A ratio narrower than 1.5:1 in § 156.285(c) of this subchapter. With based on average enrollee amounts, connection with establishing rates for respect to coverage in the small group provided that the total group premium individuals who use tobacco legally, market, and in the large group market if is the same total amount derived in pursuant to § 147.102(a)(1)(iv). such coverage is offered in a Small accordance with paragraph (c)(1) or (3) Geographic rating areas, pursuant Business Health Options Program (c)(2) of this section, as applicable. to § 147.102(b). (SHOP) in a state, coverage must (4) In states that do not permit rating (d) Uniform age bands. The following become effective consistent with the based on age or tobacco use, uniform uniform age bands apply for rating dates described in § 155.725(h) of this family tiers and corresponding purposes under paragraph (a)(1)(iii) of subchapter. multipliers, pursuant to § 147.102(c)(2). this section: (ii) Individual market. A health (5) A requirement that that issuers in (1) Child age bands. A single age band insurance issuer in the individual the small group market offer to a group for individuals age 0 through 20. market must allow an individual to premiums that are based on average purchase health insurance coverage (2) Adult age bands. One-year age enrollee amounts, pursuant to paragraph during the initial and annual open bands for individuals age 21 through 63. § 147.102(c)(3). enrollment periods described in (3) Older adult age bands. A single (6) A uniform age rating curve, § 155.410(b) and (e) of this subchapter. age band for individuals age 64 and pursuant to § 147.102(e). Coverage must become effective older. (b) Updates. If a state adopts a consistent with the dates described in (e) Uniform age rating curves. Each standard or requirement described in § 155.410(c) and (f) of this subchapter. state may establish a uniform age rating paragraph (a) of this section for any plan (2) Limited open enrollment periods. curve in the individual or small group or policy year beginning after the 2014 A health insurance issuer in the market, or both markets, for rating plan or policy year (or updates a individual market must provide a purposes under paragraph (a)(1)(iii) of standard or requirement that applies for limited open enrollment period for the this section. If a state does not establish the 2014 plan or policy year), the state events described in § 155.420(d) of this a uniform age rating curve or provide must submit to CMS information about subchapter, excluding paragraphs (d)(3) information on such age curve in such standard in a form and manner (concerning citizenship status), (d)(8) accordance with § 147.103, a default specified in guidance by the Secretary. (concerning Indians), and (d)(9) uniform age rating curve specified in (c) Applicability date. The provisions (concerning exceptional circumstances). guidance by the Secretary will apply in of this section apply on March 29, 2013. In addition, a health insurance issuer in that state which takes into account the ■ 7. A new § 147.104 is added to part the individual market must provide, rating variation permitted for age under 147 to read as follows: with respect to individuals enrolled in state law. non-calendar year individual health (f) Special rule for large group market. § 147.104 Guaranteed availability of insurance policies, a limited open If a state permits health insurance coverage. enrollment period beginning on the date issuers that offer coverage in the large (a) Guaranteed availability of that is 30 calendar days prior to the date group market in the state to offer such coverage in the individual and group the policy year ends in 2014. coverage through an Exchange starting market. Subject to paragraphs (b) (3) Special enrollment periods. A in 2017, the provisions of this section through (d) of this section, a health health insurance issuer in the group and applicable to coverage in the small insurance issuer that offers health individual market must establish special group market apply to all coverage insurance coverage in the individual or enrollment periods for qualifying events offered in the large group market in the group market in a state must offer to any as defined under section 603 of the state. individual or employer in the state all Employee Retirement Income Security (g) Applicability date. The provisions products that are approved for sale in Act of 1974, as amended. These special of this section apply for plan years (in the applicable market, and must accept enrollment periods are in addition to the individual market, policy years) any individual or employer that applies any other special enrollment periods beginning on or after January 1, 2014. for any of those products. that are required under federal and state (h) Grandfathered health plans. This (b) Enrollment periods. A health law. section does not apply to grandfathered insurance issuer may restrict enrollment (4) Length of enrollment periods. With health plans in accordance with in health insurance coverage to open or respect to the group market, enrollees § 147.140. special enrollment periods. must be provided 30 calendar days after

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the date of the qualifying event in paragraph (c)(2) of this section is dependency, quality of life, or other described in paragraph (b)(3) of this subject to the requirements of this health conditions. section to elect coverage. With respect section. (f) Applicability date. The provisions to the individual market, enrollees must (d) Application of financial capacity of this section apply for plan years (in be provided 60 calendar days after the limits. (1) A health insurance issuer may the individual market, policy years) date of an event described in paragraph deny health insurance coverage in the beginning on or after January 1, 2014. (b)(2) and (b)(3) of this section to elect group or individual market if the issuer (g) Grandfathered health plans. This coverage. has demonstrated to the applicable state section does not apply to grandfathered (5) Effective date of coverage for authority (if required by the state health plans in accordance with limited open and special enrollment authority) the following: § 147.140. periods. With respect to an election (i) It does not have the financial ■ 8. A new § 147.106 is added to part made under paragraph (b)(2) or (b)(3) of reserves necessary to offer additional 147 to read as follows: this section, coverage must become coverage. effective consistent with the dates § 147.106 Guaranteed renewability of (ii) It is applying this paragraph (d)(1) coverage. described in § 155.420(b) of this uniformly to all employers or subchapter. individuals in the group or individual (a) General rule. Subject to paragraphs (c) Special rules for network plans. (1) market, as applicable, in the state (b) through (d) of this section, a health In the case of a health insurance issuer consistent with applicable state law and insurance issuer offering health that offers health insurance coverage in without regard to the claims experience insurance coverage in the individual or the group and individual market of those individuals, employers and group market is required to renew or through a network plan, the issuer may their employees (and their dependents) continue in force the coverage at the do the following: or any health status-related factor option of the plan sponsor or the (i) Limit the employers that may relating to such individuals, employees, individual, as applicable. apply for the coverage to those with (b) Exceptions. An issuer may and dependents. eligible individuals in the group market nonrenew or discontinue health (2) An issuer that denies health who live, work, or reside in the service insurance coverage offered in the group insurance coverage to any employer or area for the network plan, and limit the or individual market based only on one individual in a state under paragraph individuals who may apply for the or more of the following: (d)(1) of this section may not offer coverage in the individual market to (1) Nonpayment of premiums. The coverage in the group or individual those who live or reside in the service plan sponsor or individual, as market, as applicable, in the state before area for the network plan. applicable, has failed to pay premiums the later of either of the following dates: (ii) Within the service area of the or contributions in accordance with the plan, deny coverage to employers and (i) The 181st day after the date the terms of the health insurance coverage, individuals if the issuer has issuer denies coverage. including any timeliness requirements. demonstrated to the applicable state (ii) The date the issuer demonstrates (2) Fraud. The plan sponsor or authority (if required by the state to the applicable state authority, if individual, as applicable, has performed authority) the following: required under applicable state law, that an act or practice that constitutes fraud (A) It will not have the capacity to the issuer has sufficient financial or made an intentional deliver services adequately to enrollees reserves to underwrite additional misrepresentation of material fact in of any additional groups or any coverage. connection with the coverage. additional individuals because of its (3) Paragraph (d)(2) of this section (3) Violation of participation or obligations to existing group contract does not limit the issuer’s ability to contribution rules. In the case of group holders and enrollees. renew coverage already in force or health insurance coverage, the plan (B) It is applying paragraph (c)(1) of relieve the issuer of the responsibility to sponsor has failed to comply with a this section uniformly to all employers renew that coverage. material plan provision relating to and individuals without regard to the (4) Coverage offered after the 180-day employer contribution or group claims experience of those individuals, period specified in paragraph (d)(2) of participation rules, pursuant to employers and their employees (and this section is subject to the applicable state law. For purposes of their dependents) or any health status- requirements of this section. this paragraph the following apply: related factor relating to such (5) An applicable state authority may (i) The term ‘‘employer contribution individuals, employees, and provide for the application of this rule’’ means a requirement relating to dependents. paragraph (d) on a service-area-specific the minimum level or amount of (2) An issuer that denies health basis. employer contribution toward the insurance coverage to an individual or (e) Marketing. A health insurance premium for enrollment of participants an employer in any service area, in issuer and its officials, employees, and beneficiaries. accordance with paragraph (c)(1)(ii) of agents and representatives must comply (ii) The term ‘‘group participation this section, may not offer coverage in with any applicable state laws and rule’’ means a requirement relating to the individual or group market, as regulations regarding marketing by the minimum number of participants or applicable, within the service area to health insurance issuers and cannot beneficiaries that must be enrolled in any individual or employer, as employ marketing practices or benefit relation to a specified percentage or applicable, for a period of 180 calendar designs that will have the effect of number of eligible individuals or days after the date the coverage is discouraging the enrollment of employees of an employer. denied. This paragraph (c)(2) does not individuals with significant health (4) Termination of plan. The issuer is limit the issuer’s ability to renew needs in health insurance coverage or ceasing to offer coverage in the market coverage already in force or relieve the discriminate based on an individual’s in accordance with paragraph (c) or (d) issuer of the responsibility to renew that race, color, national origin, present or of this section and applicable state law. coverage. predicted disability, age, sex, gender (5) Enrollees’ movement outside (3) Coverage offered within a service identity, sexual orientation, expected service area. For network plans, there is area after the 180-day period specified length of life, degree of medical no longer any enrollee under the plan

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who lives, resides, or works in the 180 calendar days prior to the date the required to accept individuals who are service area of the issuer (or in the area coverage will be discontinued; and not students or dependents of students for which the issuer is authorized to do (ii) All health insurance policies in such coverage. business); and in the case of the small issued or delivered for issuance in the (iii) For purposes of section 2703(a) of group market, the issuer applies the state in the applicable market (or the Public Health Service Act, a health same criteria it would apply in denying markets) are discontinued and not insurance issuer that offers student enrollment in the plan under renewed. health insurance coverage is not § 147.104(c)(1)(i). (2) An issuer that elects to required to renew or continue in force (6) Association membership ceases. discontinue offering all health insurance coverage for individuals who are no For coverage made available in the coverage in a market (or markets) in a longer students or dependents of small or large group market only state as described in this paragraph (d) students. through one or more bona fide may not issue coverage in the applicable * * * * * associations, if the employer’s market (or markets) and state involved (3) Single risk pool. Student health membership in the bona fide association during the 5-year period beginning on insurance coverage is not subject to the ceases, but only if the coverage is the date of discontinuation of the last requirements of section 1312(c) of the terminated uniformly without regard to coverage not renewed. Affordable Care Act. any health status-related factor relating (e) Exception for uniform to any covered individual. modification of coverage. Only at the * * * * * (c) Discontinuing a particular time of coverage renewal may issuers PART 150—CMS ENFORCEMENT IN product. In any case in which an issuer modify the health insurance coverage GROUP AND INDIVIDUAL INSURANCE decides to discontinue offering a for a product offered to a group health MARKETS particular product offered in the group plan in the following: or individual market, that product may (1) Large group market. ■ 10. The authority citation for part 150 be discontinued by the issuer in (2) Small group market if, for coverage continues to read as follows: accordance with applicable state law in available in this market (other than only the applicable market only if the through one or more bona fide Authority: Secs. 2701 through 2763, 2791, following occurs: associations), the modification is and 2792 of the Public Health Service Act (42 (1) The issuer provides notice in U.S.C. 300gg through 300gg–63, 300gg–91, consistent with state law and is effective and 300gg–92), as amended. writing to each plan sponsor or uniformly among group health plans ■ individual, as applicable, provided that with that product. 11. Amend § 150.101 by revising particular product in that market (and to (f) Application to coverage offered paragraphs (a) and (b)(2) to read as all participants and beneficiaries only through associations. In the case of follows: covered under such coverage) of the health insurance coverage that is made § 150.101 Basis and scope. discontinuation at least 90 calendar available by a health insurance issuer in (a) Basis. CMS’s enforcement days before the date the coverage will be the small or large group market to authority under sections 2723 and 2761 discontinued. employers only through one or more of the PHS Act and its rulemaking (2) The issuer offers to each plan associations, the reference to ‘‘plan authority under section 2792 of the PHS sponsor or individual, as applicable, sponsor’’ is deemed, with respect to Act provide the basis for issuing provided that particular product the coverage provided to an employer regulations under this part 150. option, on a guaranteed availability member of the association, to include a (b) * * * basis, to purchase all (or, in the case of reference to the employer. the large group market, any) other (g) Applicability date. The provisions (2) Enforcement with respect to health health insurance coverage currently of this section apply for plan years (in insurance issuers. The states have being offered by the issuer to a group the individual market, policy years) primary enforcement authority with health plan or individual health beginning on or after January 1, 2014. respect to the requirements of title insurance coverage in that market. (h) Grandfathered health plans. This XXVII of the PHS Act that apply to (3) In exercising the option to section does not apply to grandfathered health insurance issuers offering discontinue that product and in offering health plans in accordance with coverage in the group or individual the option of coverage under paragraph § 147.140. health insurance market. If CMS determines under subpart B of this part (c)(2) of this section, the issuer acts ■ 9. Amend § 147.145 by revising that a state is not substantially enforcing uniformly without regard to the claims paragraph (b)(1) and adding paragraph title XXVII of the PHS Act, including experience of those sponsors or (b)(3) to read as follows: individuals, as applicable, or any health the implementing regulations in parts status-related factor relating to any § 147.145 Student health insurance 146, 147, and 148 of this subchapter, participants or beneficiaries covered or coverage. CMS enforces them under subpart C of new participants or beneficiaries who * * * * * this part. may become eligible for such coverage. (b) Exemptions from the Public Health ■ 12. Amend § 150.103 as follows: (d) Discontinuing all coverage. (1) An Service Act and the Affordable Care Act ■ a. Remove the definition of ‘‘HIPAA issuer may elect to discontinue offering —(1) Guaranteed availability and requirements;’’ all health insurance coverage in the guaranteed renewability—(i) For ■ b. Revise the definition of ‘‘Individual individual or group market, or all purposes of sections 2741(e)(1) and health insurance policy or individual markets, in a state in accordance with 2742(b)(5) of the Public Health Service policy;’’ and applicable state law only if— Act, student health insurance coverage ■ c. Add the definition of ‘‘PHS Act (i) The issuer provides notice in is deemed to be available only through requirements’’ in alphabetical order. writing to the applicable state authority a bona fide association. The revision and addition read as and to each plan sponsor or individual, (ii) For purposes of section 2702(a) of follows: as applicable, (and all participants and the Public Health Service Act, a health beneficiaries covered under the insurance issuer that offers student § 150.103 Definitions. coverage) of the discontinuation at least health insurance coverage is not * * * * *

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Individual health insurance policy or ■ u. Section 150.343(a). submissions, to the applicable state. If a individual policy means the legal ■ v. Section 150.465(c). rate increase is subject to review, then document or contract issued by the the health insurance issuer must also issuer to an individual that contains the PART 154—HEALTH INSURANCE complete and submit to CMS and, if conditions and terms of the insurance. ISSUER RATE INCREASES: applicable, the state Part II of the Rate Any association or trust arrangement DISCLOSURE AND REVIEW Filing Justification described in that is not a group health plan as REQUIREMENTS paragraph (b)(2) of this section. defined in § 144.103 of this subchapter (d) Content of unified rate review ■ 14. The authority citation for part 154 or does not provide coverage in template (Part I): The unified rate continues to read as follows: connection with one or more group review template must include the health plans is individual coverage Authority: Section 2794 of the Public following as determined appropriate by subject to the requirements of parts 147 Health Service Act (42 U.S.C. 300gg–94). the Secretary: and 148 of this subchapter. The term ■ 15. In § 154.200, revise the third (1) Historical and projected claims ‘‘individual health insurance policy’’ sentence and add a fourth sentence to experience. includes a policy that is— paragraph (a)(2) and paragraph (b) to (2) Trend projections related to (1) Issued to an association that makes read as follows: utilization, and service or unit cost. coverage available to individuals other (3) Any claims assumptions related to § 154.200 Rate increases subject to benefit changes. than in connection with one or more review. group health plans; or (4) Allocation of the overall rate (2) Administered, or placed in a trust, (a) * * * increase to claims and non-claims costs. and is not sold in connection with a (2) * * * A state-specific threshold (5) Per enrollee per month allocation group health plan subject to the shall be based on factors impacting rate of current and projected premium. (6) Three year history of rate increases provisions of parts 146 and 147 of this increases in a state to the extent that the for the product associated with the rate subchapter. data relating to such state-specific increase. PHS Act requirements means the factors is available by August 1. States (e) Content of written description requirements of title XXVII of the PHS interested in proposing a state-specific justifying the rate increase (Part II): The Act and its implementing regulations in threshold for approval are required to written description of the rate increase parts 146, 147, and 148 of this submit a proposal to the Secretary by must include a simple and brief subchapter. August 1. (b) The Secretary will publish a notice narrative describing the data and * * * * * no later than September 1 of each year, assumptions that were used to develop ■ 13. In part 150, remove the words to be effective on January 1 of the the rate increase and including the ‘‘HIPAA requirement’’ or ‘‘HIPAA following year, concerning whether a following: requirements,’’ and add in their place threshold under paragraph (a)(1) or (1) Explanation of the most significant ‘‘PHS Act requirement’’ or ‘‘PHS Act (a)(2) of this section applies to the state; factors causing the rate increase, requirements,’’ respectively, wherever except that, with respect to the 12- including a brief description of the they appear in the following places: month period that begins on September relevant claims and non-claims expense ■ a. Section 150.103, in the definition of 1, 2011, the threshold under paragraph increases reported in the rate increase ‘‘Complaint’’. (a)(1) of this section applies. summary. ■ b. In the heading of subpart B of part * * * * * (2) Brief description of the overall 150. ■ 16. Revise § 154.215 to read as experience of the policy, including ■ c. Section 150.201. follows: historical and projected expenses, and ■ d. Section 150.203, in the loss ratios. introductory text and paragraphs (a) and § 154.215 Submission of rate filing (f) Content of rate filing (b). justification. documentation (Part III): The rate filing ■ e. Section 150.205(d) and (e)(1). (a) If any product is subject to a rate documentation must include an ■ f. Section 150.207, in the section increase, a health insurance issuer must actuarial memorandum that contains the heading and text. submit a Rate Filing Justification for all reasoning and assumptions supporting ■ g. Section 150.209. products in the single risk pool, the data contained in Part I of the Rate ■ h. Section 150.211, in the including new or discontinuing Filing Justification. Parts I and III must introductory text. products, on a form and in a manner be sufficient to conduct an examination ■ i. Section 150.213(b) and (c). prescribed by the Secretary. satisfying the requirements of ■ j. Section 150.217, in the introductory (b) The Rate Filing Justification must § 154.301(a)(3) and (4) and determine text. consist of the following Parts: whether the rate increase is an ■ k. Section 150.219(a). (1) Unified rate review template (Part unreasonable increase. Instructions ■ l. Section 150.221(a). I), as described in paragraph (d) of this concerning the requirements for the rate ■ m. Section 150.301. section. filing documentation will be provided ■ n. Section 150.303(a) introductory (2) Written description justifying the in guidance issued by CMS. text, (a)(3), and (b). rate increase (Part II), as described in (g) If the level of detail provided by ■ o. Section 150.305(a)(1), (b)(2), and paragraph (e) of this section. the issuer for the information under (c)(2). (3) Rating filing documentation (Part paragraphs (d) and (f) of this section ■ p. Section 150.309. III), as described in paragraph (f) of this does not provide sufficient basis for ■ q. Section 150.311, in the introductory section. CMS to determine whether the rate text and paragraphs (d), (f) introductory (c) A health insurance issuer must increase is an unreasonable rate increase text, (f)(3), and (g). complete and submit Parts I and III of when CMS reviews a rate increase ■ r. Section 150.313(a) and (e)(3)(iv). the Rate Filing Justification described in subject to review under § 154.210(a), ■ s. Section 150.317(a)(1) and (a)(3). paragraphs (b)(1) and (b)(3) of this CMS will request the additional ■ t. Section 150.319(b)(1) introductory section to CMS and, as long as the information necessary to make its text, (b)(1)(ii), and (b)(1)(iii). applicable state accepts such determination. The health insurance

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issuer must provide the requested by removing the semicolons and PART 156—HEALTH INSURANCE information to CMS within 10 business replacing them with periods. ISSUER STANDARDS UNDER THE days following its receipt of the request. ■ c. Revise paragraphs (a)(4)(iii) through AFFORDABLE CARE ACT, INCLUDING (h) Posting of the disclosure on the (a)(4)(v), and (b). STANDARDS RELATED TO CMS Web site: EXCHANGES (1) CMS promptly will make available ■ d. Add new paragraphs (a)(3)(iii), to the public on its Web site the (a)(3)(iv), and (a)(4)(xiii) through ■ 20. The authority citation for part 156 information contained in Part II of each (a)(4)(xv). The revisions and additions continues to read as follows: read as follows: Rate Filing Justification. Authority: Title I of the Affordable Care (2) CMS will make available to the Act, sections 1301–1304, 1311–1312, 1321, public on its Web site the information § 154.301 CMS’s determinations of effective rate review programs. 1322, 1324, 1334, 1342–1343, and 1401– contained in Parts I and III of each Rate 1402, Pub. L. 111–148, 124 Stat. 119 (42 Filing Justification that is not a trade (a) * * * U.S.C. 18042). secret or confidential commercial or (3) * * * ■ 21. A new § 156.80 is added to subpart financial information as defined in A to read as follows: HHS’s Freedom of Information Act (iii) The reasonableness of regulations, 45 CFR 5.65. assumptions used by the health § 156.80 Single risk pool. insurance issuer to estimate the rate (3) CMS will include a disclaimer on (a) Individual market. A health impact of the reinsurance and risk its Web site with the information made insurance issuer must consider the adjustment programs under sections available to the public that explains the claims experience of all enrollees in all 1341 and 1343 of the Affordable Care purpose and role of the Rate Filing health plans (other than grandfathered Act. Justification. health plans) subject to section 2701 of (4) CMS will include information on (iv) The health insurance issuer’s data the Public Health Service Act and its Web site concerning how the public related to implementation and ongoing offered by such issuer in the individual can submit comments on the proposed utilization of a market-wide single risk market in a state, including those rate increases that CMS reviews. pool, essential health benefits, actuarial enrollees who do not enroll in such ■ 17. Revise § 154.220 to read as values and other market reform rules as plans through the Exchange, to be follows: required by the Affordable Care Act. members of a single risk pool. § 154.220 Timing of providing the rate (4) * * * (b) Small group market. A health filing justification. (iii) The impact of cost-sharing insurance issuer must consider the A health insurance issuer must changes by major service categories, claims experience of all enrollees in all submit a Rate Filing Justification for all including actuarial values. health plans (other than grandfathered health plans) subject to section 2701 of rate increases that are filed in a state on (iv) The impact of benefit changes, or after April 1, 2013, or effective on or the Public Health Service Act and including essential health benefits and offered by such issuer in the small after January 1, 2014 in a state that does non-essential health benefits. not require the rate increase to be filed, group market in a state, including those as follows: (v) The impact of changes in enrollee enrollees who do not enroll in such (a) If a state requires that a proposed risk profile and pricing, including rating plans through the Exchange, to be rate increase be filed with the state prior limitations for age and tobacco use members of a single risk pool. to the implementation of the rate, the under section 2701 of the Public Health (c) Merger of the individual and small health insurance issuer must submit to Service Act. group markets. A state may require the CMS and the applicable state the Rate * * * * * individual and small group insurance markets within a state to be merged into Filing Justification on the date on which (xiii) The impacts of geographic a single risk pool if the state determines the health insurance issuer submits the factors and variations. proposed rate increase to the state. appropriate. A state that requires such (b) For all other states, the health (xiv) The impact of changes within a merger must submit to CMS information insurance issuer must submit to CMS single risk pool to all products or plans on its election in accordance with the and the state the Rate Filing Justification within the risk pool. procedures described in § 147.103 of prior to the implementation of the rate (xv) The impact of reinsurance and this subchapter. increase. risk adjustment payments and charges (d) Index rate—(1) In general. Each under sections 1341 and 1343 of the plan year or policy year, as applicable, § 154.225 [Amended] Affordable Care Act. a health insurance issuer must establish ■ 18a. In § 154.225(a), introductory text, * * * * * an index rate for a state market remove the words ‘‘Preliminary described in paragraphs (a) through (c) Justification’’ and add in their place (b) Public disclosure and input. In of this section based on the total ‘‘Rate Filing Justification.’’ addition to satisfying the provisions in combined claims costs for providing paragraph (a) of this section, a state with essential health benefits within the § 154.230 [Amended] an effective rate review program must single risk pool of that state market. The ■ 18b. In § 154.230(b) and (c)(1), remove provide, for the rate increases it reviews, index rate must be adjusted on a market- the words ‘‘Preliminary Justification’’ access from its Web site to at least the wide basis based on the total expected and add in their place ‘‘Rate Filing information contained in Parts I, II, and market-wide payments and charges Justification.’’ III of the Rate Filing Justification that under the risk adjustment and ■ 19. Amend § 154.301 as follows: CMS makes available on its Web site (or reinsurance programs in the state and ■ a. Amend paragraphs (a)(3)(i) and provide CMS’s Web address for such Exchange user fees. The premium rate (a)(3)(xi) by removing ‘‘; and’’ and information) and have a mechanism for for all of the health insurance issuer’s adding in its place a period. receiving public comments on those plans in the relevant state market must ■ b. Amend paragraphs (a)(4)(i), proposed rate increases. use the applicable market-wide adjusted (a)(4)(ii), and (a)(4)(vi) through (a)(4)(x) * * * * * index rate, subject only to the plan-level

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adjustments permitted in paragraph risk pool described in paragraphs (a) (4) Provides coverage for at least three (d)(2) of this section. through (c) of this section does not primary care visits per year before (2) Permitted plan-level adjustments apply. reaching the deductible. to the index rate. For plan years or (f) Applicability date. The provisions (5) Covers only individuals who meet policy years beginning on or after of this section apply for plan years (as either of the following conditions: January 1, 2014, a health insurance that term is defined in § 144.103 of this (i) Have not attained the age of 30 issuer may vary premium rates for a subchapter) in the group market, and for prior to the first day of the plan or particular plan from its market-wide policy years (as that term is defined in policy year. index rate for a relevant state market § 144.103 of this subchapter) in the (ii) Have received a certificate of based only on the following actuarially individual market, beginning on or after exemption for the reasons identified in justified plan-specific factors: January 1, 2014. section 1302(e)(2)(B)(i) or (ii) of the (i) The actuarial value and cost- ■ 22. A new § 156.155 is added to Affordable Care Act. sharing design of the plan. subpart B to read as follows: (ii) The plan’s provider network, (b) Coverage of preventive health delivery system characteristics, and § 156.155 Enrollment in catastrophic services. A catastrophic plan may not utilization management practices. plans. impose any cost-sharing requirements (iii) The benefits provided under the (a) General rule. A health plan is a (such as a copayment, coinsurance, or plan that are in addition to the essential catastrophic plan if it meets the deductible) for preventive services, in health benefits. These additional following conditions: accordance with section 2713 of the benefits must be pooled with similar (1) Meets all applicable requirements Public Health Service Act. benefits within the single risk pool and for health insurance coverage in the (c) Application for family coverage. the claims experience from those individual market (including but not For other than self-only coverage, each benefits must be utilized to determine limited to those requirements described individual enrolled must meet the rate variations for plans that offer those in parts 147 and 148 of this subchapter), requirements of paragraph (a)(5) of this benefits in addition to essential health and is offered only in the individual section. benefits. market. Dated: February 15, 2013. (iv) Administrative costs, excluding (2) Does not provide a bronze, silver, Marilyn Tavenner, Exchange user fees. gold, or platinum level of coverage (v) With respect to catastrophic plans, described in section 1302(d) of the Acting Administrator, Centers for Medicare the expected impact of the specific Affordable Care Act. & Medicaid Services. eligibility categories for those plans. (3) Provides coverage of the essential Approved: February 20, 2013. (e) Grandfathered health plans in the health benefits under section 1302(b) of Kathleen Sebelius, individual and small group market. A the Affordable Care Act once the annual Secretary, Department of Health and Human state law requiring grandfathered health limitation on cost sharing in section Services. plans described in § 147.140 of this 1302(c)(1) of the Affordable Care Act is [FR Doc. 2013–04335 Filed 2–22–13; 11:15 am] subchapter to be included in a single reached. BILLING CODE 4120–01–P

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