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Rule2022-27211

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

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Published

December 20, 2022

Effective

January 1, 2023

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This rule finalizes the methodology and data sources necessary to determine Federal payment amounts to be made for program year 2023 to States that elect to establish a Basic Health Program under the Patient Protection and Affordable Care Act to offer health benefits coverage to low-income individuals otherwise eligible to purchase coverage through Health Insurance Exchanges.

Full Text

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<title>Federal Register, Volume 87 Issue 243 (Tuesday, December 20, 2022)</title>
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[Federal Register Volume 87, Number 243 (Tuesday, December 20, 2022)]
[Rules and Regulations]
[Pages 77722-77742]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27211]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2441-F]
RIN 0938-AU89

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

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

ACTION: Final rule.

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SUMMARY: This rule finalizes the methodology and data sources necessary
to determine Federal payment amounts to be made for program year 2023
to States that elect to establish a Basic Health Program under the
Patient Protection and Affordable Care Act to offer health benefits
coverage to low-income individuals otherwise eligible to purchase
coverage through Health Insurance Exchanges.

DATES: This amendments in this rule are effective January 1, 2023. The
methodology and data sources announced in this rule are effective on
January 1, 2023.

FOR FURTHER INFORMATION CONTACT: Christopher Truffer, (410) 786-1264;
or Cassandra Lagorio, (410) 786-4554.

SUPPLEMENTARY INFORMATION:

I. Background

A. Overview of the Basic Health Program

Section 1331 of the Patient Protection and Affordable Care Act
(Pub. L. 111-148, enacted March 23, 2010), as amended by the Health
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted
March 30, 2010) (collectively referred to as the Affordable Care Act or
ACA), provides States with an option to establish a Basic Health
Program (BHP). In the States that elect to operate a BHP, the BHP makes
affordable health benefits coverage available for individuals under age
65 with household incomes between 133 percent and 200 percent of the
Federal poverty level (FPL) who are not otherwise eligible for
Medicaid, the Children's Health Insurance Program (CHIP), or affordable
employer-sponsored coverage, or for individuals whose income is below
these levels but are lawfully present non-citizens ineligible for
Medicaid. For those States that have expanded Medicaid coverage under
section 1902(a)(10)(A)(i)(VIII) of the Social Security Act (the Act),
the lower income threshold for BHP eligibility is effectively 138
percent due to the application of a required 5 percent income disregard
in determining the upper limits of Medicaid income eligibility (section
1902(e)(14)(I) of the Act).

[[Page 77723]]

A BHP is another option for States to provide affordable health
benefits to individuals with incomes in the ranges described above.
States may find a BHP a useful option for several reasons, including
the ability to potentially coordinate standard health plans in the BHP
with their Medicaid managed care plans, or to potentially reduce the
costs to individuals by lowering premiums or cost-sharing requirements.
Federal funding for a BHP under section 1331(d)(3)(A) of the ACA is
based on the amount of the Federal premium tax credit (PTC) allowed and
payments to cover required cost-sharing reductions (CSRs) that would
have been provided for the fiscal year to eligible individuals enrolled
in BHP standard health plans in the State if such eligible individuals
were allowed to enroll in a qualified health plan (QHP) through Health
Insurance Exchanges (Exchanges). These funds are paid to trusts
established by the States and dedicated to the BHP, and the States then
administer the payments to standard health plans within the BHP.
In the March 12, 2014, Federal Register (79 FR 14111), we published
a final rule entitled ``Basic Health Program: State Administration of
Basic Health Programs; Eligibility and Enrollment in Standard Health
Plans; Essential Health Benefits in Standard Health Plans; Performance
Standards for Basic Health Programs; Premium and Cost Sharing for Basic
Health Programs; Federal Funding Process; Trust Fund and Financial
Integrity'' (hereinafter referred to as the BHP final rule),
implementing section 1331 of the ACA, which governs the establishment
of BHPs. The BHP final rule established the standards for State and
Federal administration of BHPs, including provisions regarding
eligibility and enrollment, benefits, cost-sharing requirements and
oversight activities. While the BHP final rule codified the overall
statutory requirements and basic procedural framework for the funding
methodology, it does not contain the specific information necessary to
determine Federal payments. We anticipated that the methodology would
be based on data and assumptions that would reflect ongoing operations
and experience of BHPs, as well as the operation of the Exchanges. For
this reason, the BHP final rule indicated that the development and
publication of the funding methodology, including any data sources,
would be addressed in a separate annual BHP Payment Notice.
In the BHP final rule, we specified that the BHP Payment Notice
process would include the annual publication of both a proposed and
final BHP payment methodology. The proposed BHP Payment Notice would be
published in the Federal Register each October, 2 years prior to the
applicable program year, and would describe the proposed funding
methodology for the relevant BHP year,\1\ including how the Secretary
of the Department of Health and Human Services (the Secretary)
considered the factors specified in section 1331(d)(3) of the ACA,
along with the proposed data sources used to determine the Federal BHP
payment rates for the applicable program year. The final BHP Payment
Notice would be published in the Federal Register in February, and
would include the final BHP payment methodology, as well as the Federal
BHP payment rates for the applicable BHP program year. For example,
payment rates in the final BHP Payment Notice published in February
2015 applied to BHP program year 2016, beginning in January 2016. As
discussed in section II.D. of this final rule, and as referenced in 42
CFR 600.610(b)(2), State data needed to calculate the Federal BHP
payment rates for the final BHP Payment Notice must be submitted to
CMS.
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\1\ BHP program years span from January 1 through December 31.
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In the 2023 BHP proposed rule, we proposed to revise the schedule
for issuance of payment notices and allow payment notices to be
effective for 1 or multiple program years, as determined by and subject
to the discretion of the Secretary, beginning with the 2023 BHP payment
methodology. As discussed in section IV. of this final rule, we are
finalizing this proposal. Thus, the payment methodology described in
this final rule will be in effect until CMS proposes a new payment
methodology.
As described in the BHP final rule, once the final rule for the
applicable program year has been published, we will generally make
modifications to the BHP funding methodology on a prospective basis,
with limited exceptions. The BHP final rule provided that retrospective
adjustments to the State's BHP payment amount may occur to the extent
that the prevailing BHP funding methodology for a given program year
permits adjustments to a State's Federal BHP payment amount due to
insufficient data for prospective determination of the relevant factors
specified in the applicable final BHP Payment Notice. For example, the
population health factor adjustment described in section III.D.3. of
this final rule allows for a retrospective adjustment (at the State's
option) to account for the impact that BHP may have had on the risk
pool and QHP premiums in the Exchange. Additional adjustments could be
made to the payment rates to correct errors in applying the methodology
(such as mathematical errors).
Under section 1331(d)(3)(ii) of the ACA, the funding methodology
and payment rates are expressed as an amount per eligible individual
enrolled in a BHP standard health plan (BHP enrollee) for each month of
enrollment. These payment rates may vary based on categories or classes
of enrollees. Actual payment to a State would depend on the actual
enrollment of individuals found eligible in accordance with a State's
certified BHP Blueprint eligibility and verification methodologies in
coverage through the State BHP. A State that is approved to implement a
BHP must provide data showing quarterly enrollment of eligible
individuals in the various Federal BHP payment rate cells. Such data
must include the following:
<bullet> Personal identifier;
<bullet> Date of birth;
<bullet> County of residence;
<bullet> Indian status;
<bullet> Family size;
<bullet> Household income;
<bullet> Number of persons in household enrolled in BHP;
<bullet> Family identifier;
<bullet> Months of coverage;
<bullet> Plan information; and
<bullet> Any other data required by CMS to properly calculate the
payment.

B. The 2018 Final Administrative Order and 2019 Through 2022 Payment
Methodologies

On October 11, 2017, the Attorney General of the United States
provided the Department of Health and Human Services and the Department
of the Treasury (the Departments) with a legal opinion indicating that
the permanent appropriation at 31 U.S.C. 1324, from which the
Departments had historically drawn funds to make CSR payments, cannot
be used to fund CSR payments to insurers. In light of this opinion--and
in the absence of any other appropriation that could be used to fund
CSR payments--the Department of Health and Human Services directed CMS
to discontinue CSR payments to issuers until Congress provides for an
appropriation. In the absence of a Congressional appropriation for
Federal funding for CSR payments, we cannot provide States with a
Federal payment attributable to CSRs that would have been paid on
behalf of BHP enrollees had they been enrolled in a QHP through an
Exchange.
Starting with the payment for the first quarter (Q1) of 2018 (which
began on January 1, 2018), we stopped paying the

[[Page 77724]]

CSR component of the quarterly BHP payments to New York and Minnesota
(the States), the only States operating a BHP in 2018. The States then
sued the Secretary for declaratory and injunctive relief in the United
States District Court for the Southern District of New York. See New
York v. U.S. Dep't of Health & Human Servs., No. 18-cv-00683 (RJS)
(S.D.N.Y. filed Jan. 26, 2018). On May 2, 2018, the parties filed a
stipulation requesting a stay of the litigation so that HHS could issue
an administrative order revising the 2018 BHP payment methodology. As a
result of the stipulation, the court dismissed the BHP litigation. On
July 6, 2018, we issued a Draft Administrative Order on which New York
and Minnesota had an opportunity to comment. Each State submitted
comments. We considered the States' comments and issued a Final
Administrative Order on August 24, 2018 \2\ (Final Administrative
Order) setting forth the payment methodology that would apply to the
2018 BHP program year.
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\2\ <a href="https://www.medicaid.gov/sites/default/files/2019-11/final-admin-order-2018-revised-payment-methodology.pdf">https://www.medicaid.gov/sites/default/files/2019-11/final-admin-order-2018-revised-payment-methodology.pdf</a>.
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In the November 5, 2019 Federal Register (84 FR 59529) (hereinafter
referred to as the November 2019 final BHP Payment Notice), we
finalized the payment methodologies for BHP program years 2019 and
2020. The 2019 payment methodology is the same payment methodology
described in the Final Administrative Order. The 2020 payment
methodology is the same methodology as the 2019 payment methodology
with one additional adjustment to account for the impact of individuals
selecting different metal tier level plans in the Exchange, referred to
as the Metal Tier Selection Factor (MTSF).\3\ In the August 13, 2020
Federal Register (85 FR 49264 through 49280) (hereinafter referred to
as the August 2020 final BHP Payment Notice), we finalized the payment
methodology for BHP program year 2021. The 2021 payment methodology is
the same methodology as the 2020 payment methodology, with one
adjustment to the income reconciliation factor (IRF). In the July 7,
2021 Federal Register (86 FR 35615) (hereinafter referred to as the
July 2021 final BHP Payment Notice), we finalized the payment
methodology for BHP program year 2022. The 2022 payment methodology is
the same as the 2021 payment methodology, which the exception of the
removal of the MTSF. The 2023 payment methodology is the same as the
2022 payment methodology, except for the addition of a factor to
account for a State operating a BHP and implementing an approved State
Innovation Waiver under section 1332 of the ACA (referred to as a
section 1332 waiver throughout this final payment methodology).
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\3\ ``Metal tiers'' refer to the different actuarial value plan
levels offered on the Exchanges. Bronze-level plans generally must
provide 60 percent actuarial value; silver-level 70 percent
actuarial value; gold-level 80 percent actuarial value; and
platinum-level 90 percent actuarial value. See 45 CFR 156.140.
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II. Summary of the Proposed Provisions and Analysis of and Responses to
the Public Comments

In the May 25, 2022 Federal Register (87 FR 31815 through 31833),
we published the ``Federal Funding Methodology for Program Year 2023
and Proposed Changes to Basic Health Program Regulations'' proposed
rule (hereinafter referred to as the 2023 BHP proposed rule).
We received 7 timely public comments from individuals and
organizations, including, but not limited to, State government
agencies, other government agencies, and private citizens. In this
section, we provide a summary of the provisions of the 2023 BHP
proposed rule and the public comments and our responses.

A. Background

In the 2023 BHP proposed rule, we proposed the methodology for how
the Federal BHP payments would be calculated for program year 2023 and
subsequent years until a new payment methodology is proposed and
finalized, in accordance with the policy finalized in section IV of
this final rule.
We received the following comments on the background information
included in the 2023 BHP proposed rule.
Comment: Several commenters were supportive of the 2023 BHP payment
methodology described in the 2023 BHP proposed rule.
Response: We appreciate the support from these commenters. As
described further in this final rule, we are finalizing the 2023
methodology as proposed in the 2023 BHP proposed rule.
Comment: One commenter suggested caution regarding the adoption of
BHP in new States, as the establishment of a BHP could impact
affordability for individuals who remain in Marketplace coverage.
Specifically, the commenter noted that adoption of a BHP could result
in a loss in overall enrollment in the individual market, higher
premiums for consumers with incomes above 200 percent FPL who remain in
the individual market, and a potential reduction in plan choices.
Response: We appreciate the comment. We believe that States should
consider how a BHP would impact coverage and affordability for State
residents as part of its decision to start a BHP.

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

In the 2023 BHP proposed rule, we proposed in the overview of the
funding methodology to calculate the PTC and CSR as consistently as
possible and in general alignment with the methodology used by
Exchanges to calculate the advance payments of the PTC (APTC) and CSR,
and by the Internal Revenue Service (IRS) to calculate the allowable
PTC. We proposed four equations that would, if finalized, compose the
overall BHP payment methodology. For specific discussions of these
proposals, please refer to the 2023 BHP proposed rule (87 FR 31817
through 31819).
We received no comments on the overview of the funding methodology
included in the 2023 BHP proposed rule. Therefore, we are finalizing
these policies as proposed.

C. Federal BHP Payment Rate Cells

In the 2023 BHP proposed rule, we proposed to continue to require
that a State implementing BHP provide us with an estimate of the number
of BHP enrollees it will enroll in the upcoming BHP program quarter, by
applicable rate cell, to determine the Federal BHP payment amounts. For
each State, we proposed using rate cells that separate the BHP
population into separate cells based on the following factors: age,
geographic rating area, coverage status, household size, and income.
For specific discussions of these proposals, please refer to the 2023
BHP proposed rule (87 FR 31819 through 31820).
We received no comments on this aspect of the proposed methodology.
Therefore, we are finalizing these policies as proposed.

D. Sources and State Data Considerations

In the 2023 BHP proposed rule, we proposed to continue to use, to
the extent possible, data submitted to the Federal Government by QHP
issuers seeking to offer coverage through an Exchange that uses
<a href="http://HealthCare.gov">HealthCare.gov</a> to determine the Federal BHP payment cell rates.
However, for States operating a State-based Exchange (SBE), which do
not use <a href="http://HealthCare.gov">HealthCare.gov</a>, we proposed to continue to require such States
to submit required data for CMS to calculate the Federal BHP payment
rates in those States. For specific discussions,

[[Page 77725]]

please refer to the 2023 BHP proposed rule (87 FR 31820 through 31821).
We received no comments on this aspect of the proposed methodology.
Therefore, we are finalizing these policies as proposed.

E. Discussion of Specific Variables Used in Payment Equations

In the 2023 BHP proposed rule, we proposed to use eight specific
variables in the payment equations that compose the overall BHP funding
methodology:

<bullet> Reference Premium (RP)
<bullet> Premium Adjustment Factor (PAF)
<bullet> Population Health Factor (PHF)
<bullet> Household Income (I)
<bullet> Premium Tax Credit Formula (PTCF)
<bullet> Income Reconciliation Factor (IRF)
<bullet> Premium Trend Factor (PTF)
<bullet> Section 1332 Waiver Factor (WF)
For each proposed variable, we included a discussion on the
assumptions and data sources used in developing the variables. We
proposed to include a new factor, the WF, to account for a State
operating a BHP and implementing an approved section 1332 waiver. For
specific discussions, please refer to 2023 BHP proposed rule (87 FR
31821 through 31826).
Below is a summary of the public comments we received regarding
specific factors and our response.
Comment: Several commenters were supportive of the inclusion of the
WF in the payment methodology. Specifically, commenters noted this
factor will result in more equitable funding for States that have
chosen to operate a BHP as well as a reinsurance program under section
1332 of the ACA.
Response: We appreciate the support from these commenters. After
consideration of comments, we are finalizing the inclusion of the WF in
the payment methodology as proposed.

F. State Option To Use Prior Program Year QHP Premiums for BHP Payments

In the 2023 BHP proposed rule, we proposed to continue to provide
States operating a BHP with the option to use the 2022 QHP premiums
multiplied by a premium trend factor to calculate the Federal BHP
payment rates instead of using the 2023 QHP premiums. We proposed to
require States to make their election for the 2023 program year within
60 days of publication of the final payment methodology. For specific
discussions, please refer to the 2023 BHP proposed rule (87 FR 31827).
We received no comments on this aspect of the proposed methodology.
Therefore, we are finalizing these policies as proposed.

G. State Option To Include Retrospective State-Specific Health Risk
Adjustment in Certified Methodology

In the 2023 BHP proposed rule, we proposed to provide States
implementing BHP the option to develop a methodology to account for the
impact that including the BHP population in the Exchange would have had
on QHP premiums based on any differences in health status between the
BHP population and persons enrolled through the Exchange. We proposed
that States would submit their optional protocol to CMS by the later of
August 1, 2022, or 60 days after the publication of the final rule. We
proposed that CMS would approve the protocol by December 31, 2022. For
specific discussions, please refer to the 2023 BHP proposed rule (87 FR
31827 through 31828).
We received no comments on this aspect of the methodology.
Therefore, we are finalizing this policy as proposed, with one
modification to the date by which CMS will approve the protocol.
Because we are finalizing the 2023 payment methodology after August 1,
2022, a State electing this option must submit its operational protocol
to CMS within 60 days of publication of this final rule. Because
December 31, 2022, falls within 60 days of publication of this final
rule, we are finalizing that CMS will review and approve the State's
protocol within 60 days of receipt of the proposed protocol.

H. Revisions to Basic Health Program Regulations

In the 2023 BHP proposed rule, we proposed two changes related to
the timing of publication of the BHP payment methodologies and
correcting payment errors in Sec. 600.610 (87 FR 31828 through 31829).
Specifically, we proposed to revise Sec. 600.610(a)(1) to provide for
issuance of payment methodology that may be effective for only 1 or
multiple program years, as determined by and subject to the discretion
of the Secretary, beginning with the 2023 BHP payment methodology and
then going forward. In addition, we proposed at Sec. 600.610(a)(1) and
(b)(1) to change the schedule of publication dates for the proposed and
final BHP payment methodologies. We also proposed changes to Sec.
600.610(c)(2)(ii) to allow retroactive adjustments to a State's payment
if the payment was a result of an error in the application of the
payment methodology, which would allow CMS to correct payments made to
States in 2019 that were based on an incorrect value for the income
reconciliation factor.
Below is a summary of the public comments we received regarding
these proposals and our responses.
Comment: Many commenters expressed support for the regulatory
changes. Specifically, one commenter noted that allowing the payment
methodology to apply to multiple years will reduce administrative
burden when there are no changes to the proposed payment methodology.
Response: We appreciate the support from these commenters. As
described further in this final rule, we are finalizing the regulations
as proposed.
Comment: One commenter requested clarification regarding how CMS
will notify States of the annual deadlines for electing to use the
current year's Marketplace premiums or the previous year's Marketplace
premiums (multiplied by a trend factor) for purposes of calculating BHP
payments and submitting an optional risk adjustment protocol.
Response: To maintain consistency with the deadlines established
for making these elections for previous program years, States will have
until the later of May 15 of the year preceding the applicable program
year or 30 days from the release of the subregulatory guidance to elect
to use the current year's Marketplace premiums or the previous year's
Marketplace premiums (multiplied by a trend factor) for purposes of
calculating Federal BHP payments. States will have until the later of
August 1 of the year preceding the applicable program year or 30 days
from the release of the subregulatory guidance to submit an optional
risk adjustment protocol. These dates will be included in the
subregulatory guidance CMS issues.
Comment: One commenter requested that CMS issue subregulatory
guidance updating the values of factors needed to calculate Federal BHP
payments by January of the year preceding the applicable benefit year.
Response: We are unable to carry out the commenter's request
because the value of the factors may not be available in time to
publish subregulatory guidance annually in January. We anticipate
releasing subregulatory guidance in the Spring of the year preceding
the applicable benefit year to the extent possible. As discussed
previously in this final rule, States will have until the later of May
15 of the year preceding the applicable program year or 30 days from
the release of the subregulatory guidance to elect to use the current
year's Marketplace premiums or the previous year's

[[Page 77726]]

Marketplace premiums (multiplied by a trend factor) for purposes of
calculating Federal BHP payments.
Comment: One commenter supported the proposed regulation change
that would allow CMS to correct the 2019 payments to States that were
calculated based on an incorrect value for the income reconciliation
factor.
Response: We appreciate the support and are finalizing these
regulation changes as proposed, with minor formatting edits.
Specifically, we are separating revised Sec. 600.610(a)(1) into Sec.
600.610(a)(1)(i) and (ii) for improved clarity.
After consideration of public comments received, we are finalizing
these regulation changes as proposed.

III. Provisions of the 2023 BHP Payment Methodology

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

Section 1331(d)(3) of the ACA directs the Secretary to consider
several factors when determining the Federal BHP payment amount, which,
as specified in the statute, must equal 95 percent of the value of the
PTC allowed and CSRs that would have been paid on behalf of BHP
enrollees had they enrolled in a QHP through an Exchange. Thus, the BHP
funding methodology is designed to calculate the PTC and CSRs as
consistently as possible and in general alignment with the methodology
used by Exchanges to calculate advance payments of the PTC (APTC) and
CSRs, and the methodology used to calculate PTC under 26 U.S.C. 36B,
for the tax year. In general, we have relied on values for factors in
the payment methodology specified in statute or other regulations, as
available, and have developed values for other factors not otherwise
specified in statute, or previously calculated in other regulations, to
simulate the values of the PTC allowed and CSRs that would have been
paid on behalf of BHP enrollees if they had enrolled in QHPs offered
through an Exchange. In accordance with section 1331(d)(3)(A)(iii) of
the ACA, the final funding methodology must be certified by the Chief
Actuary of CMS, in consultation with the Office of Tax Analysis (OTA)
of the Department of the Treasury, as having met the requirements of
section 1331(d)(3)(A)(ii) of the ACA.
Section 1331(d)(3)(A)(ii) of the ACA specifies that the payment
determination shall take into account all relevant factors necessary to
determine the value of the PTC allowed and CSRs that would have been
paid on behalf of eligible individuals, including but not limited to,
the age and income of the enrollee, whether the enrollment is for self-
only or family coverage, geographic differences in average spending for
health care across rating areas, the health status of the enrollee for
purposes of determining risk adjustment payments and reinsurance
payments that would have been made if the enrollee had enrolled in a
QHP through an Exchange, and whether any reconciliation of APTC and CSR
would have occurred if the enrollee had been so enrolled. Under all
previous payment methodologies, the total Federal BHP payment amount
has been calculated using multiple rate cells in each State. Each rate
cell represents a unique combination of age range (if applicable),\4\
geographic area, coverage category (for example, self-only or two-adult
coverage through the BHP), household size, and income range as a
percentage of FPL, and there is a distinct rate cell for individuals in
each coverage category within a particular age range who reside in a
specific geographic area and are in households of the same size and
income range. The BHP payment rates developed also are consistent with
the State's rules on age rating. Thus, in the case of a State that does
not use age as a rating factor on an Exchange, the BHP payment rates
would not vary by age.
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\4\ In the case of a State that does not use age as a rating
factor on an Exchange, the BHP payment rates would not vary by age.
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Under the methodology finalized in the July 2021 final BHP Payment
Notice, the rate for each rate cell is calculated in two parts. The
first part is equal to 95 percent of the estimated PTC that would have
been allowed if a BHP enrollee in that rate cell had instead enrolled
in a QHP in an Exchange. The second part is equal to 95 percent of the
estimated CSR payment that would have been made if a BHP enrollee in
that rate cell had instead enrolled in a QHP in an Exchange. These two
parts are added together and the total rate for that rate cell would be
equal to the sum of the PTC and CSR rates. As noted in the July 2021
final BHP Payment Notice, we currently assign a value of zero to the
CSR portion of the BHP payment rate calculation, because there is
presently no available appropriation from which we can make the CSR
portion of any BHP payment.
We note that throughout this final rule, when we refer to enrollees
and enrollment data, we mean data regarding individuals who are
enrolled in the BHP who have been found eligible for the BHP using the
eligibility and verification requirements that are applicable in the
State's most recent certified Blueprint. By applying the equations
separately to rate cells based on age (if applicable), income and other
factors, we effectively take those factors into account in the
calculation. In addition, the equations reflect the estimated
experience of individuals in each rate cell if enrolled in coverage
through an Exchange, taking into account additional relevant variables.
Each of the variables in the equations is defined in this section, and
further detail is provided later in this section of this final rule.
As noted in section II.B. of this final rule, we proposed four
equations, which we are finalizing as proposed, that would compose the
overall BHP payment methodology. Equation (1) will be used to calculate
the estimated PTC for eligible individuals enrolled in the BHP in each
rate cell. Equation (2a) and Equation (2b) will be used to calculate
the adjusted reference premium that is used in Equation (1). Equation
(3) will determine the total monthly payment by rate cell.
Equation 1: Estimated PTC by Rate Cell
We are finalizing, as proposed, that estimated PTC per enrollee
will be calculated for each rate cell for each State based on age range
(if applicable), geographic area, coverage category, household size,
and income range. The PTC portion of the rate will be calculated in a
manner consistent with the methodology used to calculate the PTC for
persons enrolled in a QHP as defined in 26 CFR 1.36B-3, with five
adjustments. First, the PTC portion of the rate for each rate cell will
represent the mean, or average, expected PTC that all persons in the
rate cell would receive, rather than being calculated for each
individual enrollee. Second, the reference premium (RP) (described in
section III.D.1. of this final rule) used to calculate the PTC will be
adjusted for the BHP population health status. In the case of a State
that elects to use 2022 premiums for the basis of the BHP Federal
payment, the RP also will be adjusted for the projected change in the
premium from 2022 to 2023. These adjustments are described in Equation
(2a) and Equation (2b). Third, the PTC will be adjusted prospectively
to reflect the average net expected impact of income reconciliation for
individuals receiving APTC in the Exchange on the combination of all
persons enrolled in the BHP; this adjustment, the IRF, which is
described in section III.D.7. of this final rule, will account for the
impact on the PTC that would have occurred had such reconciliation been

[[Page 77727]]

performed. Finally, the rate is multiplied by 95 percent, consistent
with section 1331(d)(3)(A)(i) of the ACA. We note that in the situation
where the average income contribution of an enrollee would exceed the
adjusted reference premium, we will calculate the PTC to be equal to 0
and would not allow the value of the PTC to be negative.
Consistent with the methodology described above, Equation (1), used
to calculate the PTC portion of the BHP payment for each rate cell, is
finalized as follows:
[GRAPHIC] [TIFF OMITTED] TR20DE22.000

PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
Ih,i,j = Income (in dollars per month) at each 1 percentage-point
increment of FPL
j = jth percentage-point increment FPL
n = Number of income increments used to calculate the mean PTC
PTCFh,i,j = Premium tax credit formula percentage
IRF = Income reconciliation factor
Equation (2a) and Equation (2b): Adjusted Reference Premium Variable
(Used in Equation 1)
As part of the calculations for the PTC portion of the BHP payment,
we will calculate the value of the adjusted reference premium as
described below in Equations (2a) and (2b). We are finalizing these
equations as proposed. Consistent with the existing approach, we will
allow States to choose between using the actual current year premiums
or the prior year's premiums multiplied by the PTF (described in
section III.E. of this final rule). Below we describe how we will
calculate the adjusted reference premium under each option.
In the case of a State that elects to use the reference premium
(RP) based on the current program year (for example, 2023 premiums for
the 2023 program year), Equation (2a) will be used to calculate the
value of the adjusted reference premium. The RP, discussed in more
detail in section III.D.1. of this final rule, is based on the second
lowest cost silver plan premium in the applicable program year, in this
case the current program year. The adjusted reference premium will be
equal to the RP multiplied by the BHP population health factor (PHF)
(described in section III.D.3. of this final rule), which will reflect
the projected impact that enrolling BHP-eligible individuals in QHPs
through an Exchange would have had on the average QHP premium, and
multiplied by the PAF (described in section III.D.2. of this final
rule). The PAF will account for the change in silver-level premiums due
to the discontinuance of CSR payments. We will also multiply this value
by the section 1332 waiver factor (WF) (described in section III.D.7 of
this final rule), as applicable. Equation (2a) is finalized as follows:
[GRAPHIC] [TIFF OMITTED] TR20DE22.001

In the case of a State that elected to use the RP based on the
prior program year (for example, 2022 premiums for the 2023 program
year), Equation (2b) will be used calculate the value of the adjusted
reference premium. The adjusted reference premium will be equal to the
RP for the prior program year multiplied by the BHP PHF (described in
section III.D.3. of this final rule), which will reflect the projected
impact that enrolling BHP-eligible individuals in QHPs on an Exchange
would have had on the average QHP premium. It will then be multiplied
by the PAF (described in section III.D.2. of this final methodology),
which will account for the change in silver-level premiums due to the
discontinuance of CSR payments. Then, it will be multiplied by the PTF
(described in section III.E. of this final rule), which would reflect
the projected change in the premium level between 2022 and 2023.
Finally, it will be multiplied by the WF (described in section III.D.7
of this final rule). Equation (2b) is finalized as follows:
[GRAPHIC] [TIFF OMITTED] TR20DE22.002

ARPa,g,c = Adjusted reference premium
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family
coverage) obtained through BHP
RPa,g,c = Reference premium
PHF = Population health factor
PAF = Premium adjustment factor
PTF = Premium trend factor
WFg = Section 1332 waiver factor
Equation 3: Determination of Total Monthly Payment for BHP Enrollees in
Each Rate Cell
In general, the payment rate for each rate cell will be multiplied
by the number of BHP enrollees in that cell (that is, the number of
enrollees that meet the criteria for each rate cell) to calculate the
total monthly BHP payment. This calculation is shown in Equation (3),
which we are finalizing as proposed.

[[Page 77728]]

[GRAPHIC] [TIFF OMITTED] TR20DE22.003

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

In this equation, we will assign a value of zero to the CSR part of
the BHP payment rate calculation (CSR<INF>a,g,c,h,i</INF>) because
there is presently no available appropriation from which we can make
the CSR portion of any BHP payment. In the event that an appropriation
for CSRs for 2022 is made, we will determine whether and how to modify
the CSR part of the BHP payment rate calculation
(CSR<INF>a,g,c,h,i</INF>) or the PAF in the payment methodology.

B. Calculating Federal BHP Payment Rates for Each Rate Cells

We proposed to require the use of certain rate cells in applying
Equations (1), (2a), (2b), and (3) of the payment methodology.
Discussed in more detail below, we proposed to separate the BHP
population into separate rate cells based on five factors (age,
geographic area, coverage status, household size, and household
income). We are finalizing use of the proposed rate cells and factors,
as proposed.
Consistent with the previous payment methodologies, we also
proposed that a State implementing a BHP will provide us an estimate of
the number of BHP enrollees it projects will enroll in the upcoming BHP
program quarter, by applicable rate cell, prior to the first quarter
and each subsequent quarter of program operations until actual
enrollment data is available. Upon our approval of such estimates as
reasonable, we proposed to use those estimates to calculate the
prospective payment, for deposit in the State's BHP trust fund, for the
first and subsequent quarters of program operation until the State
provides us with actual enrollment data for those periods. The actual
enrollment data is required to calculate the final BHP payment amount
and make any necessary reconciliation adjustments to the prior
quarters' prospective payment amounts due to differences between
projected and actual enrollment. Subsequent quarterly deposits to the
State's BHP trust fund will be based on the most recent actual
enrollment data submitted to us. Actual enrollment data must be based
on individuals enrolled for the quarter whom the State found eligible
and whose eligibility was verified using eligibility and verification
requirements elected by the State in its applicable BHP Blueprint for
the quarter that enrollment data is submitted. These procedures, which
are finalized as proposed, will ensure that Federal payments to a State
reflect actual BHP enrollment during a year, within each applicable
rate cell, and prospectively determine Federal payment rates for each
category of BHP enrollment.
We proposed to use rate cells that separate the BHP population in
each State operating a BHP into separate cells based on the five
factors described below. We are finalizing all five factors as
proposed.
Factor 1--Age: We will separate enrollees into rate cells by age
(if applicable), using the following age ranges that capture the widest
variations in premiums under HHS's Default Age Curve: \5\
---------------------------------------------------------------------------

\5\ This curve is used to implement the ACA's 3:1 limit on age-
rating in states that do not create an alternative rate structure to
comply with that limit. The curve applies to all individual market
plans, both within and outside the Exchange. The age bands capture
the principal allowed age-based variations in premiums as permitted
by this curve. The default age curve was updated for plan or policy
years beginning on or after January 1, 2018 to include different age
rating factors between children 0-14 and for persons at each age
between 15 and 20. More information is available at <a href="https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/StateSpecAgeCrv053117.pdf">https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/StateSpecAgeCrv053117.pdf</a>. Both children and
adults under age 21 are charged the same premium. For adults age 21-
64, the age bands in this rule divide the total age-based premium
variation into the three most equally-sized ranges (defining size by
the ratio between the highest and lowest premiums within the band)
that are consistent with the age-bands used for risk-adjustment
purposes in the HHS-Developed Risk Adjustment Model. For such age
bands, see HHS-Developed Risk Adjustment Model Algorithm ``Do It
Yourself (DIY)'' Software Instructions for the 2018 Benefit Year,
April 4, 2019 Update, <a href="https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Updated-CY2018-DIY-instructions.pdf">https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Updated-CY2018-DIY-instructions.pdf</a>.
---------------------------------------------------------------------------

<bullet> Ages 0-20.
<bullet> Ages 21-34.
<bullet> Ages 35-44.
<bullet> Ages 45-54.
<bullet> Ages 55-64.
This provision is unchanged from the current methodology.\6\
---------------------------------------------------------------------------

\6\ In this document, references to the ``current methodology''
refer to the 2022 program year methodology as outlined in the 2022
final BHP Payment Notice.
---------------------------------------------------------------------------

Factor 2--Geographic area: For each State, we will separate
enrollees into rate cells by geographic areas within which a single RP
is charged by QHPs offered through the State's Exchange. Multiple, non-
contiguous geographic areas will be incorporated within a single cell,
so long as those areas share a common RP.\7\ This provision is also
unchanged from the current methodology.
---------------------------------------------------------------------------

\7\ For example, a cell within a particular state might refer to
``County Group 1,'' ``County Group 2,'' etc., and a table for the
State would list all the counties included in each such group. These
geographic areas are consistent with the geographic areas
established under the 2014 Market Reform Rules. They also reflect
the service area requirements applicable to QHPs, as described in 45
CFR 155.1055, except that service areas smaller than counties are
addressed as explained in this rule.
---------------------------------------------------------------------------

Factor 3--Coverage status: We will separate enrollees into rate
cells by coverage status, reflecting whether an individual is enrolled
in self-only coverage or persons are enrolled in family coverage
through the BHP, as provided in section 1331(d)(3)(A)(ii) of the ACA.
For individuals enrolled in family coverage through the BHP, separate
rate cells, as explained below, will apply based on whether such
coverage involves two adults alone or whether it involves children.
This provision is unchanged from the current methodology.
Factor 4--Household size: We will continue the current methods for
separating enrollees into rate cells by household size that States use
to determine BHP enrollees' household income as a percentage of the FPL
under Sec. 600.320 (Determination of eligibility for and enrollment in
a standard health plan). We will require separate rate cells for
several specific household sizes. For each additional member above the
largest specified size, we will publish instructions for how we would
develop additional rate cells and calculate an appropriate payment rate
based on data for the rate cell with the closest specified household
size. We will publish separate rate cells for household sizes of 1
through 10. This finalized provision is unchanged from the current
methodology.
Factor 5--Household Income: For households of each applicable size,
we will continue the current methods for creating separate rate cells
by income range, as a percentage of FPL. The PTC that a person would
receive if enrolled in a QHP through an Exchange varies by household
income as a percentage of the FPL as well as by the metal tier level of
the QHP plans in the Exchange. Thus,

[[Page 77729]]

separate rate cells will be used to calculate Federal BHP payment rates
to reflect different bands of income measured as a percentage of FPL.
We will use the following income ranges, measured as a percentage of
the FPL:
<bullet> 0 to 50 percent of the FPL.
<bullet> 51 to 100 percent of the FPL.
<bullet> 101 to 138 percent of the FPL.\8\
---------------------------------------------------------------------------

\8\ The three lowest income ranges will be limited to lawfully
present immigrants who are ineligible for Medicaid because of
immigration status.
---------------------------------------------------------------------------

<bullet> 139 to 150 percent of the FPL.
<bullet> 151 to 175 percent of the FPL.
<bullet> 176 to 200 percent of the FPL.
This provision is unchanged from the current methodology.
These rate cells will only be used to calculate the Federal BHP
payment amount. A State implementing a BHP will not be required to use
these rate cells or any of the factors in these rate cells as part of
the State payment to the standard health plans participating in the BHP
or to help define BHP enrollees' covered benefits, premium costs, or
out-of-pocket cost-sharing levels.
Consistent with the current methodology, we are finalizing our
proposal to use averages to define Federal payment rates, both for
income ranges and age ranges (if applicable), rather than varying such
rates to correspond to each individual BHP enrollee's age (if
applicable) and income level. This approach will increase the
administrative feasibility of making Federal BHP payments and reduce
the likelihood of error resulting from highly complex methodologies.
This approach should not significantly change Federal payment amounts,
since within applicable ranges the BHP-eligible population is
distributed relatively evenly.
The number of factors contributing to rate cells, when combined,
can result in over 350,000 rate cells, which can increase the
complexity when generating quarterly payment amounts. In future years,
and in the interest of administrative simplification, we will consider
whether to combine or eliminate certain rate cells, once we are certain
that the effect on payment would be insignificant.

C. Sources and State Data Considerations

To the extent possible, unless otherwise provided, we will continue
to use data submitted to the Federal government by QHP issuers seeking
to offer coverage through the Exchange in the relevant BHP State to
perform the calculations that determine Federal BHP payment cell rates.
States operating an SBE in the individual market must provide data
to support the development of the Federal BHP payment rates in those
States, for example premiums for their second lowest cost silver plans,
by geographic area. We proposed that States operating BHPs interested
in obtaining the applicable 2023 program year Federal BHP payment rates
for its State must submit the needed data accurately, completely, and
as specified by CMS, by no later than October 15, 2022. Because we are
finalizing this rule after October 15, 2022, States must submit this
data to CMS within 30 days of publication of this final rule. If
additional State data (that is, in addition to the second lowest cost
silver plan premium data) are needed to determine the Federal BHP
payment rate, such data must be submitted in a timely manner, and in a
format specified by us to support the development and timely release of
annual BHP Payment Methodologies. The specifications for data
collection to support the development of BHP payment rates are
published in CMS guidance and are available on the Basic Health Program
page of <a href="http://Medicaid.gov">Medicaid.gov</a>, <a href="https://www.medicaid.gov/sites/default/files/2019-11/premium-data-collection-tool.zip">https://www.medicaid.gov/sites/default/files/2019-11/premium-data-collection-tool.zip</a>.
States operating a BHP should be technologically prepared to begin
submitting actual enrollment data at the start of their BHP, starting
with the beginning of the first program year. States must submit actual
enrollment data to CMS on a quarterly basis thereafter. This differs
from the enrollment estimates used to calculate the initial BHP
payment, which States would generally submit to CMS 60 days before the
start of the first quarter of the program start date. This requirement
is necessary for us to implement the payment methodology that is tied
to a quarterly reconciliation based on actual enrollment data.
We are finalizing our proposal to continue the policy first adopted
in the 2016 final BHP payment methodology that in States that have BHP
enrollees who do not file Federal tax returns (non-filers), the State
must develop a methodology to determine the enrollees' household income
and household size consistently with Exchange requirements.\9\ The
State must submit this methodology, which is subject to CMS approval,
to us at the time of their Blueprint submission. We reserve the right
to approve or disapprove the State's methodology to determine household
income and household size for non-filers if the household composition
and/or household income resulting from application of the methodology
are different from what typically would be expected to result if the
individual or head of household in the family were to file a tax
return. States currently operating a BHP that wish to change the
methodology for non-filers must submit a revised Blueprint outlining
the revisions to its methodology, consistent with Sec. 600.125.
---------------------------------------------------------------------------

\9\ See ``Basic Health Program; Federal Funding Methodology for
Program Years 2017 and 2018,'' 81 FR 10091 at 10097, February 29,
2016.
---------------------------------------------------------------------------

In addition, as the Federal payments are determined quarterly and
the enrollment data is required to be submitted by the States to us
quarterly, the quarterly payment will be based on the characteristics
of the enrollee at the beginning of the quarter (or their first month
of enrollment in the BHP in each quarter). Thus, if an enrollee were to
experience a change in county of residence, household income, household
size, or other factors related to the BHP payment determination during
the quarter, the payment for the quarter will be based on the data as
of the beginning of the quarter (or their first month of enrollment in
the BHP in the applicable quarter). Payments will still be made only
for months that the person is enrolled in and eligible for the BHP. We
do not anticipate that this will have a significant effect on the
Federal BHP payment. The States must maintain data that is consistent
with CMS' verification requirements, including auditable records for
each individual enrolled, indicating an eligibility determination and a
determination of income and other criteria relevant to the payment
methodology as of the beginning of each quarter.
Consistent with Sec. 600.610 (Secretarial determination of BHP
payment amount), the State is required to submit certain data in
accordance with this final rule. We require that this data be collected
and validated by States operating a BHP, and that this data be
submitted to CMS.

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
As explained in section III.D.5. of this final rule, the PTC is
based, in part, on the premiums for the applicable second lowest cost
silver plan offered through the Exchange operating in the state. To
calculate the estimated PTC that would be paid if BHP-eligible
individuals enrolled in QHPs through an Exchange, we must calculate a
RP. For the purposes of calculating the BHP payment rates, the RP, in
accordance with 26 U.S.C. 36B(b)(3)(C), is defined as the adjusted
monthly premium for an

[[Page 77730]]

applicable second lowest cost silver plan. The applicable second lowest
cost silver plan is defined in 26 U.S.C. 36B(b)(3)(B) as the second
lowest cost silver plan of the individual market in the rating area in
which the taxpayer resides that is offered through the same Exchange.
We will use the adjusted monthly premium for an applicable second
lowest cost silver plan in the applicable program year (2023) as the RP
(except in the case of a State that elects to use the prior plan year's
premium as the basis for the Federal BHP payment for 2022, as described
in section III.E. of this final rule). This method is unchanged from
the current methodology except to update the reference years, and to
provide additional methodological details to simplify calculations and
to deal with potential ambiguities.
The RP used for purposes of calculating the Federal BHP payment
will be the premium applicable to non-tobacco users. This is consistent
with the provision in 26 U.S.C. 36B(b)(3)(C) that bases the PTC on
premiums that are adjusted for age alone, without regard to tobacco
use, even for States that allow insurers to vary premiums based on
tobacco use in accordance with 42 U.S.C. 300gg(a)(1)(A)(iv).
Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6), to
calculate the PTC for those enrolled in a QHP through an Exchange, we
will not update the payment methodology, and subsequently the Federal
BHP payment rates, in the event that the second lowest cost silver plan
used as the RP, or the lowest cost silver plan, changes (that is,
terminates or closes enrollment during the year).
The applicable second lowest cost silver plan premium will be
included in the BHP payment methodology by age range (if applicable),
geographic area, and self-only or applicable category of family
coverage obtained through the BHP.
We note that the choice of the second lowest cost silver plan for
calculating BHP payments relies on several simplifying assumptions in
its selection. For the purposes of determining the second lowest cost
silver plan for calculating PTC for a person enrolled in a QHP through
an Exchange, the applicable plan may differ for various reasons. For
example, the second lowest cost silver plan for a family consisting of
two adults, their child, and their niece may be different than the
second lowest cost silver plan for a family with two adults and their
children, because one or more QHPs in the family's geographic area
might not offer family coverage that includes a niece. We believe that
it would not be possible to replicate such variations for calculating
the BHP payment and believe that in the aggregate, they will not result
in a significant difference in the payment. Thus, we will use the
second lowest cost silver plan available to any enrollee for a given
age, geographic area, and coverage category.
This choice of RP relies on an assumption about enrollment in the
Exchanges. In the payment methodologies for program years 2015 through
2019, we had assumed that all persons enrolled in the BHP would have
elected to enroll in a silver level plan if they had instead enrolled
in a QHP through an Exchange (and that the QHP premium would not be
lower than the value of the PTC). In the November 2019 final BHP
Payment Notice, we continued to use the second-lowest cost silver plan
premium as the RP, but for the 2020 payments we changed the assumption
about which metal tier plans enrollees would choose, by adding the
Metal Tier Selection Factor (MTSF). In the final 2022 payment
methodology, we removed the MTSF. We will continue the approach taken
in the final 2022 payment methodology and not apply the MTSF in this
2023 payment methodology.
We do not believe it is appropriate to adjust the payment for an
assumption that some BHP enrollees would not have enrolled in QHPs for
purposes of calculating the BHP payment rates, since section
1331(d)(3)(A)(ii) of the ACA requires the calculation of such rates as
if the enrollee had enrolled in a QHP through an Exchange.
The applicable age bracket (if any) will be one dimension of each
rate cell. We proposed to assume a uniform distribution of ages and
estimate the average premium amount within each rate cell. We believe
that assuming a uniform distribution of ages within these ranges is a
reasonable approach and would produce a reliable determination of the
total monthly payment for BHP enrollees. We also believe this approach
will avoid potential inaccuracies that could otherwise occur in
relatively small payment cells if age distribution were measured by the
number of persons eligible or enrolled. We have used this approach
starting since the 2015 program year. We believe that other approaches
(that is, other than assuming uniform age distribution) could skew the
calculation of the payment rates for each rate cell. Given the number
of rate cells and the fact that in some cases the number of enrollees
in a cell may be small (particularly for less common family sizes,
smaller counties, etc.), we believe that using estimates of age
distribution or historical data also could skew results. We also
believe a uniform age distribution is reasonably simple to use and
avoids increasing burden on States to report data to CMS. We have found
this approach reliable to date.
We will use geographic areas based on the rating areas used in the
Exchanges. We will define each geographic area so that the RP is the
same throughout the geographic area. When the RP varies within a rating
area, we will define geographic areas as aggregations of counties with
the same RP. Although plans are allowed to serve geographic areas
smaller than counties after obtaining our approval, no geographic area,
for purposes of defining BHP payment rate cells, will be smaller than a
county. We believe that the benefits of simplifying both the
calculation of BHP payment rates and the operation of the BHP justify
any impacts on Federal payment levels.
Finally, in terms of the coverage category, Federal payment rates
will only recognize self-only and two-adult coverage, with exceptions
that account for children who are potentially eligible for the BHP.
First, in States that set the upper income threshold for children's
Medicaid and CHIP eligibility below 200 percent of FPL (based on
modified adjusted gross income (MAGI)), children in households with
incomes between that threshold and 200 percent of FPL would be
potentially eligible for the BHP. Currently, the only States in this
category are Idaho and North Dakota.\10\ Second, the BHP will include
lawfully present immigrant children with household incomes at or below
200 percent of FPL in States that have not exercised the option under
sections 1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the Act to qualify all
otherwise eligible, lawfully present immigrant children for Medicaid
and CHIP. States that fall within these exceptions will be identified
based on their Medicaid and CHIP State Plans, and the rate cells will
include appropriate categories of BHP family coverage for children. For
example, Idaho's Medicaid and CHIP eligibility is limited to families
with MAGI at or below 185 percent FPL. If Idaho implemented a BHP,
Idaho children with household incomes between 185 and 200 percent could
qualify. In other States, BHP eligibility will generally be restricted
to adults, since children who are citizens or lawfully present
immigrants and live in households with incomes at or below

[[Page 77731]]

200 percent of FPL will qualify for Medicaid or CHIP, and thus be
ineligible for a BHP under section 1331(e)(1)(C) of the ACA, which
limits a BHP to individuals who are ineligible for minimum essential
coverage (as defined in 26 U.S.C. 5000A(f)).
---------------------------------------------------------------------------

\10\ Center for Medicaid and CHIP Services (CMCS). ``State
Medicaid, CHIP and BHP Income Eligibility Standards Effective
October 1, 2020.''
---------------------------------------------------------------------------

2. Premium Adjustment Factor (PAF)
The PAF considers the premium increases in other States that took
effect after we discontinued payments to issuers for CSRs provided to
enrollees in QHPs offered through Exchanges. Despite the discontinuance
of Federal payments for CSRs, QHP issuers are required to provide CSRs
to eligible enrollees. As a result, many QHP issuers increased the
silver-level plan premiums to account for those additional costs;
adjustments and how those were applied (for example, to only silver-
level plans or to all metal tier plans) varied across States. For the
States operating BHPs in 2018, the increases in premiums were
relatively minor, because the majority of enrollees eligible for CSRs
(and all who were eligible for the largest CSRs) were enrolled in the
BHP and not in QHPs on the Exchanges, and therefore issuers in BHP
States did not significantly raise premiums to cover costs related to
HHS not making CSR payments.
In the Final Administrative Order and the 2019 through 2022 final
BHP Payment Notices, we incorporated the PAF into the BHP payment
methodologies to capture the impact of how other States responded to us
ceasing to make CSR payments. We will include the PAF in the 2023
payment methodology and will calculate it in the same manner as in the
Final Administrative Order. In the event that an appropriation for CSRs
for 2023 is made, we would determine whether and how to modify the PAF
in the payment methodology.
Under the Final Administrative Order,\11\ we calculated the PAF by
using information sought from QHP issuers in each State and the
District of Columbia, and we determined the premium adjustment that the
responding QHP issuers made to each silver level plan in 2018 to
account for the discontinuation of CSR payments to QHP issuers. Based
on the data collected, we estimated the median adjustment for silver
level QHPs nationwide (excluding those in the two BHP States). To the
extent that QHP issuers made no adjustment (or the adjustment was
zero), this would be counted as zero in determining the median
adjustment made to all silver level QHPs nationwide. If the amount of
the adjustment was unknown--or we determined that it should be excluded
for methodological reasons (for example, the adjustment was negative,
an outlier, or unreasonable)--then we did not count the adjustment
towards determining the median adjustment.\12\ The median adjustment
for silver level QHPs is the nationwide median adjustment.
---------------------------------------------------------------------------

\11\ <a href="https://www.medicaid.gov/sites/default/files/2019-11/final-admin-order-2018-revised-payment-methodology.pdf">https://www.medicaid.gov/sites/default/files/2019-11/final-admin-order-2018-revised-payment-methodology.pdf</a>.
\12\ Some examples of outliers or unreasonable adjustments
include (but are not limited to) values over 100 percent (implying
the premiums doubled or more because of the adjustment), values more
than double the otherwise highest adjustment, or non-numerical
entries.
---------------------------------------------------------------------------

For each of the two BHP States, we determined the median premium
adjustment for all silver level QHPs in that State, which we refer to
as the State median adjustment. The PAF for each BHP State equaled one
plus the nationwide median adjustment divided by one plus the State
median adjustment for the BHP State. In other words:

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

To determine the PAF described above, we sought to collect QHP
information from QHP issuers in each State and the District of Columbia
to determine the premium adjustment those issuers made to each silver
level plan offered through the Exchange in 2018 to account for the end
of CSR payments. Specifically, we sought information showing the
percentage change that QHP issuers made to the premium for each of
their silver level plans to cover benefit expenditures associated with
the CSRs, given the lack of CSR payments in 2018. This percentage
change was a portion of the overall premium increase from 2017 to 2018.
According to our records, there were 1,233 silver level QHPs
operating on Exchanges in 2018. Of these 1,233 QHPs, 318 QHPs (25.8
percent) responded to our request for the percentage adjustment applied
to silver level QHP premiums in 2018 to account for the discontinuance
of the CSRs. These 318 QHPs operated in 26 different States, with 10 of
those States running SBEs (while we requested information only from QHP
issuers in States serviced by an FFE, many of those issuers also had
QHPs in States operating SBEs and submitted information for those
States as well). Thirteen of these 318 QHPs were in New York (and none
were in Minnesota). Excluding these 13 QHPs from the analysis, the
nationwide median adjustment was 20.0 percent. Of the 13 QHPs in New
York that responded, the State median adjustment was 1.0 percent. We
believe that this is an appropriate adjustment for QHPs in Minnesota,
as well, based on the observed changes in New York's QHP premiums in
response to the discontinuance of CSR payments (and the operation of
the BHP in that State) and our analysis of expected QHP premium
adjustments for States with BHPs. We calculated the final PAF as (1 +
20%) / (1 + 1%) (or 1.20/1.01), which results in a value of 1.188.
We are finalizing our proposal to continue to set the PAF to 1.188
for program year 2023, with one limited exception as described below.
We believe that this value for the PAF continues to reasonably account
for the increase in silver-level premiums experienced in non-BHP States
that took effect after the discontinuance of the CSR payments. We
believe that the impact of the increase in silver-level premiums in
2022 can reasonably be expected to be similar to that in 2018, because
the discontinuation of CSR payments has not changed. Moreover, we
believe that States and QHP issuers have not significantly changed the
manner and degree to which they are increasing QHP silver-level
premiums to account for the discontinuation of CSR payments since 2018,
and we expect the same for 2023.
In addition, the percentage difference between the average second
lowest cost silver level QHP and the bronze-level QHP premiums has not
changed significantly since 2018, and we do not expect a significant
change for 2023. In 2018, the average second lowest cost silver level
QHP premium was 41.1 percent higher than the average lowest cost bronze
level QHP premium ($481 and $341, respectively). In 2022, (the latest
year for which premiums have been published), the difference was
modestly lower; the average second lowest cost silver level QHP premium
was 33.1 percent higher than the average lowest cost bronze level QHP
premium ($438 and $329, respectively).\13\ In contrast, the average
second lowest cost silver level QHP premium was only 23.8 percent
higher than the average lowest cost bronze level QHP premium in 2017
($359 and

[[Page 77732]]

$290, respectively).\14\ If there were a significant difference in the
amounts that QHP issuers were increasing premiums for silver level QHPs
to account for the discontinuation of CSR payments over time, then we
would expect the difference between the bronze level and silver level
QHP premiums to change significantly over time, and that this would be
apparent in comparing the lowest-cost bronze-level QHP premium to the
second lowest cost silver level QHP premium.
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\13\ Kaiser Family Foundation, ``Average Marketplace Premiums by
Metal Tier, 2018-2022,'' <a href="https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/">https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/</a>. [Accessed
August 1, 2022.]
\14\ See Basic Health Program: Federal Funding Methodology for
Program Years 2019 and 2020; Final Methodology, 84 FR 59529 at 59532
(November 5, 2019).
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We are finalizing our proposal to make one limited exception in
setting the value of the PAF, for States in the first year of
implementing a BHP. In the case of a State in the first year of
implementing a BHP, if the State chooses to use prior year second
lowest cost silver level QHP premium to determine the BHP payment (for
example, the 2022 premiums for the 2023 program year), we will set the
value of the PAF to 1.00. In this case, we believe that adjustment to
the QHP premiums to account for the discontinuation of CSR payments
would be included fully in the prior year premiums. If the State
chooses to use the prior year premiums, then no further adjustment
would be necessary for the BHP payments; therefore, the value of the
PAF will be 1.00.
3. Population Health Factor (PHF)
We are finalizing our proposal to include the PHF in the
methodology to account for the potential differences in the average
health status between BHP enrollees and persons enrolled through the
Exchanges. To the extent that BHP enrollees would have been enrolled
through an Exchange in the absence of a BHP in a State, the exclusion
of those BHP enrollees in the Exchange may affect the average health
status of the overall population and the expected QHP premiums.
We currently do not believe that there is evidence that the BHP
population would have better or poorer health status than the Exchange
population. At this time, there continues to be a lack of data on the
experience in the Exchanges that limits the ability to analyze the
potential health differences between these groups of enrollees. More
specifically, Exchanges have been in operation since 2014, and 2 States
have operated BHPs since 2015, but data is not available to do the
analysis necessary to determine if there are differences in the average
health status between BHP and Exchange enrollees. In addition,
differences in population health may vary across States. We also do not
believe that sufficient data would be available to permit us to make a
prospective adjustment to the PHF under Sec. 600.610(c)(2) for the
2023 program year.
Given these analytic challenges and the limited data about Exchange
coverage and the characteristics of BHP-eligible consumers, the PHF
will be 1.00 for program year 2023.
In previous years' BHP payment methodologies, we included an option
for States to include a retrospective population health status
adjustment. States will have same option for 2023 to include a
retrospective population health status adjustment in the certified
methodology, which is subject to our review and approval. This option
is described further in section III.F. of this final rule. Regardless
of whether a State elects to include a retrospective population health
status adjustment, we anticipate that, in future years, when additional
data becomes available about Exchange coverage and the characteristics
of BHP enrollees, we may propose a different PHF.
While the statute requires consideration of risk adjustment
payments and reinsurance payments insofar as they would have affected
the PTC that would have been provided to BHP-eligible individuals had
they enrolled in QHPs, we are not requiring that a BHP's standard
health plans receive such payments. As explained in the BHP final rule,
BHP standard health plans are not included in the Federally-operated
risk adjustment program.\15\ Further, standard health plans did not
qualify for payments under the transitional reinsurance program
established under section 1341 of the ACA for the years the program was
operational (2014 through 2016).\16\ To the extent that a State
operating a BHP determines that, because of the distinctive risk
profile of BHP-eligible consumers, BHP standard health plans should be
included in mechanisms that share risk with other plans in the State's
individual market, the State would need to use other methods for
achieving this goal.
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\15\ See 79 FR 14131.
\16\ See 45 CFR 153.400(a)(2)(iv) (BHP standard health plans are
not required to submit reinsurance contributions), 153.20
(definition of ``Reinsurance-eligible plan'' as not including
``health insurance coverage not required to submit reinsurance
contributions''), 153.230(a) (reinsurance payments under the
national reinsurance parameters are available only for
``Reinsurance-eligible plans'').
---------------------------------------------------------------------------

4. Household Income (I)
Household income is a significant determinant of the amount of the
PTC that is provided for persons enrolled in a QHP through an Exchange.
Accordingly, all BHP Payment Methodologies incorporate household income
into the calculations of the payment rates through the use of income-
based rate cells. We are finalizing our proposal to define household
income in accordance with the definition of modified adjusted gross
income in 26 U.S.C. 36B(d)(2)(B) and consistent with the definition in
45 CFR 155.300. Income will be measured relative to the FPL, which is
updated periodically in the Federal Register by the Secretary under the
authority of 42 U.S.C. 9902(2). Household size and income as a
percentage of FPL will be used as factors in developing the rate cells.
We are finalizing our proposal to use the following income ranges
measured as a percentage of FPL:\17\
---------------------------------------------------------------------------

\17\ These income ranges and this analysis of income apply to
the calculation of the PTC.
---------------------------------------------------------------------------

<bullet> 0-50 percent.
<bullet> 51-100 percent.
<bullet> 101-138 percent.
<bullet> 139-150 percent.
<bullet> 151-175 percent.
<bullet> 176-200 percent.
We are finalizing our proposal to assume a uniform income
distribution for each Federal BHP payment cell. We believe that
assuming a uniform income distribution for the income ranges finalized
will be reasonably accurate for the purposes of calculating the BHP
payment and would avoid potential errors that could result if other
sources of data were used to estimate the specific income distribution
of persons who are eligible for or enrolled in the BHP within rate
cells that may be relatively small.
Thus, when calculating the mean, or average, PTC for a rate cell,
we will calculate the value of the PTC at each one percentage point
interval of the income range for each Federal BHP payment cell and then
calculate the average of the PTC across all intervals. This calculation
would rely on the PTC formula described in section III.D.5. of this
final rule.
As the APTC for persons enrolled in QHPs would be calculated based
on their household income during the open enrollment period, and that
income would be measured against the FPL at that time, we will adjust
the FPL by multiplying the FPL by a projected increase in the CPI-U
between the time that the BHP payment rates are calculated and the QHP
open enrollment period, if the FPL is

[[Page 77733]]

expected to be updated during that time. The projected increase in the
CPI-U will be based on the intermediate inflation forecasts from the
most recent Old-Age, Survivors, and Disability Insurance (OASDI) and
Medicare Trustees Reports.\18\
---------------------------------------------------------------------------

\18\ See Table IV A1 from the 2020 Annual Report of the Boards
of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds, available at <a href="https://www.cms.gov/files/document/2020-medicare-trustees-report.pdf">https://www.cms.gov/files/document/2020-medicare-trustees-report.pdf</a>.
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5. Premium Tax Credit Formula (PTCF)
In Equation 1, described in section III.A.1. of this final rule, we
are finalizing our proposal to use the formula described in 26 U.S.C.
36B(b) to calculate the estimated PTC that would be paid on behalf of a
person enrolled in a QHP on an Exchange as part of the BHP payment
methodology. This formula is used to determine the contribution amount
(the amount of premium that an individual or household theoretically
would be required to pay for coverage in a QHP on an Exchange), which
is based on (A) the household income; (B) the household income as a
percentage of FPL for the family size; and (C) the schedule specified
in 26 U.S.C. 36B(b)(3)(A) and shown below.
The difference between the contribution amount and the adjusted
monthly premium (that is, the monthly premium adjusted for the age of
the enrollee) for the applicable second lowest cost silver plan is the
estimated amount of the PTC that would be provided for the enrollee.
The PTC amount provided for a person enrolled in a QHP through an
Exchange is calculated in accordance with the methodology described in
26 U.S.C. 36B(b)(2). The amount is equal to the lesser of the premium
for the plan in which the person or household enrolls, or the adjusted
premium for the applicable second lowest cost silver plan minus the
contribution amount.
The applicable percentage is defined in 26 U.S.C. 36B(b)(3)(A) and
26 CFR 1.36B-3(g) as the percentage that applies that applies to a
taxpayer's household income that is within an income tier, increasing
on a sliding scale in a linear manner from an initial premium
percentage to a final premium percentage. We are finalizing our
proposal to continue to use applicable percentages to calculate the
estimated PTC that would be paid on behalf of a person enrolled in a
QHP on an Exchange as part of the BHP payment methodology as part of
Equation 1.
As described in section II.D.5 of the 2023 BHP proposed rule, we
are finalizing our proposal to use the formula described in 26 U.S.C.
36B(b) to calculate the estimated PTC that would be paid on behalf of a
person enrolled in a QHP in the Marketplace as part of the BHP payment
methodology. In 2021 and 2022, the applicable percentages defined in 26
U.S.C. 36B(b)(3)(A) and 26 CFR 1.36B-3(g) were set in the American
Rescue Plan Act of 2021 (Pub. L. 117-2, enacted March 11, 2021). We
used those applicable percentages for program years 2021 and 2022.
Section 12001 of Subtitle C of the Inflation Reduction Act of 2022
(Pub. L. 117-169, enacted August 16, 2022) extended these applicable
percentages for the years 2023 through 2025. Therefore, we will use the
applicable percentages in Table 1 for the 2023 BHP program year.
The updated applicable percentages, which are described in Table 1,
increase on a sliding scale in a linear manner from the premium
percentage applicable to individuals with income at the lowest end of
the premium band to the premium percentage applicable to individuals
with income at the highest end of the premium band.

Table 1--Applicable Percentage Table for CY 2023
Under Section 12001 of the Inflation Reduction Act of 2022
------------------------------------------------------------------------
In the case of household income
(expressed as a percent of poverty The initial The final premium
line) within the following income premium percentage is--
tier: percentage is--
------------------------------------------------------------------------
Up to 150%........................ 0.0 0.0
150.0% percent up to 200.0%....... 0.0 2.0
200.0% up to 250.0%............... 2.0 4.0
250.0% up to 300.0%............... 4.0 6.0
300.0 percent up to 400.0%........ 6.0 8.5
400.0% percent and higher......... 8.5 8.5
------------------------------------------------------------------------

6. Income Reconciliation Factor (IRF)
For persons who enroll, or enroll a family member, in a QHP through
an Exchange for which APTC is paid, a reconciliation is required by 26
U.S.C. 36B(f) following the end of the coverage year. The
reconciliation requires the enrolling individual (the taxpayer) to
compare the total amount of APTC paid on behalf of the taxpayer or a
family member of the taxpayer for the year of coverage to the total
amount of PTC allowed for the year of coverage, based on household
circumstances shown on the Federal income tax return. If the amount of
a taxpayer's PTC exceeds the APTC paid on behalf of the taxpayer, the
difference reduces the taxpayer's tax liability for the year of
coverage or results in a refund to the extent it exceeds the taxpayer's
tax liability. If the APTC exceeds the PTC allowed, the taxpayer must
increase his or her tax liability for the year of coverage by the
difference, subject to certain limitations in statute and regulation.
Section 1331(e)(2) of the ACA specifies that an individual eligible
for the BHP may not be treated as a ``qualified individual'' under
section 1312 of the ACA who is eligible for enrollment in a QHP offered
through an Exchange. We are defining ``eligible for the BHP'' to mean
anyone for whom the State agency or the Exchange assesses or
determines, based on the single streamlined application or renewal
form, as eligible for enrollment in the BHP. Because enrollment in a
QHP is a requirement for individuals to receive APTC, individuals
determined or assessed as eligible for a BHP are not eligible to
receive APTC for coverage in the Exchange. Because they do not receive
APTC, BHP enrollees are not subject to the same income reconciliation
as Exchange enrollees.
Nonetheless, there may still be differences between a BHP
enrollee's household income reported at the beginning of the year and
the actual household income over the year. These may include small
changes (reflecting changes in hourly wage rates, hours worked per
week, and other fluctuations in income during the year) and large
changes (reflecting significant changes

[[Page 77734]]

in employment status, hourly wage rates, or substantial fluctuations in
income). There may also be changes in household composition. Thus, we
believe that using unadjusted income as reported prior to the BHP
program year may result in calculations of estimated PTC that are
inconsistent with the actual household incomes of BHP enrollees during
the year. Even if the BHP adjusts household income determinations and
corresponding claims of Federal payment amounts based on household
reports during the year or data from third-party sources, such
adjustments may not fully capture the effects of tax reconciliation
that BHP enrollees would have experienced had they been enrolled in a
QHP through an Exchange with APTC.
Therefore, in accordance with current practice, we are finalizing
our proposal to include in Equation 1 an adjustment, the IRF, that will
account for the difference between calculating estimated PTC using: (a)
household income relative to FPL as determined at initial application
and potentially revised mid-year under Sec. 600.320, for purposes of
determining BHP eligibility and claiming Federal BHP payments; and (b)
actual household income relative to FPL received during the plan year,
as it would be reflected on individual Federal income tax returns. This
adjustment will seek prospectively to capture the average effect of
income reconciliation aggregated across the BHP population had those
BHP enrollees been subject to tax reconciliation after receiving APTC
for coverage provided through QHPs. Consistent with the methodology
used in past years, we will estimate reconciliation effects based on
tax data for 2 years, reflecting income and tax unit composition
changes over time among BHP-eligible individuals.
The OTA maintains a model that combines detailed tax and other
data, including Exchange enrollment and PTC claimed, to project
Exchange premiums, enrollment, and tax credits. For each enrollee, this
model compares the APTC based on household income and family size
estimated at the point of enrollment with the PTC based on household
income and family size reported at the end of the tax year. The former
reflects the determination using enrollee information furnished by the
applicant and tax data furnished by the IRS. The latter would reflect
the PTC eligibility based on information on the tax return, which would
have been determined if the individual had not enrolled in the BHP.
Consistent with prior years, we will use the ratio of the reconciled
PTC to the initial estimation of PTC as the IRF in Equation (1) for
estimating the PTC portion of the BHP payment rate.
We are finalizing our proposal to distinguish between the IRF for
Medicaid expansion States and non-Expansion States to remove data for
those with incomes under 138 percent of FPL for Medicaid expansion
States. This is the same approach that we finalized in the 2021 and
2022 final BHP Payment Notices. Therefore, we proposed to set the value
of the IRF for States that have expanded Medicaid equal to the value of
the IRF for incomes between 138 and 200 percent of FPL and the value of
the IRF for States that have not expanded Medicaid equal to the value
of the IRF for incomes between 100 and 200 percent of FPL. This gives
an IRF of 100.66 percent for States that have expanded Medicaid and
101.63 percent for States that have not expanded Medicaid for program
year 2023. Both current States operating a BHP have expanded Medicaid
eligibility, and therefore we finalize the value of the IRF to be
100.66 percent.
We will use this value for the IRF in Equation (1) for calculating
the PTC portion of the BHP payment rate.
7. Section 1332 Waiver Factor (WF)
Section 1332 of the ACA permits States to apply for a waiver from
certain ACA requirements to pursue innovative strategies for providing
their residents with access to high quality, affordable health
insurance coverage while retaining the basic protections of the ACA.
Section 1332 of the ACA authorizes the Secretary of HHS and the
Secretary of the Treasury (collectively, the Secretaries) to approve a
State's request to waive all or any of the following requirements
falling under their respective jurisdictions for health insurance
coverage within a State for plan years beginning on or after January 1,
2017: (1) Part I of subtitle D of Title I of the ACA (relating to the
establishment of QHPs); (2) Part II of subtitle D of Title I of the ACA
(relating to consumer choices and insurance competition through Health
Benefit Exchanges); (3) Section 1402 of the ACA (relating to reduced
cost sharing for individuals enrolling in QHPs); and (4) Sections 36B
(relating to refundable credits for coverage under a QHP), 4980H
(relating to shared responsibility for employers regarding health
coverage), and 5000A (relating to the requirement to maintain minimum
essential coverage) of the Internal Revenue Code (Code).
Under section 1332 of the ACA, the Secretaries may exercise their
discretion to approve a request for a section 1332 waiver only if the
Secretaries determine that the proposal for the section 1332 waiver
meets the following four requirements, referred to as the statutory
guardrails: (1) The proposal will provide coverage that is at least as
comprehensive as coverage defined in section 1302(b) of the ACA and
offered through Exchanges established under title I of the ACA, as
certified by the Office of the Actuary of CMS, based on sufficient data
from the State and from comparable States about their experience with
programs created by the ACA and the provisions of the ACA that would be
waived; (2) the proposal will provide coverage and cost-sharing
protections against excessive out-of-pocket spending that are at least
as affordable for the State's residents as would be provided under
title I of the ACA; (3) the proposal will provide coverage to at least
a comparable number of the State's residents as would be provided under
title I of the ACA; and (4) the proposal will not increase the Federal
deficit.\19\
---------------------------------------------------------------------------

\19\ See section 1332(b)(1)(A) through (D) of the ACA, 45 CFR
155.1308(f)(3)(iv)(A) through (D), and 31 CFR 33.108(f)(3)(iv)(A)
through (D).
---------------------------------------------------------------------------

The Secretaries retain their discretionary authority under section
1332 of the ACA to deny waivers when appropriate given consideration of
the application as a whole, even if an application meets the four
statutory guardrails. Eighteen (18) States have approved section 1332
waivers for plan year 2023.\20\
---------------------------------------------------------------------------

\20\ See the CMS section 1332 waiver website for information on
approved waivers: <a href="https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Section_1332_State_Innovation_Waivers-">https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Section_1332_State_Innovation_Waivers-</a>.
---------------------------------------------------------------------------

Section 1332(a)(3) of the ACA directs the Secretaries to pay pass-
through funding to the State for the purpose of implementing the
State's section 1332 waiver. Under an approved section 1332 waiver, a
State may receive pass-through funding associated with the resulting
reductions in Federal spending on Exchange financial assistance (PTC,
CSRs, and small business tax credits (SBTC)) consistent with the
statute and reduced as necessary to ensure deficit neutrality. These
payments are made in compliance with the applicable waiver plans, the
specific terms and conditions governing the waiver, and accompanying
statutory and regulatory requirements. Specifically, section 1332(a)(3)
of the ACA provides that pass-through funding shall be paid to States
for purposes of implementing the States' waiver plans. The specific
impacts of the waivers on premiums and PTCs vary across States and plan
years, depending, in part, on the State's approved section 1332 waiver
plan and

[[Page 77735]]

the design of the State's program.\21\ The regulations at 31 CFR 33.122
and 45 CFR 155.1322 specify that pass-through funding amounts will be
calculated annually by the Departments for States with approved
waivers.\22\ Additionally, section 1332(a)(4)(B)(v) of the ACA requires
that the Secretaries issue regulations that provide a process for
periodic evaluations by the Secretaries of the program under the
waiver.\23\ As implemented by the Departments, the periodic evaluations
include evaluation of pass-through funding and associated reporting and
methodologies. Information on the pass-through funding amounts is made
available publicly on the CMS website.\24\
---------------------------------------------------------------------------

\21\ For example, some State reinsurance programs under a
section 1332 waiver have reduced Statewide average QHP premiums by 4
percent to 40 percent compared to what premiums would have been
without the waiver. See Data Brief on Section 1332 waivers: State-
based reinsurance programs available here <a href="https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Downloads/1332-Data-Brief-Aug2021.pdf">https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Downloads/1332-Data-Brief-Aug2021.pdf</a>.
\22\ See section 1332(a)(3) of the ACA. See also Patient
Protection and Affordable Care Act; Updating Payment Parameters and
Improving Health Insurance Markets for 2022 and Beyond; Final Rule,
86 FR 53412 at 53482-53483 (Sep 27, 2021).
\23\ See 31 CFR 33.128 and 45 CFR 155.1328.
\24\ See the CMS section 1332 website for information on pass-
through funding here: <a href="https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Section_1332_State_Innovation_Waivers-">https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Section_1332_State_Innovation_Waivers-</a>.
---------------------------------------------------------------------------

For a State that operates a BHP and an approved section 1332
waiver, the Federal BHP can have an impact on section 1332 waiver pass-
through funding for that State. For example, the existence of a Federal
BHP impacts aggregate PTC amounts in the State because BHP moves some
individuals, who would otherwise be eligible for PTC, out of Exchange
coverage. Similarly, as the section 1332 waiver may impact the
benchmark QHP premiums and the PTCs in a State, the waiver may also
have an effect on the calculation of Federal BHP payments in a State
operating a BHP.
If the section 1332 waiver reduces premiums for eligible enrollees,
then this can lead to a reduction in the amount of PTC available for
eligible enrollees (in particular, if the second lowest-cost silver QHP
premium is reduced). While this may not have an effect on particular
subsidized QHP enrollees, as their share of the premium would remain
unchanged, it would reduce the amount of Federal outlays for PTC. With
respect to a State's approved section 1332 waiver, the amount of
Federal pass-through funding would equal the difference between (1) the
amount, determined annually by the Secretaries, of PTC under section
36B of the Code, the SBTC under section 45R of the Code, or CSRs under
part I of subtitle E of the ACA (collectively referred to as Exchange
financial assistance) that individuals and small employers in the State
would otherwise be eligible for had the State not received approval for
its section 1332 waiver and (2) the amount of Exchange financial
assistance that individuals and small employers are eligible for with
the approved section 1332 waiver in place. The section 1332 waiver
pass-through amount would not be increased to account for any savings
or decreases in Federal spending other than the reduction in Exchange
financial assistance. This pass-through amount for the section 1332
waiver would be reduced by any net increase in Federal spending or net
decrease in Federal revenue if necessary to ensure deficit neutrality.
The State must use this pass-through funding only for purposes of
implementing the plan associated with the State's approved section 1332
waiver. Therefore, in States that operate only an approved section 1332
waiver, the net expected Federal spending is the same, even though the
amount of PTC paid by the Federal government is lower.
However, for a State that operates a BHP and a section 1332 waiver,
a reduction in the expected Federal PTC payments due to the operation
of the waiver leads directly to a reduction in Federal BHP funding to
the State under the current BHP methodology. The amount of PTC and CSRs
individuals are eligible for in the Exchange is dependent on the cost
of the second lowest cost silver plan premium, and the cost of the
second lowest cost silver plan premium is the basis for determining the
amount of Federal funding for its BHP program. Therefore, a reduction
in second lowest cost silver plan premium due to a section 1332 waiver,
also reduces the Federal BHP payment. These reductions may be
substantial. For example, in Minnesota in 2021, the State's section
1332 waiver resulted in a State-wide average premium reduction of 21.3
percent compared to without the waiver. This led to a similar reduction
in PTC paid, and thus a similar reduction in Federal BHP funding. While
the PTC allowed for persons eligible for subsidized coverage in the
Exchange is lower with the section 1332 waiver in place, the reduction
in premiums means that the net benefit to those individuals has not
decreased--rather, Federal funding has been shifted from PTC in part to
pass-through payments made to the State.
On January 28, 2021, President Biden issued Executive Order (E.O.)
14009 directing HHS, and the heads of all other executive departments
and agencies with authorities and responsibilities related to Medicaid
and the ACA, to review all existing regulations, orders, guidance
documents, policies, and any other similar agency actions to determine
whether such agency actions are inconsistent with the policy set forth
in section 1 of E.O. 14009 to protect and strengthen the ACA.\25\ As
part of this review, we considered the impact of approved section 1332
waivers on Federal BHP funding and vice versa in States that elect to
operate both a BHP and an approved section 1332 waiver, including the
impact in Minnesota, as previously discussed.
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\25\ 86 FR 7793 (February 2, 2021).
---------------------------------------------------------------------------

We determined it is appropriate to account for the impact of an
approved section 1332 waiver when calculating Federal BHP payments.
This is necessary for consistency with E.O. 14009 and this
Administration's goal of protecting and strengthening the ACA and
making high-quality, affordable health care accessible for every
American. We believe that it is appropriate to consider the amount of
pass-through funding associated with the section 1332 waiver as part of
the PTC for the purpose of determining the BHP payments. As described
previously, while the PTC allowed may be reduced under the section 1332
waiver, the benefit to the persons eligible for such subsidized
coverage has not decreased. Considering the section 1332 pass-through
funding as part of the PTC for purposes of determining the BHP payment
also counteracts the reduction in Federal BHP funding for States that
lawfully exercise the flexibility Congress provided to implement both
of the alternative State programs under sections 1331 and 1332 of the
ACA. Therefore, we are finalizing our proposal to add the section 1332
WF for the 2023 BHP payment methodology. This factor will be calculated
as the ratio of (1) the second lowest cost silver plan premium that
would have been in place without the waiver in place for the plan year
to (2) the second lowest cost silver plan in place with the waiver in
place for the plan year, as determined for the purposes of calculating
the section 1332 waiver pass-through payment.\26\ This factor will be

[[Page 77736]]

calculated specific to each State and geographic area, to the extent
that the factor may vary across geographic areas. The second lowest
cost silver plan premiums with and without the waiver, as provided by
the State as part of the section 1332 waiver information submitted to
the Secretaries, will be reviewed by CMS and used to calculate the
factor. In the event that the State's section 1332 waiver second lowest
cost silver plan with- and without-waiver information is not available
prior to the calculation of the Federal BHP payments in the fall prior
to the start of the BHP program year, we are finalizing our proposal to
temporarily use values from the prior year's waiver reporting, and then
retroactively update the payment rates and payments once the values for
the applicable plan year are known. In the case that prior-year data is
not available, such as in the case of a new waiver or waiver amendment
that could delay the timeline by which the State would receive BHP
funding, we are finalizing our proposal to initially calculate the
rates without adjustment for the section 1332 WF, and then to
retroactively adjust payment rates and payments using the updated
waiver data once it becomes available.\27\
---------------------------------------------------------------------------

\26\ Office of Tax Analysis, Department of Treasury, ``Method
for Calculation of Section 1332 Reinsurance Waiver 2021 Premium Tax
Credit Pass-through Amounts,'' March 2021.
\27\ 42 CFR 600.610(c)(2)(iii).
---------------------------------------------------------------------------

E. State Option To Use Prior Program Year QHP Premiums for BHP Payments

In the interest of allowing States greater certainty in the total
BHP Federal payments for a given plan year, we have given States the
option to have their final Federal BHP payment rates calculated using a
projected adjusted reference premium (that is, using premium data from
the prior program year multiplied by the premium trend factor (PTF), as
described in Equation (2b)). We will require States to make their
election to have their final Federal BHP payment rates calculated using
a projected adjusted reference premium by 60 days after the publication
of this final rule.
With the addition of the section 1332 WF, there is the possibility
that using the previous year's QHP premiums multiplied by the PTF could
lead to unexpected results if there are significant changes to the
State's approved section 1332 waiver, including changes that could
occur at the start or the end of the waiver. For example, if a State
were to implement a section 1332 waiver in 2023 that lowered premiums
significantly, and the State then chose to use the prior year's
premiums (that is, 2022 plan year premiums) multiplied by the PTF, this
could lead to BHP payment well in excess of what would have been paid
in the Exchanges when the WF is added to the methodology. Similarly, if
a State were to end its section 1332 waiver and choose to use the prior
year's premiums, the BHP payment could be less than what would
otherwise be expected.
We are finalizing our proposal that in the following cases, the
current year QHP premiums would have to be used for calculating BHP
payments with regard to section 1332 waivers: (1) A State implements a
new section 1332 waiver that begins at the start of the BHP program
year; (2) a State ends a section 1332 waiver in the year prior to the
start of the BHP program year; or (3) the percentage difference between
the with and without waiver premiums used to determine the section 1332
waiver pass-through funding amount (and used to determine the WF)
changes by 5 or more percentage points from the prior year. The
percentage difference would be measured based on the enrollment-
weighted average of the with and without waiver premiums. We believe
that these three scenarios (the start of a new waiver, the end of a
waiver, and a significant change to a waiver) reflect all relevant
scenarios in which changes to a section 1332 waiver would lead to a
significant error in the calculation of BHP payments if the prior year
premiums were used in the BHP payment methodology. We believe that the
requirement to use the current year QHP premiums in these limited
circumstances would avoid an incorrect calculation of BHP payments due
to changes related to the section 1332 waiver.
For Equation (2b), we will define the PTF, with minor changes in
calculation sources and methods, as follows:
PTF: In the case of a State that would elect to use the 2022
premiums as the basis for determining the 2023 BHP payment, it would be
appropriate to apply a factor that would account for the change in
health care costs between the year of the premium data and the BHP
program year. This factor would approximate the change in health care
costs per enrollee, which would include, but not be limited to, changes
in the price of health care services and changes in the utilization of
health care services. This would provide an estimate of the adjusted
monthly premium for the applicable second lowest cost silver plan that
would be more accurate and reflective of health care costs in the BHP
program year.
For the PTF we are finalizing our proposal to use the annual growth
rate in private health insurance expenditures per enrollee from the
National Health Expenditure (NHE) projections, developed by the Office
of the Actuary in CMS (<a href="https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected">https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected</a>). Based on these projections, we are
finalizing our proposal that the PTF be 4.6 percent for BHP program
year 2023.
We note that the increase in premiums for QHPs from 1 year to the
next may differ from the PTF developed for the BHP funding methodology
for several reasons. In particular, we note that the second lowest cost
silver plan may be different from 1 year to the next. This may lead to
the PTF being greater than or less than the actual change in the
premium of the second lowest cost silver plan.

F. State Option To Include Retrospective State-Specific Health Risk
Adjustment in Certified Methodology

To determine whether the potential difference in health status
between BHP enrollees and consumers in an Exchange would affect the PTC
and risk adjustment payments that would have otherwise been made had
BHP enrollees been enrolled in coverage through an Exchange, we will
provide States implementing the BHP the option to propose and to
implement, as part of the certified methodology, a retrospective
adjustment to the Federal BHP payments to reflect the actual value that
would be assigned to the population health factor (or risk adjustment)
based on data accumulated during that program year for each rate cell.
We acknowledge that there is uncertainty for this factor due to the
lack of available data to analyze potential health differences between
the BHP and QHP populations, which is why, absent a State election, we
are finalizing our proposal to use a value for the PHF (see section
III.D.3. of this final rule) to determine a prospective payment rate
which assumes no difference in the health status of BHP enrollees and
QHP enrollees. There is considerable uncertainty regarding whether the
BHP enrollees will pose a greater risk or a lesser risk compared to the
QHP enrollees, how to best measure such risk, the potential effect such
risk would have had on PTC, and risk adjustment that would have
otherwise been made had BHP enrollees been enrolled in coverage through
an Exchange. However, to the extent that a State would develop an
approved protocol to collect data and effectively measure the relative
risk and the effect on Federal payments of PTCs and CSRs, we are
finalizing our proposal to permit a retrospective adjustment that will

[[Page 77737]]

measure the actual difference in risk between the two populations to be
incorporated into the certified BHP payment methodology and used to
adjust payments in the previous year.
For a State electing the option to implement a retrospective
population health status adjustment as part of the BHP payment
methodology applicable to the State, we are finalizing our proposal to
require the State to submit a proposed protocol to CMS, which would be
subject to approval by us and would be required to be certified by the
Chief Actuary of CMS, in consultation with the OTA. We are finalizing
our proposal to apply the same protocol for the population health
status adjustment as what is set forth in guidance in ``Considerations
for Health Risk Adjustment in the Basic Health Program in Program Year
2015'' (<a href="https://www.medicaid.gov/sites/default/files/2019-11/risk-adjustment-and-bhp-white-paper.pdf">https://www.medicaid.gov/sites/default/files/2019-11/risk-adjustment-and-bhp-white-paper.pdf</a>). We proposed to require a State to
submit its proposed protocol for the 2022 program year by the later of
August 1, 2022 or 60 days after the publication of this final rule.
Because this final rule is being published within 60 days of August 1,
2022, we are finalizing that a State will be required to submit its
proposed protocol for the 2022 program year by 60 days after the
publication of this final rule. This submission will also need to
include descriptions of how the State would collect the necessary data
to determine the adjustment, including any contracting contingences
that may be in place with participating standard health plan issuers.
We will provide technical assistance to States as they develop their
protocols, as requested. We proposed that we must approve the State's
protocol by December 31, 2022, for the 2023 program year. Due to the
publication date of this final rule, we are finalizing that we will
approve the State's protocol within 50 days of receipt of the proposed
protocol. Finally, the State will be required to complete the
population health status adjustment at the end of the program year
based on the approved protocol. After the end of the program year, and
once data is made available, we will review the State's findings,
consistent with the approved protocol, and make any necessary
adjustments to the State's Federal BHP payment amounts. If we determine
the Federal BHP payments were less than they would have been using the
final adjustment factor, we will apply the difference to the State's
next quarterly BHP trust fund deposit. If we determine that the Federal
BHP payments were more than they would have been using the final
reconciled factor, we will subtract the difference from the next
quarterly BHP payment to the State.

IV. Revisions to Basic Health Program Regulations

We proposed two changes related to the timing of publication of the
BHP payment methodologies under 42 CFR 600.610. Specifically, we
proposed to revise Sec. 600.610(a)(1) to provide for issuance of
payment notices that may be effective for only one or multiple program
years, as determined by and subject to the discretion of the Secretary,
beginning with the 2023 BHP payment methodology and then going forward.
In addition, we proposed at Sec. 600.610(a)(1) and (b)(1) to change
the schedule of publication dates for the proposed and final BHP
payment notices. As stated in section II.H. of this final rule, we
received several comments in support of these proposed changes.
Therefore, we are finalizing these regulations as proposed, with minor
formatting edits to separate Sec. 600.610(a)(1) into Sec.
600.610(a)(1)(i) and (ii) for increased clarity.
We also proposed to revise Sec. 600.610(c)(2)(ii) such that a
State's payment amount may be retroactively revised due to a
mathematical error in the development or application of the BHP funding
methodology. We discussed that CMS recently became aware of an error in
calculating the IRF for program year 2019, resulting in an underpayment
of Federal funds to States for their BHPs. In reviewing the model used
to calculate the IRF, CMS and OTA found an error in the computation of
the IRF. Working with OTA, we developed a new value for the IRF for
2019. Previously, the IRF for the 2019 BHP payment methodology was
98.03 percent. The corrected value for the IRF for program year 2019
was recalculated as the median of the impact of income reconciliation
on PTC for persons with incomes between 100 percent and 200 percent of
FPL (102.36 percent) and the impact for persons with incomes between
133 percent and 200 percent of FPL (101.66 percent), which is 102.01
percent. Using the median of the two values is the same approach as we
used to calculate the original IRF value in 2019, and the difference
between the values is attributable to a mathematical error made during
the development of the BHP payment methodology for program year 2019.
As stated in section II.H. of this final rule, we received comments in
support of this regulation change, which would also allow us to issue
corrected payments to states for 2019. We are finalizing this
regulation change as proposed. We will issue further guidance to states
on the timing of receiving the updated payments for 2019.

V. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), we are required to provide 60-day notice in the Federal Register
and solicit public comment before a ``collection of information''
requirement is submitted to the Office of Management and Budget (OMB)
for review and approval. For the purpose of the PRA and this section of
the preamble, collection of information is defined under 5 CFR
1320.3(c) of the PRA's implementing regulations.
To fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the PRA requires that we
solicit comment on the following issues:
<bullet> The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
<bullet> The accuracy of our estimate of the information collection
burden.
<bullet> The quality, utility, and clarity of the information to be
collected.
<bullet> Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
In the May 25, 2022 BHP proposed rule (87 FR 31815), we solicited
public comment on each of these issues for that rule's proposed
collection of information requirements and burden estimates. We did not
receive such comments and are finalizing those requirements and burden
estimates as proposed. The finalized requirements and burden estimates
follow.

A. Wage Estimates

To derive average costs, we used data from the U.S. Bureau of Labor
Statistics' (BLS) May 2021 National Occupational Employment and Wage
Estimates for our salary estimates (<a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>). In this regard, Table 2 presents BLS' mean hourly wage,
our estimated cost of fringe benefits and overhead, and our adjusted
hourly wage.

[[Page 77738]]

Table 2--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
Fringe
Occupation Mean hourly benefits and Adjusted
Occupation title code wage ($/hr) overhead ($/ hourly wage
hr) ($/hr)
----------------------------------------------------------------------------------------------------------------
Business Operations Specialists................. 13-1000 38.64 38.64 77.25
General and Operations Managers................. 11-1021 55.41 55.41 110.82
----------------------------------------------------------------------------------------------------------------

To derive the average cost estimates, we also adjusted BLS' mean
hourly wage by a factor of 100 percent. This is necessarily a rough
adjustment, both because fringe benefits and overhead costs vary
significantly from employer to employer, and because methods of
estimating these costs vary widely from study to study. Therefore, we
believe that doubling the hourly wage to estimate total cost is a
reasonably accurate estimation method.

B. Information Collection Requirements (ICRs)

When ready, the following changes will be submitted to OMB for
approval under control number 0938-1218 (CMS-10510). Consistent with
the May 25, 2022 (87 FR 31815) proposed rule, we are in the process of
reinstating that control number as our previous approval was
discontinued on August 31, 2017, based on our estimated number of
respondents. We are reinstating the control number based on 5 CFR
1320.3(c)(4)(i) using the standard non-rule PRA process which includes
the publication of 60- and 30-day Federal Register notices. In addition
to the reinstatement, we are also in the process of proposing changes
that are associated with the March 12, 2014 (79 FR 14112) BHP final
rule that have not previously received PRA approval. The following
finalized burden estimates are also included in our reinstatement
effort. The 60-day notice published in the Federal Register on August
4, 2022 (87 FR 47750). The collection of information request will be
submitted to OMB for approval subsequent to the publication of the 30-
day Federal Register notice.
1. ICRs Regarding the Submission of Estimated and Actual Quarterly
Enrollment Data
In sections II.A. and III.B. of this final rule, we finalized that
a State that is approved to implement a BHP must provide CMS with an
estimate of the number of BHP enrollees its projects will enroll in the
upcoming BHP program quarter, by applicable rate cell, prior to the
first quarter and each subsequent quarter of program operations until
after actual enrollment data is available. Enrollment data must be
submitted by age range (if applicable), geographic area, coverage
status, household size, and income range.
We estimate that it will take a business operations specialist 10
hours at $77.25/hr and a general manager 2 hours at $110.82/hr to
compile and submit the quarterly estimated enrollment data to CMS. For
2023, we estimate that two States will operate a BHP and will submit
the required estimated enrollment data to CMS. In aggregate, we
estimate an annual burden of 96 hours (2 States x 12 hr/response x 4
responses/yr) at a cost of $7,953 [2 States x 4 responses/yr ((10 hr x
$77.25/hr) + (2 hr x $110.82/hr)).
In sections II.A. and III.B. of this final rule, we also finalized
that, following each BHP program quarter, a State operating a BHP must
submit actual enrollment data to CMS. Actual enrollment data must be
based on individuals enrolled for the quarter who the State found
eligible and whose eligibility was verified using eligibility and
verification requirements as agreed to by the State in its applicable
BHP Blueprint for the quarter that enrollment data is submitted. Actual
enrollment data must include a personal identifier, date of birth,
county of residence, Indian status, family size, household income,
number of persons in the household enrolled in BHP, family identifier,
months of coverage, plan information, and any other data required by
CMS to properly calculate the payment. This may include the collection
of data related to eligibility for other coverage, marital status (for
calculating household composition), or more precise residence location.
We estimate that it will take a business operations specialist 100
hours at $77.25/hr and a general manager 10 hours at $110.82/hr to
compile and submit the quarterly actual enrollment data to CMS. For
2023, we estimate that two States will operate a BHP and will submit
the required actual enrollment data to CMS. In aggregate, we estimate
an annual burden of 880 hours (2 States x 110 hr/response x 4
responses/yr) at a cost of $70,666 [2 States x 4 responses/yr ((100 hr
x $77.25/hr) + (10 hr x $110.82/hr)).
2. ICRs Regarding Submission of Qualified Health Plan Data
In section III.C. of this final rule, we finalized that States
operating an SBE in the individual market must provide certain data,
including premiums for second lowest cost silver plans, by geographic
area, for CMS to calculate the Federal BHP payment rates in those
States. We proposed that States operating BHPs interested in obtaining
the applicable 2023 program year Federal BHP payment rates for its
State must submit the data to CMS by October 15, 2022. Because we are
finalizing this rule after October 15, 2022, we have changed the
submission deadline from ``October 15, 2022'' to read ``within 30 days
of publication of this final rule.''
We estimate that it will take a business operations specialist 20
hours at $77.25/hr and a general manager 2 hours at $110.82/hr to
compile and submit the required data to CMS. In aggregate, we estimate
an annual burden of 44 hours (2 States x 22 hr/response) at a cost of
$3,533 [2 States x ((20 hr x $77.25/hr) + (2 hr x $110.82/hr))].

C. Summary of Requirements and Annual Burden Estimates

Table 3--Summary of Requirements and Annual Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
Section under Title 42 of the CFR OMB control No. (CMS ID Number of Total Time per time Labor cost ($/hr) Total
No.) respondents responses response (hr) (hr) cost ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
600.610 (projected number of BHP 0938-1218 (CMS-10510)... 2 8 12 96 Varies.............. 7,953
enrollees).
600.610 (actual number of BHP 0938-1218 (CMS-10510)... 2 8 110 880 Varies.............. 70,666
enrollees).
600.610 (qualified health plan data). 0938-1218 (CMS-10510)... 2 2 22 44 Varies.............. 3,533
----------------------------------------------------------------------------------------

[[Page 77739]]

Total............................ ........................ 2 18 Varies 1,020 Varies.............. 82,152
--------------------------------------------------------------------------------------------------------------------------------------------------------

VI. Regulatory Impact Analysis

A. Statement of Need

Section 1331 of the ACA (42 U.S.C. 18051) requires the Secretary to
establish a BHP, and section 1331(d)(1) specifically provides that if
the Secretary finds that a State meets the requirements of the program
established under section 1331(a) of the ACA, the Secretary shall
transfer to the State Federal BHP payments described in section
1331(d)(3) of the ACA. This final rule provides for the funding
methodology to determine the Federal BHP payment amounts required to
implement these provisions for program year 2023.

B. Overall Impact

We have examined the impacts of this rule as required by E.O. 12866
on Regulatory Planning and Review (September 30, 1993), E.O. 13563 on
Improving Regulation and Regulatory Review (January 18, 2011), the
Regulatory Flexibility Act (RFA) (Pub. L. 96354, enacted September 19,
1980), section 1102(b) of the Act, section 202 of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4, enacted March 22, 1995), E.O. 13132
on Federalism (August 4, 1999), and the Congressional Review Act (5
U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) (having
an annual effect on the economy of $100 million or more in any 1 year,
or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive order.
A regulatory impact analysis (RIA) must be prepared for major rules
with significant regulatory action(s) or with economically significant
effects ($100 million or more in any 1 year). Based on our estimates,
OMB's Office of Information and Regulatory Affairs has determined this
rulemaking is ``economically significant'' as measured by the $100
million threshold. Accordingly, we have prepared a Regulatory Impact
Analysis that to the best of our ability presents the costs and
benefits of the rulemaking.

C. Detailed Economic Analysis

The aggregate economic impact of this final payment methodology is
estimated to be $357 million in transfers for calendar years (CY) 2022
and 2023 (measured in real 2022 dollars), which would be an increase in
Federal payments to the State BHPs. For the purposes of this analysis,
we have assumed that two States would implement BHPs in 2023. This
assumption is based on the fact that two States have established a BHP
to date, and we do not have any indication that additional States may
implement a BHP in CY 2023. Of these two States, only one (Minnesota)
currently has an approved section 1332 waiver.
Projected BHP enrollment and expenditures under the previous
payment methodology were calculated using the most recent 2022 QHP
premiums and State estimates for BHP enrollment. We projected
enrollment for 2023 using the projected increase in the number of
adults in the U.S. from 2022 to 2023 (0.4 percent), and we projected
premiums using the NHE projection of premiums for private health
insurance (4.6 percent). Prior to any changes made in the 2023 BHP
payment methodology, Federal BHP expenditures are projected to be
$8,340 million in 2023, which are described in detail below. This
projection serves as our baseline scenario when estimating the net
impact of the 2023 methodology on Federal BHP expenditures.
The incorporation of the WF is the most significant change in this
final 2023 payment methodology from the final 2022 payment methodology.
To calculate the impact of adding the WF to the methodology, we took
the following steps. First, we calculated the estimated value of the WF
using the most recently available section 1332 waiver premium data for
2021.\28\ In Minnesota, the average percentage difference between the
``with waiver'' second lowest cost silver plan premiums and the
``without waiver'' second lowest cost silver plan premiums for 2021 is
27.3 percent (calculated as the average of the ``without waiver''
second lowest cost silver plan premium divided by the ``with waiver''
second lowest cost silver plan premium, averaged across all rating
areas). We then increased the RPs in the model for Minnesota by 27.3
percent, which represents the impact of the WF. The resulting Federal
BHP payments were 28.2 percent higher incorporating this adjustment.
The projected BHP expenditures after these changes are $8,154 million,
which is the sum of the prior estimate ($8,021 million) and the impacts
of the changes to the methodology ($133 million). For Minnesota,
estimated payments would increase from $470 million to $603 million in
2023.
---------------------------------------------------------------------------

\28\ <a href="https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Downloads/1332-State-Specific-Premium-Data-Feb-2021.xlsx">https://www.cms.gov/CCIIO/Programs-and-Initiatives/State-Innovation-Waivers/Downloads/1332-State-Specific-Premium-Data-Feb-2021.xlsx</a>.

[[Page 77740]]

Table 4--Estimated Federal Impacts for the Basic Health Program 2023
Payment Methodology
[Millions of 2022 dollars]
------------------------------------------------------------------------

------------------------------------------------------------------------
Projected Federal BHP Payments under 2022 Final $8,021
Methodology............................................
Projected Federal BHP Payment under 2023 Final 8,154
Methodology............................................
Federal costs........................................... 133
------------------------------------------------------------------------
Totals may not add due to rounding.

The provisions of this final methodology are designed to determine
the amount of funds that will be transferred to States offering
coverage through a BHP rather than to individuals eligible for Federal
financial assistance for coverage purchased on the Exchange. We are
uncertain what the total Federal BHP payment amounts to States will be
as these amounts will vary from State to State due to the State-
specific factors and conditions. In this case, the exact value of the
WF and the effects of the section 1332 waiver in 2023 are currently
unknown. The value of the WF could be higher or lower than estimated
here as a result. In addition, projected BHP expenditures and
enrollment may also differ from our current estimates, which may also
lead to costs being higher or lower than estimated here.
In addition, the final methodology will allow for a retrospective
correction to the BHP payment methodology for errors that occurred
during the development or application of the BHP funding methodology.
For 2019, we are finalizing our proposal to correct the value of the
IRF from 98.03 percent to 102.01 percent. Actual Federal BHP
expenditures in 2019 were $5,591 million, including payment
reconciliations that have occurred as of March 2022. Calculating the
payments with the corrected IRF value increases the payments by about
$224 million. The actual amount may differ as we continue to reconcile
2019 payments based on actual enrollment.

Table 5--Estimated Federal Impacts for the Basic Health Program 2023
Payment Methodology To Apply Retrospective Corrections
[Millions of 2022 dollars]
------------------------------------------------------------------------

------------------------------------------------------------------------
Projected Federal BHP Payments under 2022 Final $5,591
Methodology............................................
Projected Federal BHP Payment under 2023 Final 5,815
Methodology............................................
Federal costs........................................... 224
------------------------------------------------------------------------
Totals may not add due to rounding.

The total estimated impact of this final methodology is $357
million ($133 million for the addition of the section 1332 waiver
factor, and $224 million for the correction to the income
reconciliation factor for 2019).

D. Alternative Approaches

We considered several alternatives in developing the BHP payment
methodology for 2023, and we discuss some of these alternatives below.
We considered alternatives as to how to calculate the PAF in the
final methodology for 2023. The value for the PAF is 1.188, which is
the same as was used for 2018 through 2022. We believe it would be
difficult to obtain the updated information from QHP issuers comparable
to what was used to develop the 2018 factor, because QHP issuers may
not distinctly consider the impact of the discontinuance of CSR
payments on the QHP premiums any longer. We do not have reason to
believe that the value of the PAF would change significantly between
program years 2018 and 2023. We are continuing to consider whether or
not there are other methodologies or data sources we may be able to use
to calculate the PAF.
We also considered alternatives as how to calculate the MTSF in the
final methodology for 2023. Given the changes made to the determination
of PTC for 2022 in the ARP, we are not including the MTSF in the 2023
payment methodology, as described in section III.D.6. of this final
rule.
We also considered whether to continue to provide States the option
to develop a protocol for a retrospective adjustment to the PHF as we
did in previous payment methodologies. We believe that continuing to
provide this option is appropriate and likely to improve the accuracy
of the final payments.
We also considered whether to require the use of the program year
premiums to develop the Federal BHP payment rates, rather than allow
the choice between the program year premiums and the prior year
premiums trended forward. We believe that the payment rates can still
be developed accurately using either the prior year QHP premiums or the
current program year premiums and that it is appropriate to continue to
provide the States these options.
We also considered whether or not to include a factor to address
the impacts of State Innovation Waivers. In previous methodologies, we
have not addressed the potential impacts of State Innovation Waivers on
BHP payments. We believe it is appropriate to include such a factor for
this payment methodology. We also considered other approaches to
calculating the factor, including whether or not to use each State's
experience separately or to look at the impacts across all States. We
believe it is more accurate to use each State's experience separately,
as applicable.
Many of the factors in this final methodology are specified in
statute; therefore, for these factors we are limited in the alternative
approaches we could consider. We do have some choices in selecting the
data sources used to determine the factors included in the methodology.
Except for State-specific RPs and enrollment data, we will use national
rather than State-specific data. This is due to the lack of currently
available State-specific data needed to develop the majority of the
factors included in the methodology. We believe the national data will
produce sufficiently accurate determinations of payment rates. In
addition, we believe that this approach will be less burdensome on
States. In many cases, using State-specific data would necessitate
additional requirements on the States to collect, validate, and report
data to CMS. By using national data, we are able to collect data from
other sources and limit

[[Page 77741]]

the burden placed on the States. For RPs and enrollment data, we will
use State-specific data rather than national data, as we believe State-
specific data will produce more accurate determinations than national
averages. Our responses to public comments on these alternative
approaches are in section II of this final rule.

E. Accounting Statement and Table

In accordance with OMB Circular A-4, Table 6 depicts an accounting
statement summarizing the assessment of the transfers associated with
these payment methodologies.

Table 6--Accounting Statement: Federal Transfers to States
[$ millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Units
Primary -----------------------------------------------
Category estimate Low estimate High estimate Discount rate Period
Year dollar (%) covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized monetized transfers from Federal government $180 $163 $197 2022 7 2022-2023
to States..............................................
179 162 196 2022 3 2022-2023
--------------------------------------------------------------------------------------------------------------------------------------------------------

As required by OMB Circular A-4 (available at <a href="https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf">https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf</a>), we have prepared an accounting statement in
Table 6 showing the classification of the transfer payments from the
Federal Government to States associated with the provisions of this
final rule. Table 6 provides our best estimates of the transfer
payments outlined in the section IV.C. of this final rule. These
estimates assume that costs in 2022 could be 5 percent above and below
the primary estimate (from $212 million to $235 million in 2022
dollars) and that costs in 2023 could be 18 percent above and below the
primary estimate ($109 million to $156 million in 2022 dollars, which
reflects a waiver factor that could be 5 percentage points higher or
lower than assumed in the analysis).

F. Regulatory Flexibility Act (RFA)

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
requires agencies to analyze options for regulatory relief of small
entities, if a rule has a significant impact on a substantial number of
small entities. For purposes of the RFA, we estimate that no small
entities will be impacted as that term is used in the RFA (include
small businesses, nonprofit organizations, and small governmental
jurisdictions). The great majority of hospitals and most other health
care providers and suppliers are small entities, either by being
nonprofit organizations or by meeting the Small Business Administration
definition of a small business (having revenues of less than $8.0
million to $41.5 million). Individuals and States are not included in
the definition of a small entity. As its measure of significant
economic impact on a substantial number of small entities, HHS uses a
change in revenue of more than 3 to 5 percent. We do not believe that
this threshold will be reached by the requirements in this final rule.
Because this methodology is focused solely on Federal BHP payment
rates to States, it does not contain provisions that would have a
direct impact on hospitals, physicians, and other health care providers
that are designated as small entities under the RFA. Accordingly, we
have determined that the methodology, like the previous methodology and
the final rule that established the BHP program, will not have a
significant economic impact on a substantial number of small entities.
Therefore, the Secretary has determined that this rule will not have a
significant economic impact on a substantial number of small entities.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a methodology may have a significant economic impact
on the operations of a substantial number of small rural hospitals.
This analysis must conform to the provisions of section 604 of the RFA.
For purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. For the preceding
reasons, we have determined that the methodology will not have a
significant impact on a substantial number of small rural hospitals.
Therefore, the Secretary has determined that this final rule will not
have a significant impact on the operations of a substantial number of
small rural hospitals.

G. Unfunded Mandates Reform Act (UMRA)

Section 202 of the Unfunded Mandates Reform Act (UMRA) of 1995
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation, by State,
local, or tribal governments, in the aggregate, or by the private
sector. In 2022, that threshold is approximately $165 million. States
have the option, but are not required, to establish a BHP. Further, the
methodology would establish Federal payment rates without requiring
States to provide the Secretary with any data not already required by
other provisions of the ACA or its implementing regulations. Thus, the
final payment methodology does not mandate expenditures by State
governments, local governments, or tribal governments.

H. Federalism

E.O. 13132 establishes certain requirements that an agency must
meet when it issues a final rule that imposes substantial direct
effects on States, preempts State law, or otherwise has federalism
implications. The BHP is entirely optional for States, and if
implemented in a State, provides access to a pool of funding that would
not otherwise be available to the State. Accordingly, the requirements
of E.O. 13132 do not apply to this final rule.

I. Conclusion

We believe that this final BHP payment methodology is effectively
the same methodology as finalized for 2022, with the exception of the
addition of the WF. In addition, we are finalizing the proposal to
update the regulation to clarify that errors in the application and the
development of the methodology may be corrected retroactively. BHP
payment rates may change as the values of the factors change, most
notably the QHP premiums for 2022 or 2023. We do not anticipate this
final methodology to have any significant effect on BHP enrollment in
2023.

[[Page 77742]]

In accordance with the provisions of E.O. 12866, this regulation
was reviewed by the Office of Management and Budget.
Chiquita Brooks-LaSure, Administrator of the Centers for Medicare &
Medicaid Services, approved this document on November 23, 2022.

List of Subjects in 42 CFR Part 600

Administrative practice and procedure, Health care, Health
insurance, Intergovernmental relations, Penalties, Reporting and
recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services amends 42 CFR part 600 as set forth below:

PART 600--ADMINISTRATION, ELIGIBILITY, ESSENTIAL HEALTH BENEFITS,
PERFORMANCE STANDARDS, SERVICE DELIVERY REQUIREMENTS, PREMIUM AND
COST SHARING, ALLOTMENTS, AND RECONCILIATION

0
1. The authority citation for part 600 continues to read as follows:

Authority: Section 1331 of the Patient Protection and
Affordable Care Act of 2010 (Pub. L. 111-148, 124 Stat. 119), as
amended by the Health Care and Education Reconciliation Act of 2010
(Pub. L. 111-152, 124 Stat 1029).

0
2. Amend Sec. 600.610--
0
a. By revising paragraphs (a)(1) and (b)(1); and
0
b. In paragraph (c)(2)(ii) by removing the phrase ``during the
application of the BHP funding methodology'' and adding in its place
the phrase ``during the application or development of the BHP funding
methodology''.
The revisions read as follows:

Sec. 600.610 Secretarial determination of BHP payment amount.

(a) * * *
(1) Beginning in FY 2015, the Secretary will determine and publish
in a Federal Register document the BHP payment methodology for the next
calendar year or, beginning in calendar year 2022, for multiple
calendar years. Beginning in calendar year 2023--
(i) In years in which the Secretary does not publish a new BHP
methodology, the Secretary will update the values of factors needed to
calculate the Federal BHP payments via sub regulatory guidance, as
appropriate.
(ii) In years that the Secretary publishes a revised payment
methodology, the Secretary will publish a proposed BHP payment
methodology upon receiving certification from the Chief Actuary of CMS.
* * * * *
(b) * * *
(1) Beginning in calendar year 2023, in years that the Secretary
publishes a revised payment methodology, the Secretary will determine
and publish the final BHP payment methodology and BHP payment amounts
in a Federal Register document.
* * * * *

Dated: December 12, 2022.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2022-27211 Filed 12-16-22; 11:15 am]
BILLING CODE 4120-01-P

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