Rule2025-00640
Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2026; and Basic Health Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 15, 2025
Effective
January 15, 2025
Issuing agencies
Health and Human Services Department
Abstract
This final rule includes payment parameters and provisions related to the HHS-operated risk adjustment and risk adjustment data validation (HHS-RADV) programs, as well as 2026 benefit year user fee rates for issuers that participate in the HHS-operated risk adjustment program and the 2026 benefit year user fee rates for issuers offering qualified health plans (QHPs) through Federally-facilitated Exchanges (FFEs) and State-based Exchanges on the Federal platform (SBE-FPs). This final rule also includes requirements related to modifications to the calculation of the Basic Health Program (BHP) payment; and changes to the Initial Validation Audit (IVA) sampling approach and Second Validation Audit (SVA) pairwise means test for HHS-RADV. It also addresses HHS' authority to engage in compliance reviews of and take enforcement action against lead agents of insurance agencies for violations of HHS' Exchange standards and requirements; HHS' system suspension authority to address noncompliance by agents and brokers; an optional fixed-dollar premium payment threshold; permissible plan-level adjustment to the index rate to account for cost-sharing reductions (CSRs); reconsideration standards for certification denials; changes to the approach for conducting Essential Community Provider (ECP) certification reviews; a policy to publicly share aggregated, summary- level Quality Improvement Strategy (QIS) information on an annual basis; and revisions to the medical loss ratio (MLR) reporting and rebate requirements for qualifying issuers that meet certain standards.
Full Text
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<title>Federal Register, Volume 90 Issue 9 (Wednesday, January 15, 2025)</title>
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[Federal Register Volume 90, Number 9 (Wednesday, January 15, 2025)]
[Rules and Regulations]
[Pages 4424-4542]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00640]
[[Page 4423]]
Vol. 90
Wednesday,
No. 9
January 15, 2025
Part X
Department of Health and Human Services
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45 CFR Parts 153, 155, 156, et al.
Patient Protection and Affordable Care Act; HHS Notice of Benefit and
Payment Parameters for 2026; and Basic Health Program; Final Rule
Federal Register / Vol. 90 , No. 9 / Wednesday, January 15, 2025 /
Rules and Regulations
[[Page 4424]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of the Secretary
45 CFR Parts 153, 155, 156, and 158
[CMS-9888-F]
RIN 0938-AV41
Patient Protection and Affordable Care Act; HHS Notice of Benefit
and Payment Parameters for 2026; and Basic Health Program
AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).
ACTION: Final rule.
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SUMMARY: This final rule includes payment parameters and provisions
related to the HHS-operated risk adjustment and risk adjustment data
validation (HHS-RADV) programs, as well as 2026 benefit year user fee
rates for issuers that participate in the HHS-operated risk adjustment
program and the 2026 benefit year user fee rates for issuers offering
qualified health plans (QHPs) through Federally-facilitated Exchanges
(FFEs) and State-based Exchanges on the Federal platform (SBE-FPs).
This final rule also includes requirements related to modifications to
the calculation of the Basic Health Program (BHP) payment; and changes
to the Initial Validation Audit (IVA) sampling approach and Second
Validation Audit (SVA) pairwise means test for HHS-RADV. It also
addresses HHS' authority to engage in compliance reviews of and take
enforcement action against lead agents of insurance agencies for
violations of HHS' Exchange standards and requirements; HHS' system
suspension authority to address noncompliance by agents and brokers; an
optional fixed-dollar premium payment threshold; permissible plan-level
adjustment to the index rate to account for cost-sharing reductions
(CSRs); reconsideration standards for certification denials; changes to
the approach for conducting Essential Community Provider (ECP)
certification reviews; a policy to publicly share aggregated, summary-
level Quality Improvement Strategy (QIS) information on an annual
basis; and revisions to the medical loss ratio (MLR) reporting and
rebate requirements for qualifying issuers that meet certain standards.
DATES: These regulations are effective on January 15, 2025.
FOR FURTHER INFORMATION CONTACT:
Jeff Wu, (301) 492-4305, Rogelyn McLean, (301) 492-4229, Grace
Bristol, (410) 786-8437, for general information.
Ayesha Anwar, (301) 492-4000 or Joshua Paul, (301) 492-4347 for
matters related to HHS-operated risk adjustment.
Leanne Scott, (410) 786-1045 or Ayesha Anwar, (301) 492-4000 for
matters related to HHS-operated risk adjustment data validation.
Preeti Juturu, (301) 450-3234 or Leanne Scott, (410) 786-1045, for
matters related to user fees.
Lisa Cuozzo (410) 786-1746, for matters related to the single risk
pool.
Brian Gubin, (410) 786-1659, for matters related to agent, broker,
and web-broker guidelines.
Zarin Ahmed, (301) 492-4400, for matters related to enrollment of
qualified individuals into QHPs and termination of Exchange enrollment
or coverage for qualified individuals.
Christina Whitefield, (301) 492-4172, for matters related to the
medical loss ratio program.
Preeti Hans, (301) 492-5144, for matters related to Quality
Improvement Strategy.
Ken Buerger, (410) 786-1190, for matters related to certification
standards for QHPs.
Nikolas Berkobien, (667) 290-9903, for matters related to
standardized plan options, non-standardized plan option limits and
exceptions, and financial requirements for issuers of QHPs on the FFEs.
Adelaide Balenger, (667) 414-0691, for matters related to the
Actuarial Value Calculator.
Mary Evans, (470) 890-4113, for matters related to the Failure to
File and Reconcile process.
Chris Truffer, (410) 786-1264, for matters related to the Basic
Health Program (BHP) provision.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
II. Background
A. Legislative and Regulatory Overview
B. Summary of Major Provisions
III. Summary of the Provisions of the Proposed Regulations and
Analysis of and Responses to Public Comments
A. 42 CFR Part 600--BHP Methodology Regarding the Value of the
Premium Adjustment Factor (PAF)
B. 45 CFR Part 153--Standards Related to Reinsurance, Risk
Corridors, and Risk Adjustment
C. 45 CFR Part 155--Exchange Establishment Standards and Other
Related Standards Under the Affordable Care Act
D. 45 CFR Part 156--Health Insurance Issuer Standards Under the
Affordable Care Act, Including Standards Related to Exchanges
E. 45 CFR Part 158--Issuer Use of Premium Revenue: Reporting and
Rebate Requirements
F. Severability
IV. Waiver of Delay in Effective Date
V. Collection of Information Requirements
A. Wage Estimates
B. ICRs Regarding the Initial Validation Audit (IVA) Sample--
Enrollees Without HCCs, Removal of the FPC, and Neyman Allocation
(Sec. 153.630(b))
C. ICRs Regarding Engaging in Compliance Reviews and Taking
Enforcement Actions Against Lead Agents for Insurance Agencies
(Sec. 155.220)
D. ICRs Regarding Agent and Broker System Suspension Authority
(Sec. 155.220(k))
E. ICRs Regarding Updating the Model Consent Form (Sec.
155.220)
F. ICRs Regarding Notification of 2-Year Failure To File and
Reconcile Population (Sec. 155.305)
G. ICRs Regarding General Program Integrity and Oversight
Requirements (Sec. 155.1200)
H. ICRs Regarding Essential Community Provider Certification
Reviews (Sec. 156.235)
I. ICRs Regarding Quality Improvement Strategy Information
(Sec. 156.1130)
J. ICRs Regarding Medical Loss Ratio (Sec. Sec. 158.103,
158.140, 158.240)
K. Summary of Annual Burden Estimates for Finalized Requirements
L. Submission of PRA-Related Comments
VI. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Impact Estimates of the Payment Notice Provisions and
Accounting Table
D. Regulatory Alternatives Considered
E. Regulatory Flexibility Act (RFA)
F. Unfunded Mandates Reform Act (UMRA)
G. Federalism
H. Congressional Review Act
I. Executive Summary
We are finalizing changes to the provisions and parameters
implemented through prior rulemaking to implement the ACA.\1\ These
requirements are published under the authority granted to the Secretary
by the ACA and the Public Health Service (PHS) Act.\2\ In this final
rule, we are finalizing changes related to some of the ACA provisions
and parameters we previously
[[Page 4425]]
implemented and are finalizing new provisions. Our goal with these
requirements is to provide quality, affordable coverage to consumers
while minimizing administrative burden and ensuring program integrity.
The changes in this final rule are intended to help advance health
equity, mitigate health disparities, and alleviate discrimination.
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\1\ The Patient Protection and Affordable Care Act (Pub. L. 111-
148, 124 Stat. 119) was enacted on March 23, 2010. The Healthcare
and Education Reconciliation Act of 2010 (Pub. L. 111-152, 124 Stat.
1049), which amended and revised several provisions of the Patient
Protection and Affordable Care Act, was enacted on March 30, 2010.
In this rulemaking, the two statutes are referred to collectively as
the ``Patient Protection and Affordable Care Act,'' ``Affordable
Care Act,'' or ``ACA.''
\2\ See sections 1301, 1302, 1311, 1312, 1313, 1321, 1331, and
1343 of the ACA and sections 2718 and 2792 of the PHS Act.
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II. Background
A. Legislative and Regulatory Overview
Title I of the Health Insurance Portability and Accountability Act
of 1996 (HIPAA) added a new title XXVII to the PHS Act to establish
various reforms to the group and individual health insurance markets.
These provisions of the PHS Act were later augmented by other laws,
including the ACA. Subtitles A and C of title I of the ACA reorganized,
amended, and added to the provisions of part A of title XXVII of the
PHS Act relating to group health plans and health insurance issuers in
the group and individual markets. The term ``group health plan''
includes both insured and self-insured group health plans.
Below, we summarize sections of the PHS Act and ACA that are
relevant to this final rule.
Section 2718 of the PHS Act, as added by the ACA, generally
requires health insurance issuers offering group or individual health
insurance coverage to submit an annual medical loss ratio (MLR) report
to HHS and provide rebates to enrollees if the issuers do not achieve
specified MLR thresholds.
Section 1301(a)(1)(B) of the ACA directs all issuers of qualified
health plans (QHPs) to cover the essential health benefits (EHB)
package described in section 1302(a) of the ACA, including coverage of
the services described in section 1302(b) of the ACA, adherence to the
cost-sharing limits described in section 1302(c) of the ACA, and
meeting the Actuarial Value (AV) levels established in section 1302(d)
of the ACA. Section 2707(a) of the PHS Act, which is effective for plan
or policy years beginning on or after January 1, 2014, extends the
requirement to cover the EHB package to non-grandfathered individual
and small group health insurance coverage, irrespective of whether such
coverage is offered through an Exchange. In addition, section 2707(b)
of the PHS Act directs non-grandfathered group health plans to ensure
that cost sharing under the plan does not exceed the limitations
described in section 1302(c)(1) of the ACA.
Section 1302 of the ACA provides for the establishment of an EHB
package that includes coverage of EHBs (as defined by the Secretary of
HHS), cost-sharing limits, and AV requirements. The law directs that
EHBs be equal in scope to the benefits provided under a typical
employer plan, and that they cover at least the following 10 general
categories: ambulatory patient services; emergency services;
hospitalization; maternity and newborn care; mental health and
substance use disorder services, including behavioral health treatment;
prescription drugs; rehabilitative and habilitative services and
devices; laboratory services; preventive and wellness services and
chronic disease management; and pediatric services, including oral and
vision care.
Sections 1302(b)(4)(A) through (D) of the ACA establish that the
Secretary must define EHB in a manner that: (1) reflects appropriate
balance among the 10 categories; (2) is not designed in such a way as
to discriminate based on age, disability, or expected length of life;
(3) takes into account the health care needs of diverse segments of the
population; and (4) does not allow denials of EHBs based on age, life
expectancy, disability, degree of medical dependency, or quality of
life.
Section 1302(d) of the ACA describes the various levels of coverage
based on AV. Consistent with section 1302(d)(2)(A) of the ACA, AV is
calculated based on the provision of EHB to a standard population.
Section 1302(d)(3) of the ACA directs the Secretary of HHS to develop
guidelines that allow for de minimis variation in AV calculations.
Section 1311(c) of the ACA provides the Secretary the authority to
issue regulations to establish criteria for the certification of QHPs.
Section 1311(c)(1)(B) of the ACA requires, among the criteria for
certification that the Secretary must establish by regulation, that
QHPs ensure a sufficient choice of providers. Section 1311(d)(4)(A) of
the ACA requires the Exchange to implement procedures for the
certification, recertification, and decertification of health plans as
QHPs, consistent with guidelines developed by the Secretary under
section 1311(c) of the ACA. Section 1311(e)(1) of the ACA grants the
Exchange the authority to certify a health plan as a QHP if the health
plan meets the Secretary's requirements for certification issued under
section 1311(c) of the ACA, and the Exchange determines that making the
plan available through the Exchange is in the interests of qualified
individuals and qualified employers in the State. Section 1311(c)(6)(C)
of the ACA directs the Secretary of HHS to require an Exchange to
provide for special enrollment periods and section 1311(c)(6)(D) of the
ACA directs the Secretary of HHS to require an Exchange to provide for
a monthly enrollment period for Indians, as defined by section 4 of the
Indian Health Care Improvement Act.
Section 1311(d)(3)(B) of the ACA permits a State, at its option, to
require QHPs to cover benefits in addition to EHB. This section also
requires a State to make payments, either to the individual enrollee or
to the issuer on behalf of the enrollee, to defray the cost of these
additional State-required benefits.
Section 1312(c) of the ACA generally requires a health insurance
issuer to consider all enrollees in all health plans (except
grandfathered health plans) offered by such issuer to be members of a
single risk pool for each of its individual and small group markets.
States have the option to merge the individual and small group market
risk pools under section 1312(c)(3) of the ACA.
Section 1312(e) of the ACA provides the Secretary with the
authority to establish procedures under which a State may allow agents
or brokers to (1) enroll qualified individuals and qualified employers
in QHPs offered through Exchanges and (2) assist individuals in
applying for advance payments of the premium tax credit (APTC) and CSRs
for QHPs sold through an Exchange.
Section 1312(f)(1)(B) of the ACA provides that an individual shall
not be treated as a qualified individual for enrollment in a QHP if, at
the time of enrollment, the individual is incarcerated, other than
incarceration pending the disposition of charges.
Sections 1313 and 1321 of the ACA provide the Secretary with the
authority to oversee the financial integrity of State Exchanges, their
compliance with HHS standards, and the efficient and non-discriminatory
administration of State Exchange activities. Section 1313(a)(5)(A) of
the ACA provides the Secretary with the authority to implement any
measure or procedure that the Secretary determines is appropriate to
reduce fraud and abuse in the administration of the Exchanges. Section
1321 of the ACA provides for State flexibility in the operation and
enforcement of Exchanges and related requirements.
Section 1321(a) of the ACA provides broad authority for the
Secretary to establish standards and regulations to implement the
statutory requirements related to Exchanges, QHPs and other components
of title I of the ACA,
[[Page 4426]]
including such other requirements as the Secretary determines
appropriate. When operating an FFE under section 1321(c)(1) of the ACA,
HHS has the authority under sections 1321(c)(1) and 1311(d)(5)(A) of
the ACA to collect and spend user fees. Office of Management and Budget
(OMB) Circular A-25 Revised establishes Federal policy regarding user
fees and specifies that a user charge will be assessed against each
identifiable recipient for special benefits derived from Federal
activities beyond those received by the public.
Section 1321(d) of the ACA provides that nothing in title I of the
ACA must be construed to preempt any State law that does not prevent
the application of title I of the ACA. Section 1311(k) of the ACA
specifies that Exchanges may not establish rules that conflict with or
prevent the application of regulations issued by the Secretary.
Section 1331 of the ACA provides States with an option to establish
a Basic Health Program (BHP). In the States that elect to operate a
BHP, the BHP makes affordable health benefits coverage available for
individuals under age 65 with household incomes between 133 percent and
200 percent of the Federal poverty level (FPL) who are not otherwise
eligible for Medicaid, the Children's Health Insurance Program (CHIP),
or affordable employer-sponsored coverage, or for individuals whose
income is equal to or below 200 percent of FPL but are lawfully present
non-citizens ineligible for Medicaid. For those States that have
expanded Medicaid coverage under section 1902(a)(10)(A)(i)(VIII) of the
Social Security Act (the Act), the lower income threshold for BHP
eligibility is effectively 138 percent of the FPL due to the
application of a required 5 percent income disregard in determining the
upper limits of Medicaid income eligibility (section 1902(e)(14)(I) of
the Act).
Section 1343 of the ACA establishes a permanent risk adjustment
program to provide payments to health insurance issuers that attract
higher-than-average risk populations, such as those with chronic
conditions, funded by charges collected from those issuers that attract
lower-than-average risk populations, thereby reducing incentives for
issuers to avoid higher-risk enrollees. Section 1343(b) of the ACA
provides that the Secretary, in consultation with States, shall
establish criteria and methods to be used in carrying out the risk
adjustment activities under this section. Consistent with section
1321(c) of the ACA, the Secretary is responsible for operating the HHS
risk adjustment program in any State that fails to do so.\3\
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\3\ In the 2014 through 2016 benefit years, HHS operated the
risk adjustment program in every State and the District of Columbia,
except Massachusetts. Beginning with the 2017 benefit year, HHS has
operated the risk adjustment program in all 50 States and the
District of Columbia.
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Section 1401(a) of the ACA added section 36B to the Internal
Revenue Code (the Code), which, among other things, requires that a
taxpayer reconcile APTC for a year of coverage with the amount of the
premium tax credit (PTC) the taxpayer is allowed for the year.
Section 1402 of the ACA provides for, among other things,
reductions in cost sharing for EHB for qualified low- and moderate-
income enrollees in silver level QHPs offered through the individual
market Exchanges. This section also provides for reductions in cost
sharing for Indians enrolled in QHPs at any metal level.
Section 1411(f) of the ACA requires the Secretary, in consultation
with the Secretary of the Treasury and the Secretary of Homeland
Security, and the Commissioner of Social Security, to establish
procedures for hearing and making decisions governing appeals of
Exchange eligibility determinations. Section 1411(f)(1)(B) of the ACA
requires the Secretary to establish procedures to redetermine
eligibility on a periodic basis, in appropriate circumstances,
including eligibility to purchase a QHP through the Exchange and for
APTC and CSRs.
Section 1411(g) of the ACA allows the use of applicant information
only for the limited purpose of, and to the extent necessary for,
ensuring the efficient operation of the Exchange, including by
verifying eligibility to enroll through the Exchange and for APTC and
CSRs, and limits the disclosure of such information.
Section 1413 of the ACA directs the Secretary to establish, subject
to minimum requirements, a streamlined enrollment process for
enrollment in QHPs and all insurance affordability programs.
Section 5000A of the Code, as added by section 1501(b) of the ACA,
requires individuals to have minimum essential coverage (MEC) for each
month, qualify for an exemption, or make an individual shared
responsibility payment. Under the Tax Cuts and Jobs Act, which was
enacted on December 22, 2017, the individual shared responsibility
payment is reduced to $0, effective for months beginning after December
31, 2018. Notwithstanding that reduction, certain exemptions are still
relevant to determine whether individuals aged 30 and above qualify to
enroll in catastrophic coverage under Sec. Sec. 155.305(h) and
156.155(a)(5).
Section 1902(r)(2)(A) of the Act permits States to apply less
restrictive methodologies than cash assistance program methodologies in
determining eligibility for certain eligibility groups.
1. Premium Stabilization Programs
The premium stabilization programs refer to the risk adjustment,
risk corridors, and reinsurance programs established by the ACA.\4\ For
past rulemaking, we refer readers to the following rules:
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\4\ See section 1341 of the ACA (transitional reinsurance
program), section 1342 of the ACA (risk corridors program), and
section 1343 of the ACA (risk adjustment program).
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<bullet> In the March 23, 2012 Federal Register (77 FR 17219)
(Premium Stabilization Rule), we implemented the premium stabilization
programs.
<bullet> In the March 11, 2013 Federal Register (78 FR 15409) (2014
Payment Notice), we finalized the benefit and payment parameters for
the 2014 benefit year to expand the provisions related to the premium
stabilization programs and set forth payment parameters in those
programs.
<bullet> In the October 30, 2013 Federal Register (78 FR 65046), we
finalized the modification to the HHS risk adjustment methodology
related to community rating States.
<bullet> In the November 6, 2013 Federal Register (78 FR 66653), we
issued a correcting amendment to the 2014 Payment Notice to address how
an enrollee's age for the risk score calculation would be determined
under the HHS risk adjustment methodology.
<bullet> In the March 11, 2014 Federal Register (79 FR 13743) (2015
Payment Notice), we finalized the benefit and payment parameters for
the 2015 benefit year to expand the provisions related to the premium
stabilization programs, set forth certain oversight provisions, and
establish payment parameters in those programs.
<bullet> In the May 27, 2014 Federal Register (79 FR 30240), we
announced the fiscal year 2015 sequestration rate for the HHS-operated
risk adjustment program.
<bullet> In the February 27, 2015 Federal Register (80 FR 10749)
(2016 Payment Notice), we finalized the benefit and payment parameters
for the 2016 benefit year to expand the provisions related to the
premium stabilization programs, set forth certain oversight provisions,
and establish the payment parameters in those programs.
<bullet> In the March 8, 2016 Federal Register (81 FR 12203) (2017
Payment
[[Page 4427]]
Notice), we finalized the benefit and payment parameters for the 2017
benefit year to expand the provisions related to the premium
stabilization programs, set forth certain oversight provisions, and
establish the payment parameters in those programs.
<bullet> In the December 22, 2016 Federal Register (81 FR 94058)
(2018 Payment Notice), we finalized the benefit and payment parameters
for the 2018 benefit year, added the high-cost risk pool parameters to
the HHS risk adjustment methodology, incorporated prescription drug
factors in the adult models, established enrollment duration factors
for the adult models, and finalized policies related to the collection
and use of enrollee-level External Data Gathering Environment (EDGE)
data.
<bullet> In the April 17, 2018 Federal Register (83 FR 16930) (2019
Payment Notice), we finalized the benefit and payment parameters for
the 2019 benefit year, created the State flexibility framework
permitting States to request a reduction in risk adjustment State
transfers calculated by HHS, and adopted a new error rate methodology
for HHS-RADV adjustments to transfers.
<bullet> In the May 11, 2018 Federal Register (83 FR 21925), we
issued a correction to the 2019 HHS risk adjustment coefficients in the
2019 Payment Notice.
<bullet> On July 27, 2018, consistent with 45 CFR 153.320(b)(1)(i),
we updated the 2019 benefit year final HHS risk adjustment model
coefficients to reflect an additional recalibration related to an
update to the 2016 enrollee-level EDGE data set.\5\
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\5\ CMS. (2018). Updated 2019 Benefit Year Final HHS Risk
Adjustment Model Coefficients. <a href="https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2019-Updtd-Final-HHS-RA-Model-Coefficients.pdf">https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2019-Updtd-Final-HHS-RA-Model-Coefficients.pdf</a>.
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<bullet> In the July 30, 2018 Federal Register (83 FR 36456), we
adopted the 2017 benefit year HHS risk adjustment methodology as
established in the final rules issued in the March 23, 2012 (77 FR
17220 through 17252) and March 8, 2016 (81 FR 12204 through 12352)
editions of the Federal Register. The final rule set forth an
additional explanation of the rationale supporting the use of Statewide
average premium in the State payment transfer formula for the 2017
benefit year, including the reasons why the program is operated by HHS
in a budget-neutral manner. The final rule also permitted HHS to resume
2017 benefit year HHS risk adjustment payments and charges. HHS also
provided guidance as to the operation of the HHS-operated risk
adjustment program for the 2017 benefit year in light of the
publication of the final rule.
<bullet> In the December 10, 2018 Federal Register (83 FR 63419),
we adopted the 2018 benefit year HHS risk adjustment methodology as
established in the final rules issued in the March 23, 2012 (77 FR
17219) and the December 22, 2016 (81 FR 94058) editions of the Federal
Register. In the rule, we set forth an additional explanation of the
rationale supporting the use of Statewide average premium in the State
payment transfer formula for the 2018 benefit year, including the
reasons why the program is operated by HHS in a budget-neutral manner.
<bullet> In the April 25, 2019 Federal Register (84 FR 17454) (2020
Payment Notice), we finalized the benefit and payment parameters for
the 2020 benefit year, as well as the policies related to making the
enrollee-level EDGE data available as a limited data set for research
purposes and expanding the HHS uses of the enrollee-level EDGE data,
approval of the request from Alabama to reduce HHS risk adjustment
transfers by 50 percent in the small group market for the 2020 benefit
year, and updates to HHS-RADV program requirements.
<bullet> On May 12, 2020, consistent with Sec. 153.320(b)(1)(i),
we issued the 2021 Benefit Year Final HHS Risk Adjustment Model
Coefficients on the CCIIO website.\6\
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\6\ CMS. (2020). Final 2021 Benefit Year Final HHS Risk
Adjustment Model Coefficients. <a href="https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-2021-Benefit-Year-Final-HHS-Risk-Adjustment-Model-Coefficients.pdf">https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-2021-Benefit-Year-Final-HHS-Risk-Adjustment-Model-Coefficients.pdf</a>.
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<bullet> In the May 14, 2020 Federal Register (85 FR 29164) (2021
Payment Notice), we finalized the benefit and payment parameters for
the 2021 benefit year, as well as adopted updates to the HHS risk
adjustment models' hierarchical condition categories (HCCs) to
transition to the 10th revision of the International Classification of
Diseases (ICD-10) codes, approved the request from Alabama to reduce
HHS risk adjustment transfers by 50 percent in the small group market
for the 2021 benefit year, and modified the outlier identification
process under the HHS-RADV program.
<bullet> In the December 1, 2020 Federal Register (85 FR 76979)
(Amendments to the HHS-Operated Risk Adjustment Data Validation Under
the Patient Protection and Affordable Care Act's HHS-Operated Risk
Adjustment Program (2020 HHS-RADV Amendments Rule)), we adopted the
creation and application of Super HCCs in the sorting step that assigns
HCCs to failure rate groups, finalized a sliding scale adjustment in
HHS-RADV error rate calculation, and added a constraint for negative
error rate outliers with a negative error rate. We also established a
transition from the prospective application of HHS-RADV adjustments to
apply HHS-RADV results to risk scores from the same benefit year as
that being audited.
<bullet> In the September 2, 2020 Federal Register (85 FR 54820),
we issued an interim final rule containing certain policy and
regulatory revisions in response to the COVID-19 public health
emergency (PHE), wherein we set forth HHS risk adjustment reporting
requirements for issuers offering temporary premium credits in the 2020
benefit year.
<bullet> In the May 5, 2021 Federal Register (86 FR 24140) (part 2
of the 2022 Payment Notice), we finalized a subset of proposals from
the December 4, 2020 Federal Register (85 FR 78572) (the 2022 Payment
Notice proposed rule), including policy and regulatory revisions
related to the HHS-operated risk adjustment program, finalization of
the benefit and payment parameters for the 2022 benefit year, and
approval of the request from Alabama to reduce HHS risk adjustment
transfers by 50 percent in the individual and small group markets for
the 2022 benefit year. In addition, this final rule established a
revised schedule of collections for HHS-RADV and updated the provisions
regulating second validation audit (SVA) and initial validation audit
(IVA) entities.
<bullet> On July 19, 2021, consistent with Sec. 153.320(b)(1)(i),
we released Updated 2022 Benefit Year Final HHS Risk Adjustment Model
Coefficients on the CCIIO website, announcing some minor revisions to
the 2022 benefit year final HHS risk adjustment adult model
coefficients.\7\
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\7\ CMS. (2021). 2022 Benefit Year Final HHS Risk Adjustment
Model Coefficients. <a href="https://www.cms.gov/files/document/updated-2022-benefit-year-final-hhs-risk-adjustment-model-coefficients-clean-version-508.pdf">https://www.cms.gov/files/document/updated-2022-benefit-year-final-hhs-risk-adjustment-model-coefficients-clean-version-508.pdf</a>.
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<bullet> In the May 6, 2022 Federal Register (87 FR 27208) (2023
Payment Notice), we finalized revisions related to the HHS-operated
risk adjustment program, including the benefit and payment parameters
for the 2023 benefit year, HHS risk adjustment model recalibration, and
policies related to the collection and extraction of enrollee-level
EDGE data. We also finalized the adoption of the interacted HCC count
specification for the adult and child models, along with modified
enrollment duration factors for the adult models, beginning with the
2023 benefit year.\8\
[[Page 4428]]
We also repealed the ability for States, other than prior participants,
to request a reduction in HHS risk adjustment State transfers starting
with the 2024 benefit year. In addition, we approved a 25 percent
reduction to 2023 benefit year HHS risk adjustment transfers in
Alabama's individual market and a 10 percent reduction to 2023 benefit
year HHS risk adjustment transfers in Alabama's small group market. We
also finalized further refinements to the HHS-RADV error rate
calculation methodology beginning with the 2021 benefit year.
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\8\ CMS (2022). 2023 Benefit Year Final HHS Risk Adjustment
Model Coefficients. <a href="https://www.cms.gov/files/document/2023-benefit-year-final-hhs-risk-adjustment-model-coefficients.pdf">https://www.cms.gov/files/document/2023-benefit-year-final-hhs-risk-adjustment-model-coefficients.pdf</a>.
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<bullet> In the April 27, 2023 Federal Register (88 FR 25740) (2024
Payment Notice), we finalized the benefit and payment parameters for
the 2024 benefit year, amended the EDGE discrepancy materiality
threshold and data collection requirements, and reduced the risk
adjustment user fee. For the 2024 benefit year, we approved 50 percent
reductions to HHS risk adjustment transfers for Alabama's individual
and small group markets and repealed prior participant States' ability
to request reductions of their risk adjustment transfers for the 2025
benefit year and beyond. We finalized several refinements to HHS-RADV
program requirements, such as shortening the window to confirm SVA
findings or file a discrepancy report, changing the HHS-RADV
materiality threshold for random and targeted sampling, and no longer
exempting exiting issuers from adjustments to risk scores and HHS risk
adjustment transfers when they are negative error rate outliers. We
also announced the discontinuance of the Lifelong Permanent Condition
List (LLPC) and Non-EDGE Claims (NEC) in HHS-RADV beginning with the
2022 benefit year.
<bullet> In the April 15, 2024 Federal Register (89 FR 26218) (2025
Payment Notice), we finalized the benefit and payment parameters for
the 2025 benefit year, including the 2025 risk adjustment models and
updated the adjustment factors for the receipt of CSRs for the American
Indian and Alaska Native (AI/AN) subpopulation who are enrolled in zero
and limited cost-sharing plans to improve prediction in the HHS risk
adjustment models. In addition, we finalized that in certain cases, we
may require a corrective action plan (CAP) to address an observation
identified in an HHS risk adjustment program audit.
2. Program Integrity
We have finalized program integrity standards related to the
Exchanges and premium stabilization programs in two rules: the ``first
Program Integrity Rule'' issued in the August 30, 2013 Federal Register
(78 FR 54069), and the ``second Program Integrity Rule'' issued in the
October 30, 2013 Federal Register (78 FR 65045). We also refer readers
to the 2019 Patient Protection and Affordable Care Act; Exchange
Program Integrity final rule (2019 Program Integrity Rule) issued in
the December 27, 2019 Federal Register (84 FR 71674).
In the April 27, 2023 Federal Register (88 FR 25740) (2024 Payment
Notice), we finalized a policy to implement improper payment pre-
testing and assessment (IPPTA) requirements for State Exchanges to
ensure adherence to the Payment Integrity Information Act of 2019. In
addition, we finalized allowing additional time for HHS to review
evidence submitted by agents and brokers to rebut allegations
pertaining to Exchange Agreement suspensions or terminations. We also
introduced consent and eligibility application documentation
requirements for agents, brokers, and web-brokers that assist Exchange
consumers in FFE and SBE-FP States.
3. Market Rules
In the February 27, 2013 Federal Register (78 FR 13406), we issued
the health insurance market rules, including provisions related to the
single risk pool. We amended requirements related to index rates under
the single risk pool provision in a final rule issued in the July 2,
2013 Federal Register (78 FR 39870). In the October 30, 2013 Federal
Register (78 FR 65046), we clarified when issuers may establish and
update premium rates. In the March 8, 2016 Federal Register (81 FR
12203), we clarified single risk pool provisions related to student
health insurance coverage. We finalized minor adjustments to the single
risk pool regulations in the 2018 Payment Notice, issued in the
December 22, 2016 Federal Register (81 FR 94058).
4. Exchanges
We requested comment relating to Exchanges in the August 3, 2010
Federal Register (75 FR 45584). We issued initial guidance to States on
Exchanges on November 18, 2010. In the March 27, 2012 Federal Register
(77 FR 18310) (Exchange Establishment Rule), we implemented the
Affordable Insurance Exchanges (Exchanges), consistent with title I of
the ACA, to provide competitive marketplaces for individuals and small
employers to directly compare available private health insurance
options based on price, quality, and other factors. This included
implementation of components of the Exchanges and standards for
eligibility for Exchanges, as well as network adequacy and ECP
certification standards.
In the August 17, 2011 Federal Register (76 FR 51201), we issued a
proposed rule regarding eligibility determinations, including the
regulatory requirement to verify incarceration status. In the March 27,
2012 Federal Register (77 FR 18310), we finalized the regulatory
requirement to verify incarceration attestation using an approved
electronic data source that is current and accurate, and to resolve the
inconsistency when attestations are not reasonably compatible with
information in an approved data source. We also established
requirements regarding accessible communications for individuals with
disabilities and those with LEP.
In the 2014 Payment Notice and the Amendments to the HHS Notice of
Benefit and Payment Parameters for 2014 interim final rule, issued in
the March 11, 2013 Federal Register (78 FR 15541), we set forth
standards related to Exchange user fees. We established an adjustment
to the FFE user fee in the Coverage of Certain Preventive Services
under the Affordable Care Act final rule, issued in the July 2, 2013
Federal Register (78 FR 39869) (Preventive Services Rule).
In the 2016 Payment Notice, we also set forth the ECP certification
standard at Sec. 156.235, with revisions in the 2017 Payment Notice in
the March 8, 2016 Federal Register (81 FR 12203) and the 2018 Payment
Notice in the December 22, 2016 Federal Register (81 FR 94058).
In the 2018 Payment Notice, issued in the December 22, 2016 Federal
Register (81 FR 94058), we set forth the standards for the request for
reconsideration of denial of certification specific to the FFEs at
Sec. 155.1090.
In an interim final rule, issued in the May 11, 2016 Federal
Register (81 FR 29146), we made amendments to the parameters of certain
special enrollment periods (2016 Interim Final Rule). We finalized
these in the 2018 Payment Notice, issued in the December 22, 2016
Federal Register (81 FR 94058).
In the Market Stabilization final rule, issued in the April 18,
2017 Federal Register (82 FR 18346), we amended standards relating to
special enrollment periods and QHP certification. In the 2019 Payment
Notice, issued in the April 17, 2018 Federal Register (83 FR 16930), we
modified parameters around certain special enrollment periods. In the
April 25, 2019 Federal Register (84 FR 17454), the 2020 Payment Notice
[[Page 4429]]
established a new special enrollment period.
In the May 14, 2020 Federal Register (85 FR 29164) (2021 Payment
Notice), we finalized revisions to the parameters of special enrollment
periods and the quality rating information display standards for State
Exchanges and amended the periodic data matching requirements.
In the January 19, 2021 Federal Register (86 FR 6138) (part 1 of
the 2022 Payment Notice), we finalized only a subset of the proposals
in the 2022 Payment Notice proposed rule. In the May 5, 2021 Federal
Register (86 FR 24140), we issued part 2 of the 2022 Payment Notice. In
part 3 of the 2022 Payment Notice, issued in the September 27, 2021
Federal Register (86 FR 53412), in conjunction with the Department of
the Treasury, we finalized amendments to certain policies in part 1 of
the 2022 Payment Notice.
In the May 6, 2022 Federal Register (87 FR 27208), we finalized
changes to maintain the user fee rate for issuers offering plans
through the FFEs and maintain the user fee rate for issuers offering
plans through the SBE-FPs for the 2023 benefit year. We also finalized
various policies to address certain agent, broker, and web-broker
practices and conduct. We also finalized updates to the requirement
that all Exchanges conduct special enrollment period verifications.
In the 2024 Payment Notice, issued in the April 27, 2023 Federal
Register (88 FR 25740), we revised Exchange Blueprint approval
timelines, lowered the user fee rate for QHPs in the FFEs and SBE-FPs,
and amended re-enrollment hierarchies for enrollees. We also finalized
policies to update FFE and SBE-FP standardized plan options; reduce the
risk of plan choice overload on the FFEs and SBE-FPs by limiting the
number of non-standardized plan options that issuers may offer through
Exchanges on the Federal platform to four for Plan Year (PY) 2024 and
to two for PY 2025 and subsequent years; and ensure correct QHP
information. In addition, we amended coverage effective date rules,
lengthened the special enrollment period from 60 to 90 days for those
who lose Medicaid coverage, and prohibited QHPs on FFEs and SBE-FPs
from terminating coverage mid-year for dependent children who reach the
applicable maximum age. We also finalized policies on verifying
consumer income and permitting door-to-door assisters to solicit
consumers. To ensure provider network adequacy, we finalized provider
network and ECP policies for QHPs. We revised the failure to file and
reconcile process to ensure enrollees would not lose APTC eligibility
until they or their tax filer failed to file their Federal income taxes
and reconcile APTC for 2 consecutive tax years.
In the 2025 Payment Notice, issued in the April 15, 2024 Federal
Register (89 FR 26218), we required a State seeking to operate a State
Exchange to first operate an SBE-FP for at least one PY, revised
Exchange Blueprint requirements for States transitioning to a State
Exchange, established additional minimum standards for Exchange call
center operations, required an Exchange to operate a centralized
eligibility and enrollment platform on its website, and finalized
various policies for web-brokers and direct enrollment entities. In
addition, we required State Exchanges and State Medicaid agencies to
remit payment to HHS for their use of certain income data, amended re-
enrollment hierarchies for enrollees enrolled in catastrophic coverage,
revised the parameters around a State Exchange adopting an alternative
open enrollment period, and extended the availability of a special
enrollment period for APTC-eligible qualified individuals with a
projected annual household income no greater than 150 percent of the
Federal Poverty Level (FPL). To ensure provider network adequacy in
State Exchanges and SBE-FPs, we finalized provider network adequacy
policies applicable to such Exchanges for PY 2026 and subsequent plan
years. We also further lowered the user fee rate for QHPs in the FFEs
and SBE-FPs. In addition, we finalized the policy to maintain FFE and
SBE-FP standardized plan option metal levels from the 2024 Payment
Notice and finalized an exceptions process to the limitation on non-
standardized plan options in FFEs and SBE-FPs. We also finalized the
requirement for Exchanges to provide notification to enrollees or their
tax filers who have failed to file their Federal income taxes and
reconcile APTC for 1 tax year.
5. Essential Health Benefits
We established requirements relating to EHBs in the Standards
Related to Essential Health Benefits, Actuarial Value, and
Accreditation Final Rule, which was issued in the February 25, 2013
Federal Register (78 FR 12834) (EHB Rule). We established at Sec.
156.135(a) that AV is generally to be calculated using the AV
Calculator developed and made available by HHS for a given benefit
year. In the 2015 Payment Notice (79 FR 13743), we established at Sec.
156.135(g) provisions for updating the AV Calculator in future plan
years. In the 2017 Payment Notice (81 FR 12349), we amended the
provisions at Sec. 156.135(g) to allow for additional flexibility in
our approach and options for updating of the AV Calculator.
In the 2025 Payment Notice, issued in the April 15, 2024 Federal
Register (89 FR 26218), we revised Sec. 155.170(a) to codify that
benefits covered in a State's EHB-benchmark plan are not considered in
addition to EHB, even if they had been required by State action taking
place after December 31, 2011, other than for purposes of compliance
with Federal requirements. We finalized three revisions to the
standards for State selection of EHB-benchmark plans for benefit years
beginning on or after January 1, 2026: we revised the typicality
standard at Sec. 156.111 for States to demonstrate that their new EHB-
benchmark plan provides a scope of benefits that is equal to that of a
typical employer plan in the State and removed the generosity standard;
removed the requirement for States to submit a formulary drug list as
part of their application unless they are changing their prescription
drug EHBs; and consolidated the options for States to change their EHB-
benchmark plans. We also removed the regulatory prohibition at Sec.
156.115(d) on issuers from including routine non-pediatric dental
services as an EHB beginning with PY 2027.
In addition, we revised Sec. 156.122 to codify that prescription
drugs in excess of those covered by a State's EHB-benchmark plan are
considered EHB. We also stated that the 2025 Payment Notice does not
address the application of this policy to large group market health
plans and self-insured group health plans, and that HHS and the
Departments of Labor and the Treasury intend to propose rulemaking that
would align the standards applicable to large group market health plans
and self-insured group health plans with those applicable to individual
and small group market plans, so that all group health plans and health
insurance coverage subject to sections 2711 and 2707(b) of the PHS Act,
as applicable, would be required to treat prescription drugs covered by
the plan or coverage in excess of the applicable EHB-benchmark plan as
EHB for purposes of the prohibition of lifetime and annual limits and
the annual limitation on cost sharing, which would further strengthen
the consumer protections in the ACA.
6. Medical Loss Ratio (MLR)
We requested comment on section 2718 of the PHS Act in the April
14, 2010 Federal Register (75 FR 19297)
[[Page 4430]]
and issued an interim final rule with a 60-day comment period relating
to the MLR program on December 1, 2010 (75 FR 74864). A final rule with
a 30-day comment period was issued in the December 7, 2011 Federal
Register (76 FR 76573). An interim final rule with a 60-day comment
period was issued in the December 7, 2011 Federal Register (76 FR
76595). A final rule was issued in the Federal Register on May 16, 2012
(77 FR 28790). The MLR program requirements were amended in final rules
issued in the March 11, 2014 Federal Register (79 FR 13743), the May
27, 2014 Federal Register (79 FR 30339), the February 27, 2015 Federal
Register (80 FR 10749), the March 8, 2016 Federal Register (81 FR
12203), the December 22, 2016 Federal Register (81 FR 94183), the April
17, 2018 Federal Register (83 FR 16930), the May 14, 2020 Federal
Register (85 FR 29164), the May 5, 2021 Federal Register (86 FR 24140),
the May 6, 2022 Federal Register (87 FR 27208), and an interim final
rule that was issued in the September 2, 2020 Federal Register (85 FR
54820).
7. Quality Improvement Strategy
We issued regulations in Sec. 155.200(d) to direct Exchanges to
evaluate quality improvement strategies, and Sec. 156.200(b) to direct
QHP issuers to implement and report on a quality improvement strategy
or strategies consistent with section 1311(g) standards as QHP
certification criteria for participation in an Exchange. In the 2016
Payment Notice, issued in the February 27, 2015 Federal Register (80 FR
10749), we finalized regulations at Sec. 156.1130 to establish
standards and the associated timeframe for QHP issuers to submit the
necessary information to implement quality improvement strategy
standards for QHPs offered through an Exchange.
8. Basic Health Program
In the March 12, 2014, Federal Register (79 FR 14111), we issued a
final rule entitled the ``Basic Health Program: State Administration of
Basic Health Programs; Eligibility and Enrollment in Standard Health
Plans; Essential Health Benefits in Standard Health Plans; Performance
Standards for Basic Health Programs; Premium and Cost Sharing for Basic
Health Programs; Federal Funding Process; Trust Fund and Financial
Integrity'' (hereinafter referred to as the BHP final rule)
implementing section 1331 of the ACA, which governs the establishment
of BHPs. The BHP final rule established the standards for State and
Federal administration of BHPs, including provisions regarding
eligibility and enrollment, benefits, cost-sharing requirements and
oversight activities. In the BHP final rule, we specified that the BHP
Payment Notice process would include the annual publication of both a
proposed and final BHP payment methodology.
On October 11, 2017, the Attorney General of the United States
provided HHS and the Department of the Treasury (the Departments) with
a legal opinion \9\ indicating that the permanent appropriation at 31
U.S.C. 1324, from which the Departments had historically drawn funds to
make CSR payments, cannot be used to fund CSR payments to insurers. In
light of this opinion--and in the absence of any other appropriation
that could be used to fund CSR payments--HHS directed CMS to
discontinue CSR payments to issuers until Congress provides for an
appropriation. As a result of this opinion, CMS discontinued CSR
payments to issuers in the States operating a BHP (that is, New York
and Minnesota). The States then sued the Secretary for declaratory and
injunctive relief in the United States District Court for the Southern
District of New York.\10\ On May 2, 2018, the parties filed a
stipulation requesting a stay of the litigation so that HHS could issue
an administrative order revising the 2018 BHP payment methodology.
After consideration of the States' comments on the administrative order
revising the payment methodology, we issued a Final Administrative
Order on August 24, 2018 (Final Administrative Order) setting forth the
payment methodology that would apply to the 2018 BHP program year.
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\9\ Sessions, J. (2017, Oct. 11). Legal Opinion Re: Payments to
Issuers for Cost Sharing Reductions (CSRs). Office of the Attorney
General. <a href="https://www.hhs.gov/sites/default/files/csr-payment-memo.pdf">https://www.hhs.gov/sites/default/files/csr-payment-memo.pdf</a>.
\10\ See Complaint, New York v. U.S. Dep't of Health & Human
Servs., No. 1:18-cv-00683 (RJS) (S.D.N.Y. filed Jan. 26, 2018).
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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.\11\ 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).\12\ In the August 13, 2020
Federal Register (85 FR 49264) (hereinafter referred to as the August
2020 final BHP Payment Notice), we finalized the payment methodology
for BHP program year 2021. The 2021 payment methodology is the same
methodology as the 2020 payment methodology, with one adjustment to the
income reconciliation factor (IRF). In the July 7, 2021 Federal
Register (86 FR 35615) (hereinafter referred to as the July 2021 final
BHP Payment Notice), we finalized the payment methodology for BHP
program year 2022. The 2022 payment methodology is the same as the 2021
payment methodology, with the exception of the removal of the Metal
Tier Selection Factor.
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\11\ BHP program year means a calendar year for which a standard
health plan provides coverage for BHP enrollees. See 42 CFR 600.5.
\12\ ``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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In the December 20, 2022 Federal Register (87 FR 77722) (hereafter
referred to as the 2023 final BHP Payment Notice), we finalized the
payment methodology for BHP program year 2023. The 2023 payment
methodology is the same as the 2022 payment methodology, except for the
addition of a factor to account for a State operating a BHP and
implementing an approved State Innovation Waiver under section 1332 of
the ACA; this is the section 1332 waiver factor (WF). In the 2023 final
BHP Payment Notice (87 FR 77722), we also revised the schedule for
issuance of payment notices and allowed payment notices to be effective
for 1 or multiple program years, as determined by and subject to the
direction of the Secretary, beginning with the 2023 payment
methodology. In the 2025 Payment Notice, issued in the April 15, 2024
Federal Register (89 FR 26218), we finalized that States may start BHP
applicants' effective date of eligibility on the first day of the month
following the date of application. In addition, we finalized that,
subject to HHS approval, a State may establish its own effective date
of eligibility for enrollment policy.
B. Summary of Major Provisions
The regulations outlined in the final rule are codified in 42 CFR
part 600 and 45 CFR parts 153, 155, 156, and 158.
1. 42 CFR Part 600
We are finalizing changes to the methodology regarding the premium
adjustment factor (PAF), which is used to calculate the adjusted
reference
[[Page 4431]]
premium (ARP) for BHP payment. We are finalizing maintaining the PAF
value at 1.188 for States that have fully implemented BHP and are using
Second Lowest Cost Silver Plan (SLCSP) premiums from a year in which
BHP was fully implemented. As previously clarified, for States in their
first year of implementing BHP and choosing to use prior year SLCSP
premiums to determine BHP payment, the PAF value will be set to 1.00.
We are finalizing that if a State is using SLCSP premiums from a year
in which BHP was not fully implemented, the PAF is calculated by
determining the CSR adjustment that QHP issuers included in the SLCSP
premiums, reporting the CSR adjustments for the SLCSP for each region
in the State to CMS, and then CMS calculating the PAF as 1.20 divided
by 1 plus the adjustment. Additionally, we are finalizing a technical
clarification for BHP payment rates in cases of multiple SLCSP premiums
in an area.
2. 45 CFR Part 153
In accordance with the OMB Report to Congress on the Joint
Committee Reductions for Fiscal Year 2025, the HHS-operated risk
adjustment program is subject to the fiscal year 2025
sequestration.\13\ Therefore, the HHS-operated risk adjustment program
will sequester payments made from fiscal year 2025 resources (that is,
funds collected during the 2025 fiscal year) at a rate of 5.7 percent.
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\13\ OMB. (2024). OMB Report to the Congress on the BBEDCA 251A
Sequestration for Fiscal Year 2025. <a href="https://www.whitehouse.gov/wp-content/uploads/2024/03/BBEDCA_251A_Sequestration_Report_FY2025.pdf">https://www.whitehouse.gov/wp-content/uploads/2024/03/BBEDCA_251A_Sequestration_Report_FY2025.pdf</a>.
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We are unable to complete the calculations for the final
coefficients for the 2026 benefit year in time to publish them in this
final rule. Therefore, consistent with Sec. 153.320(b)(1)(i), we are
finalizing the datasets to be used to calculate the final coefficients
in this rule and will publish the final coefficients for the 2026
benefit year in guidance after the publication of this final rule.
Starting with the 2026 benefit year, we are finalizing the proposal to
begin phasing out the market pricing adjustment to the plan liability
associated with Hepatitis C drugs in the HHS risk adjustment models
(see, for example, 84 FR 17463 through 17466). We are also finalizing
the incorporation of pre-exposure prophylaxis (PrEP) as a separate, new
type of factor called an Affiliated Cost Factor (ACF) in the HHS risk
adjustment adult and child models starting with the 2026 benefit year.
We are finalizing a risk adjustment user fee for the 2026 benefit year
of $0.20 per member per month (PMPM).
Beginning with the 2025 benefit year of HHS-RADV, we are finalizing
the proposals to exclude enrollees without HCCs, which includes adult
enrollees with only prescription drug categories (RXCs), from the IVA
sample, remove the Finite Population Correction (FPC) from the IVA
sampling methodology, and replace the source of the Neyman allocation
data used for HHS-RADV sampling with the most recent 3 consecutive
years of HHS-RADV data. In addition, beginning with the 2024 benefit
year of HHS-RADV, we are finalizing the proposals to modify the SVA
pairwise means test, which tests for statistically significant
differences between the IVA and SVA results, to use a bootstrapped 90
percent confidence interval methodology and to increase the initial SVA
subsample size from 12 enrollees to 24 enrollees.
3. 45 CFR Part 155
We address our authority to investigate and undertake compliance
reviews and enforcement actions in response to misconduct or
noncompliance with applicable agent, broker, and web-broker Exchange
requirements or standards occurring at the insurance agency level and
how we intend to hold lead agents of insurance agencies accountable for
such misconduct or noncompliance.
We are finalizing revisions at Sec. 155.220(k)(3) to reflect our
authority to suspend an agent's or broker's ability to transact
information with the Exchange in instances where HHS discovers
circumstances that pose unacceptable risk to accuracy of Exchange
eligibility determinations, Exchange operations, applicants, or
enrollees, or Exchange information technology systems, including but
not limited to risk related to noncompliance with the standards of
conduct under Sec. 155.220(j)(2)(i), (ii) or (iii) and the privacy and
security standards under Sec. 155.260, until the circumstances of the
incident, breach, or noncompliance are remedied or sufficiently
mitigated to HHS' satisfaction.
We are finalizing updates to the model consent form that agents,
brokers, and web-brokers can use to obtain and document consumer
consent.\14\ The updates expand the resource to include a standardized
form that agents, brokers, and web-brokers can use to document the
consumer's review and confirmation of the accuracy of information in
their Exchange eligibility application, which is a new standard of
conduct that was also implemented as part of the 2024 Payment Notice
(88 FR 25809 through 25814). The updates also add scripts that agents,
brokers, and web-brokers may utilize to meet the consumer consent and
eligibility application review requirements finalized in the 2024
Payment Notice via an audio recording.
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\14\ CMS. (2022, December 14). CMS Model Consent Form for
Marketplace Agents and Brokers. PRA package (CMS-10840, OMB Control
Number 0938-1438). <a href="https://www.cms.gov/files/document/cms-model-consent-form-marketplace-agents-and-brokers.pdf">https://www.cms.gov/files/document/cms-model-consent-form-marketplace-agents-and-brokers.pdf</a>.
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We are finalizing, in connection with the failure to file and
reconcile process at Sec. 155.305(f)(4), that Exchanges are required
to send notices to tax filers or their enrollees for the second year in
which they have been determined to have failed to reconcile APTC
explaining that they risk being determined ineligible for APTC. A
notice to the tax filer may specifically explain that if they fail to
file and reconcile for a second consecutive year, they risk being
determined ineligible for APTC. Alternatively, an Exchange may send a
more general notice to the enrollee or their tax filer explaining that
they are at risk of losing APTC, without the additional detail that the
tax filer has failed to file and reconcile APTC.
We are finalizing the addition of Sec. 155.400(d)(1) to codify
HHS' guidance that requires that, within 60 calendar days after a State
Exchange receives a data inaccuracy from an issuer operating in an
State Exchange that includes a description of an inaccuracy that meets
the requirements at Sec. 156.1210(a) through (c) and all the
information that the State Exchange requires or requests to properly
assess the inaccuracy, State Exchanges must review and resolve the
State Exchange issuer's enrollment data inaccuracies and submit to HHS
a description of the resolution of any inaccuracies described by the
State Exchange issuer that the State Exchange confirms to be
inaccuracies in a format and manner specified by HHS.\15\
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\15\ OMB Control No: 0938-1312 and 0938-1341.
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We are finalizing a provision at Sec. 155.400(g) to allow issuers
to adopt a fixed-dollar payment threshold of $10 or less, to be
adjusted for inflation by annual agency guidance, under which issuers
would not be required to trigger a grace period or terminate enrollment
for enrollees who fail to pay the full amount of their portion of
premium owed, provided they do not owe more than the threshold amount.
We are also finalizing a provision allowing issuers to adopt a gross
percentage-based premium threshold of 98 percent or higher, which
similarly would not require issuers to trigger a grace period
[[Page 4432]]
or terminate enrollment for enrollees who fail to pay the full amount
of their portion of premium owed, provided they do not owe more than
the threshold amount. In addition, we are finalizing a provision that
permits issuers to set the premium payment threshold based on net
premium owed by the enrollee at 95 percent or higher of the net
premium, rather than providing for a ``reasonable'' standard as is
currently set forth in regulation. We are finalizing a policy limiting
application of the fixed-dollar payment threshold and gross premium
percentage-based threshold to premium payments after coverage is
effectuated. Issuers will be allowed to apply the fixed-dollar payment
threshold and/or one of two percentage-based thresholds (but not both
percentage-based thresholds). Issuers will be required to apply all
chosen premium payment thresholds uniformly to all enrollees and
without regard to their health status.
We are finalizing a provision at Sec. 155.505(b) to codify an
option for application filers as defined under Sec. 155.20 to file
appeals on behalf of applicants and enrollees on the application
filer's Exchange application.
We are finalizing amendments at Sec. 155.1000 to state explicitly
that an Exchange may deny certification to any plan that does not meet
the general certification criteria at Sec. 155.1000(c). We also
finalize amending Sec. 155.1090 with refinements to the standards for
a request for the reconsideration of a denial of certification specific
to the FFEs.
We are finalizing that in addition to collecting the information
and data currently provided by State Exchanges under Sec. 155.1200 to
monitor performance and compliance, we would use the information and
data that State Exchanges submit to increase transparency into Exchange
operations and to promote program improvements. We anticipate publicly
releasing the State Exchange spending on outreach (including
Navigators), Open Enrollment call center metrics (call center volume,
average wait time, average call abandonment rate), and website visits
and visitors. We are stating in this final rule that we no longer
intend to publicly release the State Exchanges' annual State-based
Marketplace Annual Reporting Tools (SMARTs). In addition, we intend to
only post those metrics for which we also have reasonably comparable
data from Exchanges on the Federal platform.
4. 45 CFR Part 156
We are finalizing 2026 benefit year FFE and SBE-FP user fee rates
of 2.5 percent and 2.0 percent of total monthly premiums, respectively.
We are also finalizing alternative 2026 benefit year FFE and SBE-FP
user fee rates of 2.2 percent and 1.8 percent of total monthly
premiums, respectively, if enhanced PTC subsidies,\16\ at the level
currently enacted or at a higher level, are extended through the 2026
benefit year by July 31, 2025.
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\16\ ARP, Public Law 117-2, 135 Stat. 4 (2021). These enhanced
subsidies were extended under the IRA, Public Law 117-169, 136 Stat.
1818 (2022) and are scheduled to expire after the 2025 calendar
year.
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We are finalizing amendments to Sec. 156.80(d)(2)(i) to affirm
that CSR loading practices that are permitted by State regulators are
permissible under Federal law to the extent that they are actuarially
justified and provided the issuer does not otherwise receive
reimbursement for such CSR amounts.
We are finalizing changes to the method for updating the AV
Calculator, starting with the 2026 AV Calculator. Under this approach,
for a plan year, we will only release a single, final version of the AV
Calculator.
We are finalizing minor updates to the standardized plan option
designs for PY 2026 to ensure these plans continue to have AVs within
the permissible de minimis range for each metal level and to maintain a
high degree of continuity with the approaches to standardized plan
options finalized in the 2023, 2024, and 2025 Payment Notices. In
response to comments requesting the expanded bronze metal level designs
revert to the 50 percent coinsurance rate used in previous years, we
have revised this plan design to maintain this consistency, instead of
raising it to 60 percent for PY 2026, as proposed. We made several
additional modifications to both sets of plan designs at the expanded
bronze metal.
In addition, we are finalizing amendments at Sec. 156.201 to
require issuers that offer multiple standardized plan options within
the same product network type, metal level, and service area to
meaningfully differentiate these plans from one another in terms of
included benefits, provider networks, included prescription drugs, or a
combination of some or all these factors.
We are finalizing amendments at Sec. 156.202(b) and (d) to
properly reflect the flexibility that issuers have been operationally
permitted since these requirements were introduced to vary the
inclusion of the distinct adult dental benefit coverage, pediatric
dental benefit coverage, and adult vision benefit coverage categories
under the non-standardized plan option limit in accordance with Sec.
156.202(c)(1) through (3).
We are finalizing conducting ECP certification reviews of plans for
which issuers submit QHP certification applications in FFEs in States
performing plan management functions, beginning in PY 2026.
We are finalizing the proposal to share aggregated, summary-level
QIS information publicly on an annual basis beginning on January 1,
2026, with information QHP issuers submit during the PY 2025 QHP
Application Period.
We are finalizing an amendment to Sec. 156.1220(a) to introduce a
new materiality threshold for HHS-RADV appeals, such that we will rerun
HHS-RADV results and adjust HHS-RADV adjustments to State transfers in
response to a successful appeal when the impact of that appeal to the
filer's HHS-RADV adjustments to State transfers is greater than or
equal to $10,000.
5. 45 CFR Part 158
We are finalizing amendments to Sec. 158.140(b)(4)(ii) to allow
qualifying issuers to not adjust incurred claims by the net payments or
receipts related to the risk adjustment program for MLR reporting and
rebate calculation purposes beginning with the 2026 MLR reporting year
(MLR reports due in 2027), with certain modifications. Specifically, we
are finalizing that at the option of qualifying issuers, earned premium
would account for net risk adjustment receipts by simply adding these
net receipts to total premium, without subsequently subtracting them
from adjusted earned premium, such that these net receipts would impact
the MLR denominator rather than MLR numerator. We are also finalizing
an amendment to Sec. 158.103 to add a definition of ``qualifying
issuer,'' with certain clarifications.
We also are finalizing amendments to Sec. 158.240(c) to add an
illustrative example of how qualifying issuers that opt to apply risk
adjustment transfer amounts as described in Sec. 158.140(b)(4)(ii)
will calculate the amount of rebate owed to each enrollee to accurately
reflect how such issuers will incorporate the net risk adjustment
transfer amounts into the MLR and rebate calculations differently from
other issuers, as well as a conforming amendment to clarify that the
current illustrative example in paragraph (c)(2) will apply to issuers
that are not qualifying issuers and to qualifying issuers that do not
opt to apply risk
[[Page 4433]]
adjustment transfer amounts as described in Sec. 158.140(b)(4)(ii).
III. Summary of the Provisions of the Proposed Regulations and Analysis
of and Responses to Public Comments
A. 42 CFR Part 600--BHP Methodology Regarding the Value of the Premium
Adjustment Factor (PAF)
1. Overview of the Payment Methodology and Calculation of the Payment
Amount
In the HHS Notice of Benefit and Payment Parameters for 2026
proposed rule (89 FR 82308, 82317), we proposed to make a change to the
calculation of the PAF starting in program year 2026. Section
1331(d)(3) of the ACA directs the Secretary to consider several factors
when determining the Federal BHP payment amount, which, as specified in
the statute, must equal 95 percent of the value of the PTC under
section 36B of the Code and CSRs under section 1402 of the ACA that
would have been paid on behalf of BHP enrollees had they enrolled in a
QHP through an Exchange. Thus, the BHP payment methodology is designed
to calculate the PTC and CSRs as consistently as possible and in
general alignment with the methodology used by Exchanges to calculate
advance payments of the PTC (APTC) and CSRs, and the methodology used
to reconcile APTC with the amount of the PTC allowed for the tax year
under section 36B of the Code. In accordance with section
1331(d)(3)(A)(iii) of the ACA, the final payment methodology must be
certified by the Chief Actuary of CMS, in consultation with the Office
of Tax Analysis (OTA) of the Department of the Treasury, as having met
the requirements of section 1331(d)(3)(A)(ii) of the ACA.
Section 1331(d)(3)(A)(ii) of the ACA specifies that the payment
determination shall take into account all relevant factors necessary to
determine the value of the PTC and CSRs that would have been paid on
behalf of eligible individuals, including but not limited to, the age
and income of the enrollee, whether the enrollment is for self-only or
family coverage, geographic differences in average spending for health
care across rating areas, the health status of the enrollee for
purposes of determining risk adjustment payments and reinsurance
payments that would have been made if the enrollee had enrolled in a
QHP through an Exchange, and whether any reconciliation of APTC and CSR
would have occurred if the enrollee had been enrolled. Under all
previous payment methodologies, the total Federal BHP payment amount
has been calculated using multiple rate cells in each BHP State. Each
rate cell represents a unique combination of age range (if applicable),
geographic area, coverage category (for example, self-only or two-adult
coverage through the BHP), household size, and income range as a
percentage of FPL, and there is a distinct rate cell for individuals in
each coverage category within a particular age range who reside in a
specific geographic area and are in households of the same size and
income range. The BHP payment rates developed are also consistent with
the State's rules on age rating. Thus, in the case of a State that does
not use age as a rating factor on an Exchange, the BHP payment rates
would not vary by age.
Under the methodology finalized in the July 2021 final BHP Payment
Notice, the rate for each rate cell is calculated in two parts. The
first part is equal to 95 percent of the estimated PTC that would have
been allowed if a BHP enrollee in that rate cell had instead enrolled
in a QHP in an Exchange. The second part is equal to 95 percent of the
estimated CSR payment that would have been made if a BHP enrollee in
that rate cell had instead enrolled in a QHP in an Exchange. These two
parts are added together and the total rate for that rate cell would be
equal to the sum of the PTC and CSR rates. As noted in the July 2021
final BHP Payment Notice, we currently assign a value of zero to the
CSR portion of the BHP payment rate calculation, because there is
presently no available appropriation from which we can make the CSR
portion of any BHP payment.
The 2023 final BHP Payment Notice provides a detailed description
of the structure of the BHP payments, including the equations, factors,
and the values of the factors used to calculate the BHP payments. We
proposed one change to the methodology regarding the premium adjustment
factor (PAF).
The PAF is used to calculate the adjusted reference premium (ARP)
that is used to calculate the BHP payment. The ARP is used to calculate
the BHP payment. The ARP is used to calculate the estimated PTC that
would be allowed if BHP-eligible individuals enrolled in QHPs through
an Exchange and is based on the premiums for the applicable second
lowest cost silver plan during the applicable plan year. The PAF
considers the premium increases in other States that took effect after
we discontinued payments to issuers for CSRs provided to enrollees in
QHPs offered through Exchanges. Despite the discontinuance of Federal
payments for CSRs, QHP issuers are required to provide CSRs to eligible
enrollees. As a result, many QHP issuers increased the silver-level
plan premiums to account for those additional costs; these premium
adjustments and how they were applied (for example, to only silver-
level plans or to all metal tier plans) varied across States. For the
States operating BHPs in 2018, the increases in premiums were
relatively minor, because the majority of enrollees eligible for CSRs
(and all who were eligible for the largest CSRs) were enrolled in the
BHP and not in QHPs on the Exchanges, and therefore, issuers in BHP
States did not significantly raise premiums to cover costs related to
HHS not making CSR payments.
In the Final Administrative Order and the 2019 through 2023 final
BHP Payment Notices, we incorporated the PAF into the BHP payment
methodologies to capture the impact of how other States responded to
HHS ceasing to make CSR payments.\17\ We also reserved the right that
in the case an appropriation for CSR payments is made for a future
year, to determine whether and how to modify the PAF in the payment
methodology.
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\17\ <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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Under the Final Administrative Order, we calculated the PAF by
using information sought from QHP issuers in each State and the
District of Columbia and determined the premium adjustment that the
responding QHP issuers made to each silver level plan in 2018 to
account for the discontinuation of CSR payments to QHP issuers. Based
on the data collected, we estimated the median adjustment for silver
level QHPs nationwide (excluding those in the two BHP States). To the
extent that QHP issuers made no adjustment (or the adjustment was
zero), this was counted as zero in determining the median adjustment
made to all silver level QHPs nationwide. If the amount of the
adjustment was unknown--or we determined that it should be excluded for
methodological reasons (for example, the adjustment was negative, an
outlier, or unreasonable)--then we did not count the adjustment towards
determining the median adjustment.\18\ The median adjustment for silver
level QHPs is referred to as the nationwide median adjustment.
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\18\ 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.
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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
[[Page 4434]]
median adjustment. The PAF for each BHP State equaled one plus the
nationwide median adjustment divided by one plus the State median
---------------------------------------------------------------------------
adjustment for the BHP State. In other words,
PAF = (1 + Nationwide Median Adjustment) / (1 + State Median
Adjustment).
To determine the PAF described above, we sought to collect QHP
information from QHP issuers in each State and the District of Columbia
to determine the premium adjustment those issuers made to each silver
level plan offered through the Exchange in 2018 to account for the end
of CSR payments. Specifically, we sought information showing the
percentage change that QHP issuers made to the premium for each of
their silver level plans to cover benefit expenditures associated with
the CSRs, given the lack of CSR payments in 2018. This percentage
change was a portion of the overall premium increase from 2017 to 2018.
According to our 2018 records, there were 1,233 silver-level QHPs
operating on Exchanges in 2018. Of these 1,233 QHPs, 318 QHPs (25.8
percent) responded to our request for the percentage adjustment applied
to silver-level QHP premiums in 2018 to account for the discontinuance
of HHS making CSR payments. These 318 QHPs operated in 26 different
States, with 10 of those States running State Exchanges (while we
requested information only from QHP issuers in States serviced by an
FFE, many of those issuers also had QHPs in State Exchanges and
submitted information for those States as well). Thirteen of these 318
QHPs were in New York (and none were in Minnesota). Excluding these 13
QHPs from the analysis, the nationwide median adjustment was 20.0
percent. Of the 13 QHPs in New York that responded, the State median
adjustment was 1.0 percent. We believed that this was an appropriate
adjustment for QHPs in Minnesota, as well, based on the observed
changes in New York's QHP premiums in response to the discontinuance of
CSR payments (and the operation of the BHP in that State) and our
analysis of expected QHP premium adjustments for States with BHPs. We
calculated the proposed PAF as (1 + 20 percent) / (1 + 1 percent) (or
1.20/1.01), which results in a value of 1.188.
We set the value of the PAF to 1.188 for all program years for 2018
through 2024, with limited exceptions.\19\ 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.
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\19\ See the Federal Funding Methodology for Program Year 2023
and Changes to the Basic Health Program Payment Notice Process at 87
FR 77722, 77731, 77737.
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Starting in 2023, we made one limited exception in setting the
value of the PAF as part of the 2023 final BHP Payment Notice.\20\ In
the case of a State in the first year of implementing a BHP, if the
State chooses to use prior year second lowest cost silver plan (SLCSP)
premiums to determine the BHP payment (for example, the 2025 premiums
for the 2026 program year), we set the value of the PAF to 1.00. In
this case, we believe that adjustment to the QHP premiums to account
for the discontinuation of CSR payments would be included fully in the
prior year premiums, and no further adjustment would be necessary.
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\20\ Id. at 77731-32.
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We proposed to make a change to the calculation of the PAF starting
in program year 2026. There are cases in which a State may not have
fully implemented BHP for a full program year. For example, a State may
operate BHP for only a portion of the year (in other words, less than
12 months); there may be other such cases in which a State would be
deemed to have partially implemented BHP for a program year.
For a State that initially only partially implemented BHP, it is
likely that, in the year (or years) when the BHP is only partially
implemented, the percentage adjustment to the premiums for the program
year to account for the discontinuation of CSR payments may be
significantly higher than the 1 percent adjustment we determined for
BHP States in 2018. In these cases, it is probable that QHP issuers
would include a larger premium adjustment (that is, greater than 1
percent) because more individuals would be eligible for CSRs (and
individuals eligible for relatively larger CSRs) would be enrolled in a
QHP on the Exchange, for part or all of the initial implementation
year. If premiums with a larger CSR adjustment are used as a basis for
calculating the BHP payments and the current value of the PAF (1.188)
is used, it is likely that this would ``double count'' a portion of the
adjustment and lead to an effective CSR adjustment over 20 percent.
For example, assume a State implements BHP for only 6 months in a
program year. As a result, QHP issuers may include a 10 percent
adjustment to the premiums to account for the discontinuation of the
CSR for the portion of the year when CSR eligible individuals would
have QHP coverage. The issuers would be liable for roughly half of the
CSR amounts they would have had to provide if there was no BHP in
place. Under the previous BHP payment methodology, if these premiums
that already partially account for CSRs are used to calculate the BHP
payment, we would increase the reference premium by 18.8 percent for
the PAF, leading to an effective increase of 30.68 percent (1.188
multiplied by 1.10 minus 1). This is significantly larger than the 20
percent adjustment we determined as the basis for the PAF for States
that have operated their BHP for more than 2 full program years.
Under the Secretary's general authority to account for all relevant
factors necessary to determine the value of the premium and cost-
sharing reductions that would have been provided to eligible
individuals now enrolled in BHP coverage \21\ and to avoid such an
overpayment, we proposed the following changes to the PAF:
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\21\ Section 1331(d)(3)(A)(ii) of the PHS Act.
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(1) If a State has fully implemented BHP and is using SLSCP
premiums for a year in which the BHP was fully implemented, then the
value of the PAF would remain 1.188, as described above.
(2) If a State is in the first year of implementing a BHP and the
State chooses to use prior year SLCSP premiums to determine the BHP
payment (for example, the 2025 premiums for the 2026 program year), we
set the value of the PAF to 1.00. This is the same approach described
in the 2023 final BHP Payment Notice.
(3) If a State is using SLCSP premiums from a year in which BHP was
not fully implemented, then the PAF is calculated as follows:
First, the State must determine the CSR adjustment that QHP issuers
included in the SLSCP premiums for individual market Exchange plans.
The State should identify the SLSCP in each region, as defined for the
Exchange. For each SLSCP, the State should determine the CSR adjustment
that the QHP issuer included in the premium. This may be done by (1)
reviewing any materials submitted by the QHP issuer describing the
calculation of the premium; or (2) requesting that the QHP issuer
provide the adjustment, or an estimate of the adjustment used in
calculating the premium. Second, the State should report the CSR
adjustments for the SLCSP for individual market Exchange
[[Page 4435]]
plans for each region in the State to CMS. Third, CMS will take this
percentage adjustment and calculate the PAF as 1.20 divided by 1 plus
the adjustment. For example, if the percentage adjustment for the CSR
is 5 percent, the PAF would be (1.20 / 1.05), or 1.143. The maximum
value of the PAF would be 1.188, and the minimum value of the PAF would
be 1.00.
We noted in the proposed rule (89 FR 82319) that this approach
would apply based on the premium year, not necessarily the program
year. If the State has fully implemented BHP but is using the prior
year premiums and BHP was not fully implemented in that year, this
modified approach would still apply. For example, if a State partially
implemented BHP in 2026 and fully implemented BHP in 2027, when
determining the BHP payments for 2027, we would then use 1.188 for the
value of the PAF if the State elected to use 2027 QHP premiums to
determine the payment; if the State elected to use the 2026 QHP
premiums, then we would use the modified PAF calculation described in
this section. CMS would make a determination of whether or not a BHP
was fully implemented based on a review of the Blueprint and provide
that determination to the State.
We also noted in the proposed rule (89 FR 82319) that we considered
other approaches to the modified PAF. We considered whether or not CMS
would collect data on the underlying CSR adjustment in the SLCSP
premiums; however, we believe that such activities fall within States
roles as BHP administrators and States are better able to work with QHP
issuers to administer this data collection process. We also considered
if States should survey all QHP issuers (not just those with the SLSCP
premium). We believe that only using the CSR adjustment from individual
market Exchange plans with the SLCSPs would be a more reasonable
approach and would minimize the burden on States and QHP issuers by
only requiring the State to work with one issuer in each region, as
opposed to all issuers in each region. We also considered whether or
not we should make further changes to the PAF, but we believe that this
approach balances maintaining accurate BHP payments with stability and
limited burden for BHP States. We requested comments on this approach
or alternative approaches to calculating the PAF.
After consideration of comments and for the reasons outlined in the
proposed rule and this final rule, including our responses to comments,
we are finalizing the approach to calculating the PAF as proposed. We
summarize and respond to public comments received on the proposed
change to the calculation of the PAF below.
Comment: Several commenters were supportive of the change to adjust
the PAF for BHP in program years in which States have not fully
implemented BHP.
Response: We appreciate these comments in support of the proposed
change.
Comment: One commenter noted ``relying on silver CSR loads from
2018 in the development of the population adjustment factor may not
reflect actual silver loads because these 2018 premiums are based on
experience from a time when CSRs were fully funded,'' while also
acknowledging there are other factors ``including state-specified
loads, the impact of States' 1332 waivers, the effects of the COVID-19
pandemic and related Medicaid coverage policies, and other factors''
that may affect these adjustments in States.
Response: We acknowledge that there are limitations to relying on
the 2018 CSR loads for calculation of the PAF. We also agree that other
factors that may affect CSR loads and these factors complicate updating
the PAF. We did not propose and are not making any changes to the
standard calculation of the PAF in this final rule.
2. Technical Clarification for Calculation of BHP Payment Rates in
Cases of Multiple Second Lowest Cost Silver Plan Premiums in an Area
The BHP payment rates are based on the second lowest cost silver
plan premium among individual market QHPs operating on the Exchanges in
each rating area (or county) in a State. This is the basis for the
reference premium (or RP) in the BHP payment methodology.
In general, we expect that each county would have a unique second
lowest cost silver plan premium, which is used to calculate the payment
rates for residents of that county for the BHP payment. However, in
some cases, we have found that States may have more than one second
lowest cost silver plan within a county. This may occur in cases where
the State has allowed QHPs to operate in only a portion of the county
instead of the entire county on the Exchange.
In our previous BHP payment methodologies, we do not describe how
such a case would be handled for calculating BHP payments. In our
technical guidance to States,\22\ we have instructed States to report
the premiums for the second lowest cost silver plan operating in the
largest part of the county as measured by total population.
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\22\ CMS. (September 15, 2023). Basic Health Program; Federal
Funding Methodology for Program Year 2024. Accessed at: <a href="https://www.medicaid.gov/federal-policy-guidance/downloads/cib091523.pdf">https://www.medicaid.gov/federal-policy-guidance/downloads/cib091523.pdf</a>.
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Under the Secretary's general authority to account for all relevant
factors necessary to determine the value of the premium and cost-
sharing reductions that would have been provided to eligible
individuals now enrolled in BHP coverage,\23\ for the 2026 payment
methodology and all subsequent years, we proposed to clarify that in
cases where there are more than one second lowest cost silver plans in
a county, the BHP payment would be based on the premium of the second
lowest cost silver plan applicable to the largest portion of the county
as measured by total population. We sought comment on this approach.
---------------------------------------------------------------------------
\23\ Section 1331(d)(3)(A)(ii) of the PHS Act.
---------------------------------------------------------------------------
After consideration of comments and for the reasons outlined in the
proposed rule and this final rule, including our responses to comments,
we are finalizing this policy as proposed. We summarize and respond to
public comments received on the proposed clarification of the correct
premiums to use below.
Comment: Several commenters were supportive of the clarification
for which second lower cost silver plan premiums to use in these cases
for the purposes of calculating the Federal BHP payment.
Response: We appreciate these comments in support of the proposed
change.
Comment: Two commenters noted that in one State that has operated a
BHP, the State is using a different silver plan premium (the third
lowest cost silver plan premium) in cases when there are two or more
second lowest cost silver plan premiums in an area. Commenters noted
that using the proposed approach would present operational challenges
for the State. The commenters requested flexibility on this in the BHP
payment methodology.
Response: We appreciate the comments and understand that there may
be some operational issues; however, we believe that these issues can
be easily addressed, and we note that other BHP States have been able
to determine premiums in accordance with these requirements. In
addition, we do not believe there is any basis to use any premiums
other than the second lowest cost silver plans (even if there are two
or more in an area) for the purposes of the BHP payment methodology.
[[Page 4436]]
B. 45 CFR Part 153--Standards Related to Reinsurance, Risk Corridors,
and Risk Adjustment
In subparts A, B, D, G, and H of part 153, we established standards
for the administration of the risk adjustment program. The risk
adjustment program is a permanent program created by section 1343 of
the ACA that transfers funds from issuers of lower-than-average risk,
risk adjustment covered plans to issuers of higher-than-average risk,
risk adjustment covered plans in the individual, small group markets,
or merged markets, inside and outside the Exchanges. In accordance with
Sec. 153.310(a), a State that is approved or conditionally approved by
the Secretary to operate an Exchange may establish a risk adjustment
program or have HHS do so on its behalf.\24\ HHS did not receive any
requests from States to operate risk adjustment for the 2026 benefit
year. Therefore, HHS will operate risk adjustment in every State and
the District of Columbia for the 2026 benefit year.
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\24\ See also 42 U.S.C. 18041(c)(1).
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1. Sequestration
In accordance with the OMB Report to Congress on the Joint
Committee Reductions for Fiscal Year 2025, the HHS-operated risk
adjustment program is subject to the fiscal year 2025
sequestration.\25\ The Federal Government's 2025 fiscal year began on
October 1, 2024. Therefore, the HHS-operated risk adjustment program is
sequestered at a rate of 5.7 percent for payments made from fiscal year
2025 resources (that is, funds collected during the 2025 fiscal year).
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\25\ OMB. (2024). OMB Report to the Congress on the BBEDCA 251A
Sequestration for Fiscal Year 2025. <a href="https://www.whitehouse.gov/wp-content/uploads/2024/03/BBEDCA_251A_Sequestration_Report_FY2025.pdf">https://www.whitehouse.gov/wp-content/uploads/2024/03/BBEDCA_251A_Sequestration_Report_FY2025.pdf</a>.
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HHS, in coordination with OMB, has determined that, under section
256(k)(6) of the Balanced Budget and Emergency Deficit Control Act of
1985 (BBEDCA),\26\ as amended, and the underlying authority for the
HHS-operated risk adjustment program, the funds that are sequestered in
fiscal year 2025 from the HHS-operated risk adjustment program will
become available for payment to issuers in fiscal year 2026 without
further Congressional action. If the Congress does not enact deficit
reduction provisions that replace the Joint Committee reductions, the
program would be sequestered in future fiscal years, and any
sequestered funding would become available in the fiscal year following
that in which it was sequestered.
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\26\ Public Law 99-177, 99 Stat. 1037 (1985).
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Additionally, we note that the Infrastructure Investment and Jobs
Act \27\ amended section 251A(6) of the BBEDCA and extended
sequestration for the HHS-operated risk adjustment program through
fiscal year 2031 at a rate of 5.7 percent per fiscal year.\28\
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\27\ Public Law 117-58, 135 Stat. 429 (2021).
\28\ 2 U.S.C. 901a.
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One comment was received on this section of the proposed rule that
acknowledges the fiscal year 2025 sequestration rate. Therefore, after
consideration of this comment and for reasons outlined in the proposed
rule and this final rule, the HHS-operated risk adjustment program will
sequester payments made from fiscal year 2025 resources at a rate of
5.7 percent.
2. HHS Risk Adjustment (Sec. 153.320)
The HHS risk adjustment models predict plan liability for an
average enrollee based on that person's age, sex, and diagnoses (also
referred to as HCCs) producing a risk score. The State payment transfer
formula \29\ that is part of the HHS Federally certified risk
adjustment methodology utilizes separate models for adults, children,
and infants to account for clinical and cost differences in each age
group. In the adult and child models, the relative risk assigned to an
individual's age, sex, and diagnoses are added together to produce an
individual risk score. Additionally, to calculate enrollee risk scores
in the adult models, we added enrollment duration factors beginning
with the 2017 benefit year,\30\ and prescription drug categories (RXCs)
beginning with the 2018 benefit year.\31\ Starting with the 2023
benefit year, we removed the severity illness factors in the adult
models and added interacted HCC count factors (that is, additional
factors that express the presence of a severity or transplant HCC in
combination with a specified number of total payment HCCs or HCC groups
on the enrollee's record) to the adult and child models \32\ applicable
to certain severity and transplant HCCs.\33\
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\29\ The State payment transfer formula refers to part of the
Federally certified risk adjustment methodology that applies in
States where HHS is responsible for operating the program. The
formula calculates payments and charges at the State market risk
pool level (prior to the calculation of the high-cost risk pool
payment and charge terms that apply beginning with the 2018 benefit
year). See, for example, 81 FR 94080.
\30\ For the 2017 through 2022 benefit years, there was a set of
11 binary enrollment duration factors in the adult models that
decreased monotonically from 1 to 11 months, reflecting the
increased annualized costs associated with fewer months of
enrollments. See, for example, 81 FR 94071 through 94074. These
enrollment duration factors were replaced beginning with the 2023
benefit year with HCC-contingent enrollment duration factors for up
to 6 months in the adult models. See, for example, 87 FR 27228
through 27230.
\31\ For the 2018 benefit year, there were 12 RXCs, but starting
with the 2019 benefit year, the two severity-only RXCs were removed
from the adult models. See, for example, 83 FR 16941.
\32\ See Table 4 in the proposed rule for a list of draft
factors in the adult models, and Table 5 in the proposed rule for a
list of draft factors in the child models.
\33\ See 87 FR 27224-28. Also see Table 6 in the proposed rule.
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Infant risk scores are determined by inclusion in one of 25
mutually exclusive groups, based on the infant's maturity and the
severity of diagnoses. If applicable, the risk score for adults,
children, or infants is multiplied by a CSR adjustment factor. The
enrollment-weighted average risk score of all enrollees in a particular
risk adjustment covered plan (also referred to as the plan liability
risk score (PLRS)) within a geographic rating area is one of the inputs
into the State payment transfer formula, which determines the State
transfer payment or charge that an issuer will receive or be required
to pay for that plan for the applicable State market risk pool for a
given benefit year. Thus, the HHS risk adjustment models predict
average group costs to account for risk across plans, in keeping with
the Actuarial Standards Board's Actuarial Standards of Practice for
risk classification.
a. Data for HHS Risk Adjustment Model Recalibration for the 2026
Benefit Year
In the HHS Notice of Benefit and Payment Parameters for 2026
proposed rule (89 FR 82308, 82320 through 82321), we proposed to
recalibrate the 2026 benefit year HHS risk adjustment models with the
2020, 2021, and 2022 enrollee-level EDGE data. In the proposed rule, we
noted the history of recalibrating the risk adjustment models, the
transition to use of enrollee-level EDGE data for this purpose, and why
we use 3 years of blended data for recalibration.\34\ Given this
history and reasoning, we proposed to determine coefficients for the
2026 benefit year based on a blend of separately solved coefficients
from the 2020, 2021, and 2022 benefit years' enrollee-level EDGE data,
with the costs of services identified from the data trended between the
relevant year of data and the 2026 benefit year.\35\ We sought
[[Page 4437]]
comment on the proposal to determine 2026 benefit year coefficients for
the HHS risk adjustment models based on a blend of separately solved
coefficients from the 2020, 2021, and 2022 enrollee-level EDGE data.
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\34\ See 89 FR 82308, 82320-21.
\35\ As described in the 2016 Risk Adjustment White Paper
(<a href="https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf">https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf</a>) and the 2017
Payment Notice (81 FR 12218), we subdivide expenditures into
traditional drugs, specialty drugs, medical services, and preventive
services and determine trend factors separately for each category of
expenditure. In determining these trend factors, we consult our
actuarial experts, review relevant Unified Rate Review Template
submission data, analyze multiple years of enrollee-level EDGE data,
and consult National Health Expenditure Accounts (NHEA) data as well
as external reports and documents published by third parties. In
this process, we aim to determine trends that reflect changes in
cost of care rather than gross growth in expenditures. As such, we
believe the trend factors we used for each expenditure category for
the 2026 benefit year models are appropriate for the most recent
changes in cost of care that we have seen.
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After consideration of comments and for the reasons outlined in the
proposed rule and our responses to comments, we are finalizing the
approach to use the 2020, 2021 and 2022 enrollee-level EDGE data to
calculate the 2026 benefit year coefficients as proposed. We summarize
and respond to public comments received on the proposed enrollee-level
EDGE data to be used for HHS risk adjustment model recalibration for
the 2026 benefit year below. Because we were unable to complete the
calculations for the final coefficients in time to publish them in this
final rule, we will publish the final 2026 benefit year coefficients in
guidance after the publication of this final rule consistent with Sec.
153.320(b)(1)(i). We will release this guidance by the spring of 2025,
in time for rate setting for the 2026 benefit year.
Comment: A few commenters supported utilizing the 2020, 2021, and
2022 enrollee-level EDGE data to recalibrate the HHS risk adjustment
models for the 2026 benefit year as proposed. Other commenters opposed
or noted concern about using these years of enrollee-level EDGE data
due to concerns about the potential impact of the COVID-19 PHE on 2020
and 2021 benefit year enrollee-level EDGE data.
Response: We are finalizing the use of the 2020, 2021, and 2022
enrollee-level EDGE data to recalibrate the 2026 benefit year HHS risk
adjustment models as proposed. As described in the proposed rule (89 FR
82308, 82320) and detailed further below, our analyses found the 2020
and 2021 benefit year enrollee-level EDGE data is sufficiently similar
to prior years of enrollee-level EDGE data such that exclusion of these
data years from the risk adjustment model recalibration is not
warranted.
We recognize that if a benefit year of enrollee-level EDGE data has
significant changes that differentially impact certain conditions or
populations relative to others or is sufficiently anomalous relative to
expected future patterns of care, we should carefully consider what
impact that benefit year of data could have if it is used in the annual
recalibration of the HHS risk adjustment models.\36\ This includes
consideration of whether to exclude or adjust that benefit year of data
to increase the models' predictive validity or otherwise limit the
impact of anomalous trends. For this reason, as described in the 2026
Payment Notice proposed rule,\37\ we conducted extensive analysis on
the 2020 benefit year enrollee-level EDGE data to consider its
inclusion in the recalibration of the 2024 benefit year risk adjustment
models. For example, in the 2024 Payment Notice proposed rule \38\ and
final rule \39\ we discussed our analysis of the 2020 benefit year data
to identify possible impacts of the COVID-19 PHE.\40\ Likewise, when we
conducted recalibration of the 2025 benefit year risk adjustment
models, we conducted similar analyses on the 2021 benefit year
enrollee-level EDGE data as we did to the 2020 benefit year enrollee-
level EDGE data to examine the potential impact of the COVID-19
PHE.\41\ We did not find any notable anomalous trends, and determined
that deviations identified in 2020 or 2021 benefit year data were
within the expected level for any individual data year. Further, we
believe the blending of the coefficients from the separately solved
models for benefit years 2020 and 2021 with benefit year 2022 for
purposes of the 2026 benefit year model recalibration sufficiently
stabilizes any differences resulting from the COVID-19 PHE in the 2020
or 2021 datasets. As the 2020 and 2021 benefit years' enrollee-level
EDGE data used to recalibrate the 2025 benefit year risk adjustment
models are identical to the 2020 and 2021 enrollee-level EDGE data used
to recalibrate the 2026 benefit year risk adjustment models, the
analyses and conclusions discussed in prior rulemaking equally apply to
the recalibration of the risk adjustment models for the 2026 benefit
year.
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\36\ Since the start of model calibration for the HHS risk
adjustment models in benefit year 2014, the COVID-19 PHE has been
the only such situation to date. Other events and policy changes
have not risen to the same level of uniqueness or potential impact.
\37\ 89 FR 82308, 82320.
\38\ 87 FR 78214-18.
\39\ 88 FR 25749-54.
\40\ This analysis included assessing how the 2020 benefit year
enrollee-level EDGE recalibration data compares to 2019 benefit year
enrollee-level EDGE recalibration data.
\41\ See the 2025 Payment Notice Final Rule, 89 FR 26218, 26236-
37.
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Comment: One commenter noted decreases in the risk adjustment model
R-squared values for the 2022 benefit year enrollee-level EDGE data
relative to prior benefit years as presented in Table 10 of the
proposed rule.\42\ This commenter requested information regarding any
analysis HHS has conducted concerning the reduction in this model
performance statistic.
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\42\ 89 FR 82308, 82347.
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Response: First, as demonstrated by Table 10 of the proposed
rule,\43\ each individually solved model that contributes to the
blended HHS risk adjustment models has an R-squared statistic within
the expected range for concurrent claims-based risk scoring models \44\
such as the models used for the HHS-operated risk adjustment program.
Nevertheless, we are aware of and intend to continue monitoring the
slight decrease in the R-squared values for the HHS risk adjustment
models over the past few years of enrollee-level EDGE data which
indicates that the models are explaining slightly less of the variation
in plan liability for the 2022 benefit year enrollee-level EDGE data
compared to prior benefit years of enrollee-level EDGE data. In our
quality control assessments of the recalibration process for the
proposed draft 2026 benefit year coefficients, we explored two possible
explanations for this decrease in R-squared values--a shift in
enrollment and the presence of outlier enrollees with very high costs
in the enrollee-level EDGE data.
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\43\ See 89 FR 82308, 82347.
\44\ See Hileman, G., & Steele, S. (2016). Accuracy of Claims-
Based Risk Scoring Models. Society of Actuaries. <a href="https://www.soa.org/4937b5/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf">https://www.soa.org/4937b5/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf</a>.
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Our analysis found that the largest percentage decreases in R-
squared values between the 2022 benefit year and the 2019 (or 2020)
\45\ benefit year of enrollee-level EDGE data for adult enrollees were
for enrollees without HCCs, enrollees with only 1 month of enrollment,
and new enrollees (that is, enrollees new to an issuer, whose system
identifier was not present for the issuer in the prior year).\46\ We
interpret these results to be consistent with a hypothesis that new
enrollees and a greater proportion of relatively healthier enrollees in
2022 were partially
[[Page 4438]]
responsible for a decrease in model R-squared values between the 2022
benefit year and the 2019 through 2021 benefit years of enrollee-level
EDGE data, in that the R-squared value decreases are largest for
subgroups that are likely to contain more new enrollees or are
difficult to predict, for example, new enrollees to an issuer and
enrollees without HCCs.
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\45\ HHS was unable to incorporate an analysis of new enrollees
for the 2019 benefit year of enrollee-level of EDGE data at the time
of the analysis of R-squared changes. As such, R-squared changes for
new enrollees only considered the difference between 2020 benefit
year and 2022 benefit year R-squared values.
\46\ Ibid.
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Likewise, our analysis found that the removal of outlier enrollees
always resulted in an increase in R-squared values and the impacts were
notably higher for 2020, 2021, and 2022 enrollee-level EDGE data than
for 2019 enrollee-level EDGE data. We interpret these results to imply
that recent data years have exhibited more influential high-cost
enrollees. However, we do not see the presence of cost outliers in the
enrollee-level EDGE data to be problematic at this time because we
generally expect the number of cost outliers to vary from year to year,
and we did not find evidence that suggests a clear data error exists
related to any of these outliers.
In short, although we were able to identify likely contributing
factors to the observed slight decrease in R-squared values and will
continue to monitor the R-squared values in the future, the R-squared
values for 2026 benefit year risk adjustment model recalibration remain
high and within the expected range of R-squared values for the type of
model used for the HHS-operated risk adjustment program. We remain
confident the HHS risk adjustment models continue to operate
effectively and appropriately predict plan liability for an average
enrollee.
After consideration of comments and for the reasons outlined in the
proposed rule, this final rule, the 2024 Payment Notice, the 2025
Payment Notice,\47\ and our responses to comments above, we are
finalizing this approach as proposed. However, to account for the
incorporation of the human immunodeficiency virus (HIV) pre-exposure
prophylaxis (PrEP) affiliated cost factor (ACF) with the generic drug
exclusion and hierarchy specifications finalized in this rule, we were
unable to complete the calculations for the final coefficients in time
to publish them in this final rule. Therefore, consistent with Sec.
153.320(b)(1)(i), we are finalizing the use of the 2020, 2021 and 2022
enrollee-level data to calculate the 2026 benefit year coefficients and
will publish the final coefficients for the 2026 benefit year in
guidance after the publication of this final rule. We will release this
guidance in time for rate setting for the 2026 benefit year.
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\47\ See, supra, notes 22-24, and 26.
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b. Pricing Adjustment for the Hepatitis C Drugs
In the HHS Notice of Benefit and Payment Parameters for 2026
proposed rule (89 FR 82308, 82321), we proposed that beginning with the
2026 benefit year, we would begin phasing out the market pricing
adjustment \48\ to the plan liability associated with Hepatitis C drugs
in the HHS risk adjustment models and start trending Hepatitis C drugs
consistent with the other drugs \49\ in the HHS risk adjustment models.
Since the 2020 benefit year HHS risk adjustment models, we have
included a market pricing adjustment to the plan liability associated
with Hepatitis C drugs to reflect future market pricing prior to
solving for coefficients for the models.\50\ The purpose of this market
pricing adjustment was to account for significant pricing changes
between the data years used for recalibrating the models and the
applicable benefit year of risk adjustment as a result of the
introduction of new and generic Hepatitis C drugs.\51\ For the reasons
and history described in the proposed rule, we proposed to adopt a
multi-year phase out approach to transition the Hepatitis C drugs'
trending to move away from the current unique market pricing adjustment
for these drugs and align Hepatitis C drugs' trending with the trending
approach for specialty drugs.\52\ To begin this transition for the 2026
benefit year HHS risk adjustment models, we proposed to apply the
specialty drug trend to 1 year of trending Hepatitis C treatment costs
(that is, the trend from 2025 to 2026) for all 3 years of enrollee-
level EDGE data used in recalibration (that is, 2020, 2021, and 2022
enrollee-level EDGE data). As such, 2026 benefit year recalibration
data for Hepatitis C would reflect 1 year of growth in the cost of
treatment at the same rate as other specialty drugs. To continue the
transition of phasing out the Hepatitis C drug pricing adjustment in
future benefit years' annual model recalibration, we proposed to
annually increase the number of years for which we would use the
specialty drug trend and decrease the number of years that would use
the unique market pricing adjustment for Hepatitis C drugs. We proposed
to continue this approach until such time as all enrollee-level EDGE
data years used for the recalibration of the HHS risk adjustment models
are from benefit year 2025 or later, at which time the specialty drug
cost trend would be fully applied to Hepatitis C drug costs consistent
with other specialty drugs in the HHS risk adjustment models and we
would stop applying the separate market pricing adjustment for
Hepatitis C drugs as part of the annual model recalibration.
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\48\ For discussion relating to the Hepatitis C Pricing
Adjustment for previous benefit years, see, for example, 89 FR
26218, 26237-38.
\49\ See 81 FR 12204, 12218-19.
\50\ The Hepatitis C drugs market pricing adjustment to plan
liability is applied for all enrollees taking Hepatitis C drugs in
the data used for recalibration.
\51\ See Milligan, J. (2018). A perspective from our CEO: Gilead
Subsidiary to Launch Authorized Generics to Treat HCV. Gilead.
<a href="https://www.gilead.com/news-and-press/company-statements/authorized-generics-for-hcv">https://www.gilead.com/news-and-press/company-statements/authorized-generics-for-hcv</a>. See also AbbVie. (2017). AbbVie Receives U.S. FDA
Approval of MAVYRETTM (glecaprevir/pibrentasvir) for the Treatment
of Chronic Hepatitis C in All Major Genotypes (GT 1-6) in as Short
as 8 Weeks. Abbvie. <a href="https://news.abbvie.com/news/abbvie-receives-us-fda-approval-mavyret-glecaprevirpibrentasvir-for-treatment-chronic-hepatitis-c-in-all-major-genotypes-gt-1-6-in-as-short-as-8-weeks.htm">https://news.abbvie.com/news/abbvie-receives-us-fda-approval-mavyret-glecaprevirpibrentasvir-for-treatment-chronic-hepatitis-c-in-all-major-genotypes-gt-1-6-in-as-short-as-8-weeks.htm</a>. See also Silseth, S., & Shaw, H. (2021). Analysis of
prescription drugs for the treatment of hepatitis C in the United
States [White paper]. Milliman. <a href="https://www.milliman.com/-/media/milliman/pdfs/2021-articles/6-11-21-analysis-prescription-drugs-treatment-hepatitis-c-us.ashx">https://www.milliman.com/-/media/milliman/pdfs/2021-articles/6-11-21-analysis-prescription-drugs-treatment-hepatitis-c-us.ashx</a>.
\52\ See 89 FR 82308, 82321-23.
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We sought comment on our proposal to begin to phase out the
Hepatitis C drugs market pricing adjustment and trend Hepatitis C drugs
consistent with other specialty drugs starting with the annual
recalibration of the 2026 benefit year HHS risk adjustment models.
After consideration of comments and for the reasons outlined in the
proposed rule and this final rule, including our responses to comments,
we are finalizing this policy as proposed. We summarize and respond to
public comments received on the proposal to begin to phase out the
market pricing adjustment for Hepatitis C drugs starting with the 2026
benefit year below.
Comment: Many commenters supported the proposal to begin to phase
out the market pricing adjustment and trend Hepatitis C drugs
consistent with other specialty drugs starting with the annual
recalibration of the 2026 benefit year HHS risk adjustment models. Many
of these commenters agreed with HHS' assessment that the cost trend for
Hepatitis C drugs has begun to rise alongside the expected cost of
other specialty drugs. A couple of commenters recommended close
monitoring of costs and utilization of Hepatitis C drugs to ensure that
access to these drugs is not interrupted for enrollees.
Response: We are finalizing the phasing out of the market pricing
adjustment for Hepatitis C drugs starting with the 2026 benefit year as
proposed. We agree with commenters that the cost
[[Page 4439]]
trend for Hepatitis C drugs has changed and resulted in the need to
reexamine the treatment of these drugs in the HHS risk adjustment
models, including consideration of phasing out the market pricing
adjustment for these drugs. We also note that the policy adopted in
this final rule to phase out the market pricing adjustment for these
drugs will allow Hepatitis C drug costs to increase as appropriate
alongside other specialty drugs in the simulation of plan liability
used for annual HHS risk adjustment model recalibration. Starting this
transition beginning with the 2026 benefit year and appropriately
accounting for price increases of Hepatitis C drugs in the HHS risk
adjustment models alongside other specialty drugs in the simulation of
plan liability responds to these observed emerging trends and will
better reflect the actuarial risk of an issuer's population, especially
for issuers that attract a large number of enrollees using Hepatitis C
drugs, helping to prevent adverse selection and the associated perverse
incentives. As such, we are finalizing the policy to begin phasing out
of the Hepatitis C market pricing adjustment starting with the 2026
benefit year recalibration of the HHS risk adjustment models as
proposed, but we will also continue to monitor costs and utilization of
drugs, including Hepatitis C drugs, as part of our ongoing efforts to
examine ways to continually improve the HHS risk adjustment models for
future benefit years.
Comment: One commenter requested that HHS continue to review the
costs associated with specialty drugs and consider whether market
pricing adjustments may be warranted for GLP-1 drugs, gene therapies,
or other unique, high-cost drugs that may drive the cost of treating a
particular condition in a given benefit year significantly higher than
those reflected in the enrollee-level EDGE data years used in
recalibration for that benefit year. One commenter noted recently
available expensive gene therapies for sickle cell disease as an
example of this phenomenon and requested that HHS consider a market
pricing adjustment for sickle cell disease treatments.
Response: We did not propose to change the treatment of high-cost
drugs, such as GLP-1 drugs, sickle cell disease treatments, or other
gene and cellular therapies, in the 2026 benefit year HHS risk
adjustment models and are not finalizing such updates in this final
rule. As we discussed in the 2022 Payment Notice \53\ and 2025 Payment
Notice,\54\ we recognize that the data used to recalibrate the HHS risk
adjustment models lag by several benefit years behind the applicable
benefit year for risk adjustment and therefore may not account for the
costs of new, expensive drugs, such as gene therapy drugs, that are
expected to be available in the market by the applicable benefit year
of risk adjustment. Thus, we continue to consider ways that we could
better account for high-cost drugs in the risk adjustment models and,
as part of this effort, analyze new data as they become available.
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\53\ See 86 FR 24140, 24163.
\54\ See 89 FR 26218, 26247-48.
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With specific regard to new gene therapies for sickle cell disease,
when we were previously analyzing the changes to the sickle cell
disorder related HCCs in the 2025 benefit year risk adjustment
models,\55\ we considered whether to add an RXC for existing high-cost
sickle cell drugs and new gene therapy treatments, but determined that
we need to continue to analyze the evolution and availability of drug
treatments for sickle cell disease. Specifically, the new gene therapy
drugs for sickle cell disease were not approved for the market until
December 2023.\56\ Therefore, the first full year of claims data in
which these new sickle cell disease treatments may be reflected will
not be available until the 2024 benefit year enrollee-level EDGE data
is available. We therefore continue to find that we do not have enough
information at the present time to account for these treatments in the
HHS risk adjustment models because of the general lack of data on the
utilization and cost of gene therapy drugs for sickle cell disease in
the individual, small group, and merged markets. We are committed to
continuing to analyze new data as they become available and, consistent
with Sec. 153.320(b)(1), we would propose the addition of any market
pricing adjustments or other changes to the risk adjustment models to
account for these treatments through notice-and-comment rulemaking, as
appropriate. We also note that if an enrollee in an issuer's risk
adjustment covered plan has claims for gene therapy, other high-cost
drugs, or other expensive treatments, that enrollee would be eligible
for the high-cost risk pool payments if claims for that enrollee are
over $1 million.\57\
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\55\ Ibid.
\56\ See <a href="https://www.fda.gov/news-events/press-announcements/fda-approves-first-gene-therapies-treat-patients-sickle-cell-disease">https://www.fda.gov/news-events/press-announcements/fda-approves-first-gene-therapies-treat-patients-sickle-cell-disease</a>.
\57\ For example, the new sickle cell gene therapy treatments
are expected to exceed the high-cost risk pool payment threshold.
See, DeMartino P, Haag MB, Hersh AR, Caughey AB, Roth JA. A Budget
Impact Analysis of Gene Therapy for Sickle Cell Disease: The
Medicaid Perspective. JAMA Pediatr. 2021 Jun 1;175(6):617-623. doi:
10.1001/jamapediatrics.2020.7140. Erratum in: JAMA Pediatr. 2021 Jun
1;175(6):647. PMID: 33749717; PMCID: PMC7985816. Accessed at <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7985816/">https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7985816/</a>.
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Considering the absence of adequate data, we did not propose and
are not finalizing a new market pricing adjustment or other model
adjustments for sickle cell gene therapy drugs for the 2026 benefit
year. We intend to continue to assess sickle cell gene therapy drugs
and other high-cost drugs to consider whether model updates for future
benefit years are warranted.
We also intend to work with interested parties to continue to
analyze plan liability for sickle cell disease and the impact of gene
and cell therapy treatments, as well as explore the availability of
alternative data sources that could be used to monitor utilization and
costs outside of currently available enrollee-level EDGE data.
As explained in the 2025 Payment Notice (89 FR 26249), we also
recently examined the treatment of GLP-1 drugs in the HHS risk
adjustment models using the 2022 benefit year enrollee-level EDGE data
and found that, at this time, a change was not warranted to the current
mapping of GLP-1 drugs to RXC 07 (Anti Diabetic Agents, Except Insulin
and Metformin Only).\58\ We understand GLP-1 drug utilization patterns
are changing and will continue to assess these trends as additional
benefit years of enrollee-level EDGE data become available for
potential targeted refinements to the HHS risk adjustment models in
future benefit years, as appropriate.
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\58\ As background, RXC 07 (Anti Diabetic Agents, Except Insulin
and Metformin Only) is a pharmacotherapeutic class of drugs, which
contains a broad array of anti-diabetic medications that vary in
cost. RXC 07 (Anti Diabetic Agents, Except Insulin and Metformin
Only) does not include all GLP-1 drugs currently on the market;
drugs that carry an FDA indication for chronic weight management are
excluded from RXC 07 (Anti Diabetic Agents, Except Insulin and
Metformin Only). The RXC 07 (Anti Diabetic Agents, Except Insulin
and Metformin Only) coefficient in the HHS risk adjustment adult
models is meant to reflect the average enrollee cost for individuals
being treated by any of the drugs in this class.
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Comment: One commenter requested additional information on how HHS
defines generic and specialty drugs and what trend assumptions HHS uses
for each of these two categories, asserting that this information would
help interested parties better evaluate the proposal to begin to phase
out the Hepatitis C market pricing adjustment against costs experienced
by issuers.
Response: Since the 2017 benefit year, we have subdivided
expenditures into traditional drugs, specialty drugs, medical services,
and preventive
[[Page 4440]]
services and determine trend factors separately for each category of
expenditure.\59\ In determining these trend factors, we consult our
actuarial experts, review relevant URRT submission data, analyze
multiple years of enrollee-level EDGE data, and consult NHEA data as
well as external reports and documents \60\ published by third parties.
As described in the 2024 Payment Notice,\61\ in this process, we aim to
determine trends that reflect changes in cost of care rather than gross
growth in expenditures. We believe the trend factors we used for each
expenditure category for the 2026 benefit year are appropriate for the
most recent changes in cost of care that we have seen in the market. We
further note that, for the purposes of annual risk adjustment model
recalibration activities, our definitions of what drugs qualify as
either traditional (for example, low-cost and generic drugs) or
specialty are also informed by consultations with actuarial experts and
by reviewing price data for these drugs. Specific thresholds and
criteria may vary according to the class of drugs or the conditions
they are intended to treat, but we generally use the Part D specialty-
tier cost threshold, which is updated periodically, to differentiate
between traditional and specialty drugs.\62\
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\59\ See 81 FR 12218. See also the 2016 Risk Adjustment White
Paper, available at: <a href="https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf">https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf</a>.
\60\ See, for example, ``How much is health spending expected to
grow?'' by the Peterson-Kaiser Family Foundation, available at
<a href="https://www.healthsystemtracker.org/chart-collection/how-much-is-health-spending-expected-to-grow/">https://www.healthsystemtracker.org/chart-collection/how-much-is-health-spending-expected-to-grow/</a>. See also ``Medical cost trend:
Behind the numbers 2024'' by PwC Health Research Institute,
available at <a href="https://www.pwc.com/us/en/industries/health-industries/library/assets/pwc-behind-the-numbers-2024.pdf">https://www.pwc.com/us/en/industries/health-industries/library/assets/pwc-behind-the-numbers-2024.pdf</a>. See also ``MBB
Health Trends 2024'' by MercerMarsh Benefits, available at <a href="https://www.marsh.com/na/services/employee-health-benefits/insights/health-trends-report.html">https://www.marsh.com/na/services/employee-health-benefits/insights/health-trends-report.html</a>.
\61\ See 88 FR 25740, 25754-55.
\62\ For example, the specialty-tier cost threshold specified in
the Contract Year (CY) 2023 Final Part D Bidding Instructions
(available at: <a href="https://www.cms.gov/files/document/2023partdbiddinginstructions.pdf">https://www.cms.gov/files/document/2023partdbiddinginstructions.pdf</a>) will be used to divide
prescription drug claims into traditional versus specialty drugs for
2023 enrollee-level EDGE data when they become available.
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After consideration of comments and for the reasons outlined in the
proposed rule and this final rule, including our responses to comments
above, we are finalizing the proposal to begin phasing out the market
pricing adjustment for Hepatitis C drugs starting with the 2026 benefit
year, as proposed. However, to account for the incorporation of the
PrEP ACF with the generic drug exclusion and hierarchy specifications
finalized in this final rule, we were unable to complete the
calculations for the final coefficients in time to publish them in this
final rule. Therefore, consistent with Sec. 153.320(b)(1)(i), we will
publish the final coefficients for the 2026 benefit year in guidance
after the publication of this final rule. We will release this guidance
in time for rate setting for the 2026 benefit year.
c. Inclusion of Pre-Exposure Prophylaxis (PrEP) in the HHS Risk
Adjustment Adult and Child Models as an Affiliated Cost Factor (ACF)
In the HHS Notice of Benefit and Payment Parameters for 2026
proposed rule (89 FR 82308, 82323), we proposed to incorporate human
immunodeficiency virus (HIV) pre-exposure prophylaxis (PrEP) as a
separate, new type of factor called an Affiliated Cost Factor (ACF) in
the HHS risk adjustment adult and child models starting with the 2026
benefit year. As proposed, the change would reflect an evolution in our
approach to defining the factors used in the HHS risk adjustment models
to include a factor that is not indicative of an active medical
condition and would change our current policy that models the costs of
PrEP alongside other preventive services.
As explained in the proposed rule (89 FR 82324), as a general
principle, we currently incorporate preventive services (including PrEP
\63\) into the HHS risk adjustment models to ensure that 100 percent of
the cost of those services are reflected in the simulation of plan
liability. In the simulation of plan liability, services are only
counted as preventive when they occur in the recommended circumstances
(for example, age) to the extent we can identify such circumstances
from enrollee-level EDGE data. In addition to PrEP drugs, like other
preventive services,\64\ ancillary services related to PrEP care (for
example, HIV screenings) qualify as preventive services and as such are
also currently calibrated at 100 percent plan liability in the
recalibration of the HHS risk adjustment adult and child models.\65\
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\63\ See 85 FR 28164, 29185-87.
\64\ For example, colonoscopies typically require a combination
of several services between the drugs needed for the colonoscopy and
the professional and institutional claims for the visit and
procedure itself. Likewise, contraception coverage often requires a
doctor's visit to obtain a prescription for the contraception.
\65\ See 86 FR 24140, 24164.
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However, as a part of our commitment to consider ways to
continually improve the HHS risk adjustment models, we continued to
monitor and assess different ways to more accurately assess the
actuarial risk and costs associated with PrEP in the HHS risk
adjustment models. In this regard, we stated in the proposed rule (89
FR 82324) that because of PrEP's high costs relative to other
preventive services, PrEP services can pose a unique risk of adverse
selection to the extent that utilization of PrEP services differs
between plans. Our analysis of 2022 benefit year enrollee-level data
\66\ found that the costs of PrEP services remained high, in contrast
to our initial assumptions about expected pricing decreases as generics
entered the market, and that there are statistically significant,
substantial differences in PrEP prevalence between issuers in rating
areas where PrEP use is most common, indicating that the addition of a
PrEP factor in the adult and child risk adjustment models would be
appropriate and would have a meaningful impact on risk adjustment State
transfers. Our analysis also found that other considerations that
helped inform the current approach (such as the expected decrease in
costs as generics entered the market and gained market share) have not
addressed the uniquely high costs of PrEP as a preventive service as we
previously expected. For these reasons, we proposed to incorporate a
non-RXC and non-HCC model factor for PrEP in the HHS risk adjustment
adult and child models to capture differences in costs for PrEP
utilizers relative to the average enrollee. To signify that the
proposed new factor would not indicate the presence of a specific
active medical condition, we referred to the proposed new type of
factor as an ``affiliated cost factor'' (ACF), thereby distinguishing
this new type of factor from RXCs and HCCs. Furthermore, we proposed a
set of seven principles to guide our development of any new ACF
variable.
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\66\ Prior to the 2021 Benefit Year, Plan ID and Rating Area
were not included as part of the enrollee-level data extracted from
issuers' EDGE data submissions. As finalized in the 2023 Payment
Notice (87 FR 27208, 27241-51), we now extract these fields as part
of the enrollee-level EDGE dataset and are able to include them in
our analyses. As such, this recent analysis reflects our earliest
opportunity to reliably detect differences in prevalence within
rating areas for any medical and prescription drug expenditures,
including PrEP.
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We stated in the proposed rule (89 FR 82324) that in developing an
ACF variable reflecting PrEP, we considered whether PrEP satisfies
those principles and what approaches were necessary to appropriately
balance all seven principles. As described in the proposed rule, a PrEP
ACF would easily satisfy the principles of clinical meaningfulness and
specificity,
[[Page 4441]]
meaningful and predictable costs,\67\ sufficient sample size, and low
risk of inappropriate prescribing. However, we also stated in the
proposed rule that that the creation of a PrEP ACF variable would
require further careful consideration in assessing the other three
proposed principles: specifically, the principles of hierarchical
factor definitions, monotonicity, and mutually exclusive
classification.
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\67\ As discussed later in this section, it may be appropriate
to remove generic drugs to ensure homogeneity of costs within a PrEP
ACF.
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We stated in the proposed rule (89 FR 82327) that to address the
HHS risk adjustment adult modeling concerns we identified regarding
these three principles; we considered two alternative approaches.
First, we could modify the current definition of RXC 1 (Anti-HIV
Agents) by treating PrEP NDCs as RXC 1 NDCs in limited circumstances
based on individual enrollee characteristics. Operationally, to capture
these cases, the adult enrollees with a PrEP prescription claim would
receive the RXC 1 flag instead of the ACF only in cases where the
enrollee has both a PrEP prescription claim and an HIV diagnosis but
does not have a typical RXC 1 prescription claim because the enrollee
did not begin treatment for HIV, or because their treatment medication
was provided at no cost to the issuer and therefore no claim was
submitted to the issuer's EDGE server. Alternatively, we explained we
could place the PrEP ACF in a hierarchy with RXC 1 but define no
hierarchical restrictions between PrEP and HCC 1 (HIV/AIDS). This
alternative would allow adult enrollees without RXC 1 to receive the
PrEP ACF along with HCC 1 in cases where the enrollee has both a PrEP
prescription claim and an HCC 1 diagnosis in their medical records for
the benefit year. We solicited comments on addressing these hierarchy,
monotonicity, and mutual exclusivity concerns, and both alternative
approaches designed to address those concerns.
We also sought comment on our proposal to create a new ACF category
of model factors for incorporation into the HHS risk adjustment models
to account for unique medical expenses or services (such as PrEP) that
do not meet the criteria to qualify as HCC or RXC factors, but impact
the actuarial risk presented to issuers of risk adjustment covered
plans. In addition, we sought comment on our proposal to modify the
treatment of PrEP in the HHS risk adjustment adult and child models
beginning with the 2026 benefit year, as well as how to
methodologically define a potential ACF category of model factors that
accounts for PrEP (or other unique medical expenses or services) and
what other considerations should be part of the analysis and modeling
for this proposed new category of model factors (such as the
availability of drug rebates \68\ or differences in medication
adherence for PrEP). Furthermore, we sought comment regarding the
principles to guide inclusion of potential ACF factors and the
alternative approaches for defining a PrEP ACF's hierarchical
relationship to HCC 1 and RXC1 to address the concerns related to
hierarchical factor definitions, violations of monotonicity, and
violations of mutually exclusive classification in the HHS risk
adjustment adult models.
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\68\ For example, we believe there are likely substantial
rebates for Descovy that are not captured in issuers' EDGE data
submissions. See, for example, Dickson, S., Gabriel, N., and
Hernandez, I. Estimated changes in price discounts for tenofovir-
inclusive HIV treatments following introduction of tenofovir
alafenamide. AIDS. 2022 Dec 1;36(15):2225-2227. doi: 10.1097/
QAD.0000000000003401. See, also, Krakower, D. and Marcus, J.L.
Commercial Determinants of Access to HIV Preexposure Prophylaxis.
JAMA Network Open. 2023;6(11):e2342759. doi: 10.1001/
jamanetworkopen.2023.42759. See, also, McManus, K.A., et al.
Geographic Variation in Qualified Health Plan Coverage and Prior
Authorization Requirements for HIV Preexposure Prophylaxis. JAMA
Network Open. 2023;6(11):e2342781. doi: 10.1001/
jamanetworkopen.2023.42781.
---------------------------------------------------------------------------
Additionally, we solicited comments on whether generic versions of
PrEP medication should be excluded from the definition of the proposed
ACF for PrEP. As we stated in the proposed rule (89 FR 82326), we found
that a large disparity exists between the costs of generic PrEP
medication and the costs of brand name PrEP medication.\69\ We
explained that due to this disparity, if we include all PrEP
medications in the definition of an ACF, the estimated coefficient
would likely lead to overprediction for enrollees receiving generic
medications and underprediction for enrollees receiving brand name
medications. Therefore, an exclusion of low-cost generics from the PrEP
ACF could improve predictions for enrollees receiving either generic or
brand name PrEP medication and has precedent in our adoption of other
factors in the HHS risk adjustment models.\70\
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\69\ See, supra, note 53.
\70\ We previously excluded generic drugs from RXC 9, Immune
Suppressants and Immunomodulators, due to concern over patient
access and health plan selection behavior. See the 2019 Payment
Notice (83 FR 16942).
---------------------------------------------------------------------------
Lastly, we sought comment concerning whether there are any similar
medical expenses or services that we should consider for potential new
ACFs alongside PrEP.
After consideration of comments and for the reasons outlined in the
proposed rule and this final rule, including our responses to comments,
we are finalizing the addition of PrEP as an ACF in the HHS risk
adjustment adult and child models, but are excluding generic versions
of PrEP from the ACF at this time, and are placing the PrEP ACF in the
adult models in a hierarchy below RXC 1 (Anti-HIV Agents) without
defining any hierarchical relationship between the PrEP ACF and HCC 1
(HIV/AIDS). In the child models, which do not contain RXCs, we are
finalizing the placement of the PrEP ACF in a hierarchy with HCC 1. We
summarize and respond to public comments received on the proposed
addition of PrEP as an ACF in the HHS risk adjustment adult and child
models starting with the 2026 benefit year below.
Comment: Many commenters supported the proposal to add PrEP to the
HHS risk adjustment adult and child models as an ACF. Many of these
commenters noted agreement with HHS' determination that PrEP presents a
unique risk of adverse selection among preventive services and that the
addition of PrEP to the HHS risk adjustment adult and child models
would mitigate perverse incentives for issuers to minimize their
exposure to enrollees who can benefit from PrEP despite the mandate to
cover preventive services with no enrollee cost sharing. Several
commenters stated that this addition to the HHS risk adjustment adult
and child models will better align issuers' incentives with the public
health benefit of preventing HIV transmission. A few commenters
acknowledged that PrEP may be appropriate to include in the HHS risk
adjustment adult and child models but noted doubt that a new class of
factors (that is, ACFs) was necessary.
Response: We agree with commenters that PrEP should be properly
represented in the HHS risk adjustment adult and child models to
mitigate the potential for adverse selection and appreciate the support
for the addition of a new PrEP ACF to these models beginning with the
2026 benefit year. As explained in the proposed rule (89 FR 82308,
82323-24), we believe that creating a new class of factors is necessary
and appropriate at this time to capture actuarial risks and costs that
may contribute to adverse selection but are not indicative of an active
medical condition, as is the case with PrEP, and therefore would not be
reflected in the
[[Page 4442]]
HCC and RXC factors used in the HHS risk adjustment models.
Although this new ACF class of model factors is guided by similar
principles \71\ for inclusion as the existing RXC class of model
factors,\72\ we feel that it is conceptually appropriate to distinguish
between these two classes. As stated in the 2018 Payment Notice,\73\
RXCs were specifically incorporated into the HHS risk adjustment models
as separate factors from HCCs (which indicate the presence of a
diagnosis directly) to impute a missing diagnosis or indicate severity
of a diagnosis. Because the PrEP ACF (and any potential future ACFs)
are not intended to be related to a diagnosis for any medical
condition, we believe it is appropriate to distinguish such model
factors from RXCs and HCCs.
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\71\ See 89 FR 82308, 82324-31.
\72\ See 81 FR 94058, 94074-80. See also the 2016 HHS Risk
Adjustment White Paper. Available at <a href="https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf">https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf</a>.
\73\ Ibid. See also the March 31, 2016, HHS-Operated Risk
Adjustment Methodology Meeting Questions & Answers. June 8, 2016.
Available at <a href="https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf">https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf</a>.
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Comment: One commenter opposed the proposal to add PrEP to the HHS
risk adjustment adult and child models as an ACF on the basis that the
commenter believes including PrEP in the HHS risk adjustment adult and
child models is discriminatory, expressing a belief that risk
adjustment and the assignment of risk scores to enrollees based on
health conditions is discriminatory in general.
Response: HHS takes seriously our obligation to protect individuals
from discrimination and generally disagrees that the use of factors
based on enrollees' age, sex, and health conditions or utilization of
services and treatments in risk adjustment is inappropriate. Consistent
with section 1343 of the ACA, the HHS-operated risk adjustment program
reduces the incentives for issuers to avoid higher-than-average risk
enrollees, such as those with chronic conditions, by using charges
collected from issuers that attract lower-than-average risk enrollees
to provide payments to health insurance issuers that attract higher-
than-average risk enrollees. The ACA limits issuers' ability to
establish or charge premiums on the basis of age and prohibits issuers'
ability to do so on the basis of sex or any individual health
characteristic other than tobacco use.\74\ However, the cost of care
for and actuarial risk of enrollees is, in part, correlated with their
age, sex, health conditions (or severity thereof), and likelihood to
utilize services and treatments. As such, without the inclusion of
factors related to age, sex, health conditions, and use of services and
treatments in the HHS risk adjustment models, some issuers would be
incentivized to design plans that are less attractive to potential
enrollees whose age-sex category, health conditions, or use of services
and treatments is predicted to create a higher liability for the
issuer. The various factors in the HHS risk adjustment models help
alleviate this incentive by ensuring that the actuarial risk of an
issuers' enrollee population in a State market risk pool, including
issuers that enroll a higher-than-average proportion of enrollees who
fall into a high-cost age-sex category or are likely utilizers of high-
cost preventive services (PrEP, for example), are appropriately
assessed as part of the calculations under the State payment transfer
formula. The use of factors associated with age, sex, health
conditions, and the use of services and treatments (including expensive
preventive services, such as PrEP) in the HHS risk adjustment models is
therefore necessary, appropriate, and helps reduce the likelihood that
discrimination based on any of these factors will occur with respect to
health insurance coverage issued or renewed in the individual and small
group (including merged) markets.
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\74\ See section 2701 of the Public Health Service Act (42
U.S.C. 300gg) as amended by section 1201 of the ACA. See also the
Market Rules and Rate Review final rule (78 FR 13406, 13411-13).
---------------------------------------------------------------------------
Comment: One commenter opposed the proposal due to concerns that
the addition of ACFs would increase risk adjustment model complexity. A
few commenters urged caution in implementing the proposal or requested
that HHS implement the addition of the PrEP ACF on a pilot basis. A few
commenters requested a technical paper be published on the ACF concept.
Response: We appreciate commenters' interest in carefully
considering the impact of the addition of a PrEP ACF to the HHS risk
adjustment adult and child models. We will continue to monitor the
performance of the HHS risk adjustment models, including the impact of
the new PrEP ACF. Although the HHS risk adjustment models are made more
complex by the addition of any new model factor, we believe that the
seven principles for considering new ACFs discussed in the proposed
rule,\75\ as well as the existing principles for consideration of HCCs
\76\ and RXCs,\77\ are sufficient to ensure that new model factors are
only added when appropriate. In particular, we note that the addition
of the PrEP ACF satisfies the principles of clinical meaningfulness and
specificity, meaningful and predictable costs, sufficient sample size,
and low risk of inappropriate prescribing. Therefore, we determined
that the addition of the PrEP ACF is likely to improve the predictive
validity of the models with respect to the portion of the enrollee
population that are eligible for PrEP. With the specifications
finalized in this rule to address the principles of hierarchical factor
definitions, monotonicity, and mutually exclusive factor definitions,
we believe that the benefits of adding a new PrEP ACF outweighs the
concerns about model complexity. In addition, our recent analysis of
2022 benefit year enrollee-level EDGE data confirmed there is
sufficiently robust data to justify the addition of the PrEP ACF and
calculate its coefficients for the HHS risk adjustment adult and child
models beginning with the 2026 benefit year such that a pilot period
for the PrEP ACF is unnecessary.
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\75\ See 89 FR 82308, 82325-27.
\76\ See the 2014 Payment Notice Proposed Rule (77 FR 73118,
73128) and the 2014 Payment Notice Final Rule (78 FR 15410, 15420).
See also Kautter, J. et al (2014). The HHS-HCC Risk Adjustment Model
for Individual and Small Group Markets under the Affordable Care
Act. Medicare and Medicaid Research Review, 4(3). Available at:
<a href="https://www.cms.gov/mmrr/Downloads/MMRR2014_004_03_a03.pdf">https://www.cms.gov/mmrr/Downloads/MMRR2014_004_03_a03.pdf</a>. See also
the 2016 HHS Risk Adjustment White Paper (available at: <a href="https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf">https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf</a>) and the 2021 RA
Technical Paper (available at: <a href="https://www.cms.gov/files/document/2021-ra-technical-paper.pdf">https://www.cms.gov/files/document/2021-ra-technical-paper.pdf</a>).
\77\ See the 2018 Payment Notice Proposed Rule (81 FR 61456,
61470-71) and the 2018 Payment Notice Final Rule (81 FR 94058,
94075-80).
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As always, as part of our ongoing efforts to continually improve
the precision of the HHS risk adjustment models, we will seek input
from interested parties through notice-and-comment rulemaking or other
appropriate vehicles (including technical papers, as appropriate) on
potential changes to the HHS risk adjustment models, including any
potential new ACFs we may consider in the future. However, in light of
the rationale and data discussed in the proposed rule, and in response
to the comments in support of adding the PrEP ACF to the HHS risk
adjustment adult and child models beginning with the 2026 benefit year,
we do not believe a technical paper is warranted before finalizing the
addition of the PrEP ACF to the HHS risk adjustment adult and child
models.
[[Page 4443]]
Comment: Several commenters expressed a preference for excluding
generic drugs from the definition of the PrEP ACF, noting the vast
difference in prices between brand name and generic drugs. One
commenter noted that their experience showed that prices for brand name
PrEP drugs can be as much as 100 times the cost of generic PrEP drugs.
A few commenters stated that excluding generics would better support
patients as advances in PrEP come to market, with a few commenters
specifically noting that newer branded forms of PrEP drugs that are
more effective, more tolerable, and long-acting will likely be the
predominant form of PrEP in the near future. Furthermore, a few
commenters were concerned that including generics in the PrEP ACF
definition would overcompensate plans that prescribe more generics than
average or would otherwise contribute to adverse selection incentives.
Several other commenters noted a preference for generic drugs to be
included in the definition of the PrEP ACF on the basis that excluding
generics may incentivize prescription of brand name drugs and
inefficient care patterns. A few of these commenters noted that issuers
are likely receiving considerable manufacturer rebates for PrEP that
may not be reflected in the enrollee-level EDGE data that HHS uses for
risk adjustment model recalibration.
One commenter who supported the exclusion of generics requested
that step-therapy requirements be instituted for PrEP drugs that have
both a generic and brand name formulation. A few commenters noted an
interest in splitting the PrEP ACF into two ACFs according to brand
name/generic status or based on oral/injectable form.
Response: We appreciate the comments and agree with the position
that the vast difference in costs between brand name and generic PrEP
drugs warrants an exclusion for generic drugs from the definition of
the PrEP ACF. Although excluding generic drugs from the definition of a
model factor may, in many cases, encourage the prescription of brand
name drugs over generic drugs and encourage inefficient care patterns,
we do not believe this is especially likely in the case of PrEP due to
the very large difference in price between the only generic form of
PrEP available on the market and the multiple brand name forms
available. Moreover, we are concerned that the inclusion of generic
drugs would lead to an overpayment for coverage of generic drugs and an
underpayment for coverage of brand name drugs, potentially
incentivizing issuers to limit access to brand name drugs. Because
there is presently only one form of generic PrEP available on the
market (a daily oral regimen), barriers to accessing brand name drugs,
including step-therapy requirements, would only limit access to newer
and more tolerable formulations, including long-acting injectable forms
of PrEP. Additionally, step-therapy requirements would be inconsistent
with recently released guidance relating to coverage of preventive
services under section 2713 of the PHS Act specifying that issuers must
cover, without cost sharing, all three FDA-approved PrEP formulations
(two oral and one injectable) and are not permitted to use medical
management techniques to direct individuals prescribed PrEP to utilize
one formulation over another.\78\ As such, to further limit the
influence of perverse incentives, to align with the recent guidance,
and in recognition of the very large difference in price between
generic and brand name forms of PrEP, beginning with the 2026 benefit
year, we are finalizing the addition of the PrEP ACF to the HHS risk
adjustment adult and child models with an exclusion of generic versions
of PrEP medication from the definition of the PrEP ACF. We will
continue to monitor the impact of the new PrEP ACF, as well as the cost
and utilization of PrEP drugs in the market, and may consider
alterations to the new PrEP ACF if the prices of generic and brand name
forms of PrEP become more comparable, additional generic forms of PrEP
enter the market, or we observe market distortions or other impacts
resulting from the addition of the new PrEP ACF to the adult and child
models that should be addressed.
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\78\ See <a href="https://www.cms.gov/files/document/faqs-implementation-part-68.pdf">https://www.cms.gov/files/document/faqs-implementation-part-68.pdf</a>.
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We may also consider the potential addition of a separate generic
drug PrEP ACF in the future, but would need to consider whether the
inclusion of an ACF for generic drugs would satisfy the principles
finalized in this rule to guide the adoption of potential additional
ACFs in the future. In particular, we would need to consider whether a
generic drug PrEP ACF would satisfy the principle of meaningful and
predictable costs (Principle 2), as the cost of the generic version of
PrEP currently available on the market is fairly low and may not
produce a meaningful coefficient if incorporated into the HHS risk
adjustment adult and child models. As part of this future analysis, we
may also consider whether a distinction between oral and injectable
PrEP is warranted. However, we note that the annual costs of brand name
oral and injectable forms are currently similar and that the only
generic form of PrEP currently available is an oral form. Therefore,
the splitting of the PrEP ACF into oral and injectable forms may still
necessitate the exclusion of generic PrEP due to the cost disparity
between the generic and brand name oral forms, which would continue to
lead to overprediction for the generic form, incentivizing issuers to
use medical management techniques to direct individuals prescribed oral
PrEP to utilize the generic oral formulation over other branded oral
forms that may have fewer side effects or otherwise be more appropriate
for the enrollee. We would seek input from interested parties through
notice-and-comment rulemaking or other appropriate vehicles on any such
potential changes.
Regarding the comments related to manufacturer rebates, we
acknowledge that manufacturer rebates are common and may impact drug
prices for a wide variety of prescription drugs.\79\ We note that
issuers are currently instructed that they do not need to adjust the
reported Plan Paid Amount to reflect manufacturer rebates in the data
made available to HHS through issuers' EDGE servers.\80\ As such, using
enrollee-level EDGE data to precisely account for manufacturer rebates
for any prescription drugs in the HHS risk adjustment adult and child
models may necessitate changes to issuers' data submission practices.
We continue to consider these issues and different ways to potentially
account for these rebates in the HHS risk adjustment models in future
benefit years.
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\79\ See, for example, Shepherd, Joanna. (2020). Pharmacy
benefit managers, rebates, and drug prices: conflicts of interest in
the market for prescription drugs. Yale Law & Policy Review, 38(2),
360-396. Available at: <a href="https://heinonline.org/HOL/P?h=hein.journals/yalpr38&i=390">https://heinonline.org/HOL/P?h=hein.journals/yalpr38&i=390</a>.
\80\ See the EDGE Server Business Rules, Version 25 (December
2024). Available at: <a href="https://regtap.cms.gov/reg_librarye.php?i=3765">https://regtap.cms.gov/reg_librarye.php?i=3765</a>.
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Comment: All commenters on the two hierarchy options set forth in
the proposed rule preferred the alternative approach in which HHS would
allow adult enrollees with HIV to receive credit for PrEP and place the
PrEP ACF in the adult models in a hierarchy below RXC 1 (Anti-HIV
Agents). Commenters noted that this approach is the most
straightforward approach, that it maintains a strong adherence to the
seven principles for developing a new ACF factor set forth in the
proposed rule, and that it ensures that the HHS risk adjustment models
can distinguish between preventive use of PrEP and treatment of active
HIV infection, thus mitigating overlap issues and preserving the
integrity of the classification system.
[[Page 4444]]
One commenter suggested that if the ACF for PrEP is added to the
HHS risk adjustment child models, RXC 1 (Anti-HIV Agents) should also
be added to the child models with the same hierarchy specifications as
the adult models. This commenter asserted that without this
modification, it may be difficult to differentiate enrollees subject to
the child models who are on PrEP from those who are taking
antiretrovirals to manage active HIV infections.
Response: We agree that the alternative hierarchy approach for the
adult models set forth in the proposed rule is straightforward and
would appropriately address the hierarchy concerns identified in the
proposed rule with regards to the adult models, namely the violations
of the hierarchical factor definitions principle (Principle 4), the
monotonicity principle (Principle 5), and the mutually exclusive
classification system principle (Principle 6).\81\ Because we are able
to appropriately address these violations through the adoption of the
alternative hierarchy approach, we also agree that the adult models
will be able to appropriately distinguish between the preventive use of
PrEP and the treatment of an active HIV infection. Therefore, in the
HHS risk adjustment adult models we are finalizing the hierarchy option
that places the PrEP ACF below RXC 1 in a hierarchy without defining
any hierarchical relationship between the PrEP ACF and HCC 1 (HIV/
AIDS). Under this approach, adult enrollees without RXC 1 will receive
the PrEP ACF along with HCC 1 in cases where the enrollee has both a
PrEP prescription claim and an HCC 1 diagnosis in their medical records
for the benefit year. Further, under this approach, an adult enrollee
with a PrEP prescription claim in their medical records for the benefit
year who later tests positive for HIV in the same benefit year would
have an increase in their risk score for that year as a result of the
additional diagnosis, appropriately satisfying the principles of
additivity (Principle 4) and monotonicity (Principle 5).
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\81\ This alternative hierarchy approach satisfies the intent of
Principle 6 (mutually exclusive classification) by using similar
considerations and filtering steps to those we currently use in our
simulation of plan liability for PrEP.
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Regarding the comment requesting the addition of RXC 1 to the child
models with the same hierarchy specifications as the adult models, we
did not propose and are not finalizing the addition of any RXCs to the
HHS risk adjustment child models. Currently, only the HHS risk
adjustment adult models include RXCs. Determining whether it is
appropriate to add any RXCs to the child models would require careful
analysis and consideration, and we would want to solicit public comment
on such analysis, which was not possible between the receipt of these
comments and publication of this final rule. For example, similar to
the development of the RXC-HCC pairs for the HHS risk adjustment adult
models, we would need to work with clinicians to analyze, select, and
tailor the RXCs that could be used to impute diagnoses and to indicate
the severity of diagnoses otherwise indicated through medical coding as
appropriate for the child models.\82\ We would also need to propose and
solicit comments on such potential draft factors in the applicable HHS
notice of benefit and payment parameters.
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\82\ For information on the development of the RXC-HCC pairs for
the adult models, including the guiding principles and other
considerations, see the 2018 Payment Notice Proposed Rule (81 FR
61456, 61470-71), the 2018 Payment Notice Final Rule (81 FR 94058,
94075-80), and the 2019 Payment Notice Final Rule (83 FR 16930,
16941-43). Also see Chapter 4, 2016 HHS Risk Adjustment White Paper,
available at: <a href="https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf">https://www.cms.gov/cciio/resources/forms-reports-and-other-resources/downloads/ra-march-31-white-paper-032416.pdf</a>.
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However, we agree with the commenter that there is an important
issue with the hierarchy specification(s) related to the addition of
the PrEP ACF in the child models that needs to be addressed when
finalizing these new factors for the models. To explain, we first note
that because the HHS risk adjustment child models do not contain RXCs,
the costs of HIV treatment (inclusive of the HIV treatment medication
regimens captured in RXC 1 in the adult models) are accounted for in
the HCC 1 coefficient in the child models. As such, in contrast to the
adult models, where the RXC 1 coefficient is generally larger than the
PrEP ACF or HCC 1 coefficient, with the HCC 1 coefficient having the
smallest coefficient of the three adult model factors, the absence of
RXC 1 in the child models generally results in a higher coefficient for
HCC 1 than the PrEP ACF coefficient. As such, without a hierarchy
specification limiting the application of the PrEP ACF in the child
models, an enrollee subject to the child models who was on PrEP for
part of a benefit year, but was later diagnosed with HIV (and would
therefore likely be prescribed treatment for an active HIV infection
instead) would receive a large increase to their risk score
(approximately 3.993, per the draft silver coefficient for HCC 1 in the
child models as reflected in Table 5 of the proposed rule) \83\ because
the enrollee would be receiving risk score components associated with
both prevention and treatment of HIV. However, in the context of the
adult model PrEP ACF and hierarchy specification finalized in this
rule, a similar enrollee subject to the adult models who was on PrEP
for part of a benefit year, but was later diagnosed with HIV and
started to take an RXC 1 drug for treatment would receive a much
smaller increase to their risk score (approximately 1.962 per the
silver coefficients for the adult models as reflected in Tables 2 and 4
of the proposed rule) \84\ because the enrollee's risk score would only
reflect the difference in cost associated with treatment relative to
prevention.
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\83\ See 89 FR 82308, 82328-41. Note that these values are
approximate and presented here only for illustrative purposes. We
note that the proposed rule estimates included generic drugs in the
definition of the PrEP ACF but in this rule we are finalizing that
generic drugs will be excluded from PrEP ACF definition for both the
adult and child models. As such, these values should be taken only
as rough estimates of the impact of the hierarchy specification on
the example enrollee.
\84\ Ibid.
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Pending further research and consideration on the impact of adding
RXCs (such as RXC 1) to the child models, to better align the
representation of risk between the adult and child models and more
appropriately reflect the cost of enrollees who receive both PrEP and
HIV treatment in the same benefit year in the child models, we believe
that an appropriate approach would be to place the PrEP ACF below HCC 1
in a hierarchy in the child models. This would allow the risk score of
an enrollee subject to the child models who was on PrEP for part of a
benefit year but was later diagnosed with HIV to reflect only the
difference in cost associated with treatment relative to prevention
(approximately 2.719 per the silver coefficients for the child models
as reflected in Tables 3 and 5 of the proposed rule) \85\ rather than
the whole cost of both treatment and prevention.
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\85\ Ibid.
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We are finalizing as proposed the addition of a new PrEP ACF to the
child models and, in response to comments, we will place the PrEP ACF
in a hierarchy below HCC 1 in the child models to ensure that child
enrollees who have both a PrEP prescription claim and an HCC 1 (HIV/
AIDS) diagnosis reflected in their medical records for a benefit year
(and are therefore likely receiving active treatment) will receive an
appropriate increase to their risk score relative to enrollees in the
child models without an
[[Page 4445]]
HCC 1 diagnosis who have a PrEP prescription claim in their medical
records for that year.
We will consider if any additional changes to the child models are
necessary as we continue to monitor the impact of the new PrEP ACF and
consider potential refinements to the ACF framework in future benefit
years. As always, as part of our ongoing efforts to continually improve
the precision of the HHS risk adjustment models, we will seek input
from interested parties through notice-and-comment rulemaking or other
appropriate vehicles on potential changes to the models in future
benefit years.
Comment: Several commenters offered ideas for additional ACFs to be
added to the HHS risk adjustment models in the future. These included
ACFs for biologic drugs, GLP-1 drugs, and cellular and gene therapies.
Other commenters' suggestions requested the use of the ACF framework to
restructure how childbirth, organ transplants, end stage renal disease
(ESRD), dialysis, respirator dependance, amputations, autism spectrum
disorder, moderate forms of psychiatric illness, and prophylactic
interventions such as prophylactic mastectomy are accounted for in the
HHS-operated risk adjustment program.
A few commenters requested changes to the risk adjustment
specifications for one or more of these conditions without specifying
that the ACF framework was the proper vehicle for addressing their
concerns.
Response: We did not propose and therefore are not finalizing the
adoption of additional ACFs at this time. However, we are finalizing
the adoption of the ACF framework and the proposed principles to guide
any potential development of additional ACFs to the HHS risk adjustment
models in the future. We appreciate the suggestions regarding other
conditions or diagnoses for which it may be appropriate to leverage the
ACF framework to restructure or refine the treatment of the other
identified clinically meaningful enrollee characteristics in the HHS
risk adjustment models. As we consider potential refinements to the ACF
structure and other changes to the HHS risk adjustment models in the
future, we may further consider these suggestions and the structure of
related HCCs. As always, as part of our ongoing efforts to continually
improve the precision of the HHS risk adjustment models, if we were to
make changes to the ACF structure or other changes to the HHS risk
adjustment models in the future, we will seek input from interested
parties through notice-and-comment rulemaking or other appropriate
vehicles on such potential changes.
After consideration of comments and for the reasons outlined in the
proposed rule and this final rule, including our responses to comments
above, we are finalizing the addition of PrEP as an ACF in the adult
and child risk adjustment models beginning with the 2026 benefit year.
Furthermore, we are finalizing the exclusion of generic versions of
PrEP from the PrEP ACF and are finalizing the placement of the PrEP ACF
in the adult models in a hierarchy below RXC 1 (Anti-HIV Agents)
without defining any hierarchical relationship between the PrEP ACF and
HCC 1 (HIV/AIDS). In the child models, which do not contain RXCs, we
are finalizing the placement of the PrEP ACF in a hierarchy below HCC
1. Additionally, we are finalizing the proposed ACF framework and
principles used to determine whether it is appropriate to add a new ACF
to the HHS risk adjustment models, and how the hierarchy structure
associated with an ACF should be defined.
We were unable to complete the calculations for the final
coefficients in time to publish them in this final rule because
additional time is needed to complete the calculations needed to
account for the incorporation of the PrEP ACF with the generic drug
exclusions and hierarchy specifications finalized in this rule.
Therefore, consistent with Sec. 153.320(b)(1)(i), we will publish the
final coefficients for the 2026 benefit year in guidance after the
publication of this final rule. We will release this guidance by the
spring of 2025 in time for rate setting for the 2026 benefit year.
d. List of Factors To Be Employed in the HHS Risk Adjustment Models
(Sec. 153.320)
Consistent with Sec. 153.320(b)(1)(i), we are finalizing the use
of the 2020, 2021 and 2022 enrollee-level EDGE data to calculate the
2026 benefit year coefficients and will publish the final coefficients
for the 2026 benefit year in guidance after the publication of this
final rule, as we were unable to complete the calculations to finalize
them in time to publish them in this final rule,\86\ due to the
additional calculations needed to account for the incorporation of the
PrEP ACF with the generic drug exclusions and hierarchy specifications
as finalized in this rule. The proposed 2026 benefit year HHS risk
adjustment model factors resulting from the equally weighted (averaged)
blended factors from separately solved models using 2020, 2021, and
2022 enrollee-level data are shown in Tables 2 through 9 of the HHS
Notice of Benefit and Payment Parameters for 2026 proposed rule (89 FR
82308, 82328 through 46). As we have done for certain prior benefit
years,\87\ we will release the final 2026 benefit year coefficients in
guidance after publication of this final rule by the spring of 2025 in
time for rate setting for the 2026 benefit year. We received several
comments requesting additional changes to the HHS risk adjustment
models that we did not consider or propose in the proposed rule. We
respond to these comments below.
---------------------------------------------------------------------------
\86\ See 45 CFR 153.320(b)(1)(i).
\87\ For example, the final 2018 benefit year HHS risk
adjustment model coefficients were not published in the 2018 Payment
Notice final rule (81 FR 94058, 81 FR 94084) but were instead
published on the CMS website and are available at <a href="https://www.cms.gov/cciio/programs-and-initiatives/premium-stabilization-programs/downloads/2018-benefit-year-final-hhs-risk-adjustment-model-coefficients.pdf">https://www.cms.gov/cciio/programs-and-initiatives/premium-stabilization-programs/downloads/2018-benefit-year-final-hhs-risk-adjustment-model-coefficients.pdf</a>. See also, for example, the final 2021
benefit year HHS risk adjustment model coefficients, which were not
published in the 2023 Payment Notice final rule (85 FR 29164, 29190)
but were instead published on the CMS website and are available at
https://www.cms.gov/cciio/resources/regulations-and-guidance/
downloads/final-2021-benefit-year-final-hhs-risk-adjustment-model-
coefficients.pdf.
See also, for example, the final 2023 benefit year HHS risk
adjustment model coefficients, which were not published in the 2023
Payment Notice final rule (87 FR 27208, 27235) but were instead
published on the CMS website and are available at <a href="https://www.cms.gov/files/document/2023-benefit-year-final-hhs-risk-adjustment-model-coefficients.pdf">https://www.cms.gov/files/document/2023-benefit-year-final-hhs-risk-adjustment-model-coefficients.pdf</a>.
---------------------------------------------------------------------------
Comment: One commenter suggested that HHS update the risk
adjustment models to incorporate Tepezza and Graves Disease/
Hyperthyroidism.
Response: We did not propose and are not finalizing changes to add
an RXC to the HHS risk adjustment adult models for Tepezza, which
treats thyroid eye disease, or to add a payment HCC for Graves Disease/
Hyperthyroidism. We recently discussed the approach to the treatment of
Tepezza and Graves Disease/Hyperthyroidism in the HHS risk adjustment
models in the 2025 Payment Notice final rule,\88\ explaining that
thyroid eye disease (thyrotoxicosis) is currently categorized in a
condition category (Other Endocrine/Metabolic/Nutritional Disorders)
that is not a payment HCC in the HHS risk adjustment models. Further,
all RXCs in the HHS adult risk adjustment models are associated with a
payment HCC. We therefore generally have concerns about adding thyroid
eye disease to the HHS risk adjustment models at this time as it is
currently not categorized as a payment HCC and we would need to perform
further analysis to consider whether it is appropriate and how best
[[Page 4446]]
to incorporate this condition into the models given these concerns. For
these reasons, HHS did not propose and is not finalizing any changes
with respect to the treatment of Tepezza for thyroid eye disease in the
2026 benefit year risk adjustment models. However, HHS intends to
continue analysis of Graves Disease/Hyperthyroidism and thyrotoxicosis
and the use of Tepezza as more data becomes available and consider
potential changes to the treatment of this condition and drug in the
HHS risk adjustment models for future benefit years.
---------------------------------------------------------------------------
\88\ See 89 FR 26218, 26248-49.
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Comment: A few commenters identified certain conditions that they
believe are undercompensated in the risk adjustment models. These
conditions included autism spectrum disorder, ESRD, and maternal and
newborn care. These commenters requested that HHS reconsider how these
conditions and their associated costs are accounted for in the HHS risk
adjustment models. Additionally, one commenter requested that HHS
revisit the analysis in the 2021 RA Technical Paper,\89\ expressing
concern that the risk associated with the lowest-risk enrollees remains
underpredicted by the HHS risk adjustment models. One commenter
recommended that HHS study the impact of calibrating the HHS risk
adjustment models separately for the individual and small group markets
due to differences in the characteristics of the enrollee population
between the two markets. Furthermore, one commenter recommended that
HHS consider ways to account for plan design generosity as more
generous plans tend to attract enrollees with expensive chronic
conditions.
---------------------------------------------------------------------------
\89\ See <a href="https://www.cms.gov/files/document/2021-ra-technical-paper.pdf">https://www.cms.gov/files/document/2021-ra-technical-paper.pdf</a>.
---------------------------------------------------------------------------
Response: We appreciate the suggestions regarding conditions that
commenters identified for review of how they are accounted for in the
HHS risk adjustment models. Although we did not propose and are not
finalizing changes to the treatment of the identified conditions in the
2026 benefit year risk adjustment models, we generally note that we
consistently monitor the performance of the risk adjustment models,
including through out-of-sample analysis of predictive ratios
associated with each model factor, as additional years of enrollee-
level EDGE data become available. Results of these monitoring
activities were a key impetus for several risk adjustment model changes
finalized in the 2023 Payment Notice \90\ to address the adult and
child models' underprediction for enrollees with many HCCs.
Specifically, we finalized the interacted HCC counts and HCC-contingent
enrollment duration factor model specifications to improve model
prediction for higher risk enrollees and ensure that issuers are being
accurately compensated for these enrollees. As such, the potential for
underprediction or overprediction in the HHS risk adjustment models is
an area that HHS is consistently monitoring and addressing as needed
and will continue to monitor and address in the future as part of our
ongoing efforts to continually improve the HHS risk adjustment models.
We also note that the conditions or diagnoses identified in these
comments show strong overlap with the conditions that some commenters
identified as being appropriate to be addressed by the ACF framework
and that, as stated in our response to comments about those conditions
in that section of this final rule, we will take these comments into
consideration as we consider potential refinements to the HHS risk
adjustment models in future benefit years.
---------------------------------------------------------------------------
\90\ 87 FR 27208, 27221-30.
---------------------------------------------------------------------------
In regard to the request to revisit the analysis in the 2021 RA
Technical Paper, we appreciate the commenter's concern. As noted in the
2023 Payment Notice,\91\ our analysis of the addition of the interacted
HCC counts factors in the adult and child models, the removal of the
former adult model severity illness factors, and the replacement of the
former enrollment duration factors with the HCC-contingent enrollment
duration factors in the adult models found that the combined impact of
these changes would significantly improve predictions across most
deciles and HCC counts for the very highest-risk enrollees, as well as
the lowest-risk enrollees without HCCs.\92\ These model specification
updates were implemented starting with the 2023 benefit year HHS risk
adjustment models and we intend to monitor the impact of these updates
as part of future benefit years' model recalibrations using additional
years of available enrollee-level EDGE data.
---------------------------------------------------------------------------
\91\ Ibid.
\92\ Ibid. See also Figure 4.2. HHS-Operated Risk Adjustment
Technical Paper on Possible Model Changes. (2021, October 26). CMS.
<a href="https://www.cms.gov/files/document/2021-ra-technical-paper.pdf">https://www.cms.gov/files/document/2021-ra-technical-paper.pdf</a>.
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As we consider potential refinements to the HHS risk adjustment
models in the future, we will also continue to monitor the specific
conditions identified by commenters, along with the structure of
related model factors, and the impact of recent model specification
updates on the ability of the models to predict risk across all
subgroups of enrollees and enrollees with chronic conditions who are
more likely to enroll in plans with more generous coverage. We also
will continue to study whether differences in the characteristics of
the enrollee population between the individual and small groups markets
would warrant calibrating the HHS risk adjustment models separately for
the individual and small group markets. As always, as part of our
ongoing efforts to continually improve the precision of the HHS risk
adjustment models, if we were to pursue changes to the risk adjustment
models in the future, we will seek input from interested parties
through notice-and-comment rulemaking or other appropriate vehicles.
Comment: Several commenters requested clarification regarding how
medically administered injectable drugs are accounted for in the HHS
risk adjustment models. These commenters were concerned that these
drugs appear to be filtered out of enrollee claims data for the purpose
of calculating risk scores.
Response: We appreciate commenters bringing this concern to our
attention. Although not expressly stated by commenters, we believe
these concerns stem from the commenters' interpretation of language in
guidance document(s) such as the Risk Adjustment DIY Software
Instructions.\93\ To clarify, for RXC eligibility (including medically
administered injectable claims), a professional or outpatient medical
claim does not need to have a risk adjustment eligible service code or
bill type code. Instead, the professional or outpatient claim simply
needs to have a service code that maps to an RXC for selection and
inclusion in enrollee claims data for purposes of calculating risk
scores. We intend to update language in these guidance document(s) in
future releases to clarify this point.
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\93\ For example, see the 2024 Benefit Year Risk Adjustment
Updated HHS-Developed Risk Adjustment Model Algorithm ``Do It
Yourself (DIY)'' Software Instructions, available at: <a href="https://www.cms.gov/files/document/cy2024-diy-instructions-09062024.pdf">https://www.cms.gov/files/document/cy2024-diy-instructions-09062024.pdf</a>.
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e. Cost-Sharing Reduction Adjustments
In the 2025 Payment Notice (89 FR 26252 through 26254), we
finalized the updated CSR adjustment factors for American Indian/Alaska
Native (AI/AN) zero-cost sharing and limited cost sharing CSR plan
variant enrollees for the 2025 benefit year, and for all future benefit
years, unless changed through notice-and-comment rulemaking. In the
2025 Payment Notice (89 FR 26252 through 26254), we also finalized
maintaining the existing CSR
[[Page 4447]]
adjustment factors for silver plan variant enrollees (70 percent, 73
percent, 87 percent, and 94 percent AV plan variants) \94\ for the 2025
benefit year and beyond, unless changed through notice-and-comment
rulemaking.
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\94\ See 83 FR 16930, 16953; 84 FR 17454, 17478-79; 85 FR 29164,
29190; 86 FR 24140, 24181; 87 FR 27208, 27235-36; 88 FR 25740,
25772-74; and 89 FR 26218, 26252-54.
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For the 2026 benefit year, we did not propose to change the CSR
adjustment factors as finalized in the 2025 Payment Notice and we will
maintain the existing CSR adjustment factors for the 2026 benefit
year.\95\ We summarize and respond to the public comments received on
the CSR adjustment factors for the 2026 benefit year below.
---------------------------------------------------------------------------
\95\ See CSR adjustment factors finalized in the 2025 Payment
Notice at 89 FR 26252 through 26254.
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Comment: We received a few comments asking that HHS revisit the CSR
factors for Massachusetts wraparound plans, specifically for wrap-
around plans with AVs above 94 percent. These commenters stated that
the wrap-around plans with AVs above 94 percent warrant higher CSR
factors than the current 1.12 values. One of these commenters compared
the current CSR factor used for Massachusetts wrap-around plans with
AVs above 94 percent to those used in Arkansas for plans the commenter
identified as having similar AVs.
Response: For all plan liability risk score calculations under the
State payment transfer formula, we use the CSR adjustment factor that
aligns with the AV of the applicable plan for the enrollee. Thus, for
unique State-specific plans, we apply the CSR adjustment factors that
correspond to each plan's AV. As we identify unique State-specific
plans that have higher plan liability than the standard plan variants,
such as those in Massachusetts and Arkansas, we work with the relevant
State Departments of Insurance and other relevant State agencies to
identify the applicable CSR adjustment factor that corresponds to the
unique State-specific plan's AV.
Regarding the comparison between Massachusetts' wrap-around plans
and Arkansas' Medicaid expansion plans, Arkansas Medicaid expansion
plans are identical to other 94 percent and 100 percent AV CSR plan
variants offered on the Exchange and are distinguished from these
identical plans only in their sources of funding and eligibility
criteria. As such, we presently direct issuers in Arkansas who provide
Medicaid expansion plans with AVs of 94 percent and 100 percent to use
specified plan variant codes for their Medicaid expansion plans only to
differentiate the sources of funding and to differentiate between
populations eligible for the Medicaid expansion plans from those who
are eligible for standard 94 percent and 100 percent AV CSR plan
variants. In contrast, in Massachusetts, the higher cost sharing wrap-
around plans are variations of lower cost sharing plans and do not have
the same AVs as their comparable plans.
We will continue to follow this approach, working with the State to
identify the applicable CSR adjustment factor that corresponds to that
State's unique State-specific plan's AV. As of the release of this
final rule, the Massachusetts Division of Insurance, which is the
regulating body for the State, has not identified changes to the AVs of
the State's wrap-around plans. As such, we are maintaining our general
approach to determining the CSR factors for State-specific plans,
including Massachusetts wrap-around plans, for the 2026 benefit year.
f. Model Performance Statistics
Each benefit year, to evaluate the HHS risk adjustment model
performance, we examine each model's R-squared statistic and predictive
ratios (PRs). The R-squared statistic, which calculates the percentage
of individual variation noted by a model, measures the predictive
accuracy of the model overall. The PR for each of the HHS risk
adjustment models is the ratio of the weighted mean predicted plan
liability for the model sample population to the weighted mean actual
plan liability for the model sample population. The PR represents how
well the model does on average at predicting plan liability for that
subpopulation.
A subpopulation that is predicted perfectly would have a PR of 1.0.
For each of the current and proposed HHS risk adjustment models, the R-
squared statistic and the PRs are in the range of published estimates
for concurrent HHS risk adjustment models.\96\ Because we are
finalizing a blend the coefficients from separately solved models based
on the 2020, 2021 and 2022 benefit years' enrollee-level EDGE data, we
publish the R-squared statistic for each model separately to verify
their statistical validity. We will include the R-squared statistics
for the final 2026 benefit year models when we publish the final
coefficients for the 2026 benefit year in guidance after publication of
this final rule. We will release this guidance by the spring of 2025,
in time for rate setting for the 2026 benefit year.
---------------------------------------------------------------------------
\96\ Hileman, G., & Steele, S. (2016). Accuracy of Claims-Based
Risk Scoring Models. Society of Actuaries. <a href="https://www.soa.org/4937b5/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf">https://www.soa.org/4937b5/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf</a>.
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We received one comment noting the decreases in the risk adjustment
model R-squared values for the 2022 enrollee-level EDGE data relative
to prior benefit years as presented in Table 10 of the proposed rule
and provide a response to that comment in the section on Data for HHS
Risk Adjustment Model Recalibration for the 2026 Benefit Year above.
3. Overview of the HHS Risk Adjustment Methodology: State Payment
Transfer Formula
In part 2 of the 2022 Payment Notice (86 FR 24183 through 24186),
we finalized the proposal to continue to use the State payment transfer
formula finalized in the 2021 Payment Notice for the 2022 benefit year
and beyond, unless changed through notice-and-comment rulemaking. We
did not propose any changes to the formula in the proposed rule, and
therefore, did not republish the formulas in the proposed rule. We
therefore will continue to apply the formula as finalized in the 2021
Payment Notice (86 FR 24183 through 24186) in the States where HHS
operates the risk adjustment program in the 2026 benefit year.
Additionally, as finalized in the 2020 Payment Notice (84 FR 17466
through 17468), we will maintain the high-cost risk pool parameters for
the 2020 benefit year and beyond, unless amended through notice-and-
comment rulemaking. We did not propose any changes to the high-cost
risk pool parameters for the 2026 benefit year; therefore, we will
maintain the $1 million threshold and 60 percent coinsurance rate.\97\
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\97\ See 81 FR 94058, 94081. See also 84 FR 17454, 17467.
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We did not receive any comments in response to the overview of the
HHS risk adjustment methodology applicable to the 2026 benefit year.
4. Solicitation of Comments--Time Value of Money in HHS-Operated Risk
Adjustment Program
In the HHS Notice of Benefit and Payment Parameters 2026 proposed
rule (89 FR 82347,
[…truncated; see source link]Indexed from Federal Register on January 15, 2025.
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