Rule2026-10050
Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2027; 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
May 20, 2026
Effective
July 20, 2026
Issuing agencies
Health and Human Services DepartmentCenters for Medicare & Medicaid Services
Abstract
This final rule contains provisions to improve implementation of the Patient Protection and Affordable Care Act, including payment parameters and provisions related to the HHS-operated risk adjustment and risk adjustment data validation (HHS-RADV) programs, as well as 2027 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 provisions related to civil money penalties (CMPs) for noncompliant issuers and other responsible entities; standards governing agents, brokers, and web-brokers; the expansion and codification of hardship exemption eligibility; implementation of the State Exchange Improper Payment Measurement (SEIPM); provider access standards and essential community provider standards for QHP certification; QHP certification of non-network plans; a prohibition on issuers from including routine non-pediatric dental services as an Essential Health Benefit (EHB); requirements related to defrayal for the cost of any State-required benefits in addition to the EHB; cost- sharing flexibilities for catastrophic and individual market bronze plans; establishment of catastrophic plans with plan terms of up to 10 consecutive plan years; QHP issuer quality improvement strategies (QISs); and revisions affecting which enrollees are included in Federal Basic Health Program (BHP) payment calculations to States. This final rule also includes amendments to implement certain provisions of the Working Families Tax Cut (WFTC) legislation.
Full Text
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<title>Federal Register, Volume 91 Issue 97 (Wednesday, May 20, 2026)</title>
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[Federal Register Volume 91, Number 97 (Wednesday, May 20, 2026)]
[Rules and Regulations]
[Pages 29526-29877]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-10050]
[[Page 29525]]
Vol. 91
Wednesday,
No. 97
May 20, 2026
Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Part 600
Office of the Secretary
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45 CFR Parts 150, 155, and 156
Patient Protection and Affordable Care Act, HHS Notice of Benefit and
Payment Parameters for 2027; and Basic Health Program; Final Rule
Federal Register / Vol. 91 , No. 97 / Wednesday, May 20, 2026 / Rules
and Regulations
[[Page 29526]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 600
Office of the Secretary
45 CFR Parts 150, 155, and 156
[CMS-9883-F]
RIN 0938-AV62
Patient Protection and Affordable Care Act, HHS Notice of Benefit
and Payment Parameters for 2027; 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 contains provisions to improve implementation
of the Patient Protection and Affordable Care Act, including payment
parameters and provisions related to the HHS-operated risk adjustment
and risk adjustment data validation (HHS-RADV) programs, as well as
2027 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 provisions related to civil money penalties (CMPs) for
noncompliant issuers and other responsible entities; standards
governing agents, brokers, and web-brokers; the expansion and
codification of hardship exemption eligibility; implementation of the
State Exchange Improper Payment Measurement (SEIPM); provider access
standards and essential community provider standards for QHP
certification; QHP certification of non-network plans; a prohibition on
issuers from including routine non-pediatric dental services as an
Essential Health Benefit (EHB); requirements related to defrayal for
the cost of any State-required benefits in addition to the EHB; cost-
sharing flexibilities for catastrophic and individual market bronze
plans; establishment of catastrophic plans with plan terms of up to 10
consecutive plan years; QHP issuer quality improvement strategies
(QISs); and revisions affecting which enrollees are included in Federal
Basic Health Program (BHP) payment calculations to States. This final
rule also includes amendments to implement certain provisions of the
Working Families Tax Cut (WFTC) legislation.
DATES: These regulations are effective on July 20, 2026.
FOR FURTHER INFORMATION CONTACT:
Jeff Wu, (301) 492-4305, Rogelyn McLean, (410) 786-1524, Grace
Bristol, (410) 786-8437, for general information.
Ayesha Anwar, (301) 448-3625, or Joshua Paul, (301) 492-4347, for
matters related to HHS-operated risk adjustment and HHS-operated risk
adjustment data validation.
Aaron Franz, (410) 786-8027 for matters related to user fees.
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.
Hannah Armbruster Hill, (301) 492-4343, for matters related to
certification standards for QHPs, cost-sharing requirements, and the
Actuarial Value Calculator.
Kelly Carda, (312) 886-5210, or Cassandra Thompson, (667) 414-0870,
for matters related to Provider Access standards.
Ariana Koenitzer, (410) 786-0724, or Samantha Nguyen Kella, (816)
426-6339, for matters related to Essential Community Provider
Standards.
Ariana Koenitzer, (410) 786-0724, or Cassandra Thompson, (667) 414-
0870, for matters related to QHP Certification of Non-Network Plans.
Nikolas Berkobien, (667) 290-9903, for matters related to
standardized plan options, non-standardized plan option limits and
exceptions.
Jenny Chen, (301) 492-5156, or Shilpa Gogna, (301) 492-4257, for
matters related to State Exchange and State Exchange Blueprint
requirements.
Rebecca Braun-Harrison, (667) 290-8846, or Nia Blasingame, (470)
890-4178, for matters related to civil money penalties of issuers and
non-Federal governmental group health plans.
Preeti Hans, (301) 492-5144, for matters related to the Quality
Improvement Strategy.
Mary Beth Hance, 410-786-4299, for matters related to the Basic
Health Program.
Christina Whitefield, (301) 492-4172, for matters related to the
medical loss ratio (MLR) program.
David Mlawsky, (410) 786-6851, for matters related to catastrophic
plans with multi-year plan terms.
Jessica Veffer, (301) 492-4827, for matters related to expanding
hardship exemptions for individuals ineligible for APTC or CSRs due to
projected household income.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
We are finalizing changes to the provisions and parameters
implemented through prior rulemaking to implement the Patient
Protection and Affordable Care Act and are also finalizing updates to
implement new provisions.\1\ These requirements are published under the
authority granted to the Secretary of HHS (the Secretary) by the
Affordable Care Act and the Public Health Service (PHS) Act.\2\ In this
document, we are finalizing changes related to some of the Affordable
Care Act provisions and parameters we previously implemented under the
authority granted to the Secretary by Public Law (Pub. L.) 119-21,
which CMS refers to as the Working Families Tax Cut (WFTC)
legislation.\3\ Our goal with these requirements is providing quality,
more affordable coverage to consumers while minimizing administrative
burden and ensuring program integrity. The changes finalized in this
rule are also intended to enhance the role of States in these programs,
provide issuers and States with additional flexibilities, reduce
unnecessary regulatory burden on interested parties, and improve
affordability.
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\1\ The Patient Protection and Affordable Care Act (Pub. L. 111-
148) was enacted on March 23, 2010. The Healthcare and Education
Reconciliation Act of 2010 (Pub. L. 111-152), which amended and
revised several provisions of the Patient Protection and Affordable
Care Act, was enacted on March 30, 2010. In this rulemaking, the two
statutes are referred to collectively as the ``Patient Protection
and Affordable Care Act'' or ``Affordable Care Act.''
\2\ See sections 1301, 1302, 1311, 1312, 1313, 1321, 1331, and
1343 of the Affordable Care Act and section 2792 of the PHS Act.
\3\ The WFTC legislation (Pub. L. 119-21) was enacted on July 4,
2025.
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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 Affordable Care Act. Subtitles A and C of title I of the
Affordable Care Act 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.
In the upcoming sections, we summarize sections of the PHS Act,
[[Page 29527]]
Affordable Care Act, and WFTC legislation that are relevant to this
final rule.
Section 1301(a)(1)(B) of the Affordable Care Act directs all
issuers of qualified health plans (QHPs) to cover the Essential Health
Benefit (EHB) package described in section 1302(a) of the Affordable
Care Act, including coverage of the services described in section
1302(b) of the Affordable Care Act, adherence to the cost-sharing
limits described in section 1302(c) of the Affordable Care Act, and
meeting the Actuarial Value (AV) levels established in section 1302(d)
of the Affordable Care Act. 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
Affordable Care Act.
Section 1302 of the Affordable Care Act provides for the
establishment of an EHB package that includes coverage of EHB (as
defined by the Secretary), cost-sharing limits, and AV requirements.
The law directs that EHB be equal in scope to the benefits provided
under a typical employer plan, and that they cover at least the
following 10 general categories: ambulatory patient services; emergency
services; hospitalization; maternity and newborn care; mental health
and substance use disorder services, including behavioral health
treatment; prescription drugs; rehabilitative and habilitative services
and devices; laboratory services; preventive and wellness services and
chronic disease management; and pediatric services, including oral and
vision care.
Section 1302(b)(4)(A) through (D) of the Affordable Care Act
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 EHB based on age, life expectancy, disability, degree of medical
dependency, or quality of life.
Section 1302(e) of the Affordable Care Act establishes standards
for catastrophic plans to be offered in the individual market and
states that the only individuals who are eligible to enroll in
catastrophic coverage are individuals who: (1) are under the age of 30
before the beginning of the plan year; (2) have been certified as
exempt from the individual responsibility requirement because coverage
is unaffordable; or (3) have been certified as experiencing a hardship
for obtaining coverage under a qualified health plan (QHP).
Section 1311(c) of the Affordable Care Act provides the Secretary
the authority to issue regulations to establish criteria for the
certification of QHPs. Among the criteria for certification that the
Secretary must establish by regulation is that QHPs ensure a sufficient
choice of providers (section 1311(c)(1)(B) of the Affordable Care Act)
and include essential community providers that serve predominately low-
income, medically underserved individuals (section 1311(c)(1)(C) of the
Affordable Care Act). Section 1311(d)(4)(A) of the Affordable Care Act
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 Affordable Care Act. Section 1311(e)(1) of the
Affordable Care Act 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
Affordable Care Act, 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 Affordable Care Act directs the Secretary to require an Exchange
to provide for special enrollment periods (SEPs) and section
1311(c)(6)(D) of the Affordable Care Act directs the Secretary to
require an Exchange to provide for American Indians and Alaska Natives
(AI/AN), as defined by section 4 of the Indian Health Care Improvement
Act.
Section 1311(d)(3)(B) of the Affordable Care Act 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 Affordable Care Act 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 Affordable Care
Act.
Section 1312(e) of the Affordable Care Act 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 cost-sharing reductions (CSRs) for QHPs sold through an
Exchange.
Sections 1313 and 1321 of the Affordable Care Act 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 Affordable Care Act 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 Affordable Care
Act provides for State flexibility in the operation and enforcement of
Exchanges and related requirements.
Section 1321(a) of the Affordable Care Act 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 Affordable Care Act, including such other
requirements as the Secretary determines appropriate. When operating an
FFE under section 1321(c)(1) of the Affordable Care Act, HHS has the
authority under sections 1321(c)(1) and 1311(d)(5)(A) of the Affordable
Care Act to collect and spend user fees. Office of Management and
Budget (OMB) Circular No. 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.\4\
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\4\ See OMB, Circular No. A-25 Revised (1993). <a href="https://www.whitehouse.gov/wp-content/uploads/2017/11/Circular-025.pdf">https://www.whitehouse.gov/wp-content/uploads/2017/11/Circular-025.pdf</a>.
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Section 1321(d) of the Affordable Care Act provides that nothing in
title I of the Affordable Care Act must be construed to preempt any
State law that does not prevent the application of title I of the
Affordable Care Act. Section 1311(k) of the Affordable Care Act
specifies that Exchanges may not establish rules that
[[Page 29528]]
conflict with or prevent the application of regulations issued by the
Secretary.
Section 1331 of the Affordable Care Act provides States with an
option to establish a 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 FPL who are not otherwise eligible for Medicaid, the
Children's Health Insurance Program (CHIP), or affordable employer-
sponsored coverage, or for noncitizens whose income is equal to or
below 200 percent of FPL but are ineligible for Medicaid benefits that
at a minimum consist of the EHB described in section 1302(b) of the
Affordable Care Act. 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 Affordable Care Act establishes a permanent
risk adjustment program to provide payments to health insurance issuers
that attract higher-than-average risk enrollees, such as those with
chronic conditions, funded by charges collected from those issuers that
attract lower-than-average risk enrollees, thereby reducing incentives
for issuers to avoid higher-risk enrollees. Section 1343(b) of the
Affordable Care Act 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 Affordable Care Act, the Secretary is
responsible for operating the HHS risk adjustment program in any State
that fails to do so.\5\
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\5\ See Affordable Care Act section 1341 (transitional
reinsurance program), Affordable Care Act section 1342 (risk
corridors program), and Affordable Care Act section 1343 (risk
adjustment program).
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Section 1401(a) of the Affordable Care Act 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 Affordable Care Act 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 American Indians and Alaska Natives (AI/AN)
enrolled in QHPs at any metal level.
Section 1411(f) of the Affordable Care Act 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
Affordable Care Act 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 Affordable Care Act 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 Affordable Care Act directs the Secretary to
establish, subject to minimum requirements, a streamlined enrollment
process for enrollment in QHPs and all insurance affordability
programs.
Section 2718 of the PHS Act, as added by the Affordable Care Act,
generally requires health insurance issuers 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 5000A of the Code, as added by section 1501(b) of the
Affordable Care Act, 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 5000A(e) of the Code defines exemptions from the individual
shared responsibility penalty. Section 5000A(e)(5) of the Code defines
a hardship exemption as a situation in which an individual experiences
difficulty obtaining QHP coverage and provides the HHS Secretary the
authority to determine whether an individual has experienced a
hardship.
Section 71301 of the WFTC legislation amends 26 U.S.C. 36B(e),
effective for plan years beginning on or after January 1, 2027, to
provide that a PTC is allowed for the coverage of a lawfully present
non-citizen only if the non-citizen is an ``eligible alien.''
Section 71302 of the WFTC legislation removes subparagraph (B) of
26 U.S.C. 36B(c)(1), eliminating PTC eligibility for lawfully present
individuals with income below 100 percent of the FPL who are ineligible
for Medicaid due to their immigration status. Section 71302 is
effective for taxable years beginning after December 31, 2025.
Section 71303 of the WFTC legislation, effective to taxable years
beginning after December 31, 2027, amends the definition of coverage
month such that it would be imprudent to maintain a 2-year failure to
file and reconcile (FTR) policy for 2028 and beyond, but it would not
be legally prohibited to do so.
Section 71304 of the WFTC legislation amends section 36B of the
Code, effective for plan years beginning after December 31, 2025, such
that a plan is not considered a QHP, and therefore no PTC is allowed
for coverage under the plan, if the plan is enrolled in through a
special enrollment period (SEP) that is based solely on the
relationship of an individual's expected income to the FPL and not on a
change in circumstance (an ``income-based SEP''). This provision is
effective January 1, 2026.
Section 71305 of the WFTC legislation eliminates, effective for
taxable years beginning after December 31, 2025, APTC repayment limits
and requires individuals whose APTC exceeds their PTC to increase their
tax liability by the amount of the excess.
Section 71307 of the WFTC legislation amends the definition of
``high deductible health plan'' in section 223(c)(2) of the Code to
include bronze and catastrophic plans available as individual coverage
through an Exchange, effective for months beginning after December 31,
2025.
1. Premium Stabilization Programs
The premium stabilization programs refer to the risk adjustment,
risk corridors, and reinsurance programs established by the Affordable
Care Act.\6\
[[Page 29529]]
For past rulemaking, we refer readers to the following rules:
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\6\ See Affordable Care Act section 1341 (transitional
reinsurance program), Affordable Care Act section 1342 (risk
corridors program), and Affordable Care Act section 1343 (HHS 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 10750)
(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 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.\7\
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\7\ CMS. (2018 July, 27). 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.\8\
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\8\ CMS. (2020, May 12). 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 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
[[Page 29530]]
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.\9\
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\9\ CMS. (2021, July 19). 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.\10\ 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. 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
finalized further refinements to the HHS-RADV error rate calculation
methodology beginning with the 2021 benefit year.
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\10\ On May 6, 2022, we also published the 2023 Benefit Year
Final HHS Risk Adjustment Model Coefficients. CMS. (2022, May 6).
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 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 announced the
discontinuance of the Lifelong Permanent Condition List and Non-EDGE
Claims 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 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.
<bullet> In the January 15, 2025 Federal Register (90 FR 4424)
(2026 Payment Notice), we finalized the benefit and payment parameters
for the 2026 benefit year, including the 2026 risk adjustment models
and updated the adjustment factors, phased out the market pricing
adjustment to the plan liability associated with Hepatitis C drugs, and
incorporated of pre-exposure prophylaxis (PrEP) as an Affiliated Cost
Factor (ACF) starting with the 2026 benefit year. Beginning with the
2025 benefit year, we excluded enrollees without HCCs from the IVA
sample, removed the Finite Population Correction (FPC) from the IVA
sampling methodology, and replaced the source of the Neyman allocation
data used for HHS-RADV sampling with the most recent 3 consecutive
years of HHS-RADV data. Beginning with the 2024 benefit year, we
modified the SVA pairwise means test and increased the initial SVA
subsample size. At Sec. 156.1220(a), we established a new materiality
threshold for HHS-RADV appeals.
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), as well as the
Patient Protection and Affordable Care Act; Marketplace Integrity and
Affordability final rule (2025 Marketplace Integrity and Affordability
final rule) issued in the June 25, 2025 Federal Register (90 FR 27074).
In the May 6, 2022 Federal Register (87 FR 27208) (2023 Payment
Notice), we finalized policies to address certain agent, broker, and
web-broker practices and conduct. In the April 27, 2023 Federal
Register (88 FR 25740) (2024 Payment Notice), we implemented the
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.
In the 2025 Payment Notice, issued in the April 15, 2024 Federal
Register (89 FR 26218), we finalized that the CMS Administrator is the
entity responsible for handling requests by agents, brokers, and web-
brokers for reconsideration of HHS' decision to terminate their
Exchange agreement(s) for cause. We also finalized changes to
Sec. Sec. 155.220 and 155.221 to apply certain standards to web-
brokers and Direct Enrollment (DE) entities assisting consumers and
applicants across all Exchanges. In the January 15, 2025 Federal
Register (90 FR 4424) (2026 Payment Notice), we addressed our authority
to investigate and undertake compliance reviews and enforcement actions
occurring at the insurance agency level to hold lead agents of
insurance agencies accountable. We also finalized changes to 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 certain
circumstances until the incident, breach, or noncompliance are remedied
or sufficiently mitigated to HHS' satisfaction.
[[Page 29531]]
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 codified that, for catastrophic plans, issuers may
make a plan-specific adjustment to the market-wide index rate based on
the expected impact of the specific eligibility categories for those
plans. This plan-specific adjustment would be uniform across all of an
issuer's catastrophic plans (that is, risk across all catastrophic
plans must be pooled).
In that rule, we also codified that a health plan is a catastrophic
plan if it: (1) meets all applicable requirements for health insurance
coverage in the individual market; (2) does not offer coverage at the
bronze, silver, gold, or platinum levels of coverage (3) does not
provide coverage of essential health benefits until the enrolled
individual reaches the annual limitation in cost sharing; and (4)
covers at least three primary care visits per year before reaching the
deductible. A catastrophic plan may not impose any cost-sharing
requirements for preventive services identified in section 2713 of the
PHS Act. We also codified the statutory eligibility criteria identified
in section 1302(e)(2) of the Affordable Care Act.
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. Rate Review
In the May 23, 2011 Federal Register (76 FR 29963) (Rate Review
Rule), we implemented a rate review program. We amended the provisions
of the Rate Review Rule in final rules published in the September 6,
2011 Federal Register (76 FR 54969), the February 27, 2013 Federal
Register (78 FR 13405), the May 27, 2014 Federal Register (79 FR
30239), the February 27, 2015 Federal Register (80 FR 10749), the March
8, 2016 Federal Register (81 FR 12203) and the December 22, 2016
Federal Register (81 FR 94058).
5. 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 Affordable Care Act, to provide competitive marketplaces for
individuals and small employers to directly compare available private
health insurance coverage 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 essential community provider (ECP) certification
standards.
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 QHP 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
SEPs (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
SEPs and QHP certification. In the 2019 Payment Notice, issued in the
April 17, 2018 Federal Register (83 FR 16930), we modified parameters
around certain SEPs. In the April 25, 2019 Federal Register (84 FR
17454), the 2020 Payment Notice established a new SEP for certain
individuals who become newly eligible for APTC.
In the May 14, 2020 Federal Register (85 FR 29164) (2021 Payment
Notice), we finalized revisions to the parameters of SEPs 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
the September 27, 2021 Federal Register (86 FR 53412) (part 3 of the
2022 Payment Notice), 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 SEP 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 finalized a
requirement that all plans seeking certification on the Exchanges
utilize a provider network. 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; and ensure correct QHP information. In addition,
we amended coverage effective date rules, lengthened the SEP 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. We finalized provider network and ECP
policies for QHPs.
[[Page 29532]]
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 plan year, revised
Exchange Blueprint requirements for States transitioning to a State
Exchange, established additional minimum standards for Exchange call
center operations, and required an Exchange to operate a centralized
eligibility and enrollment platform on its website. 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 an SEP for APTC-eligible qualified
individuals with a projected annual household income no greater than
150 percent of the FPL. We finalized provider network adequacy policies
applicable to such Exchanges for Plan Year (PY) 2026 and subsequent
plan years. 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.
In the 2026 Payment Notice, published in the January 15, 2025
Federal Register (90 FR 4424), we codified a timeliness standard for
State Exchanges to review and resolve enrollment data inaccuracies at
Sec. 155.400(d)(1), finalized at Sec. 155.1000 that an Exchange may
deny certification to any plan that does not meet the criteria at Sec.
155.1000(c), and revised the standards at Sec. 155.1090 for an issuer
to request a reconsideration of a denial of certification specific to
the FFEs. We also finalized publicly releasing certain data and
information that State Exchanges submit to HHS, affirmed that CSR
loading practices permitted by State regulators are permissible under
Federal law to the extent that they are actuarially justified and the
issuer does not receive reimbursement for such CSR, and finalized that
we will only release a single, final version of the AV Calculator. We
also updated 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, amended Sec. 156.201 to require issuers to
meaningfully differentiate standardized plan options from one another,
and finalized that HHS would conduct ECP certification reviews in
States performing plan management functions beginning PY 2026. We also
finalized updates affecting the exchanges in the 2025 Marketplace
Integrity and Affordability final rule issued in the June 25, 2025
Federal Register (90 FR 27074).
6. Essential Health Benefits
We established requirements relating to EHB 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: revising 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; revising requirements such that States do
not need to submit a formulary drug list as part of their application
unless they are changing their prescription drug EHB; and consolidating
options for States to change their EHB-benchmark plans. At Sec.
156.115(d), we removed the prohibition on issuers from including
routine non-pediatric dental services as an EHB beginning with PY 2027.
In the 2026 Payment Notice, published in the January 15, 2025
Federal Register (90 FR 4424), we revised Sec. 156.80(d)(2)(i) to
require the actuarially justified plan-specific factors by which an
issuer may vary premium rates for a particular plan from its market-
wide index rate include the AV and cost-sharing design of the plan.
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. In the 2026 Payment
Notice, published in the January 15, 2025 Federal Register (90 FR
4424), we finalized sharing 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.
8. Medical Loss Ratio (MLR)
We published a request for comment on section 2718 of the PHS Act
in the April 14, 2010 Federal Register (75 FR 19297) and published an
interim final rule with a 60-day comment period relating to the MLR
program on December 1, 2010 (75 FR 74863). A final rule with a 30-day
comment period was published in the December 7, 2011 Federal Register
(76 FR 76573). An interim final rule with a 60-day comment period was
published in the December 7, 2011 Federal Register (76 FR 76595). A
final rule was published in the May 16, 2012 Federal Register (77 FR
28790). The MLR program requirements were amended in final rules
published in the March 11, 2014 Federal Register (79 FR 13743), the May
27, 2014 Federal Register (79 FR 30339), the February 27, 2015 Federal
Register (80 FR 10749), the March 8, 2016 Federal Register (81 FR
12203), 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 the January 15,
2025 Federal Register (90 FR 4424) and an interim final rule that was
published in the September 2, 2020 Federal Register (85 FR 54820).
[[Page 29533]]
B. Summary of Major Provisions
The regulations outlined in this final rule will be codified in 42
CFR part 600, and 45 CFR parts 150, 153, 155, and 156.
1. 42 CFR Part 600
We are finalizing updates in 42 CFR 600.5 to align BHP regulations
with section 71301 of the WFTC legislation. Section 71301 of the WFTC
legislation amended section 36B of the Code to provide that a PTC is
allowed for the QHP coverage of a lawfully present noncitizen only if
he or she is an ``eligible alien,'' effective for plan years beginning
on or after January 1, 2027. Because Federal BHP payments to States are
based in part on the amount of PTC an individual enrolled in the BHP is
eligible for and would have qualified for had he or she been enrolled
in a QHP through an Exchange, only lawfully present noncitizens who are
considered to be ``eligible aliens'' will generate Federal BHP payments
to the State. We are finalizing a new definition of ``eligible
noncitizen'' at 42 CFR 600.5, cross-referencing 45 CFR 155.20.
2. 45 CFR Part 153
In accordance with the OMB Report to Congress on the Joint
Committee Reductions for Fiscal Year 2026, the HHS-operated risk
adjustment program is subject to fiscal year 2026 sequestration.\11\
Therefore, the HHS-operated risk adjustment program will sequester
payments made from fiscal year 2026 resources (that is, funds collected
during the 2026 fiscal year) at a rate of 5.7 percent.
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\11\ OMB. (2025). OMB Report to the Congress on the BBEDCA 251A
Sequestration for Fiscal Year 2026. <a href="https://www.whitehouse.gov/wp-content/uploads/2025/04/OMB-Report-to-the-Congress-on-the-BBEDCA-251A-Sequestration-for-Fiscal-Year-2026.pdf">https://www.whitehouse.gov/wp-content/uploads/2025/04/OMB-Report-to-the-Congress-on-the-BBEDCA-251A-Sequestration-for-Fiscal-Year-2026.pdf</a>.
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We are finalizing our proposal to recalibrate the 2027 benefit year
HHS risk adjustment models using the 2021, 2022, and 2023 benefit year
enrollee-level EDGE data. We are also finalizing a risk adjustment user
fee rate for the 2027 benefit year of $0.18 per member per month
(PMPM).
We are finalizing our proposal to modify one intermediate step of
the HHS-RADV error estimation methodology starting with 2025 benefit
year HHS-RADV to add an additional scaling factor to appropriately
estimate the proportion of the issuer's total plan liability risk score
(PLRS) that is HCC-related after the removal of no-HCC enrollees from
the IVA sample beginning with 2025 benefit year HHS-RADV, as finalized
in the 2026 Payment Notice (90 FR 4424).
3. 45 CFR Part 154
We are finalizing our proposal to require issuers that intend to
load rates to account for unpaid CSRs for the applicable rating year to
submit certain information related to CSR loading in their Unified Rate
Review Templates (URRTs) and the Actuarial Memoranda for each filing
year in which CSRs are not funded beginning with PY 2027 rate
filings.\12\
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\12\ CMS 10379/OMB Control Number: 0938-1141.
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4. 45 CFR Part 155
We are finalizing our proposal to remove the requirement at Sec.
155.105(b)(4) that a State seeking to operate a State Exchange must
first operate an SBE-FP for at least one plan year.
We are finalizing our proposal to amend Sec. 155.106(a)(2) to
rescind the requirement that as part of a State's activities for its
establishment of a State Exchange, the State must provide supporting
documentation demonstrating progress toward meeting or implementing
State Exchange Blueprint requirements, given preexisting processes per
the State Blueprint Application \13\ for CMS to collect supporting
documentation from a State as part of a State Exchange implementation
efforts.
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\13\ CMS-10416/OMB control number: 0938-1172.
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We are finalizing our proposal to amend Sec. 155.170 with a
modification to provide that beginning with PY 2028, a State-required
benefit will be considered ``in addition to EHB'' (and thus not EHB) if
it is required by a State action taking place after December 31, 2011;
applicable to the small group and/or individual markets; specific to
required care, treatment, or services; and not required by State action
for purposes of compliance with Federal requirements. Under this
finalized policy, such State-required benefits will be considered in
addition to EHB regardless of whether the required benefits are
embedded in the State's EHB-benchmark plan. Further, we finalize that
States must make payments in accordance with Sec. 155.170(b) to defray
the cost of any State-required benefits in addition to the EHB. We are
also finalizing revisions to the regulatory text at Sec. 156.115(a) to
align with this finalized policy.
We are not finalizing amendments to Sec. 155.205(b) to amend the
requirement that a State Exchange operate a centralized eligibility and
enrollment consumer interface on the Exchange's website for an
individual to submit a single streamlined eligibility application and
subsequently select a QHP following a determination of eligibility.
However, we may consider finalizing this proposal, with or without
modifications, in the 2028 Payment Notice rulemaking cycle or another
appropriate rulemaking vehicle, and, if so, will respond to comments
then.
We are not finalizing our proposal at Sec. 155.221(k) that State
Exchanges may elect a new EDE option (SBE-EDE option), in which a State
Exchange could seek HHS approval to allow web-brokers to operate
enrollment websites as the exclusive pathway through which consumers
can apply, receive an eligibility determination from the Exchange, and
purchase an individual market QHP offered through the Exchange with
APTC and CSRs, if otherwise eligible. However, we may consider
finalizing this proposal, with or without modifications, in the 2028
Payment Notice rulemaking cycle or another appropriate rulemaking
vehicle.
We are finalizing changes to the existing regulatory authority
under Sec. 155.220(j)(2)(ii) and (iii) to require agents, brokers, and
web-brokers to use an HHS-approved and -created consumer consent form
to meet the eligibility application review requirements and consumer
consent documentation requirements.\14\ We will delay the effective
date of requiring the HHS-approved and -created consumer consent form
so that it is required for enrollments for plan years beginning on or
after January 1, 2028, including enrollments under Sec. 155.335(j).
Our finalized policy will eliminate the current flexibility, which
allows agents, brokers, and web-brokers to use their own standards and
templates for documentation requirements, and instead sets a universal
standard that requires agents, brokers, and web-brokers to use the HHS-
approved and -created consumer consent form.\15\ We considered
commenters' suggestion to allow previously signed consent forms to
remain valid after the effective date of these policies, but we are not
adopting that approach because standardizing the use of the HHS-
approved and -created consumer consent form will help ensure consumers
and consumers' representatives are provided with all the necessary
information before providing consent, and that HHS consistently applies
the consumer consent and eligibility application review
[[Page 29534]]
documentation requirements uniformly among agents, brokers, and web-
brokers moving forward. We are also finalizing our proposal to revise
Sec. 155.220(j)(2)(ii) and (j)(2)(iii) to clarify what constitutes a
consumer ``taking an action'' for eligibility application review and
confirmation and providing consumer consent.
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\14\ CMS-10840/OMB Control Number: 0938-1438.
\15\ For the current HHS-approved and -created form, see CMS
Model Consent Form for Marketplace Agents, Brokers, Web-brokers, and
Agencies. Available at <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 several new provisions at Sec. 155.220(j)(3) to
establish more robust standards of conduct related to the marketing
practices of agents, brokers, and web-brokers which would include
examples of prohibited marketing practices. Furthermore, we are
finalizing our proposal to require agents, brokers, and web-brokers to
provide HHS marketing documentation in response to monitoring, audit,
and enforcement activities. We also are finalizing our proposal to
notify agents, brokers, and web-brokers that they may be held
responsible for marketing content created, written, released, or
otherwise produced by an entity on their behalf.
We are finalizing our proposal to discontinue the vendor program,
which allows for certain training and information verification
functions to be provided by HHS-approved vendors. To accomplish this,
we are removing Sec. 155.222.
We are finalizing updates in Sec. Sec. 155.20, 155.305(f)(1), and
155.320 to align Exchange regulations with section 71301 of the WFTC
legislation. Section 71301 of the WFTC legislation amended section 36B
of the Code to provide that PTC is allowed for the QHP coverage of a
lawfully present noncitizen only if such noncitizen is an ``eligible
alien.'' It also makes conforming amendments to section 1411 of the
Affordable Care Act requiring Exchanges to verify applicants'
``eligible alien'' status effective for plan years beginning on or
after January 1, 2027. We are finalizing a new definition in Sec.
155.20, updating our APTC eligibility regulations at Sec.
155.305(f)(1), and adding to our verification regulations in Sec.
155.320 to align Exchange eligibility and verification rules with
section 71301 of the WFTC legislation. This finalized policy will also
impact Federal payments to States effective January 1, 2027, for
individuals enrolled in the BHP who are lawfully present noncitizens
but are not ``eligible aliens,'' as Federal BHP payments attributable
to these enrollees will cease beginning January 1, 2027.
To align Exchange regulations with section 71302 of the WFTC
legislation, we are finalizing our proposal to remove Sec.
155.305(f)(2) and make conforming updates to Sec. Sec.
155.320(c)(3)(iii)(A) and 155.420(d)(13). Section 71302 of the WFTC
legislation amended section 36B(c) of the Code to provide that PTC is
no longer allowed for noncitizens lawfully present in the United States
who were ineligible for Medicaid due to their immigration status and
have household income below 100 percent of the FPL. Removing Sec.
155.305(f)(2) and updating Sec. 155.320(c)(3)(iii)(A) will align
Exchange APTC eligibility and verification rules with section 71302 of
the WFTC legislation. This finalized policy will also impact Federal
payments to States for individuals enrolled in the BHP who are
ineligible for Medicaid due to their immigration status and with
household income below 100 percent of the FPL, for whom Federal
payments to States are also no longer allowed.
We are finalizing our proposal to revise the failure to file and
reconcile process at Sec. 155.305(f)(4) such that Exchanges on the
Federal platform will conduct the 1-year policy beginning in PY 2027.
State Exchanges will have the option to conduct either the 1-year or 2-
year policy in PY 2027 but will be required to conduct the 1-year
policy beginning in PY 2028. Under the 1-year policy, an Exchange must
determine a tax filer ineligible for APTC if: (1) HHS notifies the
Exchange that the tax filer (or their spouse if the tax filer is a
married couple) received APTC for a prior year for which tax data will
be utilized for verification of income, and (2) the tax filer or tax
filer's spouse did not comply with the requirement to file a Federal
income tax return and reconcile APTC for that year. This finalized
policy, which Exchanges on the Federal platform plan to adopt a year
early, will align with the statutory requirement in section 71303 of
the WFTC legislation that effectively requires Exchanges to follow the
1-year policy as a requirement for a month to be a coverage month under
section 36B of the Code as of PY 2028. We are also finalizing our
proposal to remove the notice requirement at Sec. 155.305(f)(4)(ii)
for PY 2027 to conform with the notice policy under the PY 2026 policy.
We sought comment on considerations for future policy development
and implementation under section 71303 of the WFTC legislation, which
imposes new requirements on Exchanges related to eligibility
verification. Specifically, we sought comment on: operational
considerations for interested parties; effective rollout and
communications; required timelines for interested parties to comply
with the law; anticipated complexity, costs, burden, enrollment
impacts; and any State-specific considerations. We will take comments
we received into consideration for any potential guidance or
rulemaking.
We are finalizing our proposal to revise Sec. 155.320(c) such that
all Exchanges are required to continue conducting the income
verifications changes introduced in the 2025 Marketplace Integrity and
Affordability final rule (90 FR 27074) in PY 2027 and beyond,
effectively removing the requirement to stop both income verification
policies starting in PY 2027. Specifically, we are updating Sec.
155.320(c)(3)(iii) and Sec. 155.320 (c)(3)(vi)(C)(2) to extend the
requirement indefinitely to create income data matching issues (DMIs)
when trusted data sources indicate that projected consumer household
income is under 100 percent of the FPL. Additionally, we are removing
Sec. 155.320(c)(5), which outlines the requirement to accept the
annual household income attestation when no tax data is returned for a
household.
We sought comment on whether we should regulate the option for
issuers to implement the fixed-dollar and/or gross percentage-based
premium payment thresholds in Sec. 155.400(g) for PY 2027 and beyond.
Currently, issuers are only able to implement a net premium percentage-
based premium threshold for PY 2026, and effective January 1, 2027,
issuers will be able to implement the fixed-dollar and/or either net or
gross premium percentage-based thresholds, which was finalized in the
2025 Marketplace Integrity and Affordability final rule. After
consideration of public comments and for reasons outlined in the
proposed and final rule, we are finalizing for all Exchanges the
removal of the fixed-dollar and gross-premium threshold flexibilities.
We are finalizing our proposal to remove Sec. 155.420(d)(16) such
that Exchanges will continue to be prohibited from offering the 150
percent FPL SEP in PY 2027 and beyond, in alignment with section 71304
of the WFTC legislation. We are finalizing our proposal to make
conforming amendments at Sec. Sec. 155.420(a)(4)(ii)(D),
155.420(b)(2)(vii), and 155.420(a)(4)(iii).
We are finalizing our proposal to revise Sec. 155.420(g) to remove
the restriction for Exchanges on the Federal platform to only conduct
Special Enrollment Period Verification (SEPV) for Loss of Minimum
Essential Coverage (MEC). We also are finalizing our proposal to
require Exchanges on the Federal platform to conduct SEPV for at least
75 percent of new enrollments. These policies were finalized in the
2025 Marketplace Affordability and Integrity final rule but were stayed
in
[[Page 29535]]
City of Columbus et al. v. Kennedy et al.\16\ We are therefore
finalizing these provisions as we reproposed in the 2027 Payment Notice
proposed rule.
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\16\ City of Columbus v. Kennedy, 796 F. Supp. 3d 123, 159-60
(D. Md. 2025).
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We are finalizing our proposal to amend Sec. 155.605 to codify and
expand hardship exemption eligibility. Specifically, this finalized
policy will allow individuals who are ineligible for APTC or CSRs due
to projected household income below 100 percent or above 250 percent of
the FPL to qualify for a hardship exemption under Sec.
155.605(d)(1)(iii). This change will allow individuals aged 30 and
older who receive this hardship exemption to enroll in catastrophic
coverage, if otherwise eligible.
We are finalizing, for plan years beginning on or after January 1,
2027, our proposal to amend Sec. 155.1050(a)(2) to remove the
requirements at Sec. 155.1050(a)(2)(i) and (ii) that State Exchanges
and SBE-FPs establish and impose quantitative time and distance network
adequacy standards that are at least as stringent as standards for QHPs
participating on the FFEs and to no longer require State Exchanges and
SBE-FPs to conduct quantitative network adequacy reviews to evaluate a
plan's compliance with certain network adequacy standards under Sec.
156.230 prior to certifying any plan as a QHP. Instead, we are
finalizing our proposal to restore the requirement at Sec.
155.1050(a)(2) that State Exchanges and SBE-FPs ensure that each QHP
provides sufficient access to providers in a manner that meets
applicable standards consistent with Sec. 156.230(a)(1)(ii) and
(a)(1)(iii) for network plans, or for plan years beginning on or after
January 1, 2027, Sec. 156.236(a) for non-network plans if such plans
are allowed to be offered through the Exchange, as applicable.
We also are finalizing, with minor modification, at new Sec.
155.1050(d) our proposal to defer provider access reviews of QHP
issuers, with or without a provider network, applying for certification
as a QHP to be offered through the FFE, to the FFE States that elect to
conduct such reviews, should the FFE State demonstrate sufficient
authority and the technical capacity to conduct such reviews by
satisfying the applicable criteria to be considered to have an
Effective Provider Access Review Program under Sec. 155.1050(d)(2)
through (d)(4). We note that provisions related to non-network plans
will be implemented beginning January 1, 2028.
We are finalizing, with modification, our proposal to implement new
requirements for an Effective Essential Community Provider (ECP) Review
Program by adding Sec. 155.1051. Under this finalized policy, FFE
States may elect to conduct their own ECP certification reviews of
issuers, with or without a provider network, that are applying for
certification to be offered as a QHP through an FFE, including in
States performing plan management. To conduct their own reviews, we are
finalizing that FFE States will be required to demonstrate that they
have sufficient authority and the technical capacity to conduct these
reviews by satisfying the applicable criteria to be considered to have
an Effective ECP Review Program under Sec. 155.1051. We note that
provisions related to non-network plans will be effective beginning on
or after January 1, 2028.
We are finalizing our proposal to amend Sec. 155.1200(d) and add
new paragraph (e) to permit State Exchanges to satisfy certain
requirements of the independent external programmatic audit, as
outlined in paragraph (d), by completing the SEIPM process that will be
established at 45 CFR 155, subpart Q.
We are finalizing our proposal to add new subpart Q (Sec. Sec.
155.1600 through 1650) to establish the SEIPM program. The Payment
Integrity Information Act of 2019 (PIIA) requires Federal agencies to
annually review, measure, and report on the programs they administer
that have been determined to be susceptible to significant improper
payments. To satisfy the requirements of the PIIA, we are finalizing
our proposal to measure improper payments of APTC that are administered
by State Exchanges and to annually report statistically valid improper
payment estimates in the HHS Agency Financial Report.
5. 45 CFR Part 156
We are finalizing 2027 benefit year FFE and SBE-FP user fee rates
of 1.9 percent and 1.5 percent of total monthly premiums, respectively.
We paused review of State applications to select EHB-benchmark
plans in accordance with Sec. 156.111. We are reviewing section 1302
of the Affordable Care Act and are considering future rulemaking to
revise Sec. 156.111 and EHB standards more broadly.
We are finalizing our proposal to revise Sec. 156.115(d) to
prohibit issuers from including routine non-pediatric dental services
as an EHB.
We are finalizing, with modification, our proposals to amend the
requirements for catastrophic plans in Sec. 156.155. We specify that,
effective for plan years beginning on or after January 1, 2027, a
catastrophic plan has a plan term of either 1 plan year, or of multiple
consecutive plan years not to exceed 10 plan years, and that
catastrophic plans with terms of at least 2 consecutive plan years may
utilize value-based insurance designs to provide benefits before
reaching the deductible, pursuant to guidelines issued by the
Secretaries of HHS, Labor, and the Treasury under section 2713(c) of
the PHS Act. We are not finalizing our proposal to amend Sec. 156.80
to permit issuers of multi-year catastrophic plans to make a plan-level
adjustment to the index rate that reflects the length of the entire
plan term. We also are not finalizing our proposal to amend Sec.
156.130 to specify that, in the case of a catastrophic plan with a
consecutive multi-year term, the annual limitation on cost sharing for
the initial plan year of the contract may apply on an annual basis, or
on average over the life of the contract.
To address an issue that has arisen in the implementation of
section 1302(c) through (e) of the Affordable Care Act, we are
finalizing changes to (1) the permissible cost-sharing parameters for
individual market bronze plans through new Sec. 156.136 effective
beginning PY 2027, with modification to specify that such plans are
permitted to exceed the standard annual limitation on cost sharing by
up to 130 percent of the standard annual limitation on cost sharing,
and (2) the required cost-sharing parameters for catastrophic plans
through revisions to Sec. 156.155(a)(3) with a modification to have
the revisions to Sec. 156.155(a)(3) be effective beginning PY 2028.
We are finalizing our proposal to remove the following from our
regulations effective beginning in PY 2027: the definition of
``standardized options'' at Sec. 155.20; all requirements pertaining
to standardized plan options at Sec. 156.201; the differential display
of standardized plan options on <a href="http://HealthCare.gov">HealthCare.gov</a> at Sec. 155.205(b)(1);
the corresponding standardized plan option differential display
requirements for approved web-broker and QHP issuer enrollment partners
using a DE pathway to facilitate consumer enrollment through an FFE or
SBE-FP at Sec. Sec. 155.220(c)(3)(i)(H) and 156.265(b)(3)(iv); the
annual design and publication of these standardized plan options in the
applicable Payment Notice for each plan year; and non-standardized plan
option limits and exceptions at Sec. 156.202.
We are finalizing our proposal to revise the network adequacy and
ECP standards at Sec. Sec. 156.230 and 156.235 to make clear that
these sections contain the provider access standards for all individual
market QHPs and stand-alone dental plans (SADPs) and all
[[Page 29536]]
Small Business Health Options Program (SHOP) QHPs across all QHP
issuers that use a network of providers. We also are finalizing our
proposal to revise these sections to remove the requirement that all
QHPs must use a network of providers.
Additionally, we are finalizing our proposal to revise Sec.
156.230 to provide that HHS will continue to conduct network adequacy
reviews using standards described at Sec. 156.230 for QHP issuers that
use a provider network in FFE States that do not elect to conduct such
reviews, or in FFE States that HHS has determined do not satisfy the
criteria to be considered to have an Effective Provider Access Review
Program, as described at Sec. 155.1050(d). We also are finalizing our
proposal to add new Sec. 156.236 to allow plans that do not use a
network (non-network plans) to receive QHP certification, effective
beginning in PY 2028, by demonstrating that they ensure a sufficient
choice of providers that accept the non-network plan's benefit amount
as payment in full, and reasonable and timely access to ECPs that
accept the plan's benefit amount as payment in full. As finalized,
Sec. 156.236 will set forth provider access and ECP requirements for
assessing whether non-network plans provide sufficient choice of
providers.
For PY 2027 and subsequent plan years, we are finalizing, with
modification, our proposed changes to the QHP certification
requirements for ECPs included within a network plan issuer's provider
network. First, we are not finalizing our proposal to reduce the
minimum percentage requirement from 35 to 20 percent for both medical
QHP and SADP issuers. Second, we are finalizing our proposal to modify
the narrative justification requirements at Sec. Sec. 156.235(a)(3)
and 156.235(b)(3) to be consistent with systems changes and existing
QHP issuer ECP data submission requirements as part of ECP
certification reviews.
We are finalizing our proposal to modify Sec. 156.480(c) to
clarify HHS' authority to audit or conduct a compliance review of an
issuer that offers a QHP through an Exchange for the purposes of
administering and providing oversight of the APTC, CSR, and user fee
programs. We are also finalizing that HHS may conduct a compliance
review to assess issuers' compliance with requirements related to these
programs as needed or on an annual basis rather than only on an ad hoc
basis.
We are finalizing our proposal to amend Sec. 156.805(b) to
reiterate in Sec. 156.805(b) that in determining the amount of CMPs,
in addition to the factors HHS takes into account when determining a
CMP amount listed in Sec. 156.805(b)(1) through (3), HHS will identify
the lawful purpose or purposes of the CMP. We are also finalizing our
proposal to amend the introductory text of Sec. 150.317 to make
corresponding edits for the factors HHS, through CMS, considers when
determining the amount of CMPs as enforcement remedies against issuers
more broadly or other responsible entities, such as a non-Federal
governmental plan sponsor that is subject to applicable PHS Act
requirements. In addition, we are finalizing our proposal to amend
Sec. 156.805(f) to reiterate that HHS has the authority to impose CMPs
against issuers in a State Exchange or SBE-FP for an identified
violation of any Exchange requirements applicable to issuers offering a
QHP in an Exchange, when a State notifies HHS that it is not enforcing
these requirements or HHS determines that a State is failing to
substantially enforce these requirements.
We are finalizing our proposal to amend Sec. 156.903 to provide
the option for an administrative law judge (ALJ) to issue subpoenas,
upon his or her own motion or at the request of a party, if reasonably
necessary for the full presentation of a case and to add procedures
governing the process for issuing subpoenas. We are also finalizing our
proposal to amend Sec. 156.935 to ensure that the discovery provisions
set forth therein do not apply to administrative appeals of proposed
CMPs for violations identified through audits of the APTC, CSR, or user
fee programs conducted in accordance with Sec. 156.480(c).
We are finalizing our proposal to require QHP issuers to submit
QISs addressing any two of the five topic areas listed in section
1311(g)(1) of the Affordable Care Act, without mandating which specific
topics areas a QHP issuer will be required to address to meet the QIS
statutory certification requirement, beginning with PY 2027.
We are finalizing our proposal to amend Sec. 156.1215(b) to
provide that CMPs assessed against health coverage issuers and their
affiliates under the same taxpayer identification (TIN) number will be
subject to netting as part of HHS' integrated monthly payment and
collection cycle. We are also finalizing our proposal to amend Sec.
156.1215(c) to provide that any amount owed to the Federal Government
by an issuer and its affiliates for unpaid CMP amounts, after HHS nets
amounts owed by the Federal Government, will be the basis for
calculating the debt.
We are finalizing a technical correction to update a cross
reference in Sec. 156.1220.
6. 45 CFR Part 158
We sought comment on the impact of the Federal MLR standard on
individual market stability and whether HHS should use its authority
under section 2718(b)(1)(A)(ii) of the PHS Act and Sec. 158.301 to
adjust the Federal MLR standard in a State to promote individual market
stability. We also solicited comment on whether and how to amend
regulations allowing States to request an adjustment to the MLR
standard in their individual market to reduce burden and encourage
States to request adjustments, as appropriate, in their State markets.
We will take comments we received into consideration as we continue to
consider potential adjustments to the Federal MLR standard for
particular States' individual health insurance markets.
III. Summary of the Proposed Provisions, Public Comments, and Responses
to Comments on the Proposed Rule
A. Part 150--CMS Enforcement in Group and Individual Insurance Markets
1. Factors CMS Uses To Determine the Amount of a Civil Money Penalty
(CMP) (Sec. 150.317)
In the 2027 Payment Notice proposed rule (91 FR 6292, 6327), to
align with the proposal discussed in section III.E.14. of the proposed
rule, which would reiterate in Sec. 156.805(b) what factors HHS
considers when determining the amount of CMPs as enforcement remedies
against QHP issuers in Exchanges, we proposed a conforming amendment to
Sec. 150.317 introductory text to clarify that HHS, through CMS, will
identify the lawful purpose or purposes of the penalty, and take into
account the enumerated factors as appropriate for the circumstances. In
proposing the conforming edits to Sec. 150.317, we did not propose
other changes to the legal bases and procedural processes for imposing
CMPs.
We requested comment on this proposal.
After consideration of comments and for the reasons outlined in the
proposed rule and section III.E.14. of this final rule, including our
responses to comments, we are finalizing as proposed an amendment to
the introductory text of Sec. 150.317 to make
[[Page 29537]]
corresponding edits for the factors HHS considers when determining the
amount of CMPs as enforcement remedies against issuers more broadly or
other responsible entities, such as a non-Federal governmental plan
sponsor that is subject to applicable PHS Act requirements. We
summarize and respond to public comments received on the proposed
conforming amendment for the factors HHS considers when determining the
amount of CMPs as enforcement remedies at Sec. 156.805(b) in section
III.E.14. of this final rule.
B. 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 Affordable Care Act that transfers funds from issuers of risk
adjustment covered plans that have lower-than-average risk enrollees to
issuers of risk adjustment covered plans that have higher-than-average
risk enrollees, which includes issuers with plans in the individual,
small group, 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 the State's
behalf.\17\ HHS did not receive any requests from States to operate
risk adjustment for the 2027 benefit year. Therefore, HHS will operate
risk adjustment in every State and the District of Columbia for the
2027 benefit year.
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\17\ 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 2026, the HHS-operated risk
adjustment program is subject to the fiscal year 2026
sequestration.\18\ The Federal Government's 2026 fiscal year began on
October 1, 2025. Therefore, the HHS-operated risk adjustment program is
sequestered at a rate of 5.7 percent for payments made from fiscal year
2026 resources (that is, funds collected during the 2026 fiscal year).
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\18\ OMB. (2025). OMB Report to the Congress on the BBEDCA 251A
Sequestration for Fiscal Year 2026. <a href="https://www.whitehouse.gov/wp-content/uploads/2025/04/OMB-Report-to-the-Congress-on-the-BBEDCA-251A-Sequestration-for-Fiscal-Year-2026.pdf">https://www.whitehouse.gov/wp-content/uploads/2025/04/OMB-Report-to-the-Congress-on-the-BBEDCA-251A-Sequestration-for-Fiscal-Year-2026.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),\19\ as amended, and the underlying authority for the
HHS-operated risk adjustment program, the funds that are sequestered in
fiscal year 2026 from the HHS-operated risk adjustment program will
become available for payment to issuers in fiscal year 2027 without
further congressional action. If 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 year in which the funds were sequestered.
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\19\ Public Law 99-177, 99 Stat. 1037 (1985).
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Additionally, we note that the Infrastructure Investment and Jobs
Act \20\ amended section 251A(6) of the BBEDCA to extend the
sequestration first mandated under the Budget Control Act of 2011 for
all non-exempt direct spending programs, including the HHS-operated
risk adjustment program, through fiscal year 2031 at a rate of 5.7
percent per fiscal year.\21\
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\20\ Public Law 117-58, section 90001(1), 135 Stat. 429, 1341
(2021), codified at 2 U.S.C. 901a(6)(B).
\21\ Section 251A(6)(B) of the Balanced Budget and Emergency
Deficit Control Act, 2 U.S.C. 901a(6)(B), as amended, requires
sequestration of non-exempt direct spending programs, excluding
Medicare, through fiscal year 2031 at a uniform percentage
calculated by OMB to be necessary to meet certain deficit reduction
targets in fiscal year 2021. That uniform percentage was calculated
to be 5.7 percent in the OMB Report to the Congress on the Joint
Committee Reductions for Fiscal Year 2021.
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We summarize and respond to public comments received on the HHS-
operated risk adjustment program's sequestration rate of 5.7 percent
for payments made from fiscal year 2026 resources (that is, funds
collected during the 2026 fiscal year).
Comment: One commenter acknowledged the fiscal year 2026
sequestration rate. Another commenter noted that the sequestration rate
applied to fiscal year 2026 collected funds will continue affecting
risk adjustment State transfer amounts, which may noticeably impact
small issuer margins. Therefore, the commenter recommended ongoing
monitoring of solvency and market participation by HHS.
Response: Although we acknowledge a delay in risk adjustment
payments to issuers when funds are sequestered, in accordance with the
BBEDCA, any sequestered funds will become available for payments to
issuers in the next fiscal year. This sequestration of risk adjustment
funds has occurred since the 2015 fiscal year (that is, the 2014
benefit year and first year of the HHS-operated risk adjustment
program) and therefore, issuers, including small issuers, are familiar
with this process and can anticipate this delay in their risk
adjustment payments.
Additionally, we appreciate the recommendation regarding ongoing
monitoring of solvency and market participation and note that HHS
conducts ongoing monitoring of solvency and market participation each
year across issuers of various sizes, including consulting with our
actuaries and States.
For reasons outlined in the proposed rule and this final rule, the
HHS-operated risk adjustment program will sequester payments made from
fiscal year 2026 resources (that is, funds collected during the 2026
fiscal year) 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 hierarchical condition categories (HCCs)), producing a
risk score. The State payment transfer formula \22\ 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.
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\22\ 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
payments and charges that apply beginning with the 2018 benefit
year). See, for example, 81 FR 94080.
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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,\23\ and prescription drug categories (RXCs)
beginning with the 2018 benefit year.\24\ 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
[[Page 29538]]
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 \25\ applicable
to certain severity and transplant HCCs (87 FR 27224 through
27228).\26\ Starting with the 2026 benefit year (90 FR 4424 at 4438),
we added a new type of model factor in the adult and child models to
account for risk associated with non-demographic enrollee
characteristics that do not indicate the presence of a specific active
medical condition. We referred to the new type of factor as an
``affiliated cost factor'' (ACF), thereby distinguishing this new type
of factor from RXCs and HCCs, which do indicate the presence of a
specific active medical condition.
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\23\ For the 2017 through 2022 benefit years, there is a set of
11 binary enrollment duration factors in the adult models that
decrease 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.
\24\ 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.
\25\ See Table 2 for a list of factors in the adult models and
Table 3 for a list of factors in the child models.
\26\ Also see Table 4.
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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 cost-sharing reduction (CSR)
adjustment factor.\27\ 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.
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\27\ For unique State-specific plans, we apply the CSR
adjustment factors that correspond to each plan's AV. See, for
example, the 2025 Payment Notice, 89 FR 26252 through 26253.
However, a different approach is taken for States whose State-
specific plans take the form of Medicaid expansion plans offered on
the Exchange (for example, Arkansas), because these Medicaid-
expansion plans are identical in all their parameters, including AV
and degree of plan liability, to other plans offered on the Exchange
in those States and are differentiated from their comparable plans
only in eligibility criteria, plan enrollment selection, and sources
of funding. Ibid. Footnote 79 of the 2025 Payment Notice (89 FR
26253), erroneously stated that, ``we would use the proposed CSR
adjustment factor of 1.12 for Arkansas 94 percent AV Medicaid-
expansion plans and the proposed CSR adjustment factor that
corresponds to the silver metal level zero cost sharing variants
(that is, the proposed 1.46 CSR adjustment factor for zero cost
sharing variants) for Arkansas 100 percent AV Medicaid-expansion
plans in the plan liability risk score calculation.'' See <a href="https://regtap.cms.gov/reg_librarye.php?i=4690">https://regtap.cms.gov/reg_librarye.php?i=4690</a>. Arkansas 100 percent AV
Medicaid-expansion plan features remain more similar to the 94
percent silver plan variant than to the silver metal level zero cost
sharing variant for AI/AN enrollees. Therefore, for both the 94 and
100 percent Medicaid-expansion plans in Arkansas, we use the same
CSR adjustment factor of 1.12 used for the 94 percent silver plan
variant CSR adjustment factor in the plan liability risk score
calculation. We will continue to align the CSR adjustment factor for
both the 94 and 100 percent Medicaid-expansion plans in Arkansas
with the 94 percent silver plan variant CSR adjustment factor for
the 2027 benefit year and beyond unless the AVs for these unique
Arkansas-specific plans change. More information on the CSR factors
used for CSR plan variants, including State program CSR variants,
can be found in the applicable Risk Adjustment HHS-Developed Risk
Adjustment Model Algorithm ``Do It Yourself (DIY)'' Software
instructions, available at <a href="https://www.cms.gov/marketplace/resources/regulations-guidance#Premium-Stabilization-Programs">https://www.cms.gov/marketplace/resources/regulations-guidance#Premium-Stabilization-Programs</a>.
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a. Data for HHS Risk Adjustment Model Recalibration for the 2027
Benefit Year
In the 2027 Payment Notice proposed rule (91 FR 6327), we proposed
to recalibrate the 2027 benefit year HHS risk adjustment models with
the 2021, 2022, and 2023 benefit years' enrollee-level EDGE data.
Consistent with the approach outlined in the 2020 Payment Notice (84 FR
17454 through 17464), we proposed to recalibrate the HHS risk
adjustment models for the 2027 benefit year using only enrollee-level
EDGE data, and to continue to use blended, or averaged, coefficients
from 3 years of separately solved models for the 2027 benefit year
model recalibration. Additionally, in the 2027 Payment Notice proposed
rule (91 FR 6327), and as outlined in the 2022 Payment Notice (86 FR
24140, 24152), we proposed to use the 3 most recent consecutive years
of enrollee-level EDGE data that are available at the time we estimate
the draft recalibrated coefficients published in the final rule for the
applicable benefit year.\28\ We noted that we believe this promotes
stability, meets the goal of the HHS-operated risk adjustment program,
and allows issuers more time to incorporate this information when
pricing their plans for the upcoming benefit year.
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\28\ Although we do receive the next year of enrollee-level EDGE
data prior to the proposed rule, that data must go through several
quality and analysis checks before it is useable for HHS risk
adjustment model calibration.
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Consistent with our prior approach when a new benefit year of
enrollee-level EDGE data becomes available,\29\ we performed reviews of
the 2023 benefit year enrollee-level EDGE data to identify potential
anomalies prior to incorporating the 2023 benefit year enrollee-level
EDGE data as part of the proposed recalibration of the HHS risk
adjustment models. Our review did not identify systematic anomalies in
the 2023 benefit year enrollee-level EDGE data. Therefore, after
considering these analyses, we proposed to determine coefficients for
the 2027 benefit year HHS risk adjustment models based on a blend of
separately solved coefficients from the 2021, 2022, and 2023 benefit
years' enrollee-level EDGE data, with the costs of services identified
from the data trended between the relevant year of data and the 2027
benefit year.\30\ \31\ The coefficients tables (Tables 2 through 7)
reflect the use of trended 2021, 2022, and 2023 benefit year enrollee-
level EDGE data, as well as other HHS risk adjustment model updates
(including, for example, the multi-year approach finalized in the 2026
Payment Notice (90 FR 4438 through 4440) to phase out the market
pricing adjustment to the plan liability associated with Hepatitis C
drugs in the HHS risk adjustment models and align Hepatitis C drugs'
trending with the trending approach for specialty drugs \32\).
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\29\ See, for example, the 2024 Payment Notice proposed rule (87
FR 78215 through 78216) and final rule (88 FR 25749 through 25753).
\30\ Because EDGE data do not generally account for drug rebates
per the EDGE Server Business Rules (ESBR) (available at <a href="https://regtap.cms.gov/reg_librarye.php?i=3765">https://regtap.cms.gov/reg_librarye.php?i=3765</a>), for the purposes of risk
adjustment recalibration, we also incorporate assumptions about drug
rebates in our trending of prescription drug data.
\31\ We note that we apply some standard data exclusions to all
years of enrollee-level EDGE data for the purposes of risk
adjustment recalibration. For example, enrollees with at least one
capitated claim in EDGE are excluded from recalibration because we
have some concerns that the methods for computing and reporting
derived amounts from capitated claims could be inconsistent across
issuers and would not provide reliable or comparable data. See, for
example, the 2025 Payment Notice (89 FR 26252).
\32\ To begin this transition for the 2026 benefit year HHS risk
adjustment models, we applied 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 (that is,
2020, 2021, and 2022 benefit year enrollee-level EDGE data) in 2026
benefit year HHS risk adjustment model recalibration. To continue
this transition for the 2027 benefit year HHS risk adjustment
models, we apply the specialty drug trend to 2 years of trending
Hepatitis C treatment costs (that is, the trend from 2025 to 2026
and from 2026 to 2027) for all 3 years of enrollee-level EDGE data
(that is, 2021, 2022, and 2023 benefit year enrollee-level EDGE
data) proposed to be used in 2027 benefit year HHS risk adjustment
model recalibration.
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We sought comment on the proposal to determine 2027 benefit year
coefficients for the HHS risk adjustment models based on a blend of
separately solved coefficients from the 2021, 2022, and 2023 benefit
year enrollee-level EDGE data.
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 2027 benefit year
[[Page 29539]]
coefficients for the HHS risk adjustment models based on a blend of
separately solved coefficients from the 2021, 2022, and 2023 benefit
year enrollee-level EDGE data, as proposed. We summarize and respond to
public comments received on the proposed recalibration of the 2027
benefit year risk adjustment models using 2021, 2022, and 2023 benefit
year enrollee-level EDGE data below.
Comment: A few commenters supported utilizing the 2021, 2022, and
2023 enrollee-level EDGE data to recalibrate the HHS risk adjustment
models for the 2027 benefit year as proposed. Other commenters opposed
or stated concern about using these years of enrollee-level EDGE data
due to concerns about the potential impact of the COVID-19 public
health emergency (PHE) on some of these benefit years of enrollee-level
EDGE data. A commenter stated that the SEPs available between 2021 and
2023, particularly the SEP for enrollees at or below 150 percent the
Federal Poverty Level (FPL), skewed the value of the enrollment
duration factors, stating that the expanded SEP eligibility led to many
lower-risk individuals joining the market as partial year enrollees and
deflated the value of the enrollment duration factors. In this regard,
this commenter noted that the proposed 2027 benefit year enrollment
duration factors were lower than in prior benefit years.
Response: We are finalizing the use of the 2021, 2022, and 2023
enrollee-level EDGE data to recalibrate the 2027 benefit year HHS risk
adjustment models as proposed. As described in the 2026 Payment Notice
(90 FR 4437), our analyses found the 2021 and 2022 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
risk adjustment model recalibration is not warranted. Additionally, as
described in the proposed rule (91 FR 6305), our analysis likewise did
not identify any data anomalies that would justify excluding 2023
benefit year enrollee-level EDGE data from HHS risk adjustment model
recalibration.
We recognize that it is important to carefully consider the impact
of using a benefit year of enrollee-level EDGE data in the annual
recalibration of the HHS risk adjustment models in situations where a
benefit year of data could have significant changes that differentially
impact certain conditions or populations relative to others or is
sufficiently anomalous relative to expected future patterns of
care.\33\ 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, we
conducted extensive analysis on the 2020 benefit year enrollee-level
EDGE data to consider its inclusion in HHS risk adjustment model
recalibration, as described in the 2024 Payment Notice proposed rule
(87 FR 78214 through 78218) and final rule (88 FR 25749 through 25754).
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\33\ Since the start of model calibration for the HHS risk
adjustment models in benefit year 2014, the COVID-19 PHE and its
potential impact on utilization and costs 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.
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Likewise, when we conducted recalibration of the 2025 and 2026
benefit year risk adjustment models, we conducted similar analyses on
the 2021 and 2022 benefit year enrollee-level EDGE data as we did to
the 2020 benefit year enrollee-level EDGE data to examine the potential
impact of the COVID-19 PHE. We did not find any notable anomalous
trends and determined that deviations identified in the 2020 through
2022 benefit year data were within the expected level for any
individual data year. As described in the proposed rule (91 FR 6304),
we repeated this analysis with the 2023 benefit year enrollee-level
EDGE data and did not find any notable anomalous trends. In addition,
the blending of the coefficients from the separately solved models
further stabilizes any differences across years. As the underlying 2021
and 2022 benefit years' enrollee-level EDGE data used to recalibrate
the 2026 benefit year risk adjustment models are identical to the 2021
and 2022 benefit year enrollee-level EDGE data used to recalibrate the
2027 benefit year risk adjustment models, and only differ in that they
are trended forward one more year to capture projected 2027 benefit
year medical expenditures, the analyses and conclusions discussed in
prior rulemaking for those benefit years of data equally apply to the
recalibration of the HHS risk adjustment models for the 2027 benefit
year.
With respect to the comment about the impact of SEPs available
between 2021 and 2023 on enrollment duration factors, we conducted an
analysis to examine to what extent changes in the enrollment duration
factors could be attributed to these SEPs, including the SEP for
enrollees at or below 150 percent FPL, and did not find cause for
concern related to the impact of expanded SEP eligibility.
Additionally, we note that as currently specified in the HHS risk
adjustment models,\34\ the HCC-contingent enrollment duration factors
with which the commenter is concerned are assigned to enrollees only if
the enrollee also has an HCC appearing in their enrollee-level EDGE
data. As such, we would not expect these factors to be impacted by an
influx of partial year low-risk enrollees as described in the comment.
However, in response to this comment, we further reviewed the HCC-
contingent enrollment duration factors since they were first finalized
in the 2023 Payment Notice (87 FR 27228 through 27230), and found that
the factors were generally at their lowest in the 2023 benefit year,
which were recalibrated using 2017, 2018, and 2019 benefit year
enrollee-level EDGE data. Notably, these data were not impacted by the
SEP specifically identified by the commenter, which was not available
until November 26, 2021, the effective date of part 3 of the 2022
Payment Notice (86 FR 53412). As such, we do not presently see evidence
that decreases in enrollment duration factors are attributable to the
expanded SEP eligibility.
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\34\ The current specification of the HCC-contingent enrollment
duration factors was finalized in the 2023 Payment Notice (87 FR
27228 through 27230). Please note that the HCC-contingent enrollment
duration factors only apply to adult HHS risk adjustment models. See
footnote 46 of the HHS-Operated Risk Adjustment Technical Paper on
Possible Model Changes, (CMS, 2021; 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>). See also
the 2021 Payment Notice (85 FR at 7103 and 7104).
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Furthermore, we note that in our annual recalibration of the HHS
risk adjustment models, we use blended, or averaged, coefficients from
3 years of separately solved models to provide stability for the risk
adjustment coefficients year-to-year, while reflecting the most recent
years' claims experience available. We believe that this approach
continues to provide stability for all risk adjustment model
coefficients, including those of the HCC-contingent enrollment duration
factors. However, we also note that the purpose for recalibrating the
risk adjustment models on annual basis is to reflect changes in claims
experience over time. As such, the mere increase or decrease of a
coefficient between benefit years of the risk adjustment models is not
necessarily indicative of an issue with the factor or the data.
For these reasons, HHS did not propose and is not finalizing any
changes to the HCC-contingent enrollment duration factors as part of
this rule. However, as more data years become available, we will
continue to
[[Page 29540]]
investigate the performance of the HCC-contingent enrollment duration
factors. Specifically, as the SEP landscape changes and we have new
data to reflect those changes, we will assess the extent to which the
HCC-contingent enrollment duration factors fully capture the financial
impact of enrollment duration for enrollees who enroll during an SEP.
Additionally, we acknowledge that the role of the HCC-contingent
enrollment duration factors is to more directly reflect the experience
of partial year enrollees, thereby reducing issuers' incentives for
risk selection by improving model prediction.\35\ However, as we
explain later in this rule, we are also interested in identifying
additional incentives for issuers to invest in the long-term health of
their enrollees, particularly with regard to preventive services.
Although we are declining to make changes to the HCC-contingent
enrollment duration factors at this time, we will continue to evaluate
these factors and the HHS risk adjustment models to ensure they are
appropriately accounting for condition-based risk without producing
unintended consequences.
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\35\ See the 2018 Payment Notice (81 FR 94071 through 94074).
See also the 2023 Payment Notice (87 FR 27228 through 27230).
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Comment: One commenter requested that HHS begin including enrollees
with capitated claims in the recalibration data set on the basis that
many enrollees with capitated claims have a large proportion of costs
that do not come from capitated sources. This commenter further noted
that enrollees with capitated claims have materially different risk
profiles than enrollees without capitated claims, which may have
implications for the HHS risk adjustment model coefficients.
Response: We did not propose modifying our exclusion of enrollees
with capitated claims from data used for risk adjustment recalibration
for the 2027 benefit year and are not making any change to this policy
as part of this final rule. However, we will continue to consider this
comment for potential future benefit year recalibration efforts and
would propose any changes in future notice and comment rulemaking. As
acknowledged by the commenter, we presently exclude enrollees with at
least one capitated claim in EDGE from HHS risk adjustment model
recalibration because we have some concerns that the methods for
computing and reporting derived amounts from capitated claims could be
inconsistent across issuers and would not provide reliable or
comparable data.\36\ Although HHS currently excludes enrollees with
capitated claims for purposes of the risk adjustment model
recalibration activities, we plan to continue to evaluate this data and
whether to include these enrollees in recalibrating the models in
future benefit years.
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\36\ See CMS. (2016). March 31, 2016, HHS-Operated Risk
Adjustment Methodology Meeting Discussion 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>. See also, CMS. (2021).
HHS-Operated Risk Adjustment Technical Paper on Possible Model
Changes. Chapter 1.4. <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>. See also, the 2025 Payment Notice (89 FR
26252).
---------------------------------------------------------------------------
Comment: One commenter requested that HHS provide State payment
transfer simulation results to help issuers evaluate the effects of the
proposed model updates. Another commenter requested a narrative
explanation of all substantial changes in coefficients between the 2026
benefit year and 2027 benefit year HHS risk adjustment models.
Response: The 2027 benefit year HHS risk adjustment model
coefficients finalized in this proposed rule are very similar to those
finalized for the previous benefit year \37\ and generally varied from
their 2026 benefit year values less than we have observed in previous
year-to-year changes (Table 1). For example, the age-sex coefficients
for the 2027 benefit year HHS risk adjustment models varied from 2026
benefit year values by a median of <plus-minus>3.7 percent, whereas the
median year-to-year change for age-sex factors across all previous HHS
risk adjustment model recalibrations is <plus-minus>9.1 percent. In
contrast, the 2027 benefit year coefficients for the adult enrollment
duration factors varied from their 2026 benefit year coefficients by a
median of <plus-minus>10.3 percent, whereas the median year-to-year
change for HCC-contingent enrollment duration factors since the 2023
benefit HHS risk adjustment models in which they were introduced is
<plus-minus>9.8 percent. However, these values are within 0.5
percentage points of one another, and therefore, we believe these
variations fall within the expected range for normal year-to-year
variations.
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\37\ See CMS. (2025). 2026 Benefit Year Final HHS Risk
Adjustment Model Coefficients. <a href="https://www.cms.gov/files/document/2026-benefit-year-final-hhs-risk-adjustment-model-coefficients2025-01-13.pdf">https://www.cms.gov/files/document/2026-benefit-year-final-hhs-risk-adjustment-model-coefficients2025-01-13.pdf</a>.
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[[Page 29541]]
[GRAPHIC] [TIFF OMITTED] TR20MY26.000
Additionally, we note that the commenter who requested a narrative
explanation of substantial changes in the HHS risk adjustment model
coefficients did not specify any particular factors that they believe
rise to the level of substantial change or otherwise offer a definition
of what they viewed as qualifying as ``substantial'' changes, impeding
our ability to provide such a narrative. However, at the same time, we
reiterate that the purpose for recalibrating the risk adjustment models
on an annual basis is to reflect changes in claims experience over
time. As such, the mere increase or decrease of a coefficient between
benefit years of the risk adjustment models is not necessarily
indicative of an issue with the model factors or the enrollee-level
EDGE data. Because changes in the value of coefficients are highly
dependent on the context particular to the benefit years of enrollee-
level EDGE data used to recalibrate the models, we do not believe that
it is feasible to develop a single definition of ``substantial''
changes that could be applicable to all types of model factors for all
benefit years.
Furthermore, with regard to the request for a State payment
transfer simulation reflecting the recalibrated coefficients for the
proposed HHS risk adjustment models for the 2027 benefit year, we have
historically released State payment transfer simulations only when we
are proposing or contemplating major model changes, such as in the case
of the 2021 Risk Adjustment Technical Paper,\38\ which we accompanied
with such a simulation.\39\ For the recalibration of the 2027 benefit
year HHS risk adjustment models, we did not propose and are not
finalizing any changes, major or minor, to the structure of the risk
adjustment models. The only change we proposed and are finalizing for
the 2027 benefit year HHS risk adjustment models is the annual
recalibration of the coefficients, which involves equally weighting and
blending (averaging) factors from separately solved models using the
2021, 2022, and 2023 benefit years of enrollee-level EDGE data instead
of the 2020, 2021, and 2022 benefit years of enrollee-level EDGE data.
As there is an overlap of two years of enrollee-level EDGE data between
the 2026 and 2027 benefit year HHS risk adjustment models, the
coefficients between the two benefit years of HHS risk adjustment
models are very similar. In the absence of proposing or finalizing
major changes to the models' structure, we do not see a need to publish
a State payment transfer simulation and note that issuers, other
interested parties, and the public were able to rely upon available
information (for example, previous benefit year transfers, the proposed
2027 benefit year HHS risk adjustment model coefficients in the
proposed rule (91 FR 6305 through 6321), and the most recently
available version of the HHS Developed Risk Adjustment Model Algorithm
``Do It Yourself'' Software \40\) to assess the impact of the proposed
model recalibration updates.
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\38\ See CMS. (2021). HHS-Operated Risk Adjustment Technical
Paper on Possible Model Changes. <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>.
\39\ See CMS. (2021). HHS-Operated Risk Adjustment Technical
Paper on Possible Model Changes: Summary Results for Transfer
Simulations. <a href="https://www.cms.gov/files/document/report-summary-results-transfer-simulations.pdf">https://www.cms.gov/files/document/report-summary-results-transfer-simulations.pdf</a>.
\40\ At the time of the publication of the proposed rule, the
most recently available version was the January 23, 2026 version of
the 2025 Benefit Year Risk Adjustment HHS-Developed Risk Adjustment
Model Algorithm ``Do It Yourself (DIY)'' Software, available at
<a href="https://www.cms.gov/marketplace/resources/regulations-guidance">https://www.cms.gov/marketplace/resources/regulations-guidance</a>.
Although not directly applicable to the 2027 benefit year, the 2025
benefit year software contains information that can be used to
correctly filter and format enrollee-level data for the calculation
of risk scores using the proposed 2027 benefit year HHS risk
adjustment model coefficients that we are finalizing in this rule.
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[[Page 29542]]
b. List of Factors To Be Employed in the HHS Risk Adjustment Models
(Sec. 153.320)
The 2027 benefit year HHS risk adjustment model factors resulting
from the equally weighted (averaged) blended factors from separately
solved models using the 2021, 2022, and 2023 benefit year enrollee-
level EDGE data are shown in Tables 1 through 7. The HHS risk
adjustment adult, child, and infant models are truncated to account for
the high-cost risk pool payment parameters by removing 60 percent of
costs above the $1 million threshold.\41\ Table 2 contains factors for
each adult model, including the age-sex, HCC, RXC,\42\ RXC-HCC
interaction, interacted HCC count, ACF, and enrollment duration
coefficients. Table 3 contains the factors for each child model,
including the age-sex, HCC, interacted HCC count, and ACF coefficients.
Table 4 lists the HCCs selected for the interacted HCC count factors
that would apply to the HHS risk adjustment adult and child models.
Table 5 contains the factors for each HHS risk adjustment infant model.
Tables 6 and 7 contain the HCCs included in the HHS risk adjustment
infant models' maturity and severity categories, respectively.
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\41\ 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 changes to the high-cost
risk pool parameters for the 2027 benefit year. Therefore, we will
maintain the $1 million threshold and 60 percent coinsurance rate
for the 2027 benefit year.
\42\ In the 2026 Payment Notice, we incorrectly stated that 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. We
subsequently updated the January 2025 version of the 2024 Benefit
Year Risk Adjustment DIY software instructions (<a href="https://www.cms.gov/files/document/cy2024-diy-instructions-01072025.pdf">https://www.cms.gov/files/document/cy2024-diy-instructions-01072025.pdf</a>) to reflect this
erroneous statement. In the Final 2024 Risk Adjustment DIY software
instructions updated April 9, 2025 (<a href="https://www.cms.gov/files/document/cy2024-diy-instructions-04092025.pdf">https://www.cms.gov/files/document/cy2024-diy-instructions-04092025.pdf</a>), we corrected this
error and clarified that the HCPCS-level file for RXC assignment can
only be sourced from institutional inpatient and outpatient claims
with RA-eligible bill types. We expect ACFs related to prescription
drugs will be sourced using the same criteria as RXCs. We will
announce changes to HHS risk adjustment claims filtering with regard
to RXC or ACF eligibility in future guidance documents or notice and
comment rulemakings, as appropriate.
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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.
Comment: A commenter requested 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.
Response: We did not propose and are not finalizing separate
individual and small group market models. We acknowledge the
commenter's request that HHS study the impact of calibrating the HHS
risk adjustment models separately for the individual and small group
markets. We have reviewed this potential approach and, through our
analyses, have identified certain concerns with respect to
recalibrating separate models for the individual and small group
markets. First, we note that creating two separate risk adjustment
models for the individual and small group markets for each of the age
groups (adult, child, and infant) would significantly increase the
complexity of the HHS-operated risk adjustment program by nearly
doubling the number of HHS risk adjustment models.\43\ Furthermore,
because both the small group and individual markets are subject to the
same AV requirements, the only way to distinguish HHS risk adjustment
models for the small group market from those for the individual market
would be to separate the enrollee-level EDGE data used for HHS risk
adjustment model recalibration into individual market and small group
market datasets. Because the small group market is substantially
smaller than the individual market,\44\ we have concerns that such a
separation of datasets may result in sample size issues for models
specific to the small group market, particularly for enrollees with
high-cost and rare conditions.
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\43\ Because there are no catastrophic plans in the small group
market, separating the individual and small group markets would
require the recalibration of 12 additional risk adjustment models,
one for each metal level (except catastrophic) and age group (adult,
child, infant). This would result in a total of 27 HHS risk
adjustment models instead of the current 15.
\44\ For a State-level summary of enrollment by market, see, for
example, CMS. (2025). Summary Report On Individual And Small Group
Market Risk Adjustment Transfers For The 2024 Benefit Year, Appendix
A. <a href="https://www.cms.gov/files/document/ra-report-by2024.pdf">https://www.cms.gov/files/document/ra-report-by2024.pdf</a>.
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As an alternative to creating separate HHS risk adjustment models
for the individual and small group markets, we previously considered
\45\ adoption of enrollment duration factors by market. However, we did
not find a meaningful distinction in relative costs between markets on
average once we implemented the HCC-contingent enrollment duration
factors presently included in the adult HHS risk adjustment models.
Therefore, we determined it would not be necessary to introduce market-
specific factors if HCC-contingent enrollment duration factors were
implemented. Even though reasons for and patterns of partial-year
enrollment differ by market, we concluded that the patterns most
relevant for predicting cost (for example, how enrollment duration
relates to costs conditional on the presence of HCCs) were the same for
both markets. As such, whether we calibrate separate risk adjustment
models or only specific HCCs to reflect individual and small group
market-specific enrollment dynamics, we continue to believe that the
factors for both markets would generally be very similar, meaning that
such a separation would add little value to the models while adding
additional complexity and raising sample size concerns in regard to the
small group market.
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\45\ See CMS. (2021). HHS-Operated Risk Adjustment Technical
Paper on Possible Model Changes. <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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We also note that under the State payment transfer formula, we
calculate HHS risk adjustment transfers separately for the individual
and small group markets (except for in States with merged markets). As
such, HHS risk adjustment transfers largely reflect differences in risk
between individual and small group market plans separately, partially
mitigating the potential for differences between the individual and
small group markets to influence HHS risk adjustment transfers.
Nevertheless, we intend to continue to analyze the differences in costs
and utilization between the individual and small group markets to
consider whether these types of changes would be necessary or
appropriate in future benefit years.
Comment: A few commenters identified certain conditions and
treatments that they believe are undercompensated in the risk
adjustment models, including Graves' disease/hyperthyroidism and its
related treatment Tepezza, autism spectrum disorder, and GLP-1 drugs.
These commenters requested that HHS reconsider how these conditions and
treatments and their associated costs are accounted for in the HHS risk
adjustment models. Some commenters requested that HHS generally
consider how to address emerging and expensive therapies such as
cellular and gene therapies in the HHS-operated risk adjustment
program. Another commenter noted a U.S. Senate report \46\
[[Page 29543]]
from the Committee on the Judiciary regarding some issuers'
discretionary coding and other gaming mechanisms in the context of
Medicare Advantage plans that may impact the transfers calculated in
the HHS-operated risk adjustment program if similar behaviors are
present in issuers' EDGE server submissions.
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\46\ Grassley, C. (2026). How UnitedHealth Group Puts the Risk
in Medicare Advantage Risk Adjustment Majority Staff Report. <a href="https://www.grassley.senate.gov/imo/media/doc/uhg_report_-_final.pdf">https://www.grassley.senate.gov/imo/media/doc/uhg_report_-_final.pdf</a>.
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Response: For the request to reconsider how Graves' disease/
hyperthyroidism and its related treatment Tepezza and their associated
costs are accounted for in the HHS risk adjustment models, we note that
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 (89 FR 26248 through 26249) and 2026 Payment
Notice (90 FR 4445 through 4446), explaining that thyroid eye disease
(thyrotoxicosis), the condition which Tepezza is approved to treat, 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 adult HHS risk
adjustment models are associated with a payment HCC. We therefore
generally have concerns about adding Tepezza to the HHS risk adjustment
models at this time as it is currently not intended to treat or prevent
the development of a condition included in a payment HCC. For these
reasons, HHS did not propose and is not finalizing any changes for the
treatment of Tepezza for thyroid eye disease in the 2027 benefit year
HHS 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 may consider potential
changes to the treatment of this condition and drug in the HHS risk
adjustment models for future benefit years if appropriate.
Regarding the request to modify how the HHS risk adjustment models
account for autism spectrum disorder, GLP-1 drugs, and other emerging
and expensive therapies such as cellular and gene therapies, we note
that in comments on the 2026 Payment Notice (90 FR 4445), some
commenters previously identified that it may be appropriate to address
treatments associated with autism spectrum disorder (that is, adaptive
behavior services), GLP-1 drugs for weight loss,\47\ and emerging and
expensive therapies such as cellular and gene therapies using the ACF
framework finalized in that rule. As stated in our response to comments
about those conditions and treatments in that final rule, we will take
these comments into consideration as we consider potential refinements
to the HHS risk adjustment models in future benefit years. Although
these treatments may be fair candidates for inclusion in the HHS risk
adjustment models in the future, we have identified potential causes
for concern with their inclusion. For example, we are concerned that
there may be a selection issue in current enrollee-level EDGE data in
that issuers may require enrollees to have considerable morbidity to be
approved for the GLP-1 medications for weight loss. Thus, we continue
to consider the utility of and concerns with adding model factors for
GLP-1 drugs and weight loss to the HHS risk adjustment models.
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\47\ GLP-1 drugs approved for the treatment of diabetes are
presently included in RXC 7 (Anti-Diabetic Agents, Except Insulin
and Metformin Only) to the extent that their positive predictive
values (PPVs) with diabetes HCCs are high and do not indicate a
large degree of over-prescribing. See, for example Table 10a of the
2025 Benefit Year risk Adjustment HHS-Developed Risk Adjustment
Model Algorithm ``Do It Yourself (DIY)'' Software Technical Details,
available at: <a href="https://www.cms.gov/marketplace/resources/regulations-guidance">https://www.cms.gov/marketplace/resources/regulations-guidance</a>.
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For the underprediction for autism spectrum disorder alleged by
commenters and the potential remedy of adding adaptive behavior
services for autism spectrum disorder and disorders with similar
behavioral characteristics to the HHS risk adjustment models, we note
that, unlike obesity/overweight, there is a payment HCC for autism
spectrum disorder (HCC 102) presently included as a payment HCC in the
HHS risk adjustment models. As such, some reflection of the risk
associated with autism spectrum disorder is already included. We
continue to explore whether adding a model factor for adaptive behavior
services to the HHS risk adjustment models is appropriate. Finally, for
emerging and expensive therapies such as cellular and gene therapies,
we are limited from incorporating many of these treatments into the HHS
risk adjustment models due primarily to inadequate data for developing
appropriate model variables. Specifically, many of the gene therapies
HHS reviewed while considering this issue were completely absent from
the claims data for any enrollee in the currently available benefit
years of enrollee-level EDGE data. Of those therapies that did appear,
sample sizes were extremely low. Without cost data and sufficient
sample size in the enrollee-level EDGE data, we are unable to estimate
reliable coefficients for potential model factors associated with these
therapies. Nevertheless, we reiterate that many of these drugs will be
covered to some extent under the high-cost risk pool, which provides a
coinsurance rate of 60 percent when an individual or small group market
enrollees' claims exceed $1 million.\48\
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\48\ See the 2018 Payment Notice (81 FR 94080 through 94082).
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If we determine that model changes are necessary in regard to GLP-1
drugs, adaptive behavior services/treatments for autism spectrum
disorder, or emerging and expensive therapies such as cellular and gene
therapies, we would propose to make such changes through future notice-
and-comment rulemaking.
In response to the comments raising discretionary coding and gaming
concerns, we note that there are risk adjustment model specifications
to mitigate the potential for upcoding. For example, we group subsets
of payment HCCs into larger aggregate clusters, or HCC coefficient
estimation groups.\49\ In these groups, the HCC estimates are
constrained to be equal to each other, and each enrollee is only
permitted to be credited with risk from any HCC coefficient estimate
group once, regardless of the number of HCCs within the group appearing
in their enrollee-level EDGE data. This approach serves multiple
purposes, two of which are relevant to the commenters' concern. First,
these HCC coefficient estimation groups limit diagnostic upcoding by
severity within the HCC hierarchies to which they belong; and, second,
they reduce additivity within disease categories (but not across
disease categories) to decrease the sensitivity of the model to coding
proliferation. Furthermore, as stated in the ten principles of risk
adjustment \50\ and other HHS risk adjustment model development
papers,\51\ in assessing whether to include specific HCCs in the HHS
risk adjustment models, we assess whether HCCs are especially subject
to discretionary diagnostic coding or
[[Page 29544]]
enhanced rates of diagnosis through population screening not motivated
by improved quality of care and, if we determine this to be so, exclude
the HCCs from the models. The potential for discretionary coding 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.\52\
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\49\ See, for example, Kautter, J., et al. (2014). The HHS-HCC
Risk Adjustment Model for Individual and Small Group Markets under
the Affordable Care Act. Medicare & Medicaid Research Review (4)3.
<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 2014 Payment Notice (77 FR 73127 through 73129).
\50\ See the 2014 Payment Notice proposed rule (77 FR 73127
through 73130) and CMS. (2016). March 31, 2016, HHS-Operated Risk
Adjustment Methodology Meeting Discussion Paper. https://
www.cms.gov/cciio/resources/forms-reports-and-other-resources/
downloads/ra-march-31-white-paper-032416.pdf.
\51\ See, for example, Kautter, J., Pope, G.,C., Ingber, M., et
al. (2014). The HHS-HCC Risk Adjustment Model for Individual and
Small Group Markets under the Affordable Care Act. Medicare &
Medicaid Research Review, 4(3). <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>.
\52\ See, for example, CMS. (2019). Potential Updates to HHS-
HCCs for the HHS-operated Risk Adjustment Program, Section 2.3.
<a href="https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Potential-Updates-to-HHS-HCCs-HHS-operated-Risk-Adjustment-Program.pdf">https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Potential-Updates-to-HHS-HCCs-HHS-operated-Risk-Adjustment-Program.pdf</a>. Note that ``HCC Group constraints'' is
synonymous with ``HCC coefficient estimation groups.''
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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 and treatments identified by commenters, along with the
structure of related model factors (including those that may be subject
to discretionary coding and related gaming concerns), and the impact of
recent interacted HCC counts and HCC-contingent enrollment duration
model specification updates finalized in the 2023 Payment Notice (87 FR
27224 through 27230). 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 would seek input from interested parties through notice-and-comment
rulemaking or other appropriate vehicles.
Comment: One commenter requested that HHS disburse and collect risk
adjustment transfer payments and charges over a longer period of time
rather than in annual lump-sum transfers. The commenter suggested that
installment payment arrangements and quarterly provisional calculation
of transfers, among other mechanisms, would improve financial
predictability for participating issuers, particularly in smaller or
emerging markets.
Response: We did not propose modifying the timeline to collect and
pay risk adjustment transfers and are not finalizing any such changes
at this time. As discussed in the 2026 Payment Notice (89 FR 82308),
unlike Medicare Advantage's risk adjustment program, under which CMS
make risk-adjusted monthly payments to Medicare Advantage organizations
during the coverage year (in advance of each month of coverage) using
interim risk scores and then conducts a reconciliation to update risk
scores after the final deadline for submission of all risk adjustment
data, the HHS-operated risk adjustment program for the individual,
small group, and merged markets uses a final data submission deadline 4
months after the end of the benefit year and calculates issuers' PLRSs
and the State payment transfer amounts 2 months after that, resulting
in State payment transfers being made 8 to 10 months after the end of
the benefit year. HHS typically announces State payment transfer
amounts no later than June 30 of the year following the benefit year,
begins to collect charges in August of the year following the benefit
year, and begins to make payments to issuers in the fall of the year
following the applicable benefit year. In the 2026 Payment Notice, we
solicited comments on the impact of the existing timeline for
collection and disbursement of State payment transfers, including the
impact of the ``time value of money'' on issuers' assessment of
actuarial risk and the incentives for adverse selection, and what
possible solutions or mitigating steps we should consider to address
the impact of the time value of money on the HHS-operated risk
adjustment program in future rulemaking. We continue to consider that
feedback and will take this comment and those previous comments into
consideration for future rulemaking, as applicable.
Comment: One commenter opposed risk adjustment in general on the
basis of a belief that risk adjustment and the assignment of risk
scores to enrollees based on health conditions is discriminatory.
Response: We do not agree that the use of factors based on
enrollees' age, sex, and health conditions or utilization of services
and treatments in risk adjustment is inappropriate or discriminatory.
Consistent with section 1343 of the Affordable Care Act, 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 Affordable
Care Act limits issuers' ability to establish or charge premiums on the
basis of age and prohibits issuers from doing so on the basis of sex or
any individual health characteristic other than tobacco use.\53\
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 issuer's 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 services, is 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 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 for health
insurance coverage issued or renewed in the individual and small group
(including merged) markets.
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\53\ See section 2701 of the Public Health Service Act (42
U.S.C. 300gg) as amended by section 1201 of the Affordable Care Act.
See also the Market Rules and Rate Review final rule (78 FR 13406,
13411-13).
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Comment: A commenter stated that the CSR adjustment factors for
Massachusetts' ConnectorCare Plan Type 1 and Type 2 are too low. A few
other commenters stated concerns regarding footnote 27 in the proposed
rule (91 FR 6304), which discussed the State-specific CSR adjustment
factors for Arkansas' 94 percent AV Medicaid-expansion plans and
Arkansas' 100 percent AV Medicaid-expansion plans. These commenters
asserted that the 1.46 CSR adjustment factor--which HHS erroneously
described as being applicable to Arkansas 100 percent AV Medicaid-
expansion plans in footnote 79 of the 2025 Payment Notice (89 FR
26253)--was in fact more appropriate for these plans than the value we
clarified in footnote 27 of the proposed rule (91 FR 6304) as being the
correct value for these plans (that is, a CSR adjustment factor of
1.12).\54\
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\54\ See also <a href="https://regtap.cms.gov/reg_librarye.php?i=4690">https://regtap.cms.gov/reg_librarye.php?i=4690</a> for
an announcement and clarification of this error.
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Response: We worked with the relevant State regulators in
Massachusetts and Arkansas to identify the appropriate CSR adjustment
factors for their State-specific CSR plan variants. Since Massachusetts
[[Page 29545]]
transitioned into the HHS-operated risk adjustment program beginning
with the 2017 benefit year, the Massachusetts Health Connector,
Massachusetts' Exchange, has consistently supported continued use of
the 1.12 factor for their wraparound plans and has not indicated that a
change is needed.\55\ Therefore, we do not believe that it is necessary
to make changes to Massachusetts' wraparound CSR adjustment plan factor
at this time and will continue to apply the 1.12 factor for these
plans.
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\55\ For examples, see for Massachusetts Health Connector's
comments on the proposed 2025 Payment Notice at <a href="https://www.regulations.gov/comment/CMS-2023-0191-0081">https://www.regulations.gov/comment/CMS-2023-0191-0081</a>; also, see the
Massachusetts Health Connector's comments on the proposed 2024
Payment Notice at <a href="https://www.regulations.gov/comment/CMS-2022-0192-0102.90">https://www.regulations.gov/comment/CMS-2022-0192-0102.90</a>.
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We have similarly worked with the Arkansas Department of Insurance
to understand the structure of the funding for Medicaid-expansion plans
in Arkansas, using this information to identify what CSR adjustment
factors are appropriate for these unique State-specific Medicaid-
expansion plans. The CSR adjustment factor of 1.12 will continue to
apply for both the 94 percent and 100 percent AV Arkansas Medicaid-
expansion plans because these plans are identical in their degree of
plan liability to Federal CSR plan variants offered on the Exchange for
which the CSR adjustment factor of 1.12 is applied. We will continue to
align the CSR adjustment factor for both the 94 and 100 percent
Medicaid-expansion plans in Arkansas with the 94 percent silver plan
variant CSR adjustment factor for the 2027 benefit year and beyond
unless changes occur to the Arkansas program. Furthermore, it would not
be appropriate to assign Arkansas's 94 percent or 100 percent AV
Medicaid-expansion plans the higher CSR adjustment factor for the AI/AN
zero cost sharing (-02 variant) or limited cost sharing CSR plan
variant (-03 variant) enrollees because the CSR adjustment factors for
AI/AN plans are calibrated to reflect the increased plan liability for
enrollees in these specific CSR plan variants in the absence of a
Federal appropriation for CSRs. In particular, regardless of plan AV,
enrollees in AI/AN CSR plans defined at Sec. 156.420(b)(1) and (2) do
not experience cost sharing on any item or service that is an EHB
furnished directly by the Indian Health Service, an Indian Tribe,
Tribal Organization, or Urban Indian Organization (each as defined in
25 U.S.C. 1603), or through referral under contract health services.
This feature and other unique characteristics of AI/AN CSR plans do not
apply to the 94 and 100 percent Medicaid-expansion plans in Arkansas.
We therefore do not agree that the current State-specific CSR
adjustment factors for Massachusetts' ConnectorCare Plan Type 1 and
Type 2 are too low, nor do we agree that Arkansas 100 percent AV
Medicaid-wrap plans should receive a CSR adjustment factor of 1.46
instead of the CSR adjustment factor of 1.12 that we have deemed
appropriate for these plans. As such, we do not believe any State-
specific CSR adjustment factors need further adjustment at this time.
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BILLING CODE 4120-01-C
c. Model Performance Statistics
As noted in the 2027 Payment Notice proposed rule (91 FR 6327),
each benefit year, to evaluate HHS risk adjustment model performance,
we examine each model's R-squared statistic and predictive ratio (PR).
The R-squared statistic, which calculates the percentage of individual
variation explained 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 final 2027 HHS risk adjustment models, the R-squared
statistic and the PRs are in the range of published estimates for
concurrent HHS risk adjustment models.\56\ Because we blend the
coefficients from separately solved models based on the 2021, 2022, and
2023 benefit years' enrollee-level EDGE data, we are publishing the R-
squared statistic for each model separately to assess model
performance. The R-squared statistics for the 2027 benefit HHS risk
adjustment models are shown in Table 8.
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\56\ Hileman, G., & Steele, S. (2016). Accuracy of Claims-Based
Risk Scoring Models. Society of Actuaries. <a href="https://www.soa.org/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf">https://www.soa.org/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf</a>.
[GRAPHIC] [TIFF OMITTED] TR20MY26.019
We received public comments on the R-squared statistics for the
2027 benefit year HHS risk adjustment models. We respond to these
comments below.
Comment: A few commenters referred to decreases in the R-squared
values in their recommendations for HHS risk adjustment model
improvements, to which we have responded elsewhere in this rule. One of
these commenters suggested that we not recalibrate the HHS risk
adjustment models based on these lower R-squared values.
Response: We note that the R-squared values for the 2027 benefit
year HHS risk adjustment models as applied to the 2021 and 2022 benefit
year enrollee-level EDGE data improved relative to the R-squared values
for the 2026 benefit year HHS risk adjustment models as applied to
these data years.\57\ Furthermore, for the adult models (which apply to
the majority of enrollees in the enrollee-level EDGE data), the R-
squared values for the 2027 benefit year HHS risk adjustment models as
applied to the 2023 benefit year enrollee-level EDGE data are higher
than the R-squared values for those models as applied to the 2022
enrollee-level EDGE data. Although we will continue to monitor the R-
squared values in the future, the R-squared values for 2027 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.\58\ We remain confident the HHS
risk adjustment models continue to operate effectively and
appropriately predict plan liability for an average enrollee.
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\57\ See Table 7 of the 2026 Benefit Year Final HHS Risk
Adjustment Model Coefficients (January 13, 2025), available at
<a href="https://www.cms.gov/files/document/2026-benefit-year-final-hhs-risk-adjustment-model-coefficients2025-01-13.pdf">https://www.cms.gov/files/document/2026-benefit-year-final-hhs-risk-adjustment-model-coefficients2025-01-13.pdf</a>.
\58\ See Hileman, G. & Spenser S. (2016). Accuracy of Claims-
Based Risk Scoring Models. Society of Actuaries. <a href="https://www.soa.org/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf">https://www.soa.org/globalassets/assets/files/research/research-2016-accuracy-claims-based-risk-scoring-models.pdf</a>.
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3. Overview of the HHS Risk Adjustment Methodology (Sec. 153.320)
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 changes to the formula in the 2027 Payment Notice
proposed rule (91 FR 6327). 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 2027 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
[[Page 29563]]
through notice-and-comment rulemaking. We did not propose changes to
the high-cost risk pool parameters for the 2027 benefit year;
therefore, we will maintain the $1 million threshold and 60 percent
coinsurance rate.\59\ However, we received comments on the high-cost
risk pool parameters and are responding to these comments below.
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\59\ See, for example, the 2018 Payment Notice (81 FR 94081) and
2020 Payment Notice (84 FR 17467).
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Comment: One commenter requested that HHS consider updating the
high-cost risk pool parameters to account for inflation to
appropriately reflect the evolving distribution of very high-cost
claims that fall above the $1 million threshold (``attachment point'')
of the high-cost risk pool, which would have the effect of also
updating the plan liability for these claims in recalibration for
calculating risk scores and HHS risk adjustment transfers.
Response: We did not propose and are not finalizing changes to the
high-cost risk pool parameters for the 2027 benefit year.
The high-cost risk pool is a budget neutral aspect of the HHS-
operated risk adjustment program in which payments are funded by a
percent of premium charge on all risk adjustment covered plans within
the respective national high-cost risk pool (one for the individual
market and merged market plans, including catastrophic and non-
catastrophic plans, and another for the small group market). In the
2018 Payment Notice (81 FR 94082), we estimated that the percentage of
premium charge, which funds high-cost risk pool payments, would most
likely not exceed 0.5 percent. When aggregating across the national
risk pool markets, this statement has held true. For example, for the
2024 benefit year, the individual market high-cost risk pool charge as
a percent of premium was 0.39 percent \60\ and the small group market
high-cost risk pool charge as a percent of premium was 0.58
percent.\61\ Aggregated across both the individual and small group
markets, the overall high-cost risk pool charge was 0.45 percent of
premium. This consistently low percentage of premium charges prevents
States and issuers with high-cost enrollees from bearing a
disproportionate amount of unpredictable risk. Additionally, we believe
that retaining the same parameters for the high-cost risk pool year-
over-year promotes stability and predictability in our markets, and we
have concerns that indexing the $1 million threshold for inflation
would annually vary those parameters.
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\60\ This number include individual market catastrophic, non-
catastrophic plans, and merged market plans.
\61\ CMS. (2025). Summary Report On Individual And Small Group
Market Risk Adjustment Transfers For The 2024 Benefit Year. <a href="https://www.cms.gov/files/document/ra-report-by2024.pdf">https://www.cms.gov/files/document/ra-report-by2024.pdf</a>.
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With these considerations, we continue to believe a $1 million
threshold and 60 percent coinsurance rate are appropriate to
incentivize issuers to control costs while improving risk prediction
under the HHS risk adjustment models. However, we continue to monitor
the high-cost risk pool parameters to consider whether adjustments are
needed and would propose such changes for future benefit years through
notice-and-comment rulemaking if necessary. Comment Solicitation on
Retaining Separate Risk Adjustment Transfer Calculations for Individual
Catastrophic Plans and Individual Non-Catastrophic Plans under the
State Payment Transfer Formula.
In the 2027 Payment Notice proposed rule (91 FR 6327), we solicited
comment on whether we should retain separate risk adjustment transfer
calculations under the State payment transfer formula for individual
catastrophic plans and individual non-catastrophic plans or whether we
should calculate State transfers for these plans together in light of
the September 4, 2025 guidance entitled ``Guidance on Hardship
Exemptions for Individuals Ineligible for Advance Payment of the
Premium Tax Credit or Cost-sharing Reductions Due to Income, and
Streamlining Exemption Pathways to Coverage.'' \62\ This guidance
expanded upon prior FFE hardship exemption policy by expanding
eligibility for catastrophic plans starting with PY 2026.\63\ In the
2027 Payment Notice proposed rule (91 FR 6327), we sought comment on
the impact of this policy on the HHS-operated risk adjustment program.
We will take these comments into consideration as applicable.
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\62\ See CMS. (2025). Guidance on Hardship Exemptions for
Individuals Ineligible for Advance Payment of the Premium Tax Credit
or Cost-sharing Reductions Due to Income, and Streamlining Exemption
Pathways to Coverage. <a href="https://www.cms.gov/files/document/guidance-hardship-exemptions.pdf">https://www.cms.gov/files/document/guidance-hardship-exemptions.pdf</a>. We note that this final rule is also
finalizing an amend to Sec. 155.605(d)(1) to codify the expansion
of hardship exemption eligibility in this guidance document to
individuals who are ineligible for APTC or CSR due to projected
household income below 100 percent or above 250 percent FPL.
\63\ This guidance applies to consumers in FFE States and in SBE
States that choose to have exemptions processed through the FFE,
which currently include all SBEs except California, Connecticut,
Maryland, and the District of Columbia. We note that in the 2027
Payment Notice proposed rule (91 FR 6353), we proposed to expand
Sec. 155.605(d)(1) to codify the expansion of hardship exemption
eligibility to consumers ineligible for APTC or CSRs due to
projected household income below 100 percent or above 250 percent
FPL in all States.
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4. Risk Adjustment Data Validation Requirements When HHS Operates Risk
Adjustment (HHS-RADV) (Sec. Sec. 153.350 and 153.630)
HHS conducts HHS-RADV under Sec. Sec. 153.350 and 153.630 in any
State where HHS is operating risk adjustment on the State's behalf.\64\
The purpose of HHS-RADV is to ensure issuers are providing accurate
high-quality information to HHS, which is crucial for the proper
functioning of the HHS-operated risk adjustment program. HHS-RADV also
ensures that risk adjustment transfers reflect verifiable actuarial
risk differences among issuers, rather than risk score calculations
that are based on poor quality data, thereby helping to ensure that the
HHS-operated risk adjustment program assesses charges to issuers with
plans with lower-than-average actuarial risk while making payments to
issuers with plans with higher-than-average actuarial risk. HHS-RADV
consists of an initial validation audit (IVA) and a second validation
audit (SVA). Under Sec. 153.630, each issuer of a risk adjustment
covered plan must engage an independent IVA entity. The issuer provides
demographic, enrollment, and medical record documentation for a sample
of enrollees selected by HHS to its IVA entity for data validation.
Each issuer's IVA is followed by an SVA, which is conducted by an
entity HHS retains to verify the accuracy of the findings of the IVA.
Based on the findings from the IVA, or SVA (as applicable), HHS
conducts error estimation to calculate an HHS-RADV error rate. The HHS-
RADV error rate is then applied to adjust the PLRSs of outlier issuers,
as well as the risk adjustment transfers calculated under the State
payment transfer formula for the applicable State market risk pools,
for the benefit year being audited.
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\64\ Since the 2017 benefit year, HHS has operated the risk
adjustment program in all 50 States and the District of Columbia.
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a. HHS-RADV Error Estimation Modification To Incorporate IVA Sampling
Changes
In the 2027 Payment Notice proposed rule (91 FR 6327), we proposed
to modify one intermediate step of the HHS-RADV error estimation
methodology starting with 2025 benefit year HHS-RADV. In the 2026
Payment Notice (90 FR 4449 through 4452), we finalized excluding
enrollees without
[[Page 29564]]
HCCs from IVA sampling beginning with 2025 benefit year HHS-RADV. We
noted that this policy will impact the steps in the error estimation
methodology during which HCC-associated error rates are applied to
adjust issuers' PLRSs, and stated our intent to seek comments on
potential modifications to the intermediate steps in the error
estimation methodology to ensure that HCC-associated error rates
continue to apply to only the proportion of total PLRSs that are
associated with HCC-components of EDGE risk scores. As such, we
proposed to add an additional scaling factor, ai, to the error
estimation methodology to address this and capture the proportion of an
issuer's total risk for the entire population that is associated with
enrollees with HCCs. This scaling factor would be added to the final
steps of error estimation in which HCC-associated error rates are
applied to adjust issuers' PLRSs, and therefore, its addition would not
impact the majority of the error estimation methodology, including the
calculation of group failure rates, enrollee-level adjustments, or HCC-
associated error rates.
The formula for the existing scaling factor HccPLRSweighti is the
sum of sampled enrollees' stratum-weighted adjusted HCC-associated
portion of EDGE risk scores divided by the sum of sampled enrollees'
stratum-weighted total EDGE risk score. Because this formula is based
on the issuer's sample, it depends on having enrollees with and without
HCCs in the audit sample to appropriately estimate the proportion of
the issuer's total PLRS that is HCC-related. However, as explained in
the 2026 Payment Notice (90 FR 4452), when enrollees without HCCs are
excluded from issuers' audit samples beginning with 2025 benefit year
HHS-RADV, this formula will only estimate the proportion of enrollees'
total EDGE risk scores that is HCC-related for the issuer's population
of enrollees with HCCs.\65\ Therefore, as noted in the 2027 Payment
Notice proposed rule (91 FR 6327), we proposed to create another
scaling factor beginning with benefit year 2025 HHS-RADV that estimates
the proportion of the issuer's total PLRS that is associated with
enrollees with HCCs using the issuer's EDGE data. Together, these two
scaling factors would capture the proportion of the issuer's total PLRS
that is HCC-related.
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\65\ In other words, this will factor out the contribution of
demographic factors, enrollee RXCs, HCC-RXC interaction factors, CSR
adjustment factors, HCC-contingent enrollment duration factors, and
interacted HCC counts factors towards the EDGE risk scores of
enrollees with HCCs. As previously explained, these factors are not
included in the calculation of the HCC-associated error rate during
HHS-RADV error estimation. See Section 13.3.1.3.3 Calculate Error
Rates of the BY24 HHS-RADV Protocols, available at <a href="https://regtap.cms.gov/uploads/library/HHS-RADV_2024_Benefit_Year_Protocols_v1_5CR_060625.pdf">https://regtap.cms.gov/uploads/library/HHS-RADV_2024_Benefit_Year_Protocols_v1_5CR_060625.pdf</a>.
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Therefore, we proposed to introduce an additional scaling factor,
ai, as follows:
[GRAPHIC] [TIFF OMITTED] TR20MY26.020
Where:
meanRiskScorei,h is the average risk score for all enrollees in
stratum h in issuer i's EDGE population; and
strBMMi,h is the total stratum billable member months (BMM) for all
enrollees in stratum h in issuer i's EDGE population.
We proposed to apply the scaling factor ai to the intermediate
steps in the error estimation methodology as follows:
TotalERi = HccERi * HccPLRSWeighti * ai
The numerator in the formula for the scaling factor ai sums the
product of each stratum's mean risk score and total BMM for strata 1
through 9, thereby creating an aggregate risk score for all enrollees
with EDGE HCCs in an issuer's EDGE population.\66\ The denominator sums
the product of each stratum's mean risk score and total BMM for strata
1 through 10. This includes all enrollees in the issuer's EDGE
population including enrollees without HCCs, and thereby creates an
aggregate risk score for the issuer.\67\ Overall, the scaling factor ai
estimates the proportion of the issuer's total PLRS that is associated
with enrollees with HCCs and, by combining it with the HCC PLRS
weighting factor, we could continue to estimate the proportion of the
issuer's total PLRS that is HCC-related after the removal of no-HCC
enrollees from the IVA sample beginning with 2025 benefit year HHS-
RADV. After leveraging EDGE data from the relevant benefit year to
calculate the scaling factor ai and the total error rate TotalERi, we
would continue to adjust issuers' PLRSs using the following formula:
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\66\ An issuer's EDGE population only consists of enrollees in
their risk adjustment covered plans. See Sec. Sec. 153.610(a) and
153.700(a).
\67\ Although enrollees without HCCs will be excluded from IVA
sampling beginning with 2025 benefit year HHS-RADV, enrollees
without HCCs on EDGE will be categorized into stratum 10 for these
operational purposes.
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AdjPLRSi = (1-TotalERi) * PLRSi
Without adding this additional scaling factor to the error
estimation methodology beginning with 2025 benefit year HHS-RADV, the
error rate would adjust elements of issuers' total PLRSs that are
associated with enrollees without HCCs and are not intended to be
adjusted during error estimation.\68\ We believe these adjustments
would be inappropriate, and moreover, could result in double
adjustments for any identified data errors of non-HCC components, such
as demographic and enrollment factors, that are adjusted through
separate processes.\69\ Therefore, starting with the 2025 benefit year
of HHS-RADV, we proposed to add an additional scaling factor, ai, to
the error estimation methodology to ensure that HCC-associated error
rates continue to apply to only the proportion of total PLRSs that are
associated with HCC-components of EDGE risk scores.
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\68\ Enrollees without HCCs may contribute to the PLRS through
demographic factors, enrollee RXCs, and CSR adjustment factors. As
previously explained, these enrollees are not included in the
calculation of the HCC-associated error rate during HHS-RADV error
estimation.
\69\ While HHS-RADV also includes processes for validating RXCs
and demographic and enrollment factors, any errors regarding these
factors are treated as materially incorrect EDGE server data
submissions. See 83 FR 16970 through 16971. Also see 84 FR 17501 and
85 FR 77002 through 77005.
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We sought comments on this proposal.
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 addition of a scaling factor
to the HHS-RADV error estimation methodology below.
Comment: Several commenters supported the addition of the proposed
scaling factor for HHS-RADV. Several of these commenters noted that the
addition of the scaling factor would more accurately reflect risk and
capture the proportion of risk associated with enrollees with HCCs. One
commenter
[[Page 29565]]
noted that this would better align the error rate calculation used with
the basis of that calculation. One commenter noted that this proposal
strengthens program integrity while maintaining the intent of HHS-RADV
to target errors in the calculations of HCC-related risk.
Response: We agree with the commenters that this proposal would
more precisely capture the risk associated with enrollees with HCCs,
better align the error rate calculation with the basis of that
calculation, and strengthen program integrity. Specifically, without
adding this additional scaling factor to the error estimation
methodology beginning with 2025 benefit year HHS-RADV, the error rate
would adjust elements of issuers' total PLRSs that are associated with
enrollees without HCCs and are not intended to be adjusted as part of
this calculation.\70\ We believe these adjustments that would result
from the absence of the scaling factor would be inappropriate, and
moreover, could result in double adjustments for any identified data
errors of non-HCC components, such as demographic and enrollment
factors, that are adjusted through separate processes.\71\ Therefore,
starting with the 2025 benefit year of HHS-RADV, we are finalizing the
incorporation of an additional scaling factor, ai, into the error
estimation methodology to ensure that HCC-associated error rates
continue to apply to only the proportion of total PLRSs that are
associated with HCC components of EDGE risk scores, as proposed.
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\70\ Enrollees without HCCs may contribute to the PLRS through
demographic factors, enrollee RXCs, and CSR adjustment factors. As
previously explained, these enrollees are not included in the
calculation of the HCC-associated error rate during HHS-RADV error
estimation.
\71\ While HHS-RADV also includes processes for validating RXCs
and demographic and enrollment factors, any errors regarding these
factors are treated as materially incorrect EDGE server data
submissions. See 83 FR 16970 through 16971. Also see 84 FR 17501 and
85 FR 77002 through 77005.
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Comment: A commenter suggested that HHS should provide clear
operational details regarding application of this scaling factor to
help reduce avoidable uncertainty affecting premium development and
issuer participation, and noted that a predictable HHS-RADV process is
critical for market stability.
Response: We agree that a stable and predictable HHS-RADV process
plays an important role in market stability and that the inclusion of
this scaling factor in the error estimation methodology is appropriate
to more precisely account for the relevant part of an issuer's
population in the calculation of HHS-RADV error rates. We intend to
update the HHS-RADV Protocols to reflect the adoption of the new
additional scaling factor.\72\ We also provided analysis in the
proposed rule (91 FR 6444) on the estimated impact of the proposed
policy. Specifically, in the Regulatory Impact Analysis of the proposed
rule, we simulated the impact of the additional scaling factor and
found that HHS-RADV adjustments to risk adjustment State transfers
decreased in magnitude by 11.7 percent in the individual non-
catastrophic market (going from $148 million to $139 million) and by
13.8 percent in the small group market (from $81 million to $69.8
million). Because the HHS-operated risk adjustment program, including
HHS-RADV adjustments to State transfers, is budget neutral, we would
see the same impact on negative risk adjustment State transfers (in
other words, risk adjustment charges) and HHS-RADV adjustments, in that
both would decrease in magnitude. When examining the impact of the
additional scaling factor on HHS-RADV adjustments over premium, our
analysis found that there was only a 0.01 percent change in positive
HHS-RADV adjustments in both markets when comparing results without the
additional scaling factor with results reflecting the adoption of the
additional scaling factor. This corresponds with a percentage point
(PP) change of -0.02. Because our simulation showed a decrease in
premium impact in both the individual non-catastrophic and small group
markets, we do not believe that this scaling factor will create
uncertainty in premium development and impact issuer participation in
the HHS-operated risk adjustment and HHS-RADV programs.
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\72\ Each benefit year of HHS-RADV, HHS releases the HHS-RADV
Protocols, which provide details on the operations and workflows
associated with HHS-RADV, including error estimation, and are
available on REGTAP.
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5. HHS Risk Adjustment User Fee for the 2027 Benefit Year (Sec.
153.610(f))
As noted in the 2027 Payment Notice proposed rule (91 FR 6327), we
proposed an HHS risk adjustment user fee for the 2027 benefit year of
$0.20 per member per month (PMPM). Under Sec. 153.310, if a State is
not approved to operate, or chooses to forgo operating, its own risk
adjustment program, HHS will operate risk adjustment on its behalf. For
the 2027 benefit year, HHS will operate risk adjustment in every State
and the District of Columbia. As described in the 2014 Payment Notice
(78 FR 15416 through 15417), HHS' operation of the risk adjustment
program on behalf of States is funded through a risk adjustment user
fee. Section 153.610(f)(2) provides that, where HHS operates a risk
adjustment program on behalf of a State, an issuer of a risk adjustment
covered plan must remit a user fee to HHS equal to the product of its
monthly billable member enrollment in the plan and the PMPM risk
adjustment user fee specified in the annual HHS notice of benefit and
payment parameters for the applicable benefit year.
OMB Circular No. A-25 established Federal policy regarding user
fees, and specifies that a user charge will be assessed against each
identifiable recipient for special benefits derived from Federal
activities beyond those received by the general public.\73\ The HHS-
operated risk adjustment program provides special benefits as defined
in section 6(a)(1)(B) of OMB Circular No. A-25 to issuers of risk
adjustment covered plans, because it mitigates the financial
instability associate with potential adverse risk selection.\74\ The
HHS-operated risk adjustment program also contributes to consumer
confidence in the health insurance industry by helping to stabilize
premiums across the individual, merged, and small group markets.
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\73\ See Circular No. A-25 Revised. <a href="https://www.whitehouse.gov/wp-content/uploads/2017/11/Circular-025.pdf">https://www.whitehouse.gov/wp-content/uploads/2017/11/Circular-025.pdf</a>.
\74\ Id.
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For the 2027 benefit year, HHS proposed to calculate the Federal
administrative expenses of operating the HHS risk adjustment program.
This calculation resulted in a risk adjustment user fee rate of $0.20
PMPM based on our estimated costs for HHS risk adjustment operations
and estimated billable member months (BMM) for individuals enrolled in
risk adjustment covered plans. As noted in the 2027 Payment Notice
proposed rule (91 FR 6324), these costs cover development of the models
and methodology, collections, payments, account management, data
collection, data validation, program integrity and audit functions,
operational analytics, interested parties training, operational
support, and administrative and personnel costs dedicated to HHS-
operated risk adjustment program activities. To calculate the risk
adjustment user fee, we divided HHS' projected total costs for
administering the program on behalf of States by the expected number of
BMM in risk adjustment covered plans in States where the HHS-operated
risk
[[Page 29566]]
adjustment program will apply in the 2027 benefit year.
We estimated that the total cost for HHS to operate the risk
adjustment program on behalf of all States and the District of Columbia
for the 2027 benefit year would be slightly more than $65 million,
which is similar to the 2026 benefit year budget.\75\
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\75\ We estimated that the total costs for HHS to operate the
risk adjustment program on behalf of States for the 2026 calendar
year would be approximately $65 million. See the 2026 Payment Notice
(90 FR 4424 at 4448).
---------------------------------------------------------------------------
Similar to prior benefit years, we projected risk adjustment
enrollment scenarios for the 2027 benefit year. Based on our estimates,
for the 2027 benefit year, we noted that we do not expect enrollment
changes to significantly impact collections under this user fee rate.
We stated in the 2027 Payment Notice proposed rule (91 FR 6327)
that our intention was to reconsider the enrollment estimates for this
final rule. If these newer enrollment estimates are too low in
comparison to our proposed user fee estimates, we noted that the final
user fee may be higher. We also noted that if these enrollment
estimates are higher in comparison to our proposed user fee estimates,
the final user fee may be lower. In addition, we noted that if any
events result in a deviation from our expectations of current
conditions that would significantly change our estimates around costs,
enrollment projections, or the finalization of proposed risk adjustment
policies between the proposed rule and this final rule, we may modify
the proposed HHS risk adjustment user fee rate in the final rule.
Because we projected a similar budget to operate the HHS-operated risk
adjustment program for the 2027 benefit year as for the 2026 benefit
year, we proposed an HHS risk adjustment user fee of $0.20 PMPM for the
2027 benefit year. We sought comment on the proposed HHS risk
adjustment user fee rate of $0.20 PMPM for the 2027 benefit year.
As in all years, we consider updated information regarding
estimates of costs, enrollment projections, and finalization of risk
adjustment policies between the proposed rule and the final rule to
determine the final risk adjustment user fee rate. Specifically,
between the proposed and final rules, we updated our enrollment
projections based on the availability of interim 2025 risk adjustment
data, and our projections in enrollment in the off-Exchange individual
and small group markets are higher than the estimates that we used for
proposed rule.
Because some of our enrollment estimates were higher than
previously anticipated, and the costs for the HHS-operated risk
adjustment program for the 2027 benefit year have not changed, the PMPM
cost of the HHS-operated risk adjustment program for the 2027 benefit
year is lower than the proposed HHS risk adjustment user fee rate.
After consideration of comments and our additional data analyses
between the proposed and final rules, and for the reasons outlined in
the proposed rule and this final rule, including our responses to
comments, we are finalizing an HHS risk adjustment user fee rate for
the 2027 benefit year of $0.18 PMPM. We summarize and respond to public
comments received on the 2027 HHS risk adjustment user fee rate below.
Comment: Several commenters stated support for maintaining the
proposed HHS risk adjustment user fee rate of $0.20 PMPM for the 2027
benefit year.
Response: We believe that when costs, risk adjustment policies, and
projections of enrollment in the HHS-operated risk adjustment program
are constant, the HHS risk adjustment user fee rate should remain
constant. However, based on more recently available data, we are
finalizing an HHS risk adjustment user fee rate for the 2027 benefit
year of $0.18 PMPM.
Comment: Some commenters requested that HHS consider the pricing
impacts of the HHS risk adjustment user fee rate.
Response: We note that we must set the HHS risk adjustment user fee
for a given benefit year to secure adequate funding for the HHS-
operated risk adjustment program. We are finalizing an HHS risk
adjustment user fee rate for the 2027 benefit year of $0.18 PMPM, which
is lower than the rate for the 2026 benefit year. We anticipate that
the overall impact on pricing of an $0.18 PMPM HHS risk adjustment user
fee rate will be minimal, since it is lower than the user fee rate for
the 2026 benefit year and because $0.18 PMPM is a very small percent of
overall premium.
C. Part 154--Health Insurance Issuer Rate Increases: Disclosure and
Review Requirements
1. Submission of Rate Filing Justification (Sec. 154.215)
a. CSR Reimbursement
Section 1402 of the Affordable Care Act requires issuers to provide
cost-sharing reductions (CSRs) to increase the actuarial value of
coverage for consumers with incomes between 100 and 250 percent of
Federal Poverty Level (FPL) who enroll in silver-level QHPs in the
individual market, as well as eligible American Indian/Alaska Native
consumers who enroll in QHPs at any metal level. Section 1402 of the
Affordable Care Act also states that HHS will reimburse issuers for the
cost of providing CSRs to eligible enrollees but does not include a
valid appropriation to make such payments.\76\
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\76\ Until October 2017, HHS relied on the permanent
appropriation at 31 U.S.C. 1324 as the source of funds for Federal
CSR reimbursement to issuers.
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On October 11, 2017, the Attorney General of the United States
provided a legal opinion stating that HHS and the Department of the
Treasury could no longer use the permanent appropriation at 31 U.S.C.
1324 to fund CSR reimbursements to issuers. In accordance with that
opinion, HHS directed CMS to discontinue CSR reimbursements to issuers
until Congress provides an appropriation.\77\ In response to the
termination of CSR reimbursement, State Departments of Insurance
allowed or instructed issuers to increase (or ``load'') premiums either
primarily, or only, on silver-level QHPs to offset the issuers' cost of
providing CSRs.\78\
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\77\ See Letter from Acting HHS Secretary Eric Hargan to CMS
Administrator Seema Verma Regarding Payments to Issuers for Cost-
Sharing Reductions (CSRs) (Oct. 12, 2017), conveying legal opinion
of Attorney General Jefferson B. Sessions III (Oct. 11, 2017).
Available at <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>.
\78\ For purposes of this preamble, we use the term ``CSR
loading'' to refer to any rating practices to increase premiums to
offset amounts of unreimbursed CSRs whether that is ``silver
loading'' or ``broad loading.''
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There are several ways that issuers have determined the CSR load
factor. For example, issuers have loaded silver plans offered on-
Exchange to recover expected lost CSRs based on experience, they have
loaded silver plans on-Exchange based on an assumed distribution of
enrollment and enrollee utilization (sometimes a set amount mandated by
the State), or they have loaded all plans at all metal levels by the
same amount to spread lost CSRs across the entire individual market
(broad loading). These differing approaches may result in loads that
produce additional revenue collected from the applied CSR load that
exceeds the amount of unreimbursed CSRs by assuming an enrollment and
claims distribution that significantly diverges from what actually
occurs. Based on our review of actuarial memoranda submitted by issuers
for PY 2026, HHS believes these excessive loads on silver plans in
particular (and in some cases as mandated by State law) lead to
inflated premiums for silver plans, further distort pricing for bronze
and
[[Page 29567]]
gold plans relative to silver plans, limit consumer choice, and
significantly increase the cost of the second lowest-cost silver plan
available to a consumer, which in turn increases PTC amounts and
Federal expenditures.
b. Rate Filing Justifications Regarding CSRs
Section 2794 of the PHS Act directs the Secretary, in conjunction
with the States, to establish a process for the annual review of
premium increases for health coverage prior to the implementation of
the increase. HHS has historically interpreted this requirement for
premiums as referring to the underlying rates that are used to develop
premiums. Section 154.215 requires issuers to submit rate filing
justifications to CMS and the applicable State (76 FR 29964, 29969).
Under Sec. 154.215(b)(1) through (3), the rate filing
justification has three parts. The Unified Rate Review Template (URRT)
(Part I of the rate filing justification) is required for all single
risk pool products, including new products. It is intended to capture
information needed to monitor premium increases of health insurance
coverage offered through and outside the Exchanges in the individual
and small group markets and ensure compliance with the single risk pool
methodology, including allowable market level index rate adjustments to
reflect risk adjustment payments and charges, and other Federal rating
requirements.\79\
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\79\ See Unified Rate Review Instructions at <a href="https://www.cms.gov/files/document/unified-rate-review-instructions.pdf">https://www.cms.gov/files/document/unified-rate-review-instructions.pdf</a>.
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Part II of the rate filing justification is the Written Description
Justifying the Rate Increase (Consumer Justification Narrative). Part
II is required only for rate increases in single risk pool products
that are subject to review (that is, a plan within the product that has
a rate increase of 15 percent or greater or a State-specific
threshold). Part II is a consumer-friendly narrative that provides the
justification for the rate increase, describes the relevant Part I
data, the assumptions used to develop the rate increase, and an
explanation of the most significant factors causing the rate
increase.\80\
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\80\ Id.
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An actuarial memorandum (Part III of the rate filing justification)
is required for any rate increase in a single risk pool plan. It is
also required for any rate filing containing QHPs or whenever a State
requires it to be submitted. Further, an actuarial memorandum is
required for all plans in States that do not have an Effective Rate
Review Program and for which CMS is responsible for reviewing the rate
filing.\81\ The Part III actuarial memorandum includes the actuarial
reasoning and assumptions, justifications, and methodologies that
support the entries in the URRT.\82\ The actuarial memorandum must also
capture appropriate actuarial certifications related to the development
of the index rate in accordance with Federal regulations, and the
development of plan specific premium rates using allowable modifiers to
the index rate.\83\ The issuer is required to provide an explanation of
how these modifiers are developed and applied to the market-wide
adjusted index rate to derive the plan-adjusted index rate.
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\81\ CMS reviews rate filing justifications from issuers in
States without an Effective Rate Review Program--currently Oklahoma,
Tennessee, and Wyoming.
\82\ See Unified Rate Review Instructions at <a href="https://www.cms.gov/files/document/unified-rate-review-instructions.pdf">https://www.cms.gov/files/document/unified-rate-review-instructions.pdf</a>.
\83\ Id.
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In a Bulletin issued on May 2, 2025 (PY26 Rate Filing
Guidance),\84\ we instructed issuers that make permitted plan-level
adjustments to account for CSR amounts provided to eligible enrollees
for which the issuer does not otherwise receive reimbursement \85\
(that is, issuers that load premiums) to specify the actual CSRs the
issuers paid for PY 2024 in the actuarial memorandum submitted with
their PY 2026 rate filing. Issuers report plan-level adjustments when
they submit a rate filing justification to the State or CMS for review.
States or CMS review those rate filing justifications to ensure
compliance with the Federal rating rules, including 45 CFR 156.80.\86\
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\84\ CMS Insurance Standard Bulletin Series: Plan Year 2026
Individual Market Rate Filing Instructions. (May 2, 2025) <a href="https://www.cms.gov/files/document/py-26-individual-market-rate-filing-instructions.pdf">https://www.cms.gov/files/document/py-26-individual-market-rate-filing-instructions.pdf</a>.
\85\ See 45 CFR 156.80(d)(2)(i).
\86\ If the rate filing contains a proposed increase that meets
or exceeds the threshold at Sec. 154.200(a)(1) (currently 15
percent), then the State or CMS also reviews the proposed increase
to determine if it is an unreasonable rate increase. Also see 45 CFR
154.205(a). When CMS reviews a rate increase subject to review under
Sec. 154.210(a), CMS will determine that the rate increase is an
unreasonable rate increase if the increase is an excessive rate
increase, an unjustified rate increase, or an unfairly
discriminatory rate increase.
---------------------------------------------------------------------------
Specifically, through the PY26 Rate Filing Guidance, and under our
authority under Sec. 154.215(a)(2) and (3), we directed issuers that
loaded for unreimbursed CSRs to: (1) specify the actual CSRs the issuer
paid on behalf of enrollees for PY 2024 (in dollars); (2) specify the
CSR load fac
[…truncated; see source link]Indexed from Federal Register on May 20, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.