Federal Register, Volume 85 Issue 157 (Thursday, August 13, 2020)

[Federal Register Volume 85, Number 157 (Thursday, August 13, 2020)]
[Rules and Regulations]
[Pages 49264-49280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17553]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2432-FN]
RIN 0938-ZB56

Basic Health Program; Federal Funding Methodology for Program
Year 2021

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final methodology.

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SUMMARY: This document finalizes the methodology and data sources
necessary to determine federal payment amounts to be made for program
year 2021 to states that elect to establish a Basic Health Program
under the Patient Protection and Affordable Care Act to offer health
benefits coverage to low-income individuals otherwise eligible to
purchase coverage through Affordable Insurance Exchanges.

DATES: The methodology and data sources announced in this notice are
effective on January 1, 2021.

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

[[Page 49265]]

SUPPLEMENTARY INFORMATION:

I. Background

A. Overview of the Basic Health Program

Section 1331 of the Patient Protection and Affordable Care Act
(Pub. L. 111-148, enacted on March 23, 2010), as amended by the Health
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted
on March 30, 2010) (collectively referred to as the Patient Protection
and Affordable Care Act) provides states with an option to establish a
Basic Health Program (BHP). In the states that elect to operate a BHP,
the BHP will make affordable health benefits coverage available for
individuals under age 65 with household incomes between 133 percent and
200 percent of the federal poverty level (FPL) who are not otherwise
eligible for Medicaid, the Children's Health Insurance Program (CHIP),
or affordable employer-sponsored coverage, or for individuals whose
income is below these levels but are lawfully present non-citizens
ineligible for Medicaid. For those states that have expanded Medicaid
coverage under section 1902(a)(10)(A)(i)(VIII) of the Social Security
Act (the Act), the lower income threshold for BHP eligibility is
effectively 138 percent due to the application of a required 5 percent
income disregard in determining the upper limits of Medicaid income
eligibility (section 1902(e)(14)(I) of the Act).
A BHP provides another option for states in providing affordable
health benefits to individuals with incomes in the ranges described
above. States may find a BHP a useful option for several reasons,
including the ability to potentially coordinate standard health plans
in the BHP with their Medicaid managed care plans, or to potentially
reduce the costs to individuals by lowering premiums or cost-sharing
requirements.
Federal funding for a BHP under section 1331(d)(3)(A) of the
Patient Protection and Affordable Care Act is based on the amount of
premium tax credit (PTC) and cost-sharing reductions (CSRs) that would
have been provided for the fiscal year to eligible individuals enrolled
in BHP standard health plans in the state if such eligible individuals
were allowed to enroll in a qualified health plan (QHP) through
Affordable Insurance Exchanges (``Exchanges''). These funds are paid to
trusts established by the states and dedicated to the BHP, and the
states then administer the payments to standard health plans within the
BHP.
In the March 12, 2014 Federal Register (79 FR 14112), we published
a final rule entitled the ``Basic Health Program: State Administration
of Basic Health Programs; Eligibility and Enrollment in Standard Health
Plans; Essential Health Benefits in Standard Health Plans; Performance
Standards for Basic Health Programs; Premium and Cost Sharing for Basic
Health Programs; Federal Funding Process; Trust Fund and Financial
Integrity'' (hereinafter referred to as the BHP final rule)
implementing section 1331 of the Patient Protection and Affordable Care
Act), which governs the establishment of BHPs. The BHP final rule
established the standards for state and federal administration of BHPs,
including provisions regarding eligibility and enrollment, benefits,
cost-sharing requirements and oversight activities. While the BHP final
rule codified the overall statutory requirements and basic procedural
framework for the funding methodology, it does not contain the specific
information necessary to determine federal payments. We anticipated
that the methodology would be based on data and assumptions that would
reflect ongoing operations and experience of BHPs, as well as the
operation of the Exchanges. For this reason, the BHP final rule
indicated that the development and publication of the funding
methodology, including any data sources, would be addressed in a
separate annual BHP Payment Notice.
In the BHP final rule, we specified that the BHP Payment Notice
process would include the annual publication of both a proposed and
final BHP Payment Notice. The proposed BHP Payment Notice would be
published in the Federal Register each October, 2 years prior to the
applicable program year, and would describe the proposed funding
methodology for the relevant BHP year,\1\ including how the Secretary
considered the factors specified in section 1331(d)(3) of the Patient
Protection and Affordable Care Act, along with the proposed data
sources used to determine the federal BHP payment rates for the
applicable program year. The final BHP Payment Notice would be
published in the Federal Register in February, and would include the
final BHP funding methodology, as well as the federal BHP payment rates
for the applicable BHP program year. For example, payment rates in the
final BHP Payment Notice published in February 2015 applied to BHP
program year 2016, beginning in January 2016. As discussed in section
II.D. of this notice, and as referenced in 42 CFR 600.610(b)(2), state
data needed to calculate the federal BHP payment rates for the final
BHP Payment Notice must be submitted to CMS.
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\1\ BHP program years span from January 1 through December 31.
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As described in the BHP final rule, once the final methodology for
the applicable program year has been published, we will generally make
modifications to the BHP funding methodology on a prospective basis,
but with limited exceptions. The BHP final rule provided that
retrospective adjustments to the state's BHP payment amount may occur
to the extent that the prevailing BHP funding methodology for a given
program year permits adjustments to a state's federal BHP payment
amount due to insufficient data for prospective determination of the
relevant factors specified in the applicable final BHP Payment Notice.
For example, the population health factor adjustment described in
section III.D.3. of this final notice allows for a retrospective
adjustment (at the state's option) to account for the impact that BHP
may have had on the risk pool and QHP premiums in the Exchange.
Additional adjustments could be made to the payment rates to correct
errors in applying the methodology (such as mathematical errors).
Under section 1331(d)(3)(ii) of the Patient Protection and
Affordable Care Act, the funding methodology and payment rates are
expressed as an amount per eligible individual enrolled in a BHP
standard health plan (BHP enrollee) for each month of enrollment. These
payment rates may vary based on categories or classes of enrollees.
Actual payment to a state would depend on the actual enrollment of
individuals found eligible in accordance with a state's certified BHP
Blueprint eligibility and verification methodologies in coverage
through the state BHP. A state that is approved to implement a BHP must
provide data showing quarterly enrollment of eligible individuals in
the various federal BHP payment rate cells. Such data must include the
following:
Personal identifier;
Date of birth;
County of residence;
Indian status;
Family size;
Household income;
Number of persons in household enrolled in BHP;
Family identifier;
Months of coverage;
Plan information; and
Any other data required by CMS to properly calculate the
payment.

[[Page 49266]]

B. The 2018 Final Administrative Order, 2019 Payment Methodology, and
2020 Payment Methodology

On October 11, 2017, the Attorney General of the United States
provided the Department of Health and Human Services and the Department
of the Treasury with a legal opinion indicating that the permanent
appropriation at 31 U.S.C. 1324, from which the Departments had
historically drawn funds to make CSR payments, cannot be used to fund
CSR payments to insurers. In light of this opinion--and in the absence
of any other appropriation that could be used to fund CSR payments--the
Department of Health and Human Services directed us to discontinue CSR
payments to issuers until Congress provides for an appropriation. In
the absence of a Congressional appropriation for federal funding for
CSRs, we cannot provide states with a federal payment attributable to
CSRs that BHP enrollees would have received had they been enrolled in a
QHP through an Exchange.
Starting with the payment for the first quarter (Q1) of 2018 (which
began on January 1, 2018), we stopped paying the CSR component of the
quarterly BHP payments to New York and Minnesota (the states), the only
states operating a BHP in 2018. The states then sued the Secretary for
declaratory and injunctive relief in the United States District Court
for the Southern District of New York. See State of New York, et al, v.
U.S. Department of Health and Human Services, 18-cv-00683 (S.D.N.Y.
filed Jan. 26, 2018). On May 2, 2018, the parties filed a stipulation
requesting a stay of the litigation so that HHS could issue an
administrative order revising the 2018 BHP payment methodology. As a
result of the stipulation, the court dismissed the BHP litigation. On
July 6, 2018, we issued a Draft Administrative Order on which New York
and Minnesota had an opportunity to comment. Each state submitted
comments. We considered the states' comments and issued a Final
Administrative Order on August 24, 2018 (Final Administrative Order)
setting forth the payment methodology that would apply to the 2018 BHP
program year.
In the November 5, 2019 Federal Register (84 FR 59529 through
59548) (hereinafter referred to as the November 2019 final BHP Payment
Notice), we finalized the payment methodologies for BHP program years
2019 and 2020. The 2019 payment methodology is the same payment
methodology described in the Final Administrative Order. The 2020
payment methodology is the same methodology as the 2019 payment
methodology with one additional adjustment to account for the impact of
individuals selecting different metal tier level plans in the Exchange,
referred to as the Metal Tier Selection Factor (MTSF).\2\
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\2\ ``Metal tiers'' refer to the different actuarial value plan
levels offered on the Exchanges. Bronze-level plans generally must
provide 60 percent actuarial value; silver-level 70 percent
actuarial value; gold-level 80 percent actuarial value; and
platinum-level 90 percent actuarial value. See 45 CFR 156.140.
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II. Summary of the Proposed Provisions and Analysis of and Responses to
the Public Comments

The following sections, arranged by subject area, include a summary
of the public comments that we received, and our responses. We received
10 public comments from individuals and organizations, including, but
not limited to, state Medicaid agencies, other government entities, and
advocacy groups. In this section, we outline the proposed provisions
and provide a summary of the public comments received and our
responses. For a complete and full description of the BHP proposed
funding methodology for program year 2021, see the ``Basic Health
Program; Federal Funding Methodology for Program Year 2021'' proposed
notice published in the February 10, 2020 Federal Register (85 FR 7500)
(hereinafter referred to as the 2021 proposed BHP Payment Notice).

A. Background

In the 2021 proposed BHP Payment Notice, we proposed the
methodology for how the federal BHP payments would be calculated for
program year 2021.
We received the following comments on the background information
included in the 2021 proposed BHP Payment Notice:
Comment: Several commenters were generally supportive of the BHP.
Several commenters were generally supportive of the 2021 BHP payment
methodology described in the 2021 proposed BHP Payment Notice.
Response: We appreciate the support from these commenters. As
described further in this final notice, we have largely adopted the
methodology as described in the 2021 proposed BHP Payment Notice.\3\
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\3\ As explained in section II.F. of this final notice, we are
finalizing that a state may notify CMS of its election for the 2021
program year to base federal BHP payment rates on actual 2021
premiums or the 2020 premiums trended forward within 60 days of
publication of this final notice rather than by the proposed May 15,
2020 deadline. Additionally, as explained in section II.G. of this
final notice, we are finalizing that a state may submit its optional
health risk adjustment protocol to CMS within 30 days of publication
of this final notice rather than by the proposed August 1, 2020
deadline.
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B. Overview of the Funding Methodology and Calculation of the Payment
Amount

We proposed in the overview of the funding methodology to calculate
the PTC and CSR as consistently as possible and in general alignment
with the methodology used by Exchanges to calculate the advance
payments of the PTC (APTC) and CSR, and by the Internal Revenue Service
(IRS) to calculate the allowable PTC. We proposed four equations (1,
2a, 2b, and 3) that would, if finalized, compose the overall BHP
payment methodology.
We received the following comments on the overview of the funding
methodology included in the 2021 proposed BHP Payment Notice:
Comment: One commenter stated that CMS did not have the authority
to exclude payment for the CSR portion of the BHP payment rate.
Response: As we explained in the November 2019 final BHP Payment
Notice for 2019 and 2020 (84 FR 59530, 59534) and in the 2021 proposed
BHP Payment Notice (85 FR 7502), in light of the Attorney General's
opinion regarding the unavailability of the permanent appropriation at
31 U.S.C. 1324 to make CSR payments--and in the absence of any other
appropriation that could be used to fund CSR payments--HHS directed CMS
to discontinue CSR payments to issuers until the Congress provides for
an appropriation. In the absence of a Congressional appropriation for
federal funding for CSRs, we cannot provide states with a federal
payment attributable to CSRs that BHP enrollees would have received had
they been enrolled in a QHP through an Exchange.

C. Federal BHP Payment Rate Cells

In this section of 2021 proposed BHP Payment Notice, we proposed
that a state implementing BHP provide us with an estimate of the number
of BHP enrollees it will enroll in the upcoming BHP program quarter, by
applicable rate cell, to determine the federal BHP payment amounts. For
each state, we proposed using rate cells that separate the BHP
population into separate cells based on the following factors: Age;
geographic rating area; coverage status; household size; and income.
For specific discussions of these proposals, please refer to the 2021
proposed BHP Payment Notice.
We received no comments on this aspect of the proposed methodology.

[[Page 49267]]

Therefore, we are finalizing these policies as proposed.

D. Sources and State Data Considerations

We proposed in this section of the 2021 proposed BHP Payment Notice
to use, to the extent possible, data submitted to the federal
government by QHP issuers seeking to offer coverage through an Exchange
that uses HealthCare.gov to determine the federal BHP payment cell
rates. However, for states operating a State-based Exchange (SBE) that
do not use HealthCare.gov, we proposed that such states submit required
data for CMS to calculate the federal BHP payment rates in those
states. For specific discussions, please refer to the 2021 proposed BHP
Payment Notice.
We received no comments on this aspect of the proposed methodology.
Therefore, we are finalizing these policies as proposed.

E. Discussion of Specific Variables Used in Payment Equations

In this section of the 2021 proposed BHP Payment Notice, we
proposed eight specific variables to use in the payment equations that
compose the overall BHP funding methodology. (seven variables are
described in section III.D. of this final notice, and the premium trend
factor is described in section III.E. of this final notice). For each
proposed variable, we included a discussion on the assumptions and data
sources used in developing the variables. For specific discussions,
please refer to 2021 proposed BHP Payment Notice.
Below is a summary of the public comments we received regarding
specific factors and our responses.
Comment: Two commenters recommended that CMS not apply the MTSF in
the 2021 BHP payment methodology and offered rationales for CMS to not
include the MTSF. One commenter stated that applying the MTSF would be
inappropriate because the Essential Plan in New York provides coverage
with actuarial value that is equivalent to a platinum plan, not a
bronze plan.
One commenter stated that applying the MTSF is inappropriate
because the experience in New York in 2015--before BHP was fully
implemented--showed that a smaller percentage of enrollees with incomes
below 200 percent of FPL chose bronze-level QHPs than the percentage of
such enrollees nationwide who chose bronze-level QHPs nationwide in
2017. Two commenters cited New York's enrollment assistance efforts as
the reason for a smaller percentage of enrollees choosing bronze-level
QHPs in 2015. Further, one commenter noted that the amount of PTC
reduction for these enrollees in New York in 2015 was about $12 per
enrollee per month.
Response: As detailed in the 2021 proposed BHP Payment Notice and
in section III.D.6. of this final notice, we continue to believe that
it is appropriate to take the MTSF into account due to several changes
that occurred following the discontinuance of the CSR payments that
increased the impact of enrollees' plan choices on the amount of PTC
paid by the federal government. First, silver-level QHP premiums
increased at a higher percentage in comparison to the increase in
premiums of other metal-tier plans in many states starting in 2018 (on
average, the national average benchmark silver-level QHP premium
increased about 17 percentage points faster than the national average
lowest-cost bronze-level QHP premium). Second, there was an increase in
the percentage of enrollees with incomes below 200 percent of FPL
choosing bronze-level QHPs. Third, the likelihood that a person
choosing a bronze-level QHP would pay $0 premium also increased, as the
difference between the bronze-level QHP premium and the full value of
PTC widened. Finally, the average estimated reduction in PTC for
enrollees with incomes below 200 percent of FPL that chose bronze-level
QHPs increased substantially from 2017 to 2018. Our analysis of 2017
and 2018 data documents these effects.
In 2017, prior to the discontinuance of CSR payments, 11 percent of
QHP enrollees with incomes below 200 percent of FPL elected to enroll
in bronze-level QHPs, and on average the PTC paid on behalf of those
enrollees was 11 percent less than the full value of PTC. In 2018,
after the discontinuance of the CSR payments, 13 percent of QHP
enrollees with incomes below 200 percent of FPL chose bronze-level
QHPs, and on average, the PTC paid on behalf of those enrollees was 23
percent less than the full value of the PTC. In addition, the national
average silver-level QHP premium was 17 percent higher than the
national average bronze-level plan premium in 2017. In 2018, this ratio
increased such that the national average silver-level QHP premium was
33 percent higher than the national average bronze-level plan premium.
While the increase in the percentage of QHP enrollees with incomes
below 200 percent of FPL who elected to enroll in bronze-level QHPs
between 2017 and 2018 is about 2 percentage points, the accompanying
percentage reduction of the PTC paid by the federal government for QHP
enrollees with incomes below 200 percent of FPL more than doubled
between 2017 and 2018. Consistent with section 1331(d)(3) of the
Patient Protection and Affordable Care Act, which requires that
payments to states be based on what would have been provided if BHP
eligible individuals were allowed to enroll in QHPs, we believe it is
appropriate to consider how individuals would have chosen different
plans--including across metal tiers--as part of the BHP payment
methodology. As such, we are finalizing the application of the MTSF for
program year 2021 as proposed.
Regarding comments that New York's experience has differed from the
national averages, as we discussed in the November 2019 final BHP
Payment Notice for 2019 and 2020 (84 FR 59533), we recognize there are
certain unique state characteristics in the New York markets (for
example, pure community rating); however, the BHP statute directs the
Secretary to take into consideration the experience of other states
when developing the payment methodology \4\ and doing so is a
reasonable basis for calculating the MTSF.
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\4\ See section 1331(d)(3)(A)(ii) of the Patient Protection and
Affordable Care Act.
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We also continue to believe that using 2015 data as the basis for
the MTSF is not appropriate. Premiums and enrollment patterns have
changed over time, including the above described changes in bronze-
level and silver-level QHP premiums, changes in the ratio of the
silver-level to bronze-level QHP premiums, and changes to the amount of
PTC paid by the federal government. In addition, while the cited 2015
data provides some evidence of consumer plan selections prior to the
full implementation of New York's BHP, we do not believe that the 2015
data should be relied upon for the development of the MTSF for the
following reasons. First, New York did not begin implementing its BHP
until April 2015 (and did not fully implement BHP until 2016). Second,
the 2015 data predates the discontinuance of the CSR payments in 2017
and the subsequent adjustments to premiums beginning in 2018
(particularly to silver-level QHP premiums). Therefore, relying on data
from 2015 does not capture the more recent experience of New York and/
or other states subsequent to the discontinuation of CSRs, which the
MTSF is intended to reflect.
In response to comments about New York's enrollment assistance
efforts, we note that the statute does not require the Secretary to
address every difference in Exchange operations among the states

[[Page 49268]]

(including, but not limited to, enrollment assistance efforts by
individual Exchanges). We also believe it is not practicable to address
every potential difference in Exchange operations, and that not every
potential difference in Exchange operations would be a relevant factor
necessary to take into account. In response to the comment that the New
York Essential Plan provides coverage with actuarial value that is
equivalent to (or greater than) a platinum plan, not a bronze plan, we
recognize that BHPs are prohibited from providing bronze-level coverage
to enrollees. As we discussed in the November 2019 final BHP Payment
Notice for 2019 and 2020 (84 FR 59533), regarding comments that BHPs
are prohibited from providing bronze-level coverage to enrollees, and
thus the BHP payment methodology should not assume enrollees would have
chosen bronze-level QHPs in the Exchange, section 1331(d)(3)(A)(ii) of
the Patient Protection and Affordable Care Act directs the Secretary to
``take into account all relevant factors necessary to determine the
value of the'' PTCs and CSRs that would have been provided to eligible
individuals if they would have enrolled in QHPs through an Exchange. We
further note the statute does not set forth an exhaustive list of what
those necessary relevant factors are, providing the Secretary with
discretion and authority to identify and take into consideration
factors that are not specifically enumerated in the statute. In
addition, section 1331(d)(3)(A)(ii) of the Patient Protection and
Affordable Care Act requires the Secretary to ``take into consideration
the experience of other States with respect to participation on
Exchanges and such credit and reductions provided to residents of the
other States, with a special focus on enrollees with income below 200
percent of poverty.'' We recognize that applying the MTSF would reduce
BHP funding, but we nonetheless believe that incorporating the MTSF
into the BHP payment methodology for program year 2021 accurately
reflects the changes in PTCs after the federal government stopped
making CSR payments and is consistent with section 1331(d)(3)(A)(ii) of
the Patient Protection and Affordable Care Act. Regarding the comments
about the potential impact of reduced BHP funding on benefits available
under BHPs, we note that the benefits requirements at Sec. 600.405 are
still applicable and therefore benefits available under BHPs should not
be impacted.
Comment: Several commenters opposed or disagreed with our
alternative options for calculating the MTSF, which included using
partial 2019 data instead of 2018 data, and making a retrospective
adjustment under Sec. 600.610(c)(2)(ii) to update the MTSF using 2021
data once it becomes available. One commenter noted that calculating
the MTSF retrospectively would introduce uncertainty into the program
that would make planning difficult.
Response: After consideration of comments, we are finalizing the
MTSF as proposed using 2018 data.\5\ As detailed in the 2021 proposed
BHP Payment Notice, we believe it is reasonable to use the same value
for the MTSF as was used in the 2020 final payment methodology. Most
notably, the MTSF reflects the percentage of enrollees choosing bronze-
level QHPs and the accompanying reduction in the PTCs paid and we do
not expect significant year-to-year differences in these data points
absent other significant changes to the operations of the Exchanges
(for example, the discontinuance of CSR payments). Further, we believe
that states and QHP issuers have not significantly changed their
approaches to account for the discontinuation of CSR payments, and that
most states and QHP issuers are using similar approaches as were used
in 2018.\6\ We also believe that consumers will continue to react to
these adjustments and increases in silver-level QHP premiums in the
same manner; meaning that consumers will continue to select bronze-
level QHPs and the impact on PTCs paid by the government will generally
remain the same.
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\5\ See section III.D.6. of this final notice for further
details on the MTSF finalized as part of the 2021 final payment
methodology.
\6\ In fact, HHS may not take any action or prohibit or
otherwise restrict silver loading practices with respect to plan
year 2021. See Further Consolidated Appropriations Act, 2020,
Division N, title I, subtitle F, section 609 (Pub. L. 116-94:
December 20, 2019, enacting H.R. 1865).
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We appreciate the comments on potential other sources of data
beyond 2018 that could be used to calculate the MTSF for 2021. We
recognize that making a retrospective adjustment to update the MTSF
using 2021 data would introduce some uncertainty into the BHP payments
because the necessary data would not be available until after the end
of the 2021 program year and this could create planning challenges for
states operating BHPs. We also remain concerned about using partial
2019 data to calculate the MTSF, and we believe that the final end-of-
year data is more reliable than partial data and that the preliminary
2019 data does not suggest that there would be a substantial change in
the MTSF value. We are therefore finalizing the MTSF as proposed using
2018 data, as we discuss in section III.D.6. of this final notice.
Comment: Several commenters opposed or disagreed with our
alternative options for calculating the Premium Adjustment Factor
(PAF), which included using other data sources to calculate the PAF,
estimating the PAF rather than relying on the information from the QHP
issuers, and making a retrospective adjustment under Sec.
600.610(c)(2)(ii) to the PAF for 2021 to reflect actual 2021 experience
once the necessary data for 2021 becomes available. In addition, one
commenter noted that calculating the PAF retrospectively would
introduce uncertainty into the program that would make planning
difficult.
Response: After consideration of comments received, we are
finalizing the PAF value at 1.188 for program year 2021 using 2018
data, as proposed. As detailed in the 2021 proposed BHP Payment Notice,
we believe this value for the PAF continues to reasonably account for
the increase in silver-level premiums and the reduction in PTCs paid
that took effect after the discontinuance of the CSR payments. As
explained above, we believe that the impact of the increase in silver-
level premiums in 2021 can reasonably be expected to be similar in
2018. In addition, we recognize that making a retrospective adjustment
to update the PAF to reflect actual 2021 experience would create some
additional uncertainty into the BHP payments because the necessary data
would not be available until after the end of the 2021 program year,
and that this could create planning challenges for states operating
BHPs. We are not pursuing use of the other data sources for determining
the value of the PAF, as we believe that QHP issuers may not be readily
able to provide specific data. In addition, this information is not
typically collected with the issuers' rate filings. We believe this may
be burdensome on the QHP issuers to provide this information at this
time (for example, through a survey specifically to request this
information). We also are not calculating an estimate of the QHP
premium adjustment. While we believe this could be a reasonable
approach, we believe that the 2018 experience still provides an
accurate reflection of the QHP premium adjustment and using 2018 data
avoids the previously described concerns associated with the identified
potential alternative data sources. We are

[[Page 49269]]

finalizing the PAF as proposed, as discussed in section III.D.2. of
this final notice.
Comment: Regarding the income reconciliation factor (IRF), several
commenters supported our proposal to calculate the IRF using only the
value for states that have expanded Medicaid eligibility to 138 percent
of FPL. In past years, we calculated the IRF as the average of the
values for states that have expanded Medicaid eligibility and for
states that have not.
Response: We appreciate these comments and are finalizing the IRF
as proposed.

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

In this section of the 2021 proposed payment notice, we proposed to
provide states operating a BHP with the option to use the 2020 QHP
premiums multiplied by a premium trend factor to calculate the federal
BHP payment rates instead of using the 2021 QHP premiums. We proposed
to require states to make their election for the 2021 program year by
May 15, 2020. For specific discussions, please refer to the 2021
proposed BHP Payment Notice.
We received no comments on this aspect of the proposed methodology.
We are finalizing these policies as proposed, with one exception.
Because we are finalizing the 2021 payment methodology after the
proposed May 15, 2020 deadline for notifying us of the decision to base
federal BHP payment rates on actual 2021 premiums or the 2020 premiums
trended forward, we are finalizing that a state may notify CMS of its
election within 60 days of publication of this final notice.

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

In this section of the 2021 proposed BHP Payment Notice, we
proposed to provide states implementing BHP the option to develop a
methodology to account for the impact that including the BHP population
in the Exchange would have had on QHP premiums based on any differences
in health status between the BHP population and persons enrolled
through the Exchange. For specific discussions, please refer to the
2021 proposed BHP Payment Notice.
We received no comments on this aspect of the methodology.
Therefore, we are finalizing this policy as proposed, with one change.
Because we are finalizing the 2021 payment methodology after the
proposed August 1, 2020 deadline for states to submit their protocols
to CMS, we are finalizing that a state electing this option must submit
their protocol to CMS within 30 days of publication of this final
notice.

III. Provisions of the 2021 BHP Final Methodology

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

Section 1331(d)(3) of the Patient Protection and Affordable Care
Act directs the Secretary to consider several factors when determining
the federal BHP payment amount, which, as specified in the statute,
must equal 95 percent of the value of the PTC and CSRs that BHP
enrollees would have been provided had they enrolled in a QHP through
an Exchange. Thus, the BHP funding methodology is designed to calculate
the PTC and CSRs as consistently as possible and in general alignment
with the methodology used by Exchanges to calculate the APTC and CSRs,
and by the IRS to calculate final PTCs. In general, we have relied on
values for factors in the payment methodology specified in statute or
other regulations as available, and have developed values for other
factors not otherwise specified in statute, or previously calculated in
other regulations, to simulate the values of the PTC and CSRs that BHP
enrollees would have received if they had enrolled in QHPs offered
through an Exchange. In accordance with section 1331(d)(3)(A)(iii) of
the Patient Protection and Affordable Care Act, the final funding
methodology must be certified by the Chief Actuary of CMS, in
consultation with the Office of Tax Analysis (OTA) of the Department of
the Treasury, as having met the requirements of section
1331(d)(3)(A)(ii) of the Patient Protection and Affordable Care Act.
Section 1331(d)(3)(A)(ii) of the Patient Protection and Affordable
Care Act specifies that the payment determination shall take into
account all relevant factors necessary to determine the value of the
PTCs and CSRs that would have been provided to eligible individuals,
including but not limited to, the age and income of the enrollee,
whether the enrollment is for self-only or family coverage, geographic
differences in average spending for health care across rating areas,
the health status of the enrollee for purposes of determining risk
adjustment payments and reinsurance payments that would have been made
if the enrollee had enrolled in a QHP through an Exchange, and whether
any reconciliation of PTC and CSR would have occurred if the enrollee
had been so enrolled. Under the payment methodologies for 2015 (79 FR
13887) (published in March 2014), for 2016 (80 FR 9636) (published in
February 2015), for 2017 and 2018 (81 FR 10091) (published in February
2016), and for 2019 and 2020 (84 FR 59529) (published in November
2019), the total federal BHP payment amount has been calculated using
multiple rate cells in each state. Each rate cell represents a unique
combination of age range (if applicable), geographic area, coverage
category (for example, self-only or two-adult coverage through the
BHP), household size, and income range as a percentage of FPL, and
there is a distinct rate cell for individuals in each coverage category
within a particular age range who reside in a specific geographic area
and are in households of the same size and income range. The BHP
payment rates developed also are consistent with the state's rules on
age rating. Thus, in the case of a state that does not use age as a
rating factor on an Exchange, the BHP payment rates would not vary by
age.
The rate for each rate cell is calculated in two parts. The first
part is equal to 95 percent of the estimated PTC that would have been
paid if a BHP enrollee in that rate cell had instead enrolled in a QHP
in an Exchange. The second part is equal to 95 percent of the estimated
CSR payment that would have been made if a BHP enrollee in that rate
cell had instead enrolled in a QHP in an Exchange. These two parts are
added together and the total rate for that rate cell would be equal to
the sum of the PTC and CSR rates. We will assign a value of zero to the
CSR portion of the BHP payment rate calculation, because there is
presently no available appropriation from which we can make the CSR
portion of any BHP Payment.
Equation (1) will be used to calculate the estimated PTC for
eligible individuals enrolled in the BHP in each rate cell. We note
that throughout this final notice that when we refer to enrollees and
enrollment data, we mean data regarding individuals who were enrolled
in the BHP who had been found eligible for the BHP using the
eligibility and verification requirements that are applicable in the
state's most recent certified Blueprint. By applying the equations
separately to rate cells based on age (if applicable), income and other
factors, we effectively take those factors into account in the
calculation. In addition, the equations reflect the estimated
experience of individuals in each rate cell if enrolled in coverage
through an Exchange, taking into account additional relevant variables.
Each of the variables in the equations is

[[Page 49270]]

defined in this section, and further detail is provided later in this
section of the final notice. In addition, we described how we will
calculate the adjusted reference premium (ARP) that was used in
Equation (1) and defined in Equation (2a) and Equation (2b).
Equation 1: Estimated PTC by Rate Cell
The estimated PTC, on a per enrollee basis, will be calculated for
each rate cell for each state based on age range (if applicable),
geographic area, coverage category, household size, and income range.
The PTC portion of the rate will be calculated in a manner consistent
with the methodology used to calculate the PTC for persons enrolled in
a QHP, with 5 adjustments. First, the PTC portion of the rate for each
rate cell will represent the mean, or average, expected PTC that all
persons in the rate cell would receive, rather than being calculated
for each individual enrollee. Second, the reference premium (RP)
(described in section III.D.1. of this final notice) used to calculate
the PTC will be adjusted for the BHP population health status, and in
the case of a state that elects to use 2020 premiums for the basis of
the BHP federal payment, for the projected change in the premium from
2020 to 2021, to which the rates in this final payment methodology will
apply. These adjustments are described in Equation (2a) and Equation
(2b). Third, the PTC will be adjusted prospectively to reflect the
mean, or average, net expected impact of income reconciliation on the
combination of all persons enrolled in the BHP; this adjustment, the
IRF, as described in section III.D.7. of this final notice, will
account for the impact on the PTC that would have occurred had such
reconciliation been performed. Fourth, the PTC will be adjusted to
account for the estimated impacts of plan selection; this adjustment,
the MTSF, would reflect the effect of individuals choosing different
metal tier levels of QHPs on the average PTC. Finally, the rate is
multiplied by 95 percent, consistent with section 1331(d)(3)(A)(i) of
the Patient Protection and Affordable Care Act. We note that in the
situation where the average income contribution of an enrollee would
exceed the ARP, we will calculate the PTC to be equal to 0 and would
not allow the value of the PTC to be negative.
We will use Equation (1) to calculate the PTC rate, consistent with
the methodology described above:
[GRAPHIC] [TIFF OMITTED] TR13AU20.004

PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
Ih,i,j = Income (in dollars per month) at each 1 percentage-point
increment of FPL
j = jth percentage-point increment FPL
n = Number of income increments used to calculate the mean PTC
PTCFh,i,j = Premium tax credit formula percentage
IRF = Income reconciliation factor
MTSF = Metal-tier selection factor
Equation (2a) and Equation (2b): Adjusted Reference Premium (ARP)
Variable (Used in Equation 1)
As part of the calculations for the PTC component, we will
calculate the value of the ARP as described below. Consistent with the
existing approach, we will allow states to choose between using the
actual current year premiums or the prior year's premiums multiplied by
the premium trend factor (PTF) (as described in section III.E. of this
final notice). Below we describe how we will continue to calculate the
ARP under each option.
In the case of a state that elected to use the reference premium
(RP) based on the current program year (for example, 2021 premiums for
the 2021 program year), we will calculate the value of the ARP as
specified in Equation (2a). The ARP will be equal to the RP, which will
be based on the second lowest cost silver plan premium in the
applicable program year, multiplied by the BHP population health factor
(PHF) (described in section III.D.3. of this final notice), which will
reflect the projected impact that enrolling BHP-eligible individuals in
QHPs through an Exchange would have had on the average QHP premium, and
multiplied by the premium adjustment factor (PAF) (described in section
III.D.2. of this final notice), which will account for the change in
silver-level premiums due to the discontinuance of CSR payments.
[GRAPHIC] [TIFF OMITTED] TR13AU20.007

In the case of a state that elected to use the RP based on the
prior program year (for example, 2020 premiums for the 2021 program
year, as described in more detail in section III.E. of this final
notice), we will calculate the value of the ARP as specified in
Equation (2b). The ARP will be equal to the RP, which will be based on
the second lowest cost silver plan premium in 2020, multiplied by the
BHP PHF (described in section III.D.3. of this final notice), which
will reflect the projected impact that enrolling BHP-eligible
individuals in QHPs on an Exchange would have had on the average QHP
premium, multiplied by the PAF (described in section III.D.2. of this
final notice), which will account for the change in silver-level
premiums due to the discontinuance of CSR payments, and multiplied by
the premium trend factor (PTF) (described in section III.E. of this
final notice), which will reflect the projected change in the premium
level between 2020 and 2021.

[[Page 49271]]

[GRAPHIC] [TIFF OMITTED] TR13AU20.008

ARPa,g,c = Adjusted reference premium
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family
coverage) obtained through BHP
RPa,g,c = Reference premium
PHF = Population health factor
PAF = Premium adjustment factor
PTF = Premium trend factor
Equation 3: Determination of Total Monthly Payment for BHP Enrollees in
Each Rate Cell
In general, the rate for each rate cell will be multiplied by the
number of BHP enrollees in that cell (that is, the number of enrollees
that meet the criteria for each rate cell) to calculate the total
monthly BHP payment. This calculation is shown in Equation (3).
[GRAPHIC] [TIFF OMITTED] TR13AU20.009

In general, the rate for each rate cell will be multiplied by the
number of BHP enrollees in that cell (that is, the number of enrollees
that meet the criteria for each rate cell) to calculate the total
monthly BHP payment. This calculation is shown in Equation (3).

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

B. Federal BHP Payment Rate Cells

Consistent with the previous payment methodologies, a state
implementing a BHP will provide us an estimate of the number of BHP
enrollees it projects will enroll in the upcoming BHP program quarter,
by applicable rate cell, prior to the first quarter and each subsequent
quarter of program operations until actual enrollment data is
available. Upon our approval of such estimates as reasonable, they will
be used to calculate the prospective payment for the first and
subsequent quarters of program operation until the state has provided
us actual enrollment data. These data are required to calculate the
final BHP payment amount, and make any necessary reconciliation
adjustments to the prior quarters' prospective payment amounts due to
differences between projected and actual enrollment. Subsequent
quarterly deposits to the state's trust fund will be based on the most
recent actual enrollment data submitted to us. Actual enrollment data
must be based on individuals enrolled for the quarter who the state
found eligible and whose eligibility was verified using eligibility and
verification requirements as agreed to by the state in its applicable
BHP Blueprint for the quarter that enrollment data is submitted.
Procedures will ensure that federal payments to a state reflect actual
BHP enrollment during a year, within each applicable category, and
prospectively determined federal payment rates for each category of BHP
enrollment, with such categories defined in terms of age range (if
applicable), geographic area, coverage status, household size, and
income range, as explained above.
We will require the use of certain rate cells as part of the
proposed methodology. For each state, we will use rate cells that
separate the BHP population into separate cells based on the five
factors described as follows:
Factor 1--Age: We will separate enrollees into rate cells by age
(if applicable), using the following age ranges that capture the widest
variations in premiums under HHS' Default Age Curve: \7\
---------------------------------------------------------------------------

\7\ This curve is used to implement the Patient Protection and
Affordable Care Act's 3:1 limit on age-rating in states that do not
create an alternative rate structure to comply with that limit. The
curve applies to all individual market plans, both within and
outside the Exchange. The age bands capture the principal allowed
age-based variations in premiums as permitted by this curve. The
default age curve was updated for 2018 to include different age
rating factors between children 0-14 and for persons at each age
between 15 and 20. More information is available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/StateSpecAgeCrv053117.pdf. Both children and
adults under age 21 are charged the same premium. For adults age 21-
64, the age bands in this notice divide the total age-based premium
variation into the three most equally-sized ranges (defining size by
the ratio between the highest and lowest premiums within the band)
that are consistent with the age-bands used for risk-adjustment
purposes in the HHS-Developed Risk Adjustment Model. For such age
bands, see Table 5, ``Age-Sex Variables,'' in HHS-Developed Risk
Adjustment Model Algorithm Software, June 2, 2014, http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/ra-tables-03-27-2014.xlsx.
---------------------------------------------------------------------------

Ages 0-20.
Ages 21-34.
Ages 35-44.
Ages 45-54.
Ages 55-64.
This provision is unchanged from the current methodology.
Factor 2--Geographic area: For each state, we will separate
enrollees into rate cells by geographic areas within which a single RP
is charged by QHPs offered through the state's Exchange. Multiple, non-
contiguous geographic areas would be incorporated within a single cell,
so long as those areas share a common RP.\8\ This provision is also
unchanged from the current methodology.
---------------------------------------------------------------------------

\8\ For example, a cell within a particular state might refer to
``County Group 1,'' ``County Group 2,'' etc., and a table for the
state would list all the counties included in each such group. These
geographic areas are consistent with the geographic areas
established under the 2014 Market Reform Rules. They also reflect
the service area requirements applicable to QHPs, as described in 45
CFR 155.1055, except that service areas smaller than counties are
addressed as explained in this notice.
---------------------------------------------------------------------------

Factor 3--Coverage status: We will separate enrollees into rate
cells by coverage status, reflecting whether an individual is enrolled
in self-only coverage or persons are enrolled in family coverage
through the BHP, as provided in section 1331(d)(3)(A)(ii) of the
Patient Protection and Affordable Care Act. Among recipients of family
coverage through the BHP, separate rate cells, as explained below, will
apply based on whether such coverage involves two adults alone or
whether it involves children. This provision is unchanged from the
current methodology.
Factor 4--Household size: We will continue the current methods for
separating enrollees into rate cells by household size that states use
to determine BHP enrollees' household income as a percentage of the FPL
under Sec. 600.320 (Determination of eligibility for and enrollment in
a standard health plan). We will require separate rate cells for
several specific household sizes. For each additional member above the
largest specified size, we will publish

[[Page 49272]]

instructions for how we will develop additional rate cells and
calculate an appropriate payment rate based on data for the rate cell
with the closest specified household size. We will publish separate
rate cells for household sizes of 1 through 10. This provision is
unchanged from the current methodology.
Factor 5--Household Income: For households of each applicable size,
we will continue the current methods for creating separate rate cells
by income range, as a percentage of FPL. The PTC that a person would
receive if enrolled in a QHP through an Exchange varies by household
income, both in level and as a ratio to the FPL. Thus, separate rate
cells will be used to calculate federal BHP payment rates to reflect
different bands of income measured as a percentage of FPL. We will use
the following income ranges, measured as a percentage of the FPL:
0 to 50 percent of the FPL.
51 to 100 percent of the FPL.
101 to 138 percent of the FPL.\9\
---------------------------------------------------------------------------

\9\ The three lowest income ranges would be limited to lawfully
present immigrants who are ineligible for Medicaid because of
immigration status.
---------------------------------------------------------------------------

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

C. Sources and State Data Considerations

To the extent possible, unless otherwise provided, we will continue
to use data submitted to the federal government by QHP issuers seeking
to offer coverage through the Exchange in the relevant BHP state to
perform the calculations that determine federal BHP payment cell rates.
States operating a SBE in the individual market, however, must
provide certain data, including premiums for second lowest cost silver
plans, by geographic area, for CMS to calculate the federal BHP payment
rates in those states. States operating a SBE interested in obtaining
the applicable 2021 program year federal BHP payment rates for its
state must submit such data accurately, completely, and as specified by
CMS, by no later than October 15, 2020. If additional state data (that
is, in addition to the second lowest cost silver plan premium data) are
needed to determine the federal BHP payment rate, such data must be
submitted in a timely manner, and in a format specified by us to
support the development and timely release of annual BHP payment
notices. The specifications for data collection to support the
development of BHP payment rates are published in CMS guidance and are
available in the Federal Policy Guidance section at https://www.medicaid.gov/federal-policy-Guidance/index.html.
States operating a BHP must submit enrollment data to us on a
quarterly basis and should be technologically prepared to begin
submitting data at the start of their BHP, starting with the beginning
of the first program year. This differs from the enrollment estimates
used to calculate the initial BHP payment, which states would generally
submit to CMS 60 days before the start of the first quarter of the
program start date. This requirement is necessary for us to implement
the payment methodology that is tied to a quarterly reconciliation
based on actual enrollment data.
We will continue the policy first adopted in the February 2016
payment notice that in states that have BHP enrollees who do not file
federal tax returns (non-filers), the state must develop a methodology
to determine the enrollees' household income and household size
consistently with Marketplace requirements.\10\ The state must submit
this methodology to us at the time of their Blueprint submission. We
reserve the right to approve or disapprove the state's methodology to
determine household income and household size for non-filers if the
household composition and/or household income resulting from
application of the methodology are different than what typically would
be expected to result if the individual or head of household in the
family were to file a tax return. States currently operating a BHP that
wish to change the methodology for non-filers must submit a revised
Blueprint outlining the revisions to its methodology, consistent with
Sec. 600.125.
---------------------------------------------------------------------------

\10\ See 81 FR at 10097.
---------------------------------------------------------------------------

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

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
To calculate the estimated PTC that would be paid if BHP-eligible
individuals enrolled in QHPs through an Exchange, we must calculate a
RP

[[Page 49273]]

because the PTC is based, in part, on the premiums for the applicable
second lowest cost silver plan as explained in section III.D.5. of this
final notice, regarding the premium tax credit formula (PTCF).
Accordingly, for the purposes of calculating the BHP payment rates, the
RP, in accordance with 26 U.S.C. 36B(b)(3)(C), is defined as the
adjusted monthly premium for an applicable second lowest cost silver
plan. The applicable second lowest cost silver plan is defined in 26
U.S.C. 36B(b)(3)(B) as the second lowest cost silver plan of the
individual market in the rating area in which the taxpayer resides that
is offered through the same Exchange. We will use the adjusted monthly
premium for an applicable second lowest cost silver plan in the
applicable program year (2021) as the RP (except in the case of a state
that elects to use the prior plan year's premium as the basis for the
federal BHP payment for 2021, as described in section III.E. of this
final notice).
The RP would be the premium applicable to non-tobacco users. This
is consistent with the provision in 26 U.S.C. 36B(b)(3)(C) that bases
the PTC on premiums that are adjusted for age alone, without regard to
tobacco use, even for states that allow insurers to vary premiums based
on tobacco use in accordance with 42 U.S.C. 300gg(a)(1)(A)(iv).
Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6), to
calculate the PTC for those enrolled in a QHP through an Exchange, we
will not update the payment methodology, and subsequently the federal
BHP payment rates, in the event that the second lowest cost silver plan
used as the RP, or the lowest cost silver plan, changes (that is,
terminates or closes enrollment during the year).
The applicable second lowest cost silver plan premium will be
included in the BHP payment methodology by age range (if applicable),
geographic area, and self-only or applicable category of family
coverage obtained through the BHP.
We note that the choice of the second lowest cost silver plan for
calculating BHP payments relies on several simplifying assumptions in
its selection. For the purposes of determining the second lowest cost
silver plan for calculating PTC for a person enrolled in a QHP through
an Exchange, the applicable plan may differ for various reasons. For
example, a different second lowest cost silver plan may apply to a
family consisting of two adults, their child, and their niece than to a
family with two adults and their children, because one or more QHPs in
the family's geographic area might not offer family coverage that
includes the niece. We believe that it is not possible to replicate
such variations for calculating the BHP payment and believe that in the
aggregate, they will not result in a significant difference in the
payment. Thus, we will use the second lowest cost silver plan available
to any enrollee for a given age, geographic area, and coverage
category.
This choice of RP relies on an assumption about enrollment in the
Exchanges. In previous methodologies for program years 2015 through
2019, we had assumed that all persons enrolled in the BHP would have
elected to enroll in a silver level plan if they had instead enrolled
in a QHP through an Exchange (and that the QHP premium would not be
lower than the value of the PTC). In the November 2019 final BHP
Payment Notice, we continued to use the second-lowest cost silver plan
premium as the RP, but for the 2020 payments we changed the assumption
about which metal-tier plans enrollees would choose (see section
III.D.6. on the MTSF in this final notice). Therefore, for the 2021
payment methodology, we will continue to use the second-lowest cost
silver plan premium as the RP, but account for how enrollees may choose
other metal tier plans by applying the MTSF.
We do not believe it is appropriate to adjust the payment for an
assumption that some BHP enrollees would not have enrolled in QHPs for
purposes of calculating the BHP payment rates, since section
1331(d)(3)(A)(ii) of the Patient Protection and Affordable Care Act
requires the calculation of such rates as if the enrollee had enrolled
in a QHP through an Exchange.
The applicable age bracket (if any) will be one dimension of each
rate cell. We will assume a uniform distribution of ages and estimate
the average premium amount within each rate cell. We believe that
assuming a uniform distribution of ages within these ranges is a
reasonable approach and would produce a reliable determination of the
total monthly payment for BHP enrollees. We also believe this approach
would avoid potential inaccuracies that could otherwise occur in
relatively small payment cells if age distribution were measured by the
number of persons eligible or enrolled.
We will use geographic areas based on the rating areas used in the
Exchanges. We will define each geographic area so that the RP is the
same throughout the geographic area. When the RP varies within a rating
area, we will define geographic areas as aggregations of counties with
the same RP. Although plans are allowed to serve geographic areas
smaller than counties after obtaining our approval, no geographic
areas, for purposes of defining BHP payment rate cells, will be smaller
than a county. We do not believe that this assumption will have a
significant impact on federal payment levels and it would simplify both
the calculation of BHP payment rates and the operation of the BHP.
Finally, in terms of the coverage category, federal payment rates
will only recognize self-only and two-adult coverage, with exceptions
that account for children who are potentially eligible for the BHP.
First, in states that set the upper income threshold for children's
Medicaid and CHIP eligibility below 200 percent of FPL (based on
modified adjusted gross income (MAGI)), children in households with
incomes between that threshold and 200 percent of FPL would be
potentially eligible for the BHP. Currently, the only states in this
category are Idaho and North Dakota.\11\ Second, the BHP will include
lawfully present immigrant children with household incomes at or below
200 percent of FPL in states that have not exercised the option under
sections 1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the Act to qualify all
otherwise eligible, lawfully present immigrant children for Medicaid
and CHIP. States that fall within these exceptions would be identified
based on their Medicaid and CHIP State Plans, and the rate cells would
include appropriate categories of BHP family coverage for children. For
example, Idaho's Medicaid and CHIP eligibility is limited to families
with MAGI at or below 185 percent FPL. If Idaho implemented a BHP,
Idaho children with household incomes between 185 and 200 percent could
qualify. In other states, BHP eligibility will generally be restricted
to adults, since children who are citizens or lawfully present
immigrants and live in households with incomes at or below 200 percent
of FPL will qualify for Medicaid or CHIP, and thus be ineligible for a
BHP under section 1331(e)(1)(C) of the Patient Protection and
Affordable Care Act, which limits a BHP to individuals who are
ineligible for minimum essential coverage (as defined in 26 U.S.C.
5000A(f)).
---------------------------------------------------------------------------

\11\ CMCS. ``State Medicaid, CHIP and BHP Income Eligibility
Standards Effective April 1, 2019.''
---------------------------------------------------------------------------

2. Premium Adjustment Factor (PAF)
The PAF considers the premium increases in other states that took
effect after we discontinued payments to issuers for CSRs provided to
enrollees in QHPs offered through Exchanges.

[[Page 49274]]

Despite the discontinuance of federal payments for CSRs, QHP issuers
are required to provide CSRs to eligible enrollees. As a result, many
QHP issuers increased the silver-level plan premiums to account for
those additional costs; adjustments and how those were applied (for
example, to only silver-level plans or to all metal tier plans) varied
across states. For the states operating BHPs in 2018, the increases in
premiums were relatively minor, because the majority of enrollees
eligible for CSRs (and all who were eligible for the largest CSRs) were
enrolled in the BHP and not in QHPs on the Exchanges, and therefore
issuers in BHP states did not significantly raise premiums to cover
unpaid CSR costs.
In the Final Administrative Order and the November 2019 final BHP
Payment Notice, we incorporated the PAF into the BHP payment.
Similarly, we will include the PAF in the 2021 payment methodology and
to calculate it in the same manner as in the Final Administrative
Order.
Under the Final Administrative Order, we calculated the PAF by
using information requested from QHP issuers in each state and the
District of Columbia, and determined the premium adjustment that the
responding QHP issuers made to each silver level plan in 2018 to
account for the discontinuation of CSR payments to QHP issuers. Based
on the data collected, we estimated the median adjustment for silver
level QHPs nationwide (excluding those in the two BHP states). To the
extent that QHP issuers made no adjustment (or the adjustment was 0),
this would be counted as 0 in determining the median adjustment made to
all silver level QHPs nationwide. If the amount of the adjustment was
unknown--or we determined that it should be excluded for methodological
reasons (for example, the adjustment was negative, an outlier, or
unreasonable)--then we did not count the adjustment towards determining
the median adjustment.\12\ The median adjustment for silver level QHPs
is the nationwide median adjustment.
---------------------------------------------------------------------------

\12\ Some examples of outliers or unreasonable adjustments
include (but are not limited to) values over 100 percent (implying
the premiums doubled or more as a result of the adjustment), values
more than double the otherwise highest adjustment, or non-numerical
entries.
---------------------------------------------------------------------------

For each of the two BHP states, we determined the median premium
adjustment for all silver level QHPs in that state, which we refer to
as the state median adjustment. The PAF for each BHP state equaled 1
plus the nationwide median adjustment divided by 1 plus the state
median adjustment for the BHP state. In other words,

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

To determine the PAF described above, we collected QHP information
from QHP issuers in each state and the District of Columbia to
determine the premium adjustment those issuers made to each silver
level plan offered through the Exchange in 2018 to account for the end
of CSR payments. Specifically, we requested information showing the
percentage change that QHP issuers made to the premium for each of
their silver level plans to cover benefit expenditures associated with
the CSRs, given the lack of CSR payments in 2018. This percentage
change was a portion of the overall premium increase from 2017 to 2018.
According to our records, there were 1,233 silver-level QHPs that
submitted premiums to operate on Exchanges in 2018. Of these 1,233
QHPs, 318 QHPs (25.8 percent) responded to our request for the
percentage adjustment applied to silver-level QHP premiums in 2018 to
account for the discontinuance of the CSRs. These 318 QHPs operated in
26 different states, with 10 of those states running SBEs (while we
requested information only from QHP issuers in states serviced by an
FFE, many of those issuers also had QHPs in states operating SBEs and
submitted information for those states as well). Thirteen of these 318
QHPs were in New York (and none were in Minnesota). Excluding these 13
QHPs from the analysis, the nationwide median adjustment was 20.0
percent. Of the 13 QHPs in New York that responded, the state median
adjustment was 1.0 percent. We believe that this is an appropriate
adjustment for QHPs in Minnesota as well, based on the observed changes
in New York's QHP premiums in response to the discontinuance of CSR
payments (and the operation of the BHP in that state) and our analysis
of expected QHP premium adjustments for states with BHPs. We calculated
the proposed PAF as (1 + 20%) / (1 + 1%) (or 1.20/1.01), which results
in a value of 1.188.
We will continue to set the PAF equal to 1.188 for program year
2021. We believe that this value for the PAF continues to reasonably
account for the increase in silver-level premiums experienced in non-
BHP states that took effect after the discontinuance of the CSR
payments. We believe that the impact of the increase in silver-level
premiums in 2021 can reasonably be expected to be similar to that in
2018, because the discontinuation of CSR payments has not changed.
3. Population Health Factor (PHF)
The PHF will be included in the methodology to account for the
potential differences in the average health status between BHP
enrollees and persons enrolled through the Exchanges. To the extent
that BHP enrollees would have been enrolled through an Exchange in the
absence of a BHP in a state, the exclusion of those BHP enrollees in
the Exchange may affect the average health status of the overall
population and the expected QHP premiums.
We currently do not believe that there is evidence that the BHP
population would have better or poorer health status than the Exchange
population. At this time, there continues to be a lack of data on the
experience in the Exchanges, which limits the ability to analyze the
potential health differences between these groups of enrollees. More
specifically, Exchanges have been in operation since 2014, and two
states have operated BHPs since 2015, but data is not available to do
the analysis necessary to determine if there are differences in the
average health status between BHP and Exchange enrollees. In addition,
differences in population health may vary across states. We also do not
believe that sufficient data would be available to permit us to make a
prospective adjustment to the PHF under Sec. 600.610(c)(2) for the
2021 program year.
Given these analytic challenges and the limited data about Exchange
coverage and the characteristics of BHP-eligible consumers, the PHF
will continue to be 1.00 for program year 2021.
In the previous BHP payment methodologies, we included an option
for states to include a retrospective population health status
adjustment. We will provide states with the same option for 2021 to
include a retrospective population health status adjustment in the
certified methodology, which is subject to our review and approval.
This option is described further in section III.F. of this final
notice. Regardless of whether a state elects to include a retrospective
population health status adjustment, we anticipate that, in future
years, when additional data becomes available about Exchange coverage
and the characteristics of BHP enrollees, we may estimate the PHF
differently.
While the statute requires consideration of risk adjustment
payments and reinsurance payments insofar as they would have affected
the PTC that would have been provided to

[[Page 49275]]

BHP-eligible individuals had they enrolled in QHPs, we will not require
that a BHP's standard health plans receive such payments. As explained
in the BHP final rule, BHP standard health plans are not included in
the federally-operated risk adjustment program.\13\ Further, standard
health plans do not qualify for payments under the transitional
reinsurance program established under section 1341 of the Patient
Protection and Affordable Care Act for the years the program was
operational (2014 through 2016).\14\ To the extent that a state
operating a BHP determines that, because of the distinctive risk
profile of BHP-eligible consumers, BHP standard health plans should be
included in mechanisms that share risk with other plans in the state's
individual market, the state would need to use other methods for
achieving this goal.
---------------------------------------------------------------------------

\13\ See 79 FR at 14131.
\14\ See 45 CFR 153.400(a)(2)(iv) (BHP standard health plans are
not required to submit reinsurance contributions), 153.20
(definition of ``Reinsurance-eligible plan'' as not including
``health insurance coverage not required to submit reinsurance
contributions''), 153.230(a) (reinsurance payments under the
national reinsurance parameters are available only for
``Reinsurance-eligible plans'').
---------------------------------------------------------------------------

4. Household Income (I)
Household income is a significant determinant of the amount of the
PTC that is provided for persons enrolled in a QHP through an Exchange.
Accordingly, the BHP payment methodology will incorporate household
income into the calculations of the payment rates through the use of
income-based rate cells. We will define household income in accordance
with the definition of MAGI in 26 U.S.C. 36B(d)(2)(B) and consistent
with the definition in 45 CFR 155.300. Income would be measured
relative to the FPL, which is updated periodically in the Federal
Register by the Secretary under the authority of 42 U.S.C. 9902(2).
Household size and income as a percentage of FPL will be used as
factors in developing the rate cells. We will use the following income
ranges measured as a percentage of FPL: \15\
---------------------------------------------------------------------------

\15\ These income ranges and this analysis of income apply to
the calculation of the PTC.
---------------------------------------------------------------------------

0-50 percent.
51-100 percent.
101-138 percent.
139-150 percent.
151-175 percent.
176-200 percent.
We will assume a uniform income distribution for each federal BHP
payment cell. We believe that assuming a uniform income distribution
for the income ranges proposed would be reasonably accurate for the
purposes of calculating the BHP payment and would avoid potential
errors that could result if other sources of data were used to estimate
the specific income distribution of persons who are eligible for or
enrolled in the BHP within rate cells that may be relatively small.
Thus, when calculating the mean, or average, PTC for a rate cell,
we will calculate the value of the PTC at each 1 percentage point
interval of the income range for each federal BHP payment cell and then
calculate the average of the PTC across all intervals. This calculation
will rely on the PTC formula described in section III.D.5. of this
final notice.
As the APTC for persons enrolled in QHPs would be calculated based
on their household income during the open enrollment period, and that
income would be measured against the FPL at that time, we will adjust
the FPL by multiplying the FPL by a projected increase in the CPI-U
between the time that the BHP payment rates are calculated and the QHP
open enrollment period, if the FPL is expected to be updated during
that time. The projected increase in the CPI-U will be based on the
intermediate inflation forecasts from the most recent OASDI and
Medicare Trustees Reports.\16\
---------------------------------------------------------------------------

\16\ See Table IV A1 from the 2019 Annual Report of the Boards
of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds, available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2019.pdf.
---------------------------------------------------------------------------

5. Premium Tax Credit Formula (PTCF)
In Equation 1 described in section III.A.1. of this final notice to
use the formula described in 26 U.S.C. 36B(b) to calculate the
estimated PTC that would be paid on behalf of a person enrolled in a
QHP on an Exchange as part of the BHP payment methodology. This formula
is used to determine the contribution amount (the amount of premium
that an individual or household theoretically would be required to pay
for coverage in a QHP on an Exchange), which is based on (A) the
household income; (B) the household income as a percentage of FPL for
the family size; and (C) the schedule specified in 26 U.S.C.
36B(b)(3)(A) and shown below.
The difference between the contribution amount and the adjusted
monthly premium (that is, the monthly premium adjusted for the age of
the enrollee) for the applicable second lowest cost silver plan is the
estimated amount of the PTC that would be provided for the enrollee.
The PTC amount provided for a person enrolled in a QHP through an
Exchange is calculated in accordance with the methodology described in
26 U.S.C. 36B(b)(2). The amount is equal to the lesser of the premium
for the plan in which the person or household enrolls, or the adjusted
premium for the applicable second lowest cost silver plan minus the
contribution amount.
The applicable percentage is defined in 26 U.S.C. 36B (b)(3)(A) and
26 CFR 1.36B-3(g) as the percentage that applies to a taxpayer's
household income that is within an income tier specified in Table 1 of
the proposed notice, increasing on a sliding scale in a linear manner
from an initial premium percentage to a final premium percentage
specified in Table 1. We will continue to use applicable percentages to
calculate the estimated PTC that would be paid on behalf of a person
enrolled in a QHP on an Exchange as part of the BHP payment methodology
as part of Equation 1. The applicable percentages in Table 1 for
calendar year (CY) 2020 will be effective for BHP program year 2021.
The applicable percentages will be updated in future years in
accordance with 26 U.S.C. 36B(b)(3)(A)(ii).

Table 1--Applicable Percentage Table for CY 2020 a
------------------------------------------------------------------------
In the case of household
income (expressed as a
percent of poverty line) The initial premium The final premium
within the following income percentage is-- percentage is--
tier:
------------------------------------------------------------------------
Up to 133%.................. 2.06 2.06
133% but less than 150%..... 3.09 4.12
150% but less than 200%..... 4.12 6.49
200% but less than 250%..... 6.49 8.29
250% but less than 300%..... 8.29 9.78

[[Page 49276]]

300% but not more than 400%. 9.78 9.78
------------------------------------------------------------------------
a IRS Revenue Procedure 2019-29. https://www.irs.gov/pub/irs-drop/rp-19-29.pdf.

6. Metal Tier Selection Factor (MTSF)
On the Exchange, if an enrollee chooses a QHP and the value of the
APTC to which the enrollee is entitled is greater than the premium of
the plan selected, then the APTC is reduced to be equal to the premium.
This usually occurs when enrollees eligible for larger APTCs choose
bronze-level QHPs, which typically have lower premiums on the Exchange
than silver-level QHPs. Prior to 2018, we believed that the impact of
these choices and plan selections on the amount of PTCs that the
federal government paid was relatively small. During this time, most
enrollees in income ranges up to 200 percent FPL chose silver-level
QHPs, and in most cases where enrollees chose bronze-level QHPs, the
premium was still more than the PTC. Based on our analysis of the
percentage of persons with incomes below 200 percent FPL choosing
bronze-level QHPs and the average reduction in the PTCs paid for those
enrollees, we believe that the total PTCs paid for persons with incomes
below 200 percent FPL were reduced by about 1 percent in 2017.
Therefore, we made no adjustment based on the effect for enrollees
choosing non-silver-level QHPs in developing the BHP payment
methodology applicable to program years prior to 2018. However, after
the discontinuance of the CSR payments in October 2017, several changes
occurred that increased the expected impact of enrollees' plan
selection choices on the amount of PTC the government paid. These
changes led to a larger percentage of individuals choosing bronze-level
QHPs, and for those individuals who chose bronze-level QHPs, these
changes also generally led to larger reductions in PTCs paid by the
federal government per individual. The combination of more individuals
with incomes below 200 percent of FPL choosing bronze-level QHPs and
the reduction in PTCs had an impact on PTCs paid by the federal
government for enrollees with incomes below 200 percent FPL.
Silver-level QHP premiums for the 2018 benefit year increased
substantially relative to other metal tier plans in many states (on
average, by about 20 percent). We believe this contributed to an
increase in the percentage of enrollees with lower incomes choosing
bronze-level QHPs, despite being eligible for CSRs in silver-level
QHPs, because many were able to purchase bronze-level QHPs and pay $0
in premium; according to CMS data, the percentage of persons with
incomes between 0 percent and 200 percent of FPL eligible for CSRs
(those who would be eligible for the BHP if the state operated a BHP)
selecting bronze level QHPs increased from about 11 percent in 2017 to
about 13 percent in 2018. In addition, the likelihood that a person
choosing a bronze-level QHP would pay $0 premium increased, and the
difference between the bronze-level QHP premium and the available PTC
widened. Between 2017 and 2018, the ratio of the average silver-level
QHP premium to the average bronze-level QHP premium increased: the
average silver level QHP premium was 17 percent higher than the average
bronze-level QHP premium in 2017, whereas the average silver-level QHP
premium was 33 percent higher than the average bronze-level QHP premium
in 2018. Similarly, the average estimated reduction in APTC for
enrollees with incomes between 0 percent and 200 percent FPL that chose
bronze level QHPs increased from about 11 percent in 2017 to about 23
percent in 2018 (after adjusting for the average age of bronze-level
QHP and silver-level QHP enrollees); that is, in 2017, enrollees with
incomes in this range who chose bronze-level QHPs received 11 percent
less than the full value of the APTC, and in 2018, those enrollees who
chose bronze-level QHPs received 23 percent less than the full value of
the APTC. The discontinuance of the CSR payments led to increases in
silver-level QHP premiums (and thus in the total potential PTCs), but
did not generally increase the bronze-level QHP premiums in most
states; we believe this is the primary reason for the increase in the
percentage reduction in PTCs paid by the government for those who
enrolled in bronze-level QHPs between 2017 and 2018.
Therefore, we believe that the impacts on the amount of PTC the
government would pay due to enrollees' plan selection choices are
larger and thus more significant, and we will include an adjustment
(the MTSF) in the BHP payment methodology to account for the effects of
these choices. Section 1331(d)(3) of the Patient Protection and
Affordable Care Act requires that the BHP payments to states be based
on what would have been provided if such eligible individuals were
allowed to enroll in QHPs, and we believe that it is appropriate to
consider how individuals would have chosen different plans--including
across different metal tiers--as part of the BHP payment methodology.
We finalized the application of the MTSF for the first time in the
2020 payment methodology, and we will calculate the MTSF using the same
approach as finalized there (84 FR 59543). First, we will calculate the
percentage of enrollees with incomes below 200 percent of the FPL
(those who would be potentially eligible for the BHP) in non-BHP states
who enrolled in bronze-level QHPs in 2018. Second, we will calculate
the ratio of the average PTC paid for enrollees in this income range
who selected bronze-level QHPs compared to the average PTC paid for
enrollees in the same income range who selected silver-level QHPs. Both
of these calculations will be done using CMS data on Exchange
enrollment and payments.
The MTSF will be set to the value of 1 minus the product of the
percentage of enrollees who chose bronze-level QHPs and 1 minus the
ratio of the average PTC paid for enrollees in bronze-level QHPs to the
average PTC paid for enrollees in silver-level QHPs:

MTSF = 1-(percentage of enrollees in bronze-level QHPs x (1-average PTC
paid for bronze-level QHP enrollees/average PTC paid for silver-level
QHP enrollees))

We have calculated that 12.68 percent of enrollees in households
with incomes below 200 percent of the FPL selected bronze-level QHPs in
2018. We also calculated that the ratio of the average PTC paid for
those enrollees in bronze-level QHPs to the average PTCs paid for
enrollees in silver-level QHPs was 76.66 percent after adjusting for
the average age of bronze level and silver-level QHP enrollees. The
MTSF is equal to 1 minus the product of the percentage of enrollees in
bronze-level QHPs (12.68 percent) and 1 minus the ratio of the average
PTC paid for bronze-level QHP

[[Page 49277]]

enrollees to the average PTC paid for silver-level QHP enrollees (76.66
percent). Thus, the MTSF would be calculated as:

MTSF = 1-(12.68% x (1-76.66%))

Therefore, the value of the MTSF for 2021 will be 97.04 percent.
7. Income Reconciliation Factor (IRF)
For persons enrolled in a QHP through an Exchange who receive APTC,
there will be an annual reconciliation following the end of the year to
compare the APTC to the correct amount of PTC based on household
circumstances shown on the federal income tax return. Any difference
between the latter amounts and the APTC paid during the year would
either be paid to the taxpayer (if too little APTC was paid) or charged
to the taxpayer as additional tax (if too much APTC was paid, subject
to any limitations in statute or regulation), as provided in 26 U.S.C.
36B(f).
Section 1331(e)(2) of the Patient Protection and Affordable Care
Act specifies that an individual eligible for the BHP may not be
treated as a ``qualified individual'' under section 1312 of the Patient
Protection and Affordable Care Act who is eligible for enrollment in a
QHP offered through an Exchange. We are defining ``eligible'' to mean
anyone for whom the state agency or the Exchange assesses or
determines, based on the single streamlined application or renewal
form, as eligible for enrollment in the BHP. Because enrollment in a
QHP is a requirement for individuals to receive APTC, individuals
determined or assessed as eligible for a BHP are not eligible to
receive APTC for coverage in the Exchange. Because they do not receive
APTC, BHP enrollees, on whom the BHP payment methodology is generally
based, are not subject to the same income reconciliation as Exchange
consumers. Nonetheless, there may still be differences between a BHP
enrollee's household income reported at the beginning of the year and
the actual household income over the year. These may include small
changes (reflecting changes in hourly wage rates, hours worked per
week, and other fluctuations in income during the year) and large
changes (reflecting significant changes in employment status, hourly
wage rates, or substantial fluctuations in income). There may also be
changes in household composition. Thus, we believe that using
unadjusted income as reported prior to the BHP program year may result
in calculations of estimated PTC that are inconsistent with the actual
household incomes of BHP enrollees during the year. Even if the BHP
adjusts household income determinations and corresponding claims of
federal payment amounts based on household reports during the year or
data from third-party sources, such adjustments may not fully capture
the effects of tax reconciliation that BHP enrollees would have
experienced had they been enrolled in a QHP through an Exchange and
received APTC.
Therefore, in accordance with current practice, we will include in
Equation 1 an adjustment, the IRF, that will account for the difference
between calculating estimated PTC using: (a) Household income relative
to FPL as determined at initial application and potentially revised
mid-year under Sec. 600.320, for purposes of determining BHP
eligibility and claiming federal BHP payments; and (b) actual household
income relative to FPL received during the plan year, as it would be
reflected on individual federal income tax returns. This adjustment
will seek prospectively to capture the average effect of income
reconciliation aggregated across the BHP population had those BHP
enrollees been subject to tax reconciliation after receiving APTC for
coverage provided through QHPs offered on an Exchange. Consistent with
the methodology used in past years, we estimated reconciliation effects
based on tax data for 2 years, reflecting income and tax unit
composition changes over time among BHP-eligible individuals.
The OTA maintains a model that combines detailed tax and other
data, including Exchange enrollment and PTC claimed, to project
Exchange premiums, enrollment, and tax credits. For each enrollee, this
model compares the APTC based on household income and family size
estimated at the point of enrollment with the PTC based on household
income and family size reported at the end of the tax year. The former
reflects the determination using enrollee information furnished by the
applicant and tax data furnished by the IRS. The latter would reflect
the PTC eligibility based on information on the tax return, which would
have been determined if the individual had not enrolled in the BHP.
Consistent with prior years, we proposed to use the ratio of the
reconciled PTC to the initial estimation of PTC as the IRF in Equations
(1a) and (1b) for estimating the PTC portion of the BHP payment rate.
OTA estimates the IRF separately for states that have implemented
the Medicaid eligibility expansion and those that have not. In previous
program years, we used the average of these two values to set the value
for the IRF. To date, the only states that have operated a BHP are
states that implemented the Medicaid eligibility expansion. Therefore,
for 2021, we are using the value only for states that have implemented
the Medicaid eligibility expansion. For 2021, OTA has estimated that
the IRF for states that have implemented the Medicaid eligibility
expansion to cover adults up to 133 percent of the FPL will be 99.23
percent.

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

In the interest of allowing states greater certainty in the total
BHP federal payments for a given plan year, we have given states the
option to have their final federal BHP payment rates calculated using a
projected ARP (that is, using premium data from the prior program year
multiplied by the premium trend factor (PTF), as described in Equation
(2b). For program years 2015 through 2018, we required states to make
their election to have their final federal BHP payment rates calculated
using a projected ARP by May 15 of the year preceding the applicable
program year. Because this final notice is published after May 15,
2020, we are requiring states to inform CMS in writing of their
election for the 2021 program year 60 days following the publication of
this final notice.
For Equation (2b), we will define the PTF as follows:
PTF: In the case of a state that would elect to use the 2020
premiums as the basis for determining the 2021 BHP payment, it would be
appropriate to apply a factor that would account for the change in
health care costs between the year of the premium data and the BHP
program year. This factor would approximate the change in health care
costs per enrollee, which would include, but not be limited to, changes
in the price of health care services and changes in the utilization of
health care services. This would provide an estimate of the adjusted
monthly premium for the applicable second lowest cost silver plan that
would be more accurate and reflective of health care costs in the BHP
program year.
For the PTF, we will use the annual growth rate in private health
insurance expenditures per enrollee from the National Health
Expenditure (NHE) projections, developed by the Office of the Actuary
in CMS (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html). For BHP program year 2021, the
PTF will be 4.8 percent.

[[Page 49278]]

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

To determine whether the potential difference in health status
between BHP enrollees and consumers in an Exchange would affect the PTC
and risk adjustment payments that would have otherwise been made had
BHP enrollees been enrolled in coverage through an Exchange, we will
provide states implementing the BHP the option to propose and to
implement, as part of the certified methodology, a retrospective
adjustment to the federal BHP payments to reflect the actual value that
would be assigned to the population health factor (or risk adjustment)
based on data accumulated during that program year for each rate cell.
We acknowledge that there is uncertainty with respect to this
factor due to the lack of available data to analyze potential health
differences between the BHP and QHP populations, which is why, absent a
state election, we will use a value for the PHF (see section III.D.3.
of this final notice) to determine a prospective payment rate which
assumes no difference in the health status of BHP enrollees and QHP
enrollees. There is considerable uncertainty regarding whether the BHP
enrollees will pose a greater risk or a lesser risk compared to the QHP
enrollees, how to best measure such risk, the potential effect such
risk would have had on PTC, and risk adjustment that would have
otherwise been made had BHP enrollees been enrolled in coverage through
an Exchange. To the extent, however, that a state would develop an
approved protocol to collect data and effectively measure the relative
risk and the effect on federal payments of PTCs and CSRs, we will
permit a retrospective adjustment that would measure the actual
difference in risk between the two populations to be incorporated into
the certified BHP payment methodology and used to adjust payments in
the previous year.
For a state electing the option to implement a retrospective
population health status adjustment as part of the BHP payment
methodology applicable to the state, we will require the state to
submit a proposed protocol to CMS, which would be subject to approval
by us and would be required to be certified by the Chief Actuary of
CMS, in consultation with the OTA. We applied the same protocol for the
population health status adjustment as what is set forth in guidance in
Considerations for Health Risk Adjustment in the Basic Health Program
in Program Year 2015 (http://www.medicaid.gov/Basic-Health-Program/Downloads/Risk-Adjustment-and-BHP-White-Paper.pdf). We proposed to
require a state to submit its proposed protocol by August 1, 2020.
Given the publication date of this final notice, we will require a
state to submit its proposed protocol for the 2021 program year within
30 days after the publication of this final notice. This submission
will need to include descriptions of how the state would collect the
necessary data to determine the adjustment, including any contracting
contingences that may be in place with participating standard health
plan issuers. We will provide technical assistance to states as they
develop their protocols, as requested. To implement the population
health status adjustment, we must approve the state's protocol by
December 31, 2020 for the 2021 program year. Finally, the state will be
required to complete the population health status adjustment at the end
of the program year based on the approved protocol. After the end of
the program year, and once data is made available, we will review the
state's findings, consistent with the approved protocol, and make any
necessary adjustments to the state's federal BHP payment amounts. If we
determine that the federal BHP payments were less than they would have
been using the final adjustment factor, we would apply the difference
to the state's next quarterly BHP trust fund deposit. If we determine
that the federal BHP payments were more than they would have been using
the final reconciled factor, we would subtract the difference from the
next quarterly BHP payment to the state.

IV. Collection of Information Requirements

This final methodology for program year 2021 is similar to the
methodology finalized for program year 2020 in the November 2019 final
BHP Payment Notice. While we are finalizing one change related to the
calculation of the Income Reconciliation Factor, the change will not
revise or impose any new reporting, recordkeeping, or third-party
disclosure requirements or burden on states operating a BHP, as it
pertains to any of our active collections of information Although the
methodology's information collection requirements and burden had at one
time been approved by OMB under control number 0938-1218 (CMS-10510),
the approval was discontinued on August 31, 2017, since we adjusted our
estimated number of respondents below the Paperwork Reduction Act of
1995 (PRA) (44 U.S.C. 3501 et seq.) threshold of ten or more
respondents (only New York and Minnesota operate a BHP at this time).
Since we continue to estimate fewer than ten respondents, the final
2021 methodology is not subject to the requirements of the PRA.
We sought comment on whether or not to solicit information from QHP
issuers on the amount of the adjustment to premiums to account for the
discontinuance of CSR payments. We noted that we believe that
soliciting such information would likely impose some additional
reporting requirements on QHP issuers and sought comments on the amount
of burden this would create.
We received no comments on the Collection of Information
Requirements section of the 2021 proposed BHP Payment Notice, including
whether or not to solicit information from QHP issuers on the amount of
the adjustment to premiums to account for the discontinuance of CSR
payments.

V. Regulatory Impact Analysis

A. Statement of Need

Section 1331 of the Patient Protection and Affordable Care Act (42
U.S.C. 18051) requires the Secretary to establish a BHP, and section
1331(d)(1) specifically provides that if the Secretary finds that a
state meets the requirements of the program established under section
1331(a) of the Patient Protection and Affordable Care Act, the
Secretary shall transfer to the state federal BHP payments described in
section 1331(d)(3). This methodology provides for the funding
methodology to determine the federal BHP payment amounts required to
implement these provisions for program year 2021.

B. Overall Impact

We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4),
Executive Order 13132 on Federalism (August 4, 1999), the Congressional
Review Act (5 U.S.C. 804(2) and Executive Order 13771 on Reducing
Regulation and Controlling Regulatory Costs (January 30, 2017).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic,

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environmental, public health and safety effects, distributive impacts,
and equity). Section 3(f) of Executive Order 12866 defines a
``significant regulatory action'' as an action that is likely to result
in a rule: (1) (Having an annual effect on the economy of $100 million
or more in any 1 year, or adversely and materially affecting a sector
of the economy, productivity, competition, jobs, the environment,
public health or safety, or state, local or tribal governments or
communities (also referred to as ``economically significant''); (2)
creating a serious inconsistency or otherwise interfering with an
action taken or planned by another agency; (3) materially altering the
budgetary impacts of entitlement grants, user fees, or loan programs or
the rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any 1
year). As noted in the BHP final rule, the BHP provides states the
flexibility to establish an alternative coverage program for low-income
individuals who would otherwise be eligible to purchase coverage on an
Exchange. Because we make no changes in methodology that would have a
consequential effect on state participation incentives, or on the size
of either the BHP program or offsetting PTC and CSR expenditures, the
effects of the changes made in this payment notice would not approach
the $100 million threshold, and hence it is neither an economically
significant rule under E.O. 12866 nor a major rule under the
Congressional Review Act. Moreover, the regulation is not economically
significant within the meaning of section 3(f)(1) of the Executive
Order.

C. Anticipated Effects

The provisions of this final notice are designed to determine the
amount of funds that will be transferred to states offering coverage
through a BHP rather than to individuals eligible for federal financial
assistance for coverage purchased on the Exchange. We are uncertain
what the total federal BHP payment amounts to states will be as these
amounts will vary from state to state due to the state-specific factors
and conditions. For example, total federal BHP payment amounts may be
greater in more populous states simply by virtue of the fact that they
have a larger BHP-eligible population and total payment amounts are
based on actual enrollment. Alternatively, total federal BHP payment
amounts may be lower in states with a younger BHP-eligible population
as the RP used to calculate the federal BHP payment will be lower
relative to older BHP enrollees. While state composition will cause
total federal BHP payment amounts to vary from state to state, we
believe that the methodology, like the methodology used in 2020,
accounts for these variations to ensure accurate BHP payment transfers
are made to each state.
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
requires agencies to prepare an initial regulatory flexibility analysis
to describe the impact of the rule on small entities, unless the head
of the agency can certify that the rule will not have a significant
economic impact on a substantial number of small entities. The RFA
generally defines a ``small entity'' as (1) a proprietary firm meeting
the size standards of the Small Business Administration (SBA); (2) a
not-for-profit organization that is not dominant in its field; or (3) a
small government jurisdiction with a population of less than 50,000.
Individuals and states are not included in the definition of a small
entity. Few of the entities that meet the definition of a small entity
as that term is used in the RFA would be impacted directly by this
methodology.
Because this final methodology is focused solely on federal BHP
payment rates to states, it does not contain provisions that would have
a direct impact on hospitals, physicians, and other health care
providers that are designated as small entities under the RFA.
Accordingly, we have determined that the methodology, like the previous
methodology and the final rule that established the BHP program, will
not have a significant economic impact on a substantial number of small
entities.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a methodology may have a significant economic impact
on the operations of a substantial number of small rural hospitals. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. For the preceding
reasons, we have determined that this methodology will not have a
significant impact on a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act (UMRA) of 2005
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation, by state,
local, or tribal governments, in the aggregate, or by the private
sector. In 2020, that threshold is approximately $156 million. States
have the option, but are not required, to establish a BHP. Further, the
methodology would establish federal payment rates without requiring
states to provide the Secretary with any data not already required by
other provisions of the Patient Protection and Affordable Care Act or
its implementing regulations. Thus, the final payment methodology does
not mandate expenditures by state governments, local governments, or
tribal governments.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a final rule that imposes substantial
direct effects on states, preempts state law, or otherwise has
federalism implications. The BHP is entirely optional for states, and
if implemented in a state, provides access to a pool of funding that
would not otherwise be available to the state. Accordingly, the
requirements of Executive Order 13132 do not apply to this final
notice.

D. Alternative Approaches

We considered several alternatives in developing the proposed BHP
payment methodology for 2021, and we discuss some of these alternatives
below.
We considered alternatives as to how to calculate the PAF in the
proposed methodology for 2021. The proposed value for the PAF is 1.188,
which is the same as was used for 2018, 2019, and 2020. We believe it
would be difficult to get the updated information from QHP issuers
comparable to what was used to develop the 2018 factor, because QHP
issuers may not distinctly consider the impact of the discontinuance of
CSR payments on the QHP premiums any longer. We do not have reason to
believe that the value of the PAF would change significantly between
program years 2018 and 2021. We continued to consider whether or not
there are other methodologies or data sources we may be able to use to
develop the PAF. We also considered whether or not to update the value
of the PAF for 2021 after the end of the 2021 BHP program year.
We also considered alternatives as how to calculate the MTSF in the
proposed methodology for 2021. The proposed value for the MTSF is 97.04
percent, which is the same as was finalized for 2020. We believe that
we would use the latest data available each year; for example, we
anticipate data

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from 2019 being available next year in developing the subsequent BHP
payment methodology. We considered whether or not there are other
methodologies or data sources we may be able to use to develop the
MTSF. We also considered whether or not to update the value of the MTSF
for 2021 after the end of the 2021 BHP program year.
We considered alternatives as how to calculate the IRF in the
proposed methodology for 2021. We proposed to calculate the value of
this factor based on modeling by OTA, as we have done for prior years.
For the 2021 BHP payment methodology, we considered calculating the IRF
from the latest available year of Exchange data. We do not anticipate
this will lead to a significant change in the value of the IRF. In
addition, we also considered whether to set the IRF as the average of
the expected values for states that have expanded Medicaid eligibility
and for states that have not, or to set the IRF as the value for only
states that have expanded Medicaid eligibility, because only states
that have expanded eligibility have operated a BHP to date.
We also considered whether or not to continue to provide states the
option to develop a protocol for a retrospective adjustment to the
population health factor (PHF) as we did in previous payment
methodologies. We believe that continuing to provide this option is
appropriate and likely to improve the accuracy of the final payments.
We also considered whether or not to require the use of the program
year premiums to develop the federal BHP payment rates, rather than
allow the choice between the program year premiums and the prior year
premiums trended forward. We believe that the payment rates can still
be developed accurately using either the prior year QHP premiums or the
current program year premiums and that it is appropriate to continue to
provide the states the option.
Many of the factors in this final notice are specified in statute;
therefore, for these factors we are limited in the alternative
approaches we could consider. One area in which we previously had and
still have a choice is in selecting the data sources used to determine
the factors included in the methodology. Except for state-specific RPs
and enrollment data, we are using national rather than state-specific
data. This is due to the lack of currently available state-specific
data needed to develop the majority of the factors included in the
methodology. We believe the national data will produce sufficiently
accurate determinations of payment rates. In addition, we believe that
this approach will be less burdensome on states. In many cases, using
state-specific data would necessitate additional requirements on the
states to collect, validate, and report data to CMS. By using national
data, we are able to collect data from other sources and limit the
burden placed on the states. For RPs and enrollment data, we are using
state-specific data rather than national data as we believe state-
specific data will produce more accurate determinations than national
averages.
We requested public comment on these alternative approaches.
Our responses to public comments on these alternative approaches
are in section II.E. of this final notice.

E. Regulatory Reform Analysis Under E.O. 13771

Executive Order 13771, titled Reducing Regulation and Controlling
Regulatory Costs, was issued on January 30, 2017 and requires that the
costs associated with significant new regulations ``shall, to the
extent permitted by law, be offset by the elimination of existing costs
associated with at least two prior regulations.'' This final rule, if
finalized as proposed, is expected to be neither an E.O. 13771
regulatory action nor an E.O. 13771 deregulatory action.

F. Conclusion

We believe that this final BHP payment methodology is effectively
the same methodology as finalized for 2020. BHP payment rates may
change as the values of the factors change, most notably the QHP
premiums for 2020 or 2021. We do not anticipate this final methodology
to have any significant effect on BHP enrollment in 2021.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

Dated: August 6, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
Dated: August 6, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-17553 Filed 8-10-20; 4:15 pm]
BILLING CODE 4120-01-P