«Department of Health and Human Services has submitted this rule to the Office of the Federal Register. The official version of the rule will be ...»
Comment: Several commenters supported our allocation proposal with respect to reinsurance collections if they fell short of our estimates for a particular benefit year. The commenters stated that the proposed allocation would further the premium stabilization effects of the program and provide more certainty that reinsurance payments will be fully funded. One commenter stated that section 1341 of the Affordable Care Act provides HHS with the discretion to allocate reinsurance contributions as HHS determines appropriate to carry out the goals of the statute and that the use of contributions first for reinsurance payments furthers the program’s goal of stabilizing premiums. This commenter noted that section 1341 of the Affordable Care Act imposes few requirements on the expenditure of reinsurance contributions, stating that the statute does not specify that payments must be made to issuers and to the U.S. Treasury simultaneously, or that the U.S. Treasury must receive its full funding before reinsurance pool payments are made. Additionally, the commenter stated that section 1341 is silent on how reinsurance contributions are to be distributed if there are insufficient collections to satisfy the statutory obligations, providing HHS with flexibility to interpret and implement the statute and to decide the priority, method, and timing of the allocation of contributions.
suggested that under the revised allocation policy administrative expenses should have the same priority as payments to U.S. Treasury.
Response: Section 1341 of the Affordable Care Act directs that a transitional reinsurance program be established in each State for a three-year period to reduce premiums and to ensure market stability for enrollees in the individual market as the new consumer protections and market reforms are implemented in 2014. The statute does not, however, prescribe how HHS should approach the distribution of reinsurance contributions if insufficient amounts are collected to fully fund all three components of the program (that is, reinsurance payments, administrative expenses, and payments to the U.S. Treasury). We agree that HHS has discretion to implement the program to determine the priority, method, and timing for the allocation of reinsurance contributions collected. Section 1341(b)(3)(B)(iii) uses mandatory language with respect to the collection of amounts for the reinsurance payment pool and states that the total contribution amounts “shall... equal $10,000,000,000” for 2014 and specific, lesser amounts for 2015 and 2016. Thus, the statute explicitly directs the Secretary to collect these amounts for the reinsurance payment pool (based on the best estimates of the NAIC). On the other hand, the statute uses more permissive language in sections 1341(b)(3)(B)(ii) and (iv) with respect to the collection of amounts for administrative expenses and payments for the U.S. Treasury (that is, “can” and “reflects”, respectively). We believe that this language, as well as language directing that amounts collected pursuant to section 1341(b)(3)(B)(iv) be collected “in addition to the aggregate contribution amounts under clause (iii),” as well as the general authority granted to the Secretary under section 1341(b)(3)(A) to design the method for determining the contribution amount toward reinsurance payments, gives the Secretary discretion to prioritize the collections
of reinsurance contributions to the reinsurance payment pool furthers the statutory goals for this program by bringing more certainty to the individual market and helping moderate future premium increases.
We are therefore finalizing our proposal, with one modification – we will not allocate reinsurance collections to administrative expenses or the U.S. Treasury until the reinsurance payment pool for a benefit year is funded. Thus, if our reinsurance collections fall short of our estimates for a particular benefit year, we will allocate reinsurance contributions collected first to the reinsurance payment pool, with any remaining amounts being then allocated to administrative expenses and the U.S. Treasury, on a pro rata basis. For example, as described in Table 1, for the 2014 benefit year, reinsurance contributions will go first to the reinsurance payment pool, up to $10 billion, and any additional contributions collected will be allocated to administrative expenses and the U.S. Treasury, on a pro rata basis, up to the total $12.02 billion.
Table 1: Proportion of Reinsurance Contributions Collected under the Uniform Reinsurance Contribution Rate for the 2014 Benefit Year for Reinsurance Payments, Payments to the U.S. Treasury, and Administrative Expenses
Similarly, for the 2015 benefit year, in the event of a shortfall in our collections, reinsurance contributions will go first to the reinsurance payment pool, up to $6 billion, and any additional contributions collected will be allocated to administrative expenses and the U.S.
Treasury on a pro rata basis, up to the total $8.025 billion.
Table 2: Proportion of Reinsurance Contributions Collected under the Uniform Reinsurance Contribution Rate for the 2015 Benefit Year for Reinsurance Payments, Payments to the U.S. Treasury, and Administrative Expenses
We note that, in the 2015 Payment Notice, we amended 45 CFR 153.405(c) to provide a bifurcated contribution collection schedule, under which contributing entities will submit
contribution amount allocated to reinsurance payments and administrative expenses; the second payment would have covered the contribution amount allocated to payments to the U.S. Treasury for the applicable benefit year. In light of our revised allocation policy, contributions collected in the second collection will now be allocated for reinsurance payments to the extent the first collection does not fully fund the reinsurance payment pool. Therefore, for example, for the 2014 benefit year, if the first collection resulted in a total collection of $9 billion, contributions collected via the second collection up to $1 billion would be allocated for reinsurance payments.
As we noted in the 2014 Payment Notice (78 FR 15460), we have considered comments about deferring payments to the U.S. Treasury, but concluded that we have no authority to defer the collection of reinsurance contributions for those payments to the end of the program.
Comment: In the 2015 Payment Notice, we established the reinsurance payment parameters for 2015. For 2015, we established an attachment point of $70,000, a reinsurance cap of $250,000, and a target coinsurance rate of 50 percent. Several commenters on this rule urged us to increase the premium stabilization effects of reinsurance by lowering the 2015 attachment point.
Response: We intend to propose changes to the reinsurance parameters for 2015 generally consistent with these recommendations. Specifically, in the proposed 2016 Payment Notice, we intend to propose to lower the 2015 attachment point from $70,000 to $45,000. We may also propose to modify the target 2015 coinsurance rate based on estimates of roll-over of funding from 2014 and estimates of collections and payments for 2015. These proposals will be subject to notice and comment rulemaking.
We are finalizing this provision as proposed, with one modification: if reinsurance collections fall short of our estimates for a particular benefit year, we will allocate the reinsurance collections for that benefit year first to the reinsurance payment pool, and second to administrative expenses and payments to the U.S. Treasury on a pro rata basis.
3. Provisions for the Temporary Risk Corridors Program (§153.500) In the 2015 Payment Notice, we indicated that we would consider additional adjustments to the risk corridors program for benefit year 2015. We did so recognizing that issuers of QHPs could face administrative costs and risk pool uncertainties from a number of sources in 2015.
We believe those QHP issuers will face pricing uncertainties related to:
Uncertainties in the number of renewals of plans that do not comply with 2014 market reforms and rating rules – States continue to weigh whether to permit transitional plans or whether to extend the transitional policy, and in States where those decisions have been publicized, the willingness of issuers in those States to continue to offer transitional plans
The effects on the risk pool of the phase-out of high risk pools – this phase-out leads to uncertainty in the estimate of likely claims costs from these individuals;
The greater difficulty and additional time it will take to fully assess the risk profile of 2014 enrollees given the six-month initial open enrollment period – issuers will have a shorter 2014 claims history on which to base modeling; and Uncertainty estimating the number of individuals in reinsurance-eligible plans, and the
As we discussed in the proposed rule, because relevant data will be difficult to obtain in the near term, we believe these uncertainties will continue through the summer of 2014, while issuers are in the process of setting their rates for the 2015 benefit year.
We also recognized in the proposed rule that issuers of QHPs may face additional administrative costs in order to complete the transition into compliance with the 2014 market rules. In particular, issuers continue to face unanticipated infrastructure requirements around Exchanges in all States, including the distributed data collection methodology for risk adjustment and reinsurance.
Therefore, in the proposed rule, we proposed to implement a national adjustment to the risk corridors formula set forth in subpart F of part 153 for each of the individual and small group markets by increasing the ceiling on allowable administrative costs (currently set at 20 percent, plus the adjustment percentage, of after-tax premiums) by 2 percentage points. We also proposed to increase the profit margin floor in the risk corridors formula (currently set at 3 percent, plus the adjustment percentage, of after-tax premiums) by 2 percentage points. These increases to the profit floor and administrative cost ceiling in the risk corridors formula would increase a QHP issuer’s risk corridors ratio if claims costs are unexpectedly high, thereby increasing risk corridors payments or decreasing risk corridors charges.
We proposed these increases for 2015 for QHP issuers in every State because we believed that many of these additional administrative costs and risk pool uncertainties will be faced by issuers in all States, not just States adopting the transitional policy. Finally, under our authority under section 2718(c) of the PHS Act, we proposed that the MLR formula not take into account any additional risk corridors payments resulting from this adjustment. We requested
Comment: Several commenters supported our proposal to implement the proposed adjustment on a nationwide basis so that it would apply equally to QHP issuers in all States. No commenters suggested a regional or State-level approach.
Response: We are finalizing the adjustment as proposed, and will apply the adjustment on a nationwide basis.
Comment: One commenter stated its support of the proposed adjustment to raise the ceiling on administrative costs, but questioned the necessity of the proposed adjustment to profits.
Response: We believe that an upward adjustment to the profit floor is necessary to account for unanticipated risk pool effects related to State decisions to adopt the transitional policy, the phase-out of high risk pools, and the six-month initial enrollment period, which would not be reflected in an issuer’s administrative costs.
Comment: A few commenters urged HHS to increase the magnitude of the proposed adjustment, and to extend the duration of the adjustment so that it would apply beyond the 2015 benefit year. One commenter believed that issuers could face significant operations and risk pool challenges for the 2015 benefit year, and recommended that HHS raise the ceiling on allowable administrative costs by 5 percentage points, instead of 2 percentage points, as proposed in the proposed rule. The commenters did not specifically indicate or estimate any additional or greater administrative costs or pricing uncertainties that would necessitate an increase beyond the proposed 2 percentage point increase. Several other commenters supported our proposal, stating that the 2 percentage point increase is reasonable to address additional
noted that the proposed adjustment would suitably help smaller issuers forced to amortize fixed additional administrative costs over a smaller operational base.
Response: We are finalizing the proposed 2 percentage point increase to the risk corridors allowable administrative cost ceiling and profit floor for benefit year 2015. Based on our internal estimates and the methodology used to determine the administrative cost adjustment to the MLR formula discussed elsewhere in this final rule, we believe that this 2 percentage point increase will suitably account for additional administrative costs and pricing uncertainties that QHP issuers will experience in benefit year 2015.
Comment: One commenter requested that we modify the risk corridors formula so that reinsurance payments are not deducted from allowable costs, in order to enhance the protections of the risk corridors program.
Response: Section 1342(c)(1)(B) of the Affordable Care Act states that allowable costs in the risk corridors calculation are to be reduced by risk adjustment and reinsurance payments received under sections 1341 and 1343. Therefore, we are maintaining the current definition of “allowable costs” for the risk corridors program.