AFFORDABLE INSURANCE EXCHANGES: HIGHLIGHTS OF THE PROPOSED RULES

45 CFR, Parts 155 and 156 Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans 45 CFR Part 153 Patient Protection and Affordable Care Act: Standard Related to Reinsurance, Risk Corridors and Risk Adjustment August 1, 2011 National Conference of State Legislatures 444 North Capitol Street, N.W., Suite 515 Washington, D.C. 20001 NCSL staff contacts: Joy Johnson Wilson, Federal Affairs Counsel, Health Policy Director at joy.wilson@ncsl.org or Rachel B. Morgan RN, BSN, Health Committee Director, at rachel.morgan@ncsl.org

Table of Contents 45 CFR, Parts 155 and 156 Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans Introduction... 3 Affordable Insurance Exchange Establishment Standards... 4 Process for Approval of an Exchange... 4 Exchange Plan/Plan Review... 5 Process for Allowing a State to Begin Operation of an Exchange After 2014... 5 Process for a State Operated Exchange to Cease Operation After 2014... 5 Entities Eligible to Carry Out Exchange Functions... 6 Exchange Governing Structure... 6 Establishment of a Regional Exchange or Subsidiary Exchange... 7 Standards for a Regional or Subsidiary Exchange... 7 Transition Process for Existing State Health Insurance Exchanges... 8 Financial Support for Continued Operation... 8 General Functions of an Exchange... 8 Required Consumer Assistance Tools and Programs of an Exchange... 9 Navigator Program Standards... 9, 10 Ability of States to Permit Agents and Brokers to Assist Qualified Individuals, Qualified Employers, or Qualified Employees Enrolling in Qualified Health Plans 10 Payment of Premiums... 10 Initial and Annual Open Enrollment Periods... 11 Termination of Coverage... 12 Exchange Functions: Small Business Health Options Program (SHOP)... 12, 13 Rating Variations... 13 1

Table of Contents 45 CFR Part 153 Patient Protection and Affordable Care Act: Standard Related to Reinsurance, Risk Corridors and Risk Adjustment Introduction... 14 State Standards to the Transitional Reinsurance Program for the Individual Market... 15 Collection and Calculation of Reinsurance Contribution Funds... 15, 16 State Standards Related to the Risk Adjustment Program... 16, 17 Health Insurance Issuer Standards Related to the Temporary Risk Corridors Program... 18 Standards for State Notice of Insurance Benefits and Payment Parameters... 18 2

Introduction On July 15, 2011, the Centers for Consumer Information and Oversight (CCIIO) released proposed rules to implement the new Affordable Insurance Exchanges (AIE) created under the Affordable Care Act (ACA). In 2014, individuals and small business will be able to purchase private health insurance through state-based exchanges. Each state electing to establish an exchange must adopt the federal standards in law and rule, and have in effect a state law or regulation that implements these standards. The ACA requires HHS to establish an exchange in every state that does to establish one themselves, or if the secretary determines on or before January 1, 2013 that they will not have an operable exchange in place by January 1, 2014. The ACA also provides broad authority to the secretary to establish standards and regulations to implement the statutory requirements related to the exchange. Subjects included in the ACA that will be addressed in separate rulemaking include but are not limited to : (1) standards for individual eligibility for participation in the exchange, advance payments of premium tax credit, cost-sharing reductions, and related health programs and appeals of eligibility determinations; (20 standards outlining the exchange processes for issuing certificates of exemption for individual responsibility requirement and payment; (3) defining essential health benefits, actuarial value and other benefit design standards; and (4) standards for exchanges and QHP issuers related to quality. Rule: 45 CFR Parts 155 and 156 Version: Proposed Rule Published: July 15, 2011 Comment Period Ends: September 28, 2011 3

Affordable Insurance Exchange Establishment Standards Process for Approval of an Exchange The ACA provides for the general standards by which a state may elect to operate an Affordable Insurance Exchange (AIE) and the ways in which a state may choose to operate that exchange. Provides flexibility to states regarding the exchange structure and governance, and or if they wish to partner with another state to form a regional exchange. If electing to operate an exchange states will need to comply with the following structural standards: 1. An exchange must be a governmental agency or non-profit entity established by the state. 2. The governmental agency may be an existing state executive branch agency or an independent public agency. 3. In establishing a non-profit entity, each state must be compliant with their-own state statutes. The proposed rules outline the standards by which HHS will approve a state exchange based on the following capabilities: First, an exchange must be capable of carrying out the minimum functions of an exchange including: 1. Enrollment, 2. Operation of a SHOP, and 3. Certification of QHPs, Secondly, an exchange must be compliant with the information requirements in the ACA and compliant with all information requests from HHS. Third, a state seeking approval of an exchange must agree to perform its responsibilities related to the operation of a reinsurance program established in rule, the Affordable Care Act: Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, and Finally, the entire geographic area of a state must be covered by one or more exchanges through the a combination of regional exchanges and one or more subsidiary exchange with only one exchange operating in any given distinct geographic area. 4

Exchange Plan/Plan Review Process for Allowing a State to Begin Operation of an Exchange After 2014 Process for a State- Operated Exchange to Cease Operation After 2014 To initiate the approval process states must elect to establish an exchange by submitting an exchange plan to HHS, which will constitutes as the state s application for approval. HHS plans to issue a template outlining the required components of the exchange plan. States are encouraged to use their implementation plans that were required as part of reporting for the state exchange grant awards when preparing to submit an exchange plan. HHS will perform an assessment of each state applying for approval to evaluate a state s operational readiness to execute their exchange plan. Readiness assessments will be coordinated with the grant monitoring process under the state planning and establishment grants. HHS plans to issue guidance on the structure for and schedule of the assessments. The timing of the review process will be similar to that of Medicaid and CHIP for which there would be a 90 day review period. In order to accommodate states that are making progress towards the operational date of January 1, 2014, HHS may issue a conditional approval. The conditional approval would presume that a state would operational by January 1, 2014. HHS must approve any significant changes to state exchange plans before they may go into effect. Significant changes before they may go into effect. Significant changes could include but are not limited to: 1. any changes to the exchange governance structure, 2. alterations in state law or regulation, 3. IT systems or functionality, 4. The QHP certification process, and 5. The process of enrollment into a QHP. HHS proposes to allow states the flexibility to seek approval to operate an exchange after January 1, 2013. States will be given the opportunity to elect to operate an exchange after 2014 with the proviso that the state will work with the federal government to develop a plan to transition operations from a federal to a state exchange. The process HHS proposes to cease operation of a state-operated exchange would be as follows: 1. States must provide notification to HHS 12 months prior to ceasing it operations. 2. The exchange must collaborate with HHS on the development and execution of a transition plan and process to facilitate operation of a federally-facilitated exchange. 3. The Center for Consumer Information and Oversight (CCIIO) estimates that it will take them 12 months to establish a federally operated exchange in these states to allow for time required to set up the necessary information technology and QHP certification process. HHS is seeking comments on the appropriateness of the approval process. Please note that changes to state law or regulation affecting state exchange plans will be considered a significant change to that plan according to the proposed rule and be required to undergo review by HHS for approval before going into effect. State legislators may want to note and make comment on the issues considered as significant changes that will be required to undergo additional review before becoming effective. 5

Entities Eligible to Carry Out Exchange Functions Exchange Governing Structure The ACA specifies that an entity eligible to operate an exchange is one that: 1. is incorporated under and subject to the laws of one or more states; 2. has demonstrated experience on a state or regional basis in the individual and small group markets and in benefits coverage; and 3. is not a health insurance issuer or treated as a health insurance issuer. Note: State Medicaid agencies are considered eligible for this function. CCIIO is interpreting the ACA language to allow an exchange to contract with a state Medicaid agency to make eligibility determinations on behalf of an exchange. CCIIO is suggesting that state exchanges and the federal government may work in partnership with one another and is requesting comments on the ways to implement or construct a partnership model. Governing Structure 1. Each exchange must publish a set of guiding governing principles that include ethical and conflict of interest standards and disclosure of financial interests that are posted for public consumption. 2. The CCIIO rule proposes a process for membership selection of the governing board. A state may choose to include additional membership as long as composition of the board still meets the minimum federal requirements. 3. States have options provided through the ACA to elect to establish a separate governance and administration for the Small Business Health Options Program (SHOP) outside of an exchange or to merge these functions under a single structure. 4. Regardless of the option provided in the ACA, CCIIO believes that a single governance structure for both the exchange functions and SHOP will yield better policy coordination, increase operational efficiencies, and improve operational coordination. They will allow a state to operate under two governance or administrative structures but require the two structures to coordinate and share relevant information and to ensure that the exchange has adequate resources to assist individuals and small employers. States will have flexibility in choosing the appropriate contracting entities within legal limits; however CCIIO is requesting comments on the extent to which they should place conflict of interest requirements on these contracted entities. States electing to operate an exchange and who have initiated the process of the development of a governing structure need to examine how they have structured their governance oversight authority as it compares to the proposed rule in terms of compliance and potential conflict. HHS plans to periodically review the accountability and governing principles of an exchange and request comments on the recommended frequency of these review. 6

Establishment of a Regional Exchange or Subsidiary Exchange The ACA provides for the operation of an exchange in more than one state if each state permits this type of operation and the secretary approves the exchange. Proposed criteria for approval of a regional exchange: 1) CCIIO defines the term regional exchange as meaning an exchange that operates in two or more states. 2) States participating in a regional exchange need not be contiguous. 3) Regional exchanges must submit a single exchange plan demonstrating its readiness to operate to receive approval. 4) States wishing to operate a regional exchange are encouraged to consider: i. how they would meet requirements and achieve cooperation between the exchange and each participating state s department of insurance, ii. iii. iv. How to provide a consistent level of consumer protections across the states, Procedures by which a state would withdraw from the regional exchange, and How each state would contribute to the financing of the regional exchange. The ACA provides that a state may establish one or more subsidiary exchanges. CCIIO plans to codify this language allowing a state to form subsidiary exchanges if each exchange serves a geographically distinct area. CCIIO is proposing that the area served must be at least as large as a rating area. The secretary will address the process for states requesting approval of rating areas in future rulemaking. CCIIO is requesting comments concerning the idea of a subsidiary exchange covering areas across state lines and the flexibility allowed in the structure of a subsidiary exchange. Standards for a Regional or Subsidiary Exchange Note: CCIIO does not believe a tribal government could establish an exchange itself, but could work with the state as it establishes an exchange. A regional or subsidiary exchange must meet all the requirements of the proposed rule including: 1. Performance of functions of a SHOP, 2. If the regional or subsidiary exchange chooses to operate their SHOP through separate governance the geographic area served must be the same as the exchange which would maximize administrative efficiency and reduce the burden on entities such as QHPs. 7

Transition Process for Existing State Health Insurance Exchanges Requires states that established health insurance exchanges prior to the passage of the ACA to undergo a process to determine if they meet the established standards, and to work with HHS on any areas of concern. CCIIO is requesting comments on the threshold that should be used. Financial Support for Continued Operation General Functions of an Exchange The ACA provides that a state exchange must be self sustaining by January 1, 2015. States are required to develop a funding plan for ensuring funds are available. Also requires a state exchange to announce the assessment of any user fees on health insurance issuers in advance of the plan year. Functions that must be performed by an exchange include: 1. Granting certifications of exemption from individual responsibility requirement and payment the specific of which will be addressed in future rulemaking. The ACA described the requirements of maintaining minimum essential coverage and a list of the individual groups exempt which include: a) Religious Conscience Exemption, b) HealthCare Sharing Ministry, c) Individuals Not Lawfully Present in the U.S, d) Incarcerated Individuals e) Penalty exemptions will exist with respect to: i. Individuals Who Cannot Afford Coverage, ii. Taxpayers with Income Below Filing Threshold, iii. Member of Indian Tribes iv. During Months With Short Coverage Gaps, and v. Hardships. 2. Performance of Eligibility Determinations (to be addressed in future rulemaking). a) CCIIO interprets the language of the ACA as requiring the exchange to establish a system of streamlined and coordinated eligibility and enrollment through which an individual may apply for: i. enrollment in a QHP, ii. advanced payments of the premium tax credit, i. cost-sharing reductions, ii. Medicaid, and CHIP, and iii. receive a determination of eligibility for any such person. b) Each exchange must establish a process for appeals of eligibility determinations this process will be addressed in future rulemaking. 3. Financial Integrity Requirements An exchange must perform functions related to oversight and financial requirements to comply with ACA financial integrity requirements, and 4. Quality Improvement Strategies. CCIIO is requesting comments on whether the final rule should otherwise limit how and when user fees may be charged and whether the fees should be assessed on an annual basis. CCIIO encourages states to consider supplemental standards or functionality for their exchanges and they welcome comments regarding these and other functions that should be required of an exchange. 8

Required Consumer Assistance Tools and Programs of an Exchange 1. Toll-free Consumer Call Center 2. Internet Website with a range of information that: a) Provides comparative information on each available QHP, b) Provides information designed to individuals with limited English proficiency and accessible to people with disabilities, c) Publishes financial information on the average cost of licensing, regulatory fees, administrative costs of the exchange, and monies lost to fraud, waste, and abuse, d) Provides Navigator contact information, e) Allows for enrollment in coverage, and f) Allows for eligibility determinations. 3. Consumer Assistance Functions, and 4. Outreach and Education Activities The exchange must conduct outreach and education activities to educate consumers about the exchange separate from the implementation of a navigator program. Exchanges are encouraged to make special efforts to include in their outreach efforts people with disabilities, and individuals with low literacy and English proficiency. CCIIO encourages exchanges to target groups including hard to reach populations that experience health disparities due to low literacy, race, color, national origin, or disability, including mental illness and substance use disorders. CCIIO is seeking comments on the ways to streamline and prevent duplication of effort by the exchange call center and QHP issuers customer service centers. HHS is currently evaluating the extent to which the exchange may satisfy the need to provide plan comparison functionality using HealthCare.gov, and invites comments on the issue CCIIO is considering a requirement that would allow applicants and enrollees to store and access their personal account information and make changes. CCIIO encourages exchanges to develop a feature whereby eligibility and enrollment experts, case workers, navigators, agents and brokers, and other applicant assisters are able to maintain records of individuals they have assisted with the application process. CCIIO requests comments on this issue. CCIIO plans to codify the ACA requirement that an exchange establish an electronic calculator for use in cost comparison of available QHPs. CCIIO invites comments on the extent to which states would benefit from a model calculator and suggestions on its design. Navigator Program Standards Navigator standards apply to the exchange for both the individual market and SHOP. CCIIO proposes the following: 1. That exchanges must award grant funds to public or private entities to serve as navigators, 2. Navigators must meet any licensing, certification or other standards prescribed by the state or exchange, 3. Navigators may not have a conflict of interest during their term as a navigator, 4. Exchanges must include at least two of the types of entities listed as navigators, 5. The ACA prohibits health insurance issuers from serving as navigators, and navigators may not receive any consideration directly or indirectly from any health insurance issuer in connection with enrollment of any qualified individuals or employees in a QHP. CCIIO is seeking comment as to whether these navigators should include a community and consumer-focused non-profit organization, or require that grantees reflect a cross section of stakeholders. CCIIO seeks comment on the issue of managing any potential conflict of interest that might arise. CCIIO is considering standards related to content of information shared, referral strategies, and training requirements to include in grant award conditions and request comments. 9

Navigator Program Standards (continued) Ability of States to Permit Agents and Brokers to Assist Qualified Individuals, Qualified Employers, or Qualified Employees Enrolling in QHPs Payment of Premiums 6. The exchange will be responsible for ensuring that navigators are performing their duties as required and including: i. Maintaining expertise in eligibility, enrollment, and program specifications, and ii. Conducting public education activities to raise awareness of the availability of QHPs. Use of Federal Funds An exchange is prohibited from supporting the navigator program with federal funds received by the state for the establishment of an exchange. If a state should choose to use navigator activities to address Medicaid or CHIP administrative functions under s specified contract, a Medicaid or CHIP agency may claim federal funding at the administrative federal financial participation rate. The ACA gives states an option to permit agents or brokers to assist individuals enrolling in QHPs through the exchange. 1. These options will not apply to brokers and agents acting as navigators. 2. No entity acting as a navigator may receive any financial compensation from an issuer. 3. Exchanges will be permitted to post information on their web page about agents and brokers in case consumers wish to use their services. 4. Exchanges will be permitted to contract with a web-based entity to carry out outreach and enrollment activities. The ACA provides an exchange three options to receive premium payment that include; 1. Direct payment to the QHP from the enrollee, 2. Facilitating the payment of premiums by the enrollee by creating an electronic passthrough of premiums without directly retaining any of the payment, 3. A payment option where the exchange collects premiums from the enrollee and pays an aggregated sum to the QHP issuer. CCIIO interprets the language of the ACA to mean that an exchange must always allow an individual to make direct payment to the QHP issuer as an option. CCIIO proposes that an exchange should allow Indian tribes, tribal organizations, and urban Indian organizations to pay the QHP premiums on behalf of qualified individuals since premiums may not be waived for Indians. If an exchange elects to facilitate the collection and payment of premiums, it must establish administrative protocols to ensure the integrity of the financial transactions. Exchanges that collect premium payments are not liable for those payments if they become delinquent or are delayed. CCIIO is seeking comments on the implications, costs, and benefits to an exchange using these types of arrangements. CCIIO invites comment on how to distinguish between individuals eligible for assistance under the ACA and those who are not in light of the different definitions of Indian that apply for other exchange provisions. CCIIO is seeking comments concerning exchange flexibility in the establishment of a premium payment process and what standards the federal government should establish to ensure fiduciary accountability when an exchange collects payments. 10

Initial and Annual Open Enrollment Periods Establishes the initial open enrollment period allowing a qualified individual to enroll in a QHP as beginning October 1, 2013 and end February 28, 2014. QHP selections received on or before December 22, 2013 must ensure that coverage will be in effect on January 1, 2014. QHP selections received by the exchange between the first and twenty-second day of any subsequent month during the initial enrollment period must be in effect on the first day of the following month. For QHP selections received between the twenty-third and last day of the month between December, 2013 and February 28, 2014, the exchange must ensure an effective date of either the first day of the next month or the first day of the second following month. To coordinate coverage in a QHP with advanced payments of the premium tax credit CCIIO proposes to establish that coverage in a QHP may only begin on the first day of the month. Exchanges will be required to send written notification at least 30 days prior to open enrollment begins to enrollees about the annual open enrollment period. CCIIO proposes that open enrollment periods begin on October 15 and end December 7 of each year beginning in October 2014. Consideration is being given to setting the period as November 1 through December 15 th of each year. Special Enrollment Periods 1. Provides exceptions in the case of birth, adoption or placement for effective dates other than the first day of the month. 2. Special enrollment periods must be 60 days long from the date of the triggering event. 3. All special enrollment periods must be evaluated by the exchange. 4. Requires the exchange to permit a qualified individual and any dependents to enroll in a QHP due to loss of other minimum essential 5. Loss of coverage also includes termination of employer contributions for a qualified individual or dependent who has coverage that is not COBRA continuation coverage by any current or former employer; exhaustion of COBRA coverage; reaching a lifetime limit on all benefits in a grandfathered plan; and termination of Medicaid or CHIP. 6. Special enrollment will be allowed for individuals gaining status as a citizen of the United States or lawful status in the U.S. 7. Advanced payments of the premium tax credit will only apply if an individual is no longer enrolled in an employer health plan. Realizing that extending the open enrollment period will allow some enrollees to have coverage less than a 12 month period, CCIIO is seeking comments on the duration they propose. CCIIO seeks comment whether consideration should be given to allowing at least twice-monthly effective dates of coverage to begin any day for individuals who forgo receipt of credit for their first partial month or who are not eligible to receive advance payments of the premium tax credit. CCIIO is also seeking comments as to whether they should require exchanges to automatically enroll individuals who receive advanced payments of the premium tax credit and are then disenrolled from a QHP if they are no longer in operation and the individual fails to make a new QHP selection. CCIIO is seeking comments regarding auto enrollment in cases of QHP mergers or when no longer offered in the exchange. CCIIO welcomes comments on the open enrollment dates. CCIIO requests comments on special enrollment periods. CCIIO welcomes comments as to whether states might consider expanding the special enrollment period to include gaining dependents through other life events 11

Termination of Coverage Exchange Functions: Small Business Health Options Program (SHOP) An exchange may terminate an enrollee s coverage in a QHP and permit the QHP to terminate coverage in the following circumstances: 1. the enrollee is no longer eligible for coverage in the QHP through the exchange, 2. the enrollee becomes covered in other minimum essential coverage, 3. payments of premiums for coverage of the enrollee cease, provided that the grace period for enrollees receiving advance payments of the premium tax credit has elapsed, 4. the enrollee s coverage us rescinded 5. the QHP terminates or is decertified by the exchange, or 6. the enrollee changes from one QHP to another during the open enrollment period, or a special enrollment period. Provides guidance for determination of the last date of coverage based on a variety of scenarios. 1. In the case of a termination requested by the enrollee the last day of coverage is specified by the enrollee if the time frame provides adequate notice, if not the end date will be the first day after a reasonable time has passed. 2. In the event that the exchange or QHP terminates coverage as result of an enrollee obtaining new minimum essential coverage, the last day of coverage will be the effective date of the new coverage. Standards for Establishment of an Exchange CCIIO proposes that an exchange provide for the establishment of a SHOP that meets the following requirements: 1. Functions of a SHOP a. The SHOP must carry out all the required functions of an exchange with the exception of carrying out the individual eligibility determinations or enrollment of qualified individuals into QHPs. b. SHOPs are encouraged to display the net employee contribution to the premium for different plans and family compositions after the employer contribution has been subtracted from the full premium amount. c. The SHOP does not need to certify certain exemptions for individual coverage as the exchange will be fulfilling this requirement. d. A SHOP must at a minimum facilitate the special enrollment periods to allow employees to join or change plans in certain circumstances outside the employer s annual open enrollment period. e. Provides flexibility for exchanges and their SHOPs to choose additional ways for qualified employers to offer one or more plans to their employees. f. SHOPs should allow a qualified employer to receive a single monthly bill for all QHPs in which their employees are enrolled. CCIIO solicits comments regarding how exchanges can work with QHP issuers to implement termination requirements. CCIIO requests comments on the application of minimum participation requirements for SHOPs. 12

Exchange Functions: Small Business Health Options Program (SHOP) 2. Certification criteria specific to the SHOP: a. Health plan rate setting and premium payment standards for the SHOP, b. Enrollment period requirements for the SHOP, and c. Enrollment process requirements for the SHOP. 3. Eligibility Standards for SHOP a. The SHOP must ensure that the entity is considered a small employer and employ no more than 100 employees. A state may elect to limit enrollment in the small group market to employers with no more than 50 employees until January 1, 2016. CCIIO invites comments on what rates should be used to determine premiums during the plan year. Rating Variations A SHOP must establish a uniform enrollment timeline and process and adhere to the periods as the exchanges. CCIIO proposes that issuers may only vary premiums among no more than four different types of family composition that are commonly used; 1. Individual, 2. Two adults, 3. Adult plus child or children, and 4. Catch-all. CCIIO seeks comments as to how: 1. age or tobacco rating requirements may be complied with while adhering to ACA requirements, 2. to apply four categories when performing risk adjustment, and 3. to balance the number of categories offered by QHP issuers in order to reduce potential consumer confusion, while maintaining plan offerings and rating structures that are similar to those that are currently available in the health insurance market. 13

II. 45 CFR Part 153 Patient Protection and Affordable Care Act: Standard Related to Reinsurance, Risk Corridors and Risk Adjustment Introduction On July 15, 2011 HHS issued proposed rules to implement standards for states related to reinsurance and risk adjustment. These programs will mitigate the impact of potential adverse selection and stabilize premiums in the individual and small group markets as insurance reforms and the AIEs are implemented in 2014. The temporary federally administered risk corridor program will serve to protect against uncertainty in the exchanges by limiting the extent of issuer losses. The proposed rule establish state standards for the transitional reinsurance program for the individual market used to stabilize premiums for coverage during the years 2014 through 2016. HHS has identified three critical policy goals of the program which include: 1. The program should offer protection to health insurance issuers against medical cost overruns for high cost enrollees, 2. The program should allow for early and prompt payment of reinsurance funds during the benefit year to help offset potential high costs of health insurance issuers early in the benefit year, and 3. The program should require minimal administrative burden since it is a temporary program. HHS is proposing that each state that operates an exchange must also establish or enter into a contract with a reinsurance program. However, each state should be allowed flexibility in selecting a reinsurance entity and they do not plan to propose more specific guidelines. States may also set up more than one reinsurance entity. The proposed rule also provides for a process to collect reinsurance contribution funds and calculation of payments. The following table summarizes these programs: Program Reinsurance Risk Corridors Risk Adjustment What Program Overisight... Who Participates... When... Provides funding to plans that enroll highest cost individuals. State or state option if no state run exchange. All issuers and TPAs contribute funding; nongrandfathered individual market plans (inside and outside the exchange) are eligible for payments. Throughout the year 2014 2016. Why. Offsets high cost outliers Time Frame 3 years (2014-2016) Rule: 45 CFR Parts 153 Version: Proposed Rule Published: July 15, 2011 Comment Period Ends: September 28, 2011 14

II. 45 CFR Part 153 Patient Protection and Affordable Care Act: Standard Related to Reinsurance, Risk Corridors and Risk Adjustment State Standards to the Transitional Reinsurance Program for the Individual Market Collection and Calculation of Reinsurance Contribution Funds Each state electing to operate an exchange must establish a reinsurance program. For any state planning to have more than one reinsurance entity, the state must be published in a state-notice of information regarding the divisions between the entities. Allows states to permit a reinsurance entity to subcontract administrative functions, provided that the state reviews and approves these subcontract arrangements. Reinsurance entities must ensure that the entity can fulfill all requirements for benefit years through 2016 and any activities required to be undertaken in subsequent periods. Several states may contract with one reinsurance entity, but that entity must maintain separate risk pools for each state s reinsurance programs. States Not Electing to Operate an Exchange States not electing to operate an exchange will be allowed to operate its own reinsurance program and in doing so will be required to comply with the standards in regulation. HHS will operate a reinsurance program in those states not choosing to do so. Collection CCIIO is proposing two approaches by which to collect contribution funds: Use of a national uniform contribution funds, and Use of a state-level allocation, both set by HHS to ensure that the sum of all contribution funds equals the national amounts set forth in statute. CCIIO is considering two methods for determining contributions using a national rate: 1. A percent of premium amount applied to all contributing entities, and 2. A flat per capita amount applied to all covered enrollees of contributing entities. Payment Calculation Policy As required by the ACA, CCIIO set the payment policy for the reinsurance program based upon consultation with the American Academy of Actuaries (AAA). The reinsurance policy addresses two basic issues: 1. How to determine the individuals who are covered by reinsurance, and 2. How to determine appropriate payment amounts. CCIIO seeks comments regarding whether to use a state-level allocation or a national rate. CCIIO also seeks comments regarding the proposed use of a national rate for calculating health insurance issuers contribution funds. 15

II. AFFORDABLE INSURANCE EXCHANGES: HIGHLIGHTS OF THE PROPOSED RULES 45 CFR Part 153 Patient Protection and Affordable Care Act: Standard Related to Reinsurance, Risk Corridors and Risk Adjustment Collection and Calculation of Reinsurance Contribution Funds (continued) Payment Calculation Policy Proposes that reinsurance coverage should be based on items and services within the essential health benefits for an individual enrollee that exceeds an attachment point. CCIIO plans to announce the reinsurance payment formula and state-specific values for the attachment point, reinsurance cap, and coinsurance rate in the forthcoming annual federal notice of benefits and payment parameters. CCIIO proposes to establish a reinsurance cap set at the attachment point of traditional reinsurance. The rules propose that the reinsurance payment amount be a percentage of those costs above an attachment point and below a reinsurance cap. CCIIO recommends allowing a state that runs the reinsurance program to establish its own payment formula by varying the attachment point, coinsurance rate, and reinsurance cap. CCIIO invites comments on the following: whether reinsurance payments for more generous coverage beyond that provided by essential health benefits should be allowed, and the establishment of a reinsurance cap set at the attachment point of traditional reinsurance. State Standards Related to the Risk Adjustment Program The ACA provides for a program of risk adjustment for all non-grandfathered plans in the individual and small group market both inside and outside of the exchanges. HHS has been directed to establish criteria and methods to be used by states in determining the actuarial risk of plan within a state. HHS or the state, depending on which governmental entity is operating the exchange, will assess charges to plans that experience lower than average actuarial risk and use them to make payments to plans that have higher than average actual risk. The program is intended to eliminate premium difference among QHPs, and serves to level the playing field inside and outside the exchange. The rules provide direction on risk adjustment administration, and methodologies. HHS interprets the ACA as directing the secretary to establish criteria and methods for risk adjustment although they are proposing to allow states to utilize alternatives. Administration Requirements States electing to establish an exchange is eligible to establish a risk adjustment program. For states that do not operate an exchange, HHS will establish a risk adjustment program. States may elect to have an entity other than the exchange perform the risk adjustment functions if they meet requirements. The ACA does not explicitly set a timeframe by which risk adjustment programs must start. Timely completion of the risk adjustment process is important because risk adjustments affect calculations of both risk corridors and the rebates. CCIIO seeks comments on the appropriate deadline by which risk adjustment must be completed and the appropriate timeframe for state commencement of payments. 16

II. AFFORDABLE INSURANCE EXCHANGES: HIGHLIGHTS OF THE PROPOSED RULES 45 CFR Part 153 Patient Protection and Affordable Care Act: Standard Related to Reinsurance, Risk Corridors and Risk Adjustment State Standards Related to the Risk Adjustment Program (continued) Administration Requirements (continued) States must provide HHS with a summary report of risk adjustment activities for each benefit year and must include: 1. The average actuarial risk score for each plan, 2. Corresponding charges or payments, and 3. Any additional information HHS deems necessary to support risk adjustment methodology determinations. Criteria and Methods for Risk Adjustment HHS will establish a baseline methodology to be used by states or HHS on behalf of the state, in determining average actuarial risk. CCIIO proposes the following: 1. A federally-certified risk adjustment methodology will be developed and authorized by HHS. 2. A state-submitted alternative risk adjustment methodology may become a federally-certified risk adjustment methodology through HHS certification. HHS plans to publish the basic standards any alternate risk adjustment methodology must meet in the forthcoming annual federal notice of benefit and payment parameters that contains the details of one or more federally-certified risk adjustment methodologies. Data Collection Requirements 1. States must follow standard HIPAA transaction standards for data collection, and 2. States must have a reliable data validation process for all data submitted. CCIIO seeks comment on the requirements for reporting, including data elements and timing. The ACA allows for variations in rates within a defined maximum range based on age and tobacco use. Plans may also vary rates by geographic rating area and family size. An approach is needed to account for this allowed variation in rating so that risk adjustment does not adjust for the actuarial risk that issuers have been allowed to incorporate into their premium rates. CCIIO seeks comments on possible approaches to achieving policy goals. They request comments on the implications of approaches for the following: 1. Market efficiency, 2. Potential incentives created in how issuers set rates, and 3. How approaches address allowed rating variation for age, family size, and tobacco use. CCIIO also seeks comment on the other approaches to determining average actuarial risk and whether links exist between potential payments and charges methodology. Comments should include the extent of state flexibility that should be allowed in adopting an approach to determining average actuarial risk. 17

II. 45 CFR Part 153 Patient Protection and Affordable Care Act: Standard Related to Reinsurance, Risk Corridors and Risk Adjustment Health Insurance Issuer Standards Related to the Temporary Risk Corridors Program The risk corridor program limits adverse selection and stabilizes markets as changes are implemented starting 2014 by creating a mechanism for sharing risk for allowable costs between the federal government and QHP issuers. The proposed rule provides for program standards, payment methodologies, and other issues pertinent to the establishment of such a program. Proposed Standards Issuers of risk adjustment covered plans must submit risk adjustment data according to a timetable and format prescribed by the state, or HHS on behalf of the state and must include; 1. Demographic data, 2. Encounter data for items and services provided in conjunction with risk adjustment covered plans, and 3. Prescription drug utilization data. Consideration is being given to proposing data submission timeframes as follows: 1. Claims and encounter data, every 30 days and no later than the end of 180 days following date of service, 2. Enrollment and demographic information by the end of the month following enrollment, 3. Issuer rate-setting rules by the end of the month in which they became effective, and 4. Prescription drug utilization data every 30 days and no later than 90 days following date of service. Proposed Standards CCIIO seeks comment as to whether other categories of data such as methods for setting rates should be required in support of risk adjustment. Comments are requested on these and alternative data submission timeframes. Standards for State Notice of Insurance Benefits and Payment Parameters CCIIIO proposes the following standards for state notice: 1. Content related to the reinsurance program include the data requirements and data collection frequency for health insurance issuers to receive reinsurance payment, 2. States must specify the attachment point, reinsurance cap, and coinsurance rate if the state plans to use different values than those set forth in the forthcoming annual federal notice of benefit and payment parameters, and 3. If a state plans to use more than one reinsurance entity, the state must include in the notice information related to geographic boundaries of each applicable entity and estimate related to the number of enrollees, payments and premiums available for contribution in each region. 18