Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment
Proposed HHS rule (CMS-9975-P) establishing standards for State reinsurance programs, federally-administered temporary risk corridors, and risk adjustment programs under the Affordable Care Act; affects States, health insurance issuers, third-party administrators, and Exchanges for individual and small group markets.
Policy Summary
PayerMedicare
PolicyStandards Related to Reinsurance, Risk Corridors, and Risk Adjustment
Policy CodePolicy CMS-9975-P
Change TypeProposed rule (NPRM)
Effective Date
Next Review Date
Key ActionStates operating an Exchange or establishing a reinsurance program must issue an annual State notice describing any State-specific payment parameters (attachment point, cap, coinsurance) if they intend to differ from the Federal notice.
Trek Health ingests and normalizes Transparency in Coverage data and payer policy updates to give provider organizations a clear view of how commercial reimbursement behaves across markets, payers, and services. Our platform transforms raw payer disclosures into structured intelligence that supports contract evaluation, payer negotiations, and service line strategy. By combining market benchmarks with ongoing policy visibility, Trek helps teams identify variability, risk, and opportunity in commercial reimbursement. The result is faster insight, stronger negotiating positions, and more informed financial decisions.
Program Coverage and Operational Criteria
Program participation and operational criteria
High-level program criteria and participation rules for the three premium-stabilization programs:
All health insurance issuers and third-party administrators on behalf of self-insured group health plans must contribute to a not-for-profit applicable reinsurance entity for the transitional reinsurance program; reinsurance payments apply to non-grandfathered individual market plans inside and outside Exchanges; States may specify attachment point, reinsurance cap, coinsurance rate, and data requirements via a State notice.
Risk corridors are a Federally-administered program applying to Qualified Health Plans (QHPs) in the individual and small group markets for calendar years 2014–2016; issuers with gains or losses relative to projections beyond a 3% corridor remit charges to or receive payments from HHS according to the specified sharing rules.
Risk adjustment applies to non-grandfathered individual and small group market plans inside and outside Exchanges; payments transfer funds from lower-risk to higher-risk issuers, with States eligible to establish programs or defer to HHS and allowed to seek certification for alternate methodologies that meet federal criteria.
Timing: transitional reinsurance operates during benefit years 2014–2016 with prompt in-year payments encouraged; risk corridors and risk adjustment amounts are calculated after the benefit year ends (2014 and subsequent years); States must provide State notice of any deviations from Federal parameters approximately one year in advance tied to the Federal annual notice schedule.
Transitional reinsurance eligibility and payment criteria
Eligibility and payment approach for the transitional reinsurance program:
Eligibility is based on medical-cost experience: an individual becomes eligible for reinsurance payments when expenses for essential health benefits for that enrollee exceed an attachment point; the medical-cost (attachment point) approach is the proposed method rather than a fixed condition-based payment schedule.
Payment formula: reinsurance payment equals the coinsurance rate multiplied by the issuer's costs for an individual's essential health benefits that fall between the attachment point and the reinsurance cap; specific numeric values for attachment point, reinsurance cap, and coinsurance rate will be published in the annual Federal notice of benefit and payment parameters, though States may modify these values and must publish modifications in a State notice.
Fund use and collection: applicable reinsurance entities must collect contributions consistent with the national contribution amounts (national totals of $10B in 2014, $6B in 2015, and $4B in 2016) and remit required U.S. Treasury contributions (national totals $2B in 2014, $2B in 2015, and $1B in 2016); amounts collected for reinsurance payments must be used for payments; entities may collect additional amounts to fund payments or administrative costs.
Submission timing and claims: States must set data requirements and collection frequency in the State notice or follow the annual Federal notice; issuers must submit valid reinsurance claims to the applicable reinsurance entity in the manner and timetable specified by the State or Federal notice; applicable reinsurance entities must make payments after receiving a valid claim and may reduce payments on a pro rata basis if contributions are insufficient.
Risk adjustment operational criteria
Operational requirements, methodologies, data, and validation standards for implementing risk adjustment:
Risk pools must be aggregated at the State level; multi-State administration may not pool risk across State lines and States electing Exchanges may establish risk adjustment programs while HHS will establish/administer risk adjustment where States do not.
HHS will publish a Federally-certified risk adjustment methodology in the annual Federal notice; States may request HHS certification of alternate methodologies that must meet HHS criteria and performance metrics (including statistical metrics such as R-squared and predictive ratios).
Data collection approach: HHS proposes an intermediate State-level collection approach as preferred; minimum transaction standards include ASC X12N 837 for claims/encounter data and ASC X12N 834 for enrollment/demographic data, with NCPDP allowed for pharmacy data; States with an operational all-payer claims database (by Jan 1, 2013) may request an exception with technical specifications.
Validation: the State or HHS must validate a statistically valid sample of issuers annually, adjust plan average actuarial risk and payments/charges based on error rates from validation, and provide an administrative appeals process for validation findings; timeframes for validation completion are solicited for comment (example: up to a three-year deadline may be considered).
Risk Adjustment Issuer Requirements and Compliance
Standards for issuer participation, data submission, payment/charge calculation, validation, and record retention:
All issuers of risk adjustment covered plans must submit required risk adjustment data in the manner and timeframes established by the State or HHS; data categories include demographic information, claims/encounter data, and prescription drug utilization data.
Proposed data submission timelines (for comment): claims/encounter data every 30 days and no later than 180 days after date of service; enrollment/demographic by end of month following enrollment; prescription drug data every 30 days and no later than 90 days after date of service; issuers may be required to submit additional items such as rate-setting rules.
Participation is mandatory: voluntary participation is not permitted for risk adjustment covered plans, and contractual provisions may be used to require providers to submit complete and accurate data (including potential financial penalties for noncompliance).
Issuers must retain documentation to substantiate submitted risk adjustment data for at least ten years and must make available data requested to support HHS/State validation activities.
Reporting and burden criteria
Reporting and recordkeeping criteria and estimated burdens for States and issuers:
§153.100 State notice: States operating an Exchange must issue an annual State notice of benefits and payment parameters; estimated minimum burden ~160 hours per State (51 respondents assumed) and a total estimated burden of 8,160 hours (upper-bound estimate).
§153.240 State transitional reinsurance reporting: estimated ~64 hours per State to meet reporting requirements for the transitional reinsurance program (total 3,264 hours for 51 respondents as an upper-bound).
§153.310–§153.340 State risk adjustment reporting: States must implement privacy standards, collect and submit risk-related data (claims, encounter, demographic, enrollment) and may file exceptions for all-payer claims databases; estimated burdens provided (e.g., ~40 hours for privacy standards per State).
Issuer reporting for reinsurance (§153.400–§153.410): issuers must submit enrollment and premium data and requests for reinsurance payments; estimated ~24 hours per issuer annually (upper-bound 1,827 issuers -> 43,848 total hours).
Program stance and operational notes
NPRM stance and program operation options described by HHS:
Timing and fiscal posture: Exchanges begin operation in 2014; there are no reinsurance or risk adjustment outlays in 2012–2013; CBO and other analyses treat payments and receipts as financial transfers with payments lagging revenues by a quarter.
Regulatory approach options considered: (1) a uniform Federal standard for State operations; (2) broad State flexibility; and (3) a middle approach balancing administrative costs and policy goals—HHS proposes the middle approach in the NPRM.
State discretion: States are not required to operate Exchanges or these programs; States electing to operate Exchanges and related programs may use planning grants for initial setup and later adopt State revenue sources (e.g., issuer user fees) for sustainability.
Cost and coverage note: issuers may still incur contribution costs even if they receive no payments; administrative and reporting costs for States and issuers are recognized and addressed via proposed data submission and validation requirements in the NPRM.
Reinsurance and risk adjustment program criteria
Rules governing State establishment and operation of reinsurance programs, collection and disbursement of funds, and payment calculations:
States that elect to operate an Exchange must establish a reinsurance program for benefit years 2014–2016 and must enter into a contract with or establish an applicable reinsurance entity to carry out the program; if multiple entities exist, they must operate in distinct geographic areas and publish boundaries in the State notice.
Contribution collection: applicable reinsurance entities must collect national reinsurance contribution amounts (national totals: $10B in 2014, $6B in 2015, $4B in 2016) and remit required U.S. Treasury contributions (national totals: $2B in 2014, $2B in 2015, $1B in 2016); HHS will set the national contribution rate as a percent of premium in the annual Federal notice; States may collect additional funds for payments or administrative expenses.
Calculation of payments: an individual market plan is eligible when enrollee expenses for essential health benefits exceed the attachment point; reinsurance payment equals the coinsurance rate times issuer costs between the attachment point and reinsurance cap; States may adopt Federal values or modify attachment point, cap, and coinsurance but must publish modifications and ensure sufficient contributions to meet obligations and Treasury remittances.
Operational criteria
Detailed operational criteria and requirements for alternate methodologies, data collection and use, validation, reinsurance, and risk corridors:
State alternate methodology requests (§153.330): a State request for HHS certification of an alternate risk adjustment model must include the specific risk pools, a complete model description (factors, qualifying criteria, weights), data collection schedule and method, calibration methodology and frequency, and specified statistical performance metrics; any adjustments to base model weights must be provided.
Alternate methodology evaluation criteria (§153.330): alternate methodologies must accurately explain expense variation, link risk factors to clinical practice, encourage appropriate provider and plan behavior, use complete high-quality timely data, be understandable and implementable, provide stable risk scores over time and across plans, and minimize administrative costs; recalibration or altered methodologies require HHS certification and must follow stated calibration frequency.
Data collection minimum standards (§153.340): risk-related data must be collected to determine individual risk scores; minimum transaction standards require NCPDP or ASC X12N 837 for claims/encounter data and ASC X12N 834 for demographic/enrollment data; States must implement privacy and security standards consistent with 45 CFR 164.308/310/312 and may request exceptions if an all-payer claims database was operational by Jan 1, 2013 by submitting technical specifications and proposed system modifications.
Codes, Standards, and Parameters
Neutral codemixed
Key defined termsmixed
Attachment point
threshold dollar amount of costs incurred by a health insurance issuer for payment of essential health benefits after which costs are eligible for reinsurance payments.
Coinsurance rate
rate at which the applicable reinsurance entity will reimburse the health insurance issuer for costs incurred to cover essential health benefits after the attachment point and before the reinsurance cap.
Reinsurance cap
threshold dollar amount after which costs for covered essential health benefits are no longer eligible for reinsurance payments.
Contribution rate
rate, based on a percent of premium, used to determine the dollar amounts each health insurance issuer and third party administrator must contribute to a State reinsurance program.
Percent of premium
percent of total revenue, based on earned premiums in a fully insured market or percent of total medical expenses in a self-insured market.
Third party administrator
the claims processing entity for a self-insured group health plan.
Applicable reinsurance entity
a not-for-profit organization that carries out the reinsurance program established under this part.
Reinsurance-eligible plan
any health plan offered in the individual market with the exception of grandfathered plans.
Risk adjustment covered plan
any plan offered in the individual or small group market with the exception of grandfathered plans.
Data transaction standardsmixed
ASC X12N 837
Health Care Claim transaction standard for claims-related data (including encounters).
ASC X12N 834
Enrollment and Maintenance transaction standard for enrollment and demographic data.
NCPDP
Standard allowed for prescription drug claims and encounter data.
Definitions (non-billable)mixed
Allowable costs
an amount equal to the total medical costs, excluding allowable administrative costs, paid by the QHP issuer in providing benefits covered by the QHP.
Allowable administrative costs
total non-medical costs as defined in §158.160(b), including costs for administration and operation of the issuer.
Charge
flow of funds from QHP issuers to HHS.
Direct and indirect remuneration
prescription drug price concessions or similar benefits from manufacturers, pharmacies, or similar entities obtained by a QHP issuer or intermediary.
Referenced regulatory sections with reporting requirementsmixed
153.100
State notice of insurance benefits and payment parameters reporting.
153.240
State standards for transitional reinsurance program reporting.
153.310-153.350
State standards for risk adjustment program reporting (including data collection and validation).
153.400-153.410
Issuer reporting for transitional reinsurance program (contributions and requests for payment).
153.520
Issuer reporting for temporary risk corridors program (adjusted premium and allowable cost reporting).
153.610-153.630
Issuer reporting for risk adjustment program (comprehensive risk adjustment data submissions).
Definitions and payment parameter conceptsmixed
Attachment point / Coinsurance rate / Reinsurance cap
Payment parameters for transitional reinsurance: an enrollee becomes eligible for reinsurance payments when expenses exceed the attachment point; payment equals the coinsurance rate applied to costs between the attachment point and the reinsurance cap. Exact numeric values are published in the annual Federal notice of benefit and payment parameters or via State notice if modified by the State.
Required transaction standardsmixed
NCPDP
Standard for pharmacy claims transactions (allowed for prescription drug claims and encounter data).
ASC X12N 837
HIPAA standard Health Care Claim transaction for claims and encounter data.
ASC X12N 834
HIPAA standard Benefit Enrollment and Maintenance transaction for demographic and enrollment data.
State reinsurance parameter elements — attachment point, reinsurance cap, coinsurance rate, data requirements, data collection frequency
Attachment pointThreshold dollar amount of issuer costs for essential health benefits after which costs are eligible for reinsurance payments.
Reinsurance capThreshold dollar amount after which costs are no longer eligible for reinsurance payments; States may set or modify this value in a State notice or use Federal notice values for 2014–2016.
Coinsurance rateRate at which the applicable reinsurance entity reimburses issuer costs between the attachment point and the reinsurance cap; used to calculate the reinsurance payment (coinsurance rate × costs between point and cap).
Data requirementsState notice must specify data elements issuers must submit to receive reinsurance payments, including claims/cost data for individuals exceeding the attachment point.
State and Issuer Actions Required
Billing Rule
Provider and Issuer Actions — Contribution, Claims, Data, and Payments
States and issuers must follow these provider-impact actions related to reinsurance contributions, payments, risk adjustment charges, and data submission to ensure proper collection, claims, and settlement.
Contribution collection and rates: A national contribution rate is proposed (percent of premium method favored) to collect aggregate national contribution amounts ($10B 2014, $6B 2015, $4B 2016) and additional Treasury deposits ($2B 2014–2015, $1B 2016). States collecting contributions using the national rate will retain funds for reinsurance payments within the State. Contributions must be collected by the applicable reinsurance entity from all health insurance issuers and third-party administrators on behalf of self-insured plans.
Reinsurance payment requests: Issuers of reinsurance-eligible plans must submit requests for reinsurance payments to the applicable reinsurance entity according to methods, frequency, and deadlines specified in the annual Federal notice of benefit and payment parameters. States may define details in their State notice; comments invited on methods, frequency, and late claims handling.
Risk adjustment net charges payment: After risk adjustment calculations are complete, issuers with net charges payable will be assessed and must remit payment to the State (or HHS on behalf of the State). CMS proposes assessing net charges upon completion of the process and solicits comment on payment timelines (for example, a proposed 30-day payment window). Settlements occur at the State level and issuers must settle separately with each State where they operate.
Defined Terms
Key defined terms in Subpart A (§153.20)
Individual marketThe market for health insurance coverage offered to individuals other than in connection with a group health plan.
Qualified Health Plan (QHP)QHP has the meaning given in the general definitions section of the Exchange/QHP NPRM; QHPs are subject to risk corridors and other provisions in this part.
ExchangeExchange has the meaning given to the term in §155.20 of the Exchange rule; Exchanges may be operated by States or Federally-facilitated entities.
StateState means the 50 States and the District of Columbia, as defined in section 1304(d) of the Affordable Care Act.
Applicable reinsurance entityA not-for-profit organization that carries out the reinsurance program established under this part.
Policy Summary
PayerMedicare
PolicyStandards Related to Reinsurance, Risk Corridors, and Risk Adjustment
Policy CodePolicy CMS-9975-P
Change TypeProposed rule (NPRM)
Effective Date
Next Review Date
Key ActionStates operating an Exchange or establishing a reinsurance program must issue an annual State notice describing any State-specific payment parameters (attachment point, cap, coinsurance) if they intend to differ from the Federal notice.
Operational and administrative rules: reinsurance entities may serve multiple States under separate contracts and must maintain distinct State-level pools; States must ensure reinsurance entities' contracts cover obligations for benefit years 2014–2016 and may require retention of records for each benefit year for at least 10 years.
Methodology and payment approaches
States/HHS may use different payment calculation approaches including State-normalized average premiums or plan-specific premiums methods and must address how to handle aggregate surpluses/deficits (prorate payments/charges, split shortfall, reserves).
States must provide summary reports to HHS including average actuarial risk score per plan and corresponding charges/payments and other elements HHS deems necessary for oversight and recalibration activities.
Payment and charge calculation process: the State or HHS will calculate all payments and charges, determine net balances for each issuer, and assess net charges payable to issuers with net charges due; a proposed 30-day payment timeframe for remittance is solicited for comment.
QHP issuers must submit adjusted premium data and allowable costs in HHS-specified formats to support risk corridor calculations; premium adjustments must reflect risk adjustment and reinsurance payments/charges and reinsurance contributions and user fees as specified.
Risk corridor methodology: thresholds and sharing levels are specified (no payments/charges between 97%–103% of target; HHS payments for >103% with tiered sharing; issuer charges for <97% with mirrored sharing) and must be supported by issuer-submitted premium and allowable cost data.
Reinsurance contribution submissions: contributing entities must make contributions per State/HHS schedule and submit enrollment/premium data (for insured markets) or covered lives and total expenses (for self-insured markets); issuers may submit reinsurance payment requests as specified by State or Federal notice.
Issuer reporting for risk corridors (§153.520): issuers must submit adjusted premium and allowable cost data for risk corridor calculations; estimated ~12 hours per issuer (total 21,924 hours for 1,827 issuers).
Issuer reporting for risk adjustment (§153.610–§153.630): issuers must submit comprehensive risk adjustment data and support validation activities; estimated ~34 hours per issuer annually (total 62,118 hours for 1,827 issuers), and issuers must maintain data for ten years with an estimated ~2 hours annually for maintenance.
Estimation caveat
Estimates are upper bounds assuming all States operate Exchanges and all issuers participate; HHS solicits public comment on these burdens and will revise in the final rule accordingly.
PRA and public comment: the NPRM solicits comment on burden estimates and provides OMB/ICR submission instructions as part of the Information Collection Requirements discussion.
Regulatory structure: Part 153 enumerates specific sections governing establishment, collection, calculation, disbursement, coordination, administration, methodologies, data collection, validation, and issuer standards for reinsurance, risk corridors, and risk adjustment.
Disbursement and limits: applicable reinsurance entities must make payments that do not exceed contributions; payments may be reduced pro rata to match contributions received; entities must make payment after receiving a valid claim; States must maintain books and records for each benefit year for at least 10 years.
Operational data and submissions: contributing entities must submit enrollment/premium data (insured markets) or covered lives and total expenses (self-insured) to substantiate contributions; reinsurance-eligible plan issuers may request payments when enrollees meet reinsurance criteria using methods specified by State or annual Federal notice.
Uses of collected data (§153.340): States or HHS must provide de-identified claims to HHS for recalibration, summarized claims cost for verifying risk corridor submissions, and summarized or individual-level claims/encounter data to reinsurance entities for payment verification and audits as specified.
Data validation standards (§153.350): States or HHS must validate a statistically valid sample of risk adjustment data from each issuer offering at least one risk adjustment covered plan; results may be used to adjust average actuarial risk and corresponding charges/payments; an administrative appeals process must be provided for validation findings.
Reinsurance contributions and data (§153.400): contributing entities must make contribution payments per State/HHS schedule and submit required data to substantiate contributions; if multiple reinsurance entities exist, contributions must be made to each applicable entity covering the contributing entity's geographic footprint.
Requests for reinsurance payment (§153.410): reinsurance-eligible plan issuers may request payment when an enrollee meets reinsurance criteria and must submit requests in the manner specified by the State notice or the annual Federal notice of benefit and payment parameters.
Risk corridor formulas (§153.510): HHS payments and issuer remittances are defined by allowable costs relative to the target amount: payments when allowable costs are >103%–≤108% (HHS pays 50% of excess over 103%) and >108% (HHS pays 2.5% of target + 80% of excess over 108%); issuer charges when allowable costs are <97%–≥92% (issuer remits 50% of difference between 97% of target and allowable costs) and <92% (issuer remits 2.5% of target + 80% of difference between 92% of target and allowable costs).
Premium and allowable cost reporting (§153.520): QHP issuers must submit adjusted premium data and allowable costs in HHS-specified formats, where premiums are adjusted to account for risk adjustment and reinsurance payments and reduced for risk adjustment charges, reinsurance contributions, and user fees; allowable costs must be net of direct and indirect remuneration and reduced for cost-sharing reductions received from HHS.
Issuer obligations and recordkeeping (§153.610–§153.620): issuers offering risk adjustment covered plans must submit required data (claims/encounter, enrollment/demographic, prescription drug utilization) as established by State or HHS, may contractually require providers to submit data and impose penalties for noncompliance, must remit net charges when assessed, and must retain reported risk adjustment data for at least ten years and make data available for validation upon request.
Data collection frequencyState notice must specify frequency for collecting required data from issuers (timing discussed in preamble; States may set schedule).
Attachment point / Reinsurance cap / Coinsurance — triggers and publication note
Trigger for paymentsReinsurance payments are triggered when an enrollee's expenses for essential health benefits exceed the attachment point and are counted up to the reinsurance cap.
Publication of numeric valuesExact numeric values for attachment point, reinsurance cap, and coinsurance rate will be published in the annual Federal notice of benefit and payment parameters; States may adopt different values via a State notice.
State modification processStates that vary attachment point, cap, or coinsurance must publish any modifications in the State notice as described in §153.110 and ensure contributions cover obligations and Treasury remittances.
Minimum factor requirementsHHS will publish minimum number or types of factors that alternate risk adjustment methodologies must include to be considered for certification.
Statistical performance metricsHHS will specify required statistical metrics (for example, measures such as R-squared and predictive ratios) that alternate methodologies are expected to achieve.
Model documentationState requests must include full model description, factor weights, calibration methodology and frequency, and proposed performance metrics for HHS review and certification.
Risk corridor thresholds and sharing levels — thresholds and sharing examples
No-payment zoneNo payments or charges when allowable costs are between 97% and 103% of the target amount.
Payment sharing levelsWhen allowable costs exceed 103%–≤108% of target, HHS pays 50% of the excess over 103%; when >108%, HHS pays 2.5% of the target plus 80% of the excess over 108%.
Charge sharing levelsWhen allowable costs are <97%–≥92% of target, issuers remit 50% of the difference between 97% of target and allowable costs; when <92%, issuers remit 2.5% of target plus 80% of the difference between 92% of target and allowable costs.
Issuer count assumption — upper-bound estimate of issuers used for burden calculations
Upper-bound issuer countAn upper-bound estimate of 1,827 issuers in the individual and small group markets is used for burden calculations and cost estimates.
Use in burden estimatesThe 1,827 issuer estimate underpins estimated total hours and costs for issuer reporting obligations (e.g., reinsurance and risk adjustment submissions).
Assumption caveatEstimates are upper bounds assuming full State participation; actual burdens may be lower if not all issuers or States participate.
Reinsurance payment thresholds — payments apply for costs between attachment point and reinsurance cap
Payment applicabilityReinsurance payments apply to enrollee costs that exceed the attachment point and are counted up to the reinsurance cap; payment equals the coinsurance rate times those costs.
State vs Federal parametersStates may adopt the Federal attachment point/cap/coinsurance values published in the annual Federal notice for 2014–2016 or set alternative values via State notice.
Pro rata reductionsIf contributions are insufficient to cover obligations, applicable reinsurance entities must pro rata reduce payments to issuers.
Payment tiers (HHS to issuer)When allowable costs are >103%–≤108% of target: HHS pays 50% of the amount above 103%. When >108%: HHS pays 2.5% of target plus 80% of the amount above 108%.
Remittance tiers (issuer to HHS)When allowable costs are <97%–≥92% of target: issuer remits 50% of the difference between 97% of target and allowable costs. When <92%: issuer remits 2.5% of target plus 80% of the difference between 92% of target and allowable costs.
Timing exampleHHS has considered requiring issuers to remit charges within 30 days of notice; specific deadlines to be provided in guidance or Federal notice.
Issuer data submission for reinsurance: All health insurance issuers (inside and outside the Exchange) must provide enrollment and premium data (covered lives and total expenses for self-insured market) and any additional data the reinsurance entity requires to estimate and collect contributions and to determine reinsurance eligibility and payments. States will specify data requirements and collection frequency in the State notice or Federal annual notice.
Issuer reporting and payment responsibilities (proposed Part 153): Issuers offering risk adjustment covered plans must submit required risk adjustment data (claims/encounter, enrollment/demographics, prescription drug utilization) in the manner and timeframes set by the State or HHS. Issuers must comply with reporting for reinsurance contributions and reinsurance payment requests as specified in Subpart E and may face administrative burden estimates for annual electronic submissions.
Reinsurance payment claims and pro rata reductions: Reinsurance entities must make payments to issuers for valid claims received, but total payments cannot exceed contributions collected. If contributions in a reinsurance year are insufficient, payments may be reduced on a fair and equitable pro rata basis across all issuers in the individual market. States must ensure payments are made as specified and maintain records for at least 10 years.
Issuer contractual data submission requirements: Issuers may require providers, suppliers, and contracting entities to submit complete and accurate risk adjustment data by contract, and may include financial penalties for failures to provide timely, complete, or accurate data. Contractual provisions must align with State or HHS-established data formats and timeframes.
attachment point — definition
DefinitionAttachment point: threshold dollar amount of costs incurred by a health insurance issuer for essential health benefits after which those costs are eligible for reinsurance payments.
Applicability noteAttachment point applies to individual market reinsurance eligibility; essential health benefits are the basis for eligible costs.
PublicationStates may use Federal attachment point values published in the annual Federal notice or set state-specific values in their State notice (§153.110).
coinsurance rate — definition
DefinitionCoinsurance rate: the rate at which the applicable reinsurance entity will reimburse the health insurance issuer for costs incurred to cover essential health benefits after the attachment point and before the reinsurance cap.
Use in formulaReinsurance payment equals the coinsurance rate multiplied by issuer costs between the attachment point and reinsurance cap (§153.230(b)(1)).
State modificationStates may increase, decrease, or eliminate the coinsurance rate as part of a State-specific reinsurance payment formula (published in State notice).
reinsurance cap — definition
DefinitionReinsurance cap: the threshold dollar amount after which costs for essential health benefits are no longer eligible for reinsurance payments.
Relationship to attachment pointReinsurance payments are calculated for costs exceeding the attachment point and up to the reinsurance cap; States may align the cap with traditional reinsurance attachment points.
State flexibilityStates may increase, decrease, or eliminate the reinsurance cap and must publish modifications in the State notice (§153.230(c)).
contribution rate — definition
DefinitionContribution rate: the rate, based on a percent of premium, used to determine the dollar amounts each health insurance issuer and third-party administrator must contribute to a State reinsurance program.
Percent basisPercent of premium is based on earned premiums in fully insured markets or percent of total medical expenses in self-insured markets as described in §158.130(a).
Collection useContributions collected by States are used for reinsurance payments; a portion may be remitted to the U.S. Treasury per the national contribution schedule (2014–2016).
risk adjustment model — definition
DefinitionRisk adjustment model: an actuarial tool used to predict health plan costs based on the relative actuarial risk of enrollees in risk adjustment covered plans.
Methodology vs modelRisk adjustment methodology is the set of procedures used to determine average actuarial risk; the model is the predictive tool applied within that methodology.
Federal roleHHS will publish Federally-certified methodologies in the annual Federal notice; States may request certification of alternate methodologies that meet HHS criteria.
Federally-certified risk adjustment methodology — definition and State use/modification note
DefinitionFederally-certified risk adjustment methodology: a methodology developed and promulgated by HHS or certified by HHS for State use; States may use a modified methodology only if certified by HHS.
Certification processStates may submit alternate methodologies for HHS certification; HHS will publish basic standards and performance criteria in the annual Federal notice to guide alternate submissions.
Usage noteWhen the Federal government operates a State's risk adjustment program, the Federally-certified methodology specified in the annual Federal notice will apply.
Key risk adjustment terms — summary of model and methodology terms
Model components summaryKey terms include risk pool, factors, factor weights, calibration, and performance metrics that together define a risk adjustment methodology.
State alternate requirementsAlternate methodologies must include specification of risk pools, model factors and weights, calibration methods, and statistical performance metrics for HHS review (§153.330).
Desirable propertiesAlternate methods should explain expense variation, link risk factors to clinical practice, be implementable, stable over time, and minimize administrative burden.
risk adjustment data — definition of data types used in models
DefinitionRisk adjustment data: any data that is used in a risk adjustment model, including claims/encounter, enrollment/demographic, and prescription drug utilization data.
Transaction standardsMinimum data transaction standards proposed include ASC X12N 837 and 834 for claims and enrollment and NCPDP for pharmacy data; States may request exceptions if they operate an all-payer claims database.
Retention and privacyData must be collected and stored consistent with privacy/security standards and made available for validation; issuers must retain risk adjustment data for at least 10 years.
DefinitionAllowable administrative costs: total non-medical costs as defined in §158.160(b), including costs for administration and operation of the plan.
Allowable costsAllowable costs equal total medical (clinical) costs paid by the QHP issuer for covered benefits, excluding allowable administrative costs, and form the basis for risk corridor calculations.
Relationship to MLRHHS invites comment on whether administrative costs that improve quality or a 20% cap should be considered for consistency with MLR rules (§158.150–§158.151).
target amount / charge / payment — definition
Target amountTarget amount: total premiums incurred by the QHP (including premium tax credits) reduced by allowable administrative costs; used as denominator in risk corridor ratios.
Payment definitionPayment means flow of funds from HHS to QHP issuers under the risk corridor program when allowable costs exceed specified thresholds.
Charge definitionCharge means the flow of funds from QHP issuers to HHS when allowable costs fall below specified thresholds of the target amount.
ICR — Information Collection Request definition
DefinitionICR: Information Collection Request — formal paperwork burden submission and review under the Paperwork Reduction Act of 1995.
PurposeICRs summarize proposed data collection burden, seek public comment, and support OMB review of information collections in the rule.
ContextThe NPRM details multiple ICRs for State and issuer reporting obligations across subparts of Part 153.
transitional reinsurance — definition
DefinitionTransitional reinsurance: a State-based program (2014–2016) making payments to issuers for high-cost cases to stabilize individual market premiums during Exchange implementation.
PurposeDesigned to reduce uncertainty of insurance risk in the individual market by making payments for high-cost cases and operate for three years concurrent with Exchanges.
Interaction with other programsWorks alongside risk adjustment (permanent) and temporary Federally-administered risk corridors to mitigate adverse selection and ratesetting uncertainty.
risk adjustment — definition
DefinitionRisk adjustment: a permanent program that transfers funds among issuers to compensate for differences in enrollee actuarial risk, protecting issuers that attract higher-risk enrollees.
ScopeApplies to non-grandfathered plans in the individual and small group markets, inside and outside Exchanges; requires comprehensive data collection and validation.
AdministrationStates may operate risk adjustment using Federally-certified methodologies or request certification of alternates; HHS will operate risk adjustment where States do not.
risk corridors — definition
DefinitionRisk corridors: a temporary, federally-administered payment adjustment system (2014–2016) based on the ratio of allowable costs to the plan's target amount to limit issuer losses and gains.
MechanicsPayments to issuers or charges from issuers are calculated according to thresholds around ±3% of the target amount with tiered sharing percentages for amounts beyond those thresholds.
DurationRisk corridors apply for benefit years 2014 through 2016 as specified in the NPRM (§153.510).
Part 153 subparts — description of proposed regulatory subparts
Subpart structurePart 153 is organized into subparts covering general provisions, State notices, transitional reinsurance, risk adjustment, issuer standards for reinsurance, and risk corridors.
Key subpartsExamples include Subpart C (transitional reinsurance), Subpart D (risk adjustment), Subpart E (issuer standards for reinsurance), and Subpart F (issuer standards for risk corridors).
PurposeSubparts enumerate requirements for establishment, collection, calculation, disbursement, validation, and reporting for the programs.
Program summaryPremium stabilization programs comprise three interlocking programs: reinsurance (State-based, temporary), risk corridors (Federal, temporary), and risk adjustment (ongoing); together they mitigate adverse selection and stabilize premiums.
Flows of fundsReinsurance collects contributions and makes payments for high-cost enrollees; risk adjustment redistributes funds among issuers based on enrollee risk; risk corridors limit issuer gains/losses relative to target amounts.
AdministrationStates may operate reinsurance and risk adjustment programs subject to HHS criteria; risk corridors are Federally administered per the NPRM.
Applicable reinsurance entity — definition
DefinitionApplicable reinsurance entity: a not-for-profit organization that carries out the reinsurance program under Part 153.
RoleResponsible for collecting contributions, receiving reinsurance payment requests from issuers, disbursing payments, and maintaining program records per State standards.
State contractingStates that elect to operate an Exchange must establish or contract with applicable reinsurance entities; entities may subcontract administrative functions with State approval.
Attachment point — definition (duplicate entry area)
Definition duplicateAttachment point: threshold dollar amount of costs incurred by a health insurance issuer for essential health benefits after which costs are eligible for reinsurance payments (repeat of §153.200).
Use noteAttachment point is used to determine eligibility for reinsurance payments in the individual market and is central to payment calculation.
Publication noteFederal values for the attachment point will be announced in the annual Federal notice; States may adopt alternatives in a State notice (§153.110).
Definition duplicateCoinsurance rate: the rate at which the applicable reinsurance entity will reimburse the issuer for costs between the attachment point and reinsurance cap (repeat of §153.200).
Calculation noteUsed directly in the reinsurance payment formula: payment = coinsurance rate × costs between attachment point and cap (§153.230(b)(1)).
State flexibilityStates may increase, decrease, or eliminate the coinsurance rate and must publish changes in the State notice (§153.230(c)).
Reinsurance cap — definition (duplicate entry area)
Definition duplicateReinsurance cap: the threshold dollar amount for costs after which costs are no longer eligible for reinsurance payments (repeat of §153.200).
Payment windowPayments are limited to costs between the attachment point and the reinsurance cap; States may set cap values or eliminate the cap via State notice.
Operational noteHHS proposes setting a reinsurance cap aligned with traditional reinsurance attachments and will publish Federal values in annual notices for 2014–2016.
Risk adjustment data means all data used in application of a risk adjustment payment model
DefinitionRisk adjustment data means all data that are used in the application of a risk adjustment payment model.
IncludesExamples include claims/encounter data, enrollment and demographic data, prescription drug utilization, and other data to support model calibration and validation.
Collection standardHHS/States propose transaction standards (ASC X12N 837, 834, and NCPDP) and allow State exceptions for established all-payer claims databases with technical specs submitted to HHS.
Risk corridor definition — payment adjustment system based on ratio of allowable costs to target amount
DefinitionRisk corridor: any payment adjustment system based on the ratio of allowable costs of a plan to the plan's target amount; used to determine payments or charges between HHS and QHP issuers.
MechanicsApplies thresholds around ±3% of the target amount; payments and charges are calculated per specified tiered formulas in §153.510 and §153.520.
Program intentTemporary Federally-administered program for 2014–2016 to limit issuer losses and gains arising from ratesetting uncertainty during Exchanges' startup period.
DefinitionAllowable costs: an amount equal to the total medical (clinical) costs paid by the QHP issuer in providing benefits covered by the QHP, excluding allowable administrative costs as defined in §158.160(b).
Role in calculationsAllowable costs are the numerator used to compare against the target amount in risk corridor calculations determining payments or charges.
Administrative cost exclusionAllowable administrative costs are excluded from allowable costs and defined per §158.160(b); HHS solicits comment on treatment of quality-improvement administrative costs.