ModifiedMedicarePolicy N/A

Risk corridors and cost‑sharing reductions amendments

Interim final rule with comment amending administration of the ACA risk corridors program and establishing an alternate optional methodology for calculating cost‑sharing reductions for qualified health plan issuers; affects QHP issuers operating in Exchanges and related stakeholders.

Policy Summary

PayerMedicare

PolicyRisk corridors and cost‑sharing reductions amendments

Policy CodePolicy N/A

Change TypeRegulatory revisions and added optional methodology

Effective DateApril 30, 2013

Next Review DateN/A

Key ActionQHP issuers must notify HHS prior to each benefit year whether they select the simplified methodology and, if selected, submit estimated cost‑sharing parameters and an actuarial memorandum.

SourceLink

POLICY UPDATE CHANGES

Modified interpretation and regulatory definition of 'allowable costs' so that QHP allowable costs are determined as a pro-rata share of an issuer's pooled claims cost amount.

Established an alternate (simplified) optional methodology for calculating the value of cost-sharing reductions for reconciliation of advance payments.

Allowable costs for QHPs are redefined to equal the pro rata portion of an issuer's incurred claims across all nongrandfathered plans in a market, allocated by premiums earned.

Attribution/allocation rules in §153.520 apply to target amount (allowable administrative expenses) but not to allowable costs, permitting pooling of claims costs and pro rata allocation by premiums.

A simplified methodology is permitted for calculating what enrollees would have paid under the standard plan for cost‑sharing reduction reconciliation, with transition rules and a requirement to notify HHS if selected.

Credibility standard: if standard plan enrollment is under 12,000 member months in specified subgroups, issuer must apply standard plan actuarial value instead of simplified methodology parameters.

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Apr 30, 2013effective date of these regulations

2014–2016timeframe risk corridors program is in effect

2 methodologiesCSR reconciliation options

12,000credibility threshold (member months)

90 daysnotification timeframe to HHS

§153.520, §153.500, §156.430sections amended

Risk Corridors and CSR Reconciliation Criteria

Risk corridors and CSR reconciliation criteria

Stance and operational criteria for administration of risk corridors and reconciliation of cost‑sharing reductions:

Allowable costs for QHPs will be calculated as the pro rata share of the issuer's pooled incurred claims allocated to each QHP based on premiums earned in the market; this revised definition retains specified adjustments consistent with the MLR formula.

Risk corridors payments/charges will compare those allocated allowable costs to the QHPs' target amounts as part of the temporary risk corridors program (2014–2016).

QHP issuers may elect either the standard methodology (claim‑level calculation processing each claim twice) or the simplified methodology (apply summary cost‑sharing parameters to total allowed costs per policy) for calculating amounts that enrollees would have paid under the standard plan for CSR reconciliation.

Adjustments referenced in §§158.40, 158.150, 158.151, and §153.530(b) remain within the regulatory definition of allowable costs to maintain consistency with the MLR formula.

Risk corridors allocation and CSR reconciliation criteria

Stance and operational criteria related to risk corridors calculations and cost‑sharing reduction reconciliation for QHP issuers:

Allowable costs for a QHP equal the pro rata portion of the issuer's incurred claims across all nongrandfathered plans in the market allocated to the QHP by premiums earned; this includes retained adjustments per §§158.40, 158.150, 158.151, and §153.530(b).

The attribution and allocation rules in §153.520 apply to the target amount (allowable administrative expenses) but do not apply to allowable costs, permitting pooling of claims costs and pro rata allocation across issuer plans and enabling an issuer‑level risk corridors calculation for QHP business where appropriate.

Issuers must report, for each policy of each plan variation, total allowed EHB costs broken down into: amount paid by issuer; amount paid by enrollee (including third‑party payments); and the amount the enrollee would have paid under the standard plan (calculated using the selected methodology).

Methodology selection: Issuer may elect the simplified methodology for calculating the amount the enrollee would have paid under the standard plan, but must notify HHS prior to the start of each benefit year and, if selected, apply it to all plan variations for that benefit year.

Calculation and reporting criteria

Standards and options for calculating amounts that enrollees would have paid under the standard plan without cost‑sharing reductions and reporting requirements:

Methodology choice: Issuer may choose the standard methodology (process each claim twice applying standard plan cost‑sharing) or the simplified methodology (§156.430(c)(4)) that applies effective cost‑sharing parameters to total allowed costs per policy.

If selecting the simplified methodology, the issuer must notify HHS prior to the start of each benefit year and submit estimated effective cost‑sharing parameters and an actuarial memorandum as required by §156.430(c)(4)(iii).

Credibility check: if any of the four defined subgroups for the standard plan have fewer than 12,000 member months, an issuer selecting the simplified methodology must instead apply the standard plan's actuarial value (per §156.135) to allowed EHB costs for enrollees in all subgroups.

Issuers should anticipate submitting the required reporting several months after the close of the benefit year; the reported enrollee‑paid amount must include third‑party payments on behalf of the enrollee.

Simplified methodology and financial attribution rules

Optional simplified methodology and related financial attribution and submission rules:

A QHP issuer may choose the simplified methodology in §156.430(c)(4) to calculate the amount that enrollees would have paid under the standard plan by applying the standard plan's effective cost‑sharing parameters to total allowed EHB costs per policy.

Selection and application rules: the issuer must notify HHS prior to each benefit year whether it selects the simplified methodology; if selected it must apply the simplified methodology to all plan variations for that benefit year; generally an issuer may not select it for a benefit year if it did not select it for the prior benefit year (with limited merger/acquisition exceptions).

Calculation rules: the simplified methodology determines enrollee liability by comparing total allowed costs to the effective deductible and effective claims ceiling and applying effective pre‑ and post‑deductible coinsurance rates using Formulas A, B, and C as specified in §156.430(c)(4)(i)–(ii).

Submission requirements: issuers using the simplified methodology must submit, for each standard plan and separately for self‑only and other‑than‑self‑only coverage, the effective deductible, effective pre‑deductible coinsurance rate, effective post‑deductible coinsurance rate, effective claims ceiling, and an actuarial memorandum prepared by a member of the American Academy of Actuaries (§156.430(c)(4)(iii)).

Issuer Notification, Selection, and Exception Procedures

Note

Cost-sharing reductions reconciliation methods; reporting and methodology selection; notification for exemption

QHP issuers must choose between two methods to calculate cost-sharing reductions (CSRs) for reconciliation of advance payments: the standard methodology and the simplified methodology. Under the standard methodology, issuers determine for each policy the amount an enrollee would have paid under the standard plan without CSRs by applying the standard plan's actual cost-sharing rules to the allowed costs for each policy (effectively processing each claim twice). Under the simplified methodology, issuers apply a formula using the standard plan's effective cost-sharing parameters to the policy's total allowed costs for essential health benefits to estimate the amount the enrollee would have paid under the standard plan. If an issuer elects the simplified methodology, it must apply it to all plan variations it offers on the Exchange for the benefit year, must notify HHS prior to the start of each benefit year whether it selects the simplified methodology, and must submit the effective cost-sharing parameters and supporting actuarial memorandum for each standard plan (self-only and other-than-self-only) in the manner and timeframe established by HHS. The effective parameters to be submitted include: the effective deductible; the effective pre-deductible coinsurance rate; the effective post-deductible coinsurance rate; and the effective claims ceiling. If an issuer uses the simplified methodology it must also submit a memorandum from a member of the American Academy of Actuaries describing how the effective parameters were calculated.

Standard methodology: calculate enrollee payments by applying the standard plan’s actual cost-sharing to allowed costs on a per-policy/claim basis (double-processing).
Simplified methodology: apply effective cost-sharing parameters to total allowed EHB costs for each policy using the formula in §156.430(c)(4).

Illustrative Allocation, Citations, and Key Numeric Thresholds

Illustrative allocationmixed

Example allocation of pooled allowable costs among issuer plans (illustrative numbers only): QHP A = $5,000,000 (50%), QHP B = $2,000,000 (20%), Plan X = $3,000,000 (30%) based on total allowable costs of $10,000,000

Not applicablemixed

No specific procedural or billing codes applicable to this rulemaking section; no CPT/HCPCS/ICD codes cited.

Regulatory citation changesmixed

§153.500	Allowable costs definition amended to require pro rata allocation of issuer incurred claims across all non-grandfathered plans in a market, allocated to the QHP based on premiums earned.
§153.520	Paragraphs (a) and (b) revised to require attribution and allocation of revenue and expense items based on generally accepted accounting methods, consistently applied.

inv-08: Risk corridors allowable costs allocation threshold

Allocation ruleAllowable costs for a QHP are allocated as the pro rata portion of the issuer's pooled incurred claims for all non-grandfathered plans in the market, allocated to each QHP based on premiums earned.

Example allocationIf an issuer's total allowable costs across plans are $10,000,000 and QHP A earns 50% of premiums, QHP A is allocated $5,000,000 (pro‑rata by premiums).

Retained adjustmentsAllowable costs retain adjustments for direct and indirect remuneration, quality improvement expenditures, health IT/meaningful use expenditures, and §153.530(b) adjustments consistent with the MLR formula.

inv-09: Credibility threshold (member months)

Credibility threshold (member months)12,000 member months (per subgroup) is the proposed credibility standard for using the simplified methodology.

Key Definitions and Methodology Parameters

inv-19: allowable costs

Regulatory definition'Allowable costs' means the pro rata portion of the sum of incurred claims (including adjustments for direct and indirect remuneration), quality improvement expenditures, health IT/meaningful use expenditures, and §153.530(b) adjustments for all of the issuer’s non-grandfathered plans in a market, allocated to the QHP based on premiums earned.

Allocation mechanismAllowable costs are calculated across the issuer's pooled claims experience and allocated to individual QHPs in proportion to premiums earned in the applicable market.

Consistency with MLRThe definition retains adjustments consistent with the MLR formula (references to §§158.40, 158.150, 158.151 and §153.530(b)).

inv-20: CSR reconciliation methodologies

Standard methodologyProcess each claim twice: apply the standard plan cost‑sharing structure to allowed costs for each claim and also apply the reduced cost‑sharing structure for the enrolled plan variation.

Document Changes and Material Amendments

This interim final rule with comment makes several material changes to risk corridors and cost-sharing reduction (CSR) reconciliation. It redefines "allowable costs" for risk corridors so that a QHP's allowable costs are the pro rata portion of the issuer's pooled incurred claims allocated by premiums earned across all non-grandfathered plans in the market (alignment with single risk pool requirements).

The rule amends attribution and allocation rules so that generally accepted accounting methods still govern attribution/allocation of revenue and expense for the target amount (including allowable administrative expenses), but those rules do not constrain pooling of claims costs used to compute allowable costs for risk corridors.

For CSR reconciliation the rule adds an optional simplified methodology alternative to the standard claim-level double-processing method. Under the simplified approach issuers apply defined effective cost-sharing parameters (effective deductible, effective pre- and post-deductible coinsurance rates, and effective claims ceiling) and selected formulas to total allowed EHB costs for each policy to estimate what enrollees would have paid under the standard plan.

Operational and timing requirements are added: QHP issuers must notify HHS prior to each benefit year if they elect the simplified methodology and, if selected, must apply it to all plan variations for that benefit year (with limited merger/acquisition transition rules). The rule also establishes a credibility safeguard: if any of four defined subgroups has fewer than 12,000 member months, the issuer must use the standard plan's actuarial value instead of simplified parameters for all subgroups.

These amendments are effective as part of the interim final rule (effective date April 30, 2013) and are intended to reduce administrative burden for issuers while aligning risk corridors calculations with the single risk pool approach.

Policy Summary

PayerMedicare

PolicyRisk corridors and cost‑sharing reductions amendments

Policy CodePolicy N/A

Change TypeRegulatory revisions and added optional methodology

Effective DateApril 30, 2013

Next Review DateN/A

SourceLink

On This Page

The simplified methodology computes enrollee liability using Formulas A/B/C applied to total allowed costs (TAC_i) and effective cost‑sharing parameters (effective deductible; effective pre‑ and post‑deductible coinsurance rates; effective claims ceiling) as specified in §156.430(c)(4).

If any of the four defined standard plan subgroups have fewer than 12,000 member months, the issuer must apply the standard plan's actuarial value to allowed EHB costs for enrollees in all subgroups rather than using simplified methodology parameters (credibility requirement).

Unique plan designs: Issuers with unique cost‑sharing structures may notify HHS (proposed within 90 days of the benefit year start) to request that HHS require use of actuarial value instead of the simplified methodology; HHS will review and accept or reject such requests.

Minimum credibility: if any of the four defined subgroups have fewer than 12,000 member months in the benefit year, the issuer must apply the standard plan's actuarial value to allowed EHB costs for all subgroups rather than use simplified parameters (§156.430(c)(4)(iv)).

Attribution and allocation: revenue and expense items must be attributed and allocated using generally accepted accounting methods applied consistently; allowable costs include incurred claims, quality improvement and health IT expenditures, and specified adjustments, allocated pro rata by premiums earned (§153.500; §153.520).

Notification: issuer must notify HHS prior to the start of each benefit year whether it selects the simplified methodology (manner/timeframe established by HHS).

Application scope: if selected, simplified methodology applies to all plan variations the issuer offers on the Exchange for that benefit year.

Submission requirements (if using simplified): effective deductible; effective pre-deductible coinsurance rate; effective post-deductible coinsurance rate; effective claims ceiling; and an actuarial memorandum by an American Academy of Actuaries member describing parameter calculations.

Transition and repeat-use limits: an issuer may not select the simplified methodology for a benefit year if it did not select it for the prior benefit year, except in the year of certain mergers/acquisitions where special rules apply (see regulatory text).

Minimum credibility: if a standard plan has fewer than 12,000 member-months in certain subgroups, the issuer must use the standard plan’s actuarial value (per §156.135) applied to allowed EHB costs instead of the simplified parameter formula for those subgroups.

Basis for thresholdThreshold aligns with a similar standard used by the Medicare Part D program; commenters invited to provide input.

Effect of not meeting thresholdIf a standard plan subgroup has fewer than 12,000 member months, issuer must apply the standard plan's actuarial value to allowed EHB costs instead of using simplified parameters.

inv-10: Credibility threshold

Credibility standard12,000 member months required in a subgroup for credibility when applying the simplified methodology.

Subgroup applicationStandard plan effective parameters must be calculated separately for self-only and other-than-self-only coverage; four subgroups defined for credibility checks.

Fallback if not credibleIf any subgroup <12,000 member months, issuer must use the standard plan's actuarial value applied to allowed EHB costs for all subgroups.

inv-11: Minimum credibility enrollment

Minimum credibility enrollment12,000 member months in any of the four defined subgroups is required to use the simplified methodology.

SubgroupsFour subgroups align with policy requiring separate effective parameters for self-only and other-than-self-only coverage; subgroup composition described in §156.430(c)(4).

Consequence of insufficient enrollmentIf insufficient enrollment in any subgroup, issuer must apply the standard plan's actuarial value (per §156.135) to allowed EHB costs for all subgroups.

Simplified methodology (summary‑parameter)Apply formulas using effective cost‑sharing parameters (effective deductible, effective pre/post‑deductible coinsurance rates, effective claims ceiling) to total allowed costs for each policy to estimate what enrollees would have paid under the standard plan.

Issuer choice and notificationIssuers may elect either methodology for reconciliation; selection and required submissions described in §156.430, including prior notification to HHS and supporting actuarial memorandum for simplified method.

inv-21: Allowable costs

Multiple references'Allowable costs' is referenced and defined across §153.500 and the risk corridors calculation discussion to emphasize pro‑rata pooled allocation and retained adjustments.

Examples includedRule text provides an illustrative allocation example (issuer with three plans allocating $10M total allowable costs by premium shares: 50%/20%/30%).

Cross‑referencesAllowable costs definition retains references to §§158.40, 158.150, 158.151 and §153.530(b) to preserve MLR consistency.

inv-22: Effective cost-sharing parameters / Simplified methodology

Effective cost‑sharing parameters definedEffective deductible, effective pre‑deductible coinsurance rate, effective post‑deductible coinsurance rate, and effective claims ceiling are established for the simplified methodology and must be calculated separately for self‑only and other‑than‑self‑only coverage.

Formulas for enrollee liabilityThree formulas (A, B, C) use TAC_i and the effective parameters to compute the amount an enrollee would have paid under the standard plan depending on total allowed costs relative to the effective deductible and claims ceiling.

Submission requirementsIf using simplified methodology issuers must submit the effective parameters and an actuary memorandum (by an American Academy of Actuaries member) to HHS per §156.430(c)(4)(iii).

inv-23: Allowable costs

Comprehensive listAllowable costs include incurred claims (within §158.140), adjustments for direct and indirect remuneration, issuer expenditures for health‑care quality (§158.150), health IT/meaningful use expenditures (§158.151), and §153.530(b) adjustments, all allocated pro rata by premiums earned.

Illustrative allocation exampleExample in rule: $10,000,000 total allowable costs allocated by premium share (QHP A $5,000,000; QHP B $2,000,000; Plan X $3,000,000).

Role in risk corridorsThese allocated allowable costs are compared to QHP target amounts in the risk corridors calculation to determine payments/charges.

inv-24: Allowable costs

Repeated regulatory mentionsThe term 'allowable costs' is reiterated in §153.500 and the risk corridors description to implement pooled pro‑rata allocation consistent with the single risk pool requirement.

Conforming amendmentsRegulatory text revises §153.520 attribution/allocation paragraphs to require GAAP‑based, consistent attribution and allocation across plans.

PurposeAmendments reconcile the risk corridors calculation with the single risk pool approach required under §156.80.

inv-25: Attribution and allocation

Attribution standardEach revenue or expense item in the target amount must be reasonably attributable to the operation of the QHP with attribution based on a generally accepted accounting method, consistently applied.

Allocation across plansEach item in the target amount must be reasonably allocated across the issuer's plans based on a generally accepted accounting method, consistently applied; must be consistent with methods used under §158.170.

Consistency requirementIf an issuer uses a specific allocation method for §158.170, the same method must be used for attribution/allocation under §153.520 to ensure consistent application.

2013-04-30effective_dateLatest

Interim final rule with comment effective; amendments to risk corridors calculations and option for an alternate simplified methodology for calculating cost-sharing reductions became effective.

2014-01-01 to 2016-12-31program_timeframe

Risk corridors program operates for benefit years 2014 through 2016 as a temporary, Federally administered program to limit issuer gains and losses.

2014 Payment Notice (published 2013)methodology_update

2014 Payment Notice expanded standards and established the framework for CSR reconciliation methodologies referenced by this rule (standard claim-level processing and the alternative simplified methodology).

(Ongoing regulatory amendment) 45 CFR parts 153 & 156 amendmentregulatory_definition_change

Regulatory definition of 'allowable costs' amended to require calculation as the pro rata portion of an issuer's pooled incurred claims across all non-grandfathered plans in a market, allocated by premiums earned; related attribution and allocation rules in §153.520 revised.

(Policy requirement) prior to each benefit yearnotification_requirement

QHP issuers must notify HHS prior to the start of each benefit year whether they select the simplified methodology and, if selected, submit estimated cost-sharing parameters and an actuarial memorandum as specified in §156.430.