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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 147, 155, and 156

[CMS-9980-P]

RIN 0938-AR03

Patient Protection and Affordable Care Act; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation

AGENCY: Department of Health and Human Services.
ACTION: Proposed rule.
SUMMARY: This proposed rule details standards for health insurance issuers consistent with title I of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, referred to collectively as the Affordable Care Act. Specifically, this proposed rule outlines Exchange and issuer standards related to coverage of essential health benefits and actuarial value. This proposed rule also proposes a timeline for qualified health plans to be accredited in Federally-facilitated Exchanges and an amendment which provides an application process for the recognition of additional accrediting entities for purposes of certification of qualified health plans.
DATES: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. Eastern Standard Time (EST) on December 26, 2012.
ADDRESSES: You may submit comments in one of four ways (please choose only one of the ways listed):

1.Electronically.You may submit electronic comments on this regulation tohttp://www.regulations.gov. Follow the "Submit a comment" instructions.

2.By regular mail.You may mail written comments to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9980-P, P.O. Box 8010, Baltimore, MD 21244-8010.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.By express or overnight mail.You may send written comments to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9980-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.By hand or courier.Alternatively, you may deliver (by hand or courier) your written comments only to the following addresses prior to the close of the comment period:

a. For delivery in Washington, DC--Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members.

Comments erroneously mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of theSUPPLEMENTARY INFORMATIONsection.

FOR FURTHER INFORMATION CONTACT: Adam Block at (410) 786-1698 for matters related to essential health benefits, actuarial value, and minimum value.

Tara Oakman at (301) 492-4253 for matters related to accreditation.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:http://www.regulations.gov.Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

ThisFederal Registerdocument is also available from theFederal Registeronline database throughFederal Digital System (FDsys),a service of the U.S. Government Printing Office. This database can be accessed via the internet athttp://www.gpo.gov/fdsys/.

Table of Contents I. Background A. Legislative Overview B. Stakeholder Consultation and Input C. Structure of the Proposed Rule II. Provisions of the Proposed Regulation A. Part 147—Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets 1. Subpart B—Requirements Relating to Health Care Access B. Part 155—Exchange Establishment Standards and Other Related Standards Under the Affordable Care Act C. Part 156—Health Insurance Issuer Standards Under the Affordable Care Act, Including Standards Related to Exchanges 1. Subpart A—General Provisions 2. Subpart B—EHB Package 3. Subpart C—Accreditation III. Collection of Information Requirements IV. Regulatory Impact Analysis V. Regulatory Flexibility Act VI. Unfunded Mandates VII. Federalism VIII. Appendix A—List of Proposed EHB Benchmarks [List of Received Benchmarks: Partial] IX. Appendix B—Largest FEDVIP Dental and Vision Plan Options, as of March 31, 2012 Acronym List

Because of the many organizations and terms to which we refer by acronym in this proposed rule, we are listing these acronyms and their corresponding terms in alphabetical order below:

AVActuarial Value CHIPChildren's Health Insurance Program CMSCenters for Medicare & Medicaid Services DOLU.S. Department of Labor EHBEssential Health Benefits ERISAEmployee Retirement Income Security Act (29 U.S.C. section 1001, et seq.) FDAU.S. Food and Drug Administration FEDVIPFederal Employee Dental and Vision Insurance Program FEHBPFederal Employees Health Benefits Program HEDISHealthcare Effectiveness Data and Information Set HHSU.S. Department of Health and Human Services HIOSHealth Insurance Oversight System HMOHealth Maintenance Organization HSAHealth Savings Account HRAHealth Reimbursement Account IOMInstitute of Medicine IRSInternal Revenue Service MVMinimum Value NAICNational Association of Insurance Commissioners OMBOffice of Management and Budget OPMU.S. Office of Personnel Management PHS Act Public Health Service Act PRAPaperwork Reduction Act QHPQualified Health Plan SSASocial Security Administration SHOPSmall Business Health Options Program The ActSocial Security Act The CodeInternal Revenue Code of 1986 USPUnited States Pharmacopeia

Executive Summary:Beginning in 2014, all non-grandfathered health insurance coverage1 in the individual and small group markets, Medicaid benchmark and benchmark-equivalent plans, and Basic Health Programs (if applicable) will be required to cover essential health benefits (EHB), which include items and services in 10 statutory benefit categories, such as hospitalization, prescription drugs, and maternity and newborn care, and are equal in scope to a typical employer health plan. In addition to offering EHB, these health plans will meet specific actuarial values (AVs): 60 percent for a bronze plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 percent for a platinum plan. These AVs, called “metal levels,” will assist consumers in comparing and selecting health plans by allowing a potential enrollee to compare the relative payment generosity of available plans. Taken together, EHB and AV will significantly increase consumers' ability to compare and make an informed choice about health plans.

1For more information on status as a grandfathered health plans under the Affordable Care Act, please see Interim Final Rule, “Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act.” Available at:http://cciio.cms.gov/resources/regulations/index.html#gp.

The Department of Health and Human Services (HHS) has provided information on EHB and AV standards in several phases. On December 16, 2011, HHS released a bulletin2 (the “EHB Bulletin”), following a report from the U.S. Department of Labor (DOL) describing the scope of benefits typically covered under employer-sponsored coverage and an HHS-commissioned study from the Institute of Medicine (IOM)3 recommending the criteria and methods for determining and updating the EHB. The EHB Bulletin outlined an intended regulatory approach for defining EHB, including a benchmark-based framework. Shortly thereafter, on January 25, 2012, HHS released an illustrative list of the largest three small group market products by state, which were updated on July 2, 2012.4 HHS further clarified the approach described in the EHB Bulletin through a series of Frequently Asked Questions (FAQs), released on February 17, 2012. On July 20, 2012, HHS published a final rule5 authorizing the collection of data to be used under the intended process for states to select from among several benchmark options to define EHB.

2Available at:http://cciio.cms.gov/resources/files/Files2/12162011/essential_health_benefits_bulletin.pdf.

3“Essential Health Benefits: Balancing Coverage and Cost.” October 6, 2011. Available at:http://www.iom.edu/Reports/2011/Essential-Health-Benefits-Balancing-Coverage-and-Cost.aspx.

4Available at:http://cciio.cms.gov/resources/files/largest-smgroup-products-7-2-2012.pdf.PDF.

577 FR 42658 (July 20, 2012).

HHS also published a bulletin6 outlining an intended regulatory approach to calculations of AV and implementation of cost-sharing reductions on February 24, 2012 (the “AV/CSR Bulletin”). Specifically, HHS outlined an intended regulatory approach for the calculation of AV, de minimis variation standards, and silver plan variations for individuals eligible for cost-sharing reductions among other topics. As described in section IB of this preamble, “Stakeholder Consultation and Input,” HHS reviewed and considered comments on both the EHB and AV/CSR Bulletins in developing this proposed rule.

6Available at:http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.

In addition, this rule proposes to amend 45 CFR 156.275, as published on July 20, 2012 (77 FR 42658), which established the first phase of an intended two-phase approach to recognizing accrediting entities. As directed under law, recognized entities will implement the standards established under the Affordable Care Act for qualified health plans (QHPs) to be accredited on the basis of local performance on a timeline established by the Exchange. The amendment to phase one included herein would not alter recognition of the National Committee for Quality Assurance (NCQA) and URAC on the terms outlined in the final rule (and as provided in theFederal RegisterNotice being released concurrently with this proposed rule) and would provide an opportunity for additional accrediting entities meeting the conditions in § 156.275 to be recognized by the Secretary, until phase two is in effect. This opportunity would include an application and review process. This rule also proposes a timeline for the accreditation standard for the purposes of QHP certification in Federally-facilitated Exchanges.

I. Background A. Legislative Overview

Section 1302 of the Affordable Care Act provides for the establishment of an EHB package that includes coverage of EHB (as defined by the Secretary of the Department of Health and Human Services (the Secretary)) and AV requirements. The law directs that EHB be equal in scope to the benefits covered by a typical employer plan and cover at least the following 10 general categories: Ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Sections 1302(b)(4)(A) through (D) establish that the Secretary must define EHB in a manner that (1) Reflects appropriate balance among the 10 categories; (2) is not designed in such a way as to discriminate based on age, disability, or expected length of life; (3) takes into account the health care needs of diverse segments of the population; and (4) does not allow denials of EHB based on age, life expectancy, or disability. Sections 1302(b)(4)(E) and (F) further direct the Secretary to consider the provision of emergency services and dental benefits when determining whether a particular health plan covers EHB. Finally, sections 1302(b)(4)(G) and (H) specify that the Secretary periodically review the EHB, report the findings of such review to the Congress and to the public, and update the EHB as needed to address any gaps in access to care or advances in the relevant evidence base. Section 1311(d)(3)(B) establishes that states may require a QHP to cover additional benefits beyond those in the EHB, provided that the state defrays the costs of such required benefits.

Section 1301(a)(1)(B) of the Affordable Care Act directs all issuers of QHPs to cover the EHB package described in section 1302(a) of the Affordable Care Act, including coverage of the services described in section1302(b), adhering to the cost-sharing limits described in section 1302(c), and subject to 1302(e), meeting the AV levels established in section 1302(d). Section 2707(a) of the Public Health Service (PHS) Act extends the coverage of the EHB package to issuers of non-grandfathered individual and small group policies beginning with plan years starting on or after January 1, 2014, irrespective of whether such issuers offer coverage through an Exchange. In addition, section 2707(b) of the PHS Act directs non-grandfathered group health plans to ensure that cost-sharing under the plan does not exceed the limitations described in sections 1302(c)(1) and (2) of the Affordable Care Act.

Section 1302(d)(2) of the Affordable Care Act describes the levels of coverage that section 1302(a)(3) includes in the EHB package: 60 percent for a bronze plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 percent for a platinum plan. Section 1302(d)(3) directs the Secretary to develop guidelines that allow for de minimis variation in AV calculations.

Section 1311(c)(1)(D)(i) of the Affordable Care Act directs a health plan to “be accredited with respect to local performance on clinical quality measures * * * by any entity recognized by the Secretary for the accreditation of health insurance issuers or plans (so long as any such entity has transparent and rigorous methodological and scoring criteria).” Section 1311(c)(1)(D)(ii) requires that QHPs “receive such accreditation within a period established by an Exchange * * *.” In a final rule published on July 20, 2012 (77 FR 42658), because the NCQA and URAC already met the statutory requirements, they were recognized as accrediting entities on an interim basis, subject to the submission of documentation required in 45 CFR 156.275(c)(4). This recognition is now effective as indicated in aFederal Registernotice being published concurrently with this proposed rule. In this proposed rule, HHS introduces a new process by which accrediting entities that are not already recognized can submit an application to be recognized and establishes a proposed notice and final notice process for recognizing any new accrediting entities. HHS intends, through future rulemaking, to establish a phase two recognition process which may establish additional criteria for the recognition of accrediting entities. This rule also proposes a timeline for the accreditation requirement in a Federally-facilitated Exchange.

B. Stakeholder Consultation and Input

HHS has consulted with interested stakeholders on several policies related to EHB, AV, and Exchange functions. HHS held a number of listening sessions with consumers, providers, employers, health plans, and state representatives to gather public input, and released several documents for public review and comment. As described previously, HHS released two Bulletins that outlined our intended regulatory approach to defining EHB and calculating AV and sought public comment on the specific approaches.

In addition to the listening sessions, HHS considered the findings of an IOM study, as well as a report conducted by the DOL7 on typical benefits offered by employer-sponsored coverage before releasing the Bulletins.

7“Selected Medical Benefits: A Report from the Department of Labor to the Department of Health and Human Services.” April 15, 2011. Available at:http://www.bls.gov/ncs/ebs/sp/selmedbensreport.pdf.

Finally, HHS consulted with stakeholders through regular meetings with the National Association of Insurance Commissioners (NAIC), regular contact with states through the Exchange grant process, Medicaid consultation, and meetings with tribal leaders and representatives, health insurance issuers, trade groups, consumer advocates, employers, and other interested parties.

HHS received approximately 11,000 comments in response to the EHB Bulletin. Commenters represented a wide variety of stakeholders, including health insurance issuers, consumers, health providers, states, employers, employees, and Members of Congress.

We considered all of these comments as we developed the policies in this proposed rule. Though we do not address each comment received, we discuss many of the comments throughout the proposed rule. In addition, HHS will be consulting with federally recognized tribes on the provisions of this proposed rule that impact tribes.

C. Structure of the Proposed Rule

The regulations outlined in this proposed rule would be codified in 45 CFR parts 147, 155, and 156. Part 147 outlines proposed standards for health insurance issuers in the small group and individual markets related to health insurance reforms. Part 155 outlines the proposed standards for states relative to the establishment of Exchanges and outlines the proposed standards for Exchanges related to minimum Exchange functions. Part 156 outlines the proposed standards for issuers of QHPs, including with respect to participation in an Exchange. The standards proposed to be codified in Part 156 as laid out in this NPRM apply only in the individual and small group markets, and not to Medicaid benchmark or benchmark-equivalent plans. EHB applicability to Medicaid will be defined in a separate regulation.

II. Provisions of the Proposed Regulation A. Part 147—Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets 1. Subpart B—Requirements Relating to Health Care Access a. Coverage of EHB (§ 147.150)

Section 2707(a) of the Public Health Service Act (PHS Act), as added by the Affordable Care Act, directs health insurance issuers that offer non-grandfathered health insurance coverage in the individual or small group market to ensure that such coverage includes the EHB package defined under section 1302(a) of the Affordable Care Act that includes the coverage of EHB, application of cost-sharing limitations, and AV requirements (plans must be a bronze, silver, gold, or platinum plan or a catastrophic plan).

Section 1255 of the Affordable Care Act provides that this EHB package standard applies starting the first plan year for the small group market or policy year for the individual market beginning on or after January 1, 2014. In § 147.150(a), we propose that a health insurance issuer that offers health insurance coverage in the individual or small group market—inside or outside of the Exchange—ensure that such coverage offers the EHB package.

PHS Act section 2707(b) provides that a group health plan shall ensure that any annual cost-sharing imposed under the plan does not exceed the limitations provided for under section 1302(c)(1) and (c)(2) of the Affordable Care Act. Section 715(a)(1) of the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) of the Internal Revenue Code (Code) incorporates section 2707(b) of the Public Health Service Act into ERISA and the Code. HHS, DOL, and the Department of the Treasury read the limitations on the scope of section 1302(c) of the Affordable Care Act to apply also to the scope of PHS Act section 2707(b). Therefore, these deductible limitations apply only to plans and issuers in the small group market and do not apply to self-insured plans or health insurance issuers offering health insurancecoverage in the large group market. Section 147.150(b) is reserved at this time.

In addition, section 2707(c) of the PHS Act provides that an issuer offering any level of coverage specified under section 1302(d) of the Affordable Care Act offer coverage in that level to individuals who have not attained the age of 21. We propose to codify this standard in § 147.150(c). An issuer could satisfy this standard by offering the same product to applicants seeking child-only coverage that it offers to applicants seeking coverage solely for adults or for families including both adults and children, as long as the child-only coverage is priced in accordance with the applicable rating rules.

B. Part 155—Exchange Establishment Standards and Other Related Standards Under the Affordable Care Act State Required Benefits

Section 1311(d)(3)(B) of the Affordable Care Act explicitly permits a state to require QHPs to offer benefits in addition to EHB, but requires the state to make payments, either to the individual enrollee or to the issuer on behalf of the enrollee, to defray the cost of these additional benefits. We propose that state-required benefits enacted on or before December 31, 2011 (even if not effective until a later date) may be considered EHB, which would obviate the requirement for the state to pay for these state-required benefits. We also propose that state-required benefits that are not included in the benchmark would apply to QHP markets in the same way they apply in the current market. For example, a benefit that is only required in the individual market by a state law enacted prior to December 31, 2011 would only be considered EHB (and exempt from the requirement that the state pay the cost of the benefit) with respect to the individual QHP market in 2014. This policy regarding state-required benefits is intended to apply for at least plan years 2014 and 2015.

HHS received many comments in response to the EHB Bulletin about how state-required benefits beyond EHB could be identified and how states would defray the cost of those benefits. In this proposed rule, we interpret state-required benefits to be specific to the care, treatment, and services that a state requires issuers to offer to its enrollees. Therefore, state rules related to provider types, cost-sharing, or reimbursement methods would not fall under our interpretation of state-required benefits. Even though plans must comply with those state requirements, there would be no federal obligation for states to defray the costs associated with those requirements.8

8For example, a state statute requiring issuers to pay the same for a physician consultation in the office and via telemedicine would not be a state-required benefit. The physician consultation is the service; the requirement to pay for telemedicine relates to payment for the service delivery method. Since the requirement addresses a specific delivery method, not the underlying care, treatment, or service being delivered, there is no requirement to defray the cost.

Under the Affordable Care Act, state payment for state-required benefits only applies to QHPs. Since the Exchange is responsible for certifying QHPs, we propose that the Exchange identify which additional state-required benefits, if any, are in excess of the EHB. HHS intends to publish a list of state-required benefits for Exchanges to use as a reference tool.

After consideration of four possible entities to conduct the cost calculation for additional coverage (QHP issuers, the state, the Exchange, or HHS), we believe that the QHP issuer should conduct the calculation for the cost of additional benefits, because the QHP generates the necessary data regarding claims, utilization, trend, and other issuer-specific data typically used to calculate the cost of a benefit. Because QHP issuers will offer state-required benefits to every enrollee, the cost of the benefit will be built into the overall premium and spread across all enrollees. We believe that the best method to calculate the state's cost, if applicable, is to have the QHP issuer quantify the amount of premium attributable to each additional benefit.

We additionally propose that the calculations of the cost of additional benefits be made by a member of the American Academy of Actuaries, based on an analysis performed in accordance with generally accepted actuarial principles and methodologies. We also propose the calculation be done prospectively to allow for the offset of an enrollee's share of premium and for purposes of calculating the premium tax credit and reduced cost sharing.9 We request comment on whether the state should make payments based on the statewide average cost or make payments based on each QHP issuer's actual cost if different issuers report that a particular additional required benefit costs a different amount. We note that we expect there will be few, if any, payments made for state-required benefits since required benefits enacted prior to December 31, 2011 will be part of EHB, and therefore will not require the state to incur any costs.

Accreditation Timeline (§ 155.1045)

9Section 36B1401(b)(3)(D) of the Code specifies that the portion of the premium allocable to required additional benefits shall not be taken into account in determining a premium tax credit. Likewise, section 1402(c) of the Affordable Care Act specifies that cost-sharing reductions do not apply to required additional benefits.

HHS proposes to amend § 155.1045 to redesignate the existing paragraph as paragraph (a) and add a new paragraph (b) to set forth the timeline for QHP accreditation in Federally-facilitated Exchanges (including State Partnership Exchanges). HHS proposes a phased approach to the requirement that QHP issuers be accredited in Federally-facilitated Exchanges. This approach is in part modeled after the one used by some states that require accreditation as part of issuer licensing. Further, this approach will accommodate new issuers—including Consumer Operated and Oriented Plans—and those that have not previously been accredited, while ensuring that all QHP issuers make a commitment to ensure the delivery of high quality care to consumers.

The proposed accreditation timeline to be used in Federally-facilitated Exchanges is as follows:

• During certification for an issuer's initial year of QHP certification (for example, in 2013 for the 2014 coverage year), a QHP issuer without existing commercial, Medicaid, or Exchange health plan accreditation granted by a recognized accrediting entity for the same state in which the issuer is applying to offer coverage must have scheduled or plan to schedule a review of QHP policies and procedures of the applying QHP issuer with a recognized accrediting entity.

• Prior to a QHP issuer's second year and third year of QHP certification (for example, in 2014 for the 2015 coverage year and 2015 for the 2016 coverage year), a QHP issuer must be accredited by a recognized accrediting entity on the policies and procedures that are applicable to their Exchange products or, a QHP issuer must have commercial or Medicaid health plan accreditation granted by a recognized accrediting entity for the same state in which the issuer is offering Exchange coverage and the administrative policies and procedures underlying that accreditation must be the same or similar to the administrative policies and procedures used in connection with the QHP.

• Prior to a QHP issuer's fourth year of QHP certification and in every subsequent year of certification (for example, in 2016 for the 2017 coverage year and forward), a QHP issuer must be accredited in accordance with 45 CFR 156.275.

C. Part 156—Health Insurance Issuer Standards Under the Affordable Care Act, Including Standards Related to Exchanges 1. Subpart A—General Provisions

In § 156.20, we propose to add definitions as follows:

Actuarial Value and Percentage of the Total Allowed Costs of Benefits

We propose to define “AV” as the percentage paid by a health plan of the total allowed costs of benefits (using the term “percentage of the total allowed costs of benefits” that we also propose to define here).

In general, AV can be considered a general summary measure of health plan generosity. We propose to define the “percentage of the total allowed costs of benefits” as the anticipated covered medical spending for EHB coverage (as defined in § 156.110 (a)) paid by a health plan for a standard population, computed in accordance with the health plan's cost sharing, divided by the total anticipated allowed charges for EHB coverage provided to the standard population, and expressed as a percentage.

Because section 1302(d)(2) of the Affordable Care Act refers to AV relative to coverage of the EHB for a standard population, we propose these definitions together in order to provide that AV is the percentage that represents the total allowed costs of benefits paid by the health plan, based on the provision of EHB as defined for that plan according to § 156.115.

Benchmark Plans

Under the benchmark selection and standards proposed in § 156.100 and § 156.110, we believe it is important to differentiate between the plan selected by a state (or through the default process in § 156.100(c)), which we are proposing to call the “base-benchmark plan,” and the benchmark standard that EHB plans will need to meet, which we are proposing to call the “EHB-benchmark plan.”

We propose that “base-benchmark plan” means the plan that is selected by a state from the options described in § 156.100(a), or a default benchmark plan, as described in § 156.100(c), prior to any adjustments made to meet the benchmark standards described in § 156.110.

We propose that “EHB-benchmark plan” means the standardized set of EHB that must be met by a QHP or other issuer as required by § 147.150.

We propose that “EHB package” means the scope of covered benefits and associated limits of a health plan offered by an issuer, as set forth in section 1302(a) of the Affordable Care Act. The EHB package provides at least the ten statutory categories of benefits, as described in § 156.110(a); provides benefits in the manner described in § 156.115; limits cost-sharing for such coverage as described in § 156.130; and subject to offering catastrophic plans as described in section 1302(e) of the Affordable Care Act, provides distinct levels of coverage as described in § 156.140.

2. Subpart B—EHB Package a. State Selection of Benchmark (§ 156.100)

In § 156.100, we propose criteria for the selection process if a state chooses to select a benchmark plan. As we note in § 156.20, the plan selected by a state is known as the base-benchmark plan. After the application of any adjustments described in § 156.110, the plan will be known as the EHB-benchmark plan. The EHB-benchmark plan would apply to non-grandfathered health insurance coverage offered in the individual or small group markets. The EHB-benchmark plan would serve as a reference plan, reflecting both the scope of services and limits offered by a typical employer plan in that state. This approach and benchmark selection, which would apply for at least the 2014 and 2015 benefit years, would allow states to build on coverage that is already widely available, minimize market disruption, and provide consumers with familiar products. This approach is intended to balance consumers' needs for comprehensiveness and affordability, as recommended by IOM in its report on the EHB.10 In developing these proposed guidelines, we considered the comments on the EHB Bulletin, which urged an open and transparent benchmark selection process with an opportunity for public input.

10Institute of Medicine, “Essential Health Benefits: Balancing Coverage and Cost” (2011).

Consistent with the approach outlined in the EHB Bulletin, we propose in § 156.100(a) that the state may select its base-benchmark plan from among four types of health plans. These are (1) The largest plan by enrollment in any of the three largest small group insurance products in the state's small group market as defined in § 155.20; (2) any of the largest three state employee health benefit plans by enrollment; (3) any of the largest three national Federal Employees Health Benefits Program (FEHBP) plan options by enrollment that are open to Federal employees; or (4) the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the state. As we discussed in the EHB Bulletin, we use enrollment data from the first quarter two years prior to the coverage year to determine plan enrollment. To help states make their benchmark selections, HHS has provided states with benefit data on the largest plans by enrollment in the three largest small group insurance products in each state's small group market as of the first quarter of calendar year 2012.11 States can use that information, which we collected from issuers through HealthCare.gov, to inform their EHB benchmark selections. In addition to the data available on HealthCare.gov for insurance products in the states' small group markets, in Appendix B, HHS is also making available benefit data for the single largest Federal Employees Dental and Vision Insurance Program (FEDVIP) dental and vision plans respectively, based on enrollment.

11 http://cciio.cms.gov/resources/files/largest-smgroup-products-7-2-2012.pdf.PDF

Proposed paragraph (a)(1) of § 156.100 would reflect a typical plan in the state's small group market and provide state flexibility as recommended by the IOM in its report.12 The remaining proposed benchmark plan options, in paragraphs (a)(2) through (a)(4), reflect the benchmark approach in Medicaid defined in 42 CFR 440.330 and in the Children's Health Insurance Program (CHIP) in 42 CFR 457.410 and 457.420. We believe these options reflect both the scope of services and any limits offered by a “typical employer plan” as specified by section 1302(b)(2)(A) of the Affordable Care Act. Based on commenters' requests for an open and transparent selection process, we encourage states to solicit public input prior to their selection and confirmation of a state benchmark plan.

12Institute of Medicine, “Essential Health Benefits: Balancing Coverage and Cost” (2011).

We believe that our proposed approach and the benchmark options available to states for defining EHB best reflect the balance between comprehensiveness, affordability, and state flexibility as recommended by the IOM.

Because the PHS Act defines “state” to include the U.S. territories (Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands), the EHB requirements established by section 1302 of the Affordable Care Act apply to the territories. Given the smaller size and unique nature of the territories' health insurance markets, we seek comment as to whether the benchmark defaultprocess described in proposed § 156.100(c) is appropriate for the territories. In particular, we seek comment as to whether the default base-benchmark plan that will apply to the states—the largest plan by enrollment in the largest product in the state's small group market—is an appropriate default base-benchmark plan for the territories; or whether one of the other four types of health plans outlined in the EHB Bulletin, such as the largest FEHBP plan, would provide a more appropriate default base-benchmark. We note that the territories have the same opportunity as states to select a benchmark plan and we encourage them to do so.

In Appendix A: List of Proposed EHB Benchmarks, we provide a list of proposed benchmarks either selected by states or, for states that have not selected, we propose what the default benchmark plan would look like if the benchmark was determined by the Secretary in accordance with § 156.100(c). States were encouraged to submit their selections by October 1, 2012 to serve as the benchmarks for 2014 and 2015. If a state wishes to make a selection or change its previous selection it must do so by the end of the comment period of this proposed rule. Pending publication of a final rule, we are proposing that the default benchmark option will apply in cases where a state does not voluntarily select a benchmark. Issuers have commented that early selection is important to provide them with sufficient time to develop and receive certification for QHPs in advance of the QHP application review scheduled for early 2013.

At § 156.100(b), we propose the standard for approval of a state-selected EHB-benchmark plan. Section 156.100(b) specifies that to become an EHB-benchmark plan, a base-benchmark plan must meet the specifications in § 156.110, which include, coverage of at least the 10 categories of benefits outlined in the Affordable Care Act.

Sections 1302(b)(4)(G) and (H) of the Affordable Care Act direct the Secretary to periodically review the definition of EHB, report the findings of such review to the Congress and the public, and update the EHB definition as needed to address gaps in access to care or advances in the relevant evidence base. In response to the EHB Bulletin, we received different comments from stakeholders on the frequency with which updates to the EHB should occur. Some commenters favored annual updates, while others recommended less frequent updates, including initially waiting until 2016 or 2017. We propose that the state's benchmark plan selection in 2012 would be applicable for the 2014 and 2015 benefit years, and be based on plan benefits offered by the selected benchmark at the time of selection, including any applicable state-required benefits enacted prior to December 31, 2011. We intend to revisit this policy for subsequent years. We chose this approach for establishing a consistent set of benefits for two years in order to directly reflect current market offerings and limit market disruption in the first years of the Exchanges. We invite comment on the process that HHS should use to update EHB over time.

We intend to use the enforcement processes and standards established in 45 CFR part 150 to ensure that plans adhere to the EHB standards incorporated under the PHS Act. Part 150 sets forth HHS's enforcement processes under sections 2723 and 2761 of the PHS Act, with respect to the requirements of title XXVII of the PHS Act. Section 2723 generally provides that states have primary enforcement authority over health insurance issuers, but allows HHS to take enforcement actions against issuers in a state if a state has notified HHS that it has not enacted legislation to enforce or that it is not otherwise enforcing, or when HHS has determined that a state is not substantially enforcing one or more provisions of part A of title XXVII of the PHS Act. HHS may also take direct enforcement action against issuers in a state if HHS determines, pursuant to the process set forth in45 CFR part 150, that a state is not substantially enforcing a provision of part A of title XXVII of the PHS Act. This enforcement authority is extended through section 1321(c)(2) of the Affordable Care Act to apply to enforcement of the requirements under title I of the Affordable Care Act, including section 1302.

In § 156.100(c), we propose that if a state does not make a selection using the process defined in this section, the default base-benchmark plan will be the largest plan by enrollment in the largest product in the state's small group market.

b. Determination of EHB for Multi-State Plans (§ 156.105)

In § 156.105, we propose an alternative way of complying with the EHB requirement for multi-state plans offered under contract with U.S. Office of Personnel Management (OPM) pursuant to section 1334 of the Affordable Care Act. We propose that multi-state plans must meet benchmark standards set by OPM, which will promulgate forthcoming regulations and guidance related to its Multi-State Plan Program (MSPP).

c. EHB Benchmark Plan Standards (§ 156.110)

Many commenters urged HHS to establish standards or a process to ensure that an EHB-benchmark plan contains all 10 statutory EHB categories, reflects an appropriate balance among the categories, and is non-discriminatory. In addition, a number of commenters suggested factors for consideration in selecting an EHB-benchmark plan, including plan comprehensiveness, affordability, administrative simplicity, evidence-based practice, ethics, population health, inclusion of value-based insurance design, and continuity of coverage.

To clarify the relationship between the 10 statutory categories and the EHB-benchmark plan, in paragraph (a) we propose that the EHB-benchmark plan must provide coverage of at least the following categories of benefits described in section 1302(b)(1) of the Affordable Care Act: (1) Ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder services, including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care.

With respect to the tenth category, we interpret “pediatric services” to mean services for individuals under the age of 19 years. Several states have asked HHS to define the age for coverage of “pediatric services” to ensure comprehensive and consistent treatment in every state. This interpretation is consistent with the age stated in the Affordable Care Act's prohibition on preexisting conditions for children, and the age limit for eligibility to enroll in the CHIP. While we recommend coverage of pediatric services up to age 19, states have the flexibility to extend pediatric coverage beyond the proposed 19 year age limit.

Since some base-benchmark plan options may not cover all 10 of the statutorily required EHB categories, in paragraph (b), we propose standards for supplementing a base-benchmark plan that does not provide coverage of one or more of the categories described in paragraph (a). In paragraph (b)(1), we propose that if a base-benchmark plan option does not cover any items and services within an EHB category, the base-benchmark plan must besupplemented by adding that particular category in its entirety from another base-benchmark plan option. The resulting plan, which would reflect a base-benchmark that covers all 10 EHB categories, would be required to meet standards for non-discrimination and balance defined in paragraphs (d) and (e) of this section. After meeting all of these requirements, it would be considered the EHB-benchmark plan.

In paragraphs (b)(2) and (b)(3), we discuss two categories of benefits that may not currently be included in some major medical benefit plans, but which will be included in the EHB defined in § 156.110(a), based on section 1302(b)(1) of the Affordable Care Act. In our review of research on employer-sponsored plan benefits, including small employer products, HHS found that a number of potential benchmarks do not include coverage for pediatric oral and vision services, as they are often covered under stand-alone policies. To address these gaps, we propose targeted policy options for each of these benefit categories.

In paragraph (b)(2), we provide states with two options for supplementing base-benchmark plans that do not include benefits for pediatric oral care coverage. The first option, described in paragraph (b)(2)(i), is to supplement with pediatric coverage included in the FEDVIP dental plan with the largest enrollment. The second option, described in paragraph (b)(2)(ii), is to supplement with the benefits available under that state's separate CHIP program, if applicable.

Similarly, in paragraph (b)(3), we propose that if the base-benchmark plan does not include pediatric vision services, then these benefits may be supplemented from one of two options. The first option, described in (b)(3)(i), is to supplement pediatric vision coverage included in the FEDVIP vision plan with the largest national enrollment offered to Federal employees under 5 U.S.C. 8982. The second option, described in (b)(3)(ii), is to supplement pediatric vision coverage with the state's separate CHIP plan, if applicable. We believe that this additional option—an expansion of the policy presented in the EHB Bulletin—will provide states with valuable flexibility as they select their EHB benchmark plans. HHS will make benefit data available to facilitate any supplementation by states of their base-benchmark plans with benefits from FEDVIP dental and vision plans prior to the publication of this final rule.

In paragraph (c), we propose the process by which HHS would supplement a default base-benchmark plan, if necessary. We clarify that to the extent that the default base-benchmark plan option does not cover any items and services within an EHB category, the category must be added by supplementing the base-benchmark plan with that particular category in its entirety from another base-benchmark plan option. Specifically, we propose that HHS would supplement the category of benefits in the default base-benchmark plan with the first of the following options that offer benefits in that particular EHB category: (1) The largest plan by enrollment in the second largest product in the state's small group market as defined in § 155.20; (2) the largest plan by enrollment in the third largest product in the state's small group market as defined in § 155.20; (3) the largest national FEHBP plan by enrollment across states that is described in and offered to Federal employees under 5 U.S.C. 8903; (4) the plan described in paragraph (b)(2)(i) to cover pediatric oral care benefits; (5) the plan described in (b)(3)(i) to cover pediatric vision care benefits; and (6) habilitative services as described in § 156.110 (f) or § 156.115(a)(4).

In paragraph (d), we propose that the EHB-benchmark plan must not include discriminatory benefit designs. As set forth in § 156.125, those standards would prohibit benefit and network designs that discriminate on the basis of an individual's medical condition, or against specific populations as described in the statute. This proposed standard would apply both to benefit designs that limit enrollment, and those that prohibit access to care for enrollees. While we believe that it is unlikely that an EHB-benchmark plan will include discriminatory benefit offerings, this section proposes that any EHB-benchmark plan that does include discriminatory benefit designs must be adjusted to eliminate such discrimination in benefit design.

In paragraph (e), we propose implementing section 1302(b)(4) of the Affordable Care Act by proposing that the EHB-benchmark plan be required to ensure an appropriate balance among the categories of EHB so that benefits are not unduly weighted toward any category. We solicit comments on potential approaches to ensuring that the EHB-benchmark plans do not include discriminatory benefit designs and reflect an appropriate balance among the categories of EHB. In conducting research on employer-sponsored plan benefits and state-required benefits, HHS found that many health insurance plans do not identify habilitative services as a distinct group of services.13 Accordingly, we are proposing a transitional policy for coverage of habilitative services that would provide states with the opportunity to define these benefits if not included in the base-benchmark plan. Specifically, in paragraph (f), we propose that in order to define EHB, if the base-benchmark plan does not include coverage of habilitative services the state may determine the services included in the habilitative services category. We believe that this transitional policy—which provides states with additional flexibility beyond what was initially outlined in the EHB Bulletin will provide a valuable opportunity for states to lead the development of policy in this area and welcome comments on this proposed approach to providing habilitative services. If states choose not to define the habilitative services category, plans must provide these benefits as defined in § 156.115.

13ASPE Research Brief, “Essential Health Benefits: Comparing Benefits in Small Group Products and State and Federal Employee Plans.” December 16, 2011. Available at:http://aspe.hhs.gov/health/reports/2011/MarketComparison/rb.shtml.

Because states may propose benchmarks in formal comments on this proposed rule other than those tentatively proposed, HHS is requesting public comment on all possible EHB-benchmark plans, not just those included in Appendix A as proposed benchmarks. This would also include each potential base-benchmark plan available to a state for selection and all potential combinations of benefits used to supplement the base-benchmark plans to ensure coverage of at least the 10 statutory benefit categories as set forth in § 156.110. As an example, a state may select its largest small group product and, if the product is missing maternity coverage and pediatric dental coverage, supplement for missing maternity coverage with the second largest small group market product and for pediatric dental coverage with the state's CHIP dental plan. However, according to the process described in proposed § 156.110, the state may choose to supplement using the maternity benefit from any of the base-benchmark plan options in the state that offer maternity coverage, and the pediatric dental benefit from either FEDVIP or CHIP dental. In this example, commenters should consider: the state-selected EHB-benchmark plan as supplemented, the state-selected plan with other permissible supplementing options, and all other base-benchmark plans the state has the opportunity toselect, as supplemented by any of the options available to that state.

d. Provision of EHB (§ 156.115)

In paragraph (a)(1), we propose that plans may have limitations on coverage that differ from the EHB-benchmark plan, but covered benefits must remain substantially equal to those covered by the EHB-benchmark plan. This standard applies to the covered benefits, limitations on coverage (including limits on the amount, duration, and scope of covered benefits), and prescription drug benefits that meet the requirements of § 156.120.

As previously noted, the Affordable Care Act identifies coverage of mental health and substance use disorder benefits as one of the 10 statutory benefit categories, and therefore as an EHB for non-grandfathered health insurance coverage in both the individual and small group markets. In paragraph (a)(2), under our authority to define EHB, we propose that in order to satisfy the requirement to offer EHB, mental health and substance use disorder services, including behavioral health treatment services required under § 156.110(a)(5), must be provided in a manner that complies with the parity standards set forth in § 146.136 of this chapter, implementing the requirements under the Mental Health Parity and Addiction Equity Act of 2008.

In paragraph (a)(3), we further propose that a plan does not provide EHB unless it provides all preventive services described in section 2713 of the PHS Act, as added by section 1001 of the Affordable Care Act. As codified in § 147.130, PHS Act section 2713 requires all non-grandfathered group health plans and non-grandfathered individual and group market plans that are not exempt from the coverage requirement to offer certain preventive services without cost-sharing. We believe it is appropriate to include a requirement for coverage of these services under the definition of EHB. Setting forth this explicit application of PHS Act section 2713 in regulation is necessary because EHB-benchmark plan benefits are based on 2012 plan designs and therefore could be based on a grandfathered plan not subject to PHS Act section 2713.

As an alternative to the transitional approach outlined in § 156.110(f), some states may prefer to provide issuers with the opportunity to define the specific benefits included in the habilitative services category if it is missing from the base-benchmark plan. Accordingly, we are proposing that a state may allow issuers time and experience to define these benefits. Specifically, in paragraph (a)(4), we propose that if the EHB-benchmark plan does not include coverage for habilitative services and the state does not determine habilitative benefits, a health insurance issuer must either: (1) Provide parity by covering habilitative services benefits that are similar in scope, amount, and duration to benefits covered for rehabilitative services; or (2) Decide which habilitative services to cover and report on that coverage to HHS. With regard to option (2), HHS intends to evaluate the habilitative services reported and further define habilitative services in the future. The issuer only has to supplement habilitative services when there are no habilitative services at all offered in the base benchmark plan and the state has not exercised its option to define habilitative services under § 156.110(f). We believe that this alternative approach would provide a valuable window of opportunity for review and development of policy in this area and welcome comments on this proposed approach.

We first introduced the concept of benefit substitution in the EHB Bulletin, which suggested that a plan offering the EHB could substitute a benefit or set of benefits for another benefit or set of similar benefits subject to certain constraints—for example, that the two sets of benefits be actuarially equivalent. In this proposed rule, we propose this policy for the substitution of benefits relative to the benefits defined by the EHB benchmark plan consistent with what HHS outlined in the EHB Bulletin. As outlined in paragraph (b)(1)(i), we propose that issuers may substitute benefits, or sets of benefits, that are actuarially equivalent to the benefits being replaced. We further propose in paragraph (b)(1)(ii) that substitution of benefits would be allowed in each of the 10 statutorily required benefit categories, meaning that substitution could only occur within benefit categories, not between different benefit categories. In paragraph (b)(1)(iii), we clarify that our proposed benefit substitution policy does not apply to prescription drug benefits. In paragraph (b)(2), we outline standards for an actuarial certification that must be submitted by an issuer to a state, which demonstrates that any substituted benefit, or group thereof, is actuarially equivalent to the original benefit or benefits contained in the EHB-benchmark for that state. Specifically, we propose that the report must: (i) Be conducted by a member of the American Academy of Actuaries; (ii) based on an analysis performed in accordance with generally accepted actuarial principles and methodologies; and (iii) use a standardized plan population. Lastly, in paragraph (b)(3), we propose that actuarial equivalence of benefits be determined based on the value of the service without regard to cost-sharing, as cost sharing will be considered in the actuarial value calculation described in § 156.135. We note that the resulting plan benefits would be subject to requirements of non-discrimination described in § 156.125. In addition, we clarify that under this approach, states have the option to enforce a stricter standard on benefit substitution or prohibit it completely. With the exception of the EHB category of coverage for pediatric services, a plan may not exclude an enrollee from coverage in an entire EHB category covered by the plan. For example, a plan may not exclude dependent children from the category of maternity and newborn coverage.

In response to our proposed approach to benefit substitution, we seek additional comment on the tradeoff between comparability of benefits and opportunities for plan innovation and benefit choice.

In paragraph (c), we propose to clarify that a plan does not fail to provide the EHB solely because it does not offer the services described in § 156.280(d). Here we extend the statutory provision in section 1303(b)(1)(A), that allows a QHP to meet the standards for EHB even if it does not offer the services described in § 156.280(d), to health insurance issuers that offer non-grandfathered coverage in the individual or small group market. We note that this provision applies to all section 1303 services, including pharmacological services.

In paragraph (d), we propose that an issuer of a plan offering EHB may not include routine non-pediatric dental services, routine non-pediatric eye exam services, and long-term/custodial nursing home care benefits as EHB. As previously noted, section 1302 of the Affordable Care Act requires that the EHB package include at least the 10 statutorily required categories of EHB, and be equal to the scope of benefits provided under a typical employer plan. In contrast with the benefits covered by a typical employer health plan, non-pediatric dental services, non-pediatric eye exam services, cosmetic orthodontia, and long-term/custodial nursing home care benefits often qualify as excepted benefits.14 Pursuant to the direction provided in section 1302 to define benefits equal in scope to atypical employer plan, we propose that issuers of plans offering EHB may not include these benefits as EHB. We solicit comment on the exclusion of these specific benefits from EHB coverage.

14For more information on excepted benefits, see 26 CFR 54.9831-1, 29 CFR 2590.732, 45 CFR 146.145, and 45 CFR 148.220.

e. Prescription Drug Benefits (§ 156.120)

In the EHB Bulletin, we indicated that we were considering an option under which, in order to be considered substantially equal to the EHB-benchmark plan, issuers would be required to cover at least one drug in each category and class in which the EHB-benchmark plan covered at least one drug. The specific drugs on each plan's drug list could vary under this approach, as long as a drug in each category and class was covered.

In response to the EHB Bulletin, a large number of commenters raised concerns about the comprehensiveness of prescription drug benefits under this potential approach. Specifically, many commenters indicated that a requirement to offer one drug per category and class could result in insufficient access to medications for individuals with certain conditions. Several commenters additionally recommended that the definition of EHB adopt the standards used in Medicare Part D, including the protected class policy under which all drugs in certain classes must be covered.15 Conversely, other commenters emphasized the importance of flexibility for issuers to design a drug benefit that maximizes value for consumers. Based on these comments and the need to balance access with affordability, we propose the following approach, on which we solicit comment.

15CMS has identified certain “protected categories and classes.” In those protected categories and classes, Plan D formularies must include substantially all drugs that are FDA-approved.

In paragraph (a)(1) we propose that in order to comply with the requirement to cover EHB, a plan would cover at least the greater of: (1) One drug in every category and class; or (2) the same number of drugs in each category and class as the EHB-benchmark plan. As such, if the EHB-benchmark drug list offers more than one drug in a category or class, then plans covering EHB would offer at least the number of drugs in the EHB-benchmark plan for that class. Research suggests that this is consistent with coverage in the small group market today: one study found that most existing small group plans cover more than one drug in each class.16 In paragraph (a)(2) we propose that a QHP must report its drug list to the Exchange, an EHB plan operating outside of the Exchange must report its drug list to the state, and a multi-state plan must report its drug list to OPM. In paragraph (b) we clarify that a health plan does not fail to provide EHB prescription drug benefits solely because it does not offer drugs that are § 156.280(d) services.

16Available at:http://www.avalerehealth.net/pdfs/Avalere_EHB_Formulary_Analysis.pdf.

We are considering using the most recent version of the United States Pharmacopeia's (USP) classification system as a common organizational tool for plans to report drug coverage because it is publically available, widely used, and comprehensive. A classification system functions as an organizational tool, similar to an outline or taxonomy. Directing plans to submit their drug list using the same classification system would facilitate review, analysis, and comparison of the number of drugs on the QHP's list to the number of drugs on the EHB Benchmark Plan's list. If adopted in the final rule, we will continue to assess the need for and value of such a tool and intend to work with states and the NAIC to facilitate state use of the USP classification system as a comparison tool.17

17The requirement to use USP classification applies only to submission of formulary for review/certification. Plans may continue to use any classification system they choose in marketing and other plan materials.

In general, each EHB plan would be able to cover different drugs than are covered by the EHB-benchmark plan, but those drugs must be presented using the USP classification system. This approach permits plan flexibility in the drug benefit design and the use of medical management tools, while ensuring that plan