The Final 2022 Payment Notice: Exchanges, Medical Loss Ratios, Special Enrollment Periods, And More

On April 30, 2021, the Centers for Medicare and Medicaid Services (CMS) released the rest of the final 2022 Notice of Benefit and Payment Parameters Rule. The 473-page final rule was accompanied by a fact sheet and a press release. The “payment notice” is issued on an annual basis to adopt a variety of major changes that CMS intends to implement for the next plan year in areas such as the marketplaces, the risk adjustment program, and the market reforms.

The proposed 2022 payment rule was released on November 25 with comments due on December 30. Federal officials received 542 comments on the proposed rule.

The Trump administration partially finalized the 2022 payment rule before inauguration day. That rule, which was published in the Federal Register on January 19, adopted only a subset of the policies considered in the proposed 2022 payment notice. This subset of policies included the proposed rule’s most controversial changes, such as allowing states to transition away from HealthCare.gov, incorporating a very controversial interpretation of the “guardrails” for Section 1332 state innovation waivers, and imposing a much lower exchange user fee. Because those changes were already finalized by CMS, they cannot be changed in this rule. Rather, additional notice-and-comment rulemaking will be required to undo those changes. That said, CMS makes clear in the preamble to the final 2022 payment rule that it intends to amend these provisions in future rulemaking later “this spring” and even specifies the user fee rates that it will adopt for 2022. That change is discussed more below.

In finalizing the rest of the rule, CMS cites President Biden’s executive order on the ACA and the need to ensure that the final rule is consistent with the administration’s policy goals and does not undermine the marketplaces or pose unnecessary barriers to those attempting to access coverage.

The most significant shift from the proposed rule is the decision not to finalize the Trump administration’s methodology for calculating the premium adjustment percentage. This methodology was changed beginning with 2020 in a way that led to higher premium contributions and out-of-pocket costs for consumers. The Trump administration proposed maintaining that methodology for the 2022 plan year, but the final rule instead reverts back to prior methodology that was in place from 2015 to 2019. This shift will lower consumer out-of-pocket costs by $400.

CMS also does not finalize many of the changes to direct enrollment and offers enforcement flexibility to states regarding reporting on state-mandated benefits. CMS does finalize many other proposed changes, including various special enrollment period (SEP) changes, and confirms, as expected, that those who lose COBRA subsidies under the American Rescue Plan will qualify for an SEP. CMS also uses the preamble to respond to a recent district court decision known as Columbus v. Trump that vacated several Trump-era changes adopted in the 2019 payment rule.

This post addresses requirements specific to the exchanges, qualified health plans (QHPs), medical loss ratio (MLR) requirements, the coverage of essential health benefits (EHB), SEPs, and reporting of prescription drug information by pharmacy benefit managers (PBMs). A second post will summarize the final changes to the risk adjustment program.

Responses To Columbus v. Trump

In Columbus v. Trump, Judge Deborah K. Chasanow of the federal district court for the district of Maryland vacated several changes made under the 2019 payment rule. This lawsuit, known as the “Take Care” case, was brought against the Trump administration by five cities and two individuals. The plaintiffs argued that President Trump violated the Constitution’s requirement to “take care that the laws be faithfully executed” by attempting to undermine the ACA through executive action. Judge Chasanow rejected that part of the lawsuit in 2020 but allowed the plaintiffs to continue to  argue that major provisions of the 2019 payment rule violated the Administrative Procedure Act (APA). 

She set aside four provisions of the 2019 payment rule related to network adequacy standards, standardized plans, income verification, and MLR calculations. These parts of the rule were vacated, and most were remanded back to CMS for further action. Vacating these provisions reinstated the relevant rules that were previously in effect. Thus, the court decision reinstated federal network adequacy requirements, the option for insurers to offer standardized plans, prior income verification standards, and MLR quality improvement reporting. (As noted in a summary of the court decision, CMS could amend these standards in future rulemaking so long as it complies with the APA in doing so.)

Although the proposed 2022 payment rule did not contemplate any changes in these areas, CMS uses the preamble to summarize its approach to coming into compliance with the court’s ruling. CMS intends to implement the decision as soon as possible for the income verification and MLR provisions. To do so, the agency cites an exception to the APA for allowing immediate action without providing advance notice and comment. In CMS’s view, it is necessary and in the public interest to implement those two changes quickly, and a delay would cause unnecessary harm by leaving a regulatory void and confusing stakeholders. Further, the MLR provision was held to be contrary to law so CMS would have to modify this policy in some way anyway.

CMS will not be able to fully implement the changes related to network adequacy review and standardized plan options in time for the 2022 plan year. These changes must wait until the 2023 plan year. CMS also suggests that it may want to revisit other provisions in the 2019 payment rule, including those that were upheld by the court, in future rulemaking.

For network adequacy, CMS must set up a new network adequacy review process, and insurers will need advance notice to ensure that their networks comply with new standards. There is simply not enough time to finalize this process and for insurers to comply with changes during the 2022 QHP certification process, which is already underway. CMS will propose specific steps to address implementation of network adequacy requirements in future rulemaking.

For standardized plans, CMS must design and propose new standardized options. Implementation will also require system changes to HealthCare.gov to provide differential display of these plans. Once standardized plans are designed and finalized, insurers would need time to design options that comply with the new requirements. This, like the network adequacy change, is not feasible for the 2022 QHP certification cycle. CMS also emphasizes that it cannot simply reinstate prior standardized plan options, as the individual market has changed considerably since these options were available in 2018. Stakeholders should anticipate more detail on standardized plan options in the 2023 payment rule.

For income verification, CMS eliminates the provision that was invalidated by the court. This provision applied heightened income verification requirements for individuals who attested that their income is above FPL but where government data sources suggest that their income is under that level. Though the provision is now gone, it will take some time to stop the current system from automatically generating these requests for income verifications. In the meantime, federal officials will establish a manual process to identify and notify affected consumers that they do not need to provide requested information. CMS expects this change to affect 295,000 households who would otherwise be required to respond to additional information or submit supporting documentation to show their income, representing reduced consumer costs of $11.38 million annually beginning in 2021. Elimination of this requirement will also result in annual savings to the FFEs and SBEs of about $4.6 million.

The changes regarding MLRs are discussed below in conjunction with other MLR-related changes finalized in the 2022 payment rule.

DE And EDE Standards

Definitional Changes

CMS continues to amend its definitions for direct enrollment (DE) entities and expand the scope of DE. As DE and enhanced direct enrollment (EDE) has evolved, the technical requirements and expertise needed to participate in DE have become substantially more complex, leaving DE entities increasingly reliant on tech companies to develop, host, manage, and customize technical DE platforms. Given this development, CMS wants to capture the full array of potential arrangements between tech companies and DE entities. (DE allows consumers to shop for and select a plan on a private site but directs them to HealthCare.gov to submit their application and receive an eligibility determination; EDE allows consumers to complete the entire enrollment process without visiting HealthCare.gov.)

CMS first defines “agent or broker direct enrollment technology provider” as a type of web-broker entity that is not a licensed agent or broker but that provides tech services to facilitate participation in DE. CMS also adopts a new definition for a “QHP health plan issuer direct enrollment technology provider.” Because the prior definition did not reference QHP insurers, CMS wants to confirm that DE tech providers can assist QHP insurers with DE. DE tech providers are a downstream or delegated entity of a QHP insurer and must comply with rules that apply to QHP insurers when performing activities on behalf of a QHP insurer.

CMS separately clarifies its definition of DE tech provider to refer to “agent or broker DE technology providers.” And CMS replaces references in current regulations to “an agent or broker subject to § 155.200(c)(3)(i)” with “web-broker,” which is separately defined in regulations.

A single entity can serve in multiple capacities—as, say, a QHP issuer DE technology provider, an agent or broker DE technology provider, and as a web-broker. But such entities must comply with all rules for all these contexts. This might mean that the same entity must comply with different display requirements for QHP insurers offering DE versus web-brokers offering DE.

No Delay In Compliance With Translation Requirements For EDE Websites.

CMS did not finalize a delay in compliance with content translation requirements for EDE entities. QHP insurers with an EDE website must translate website content into a language spoken by a limited English proficient (LEP) population that makes up 10 percent or more of the state’s total population. CMS previously suggested that delaying translation requirements—providing up to 12 months to comply—would incentivize web-brokers and insurers to offer DE in markets with a high number of LEP individuals.

The vast majority of commenters opposed the 12-month delay. Commenters raised concerns that the proposal violated Section 1557 of the ACA and would create or exacerbate racial or ethnic disparities. One noted that an EDE entity could go through an entire open enrollment cycle without a translated website and that the translation process should not take more than 12 months to complete given the significant resources involved in developing an EDE website.

Since this provision is not being finalized, EDE entities must comply with translation requirements as well as other accessibility requirements, including oral interpretation services, written translations, and tagline requirements.

Assisters Cannot Use DE And EDE Websites

CMS did not finalize a proposal that would have allowed (but not required) assisters—navigators and certified application counselors—to use qualifying web-broker websites for DE and EDE to help consumers enroll in coverage. CMS had considered a similar policy in the 2020 payment notice but did not finalize this proposal then either. Because web-brokers can recommend specific products to clients, CMS had concluded that assisters would be unable to use a web-broker website consistent with an assister’s duty to provide fair, accurate, and impartial information.

In the proposed 2022 payment rule, CMS considered this policy anew because of changes to web-broker standards and EDE functionality. As such, the Trump administration believed it was appropriate to authorize assisters to use web-broker websites and laid out several requirements that web-broker websites would have to meet to be used by assisters. (Those standards are described in more detail in the proposed rule but not recounted here because CMS did not finalize this change.)

CMS opted not to adopt this policy since a majority of comments opposed the proposal. Commenters raised concerns that assisters could not remain fair and impartial (as required by statute) if using a web-broker website that did not allow enrollment into all QHPs. Assisters could also be confused about plan options, including non-QHP options, that are allowed on web-broker websites. Assisters might also need more training to understand multiple enrollment platforms and such training would take time away from helping consumers.

Since this proposal was not finalized, the current policy remains in effect, and assisters are prohibited from using web-broker non-Exchange websites to assist with QHP selection and enrollment.

No Change To QHP Information Display Standards

Currently, web-brokers must disclose and display all QHP information provided by the exchange or directly by QHP insurers. If not all QHP information is displayed, web-brokers must prominently display a standardized disclaimer that identifies those QHPs and refers consumers to the exchange.

In the proposed rule, CMS would have created an exception to these requirements where web-brokers would not be required to list as much information about a QHP that it cannot sell. If a web-broker did not support enrollment in a specific QHP (because, say, the broker does not have an agreement with that insurer to enroll consumers in its products), it would have been able to limit the display information for that QHP to the name of the insurer and the plan, the metal level, and premium and cost-sharing information. For that QHP, the web-broker would no longer have had to display a summary of benefits and coverage, quality ratings, or other information.

Citing commenter concerns, CMS did not finalize these changes. Almost all commenters opposed this exception and advocated that web-brokers be required to display more QHP information than what the proposed rule would have required. Commenters urged CMS to require web-brokers to display all available QHP information for all available QHPs to make it easier for consumers to obtain comparative information for all available QHPs when using the web-broker’s website. These recommendations, commenters argued, are far more consistent with the ACA’s intended “no wrong door” approach than the proposed rule.

CMS agrees that the display of more QHP information is in the best interest of consumers who should not be required to navigate multiple websites to enroll in coverage. Data is readily available for all QHPs through public use files and the marketplace API; as such, there is no reason why web-brokers cannot display this information. CMS will further clarify display requirements in future rulemaking but, in the meantime, the agency expects web-broker non-exchange websites to display all QHP information (except for MLR and transparency of coverage measures) beginning with the start of the 2022 open enrollment period. Prior to the 2022 open enrollment period, entities that do not display all QHP information must prominently display the standardized disclaimer and link to the exchange website.

Separate Webpage Requirements

DE entities that want to display and market QHPs and non-QHPs must do so on at least three separate webpages. DE entities must provide separate webpages for 1) on-exchange QHPs; 2) individual health insurance coverage offered outside the exchange (including off-exchange QHPs and non-QHPs); and 3) all other products (such as excepted benefits).

CMS believes this policy will help minimize consumer confusion while providing flexibility and opportunities for innovation. Under current policy, DE entities can display on- and off-exchange QHPs on the same webpage so long as it made clear that subsidies are only available for on-exchange QHPs. CMS has also adopted several other display restrictions. For instance, QHPs and non-QHPs can be displayed on the same website but must be on separate webpages and offer application and QHP selection processes that are free from ads or information about non-QHPs. But “even good faith efforts” by DE entities to inform consumers about the distinctions among QHP types can cause confusion and lead consumers not to select an on-exchange QHP even when they qualify for APTC.

CMS believes that the separate webpage requirement will provide a more precise delineation between these categories of products, which have substantially different characteristics. CMS will also allow DE entities to display off-exchange QHPs and non-QHP individual health insurance coverage on the same webpage. Non-QHPs, in this case, refers to traditional individual market health insurance coverage that meets ACA marketwide requirements for QHPs (rather than non-ACA plans such as short-term plans). These will be an option for those who do not qualify for APTC. CMS wants to enable comparison shopping among major medical products, especially for those with an individual coverage health reimbursement arrangement (HRA). The third category is for other coverage that does not have to meet ACA marketwide rules; this would be where consumers would find health care sharing ministries, direct primary care arrangements, group association plans, and short-term plans.

CMS also adopts two exceptions to its separate webpage requirement. First, DE entities can combine on-exchange QHPs, off-exchange QHPs, and other individual health insurance coverage options on the same webpage if a consumer indicates they have an offer of an individual coverage HRA. DE entities must still distinguish between the different product options and communicate that subsidies are only available for on-exchange QHPs (plus information about how an individual coverage HRA could affect subsidy eligibility). Second, DE entities can use the same webpage to display different types of stand-alone dental plans, whether exchange-certified or not. CMS wants to enable a consumer-friendly shopping experience with the full range of stand-alone dental plans on one webpage.

Most commenters supported these proposals. CMS finalized the policies as proposed but emphasized that it intends to carefully monitor implementation by DE entities and issue further guidance or undertake rulemaking to modify standards and adopt additional guardrails as needed.

Operational Readiness Review Requirements

CMS clarifies operational readiness requirements for web-brokers and other DE entities. These provisions codify existing program requirements that are already captured in guidance and agreements with DE entities. The operational readiness requirements for DE entities are in addition to similar requirements for web-brokers. These web-broker requirements are not, however, extended to QHP insurers who offer DE. Insurers, CMS reasons, are already subject to long-standing privacy and security requirements under HIPAA and other federal and state laws so do not need to satisfy the same stand-alone requirements as web-brokers.

Premium Adjustment Percentage

The annual premium adjustment percentage is a measure of premium growth used to set the rate of increase for the maximum annual limit on cost-sharing, the required contribution percentage for exemption eligibility, and the employer mandate penalty amounts. The percentage must be determined by the Secretary of HHS on an annual basis.

Beginning with the 2015 plan year, CMS adopted a methodology that determined the premium adjustment percentage based on projections of average per enrollee employer-sponsored insurance premiums from the National Health Expenditure Account (NHEA). CMS used employer-sponsored premium data because it reflected health care cost trends without being skewed by individual market premium fluctuations.

CMS updated this methodology beginning with the 2020 plan year to additionally include increases in individual market premiums. The shift resulted in a higher premium adjustment percentage and thus a higher annual limit on out-of-pocket costs, a higher required contribution from subsidy-eligible consumers, and higher employer mandate penalties relative to 2019. Given concerns that the change raised costs for millions of consumers, Democratic members of Congress introduced legislation to reverse this change in the methodology, with bills pending in the Senate and the House.

CMS proposed to maintain the same methodology for the 2022 plan year. This would have resulted in a higher premium adjustment percentage for 2022 of 1.4409174688, which had been an increase of more than 6 percent over the percentage for 2021. The inflated premium adjustment percentage would thus continue to increase premiums and out-of-pocket costs.

The final rule does not adopt this percentage. Citing the “overwhelming comments received,” CMS will instead readopt the same methodology as was used from 2015 to 2019 for 2022 and beyond. Commenters cited concerns about the rate of increase in the premium adjustment percentage and related payment parameters and the fact that the proposed methodology more rapidly increased consumer costs and lower enrollment relative to the prior methodology. CMS believes that reverting to the prior methodology is consistent with President Biden’s executive order, more consistent with the statute, will better mitigate premium fluctuations related to the pandemic, and will reduce premium growth in light of record high MLR rebates in recent years.

Using the prior methodology, CMS finalizes a premium adjustment percentage for the 2022 plan year of 1.3760126457, which is only 1.6 percent higher than the percentage from 2021. This change will increase premium tax credit payments from the federal government by an estimated $460 million to $510 million between the 2023 and 2026 plan years.

For the 2023 benefit year and beyond, CMS will publish the premium adjustment percentage and payment parameters in annual guidance in January (unless it proposes changes to the methodology which would then be published through the rulemaking process). Stakeholders urged CMS to publish these parameters in guidance to help insurers develop products and rates without having to wait for the annual payment notice.

Maximum Annual Out-of-Pocket Limit On Cost-Sharing

In light of the changes made to the premium adjustment percentage, the final maximum annual out-of-pocket limit on cost-sharing for 2022 is $8,700 for self-only coverage and $17,400 for other than self-only coverage. (This is a decrease compared to the proposed 2022 limits of $9,100 for self-only coverage and $18,200 for other than self-only coverage.) The proposed rule would have increased these limits by 6.4 percent increase over 2021 (when the limits were $8,550 for self-only coverage and $17,100 for other than self-only coverage). Instead, CMS finalizes limits that are only 1.8 percent greater than the 2021 limits.

CMS also finalized cost-sharing reduction plan variations to ensure that these plans continue to meet their specific AV levels. The amounts above will be reduced by the cost-sharing reductions to a $2,900 cost-sharing limit for self-only coverage and a $5,800 cost-sharing limit for other than self-only coverage for individuals with incomes below 200 percent FPL, and to $6,950 and $13,900 cost-sharing limits for individuals and families, respectively, with incomes between 201 and 250 percent FPL. States could have requested state-specific datasets for use as the standard population to calculate actuarial value; no state submitted a dataset by the September 1, 2020 deadline.

Required Contribution Percentage

In light of the changes made to the premium adjustment percentage, CMS finalized the required contribution percentage at 8.09 percent for 2022, down from 8.47 percent as proposed and from 8.27 percent for 2021. The required contribution was used to assess whether an individual was exempt from the requirement to enroll in minimum essential coverage: if an individual had to pay more of their household income towards health insurance than the required contribution, they were exempt from the individual mandate. Now that the individual mandate penalty has been set to $0, this requirement is a less relevant but still used for determining whether individuals over the age of 30 qualify to enroll in a catastrophic plan.

User Fees

As noted above, CMS finalized a lower user fee for the federally facilitated exchange (FFE) and state-based exchange that uses the federal platform (SBE-FP) in the January rulemaking. However, CMS intends to adjust these levels for 2022 in future rulemaking to 2.75 percent for federally facilitated exchanges (FFE) (up from 2.25 percent in the January rule) and 2.25 percent for state-based exchanges that use the federal platform (SBE-FP) (up from 1.75 percent in the January rule). In increasing the user fee rates, CMS cites the change in administration priorities, enrollment increases from the American Rescue Plan and the COVID-19 SEP, and higher costs for consumer outreach and navigators. Even with this increase from the January rule, the user fee for 2022 will remain lower than what it was for 2021, when it was 3.0 percent for FFEs and 2.5 percent for SBE-FPs.

CMS eliminates flexibility for the collection of state user fees. Under current policy, CMS, based on a state’s request, collects an additional user fee from insurers on behalf of the SBE-FP. Those funds are used to cover costs incurred by the state. Citing operational burdens (and the fact that no states currently rely on this mechanism), CMS eliminates this option in the final rule. Internal analysis shows that the process of collecting a state user fee and then remitting it to the state increases CMS’s operational burdens and costs. SBE-FPs can still ask that CMS collect the equivalent of the user fee from the state (rather than insurers) if the state prefers that mechanism.

CMS also extends its current FFE user fee adjustment rules for contraceptive claims to SBE-FPs. SBE-FP insurers will be eligible to have their user fee amounts adjusted to reflect the value of contraceptive claims that they reimburse to third-party administrators for contraceptive coverage.

Verifying Eligibility For Job-Based Coverage

Consumers who are eligible to enroll in employer-sponsored coverage are generally not eligible for APTC unless the employer plan’s coverage is unaffordable or does not provide minimum value. Thus, when determining eligibility for APTC, exchanges must assess whether an applicant is enrolled in or eligible for qualifying employer-sponsored coverage. To verify this information, exchanges have historically used electronic verification data. If sufficient data does not exist, exchanges can select a random sample of applicants and then contact the enrollee’s employer to verify that they qualify for APTC and CSRs.

Consistent with prior rules, CMS remains concerned about low employer response rates and the burdens of a manual verification process. As such, CMS will not take enforcement action against exchanges that fail to perform this random sampling process for plan years through 2022. CMS expects that this decision will save exchanges an estimated $113 million in 2022.

CMS conducted a study in 2019 to better understand the characteristics of the population with job-based coverage that meets minimum value and affordability standards, compare job-based coverage to exchange coverage, and identify incentives that might drive applicants to enroll in a QHP over their employer’s coverage. CMS is still evaluating the results of this study and will use it to inform any changes to the verification process that may be addressed in future rulemaking.  

Enforcement And Oversight Requirements

The final rule consolidates CMS’s audit authority regarding APTC, cost-sharing reductions (CSR), and user fees. The goal of these audits is to promote program integrity and ensure that insurers receive proper APTC and CSR amounts and pay proper user fee amounts. CMS regularly identifies discrepancies in insurer records due to noncompliance with other standards, such as insurers’ failure to correctly effectuate coverage, terminate coverage, or calculate premiums.

The final rule confirms that audit requirements that apply in the FFE apply equally to QHP insurers in SBE-FP states, provides more clarity around insurer obligations to comply with audits, and authorizes CMS to conduct compliance reviews of QHP insurers regarding APTC, CSR, and user fee standards. A QHP insurers cannot intentionally or recklessly misrepresent or falsify APTC, CSR, or user fee information to CMS and the exchanges, regardless of which entity operates the exchange.

The final rule more specifically outlines the rules and procedures that CMS and insurers must follow for audits and compliance reviews. These technical requirements apply solely to insurers and are not summarized here in detail. But the final rule includes only slight modifications from the proposed rule. CMS—noting that it has previously encountered challenges working with some insurers to receive requested audit data in a timely fashion and readily usable format—intends to impose consequences for failure to comply with an audit requirement. Insurer costs for audits and compliance reviews are expected to be $2.1 million on average annually from 2021 to 2025.

CMS also creates an enforcement framework for the APTC, CSRs, and user fee standards where an SBE or SBE-FP fails to substantially enforce those standards. SBEs and SBE-FPs have the primary enforcement authority over QHP insurers and ensuring compliance with APTC, CSR, and user fee standards. However, if the Secretary determines that an SBE or SBE-FP has failed to substantially enforce these requirements (pursuant to an existing regulatory process), CMS steps in to do so. CMS’s enforcement power includes the ability to impose civil monetary penalties for noncompliance—and CMS incorporates existing procedures related to doing so—but not the ability to decertify QHPs in an SBE or SBE-FP. Though CMS does not expect to need to step in to enforce these requirements—it expects such a determination to be “very rare”—it wants to clarify its authority to do so. Consistent with its approach to QHP insurers in the FFE, CMS will impose civil monetary penalties where a QHP insurer engages in egregious or repeated noncompliance. To date, civil monetary penalties have not been imposed for any QHP insurer based on APTC, CSR, user fee, reinsurance, or risk adjustment audits.

The final rule also amends existing rules regarding administrative appeals of civil monetary penalties (including against QHP insurers in SBEs and SBE-FPs as well as FFEs) to align these filing and hearing requirements with current practices for the Departmental Appeals Board. Commenters generally supported these changes, such as requiring electronic filing instead of submission of paper files and allowing video conferencing for hearings.

Coverage Termination

CMS did not propose or finalize any changes to its rules on termination notices but includes further justification for the changes adopted in the 2021 payment rule. Under that rule, insurers are required to send termination notices with effective dates and the reason for termination for all termination events. In the preamble to that rule, CMS suggested that all commenters supported the proposal. But the agency inadvertently omitted two comments that opposed the proposal, citing consumer confusion and administrative costs. Recognizing that some insurers needed to build IT systems to implement this policy, CMS gave FFE insurers until February 1, 2021 to implement the new termination notice requirement. CMS is not amending its policy in response to the two comments but noted that complaints about terminations are one of its largest sources of casework. CMS believes that more consistent communication about terminations, pursuant to the 2021 payment rule, will address this issue.

Quality Rating System

CMS did not formally propose changes to the quality rating system methodology or QHP enrollee survey. But CMS asked for comment on whether it should remove one or more levels of the quality rating system hierarchy and, if so, which level or levels (e.g., the composite level or the domain level). CMS suggested that a simplified hierarchy would be aligned with other CMS quality reporting programs and help ensure that the overall quality score is more reflective of the performance of individual survey and clinical quality measures. Commenters generally supported this proposal, and CMS will remove the composite level and domain level from the hierarchy. This timeline will be clarified in future technical guidance for 2022, and CMS will give some flexibility and technical assistance for SBEs in meeting the quality rating information display requirements.

CMS will make the full QHP enrollee survey results publicly available in an annual public use file beginning with the 2021 survey results. CMS intends to include some stratified demographic information, including age, education level, employment, and race and ethnicity. Although it will not require collection of additional data at this time, CMS notes the importance of additional data to advance health equity and address health disparities so will continue to explore the stratification of measures by sociodemographic factors, including race and ethnicity. This data will be available in addition to the quality rating system public use file that is already posted annually. A majority of commenters strongly supported this proposal.

Insurer Reporting Inaccuracies

Under current rules, insurers must reconcile enrollment with the exchange at least once per month. While much of this data exchange is ongoing, CMS requires insurers to report payment errors and inaccuracies within 90 days. Some data inaccuracies, however, are not identified until after the 90-day reporting window. So, CMS includes a process for insurers to report enrollment or payment data changes for up to three years after the end of the relevant plan year or the date when the relevant audit process has been completed. Insurers must still operate in good faith and the failure to identify an inaccuracy in a timely manner must not be due to misconduct or negligence. Inaccuracies that are outside the new window must still be reported to CMS, but federal officials will not resolve underpayments.

These requirements apply to all insurers who receive APTC, including those who offer coverage through SBEs and SBE-FPs. CMS reminds insurers that knowingly and improperly failing to pay back APTC could be a violation of the federal False Claims Act.

Medical Loss Ratio Requirements

Prescription Drug Rebates

CMS amends the definition of prescription drug rebates and other price concessions in its MLR formula. As adopted in the 2021 payment rule, insurers must deduct prescription drug rebates and any other drug-related price concessions from incurred claims beginning with the 2022 MLR reporting year. The proposed 2021 payment rule would have defined a price concession broadly to include any instance when an insurer or PBM received something of value related to providing a covered prescription drug. However, in response to comments, CMS did not adopt this definition in the final rule and opted to instead consider codifying a definition through separate rulemaking.

Now, in the final 2022 payment rule, CMS defines prescription drug rebates and other price concessions as all remuneration received by or on behalf of entities providing PBM services to the insurer that decrease the costs of a covered prescription drug regardless of who the remuneration is received from (whether a manufacturer, wholesaler, retail pharmacy, vendor, etc.). This includes discounts, charge backs or rebates, cash discounts, free goods contingent on a purchase agreement, up-front payments, coupons, goods in kind, free or reduced-price services, grants, or other price concessions or similar benefits offered to some or all purchasers. This definition does not include “bona fide service fees” as defined in implementing rules for Section 6005 of the ACA.

In response to comments, CMS confirmed that the definition of prescription drug rebates and other price concessions does not include prescription drug coupons (or any other remuneration, coupons, or price concessions for which the full value is passed on to an enrollee such that no other entity receives a portion of the coupon payment, remuneration, or price concession). CMS rejected commenter requests to exclude payments for quality improvement activities from the definition of prescription drug rebates and other price concessions. If this were allowed, CMS concluded, it would improperly inflate incurred claims and prevent an accurate accounting of prescription drug costs.

This provision will go into effect for the 2022 MLR reporting year, which CMS believes will provide enough time for insurers to adjust contracts with PBMs as needed. All commenters generally supported the proposal.

Temporary Premium Credits

CMS codified its recent temporary policy of relaxed enforcement and interim final rule regarding temporary premium credits for 2020 coverage. Under this policy, insurers in the individual and small group markets can temporarily reduce monthly premiums for 2020 coverage so long as they meet certain requirements. In the final 2022 payment rule, CMS extended this MLR data reporting and rebate requirement for the 2021 MLR reporting year and beyond for individual and small group market insurers who offer temporary premium credits during a declared public health emergency. This option, however, is available only when CMS issues guidance announcing a similar policy, and insurers must comply with state law and seek approval of state insurance regulators where necessary. Consistent with the interim final rule, a temporary credit is accurately reflected in MLR reporting requirements because insurers must report “adjusted plan premiums.” This refers to the premium amounts that are actually billed to enrollees (including any reduction in premiums because of a premium credit). Insurers in the large group market that offer temporary premium credits should report the adjusted plan premiums for MLR purposes as well.

Reporting of Quality Improvement Activities

In the final 2019 payment notice, CMS allowed insurers to automatically claim and incorporate 0.8 percent of earned premium into the numerator of the MLR as quality improvement expenses. Insurers could take this automatic claim in lieu of tracking and reporting actual expenditures on quality improvement. Insurers that claimed to spend more than 0.8 percent of premium on quality improvement expenses could continue to claim actual costs, even where higher than 08 percent. Since few insurers were itemizing their quality improvement activities before, this policy automatically increased the MLR for most insurers, and CMS estimated that the policy would decrease rebate payments from insurers to consumers by about $23 million.

As noted above, this provision of the 2019 payment rule was ultimately set aside by the district court in Columbus as contrary to law and arbitrary and capricious. The court held that, under the ACA, insurers must report on the amount that they “expend[]” for quality improvement activities, which means the amount actually spent rather than a pre-determined average fixed amount.  

The final 2022 payment rule eliminates the provision that allowed an automatic claim of 0.8 percent for quality improvement activities. Insurers will thus have to report actual expenditures for activities that improve health care quality. Itemization of these expenses will be required on a prospective basis beginning with the 2020 MLR reporting year (i.e., MLR reports filed by July 31, 2021). Insurers will not have to revise expenses from prior MLR reporting years.

Rebates

Insurers that fail to meet a minimum MLR as specified under the ACA—80 percent in the individual and small group markets and 85 percent in the large group market—must rebate excess premium back to enrollees. Rebates can be given in the form of a premium credit, a lump-sum check, or reimbursement to a credit or debit card. Rebates made in a lump-sum check or account reimbursement must be made no later than September 30 while rebates made in a premium credit must be applied to the first month’s premium due on or after September 30.

Given the pandemic and economic crisis, CMS announced a temporary policy of relaxed enforcement to allow insurers to prepay a portion or all of a consumer’s estimated MLR rebate for the 2019 reporting year in the form of a premium credit. This policy was limited to insurers that use a premium credit rebate (and did not extend to insurers that use a lump-sum check or account reimbursement rebate).

Beginning with rebates due for the 2020 MLR reporting year, CMS will allow insurers to prepay estimated rebates for any MLR reporting year regardless of the form in which they are paid and at any time during the year so long as insurers do so for all eligible enrollees in a given state and market in a nondiscriminatory manner. For insurers that provide premium credit rebates, CMS specifies that rebates must be applied to premiums due no later than October 30 following the MLR reporting year. All commenters supported this proposal because it would allow consumers to receive rebates sooner.

CMS also adopts a safe harbor for insurers that prepay at least 95 percent of the total rebates owed to enrollees in a given state and market in a given MLR reporting year. Insurers that meet this standard can defer (without a penalty or late payment interest) the payment of any remaining rebate until after the MLR rebate payment deadlines the following year. Insurers that fail to meet the 95 percent threshold must still provide enrollees with the remaining portion of the rebate owed and this amount cannot be treated as de minimis. CMS will develop standard notices that insurers can use regarding prepaid rebates and update its MLR reporting forms.

Most commenters supported this proposal, although some raised concerns about operational and administrative burdens on SBEs and group health plan rebate recipients. In response to comments, CMS clarified that the ability for insurers to issue prepaid estimated rebates is subject to state law (including state approval if required).

Essential Health Benefits

The final 2022 payment notice includes no changes regarding the coverage of EHB. It does, however, give flexibility to states regarding compliance with a requirement adopted in the 2021 payment rule. Under this provision, states must annually report on state-imposed benefit mandates that exceed the EHB. States are required to defray the cost of these types of mandates.

Consistent with the proposed rule, states’ first report is due on July 1, 2021. However, CMS will not take enforcement action against states that fail to submit this report, meaning CMS will not be actively collecting or requiring submission of annual reports in 2021. This does not mean states do not have to defray the cost of additional mandates, but it does provide temporary relief from the reporting requirements. CMS will, however, proceed with this reporting requirement next year and states must submit a report on July 1, 2022. In states that fails to submit the report, CMS will identify which benefits are in addition to EHB and that identification will become part of the state’s EHB definition.

Many commenters continue to object to this reporting requirement. Some cited the pandemic and burdens on states. Others noted that CMS had not issued additional guidance—such as proposed annual reporting templates—to clarify its defrayal policies (as promised in the 2021 payment notice) and that reporting requirements should be delayed until there is additional federal guidance and further clarification. Commenters continued to ask whether CMS will accept a state’s determination as to whether a mandate is in addition to EHB, who will be the final arbiter of such determinations, and whether there will be any avenue for states to appeal a CMS determination. Commenters also argued that this is an unnecessary and burdensome reporting requirement. Still others noted the importance of timing any reports and defrayal determinations to be accounted for during rate filings.

In response to these comments, CMS suggests it will issue technical guidance (including templates) and continue providing technical assistance to states. This guidance, CMS believes, will help address some of the concerns raised by commenters about how CMS will analyze state mandates. CMS also clarifies, for the first time, that it will not retroactively enforce the defrayal requirement against states for any mandates in effect prior to the 2022 plan year. Any defrayal requirements would be prospective only and states would not owe back any defrayal costs for mandates that are ultimately found to exceed EHB, even if in effect in prior years. CMS does not anticipate the need for a formal appeals process to resolve disputes between CMS and states and will work to resolve any disagreements. Finally, CMS intends to give states that do not submit the report the opportunity to review its identification of excess mandates to mitigate any potential disagreement between CMS and a state.

Beyond EHB reporting requirements, states continue to have flexibility to select an EHB-benchmark plan on an annual basis. To take advantage of this option, states must ensure that their proposed EHB-benchmark plan meets federal requirements and hold a public comment period to collect feedback on the proposed changes. CMS also allowed for benefit substitution between benefit categories. As discussed here, very few states have made changes to their EHB-benchmark plans thus far, and where they have, it has been to enhance benefits.

States must generally opt into these changes by informing CMS of them far in advance. To amend an EHB-benchmark plan or allow benefit substitution between EHB categories for the 2024 plan year, states must inform CMS by May 6, 2022. These deadlines are similar to prior years. States must comply with public notice and comment requirements and receive public feedback on any proposed EHB-benchmark plan changes before submitting a proposal to federal regulators. CMS encourages states to submit their proposal 30 days prior to ensure that applications are complete.

Special Enrollment Periods

CMS adopts a series of changes to SEPs for exchange enrollees who become newly eligible for APTC and for those who are eligible for a SEP but did not receive timely notice of the triggering event. CMS also clarifies that a SEP is available when an employer or government entity stops contributing premiums to COBRA continuation coverage. Unless specified below, the SEP changes go into effect on the effective date of the rule (i.e., 60 days after publication in the Federal Register).

Enrollees Newly Ineligible For APTC

CMS will allow current exchange enrollees and dependents to enroll in a new QHP of any metal level if they qualify for a SEP because they became newly ineligible for APTC. This revises a prior requirement under the market stabilization rule that prevents enrollees from switching metal levels.

Here, CMS allows those who become newly ineligible for APTC (because of, say, a change in income or household size) to enroll in a QHP of any metal level. Thus, an enrollee with a gold-level QHP that loses eligibility for APTC could enroll in a bronze or silver level QHP (or catastrophic coverage if eligible). The preamble includes several examples of when such a SEP could help ensure that enrollees can switch to a plan with appropriate premiums and maintain continuous coverage. These examples are also updated to reflect the impact of the American Rescue Plan’s enhanced subsidies for 2021 and 2022.

The proposed rule would have limited enrollment to only a lower metal level (rather than any metal level), but CMS finalized this change to increase consumer flexibility and limit implementation costs and complexity for exchanges. Recognizing that exchanges face many competing priorities (especially with American Rescue Plan implementation), CMS gives the exchanges some flexibility and will require implementation of this change no later than January 1, 2024.

Almost all comments on this part of the proposed rule were supportive. No commenters raised concerns about the risk of adverse selection, and many encouraged CMS to allow individuals who qualify to change to a plan of any metal level (a suggestion it adopted in the final rule) or eliminate plan category limitations altogether. Overall, CMS believes the proposal is unlikely to result in adverse selection and may improve the risk pool by promoting continuous coverage.

Untimely Notice Of Triggering Event

CMS will allow an individual, enrollee, or dependent who did not receive timely notice of an SEP triggering event and was otherwise reasonably unaware that a triggering event occurred to select a new plan within 60 days of the date that they knew, or reasonably should have known, about the triggering event. This new SEP option applies to any type of triggering event for on- and off-exchange coverage, and individuals can choose the earliest effective date that would have been available if they had received timely notice of the triggering event.

Current SEPs operate with the assumption that individuals will become aware of a triggering event (such as the loss of job-based coverage or the date of gaining a dependent) in time to make a plan selection within the 60 days allotted. But CMS’s experience suggests that this is not always the case, and some individuals reasonably may not be aware of an event that triggers SEP eligibility until after the triggering event has occurred. The preamble includes examples where employers failed to pay employee premiums and employees had no reason to know the date of the triggering event—or where an individual qualified for a SEP because nonenrollment in a QHP resulted from an error by the exchange or one of its agents, but the consumer found out after it was too late to enroll using a SEP. Many of these challenges may be more likely during the COVID-19 public health emergency, and CMS finalizes this SEP to close this gap in current rules.

All but one commenter supported this change. CMS clarified that some enrollments under this SEP will be subject to verification requirements or caseworker review. CMS rejected requests for this SEP to be limited to prospective coverage effective dates (i.e., not allow retroactive effective dates) out of a fear of adverse selection and administrative burdens. CMS declined to do so, noting that use of this SEP is expected to be low. Other commenters urged CMS to limit the instances in which enrollees could claim use of this SEP, but the agency feels that a broader option is needed to address the range of circumstances when a consumer is not notified of their SEP eligibility in a timely manner. CMS also rejected commenter calls to allow enrollment 60 days from when a consumer is notified of their eligibility for a SEP (rather than 60 days from a triggering event).

Cessation Of Employer Contributions To COBRA

In the event of a layoff or other job loss, some employers will pay all or a portion of their former employee’s health insurance premiums for part or all of the COBRA coverage period. Government entities will also sometimes subsidize COBRA premiums, either through direct payment or via a third-party, such as an employer. Employees that find themselves in this situation (for employer contributions) currently qualify for a loss of minimum essential coverage SEP through the FFE or SBE-FP. However, this SEP may not have been treated as a triggering event by off-exchange insurers or SBEs.

CMS newly designates the cessation of employer or government contributions for COBRA coverage as a triggering event for SEP eligibility throughout the individual market. The final rule clarifies that the loss of government subsidies—such as the full COBRA subsidies under the American Rescue Plan that will end on September 30, 2021—will also be treated as a triggering event for this SEP. While the policy is the same, this provision is finalized in a different part of the regulatory code than was proposed to avoid confusion about whether the SEP would be fully available.

The triggering event is the last day of the period for which COBRA continuation coverage was paid for or subsidized by the employer or government. Former employees and dependents have 60 days before or after the loss of employer or government contributions to enroll in individual market coverage. The employer contribution does not include the 2 percent administrative fee that employers can charge those who elect COBRA (meaning an individual will not qualify for this SEP simply because an employer does not require the 2 percent fee). CMS also includes two examples to show when this SEP would be triggered, including one related to the American Rescue Plan. This SEP does not apply to SHOP plans.

No commenters opposed this proposal; many supported it, citing the economic downturn during the pandemic, changed circumstances for families when COBRA contributions end, and the need to promote continuity of coverage. This SEP is subject to verification requirements at HealthCare.gov.

CMS solicited comment on whether a SEP should be available when an employer reduces (but does not completely cease) its COBRA contributions and, if so, whether it should adopt a threshold for the level of reduction to trigger the SEP. Several commenters expressed support for this proposal, but CMS did not adopt any new policy in response. CMS believes that very few employers provide COBRA contributions and thus there will be limited instances when employers reduce their contributions so much as to make the coverage unaffordable.

SEP Verification Requirements

CMS declined to finalize the proposed requirement that all exchanges conduct SEP eligibility verification for at least 75 percent of new enrollments. Exchanges would not have had to verify eligibility for all SEPs but would have had flexibility to decide which SEP types to verify and how to conduct that verification. Exchanges also could have proposed alternative methods for conducting the required verifications. CMS estimated that SBEs would incur one-time costs of about $108 million (over 2021 to 2023) in addition to ongoing annual costs to implement and operationalize SEP verification requirements.

This proposal was not finalized. CMS agreed with commenters who raised concerns about administrative and financial burdens on SBEs, administrative burdens on consumers, and potential negative impacts on the risk pool. There are currently only four SBEs that conduct SEP verification that is more limited than the FFE, but even those exchanges do some level of SEP verification. Of those four states, three are among the smallest SBEs in terms of enrollment and issuer participation and have reported no evidence of potential misuse of SEPs. The proposal, CMS concludes, is unnecessary.

Prescription Drug Distribution And Cost Reporting By PBMs And QHP Insurers

Section 6005 of the ACA requires PBMs that participate in federal health programs, such as Medicare Part D and the exchanges, to provide certain prescription drug information to the Secretary of the Department of Health and Human Services. Among other information, PBMs must disclose the percentage of prescriptions provided through retail pharmacies compared to mail order pharmacies; the aggregate amount and the type of rebates, discounts, or price concessions attributable to patient utilization; the amount passed through to the plan sponsor and the total number of dispensed prescriptions; and the aggregate amount of the difference between the amount the health benefits plan pays the PBM and the amount that the PBM pays pharmacies.

In the 2012 exchange final rule, CMS required QHP insurers to report this information and did not specify the responsibilities of PBMs that contract with QHP insurers to report this information. In January 2020 and September 2020, CMS asked for public comment on information collection under this provision.

Under the now-finalized rule, where a PBM contracts with a QHP insurer to administer prescription drug benefits, the PBM must report the information required under Section 6005. PBMs (rather than QHP insurers) are in a better position to know this data, and CMS expects about 40 PBMs will be subject to this requirement. Although CMS is not aware of any, QHP insurers that do not contract with a PBM are responsible for reporting the required data. Said another way, QHP insurers are only responsible for reporting Section 6005 data to CMS if they do not contract with a PBM for their QHP drug benefits.

CMS believes that this new requirement—where PBMs (rather than QHP insurers) report the information directly—will 1) reduce the need for QHP insurers to serve as a conduit between the PBM and the government; and 2) prevent PBMs and QHP insurers from having to submit duplicated data. CMS confirms that this requirement applies to insurers that offer QHPs, regardless of whether the QHPs are sold on- or off-exchange. This requirement does not apply to any other plans. CMS expects the cost of this requirement for insurers and PBMs to be about $14.2 million in 2021 and about $2.7 million annually after that.

CMS also received comments on the confidentiality of the data collected under this provision. It reiterated that information disclosed by an insurer or PBM under this collection is confidential and shall not be disclosed by the Secretary except in certain circumstances that do not disclose the identity of a specific PBM, plan or prices charged for drugs.

Some commenters argued that CMS does not have the authority to collect this data directly from PBMs, while others asked for a delay in implementation, citing compliance burdens. CMS acknowledged these burdens and will not require submission sooner than December 31, 2021. However, CMS expects this data to be disclosed. It is required under the statute and vital given rising prescription drug costs and the need for the agency to implement policies that improve coverage for prescription drugs. CMS disputes the argument that it does not have the legal authority to collect this data, noting that the Secretary can specify the time, form, and manner of this collection. Because some of the requirements are similar to the insurer transparency rule and some of the PBM reporting requirements in the December 2020 budget bill, CMS, alongside the Departments of Treasury and Labor, will issue future guidance on the interaction between these requirements.

CMS will no longer require certain prescription drug data to include pharmacy type (e.g., independent pharmacy, chain pharmacy, supermarket pharmacy, etc.). It is not currently possible to report that data because pharmacy type is not a standard classification in industry databases or files and is thus not readily collected by industry. This change was supported by nearly all commenters.