[Federal Register: April 3, 2008 (Volume 73, Number 65)]
[Rules and Regulations]
[Page 18176-18182]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap08-12]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 422 and 423
[CMS-4133-F]
RIN 0938-AP25
Medicare Program; Modification to the Weighting Methodology Used
To Calculate the Low-Income Benchmark Amount
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule changes the weighting methodology used to
calculate the low-income benchmark premium amount (benchmark) for 2009
and thereafter. Under this final rule, the benchmark weighting
methodology is adjusted so that the relative weights of the Medicare
Advantage Prescription Drug (MA-PD) plan premiums and Prescription Drug
Plan (PDP) plan premiums in the low-income benchmark premium amount
reflect the
[[Page 18177]]
distribution of enrollment of beneficiaries eligible for the low-income
subsidy in each plan.
DATES: Effective Dates: These regulations are effective on May 31,
2008.
FOR FURTHER INFORMATION CONTACT:
Deondra Moseley, (410) 786-4577.
Meghan Elrington, (410) 786-8675.
SUPPLEMENTARY INFORMATION:
I. Background
The beneficiary premiums for Prescription Drug Plans (PDPs) are
based on an annual bidding process. Each year the beneficiary premium
for a Part D plan can change as a result of this bidding process. In
addition, each year, as required by statute, CMS recalculates the
Federal Part D premium low-income subsidy (LIS) available to low-income
beneficiaries based on the new premiums for plans in each region. As a
result of these premium and subsidy changes, the premium for a Part D
plan can be fully covered by the LIS in one year and not the following
year.
The amount of the premium subsidy available to LIS-eligible
individuals cannot be calculated until after bids are submitted for the
calendar year in question, because the subsidy amount is based on the
bids that are submitted. Therefore, a PDP sponsor whose premium for
LIS-eligible enrollees is currently zero does not know at the time its
bid is submitted whether the premium that would result from its bid
will be higher or lower than the premium subsidy amount.
LIS-eligible individuals enrolled in a PDP that does not charge
them a premium are faced with the possibility that the plan they are
enrolled in will impose a premium during the next calendar year that
would require them to make monthly payments. Section 1860D-1(b)(1)(C)
of the Social Security Act (the Act) mandates the initial enrollment of
full-benefit dual eligible individuals not choosing a plan into a PDP
where they would not pay a premium. It does not, however, require that
individuals be reassigned to a plan that would not charge them a
premium, if they would be required to pay a premium in their plan the
following calendar year. Using our authority under Section 1860D-
1(b)(1)(A) of the Act to, ``establish a process for the enrollment,
disenrollment, termination, and change of enrollment of Part D eligible
individuals in prescription drug plans,'' we have specified that LIS-
eligible individuals facing the above situation may ``elect'' a PDP
with no premium (to which they would be randomly assigned) by taking no
action. We have referred to this process as our reassignment process.
Beneficiaries eligible for the full low-income premium subsidy who have
not chosen a plan on their own, including beneficiaries dually eligible
for benefits under Titles XVIII and XIX of the Act, are subject to
reassignment. Beneficiaries eligible for a partial premium subsidy are
not subject to reassignment.
For 2008, the number of beneficiaries reassigned to a different
organization under this process varied widely by region, ranging from
as few as 17 beneficiaries to approximately 402,322 beneficiaries. The
average number of beneficiaries reassigned to an organization other
than the one with which they were enrolled was 34,044 per region.
Alternatively, LIS beneficiaries can affirmatively elect to stay in
their plan and begin paying a premium, or choose another plan with or
without a premium.
While the reassignment policy prevents an LIS-eligible individual
who did not choose to elect a plan from being charged a premium, it
disrupts continuity and stability in coverage. Individuals who are
reassigned may have to change their pharmacy, get new copies of their
prescription from their doctor, and determine whether they need a
change in medications because the formulary might be different.
Currently, under the demonstration project entitled, ``Medicare
Demonstration to Transition Enrollment of Low-Income Subsidy
Beneficiaries'' (established in 2007 and extended to 2008), if the
premium amount for a LIS-eligible individual in the above situation is
lower than a specified ``de minimis'' amount, the individual would not
be charged this de minimis amount, and could remain in his or her
current plan without paying a premium. This demonstration also
transitions the calculation of the low-income benchmark premium amount
for a region from a method that weights the standardized Part D bids
for PDPs equally to the statutory method required under the current
regulation, which calculates the benchmarks by weighting the bids for
PDPs and Medicare Advantage Prescription Drug (MA-PD) plans in that
region based on each plan's share of total Part D enrollment. While the
evaluation for this demonstration project is still underway, we believe
it has demonstrated the advantages of continuity of care and stability.
In the proposed rule published on January 8, 2008, ``Option for
Prescription Drug Plans to Lower their Premiums for Low-income Subsidy
Beneficiaries'' (73 FR 1301), we proposed an approach to reducing the
disruption caused by the re-assignment process. In that proposed rule,
we proposed an approach that focused on the premiums that would be
charged to LIS-eligible individuals in cases in which they would be
subject to paying a premium if they stayed in the plan they were in.
Specifically, we proposed, under certain circumstances, to give PDP
Sponsors the option of setting a separate premium amount for such LIS-
eligible individuals at the low-income benchmark amount. We expected
this policy to reduce the number of beneficiaries who would have to be
re-assigned, and would ensure a choice of at least five no-premium
plans for full LIS-eligible individuals in each region.
Requirements for Issuance of Regulations
Section 902 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and
requires the Secretary, in consultation with the Director of the Office
of Management and Budget, to establish and publish timelines for the
publication of Medicare final regulations based on the previous
publication of a Medicare proposed or interim final regulation. Section
902 of the MMA also states that the timelines for these regulations may
vary but shall not exceed 3 years after publication of the preceding
proposed or interim final regulation except under exceptional
circumstances.
This final rule responds to comments we received on provisions set
forth in the January 8, 2008 proposed rule. In addition, this final
rule has been published within the 3-year time limit imposed by section
902 of the MMA. Therefore, we believe that the final rule is in
accordance with the Congress' intent to ensure timely publication of
final regulations.
II. Analysis of the Proposed Rule and Responses to Public Comments
We received 32 timely items of correspondence in response to the
January 8, 2008 proposed rule. We received comments from a broad
spectrum of commenters, including consumer groups, health plans and
industry trade associations, and States. Approximately 13 comments were
from consumer groups, 9 comments were from health plans and industry
associations, 5 comments were from States, 3 comments were from
pharmacists/providers, and 2 comments were from students. With a few
exceptions, the commenters were
[[Page 18178]]
concerned that the proposed rule would not adequately address the
reassignment issue, and suggested alternative approaches. Virtually all
of these commenters recommended that, rather than adopting the proposed
approach, we consider alternative methods for calculating the low-
income benchmark premium amounts. The following is a summary of the
public comments and our responses.
Comment: Two commenters proposed that the low-income benchmark
premium amounts be calculated by weighting each plan's premium by its
share of total LIS enrollment, rather than its share of total Part D
enrollment.
Response: Because section 1860D-14(b)(2) of the Act requires only
that the premium calculation be ``weighted'', we believe that the
statute could reasonably be interpreted to permit this proposed
weighting methodology, and in response to these comments we have
determined that this approach more effectively addresses the LIS
reassignment issue that the proposed rule was intended to address.
Therefore, we are adopting this approach in our final rule instead of
our originally proposed option for PDPs to reduce their premiums for
full-subsidy eligible beneficiaries.
Specifically, the benchmark amounts for each Part D region will be
calculated as a weighted average of the Part D premium amounts for
basic Part D coverage with the weight for each PDP and MA-PD plan equal
to a percentage in which the numerator is equal to the number of LIS
eligible beneficiaries enrolled in the Part D plan in the reference
month and the denominator is equal to the total number of LIS eligible
beneficiaries enrolled in PDP and MA-PD plans (not including PACE,
private fee-for-services plans or 1876 cost plans) in the reference
month.
Currently, CMS calculates the weighted portion of the low-income
benchmark premium amount using a weighted average of the MA and PDP
premiums that is based on total Part D enrollment. MA-PD sponsors can
lower their Part D premiums through the application of Part C rebates.
As a result, the Part D premiums for MA-PD plans tend to be lower than
PDP premiums. In addition, the benchmark amounts tend to be
significantly lower in regions with high MA-PD penetration than in
other Part D regions.
The lower benchmarks have contributed to large-scale reassignments
of LIS beneficiaries in many of these regions. This is because the
relatively low benchmarks result in many PDPs having a basic Part D
premium that is not fully covered by the Federal premium subsidy. As
noted above, CMS has reassigned full-subsidy beneficiaries in these
PDPs to different, lower-premium PDPs in order to avoid a financial
hardship for these beneficiaries.
The conclusion of the ``Medicare Demonstration to Transition
Enrollment of Low-Income Subsidy Beneficiaries,'' will put increased
downward pressure on the benchmarks in these regions with high MA-PD
enrollment and upward pressure on the number of reassignments.
Calculating the benchmark amounts using a weighted average based on LIS
enrollment, however, will help stabilize the benchmarks in these
regions. As noted above, Part D beneficiary premiums for PDPs tend to
be higher than for MA-PDs. In addition, PDPs tend to have a greater
share of LIS enrollment because of auto and facilitated enrollment. As
a result, weighting Part D plan premiums by total LIS enrollment gives
greater weight to PDP premiums and tends to increase the benchmarks. As
compared to the current regulatory formula, we estimate that this
change in the methodology for calculating the benchmarks would have
reduced the number of 2008 reassignments by approximately 850,000 LIS
beneficiaries. This is significantly greater than the 200,000
reassignment reduction estimated for the policy proposed in the
proposed rule.
Comment: Many commenters expressed concerns about various features
of the proposed policy and suggested clarifications or changes.
Commenters asked CMS to describe the methodology for selecting
participating sponsors and any contingencies. Commenters asked CMS to
make the checkbox in the bid pricing tool (BPT) where PDP Sponsors were
to indicate whether the plan will participate in the second premium
visible and unambiguous. Commenters also asked whether certification
and attestation requirements should be amended. In addition, commenters
suggested changes including limiting plans' financial losses by placing
a cap on the amount by which the premium could be reduced for LIS
beneficiaries and commented on the complexity of explaining the rule to
beneficiaries.
Response: We agree that the various features of the proposed rule
would have needed clarification in the final rule. This final rule does
not incorporate the option for PDP Sponsors to offer a reduced premium
to full subsidy eligible individuals. The final rule takes a different
approach and changes the weighting methodology used to calculate the
low-income benchmark premium amount. This approach is relatively simple
and transparent and does not raise the complexities of the dual premium
policy in the proposed rule about which these commenters are concerned.
Comment: Many commenters suggested that we continue with our de
minimis policy, rather than adopt the policy in the proposed rule.
Response: We believe that the methodology established in this final
rule is a better approach to reducing reassignments than continuing
with the de minimis policy as it directly addresses the benchmark
disparities across regions. As stated in the proposed rule, we were
concerned about an approach that permanently would employ a fixed
dollar figure, and decided that a methodology under which the number is
not known in advance would better preserve incentives for plans to
submit a low bid.
Comment: Many commenters suggested calculating the benchmark before
applying Part C rebates to MA-PD premiums. CMS currently calculates the
low-income benchmark premium amount using MA-PD premiums after Part C
rebates have been applied. Calculating the benchmarks using MA-PD
premiums before the application of rebates would increase the benchmark
amounts in areas with high MA-PD penetration and in turn decrease the
number of reassignments in these Part D regions, compared to the
current regulation. Commenters argued that this is a better
representation of the true drug cost for MA-PDs. Commenters believed
that such an approach is permissible under the statute.
Response: Section 1860D-14(b)(2) of the Act describes the
calculation of the benchmark. The statute provides that for an MA-PD
plan, CMS must use the weighted averages of the ``portion of the MA
monthly prescription drug beneficiary premium that is attributable to
basic prescription drug benefits'' to calculate the benchmark for each
region. The Act states that the term ``MA monthly prescription drug
beneficiary premium'' means, ``the base beneficiary premium * * * as
adjusted * * *, less the amount of rebate credited toward such amount *
* *'' CMS interprets the phrase ``portion of the MA monthly
prescription drug beneficiary premium that is attributable to basic
prescription drug benefits'' for an MA-PD plan to mean the base
beneficiary premium adjusted for the difference between the bid and
benchmark less the rebates. Therefore, we do not believe it is
permissible under the statute to calculate the benchmarks with MA-PD
premiums before the application of rebates. However, this regulation
will
[[Page 18179]]
have a comparable effect on LIS reassignments to calculating the
benchmarks using the MA-PD premiums that have not been reduced by
rebates, and hence produces the outcome recommended by the commenters.
Comment: Some commenters supported our alternative of allowing PDPs
to waive the difference between the premium and the benchmark for full
subsidy eligible beneficiaries. Commenters believed that CMS
overestimated the impact this would have on bids as plans would be
motivated to keep bids low in order to receive new auto-assignments.
Response: We continue to believe that this option would have a
negative impact on bid competition and bid integrity. As stated in the
proposed rule, we did not choose this approach for two reasons. First,
if the difference between the two amounts were too great, this would
produce a significant disparity between the revenue needs assumed in
the bid, and the revenue that would be received under the reduced
premium, and undermine the integrity of the bid process. More
importantly, if a PDP sponsor knew that it could be assured of reducing
its premium for LIS-eligible individuals to the LIS amount no matter
how much the premium produced by its bid exceeded this amount, this
would greatly reduce existing incentives to bid as low as possible. In
response to the commenters' argument, we do not believe new auto-
assignees would be enough incentive to keep bids low.
Comment: Many commenters did not support the alternative in which
CMS would change the current reassignment process so that beneficiaries
would be informed of plans that offer a zero premium for full-subsidy
eligible beneficiaries but would have to take action to change to such
a plan. Commenters believed that based on their experience, placing the
burden on beneficiaries to make the change would result in
beneficiaries remaining in plans they cannot afford and would increase
premium collection problems. Two commenters believed that CMS should
implement this alternative, because it would be easier to address non-
payment of premium issues than the issues with continuity of care that
come with reassignment.
Response: We agree with the commenters who opposed the alternative
for the reasons stated in our proposed rule. We are concerned about
charging beneficiaries a premium without them electing to pay it and
the potential financial hardship for individual beneficiaries.
Comment: Several commenters suggested changes to the reassignment
process, such as reassigning on other than a random basis, extending
reassignment to people who have elected a plan with no premium and
improvements to the premium information provided to choosers. One
commenter asked CMS to review formularies to ensure they do not
discourage access for vulnerable beneficiaries.
Response: We do not believe these changes would be appropriate.
Congress has favored random assignment by specifying it in the case of
initial assignment. We believe that it is appropriate to extend this to
re-assignment. It is not clear what the commenter means by reassigning
people who have elected a plan with no premium, since they would have
made an affirmative choice that we believe should be respected. We also
believe that the information currently provided to beneficiaries on
their choices is appropriate. Finally, we believe that beneficiaries
are in the best position to make plan choices based on plan
formularies.
Comment: One commenter was concerned that the regulation would not
come out in time for plans to use the information to model their bids.
Response: We agree that Part D sponsors need to know how the LIS
benchmarks will be calculated in order to prepare their Part D bids.
Therefore, we are releasing this final rule before April 7, 2008, which
is the beginning of the formal bid preparation period for 2009. On
April 7, 2008, CMS will release all other final Part D payment policy
information for 2009 as part of the Announcement of CY 2009 Medicare
Advantage Capitation Rates and Medicare Advantage and Part D Payment
Policies. This document is released annually by statute on the first
Monday in April. With the release of the Rate Announcement and the
publication of this final rule, Part D sponsors will have all the
information on Part D payment policies that is needed from CMS to
prepare their 2009 bids.
III. Provisions of the Final Regulations
As noted above, we believe that the statute can reasonably be
interpreted to permit us to weight the premiums used for the benchmark
calculation by total LIS enrollment for each plan. The calculation of
the benchmarks is described in section 1860-14(b)(2) of the Act. The
statute provides that we must take the ``weighted average'' of the
premium amounts described to calculate the benchmarks. The term
``weighted average,'' however, is not definitively defined. The
statutory language reads as follows:
(2) LOW-INCOME BENCHMARK PREMIUM AMOUNT DEFINED.--
(A) IN GENERAL.--For purposes of this subsection, the term
``low-income benchmark premium amount'' means, with respect to a PDP
region in which--
(i) All prescription drug plans are offered by the same PDP
sponsor, the weighted average of the amounts described in (B)(i) for
such plans; or
(ii) There are prescription drug plans offered by more than one
PDP sponsor, the weighted average of amounts described in
subparagraph (B) for prescription drug plans and MA-PD plans
described in section 1851(a)(2)(A)(i) offered in such region.
(B) PREMIUM AMOUNTS DESCRIBED.--The premium amounts described in
this subparagraph are, in the case of--
(i) A prescription drug plan that is a basic prescription drug
plan, the monthly beneficiary premium for such plan;
(ii) A prescription drug plan that provides alternative
prescription drug coverage the actuarial value of which is greater
than that of standard prescription drug coverage, the portion of the
monthly beneficiary premium that is attributable to basic
prescription drug coverage; and
(iii) An MA-PD plan, the portion of the MA monthly prescription
drug beneficiary premium that is attributable to basic prescription
drug benefits (described in section 1854(b)(2)(B)) * * *
We historically have interpreted ``weighted average'' to mean an
average based on the plan's share of total Part D enrollment. We
believe that ``weighted average'' could also reasonably be interpreted
to mean weighted based on the plan's share of LIS enrollment,
particularly given that the benchmarks are applicable to LIS
beneficiaries only.
The revised interpretation requires a change in the regulation.
Therefore, we are revising Sec. 423.780(b)(2) to provide for the low-
income benchmark premium amount for a PDP region to be a weighted
average of the premium amounts described in Sec. 423.780(b)(2)(ii).
The weight for each PDP and MA-PD plan will be equal to a percentage.
The numerator will be the number of Part D LIS eligible individuals
enrolled in the plan in a reference month (as defined in Sec.
422.258(c)(1)). The denominator will be equal to the total number of
Part D LIS eligible individuals enrolled in all PDP and MA-PD plans
(but not including PACE, private fee-for-service plans, or 1876 cost
plans) in a PDP region in the reference month. We will include both
partial and full-subsidy individuals in the weighting calculation.
VI. Collection of Information Requirements
This document does not impose information collection and
[[Page 18180]]
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.
V. Regulatory Impact Statement
A. Overall Impact
We have examined the impact of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more in any 1 year). This rule
allows CMS to calculate the low-income premium benchmark amounts by
weighting the premium amounts by total LIS enrollment for each plan in
order to reduce the number of reassignments compared to the current
regulatory framework. We believe this final rule will lead to
additional Federal costs of approximately $90 million for calendar year
(CY) 2009. The CY 2009 cost of $90 million represents our best estimate
of the cost of the final rule. Generally, our best estimates reflect an
equal likelihood of being too high or too low. The estimated cost over
the next 10 fiscal years (2009 through 2018) is $1.68 billion. The
year-by-year impacts in millions of dollars are shown in Table 1 below.
The $90 million estimate above is for CY 2009. The table below
summarizes the fiscal year (FY) costs. Yearly growth is due to an
estimated increase in the number of enrollees in future years and
increasing drug trends that cause higher estimated bids in future
years.
Table 1.--Federal Costs for FY 2009 through FY 2018
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Fiscal Year
--------------------------------------------------------------------------------------------------------------
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009-2018
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Estimated Costs (in millions)............ $60 $100 $120 $140 $150 $170 $190 $220 $250 $280 $1,680
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This rule does reach the economic threshold of $100 million in the
out-years and thus is considered a major rule, as outlined by Executive
Order 12866.
This cost is due to increased Federal premium subsidy payments,
which are the result of generally increasing the low-income benchmarks.
The higher benchmarks allow a greater number of low-income
beneficiaries to remain in their current plan, rather than reassigning
them to a lower cost plan.
In each region, the low-income benchmark essentially functions as a
ceiling for the Federal premium subsidy for low-income beneficiaries.
That is, the Federal premium subsidy covers the full cost of the plan's
basic Part D premium for a full-subsidy beneficiary, up to the low-
income benchmark amount.
Weighting based on each plan's share of LIS enrollment generally is
expected to increase the low-income benchmarks. We estimated that, in
2008, if the low-income benchmarks had been calculated based on LIS
enrollment weighting (rather than based on total Part D enrollment
weighting), the benchmarks would have been higher in 27 of the 34 PDP
regions. Generally, the higher the low-income benchmarks, the lower the
number of LIS reassignments. This is because, under the higher
benchmarks, more PDPs are likely to have premiums that are equal to or
less than the low-income benchmark and, as a result, will be fully
covered by the premium subsidy. Low-income subsidy beneficiaries are
able to remain in these PDPs and are not reassigned to other lower-
premium PDPs.
We expect this rule will reduce the administrative costs for plan
sponsors associated with the reassignment of LIS beneficiaries. These
costs include the production of new member informational materials by
the new plan, increased staffing of call centers to field beneficiary
questions, and costs associated with implementing transition benefits
for new enrollees.
Although there is no quantifiable monetary value to CMS to reducing
reassignments, we feel this benefit is important, as it will increase
program stability and continuity of care. The rule supports pharmacy
and formulary consistency for the beneficiary. Particularly in regions
with high MA-PD penetration, this rule will reduce the year-to-year
volatility in reassignments of LIS beneficiaries and will help avoid
the disruption that is inherent anytime a beneficiary is switched from
one plan to another.
Based on the most recent bid results, we estimated that if the 2008
benchmarks had been calculated using LIS enrollment weighting, there
would have been approximately 850,000 fewer reassignments than if the
benchmarks had been calculated using total Part D enrollment weighting.
Then we determined the impact of the revised benchmarks and
reassignments on program payments throughout the projection period. We
do not explicitly project reassignments in future years. The
expectation is that the net effect of future reassignments will result
in projected cost levels comparable to the results of the reassignments
modeled on the most recent bid results.
The cost estimate assumes full enrollment weighting based on LIS
enrollment for the calculations of the low-income benchmark premium
amounts. The estimate was developed by applying this rule against the
2008 bids and this impact was projected throughout the forecast period.
The estimate does not anticipate any change in bidding strategies or
outcomes but does include the effect on the level of administrative
costs plan sponsors will include in their bids to account for their
expected number of LIS beneficiary reassignments.
The proposed rule estimated Federal savings of approximately $20
million per calendar year. However, the final rule estimates an
additional $90 million in Federal costs for CY 2009. There are two
reasons that the cost estimate has changed. First, the budget baseline
has been updated since the issuance of the proposed rule. The Mid-
Session Review baseline assumed the continuation of the $1 de minimis
policy; the President's 2009 Budget baseline does not. Because of the
change in assumptions about the de minimis
[[Page 18181]]
policy, even if we had stayed with the five zero-premium organization
policy in the proposed rule, the cost of the final rule would have
changed from savings of approximately $20 million per year to costs of
approximately $10 million per year. Second, this final rule changes the
weighting methodology used to calculate the low-income benchmark
premium amount. As discussed in the rationale, CMS has changed the
method for calculating the Federal premium subsidy for LIS
beneficiaries so that the subsidy amount better reflects the premiums
of plans in which LIS beneficiaries are enrolled. The final rule uses
each plan's share of LIS enrollment, rather than each plan's share of
total Part D enrollment, to weight each plan's premium. This change
results in fewer reassignments than the proposed rule (approximately
670,000) and greater low-income premium subsidy costs. The relationship
between reassignments and the premium subsidy is described above.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small governmental
jurisdictions. Most hospitals and most other providers and suppliers
are small entities, either by nonprofit status or by having revenues of
$6.5 million to $31.5 million in any 1 year. Individuals and States are
not included in the definition of a small entity. We are not preparing
an analysis for the RFA because we have determined, and the Secretary
certifies, that this regulation will not have a significant economic
impact on a substantial number of small entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area for Medicare payment regulations and has fewer than
100 beds. We are not preparing an analysis for section 1102(b) of the
Act because we have determined, and the Secretary certifies, that this
regulation will not have a significant impact on the operations of a
substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. That threshold
level is currently approximately $130 million. This rule will have no
consequential effect on State, local, or tribal governments in the
aggregate, or by the private sector.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. Since this regulation does not impose any costs on State
or local governments, the requirements of E.O. 13132 are not
applicable.
B. Anticipated Effects
We have estimated the effect this regulation will have on the
number of reassignments, the number of zero-premium plans available to
full-subsidy eligible individuals in each region, and bid incentives.
This rule will reduce the number of reassignments compared to the
current regulatory framework. In 2008, under the provisions of the
``Medicare Demonstration to Transition Enrollment of Low-Income Subsidy
Beneficiaries'', approximately 1.19 million LIS beneficiaries were
reassigned to new Part D organizations. We estimated that if the 2008
benchmarks had been calculated under the current regulation (that is,
full enrollment weighted using all enrollees), the number of LIS
reassignments would have been 2.18 million. Under the policy in the
proposed rule, the number of reassignments would have declined by
approximately 200,000 (compared to the current regulation) to 2.0
million. We estimate that, if the 2008 benchmarks had been calculated
using the LIS weighting methodology in this final rule, the benchmarks
would have been higher in 27 of the 34 regions and the number of
reassignments would have been 1.33 million--approximately 850,000 lower
than under the current regulation.
We estimate that this final rule, if implemented in 2008, would
have reduced the benchmarks slightly in seven regions as compared to
the current regulation. These regions tend to have low MA-PD
penetration and a concentration of LIS beneficiaries in PDPs with
relatively low premiums. The amount of the benchmark reduction was
typically less than $0.50. In 2008, these benchmark reductions would
have increased reassignments in total by less than 50,000. The 1.33
million estimate noted above is net of these increased reassignments.
We estimate that this final rule, if implemented in 2008, would
have increased the number of zero premium organizations available to
beneficiaries in 20 of the 34 PDP regions. This is somewhat lower than
the number of regions where the benchmarks would have been higher (27),
because some regions did not have any new plans that landed under the
benchmark with the new calculation. In addition, in 2008, this
regulation would have resulted in at least five zero-premium
organizations in every Part D region with the exception of one region,
which would have had four zero-premium organizations.
This approach maintains a strong incentive to bid low to keep and
possibly add LIS beneficiaries. Absent the rule, there may be a
``winner take all'' outcome in certain regions with one organization
acquiring all of the LIS beneficiaries in the region. It is difficult
to predict what will happen in the absence of this rule, but we expect
some organizations will be induced to bid even lower while other
organizations will give up on this population and bid higher.
C. Alternatives Considered
As stated in the ``Background'' section of this final rule, we
considered allowing PDP Sponsors to reduce their premium to the subsidy
amount after it was established for LIS-eligible individuals without
regard to the amount of their premium. We also considered allowing
plans with premiums under a fixed dollar amount to reduce their low-
income premiums to the premium subsidy amount (de minimis). We
determined, however, that these options would undermine the integrity
and competitiveness of the bidding process.
We also considered changing our approach to reassignment to an
approach that would allow LIS-eligible individuals to be informed of
zero-premium PDP options for full-subsidy eligibles, but would remain
in their current plan, regardless of the premium, if they take no
action. Beneficiary advocacy groups were concerned about beneficiaries
being charged a premium without electing to pay it.
We also considered changing the regulation to calculate the
benchmarks using MA-PD premiums before they have been reduced by Part C
rebates. That approach, however, is not permitted under the statute.
Finally, we considered the policy in the proposed rule itself,
which was an option for PDP Sponsors in regions with less than five
zero-premium PDPs to
[[Page 18182]]
offer a separate prescription drug premium amount for full subsidy
eligible individuals subject to certain conditions. In response to
comments received on the proposed rule, we determined that this
approach did not address the reassignment issue as effectively as the
LIS benchmark weighting approach recommended by commenters.
D. Accounting Statement
As required by OMB Circular A-4 (available at http://
www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 2 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this final rule. This
table provides our best estimate of the cost associated due to
increased Federal low-income premium subsidy payments, which are
primarily the result of allowing a greater number of low-income
beneficiaries to remain in their current plan, rather than reassigning
them to a lower cost plan. All expenditures are classified as costs to
the Federal Government.
Table 2.--Accounting Statement: Classification of Estimated Expenditures
for the Modification to the Weighting Methodology Used To Calculate the
Low-Income Benchmark Amount, Final Rule
[$ Millions]
------------------------------------------------------------------------
Category: Monetized costs Costs
------------------------------------------------------------------------
Single Year CY 2009........................................ $90
Annualized Monetized Costs Using 7% Discount Rate FY 2009- 155.6
FY 2018...................................................
Annualized Monetized Costs Using 3% Discount Rate FY 2009- 162.6
FY 2018...................................................
Undiscounted Cumulative Costs--FY 2009-FY 2018............. 1,680
------------------------------------------------------------------------
Costs reflect transfers from the Federal Government to Health Plans.
E. Conclusion
This rule is estimated to result in an increased Federal cost of
$90 million in CY 2009 and $1.68 billion over the next 10 fiscal years
(2009 through 2018). As explained above, these costs are primarily due
to an increase in low-income premium subsidy payments. This rule will
not have a significant economic impact on a substantial number of small
entities, so we are not preparing an analysis for the RFA. In addition,
the regulation will not have a significant impact on the operations of
a substantial number of small rural hospitals, so we are not preparing
an analysis for section 1102(b) of the Act. The analysis above,
together with the preamble, provides a Regulatory Impact Analysis as it
qualifies as a major rule under Executive Order 12866.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 423
Administrative practice and procedure, Emergency medical services,
Health facilities, Health maintenance organizations (HMO), Medicare,
Penalties, Privacy, Reporting and recordkeeping.
0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as set forth below:
PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT
0
1. The authority citation for part 423 continues to read as follows:
Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of the
Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152,
and 1395hh).
Subpart P--Premium and Cost-Sharing Subsidies for Low-Income
Individuals
0
2. Amend Sec. 423.780 by revising paragraph (b)(2)(i) to read as
follows:
Sec. 423.780 Premium subsidy.
* * * * *
(b) * * *
(2) * * *
(i) The low-income benchmark premium amount for a PDP region is a
weighted average of the premium amounts described in paragraph
(b)(2)(ii) of this section, with the weight for each PDP and MA-PD plan
equal to a percentage, the numerator being equal to the number of Part
D low-income subsidy eligible individuals enrolled in the plan in the
reference month (as defined in Sec. 422.258(c)(1) of this chapter) and
the denominator equal to the total number of Part D low-income subsidy
eligible individuals enrolled in all PDP and MA-PD plans (but not
including PACE, private fee-for-service plans or 1876 cost plans) in a
PDP region in the reference month.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: March 20, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
March 27, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. 08-1088 Filed 3-31-08; 4 pm]
BILLING CODE 4120-01-P