[Federal Register: April 17, 2008 (Volume 73, Number 75)]
[Rules and Regulations]
[Page 20804-20807]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ap08-11]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 422 and 423
[CMS-4133-CN]
RIN 0938-AP25
Medicare Program; Modification to the Weighting Methodology Used
To Calculate the Low-Income Benchmark Amount; Correction
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Correction of final.
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SUMMARY: This document corrects mathematical errors that appeared in
the impact analysis accompanying the final rule that appeared in the
Federal Register on April 3, 2008 entitled, ``Modification to the
Weighting Methodology Used to Calculate the Low-Income Benchmark
Amount.''
DATES: Effective Date: May 31, 2008.
FOR FURTHER INFORMATION CONTACT: Paul Spitalnic, (410) 786-2328.
SUPPLEMENTARY INFORMATION:
I. Background
In FR Doc.08-1088 of April 3, 2008 (73 FR 18176), there were a
number of technical errors that are identified and corrected in the
Correction of Errors section below. The provisions in this correction
notice are effective as if they had been included in the document
printed in the Federal Register on April 3, 2008. Accordingly, the
corrections are effective May 31, 2008.
II. Summary of Errors
This correction notice corrects the impact estimates shown in the
preamble to the final rule, Medicare Program; Modification to the
Weighting Methodology Used to Calculate the Low-Income Benchmark Amount
(CMS-4133-F), which appeared in the Federal Register on April 3, 2008.
That final rule introduced an improved weighting method in the
calculation of the low-income benchmark premium amount under section
1860D-14(b)(2)(A)(ii) of the Social Security Act.
The impact estimates presented in the final rule were affected by a
mathematical calculation error that resulted in an overestimate of the
number of Medicare Part D enrollees affected by the final rule and a
similar overestimate of the additional cost to Medicare under the new
policy. This notice corrects the estimated reduction in the future
number of low-income subsidy eligible beneficiaries who would have to
be reassigned to a different Part D prescription drug benefit plan. The
original estimate was 850,000, and the corrected number is 580,000.
Further, the additional cost of the rule was originally estimated to
total $1.68 billion for fiscal years 2009 through 2018, and the
corrected estimated cost is $1.23 billion. The correction of these
estimation errors has no effect on the policy adopted in the final
rule, on the Part D low-income subsidy benchmarks previously determined
for 2008, or on beneficiaries'' enrollment in Part D plans in 2008.
III. Correction of Errors
In FR Doc. 08-1088 of April 3, 2008 (73 FR 18176), make the
following corrections:
1. On page 18178, in the second column, in the first full
paragraph, in line 27, change the number ``850,000'' to ``580,000.''
2. On pages 18180 through 18182, section ``V. Regulatory Impact
[[Page 20805]]
Statement'' is deleted and is replaced in its entirety to read as
follows:
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 $60 million for calendar year
(CY) 2009. The CY 2009 cost of $60 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 $1.23 billion. The
year-by-year impacts in millions of dollars are shown in Table 1 below.
The $60 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)...................... $50 $80 $90 $100 $110 $120 $140 $160 $180 $200 $1,230
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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 21 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 any time 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 580,000 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 $60 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 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
[[Page 20806]]
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
400,000) 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 21 of the 34 regions and the number of
reassignments would have been 1.60 million--approximately 580,000 lower
than under the current regulation. The amount of the benchmark increase
averaged $2.22.
We estimate that this final rule, if implemented in 2008, would
have reduced the benchmarks slightly in 13 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 averaged $1.13. In
2008, these benchmark reductions would have increased reassignments in
total by about 150,000. The 1.60 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 16 of the 34 PDP regions. This is somewhat lower than
the number of regions where the benchmarks would have been higher (21),
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 four zero-premium
organizations in every Part D region with the exception of one region,
which would have had three 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 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
[[Page 20807]]
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
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Category: Monetized costs Costs ($ millions)
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Single Year CY 2009............................... $60
Annualized Monetized Costs Using 7% Discount Rate 114.6
FY 2009-FY 2018..................................
Annualized Monetized Costs Using 3% Discount Rate 119.3
FY 2009-FY 2018..................................
Undiscounted Cumulative Costs--FY 2009-FY 2018.... 1,230
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Costs reflect transfers from the Federal Government to Health Plans.
E. Conclusion
This rule is estimated to result in an increased Federal cost of
$60 million in CY 2009 and $1.23 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.
III. Waiver of Proposed Rulemaking
We ordinarily publish a notice of proposed rulemaking in the
Federal Register to provide a period for public comment before the
provisions of a rule take effect in accordance with section 553(b) of
the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). However, we
can waive this notice and comment procedure if the Secretary finds, for
good cause, that the notice and comment process is impracticable,
unnecessary, or contrary to the public interest, and incorporates a
statement of the finding and the reasons therefore in the notice.
This correction notice does not make any changes to the final rule
printed in the Federal Register on April 3, 2008, which was the product
of a public notice and comment process. Rather, this notice corrects an
arithmetic error that was reflected in the impact analysis accompanying
the final rule. Because this error does not affect the substance of the
final rule or involve any exercise of policy discretion, we do not
believe an additional comment period is necessary.
In addition, because MA organizations and PDP Sponsors have already
begun the process of preparing their bids for 2009, and may take the
erroneous impact analysis in the final rule into account in doing so,
it is in the public interest to publish a corrected impact statement as
soon as possible.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: April 11, 2008.
Ashley Files Flory,
Deputy Executive Secretary.
[FR Doc. 08-1136 Filed 4-11-08; 3:55 pm]
BILLING CODE 4120-01-P