CMS 10418 - Supporting Statement 508

Supporting Statement
Medical Loss Ratio Annual Reports, MLR Notices, and Recordkeeping Requirements
(CMS-10418 - OCN 0938-1164)
A.

Justification

1. Circumstances Making the Collection of Information Necessary
Section 2718 of the Public Health Services Act (PHS Act) requires a health insurance issuer
(issuer) offering group or individual health insurance coverage to submit a report to the Secretary
of HHS concerning the amount the issuer spends each year on claims, quality improvement
expenses, non-claims costs, Federal and State taxes, licensing and regulatory fees, and earned
premium. An issuer must provide a rebate to policyholders if the amount it spends in a reporting
year on certain costs compared to its premium revenue (excluding Federal and States taxes and
licensing and regulatory fees) is below a certain ratio, referred to as the medical loss ratio (MLR).
Specifically, section 2718(b) requires an issuer to provide a rebate to each of its policyholders if
the MLR for the respective reporting year is less than 85 percent in the large group market or less
than 80 percent in the small group or individual market. The implementing regulations for this
provision are located in Part 158 to Title 45 of the Code of Federal Regulations.
The following information collections are included in this request:
Annual Report. Under 45 CFR §158.110, issuers are required to submit an annual report to the
Secretary by June 1 of the year following the end of an MLR reporting year. The annual report
must be submitted to the Secretary by June 1, 2014 for the 2013 reporting year. Section 45 CFR
§§158.120 through 158.260 set out the data requirements for this report. In addition, under 45 CFR
§158.260, each issuer must also submit a report to the Secretary concerning the rebates provided to
and on behalf of enrollees. Section 158.260 requires that this report be submitted with the annual
report under §158.110. The annual reporting form for the 2012 reporting year was approved by
OMB Control Number 0938-1164. This information collection simply updates for 2013 regulatory
change regarding student health plan aggregation for future reporting. The instructions also address
the applicability guidance issued by the Departments of Labor, Treasury and HHS concerning
expatriate plan reporting prior to plan years ending before or on December 31, 2015.
Notices. As specified in 45 CFR §158.240(a), an issuer must provide rebates to enrollees and
policyholders on behalf of enrollees when the issuer’s MLR does not meet the applicable minimum
MLR standard. Section 45 CFR §158.250 requires an issuer to provide information in the form of
a rebate notice to policyholders who are owed a rebate and subscribers whose policyholders are
owed a rebate. As also provided in 45 CFR §158.250, CMS has developed a standard form for the
rebate notice that each issuer must send by August 1 of the year following the reporting year for
which policyholders are entitled to a rebate. The standard rebate notice for the 2013 MLR
reporting year must be sent by August 1, 2014. The rebate notices were already approved by OMB
Control Number 0938-1164. These notices are not being revised at this time, although the burden
estimate is updated based upon the annual reports that were received for the 2012 reporting year.
Recordkeeping. The MLR regulations contain two recordkeeping requirements. Section 158.502
requires an issuer to maintain all documents and other evidence necessary to enable CMS to verify
that the data submitted by the issuer is in compliance with 45 CFR Part 158, including all
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documents, records, and other evidence used to calculate the MLR and any rebates, and that any
rebates owing in accordance with 45 CFR Part 158 are provided. Section 158.501 requires an
issuer to preserve and maintain all such documents, records, and other evidence for the MLR
reporting year as well as six prior years unless a longer period is required under §158.501. This
information collection was also approved by OMB Control Number 0938-1164 and is not being
revised at this time. The burden estimate has been updated based upon the annual reports received
for the 2012 reporting year.
2. Purpose and Use of Information Collection
The data collection of annual reports provided by an issuer for each State’s individual, small group,
and large group markets will be used by CMS to ensure that consumers are receiving value for
their premium dollar by calculating each issuer’s MLR and any rebate payments due for the
respective MLR reporting year, as well as verifying the provision of any rebates and the provisions
of the rebate notices.
The standardized notices will be used to ensure that consumers are receiving information about the
rebate they will be receiving, how their issuer is using health care premium dollars and about the
value they are receiving for their premium dollar. The notices will help provide greater
transparency to consumers. The recordkeeping requirements will be used by CMS to determine
issuers’ compliance with the MLR requirements, including compliance with how issuers’
experience is to be reported, their MLR and any rebates owing are to be calculated, distribution of
rebates and provisions of rebate notices.
3. Use of Improved Information Technology and Burden Reduction
Each issuer will submit its annual report electronically to the Secretary for each respective State
and market in which it conducts business. (OMB Control Number 0938-1086.) Information will be
collected electronically through our HIOS computer system. This will require registration of the
issuer, providing issuer information for the purpose of the collection, and will be the same process
as used for the 2012 reporting year. Issuers who have already registered with our MLR module
within the HIOS system will not need to register again.
4. Efforts to Identify Duplication and Use of Similar Information
There is no similar information collected related to MLR.
5. Impact on Small Businesses or Other Small Entities
As stated in the Regulatory Impact Analysis of OCIIO-9998-IFC (75 FR 74864 (December 1,
2010)), CMS does not believe that the required submission of annual reports to the Secretary will
have a significant impact on a substantial number of small entities. CMS estimates that of the 527
issuers who must report annually to the Secretary in compliance with OCIIO-9998-IFC, there are
only approximately 58 small entities, or roughly 11 percent, who must comply with the reporting
mandate. This estimate may overstate the actual number of small health insurance issuers that
would be affected, since it does not include receipts from these companies’ other lines of business.
6. Consequences of Collecting the Information Less Frequently
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Section 2718 of the PHS Act requires reports to be submitted annually. CMS will use the
information reported to assess whether each issuer is in fact providing policyholders with health
care value in return for their premium dollars.
Regarding notices, section 2718 of the PHS Act requires issuers to provide rebates annually if they
do not meet the applicable MLR standard. Since rebates are provided annually, notices of rebates
are required to be provided to policyholders annually in order to inform policyholders about any
rebates owing.
7. Special Circumstances Relating to the Guidelines of 5 CFR 1320.5
No special circumstances apply to these collections.
8. Comments in Response to the Federal Register Notice/Outside Consultation
CMS received 2 public comments on 12 specific issues regarding the notice of the revised Medical
Loss Ratio (MLR) PRA package published in the Federal Register on November 22, 2013 (78 FR
70059). The comment period closed on January 21, 2014. Comments were received from
America’s Health Insurance Plans (AHIP).
The PRA package contains the version of the MLR Annual Reporting Form for the 2013 MLR
reporting year, which health insurance issuers must file with CMS by June 1, 2014, and the
instructions for completing the form. It modifies the MLR Annual Reporting Form approved by
OMB, on May 3, 2013, for the 2012 MLR reporting year, OCN 0938-1164.
The comments CMS received regarding the 2013 MLR Annual Reporting Form and Instructions
are summarized and attached. Most of the comments addressed clarifying the instructions, updates
for recent guidance issuance, treatment of Student Health Plans, treatment of ACA fees, adjusted
MLR standard experience aggregation, annual Mini-med multipliers for credibility determination,
reporting for both QIA and non-claims costs and reporting requirements for businesses in run-off.
The summary below sets forth each comment and our response.
9. Explanation of any Payment/Gift to Respondents
Respondents will not receive any payments or gifts as a condition of complying with this
information collection request.
10. Assurance of Confidentiality Provided to Respondents
As required by section 2718(a) of the PHS Act, CMS does intend to publish issuers’ annual reports
on its internet website. However, no individually identifiable personal health information will be
collected and consequently, cannot, be disclosed.
11. Justification for Sensitive Questions
These collections do not contain sensitive questions.
12. Estimates of Annualized Burden Hours (Total Hours and Wages)
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The burden estimates associated with the annual report, rebate notice, rebate disbursements and
recordkeeping requirements are discussed below. We have updated the burden estimates based on
the MLR experience for the 2012 reporting year. We estimate that each annual filing and rebate
disbursement cycle will require on average slightly more than 70 person-days of effort per issuer
(approximately 558 burden hours divided by 8-hour work days). It is estimated that there will be 5
issuers that offer coverage in the student health insurance market only and will be submitting
reports for the first time in 2014 for the 2013 reporting year and the burden related to one-time set
up costs for these issuers is estimated to be approximately 219 hours per issuer. One-time set up
costs for other issuers producing annual reports are not included in these burden estimates because
they have already been incurred and do not apply to the 2013 MLR reporting year and subsequent
years.
Annual MLR Report, Including MLR and Rebate Calculations and Information Regarding
Prior Year Rebates
An issuer is required to submit an annual report to the Secretary for each State and market segment
in which it issues health insurance coverage. As described in the regulatory impact analysis (RIA)
of OCIIO-9998-IFC, the preparation and submission of reports is expected to require a mix of
skills. We also estimate that issuers will use a mixture of professional staff, accounting staff, and
clerical staff to prepare, review, and issue rebate notices and rebate checks or premium credits, and
to perform recordkeeping activities and to upload the report to the HIOS system. The average
hourly compensation, including fringe benefits and overhead expenses is $53.03 for ongoing
annual reporting. Previous burden estimates related to these requirements have been updated based
on 2012 MLR data submissions.
As set out in 45 CFR §158.260, the annual report to the Secretary is comprised of three parts: data
concerning the amount the premium dollars the issuer spends each year on claims, quality
improvement expenses, non-claims costs, Federal and State taxes, licensing and regulatory fees
based upon the relevant MLR reporting year; the correlating MLR and rebate (if any) calculation;
and data regarding disbursement of rebates based on the prior MLR reporting year.
On June 1, 2014, 522 issuers are expected to file a total of 3,394 annual reports with the Secretary1.
These reports will include data on student health insurance coverage for the first time. Of the 522
issuers it is estimated that 37 issuers offer student health coverage in addition to coverage in the
group and/or individual markets and 5 issuers offer student coverage only. Most issuers that offer
student health insurance coverage are required to include data on such coverage on their SHCE
filing. Therefore, we expect that including that data in the MLR report will not increase their
burden significantly. For the 485 issuers that offer coverage in the group and/or individual markets
only, it is estimated that, each issuer will, on average, incur a burden of approximately 414 hours
(and an equivalent cost of approximately $21,967) annually and, because of operating in several
States and markets, will submit on average 6.5 reports a year. The 37 issuers that are expected to
submit data on student health insurance coverage in addition to data on individual and/or group
market offerings for the first time will incur additional reporting burden of 5 hours each for a total
of about 419 hours (and an equivalent cost of $22,232) annually. In addition there are 5 issuers
1

These numbers are based upon the actual MLR reports that issuers filed for the 2012 MLR reporting year. A report
includes data for multiple markets (individual, small group, large group) for an issuer in a State. An issuer may combine
multiple reports in one filing.

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that offer coverage exclusively in the student health insurance market will submit reports for the
first time. It is estimated that each issuer will incur a burden of about 219 hours for one-time set up
costs (an equivalent cost of approximately $16,547) and an annual reporting burden of 10 hours (an
equivalent cost of $530). Actual burden and cost for most issuers is likely to be lower in future
years as issuers gain experience with the form and reporting requirements.

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Table 1: Burden and Cost Estimates for Annual Report
Form

Type of
Respondent

Number of
Respondents

Average
Number of
Reports per
Respondent

Frequency

Estimated
Burden
Hours per
Respondent

Wage per
Hour (incl.
fringe)

Burden Cost
Per
Respondent

Total
Estimated
Burden
Hours

Annual Report
for issuers not
offering student
health
insurance
coverage
(Ongoing)
Annual Report
for issuers
offering student
health
insurance
coverage in
addition to
other coverage
(Ongoing)
Annual Report
for issuers
offering student
health
insurance
coverage only
(Ongoing)
One-time set up
cost for issuers
offering student
health
insurance
coverage only

Private
Company

485

6.5

1

414.27

$53.03

$21,967

200,920

Private
Company

37

6.5

1

419.27

$53.03

$22,232

15,513

Private
Company

5

1

1

10

$53.03

$530

50

Private
Company

5

1

1

218.85

$76.51

$16,547

1,094

Notice of Rebate and disbursement of rebate checks
The regulation also requires each issuer that does not meet or exceed the minimum MLR standard
to provide rebates to its policyholders as well as notice of such rebates to policyholders and to
subscribers of group policyholders.
It is estimated that 119 issuers in the individual and group markets will owe rebates and each issuer
will provide rebate notices to approximately 45,533 policyholders and subscribers on average
(Table 3). We estimate that approximately 19,846 notices will be sent per issuer electronically and
approximately 25,688 notices will be sent per issuer by first class U.S. mail. We assume that the
cost of sending notices electronically is negligible. The cost for sending notices via U.S. mail for
each issuer is estimated to be roughly $13,575 ($31.65 per hour x 428.99 burden hours) in labor
costs and approximately $13,101 (25,688 notices x $0.51 mailing and supply costs per notice) in
mailing costs, for a total annual cost of approximately $26,676 (Tables 3 and 4).
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It is estimated that approximately 58 issuers in the individual market will disburse rebates in some
form to subscribers by August 1 of the year following the end of the MLR reporting year, whether
by premium credit, check, or refund via credit or debit card. Assuming that the issuers will
disburse 50% of the rebates in the form of an actual check, we project that each of these 58 issuers
will issue approximately 17,985 checks on average. Each issuer is estimated to expend $19,035.44
in labor costs and an additional $899.26 in processing costs, for a total ongoing cost of
approximately $19,935 a year (Table 4). The remaining rebates will be issued through premium
credit or refunds via credit or debit card. Costs of paying rebates through one-time electronic
reimbursement are expected to be negligible. It is estimated that approximately 85 issuers in the
group market will provide rebates to policyholders for disbursement to subscribers. We expect that
the rebates to policyholders will be issued electronically and the related costs will be negligible.
Table 2: Burden Estimates for Disbursement of Rebate Checks
Forms (if
necessary)

Type of
Respondent

Disbursement of
Rebate Checks

Private
Company

Number of
Respondents

Average
Number per
Respondent

58

17,985

Frequency

1

Estimated Burden
Hours per
Respondent
(Ongoing)
449.6344

Total Estimated
Burden Hours
(Ongoing)
26,079

Table 3: Burden Estimate for Notice of Rebates
Forms (if
necessary)

Type of
Respondent

Notice of Rebate
to Subscribers
and
Policyholders

Private
Company

Number of
Respondents

Average
Number per
Respondent

Frequency

119

45,533

1

Estimated
Burden Hours
per Respondent
(Ongoing)
428.99

Total Estimated
Burden Hours
(Ongoing)
51,050

Cost Estimate for All Respondents Providing Notice of Rebates and Rebate Payments to
Policyholders (Annualized)
Table 4: Cost Estimates for Disbursement of Rebate Checks and Notice of Rebates
Type of
Respondent and
Forms

Private Company
for notice of
rebates
Private Company
for Disbursement
of checks

Number of
Respondents

Average
Number of
Notices or
Checks per
Respondent

Average
Mailing and
Supplies Cost
Per Notice or
Check

Estimated
Burden
Hours per
Rebate Cycle

Wage per
Hour (incl.
fringe)

119

45,533

$0.51

428.99

$31.65

Total Estimated
Burden Cost for
Notices or Checks
Per Respondent
(Labor & Mailing
and Supplies Costs)
$26,676

58

17,985

$0.05

449.63

$42.34

$19,935

As issuers gain experience with the MLR requirements, it is likely that fewer issuers will owe
rebates to fewer enrollees in future years and therefore the burden and costs associated with the
rebate notices and disbursement of checks will be lower as well.
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13. Estimates of other Total Annual Cost Burden to Respondents or Record Keepers/
Capital Costs
Recordkeeping Requirements
Each issuer is also obligated to maintain all documents, records and other evidence that supports
the data submitted by the issuer in its annual report(s) to the Secretary.
Each of the 527 issuers expected to submit an annual report to the Secretary must maintain the
supporting documentation for seven years. We estimate that each issuer will spend approximately
$22 a year (Table 5) in maintaining the supporting documents for the respective MLR reporting
year.
Table 5: Burden and Cost Estimates for Retention of Records
Forms (if
necessary)

Type of
Respondent

Retention
of Records

Private
Company

Number of
Respondents

Average
Number
per
Respondent

Frequency

Estimated
Burden
Hours per
Respondent
(Ongoing)

527

6.5

1

0.392

8

Total
Estimated
Burden
Hours
(Ongoing)
207

Wage per
Hour
(including
fringe)

Burden Cost
for Annual
Retention of
Records Per
Respondent

$55.21

$22

14. Annualized Cost to Federal Government
Table 6: Estimate of Cost to Federal Government
Type Federal
Employee Support

Total Burden
Hours per Reviewer

Total
Reviewers

Data Analysis

2 hr per data submission for each Annual
filing (527 filers once per year – 1054 hrs)2

Hourly
Wage Rate (GS 14 equivalent) –
(includes fringe)

1

Total Federal
Government Costs

$72

$75,888

Salaries are based on a 14 Grade/Step 1 in the Washington DC area with a benefit allowance for a
total annual salary of $150,000.
15. Explanation for Program Changes or Adjustments
Based upon HHS’ experience in the MLR data collection and evaluation process, HHS is updating
its annual burden hour estimates to reflect the actual numbers of submissions, rebates and rebate
notices.
The 2013 MLR Reporting Form and instructions reflect changes for the 2013 reporting year and
beyond that are set forth in the March 2012 publication update to 45 CFR 158.120 regarding
aggregation of student health plans on a nationwide basis. The instructions also address
applicability guidance issued by the Departments of Labor, Treasury and HHS concerning
expatriate plan reporting prior to plan years ending before or on December 31, 2015. The 2013
MLR Reporting Form and instructions reflect guidance published on December 30, 2013. The
optional treatment provided by the guidance will affect a minimal number of issuers and polices
without any significant increase to the burden estimate.
In 2014, it is expected that issuers will send fewer notices and rebate checks to policyholders and
subscribers which will reduce burden on issuers. On the other hand, the requirement to report data
on student health plans will increase burden for some issuers. It is estimated that there will be a net
reduction in total burden from 311,302 to 294,911.
16. Plans for Tabulation and Publication and Project Time Schedule
The annual report of MLR data for the 2013 reporting year is due to the Secretary by June 1, 2014.
17. Reason(s) Display of OMB Expiration Date is Inappropriate
Not applicable.

2

A data submission includes filings for all States by a single issuer.

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