Section 153.320 - Federally certified risk adjustment methodology(a)General requirement. Any risk adjustment methodology used by a State, or HHS on behalf of the State, must be a Federally certified risk adjustment methodology. A risk adjustment methodology may become Federally certified by one of the following processes: (1) The risk adjustment methodology is developed by HHS and published in advance of the benefit year in rulemaking; or(2) An alternate risk adjustment methodology is submitted by a State in accordance with § 153.330 , reviewed and certified by HHS, and published in the applicable annual HHS notice of benefit and payment parameters.(b)Publication of methodology in notices. The publication of a risk adjustment methodology by HHS in an annual HHS notice of benefit and payment parameters or by a State in an annual State notice of benefit and payment parameters described in subpart B of this part must include: (1) A complete description of the risk adjustment model, including-(i) Draft factors to be employed in the model, including but not limited to, demographic factors, diagnostic factors, and utilization factors, if any, the dataset(s) to be used to calculate final coefficients, and the date by which final coefficients will be released in guidance;(ii) The qualifying criteria for establishing that an individual is eligible for a specific factor;(iii) Weights assigned to each factor; and(iv) The schedule for the calculation of individual risk scores.(2) A complete description of the calculation of plan average actuarial risk.(3) A complete description of the calculation of payments and charges.(4) A complete description of the risk adjustment data collection approach.(5) The schedule for the risk adjustment program.(c)Use of methodology for States that do not operate a risk adjustment program. HHS will specify in notice-and-comment rulemaking by HHS in advance of the applicable benefit year, the Federally certified risk adjustment methodology that will apply in States that do not operate a risk adjustment program.(d)State flexibility to request reductions to transfers. For the 2020 through 2023 benefit years, States can request to reduce risk adjustment transfers in the State's individual catastrophic, individual non-catastrophic, small group, or merged market risk pool by up to 50 percent in States where HHS operates the risk adjustment program. For the 2024 benefit year only, only prior participants, as defined in paragraph (d)(5) of this section, may request to reduce risk adjustment transfers in the State's individual catastrophic, individual non-catastrophic, small group, or merged market risk pool by up to 50 percent in States where HHS operates the risk adjustment program. (1)State requests. State requests for a reduction to transfers must include: (i) Supporting evidence and analysis demonstrating the State-specific factors that warrant an adjustment to more precisely account for the differences in actuarial risk in the State market risk pool;(ii) The adjustment percentage of up to 50 percent requested for the State individual catastrophic, individual non-catastrophic, small group, or merged market risk pool; and(iii) For the 2020 through 2023 benefit years, a justification for the reduction requested demonstrating the State-specific factors that warrant an adjustment to more precisely account for relative risk differences in the State individual catastrophic, individual non-catastrophic, small group, or merged market risk pool, or demonstrating the requested reduction would have de minimis impact on the necessary premium increase to cover the transfers for issuers that would receive reduced transfer payments; or(iv) For the 2024 benefit year only, a justification for the requested reduction demonstrating the requested reduction would have de minimis impact on the necessary premium increase to cover the transfers for issuers that would receive reduced transfer payments.(2)Timeframe to submit reduction requests. States must submit requests for a reduction to transfers in the individual catastrophic, individual non-catastrophic, small group, or merged market risk pool by August 1 of the benefit year that is 2 calendar years prior to the applicable benefit year, in the form and manner specified by HHS.(3)Publication of reduction requests. HHS will publish State reduction requests in the applicable benefit year's HHS notice of benefit and payment parameters rule and make the supporting evidence available to the public for comment, except to the extent the State requests HHS not publish certain supporting evidence because it contains trade secrets or confidential commercial or financial information as defined in HHS' Freedom of Information regulations under 45 CFR 5.31(d) . HHS will publish any approved or denied State reduction requests in the applicable benefit year's HHS notice of benefit and payment parameters final rule.(4)HHS approval.(i) Subject to paragraph (d)(4)(ii) of this section, HHS will approve State reduction requests if HHS determines, based on the review of the information submitted as part of the State's request, along with other relevant factors, including the premium impact of the transfer reduction for the State market risk pool, and relevant public comments: (A) For the 2020 through 2023 benefit years, that State-specific rules or other relevant factors warrant an adjustment to more precisely account for relative risk differences in the State's individual catastrophic, individual non-catastrophic, small group, or merged market risk pool and support the percentage reduction to risk adjustment transfers requested; or State-specific rules or other relevant factors warrant an adjustment to more precisely account for relative risk differences in the State's individual catastrophic, individual non-catastrophic, small group, or merged market risk pool and the requested reduction would have de minimis impact on the necessary premium increase to cover the transfers for issuers that would receive reduced transfer payments.(B) For the 2024 benefit year only, that the requested reduction would have de minimis impact on the necessary premium increase to cover the transfers for issuers that would receive reduced transfer payments.(ii) HHS may approve a reduction amount that is lower than the amount requested by the State if the supporting evidence and analysis do not fully support the requested reduction amount. HHS will assess other relevant factors, including the premium impact of the transfer reduction for the applicable State market risk pool.(5)Exception for prior participants. As used in paragraph (d) of this section, prior participants mean States that submitted a State reduction request in the State's individual catastrophic, individual non-catastrophic, small group, or merged market risk pool in the 2020, 2021, 2022, or 2023 benefit year.77 FR 17247, Mar. 23, 2012, as amended at 78 FR 15528, Mar. 11, 2013; 81 FR 94174, Dec. 22, 2016; 83 FR 17059, Apr. 17, 2018; 84 FR 17561, Apr. 25, 2019; 86 FR 24286, May 5, 2021; 87 FR 27387, May 6, 2022 81 FR 94174, 12/22/2016; 83 FR 17059, 6/18/2018; 84 FR 17561, 6/24/2019; 86 FR 24286, 7/6/2021; 87 FR 27386, 7/1/2022; 88 FR 25916, 6/18/2023