Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2027; and Basic Health Program

We proposed to add a new subpart Q to 45 CFR part 155, which would establish State Exchange responsibilities.

We proposed to add a new Sec. 155.1600 that would convey the purpose and scope of the SEIPM. At Sec. 155.1600(a), we proposed the SEIPM would be an initiative through which HHS measures improper payments of APTC that are administered by State Exchanges, described in more detail in proposed Sec. 155.1610. We proposed to use the results of SEIPM to produce an estimate of improper payments of APTC aggregated across State Exchanges.

At Sec. 155.1600(b), we proposed that unless specified otherwise by HHS, all State Exchanges on an annual basis would be required to submit information that is necessary to support the SEIPM processes. In the proposed rule, we stated that the data and information we would require from State Exchanges would be essential for us to conduct accurate improper payment measurement, as it is not available through any other existing sources or systems. Unlike the FFE where we have direct access to enrollment and payment data, State Exchanges operate independent systems that contain eligibility determinations, enrollment records, and APTC calculation data necessary for HHS to make improper payment assessment under the SEIPM. Without State Exchanges submitting the proposed information, we noted that we would be unable to fulfill our statutory obligations under the PIIA to measure and report improper payments. We stated that the proposed annual submission requirement would ensure that we have access to the most current and complete data necessary to produce statistically valid improper payment estimates and identify areas for program improvement.

At Sec. 155.1600(c), we proposed that HHS would publish in its AFR an estimate of improper payments aggregated across all State Exchanges. Publication in the HHS AFR would ensure that APTC improper payment estimates are subject to the same transparency and accountability standards as other major HHS programs.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1600 below.

Comment: Some commenters supported the goal of improving oversight of APTC payments administered by State Exchanges but expressed concern that the SEIPM framework would be operationally complex, duplicative of existing audit activities, and burdensome given variation in State Exchange systems. Several commenters stated that they experienced challenges with IPPTA, including significant manual effort and difficulties with data mapping and automation limitations. Other commenters stated concern that SEIPM would require significant continuous manual effort to complete data mapping and transformation. Some commenters stated concern about scaling the smaller scope of the IPPTA process to the SEIPM and stated that they would require more technical assistance to understand the program. Other commenters requested additional program details including data requirements, appeals, timelines, sampling, and enforcement. Some commenters also noted that an annual cycle may create continuous operational demands and limit the time available to implement corrective actions between measurement periods.

Response: We appreciate commenters' support for improving oversight and acknowledge the operational considerations associated with implementing SEIPM across State Exchanges with varying system architectures. We also recognize that State Exchanges are subject to existing audit and oversight requirements.

However, we continue to believe that SEIPM is necessary to address a critical gap in HHS' ability to comply with the PIIA. Under the PIIA, Federal agencies are required to identify programs susceptible to significant improper payments and to produce reliable, statistically valid estimates of improper payments on an annual basis, including reporting through the AFR. While HHS has established such measurement for APTC administered through the Federally-facilitated Exchange, no comparable, systematic measurement currently exists for APTC administered by State Exchanges. Existing audits and reporting mechanisms do not produce the statistically valid improper payment estimates required under the PIIA, nor do they support consistent, nationwide measurement of payment accuracy.

SEIPM is designed to enable HHS to meet these statutory obligations by establishing a uniform framework for collecting the data necessary to calculate improper payment rates and to

support ongoing, annual measurement and reporting. Without this framework, HHS would be unable to produce complete and comparable improper payment estimates across all Exchange types, as required under Federal law.

Accordingly, while we acknowledge commenters' concerns regarding burden and operational complexity, we are finalizing Sec. 155.1600 as proposed. Many commenters supported the effort to reduce duplication between the proposed SEIPM program and the annual independent external programmatic audit requirements. We will continue to support State Exchanges through sub-regulatory guidance and technical assistance to facilitate implementation in a manner that is as efficient and workable as possible while ensuring compliance with PIIA requirements.

Comment: Several commenters requested that SEIPM operate on a less frequent cycle to reduce burden and allow State Exchanges additional time to implement corrective actions between measurement periods.

Response: We acknowledge commenters' concerns regarding the operational demands of an annual measurement cycle and the time needed to implement corrective actions. Under the Payment Integrity Information Act of 2019 (PIIA) and OMB Circular No. A-123, Federal agencies are required to produce and report improper payment estimates on an annual basis for programs identified as susceptible to significant improper payments. The sampling and measurement framework established through SEIPM is designed to support these statutory requirements.

While some Federal improper payment measurement programs operate on multi-year cycles, those approaches reflect program-specific design considerations, including program structure, data availability, and sampling methodologies. In contrast, SEIPM is designed to support ongoing, annual oversight of APTC payments administered by State Exchanges and to align with the existing annual improper payment measurement conducted for the Federally-facilitated Exchange.

Moving to a less frequent cycle could reduce the timeliness of improper payment identification and limit HHS' ability to conduct consistent, ongoing monitoring across all Exchange types. Additionally, annual measurement supports more timely identification of errors and facilitates ongoing program oversight.

While we recognize commenters' concerns regarding operational burden and the time required to implement corrective actions, we believe that these activities can occur on an ongoing basis within an annual measurement framework. Accordingly, we are finalizing Sec. 155.1600 as proposed.

Comment: Some commenters opposed extending SEIPM related enforcement to issuers, emphasizing that issuers do not determine eligibility or APTC payment processes, issuer enforcement is addressed in other provisions, and therefore issuers should not be held accountable for SEIPM requirements. One commenter requested HHS to require State Exchanges to publish all standards, companion guides, and instructions to issuers regarding APTC eligibility so that they have clear expectations on how data should be reconciled and can support State Exchanges in maintaining accurate enrollment records to reduce the risk of improper payments.

Response: We clarify that the SEIPM scope and requirements codified under Subpart Q are specific to State Exchanges in relation to the improper payment measurement, and that SEIPM enforcement and requirements will not directly impact issuers. We acknowledge that State Exchanges coordinate with their issuers to reconcile enrollment and ensure that appropriate documentation, such as Companion Guides and reconciliation instructions, are shared between State Exchanges and their participating issuers.

Comment: A commenter requested that HHS avoid implementing policies that could create Federal overreach and disrupt Exchange stability. The commenter requested HHS to implement SEIPM with safeguards to protect data privacy, define Federal oversight scope, and prioritize aggregate reporting structures. This commenter also stated concern about Federal overreach to withhold funding in connection to program integrity programs, which could impact the stability of the Exchanges.

Response: We appreciate this comment, but do not agree that SEIPM may create Federal overreach as it is statutorily mandated under the PIIA. In January 2024, we began the IPPTA to help prepare States for SEIPM. While some State Exchanges are still undergoing IPPTA activities, we believe we can make operational adjustments to apply further lessons learned from those activities as we implement SEIPM. We do not believe that SEIPM will negatively affect Exchange stability, but, rather, will provide State Exchanges with information to help reduce improper payments of APTC. We further clarify that we will put safeguards in place to protect data privacy and adhere to privacy and security Federal requirements. We also note that the most significant enforcement actions under the Failure to Comply provision would only be utilized when there are severe and repeated instances of noncompliance by a State Exchange without mitigating circumstances. b. Applicability Date and Implementation (Sec. 155.1605)

In this section of the 2027 Payment Notice proposed rule, we proposed to add new Sec. 155.1605, which would establish SEIPM's applicability date.

At proposed new Sec. 155.1605(a), we proposed that this subpart would be applicable beginning January 1, 2027, which we believe would provide State Exchanges with sufficient time to begin the SEIPM. In the proposed rule, we noted that for State Exchanges that have participated in IPPTA, the proposed January 1, 2027, applicability date would mean that those State Exchanges would submit the proposed required information and would be subject to improper payment measurement under the SEIPM beginning in 2027 for PY 2026, with the improper payment estimate being reported for the first time in 2028. We stated that this proposed timeline would allow State Exchanges to establish the operational infrastructure and baseline processes to support the SEIPM, such as conducting comprehensive system assessments to identify data collection and reporting capabilities; developing or modifying existing information systems to capture and transmit the required the SEIPM data elements; establishing internal policies and procedures for data validation and quality assurance; training staff on the SEIPM requirements and reporting protocols; and conducting testing and validation of new systems and processes before the effective date. Additionally, we noted that the foundational framework established through IPPTA would have provided State Exchanges with sufficient experience and understanding of their data capabilities and measurement processes to support the transition to SEIPM by January 1, 2027. Any technical adjustments, data collection refinements, or procedural clarifications identified during the IPPTA implementation could be incorporated into the SEIPM through sub-regulatory guidance, allowing for improvements without requiring additional rulemaking or timeline extensions. State Exchanges in the first year of operation would undergo the preparation phase proposed in Sec. 155.1640 and would begin the Measurement Year in 2028 for PY 2027.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1605 below.

Comment: Many commenters stated that the proposed January 1, 2027 applicability date is premature and recommended delaying implementation until 2028 or later. Some commenters noted that IPPTA is ongoing, that key technical and operational questions remain outstanding, and that State Exchanges require additional time to prepare. Several commenters requested delaying implementation until after completion of IPPTA and receipt of final results, and indicated that additional time would be needed to incorporate lessons learned and implement necessary system or process changes. Some commenters stated concerns that the delay in issuance of the Proposed Rule and subsequent Final Rule would give State Exchanges less than a year to interpret and prepare data requirements, which would not provide sufficient time to prepare for SEIPM.

Some commenters requested phased implementation approaches, including delaying initial reporting or gradually increasing program scope. Commenters further noted that State Exchanges may be undergoing significant system transitions or modernization efforts and may be simultaneously implementing other Federal eligibility and enrollment requirements in 2027 and 2028 such as those required under the Working Families Tax Cut (WFTC) legislation, which may impact Exchange operational readiness. Some commenters also stated concern that SEIPM implementation during 2027 may overwhelm Exchanges' operational readiness due to the system changes required under the WFTC legislation.

Several commenters noted that they had not yet received IPPTA results and therefore could not fully assess the operational impact of SEIPM and urged HHS to delay implementation and allow State Exchanges to provide additional feedback on operational feasibility.

Response: We are not adopting the recommendation to delay implementation. We acknowledge commenters' concerns regarding implementation timing, including recommendations to delay implementation until after completion of IPPTA, to allow additional time to incorporate lessons learned, and to adopt phased implementation approaches. We also recognize that some State Exchanges are undergoing significant system transitions or modernization efforts and may be implementing other Federal and State policy changes that could affect operational readiness. We further acknowledge that some State Exchanges have not yet received final IPPTA results and may require additional time to evaluate findings and assess the operational impact of SEIPM.

Nevertheless, we continue to believe that the January 1, 2027 applicability date will provide sufficient time for State Exchanges to prepare, particularly in light of experience gained through IPPTA and an approach in SEIPM to allow a flexible form of data submission which will reduce the State burden. While IPPTA will continue through 2026, it has already generated substantial operational insight into data submission, validation, and review processes, which has informed the development of SEIPM. Although IPPTA is ongoing, we believe the insights gained to date provide a sufficient foundation to proceed with implementation, and additional refinements can be incorporated as the program evolves.

The timing for State Exchanges to begin the submission of the universe data that is described in Sec. 155.1615(b)(2) is planned to begin in March 2027. This will be a summary set of information that, while lengthy in volume, would not require intensive query development to produce. The timing for the State Exchanges to begin the submission of the tax household data is planned to begin in April 2027. This will be the detailed set of data specific to the selected sample that we will use to conduct the review. We note this timeline to point out that although formal implementation begins in January 2027, State Exchanges have a buffer of several additional months to prepare for the practical requirements which will not start until March 2027 and would not expand until April 2027.

Importantly, delaying implementation would extend the period during which HHS lacks a comprehensive and statistically valid improper payment measurement for APTC administered by State Exchanges. Under the PIIA, Federal agencies are required not only to identify programs susceptible to significant improper payments, but also to produce and report improper payment estimates on an ongoing, annual basis. At present, HHS fulfills this requirement for APTC administered through the Federally-facilitated Exchange but does not have a corresponding measurement for State Exchanges.

Further delay would therefore postpone HHS' ability to fully meet its statutory obligations to measure and report improper payments across the entirety of the APTC program. We believe it is appropriate to proceed with implementation once sufficient foundational testing has occurred, rather than waiting for all potential refinements to be resolved, particularly where additional operational details can be addressed through sub-regulatory guidance. Accordingly, we are finalizing Sec. 155.1605 as proposed. We will continue to consider interested party feedback and operational experience during implementation and will provide additional guidance and support to State Exchanges, as appropriate, to facilitate readiness. c. Definitions (Sec. 155.1610)

In the 2027 Payment Notice proposed rule, we proposed to add Sec. 155.1610 to codify the following definitions that would be used in this subpart that are specific to SEIPM and key to understanding its processes and procedures:

Annual Program Schedule would mean the document issued by HHS to each State Exchange that would prescribe the dates by which key SEIPM milestones must be met.

Administrative Appeal would mean the process by which a State Exchange may request HHS to review and reconsider a Difference Resolution Decision. The appeal would be the second and final level for a State Exchange to contest findings of error or improper payment as it relates to APTC.

Administrative Appeal Decision would mean the HHS final appeal decision resulting from a State Exchange's request for an appeal of one or more error or improper payment findings that are documented in a Sampled Unit Assessment Package.

Corrective Action Plan (CAP) would mean the plan a State Exchange develops to correct errors resulting in improper payments identified through SEIPM.

Difference Resolution would mean the process by which a State Exchange may initially request HHS to reconsider one or more error or improper payment findings documented in a Sampled Unit Assessment Package. The Difference Resolution would be the first level of review.

Difference Resolution Decision would mean the HHS decision resulting from a State Exchange's request for a Difference Resolution of one or more

findings that are documented in a Sampled Unit Assessment Package.

Error would mean a finding by HHS that a State Exchange did not correctly apply a requirement of subparts D and E of this part related to: (1) eligibility for, and enrollment in, a QHP; (2) eligibility for APTC, and calculated amount of APTC; (3) redeterminations of eligibility during a plan year; (4) eligibility redeterminations for the purposes of re-enrollment.

Measurement Year would mean the calendar year in which the processes described in Sec. 155.1625 would be initiated. The Measurement Year immediately follows the plan year and would be the second year of the SEIPM Cycle.

Reporting Year would mean the calendar year in which HHS would report the improper payment rate for State Exchanges as required under Sec. 155.1625(c), following completion of the measurement processes for the applicable plan year. The Reporting Year would immediately follow the Measurement Year and would be the last year of the SEIPM Cycle.

Sampled Unit Assessment Package would mean the collection of findings and supporting documentation that HHS would prepare in order to record errors at the tax household level using the process described in Sec. 155.1625.

State Exchange Improper Payment Measurement or SEIPM would mean the process by which HHS would estimate improper payments of APTC that are administered by State Exchanges as required under the PIIA, which would include a review of a State Exchange's determinations regarding (1) eligibility for and enrollment in a QHP; (2) eligibility for APTC, and calculated amount of APTC; (3) redeterminations of eligibility determinations during a plan year; (4) eligibility redeterminations for purposes of re-enrollment.

SEIPM Cycle would mean the 3-year period consisting of the plan year, Measurement Year, and Reporting Year during which the complete APTC-related improper payment measurement and reporting processes would occur.

Tax household would mean the applicant, the applicant's spouse if the applicant is married and files a joint return, and all individuals who are dependents of the applicant or spouse as defined in 26 U.S.C. 152.

We sought comment on these proposals.

We did not receive any comments in response to the proposed Sec. 155.1610. For the reasons outlined in the proposed rule, we are finalizing this policy as proposed. d. Information Submission (Sec. 155.1615)

We proposed to add Sec. 155.1615 to specify what information State Exchanges would be required to submit under the SEIPM program. We noted that the collection of such information would be necessary to allow HHS to produce a statistically valid estimate of improper payments of APTC. In the proposed rule, we stated that the general framework of this proposed provision would be that the information submission would consist of three parts: (1) the program documentation that would be used to inform the review criteria; (2) the universe, which would be a summary listing of the tax households that received APTC payments for the respective plan year, from which HHS would select a random sample; (3) tax household data which would be the detailed level of data for each sampled tax household necessary for making a determination as to whether each APTC payment was proper or improper.

At Sec. 155.1615(a), we proposed that HHS would issue an Annual Program Schedule to all State Exchanges no later than January 5th of the Measurement Year. We proposed that the Annual Program Schedule would specify the dates by which all the proposed information required under this section would be due to HHS. This timeline would ensure that State Exchanges receive clear guidance and sufficient advance notice of their submission requirements at the beginning of each Measurement Year, enabling State Exchanges to plan and allocate appropriate resources for compliance with the program's data collection and documentation requirements.

At Sec. 155.1615(b), we proposed that, on an annual basis, each State Exchange would be required to submit or make available to HHS the information specified in paragraphs (b)(1) through (b)(3).

At Sec. 155.1615(b)(1), we proposed that each State Exchange would be required to submit or make available to HHS program documentation that would consist of policy, operational, and technical documentation concerning business rules and APTC calculations that pertain to enrollment and eligibility processes of the State Exchange, as well as information that describes the data system architecture of the State Exchange such as entity relationship diagrams and data dictionaries. We noted that additional parameters for the information described would be communicated in sub-regulatory guidance. We further stated that the program documentation would be essential for establishing the improper payment measurement framework for each State Exchange because it would enable us to assess whether the State Exchange's policies and procedures align with Federal requirements and would be used to develop State-specific review criteria that reflect each State Exchange's unique operational framework.

We proposed at Sec. 155.1615(b)(2) that a State Exchange would be required to submit or make available to HHS the universe of data from which HHS would draw the sample. That universe would, for the plan year being reviewed, consist of a listing of the population of tax households that have associated QHP enrollments and payments of APTC. We proposed that for each tax household within the universe, the State Exchange would be required to submit or make available to HHS the following information: (1) Exchange assigned policy identifier; (2) tax household grouping identifier; (3) SSN inconsistency indicator; (4) citizenship inconsistency indicator; (5) lawful presence inconsistency indicator; (6) annual income inconsistency indicator; (7) non-employer sponsored minimum essential coverage inconsistency indicator; (8) employer sponsored minimum essential coverage inconsistency indicator; (9) incarceration inconsistency indicator; (10) residency inconsistency indicator; (11) number of tax household members; and (12) APTC amount paid over the duration of the plan year. The inconsistency indicators would be a data value for each tax household identifying the presence or number of data match inconsistencies of the specified type. As an example, for the first tax household in the universe, if the data within the State Exchange established that the consumer's attested citizenship status did not match the source of record to which the Exchange is required to verify citizenship status, the citizenship inconsistency indicator would be populated to show that an inconsistency existed for that tax household.

In the 2027 Payment Notice proposed rule, we noted that statistical validity requires that the sample be drawn from a comprehensive and accurately defined population to ensure that the resulting estimates are representative of the entire APTC program within each State Exchange. We stated that this provision would be necessary because without access to the complete universe of tax households having QHP enrollments and APTC payments, we would be unable to establish sampling strata or to calculate the sampling weights that

would inform the aggregate improper payment rate. Additionally, information about eligibility verification inconsistencies within the universe would allow for risk-based stratification, ensuring that tax households with recorded inconsistencies would appropriately be represented in the sample to improve the precision and accuracy of error rate calculations. For instance, the improper payment risk may be higher in tax households with recorded inconsistencies because it would trigger additional required enrollment and eligibility verification processes that State Exchanges would need to conduct manually, leaving them susceptible to human error.

We stated that the total APTC payment amounts for each tax household in the universe would be necessary to calculate proper monetary weights for the improper payment estimates, ensuring that the financial impact of errors would be accurately reflected in the final statistics. This comprehensive approach would enable HHS to produce improper payment estimates meeting the requirements of PIIA.

At Sec. 155.1615(b)(3), we proposed that a State Exchange would be required to submit or make available to HHS tax household data for each sampled tax household. The tax household data would consist of the comprehensive information that is necessary for HHS to use in conducting the processes described at Sec. 155.1625.

At Sec. 155.1615(b)(3)(i), we proposed that State Exchanges would be required to submit or make available to HHS, for each sampled tax household, information pertaining to the calculation of the APTC benefits paid, including monthly enrollment premium amounts, monthly APTC payment amounts, monthly Second Lowest Cost Silver Plan Premium amounts, and the amount of each monthly premium that is attributable to EHB. We noted that this information would be essential for us to verify the accuracy of APTC calculations and ensure that APTC were computed correctly based on the applicable benchmark plan and EHB requirements. We proposed at Sec. 155.1615(b)(3)(ii) that State Exchanges would be required to submit or make available to HHS enrollment information that would include information relevant to dates and amounts of effectuation payments, premium payment amounts, and policy start and end dates. This enrollment data would enable HHS to confirm that APTC payments were made for valid coverage periods and that the timing and amounts of payments align with policy effectuation and premium payment requirements. We further proposed, at Sec. 155.1615(b)(3)(iii), that State Exchanges would be required to submit or make available to HHS information relevant to the determination of eligibility for an SEP, where applicable, which would include information collected by the State Exchange about consumer attestations and representations regarding SEP eligibility criteria, copies of documentary evidence submitted by applicants, electronic verification information, and timing information. We noted that this SEP-related information would allow HHS to assess whether APTC payments were appropriately authorized during SEPs and whether proper verification procedures were followed to confirm SEP eligibility.

At Sec. 155.1615(b)(3)(iv), we proposed that State Exchanges would be required to submit or make available to HHS information about the timing of QHP certification or approval, the coverage area of the associated QHP, and the timing of any QHP decertification or suppression. In the proposed rule, we stated that this QHP certification information would be necessary to verify that APTC payments were made only for QHPs that were properly certified and available in the consumer's coverage area during the relevant time periods.

At Sec. 155.1615(b)(3)(v), we proposed that, to the extent applicable, for each person who is included in the APTC payment calculation, the State Exchange would submit or make available to HHS: (A) information collected by the State Exchange about consumer attestations regarding QHP and APTC eligibility factors and demographic information relevant to initial QHP enrollment and eligibility; (B) APTC eligibility and payment determinations, including evidence of required data verifications, and which could also include the electronic source consulted, the timing of required verifications, and the results of the verification; (C) information relevant to QHP and APTC manual eligibility verifications and the resolution of electronic verification inconsistencies, which could include copies of documentary evidence submitted by QHP enrollees, the timing of submissions, the timing of adjudication, and information about good faith extensions; and (D) information relevant to QHP and APTC eligibility redeterminations, such as information about automatic annual redeterminations, the timing and results of periodic examinations of data sources, and policy or application changes initiated by the consumer and resultant electronic or manual eligibility verifications. We stated in the proposed rule that this comprehensive individual-level information would enable HHS to reconstruct and validate the complete eligibility determination process for each household member, ensuring that APTC payments were based on accurate demographic information and proper verification procedures, and were made through appropriate eligibility determinations and redeterminations.

In the 2027 Payment Notice proposed rule, we stated that these data elements have been proven effective through their use in the FFE improper payment measurement program, where they have enabled reliable assessment of APTC payment accuracy and identification of root causes of improper payments, and demonstrated they provide the necessary information to conduct comprehensive improper payment reviews. Additionally, through IPPTA, we noted that we have completed the collection of this data for the first cohort of eight State Exchanges for 10 or more sampled tax households. In making the transition from IPPTA to SEIPM, we believe that each State Exchange would be able to use the automation developed during IPPTA to scale the process for submitting data for a larger number of samples. We sought comments on whether there were additional data elements that would be required under this section to support accurate improper payment measurement, or whether any of the proposed data categories would present operational challenges for State Exchanges. We also solicited comments on alternative data submission mechanisms that could streamline the process while maintaining data security and integrity, including comments on the feasibility of automated data transmission methods, preferred file formats, or technical specifications that would facilitate efficient data exchange between State Exchanges and HHS.

At Sec. 155.1615(b)(3)(vi), we proposed that the State Exchange would submit or make available to HHS any consumer submitted documents that were used to establish new or continued eligibility for enrollment in a QHP and APTC.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1615 below.

Comment: Many commenters stated that the SEIPM information submission requirements are overly burdensome, operationally complex, and would require significant manual effort, including data extraction, transformation, validation, and reconciliation. Commenters noted that State Exchange systems are not designed around a uniform Federal reporting format and that the proposal lacks sufficient specificity regarding final data formats, timelines, and technical requirements to allow State Exchanges to fully assess feasibility and cost. Commenters also noted that certain required information elements such as documentary evidence may not be captured in existing State Exchange systems and therefore may require significant manual retrieval.

Several commenters further stated concern regarding the scope and granularity of required data elements, including the submission of detailed consumer-level documentation, and noted that these requirements may not be readily automated in SEIPM. Some commenters also requested that SEIPM leverage existing data elements within State Exchange systems, where feasible, to reduce the need for system modifications and manual data transformation and requested additional technical specifications to support implementation planning.

Response: We appreciate these comments and recognize that the information submission requirements under Sec. 155.1615 are comprehensive and may require operational effort, particularly given variation in State Exchange data systems. We acknowledge commenters' concerns regarding the level of effort required to retrieve documentation and prepare case-level submissions, including that certain information may not be readily available within existing systems and may require manual retrieval. We also recognize concerns regarding the scope and granularity of required data elements, including the submission of detailed consumer-level documentation, as well as commenters' recommendations to leverage existing data elements within State systems and align requirements with current data structures where feasible.

In addition, we acknowledge requests for greater clarity regarding technical specifications, including data definitions, reporting formats, and submission requirements. However, we continue to maintain that the proposed data elements are necessary to support a statistically valid and reliable improper payment estimate, consistent with requirements under the PIIA and OMB Circular No. A-123.

Specifically, the collection of program documentation, a complete universe of tax households receiving APTC, and detailed case-level data for sampled households is essential to support valid sampling, accurate eligibility and payment review, and proper extrapolation of findings to the full population. Without this information, HHS would be unable to construct sampling frames, apply appropriate statistical weighting, or determine whether APTC payments were made in accordance with Federal requirements. As a result, HHS would be unable to produce improper payment estimates that meet Federal standards for accuracy and reliability.

We also note that this framework is consistent with that used in the Federally-facilitated Exchange improper payment measurement program and has been tested through IPPTA, where it has proven effective to support the comprehensive review of eligibility determinations and APTC calculations. While we acknowledge that State Exchanges operate different systems, we believe the proposed framework appropriately reflects the minimum data necessary to conduct improper payment measurement across all Exchange types.

With respect to commenters' concerns regarding operational specificity, we note that the regulation establishes the scope of required information, while detailed technical specifications, submission formats, and operational instructions will be provided through sub-regulatory guidance. This approach allows HHS to adapt technical requirements as needed while maintaining a consistent regulatory framework. Accordingly, we are finalizing Sec. 155.1615 as proposed.

Comment: Commenters stated concern that differences in State Exchange data architecture make standardized data submission difficult and may require significant manual effort, including mapping State data elements to Federal reporting requirements. Some commenters stated concern that HHS underestimated the SEIPM complexity which will require layers of historical data across multiple households and the administrative and financial burden it will place on State Exchanges. Some commenters also expressed concern that system modifications and additional staffing would be required to produce the information required for SEIPM. One commenter stated that the proposed alternative data collection solution will still require significant mapping, validation, and reconciliation.

Response: We acknowledge that State Exchanges maintain diverse system architectures and that mapping data elements to a common framework may require effort. For this reason, we proposed to allow flexibility in how data may be submitted, including the ability for State Exchanges to provide data in native formats without conforming to a standard structure. We believe this approach appropriately balances the need for standardized measurement with operational feasibility.

We acknowledge that implementation of SEIPM may require States to allocate resources to support data submission and program participation. However, we continue to believe that these requirements are necessary to support HHS' statutory obligations under PIIA and to ensure accurate measurement of improper payments. The data descriptions specified in Sec. 155.1615 are designed to capture the information required to evaluate eligibility determinations, verify APTC calculations, and assess compliance with Federal requirements. We do not believe that the collection of information needed to support measurement would necessitate system modifications. Accordingly, we are finalizing this provision as proposed.

Comment: Several commenters requested clarification regarding whether any required data elements would constitute Federal Tax Information (FTI) and raised concerns about associated compliance and security implications.

Response: We acknowledge the importance of appropriately safeguarding FTI and other sensitive information. We will ensure that all data collection, transmission, and storage under SEIPM comply with applicable Federal privacy and security requirements, including those governing FTI where applicable. We intend to provide additional clarification regarding data handling expectations through sub- regulatory guidance. Accordingly, we are finalizing Sec. 155.1615 as proposed.

Comment: One commenter stated concern that documentation requests issued near renewal deadlines or coverage effective dates may create consumer and assister uncertainty and therefore impact coverage stability.

Response: We appreciate this comment and recognize the importance of advance planning with consideration to timeframes that impact open enrollment and/or coverage stability. We believe that the Annual Schedule and release of additional sub-regulatory guidance will provide State Exchanges

with the necessary timelines and allow for preparation so that Exchange core operations are not negatively affected.

Comment: Some commenters requested detailed technical specifications such as data submission definitions, data collection formats, and timelines. A commenter stated concern that the proposed timing for issuance of the Annual Program Schedule, no later than January 5 of the Measurement Year, would not provide sufficient lead time for State Exchanges to prepare for submission requirements.

Response: We appreciate these comments and recognize the importance of advance planning. We believe that issuance of the Annual Program Schedule at the beginning of the Measurement Year provides timely and consistent communication of program requirements. In addition, we will provide State Exchanges with ongoing technical assistance leading up to and during the SEIPM program, which will support overall preparation. We also intend to provide supplemental information, where appropriate, through sub-regulatory guidance. Therefore, we are finalizing this provision as proposed. e. Sampling Procedures (Sec. 155.1620)

We proposed to add Sec. 155.1620 to address the sampling procedures. At Sec. 155.1620(a), we proposed that at the beginning of each calendar year, HHS would calculate a sample size in aggregate across all State Exchanges. We stated that the sampling methodology would be designed to achieve two complementary objectives: produce a highly precise aggregate estimate for all State Exchanges and generate individual State Exchange estimates for program management purposes. While some individual State Exchange estimates might have wider confidence intervals than others due to smaller sample sizes, they would meet minimum statistical validity thresholds and provide valuable insights for State-specific program improvements and oversight activities.

We proposed that we would aggregate the estimated dollar amounts of improper payments from each State Exchange to calculate a total estimated amount of improper payments for all participating State Exchanges. We noted that this aggregation process would mathematically combine the individual State Exchange improper payment estimates to produce a comprehensive national estimate. The aggregated estimate would be weighted by State Exchange size, such that a State with $5 billion in APTC would be weighted more heavily in the aggregate State Exchange improper payment rate than a State with $1 billion in APTC. We stated that this weighting approach would ensure that the aggregate State Exchange improper payment rate would accurately reflect the relative financial impact of each State Exchange's improper payment performance on the overall APTC program.

In the proposed rule, we stated that this dual-purpose sampling approach would balance statistical rigor with practical program management needs, ensuring that HHS could meet Federal reporting requirements for precise program level estimates while providing State Exchanges with actionable data for program improvement efforts. The methodology would recognize that perfect precision at the individual State Exchange level would require prohibitively large sample sizes, while the primary statutory requirement is for accurate improper payment measurement and reporting at a program level.

At Sec. 155.1620(a)(1), we proposed that the sample size would be calculated to estimate an improper payment rate. That rate would be estimated across all Exchanges using Generally Accepted Accounting Principles (GAAP).

At Sec. 155.1620(a)(2), we proposed to develop sample sizes specific to each State Exchange, which would take into consideration several factors in determining each State Exchange's sample size for the current SEIPM cycle. We provided that the first factor, at Sec. 155.1620(a)(2)(i), would be overall APTC expenditures associated with the State Exchange; higher APTC expenditures would generally warrant larger sample sizes as they would represent greater financial risk to the Federal Government and have more significant impact on aggregate national improper payment estimates. The relative amount of a State Exchange's APTC payments would amplify the importance of accurate measurement. For example, if a single State Exchange were to account for 20 percent of overall APTC payments made across all State Exchanges, any improper payments within that State would have a proportionally larger impact on the aggregate national improper payment rate. The large share of total APTC payments would necessitate a larger sample size to meet the statistical precision goals and also would not introduce excessive uncertainty into the national aggregate estimate.

At Sec. 155.1620(a)(2)(ii), we proposed to take into consideration a second factor, State-level precision goals for the current SEIPM cycle. We noted that precision goals would establish the acceptable margin of error for improper payment rate estimates at the State level. We proposed that we would set precision targets that balance statistical reliability with operational feasibility, taking into account factors such as State-specific APTC volumes, available resources, and the need for meaningful measurement. We proposed that precision goals could vary by State based on Exchange size, with larger Exchanges held to tighter precision standards due to their greater impact on aggregate national estimates. These precision goals would ensure that State-specific improper payment rates would be statistically meaningful and could support targeted corrective actions while balancing measurement accuracy with resource constraints.

At Sec. 155.1620(a)(2)(iii), we proposed to consider a third factor, the improper payment rate from the State Exchange's previous SEIPM cycle. State Exchanges that are measured as having higher improper payment rates could require larger sample sizes to achieve the same level of statistical precision and confidence as State Exchanges that are measured as having lower improper payment rates. Additionally, we noted that State Exchanges that demonstrate high variability in their previous cycle measurements could need increased sampling to establish more reliable baseline estimates. Conversely, State Exchanges with consistently low and stable improper payment rates could support smaller sample sizes to maintain adequate precision and confidence, which would allow for efficient resource allocation across the SEIPM program.

At Sec. 155.1620(a)(3), we proposed that we would establish minimum and maximum sample sizes to ensure statistical validity while maintaining operational feasibility across State Exchanges of varying sizes. While the sampling methodology design would produce statistically valid improper payment estimates at both the aggregate State Exchange level and individual State Exchange levels, we recognized that the precision of improper payment estimates at the State Exchange level would vary based on State Exchange size and corresponding sample sizes. State Exchanges with smaller APTC populations may have smaller sample sizes resulting in wider confidence intervals and higher margins of error for their individual estimates. Despite these precision limitations, individual State Exchange estimates would meet minimum statistical validity thresholds and would provide meaningful data for program oversight and improvement purposes. We noted that SEIPM's primary focus would remain producing

a precise and reliable estimate for all State Exchanges, where individual State Exchange results would provide State-specific insights within the constraints of their respective sample sizes.

At Sec. 155.1620(b), we outlined proposed sample selection procedures. We proposed that, on an annual basis, HHS would select random samples of tax households from the data provided by each State Exchange as described in Sec. 155.1615(b)(2). We proposed to use the tax household as the sampling unit because a tax household encompasses all individuals whose income and circumstances are considered together for APTC purposes, which would make it the most appropriate and meaningful unit for measuring payment accuracy.

At Sec. 155.1620(c), we outlined proposed State Exchange coordination and notification procedures that would be necessary to support SEIPM. We proposed at Sec. 155.1620(c)(1) that, following receipt of the universe data from State Exchanges as described in Sec. 155.1615(b)(2), HHS would notify each State Exchange of the specific records selected for review. Such notification would include: (i) the total number of sampled tax households selected for the State Exchange; (ii) a unique identifier for each sampled tax household; and (iii) any specific instructions or requirements needed to facilitate HHS' review of the sampled records. We stated that this information would be intended to give State Exchanges the information necessary to provide the documentation required. This process would help ensure that State Exchanges have clear notification of the specific tax households that have been sampled. This would also help foster efficiencies and accurate submission of the tax household data required under Sec. 155.1615(a)(3).

In the proposed rule, we noted that we would protect all data exchanged during the SEIPM process in accordance with the Federal Information Security Modernization Act of 2014 (FISMA), which mandates comprehensive security controls for Federal information systems, and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy and Security Rules (45 CFR parts 160 and 164), which require administrative, physical, and technical safeguards to protect the privacy of protected health information and to ensure the confidentiality, integrity, and availability of all electronic protected health information. Additionally, all data transmissions would utilize encryption protocols compliant with National Institute of Standards and Technology (NIST) Special Publication 800-53 security controls and our Acceptable Risk Safeguards (ARS) framework, with access restricted to authorized personnel only through role-based access controls and continuous monitoring as required under the Federal Information Security Management Act.

At Sec. 155.1620(c)(2), we proposed that HHS would provide the sampled records notification described in paragraph (c)(1) of this section no later than 60 calendar days after receipt of the universe data from all State Exchanges. This 60-day timeframe would ensure that HHS would have sufficient time to complete the sampling process across all participating State Exchanges. We stated that the proposed timeline would account for the complexity of coordinating sampling activities across multiple State Exchanges with varying data submission schedules and allow for quality assurance review of the sampling methodology before notification. This approach would balance the need for thorough sampling coordination with the operational requirements for timely completion of improper payment measurement processes.

At Sec. 155.1620(c)(3), we proposed to establish procedures for extending the sampling notification timeline when unforeseen circumstances would warrant additional time for HHS to complete the sampling process. We proposed at Sec. 155.1620(c)(3)(i) that HHS could extend the 60-day timeline specified in paragraph (c)(2) of this section under three specific circumstances: when technical issues would prevent completion of the sampling process within the standard timeframe; when data quality issues would require additional coordination with State Exchanges before sampling can be completed; or when other circumstances beyond HHS' control would necessitate additional time to ensure accurate sampling methodology.

We proposed at Sec. 155.1620(c)(3)(ii) to establish notification and transparency requirements when HHS would determine an extension would be necessary. Under paragraph (c)(3)(ii), HHS would: (A) notify all affected State Exchanges in writing of the extension and the revised notification date; (B) provide the reason for the extension; and (C) confirm the impact, if any, on subsequent SEIPM cycle timelines. In the proposed rule, we stated that this provision would reflect that unforeseen technical or operational challenges potentially could arise when coordinating complex sampling across multiple State Exchanges. Where not properly addressed, such challenges could compromise the sampling methodology accuracy or completeness, so this provision would balance the need for timely program milestone progress with the requirement for statistically sound sampling procedures. By limiting extensions to specific, defined circumstances and requiring transparent communication with State Exchanges, this approach would maintain accountability while providing necessary operational flexibility to ensure the integrity of the SEIPM measurement process.

In the proposed rule, we stated that the notification requirements proposed at Sec. 155.1620(c)(3)(ii)(A) through (C) would also ensure that State Exchanges would remain informed of any timeline adjustments and could plan for the case documentation preparation activities. This transparency would support the collaborative nature of the SEIPM program while maintaining predictable timelines for all participating parties.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1620 below.

Comment: Some commenters stated concern regarding the methodology associated with sampling requirements and stated that the factors used to determine sample size would not provide sufficient predictability for State Exchanges to estimate workload and resource needs. Commenters also noted that larger sample sizes necessary to achieve statistical precision may significantly increase workload, particularly where manual processes are required, and that case complexity may further affect the level of effort required for sample review. Some commenters requested providing greater predictability in sample size or adopting phased or incremental increases in sample size to support operational planning.

Response: We appreciate these comments and acknowledge that sample sizes may vary from between 50 and 250 across State Exchanges. This variability is necessary to ensure that improper payment estimates meet applicable standards for statistical validity and precision. As described in Sec. 155.1620(a)(2), sample sizes are determined based on factors such as APTC volume, precision goals, and prior improper payment rates, all of which are standard considerations in developing statistically sound sampling

methodologies. We acknowledge commenters' concerns regarding the relationship between sample size and operational feasibility, including the potential impact of larger sample sizes on workload, particularly where manual processes are required. We also recognize that variation in case complexity may affect the level of effort required for sample review, as well as requests for greater predictability and phased approaches to sampling.

We also note that one commenter appeared to assume that the SEIPM sampling approach is designed to achieve a specific margin of error at the individual State Exchange level, such as a margin of error of less than 5 percent. This is not the intent of the SEIPM sampling design. As described in Sec. 155.1620(a), the sampling methodology is designed to produce a precise estimate at the aggregate program level across all State Exchanges, consistent with requirements under the Payment Integrity Information Act of 2019 (PIIA).

While State-specific estimates will be produced for program management and oversight purposes, they are not required to meet the same precision thresholds as the aggregate estimate. As a result, individual State Exchange sample sizes may vary and may not be designed to achieve a specific margin of error at the State level. This approach allows us to balance statistical rigor with operational feasibility across State Exchanges of varying sizes.

While we recognize that variability may present operational planning challenges, establishing fixed or highly predictable sample sizes could undermine the reliability of the resulting estimates. We intend to provide additional operational detail, including expectations regarding sampling, through sub-regulatory guidance to support State Exchange planning. Accordingly, we are finalizing Sec. 155.1620 as proposed.

Comment: One commenter stated concern that the proposed sampling methodology, including the use of inconsistency indicators for stratification, could result in samples that overrepresent higher-risk cases and therefore not reflect overall program performance. One commenter requested HHS to consider APTC enrollment instead of APTC paid to calculate sample sizes across State Exchanges as varying incomes and variance in plan premiums may skew sample sizes. Another commenter requested that HHS prioritize aggregate reporting structures instead of application-level data.

Response: We do not agree that the proposed methodology introduces bias. Stratified sampling is a widely accepted statistical approach used to improve the precision and reliability of estimates, particularly in programs where risk is not uniformly distributed. The use of inconsistency indicators as one of several stratification factors is intended to ensure that the sample appropriately represents variation within the population and supports accurate estimation of improper payment rates.

We also acknowledge commenters' concerns regarding the use of APTC expenditures as a factor in determining sample sizes. As described in Sec. 155.1620, APTC payment amounts are used to appropriately weigh the financial impact of improper payments and ensure that estimates accurately reflect the magnitude of Federal expenditures. While alternative approaches, such as using enrollment counts, were suggested, we believe that incorporating APTC payment amounts is necessary to produce statistically valid estimates that reflect the financial risk associated with improper payments across State Exchanges.

We further acknowledge commenters' requests for additional State- level detail in reporting. As described in Sec. 155.1625(c), HHS will provide State Exchanges with State-specific improper payment reports to support program oversight and improvement, while aggregated reporting will be used to meet Federal reporting requirements under PIIA.

The sampling methodology, consistent with the PIIA and OMB Circular No. A-123 guidance, is designed to produce statistically valid estimates representative of the full population at the aggregate program level. Accordingly, we are finalizing Sec. 155.1620 as proposed.

Comment: One commenter stated that the FFE improper payment measurement methodology has an insufficient sample size and imprecise margin of error and requested HHS to adopt a statistical methodology similar to the GAO.

Response: We appreciate this comment but do not agree that the FFE improper payment measurement methodology is insufficient. The FFE methodology is designed in accordance with OMB Circular No. A-123 guidance, which establishes Federal standards for improper payment measurement, including requirements related to statistical validity, precision, and confidence intervals.

We acknowledge the commenter's interest in alternative statistical approaches; however, the methodology used for the FFE--and proposed for SEIPM--reflects established Federal standards for improper payment estimation and is designed to produce reliable and defensible results at the program level.

Accordingly, we are not adopting an alternative statistical methodology and are finalizing this approach as proposed. f. Determining Payment Errors (Sec. 155.1625)

In the proposed rule, Sec. 155.1625 outlined the process by which HHS would determine payment errors. At Sec. 155.1625(a), we proposed procedures for HHS' review of records obtained through SEIPM and identification of payment errors from such records. We proposed at Sec. 155.1625(a)(1) that HHS would, for each sampled record, conduct a comprehensive review using standardized review criteria designed by HHS. This approach would ensure consistency in methodology across all participating State Exchanges while accommodating necessary variations in review procedures where State Exchanges have effectuated State- specific operational approaches. We stated that we would design the criteria to minimize reviewer variability while maintaining the flexibility needed to address State-specific operational differences for which Federal regulations allow. The review criteria would be established using the requirements described in this part in conjunction with the program documentation that would be submitted by each State Exchange. We would make available a general overview of the review methodology on the CMS website.

At Sec. 155.1625(a)(2), we proposed to conduct reviews using the tax household information provided under Sec. 155.1615(b)(3), including any relevant consumer-submitted documents that would be gathered by the State Exchange as part of the enrollment process and provided to HHS. We noted that this approach would ensure that HHS reviews would be based on the same information that was available to State Exchanges at the time of their original APTC-related determinations.

At Sec. 155.1625(a)(3), we proposed that the review would identify whether the State Exchange made any errors related to the following resulting in improper payment of APTC: (i) enrolling or re-enrolling a consumer into a QHP for which APTC was paid; (ii) consumer eligibility for APTC being paid on their behalf; (iii) calculating the APTC amount that was paid on the consumer's behalf; and (iv) taking required actions upon changes to a consumer's application that would affect APTC-related eligibility or payment amount.

We stated in the proposed rule that this approach would ensure that HHS could identify and measure all types of improper payments related to APTC, providing a complete assessment of payment accuracy to meet Federal improper payment measurement requirements under the PIIA while supporting program integrity objectives.

At Sec. 155.1625(a)(4), we proposed to apply consistent review standards based on the APTC-related determination requirements established in 45 CFR part 155, subparts D and E, and other applicable provisions of part 155. By anchoring review standards in existing regulations, we would ensure that the State Exchange's performance would be evaluated against the same statutory and regulatory framework that governs their APTC-related determinations. This regulatory framework would ensure that any identified errors would be based on clear violations of established requirements rather than subjective interpretations of the program's goals.

We proposed at Sec. 155.1625(b) how HHS would evaluate each error to determine an improper payment amount. At Sec. 155.1625(b), we proposed that, for each error identified, we would: (1) calculate the correct APTC amount, based on the requirements of section 36B of the Internal Revenue Code and the applicable implementing regulations; (2) determine an improper APTC payment amount, which is the difference between the amount paid and the correct amount; (3) document the error within a Sampled Unit Assessment Package and provide the Sampled Unit Assessment Package to the State Exchange; and (4) extrapolate the identified improper payments from the sample to estimate the total improper payment amount for the State Exchange's entire universe of APTC payments, using statistically valid methodologies that comply with OMB Circular No. A-123 guidance on improper payment estimation.

At Sec. 155.1625(c), we proposed how HHS would report improper payment rates. We proposed at Sec. 155.1625(c) that HHS would make available to the public in the AFR: (1) an aggregate improper payment rate estimated across the FFE and all State Exchanges; and (2) an aggregate improper payment rate estimated across all State Exchanges, pursuant to 31 U.S.C. 3352(c)(1)(B); and also that HHS would provide to each State Exchange a report that would document the State-specific improper payment rate and error analysis. We stated in the proposed rule that this reporting approach would ensure PIIA compliance while providing State Exchanges with actionable data to improve their program operations and reduce future improper payments. The State-specific reports would facilitate corrective action planning, while the aggregate public reporting would support congressional oversight and public accountability for the overall integrity of the APTC program.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1625 below.

Comment: Some commenters stated concern that data limitations or operational challenges could result in situations where incomplete or unavailable documentation would lead to findings of improper payments, even where underlying eligibility determinations may have been appropriate. Commenters noted that documentation may not always be readily available within State systems and may require manual retrieval, and expressed concern that complex cases involving multiple eligibility or enrollment changes may increase the likelihood of incomplete documentation being identified during review as errors and/ or improper payments. One commenter requested that HHS provide a detailed non-aggregated summary of improper payments by State Exchanges when determining errors for transparency.

Response: We appreciate these comments. We acknowledge commenters' concerns regarding the availability of documentation and the operational challenges associated with compiling and submitting complex case-level data, particularly where information may need to be retrieved manually or where cases involve multiple eligibility or enrollment changes. We continue to note that the methodology outlined in Sec. 155.1625 appropriately reflects Federal standards for determining improper payments. Under the PIIA and OMB Circular No. A- 123, agencies must determine whether payments were made in accordance with applicable statutory and regulatory requirements, based on the information and documentation available to support those determinations.

The SEIPM review process is designed to assess payment accuracy using the same information that was available to the State Exchange at the time of the original eligibility and payment determinations, along with any supporting documentation maintained by the State Exchange. Where sufficient documentation is not available to support that a payment was made in accordance with applicable requirements, the payment may be classified as improper, consistent with Federal improper payment measurement standards. This approach reflects longstanding Federal requirements that determinations be supported by appropriate documentation.

At the same time, we recognize the operational challenges associated with compiling and submitting complex data across diverse State Exchange systems. As discussed in Sec. 155.1615, we are allowing flexibility in data submission approaches, including the ability to submit data in formats that align with State Exchange system architecture where appropriate. We believe this flexibility will help reduce unnecessary burden, improve the accuracy and completeness of submitted data, and support more reliable improper payment determinations.

We also note that the SEIPM process includes opportunities for State Exchanges to provide additional information or clarification through the Difference Resolution and administrative appeal processes prior to finalization of findings. We believe that these processes, including opportunities for clarification and appeal, provide an appropriate balance between ensuring accountability and recognizing operational realities.

We also acknowledge commenters' request for more detailed, non- aggregated reporting of improper payments by State Exchanges. As described in Sec. 155.1625(c), HHS will provide State Exchanges with State-specific improper payment reports to support program oversight and improvement, while aggregated reporting will be used to meet Federal reporting requirements under PIIA. We believe this approach appropriately balances transparency with the need for consistent, program-level reporting. Accordingly, we are finalizing Sec. 155.1625 as proposed.

Comment: A commenter requested clarification on how certain data will be used, including eligibility verification and consumer demographic information, some commenters requested clarification on FTI data elements and requested that FTI field be removed from data requirements.

Response: We appreciate this comment and clarify that we will use all data for the purpose of estimating and reporting an improper payment estimate. We also clarify that we will

follow all Federal requirements related to data retention, privacy, and security. We will also follow FTI rules as established by 26 U.S. Code Sec. 6103. g. Difference Resolution and Administrative Appeal Process (Sec. 155.1630)

In new Sec. 155.1630, we proposed procedures for Difference Resolution and administrative appeals of SEIPM findings. This section proposed a process that would allow State Exchanges to challenge HHS determinations regarding error findings and associated determinations of improper payments. This comprehensive dispute resolution framework would ensure that State Exchanges receive fair consideration of their challenges to SEIPM findings while maintaining the integrity and efficiency of the improper payment measurement process. The proposed procedures would provide State Exchanges with meaningful opportunities to present evidence and legal arguments, while also supporting HHS' statutory obligations to produce timely and accurate improper payment estimates under PIIA. Additionally, the structured approach would promote consistency in how disputes would be handled across all State Exchanges, while reducing administrative burden and ensuring that legitimate concerns about error classifications or methodological applications would receive appropriate review and consideration.

At Sec. 155.1630(a), we proposed the Difference Resolution process. We proposed at Sec. 155.1630(a)(1) that the State Exchange could make a written Difference Resolution request to HHS in accordance with proposed Sec. 155.1630(c) to dispute HHS' error and improper payment findings within 30 calendar days after the issuance of a Sampled Unit Assessment Package. The proposed 30-day timeframe for State Exchanges to submit written Difference Resolution requests would balance the need to give State Exchanges sufficient time to review the Sampled Unit Assessment Package with the need for administrative efficiency and timely resolution of the SEIPM process.

At Sec. 155.1630(a)(2), we proposed procedures for HHS' review of Difference Resolution requests. We proposed that upon receipt of a Difference Resolution request, HHS would: (i) engage with the State Exchange in a collaborative process to examine the disputed findings and any additional documentation provided by the State Exchange; (ii) evaluate the disputed findings by applying the same protocol used in the original review while considering whether the State Exchange's position was supported by the existing or newly provided evidence; and (iii) prepare the Difference Resolution Decision. We stated that this collaborative approach would ensure that State Exchanges would have a meaningful opportunity to present their perspective and provide additional context that may not have been available during the initial assessment, while maintaining consistency in evaluation standards. The process would balance the need for thorough consideration of State Exchange concerns with administrative efficiency, promoting fair resolution of disputes while preserving the integrity of the SEIPM measurement methodology.

We proposed at Sec. 155.1630(a)(3) that HHS would communicate the Difference Resolution Decision to a State Exchange within 90 calendar days of receiving the written request for a Difference Resolution. The Difference Resolution Decision would include a summary of the analysis and rationale that informed the decision. This timeline would balance the need for thorough review of a State Exchange's dispute with administrative efficiency requirements, and allow sufficient time for comprehensive analysis while ensuring timely resolution.

Proposed Sec. 155.1630(b) would establish an internal agency administrative appeal process for HHS' Difference Resolution Decision. At Sec. 155.1630(b)(1), we proposed that, for a finding that the State Exchange and HHS could not resolve through Difference Resolution, the State Exchange could make a written request for an administrative appeal to HHS in accordance with proposed Sec. 155.1630(c) within 15 business days after the issuance of the Difference Resolution Decision. We noted that we believe the 15 business day timeline for filing an administrative appeal would strike an appropriate balance between providing State Exchanges adequate time to prepare comprehensive administrative appeals while ensuring prompt resolution of disputes and maintaining administrative efficiency. This shorter appeal period, compared to the initial 30-day timeline to request Difference Resolution, would reflect that the basis of the administrative appeal would have been established and well-described during the Difference Resolution phase, and that the State would not be able to submit new evidence or documentation that had not already been submitted during the Difference Resolution process, although it could provide additional context to clarify evidence that had been submitted. We stated that, as a result, we expect that 15 business days would provide State Exchanges with sufficient opportunity to review the Difference Resolution Decision and prepare a focused administrative appeal that would build upon the previously established record. Furthermore, the administrative appeal timeframe would help ensure that the overall SEIPM cycle would remain on schedule, preventing delays that could affect HHS' ability to meet Federal improper payment reporting deadlines and provide timely program oversight.

At Sec. 155.1630(b)(2), we proposed that upon receipt of an administrative appeal request, HHS would (i) assign the administrative appeal request to one or more qualified reviewers who were not part of the State Exchange team; (ii) conduct a comprehensive review of the disputed findings using the administrative record established during the Difference Resolution process; (iii) evaluate the disputed findings by applying the same protocol used in the original review while considering whether the State Exchange's position is supported by the evidence; and (iv) prepare the administrative appeal decision for the completed review based on a preponderance of the evidence. At Sec. 155.1630(b)(3), we proposed that HHS would issue the administrative appeal decision within 90 calendar days of receipt of the written request for administrative appeal. The administrative appeal decision would include a summary of the analysis and rationale that informed the decision.

In the proposed rule, we stated that HHS would utilize internal staff to conduct administrative appeal adjudications under this provision. The agency would assign qualified internal reviewers who possess appropriate expertise in Federal eligibility and payment requirements and who had not been involved in the original review to ensure objectivity in the administrative appeals process. These reviewers would independently review the appeal, without consultation with the individuals who had executed the dispute resolution. This approach would maintain program consistency while providing State Exchanges with an independent review of disputed findings. The internal agency administrative appeal process described in this section would be an administrative review conducted by agency staff, not a judicial proceeding or formal adjudication requiring an Administrative Law Judge.

We stated that the 90-day timeline would provide sufficient opportunity

for thorough analysis of complex eligibility and payment determinations while ensuring timely resolution that would support the overall SEIPM cycle schedule. The requirement to include analysis and rationale in the administrative appeal decision would promote transparency and enable State Exchanges to understand the basis for final determinations, supporting both accountability and potential future process improvements.

We proposed at Sec. 155.1630(c) that all Difference Resolution and appeal requests would be required to contain the following: (1) a clear statement of the specific finding(s) being challenged; (2) all factual and legal bases for filing the request; and (3) evidence directly related to the finding(s), which could include: (i) clarifying information regarding data interpretation; or (ii) legal citations supporting the State Exchange's position. These submission requirements would ensure that HHS would receive sufficient information to conduct meaningful review of disputed findings while enabling State Exchanges to present their strongest arguments and supporting evidence in a structured format that would promote efficient dispute resolution.

We proposed at Sec. 155.1630(d) the treatment of pending Difference Resolution Requests and appeal requests. At Sec. 155.1630(d)(1), for Difference Resolution Requests or administrative appeals resolved in favor of the State Exchange during the current SEIPM cycle, we proposed that: (i) HHS would adjust the affected improper payment rate calculations for the SEIPM cycle; and (ii) updated aggregate rates would be reflected in current cycle reporting. This approach would ensure that corrections identified through the Difference Resolution or appeals process would be incorporated into the current measurement cycle's results, providing the most accurate and complete improper payment estimates for public reporting and program management purposes. We stated that, by adjusting calculations and updating aggregate rates, HHS could maintain the integrity and reliability of SEIPM findings while ensuring that legitimate State Exchange concerns would be reflected in the final reported statistics for the applicable measurement period.

We proposed at Sec. 155.1630(d)(2) provisions for Difference Resolution Requests or administrative appeals resolved in favor of the State Exchange after completion of the SEIPM cycle. At Sec. 155.1630(d)(2), we proposed that, should the decision result in material changes to aggregate rates, HHS would publish amended aggregated improper payment rates in subsequent AFRs or other appropriate public reporting mechanisms as well as notifying affected State Exchanges of any amendments to previously published rates. We noted that, should a decision not result in material changes to aggregate rates, no action would be taken. This framework would ensure that significant corrections identified through post-cycle Difference Resolution Requests or administrative appeals would be incorporated into the public record through amended reporting, maintaining the accuracy and integrity of published improper payment data while avoiding unnecessary administrative burden for minor adjustments that would not materially affect aggregate statistics. The notification requirement for affected State Exchanges would promote transparency and enable States to understand how successful challenges would impact previously published rates, support ongoing program improvement efforts, and maintain the integrity of the SEIPM measurement process.

At Sec. 155.1630(e), we proposed that, for good cause, HHS could extend the timelines for accepting a Difference Resolution request or administrative appeal request or for issuing a Difference Resolution Decision or Administrative Appeal Decision. Good cause would be established for situations including but not limited to: (1) the need for additional technical analysis or consultation with subject matter experts to resolve complex eligibility determination issues; (2) delays in receiving necessary supplemental information or clarification from the State Exchange; (3) the volume or complexity of the dispute requiring additional time to ensure a thorough and accurate decision; or (4) unforeseen circumstances, including system failures, staffing constraints, or other administrative challenges that could materially impact HHS' ability to complete the review. HHS' failure to timely issue a Difference Resolution or Administrative Appeal decision would not indicate an acceptance of the State Exchange's position and would not be a basis to decide in favor of the State Exchange.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1630 below.

Comment: Several commenters had concerns that the proposed timelines for Difference Resolution and administrative appeals may be insufficient given the volume and complexity of sampled cases. Commenters noted that reviewing findings, retrieving supporting documentation, and preparing submissions may require more time than the proposed timeframes allow, particularly for larger samples or more complex cases. Commenters also requested additional flexibility in the timelines and clearer guidance regarding documentation requirements. Some commenters also requested detailed technical specifications on the Difference Resolution and administrative appeals process.

Response: We appreciate these comments and acknowledge that the time required to review findings and prepare submissions may vary depending on sample size and case complexity. We recognize that certain cases may require additional time to retrieve documentation or provide clarification.

As described in Sec. 155.1630(e), HHS may extend timelines for Difference Resolution requests or administrative appeals for good cause, including circumstances where additional time is needed to complete technical analysis, obtain supporting documentation, or address complex eligibility determinations. We believe this flexibility appropriately balances the need for thorough review with the need to maintain timely completion of the SEIPM cycle.

We also intend to provide additional guidance, as appropriate, to support State Exchanges in navigating the Difference Resolution and administrative appeal processes. Accordingly, we are finalizing Sec. 155.1630 as proposed. h. Corrective Action Plan (CAP) (Sec. 155.1635)

We proposed to add Sec. 155.1635 to, at our discretion, require a State Exchange to develop and submit a CAP to correct errors identified through the SEIPM process. Our goal would be to establish a set of minimum requirements, using the standards provided at Appendix C to OMB Circular No. A-123, to support State Exchanges in developing, implementing, and monitoring a CAP. We stated in the proposed rule that, should this provision be finalized as proposed, we would issue future sub-regulatory guidance to further detail CAP requirements and processes, and

finalize an approved SEIPM CAP Paperwork Reduction Act (PRA) package following future notice-and-comment rulemaking. We further noted that, should these provisions be finalized as proposed, the first improper payment report would be published in the Fall 2028 AFR and we would anticipate the first SEIPM CAP(s) would be due in early 2029.

At Sec. 155.1635(a), we proposed that HHS could, at its discretion, require a State Exchange to develop and submit a CAP to correct errors identified through the SEIPM process. We would not anticipate that SEIPM CAP standards and requirements would markedly differ from the standards employed by other improper payment measurement programs, such as the Medicaid and CHIP Payment Error Rate Measurement program.

At Sec. 155.1635(b), we proposed that a State Exchange's CAP would need to address errors that would be included in the State Exchange improper payment report described in Sec. 155.1625(c)(2). At Sec. 155.1635(b)(1), we proposed that, in developing a CAP, a State Exchange would be required to conduct an error analysis, which could include reviewing causes, characteristics, and frequency of errors that are associated with improper payments. We proposed that a State Exchange would be required to review the findings of the analysis to determine specific programmatic causes to which errors would be attributed, if any, and to identify root improper payment causes. Further, at Sec. 155.1635(b)(2), we proposed that the State Exchange would be required to determine the corrective actions that would be implemented to address improper payment root causes and prevent recurrence. Finally, at Sec. 155.1635(b)(3), we proposed that the CAP would be required to incorporate measurable milestones, accountability mechanisms, regular monitoring and validation of progress, documentation of implemented corrective actions, and regular status updates. We proposed that the CAP would be required to include all of the following items for each identified error: (1) the specific corrective action; (2) status of the corrective action; (3) scheduled or actual implementation date of the corrective action; (4) key personnel that would be responsible for implementing each corrective action; and (5) a plan for monitoring the effectiveness of the corrective action.

At Sec. 155.1635(c), we proposed that a State Exchange would be required to develop a CAP implementation schedule, implement the CAP in accordance with that schedule, and regularly evaluate whether the initiatives were effective at reducing or eliminating error causes. We stated that it would be critical that a State Exchange maintain regular communication with HHS regarding any evaluation findings, particularly to ensure that the State Exchange would determine specific programmatic causes to which errors would be attributed. Therefore, we proposed that a State Exchange would be required to provide updates on CAP implementation progress in a manner and frequency specified by HHS, but at least annually.

At Sec. 155.1635(d), we proposed that if a State Exchange would: (1) fail to submit a CAP when one had been required; (2) submit an incomplete CAP that would fail to address all parts of a CAP as specified at 155.1635(b)(3); (3) fail to implement a CAP; or (4) submit a CAP otherwise found unacceptable by HHS following technical assistance provided by HHS, that HHS could determine that a State Exchange had failed to substantially comply with SEIPM requirements and could take actions outlined in Sec. 155.1650 to ensure program integrity and effectiveness.

We sought comment on these proposals.

After consideration of the comment and for the reasons outlined in the proposed rule and this final rule, including our responses to the comment, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed below.

Comment: One commenter opposed the CAP provision, as part of overall opposition to the SEIPM proposal.

Response: We acknowledge the various concerns related to SEIPM and have responded to the specific concerns through our other responses. i. SEIPM Preparation Phase (Sec. 155.1640)

We proposed new Sec. 155.1640 to create a SEIPM preparation phase. At Sec. 155.1640(a), we proposed that any State Exchange in its first year of operation would be required to participate in a 1-year SEIPM preparation phase prior to participating in SEIPM. We stated in the proposed rule that the proposed preparation phase would be designed to familiarize State Exchanges with the SEIPM processes and requirements. At the beginning of the following year, or, in other words, the second year of operation for the State Exchange, we proposed that the State Exchange would undergo SEIPM to measure improper payments for the preceding plan year, its first year of operation. We noted that this implementation timeline would ensure that newly operating State Exchanges would have the opportunity to participate in the preparation phase before undergoing full SEIPM measurement, thereby preparing the State Exchange for the SEIPM measurement. In essence, HHS would ensure that a State Exchange would test processes and procedures to prepare for SEIPM.

We proposed at Sec. 155.1640(b) that, to satisfy the requirements of the SEIPM preparation phase, a State Exchange would be required to: (1) complete the information submission requirements in Sec. 155.1615(b)(1) and (3) using information from the most current plan year for a sample size not to exceed 10 unique tax households that address scenarios specified by HHS; (2) undergo the review procedures in 155.1625(a) and (b); and (3) participate in HHS' technical assistance activities, which could include: (i) training on SEIPM requirements and procedures, (ii) system readiness assessments, (iii) data quality validation exercises, and (iv) process improvement recommendations. Such a preparation phase approach would promote administrative efficiency by ensuring State Exchanges would have adequate time and resources to develop robust improper payment measurement capabilities before full implementation. Without such a preparation period, State Exchanges could struggle to produce the data that would be necessary for determining accurate measurements.

At Sec. 155.1640(c), we proposed that, at the beginning of each calendar year, HHS would provide any State Exchange that would be subject to this section with a schedule that would span a 12-month period and that would specify when the requirements of this section would have to be completed.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1640 below.

Comment: A commenter requested HHS to extend the preparation phase for new State Exchanges by at least two years so that State Exchanges can determine the resources needed to comply with SEIPM. Other commenters noted broader concerns regarding implementation readiness, including the need for additional time to develop systems, processes, and staffing capacity to support SEIPM requirements.

Response: We acknowledge the commenter's request to extend the

SEIPM preparation phase by two years, however, we will finalize this provision as proposed. We believe the one year preparation phase will be adequate to prepare State Exchanges for SEIPM and will limit the reporting gaps mandated by PIIA. Regarding the commenters' broader concerns regarding implementation readiness and the time required for State Exchanges to prepare for SEIPM requirements, we note that the SEIPM preparation phase is designed to support this transition by providing State Exchanges, particularly those in their first year of operation, with an opportunity to test processes, validate data submission approaches, and receive technical assistance prior to full participation in SEIPM.

We believe that this preparation phase, together with ongoing technical assistance and guidance, will help support operational readiness and facilitate a more effective transition to SEIPM requirements. Accordingly, we are finalizing Sec. 155.1640 as proposed. j. Minimizing Potential Duplicate Audit Requirements (Sec. 155.1645)

We proposed to add new Sec. 155.1645 to permit HHS, to the extent possible, to minimize duplication between the requirements of the SEIPM program described in subpart Q and the annual independent external programmatic audit requirements and standards under Sec. 155.1200(c) and (d). Under Sec. 155.1200(c) and (d), each State Exchange is required to engage or contract with an independent qualified auditing entity to perform an annual independent external programmatic audit to review compliance with 45 CFR part 155 subparts D (eligibility) and E (enrollment), and other requirements under part 155, as specified by HHS, and to provide the audit results to HHS.

In the proposed rule, we stated that, among other things, this external auditing process allows HHS to oversee compliance with eligibility and enrollment standards to ensure that State Exchanges are conducting accurate eligibility determinations and enrollment transactions, including requirements across multiple State Exchange operational areas that exceed the scope of review under the SEIPM program because they do not involve payments of APTC. Section 155.1200(d) further requires that a State Exchange complete an audit to ensure appropriate financial and operational safeguards are in place to avoid making inaccurate eligibility determinations and enrollment transactions, which would include those related to administering APTC and CSRs.

We noted that Sec. Sec. 155.1200 and 155.1210 were not intended to serve as the type of measurement program contemplated by the PIIA. Program integrity audits completed under Sec. 155.1200(c) and (d), especially as they relate to requirements under subparts D and E, focus on reviewing the processes and procedures that a State Exchange has established to verify that a qualified individual meets eligibility requirements. We stated that these programmatic audits do not review, estimate, or report on the amounts or rates of improper payments resulting from inaccurate eligibility determinations and enrollment transactions. SEIPM would both ensure a review of the accuracy of State Exchange eligibility verification processes and identify improper APTC payments resulting from inaccurate eligibility determinations and enrollment transactions.

To meet the requirements of the PIIA, reduce burden on State Exchanges, and ensure consistency across State Exchanges in terms of our review methodology, we proposed that a State Exchange's participation in SEIPM would satisfy certain duplicative annual independent external programmatic audit requirements, particularly the review of compliance with provisions of subparts D and E that may result in improper payment of APTC. Should this provision be finalized as proposed, we stated in the proposed rule that we would issue sub- regulatory guidance to identify which programmatic audit requirements could be satisfied through completion of SEIPM for a given plan year. We expressed our belief that this policy would reduce duplicative efforts and burden on State Exchanges that would otherwise be required to fully comply with programmatic audit requirements and SEIPM, while also maintaining the programmatic audits for requirements not reviewed as part of SEIPM.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule and this final rule, including our responses to comments, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed below.

Comment: Many commenters noted overlap with State-based Marketplace Annual Reporting Tool (SMART), State Based Marketplace Inbound File (SBMI) submissions, issuer audits, and other oversight requirements. Some commenters stated support for minimizing duplicate requirements between SEIPM and the independent external programmatic audit requirement, but also stated burden concerns as some State Exchanges have negotiated contracts in place for multiple years to satisfy the independent external programmatic audit requirement and requested delay in SEIPM specific to this issue.

Response: We appreciate commenters' support for the goal of reducing duplicative audit obligations and acknowledge the concerns raised regarding the breadth of existing oversight mechanisms applicable to State Exchanges. We recognize that State Exchanges are subject to a range of Federal oversight requirements and we share commenters' interest in reducing duplication and burden. The amendment of Sec. 155.1200 is specifically designed to address this concern by permitting State Exchanges to satisfy certain SMART annual independent external programmatic audit requirements, specifically those related to compliance with 45 CFR part 155, subparts D and E, through completion of the SEIPM process. Regarding the concern about multi-year audit contracts, we acknowledge that some State Exchanges have entered into multi-year agreements with independent auditing entities to satisfy the annual programmatic audit requirement. We will provide clear sub- regulatory guidance specifying the audit requirements that may be satisfied through SEIPM participation, and we encourage State Exchanges to engage with their auditing entities to discuss potential scope adjustments consistent with the finalized Sec. 155.1200(e) provisions and factor this guidance into their contract planning and renewal processes going forward.

Comment: Several commenters requested clarification on how SEIPM would reduce or replace existing audit processes. A commenter also requested clarification on whether HHS would grant exemptions annually for the independent external programmatic audit and requested that HHS remove the APTC verification requirements from the SMART to avoid duplication.

Response: We appreciate this comment and we clarify that the amendment of Sec. 155.1200 will permit State Exchanges to satisfy certain SMART annual independent external programmatic audit requirements, specifically those related to compliance with 45 CFR part 155, subparts D and E, through completion of the SEIPM process. We will provide clear sub-regulatory guidance specifying the audit requirements that may be satisfied through SEIPM participation.

We proposed to add new Sec. 155.1650 that would address what would happen should a State Exchange fail to comply with the SEIPM requirements. In the proposed rule, we stated that this proposed section would create clear criteria for determining when a State Exchange had failed to substantially comply with SEIPM requirements and would establish appropriate remedial measures to ensure program integrity and effectiveness.

At Sec. 155.1650(a), we proposed to establish a general principle that would govern improper payment classification throughout the SEIPM program. We proposed that HHS would classify APTC payments as improper when a State Exchange failed to provide adequate documentation demonstrating that such payments were made in accordance with applicable Federal requirements. We noted that this principle would align with Federal improper payment measurement standards established under PIIA which require agencies to classify payments as improper when there is insufficient documentation to determine if a payment is proper or improper. The burden of providing adequate supporting documentation would rest with State Exchanges as the entities responsible for making APTC eligibility determinations and payment calculations, ensuring that Federal funds were distributed in accordance with Federal requirements.

We proposed to specify at Sec. 155.1650(b)(1) through (5) when HHS would determine a State Exchange had failed to substantially comply with this subpart by providing specific, measurable criteria addressing the most critical aspects of State Exchange participation in SEIPM, which would consist of the following: (1) failure to submit required data or documentation within the timelines specified in the Annual Program Schedule; (2) submitting data or documentation found to be incomplete, inaccurate, or in a format that would reasonably prevent effective review; (3) failure in the CAP process; or (4) demonstrates a pattern of more than five instances during a SEIPM cycle in which the State Exchange fails to respond within 30 calendar days, or provides a non-responsive answer, to HHS requests for clarification or additional information.

In the proposed rule, we stated that such a proposed compliance framework would balance the need for clear, enforceable standards with recognition that State Exchanges operate complex systems and may encounter operational challenges. We noted that the proposed criteria would focus on substantial compliance failures that would genuinely affect the integrity and effectiveness of the SEIPM program as opposed to minor technical violations that would not materially affect improper payment measurement activities. Such standards would ensure that State Exchanges would provide necessary information within established timeframes to support the overall SEIPM cycle and enable HHS to meet Federal improper payment reporting obligations, while maintaining data quality sufficient to support reliable measurement results. The framework would promote accountability and ensure effective program administration across all participating State Exchanges, while maintaining the collaborative relationship necessary for successful SEIPM implementation. By establishing clear expectations for data submission timeliness, quality standards, corrective action implementation, and ongoing communication, these proposed compliance criteria would support the accuracy of improper payment estimates and the overall integrity of the APTC program oversight process.

At Sec. 155.1650(c), we proposed to establish a process to provide State Exchanges notice and opportunity to address compliance deficiencies before HHS would implement remedial measures. We proposed that before implementing measures under paragraph (d) of this section, HHS would provide written notice to the State Exchange specifying the nature of the noncompliance and the potential consequences, and allow the State Exchange a reasonable opportunity to cure the noncompliance or demonstrate that compliance had been achieved. This notice and cure provision would promote collaborative problem-solving between HHS and State Exchanges. We stated that the written notice requirement would ensure that State Exchanges would have clear understanding of the specific compliance deficiencies and the potential consequences of continued noncompliance, and would enable them to take appropriate corrective action. HHS would set the cure period to be commensurate with the complexity of the compliance issue.

At Sec. 155.1650(d), we proposed to establish a framework of remedial measures that HHS could implement should a State Exchange fail to substantially comply with SEIPM requirements and such failures undermine or prohibit HHS' efficient administration of Exchange improper payment measurement activities. We stated that this provision would provide HHS with appropriate enforcement tools to secure State Exchange compliance while maintaining program integrity and ensuring effective oversight of APTC administration. We proposed that HHS could implement measures or procedures to secure the State Exchange's compliance with the requirements of this subpart which are proposed to include: (1) enhanced monitoring and reporting; (2) mandatory implementation of specific operational procedures or controls; and (3) on-site visits to State Exchange facilities to assess operational procedures, data systems, and compliance with program requirements.

In the proposed rule, we stated that this graduated enforcement approach would recognize that different compliance failures may require different remedial responses, allowing HHS to tailor interventions to the specific nature and severity of the noncompliance. Enhanced monitoring and reporting requirements would provide ongoing oversight for State Exchanges experiencing compliance difficulties, while mandatory operational procedures or controls would address systemic deficiencies that could be contributing to improper payment risks. On- site visits would enable HHS to conduct comprehensive assessments of State Exchange operations, identify root causes of compliance failures, and provide targeted technical assistance to support improvement efforts.

At Sec. 155.1650(e), we proposed that HHS could initiate proceedings to revoke a State Exchange's authority to operate if a State Exchange continued to fail to comply after implementation of initial remedial measures under paragraph (d) of this section. Revoking a State Exchange's authority to operate would represent the most serious enforcement action available and would be reserved for cases where other remedial measures had failed to secure the State Exchange's compliance, and the State Exchange's continued operation would pose unacceptable risks to program integrity and enrollee protection.

We sought comment on these proposals.

After consideration of comments and for the reasons outlined in the proposed rule, we are finalizing this policy as proposed. We summarize and respond to public comments received on the proposed Sec. 155.1650 below.

Comment: Several commenters stated concern that the proposed consequences for noncompliance are severe,

particularly given the operational complexity of SEIPM and the potential challenges State Exchanges may face in meeting program requirements. Commenters noted that potential outcomes, including corrective action plans and possible revocation of a State Exchange's authority to operate, are significant. A few commenters also requested that HHS exercise flexibility in enforcement during initial implementation, particularly during periods of system transition or adaptation to new requirements. A commenter opposed the provision entirely arguing it is extremely punitive and recommended that punitive measures be applied in stages to provide State Exchanges with the opportunity to correct any failures. Another commenter expressed concern about Federal overreach to withhold Exchange funding in connection with program integrity programs, which may negatively affect the stability of the Exchanges.

Response: We appreciate these comments, but disagree that the proposed framework would be overly severe and result in Federal overreach. We acknowledge commenters' concerns regarding enforcement during initial implementation, particularly considering operational complexity, system transitions, and the time required to fully implement SEIPM requirements. The provisions in Sec. 155.1650 establish a graduated and flexible approach to addressing noncompliance, beginning with notice and an opportunity for the State Exchange to cure deficiencies before any remedial measures are implemented. This framework is designed to allow for consideration of operational circumstances affecting compliance and to provide State Exchanges with the opportunity to address issues before further action is taken.

The available actions are intended to ensure that HHS can effectively administer improper payment measurement activities and maintain program integrity, while allowing for appropriate consideration of the nature and severity of noncompliance. More significant actions, such as revocation of a State Exchange's authority to operate, would be reserved for circumstances in which a State Exchange persistently fails to comply, after consideration of any mitigating circumstances at the Federal and State level, and where other remedial measures have not been effective.

We recognize that during implementation, State Exchanges will experience challenges and difficulties while working in good faith to comply with the provisions of this subpart. We will be seeking a collaborative partnership with the State Exchanges to mitigate or relieve any such difficulties without resorting to the enforcement actions described in this provision.

In the 2027 Payment Notice proposed rule (91 FR 6366), for the 2027 benefit year, we proposed an FFE user fee rate of 2.5 percent of total monthly premiums and an SBE-FP user fee rate of 2.0 percent of total monthly premiums.

Section 1311(d)(5)(A) of the Affordable Care Act permits an Exchange to charge assessments or user fees on participating health insurance issuers as a means of generating funding to support its operations. If a State does not elect to operate an Exchange or does not have an approved Exchange, section 1321(c)(1) of the Affordable Care Act directs HHS to operate an Exchange within the State. Accordingly, in Sec. 156.50(c), we state that a participating issuer offering a plan through an FFE or SBE-FP must remit a user fee to HHS each month that is equal to the product of the annual user fee rate specified in the annual HHS notice of benefit and payment parameters for FFEs and SBE-FPs for the applicable benefit year and the monthly premium charged by the issuer for each policy where enrollment is through an FFE or SBE-FP. OMB Circular No. A-25 established Federal policy regarding user fees and what the fees can be used for.\235\ OMB Circular No. A-25 provides that a user fee charge will be assessed against each identifiable recipient of special benefits derived from Federal activities beyond those received by the general public.

\235\ See Office of Management and Budget (OMB). (n.d.) Circular No. A-25 Revised. https://www.whitehouse.gov/wp-content/uploads/2017/11/Circular-025.pdf.