From tracking ACA rate filing parameters across multiple benefit years, the 2027 NBPP stands out as the first final rule to simultaneously reduce the FFE user fee by more than half a percentage point while recalibrating the risk adjustment model on a fresh three-year data window. The combination creates a filing environment where pricing actuaries must update two independent components of the premium development formula at once, each flowing through different cells of the Unified Rate Review Template (URRT) but interacting through the same gross premium output.

On May 16, 2026, CMS published the HHS Notice of Benefit and Payment Parameters for 2027 Final Rule. The rule finalizes an FFE user fee rate of 1.9% of monthly premiums (down from 2.5% in 2026), an SBE-FP user fee rate of 1.5% (down from 2.0%), a risk adjustment user fee of $0.18 PMPM (down from $0.20), and recalibrated HHS risk adjustment models using 2021, 2022, and 2023 benefit year enrollee-level EDGE data. It also introduces an HHS-RADV scaling factor for error estimation and standardizes the open enrollment period end date to December 31 across all exchanges.

1.9%
2027 FFE User Fee (Down From 2.5%)
$0.18
Risk Adjustment User Fee PMPM (Down From $0.20)
3 Years
EDGE Data Window for RA Recalibration (2021–2023)

The User Fee Circular Reference in the Premium Development Formula

The FFE user fee is assessed as a percentage of gross premium. Because the user fee is itself a component of the expenses that gross premium must cover, the premium development formula contains a circular reference. The standard algebraic solution collapses this circularity into a single expression:

Gross Premium = (Claims + Non-Claim Expenses + Profit/Risk Margin) / (1 − User Fee Rate − Other Percentage-of-Premium Loads)

This formula structure means the user fee rate appears in the denominator, not as an additive line item in the numerator. A reduction in the user fee rate increases the denominator, which reduces gross premium for any given level of expected costs. The relationship is not one-to-one: a 0.6 percentage point cut in the user fee does not produce a 0.6% premium reduction. The actual premium impact depends on the starting denominator value.

Worked Example: Benchmark Silver Plan Premium Impact

Consider a hypothetical FFE issuer with the following 2027 projected cost components for a benchmark silver plan:

Component Monthly Amount
Projected allowed claims (net of RA transfer) $485.00
Non-claim administrative expenses $52.00
Quality improvement activities $6.50
Profit and risk margin $18.00
Total numerator costs $561.50

Assume other percentage-of-premium loads (state premium tax, ACA health insurer fee where applicable, risk adjustment user fee as a percent of premium) total 2.8%. Under the 2026 FFE user fee of 2.5%, the denominator equals:

1 − 0.025 − 0.028 = 0.947

Gross premium (2026 parameters) = $561.50 / 0.947 = $593.03

Under the 2027 FFE user fee of 1.9%, the denominator becomes:

1 − 0.019 − 0.028 = 0.953

Gross premium (2027 parameters) = $561.50 / 0.953 = $589.20

The premium reduction is $3.83 per member per month, or 0.65%. This confirms the 0.6–0.7% gross premium reduction range that the circular formula produces for typical silver plan cost structures. The dollar savings scale with the premium level: a bronze plan at $456 PMPM sees approximately $2.96 in monthly savings; a gold plan at $720 PMPM sees approximately $4.68.

Pass-Through vs. Margin Absorption: Two Filing Strategies

Issuers face a strategic decision: pass the full user fee savings through to lower premiums, or absorb some portion to improve margins. Both approaches have downstream consequences for medical loss ratio (MLR) compliance and competitive positioning.

Scenario A: Full pass-through. The issuer reduces gross premium by the full $3.83 PMPM calculated above. The MLR numerator (claims + quality improvement) remains unchanged. The MLR denominator (earned premium net of taxes and fees) decreases. Net effect: the MLR percentage increases slightly, moving the issuer further from the 80% individual market MLR floor. This is the actuarially neutral approach and the one most state DOI rate reviewers will expect.

Scenario B: Partial absorption. The issuer reduces gross premium by only $2.00 PMPM and retains the remaining $1.83 as additional profit margin. The MLR numerator stays the same, but the denominator decreases by less than in Scenario A. The issuer gains approximately 0.3 percentage points of additional underwriting margin. However, this approach requires justification in the actuarial memorandum: the pricing actuary must explain why the profit/risk margin load increased relative to the prior filing year. State rate review programs that apply effective rate review to filings above 15% may scrutinize this retention.

For issuers already operating near the MLR floor (common among small-market carriers with high administrative cost ratios), the full pass-through strategy strengthens MLR compliance. For larger issuers with MLR ratios well above 80%, partial absorption is financially rational but carries regulatory friction risk.

Risk Adjustment User Fee: The PMPM Reduction

The risk adjustment user fee drops from $0.20 to $0.18 PMPM for benefit year 2027. Unlike the FFE user fee, this component enters the premium development formula as a fixed dollar amount in the numerator rather than a percentage load in the denominator. The arithmetic is straightforward:

Annual savings per member: ($0.20 − $0.18) × 12 = $0.24

For an issuer with 50,000 enrolled members, the aggregate annual savings total $12,000. This is a rounding-level change in the rate development template, but pricing actuaries must still update the assumption in their URRT submissions. The risk adjustment user fee funds the operational infrastructure of the HHS risk adjustment program, and CMS attributes the reduction to improved program efficiency and lower-than-projected administrative costs.

Risk Adjustment Model Recalibration: Updated HCC Coefficients

The more consequential change for pricing strategy is the recalibration of the HHS risk adjustment models using 2021, 2022, and 2023 benefit year EDGE data. This three-year window replaces the prior calibration dataset, updating the hierarchical condition category (HCC) coefficients that determine plan-level transfer payments.

The recalibration matters for pricing because it changes the expected magnitude and direction of risk adjustment transfers for each plan. Issuers whose enrolled populations include disproportionate concentrations of specific HCCs will see their predicted transfer receipts (or payments) shift based on how the updated coefficients weight those conditions.

What the 2021–2023 data window captures. This calibration period spans the tail of COVID-19 utilization suppression (2021), the utilization rebound and deferred-care surge (2022), and the first full year of normalized post-pandemic patterns with enhanced PTC-driven enrollment expansion (2023). The inclusion of 2023 data is particularly significant because marketplace enrollment peaked at over 21 million in that year, meaning the calibration sample reflects a broader, healthier risk pool than prior windows that used pre-expansion enrollment levels.

Pricing implications by metal tier. Bronze plans attract younger, healthier enrollees with lower average HCC scores. If the recalibrated coefficients increase the relative weight of low-acuity conditions prevalent in bronze populations, bronze plan issuers will see more favorable transfer payment projections. Conversely, silver and gold plans that attract higher-acuity enrollees may see shifts in specific HCC coefficients that affect their expected transfer receipts. Pricing actuaries should run sensitivity analyses comparing projected transfer payments under the old and new coefficients for their specific enrollment composition.

HHS-RADV Scaling Factor: Implications for Margin Adequacy

Starting with benefit year 2025 HHS-RADV audits, CMS will apply an additional scaling factor to the error rate calculation. This factor estimates the proportion of each issuer’s total plan liability risk score that is HCC-related after removing no-HCC enrollees from the initial validation audit sample. The policy aligns with the sampling methodology finalized in the 2026 Payment Notice.

For pricing actuaries, the practical effect is a change in the expected magnitude of RADV-related payment adjustments. If the scaling factor reduces the estimated error rate for a given issuer (because a larger share of its risk score derives from HCC-bearing enrollees who remain in the sample), the issuer’s RADV adjustment reserve requirement decreases. This frees margin that was previously held as a contingency against RADV clawback.

Conversely, issuers with high proportions of no-HCC enrollees (common in bronze-heavy books) may find the scaling factor reveals a larger-than-previously-estimated HCC-related error component. These issuers should stress-test their RADV reserve assumptions using the new methodology before finalizing 2027 pricing margins.

OEP Standardization and SEP Verification: Morbidity Adjustment Factors

The final rule standardizes the open enrollment period end date to December 31 across all exchanges (within a maximum 9-week window starting no later than November 1) and requires pre-enrollment SEP verification for at least 75% of new special enrollment period enrollments on the federal platform.

Both provisions reduce adverse selection pressure, which pricing actuaries should reflect as a morbidity adjustment factor in their 2027 projections. The mechanism works through two channels:

OEP standardization. Exchanges that previously extended enrollment beyond December 31 attracted late enrollees who tend to exhibit higher near-term utilization (a well-documented pattern where enrollment timing correlates with imminent healthcare needs). Truncating these extended windows reduces the proportion of high-morbidity late enrollees, modestly improving the average risk profile of the enrolled population.

SEP verification. Pre-enrollment verification of qualifying life events for 75% of SEP enrollments screens out ineligible applicants who would otherwise enroll, consume services, and potentially lapse after receiving care. The academic literature on SEP adverse selection (documented in prior CMS rulemaking) suggests that SEP enrollees generate 10–25% higher claims costs in the first 90 days than OEP enrollees. Tighter verification reduces this population, applying modest downward pressure on plan-level morbidity.

The combined morbidity improvement from these provisions is difficult to isolate empirically, but pricing actuaries incorporating both effects might reasonably apply a 0.2–0.5 percentage point favorable morbidity adjustment, depending on the issuer’s historical SEP enrollment share and the specific exchange’s prior OEP duration.

SBE-FP Differential: Competitive Dynamics Across Platform Types

Issuers on state-based exchanges using the federal platform (SBE-FP) see their user fee reduced from 2.0% to 1.5% for 2027. This creates a growing differential between FFE issuers (1.9%) and SBE-FP issuers (1.5%), now at 0.4 percentage points. Under the same premium development formula:

For an SBE-FP issuer with identical $561.50 numerator costs and 2.8% other loads, the 2027 denominator is 1 − 0.015 − 0.028 = 0.957, yielding gross premium of $586.73. That is $2.47 lower than the equivalent FFE issuer’s premium of $589.20.

This differential matters most in states considering platform transitions. States moving from FFE to SBE-FP gain an immediate 0.4 percentage point user fee advantage that flows directly to consumer premiums. States already on SBE-FP capture the largest total reduction (0.5 percentage points, from 2.0% to 1.5%). Pricing actuaries at multi-state issuers must apply the correct platform-specific user fee rate in each state’s rate filing, as the URRT template captures this at the state and market level.

Filing Timeline and Implementation Considerations

The 2027 NBPP final rule arrives as issuers are actively building their 2027 rate filings for state DOI submission. Most states require individual market rate filings between May and July 2026, with effective rate review applying to any proposed increase exceeding 15%. Key implementation steps for pricing actuaries:

  • Update the URRT user fee cell from 2.5% to 1.9% (FFE) or 2.0% to 1.5% (SBE-FP), confirming the iterative formula converges
  • Recalculate expected risk adjustment transfer payments using the recalibrated HCC coefficients from the 2021–2023 EDGE data, running scenarios by metal tier and enrollment composition
  • Update the risk adjustment user fee from $0.20 to $0.18 PMPM in the non-claim expense development
  • Reassess RADV reserve margins under the new scaling factor methodology for issuers subject to HHS-RADV audits
  • Document the morbidity adjustment for OEP standardization and SEP verification effects in the actuarial memorandum, disclosing the basis for any favorable selection assumption
  • Reconcile with CMS 2027 PAPI parameters guidance (published January 29, 2026), which sets the premium adjustment percentage at 1.8916 and the required contribution percentage at 8.50%

Why This Matters for Pricing Actuaries

The 2027 NBPP final rule changes the inputs, not the methodology, of ACA premium development. But the interaction between reduced user fees and recalibrated risk adjustment coefficients creates a filing environment where simply updating two cells in the URRT is insufficient. Pricing actuaries must trace the downstream effects through MLR compliance, competitive positioning, RADV reserving, and morbidity assumptions.

The user fee reduction is mechanically straightforward but strategically consequential. It creates approximately $3–5 per member per month in premium relief across the individual market, depending on plan cost level and platform type. Whether that relief reaches consumers as lower premiums or accrues to issuer margins will be determined by each carrier’s competitive strategy and its state’s rate review posture.

The risk adjustment recalibration is more opaque but potentially larger in impact. Three years of post-pandemic, post-expansion EDGE data will shift HCC coefficients in ways that create winners and losers among issuers with different enrollment compositions. Issuers that have grown rapidly under enhanced PTCs (enrolling healthier populations at the margin) may find their expected transfer positions shift unfavorably as the model recalibrates to the expanded enrollment base. Issuers with concentrated chronic disease populations may see improved transfer receipts. The actuarial memorandum for 2027 filings must document which direction the recalibration moves the issuer’s expected position, and how that assumption interacts with the enrollment contraction projected under subsidy expiration scenarios.

Further Reading

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