§ 423.2440 - Credibility adjustment.

§ 423.2440 Credibility adjustment.

Cross Reference

Link to an amendment published at 85 FR 33911, June 2, 2020.

(a) A Part D sponsor may add a the credibility adjustment specified under paragraph (e) of this section to a contract's MLR if the contract's experience is partially credible, as determined by CMSdefined in paragraph (d)(1) of this section.

(b) A Part D sponsor may not add a credibility adjustment to a contract's MLR if the contract's experience is fully credible, as determined by CMSdefined in paragraph (d)(2) of this section.

(c) For those contract years for which a contract has non-credible experience for their MLR, , as defined in paragraph (d)(3) of this section, sanctions under § 423.2410(b) through (d) will not apply.

(d) CMS defines and publishes definitions of partial credibility, full credibility, and non-credibility and the credibility factors through the notice and comment process of publishing the Advance Notice and Final Rate Announcement.

(1) A contract's experience is partially credible if it is based on the experience of at least 4,800 member months and fewer than or equal to 360,000 member months.

(2) A contract's experience is fully credible if it is based on the experience of more than 360,000 member months.

(3) A contract's experience is non-credible if it is based on the experience of fewer than 4,800 member months.

(e) The credibility adjustment for partially credible experience is determined based on the number of member months for all enrollees under the contract and the factors shown in Table 1 of this section. When the number of member months used to determine credibility exactly matches a member month category listed in Table 1 of this section, the value associated with that number of member months is the credibility adjustment. The credibility adjustment for a number of member months between the values shown in Table 1 of this section is determined by linear interpolation.

Table 1 to § 423.2440 - Credibility Adjustments for Part D Contracts

Member months	Credibility adjustment (additional percentage points)
<4,800	N/A (Non-credible).
4,800	8.4%.
12,000	5.3%.
24,000	3.7%.
48,000	2.6%.
120,000	1.7%.
240,000	1.2%.
360,000	1.0%.
>360,000	0.0% (Fully credible).

[85 FR 33911, June 2, 2020]