OPM Community Rating Guidelines - 2004 3

List of rate attachments 3

General policy for the 2004 rate year 4

Special audits 5

Policy on Error reporting 5

New rating areas 5

Similarly Sized Subscriber Groups (SSSGs) 5

Regulatory definition 5

Enrollment and contract renewal dates 7

Rules for the number of SSSGs required 8

Policy on Selection of SSSGs 8

Instructions for Groups Contracting with purchasing Alliances
.............................10

Instructions for total replacement groups qualifying as an
SSSG............................10

Consistency of rating methods ......\...\...\...\...\... .......\...10

Special Adjustments to SSSG
rates............................................................\...11

Examination of non-SSSG groups ...............................11

Policy on Recovery of Discounts .11

Miscellaneous remarks 11

State taxes 12

Special loading for enrollment discrepancies 12

Community-rating policy 12

CRC rating 13

ACR rating 13

Attachment I 14

Instructions for Attachment I 15

Attachment 1A 16

Attachment II 17

Backup Line 1 Form. 18

Backup Special Loading Form. 19

Backup Medicare Form. 20

Backup Children's Loading Form. 21

Instructions for Attachment II 22

Attachment IIA 29

Attachment IIB 41

Attachment IIC 42

This discusses OPM\'s rating policy for the 2004 rate year.

**List of Rate Attachments**

**Attachment I**

This is the 2004 rate proposal/questionnaire for small carriers.

**Instructions for Attachment I**

Line-by-line instructions to small carriers for completing Attachment I.

**Attachment IA**

[The Certificate of Accurate Pricing For Small Community Rated
Carriers]{.underline}. It is for use only by small carriers whose 2003
income from the Federal group will be \$500,000 or more. A carrier
contracting official must use the form to certify that the information
in the reconciliation documents (Attachments III, IIIA, and IIIB, kept
on file at the carrier) is accurate and that OPM can rely on the
information as a basis for determining the Federal group\'s 2004 rates.
**Note that this document pertains to your 2003 rates.**

**Attachment II**

The rate proposal sheet. It is for use by large carriers and small
carriers whose 2003 income from the Federal group will be \$500,000 or
more. Large carriers must submit the form to OPM. Small plans must keep
II and IIA on file and submit IIB and IIC.

**Instructions for Attachment II**

Line-by-line instructions (with examples and discussion) for completing
Attachment II.

**Attachment IIA**

[The Community Rate Questionnaire.]{.underline} It is for use by large
carriers and small carriers whose 2003 income from the Federal group
will be \$500,000 or more. Large carriers must submit it to OPM. Small
plans must keep it on file. If you re-type this questionnaire, please be
sure that the questions and answers are on only one side of each sheet.

**Attachment IIB**

This requests the names, telephone and fax numbers and the E-mail
addresses of two persons we can contact about your rate proposal. All
carriers must submit this form to OPM.

**Attachment IIC**

This requests utilization data (based on the carrier\'s total
enrollment) for prescription drug, hospital, and office visit benefits.
All carriers must submit this form to OPM.

-   **[General Policy For the 2004 Rate Year]{.underline}**

**Definition**: We divide carriers into two groups, \"large\" and
\"small.\" For 2004, we define small carriers as those having less than
1500 FEHBP contracts at the time of the rate proposal. We define large
carriers as those having 1500 or more contracts at the time of the rate
proposal.

**Documentation:** The amount and nature of the back-up documentation we
require for small carrier rate proposals differs from the large carrier
requirements.

For the 2004 rate proposal, a small carrier has three options:

1\) It may submit the same detailed documentation we require for large
carriers.

2)  If its 2003 income from the Federal group will be \$500,000 or more,
    > and the carrier does not elect to submit the same documentation as
    > a large carrier, the carrier must submit only Attachments I, IA,
    > IIB, and IIC. Such a carrier must also complete Attachments II and
    > IIA and keep them on file and available for OPM review.

3)  If its 2003 income from the Federal group will be less than
    \$500,000 and the carrier does not elect to submit the same
    documentation as a large carrier, the carrier must submit only
    Attachments I, IIB, and IIC. Such a carrier need not complete or
    retain Attachments II and IIA.

In what follows, \"small carrier\" refers to a carrier with under 1500
FEHBP contracts choosing not to submit the detailed documentation we
require for large carriers (i.e., a small carrier is one that chooses
option 2 or 3 above).

All carriers must derive their Federal group rates according to OPM
community-rating guidelines. Small carriers whose 2003 Federal group
income will be \$500,000 or more must complete Attachment II (Proposed
Biweekly Net-To-Carrier Rates For the 2004 Rate Year) and Attachment IIA
(Community Rate Questionnaire) but should [not]{.underline} send these
documents to OPM. Such carriers must keep these documents on file, in
accordance with the records retention clause of the contract. The OPM
auditors will examine the documents during carrier audits, and the OPM
Office of Actuaries may also periodically review the documents.

Small carriers whose 2003 Federal group income will be less than
\$500,000 are not required to complete or retain Attachments II and IIA.

Since small carriers will not submit detailed documentation, the Office
of Actuaries will evaluate the proposed rates by using its
reasonableness test. Rates failing this test will be further reviewed.
For small carriers whose 2003 Federal group income will be \$500,000 or
more, the Office of Actuaries may request detailed documentation.

-   **[Special Audits]{.underline}**

OPM\'s Office of the Inspector General (IG) will perform special audits
of carriers\' 2004 rate reconciliations on a selected basis beginning in
May 2004. Although these audits will focus on the 2004 rate
reconciliation, the audit staff may need to analyze rate information for
the Federal group and other groups for previous years. Keep all
documentation used to develop the 2004 rates available for review by the
audit staff. Special audits of the 2003 reconciliations will begin in
May 2003.

-   [Policy on Error Reporting]{.underline}

    If a carrier discovers that a previous rate proposal and/or
    reconciliation submitted to OPM is incorrect (e.g., through the
    discovery of an error or omission), the carrier must:

1)  Notify OPM, and

2)  Prepare and submit to OPM an amended proposal and/or reconciliation
    (including a newly executed Certificate Of Accurate Pricing).

-   Note: The above policy does not apply to proposals and/or
    reconciliations that the IG is auditing.

## [New Rating Areas]{.underline}

If you propose a rate for a new area (or to split a current area),
please submit a letter explaining:

-   why you have decided to add this area;

-   how it relates to your previous service area (for example, is the
    new area a portion of an existing area that has been split into two
    or more sections?); and

-   how your current enrollment will be affected by the addition of this
    new area.

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-   **[Similarly Sized Subscriber Groups (SSSGs)]{.underline}**

The purpose of the SSSG concept is to ensure that the Federal group
receives an equitable and reasonable rate.

**Definition of Purchasing Alliances**

Purchasing Alliances are any groups bonding together to purchase health
insurance. Purchasing Alliances are considered employee groups and may
be SSSGs.

### [Regulatory Definition]{.underline}

48CFR 1602.170-13 defines SSSGs as follows:

(a) Similarly sized subscriber groups (SSSGs) are a comprehensive
    medical plan carrier\'s two employer groups that:

\(1\) Have a subscriber enrollment closest to the FEHBP subscriber
enrollment as of the date specified by OPM in the rate instructions; and

\(2\) Use any rating method other than retrospective experience rating;
and

\(3\) Meet the criteria specified in the rate instructions issued by
OPM.

**\"Subscriber enrollment\" refers to contract enrollment. This could be
the total self and family contract enrollment, or the total self,
couples, and family contract enrollment, or some other sum, depending of
the rate structure of the group.**

(b) Any group with which an FEHB carrier enters into an agreement to
    provide health care services is a potential SSSG (including separate
    lines of business, government entities, groups that have multi-year
    contracts, and groups having point of service products).

(c) Exceptions to the general rule stated in paragraph (b) of this
    section are (and the following groups must be excluded from SSSG
    consideration):

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(1) Groups the carrier rates by the method of retrospective experience
    rating;

(2) Groups consisting of the carrier\'s own employees;

(3) Medicaid groups, Medicare groups, and groups that have only a stand
    alone benefit (such as dental only); and

(4) A purchasing alliance whose rate-setting is mandated by the State or
    local government.

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(d) OPM shall determine the FEHBP rate by selecting the lower of the two
    rates derived by using the two rating methods consistent with those
    used to derive the SSSG rates.

> **[The following groups are added to section © and must be excluded
> from SSSG consideration:]{.underline}**

(5) A new group (e.g., a group the carrier first contracts with between
    July 2, 2003 and July 1, 2004);

(6) Any group the carrier is contracting with for the second year
    (starting its second year between July 2, 2003 and July 1, 2004)
    that would be rated using adjusted community rating but does not
    have complete data for ACR rating;

(7) Provider Partners - Employer Groups in which the carrier has a
    financial interest or there is a risk sharing arrangement;

(8) Any employer group with at least a 100% increase in enrollment
    within the last 12 months; and

(9) A purchasing alliance in which every employer in the alliance has
    less than 100 enrollees.

-   **[Enrollment and Contract Renewal Dates]{.underline}**

For the 2004 rate year, the specific guidelines for SSSGs are as
follows:

> \(1\) All group enrollments including new groups (the Federal group
> and the SSSG enrollments) should be the latest 2004 enrollment
> available to the carrier (but no later than March 31, 2004).

\(2\) The contract renewal date for 2004 SSSGs should be between July 2,
2003 and July 1, 2004. **Note: You should interpret \"renewal date\" to
mean the date on which a rate change (if any) is effective for the
SSSG.**

**Note: If an SSSG's rate is extended beyond twelve months (i.e. the
carrier allows an SSSG to change its renewal date), a premium adjustment
must be made for the SSSG in the following year, or the rate extension
will be considered as a discount.**

# Definition of a Rating Region

**A rating region is the total area over which the carrier controls its
rates. This is usually the state.**

**Example 1**

HMO ABC operates in Pennsylvania and has two separate rating entities
HMO ABC

Pittsburgh and HMO ABC Philadelphia. Pittsburgh and Philadelphia
determine rates for groups within their area only. Therefore, Pittsburgh
is HMO ABC Pittsburgh's **rating region** and Philadelphia is HMO ABC
Philadelphia's **rating region.**

## Example 2

HMO DEF operates in Florida. It has five separate rating codes
throughout the State of Florida. HMO DEF controls the rates for each
rate code. Therefore, the State of Florida is the **rating region.**

# [Rules For the Number of SSSGs]{.underline} 

A carrier must choose two SSSGs for every unique Federal rate code. You
should choose both SSSGs from groups that have at least 5% of their
enrollees in the federal group's rate code area. Total enrollment is
defined as enrollment in a rating area. It is possible that a carrier
could have federal enrollees in several different geographical regions
or states under the same rate code. We will choose the SSSGs as shown
previously.

-   **[Policy and Selection of SSSGs]{.underline}**

We will use a potential SSSGs local enrollment within a rating region to
decide if a group is an SSSG. If we determine that a group is an SSSG
the rating methodology within the rating region will be used to
determine any discounts.

*The following examples illustrate the above policies.*

**Case 1 One state, one federal rate code area, one rating region, and
all groups are in one state:**

> The carrier operates in the State of Texas. The FEHBP has one rate
> code area in Texas. Two SSSGs are required. The carrier controls the
> rates for all of Texas. Therefore, Texas is the rating region. All the
> groups the carrier contracts with are in Texas. The total enrollment
> in Texas for each group that has at least 5% of its enrollment in the
> Federal rate code area should be compared with the FEHBP enrollment to
> decide if the group is an SSSG.

**Case 2** **One state, two federal rate code areas, one rating region,
and all groups are in one state:**

The carrier operates in the state of Texas. The FEHBP has two rate code
areas in Texas: one in Dallas and one in Houston. Two SSSGs are required
for each federal rate code area. The carrier controls the rates for all
of Texas. Therefore, Texas is the rating region. All the groups the
carrier contracts with are in Texas. If at least 5% of the total
enrollment of a group is in the Federal Rate code area in Dallas, then
carrier should use the total enrollment of that group in Texas to
compare with the FEHBP enrollment in Dallas to determine if a group is
an SSSG for the Dallas rate code area. Carrier follows the same
procedure to select SSSGs in Houston.

**Case 3** **One state, two federal rate code areas, two rating regions,
and all groups are in one state:**

The carrier operates in the State of Texas. The Dallas region controls
rates in Dallas. The Houston region controls the rates in Houston.
Therefore, there are two rating regions in Texas. The FEHB has two rate
codes in Texas: one in the Dallas region and one in the Houston region.
Two SSSGs are required for each federal rate code area. The carrier
contracts with the XYZ group in Texas. If 5% of the total XYZ Group
enrollment in the Dallas rating region is in the Federal rate code area
in Dallas, then the carrier should compare the total XYZ Group
enrollment in **Dallas** with the FEHBP enrollment in **Dallas** to
determine if the group is an SSSG for the **Dallas** rate code area. The
XYZ Group's rates in Dallas will be used to determine any discounts.
Carrier follows the same procedure to select SSSGs in Houston. The XYZ
group may be an SSSG in Houston based on its enrollment there.

**Case 4 One state, one federal rate code area, one rating region, and
some groups are in more than one state:**

The carrier operates in the State of Texas. The FEHBP has one rate code
area in Texas. Two SSSGs are required. The carrier controls the rates in
Texas. Therefore, Texas is the rating region. The carrier contracts with
XYZ Corporation, which has enrollees in Texas and nine other states. If
at least 5% of the total XYZ Corporation enrollment in Texas is in the
Federal rate code area, then carrier should use the total XYZ
Corporation enrollment in Texas to compare with the FEHBP enrollment in
Texas to determine if a group is an SSSG. The XYZ Corporation's rates in
Texas will be used to determine any discounts.

**Case 5 One state, two federal rate code areas, one rating region, and
some groups are in more than one state:**

The carrier operates in the State of Texas. The FEHBP has two rate code
areas in Texas: Dallas and Houston. Two SSSGs are required for each
federal rate code area. The carrier controls the rates in Texas.
Therefore, Texas is the rating region. The carrier contracts with XYZ
Corporation, which has enrollees in Texas and nine other states. If at
least 5% of the total XYZ Corporation enrollment in Texas is in
**Dallas**, then carrier should use total XYZ Corporation enrollment in
**Texas** to compare with the FEHBP enrollment in **Dallas** to
determine if a group is an SSSG for the **Dallas** rate code area. The
XYZ Corporation's rates in **Texas** will be used to determine any
Dallas discount. Carrier follows the same procedure to select SSSGs in
Houston.

**Case 6** **One state, two federal rate code areas, two rating regions,
and some groups are in more than one state:**

The carrier operates in the State of Texas. The Dallas region controls
rates in Dallas. The Houston region controls the rates in Houston.
Therefore, there are two rating regions in Texas. The FEHBP has two rate
code areas in Texas: one in the Dallas region and one in the Houston
region. Two SSSGs are required for each federal rate code area. The
carrier contracts with XYZ Corporation, which has enrollees in Texas and
nine other states. If at least 5% of the total XYZ Corporation
enrollment in the **Dallas rating region** is in the federal rate code
area in **Dallas**, then the carrier should compare the total XYZ
Corporation enrollment in **Dallas** with the FEHBP enrollment in
**Dallas** to determine if a group is an SSSG for the Dallas rate code
area. The XYZ Corporation's rates in **Dallas** will be used to
determine any discounts. Carrier follows the same procedure to select
SSSGs in Houston.

**Case 7 Two states, one federal rate code area, one rating region, and
groups are in two states:**

The carrier operates in two states Texas and Arizona. The rate code is
the same for all enrollees. The rating region is Texas and Arizona
combined. All the groups the carrier contracts with are in Texas and
Arizona. The total enrollment for each group that the carrier contracts
with in Texas and Arizona that has at least 5% of its enrollment in the
Federal rate code area should be compared with the FEHBP enrollment to
decide if the group is an SSSG. The group's rates in the two states will
be used to determine any discounts.

**Case 8** **Two states, one federal rate code area, one rating region,
and some groups are in more than two states:**

The carrier operates in two states Texas and Arizona. The rate code is
the same for all enrollees. The rating region is Texas and Arizona. The
carrier contracts with the XYZ Corporation, which serves ten states. Two
of the ten states are Texas and Arizona. If 5% of the total XYZ
Corporation enrollment in Texas and Arizona combined is in the Federal
rate code area, the carrier should compare the total XYZ Corporation
enrollment in Texas and Arizona with the FEHBP enrollment in Texas and
Arizona to determine if a group is an SSSG. The XYZ Corporation's rates
in Texas and Arizona will be used to determine any discounts.

-   **[Instructions for Groups Contracting with Purchasing
    Alliances]{.underline}**

You should treat a Purchasing Alliance (as defined on page 7) as one
group and follow the above rules for choosing SSSGs. If a Purchasing
Alliance turns out to be an SSSG and consists of more than one rate, use
the weighted average of the rates to determine any discounts.

## [Instructions for Total Replacement Groups Qualifying as an SSSG]{.underline}

An employee group is a total replacement group when the plan is the only
health insurance provider for that employer. For a total replacement
group we will not view the first 2% discount on their rates as a
discount that will have to be given to the Federal Group if it is the
carrier's policy to adjust the rates of all total replacement groups by
this amount.

## [Consistency of Rating Methods]{.underline}

We normally expect the carrier to use the same rating method for the
Federal group as it uses for the SSSGs. We accept different rating
methods in some situations. **If, however, the carrier rates an SSSG
inconsistent with the carrier-established policies, the Federal group is
entitled to a discount based on the SSSG rating method applied to the
Federal group.**

## [Special Adjustments to SSSG rates]{.underline} 

We will accept adjustments to rates of SSSGs based on estimated new
business if the carrier can give a reasonable justification, the method
is not intended to give a discount and it is the carrier's policy to
make such adjustments.

The following are two examples of acceptable justifications:

1.  Closure of competitive HMOs in the SSSG's area.

2.  Mergers or Divestitures.

### [Examination of Non-SSSG Groups]{.underline}

At times, OPM may examine the rates of non-SSSG groups. The examination
is to verify the equivalence of the Federal group and SSSG rates. For
example, if an SSSG had a special benefit (e.g., dental benefit) not
included in the Federal group benefit package, OPM would compare what
the carrier charged the SSSG with what it charged other groups for the
benefit. The purpose would be to verify that the SSSG received no hidden
discount.

**An OPM review of a non-SSSG commercial group does not make it a
potential SSSG.**

## [Policy on Recovery of Discounts]{.underline}

In the past, if a plan had a policy to recoup a discount made to an
SSSG, the FEHBP's current rates may not have included that discount. We
are changing that policy. The FEHBP must receive the discount in the
rate reconciliation the same year the SSSG received a discount. If the
discounted funds are recovered from an SSSG, the plan can recoup these
funds from the FEHBP. The plan must show that the discount was actually
recovered from the SSSG.

-   **[Miscellaneous Remarks]{.underline}**

We do not request SSSG information now. Rather, we will ask for it in
2004 when we send you the rate reconciliation instructions.

The Federal group\'s rates must be equivalent to the lower of the two
SSSG rates, including any discounts and reflecting any market advantage
given to an SSSG.

Since you are a community rated carrier, the rates for most groups are
probably based on an underlying "community rate". Carriers using ACR
normally base a group\'s rates on the underlying experience for that
group.

Regardless of which community rating method the carrier uses (TCR, CRC
or ACR), OPM now focuses on the rating method used for the two SSSGs to
determine if a carrier has appropriately derived the Federal group
rates.

## [State Taxes]{.underline}

5 U.S.C. 8909(f)(1) prohibits the imposition of taxes, fees, or other
monetary payment, directly or indirectly, on FEHBP premiums by any
State, the District of Columbia, or the Commonwealth of Puerto Rico or
by any political subdivision or other governmental authority of those
entities. If your Attachment II, Line 1 rates include an amount to
recover such monies from the FEHBP, you should make an adjustment for
this amount in the form of a negative special benefit loading in the
Special Benefit Loadings section of Attachment II.

## [Special Loading For Enrollment Discrepancies]{.underline}

Your contract provides for a special premium loading of 1% to account
for unresolved enrollment discrepancies.

**Note: The carrier must explicitly take this loading, but may eliminate
its effect by also giving the Federal group a 1% discount. The carrier
should keep in mind that its contract with the FEHBP states in Section
3.6(b) "the Carrier accepts the adjustment to the subscription charges
in full resolution of all obligations of the Government in connection
with the subscription payments as described in this section 3.6 and
waives any rights it may have to claims for subscription payments under
Section 3.1(a)."**

You should place this loading on Line 4e of Attachment II.

## [Community Rating Policy]{.underline}

We accept three standard methods of community rating:

1\) Traditional Community Rating (TCR)

2\) Community Rating By Class (CRC)

3\) Adjusted Community Rating (ACR)

We expect carriers using TCR or CRC for 2004 to develop rates from a
community-based revenue requirement (normally in the form of a
capitation rate) which is documented and verifiable. Once you establish
the capitation rate, you may convert it to self and family rates using
standard procedures.

A carrier using ACR may use a method based on utilization data or it may
use a prospective method based on actual Federal claims data.

We ask you in the Community Rate Question­naire to provide the criteria
you use to determine your rating method for the Federal group.

### CRC Rating

A carrier using CRC for the Federal group must provide a standard
presentation of its rating method. The document \"Instructions For
Attachment II\" includes details of this standard format and an example
illustrating it. If a carrier using CRC cannot comply with OPM\'s
standard format, it must submit its rate manual and/or other official
documents that demonstrate the actuarial soundness of the carrier\'s CRC
method.

We accept age and sex as legitimate factors for CRC. You must support
any other proposed factor with carrier documentation showing that the
factor predicts utilization. Our policy for industry factors is
explained in the document entitled \"Instructions for Attachment II\".

**A large carrier using CRC must furnish a table showing the age-sex
distribution on which it based the Federal group\'s CRC adjustment
factor.** You must clearly show how you used this table to derive the
adjustment factor.

Carriers using TCR or CRC and demographic factors (such as family size)
based on group-specific data must also use group-specific data for the
SSSGs. You must base all demographic factors on [actual]{.underline}
in-force group data.

### 

### ACR Rating

The following rules apply for carriers using ACR for the Federal group:

1)  The carrier must have a documented ACR method established and
    implemented by 2004.

2)  The carrier may use a prospective method based on actual Federal
    claims data, or a method based on utilization data. **In either
    case, the carrier must keep on file all data necessary to justify
    the ACR rate (i.e., claims, utilization etc.) This data is subject
    to review and audit by the Office of the Inspector General.**

If you use ACR, you must completely and clearly explain your method. We
may ask for additional documentation from carriers using ACR, including
the carrier\'s rating manual.

The document "Instructions for Attachment II," includes specific rules
for carriers using a claims based ACR method.

+------------------------------------------+---+---+-----------+-----------+
| **2004 RATE PROPOSAL - SMALL CARRIERS**  |   |   |           |           |
|                                          |   |   |           |           |
| **(Use [BIWEEKLY]{.underline}            |   |   |           |           |
| Net-To-Carrier Rates)**                  |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **CARRIER NAME**                         |   |   | **STATE** | **CODE**  |
+------------------------------------------+---+---+-----------+-----------+
|                                          |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **Q1. What type(s) of community rating   |   |   |           |           |
| do you propose to use for the Federal    |   |   |           |           |
| group in 2002?**                         |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| TCR (Traditional Community Rating)       |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| CRC (Community Rating By Class)          |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| ACR (Adjusted Community Rating)          |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
|                                          |   |   | **SELF**  | *         |
|                                          |   |   |           | *FAMILY** |
+------------------------------------------+---+---+-----------+-----------+
| **Q2. What are your carrier\'s 2004      |   |   |           |           |
| proposed Federal group rates?** (For     |   |   |           |           |
| small carriers whose 2003 Federal group  |   |   |           |           |
| income will be Greater than or equal to  |   |   |           |           |
| \$500,000, these rates are on Line 5,    |   |   |           |           |
| Attachment II.)                          |   |   |           |           |
|                                          |   |   |           |           |
| **Line A:**                              |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **Q3. What adjustments have you made to  |   |   |           |           |
| the proposed 2004 rates as the result of |   |   |           |           |
| the reconciliation of the 2003 rates?**  |   |   |           |           |
| (Note that if the actual 2003 rates      |   |   |           |           |
| turned out to be higher than the rates   |   |   |           |           |
| estimated in the 2003 proposal, you      |   |   |           |           |
| should increase the 2004 rates to        |   |   |           |           |
| recover the loss. Likewise, if the       |   |   |           |           |
| actual rates were overestimated, you     |   |   |           |           |
| should decrease the 2004 rates to return |   |   |           |           |
| the gain to OPM.)                        |   |   |           |           |
|                                          |   |   |           |           |
| **Line B:**                              |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **Q4. What are the proposed 2004 Federal |   |   |           |           |
| group rates (after adjustments)?** (Line |   |   |           |           |
| A ± Line B)                              |   |   |           |           |
|                                          |   |   |           |           |
| **Line C:**                              |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **OPM will complete the section below if |   |   |           |           |
| it is necessary to reduce the proposed   |   |   |           |           |
| rates in order to draw down the          |   |   |           |           |
| contingency reserve.**                   |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **Amount of excess contingency           |   |   |           |           |
| reserve:**                               |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **Rate reduction necessary to generate a |   |   |           |           |
| contingency reserve payment              |   |   |           |           |
| approximately equal to the excess.**     |   |   |           |           |
|                                          |   |   |           |           |
| **Line D:**                              |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+
| **2004 FEHBP Rates:**                    |   |   |           |           |
|                                          |   |   |           |           |
| **Line E:**                              |   |   |           |           |
+------------------------------------------+---+---+-----------+-----------+

**Q1.** Indicate which method of community rating the carrier uses.
Small carriers may use any of the following methods: Traditional
Community Rating (TCR), Community Rating By Class (CRC), or Adjusted
Community Rating (ACR).

We do not require small carriers to submit detailed documentation of the
rate development. But please keep in mind that if your 2003 income from
the Federal group will be greater than or equal to \$500,000, you must
complete Attachments II and IIA, and keep them on file, before
submitting Attachment I. The OPM audit staff will examine the documents
during periodic audits of the carrier. The Office of Actuaries may also
periodically review the documents.

**Q2.** Insert the rates that appear on Line 5 of Attachment II. These
rates are the rates before any adjustments have been made as the result
of the 2003 reconciliation.

**Q3.** If OPM owes the carrier money because of the 2003
reconciliation, OPM will pay that money through an increase in the
carrier\'s 2004 rates. Compute the appropriate increase, based on the
results of the reconciliation.

In the case where a small carrier owes OPM because of the
reconciliation, the carrier\'s 2004 rates will be decreased by an
appropriate amount.

The rate adjustments obtained by the carrier should be placed on Line B.

**Q4.** If the amounts on Line B are rate increases, then Line C = Line
A + Line B. If the amounts on Line B are rate decreases, then Line C =
Line A - Line B.

OPM completes the section below Line C based on negotiations between the
carrier and Office of Actuaries. When we determine that sufficient
excess has built up in the contingency reserve, we will propose a
reduction to the carrier\'s rates in order to generate a contingency
reserve payment.

+-----------+----------------------------------------------------------+
| #         |                                                          |
|  Certific |                                                          |
| ate of Ac |                                                          |
| curate Co |                                                          |
| st Or Pri |                                                          |
| cing Data |                                                          |
|           |                                                          |
| **For     |                                                          |
| Community |                                                          |
| Rated     |                                                          |
| C         |                                                          |
| arriers** |                                                          |
+-----------+----------------------------------------------------------+
| This is   |                                                          |
| to        |                                                          |
| certify   |                                                          |
| that, to  |                                                          |
| the best  |                                                          |
| of my     |                                                          |
| knowledge |                                                          |
| and       |                                                          |
| belief:   |                                                          |
|           |                                                          |
| 1)  The   |                                                          |
|     cost  |                                                          |
|     or    |                                                          |
|           |                                                          |
|   pricing |                                                          |
|     data  |                                                          |
|           |                                                          |
| submitted |                                                          |
|     (or,  |                                                          |
|     if    |                                                          |
|     not   |                                                          |
|     s     |                                                          |
| ubmitted, |                                                          |
|     m     |                                                          |
| aintained |                                                          |
|     and   |                                                          |
|     i     |                                                          |
| dentified |                                                          |
|     by    |                                                          |
|     the   |                                                          |
|           |                                                          |
|   carrier |                                                          |
|     as    |                                                          |
|     s     |                                                          |
| upporting |                                                          |
|     docum |                                                          |
| entation) |                                                          |
|     to    |                                                          |
|     the   |                                                          |
|     Co    |                                                          |
| ntracting |                                                          |
|           |                                                          |
|   Officer |                                                          |
|     or    |                                                          |
|     the   |                                                          |
|     Co    |                                                          |
| ntracting |                                                          |
|     O     |                                                          |
| fficer\'s |                                                          |
|     repre |                                                          |
| ­sentative |                                                          |
|     or    |                                                          |
|           |                                                          |
|  designee |                                                          |
|     in    |                                                          |
|           |                                                          |
|   support |                                                          |
|     of    |                                                          |
|     the   |                                                          |
|     2004  |                                                          |
|     FEHBP |                                                          |
|     rates |                                                          |
|     were  |                                                          |
|           |                                                          |
| developed |                                                          |
|     in    |                                                          |
|     a     |                                                          |
| ccordance |                                                          |
|     with  |                                                          |
|     the   |                                                          |
|     req   |                                                          |
| uirements |                                                          |
|     of 48 |                                                          |
|     CFR   |                                                          |
|           |                                                          |
|   Chapter |                                                          |
|     16    |                                                          |
|     and   |                                                          |
|     the   |                                                          |
|     FEHBP |                                                          |
|           |                                                          |
|  contract |                                                          |
|     and   |                                                          |
|     are   |                                                          |
|           |                                                          |
| accurate, |                                                          |
|           |                                                          |
| complete, |                                                          |
|     and   |                                                          |
|           |                                                          |
|   current |                                                          |
|     as of |                                                          |
|     the   |                                                          |
|     date  |                                                          |
|     this  |                                                          |
|     ce    |                                                          |
| rtificate |                                                          |
|     is    |                                                          |
|           |                                                          |
| executed; |                                                          |
|     and   |                                                          |
|           |                                                          |
| 2)  The   |                                                          |
|     me    |                                                          |
| thodology |                                                          |
|     used  |                                                          |
|     to    |                                                          |
|           |                                                          |
| determine |                                                          |
|     the   |                                                          |
|     FEHBP |                                                          |
|     rates |                                                          |
|     is    |                                                          |
|     c     |                                                          |
| onsistent |                                                          |
|     with  |                                                          |
|     the   |                                                          |
|     me    |                                                          |
| thodology |                                                          |
|     used  |                                                          |
|     to    |                                                          |
|           |                                                          |
| determine |                                                          |
|     the   |                                                          |
|     rates |                                                          |
|     for   |                                                          |
|     the   |                                                          |
|     c     |                                                          |
| arrier\'s |                                                          |
|           |                                                          |
| Similarly |                                                          |
|     Sized |                                                          |
|     S     |                                                          |
| ubscriber |                                                          |
|           |                                                          |
|   Groups. |                                                          |
|           |                                                          |
| #         |                                                          |
+-----------+----------------------------------------------------------+
| # Firm    | #                                                        |
+-----------+----------------------------------------------------------+
| # Name    | #                                                        |
+-----------+----------------------------------------------------------+
| # Title   | #                                                        |
+-----------+----------------------------------------------------------+
| #         | #                                                        |
| Signature |                                                          |
+-----------+----------------------------------------------------------+
| # Date    | #                                                        |
+-----------+----------------------------------------------------------+

+-------------------------------------------+------------+------------+
| **2004 RATE PROPOSAL -- LARGE CARRIERS**  |            |            |
|                                           |            |            |
| **(Use [BIWEEKLY]{.underline}             |            |            |
| Net-To-Carrier Rates)**                   |            |            |
+-------------------------------------------+------------+------------+
| **CARRIER NAME**                          | **STATE**  | **CODE**   |
+-------------------------------------------+------------+------------+
|                                           |            |            |
+-------------------------------------------+------------+------------+
|                                           | **SELF**   | **FAMILY** |
+-------------------------------------------+------------+------------+
| 1\. Proposed Unadjusted Federal Group     |            |            |
| Rates for Jan 1, 2004                     |            |            |
+-------------------------------------------+------------+------------+
| 2\. Special Benefit Loadings              |            |            |
+-------------------------------------------+------------+------------+
| \(a\)                                     |            |            |
+-------------------------------------------+------------+------------+
| \(b\)                                     |            |            |
+-------------------------------------------+------------+------------+
| \(c\)                                     |            |            |
+-------------------------------------------+------------+------------+
| 3\. Federal Group Rates Plus Special      |            |            |
| Loadings                                  |            |            |
+-------------------------------------------+------------+------------+
| 4\. Standard Loadings                     |            |            |
+-------------------------------------------+------------+------------+
| \(a\) Extension of Coverage Loading       |            |            |
| \[.004 x (3)\]                            |            |            |
+-------------------------------------------+------------+------------+
| \(b\) Medicare Loading                    |            |            |
+-------------------------------------------+------------+------------+
| \(c\) Children\'s Loading                 |            |            |
+-------------------------------------------+------------+------------+
| 4d. Subtotal \[(3) + (4a) + (4b) + (4c)\] |            |            |
+-------------------------------------------+------------+------------+
| 4e. Enrollment Discrepancies Loading      |            |            |
| \[.01 x (4d)\]                            |            |            |
+-------------------------------------------+------------+------------+
| 5\. Proposed Federal Group Rates For 2004 |            |            |
| \[(4d) + (4e)\]                           |            |            |
+-------------------------------------------+------------+------------+

-   **[Backup Line 1 Form]{.underline}**

Plans should use the Form that applies to them. If neither of these
Forms is appropriate, create/modify your own Form and place it here.
Enter the results on line 1 of Attachment II.

  ------------------------------------------------------- ---------------
  **Backup Line 1 Form -- TCR & CRC**                     

  Beginning Capitation Rate                               

  Age/Sex Factor                                          

  Total Discount Factor                                   

  Percentage of Self Contracts                            

  Percentage of Family Contracts                          

  Average Family Size                                     

  Revenue Ratio (Family/Self Ratio)                       

  1^st^ Level Step-Up Factor (Self/Capitation)            

  Self Rate                                               

  Family Rate                                             
  ------------------------------------------------------- ---------------

  ------------------------------------------------------- ---------------
  **Backup Line 1 Form -- ACR**                           

  Experience Period                                       

  Total Paid Claims (before any COB)                      

  Total COB (including CMS)                               

  Annual Trend                                            

  Total Trend from Experience Period                      

  Expected Claims                                         

  Administration (& Profit)                               

  Total Expected Claims + Admin + Profit                  

  Members                                                 

  Per Member Rate                                         

  Percentage of Self Contracts                            

  Percentage of Family Contracts                          

  Average Family Size                                     

  Revenue Ratio (Family/Self Ratio)                       

  1^st^ Level Step-Up Factor (Self/Capitation)            

  Self Rate                                               

  Family Rate                                             
  ------------------------------------------------------- ---------------

**[Backup Special Benefit Loadings Form]{.underline}**

Enter any loadings under line 2 of Attachment II.

  -------------------------------- ----------------- ------------ ------------
  **Backup Special Benefits                                       
  Loading Form**                                                  

  **Benefit**                      **Cost/Member**   **Self       **Family
                                                     Rate**       Rate**

  \(a\)                                                           

  \(b\)                                                           

  \(c\)                                                           

  \(d\)                                                           

  \(e\)                                                           

  \(f\)                                                           

  \(g\)                                                           

  \(h\)                                                           

  \(i\)                                                           

  \(j\)                                                           
  -------------------------------- ----------------- ------------ ------------

**[Note:]{.underline}** Put any necessary backup calculations to support
these loadings below.

**[Backup Medicare Loading Form]{.underline}**

Enter any loading on line 4b of Attachment II.

+-----------------------+--------+--------+--------+-------+---------+
| **Backup Medicare     |        |        |        |       |         |
| Loading Form**        |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| **Medicare Coverage** | *      | *      | *      | **    | **Plan  |
|                       | *(A)** | *(B)** | *(C)** | (D)** | Cost**  |
|                       |        |        |        |       |         |
|                       | **C    | **     | **FEHB | **CMS | **      |
|                       | ount** | Cost** | Pre    | COB** | A\*(B-- |
|                       |        |        | mium** |       | C--D)** |
|                       |        | **Of   |        |       |         |
|                       |        | Bene   |        |       |         |
|                       |        | fits** |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Part A Only           |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Part B Only           |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Parts A & B           |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| No Coverage           |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Total                 |        | \(E\)  |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Total FEHBP Members   |        |        |        |       |         |
| (F)                   |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Cost Per Member (E /  |        |        |        |       |         |
| F)                    |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Self Loading          |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+
| Family Loading        |        |        |        |       |         |
+-----------------------+--------+--------+--------+-------+---------+

Or

  ------------------------ --------- --------- --------- --------- ---------
  Alternative Backup                                               
  Medicare Loading Form                                            

                                                                   

                                                                   

                                                                   

                                                                   

                                                                   

                                                                   

                                                                   

                                                                   

                                                                   

                                                                   
  ------------------------ --------- --------- --------- --------- ---------

-   **[Backup Children\'s Loading Form]{.underline}**

Enter results onto Line 4(c) of Attachment II if eligible.

  ------------------------------------------------------- ---------------
  **Backup Children's Loading Form**                      

  A. Family Rate (Line 3 of Attachment III)               

  B. Self Rate (Line 3 of Attachment III)                 

  C. Children's Rate { A - (2 x B) } ^1^                  

  D. Children are insured up to what age?                 

  E. Years Extended { 22 - D Years }                      

  F. Do you cover Full Time Students?                     

  G. Loading Factor (Enter .2 if you answered 'yes' to F, 
  .55 if you answered 'no')                               

  H. Children's Loading (apply to Family Rate)            
  ------------------------------------------------------- ---------------

-   **^1^ -** If the actual biweekly cost per child is known, and the
    average number of children per family is known, the children\'s rate
    may be computed by multiplying the two figures together. In general,
    if you can compute the overall rate for children in a more accurate
    way than that suggested, use that result in line (C).

-   **[Line By Line Instructions]{.underline}**

The following gives a line-by-line explanation of how to fill out the
reconciliation sheet. Item numbers correspond to line numbers on
Attachment II.

**[1. Proposed FEHBP Rates - 2004]{.underline}**

This is the most significant part of the proposal process. Please do it
carefully. Refer to the Part I instructions on page 25.

**[2. Special Benefit Loadings]{.underline}**

Refer to the instructions on page 28.

**[3. FEHBP Rates Plus Special Loadings]{.underline}**

The sum of Lines 1 and 2.

**[4a. Extension of Coverage Loading]{.underline}**

If you are entitled to this loading, multiply Line 3 by .004 (or the
same factor you used in the proposal).

**[4b. Medicare Loading]{.underline}**

Refer to the instructions on Page 28.

**[4c. Children's Loading]{.underline}**

Refer to the instructions on page 30.

**[4d. Subtotal]{.underline}**

Add lines 3, 4(a), 4(b), and 4(c)

**[4e. Enrollment Discrepancies Loading]{.underline}**

This is a 1% load to the rates which compensates the carrier for
possible enrollment discrepancies.

**[5. Proposed FEHBP Rates - 2004]{.underline}**

Add lines 4(d) and 4(e).

-   **[Backup: Line 1 Form Instructions]{.underline}**

This should be the carrier's best possible estimate of the 2004 FEHBP
biweekly self and family rates. These rates must be based on the
carrier\'s community rate(s) or on an OPM approved ACR methodology. You
must indicate in detail how you arrived at the Line 1 rates. We provide
work spaces for this in Attachment IIA, the Community Rated
Question­naire.

Carriers may use \"Traditional Community Rating\" (TCR), \"Community
Rating By Class\" (CRC), or \"Adjusted Community Rating\" (ACR), which
allows the carrier to base its rate for a group on the projected revenue
of that group.

**[Traditional Community Rating]{.underline}**

If you use TCR for the Federal group, the starting point is normally a
capitation (per member/per month) rate. This capitation is then
con­verted to a self rate and a family rate. The conversion process may
involve group specific demographic adjustment factors. The carrier must
provide the details of this conversion process.

We allow variations in the process that are consistent with OPM
principles of community rating. For example, a carrier might choose to
use a standard set of two-tiered rates for all its groups.

**[Community Rating By Class]{.underline}**

If you use CRC for the Federal Group, we require a standard presentation
of the rating method. The presentation assumes that the carrier begins
with an overall per member/per month rate (capitation). As in the case
of TCR, we accept minor variations that are consistent with OPM
principles of community rating.

*Industry Factors*

Our policy on industry factors is as follows:

1)  The industry factor used for the Federal group in the rate proposal
    must be 1.0 or less. The proposed factor may change in the
    reconciliation, but in no case can it be larger than 1.0.

2)  We will examine the industry factors used for the SSSGs. We require
    that the Federal group industry factor must be no larger than the
    lowest industry factor used for an SSSG and 1.00 or less.

### Example Of CRC Method

If a carrier uses CRC, we require a method, which is essentially as
follows:

1.  Derive a CRC adjustment factor (AF), which is used to adjust the
    capitation rate. Normally, you should base this adjustment factor on
    the age-sex distribution of the Federal group, although we do allow
    certain variations of this concept.

2.  Determine the adjusted capitation rate for the Federal group (AF x
    capitation).

3.  Convert the adjusted capitation rate to self and family rates using
    the same method that would be used under TCR.

**Note The Following:**

1\) You must include your CRC worksheets (i.e. sheets showing the
relative utilization factors and the age/sex distribution for the
Federal group) in your submission.

2\) The relative utilization factors used for the federal group must be
the same as those used for all your other CRC-rated groups.

3\) Federal annuitants over age 65 should normally not be included in
the calculation of the CRC factor.

4\) A carrier using CRC for the Federal group should compute a Medicare
loading in the normal way (i.e. along the lines of OPM's suggested
method on Page 28).

## [Adjusted Community Rating]{.underline}

A carrier using ACR for the Federal Group, may use a method based on
utilization data or a prospective method based on actual Federal claims
data. **In either case, the carrier must keep on file all data necessary
to justify the ACR rate (i.e. claims, utilization, etc.)** You should
save backup tapes of your claims database for audit purposes.

The rules that apply for a claims-based ACR method are:

1)  The experience period (and the claims used within that period) may
    not change in the reconciliation. It must be the same period (and
    the same claims) you used in the proposal.

2)  If you used completion factors to convert paid claims to incurred
    claims, such factors must be the same for all groups for which you
    used a claims-based ACR method.

3)  Any method used to convert paid claims to incurred claims should be
    consistent for all groups you rated by a claims-based ACR method.

4)  If claims include special benefit claims, you should take no special
    benefit loadings (either in the proposal or reconciliation). Note
    that the claims should reflect extension of coverage, which means
    that you should not take the extension of coverage loading.

5)  If claims include those of annuitants age 65 and over, you must
    reduce claims by an amount equal to Medicare income from the Centers
    for Medicare or Medicare Services (CMS) [or]{.underline} we must
    receive a credit for monies received from CMS. See questions Q19 and
    Q20.

6)  Loadings for administrative expenses must be either:

```{=html}
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```
a)  a flat community rated pm/pm amount or

b)  a standard percentage of claims.

c)  A method consistently applied to the FEHBP and the SSSGs.

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```
7)  Any trend factor used for the Federal group must be the same as the
    trend factor the carrier used for other groups (that is, you may not
    base a trend factor for the Federal group on the Federal group\'s
    experience).

    A carrier using ACR for the Federal group may also use a method
    based on utilization data.

**WE EXPECT A CLEAR AND COMPLETE EXPLANATION OF YOUR ACR METHOD, WHETHER
A CARRIER USES AN ACR USING FEDERAL CLAIMS DATA, OR UTILIZATION DATA.
YOU SHOULD PRESENT THIS EXPLANATION AS YOUR RESPONSE TO VARIOUS
QUESTIONS IN ATTACHMENT IIA.**

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

A carrier using TCR or CRC should normally base the Line 1 rates on its
estimated capitation rate (or equivalent) for 2004. At a later date,
after you determine the actual January 1, 2004, capitation rate, you
will do a rate reconciliation.

Note that if a carrier uses an ACR method based on Federal claims data,
its reconciliation will differ very little from the proposal. **The only
elements of the reconciliation that might differ from the proposal
are:**

(i) **Trend Factor.** Your trend factor must be revised from that
    proposed if necessary to comply with the requirement that the trend
    be community based.

(ii) **Administration Cost Factor.** Your factor must be revised if
     necessary to meet the requirement that the FEHBP be charged the
     lowest loading (either capitation or percentage) charged to an
     SSSG.

**Note that the trend factor must be consistent with the lowest such
factor used for an SSSG.**

-   **[Backup: Special Benefits Form Instructions]{.underline}**

These loadings are for differences between Federal group\'s benefit
package and the carrier\'s community benefits package. You must provide
all backup calculations for the costs that appear on lines 2(a) through
2(c). You should clearly indicate all utilization and cost assumptions.
If the benefit is a rider that you sell to other groups, there should be
a uniform price (i.e., a capitation rate, or standard set of two-tiered
community rates) for the benefit. Indicate clearly in your backup
calculations the adjustments (if any) you have made to the uniform rate
to arrive at the Federal rates shown on lines 2(a) through 2(c).

You should offset through negative loadings any benefits not provided to
the Federal group which are part of the basic package. You should enter
a cost of \$0.00 for benefit differences with no cost.

-   **[Backup: Medicare Loading Form Instructions]{.underline}**

Federal annuitants who retired after December 31, 1983, are entitled to
coverage under Part A and Part B of Medicare when they reach age 65. In
addition, the majority of retirees over age 65 who retired before 1984
are covered under Medicare as a result of employment in the private
sector.

You must document the Medicare status of Federal annuitants and their
covered spouses age 65 and over, and compute a Medicare loading.

You should clearly explain your method, and provide backup calculations.

The best source of data for your Medicare distribution is the match tape
we send to you each year. However, do not include annuitants from that
tape with codes X, Z, or N who are under age 65 in your count of no
coverage. A carrier claiming a Medicare loading must have appropriate
documentation to justify the distribution of its Medicare population
submitted in Q38.

**Note: As explained above, the carrier is either underpaid or overpaid
for Federal annuitants and their covered spouses age 65 and older
(hereafter referred to as "Federal annuitants"), and this underpayment
or overpayment depends on the Federal annuitant's Medicare status.**

The purpose of the Medicare loading is to adjust a carrier's premium to
provide the correct income for FEHB retirees age 65 and older. Most
other groups generally cover their retirees by Medicare Plus Choice
Plans or Medicare Supplement Plans and are excluded from the employee
plan.

Below is an example of the sort of method we suggest. If, however, you
use another method for other groups that is reasonable and well
documented, you should also use it for the Federal group.

If you use ACR to compute your rates, you must make sure that you have
considered the effect of COB (coordination of benefits) income the
carrier received from CMS. You should pay particular attention to Q19
and Q20 of the questionnaire.

**Note:**

1)  **A carrier using a claims-based ACR method will normally not have a
    Medicare loading.**

2)  **A carrier claiming a Medicare loading must have appropriate
    documentation to justify the distribution of its Medicare population
    submitted in Q38.**

The HMO must compute the cost of benefits for the Federal annuitants,
and compare this with the income it receives on behalf of these
annuitants from OPM and CMS. If a plan receives more income than is
needed to cover the cost of benefits for this group, the Medicare
loading should be negative. If the plan receives less income than is
needed, the loading should be positive.

The difference between the cost for these enrollees and revenue received
from CMS should roughly equal the premium charged to Medicare enrollees
for either Medicare Supplement Plans or Medicare Plus Choice Plans with
adjustments made for differences in levels of benefits.

Please verify the reasonableness of your loading. We will verify the
accuracy of your calculation based on the answers you provide in
questions Q35 and Q36

.

-   **[Backup: Children's Loading Form Instructions]{.underline}**

All carriers in the Federal Employees Health Benefits Program must cover
unmarried dependent children until their 22nd birthdays (through age
21). If the carrier has a different age limit for children\'s coverage,
a loading to the Federal family rate may be appropriate.

You may take this loading only if the carrier\'s normal practice is to
take such a loading for all other groups whose age limit for children\'s
coverage differs from the carrier\'s community standard.

In general, if you included overage dependents in your group-specific
demographics (especially the average family size) and use these numbers
to create your self and family rates (through step-up factors, etc.),
YOU ARE NOT ENTITLED TO A CHILDREN'S LOADING.

We present a \"suggested method\" format for your convenience. If you
have another method, please use it and give the details of your method.

If the actual biweekly cost per child is known, and the average number
of children per family is known, the children\'s rate may be computed by
multiplying the two figures together. In general, if you can compute the
overall rate for children in a more accurate way than that suggested in
line (C) of the suggested method shown on the Form, use that result in
line(C).

Enter the loading on line 4c of Attachment II.

Q1. What type(s) of community rating do you propose to use for

the Federal Group in 2004?

\[ \] Traditional Community Rating (TCR)

a\. \[ \] Standard (Book) Rating

b\. \[ \] Variable (Group Specific) Rating

\[ \] Community Rating By Class (CRC) **Go To Q5**

\[ \] Adjusted Community Rating (ACR) **Go To Q16**

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Questions 2 through 4 pertain to carriers that use traditional community
rating (TCR) for the Federal Group.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Q2. Do you use a standard set of tiered rates applicable to all groups
with a tiered rate structure?

\[ \] YES \[ \] NO If Yes, what are they?

Self \_\_\_\_\_\_\_\_\_\_ Family \_\_\_\_\_\_\_\_\_\_

Self \_\_\_\_\_\_\_\_\_\_ Couple \_\_\_\_\_\_\_\_\_\_ Family
\_\_\_\_\_\_\_\_\_\_

Q3. Do you begin your rate development with a capitation rate, and then
convert it to the self and family rates?

\[ \] YES \[ \] NO If Yes, what is the capitation rate?

Capitation Rate = \_\_\_\_\_\_\_\_\_\_\_

Note that you may check both Q2 and Q3 \"Yes\" if you use a standard set
of tiered rates that are derived from a capitation rate.

Q4. Do you use \"step-up\" factors to convert the capitation rate to the
self and family rates?

\[ \] YES If Yes, **Go To Q28** \[ \] NO If No, explain, then **Go To
Q29**

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Questions 5 - 15 pertain to carriers that use Community Rating by Class
(CRC) for the Federal group.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Q5. Do you use CRC for all your groups?

\[ \] YES \[ \] NO If No, what is your criteria for using CRC?

Q6. What CRC factors do you use?

\[ \] Age \[ \] Sex \[ \] Other \_\_\_\_\_\_\_\_\_\_,
\_\_\_\_\_\_\_\_\_\_, \_\_\_\_\_\_\_\_\_\_,

Q7. What capitation rate do you begin with?

Capitation Rate = \_\_\_\_\_\_\_\_\_\_

Q8. What is the adjustment factor you use to adjust the capitation?

Adjustment Factor = \_\_\_\_\_\_\_\_\_\_

What is your adjusted capitation rate? Adjusted Capitation Rate =
\_\_\_\_\_\_\_\_\_\_

> Explain how you derived the CRC adjustment factor. **In particular, on
> what population data are the CRC utilization factors based? How often
> do you update the data on which the CRC utilization factors are
> based?**

Q9. Give a simple narrative explanation of how you derive your rates
including how you adjust the capitation rate.

**[DO NOT SKIP THIS QUESTION. WHAT WE WANT IS A SIMPLE]{.underline}**

**[NARRATIVE EXPLANATION OF HOW YOU DERIVE YOUR RATES]{.underline}. [IF
THERE ARE OTHER SHEETS WITH DETAILED CALCUATIONS, TELL US HERE IN SIMPLE
LANGUAGE WHAT IS DONE ON THOSE SHEETS.]{.underline}**

Q10. Have you enclosed any worksheets (i.e. sheets showing age/sex
distribution and relative utilization factors) that you used to derive
the CRC adjustment factor? **Please note that you must have documented
support for the CRC age/sex factors.**

\[ \] YES \[ \] NO \[ \] NA

> If No or NA, explain. **(Note: We normally expect to see the
> worksheets from which you derive the CRC adjustment factor. These may
> be submitted separately. )**

Q11. Do you use \"step-up\" factors to convert the adjusted capitation
rate to the self and family rates?

\[ \] YES \[ \] NO If No, explain

Q12. Explain how you derive the \"relative utilization factors\"
associated with your age/sex distribution sheet.

Note that we would expect the factors to be based on the utilization
experience of the different age groups of the total employee population
the carrier services. In some cases, a carrier might use factors based
on some other large population. Please make it clear to us exactly where
your relative utilization factors come from, and on what population they
are based.

##  IMPORTANT! DO NOT SKIP THIS QUESTION

Q13. When you derive the CRC adjustment factor, do you include the
number of Federal annuitants, over age 65, anywhere in the calculation?
What about the number of Federal annuitants **under** age 65? In
general, explain how you use the group of Federal retirees (if at all)
in your calculation of the CRC factor.

##  IMPORTANT! DO NOT SKIP THIS QUESTION

## 

\[ \] YES \[ \] NO If yes, have you given us a credit for Medicare
Reimbursement?

##  Q14. If you use industry factors as part of your CRC method, do you anticipate that either of your SSSGs will have an industry factor less than 1.0?

\[ \] YES \[ \] NO

Q15. If you answered Q14 Yes, did you apply to the Federal group rates
the lowest industry factor anticipated for an SSSG?

\[ \] YES \[ \] NO

If No, explain. The Federal group should receive the lowest industry
factor less than 1.0 given to an SSSG.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

If you do not use ACR in any part of your rate development, **Go To
Q29**.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Questions 16 through 28 pertain to carriers that use

adjusted community rating (ACR) for the Federal group.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Q16. Do you use ACR for all your groups?

\[ \] YES \[ \] NO If No, what is your criteria for using ACR?

Q17. What method of ACR do you use to rate the Federal group in 2003?

\[ \] A Method Based On Federal claims

\[ \] Other

####  **Note: You should have on file any claims/utilization data supporting the rates for the Federal group.**

Q18. If your answer was \"Other\" for Q17, give a simple, but
comprehensive explanation of how you developed your rates. Use extra
sheets if necessary.

Q19. Are age 65 and older retirees included in the claims or utilization
data used to determine the ACR factor or rates?

\[ \] YES \[ \] NO If No, you should include a standard Medicare
loading.

##### Q20. If you answered yes to Q19, are CMS reimbursements included in the Federal group\'s experience? 

\[ \] YES \[ \] NO

###### If No, you should take a negative Medicare loading which accounts for all monies received from CMS or saved because Medicare was the primary payer (i.e. responsible for most of the claim payments).

> If Yes, there should be no Medicare loading.

Q20. Did you reduce claims used in the rate development by COB income
that the carrier received from other insurance carriers (excluding CMS)?

\[ \] YES \[ \] NO

> If No, you should give us a credit for any monies received from other
> insurance carriers.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Questions 21 through 28 are for carriers that answered Q17 by checking
\"A Method Based On Actual Federal Claims Data

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Q21. If you used an ACR method using Federal claims data to compute
rates, clearly explain this method. **[DO NOT SKIP THIS QUESTION, AND DO
NOT REFER US TO OTHER SHEETS. WHAT WE WANT HERE IS A SIMPLE NARRATIVE
DESCRIPTION OF YOUR METHOD.]{.underline}**

Q22. Do you use completion factors to derive incurred claims?

\[ \] YES \[ \] NO

Q23. If you answered Yes to Q22, you should use the same set of
completion factors for all your groups. Do you?

\[ \] YES \[ \] NO \[ \] NA If No, explain.

Q24. Explain how you compute the administrative charge.

**DO NOT SKIP THIS QUESTION**

####### Q25. Did the claims used in the rate development reflect special benefits?

\[ \] YES \[ \] NO

######## Q26. Do you derive an adjusted capitation rate by using an ACR factor that was derived from actual claims data? 

\[ \] YES \[ \] NO If Yes, Adjusted Capitation Rate =
\_\_\_\_\_\_\_\_\_\_\_\_

Q27. Do you use step-up factors to convert an adjusted capitation rate
to the self and family rates?

\[ \] YES \[ \] NO If No, **Go To Q29**

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Q28. a. If you use step-up factors, what are they? Specifically, what
step-up factor do you use to convert the capitation rate (or the
adjusted capitation rate) to the self rate? What step-up factor do you
use to convert the self rate to the family rate?

Self/Capitation = \_\_\_\_ Family/Capitation = \_\_\_\_

b.  How do you derive the above step-up factors? Explain briefly (we
    prefer a numerical formula for each factor as the explanation).
    Example:

c\. Are these step-up factors group-specific (i.e., derived using the
demographics of the Federal group)? Or, are the step-up factors based on
overall population demographics?

\[ \] Group Specific \[ \] Based on Overall Carrier Population
Demographics

d\. If you use group-specific factors, do you use them for all groups?

If No, what is your criteria for using group-specific factors?

Q29. a. If you use enrollment-mix or other demographic assumptions at
any point in the development of the 2004 Federal group rates (including
development of step-up factors), what are they?

> \% Self Contracts \_\_\_\_\_\_\_\_\_\_ % Family Contracts
> \_\_\_\_\_\_\_\_\_\_
>
> Family Size \_\_\_\_\_\_\_\_\_\_ Other:
>
> What is the \"as of\" date of the above enrollment?
> \_\_\_\_\_\_\_\_\_\_

b.  If you use group-specific family size in developing the Federal
    group rates, were overage dependent children (i.e., children older
    than the age limit for all unmarried dependents given in Q2a)
    included in determining the group\'s family size?

> \[ \] YES \[ \] NO

Q30. What is the source of your demographic information? Is the same
source used for all groups? If not, where do you get the demographic
information for other groups?

Q31. If you do not use step-up factors to convert a capitation rate to
the self and family rates, explain in detail what you do.

Q32. With regard to dependent coverage:

a.  Your basic community rate includes coverage for all unmarried
    dependents up [to]{.underline} what age? (An answer of age 19 would
    mean that coverage ceases on the 19^th^ birthday) \_\_\_\_\_\_\_\_

b.  Is there a separate limiting age for coverage of full-time students?

> \[ \] YES What is it? \_\_\_\_\_\_\_\_\_\_ \[ \] NO

c.  If a group requires dependent coverage to an age different from your
    normal limiting age, do you adjust that group\'s rate to allow for
    this difference?

> \[ \] YES \[ \] NO

Q33. Are the special benefits listed in line 2, Attachment II of the
2004 proposal different from those that you offered in 2003?

\[ \] YES \[ \] NO If Yes, explain.

Q34. With regard to the special benefits shown in line 2, Attachment II:
Are any of them a rider offered to other groups?

\[ \] YES \[ \] NO If Yes, indicate which special benefits are riders.

Q35. The FEHBP requires coordination of benefits (COB) with HCFA for
Federal annuitants and their covered spouses who are entitled to
Medicare.

> a\. Do you have a risk or cost contract with HCFA?

\[ \] YES \[ \] Risk Contract \[ \] Cost Contract \[ \] NO

> b\. Are any Federal group enrollees in the carrier covered under the
> carrier\'s risk or cost contract?

\[ \] YES \[ \] NO \[ \] NA

d.  If the answer to Q35(a) is Yes, explain the arrangement you have
    with HCFA, describe all benefit packages you offer enrollees under
    the risk contract, and the premiums (if any) the individuals
    enrolled under the risk contract pay the HMO.

Q36. Does your HMO sell a Medicare supplement policy?

\[ \] YES \[ \] NO

If Yes, describe the benefit packages of any Medicare supplement
policies you offer, and the premiums you charge for them.

Q37. Explain how you coordinate benefits for Federal Medicare annuitants
and Medicare dependent spouses.

Q38. Show the number of Federal annuitants and their covered spouses age
65 and older enrolled with the carrier using the following categories:

Medicare Part A and Part B \_\_\_\_\_\_\_\_\_\_

Medicare Part A Only \_\_\_\_\_\_\_\_\_\_

Medicare Part B Only \_\_\_\_\_\_\_\_\_\_

Neither Part A nor Part B \_\_\_\_\_\_\_\_\_\_

Cannot Determine \_\_\_\_\_\_\_\_\_\_

Note: The sum of the numbers in the 5 blanks above should be the total
number of Federal annuitants and their covered spouses age 65 and older
enrolled with the carrier.

**Note: Important! Before you complete the above table, review the note
(on page 28) pertaining to the list of Medicare enrollees OPM sends the
carrier each year.**

Q39. How do you determine the numbers that you have in the distribution
in Q38?

Q40. Do your Line 1 rates reflect any tax, fee or monetary payment
imposed on the carrier by a state or local government?

\[ \] YES \[ \] NO

If Yes, have you included a negative loading in the Special Benefits
section of the proposal?

\[ \] YES \[ \] NO If NO, explain why you included no negative loading.

Q41. If you use different rating methods (i.e. TCR, CRC, ACR) for
different groups, describe your criteria for the use of each method.

Q42. BACKUP CALCULATIONS - Attachment II, Line 1 Rates

a)  If you use Traditional Community Rating (TCR), show how you derive
    the rates on Line 1, Attachment II of the proposal. If they are
    two-tiered rates that you use for all groups, and will be backed by
    an insurance department filing, state this. If you derived the rates
    by converting a capitation into self and family rates, show the
    calculations.

If you use Community Rating By Class (CRC) or Adjusted Community Rating
(ACR) show any details of the derivation of the Line 1, Attachment II
rates that were not given in the previous parts of this questionnaire.
**DO NOT SKIP THIS QUESTION. WHAT WE WANT HERE IS A SIMPLE NARRATIVE
EXPLANATION (BACKED UP BY CALCULATIONS) OF HOW YOU DERIVED THE LINE 1
RATES. IF THERE ARE OTHER SHEETS WITH DETAILED CALCULATIONS, TELL US
HERE IN SIMPLE LANGUAGE WHAT IS DONE. ON THOSE SHEETS MAKE CERTAIN THAT
THE EXPLANATION IN THIS**

**SECTION MAKES IT CLEAR TO US WHERE THE RATES ON LINE 1 COME FROM.**

**[Carrier Contacts]{.underline}**

For information about your rate submission, we should contact:

  --------------- -------------------------------------------------------
  **Name**        

  **Phone         
  Number**        

  **Fax Number**  

  **Email**       
  --------------- -------------------------------------------------------

OR

  --------------- -------------------------------------------------------
  **Name**        

  **Phone         
  Number**        

  **Fax Number**  

  **Email**       
  --------------- -------------------------------------------------------

Our counterproposal letter should be addressed to:

  --------------- -------------------------------------------------------
  **Name**        

  **Address**     

                  

                  

  **Phone         
  Number**        

  **Fax Number**  

  **Email**       
  --------------- -------------------------------------------------------

  ----------------------- ----------------------- -----------------------
  **Utilization Data                              
  (Based on Total HMO                             
  Population)**                                   

  **Type of Service**     **Annual Utilization    
                          Per 1000 Members**      

  1\. Prescription Drugs                          

                          **A. Mental**           **B. Other**

  2\. Office Visits                               

  3\. Inpatient Hospital                          
  Days                                            
  ----------------------- ----------------------- -----------------------