+-------------------------------------+--------------------------------+
| **FEHB Program Carrier Letter**     | **U.S. Office of Personnel     |
|                                     | Management**                   |
| **Community-rated Carriers**        |                                |
|                                     | **Office of Insurance          |
|                                     | Programs**                     |
+-------------------------------------+--------------------------------+
| > **Letter No. 2000-14** **Date:**  |                                |
| > March 22, 000                     |                                |
| >                                   |                                |
| > Fee-for-service \[ \-- \]         |                                |
| > Experience-rated HMO \[ \-- \]    |                                |
| > Community-rated \[ 14 \]          |                                |
+-------------------------------------+--------------------------------+

**SUBJECT:** **Reconciliation Instructions for 2000 Rates\--**

**Community-Rated Carriers**

Most community rated carriers must complete some of the enclosed
documents (Attachments III, IV, V and VI) to reconcile their 2000
Federal rates. To decide how this letter applies to you, see the
following chart:

+----+--------------------------------+-------------------------------+
| ** | **If...**                      | **Then...**                   |
| St |                                |                               |
| ep |                                |                               |
| ** |                                |                               |
+----+--------------------------------+-------------------------------+
| 1  | Your 1999 income from the      | Stop here. You do not need to |
| \. | Federal group was              | complete the enclosed         |
|    | [less]{.underline} than        | documents.                    |
|    | \$500,000,                     |                               |
+----+--------------------------------+-------------------------------+
| 2  | Your 1999 income from the      | You must complete the         |
| \. | Federal group was              | enclosed documents. Go to     |
|    | [more]{.underline} than        | step 3.                       |
|    | \$500,000,                     |                               |
+----+--------------------------------+-------------------------------+
| 3  | -   You had more than 1500     | You must submit Attachments   |
| \. |     contracts at the time of   | III through VI by **[May 1,   |
|    |     the 2000 rate proposal, or | 2000,]{.underline}** to:      |
|    |                                |                               |
|    | ```{=html}                     | > Ms. Nancy H. Kichak,        |
|    | <!-- -->                       | >                             |
|    | ```                            | > Director                    |
|    | -   You are a small carrier    | >                             |
|    |     that filed as large (i.e., | > Office of Actuaries         |
|    |     a carrier that submitted   |                               |
|    |     detailed documentation     | #### O                        |
|    |     with your rate proposal),  | ffice of Personnel Management |
|    |                                |                               |
|    |                                | #### 1900 E St, NW., Rm 4307  |
|    |                                |                               |
|    |                                | > Washington, DC 20415        |
+----+--------------------------------+-------------------------------+
| 4  | You are a small carrier (i.e., | You must complete Attachments |
| \. | a carrier with less than 1500  | III, IIIA, IIIB and V, and    |
|    | FEHBP contracts at the time of | keep them on file and         |
|    | the 2000 rate proposal) that   | available for OPM review.     |
|    | chose not to file as a large   |                               |
|    | carrier,                       |                               |
+----+--------------------------------+-------------------------------+

The enclosed document entitled \"OPM Reconciliation Guidelines 2000\"
gives pertinent definitions and an overall view of our 2000

reconciliation policy.

The Reconciliation Questionnaire (Attachment IIIB) consists of five
sections. Use this table to decide how much of the Questionnaire you
must complete:

  ---------------------------------- ------------------------------------
  **If you use...**                  **Then you must complete...**

  Traditional Community Rating       Sections IIIB (1), (2), and (3)

  Community Rating by Class          Sections IIIB (1), (2), and (4)

  Adjusted Community Rating          Sections IIIB (1), (2), and (5)
  ---------------------------------- ------------------------------------

Please direct your questions about the reconciliation to Sherry Simon,
or Jim Quayle at (202) 606-0722 or address e-mail to actuary@opm.gov.

Sincerely,

Frank D. Titus

Assistant Director

for Insurance Programs

Enclosure

-   **OPM** **Reconciliation Guidelines - 2000**

> The guidelines discuss our general policy for the 2000 reconciliation.
> Note: Attachment I and Attachment II were part of the 2000 rate
> proposal.

-   **Attachment III**

> We use the Reconciliation sheet to determine the difference between
> your estimated 2000 Federal group rates proposed in May 1999 (Line 6)
> and the actual 2000 Federal group rates (Line 5). **These actual rates
> should be equivalent to the lowest rates you charged a Similarly Sized
> Subscriber Group (SSSG).**

-   **Instructions for Attachment III**

Line-by-line instructions for completing Attachment III.

-   **Attachment IIIA**

Use the Reconciliation Backup Sheet to record backup calculations for
the rates and loadings on Attachment III. Use additional sheets if
necessary.

-   **Attachment IIIB**

> Complete the Reconciliation Questionnaire with great care and
> accuracy. We designed it to enable us to review your reconciliation
> quickly and efficiently. If you re-type this question­naire, place the
> questions and answers on only one side of each sheet.

The Reconciliation Questionnaire is divided into five sections:

-   Section 1 - General Questions. This section asks general questions.
    **You must complete this section.**

-   Section 2 - SSSG Questions. This section concerns your Similarly
    Sized Subscriber Groups (SSSGs). **You must complete this section.**

-   Section 3 - TCR Questions. This section asks questions about
    Traditional Community Rating (TCR). **Complete this section only if
    you use TCR to rate the Federal group.**

-   Section 4 - CRC Questions. This section asks questions about
    Community Rating by Class (CRC). **Complete this section only if you
    use CRC to rate the Federal group.**

-   Section 5 - ACR Questions. This section asks questions about
    Adjusted Community Rating (ACR). **Complete this section only if you
    use ACR to rate the Federal group.**

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-   **Attachment IV**

This is an instruction sheet for submitting documenta­tion of the
community rates for groups renewing on January 1, 2000. **Submit this
documentation if you are a large carrier.** We prefer a State insurance
department filing. If you do not file rates, you must submit other
documentation to show that the Federal group pays rates based on your
community rates (and/or rates which are equivalent to the rates for the
SSSGs). Please **[CIRCLE IN RED]{.underline} all numbers in the
documentation that you use in the reconciliation.**

-   **Attachment V**

This Certificate of Accurate Pricing For Community-Rated Carriers
certifies that your reconciliation information is accurate and that we
can rely on it to determine what the Federal group\'s 2000 rates should
be. **A con­tract­ing official of your carrier must complete and sign this
document.**

-   **Attachment VI**

> This form gives us the names, telephone numbers, e-mail addresses, and
> fax numbers of two persons we can contact if we have questions about
> your reconcil­ia­­tion.
>
> **Note: Throughout these OPM Reconciliation Guidelines, please pay
> particular attention to statements that are in bold-faced type. Such
> statements usually contain significant information.**
>
> Note: Beginning with the 1997 reconciliation instructions, we began
> using the word \"carrier\" (instead of the previously used \"plan\")
> to mean the entity contracting with OPM. This conforms more closely
> with the definitions in the FEHBP law, which defines \"carrier\" as
> the organization that offers a policy or contract (benefits package)
> and a health benefits \"plan\" as the policy/contract.

-   Policy On Rate Reconciliation Audits (RRAs)

    Each year the Office of Inspector General (OIG) audits the rate
    reconciliations of a limited number of carriers. The Office of
    Actuaries (OA) uses these audit results in setting the final rates.
    The OIG will conduct no subsequent audits of that year's rates for
    these plans.

    Once the rates are finalized, however, OPM will permit no changes to
    the rates, and will accept no new or additional information from the
    carrier intended to change the audit results or final rates. The
    OIG's auditor will inform the carrier of the audit results before
    the rates are finalized, and the OA will discuss the results with
    the carrier. Therefore, it is the carrier's responsibility to inform
    the OA of any disagreement you have with the audit results and/or
    final rates before the OA finalizes the rates.

    The only condition under which rates finalized in conjunction with
    an RRA will be changed is when these rates are affected by a
    subsequent audit performed on previous contract years.

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-   Policy On Error Reporting

    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 have already been audited by OPM's audit staff
    and resolved by OPM's Office of Insurance Programs (OIP). That is,
    after an audit resolution by OIP, the results are final.

-   Similarly-Sized Subscriber Groups (SSSGs)

> The reconciliation requests information on your carrier\'s Similarly
> Sized Subscriber Groups (SSSGs). At the time of your 2000 proposal,
> our regulation, 48 CFR 1602.170-13, defined SSSGs as follows:
>
> \(a\) Similarly sized subscriber groups (SSSGs) are a comprehensive
> medical plan\'s two employer groups that:

(1) As of the date specified by OPM in the rate instructions, have a
    subscriber enrollment closest to the FEHBP subscriber enrollment;
    and

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

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

> **Note: \"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.**
>
> **Note: Alliances and Coalitions are considered employee groups for
> this purpose and are eligible to be SSSG's.**

(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 carriers 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.

> Finally, the regulation states the following pertaining to how OPM
> will determine the Federal group's rate in relation to the
>
> SSSG rates:

(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.

> For the 2000 rate year, the specific guidelines for SSSGs are as
> follows:
>
> \(1\) All group enrollments (the Federal group and the SSSG
> enrollments) should be the latest 2000 enrollment available to the
> carrier (but no later than March 31,2000).
>
> \(2\) The contract renewal date for 2000 SSSGs should be between July
> 2, 1999 and July 1,2000. **Note: You should interpret \"renewal date\"
> to mean the date on which a rate change (if any) is effective for the
> SSSG.**

Note: We stated these guidelines in the 2000 rate instructions.

> **Note: If an SSSG's rate is extended beyond twelve months (i.e. the
> carrier allows an SSSG to change it's renewal date), a premium
> adjustment must be made for the SSSG in the following year, or the OPM
> audit staff may interpret the rate extension as a discount.**
>
> **Note: Recently, some carriers have asked if new groups are eligible
> to be SSSGs. They are.**
>
> We developed the SSSG concept to ensure that OPM receives an equitable
> and reasonable market-based rate. For the 2000 rate year, OPM will
> focus on the rating methods used for the two SSSGs to determine if the
> carrier appropriately derived the Federal group rates.
>
> **OPM requires the Federal group rates to be equivalent to the rates
> for the SSSGs. Therefore, we expect the Federal group to receive both
> the largest rate discount given to either SSSG and any other
> advantages given to the SSSGs**. For example, if the carrier gives an
> early rate quote (based on a lower community rate than the rates later
> quoted other groups) to an SSSG and does not revise it at a later
> date, we will interpret the SSSG rate as a discounted rate, and
> require a similar rate discount for the Federal group. **As another
> example, if the carrier rates an SSSG using a rating method not in
> accord with carrier-established policies, the Federal group is
> entitled to any rate reduction produced by applying the SSSG rating
> method to the Federal group.**
>
> The OPM audit staff may examine the rates and benefit loadings of
> non-SSSG groups. The purpose of such analysis is to make certain the
> Federal group rates are fair in relation to the SSSG rates. For
> example, if an SSSG had a special 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 this benefit. The purpose
> would be to verify that the SSSG received no discount.
>
> All rate agreements between OPM and the carrier are subject to audits
> by the OPM Office of the Inspector General. The results of such audits
> may require modifications to previous agreements and subsequent rate
> adjustment. **Pursuant to contract clause 3.4, Contractor Records
> Retention (FEHBAR 1652.204-70), OPM requires all carriers to maintain
> documentation to support all calculations and statements pertaining to
> this reconciliation. This includes documentation to support the SSSG
> rates and the rates for all of the 10 largest groups. And, for
> carriers using an ACR method, this includes detailed reports
> (including the database) supporting all data (e.g., claims data ) used
> to derive the rates.**
>
> OPM will review the carrier\'s SSSGs to verify that the carrier is in
> compliance with OPM rating principles. Compliance now includes Federal
> group rate adjustments based on the carrier\'s treatment of its SSSGs.

# Special Loading For Enrollment Discrepancies

> Beginning with contract year 1997, as the result of negotiations
> between OPM and representatives of community-rated carriers, we
> amended the Standard Contract for Federal Employees Health Benefits.
> The contract now provides for a special premium loading of 1% to
> account for 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)."**

# Multiple Rating Areas

> As we explained in the 2000 rate instructions, beginning with the 1999
> rate year, **we have amended our policy with regard to multiple rating
> areas.** We now require that both SSSGs be chosen only from groups
> that have enrollees in the Federal group's region. An exception to the
> above is, if less than 1% of a group's total enrollment is in the
> Federal group's region, the group may be omitted from being a
> potential SSSG.
>
> Normally, a carrier must choose two SSSGs for every Federal group
> having a unique rate code. It is possible that a carrier could have
> several different geographical regions of federal enrollees under the
> same rate code. It is even possible that these regions could be in
> different states.
>
> Our SSSG policy with regard to Federal groups in different regions
> under the same rate code is as follows:

(a) Those Federal groups in the same state or in the same metropolitan
    area must be combined and the carrier must choose two SSSGs for the
    combined Federal group.

(b) Those Federal groups in different states (but not in the same
    metropolitan area) must be combined **in each state**, and the
    carrier must choose two SSSGs for the combined Federal groups in
    each state.

-   The following examples illustrate the above policies:

> **Example 1**
>
> A carrier operates only in the state of Texas. It serves federal
> enrollees in three distinct geographical areas, Dallas, Houston and
> San Antonio. Each region has it\'s own rate code.
>
> The carrier must choose two SSSGs for each region. Those for each
> region would come from groups the carrier does business with having
> enrollees in that region.
>
> **Example 2**
>
> Same situation as in Example 1 except that one rate code applies to
> all three regions, meaning that the same rate applies for all federal
> enrollees throughout the three regions.
>
> In this case, the carrier must combine the Federal enrollment for all
> three regions, and choose two SSSGs for the combined group.
>
> **Example 3**
>
> A carrier operates in two states, Texas and Arizona. In Texas it
> serves federal enrollees in Dallas, Houston, and San Antonio. In
> Arizona, it serves federal enrollees in Phoenix, Tucson, and
> Tombstone. One rate code applies to all six regions.
>
> In this case two SSSGs are required for the combined Dallas. Houston
> and San Antonio regions. Two SSSGs are also required for the combined
> Phoenix, Tucson and Tombstone regions.
>
> **Note: The point of Example 3 is to illustrate that only regions
> within a state should be combined.**
>
> The same principle applies if the carrier operates in several states.
>
> **Example 4**
>
> A carrier operates in two states, and serves a metropolitan area that
> is in both states. The rate code is the same for all enrollees in the
> metropolitan area.
>
> In this case, two SSSGs are required for the combined metropolitan
> region enrollment.
>
> **Note: The point of Example 4 is to illustrate the exceptional case
> where regions in different states should be combined for SSSG
> purposes.**
>
> **Example 5**
>
> The size of the Federal group in a region is 1700, and the carrier
> concludes that it must choose two SSSGs for this group.
>
> The carrier contracts with the statewide XYZ corporation, which has a
> statewide enrollment of 1500 with the carrier, with 100 of the
> enrollees living in the same region where the Federal group is
> located.
>
> The XYZ corporation would be a candidate for an SSSG since it has 100
> enrollees in the Federal group\'s region. The enrollment the carrier
> should use in comparing the size of this group to the Federal group is
> the statewide enrollment of 1500.
>
> **Note: The point of Example 5 is to illustrate that a group having
> only part of its enrollment in the Federal group\'s region can be an
> SSSG. If the rates for XYZ corporation are negotiated
> [collectively]{.underline}, then is can be considered a group and the
> weighted average of the rates taken.**

# Example 6

# This is the same as example 5 except the XYZ corporation has only 3 of its enrollees living in the same region where the Federal group is located. In this case the XYZ corporation could be omitted from being a candidate for an SSSG since less than 1% of its enrollment resides in the Federal group's region.

# State Taxes

> 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 2000 rates include an amount to recover such
> monies from the FEHBP, make an adjustment for this amount in the
> reconciliation in the form of a negative special benefit loading.

# Small Carrier Contingency Reserve Payments

> A small carrier whose rates were reduced by the Office of Actuaries to
> gen­erate a contingency reserve payment need not request this payment.
> OPM will automatically make this payment during the summer of 2000.

######## RECONCILIATION

CARRIER NAME: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ STATE:
\_\_\_\_\_\_ CODE: \_\_\_\_\_\_

**[BIWEEKLY]{.underline} NET-TO-CARRIER RATES**

**2000 CONTRACT YEAR**

[SELF]{.underline} [FAMILY]{.underline}

**1. Actual FEHBP Rates -2000** \_\_\_\_\_\_ \_\_\_\_\_\_

2\. Special Benefit Loadings

\(a\) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_ \_\_\_\_\_\_

\(b\) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_ \_\_\_\_\_\_

\(c\) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_ \_\_\_\_\_\_

**3.** **FEHBP Rates Plus Special Loadings** \_\_\_\_\_\_ \_\_\_\_\_\_

4\. Standard Loadings

\(a\) Extension of Coverage \[.004x(3)\] \_\_\_\_\_\_ \_\_\_\_\_\_

\(b\) Children\'s Loading \_\_\_\_\_\_ \_\_\_\_\_\_

\(c\) Medicare Loading \_\_\_\_\_\_ \_\_\_\_\_\_

**4d. Subtotal** \_\_\_\_\_\_ \_\_\_\_\_\_

4e. Enrollment Discrepancies Loading \_\_\_\_\_\_ \_\_\_\_\_\_

\[.01x(4d)\]

**5. Total FEHBP Rates - 2000\*** \_\_\_\_\_\_ \_\_\_\_\_\_

6\. Contract Rate - 2000\* \_\_\_\_\_\_ \_\_\_\_\_\_

####  **Small Carriers Use Line C,** 

**Attachment I Here**

7.Difference ((5) - (6)) \_\_\_\_\_\_ \_\_\_\_\_\_

\+ = Underpayment to Carrier

\- = Overpayment to Carrier [TOTAL]{.underline}

8\. March 31, 2000 Enrollment \_\_\_\_\_\_ \_\_\_\_\_\_ \_\_\_\_\_

9\. Payment Due Carrier/(FEHBP) \_\_\_\_\_\_ \_\_\_\_\_\_ \_\_\_\_\_

10\. Brochure Printing Costs \_\_\_\_\_

11\. Outstanding Amount Due Carrier/(FEHBP) \_\_\_\_\_

12\. Total Amount Due Carrier/(FEHBP) \_\_\_\_\_

12. \* These rates are subject to audit in accordance with the carrier's
    contract with OPM.

Large carriers must complete lines 1 through 7 and line 10 of the
reconciliation sheet. OPM will complete lines 8, 9, 11 and 12 for large
carriers. Small carriers must complete lines 1 through 12 and use the
results on line 12 to compute a 2001 rate adjustment.

OPM requires a reconciliation for several reasons. For carriers using
Traditional Community Rating (TCR) or Community Rating By Class (CRC) to
rate the Federal group, the main reason is that the carrier proposed
it\'s 2000 contract rates seven months before the January 1, 2000
effective date. Therefore, the contract rates are probably based on
estimated, rather than actual, community rates. To determine if money is
due either OPM or the carrier, you must recalculate the rates, basing
your calculations on the carrier\'s [actual]{.underline} community rates
(usually in the form of a capitation rate) effective for all groups
renewing January 1, 2000.

For carriers using Adjusted Community Rating (ACR) to rate the Federal
group, the reconciliation will differ very little from the original
proposal (see \"Special Instructions For Carriers Using ACR\" below).

Note that no matter what rating method the carrier uses for the Federal
group, the actual Federal group rates in the reconciliation should be
equivalent to the lowest rates the carrier charged either SSSG.

The enrollment data you used in the proposal should have been current
data (at the time of the proposal). **If you used group-specific
demographic assumptions (i.e., family size, self/family enrollment mix,
etc.) in the proposal, you must use the same figures in the
reconciliation.** In particular, you may not revise the self/family
enrollment mix to reflect results of the

2000 open season.

If, however, you used carrier-wide enrollment-mix or other demographic
assumptions, and you revised these assumptions after you submitted the
proposal (and before January 1,2000) [and]{.underline} you used the
revisions for your SSSGs, you should base the reconciliation on the
revised assumptions.

There are certain other factors you **should** change between the time
of the proposal and reconciliation. If your rate is a weighted average
of rates in several geographic areas, you should base the weight factors
in the reconciliation on the March 31, 2000, enrollment in each area
(which you provide OPM). Also, if you recalculate the Medicare loading,
you should use the latest Medicare enrollment available.

If you used TCR or CRC to rate the Federal group, when doing the
reconciliation, keep in mind that the original Federal group rate
proposal based the self and family rates on the carrier\'s best estimate
of its 2000 capitation rate (or equivalent**). The reconciliation is
simply a re-submission of the proposal, using the carrier\'s actual 2000
capitation rate (or equivalent) as a basis for the Federal group\'s
rates.**

# SPECIAL RECONCILIATION INSTRUCTIONS FOR CARRIERS USING ACR

If a carrier uses ACR, it may use a method based on utilization data or
it may use 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. Note: this
information should also be available for the SSSGs.**

Very few carriers use an ACR method based on utilization data to rate
the Federal group. A carrier using this method should do the
reconciliation in a manner similar to a CRC reconciliation.

The special rules that apply for a claims-based ACR method were stated
in the 2000 rate instructions. These rules also apply to the
reconciliation and are as follows:

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

4\) If claims include special benefits claims, you should take no
special benefits loadings (either in the proposal or reconciliation).
Note that 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 HCFA or we must
receive a credit for monies received from HCFA. (See ACR Questions QA10
and QA11)

> 6\) Loadings for administrative expenses must be either:
>
> 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 SSSG's.
>
> 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).

**Note:** **The reconciliation for a carrier using a claims-based ACR
method for the Federal group should differ only slightly from the
original rate proposal. The only components that can change are:**

1\) **Trend Factor**. If you used an estimated trend factor in the 2000
proposal and later changed it (before January 1, 2000) for all groups
for which you used a claims-based ACR method, you must use the revised
factor in the 2000 reconciliation.

2\) **Administration Cost Factor**. If you used an estimated
administration cost factor in the 2000 proposal and later changed it
(before January 1,2000) for all groups for which you used a claims-based
ACR method, you must use the revised factor in the 2000 reconciliation.

Note: Both the trend factor and the administration cost factor must be
consistent with the lowest such factors used for either SSSG.

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

**1. [Actual FEHBP Rates - 2000]{.underline}**

This is the most significant part of the reconciliation process. Please
do it with extreme care. The fundamental idea behind the reconciliation
is that it is a re-submission of the original proposal, in which you
revise your original rate estimate.

# TCR and CRC Carriers

For carriers using TCR or CRC, the reconciliation usually involves
substituting the carrier\'s actual 2000 capitation rate (or equivalent)
for the estimates you used in the proposal. The enrollment mix and all
other demographic assumptions remain the same as in the proposal (with
some exceptions, as indicated earlier**). Note that these \"actual\"
rates should be the basis not only for the Federal group\'s rates, but
also for the rates of both SSSGs.**

Community-rated carriers use different methods to develop rates. Those
using TCR or CRC usually base their rates on a \"per member per month\"
rate (a.k.a. capitation rate) which the carrier then converts to self
and family rates by means of \"step-up\" factors. These factors are
related to family size and market considerations, and the carrier
derives them by well-known, documented procedures.

There is usually a step-up factor that converts the capitation rate to a
self rate and another factor that converts the self rate to a family
rate. Some carriers have a step-up factor that converts the capitation
rate directly to a family rate. However it is done, the goal is for the
projected income generated by the self and family rates to equal the
income that would be generated if each individual paid the capitation
rate.

If you used a procedure based on a capitation rate to derive the 2000
self and family rates in the rate proposal submitted in May 1999, you
must go through this procedure again to derive Line 1 of the
reconciliation sheet (Attachment III). You must, however, use the
**actual** January 1, 2000, capitation rate in this procedure instead of
the estimate used in the proposal (keeping in mind that this \"actual\"
capitation rate must be equivalent to the one used to derive the rates
for the SSSGs). Use the **same** step-up factors you used in the
proposal (unless the step-up factors have changed as the result of a
revision of carrier-wide demographic assumptions before January 1, 2000,
and you used the revisions

for your SSSGs).

Some carriers using TCR or CRC derive rates in other ways. The
principles described above still apply. To compute the Line 1 rates,
simply go through the same procedure used in the original proposal,
substituting actual rates (note that the \"actual\" rates used should be
equivalent to those used for the SSSGs) for the proposed rates. The
procedures you use should also be the same as those used for your SSSGs.

For large carriers, we require documentation of your actual community
rates, as explained in Attachment IV. If your State requires that you
file your rates with the State Insurance (or other) Department,
**enclose a copy of that filing**. Otherwise, follow the instructions in
Attachment IV.

So that OPM\'s actuaries can easily verify the rates on Line 1, we
require that:

> 1\) your computations be clear
>
> 2\) you circle in red the actual community rates and step-up factors
> used in your computations.

An example of an acceptable presentation of the line 1 calculation
follows.

Example 2:

Actual capitation rate as of 1/1/00: \$20.00\*

First level step-up factor used in proposal: 1.2\*\*

Actual Self Rate: (\$20 x 1.2) \$24.00

Second level step-up factor used in proposal: 2.9\*\*

Actual Family Rate: (\$24 x 2.9) \$69.60

\*see insurance filing

\*\*see attached sheet from original proposal

**Note: We will not accept your reconciliation if your documentation is
incomplete or your calculations are unclear.**

# ACR Carriers

Carriers using ACR should refer to the \"Special Reconciliation
Instructions For Carriers Using ACR\" on page 12 of this document.

You must go through the same procedure you used to derive the Line 1
rates in the original 2000 rate proposal, changing the trend factor
and/or administration cost factor if appropriate.

All other parts of the reconciliation should be done the same way you
did the original proposal. **Please keep in mind that the reconciliation
for a carrier using a claims-based ACR method should differ only
slightly from the original rate proposal.**

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

OPM sometimes purchases benefits for Federal enrollees that are not in
the carrier\'s community package. A special benefit may be a
community-rated rider that the carrier offers to all its groups, or it
may be a benefit provided only to the Federal group. If the carrier
provides the benefit only to the Federal group (or if the benefit is
simply not a community-rated benefit), and the carrier based its cost on
assumptions approved by OPM at the time of the rate proposal, the actual
loading (i.e., the cost of the benefit that you should put in the
special benefit loading section of Attachment III) should be the same as
the proposed loading.

If the special benefit is a community-rated rider, enter either the self
and family rates filed with the State Insurance Department or calculate
the actual loading based on the actual capitation rate for the special
benefit. The procedure would be similar to that used for the Line 1
rates. As before, if you do not file with the State, submit other
appropriate documentation for this rider.

If the special benefit loading is a function of the carrier\'s

community rate (say a percentage of the Line 1 rate), calculate the Line
2 rate by multiplying the actual Line 1 rate by the same percentage used
in the 2000 rate proposal.

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

This loading usually is a function of the community rate plus any
special loadings. If the actual rates are different from those in the
2000 rate proposal, the children\'s loading will differ.

Recalculate, using the same method used in the original proposal.

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.

You may not take this loading if you use a capitation rate and a
group-specific family size to calculate group rates and include overage
dependent children (i.e., children over the age limit for all
dependents) in your calculation for average family size for the Federal
group.

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

If you derived this loading using the estimated community rates, re-do
the derivation, using the actual rates and the latest Medicare
enrollment distribution available. Also, if you used estimated Health
Care Financing Administration (HCFA) rates (i.e., the AAPCC) to derive
this loading, and you now have actual HCFA rates, you may use them in
the revised derivation. Include a copy of the original derivation so we
can easily see the difference between the estimated and actual loading.

If the original derivation of this loading used actual community rates,
recompute the loading using the latest Medicare enrollment distribution
available.

**If you use CRC or ACR to derive your rates, you must make sure that
you have considered the effect of Coordination-Of-Benefits (COB) income
the carrier received from HCFA.** You should pay particular attention to
questions QC16, QA10, and QA11 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 QG9.**

**Important: Each year, OPM sends each carrier a list of Federal group
enrollees identified as Medicare enrollees through the annual OPM/Social
Security Administration Matching Study. You should not use this report
without further analysis to determine the carrier\'s distribution of
Medicare enrollees (QG9), because the \"unknown\" category contains many
different types of Medicare enrollees, including people under age 65.**

**Important: As explained in the 2000 rate instructions, 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 reflect this underpayment or
overpayment. 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 from HCFA. We suggested a method to derive
the loading in the 2000 rate instructions, but want to make clear here
that the HMO may derive the loading in any reasonable way that it can
document.**

**We also want to point out the following:**

1)  **If the HMO has a risk contract with HCFA, then (because it must
    file an ACR proposal with HCFA) the HMO should be able to provide
    OPM with a fairly accurate pm/pm estimate of the benefit cost for
    Federal annuitants over age 65. This cost should be roughly equal to
    the capitation rate the HMO receives from HCFA under the risk
    contract plus the premium (in terms of a capitation rate) the HMO
    charges the enrollee under the risk contract. The HMO should be able
    to determine the cost of any differences between the risk contract
    benefits and the FEHBP benefits.**

2)  **If the HMO sells a Medicare supplement policy, once again, (since
    it has to price the policy) it should be able to provide OPM with a
    fairly accurate pm/pm estimate of the benefit cost for Federal
    annuitants over age 65. This cost should be roughly equal to the
    estimated capitation rate that the HMO receives indirectly from HCFA
    through coordination of benefits plus the premium (in terms of a
    capitation rate) the HMO charges for the Medicare supplement policy.
    The HMO should be able to determine the cost of any differences
    between the Medicare supplement policy benefits and the FEHBP
    benefits.**

**3) We ask about risk contracts and Medicare supplement policies in
questions QG10 and QG11.**

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

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

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

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

**5. [Total FEHBP Rates - 2000]{.underline}**

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

**6. [Contract Rate - 2000]{.underline}**

For large carriers, the negotiated, biweekly, net-to-carrier contract
rates, as agreed to during the summer of 1999. This rate is not the
brochure rate (which is the net-to-carrier rate times 1.04).

**NOTE: SMALL CARRIERS SHOULD PLACE IN LINE 6 THE RATES FOUND ON LINE C,
ATTACHMENT I OF THEIR ORIGINAL 2000 RATE PROPOSAL**

**7. [Difference]{.underline}**

Subtract line 6 from line 5.

**10. [Brochure Printing Costs]{.underline}**

This is the amount the carrier spent to produce the OPM-approved
quantity of brochures. We will evaluate it for reasonableness. Submit
any documentation you think will be helpful to us in evaluating the
reasonableness of your requested amount**. Note that the amount claimed
may be for OPM brochures or rate sheets only. No costs for provider
directories, business cards, or other promotional materials may be
included.**

**8, 9, 11, and 12**

For large carriers, these lines will be filled in by OPM\'s actuarial
staff. Enrollment will be based on the March 31, 2000, semi-annual
headcount.

**[INSTRUCTIONS FOR SMALL CARRIERS ONLY]{.underline}**

Small carriers must do some additional work on Attachment III. Since
small carriers do not send this document to OPM, the carrier (rather
than OPM) must determine the amount due the carrier or OPM. That is,
small carriers must complete Line 12, Attachment III, which requires
completing Lines 8, 9, and 11.

Detailed instructions are as follows:

**8. [March 31, 2000 Enrollment]{.underline}**

Normally, OPM would put the March 31, 2000 Headcount enrollment numbers
on Line 8. Since these numbers will not be available at the time the
small carrier does the calculation, the carrier should use its March 31,
2000 Table 1 enrollment numbers. The Table 1 report is the enrollment
data the carrier normally submits to OPM in April.

**9. [Payment Due Carrier/(FEHBP)]{.underline}**

To compute Line 9, multiply the amounts on Line 7 by the March 31, 2000,
enrollment numbers on Line 8; then multiply by 26 (since the rates are
bi-weekly).

An example of this computation is below:

Example 3:

Suppose line 7 of the reconciliation sheet looks as follows:

[Self]{.underline} [Family]{.underline}

7 [\$1.00]{.underline} [\$2.00]{.underline}

That is, the actual carrier rates on line 5 turned out to be higher than
the contract rates on line 6. This means that OPM owes the carrier
money. Assume line 8 (enrollment) is as follows:

8 [200]{.underline} [400]{.underline}

That is, the Table 1 carrier enrollment is 200 self and 400 family.
Therefore, to determine the total amount owed the carrier, we have

\[200 x \$1.00 x 26\] + \[400 x \$2.00 x 26\] = \$26,000

**11. [Outstanding Amount Due Carrier/(FEHBP)]{.underline}**

This is any amount due the carrier or OPM from previous years. As an
example, suppose OPM owed the carrier \$50,000 last year, and the 2000
rates were purposely increased to pay the carrier this debt. In the 2000
rate reconciliation, \$50,000 would be placed in line 11.

**12. [Total Amount Due Carrier/(FEHBP)]{.underline}**

The sum of lines 9 through 11.

The amount on line 12 must be used by a small carrier to determine the
2001 rate adjustments. You will place the 2001 rate adjustments on Line
B of your 2001 rate proposal sheet (Attachment I) which we will send you
at a later date. An example of how you might compute the rate
adjustments follows.

Example 4:

> Assume the amount on line 12 is \$76,000 (this would be the case in
> Example 3, assuming there is also \$50,000 on Line 11, and no brochure
> printing costs on Line 10). You must determine a self and family
> loading equivalent to this amount. Suppose the carrier expects the
> Federal group enrollment in 2001 to increase by 10 percent over the
> 2000 enrollment (i.e., 2001 enrollment will be 220 self and 440
> family). Then, the adjustment could be \$2.66 self and \$5.32 family,
> since

\[220 x \$2.66 x 26\] + \[440 x \$5.32 x 26\] = \$76,000

OPM will allow reasonable flexibility in determining the amount of the
rate adjustment. As long as you use reasonable enrollment assumptions
and the adjustment generates the correct amount of money, many different
self and family adjustments are possible. All assumptions will be
subject to audit or verification at a later date. Therefore, you must
keep on file all supporting calculations for the Federal group\'s rates
and the SSSG rates.

**[IMPORTANT SPECIAL INSTRUCTION TO SMALL CARRIERS]{.underline}**

Line 6, Attachment III is for the 2000 contract rates. Small carriers
should put the rates from Line C, Attachment I of the original rate
proposal onto Line 6, Attachment III. This avoids the possibility that
OPM would pay twice to a small carrier whose 2000 rates were reduced by
OPM to generate a contingency reserve payment (which will automatically
be sent to the carrier sometime during the summer of 2000).

**[RECONCILIATION BACKUP SHEET]{.underline}**

Please provide the details of the reconciliation on this sheet.
Specifically, show how you derive the numbers on the reconciliation.

**1. Actual FEHBP Rates - 2000**

> **[IMPORTANT!]{.underline} [DO NOT SKIP THIS SECTION]{.underline}. In
> this section we want a simple and concise explanation of your Line 1
> rates. Please remember that all calculations are subject to audit.**

**2. Special Benefit Loadings**

> In most cases, the special benefit loadings will be the same as they
> were in the proposal. If they are not, give the details here.

**4b. Children\'s Loading**

> We present the \"suggested method\" format (used by most carriers) for
> your convenience. If you do not use the suggested method, give the
> details of your method.

\(A\) Line 3 (Attachment III) Family Rate = \_\_\_\_\_\_\_\_\_\_

\(B\) Line 3 (Attachment III) Single Rate = \_\_\_\_\_\_\_\_\_\_

\(C\) (A) - (2 x (B)) = Children\'s Rate\* = \_\_\_\_\_\_\_\_\_\_

\(D\) Children are insured up [to]{.underline} what age =
\_\_\_\_\_\_\_\_\_\_

\(E\) Extend Children\'s Coverage = \_\_\_\_\_\_\_\_\_\_

for (22 - (D)) Years

\(F\) Loading if Plan\'s Community Rate = \_\_\_\_\_\_\_\_\_\_

Covers Full-Time Students:

[(E)]{.underline} x (C) x .20

\(D\)

\(G\) Loading if Plan\'s Community Rate = \_\_\_\_\_\_\_\_\_\_ Does Not
Cover Full-Time Students: [(E)]{.underline} x (C) x .55

\(D\)

> \* 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), use that result in line(C).

4c. Medicare Loading

> **[DO NOT SKIP THIS SECTION.]{.underline} [WE REALIZE THAT YOU MAY
> HAVE ENCLOSED DETAILED CALCULATIONS ELSEWHERE, BUT IN THIS SECTION WE
> WANT AT LEAST A GENERAL EXPLANATION OF WHAT YOU DO TO OBTAIN THE
> MEDICARE LOADING]{.underline}.**

**10. Brochure Printing Costs**

######## General Questions

QG1. What method of community rating did you use in your 2000 rate
proposal?

\[ \] TCR (Traditional Community Rating)

a.\[ \] Standard (Book) Rating

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

\[ \] CRC (Community Rating By Class)

\[ \] ACR (Adjusted Community Rating)

QG2. Is the method you have used for the 2000 reconciliation the same as
the method used in the 2000 proposal?

\[ \] YES

\[ \] NO

> If No, explain.

QG3. 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 reconciliation?

\[ \] YES

\[ \] NO

> If No, does the carrier do business in Arkansas, Arizona, Connecticut,
> D.C, Florida, Illinois, Kansas, Louisiana, Maine, Maryland, Minnesota,
> Nevada, New Hampshire, New Mexico, New York, Oklahoma, Oregon, Texas,
> Virginia, Washington or Wisconsin?

\[ \] YES

\[ \] NO

> If Yes, explain why you included no negative loading.

QG4. Are the special loadings given in the reconciliation the same as
they were in the proposal?

\[ \] YES

\[ \] NO

> If No, explain.

QG5. Are you required to file your community rates with any State
regulatory agency?

\[ \] YES

\[ \] NO

QG6. If you answered yes to QG5, have you circled the appropriate
community rates in red on the copy of the insurance department filing
that you have enclosed?

\[ \] YES

\[ \] NO

If No, explain.

> If Yes, what is the page number of the insurance department filing on
> which the appropriate rates appear (please number the pages by hand if
> necessary)? \_\_\_\_\_\_\_\_\_\_

QG7. If you use different rating methods (i.e.,TCR,CRC,ACR) for
different groups, describe your criteria for the use of each method.

QG8. How do you determine the rates for your state and local government
groups?

QG9. Show the number of Federal annuitants and their covered spouses
covered in the plan age 65 and older 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 in the plan age
65 and older**. If you** **have revised your Medicare loading in this
reconciliation, you should be using the above distribution.**

Note: **Important! Before you complete the above table, review the note
(at the top of page 18) pertaining to the list of Medicare enrollees OPM
sends the carrier each year.**

QG10. Does your HMO have a risk contract with HCFA?

\[ \] YES

\[ \] NO

If 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 enrollees enrolled under the risk contract pay the HMO.

QG11. 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.

QG12. If you have revised your Medicare loading in this reconciliation,
explain how you obtained the distribution in QG9. Also, what is the
source of this distribution? Note that this source material must be on
file at the carrier, and available to OPM auditors.

QG13. Describe the specific benefit plan the Federal group purchases
from the carrier.

QG14. Please sign, date and give telephone and fax number.

##### Attachment IIIB 

###### Questionnaire Prepared By: \_\_\_\_\_\_\_\_\_\_\_\_\_

###### Date: \_\_\_\_\_\_\_\_\_\_\_\_\_

###### Telephone: \_\_\_\_\_\_\_\_\_\_\_\_\_

Fax: \_\_\_\_\_\_\_\_\_\_\_\_\_

E-Mail \_\_\_\_\_\_\_\_\_\_\_\_\_

## **SSSG Questions**

> QS1. Give the names of your two SSSGs. Also, give the number enrolled
> (and the \"as of\" date of enrollment) in each SSSG**. IMPORTANT NOTE:
> The SSSGs are the two groups closest in total contract size to the
> Federal group. You should use the latest 2000 enrollment available.**
>
> Keep in mind that your SSSG selection is subject to audit. Therefore,
> we expect you to maintain complete rate documentation for at least the
> ten groups closest in contract size to the Federal group.

Enrollment

Name Self Family Date

1\. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_
\_\_\_\_\_ \_\_\_\_

2\. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_
\_\_\_\_\_ \_\_\_\_

Note: If an SSSG has more than two rating tiers, include the enrollment
for all tiers.

QS2. How do the benefit packages for your SSSGs differ from the benefit
package for the Federal group?

QS3. What method of community rating (TCR, CRC, ACR) did you use to rate
the following groups?

Method

1\. Federal Group \_\_\_\_\_\_\_\_\_\_

2\. SSSG #1 \_\_\_\_\_\_\_\_\_\_

3\. SSSG #2 \_\_\_\_\_\_\_\_\_\_

QS4. What are the 2000 net-to-carrier rates for the Federal group and
your SSSGs?

Self Family

(From Line 5,

1\. Federal group \_\_\_\_\_\_ \_\_\_\_\_\_ Attachment III)

2\. SSSG #1 \_\_\_\_\_\_ \_\_\_\_\_\_

3\. SSSG #2 \_\_\_\_\_\_ \_\_\_\_\_\_

Note: If an SSSG has more than two rating tiers, include the rates for
all tiers.

QS5. Did you give an SSSG an early rate quote?

\[ \] YES

\[ \] NO

> If Yes, did you update the quote to reflect the actual community
> rates?

\[ \] YES

\[ \] NO

### If No, explain

QS6. Do either or both of the SSSG\'s have multi-year contracts?

\[ \] YES

\[ \] NO

> If Yes, give details about the multi-year contract(s) (such as options
> to renew and cancel contract). Also, explain how you ensure that you
> treat the Federal group the same as the SSSGs.

QS7. Do either or both of the SSSG\'s have benefit packages that include
a point-of-service option?

\[ \] YES

\[ \] NO

> If yes, give details on these options.

QS8. What are the five groups you do business with that are closest in
total contract size to the Federal group, and what type of benefit plan
do they have? Include information on the Federal group. Also, **include
groups** **that are not eligible to be SSSGs.**

Total \# Rate Rating

Group Contracts Effective Coverage Method Date

####  Federal

Group

1\.

2\.

3\.

4\.

5\.

QS9A. Are there any groups you do business with that are closer in total
contract size to the Federal group than either of your SSSGs?

\[ \] YES

\[ \] NO

> If Yes, explain why the groups are not SSSGs.

QS9B Are there any purchasing alliances or coalitions

you do business with?

\[ \] YES

\[ \] NO

> If Yes, what are these groups and what are their
>
> enrollments?

QS10. Did either of the SSSGs receive any type of discount, or any other
type of rate advantage over the Federal group? (Note that we interpret
an industry factor less than 1.0 as a discount factor)

\[ \] YES

\[ \] NO

> If Yes, explain what kind of discount or rate advantage the SSSG
> received.

#### If Yes, did you apply the discount to the Federal group?

\[ \] YES

\[ \] NO

If No, please do so.

QS11. Did you use **[projected]{.underline}** demographics for an
SSSG\'s CRC factors and/or step-up factors?

\[ \] YES

\[ \] NO

> If Yes, explain why you used these projections, and show what the
> factors would be if you had used actual enrollment data.

QS12. Did you rate the SSSGs using a method other than that used for the
Federal group?

\[ \] YES

\[ \] NO

If Yes, explain why and provide your underwriting guidelines.

QS13. **On one of the following Comparison Sheets** (there is one for
carriers using TCR or CRC and another for carriers using ACR), show the
method by which you determined the billed rates for your SSSGs and the
Federal group. Indicate in a step-by-step manner how you got from your
starting point (in the TCR and CRC cases, this is usually a capitation
rate) to the billed rates. If you used ACR for the groups, include
utilization data. Explain how the method used for the SSSGs differs from
that used for the Federal group.

> **Include calculations, and be sure to maintain backup documentation
> for all calculations. This documentation will be subject to audit at a
> future date. Use additional sheets if necessary.**
>
> **MAKE SURE THAT BY THE TIME WE FINISH READING YOUR EXPLANATION, IT
> WILL BE CLEAR TO US WHY THE FEDERAL RATES DIFFER FROM THE SSSG RATES.
> IF YOU HAVE INCLUDED RATE DEVELOPMENT SHEETS FOR THESE GROUPS, DO NOT
> REFER US TO THESE SHEETS AT THIS POINT. WHAT WE WANT HERE IS A SIMPLE
> EXPLANATION OF HOW THE SSSG RATES DIFFER FROM THE FEDERAL GROUP
> RATES.**
>
> We give simple examples to serve as a guide. Do not hesitate to
> elaborate in your presentation**. Carriers using ACR should keep in
> mind that the following is only an example, and that you may need to
> include more information, depending on how your ACR method works.**

QS13. (continued)

**EXAMPLE TCR and CRC COMPARISON SHEET**

Federal Group SSSG #1 SSSG #2

1\. Group Renewal Date 1-1-00 1-1-00 2-1-00

2\. Rating Method (a) CRC CRC CRC

> (TCR,CRC,ACR)

3\. Capitation (b) \$100.00 \$98.00 \$101.00

4\. Age/Sex Factor .92 .98 1.04

5\. Industry Factor (c) .95 .95 .98

6\. Other Discounts .95 1.00 .95

7\. Total Discount (d) .95 x .98 .95 x 1.00 .95 x .98

8\. 1st Level 1.30 1.12 1.22

> Step-Up Factor (e)

9\. **Self Rate**(f) \$111.35 \$102.19 \$119.31

10\. Family/Self Ratio 2.71 2.80 2.55

11\. **Family Rate** \$301.76 \$286.13 \$304.24

\(a\) If all three methods are not the same, explain why.

\(b\) **IMPORTANT! If these capitation rates are not the same, explain
why in QS14.**

\(c\) The Federal group receives the lowest industry factor \< 1.0 given
to an SSSG.

\(d\) **IMPORTANT**: The Federal group receives the lowest total
discount given to an SSSG. In this case, one SSSG received a total
discount of (.95 x 1.00) and the other received a total discount of (.95
x .98) Therefore the Federal group would get a discount of (.95 x .98) ,
the lower of the two.)

\(e\) Show How Factors Are Derived.

\(f\) \$100 x .92 x (.95 x .98) x 1.3 = \$111.35

QS13. (continued)

**COMPARISON SHEET - TCR AND CRC**

Federal Group SSSG #1 SSSG #2

####### 

QS13(continued)

**EXAMPLE - ACR COMPARISON SHEET**

This shows one way you might present your ACR rate development. You
should modify this example to fit your particular ACR procedure. Note
that although this example is for the Federal group only, your
comparison sheet must include the SSSGs as well as the Federal group.

Federal Group SSSG #1 SSSG #2

a\. Rating Method ACR

b\. Group Renewal Date 1/1/00

c\. Experience Period 1/1/98-12/31/98

d\. Paid Claims \$10,000,000

e\. Annual Trend (if different, explain) 12%

f\. Trend From Experience Period 27%

To Renewal Period \[(1+ .12/12)^24^

g\. Expected Claims \[(d) x 1.27\] \$12,700,000

h\. Administration (if different, explain) 15%

i\. Claims + Administration \[(g)/(1-.15)\] \$14,941,176

j\. Members 100,000

k\. Per/Person Rate \[(i)/(j)\] \$149.41

l\. First Level Step-Up Factor 1.2

m\. Bi-weekly Self Rate \[(l) x (k) x 12/26\] \$82.75

n\. Family/Self Ratio 2.6

o\. Family Rate \[(m) x (n)\] \$215.15

p\. Discount 10%

q\. Rates After Discount Self \$74.48

Family \$193.64

QS13 (continued)

**COMPARISON SHEET - ACR**

Federal Group SSSG #1 SSSG #2

QS14. If you use TCR or CRC, are the capitation rates shown on the
comparison sheet of QS13 the same for the Federal group and the SSSG\'s?

\[ \] YES

\[ \] NO

> If no, explain on the following page. Below is an example of a proper
> explanation.
>
> In the example in QS13, the capitation for the Federal group is \$100,
> but only \$98 for SSSG #1. The explanation could be as follows:
>
> SSSG #1 Capitation \$98.00
>
> Adjustment for \"Gold Plan\"\* [\$ 2.00]{.underline}
>
> Federal Group Capitation \$100.00
>
> \* The Federal group has the \"Gold Plan\", which includes extra
> psychiatric benefits and a durable medical equipment benefit. SSSG #1
> has the \"Silver Plan\", which is the \"Gold Plan\' without the
> aforementioned extra benefits. The capitation for these benefits is as
> follows:
>
> Psychiatric Benefit \$1.50
>
> DME Benefit [\$ .50]{.underline}
>
> Gold Plan Extra Benefits \$2.00
>
> **Note: This explanation enables us to see precisely why the
> capitation for SSSG #1 is different from the Federal group\'s
> capitation. The goal of your explanation is to make any such
> differences in capitation rates clear to us.**

QS14 (continued)

**EXPLANATION SHEET**

######## TCR Questions

QT1. On what type of community rate did you base your 2000 rates for the
Federal group and other groups?

\[ \] Standard set of tiered rates applicable to

all groups with a tiered rate structure.

\[ \] Per member/per month capitation rate

> You may check both blocks if you use a standard set of tiered rates
> which are derived from a capitation rate.

\[ \] Other (Explain)

QT2. If you used a standard set of tiered rates (applicable to all
groups) what are they?

Self \_\_\_\_\_\_\_\_\_\_Family \_\_\_\_\_\_\_\_\_\_

\[ \] NA

QT3. If you used a capitation rate, what is the actual (as opposed to
what may have been estimated in the proposal) capitation rate on which
the 2000 Federal group rates should be based? \_\_\_\_\_\_\_\_\_\_\_

\[ \] NA

QT4. If you used a capitation rate for 2000 and converted it to a self
rate and a family rate using step-up factors, what are these step-up
factors? Specifically, what is the step-up factor used to convert the
capitation rate to the self rate? What is the step-up factor used to
convert the self rate to the family rate?

[Self]{.underline} = \_\_\_\_\_\_\_\_\_\_ [Family]{.underline} =
\_\_\_\_\_\_\_\_\_\_

Capitation Self

\[ \] NA (Do not use step-up factors) **Go To Question QT8**

QT5. Are the above step-up factors the same as those used in the 2000
rate proposal which you submitted in May 1999?

\[ \] YES

\[ \] NO

> If No, is the reason because the carrier revised its community-wide
> demographics after the 2000 rate proposal was made (and used the
> revised step-up factors for its SSSGs)?

\[ \] YES

\[ \] NO

> If No, what was the reason for the change in the step-up factors?

QT6. How did you derive the above step-up factors? Explain briefly (a
numerical formula for each factor is the preferred form of explanation).

QT7. Do you use step-up factors for all groups?

\[ \] YES

\[ \] NO

> If No, explain the criteria that you use to determine when step-up
> factors are applicable.

QT8. If you use enrollment-mix or other demographic assumptions at any
point in the development of the 2000 Federal group rates, (including
development of step-up factors), what are they?

\% Self Contracts \_\_\_\_\_\_\_\_\_\_

\% Family Contracts \_\_\_\_\_\_\_\_\_\_

Family Size \_\_\_\_\_\_\_\_\_\_

Other:

QT9. Are the demographic assumptions in QT8 the same as they were in the
2000 rate proposal?

\[ \] YES

\[ \] NO

\[ \] NA

> If No, or NA, is the reason because the carrier revised its
> community-wide demographics after the 2000 rate proposal (and used the
> revised demographics for its SSSGs?)

\[ \] YES

\[ \] NO

If No, explain.

QT10. 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? Note: You must maintain the source of your
demographic data on file for possible examination by the OPM audit
staff.

QT11. Show the calculations behind the rates that you have on line 1 on
the reconciliation sheet**. [DO NOT REFER US TO ANOTHER SHEET FOR THIS
CALCULATION. WHAT WE WANT HERE IS A SIMPLE EXPLANATION OF WHERE THE LINE
1 RATES COME FROM]{.underline}**

**CRC Questions**

QC1. Give a simple narrative explanation of how you developed your
rates.

QC2. Did you begin with a capitation rate?

\[ \] YES

\[ \] NO

> If Yes, what is the actual capitation rate (as opposed to your
> estimated proposal) on which the 2000 Federal group rates (Line 1 of
> Attachment III) should be based?

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

> If No, explain how you did begin.

QC3. What CRC factors do you use?

\[ \] AGE

\[ \] SEX

\[ \] OTHER \_\_\_\_\_\_\_\_\_\_, \_\_\_\_\_\_\_\_\_\_,
\_\_\_\_\_\_\_\_\_\_

QC4. What is your CRC adjustment factor? \_\_\_\_\_\_\_\_\_

> 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?**

QC5. Have you enclosed any worksheets (i.e. sheets showing age/sex
distribution and relative utilization factors) you used to derive the
CRC adjustment factors? **Please note that you must have documented
support for the CRC age/sex factors for both the Federal group and the
SSSGs**.

\[ \] YES

\[ \] NO

> **If No, please enclose worksheets and change this answer to YES.**

QC6. Is the CRC adjustment factor the same as it was in the 2000 rate
proposal?

\[ \] YES

\[ \] NO

If No, explain.

QC7. If you used a CRC-adjusted capitation rate for 2000 and converted
it to a self rate and a family rate using step-up factors, what are
these step-up factors? Specifically, what is the step-up factor used to
convert the capitation rate to the self rate? What is the step-up factor
used to convert the self rate to the family rate?

[Self]{.underline} = \_\_\_\_\_\_\_\_\_\_ [Family]{.underline} =
\_\_\_\_\_\_\_\_\_\_

Capitation Self

\[ \] NA (Do not use step-up factors) **Go To Question QC11**

QC8. Are the above step-up factors the same as those used in the 2000
rate proposal (which you submitted in May 1999)?

\[ \] YES

\[ \] NO

> If No, is the reason because the carrier revised its community-wide
> demographics after the 2000 rate proposal was made (and used the
> revised step-up factors for its SSSGs)?

\[ \] YES

\[ \] NO

> If No, what was the reason for the change in the step-up factors?
>
> QC9. How did you derive the above step-up factors? Explain briefly (we
> prefer a numerical formula for each factor as the explanation).

QC10. Do you use step-up factors for all groups?

\[ \] YES

\[ \] NO

> If No, explain the criteria you use to determine when step-up factors
> are applicable.

QC11. If you use enrollment-mix or other demographic assumptions at any
point in the development of the 2000 Federal group rates, (including
development of step-up factors), what are they?

\% Self Contracts \_\_\_\_\_\_\_\_\_\_

\% Family Contracts \_\_\_\_\_\_\_\_\_\_

Family Size \_\_\_\_\_\_\_\_\_\_

Other:

QC12. Are the demographic assumptions in QC11 the same as they were in
the 2000 rate proposal?

\[ \] YES

\[ \] NO

\[ \] NA

> If No, or NA, did the carrier revise its community-wide demographics
> after the 2000 rate proposal was made (and used the revised
> demographics for its SSSGs?)

\[ \] YES

\[ \] NO

If No, explain.

QC13. If either of your SSSGs has an industry factor less than 1.00, did
you apply the lowest factor less than 1.00 to the Federal group rates?

\[ \] YES

\[ \] NO

> If No, explain.

QC14. If both SSSGs have industry factors greater than 1.00, did you
apply an industry factor of 1.00 to the Federal group rates?

\[ \] YES

\[ \] NO

> If No, explain.

QC15. 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**

> QC16. 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

QC17. Show the calculations behind the rates that you have on line 1 on
the reconciliation sheet. [**DO NOT REFER US TO ANOTHER SHEET FOR THIS
CALCULATION. WHAT WE WANT HERE IS A SIMPLE EXPLANATION OF THE LINE 1
RATES**.]{.underline}

######## ACR Questions

QA1. What method of ACR did you use for your 2000 rate proposal?

\[ \] A Method Using Utilization Factors (**Go to QA12**.)

\[ \] A Method Using Actual Claims Data

> Note: You should have on file any claims/utilization data supporting
> the rates for the Federal group and SSSGs.
>
> Note: If your method used actual claims data, the claims data used to
> develop the FEHBP rates and the SSSGs' rates should be saved on an
> accessible computer medium (cartridge tape, CD-ROM, etc).This data
> used in the rate reconciliation should be maintained for a time period
> stated in the financial records section of your contact with OPM. (
> five full years plus the current year).Actual claims records should
> also be maintained according to the contract ( three full years plus
> the current year).

QA2. Did you use the same experience period (and the same claims within
that period) in the reconciliation that you used in the proposal?

\[ \] YES

\[ \] NO

> If No, explain. As a general rule, neither the experience period nor
> the claims should change between the proposal and the reconciliation.

QA3. Did you use the same trend that you used in the proposal?

\[ \] YES

\[ \] NO

> If No, explain
>
> What trend do you use in the reconciliation? \_\_\_\_\_\_
>
> What trend did you use in the original proposal? \_\_\_\_\_\_

QA4. Did you use the same trend for the SSSG\'s that you used for the
Federal group?

\[ \] YES

\[ \] NO

> If No, explain.

QA5. If you use completion factors to derive incurred claims, do you use
the same set of factors for all groups?

\[ \] YES

\[ \] NO

\[ \] NA

### If No, explain 

QA6. If you use a completion factor to derive incurred claims, did the
factor remain the same between the proposal and the reconciliation?

\[ \] YES

\[ \] NO

\[ \] NA

### If No, explain

QA7. What kind of administrative loading did you use?

\[ \] A flat community rated pm/pm administrative charge.

\[ \] A percentage of claims.

Explain how you computed the administrative charge.

QA8. Did the claims used in the rate development reflect special
benefits? **Note: If special benefits were not included in the claims,
please have on file claims/utilization reports to support this
assertion.**

\[ \] YES

\[ \] NO

QA9. Did you reduce claims used in the rate development by
Coordination-Of-Benefits (COB) income that the carrier received from
other insurance carriers (Excluding HCFA)?

\[ \] YES

\[ \] NO

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

QA10. Do you include age 65 or above retirees 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.

QA11. If you answered yes to QA10, are HCFA reimbursements included in
the group's experience?

\[ \] YES

\[ \] NO

> If No, the Medicare loading should be a credit for all monies received
> from HCFA.
>
> If Yes, there should be no Medicare loading.

QA12. Explain in narrative form how you derived your line 1 rates.
**[INCLUDE CALCULATIONS]{.underline}**. If you derived a capitation rate
from claims data, and used step-up factors to adjust it, show this. If
you used a method based on utilization factors, show how you broke the
capitation rate into components, what you used for utilization factors,
what the adjusted capitation rate is, etc. Use extra sheets if
necessary**. [DO NOT SKIP THIS SECTION OR REFER US TO ANOTHER SHEET.
WHAT WE WANT HERE IS A SIMPLE EXPLANATION OF YOUR LINE 1
RATES.]{.underline}**

**Documentation of 2000 Community Rates and Riders**

**(Large Carriers Only)**

If the State requires the carrier to file its official community rates
with the State insurance department, OPM requires a copy of this filing.
If the insurance department must approve such a filing, also send us a
copy of the approval**. [BE SURE TO CIRCLE IN RED ALL RATES AND RIDERS
ON THE INSURANCE FILING THAT APPLY TO THE FEHBP]{.underline}.**

If the State does not require the carrier to file its community rates,
we require some other form of documentation.

Acceptable documentation includes:

> 1\) rate development sheets for the carrier\'s SSSGs.
>
> 2\) rating guidelines used by the carrier\'s rating personnel.

The Reconciliation Question­naire contains some questions pertaining to
the rate development of the SSSGs. You should provide any backup
documents that will enable us to better understand the answers to these
questions.

**Certificate of Accurate Pricing**

#  For Community Rated Carriers

This is to certify that, to the best of my knowledge and belief:

1\) The cost or pricing data submitted (or, if not submitted, maintained
and identified by the carrier as supporting documentation) to the
Contracting Officer or the Contracting Officer\'s repre­sentative or
designee in support of the 2000 FEHBP rates were developed in accordance
with the requirements of 48 CFR Chapter 16 and the FEHBP contract and
are accurate, complete, and current as of the date this certificate is
executed; and

2\) The methodology used to determine the FEHBP rates is consistent with
the methodology used to determine the rates for the carrier\'s Similarly
Sized Subscriber Groups.

Firm
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Name
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Title
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Signature
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Date
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**Carrier Contacts**

For information about your reconciliation, we should contact:

Name
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Phone Number
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Fax Number
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

E-Mail
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

OR

Name
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Phone Number
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Fax Number
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

E-Mail
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_