+-----------------------------------------+----------------------------+
| **FEHB Program Carrier Letter**         | **U.S. Office of Personnel |
|                                         | Management**               |
| **All Carriers**                        |                            |
|                                         | **Office of Insurance      |
|                                         | Programs**                 |
+-----------------------------------------+----------------------------+
| **Letter No. 1999-017B** **Date:**      |                            |
| **April 28, 1999**                      |                            |
|                                         |                            |
| Fee-for-service \[14\] Experience-rated |                            |
| HMO \[ 14 \] Community-rated \[ \]      |                            |
+-----------------------------------------+----------------------------+

**SUBJECT:** 2000 Rate Instructions for Experience-Rated Plans

Enclosed are the questionnaire and tables that will constitute your rate
proposal for participation in the FEHBP for 2000. You must fully
document all estimates with respect to assumptions and actuarial
methodology. Your submission is due on May 31, 1999.

For plans participating in the DoD Pilot Project you must submit
separate abbreviated documentation. This is the same documenta-tion as
for new plans which is noted in the questionnaire under item 1 (c).

All plans must complete Tables 1, 2 and the questionnaire. HMO's must
complete Table 3 and include it with the submission and submit Table 4
as soon as the May data is available but no later than June 20. If you
provide some services through capitation, enclose separate schedules
covering 1998 as well as the 4 and 5 month periods for 1999 in which
claims are broken out by capitated services, non-capitated services, and
total services.

Fee for service plans may omit Tables 3 and 4 but must confirm that the
submission of monthly incurred claims is current.

If your plan has two options, rate each option as a separate plan and
submit separate documentation for each option.

You should set your proposed rates so that the sum of the ending special
reserve balance plus the ending contingency reserve balance moves toward
the reserve goal of 2 months of total outgo. If you project that your
rates will not achieve the reserve goal as of December 31, 2000, please
explain why your proposed rates are more reasonable than rates which
would achieve the 2-month goal.

You should send one copy of the submission including your proposal, the
summary statement to your December 31, 1998, accounting statement, the
questionnaire and appropriate tables to:

Office of Personnel Management

Ms. Nancy H. Kichak

Director, Office of Actuaries

1900 E Street, NW., Room 4307

Washington, DC 20415

Please send a duplicate hard copy to:

Office of Personnel Management

Mr. Frank D. Titus

Assistant Director for Insurance Programs

1900 E Street, NW., Room 3424

Washington, DC 20415

Email a Lotus, Excel or Quattro version of the questionnaire to
RVGRESCH@OPM.GOV.

If you have any questions, please contact Ms. Sherry Simon or

Mr. Ron Gresch at (202) 606‑0722. You will receive a statement of your
December 31, 1998, contingency reserve balance in the near future.

Sincerely,

Frank D. Titus

Assistant Director

for Insurance Programs

### Enclosures

Note: Options are Rated as Separate Plans and Require Separate
Questionnaires

**1a.** Attach a copy of the summary statement of your 12/31/98

accounting statement.

**1b.** Email the information as shown in the enclosed sample format on
the following page to RVGRESCH@OPM.GOV.

**1c.** Abbreviated documentation for new plans and DoD Pilot Project:
Item numbers refer to the questionnaire.

Item 2 year 2000 only (rates enrollment, subscription income)

Item 9 year 2000 only (Present Year claims)

e*xplain the basics of your projected claims number*

#######  Item 12 year 2000 only (expenses and reinsurance)

Item 14(a) (8)-(10) only (12/31/2000 contingency reserve balance)

Item 14(b) (4)-(8) only (interest plus investment income)

Item 14(c) (1)-(5) (Financial Summary and Special Reserve- 2000)

Table 2 (2000 biweekly Net-to-Carrier Rates)

> If you use Lotus, Excel or Quattro for the questionnaire, email such a
> file to the above address as well.

Plan XYZ

Code 1A

High Option

Acturarial Contact: Joe Comet

Telephone:999-555-1234

Fax:999-555-9876

e-mail: jcomet@xyz.com

1996 1997 1998 1999 2000

Subscription Income Adjusted for Accrual(\$000) 1144000.0 1274000.0
1339000.0

Interest Income Adjusted for Accrual(\$000) 6864.0 7644.0 8034.0

LOC and Carrier

Claims Paid in Calendar Year x 1115400.0 1242150.0 1305525.0

No accrual \[1999 Paid through 4 month\]

Claims incurred in 1996 paid in: 915200.0 183040.0 18304.0

Claims incurred in 1997 paid in: 1019200.0 203840.0 10192.0

Claims incurred in 1998 paid in: 1071200.0 74984.0

Claims incurred in 1999 paid in: 267800.0

Total Non-claims Expenses(\$000), no accrual adjustment 80080.0 89180.0
93730.0

Accrued Reserve 12/31/98 (\$000) 217587.5

Special Reserve 12/31/98 (\$000) 108793.8

Biweekly Net-to-Carrier Rate

Self 80.00 90.00 95.00 100.00 105.00

Family 180.00 200.00 210.00 220.00 230.00

Biweekly Net-to-Carrier Rate Change for Benefits Only

Self 0.00 0.00 0.00 0.00

Family 0.00 0.00 0.00 0.00

Initial Estimated Enrollment

Self 100000 100000 100000 100000 100000

Family 200000 200000 200000 200000 200000

**2.** Reconcile your 1997 and 1998 premium income to your 1997 and 1998
enrollment by adjusting enrollment to agree with premium

income actually received. For 1997 and 1998 premium income

use accounting summary figures for Semi-Monthly Premiums

received by your LOC account adjusted by beginning and ending

accrued values. It is advisable to perform a similar

reconciliation for 1999 using the fact that most second

monthly payments consist of one monthly annuitant premium and

one biweekly premium and most first monthly payments consist

of one biweekly premium.

**Biweekly Initial Adjusted\***

##  Net-to- Estimated Calcu- Actual Average

##  Carrier Enroll- lated Premium Enroll-

#### 1997 Rates ment Income Income ment

### Self x x 26 =

### Family x x 26 =

###  Total

**1998**

### Self x x 26 = 

### Family x x 26 = 

###  Total 

**1999**

### Self x x 26 = 

### Family x x 26 = 

###  Total 

**2000 (Projected)**

### Self x x 26 = 

### Family x x 26 = 

###  Total 

\*Adjusted Enrollment = Initial Estimated Enrollment x (Actual

Premium Income/Calculated Income)

**3.** **(a)** As of 12/31/98 what were the total claims paid to date
for services incurred in

**1996**

**1997**

**1998**

(b) As of 4/30/99 what were the claims paid in 1999 for

> services incurred in

**1996**

**1997**

**1998**

**1999**

The sum of these values should equal the claims paid in the first 4
months of 1999

**(c)** What is your estimate of the ultimate claims and what portion of
these claims have been paid as of 12/31/98 and as of 4/30/99.

**Portion Paid**

**Portion Paid as of as of 4/30/99**

**Ultimate Claims 12/31/98 (a)/(c) \[(a)+(b)\]/(c)**

**1996 P1=**

**1997** **P2=**

**1998** **P3=**

**1999**

The portion paid as of 12/31/98 and as of 4/30/99 should be
representative of past experience. If they are not, explain why.
Ultimate claims and the portion paid as of 12/31/98 (P1,P2,P3) will be
used in item 11.

Explanation if Necessary:

The product of the prior year\'s claims and the factors in items 4, 5,
6, 7, and 8 below should equal the present year\'s claims and for 1997
and 1998 should agree with the ultimate claims stated in item 3. Item 9
contains a summary of items 4, 5, 6, 7 and 8.

**4.** What was the change in enrollment factor for:

1997 to 1998

1998 to 1999

What is your estimated factor for:

1999 to 2000

You should weight the aggregate enrollment factor for both self and
family contracts by either premiums or claims.

We prefer that you obtain the enrollment factor by using a weighted
average of claims costs broken down by groups such as active, Medicare
and non-Medicare annuitants enrollees and by self and family contracts.
Please provide your best estimate of claims cost by type of claimant and
category of enrollment. If you do not have claims data available, we
suggest you use the following weights:

##  Self Family

**Active** 46 121

**Medicare Annuitants** 56 105

**Non-Medicare Annuitants** 106 194

The formula you would use would appear as follows:

EF(yr) = \[46xASE(yr)\]+\[56xMSE(yr)\]+\[106xNMSE(yr)\]

+\[121xAFE(yr)\]+\[105xMFE(yr)\]+\[194xNMFE(yr)\]

\[46xASE(yr‑1)\]+\[56xMSE(yr‑1)\]+\[106xNMSE(yr‑1)\]

+\[126xAFE(yr‑1)\]+\[105xMFE(yr‑1)\]+\[194xNMFE(yr‑1)\]

where

EF = Enrollment Factor

ASE = Active Self Enrollment

MSE = Medicare Self Enrollment

NMSE = Non‑Medicare Self Enrollment

AFE = Active Family Enrollment

MFE = Medicare Family Enrollment

NMFE = Non‑Medicare Family Enrollment

To obtain the factor weighted by premiums use the following

formula:

EF(yr) = [\[SE(yr) x SP(yr‑1)\] + \[FE(yr) x FP(yr‑1)\]]{.underline}

\[SE(yr‑1) x SP(yr‑1)\] + \[FE(yr‑1) x FP(yr‑1)\]

where EF = Enrollment Factor

SE = Self Enrollment

FE = Family Enrollment

SP = Self Premium

FP = Family Premium

Explanation if Necessary:

**5.** What was the change in benefits factor for:

1997 to 1998

1998 to 1999

What is your estimated factor for:

1999 to 2000

You should weight the aggregate benefit factor for both self and family
contracts by premiums and enrollment.

##### You should base all benefit changes on premium rate

changes that were agreed upon during prior rating unless better data is
available, i.e.,

BF(yr)=[\[SE(yr)x\[SP(yr‑1)+SBC(yr)\]\]+\[FE(yr)x\[FP(yr‑1)+FBC(yr)\]\]]{.underline}
\[SE(yr) x SP(yr‑1)\] + \[FE(yr) x FP(yr‑1)\]

where BF = Benefit Factor

###  SE = Self Enrollment SBC = Self Benefit Change

SP = Self Premium FBC = Family Benefit FE = Family Enrollment Change

FP = Family Premium

If your gross premium rates are substantially different than claims plus
expenses it will be necessary to adjust your calculated benefits
factors.

Explanation if Necessary:

**6.** What was the trend factor for:

##  Trend Inflation Utilization

**Factor** **Factor** **Factor**

1997 to 1998 = x

What trend factor is projected for:

1998 to 1999 = x

1999 to 2000 = x

Explanation if Necessary:

**7.** Selection as a result of movement between plans in the FEHBP is
common. You can quantify this factor for a given year using the
following:

SEL = [1 + \[(EI-1) x RUI\] + \[(ED-1) x RUD\]]{.underline}

EI + ED - 1

where SEL = Selection Factor

EI = Enrollment Increase Factor

ED = Enrollment Decrease Factor

RUI = Relative utilization of Enrollment

Increases

RUD = Relative utilization of Enrollment

Decreases

As an illustration, suppose that in 1996 your plan consisted of 100
enrollments who cost \$1000 each. In 1996 your plan gained 30
enrollments and lost 40 enroll-

ments. The enrollments the plan gained would have cost

\$1400 in 1996 and the enrollments the plan loss cost \$800 in 1996. The
selection factor for 1997 is

1.222 = [\[1. x 1.0\] + \[.3 x 1.4\] + \[-.4 x .8\]]{.underline}

1 + (.3) + (-.4)

What were these factors if any for:

###  Selection EI ED RUI RUD

1997 to 1998

What factors if any are projected for:

1998 to 1999

1999 to 2000

Explanation if Necessary:

**8.** What other factors such as the institution or expansion of a PPO
have had an effect upon incurred claims:

###  Total of

other

########  Factors 

1997 to 1998 = x x

> What other factors if any will have an effect upon incurred claims:

1998 to 1999 = x x

1999 to 2000 = x x

Explanation if Necessary:

**9. Summary of Incurred Claims Development**

##  Present

##  Enrollment Benefit Trend Selection Other Year

## Year Factor Factor Factor Factor Factors Claims

**1997**

**1998** x x x x x =

**1999** x x x x x =

**2000** x x x x x =

**10.** December 31, 1998 Special Reserve

**(a)** 1996, 1997 and 1998 claims paid through

12/31/98

**(b)** 1996, 1997 and 1998 estimated incurred

claims

**(c)** (b) ‑ (a)

**(d)** 12/31/98 accounting statement accrued

reserve

**(e)** 12/31/98 accounting statement special

reserve

**(f)** \[(e) + (d) ‑ (c)\]

**(a)** is from item 3(a)

**(b)** is from item 3(c)

**(c)** is your most recent estimate of the 12/31/98

accrued reserve

**(f)** is your most recent estimate of the 12/31/98

special reserve

**11.** Accrued Reserves

**(a)** 12/31/98 accrued reserve \[from 10(c)\]

**(b)** 12/31/99 estimated accrued reserve

= 1997 ultimate claims x (1‑P1)

\+ 1998 ultimate claims x (1‑P2)

\+ 1999 estimated claims x (1‑P3)

**(c)** 12/31/00 estimated accrued reserve

= 1998 ultimate claims x (1‑P1)

\+ 1999 ultimate claims x (1‑P2)

\+ 2000 estimated claims x (1‑P3)

\[claims from 3(c) and 9\]

\[P1, P2 and P3 are from 3(c)\]

**12.** Expenses

**Total**

**Amount Service Charge**

**Year**

1998

1999

2000

(Allowable expenses and service charge is negotiated with the Office of
Insurance Programs.)

Describe your reinsurance arrangements if any.

**13.** 1999 Contingency Payment, Interest and Investment

###  Income, and Reserve Calculations

**(a)** Contingency Reserve

**(1)** Contingency Reserve Balance 12/31/98

(from OPM\'s Office of Actuaries)

**(2)** Claims Paid During Last 6 Months of

1998

**(3)** Administrative Expenses for 1998

**(4)** Three and One‑Half Months of Total

###  Outgo \[(7/12) x (2)\] + \[(7/24) x (3)\]

**(5)** Preferred Minimum Balance of 1‑1/2

###  Month of Total Outgo \[(3/7) x (4)\]

**(6)** Accrued Reserve + Special Reserve

12/31/98 \[10(c) + 10(f)\]

**(7)** 1999 Contingency Reserve Payment (compute as

follows)

**(a)** (4)‑(6) = \[put 0 here if (4)‑(6) is

negative\]

**(b)** (1)‑(5) = \[put 0 here if (1)‑(5) is

negative\]

**(c)** Contingency Reserve Payment:

########  Lesser of (a) and (b) = 

###  Return of Excess to the Contingency Reserve

Fund:

**(d)** If (4)‑(6) is negative, that is if the accrued

reserve plus special reserve exceeds three and

one-half total outgo, the excess must be

returned to the contingency reserve fund.

###  What is it?

(6)‑(4) =

**(8)** Payments to Contingency Reserve Fund

###  During 1999 (approximately 3.88% of

premium income)

**(9)** Interest on Contingency Reserve Fund

########  During 1999 

= IR x \[BCR + .5 x (PCR) ‑ .5 x (CRP) + SIF\]

= .05x\[(1)+.5x(8)+.5x\[(7)(d)‑(7)(c)\]+(3/52xSI)\]

where IR = Interest Rate

###  BCR = Beginning Contingency Reserve Balance

PCR = 1999 Payments to Contingency Reserve

###  CRP = 1999 Contingency Reserve Payment to

###  Plan

###  SIF = Subscription Income Float

###  SI = 1999 Subscription Income

**(10)** Contingency Reserve Balance 12/31/99

\(1\) + (8) + (9) + \[7(d) - 7(c)\]

**(b)** Interest plus Investment Income

**(1)** Accrued Reserve + Special Reserve as

12/31/98

**(2)** Accounting Statement Premium Income

###  Accrued but Unpaid as of 12/31/98

(3) 1999 Contingency Reserve Payment

> 13(a)(7)(c) -- 13(a)(7)(d)

**(4)** 1999 Total Premium Income

**(5)** 1999 Incurred Claims

**(6)** 1999 Expenses

**(7)** 1999 Average Investment Balance:

(1)-(2)+{.5 x \[(3)+(4)-(5)-(6)\]}

**(8)** 1999 Interest Plus Investment Income:

.0500 x (7)

**(c)** Financial Summary and Special Reserve ‑ 1999

**(1)** Income

**(a)** Premium Income

**(b)** Contingency Reserve Payment

\[13(a)(7)(c)\] - \[13(a)(7)(d)\]

**(c)** Interest Plus Investment Income

**(d)** Total

**(2)** Outgo

**(a)** Incurred Claims \[9\]

**(b)** Expenses \[12\]

**(c)** Total

**(3)** Gain (Loss) \[1(d) ‑ 2(c)\]

**(4)** Reserves

**(a)** Beginning Special \[10(f)\]

**(b)** Ending Special \[3 + 4(a)\]

**(c)** Ending Contingency \[13(a)(10)\]

**(5)** Reserve Goal (in number of months)

{12 x \[4(b) + 4(c)\]} / 2(c)

14. 2000 Contingency Payment, Investment Income, and

Reserve Calculations

**(a)** Contingency Reserve

**(1)** Contingency Reserve Balance 12/31/99

\[from 13(a)(10)\]

**(2)** Claims Paid During Last 6 Months of

1999\. Use the Product of 1998 Claims

from 13(a)(2) and the Percentage Change

from 1998 incurred Claims to 1999

incurred claims \[item 9\].

**(3)** Administrative Expenses for 1999

(4) Three and One‑Half Months of Total

> Outgo \[(7/12) x (2)\] + \[(7/24) x (3)\]

**(5)** Preferred Minimum Balance of 1‑1/2

###  Month of Total Outgo \[(3/7) x (4)\]

**(6)** Accrued Reserve + Special Reserve

12/31/99 \[11(b) + 13(c)(4)(b)\]

**(7)** 2000 Contingency Reserve Payment

(compute as follows)

> **(a)** (4)‑(6) = (put 0 here if (4)‑(6) is
>
> negative)

**(b)** (1)‑(5) = (put 0 here if (1)‑(5) is negative)

**(c)** Contingency Reserve Payment:

###  Lesser of (a) and (b) = 

###  Return Of Excess to the Contingency Reserve

Fund:

**(d)** If (4)‑(6) is negative, that is if the accrued

reserve plus special reserve exceeds three and

one-half months of total outgo, the excess

must be returned to the contingency reserve

fund. What is it?

(6)‑(4) =

**(8)** Payments to Contingency Reserve Fund

###  During 2000 (approximately 3.88% of

premium income)

**(9)** Interest on Contingency Reserve Fund

During 2000

= IRx\[BCR+.5x(PCR)‑.5x(CRP)+SIF\]

= .05x\[(1)+.5x(8)+.5x\[(7)(d)-7(c)\]+(3/52xSI)\]

where IR = Interest Rate

###  BCR = Beginning Contingency Reserve Balance

###  PCR = 2000 Payments to Contingency Reserve

###  CRP = 2000 Contingency Reserve Payment to

###  Plan

###  SIF = Subscription Income Float

###  SI = 2000 Subscription Income

**(10)** Contingency Reserve Balance 12/31/00

\(1\) + (8) + (9) + \[(7)(d) - (7)(c)\]

**(b)** Interest plus Investment Income

**(1)** Accrued Reserve+Special Reserve as of

12/31/99

**(2)** Premium Income Accrued but Unpaid

as of 12/31/99. Use the Product of

b(2) for 1998 and the Percentage

Change in Premium Income Between 1998

and 1999 from Item 2.

**(3)** 2000 Contingency Reserve Payment

14(a)(7)(c) - 14(a)(7)(d)

**(4)** 2000 Total Premium Income

**(5)** 2000 Incurred Claims

**(6)** 2000 Expenses

**(7)** 2000 Average Balance:

(1)-(2)+{.5 x \[(3)+(4)‑(5)‑(6)\]}

**(8)** 2000 Interest Plus Investment Income:

.05 x (7)

**(c)** Financial Summary and Special Reserve ‑ 2000

**(1)** Income

**(a)** Premium Income

**(b)** Contingency Reserve Payment

\[14(a)(7)(c)\] - \[14(a)(7)(d)\]

**(c)** Interest plus Investment Income

**(d)** Total

**(2)** Outgo

**(a)** Incurred Claims \[9\]

**(b)** Expenses \[12\]

**(c)** Total

**(3)** Gain (Loss) \[1(d) ‑ 2(c)\]

**(4)** Reserves

**(a)** Beginning Special \[13(c)(4)(b)\]

**(b)** Ending Special \[3 + 4(a)\]

**(c)** Ending Contingency \[14(a)(10)\]

**(5)** Reserve Goal (in number of months)

{12 x \[4(b) + 4(c)\]} / 2(c)

Explanation of rates if Reserve goal does not equal 2

months outgo:

**TABLE 1**

**Projection of Financial Results for**

**for 1998, 1999 and 2000**

**[1998]{.underline}**

**A.** Income

**1.** Premium Income

**2.** Contingency Reserve Payment

**3.** Interest Plus Investment Income

**4.** Total

**B.** Outgo

**1.** Incurred Claims

**2.** Expenses

**3.** Total

**C.** Gain (Loss)

**D.** Reserves

**1.** Beginning Special

**2.** Ending Special (D1+C)

**3.** Ending Contingency

**E.** Months of Reserves (12x(D2+D3)/B3)

**[1999]{.underline}**

**A.** Income

**1.** Premium Income

**2.** Contingency Reserve Payment

**3.** Interest Plus Investment Income

**4.** Total

**B.** Outgo

**1.** Incurred Claims

**2.** Expenses

**3.** Total

**C.** Gain (Loss)

**D.** Reserves

1\. Beginning Special

2\. Ending Special (D1+C)

3\. Ending Contingency

**E.** Months of Reserves (12x(D2+D3)/B3)

**[2000]{.underline}**

**A.** Income

**1.** Premium Income

**2.** Contingency Reserve Payment

**3.** Interest Plus Investment Income

**4.** Total

**B.** Outgo

**1.** Incurred Claims

**2.** Expenses

**3.** Total

**C.** Gain (Loss)

**D.** Reserves

1\. Beginning Special

2\. Ending Special (D1+C)

3\. Ending Contingency

**E.** Months of Reserves (12x(D2+D3)/B3)

**TABLE 2**

**1999 and 2000 Biweekly Net-to-Carrier Rates for**

##  Self Family

**A.** 1999 Rates

**B.** 2000 Rates

**1.** Experience Change

**2.** Benefit Change

**3.** Other Changes

**4.** Total (A+B1+B2+B3)

**C.** Percent Change from 1999 to 2000

**1.** Experience Change

**2.** Benefit Change

**3.** Other Changes

**4.** Total

**TABLE 3**

**Carrier Name: Code:**

**Health Benefit Charges Paid**

**During Four Month Period Ending**

**April 30, 1999**

**[Monthly Claims Paid]{.underline}**

+----------+---------------+-------------+-------------+--------------+
| # MONTH  | # AMOUNT      | # YE        |             |              |
|          |               | AR INCURRED |             |              |
|          | ###### PAID   |             |             |              |
+----------+---------------+-------------+-------------+--------------+
|          |               | **1999**    | **1998**    | **1997 &     |
|          |               |             |             | PRIOR**      |
+----------+---------------+-------------+-------------+--------------+
| # Jan    |               |             |             |              |
|          |               |             |             |              |
| **Feb**  |               |             |             |              |
|          |               |             |             |              |
| **Mar**  |               |             |             |              |
|          |               |             |             |              |
| **Apr**  |               |             |             |              |
+----------+---------------+-------------+-------------+--------------+
| *        |               |             |             |              |
| *TOTAL** |               |             |             |              |
+----------+---------------+-------------+-------------+--------------+

# TABLE 4

**Carrier Name: Code:**

**Health Benefit Charges Paid**

**During Five Month Period Ending**

**May 31, 1999**

**[Monthly Claims Paid]{.underline}**

+----------+---------------+-------------+-------------+--------------+
| # MONTH  | # AMOUNT      | # YE        |             |              |
|          |               | AR INCURRED |             |              |
|          | ###### PAID   |             |             |              |
+----------+---------------+-------------+-------------+--------------+
|          |               | **1999**    | **1998**    | **1997 &     |
|          |               |             |             | PRIOR**      |
+----------+---------------+-------------+-------------+--------------+
| # Jan    |               |             |             |              |
|          |               |             |             |              |
| **Feb**  |               |             |             |              |
|          |               |             |             |              |
| **Mar**  |               |             |             |              |
|          |               |             |             |              |
| **Apr**  |               |             |             |              |
|          |               |             |             |              |
| **May**  |               |             |             |              |
+----------+---------------+-------------+-------------+--------------+
| *        |               |             |             |              |
| *TOTAL** |               |             |             |              |
+----------+---------------+-------------+-------------+--------------+