[Federal Register Volume 80, Number 4 (Wednesday, January 7, 2015)]
[Proposed Rules]
[Pages 926-929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30633]



[[Page 925]]

Vol. 80

Wednesday,

No. 4

January 7, 2015

Part II





Office of Personnel Management





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5 CFR Part 890

48 CFR Parts 1602, 1615, and 1652





Federal Employees Health Benefits Program; Proposed Rules

Federal Register / Vol. 80, No. 4 / Wednesday, January 7, 2015 / 
Proposed Rules

[[Page 926]]


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OFFICE OF PERSONNEL MANAGEMENT

48 CFR Parts 1602, 1615, and 1652

RIN 3206-AN00


Federal Employees Health Benefits Program; Rate Setting for 
Community-Rated Plans

AGENCY: U.S. Office of Personnel Management.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The U.S. Office of Personnel Management (OPM) is issuing a 
Notice of Proposed Rulemaking to make changes to the Federal Employees 
Health Benefits Acquisition Regulation (FEHBAR). These changes would: 
Define which subscriber groups may be included for consideration as 
similarly sized subscriber groups (SSSGs); require the SSSG to be 
traditional community rated; establish that traditional community-rated 
Federal Employees Health Benefits (FEHB) plans must select only one 
rather than two SSSGs; and make conforming changes to FEHB contract 
language to account for the new medical loss ratio (MLR) standard for 
most community-rated FEHB plans.

DATES: Comments are due on or before March 9, 2015.

ADDRESSES: Send written comments to Delon Pinto, Senior Policy Analyst, 
Planning and Policy Analysis, U.S. Office of Personnel Management, Room 
4312, 1900 E Street NW., Washington, DC; or FAX to (202) 606-4640 Attn: 
Delon Pinto. You may also submit comments using the Federal eRulemaking 
Portal: http://www.regulations.gov. Follow the instructions for 
submitting comments.

FOR FURTHER INFORMATION CONTACT: Delon Pinto, Senior Policy Analyst, at 
<a href="/cdn-cgi/l/email-protection#bbffded7d4d595ebd2d5cfd4fbd4cbd695dcd4cd"><span class="__cf_email__" data-cfemail="5b1f3e373435750b32352f341b342b36753c342d">[email protected]</span></a> or (202) 606-0004.

SUPPLEMENTARY INFORMATION: The U.S. Office of Personnel Management is 
issuing a notice of proposed rulemaking to update the Federal Employees 
Health Benefits Acquisition Regulation to accommodate the new FEHB 
specific medical loss ratio (MLR) requirement for most community-rated 
plans as well as to update the similarly sized subscriber group (SSSG) 
requirement for traditional community-rated plans.

Background on Federal Employees Health Benefits Rate-Setting for 
Community Rated Plans

    The Patient Protection and Affordable Care Act, Pub. L. 111-148, 
was enacted on March 23, 2010; the Health Care and Education 
Reconciliation Act, Pub. L. 111-152, was enacted on March 30, 2010 
(these are collectively known as the ``Affordable Care Act''). In April 
2012, OPM issued a final rule establishing an FEHB specific MLR 
requirement to replace the SSSG comparison requirement for most 
community rated FEHB plans (77 FR 19522). The FEHB specific MLR rules 
are based on the medical loss ratio standard established by the 
Affordable Care Act and defined by the U.S. Department of Health and 
Human Services, the U.S. Department of Labor, and the U.S. Department 
of Treasury in 26 CFR part 54, 29 CFR part 2590, 45 CFR part 146, and 
45 CFR part 158. Community-rated FEHB plans were permitted to elect to 
follow the FEHB specific MLR requirements instead of the SSSG 
requirements for calendar year 2012. Beginning with the 2013 calendar 
year, the FEHB specific MLR requirements were mandatory for all 
community-rated carriers except those that are State-mandated to use 
traditional community rating (TCR). State mandated TCR plans will 
continue to be subject to the SSSG comparison requirements.

Provisions of This Proposed Regulation

    This proposed rule makes three changes to the requirements for 
SSSGs. In the past, OPM has required that plans identify two non-FEHB 
subscriber groups (employer groups covered by an issuer) that are 
closest in size to the FEHB group and, if either or both of those 
groups received a discounted rate, the carrier must provide the largest 
discount to FEHB. This proposed rule defines the entities whose groups 
may be selected for comparison as an SSSG. In addition, this rule 
states any SSSG must also be rated TCR in order to maintain alignment 
between the TCR-rated FEHB group and the subscriber group used for 
comparison. Last, OPM is requiring plans to identify one, rather than 
two, SSSG subscriber groups used for the comparison. OPM considers it 
unnecessary to require more than one comparison group if the SSSG must 
also be rated TCR for the reasons set forth below.
    TCR plans are those that, usually by State law, are required to set 
the same rates for all subscriber groups regardless of the health risks 
and other characteristics of any specific group. Under TCR, an FEHB 
group must be charged the same premium as all other groups in its 
service area that receive the same set of benefits. The health plan 
cannot adjust premiums for a specific group to reflect the healthcare 
utilization characteristics of that specific group.
    Since the TCR premium does not necessarily reflect the experience 
of a specific group, an FEHB specific MLR requirement is not 
appropriate. However, if a State-mandated TCR carrier has no other 
groups that are TCR, and therefore no SSSG, the carrier will be subject 
to the FEHB specific MLR requirements. In that situation, applying the 
FEHB specific MLR requirement is appropriate.

Definition of Entities Included for SSSG Comparison

    This proposed regulation identifies which SSSGs are available for 
comparison under 48 CFR 1602.170-13. A subscriber group purchasing 
healthcare benefits from an entity may be an SSSG if the entity is the 
carrier, a division or subsidiary of the carrier, a separate line of 
business or qualified separate line of business of the carrier, or if 
the entity maintains a contractual arrangement with the carrier to 
provide healthcare benefits. If the entity is any of the preceding, any 
of its subscriber groups may be included as an SSSG so long as the 
entity reports financial statements on a consolidated basis with the 
carrier or shares, delegates, or otherwise contracts with the carrier, 
any portion of its workforce that involves the management, design, 
pricing, or marketing of the healthcare product.

Conforming Changes Due to MLR-Based FEHB Rate Requirements

    The FEHBAR contains language required in all FEHB contracts with 
health insurance carriers. In the April 2, 2012 final rule, OPM did not 
update all of the FEHBAR contract language to account for the new FEHB-
specific MLR requirement. Omitted from that regulation were some 
changes, described below, to 48 CFR 1652.215-70, ``Rate Reduction for 
Defective Pricing or Defective Cost or Pricing Data,'' to account for 
the new rules.
    48 CFR 1652.215-70 describes how a contracting officer at OPM may 
make an offset from premiums if pricing or cost and pricing data are 
defective. This proposed rule adds a provision stating that such an 
offset can be made if a Carrier, which is not mandated by the State to 
use traditional community rating, has developed FEHB rates inconsistent 
with the FEHB-specific MLR requirement. This proposed rule also adds a 
provision that simple interest must be paid to the Government when an 
MLR penalty is assessed as a result of an audit finding by the OPM 
Office of the Inspector General (OIG). This is not a policy change, but 
a conforming change so all FEHB

[[Page 927]]

contracts account for the new FEHB-specific MLR requirement.
    The April 2, 2012 final rule included two different ``Certificates 
of accurate cost or pricing data'' in 48 CFR 1615.406-2: One for SSSG 
pricing, and one for MLR pricing. Previously there was only one 
certificate for all carriers. This proposed rule changes some 
references from ``certificate'' to ``certificates'' to reflect this 
change.

Technical Corrections

    This proposed rule includes two technical corrections that correct 
inadvertent errors from earlier amendments to chapter 16 of the FEHBAR.
    In the June 2011 interim final rule, the word ``issuer'' was used 
erroneously in place of the word ``carrier'' in two places. Per chapter 
89 title 5 U.S. Code, OPM is authorized to contract with carriers. This 
technical correction is made in 48 CFR 1602.170-14(a) and 1652.216-
70(b)(2)(i).
    This proposed rule also clarifies, in 48 CFR 1652.216-70(b), how 
community-rated carriers must develop their FEHB rates. Previously, 
this section erroneously stated that carriers should ``base their 
rating methodology on the MLR threshold.'' The corrected language 
states that all community-rated plans must develop the FEHB's rates 
using their State-filed rating methodology or, if not required to file 
with the State, their standard written and established rating 
methodology.

Regulatory Flexibility Act

    OPM certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities because the 
regulation only affects health insurance carriers in the FEHB Program.

Executive Order 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with Executive Order 12866. OPM has examined the impact 
of this proposed rule as required by Executive Order 12866 and 
Executive Order 13563, which direct agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public, health, and 
safety effects, distributive impacts, and equity). A regulatory impact 
analysis must be prepared for major rules with economically significant 
effects of $100 million or more in any one year. This rule is not 
considered a major rule because there will be no increased costs to 
Federal agencies, Federal Employees, or Federal retirees in their 
health insurance premiums.

Federalism

    We have examined this rule in accordance with Executive Order 
13132, Federalism, and have determined that this rule will not have any 
negative impact on the rights, roles, and responsibilities of State, 
local, or tribal governments.

List of Subjects in 48 CFR Parts 1602, 1615, and 1652

    Government employees, Government procurement, Health insurance, 
Reporting and recordkeeping requirements.

    U.S. Office of Personnel Management.
Katherine Archuleta,
Director.
    For the reasons set forth in the preamble, OPM proposes to amend 
chapter 16 of title 48 CFR (FEHBAR) as follows:

TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM

CHAPTER 16--OFFICE OF PERSONNEL MANAGEMENT FEDERAL EMPLOYEES HEALTH 
BENEFITS ACQUISITION REGULATION

Subchapter A--General

PART 1602--DEFINITIONS OF WORDS AND TERMS

0
1. The authority citation for part 1602 continues to read as follows:

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

0
2. Revise 1602.170-13 to read as follows:


1602.170-13  Similarly sized subscriber groups.

    (a) A Similarly sized subscriber group (SSSG) is a non-FEHB 
employer group that:
    (1) As of the date specified by OPM in the rate instructions, has a 
subscriber enrollment closest to the FEHBP subscriber enrollment;
    (2) Uses traditional community rating; and
    (3) Meets the criteria specified in the rate instructions issued by 
OPM.
    (b) Any group with which an entity enters into an agreement to 
provide health care services is a potential SSSG (including groups that 
are traditional community rated and covered by separate lines of 
business, government entities, groups that have multi-year contracts, 
and groups having point-of-service products) except as specified in 
paragraph (c) of this section.
    (1) An entity's subscriber groups may be included as an SSSG if the 
entity is any of the following:
    (i) The carrier;
    (ii) A division or subsidiary of the carrier;
    (iii) A separate line of business or qualified separate line of 
business of the carrier; or
    (iv) An entity that maintains a contractual arrangement with the 
carrier to provide healthcare benefits.
    (2) A subscriber group covered by an entity meeting any of the 
criteria under paragraph (b)(1) of this section may be included for 
comparison as a SSSG if the entity meets any of the following criteria:
    (i) It reports financial statements on a consolidated basis with 
the carrier; or
    (ii) Shares, delegates, or otherwise contracts with the carrier, 
any portion of its workforce that involves the management, design, 
pricing, or marketing of the healthcare product.
    (c) The following groups must be excluded from SSSG consideration:
    (1) Groups the carrier rates by the method of retrospective 
experience rating;
    (2) Groups consisting of the carrier's own employees;
    (3) Medicaid groups, Medicare-only groups, and groups that receive 
only excepted benefits as defined at section 9832(c) of title 26, 
United States Code;
    (4) A purchasing alliance whose rate-setting is mandated by the 
State or local government;
    (5) Administrative Service Organizations (ASOs);
    (6) Any other group excluded from consideration as specified in the 
rate instructions issued by OPM.
    (d) OPM shall determine the FEHBP rate by selecting the lowest rate 
derived by using rating methods consistent with those used to derive 
the SSSG rate.
    (e) In the event that a State-mandated TCR carrier has no SSSG, 
then it will be subject to the FEHB specific MLR requirement.
0
3. Revise 1602.170-14(a) to read as follows:


1602.170-14  FEHB-specific medical loss ratio threshold calculation.

    Medical Loss Ratio (MLR) means the ratio of plan incurred claims, 
including the carrier's expenditures for activities that improve health 
care quality, to total premium revenue determined by OPM, as defined by 
the Department of Health and Human Services in 45 CFR part 158.
* * * * *

[[Page 928]]

Subchapter C--Contracting Methods and Contract Types

PART 1615--CONTRACTING BY NEGOTIATION

0
4. The authority citations for part 1615 continue to read as follows:

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

0
5. In 1615.402, revise paragraphs (c)(2), (c)(3)(i)(A) and (B), and 
(c)(4) to read as follows:


1615.402  Pricing policy.

* * * * *
    (c) * * *
    (2) For contracts with fewer than 1,500 enrollee contracts for 
which the FEHB Program premiums for the contract term will be at or 
above the threshold at FAR 15.403-4(a)(1), OPM will require the carrier 
to submit its rate proposal, utilization data, and a certificate of 
accurate cost or pricing data required in 1615.406-2. In addition, OPM 
will require the carrier to complete the proposed rates form containing 
cost and pricing data, and the Community-Rate Questionnaire, but will 
not require the carrier to send these documents to OPM. The carrier 
will keep the documents on file for periodic auditor and actuarial 
review in accordance with 1652.204-70. OPM will perform a basic 
reasonableness test on the data submitted. Rates that do not pass this 
test will be subject to further OPM review.
* * * * *
    (3) * * *
    (i) * * *
    (A) For contracts with 1,500 or more enrollee contracts for which 
the FEHB Program premiums for the contract term will be at or above the 
threshold at FAR 15.403-4(a)(1), OPM will require the carrier to 
provide the data and methodology used to determine the FEHB Program 
rates. OPM will also require the data and methodology used to determine 
the rates for the carrier's SSSG. The carrier will provide cost or 
pricing data required by OPM in its rate instructions for the 
applicable contract period. OPM will evaluate the data to ensure that 
the rate is reasonable and consistent with the requirements in this 
chapter. If necessary, OPM may require the carrier to provide 
additional documentation.
    (B) Contracts will be subject to a downward price adjustment if OPM 
determines that the Federal group was charged more than it would have 
been charged using a methodology consistent with that used for the 
SSSG. Such adjustments will be based on the rate determined by using 
the methodology (including discounts) the carrier used for the SSSG.
* * * * *
    (4) Contracts will be subject to a downward price adjustment if OPM 
determines that the Federal group was charged more than it would have 
been charged using a methodology consistent with that used for the 
similarly-sized subscriber group (SSSG). Such adjustments will be based 
on the rate determined by using the methodology (including discounts) 
the carrier used for the SSSG.
* * * * *
0
6. In 1615.406-2, revise the section heading and the first certificate 
to read as follows:


1615.406-2  Certificates of accurate cost or pricing data for 
community-rated carriers.

* * * * *
(Beginning of first certificate)

Certificate of Accurate Cost or Pricing Data for Community-Rated 
Carriers (SSSG methodology)
    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 __* FEHB Program rates were developed in 
accordance with the requirements of 48 CFR Chapter 16 and the FEHB 
Program contract and are accurate, complete, and current as of the date 
this certificate is executed; and (2) the methodology used to determine 
the FEHB Program rates is consistent with the methodology used to 
determine the rates for the carrier's Similarly Sized Subscriber Group.

    * Insert the year for which the rates apply.

Firm:------------------------------------------------------------------

Name:------------------------------------------------------------------

Signature:-------------------------------------------------------------

Date of Execution:-----------------------------------------------------

(End of first certificate)
* * * * *

Subchapter H--Clauses and Forms

PART 1652--CONTRACT CLAUSES

0
7. The authority citation for part 1652 continues to read as follows:

    Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 48 CFR 1.301.

0
8. In 1652.215-70, revise paragraphs (a) and (c) to read as follows:


1652.215-70  Rate Reduction for Defective Pricing or Defective Cost or 
Pricing Data.

* * * * *
    (a) If any rate established in connection with this contract was 
increased because:
    (1) The Carrier submitted, or kept in its files in support of the 
FEHBP rate, cost or pricing data that were not complete, accurate, or 
current as certified in one of the Certificates of Accurate Cost or 
Pricing Data (FEHBAR 1615.406-2);
    (2) The Carrier submitted, or kept in its files in support of the 
FEHBP rate, cost or pricing data that were not accurate as represented 
in the rate reconciliation documents or MLR Calculation;
    (3) The Carrier developed FEHBP rates for traditional community-
rated plans with a rating methodology and structure inconsistent with 
that used to develop rates for a similarly sized subscriber group (see 
FEHBAR 1602.170-13) as certified in the Certificate of Accurate Cost or 
Pricing Data for Community-Rated Carriers;
    (4) The Carrier, who is not mandated by the State to use 
traditional community rating, developed FEHBP rates with a rating 
methodology and structure inconsistent with its State-filed rating 
methodology (or if not required to file with the State, their standard 
written and established rating methodology) or inconsistent with the 
FEHB specific medical loss ratio (MLR) requirements (see FEHBAR 
1602.170-13); or
    (5) The Carrier submitted or, kept in its files in support of the 
FEHBP rate, data or information of any description that were not 
complete, accurate, and current--then, the rate shall be reduced in the 
amount by which the price was increased because of the defective data 
or information.
* * * * *
    (c) When the Contracting Officer determines that the rates shall be 
reduced and the Government is thereby entitled to a refund or that the 
Government is entitled to a MLR penalty, the Carrier shall be liable to 
and shall pay the FEHB Fund at the time the overpayment is repaid or at 
the time the MLR penalty is paid--
    (1) Simple interest on the amount of the overpayment from the date 
the overpayment was paid from the FEHB Fund to the Carrier until the 
date the overcharge is liquidated. In calculating the amount of 
interest due, the quarterly rate determinations by the Secretary of the 
Treasury under the authority of 26 U.S.C. 6621(a)(2) applicable to the 
periods the overcharge was retained by the Carrier shall be used;
    (2) A penalty equal to the amount of overpayment, if the Carrier 
knowingly

[[Page 929]]

submitted cost or pricing data which was incomplete, inaccurate, or 
noncurrent; and
    (3) Simple interest on the MLR penalty from the date on which the 
penalty should have been paid to the FEHB Fund to the date on which the 
penalty was or will be actually paid to the FEHB fund. The interest 
rate shall be calculated as specified in paragraph (c)(1) of this 
clause.
0
9. In 1652.216-70, revise paragraphs (b)(2), (3), (7), and (8) to read 
as follows:


1652.216-70  Accounting and price adjustment.

* * * * *
    (b) * * *
    (2) Effective January 1, 2013 all community-rated plans must 
develop the FEHBP's rates using their State-filed rating methodology 
or, if not required to file with the State, their standard written and 
established rating methodology. A carrier who mandated by the State to 
use traditional community rating will be subject to paragraph 
(b)(2)(ii) of this clause. All other carriers will be subject to 
paragraph (b)(2)(i) of this clause.
    (i) The subscription rates agreed to in this contract shall meet 
the FEHB-specific MLR threshold as defined in FEHBAR 162.170-14. The 
ratio of a plan's incurred claims, including the carrier's expenditures 
for activities that improve health care quality, to total premium 
revenue shall not be lower than the FEHB-specific MLR threshold 
published annually by OPM in its rate instructions.
    (ii) The subscription rates agreed to in this contract shall be 
equivalent to the subscription rates given to the carrier's similarly 
sized subscriber group (SSSG) as defined in FEHBAR 1602.170-13. The 
subscription rates shall be determined according to the carrier's 
established policy, which must be applied consistently to the FEHBP and 
to the carrier's SSSG. If the SSSG receives a rate lower than that 
determined according to the carrier's established policy, it is 
considered a discount. The FEHBP must receive a discount equal to or 
greater than the carrier's SSSG discount.
    (3) If subject to paragraph (b)(2)(ii) of this clause, then:
    (i) If, at the time of the rate reconciliation, the subscription 
rates are found to be lower than the equivalent rates for the SSSG, the 
carrier may include an adjustment to the Federal group's rates for the 
next contract period, except as noted in paragraph (b)(3)(iii) of this 
clause.
    (ii) If, at the time of the rate reconciliation, the subscription 
rates are found to be higher than the equivalent rates for the SSSG, 
the carrier shall reimburse the Fund, for example, by reducing the FEHB 
rates for the next contract term to reflect the difference between the 
estimated rates and the rates which are derived using the methodology 
of the SSSG, except as noted in paragraph (b)(3)(iii) of this clause.
    (iii) Carriers may provide additional guaranteed discounts to the 
FEHBP that are not given to the SSSG. Any such guaranteed discounts 
must be clearly identified as guaranteed discounts. After the beginning 
of the contract year for which the rates are set, these guaranteed 
FEHBP discounts may not be adjusted.
* * * * *
    (7) Carriers may provide additional guaranteed discounts to the 
FEHBP. Any such guaranteed discounts must be clearly identified as 
guaranteed discounts. After the beginning of the contract year for 
which the rates are set, these guaranteed FEHBP discounts may not be 
adjusted.
    (8) Carriers may not impose surcharges (loadings not defined based 
on an established rating method) on the FEHBP subscription rates or use 
surcharges in the rate reconciliation process. If the carrier is 
subject to the SSSG rules and imposes a surcharge on the SSSG, the 
carrier cannot impose the surcharge on FEHB.
* * * * *
[FR Doc. 2014-30633 Filed 1-6-15; 8:45 am]
BILLING CODE 6325-63-P


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