Document:

EX-10.1 BLUE SHIELD LICENSE

 

BLUE SHIELD

CONTROLLED AFFILIATE LICENSE AGREEMENT

(Includes revisions adopted by Member Plans through their March 15, 2007 meeting)

     This Agreement by and among Blue Cross and Blue Shield Association
(“BCBSA”) and ___  (“Controlled Affiliate”), a Controlled Affiliate of the Blue Shield Plan(s),
known as ___  (“Plan”), which is also a Party signatory hereto.

     WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;

     WHEREAS, Plan and Controlled Affiliate desire that the latter be entitled to use the BLUE
SHIELD and BLUE SHIELD Design service marks (collectively the “Licensed Marks”) as service marks
and be entitled to use the term BLUE SHIELD in a trade name (“Licensed Name”);

     NOW THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:

	 	1.	 	GRANT OF LICENSE

     Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled
Affiliate the right to use the Licensed Marks and Name in connection with, and only in connection
with: (i) health care plans and related services, as defined in BCBSA’s License Agreement with
Plan, and administering the non-health portion of workers’ compensation insurance, and (ii)
underwriting the indemnity portion of workers’ compensation insurance, provided that Controlled
Affiliate’s total premium revenue comprises less than 15 percent of the sponsoring Plan’s net
subscription revenue.

     This grant of rights is non-exclusive and is limited to the Service Area served by the Plan.
Controlled Affiliate may use the Licensed Marks and Name in its legal name on the following
conditions: (i) the legal name must be approved in advance, in writing, by BCBSA; (ii) Controlled
Affiliate shall not do business outside the Service Area under any name or mark; and (iii)
Controlled Affiliate shall not use the Licensed Marks and Name, or any derivative thereof, as part
of any name or symbol used to identify itself in any securities market. Controlled Affiliate may
use the Licensed Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.

	 	2.	 	QUALITY CONTROL

     A. Controlled Affiliate agrees to use the Licensed Marks and Name only in connection with the
licensed services and further agrees to be bound by the conditions regarding quality control shown
in attached Exhibit A as they may be amended by BCBSA from time-to-time.

Amended as of November 16, 2000

 

 

     B. Controlled Affiliate agrees to comply with all applicable federal, state and local laws.

     C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if
reasonably required by Plan or by BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate’s compliance with the requirements of this Agreement including but not limited
to the quality control provisions of this paragraph and the attached Exhibit A.

     D. Controlled Affiliate agrees that Plan and/or BCBSA may, from time-to-time, upon reasonable
notice, review and inspect the manner and method of Controlled Affiliate’s rendering of service and
use of the Licensed Marks and Name.

     E. As used herein, a Controlled Affiliate is defined as an entity organized and operated in
such a manner, that it meets the following requirements:

(1) A Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled
Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled
Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), must have the legal authority
directly or indirectly through wholly-owned subsidiaries to select members of the Controlled
Affiliate’s governing body having not less than 50% voting control thereof and to:

     (a) prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not
concur;

     (b) exercise control over the policy and operations of the Controlled Affiliate at least equal
to that exercised by persons or entities (jointly or individually) other than the Controlling
Plan(s); and

Notwithstanding anything to the contrary in (a) through (b) hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by the Controlling
Plan(s) before the Controlled Affiliate can:

	 	(i)	 	change its legal and/or trade names;
	 
	 	(ii)	 	change the geographic area in which it operates;
	 
	 	(iii)	 	change any of the type(s) of businesses in which it engages;

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	 	(iv)	 	create, or become liable for by way of guarantee, any indebtedness, other
than indebtedness arising in the ordinary course of business;
	 
	 	(v)	 	sell any assets, except for sales in the ordinary course of business or sales
of equipment no longer useful or being replaced;
	 
	 	(vi)	 	make any loans or advances except in the ordinary course of business;
	 
	 	(vii)	 	enter into any arrangement or agreement with any party directly or indirectly
affiliated with any of the owners or persons or entities with the authority to
select or appoint members or board members of the Controlled Affiliate, other than
the Plan or Plans (excluding owners of stock holdings of under 5% in a publicly
traded Controlled Affiliate);
	 
	 	(viii)	 	conduct any business other than under the Licensed Marks and Name;
	 
	 	(ix)	 	take any action that any Controlling Plan or BCBSA reasonably believes will
adversely affect the Licensed Marks and Name.

In addition, a Plan or Plans directly or indirectly through wholly owned subsidiaries shall own at
least 50% of any for-profit Controlled Affiliate.

Or

(2) A Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled
Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled
Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority directly or
indirectly through wholly-owned subsidiaries to select members of the Controlled Affiliate’s
governing body having more than 50% voting control thereof and to:

	 	(a)	 	prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es)
not concur;
	 
	 	(b)	 	exercise control over the policy and operations of the Controlled
Affiliate.

In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries shall
own more than 50% of any for-profit Controlled Affiliate.

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	 	3.	 	SERVICE MARK USE

     A. Controlled Affiliate recognizes the importance of a comprehensive national network of
independent BCBSA licensees which are committed to strengthening the Licensed Marks and Name. The
Controlled Affiliate further recognizes that its actions within its Service Area may affect the
value of the Licensed Marks and Name nationwide.

     B. Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks
and Name, including but not limited to use of such symbols or words as BCBSA shall specify to
protect the Licensed Marks and Name and shall comply with such rules (generally applicable to
Controlled Affiliates licensed to use the Licensed Marks and Name) relative to service mark use, as
are issued from time-to-time by BCBSA. Controlled Affiliate recognizes and agrees that all use of
the Licensed Marks and Name by Controlled Affiliate shall inure to the benefit of BCBSA.

     C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a
manner that transfers or is intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate engage in activity that may dilute
or tarnish the unique value of the Licensed Marks and Name.

     D. If Controlled Affiliate meets the standards of 2E(1) but not 2E(2) above and any of
Controlled Affiliate’s advertising or promotional material is reasonably determined by BCBSA and/or
the Plan to be in contravention of rules and regulations governing the use of the Licensed Marks
and Name, Controlled Affiliate shall for ninety (90) days thereafter obtain prior approval from
BCBSA of advertising and promotional efforts using the Licensed Marks and Name, approval or
disapproval thereof to be forthcoming within five (5) business days of receipt of same by BCBSA or
its designee. In all advertising and promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.

     E. Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this
Agreement, Controlled Affiliate shall use its best efforts to promote and build the value of the
Licensed Marks and Name.

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	     4.	 	SUBLICENSING AND ASSIGNMENT

     Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate,
sell, encumber or mortgage, by operation of law or otherwise, the rights granted hereunder and any
such act shall be voidable at the sole option of Plan or BCBSA. This Agreement and all rights and
duties hereunder are personal to Controlled Affiliate.

	     5.	 	INFRINGEMENT

     Controlled Affiliate shall promptly notify Plan and Plan shall promptly notify BCBSA of any
suspected acts of infringement, unfair competition or passing off that may occur in relation to the
Licensed Marks and Name. Controlled Affiliate shall not be entitled to require Plan or BCBSA to
take any actions or institute any proceedings to prevent infringement, unfair competition or
passing off by third parties. Controlled Affiliate agrees to render to Plan and BCBSA, without
charge, all reasonable assistance in connection with any matter pertaining to the protection of the
Licensed Marks and Name by BCBSA.

	     6.	 	LIABILITY INDEMNIFICATION

     Controlled Affiliate and Plan hereby agree to save, defend, indemnify and hold BCBSA harmless
from and against all claims, damages, liabilities and costs of every kind, nature and description
(except those arising solely as a result of BCBSA’s negligence) that may arise as a result of or
related to Controlled Affiliate’s rendering of services under the Licensed Marks and Name.

	     7.	 	LICENSE TERM

     A. Except as otherwise provided herein, the license granted by this
Agreement shall remain in effect for a period of one (1) year and shall be automatically extended
for additional one (1) year periods unless terminated pursuant to the provisions herein.

     B. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately
terminate without any further action by any party or entity in the event that: (i) the Plan ceases
to be authorized to use the Licensed Marks and Name; or (ii) pursuant to Paragraph 15(a)(x) of the
Blue Cross License Agreement the Plan ceases to be authorized to use the Licensed Names and Marks
in the geographic area served by the Controlled Affiliate provided, however, that if the Controlled
Affiliate is serving more than one State or portions thereof, the termination of this Agreement
shall be limited to the State(s) or portions thereof in which the Plan’s license to use the
Licensed Marks and Names is terminated. By not appealing or challenging such regulatory action
within the time prescribed by law or regulation, and in any event no later than 120 days after such
action is taken, a Plan shall be deemed to have exhausted its rights to appeal or challenge, and
automatic termination shall proceed.

Amended as of September 14, 2004

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     C. Notwithstanding any other provision of this Agreement, this license to use the
Licensed Marks and Name may be forthwith terminated by the Plan or the affirmative vote of the
majority of the Board of Directors of BCBSA present and voting at a special meeting expressly
called by BCBSA for the purpose on ten (10) days written notice to the Plan advising of the
specific matters at issue and granting the Plan an opportunity to be heard and to present its
response to the Board for: (1) failure to comply with any applicable minimum capital or liquidity
requirement under the quality control standards of this Agreement; or (2) failure to comply with
the “Organization and Governance” quality control standard of this Agreement; or (3) impending
financial insolvency; or (4) for a Smaller Controlled Affiliate (as defined in Exhibit A), failure
to comply with any of the applicable requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit
A; or (5) the pendency of any action instituted against the Controlled Affiliate seeking its
dissolution or liquidation of its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business or seeking the declaration or
establishment of a trust for any of its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph 7(e); or (6) failure by a Controlled
Affiliate that meets the standards of 2E(1) but not 2E(2) above to obtain BCBSA’s written consent
to a change in the identity of any owner, in the extent of ownership, or in the identity of any
person or entity with the authority to select or appoint members or board members, provided that as
to publicly traded Controlled Affiliates this provision shall apply only if the change affects a
person or entity that owns at least 5% of the Controlled Affiliate’s stock before or after the
change; or (7) such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA, the Plans, any other licensee
including Controlled Affiliate and/or the Licensed Marks and Name.

     D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should Controlled
Affiliate fail to comply with the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence a cure within such thirty day
period and continue diligent efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall have the right to issue a notice
that the Controlled Affiliate is in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found to exist by a mandatory dispute resolution panel and is uncured as
provided above, BCBSA shall have the right to seek judicial enforcement of the Agreement or to
issue a notice of termination thereof. Notwithstanding any other provisions of this Agreement, any
disputes as to the termination of this License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this
Agreement shall not be subject to mediation and mandatory dispute resolution. All other disputes
between BCBSA, the Plan and/or Controlled Affiliate shall be submitted promptly to mediation and
mandatory dispute resolution. The mandatory dispute resolution panel shall have authority to issue
orders for specific performance and assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use the
Licensed Marks and Name may not be finally terminated for any reason without the affirmative vote
of a majority of the present and voting members of the Board of Directors of BCBSA.

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     E. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately
terminate without any further action by any party or entity in the event that:

     (1) Controlled Affiliate shall no longer comply with item 2(E) above;

     (2) Appropriate dues, royalties and other payments for Controlled Affiliate pursuant to
paragraph 9 hereof, which are the royalties for this License Agreement, are more than sixty (60)
days in arrears to BCBSA; or

     (3) Any of the following events occur: (i) a voluntary petition shall be filed by Controlled
Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the
bankruptcy laws of the United States or any other law governing insolvency or debtor relief, or
(ii) an involuntary petition or proceeding shall be filed against Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of
the United States or any other law governing insolvency or debtor relief and such petition or
proceeding is consented to or acquiesced in by Controlled Affiliate or is not dismissed within
sixty (60) days of the date upon which the petition or other document commencing the proceeding is
served upon the Controlled Affiliate, or (iii) an order for relief is entered against Controlled
Affiliate in any case under the bankruptcy laws of the United States, or Controlled Affiliate is
adjudged bankrupt or insolvent as those terms are defined in the Uniform Commercial Code as enacted
in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled Affiliate makes
a general assignment of its assets for the benefit of creditors, or (v) any government or any
government official, office, agency, branch, or unit assumes control of Controlled Affiliate or
delinquency proceedings (voluntary or involuntary) are instituted, or (vi) an action is brought by
Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the
appointment of a trustee, interim trustee, receiver or other custodian for any of its property or
business, or (vii) an action is instituted by any governmental entity or officer against Controlled
Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of its property or business and such
action is consented to or acquiesced in by Controlled Affiliate or is not dismissed within one
hundred thirty (130) days of the date upon which the pleading or other document commencing the
action is served upon the Controlled Affiliate, provided that if the action is stayed or its
prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the
stay or injunction, and provided further, that the Association’s Board of Directors may toll or
extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim
trustee, receiver or other custodian for any of Controlled Affiliate’s property or business is
appointed or the Controlled Affiliate is ordered dissolved or liquidated. Notwithstanding any other
provision of this Agreement, a declaration or a request for declaration of the existence of a trust over any of the
Controlled Affiliate’s property or business shall not in itself be deemed to constitute or seek
appointment of a trustee, interim trustee, receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.

Amended as of March 18, 2004

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     F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees
that it shall immediately discontinue all use of the Licensed Marks and Name, including any use in
its trade name.

     G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of
its customers that it is no longer a licensee of BCBSA and, if directed by the Association’s Board
of Directors, shall provide instruction on how the customer can contact BCBSA or a designated
licensee to obtain further information on securing coverage. The notification required by this
paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity’s books and records to verify compliance with this paragraph.

     H. In the event this Agreement terminates pursuant to 7(b) hereof, or in the event the
Controlled Affiliate is a Larger Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not apply and the following provisions
shall apply, except that, in the event of a partial termination of this Agreement pursuant to
Paragraph 7(B)(ii) of this Agreement, the notices, national account listing, payment, and audit
right listed below shall be applicable solely with respect to the geographic area for which the
Plan’s license to use the Licensed Names and Marks is terminated:

     (1) The Controlled Affiliate shall send a notice through the U.S. mails, with first class
postage affixed, to all individual and group customers, providers, brokers and agents of products
or services sold, marketed, underwritten or administered by the Controlled Affiliate under the
Licensed Marks and Name. The form and content of the notice shall be specified by BCBSA and shall,
at a minimum, notify the recipient of the termination of the license, the consequences thereof, and
instructions for obtaining alternate products or services licensed by BCBSA, subject to any
conflicting state law and state regulatory requirements. This notice shall be mailed within 15 days
after termination.

     (2) The Controlled Affiliate shall deliver to BCBSA within five days of a request by BCBSA a
listing of national accounts in which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national account and the Controlled
Affiliate’s role therein.

     (3) Unless the cause of termination is an event respecting BCBSA stated in paragraph 15(a) or
(b) of the Plan’s license agreement with BCBSA to use the Licensed Marks and Name, the Controlled
Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be jointly
liable for payment to BCBSA of an amount equal to the Re-Establishment Fee (described below)
multiplied by the number of Licensed Enrollees of the Controlled Affiliate; provided that if any
other Plan is permitted by BCBSA to use marks or names licensed by BCBSA in the Service Area
established by this Agreement, the Re-Establishment Fee shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Plan, and
any other Licensed Controlled Affiliates and the denominator of which is the total number of Licensed
Enrollees in the Service Area.

Amended as of June 16, 2005

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The Re-Establishment Fee shall be indexed to a base fee of $80. The Re-
Establishment Fee through December 31, 2005 shall be $80. The Re-Establishment Fee for calendar
years after December 31, 2005 shall be adjusted on January 1 of each calendar year up to and
including January 1, 2010 and shall be the base fee multiplied by 100% plus the cumulative
percentage increase or decrease in the Plans’ gross administrative expense (standard BCBSA
definition) per Licensed Enrollee since December 31, 2004. The adjustment shall end on January 1,
2011, at which time the Re-Establishment Fee shall be fixed at the then-current amount and no
longer automatically adjusted. For example, if the Plans’ gross administrative expense per Licensed
Enrollee was $278.60, $285.00 and $290.00 for calendar year end 2004, 2005 and 2006, respectively,
the January 1, 2007 Re-Establishment Fee would be $83.27 (100% of base fee plus $1.84 for calendar
year 2005 and $1.43 for calendar year 2006. Licensed Enrollee means each and every person and
covered dependent who is enrolled as an individual or member of a group receiving products or
services sold, marketed or administered under marks or names licensed by BCBSA as determined at the
earlier of (i) the end of the last fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any transactions causing the termination
began. Notwithstanding the foregoing, the amount payable pursuant to this subparagraph H. (3) shall
be due only to the extent that, in BCBSA’s opinion, it does not cause the net worth of the
Controlled Affiliate, the Plan or any other Licensed Controlled Affiliates of the Plan to fall
below 100% of the Health Risk-Based Capital formula, or its equivalent under any successor formula,
as set forth in the applicable financial responsibility standards established by BCBSA (provided
such equivalent is approved for purposes of this sub paragraph by the affirmative vote of
three-fourths of the Plans and three-fourths of the total then current weighted vote of all the
Plans); measured as of the date of termination, and adjusted for the value of any transactions not
made in the ordinary course of business. This payment shall not be due in connection with
transactions exclusively by or among Plans or their affiliates, including reorganizations,
combinations or mergers, where the BCBSA Board of Directors determines that the license termination
does not result in a material diminution in the number of Licensed Enrollees or the extent of their
coverage. At least 50% of the Re-Establishment Fee shall be awarded to the Plan (or Plans) that
receive the new license(s) for the service area(s) at issue; provided, however, that such award
shall not become due or payable until all disputes, if any, regarding the amount of and BCBSA’s
right to such Re-Establishment Fee have been finally resolved; and provided further that the award
shall be based on the final amount actually received by BCBSA. The Board of Directors shall adopt a
resolution which it may amend from time to time that shall govern BCBSA’s use of its portion of the
award. In the event that the Controlled Affiliate’s license is reinstated by BCBSA or is deemed to
have remained in effect without interruption by a court of competent jurisdiction, BCBSA shall
reimburse the Controlled Affiliate (and/or the Plan or its other Licensed Controlled Affiliates, as
the case may be) for payments made under this subparagraph 7.H.(3) only to the extent that such
payments exceed the amounts due to BCBSA pursuant to paragraph 7.M. and any cost associated with
reestablishing the Service Area, including any payments made by BCBSA to a Plan or Plans (or their
Licensed Controlled Affiliates) for purposes of replacing the Controlled Affiliate.

Amended as June 16, 2005

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     (4) BCBSA shall have the right to examine and audit and/or hire at terminated entity’s
expense a third party auditor to examine and audit the books and records of the Controlled
Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.

     (5) Subsequent to termination of this Agreement, the terminated entity and its affiliates,
agents, and employees shall have an ongoing and continuing obligation to protect all BCBSA and Blue
Licensee data that was acquired or accessed during the period this Agreement was in force,
including but not limited to all confidential processes, pricing, provider, discount and other
strategic and competitively sensitive information (“Blue Information”) from disclosure, and shall
not, either alone or with another entity, disclose such Blue Information or use it in any manner to
compete without the express written permission of BCBSA.

     (6) As to a breach of 7.H.(1), (2), (3), (4) or (5) the parties agree that the obligations are
immediately enforceable in a court of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no adequate remedy at law and BCBSA is
entitled to obtain specific performance.

     I. This Agreement shall remain in effect until terminated by the Controlled Affiliate upon not
less than eighteen (18) months written notice to the Association or upon a shorter notice period
approved by BCBSA in writing at its sole discretion, or until terminated as otherwise provided
herein.

     J. In the event the Controlled Affiliate is a Smaller Controlled Affiliate (as defined in
Exhibit A), the Controlled Affiliate agrees to be jointly liable for the amount described in
H.3.and M. hereof upon termination of the BCBSA license agreement of any Larger Controlled
Affiliate of the Plan.

     K. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court
of competent jurisdiction from entry into any transaction which would result in a termination of
this Agreement unless the Plan’s license from BCBSA to use the Licensed Marks and Names has been
terminated pursuant to 10(d) of the Plan’s license agreement upon the required 6 month written
notice.

     L. BCBSA acknowledges that it is not the owner of assets of the Controlled Affiliate.

     M. In the event that the Plan has more than 50 percent voting control of the Controlled
Affiliate under Paragraph 2(E)(2) above and is a Larger Controlled Affiliate (as defined in Exhibit
A), then the vote called for in Paragraphs 7(C) and 7(D) above shall require the affirmative vote
of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the
Plans.

Amended as of June 16, 2005

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     N. In the event this Agreement terminates and is subsequently reinstated by BCBSA or is
deemed to have remained in effect without interruption by a court of competent jurisdicition, the
Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be
jointly liable for reimbursing BCBSA the reasonable costs incurred by BCBSA in connection with the
termination and the reinstatement or court action, and any associated legal proceedings, including
but not limited to: outside legal fees, consulting fees, public relations fees, advertising costs,
and costs incurred to develop, lease or establish an interim provider network. Any amount due to
BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of Directors in
its sole discretion.

	     8.	 	DISPUTE RESOLUTION

     The parties agree that any disputes between them or between or among either of them and one or
more Plans or Controlled Affiliates of Plans that use in any manner the Blue Shield and Blue Shield
Marks and Name are subject to the Mediation and Mandatory Dispute Resolution process attached to
and made a part of Plan’s License from BCBSA to use the Licensed Marks and Name as Exhibits 5, 5A
and 5B as amended from time-to-time, which documents are incorporated herein by reference as though
fully set forth herein.

	     9.	 	LICENSE FEE

     Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the
formula(s) set forth in Exhibit B.

	     10.	 	JOINT VENTURE

     Nothing contained in the Agreement shall be construed as creating a joint venture,
partnership, agency or employment relationship between Plan and Controlled Affiliate or between
either and BCBSA.

Amended as of June 16, 2005

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	     11.	 	NOTICES AND CORRESPONDENCE

     Notices regarding the subject matter of this Agreement or breach or termination thereof shall
be in writing and shall be addressed in duplicate to the last known address of each other party,
marked respectively to the attention of its President and, if any, its General Counsel.

	     12.	 	COMPLETE AGREEMENT

     This Agreement contains the complete understandings of the parties in relation to the subject
matter hereof. This Agreement may only be amended by the affirmative vote of three-fourths of the
Plans and three-fourths of the total then current weighted vote of all the Plans as officially
recorded by the BCBSA Corporate Secretary.

	     13.	 	SEVERABILITY

     If any term of this Agreement is held to be unlawful by a court of competent jurisdiction,
such findings shall in no way affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful term or condition so long as the
effect of such substitution is to provide the parties with the benefits of this Agreement.

	     14.	 	NONWAIVER

     No waiver by BCBSA of any breach or default in performance on the part of Controlled Affiliate
or any other licensee of any of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in performance of said terms, covenants or
conditions.

	     14A.	 	VOTING

For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities
licensed under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in
all votes of the Plans under this Agreement the Plans shall vote together. For weighted votes of
the Plans, the Plan shall have a number of votes equal to the number of weighted votes (if any)
that it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it holds as a
Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions
requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed
satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded
to the nearest whole number, with 0.5 or multiples thereof being rounded to the next higher whole
number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail
to cast weighted votes in favor of the question.
Notwithstanding the foregoing provision, if there are thirty-nine (39) Plans, the requirement of an
affirmative three-fourths weighted vote shall be deemed
satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in
favor of the question.

Amended as of June 16, 2005

12

 

THIS PAGE IS INTENTIONALLY BLANK.

13

 

	     15.	 	GOVERNING LAW

     This Agreement shall be governed by, and construed and interpreted in accordance with, the
laws of the State of Illinois.

	     16.	 	HEADINGS

     The headings inserted in this agreement are for convenience only and shall have no bearing on
the interpretation hereof.

     IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed and
effective as of the date of last signature written below.

	 	 	 	 	 
	 	Controlled Affiliate:

 	 
	 	By:  	 	 
	 	Date: 	 
	 
	 	Plan:

 	 
	 	By:  	 	 
	 	Date: 	 
	 	 	 	 
	 
	 	BLUE CROSS AND BLUE SHIELD ASSOCIATION

 	 
	 	By:  	 	 
	 	Date: 	 
	 	 	 	 

14

 

	 	 	 	 	 

EXHIBIT A

CONTROLLED AFFILIATE LICENSE STANDARDS

March 2007

PREAMBLE

The standards for licensing Controlled Affiliates are established by BCBSA and are subject to
change from time-to-time upon the affirmative vote of three-fourths (3/4) of the Plans and
three-fourths (3/4) of the total weighted vote. Each licensed Plan is required to use a standard
Controlled Affiliate license form provided by BCBSA and to cooperate fully in assuring that the
licensed Controlled Affiliate maintains compliance with the license standards.

The Controlled Affiliate License provides a flexible vehicle to accommodate the potential range of
health and workers’ compensation related products and services Plan Controlled Affiliates provide.
The Controlled Affiliate License collapses former health Controlled Affiliate licenses (HCC, HMO,
PPO, TPA, and IDS) into a single license using the following business-based criteria to provide a
framework for license standards:

	•	 	Percent of Controlled Affiliate controlled by parent: Greater than 50 percent or 50
percent?
	 
	•	 	Risk assumption: yes or no?
	 
	•	 	Medical care delivery: yes or no?
	 
	•	 	Size of the Controlled Affiliate: If the Controlled Affiliate has health or workers’
compensation administration business, does such business constitute 15 percent or more of the
parent’s and other licensed health subsidiaries’ member enrollment?

Amended September 19, 2002

15

 

EXHIBIT A (continued)

For purposes of definition:

	•	 	A “smaller Controlled Affiliate:” (1) comprises less than fifteen percent (15%) of
Plan’s and its licensed Controlled Affiliates’ total member enrollment (as reported on the
BCBSA Quarterly Enrollment Report, excluding rider and freestanding coverage, and treating an
entity seeking licensure as licensed);* or (2) underwrites the indemnity portion of workers’
compensation insurance and has total premium revenue less than 15 percent of the sponsoring
Plan’s net subscription revenue.

	•	 	A “larger Controlled Affiliate” comprises fifteen percent (15%) or more of Plan’s and
its licensed Controlled Affiliates’ total member enrollment (as reported on the BCBSA
Quarterly Enrollment Report, excluding rider and freestanding coverage, and treating an
entity seeking licensure as licensed.)*

Changes in Controlled Affiliate status:

If any Controlled Affiliate’s status changes regarding: its Plan ownership level, its risk
acceptance or direct delivery of medical care, the Controlled Affiliate shall notify BCBSA within
thirty (30) days of such occurrence in writing and come into compliance with the applicable
standards within six (6) months.

If a smaller Controlled Affiliate’s health and workers’ compensation administration business
reaches or surpasses fifteen percent (15%) of the total member enrollment of the Plan and licensed
Controlled Affiliates, the Controlled Affiliate shall:

Amended September 19, 2002

16

 

EXHIBIT A (continued)

	1.	 	Within thirty (30) days, notify BCBSA of this fact in writing, including evidence that the
Controlled Affiliate meets the minimum liquidity and capital (BCBSA “Health Risk-Based
Capital (HRBC)” as defined by the NAIC and state-established minimum reserve) requirements of
the larger Controlled Affiliate Financial Responsibility standard; and

	2.	 	Within six (6) months after reaching or surpassing the fifteen percent (15%) threshold,
demonstrate compliance with all license requirements for a larger Controlled Affiliate.

If a Controlled Affiliate that underwrites the indemnity portion of workers’ compensation
insurance receives a change in rating or proposed change in rating, the Controlled Affiliate shall
notify BCBSA within 30 days of notification by the external rating agency.

 

			
	*	 	For purposes of this calculation,

The numerator equals:

Applicant Controlled Affiliate’s member enrollment, as defined in BCBSA’s Quarterly
Enrollment Report (excluding rider and freestanding coverage).

The denominator equals:

Numerator PLUS Plan and all other licensed Controlled Affiliates’ member enrollment, as reported
in BCBSA’s Quarterly Enrollment Report (excluding rider and freestanding coverage).

Amended September 19, 2002

17

 

EXHIBIT A (continued)

STANDARDS FOR LICENSED CONTROLLED AFFILIATES

As described in Preamble section of Exhibit A to the Affiliate License Agreement, each controlled affiliate seeking
licensure must answer four questions. Depending on the controlled affiliate’s answers, certain standards apply:

1. What percent of the controlled affiliate is controlled by the parent Plan?

	 	 	 	 	 	 
	More than 50%
	 	 	50%	 	100% and Primary Business is
	 
	 	 	 	 	Government Non-Risk
	 
	 	 	 	 	 
	ò
	 	 	ò	 	ò
	 
	 	 	 	 	 
	Standard 1A, 4
	 	 	Standard 1B, 4	 	Standard 4*,10A 
	 
	 	 	 	 	 

			
	*	 	Applicable only if
using the names and
marks.

IN ADDITION,

2. Is risk being assumed?

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Yes
	 	 	 	 	 	No	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	÷

	 	ò
	 	ø
	 	÷
	 	ò
	 	ø
	 
	 	 	 	 	 	 	 	 	 	 
	Controlled Affiliate

	 	Controlled Affiliate
	 	Controlled Affiliate
	 	Controlled Affiliate
	 	Controlled Affiliate
	 	Controlled
	underwrites any

	 	comprises < 15%

	 	comprises 3 15%
	 	comprises < 15%
	 	comprises 3 15%
	 	Affiliate’s Primary
	indemnity portion

	 	of total member
	 	of total member
	 	of total member
	 	of total member
	 	Business is
	of workers’

	 	enrollment of Plan
	 	enrollment of Plan
	 	enrollment of Plan
	 	enrollment of Plan
	 	Government Non-
	compensation

	 	and its licensed
	 	and its licensed
	 	and its licensed
	 	and its licensed
	 	Risk
	insurance

	 	affiliates, and does
	 	affiliates, and does
	 	affiliates
	 	affiliates	 	 
	ò
	 	not underwrite the
	 	not underwrite the	 	 	 	 	 	 
	Standards 7A-7E,

	 	indemnity portion of
	 	indemnity portion of
	 	ò
	 	ò
	 	ò

	12

	 	workers’
	 	workers’	 	 	 	 	 	 
	 

	 	compensation
	 	compensation
	 	 	 	Standard 6H
	 	Standard 10B
	 

	 	insurance
	 	insurance	 	 	 	 	 	 
	 

	 	ò
	 	ò	 	 	 	 	 	 
	 

	 	Standard 2
	 	Standard 6H
	 	Standard 2	 	 	 	 
	 

	 	(Guidelines 1.1,1.2)
	 	 	 	(Guidelines 1.1,1.3)	 	 	 	 
	 

	 	and Standard 11
	 	 	 	and Standard 11	 	 	 	 

IN ADDITION,

3. Is medical care being directly provided?

	 	 	 	 
	Yes
	 	 	No
	 
	 	 	 
	ò
	 	 	ò
	 
	 	 	 
	Standard 3A
	 	 	Standard 3B

IN ADDITION,

4. If the controlled affiliate has health or workers’ compensation administration business, does such business
comprise 15% or more of the total member enrollment of Plan and its licensed controlled affiliates?

	 	 	 	 	 	 	 	 	 
	Yes

	 	 	 	 	 	No	 	 
	ò
	 	÷
	 	÷

	 	ò

	 	ø

	Standards 6A-6J

	 	Controlled Affiliate
	 	Controlled Affiliate is
	 	Controlled Affiliate is not a
	 	Controlled Affiliate’s
	 

	 	is not a former
	 	a former primary
	 	former primary licensee
	 	Primary Business is
	 

	 	primary licensee
	 	licensee
	 	and does not elect to
	 	Government Non-Risk
	 

	 	and elects to
	 	 	 	participate in BCBSA	 	 
	 

	 	participate in
	 	ò

	 	national programs
	 	ò

	 

	 	BCBSA national
	 	 	 	ò	 	 
	 

	 	programs	 	 	 	 	 	 
	 

	 	ò	 	 	 	 	 	 
	 

	 	Standards 5,8,9B,12
	 	Standards

5,8,9A,11,12
	 	Standards 5,8,12
	 	Standards 8, 10(C),12

18

 

EXHIBIT A (continued)

Standard 1 — Organization and Governance

	1A.)	 	The Standard for more than 50% Plan control is:

A Controlled Affiliate shall be organized and operated in such a manner that a licensed Plan or
Plans authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled
Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority, directly or indirectly through wholly-owned subsidiaries: 1) to select members of the
Controlled Affiliate’s governing body having more than 50% voting control thereof; and 2) to
prevent any change in the articles of incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not concur; and 3)
to exercise control over the policy and operations of the Controlled Affiliate. In addition, a Plan
or Plans directly or indirectly through wholly-owned subsidiaries shall own more than 50% of any
for-profit Controlled Affiliate.

	1B.)	 	The Standard for 50% Plan control is:

A Controlled Affiliate shall be organized and operated in such a manner that a licensed
Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled
Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled
Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority,
directly or indirectly through wholly-owned subsidiaries:

	1)	 	to select members of the Controlled Affiliate’s governing body having not less than 50% voting
control thereof; and
	 
	2)	 	to prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not
concur; and
	 
	3)	 	to exercise control over the policy and operations of the Controlled Affiliate at least equal to
that exercised by persons or entities (jointly or individually) other than the Controlling Plan(s).

19

 

EXHIBIT A (continued)

Notwithstanding anything to the contrary in 1) through 3) hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by the Controlling Plan(s)
before the Controlled Affiliate can:

	 	•	 	change the geographic area in which it operates

	 
	 	•	 	change its legal and/or trade names 
	 
	 	•	 	change any of the types of businesses in which it engages
	 
	 	•	 	create, or become liable for by way of guarantee, any indebtedness, other than
indebtedness arising in the ordinary course of business
	 
	 	•	 	sell any assets, except for sales in the ordinary course of business or sales of equipment
no longer useful or being replaced
	 
	 	•	 	make any loans or advances except in the ordinary course of business
	 
	 	•	 	enter into any arrangement or agreement with any party directly or indirectly affiliated
with any of the owners or persons or entities with the authority to select or appoint members or
board members of the Controlled Affiliate, other than the Plan or Plans (excluding owners of stock
holdings of under 5% in a publicly traded Controlled Affiliate)
	 
	 	•	 	conduct any business other than under the Licensed Marks and Name
	 
	 	•	 	take any action that any Controlling Plan or BCBSA reasonably believes will adversely
affect the Licensed Marks and Name.

In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries
shall own at least 50% of any for-profit Controlled Affiliate.

20

 

EXHIBIT A (continued)

Standard 2 — Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance
that it can fulfill all of its contractual obligations to its customers. If a risk-assuming
Controlled Affiliate ceases operations for any reason, Blue Cross and/or Blue Cross Plan coverage
will be offered to all Controlled Affiliate subscribers without exclusions, limitations or
conditions based on health status. If a nonrisk-assuming Controlled Affiliate ceases operations for
any reason, sponsoring Plan(s) will provide for services to its (their) customers. The requirements
of the preceding two sentences shall apply to all lines of business unless a line of business is
specially exempted from the requirement(s) by the BCBSA Board of Directors.

Standard 3 — State Licensure/Certification

	3A.)	 	The Standard for a Controlled Affiliate that employs, owns or contracts on a substantially
exclusive basis for medical services is:

A Controlled Affiliate shall maintain unimpaired licensure or certification for its medical
care providers to operate under applicable state laws.

	3B.)	 	The Standard for a Controlled Affiliate that does not employ, own or contract on a
substantially exclusive basis for medical services is:

A Controlled Affiliate shall maintain unimpaired licensure or certification to operate
under applicable state laws.

Standard 4 — Certain Disclosures

A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in
disseminating public statements of 1) the structure of the Blue Cross and Blue Shield System; and
2) the independent nature of every licensee; and 3) the Controlled Affiliate’s financial
condition.

Standard 5 — Reports and Records for Certain Smaller Controlled Affiliates

For a smaller Controlled Affiliate that does not underwrite the indemnity portion of workers’
compensation insurance, the Standard is:

Amended as of June 16, 2005

21

 

EXHIBIT A (continued)

A Controlled Affiliate and/or its licensed Plan(s) shall furnish, on a timely and accurate basis,
reports and records relating to these Standards and the License Agreements between BCBSA and
Controlled Affiliate.

Standard 6 — Other Standards for Larger Controlled Affiliates

Standards 6(A) -
(I) that follow apply to larger Controlled Affiliates.

Standard 6(A): Board of
Directors

A Controlled Affiliate Governing Board shall act in the interest of its Corporation in providing
cost-effective health care services to its customers. A Controlled Affiliate shall maintain a
governing Board, which shall control the Controlled Affiliate, composed of a majority of persons
other than providers of health care services, who shall be known as public members. A public
member shall not be an employee of or have a financial interest in a health care provider, nor be
a member of a profession which provides health care services.

Standard 6(B): Responsiveness to Customers

A Controlled Affiliate shall be operated in a manner responsive to customer needs and
requirements.

Standard 6(C): Participation in National Programs

A Controlled Affiliate shall effectively and efficiently participate in each national program as
from time to time may be adopted by the Member Plans for the purposes of providing portability of
membership between the licensees and ease of claims processing for customers receiving benefits
outside of the Controlled Affiliate’s Service Area.

Such programs are applicable to licensees, and include:

	1.	 	Transfer Program;
	 
	2.	 	BlueCard Program;

22

 

EXHIBIT A (continued)

	3.	 	Inter-Plan Teleprocessing System (ITS);
	 
	4.	 	Electronic Claims Routing Process;
	 
	5.	 	National Account Programs, effective January 1, 2002;
	 
	6.	 	Business Associate Agreement for Blue Cross and Blue Shield Licensees, effective April
14, 2003; and
	 
	7.	 	Inter-Plan Medicare Advantage Program.

Standard 6(D): Financial Performance Requirements

In addition to requirements under the national programs listed in

Standard 6C: Participation in National Programs, a Controlled Affiliate shall take such action as
required to ensure its financial performance in programs and contracts of an inter-licensee nature
or where BCBSA is a party.

Standard 6(E): Cooperation with Plan Performance Response Process

A Controlled Affiliate shall cooperate with BCBSA’s Board of Directors and its Plan Performance
and Financial Standards Committee in the administration of the Plan Performance Response Process
and in addressing Controlled Affiliate performance problems identified thereunder.

Standard 6(F): Independent Financial Rating

A Controlled Affiliate shall obtain a rating of its financial strength from an independent
rating agency approved by BCBSA’s Board of Directors for such purpose.

Standard 6(G): Local and National Best Efforts

Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this
License Agreement, during each year, a Controlled Affiliate shall use its best efforts to
promote and build the value of the Blue Shield Mark.

Standard 6(H): Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its customers.

Amended as of November 17, 2005

23

 

EXHIBIT A (continued)

Standard 6(I): Reports and Records

A Controlled Affiliate shall furnish to BCBSA on a timely and accurate basis reports and records
relating to compliance with these Standards and the License Agreements between BCBSA and
Controlled Affiliate. Such reports and records are the following:

	A)	 	BCBSA Controlled Affiliate Licensure Information Request; and
	 
	B)	 	Biennial trade name and service mark usage material, including disclosure material; and
	 
	C)	 	Changes in the ownership and governance of the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws, changes in a Controlled Affiliate’s Board
composition, or changes in the identity of the Controlled Affiliate’s Principal Officers, and
changes in risk acceptance, contract growth, or direct delivery of medical care; and
	 
	D)	 	Quarterly Financial Report, Semi-annual “Health Risk-Based Capital (HRBC) Report” as defined
by the NAIC, Annual Financial Forecast, Annual Certified Audit Report, Insurance Department
Examination Report, Annual Statement filed with State Insurance Department (with all
attachments), and
	 
	E)	 	Quarterly Enrollment Report.

Amended March 14, 2002

24

 

EXHIBIT A (continued)

Standard 6(J): Control by Unlicensed Entities Prohibited

No Controlled Affiliate shall cause or permit an entity other than a Plan or a Licensed
Controlled Affiliate thereof to obtain control of the Controlled Affiliate or to acquire a
substantial portion of its assets related to licensable services.

Standard 7 — Other Standards for Risk-Assuming Workers’ Compensation Controlled Affiliates

Standards 7(A) — (E) that follow apply to Controlled Affiliates that underwrite the indemnity
portion of workers’ compensation insurance.

Standard 7 (A): Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its customers.

Standard 7(B): Reports and Records

A Controlled Affiliate shall furnish, on a timely and accurate basis, reports and records
relating to compliance with these Standards and the License Agreements between BCBSA and the
Controlled Affiliate. Such reports and records are the following:

	A.	 	BCBSA Controlled Affiliate Licensure Information Request; and
	 
	B.	 	Biennial trade name and service mark usage materials, including disclosure
materials; and
	 
	C.	 	Annual Certified Audit Report, Annual Statement as filed with the
State Insurance Department (with all attachments), Annual NAIC’s Risk-Based
Capital Worksheets for Property and Casualty Insurers, Annual Financial Forecast;
and
	 
	D.	 	Quarterly Financial Report, Quarterly Estimated Risk-Based Capital for Property and
Casualty Insurers, Insurance Department Examination Report, Quarterly Enrollment
Report; and

Amended September 19, 2002

25

 

EXHIBIT A (continued)

	E.	 	Notification of all changes and proposed changes to independent ratings within 30 days
of receipt and submission of a copy of all rating reports; and
	 
	F.	 	Changes in the ownership and governance of the Controlled Affiliate including changes
in its charter, articles of incorporation, or bylaws, changes in a Controlled Affiliate’s
Board composition, Plan control, state license status, operating area, the Controlled
Affiliate’s Principal Officers or direct delivery of medical care.

Standard 7(C): Loss Prevention

A Controlled Affiliate shall apply loss prevention protocol to both new and existing
business.

Standard 7(D): Claims Administration

A Controlled Affiliate shall maintain an effective claims administration process that
includes all the necessary functions to assure prompt and proper resolution of medical
and indemnity claims.

Standard 7(E): Disability and Provider Management

A Controlled Affiliate shall arrange for the provision of appropriate and necessary medical
and rehabilitative services to facilitate early intervention by medical professionals and
timely and appropriate return to work.

Amended November 16, 2000

26

 

EXHIBIT A (continued)

Standard 8 — Cooperation with Controlled Affiliate License Performance Response Process Protocol

A Controlled Affiliate and its Sponsoring Plan(s) shall cooperate with BCBSA’s Board of
Directors and its Plan Performance and Financial Standards Committee in the administration
of the Controlled Affiliate License Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems identified thereunder.

Standard 9(A) — Participation in National Programs by Smaller Controlled Affiliates that were former Primary Licensees

A smaller controlled affiliate that formerly was a Primary Licensee shall effectively and
efficiently participate in certain national programs from time to time as may be adopted by
Member Plans for the purposes of providing ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate’s service area and be subject to certain relevant
financial and reporting requirements.

	A.	 	National program requirements include:

	 	•	 	BlueCard Program;
	 
	 	•	 	Inter-Plan Teleprocessing System (ITS);
	 
	 	•	 	Transfer Program;
	 
	 	•	 	Electronic Claims Routing Process, effective until October 16, 2003; and
	 
	 	•	 	National Account Programs, effective January 1, 2002

	B.	 	Financial
Requirements include:

	 	•	 	Standard 6(D): Financial Performance Requirements and Standard 6(H): Financial
Responsibility; or
	 
	 	•	 	A financial guarantee covering the Controlled Affiliate’s BlueCard Program
obligations in a form, and from a guarantor, acceptable to BCBSA.

27

 

EXHIBIT A (continued)

Standard 9(A) — Participation in National Programs by Smaller Controlled Affiliates that were former Primary Licensees

	C.	 	Reporting requirements include:

	 	•	 	The Semi-annual Health Risk-Based Capital (HRBC) Report.

Amended June 13, 2002

28

 

Exhibit A (continued)

Standard 9(B) — Participation in National Programs by Smaller Controlled Affiliates

A smaller controlled affiliate that voluntarily elects to participate in national programs in
accordance with BlueCard and other relevant Policies and Provisions shall effectively and
efficiently participate in national programs from time to time as may be adopted by Member Plans
for the purposes of providing ease of claims processing for customers receiving benefits outside
of the controlled affiliate’s service area and be subject to certain relevant financial and
reporting requirements.

	A.	 	National program requirements include:

	 	•	 	BlueCard Program;
	 
	 	•	 	Inter-Plan Teleprocessing System (ITS);
	 
	 	•	 	Electronic Claims Routing Process, effective until October 16,
2003; and
	 
	 	•	 	National Account Programs, effective January 1, 2002.

	B.	 	Financial Requirements include:

	 	•	 	Standard 6(D): Financial Performance Requirements and Standard
6(H): Financial Responsibility; or
	 
	 	•	 	A financial guarantee covering the Controlled Affiliate’s
BlueCard Program obligations in a form, and from a guarantor, acceptable to
BCBSA.

Amended June 13, 2002

29

 

EXHIBIT A (continued)

Standard 10 — Other Standards for Controlled Affiliates Whose Primary Business is Government Non-Risk

Standards 10(A) — (C) that follow apply to Controlled Affiliates whose primary business is
government non-risk.

Standard 10(A) — Organization and Governance

A Controlled Affiliate shall be organized and operated in such a manner that it is 1) wholly
owned by a licensed Plan or Plans and 2) the sponsoring licensed Plan or Plans have the legal
ability to prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which it does not concur.

30

 

EXHIBIT A (continued)

Standard 10(B) — Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its customers.

Standard 10(C):- Reports and Records

A Controlled Affiliate shall furnish, on a timely and accurate basis, reports and
records relating to compliance with these Standards and the License Agreements between
BCBSA and the Controlled Affiliate. Such reports and records are the following:

	A.	 	BCBSA Affiliate Licensure Information Request; and
	 
	B.	 	Biennial trade name and service mark usage materials, including disclosure material;
and
	 
	C.	 	Annual Certified Audit Report, Annual Statement (if required) as filed with the State
Insurance Department (with all attachments), Annual NAIC Risk-Based Capital Worksheets
(if required) as filed with the State Insurance Department (with all attachments), and
Insurance Department Examination Report (if applicable)*; and
	 
	D.	 	Changes in the ownership and governance of the Controlled
Affiliate, including changes in its charter, articles of incorporation, or
bylaws, changes in the Controlled Affiliate’s Board composition, Plan control,
state license status, operating area, the Controlled Affiliate’s Principal
Officers or direct delivery of medical care.

31

 

EXHIBIT A (continued)

Standard 11- Participation in Electronic Claims Routing Process

A smaller controlled affiliate for which this standard applies pursuant to the Preamble
section of Exihibit A of the Controlled Affiliate License Agreement shall effectively and
efficiently participate in certain national programs from time to time as may be adopted by
Member Plans for the purposes of providing ease of claims processing for customers receiving
benefits outside of the controlled affiliate’s service area.

National program requirements include:

	 	A.	 	Electronic Claims Routing Process effective upon October 16, 2003;
	 
	 	B.	 	Inter-Plan Medicare Advantage Program.

Amended November 17, 2005

32

 

EXIHIBIT A (continued)

Standard 12: Participation in Master Business Associate Agreement by Smaller Controlled
Affiliate Licensees

Effective April 14, 2003, all smaller controlled affiliates shall comply with the terms of
the Business Associate Agreement for Blue Cross and Blue Shield Licensees to the extent they
perform the functions of a business associate or subcontractor to a business associate, as
defined by the Business Associate Agreement.

Amended September 19, 2002

33

 

EXHIBIT B

ROYALTY FORMULA FOR SECTION 9 OF THE

CONTROLLED AFFILIATE LICENSE AGREEMENT

Controlled Affiliate will pay BCBSA a fee for this license in accordance with the following
formula:

FOR RISK AND GOVERNMENT NON-RISK PRODUCTS:

For Controlled Affiliates not underwriting the indemnity portion of workers’ compensation
insurance:

An amount equal to its pro rata share of each sponsoring Plan’s dues payable to BCBSA
computed with the addition of the Controlled Affiliate’s subscription revenue and contracts
arising from products using the marks. The payment by each sponsoring Plan of its dues to
BCBSA, including that portion described in this paragraph, will satisfy the requirement of
this paragraph, and no separate payment will be necessary.

For Controlled Affiliates underwriting the indemnity portion of workers’ compensation
insurance:

An amount equal to 0.35 percent of the gross revenue per annum of Controlled Affiliate
arising from products using the marks; plus, an annual fee of $5,000 per license for a
Controlled Affiliate subject to Standard 7.

For Controlled Affiliates whose primary business is government non-risk:

An amount equal to its pro-rata share of each sponsoring Plan’s dues payable to BCBSA
computed with the addition of the Controlled Affiliate’s government non-risk
beneficiaries.

34

 

EXHIBIT B (continued)

FOR NONRISK PRODUCTS:

An amount equal to 0.24 percent of the gross revenue per annum of Controlled
Affiliate arising from products using the marks; plus:

	1)	 	An annual fee of $5,000 per license for a Controlled Affiliate subject to Standard 6 D.
	 
	2)	 	An annual fee of $2,000 per license for all other Controlled Affiliates.

The foregoing shall be reduced by one-half where both a BLUE CROSS® and BLUE SHIELD® License are
issued to the same Controlled Affiliate. In the event that any license period is greater or less
than one (1) year, any amounts due shall be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.

35

 

Guidelines to Administer Membership Standards 
Applicable to Regular Members

As of March 15, 2007

Includes revisions, if any, adopted by the PPFSC and/or Member Plans through
March 15, 2007

1

 

GUIDELINES TO ADMINISTER

MEMBERSHIP STANDARDS APPLICABLE TO REGULAR MEMBERS

Table of Contents

March 2007

Page 1 of 1

	 	 	 	 	 	 	 	 	 
	Description	 	 	 	 	 	Page	 
	 
	 
	 	 	 	 	 	 	 	 
	Introduction
	 	 	 	 	 	 	3	 
	 
	 	 	 	 	 	 	 	 
	Preamble
	 	 	 	 	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	Standard 1
	 	—	 	Board of Directors	 	 	6	 
	 
	 	 	 	 	 	 	 	 
	Standard 2
	 	—	 	Reports and Records	 	 	18	 
	 
	 	 	 	 	 	 	 	 
	Standard 3
	 	—	 	Financial Responsibility	 	 	20	 
	 
	 	 	 	 	 	 	 	 
	Standard 4
	 	—	 	Responsiveness to Customers	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	Standard 5
	 	—	 	Participation in National Programs	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	Standard 6
	 	—	 	Financial Performance Requirements	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	Standard 7
	 	—	 	Certain Disclosures	 	 	31	 
	 
	 	 	 	 	 	 	 	 
	Standard 8
	 	—	 	Cooperation with the Plan Performance Response Process Protocol	 	 	32	 
	 
	 	 	 	 	 	 	 	 
	Standard 9
	 	—	 	Independent Financial Rating	 	 	33	 
	 
	 	 	 	 	 	 	 	 
	Standard 10
	 	—	 	Local and National Best Efforts	 	 	34	 
	 
	 	 	 	 	 	 	 	 
	Standard 11
	 	—	 	Transaction Which May Impair the Value of the Marks and Name	 	 	43	 
	 
	 	 	 	 	 	 	 	 
	Standard 12
	 	—	 	Blue Branded Provider Network Rental	 	 	46	 
	 
	 	 	 	 	 	 	 	 
	Attachment I
	 	—	 	Required Plan Performance Reports and Certifications Schedule	 	 	49	 
	 
	 	 	 	 	 	 	 	 
	Attachment II
	 	—	 	Sanction Protocols — Reports and Records	 	 	51	 
	 
	 	 	 	 	 	 	 	 
	Attachment III
	 	—	 	Guaranty Association Alternatives & Evaluation Criteria	 	 	52	 
	 
	 	 	 	 	 	 	 	 
	Attachment IV
	 	—	 	Service Performance and MTM Index	 	 	55	 
	 
	 	 	 	 	 	 	 	 
	Attachment V
	 	—	 	Clarification of Requirements for
Licensees’ Annual Actuarial Certification	 	 	59	 
	 
	 	 	 	 	 	 	 	 
	Attachment VI
	 	—	 	Definition of “Local Net
Revenue” & “Combined Local Net Revenue”	 	 	61	 
	 
	 	 	 	 	 	 	 	 
	Attachment VII
	 	—	 	Business Associate Agreement	 	 	65	 

2

 

GUIDELINES TO ADMINISTER MEMBERSHIP STANDARDS

APPLICABLE TO REGULAR MEMBERS

As of March 2007

The following standards applicable to Regular Member Plans and guidelines used to evaluate
compliance with the standards were developed by the Plan Performance and Financial Standards
Committee (PPFSC) and adopted by the Member Plans in November 1994 and initially became effective as of December 31, 1994. Subsequent
revisions are reflected herein.

The PPFSC routinely reviews the standards and guidelines to ensure that: 1) all requirements
(standards and guidelines) are appropriate, adequate and enforceable; and 2) BCBSA’s response in
cases of noncompliance is reasonable and includes, if appropriate, alternatives to an immediate
vote to terminate a Plan’s licenses.

Three responses, or tracks, to noncompliance have been established. The tracks are based on the
significance of the requirement in determining the viability of the Plan and the best interests of
the brands and the system. In this document, the guidelines for each standard are presented by the
applicable response track.

	•	 	Immediate Termination Track — Upon determination by the PPFSC that a licensee is noncompliant
under the minimum capital and liquidity requirements of the Financial Responsibility Standard,
the Member Plans will meet, as called for in BCBSA’s Bylaws and the Primary License Agreements,
to vote to terminate the Plan’s licenses and membership. Upon determination by the PPFSC that a
licensee is noncompliant under all other Standards subject to this track, the Member Plans may
meet as called for in the Primary License Agreements to vote to terminate the Plan’s licenses
and membership.
	 
	•	 	Mediation & Arbitration Track — Upon determination by the PPFSC that a licensee is
noncompliant, the PPFSC, with BCBSA Board approval, will initiate the established
mediation/arbitration dispute resolution process. The goal of mediation is to resolve the issue
by achieving Plan performance with stated requirements. License and membership termination
could occur if the licensee fails to abide by the arbitration decision.
	 
	•	 	Sanctions Track — While the goal is to encourage licensees to comply with all requirements,
there are several requirements for which the PPFSC will implement specific preapproved
sanctions in the event a Plan chooses not to comply (after initial licensure). Failure to
comply with a sanction will result in initiation of the established mediation/arbitration
dispute resolution process. License and membership termination could occur if the licensee
fails to abide by the arbitration decision.

(continued)

3

 

GUIDELINES TO ADMINISTER MEMBERSHIP STANDARDS
 APPLICABLE TO REGULAR MEMBERS
continued

As of March 2007

The standards applicable to Regular Members Plans remain in effect until otherwise amended by the
Member Plans. Revisions may only be made if approved by a three-fourths or greater affirmative Plan
and Plan weighted vote.

The minimum capital and liquidity guidelines of the Financial Responsibility Standard, the
guidelines of the Best Efforts Standard and the specific PPFSC responses under the Sanctions Track
remain in effect until otherwise amended by the BCBSA Board of Directors. The PPFSC is authorized
to recommend to the Board of Directors new guidelines and revisions to all guidelines as it may
from time-to-time deem necessary and appropriate. Such new or revised guidelines shall not become
effective, however, unless and until the Board of Directors approves them.

To qualify for a license, the applicant must be found in compliance with the standards and the
terms of the license agreements. In some cases, however, the PPFSC may consider the compliance
status of BCBSA-licensed Controlled Affiliate (subject to the larger Controlled Affiliate
standards) controlled by the applicant to satisfy the applicant’s compliance with the requirements.

The PPFSC does not have the authority to grant or terminate a Plan’s licenses and/or membership in
the Association. The PPFSC is responsible for making the initial determination about a Plan’s
compliance with the license agreements and membership standards. Based on that determination, PPFSC
makes a recommendation to the BCBSA Board of Directors, which may accept, reject or modify the
recommendation. Except in situations identified in the Primary Blue Cross and Blue Shield License
Agreements, a Plan’s licenses and membership may only be terminated on a three-fourths or greater
affirmative Plan and Plan weighted vote.

4

 

Membership Standards 
Applicable to Regular Members 

Adopted by the Member Plans
 and
 Guidelines to Administer
the Standards
 As of March 2007

Preamble

The Membership Standards apply to all organizations seeking to become or to continue as Regular
Members of the Blue Cross and Blue Shield Association. Any organization seeking to become a Regular
Member must be found to be in substantial compliance with all Membership Standards at the time
membership is granted and the organization must be found to be in substantial compliance with all
Membership Standards for a period of two (2) years preceding the date of its application. If
Membership is sought by an entity which controls or is controlled by one or more Plans, such
compliance shall be determined on the basis of compliance by such Plan or Plans.

The Regular Member Plans shall have authority to interpret these Standards.

A Regular Member Plan that operates as a “Shell Holding Company” is defined as an entity that
assumes no underwriting risk and has less than 1% of the consolidated enterprise assets (excludes
investments in subsidiaries) and less than 5% of the consolidated enterprise net general and
administrative expenses.

A Regular Member Plan that operates as a “Hybrid Holding Company” is defined as an entity that
assumes no underwriting risk and has either more than 1% of the consolidated enterprise assets
(excludes investments in subsidiaries) or more than 5% of the consolidated enterprise net general
and administrative expenses.

5

 

Standard 1: Board of Directors

The Standard is:

A Plan shall maintain a governing Board, which shall control the Plan and ensure that the Plan
follows appropriate practices of corporate governance. A Plan’s Board shall not be controlled by
any special interest group, shall make an annual determination that a majority of its directors are
independent, and shall act in the best interest of its Corporation and its customers. The Board
shall be composed of a majority of persons other than providers of health care services, who shall
be known as public members. A public member shall not be an employee of or have a financial
interest in a health care provider, nor be a member of a profession which provides health care
services.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	If the Plan has members with the power to nominate, elect, or remove any Board member
or amend or recommend revisions to articles of incorporation, Bylaws, or other governing
documents, the Plan shall be considered noncompliant if at least one-half of such members
are commonly employed by or have a common direct or indirect financial interest in:

	 	1.1a	 	The licensee itself or entities controlled by the licensee;
	 
	 	1.1b	 	An entity (other than another licensee or other licensees of BCBSA or entities
controlled by other licensees);
	 
	 	1.1c	 	Affiliates and Associates (as defined in paragraph 9.d(v)(a) of the License
Agreement) of the entity described in 1.1b; or
	 
	 	1.1d	 	Any other entity which provides goods or services to the entity described in
1.1b.

Direct or indirect financial interest excludes stock holdings of under 5% in a
publicly traded company and the receipt of compensation in a reasonable and
customary amount for services as a member of the Board of a licensee or entities
controlled by the licensee. In addition, direct or indirect financial interest, as
it applies to 1.1a, excludes stock holdings of under 5% in the licensee itself or
entities controlled by the licensee.

	 	1.2	 	The Plan shall be considered noncompliant if its Board is composed of members at least
one-half of whom are commonly employed by or have a common direct or indirect financial
interest in:

	 	1.2a	 	The licensee itself or entities controlled by the licensee;
	 
	 	1.2b	 	An entity (other than another licensee or other licensees of BCBSA or entities
controlled by other licensees);

6

 

Standard 1: Board of Directors, continued

	 	1.2c	 	Affiliates and Associates (as defined in paragraph 9.d(v)(a) of the
License Agreement) of the entity described in 1.2b; or
	 
	 	1.2d	 	Any other entity which provides goods or services to the entity described in
1.2b.

Direct or indirect financial interest excludes stock holdings of under 5% in a
publicly traded company and the receipt of compensation in a reasonable and
customary amount for services as a member of the Board of a licensee or entities
controlled by the licensee. In addition, direct or indirect financial interest, as
it applies to 1.2a, excludes stock holdings of under 5% in the licensee itself or
entities controlled by the licensee.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	The Plan’s Board shall be composed of a majority of members (greater than 50% of the
total) who are:

	 	2.1a	 	public members*;
	 
	 	2.1b	 	not, in any combination, a controlling faction of the Plan’s Board with a
common interest in the licensee itself or entities controlled by the licensee, any
business, governmental, lobbying, or other organized group or entity, excluding
directors, officers and employees of other licensees or entities controlled by
other licensees of BCBSA; and

 

			
	*	 	A “public member” excludes any person who:

	 	•	 	is engaged or has engaged at any time in the practice of a health care
profession (other than an employee of the Plan);
	 
	 	•	 	is a director, officer, partner or employee of an organization that primarily sells
health care services (other than the Plan or an organization controlled by the Plan); or
	 
	 	•	 	is a director, officer, partner or employee of an organization of health care
providers; or
	 
	 	•	 	has a direct or indirect beneficial interest of more than five percent of the equity
of an organization that sells or delivers health care services.

7

 

Standard 1: Board of Directors, continued

	 	2.1c	 	independent, as defined by the Plan. The Plan’s Board may consider the
following factors, among others, in deciding whether a member is independent: (i)
all relationships between the member, the Plan, and senior management of the Plan,
including but not limited to, present or former employment with the Plan, and a
substantial connection of a personal or financial nature (other than payments for
services rendered as a Plan Board or Committee member) that could in fact or in
appearance compromise the member’s independence; (ii) the member’s affiliation with
any organization that provides goods or services to the Plan and the nature, value
and extent of those services; (iii) the member’s affiliation with any organization
that receives goods, services, or charitable donations from the Plan and the
nature, value and extent of those services; (iv) the member’s employment as an
executive officer of another company where any of the Plan’s present executive
officers at the same time serves or served on the other company’s compensation
committee; and (v) the Plan’s unique legal and regulatory environment, including
but not limited to whether law requires Board participation by otherwise
non-independent Board members. For purposes of this Guideline 2.1c, all references to “member” include the member’s immediate
family and all references to “Plan” include the Plan’s controlled
affiliates. Beginning in 2008, a Plan shall certify annually to BCBSA that
it has made a determination that a majority of its Board members are
independent as stated in this Guideline 2.1c.

	 	2.2	 	The Committee that performs the nominating function shall be comprised entirely of
“independent” members as defined by the Plan. The Plan’s CEO may be permitted to
participate on this Committee in an ex officio capacity. Such Committee shall also have a written charter describing its purpose and
responsibilities.
	 
	 	2.3	 	The Committee or Committees that perform the compensation and evaluation functions
shall be comprised entirely of “independent” members as defined by the Plan. Such
Committee(s) shall also have a written charter describing its purpose and responsibilities,
which shall include:

	 	2.3a	 	Having the authority to retain its own independent compensation consultant,
who shall report directly to the Committee;
	 
	 	2.3b	 	Performing a review at least triennially of all senior executive1
compensation and benefit programs, which review shall include an analysis of
the competitiveness of the programs and the extent to which the compensation
packages are designed to motivate and reward performance;

 

			
	1	 	“Senior executive” means the CEO and his or her executive level direct reports.

8

 

Standard 1: Board of Directors, continued

	 	2.3c	 	Reviewing and approving or recommending to the Board or other appropriate
committee: (i) corporate goals and objectives relevant to CEO compensation, (ii) an
evaluation of the CEO’s performance in light of those goals and objectives, and
(iii) the CEO’s compensation level based on the evaluation.

	 	2.4	 	The Plan shall bar individuals deemed unfit by a court under the Securities Exchange
Act from serving on its Board.
	 
	 	2.5	 	The Plan’s Board of Directors shall require the performance of regular self-evaluations
for itself and its standing committees. Plans have the option of evaluating the Board or
Committee as a whole or evaluating individual members.
	 
	 	2.6	 	The Plan’s Board shall adopt corporate governance guidelines that address appropriate
governance topics. Such topics may include Board procedures, director responsibilities,
tenure, selection criteria, committee appointments, executive session procedures, etc.
	 
	 	2.7	 	Each director joining a Plan Board of Directors in 2007 or thereafter shall complete:

	 	2.7a	 	A training program on the fiduciary duties and other responsibilities of Plan
directors, including but not limited to the duties of loyalty and care and any
Plan-specific requirements such as attendance at meetings, review of meeting
materials, committee service, etc. This program must be completed within the first
year of service on the Board; and
	 
	 	2.7b	 	A training program that addresses the role and governance structure of the
Association, including the responsibilities of Plan CEO’s on the Association’s
Board of Directors. The program shall cover Plans’ mutual interests in protecting
and preserving the Brands and the potential impact that Plan Board decisions may
have on other Plans and on the Brands. The training program will be approved by the
BCBSA Board of Directors and the Member Plans and may be delivered at the Plan site
or through a web-based program or other means acceptable to BCBSA.
The program must be completed within one year of such approval by the
Board and Member Plans.

	 	2.8	 	Except as otherwise specifically provided in these Guidelines, the Plan shall certify
tri-annually beginning in 2008 to BCBSA that it has complied with the requirements of
Guidelines 2.2 through 2.7 above.
	 
	 	2.9	 	Notwithstanding anything in this Paragraph 2, a Plan in violation of Paragraph 1 of
these Guidelines shall be subject to immediate termination.

9

 

Standard 1: Board of Directors, continued

	 	2.10	 	BCBSA shall send a triennial membership compliance letter to each Plan’s CEO. The
letter shall include the Plan’s licensure and membership status, a copy of the Membership
Standards and Guidelines, a report of the Plan’s licensure and membership status by
Standard, and PPFSC comments or concerns, if any, about the Plan’s compliance with the
License Agreements and Membership Standards. The Plan CEO or Corporate Secretary must
certify to the PPFSC that the triennial membership compliance letter has been distributed
to all Plan Board Members. Such certification may be in the form of the minutes of the Plan
Board meeting or other documentation demonstrating timely compliance with the distribution
requirement.

Plans, as deemed appropriate by the PPFSC, may be required to respond to an annual Membership
Information Request, which will result in an annual membership compliance letter sent to the Plan’s
CEO. Plans included in the Plan Performance Response Process will be required to respond to an
annual Membership Information Request, which will result in an annual membership compliance letter
sent to the Plan’s CEO.

	 	2.11	 	Every Plan shall:

	 	2.11a	 	Adopt a set of policies setting forth standards for the conduct of directors
and review and reaffirm such policies on a periodic basis (but no less than every
three years)1 The adopted set of policies must include, at a minimum,
policies setting forth the role and responsibilities of directors in:

	 	2.11a(ii)	 	ensuring that the Plan adopts an effective compliance and ethics
program designed to detect and prevent violations of law and promote an
organizational culture that encourages ethical conduct and a commitment to
compliance with the law. Directors must be knowledgeable about the content
and operation of the program and exercise reasonable oversight with
respect to its implementation and effectiveness;
	 
	 	2.11a(iii)	 	regularly approving the overall business objectives and
strategy of the Plan and monitoring performance;
	 
	 	2.11a(iiii)	 	selecting and directing management;
	 
	 	2.11a(ivi)	 	setting management compensation at competitive levels;
	 
	 	2.11a(vi)	 	establishing a Board committee structure in which the audit,
nominating and compensation functions shall be performed exclusively by
outside directors, and ensuring that all directors are aware of their
fiduciary obligations;

 

			
	1	 	The provisions appearing under guideline 2.11a apply only to directors; the policies
applicable to Plan employees as well as directors appear in guideline 2.11b and 2.11c.

10

 

Standard 1: Board of Directors, continued

	 	2.11a(vi)	 	A Plan operating as a Shell Holding
Company, as defined in the Preamble hereto, may allow its
audit or compensation functions to be assumed by a
Controlled Affiliate Licensee (“Assuming Controlled
Affiliate”) if the following conditions are satisfied:

	 	(1)	 	The Plan and the Assuming Controlled
Affiliate have identical Boards;
	 
	 	(2)	 	The Assuming Controlled Affiliate is a direct
Controlled Affiliate of the Plan;
	 
	 	(3)	 	The Plan has no direct subsidiaries or
affiliates other than the Assuming Controlled
Affiliate;
	 
	 	(4)	 	The Plan and the Assuming Controlled
Affiliate are Not-For-Profit;
	 
	 	(5)	 	The Plan has no assets, liabilities or net
worth other than those assets and liabilities
attributed to the Plan by virtue of consolidation
of financial statements of subsidiaries pursuant
to GAAP accounting guidelines;
	 
	 	(6)	 	The Plan has no employees;
	 
	 	(7)	 	The Plan has not entered into any contractual
arrangements other than in connection with the
appointment and compensation of it directors,
expenses associated with the holding of its board
of directors meeting and contracts that are
incidental and solely related to its activity as
an insurance holding company; provided, however:
(1) all such compensation, expenses and amounts
due under contracts shall be paid by the
Controlled Affiliate on behalf of the Plan and
(2) the Plan discloses to BCBSA starting 12/31/05
and annually thereafter a list of such incidental
contracts related to its activity as an insurance
holding company including the amount and nature
of each contract; and
	 
	 	(8)	 	The Plan does not become liable by way of any
guarantee or indebtedness (other than the
sponsoring financial guarantee issued to its
Controlled Affiliate Licensees as required under
these Membership Standards).

11

 

Standard 1: Board of Directors, continued

	 	2.11a(vii)	 	establishing policies against self-dealing and other
improper conduct; and
	 
	 	2.11a(viii)	 	establishing policies addressing conflicts of interest.
	 
	 	2.11a(ix)	 	requiring the Plan’s sponsored Larger Controlled Affiliate, and
Smaller Controlled Affiliates that were former Primary Licensees, to: 1)
implement similar such policies and programs incorporating the same
principles enumerated under 2.11a(i)-(viii) above, or 2) participate in
such programs of the Plan.
	 
	 	2.11a(x)	 	requiring Smaller Controlled Affiliates, other than those
enumerated in 2.11a(viii), to demonstrate the same degree of commitment to
ethical conduct and compliance as the Plan. As appropriate, the Plan may
allow the Smaller Controlled Affiliate to: 1) meet such commitment using
less formality and fewer resources than are required by
the Plan above; or 2) participate in such programs of the
Plan.

The Plan shall certify tri-annually to BCBSA that it has adopted a set of
policies containing the aforementioned elements and that such policies are
being followed. For the convenience of the Plans, a sample policy
addressing the powers and fiduciary duties of directors has been provided.

12

 

Standard 1: Board of Directors, continued

	 	2.11b	 	Adopt an effective compliance and ethics program governing the conduct
of all Plan directors, employees and officers designed to prevent, detect and
resolve instances of conduct that do not conform to Federal and state law and
government health care program requirements or the Plan’s ethical and business
standards and otherwise promotes an organizational culture that encourages ethical
conduct and a commitment to compliance with law (hereinafter “compliance
program”).2 The adopted compliance program must at a minimum include the
following elements:

	 	2.11b(i)	 	The development and distribution of written standards of conduct
as well as written policies and procedures that promote the Plan’s
commitment to prevent and detect violations of law including adherence to
compliance as an element in evaluating managers and employees) and that
address specific risk areas (such as the submission of data to the
government);
	 
	 	2.11b(ii)	 	The designation of a chief compliance officer and/or other
appropriate high-level personnel charged with the responsibility of
operating and monitoring the compliance program and ensuring its
effectiveness (e.g., a corporate compliance committee that reports
directly to the CEO and the Plan’s governing authority (e.g., the board).
Specific individual(s) shall be delegated day-to-day operational
responsibility for the program and shall report periodically to high-level
personnel and, as appropriate, to the Board or appropriate committee
thereof on the effectiveness of the program. If the authority is
delegated, the Board must receive reports from such individual(s) at least
annually. In addition, such individual(s) must be given adequate
resources, appropriate authority, and direct access to the Board or
appropriate committee thereof.

 

			
	2	 	The provisions appearing under guideline 2.11b reflect the proposed amendments to the
United States Sentencing Guidelines for Organizations which will take effect November 1, 2004
unless disapproved by Congress, and include the comments and suggestions of the Plans’ Compliance
personnel along with the comments of the Department of Health and Human Services Office of
Inspector General concerning the minimum requirements of an effective compliance program. See
Amendments to Sentencing Guidelines, § 8 B2.1.; Compliance Program Guidance for Clinical
Laboratories, 63 Fed. Reg. 45076, 45078-79; (Aug. 24, 1998); Compliance Program Guidance for Hospitals, 63 Fed. Reg. 8987, 8989 (Feb.
23, 1998); Compliance Program Guidance For Medicare+Choice Organizations Offering Coordinated Care
Plans, 64 Fed. Reg. 61893, 61896 (Nov. 15, 1999).

13

 

Standard 1: Board of Directors, continued

	 	2.11b(iii)	 	The use of reasonable efforts not to include within
substantial authority personnel any individual whom the Plan knew, or
should have known through the exercise of due diligence, has engaged in
illegal activities or conduct inconsistent with the compliance program;
	 
	 	2.11b(iv)	 	The development and implementation of periodic, effective
education and training programs for directors, high-level personnel,
substantial authority personnel, Plan employees, and, as appropriate, the
organization’s agents, and dissemination of information appropriate to
such individuals’ role and responsibilities;
	 
	 	2.11b(v)	 	The maintenance and publication of a mechanism (e.g., a hotline)
for Plan employees and agents to report or seek guidance regarding
potential or actual criminal conduct that is designed to protect the
anonymity of those reporting and to protect those reporting from
retaliation;
	 
	 	2.11b(vi)	 	The development of a system to respond to allegations of
improper/illegal activities and the enforcement of appropriate
disciplinary action against employees who have violated internal
compliance policies, applicable statutes, regulations or federal health
care program requirements and to provide incentives to perform in
accordance with the compliance program;
	 
	 	2.11b(vii)	 	The use of audits, monitoring and other evaluation techniques
to assist in the reduction of identified problem areas, and detect
criminal conduct as well as implementation of additional steps to evaluate
periodically the compliance program;
	 
	 	2.11b(viii)	 	The investigation and remediation of identified criminal
conduct and reasonable steps to prevent similar conduct, including any
necessary modification to the compliance program;
	 
	 	2.11b(ix)	 	The development of policies addressing the non-employment or
retention of individuals sanctioned for misconduct in connection with any
health care program;

14

 

Standard 1: Board of Directors, continued

	 	2.11b(x)	 	Periodic risk assessments to ensure that the Plan’s efforts
to prevent and detect violations of law matches the company’s current
business activities and appropriate steps to design, implement, or modify
each of the elements set forth above to reduce the risk of criminal
conduct identified though this process.

The Plan shall certify tri-annually to BCBSA that it has adopted and
implemented a compliance program that includes the elements described
above including periodic risk assessments and necessary modification to
the compliance program. Such certification is for the purposes of meeting
licensure requirements only, and does not constitute a representation by
BCBSA that the government will find the compliance program as adopted and
implemented an “effective compliance program.” For the convenience of the
Plans, a sample compliance program has been provided.

	 	2.11c	 	The standards of conduct applicable to employees, officers and directors shall
contain provisions addressing the following additional elements:

	 	2.11c(i)	 	A prohibition on employees, officers and directors from (a)
taking for themselves personally or for their immediate family members
opportunities that are discovered through the use of corporate property,
information or position; (b) using corporate property, information, or
position for personal gain or that of an immediate family member; and
(c) competing with the Plan. Employees, officers and directors owe a
duty to the Plan to advance its legitimate interests when the
opportunity to do so arises;
	 
	 	2.11c(ii)	 	The responsibility to maintain the confidentiality of
information entrusted to the employee, officer or director by the Plan
or its customers, except when disclosure is authorized or legally
mandated. Confidential information includes all non-public information
that might be of use to competitors, or harmful to the Plan or its
customers, if disclosed;
	 
	 	2.11c(iii)	 	The responsibility of each employee, officer and director to
deal fairly with the Plan’s customers, suppliers, competitors and
employees. None shall take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information,
misrepresentation of material factors or any other unfair-dealing
practice;

15

 

Standard 1: Board of Directors, continued

	 	2.11c(iv)	 	The responsibility to protect the Plan’s assets and ensure
their efficient use. Theft, carelessness and waste have a direct impact on
the Plan’s profitability. All Plan assets shall be used for legitimate
business purposes;
	 
	 	2.11c(v)	 	A prohibition on the Plan directly or indirectly, including
through any subsidiary or Controlled Affiliate, extending or maintaining
credit, arranging for the extension of credit, or renewing an extension of
credit in the form of a personal loan to or for any director or executive
officer (or equivalent thereof) of the Plan, except travel advances. An
extension of credit maintained by the Plan at the time this policy is
adopted shall not be subject to the provisions of this subsection,
provided that there is no material modification to any term of any such
extension of credit or any renewal of any such extension of credit on or
after such date;
	 
	 	2.11c(vi)	 	A prohibition on taking any action to fraudulently influence,
coerce, manipulate, or mislead any independent public or certified
accountant engaged in the performance of an audit of the financial
statements of the Plan or Controlled Affiliate for the purpose of
rendering such financial statements materially misleading;
	 
	 	2.11c(vii)	 	The responsibility of Plan attorneys to report evidence of a
material violation of law or breach of fiduciary duty or similar violation
by the Plan or any Controlled Affiliate, or any agent thereof, to the
chief legal counsel or the chief executive officer of the Plan (or the
equivalent thereof). If the counsel or officer does not appropriately
respond to the evidence (adopting, as necessary, appropriate remedial
measures or sanctions with respect to the violation), the Plan attorney
shall report the evidence to the Audit Committee of the Board of Directors
of the Plan or to another committee of the Board of Directors comprised
solely of directors not employed directly or indirectly by the Plan, or to
the Board of Directors.

The Plan shall certify tri-annually to BCBSA that it has adopted
and implemented standards of conduct for its
employees, officers and directors that include provisions
addressing the elements described above.

16

 

Standard 1: Board of Directors, continued

	 	2.11d	 	Require the Plan’s sponsored Larger Controlled Affiliates, and Smaller
Controlled Affiliates that were former Primary Licensees, to: 1) adopt effective
compliance and ethics programs which incorporate the same principles enumerated
under 2.11b and 2.11c above; or 2) participate in the compliance and ethics
programs of the Plan.
	 
	 	2.11e	 	Require Smaller Controlled Affiliates, other than those enumerated in 2.11d,
to: 1) adopt compliance and ethics programs as appropriate; or 2) participate in
the compliance and ethics programs of the Plan.
	 
	 	2.11f	 	To the extent that any of the provisions set forth in these Guidelines are
inconsistent with the terms of any Corporate Integrity Agreement (“CIA”) entered
into by the Plan, the terms of the CIA shall prevail, and compliance therewith
shall be deemed sufficient.

	 	2.12	 	In the case of Plans operated on a for-profit basis, the Plan’s Articles of
Incorporation and other Charter documents shall include, at the time the Plan converts to a
for-profit basis and continuously thereafter, enforceable provisions to:

	 	2.12a	 	prohibit any entity not licensed by BCBSA from acquiring more of the Plan’s
voting power or ownership than is allowed under Paragraph 9(d)(iii) of the License
Agreements (in effect at the time the Plan converted or, if the Plan elects, as
subsequently amended) without consent of the Plan’s continuing directors
(“Continuing directors” being defined as stated in Paragraph 9(d)(iii) of the
License Agreement);
	 
	 	2.12b	 	require that the Plan Board be composed of three classes of directors with
each class containing as close to one third of the total number of directors as
possible and each class of directors serving a three year term beginning in a year
in which no other class’ term begins;
	 
	 	2.12c	 	prohibit cumulative voting of stock; and
	 
	 	2.12d	 	permit amendments to these provisions only upon a vote of at least
three-fourths of all shareholders.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

17

 

Standard 2: Reports and Records

The Standard is:

A Plan shall furnish to the Association on a timely and accurate basis reports and records
relating to compliance with these Standards and the License Agreements between the Association and
the Plans. Such reports and records are the following:

	A.	 	BCBSA Membership Information Request;
	 
	B.	 	Biennial trade name and service mark usage material, including disclosure material under
Standard 7;
	 
	C.	 	Changes in the governance of the Plan, including changes in a Plan’s Charter***,
Articles of Incorporation***, or Bylaws***, changes in a Plan’s Board composition, or
changes in the identity of the Plan’s Principal Officers*;
	 
	D.	 	Quarterly Financial Report, Semi-annual “Health Risk-Based Capital (HRBC)
Report” as defined by the NAIC, Annual Financial Forecast, Annual Certified Audit Report,
Insurance Department Examination Report**, Annual Statement filed with State Insurance
Department (with all attachments), Plan, Subsidiary and Affiliate Report; and

	 	•	 	Plans that are a Shell Holding Company as defined in the Preamble hereto are
required to furnish only a calendar year-end “Health Risk-Based Capital (HRBC)
Report” as defined by the NAIC.

	E.	 	Quarterly Enrollment Report and, Member Touchpoint Measures Index (MTM).

	 	•	 	Plans that are a Shell Holding Company as defined in the Preamble hereto are not
required to furnish a Quarterly Enrollment Report.
	 
	 	•	 	For purposes of MTM reporting only, a Plan shall file a separate MTM report for
each Georgraphic Market and on an enterprise basis, except that the enterprise
report shall not include the Geographic Market as defined in section (c) of
footnote 2 to the guidelines to administer Regular Member Standard 4.

 

			
	*	 	Submit within 30 days of change to address indicated below
	 
	**	 	Forward within 30 days of receipt by the Plan of the final report accompanied by a formal
comment thereon from the Plan’s CEO, if appropriate, to:
	 
	 	 	     Managing Director, Brand Protection & Financial Services 

     Blue Cross and Blue Shield Association

     225 North Michigan Avenue

     Chicago, IL 60601
	 
	***	 	Include a redline version that clearly identifies the changes

18

 

Standard 2: Reports and Records, continued

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	For Reports listed in Item C above: A Plan shall submit the listed reports by the due
dates indicated in Attachment I.

	 	2.1a	 	Not Reporting — A report will be considered not reported if data are not
received by the Association within 30 days after the published deadline or after an
agreed-upon extension. A report will also be considered not submitted if accuracy
concerns or missing data, leading to the misrepresentation of performance and
inability to publish data, are not resolved within 30 days after the published
deadline or an agreed-upon extension (See Attachment I for reporting due dates).
	 
	 	2.1b	 	Late Reporting — A report will be considered late if it is received by the
Association after the published deadline or after an agreed upon extension (See
Attachment I for reporting due dates).
	 
	 	2.1c	 	Inaccurate Reporting — A report will be considered inaccurate if the data
submitted do not conform to published instructions.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	For Reports listed in items D and E above: A Plan shall submit the listed reports by
the due dates shown in Attachment I. Refer to Attachment II for specific sanctions in the
event a Plan is not in compliance with the following guidelines.

	 	3.1.a	 	Not Reporting — A report will be considered not reported if data are not
received by the Association within 30 days after the published deadline or after an
agreed-upon extension. A report will also be considered not submitted if accuracy
concerns or missing data, leading to the misrepresentation of performance and
inability to publish data, are not resolved within 30 days after the published
deadline or an agreed-upon extension (See Attachment I for reporting due dates).
	 
	 	3.1.b	 	Late Reporting — A report will be considered late if it is received by the
Association after the published deadline or after an agreed upon extension (see
Attachment I for reporting due dates).
	 
	 	3.1.c	 	Inaccurate Reporting — A report will be considered inaccurate if the data
submitted does not conform to published instructions.

19

 

Standard 3: Financial Responsibility

The Standard is:

A Plan shall be operated in a manner that provides reasonable financial assurance that it can
fulfill its contractual obligations to its customers.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	A Plan shall be considered noncompliant if its liquidity (standard BCBSA definition) is
less than 1.0 months of underwritten claims and administrative expenses for two consecutive
quarters.

	 	1.1a	 	A Plan that operates as a Shell Holding Company or a Hybrid Holding Company as
defined in the Preamble hereto is not subject to the BCBSA minimum liquidity
requirement.

	 	1.2	 	A Plan shall have a minimum capital equal to or greater than 200% of its “Health
Risk-Based Capital (HRBC)* Authorized Control Level (ACL) after covariance” as defined by
the NAIC and hereinafter referred to as “Authorized Control Level”.
	 
	 	1.3	 	Notwithstanding a Plan’s HRBC level, a Plan shall maintain its minimum SAP reserve (or
equivalent net worth**) at or above the minimum reserve (or net worth level**) established
by each state in which it is domiciled and/or operates.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	A Plan shall maintain accounting records on an accrual basis subject to an annual audit
resulting in a financial statement opinion that does not express doubts as to the Plan’s
ability to continue as a going concern. The annual audit shall be performed by an
independent CPA firm acceptable to the Plan Performance and Financial Standards Committee
(Note: Each licensee is required to submit a separate annual certified audit report).

 

			
	*	 	The HRBC calculation was designed by the National Association of Insurance Commissioners to
estimate the minimum statutory level of required capital and is used by BCBSA to determine
compliance with BCBSA’s minimum HRBC requirement, established PPRP monitoring thresholds and other
requirements and protocols. Given that the HRBC calculation is a retrospective formula, it does not
take into account the potential impact of future events (developing market challenges or
constraints, investments in technology, unexpectedly high claims, changes in business mix,
potential acquisitions or divestitures, etc.) that may have a significant impact on the HRBC of a
Plan. Additional capital may be needed to protect against events not otherwise accounted for in the
HRBC formula and BCBSA encourages Plans to maintain
reserves well above the required HRBC minimum. HRBC was not designed, calibrated or intended for
use in determining excess levels of capital.

	 
	**	 	language applicable to non-risk assuming primary licensees.

20

 

Standard 3: Financial Responsibility, continued

	 	2.2	 	A Plan shall provide for adequate accounting for loss reserves, actuarial liabilities
and related items as annually certified by a qualified actuary pursuant to a review process
acceptable to the Plan Performance and Financial Standards Committee (See Attachment V;
Note: Each licensee is required to submit a separate certification).
	 
	 	2.3	 	A Plan excluding a Plan acting as a Shell Holding Company or a Hybrid Holding Company
as defined in the Preamble hereto shall be considered noncompliant if it does not meet at
least one of the following:

	 	2.3a	 	participate in the guaranty fund in each state in which it operates; or
	 
	 	2.3b	 	establish another method approved by BCBSA which assures the payment of claim
liabilities and continuation of coverage in the event of an insolvency (See
Attachment III); or
	 
	 	2.3c	 	at a minimum, have an HRBC above 800% of its Authorized Control Level and
liquidity of 2.0 months or greater.

	 	2.3c(i)	 	If a Plan that has complied with the requirement by maintaining
the financial position defined above no longer meets one or both of the
financial tests, the licensee will have six months to join the guaranty
fund or implement an acceptable alternative mechanism.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

(* language applicable to non-risk assuming primary licensees)

21

 

Standard 4: Responsiveness To Customers

The Standard is:

A Plan shall be operated in a manner responsive to customer needs and requirements.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	A Plan shall maintain enrollment performance of not worse than declines of 8% in 1 year
and 20% over 3 years for “total Blue members"1 of the Primary Licensee and all
Controlled Affiliate Licensees excluding Life Insurance and Charitable Foundation
affiliates.
	 
	 	3.2	 	A Plan’s Board shall be notified of the Plan’s enrollment and service performance
levels in the membership compliance letter as required under Membership Standard 1: Board
of Directors.

 

			
	(1)	 	Total Blue Members is defined as total hospital and medical/surgical members,
excluding freestanding, as reported by Licensees to BCBSA.

22

 

Standard 4: Responsive To Customers, continued

	 	3.3	 	Effective 1/1/2005 (with the reporting of first quarter 2005 service results) and
through year-end 2005 reporting, a Plan shall not fall below the thresholds for Service
Performance Scorecard Measures in any of its Geographic Markets2 for 2
consecutive quarters as shown in the following table.

	 	 	 	 	 	 
	 	Service	 	 	 	 
	 	Performance	 	 	 	 
	 	Scorecard	 	 	Compliance	 
	 	Measures	 	 	Threshold	 
	 	 	 	 	 	 
	 	 
	 	 	 	 
	 	Enterprise Total

	 	 	Greater than or
equal to 72 Points	 
	 	 	 	 	 	 
	 	 
	 	 	 	 
	 	Weighted Market 

Total

	 	 	Greater than or
equal to 72 Points	 
	 	 	 	 	 	 

 

			
	2	 	“Geographic Market” is defined as follows:

	 	A)	 	If a Plan’s service area comprises primarily a single state or a portion of a single state,
then Geographic Market shall mean the service area.
	 
	 	B)	 	If a Plan’s service area comprises more than one state and or substantial portions of more
than one state, then each state or portion thereof shall be a separate Geographic Market. If,
however, a
Primary Licensee clearly demonstrates in writing to BCBSA and BCBSA agrees that the
delivery of customer service for two or more states (or portions thereof) within a
service area is processed at a single site and is fully integrated, then the Geographic
Market is defined as those two or more states (or portions thereof). For purposes of
this definition, Puerto Rico and the District of Columbia are defined as states.
	 
	 	C)	 	If consenting and participating Plans offer an all Blue-branded regional Medicare Advantage
PPO (“MAPPO”) or regional Medicare Part D Prescription Drug Plan (“PDP”) and the Primary
Licensees demonstrate in writing and BCBSA agrees that the delivery of customer service for the
product is delivered at a single site and is fully integrated, then the Geographic Market is
defined as the applicable MAPPO or PDP Region.

23

 

Standard 4: Responsive To Customers, continued

Effective 1/1/2006 (with the reporting of first quarter 2006 service results) and
quarterly thereafter, a Plan3 shall not fall below the thresholds for
Service Performance Scorecard Measures in any of its Geographic Markets2
for 2 consecutive quarters as shown in the following table.

	 	 	 	 	 	 
	 	Service	 	 	 	 
	 	Performance	 	 	 	 
	 	Scorecard	 	 	Compliance	 
	 	Measures	 	 	Threshold	 
	 	 	 	 	 	 
	 	 
	 	 	 	 
	 	Enterprise Total

	 	 	Greater than or
equal to 80 Points	 
	 	 	 	 	 	 
	 	 
	 	 	 	 
	 	Weighted Market 

Total

	 	 	Greater than or
equal to 80 Points	 
	 	 	 	 	 	 

(Refer to Attachment IV for a description of the Service Performance Scorecard,
definitions and additional instructions.)

	4.	 	Sanctions:

	 	4.1	 	A Plan’s Board shall be notified of the Plan’s noncompliance with the thresholds relating
to enrollment and service performance in the membership compliance letter as required under
Membership Standard 1: Board of Directors

 

			
	2	 	“Geographic Market” is defined as follows:

	A)	 	If a Plan’s service area comprises primarily a single state or a portion of a single state,
then Geographic Market shall mean the service area.
	 
	B)	 	If a Plan’s service area comprises more than one state and or substantial portions of more
than one state, then each state or portion thereof shall be a separate Geographic Market. If,
however, a
Primary Licensee clearly demonstrates in writing to BCBSA and BCBSA agrees that the
delivery of customer service for two or more states (or portions thereof) within a
service area is processed at a single site and is fully integrated, then the Geographic
Market is defined as those two or more states (or portions thereof). For purposes of
this definition, Puerto Rico and the District of Columbia are defined as states.
	 
	C)	 	If consenting and participating Plans offer an all Blue-branded regional Medicare Advantage
PPO (“MAPPO”) or regional Medicare Part D Prescription Drug Plan (“PDP”) and the Primary
Licensees demonstrate in writing and BCBSA agrees that the delivery of customer service for the
product is delivered at a single site and is fully integrated, then the Geographic Market is
defined as the applicable MAPPO or PDP Region.

 

	3.	 	For purposes of this guideline, the term Plan shall include a group of Plans in the
case of a regional MAPPO or PDP that has been approved as a Geographic Market as provided in
footnote 2.

24

 

Standard 5: Participation in National Programs

The Standard is:

A Plan shall effectively and efficiently participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of providing portability of membership between
the Plans and ease of claims processing for customers receiving benefits outside of the Plan’s
Service Area.

Such programs are applicable to Blue Cross and Blue Shield Plans, and include:

	A.	 	Transfer Program;
	 
	B.	 	Inter-Plan Teleprocessing System (ITS);
	 
	C.	 	BlueCard Program;
	 
	D.	 	Electronic Claims Routing
Process;
	 
	E.	 	National Account Programs, effective January 1, 2002;
	 
	F.	 	Business Associate Agreement for Blue Cross and Blue Shield Licensees, effective
April 14, 2003; and
	 
	G.	 	Inter-Plan Medicare Advantage Program.

Determination of Compliance:

	 	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	 	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	BlueCard Program and ITS — A Plan shall fully participate in ITS and the BlueCard
Program through compliance with all BlueCard Program Policies and Provisions and all
applicable Inter-Plan Programs Policies and Provisions, unless an exemption has been
granted by the Inter-Plan Programs Committee (IPPC) in accordance with those Policies and
Provisions.

	 	2.1.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	2.1.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to the PPFSC and
the BCBSA Board of Directors for their action.

	 	2.2	 	Electronic Claims Routing Process — A Plan shall fully participate in the Electronic
Claims Routing Process through compliance with all Electronic Claims Routing Process
Policies and Provisions and all applicable Inter-Plan Programs Policies and Provisions.

25

 

Standard 5: Participation in National Programs

	 	2.2.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	2.2.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to PPFSC and the
BCBSA Board of Directors for their action.

	 	2.3	 	National Account Programs — Effective January 1, 2002, a Plan shall fully participate
in the National Account Programs through compliance with all National Account Program
Policies and Provisions and all applicable Inter-Plan Programs Policies and Provisions.

	 	2.3.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	2.3.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to PPFSC and the
BCBSA Board of Directors for their action.

	 	2.4	 	Business Associate Agreement for Blue Cross and Blue Shield Licensees — A Plan shall
fully comply with the terms and conditions of the Business Associate Agreement for Blue
Cross and Blue Shield Licensees (Attachment VII).

	 	2.4.a	 	Compliance determined by certification of adherence to the terms and
conditions of the Business Associate Agreement for Blue Cross and Blue Shield
Licensees.
	 
	 	2.4.b	 	The Association shall commence Mediation/Arbitration or intervene in a
Mediation/Arbitration proceeding among Plans upon a finding by the Plan Performance
and Financial Standards Committee that such action is warranted and a referral of
the matter from PPFSC to the BCBSA Board of Directors for its action.

	 	2.5	 	Inter-Plan Medicare Advantage Program — A Plan shall fully participate in the
Inter-Plan Medicare Advantage Program through compliance with all Inter-Plan Medicare
Advantage Program Policies and Provisions.

	 	2.5a	 	Compliance determined by periodic review or audits and by reviews initiated by
evidence of problems.
	 
	 	2.5b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that such
action is warranted and a referral of the matter from IPPC to PPFSC and the BCBSA
Board of Directors for their action.

26

 

Standard 5: Participation in National Programs

	 	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	Transfer Program — A Licensee shall be in compliance with the policies, provisions and
procedures of the program and shall correct any items of noncompliance.

	 	3.1a	 	Compliance determined by annual Licensee certification of having appropriately
followed Program procedures to identify and transfer nonresident direct pay and
Medicare Supplemental subscribers, by quarterly volume reporting and by reviews
initiated by evidence of problems.

	 	4.	 	Sanctions:

A Plan’s Board shall be notified if the Plan’s performance is not in compliance with the
above.

27

 

Standard 6: Financial Performance Requirements

The Standard is:

In addition to requirements under the national programs listed in Standard 5:

Participation in National Programs, a Plan shall take such action as required to ensure its
financial performance in programs and contracts of an inter-Plan nature or where the Association is
a party.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	A Plan, except a Plan acting as a Shell Holding Company or a Hybrid Holding Company as
defined in the Preamble hereto, with SAP or equivalent reserve (net worth) of less than
300% of its Authorized Control Level or liquidity for two consecutive quarters of less than
1.5 months of underwritten claims and administrative expenses (standard BCBSA definition)
shall:

	 	2.1a	 	Provide an irrevocable and unconditional letter of credit, or other guarantee
of payment satisfactory to BCBSA, in an amount which shall be reset quarterly equal
to:

	 	2.1a(i)	 	The Control/Home Plan liabilities as actuarially determined by
BCBSA using the respective Plan’s historical claim settlement patterns and
actuarial standards of practice for determining incurred health claim
liabilities for:

	 	(a)	 	The BlueCard Program;
	 
	 	(b)	 	The Electronic Claims Routing Process (“ECRP”);
	 
	 	(c)	 	Other transactions settled in whole or in part through
the Central Financial Agency (“CFA”); and
	 
	 	(d)	 	National Account Service Company, LLC (“NASCO”)
transactions.

And

28

 

Standard 6: Financial Performance Requirements, continued

	 	2.1a(ii)	 	The Participating/Host Plan liabilities including gross variance
settlements, as a result of modified pricing (under BCBSA Inter-Plan
Programs’ policies and provisions, including, but not limited to, BlueCard
Program Policies and Provisions or the equivalent), due Control/Home Plans
as actuarially determined by BCBSA.

	 	2.1b	 	Provide NASCO, on a timely basis, with written authorization to provide BCBSA
with requested NASCO claims information used in connection with the calculation
under paragraph 2.1a(i).
	 
	 	2.1c	 	Provide each Participating/Host Plan with an option to receive from the Plan,
as Control/Home Plan, an irrevocable and unconditional letter of credit or other
guarantee of payment acceptable to each such Participating/Host Plan for Inter-Plan
Programs’ liabilities occurring outside the CFA and NASCO.

	 	2.1c(i)	 	Each such guarantee shall be equal to the greater of:

	 	(a)	 	Control/Home Plan’s Inter-Plan liabilities to each
such Participating/Host Plan as certified by a qualified
independent third party acceptable to BCBSA; or
	 
	 	(b)	 	An amount as actuarially determined by BCBSA.

	 	2.1c(ii)	 	The guarantee amount shall be reset quarterly based on the most
recent quarter and include:

	 	(a)	 	An estimate of average unpaid claims and
administrative expenses due to Participating/Host Plans,
net of outstanding advances; and
	 
	 	(b)	 	An estimate of financial settlements, outstanding
through the current quarter, due to each
Participating/Host Plan.

	 	2.1d	 	Distribute to Participating/Host Plans on a quarterly basis, any funds owed
for national account financial settlements. Any such actual distributions can be
used to offset funds set aside in accordance with 2.1a and 2.1b under this Standard
6.
	 
	 	2.1e	 	Provide to BCBSA, on a quarterly basis, a listing of national accounts in
which the Plan is involved as (Control/Home and Participating/Host), identifying
the national account and the Plan’s role therein. For those accounts where the Plan
is the Control/Home Plan, the Plan must also specify the Participating/Host Plans
in each national account syndicate.
For any Plan included in the Plan Performance Contingency Protocol

29

 

Standard 6: Financial Performance Requirements, continued

(“PPCP”), that Plan’s information will be distributed to the other members
of each national account syndicate.

	 	2.1f	 	For the Blue Quality Centers for Transplant (“BQCT”) liabilities not settled
in whole or in part through the CFA or otherwise covered herein, the Home Plan must
provide BCBSA with an irrevocable and unconditional letter of credit, or other
guarantee of payment satisfactory to BCBSA, in an amount which shall be reset
quarterly equal to the greater of:

	 	2.1f(i)	 	An amount equal to the Plan’s number of BQCT transplants completed
for the prior twelve months times the most recent estimated U.S. average
billed charges per transplant as determined by Milliman USA or such other
actuarial firm chosen by BCBSA; or
	 
	 	2.1f(ii)	 	An amount as actuarially determined by BCBSA.

	 	2.1g	 	Waive any right to challenge the federal super-priority status held by the
Plan for the Federal Employee Program and Medicare Part A.

	 	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

30

 

Standard 7: Certain Disclosures

The Standard is:

A Plan shall make adequate disclosure in contracting with third parties and in disseminating
public statements of:

	A.	 	the structure of the Blue Cross and Blue Shield System;
	 
	B.	 	the independent nature of every Plan and;
	 
	C.	 	the Plan’s financial condition.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	A Plan that is in PPRP monitoring for financial reasons shall disseminate to all
providers, accounts, and direct pay subscribers the descriptions contained in the approved
disclosure brochure or other document as set forth in the Brand Book;
	 
	 	2.2	 	A Plan that is in PPRP monitoring for financial reasons shall disseminate to all
providers, accounts, and direct pay subscribers a summary of the Plan’s year-end audited
balance sheet as set forth in the Brand Book;
	 
	 	2.3	 	A Plan shall comply with the other disclosure requirements as set forth in the Brand
Book;
	 
	 	2.4	 	A Plan shall include the approved form contract provisions in all written contracts
with providers, accounts, and direct pay subscribers as set forth in the Brand Book. If a
state regulator refuses to permit a Plan to add these provisions to any such contract, and
if the Plan provides written evidence of such refusal, BCBSA shall not require the
provisions in such contract and BCBSA shall notify the regulator that the Plan has been
relieved of compliance for as long as the regulator prohibits compliance;
	 
	 	2.5	 	A Plan shall include on each subscriber ID card carrier or mailer enclosed with or
attaching a subscriber ID card the form disclosure statement as set forth in the Brand
Book; and
	 
	 	2.6	 	A Plan shall provide information in such form as requested by the Association
demonstrating that the Plan is complying with the above requirements.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

31

 

Standard 8: Cooperation with Plan Performance Response Process

The Standard is:

A Plan shall cooperate with the Association’s Board of Directors and its Plan Performance and
Financial Standards Committee in the administration of the Plan Performance Response Process and in
addressing Plan performance problems identified thereunder.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	A Plan shall provide the Association’s Board of Directors and the Plan Performance and
Financial Standards Committee with such data, action plans and access to the Plan Board of
Directors and on-site visits as required under the Plan Performance Response Process
(PPRP); and
	 
	 	2.2	 	A Plan shall promptly and effectively addressing performance problems identified under
the PPRP on a basis which is consistent with the Plan’s responsibilities under the PPRP as
determined in the reasonable judgment of the Association’s Board of Directors and its Plan
Performance and Financial Standards Committee.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

32

 

Standard 9: Independent Financial Rating

The Standard is:

A Plan shall obtain a rating of its financial strength from an independent rating agency
approved by the Association’s Board of Directors for such purpose.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	Annually, a Plan shall receive a BCBSA-approved financial strength rating provided,
however: (1) a Plan operating as a Shell Holding Company as defined in the Preamble hereto
is not required to obtain a financial strength rating; (2) a Plan operating as a Hybrid
Holding Company as defined in the Preamble hereto that has outstanding publicly rated debt
is required to receive an Issuer Credit Rating1 instead of a financial strength
rating; and (3) a Plan operating as Hybrid Holding Company as defined in the Preamble
hereto that has no outstanding publicly rated debt is required to maintain a financial
strength rating using the rating agency’s approved insurance Group Rating Methodology. All
of the foregoing ratings shall be from either Standard & Poor’s, A.M. Best or Fitch, Inc.
	 
	 	2.2	 	Once a private rating has been issued, the Plan is required to refrain from making
public its private rating2 unless the Plan is compelled to do so by lawful
subpoena or other compulsory legal or regulatory process. If compelled to release the
information, the Plan is to inform BCBSA3 of the occurrence.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

 

			
	1	 	An Issuer Credit Rating is an opinion of an obligor’s overall financial
creditworthiness to pay its financial obligations. The Issuer Credit Rating is assigned at the
holding company level and is the technical term used by Standard & Poor’s and A.M. Best. Fitch
uses the technical term “Long Term Credit Rating”.
	 
	2	 	This requirement does not relate to a public rating a Plan may receive from
Standard & Poor’s, A.M. Best or Fitch, Inc.
	 
	3	 	Inform:

Steven D. Putziger

Executive Director, Brand Protection & Financial Services
Blue
Cross and Blue Shield Association

225 North Michigan Avenue

Chicago, IL 60601

33

 

Standard 10: Local and National Best Efforts

The Standard is:

Nothwithstanding any other provision in this License Agreement, during each year, a Plan and
its Controlled Affiliate(s) engaged in providing licensable services (excluding Life Insurance and
Charitable Foundation Services) shall use their best efforts to promote and build the value of the
Blue Cross [for Blue Cross Licensees] and Blue Shield [for Blue Shield Licensees] Marks.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	At least 80% of the annual Combined Local Net Revenue of a Plan* and its Licensable
Controlled Affiliates attributable to health care plans and related services and hospital
services (hereafter “Local Health Revenue”) offered within the designated Service Area must
be sold, marketed, administered or underwritten under the Licensed Marks and Names.
	 
	 	2.2	 	At least 66-2/3% of the annual Combined National Net Revenue of a Plan** and its
Licensable Controlled Affiliates attributable to health care plans and related services
(hereafter “National Health Revenue”) must be sold, marketed, administered or underwritten
under the Licensed Marks and Names. The percentage set forth in this paragraph shall not be
changed for at least 10 years from the date of adoption of this paragraph.

	 	2.2a	 	If a Plan does not comply with the above National Health Revenue percentage,
then it may comply with this Guideline 2.2 by having at least 66-2/3% of the annual
Combined National Enrollment of the Plan*** and its Licensable Controlled
Affiliates enrolled in health care plans and related services (hereafter “National
Health Enrollment”) sold, marketed, administered or underwritten under the Licensed
Marks and Names, provided that such Plan was a Primary Licensee on the date this
Guideline was adopted by the BCBSA Board of Directors.

	 	2.3	 	Licensable Controlled Affiliate shall mean an entity which would be eligible to receive
a license to utilize the Licensed Marks and Names under BCBSA rules, as amended from time
to time, if control by a Plan as defined in the License Agreement were the only criterion
for licensure under such rules.
	 
	 	2.4	 	In administering this Standard, BCBSA will consider the legitimate strategic interests
of the Plan as embodied in its investments made in reliance on regulations in effect prior
to June 13, 1996, under this Standard 10, including but not limited to the compliance exception for the period prior to
the calendar year beginning January 1, 1999.

34

 

Standard 10: Local and National Best Efforts, continued

	 	2.5	 	Nothing in these Guidelines or in the “Best Efforts” Standard shall relieve Blue
Cross and Blue Shield Association or any Plan or Controlled Affiliate from the obligations
imposed under the License Agreement and any Controlled Affiliate License Agreement or from
the obligations to deal in good faith and fairly with each other under the terms of the
License Agreement and/or any Controlled Affiliate License Agreement. These Guidelines may
not be revised without the approval of the Board of Directors.
	 
	 	 	 	Compliance with Local Best Efforts Standard
	 
	 	2.6	 	In the event that a Plan acquires or takes control of business through a purchase,
merger or any other transaction that results in the Plan, on a pro-forma basis, falling
below the requirement in Paragraph 2.1, the Plan shall:

	 	2.6a	 	Come into compliance with Paragraph 2.1 as described below.
	 
	 	2.6b	 	Within 120 days from the closing date of the merger, purchase or transaction,
submit an action plan to BCBSA for PPFSC approval that identifies the steps the
Plan will take to come into compliance with Paragraph 2.1 as soon as possible but
in any event no later than 24 months after the date of the PPFSC’s initial
determination on the action plan, unless such time period is extended by the PPFSC
in accordance with Paragraph 2.11.

	 	2.6b(i)	 	The action plan (or amended action plan described below) is
subject to the approval of the PPFSC, such approval not to be unreasonably
withheld. In determining whether to approve a proposed action plan, the
PPFSC shall consider the need to avoid harm to the Blue Brands and other
Plans, the need for prompt compliance, the likelihood of serious
disruption or harm to the business of the Plan proposing the action plan
and regulatory constraints, together with any other relevant factors.
Once submitted to BCBSA, the action plan shall be presented to
the PPFSC no later than at its next regular meeting (1) in which
a quorum is present to take action, and (2) for which the action
plan was received by BCBSA not less than five business days
prior to the agenda mailing. The Plan shall have the right to
appear at such meeting, to answer any questions from Committee
members, and to make a presentation to the PPFSC in support of
its action plan. The PPFSC may exclude the Plan, however, from
its deliberations. If the PPFSC requests more
information from the Plan, the PPFSC may exercise its reasonable
discretion and extend accordingly the time within which the Plan
must comply. If the PPFSC disapproves the action plan, the
Committee shall inform the Plan in writing of its decision,
including the basis for the disapproval, and inform the Plan of
its right to file an amended action plan.

35

 

Standard 10: Local and National Best Efforts, continued

The Plan shall have at least one opportunity to submit an
amended action plan. In the event the PPFSC disapproves the
amended action plan, the PPFSC may, in its sole discretion
permit the Plan to file further amended action plans. Any such
amended action plan must be submitted to BCBSA within 60 days
from the date of disapproval of the previously submitted action
plan. The first such amended action plan shall be subject to the
requirements stated in the second sentence of this subparagraph.

	 	2.6b(ii)	 	If the Plan’s action plan (or amended action plan) is approved by
the PPFSC, the Plan is required to submit, on a quarterly basis, written
status updates to BCBSA that document the Plan’s progress towards
compliance with the approved action plan (or amended action plan). The
PPFSC may withdraw approval of a Plan’s action plan (or amended action
plan) if the PPFSC determines that the Plan is not making sufficient
progress towards compliance with the milestones or schedules described in
the action plan, as evidenced by the Plan’s quarterly written status
updates. Upon the withdrawal of the Committee’s approval of the Plan’s
action plan (or amended action plan), the Committee will notify the Plan
in writing, including the basis for the withdrawal of approval. If the
withdrawal of approval is for the Plan’s original action plan, the Plan
shall have at least one opportunity to submit an amended action plan as
provided in paragraph 2.6b(i). If the withdrawal of approval is for an
amended action plan, the Committee may in its sole discretion permit the
Plan to file additional amended action plans.

	 	2.7	 	If a Plan, for any reason other than the acquisition or taking control of business
through a purchase, merger or any other transaction, falls below the requirement in
Paragraph 2.1, the Plan shall:

	 	2.7a	 	Come into compliance with Paragraph 2.1 as described below.
	 
	 	2.7b	 	Within 60 days after the date of PPFSC determination (hereinafter the “date of
determination”) that the Plan is below the requirement in Paragraph 2.1, submit an
action plan to BCBSA for PPFSC approval that identifies the steps the Plan will
take to comply with Paragraph 2.1 as soon as possible but in any event no later
than 12 months after the date of the PPFSC’s initial determination on the action plan, unless such time period is extended by the PPFSC
in accordance with Paragraph 2.11.

	 	2.7b(i)	 	The action plan (or amended action plan described below) is
subject to the approval of the PPFSC, such approval not to be unreasonably
withheld. In determining whether to approve a proposed action plan, the
PPFSC shall consider the need

36

 

Standard 10: Local and National Best Efforts, continued

to avoid harm to the Blue Brands and other Plans, the need for prompt compliance, the likelihood of serious disruption or harm to
the business of the Plan proposing the action plan and regulatory constraints, together with any
other relevant factors. Once submitted to BCBSA, the action plan shall be presented to
the PPFSC no later than at its next regular meeting (1) in which
a quorum is present to take action, and (2) for which the action
plan was received by BCBSA not less than five business days
prior to the agenda mailing. The Plan shall have the right to
appear at such meeting, to answer any questions from Committee
members, and to make a presentation to the PPFSC in support of
its action plan. The PPFSC may exclude the Plan, however, from
its deliberations. If the PPFSC requests more information from
the Plan, the PPFSC may exercise its reasonable discretion and
extend accordingly the time within which the Plan must comply.
If the PPFSC disapproves the action plan, the Committee will
inform the Plan in writing of its decision, including the basis
for the disapproval, and inform the Plan of its right to file an
amended action plan. The Plan shall have at least one
opportunity to submit an amended action plan. In the event the
PPFSC disapproves the amended action plan, the PPFSC may, in its
sole discretion permit the Plan to file further amended action
plans. Any such amended action plan must be submitted to BCBSA
within 60 days from the date of disapproval of the previously
submitted action plan. The first such amended action plan shall
be subject to the requirements stated in the second sentence of
this subparagraph.

	 	2.7b(ii)	 	If the Plan’s action plan (or amended action plan) is approved by
the PPFSC, the Plan is required to submit, on a quarterly basis, written
status updates to BCBSA that document the Plan’s progress towards
compliance with the approved action plan (or amended action plan). The
PPFSC may withdraw approval of a Plan’s action plan (or amended action plan) if the PPFSC
determines that the Plan is not making sufficient progress
towards compliance with the milestones or schedules described in
the action plan, as evidenced by the Plan’s quarterly written
status updates. Upon the withdrawal of the Committee’s approval
of the Plan’s action plan (or amended action plan), the Committee will notify the Plan in
writing, including the basis for the withdrawal of approval. If
the withdrawal of approval is for the Plan’s original action
plan, the Plan shall have at least one opportunity to submit an
amended action plan as provided in paragraph 2.7b(i). If the
withdrawal of approval is for an amended action plan, the
Committee may in its sole discretion permit the Plan to file
additional amended action plans. The first such amended action
plan shall be subject to the requirements stated in the second
sentence of this subparagraph.

37

 

Standard 10: Local and National Best Efforts, continued

	 	 	 	Compliance with National Best Efforts Standard
	 
	 	2.8	 	In the event that a Plan is below the requirement in Paragraph 2.2 as of the date of
enactment of Paragraph 2.2, the Plan must:

	 	2.8a	 	Come into compliance with Paragraph 2.2 as described below.
	 
	 	2.8b	 	Within 120 days after the enactment of Paragraph 2.2, submit an action plan to
BCBSA for PPFSC approval that identifies the steps the Plan will take to comply
with Paragraph 2.2 as soon as possible but in any event no later than 24 months
after the date of the PPFSC’s initial determination on the action plan, unless such
time period is extended by the PPFSC in accordance with Paragraph 2.11.

	 	2.8b(i)	 	The action plan (or amended action plan described below) is
subject to the approval of the PPFSC, such approval not to be unreasonably
withheld. In determining whether to approve a proposed action plan, the
PPFSC shall consider the need to avoid harm to the Blue Brands and other
Plans, the need for prompt compliance, the likelihood of serious
disruption or harm to the business of the Plan proposing the action plan
and regulatory constraints, together with any other relevant factors.
Once submitted to BCBSA, the action plan shall be presented to
the PPFSC no later than at its next regular meeting (1) in which
a quorum is present to take action, and (2) for which the action
plan was received by BCBSA not less than five business days
prior to the agenda mailing. The Plan shall have the right to
appear at such meeting, to answer any questions from Committee
members, and to make a presentation to the PPFSC in support of
its action plan. The PPFSC may exclude the Plan, however, from
its deliberations. If the PPFSC requests more information from
the Plan, the PPFSC may exercise its reasonable discretion and
extend accordingly the time within which the Plan must comply.
If the PPFSC disapproves the action plan, the Committee will
inform the Plan in writing of its decision, including the basis
for the disapproval, and inform the Plan of its right to file an
amended action plan. The Plan shall have at least one
opportunity to submit an amended action plan. In the event the
PPFSC disapproves the amended action plan, the
PPFSC may, in its sole discretion permit the Plan to file
further amended action plans. Any such amended action plan must
be submitted to BCBSA within 60 days from the date of
disapproval of the previously submitted action plan. The first
such amended action plan shall be subject to the requirements
stated in the second sentence of this subparagraph.

38

 

Standard 10: Local and National Best Efforts, continued

	 	2.8b(ii)	 	If the Plan’s action plan (or amended action plan) is
approved by the PPFSC, the Plan is required to submit, on a quarterly
basis, written status updates to BCBSA that document the Plan’s progress
towards compliance with the approved action plan (or amended action plan).
The PPFSC may withdraw approval of a Plan’s action plan (or amended action
plan) if the PPFSC determines that the Plan is not making sufficient
progress towards compliance with the milestones or schedules described in
the action plan, as evidenced by the Plan’s quarterly written status
updates. Upon the withdrawal of the Committee’s approval of the Plan’s
action plan (or amended action plan), the Committee will notify the Plan
in writing, including the basis for the withdrawal of approval. If the
withdrawal of approval is for the Plan’s original action plan, the Plan
shall have at least one opportunity to submit an amended action plan as
provided in paragraph 2.8b(i). If the withdrawal of approval is for an
amended action plan, the Committee may in its sole discretion permit the
Plan to file further amended action plans.

	 	2.9	 	This section applies to any Plan that is in compliance upon enactment of Paragraph 2.2
or has come into compliance pursuant to Paragraph 2.8. In the event that a Plan acquires or
takes control of business through a purchase, merger or any other transaction that results
in the Plan, on a pro-forma basis, falling below the requirement in Paragraph 2.2, the Plan
shall:

	 	2.9a	 	Come into compliance with Paragraph 2.2 as described below.
	 
	 	2.9b	 	Within 120 days from the closing date of the merger, purchase or transaction,
submit an action plan to BCBSA for PPFSC approval that identifies the steps the
Plan will take to come into compliance with Paragraph 2.2 as soon as possible but
in any event no later than 24 months after the date of the PPFSC’s initial
determination, unless such time period is extended by the PPFSC in accordance with
Paragraph 2.11.

	 	2.9b(i)	 	The action plan (or amended action plan described below) is
subject to the approval of the PPFSC, such approval not to be unreasonably
withheld. In determining whether to approve a proposed action plan, the
PPFSC shall consider the need to avoid harm to the Blue Brands and other
Plans, the need for prompt compliance, the likelihood of serious
disruption or harm to the business of the Plan proposing the action plan
and regulatory constraints, together with any other relevant factors.
Once submitted to BCBSA, the action plan shall be presented to
the PPFSC no later than at its next regular meeting (1) in which
a quorum is present to take action, and (2) for which the action
plan was received by BCBSA not less than five business days
prior to the agenda mailing. The Plan shall have the right to
appear at such meeting, to answer any questions from Committee
members, and to make a presentation to the PPFSC

39

 

Standard 10: Local and National Best Efforts, continued

in support of its action plan. The PPFSC may exclude the Plan, however, from its deliberations. If the PPFSC requests more
information from the Plan, the PPFSC may exercise its reasonable discretion and extend accordingly
the time within which the Plan must comply. If the PPFSC disapproves the action plan, the Committee
shall inform the Plan in writing of its decision, including the basis for the disapproval, and
inform the Plan of its right to file an amended action plan. The Plan shall have at least one
opportunity to submit an amended action plan.
In the event the PPFSC disapproves the amended action plan, the
PPFSC may, in its sole discretion permit the Plan to file
further amended action plans. Any such amended action plan must
be submitted to BCBSA within 60 days from the date of
disapproval of the previously submitted action plan. The first
such amended action plan shall be subject to the requirements
stated in the second sentence of this subparagraph.

	 	2.9b(ii)	 	If the Plan’s action plan (or amended action plan) is approved by
the PPFSC, the Plan is required to submit, on a quarterly basis, written
status updates to BCBSA that document the Plan’s progress towards
compliance with the approved action plan (or amended action plan). The
PPFSC may withdraw approval of a Plan’s action plan (or amended action plan) if the PPFSC
determines that the Plan is not making sufficient progress
towards compliance with the milestones or schedules described in
the action plan, as evidenced by the Plan’s quarterly written
status updates. Upon the withdrawal of the Committee’s approval
of the Plan’s action plan (or amended action plan), the
Committee will notify the Plan in writing including the basis
for the withdrawal of approval. If the withdrawal of approval is
for the Plan’s original action plan, the Plan shall have at
least one opportunity to submit an amended action plan as
provided in paragraph 2.9b(i). If the withdrawal of approval is
for an amended action plan, the Committee may in its sole
discretion permit the Plan to file further amended action plans.

	 	2.10	 	This section applies to any Plan that is in compliance upon enactment of Paragraph 2.2
or has come into compliance pursuant to Paragraph 2.8. If the Plan, for any reason other than the acquisition or taking control of business
through a purchase, merger or any other transaction, falls below the requirement in 2.2, the Plan shall:

	 	2.10a	 	Come into compliance with
Paragraph 2.2 as described below.

40

 

Standard 10: Local and National Best Efforts, continued

	 	2.10b	 	Within 60 days after the date of determination that the Plan is below
the requirement in Paragraph 2.2, submit an action plan to BCBSA for PPFSC approval
that identifies the steps the Plan will take to comply with Paragraph 2.2 as soon
as possible but in any event no later than 12 months after the date of the PPFSC’s
initial determination on the action plan, unless such time period is extended by
the PPFSC in accordance with Paragraph 2.11.

	 	2.10b(i)	 	The action plan (or amended action plan described below) is
subject to the approval of the PPFSC, such approval not to be unreasonably
withheld. In determining whether to approve a proposed action plan, the
PPFSC shall consider the need to avoid harm to the Blue Brands and other
Plans, the need for prompt compliance, the likelihood of serious
disruption or harm to the business of the Plan proposing the action plan
and regulatory constraints, together with any other relevant factors.
Once submitted to BCBSA, the action plan shall be presented to
the PPFSC no later than at its next regular meeting (1) in which
a quorum is present to take action, and (2) for which the action
plan was received by BCBSA not less than five business days
prior to the agenda mailing. The Plan shall have the right to
appear at such meeting, to answer any questions from Committee
members, and to make a presentation to the PPFSC in support of
its action plan. The PPFSC may exclude the Plan, however, from
its deliberations. If the PPFSC requests more information from
the Plan, the PPFSC may exercise its reasonable discretion and
extend accordingly the time within which the Plan must comply.
If the PPFSC disapproves the action plan, the Committee will
inform the Plan in writing of its decision, including the basis
for the disapproval, and inform the Plan of its right to file an
amended action plan. The Plan shall have at least one
opportunity to submit an amended action plan. In the event the
PPFSC disapproves the amended action plan, the PPFSC may, in its
sole discretion permit the Plan to file further amended action
plans. Any such amended action plan must be submitted to BCBSA
within 60 days from the date of disapproval of the previously
submitted action plan. The first such amended action plan shall
be subject to the
requirements stated in the second sentence of this subparagraph.
	 
	 	2.10b(ii)	 	If the Plan’s action plan (or amended action plan) is approved
by the PPFSC, the Plan is required to submit, on a quarterly basis,
written status updates to BCBSA that document the Plan’s progress towards
compliance with the approved action plan (or amended action plan). The
PPFSC may withdraw approval of a Plan’s action plan (or amended action plan) if the PPFSC
determines that the Plan is not making sufficient progress
towards compliance with the milestones or schedules described

41

 

Standard 10: Local and National Best Efforts, continued

in the action plan, as evidenced
by the Plan’s quarterly written status updates. Upon the withdrawal of the Committee’s approval of
the Plan’s action plan (or amended action plan), the Committee will notify the Plan in writing,
including the basis for the withdrawal of approval. If the withdrawal of approval is for the Plan’s
original action plan, the Plan shall have at least one opportunity to submit an amended action plan
as provided in paragraph 2.10b(i). If the withdrawal of approval is for an amended action plan, the
Committee may in its sole discretion permit the Plan to file further amended action plans.

	 	2.11	 	Once the PPFSC has approved an action plan (or amended action plan), the approved
compliance period may not be extended beyond the 12 or 24 month periods as specified in
2.6b, 2.7b, 2.8b, 2.9b and 2.10b, except on meeting all of the following conditions:

	 	2.11a	 	The Plan must submit a request to extend the compliance period prior to the expiration of
the previously approved compliance period;
	 
	 	2.11b	 	The Plan must demonstrate to the PPFSC that it made a good faith effort to achieve the action plan (or amended action plan), and
that additional time is needed due to circumstances beyond its control; and
	 
	 	2.11c	 	The amended compliance period must be approved by the PPFSC, such approval not to be
unreasonably withheld.

	 	2.12	 	In the event that the PPFSC disapproves a Plan’s action plan (or amended action plan)
pursuant to 2.6b(i), 2.7b(i), 2.8b(i), 2.9b(i) and 2.10b(i) or extension of the compliance
period pursuant to 2.11, or withdraws its approval of an action plan pursuant to 2.6b(ii),
2.7b(ii), 2.8b(ii), 2.9b(ii) and 2.10b(ii), the Plan shall have the right to appeal the
decision to the BCBSA Board of Directors. The Plan must request such an appeal prior to either one of the next two meetings
of the Board of Directors that take place after the PPFSC’s decision to disapprove
or withdraw its approval. Nothing contained herein shall be construed that the Plan
does not have appeal rights with respect to decisions made by the PPFSC regarding
compliance with other Standards or their associated guidelines.

 

			
	*	 	Combined Local Net Revenue shall have the meaning ascribed to it in Attachment VI to these
Guidelines.
	 
	**	 	Combined National Net Revenue shall have the meaning ascribed to it in Attachment VI to these
Guidelines.
	 
	***	 	Combined National Enrollment shall have the meaning ascribed to it in Attachment VI to these
Guidelines.

42

 

Standard 11: Transactions Which May Impair the Value of the Marks and Name

The
Standard is:

Neither a Plan nor any Larger Controlled Affiliate shall cause or permit an entity other than
a Plan or a Licensed Controlled Affiliate thereof to obtain control of the Plan or Larger
Controlled Affiliate or to acquire a substantial portion of its assets related to licensable
services.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	The Plan shall be considered noncompliant upon a reduction in Combined Local Net
Revenue of the Plan and its Controlled Affiliates in any fiscal quarter in the Service Area
of fifty percent or more compared to such revenue in any fiscal quarter during the prior
thirty-six month period, due in whole or in part to the conveyance of assets, including
goodwill, to a party other than a Plan or Licensed Controlled Affiliate of a Plan which is
in compliance with all rules and regulations of BCBSA. Combined Local Net Revenue shall
have the meaning ascribed to it in Attachment VI to the Guidelines, except that, for
purposes of this section, Combined Local Net Revenue excludes delivery of health care
services; (such as hospital and medical (professional) services), and the sale of health
care products; stand-alone vision, mental, drug, dental, pharmacy management or other
specialty health care financing or administrative programs; workers’ compensation; and
stand-alone reinsurance and stand-alone stop loss insurance.
	 
	 	1.2	 	The Plan shall be considered noncompliant if, as a result of any transaction with an
entity or group other than Plans or Licensed Controlled Affiliates of Plans, the entity or
group or its owners or members obtain the ability to select a majority of the members of
the Board of Directors of the Plan or any of its Larger Controlled Affiliates or otherwise
gain control of the Plan or Larger Controlled Affiliate.
	 
	 	1.3	 	The Plan shall be considered noncompliant if an officer or other person who is among
the ten most highly compensated employees of a Plan or any of its Larger Controlled
Affiliates shall have a financial arrangement with any entity, other than a Plan or an
entity controlled by the Plan, which permits the entity to influence that person in the
discharge of his duties.
	 
	 	1.4	 	The Plan shall be considered noncompliant if the Plan or any of its Larger Controlled
Affiliates enter into an arrangement for the management of all or a portion of the
operations of the Plan or Larger Controlled Affiliate where the consideration to be paid
for such services exceeds 35% of that entity’s administrative expenditures for the fiscal
year with respect to which such services are rendered. Consideration includes payment from any source to an entity or
its Affiliates or Associates (as defined in paragraph 9.d(v)(a) of the

43

 

Standard 11: Transactions Which May Impair the Value of the Marks and Name, continued

License Agreement), other than a Plan or an entity controlled by a Plan, but shall exclude amounts
paid for claims processing and other clerical functions if no other management services are
provided by the same entity or its Affiliates or Associates.

	 	1.5	 	BCBSA may require the Plan or any of its Larger Controlled Affiliates to make full
disclosure to it of any proposed or completed transaction as BCBSA deems necessary to
ascertain compliance with this Standard, including purchase, lease, employment, consulting
or other financial arrangements between third parties and the Plan or its officers,
directors or members.
	 
	 	1.6	 	An unlicensed party seeking to obtain control over a Plan or Larger Controlled
Affiliate or to acquire a substantial portion of its assets is invited to apply to become a
licensee. To qualify for a grant or assignment of a license, the applicant must meet the
following criteria in addition to all other criteria established by BCBSA in the Bylaws,
License Agreement, Membership Standards and accompanying Guidelines:

	 	1.6a	 	The owners, directors, officers, and proposed management team of the applicant
must demonstrate that they possess the character and qualifications to operate the
business in a manner which will enhance the value of the Licensed Marks and Names.
	 
	 	1.6b	 	The applicant must submit a business plan based on realistically-attainable
objectives which indicate that it will operate its business in a manner which will
enhance the value of the Licensed Marks and Names.
	 
	 	1.6c	 	Upon licensure of the applicant, at least 66-2/3% of its consolidated gross
revenues attributable to Health Care Products and Services would be sold, marketed,
underwritten or administered under the Licensed Marks and Names, based on pro forma
consolidation of the applicant’s and the Plan’s most recently available financial
statements. Health Care Products and Services includes: i) health care plans and related services
as defined in the License Agreement; ii) the delivery of hospital
services, and medical (professional) services as defined in Attachment VI
of these Guidelines; and iii) health care products as defined in
Attachment VI of these Guidelines.
	 
	 	1.6d	 	The applicant must make a full disclosure to BCBSA of all of the terms of any
proposed transaction with a Plan or any of its Larger Controlled Affiliates
including purchase, lease, employment, consulting or other financial arrangements
with the Plan or any of its Larger Controlled Affiliates or its officers, directors
or members.

44

 

Standard 11: Transactions Which May Impair the Value of the Marks and Name, continued

	 	1.6e	 	The applicant, if licensed, would not immediately be in violation of any
provisions of the Bylaws, License Agreement, Membership Standards or accompanying
Guidelines and would not be immediately subject to monitoring under the Plan
Performance Response Process due to its financial status, based on its fiscal
quarter most recently ended.

An applicant seeking a grant or assignment of a license in connection with
transactions exclusively by or among Plans or their controlled affiliates,
including reorganizations, combinations or mergers, is not required to meet the
additional criteria set forth in bullet 1.6 where the BCBSA Board of Directors
determines that the transaction results in no material change of ownership or
control.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

45

 

Standard 12: Blue-Branded Provider Network Rental

The Standard is:

No provider network, or portion thereof, shall be rented or otherwise made available to a
National Competitor if the Licensed Marks or Names are used in any way with such network.

A provider network may be rented or otherwise made available, provided there is no use of the
Licensed Marks or Names with respect to the network being rented.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	A Plan shall be considered noncompliant if it or any Licensed Controlled Affiliate
directly or indirectly rents or otherwise makes available to a National Competitor a provider
network or any portion thereof with which such Plan or Licensed Controlled Affiliate is using
the Licensed Marks or Names.
	 
	 	2.2	 	A Plan shall be considered noncompliant if it or any Licensed Controlled Affiliate
directly or indirectly rents or otherwise makes available (through a provision in a provider
contract or otherwise) a provider network or portion thereof which uses the Licensed Marks or
Names to an unlicensed Affiliate or any entity that, in turn, rents or otherwise makes
available such network to a National Competitor, even if such Affiliate makes no other
reference to the Licensed Marks or Names.
	 
	 	2.3	 	Nothing herein shall prohibit an unlicensed Affiliate of a Plan from contracting
separately in its own name with any provider and renting or otherwise making available the
provider network created by such contracts to any person or entity, provided there is no
reference in or use of the Licensed Marks or Names in such contracts or elsewhere with respect
to the rented network.
	 
	 	2.4	 	“National Competitor,” for purposes of this Standard, is any non-Blue entity, other than a
subsidiary or affiliate of a Blue entity, together with its affiliated companies that:

	 	(a)	 	competes against the Blue System for Core Products and Services (as defined
in Brand Regulation 7.5); and
	 
	 	(b)	 	on a consolidated basis, would have less than 66 2/3% of its gross revenues
attributable to Core Products and Services (as defined in Brand Regulation 7.5)
sold, marketed, underwritten or administered under the Licensed Marks and
Names, if it were to acquire the mean-sized Plan (measured by consolidated gross revenues or such
other best-available similar financial information) licensed by Blue Cross

46

 

Standard 12: Blue-Branded Provider Network Rental, continued

and Blue Shield Association, based on pro forma consolidation of the
non-Blue entity’s and the mean-sized Plan’s most recently available
financial statements or other best-available financial information.

	 	(c)	 	in addition, an entity that would otherwise meet the definition of National
Competitor, as provided herein, if its revenues were converted to premium
equivalents, shall be considered a National Competitor. In the event there is
uncertainty about whether a non-Blue entity is a National Competitor, the
relevant Plan and/or Licensed Affiliate involved in or contemplating a network
rental arrangement shall provide Blue Cross and Blue Shield Association with
sufficient financial data so that a determination can be made.

	2.5	 	"[U]se of the Licensed Marks or Names,” “use of the Licensed Names and Marks,” “reference
to the Licensed Names and Marks,” and similar expressions, for purposes of this Guideline, is
any use of the Licensed Marks or Names in a provider network, including, but not limited to,
use of the Licensed Marks or Names in:

	 	(a)	 	contracts with providers in the network; or
	 
	 	(b)	 	communications with providers, subscribers, accounts or others that
refer or relate to the providers in the network or the network itself.

	2.6	 	“Affiliate,” for purposes of this Guideline, is defined in Section 9(d)(v) of the License
Agreements.
	 
	2.7	 	Nothing in this Standard or these Guidelines shall prevent the rental of any provider
network if the Licensed Marks and Names are not used in any way with that network.
	 
	2.8	 	Nothing in this Standard or these Guidelines shall prevent the rental of a provider
network to entities not meeting the definition of National Competitor, including but not
limited to unions or union welfare funds, governments or governmental entities.
	 
	2.9	 	If a Licensee or its Affiliate is engaged in an arrangement prohibited by this Standard
that was entered prior to the adoption of this Standard and these Guidelines, the Licensee
shall cause any such arrangement to terminate as soon as practicable, but in no event later
than the earlier of:

47

 

Standard 12: Blue-Branded Provider Network Rental, continued

	 	(a)	 	two years from the date of enactment of this Standard and these
Guidelines; or
	 
	 	(b)	 	expiration of the current term of any such arrangement or agreement.

Nothing in Guideline 2.9 shall be understood to require any Licensee to breach any
existing contractual obligation. If the Licensee fails to comply with this Guideline
2.9, it shall be considered noncompliant.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

48

 

Attachment I

Required Plan Performance Reports and Certifications Schedule 

Page 1 of 2

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	PERIOD	 	 	DUE DATE
	 	 	 	 	 	 	 
	A.

	 	BCBSA Membership Information Request (Triennial Review)
	 	 	Triennial(4)
	 	 	 	(1)	 
	 
	 	 	 	 	 	 	 	 	 	 
	B.

	 	Certifications:	 	 	 	 	 	 	 	 
	 

	 	Procedures having been adopted to enforce code of conduct, compliance
program, other standards of conduct and practices of corporate
governance (See Membership Standard 1)
	 	 	Triennial(4)
	 	 	 	(1)	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	By a qualified actuary of adequate accounting for unpaid claim liability
reserve (See Membership Standard 3)
	 	 	Annual
	 	 	 	5/1(3)	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Distribution of BCBSA Membership Compliance letter and attachments to
Plan Board members (See Membership Standard 1)
	 	 	Triennial(4)
	 	 	 	12/31	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	The Plan has made a determination that a majority of its Board members
are independent (See Membership Standard 1, Guideline 2.1c)
	 	 	Annual
	 	 	 	5/1	 
	 

	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 
	C.

	 	Service Mark and disclosure information (See Membership Standard 2 and 7)
	 	 	Biennial
	 	 	 	(1)	 
	 

	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 
	D.

	 	Changes in governance
	 	 	Ongoing
	 	 	 	(2)	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	E.

	 	Quarterly Financial Report	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	1st Qtr
	 	 	 	5/5	 
	-

	 	All financial statements and required schedules, except the reconciliation of
GAAP net worth to SAP net worth
	 	 	2nd Qtr

3rd Qtr

4th Qtr
	 	 	 	8/4

11/4

2/28	 
	 
	 	 	 	 	 	 	 	 	 	 
	-

	 	Starting first quarter, 2004 and quarterly thereafter, a reconciliation of GAAP
net worth to SAP net worth (only applicable to a risk-assuming licensee that
files its Quarterly Financial Report on a GAAP basis)
	 	 	1st Qtr

2nd Qtr

3rd Qtr

4th Qtr
	 	 	 	5/15

8/15

11/15

2/28	 
	 	 	 	 	 	 	 
	F.

	 	Semi-annual “Health Risk-Based Capital (HRBC) Report” as defined by the
NAIC.
	 	 	Annual filings
	 	 	 	3/15	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	Midyear filings
	 	 	 	8/15	 
	 	 	 	 	 	 	 
	G.

	 	Annual Financial Forecast
	 	 	Annual
	 	 	 	2/28	 
	 

	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 
	H.

	 	Annual Certified Audit Report
	 	 	Annual
	 	 	 	5/1(3)	 
	 

	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 
	I.

	 	Insurance Department Examination Report
	 	 	As completed by

your Insurance

Department
	 	 	Within 30

days of Plan

receipt of

final report

	 	 	 	 	 	 	 
	J.

	 	Annual Statement filed with State Insurance Department
	 	 	Annual
	 	 	 	5/1(3)	 
	 

	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 
	K.

	 	Plan, Subsidiary and Affiliate Report
	 	 	Annual
	 	 	 	5/1(3)	 
	 

	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 

49

 

Attachment I

Required Plan Performance Reports and Certifications Schedule

Page 2 of 2

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	PERIOD	 	 	DUE DATE
	 	 	 	 	 	 	 
	L.

	 	Quarterly Enrollment Report	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Expanded Medicare and Expat reporting introduced
	 	 	1st Qtr, 2006
	 	 	4/30
	 
	 	 	 	 	 	 	 	 
	 

	 	Expanded National Accounts and Ancillary Products reporting introduced
	 	 	2nd Qtr, 2006

3rd Qtr, 2006

4th Qtr, 2006

1st Qtr, 2007

2nd Qtr, 2007
	 	 	7/31

10/31

1/31

4/30

7/31
	 
	 	 	 	 	 	 	 	 
	 

	 	Expanded Consumer Driven Health Plan reporting introduced
	 	 	3rd Qtr, 2007

4th Qtr, 2007
	 	 	10/31

1/31
	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	PERIOD	 	 	DUE DATE
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Quarterly
MTM Direct Measures Report (including Geographic Market
reporting)

	 	 	3rd
Qtr. 2006

4th Qtr. 2006

1st Qtr. 2007

2nd Qtr. 2007

3rd Qtr. 2007

4th Qtr. 2007

1st Qtr. 2008
	 	 	 10/31

 1/31

 4/30

 7/31

 10/31

 1/31

 4/30
	 
	 	 	 	 	 	 	 	 
	Effective 1/1/2008 and quarterly thereafter, Quarterly MTM Direct Measures
Report, (including Geographic Market reporting), amended to include:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	-

	 	Expanded quarterly inquiry reporting (segregating self-service and manual)
to sunset on January 1, 2009 unless extended by the Board and Member
Plans.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Quarterly reporting will continue to be due on the last day of the month following
the quarter being reported.	 	 	 	 	 	 
	 	 	 	 	 	 	 

	1)	 	Plans may be required to respond to a Membership Information Request on an annual basis as
required under Membership Standard 1: Board of Directors

	2)	 	Due within 30 days of the decision to change,

	 	 	 	 	 	 	 
	 

	 	– Bylaws
	 	– Principal Officers
	 	 
	 

	 	– Articles of Incorporation
	 	– Board Composition	 	 

	3)	 	Extension up to June 1 only with prior agreement of BCBSA.
	 
	4)	 	Plans may be required to respond to a Membership Information Request on an annual basis as
required under Membership Standard 1: Board of Directors

50

 

Attachment II

SANCTION PROTOCOLS — REPORTS AND RECORDS

The following protocols have been established for late, inaccurate and/or non-reporting for
required reports as required under Standard 2:

	1.	 	BCBSA will initially work directly with Plans to resolve these situations.
	 
	2.	 	If chronic problem persists, a letter will be sent to the Plan CEO describing the situation.
	 
	3.	 	If no response or resolution, Committee requests meeting with Plan CEO.
	 
	4.	 	If necessary, the Committee and BCBSA Board would still have the option to move the Plan to
mediation/arbitration. (The Plan’s Board will be notified in the Triennial Compliance Letter
of chronic late, inaccurate and/or non-reporting if Mediation/Arbitration is approved by BCBSA
Board of Directors.)

51

 

Attachment III

GUARANTY ASSOCIATION ALTERNATIVES & EVALUATION CRITERIA

Page 1 of 3

Each licensed Plan is required to:

	1.	 	Participate in the guaranty fund in each state in which it operates; OR
	 
	2.	 	Establish another method approved by BCBSA which assures the payment of claim liabilities and
continuation of coverage in the event of a licensee’s insolvency.

The following outlines several alternative mechanisms that the Plan Performance and Financial
Standards Committee (Committee) have found to be acceptable and the evaluation criteria the
Committee will use to evaluate a licensee’s proposed alternative mechanism. Please note that this
list is not exhaustive, licensees are welcome to propose other mechanisms they believe will fulfill
the requirement and that meet the evaluation criteria

PAYMENT OF CLAIM LIABILITIES — ALTERNATIVE MECHANISMS

The following potential alternatives to participation in a state guaranty association that ensure
payment of claim liabilities have been identified. More than one mechanism can be used to achieve
compliance with the requirement.

	•	 	Hold Harmless Agreement — Providers, by contract or statute, are prohibited from
pursing subscribers for payment of outstanding claims in the event the licensee
becomes insolvent. Provisions must be made by the licensee to fund claim payments due
to providers and subscribers not covered by the hold harmless provisions.

	•	 	Voluntary inter-licensee arrangements — insurance or reinsurance agreements among
a consortium of licensees that have sufficient financial resources to meet the
commitments of the consortium and maintain compliance with the applicable license
agreements. Must be acceptable to state regulators.

	•	 	Reinsurance or a financial pledge — insurance or reinsurance agreements or pledge
of financial resources from a third party that has sufficient financial resources to
meet the commitments. Must be acceptable to state regulators.

52

 

Attachment III

GUARANTY ASSOCIATION ALTERNATIVES & EVALUATION CRITERIA

Page 2 of 3

	•	 	Subscriber Protection Account — establishment of a custodial account consisting of
cash and/or high-grade marketable securities in amount to cover insurance obligations
of licensee. Based on the SAFE-T Account concept developed by State Farm, the licensee
would, with the agreement of the insurance department, continue to admit the
securities as assets of the corporation and would have the ability to trade the
securities as long as the value of the custodial account was equal to the
predetermined requirement. Also necessary is a written agreement with the appropriate
regulators indicating that the custodial account would be used in the case of
insolvency to fund the licensee’s claim liabilities. Only when all claims have been
paid, could the account’s assets be used for other liquidation expenses.

PAYMENT OF CLAIM LIABILITIES — EVALUATION CRITERIA

To determine if an alternative mechanism (or mechanisms) is acceptable the Committee will use
the following criteria to evaluate the proposal.

	1.	 	The proposal must guarantee all of the licensee’s insured business (branded and unbranded)
in all jurisdictions in which it is licensed to do business. The mechanism does not need to
include FEP subscribers.
	 
	2.	 	The mechanisms are acceptable to all applicable regulators.
	 
	3.	 	The amount of required coverage is at least equal to the:

Unpaid claim liability of the fully underwritten book of business; AND

2% of net
subscription revenue of ASC/Cost Plus/AFA products; AND

the related loss adjustment reserve
for the above two classifications.

	4.	 	The amount of proposed coverage must be annually certified by an actuary that it is a “good
and sufficient provision” for the stated obligation. If the Plan is included in the Plan
Performance Response Process, the certification must be made by an independent, qualified
actuary.

	5.	 	Provisions must be made for the sufficiency of the coverage to be reviewed, and, if
necessary, adjusted at least annually. If the Plan is included in the Plan Performance
Response Process, the review and necessary adjustments will be required on a more frequent
basis.

53

 

Attachment III

GUARANTY ASSOCIATION ALTERNATIVES & EVALUATION CRITERIA

Page 3 of 3

CONTINUATION OF COVERAGE — ALTERNATIVE MECHANISMS

The following potential alternatives to participation in a state guaranty association that ensure
continuation of coverage have been identified. More than one mechanism can be used to achieve
compliance with the requirement.

	•	 	Voluntary inter-licensee arrangements — agreements among 2 or more licensees that
have sufficient financial resources to meet the commitments to continue coverage and
maintain compliance with the applicable license agreements. Must be acceptable to
state regulators.

	•	 	Reinsurance — insurance or reinsurance agreements from a third party that has
sufficient financial resources to meet the commitments. Must be acceptable to state
regulators.

CONTINUATION OF COVERAGE — EVALUATION CRITERIA

To determine if an alternative mechanism (or mechanisms) is acceptable, the Committee will use
the following criteria to evaluate the proposal.

	•	 	Length of time coverage continuation is available — coverage continues from the
date of a BCBSA Member Plan vote to terminate license(s) or resignation, for a period
at least as long as the continuation of coverage period provided by the guaranty fund
statute in the Plan’s state.

	•	 	Who is offered continuation of coverage — all insured subscribers, excluding FEP
subscribers.

	•	 	What level of benefits must be offered — at least as high as would be offered if
the Plan participated in its state guaranty fund.

54

 

Attachment IV

Service Performance Scorecard and MTM Index

Page 1 of 4

The following Service Performance Scorecard data will be collected, reported and monitored for each
Geographic Market and on an enterprise basis except that the enterprise report shall not include
the Geographic Market as defined in section (c) of Footnote 2 to the Guidelines to Administer
Regular Member Standard 4: (1) then current MTM Direct Measures (refer to Table B) (2) then current
BlueCard Measures and (3) then current FEP Measures. Primary Licensees will collect the Service
Performance Scorecard data for itself and all licensed affiliates with branded health business and
report the data to BCBSA, who will roll-up data and calculate an enterprise and geographic market
score.

The MTM, BlueCard, and FEP programs will continue to administer their own programs according to
their procedures and guidelines.

Definitions:

Weighted Market Total: The composite service performance score of MTM, BlueCard, and FEP for a
Geographic Market.

Enterprise Total: The composite service performance score of MTM, BlueCard, and FEP for an
enterprise.

Service Performance Scorecard

The Service Performance Scorecard combines the MTM Direct Measures program scores with the BlueCard
and FEP program scores. In the Service Performance Scorecard, the Enterprise Total is a composite
score of MTM, BlueCard, and FEP service performance indicators. Table A shows an explicit example
of the calculation.

The first part of the calculation is to combine the scores for MTM and BlueCard into a non-FEP
score.

	1.	 	Split the MTM raw score into two components: the claim timeliness points and the all other
points (Refer to Lines 1, 2, and 3 of Table A).
	 
	2.	 	Combine the MTM and BlueCard claims timeliness points by:

	 	a.	 	Multiplying the MTM claims timeliness raw points by the non-BlueCard percent of total claims
(BlueCard and non-BlueCard) to compute a MTM weighted claims timeliness score (refer to Line 6
of Table A).
	 
	 	b.	 	Converting BlueCard raw score to MTM points by multiplying the BlueCard raw score by the MTM
claim timeliness score and dividing by 100 (refer to Lines 1 and 2 of Table A).

55

 

Attachment IV

Service Performance Scorecard and MTM Index

Page 2 of 4

	 	c.	 	Multiplying the converted BlueCard score by the BlueCard percent of total claims (BlueCard
and non-BlueCard) to compute a BlueCard Weighted Claims Timeliness Score (Refer to Line 6 of
Table A).
	 
	 	d.	 	Adding the MTM weighted claims timeliness score to the BlueCard weighted claims timeliness
score to compute a Total Claims Timeliness points (Refer to Line 7 of Table A).

	3.	 	Adding the MTM raw points (excluding the claims timeliness raw points) to the Total Claims
Timeliness points (Refer to Line 8 of Table A) to compute a Non-FEP raw score.

The second part of the calculation is to combine the FEP raw score with the non-FEP calculated
score by:

	1.	 	Multiplying the FEP raw program score by the percent of total membership (FEP and non-FEP) to
compute a Weighted FEP Score (Refer to Line 11 of Table A)

	2.	 	Multiplying the Non-FEP score by the percent of total membership (FEP and non-FEP) to compute
a Weighted MTM and BlueCard Score (Refer to Line 12 of Table A)

	3.	 	Add the Weighted FEP Score to the Weighted MTM and BlueCard Score to compute the Weighted
Program/Market Total (Refer to Line 13 of Table A)

56

 

Attachment IV

Service Performance Scorecard and MTM Index

Page 3 of 4

Table A

Sample Computation

	 	 	 
	Weight Market Total Score

	 	Period: 2nd Quarter YTD 2001
	 
	 	 
	Plan Name: Blue Cross Blue Shield of Geography
	 	 
	 
	 	 

Combine MTM and BlueCard raw scores using claim volume:

	 	 	 	 	 	 	 
	 	 	 	 	MTM	 	BlueCard
	1.
	 	Individual Raw Program Score	 	97.1	 	95.51
	2.
	 	Claims Timelines (C/T)	 	11 out of 11 Points	 	.9551 x 11 = 10.51 points
	 
	 	 	 	 	 	(converted to MTM score)
	3.
	 	MTM minus C/T	 	97.1 - 11 = 86.10	 	 
	4.
	 	Total Claims	 	3,074,239	 	116,352
	5.
	 	% of Claims	 	96%	 	4%
	6.
	 	Weighted C/T	 	11 x 96% = 10.56	 	10.51 x 4% = .4204

	 	 	 	 	 	 	 
	7.
	 	Combined MTM & BC Claim Timelines Points	 	10.56 + .4204 = 10.98	 	 
	8.
	 	Combined MTM and BlueCard Score	 	86.10 + 10.98 = 97.08	 	 

Combine MTM and BlueCard score with the FEP raw score using membership counts:

	 	 	 	 	 	 	 
	 	 	 	 	FEP	 	Non-FEP
	9.
	 	Membership	 	49,663	 	612,200
	10.
	 	Membership %	 	8%	 	92%

	 	 	 	 	 	 	 
	11.
	 	Weighted FEP Score	 	95 x 8% = 7.6	 	 
	12.
	 	Weighted MTM and BlueCard Score	 	97.08 x 92% = 89.31	 	 
	13.
	 	Weighted Total Market Score	 	7.6 + 89.31 = 96.92	 	 

57

 

Attachment IV

Service Performance Scorecard and MTM Index

Page 4 of 4

Table B

MTM Index

The following table illustrates the MTM direct measures, performance ranges and index points
allocated for each measure. MTM Index scores range from 0 to 100, with 0 being the worst possible
score and 100 representing a perfect score. Points are earned linearly throughout the ranges.

MTM Index (effective until 12/31/06)

	 	 	 	 	 	 	 	 	 
	 	 	Performance	 	Index
	Current Measures	 	Ranges	 	Points
	Enrollment Timeliness
	 	 	60-99	%	 	 	9	 
	Enrollment Member-Level Accuracy
	 	 	92-99	%	 	 	5	 
	Enrollment Group-Level Accuracy
	 	 	92-99	%	 	 	5	 
	Claims Timeliness
	 	 	70-97	%	 	 	11	 
	Claims Frequency Accuracy
	 	 	90-97	%	 	 	15	 
	Claims Dollar Accuracy
	 	 	90-99	%	 	 	15	 
	Inquiry Timeliness
	 	 	60-90	%	 	 	8	 
	Inquiry Accuracy
	 	 	83-99	%	 	 	24	 
	Blockage Rate
	 	 	 	 	 	 	 	 
	Method 1:
	 	 	16-8	%	 	 	4	 
	Method 2:
	 	 	5-2	%	 	 	 	 
	Abandoned Rate
	 	 	15-5	%	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	Total MTM Index Score
	 	 	 	 	 	 	100	 
	 
	 	 	 	 	 	 	 	 

MTM Index (effective 1/1/07)

	 	 	 	 	 	 	 	 	 
	 	 	Performance	 	Index
	Current Measures	 	Ranges	 	Points
	Enrollment Timeliness
	 	 	90-99	%	 	 	10	 
	Enrollment Member-Level Accuracy
	 	 	95-99	%	 	 	10	 
	Enrollment Group-Level Accuracy
	 	 	95-99	%	 	 	10	 
	Claims Timeliness
	 	 	85-97	%	 	 	10	 
	Claims Processing Accuracy
	 	 	93-97	%	 	 	13	 
	Claims Financial Accuracy
	 	 	93-99	%	 	 	13	 
	Inquiry Timeliness
	 	 	85-95	%	 	 	10	 
	Inquiry Accuracy
	 	 	89-99	%	 	 	16	 
	Blockage Rate
	 	 	 	 	 	 	 	 
	Method 1:
	 	 	5-3	%	 	 	4	 
	Method 2:
	 	 	5-2	%	 	 	 	 
	Abandoned Rate
	 	 	8-5	%	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	Total MTM Index Score
	 	 	 	 	 	 	100	 
	 
	 	 	 	 	 	 	 	 

58

 

Attachment V

Clarification of Requirements for Licensees’ Annual Actuarial Certification

Page 1 of 2

The requirements applicable to the annual actuarial certification depend on the Licensee’s HRBC
ratio as of the valuation date, i.e., the requirements for the 12/31/200X certification depend
on the 12/31/200XHRBC ratio.

Requirements for Licensees Whose Year-end (12/31) HRBC Ratio is Above 375%

	1.	 	If the Licensee is required to submit an annual statutory actuarial certification to its
domiciliary regulatory authority, then that certification can be used to satisfy BCBSA’s
requirement, so long as it contains an explicit statement to the effect that it is intended to
be relied upon by the Blue Cross Blue Shield Association.

	2.	 	If the Licensee is not required to submit an annual statutory actuarial certification to its
domiciliary regulatory authority, then it must submit an annual certification to BCBSA that
complies with the requirements delineated below that apply to a Licensee having an HRBC ratio
below 375%, but with one key exception: here the certification may be issued by any qualified
actuary (as defined below), which might include an employee of the Licensee or one of its
affiliates.

	3.	 	The annual certification is to be submitted to the Blue Cross Blue Shield Association by May
1 together with a copy of the (NAIC) Annual Statement.

Requirements for Licensees Whose Year-end (12/31) HRBC Ratio is Below 375%

	1.	 	The annual certification must be issued by a qualified, independent, actuary.

	 	a)	 	“Qualified”
means that the actuary is a member in good standing of the American Academy of Actuaries and
meets its Specific Qualification Standard for the Actuarial Certification in the NAIC Health
Annual Statement.
	 
	 	b)	 	An actuary’s degree of “independence” from the entity about which he/she is opining is left
up to his/her professional judgment, except that the following are not considered independent:

	 	i)	 	any current employee, or retiree, of that entity or any of its affiliates;
	 
	 	ii)	 	any
consulting actuary acting in an interim staff capacity with that entity or any of its
affiliates.

	2.	 	The annual certification must substantially comply with the standards prescribed in the
Actuarial Certification section of the NAIC Annual Statement Instructions applicable to HMDI
companies. For the 12/31/2000 certification, the 1999 HMDI Instructions shall govern;
subsequently, the 200X Health Instructions shall set the standards applicable to the
12/31/200X certification.

	3.	 	The annual certification should contain an explicit statement that it was prepared for, and
may be relied upon by, the Blue Cross Blue Shield Association.

59

 

Attachment V

Clarification of Requirements for Licensees’ Annual Actuarial Certification

Page 2 of 2

	4.	 	The annual certification is to be submitted to the Blue Cross Blue Shield Association by May
1 together with a copy of the (NAIC) Annual Statement and a copy of the statutory opinion, if
different from the independent opinion.

60

 

ATTACHMENT VI

Definition of “Local Net Revenue,” “Combined Local Net Revenue,” “National Net Revenue,”
“Combined National Net Revenue,” and “Combined National Enrollment”

Page 1 of 4

I. Local Revenues

The following definitions are used in determining compliance with Membership Standards 10,
Guideline 2.1 and Standard 11. For the purposes of Standard 10, Guideline 2.1 and Standard 11, only
revenues attributable to health care plans and related services offered within the designated
service area are to be included in the calculations. For purposes of the definition of Combined
Local Net Revenue applicable to Membership Standard 10, Guideline 2.1 only, revenues attributable
to health care plans and related services includes revenues attributable to the delivery of
hospital services and medical (professional) services and the sale of health care products.

“Local Net Revenue” for Risk Assuming entities is defined as:

	 	 	 
	The sum of Branded
and
Unbranded:

	 	•  Revenue for all Health Insurance Premiums for all lines of business, as listed in the
BCBSA Quarterly Financial Report

	 
	 	 
	 

	 	•  Revenue from delivery of hospital services

	 
	 	 
	 

	 	•  Revenue from the sale of health care products

	 
	 	 
	 

	 	•  Revenue from delivery of medical (professional) services

	 
	 	 
	 

	 	•  Administrative Service Contract (ASC) Premium Equivalents

	 
	 	 
	 

	 	•  Administrative Service Only (ASO) Premium Equivalents

	 
	 	 
	 

	 	•  Ceded health premium under reinsurance agreements

	 
	 	 
	 

	 	•  All other health revenue, as listed in the BCBSA Quarterly Financial Report

	 
	 	 
	Less:

	 	•  Revenue for out-of-service-area national account contracts

	 
	 	 
	 

	 	•  Revenue for out-of-service-area FEP contracts

	 
	 	 
	 

	 	•  Assumed health premium under reinsurance arrangements

	 
	 	 
	Adjusted for:

	 	•  Inter-company eliminations

“Local Net Revenue” for Non-Risk Assuming entities is defined as:

	 	 	 
	The sum of Branded
and Unbranded:

	 	•  Administrative Service Only (ASO) Premium Equivalents

	 
	 	 
	 

	 	•  Administrative Service Contract (ASC)

Premium Equivalents

	 
	 	 
	 

	 	•  All other health revenue, as listed in the BCBSA Quarterly Financial Report

	 
	 	 
	Adjusted for:

	 	•  Inter-company eliminations

61

 

ATTACHMENT VI

Definition of “Local Net Revenue,” “Combined Local Net Revenue,” “National Net Revenue,”
“Combined National Net Revenue,” and “Combined National Enrollment”

Page 2 of 4

“Combined Local Net Revenue” is defined as:

The sum of the Local Net Revenues1 of the entities and products/services
included in the applicable computation. For purposes of compliance with Membership Standard 10, Guideline 2.1
only, Combined Local Net Revenue includes the foregoing plus the sum of the revenues from hospital
services and medical (professional) services and sale of health care products2 of the
Plan and its Affiliates3

 

			
	1	 	Excludes revenue from Medicare, Medicaid, and CHAMPUS fiscal intermediary
contracts and from CHAMPUS risk contracts where the Plan demonstrates to the satisfaction of
BCBSA that government regulations practically prevent the use of the Marks.
	 
	2	 	The term “hospital services” shall be interpreted broadly and shall include, without
limitation, any services or products provided by a hospital. “Hospital” means (A) an
institution that is engaged in providing, by or under the supervision of physicians, to
inpatients, (i) diagnostic services and therapeutic services for medical diagnosis, treatment,
and care of injured, disabled, or sick persons, or (ii) rehabilitation services for the
rehabilitation of injured, disabled, or sick persons; or (B) any facility or institution
engaged in the delivery of health care services that is located within or adjacent to, or is
an Affiliate3 of, an institution described in (A) The term “health care products”
shall be interpreted broadly and shall include, without limitation, tangible health-related
goods, other than health care services, for which a Plan provides or administers reimbursement
on behalf of subscribers, including but not limited to, pharmaceuticals, biologics, and
medical equipment or devices. The term “medical (professional) services” shall be interpreted
broadly and shall include, without limitation, services provided by a physician or other
professional healthcare provider to identify and treat a member’s illness or injury, which are
consistent with the symptoms, diagnosis, and treatment of the member’s condition, in
accordance with the standards of good medical practice.
	 
	3	 	“Affiliate” as used in this Attachment shall have the meaning ascribed to that term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 in
effect as of January 1, 1999.

62

 

ATTACHMENT VI

Definition of “Local Net Revenue,” “Combined Local Net Revenue,” “National Net Revenue,” “Combined
National Net Revenue,” and “Combined National Enrollment”

Page 3 of 4

II. National Revenues and/or National Enrollment

The following definitions are used in determining compliance with Membership Standard 10, Guideline
2.2. For purposes of Standard 10, Guideline 2.2 only, revenues or member enrollment attributable to
health care plans and related services offered within the United States and Puerto Rico are to be
included in the calculation. For purposes of the definition of Combined National Net Revenue
applicable to Membership Standard 10, Guideline 2.2 only, revenues attributable to health care
plans and related services includes revenues attributable to the delivery of hospital services and
medical (professional) services and the sale of health care products.

“National Net Revenue” for Risk Assuming entities is defined as:

	 	 	 
	The sum of Branded
and Unbranded:

	 	•  Revenue for all Health Insurance Premiums for all lines of business as listed in the
BCBSA Quarterly Financial Report

	 
	 	 
	 

	 	•  Revenue from delivery of hospital services

	 
	 	 
	 

	 	•  Revenue from the sale of health care products

	 
	 	 
	 

	 	•  Revenue from delivery of medical (professional) services

	 
	 	 
	 

	 	•  Administrative Service Contract (ASC) Premium Equivalents

	 
	 	 
	 

	 	•  Administrative Service Only (ASO) Premium Equivalents

	 
	 	 
	 

	 	•  Ceded health premium under reinsurance agreements

	 
	 	 
	 

	 	•  All other health revenue as listed in the BCBSA Quarterly Financial Report

	 
	 	 
	Less:

	 	•  Assumed health premium under reinsurance arrangements

	 
	 	 
	Adjusted for:

	 	•  Inter-company eliminations

“National Net Revenue” for Non-Risk Assuming entities is defined as:

	 	 	 
	The sum of Branded
and Unbranded:

	 	•  Administrative Service Only (ASO) Premium Equivalents

	 
	 	 
	 

	 	•  Administrative Service Contract (ASC) Premium Equivalents

	 
	 	 
	 

	 	•  All other health revenue as listed in the BCBSA Quarterly Financial Report

	 
	 	 
	Adjusted for:

	 	•  Inter-company eliminations

63

 

ATTACHMENT VI

Definition of “Local Net Revenue,” “Combined Local Net Revenue,” “National Net Revenue,” “Combined

National Net Revenue,” and “Combined National Enrollment"

Page 4 of 4

“Combined National Net Revenue” is defined as:

The sum of the National Net Revenues1 of the entities and products/services included in
the applicable computation. For purposes of compliance with Membership Standard 10 only, Combined
National Net Revenue includes the foregoing plus the sum of the revenues from hospital services and
medical (professional) services and sale of health care products2 of the Plan and its
Affiliates.3

“Combined National Enrollment” is defined as:

	 	 	 	 	 
	The sum of Branded
and
Unbranded:

	 	•
	 	Administrative Service Only (ASO) Members
	 
	 	 	 	 
	 

	 	•
	 	Administrative Service Contract (ASC) Members
	 
	 	 	 	 
	 

	 	•
	 	All other health membership as listed in
the BCBSA Quarterly Enrollment Report.

For purposes of compliance with Membership Standard 10 only, Combined National Enrollment of the
Plan and its Affiliates3 excludes membership from Medicare, Medicaid and CHAMPUS fiscal
intermediary contracts and from CHAMPUS risk contracts where the Plan demonstrates to the
satisfaction of BCBSA that government regulations practically prevent the use of the Marks.

 

			
	1	 	Excludes revenue from Medicare, Medicaid and CHAMPUS fiscal intermediary
contracts and from CHAMPUS risk contracts where the Plan demonstrates to the satisfaction of
BCBSA that government regulations practically prevent the use of the Marks.
	 
	2	 	The term “Hospital Services” shall be interpreted broadly and shall include, without
limitation, any services or products provided by a hospital. “Hospital” means (A) an
institution that is engaged in providing, by or under the supervision of physicians, to
inpatients, (i) diagnostic services and therapeutic services for medical diagnosis, treatment,
and care of injured, disabled, or sick persons, or (ii) rehabilitation services for the
rehabilitation of injured, disabled, or sick persons; or (B) any facility or institution
engaged in the delivery of health care services that is located within or adjacent to, or is
an Affiliate3 of, an institution described in (A). The term “health care products”
shall be interpreted broadly and shall include, without limitation, tangible health-related
goods, other than health care services, for which a Plan provides or administers reimbursement
on behalf of subscribers, including but not limited to, pharmaceuticals, biologics, and
medical equipment or devices. The term “medical (professional) services” shall be
interpreted broadly and shall include, without limitation, services provided by a physician
or other professional healthcare provider to identify and treat a member’s illness or
injury, which are consistent with the symptoms, diagnosis, and treatment of the member’s
condition, in accordance with the standards of good medical practice.
	 
	3	 	“Affiliate” as used in this Attachment shall have the meaning ascribed to that term in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 in
effect as of January 1, 1999.

64

 

Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

BUSINESS ASSOCIATE AGREEMENT 
FOR BLUE CROSS AND BLUE SHIELD LICENSEES

This agreement (“Agreement”) is effective as of April 14, 2003, and amended as of April 20, 2005.

The parties to this Agreement (individually, a “Party,” and collectively, the “Parties”) are the
Blue Cross and Blue Shield Association (“BCBSA”) and each of its independent licensees that is a
party to a Blue Cross and/or Blue Shield License Agreement (“Licensees”). Licensees are authorized
to use the names and service marks of BCBSA in a designated service area (“Service Area”). The
Parties enter into this Agreement in order to comply with the requirements of Subtitle F of Title
II of the Health Insurance Portability and Accountability Act of 1996 and its implementing
regulations (45 F.R.Parts 160-164) (the “HIPAA Rules”) and applicable state statutes and/or
regulations implementing Title V of the Gramm-Leach-Bliley Act (15 U.S.C. § 6801 et seq.) (“GLB
Regulations”). Capitalized terms not defined herein have the meaning set forth in the HIPAA Rules
and the GLB Regulations.

The Parties obtain, create, and exchange Protected Health Information and Nonpublic Personal
Financial Information for a variety of purposes pursuant to a variety of agreements. This Agreement
controls the Use and Disclosure of all Protected Health Information and Nonpublic Personal
Financial Information in a Party’s possession or control as a result of the Party acting as a
Business Associate of a Covered Entity or agent or subcontractor (“Subcontractor”) of a Business
Associate pursuant to the agreements listed in Schedule A (the “Scheduled Agreements”). Scheduled Agreements include the program policies adopted by the BCBSA Board of Directors pursuant to the
BCBSA License Agreement.

This Agreement is designed to address each Party’s obligations under the Administrative
Simplification provisions of HIPAA, the HIPAA Rules, and GLB Regulations in a number of roles that
a Party may play pursuant to the Scheduled Agreements. A Licensee may act as the Business Associate
of another Licensee, including as a Health Care Clearinghouse. A Licensee may act as Subcontractor
of another Party that acts as a Business Associate for another Covered Entity, such as a
self-insured Group Health Plan. BCBSA may act as a Business Associate of a Licensee or as a
Subcontractor of a Licensee that acts as a Business Associate for another Covered Entity, such as a
self-insured Group Health Plan.

A Party to this Agreement may Use or Disclose Protected Health Information it obtains when acting
as a Business Associate of a Covered Entity or a
Subcontractor of a Business Associate pursuant to a Scheduled Agreement only as permitted by this
Agreement and not prohibited by the Scheduled Agreement.

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Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 2 of 22

	A.	 	Privacy and Security of Protected Health Information.

1. Permitted Uses and Disclosures. When a Party acts as Business
Associate or Subcontractor to another Party, the Party will not Use or Disclose Protected
Health Information it creates or received pursuant to a Scheduled Agreement except as
allowed or required by the Scheduled Agreement. A Party acting in such capacity is further
limited to those Uses and Disclosures of Protected Health Information Required By Law and
as follows:

a) Party as Business Associate. To the extent permitted by the Scheduled Agreement,
a Party acting as Business Associate to another Party may Use or Disclose the
minimum necessary Protected Health Information for the Payment activities and
Health Care Operations of the other Party and for the Health Care Operations of any
Organized Health Care Arrangement in which the other Party is a participant. To the
extent permitted by the Scheduled Agreement, a Party acting as Business Associate
of another Party may Disclose (i) to a Health Care Provider, the Protected Health
Information requested by such Health Care Provider for the Treatment activities of
such Health Care Provider, (ii) to a Health Care Provider or to another Covered
Entity, the minimum necessary Protected Health Information for the Payment
activities of such Health Care Provider or Covered Entity, and (iii) to another
Covered Entity, the Protected Health Information of Individuals with whom both the
recipient and the other Party have or had a relationship, provided that (x) the
Protected Health Information Disclosed pertains to that relationship and (y) the
Disclosure is for Health Care Operations of the recipient that are allowed by 45
C.F.R. § 164.506(c)(4). Unless prohibited by the Scheduled Agreement, a Party
acting as Business Associate of another Party may Use or Disclose the minimum
necessary (as applicable) Protected Health Information for other reasons permitted
by the HIPAA Rules, including for purposes described in Section A.2 of this
Agreement. If the Covered Entity that Party serves as Business Associate is a
Health Care Provider, Party may Use or Disclose Protected Health Information for
that HealthCare Provider’s Treatment activities if the Scheduled Agreement permits
such Uses and Disclosures.

b) Party as Subcontractor. To the extent permitted by the Scheduled Agreement, a
Party acting as Subcontractor to another
Party acting as Business Associate of a Covered Entity, may Use or Disclose the
minimum necessary Protected Health Information for the Payment activities and
Health Care Operations of that Covered Entity and for the Health Care Operations of
any Organized Health Care Arrangement in which that Covered Entity is a
participant. To the extent permitted by the

66

 

Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 3 of 22

Scheduled Agreement, a Party acting as Subcontractor of another Party acting as
Business Associate of a Covered Entity may Disclose (i) to a Health Care Provider,
the Protected Health Information requested by such Health Care Provider for the
Treatment activities of such Health Care Provider, (ii) to a Health Care Provider
or to another Covered Entity, the minimum necessary Protected Health Information
for the Payment activities of such Health Care Provider or Covered Entity, and
(iii) to another Covered Entity, the Protected Health Information of Individuals
with whom both the recipient and the Covered Entity that the Business Associate,
for which the Party acts as Subcontractor, serves have or had a relationship,
provided that (x) the Protected Health Information Disclosed pertains to that
relationship and (y) the Disclosure is for Health Care Operations of the recipient
that are allowed by 45 C.F.R. § 164.506(c)(4). Unless prohibited by the Scheduled Agreement, a Party acting as
Subcontractor to another Party acting as Business Associate of Covered Entity may
Use and Disclose the minimum necessary (as applicable) Protected Health Information
for other reasons permitted by the HIPAA Rules including for purposes described in
Section A.2 of this Agreement. If the Covered Entity that contracts with the
Business Associate that Party serves is a Health Care Provider, Party may Use or
Disclose Protected Health Information for that Health Care Provider’s Treatment
activities if the Scheduled Agreement permits such Uses and Disclosures.

2. Other Permitted Uses and Disclosures.

a) Party’s Operations. A Party acting as Business Associate or Subcontractor to
another Party may Use the minimum amount of Protected Health Information it creates
or receives pursuant to a Scheduled Agreement as necessary for Party’s proper
management and administration or to carry out Party’s legal responsibilities,
unless that Scheduled Agreement prohibits such Uses. A Party acting as Business
Associate or Subcontractor may, unless prohibited by the Scheduled Agreement,
Disclose such Protected Health Information as necessary for Party’s proper
management and administration or to carry out Party’s legal responsibilities only
if Party obtains reasonable assurance, evidenced in writing, from any person or
organization to which Party will Disclose such Protected Health Information that
the person or organization will:

(i) Hold such Protected Health Information in confidence and Use or
further Disclose it only for the purpose for which Party Disclosed it to
the person or organization or as Required By Law; and

67

 

Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 4 of 22

(ii) Notify Party (who will in turn promptly notify the applicable
Licensee or other Covered Entity) of any instance of which the person or
organization becomes aware in which the confidentiality of such Protected
Health Information was breached.

b) Data Aggregation. Party may conduct Data Aggregation services except with
respect to the Protected Health Information it receives pursuant to a Scheduled
Agreement that prohibits Data Aggregation.

c) Disclosure to Subcontractors and Agents. Party may Disclose Protected Health
Information to agents and subcontractors to perform functions or activities on its
behalf except for such Disclosures prohibited by a Scheduled Agreement. Prior to
such Disclosure, Party will comply with Section A.5 of this Agreement.

3. Information Safeguards. Party will develop, implement, maintain and use appropriate
administrative, technical and physical safeguards, in compliance with Social Security Act §
1173(d) (42 U.S.C. § 1320d-2(d)), 45 C.F.R. Part 164, Subpart C, 45 C. F. R. § 164.530(c),
and any other applicable implementing regulations issued by the U.S. Department of Health
and Human Services (“HHS”). Party will use these safeguards to preserve the integrity,
confidentiality, and availability of and to prevent non-permitted Use or Disclosure of
Protected Health Information created or received pursuant to a Scheduled Agreement. Party
will document these safeguards.

4. Security Incident Reporting. When acting pursuant to a Scheduled
Agreement, Party will provide notice, in accordance with Schedule B, of any Security
Incident of which Party becomes aware. Party will treat any such notices it receives from
any other Party as confidential and not disclose such information except as necessary to
comply with applicable legal or contractual obligations.

5 Subcontractors. Party will require any of its Subcontractors, to which
Party is permitted by this Agreement and the respective Scheduled Agreement to Disclose any
of the Protected Health Information that Party creates or receives pursuant to a Scheduled
Agreement, to provide reasonable assurance, evidenced in writing, that Subcontractor will
comply with the same privacy and security obligations as Party with respect to such
Protected Health Information.

68

 

Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 5 of 22

	B.	 	Protected Health Information Access, Amendment and Disclosure
Accounting.

1. Access. With respect to Protected Health Information a Party creates or receives
pursuant to a Scheduled Agreement, that Party will act so that other Parties and the
Covered Entities that they serve may meet their access obligations under 45 C.F.l R. §
164.524 and applicable Business Associate contracts.

2. Amendment. With respect to Protected Health Information a Party creates or receives
pursuant to a Scheduled Agreement, that Party will act so that other Parties and the
Covered Entities that they serve may meet their amendment obligations under 45 C.F. R. §
164.526 and applicable Business Associate contracts.

3. Disclosure Accounting. With respect to Protected Health Information a
Party creates or receives pursuant to a Scheduled Agreement, that Party will act so that
other Parties and the Covered Entities they serve may meet their Disclosure accounting
obligations under 45 C.F. R. § 164.528 and applicable Business Associate contracts.

4. Inspection of Books and Records. Party must make available for inspection its internal
practices, books, and records, relating to its Use and Disclosure of the Protected Health
Information it creates or receives pursuant to a Scheduled Agreement only as described in
this paragraph, or as otherwise Required By Law or the Scheduled Agreement. Party must
allow HHS to make such inspection to determine compliance with 45 C.F. R. Parts 160-164 or
this Agreement and the appropriate Scheduled Agreement. Party must allow such inspection by
a party to a Scheduled Agreement that is responding to an issue involving 45 C.F. R. Part
164 pursuant to the Scheduled Agreement when the issue is raised in an investigation by HHS
or a complaint from a person under 45 C.F.R. § 160.306 or 45 C.F.R. § 164.530(d), but such
inspection will be only as reasonably necessary to respond to the investigation or
complaint.

	C.	 	Breach of Obligations.

1. Reporting. When acting pursuant to a Scheduled Agreement, Party will provide notice to
the Covered Entity or Business Associate that Party serves of any Use or Disclosure of
Protected Health Information of which Party becomes aware that violates this Agreement or
the Scheduled Agreement by which Party received the Protected Health Information.
Party will provide such notice to the appropriate entity’s Legal Department with a copy to
the entity’s Privacy Official of record not more than five (5) business days after Party
learns of such non-permitted or violating Use or Disclosure.

69

 

Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 6 of 22

Within a reasonable time thereafter, not to exceed forty-five (45) days, Party will provide
such other information, including a written report, as the Covered Entity or Business
Associate that Party serves may reasonably request.

2. Dispute Resolution. If a Party becomes aware of a pattern of activity or practice of
another Party (the “Breaching Party”) that the Party believes constitutes a material breach
or violation of the Breaching Party’s obligations under this Agreement, the Party will give
written notice to the Breaching Party and to BCBSA of such breach. Breaching Party will
cure such breach as soon as possible, but in any event within forty-five (45) days of
receiving notice of such breach, unless otherwise agreed by the affected Parties. If the
Breaching Party does not cure the breach within ten (10) days, Breaching Party will develop
and deliver to affected Parties within twenty (20) days of receipt of the written notice
provided in this paragraph a written plan to cure the breach as soon as possible. If the
Breaching Party does not cure the breach within a reasonable period, not to exceed
forty-five (45) days from the written notice provided in this paragraph, or if the
Breaching Party does not timely submit a written plan to cure the breach, another Party may
exercise its right to Mediation and Mandatory Dispute Resolution, as provided for under the
applicable License Agreement into which BCBSA and each Licensee entered.

	D.	 	Termination of Agreement.

1. Right to Terminate a Scheduled Agreement. Except as otherwise provided in this Section
D.1, a Party may terminate a Scheduled Agreement and terminate its Business Associate
relationship with another Party under that Scheduled Agreement for violation of a material
term of this Agreement. The Parties hereto acknowledge and agree that, due to the
interrelationship of all Parties as Business Associates and Subcontractors of each other, a
right of termination by one Licensee of another Licensee’s participation in Scheduled
Agreements involving more than three Parties, including the national programs of BCBSA, for
violation of this Agreement is not feasible. Accordingly, with respect to such Scheduled
Agreements, the Parties agree that upon a Party’s failure to cure a material breach of this
Agreement within a reasonable time, not to exceed forty-five (45) days, if any other Party
reasonably believes it is required to report the breach to HHS, the other Party may do so.

70

 

Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 7 of 22

2. Termination of this Agreement. This Agreement shall terminate with respect to a Party
when:

a) The Party ceases to be a party to every Scheduled Agreement to which it has been
a party; and

b) All of the Protected Health Information the Party receives or creates in any
form or medium under Party’s custody or control on behalf of another Covered Entity
pursuant to a Scheduled Agreement is returned or destroyed.

3. Termination of this Agreement with Respect to a Scheduled
Agreement. Except as provided in Section D.1 of this Agreement, this
Agreement will not terminate with respect to Protected Health Information Party creates or
receives pursuant to a Scheduled Agreement until all of the Protected Health Information is
destroyed or returned to the Licensee that Party serves.

4.
Obligations upon Termination of a Scheduled Agreement. Upon termination of a Scheduled
Agreement under Section D.1 of this Agreement, Party will if feasible return to each
Licensee or destroy all Protected Health Information created or received for or from such
Licensee, in whatever form or medium under Party’s custody or control, covered by the
terminated Scheduled Agreement. Party will return or destroy the Protected Health
Information in accordance with the applicable Scheduled Agreement. If the Scheduled
Agreement does not address such return or destruction, Party will return or destroy the
Protected Health Information at the option of the Licensee on whose behalf Party created or
received the Protected Health Information. Party will identify any Protected Health
Information that Party created or received for or from a Licensee that cannot feasibly be
returned to such Licensee or destroyed, and will limit its further Use or Disclosure of
that Protected Health Information to those purposes that make return or destruction of that
Protected Health Information infeasible.

5. Continuing Privacy and Security Obligations. Party’s obligation to protect the privacy
and security of the Protected Health Information it creates or received pursuant to a
Scheduled Agreement will be continuous and survive termination, cancellation, expiration or
other conclusion of this Agreement and the Scheduled Agreements.

71

 

Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 8 of 22

	E.	 	Indemnification.

1. General. This paragraph sets forth certain principles concerning indemnification for
costs and expenses resulting from the activities of one Party to this Agreement when acting
as a Business Associate or Subcontractor of another Party. The goal of this section is to
set forth a balanced approach to apportionment of responsibility for Claims and
indemnification, recognizing the spirit of cooperation among the Parties to this Agreement
and the complexity of relationships that result from the variety of activities and wide
range of agreements identified in Schedule A.

In lieu of invoking this indemnification section, Indemnitee may pursue contribution or
other theories of recovery against Indemnitor. If invoked, this indemnification section
shall provide Indemnitee’s sole and exclusive monetary remedy.

2. Basic Principles. A Party (“Indemnitor”) will indemnify and hold harmless any other
Party or such Party’s affiliates, subsidiaries, officers, directors, employees, or agents
(“Indemnitee”) from and against any claim, cause of action, liability, damage, cost or
expense, including attorneys’ fees and court or proceeding costs, substantially arising out
of or in connection with any non-permitted or violating Use or Disclosure of Protected
Health Information or other breach of this Agreement by Indemnitor or any subcontractor,
agent, person or entity under Indemnitor’s control (“Claim”).

Where such Claim results from activities of both Indemnitor and Indemnitee, or where
responsibility is unclear between Indemnitor and Indemnitee, or in which there is
negligence on the part of Indemnitee, then the Parties shall work together cooperatively to
allocate responsibility for such activities, and the results of this cooperative
negotiation shall govern in lieu of this section. In the event of an inability to reach
agreement on these provisions, then the dispute resolution provisions of this Agreement
shall govern. This provision supercedes any conflicting indemnification provision of any
Scheduled Agreement with respect to Claims.

Notwithstanding the foregoing, the Parties recognize that Indemnitee may agree to a
restriction on the Use or Disclosure of Protected Health Information, including, but not
limited to agreements pursuant to 45 C.F.R. § 164.522(a), without either consulting with,
or obtaining the approval of, Indemnitor.
Indemnitor is not responsible for indemnifying and holding harmless Indemnitee from any
Claim arising from a non-permitted or violating Use or Disclosure of Protected Health
Information or other breach of this Agreement due to failure of

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Attachment VII

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 9 of 22

Indemnitor or any subcontractor, agent, person or entity under Indemnitor’s control to
comply with a restriction to which Indemnitee agreed without agreement of Indemnitor. This
exception does not apply to restrictions or limitations of which Indemnitor received notice
that the HIPAA Rules require Indemnitee to accept, including but not limited to the
requirements of 45 C.F.R. 164.522(b).

3. Notice of Claim. When Indemnitee receives notice of a threatened or actual Claim
for which Indemnitee elects to invoke the provisions of this section, Indemnitee shall
promptly notify Indemnitor of such Claim, and in no event later than thirty (30) days from
Indemnitee’s receipt of notice of such Claim. The Parties recognize that Indemnitee’s
failure to meet the notice requirements of this paragraph may prejudice Indemnitor. In the
event that Indemnitee fails to meet the notice requirements of this paragraph, then, upon
final resolution of the Claim, Indemnitor may reduce its obligation to Indemnitee by an
amount Indemnitor establishes that reflects the actual harm caused by Indemnitee’s failure.

4. Cooperation. In any situation in which Indemnitee seeks indemnification under this
Section E, both Indemnitor and Indemnitee agree to cooperate in full with the other Party
in all aspects of the defense and resolution of the Claim. The Parties acknowledge that a
failure to cooperate by Indemnitee may prejudice Indemnitor. In the event that Indemnitee
does not reasonably cooperate, then, upon final resolution of the Claim, Indemnitor may
reduce its obligation to Indemnitee by an amount Indemnitor establishes that reflects the
actual harm caused by Indemnitee’s lack of reasonable cooperation.

5. Right to Tender or Undertake Defense. When Indemnitee provides notice to Indemnitor
as provided in Section 3, above, Indemnitor will have the option either to undertake the
defense of Indemnitee in such Claim or to allow Indemnitee to defend such Claim itself. If
Indemnitor chooses to allow Indemnitee to defend the action itself, Indemnitor must
promptly notify Indemnitee, in no event later than thirty (30) days from receiving notice
of the Claim from Indemnitee.

a) Undertaking of Defense by Indemnitor. In situations where Indemnitor elects
to undertake the defense of Indemnitee, Indemnitor will provide qualified
attorneys, consultants and other appropriate professionals to represent
Indemnitee’s interests at Indemnitor’s expense. If Indemnitor assumes the defense
or settlement of a Claim, Indemnitee shall have the right to participate in the
defense thereof and to employ counsel (not reasonably
objected to by Indemnitor), which shall be at Indemnitee’s own expense, separate
from the counsel employed by Indemnitor, it being understood that Indemnitor shall
control such defense or settlement.

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b)
Undertaking of Defense by Indemnitee. In the event Indemnitor fails to assume
the defense or settlement of a Claim within twenty (20) days after receipt of the
notice for which Indemnitee is entitled to be indemnified, Indemnitee shall bear
sole responsibility for choosing the attorneys, consultants and other appropriate
professionals to represent its interests. Indemnitor will pay the reasonable fees
and expenses of such defense, including for appropriate attorneys, consultants and
other professionals selected by Indemnitee to represent its interests Indemnitee
will cooperate with Indemnitor and provide full and accurate information about the
progress and resolution of the Claim. Indemnitee shall promptly forward any
settlement proposal to Indemnitor, and the decision as to whether to settle such
proceeding shall be made cooperatively.

c)
Resolution of Claims. Indemnitor shall
notify Indemnitee of any proposed resolutions of such Claims. Indemnitor shall not
settle, compromise, or discharge Claims of which it has undertaken defense or
settlement without the prior written consent of Indemnitee unless such settlement
is limited to the payment of monetary damages and includes a full release of
Indemnitee. If Indemnitee does not consent to a reasonable resolution proposed by
Indemnitor, then Indemnitee shall continue any defense of such Claims from that
point forward, at its own expense. Indemnitee shall not admit any liability with
respect to, or settle, compromise or discharge such Claims without Indemnitor’s
prior written consent, which consent shall not be unreasonably withheld. The
obligations of Indemnitor for damages resulting from such Claims shall not exceed
the amount of and costs incurred prior to any such proposed settlement.

6.
Disputes. In the event there is a dispute between or among Parties with respect to a
Party’s or Parties’ obligation(s) under this Section E relative to a specific event or
transaction, any Party(ies) to the dispute may exercise its or their right to Mandatory
Mediation and Dispute Resolution (“MMDR”), as provided for under the applicable License
Agreement, as its or their sole means of enforcement of such obligations.

7.
Delivery of Notices. For purposes of this Section E, notices will be deemed given when
properly addressed to the Party’s legal department, with a copy to the privacy official of
record, upon the date of receipt if hand-delivered, or four (4) business days after deposit
in the U.S. mail if mailed by registered or certified mail, postage prepaid, or one (1)
business day after deposit with a national overnight courier for next business day delivery, or upon
the date of electronic confirmation of receipt of a facsimile transmission.

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F. Compliance with Standard Transactions.

1.
Compliance Date. Each Party represents that it will timely apply for an extension under
the Administrative Simplification Compliance Act (Public Law 107-105). Accordingly, this
Section F will become effective on October 16, 2003 or at such later date for compliance by
Health Plans set forth in 45 C.F. R. § 162.900 as may be amended.

2.
Requirement of Compliance. When Party conducts in whole or part
Standard Transactions pursuant to a Scheduled Agreement, Party will comply, and will
require any Subcontractor involved with the conduct of such Standard Transactions to
comply, with each applicable requirement of 45 C. F. R. Parts 160 and 162, as may be
amended.

3.
Trading Partner Provisions. The Parties agree that the specifications and procedures for
transmitting data among them in order to facilitate the activities described in the
Scheduled Agreements either will be contained in the Scheduled Agreements or adopted
through the BCBSA governance process, including the policies, provisions, and processing
standards applicable to BCBSA’s national programs. For purposes of each Scheduled
Agreement, the Parties hereto further agree to keep Code Sets open to processing for at
least the current billing period and any appeal period. Party will not enter into, nor
permit its Subcontractors to enter into, any Trading Partner Agreement in connection with
the conduct of Standard Transactions for or on behalf of any Party to this Agreement that:

a) Changes the definition, Data Condition, or useage of a Data Element or Segment
in a Standard Transaction;

b) Adds any Data Elements or Segments to the Maximum Defined Data Set;

c) Uses any code or Data Element that is marked “not used” in the Standard
Transaction’s Implementation Specifications or is not in the Standard Transaction’s
Implementation Specifications; or

d) Changes the meaning or intent of the Standard Transaction’s Implementation
Specifications.

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G.
Gramm-Leach-Bliley Compliance. With respect to Nonpublic Personal
Financial Information obtained when acting as a Business Associate of a Covered Entity or a
Subcontractor of a Business Associate or a joint marketer of another financial institution pursuant
to a Scheduled Agreement, each Licensee will comply with any applicable GLB Regulations of a state
in Licensee’s Service Area. With respect to such information, Party will comply with requirements
of other state GLB Regulations that, in Party’s judgment, are applicable to Party’s Use or
Disclosure of such information for those state GLB Regulations of which Party is informed by the
Licensee it serves.

H. General Provisions.

1.
Amendment to Agreement. Upon the compliance date of any final regulation or
amendment to final regulations promulgated by HHS with respect to the HIPAA Rules, this
Agreement will automatically amend such that the obligations it imposes on Party remain in
compliance with those regulations. The Board of Directors of BCBSA may amend this Agreement
at any regular meeting by a majority vote of the Board members.

2.
Conflicts. The terms and conditions of this Agreement will override and control any
conflicting term or condition of any other agreement, including the Scheduled Agreements,
that may be in place between or among Parties.

3.
State Privacy Law Requirements. With respect to Protected Health
Information a Party acting as a Business Associate or Subcontractor creates or receives
pursuant to a Scheduled Agreement, Party will comply with requirements of other state
privacy laws that, in Party’s judgment, are more stringent than 45 C.F.R. Parts 160-164 and
are applicable to Party’s Use or Disclosure of such information for those state laws of
which Party is informed by the Licensee it serves.

4.
No Third-Party Beneficiaries. No third-parties are intended to benefit from this
Agreement and no third-party beneficiary rights will be implied from anything contained in
this Agreement.

5.
Interpretation. Any ambiguity in this Agreement will be resolved in favor of a
meaning that permits the applicable Covered Entity to comply with the HIPAA Rules.

6.
Notices. Unless otherwise provided herein, notices will be deemed given when
properly addressed to the Party’s Privacy Official of record, upon the date of receipt if
hand-delivered, or four (4) business days after deposit in the U.S. mail if mailed by registered or certified mail, postage prepaid, or one
(1) business day after deposit with a national overnight courier for next business day
delivery, or upon the date of electronic confirmation of receipt of a facsimile
transmission

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SCHEDULE A

The terms of the Business Associate Agreement for Blue Cross and Blue Shield Licensees applies to
any existing or future agreement between or among two or more Licensees and/or BCBSA that gives
rise to a relationship making one party a Business Associate or Subcontractor of the other, unless
the parties to such an existing or future agreement otherwise agree in writing in such existing or
future agreement.

For purposes of elaboration and not for purposes of limiting the foregoing, the agreements to which
the terms of the Business Associate Agreement for Blue Cross and Blue Shield Licensees apply
include, but are not limited, to the following agreements, including all exhibits and amendments
thereto:

	 	1.	 	All Blue Cross License Agreements Between BCBSA and Primary Licensees
	 
	 	2.	 	All Blue Cross Controlled Affiliate License Agreements Between BCBSA and — Controlled
Affiliates of Primary Licensees
	 
	 	3.	 	All Blue Shield License Agreements Between BCBSA and Primary Licensees
	 
	 	4.	 	All Blue Shield Controlled Affiliate License Agreements Between BCBSA and Controlled
Affiliates of Primary Licensees
	 
	 	5.	 	All ITS License Agreements Between BCBSA and Licensees
	 
	 	6.	 	All Blue Quality Centers for Transplant Plan Participation Agreements Between BCBSA
and Licensees
	 
	 	7.	 	All Data Center InterPlan Operating Agreements Among Licensees for the Medicare
Program
	 
	 	8.	 	Data Processing InterPlan Operating Agreements Among Licensees for the Medicare
Program
	 
	 	9.	 	All Away From Home Care Guest Membership Agreements Between BCBSA and Licensees
	 
	 	10.	 	All Government Business Services Contracts Between BCBSA and Licensees
	 
	 	11.	 	All Service Benefit Plan (FEP) Participation Agreements Between BCBSA and Licensees
	 
	 	12.	 	BlueCard Worldwide Contract Between BCBSA and Blue Cross and Blue Shield of South Carolina
	 
	 	13.	 	All National Account Servicing Agreements Between Blue Cross and Blue Shield of Louisiana
and Other Licensees

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Identification Card Production Agreement Between Blue Cross and Blue Shield of Vermont and
Associated Hospital Service of Maine d/b/a Blue Cross and Blue Shield of Maine

	 	14.	 	The Following Agreements Between Blue Cross and Blue Shield of Kansas City and Other
Licensees: 
	 	 	 	Cost Reimbursement Agreement with Triple-S, Inc.
	 
	 	 	 	National Account Servicing Plan Agreement with Blue Cross and Blue Shield of Kansas
	 
	 	 	 	Custom Arrangements for BlueCard National Accounts with Empire Blue Cross Blue Shield
	 
	 	 	 	All Alternate Control Licensee Designation Forms and Similar Agreements with Other
Licensees
	 
	 	 	 	All Participation Request Agreements and Similar Agreements with Other Licensees for
Servicing Dairy Farmers of America, Inc.
	 
	 	 	 	Participating/Servicing Plan Master Agreement (NASCO) for National Accounts with Blue Cross
and Blue Shield of Michigan
	 
	 	 	 	Servicing/Participating Plan Agreement (NASCO) and National Account HMO Participation
Agreement with Community Insurance Company d/b/a Anthem Blue Cross and Blue Shield
	 
	 	 	 	National Accounts Lead Agreement (NASCO) and Notification of National Account BlueCard Sale
with Blue Cross and Blue Shield of Massachusetts
	 
	 	 	 	Participating Plan Agreement for National Accounts (NASCO) with CareFirst of Maryland, Inc.
	 
	 	 	 	All National Account ITS/BlueCard Custom Arrangements with Other Licensees
	 
	 	 	 	All Administrative Services Agreements with Other Licensees
	 
	 	 	 	Network Access and Joint Operating Agreement with Premier Health, Inc. and Blue Cross and
Blue Shield of Kansas, Inc.
	 
	 	 	 	Participating Payor Transaction Submission Agreement with Administrative Services of
Kansas, Inc.

	 	16.	 	All National Account Servicing Agreements Between Blue Cross & Blue Shield of Wisconsin and
Other Licensees
	 
	 	17.	 	All Alternate Control Licensee Designation Agreements and Similar Agreements Between Blue
Cross & Blue Shield of Wisconsin and Other Licensees

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	 	18.	 	Information Systems Services Agreement between Blue Cross Blue Shield of South Carolina and
Blue Cross & Blue Shield of Wisconsin, dated as of August 23, 1996
	 
	 	19.	 	All National Account Servicing Agreements Between Horizon Blue Cross and Blue Shield of New
Jersey and Other Licensees
	 
	 	20.	 	Reciprocal Dental Network Agreement Between Blue Cross and Blue Shield of Rhode Island and
Blue Cross and Blue Shield of Massachusetts, Inc.
	 
	 	21.	 	[Intentionally omitted.]
	 
	 	22.	 	[Intentionally omitted.]
	 
	 	23.	 	[Intentionally omitted]
	 
	 	24.	 	Complementary Insurance Agreement Regarding Data Transfer Between Blue Cross and Blue
Shield of Vermont and Anthem Health Plans of New Hampshire, Inc.
	 
	 	25.	 	Administrative Services Agreement for the New England Managed Care Initiative Between
Anthem Health Plans of Maine, Inc., Anthem Health Plans of New Hampshire, Inc., Anthem Health
Plans, Inc., Blue Cross and Blue Shield of Massachusetts, Blue Cross and Blue Shield of
Vermont, and Blue Cross and Blue Shield of Rhode Island
	 
	 	26.	 	All National Account Servicing Agreements Between Empire Blue Cross Blue Shield and Other
Licensees
	 
	 	27.	 	Joint Operating Agreement Between the Pennsylvania Blue Shield, Capital Blue Cross dated
January 1, 1976; All Addenda and Amendments Thereto (the “JOA”); and All Agreements Between the
Parties Relating to Termination of the Joint Business Under the JOA
	 
	 	28.	 	January 1, 1984 Agreement Between Pennsylvania Blue Shield, Capital Blue Cross and Blue
Cross of Northeastern Pennsylvania for the Establishment of the Comp I
Center, and All Amendments Thereto
	 
	 	29.	 	Administrative Services Agreement for Medicare Crossover Data Between Capital Blue Cross
and Pennsylvania Blue Shield Dated January 23, 1995
	 
	 	30.	 	Service Agreement Between Health Benefits Management, Inc., Pennsylvania Blue Shield,
Capital Blue Cross and the Shared Services Center, Dated September 15, 1987
	 
	 	31.	 	Administrative Services Agreement Regarding POS Programs Among Synertech Health Systems
Solutions, Inc., Capital Blue Cross and Highmark, Effective January 1, 1997

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	 	32.	 	Agreement Between Highmark and NCAS Pennsylvania (undated)
	 
	 	33.	 	Electronic Coordination of Medicare Benefits Agreement Between Highmark, Inc. d/b/a Veritus
Medicare Services and Capital Blue Cross, Dated October 26, 1999, Together With Amendatory
Rider Effective April 1, 2002
	 
	 	34.	 	Electronic Coordination of Medicare Benefits Agreement Between Highmark, Inc. d/b/a
HGSAdministrator and Capital Blue Cross Dated May 23, 2002
	 
	 	35.	 	Members Agreement Between Pennsylvania Blue Shield, Capital Blue Cross and The Caring
Foundation of Pennsylvania, Dated August 13, 1993
	 
	 	36.	 	Amendment of Purchase Service Agreement Between Capital Blue Cross and Blue Cross of
Western Pennsylvania, Effective October 1, 1985
	 
	 	37.	 	Agreement for Precertification Program, Between Capital Blue Cross and Health Benefits
Management, Inc., d/b/a the Precertification Center, Effective January 1, 1994, Together With
Amendatory Rider Effective January 1, 1997
	 
	 	38.	 	Medicare+Choice Administrative Services Agreement Between Capital Blue Cross and Keystone
Health Plan Central Effective as of January 1, 1999
	 
	 	39.	 	Hospital and Related Health Care Benefits For Keystone Health Plan, Inc. Dated January 1,
1987
	 
	 	40.	 	Amended Administrative Services Agreement Between Capital Advantage Insurance Company and
Trans-General Casualty Insurance Company, Inc., Effective January 1, 1996
	 
	 	41.	 	Profit Sharing Agreement Between Capital Advantage Insurance Company and Trans-General
Casualty Insurance Company, Inc., Effective as of January 1, 1986 and Amended as of January 1,
1998
	 
	 	42.	 	Agreement Between Trans-General Life Insurance Company and Consolidated Benefits, Inc.
Dated as of January 1, 1999
	 
	 	43.	 	Confidentiality and Indemnification Agreement in Favor of Capital Blue Cross,
	 
	 	 	 	Pennsylvania Blue Shield and Capital Advantage Insurance Company Executed by the Highmark
Life & Casualty Group Inc. and Dated March 3, 2000
	 
	 	44.	 	Dental Agency Agreement Between United Concordia Companies, Inc., United Concordia Life and
Health Insurance Company and United Concordia Dental Plan of Pennsylvania Inc., on the one
hand, and Capital Blue Cross, on the other, dated June 1, 1998
	 
	 	45.	 	License Agreement for the Shared Automated Major Medical System, Among Capital Blue Cross,
Blue Cross of Northeastern Pennsylvania, Blue Cross of Western Pennsylvania, and PBS, Effective
July 1, 1983

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	 	46.	 	Guaranty Agreement between Capital Blue Cross, Hospital Services Association of
Northeastern Pennsylvania (d/b/a “Blue Cross of Northeastern Pennsylvania”), Independence Blue
Cross and Highmark, Inc. Dated October 2, 2000
	 
	 	47.	 	All Custom Blue Card Arrangements Between Blue Cross Blue Shield of Michigan and Other
Licensees
	 
	 	48.	 	All Participating Plan Agreements Between Blue Cross Blue Shield of Michigan and Other
Licensees
	 
	 	49.	 	All National Accounts Servicing/Participating Plan Agreements Between Blue Cross and Blue
Shield of Minnesota and Other Licensees
	 
	 	50.	 	All National Account Servicing Plan Agreements Between Blue Cross and Blue Shield of
Arizona, Inc. and Other Licensees
	 
	 	51.	 	All Agreements Related to Medicare Supplemental Claims Payments and Medicare Crossover
Services Between CareFirst Blue Cross Blue Shield and Other Licensees
	 
	 	52.	 	Co-Branding Agreement Between CareFirst Blue Cross Blue Shield and CareFirst of Maryland,
Inc.
	 
	 	53.	 	All Par Plan Agreements between Independence Blue Cross (and all of its applicable
subsidiaries) and Other Licensees
	 
	 	54.	 	All Control Plan Agreements between Independence Blue Cross (and all of its applicable
subsidiaries) and Other Licensees
	 
	 	55.	 	The Joint Operating Agreement between Pennsylvania Blue Shield and Independence Blue Cross
dated January 1, 1976
	 
	 	56.	 	The Independence Blue Cross and Pennsylvania Blue Shield System Use Agreement effective
January 1, 2000
	 
	 	57.	 	The Independence Blue Cross and Pennsylvania Blue Shield 1999 Agreement for Electronic
Coordination of Medicare Benefits
	 
	 	58.	 	The Independence Blue Cross and Pennsylvania Blue Shield Consulting Services Agreement
dated May 7, 2002
	 
	 	59.	 	The Independence Blue Cross and Pennsylvania Blue Shield Major Medical Claims Processing
Agreement Dated October 1, 1995
	 
	 	60.	 	All National Account Servicing Agreements Between Blue Cross and Blue Shield of Alabama and
other Licensees
	 
	 	61.	 	All Participating Plan Agreements Between Blue Cross and Blue Shield of Alabama and Other
Licensees

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	 	62.	 	All Custom Blue Card Arrangements Between Blue Cross and Blue Shield of Alabama and Other
Licensees
	 
	 	63.	 	All Custom National Account Arrangements Between Blue Cross and Blue Shield of Alabama and
Other Licensees
	 
	 	64.	 	All Control Plan Agreements Between Blue Cross and Blue Shield of Alabama and Other
Licensees
	 
	 	65.	 	All Service Agreements between Blue Cross and Blue Shield of Alabama or its affiliates, and
Other Licensees with respect to the Medicare Program
	 
	 	66.	 	Trading Partner Medicare Part A Service Agreement between Capital BlueCross and Blue Cross
and Blue Shield of Florida, Inc.
	 
	 	67.	 	All Custom ITS Arrangements Between Wellmark, Inc. (and/or all its applicable subsidiaries)
and Other Licensees
	 
	 	68.	 	Highmark Inter-Plan Network Management Information System License Agreement between
Highmark, Inc. and Anthem Insurance Companies, Inc.
	 
	 	69.	 	All NASCO Par Plan Servicing Agreements Between Blue Cross and Blue Shield of Alabama and
Other Licensees
	 
	 	70.	 	Master Software Maintenance Agreement Between Inter-Data Business Systems and Blue Cross of
Minnesota
	 
	 	71.	 	Cost Reimbursement Agreement Between Blue Cross of Minnesota and Triple-S, Inc.
	 
	 	72.	 	Master Software Maintenance Agreement for Inter-Data Business Systems (IBS) Between
WellChoice, Inc.(and/or all of its applicable subsidiaries) and Participating Licensees
	 
	 	73.	 	All Alternate Control Licensee Designation Agreements and Similar Agreements Between
WellChoice, Inc. (and/or all of its applicable subsidiaries) and Other Licensees
	 
	 	74.	 	All Participating Plan Agreements for National Accounts Between WellChoice, Inc.
(and/or all of its applicable subsidiaries) and Other Licensees
	 
	 	75.	 	All Par Plan Agreements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees
	 
	 	76.	 	All Control Plan Agreements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees

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	 	77.	 	All Custom Blue Card Arrangements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees
	 
	 	78.	 	All Agreements Related to Medicare Supplemental Claims Payments and Medicare Crossover
Services Between WellChoice, Inc. (and/or all of its applicable subsidiaries) and Other
Licensees
	 
	 	79.	 	All Custom ITS Arrangements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees
	 
	 	80.	 	All Custom ITS and Custom BlueCard Arrangements Between Highmark and Other Licensees
	 
	 	81.	 	All National Account Servicing Agreements Between Highmark and Other Licensees
	 
	 	82.	 	All Alternate Control Licensee Designation Agreements and Similar Agreements Between
Highmark and Other Licensees
	 
	 	83.	 	All Administrative Service Agreements Between Highmark and Other Licensees
	 
	 	84.	 	All Information Systems Services Agreements Between Highmark and Other Licensees
	 
	 	85.	 	All System Use Agreements Between Highmark and Other Licensees
	 
	 	86.	 	All Joint Operating Agreements Between Highmark and Other Licensees
	 
	 	87.	 	All Government Business Service Agreements Between Highmark and Other Licensees
	 
	 	88.	 	All Consulting/Training Services Agreements Between Highmark and Other Licensees
	 
	 	89.	 	All Inter-Plan Network Management Information System License Agreements Between Highmark
and Other Licensees
	 
	 	90.	 	All Service Agreements Between Highmark and Mountain State Blue Cross Blue Shield
	 
	 	91.	 	All Electronic Media/Claims Processing Agreements Between Highmark and Other Licensees
	 
	 	92.	 	The Crossover Service Agreement Between Noridian Mutual Insurance Company and Blue Cross
and Blue Shield of Arizona, Inc.
	 
	 	93.	 	All custom Blue Card Agreements or Participating Agreements Between Blue Cross and Blue
Shield of Nebraska and Other Licensees

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	 	94.	 	All Custom Blue Card Arrangements Between HealthNow New York, Inc. d/b/a BlueCross
BlueShield of Western New York and BlueShield of Northeastern New York, and Other Licensees
	 
	 	95.	 	All Participating Plan Agreements Between HealthNow New York, Inc. d/b/a BlueCross
BlueShield of Western New York and BlueShield of Northeastern New York, and Other Licensees
	 
	 	96.	 	All Control Plan Agreements Between HealthNow New York, Inc. d/b/a BlueCross BlueShield of
Western New York and BlueShield of Northeastern New York, and Other Licensees
	 
	 	97.	 	All Agreements Related to Medicare Supplemental Claims Payment and Medicare Crossover
Services Between HealthNow New York, Inc. d/b/a BlueCross BlueShield of Western New York and
BlueShield of Northeastern New York, and Other Licensees
	 
	 	98.	 	Participating Service Plan Master Agreement (NASCO) for National Accounts Blue Cross and
Blue Shield of Michigan and HealthNow New York, Inc.
	 
	 	99.	 	All Account Specific Agreements Between Blue Cross Blue Shield of Michigan and Other
Licensees
	 
	 	100.	 	All National Account Servicing Agreements Between Blue Cross and Blue Shield of Florida
and Other Licensees
	 
	 	101.	 	Custom ITS Point of Service Agreements Between Blue Cross and Blue Shield of Illinois and
Other Licensees
	 
	 	102.	 	Local Area Processing Point of Service Agreements Between Blue Cross and Blue Shield of
Illinois and Other Licensees
	 
	 	103.	 	Pharmacy Benefits Management Agreement Between The Regence Group, Regence Blue Shield of
Idaho, Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan
	 
	 	104.	 	All Control
Plan Agreements Between Blue Cross Blue Shield of Delaware, Inc. and Other Licensees.
	 
	 	105.	 	All Par Plan Agreements Between Blue Cross Blue Shield of Delaware, Inc. and Other
Licensees
	 
	 	106.	 	All Agreements Related to Medicare Supplement Claims Payment and Medicare Crossover
Services Between Blue Cross Blue Shield of Delaware, Inc. and Other Licensees
	 
	 	107.	 	All National Account ITS/BlueCard Arrangements Between Blue Cross Blue Shield of Delaware,
Inc. and Other Licensees

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	 	108.	 	All National Account/ITS Custom BlueCard Arrangements Between Blue Cross Blue Shield of
Delaware, Inc. and Other Licensees
	 
	 	109.	 	All Non-Blue Card Arrangements Between Blue Cross Blue Shield of Delaware, Inc. and Other
Licensees for the Administration and Servicing of Specific Multi-State Accounts Including, but
not limited to, MBNA and Nemours
	 
	 	110.	 	Participating/Servicing Plan Agreement for National Accounts (NASCO) with CareFirst of
Maryland, Inc., Blue Cross and Blue Shield of Michigan and any Other Applicable Licensees
	 
	 	111.	 	All Agreements for National Account HMO Participation Between Blue Cross Blue Shield of
Delaware, Inc., and Other Licensees
	 
	 	112.	 	All Par Plan Agreements Between WellPoint, Inc. (and all of its applicable subsidiaries)
and Other Licensees
	 
	 	113.	 	All Control Plan Agreements Between WellPoint, Inc. (and all of its applicable
subsidiaries) and Other Licensees
	 
	 	114.	 	All Agreements for National Accounts Between WellPoint, Inc. (and all of its applicable
subsidiaries) and Other Licensees

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Schedule B

Security Incidents

The Security Rule defines a “Security Incident” as an attempted or successful unauthorized access,
use, disclosure, modification or destruction of information or interference with system operations
in an information system, involving electronic Protected Health Information (“e-PHI”) that is
created, received maintained or transmitted by or on behalf of a Party.

Since the Security Rule includes attempted unauthorized access, use, etc., each Party needs to have
notice of attempts to bypass electronic security mechanisms. The Parties recognize and agree that
the significant number of meaningless attempts to, without authorization, access, use, disclose,
modify or destroy e-PHI will make a real-time reporting requirement formidable for all the Parties.
Therefore, the Parties agree to the following reporting procedures for Security Incidents that
result in unauthorized access, use, disclosure, modification or destruction of information or
interference with system operations (“Successful Security Incidents”) and for Security Incidents
that do not so result (“Unsuccessful Security Incidents”).

For Unsuccessful Security Incidents, each Party agrees that this Schedule B constitutes notice from
all other Parties of such Unsuccessful Security Incidents. By way of example, the Parties consider
the following to be illustrative of Unsuccessful Security Incidents when they do not result in
unauthorized access, use, disclosure, modification, or destruction of e-PHI or interference with an
information system:

	 	1.	 	Pings on a Party’s firewall,
	 
	 	2.	 	Port scans,
	 
	 	3.	 	Attempts to log on to a system or enter a database with an invalid password or
username, and
	 
	 	4.	 	Denial-of-service attacks that do not result in a server being taken off-line.
	 
	 	5.	 	Malware (e.g., worms, viruses)

For Successful Security Incidents, each Party shall give notice promptly to any Party whose e-PHI
was compromised. Notices of Successful Security Incidents shall be deemed given when properly
addressed to a Party’s security contact, as listed on Blueweb, upon the date of receipt if
hand-delivered or e-mailed, or four (4) business days after deposit in the U.S. mail if mailed by
registered or certified mail, postage prepaid, or one (1) business day after deposit with a
national overnight courier for next business day delivery, or upon the date of electronic confirmation of
receipt of a facsimile transmission.

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Guidelines to

Administer the

Controlled Affiliate License

Agreement(s)

and Standards

(Includes revisions, if any, adopted by the PPFSC and/or

Member Plans through March 15, 2007)

March 2007

1

 

GUIDELINES TO ADMINISTER

THE CONTROLLED AFFILIATE LICENSE AGREEMENTS

AND STANDARDS

Table
of Contents

March 2007

	 	 	 	 	 	 	 
	Preamble	 	5
	 
	 	 	 	 	 	 
	Matrix to determine which Standards Apply	 	7
	 
	 	 	 	 	 	 
	Standard 1
— Organization and Governance 
	 	8
	 
	 	 	 	 	 	 
	Standard 2
— Financial Responsibility
	 	15
	 
	 	 	 	 	 	 
	Standard 3
— State Licensure/Certification
	 	19
	 
	 	 	 	 	 	 
	Standard 4
— Certain Disclosures
	 	21
	 
	 	 	 	 	 	 
	Standard 5
— Reports and Records for Certain Smaller Controlled Affiliates
	 	22
	 
	 	 	 	 	 	 
	Standard 6
— Other Standards for Larger Controlled Affiliates
	 	23
	 
	 	 	 	 	 	 
	     Standard 6(A): Board of Directors	 	24
	 
	 	 	 	 	 	 
	     Standard 6(B): Responsiveness to Customers	 	26
	 
	 	 	 	 	 	 
	     Standard 6(C): Participation in National Programs	 	28
	 
	 	 	 	 	 	 
	     Standard 6(D): Financial Performance Requirements	 	31
	 
	 	 	 	 	 	 
	     Standard 6(E): Cooperation with Plan Performance Response Process	 	34
	 
	 	 	 	 	 	 
	     Standard 6(F): Independent Financial Rating	 	35
	 
	 	 	 	 	 	 
	     Standard 6(G): Local and National Best Efforts	 	36
	 
	 	 	 	 	 	 
	     Standard 6(H): Financial Responsibility	 	49
	 
	 	 	 	 	 	 
	     Standard 6(I): Reports and Records	 	52
	 
	 	 	 	 	 	 
	     Standard 6(J): Control by Unlicensed Entities Prohibited	 	55
	 
	 	 	 	 	 	 
	Standard 7
— Other Standards for Risk-Assuming Workers’ Compensation Affiliates
	 	57
	 
	 	 	 	 	 	 
	     Standard 7(A): Financial Responsibility	 	58
	 
	 	 	 	 	 	 
	     Standard 7(B): Reports and Records	 	60
	 
	 	 	 	 	 	 
	     Standard 7(C): Loss Prevention	 	63
	 
	 	 	 	 	 	 
	     Standard 7(D): Claims Administration	 	64
	 
	 	 	 	 	 	 
	     Standard 7(E): Disability and Provider Management	 	65

2

 

GUIDELINES TO ADMINISTER

THE CONTROLLED AFFILIATE LICENSE AGREEMENTS

AND STANDARDS

Table of Contents

March 2007

Page 2 of 3

	 	 	 	 	 	 	 
	Description	 	 	 	 	 	Page
	 
	 
	 	 	 	 	 	 
	Standard 8
	 	—	 	Cooperation with Controlled Affiliate License Performance	 	 
	 
	 	 	 	Response Process Protocol	 	66
	 
	 	 	 	 	 	 
	Standard 9A
	 	—	 	Participation in National Programs by Smaller	 	 
	 
	 	 	 	Controlled Affiliates That Were Former Primary Licensees	 	67
	 
	 	 	 	 	 	 
	Standard 9B
	 	—	 	Participation in National Programs by Smaller	 	70
	 
	 	 	 	Controlled Affiliates	 	 
	 
	 	 	 	 	 	 
	Standard 10
	 	—	 	Other Standards for Controlled Affiliates Whose Primary	 	 
	 
	 	 	 	Business is Government Non-Risk	 	73
	 
	 	 	 	 	 	 
	     Standard 10(A): Organization and Governance	 	74
	 
	 	 	 	 	 	 
	     Standard 10(B): Financial Responsibility	 	75
	 
	 	 	 	 	 	 
	     Standard 10(C): Reports and Records	 	77
	 
	 	 	 	 	 	 
	Standard 11
	 	—	 	Participation in Electronic Claims Routing Process	 	80
	 
	 	 	 	 	 	 
	Standard 12
	 	—	 	Participation in Master Business Associate Agreement by Smaller	 	 
	 
	 	 	 	Controlled Affiliate Licensees.	 	82
	 
	 	 	 	 	 	 
	Attachment I
	 	—	 	Required Report and Reporting Performance Measures	 	83
	 
	 	 	 	 	 	 
	Attachment II
	 	—	 	Clarification of Requirements
for Controlled Affiliates’ Annual Actuarial	 	 
	 
	 	 	 	Certification	 	85
	 
	 	 	 	 	 	 
	Attachment III
	 	—	 	Guaranty Association Alternatives & Evaluation Criteria	 	87
	 
	 	 	 	 	 	 
	Attachment IV
	 	—	 	Required Performance Reports and Certifications	 	 
	 
	 	 	 	Schedule For Larger Controlled Affiliates	 	90
	 
	 	 	 	 	 	 
	Attachment V
	 	—	 	Sanction Protocols - Reports and Records	 	92
	 
	 	 	 	 	 	 
	Attachment VI
	 	—	 	Required Performance Reports and Certifications Schedule	 	 
	 
	 	 	 	For Risk-Assuming Workers’ Compensation Affiliates	 	93
	 
	 	 	 	 	 	 
	Attachment VII
	 	—	 	Definition of “Local Net
Revenue” & “Combined Local Net Revenue”	 	94
	 
	 	 	 	 	 	 
	Attachment VIII
	 	—	 	Required Performance Reports and Certifications Schedule	 	 
	 
	 	 	 	For Controlled Affiliates Whose Primary Business is Government Non-Risk	 	98

3

 

GUIDELINES TO ADMINISTER

THE CONTROLLED AFFILIATE LICENSE AGREEMENTS

AND STANDARDS

Table of Contents

March 2007

Page 3 of 3

	 	 	 	 	 	 	 
	Description	 	 	 	 	 	Page
	 
	 
	 	 	 	 	 	 
	Attachment IX
	 	—	 	Business Associate Agreement For Blue Cross and Blue Shield Licensees	 	99

4

 

GUIDELINES TO ADMINISTER

THE CONTROLLED AFFILIATE LICENSE AGREEMENTS AND STANDARDS

Preamble

March 2007

The following Guidelines were developed as a method for assisting the Plan

Performance and Financial Standards Committee (PPFSC) in evaluating compliance with the Controlled
Affiliate License and the applicable License Standards.

In developing the Guidelines, the following framework was used:

	•	 	Guidelines allow start-up operations to qualify for Licensure;
	 
	•	 	Guidelines provide an objective, measurable test of compliance with each License Standard;
and
	 
	•	 	Guidelines define compliance with Standards at an acceptable level of performance, not
at a target performance level.

To qualify for a License, the applicant Controlled affiliate must be found in compliance
with the applicable License Standards and the terms of the Controlled Affiliate License
Agreement(s). In determining whether to grant a license to a Controlled Affiliate that
meets the standards of paragraph 2E(1) but not 2E(2) of the Blue Cross or Blue Shield
Controlled Affiliate License Agreement, the Blue Cross and Blue Shield Association
(“BCBSA”) shall consider whether the grant of the Controlled Affiliate License is likely to
enhance the value of the Licensed Marks and Name, which review shall include, but not be
limited to, consideration of the following criteria:

	 	-	 	The owners or persons or entities with authority to select or appoint members or
board members (other than the Plan or Plans), directors, officers, and proposed
management team of the applicant must demonstrate that they possess the character
and qualifications to operate the business in a manner which will enhance the value
of the Licensed Marks and Name.
	 
	 	-	 	The applicant must submit a business plan based on realistically- attainable
objectives which indicate that it will operate its business in a manner which will
enhance the value of the Licensed Marks and Name.
	 
	 	-	 	The applicant must make a full disclosure to BCBSA of all of the terms of any
proposed transaction with its owners or persons or entities with authority to
select or appoint members or board members of the Controlled Affiliate (other than
a Plan or Plans), or their Controlled Affiliates, including purchase, lease,
employment, consulting or other financial arrangements with the applicant or its officers,
directors, employees, or members.

5

 

GUIDELINES TO ADMINISTER

THE CONTROLLED AFFILIATE LICENSE AGREEMENTS AND STANDARDS

Preamble, continued

March 2007

	 	-	 	The applicant, if licensed, would not be in violation of any provisions of the
Bylaws, Controlled Affiliate License Agreements, Controlled Affiliate License
Standards or accompanying Guidelines and would not be subject to monitoring under
the Plan Performance Response Process due to its financial status, based on its
fiscal quarter most recently ended.

The Plan shall notify BCBSA of any proposed change, including percentage changes, in
ownership or in the appointment or selection authority of members or board members of a
Controlled Affiliate, at which time BCBSA may conduct a review to determine continuing
compliance with these criteria, provided that as to publicly traded Controlled Affiliates
this requirement applies only if the change affects a person or entity that owns at least
5% of the Controlled Affiliate’s stock before or after the change.

PPFSC may recommend to the BCBSA Board of Directors new guidelines or changes to existing
guidelines from time to time. Such new or revised guidelines shall not become effective, however,
unless and until the Board of Directors approves them.

PPFSC does not have the authority to grant or terminate a Controlled Affiliate License. PPFSC is
responsible for making the initial determination about a Licensee’s or potential Licensee’s
compliance with the License Agreement(s) and Standards. Based on that determination, PPFSC makes a
recommendation to the Board of Directors of BCBSA, which may accept, reject or modify PPFSC’s
recommendation. The Board of Directors may decide to terminate the License at any time if a
Licensed Controlled Affiliate is found not to be in compliance with the License Agreement(s) and/or
Standards. The Licensed Controlled Affiliate is at all times bound to follow BCBSA’s Board-adopted
service mark use regulations.

A Regular Member Plan that operates as a “Shell Holding Company” is defined as an entity that
assumes no underwriting risk and has less than 1% of the consolidated enterprise assets (excludes
investments in subsidiaries) and less than 5% of the consolidated enterprise net general and
administrative expenses.

A Regular Member Plan that operates as a “Hybrid Holding Company” is defined as an entity that
assumes no underwriting risk and has either more than 1% of the consolidated enterprise assets
(excludes investments in subsidiaries) or more than 5% of the consolidated enterprise net general and administrative expenses.

6

 

Attachment I

STANDARDS FOR LICENSED CONTROLLED AFFILIATES

As described in Preamble section of Exhibit A to the Affiliate License Agreement, each controlled affiliate seeking licensure
must answer four questions. Depending on the controlled affiliate’s answers, certain standards apply:

1. What percent of the controlled affiliate is controlled by the parent Plan?

	 	 	 	 	 	 
	More than 50%
	 	 	50%	 	100% and Primary Business is
	 
	 	 	 	 	Government Non-Risk
	 
	 	 	 	 	 
	ò
	 	 	ò	 	ò
	 
	 	 	 	 	 
	Standard 1A, 4
	 	 	Standard 1B, 4	 	 
	 
	 	 	 	 	Standard 4*,10A

			
	*	 	Applicable only if
using the names and
marks.

IN ADDITION,

2. Is risk being assumed?

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Yes
	 	 	 	 	 	No	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	÷

	 	ò
	 	ø
	 	÷
	 	ò
	 	ø
	 
	 	 	 	 	 	 	 	 	 	 
	Controlled Affiliate

	 	Controlled Affiliate
	 	Controlled Affiliate
	 	Controlled Affiliate
	 	Controlled Affiliate
	 	Controlled
	underwrites any

	 	comprises < 15%
	 	comprises > 15%
	 	comprises < 15%
	 	comprises > 15%
	 	Affiliate’s Primary
	indemnity portion

	 	of total member
	 	of total member
	 	of total member
	 	of total member
	 	Business is
	of workers’

	 	enrollment of Plan
	 	enrollment of Plan
	 	enrollment of Plan
	 	enrollment of Plan
	 	Government Non-
	compensation

	 	and its licensed
	 	and its licensed
	 	and its licensed
	 	and its licensed
	 	Risk
	insurance

	 	affiliates, and does
	 	affiliates, and does
	 	affiliates
	 	affiliates	 	 
	ò
	 	not underwrite the
	 	not underwrite the	 	 	 	 	 	 
	Standards 7A-7E, 12

	 	indemnity portion of
	 	indemnity portion of
	 	ò
	 	ò
	 	ò

	

	 	workers’
	 	workers’	 	 	 	 	 	 
	 

	 	compensation
	 	compensation
	 	 	 	Standard 6H
	 	Standard 10B
	 

	 	insurance
	 	insurance	 	 	 	 	 	 
	 

	 	ò
	 	ò	 	 	 	 	 	 
	 

	 	Standard 2
	 	Standard 6H
	 	Standard 2	 	 	 	 
	 

	 	(Guidelines 1.1,1.2)
	 	 	 	(Guidelines 1.1,1.3)	 	 	 	 
	 

	 	and Standard 11
	 	 	 	and Standard 11	 	 	 	 

IN ADDITION,

3. Is medical care being directly provided?

	 	 	 	 
	Yes
	 	 	No
	 
	 	 	 
	ò
	 	 	ò
	 
	 	 	 
	Standard 3A
	 	 	Standard 3B

IN ADDITION,

4. If the controlled affiliate has health or workers’ compensation administration business, does such business
comprise 15% or more of the total member enrollment of Plan and its licensed controlled affiliates?

	 	 	 	 	 	 	 	 	 
	Yes

	 	 	 	 	 	No	 	 
	ò
	 	÷
	 	÷

	 	ò

	 	ø

	Standards 6A-6J

	 	Controlled Affiliate
	 	Controlled Affiliate is
	 	Controlled Affiliate is not a
	 	Controlled Affiliate’s
	 

	 	is not a former
	 	a former primary
	 	former primary licensee
	 	Primary Business is
	 

	 	primary licensee
	 	licensee
	 	and does not elect to
	 	Government Non-Risk
	 

	 	and elects to
	 	 	 	participate in BCBSA	 	 
	 

	 	participate in
	 	ò

	 	national programs
	 	ò

	 

	 	BCBSA national
	 	 	 	ò	 	 
	 

	 	programs	 	 	 	 	 	 
	 

	 		 	 	 	 	 	 
	 

	 	Standards 5,8,9B,12
	 	Standards

5,8,9A,11,12
	 	Standards 5,8,12
	 	Standards 8, 10(C),12

7

 

Standard 1(A) — Organization and Governance

1A.) The Standard for more than 50% Plan control is:

A Controlled Affiliate shall be organized and operated in such a manner that a licensed Plan or
Plans authorized to use the Licensed Marks in the Service Area of the Controlled
Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled
Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority,
directly or indirectly through wholly-owned subsidiaries:

	A.	 	to select members of the Controlled Affiliate’s governing body having more than 50% voting
control thereof; and
	 
	B.	 	to prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not
concur; and
	 
	C.	 	to exercise control over the policy and operations of the Controlled
Affiliate.

In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries shall own
more than 50% of any for-profit Controlled Affiliate.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	A “Controlling Plan” is a Plan that holds a Primary License with BCBSA to use the
Service Marks in the Service Area of the Controlled Affiliate.
	 
	 	1.2	 	Controlling Plan(s) directly or indirectly through wholly-owned subsidiaries must: (a)
have the legal authority to select members of the Controlled Affiliate’s governing body
having more than 50% of the voting control thereof; and (b) have the legal authority to
prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which such Plan(s) do(es) not concur;
and (c) have the legal authority to exercise control over the policy and operations of the
Controlled Affiliate.

8

 

Standard 1(A) — Organization and Governance

	 	1.3	 	In the case of a for-profit Controlled Affiliate, Controlling Plan(s) or other Plans
licensed to use the Blue Cross and/or Blue Shield Marks by BCBSA must hold directly or
indirectly through wholly-owned subsidiaries more than 50% ownership of the Controlled
Affiliate.
	 
	 	1.4	 	If the controlled affiliate has members with the authority to nominate, elect, or
remove any board member or amend or recommend revisions to articles of incorporation,
bylaws, or other governing documents, the Controlled Affiliate shall be considered
noncompliant if more than 50% of the voting control of the Controlled Affiliate resides in
members that are, or are selected, appointed, or designated by, or are employed by, or are
officers or directors of, or have a direct or indirect financial interest in:

	 	1.4.a	 	 persons or entities with the authority to select or appoint members of the
controlled affiliate (other than a licensee of BCBSA or an entity controlled by a
licensee);
	 
	 	1.4.b	 	 Affiliates and Associates (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934 and other than a licensee of BCBSA or an entity controlled by
a licensee) of the persons or entities described in 1.4.a; or
	 
	 	1.4.c	 	 other persons or entities (other than a licensee of BCBSA or an entity
controlled by a licensee) that provide goods or services to a person or entity
described in 1.4.a.

Direct or indirect financial interest excludes stock holdings of under 5% in a
publicly traded company.

	 	1.5	 	An affiliate shall be considered noncompliant if more than 50% of the voting control of
the affiliate’s board resides in board members who are, or are selected, appointed, or
designated by, or are employed by, or are officers or directors of, or have a direct or
indirect financial interest in:

	 	1.5.a	 	 owners, or persons or entities with the authority to select or appoint board
members of the affiliate (other than a licensee of BCBSA or an entity controlled by
a licensee);
	 
	 	1.5.b 	 	Affiliates and Associates (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934 and other than a licensee of BCBSA or an entity controlled by
a licensee) of the persons or entities described in 1.5.a; or
	 
	 	1.5.c	 	 other persons or entities (other than a licensee of BCBSA or an entity
controlled by a licensee) that provide goods or services to a person or entity
described in 1.5.a.

9

 

Standard 1(A) — Organization and Governance, continued

Direct or indirect financial interest excludes stock holdings of under 5% in a
publicly traded company.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

10

 

Standard 1(B) — Organization and Governance

1B.) The Standard for 50% Plan control is:

A Controlled Affiliate shall be organized and operated in such a manner that a licensed Plan or
Plans authorized to use the Licensed Marks in the Service Area of the Controlled
Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled
Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority,
directly or indirectly through wholly-owned subsidiaries:

	A.	 	to select members of the Controlled Affiliate’s governing body having not less than 50% voting
control thereof; and
	 
	B.	 	to prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not
concur; and
	 
	C.	 	to exercise control over the policy and operations of the Controlled Affiliate at least equal to
that exercised by persons or entities (jointly or individually) other than the Controlling Plan(s).

Notwithstanding anything to the contrary in A through C hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by the Controlling Plan(s)
before the Controlled Affiliate can:

	 	•	 	change the geographic area in which it operates
	 
	 	•	 	change its legal and/or trade names
	 
	 	•	 	change any of the types of businesses in which it engages
	 
	 	•	 	create, or become liable for by way of guarantee, any indebtedness, other than
indebtedness arising in the ordinary course of business
	 
	 	•	 	sell any assets, except for sales in the ordinary course of business or sales of
equipment no longer useful or being replaced
	 
	 	•	 	make any loans or advances except in the ordinary course of business
	 
	 	•	 	enter into any arrangement or agreement with any party directly or indirectly
affiliated with any of the owners or persons or entities with the authority to select or
appoint members or board members of the Controlled Affiliate, other than the Plan or Plans
(excluding owners of stock holdings of under 5% in a publicly traded Controlled Affiliate)
	 
	 	•	 	conduct any business other than under the Licensed Marks and Name

11

 

Standard 1(B) — Organization and Governance, continued

	 	•	 	take any action that any Controlling Plan or BCBSA reasonably believes will
adversely affect the Licensed Marks and Name.

In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries shall
own at least 50% of any for-profit Controlled Affiliate.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	A “Controlling Plan” is a Plan that holds a Primary License with BCBSA to use the
Service Marks in the Service Area of the Controlled Affiliate.
	 
	 	1.2	 	Controlling Plan(s) must directly or indirectly through wholly-owned subsidiaries: (a)
have the legal authority to select members of the Controlled Affiliate’s governing body
having not less than 50% voting control thereof; and (b) have the legal authority to
prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the controlled affiliate with which the Controlling Plan(s) do(es)
not concur; and (c) have the legal authority to exercise control over the policy and
operations of the Controlled Affiliate at least equal to that exercised by persons or
entities (jointly or individually) other than the Controlling Plan(s).
	 
	 	1.3	 	Notwithstanding anything to the contrary above, the Controlled Affiliate’s establishing
or governing documents must also require the written approval by the Controlling Plan(s)
before the Controlled Affiliate can:

	 	1.3.a	 	 change the geographic area in which it operates
	 
	 	1.3.b	 	 change its legal and/or trade names
	 
	 	1.3.c	 	 change any of the types of businesses in which it engages
	 
	 	1.3.d	 	 create, or become liable for by way of guarantee, any indebtedness, other
than indebtedness arising in the ordinary course of business
	 
	 	1.3.e	 	 sell any assets, except for sales in the ordinary course of business or sales
of equipment no longer useful or being replaced
	 
	 	1.3.f	 	 make any loans or advances except in the ordinary course of business
	 
	 	1.3.g	 	 enter into any arrangement or agreement with any party directly or indirectly
affiliated with any of the owners or persons or
entities with the authority to select or appoint members or board members of the
Controlled Affiliate, other than the Plan or Plans (excluding owners

12

 

Standard 1(B) — Organization and Governance, continued

     of stock holdings of under 5% in a publicly traded Controlled
Affiliate)

	 	1.3.h	 	 conduct any business other than under the Licensed Marks and Names
	 
	 	1.3.i	 	 take any action that any Controlling Plan or BCBSA reasonably believes will
adversely affect the Licensed Marks and Name.

	 	1.4	 	In the case of a for-profit Controlled Affiliate, Controlling Plan(s) or other Plans
licensed to use the Blue Cross and/or Blue Shield Marks by BCBSA must hold directly or
indirectly through wholly-owned subsidiaries at least 50% ownership of the Controlled
Affiliate.
	 
	 	1.5	 	If the controlled affiliate has members with the authority to nominate, elect, or
remove any board member or amend or recommend revisions to articles of incorporation,
bylaws, or other governing documents, the controlled affiliate shall be considered
noncompliant if more than 50% of the voting control of the controlled affiliate resides in
members that are, or are selected, appointed, or designated by, or are employed by, or are
officers or directors of, or have a direct or indirect financial interest in:

	 	1.5.a	 	 persons or entities with the authority to select or appoint members of the
controlled affiliate (other than a licensee of BCBSA or an entity controlled by a
licensee);
	 
	 	1.5.b	 	 Affiliates and Associates (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934 and other than a licensee of BCBSA or an entity controlled by
a licensee) of the persons or entities described in 1.5.a; or
	 
	 	1.5.c	 	 other persons or entities (other than a licensee of BCBSA or an entity
controlled by a licensee) that provide goods or services to a person or entity
described in 1.5.a.

	 	 	 	Direct or indirect financial interest excludes stock holdings of under 5% a
publicly traded company.
	 
	 	1.6	 	An affiliate shall be considered noncompliant if more than 50% of the voting control of
the affiliate’s board resides in board members who are, or are selected, appointed, or
designated by, or are employed by, or are officers or directors of, or have a direct or
indirect financial interest in:

	 	1.6.a	 	 owners, or persons or entities with the authority to select or appoint board
members of the affiliate (other than a licensee of BCBSA or an entity controlled by
a licensee);

13

 

Standard 1(B) — Organization and Governance, continued

	 	1.6.b	 	 Affiliates and Associates (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934 and other than a licensee of BCBSA or an entity controlled by
a licensee) of the persons or entities described in 1.6.a; or
	 
	 	1.6.c	 	 other persons or entities (other than a licensee of BCBSA or an entity
controlled by a licensee) that provide goods or services to a person or entity
described in 1.6.a.

Direct or indirect financial interest excludes stock holdings of under 5% a
publicly traded company.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

14

 

Standard 2 — Financial Responsibility

The Standard is:

A controlled affiliate shall be operated in a manner that provides reasonable financial assurance
that it can fulfill all of its contractual obligations to its customers. If a risk-assuming
controlled affiliate ceases operations for any reason, Blue Cross and/or Blue Shield Plan coverage
will be offered to all controlled affiliate subscribers without exclusions, limitations or
conditions based on health status. If a nonrisk-assuming controlled affiliate ceases operations for
any reason, the sponsoring Plan(s) will provide for services to its (their) customers. The
requirements of the preceding two sentences shall apply to all lines of business unless a line of
business is specifically exempted from the requirement(s) by the BCBSA Board of Directors.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	Compliance for all smaller controlled affiliate licensees, except those subject to
Standard 7, is based on:

	 	1.1.a	 	 Accounting records maintained on an accrual basis subject. A controlled
affiliate shall file an annual certified audit report with BCBSA if the controlled
affiliate is required to file such a report with its domicilary State Insurance
Department. If no such requirement is in force and the controlled affiliate is a
risk-assuming entity, the controlled affiliate is not required to submit an annual
certified audit report with BCBSA provided the controlled affiliate’s SAP reserve
(or equivalent net worth) is disclosed separately in the primary licensee’s annual
certified audit report for the same period. If the controlled affiliate is a
nonrisk assuming entity, an annual certified audit report is not required.

	 	1.1a(i) 	 	If the certified audit is required by the State Insurance
Department, the independent financial statement opinion included in the
controlled affiliate’s annual audit report shall not express doubts as to
the licensee’s ability to continue as a going concern. The annual audit is
to be performed by an independent CPA firm acceptable to PPFSC; and

	 	1.1.b	 	 An appropriate conversion/service agreement from the sponsoring Plan(s)
unless a line of business is specifically exempted from the requirement(s) by the
BCBSA Board of Directors. In situations where the parent and controlled affiliate
prefer, the parent and controlled affiliate may, upon the agreement of BCBSA,
provide alternative protections; and

	 	1.1b(i)	 	 BCBSA Board approved exemptions under Guideline 1.1.b included all
types of Part C Medicare Advantage programs, Part D Medicare Prescription
Drug Plans, Title XXI State Children’s Health Insurance Program (SCHIP)
and all types of Title XIX Medicaid programs.

15

 

Standard 2 — Financial Responsibility, continued

	 	1.1.c	 	 The controlled affiliate and Sponsoring Plan(s) certifying to BCBSA that
the Sponsoring Plan(s) guarantees to the full extent of its (their) assets, all of
the contractual and financial obligations of the controlled affiliate to its
customers. In situations where such a guaranty is not permitted by regulation or
statute, or where the parent and controlled affiliate prefer, the parent
and controlled affiliate may, upon agreement of BCBSA, provide alternative
protections which may include, but are not limited to, the “Payment of
Claims Liabilities — Alternative Mechanisms” enumerated in Attachment III
(Guaranty Association Alternatives & Evaluation Criteria).

Noncompliance with Guideline 1.1 will result in the termination of the License
pursuant to paragraph 7(C) of the License Agreement.

	 	1.2	 	Compliance for a risk-assuming smaller controlled affiliate that does not underwrite
the indemnity portion of workers’ compensation insurance, in addition to Guideline 1.1 is
based on:

	 	1.2.a	 	 For a controlled affiliate at greater than 50% Plan ownership:

	 	1.2a(i) 	 	A net worth (SAP equivalent) of at least its “ Health Risk Based
Capital (HRBC) Authorized Control Level (ACL) after co-variance” as defined
by the NAIC and hereinafter referred to as “Authorized Control Level.”
Notwithstanding a Controlled Affiliate’s HRBC level, a Controlled Affiliate
shall maintain its SAP reserve (or equivalent net worth) at or above the
minimum reserve (or net worth level) established by each state in which it
is domiciled and/or operates or if there is no state minimum, $3.0 million.
The following exception exists for transition purposes:

	 	1.2a(i)(1) 	 	Controlled Affiliates are required to maintain a net
worth (SAP equivalent) of at least their Authorized Control Level,
the state minimum, or if there is no state minimum, $3.0 million.
	 
	 	1.2a(i)(2) 	 	Compliance with this requirement may also be met if the
state regulatory authority, in lieu of a capital infusion, has
accepted a written financial guarantee, which contractually
obligates the sponsoring Plan(s) for the financial commitments of
the controlled affiliate, and the situation meets the following
criteria:

	 	A	 	 the amount of such guarantee is at least equal to 150%
of the unpaid claim liabilities of the controlled
affiliate; and
	 
	 	B	 	 the Plan’s SAP reserve is at least equal to or greater
than 600% of the Plan’s Authorized Control Level.

	 	1.2.b	 	 For a controlled affiliate at 50% Plan ownership:

16

 

Standard 2 — Financial Responsibility, continued

	 	1.2b(i) 	 	As of 12/31/99 and thereafter, a net worth (SAP equivalent)
equal to the greater of its Authorized Control Level, the state minimum or
$3.0 million; and liquidity (standard BCBSA definition) equal to the
greater of $3.0 million or .5 months of claims and administrative
expenses.

	 	1.2b (i)(1)	 	 Controlled Affiliates are required to maintain net
worth (SAP equivalent) equal to the greater of its Authorized
Control Level, the state minimum or $3.0 million. In all cases,
Controlled Affiliates are required to comply with the minimum
liquidity (standard BCBSA definition) requirement equal to the
greater of $3.0 million or .5 months of claims and administrative
expenses.

	 	1.2.c	 	 If a controlled affiliate is licensed as a life insurer or property and
casualty insurer in the states where it does business, it must have a SAP or
equivalent net worth that is the higher of:

	 	1.2.c(i) 	 	an amount exceeding the “Authorized Control Level” as
defined in the NAIC’s Risk-Based Capital (RBC) for Insurers Model
Act; or
	 
	 	1.2.c(ii)	 	 if the state has not adopted the NAIC’s Risk-Based
Capital (RBC) for Insurers Model Act, the minimum statutory
reserve requirement of the state in which the life insurance
company is domiciled

	 	1.2.d	 	 Each controlled affiliate also is required to submit evidence of adequate
accounting for loss reserves, actuarial liabilities and related items as
annually certified by a qualified actuary pursuant to a review process
acceptable to PPFSC (See Attachment II; Note: Each licensee is required to
submit a separate certification).

Noncompliance with Guideline 1.2 will result in the termination of the License
pursuant to paragraph 7(C) of the License Agreement.

	 	1.3	 	Compliance for a nonrisk-assuming smaller controlled affiliate in addition to 1.1 is
based on:

	 	1.3.a	 	 A net worth of at least 8.33% of annual net operating expenses.

Noncompliance with Guideline 1.3 will result in the termination of the License
pursuant to paragraph 7(C) of the License Agreement.

	2.	 	Guidelines Subject to Mediation/Arbitration

17

 

Standard 2 — Financial Responsibility, continued

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

18

 

Standard 3(A) — State Licensure/Certification

	3A.)	 	The Standard for a controlled affiliate that employs, owns or contracts on a
substantially exclusive basis for medical services is:

A controlled affiliate shall maintain appropriate and unimpaired licensure and certifications.

Determination of Compliance:

	1.	 	Hospitals shall have Joint Commission on Accreditation of Healthcare Organizations
certification of at least the partial level; and
	 
	2.	 	Physicians shall hold applicable current state licenses; and
	 
	3.	 	All other providers shall have applicable current state licenses; and
	 
	4.	 	Licensee shall obtain liability insurance or otherwise provide financial arrangements to
protect against liability from its operations in an amount and form approved by BCBSA. BCBSA
shall be named as an additional insured and be named as an indemnitee under such financial
arrangements, and licensee shall supply a certificate of insurance or evidence of the
financial arrangement demonstrating that BCBSA is an additional insured or indemnitee under
the financial arrangements. Liability insurance or financial arrangements shall not be
modified by the licensee or canceled without prior sixty (60) days written notice to BCBSA, or
less if required by the insurer to the Licensee; and
	 
	5.	 	A controlled affiliate shall be in good standing with the state (or states) in which it
operates; and
	 
	6.	 	Where applicable, indemnity claims adjusters shall maintain current state certification.

Noncompliance with Standard 3A by a smaller controlled affiliate will result in the termination of
the License pursuant to paragraph 7(C) of the License Agreement. For a larger controlled affiliate,
noncompliance will result in initiation of mediation/dispute resolution process pursuant to
paragraph 7(D) of the License Agreement.

19

 

Standard 3(B) — State Licensure/Certification

	3B.)	 	The Standard for a controlled affiliate that does not employ, own or contract on a
substantially exclusive basis for medical services is:

A controlled affiliate shall maintain appropriate and unimpaired licensure and certifications.

Determination of Compliance:

	1.	 	A controlled affiliate shall be in good standing with the state (or states) in which it
operates; and
	 
	2.	 	Where applicable, indemnity claims adjusters shall maintain current state certification.

Noncompliance with Standard 3B by a smaller controlled affiliate will result in the termination of
the License pursuant to paragraph 7(C) of the License Agreement. For a larger controlled
affiliate, noncompliance will result in initiation of mediation/dispute resolution process pursuant
to paragraph 7(D) of the License Agreement.

20

 

Standard 4 — Certain Disclosures

The Standard is:

A controlled affiliate shall make adequate disclosure in contracting with third parties and in
disseminating public statements of:

	A.	 	the structure of the Blue Cross and Blue Shield System; and
	 
	B.	 	the independent nature of every licensee; and
	 
	C.	 	the controlled affiliate’s financial condition.

Determination of Compliance:

	1.	 	A controlled affiliate that is in PPRP monitoring for financial reasons shall disseminate to
all providers, accounts, and direct pay subscribers (if any) the descriptions contained in the
approved disclosure brochure or other document as set forth in the Brand Book; and

	2.	 	A controlled affiliate that is in PPRP monitoring for financial reasons shall disseminate to
all providers, accounts, and direct pay subscribers (if any) a summary of the controlled
affiliate’s year-end audited balance sheet as set forth in the Brand Book; and

	3.	 	A controlled affiliate shall comply with the other disclosure requirements as set forth in
the Brand Book; and

	4.	 	A controlled affiliate shall include the approved form contract disclosure provisions in all
written contracts with providers, accounts, and direct pay subscribers (if any) as set forth
in the Brand Book. If a state regulator refuses to permit a controlled affiliate to add these
provisions to any such contract, and if the controlled affiliate provides written evidence of
such refusal, BCBSA shall not require the provisions in such contract and BCBSA shall notify
the regulator that the controlled affiliate has been relieved of compliance for as long as the
regulator prohibits compliance; and

	5.	 	A controlled affiliate shall include on each subscriber ID card carrier or mailer enclosed
with or attached to a subscriber ID card the form disclosure statement as set forth in the
Brand Book; and

	6.	 	A controlled affiliate shall provide information in such form as requested by the Association
demonstrating that the controlled affiliate is complying with the above requirements.

Noncompliance
with Standard 4 by a smaller controlled affiliate will result in the termination of the License
pursuant to paragraph 7(C) of the License Agreement. For a larger controlled affiliate,
noncompliance will result in initiation of mediation/dispute resolution process pursuant to
paragraph 7(D) of the License Agreement.

21

 

Standard 5 — Reports and Records for Certain Smaller Controlled Affiliates

For a smaller controlled affiliate that does not underwrite the indemnity portion of workers’
compensation insurance, the Standard is:

A controlled affiliate and/or its licensed Plan(s) shall furnish, on a timely and accurate basis,
reports and records relating to these Standards and the License Agreements between BCBSA and
controlled affiliate.

Determination of Compliance:

	1.	 	Compliance for all smaller Controlled Affiliates that do not underwrite the indemnity
portion of workers’ compensation insurance is based on:

	 	1.1	 	The timely submission of accurate and complete reports as required by the BCBSA Board
of Directors (see Attachment I), to include indication of compliance with the License
Agreements, as interpreted in the Brand Book; and
	 
	 	1.2	 	Mandatory reporting to BCBSA of any untoward events associated with the controlled
affiliate, such as malpractice suits or other legal/financial events that would materially
affect controlled affiliate operations and/or performance; and
	 
	 	1.3	 	The controlled affiliate and sponsoring Licensed Plan(s):

	 	1.3.a	 	agreeing upon
request by BCBSA to an examination; and
	 
	 	1.3.b	 	providing access to requested staff and/or
documentation.

	2.	 	Noncompliance for smaller Controlled Affiliates is a result of the following:

	 	2.1	 	Reporting — substantial incompleteness and/or inaccuracy and/or lateness and/or
nonsubmission of required reports as described in Attachment I; or
	 
	 	2.2	 	Examination — failure to comply with any one of the examination issues; or
	 
	 	2.3	 	Untoward Events — failure to report timely and accurately events materially affecting
the controlled affiliate; and
	 
	 	2.4	 	BCBSA management, after contact with Plan management, concludes that compliance is not
likely to be reached, given existing controlled affiliate/Plan efforts.

Noncompliance with Standard 5 will result in termination of the License pursuant to paragraph 7(C)
of the License Agreement.

22

 

Standard 6 — Other Standards for Larger Controlled Affiliates

Standards 6(A) — (J) that follow apply to larger Controlled Affiliates.

23

 

Standard 6(A): Board of Directors

The Standard is:

A controlled affiliate Governing Board shall act in the interest of its Corporation in providing
cost-effective health care services to its customers. A controlled affiliate shall maintain a
governing Board, which shall control the controlled affiliate, composed of a majority of persons
other than providers of health care services, who shall be known as public members. A public
member shall not be an employee of or have a financial interest in a health care provider, nor be a
member of a profession which provides health care services.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	The controlled affiliate’s Board shall be composed of a majority of members (greater
than 50% of the total) who are:

	 	2.1.a	 	public members*; and
	 
	 	2.1.b	 	not, in any combination, a controlling faction of the controlled affiliate’s
Board with a common interest in any business, governmental, lobbying, or other
organized group or entity, excluding Plan directors.

 

			
	*	 	A “public member” excludes any person who:

	 	•	 	is engaged or has engaged at any time in the practice of a health care profession (other
than an employee of the Plan);
	 
	 	•	 	is a director, officer, partner or employee of an organization that primarily sells health
care services (other than the Plan or an organization controlled by the Plan); or
	 
	 	•	 	is a director, officer, partner or employee of an organization of health care providers;
or
	 
	 	•	 	has direct or indirect beneficial interest of more than five percent of the equity of an
organization that sells or delivers health care services.

24

 

Standard 6(A): Board of Directors, continued

	 	2.2	 	Notwithstanding anything in this Paragraph 2.2, a controlled affiliate in
violation of Paragraph 2.1 of these Guidelines shall be subject to immediate termination.
	 
	 	2.3	 	The controlled affiliate CEO or Corporate Secretary must certify to the PPFSC that the
triennial BCBSA license compliance letter (including the controlled affiliate’s licensure
status, a copy of the Licensure Standards and Guidelines, a report of the controlled
affiliate’s licensure status by Standard, and PPFSC comments or concerns, if any, about the
controlled affiliate’s compliance with the License Agreements and Standards), has been
distributed to all controlled affiliate Board Members. Such certification may be in the
form of the minutes of the controlled affiliate Board meeting or other documentation
demonstrating timely compliance with the distribution requirement.

	 	2.3.a	 	Controlled Affiliates, as deemed appropriate by the PPFSC, may be required to
respond to an annual BCBSA controlled affiliate licensure information request,
which will result in an annual BCBSA license compliance letter sent to the
controlled affiliate’s CEO. Controlled Affiliates included in the Plan Performance
Response Process** will be required to respond to an annual BCBSA controlled
affiliate licensure information request, which will result in an annual BCBSA
license compliance letter sent to the controlled affiliate’s CEO.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

25

 

Standard 6(B): Responsiveness to Customers

The Standard is:

A controlled affiliate shall be operated in a manner responsive to customer needs and requirements.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	A Controlled Affiliate shall maintain enrollment performance of not worse than declines
of 8% in one year and 20% over three years for “total Blue
members”1 of the
Controlled Affiliate Licensee and its Blue affiliates excluding Life Insurance and
Charitable Foundation affiliates.
	 
	 	3.2	 	Effective 1/1/2004, the Primary Licensees will collect and report MTM Direct Measures
data and Service Performance Scorecard data for each Geographic Market and on an enterprise
basis for all licensed affiliates with branded health business to BCBSA.

 

			
	(1)	 	Total Blue Members is defined as total hospital and medical/surgical members,
excluding freestanding, as reported by Licensees to BCBSA.

26

 

Standard 6(B): Responsiveness to Customers, continued

Sanctions:

A controlled affiliate’s Board shall be notified of the controlled affiliate’s
noncompliance with the thresholds relating to enrollment and service performance in the
BCBSA license compliance letter as required under Standard 6A: Board of Directors.

27

 

Standard 6(C): Participation in National Programs

The Standard is:

A controlled affiliate shall effectively and efficiently participate in each national program as
from time to time may be adopted by the Member Plans for the purposes of providing portability of
membership between the licensees and ease of claims processing for customers receiving benefits
outside of the controlled affiliate’s Service Area.

Such programs are applicable to licensees, and include:

	A.	 	Transfer Program;
	 
	B.	 	BlueCard Program;
	 
	C.	 	Inter-Plan Teleprocessing System (ITS);
	 
	D.	 	Electronic
Claims Routing Process;
	 
	E.	 	National Account Programs, effective January 1,
2002;
	 
	F.	 	Business Associate Agreement for Blue Cross and Blue Shield Licensees, effective April 14, 2003;
and
	 
	G.	 	Inter-Plan Medicare Advantage Program.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	BlueCard Program and ITS — A controlled affiliate shall fully participate in ITS and
the BlueCard Program through compliance with all BlueCard Program Policies and Provisions
and all applicable Inter-Plan Programs Policies and Provisions, unless an exemption has
been granted by the Inter-Plan Programs Committee (IPPC) in accordance with those Policies
and Provisions.

	 	2.1.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	2.1.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to the PPFSC and
the BCBSA Board of Directors for their action.
	 

28

 

Standard 6(C): Participation in National Programs, continued

	 	2.2	 	Electronic Claims Routing Process — A Controlled Affiliate shall fully
participate in the Electronic Claims Routing Process through compliance with all Electronic
Claims Routing Process Policies and Provisions and all applicable Inter-Plan Programs
Policies and Provisions.

	 	2.2.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	2.2.b 	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC
that such action is warranted and a referral of the matter from IPPC to PPFSC and
the BCBSA Board of Directors for their action.

	 	2.3	 	National Account Programs — Effective January 1, 2002, a controlled affiliate shall
fully participate in the National Account Programs through compliance with all National
Account Program Policies and Provisions and all applicable Inter-Plan Programs Policies and
Provisions.

	 	2.3.a 	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	2.3.b 	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to PPFSC and the
BCBSA Board of Directors for their action.

	 	2.4	 	Business Associate Agreement for Blue Cross and Blue Shield Licensees — A controlled
affiliate shall fully comply with the terms and conditions of the Business Associate
Agreement for Blue Cross and Blue Shield Licensees (Attachment IX).

	 	2.4.a 	 	Compliance determined by certification of adherence to the terms and conditions
of the Business Associate Agreement for Blue Cross and Blue Shield Licensees.
	 
	 	2.4.b 	 	The Association shall commence Mediation/Arbitration or intervene in a
Mediation/Arbitration proceeding among Plans and/or controlled affiliate licensees upon a
finding by the Plan Performance and Financial Standards Committee that such action is
warranted and a referral of the matter from PPFSC to the BCBSA Board of Directors for its
action.

	 	2.5	 	Inter-Plan Medicare Advantage Program — A Controlled Affiliate shall fully participate
in the Inter-Plan Medicare Advantage Program through compliance with all Inter-Plan
Medicare Advantage Program Policies and Provisions.

	 	2.5a 	 	Compliance determined by periodic review or audits and by reviews initiated by evidence of problems.

29

 

Standard 6(C): Participation in National Programs, continued

	 	2.5b 	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to PPFSC and the
BCBSA Board of Directors for their action.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	Transfer Program — A controlled affiliate shall be in compliance with the policies and
procedures of the program and shall correct any items of noncompliance. Compliance
determined by annual controlled affiliate certification of having appropriately followed
program procedures to identify and transfer non-resident direct pay and Medicare
Supplemental subscribers, by quarterly volume reporting, and by reviews initiated by
evidence of problems.

	 	 	Sanctions:
	 
	 	 	A controlled affiliate’s Board shall be notified, if the controlled affiliate’s
performance is not in compliance with the above, in the BCBSA license compliance
letter, as required under Standard 6A: Board of Directors.

30

 

Standard 6(D): Financial Performance Requirements

The Standard is:

In addition to requirements under the national programs listed in Standard 6C: Participation in
National Programs, a controlled affiliate shall take such action as required to ensure its
financial performance in programs and contracts of an inter-licensee nature or where BCBSA is a
party.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration (Note: If this guideline is applicable,
Sponsoring Licensed Plan or Controlled Affiliate that has no insurance or insurance
administration operation may request, on an annual basis, that the PPFSC not apply the
requirements to such entity.)

	 	2.1	 	A Controlled Affiliate with SAP or equivalent reserve (net worth) of less than 300% of
its Authorized Control Level or liquidity for two consecutive quarters of less than 1.5
months of underwritten claims and administrative expenses (standard BCBSA definition)
shall:

	 	2.1.a 	 	Provide an irrevocable and unconditional letter of credit, or other guarantee
of payment satisfactory to BCBSA in an amount which shall be reset quarterly equal
to the controlled affiliate’s:

	 	2.1a(i) 	 	Control/Home Plan liabilities as actuarially determined by BCBSA
using the respective controlled affiliate’s historical claim settlement
patterns and actuarial standards of practice for determining incurred
health claim liabilities for:

	 	(a)	 	The BlueCard Program;
	 
	 	(b)	 	The Electronic Claims Routing Process (“ECRP”);
	 
	 	(c)	 	Other transactions settled in whole or in part through the
Central Financial Agency (“CFA”); and
	 
	 	(d)	 	National Account Service Company, LLC (“NASCO”)
transactions.

31

 

Standard 6(D): Financial Performance Requirements, continued

	 	 	 	And

	 	2.1a(ii)	 	The controlled affiliate’s Participating/Host Plan liability
including gross variance settlements, as a result of modified pricing
(under BCBSA Inter-Plan Programs’ policies and provisions, including, but
not limited to, BlueCard Program Policies and Provisions or the
equivalent), due Control/Home Plans as actuarially determined by BCBSA.

	 	2.1.b	 	Provide NASCO, on a timely basis, with written authorization to provide BCBSA
with requested NASCO claims information used in connection with the calculation
under Paragraph 2.1a(i).
	 
	 	2.1.c	 	Provide each Participating/Host Plan with an option to receive from the
controlled affiliate, as Control/Home Plan, an irrevocable and unconditional letter
of credit or other guarantee of payment acceptable to each such Participating/Host
Plan for Inter-Plan Programs’ liabilities occurring outside the CFA and NASCO.

	 	2.1c(i)	 	Each such guarantee shall be equal to the greater of:

	 	(a)	 	The controlled affiliate’s Control/Home Inter-Plan
liabilities to each such Participating/Host Plan, as certified
by a qualified independent third party acceptable to BCBSA; or
	 
	 	(b)	 	An amount as actuarially determined by BCBSA.

	 	2.1c(ii)	 	The guarantee amount shall be reset quarterly based on the most
recent quarter and include:

	 	(a)	 	An estimate of average unpaid claims and administrative
expenses due to Participating /Host Plans, net of outstanding
advances; and
	 
	 	(b)	 	An estimate of financial settlements, outstanding through
the current quarter, due to each Participating/Host Plan.

	 	2.1.d	 	Distribute to Participating/Host Plans on a quarterly basis, any funds owed
for national account financial settlements. Any such actual distributions can be
used to offset funds set aside in accordance with 2.1a and 2.1b under this Standard
6(D).

32

 

Standard 6(D): Financial Performance Requirements, continued

	 	2.1.e	 	Provide to BCBSA, on a quarterly basis, a listing of national accounts
in which the controlled affiliate is involved (as Control/Home and
Participating/Host), identifying the national account and the controlled
affiliate’s role therein. For those accounts where the controlled affiliate is
acting as the Control/Home Plan, the controlled affiliate must also specify the
Participating/Host Plans in each national account syndicate. For any controlled
affiliate included in the Plan Performance Contingency Protocol (“PPCP”), that
controlled affiliate’s information will be distributed to the other members of each
national account syndicate.
	 
	 	2.1.f	 	For the Blue Quality Centers for Transplant (“BQCT”) liabilities not settled
in whole or in part through the CFA or otherwise covered herein, the Home Plan must
provide BCBSA with an irrevocable and unconditional letter of credit, or other
guarantee of payment satisfactory to BCBSA, in an amount which shall be reset
quarterly equal to the greater of:

	 	2.1f(i)	 	An amount equal to the controlled affiliate’s number of BQCT
transplants completed for the prior twelve months times the most recent
estimated U.S. average billed charges per transplant as determined by
Milliman or such other actuarial firm chosen by BCBSA; or
	 
	 	2.1f(ii)	 	An amount as actuarially determined by BCBSA.

	 	2.1.g 	 	Waive any right to challenge the federal super-priority status held by the
controlled affiliate for the Federal Employee Program and Medicare Part A.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

33

 

Standard 6(E): Cooperation with Plan Performance Response Process

The Standard is:

A controlled affiliate shall cooperate with BCBSA’s Board of Directors and its Plan Performance and
Financial Standards Committee in the administration of the Plan Performance Response Process and in
addressing controlled affiliate performance problems identified thereunder.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	A controlled affiliate shall provide BCBSA’s Board of Directors and PPFSC with such
data, action plans and access to the controlled affiliate Board of Directors and on-site
visits as required under the Plan Performance Response Process (PPRP); and
	 
	 	2.2	 	A controlled affiliate shall promptly and effectively address performance problems
identified under the PPRP on a basis which is consistent with the controlled affiliate’s
responsibilities under the PPRP as determined in the reasonable judgment of BCBSA’s Board
of Directors and its PPFSC.

	3.	 	Guidelines Subject to Sanctions
	 
	 	 	None

34

 

Standard 6(F): Independent Financial Rating

The Standard is:

A controlled affiliate shall obtain a rating of its financial strength from an independent rating
agency approved by BCBSA’s Board of Directors for such purpose.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	Annually, a controlled affiliate shall receive a BCBSA-approved financial strength
rating provided, however: (1) each controlled affiliate that is controlled by a Plan
operating as a Shell Holding Company as defined in the Preamble hereto is to maintain a
separate financial strength rating; and (2) each controlled affiliate that is controlled by
a Plan operating as a Hybrid Holding Company as defined in the Preamble hereto is required
to maintain a financial strength rating using the rating agency’s approved insurance Group
Rating Methodology. All of the foregoing ratings shall be from either Standard & Poor’s,
A.M. Best or Fitch, Inc.
	 
	 	2.2	 	Once a private rating has been issued, the controlled affiliate is required to refrain
from making public its private rating* unless the controlled affiliate is compelled to do
so by lawful subpoena or other compulsory legal or regulatory process. If compelled to
release the information, the controlled affiliate is to inform BCBSA** of the occurrence.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

 

			
	*	 	This requirement does not relate to a public rating a Plan may receive from Standard &
Poor’s, A.M. Best or Fitch, Inc..
	 
	**	 	Inform:

Managing Director
Brand Protection & Financial Services
Blue
Cross and Blue Shield Association
225 North
Michigan Avenue
Chicago, IL 60601

35

 

Standard 6(G): Local and National Best Efforts

The Standard is:

Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this License
Agreement, during each year, a controlled affiliate shall use its best efforts to promote and build
the value of the Blue Cross [applicable to Blue Cross Licensees] and Blue Shield [applicable to
Blue Shield Licensees] Marks.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	At least 80% of the annual Combined Local Net Revenue of a controlled affiliate
attributable to health care plans and related services (hereafter “Local Health Revenue”)
offered within the designated Service Area must be sold, marketed, administered or
underwritten under the Licensed Marks and Names.
	 
	 	2.2	 	At least 66-2/3% of the annual Combined National Net Revenue of the Controlled Affiliate** attributable to health care
plans and related services (hereafter “National Health Revenue”) must be sold, marketed,
administered or underwritten under the Licensed Marks and Names. The percentage set forth
in this paragraph shall not be changed for at least 10 years from the date of adoption of
this paragraph.

	 	2.2a	 	If the Controlled Affiliate does not comply with the above National
Health Revenue percentage, then it may comply with this Guideline 2.2 by having at least
66-2/3% of the annual Combined National Enrollment of the Controlled Affiliate*** enrolled
in health care plans and related services (hereafter “National Health Enrollment”) sold,
marketed, administered or underwritten under the Licensed Marks and Names, provided that
such the Controlled Affiliate was a Licensee on the date this Guideline was adopted by the
BCBSA Board of Directors.

	 	2.3	 	In administering this Standard, BCBSA will consider the
legitimate strategic interests of the controlled affiliate as embodied in its investments
made in reliance on regulations in effect prior to June 13, 1996 under this Standard 6(G),
including but not limited to the compliance exception for the period prior to the calendar
year beginning January 1, 1999.
	 
	 	2.4	 	“Net Revenue” shall have the meaning ascribed to it in Attachment VII to these
Guidelines.

36

 

Standard 6(G): Local and National Best Efforts, continued

	 	2.5	 	Nothing in these Guidelines or in the “Best Efforts” Standard shall relieve BCBSA or
any Plan or the controlled affiliate from the obligations imposed under the License
Agreement and/or any controlled affiliate License Agreement or from the obligations to deal
in good faith and fairly with each other under the terms of the License Agreement and/or
any controlled affiliate License Agreement. These Guidelines may not be revised without
the approval of the Board of Directors.
	 
	 
	 	 	 	Compliance with Local Best Efforts Standard

	 	2.6	 	In the event that a Controlled Affiliate acquires or takes control of business
through a purchase, merger or any other transaction that results in the Controlled
Affiliate, on a pro-forma basis, falling below the requirement in Paragraph 2.1, the
Controlled Affiliate shall:

	 	2.6a	 	Come into compliance with Paragraph 2.1 as described below.
	 
	 	2.6b	 	Within 120 days from the closing date of the merger, purchase or transaction,
submit an action plan to BCBSA for PPFSC approval that identifies the steps the
Controlled Affiliate will take to come into compliance with Paragraph 2.1 as soon
as possible but in any event no later than 24 months after the date of the PPFSC’s
initial determination on the action plan, unless such time period is extended by
the PPFSC in accordance with Paragraph 2.11.

	 	2.6b(i)	 	The action plan (or amended action plan described below) is
subject to the approval of the PPFSC, such approval not to be unreasonably
withheld. In determining whether to approve a proposed action plan, the
PPFSC shall consider the need to avoid harm to the Blue Brands and other
Controlled Affiliates or Plans, the need for prompt compliance, the
likelihood of serious disruption or harm to the business of the Controlled
Affiliate proposing the action plan and regulatory constraints, together
with any other relevant factors. Once submitted to BCBSA, the action plan
shall be presented to the PPFSC no later than at its next regular meeting
(1) in which a quorum is present to take action, and (2) for which the
action plan was received by BCBSA not less than five business days prior
to the agenda mailing.

37

 

Standard 6(G): Local and National Best Efforts

	 	 	 	The Controlled Affiliate shall have the right to appear at
such meeting, to answer any questions from Committee members,
and to make a presentation to the PPFSC in support of its action
plan. The PPFSC may exclude the Controlled Affiliate, however,
from its deliberations. If the PPFSC requests more information
from the Controlled Affiliate, the PPFSC may exercise its
reasonable discretion and extend accordingly the time within
which the Controlled Affiliate must comply. If the PPFSC
disapproves the action plan, the Committee shall inform the
Controlled Affiliate in writing of its decision, including the
basis for the disapproval, and inform the Controlled Affiliate
of its right to file an amended action plan. The Controlled
Affiliate shall have at least one opportunity to submit an
amended action plan. In the event the PPFSC disapproves the
amended action plan, the PPFSC may, in its sole discretion
permit the Controlled Affiliate to file further amended action
plans. Any such amended action plan must be submitted to BCBSA
within 60 days from the date of disapproval of the previously
submitted action plan. The first such amended action plan shall
be subject to the requirements stated in the second sentence of
this subparagraph.

	 	2.6b(ii)	 	If the Controlled Affiliate’s action plan (or amended
action plan) is approved by the PPFSC, the Controlled Affiliate is
required to submit, on a quarterly basis, written status updates
to BCBSA that document the Controlled Affiliate’s progress towards
compliance with the approved action plan (or amended action plan).
The PPFSC may withdraw approval of a Controlled Affiliate’s action
plan (or amended action plan) if the PPFSC determines that the
Controlled Affiliate is not making sufficient progress towards
compliance with the milestones or schedules described in the
action plan, as evidenced by the Controlled Affiliate’s quarterly
written status updates. Upon the withdrawal of the Committee’s
approval of the Controlled Affiliate’s action plan (or amended
action plan), the Committee will notify the Controlled Affiliate
in writing, including the basis for the withdrawal

38

 

Standard 6(G): Local and National Best Efforts

	 	 	 	of approval. If the withdrawal of approval
is for the Controlled Affiliate’s original action
plan, the Controlled Affiliate shall have at
least one opportunity to submit an amended action
plan as provided in paragraph 2.6b(i). If the
withdrawal of approval is for an amended action
plan, the Committee may in its sole discretion
permit the Controlled Affiliate to file
additional amended action plans.

	 	2.7	 	If a Controlled Affiliate, for any reason other than the acquisition or taking
control of business through a purchase, merger or any other transaction, falls
below the requirement in Paragraph 2.1, the Controlled Affiliate shall:

	 	2.7a	 	Come into compliance with Paragraph 2.1 as described below.
	 
	 	2.7b	 	Within 60 days after the date of PPFSC determination (hereinafter the
“date of determination”) that the Controlled Affiliate is below the
requirement in Paragraph 2.1, submit an action plan to BCBSA for PPFSC
approval that identifies the steps the Controlled Affiliate will take to
comply with Paragraph 2.1 as soon as possible but in any event no later
than 12 months after the date of the PPFSC’s initial determination on the
action plan, unless such time period is extended by the PPFSC in
accordance with Paragraph 2.11.

	 	2.7b(i)	 	The action plan (or amended action plan described below)
is subject to the approval of the PPFSC, such approval not to be
unreasonably withheld. In determining whether to approve a
proposed action plan, the PPFSC shall consider the need to avoid
harm to the Blue Brands and other Controlled Affiliates or Plans,
the need for prompt compliance, the likelihood of serious
disruption or harm to the business of the Controlled Affiliate
proposing the action plan and regulatory constraints, together
with any other relevant factors. Once submitted to BCBSA, the
action plan shall be presented to the PPFSC no later than at its
next regular meeting (1) in which a quorum is present to take
action, and (2) for which the action plan was received by BCBSA
not less than five business days prior to the agenda mailing.
The Controlled Affiliate shall have the right

39

 

Standard 6(G): Local and National Best Efforts

	 	 	 	to appear at such meeting, to answer any questions
from Committee members, and to make a presentation to
the PPFSC in support of its action plan. The PPFSC may
exclude the Controlled Affiliate, however, from its
deliberations. If the PPFSC requests more information
from the Controlled Affiliate, the PPFSC may exercise
its reasonable discretion and extend accordingly the
time within which the Controlled Affiliate must comply.
If the PPFSC disapproves the action plan, the Committee
will inform the Controlled Affiliate in writing of its
decision, including the basis for the disapproval, and
inform the Controlled Affiliate of its right to file an
amended action plan. The Controlled Affiliate shall
have at least one opportunity to submit an amended
action plan. In the event the PPFSC disapproves the
amended action plan, the PPFSC may, in its sole
discretion permit the Controlled Affiliate to file
further amended action plans. Any such amended action
plan must be submitted to BCBSA within 60 days from the
date of disapproval of the previously submitted action
plan. The first such amended action plan shall be
subject to the requirements stated in the second
sentence of this subparagraph.
	 
	 	2.7b(ii)	 	If the Controlled Affiliate’s action plan (or amended
action plan) is approved by the PPFSC, the Controlled Affiliate is
required to submit, on a quarterly basis, written status updates
to BCBSA that document the Controlled Affiliate’s progress towards
compliance with the approved action plan (or amended action plan).
The PPFSC may withdraw approval of a Controlled Affiliate’s
action plan (or amended action plan) if the PPFSC determines that
the Controlled Affiliate is not making sufficient progress towards
compliance with the milestones or schedules described in the
action plan, as evidenced by the Controlled Affiliate’s quarterly
written status updates. Upon the withdrawal of the Committee’s
approval of the

40

 

Standard 6(G): Local and National Best Efforts

	 	 	 	Controlled Affiliate’s action plan (or amended
action plan), the Committee will notify the Controlled
Affiliate in writing, including the basis for the
withdrawal of approval. If the withdrawal of approval is
for the Controlled Affiliate’s original action plan, the
Controlled Affiliate shall have at least one opportunity
to submit an amended action plan as provided in
paragraph 2.7b(i). If the withdrawal of approval is for
an amended action plan, the Committee may in its sole
discretion permit the Controlled Affiliate to file
additional amended action plans. The first such amended
action plan shall be subject to the requirements stated
in the second sentence of this subparagraph.

	 	 	 	Compliance with National Best Efforts Standard
	 
	 	2.8	 	In the event that a Controlled Affiliate is below the requirement in Paragraph
2.2 as of the date of enactment of Paragraph 2.2, the Controlled Affiliate must:

	 	2.8a	 	Come into compliance with Paragraph 2.2 as described below.
	 
	 	2.8b	 	Within 120 days after the enactment of Paragraph 2.2, submit an action plan to BCBSA for PPFSC
approval that identifies the steps the Controlled Affiliate will take to comply
with Paragraph 2.2 as soon as possible but in any event no later than 24 months
after the date of the PPFSC’s initial determination on the action plan, unless such
time period is extended by the PPFSC in accordance with Paragraph 2.11.

	 	2.8b(i)	 	The action plan (or amended action plan described below) is subject to the approval of
the PPFSC, such approval not to be unreasonably withheld. In determining whether
to approve a proposed action plan, the PPFSC shall consider the need to avoid harm
to the Blue Brands and other Controlled Affiliates or Plans, the need for prompt
compliance, the likelihood of serious disruption or harm to the business of the
Controlled Affiliate proposing the action plan and regulatory constraints, together
with any other relevant factors. Once submitted to BCBSA

41

 

Standard 6(G): Local and National Best Efforts

	 	 	 	the action plan shall be presented to the PPFSC no
later than at its next regular meeting (1) in which a
quorum is present to take action, and (2) for which the
action plan was received by BCBSA not less than five
business days prior to the agenda mailing. The Controlled
Affiliate shall have the right to appear at such meeting,
to answer any questions from Committee members, and to
make a presentation to the PPFSC in support of its action
plan. The PPFSC may exclude the Controlled Affiliate,
however, from its deliberations. If the PPFSC requests
more information from the Controlled Affiliate, the PPFSC
may exercise its reasonable discretion and extend
accordingly the time within which the Controlled Affiliate
must comply. If the PPFSC disapproves the action plan,
the Committee will inform the Controlled Affiliate in
writing of its decision, including the basis for the
disapproval, and inform the Controlled Affiliate of its
right to file an amended action plan. The Controlled
Affiliate shall have at least one opportunity to submit an
amended action plan. In the event the PPFSC disapproves
the amended action plan, the PPFSC may, in its sole
discretion permit the Controlled Affiliate to file further
amended action plans. Any such amended action plan must
be submitted to BCBSA within 60 days from the date of
disapproval of the previously submitted action plan. The
first such amended action plan shall be subject to the
requirements stated in the second sentence of this
subparagraph.
	 
	 	2.8b(ii)	 	If the Controlled Affiliate’s action plan (or amended action
plan) is approved by the PPFSC, the Controlled Affiliate is required to
submit, on a quarterly basis, written status updates to BCBSA that
document the Controlled Affiliate’s progress towards compliance with the
approved action plan (or amended action plan). The PPFSC may withdraw
approval of a Controlled Affiliate’s action plan (or amended action plan)
if the PPFSC determines that the Controlled Affiliate is not making
sufficient progress towards compliance with the milestones or schedules described in the action plan
as evidenced by the Controlled Affiliate’s quarterly written status

42

 

Standard 6(G): Local and National Best Efforts

	 		 	updates. Upon the withdrawal of the Committee’s approval of the Controlled
Affiliate’s action plan (or amended action plan), the Committee will notify the Controlled
Affiliate in writing, including the basis for the withdrawal of approval. If the withdrawal
of approval is for the Controlled Affiliate’s original action plan, the Controlled
Affiliate shall have at least one opportunity to submit an amended action plan as provided
in paragraph 2.8b(i). If the withdrawal of approval is for an amended action plan, the
Committee may in its sole discretion permit the Controlled Affiliate to file further
amended action plans.

	 	2.9	 	This section applies to any Controlled Affiliate that is in
compliance upon enactment of Paragraph 2.2 or has come into compliance pursuant to
Paragraph 2.8. In the event that a Controlled Affiliate acquires or takes control of
business through a purchase, merger or any other transaction that results in the Controlled
Affiliate, on a pro-forma basis, falling below the requirement in Paragraph 2.2, the
Controlled Affiliate shall:

	 	2.9a	 	Come into compliance with Paragraph 2.2 as described below.
	 
	 	2.9b	 	Within 120 days from the closing date of the merger, purchase or transaction,
submit an action plan to BCBSA for PPFSC approval that identifies the steps the Controlled
Affiliate will take to come into compliance with Paragraph 2.2 as soon as possible but in
any event no later than 24 months after the date of the PPFSC’s initial determination,
unless such time period is extended by the PPFSC in accordance with Paragraph 2.11.

	 	2.9b(i)	 	The action plan (or amended action plan described below) is
subject to the approval of the PPFSC, such approval not to be unreasonably
withheld. In determining whether to approve a proposed action plan, the
PPFSC shall consider the need to avoid harm to the Blue Brands and other
Controlled Affiliates or Plans, the need for prompt compliance, the
likelihood of serious disruption or harm to the business of the Controlled
Affiliate proposing the action plan and regulatory constraints, together
with any other relevant factors. Once submitted to BCBSA, the action plan
shall be presented to the PPFSC no later than at is next regular meeting
(1) in which a quorum is present to take action, and (2) for which the
action plan was received by BCBSA not

43

 

Standard 6(G): Local and National Best Efforts

	 	 	 	less than five business days prior to the agenda
mailing. The Controlled Affiliate shall have the right to
appear at such meeting, to answer any questions from
Committee members, and to make a presentation to the PPFSC
in support of its action plan. The PPFSC may exclude the
Controlled Affiliate, however, from its deliberations. If
the PPFSC requests more information from the Controlled
Affiliate, the PPFSC may exercise its reasonable
discretion and extend accordingly the time within which
the Controlled Affiliate must comply. If the PPFSC
disapproves the action plan, the Committee shall inform
the Controlled Affiliate in writing of its decision,
including the basis for the disapproval, and inform the
Controlled Affiliate of its right to file an amended
action plan. The Controlled Affiliate shall have at least
one opportunity to submit an amended action plan. In the
event the PPFSC disapproves the amended action plan, the
PPFSC may, in its sole discretion permit the Controlled
Affiliate to file further amended action plans. Any such
amended action plan must be submitted to BCBSA within 60
days from the date of disapproval of the previously
submitted action plan. The first such amended action plan
shall be subject to the requirements stated in the second
sentence of this subparagraph.
	 
	 	2.9b(ii) 	 	If the Controlled Affiliate’s action plan (or amended action
plan) is approved by the PPFSC, the Controlled Affiliate is required to
submit, on a quarterly basis, written status updates to BCBSA that
document the Controlled Affiliate’s progress towards compliance with the
approved action plan (or amended action plan). The PPFSC may withdraw
approval of a Controlled Affiliate’s action plan (or amended action plan)
if the PPFSC determines that the Controlled Affiliate is not making
sufficient progress towards compliance with the milestones or schedules
described in the action plan, as evidenced by the Controlled Affiliate’s
quarterly written status updates. Upon the withdrawal of the Committee’s
approval of the Controlled Affiliate’s action plan
(or amended action plan), the Committee will notify the Controlled
Affiliate in writing including the basis for the

44

 

Standard 6(G): Local and National Best Efforts

	 	 	 	withdrawal of approval. If the withdrawal of approval is for the Controlled
Affiliate’s original action plan, the Controlled Affiliate shall have at least one
opportunity to submit an amended action plan as provided in paragraph 2.9b(i). If the
withdrawal of approval is for an amended action plan, the Committee may in its sole
discretion permit the Controlled Affiliate to file further amended action plans.

	 	2.10	 	This
section applies to any Controlled Affiliate that is in compliance upon enactment of
Paragraph 2.2 or has come into compliance pursuant to Paragraph 2.8. If the Controlled
Affiliate, for any reason other than the acquisition or taking control of business through
a purchase, merger or any other transaction, falls below the requirement in 2.2, the
Controlled Affiliate shall:

	 	2.10a	 	Come into compliance with Paragraph 2.2 as described
below.
	 
	 	2.10b	 	Within 60 days after the date of determination that the Controlled Affiliate
is below the requirement in Paragraph 2.2, submit an action plan to BCBSA for PPFSC
approval that identifies the steps the Controlled Affiliate will take to comply with
Paragraph 2.2 as soon as possible but in any event no later than 12 months after the date
of the PPFSC’s initial determination on the action plan, unless such time period is
extended by the PPFSC in accordance with Paragraph 2.11.

	 	2.10b(i)	 	The action plan (or
amended action plan described below) is subject to the approval of the PPFSC, such approval
not to be unreasonably withheld. In determining whether to approve a proposed action plan,
the PPFSC shall consider the need to avoid harm to the Blue Brands and other Controlled
Affiliates or Plans, the need for prompt compliance, the likelihood of serious disruption
or harm to the business of the Controlled Affiliate proposing the action plan and
regulatory constraints, together with any other relevant factors. Once submitted to BCBSA,
the action plan shall be presented to the PPFSC no later than at its next regular meeting
(1) in which a quorum is present to take action, and (2) for which the action plan was
received by BCBSA not less than five business days prior to the agenda mailing. The
Controlled Affiliate shall have the right to appear at such meeting, to answer any
questions from Committee members, and to make a

45

 

Standard 6(G): Local and National Best Efforts

	 	 	 	presentation to the PPFSC in support of its action
plan. The PPFSC may exclude the Controlled Affiliate,
however, from its deliberations. If the PPFSC requests
more information from the Controlled Affiliate, the PPFSC
may exercise its reasonable discretion and extend
accordingly the time within which the Controlled Affiliate
must comply. If the PPFSC disapproves the action plan, the
Committee will inform the Controlled Affiliate in writing
of its decision, including the basis for the disapproval,
and inform the Controlled Affiliate of its right to file
an amended action plan. The Controlled Affiliate shall
have at least one opportunity to submit an amended action
plan. In the event the PPFSC disapproves the amended
action plan, the PPFSC may, in its sole discretion permit
the Controlled Affiliate to file further amended action
plans. Any such amended action plan must be submitted to
BCBSA within 60 days from the date of disapproval of the
previously submitted action plan. The first such amended
action plan shall be subject to the requirements stated in
the second sentence of this subparagraph.
	 
	 	2.10b(ii) 	 	If the Controlled Affiliate’s action plan (or amended action
plan) is approved by the PPFSC, the Controlled Affiliate is required to
submit, on a quarterly basis, written status updates to BCBSA that
document the Controlled Affiliate’s progress towards compliance with the
approved action plan (or amended action plan). The PPFSC may withdraw
approval of a Controlled Affiliate’s action plan (or amended action plan)
if the PPFSC determines that the Controlled Affiliate is not making
sufficient progress towards compliance with the milestones or schedules
described in the action plan, as evidenced by the Controlled Affiliate’s
quarterly written status updates. Upon the withdrawal of the Committee’s
approval of the Controlled Affiliate’s action plan (or amended action
plan), the Committee will notify the Controlled Affiliate in writing
including the basis for the withdrawal of approval. If the withdrawal of
approval is for the Controlled Affiliate’s original action plan, the
Controlled Affiliate shall have at least one opportunity to submit an
amended action plan as provided in paragraph 2.10b(i). If the withdrawal
of

46

 

Standard 6(G): Local and National Best Efforts

	 	 	 	approval is for an amended action plan, the Committee may in its sole discretion permit
the Controlled Affiliate to file further amended action plans.

	 	2.11	 	Once the PPFSC has approved an
action plan (or amended action plan), the approved compliance period may not be extended beyond the
12 or 24 month periods as specified in 2.6b, 2.7b, 2.8b, 2.9b and 2.10b, except on meeting all of
the following conditions:

	 	2.11a	 	The Controlled Affiliate must submit a request to extend the
compliance period prior to the expiration of the previously approved compliance period;
	 
	 	2.11b 	 	The
Controlled Affiliate must demonstrate to the PPFSC that it made a good faith effort to achieve the
action plan (or amended action plan), and that additional time is needed due to circumstances
beyond its control; and
	 
	 	2.11c 	 	The amended compliance period must be approved by the PPFSC, such
approval not to be unreasonably withheld.

	 	2.12	 	In the event that the PPFSC disapproves a Controlled
Affiliate’s action plan (or amended action plan) pursuant to 2.6b(i), 2.7b(i), 2.8b(i), 2.9b(i) and
2.10b(i) or extension of the compliance period pursuant to 2.11, or withdraws its approval of an
action plan pursuant to 2.6b(ii), 2.7b(ii), 2.8b(ii), 2.9b(ii) and 2.10b(ii), the Controlled
Affiliate shall have the right to appeal the decision to the BCBSA Board of Directors. The
Controlled Affiliate must request such an appeal prior to either one of the next two meetings of
the Board of Directors that take place after the PPFSC’s decision to disapprove or withdraw its
approval. Nothing contained herein shall be construed that the Controlled Affiliate does not have
appeal rights with respect to decisions made by the PPFSC regarding compliance with other Standards
or their associated guidelines.

 

			
	*	 	Combined Local Net Revenue shall have the meaning ascribed to it
in Attachment VII to these Guidelines.
	 
	**	 	Combined National Net Revenue shall have the meaning ascribed to it in Attachment VII to these
Guidelines.
	 
	***	 	Combined National Enrollment shall have the meaning ascribed to it in Attachment VII to these
Guidelines.

47

 

Standard 6(H): Financial Responsibility

The
Standard is

A controlled affiliate shall be operated in a manner that provides reasonable financial assurance
that it can fulfill all of its contractual obligations to its customers.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	A controlled affiliate shall have liquidity (standard BCBSA definition) equal to at
least 1.0 months of underwritten claims and administrative expenses for 2 consecutive
quarters.
	 
	 	1.2	 	Notwithstanding other requirements, a controlled affiliate shall have a
minimum capital equal to or greater than 200% of its Authorized Control Level.
	 
	 	1.3	 	Notwithstanding a Controlled Affiliate’s “Health Risk Based Capital (HRBC)”* level, a
controlled affiliate shall maintain its minimum SAP reserve (or equivalent net worth**) at
or above the minimum reserve (or net worth level**) established by each state in which it
is domiciled and/or operates.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	A controlled affiliate shall maintain accounting records on an accrual basis. A
controlled affiliate shall file an annual certified audit report with BCBSA if the
controlled affiliate is required to file such a report with its domicilary State Insurance
Department. If no such requirement is in force, a controlled affiliate is not required to
submit an annual certified audit report with BCBSA provided the controlled affiliate’s SAP
reserve (or equivalent net worth) is disclosed separately in the primary licensee’s annual
certified audit report for the same period.

 

			
	*	 	The HRBC calculation was designed by the National Association of Insurance Commissioners to
estimate the minimum statutory level of required capital and is used by BCBSA to determine
compliance with BCBSA’s minimum HRBC requirement, established PPRP monitoring thresholds and other
requirements and protocols. Given that the HRBC calculation is a retrospective formula, it does
not take into account the potential impact of future events (developing market challenges or
constraints, investments in technology, unexpectedly high claims, changes in business mix,
potential acquisitions or divestitures, etc.) that may have a significant impact on the HRBC of a
Controlled Affiliate. Additional capital may be needed to protect against events not otherwise
accounted for in the HRBC formula and BCBSA encourages Plans to maintain reserves well above the
required HRBC minimum. HRBC was not designed, calibrated or intended for use in determining excess
levels of capital.
	 
	**	 	language applicable to non-risk assuming Controlled Affiliate Licensees

48

 

Standard 6(H): Financial Responsibility, continued

	 	2.1.a 	 	If the certified audit is required by the State Insurance Department,
the independent financial statement opinion included in the controlled affiliate’s
annual audit report shall not express doubts as to the controlled affiliate’s
ability to continue as a going concern. The annual audit shall be performed by an
independent CPA firm acceptable to PPFSC.

	 	2.2	 	A controlled affiliate shall provide for adequate accounting for loss reserves,
actuarial liabilities and related items as annually certified by a qualified actuary
pursuant to a review process acceptable to PPFSC (See Attachment II; Note: Each licensee is
required to submit a separate certification).
	 
	 	2.3	 	A Controlled Affiliate shall be considered noncompliant if it does not meet at least
one of the following:

	 	2.3a 	 	participate in the guaranty fund in each state in which it operates; or
	 
	 	2.3b 	 	establish another method approved by BCBSA which assures the payment of claim
liabilities and continuation of coverage in the event of an insolvency (See
Attachment III); or
	 
	 	2.3c 	 	at a minimum, have an HRBC above 800% of its Authorized Control Level and
liquidity of 2.0 months or greater.

	 	2.3.c(i) 	 	If a controlled affiliate that has complied with the
requirement by maintaining the financial position defined above no
longer meets one or both of the financial tests, the controlled
affiliate will have six months to join the guaranty fund or implement
an acceptable alternative mechanism.

	 	2.4	 	The controlled affiliate and Sponsoring Licensed Plan(s) certifying to BCBSA that the
Sponsoring Licensed Plan(s) guarantees to the full extent of its (their) assets, all of the
contractual and financial obligations of the controlled affiliate to its customers. In
situations where such a guaranty is not permitted by regulation or statute, or where the
parent and controlled affiliate prefer, the parent and affiliate may, upon agreement of
BCBSA, provide alternative protections which may include, but are not limited to, the
“Payment of Claims Liabilities — Alternative Mechanisms” enumerated in Attachment III
(Guaranty Association Alternatives & Evaluation Criteria).

	3.	 	Guidelines Subject to Sanction

49

 

Standard 6(H) Reports and Records, continued

	 	3.1	 	None.

50

 

Standard 6(I) Reports and Records

The
Standard is:

A controlled affiliate shall furnish to BCBSA, on a timely and accurate basis, reports and records
relating to compliance with these Standards and the License Agreements between BCBSA and controlled
affiliate. Such reports and records are the following:

	A.	 	BCBSA Controlled Affiliate Licensure Information Request; and
	 
	B.	 	Biennial trade name and service mark usage material, including disclosure material; and
	 
	C.	 	Changes in the ownership and governance of the controlled affiliate, including changes in its
charter****, articles of incorporation****, or bylaws****, changes in a controlled affiliate’s
Board composition, or changes in the identity of the controlled affiliate’s Principal Officers, and
changes in risk acceptance, contract growth, or direct delivery of medical care;* and
	 
	D.	 	Quarterly Financial Report, Semi-annual “NAIC Health Risk-Based Capital (HRBC) Report” as
defined by the NAIC, Annual Financial Forecast, Annual Certified Audit Report, Insurance Department
Examination Report**, Annual Statement filed with State Insurance Department (with all
attachments), and
	 
	E.	 	Quarterly Enrollment Report.

 

			
	*	 	Submit within 30 days of change to address indicated below
	 
	**	 	If applicable — See Standard 6(H)
	 
	***	 	Forward within 30 days of receipt by the controlled affiliate of the final report accompanied
by a formal comment thereon from the controlled affiliate’s CEO, if appropriate, to:

Managing Director, Brand Protection & Financial Services

Blue Cross and Blue Shield Association

225 North Michigan Avenue

Chicago, IL 60601

 

			
	****	 	Include a red-lined version that clearly identifies the changes

51

 

Standard 6(I) Reports and Records, continued

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	Each licensee is required to submit separate reports and records; therefore, each
controlled affiliate is required to submit the listed reports and records listed in item C
above by the due dates listed in Attachment IV. These reports are in addition to reports
required under any other Guidelines to Administer Standards and License Agreements
applicable to Sponsoring Licensed Plans and/or to other types of Controlled Affiliates.
	 
	 	2.2	 	Noncompliance is a result of the following:

	 	2.2.a 	 	Late Reporting — A report will be considered late if it is received by BCBSA
after the published deadline or after an agreed upon extension (see Attachment IV
for reporting due dates).
	 
	 	2.2.b 	 	Incomplete/inaccurate reporting — A report will be considered
incomplete/inaccurate if the data submitted do not conform to published
instructions.
	 
	 	2.2.c 	 	Non-submission — A report will be considered not submitted if data are not
presented to BCBSA within 30 days after the published deadline or after an
agreed-upon extension. A report will also be considered not submitted if accuracy
concerns or missing data, leading to the misrepresentation of performance and
inability to publish data, are not resolved within 30 days after the published
deadline or an agreed-upon extension (see Attachment IV for reporting due dates).

52

 

Standard 6(I) Reports and Records, continued

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	Each licensee is required to submit separate reports and records; therefore, each
controlled affiliate is required to submit the listed reports and records listed in item D
and E above by the due dates required in Attachment IV. These reports are in addition to
reports required under any other Guidelines to Administer Standards and License Agreements
applicable to Sponsoring Licensed Plans and/or to other types of Controlled Affiliates.
	 
	 	3.2	 	Noncompliance is a result of the following:

	 	3.2.a 	 	Late Reporting — A report will be considered late if it is received by BCBSA
after the published deadline or after an agreed upon extension (see Attachment IV
for reporting due dates).
	 
	 	3.2.b 	 	Incomplete/inaccurate Reporting — A report will be considered
incomplete/inaccurate if the data submitted do not conform to published
instructions.
	 
	 	3.2.c 	 	Non-submission — A report will be considered not submitted if data are not
presented to BCBSA within 30 days after the published deadline or after a
reasonable agreed-upon extension. A report will also be considered not submitted
if accuracy concerns or missing data, leading to the misrepresentation of
performance and inability to publish data, are not resolved within 30 days after
the published deadline or an agreed-upon extension (See Attachment IV for reporting
due dates).

	 	 	 	Refer to Attachment V for specific sanctions relating to reports listed in Item D
above.

53

 

Standard 6(J): Control by Unlicensed Entities Prohibited

The Standard is:

No controlled affiliate shall cause or permit an entity other than a Plan or a Licensed Controlled
Affiliate thereof to obtain control of the controlled affiliate or to acquire a substantial portion
of its assets related to licensable services.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	A controlled affiliate shall be considered noncompliant upon a reduction in Combined
Local Net Revenue of the controlled affiliate, its sponsoring Plan, and any other of the
Plan’s Controlled Affiliates in any fiscal quarter in the Service Area of fifty percent or
more compared to such revenue in any fiscal quarter during the prior thirty-six month
period, due in whole or in part to the conveyance of assets, including goodwill, to a party
other than a Plan or Licensed Controlled Affiliate of a Plan which is in compliance with
all rules and regulations of BCBSA. “Combined Local Net Revenue” shall have the meaning
ascribed to it in Attachment VII to the Guidelines, except that, for purposes of this
section, Combined Local Net Revenue excludes delivery of health care services (such as
hospital and medical (professional) services), and the sale of health care products;
stand-alone vision, mental, drug, dental, pharmacy management or other specialty health
care financing or administrative programs; workers compensation; stand-alone reinsurance
and stand-alone stop loss insurance.
	 
	 	1.2	 	A controlled affiliate shall be considered noncompliant if, as a result of any
transaction with an entity or group other than Plans or Licensed Controlled Affiliates of
Plans, the entity or group or its owners or members obtain the ability to select a majority
of the members of the Board of Directors of the controlled affiliate or otherwise gain
control of the controlled affiliate.
	 
	 	1.3	 	A controlled affiliate shall be considered noncompliant if an officer or other person
who is among the ten most highly-compensated employees of the controlled affiliate shall
have a financial arrangement with any entity, other than a Plan or an entity controlled by
a Plan, which permits the entity to influence that person in the discharge of his duties.
	 
	 	1.4	 	A controlled affiliate shall be considered noncompliant if the controlled affiliate
enters into an arrangement for the management of all or a portion of its operations where
the consideration to be paid for such services

54

 

Standard 6(J): Control by Unlicensed Entities Prohibited, continued

	 		 	exceeds 35% of the controlled affiliate’s administrative expenditures for the
fiscal year with respect to which such services are rendered. Consideration
includes payment from any source to the controlled affiliate or its Affiliates and
Associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934),
other than a Plan or an entity controlled by a Plan, but shall exclude amounts paid
for claims processing and other clerical functions if no other management services
are provided by the same entity or its Affiliates or Associates.

	 	1.5	 	BCBSA may require a controlled affiliate to make full disclosure to it of any proposed
or completed transaction as BCBSA deems necessary to ascertain compliance with this
Standard, including purchase, lease, employment, consulting or other financial arrangements
between third parties and the controlled affiliate or its officers, directors or members.
	 
	 	1.6	 	An unlicensed party seeking to obtain control over a controlled affiliate or to acquire
a substantial portion of its assets, in cases where the Plan’s license is also terminating,
is invited to apply to become a licensee pursuant to the rules outlined in Guidelines to
Standard 11 of the Membership Standards.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

55

 

Standard 7 — Other Standards for Risk-Assuming Workers’ Compensation Controlled
Affiliates

Standards 7(A) — (E) that follow apply to Controlled Affiliates that underwrite the
indemnity portion of workers’ compensation insurance.

56

 

Standard 7(A): Financial Responsibility

The Standard is:

A controlled affiliate shall be operated in a manner that provides reasonable financial assurance
that it can fulfill all of its contractual obligations to its customers.

Determination of Compliance:

	1.	 	Compliance for workers’ compensation Controlled Affiliates that HAVE sufficient operating
experience to obtain a public rating is based upon:

	 	1.1	 	Through December 31, 2003, a controlled affiliate shall receive an independent rating
from either Standard & Poor’s Insurance Rating Services or A.M. Best Company of its
financial strength on an annual basis. As of January 1, 2004, a controlled affiliate shall
receive an independent rating from either Standard & Poor’s Insurance Rating Services, A.M.
Best Company or Fitch, Inc. of its financial strength on an annual basis. The controlled
affiliate must maintain either a:

	 	1.1.a	 	 Claims-Paying Ability Rating of BBB- or higher from Standard &
Poor’s; or
	 
	 	1.1.b	 	 Best’s Rating of B+ or higher from A.M. Best; or
	 
	 	1.1.c	 	 Insurer financial strength rating of BBB- or higher from Fitch, Inc.

(Note: The controlled affiliate must obtain a rating separate from that obtained by the
Sponsoring Licensed Plan(s). In addition, the controlled affiliate must notify BCBSA
within 30 days of notification by the external rating agency of a change in, or
notification of the agency’s intent to change, the rating status and provide a copy of
all rating reports.)

	 	1.2	 	A controlled affiliate must maintain a minimum statutory Total Adjusted Capital
exclusive of surplus notes equal to or exceeding 500% of the year-end Adjusted
Authorized Control Level (as defined by BCBSA) of NAIC Risk-Based Capital for Property
and Casualty Insurers; and
	 
	 	1.3 	 	Accounting records maintained on an accrual basis subject to an annual audit resulting
in a financial statement opinion that does not express doubts as to the licensee’s ability
to continue as a going concern. The annual audit is to be performed by an independent CPA
firm acceptable to PPFSC. Each licensee is required to submit an individual annual
certified audit report; and

57

 

Standard 7(A): Financial Responsibility, continued

	 	1.4	 	Each controlled affiliate is required to submit evidence of adequate accounting
for loss reserves and loss adjustment expense reserves, as annually opined by a member of
the American Academy of Actuaries.

At a minimum, this evidence will include a loss reserve opinion certifying
the liability in the annual statement and the actuarial report.

	2.	 	Compliance for workers’ compensation Controlled Affiliates that CANNOT obtain a public rating
due to insufficient operating experience is based upon:

	 	2.1	 	A controlled affiliate must maintain a minimum statutory Total Adjusted Capital
exclusive of surplus notes equal to or exceeding 600% of the year-end Adjusted
Authorized Control Level (as defined by BCBSA) of NAIC Risk-Based Capital for Property
and Casualty Insurers; and
	 
	 	2.2	 	A controlled affiliate must maintain a minimum capital and surplus of 50% of annual
net written premium; and
	 
	 	2.3	 	Accounting records maintained on an accrual basis subject to an annual audit resulting
in a financial statement opinion that does not express doubts as to the licensee’s ability
to continue as a going concern. The annual audit is to be performed by an independent CPA
firm acceptable to PPFSC. Each licensee is required to submit an individual annual
certified audit report; and
	 
	 	2.4	 	Each controlled affiliate is required to submit evidence of adequate accounting for
loss reserves and loss adjustment expense reserves, as annually opined by an INDEPENDENT,
qualified member of the American Academy of Actuaries acceptable to the PPFSC. At a
minimum, this evidence will include a loss reserve opinion certifying the liability in the
annual statement and the actuarial report.

Noncompliance with Standard 7(A) will result in the termination of the License pursuant to
paragraph 7(C) of the License Agreement.

58

 

Standard 7(B): Reports and Records

The Standard is:

A controlled affiliate shall furnish, on a timely and accurate basis, reports and records relating
to compliance with these Standards and the License Agreements between BCBSA and the controlled
affiliate. Such reports and records are the following:

	A.	 	BCBSA Controlled Affiliate Licensure Information Request; and
	 
	B.	 	Biennial trade name and service mark usage materials, including disclosure material; and
	 
	C.	 	Annual Certified Audit Report, Annual Statement as filed with the State Insurance Department
(with all attachments), Annual NAIC’s Risk-Based Capital Worksheets for Property and Casualty
Insurers, and Annual Financial Forecast; and
	 
	D.	 	Quarterly Financial Report, Quarterly Estimated Risk-Based Capital for Property and Casualty
Insurers, Insurance Department Examination Report; Quarterly Enrollment Report; and
	 
	E.	 	Notification of all changes and proposed changes to independent ratings within 30 days of
receipt and submission of a copy of all rating reports;** and
	 
	F.	 	Changes in the ownership and governance of the controlled affiliate, including changes in its
charter***, articles of incorporation***, or bylaws***, changes in a controlled affiliate’s Board
composition, Plan control, state license status, operating area, the controlled affiliate’s
Principal Officers or direct delivery of medical care.**

 

			
	*	 	Forward within 30 days of receipt by the controlled affiliate of the final report
accompanied by a formal comment thereon from the controlled affiliate’s CEO, if
appropriate, to:

Managing
Director, Brand Protection & Financial Services

Blue Cross and Blue Shield Association

225 North Michigan Avenue

Chicago, IL 60601

			
	**	 	Submit within 30 days of change to address indicated above.
	 
	***	 	Include a red-lined version that clearly identifies the
changes

59

 

Standard 7(B): Reports and Records, continued

Determination of Compliance:

	1.	 	Compliance is based on:

	 	1.1	 	The timely submission of accurate and complete reports as required by the BCBSA Board
of Directors (see Attachment VI), to include indication of compliance with the License
Agreements, as interpreted in the Brand Book; and
	 
	 	1.2	 	Mandatory reporting of any untoward events associated with the controlled
affiliate, such as malpractice suits or other legal, financial events that would
materially affect controlled affiliate operations and/or performance; and
	 
	 	1.3	 	The controlled affiliate and sponsoring Licensed Plan(s):

	 	1.3.a	 	agreeing upon request by BCBSA to an examination; and
	 
	 	1.3.b	 	providing access to requested staff and/or documentation.

	 
	 	1.4	 	Compliance is also based on a controlled affiliate being in compliance with the
regulations pertaining to service mark use promulgated pursuant to paragraph 3 of the
License Agreements (see Brand Book).

	2.	 	Noncompliance is a result of the following:

	 	2.1	 	Reporting — substantial incompleteness and/or inaccuracy and/or lateness and/or
nonsubmission of required reports as described in Attachment VI: or

	 	2.1.a	 	 Incomplete/Inaccurate Reporting: A report will be considered
incomplete/inaccurate if the data submitted do not conform to published
instructions.
	 
	 	2.1.b	 	 Late Reporting: A report will be considered late if it is not received by
BCBSA after the published deadline or after an agreed upon extension.

60

 

Standard 7(B): Reports and Records, continued

	 	2.1.c	 	 Non-submission: A report will be considered not submitted if data are
not presented to BCBSA within 30 days after the published deadline or after an
agreed upon extension. A report will also be considered not submitted if accuracy
concerns or missing data leading to the misrepresentation of performance and
inability to publish data, are not resolved within 30 days after the published
deadline or an agreed upon extension.

	 	2.2	 	Examination — failure to comply with any one of the examination issues; or
	 
	 	2.3	 	Untoward events — failure to report timely and accurately events materially
affecting the controlled affiliate; and
	 
	 	2.4	 	BCBSA management, after contact with Plan management, concludes that
compliance is not likely to be reached, given existing controlled affiliate/Plan
efforts.

Noncompliance with Standard 7(B) will result in the termination of the License pursuant to
paragraph 7(C) of the License Agreement.

61

 

Standard 7(C): Loss Prevention

The Standard is:

A controlled affiliate shall apply loss prevention protocol to both new and existing business.

Determination of Compliance:

	1.	 	A controlled affiliate shall ensure that all prospective clients’ employee safety and other
loss control programs are reviewed during the underwriting process; and

	2.	 	A controlled affiliate shall annually review all clients’ employee safety and other loss
control programs (e.g., regulatory compliance, identification of workplace hazards, management
commitment and effectiveness) and advise clients on appropriate enhancements.

Noncompliance with Standard 7(C) will result in the termination of the License pursuant to
paragraph 7(C) of the License Agreement.

62

 

Standard 7(D): Claims Administration

The Standard is:

A controlled affiliate shall maintain an effective claims administration process that includes all
the necessary functions to assure prompt and proper resolution of medical and indemnity claims.

Determination of Compliance:

	1.	 	A controlled affiliate shall receive a satisfactory audit on an annual basis conducted by
a reinsurer, outside entity or state; and

	2.	 	A controlled affiliate shall have a reporting capability that is available 24-hours-a-day,
seven days a week, which should include the use of a 1-800 telephone reporting system, fax
reporting, or electronic submission; and

	3.	 	A controlled affiliate shall ensure that all appropriate claims are referred simultaneously
to the claims adjuster and the Medical Manager within 24 hours of initial notification; and

	4.	 	A controlled affiliate shall ensure that appropriate compensability decisions are made within
five business days from initial notification for 95 percent of claims; and

	5.	 	A controlled affiliate shall ensure that all lost time benefit checks are accurately
calculated and issued to injured employees within five business days (unless state
requirements differ) after the expiration of a statutory waiting period. Subsequent checks
shall be paid on a timely basis as they become due; and

	6.	 	A controlled affiliate shall ensure that 95 percent of all properly documented medical bills
are paid within 14 days of receipt; and

	7.	 	A controlled affiliate shall ensure that all cases are recognized for subrogation and/or
second injury fund recovery potential.

Noncompliance with Standard 7(D) will result in the termination of the License pursuant to
paragraph 7(C) of the License Agreement.

63

 

Standard 7(E): Disability and Provider Management

The Standard is:

A controlled affiliate shall arrange for the provision of appropriate and necessary medical and
rehabilitative services to facilitate early intervention by medical professionals and timely and
appropriate return to work.

Determination of Compliance:

	1.	 	A controlled affiliate shall receive a satisfactory audit on an annual basis conducted by
a reinsurer, outside entity or state; and
	 
	2.	 	A controlled affiliate shall establish an occupational managed care network, unless
prohibited by state law; and
	 
	3.	 	A controlled affiliate shall ensure that all network physicians are board eligible or
certified in their practicing specialty (unless state law or regulations prohibit compliance
and the controlled affiliate provides evidence of such state law or regulation); and
	 
	4.	 	A controlled affiliate shall ensure that a Medical Manager establishes and documents a
treatment plan, on assigned claims, within three business days from initial notification, with
a projected return-to-work date; and
	 
	5.	 	A controlled affiliate shall ensure that 85 percent of medical payments are made to network
providers, unless state requirements limit the ability to direct treatment.

Noncompliance with Standard 7 (E) will result in the termination of the License pursuant to
paragraph 7(C) of the License Agreement.

64

 

Standard 8: Cooperation with Controlled Affiliate License Performance Response
Process Protocol

The Standard is:

A controlled affiliate and its sponsoring Plan(s) shall cooperate with BCBSA’s Board of Directors
and its Plan Performance and Financial Standards Committee in the Administration of the Controlled
Affiliate Licensee Performance Response Process Protocol (ALPRPP) and in addressing controlled
controlled affiliate compliance problems identified thereunder.

Determination of Compliance:

	1.	 	A controlled affiliate and its Sponsoring Plan(s) shall provide BCBSA’s Board of Directors
and the Plan Performance and Financial Standards Committee with such data, action plans and
on-site visits as required under ALPRPP; and

	2.	 	A controlled affiliate and its Sponsoring Plan(s) shall promptly and effectively address
performance problems identified under the ALPRPP as determined in the reasonable judgment of
BCBSA’s Board of Directors and its Plan Performance and Financial Standards Committee.

Noncompliance with Standard 8 will result in termination of the License pursuant to paragraph 7(C)
of the License Agreement.

65

 

Standard 9(A): Participation in National Programs by Smaller Controlled Affiliates that
were former Primary Licensees

The Standard is:

A smaller controlled affiliate that formerly was a Primary Licensee shall effectively and
efficiently participate in certain national programs from time to time as may be adopted by Member
Plans for the purposes of providing ease of claims processing for customers receiving benefits
outside of the controlled affiliate’s service area and be subject to certain relevant financial and
reporting requirements.

	A.	 	National program requirements include:

	 	•	 	BlueCard Program;
	 
	 	•	 	Inter-Plan Teleprocessing System (ITS);
	 
	 	•	 	Transfer Program;
	 
	 	•	 	Electronic Claims Routing Process, effective until October 16, 2003; and
	 
	 	•	 	National Account Programs, effective January 1, 2002.

	B.	 	Financial Requirements include:

	 	•	 	Standard 6(D): Financial Performance Requirements and Standard 6(H): Financial
Responsibility; or
	 
	 	•	 	A financial guarantee covering the Controlled Affiliate’s BlueCard Program
obligations in a form, and from a guarantor, acceptable to BCBSA.

	C.	 	Reporting requirements include:

	 	•	 	Semi-annual Health Risk-Based Capital (HRBC) Report as defined by the NAIC.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination.

	 	1.1	 	BlueCard Program and ITS — A controlled affiliate shall fully participate in ITS and
the BlueCard Programs through compliance with all BlueCard Program Policies and Provisions
and all applicable Inter-Plan Programs Policies and Provisions, unless an exemption has
been granted by the Inter-Plan Programs Committee (IPPC) in accordance with those Policies
and Provisions.

66

 

Standard 9(A): Participation in National Programs by Smaller Controlled Affiliates that were
former Primary Licensees, continued

	 	1.1.a	 	Compliance determined by periodic reviews or audits and by reviews
initiated by evidence of problems.
	 
	 	1.1.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to the PPFSC and
the BCBSA Board of Directors for their action.

	 	1.2	 	Electronic Claims Routing Process until the mandated date for implementation of the
HIPAA standard transaction — A controlled affiliate shall fully participate in the
Electronic Claims Routing Process through compliance with all Electronic Claims Routing
Process Policies and Provisions and all applicable Inter-Plan Programs Policies and
Provisions.

	 	1.2.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	1.2.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to the PPFSC and
the BCBSA Board of Directors for their action.

	 	1.3	 	National Account Programs — Effective January 1, 2002, a controlled affiliate shall
fully participate in the National Account Programs through compliance with all National
Account Program Policies and Provisions and all applicable Inter-Plan Programs Policies and
Provisions.

	 	1.3.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	1.3.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to PPFSC and the
BCBSA Board of Directors for their action.

	 	1.4	 	If applicable, a controlled affiliate shall adhere to the “Determination of Compliance”
sections listed in Standards 6(D) and 6(H).
	 
	 	1.5	 	If applicable, the controlled affiliate shall submit a financial guarantee covering the
controlled affiliate’s BlueCard Program obligations in a form, and from a guarantor,
acceptable to BCBSA.

67

 

Standard 9(A): Participation in National Programs by Smaller Controlled Affiliates that were
former Primary Licensees, continued

	 	1.6	 	A controlled affiliate shall submit the Semi-annual Health Risk-Based Capital as
indicated in Attachment IV.

Noncompliance will result in termination pursuant to paragraph 7(C) of the Controlled
Affiliate License Agreement.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	Transfer Program — a controlled affiliate shall be in compliance with the policies and
procedures of the program and shall correct any items of noncompliance. Compliance
determined by annual controlled affiliate certification of having appropriately followed
program procedures to identify and transfer non-resident direct pay and Medicare
Supplemental subscribers, by quarterly volume reporting, and by reviews initiated by
evidence of problems.

Sanctions:

A controlled affiliate’s Board shall be notified if the controlled affiliate’s
performance is not in compliance with the above in the BCBSA license compliance letter.

68

 

Standard 9(B): Participation in National Programs by Smaller Controlled Affiliates

The Standard is:

A smaller controlled affiliate that voluntarily elects to participate in national programs in
accordance with BlueCard and other relevant Policies and Provisions shall effectively and
efficiently participate in national programs from time to time as may be adopted by Member Plans
for the purposes of providing ease of claims processing for customers receiving benefits outside of
the controlled affiliate’s service area and be subject to certain relevant financial and reporting
requirements.

	A.	 	National program requirements include:

	 	•	 	BlueCard Program;
	 
	 	•	 	Inter-Plan Teleprocessing System (ITS);
	 
	 	•	 	Electronic Claims Routing Process, effective until October 16, 2003; and
	 
	 	•	 	National Account Programs, effective January 1, 2002

	B.	 	Financial Requirements include:

	 	•	 	Standard 6(D): Financial Performance Requirements and Standards 6(H): Financial
Responsibility; or
	 
	 	•	 	A financial guarantee covering the controlled affiliate’s BlueCard Program obligations
in a form, and from a guarantor, acceptable to BCBSA.

69

 

Standard 9(B): Participation in National Programs by Smaller Controlled Affiliates,
continued

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination.

	 	1.1	 	BlueCard Program and ITS — A controlled affiliate shall fully participate in ITS and
the BlueCard Programs through compliance with all BlueCard Program Policies and Provisions
and all applicable Inter-Plan Programs Policies and Provisions, unless an exemption has
been granted by the Inter-Plan Programs Committee (IPPC) in accordance with those Policies
and Provisions.

	 	1.1.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	1.1.b	 	Meditation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to the PPFSC and
the BCBSA Board of Directors for their action.

	 	1.2	 	Electronic Claims Routing Process until October 16, 2003 — A controlled affiliate
shall fully participate in the Electronic Claims Routing Process through compliance with
all Electronic Claims Routing Process Policies and Provisions and all applicable Inter-Plan
Programs Policies and Provisions.

	 	1.2.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	1.2.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to the PPFSC and
the BCBSA Board of Directors for their action.

	 	1.3	 	National Account Programs — Effective January 1, 2002, a controlled affiliate shall
fully participate in the National Account Programs through compliance with all National
Account Program Policies and Provisions and all applicable Inter-Plan Programs Policies and
Provisions.

	 	1.3.a	 	Compliance determined by periodic reviews or audits and by reviews initiated
by evidence of problems.
	 
	 	1.3.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC that
such action is warranted and a referral of the matter from IPPC to PPFSC and the
BCBSA Board of Directors for their action.

70

 

Standard 9(B): Participation in National Programs by Smaller Controlled Affiliates,
continued

	 	1.4	 	If applicable, a controlled affiliate shall adhere to the “Determination of
Compliance” sections listed in Standards 6(D) and 6(H).
	 
	 	1.5	 	If applicable, the controlled affiliate shall submit a financial guarantee covering the
controlled affiliate’s BlueCard Program obligations in a form, and from a guarantor,
acceptable to BCBSA.

Noncompliance will result in termination pursuant to paragraph 7(C) of the Controlled Affiliate
License Agreement.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

71

 

Standard 10 — Other Standards for Controlled Affiliates Whose Primary Business is Government
Non-Risk

Standards 10(A) — (C) that follow apply to Controlled Affiliates whose primary business is
government non-risk.

72

 

Standard 10(A) — Organization and Governance

The Standard is:

A controlled affiliate shall be organized and operated in such a manner that it is

	A.	 	wholly owned by a licensed Plan or Plans and
	 
	B.	 	the sponsoring licensed Plan or Plans have the legal ability to prevent any change in the
articles of incorporation, bylaws or other establishing or governing documents of the controlled
affiliate with which it does not concur.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	Sponsoring-Licensed Plan(s) wholly owns the controlled affiliate; and
	 
	 	1.2	 	Sponsoring-Licensed Plan(s) have the legal ability to replace the controlled
affiliate’s Board of Directors and prevent any change in the articles of incorporation,
bylaws or other establishing or governing documents of the controlled affiliate with which
it does not concur.

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	None

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

73

 

Standard 10(B) — Financial Responsibility

The Standard is:

A controlled affiliate shall be operated in a manner that provides reasonable financial assurance
that it can fulfill all of its contractual obligations to its customers.

	1.	 	Compliance is based on:

	 	1.1	 	Accounting records maintained on an accrual basis. A controlled affiliate shall file
an annual certified independent audit report with BCBSA.

	 	1.1.a	 	The certified independent audit is required by the State Insurance
Department, the independent financial statement opinion included in the controlled
affiliate’s annual audit report shall not express doubts as to the licensee’s
ability to continue as a going concern. The annual audit is to be performed by an
independent CPA firm acceptable to PPFSC; and

	 	1.2	 	The controlled affiliate and Sponsoring Plan(s), to the full extent of their assets,
indemnifying BCBSA against any claims asserted against it resulting from the contractual
and financial obligations of the controlled affiliate, and all costs and professional fees
associated therewith. In situations where the Sponsoring Plan(s) and controlled affiliate
prefer, the Sponsoring Plan(s) and controlled affiliate may, upon the agreement of BCBSA,
provide alternative protections.
	 
	 	1.3	 	If the controlled affiliate is not a risk assuming entity, the affiliate shall have a
SAP or equivalent net worth of at least 8.33% of annual net operating expenses. Compliance
with this requirement may also be met if the state regulatory authority, in lieu of a
capital infusion, has accepted a written financial guarantee which contractually obligates
the sponsoring Plan(s) for the financial commitments of the controlled affiliate in an
amount that is at least 8.33% of the controlled affiliate’s annual net operating expenses,
reduced by the SAP or equivalent net worth of the controlled affiliate and:

	 	1.3.a	 	The controlled affiliate has SAP or equivalent net worth of at least the
minimum statutory reserve level of the state in which the controlled affiliate is
domiciled, or if there is no minimum statutory reserve requirement, $3.0 million;
and
	 
	 	1.3.b	 	The Plan(s)’ SAP reserve as a percent of Capital Benchmark is at least 120%.

	 	1.4	 	If the controlled affiliate is a risk assuming entity, the controlled affiliate shall
have a SAP or equivalent net worth that is the higher of:

74

 

Standard 10(B) — Financial Responsibility, continued

	 	1.4.a	 	An amount exceeding the “Plan regulatory action level” as defined in the
NAIC’s Risk-Based Capital for Life and/or Insurers Model Act (i.e., exceeding 200%
of Base Adjusted Capital or 250% of Base Adjusted Capital with a negative trend);
or
	 
	 	1.4.b	 	The minimum statutory reserve requirement of the state in which the
controlled affiliate is domiciled.

Noncompliance with Guideline 1 will result in the termination of the License pursuant to paragraph
7(C) of the License Agreement.

75

 

Standard 10(C): Reports and Records

The Standard is:

A controlled affiliate shall furnish, on a timely and accurate basis, reports and records
relating to compliance with these Standards and the License Agreements between BCBSA and the
affiliate. Such reports and records are the following:

	A.	 	BCBSA Affiliate Licensure Information Request; and
	 
	B.	 	Biennial trade name and service mark usage materials, including disclosure material; and
	 
	C.	 	Annual Certified Audit Report, Annual Statement (if required) as filed with the State Insurance
Department (with all attachments), Annual NAIC Risk-Based Capital Worksheets (if required) as
filed with the State Insurance Department (with all attachments), and Insurance Department
Examination Report (if applicable)*; and
	 
	D.	 	Changes in the ownership and governance of the controlled affiliate, including changes in its
charter**, articles of incorporation**, or bylaws**, changes in the controlled affiliate’s Board
composition, Plan control, state license status, operating area, the controlled affiliate’s
Principal Officers or direct delivery of medical care.**

Determination of Compliance:

	1.	 	Compliance is based on:

 

	*	 	Forward within 30 days of receipt by the controlled affiliate of the final report
accompanied by a formal comment thereon from the affiliate’s CEO, if applicable, to:

Managing Director

Brand Protection and Financial Services

Blue Cross and Blue Shield Association

225 N. Michigan Avenue

Chicago, IL 60601

	**	 	Submit within 30 days of change to address indicated above and include a red-lined version
that clearly identifies the changes.

76

 

Standard 10(C): Reports and Records, continued

	 	1.1	 	The timely submission of accurate and complete reports as required by BCBSA Board
of Directors (see Attachment VIII), to include indication of compliance with the License
Agreements, as interpreted in the Brand Book; and
	 
	 	1.2	 	Mandatory reporting of any untoward events associated with the affiliate, such as
malpractice suits or other legal, financial events that would materially affect affiliate
operations and/or performance; and
	 
	 	1.3	 	The affiliate and sponsoring Licensed Plan(s):

	 	1.3.a	 	agreeing upon request by BCBSA to an examination; and
	 
	 	1.3.b	 	providing access to requested staff and/or documentation.

	2.	 	Compliance is also based on an affiliate being in compliance with the regulations pertaining
to service mark use promulgated pursuant to paragraph 3 of the License Agreements (see Brand
Book).
	 
	3.	 	Noncompliance is a result of the following:

	 	3.1	 	Reporting — substantial incompleteness and/or inaccuracy and/or lateness and/or
nonsubmission of required reports as described in Attachment VIII; or

	 	3.1.a	 	Incomplete/Inaccurate Reporting: A report will be considered
incomplete/inaccurate if the data submitted do not conform to published
instructions.
	 
	 	3.1.b	 	Late Reporting: A report will be considered late if it is not received by
BCBSA after the published deadline or after an agreed upon extension.
	 
	 	3.1.c	 	Non-submission: A report will be considered not submitted if data are not
presented to BCBSA within 30 days after the published deadline or after an agreed
upon extension. A report will also be considered not submitted if accuracy concerns
or missing data leading to the misrepresentation of performance and inability to
publish data, are not resolved within 30 days after the published deadline or an
agreed upon extension.

	 	3.2	 	Examination — failure to comply with any one of the examination issues; or
	 
	 	3.3	 	Untoward events — failure to report timely and accurately events materially affecting
the affiliate; and

77

 

Standard 10(C): Reports and Records, continued

	 	3.4	 	BCBSA management, after contact with Plan management, concludes that compliance is
not likely to be reached, given existing affiliate/Plan efforts.

Noncompliance will result in the termination of the License pursuant to paragraph
7(C) of the License Agreement.

78

 

Standard 11: Participation in Electronic Claims Routing Process

The Standard is:

A smaller controlled affiliate for which this standard applies pursuant to the Preamble section
of Exhibit A of the Controlled Affiliate License Agreement shall effectively and efficiently
participate in certain national programs from time to time as may be adopted by Member Plans for
the purposes of providing ease of claims processing for customers receiving benefits outside of
the controlled affiliate’s service area.

National program requirements include:

	A.	 	Electronic Claims Routing Process effective upon October 16, 2003; and
	 
	B.	 	Inter-Plan Medicare Advantage Program.

Determination of Compliance:

	1.	 	Guidelines Subject to Immediate Termination

	 	1.1	 	None

	2.	 	Guidelines Subject to Mediation/Arbitration

	 	2.1	 	Electronic Claims Routing Process effective upon October 16, 2003  — A controlled
affiliate shall fully participate in the Electronic Claims Routing Process through
compliance with all Electronic Claims Routing Process Policies and Provisions and all
applicable Inter-Plan Programs Policies and Provisions.

	 	2.1.a	 	Compliance determined by periodic reviews or audits and by reviews
initiated by evidence of problems.
	 
	 	2.1.b	 	Mediation/Arbitration shall be commenced only upon a finding by the
Inter-Plan Programs Committee (IPPC) that such action is warranted and a
referral of the matter from IPPC to the PPFSC and the BCBSA Board of Directors
for their action.

	 	2.2	 	Inter-Plan Medicare Advantage Program — A Controlled Affiliate shall fully
participate in the Inter-Plan Medicare Advantage Program through compliance with all
Inter-Plan Medicare Advantage Program Policies and Provisions.

	 	2.2.a	 	Compliance determined by periodic review or audits and by reviews initiated
by evidence of problems.

79

 

Standard 11: Participation in Electronic Claims Routing Process

	 	2.2.b	 	Mediation/Arbitration shall be commenced only upon a finding by IPPC
that such action is warranted and a referral of the matter from IPPC to PPFSC and
the BCBSA Board of Directors for their action.

	3.	 	Guidelines Subject to Sanctions

	 	3.1	 	None

80

 

Standard 12: Participation in Master Business Associate Agreement by Smaller Controlled
Affiliate Licensees

The Standard is:

Effective April 14, 2003, all smaller controlled affiliates shall comply with the terms of the
Business Associate Agreement for Blue Cross and Blue Shield Licensees to the extent they perform
the functions of a business associate or subcontractor to a business associate, as defined by the
Business Associate Agreement.

Determination of Compliance:

	1.	 	Guidelines Subject to Mediation/Arbitration

	 	1.1	 	Business Associate Agreement for Blue Cross and Blue Shield Licensees — A controlled
affiliate shall fully comply with the terms and conditions of the Business Associate
Agreement for Blue Cross and Blue Shield Licensees (Attachment IX).

	 	1.1.a	 	Compliance determined by certification of adherence to the terms and
conditions of the Business Associate Agreement for Blue Cross and Blue Shield
Licensees.
	 
	 	1.1.b	 	The Association shall commence Mediation/Arbitration or intervene in a
Mediation/Arbitration proceeding among Plans and/or controlled affiliate licensees
upon a finding by the Plan Performance and Financial Standards Committee that such
action is warranted and a referral of the matter from PPFSC to the BCBSA Board of
Directors for its action.

81

 

Attachment I

Required Reports and Reporting Performance Measures

Page 1 of 2

Required Reports and Reporting Performance Measures

	•	 	Controlled Affiliates comprising less than fifteen percent (15%) of total member enrollment
of Plan and its licensed Controlled Affiliates (as reported on the BCBSA Quarterly Enrollment
Report excluding rider and freestanding coverage and treating an entity seeking licensure as
licensed), and not underwriting the indemnity portion of workers’ compensation insurance, are
required to submit the following reports.

	 	•	 	Quarterly Financial Report.
	 
	 	•	 	Annual Financial Forecast.
	 
	 	•	 	Quarterly Enrollment Report.
	 
	 	•	 	Annual “Health Risk-Based Capital (HRBC) Report” as defined by the NAIC.
	 
	 	•	 	BCBSA Controlled Affiliate Licensure Information Request
	 
	 	•	 	Annual Certified Audit Report (if applicable — see Standard 2)
	 
	 	•	 	Annual Statement as filed with State Insurance Department, if appropriate
	 
	 	•	 	Biennial trade name and service mark usage materials, including disclosure material
	 
	 	•	 	Insurance Department Examination Report*
	 
	 	•	 	The sponsoring Plan(s) or controlled affiliate shall within 30 days of the decision notify
BCBSA of any changes to the governance and status of the controlled affiliate. Included
are changes in:

	 	•	 	bylaws**
	 
	 	•	 	articles of incorporation**
	 
	 	•	 	principal officers
	 
	 	•	 	board composition
	 
	 	•	 	Plan control
	 
	 	•	 	risk acceptance
	 
	 	•	 	direct delivery of medical care
	 
	 	•	 	member growth exceeding fifteen percent (15%)
of parent’s and other licensed Controlled Affiliates’ enrollment
	 
	 	•	 	state license status
	 
	 	•	 	operating area

82

 

Attachment I

Required Reports and Reporting Performance Measures

Page 2 of 2

	*	 	Forward within 30 days of receipt by the controlled affiliate of the final report
accompanied by a formal comment thereon from the controlled affiliate’s CEO, if appropriate, to:

Managing Director, Brand Protection & Financial Services

Blue Cross and Blue Shield Association

225 North Michigan Avenue

Chicago, IL 60601

	**	 	Include a red-lined version that clearly identifies the changes

Reporting Performance Measures:

	 	•	 	Incomplete/Inaccurate Reporting: A report will be considered incomplete/inaccurate if the
data submitted do not conform to published instructions.
	 
	 	•	 	Late Reporting: A report will be considered late if it is received by BCBSA after the
published deadline or after an agreed upon extension.
	 
	 	•	 	Non-submission: A report will be considered not submitted if data are not presented to
BCBSA within 30 days after the published deadline or after a reasonable agreed upon extension.
A report will also be considered not submitted if accuracy concerns or missing data, leading
to the misrepresentation of performance and inability to publish data, are not resolved within
30 days after the published deadline or an agreed-upon extension.

83

 

Attachment II

Clarification of Requirements for Controlled Affiliates’ Annual Actuarial Certification

Page 1 of 2

The requirements applicable to the annual actuarial certification depend on the HRBC ratio of the
affiliate, and possibly also on the HRBC ratio of its sponsoring Primary Licensee, as of the
valuation date, i.e., the requirements for the 12/31/200X certification depend on the 12/31/200X
HRBC ratio(s).

Requirements for: Controlled Affiliates Whose Year-end (12/31) HRBC Ratio is Above 375%; Larger
Controlled Affiliates That Qualify for Enterprise Monitoring, and; Smaller Controlled Affiliates
Whose Primary Licensee’s Year-end (12/31) HRBC Ratio is Above 375%

	1.	 	If the affiliate is required to submit an annual statutory actuarial certification to its
domiciliary regulatory authority, then that certification can be used to satisfy the
requirement, so long as it contains an explicit statement to the effect that it is intended to
be relied upon by the Blue Cross Blue Shield Association.

	2.	 	If the affiliate is not required to submit an annual statutory actuarial certification to its
domiciliary regulatory authority, then it must submit a certification that complies with the
requirements delineated below that apply to an affiliate having an HRBC ratio below 375%, but
with one key exception: here the certification may be issued by any qualified actuary (as
defined below), which might include an employee of the affiliate or another company in its
corporate family.

	3.	 	The annual certification is to be submitted to the Blue Cross Blue Shield Association by May
1 together with a copy of the (NAIC) Annual Statement.

84

 

Attachment II

Clarification of Requirements for Controlled Affiliates’ Annual Actuarial Certification

Page 2 of 2

Requirements for: Larger Controlled Affiliates Whose Year-end (12/31) HRBC Ratio is at or Below
375% and That Do Not Qualify for Enterprise Monitoring, and; Smaller Controlled Affiliates Whose
Year-end (12/31) MCO-RBC Ratio is at or Below 375% and Whose Primary Licensee’s HRBC Ratio is at or
Below 375%

	1.	 	The certification must be issued by a qualified, independent, actuary.

	 	a)	 	“Qualified” means that the actuary is a member in good standing of the American Academy of
Actuaries and meets its Specific Qualification Standard for the Actuarial Certification in the
NAIC Health Annual Statement.
	 
	 	b)	 	An actuary’s degree of “independence” from the entity about which he/she is opining is left
up to his/her professional judgement, except that the following are not considered
independent:

	 	i)	 	any current employee, or retiree, of that entity or any of its affiliates;
	 
	 	ii)	 	any
consulting actuary acting in an interim staff capacity with that entity or any of its
affiliates.

	2.	 	The annual certification must substantially comply with the standards prescribed in the
Actuarial Certification section of the NAIC Annual Statement Instructions applicable to HMDI
companies. For the 12/31/2000 certification, the 1999 HMDI Instructions shall govern;
subsequently, the 200X Health Instructions shall set the standards applicable to the
12/31/200X certification.

	3.	 	The certification should contain an explicit statement that it was prepared for, and may be
relied upon by, the Blue Cross Blue Shield Association.

	4.	 	The certification is to be submitted to the Blue Cross Blue Shield Association by May 1.

85

 

Attachment III

Guaranty Association Alternatives & Evaluation Criteria

Page 1 of 3

Each controlled affiliate (licensee) is required to:

	1.	 	Participate in the guaranty fund in each state in which it operates; or

	2.	 	Establish another method approved by BCBSA which assures the payment of claim liabilities and
continuation of coverage in the event of a licensee’s insolvency.

The following outlines several alternative mechanisms that the PPFSC has found to be acceptable and
the evaluation criteria the PPFSC will use to evaluate a licensee’s proposed alternative mechanism.
Please note that this list is not exhaustive, licensees are welcome to propose other mechanisms
they believe will fulfill the requirement and that meet the evaluation criteria. The PPFSC,
however, does not contemplate recommending that a licensee be excused from compliance with this
requirement based on the licensee’s capital and/or liquidity position.

Payment of Claim Liabilities — Alternative Mechanisms

The following potential alternatives to participation in a state guaranty association that ensure
payment of claim liabilities have been identified. More than one mechanism can be used to achieve
compliance with the requirement.

	•	 	Hold Harmless Agreement — Providers, by contract or statute, are prohibited from pursuing
subscribers for payment of outstanding claims in the event the licensee becomes insolvent.
Provisions must be made by the licensee to fund claim payments due to providers and
subscribers not covered by the hold harmless provisions.

	•	 	Voluntary inter-licensee arrangements — insurance or reinsurance agreements among a
consortium of licensees that have sufficient financial resources to meet the commitments of
the consortium and maintain compliance with the applicable license agreements. Must be
acceptable to state regulators.

	•	 	Reinsurance or a financial pledge — insurance or reinsurance agreements or pledge of
financial resources from a third party that has sufficient financial resources to meet the
commitments. Must be acceptable to state regulators.

86

 

Attachment III

Guaranty Association Alternatives & Evaluation Criteria

Page 2 of 3

	•	 	Subscriber Protection Account — establishment of a custodial account consisting of cash
and/or high-grade marketable securities in amount to cover insurance obligations of licensee.
Based on the SAFE-T Account concept developed by State Farm, the licensee would, with the
agreement of the insurance department, continue to admit the securities as assets of the
corporation and would have the ability to trade the securities as long as the value of the
custodial account was equal to the predetermined requirement. Also necessary is a written
agreement with the appropriate regulators indicating that the custodial account would be used
in the case of insolvency to fund the licensee’s claim liabilities. Only when all claims have
been paid, could the account’s assets be used for other liquidation expenses.

Payment of Claim Liabilities — Evaluation Criteria

To determine if an alternative mechanism (or mechanisms) is acceptable, PPFSC will use the
following criteria to evaluate the proposal.

	1.	 	The proposal must guarantee all of the licensee’s insured business (branded and unbranded) in
all jurisdictions in which it is licensed to do business. The mechanism does not need to include
FEP subscribers.
	 
	2.	 	The mechanisms are acceptable to all applicable regulators.
	 
	3.	 	The amount of required coverage is at least equal to the:

	 	•	 	Unpaid claim liability of the fully underwritten book of business; and
	 
	 	•	 	2% of net subscription revenue of ASC/Cost Plus/AFA products; and
	 
	 	•	 	the related loss
adjustment reserve for the above two classifications.

	4.	 	The amount of proposed coverage must be annually certified by an actuary that it is a “good and
sufficient provision” for the stated obligation. If the controlled affiliate is included in the
Plan Performance Response Process, the certification must be made by an independent, qualified
actuary.
	 
	5.	 	Provisions must be made for the sufficiency of the coverage to be reviewed, and, if necessary,
adjusted at least annually. If the controlled affiliate is included in the Plan Performance
Response Process, the review and necessary adjustments will be required on a more frequent basis.

87

 

Attachment III 

Guaranty Association Alternatives & Evaluation Criteria

Page 3 of 3

Continuation of Coverage — Alternative Mechanisms

The following potential alternatives to participation in a state guaranty association that ensure
continuation of coverage have been identified. More than one mechanism can be used to achieve
compliance with the requirement.

	•	 	Voluntary inter-licensee arrangements — agreements among two or more licensees that have
sufficient financial resources to meet the commitments to continue coverage and maintain
compliance with the applicable license agreements. Must be acceptable to state regulators.

	•	 	Reinsurance — insurance or reinsurance agreements from a third party that has sufficient
financial resources to meet the commitments. Must be acceptable to state regulators.

Continuation of Coverage — Evaluation Criteria

To determine if an alternative mechanism (or mechanisms) is acceptable, PPFSC will use the
following criteria to evaluate the proposal.

	•	 	Length of time coverage continuation is available — coverage continues from the date of a
BCBSA Member Plan vote to terminate license(s) or resignation, for a period at least as long
as the continuation of coverage period provided by the guaranty fund statute in the controlled
affiliate’s state.

	•	 	Who is offered continuation of coverage — all insured subscribers, excluding FEP
subscribers.

	•	 	What level of benefits must be offered — at least as high as would be offered if the
controlled affiliate participated in its state guaranty fund.

88

 

Attachment IV

Required Performance Reports and Certifications Schedule

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PERIOD	 	 	DUE DATE	 
	 	 	 	 	 	 	 	 	 
	 	A.

	 	BCBSA Controlled Affiliate Licensure Information Request (Triennial Review)
	 	 	Triennial (4)
	 	 	 	(1)		 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	B. Certifications:	 	 	 	 	 	 	 	 	 
	 	 

	 	Procedures having been adopted to enforce code of conduct policies for employees,
officers and Directors (See Standard 6A)
	 	 	Triennial (4)
	 	 	 	(1)		 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 

	 	By a qualified actuary of adequate accounting for unpaid claim liability reserve (See
Standard 6H)
	 	 	Annual
	 	 	 	5/1(3)		 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 

	 	Distribution of BCBSA License Compliance Letter and attachments to controlled
affiliate Board members (See Standard 6A)
	 	 	Triennial (4)
	 	 	 	(1)		 
	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	C.

	 	Service Mark use and disclosure information (See Standards 4 and 7)
	 	 	Biennial
	 	 	 	(1)		 
	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	D.

	 	Changes in Governance and Status
	 	 	Ongoing
	 	 	 	(2)		 
	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	E.

	 	Quarterly Financial Report	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	-

	 	All financial statements and required schedules, except the reconciliation of
GAAP net worth to SAP net worth
	 	 	1st Qtr

2nd Qtr

3rd Qtr

4th Qtr
	 	 	 	5/5

8/4

11/4

2/28	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	-

	 	Starting first quarter, 2004 and quarterly thereafter, a reconciliation of GAAP
net worth to SAP net worth (only applicable to a risk-assuming licensee that
files its Quarterly Financial Report on a GAAP basis)
	 	 	1st Qtr

2nd Qtr

3rd Qtr

4th Qtr
	 	 	 	5/15

8/15

11/15

2/28	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	F.

	 	Semi-annual “ Health Risk-Based Capital (HRBC) Report” as defined by the
NAIC.
	 	 	Annual filings
	 	 	 	3/15	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 

	 	 	 	 	Mid-year filings
	 	 	 	8/15	 	 
	 	 	 	 	 	 	 	 	 

(continued on next page)

89

 

Attachment IV

Required Performance Reports and Certifications Schedule

Page 2 of 2

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	PERIOD	 	 	DUE DATE	 
	 	G.

	 	Annual Financial Forecast
	 	Annual
	 	 	2/28	 
	 	 	 	 	 	 
	 	H.

	 	Annual Certified Audit Report (See Standard 6(H))
	 	Annual (5)
	 	 	5/1 (3)	 
	 	 	 	 	 	 
	 	I.

	 	Insurance Department Examination Report
	 	Within 30 days of controlled

affiliate receipt of final report	 
	 	 	 	 	 	 
	 	J.

	 	Annual Statement filed with State Insurance Department
	 	Annual
	 	 	5/1 (3)	 
	 	 	 	 	 	 
	 	K.

	 	Quarterly Enrollment Report	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 
	 	 

	 	Expanded Medicare and Expat reporting introduced
	 	1st Qtr, 2006
	 	 	4/30	 
	 	 
	 	 	 	 	 	 	 	 
	 	 

	 	Expanded National Accounts and Ancillary Products reporting introduced
	 	2nd Qtr, 2006
	 	 	7/31	 
	 	 
	 	 	 	 	 	 	 	 
	 	 

	 	 	 	3rd Qtr, 2006
	 	 	10/31	 
	 	 

	 	 	 	4th Qtr, 2006
	 	 	1/31	 
	 	 

	 	 	 	1st Qtr, 2007
	 	 	4/30	 
	 	 

	 	 	 	2nd Qtr, 2007
	 	 	7/31	 
	 	 
	 	 	 	 	 	 	 	 
	 	 

	 	Expanded Consumer Driven Health Plan reporting introduced
	 	3rd Qtr, 2007
	 	 	10/31	 
	 	 

	 	 	 	4th Qtr, 2007
	 	 	1/31	 
	 	 
	 	 	 	 	 	 	 	 
	 	L.

	 	A controlled affiliate subject to Standard 6(D) is required to 1) provide an
unconditional and irrevocable letter of credit or other guarantee of payment
satisfactory to BCBSA, 2) waive rights under certain national account programs,
and 3) waive rights to challenge the federal super-priority status held by the
controlled affiliate for certain federal programs
	 	Quarterly

as of 12/31/93
	 	 	N/A	 
	 	 	 	 	 	 

Notes:

	(1)	 	Due date included with information request; typically first week in August.
	 
	(2)	 	Due within 30 days of the decision to change.
	 
	(3)	 	Extension up to June 1 only with prior agreement of BCBSA.
	 
	(4)	 	Controlled Affiliates may be required to respond to a BCBSA Controlled Affiliate Licensure Information Request on
an annual basis as required under Standard 6A.
	 
	(5)	 	If applicable, see Standard 6(H).

90

 

Attachment V

Sanction Protocols — Reports and Records

The following protocols have been established for late, inaccurate and/or non-reporting for
required reports as required under Standard 6(I):

	1.	 	BCBSA will initially work directly with Plans to resolve these situations.
	 
	2.	 	If chronic problem persists, a letter will be sent to the Plan CEO describing the situation.
	 
	3.	 	If no response or resolution, Committee requests meeting with Plan CEO.
	 
	4.	 	If necessary, the Committee and BCBSA Board would still have the option to move the Plan to
mediation/arbitration. (The Plan’s Board will be notified in the Triennial Compliance Letter of
chronic late, inaccurate and/or non-reporting if Mediation/Arbitration is approved by BCBSA Board
of Directors.)

91

 

Attachment VI

Required Performance Reports and Certifications Schedule

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PERIOD	 	 	DUE DATE	 
	 	 	 	 	 	 	 	 	 
	 	A.

	 	BCBSA Controlled Affiliate Licensure Information Request (Triennial Review)
	 	 	Triennial (4)
	 	 	 	(1	)	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	B.

	 	Opinion of Loss Reserve and Loss Adjusting Expense Reserves and Actuarial Report
	 	 	Annual
	 	 	 	5/1 	(2)	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	C.

	 	Property Casualty Risk-Based Capital Workpapers
	 	 	Annual
	 	 	 	5/1 	(2)	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	D.

	 	Annual Financial Forecast
	 	 	Annual
	 	 	 	2/28	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	E.

	 	Annual Certified Audit Report
	 	 	Annual
	 	 	 	5/1 	(2)	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	F.

	 	Annual Statement filed with State Insurance Department
	 	 	Annual
	 	 	 	5/1 	(2)	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	G.

	 	Quarterly Financial Report	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	•

	 	All financial statements and required schedules, except the reconciliation of GAAP net
worth to SAP net worth
	 	 	1st Qtr

2nd Qtr

3rd Qtr

4th Qtr
	 	 	 	5/5

8/4

11/4

2/28	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	•

	 	Starting first quarter, 2004 and quarterly thereafter, a reconciliation of GAAP net worth to
SAP net worth (only applicable to a risk-assuming licensee that files its Quarterly Financial
Report on a GAAP basis)
	 	 	1st Qtr

2nd Qtr

3rd Qtr

4th Qtr
	 	 	 	5/15

8/15

11/15

2/28	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	H.

	 	Quarterly Estimate of Risk Based Capital for Property and Casualty Insurers Worksheet
	 	 	1st Qtr

2nd Qtr

3rd Qtr

4th Qtr
	 	 	 	5/15

8/15

11/15

3/15	 	 
	 	 	 	 	 	 	 	 	 
	 	I.

	 	Insurance Department Examination Reports
	 	 	Within 30 days of
controlled affiliate
receipt of final report.	 
	 	 	 	 	 	 	 	 	 
	 	J.

	 	Changes in Independent Rating and All Rating Reports
	 	 	Ongoing
	 	 	 	(3	)	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	K.

	 	Quarterly Enrollment Report	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 

	 	Expanded Medicare and Expat reporting introduced
	 	 	1st Qtr, 2006
	 	 	 	4/30	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 

	 	Expanded National Accounts and Ancillary Products reporting introduced
	 	 	2nd Qtr, 2006
	 	 	 	7/31	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 

	 	 	 	 	3rd Qtr, 2006

4th Qtr, 2006

1st Qtr, 2007

2nd Qtr, 2007
	 	 	 	10/31

1/31

4/30

7/31	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 

	 	Expanded Consumer Driven Health Plan reporting introduced
	 	 	3rd Qtr, 2007

4th Qtr, 2007
	 	 	 	10/31

1/31	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	L.

	 	Changes in Governance and Status
	 	 	Ongoing
	 	 	 	(3	)	 
	 	 	 	 	 	 	 	 	 

			
	(1)	 	Due date included with information request; typically
first week in August.
	 
	(2)	 	Extension up to June 1 only with prior
agreement of BCBSA.
	 
	(3)	 	Within 30 days of receipt of notice.
	 
	(4)	 	Controlled Affiliates may be required to respond to a BCBSA Controlled Affiliate Licensure
Information Request on an annual basis.

Forward to:

Managing Director, Brand Protection & Financial Services

Blue Cross and Blue Shield Association 

225 North Michigan Avenue 
Chicago, IL 60601

92

 

Attachment VII

To Guidelines To Administer The Controlled Affiliate Standards

Definition of “Local Net Revenue” & “Combined Local Net Revenue,” “National Net Revenue,” “Combined
National Net Revenue,” and “Combined National Enrollment” Page 1 of 4

I. Local Revenues

The following definitions are used in determining compliance with Controlled Affiliate Standards
6(G), Guideline 2.1 and Standard 6(J). For the purposes of Standard 6(G), Guideline 2.1 and
Standard 6(J), only revenues attributable to health care plans and related services offered within
the designated service area are to be included in the calculations. For purposes of the definition
of Combined Local Net Revenue applicable to Standard 6(G), Guideline 2.1 only, revenues
attributable to health care plans and related services includes revenues attributable to the
delivery of hospital services and medical (professional) services and the sale of health care
products.

“Local Net Revenue” for Risk Assuming entities is defined as:

	 	 	 	 	 
	The sum of
Branded and
Unbranded:

	 	•
	 	Revenue for all Health Insurance Premiums for all lines of business as listed in the BCBSA Quarterly Financial Report
	 	•
	 	Revenue from delivery of hospital services
	 

	 	•
	 	Revenue from the sale of health care products
	 

	 	•
	 	Revenue from delivery of medical (professional) services
	 

	 	•
	 	Administrative Service Contract (ASC) Premium Equivalents
	 

	 	•
	 	Administrative Service Only (ASO) Premium Equivalents
	 

	 	•
	 	Ceded health premium under reinsurance agreements
	 

	 	•
	 	All other health revenue, as listed in the BCBSA Quarterly Financial Report
	 
	 	 	 	 
	Less:

	 	•
	 	Revenue for out-of-service-area national account contracts
	 

	 	•
	 	Revenue for out-of-service-area FEP contracts
	 

	 	•
	 	Assumed health premium under reinsurance arrangements
	 
	 	 	 	 
	Adjusted for:

	 	•
	 	Inter-company eliminations

93

 

Attachment VII

To Guidelines To Administer The Controlled Affiliate Standards

Definition of “Local Net Revenue” & “Combined Local Net Revenue,” “National Net
Revenue,” “Combined National Net Revenue,” and “Combined National Enrollment”
Page 2 of 4

“Local Net Revenue” for Non-Risk Assuming entities is defined as:

	 	 	 	 	 
	The sum of
Branded and
Unbranded:

	 	•
	 	Administrative Service Only (ASO) premium equivalents
	 
	 	 	 	 
	 

	 	•
	 	Administrative Service Contract (ASC) Premium Equivalents
	 
	 	 	 	 
	 

	 	•
	 	All other health revenue, as listed in the BCBSA Quarterly Financial Report
	 
	 	 	 	 
	Adjusted for:

	 	•
	 	Inter-company eliminations

“Combined Local Net Revenue” is defined as:

The sum of the Local Net Revenues1 of the entities and products/services included in the
applicable computation. For purposes of compliance with Standard 6(G), Guideline 2.1 only,
Combined Local Net Revenue includes the foregoing plus the sum of the revenues from hospital
services and medical (professional) services and sale of health care products2 of the Controlled Affiliate.

 

			
	1	 	Excludes revenue from Medicare, Medicaid, and CHAMPUS fiscal intermediary
contracts and from CHAMPUS risk contracts where the Plan demonstrates to the satisfaction
of BCBSA that government regulations practically prevent the use of the Marks.
	 
	2	 	The term “hospital services” shall be interpreted broadly and shall include,
without limitation, any services or products provided by a hospital. “Hospital” means (A)
an institution that is engaged in providing, by or under the supervision of physicians, to
inpatients, (i) diagnostic services and therapeutic services for medical diagnosis,
treatment, and care of injured, disabled, or sick persons, or (ii) rehabilitation services
for the rehabilitation of injured, disabled, or sick persons; or (B) any facility or
institution engaged in the delivery of health care services that is located within or
adjacent to, or is a controlled affiliate of, an institution described in (A). The term
“health care products” shall be interpreted broadly and shall include, without limitation,
tangible health-related goods, other than health care services, for which a Plan provides
or administers reimbursement on behalf of subscribers, including but not limited to,
pharmaceuticals, biologics, and medical equipment or devices. The term “medical
(professional) services” shall be interpreted broadly and shall include, without
limitation, services provided by a physician or other professional healthcare provider to
identify and treat a member’s illness or injury, which are consistent with the symptoms,
diagnosis, and treatment of the member’s condition, in accordance with the standards of
good medical practice.

94

 

Attachment VII

To Guidelines To Administer The Controlled Affiliate Standards

Definition of “Local Net Revenue,” “Combined Local Net Revenue,” “National Net Revenue,” “Combined
National Net Revenue,” and “Combined National Enrollment” Page 3 of 4

II. National Revenues and/or National Enrollment

The following definitions are used in determining compliance with Controlled Affiliate Standard
6(G), Guideline 2.2. For purposes of Standard 6(G), Guideline 2.2 only, revenues or member
enrollment attributable to health care plans and related services offered within the United States
and Puerto Rico are to be included in the calculation. For purposes of the definition of
Combined National Net Revenue applicable to Standard 6(G), Guideline 2.2 only, revenues
attributable to health care plans and related services includes revenues attributable to the
delivery of hospital services and medical (professional) services and the sale of health care
products.

“National Net Revenue” for Risk Assuming entities is defined as:

	 	 	 	 	 
	The sum of
Branded and
Unbranded:

	 	•
	 	Revenue for all Health Insurance Premiums for all lines of business as listed in the BCBSA Quarterly Financial Report
	 
	 	 	 	 
	 

	 	•
	 	Revenue from delivery of hospital services
	 
	 	 	 	 
	 

	 	•
	 	Revenue from the sale of health care products
	 
	 	 	 	 
	 

	 	•
	 	Revenue from delivery of medical (professional) services
	 
	 	 	 	 
	 

	 	•
	 	Administrative Service Contract (ASC) Premium Equivalents
	 
	 	 	 	 
	 

	 	•
	 	Administrative Service Only (ASO) Premium Equivalents
	 
	 	 	 	 
	 

	 	•
	 	Ceded health premium under reinsurance agreements
	 
	 	 	 	 
	 

	 	•
	 	All other health revenue as listed in the BCBSA Quarterly Financial Report
	 
	 	 	 	 
	Less:

	 	•
	 	Assumed health premium under reinsurance arrangements
	 
	 	 	 	 
	Adjusted for:

	 	•
	 	Inter-company eliminations

“National Net Revenue” for Non-Risk Assuming entities is defined as:

	 	 	 	 	 
	The sum of
Branded and
Unbranded:

	 	•
	 	Administrative Service Only (ASO) Premium Equivalents
	 
	 	 	 	 
	 

	 	•
	 	Administrative Service Contract (ASC) Premium Equivalents
	 
	 	 	 	 
	 

	 	•
	 	All other health revenue as listed in the BCBSA Quarterly Financial Report
	 
	 	 	 	 
	Adjusted for:

	 	•
	 	Inter-company eliminations

95

 

ATTACHMENT VII

Definition of “Local Net Revenue,” “Combined Local Net Revenue,” “National Net Revenue,” “Combined
National Net Revenue,” and “Combined National Enrollment” Page 4 of 4

“Combined National Net Revenue” is defined as:

The sum of the National Net Revenues1of the entities and products/services included in
the applicable computation. For purposes of compliance with Standard 6(G), Guideline 2.2 only,
Combined National Net Revenue includes the foregoing plus the sum of the revenues from hospital
services and medical (professional) services and sale of health care products2 of the
Controlled Affiliate.

“Combined National Enrollment” is defined as:

	 	 	 	 	 
	The sum of
Branded and
Unbranded:

	 	•
	 	Administrative Service Only (ASO) Members
	 
	 	 	 	 
	 

	 	•
	 	Administrative Service Contract (ASC) Members
	 
	 	 	 	 
	 

	 	•
	 	All other health membership as listed in the BCBSA Quarterly Enrollment Report.

For purposes of compliance with Standard 6(G), Guideline 2.2a only, Combined National
Enrollment of the Controlled Affiliate excludes membership from Medicare, Medicaid and
CHAMPUS fiscal intermediary contracts and from CHAMPUS risk contracts where the Plan
demonstrates to the satisfaction of BCBSA that government regulations practically prevent the use of the Marks.

 

			
	1	 	Excludes revenue from Medicare, Medicaid and CHAMPUS fiscal intermediary
contracts and from CHAMPUS risk contracts where the Plan demonstrates to the satisfaction of
BCBSA that government regulations practically prevent the use of the Marks.
	 
	2	 	The term “Hospital Services” shall be interpreted broadly and shall include, without
limitation, any services or products provided by a hospital. “Hospital” means (A) an
institution that is engaged in providing, by or under the supervision of physicians, to
inpatients, (i) diagnostic services and therapeutic services for medical diagnosis, treatment,
and care of injured, disabled, or sick persons, or (ii) rehabilitation services for the
rehabilitation of injured, disabled, or sick persons; or (B) any facility or institution
engaged in the delivery of health care services that is located within or adjacent to, or is
an Affiliate*** of, an institution described in (A). The term “health care products” shall be
interpreted broadly and shall include, without limitation, tangible health-related goods,
other than health care services, for which a Plan provides or administers reimbursement on
behalf of subscribers, including but not limited to, pharmaceuticals, biologics, and medical
equipment or devices. The term “medical (professional) services” shall be interpreted broadly
and shall include, without limitation, services provided by a physician or other professional
healthcare provider to identify and treat a member’s illness or injury, which are
consistent with the symptoms, diagnosis, and treatment of the member’s condition, in
accordance with the standards of good medical practice.

96

 

Attachment VIII

Required Performance Reports and Certifications Schedule For

Controlled Affiliates Whose Primary Business is Government Non-Risk

	 	 	 	 	 	 	 
	 	 	PERIOD	DUE DATE
	A. BCBSA Affiliate Licensure Information Request
	 	 	Triennial (4)	 	 	(1)
	 
	 	 	 	 	 	 
	B. Risk-Based Capital Workpapers, if applicable
	 	 	Annual	 	 	5/1 (2)
	 
	 	 	 	 	 	 
	C. Annual Certified Audit Report
	 	 	Annual	 	 	5/1 (2)
	 
	 	 	 	 	 	 
	D. Annual Statement filed with State Insurance Department, if applicable
	 	 	Annual	 	 	5/1 (2)
	 
	 	 	 	 	 	 
	E. Insurance Department Examination Reports, if applicable
	 	 	As Applicable	 	 	Within 30 days
	 
	 	 	 	 	 	of Controlled
	 
	 	 	 	 	 	Affiliate receipt
	 
	 	 	 	 	 	of final report
	 
	 	 	 	 	 	 
	F. Changes in Governance and Status
	 	 	Ongoing	 	 	(3)

			
	(1)	 	Due date included with information request; typically first week in
August.
	 
	(2)	 	Extension up to June 1 only with prior agreement of BCBSA.
	 
	(3)	 	Within 30 days of receipt of notice; include red-lined version.
	 
	(4)	 	Controlled Affiliates may be required to respond to a BCBSA Controlled Affiliate Licensure
Information Request on an annual basis.

Forward to:

Managing Director

Brand Protection and Financial Services

Blue Cross and Blue Shield Association

225 N. Michigan Avenue 
Chicago, IL 60601

97

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

BUSINESS ASSOCIATE AGREEMENT

FOR BLUE CROSS AND BLUE SHIELD LICENSEES

This agreement (“Agreement”) is effective as of April 14, 2003, and amended as of April 20,
2005.

The parties to this Agreement (individually, a “Party,” and collectively, the “Parties”) are
the Blue Cross and Blue Shield Association (“BCBSA”) and each of its independent licensees that is
a party to a Blue Cross and/or Blue Shield License Agreement (“Licensees”). Licensees are
authorized to use the names and service marks of BCBSA in a designated service area (“Service
Area”). The Parties enter into this Agreement in order to comply with the requirements of Subtitle
F of Title II of the Health Insurance Portability and Accountability Act of 1996 and its
implementing regulations (45 F. R. Parts 160-164) (the “HIPAA Rules”) and applicable state statutes
and/or regulations implementing Title V of the Gramm-Leach-Bliley Act (15 U.S.C. § 6801 et seq.)
(“GLB Regulations”). Capitalized terms not defined herein have the meaning set forth in the HIPAA
Rules and the GLB Regulations.

The Parties obtain, create, and exchange Protected Health Information and Nonpublic Personal
Financial Information for a variety of purposes pursuant to a variety of agreements. This
Agreement controls the Use and Disclosure of all Protected Health Information and Nonpublic
Personal Financial Information in a Party’s possession or control as a result of the Party acting
as a Business Associate of a Covered Entity or agent or subcontractor (“Subcontractor”) of a
Business Associate pursuant to the agreements listed in Schedule A (the “Scheduled Agreements”).
Scheduled Agreements include the program policies adopted by the BCBSA Board of Directors pursuant
to the BCBSA License Agreement.

This Agreement is designed to address each Party’s obligations under the Administrative
Simplification provisions of HIPAA, the HIPAA Rules, and GLB Regulations in a number of roles that
a Party may play pursuant to the Scheduled Agreements. A Licensee may act as the Business
Associate of another Licensee, including as a Health Care Clearinghouse. A Licensee may act as
Subcontractor of another Party that acts as a Business Associate for another Covered Entity, such
as a self-insured Group Health Plan. BCBSA may act as a Business Associate of a Licensee or as a
Subcontractor of a Licensee that acts as a Business Associate for another Covered Entity, such as a
self-insured Group Health Plan.

A Party to this Agreement may Use or Disclose Protected Health Information it creates or
receives when acting as a Business Associate of a Covered Entity or a Subcontractor of a Business
Associate pursuant to a Scheduled Agreement only as permitted by this Agreement and not prohibited
by the Scheduled Agreement.

98

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 2 of 22

	A.	 	Privacy and Security of Protected Health Information.

1. Permitted Uses and Disclosures. When a Party acts as Business Associate or
Subcontractor to another Party, the Party will not Use or Disclose Protected Health
Information it creates or receives pursuant to a Scheduled Agreement except as allowed or
required by the Scheduled Agreement. A Party acting in such capacity is further limited to
those Uses and Disclosures of Protected Health Information Required By Law and as follows:

a) Party as Business Associate. To the extent permitted by the Scheduled
Agreement, a Party acting as Business Associate to another Party may Use or
Disclose the minimum necessary Protected Health Information for the Payment
activities and Health Care Operations of the other Party and for the Health Care
Operations of any Organized Health Care Arrangement in which the other Party is a
participant. To the extent permitted by the Scheduled Agreement, a Party acting as
Business Associate of another Party may Disclose (i) to a Health Care Provider, the
Protected Health Information requested by such Health Care Provider for the
Treatment activities of such Health Care Provider, (ii) to a Health Care Provider
or to another Covered Entity, the minimum necessary Protected Health Information
for the Payment activities of such Health Care Provider or Covered Entity, and
(iii) to another Covered Entity, the Protected Health Information of Individuals
with whom both the recipient and the other Party have or had a relationship,
provided that (x) the Protected Health Information Disclosed pertains to that
relationship and (y) the Disclosure is for Health Care Operations of the recipient
that are allowed by 45 C.F.R. § 164.506(c)(4). Unless prohibited by the Scheduled
Agreement, a Party acting as Business Associate of another Party may Use or
Disclose the minimum necessary (as applicable) Protected Health Information for
other reasons permitted by the HIPAA Rules, including for purposes described in
Section A.2 of this Agreement. If the Covered Entity that Party serves as Business
Associate is a Health Care Provider, Party may Use or Disclose Protected Health
Information for that Health Care Provider’s Treatment activities if the Scheduled
Agreement permits such Uses and Disclosures.

b) Party as Subcontractor. To the extent permitted by the Scheduled Agreement, a
Party acting as Subcontractor to another Party acting as Business Associate of a
Covered Entity may Use or Disclose the minimum necessary Protected Health Information for the Payment
activities and Health Care Operations of that Covered Entity and for the Health
Care Operations of any Organized Health Care Arrangement in which that Covered
Entity is a participant. To the extent permitted by the

99

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 3 of 22

Scheduled Agreement, a Party acting as Subcontractor of another Party acting as
Business Associate of a Covered Entity may Disclose (i) to a Health Care Provider,
the Protected Health Information requested by such Health Care Provider for the
Treatment activities of such Health Care Provider, (ii) to a Health Care Provider
or to another Covered Entity, the minimum necessary Protected Health Information
for the Payment activities of such Health Care Provider or Covered Entity, and
(iii) to another Covered Entity, the Protected Health Information of Individuals
with whom both the recipient and the Covered Entity that the Business Associate,
for which the Party acts as Subcontractor, serves have or had a relationship,
provided that (x) the Protected Health Information Disclosed pertains to that
relationship and (y) the Disclosure is for Health Care Operations of the recipient
that are allowed by 45 C.F.R. § 164.506(c)(4). Unless prohibited by the Scheduled
Agreement, a Party acting as Subcontractor to another Party acting as Business
Associate of Covered Entity may Use and Disclose the minimum necessary (as
applicable) Protected Health Information for other reasons permitted by the HIPAA
Rules including for purposes described in Section A.2 of this Agreement. If the
Covered Entity that contracts with the Business Associate that Party serves is a
Health Care Provider, Party may Use or Disclose Protected Health Information for
that Health Care Provider’s Treatment activities if the Scheduled Agreement permits
such Uses and Disclosures.

2. Other Permitted Uses and Disclosures.

a) Party’s Operations. A Party acting as Business Associate or Subcontractor to
another Party may Use the minimum amount of Protected Health Information it creates
or receives pursuant to a Scheduled Agreement as necessary for Party’s proper
management and administration or to carry out Party’s legal responsibilities,
unless that Scheduled Agreement prohibits such Uses. A Party acting as Business
Associate or Subcontractor may, unless prohibited by the Scheduled Agreement,
Disclose the minimum amount of such Protected Health Information as necessary for
Party’s proper management and administration or to carry out Party’s legal
responsibilities only if Party obtains reasonable assurance, evidenced in writing,
from any person or organization to which Party will Disclose such Protected Health
Information that the person or organization will:

100

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 4 of 22

(i) Hold such Protected Health Information in confidence and Use or
further Disclose it only for the purpose for which Party Disclosed it to
the person or organization or as Required By Law; and

(ii) Notify Party (who will in turn promptly notify the applicable
Licensee or other Covered Entity) of any instance of which the person or
organization becomes aware in which the confidentiality of such Protected
Health Information was breached.

b)
Data Aggregation. Party may conduct Data Aggregation services except with
respect to the Protected Health Information it receives pursuant to a Scheduled
Agreement that prohibits Data Aggregation.

c) Disclosure to Subcontractors and Agents. Party may Disclose Protected Health
Information to agents and subcontractors to perform functions or activities on its
behalf except for such Disclosures prohibited by a Scheduled Agreement. Prior to
such Disclosure, Party will comply with Section A.5 of this Agreement.

3. Information Safeguards. Party will develop, implement, maintain and use appropriate
administrative, technical and physical safeguards, in compliance with Social Security Act §
1173(d) (42 U.S.C. § 1320d-2(d)), 45 C.F.R. Part 164, Subpart C, 45 C.F. R. § 164.530(c),
and any other applicable implementing regulations issued by the U.S. Department of Health
and Human Services (“HHS”). Party will use these safeguards to preserve the integrity,
confidentiality, and availability of and to prevent non-permitted Use or Disclosure of
Protected Health Information created or received pursuant to a Scheduled Agreement. Party
will document these safeguards.

4. Security Incident Reporting. When acting pursuant to a Scheduled Agreement, Party will
provide notice, in accordance with Schedule B, of any Security Incident of which Party
becomes aware. Party will treat any such notices it receives from any other Party as
confidential and not disclose such information except as necessary to comply with
applicable legal or contractual obligations.

5. Subcontractors. Party will require any of its Subcontractors, to which Party is
permitted by this Agreement and the respective Scheduled Agreement to Disclose any of the
Protected Health Information that Party creates or receives pursuant to a Scheduled
Agreement, to provide reasonable assurance, evidenced in writing, that Subcontractor will comply with the same
privacy and security obligations as Party with respect to such Protected Health
Information.

101

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 5 of 22

B. Protected Health Information Access, Amendment and Disclosure Accounting.

1. Access. With respect to Protected Health Information a Party creates or receives
pursuant to a Scheduled Agreement, that Party will act so that other Parties and the
Covered Entities that they serve may meet their access obligations under 45 C.F. R. §
164.524 and applicable Business Associate contracts.

2. Amendment. With respect to Protected Health Information a Party creates or receives
pursuant to a Scheduled Agreement, that Party will act so that other Parties and the
Covered Entities that they serve may meet their amendment obligations under 45 C.F. R. §
164.526 and applicable Business Associate contracts.

3. Disclosure Accounting. With respect to Protected Health Information a
Party creates or receives pursuant to a Scheduled Agreement, that Party will act so that
other Parties and the Covered Entities they serve may meet their Disclosure accounting
obligations under 45 C.F. R. § 164.528 and applicable Business Associate contracts.

4. Inspection of Books and Records. Party must make available for inspection its internal
practices, books, and records, relating to its Use and Disclosure of the Protected Health
Information it creates or receives pursuant to a Scheduled Agreement only as described in
this paragraph, or as otherwise Required By Law or the Scheduled Agreement. Party must
allow HHS to make such inspection to determine compliance with 45 C.F. R. Parts 160-164 or
this Agreement and the appropriate Scheduled Agreement. Party must allow such inspection
by a Party to a Scheduled Agreement that is responding to an issue involving 45 C.F. R.
Part 164 pursuant to the Scheduled Agreement when the issue is raised in an investigation
by HHS or a complaint from a person under 45 C.F.R. § 160.306 or 45 C.F.R. § 164.530(d),
but such inspection will be only as reasonably necessary to respond to the investigation or
complaint.

C. Breach of Obligations.

1. Reporting. When acting pursuant to a Scheduled Agreement, Party will provide notice to
the Covered Entity or Business Associate that Party serves of any Use or Disclosure of
Protected Health Information of which Party becomes aware that violates this Agreement or
the Scheduled Agreement by which Party received the Protected Health Information. Party
will provide such notice to the appropriate entity’s Legal Department
with a copy to the entity’s Privacy Official of record not more than five (5) business days
after Party learns of such non-permitted or violating Use or Disclosure.

102

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 6 of 22

Within a reasonable time thereafter, not to exceed forty-five (45) days, Party will provide
such other information, including a written report, as the Covered Entity or Business
Associate that Party serves may reasonably request.

2. Dispute Resolution. If a Party becomes aware of a pattern of activity or practice of
another Party (the “Breaching Party”) that the Party believes constitutes a material breach
or violation of the Breaching Party’s obligations under this Agreement, the Party will give
written notice to the Breaching Party and to BCBSA of such breach. Breaching Party will
cure such breach as soon as possible, but in any event within forty-five (45) days of
receiving notice of such breach, unless otherwise agreed by the affected Parties. If the
Breaching Party does not cure the breach within ten (10) days, Breaching Party will develop
and deliver to affected Parties within twenty (20) days of receipt of the written notice
provided in this paragraph a written plan to cure the breach as soon as possible. If the
Breaching Party does not cure the breach within a reasonable period, not to exceed
forty-five (45) days from the written notice provided in this paragraph, or if the
Breaching Party does not timely submit a written plan to cure the breach, another Party may
exercise its right to Mediation and Mandatory Dispute Resolution, as provided for under the
applicable License Agreement into which BCBSA and each Licensee entered.

D. Termination of Agreement.

1. Right to Terminate a Scheduled Agreement. Except as otherwise provided in this Section
D.1, a Party may terminate a Scheduled Agreement and terminate its Business Associate
relationship with another Party under that Scheduled Agreement for violation of a material
term of this Agreement. The Parties hereto acknowledge and agree that, due to the
interrelationship of all Parties as Business Associates and Subcontractors of each other, a
right of termination by one Licensee of another Licensee’s participation in Scheduled
Agreements involving more than three Parties, including the national programs of BCBSA, for
violation of this Agreement is not feasible. Accordingly, with respect to such Scheduled
Agreements, the Parties agree that upon a Party’s failure to cure a material breach of this
Agreement within a reasonable time, not to exceed forty-five (45) days, if any other Party
reasonably believes it is required to report the breach to HHS, the other Party may do so.

103

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 7 of 22

2.
Termination of this Agreement. This Agreement shall terminate with respect to a Party
when:

a) The Party ceases to be a party to every Scheduled Agreement to which it has been
a party; and

b) All of the Protected Health Information the Party receives or creates in any
form or medium under Party’s custody or control on behalf of another Covered Entity
pursuant to a Scheduled Agreement is returned or destroyed.

3.
Termination of this Agreement with Respect to a Scheduled
Agreement. Except as provided
in Section D.1 of this Agreement, this Agreement will not terminate with respect to
Protected Health Information Party creates or receives pursuant to a Scheduled Agreement
until all of the Protected Health Information is destroyed or returned to the Licensee that
Party serves.

4.
Obligations upon Termination of a Scheduled Agreement. Upon termination of a Scheduled
Agreement under Section D.1 of this Agreement, Party will if feasible return to each
Licensee or destroy all Protected Health Information created or received for or from such
Licensee, in whatever form or medium, under Party’s custody or control, covered by the
terminated Scheduled Agreement. Party will return or destroy the Protected Health
Information in accordance with the applicable Scheduled Agreement. If the Scheduled
Agreement does not address such return or destruction, Party will return or destroy the
Protected Health Information at the option of the Licensee on whose behalf Party created or
received the Protected Health Information. Party will identify any Protected Health
Information that Party created or received for or from a Licensee that cannot feasibly be
returned to such Licensee or destroyed, and will limit its further Use or Disclosure of
that Protected Health Information to those purposes that make return or destruction of that
Protected Health Information infeasible.

5.
Continuing and Security Privacy Obligation. Party’s obligation to protect the privacy
and security of the Protected Health Information it creates or receives pursuant to a
Scheduled Agreement will be continuous and survive termination, cancellation, expiration or
other conclusion of this Agreement and the Scheduled Agreements.

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E. Indemnification.

1.
General. This paragraph sets forth certain principles concerning indemnification for
costs and expenses resulting from the activities of one Party to this Agreement when acting
as a Business Associate or Subcontractor of another Party. The goal of this section is to
set forth a balanced approach to apportionment of responsibility for Claims and
indemnification, recognizing the spirit of cooperation among the Parties to this Agreement
and the complexity of relationships that result from the variety of activities and wide
range of agreements identified in Schedule A.

In lieu of invoking this indemnification section, Indemnitee may pursue contribution or
other theories of recovery against Indemnitor. If invoked, this indemnification section
shall provide Indemnitee’s sole and exclusive monetary remedy.

2.
Basic Principles. A Party (“Indemnitor”) will indemnify and hold harmless any other
Party or such Party’s affiliates, subsidiaries, officers, directors, employees, or agents
(“Indemnitee”) from and against any claim, cause of action, liability, damage, cost or
expense, including attorneys’ fees and court or proceeding costs, substantially arising out
of or in connection with any non-permitted or violating Use or Disclosure of Protected
Health Information or other breach of this Agreement by Indemnitor or any subcontractor,
agent, person or entity under Indemnitor’s control (“Claim”).

Where such Claim results from activities of both Indemnitor and Indemnitee, or where
responsibility is unclear between Indemnitor and Indemnitee, or in which there is
negligence on the part of Indemnitee, then the Parties shall work together cooperatively to
allocate responsibility for such activities, and the results of this cooperative
negotiation shall govern in lieu of this section. In the event of an inability to reach
agreement on these provisions, then the dispute resolution provisions of this Agreement
shall govern. This provision supercedes any conflicting indemnification provision of any
Scheduled Agreement with respect to Claims.

Notwithstanding the foregoing, the Parties recognize that Indemnitee may agree to a
restriction on the Use or Disclosure of Protected Health Information, including, but not
limited to agreements pursuant to 45 C.F.R. § 164.522(a), without either consulting with,
or obtaining the approval of, Indemnitor. Indemnitor is not responsible for indemnifying
and holding harmless Indemnitee from any Claim arising from a non-permitted or
violating Use or Disclosure of Protected Health Information or other breach of this
Agreement due to failure of

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Indemnitor or any subcontractor, agent, person or entity under Indemnitor’s control to
comply with a restriction to which Indemnitee agreed without agreement of Indemnitor. This
exception does not apply to restrictions or limitations of which Indemnitor received notice
that the HIPAA Rules require Indemnitee to accept, including but not limited to the
requirements of 45 C.F.R. 164.522(b).

3.
Notice of Claim. When Indemnitee receives notice of a threatened or actual Claim for
which Indemnitee elects to invoke the provisions of this section, Indemnitee shall promptly
notify Indemnitor of such Claim, and in no event later than thirty (30) days from
Indemnitee’s receipt of notice of such Claim. The Parties recognize that Indemnitee’s
failure to meet the notice requirements of this paragraph may prejudice Indemnitor. In the
event that Indemnitee fails to meet the notice requirements of this paragraph, then, upon
final resolution of the Claim, Indemnitor may reduce its obligation to Indemnitee by an
amount Indemnitor establishes that reflects the actual harm caused by Indemnitee’s failure.

4.
Cooperation. In any situation in which Indemnitee seeks indemnification under this
Section E, both Indemnitor and Indemnitee agree to cooperate in full with the other Party
in all aspects of the defense and resolution of the Claim. The Parties acknowledge that a
failure to cooperate by Indemnitee may prejudice Indemnitor. In the event that Indemnitee
does not reasonably cooperate, then, upon final resolution of the Claim, Indemnitor may
reduce its obligation to Indemnitee by an amount Indemnitor establishes that reflects the
actual harm caused by Indemnitee’s lack of reasonable cooperation.

5.
Right to Tender or Undertake Defense. When Indemnitee provides notice to Indemnitor as
provided in Section 3, above, Indemnitor will have the option either to undertake the
defense of Indemnitee in such Claim or to allow Indemnitee to defend such Claim itself. If
Indemnitor chooses to allow Indemnitee to defend the action itself, Indemnitor must
promptly notify Indemnitee, in no event later than thirty (30) days from receiving notice
of the Claim from Indemnitee.

a)
Undertaking of Defense by Indemnitor. In situations where Indemnitor elects to
undertake the defense of Indemnitee, Indemnitor will provide qualified attorneys,
consultants and other appropriate professionals to represent Indemnitee’s interests
at Indemnitor’s expense. If Indemnitor assumes the defense or settlement of a
Claim, Indemnitee shall have the right to participate in the defense thereof and to
employ counsel (not reasonably objected to by Indemnitor), which shall be at Indemnitee’s own expense, separate
from the counsel employed by Indemnitor, it being understood that Indemnitor shall
control such defense or settlement.

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b)
Undertaking of Defense by Indemnitee. In the event Indemnitor fails to assume
the defense or settlement of a Claim within twenty (20) days after receipt of the
notice for which Indemnitee is entitled to be indemnified, Indemnitee shall bear
sole responsibility for choosing the attorneys, consultants and other appropriate
professionals to represent its interests. Indemnitor will pay the reasonable fees
and expenses of such defense, including for appropriate attorneys, consultants and
other professionals selected by Indemnitee to represent its interests Indemnitee
will cooperate with Indemnitor and provide full and accurate information about the
progress and resolution of the Claim. Indemnitee shall promptly forward any
settlement proposal to Indemnitor, and the decision as to whether to settle such
proceeding shall be made cooperatively.

c)
Resolution of Claims. Indemnitor shall notify Indemnitee of any proposed
resolutions of such Claims. Indemnitor shall not settle, compromise, or discharge
Claims of which it has undertaken defense or settlement without the prior written
consent of Indemnitee unless such settlement is limited to the payment of monetary
damages and includes a full release of Indemnitee. If Indemnitee does not consent
to a reasonable resolution proposed by Indemnitor, then Indemnitee shall continue
any defense of such Claims from that point forward, at its own expense. Indemnitee
shall not admit any liability with respect to, or settle, compromise or discharge
such Claims without Indemnitor’s prior written consent, which consent shall not be
unreasonably withheld. The obligations of Indemnitor for damages resulting from
such Claims shall not exceed the amount of and costs incurred prior to any such
proposed settlement.

6.
Disputes. In the event there is a dispute between or among Parties with respect to a
Party’s or Parties’ obligation(s) under this Section E relative to a specific event or
transaction, any Party(ies) to the dispute may exercise its or their right to Mandatory
Mediation and Dispute Resolution (“MMDR”), as provided for under the applicable License
Agreement, as its or their sole means of enforcement of such obligations.

7.
Delivery of Notices. For purposes of this Section E, notices will be deemed given when
properly addressed to the Party’s legal department, with a copy to the privacy official of
record, upon the date of receipt if hand-delivered, or four (4) business days after deposit
in the U.S. mail if mailed by registered or certified mail, postage prepaid, or one (1) business day
after deposit with a national overnight courier for next business day delivery, or upon the
date of electronic confirmation of receipt of a facsimile transmission.

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F. Compliance with Standard Transactions.

1.
Compliance Date. Each Party represents that it will timely apply for an extension under
the Administrative Simplification Compliance Act (Public Law 107-105). Accordingly, this
Section F will become effective on October 16, 2003 or at such later date for compliance by
Health Plans set forth in 45 C.F. R. § 162.900 as may be amended.

2.
Requirement of Compliance. When Party conducts in whole or part
Standard Transactions pursuant to a Scheduled Agreement, Party will comply, and will
require any Subcontractor involved with the conduct of such Standard Transactions to
comply, with each applicable requirement of 45 C.F. R. Parts 160 and 162, as may be
amended.

3.
Trading Partner Provisions. The Parties agree that the specifications and procedures
for transmitting data among them in order to facilitate the activities described in the
Scheduled Agreements either will be contained in the Scheduled Agreements or adopted
through the BCBSA governance process, including the policies, provisions, and processing
standards applicable to BCBSA’s national programs. For purposes of each Scheduled
Agreement, the Parties hereto further agree to keep Code Sets open to processing for at
least the current billing period and any appeal period. Party will not enter into, nor
permit its Subcontractors to enter into, any Trading Partner Agreement in connection with
the conduct of Standard Transactions for or on behalf of any Party to this Agreement that:

a) Changes the definition, Data Condition, or usage of a Data Element or Segment in
a Standard Transaction;

b) Adds any Data Elements or Segments to the Maximum Defined Data Set;

c) Uses any code or Data Element that is marked “not used” in the Standard
Transaction’s Implementation Specifications or is not in the Standard Transaction’s
Implementation Specifications; or

d) Changes the meaning or intent of the Standard Transaction’s Implementation
Specifications.

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G.
Gramm-Leach-Bliley Compliance. With respect to Nonpublic Personal
Financial Information obtained when acting as a Business Associate of a Covered Entity or a
Subcontractor of a Business Associate or a joint marketer of another financial institution pursuant
to a Scheduled Agreement, each Licensee will comply with any applicable GLB Regulations of a state
in Licensee’s Service Area. With respect to such information, Party will comply with requirements
of other state GLB Regulations that, in Party’s judgment, are applicable to Party’s Use or
Disclosure of such information for those state GLB Regulations of which Party is informed by the
Licensee it serves.

H. General Provisions.

1.
Amendment to Agreement. Upon the compliance date of any final regulation or amendment
to final regulations promulgated by HHS with respect to the HIPAA Rules, this Agreement
will automatically amend such that the obligations it imposes on Party remain in compliance
with those regulations. The Board of Directors of BCBSA may amend this Agreement at any
regular meeting by a majority vote of the Board members.

2.
Conflicts. The terms and conditions of this Agreement will override and control any
conflicting term or condition of any other agreement, including the Scheduled Agreements,
that may be in place between or among Parties.

3.
State Privacy Law Requirements. With respect to Protected Health
Information a Party acting as a Business Associate or Subcontractor creates or receives
pursuant to a Scheduled Agreement, Party will comply with requirements of other state
privacy laws that, in Party’s judgment, are more stringent than 45 C.F.R. Parts 160-164 and
are applicable to Party’s Use or Disclosure of such information for those state laws of
which Party is informed by the Licensee it serves.

4.
No Third-Party Beneficiaries. No third-parties are intended to benefit from this
Agreement and no third-party beneficiary rights will be implied from anything contained in
this Agreement.

5.
Interpretation. Any ambiguity in this Agreement will be resolved in favor of a meaning
that permits the applicable Covered Entity to comply with the HIPPA Rules.

6.
Notices. Unless otherwise provided herein, notices will be deemed given when properly
addressed to the Party’s Privacy Official of record, upon the date of receipt if
hand-delivered, or four (4) business days after deposit in the U.S. mail if mailed by
registered or certified mail, postage prepaid, or one (1) business day after deposit with a
national overnight courier for next business day delivery, or upon the date of electronic
confirmation of receipt of a facsimile transmission.

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SCHEDULE A

The terms of the Business Associate Agreement for Blue Cross and Blue Shield Licensees applies to
any existing or future agreement between or among two or more Licensees and/or BCBSA that gives
rise to a relationship making one party a Business Associate or Subcontractor of the other, unless
the parties to such an existing or future agreement otherwise agree in writing in such existing or
future agreement.

For purposes of elaboration and not for purposes of limiting the foregoing, the agreements to which
the terms of the Business Associate Agreement for Blue Cross and Blue Shield Licensees apply
include, but are not limited to, the following agreements, including all exhibits and amendments
thereto:

	 	1.	 	All Blue Cross License Agreements Between BCBSA and Primary Licensees
	 
	 	2.	 	All Blue Cross Controlled Affiliate License Agreements Between BCBSA and Controlled
Affiliates of Primary Licensees
	 
	 	3.	 	All Blue Shield License Agreements Between BCBSA and Primary Licensees
	 
	 	4.	 	All Blue Shield Controlled Affiliate License Agreements Between BCBSA and Controlled
Affiliates of Primary Licensees
	 
	 	5.	 	All ITS License Agreements Between BCBSA and Licensees
	 
	 	6.	 	All Blue Quality Centers for Transplant Plan Participation Agreements Between BCBSA
and Licensees
	 
	 	7.	 	All Data Center Inter-Plan Operating Agreements Among Licensees for the Medicare
Program
	 
	 	8.	 	Data Processing Inter-Plan Operating Agreements Among Licensees for the Medicare
Program
	 
	 	9.	 	All Away From Home Care Guest Membership Agreements Between BCBSA and Licensees
	 
	 	10.	 	All Government Business Services Contracts Between BCBSA and Licensees
	 
	 	11.	 	All Service Benefit Plan (FEP) Participation Agreements Between BCBSA and Licensees
	 
	 	12.	 	BlueCard Worldwide Contract Between BCBSA and Blue Cross and Blue Shield of South Carolina
	 
	 	13.	 	All National Account Servicing Agreements Between Blue Cross and Blue Shield of Louisiana
and Other Licensees

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	 	14.	 	Identification Card Production Agreement Between Blue Cross and Blue Shield of Vermont and
Associated Hospital Service of Maine d/b/a Blue Cross and Blue Shield of Maine
	 
	 	15.	 	The Following Agreements Between Blue Cross and Blue Shield of Kansas City and Other
Licensees:

	 	(i)	 	Cost Reimbursement Agreement with Triple-S, Inc.
	 
	 	(ii)	 	National Account Servicing Plan Agreement with Blue Cross and Blue Shield of Kansas
	 
	 	(iii)	 	Custom Arrangements for BlueCard National Accounts with Empire Blue Cross Blue Shield
	 
	 	(iv)	 	All Alternate Control Licensee Designation Forms and Similar Agreements with Other
Licensees
	 
	 	(v)	 	All Participation Request Agreements and Similar Agreements with Other Licensees for
Servicing Dairy Farmers of America, Inc.
	 
	 	(vi)	 	Participating/Servicing Plan Master Agreement (NASCO) for National Accounts with Blue
Cross and Blue Shield of Michigan
	 
	 	(vii)	 	Servicing/Participating Plan Agreement (NASCO) and National Account HMO Participation
Agreement with Community Insurance Company d/b/a Anthem Blue Cross and Blue Shield
	 
	 	(viii)	 	National Accounts Lead Agreement (NASCO) and Notification of National Account
BlueCard Sale with Blue Cross and Blue Shield of Massachusetts
	 
	 	(ix)	 	Participating Plan Agreement for National Accounts (NASCO) with CareFirst of Maryland,
Inc.
	 
	 	(x)	 	All National Account ITS/BlueCard Custom Arrangements with Other Licensees
	 
	 	(xi)	 	All Administrative Services Agreements with Other Licensees
	 
	 	(xii)	 	Network Access and Joint Operating Agreement with Premier Health, Inc. and Blue Cross
and Blue Shield of Kansas, Inc.
	 
	 	(xiii)	 	Participating Payor Transaction Submission Agreement with Administrative Services of
Kansas, Inc.

	 	16.	 	All National Account Servicing Agreements Between Blue Cross & Blue Shield of Wisconsin and
Other Licensees
	 
	 	17.	 	All Alternate Control Licensee Designation Agreements and Similar Agreements Between Blue
Cross & Blue Shield of Wisconsin and Other Licensees

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	 	18.	 	Information Systems Services Agreement between Blue Cross Blue Shield of South Carolina and
Blue Cross & Blue Shield of Wisconsin, dated as of August 23, 1996
	 
	 	19.	 	All National Account Servicing Agreements Between Horizon Blue Cross and Blue Shield of New
Jersey and Other Licensees
	 
	 	20.	 	Reciprocal Dental Network Agreement Between Blue Cross and Blue Shield of Rhode Island and
Blue Cross and Blue Shield of Massachusetts, Inc.
	 
	 	21.	 	[Intentionally Omitted.]
	 
	 	22.	 	[Intentionally Omitted.]
	 
	 	23.	 	[Intentionally Omitted.]
	 
	 	24.	 	Complementary Insurance Agreement Regarding Data Transfer Between Blue Cross and Blue
Shield of Vermont and Anthem Health Plans of New Hampshire, Inc.
	 
	 	25.	 	Administrative Services Agreement for the New England Managed Care Initiative Between
Anthem Health Plans of Maine, Inc., Anthem Health Plans of New Hampshire, Inc., Anthem Health
Plans, Inc., Blue Cross and Blue Shield of Massachusetts, Blue Cross and Blue Shield of
Vermont, and Blue Cross and Blue Shield of Rhode Island
	 
	 	26.	 	All National Account Servicing Agreements Between Empire Blue Cross Blue Shield and Other
Licensees
	 
	 	27.	 	Joint Operating Agreement Between the Pennsylvania Blue Shield, Capital Blue Cross dated
January 1, 1976; All Addenda and Amendments Thereto (the “JOA”); and All Agreements Between the
Parties Relating to Termination of the Joint Business Under the JOA
	 
	 	28.	 	January 1, 1984 Agreement Between Pennsylvania Blue Shield, Capital Blue Cross and Blue
Cross of Northeastern Pennsylvania for the Establishment of the Comp I Center, and All
Amendments Thereto
	 
	 	29.	 	Administrative Services Agreement for Medicare Crossover Data Between Capital Blue Cross
and Pennsylvania Blue Shield Dated January 23, 1995
	 
	 	30.	 	Service Agreement Between Health Benefits Management, Inc., Pennsylvania Blue Shield,
Capital Blue Cross and the Shared Services Center, Dated September 15, 1987
	 
	 	31.	 	Administrative Services Agreement Regarding POS Programs Among Synertech Health Systems
Solutions, Inc., Capital Blue Cross and Highmark, Effective January 1, 1997
	 
	 	32.	 	Agreement Between
Highmark and NCAS Pennsylvania (undated)

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	 	33.	 	Electronic Coordination of Medicare Benefits Agreement Between Highmark, Inc. d/b/a Veritus
Medicare Services and Capital Blue Cross, Dated October 26, 1999, Together With Amendatory
Rider Effective April 1, 2002
	 
	 	34.	 	Electronic Coordination of Medicare Benefits Agreement Between Highmark, Inc. d/b/a
HGSAdministrator and Capital Blue Cross dated May 23, 2002
	 
	 	35.	 	Members Agreement Between Pennsylvania Blue Shield, Capital Blue Cross and The Caring
Foundation of Pennsylvania, Dated August 13, 1993
	 
	 	36.	 	Amendment of Purchase Service Agreement Between Capital Blue Cross and Blue Cross of
Western Pennsylvania, Effective October 1, 1985
	 
	 	37.	 	Agreement for Precertification Program, Between Capital Blue Cross and Health Benefits
Management, Inc., d/b/a the Precertification Center, Effective January 1, 1994, Together With
Amendatory Rider Effective January 1, 1997
	 
	 	38.	 	Medicare+Choice Administrative Services Agreement Between Capital Blue Cross and Keystone
Health Plan Central Effective as of January 1, 1999
	 
	 	39.	 	Hospital and Related Health Care Benefits For Keystone Health Plan, Inc. Dated January 1,
1987
	 
	 	40.	 	Amended Administrative Services Agreement Between Capital Advantage Insurance Company and
Trans-General Casualty Insurance Company, Inc., Effective January 1, 1996
	 
	 	41.	 	Profit Sharing Agreement Between Capital Advantage Insurance Company and Trans-General
Casualty Insurance Company, Inc., Effective as of January 1, 1986 and Amended as of January 1,
1998
	 
	 	42.	 	Agreement Between Trans-General Life Insurance Company and Consolidated Benefits, Inc.
Dated as of January 1, 1999
	 
	 	43.	 	Confidentiality and Indemnification Agreement in Favor of Capital Blue Cross,
Pennsylvania Blue Shield and Capital Advantage Insurance Company Executed by the Highmark
Life & Casualty Group Inc. and Dated March 3, 2000
	 
	 	44.	 	Dental Agency Agreement Between United Concordia Companies, Inc., United Concordia Life and
Health Insurance Company and United Concordia
Dental Plan of Pennsylvania Inc., on the one hand, and Capital Blue Cross, on the other, Dated
June 1, 1998
	 
	 	45.	 	License Agreement for the Shared Automated Major Medical System, Among Capital Blue Cross,
Blue Cross of Northeastern Pennsylvania, Blue Cross of Western Pennsylvania, and PBS, Effective
July 1, 1983

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	 	46.	 	Guaranty Agreement between Capital Blue Cross, Hospital Services Association of
Northeastern Pennsylvania (d/b/a “Blue Cross of Northeastern Pennsylvania”), Independence Blue
Cross and Highmark, Inc. Dated October 2, 2000
	 
	 	47.	 	All Custom Blue Card Arrangements Between Blue Cross Blue Shield of Michigan and Other
Licensees
	 
	 	48.	 	All Participating Plan Agreements Between Blue Cross Blue Shield of Michigan and Other
Licensees
	 
	 	49.	 	All National Accounts Servicing/Participating Plan Agreements Between Blue Cross and Blue
Shield of Minnesota and Other Licensees
	 
	 	50.	 	All National Account Servicing Plan Agreements Between Blue Cross and Blue Shield of
Arizona, Inc. and Other Licensees
	 
	 	51.	 	All Agreements Related to Medicare Supplemental Claims Payments and Medicare Crossover
Services Between CareFirst Blue Cross Blue Shield and Other Licensees
	 
	 	52.	 	Co-Branding Agreement Between CareFirst Blue Cross Blue Shield and CareFirst of Maryland,
Inc.
	 
	 	53.	 	All Par Plan Agreements between Independence Blue Cross (and all of its applicable
subsidiaries) and Other Licensees
	 
	 	54.	 	All Control Plan Agreements between Independence Blue Cross (and all of its applicable
subsidiaries) and Other Licensees
	 
	 	55.	 	The Joint Operating Agreement between Pennsylvania Blue Shield and Independence Blue Cross
Dated January 1, 1976
	 
	 	56.	 	The Independence Blue Cross and Pennsylvania Blue Shield System Use Agreement effective
January 1, 2000
	 
	 	57.	 	The Independence Blue Cross and Pennsylvania Blue Shield 1999 Agreement for Electronic
Coordination of Medicare Benefits
	 
	 	58.	 	The Independence Blue Cross and Pennsylvania Blue Shield Consulting Services Agreement
Dated May 7, 2002
	 
	 	59.	 	The Independence Blue Cross and Pennsylvania Blue Shield Major Medical Claims Processing
Agreement Dated October 1, 1995
	 
	 	60.	 	All National Account Servicing Agreements Between Blue
Cross and Blue Shield of Alabama and other Licensees
	 
	 	61.	 	All Participating Plan Agreements Between Blue Cross and Blue Shield of Alabama and Other
Licensees

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	 	62.	 	All Custom Blue Card Arrangements Between Blue Cross and Blue Shield of Alabama and Other
Licensees
	 
	 	63.	 	All Custom National Account Arrangements Between Blue Cross and Blue Shield of Alabama and
Other Licensees
	 
	 	64.	 	All Control Plan Agreements Between Blue Cross and Blue Shield of Alabama and Other
Licensees
	 
	 	65.	 	All Service Agreements between Blue Cross and Blue Shield of Alabama or its affiliates, and
Other Licensees with respect to the Medicare Program
	 
	 	66.	 	Trading Partner Medicare Part A Service Agreement between Capital Blue Cross and Blue Cross
and Blue Shield of Florida, Inc.
	 
	 	67.	 	All Custom ITS Arrangements Between Wellmark, Inc. (and/or all its applicable subsidiaries)
and Other Licensees
	 
	 	68.	 	Highmark Inter-Plan Network Management Information System License Agreement between
Highmark, Inc. and Anthem Insurance Companies, Inc.
	 
	 	69.	 	All NASCO Par Plan Servicing Agreements Between Blue Cross and Blue Shield of Alabama and
Other Licensees
	 
	 	70.	 	Master Software Maintenance Agreement Between Inter-Data Business Systems and Blue Cross of
Minnesota
	 
	 	71.	 	Cost Reimbursement Agreement Between Blue Cross of Minnesota and Triple-S, Inc.
	 
	 	72.	 	Master Software Maintenance Agreement for Inter-Data Business Systems (IBS) Between
WellChoice, Inc.(and/or all of its applicable subsidiaries) and Participating Licensees
	 
	 	73.	 	All Alternate Control Licensee Designation Agreements and Similar Agreements Between
WellChoice, Inc. (and/or all of its applicable subsidiaries) and Other Licensees
	 
	 	74.	 	All Participating Plan Agreements for National Accounts Between WellChoice, Inc. (and/or
all of its applicable subsidiaries) and Other Licensees
	 
	 	75.	 	All Par Plan Agreements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees
	 
	 	76.	 	All Control Plan Agreements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees
	 
	 	77.	 	All Custom Blue Card Arrangements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees

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	 	78.	 	All Agreements Related to Medicare Supplemental Claims Payments and Medicare Crossover
Services Between WellChoice, Inc.(and/or all of its applicable subsidiaries) and Other
Licensees
	 
	 	79.	 	All Custom ITS Arrangements Between WellChoice, Inc. (and/or all of its applicable
subsidiaries) and Other Licensees
	 
	 	80.	 	All Custom ITS and Custom BlueCard Arrangements Between Highmark and Other Licensees
	 
	 	81.	 	All National Account Servicing Agreements Between Highmark and Other Licensees
	 
	 	82.	 	All Alternate Control Licensee Designation Agreements and Similar Agreements Between
Highmark and Other Licensees
	 
	 	83.	 	All Administrative Service Agreements Between Highmark and Other Licensees
	 
	 	84.	 	All Information Systems Services Agreements Between Highmark and Other Licensees
	 
	 	85.	 	All System Use Agreements Between Highmark and Other Licensees
	 
	 	86.	 	All Joint Operating Agreements Between Highmark and Other Licensees
	 
	 	87.	 	All Government Business Service Agreements Between Highmark and Other Licensees
	 
	 	88.	 	All Consulting/Training Services Agreements Between Highmark and Other Licensees
	 
	 	89.	 	All Inter-Plan Network Management Information System License Agreements Between Highmark
and Other Licensees
	 
	 	90.	 	All Service Agreements Between Highmark and Mountain State Blue Cross Blue Shield
	 
	 	91.	 	All Electronic Media/Claims Processing Agreements Between Highmark and Other Licensees
	 
	 	92.	 	The Crossover Service Agreement Between Noridian Mutual Insurance Company and Blue Cross
and Blue Shield of Arizona, Inc.
	 
	 	93.	 	All custom Blue Card Agreements or Participating Agreements Between Blue Cross and Blue
Shield of Nebraska and Other Licensees
	 
	 	94.	 	All Custom Blue Card Arrangements Between HealthNow New York, Inc. d/b/a BlueCross
BlueShield of Western New York and BlueShield of Northeastern New York, and Other Licensees

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	 	95.	 	All Participating Plan Agreements Between HealthNow New York, Inc. d/b/a BlueCross
BlueShield of Western New York and BlueShield of Northeastern New York, and Other Licensees
	 
	 	96.	 	All Control Plan Agreements Between HealthNow New York, Inc. d/b/a BlueCross BlueShield of
Western New York and BlueShield of Northeastern New York, and Other Licensees
	 
	 	97.	 	All Agreements Related to Medicare Supplemental Claims Payment and Medicare Crossover
Services Between HealthNow New York, Inc. d/b/a BlueCross BlueShield of Western New York and
BlueShield of Northeastern New York, and Other Licensees
	 
	 	98.	 	Participating Service Plan Master Agreement (NASCO) for National Accounts Blue Cross and
Blue Shield of Michigan and HealthNow New York, Inc.
	 
	 	99.	 	All Account Specific Agreements Between Blue Cross Blue Shield of Michigan and Other
Licensees
	 
	 	100.	 	All National Account Servicing Agreements Between Blue Cross and Blue Shield of Florida
and Other Licensees
	 
	 	101.	 	Custom ITS Point of Service Agreements Between Blue Cross and Blue Shield of Illinois and
Other Licensees
	 
	 	102.	 	Local Area Processing Point of Service Agreements Between Blue Cross and Blue Shield of
Illinois and Other Licensees
	 
	 	103.	 	Pharmacy Benefits Management Agreement Between The Regence Group, Regence Blue Shield of
Idaho, Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan
	 
	 	104.	 	All Control Plan Agreements Between Blue Cross Blue Shield of Delaware, Inc. and Other
Licensees.
	 
	 	105.	 	All Par Plan Agreements Between Blue Cross Blue Shield of Delaware, Inc. and Other
Licensees
	 
	 	106.	 	All Agreements Related to Medicare Supplement Claims Payment and Medicare Crossover
Services Between Blue Cross Blue Shield of Delaware, Inc. and Other Licensees
	 
	 	107.	 	All National Account ITS/BlueCard Arrangements Between Blue Cross Blue Shield of Delaware,
Inc. and Other Licensees
	 
	 	108.	 	All National Account/ITS Custom BlueCard Arrangements Between Blue Cross Blue Shield of
Delaware, Inc. and Other Licensees

117

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees

Page 21 of 22

	 	109.	 	All Non-Blue Card Arrangements Between Blue Cross Blue Shield of Delaware, Inc. and Other
Licensees for the Administration and Servicing of Specific Multi-State Accounts Including, but
not limited to, MBNA and Nemours
	 
	 	110.	 	Participating/Servicing Plan Agreement for National Accounts (NASCO) with CareFirst of
Maryland, Inc., Blue Cross and Blue Shield of Michigan and any Other Applicable Licensees
	 
	 	111.	 	All Agreements for National Account HMO Participation Between Blue Cross Blue Shield of
Delaware, Inc., and Other Licensees
	 
	 	112.	 	All Par Plan Agreements Between WellPoint, Inc. (and all of its applicable subsidiaries)
and Other Licensees
	 
	 	113.	 	All Control Plan Agreements Between WellPoint, Inc. (and all of its applicable
subsidiaries) and Other Licensees
	 
	 	114.	 	All Agreements for National Accounts Between WellPoint, Inc. (and all of its applicable
subsidiaries) and Other Licensees

118

 

Attachment IX

Business Associate Agreement For Blue Cross and Blue Shield Licensees 

Page 22 of 22

Schedule B

Security Incidents

	 	 	The Security Rule defines a “Security Incident” as an attempted or successful unauthorized access,
use, disclosure, modification or destruction of information or interference with system operations
in an information system, involving electronic Protected Health Information (“e-PHI”) that is
created, received maintained or transmitted by or on behalf of a Party.
	 
	 	 	Since the Security Rule includes attempted unauthorized access, use, etc., each Party needs to have
notice of attempts to bypass electronic security mechanisms. The Parties recognize and agree that
the significant number of meaningless attempts to, without authorization, access, use, disclose,
modify or destroy e-PHI will make a real-time reporting requirement formidable for all the Parties.
Therefore, the Parties agree to the following reporting procedures for Security Incidents that
result in unauthorized access, use, disclosure, modification or destruction of information or
interference with system operations (“Successful Security Incidents”) and for Security Incidents
that do not so result (“Unsuccessful Security Incidents”).
	 
	 	 	For Unsuccessful Security Incidents, each Party agrees that this Schedule B constitutes notice from
all other Parties of such Unsuccessful Security Incidents. By way of example, the Parties consider
the following to be illustrative of Unsuccessful Security Incidents when they do not result in
unauthorized access, use, disclosure, modification, or destruction of e-PHI or interference with an
information system:

	 	1.	 	Pings on a Party’s firewall,
	 
	 	2.	 	Port scans,
	 
	 	3.	 	Attempts to log on to a system or enter a database with an invalid password or
username, and
	 
	 	4.	 	Denial-of-service attacks that do not result in a server being taken off-line.
	 
	 	5.	 	Malware (e.g., worms, viruses)

For Successful Security Incidents, each Party shall give notice promptly to any Party whose e-PHI
was compromised. Notices of Successful Security Incidents shall be deemed given when properly
addressed to a Party’s security contact, as listed on Blueweb, upon the date of receipt if
hand-delivered or e-mailed, or four (4) business days after deposit in the U.S. mail if mailed by
registered or certified mail, postage prepaid, or one (1) business day after deposit with a
national
overnight courier for next business day delivery, or upon the date of electronic confirmation of
receipt of a facsimile transmission.

119EX-10.62 SEVENTH ADENDUM TO LEASE

 

Exhibit 10.62

SEVENTH ADDENDUM TO LEASE

          THIS SEVENTH ADDENDUM TO LEASE (the “Seventh Addendum”) is made and entered into as of
the 13th day of March, 2007, by and between AMB HTD — BEACON CENTRE, LLC. a Florida limited
liability company (the “Landlord”), and SED INTERNATIONAL, INC., a Georgia corporation (the
“Tenant”).

W
I T N E S S E
T H:

          WHEREAS, Landlord (as successor-in-interest to New World Partners Joint Venture Number Two)
and Tenant (as successor-in-interest to Southern Electronics
Distributors, Inc.) are parties to
that certain Lease-Industrial Commercial, dated August 9, 1993, whereby Landlord’s predecessor
leased to Tenant’s predecessor, and Tenant’s predecessor leased from Landlord’s predecessor, the
Premises, as defined in the Lease, consisting of approximately 15,420 rentable square feet in
Building 6 of Beacon Centre, Miami, Florida;

          WHEREAS, the Lease-Industrial Commercial was amended by that certain Addendum to Lease, of
even date with the Lease-Industrial Commercial; and

          WHEREAS, the Lease-Industrial Commercial was further amended by that certain Second Addendum
to Lease, dated January 10, 1996, whereby the Premises was relocated to that certain space in
Building 2 of Beacon Centre, consisting of approximately thirty-one thousand two hundred fifty-two
(31,252) rentable square feet, with an address of 1729 N.W. 84th Avenue, Miami, Florida 33126; and

          WHEREAS, the Lease-Industrial Commercial was further amended by that certain Third Addendum
to Lease, dated July 24, 1996, whereby the Premises was increased to sixty-one thousand twelve
(61,012) rentable square feet (which includes approximately eight thousand five hundred
eighty-nine (8,589) square feet of office space), by the expansion into twenty-nine thousand seven
hundred sixty (29,760) rentable square feet in Building 2, with an address of 1715 N.W. 84th
Avenue, Miami, Florida 33126; and

          WHEREAS, the Lease-Industrial Commercial was further amended by that certain Fourth Addendum
to Lease, dated February 19, 2001; and

          WHEREAS, the Lease-Industrial Commercial was further amended by that certain Fifth Addendum
to Lease, dated December 4, 2003, whereby the Premises was reduced to approximately thirty-one
thousand two hundred fifty-two (31,252) rentable square feet (which includes approximately eight
thousand five hundred eighty-nine (8,589) square feet of office space), in Building 2 of Beacon
Centre, with a current address of 1729 N.W. 84th Avenue, Doral, Florida 33126; and

          WHEREAS, the Fifth Addendum to Lease was amended by that certain letter agreement (the
“Letter Agreement”) dated January 28, 2004; and

          WHEREAS, the Lease-Industrial Commercial was further amended by that certain Sixth Addendum
to Lease, dated March 19, 2004 (the Lease-Industrial Commercial, the Addendum to Lease, the Second
Addendum to Lease, the Third Addendum to Lease, the Fourth Addendum to Lease, the Fifth Addendum
to Lease, the Letter Agreement, and the Sixth Addendum to Lease are hereinafter collectively
referred to as the “Lease”); and

          WHEREAS, the Term of the Lease expires on March 31, 2007, and Landlord and Tenant desire to
renew the Term of the Lease for sixty (60) months, commencing on April 1, 2007, on the terms and
conditions hereinafter set forth.

          NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged. Landlord and
Tenant hereby agree as follows:

     1. Incorporation of Recitals. The above recitals are true and correct and are
incorporated herein as if set forth in full.

     2. General Provisions. All defined terms in this Seventh Addendum shall have the same
meaning as in the Lease, except as otherwise noted. Except as amended and modified by this Seventh
Addendum, all of the terms, covenants, conditions, and agreements of the Lease shall remain in
full force and effect. In the event of any conflict between the provisions of the Lease and the
provisions of this Seventh Addendum, this Seventh Addendum shall control.

     3. Fourth Renewal. The Term of the Lease is hereby renewed and extended commencing on
April 1, 2007 (the “Fourth Renewal Term Commencement Date”) and, unless earlier terminated in
accordance with the Lease, expiring on March 31, 2012 (the “Fourth Renewal Term”). Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, the Premises for the Fourth Renewal
Term.

     4. Improvements; Allowance.

     (a) Tenant
acknowledges and agrees that, except as expressly set forth below. Tenant is
accepting the Premises in “as-is” condition on the date hereof and that Landlord shall have no obligation
whatsoever to furnish, render, or supply any money, work, labor, fixture, material, decoration, or
equipment in order to prepare the

 

Premises for Tenant’s occupancy for the Fourth Renewal Term, except as expressly set forth below.
Except as expressly set forth below, any and all alterations and improvements to the Premises
shall be at Tenant’s expense and are subject to the provisions of the Lease applicable to
alterations, including, without limitation, that the plans and specifications, and the contractors
and subcontractors to be used by Tenant, for any alterations are subject to the prior written
approval of Landlord.

     (b) Notwithstanding the foregoing, as soon as reasonably practicable following the Fourth
Renewal Term Commencement Date, Landlord, at its expense, will perform the following improvements,
all using Landlord’s building-standard methods and materials (the “Improvements”): (i) remove the
warehouse office space located on the south side of the warehouse portion of the Premises, and
(ii) install two (2) new dock-high roll-up doors at the punch-out panels located behind the
warehouse office space as may be permitted by the City of Doral building department.

     (c) Tenant acknowledges that the construction of the Improvements may affect Tenant’s use and
occupancy of the Premises during the period of construction, and that access to the Premises and
construction by Landlord and its contractors shall not constitute an actual or constructive
eviction of Tenant, in whole or in part, nor shall it entitle Tenant to any abatement or
diminution of rent or relieve Tenant from any obligation under the Lease (as modified hereby).

     (d) In addition, Landlord shall be responsible to contribute up to Forty-Five Thousand and
No/100 ($45,000.00) Dollars for alterations and improvements to be made to the Premises by Tenant
(including any necessary demolition and including any architectural and engineering fees) (the
“Improvement Allowance”), all of which improvements shall be made by Tenant within one (1) year
after the Fourth Renewal Term Commencement Date. The plans and specifications, and the contractors
and subcontractors to be used by Tenant, for any such alterations and improvements are subject to
the prior written approval of Landlord, which approval shall not be unreasonably withheld. The
Improvement Allowance shall be paid by Landlord to Tenant within thirty (30) days after submission
of an invoice to Landlord and receipt by Landlord of a certificate of occupancy for such work (if
applicable), a contractor’s affidavit from Tenant’s general contractor, releases of lien from the
applicable subcontractors, suppliers, and laborers, and as-built drawings of such work, with a list
and description of all work performed by the contractors, subcontractors, and material suppliers
(provided that as-built drawings and a list and description of all work are required only in
connection with alterations and improvements affecting the structure of the Building and/or the
base-building HVAC, mechanical, electrical, plumbing, and/or fire safety systems). Tenant shall be
solely responsible for any and all costs and expenses with respect to any alterations or
improvements to the Premises which are above the Improvement Allowance. Tenant shall receive no
credit or payment for any unused portion of the Improvement Allowance.

          However, even if all requirements set forth above have been met for payment of the
Improvement Allowance, the Improvement Allowance shall not be payable by Landlord if at such time
there exists on the part of Tenant a monetary default under the Lease beyond the expiration of
applicable notice and cure periods. If such a monetary default exists, then Landlord will not be
required to remit the Improvement Allowance to Tenant until such monetary default has been cured.

     5. Minimum Rent. Commencing on the Fourth Renewal Commencement Date, the Minimum Rent
for the Fourth Renewal Term (payable in the manner set forth in the Lease for payments of Minimum
Rent) shall be as follows:

	 	 	 	 	 
	 	 	ANNUAL MINIMUM RENT	 	MONTHLY MINIMUM RENT
	LEASE YEAR	 	RATE PER SQUARE FOOT	 	(NOT INCL. SALES TAX)
	1
	 	$6.95
	 	$18,100.12
	2
	 	$7.23
	 	$18,829.33
	3
	 	$7.52
	 	$19,584.59
	4
	 	$7.82
	 	$20,365.89
	5
	 	$8.13
	 	$21,173.23

     6. Operating Costs. It is expressly agreed that as of the Fourth Renewal Term
Commencement Date, (a) the Lease is converted from a gross lease to a “triple net” Lease, and (b)
all references in the Lease to the Base Year shall be disregarded. In accordance therewith, the
parties acknowledge and agree as follows: (a) commencing on the Fourth Renewal Term Commencement
Date, in addition to Minimum Rent with respect to the Premises, Tenant shall pay to the Landlord
the Tenant’s proportionate share of Operating Costs, which shall otherwise continue to be
determined as provided in the Lease. For informational purposes only, Operating Costs for calendar
year 2007 for the Premises are estimated (but not guaranteed or capped) at $2.92 per square foot.

     7. Security Deposit. The existing security deposit consisting of Thirty-Seven
Thousand Two
Hundred Seventeen and 32/100 ($37,217.32) Dollars shall continue to be held by Landlord as
security for Tenant’s obligations under the Lease (as modified hereby), pursuant to the terms and
conditions of the Lease with respect thereto.

     8. Parking. During the Fourth Renewal Term, Tenant shall continue to have the
right to use
forty (40) unassigned parking spaces in the parking area for the Building, on the terms and
conditions set forth in the Lease, including, without limitation, section 11.1.

-2-

 

     9. Cancellation Option. Paragraph 10 of the Sixth Addendum to Lease referenced above
is hereby deleted in its entirety and is of no force or effect.

     10. Addresses for Notices and Rent Payments. Until further notice, Landlord’s
addresses for notices and rent payments pursuant to the Lease (as modified hereby) are as follows:

	 	 	 
	Landlord’s address
	 	 
	for notices:

	 	AMB HTD — Beacon Centre, LLC
	 

	 	c/o AMB Property, L.P.
	 

	 	Sixty State Street, Suite 1200
	 

	 	Boston, Massachusetts 02109
	 

	 	Attention: Christos F. Kombouras, Vice President
	 
	 	 
	with a copy to:

	 	Flagler Real Estate Services, Inc.
	 

	 	8323 N.W. 12th Street, Suite 108
	 

	 	Doral, Florida 33126
	 

	 	Attention: Property Manager
	 
	 	 
	Landlord’s address
	 	 
	for rent payments:

	 	AMB HTD — Beacon Centre, LLC
	 

	 	P.O. Box 6110
	 

	 	Hicksville, New York 11802-6110

     11. Brokerage. Landlord and Tenant each represent and warrant one to the other that
except as may be hereinafter set forth, neither of them has employed any broker in connection with
the negotiations of the terms of this Seventh Addendum or the execution hereof. Landlord and
Tenant hereby agree to indemnify and to hold each other harmless against any loss, expense, or
liability with respect to any claims for commissions or brokerage fees arising from or out of any
breach of the foregoing representation and warranty. Landlord recognizes Flagler Real Estate
Services, Inc. Oncor International (“Landlord’s Broker”) (representing Landlord), and DiGiacomo
Group, Inc. (representing Tenant) (“Tenant’s Broker”), as the sole brokers with whom Landlord has
dealt in this transaction. Landlord shall pay any commissions payable to Landlord’s Broker
pursuant to separate agreement between Landlord and Landlord’s Broker, and Landlord shall cause
Landlord’s Broker to pay any commissions payable to Tenant’s Broker pursuant to separate agreement
between Landlord’s Broker and Tenant’s Broker.

     12. OFAC/Patriot Act. Tenant represents and warrants that (a) neither Tenant nor any
person or entity that directly or indirectly owns an interest in it nor any of its officers,
directors, or managing members is a person or entity (each, a “Prohibited Person”) with whom U.S.
persons or entities are restricted from doing business under regulations of the Office of Foreign
Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s
Specially Designated and Blocked Persons List) or under any statute, executive order (including
Executive Order 13224 (the “Executive Order”) signed on September 24, 2001 and entitled “Blocking
Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support
Terrorism”), or other governmental action, (b) Tenant’s activities do not violate the
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or the
regulations or orders promulgated thereunder (as amended from time to time, the “Money Laundering
Act”) (i.e, Title III of the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”), and (c) throughout
the Term, Tenant shall comply with the Executive Order, the Money Laundering Act, and the Patriot
Act.

     13. Entire
Agreement; No Set-Off. The Lease, as modified by this Seventh Addendum,
sets forth the entire agreement between the Landlord and Tenant concerning the Premises and
Tenant’s use and occupancy thereof and there are no other agreements or understandings between
them. Tenant certifies and affirms that, as of the date hereof, there are no claims, offsets, or
breaches of the Lease, or any action or causes of action against Landlord directly or indirectly
relating to the Lease.

     14. Counterparts;
Facsimile. This Seventh Addendum may be executed in counterparts,
each of which shall constitute an original and all of which together shall constitute one and the
same agreement. This Seventh Addendum may be executed by facsimile signature which shall, for all
purposes, serve as an original executed counterpart of this Seventh Addendum.

[signatures on next page]

-3-

 

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Seventh Addendum as of the day
and year first above written.

	 	 	 	 	 	 	 
	WITNESSES:	 	LANDLORD:	 	 
	 
	 	 	 	 	 	 
	 	 	AMB HTD—BEACON CENTRE, LLC, a Florida limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	AMB Property, L.P., a Delaware
limited partnership, 

its sole member
	 	 

	 	 	 	 	 
	 

	 	 	 	By: AMB Property Corporation, a Maryland corporation, general partner

	 	 	 	 	 	 	 
	 
	 	By:
	 	/s/ Christos F. Kombouras
	 	 
	 

	 	 	 	 	 	 
	Mandy
M. Battier

	 	 	 	Christos F. Kombouras	 	 
	Nicole
Reeje
	 	 	 	Vice Presidend	 	 

	 	 	 	 	 	 	 
	 	 	TENANT:	 	 
	 
	 	 	 	 	 	 
	 	 	SED INTERNATIONAL, INC., a Georgia corporation	 	 
	 
	 	 	 	 	 	 
	Eileen
Clark

	 	By:
	 	/s/ Mark Divito	 	 
	 

	 	 	 	 	 	 
	Barbara
Gay
	 	Name:
	 	Mark Divito	 	 
	 

	 	Title:
	 	VP OPERATIONS	 	 

-4-

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