[Federal Register Volume 65, Number 111 (Thursday, June 8, 2000)]
[Rules and Regulations]
[Pages 36382-36390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13851]


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OFFICE OF PERSONNEL MANAGEMENT

48 CFR Parts 1604, 1615, 1632, and 1652

RIN 3206 AI67


Federal Employees Health Benefits (FEHB) Program and Department 
of Defense (DoD) Demonstration Project; and Other Miscellaneous Changes

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: OPM is issuing a final regulation to implement the portion of 
the Defense Authorization Act for 1999 that establishes authority for a 
demonstration project under which certain Medicare and other eligible 
DoD beneficiaries can enroll in health benefit

[[Page 36383]]

plans in certain geographic areas under the Federal Employees Health 
Benefits (FEHB) Program. The demonstration project will run for a 
period of three years from January 1, 2000, through December 31, 2002. 
This regulation specifies only the requirements that differ from 
existing FEHB Program regulations because of unique aspects of the 
demonstration project. This regulation also makes other miscellaneous 
changes to the Federal Employees Health Benefits Acquisition 
Regulations.

DATES: The effective date of this regulation is July 10, 2000.

FOR FURTHER INFORMATION CONTACT: Michael W. Kaszynski, Policy Analyst, 
Insurance Policy and Information Division, OPM, Room 3425, 1900 E 
Street, NW., Washington, DC 20415-0001. He can also be reached at (202) 
606-0004 or by electronic mail (E-mail) at: [email protected].

SUPPLEMENTARY INFORMATION: The purpose of this regulation is to 
implement the portion of the National Defense Authorization Act for 
1999, Public Law 105-261, that amended chapter 55 of title 10, United 
States Code, and chapter 89 of title 5, United States Code, to 
establish a demonstration project under which certain Medicare and 
other eligible DoD beneficiaries can enroll in health benefit plans 
offered under the FEHB Program. The legislation was signed into law on 
October 17, 1998. The demonstration project will run for a period of 
three years from January 1, 2000, through December 31, 2002. DoD, with 
OPM concurrence, has selected eight geographic areas to serve as 
demonstration project areas. The legislation requires that between 6 
and 10 geographic areas be selected. No more than 66,000 individuals 
can participate in the demonstration project at any one time. 
Beneficiaries who are provided coverage under the demonstration project 
will not be eligible to receive care at a military medical treatment 
facility or to enroll in a health care plan under DoD's TRICARE 
program. Individuals who disenroll or cancel enrollment from the 
demonstration project are not eligible to reenroll in the demonstration 
project. OPM will establish separate risk pools for developing 
demonstration project enrollee premium rates. The government 
contribution for demonstration enrollees will be paid by DoD and cannot 
exceed the maximum percentage or dollar amount that the government 
would have contributed had the enrollee been enrolled as a regular FEHB 
enrollee in the same health benefits plan and at the same level of 
benefits.
    The legislation requires OPM and DoD to jointly produce and submit 
two reports to Congress designed to assess the viability of expanding 
access to the FEHB Program to certain Medicare and other eligible DoD 
beneficiaries permanently. The first report is due by April 1, 2001; 
the second is due by December 31, 2002. The reports will focus on 
enrollee participation levels, impact on Medicare Part B enrollment, 
premium rates and costs as compared to those for regular FEHB 
enrollees, impact on accessibility of care in military treatment 
facilities, impact on medical readiness and training in military 
treatment facilities, impact on the cost, accessibility, and 
availability of prescription drugs for DoD beneficiaries, and 
recommendations on eligibility and enrollment.
    OPM has determined it is necessary to specify certain differences 
from existing FEHB Program regulations because of the unique features 
of the demonstration project. This regulation amends chapter 16 of 
title 48, Code of Federal Regulations (CFR) to enumerate these 
differences.
    When developing premium rates for demonstration project community-
rated carriers, OPM will not use similarly sized subscriber group 
(SSSG) rating methodologies to determine the reasonableness of the 
carrier's demonstration project premium rates. We are not using SSSG's 
because we have learned from our consultations with community-rated 
carriers that there are no similar employer sponsored groups with which 
to compare. Instead we are benchmarking premiums against adjusted 
community rates if available, Medigap offerings, or other similar 
products to determine reasonableness. We believe that these data will 
result in competitively developed premium rates.
    We have determined the most cost effective and administratively 
efficient way for the federal government to track expenditures is to 
allow experience-rated carriers participating in the demonstration 
project to draw funds from their existing FEHB Letter of Credit (LOC) 
account to pay demonstration project benefits costs in the same manner 
as they do for benefits costs incurred by regular FEHB members.
    All carriers must account separately for health benefits charges 
paid using demonstration project funds and regular FEHB funds. Direct 
administrative costs attributable solely to the demonstration project 
will be fully chargeable to the demonstration project. Indirect 
administrative costs associated with the demonstration project will be 
allocated to the demonstration project based on the percentage obtained 
by dividing the dollar amount of claims processed under the 
demonstration project by the dollar amount of total claims processed 
for FEHB Program activity. This percentage will also be used to 
determine the amount of an experience-rated carrier's service charge 
that will be allocated to the demonstration project.
    Because of the way premiums are collected from enrollees and 
annuitants and the way the government distributes them to carriers, 
there will be a period between the effective date of demonstration 
project enrollees' coverage and the first deposit of premium into 
experience-rated carriers' LOC accounts. DoD enrollments will become 
effective on January 1, 2000, and the first demonstration project 
premiums will be withheld from annuities on February 1, 2000. The 
enrollees' and government's share of the premiums are due to OPM from 
DoD on the first day of each month thereafter through the conclusion of 
the demonstration project. However, since enrollees will be entitled to 
coverage for at least a month before the first premium payment, there 
won't be an opportunity for carriers to build a sufficient cash flow to 
cover the costs of the demonstration project group during this period. 
We are addressing this problem by allowing experience-rated carriers to 
draw on their existing LOC accounts in the same manner as for regular 
FEHB claims.
    Since this is a start-up program with no specific experience, we 
determined that experience-rated and community-rated carrier risk must 
be mitigated in order to keep premiums as low as possible. Carriers 
will report on demonstration project revenues, health benefits charges, 
and administrative expenses as directed by OPM. Experience-rated 
carriers will be required to perform a final reconciliation of revenue 
and costs for the demonstration group at the end of the demonstration 
project. If a community-rated carrier wants to make a claim on the 
Employees Health Benefits Fund, it will be required to perform annual 
reconciliations for the duration of the demonstration project. OPM will 
reimburse carrier costs in excess of the premiums first from the 
carrier's demonstration project Contingency Reserve and then from the 
Employees Health Benefits Fund Administrative Reserve. After the final 
accounting, OPM will place any surplus demonstration project premiums 
in the regular Contingency Reserves of all carriers continuing in the 
FEHB Program for the contract year following

[[Page 36384]]

the year in which the demonstration project ends. Credit will be in 
proportion to the amount of subscription charges paid and accrued to 
each carrier's plan for the last year of the demonstration project. 
Should the program be extended beyond the three year demonstration 
project period, we will regulate to address any necessary changes to 
these provisions.
    We also have made other miscellaneous changes to chapter 16 of 
title 48, CFR.
    On July 6, 1999, OPM published an interim regulation in the Federal 
Register (64 FR 36271). OPM subsequently received comments from three 
organizations--one trade association representing FEHB fee-for-service/
PPO plans, one fee-for-service/PPO health benefit carrier, and one 
employee union. One organization that commented on the proposed rule 
stated that OPM's proposed formula for allocating indirect 
administrative costs to the demonstration project is overly 
prescriptive and conflicts with Section 31.203 of the Federal 
Acquisition Regulations. The commenter indicates that the FAR allows 
contractors to allocate indirect administrative expenses using any 
sound method in accordance with generally accepted accounting 
principles. This entitles carriers to select among various methods of 
allocation. While it would seem reasonable to allow carriers to select 
among various methods for allocating administrative expenses to the 
demonstration project, OPM is required by the authorizing legislation, 
Public Law 105-261, to perform an analysis of the demonstration 
project's rates and costs. In order to perform this analysis, OPM must 
set a standard for comparison. Consequently, OPM is requiring that only 
one method be used to determine allocable indirect costs so that these 
costs can be credibly compared among carriers. We will continue to use 
claims as the basis for allocation of indirect administrative costs 
associated with the demonstration project.
    One commenter believes that in order to fulfill its obligation to 
DoD retirees, the Department of Defense should pay DoD retirees' entire 
premium and reimburse them fully for any out-of-pocket charges they 
incur during the demonstration project. OPM and DoD do not have the 
legislative authority to fully pay the premiums and out-of-pocket costs 
for DoD beneficiaries and their family members. The National Defense 
Authorization Act for 1999 requires that the government contribution 
toward DoD beneficiaries be no more than the maximum the government 
contributes toward the premiums of regular federal employees. The 
commenter also believes that sufficient utilization and claims 
experience exists on the DoD demonstration project group for OPM to set 
premium rates based on the experience of the group without having to 
base the rates on those of similarly sized subscriber groups. While 
utilization and claims data does exist on the demonstration project 
group, not all of the carriers in the FEHB Program are experience-
rated, so not all of them rely solely on this information to set rates. 
A community-rated carrier under the regular FEHB Program is required to 
use the same rating methodology to develop its FEHB Program rates as it 
does for other groups of a similar size. The regulation eliminates the 
requirement that a carrier must use the same methodology as it uses for 
similar sized employers so that the carrier can develop its rates using 
Medigap or other Medicare supplemental rating methodologies.
    One commenter questions how separate accounting for benefits and 
administrative costs will be accomplished and verified in the absence 
of requiring application of the government's Cost Accounting Standards. 
The commenter believes that to uphold the integrity of the FEHB Program 
and to gain a true assessment of the success or failure of the 
demonstration project, OPM should require the application of relevant 
Cost Accounting Standards to charges made by FEHB participating 
carriers. OPM cannot require carriers to account for operations using 
the Cost Accounting Standards because the National Defense 
Authorization Act, 2000 exempts FEHB carriers from the standards for 
fiscal year 2000.
    The commenter believes that it is inappropriate to use regular FEHB 
reserves to pay any costs in excess of premiums for the DoD group since 
a portion of the funds that comprise the Administrative Reserve are 
deducted from regular FEHB enrollee premiums. The commenter asserts 
that regular FEHB enrollees should not subsidize the DoD group. The 
National Defense Authorization Act for 1999 authorizes OPM to use the 
Employees Health Benefits Fund, which includes the FEHB Administrative 
Reserve, to pay costs the office incurs for activities associated with 
implementing the demonstration project. OPM believes that availability 
of the Administrative Reserve to mitigate risk is essential to maintain 
reasonable premiums given the short duration of the demonstration 
project, and the potential that a carrier could enroll a small number 
of enrollees. OPM believes that use of the Administrative Reserve is 
the most reliable and desirable manner in which to effectuate the 
intentions of Congress with regard to the demonstration project.
    One commenter asserts that use of the Administrative Reserve to 
offset carrier losses, and requirements for carriers to pay surpluses 
to the Administrative Reserve, violates the FEHB Act and the 
demonstration project legislation. OPM believes that it has the legal 
authority to use the Administrative Reserve to mitigate carrier losses 
incurred as a result of the demonstration project. Therefore, OPM is 
retaining this aspect of the regulation in its final form.
    The demonstration project constitutes a mandate to study the 
feasibility of providing coverage modeled after the FEHB Program to 
Medicare and other eligible military retirees and their families. This 
study will result in two reports to Congress that will influence the 
decision of Congress as to whether to expand the demonstration project 
to the entire population of eligible military retirees on a permanent 
basis.
    The demonstration project is not a program of insurance in the same 
sense that the FEHB Program is a program of insurance. Although the 
carriers participating in the study are FEHB Program insurance 
carriers, and although the enrollees participating will be covered for 
their health insurance needs, the project is, in principle and in 
operation, a study rather than a continuing insurance program. Indeed, 
the statutory limitations imposed upon the project--limitations on 
number of enrollees and the duration of the project--are antithetical 
to a continuing program of insurance, but are appropriate to a study. 
OPM's mitigation of risk of losses during the study is analogous to 
self-insuring for purposes of mitigating risk, and allows the 
demonstration project to simulate normal conditions to overcome the 
artificial constraints of an uncertain number of enrollees and the 
short duration of the project.
    OPM recognizes that the unknown participation rate and the short-
term nature of the project generate an upward pressure on the premium 
rates for demonstration project enrollees. This is because in a 
typical, sustainable program of insurance, the risk pool is 
sufficiently large so that insurance risk is spread with some 
confidence across the pool while maintaining appropriate premium rates. 
In contrast, under the demonstration project, some plans may attract 
only a small number of beneficiaries, creating a small risk pool.

[[Page 36385]]

In addition, the indefinite duration of a typical, ongoing program 
allows a carrier to anticipate the experience of the risk pool and 
provides the opportunity to recoup unexpected losses over the long term 
by making appropriate adjustments to future premium rates based upon 
past experience with the insured group. However, where the period over 
which a carrier is expected to cover the risk pool is limited, there is 
a substantial likelihood that there will be insufficient opportunity to 
offset losses in subsequent years. Thus, OPM recognizes that the risk 
inherent in covering the demonstration project population requires 
mitigation if the project is to succeed.
    FEHB Program carriers can expect to attract a small demonstration 
project enrollment, may not have reserves sufficient to cover claims in 
excess of premium income, and may have reinsurance arrangements that 
preclude the use of their FEHB Program reserves to pay demonstration 
project claims. Although other strategies for implementing the 
demonstration project are available, OPM has determined that the 
strategy set forth in these regulations is the most appropriate for all 
FEHB Program carriers.
    We believe that the commenter has made a valid point with respect 
to the portion of the interim regulation that required carriers to 
return surplus premium to the Administrative Reserve upon completion of 
the demonstration project. OPM initially required the return of any 
surplus to the Administrative Reserve (1) as the corresponding 
alternative to the Administrative Reserve bearing the mitigation of 
loss; and (2) for equitable purposes, to enable all carriers in the 
FEHB Program to ultimately enjoy any gains as well as bear any losses. 
OPM reasoned that this alternative was preferable to allowing a 
windfall resulting from higher than required premiums to go to any one 
carrier. However, as an alternative approach, OPM agrees that it is 
appropriate to treat the surplus as any other surplus reserve that a 
carrier maintains upon termination of its participation in the FEHB 
Program. Therefore, OPM is changing the final regulation to require 
demonstration project surpluses to be distributed to the Contingency 
Reserves of all carriers continuing in the FEHB Program in the year 
after the demonstration project ends, in proportion to the subscription 
charges paid and accrued for the carrier for the last year of the 
demonstration project.
    A commenter indicated its view that OPM failed to follow required 
notice and comment procedures by failing to provide an opportunity for 
comment on the interim regulations. As we stated in the preamble to the 
interim regulations, carriers needed the information that was contained 
in the interim regulations in order to have sufficient time to develop 
reserve accounts and premiums for enrollments to be effective for 
contract year 2000. OPM has now followed all of the required procedures 
in adopting these final regulations. The final regulations are being 
issued after taking into consideration the carrier's comments together 
with other comments, in order for appropriate preparations to be made 
for contract year 2001. This commenter also indicated that because OPM 
does not advance any rationale for waiving notice and comment on 48 CFR 
1652.216-71, Accounting and Allowable Cost, the rule making should be 
rendered invalid. OPM has simply rewritten this section of the FEHBAR 
in plain language, and has made no substantive changes to the 
regulation. The Administrative Procedures Act waives the advance notice 
and comment requirement when a change is not substantive. The commenter 
states that the date of the Audit Guide currently in effect is July 24, 
1998, and that this date should be stated in the regulation. We did not 
list the specific date of the Audit Guide in the regulation because we 
want to be able to use the most recent version of the Audit Guide in 
effect at any given time. The commenter indicates that the regulation 
makes an erroneous statement that the Audit Guide should be used to 
resolve all audit findings, while the commenter believes that 
corrective action plans should apply only to audits of IPAs and should 
not be extended to OPM audit findings. We have revised the regulation 
accordingly. The commenter indicated that the word ``actual'' needs to 
be deleted from the phrase `` actual, reasonable, allowable, and 
allocable'' because the FAR makes certain imputed costs, such as 
facilities capital cost of money, allowable. The Armed Services Board 
of Contract Appeals has ruled that the cost of capital is an actual 
cost. Therefore, no changes were made to the regulation based on this 
comment. The commenter also stated that OPM had included a new 
requirement in paragraph (b)(1)(i) of 1652.216-71 by asking the carrier 
to justify that costs chargeable to the contract are reasonable and 
necessary. While we have reworded the paragraph in plain language, the 
requirement is not new. Carriers have always been required to show 
proper justification that costs are actual, necessary, and reasonable. 
The previous language in paragraph (b)(1)(i) stated that ``The 
allowable costs chargeable to the contract for a contract period shall 
be the actual, necessary, and reasonable amounts incurred with proper 
justification and accounting support * * *.'' We are simply clarifying 
the requirement by stating it in the active voice. The carrier 
correctly notes that this requirement differs from a related FAR 
requirement.
    Because we became aware during the rate negotiation process that 
some participating carriers did not understand that the risk mitigation 
provisions applied to all carriers, the regulation was clarified to 
indicate that community-rated carrier risk will be mitigated using the 
Employees Health Benefits Fund Administrative Reserve.
    Section 7701(c) of title 31, United States Code, requires each 
contractor doing business with a government agency to furnish its 
Taxpayer Identification Number (TIN) to that agency [see FAR 4.902]. 
Accordingly, we have added a new clause FEHBAR 1652.204-73, Taxpayer 
Identification Number, to FEHBAR Subpart 1652.2 and the FEHBP Clause 
Matrix at Subpart 1652.3. We have also made reference changes and 
updated the Matrix to conform to changes in the Federal Acquisition 
Regulation (FAR) since the Matrix was last revised.
    In addition to the above definitions, in 1652.216-70(b), we have 
clarified that the term ``State'' as used in 5 U.S.C. 8909(f) includes 
a U.S. territory or possession.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities because the regulation 
will only affect health insurance carriers under the Federal Employees 
Health Benefits Program.

Executive Order 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with Executive Order 12866.

List of Subjects in 48 CFR Parts 1604, 1615, 1632, and 1652

    Government employees, Government procurement, Health insurance.

U.S. Office of Personnel Management.
Janice R. Lachance,
Director.

    For the reasons set forth in the preamble, OPM is amending chapter 
16 of title 48, CFR as follows:

[[Page 36386]]

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

    1. The authority citation for 48 CFR Parts 1604, 1615, 1632, and 
1652 continues to read as follows:

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

PART 1604--ADMINISTRATIVE MATTERS

    2. Subpart 1604.9 consisting of Sec. 1604.970 is added to read as 
follows:

Subpart 1604.9--Taxpayer Identification Number


1604.970  Taxpayer Identification Number.

    Insert the clause at section 1652.204-73 in all FEHBP contracts.

PART 1615--CONTRACTING BY NEGOTIATION

Subpart 1615.8--Price Negotiation

    3. In section 1615.802 paragraph (e) is revised to read as follows:


1615.802  Policy.

* * * * *
    (e) Exceptions for the 3-Year DoD Demonstration Project (10 U.S.C. 
1108).
    (1) Similarly sized subscriber group (SSSG) rating methodologies 
will not be used to determine the reasonableness of a community-rated 
carrier's demonstration project premium rates. Carrier premium rates 
will not be adjusted for equivalency with SSSG rating methodologies. 
Carriers will benchmark premiums against adjusted community rates if 
available, Medigap offerings, or other similar products.
    (2) Community-rated carriers must propose premium rates with cost 
or pricing data and rating methodology, and experience-rated carriers 
must propose premium rates with cost data and rating methodology 
regardless of group size or annual premiums.

PART 1632--CONTRACT FINANCING

Subpart 1632.1--General

    4. In section 1632.170 paragraph (c) is revised to read as follows:


1632.170  Recurring premium payments to carriers.

* * * * *
    (c) Exceptions for the 3-Year DoD Demonstration Project (10 U.S.C. 
1108)
    (1) Carriers will create and maintain separate risk pools for 
demonstration project experience and regular FEHB experience for the 
purpose of establishing separate premium rates.
    (2) OPM will create and maintain a demonstration project 
Contingency Reserve separate from the regular FEHB Contingency Reserve 
for each carrier participating in the demonstration project.
    (3) Carriers will account separately for health benefits charges 
paid using demonstration project funds and regular FEHB funds. Direct 
administrative costs attributable solely to the demonstration project 
will be fully chargeable to the demonstration project. Indirect 
administrative costs associated with the demonstration project will be 
allocated to the demonstration project based on the percentage obtained 
by dividing the dollar amount of claims processed under the 
demonstration project by the dollar amount of total claims processed 
for FEHB Program activity.
    (4) The same percentage used to determine indirect cost allocation 
will also be used to determine the amount of an experience-rated 
carrier's service charge that will be allocated to the demonstration 
project.
    (5) Experience-rated carriers participating in the demonstration 
project will draw funds from their Letter of Credit (LOC) account to 
pay demonstration project benefits costs in the same manner as they do 
for benefits costs incurred by regular FEHB members.
    (6) Carriers will report on demonstration project revenues, health 
benefits charges, and administrative expenses as directed by OPM.
    (7) Experience-rated carriers will perform a final reconciliation 
of revenue and costs for the demonstration group at the end of the 
demonstration project. OPM will reimburse carrier costs in excess of 
the premiums first from the carrier's demonstration project Contingency 
Reserve and then from the Employees Health Benefits Fund Administrative 
Reserve. After the final accounting, OPM will place any surplus 
demonstration project premiums in the regular Contingency Reserves of 
all carriers continuing in the FEHB Program for the contract year 
following the year in which the demonstration project ends. Credit will 
be in proportion to the amount of subscription charges paid and accrued 
to each carrier's plan for the last year of the demonstration project.
    (8) Community-rated carriers may, at their discretion, request 
funds from the Employees Health Benefits Fund to mitigate excessive 
costs in relation to premiums. If a community-rated carrier requests 
funds from the Employees Health Benefits Fund to mitigate risk, it will 
be required to perform annual reconciliations for the duration of the 
demonstration project. OPM will reimburse carrier costs significantly 
in excess of the premiums first from the carrier's demonstration 
project Contingency Reserve and then from the Employees Health Benefits 
Fund Administrative Reserve. After the final accounting, OPM will place 
any surplus demonstration project premiums in the regular Contingency 
Reserves of all carriers continuing in the FEHB Program for the 
contract year following the year in which the demonstration project 
ends. Credit will be in proportion to the amount of subscription 
charges paid and accrued to each carrier's plan for the last year of 
the demonstration project.
    (9) Should the program be extended beyond the 3 year demonstration 
project period, OPM will regulate to address any necessary changes to 
these provisions.

PART 1652--CONTRACT CLAUSES

Subpart 1652.2--Texts of FEHBP Clauses

    5. Section 1652.204-73 is added to read as follows:


1652.204-73  Taxpayer Identification Number.

    As prescribed in 1604.970, insert the following clause.

Taxpayer Identification Number (Jan 2000)

    (a) Definitions.
    Common parent, as used in this provision, means that corporate 
entity that owns or controls an affiliated group of corporations 
that files its Federal income tax returns on a consolidated basis, 
and of which the Carrier is a member.
    Taxpayer Identification Number (TIN), as used in this provision, 
means the number required by the Internal Revenue Service (IRS) to 
be used by the Carrier in reporting income tax and other returns.
    (b) The Carrier must submit the information required in 
paragraphs (d) through (f) of this clause to comply with debt 
collection requirements of 31 U.S.C. 7701(c) and 3325(d), reporting 
requirements of 26 U.S.C. 6041, 6041A, and 6050M, and implementing 
regulations issued by the IRS. The Carrier is subject to the payment 
reporting requirements described in Federal Acquisition Regulation 
(FAR) 4.904. The Carrier's failure or refusal to furnish the 
information will result in payment being withheld until the TIN 
number is provided.
    (c) The Government may use the TIN to collect and report on any 
delinquent amounts arising out of the Carrier's relationship with 
the Government (31 U.S.C. 7701(c)(3)). The TIN provided hereunder 
may be matched with IRS records to verify its accuracy.
    (d) Taxpayer Identification Number (TIN).

TIN:________________________
    (e) Type of organization.

{time}  Sole proprietorship;

[[Page 36387]]

{time}  Partnership;
{time}  Corporate entity (not tax-exempt);
{time}  Corporate entity (tax-exempt);
{time}  Other ________________________.

    (f) Common parent.

{time}  Carrier is not owned or controlled by a common parent as 
defined in paragraph (a) of this clause.
{time}  Name and TIN of common parent:

Name ________________________
TIN________________________
(End of Clause)

    6. Section 1652.215-70 is amended by removing ``(JAN 1998)'' from 
the clause heading and adding in its place ``(JAN 2000)'' and by 
revising a new paragraph (d) to read as follows:


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

* * * * *
    (d) Exception for the 3-Year DoD Demonstration Project (10 
U.S.C. 1108).
    (1) Similarly sized subscriber group (SSSG) rating methodologies 
shall not be used to determine the reasonableness of the Carrier's 
demonstration project premium rates. The Carrier's rates shall not 
be adjusted for equivalency with SSSG rating methodologies. The 
Carrier shall benchmark premiums against adjusted community rates if 
available, Medigap offerings, or other similar products.
    (2) The Carrier shall account separately for health benefits 
charges paid using demonstration project funds and regular FEHB 
funds. Direct administrative costs attributable solely to the 
demonstration project shall be fully chargeable to the demonstration 
project. Indirect administrative costs associated with the 
demonstration project will be allocated to the demonstration project 
based on the percentage obtained by dividing the dollar amount of 
claims processed under the demonstration project by the dollar 
amount of total claims processed for FEHB Program activity.

(End of Clause)

    7. Section 1652.216-70 is amended by removing ``(JAN 1998)'' from 
the clause heading and adding in its place ``(JAN 2000)'' and by 
revising a new paragraph (c) to read as follows:


1652.2161-70  Accounting and price adjustment.

* * * * *
    (c) Exception for the 3-Year DoD Demonstration Project (10 
U.S.C. 1108).
    (1) Similarly sized subscriber group (SSSG) rating methodologies 
shall not be used to determine the reasonableness of the Carrier's 
demonstration project premium rates. The Carrier's rates shall not 
be adjusted for equivalency with SSSG rating methodologies. The 
Carrier shall benchmark premiums against adjusted community rates if 
available, Medigap offerings, or other similar products.
    (2) The Carrier shall account separately for health benefits 
charges paid using demonstration project funds and regular FEHB 
funds. Direct administrative costs attributable solely to the 
demonstration project shall be fully chargeable to the demonstration 
project. Indirect administrative costs associated with the 
demonstration project will be allocated to the demonstration project 
based on the percentage obtained by dividing the dollar amount of 
claims processed under the demonstration project by the dollar 
amount of total claims processed for FEHB Program activity.

(End of Clause)

    8. Section 1652.216-71 is amended by revising the clause to read as 
follows:


1652.216-71  Accounting and allowable cost.

* * * * *

ACCOUNTING AND ALLOWABLE COST (FEHBAR 1652.216-71) (JAN 2000)

    (a) Annual Accounting Statements. (1) The Carrier shall furnish 
to OPM an accounting of its operations under the contract. In 
preparing the accounting, the Carrier shall follow the reporting 
requirements and statement formats prescribed by OPM in the OPM 
Annual and Fiscal Year Financial Reporting Instructions.
    (2) The Carrier shall have its Annual Accounting Statements and 
that of its underwriter, if any, audited in accordance with the 
FEHBP Experienced-Rated Carrier and Service Organization Audit Guide 
(Guide). The Carrier shall submit the audit report and the Annual 
Accounting Statements to OPM in accordance with the requirements of 
the Guide.
    (3) Based on the results of either the independent audit 
prescribed by the Guide or a Government audit, OPM may require the 
Carrier adjust its annual accounting statements (i) by amounts found 
not to constitute actual, allowable, allocable and reasonable costs; 
or (ii) to reflect prior overpayments or underpayments.
    (4) The Carrier shall develop corrective action plans to resolve 
audit findings identified in audits that were performed in 
accordance with the Guide. The corrective action plans will be 
prepared in accordance with and as defined by the Guide.
    (b) Definition of costs. (1) The Carrier may charge a cost to 
the contract for a contract term if the cost is actual, allowable, 
allocable, and reasonable. In addition, the Carrier must:
    (i) on request, document and make available accounting support 
for the cost to justify that the cost is actual, reasonable and 
necessary; and
    (ii) determine the cost in accordance with: (A) the terms of 
this contract, and (B) Subpart 31.2 of the Federal Acquisition 
Regulation (FAR) and Subpart 1631.2 of the Federal Employees Health 
Benefits Program Acquisition Regulation (FEHBAR) applicable on the 
first day of the contract period.
    (2) In the absence of specific contract terms to the contrary, 
the Carrier shall classify contract costs in accordance with the 
following criteria:
    (i) Benefits. Benefit costs consist of payments made and 
liabilities incurred for covered health care services on behalf of 
FEHBP subscribers less any refunds, rebates, allowances or other 
credits received.
    (ii) Administrative expenses. Administrative expenses consist of 
all actual, allowable, allocable and reasonable expenses incurred in 
the adjudication of subscriber benefit claims or incurred in the 
Carrier's overall operation of the business. Unless otherwise stated 
in the contract, administrative expenses include, in part: all taxes 
(excluding premium taxes, as provided in section 1631.205-41), 
insurance and reinsurance premiums, medical and dental consultants 
used in the adjudication process, concurrent or managed care review 
when not billed by a health care provider and other forms of 
utilization review, the cost of maintaining eligibility files, legal 
expenses incurred in the litigation of benefit payments and bank 
charges for letters of credit. Administrative expenses exclude the 
cost of Carrier personnel, equipment, and facilities directly used 
in the delivery of health care services, which are benefit costs, 
and the expense of managing the FEHBP investment program which is a 
reduction of investment income earned.
    (iii) Investment income. While compliance with the checks 
presented letter of credit methodology will minimize funds on hand, 
the Carrier shall invest and reinvest all funds on hand, including 
any in the Special Reserve or any attributable to the reserve for 
incurred but unpaid claims, which are in excess of the funds needed 
to discharge promptly the obligations incurred under the contract. 
Investment income represents the net amount earned by the Carrier 
after deducting investment expenses. Investment expenses are those 
actual, allowable, allocable, and reasonable contract costs that are 
attributable to the investment of funds, such as consultant or 
management fees.
    (iv) Other charges. (A) Mandatory statutory reserve. Charges for 
mandatory statutory reserves are not allowable unless specifically 
provided for in the contract. When the term ``mandatory statutory 
reserve'' is specifically identified as an allowable contract charge 
without further definition or explanation, it means a requirement 
imposed by State law upon the Carrier to set aside a specific amount 
or rate of funds into a restricted reserve that is accounted for 
separately from all other reserves and surpluses of the Carrier and 
which may be used only with the specific approval of the State 
official designated by law to make such approvals. The amount 
chargeable to the contract may not exceed an allocable portion of 
the amount actually set aside. If the statutory reserve is no longer 
required for the purpose for which it was created, and these funds 
become available for the general use of the Carrier, the Carrier 
shall return to the FEHBP a pro rata share based upon FEHBP's 
contribution to the total Carrier's set aside shall be returned to 
the FEHBP in accordance with FAR 31.201-5.
    (B) Premium taxes. (1) When the term ``premium taxes'' is used 
in this contract without further definition or explanation, it means 
a tax, fee, or other monetary payment directly or indirectly imposed 
on FEHB premiums by any State, the District of Columbia, or the 
Commonwealth of Puerto Rico or by any political subdivision or other 
governmental authority of those entities, with the sole exception of 
a tax on net income or profit, if that tax, fee, or payment is

[[Page 36388]]

applicable to a broad range of business activity.
    (2) For purposes of this paragraph (B), OPM has determined that 
the term ``State'' as used in 5 U.S.C. 8909(f) includes, but is not 
limited to, a territory or possession of the United States.
    (c) Certification of Accounting Statement Accuracy. (1) The 
Carrier shall certify the annual and fiscal year accounting 
statements in the form set forth in paragraph (c)(3) of this clause. 
The Carrier's chief executive officer and the chief financial 
officer shall sign the certificate.
    (2) The Carrier shall require an authorized agent of its 
underwriter, if any, also to certify the annual accounting 
statement.
    (3) The certificate required shall be in the following form:

Certification of Accounting Statement Accuracy

    This is to certify that I have reviewed this accounting 
statement and to the best of my knowledge and belief:
    1. The statement was prepared in conformity with the guidelines 
issued by the Office of Personnel Management and fairly presents the 
financial results of this reporting period in conformity with those 
guidelines.
    2. The costs included in the statement are actual, allowable, 
allocable, and reasonable in accordance with the terms of the 
contract and with the cost principles of the Federal Employees 
Health Benefits Acquisition Regulation and the Federal Acquisition 
Regulation;
    3. Income, rebates, allowances, refunds and other credits made 
or owed in accordance with the terms of the contract and applicable 
cost principles have been included in the statement;
    4. If applicable, the letter of credit account was managed in 
accordance with 5 CFR part 890, 48 CFR chapter 16, and OPM 
guidelines.

Carrier Name:----------------------------------------------------------

Name of Chief Executive Officer:
(Type or Print)
----------------------------------------------------------------------

Name of Chief Financial Officer:
----------------------------------------------------------------------

Signature of Chief Executive Officer:
----------------------------------------------------------------------

Signature of Chief Financial Officer:
----------------------------------------------------------------------

Date Signed:-----------------------------------------------------------

Date Signed:-----------------------------------------------------------

Underwriter:-----------------------------------------------------------

Name and Title of Responsible Corporate Official:
(Type or Print:)
----------------------------------------------------------------------

Signature of Responsible Corporate Official:
----------------------------------------------------------------------

Date Signed:-----------------------------------------------------------

(End of Certificate)

    (d) Exceptions for the 3-Year DoD Demonstration Project (10 
U.S.C. 1108).
    (1) The Carrier shall draw funds from its Letter of Credit (LOC) 
account to pay demonstration project benefits costs in the same 
manner as it does for benefits costs incurred by regular FEHB 
members. The Carrier shall account separately for health benefits 
charges paid using demonstration project funds and regular FEHB 
funds. Direct administrative costs attributable solely to the 
demonstration project shall be fully chargeable to the demonstration 
project. Indirect administrative costs associated with the 
demonstration project will be allocated to the demonstration project 
based on the percentage obtained by dividing the dollar amount of 
claims processed under the demonstration project by the dollar 
amount of total claims processed for FEHB Program activity. This 
same percentage will also be used to determine the amount of the 
Carrier's service charge that will be allocated to the demonstration 
project.
    (2) The Carrier shall submit a separate annual accounting 
statement and monthly incurred claims report for demonstration 
project experience.

(End of Clause)


    9. Section 1652.232-70 is amended by removing ``(JAN 1998)'' from 
the clause heading and adding in its place ``(JAN 2000),'' and adding a 
new paragraph (f) to read as follows:


1652.232-70  Payments--community-rated contracts.

* * * * *
    (f) Exception for the 3-Year DoD Demonstration Project (10 
U.S.C. 1108).
    The Carrier may, at its discretion, request funds from the 
Employees Health Benefits Fund to mitigate excessive costs in 
relation to premiums. If the Carrier requests funds from the 
Employees Health Benefits Fund to mitigate risk, it will be required 
to perform annual reconciliations for the duration of the 
demonstration project. OPM will reimburse the Carrier's costs 
significantly in excess of the premiums first from the Carrier's 
demonstration project Contingency Reserve and then from the 
Employees Health Benefits Fund Administrative Reserve. After the 
final accounting, OPM will place any surplus demonstration project 
premiums in the regular Contingency Reserves of all carriers 
continuing in the FEHB Program for the contract year following the 
year in which the demonstration project ends. Credit will be in 
proportion to the amount of subscription charges paid and accrued to 
each carrier's plan for the last year of the demonstration project.

(End of Clause)


    10. Section 1652.232-71 is amended by revising paragraph (f) to 
read as follows:


1652.232-71  Payments--experience-rated contracts.

* * * * *
    (f) Exception for the 3-Year DoD Demonstration Project (10 
U.S.C. 1108).
    The Carrier will perform a final reconciliation of revenue and 
costs for the demonstration project group at the end of the 
demonstration project. OPM will reimburse the Carrier's costs in 
excess of the premiums first from the Carrier's demonstration 
project Contingency Reserve and then from the Employees Health 
Benefits Fund Administrative Reserve. After the final accounting, 
OPM will place any surplus demonstration project premiums in the 
regular Contingency Reserves of all carriers continuing in the FEHB 
Program for the contract year following the year in which the 
demonstration project ends. Credit will be in proportion to the 
amount of subscription charges paid and accrued to each carrier's 
plan for the last year of the demonstration project.

(End of Clause)

Subpart 1652.3--FEHBP Clause Matrix

    11. In section 1652.370, the FEHB Program Clause Matrix, is revised 
to read as follows:


1652.370  Use of matrix.

* * * * *

                                                                   FEHBP Clause Matrix
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   Use with    Use with
                                                                                                                          Use     experience   community
               Clause No.                                Text reference                             Title               status       rated       rated
                                                                                                                                   contracts   contracts
--------------------------------------------------------------------------------------------------------------------------------------------------------
FAR 52.202-1                             FAR 2.201                                       Definitions................          M           T           T
FAR 52.203-3                             FAR 3.202                                       Gratuities.................          M           T           T
FAR 52.203-5                             FAR 3.404                                       Covenant Against Contingent          M           T           T
                                                                                          Fees.
FAR 52.203-7                             FAR 3.502-3                                     Anti-Kickback Procedures...          M           T           T
FAR 52.203-12                            FAR 3.808(b)                                    Limitation on Payments to            M           T           T
                                                                                          Influence Certain Federal
                                                                                          Transactions.
1652.203-70                              1603-7003                                       Misleading, Deceptive, or            M           T           T
                                                                                          Unfair Advertising.
1652.204-70                              1604.705                                        Contractors Records                  M           T           T
                                                                                          Retention.
1652.204-71                              1604.7001                                       Coordination of Benefits...          M           T           T

[[Page 36389]]

 
1652.204-72                              1604.7101                                       Filing Health Benefit                M           T           T
                                                                                          Claims/Court Review of
                                                                                          Disputed Claims.
1652.204-73                              1604.970                                        Taxpayer Identification              M           T           T
                                                                                          Number.
FAR 52.209-6                             FAR 9.409(b)                                    Protecting the Government's          M           T           T
                                                                                          Interest When
                                                                                          Subcontracting With
                                                                                          Contractors Debarred,
                                                                                          Suspended, or Proposed for
                                                                                          Debarment.
FAR 52.215-2                             FAR 15.209(b)                                   Audit & Records--                    M           T           T
                                                                                          Negotiation.
FAR 52.215-10                            FAR 15.408(b)                                   Price Reduction for                  M           T
                                                                                          Defective Cost or Pricing
                                                                                          Data.
FAR 52.215-12                            FAR 15.408(d)                                   Subcontractor Cost or                M           T
                                                                                          Pricing Data.
FAR 52.215-15                            FAR 15.408(g)                                   Pension Adjustments and              M           T
                                                                                          Asset Reversions.
FAR 52.215-16                            FAR 15.408(h)                                   Facilities Capital Cost of           M           T
                                                                                          Money.
FAR 52.215-17                            FAR 15.408(i)                                   Waiver of Facilities                 A           T
                                                                                          Capital Cost of Money.
FAR 52.215-18                            FAR 15.408(j)                                   Reversion or Adjustment of           M           T
                                                                                          Plans for Postretirement
                                                                                          Benefits (PRB) Other Than
                                                                                          Pensions.
1652.215-70                              1615.804-72                                     Rate Reduction for                   M                       T
                                                                                          Defective Pricing or
                                                                                          Defective Cost or Pricing
                                                                                          Data.
1652.215-71                              1615.805-71                                     Investment Income..........          M           T
1652.216-70                              1616.7001                                       Accounting and Price                 M           T           T
                                                                                          Adjustment.
1652.216-71                              1616.7002                                       Accounting and Allowable             M           T
                                                                                          Cost.
FAR 52.219-8                             FAR 19.708(a)                                   Utilization of Small                 M           T           T
                                                                                          Business Concerns.
FAR 52.222-1                             FAR 22.103-5(a)                                 Notice to the Government of          M           T           T
                                                                                          Labor Disputes.
FAR 52.222-3                             FAR 22.202                                      Convict Labor..............          M           T           T
FAR 52.222-4                             FAR 22.305                                      Contract Work Hours and              M           T           T
                                                                                          Safety Standards Act-
                                                                                          Overtime Compensation.
FAR 52.222-21                            FAR 22.810(a)(1)                                Prohibition of Segregated            M           T           T
                                                                                          Facilities.
FAR 52.222-26                            FAR 22.810(a)                                   Equal Opportunity..........          M           T           T
FAR 52.222-29                            FAR 22.810(g)                                   Notification of Visa Denial          A           T           T
FAR 52.222-35                            FAR 22.1308(a)                                  Affirmative Action for               M           T           T
                                                                                          Disabled Veterans and
                                                                                          Veterans of the Vietnam
                                                                                          Era.
FAR 52.222-36                            FAR 22.1408(a)                                  Affirmative Action for               M           T           T
                                                                                          Workers With Disabilities.
FAR 52.222-37                            FAR 22.1308(b)                                  Employment Reports on                M           T           T
                                                                                          Disabled Veterans and
                                                                                          Veterans of the Vietnam
                                                                                          Era.
1652.222-70                              1622.103-70                                     Notice of Significant                M           T           T
                                                                                          Events.
FAR 52.223-2                             FAR 23.105(b)                                   Clean Air and Water........          A           T           T
FAR 52.223-6                             FAR 23.505                                      Drug-Free Workplace........          A           T           T
1652.224-70                              1624.104                                        Confidentiality of Records.          M           T           T
FAR 52.227-1                             FAR 27.201-2(a)                                 Authorization and Consent..          M           T           T
FAR 52.227-2                             FAR 27.202-2                                    Notice and Assistance                M           T           T
                                                                                          Regarding Patent and
                                                                                          Copyright Infringement.
FAR 52.229-3                             FAR 29.401-3                                    Federal, State and Local             M                       T
                                                                                          Taxes.
FAR 52.229-4                             FAR 29.401-4                                    Federal, State and Local             M           T
                                                                                          Taxes (Noncompetitive
                                                                                          Contract).
FAR 52.229-5                             FAR 29.401-5                                    Taxes--Contracts Performed           A           T           T
                                                                                          in U.S. Possessions or
                                                                                          Puerto Rico.
1652.229-70                              FEHBAR 1629.402                                 Taxes--Foreign Negotiated            A           T           T
                                                                                          Benefits Contracts.
FAR 52.230-2                             FAR 30.201-4(a)(1)                              Cost Accounting Standards..          A           T           T
FAR 52.230-3                             FAR 30.201-4(b)(1)                              Disclosure and Consistency           A           T           T
                                                                                          of Cost Accounting
                                                                                          Practices.
FAR 52.230-6                             FAR 30.201-4(d)(1)                              Administration of Cost               A           T           T
                                                                                          Accounting Standards.
FAR 52.232-8                             FAR 32.111(c)(1)                                Discounts for Prompt                 M           T           T
                                                                                          Payment.
FAR 52.232-17                            FAR 32.617(a)                                   Interest...................          M           T           T
                                         Modification:
                                         1632.617
FAR 52.232-23                            FAR 32.806(a)(1)                                Assignment of Claims.......          A           T           T
FAR 52.232-33                            FAR 32.1103(a)                                  Payment by Electronic Funds          M           T           T
                                                                                          Transfer--Central
                                                                                          Contractor Registration.
1652.232-70                              1632.171                                        Payments--Community-Rated            A                       T
                                                                                          Contracts.
1652.232-71                              1632.172                                        Payments--Experience-Rated           A           T
                                                                                          Contracts.
1652.232-72                              1632.772                                        Non-Commingling of FEHBP             M           T
                                                                                          Funds.
1652.232-73                              1632.806-70                                     Approval for Assignment of           M           T           T
                                                                                          Claims.
FAR 52.233-1                             FAR 33.215                                      Disputes...................          M           T           T
FAR 52.242-1                             FAR 42.802                                      Notice of Intent to                  M           T
                                                                                          Disallow Costs.
FAR 52.242-3                             FAR 42.709-6                                    Penalties for Unallowable            M           T
                                                                                          Costs.
FAR 52.242-13                            FAR 42.903                                      Bankruptcy.................          M           T           T
1652.243-70                              1643.205-70                                     Changes--Negotiated                  M           T           T
                                                                                          Benefits Contracts.
FAR 52.244-5                             FAR 44.204(c)                                   Competition in                       M           T
                                                                                          Subcontracting.
FAR 52.244-6                             FAR 44.403                                      Subcontracts for Commercial          M           T
                                                                                          Items and commercial
                                                                                          components.

[[Page 36390]]

 
1652.244-70                              1644.270                                        Subcontracts...............          M           T
1652.245-70                              1645.303-70                                     Government Property                  M           T           T
                                                                                          (Negotiated Benefits
                                                                                          Contracts).
FAR 52.246-25                            FAR 6.805(a)(4)                                 Limitation of Liability--            M           T
                                                                                          Services.
1652.246-70                              1646.301                                        FEHB Inspection............          M           T           T
FAR 52.247-63                            FAR 47.405                                      Preference for U.S.-Flag             M           T           T
                                                                                          Air Carriers.
1652.249-70                              1649.101-70                                     Renewal and Withdrawal of            M           T           T
                                                                                          Approval.
1652.249-71                              1649.101-71                                     FEHBP Termination for                M           T           T
                                                                                          Convenience of the
                                                                                          Government--Negotiated
                                                                                          Benefits Contracts.
1652.249-72                              1649.101-72                                     FEHBP Termination for                M           T           T
                                                                                          Default--Negotiated
                                                                                          Benefits Contracts.
FAR 52.251-1                             FAR 51.107                                      Government Supply Sources..          A           T
FAR 52.252-4                             FAR 52.107(d)                                   Alterations in Contract....          A           T           T
FAR 52.252-6                             FAR 52.107(f)                                   Authorized Deviations in             M           T           T
                                                                                          Clauses.
--------------------------------------------------------------------------------------------------------------------------------------------------------

[FR Doc. 00-13851 Filed 6-7-00; 8:45 am]
BILLING CODE 6325-01-P