[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Rules and Regulations]
[Pages 38282-38286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-16276]


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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 890

48 CFR Parts 1602, 1615, 1632, and 1652

RIN 3206-AM39


Federal Employees Health Benefits Program: New Premium Rating 
Method for Most Community Rated Plans

AGENCY: U.S. Office of Personnel Management.

ACTION: Interim final rule with request for comments.

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SUMMARY: The U.S. Office of Personnel Management (OPM) is issuing an 
interim final regulation amending the Federal Employees Health Benefits 
(FEHB) regulations and also the Federal Employees Health Benefits 
Acquisition Regulation (FEHBAR). This interim final regulation replaces 
the procedure by which premiums for community rated FEHB carriers are 
compared with the rates charged to a carrier's similarly sized 
subscriber groups (SSSGs). This new procedure utilizes a medical loss 
ratio (MLR) threshold, analogous to that defined in both the Affordable 
Care Act (ACA, Pub. L. 111-148) and the Department of Health and Human 
Services (HHS) interim final regulation published December 1, 2010 (75 
FR 74864). The purpose of this interim final rule is to replace the 
outdated SSSG methodology with a more modern and transparent 
calculation while still ensuring that the FEHB is receiving a fair 
rate. This will result in a more streamlined process for plans and 
increased competition and plan choice for enrollees. The new process 
will apply to all community rated plans, except those under traditional 
community rating (TCR). This new process will be phased in over two 
years, with optional participation for non-TCR plans in the first year.

DATES: This interim final rule is effective July 29, 2011. Comments are 
due on or before August 29, 2011.

FOR FURTHER INFORMATION CONTACT: Louise Dyer, Senior Policy Analyst, 
(202) 606-0770, or by e-mail to [email protected].

SUPPLEMENTARY INFORMATION: The Office of Personnel Management is 
issuing an interim final regulation to establish a new rate-setting 
procedure for most FEHB plans that are subject to community rating. 
Currently, a carrier's rates for its community rated FEHB plans are 
compared with the rates the carrier charges to its similarly sized 
subscriber groups (SSSGs) during a reconciliation process in the plan 
year. This interim final regulation replaces this SSSG process with a 
requirement that most community rated plans meet an FEHB-specific 
medical loss ratio (MLR) target. Plans that are required to use 
traditional community rating (TCR) per their state regulator will be 
exempt from this new rate-setting procedure. This MLR-based rate 
setting process will ensure the Government and Federal employees are 
receiving a fair market rate and a good value for their premium 
dollars.

ACA Medical Loss Ratio Requirement

    Effective for 2011, most health insurance policies, including those 
issued under FEHB, are required to meet a medical loss ratio standard 
set forth in Federal law, or pay rebates to the individuals insured. 
This MLR requirement was enacted in the ACA in a new section 2718 of 
the Public Health Service Act titled ``Bringing Down the Cost of Health 
Care Coverage,'' and is intended to control health care costs by 
limiting the percentage of premium receipts that can be used for non-
claim costs (costs for purposes other than providing care or improving 
the quality of care). The details of this ACA-required MLR formula 
comparing non-claim costs to overall expenditures were promulgated in 
an HHS interim final regulation published in the Federal Register on 
December 1, 2010 (75 FR 74864). Non-claim costs include plan 
administration costs, marketing costs, and profit. ACA requires that 
health insurance issuers, beginning in calendar year 2011, meet an MLR 
of 85% for large groups, (i.e., non-claim costs may not exceed 15%). If 
an issuer does not meet the MLR target, it must pay a premium rebate.

FEHB-Specific MLR Threshold

    Under this OPM regulation, in addition to being subject to the ACA-
required MLR, most FEHB community rated plans will be required to meet 
an FEHB-specific MLR threshold for the annual rates negotiated for 
their Federal enrollment. This new requirement will be included in 48 
CFR 1615.402(c)(3)(ii) and will be phased in over two years. If the 
plan falls below the FEHB-specific MLR threshold, the plan must pay a 
subsidization penalty into a newly established Subsidization Penalty 
Account (defined in 5 CFR 890.503(c)(6)). The FEHB-specific MLR 
threshold will be set in OPM's annual rate instructions to FEHB plans 
published in the spring of each year, rather than by regulation. If the 
plan has met or exceeded the FEHB-specific MLR threshold, there is no 
exchange of funds or adjustment of premiums necessary.
    This rule establishes a process by which FEHB community rated plans 
(other than plans using TCR) will calculate and submit the MLR for 
their FEHB plans. This process will take place after the end of the 
plan year and after the carrier has calculated and submitted to HHS the 
ACA-required MLR. Under this regulation, premium rates for community 
rated plans will continue to be negotiated prior to the plan year based 
on the plan's community rating methodology. There

[[Page 38283]]

will continue to be a reconciliation process starting April 30 of the 
plan year to update any new information received after rates were set 
but prior to January 1 of the plan year, including book rates filed 
with the state. Once SSSGs have been phased out, most community rated 
plans will no longer be required to submit SSSG information and the 
reconciliation process will not include comparison with SSSGs. Instead 
of the SSSG comparison, there will be a separate settlement with OPM 
after the end of the plan year based on the FEHB-specific MLR 
threshold.
    OPM will base its MLR definitions on the HHS interim final rule of 
December 1, 2010. However, while the HHS MLR will be calculated as a 
three-year sum, the FEHB-specific MLR threshold will be calculated on a 
one-year basis to be consistent with the annual renegotiation of FEHB 
premiums. The HHS interim final regulation allows for a credibility 
adjustment for the ``special circumstance of smaller plans, which do 
not have sufficient experience to be statistically valid for purposes 
of the rebate provisions.'' The FEHB-specific MLR threshold calculation 
may also include a credibility adjustment, but, if used, the threshold 
will be lower, due to the relative small size of FEHB enrollee 
populations. The FEHB-specific MLR threshold target may be different 
from the ACA large group MLR of 85%. In calculating the FEHB-specific 
MLR threshold, plans will be aggregated as defined in that year's 
annual rate instructions issued to carriers.
    The use of an FEHB-specific MLR threshold in FEHB community rate 
setting will allow for the removal of SSSGs for non-TCR plans while 
preserving incentives for carriers to provide health insurance that is 
affordable and that has appropriate controls on administrative 
overhead. In recent years, there have been a declining number of fully 
insured plans in the commercial market. Carriers are increasingly 
unable to find groups similarly sized to the FEHB group for comparison 
and are withdrawing from the program as a result.
    This OPM regulation requires that the FEHB-specific MLR threshold 
calculation take place after the ACA-required MLR calculation and any 
rebate amounts due to the FEHB as a result of the ACA-required 
calculation will not be included in the FEHB-specific MLR threshold 
calculation. The HHS interim final MLR rule requires health insurance 
issuers to submit their MLR calculation by June 1 of the year following 
the MLR reporting year. Issuers must report information related to 
earned premiums and expenditures in various categories, including 
reimbursement for clinical services provided to enrollees, activities 
that improve health care quality, and all other non-claims costs. The 
HHS interim final regulation specifies that the report will include 
claims incurred in the MLR reporting year and paid through March of the 
following year.
    To complete the FEHB-specific MLR threshold calculation after the 
carrier calculated the ACA-required MLR, FEHB carriers will report 
claims incurred in the plan year and paid through March 31 of the 
following year. FEHB carriers will report the same categories of 
information for the FEHB-specific MLR threshold calculation as reported 
for the ACA-required MLR calculation; however, the FEHB-specific MLR 
threshold calculation data will be based only on the FEHB population of 
the health plan. Data will be reported to OPM with the rate filing for 
the year following the MLR reporting year. Specific dates for reporting 
MLR will be included in the rate instructions which are typically 
released in April of each year.
    Under the current SSSG methodology, adjustments due to SSSG 
discounts are either deposited into plan-specific contingency reserve 
accounts or factored into reduced premiums for enrollees in the 
following plan year. Under this rule, if the FEHB-specific MLR 
threshold calculation process requires an FEHB carrier to pay a 
subsidization penalty, it will not be deposited into its own 
contingency reserve fund but will instead be deposited into a 
Subsidization Penalty Account established in the U.S. Treasury by OPM 
for this purpose. These funds will be annually distributed, on a pro-
rata basis, to the contingency reserves of all non-TCR community rated 
plans.
    Issuers failing to meet the FEHB-specific MLR threshold must make 
any subsidization penalty payment within 60 days of notification of 
amounts due. This payment would take place via wire transfer, similar 
to the way carriers make payments required by the current 
reconciliation process. In the case of carrier non-compliance, this 
interim final rule includes authority for OPM to garnish premium 
payments to the carrier in 1632.170(a)(3).
    As stipulated in Section 8910 of Title 5 of the U.S. Code, OPM will 
include a provision in contracts with carriers that requires the 
carrier to:
     Furnish reasonable reports to OPM to enable it to carry 
out its functions under this chapter.
     Permit OPM and GAO to examine records, including those 
from affiliates and vendors, as may be necessary to carry out the 
purpose of this chapter.
    Under this regulation, the new methodology becomes effective for 
all non-TCR plans for the 2013 plan year. For the 2012 plan year, all 
non-TCR FEHB plans have an option of either: (1) Following the SSSG 
requirements as currently stated and providing OPM the FEHB-specific 
2011 and 2012 MLR threshold calculation by the date specified in the 
2012 annual instructions; or (2) moving to the FEHB-specific MLR 
threshold calculation with no requirement to submit SSSG information 
for 2012. The FEHB-specific MLR threshold for plans choosing the second 
option for 2012 will be set similar to the average MLR of FEHB's 
experience rated plans. OPM expects to set the FEHB-specific MLR 
threshold for 2013 and beyond at a reasonable level consistent with the 
MLR that community rated plans are currently achieving under the SSSG 
mechanism, but no lower than 85%. For those plans that stay under the 
SSSG methodology, there would be no financial impact to the plans from 
this regulation in the 2012 plan year. Community rated FEHB plans that 
are required by state law to use TCR will be required to continue using 
the SSSG methodology.

Background

    There are two methods of determining premium rates for FEHB plans: 
Community rating and experience rating. This regulatory change will 
apply to those FEHB plans that are subject to community rating. Under 
current regulation, the community rated plan premiums are compared to 
the premiums of SSSGs to ensure that FEHB receives the lowest available 
premium rate.
    TCR plans are those that set the same rates for all groups in a 
community regardless of the health risks and other characteristics of 
any specific group. Under TCR, an FEHB group must be charged the same 
premium as all other groups in the area that receive the same set of 
benefits. Healthier groups subsidize the less healthy groups that use 
more health services. This subsidization is by design, and the health 
plan cannot adjust premiums for a specific group to reflect the 
percentage of premium revenue used for claim costs versus 
administration. Therefore, OPM believes it inappropriate to impose an 
MLR-based premium rating methodology on those FEHB plans that use TCR. 
Currently, the only FEHB plans that use TCR are those operating in 
states that require it.
    Under current regulations, the premiums for community rated FEHB

[[Page 38284]]

plans are negotiated with OPM the August before the plan year begins on 
January 1. Those negotiated rates are based on comparable rates offered 
to other plans in the community, with some plans adjusting for age, 
gender, and health risks of the community. Beginning in April of the 
plan year, OPM conducts a reconciliation process to update any change 
in rate assumptions that occurred after rates were set but before 
January 1 of the plan year, such as new book rates filed in the state 
in which the plan is issued. During this reconciliation process, each 
FEHB community rated plan determines the two appropriate employer-based 
subscriber groups that will serve as SSSGs for comparison. If a plan 
has provided a discounted rate to one of the SSSGs, the plan must match 
that discount in the rate provided to FEHB. SSSGs are defined in FEHBAR 
at 48 CFR 1602.170-13.
    The FEHB Program has experienced a decline in the number of 
participating HMO plans in part due to concerns with the comparison of 
rates to SSSGs. OPM's goal is to offer Federal employees, annuitants, 
and their families a broad choice of health insurance plans. To that 
end, where there are significant barriers to entry or aspects of the 
program that increase risk beyond an acceptable level for carriers, OPM 
is taking steps to mitigate risks and eliminate barriers to entry.
    The current methodology involving SSSG comparison has been cited by 
some health plans as creating uncertainty and risk in the FEHB Program. 
Uncertainty and risk have increased over the years as employers have 
moved away from offering fully-insured products with community rates 
for their employees. This trend has resulted in fewer appropriately-
sized employer groups that can be used in the SSSG calculation. Under 
the current methodology, SSSGs are sometimes much smaller than the FEHB 
group, diverging from the original intent of the regulation. There are 
several cases in which FEHB groups are compared to groups much less 
than half their size for the purpose of rate determination.

Waiver of Proposed Rulemaking

    OPM has determined that it would be impracticable, unnecessary, and 
contrary to the public interest to delay putting the provisions of this 
interim final regulation in place until a public notice and comment 
process has been completed. Under section 553(b) of the Administrative 
Procedure Act (APA) (5 U.S.C. 551 et seq.) a general notice of proposed 
rulemaking is not required when an agency, for good cause, finds that 
notice and public comment thereon are impracticable, unnecessary, or 
contrary to the public interest. FEHB plans must be in possession of 
full information about OPM's rating methodology prior to July 1, 2011 
in order to submit proposals for the 2012 plan year. In the absence of 
the option of a new rating methodology, FEHB plans have indicated they 
may discontinue participation in FEHB. Fewer participating FEHB plans 
would constrain competition and limit choice for FEHB enrollees. This 
OPM interim final regulation was completed as quickly as possible 
following the publication of the regulatory definition of medical loss 
ratio by HHS in December 2010, upon which this rule relies. Further, 
plans have the option of subjecting themselves to the existing rating 
methodology during the 2012 plan year, should they choose to do so. 
Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule on an interim basis, including 
a 60-day public comment period.

Regulatory Impact Analysis

    OPM has examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review) and 
Executive Order 13563, which directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public, health, and 
safety effects, distributive impacts, and equity). A regulatory impact 
analysis must be prepared for major rules with economically significant 
effects of $100 million or more in any one year. This rule is not 
considered a major rule because OPM estimates that premiums paid by 
Federal employees and agencies will be very similar under the old and 
new payment methodologies. This rule will be cost-neutral. OPM's 
intention is to keep FEHB premiums stable and sustainable using this 
more transparent methodology.

List of Subjects

5 CFR Part 890

    Government employees, Health facilities, Health insurance, Health 
professions, Hostages, Iraq, Kuwait, Lebanon, Military personnel, 
Reporting and recordkeeping requirements, Retirement.

48 CFR Parts 1602, 1615, 1632, and 1652

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

U.S. Office of Personnel Management.
John Berry,
Director.

    For the reasons set forth in the preamble, OPM amends Part 890 of 
title 5 CFR and chapter 16 of title 48 CFR (FEHBAR) as follows:

TITLE 5--ADMINISTRATIVE PERSONNEL

PART 890--FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Subpart E--Contributions and Withholdings

0
1. The authority citation for subpart E of part 890 is added to read as 
follows:

    Authority:  5 U.S.C. 8913; Sec. 890.303 also issued under Sec. 
50 U.S.C. 403p, 22 U.S.C. 4069c and 4069c-1; Subpart L also issued 
under Sec. 599C of Public Law 101-513, 104 Stat. 2064, as amended; 
Sec. 890.102 also issued under Secs. 11202(f), 11232(e), 11246(b) 
and (c) of Public Law 105-33, 111 Stat. 251; Sec. 721 of Public Law 
105-261, 112 Stat. 2061 unless otherwise noted; Sec. 890.111 also 
issued under Sec. 1622(b) of Public Law 104-106, 110 Stat. 515.


0
2. Add Sec.  890.503(c)(6) to read as follows:


Sec.  890.503  Reserves.

* * * * *
    (c) * * *
    (6) Subsidization penalty reserve. This reserve account shall be 
credited with all subsidization penalties levied against community 
rated plans outlined in 48 CFR 1615.402(c)(3)(ii)(B). The funds in this 
account shall be annually distributed to the contingency reserves of 
all community rated plans subject to the FEHB-specific medical loss 
ratio threshold on a pro-rata basis. The funds will not be used for one 
specific carrier or plan.

TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM

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

SUBCHAPTER A--GENERAL

PART 1602--DEFINITIONS OF WORDS AND TERMS

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

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

[[Page 38285]]


0
4. Section 1602.170-2(b) is revised to read as follows:


Sec.  1602.170-2  Community rate.

* * * * *
    (b) Adjusted community rate means a community rate which has been 
adjusted for expected use of medical resources of the FEHBP group. An 
adjusted community rate is a prospective rate and cannot be 
retroactively revised to reflect actual experience, utilization, or 
costs of the FEHBP group, except as described in Sec.  1615.402(c)(4).

0
5. Section 1602.170-5(b) is revised to read as follows:


Sec.  1602.170-5  Cost or pricing data.

* * * * *
    (b) Community rated carriers. Cost or pricing data for community 
rated carriers is the specialized rating data used by carriers in 
computing a rate that is appropriate for the Federal group and 
similarly sized subscriber groups (SSSGs). Such data include, but are 
not limited to, capitation rates; prescription drug, hospital, and 
office visit benefits utilization data; trend data; actuarial data; 
rating methodologies for other groups; standardized presentation of the 
carrier's rating method (age, sex, etc.) showing that the factor 
predicts utilization; tiered rates information; ``step-up'' factors 
information; demographics such as family size; special benefit loading 
capitations; and adjustment factors for capitation. After the 2012 plan 
year, reconciled rates for community rated carriers, other than those 
required by state law to use Traditional Community Rating (TCR), will 
be required to meet an FEHB-specific medical loss ratio threshold 
published annually in OPM's rate instructions to FEHB carriers.

0
6. Redesignate Sec.  1602.170-14 through Sec.  1602.170-15 as Sec.  
1602.170-15 through Sec.  1602.170-16.

0
7. Add new Sec.  1602.170-14 to read as follows:


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

    (a) Medical loss ratio (MLR) means the ratio of plan incurred 
claims, including the issuer's expenditures for activities that improve 
health care quality, to total premium revenue determined by OPM, as 
defined by the Department of Health and Human Services.
    (b) The FEHB-specific MLR will be calculated on an annual basis, 
with the prior year's ratio having no effect on the current plan year. 
This FEHB-specific MLR will be measured against an FEHB-specific MLR 
threshold to be put forth by OPM in the annual rate instruction letter 
to FEHB carriers.
    (c) OPM will set a credibility adjustment to account for the 
special circumstances of small FEHB plans in annual rate instructions 
to carriers.

SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES

PART 1615--CONTRACTING BY NEGOTIATION

0
7. The authority citation for part 1615 continues to read as follows:

    Authority: Audit and records--5 U.S.C. 8913; 40 U.S.C. 486(c); 
48 CFR 1.301. Negotiation--5 U.S.C. 8902


0
8. Revise Sec.  1615.402(c)(3) to read as follows:


Sec.  1615.402  Pricing policy.

* * * * *
    (c) * * *
    (3) For plan year 2012, plans will have the option of continuing to 
use the similarly sized subscriber group (SSSG) rating methodology 
described in paragraph (c)(3)(i) of this section or using the MLR 
rating methodology described in paragraph (c)(3)(ii) of this section. 
All non-traditional community rated (TCR) plans will be required to 
submit FEHB-specific MLR information for every year beginning with plan 
year 2011.
    (i) Similarly sized subscriber group (SSSG) methodology. (A) For 
contracts with 1,500 or more enrollee contracts for which the FEHB 
Program premiums for the contract term will be at or above the 
threshold at FAR 15.403-4(a)(1), OPM will require the carrier to 
provide the data and methodology used to determine the FEHB Program 
rates. OPM will also require the data and methodology used to determine 
the rates for the carrier's SSSGs. The carrier will provide cost or 
pricing data required by OPM in its rate instructions for the 
applicable contract period. OPM will evaluate the data to ensure that 
the rate is reasonable and consistent with the requirements in this 
chapter. If necessary, OPM may require the carrier to provide 
additional documentation.
    (B) Contracts will be subject to a downward price adjustment if OPM 
determines that the Federal group was charged more than it would have 
been charged using a methodology consistent with that used for the 
SSSGs. Such adjustments will be based on the lower of the two rates 
determined by using the methodology (including discounts) the carrier 
used for the two SSSGs.
    (C) FEHB Program community-rated carriers will comply with SSSG 
criteria provided by OPM in the rate instructions for the applicable 
contract period.
    (ii) FEHB-specific medical loss ratio (MLR) threshold methodology. 
(A) For contracts with 1,500 or more enrollee contracts for which the 
FEHB Program premiums for the contract term will be at or above the 
threshold at FAR 15.403-4(a)(1), OPM will require the carrier to 
provide the data and methodology used to determine the FEHB Program 
rates. OPM will also require the data and methodology used to determine 
the medical loss ratio (MLR) as defined in the ACA (Public Law 111-148) 
and as defined by HHS in implementing regulations for all FEHB 
community rated plans other than those required by state law to use 
Traditional Community Rating. The carrier will provide cost or pricing 
data, as well as the FEHB-specific MLR threshold data required by OPM 
in its rate instructions for the applicable contract period. OPM will 
evaluate the data to ensure that the rate is reasonable and consistent 
with the requirements in this chapter. If necessary, OPM may require 
the carrier to provide additional documentation.
    (B) Contracts will be subject to a subsidization penalty if OPM 
determines that the FEHB group did not meet the FEHB-specific MLR 
threshold specified in the annual rate instruction to carriers. Such a 
subsidization penalty will be deposited into a Subsidization Penalty 
Account held at the U.S. Treasury. This Subsidization Penalty Account 
will be held in common with all community rated carriers and will be 
annually distributed to the contingency reserve accounts of all non-TCR 
community rated plans on a pro-rata basis.
    (C) FEHB Program community-rated carriers will comply with the MLR 
criteria, including the FEHB-specific MLR threshold provided by OPM in 
the rate instructions for the applicable contract period. FEHB plans 
that are required by state law to use TCR are exempt from this 
requirement and will use the SSSG methodology outlined in paragraph 
(c)(3)(i) of this section.

0
9. Revise Sec.  1615.406-2 to read as follows:


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

    The contracting officer will require a carrier with a contract 
meeting the requirements in 1615.402(c)(2) or 1615.402(c)(3) to execute 
the Certificate of Accurate Cost or Pricing Data contained in this 
section. A carrier with a contract meeting the requirements in 
1615.402(c)(2) will complete the Certificate and keep it on file at the

[[Page 38286]]

carrier's place of business in accordance with 1652.204-70. A carrier 
with a contract meeting the requirements in 1615.402(c)(3) will submit 
the Certificate to OPM along with its rate reconciliation, which is 
submitted during the first quarter of the applicable contract year.


(Beginning of certificate)

Certificate of Accurate Cost or Pricing Data for Community-Rated 
Carriers

    This is to certify that, to the best of my knowledge and belief: 
(1)(a) The cost or pricing data submitted (or, if not submitted, 
maintained and identified by the carrier as supporting documentation) 
to the Contracting officer or the Contracting officer's representative 
or designee, in support of the ----*FEHB Program rates were developed 
in accordance with the requirements of 48 CFR Chapter 16 and the FEHB 
Program contract and are accurate, complete, and current as of the date 
this certificate is executed; and (b) the methodology used to determine 
the FEHB Program rates is consistent with the methodology used to 
determine the rates for the carrier's Similarly Sized Subscriber Groups 
if complying with Sec.  1602.170-13.


or

    (c) the determination of the carrier's FEHB-specific medical loss 
ratio for ** is accurate, complete, and consistent with the methodology 
as stated in Sec.  1615.402(c)(3)(ii) if complying with Sec.  1602.170-
14.
    * Insert the year for which the rates apply. Normally, this will be 
the year for which the rates are being reconciled.
    ** Insert the year for which the MLR calculation applies. Normally, 
this will be the year before the year being reconciled.
Firm:------------------------------------------------------------------

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

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

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

(End of certificate)

SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS

PART 1632--CONTRACT FINANCING

0
10. The authority citation for part 1632 continues to read as follows:

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


0
11. Add Sec.  1632.170(a)(3) to read as follows:


Sec.  1632.170  Recurring premium payments to carriers.

    (a) * * *
    (3) Any subsidization penalty levied against a community rated plan 
as outlined in 48 CFR 1615.402(c)(3)(ii)(B) must be paid within 60 days 
from notification. If payment is not received within the 60 day period, 
OPM will withhold from the community rated carriers the periodic 
premium payment payable until fully recovered. OPM will deposit the 
withheld funds in the subsidization penalty reserve described in 5 CFR 
890.503(c)(6).
* * * * *

SUBCHAPTER H--CLAUSES AND FORMS

PART 1652--CONTRACT CLAUSES

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

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

0
13. Revise 1652.216-70(b)(2) through (b)(5) as follows:


Sec.  1652.216-70  Accounting and price adjustment.

* * * * *
    (b) * * *
    (2) The subscription rates agreed to in this contract shall be 
based on paragraphs (b)(2)(i) or (ii) of this clause. Effective January 
1, 2013 all community rated plans must base their rating methodology on 
the medical loss ratio (MLR) threshold described in paragraph (b)(2)(i) 
of this clause unless traditional community rating is mandated in the 
state where they are domiciled:
    (i) The subscription rates agreed to in this contract shall meet 
the FEHB-specific MLR threshold as defined in FEHBAR 1602.170-14. The 
ratio of a plan's incurred claims, including the issuer's expenditures 
for activities that improve health care quality, to total premium 
revenue shall not be lower than the FEHB-specific MLR threshold 
published annually by OPM in its rate instructions.
    (ii) The subscription rates agreed to in this contract shall be 
equivalent to the subscription rates given to the carrier's similarly 
sized subscriber groups (SSSGs) as defined in FEHBAR 1602.170-13. The 
subscription rates shall be determined according to the carrier's 
established policy, which must be applied consistently to the FEHBP and 
to the carrier's SSSGs. If an SSSG receives a rate lower than that 
determined according to the carrier's established policy, it is 
considered a discount. The FEHBP must receive a discount equal to or 
greater than the carrier's largest SSSG discount.
    (3) If the rates are determined by SSSG comparison, then:
    (i) If, at the time of the rate reconciliation, the subscription 
rates are found to be lower than the equivalent rates for the lower of 
the two SSSGs, the carrier may include an adjustment to the Federal 
group's rates for the next contract period, except as noted in 
paragraph (b)(3)(iii) of this clause.
    (ii) If, at the time of the rate reconciliation, the subscription 
rates are found to be higher than the equivalent rates for the lower of 
the two SSSGs, the carrier shall reimburse the Fund, for example, by 
reducing the FEHB rates for the next contract term to reflect the 
difference between the estimated rates and the rates which are derived 
using the methodology of the lower rated SSSG, except as noted in 
paragraph (b)(3)(iii) of this clause.
    (iii) Carriers may provide additional guaranteed discounts to the 
FEHBP that are not given to SSSGs. Any such guaranteed discounts must 
be clearly identified as guaranteed discounts. After the beginning of 
the contract year for which the rates are set, these guaranteed FEHBP 
discounts may not be adjusted.
    (4) If rates are determined by comparison with the FEHB-specific 
MLR threshold, then if the MLR for the carrier's FEHB plan is found to 
be lower than the published FEHB-specific MLR threshold, the carrier 
must pay a subsidization penalty into a subsidization penalty account.
    (5) The following apply to community rated plans, regardless of the 
rating methodology:
    (i) No upward adjustment in the rate established for this contract 
will be allowed or considered by the Government or will be made by the 
Carrier in this or in any other contract period on the basis of actual 
costs incurred, actual benefits provided, or actual size or composition 
of the FEHBP group during this contract period.
    (ii) For contract years beginning on or after January 1, 2009, in 
the event this contract is not renewed, the final rate reconciliation 
will be performed. The carrier must promptly pay any amount owed to 
OPM. Any amount recoverable by the carrier is limited to the amount in 
the contingency reserve for the terminating plan as of December 31 of 
the terminating year.
    (iii) Carriers may not impose surcharges (loadings not defined 
based on an established rating method) on the FEHBP subscription rates 
or use surcharges in the rate reconciliation process in any 
circumstance.
* * * * *
[FR Doc. 2011-16276 Filed 6-28-11; 8:45 am]
BILLING CODE 6325-64-P