OPM Amends FEHBP Regulations

by Cathy Kunz

On June 1, 2005, OPM published two final regulations amending the Federal Employees Health Benefits Act Regulations (FEHBAR). Both sets of regulations are effective as of July 1, 2005.

The first set of regulations, at 70 Fed. Reg. 31374, establishes requirements for FEHB experience-rated carriers' Large Provider Agreements, modifies the dollar threshold for review of carriers' subcontract agreements, revises the definitions of Cost or Pricing Data and Experience-rate to reflect mental health parity requirements, updates the contract records retention requirement, and makes certain conforming changes in accordance with FAR updates. The principal purpose of these regulations is to give OPM additional oversight capabilities of carriers' contract costs that are charged to the government.

• The new regulation concerning Large Provider Agreements provides a definition of Large Provider Agreement (FEHBAR 1602.170-15), and requires experience-rated carriers to (1) provide notice to the Contracting Officer of an intent to enter into or to make a significant modification to a Large Provider Agreement and (2) insert in all Large Provider Agreements the requirement that the provider will retain and make available to the government all records relating to the agreement for six years after the agreement term ends (FEHBAR 1604.7201). The Large Provider Agreement requirements will apply only to those Agreements and modifications that take effect on or after 90 days following the effective date (July 1, 2005) of this regulation.

• The FEHBAR subcontracting consent clause is conformed with the relevant FAR provision, thereby increasing the threshold for experience-rated carriers to obtain advance approval of subcontracts or subcontract modifications if the amount to be charged to the FEHB Program equals or exceeds $550,000 and is at least 25% of the total subcontract costs (FEHBAR 1644.170). The threshold for both experience-rated and community-rated carriers for submitting notices of significant events is increased to this same level (FEHBAR 1652.222-70).

• Contractor records retention requirements are updated for both experience-rated and community-rated carriers to require carriers to retain and make available all applicable records for a period of six years after the end of the contract term to which the records relate. This requirement will be effective prospectively as of the 2004 contract year (FEHBAR 1652.204-70).

The second set of regulations published on June 1, 2005, at 70 Fed. Reg. 31389, provides additional contract cost principles and procedures for experience-rated contracts to allow carriers to use more current contract cost accounting principles and practices and to provide for consistent interpretation of OPM's requirements across the FEHB Program.

• A new section is added that describes techniques for accumulating and allocating groupings of indirect costs (FEHBAR 1631.203-70). This section provides guidance for determining logical cost groupings as required by FAR 31.203(c) and provides methods for achieving the FAR 31.201-4 requirement that costs are to be allocated on the basis of relative benefits received or other equitable relationship.

• With the purpose of supplementing FAR 31.203, more guidance is provided on the allocation of business unit general and administrative (G&A) expenses (FEHBAR 1631.203-71) and home office expenses to carriers' business segments (FEHBAR 1631.203-72).

• A new provision is added to specifically recognize that monthly indirect cost rates are a practice of the insurance industry and are permitted by FAR 31.203 (FEHBAR 1631.203).

• The regulation also adds subrogation settlements, prescription drug rebates, and volume discounts to the list of FEHB credits (FEHBAR 1631.201-70); makes facilities cost of money allowable under certain circumstances (FEHBAR 1631.205-10); requires compensated personal absence to be assigned to the cost accounting period in which the entitlement was earned (FEHBAR 1631.205-72); and clarifies that the Cost Accounting Standards (CAS) requirements do not apply to experience-rated FEHB contracts (FEHBAR 1699.70).