COST ACCOUNTING STANDARDS - WAIVER

This determination is based on the following:

• OPM has had statutory oversight and regulatory requirements in place for 40 years.
• OPM has cost accounting requirements in its Federal Employees Health Benefits Acquisition Regulations, which supplement the Federal Acquisition Regulation.
• FEHB carriers are required to file annual accounting statements signed by a certified public accountant and certified by the carrier's Chief Executive Officer and Chief Financial Officer, as well as a responsible corporate official of the underwriter.
• OPM's contracting health carriers and their third party servicing agents must adhere to financial and related standards, comply with an FEHB Program audit guide, and submit to audits by Independent Public Accountants.
• OPM has contracted with the carriers from between twenty to forty years and holds extensive data on each carver. Their existing systems are and have been their benchmarks. Disclosure statements would be superfluous and not cost effective.
• The OPM Office of the Inspector General audits health carvers on a regular basis. Carriers' contract rates are negotiated annually and are subject to adjustment for audit findings.
• FEHB carriers keep only a minimal amount of FEHB funds on hand - the equivalent of two days' float - because of a Letter of Credit arrangement OPM has with them. Health insurance carriers are subject to State regulatory authorities and must meet State statutory reserve requirements in order to conduct business.
• Many FEHB carvers are required to submit to State rate setting procedures.
• The health carriers' insurance industry operations and cost accounting practices are inconsistent with CAS requirements. The application of CAS to these carriers would represent an unacceptable administrative burden on some carvers.
• Program costs would increase if health carriers determine they would need to develop discrete new accounting systems for their Federal group contracts.
• Some carvers would terminate their Federal contracts, which could significantly reduce the choice of health plans in our model competitive Program.
• The potential risk to the FEHB Program of waiving CAS requirements is nonexistent due to Program controls already in place.

  This FEHB Program waiver is effective October 1, 2002 and applies to:

  Full CAS Coverage CS 1039 - Blue Cross and Blue Shield Association CS 1370 - American Postal Workers Union, AFL-CIO CS 1065 - Government Employees Health Association CS 1066 - The Association of Retirees of the Panama Canal Area CS 1062 - American Foreign Service Protective Association CS 1063 - Government Employees Hospital Association; Inc- (GEHA) CS 1146 - National Postal Mail Handlers Union CS 1067 - National Association of Letter Carriers CS 1071 - National League of Postmasters of the U.S. CS 1073 - National Rural Carriers Association CS 1074 - Special Agents Mutual Benefit Association CS 2514 - Blue Cross - HMO CS 1056 - Group Health Incorporated CS 1951 -HMO Blue Texas CS 2087 - HMO Blue Texas CS 1058- Hawaii Medical Service Association CS 1090 - Triple - S, Inc. CS 1659 - Health Maintenance Plan (HMP)

  Modified CAS Coverage CS 1164 - National Alliance of Postal and Federal Employees CS 2276 - U.S. Secret Service Employees Health Association CS 2839 - Altius Health Plans CS 2863 - Avera Health Plans CS 2639 - Blue Shield of California Access+ CS 2838 - HMO Missouri, Inc. dba BIueCHOICE CS 1983 - Coventry Health Care of Iowa, Inc. CS 1980 - Health Alliance Medical Plans; Inc. CS 1767 - KPS Health Plans CS 2834 - Mercy Health Plans/Premier Health Plans CS 2842 - OPTIMA Health Plan CS 1662 - Rocky Mountain HMO

  /s/ Kay Coles James, Director         Sept. 22, 2002