Participation Agreement

PLAN PARTICIPATION AGREEMENT

(Blue Cross and Blue Shield - Federal Employee Program)

Blue Cross and Blue Shield of Missouri

This Plan Participation Agreement is made and entered into between the Blue Cross and Blue Shield Association, an Illinois not-for-profit corporation ("Association"), and Blue Cross and Blue Shield of Missouri, a Missouri health services corporation ("Plan").

WHEREAS, the Plan has executed an agreement (identified as "Exhibit A") authorizing the Association to obligate the Plan to underwrite and administer benefits under Title 5, Chapter 89, United States Code (hereinafter referred to as the "Federal Employee Program" or "FEP"); and

WHEREAS, the Association has entered into Contract No. C.S. 1039 with the United States Office of Personnel Management (hereinafter referred to as "OPM"), for the provision of health care benefits under FEP (hereinafter referred to as the "Contract"), on behalf of the undersigned Plan and other Blue Cross and Blue Shield organizations (hereinafter referred to as "Participating Plans"); and

WHEREAS, it is desirable to set forth more fully the obligations and authorities of the Plan and the Association with respect to FEP,

NOW, THEREFORE, in consideration of the mutual obligations of the parties to this Agreement as hereinafter set forth, and in consideration of the execution of identical Agreements (excluding schedules specifying the areas to be serviced and underwritten by the Participating Plans) by other Participating Plans, it is agreed that:

1. Functions of the Association

The Association shall:

1.1. On behalf of the Plan, contract with the Office of Personnel Management to underwrite and administer health care benefits for FEP subscribers in consideration of subscription charges which are intended to maintain the sound financial condition of FEP.

1.2. Establish policies, practices, and procedures for the administration of FEP.

1.3. Interpret the provisions of the Contract.

1.4. Provide the Plan (at reasonable intervals and no less than annually) with financial reports reflecting the financial condition of FEP.

1.5. Make determinations with respect to (i) the Plan's FEP budget, (ii) resolution of issues arising from audits of the Plan with respect to FEP, (iii) the Plan's charges to the Contract, (iv) appeals from FEP benefits determinations by the Plan, and (v) lawsuits involving the Plan arising under the Contract.

1.6. Promptly provide to the Plan information needed to permit it to perform its functions under FEP and assist it in every reasonable way to administer its assigned functions.

1.7. Maintain the confidentiality of all information concerning the Plan which comes to the attention of the Association in the course of FEP reviews and audits of the Plan except as disclosure is required by law or is necessary for the administration of the Contract, and notify the Plan upon the Association's receipt of a request for Plan records under the Freedom of Information Act or upon receipt of a subpoena for such records. This requirement will be satisfied, in instances in which the Association discloses information to consultants or subcontractors in the administration of the Contract, if the consultant or subcontractor agrees to maintain the confidentiality of the information.

1.8. Perform central administrative services for FEP directly or through an agent, including but no limited to (a) receipt of subscription income, (b) maintenance of central eligibility files, (c) advertising, (d) retention, investment, use and distribution of the Service Charge as specified in this Agreement, (e) execution of contracts on behalf of Participating Plans with vendors that are providing health care services or supplies or other administrative services for the Federal Employee Program on a national basis, including a mail order prescription drug benefit and a national retail prescription drug program, and (f) arranging for the temporary underwriting and servicing of FEP benefits (including marketing and contracting with providers) in an area that is not being serviced or underwritten by a Participation Plan, giving priority to arranging for the provision of such services through one or more Participating Plans.

2. Functions of the Plan

The Plan shall:

2.1. Underwrite and administer FEP benefits, in accordance with the terms of the Contract and in the manner set forth herein, as assigned pursuant to Schedule A.

2.2. Comply with the policies, practices, and procedures adopted by the Association for the administration and provision of benefits under FEP, including timely submission of the certification with respect to the Plan's data reflected in the Annual Accounting Statement to be submitted to OPM.

2.3. Comply with the Association's interpretations of the Contract.

2.4. Comply with the Association's determinations with respect to (i) questions involving the Plan's FEP budget, (ii) issues arising from audits of the Plan with respect to FEP, (iii) the Plan's charges to the Contract, (iv) appeals from FEP benefits determinations, and (v) lawsuits involving the Plan arising under the Contract.

2.5. Comply with the terms, provisions and conditions of the Contract, the Federal Employees Health Benefits Act [5 U.S.C. Ch. 89] and regulations issued thereunder, the Federal Acquisition Regulation [48 C.F.R.], and the Federal Employees Health Benefits Acquisition Regulation [48 C.F.R. Ch. 16].

2.6. Conform to all reasonable requests of the Association in connection with the administration of FEP, including providing OPM and the Association access to all of the Plan's records and other information relating to FEP.

2.7. Notify the Association of any occurrence or anticipated occurrence that might reasonably be expected to materially affect the Plan's ability to meet its obligations under the Contract.

2.8. Hold harmless and indemnify the officers, board of directors, Board of Managers of FEP, employees, and agents of the Association for all judgments, awards, liabilities, settlements, or other costs, including court costs, and taxes, interest and penalties, which are not the direct consequence of their gross negligence or criminal misconduct, incurred by the aforementioned individuals in the performance of the obligations or duties of the Association, pursuant to this Agreement.

3. Finances

3.1. Claims Expense

The Plan shall be reimbursed currently (to the extent funds are available) for the cost of health care benefits chargeable to the Contract, net of any refunds, rebates, allowances or other credits (such as provider discounts and rebates, hospital year-end settlements, and other credits specified by regulation as reducing the cost of the Contract).

3.2. Administrative Expense

3.2.1. The Association's Administrative Expense.

3.2.1.1. The Association (including administrative agencies selected by the Association to perform functions under FEP, such as the Operations Center) shall be reimbursed currently for chargeable FEP administrative expenses estimated to be incurred by it for the contract year.

3.2.1.2. The actual administrative expenses incurred by the Association for the contract year, which are chargeable under FEP, shall be determined following the close of the contract year.

3.2.1.3. The amounts determined under 3.2.1.2. shall be compared to the amounts paid under 3.2.1.1., and the Association or FEP shall be credited with the balance as appropriate.

3.2.1.4. The Association shall be reimbursed for non-chargeable FEP expenses, from the Service Charge, to the extent authorized by the Board of Managers of FEP.

3.2.2. The Plan's Administrative Expense.

3.2.2.1. The Plan shall be reimbursed currently for its estimated administrative costs chargeable to the Contract for the contract year, as determined by the Association, taking into account the Plan's FEP budget and any limitations on amounts payable under the Contract.

3.2.2.2. The administrative costs of the Plan for the contract year will be those costs approved by the Association pursuant to the budget process and chargeable under the terms of the Contract, provided, however, that those administrative costs shall not exceed an amount which the Association determines would, together with payments subject to the administrative expense limitation under the Contract, cause the administrative expenses subject to limitation under the Contract to exceed that limitation.

3.2.2.3. The amounts reimbursed to the Plan under 3.2.2.1. shall be compared to the administrative costs determined under 3.2.2.2., and the Plan or FEP shall be credited with the balance, as appropriate.

3.3. Mandatory, Statutory Reserve Payments

The mandatory, statutory reserve payments incurred by the Plan for the contract year with respect to FEP claims allocated to the Plan pursuant to Section 5.2 hereof, which are in excess of the Plan's share of the Service Charge for the contract year and are chargeable under the terms of the Contract, shall be determined by the Association and paid to the Plan. 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 Plan, a pro rata share based upon FEP's contribution to the Plan's total statutory reserves shall be returned to FEP in accordance with 48 C.F.R. section 31.201-5.

3.4. [Reserved]

3.5. Service Charge

3.5.1. The Service Charge shall be allocated to Plans in the following manner:

3.5.1.1. One-half of the Service Charge remaining after an appropriation made pursuant to 3.5.2 will be allocated among the Participating Plans in the ratio of each Plan's contract months for the current contract year to the total FEP contract months for the contract year, as determined by the Association.

3.5.1.2. One-half of the Service Charge remaining after an appropriation made pursuant to 3.5.2 will be allocated among the Participating Plans based on each Participating Plan's relative performance for that contract year, determined on the basis of performance measurement criteria approved by the Board of Managers and applied by the Association.

3.5.2. In its discretion, the Association may appropriate up to 50 percent of the Service Charge for purposes which it determines are in the best interest of FEP. The Director of FEP may exercise that authority with respect to amounts not in excess of $50,000 which in the aggregate do not exceed 1% of the Service Charge for the contract year, but appropriations in excess of those limits must be approved by the Board of Managers. The amounts appropriated by the Association will be subtracted from the Service Charge that is to be distributed to the Participating Plans.

3.5.3. In general, the Plan's share of the unappropriated Service Charge shall be paid to the Plan at a time when the Association determines to distribute the unappropriated Service Charge for that year to all Plans. Any amount of appropriated Service Charge and interest not expended on the FEP shall be paid to the Plans, at a time determined by the Association, in accordance with section 3.5.1. In its discretion, the Association may withhold payment of the Plan's share of the Service Charge if the Plan has not supplied the certification referred to in section 2.2.

3.6. Accounting

3.6.1. The income and expenses of FEP shall be determined for the contract year as follows:

3.6.2. The income shall include subscription income (including payments from the Contingency Reserve for each contract year) and investment income.

3.6.3. The expenses for each contract year shall include incurred claims, chargeable administrative expenses, the Service Charge, and mandatory, statutory reserve payments. Adjustments in the expenses which are made after the submission of the Annual Accounting Statement to OPM for a contract year shall be reflected in the expenses for the year in which the adjustment becomes final.

3.6.4. The net gain or loss for a contract year shall be the difference between the amounts specified in 3.6.2. and 3.6.3.

3.6.5. The gain or loss specified in 3.6.4. for a contract year shall be added to or subtracted from the Special Reserve balance as of the beginning of that contract year and the result shall be the Special Reserve balance at the end of that contract year.

3.6.6. Solely for the purpose of determining the Plan's share of a negative balance in the Special Reserve under this Section 3.6.6, the balance in the Contingency Reserve in the U.S. Treasury Department for the Government-wide Service Benefit Plan as of the end of the contract year shall be allocated to the Special Reserve, and the Special Reserve shall be reduced by a reasonable estimate of the administrative costs of paying incurred claims which are unpaid as of the end of the contract year. If the Special Reserve is negative after the Contingency Reserve balance is allocated, the Plan's liability at the end of the contract year shall be determined in the following manner:

3.6.6.1. A portion of the negative balance shall be allocated to the Plan in an amount which bears the same ratio to the total negative balance that the claims expense allocated to the Plan pursuant to Section 5.2. hereof for the current contract year and the four preceding contract years bears to the total claims expenses of all Plans for the current contract year and the four preceding contract years.

3.6.6.2. In the event a Plan ceases to be a Participating Plan at a time when the Special Reserve balance is negative, the Plan's liability in subsequent contract years shall be determined as follows:

3.6.6.2.1 If a negative balance in the Special Reserve at the end of a subsequent contract year equals or exceeds the negative balance at the end of the contract year in which the Plan ceased to be a Participating Plan, the Plan's share of the liability shall be the amount of its liability determined for the contract year in which the Plan ceased to share responsibility unless that liability is reduced by reason of Section 3.6.6.2.2. or 3.6.6.2.3.

3.6.6.2.2 If a negative balance in the Special Reserve at the end of a subsequent contract year is less than the negative balance at the end of the contract year in which the Plan ceased to be a Participating Plan, the Plan's liability shall be an amount which bears the same ratio to the negative balance in that subsequent year that the portion of the negative balance allocated to the Plan under Section 3.6.6.1. did bear to the negative balance at the end of the contract year in which the Plan ceased to be a Participating Plan. If a Plan's liability decreases by reason of this Section 3.6.6.2.2., it shall not thereafter increase except by reason of an allocation of liability under Section 3.6.6.1. in the event the Participating Plan resumes participation.

3.6.6.2.3 If the balance in the Special Reserve is positive at the end of a contract year following the year in which a Plan ceases to be a Participating Plan, the Plan shall have no further liability with respect to FEP unless it resumes its status as a Participating Plan.

3.6.6.3. In the event a Participating Plan is discharged by a court of competent jurisdiction from its obligation to pay all or part of its share of the liability reflected by a negative Special Reserve, that amount shall be reallocated to the remaining Plans in proportion to their liabilities under the Plan Participation Agreement.

3.7. Special Reserve

3.7.1. A positive balance in the FEP Special Reserve shall be available to offset subsequent losses and to increase benefits.

3.7.2. A deficit in the Special Reserve shall be recovered from the FEP Special Reserve in future years to the extent funds are available.

3.7.3. Upon termination of the Contract and satisfaction of all Contract liabilities, a positive balance in the FEP Special Reserve shall be paid to the Office of Personnel Management for credit to the Federal Employees Health Benefits Fund.

3.7.4. Upon termination of the Contract and failure to satisfy all Contract liabilities after exhaustion of all FEP reserves, the deficit shall be allocated in accordance with the provisions of section 3.6.6.

3.8. FEP liabilities of an insolvent Participating Plan.

3.8.1. In the event a Participating Plan is discharged by a court of competent jurisdiction from its obligation to pay all or part of a FEP liability and the liability is not chargeable to the FEP contract, that amount shall be reallocated to the remaining Plans in proportion to their liabilities under the Plan Participation Agreement at the time the court order becomes final.

3.8.2. The FEP liability reallocated to the remaining Plans, pursuant to section 3.8.1, shall be paid promptly to the Special Reserve by those Plans.

3.8.3. Notwithstanding the above, payment of a reallocated portion of the remaining liability pursuant to section 3.8.2 shall not be construed as an admission by the Plan of liability for another Participating Plan's non-FEP liability, but is paid only in recognition of the unique nature of the Federal Employee Program and the contractual obligations agreed to hereunder.

4. Taxes Not Chargeable to the Contract

The Plan shall be liable for its proportionate share of any taxes, interest and penalties imposed on the Federal Employee Program which amounts are not chargeable to the Contract. The Plan shall share in any such liability in the same proportion that the claims expense allocated to the Plan pursuant to Section 5.2 bears to the total claims expense allocated to all Plans for the year with respect to which the liability is incurred.

5. Areas of Responsibility for Claims Payments and Participation

5.1. The undersigned Plan shall underwrite FEP benefits as specified in Schedule A to this Agreement.

Schedule A may be revised by the parties from time to time, without reexecution of this Agreement.

5.2. For the purpose of determining the undersigned Plan's share, if any, of any negative balance in the Special Reserve or of any unsatisfied liabilities, determined in accordance with 3.6 hereof, the total FEP claims allocated to the Plan for a contract year shall be the total benefits underwritten by the Plan as provided in Schedule A.

5.3. The Association, acting pursuant to a performance evaluation program adopted by the Board of Managers and applicable to all Plans participating in FEP, is authorized to reassign all or part of one or both of the following functions from the Plan to another Plan: (a) claims processing or, (b) subscriber servicing. Any reassigned function will be administered in keeping with service area limitations on the use of the Blue Cross and Blue Shield marks.

6. Delegation of Authority

6.1. The Association

The Association may delegate its functions under this Agreement, and references herein to the Association shall be applicable to said delegate or delegates, but said delegation shall not release the Association of its obligations under this Agreement.

6.2. The Plan

6.2.1. Only Blue Cross and Blue Shield Plans or their wholly-owned affiliates are authorized to perform the functions set forth in this Agreement. However, no such Plan or affiliate may perform such functions without the express written authority of the Association acting on behalf of all Participating Plans. Execution of this Agreement by the Association constitutes such authority with respect to the undersigned Plan or affiliate.

6.2.2. The rights and duties of the Plan set forth in this Agreement may not be delegated, assigned or transferred by the Plan in any manner whatsoever without the express written approval of the Association acting on behalf of all Participating Plans.

7. Definitions

Terms used in this Agreement shall have the same meaning that they have in the Contract. The term "Board of Managers" refers to the Standing Committee of the Board of Directors of the Association which has been assigned the responsibility delegated to the Association by this Agreement, or the successor to said Committee, and the term "Service Charge", as used hereafter in this Agreement, refers to the sum of other Service Charge and the interest income earned on the Service Charge.

8. Integration

This Agreement, together with its Schedule A and Exhibit A to the Contract with OPM, constitutes the entire agreement between the parties with respect to the underwriting and administration of benefits under the FEP. This Agreement is subject to the terms of a validly executed and effective License Agreement(s) pertaining to the Plan's right to use the Blue Cross or Blue Shield licensed mark(s) and name(s) (hereafter, "License Agreement(s)") and shall be construed in accordance with such terms.

9. Amendment of Agreement

9.1. This Agreement may be amended by the mutual agreement of the parties.

9.2. The Agreement may be amended by the following process:

9.2.1. The Association or the Plan, with the approval of the Board of Managers, may propose an amendment for adoption by all Participating Plans.

9.2.2. The Association shall notify all Participating Plans, by first class mail, when it has received executed amendments from three-fourths of the Participating Plans.

9.2.3. If the Association fails to obtain such executed amendments within three months from the date of the proposal, the Association shall notify all Participating Plans, by first class mail, that the proposal has been recalled.

9.2.4. Upon receipt of executed amendments from three-fourths of the Participating Plans before a recall specified in Section 9.2.3, the amendment will become effective with respect to the Plan, if it did not execute the amendment, unless the Plan notifies the Association in writing, within 30 days of receipt of the mailing of the notice referenced in Section 9.2.2, that it elects to not be bound by the amendment.

9.2.5. The effective date of the amendment with respect to the Plan, if it has executed the amendment or has not given timely notice of its election to not be bound by the amendment as required by Section 9.2.4, will be the first day of the second month following the mailing of the notice referred to in Section 9.2.2.

9.2.6. This Agreement will terminate with respect to the Plan pursuant to Section 10.3 of this Agreement if the Plan elects not to be bound by an amendment adopted pursuant this Section 9.2.

10. Termination of Agreement

10.1. This Agreement may be terminated without cause by either party to this Agreement by giving notice to the other party at least 120 days prior to the last day of the then current contract term of the FEP Contract between the Association and the Office of Personnel Management. Termination pursuant to this Section 10.1 will not affect the rights or obligations of either party that have accrued under this Agreement or the Contract, including the provisions of the Contract relating to terminated costs.

10.2. The Association may terminate this Agreement if the Plan's license(s) to use the Blue Cross or Blue Shield licensed mark(s) and name(s) is terminated with full legal force and effect. In the event the Agreement is terminated pursuant to this paragraph, the Association will issue a Notice of Termination to the Plan specifying the termination date which shall be no earlier than the effective date of the termination of the Plan's License Agreement(s).

10.3. If the Plan elects, pursuant to Section 9.2.4, to not be bound by an amendment made pursuant to Section 9.2, this Agreement will terminate. In the event this Agreement is terminated pursuant to this Section 10.3, the Association will issue a Notice of Termination to the Plan specifying the termination date which shall be no earlier than the last day prior to the effective date of the amendment as specified in Section 9.2.5.

10.4. The parties understand that it may be necessary for the Plan to continue to perform obligations undertaken under the this Agreement and the Contract with OPM following the effective date of termination of this Agreement. In those circumstances -

10.4.1. The Plan will implement procedures, as directed by the Association, to close down its operations pursuant to this Agreement. During the period of closing down operations, the provisions of this Agreement will continue to apply.

10.4.2. During the period of performance subsequent to the effective date of termination, the Plan will continue to perform the functions specified in this Agreement except as directed by the Association. The Association will fund the continuing operations of the Plan in accordance with the terms of this Agreement.

10.4.3. The Plan will cooperate fully with the Association in the transfer of its functions under this Agreement to another organization specified by the Association.

10.5. Termination of this Agreement automatically will terminate the power of attorney given to the Association by the Plan, and referred to as Exhibit A to the Contract with OPM, as of the effective date of the termination of this Agreement.

11. Appeals

The Plan may appeal to the Board of Managers if it disagrees with the Association's decision with respect to a matter that the Association is authorized to decide under the terms of the Agreement, and it may appeal to the Board of Directors if it disagrees with the Board of Managers' decision on appeal. This provision does not affect the rights of the parties, under the License Agreement(s), with respect to disputes resolution.

12. Partnership Not Intended

Nothing in this Agreement is intended, or shall be deemed, to constitute a partnership or joint venture between the parties or among the Plan and other Participating Plans.

13. Law Governing and Severability

This Agreement shall be governed by the laws of the state of Illinois, both as to interpretation and performance. If any provision of this Agreement is held invalid or unenforceable, the invalidity or unenforceability shall not affect any other provisions of this Agreement, and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular provision held to be invalid.

14. Notices

Notices made pursuant to this Agreement shall be sent by first class mail, postage prepaid, to the address of the party specified below on the signature page of this Agreement, unless written notice of a change of address has been provided.

15. Force Majeure

Neither party shall be liable for damages due to delay or failure to perform any obligation under this Agreement if such delay or failure results directly or indirectly from circumstances beyond the control of such party. Such circumstances shall include, but shall not be limited to, acts of God, acts of war, civil commotions, riots, strikes, lockouts, acts of the government in either its sovereign or contractual capacity, perturbation in telecommunications transmissions, inability to obtain suitable equipment or components, accident, fire, water damage, flood, earthquake, or other natural catastrophe.

This Agreement may be executed in counterparts and shall be effective as of the January 1, 1995.