10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

COMMISSION FILE NUMBER 001-33865

Triple-S Management Corporation

Puerto Rico
(STATE OF INCORPORATION) 66-0555678
(I.R.S. ID)

1441 F.D. Roosevelt Avenue, San Juan, PR 00920
(787) 749-4949

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Class B common stock, $1.00 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Class A common stock, $1.00 par value

Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o YES þ NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o YES þ NO

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ YES o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ 
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o YES þ NO

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming solely for the purposes of this calculation that all Directors and executive officers of the registrant are “affiliates”) as of June 30, 2008 was approximately $263,095,550 for the Class B common stock (the only one that trade in the public market) and $15,928,809 for the Class A common stock (value at par value of $1.00 since it is not a publicly traded stock).

As of February 28, 2009, the registrant had 9,042,809 of its Class A common stock outstanding and 21,069,773 of is Class B common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held April 26, 2009 are incorporated by reference into Parts II and III of this Annual Report on Form 10-K.

Triple-S Management Corporation

FORM 10-K

For The Fiscal Year Ended December 31, 2008

INDEX

Part I		3
Item 1.	Business	3
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	49
Item 2.	Properties	49
Item 3.	Legal Proceedings	50
Item 4.	Submission of Matters to a Vote of Security Holders	52
Part II		52
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	52
Item 6.	Selected Financial Data	55
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	83
Item 8.	Financial Statements and Supplementary Data	87
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.	87
Item 9A.	Controls and Procedures	88
Item 9B.	Other Information	89
Part III		89
Item 10.	Directors, Executive Officers and Corporate Governance	89
Item 11.	Executive Compensation.	90
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	90
Item 13.	Certain Relationships and Related Transactions, and Director Independence	90
Item 14.	Principal Accounting Fees and Services	90
Part IV
Item 15.	Exhibits, Financial Statement Schedules	90
	SIGNATURES	94
EX-10.8
EX-10.17
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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Part I

Item 1. Business.

General Description of Business and Recent Developments

Triple-S Management Corporation (“Triple-S”, “TSM”, the “Company”, the “Corporation”, “we”, “us” or “our”) is the largest managed care company in Puerto Rico, serving approximately one million members across all regions, and holds a leading market position covering approximately 30% of the population. We have the exclusive right to use the Blue Shield name and mark throughout Puerto Rico and 50 years of experience in the managed care industry. We offer a broad portfolio of managed care and related products in the commercial, Medicare and Puerto Rico Health Reform (similar to Medicaid) (the Reform) markets.

We serve a full range of customer segments, from corporate accounts, federal and local government employees and individuals to Medicare recipients and Reform enrollees, with a wide range of managed care products. We market our managed care products through both an extensive network of independent agents and brokers located throughout Puerto Rico as well as an internal salaried sales force.

We also offer complementary products and services, including life insurance, accident and disability insurance and property and casualty insurance. We are a leading provider of life insurance policies in Puerto Rico.

A substantial amount of the premiums generated by our insurance subsidiaries are from customers within Puerto Rico. In addition, all of our long-lived assets, other than financial instruments, including the deferred policy acquisition costs and value of business acquired and the deferred tax assets, are located within Puerto Rico.

On December 4, 2008, we announced the signing of a non-binding letter of intent to acquire certain managed care assets of La Cruz Azul de Puerto Rico, Inc. In addition, we have requested the Blue Cross Blue Shield Association (BCBSA) to transfer to us and our managed care subsidiary the licensing rights to the Blue Cross brand in Puerto Rico and the Blue Cross Blue Shield brands in the U.S. Virgin Islands. The terms of the proposed acquisition are not yet finalized and are subject to change. The completion of the transaction is subject to a number of customary conditions including final due diligence, approvals from the Insurance Commissioner of Puerto Rico and the BCBSA, and the negotiation of definitive documentation. The Company intends to fund the acquisition with cash and expects to complete the acquisition by the second quarter of 2009.

On December 8, 2008, we announced the conversion of seven million issued and outstanding Class A shares into Class B shares effective immediately, in conjunction with the expiration of the lockup agreements signed by holders of Class A shares at the time of the Company’s initial public offering. We also announced the immediate commencement of our $40 million share repurchase program, which will use available cash and was authorized by the Board of Directors in late October 2008. The share repurchase program will be conducted through open-market purchases and privately-negotiated transactions of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Effective February 16, 2009, Triple-S, Inc. (TSI), a manage care organization and Seguros Triple-S, Inc. (STS) , which is engaged in the underwriting of property and casualty insurance policies, change their name to Triple-S Salud, Inc. and Triple-S Propiedad, Inc., respectively.

In this Annual Report on Form 10-K, references to “shares” or “common stock” refer collectively to our Class A and Class B common stock, unless the context indicates otherwise. All share and per share amounts in this Annual Report on Form 10-K have been restated to reflect the 3,000-for-one common stock split effected by us on May 1, 2007.

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Industry Overview

Managed Care

In response to an increasing focus on health care costs by employers, the government and consumers, there has been a growth in alternatives to traditional indemnity health insurance, such as Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). Through the introduction of these alternatives the managed care industry attempted to contain the cost of health care by negotiating contracts with hospitals, physicians and other providers to deliver health care to plan members at favorable rates. These products usually feature medical management and other quality and cost optimization measures such as pre-admission review and approval for certain non-emergency services, pre-authorization of certain outpatient surgical procedures, network credentialing to determine that network doctors and hospitals have the required certifications and expertise, and various levels of care management programs to help members better understand and navigate the medical system. In addition, providers may have incentives to achieve certain quality measures or may share medical cost risk. Members or their employers generally pay co-payments, coinsurance and deductibles when enrollees receive services. While the distinctions between the various types of plans have lessened over recent years, PPO products generally provide reduced benefits for out-of-network services, while traditional HMO products generally provide little to no reimbursement for non-emergency out-of-network utilization. An HMO plan may also require members to select one of the network primary care physicians to coordinate their care and approve any specialist or other services. The federal government provides hospital and medical insurance benefits to eligible persons aged 65 and over as well as to certain other qualified persons through the Medicare program, including the Medicare Advantage program. The federal government also offers prescription drug benefits to Medicare eligibles, both as part of the Medicare Advantage program and on a stand-alone basis, pursuant to Medicare Part D (also referred to as PDP stand-alone product). In addition, the government of the Commonwealth of Puerto Rico (the government of Puerto Rico) provides managed care coverage to the medically indigent population of Puerto Rico through the Reform program.

Recently, economic factors and greater consumer awareness have resulted in the increasing popularity of products that offer larger; more extensive networks, more member choice related to coverage, physicians and hospitals; greater access to preventive care and wellness programs; and a desire for greater flexibility for customers to assume larger deductibles and co-payments in return for lower premiums. We believe we are well-positioned to respond to these market preferences due to the breadth and flexibility of our product offering and size of our provider networks.

The BCBSA had 39 independent licensees as of December 31, 2008. We are licensed by BCBSA to use the “Blue Shield” name and mark in Puerto Rico. Most of the BCBSA licensees (known as BCBS plans or Member Plans) have the right to use the “Blue Shield” and “Blue Cross” names and marks in their designated geographic territories. We are not licensed to use the “Blue Cross” name and mark in Puerto Rico. La Cruz Azul de Puerto Rico has the right to use the “Blue Cross” mark in Puerto Rico. However, in December 2008, as part of our pending transaction with La Cruz Azul de Puerto Rico, Inc. we have asked the BCBSA to transfer to us and our managed care subsidiary the license for the “Blue Cross” name and mark in Puerto Rico, as well as the rights to use the “Blue Shield” and “Blue Cross” names and marks in the U.S. Virgin Islands. The number of members enrolled in Blue Cross Blue Shield (BCBS) plans has been steadily increasing, from 65.2 million in 1994 to 101.9 million at December 31, 2008, which represents 33.3% of the U.S. population. The BCBS plans work cooperatively in a number of ways that create significant market advantages, especially when competing for very large, multi-state employer groups. For example, all BCBS plans participate in the BlueCard program, which effectively creates a national “Blue” network. Each plan is able to take advantage of other BCBS plans’ broad provider networks and negotiated provider reimbursement rates where a member covered by a policy in one state or territory lives or travels outside of the state or territory in which the policy under which he or she is covered is written. The BlueCard program is a source of revenue for providing member services in Puerto Rico for individuals who are customers of other BCBS plans and at the same time provide us a significant network in the U.S. BlueCard also provides a significant competitive advantage to us because Puerto Ricans frequently travel to the continental United States.

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Life Insurance

Total annual premiums in Puerto Rico in 2007 for the life insurance market approximate $925 million. The main products in the market are ordinary life, cancer and other dreaded diseases, term life, disability and annuities. The main distribution channels are through independent agents. In recent years banks have established general agencies to cross sell many life products, such as term life and credit life.

Property and Casualty Insurance Segment

The total property and casualty market in Puerto Rico in terms of gross premiums written for 2007 was approximately $2.2 billion. Property and casualty insurance companies compete for the same accounts through aggressive pricing, more favorable policy terms and better quality of services. The main lines of business in Puerto Rico are personal and commercial auto, commercial multi peril, fire and allied lines and other general liabilities. Approximately 64% of the market is written by the top six companies in terms of market share, and approximately 82% of the market is written by companies incorporated under the laws of, and which operate principally in, Puerto Rico.

It is estimated that the Puerto Rican property and casualty insurance market has between $80 billion and $90 billion of insured value, while the industry has capital and surplus of approximately $1.5 billion. As a result, the market is highly dependent on reinsurance and some local carriers have diversified their operations outside Puerto Rico.

Puerto Rico’s Economy

The economy of Puerto Rico is closely linked to that of the mainland United States, as most of the external factors that affect the Puerto Rico economy (other than the price of oil) are determined by the policies and results of the United States. These external factors include exports, direct investment, the amount of federal transfer payments, the level of interest rates, the rate of inflation, and tourist expenditures. During the fiscal year ended June 30, 2008, approximately 75% of Puerto Rico’s exports went to the United States mainland, which was also the source of approximately 52% of Puerto Rico’s imports. In the past, the economy of Puerto Rico has generally followed economic trends in the overall United States economy. However, in recent years economic growth in Puerto Rico has lagged behind growth in the United States.

The dominant sectors of the Puerto Rico economy in terms of production and income are manufacturing and services. The manufacturing sector has undergone fundamental changes over the years as a result of increased emphasis on higher wage, high technology industries, such as pharmaceuticals, biotechnology, computers, microprocessors, professional and scientific instruments, and certain high technology machinery and equipment. The services sector, including finance, insurance, real estate, wholesale and retail trade, and tourism, also plays a major role in the economy. It ranks second to manufacturing in contribution to the gross domestic product and leads all sectors in providing employment.

Preliminary figures for fiscal year 2008 show that gross national product increased from $58.6 billion (in current dollars) for fiscal 2007 to $60.8 billion (in current dollars) for fiscal 2008. Real gross national product, however, is projected to decline by 3.4% for fiscal year 2009. Personal income, both aggregate and per capita, has increased consistently each fiscal year from 1985 to 2008. In fiscal year 2008, aggregate personal income was $56.2 billion and personal income per capita was $14.2. Average total employment decreased from 1,263,000 in fiscal 2007 to 1,218,000 for fiscal 2008. The average unemployment rate increased from 10.4% in fiscal 2007 to 11.0% in fiscal 2008.

Future growth in the Puerto Rico economy will depend on several factors including the condition of the United States economy, the relative stability in the price of oil imports, the exchange value of the United States dollar, the level of interest rates and changes to existing tax incentive legislation. The major factors affecting the economy at this point are, among others, the high oil prices, the slowdown of economic activity in the U.S., the continuing economic uncertainty generated by the fiscal crisis affecting the government of Puerto Rico and the effects on economic activity of the implementation of a new sales tax that entered into effect on November 14, 2006. See “Item 1A — Risk Factors—Risks Relating to Our Business—The geographic concentration of our business in Puerto Rico may subject us to economic downturns in the region”.

On March 12, 2009, the Government of Puerto Rico approved various temporary revenue raising measures, including a modification to the alternative minimum tax on corporations to limit deductions for expenses incurred outside Puerto Rico and a 5% surcharge on corporations, including insurance companies. These modifications and additional taxes will apply for tax years beginning after December 31, 2008 and before January 1, 2012.

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Products and Services

Managed Care

We offer a broad range of managed care products, including HMOs, PPOs, Medicare Supplement, Medicare Advantage and Medicare Part D. Managed care products represented 89.2%, 87.7% and 88.6% of our consolidated premiums earned, net for the years ended December 31, 2008, 2007 and 2006. We design our products to meet the needs and objectives of a wide range of customers, including employers, individuals and government entities. Our customers either contract with us to assume underwriting risk or self-funded underwriting risk and rely on us for provider network access, medical cost management, claim processing, stop-loss insurance and other administrative services. Our products vary with respect to the level of benefits provided, the costs paid by employers and members, including deductibles and co-payments, and the extent to which our members’ access to providers is subject to referral or preauthorization requirements.

Managed care generally refers to a method of integrating the financing and delivery of health care within a system that manages the cost, accessibility and quality of care. Managed care products can be further differentiated by the types of provider networks offered, the ability to use providers outside such networks and the scope of the medical management and quality assurance programs. Our members receive medical care from our networks of providers in exchange for premiums paid by the individuals or their employers (or a government entity in case of the Medicare Advantage or Reform plan) and, in some instances, a cost-sharing payment between the employer and the member. We reimburse network providers according to pre-established fee arrangements and other contractual agreements.

We currently offer the following managed care plans:

Health Maintenance Organization (HMO). We offer HMO plans that provide our Reform and Medicare Advantage members with health care coverage for a fixed monthly premium in addition to applicable member co-payments. Health care services can include emergency care, inpatient hospital and physician care, outpatient medical services and supplemental services, such as dental, vision, behavioral and prescription drugs, among others. Members must select a primary care physician within the network to provide and assist in managing care, including referrals to specialists.

Preferred Provider Organization (PPO). We offer PPO managed care plans that provide our commercial and Medicare Advantage members and their dependent family members with health care coverage in exchange for a fixed monthly premium from our member or the member’s employer. In addition, we provide our PPO members with access to a larger network of providers than our HMO. In contrast to our HMO product, we do not require our PPO members to select a primary care physician or to obtain a referral to utilize in-network specialists. We also provide coverage for PPO members who access providers outside of the network. Out-of-network benefits are generally subject to a higher deductible and coinsurance. We also offer national in-network coverage to our PPO members through the BlueCard program.

BlueCard. For our members who purchase our PPO and some of our Medicare Advantage products, we offer the BlueCard program. The BlueCard program offers these members in-network benefits through the networks of the other BCBS plans in the United States and certain U.S. territories. In addition, the BlueCard worldwide program provides our PPO members with coverage for medical assistance worldwide. We believe that the national and international coverage provided through this program allows us to compete effectively with large national insurers.

Medicare Supplement. We offer Medicare Supplement products, which provide supplemental coverage for many of the medical expenses that the Medicare Parts A and B programs does not cover, such as deductibles, coinsurance and specified losses that exceed the Federal program’s maximum benefits.

Prescription Drug Benefit Plans. Every Medicare beneficiary must be given the opportunity to select a prescription drug plan through Medicare Part D, largely funded by the federal government. We are required to offer a Medicare Part D prescription drug plan to our enrollees in every area in which we operate. We offer prescription drug benefits under Medicare Part D in our Medicare Advantage plans as well as on a stand-alone basis. We also offer a Drug Discount Card for local government employees and individuals. As of December 31, 2008, we had enrolled approximately 22,000 members in the Drug

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Discount Card program. We plan to continue extending the program to members in group plans without drug coverage during 2009.

Government Services. We servd as fiscal intermediary for the Medicare Part B program in Puerto Rico and the U.S. Virgin Islands, for which we received reimbursement of all direct costs and allocated overhead expenses, based on an approved budget by the Centers for Medicare and Medicare Services (CMS) of the U.S. Department of Health and Human Services (HHS), until February 28, 2009. On September 12, 2008, CMS announced that First Coast Service Options (FCSO), a non-affiliated third party organization based in Jacksonville, Florida, was awarded the Medicare Administrative Contract (MAC) for Jurisdiction 9 (Florida, Puerto Rico and the U.S. Virgin Islands). FCSO selected TSI as a subcontractor in MAC Jurisdiction 9 to perform certain provider customer service functions, among others, in Puerto Rico, effective March 1, 2009. See “Regulation — Fiscal Intermediary” included in this Item.

Administrative Services Only. In addition to our fully insured plans, we also offer our PPO products on a self-funded or ASO basis, under which we provide claims processing and other administrative services to employers. Employers choosing to purchase our products on an ASO basis fund their own claims but their employees are able to access our provider network at our negotiated discounted rates. We administer the payment of claims to the providers but we do not bear any insurance risk in connection with claims costs because we are reimbursed in full by the employer. For certain self-funded plans, we provide stop loss insurance pursuant to which we assume some of the medical risk for a premium. The administrative fee charged to self-funded groups is generally based on the size of the group and the scope of services provided.

Life Insurance

We offer a wide variety of life, accident and health and annuity products to all markets in Puerto Rico through our subsidiary Triple-S Vida, Inc. (TSV). Among these are group life and individual life insurance products. Life insurance premiums represented 5.5%, 6.0% and 5.7% of our consolidated premiums earned, net for the years ended December 31, 2008, 2007 and 2006. TSV markets in-home service life and supplemental health products through a network of company-employed agents. Ordinary life, cancer and dreaded diseases, credit and pre-need life products are marketed through independent agents. We are the principal company in Puerto Rico that offers guaranteed issue, funeral and cancer policies directly to people in their homes in the lower and middle income market segments. We also market our group life coverage through our managed care subsidiary’s network of exclusive agents.

Property and Casualty Insurance

We offer a wide range of property and casualty insurance products through our subsidiary Seguros Triple-S, Inc. (STS). Property and casualty insurance premiums represented 5.5%, 6.5% and 5.9% of our consolidated premiums earned, net for the years ended December 31, 2008, 2007 and 2006. Our predominant lines of business are commercial multi-peril, commercial property mono-line, auto physical damage, auto liability and dwelling policies. The segment’s commercial lines target small to medium size accounts. We generate a majority of our dwelling business through our strong relationships with financial institutions. During the year ended December 31, 2008, we generated our premiums in the property and casualty insurance segment primarily from the following lines of business:

	Percentage of Total Segment
	Revenues for the Year Ended
Line of Business	December 31, 2008
Commercial multi-peril		45	%
Auto		22
Dwelling and commercial property mono-line		19
Other		14

Due to our geographical location, property and casualty insurance operations in Puerto Rico are subject to natural catastrophic activity, in particular hurricanes and earthquakes. As a result, local insurers, including us, rely on the international reinsurance market. The property and casualty insurance market is affected by the cost of reinsurance, which varies with the catastrophic experience. After 2005, the cost of reinsurance reported increases due to the severe catastrophic losses occurred in that year. Because there were fewer

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severe catastrophic events in 2006 and 2007 reinsurance rates were lower in 2008. It is expected that 2009 will have a slight increase in reinsurance rates due to recent catastrophic events and investment losses reported by reinsurers.

We maintain a comprehensive reinsurance program as a means of protecting our surplus in the event of a catastrophe. Our policy is to enter into reinsurance agreements with reinsurers considered to be financially sound. Over 90% of our reinsurers have an A.M. Best rating of “A-” or better, or an equivalent rating from other rating agencies. During the year ended December 31, 2008, 42.9% of the premiums written in the property and casualty insurance segment were ceded to reinsurers. Although these reinsurance arrangements do not relieve us of our direct obligations to our insureds, we believe that the risk of our reinsurers not paying balances due to us is low.

Marketing and Distribution

Our marketing activities concentrate on promoting our strong brand, quality care, customer service efforts, size and quality of provider networks, flexibility of plan designs, financial strength and breadth of product offerings. We distribute our products through several different channels, including our salaried and commission-based internal sales force, direct mail, independent brokers and agents and telemarketing staff. We also use our website to market our products.

Branding and Marketing

Our branding and marketing efforts include “brand advertising”, which focuses on the Triple-S name and the Blue Shield mark, “acquisition marketing”, which focuses on attracting new customers, and “institutional advertising”, which focuses on our overall corporate image. We believe that the strongest element of our brand identity is the “Triple-S” name. We seek to leverage what we believe to be the high name recognition and comfort level that many existing and potential customers associate with this brand. Acquisition marketing consists of business-to-business marketing efforts which are used to generate leads for brokers and our sales force as well as direct-to-consumer marketing which is used to add new customers to our direct pay businesses. Institutional advertising is used to promote key corporate interests and overall company image. We believe these efforts support and further our competitive brand advantage. We will continue to utilize the Triple-S name and the Blue Shield mark for all managed care products and services in Puerto Rico.

Distribution

Managed Care Segment. We rely principally on our internal sales force and a network of independent brokers and agents to market our products. Individual policies and Medicare Advantage products are sold entirely through independent agents who exclusively sell our individual products, and group products are sold through our 70 person internal sales force as well as our approximately 360 independent brokers and agents. We believe that each of these marketing methods is optimally suited to address the specific needs of the customer base to which it is assigned. In the Reform sector, those notified by the government of Puerto Rico that they are eligible to participate in the Reform may enroll in the program at our branch offices.

Strong competition exists among managed care companies for brokers and agents with demonstrated ability to secure new business and maintain existing accounts. The basis of competition for the services of such brokers and agents are commission structure, support services, reputation and prior relationships, the ability to retain clients and the quality of products. We pay commissions on a monthly basis based on premiums paid. We believe that we have good relationships with our brokers and agents, and that our products, support services and commission structure are highly competitive in the marketplace.

Life Insurance Segment. In our life insurance segment, we offer our insurance products through our own network of brokers and independent agents, as well as group life insurance coverage through our managed care network of agents. We place a majority of our premiums (57% during the years ended December 31, 2008 and 2007) through direct selling to customers in their homes. TSV employs over 525 full-time active agents and managers and utilized approximately 600 independent agents and brokers. We pay commissions on a monthly basis based on premiums paid. In addition, TSV has over 200 agents that are licensed to sell certain of our managed care products.

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Property and Casualty Insurance Segment. In our property and casualty insurance segment, business is exclusively subscribed through 18 general agencies, including our insurance agency, Triple-S Insurance Agency, Inc. (formerly known as Signature Insurance Agency, Inc. (SIA)), where business is placed by independent insurance agents and brokers. SIA placed approximately 45% of our property and casualty insurance subsidiary, STS, total premium volume during the year ended December 31, 2008. During the each of the years ended December 31, 2007 and 2006, SIA placed approximately 52% of our subsidiary’s total premium volume. The general agencies contracted by our property and casualty insurance subsidiary remit premiums net of their respective commission.

Customers

Managed Care

We offer our products in the managed care segment to three distinct market sectors in Puerto Rico. The following table sets forth enrollment information with respect to each sector at December 31, 2008:

	Enrollment at		Percentage of
Market Sector	December 31, 2008		Total Enrollment
Commercial		592,723		49.6	%
Reform		527,447		44.1
Medicare Advantage		75,280		6.3
Total		1,195,450		100.0	%

Commercial Sector

The commercial accounts sector includes corporate accounts, U.S. federal government employees, individual accounts, local government employees, and Medicare Supplement.

Corporate Accounts. Corporate accounts consist of small (2 to 50 employees) and large employers (over 50 employees). Employer groups may choose various funding options ranging from fully insured to self-funded financial arrangements or a combination of both. While self-funded clients participate in our managed care networks, the clients bear the claims risk, except to the extent that such self-funded clients maintain stop loss coverage.

U.S. Federal Government Employees. For more than 40 years, we have maintained our leadership in the provision of managed care to U.S. federal government employees in Puerto Rico. We provide our services to federal employees in Puerto Rico under the Federal Employees Health Benefits Program pursuant to a direct contract with the United States Office of Personnel Management (OPM). We are one of two companies in Puerto Rico that has such a contract with OPM. Every year, OPM allows other insurance companies to compete for this business, provided such companies comply with the applicable requirements for service providers. This contract is subject to termination in the event of noncompliance not corrected to the satisfaction of OPM.

Individual Accounts. We provide managed care services to individuals and their dependent family members who contract these services directly with us though our network of independent brokers. We provide individual and family contracts. We assume the risk of both medical and administrative costs in return for a monthly premium.

Local Government Employees. We provide managed care services to the local government employees of Puerto Rico through a government-sponsored program whereby the health plan assumes the risk of both medical and administrative costs for its members in return for a monthly premium. The government qualifies on an annual basis the managed care companies that participate in this program and sets the coverage, including benefits, co-payments and amount to be contributed by the government. Employees then select from one of the authorized companies and pays for the difference between the premium of the selected carrier and the amount contributed by the government.

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Medicare Supplement. We offer Medicare Supplement products, which provide supplemental coverage for many of the medical expenses that the basic Medicare program does not cover, such as deductibles, coinsurance and specified losses that exceed the Federal program’s maximum benefits.

Reform Sector

In 1994, the government of Puerto Rico privatized the delivery of services to the medically indigent population in Puerto Rico, as defined by the government, by contracting with private managed care companies instead of providing health services directly to such population. The government divided Puerto Rico into geographical areas and by December 31, 2001, the Reform had been fully implemented in each of these areas. Each of the eight geographical areas is awarded to a managed care company doing business in Puerto Rico through a competitive bid process. As of December 31, 2008, the Reform provided healthcare coverage to over 1.5 million people. Mental health and drug abuse benefits are currently offered to Reform beneficiaries by behavioral healthcare companies and are therefore not part of the benefits covered by us.

The Reform program is similar to the Medicaid program, a joint federal and state health insurance program for medically indigent residents of the state. The Medicaid program is structured to provide states the flexibility to establish eligibility requirements, benefits provided, payment rates, and program administration rules, subject to general federal guidelines.

The government of Puerto Rico has adopted several measures to control the increase of Reform expenditures, which represented approximately 5.3% of total government expenditures during its fiscal year ended June 30, 2008, including closer and continuous scrutiny of participants’ (members’) eligibility, decreasing the number of areas in order to take advantage of economies of scale and establishing disease management programs. In addition, the government of Puerto Rico began a pilot project in 2003 within one of the eight geographical areas under which it contracted services on an ASO basis with an Independent Practice Associations (IPA), instead of contracting on a fully insured basis. This project was subsequently extended to the Metro-North region, which was served by us under a fully-insured model until October 31, 2006. This region was awarded to us again on an ASO basis for a one year period beginning November 1, 2008. The two other regions that we currently serve remain with the fully-insured model; however, there can be no assurance that the government will not implement ASO programs in these regions in the future. If a similar ASO plan is adopted in any areas served by us during the contract period, we would not generate premiums in the Reform business but instead we would collect administrative service fees. On the other hand, the government has expressed its intention to evaluate different alternatives of providing health services to Reform beneficiaries.

The government of Puerto Rico has also implemented a plan to allow dual-eligibles enrolled in the Reform to move from the Reform program to a Medicare Advantage plan under which the government, rather than the insured, will assume all of the premiums for additional benefits not included in Medicare Advantage programs, such as the deductibles and co-payments of prescription drug benefits.

We provide managed care services to Reform members in the North and Southwest regions on a fully-insured basis and in the Metro-North region on an ASO basis. We have participated in the Reform program since 1995. The premium rates for each Reform contract are negotiated annually. If the contract renewal process is not completed by a contract’s expiration date, the contract may be extended by the government, upon acceptance by us, for any subsequent period of time if deemed to be in the best interests of the beneficiaries and the government. The terms of a contract, including premiums, can be renegotiated if the term of the contract is extended. Each contract is subject to termination in the event of non-compliance by the insurance company not corrected or cured to the satisfaction of the government entity overseeing the Reform, or in the event that the government determines that there is an insufficiency of funds to finance the Reform. For additional information please see “Item 1A—Risk Factors — We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business”.

Medicare Advantage Sector

Medicare is a federal program administered by CMS that provides a variety of hospital and medical insurance benefits to eligible persons aged 65 and over as well as to certain other qualified persons. Medicare, with the approval of the Medicare Modernization Act, started promoting a managed care

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organizations (MCO) sponsored Medicare product that offers benefits similar or better than the traditional Medicare product, but where the risk is assumed by the MCOs. This program is called Medicare Advantage. We entered into the Medicare Advantage market in 2005 and have contracts with CMS to provide extended Medicare coverage to Medicare beneficiaries under our Medicare Optimo, Medicare Selecto and Medicare Platino policies. Under these annual contracts, CMS pays us a set premium rate based on membership that is adjusted for demographic factors and health status. In addition, for certain of our Medicare Advantage products the member will also pay an additional premium for additional benefits.

Every Medicare beneficiary must be given the opportunity to select a prescription drug plan through Medicare Part D, largely funded by the federal government. We are required to offer a Medicare Part D prescription drug plan to our enrollees in every area in which we operate. We offer prescription drug benefits under Medicare Part D through our Medicare Advantage plans as well as on a stand-alone basis. Our stand-alone prescription drug plan, called FarmaMed, was launched in 2006.

Life Insurance

Our life and health insurance customers consist primarily of individuals, who hold approximately 370,000 policies, and we insure approximately 1,600 groups.

Property and Casualty Insurance

Our property and casualty insurance segment targets small to medium size accounts with low to average exposures to catastrophic losses. Our dwelling insurance line of business aims for rate stability and seeks accounts with a very low exposure to catastrophic losses. Our auto physical damage and auto liability customer bases consist primarily of commercial accounts.

Underwriting and Pricing

Managed Care

We strive to maintain our market leadership by providing all of our managed care members with the best health care coverage at reasonable cost. Disciplined underwriting and appropriate pricing are core strengths of our business and we believe are an important competitive advantage. We continually review our underwriting and pricing guidelines on a product-by-product and customer group-by-group basis in order to maintain competitive rates in terms of both price and scope of benefits. Pricing is based on the overall risk level and the estimated administrative expenses attributable to the particular segment.

Our claims database enables us to establish rates based on our own experience and provides us with important insights about the risks in our service areas. We tightly manage the overall rating process and have processes in place to ensure that underwriting decisions are made by properly qualified personnel. In addition, we have developed and implemented a utilization review and fraud and abuse prevention program.

We have been able to maintain relatively high retention rates in the corporate accounts sector of our managed care business and since 2003 have maintained our overall market share. The retention rate in our corporate accounts, which is the percentage of existing business retained in the renewal process, has been over 90% in each of the last four years.

In our managed care segment, the rates are set prospectively, meaning that a fixed premium rate is determined at the beginning of each contract year and revised at renewal. We renegotiate the premiums of different groups in the corporate accounts subsector as their existing annual contracts become due. We set rates for individual contracts based on the most recent semi-annual community rating. We consider the actual claims trend of each group when determining the premium rates for the following contract year. Rates in the Reform and Medicare sectors and for federal and local government employees are set on an annual basis through negotiations with the U.S. Federal and Puerto Rico governments, as applicable.

Life Insurance

Our individual life insurance business has been priced using mortality, morbidity, lapses and expense assumptions which approximate actual experience for each line of business. We review pricing

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assumptions on a regular basis. Individual insurance applications are reviewed by using common underwriting standards in use in the United States, and only those applications that meet these commonly used underwriting requirements are approved for policy issuance. Our group life insurance business is written on a group-by-group basis. We develop the pricing for our group life business based on mortality and morbidity experience and estimated expenses attributable to each particular line of business.

Property and Casualty Insurance

The property and casualty insurance sector has experienced soft market conditions in Puerto Rico in recent periods, principally as a result of the deregulation of commercial property rates since 2001. Lower reinsurance costs in 2006 and 2007 have also contributed to soft market conditions. Notwithstanding these conditions, our property and casualty segment has maintained its leadership position in the property insurance sector by following prudent underwriting and pricing practices.

Our core business is comprised of small and medium-sized accounts. We have attained positive results through attentive risk assessment and strict adherence to underwriting guidelines, combined with maintenance of competitive rates on above-par risks designed to maintain a relatively high retention ratio. Underwriting strategies and practices are closely monitored by senior management and constantly updated based on market trends, risk assessment results and loss experience. Commercial risks in particular are fully reviewed by our professionals.

Quality Initiatives and Medical Management

We utilize a broad range of focused traditional cost containment and advanced care management processes across various product lines. We continue to enhance our management strategies, which seek to control claims costs while striving to fulfill the needs of highly informed and demanding managed care consumers. One of these strategies is the reinforcement of population and case management programs, which empower consumers by educating them and engaging them in actively maintaining or improving their own health. Early identification of patients and inter-program referrals are the focus of these programs, which allow us to provide integrated service to our customers based on their specific conditions. The population management programs include programs which target asthma, congestive heart failure, hypertension and a prenatal program which focuses on preventing prenatal complications and promoting adequate nutrition. A medication therapy management program aimed at plan members who are identified as having a potential for high drug usage was also developed. In addition, we have had a contract with McKesson Health Solutions (McKesson) since 1998 pursuant to which they provide to us a 24-hour telephone-based triage program and health information services for all our sectors. McKesson also provides utilization management services for the Reform and Medicare sectors. We intend to expand to the Commercial sector the programs not currently offered in that sector. Other strategies include innovative partnerships and business alliances with other entities to provide new products and services such as an employee assistance program and the promotion of evidence-based protocols and patient safety programs among our providers. We also employ registered nurses and social workers to manage individual cases and coordinate healthcare services. We have implemented a hospital concurrent review program, the goal of which is to monitor the appropriateness of high admission rate diagnoses and unnecessary stays. These services and programs include pre-certification and concurrent review hospital discharge services for acute patients, as well as early referral of potential candidates for the population and case management programs.

In addition, we have developed and provide a variety of services and programs for the acute, chronic and complex populations. The services and programs seek to enhance quality by eliminating inappropriate hospitalizations or services. We also encourage the usage of formulary and generic drugs, instead of non-formulary therapeutic equivalent drugs, through benefit design and member and physician interactions and have implemented a three-tier formulary which offers three co-payment levels: the lowest level for generic drugs, a higher level for brand-name drugs and the highest level for brand-name drugs that are not on the formulary. We have also established an exclusive pharmacy network with discounted rates. In addition, through arrangements with our pharmacy benefit manager, we are able to obtain discounts and rebates on certain medications based on formulary listing and market share.

We have designed a comprehensive Quality Improvement Program (QIP). This program is designed with a strong emphasis on continuous improvement of clinical and service indicators, such as Health Employment

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Data Information Set (HEDIS) and Consumer Assessment of Healthcare Providers and Systems (CAHPS) measures. Our QIP also includes a Physician Incentive Program (PIP) and a Hospital Quality Incentive Program (HQIP), which are directed to support corporate quality initiatives, utilizing clinical and benchmark criteria developed by governmental agencies and professional organizations. The PIP encourages the participation of members on chronic care improvement programs and the achievement of specific clinical outcomes. The HQIP, a pilot of which began in 2008, encourages participating hospitals to achieve national benchmarks regarding fives core measures of CMS.

Information Systems

We have developed and implemented integrated and reliable information technology systems that we believe have been critical to our success. Our systems collect and process information centrally and support our core administrative functions, including premium billing, claims processing, utilization management, reporting, medical cost trending, as well as certain member and provider service functions, including enrollment, member eligibility verification, claims status inquiries, and referrals and authorizations.

We have substantially completed a system conversion process related to our property and casualty insurance business, which was begun in April 2005, at an estimated cost of $4.0 million.

In addition, we have selected Quality Care Solutions, Inc. to assess and implement new core business applications for our managed care segment. We completed this assessment in the fourth quarter of 2007 and plan to convert our managed care system over time by line of business, with the first line of business expected to be converted in the first half of 2010. We expect the managed care conversion process to be completed by 2012 at a total cost of approximately $64.0 million.

These new core business applications are intended to provide functionality and flexibility to allow us to offer new services and products and facilitate the integration of future acquisitions. They are also designed to improve customer service, enhance claims processing and contain operational expenses.

Provider Arrangements

Approximately 99% of member services are provided through one of our contracted provider networks and the remaining back-up percentage of member services are provided by out-of-network providers. Our relationships with managed care providers, physicians, hospitals, other facilities and ancillary managed care providers are guided by standards established by applicable regulatory authorities for network development, reimbursement and contract methodologies. As of December 31, 2008, we had provider contracts with 4,530 primary care physicians, 3,100 specialists and 63 hospitals.

It is generally our philosophy not to delegate full financial responsibility to our managed care providers in the form of capitation-based reimbursement. For certain ancillary services, such as behavioral health services, and primary services in the Reform business and Medicare Optimo product, we generally enter into capitation arrangements with entities that offer broad based services through their own contracts with providers. We attempt to provide market-based reimbursement along industry standards. We seek to ensure that providers in our networks are paid in a timely manner, and we provide means and procedures for claims adjustments and dispute resolution. We also provide a dedicated service center for our providers. We seek to maintain broad provider networks to ensure member choice while implementing effective management programs designed to improve the quality of care received by our members.

We promote the use of electronic claims billing to our providers. Approximately 90% of claims are submitted electronically through our fully automated claims processing system, and our “first-pass rate”, or the rate at which a claim is approved for payment after the first time it is processed by our system without human intervention, for physician claims has averaged 87% for the last two years.

In the Reform sector, we have a network of IPAs which provide managed care services to our Reform beneficiaries in exchange for a capitation fee. The IPA assumes the costs of certain primary care services provided and referred by its primary care physicians (PCPs), including procedures and in-patient services not related to risks assumed by us. We retain the risk associated with services provided to beneficiaries

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under this arrangement, such as: neonatal, obstetrical, AIDS, cancer, cardiovascular and dental services, among others.

We believe that physicians and other providers primarily consider member volume, reimbursement rates, timeliness of reimbursement and administrative service capabilities along with the “non-hassle” factor or reduction of non-value added administrative tasks when deciding whether to contract with a managed care plan. As a result of our established position in the Puerto Rican market, the strength of the Triple-S name and our association with the BCBA, we believe we have strong relationships with hospital and provider networks leading to a strong competitive position in terms of hospital count, number of providers and number of in-network specialists.

Hospitals. We generally contract for hospital services to be paid on an all-inclusive per diem basis, which includes all services necessary during a hospital stay. Negotiated rates vary among hospitals based on the complexity of services provided. We annually evaluate these rates and revise them, if appropriate.

Physicians. Fee-for-service is our predominant reimbursement methodology for physicians, except for the Reform sector. Our physician rate schedules applicable to services provided by in-network physicians are pegged to a resource-based relative value system fee schedule and then adjusted for competitive rates in the market. This structure is similar to reimbursement methodologies developed and used by the federal Medicare system and other major payers. Payments to physicians under the Medicare Advantage program are based on Medicare fees. In the Reform sector, we make payments to certain of our providers in the form of capitation-based reimbursement.

Services are provided to our members through our network providers with whom we contract directly. Members seeking medical treatment outside of Puerto Rico are served by providers in these areas through the BlueCard program, which offers access to the provider networks of the other BCBS plans.

Subcontracting. We subcontract our triage call center, utilization management, mental and substance abuse health services for federal government employees and other large ASO accounts, and pharmacy benefits management services through contracts with third parties.

In addition, we contract with a number of other ancillary service providers, including laboratory service providers, home health agency providers and intermediate and long-term care providers, to provide access to a wide range of services. These providers are normally paid on either a fee schedule or fixed per day or per case basis.

Competition

The insurance industry in Puerto Rico is highly competitive and is comprised of both local and foreign entities. The approval of the Gramm-Leach-Bliley Act of 1999, which applies to financial institutions domiciled in Puerto Rico, has opened the insurance market to new competition by allowing financial institutions such as banks to enter into the insurance business. Several banks in Puerto Rico have established subsidiaries that operate as insurance agencies.

Managed Care

The managed care industry is highly competitive, both nationally and in Puerto Rico. Competition continues to be intense due to aggressive marketing, business consolidations, a proliferation of new products and increased quality awareness and price sensitivity among customers. Industry participants compete for customers based on the ability to provide a total value proposition which we believe includes quality of service and flexibility of benefit designs, access to and quality of provider networks, brand recognition and reputation, price and financial stability.

We believe that our competitive strengths, including our leading presence in Puerto Rico, our Blue Shield license, the size and quality of our provider network, the broad range of our product offerings, our strong complementary businesses and our experienced management team, position us well to satisfy these competitive requirements.

Competitors in the managed care segment include national and local managed care plans. We currently have approximately 1,200,000 members enrolled in our managed care segment at December 31, 2008,

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representing approximately 30% of the population of Puerto Rico. Our market share in terms of premiums written in Puerto Rico was estimated at approximately 22% for the year ended December 31, 2007. We offer a variety of managed care products, and are the leader by market share in almost every sector, as measured by the share of premiums written. Our main competitors are Aveta Inc. (or MMM Healthcare) and Medical Card Systems Inc., and Humana Inc.

Life Insurance

We are one of the leading providers of life insurance products in Puerto Rico. In 2007, we were the second largest life insurance company in Puerto Rico, as measured by direct premiums, with a market share of approximately 11%. In the life insurance segment we are the only life insurance company that distributes our products through home service. However, we face competition in each of our product lines. In the life insurance sector, excluding annuities, we were the largest company with a market share of approximately 16%, and our main competitors are Cooperativa de Seguros de Vida de Puerto Rico, Massachusetts Mutual, and Axa Equitable Life. In the cancer sector, we were the second largest company with a market share of approximately 17%, and our main competitors are AFLAC (sector leader), Trans-Oceanic Life Insurance Company and Universal Life Insurance Company.

Property & Casualty Insurance

The property and casualty insurance market in Puerto Rico is extremely competitive. In addition, soft market conditions have prevailed during last three years in Puerto Rico. In the local market, such conditions mostly affected commercial risks, precluding rate increases and even provoking lower premiums on both renewals and new business. Property and casualty insurance companies tend to compete for the same accounts through more favorable price and/or policy terms and better quality of services. We compete by reasonably pricing our products and providing efficient services to producers, agents and clients. We believe that our knowledgeable, experienced personnel are also an incentive for our customers to conduct business with us.

In 2007, we were the fifth largest property and casualty insurance company in Puerto Rico, as measured by direct premiums, with a market share of approximately 8%. Our nearest competitors in the property and casualty insurance market in Puerto Rico in 2007 was American International Insurance Company of Puerto Rico. The market leaders in the property and casualty insurance market in Puerto Rico in 2006 were Universal Insurance Group, Cooperativa de Seguros Múltiples de Puerto Rico and MAPFRE Corporation.

Blue Shield License

We have the exclusive right to use the Blue Shield name and mark for the sale, marketing and administration of managed care plans and related services in Puerto Rico. We believe that the Blue Shield name and mark are valuable brands of our products and services in the marketplace. The license agreements, which have a perpetual term (but which are subject to termination under circumstances described below), contain certain requirements and restrictions regarding our operations and our use of the Blue Shield name and mark.

Upon the occurrence of any event causing the termination of our license agreements, we would cease to have the right to use the Blue Shield name and mark in Puerto Rico. We also would no longer have access to the BCBSA networks of providers and BlueCard Program. We would expect to lose a significant portion of our membership if we lose these licenses. Loss of these licenses could significantly harm our ability to compete in our markets and could require payment of a significant fee to the BCBSA. Furthermore, if our licenses were terminated, the BCBSA would be free to issue a new license to use the Blue Shield name and marks in Puerto Rico to another entity, which would have a material adverse affect on our business, financial condition and results of operations. See “Item 1A—Risk Factors — The termination or modification of our license agreements to use the Blue Shield name and mark could have an adverse effect on our business, financial condition and results of operations”.

Events which could result in termination of our license agreements include, but are not limited to:

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• failure to maintain our total adjusted capital at 200% of Health Risk-Based Capital Authorized Control Level, as defined by the National Association of Insurance Commissioners (NAIC) Risk Based Capital (RBC) Model Act;

• failure to maintain liquidity of greater than one month of underwritten claims and administrative expenses, as defined by the BCBA, for two consecutive quarters;

• failure to satisfy state-mandated statutory net worth requirements;

• impending financial insolvency; and

• a change of control not otherwise approved by the BCBSA or a violation of the BCBSA voting and ownership limitations on our capital stock.

The BCBSA license agreements and membership standards specifically permit a licensee to operate as a for-profit, publicly-traded stock company, subject to certain governance and ownership requirements.

Pursuant to our license agreements with BCBSA, at least 80% of the revenue that we earn from health care plans and related services in Puerto Rico, and at least 66.7% of the revenue that we earn from (or at least 66.7% of the enrollment for) health care plans and related services both in the United States and in Puerto Rico together, must be sold, marketed, administered, or underwritten through use of the Blue Shield name and mark. This may limit the extent to which we will be able to expand our health care operations, whether through acquisitions of existing managed care providers or otherwise, in areas where a holder of an exclusive right to the Blue Shield name and mark is already present. Currently, the Blue Shield name and mark is licensed to other entities in all markets in the continental United States, Hawaii, and Alaska.

Pursuant to the rules and license standards of the BCBSA, we guarantee our subsidiaries’ contractual and financial obligations to their respective customers. In addition, pursuant to the rules and license standards of the BCBSA, we have agreed to indemnify the BCBSA against any claims asserted against it resulting from our contractual and financial obligations.

Each license requires an annual fee to be paid to the BCBSA. The fee is determined based on a per-contract charge from products using the Blue Shield name and mark. The annual BCBSA fee for the year 2009 is $1,340,489. During the years ended December 31, 2008 and 2007, we paid fees to the BCBSA in the amount of $1,079,172 and $921,636, respectively. The BCBSA is a national trade association of 39 Member Plans, the primary function of which is to promote and preserve the integrity of the BCBS names and marks, as well as to provide certain coordination among the Member Plans. Each Member Plan is an independent legal organization and is not responsible for obligations of other Blue Cross Blue Shield Association Member Plans. With a few limited exceptions, we have no right to market products and services using the Blue Shield names and marks outside our Blue Shield licensed territory.

We do not have the authority to use the Blue Cross name and mark in Puerto Rico. However, in December 2008, as part of our pending transaction with La Cruz Azul de Puerto Rico, Inc. we have asked the BCBSA to transfer to the Company and our managed care subsidiary the license for the Blue Cross name and mark in Puerto Rico, as well as the rights to use the Blue Shield and Blue Cross names and marks in the U.S. Virgin Islands.

BlueCard. Under the rules and license standards of the BCBSA, other Member Plans must make available their provider networks to members of the BlueCard Program in a manner and scope as consistent as possible to what such member would be entitled to in his or her home region. Specifically, the Host Plan (located where the member receives the service) must pass on discounts to BlueCard members from other Member Plans that are at least as great as the discounts that the providers give to the Host Plan’s local members. The BCBSA requires us to pay fees to any Host Plan whose providers submit claims for health care services rendered to our members who receive care in their service area. Similarly, we are paid fees for submitting claims and providing other services to members of other Member Plans who receive care in our service area.

Claim Liabilities

We are required to estimate the ultimate amount of claims which have not been reported, or which have been received but not yet adjudicated, during any accounting period. These estimates, referred to as claim liabilities, are recorded as liabilities on our balance sheet. We estimate claim reserves in accordance with

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Actuarial Standards of Practice promulgated by the Actuarial Standards Board, the committee of the American Academy of Actuaries that establishes the professional guidelines and standards for actuaries to follow. A degree of judgment is involved in estimating reserves. We make assumptions regarding the propriety of using existing claims data as the basis for projecting future payments. For additional information regarding the calculation of claim liabilities, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates—Claim Liabilities”.

Investments

Our investment philosophy is to maintain a largely investment-grade fixed income portfolio, provide adequate liquidity for expected liability durations and other requirements, and maximize total return through active investment management.

We evaluate the interest rate risk of our assets and liabilities regularly, as well as the appropriateness of investments relative to our internal investment guidelines. We operate within these guidelines by maintaining a diversified portfolio, both across and within asset classes.

Investment decisions are centrally managed by investment professionals based on the guidelines established by management and approved by our Investment and financing Committee. Our internal investment group is comprised of the CFO, a Treasurer, an investment officer, and a treasury operations officer. The internal investment group uses an external investment consultant and manages our short-term investments, fixed income portfolio and equity securities of Puerto Rican corporations that are classified as available for sale. In addition, we use GE Asset Management and State Street Global Advisor as portfolio managers for our trading securities.

The board of directors monitors and approves investment policies and procedures. The investment portfolio is managed following those policies and procedures, and any exception must be reported to our board of directors.

For additional information on our investments, see “Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Market Risk Exposure”.

Trademarks

We consider our trademarks of “Triple-S” and “SSS” to be very important and material to all segments in which we are engaged. In addition to these, other trademarks used by our subsidiaries that are considered important have been duly registered with the Department of State of Puerto Rico and the United States Patent and Trademark Office. It is our policy to register all our important and material trademarks in order to protect our rights under applicable corporate and intellectual property laws. In addition, we have the exclusive right to use the “Blue Shield” name and mark in Puerto Rico. See “—Blue Shield License”.

Regulation

The operations of our managed care business are subject to comprehensive and detailed regulation in Puerto Rico, as well as U.S. Federal regulation. Supervisory agencies include the Office of the Commissioner of Insurance of the Commonwealth of Puerto Rico (the Commissioner of Insurance), the Health Department of the Commonwealth of Puerto Rico and the Administration for Health Insurance of the Commonwealth of Puerto Rico (ASES, for its Spanish acronym), which administers the Reform Program for the Commonwealth of Puerto Rico. Federal regulatory agencies that oversee our operations include CMS, the Office of the Inspector General (OIG) of HHS, the Office of Civil Rights of HHS, the U.S. Department of Justice, and the Office of Personnel Management (OPM). These government agencies have the right to:

• grant, suspend and revoke licenses to transact business;

• regulate many aspects of the products and services we offer;

• assess fines, penalties and/or sanctions;

• monitor our solvency and adequacy of our financial reserves; and

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• regulate our investment activities on the basis of quality, diversification and other quantitative criteria, within the parameters of a list of permitted investments set forth in applicable insurance laws and regulations.

Our operations and accounts are subject to examination and audits at regular intervals by these agencies. In addition, the U.S Federal and local governments continue to consider and enact many legislative and regulatory proposals that have impacted, or would materially impact, various aspects of the health care system. Some of the more significant current issues that may affect our managed care business include:

• initiatives to provide greater access to coverage for uninsured and under-insured populations;

• initiatives to increase healthcare regulation, including enhanced efforts to expand the tort liability improve quality of health plans care;

• Reform and Medicare reform legislation;

• local government plans and initiatives;

• Reform and Medicare reform legislation; and

• increased government concerns regarding fraud and abuse.; and

• initiatives to increase health care regulation, including efforts to expand the tort liability of health plans.

On February 26, 2009, President Obama announced his proposed budget for fiscal year 2010, which supports his comprehensive health care reform agenda. The Obama health care reform plan is expected to address increasing access to health care coverage, reducing the cost of care, and improving the quality of care rendered. The health care reform plan is expected to be financed in large part by reduced expenditures for the Medicare program. The proposed budget projects a minimum savings on health care expenditures of $316 billion by the Federal government over the next decade in the Medicare program, including $176 billon of which will be realized through reduced payments to Medicare Advantage plans as a result of changes in the competitive bidding process for Medicare Advantage contracts. In addition, President Obama’s proposed budget calls for premium increases for certain high-income Medicare beneficiaries. The U.S. Congress is continuing to develop legislative efforts directed toward patient protection, including proposed laws that could expose insurance companies to economic damages, and in some cases punitive damages, for making a determination denying benefits or for delaying members’ receipt of benefits as well as for other coverage determinations. Similar legislation has been proposed in Puerto Rico. Given the political process, it is not possible to determine whether any federal and/or local legislation or regulation will be enacted in 2009 or what form any such legislation might take. Other legislative or regulatory changes that may affect us are described below. While certain of these measures could adversely affect us, at this time we cannot predict the extent of this impact.

The Federal government and the government of Puerto Rico, including the Commissioner of Insurance, have adopted laws and regulations that govern our business activities in various ways. These laws and regulations may restrict how we conduct our business and may result in additional burdens and costs to us. Areas of governmental regulation include:

•	licensure;	•	transactions resulting in a change of control;
•	policy forms, including plan design and disclosures;	•	member rights and responsibilities;
•	premium rates and rating methodologies;	•	fraud and abuse;
•	underwriting rules and procedures;	•	sales and marketing activities;
•	benefit mandates;	•	quality assurance procedures;
•	eligibility requirements;	•	privacy of medical and other information and permitted disclosures;
•	security of electronically transmitted individually identifiable health information;	•	rates of payment to providers of care;
•	geographic service areas;	•	surcharges on payments to providers;
•	market conduct;	•	provider contract forms;
		•	delegation of financial risk and other financial

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•	utilization review;		arrangements in rates paid to providers of care;
•	payment of claims, including timeliness and accuracy of payment;	•	agent licensing;
•	special rules in contracts to administer government programs;	•	financial condition (including reserves);
•	transactions with affiliated entities;	•	reinsurance;
•	limitations on the ability to pay dividends;	•	issuance of new shares of capital stock;
•	rates of payment to providers of care;	•	corporate governance; and
		•	permissible investments.

These laws and regulations are subject to amendments and changing interpretations in each jurisdiction. Failure to comply with existing or future laws and regulations could materially and adversely affect our operations, financial condition and prospects.

Puerto Rico Insurance Laws

Our insurance subsidiaries are subject to the regulations and supervision of the Commissioner of Insurance. The regulations and supervision of the Commissioner of Insurance consist primarily of the approval of certain policy forms, the standards of solvency that must be met and maintained by insurers and their agents, and the nature of and limitations on investments, deposits of securities for the benefit of policyholders, methods of accounting, periodic examinations and the form and content of reports of financial condition required to be filed, among others. In general, such regulations are for the protection of policyholders rather than security holders.

Puerto Rico insurance laws prohibit any person from offering to purchase or sell voting stock of an insurance company with capital contributed by stockholders (a stock insurer) which constitutes 10% or more of the total issued and outstanding stock of such company or of the total issued and outstanding stock of a company that controls an insurance company, without the prior approval of the Commissioner of Insurance. The proposed purchaser or seller must disclose any changes proposed to be made to the administration of the insurance company and provide the Commissioner of Insurance with any information reasonably requested. The Commissioner of Insurance must make a determination within 30 days of the later of receipt of the petition or of additional information requested. The determination of the Commissioner of Insurance will be based on its evaluation of the transaction’s effect on the public, having regard to the experience and moral and financial responsibility of the proposed purchaser, whether such responsibility of the proposed purchaser will affect the effectiveness of the insurance company’s operations and whether the change of control could jeopardize the interests of insureds, claimants or the company’s other stockholders. Our articles prohibit any institutional investor from owning 10% or more of our voting power, any person that is not an institutional investor from owning 5% or more of our voting power, and any person from beneficially owning shares of our common stock or other equity securities, or a combination thereof, representing a 20% or more ownership interest in us. To the extent that a person, including an institutional investor, acquires shares in excess of these limits, our articles provide that we will have the power to take certain actions, including refusing to give effect to a transfer or instituting proceedings to enjoin or rescind a transfer, in order to avoid a violation of the ownership limitation in the articles.

Puerto Rico insurance laws also require that stock insurers obtain the Commissioner of Insurance’s approval prior to any merger or consolidation. The Commissioner of Insurance cannot approve any such transaction unless it determines that such transaction is just, equitable, consistent with the law and no reasonable objection exists. The merger or consolidation must then be authorized by a duly approved resolution of the board of directors and ratified by the affirmative vote of two-thirds of all issued and outstanding shares of capital stock with the right to vote thereon. The reinsurance of all or substantially all of the insurance of an insurance company by another insurance company is also deemed to be a merger or consolidation.

Puerto Rico insurance laws further prohibit insurance companies and insurance holding companies, among other entities, from soliciting or receiving funds in exchange for any new issuance of its securities, other than through a stock dividend, unless the Commissioner of Insurance has granted a solicitation permit in respect of such transaction. The Commissioner of Insurance will issue the permit unless it finds that the

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funds proposed to be secured are excessive for the purpose intended, the proposed securities and their distribution would be inequitable, or the issuance of the securities would jeopardize the interests of policyholders or securityholders.

Puerto Rico insurance laws also limit insurance companies’ ability to reinsure risk. Insurance companies can only accept reinsurance in respect of the types of insurance which they are authorized to transact directly. Also, except for life and disability insurance, insurance companies cannot accept any reinsurance in respect of any risk resident, located, or to be performed in Puerto Rico which was insured as direct insurance by an insurance company not then authorized to transact such insurance in Puerto Rico. As a result, insurance companies can only reinsure their risks with insurance companies in Puerto Rico authorized to transact the same type of insurance or with a foreign insurance company that has been approved by the Commissioner of Insurance. Insurance companies cannot reinsure 75% or more of their direct risk with respect to any type of insurance without first obtaining the approval of the Commissioner of Insurance.

Privacy of Financial and Health Information

Puerto Rico law requires that managed care providers maintain the confidentiality of financial and health information. The Commissioner of Insurance has promulgated regulations relating to the privacy of financial information and individually identifiable health information. Managed care providers must periodically inform their clients of their privacy policies and allow such clients to opt-out if they do not want their financial information to be shared. However, the regulations related to the privacy of health information do not apply to managed care providers, such as us, who comply with the provisions of HIPAA. Also, Puerto Rico law requires that managed care providers provide patients with access to their health information within a specified time and that they not charge more than a predetermined amount for such access. The law imposes various sanctions on managed care providers that fail to comply with these provisions.

Managed Care Provider Services

Puerto Rico law requires that managed care providers cover and provide specific services to their subscribers. Such services include access to a provider network that guarantees emergency and specialized services. In addition, the Office of the Solicitor for the Beneficiaries of the Reform is authorized to review and supervise the operations of entities contracted by the Commonwealth of Puerto Rico to provide services under the Reform. The Solicitor may investigate and adjudicate claims filed by beneficiaries of the Reform against the various service providers contracted by the Commonwealth of Puerto Rico. See “Business—Customers—Medicare Supplement—Reform Sector” included in this Item for more information.

Capital and Reserve Requirements

In addition to the capital and reserve requirements set forth below, the Commissioner of Insurance requires our managed care subsidiary to maintain minimum capital of $1.0 million, our life insurance subsidiary to maintain minimum capital of $2.5 million and our property and casualty insurance subsidiary to maintain minimum capital of $3.0 million. During 2008, the Commissioner of Insurance approved the requirement to use the National Association of Insurance Commissioners’ (NAIC) RBC Model Act (the RBC Model Act) by all local insurers in determining minimum capital level. This requirement goes into effect in 2009. In addition, our managed care subsidiary is subject to the capital and surplus licensure requirements of the BCBSA.

The capital and surplus requirements of the BCBSA are based on the RBC Model Act. These capital and surplus requirements are intended to assess capital adequacy taking into account the risk characteristics of an insurer’s investments and products. The RBC Model Act set forth the formula for calculating the risk-based capital requirements, which are designed to take into account risks, insurance risks, interest rate risks and other relevant risks with respect to an individual insurance company’s business.

The RBC Model Act requires increasing degrees of regulatory oversight and intervention as an insurance company’s risk-based capital declines. The level of regulatory oversight ranges from requiring the insurance company to inform and obtain approval from the domiciliary insurance commissioner of a

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comprehensive financial plan for increasing its risk-based capital to mandatory regulatory intervention requiring an insurance company to be placed under regulatory control, in rehabilitation or liquidation proceeding. The RBC Model Act provides for four different levels of regulatory attention depending on the ratio of the company’s total adjusted capital (defined as the total of its statutory capital, surplus, asset valuation reserve and dividend liability) to its risk-based capital. The “company action level” is triggered if a company’s total adjusted capital is less than 200% but greater than or equal to 150% of its risk-based capital. At the company action level, a company must submit a comprehensive plan to the regulatory authority which discusses proposed corrective actions to improve its capital position. A company whose total adjusted capital is between 250% and 200% of its risk-based capital is subject to a trend test. The trend test calculates the greater of any decrease in the margin (i.e., the amount in dollars by which a company’s adjusted capital exceeds it risk-based capital) between the current year and the prior year and between the current year and the average of the past three years, and assumes that the decrease could occur again in the coming year. If a similar decrease in margin in the coming year would result in a risk-based capital ratio of less than 190%, then company action level regulatory action will occur.

The “regulatory action level” is triggered if a company’s total adjusted capital is less than 150% but greater than or equal to 100% of its risk-based capital. At the regulatory action level, the regulatory authority will perform a special examination of the company and issue an order specifying corrective actions that must be followed. The “authorized control level” is triggered if a company’s total adjusted capital is less than 100% but greater than or equal to 70% of its risk-based capital, at which level the regulatory authority may take any action it deems necessary, including placing the company under regulatory control. The “mandatory control level” is triggered if a company’s total adjusted capital is less than 70% of its risk-based capital, at which level the regulatory authority must place the company under its control.

We and our insurance subsidiaries currently meet and exceed the minimum capital requirements of the Commissioner of Insurance and the BCBSA, as applicable. Regulation of financial reserves for insurance companies and their holding companies is a frequent topic of legislative and regulatory scrutiny and proposals for change. It is possible that the method of measuring the adequacy of our financial reserves could change and that could affect our financial condition.

In addition to its catastrophic reinsurance coverage, STS is required by local regulatory authorities to establish and maintain a reserve supported by a trust fund (the Trust) to protect policyholders against their dual exposure to hurricanes and earthquakes. The funds in the Trust are solely to be used to pay catastrophe losses whenever qualifying catastrophic losses exceed 5% of catastrophe premiums or when authorized by the Commissioner of Insurance. Contributions to the Trust, and accordingly additions to the reserve, are determined by a rate (1% in 2008 and 2007), imposed by the Commissioner of Insurance on the catastrophe premiums written in that year. As of December 31, 2008 and 2007, we had $31.3 million and $29.1 million, respectively, invested in securities deposited in the Trust. The income generated by investment securities deposited in the Trust becomes part of the Trust fund balance and are therefore considered an addition to the reserve. For additional details see note 17 of the audited consolidated financial statements.

Dividend Restrictions

Puerto Rico insurance laws also restrict insurance companies’ ability to pay dividends, as they provide that such companies can only pay cash dividends from their available surplus funds derived from realized net profits and cannot pay dividends with funds derived from loans. Any violation of these provisions would subject us to a penalty under these laws.

Puerto Rico insurance laws are not directly applicable to us, as a holding company, since we are not an insurance company. However, we, together with our insurance subsidiaries, are subject to the provisions of the General Corporation Law of Puerto Rico (PRGCL), which contains certain restrictions on the declaration and payment of dividends by corporations organized pursuant to the laws of Puerto Rico. These provisions provide that Puerto Rico corporations may only declare dividends charged to their surplus or, in the absence of such surplus, net profits of the fiscal year in which the dividend is declared and/or the preceding fiscal year. The PRGCL also contains provisions regarding the declaration and payment of dividends and directors’ liability for illegal payments.

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Guaranty Fund Assessments

We are required by Puerto Rico law and by the BCBSA guidelines to participate in certain guarantee associations. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Contingencies—Guarantee Association” for additional information.

Federal Regulation

The Medicare Advantage and Medicare Part D Programs

Medicare is the health insurance program for retired United States citizens aged 65 and older, qualifying disabled persons, and persons suffering from end-stage renal disease. Medicare is funded by the federal government and administered by CMS.

The original Medicare program, created in 1965, offers both hospital insurance, known as Medicare Part A, and medical insurance, known as Medicare Part B. In general, Medicare Part A covers hospital care and some nursing home, hospice and home care. Although there is no monthly premium for Medicare Part A, beneficiaries are responsible for significant deductibles and co-payments. All United States citizens eligible for Medicare are automatically enrolled in Medicare Part A when they turn 65. Enrollment in Medicare Part B is voluntary. In general, Medicare Part B covers outpatient hospital care, physician services, laboratory services, durable medical equipment, and some other preventive tests and services. Beneficiaries that enroll in Medicare Part B pay a monthly premium that is usually withheld from their Social Security checks. Medicare Part B generally pays 80% of the cost of services and beneficiaries pay the remaining 20% after the beneficiary has satisfied a $135 deductible. To fill the gaps in traditional fee-for-service Medicare coverage, individuals often purchase Medicare supplement products, commonly known as “Medigap”, to cover deductibles, co-payments, and coinsurance.

Initially, Medicare was offered only on a fee-for-service basis. Under the Medicare fee-for-service payment system, a Medicare beneficiary can choose any licensed physician and use the services of any hospital, healthcare provider, or facility that has signed a participation agreement and meets applicable certification requirements with Medicare. CMS reimburses providers if Medicare covers the service and the service is “medically necessary” and other applicable coverage criteria. There is currently no fee-for-service coverage for certain preventive services, including annual physicals and well visits, eyeglasses, hearing aids, dentures and most dental services.

As an alternative to the traditional fee-for-service Medicare program, in geographic areas where a managed care plan has contracted with CMS pursuant to the Medicare Advantage (MA) program, Medicare beneficiaries may choose to receive Medicare Parts A and B benefits from a managed care plan. The current Medicare managed care program was established in 1997 when Congress created a Medicare Part C, formerly known as Medicare+Choice and now known as Medicare Advantage. Pursuant to Medicare Part C, Medicare Advantage plans contract with CMS to provide benefits at least comparable to those offered under the traditional fee-for-service Medicare program in exchange for a fixed monthly payment per member from CMS. The monthly payment amounts from CMS to each MA plan are based on the plan’s enrolled beneficiaries’ demographics, including each member’s county of residence, as adjusted for each member’s health risk characteristics. Individuals who elect to participate in the Medicare Advantage program often receive greater benefits than traditional fee-for-service Medicare beneficiaries, such as additional preventive services, and dental and vision benefits, which are included in some of our Medicare Advantage plans. Medicare Advantage plans typically have lower deductibles and co-payments than traditional fee-for-service Medicare, and plan members do not need to purchase supplemental Medigap policies. In exchange for these enhanced benefits, members are generally required to use only the services and provider network provided by the Medicare Advantage plan. Many Medicare Advantage plans have no additional premiums. In some geographic areas, however, and for plans with open access to providers, members may be required to pay a monthly premium.

Prior to 1997, CMS reimbursed health plans participating in the Medicare program primarily on the basis of the demographic data of the plans’ members. Under the Balanced Budget Act of 1997 (BBA), as amended by SCHIP Benefits Improvement Act of 2000 (BIPA), CMS gradually phased in a risk adjustment payment methodology that based CMS monthly payments to plans on various clinical and demographic factors. CMS required all managed care companies to capture, collect and submit the necessary diagnosis code

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information to CMS twice a year for reconciliation with CMS’s internal database. Payments to Medicare Advantage plans are also supplemented by a budget neutrality factor, which are scheduled to be phase out by 2011.

As of January 1, 2006 CMS uses a new rate calculation system for Medicare Advantage plans for Parts A and B services. The new system is based on a competitive bidding process that allows the federal government to share in any cost savings achieved by Medicare Advantage plans. In general, the statutory payment rate for each county, which is primarily based on the county level payment rates for MA plans prior to 2006, which were at least as high as CMS’s historic per capita fee-for-service payments, was relabeled as the “benchmark” amount, or bidding target. Local Medicare Advantage plans annually submit bids that reflect the costs they expect to incur in providing the base Medicare Part A and Part B benefits in their applicable service areas. If the standard bid is less than the benchmark for that year, Medicare will pay the plan its bid amount, risk adjusted based on its risk scores, plus a rebate equal to 75% of the actual amount by which the benchmark exceeds the bid, resulting in an annual adjustment in reimbursement rates. Plans are required to use the rebate to provide beneficiaries with extra benefits, reduced cost sharing, or reduced premiums, including premiums for MA-PD and other supplemental benefits. CMS will have the right to audit the use of these proceeds. The remaining 25% of the excess amount will be retained in the statutory Medicare trust fund. If a Medicare Advantage plan’s bid is greater than the benchmark, the plan receives the benchmark as payment from Medicare and charges a premium to enrollees equal to the difference between the bid amount and the benchmark, which is expected to make such plans less competitive. CMS generally updates benchmarks each year. Medicare payments are also based on certain patient demographics and health risk characteristics. Regional MA plans are paid in a manner similar to local plans, described above, but take into account the weighted average of the average county rate and average plan bid. Currently TSI bids are below the CMS benchmark for all of our products.

The 2003 Medicare Modernization Act

In December 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act, which is known as the Medicare Modernization Act (MMA).

As part of the MMA, every Medicare beneficiary is able to select a voluntary prescription drug plan through Medicare Part D. Medicare Part D plans are private companies like ours that have contracted with the federal government to offer and run a Medicare Part D benefit plan under terms and conditions dictated by CMS in 34 geographic regions. Medicare Part D also replaced the Medicaid Prescription Drug Coverage for beneficiaries eligible for participation under both the Medicare and Medicaid programs, or dual-eligibles. The Medicare Part D prescription drug benefit payments to plans are determined through a competitive bidding process, and enrollee premiums also are tied to plan bids. The bids reflect the plan’s expected costs for a Medicare beneficiary of average health; CMS adjusts payments to plans based on enrollees’ health and other factors. The program is largely subsidized by the federal government and is additionally supported by risk-sharing between Medicare Part D plans and the federal government through risk corridors designed to limit the profits or losses of the drug plans and reinsurance for catastrophic drug costs, as described below. The government payment amount to plans is based on the national weighted average monthly bid for basic Part D coverage, adjusted for member demographics and risk factor payments. The beneficiary will be responsible for the difference between the government subsidy and his or her plan’s bid, together with the amount of his or her plan’s supplemental premium (before rebate allocations), subject to the co-pays, deductibles and late enrollment penalties, if applicable, described below. Additional subsidies are provided for dual-eligible beneficiaries and specified low-income beneficiaries. Medicare also subsidizes 80% of drug spending above an enrollee’s catastrophic threshold.

The Medicare Part D benefits are available to Medicare Advantage plan enrollees as well as Medicare fee-for-service enrollees. Medicare Advantage plan enrollees who elect to participate may pay a monthly premium for this Medicare Part D prescription drug benefit (MA-PD) while fee-for-service beneficiaries will be able to purchase a stand-alone prescription drug plan (PDP) from a list of CMS-approved PDPs available in their area. Any Medicare Advantage Member enrolling in a stand-alone PDP, however, will automatically be disenrolled from the Medicare Advantage plan altogether, thereby resuming traditional fee-for-service Medicare for Medicare Parts A and B coverage. Under the standard Part D drug coverage for 2009, beneficiaries enrolled in a stand-alone PDP will pay a $295 deductible, co-insurance payments equal to 25% of the drug costs between $295 and the initial annual coverage limit of $2,700 and all drug

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costs between $2,700 and $6,153, which is commonly referred to as the Part D “doughnut hole” or “coverage gap”. After the beneficiary has incurred $4,350 in out-of-pocket drug expenses, the MMA provides catastrophic stop loss coverage that will cover approximately 95% of the beneficiaries’ remaining out-of-pocket drug costs for that year. MA-PDs are not required to match these limits, but are required to provide, at a minimum, coverage that is actuarially equivalent to this standard drug coverage benefit design. Medicare Part D plans also may offer supplemental drug coverage for additional benefits not subsidized by Medicare programs payments. The deductible, co-pay and coverage amounts are adjusted by CMS on an annual basis. We are required as a Medicare Advantage coordinated care plan to offer qualified Part D prescription drug coverage of our MA plan service areas. We currently offer prescription drug benefits through our Medicare Advantage plans and also offer a stand-alone PDP. Among the options in Medicare Advantage, we offer four MA-PD plans with no initial deductible, one of which has generic coverage with a $5 co-payment during the “doughnut hole” period. On the PDP side, we currently offer three plans, two of which have no initial deductible and one of which has generic coverage with a $5 co-payment during the “doughnut hole” period.

Dual-Eligible Beneficiaries. A “dual-eligible” beneficiary is a person who is eligible for both Medicare, because of age or other qualifying status, and Reform, because of economic status. Health plans that serve dual-eligible beneficiaries receive premium from CMS and the government of Puerto Rico for dual-eligible members. The government of Puerto Rico has implemented a plan to allow dual-eligibles enrolled in the Reform to move from the Reform program to a Medicare Advantage plan under which the government, rather than the insured, will assume all of the premiums for additional benefits not included in traditional Medicare programs, such as prescription drug benefits. All qualified Reform participants were eligible to move to the government-sponsored plan beginning in January 2006, and as of December 31, 2006 approximately 61,000 such participants from areas served by us did so. During the years ended December 31, 2007 and 2008, mostly those members newly-qualified for Medicare benefits moved to the government sponsored plan. By managing utilization and implementing disease management programs, many Medicare Advantage plans can profitably care for dual-eligible members. The MMA provides subsidies and reduced or eliminated deductibles for certain low-income beneficiaries, including dual-eligible individuals. Pursuant to the MMA, as of January 1, 2006 dual-eligible individuals receive their drug coverage from the Medicare program rather than the Reform program. Companies offering stand-alone PDPs with bids at or below the regional weighted average bid resulting from the annual bidding process received a pro-rata allocation and auto-enrollment of the dual-eligible beneficiaries within the applicable region.

Sales and Marketing. The marketing and sales activities of our insurance and managed care subsidiaries are closely regulated by CMS and ASES. For example, our sales and marketing materials must be approved in advance by the applicable regulatory authorities, and they often impose other regulatory restrictions on our marketing activities.

Annual Enrollment and Lock-in In order for an MA organization to accept an enrollment request, a valid request must be made during an election period. There are four types of election periods during which individuals may make enrollment requests: Annual, Initial Coverage, Special and the Open Enrollment Period. During the Annual Enrollment Period, MA eligible individuals may enroll in or disenroll from an MA plan. It occurs November 15 through December 31 of every year. The Initial Coverage Enrollment Period is the period during which an individual newly eligible for MA may make an initial enrollment request to enroll in an MA plan. The initial enrollment period begins 3 months before the individual’s entitlement to both Medicare Part A and Part B and ends on the later of the last day of the month preceding entitlement to both Medicare Part A and Part B or the last day of the individual’s Part B initial enrollment period. The initial enrollment period for Part B is the seven (7) month period that begins 3 months before the month an individual meets the eligibility requirements for Part B, and ends 3 months after the month of eligibility. In addition, MA eligible individuals may make one open enrollment period election from January 1st through March 31st. During the Open Enrollment Period the change enrollment requests must be made to enroll in the same type of plan. An individual who is enrolled in an MA-PD plan may elect another MA-PD plan or disenroll from the MA-PD by enrolling in a PDP. To effectuate this enrollment request, the individual must elect an MA-PD plan or enroll in a PDP. An individual enrolled in a PDP may elect an MA-PD. An individual who is enrolled in an MA plan and who does not have Part D coverage may elect another MA plan that does not include Part D coverage or may elect to disenroll from the MA plan.

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An individual enrolled in Original Medicare but not in a PDP may elect an MA plan that does not provide Part D coverage but, may not elect an MA-PD plan during this period. After these defined enrollment periods end, generally only Medicare beneficiaries who permanently relocate to another service area, leave the service area for six months, dual-eligible beneficiaries, institutionalized beneficiaries and employer MA plan retirees will be permitted to enroll in or change health plans during that plan year pursuant to special election period rules. Eligible beneficiaries who fail to timely enroll in a Part D plan will be subject to the penalties described above if they later decide to enroll in a Part D plan.

Fiscal Intermediary. As set forth in the MMA, the Federal government, through CMS, replaced the current Title 18 fiscal intermediary (Fl) and carrier contracts with competitively procured contracts that conform to the Federal Acquisition Regulation under the new Medicare Administrative Contractor (MAC) contracting authority. CMS has six years, between 2006 and 2011, to complete the transition of Medicare fee-for-service claims processing activities from the FI’s and carriers to the MAC’s. On September 12, 2008, CMS announced that First Coast Service Options (FCSO), a non-affiliated third party organization based in Jacksonville, Florida, was awarded the Medicare Administrative Contract (MAC) for Jurisdiction 9 (Florida, Puerto Rico and the U.S. Virgin Islands). FCSO selected our subsidiary, TSI as a subcontractor in MAC Jurisdiction 9 to perform certain provider customer service functions, among others, in Puerto Rico, effective March 1, 2009.

Fraud and Abuse Laws. The federal anti-kickback provisions of the Social Security Act and its regulations prohibit the payment, solicitation, offering or receipt of any form of remuneration (including kickbacks, bribes, and rebates) in exchange for the referral of federal healthcare program patients or any item or service that is reimbursed by any federal health care program. In addition, the federal regulations include certain safe harbors that describe relationships that have been determined by CMS not to violate the federal anti-kickback laws. Relationships that do not fall within one of the enumerated safe harbors are not a per se violation of the law, but will be subject to enhanced scrutiny by regulatory authorities. Failure to comply with the anti-kickback provisions may result in civil damages and penalties, criminal sanctions, and administrative remedies, such as exclusion from the applicable federal health care program.

Federal False Claims Act. Federal regulations also strictly prohibit the presentation of false claims or the submission of false information to the federal government. Under the federal False Claims Act, any person or entity that has knowingly presented or caused to be presented a false or fraudulent request for payment from the federal government or who has made a false statement or used a false record in the submission of a claim may be subject to treble damages and penalties of up to $11,000 per claim. The federal government has taken the position that claims presented in relationships that violate the anti-kickback statute may also be considered to be violations of the federal False Claims Act. Furthermore, the federal False Claims Act permits private citizen “whistleblowers” to bring actions on behalf of the federal government for violations of the Act and to share in the settlement or judgment that may result from the lawsuit.

HIPAA and Gramm-Leach-Bliley Act

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) authorizes HHS to issue standards for administrative simplification, as well as privacy and security of medical records and other individually identifiable health information. The regulations under the HIPAA Administrative Simplification section impose a number of additional obligations on issuers of health insurance coverage and health benefit plan sponsors. HIPAA Administrative Simplification section requirements apply to self-funded group plans, health insurers and HMOs, health care clearinghouses and health care providers who transmit health information electronically (covered entities). Regulations adopted to implement HIPAA Administrative Simplification also require that business associates acting for or on behalf of HIPAA-covered entities be contractually obligated to meet HIPAA standards. The regulations of the Administrative Simplification section establish significant criminal penalties and civil sanctions for noncompliance.

HHS has released rules mandating the use of new standard formats with respect to certain health care transactions (e.g. health care claims information, plan eligibility, referral certification and authorization, claims status, plan enrollment and disenrollment, payment and remittance advice, plan premium payments and coordination of benefits). HHS also has published rules requiring the use of standardized code sets and

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unique identifiers by employers and providers. Our managed care subsidiary believes that it is in material compliance with all relevant requirements.

HHS also sets standards relating to the privacy of individually identifiable health information. In general, these regulations restrict the use and disclosure of medical records and other individually identifiable health information held by health plans and other affected entities in any form, whether communicated electronically, on paper or orally, subject only to limited exceptions. In addition, the regulations provide patients new rights to understand and control how their health information is used. HHS has also published security regulations designed to protect member health information from unauthorized use or disclosure. Our managed care subsidiary is currently in material compliance with these security regulations.

The American Recovery and Reinvestment Act of 2009 (H.R. 1, S. 1) (the Stimulus), signed by President Obama on February 17, 2009, contains several provisions that expand the scope and enforcement of HIPAA. Most of the Stimulus provisions that affect and expand HIPAA will not become effective until February 17, 2010 or thereafter, and the Secretary of HHS is required to promulgate regulations interpreting and clarifying the aspects of the Stimulus pertaining to HIPAA. We will monitor the implementation of the Stimulus and the regulations promulgated thereunder, and we will modify our policies and operations to comply with these amendments. See “Item 1—Regulation — Legislative Initiatives” for additional information.

Other federal legislation includes the Gramm-Leach-Bliley Act, which applies to financial institutions domiciled in Puerto Rico. The Gramm-Leach-Bliley Act generally placed restrictions on the disclosure of non-public information to non-affiliated third parties, and required financial institutions including insurers, to provide customers with notice regarding how their non-public personal information is used, including an opportunity to “opt out” of certain disclosures. The Gramm-Leach-Bliley Act also gives banks and other financial institutions the ability to affiliate with insurance companies, which has led to new competitors in the insurance and health benefits fields in Puerto Rico.

Employee Retirement Income Security Act of 1974

The provision of services to certain employee welfare benefit plans is subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) a complex set of laws and regulations subject to interpretation and enforcement by the Internal Revenue Service and the Department of Labor (DOL). ERISA regulates certain aspects of the relationships between us, the employers who maintain employee welfare benefit plans subject to ERISA and participants in such plans. Some of our administrative services and other activities may also be subject to regulation under ERISA. In addition, certain states require licensure or registration of companies providing third-party claims administration services for benefit plans. We provide a variety of products and services to employee welfare benefit plans that are covered by ERISA. Plans subject to ERISA can also be subject to state laws and the question of whether ERISA preempts a state law has been, and will continue to be, interpreted by many courts.

Other Government Programs

We participate in the Health Reform of the government of Puerto Rico (the Reform) to provide health coverage to medically indigent citizens in Puerto Rico. See “Business—Customers—Reform Sector”.

Legislative and Regulatory Initiatives

Puerto Rico Initiatives

The Commissioner of Insurance is currently evaluating the adoption of Rule No. 83, titled “Norms and Procedures to Regulate Insurance and Health Maintenance Holding Company Systems and the Criteria to Evaluate the Change of Control”. The most recent draft of Rule No. 83 contains certain reporting requirements as well as restrictions on transactions between an insurer or HMO and its affiliates. Rule No. 83 would generally require insurance companies and HMOs within an insurance holding company system to register with the Commissioner of Insurance if they are domiciled in the Commonwealth and to file with the Commissioner of Insurance certain reports describing capital structure, ownership, financial condition, certain intercompany transactions and general business operations. In addition, Rule No. 83 would require prior notice, reporting and regulatory approval of certain material transactions and intercompany transfers

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of assets as well as certain transactions between insurance companies, HMOs, their parent holding companies and affiliates. Among other restrictions, Rule No. 83 would restrict the ability of our regulated subsidiaries to pay dividends.

Additionally, Rule No. 83 would restrict the ability of any person to obtain control of an insurance company or HMO without prior regulatory approval. According to Rule No. 83, no person may make an offer to acquire or to sell the issued and outstanding voting stock of an insurance company, which constitutes 10% or more of the issued and outstanding stock of an insurance company, or of the total stock issued and outstanding of a holding company of an insurance company, without (i) filing the appropriate documentation with the Commissioner of Insurance and (ii) obtaining the prior approval of the Commissioner of Insurance. This requirement is similar to that contained in the Insurance Code and referred to under “Regulation—Puerto Rico Insurance Laws”.

Federal Initiatives

On February 26, 2009, President Obama announced his proposed budget for fiscal year 2010, which supports his comprehensive health care reform agenda. The Obama health care reform plan is expected to address increasing access to health care coverage, reducing the cost of care, and improving the quality of care rendered. The health care reform plan is expected to be financed in large part by reduced expenditures for the Medicare program. The proposed budget projects a minimum savings on health care expenditures of $316 billion by the Federal government over the next decade in the Medicare program, including $176 billon of which will be realized through reduced payments to Medicare Advantage plans as a result of changes in the competitive bidding process for Medicare Advantage contracts. In addition, President Obama’s proposed budget calls for premium increases for certain high-income Medicare beneficiaries.

Consistent with President Obama’s plan, Congress has previously supported financing health care reform by reducing Medicare Advantage subsidies. On August 1, 2007, the U.S. House of Representatives passed the Children’s Health and Medicare Protection Act of 2007 (H.R. 3162), which, among other things, would amend the Social Security Act to improve the federal government’s children’s health insurance program and make other changes under the Medicare and Medicaid programs. H.R. 3162 includes provisions that would gradually reduce Medicare Advantage payments over a four-year period to equalize payments for services made through Medicare Advantage plans and the traditional fee-for-service Medicare program by 2011, consistent with the recommendations contained in MedPac’s 2007 annual report to Congress on Medicare payment policy H.R. 3162 was referred to the Senate on September 4, 2007 for consideration; however, Congress did not enact H.R. 3162. Instead, Congress enacted the Medicare, Medicaid, and SCHIP Extension Act of 2007 in order to protect physician payment reductions through June 30, 2008. This legislation did not include any payment reductions to Medicare Advantage plans, but it included several provisions affecting Medicare Advantage plans, including: (i) extended the statutory authority to allow existing special needs plans (SNPs) to continue to operate through December 31, 2009; (ii) placed a moratorium on approval of new SNPs; and (iii) removed $1.5 billion from the stabilization fund for regional preferred provider organizations in 2012, which would have no impact on plans in Puerto Rico. In its 2009 annual report to Congress, MedPac projected Medicare Advantage payments are likely to exceed payments for comparable Medicare fee-for-service spending in 2009 by 14%, and restated its support financial neutrality between payment rates for traditional Medicare fee-for-service and Medicare Advantage programs, as contained in H.R. 3162. As of the date of this Annual Report on Form 10-K, the U.S. Congress has not enacted H.R. 3162, or any other legislation that includes the MedPac recommendations for gradual reductions in Medicare Advantage payments. We cannot provide assurances if, when or to what degree Congress may enact H.R. 3162 or similar legislation, including the MedPac recommendations, but any reduction in Medicare Advantage rates could have a material adverse effect on our revenue, financial position, results of operations or cash flow.

The Stimulus contains several provisions that expand the scope and enforcement of HIPAA. In general, the Stimulus makes the following additions to and expansions of HIPAA: (i) business associates will be directly subject to certain provisions of HIPAA; (ii) covered entities and business associates must report breaches of unencrypted protected health information to the affected individuals and the Secretary of HHS; (iii) covered entities will have greater responsibilities with respect to the accounting of disclosures of protected health information; (iv) individuals will have greater access to their protected health information and increased ability to request restrictions on the disclosure of their protected health information; (v) there

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will be additional restrictions and prohibitions on the ability of covered entities and business associates to sell protected health information for marketing purposes; (vi) the civil and criminal penalties for violations of HIPAA will be increased; and (vii) State Attorneys General have the authority to file suit in federal district court for alleged violations of HIPAA. The authority granted to State Attorneys General to prosecute HIPAA violations took effect as of February 17, 2009. However, the remaining Stimulus provisions that affect and expand HIPAA will not become effective until February 17, 2010 or thereafter. The Stimulus requires the Secretary of HHS to promulgate regulations interpreting and clarifying the aspects of the Stimulus pertaining to HIPAA. We are a “covered entity” under HIPAA, and therefore, we will monitor the implementation of the Stimulus and the regulations promulgated thereunder, and modify our policies and operations to remain HIPAA compliant.

President Obama and the U.S. Congress are considering a number of proposals to decrease the number of Americans who are uninsured or under-insured for health care, to decrease the costs of health care, and to improve the quality of care. We cannot provide assurances if, when or to what degree Congress may act on any of the proposals and do not know whether any proposal which may be enacted into law will change the way health insurance benefits are structured, sold or administered in the future.

Financial Information About Segments

Operating revenues (with intersegment premiums/service revenues shown separately), operating income and total assets attributable to the reportable segments are set forth in note 27 to the audited consolidated financial statements for the years ended December 31, 2008, 2007 and 2006.

Employees

As of February 28, 2009, we had 2,269 full-time employees and 301 temporary employees. Our managed care subsidiary has a collective bargaining agreement with the Unión General de Trabajadores, which represents approximately 45% of our managed care subsidiary’s 725 regular employees. The collective bargaining agreement expires on July 31, 2012. The Corporation considers its relations with employees to be good.

Available Information

We are an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended) and are required, pursuant to Item 101 of Regulation S-K, to provide certain information regarding its website and the availability of certain documents filed with or furnished to the United States Securities and Exchange Commission (the SEC). Our Internet website is www.triplesmanagement.com. We make available free of charge, or through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. We also include on our Internet website our Corporate Governance Guidelines, our Standards of Ethical Business Conduct and the charter of each standing committee of our Board of Directors. In addition, we intend to disclose on our Internet website any amendments to, or waivers from, our Standards of Ethical Business Conduct that are required to be publicly disclosed pursuant to rules of the SEC and the New York Stock Exchange (NYSE). The SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The website addresses listed above are provided for the information of the reader and are not intended to be an active link. We will provide free of charge copies of our filings to any shareholder that requests them at the following address: Triple-S Management Corporation; Office of the Secretary of the Board; PO Box 363628; San Juan, P.R. 00936-3628.

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include

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information about possible or assumed future sales, results of operations, developments, regulatory approvals or other circumstances and may be found in the Items of this Annual Report on Form 10-K entitled “Item 1—Business”, “Item 1A—Risk Factors”, “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K. Statements that use the terms “believe”, “expect”, “plan”, “intend”, “estimate”, “anticipate”, “project”, “may”, “will”, “shall”, “should” and similar expressions, whether in the positive or negative, are intended to identify forward-looking statements.

All forward-looking statements in this Annual Report on Form 10-K reflect our current views about future events and are based on assumptions and subject to risks and uncertainties. Consequently, actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed in “Item 1A—Risk Factors” and elsewhere in this Annual Report on Form 10-K.

In addition, we operate in a highly competitive, constantly changing environment that is significantly influenced by very large organizations that have resulted from business combinations, aggressive marketing and pricing practices of competitors and regulatory oversight. The following is a summary of factors, the results of which, either individually or in combination, if markedly different from our planning assumptions, could cause our results to differ materially from those expressed in any forward-looking statements contained in this Annual Report on Form 10-K:

• trends in health care costs and utilization rates;

• ability to secure sufficient premium rate increases;

• competitor pricing below market trends of increasing costs;

• re-estimates of our policy and contract liabilities;

• changes in government regulation of managed care, life insurance or property and casualty insurance;

• significant acquisitions or divestitures by major competitors;

• introduction and use of new prescription drugs and technologies;

• a downgrade in our financial strength ratings;

• litigation or legislation targeted at managed care, life insurance or property and casualty insurance companies;

• ability to contract with providers consistent with past practice;

• ability to successfully implement our disease management and utilization management programs;

• volatility in the securities markets and investment losses and defaults;

• general economic downturns, major disasters and epidemics.

The foregoing list should not be construed to be exhaustive. We believe the forward-looking statements in this Annual Report on Form 10-K are reasonable; however, there is no assurance that the actions, events or results anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations or financial condition. In view of these uncertainties, you should not place undue reliance on any forward-looking statements, which are based on our current expectations. Further, forward-looking statements speak only as of the date they are made, and, other than as required by applicable law, including the securities laws of the United States, we do not intend to update or revise any of them in light of new information or future events.

Item 1A. Risk Factors

We must deal with several risk factors during the normal course of business. You should carefully consider the following risks and all other information set forth on this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that are currently deemed immaterial may also impair our business operations. The occurrence of any of the following risks could materially affect our business, financial condition, operating results, and cash flows.

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Risks Relating to our Capital Stock

Certain of our current and former providers may bring materially dilutive claims against us.

Beginning with our founding in 1959 and until 1994, we encouraged, and at times required, the doctors and dentists that comprised our provider network to acquire our shares. Between approximately 1985 and 1994, our predecessor managed care subsidiary, Seguros de Servicios de Salud de Puerto Rico, Inc. (“SSS”) generally entered into an agreement with each new physician or dentist who joined our provider network to sell the provider shares of SSS at a future date (each agreement, a share acquisition agreement). These share acquisition agreements were necessary because there were not enough authorized shares of SSS available during this period and afterwards for issuance to all new providers. Each share acquisition agreement committed SSS to sell, and each new provider to purchase, five $40-par-value shares of SSS at $40 per share after SSS had increased its authorized share capital in compliance with the Puerto Rico Insurance Code and was in a position to issue new shares. Despite repeated efforts in the 1990s, SSS was not successful in obtaining shareholder approval to increase its share capital, other than in connection with the Corporation’s reorganization in 1999, when SSS was merged into a newly-formed entity having authorized capital of 25,000 $40-par-value shares, or twice the number of authorized shares of SSS. SSS’s shareholders did not, however, authorize the issuance of the newly formed entity’s shares to providers or any other third party. In addition, subsequent to the reorganization, our shareholders did not approve attempts to increase our share capital in 2002 and 2003.

Notwithstanding the fact that TSI and its predecessor, SSS, were never in a position to issue new shares to providers as contemplated by the share acquisition agreements because shareholder approval for such issuance was never obtained, and the fact that SSS on several occasions in the 1990s offered providers the opportunity to purchase shares of its treasury stock and such offers were accepted by very few providers, providers who entered into share acquisition agreements may claim that the share acquisition agreements entitled them to acquire our or TSI’s shares at a subscription price equivalent to that provided for in the share acquisition agreements. SSS entered into share acquisition agreements with approximately 3,000 providers, the substantial majority of whom never came to own shares of SSS. Such share acquisition agreements provide for the purchase and sale of approximately 15,000 shares of SSS. If we or TSI were required to issue a significant number of shares in respect of these agreements, the interest of our existing shareholders would be substantially diluted. As of the date of this Annual Report on Form 10-K, only one judicial claim to enforce any of these agreements has been commenced. Additionally, we have received inquiries with respect to less than 700 shares under share acquisition agreements. The share numbers set forth in this paragraph reflect the number of SSS shares provided for in the share acquisition agreements. Those agreements do not include anti-dilution protections and we do not believe that the amounts of any claims under the agreements with SSS should be multiplied to reflect our 3,000-for-one stock split. We cannot provide assurances, however, that claimants will not successfully seek to increase the size of their claims by reference to the stock split.

We have been advised by our counsel that, on the basis of a reasoned analysis, while the matter is not free from doubt and there are no applicable controlling precedents, we should prevail in any litigation of these claims because, among other defenses, the condition precedent to SSS’s obligations under the share acquisition agreements never occurred, and any obligation it may, or we may be deemed to, have had under the share acquisition agreements should be understood to have expired prior to our corporate reorganization, which took effect in 1999, although the share acquisition agreements do not expressly provide for any expiration.

We believe that we should prevail in any litigation with respect to these matters; however, we cannot predict the outcome of any such litigation, including with respect to the magnitude of any claims that may be asserted by any plaintiff, and the interests of our shareholders could be materially diluted to the extent that claims under the share acquisition agreements are successful.

Heirs of certain of our former shareholders may bring materially dilutive claims against us.

For much of our history, we and our predecessor entity have restricted the ownership or transferability of our shares, including by reserving to us or our predecessor a right of first refusal with respect to share transfers and by limiting ownership of such shares to physicians and dentists. In addition, we and our

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predecessor, consistent with the requirements of our and our predecessor’s bylaws, have sought to repurchase shares of deceased shareholders at the amount originally paid for such shares by those shareholders. Nonetheless, former shareholders’ heirs who were not eligible to own or be transferred shares because they were not physicians or dentists at the time of their purported inheritance (“non-medical heirs”), may claim an entitlement to our shares or to damages with respect to the repurchased shares notwithstanding applicable transfer and ownership restrictions. Our records indicate that there may be as many as approximately 450 former shareholders whose non-medical heirs may claim to have inherited up to 10,500,000 shares after giving effect to the 3,000-for-one stock split. As of the date of this Annual Report on Form 10-K, four judicial claim seeking the return of or compensation for 81 shares (prior to giving effect to the 3,000-for-one stock split) had been brought by non-medical heirs of former shareholders whose shares were repurchased upon their death. These heirs purport to represent as a class all non-medical heirs of deceased shareholders whose shares we repurchased. In addition, we have received inquiries from non-medical heirs with respect to less than 700 shares (or 2,100,000 shares after giving effect to the 3,000-for-one stock split).

We believe that we should prevail in litigation with respect to these matters; however, we cannot predict the outcome of any such litigation regarding these non-medical heirs. The interests of our existing shareholders could be materially diluted to the extent that any such claims are successful.

The dual class structure may not successfully protect against significant dilution of your shares of Class B common stock.

We designed our dual class structure of capital stock to offset the potential impact on the value of our Class B common stock attributable to any issuance of shares of common stock for less than market value in respect of a successful claim against us under any share acquisition agreement or by a non-medical heir. We believe that this mechanism will effectively protect investors in our shares of Class B common stock against any potential dilution attributable to the issuance of any shares in respect of such claims at below market prices. We cannot, however, provide any assurances that this mechanism will be effective under all circumstances.

While we expect to prevail against any such claims brought against us and, to the extent that we do not prevail, would expect to issue Class A common stock in respect of any such claim, there can be no assurance that the claimants in any such lawsuit will not seek to acquire Class B common stock. The issuance of a significant number of shares of Class B common stock, if followed by a material further issuance of shares of common stock to separate claimants, could impair the effectiveness of the anti-dilution protections of the Class B common stock. In addition, we cannot provide any assurances that the anti-dilution protections afforded our Class B common stock will not be challenged by share acquisition providers and/or non-medical heir claimants to the extent that these protections limit the percentage ownership of us that may be acquired by such claimants. We believe that such a challenge should not prevail, but cannot provide any assurances of the outcome.

In the event that claimants acquire shares of our managed care subsidiary, TSI, at less than fair value, we will not be able to prevent dilution of the value of the Class B shareholders’ ownership interest in us to the extent that the net value received by such claimants exceeds the value of our outstanding shares of Class A common stock. Finally, the anti-dilution protection afforded by the dual class structure may cease to be of further effect five years following the completion of our initial public offering, at which time all remaining shares of Class A common stock may, at the sole discretion of our board of directors and after considering relevant factors, including market conditions at the time, be converted into shares of Class B common stock even if we have not resolved all claims against us by such time.

Future sales of our Class B common stock, or the perception that such future sales may occur, may have an adverse impact on its market price.

Sales of a substantial number of shares of our common stock in the public market, or the perception that large sales could occur, could cause the market price of our Class B common stock to decline. Either of these limits our future ability to raise capital through an offering of equity securities. There are 22,104,989 shares of Class B common stock and 9,042,809 shares of Class A common stock outstanding as of December 31, 2008. Our Class A common stock is no longer subject to contractual lockup; thus, such shares are freely tradable without restriction or further registration under the Securities Act by persons

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other than our “affiliates” within the meaning of Rule 144 under the Securities Act, although such shares will continue not to be listed on the New York Stock Exchange (NYSE) and will not be fungible with our listed shares of Class B common stock. In addition, at any time following the fifth anniversary of our initial public offering, or such earlier date after the first anniversary of the initial public offering as all claims with respect to which anti-dilution protections are afforded to shares of Class B common stock have been resolved, all or any portion of our shares of Class A common stock may at the sole discretion of our board of directors and after considering relevant factors, including market conditions at the time, be converted to shares of Class B common stock.

Risks Related to Our Business

Our inability to contain managed care costs may adversely affect our business and profitability.

Substantially all of our managed care revenue is generated by premiums consisting of monthly payments per member that are established by contracts with our commercial customers, the government of Puerto Rico (for the Reform program) or the CMS (for our Medicare Advantage and PDP plans), all of which are typically renewable on an annual basis. If our medical expenses exceed our estimates, except in very limited circumstances or as a result of risk score adjustments for member acuity, we will be unable to increase the premiums we receive under these contracts during the then-current terms. As a result, our profitability in any year depends, to a significant degree, on our ability to adequately predict and effectively manage our medical expenses related to the provision of managed care services through underwriting criteria, medical management, product design and negotiation of favorable provider contracts with hospitals, physicians and other health care providers. The aging of the population and other demographic characteristics and advances in medical technology continue to contribute to rising health care costs. Government-imposed limitations on Medicare and Reform reimbursement have also caused the private sector to bear a greater share of increasing health care costs. Also, we have in the past and may in the future enter into new lines of business in which it may be difficult to estimate anticipated costs. Numerous factors affecting the cost of managed care, including changes in health care practices, inflation, new technologies such as genetic laboratory screening for diseases including breast cancer, electronic recordkeeping, the cost of prescription drugs, clusters of high cost cases, changes in the regulatory environment including the implementation of HIPAA amendments under the Stimulus, as well as others, such as implementation of President Obama’s health care reform plan, may adversely affect our ability to predict and manage managed care costs, as well as our business, financial condition and results of operations.

Our inability to implement increases in premium rates on a timely basis may adversely affect our business and profitability.

In addition to the challenge of managing managed care costs, we face pressure to contain premium rates. Our customers may move to a competitor at policy renewal to obtain more favorable premiums. Future Medicare and Reform premium rate levels may be affected by continuing government efforts to contain medical expense or other federal budgetary constraints. In particular, the government of Puerto Rico has adopted several measures to control Reform expenditures, such as closer and continuous scrutiny of participants’ eligibility, redesign of benefits, co-payments, deductibles, and requiring the establishment of disease management programs. Changes in the Medicare and Reform programs, including with respect to funding, may lead to reductions in the amount of reimbursement, elimination of coverage for certain benefits, or reductions in the number of persons enrolled in or eligible for Medicare and the Reform. A limitation on our ability to increase or maintain our premium levels could adversely affect our business, financial condition and results of operations.

Our profitability may be adversely affected if we are unable to maintain our current provider agreements and to enter into other appropriate agreements.

Our profitability is dependent upon our ability to contract on favorable terms with hospitals, physicians and other managed care providers. We face heavy competition from other managed care plans to enter into contracts with hospitals, physicians and other providers in our provider networks. Consolidation in our industry, both on the provider side and on the managed care side, only exacerbates this competition.

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Currently certain providers are pressing for legislation that would allow them to negotiate service fees by group. The failure to maintain or to secure new cost-effective managed care provider contracts may result in a loss in membership or higher medical costs. In addition, our inability to contract with providers could adversely affect our business.

A reduction in the enrollment in our managed care programs could have an adverse effect on our business and profitability.

A reduction in the number of enrollees in our managed care programs could adversely affect our business, financial condition and results of operations. Factors that could contribute to a reduction in enrollment include: failure to obtain new customers or retain existing customers; premium increases and benefit changes; our exit from a specific market; reductions in workforce by existing customers; negative publicity and news coverage; failure to maintain the Blue Shield license; and any general economic downturn that results in business failures.

We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.

Our managed care business participates in government contracts that generate a significant amount of our consolidated premiums earned, net, as follows:

• Reform: We participate in the government of Puerto Rico Health Reform Program to provide health coverage to medically indigent citizens in Puerto Rico. Our results of operations have depended to a significant extent on our participation in the Reform program. During each of the years ended December 31, 2008, 2007 and 2006, the Reform program has accounted for 20.1%, 22.1% and 30.2%, respectively , of our consolidated premiums earned, net. During the 2008 period, we were the sole Reform provider in two of the eight Reform regions in Puerto Rico on a fully insured basis. One region was awarded to us on an ASO basis for a one year period beginning November 1, 2008. Since we obtained our first Reform contract in 1995, we have been the sole provider for two to three regions each year. The contract for each geographical area is subject to termination in the event of any non-compliance by the insurance company which is not corrected or cured to the satisfaction of the government entity overseeing the Reform, or on 90 days’ prior written notice in the event that the government determines that there is an insufficiency of funds to finance the Reform. These contracts have one-year terms and expire on June 30 of each year, except for the Metro-North region contract. Upon the expiration of the contract for a geographical area, the government of the Commonwealth of Puerto Rico usually commences an open bidding process for such area. During the year ended December 31, 2006, this region accounted for 10.7% of our consolidated premiums earned, net and 7.4% of our consolidated operating income. We intend to continue to participate in the Reform program, but we may not be able to retain the right to service a particular geographical area in which we currently operate after the expiration of our current or any future contracts.

• Medicare: We provide services through our Medicare Advantage health plans pursuant to a limited number of contracts with CMS. These contracts generally have terms of one year and must be renewed each year. Each of our contracts with CMS is terminable for cause if we breach a material provision of the contract or violate relevant laws or regulations. If we are unable to renew, or to successfully re-bid or compete for any of these contracts, or if any of these contracts are terminated, our business would be materially impaired. During each of the years ended December 31, 2008, 2007 and 2006, contracts with CMS represented 25.9%, 17.2% and 11.3% of our consolidated premiums earned, net, respectively, and 12.4%, 34.6% and 46.0% of our consolidated operating income, respectively. The Medicare business may in the future represent a greater percentage of our results.

• Commercial: Our managed care subsidiary is a qualified contractor to provide managed care coverage to federal government employees within Puerto Rico. Such coverage is provided pursuant to a contract with the OPM that is subject to termination in the event of noncompliance not corrected to the satisfaction of the OPM. During each of the years ended December 31, 2008, 2007 and 2006 premiums generated under this contract represented 7.3%, 8.2% and 7.5% of our consolidated premiums earned, net, respectively. The operating income generated under this contract represented 1.1% of our consolidated operating income, during each of the years ended December 31, 2008, 2007 and 2006.

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If any of these contracts is terminated for any reason, including by reason of any noncompliance by us, or not renewed or replaced by a comparable contract, our premiums would be materially adversely affected. The further loss or non-renewal of either of our fully insured Reform contracts could have a material adverse effect on our operating results and could result in the downsizing of certain personnel, the cancellation of lease agreements of certain premises and of certain contracts, and severance payments, among others.

A change in our managed care product mix may impact our profitability.

Our managed care products that involve greater potential risk, such as fully insured arrangements, generally tend to be more profitable than ASO products and those managed care products where employer groups retain the risk, such as self-funded financial arrangements. There has been a trend in recent years among our Commercial customers of moving from fully-insured plans to ASO, or self-funded arrangements. In addition, the government of Puerto Rico began a pilot project in 2003 in one of the eight geographical areas under which it contracted for Reform services on an ASO basis for certain members instead of contracting on a fully insured basis. This project was subsequently extended to the Metro-North region. This region was awarded to us again on an ASO basis for a one year period beginning November 1, 2008. There can be no assurance that the government will not implement such a program in areas served by us. As of December 31, 2008, and as a result of us being awarded the Metro-North region contract on an ASO basis, 69.5% of our managed care customers had fully insured arrangements and 30.5% had ASO arrangements, as compared to approximately 83.5% and 16.5%, respectively, as of December 31, 2007. Unfavorable changes in the relative profitability or customer participation among our various products could have a material adverse effect on our business, financial condition, and results of operations.

Our failure to accurately estimate incurred but not reported claims would affect our reported financial results.

A portion of the claim liabilities recorded by our insurance segments represents an estimate of amounts needed to pay and adjust anticipated claims with respect to insured events that have occurred, including events that have not yet been reported to us. These amounts are based on estimates of the ultimate expected cost of claims and on actuarial estimation techniques. Judgment is required in actuarial estimation to ascertain the relevance of historical payment and claim settlement patterns under each segment’s current facts and circumstances. Accordingly, the ultimate liability may be in excess of or less than the amount provided. We regularly compare prior period liabilities to re-estimated claim liabilities based on subsequent claims development; any difference between these amounts is adjusted in the operations of the period determined. Additional information on how each reportable segment determines its claim liabilities, and the variables considered in the development of this amount, is included elsewhere in this Annual Report on Form 10-K under “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation — Critical Accounting Policies”. Actual experience will likely differ from assumed experience, and to the extent the actual claims experience is less favorable than estimated based on our underlying assumptions, our incurred losses would increase and future earnings could be adversely affected.

The termination or modification of our license agreements to use the Blue Shield name and mark could have a material adverse effect on our business, financial condition and results of operations.

We are a party to a license agreement with the BCBSA which entitle us to the exclusive use of the Blue Shield name and mark in Puerto Rico. We believe that the Blue Shield name and mark are valuable identifiers of our products and services in the marketplace. The termination of this license agreement or changes in the terms and conditions of a license agreement could adversely affect our business, financial condition and results of operations.

Our license agreement with the BCBSA contains certain requirements and restrictions regarding our operations and our use of the Blue Shield name and mark. Failure to comply with any of these requirements and restrictions could result in a termination of a license agreement. The standards under a license agreement may be modified in certain instances by the BCBSA. From time to time there have been proposals considered by the BCBSA to modify the terms of a license agreement to restrict various potential business activities of licensees. To the extent that such amendments to the license agreement are adopted

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in the future, they could have a material adverse effect on our future expansion plans or results of operations.

Upon any event causing termination of the license agreements, we would no longer have the right to use the Blue Shield name and mark in Puerto Rico. Furthermore, the BCBSA would be free to issue a license to use the Blue Shield name and mark in Puerto Rico to another entity. Events that could cause the termination of a license agreement with the BCBSA include failure to comply with minimum capital requirements imposed by the BCBSA, a change of control or violation of the BCBSA ownership limitations on our capital stock, impending financial insolvency and the appointment of a trustee or receiver or the commencement of any action against a licensee seeking its dissolution. Accordingly, termination of a license agreement could have a material adverse effect on our business, financial condition and results of operations.

In addition, the BCBSA requires us to comply with certain specified levels of risk based capital (RBC). RBC is designed to identify weakly capitalized companies by comparing each company’s adjusted surplus to its required surplus (the RBC ratio). Although we are currently in compliance with these requirements, we may be unable to continue to comply in the future. Failure to comply with these requirements could result in the revocation or loss of our BCBS license.

Upon termination of a license agreement, the BCBSA would impose a “Re-establishment Fee” upon us, which would allow the BCBSA to “re-establish” a Blue Shield presence in the vacated service area with another managed care company. The fee is currently $89.02 per licensed enrollee. If the re-establishment fee were applied to our total Blue Shield enrollees as of December 31, 2008, we would be assessed approximately $106.4 million by the BCBSA.

See “Item 1 — Business — Blue Shield License” for more information.

Our ability to manage our exposure to underwriting risks in our life insurance and property and casualty insurance businesses depends on the availability and cost of reinsurance coverage.

Reinsurance is the practice of transferring part of an insurance company’s liability and premium under an insurance policy to another insurance company. We use reinsurance arrangements to limit and manage the amount of risk we retain, to stabilize our underwriting results and to increase our underwriting capacity. In the year ended December 31, 2008, 42.9%, or $72.1 million, of the premiums written in the property and casualty insurance segment and 7.6%, or $7.6 million, of the premiums written in the life insurance segment were ceded to reinsurers. In the year ended December 31, 2007, 40.4%, or $69.1 million, of the premiums written in the property and casualty insurance segment and 9.0%, or $8.8 million, of the premiums written in the life insurance segment were ceded to reinsurers. The availability and cost of reinsurance is subject to changing market conditions and may vary significantly over time. Any decrease in the amount of our reinsurance coverage will increase our risk of loss. We may be unable to maintain our desired reinsurance coverage or to obtain other reinsurance coverage in adequate amounts and at favorable rates. If we are unable to renew our expiring coverage or obtain new coverage, it will be difficult for us to manage our underwriting risks and operate our business profitably.

It is also possible that the losses we experience on insured risks for which we have obtained reinsurance will exceed the coverage limits of the reinsurance. See “— Large scale natural disasters may have a material adverse effect on our business, financial condition and results of operation”. If the amount of our reinsurance coverage is insufficient, our insurance losses could increase substantially.

If our reinsurers do not pay our claims or do not pay them in a timely manner, we may incur losses.

We are subject to loss and credit risk with respect to the reinsurers with whom we deal. In accordance with general industry practices, our property and casualty and life insurance subsidiaries annually purchase reinsurance to lessen the impact of large unforeseen losses and mitigate sudden and unpredictable changes in our net income and shareholders equity. Reinsurance contracts do not relieve us from our obligations to policyholders. In the event that all or any of the reinsurance companies are unable to meet their obligations under existing reinsurance agreements or pay on a timely basis, we will continue to be liable to our policyholders notwithstanding such defaults or delays. If our reinsurers are not capable of fulfilling their

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financial obligations to us, our insurance losses would increase, which would negatively affect our financial condition and results of operations.

A downgrade in our A.M. Best rating or our inability to increase our A.M. Best rating could affect our ability to write new business or renew our existing business in our property and casualty segment.

Ratings assigned by A.M. Best are an important factor influencing the competitive position of the property and casualty insurance companies in Puerto Rico. In 2008, A.M. Best maintained our property and casualty insurance subsidiary’s rating of “A-” (the fourth highest of A.M. Best’s 16 financial strength ratings) and changed the outlook to stable. A.M. Best ratings represent independent opinions of financial strength and ability to meet obligations to policyholders and are not directed toward the protection of investors. Financial strength ratings are used by brokers and customers as a means of assessing the financial strength and quality of insurers. A.M. Best reviews its ratings periodically and we may not be able to maintain our current ratings in the future. A downgrade of our property and casualty subsidiary’s rating could severely limit or prevent us from writing desirable property business or from renewing our existing business. The lines of business that property and casualty subsidiary writes and the market in which it operates are particularly sensitive to changes in A.M. Best financial strength ratings.

Significant competition could negatively affect our ability to maintain or increase our profitability.

Managed Care

The managed care industry in Puerto Rico is very competitive. If we are unable to compete effectively while appropriately pricing the business subscribed, our business and financial condition could be materially affected. Competition in the insurance industry is based on many factors, including premiums charged, services provided, speed of claim payments and reputation. This competitive environment has produced and will likely continue to produce significant pressures on the profitability of managed care companies. In addition, the managed care market in Puerto Rico, other than the Medicare Advantage market, is mature. According to the U.S. Census Bureau, Puerto Rico’s population grew by 0.3% between July 2007 and 2008, less than half the national population rate growth of 0.9% during the same period. As a result, in order to increase our profitability we must increase our membership in the new Medicare Advantage program, increase market share in the commercial sector, improve our operating profit margins, make acquisitions or expand geographically. In Puerto Rico, several managed care plans and other entities were awarded contracts for Medicare Advantage or stand-alone Medicare prescription drug plans and entered that market in 2006 and 2007. We anticipate that these other plans will aggressively market their benefits to our current and our prospective members. Although we believe that we market an attractive offering, there are no assurances that we will be able to compete successfully with these other plans for new members, or that our current members will not choose to terminate their relationship with us and enroll in these other plans. Concentration in our industry also has created an increasingly competitive environment, both for customers and for potential acquisition targets, which may make it difficult for us to grow our business. The parent companies of some of our competitors are larger and have greater financial and other resources than we do. We may have difficulty competing with larger managed care companies, which can create downward price pressures on premium rates. We may not be able to compete successfully against current and future competitors. Competitive pressures faced by us may adversely affect our business, financial condition and results of operations. In addition, our rights under the BCBSA license only extend to the use of the “Blue Shield” name and mark in Puerto Rico. The exclusive right to use the “Blue Cross” name and mark in Puerto Rico is currently held by La Cruz Azul de Puerto Rico

Future legislation at the federal and local levels also may result in increased competition in our market. While we do not anticipate that any of the current legislative proposals of which we are aware would increase the competition we face, future legislative proposals, if enacted, might do so.

Complementary Products

The property and casualty insurance market in Puerto Rico is extremely competitive. Due to the relatively low level of economic growth in Puerto Rico, there are few new sources of business in this segment. As a result, property and casualty insurance companies compete for the same accounts through aggressive

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pricing, more favorable policy terms and better quality of services. We also face heavy competition in the life and disability insurance market.

We believe these trends will continue. There can be no assurance that these competitive pressures will not adversely affect our business, financial condition and results of operations.

As a holding company, we are largely dependent on rental payments, dividends and other payments from our subsidiaries, although the ability of our regulated subsidiaries to pay dividends or make other payments to us is subject to the regulations of the Commissioner of Insurance, including maintenance of minimum levels of capital, as well as covenant restrictions in their indebtedness.

We are a holding company whose assets include, among other things, all of the outstanding shares of common stock of our subsidiaries, including our regulated insurance subsidiaries. We principally rely on rental income and dividends from our subsidiaries to fund our debt service, dividend payments and operating expenses, although our subsidiaries do not declare dividends every year. We also benefit to a lesser extent from income on our investment portfolio.

Our insurance subsidiaries are subject to the regulations of the Commissioner of Insurance. See “—Our insurance subsidiaries are subject to minimum capital requirements. Our failure to meet these requirements could subject us to regulatory action”. These regulations, among other things, require insurance companies to maintain certain levels of capital, thereby restricting the amount of earnings that can be distributed. Our subsidiaries’ ability to make any payments to us will also depend on their earnings, the terms of their indebtedness, if any, business and other legal restrictions. Furthermore, our subsidiaries are not obligated to make funds available to us, and creditors of our subsidiaries have a superior claim to such subsidiaries’ assets. Our subsidiaries may not be able to pay dividends or otherwise contribute or distribute funds to us in an amount sufficient for us to meet our financial obligations. In addition, from time to time, we may find it necessary to provide financial assistance, either through subordinated loans or capital infusions to our subsidiaries.

In addition, we are subject to RBC requirements by the BCBSA. See “—The termination or modification of our license agreements to use the Blue Shield name and mark could have a material adverse effect on our business, financial condition and results of operations”.

Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry.

Results of companies in the insurance industry, and particularly the property and casualty insurance industry, historically have been subject to significant fluctuations and uncertainties. The industry’s profitability can be affected significantly by:

• rising levels of actual costs that are not known by companies at the time they price their products;

• volatile and unpredictable developments, including man-made and natural catastrophes;

• changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers’ liability develop; and

• fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returns on invested capital.

Historically, the financial performance of the insurance industry has fluctuated in cyclical periods of low premium rates and excess underwriting capacity resulting from increased competition, followed by periods of high premium rates and a shortage of underwriting capacity resulting from decreased competition. Fluctuations in underwriting capacity, demand and competition, and the impact on us of the other factors identified above, could have a negative impact on our results of operations and financial condition. We believe that underwriting capacity and price competition in the current market is increasing. This additional underwriting capacity may result in increased competition from other insurers seeking to expand the kinds or amounts of business they write or cause some insurers to seek to maintain market share at the expense of underwriting discipline. We may not be able to retain or attract customers in the future at prices we consider adequate.

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If we do not effectively manage the growth of our operations, we may not be able to achieve our profitability targets.

Our growth strategy includes enhancing our market share in Puerto Rico, entering new geographic markets, introducing new insurance products and programs, further developing our relationships with independent agencies or brokers and pursuing acquisition opportunities. Our strategy is subject to various risks, including risks associated with our ability to:

• identify profitable new geographic markets to enter;

• operate in new geographic areas, as we have very limited experience operating outside Puerto Rico;

• obtain licenses in new geographic areas in which we wish to market and sell our products;

• successfully implement our underwriting, pricing, claims management and product strategies over a larger operating region;

• properly design and price new and existing products and programs and reinsurance facilities for markets in which we have no direct experience;

• identify, train and retain qualified employees;

• identify, recruit and integrate new independent agencies and brokers and expand the range of Triple-S products carried by our existing agents and brokers;

• develop a network of physicians, hospitals and other managed care providers that meets our requirements and those of applicable regulators; and

• augment our internal monitoring and control systems as we expand our business.

We also may encounter difficulties in the implementation of our growth strategies. For instance, our BCBSA license entitles us to use the Blue Shield name and mark only in Puerto Rico. We currently are not able to use the Blue Shield name and mark in areas outside Puerto Rico. In addition, we may enter into markets or product lines in which we have little or no prior experience. For example, we plan to expand our operations outside Puerto Rico and to expand our property and casualty insurance segment through the establishment of an auto preferred rate insurance company, which will write personal auto policies at discounted rates.

Any such risks or difficulties could limit our ability to implement our growth strategies or result in diversion of senior management time and adversely affect our financial results.

We face intense competition to attract and retain employees and independent agents and brokers.

We are dependent on retaining existing employees, attracting and retaining additional qualified employees to meet current and future needs and achieving productivity gains. Our life insurance subsidiary, TSV, has historically experienced a very high level of turnover in its home service agents, through which it places a majority of its premiums, and we expect this trend to continue. Our inability to retain existing employees or attract additional employees could have a material adverse effect on our business, financial condition and results of operations.

In addition, in order to market our products effectively, we must continue to recruit, retain and establish relationships with qualified independent agents and brokers. We may not be able to recruit, retain and establish relationships with agents and brokers. Independent agents and brokers are typically not exclusively dedicated to us and may frequently also market our competitors’ managed care products. We face intense competition for the services and allegiance of independent agents and brokers. If such agents and brokers do not help us to maintain our current customer accounts or establish new accounts, our business and profitability could be adversely affected.

Our investment portfolios are subject to varying economic and market conditions.

We have exposure to market risk and credit risk in our investment activities. The fair values of our investments vary from time to time depending on economic and market conditions. Fixed maturity securities expose us to interest rate risk. Equity securities expose us to equity price risk. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. These and other factors also affect the equity securities owned by us.

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The outlook of our investment portfolio depends on the future direction of interest rates, fluctuations in the equity securities market and in the amount of cash flows available for investment. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk’’ for an analysis of our exposure to interest and equity price risks and the procedures in place to manage these risks. Our investment portfolios may lose money in future periods, which could have a material adverse effect on our financial condition.

In addition, our insurance subsidiaries are subject to local laws and regulations that require diversification of our investment portfolios and limit the amount of investments in certain riskier investment categories, such as below-investment-grade fixed income securities, mortgage loans, real estate and equity investments, amongst others, which could generate higher returns on our investments. If we fail to comply with these laws and regulations, any investments exceeding regulatory limitations would be treated as non-admitted assets for purposes of measuring statutory surplus and risk-based capital, and, in some instances, we may be required to sell those investments.

The securities and credit markets recently have been experiencing extreme volatility and disruption.

Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, and other investments, our profitability and/or our financial position, and we do not expect these conditions to improve in the near future.

The global capital markets, including credit markets, have experienced extreme volatility, uncertainty and disruption during 2008 and the beginning of 2009. As an insurer, we have a substantial investment portfolio that is comprised particularly of debt securities of issuers located in the U.S. As a result, the income we earn from our investment portfolio is largely driven by the level of interest rates in the U.S, financial markets, and volatility, uncertainty and/or disruptions in the global capital markets, particularly the U.S. credit markets, and governments’ monetary policy, particularly the easing of U.S. monetary policy, can significantly and adversely affect the value of our investment portfolio, our profitability and/or our financial position by:

• Significantly reducing the value of the debt securities we hold in our investment portfolio, and creating net realized capital losses that reduces our operating results and/or net unrealized capital losses that reduce our shareholders’ equity.

• Reducing interest rates on high quality short-term debt securities and thereby materially reducing our net investment income and operating results.

• Making it more difficult to value certain of our investment securities, for example if trading becomes less frequent, which could lead to significant period-to-period changes in our estimates of the fair values of those securities and cause period-to-period volatility in our operating results and shareholders’ equity.

• Reducing our ability to issue other securities.

The volatility and disruption in the securities and credit markets has impacted our investment portfolio. We evaluate our investment securities for impairment on a quarterly basis. This review is subjective and requires a high degree of judgment. For the purpose of determining gross realized gains and losses, the cost of investment securities is based upon specific identification. During 2008, we realized losses associated with other-than-temporary impairments of $16.5 million. Gross unrealized losses were $3.5 million and gross unrealized gains were $6.1 million at December 31, 2008. Given current market conditions, there is a continuing risk that further declines in fair value may occur and additional material realized losses from sales or other-than-temporary impairments may be recorded in future periods.

We believe our cash balances, investment securities, operating cash flows, and funds available under our credit agreement, taken together, provide adequate resources to fund ongoing operating and regulatory requirements. However, continuing adverse securities and credit market conditions could significantly affect the availability of credit.

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The geographic concentration of our business in Puerto Rico may subject us to economic downturns in the region.

Substantially all of our business activity is with insureds located throughout Puerto Rico, and as such, we are subject to the risks associated with the Puerto Rico economy. Preliminary reports on the performance of the Puerto Rico economy for fiscal year 2008 indicate that real gross national product decreased 2.5% and the forecast for fiscal year 2009 projects a decline of 3.4%. The major factors affecting the economy are, among others, high oil prices, the slowdown of economic activity in the United States, the continuing economic uncertainty generated by the budgetary deficiency affecting the government of Puerto Rico and the effects on the economy of a recently implemented sales tax.

The Commonwealth of Puerto Rico government is currently facing a fiscal deficit which has been estimated at approximately $3.0 billion or over 30% of its annual budget. On March 9, 2009, the Governor signed the Special Lay on the Fiscal Emergency, which provides for additional revenue generation measures, sets forth a cost reduction plan, including a reduction in public-sector employment, and provides for a number of financial initiatives geared towards achieving a balanced budget in four years. Since the government is an important source of employment on the Island, theses measures could have the effect of intensifying the current recessionary cycle.

If economic conditions in Puerto Rico deteriorate, we may experience a reduction in existing and new business, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to retain our executive officers and significant employees, and the loss of any one or more of these officers and their expertise could adversely affect our business.

Our operations are highly dependent on the efforts of our senior executives, each of whom has been instrumental in developing our business strategy and forging our business relationships. While we believe that we could find replacements, the loss of the leadership, knowledge and experience of our executive officers could adversely affect our business. Replacing many of our executive officers might be difficult or take an extended period of time because a limited number of individuals in the industries in which we operate have the breadth and depth of skills and experience necessary to operate and expand successfully a business such as ours. We do not currently maintain key-man life insurance on any of our executive officers.

The success of our business depends on developing and maintaining effective information systems.

Our business and operations may be affected if we do not maintain and upgrade our information systems and the integrity of our proprietary information. We are materially dependent on our information systems for all aspects of our business operations, including monitoring utilization and other factors, supporting our managed care management techniques, processing provider claims and providing data to our regulators, and our ability to compete depends on our ability to continue to adapt technology on a timely and cost-effective basis. Malfunctions in our information systems, communication and energy disruptions, security breaches or the failure to maintain effective and up-to-date information systems could disrupt our business operations, alienate customers, contribute to customer and provider disputes, result in regulatory violations and possible liability, increase administrative expenses or lead to other adverse consequences. The use of patient data by all of our businesses is regulated at federal and local levels. These laws and rules change frequently and developments require adjustments or modifications to our technology infrastructure.

Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs. If we are unable to maintain or expand our systems, we could suffer from, among other things, operational disruptions, such as the inability to pay claims or to make claims payments on a timely basis, loss of members, difficulty in attracting new members, regulatory problems and increases in administrative expenses. We have substantially completed a system conversion process related to our property and casualty insurance business, which was begun in April 2005, at an estimated cost of $4.0 million. In addition, we selected Quality Care Solutions, Inc., a wholly owned subsidiary of Trizzetto, Inc, to assess and implement new core business applications for our managed care segment. We completed an initial assessment during 2007, with the first line of business expected to be converted in the first half of the 2010. We expect the managed care conversion process to be completed by 2012, at a total cost of approximately $64.0 million. If we are unsuccessful in implementing these improvements in a timely manner or if these improvements do not meet our customers’ requirements, we may not be able to recoup these costs and expenses and effectively compete in our industry.

Our business requires the secure transmission of confidential information over public networks. Advances in computer capabilities, new discoveries in the field of cryptography or other event or developments could result in compromises or breaches of our security system and patient data stored in our information systems. Anyone who circumvents our security measures could misappropriate our confidential

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information or cause interruptions in services or operations. The Internet is a public network and data is sent over this network from many sources. In the past, computer viruses or software programs that disable or impair computers have been distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems, or those of our providers or regulators, which could disrupt our operations, or make our systems inaccessible to our providers or regulators. We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. Because of the confidential health information we store and transmit, security breaches could expose us to a risk of regulatory action, litigation, possible liability and loss. Our security measures may be inadequate to prevent security breaches, and our business operations would be adversely affected by cancellation of contracts and loss of members if they are not prevented.

We face risks related to litigation.

In addition to the litigation risks discussed above in “—Risks Relating to Our Capital Stock” we are, or may be in the future, a party to a variety of legal actions that affect any business, such as employment and employment discrimination-related suits, employee benefit claims, breach of contract actions, tort claims and intellectual property-related litigation. In addition, because of the nature of our business, we may be subject to a variety of legal actions relating to our business operations, including the design, management and offering of our products and services. These could include:

• claims relating to the denial of managed care benefits;

• medical malpractice actions;

• allegations of anti-competitive and unfair business activities;

• provider disputes over compensation and termination of provider contracts;

• disputes related to self-funded business;

• disputes over co-payment calculations;

• claims related to the failure to disclose certain business practices;

• claims relating to customer audits and contract performance; and

• claims by regulatory agencies or whistleblowers for regulatory non-compliance, including but not limited to fraud.

We are a defendant in various lawsuits, including a class action, some of which involve claims for substantial and/or indeterminate amounts and the outcome of which is unpredictable. While we are defending these suits vigorously, we will incur expenses in the defense of these suits. Any adverse judgment against us resulting in such damage awards could have an adverse effect on our cash flows, results of operations and financial condition. See ''Item 3—Legal Proceedings’’.

Large-scale natural disasters may have a material adverse effect on our business, financial condition and results of operations.

Puerto Rico has historically been at a relatively high risk of natural disasters such as hurricanes and earthquakes. If Puerto Rico were to experience a large-scale natural disaster, claims incurred by our property and casualty insurance segment would likely increase and our properties may incur substantial damage, which could have a material adverse effect on our business, financial condition and results of operations.

Covenants in our secured term loan and note purchase agreements may restrict our operations.

We are a party to a secured loan with a commercial bank for an aggregate amount of $41.0 million, for which we had an outstanding balance of $24.3 million as of December 31, 2008. Also, we have an aggregate principal amount of $145.0 million of senior unsecured notes outstanding, consisting of $50.0 million aggregate principal amount of 6.30% notes due 2019, $60.0 million aggregate principal amount of 6.60% notes due 2020 and $35.0 million aggregate principal amount of 6.70% notes due 2021 (collectively, the notes). The secured term loan and the note purchase agreements governing the notes contain covenants that restrict, among other things, the granting of certain liens, limitations on acquisitions and limitations on changes in control. These covenants could restrict our operations. In addition, if we fail to make any required payment under our secured term loan or note purchase agreements governing the notes or to

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comply with any of the covenants included therein, we would be in default and the lenders or holders of our debt, as the case may be, could cause all of our outstanding debt obligations under our secured term loan or note purchase agreements to become immediately due and payable, together with accrued and unpaid interest and, in the case of the secured term loan, cease to make further extensions of credit. If the indebtedness under our secured term loan or note purchase agreements is accelerated, we may be unable to repay or finance the amounts due and our business may be materially adversely affected.

We may incur additional indebtedness in the future. Covenants related to such indebtedness could also adversely affect our ability to pursue desirable business opportunities.

We may incur additional indebtedness in the future. Our debt service obligations may require us to use a portion of our cash flow to pay interest and principal on debt instead of for other corporate purposes, including funding future expansion. If our cash flow and capital resources are insufficient to service our debt obligations, we may be forced to seek extraordinary dividends from our subsidiaries, sell assets, seek additional equity or debt capital or restructure our debt. However, these measures might be prohibited by applicable regulatory requirements or unsuccessful or inadequate in permitting us to meet scheduled debt service obligations.

We may also incur future debt obligations that might subject us to restrictive covenants that could affect our financial and operational flexibility. Our breach or failure to comply with any of these covenants could result in a default under our secured term loan and note purchase agreements and the acceleration of amounts due thereunder. Indebtedness could also limit our ability to pursue desirable business opportunities, and may affect our ability to maintain an investment grade rating for our indebtedness.

We expect to pursue acquisitions in the future.

We may acquire additional companies if consistent with our strategic plan for growth. The following are some of the risks associated with acquisitions that could have a material adverse effect on our business, financial condition and results of operations:

• disruption of on-going business operations, distraction of management, diversion of resources and difficulty in maintaining current business standards, controls and procedures;

• difficulty in integrating information technology of acquired entity and unanticipated expenses related to such integration;

• difficulty in the integration of the new company’s accounting, financial reporting, management, information, human resources and other administrative systems and the lack of control if such integration is delayed or not implemented;

• difficulty in the implementation of controls, procedures and policies appropriate for filers with the SEC at companies that prior to acquisition lacked such controls, policies and procedures;

• potential unknown liabilities associated with the acquired company;

• failure of acquired businesses to achieve anticipated revenues, earnings or cash flow;

• dilutive issuances of equity securities and incurrence of additional debt to finance acquisitions;

• other acquisition-related expenses, including amortization of intangible assets and write-offs; and

• competition with other firms, some of which may have greater financial and other resources, to acquire attractive companies.

In addition, we may not successfully realize the intended benefits of any acquisition or investment.

We could be subject to possible regulatory actions in connection with alleged illegal political contributions.

Miguel Vázquez-Deynes, who was president and chief executive officer of the Company from January 1990 to April 2002, prior to the time that we became an SEC registrant, stated during a radio interview in October 2007 that he had testified to a federal grand jury to having caused the Company to effect illegal political contributions totaling over $100,000 between 1996 and 2000. Mr. Vázquez-Deynes has stated

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publicly that the payments in question were made to Puerto Rico public relations firms for the purpose of concealing the fact that they exceeded the amounts permitted by applicable Puerto Rico election laws. Mr. Vázquez-Deynes’ testimony was given in connection with an ongoing investigation by the U.S. Attorney’s Office for the District of Puerto Rico into illegal political contributions in Puerto Rico. The Puerto Rico Legislative Assembly, the Puerto Rico Department of Justice and the Puerto Rico Office of the Commissioner of Insurance subsequently launched separate investigations into the matters described by Mr. Vázquez-Deynes. The Company is cooperating fully with all requests made of it in connection with these investigations.

There may be, or could in the future be, other investigations by governmental authorities relating to these matters. The current and any such future investigations could result in actions against us or certain of our current or former employees. These actions could result in fines, penalties, sanctions, injunctions against future conduct, third party litigation or other actions that could have a material adverse effect on our business, financial condition, share price and reputation, including by impairing government contracts and adversely affecting our ability to obtain future contracts and participate in governmental payor programs.

Following the airing of Mr. Vázquez’s allegations, the Company’s board of directors hired outside counsel from Clifford Chance US, LLP, a law firm that had no prior relationship with the Company, to conduct an internal investigation into these allegations. The investigation was completed in February 2008 and concluded that any misconduct was limited to the matters alleged by Mr. Vázquez-Deynes and limited to the period when he was an officer of the Company. No current officer or director of the Company was found to have acted improperly. Our internal controls today are substantially more comprehensive than those in place during the period when these events took place and we believe these controls reduce the possibility of any similar event occurring in the future. Although we cannot predict the outcome of the government investigations described above, management does not currently believe that they will result in actions having a material adverse effect on the Company.

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Risks Relating to Taxation

If the Company is considered to be a controlled foreign corporation under the related person insurance income rules for U.S. federal income tax purposes, U.S. persons that own the Company’s shares of Class B common stock could be subject to adverse tax consequences.

The Company does not expect that it will be considered a controlled foreign corporation under the related person insurance income rules (a RPII CFC) for U.S. federal income tax purposes. However, because RPII CFC status depends in part upon the correlation between an insurance company’s shareholders and such company’s insurance customers and the extent of such company’s insurance business outside its country of incorporation, there can be no assurance that the Company will not be a RPII CFC in any taxable year. The Company does not intend to monitor whether or not it generates RPII or becomes an RPII CFC. If the Company were a RPII CFC in any taxable year, certain adverse tax consequences could apply to U.S. persons that own the Company’s shares of Class B common stock.

If the Company is considered to be a passive foreign investment company for U.S. federal income tax purposes, U.S. persons that own the Company’s shares of Class B common stock could be subject to adverse tax consequences.

The Company does not expect that it will be considered a ''passive foreign investment company’’ (a PFIC) for U.S. federal income tax purposes. However, since PFIC status depends upon the composition of a company’s income and assets and the market value of its assets (including, among others, less than 25 percent owned equity investments and the Company’s ability to use the proceeds from its initial public offering in a timely fashion) from time to time, there can be no assurance that the Company will not be considered a PFIC for any taxable year. The Company’s belief that it is not a PFIC is based, in part, on the fact that the PFIC rules include provisions intended to provide an exception for bona fide insurance companies predominately engaged in an insurance business. However, the scope of this exception is not entirely clear and there are no administrative pronouncements, judicial decisions or Treasury regulations that provide guidance as to the application of the PFIC rules to insurance companies. If the Company were treated as a PFIC for any taxable year, certain adverse consequences could apply to certain U.S. persons that own the Company’s shares of Class B common stock.

Risks Relating to the Regulation of Our Industry

Changes in governmental regulations, or the application thereof, may adversely affect our business, financial condition and results of operations.

Our business is subject to changing Federal and local legal, legislative and regulatory environments, including general business regulations and laws relating to taxation, privacy, data protection and pricing. Please refer to “Item 1—Business — Regulation”. In addition, our insurance subsidiaries are subject to the regulations of the Commissioner of Insurance. Some of the more significant proposed regulatory changes that may affect our business are:

• initiatives to provide greater access to coverage for uninsured and under-insured populations;

• enhanced efforts to improve quality of health care;

• Reform and Medicare reform legislation;

• local government plans and initiatives;

• increased government concerns regarding fraud and abuse; and

• initiatives to increase health care regulation, including efforts to expand the tort liability of health plans.

On February 26, 2009, President Obama announced his proposed budget for fiscal year 2010, which supports his comprehensive health care reform agenda. The Obama health care reform plan is expected to address increasing access to health care coverage, reducing the cost of care, and improving the quality of care rendered. The Obama health care reform plan is expected to be financed in large part by reduced expenditures for the Medicare program. The proposed budget projects a minimum savings on health care

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expenditures of $316 billion by the Federal government over the next decade in the Medicare program, including $176 billon of which will be realized through reduced payments to Medicare Advantage plans as a result of changes in the competitive bidding process for Medicare Advantage contracts. In addition, President Obama’s proposed budget calls for premium increases for certain high-income Medicare beneficiaries.

The U.S. Congress is developing legislation aimed at patient protection, including proposed laws that could expose insurance companies to damages, and in some cases punitive damages, for certain coverage determinations including the denial of benefits or delay in providing benefits to members. Similar legislation has been proposed in Puerto Rico. Congressional committees are currently considering MedPac recommendations to lower Medicare Advantage rates to ensure financial neutrality with the traditional Medicare program. We cannot provide any assurance if, when or to what degree Congress may act on any of the proposals and we do not know whether any proposal which may be enacted into law will change the way health insurance benefits are structured, sold or administered in the future. The enactment of laws that change the way health insurance benefits are structured, sold or administered could have a material adverse effect on the Company’s business, financial conditions and results of operations.

Regulations imposed by the Commissioner of Insurance, among other things, influence how our insurance subsidiaries conduct business and solicit subscriptions for shares of capital stock, and place limitations on investments and dividends. Possible penalties for violations of such regulations include fines, orders to cease or change practices or behavior and possible suspension or termination of licenses. The regulatory powers of the Commissioner of Insurance are designed to protect policyholders, not shareholders. While we cannot predict the terms of future regulation, the enactment of new legislation could affect the cost or demand of insurance policies, limit our ability to obtain rate increases in those cases where rates are regulated, otherwise restrict our operations, limit the expansion of our business, expose us to expanded liability or impose additional compliance requirements. In addition, we may incur additional operating expenses in order to comply with new legislation and may be required to revise the ways in which we conduct our business.

Future regulatory actions by the Commissioner of Insurance or other governmental agencies could have a material adverse effect on the profitability or marketability of our business, financial condition and results of operations.

We may be subject to regulatory and investigative proceedings, which may find that our policies, procedures and contracts do not fully comply with complex and changing healthcare regulations.

The Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, including but not limited to CMS, the OIG, the Office of the Civil Rights of HHS, the U.S. Department of Justice, and the OPM, regularly make inquiries and conduct audits concerning our compliance with applicable insurance and other laws and regulations. We may become the subject of regulatory or other investigations or proceedings brought by these authorities, and our compliance with and interpretation of applicable laws and regulations may be challenged. In addition, our regulatory compliance may also be challenged by private citizens under the “whistleblower provisions” of applicable laws. The defense of any such challenge could result in substantial cost and a diversion of management’s time and attention. Thus, any such challenge could have a material adverse effect on our business, regardless of whether it ultimately is successful. If we fail to comply with any applicable laws, or a determination is made that we have failed to comply with these laws, our financial condition and results of operations could be adversely affected.

An adverse review, audit or an investigation could result in one or more of the following:

• recoupment of amounts we have been paid pursuant to our government contracts;

• mandated changes in our business practices;

• imposition of significant civil or criminal penalties, fines or other sanctions on us and/or our key employees;

• loss of our right to participate in Medicare, the Reform or other federal or local programs; damage to our reputation;

• increased difficulty in marketing our products and services;

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• inability to obtain approval for future services or geographic expansions; and

• loss of one or more of our licenses to act as an insurance company, preferred provider or managed care organization or other licensed entity or to otherwise provide a service.

Our failure to maintain an effective corporate compliance program may increase our exposure to civil damages and penalties, criminal sanctions and administrative remedies, such as program exclusion, resulting from an adverse review. Any adverse review, audit or investigation could reduce our revenue and profitability and otherwise adversely affect our operating results.

As a Medicare Advantage program participant, we are subject to complex regulations. If we fail to comply with these regulations, we may be exposed to criminal sanctions and significant civil penalties, and our Medicare Advantage contracts may be terminated.

The laws and regulations governing Medicare Advantage program participants are complex, subject to interpretation and can expose us to penalties for non-compliance. If we fail to comply with these laws and regulations, we could be subject to criminal fines, civil penalties or other sanctions, including the termination of our Medicare Advantage contracts.

The revised rate calculation system for Medicare Advantage and the payment system for the Medicare Part D established by the MMA could reduce our profitability.

Effective January 1, 2006, a revised rate calculation system based on a competitive bidding process was instituted for Medicare Advantage managed care plans, including our Medicare Selecto and Medicare Optimo plans. The statutory payment rate was relabeled as the benchmark amount, and plans submit competitive bids that reflect the costs they expect to incur in providing the base Medicare benefits. If the accepted bid is less than the benchmark, Medicare pays the plan its bid plus a rebate of 75% of the amount by which the benchmark exceeds the bid. However, these rebates can only be used to enhance benefits or lower premiums and co-pays for plan members. If the bid is greater than the benchmark, the plan will be required to charge a premium to enrollees equal to the difference between the bid and the benchmark, which could affect our ability to attract enrollees. CMS reviews the methodology and assumptions used in bidding with respect to medical and administrative costs, profitability and other factors. CMS could challenge such methodology or assumptions or seek to cap or limit plan profitability.

Furthermore, President Obama’s proposed budget expects to save over $175 billion over a ten year period based on reductions in subsidies to Medicare Advantage plans by changes in the competitive bidding process.

In addition, the Medicare Part D prescription drug benefit payments to plans are determined through a competitive bidding process, and enrollee premiums also are tied to plan bids. The bids reflect the plan’s expected costs for a Medicare beneficiary of average health; CMS adjusts payments to plans based on enrollees’ health and other factors. The program is largely subsidized by the federal government and is additionally supported by risk-sharing between Medicare Part D plans and the federal government through risk corridors designed to limit the profits or losses of the drug plans and reinsurance for catastrophic drug costs. The government payment amount to plans is based on the national weighted average monthly bid for basic Part D coverage, adjusted for member demographics and risk factor payments. The beneficiary will be responsible for the difference between the government payment amount and his or her plan’s bid, together with the amount of his or her plan’s supplemental premium (before rebate allocations), subject to the co-pays, deductibles and late enrollment penalties, if applicable. Additional subsidies are provided for dual-eligible beneficiaries and specified low-income beneficiaries. Medicare also subsidizes 80% of drug spending above an enrollee’s catastrophic threshold.

We face the risk of reduced or insufficient government funding and we may need to terminate our Medicare Advantage and/or Part D contracts with respect to unprofitable markets, which may have a material adverse effect on our financial position, results of operations or cash flows. In addition, as a result of the competitive bidding process, our ability to participate in the Medicare Advantage and/or the Part D programs is effected by the pricing and design of our competitors’ bids. Moreover, we may in the future be required to reduce benefits or charge our members an additional premium in order to maintain our current

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level of profitability, either of which could make our health plans less attractive to members and adversely affect our membership.

CMS’s risk adjustment payment system and budget neutrality factors make our revenue and profitability difficult to predict and could result in material retroactive adjustments to our results of operations.

CMS has implemented a risk adjustment payment system for Medicare Advantage plans to improve the accuracy of payments and establish incentives for such plans to enroll and treat less healthy Medicare beneficiaries. CMS phased in this payment methodology with a risk adjustment model that bases a portion of the total CMS reimbursement payments on various clinical and demographic factors. CMS requires that all managed care companies capture, collect and submit the necessary diagnosis code information to CMS for reconciliation with CMS’s internal database. As a result of this process, it is difficult to predict with certainty our future revenue or profitability. In addition, our own risk scores for any period may result in favorable or unfavorable adjustments to the payments we receive from CMS and our Medicare payment revenue. There can be no assurance that our contracting physicians and hospitals will be successful in improving the accuracy of recording diagnosis code information, which has an impact on our risk scores.

Payments to Medicare Advantage plans are also adjusted by a ''budget neutrality’’ factor that was implemented in 2003 by Congress and CMS to prevent health plan payments from being reduced overall while, at the same time, directing risk adjusted payments to plans with more chronically ill enrollees. In general, this adjustment has favorably impacted payments to all Medicare Advantage plans. However, this adjustment is schedule to be gradually being phased out by 2011. Furthermore, MedPac continues to recommend that Congress enact legislation that reduces Medicare Advantage payment to equalize payments for services made through Medicare Advantage plans and the traditional fee-for-service Medicare program. As of the date of this Annual Report on Form 10-K, Congress has not enacted legislation that contains the MedPac recommendations. However, we cannot provide assurance if, when or to what degree Congress may enact legislation including the MedPac recommendations, but any reduction in Medicare Advantage rates could have a material adverse effect on our revenue, financial position, results of operations or cash flow.

If during the open enrollment season our Medicare Advantage members enroll in another Medicare Advantage plan, they will be automatically disenrolled from our plan, possibly without our immediate knowledge.

Pursuant to the MMA, members enrolled in one insurer’s Medicare Advantage program will be automatically unenrolled from that program if they enroll in another insurer’s Medicare Advantage program. If our members enroll in another insurer’s Medicare Advantage program during the open enrollment season, we may not discover that such member has been unenrolled from our program until such time as we fail to receive reimbursement from the CMS in respect of such member, which may occur several months after the end of the open season. As a result, we may discover that a member has unenrolled from our program after we have already provided services to such individual. Our profitability would be reduced as a result of such failure to receive payment from CMS if we had made related payments to providers and were unable to recoup such payments from them.

If we are deemed to have violated the insurance company change of control statutes in Puerto Rico, we may suffer adverse consequences.

We are subject to change of control statutes applicable to insurance companies. These statutes regulate, among other things, the acquisition of control of an insurance company or a holding company of an insurance company. Under these statutes, no person may make an offer to acquire or to sell the issued and outstanding voting stock of an insurance company, which constitutes 10% or more of the issued and outstanding stock of an insurance company, or of the total stock issued and outstanding of a holding company of an insurance company, or solicit or receive funds in exchange for the issuance of new shares of our or our insurance subsidiaries’ capital stock, without the prior approval of the Commissioner of Insurance. Our amended and restated articles of incorporation (the articles) prohibit any institutional investor from owning 10% or more of our voting power and any person that is not an institutional investor from owning 5% or more of our voting power. We cannot, however, assure you that ownership of our securities will remain below these thresholds. To the extent that a person, including an institutional

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investor, acquires shares in excess of these limits, our articles provide that we will have the power to take certain actions, including refusing to give effect to a transfer or instituting proceedings to enjoin or rescind a transfer, in order to avoid a violation of the ownership limitation in the articles. If the Commissioner of Insurance determines that a change of control has occurred, we could be subject to fines and penalties, and in some instances the Commissioner of Insurance would have the discretion to revoke our operating licenses.

We are also subject to change of control limitations pursuant to our BCBSA license agreements. The BCBSA ownership limits restrict beneficial ownership of our voting capital stock to less than 10% for an institutional investor and less than 5% for a non-institutional investor, both as defined in our articles. In addition, no person may beneficially own shares of our common stock or other equity securities, or a combination thereof, representing a 20% or more ownership interest, whether voting or non-voting, in our company. This provision in our articles cannot be changed without the prior approval of the BCBSA and the vote of holders of at least 75% of our common stock.

Our insurance subsidiaries are subject to minimum capital requirements. Our failure to meet these standards could subject us to regulatory actions.

Puerto Rico insurance laws and the regulations promulgated by the Commissioner of Insurance, among other things, require insurance companies to maintain certain levels of capital, thereby restricting the amount of earnings that can be distributed by our insurance subsidiaries to us. Although we are currently in compliance with these requirements, there can be no assurance that we will continue to comply in the future. Failure to maintain required levels of capital or to otherwise comply with the reporting requirements of the Commissioner of Insurance could subject our insurance subsidiaries to corrective action, including government supervision or liquidation, or require us to provide financial assistance, either through subordinated loans or capital infusions, to our subsidiaries to ensure they maintain their minimum statutory capital requirements.

We are also subject to minimum capital requirements pursuant to our BCBSA license agreements. See “—The termination or modification of our license agreements to use the Blue Shield name and mark could have an adverse effect on our business, financial condition and results of operations”.

We are required to comply with laws governing the transmission, security and privacy of health information.

Certain implementing regulations of HIPAA require us to comply with standards regarding the formats for electronic transmission, and the privacy and security of certain health information within our company and with third parties, such as managed care providers, business associates and our members. While we have agreements in place with our business associates we have limited control over their operations regarding the privacy and security of protected heath information. The HIPAA regulations also provide access rights and other rights for health plan beneficiaries with respect to their health information. These regulations include standards for certain electronic transactions, including encounter and claims information, health plan eligibility and payment information. Compliance with HIPAA is enforced by HHS’s Office for Civil Rights for privacy, CMS for security and electronic transactions, and by the U.S. Department of Justice for criminal violations, and by States Attorneys General once the HIPAA amendments under the Stimulus are implemented. Further, the Gramm-Leach-Bliley Act imposes certain privacy and security requirements on insurers that may apply to certain aspects of our business as well.

We continue to implement and revise our health information policies and procedures to monitor and ensure our compliance with these laws and regulations, including the HIPAA amendments under the Stimulus. Furthermore, Puerto Rico’s ability to promulgate its own laws and regulations (including those issued in response to the Gramm-Leach-Bliley Act), such as Act No. 194 of August 25, 2000, also known as the Patient’s Rights and Responsibilities Act, including those more stringent than HIPAA, and uncertainty regarding many aspects of such state requirements, make compliance with applicable health information laws more difficult. For these reasons, our total compliance costs may increase in the future.

Puerto Rico insurance laws and regulations and provisions of our articles and bylaws could delay, deter or prevent a takeover attempt that shareholders might consider to be in their best interests and may make

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it more difficult to replace members of our board of directors and have the effect of entrenching management.

Puerto Rico insurance laws and the regulations promulgated thereunder, and our articles and bylaws may delay, defer, prevent or render more difficult a takeover attempt that our shareholders might consider to be in their best interests. For instance, they may prevent our shareholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

Our license agreements with the BCBSA require that our articles contain certain provisions, including ownership limitations. See “—If we are deemed to have violated the insurance company change of control provisions in Puerto Rico insurance laws, we may suffer adverse consequences’’.

Other provisions included in our articles and bylaws may also have anti-takeover effects and may delay, defer or prevent a takeover attempt that our shareholders might consider to be in their best interests. In particular, our articles and bylaws:

• permit our board of directors to issue one or more series of preferred stock;

• divide our board of directors into three classes serving staggered three-year terms;

• limit the ability of shareholders to remove directors;

• impose restrictions on shareholders’ ability to fill vacancies on our board of directors;

• impose advance notice requirements for shareholder proposals and nominations of directors to be considered at meetings of shareholders; and

• impose restrictions on shareholders’ ability to amend our articles and bylaws.

See also “—If we are deemed to have violated the insurance company change of control provisions in Puerto Rico insurance laws, we may suffer adverse consequences’’.

Puerto Rico insurance laws and the regulations promulgated by the Commissioner of Insurance may also delay, defer, prevent or render more difficult a takeover attempt that our shareholders might consider to be in their best interests. For instance, the Commissioner of Insurance must review any merger, consolidation or new issue of shares of capital stock of an insurer or its parent company and make a determination as to the fairness of the transaction. Also, a director of an insurer must meet certain requirements imposed by Puerto Rico insurance laws.

These voting and other restrictions may operate to make it more difficult to replace members of our board of directors and may have the effect of entrenching management regardless of their performance.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own a seven story (including the basement floor) building located at 1441 F.D. Roosevelt Avenue, in San Juan, Puerto Rico, and two adjacent buildings, as well as the adjoining parking lot. In addition, we own five floors of a fifteen-story building located at 1510 F.D. Roosevelt Avenue, in Guaynabo, Puerto Rico. The properties are subject to liens under our credit facilities. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources”.

In addition to the properties described above, we or our subsidiaries are parties to operating leases that are entered into in the ordinary course of business.

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We believe that our facilities are in good condition and that the facilities, together with capital improvements and additions currently underway, are adequate to meet our operating needs for the foreseeable future. The need for expansion, upgrading and refurbishment of facilities is continually evaluated in order to keep facilities aligned with planned business growth and corporate strategy.

Item 3. Legal Proceedings.

As of December 31, 2008, the Company is a defendant in various lawsuits arising in the ordinary course of business. We are also defendants in various other claims and proceedings, some of which are described below. Furthermore, the Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, regularly make inquiries and conduct audits concerning the Corporation’s compliance with applicable insurance and other laws and regulations.

Management believes that the aggregate liabilities, if any, arising from all such claims, assessments, audits and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of the Corporation. However, given the inherent unpredictability of these matters, it is possible that an adverse outcome in certain matters could have a material adverse effect on our financial condition, operating results and/or cash flows. Where the Corporation believes that a loss is both probable and estimable, such amounts have been recorded. In other cases, it is at least reasonably possible that the Corporation may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Corporation is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution.

Additionally, we may face various potential litigation claims that have not to date been asserted, including claims from persons purporting to have contractual rights to acquire shares of the Corporation on favorable terms or to have inherited such shares notwithstanding applicable transfer and ownership restrictions. See “Item 1A—Risk Factors — Risks Relating to our Capital Stock”.

Hau et al Litigation (formerly known as Jordan et al)

On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against the Corporation, TSI and others in the Court of First Instance for San Juan, Superior Section (the “Court”), alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, antitrust violations, unfair business practices, RICO violations, breach of contract with providers, and damages in the amount of $12 million. Following years of complaint amendments, motions practice and interim appeals up to the level of the Puerto Rico Supreme Court, the plaintiffs amended their complaint on June 20, 2008 to allege with particularity the same claims initially asserted but on behalf of a more limited group of plaintiffs, and increase their claim for damages to approximately $207 million. At a status conference held on August 18, 2008, the parties informed the Court that they had reached an agreement to try to simplify the case. Based on the agreement, which was approved by the Court, the defendants sent a letter to the plaintiffs on September 19, 2008 explaining the reasons why the allegations of the amended complaint should be dismissed. We are currently waiting for the plaintiffs to reply.

Thomas Litigation

On May 22, 2003, Kenneth A. Thomas, M.D. and Michael Kutell, M.D. filed a putative class action suit against the Blue Cross Blue Shield Association and substantially all of the other Blue Cross and Blue Shield plans in the United States, including TSI. The complaint alleges that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to doctors so that they are not paid in a timely manner for the covered medically necessary services they render. TSI, along with the other defendants, moved to dismiss the complaint on multiple grounds, including but not limited an arbitration right and the applicability of the McCarran Ferguson Act. The parties announced a Settlement Agreement on April 27, 2007 and on April 19, 2008, the Court granted final approval of the settlement. A small group of physicians filed an appeal of the settlement that is pending in the Eleventh Circuit. The Company recorded an accrual for the settlement that is included within accounts payable and accrued liabilities in the accompanying consolidated financial statements.

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Colón Litigation

On October 15, 2007, José L. Colón-Dueño, a former holder of one share of TSI predecessor stock, filed suit against TSI and the Puerto Rico Commissioner of Insurance (the Commissioner) in the Court of First Instance for San Juan, Superior Section. The sale of that share to Mr. Colón-Dueño was voided in 1999 pursuant to an order issued by the Commissioner in which the sale of 1,582 shares to a number of TSI shareholders was voided. The Puerto Rico Court of Appeals upheld the order on March 31, 2000. The plaintiff requests that the court direct TSI to return his share of stock and pay damages in excess of $500,000 and attorney’s fees. TSI, however, had appealed the Commissioner’s order before the Puerto Rico Court of Appeals, which upheld the order on March 31, 2000. Therefore, management plans to vigorously contest this lawsuit because, among other reasons, the Commissioner’s order is final and cannot be collaterally attacked in this litigation.

Puerto Rico Center for Municipal Revenue Collection

On March 1, 2006 and March 3, 2006, respectively, the Puerto Rico Center for Municipal Revenue Collection (CRIM) imposed a real property tax assessment of approximately $1.3 million and a personal property tax assessment of approximately $4.0 million upon TSI for fiscal years 1992-1993 through 2002-2003. During that time, TSI qualified as a tax-exempt entity under Puerto Rico law pursuant to rulings issued by the Puerto Rico tax authorities. In imposing the tax assessments, CRIM revoked the tax rulings retroactively, based on its contention that a for-profit corporation such as TSI is not entitled to such an exemption. On March 28, 2006 and March 29, 2006, respectively, TSI challenged the real and personal property tax assessments in the Court of First Instance for San Juan, Superior Section. The court granted summary judgment affirming the real property and personal property tax assessments on October 29, 2007 and December 5, 2007, respectively.

After unsuccessfully filing motions for reconsideration in both cases, TSI appealed the court’s decisions before the Puerto Rico Court of Appeals on November 29, 2007 and February 21, 2008, respectively. TSI also requested a consolidation of both cases, which the Court of Appeals approved on April 17, 2008. On May 27, 2008, TSI submitted a motion to the Court of Appeals requesting the Court to take notice of a recent decision of the Puerto Rico Supreme Court that addresses administrative law issues involving other parties and which TSI believes confirms its position that the rulings issued by the Puerto Rico tax authorities may not be revoked on a retroactive basis. On June 30, 2008 the Court of Appeals confirmed the summary judgment issued by the Court of First Instance in both property tax cases. On September 29, 2008, TSI timely filed a certiorari petition with the Puerto Rico Supreme Court, which is currently pending. Management believes that these municipal tax assessments are improper and expects to prevail in this litigation.

Dentists Association Litigation

On February 11, 2009, the Puerto Rico Dentists Association (Colegio de Cirujanos Dentistas de Puerto Rico, or “CCD”) filed a complaint in the Puerto Rico Court of First Instance for San Juan against 24 health plans operating in Puerto Rico that offer dental health coverage. The Company, TSI, and Triple-C, Inc., a Company subsidiary, were included as defendants. This litigation purports to be a class action filed on behalf of Puerto Rico dentists who are similarly situated; however, the complaint does not include a single dentist as a class representative nor a definition of the intended class.

The complaint alleges that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to dentists so that they are not paid in a timely and complete manner for the covered medically necessary services they render. The complaint also alleges, among other things, violations to the Puerto Rico Insurance Code, antitrust laws, the Puerto Rico racketeering statute, unfair business practices, breach of contract with providers, and damages in the amount of $150 million. In addition, the complaint claims that the Puerto Rico Insurance Companies Association (“ACODESE” for its Spanish acronym) is the hub of an alleged conspiracy concocted by the member plans to defraud dentists.

There are numerous available defenses to oppose both the request for class certification and the merits. The Company intends to vigorously defend this claim.

Claims by Heirs of Former Shareholders

The Company and TSI are also defending four individual lawsuits and one purported class action, all filed in state court, from persons who claim to have inherited a total of 90 shares of the Company or one of its

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predecessors (before giving effect to the 3,000-for-one stock split). While each case presents unique facts, the lawsuits generally allege that the redemption of the shares by the Company pursuant to transfer and ownership restrictions contained in the Company’s (or its predecessor’s) articles of incorporation and bylaws was improper. On February 18, 2009, the Court of First Instance for San Juan, Superior Section, issued an order granting our motion to dismiss the purported class action suit, on grounds that the claim was time barred under the Puerto Rico Securities Act. Motions to dismiss are pending in a majority of the remaining cases and discovery has begun in all of them. Management believes all these claims are time barred under one or more statutes of limitations, and intends to vigorously defend against them.

Item 4. Submissions of Matters to a Vote of Security Holders.

None.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is no established public trading market for our Class A common stock. Our Class B common stock is listed and began trading on the New York Stock Exchange (the NYSE) on December 7, 2007 under the trading symbol “GTS”. Prior to this date our Class B common stock had no established public trading market.

The following table presents high and low sales prices for the periods in which our Class B common stock was publicly traded:

	High		Low
2007
Fourth quarter (beginning December 7, 2007)	$	21.20	$	14.78
2008
First quarter	$	21.69	$	16.83
Second quarter		19.94		16.34
Third quarter		18.05		15.19
Fourth quarter		16.43		6.55

On February 27, 2009 the closing price of our Class B common stock on the NYSE was $11.51.

Holders

As of February 27, 2009, there were 9,042,809 and 21,069,773 shares of Class A and Class B common Stock outstanding, respectively. The number of our holders of Class A and Class B common stock as of February 5, 2009 was 1,922 and 4,357, respectively.

Dividends

Subject to the limitations under Puerto Rico corporation law and any preferential dividend rights of outstanding preferred stock, of which there is currently none outstanding, holders of common stock are entitled to receive their pro rata share of such dividends or other distributions as may be declared by our board of directors out of funds legally available therefore.

Our ability to pay dividends is dependent on cash dividends from our subsidiaries. Our subsidiaries are subject to regulatory surplus requirements and additional regulatory requirements, which may restrict their ability to declare and pay dividends or distributions to us. We are required to maintain minimum capital of $1.0 million for our managed care subsidiary, $2.5 million for our life insurance subsidiary and $3.0

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million for our property and casualty insurance subsidiary. In addition, our secured term loan restricts our ability to pay dividends if a default thereunder has occurred and is continuing. Please refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Restriction on Certain Payments by the Corporation’s Subsidiaries”.

In March 2007, we declared and paid dividends amounting to approximately $2.4 million. In January 2006 we declared and paid dividends amounting to $6.2 million. We did not declare any dividends in prior years.

We do not expect to pay any cash dividends for the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. The ultimate decision to pay a dividend, however, remains within the discretion of our board of directors and may be affected by various factors, including our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual limitations and other considerations our board of directors deems relevant.

Securities Authorized for Issuance Under Equity Compensation Plan

The information required by this item is incorporated by reference to the section “Compensation Discussion and Analysis” included in our definitive Proxy Statement.

Recent Sales of Unregistered Securities

Not applicable.

Purchases of Equity Securities by the Issuer

The following table presents information related to our repurchases of common stock for the period indicated:

					Total Number of		Approximate Dollar
					Shares Purchased as		Value of Shares
					Part of Publicly		that May Yet Be
	Total Number of		Average Price Paid		Announced		Purchased Under the
(Dollar amounts in millions, except per share data)	Shares Purchased		per Share		Programs1		Programs
December 1, 2008 to December 31, 2008		1,181,500	$	11.75		1,181,500	$	26.1

¹ In October 2008, the Board of Directors authorized a $40.0 million share repurchase program, which commenced on December 8, 2008.

Performance Graph

The following graph compares the cumulative total return to shareholders on our Class B common stock for the period from December 7, 2007, the date our Class B common stock began trading on the NYSE, through December 31, 2008, with the cumulative total return over such period of (i) the Standard and Poor’s 500 Stock Index (the S&P 500 Index) and (ii) the Morgan Stanley Healthcare Payor Index (the MSHP Index). For illustrative purposes, the graph assumes an investment of $100 on December 7, 2007 in each of our Class B common stock, the S&P 500 Index and the MSHP Index. The performance graph is not necessarily indicative of future performance.

The comparisons shown in the graph are based on historical data and the Corporation cautions that the stock price in the graph below is not indicative of, and is not intended to forecast, the potential future performance of our Class B common stock. Information used in the preparation of the graph was obtained from Bloomberg, a source we believe to be reliable, however, the Corporation is not responsible for any errors or omissions in such information.

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Comparison of cumulative return of Class B Common Stock 12/7/2007 $100.00 12/31/2007 $133.40 $97.59 $100.38 3/31/2008 $116.50 $87.91 $65.25 6/30/2008 $107.92 $85.07 $58.66 9/30/2008 $107.52 $77.52 $61.83 12/31/2008 $75.91 $60.03 $45.37

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Item 6. Selected Financial Data.

Statement of Earnings Data

	2008			2007			2006 (1)		2005			2004
(Dollar amounts in millions, except per share data)
Years ended December 31,
Premiums earned, net	$	1,695.5			1,483.6			1,511.6		1,380.2			1,299.0
Administrative service fees		19.2			14.0			14.1		14.4			9.2
Net investment income		56.2			47.2			42.7		29.1			26.8
Total operating revenues		1,770.9			1,544.8			1,568.4		1,423.7			1,335.0
Net realized investments gains (losses)		(13.9	)		5.9			0.8		7.2			11.0
Net unrealized investment gain (loss) on trading securities		(21.1	)		(4.1	)		7.7		(4.7	)		3.0
Other income (loss), net		(2.5	)		3.2			2.3		3.7			3.4
Total revenues		1,733.4			1,549.8			1,579.2		1,429.9			1,352.4
Benefits and expenses:
Claims incurred		1,434.9			1,223.8			1,259.0		1,208.3			1,115.8
Operating expenses		251.9			237.5			236.1		181.7			171.9
Total operating costs		1,686.8			1,461.3			1,495.1		1,390.0			1,287.7
Interest expense		14.7			15.9			16.6		7.6			4.6
Total benefits and expenses		1,701.5			1,477.2			1,511.7		1,397.6			1,292.3
Income before taxes		31.9			72.6			67.5		32.3			60.1
Income tax expense		7.1			14.1			13.0		3.9			14.3
Net income		24.8			58.5			54.5		28.4			45.8
Basic net income per share (2):	$	0.77			2.15			2.04		1.06			1.71
Diluted net income per share:	$	0.77			2.15			2.04		1.06			1.71
Dividend declared per common share (3):	$	—			0.82			0.23		—			—

Balance Sheet Data

December 31,	2008		2007		2006 (1)		2005		2004
Cash and cash equivalents	$	46.1		240.2		81.6		49.0		35.1
Total assets	$	1,548.5		1,659.5		1,345.5		1,137.5		919.7
Long-term borrowings	$	169.3		170.9		183.1		150.6		95.7
Total stockholders’ equity	$	485.9		482.5		342.6		308.7		301.4

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Additional Managed Care Data ⁽⁴⁾

	2008			2007			2006 (1)			2005			2004
Additional Managed Care Data (4)
Years ended December 31,
Medical loss ratio		88.9	%		87.1	%		87.6	%		90.3	%		88.3	%
Operating expense ratio		10.5	%		11.2	%		11.5	%		10.8	%		10.8	%
Medical membership (period end)		1,195,450			977,190			979,506			1,252,649			1,236,108

(1)	On January 31, 2006 we completed the acquisition of GA Life (now TSV). The results of operations and financial condition of GA Life are included in this table for the period following the effective date of the acquisition. See note 18 to the audited consolidated financial statements for the years ended December 31, 2008, 2007 and 2006.
(2)	Further details of the calculation of basic earnings per share are set forth in notes 2 and 22 of the audited financial consolidated financial statements for the years ended December 31, 2008, 2007 and 2006.
(3)	Shareowners holding qualifying shares were excluded from dividend payment. See note 19 of the audited financial consolidated financial statements for the years ended December 31, 2008, 2007 and 2006.
(4)	Does not reflect inter-segment eliminations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This financial discussion contains an analysis of our consolidated financial position and financial performance as of December 31, 2008 and 2007, and consolidated results of operations for 2008, 2007 and 2006. This analysis should be read in its entirety and in conjunction with the consolidated financial statements, notes and tables included elsewhere in this Annual Report on Form 10-K.

Overview

We are the largest managed care company in Puerto Rico in terms of membership, with 50 years of experience in the managed care industry. We offer a broad portfolio of managed care and related products in the Commercial, Commonwealth of Puerto Rico Health Reform (the Reform) and Medicare (including Medicare Advantage and the Part D stand-alone prescription drug plans (PDP)) markets. The Reform is a government of Puerto Rico-funded managed care program for the medically indigent, similar to the Medicaid program in the U.S. We have the exclusive right to use the Blue Shield name and mark throughout Puerto Rico, serve approximately 1.2 million members across all regions of Puerto Rico and hold a leading market position covering approximately 30% of the population. For the years ended December 31, 2008 and 2007 respectively, our managed care segment represented approximately 89.2% and 87.7% of our total consolidated premiums earned, net, and approximately 62.6% and 68.7% of our operating income. We also have significant positions in the life insurance and property and casualty insurance markets. Our life insurance segment had a market share of approximately 11% (in terms of premiums written) as of December 31, 2007. Our property and casualty segment had a market share of approximately 8% (in terms of direct premiums) as of December 31, 2007.

We participate in the managed care market through our subsidiary, TSI. Our managed care subsidiary is a BCBSA licensee, which provides us with exclusive use of the Blue Shield brand in Puerto Rico. We offer products to the Commercial, including corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement, Reform and Medicare (including Medicare Advantage and PDP) markets.

We participate in the life insurance market through our subsidiary, TSV, and in the property and casualty insurance market through our subsidiary, STS. TSV and STS represented approximately 5.5% each, of our consolidated premiums earned, net for the year ended December 31, 2008 and 14.9% and 15.6%, respectively, of our operating income for that period.

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The Commissioner of Insurance of the Commonwealth of Puerto Rico recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Puerto Rico insurance laws and for determining whether its financial condition warrants the payment of a dividend to its stockholders. No consideration is given by the Commissioner of Insurance of the Commonwealth of Puerto Rico to financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) in making such determinations. See note 25 to our audited consolidated financial statements.

Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated, the numbers presented in this Annual Report on Form 10-K do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in consolidation and do not change net income. The following table shows premiums earned, net and net fee revenue and operating income for each segment, as well as the intersegment premiums earned, service revenues and other intersegment transactions, which are eliminated in the consolidated results:

	Years ended December 31,
(Dollar amounts in millions)	2008			2007			2006
Premiums earned, net:
Managed care	$	1,513.0			1,301.8			1,339.8
Life insurance		92.8			88.9			86.9
Property and casualty insurance		93.8			96.9			88.5
Intersegment premiums earned		(4.1	)		(4.0	)		(3.6	)
Consolidated premiums earned, net	$	1,695.5			1,483.6			1,511.6
Administrative service fees:
Managed care	$	22.5			17.2			16.9
Intersegment premiums earned		(3.3	)		(3.2	)		(2.8	)
Consolidated administrative service fees	$	19.2			14.0			14.1
Operating income:
Managed care	$	52.6			57.4			45.5
Life insurance		12.5			10.7			11.2
Property and casualty insurance		13.1			10.7			11.2
Intersegment premiums earned		5.9			4.7			5.4
Consolidated operating income	$	84.1			83.5			73.3

We have one-year contracts with the government of Puerto Rico to be the Reform insurance carrier for two of the eight geographical regions into which Puerto Rico is divided for purposes of the Reform. In October 2006, the contract for the Metro-North region, for which we were the carrier, was awarded to another managed care company, effective November 1, 2006. This region was awarded to us again on an ASO basis for a one year period beginning November 1, 2008. The premiums earned, net of the Metro-North region during the years 2006 and 2005 amounted to $161.6 million and $200.9 million, respectively. The operating income of this region during the years 2006 and 2005 amounted to $5.4 million and $3.5 million, respectively.

Results of Operations

Revenue

General. Our revenue consists primarily of (i) premium revenue we generate from our managed care business, (ii) administrative service fees we receive for administrative services provided to self-insured employers (ASO), (iii) premiums we generate from our life insurance and property and casualty insurance businesses and (iv) investment income.

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Managed Care Premium Revenue. Our revenue primarily consists of premiums earned from the sale of managed care products to the Commercial market sector, including corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement, as well as to the Medicare Advantage (including PDP) and Reform sectors. We receive a monthly payment from or on behalf of each member enrolled in our commercial managed care plans (excluding ASO). We recognize all premium revenue in our managed care business during the month in which we are obligated to provide services to an enrolled member. Premiums we receive in advance of that date are recorded as unearned premiums.

Premiums are generally fixed by contract in advance of the period during which healthcare is covered. Our Commercial premiums are generally fixed for the plan year in the annual renewal process. Our Medicare Advantage contracts entitle us to premium payments from CMS on behalf of each Medicare beneficiary enrolled in our plans, generally on a per member per month (PMPM) basis. We submit rate proposals to CMS in June for each Medicare Advantage product that will be offered beginning January 1 of the subsequent year in accordance with the new competitive bidding process under the MMA. Retroactive rate adjustments are made periodically with respect to our Medicare Advantage plans based on the aggregate health status and risk scores of our plan participants.

Premium payments from CMS in respect of our Medicare Part D prescription drug plans are based on written bids submitted by us which include the estimated costs of providing the prescription drug benefits.

Administrative Service Fees. Administrative service fees include amounts paid to us for administrative services provided to self-insured employers. We provide a range of customer services pursuant to our administrative services only (ASO) contracts, including claims administration, billing, access to our provider networks and membership services. Administrative service fees are recognized in the month in which services are provided.

Other Premium Revenue. Other premium revenue includes premiums generated from the sale of life insurance and property and casualty insurance products. Premiums on life insurance policies are billed in the month prior to the effective date of the policy, with a one-month grace period, and the related revenue is recorded as earned during the coverage period. If the insured fails to pay within the one-month grace period, we may cancel the policy. We recognize premiums on property and casualty contracts as earned on a pro rata basis over the policy term. Property and casualty policies are subscribed through general agencies, which bill policy premiums to their clients in advance or, in the case of new business, at the inception date and remit collections to us, net of commissions. The portion of premiums related to the period prior to the end of coverage is recorded in the consolidated balance sheet as unearned premiums and is transferred to premium revenue as earned.

Investment Income and Other Income. Investment income consists of interest income and other income consists of net realized gains (losses) on investment securities. See note 2(e) to our audited consolidated financial statements.

Expenses

Claims Incurred. Our largest expense is medical claims incurred, or the cost of medical services we arrange for our members. Medical claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. We generally pay our providers on one of three bases: (1) fee-for-service contracts based on negotiated fee schedules; (2) capitated arrangements, generally on a fixed PMPM payment basis, whereby the provider generally assumes some of the medical expense risk; and (3) risk-sharing arrangements, whereby we advance a capitated PMPM amount and share the risk of the medical costs of our members with the provider based on actual experience as measured against pre-determined sharing ratios. Claims incurred also include claims incurred in our life insurance and property and casualty insurance businesses. Each segment’s results of operations depend in significant part on our ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period.

The medical loss ratio (MLR), which is calculated by dividing managed care claims incurred by managed care premiums earned, net is one of our primary management tools for measuring these costs and their

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impact on our profitability. The medical loss ratio is affected by the cost and utilization of services. The cost of services is affected by many factors, in particular our ability to negotiate competitive rates with our providers. The cost of services is also influenced by inflation and new medical discoveries, including new prescription drugs, therapies and diagnostic procedures. Utilization rates, which reflect the extent to which beneficiaries utilize healthcare services, significantly influence our medical costs. The level of utilization of services depends in large part on the age, health and lifestyle of our members, among other factors. As the medical loss ratio is the ratio of claims incurred to premiums earned, net it is affected not only by our ability to contain cost trends but also by our ability to increase premium rates to levels consistent with or above medical cost trends. We use medical loss ratios both to monitor our management of healthcare costs and to make various business decisions, including what plans or benefits to offer and our selection of healthcare providers.

Operating Expenses. Operating expenses include commissions to external brokers, general and administrative expenses, cost containment expenses such as case and disease management programs, and depreciation and amortization. The operating expense ratio is calculated by dividing operating expenses by premiums earned, net and administrative service fees. A significant portion of our operating expenses are fixed costs. Accordingly, it is important that we maintain or increase our volume of business in order to distribute our fixed costs over a larger membership base. Significant changes in our volume of business will affect our operating expense ratio and results of operations. We also have variable costs, which vary in proportion to changes in volume of business.

Membership

Our results of operation depend in large part on our ability to maintain or grow our membership. In addition to driving revenues, membership growth is necessary to successfully introduce new products, maintain an extensive network of providers and achieve economies of scale. Our ability to maintain or grow our membership is affected principally by the competitive environment and general market conditions.

In recent years, we have experienced a decrease in our fully insured commercial membership due to the highly aggressive pricing of our competitors, which has also affected our ability to increase premiums, and the shifting of Medicare eligibles from our Medicare Supplement program to Medicare Advantage plans offered by our competitors and, to a lesser extent, ourselves. Membership in our Reform program has also been affected by the shifting of Reform program members to such Medicare Advantage plans.

The Medicare Advantage program (including PDP) provided us a significant opportunity for growth in membership. We commenced offering Medicare Advantage products in 2005, with the introduction of our Medicare Selecto and Medicare Optimo plans. Membership enrolled in our Medicare Advantage programs increased by 71.4% in 2008; from 38,070 as of December 31, 2007 to 65,243 members as of December 31, 2008. In January 2006, we launched our stand-alone PDP plan, FarmaMed, which as of December 31, 2008 and 2007 had 10,037 and 11,175 members, respectively. We expect our Medicare Advantage enrollment to continue to grow, but not at the same pace as we have seen in the past.

The following table sets forth selected membership data as of the dates set forth below:

	As of December 31,
	2008		2007		2006
Commercial (1)		592,723		574,251		580,850
Reform(2)		527,447		353,694		357,515
Medicare (3)		75,280		49,245		41,141
Total		1,195,450		977,190		979,506

(1)	Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees.
(2)	Includes rated and self-funded members.
(3)	Includes Medicare Advantage as well as stand-alone PDP plan membership.

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Consolidated Operating Results

The following table sets forth our consolidated operating results for the years ended December 31, 2008, 2007 and 2006.

(Dollar amounts in millions)	2008			2007			2006
Years ended December 31,
Revenues:
Premiums earned, net	$	1,695.5			1,483.6			1,511.6
Administrative service fees		19.2			14.0			14.1
Net investment income		56.2			47.2			42.7
Total operating revenues		1,770.9			1,544.8			1,568.4
Net realized investment (losses) gains		(13.9	)		5.9			0.8
Net unrealized investment gain (loss) on trading securities		(21.1	)		(4.1	)		7.7
Other income (expense), net		(2.5	)		3.2			2.3
Total revenues		1,733.4			1,549.8			1,579.2
Benefits and expenses:
Claims incurred		1,434.9			1,223.8			1,259.0
Operating expenses		251.9			237.5			236.1
Total operating costs		1,686.8			1,461.3			1,495.1
Interest expense		14.7			15.9			16.6
Total benefits and expenses		1,701.5			1,477.2			1,511.7
Income before taxes		31.9			72.6			67.5
Income tax expense		7.1			14.1			13.0
Net income	$	24.8			58.5			54.5

Year ended December 31, 2008 compared with the year ended December 31, 2007

Operating Revenues

Consolidated premiums earned, net and administrative service fees increased by $217.1 million, or 14.5%, to $1.7 billion during the year ended December 31, 2008 compared to the year ended December 31, 2007. This increase was primarily due to an increase in the premiums earned, net in our managed care segment, principally due to a higher volume in the Medicare Advantage business and general increases in premium rates. The administrative service fees of the managed care segment also increased during the 2008 period mostly as the result of an increased member months enrollment that is mainly attributed to the contract for the Reform’s Metro-North region, which began on November 1, 2008 on an ASO basis.

Consolidated net investment income presented an increase of $9.0 million, or 19.1%, to $56.2 million during the year ended December 31, 2008. This increase is attributed to a higher yield in 2008 as well as to a higher balance of invested assets.

Net Realized Investment Losses

Consolidated net realized investment losses of $13.9 million during the year ended December 31, 2008 are primarily the result of other-than-temporary impairments related to equity and fixed income securities amounting to $16.5 million due to other-than-temporary impairments in three equity mutual funds that replicate the Russell 1000, Standard & Poor’s 500 and EAFE indexes as well as for certain perpetual preferred securities. The other-than-temporary impairments were offset in part by $2.6 million of net realized gains from the sale of fixed income and equity securities.

Net Unrealized Loss on Trading Securities and Other Income (Expense), Net

The combined balance of our consolidated net unrealized loss on trading securities and other income (expense), net was a loss of $23.6 million during the year ended December 31, 2008, an increase of $22.7

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million, as compared to the combined loss of $0.9 million in 2007. This increase is attributable to the net result of the unrealized loss on the trading portfolio, together with a decrease the fair value of the derivative component of our investment in structured notes linked to the Euro Stoxx 50 and Nikkei 225 stock indexes amounting to $4.7 million due to general market conditions. The unrealized loss experienced on trading securities represents a decrease of 36.67% and 35.78% in TSI and 36.82% in STS in the fair value of the portfolio, which is lower than the decrease experienced by the comparable indexes of 37.0% in the S&P 500 Index and 38.44% in the Russell 1000. The change in the fair value of the derivative component of these structured notes is included within other income (expense), net.

Claims Incurred

Consolidated claims incurred during the year ended December 31, 2008 increased by $211.1 million, or 17.2%, to $1.4 billion when compared to the claims incurred during the year ended December 31, 2007. This increase is principally due to increased claims in the managed care segment as a result of higher enrollment and utilization trends. The consolidated loss ratio increased by 2.1 percentage points, to 84.6% in the 2008 period, primarily due to higher utilization trends in the managed care segment for the period, particularly in the Medicare Advantage business.

Operating Expenses

Consolidated operating expenses during the year ended December 31, 2008 increased by $14.4 million, or 6.1%, to $251.9 million as compared to operating expenses during the 2007 period. This increase is primarily attributed to a higher volume of business, particularly in the Medicare business of our Managed Care segment. The consolidated operating expense ratio decreased by 1.2 percentage points, to 14.7%, during the 2008 period mainly due to the aforementioned increase in volume.

Income tax expense

The decrease in consolidated income tax expense during the year ended December 31, 2008 is primarily the result of the lower income before tax during the period. The consolidated effective tax rate for the 2008 period reflects an increase of 2.9 percentage points as compared to the 2007 period, from 19.4% in 2007 to 22.3% in 2008, due to a lower taxable income during 2008 as compared to the 2007 period.

Year ended December 31, 2007 compared with the year ended December 31, 2006

Operating Revenues

Consolidated premiums earned, net and administrative service fees decreased by $28.1 million, or 1.8%, to $1.5 billion during the year ended December 31, 2007 compared to the year ended December 31, 2006. This decrease was primarily due to a decrease in the premiums earned, net in our managed care segment, principally due to the decreased volume of the Reform business after the termination of the contract for the Metro-North region, offset in part by the growth of our Medicare Advantage business and the increases in premium rates of the Reform business during 2007.

Consolidated net investment income presented an increase of $4.5 million, or 10.5%, to $47.2 million during the year ended December 31, 2007. This increase is primarily the result of an increase of $3.5 million attributed to a higher yield in 2007, a higher balance of invested assets and the acquisition of GA Life effective January 31, 2006. Net investment income earned by GA Life during the month of January 2006 amounted to $1.0 million, which is not included in our consolidated financial statements.

Net Realized Investment Gains

Consolidated net realized investment gains increased by $5.1 million to $5.9 million during 2007. This increase is primarily the result of higher sales of investments in 2007, particularly in trading securities, in order to keep the portfolio within our established targets in each investment sector.

Net Unrealized Gain (Loss) on Trading Securities and Other Income, Net

The combined balance of our consolidated net unrealized loss on trading securities and other income, net was a loss of $0.9 million during the year ended December 31, 2007, a decrease of $10.9 million, as compared to the combined gain of $10.0 million in 2006. This decrease is attributable to the net result of

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the unrealized loss on the trading portfolio, offset in part by an increase in the fair value of the derivative component of our investment in structured notes linked to foreign stock indexes. This unrealized loss on trading securities is due to the sale of one equity portfolio which had a net unrealized gain at the time of sale. This sale had the effect of eliminating the unrealized gain that was offsetting unrealized losses in our trading portfolio.

Claims Incurred

Consolidated claims incurred during the year ended December 31, 2007 decreased by $35.2 million, or 2.8%, to $1.2 billion when compared to the claims incurred during the year ended December 31, 2006. This decrease is principally due to decreased claims in the managed care segment as a result of the decreased volume of the Reform business due to the termination of the contract for the Metro-North region, net of increased enrollment in the Medicare Advantage business. The consolidated loss ratio decreased by 0.8 percentage points, to 82.5% in the 2007 period. The lower loss ratio is mainly the result of an overall increase in premium rates, lower utilization trends and a change in the mix of business. During the year ended December 31, 2007, the weight in the mix of business of the managed care segment corresponding to the Reform business decreased as a result of the termination of the contract for the Metro-North area. The Reform business has a higher loss ratio than other businesses within this segment. On the other hand, the Medicare Advantage business, which at the time had a lower loss ratio than other businesses within the managed care segment, has a higher weight in the mix of business in the 2007 period.

Operating Expenses

Consolidated operating expenses during the year ended December 31, 2007 increased by $1.4 million, or 0.6%, to $237.5 million as compared to operating expenses during the 2006 period. This increase is primarily attributed to increases in professional services expense (mainly legal expenses), normal increases in payroll and payroll related expense, as well as higher technology related costs due to the new systems initiative of our managed care subsidiary. This increase is offset in part by the decrease in the operating expenses for the Reform business resulting from the reduction in volume of this business. The consolidated operating expense ratio increased by 0.4 percentage points during the 2007 period mainly due to fixed expenses not affected by a reduction in volume.

Income tax expense

The consolidated effective tax rate remained flat, with a slight increase of 0.1 percentage points, from 19.3% in 2006 to 19.4% in 2007.

Managed Care Operating Results

We offer our products in the managed care segment to three distinct market sectors in Puerto Rico: Commercial, Reform and Medicare (including Medicare Advantage and PDP). For the year ended December 31, 2008, the Commercial sector represented 43.3% and 37.7% of our consolidated premiums earned, net and operating income, respectively. During the same period the Reform sector represented 20.1% and 12.5%, of our consolidated premiums earned, net and our operating income, respectively. Premiums earned, net and operating income generated from our Medicare contracts (including PDP) during the year ended December 31, 2008 represented 25.9% and 12.4%, respectively, of our consolidated earned premiums, net and operating income, respectively.

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(Dollar amounts in millions)	2008			2007			2006
Operating revenues:
Medical premiums earned, net:
Commercial	$	734.2			718.7			713.2
Reform		340.1			327.5			455.8
Medicare		438.7			255.6			170.8
Medical premiums earned, net		1,513.0			1,301.8			1,339.8
Administrative service fees		22.5			17.2			16.9
Net investment income		23.1			19.7			18.8
Total operating revenues		1,558.6			1,338.7			1,375.5
Medical operating costs:
Medical claims incurred		1,345.4			1,133.2			1,173.6
Medical operating expenses		160.6			148.1			156.4
Total medical operating costs		1,506.0			1,281.3			1,330.0
Medical operating income	$	52.6			57.4			45.5
Additional data:
Member months enrollment:
Commercial:
Fully-insured		4,947,854			4,983,980			5,272,987
Self-funded		2,049,140			1,930,850			1,861,833
Total Commercial member months		6,996,994			6,914,830			7,134,820
Reform:
Fully-insured		4,101,905			4,262,248			6,484,270
Self-funded		376,975			—			—
Total Reform member months		4,478,880			4,262,248			6,484,270
Medicare:
Medicare Advantange		727,274			416,512			281,274
Stand-alone PDP		127,658			137,528			180,444
Total Medicare member months		854,932			554,040			461,718
Total member months		12,330,806			11,731,118			14,080,808
Medical loss ratio		88.9	%		87.0	%		87.6	%
Operating expense ratio		10.5	%		11.2	%		11.5	%

Year ended December 31, 2008 compared with the year ended December 31, 2007

Medical Operating Revenues

Medical premiums earned during 2008 increased by $211.2 million, or 16.2%, to $1.5 billion when compared to earned premiums during 2007. This increase is principally the result of the following:

• Medical premiums generated by the Medicare business increased by $183.1 million, or 71.6%, to $438.7 million, primarily due to an increase in member months enrollment of 300,892, or 54.3%, and a change in the mix of products. The increase in member months is the net result of an increase of 310,762, or 74.6%, in the membership of our Medicare Advantage products, mainly in dual eligible members, and a decrease of 9,870, or 7.2%, in the membership of our PDP product.

• Medical premiums generated by the Commercial business increased by $15.5 million, or 2.2%, to $734.2 million during 2008. This fluctuation is primarily the net result of an increase in the average premium rates of approximately 4.4% offset in part by a decrease in fully-insured member months enrollment of 36,126 or 0.7%.

• Medical premiums earned of the Reform business increased by $12.6 million, or 3.8%, to $340.1 million during 2008. This fluctuation is primarily due to the increases in premium rates of approximately 10% effective on July 1, 2008 and during 2007 of 8.6%, partially offset by a decrease in member months enrollment of 160,343, or 3.8%.

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Administrative service fees increased by $5.3 million, or 30.8%, to $22.5 million during the 2008 period. This fluctuation is primarily due to an increase in member months enrollment of self-funded arrangements of 495,265, or 25.7%. The higher member months enrollment is mainly the result of the contract for the Reform’s Metro-North region, which began on November 1, 2008. This contract is on an ASO basis and represented an increase in member months of 376,975.

Medical Claims Incurred

Medical claims incurred during the year ended December 31, 2008 increased by $212.2 million, or 18.7%, to $1.3 billion when compared to the year ended December 31, 2007. The medical loss ratio (MLR) of the segment increased 1.9 percentage points during 2008, to 88.9%. These fluctuations are primarily attributed to the effect of the following:

• The medical claims incurred of the Medicare business increased by $190.0 million during the 2008 period mainly as the result of the increase in member months and a higher MLR by 10.0 percentage points. The higher MLR is in part due to the effect of prior period reserve developments and to higher utilization trends. Excluding the effect of prior period reserve developments in the 2007 and 2008 periods, the MLR increased by 7.1 percentage points. The increase in utilization trends is primarily the result of higher utilization in outpatient visits and drug benefits for the dual eligible product. The higher MLR is also the result of a change in enrollment mix between dual and non-dual eligible members within the business. Member months during the year ended December 31, 2008 have a higher concentration of dual eligible members than the prior year. Dual eligible members have higher utilization and MLR than non-dual eligible members.

• The medical claims incurred of the Reform business increased by $16.9 million during the 2008 period and its MLR increased by 1.6 percentage points during the year ended December 31, 2008. The higher MLR is primarily the effect of prior period reserve developments and the retroactive premium rate increase received by this business during June 2007 amounting to $2.8 million corresponding to 2006. Excluding the effect of prior period reserve developments in the 2007 and 2008 periods and considering the effect of this retroactive premium rate increase, the MLR actually decreased by 1.5 percentage points during the 2008 period.

• The medical claims incurred of the Commercial business increased by $5.3 million during the 2008 period and its MLR decreased by 1.2 percentage points during the year ended December 31, 2008. The lower MLR is primarily the result of the re-pricing or termination of less profitable groups, cost containment initiatives and lower utilization trends in drug and medical services.

Medical Operating Expenses

Medical operating expenses for the year ended December 31, 2008 increased by $12.5 million, or 8.4%, to $160.6 million when compared to 2007. This increase is primarily attributed to the higher volume of the segment, particularly in the Medicare business. The segment’s operating expense ratio decreased by 0.7 percentage points during the 2008 period, to 10.5%.

Year ended December 31, 2007 compared with the year ended December 31, 2006

Medical Operating Revenues

Medical premiums earned during 2007 decreased by $38.0 million, or 2.8%, to $1.3 billion when compared to earned premiums during 2006, principally as a result of the following:

• Medical premiums earned in the Reform business decreased by $128.3 million, or 28.1%, to $327.5 million during the 2007 period. This fluctuation is due to a decrease in member months enrollment in the Reform business by 2,222,022, or 34.3%, mainly as the result of the termination of the contract for the Metro-North region, the tightening of membership restrictions by the Puerto Rico government, and the shift in membership of dual eligibles to Medicare Advantage policies offered by us and our competitors. The member months enrollment of the Metro-North region was 2,040,714 during the year ended December 31, 2006. The effect of this decrease in membership was mitigated by an increase in premium rates, effective July 1, 2007, of approximately 8.7% and a retroactive increase in rates of approximately 6.7% effective November 1, 2006.

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• Medical premiums generated by the Medicare business increased during 2007 by $84.8 million, or 49.6%, to $255.6 million, primarily due to an increase in member months enrollment of 92,322, or 20.0%. The increase in member months is the net result of an increase of 135,238, or 48.1%, in the membership of our Medicare Advantage products and a decrease of 42,916, or 23.8%, in the membership of our PDP product. We expect that Medicare Advantage enrollment will continue to experience growth, but at a slower pace than in prior periods. In addition, the segment recognized an additional premium adjustment of $3.2 million related to the 2006 risk scores review performed by CMS.

• Medical premiums generated by the Commercial business increased by $5.5 million, or 0.8%, to $718.7 million during the 2007 period. This increase is primarily the result of an increase in average premium rates of 6.5%, partially offset by a decrease in member months enrollment of 289,007, or 5.5%.

Administrative service fees increased by $0.3 million, or 1.8%, to $17.2 million during the 2007 period due to an increase in member months enrollment of self-funded arrangements of 69,017, or 3.7%, and to a shift of several self-funded groups to arrangements where the administrative service fee is based on contracts instead of claims paid.

Medical Claims Incurred

Medical claims incurred during the year ended December 31, 2007 decreased by $40.4 million, or 3.4%, to $1.1 billion when compared to the year ended December 31, 2006. The decrease in medical claims incurred is mostly related to the medical claims incurred of the Reform business, which decreased by $119.9 million due its decreased enrollment, partially offset by a combined increase of $85.7 million in the medical claims incurred of the Medicare Advantage and PDP businesses due to an increase in members. The medical loss ratio decreased by 0.6 percentage points during the 2007 period, to 87.0%, primarily due to an overall increase in premium rates, lower utilization trends and a change in the mix of business of the segment. During the year ended December 31, 2007 the weight in the mix of business corresponding to the Reform business decreased as a result of the termination of the contract for the Metro-North area. The Reform business has a higher medical loss ratio than other businesses within the segment. On the other hand, the Medicare Advantage business, which at this time had a lower medical loss ratio than other businesses, had a higher weight in the mix of business in the 2007 period.

Medical Operating Expenses

Medical operating expenses for the year ended December 31, 2007 decreased by $8.3 million, or 5.3%, to $148.1 million when compared to 2006. This decrease is primarily attributed to the decrease in direct costs of the Reform business due to its reduction in volume. The segment’s operating expense ratio decreased by 0.3 percentage points during the 2007 period, to 11.2%.

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Life Insurance Operating Results

(Dollar amounts in millions)	2008			2007			2006
Years ended December 31,
Operating revenues:
Premiums earned, net
Premiums earned, net	$	100.1			97.4			91.9
Premiums earned ceded		(7.6	)		(8.8	)		(9.7	)
Assumed premiums earned		—			—			4.4
Net premiums earned		92.5			88.6			86.6
Commission income on reinsurance		0.3			0.3			0.3
Premiums earned, net		92.8			88.9			86.9
Net investment income		16.5			15.0			13.7
Total operating revenues		109.3			103.9			100.6
Operating costs:
Policy benefits and claims incurred		47.4			45.7			43.6
Underwriting and other expenses		49.4			47.5			45.8
Total operating costs		96.8			93.2			89.4
Operating income	$	12.5			10.7			11.2
Additional data:
Loss ratio		51.1	%		51.4	%		50.2	%
Expense ratio		53.2	%		53.4	%		52.7	%

Year ended December 31, 2008 compared with the year ended December 31, 2007

Operating Revenues

Premiums earned, net for the segment increased by $3.9 million, or 4.4%, to $92.8 million during the year ended December 31, 2008 as compared to the year ended December 31, 2007, primarily as the result of higher sales in the Cancer and Home Service lines of business during 2008.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred during the year ended December 31, 2008 increased by $1.7 million, or 3.7%, to $47.4 million in 2008. This increase is primarily the result of an increased in claims incurred in the Disability and Cancer lines of business. Despite the higher claim experience, as a result of the increased volume of premiums, the segment experienced a lower loss ratio by 0.3 percentage points, to 51.1%.

Underwriting and Other Expenses

Underwriting and other expenses for the segment increased by $1.9 million, or 4.0%, to $49.4 million during the year ended December 31, 2008 primarily as a result of higher net commissions attributable to new business. The segment’s operating expense ratio decreased by 0.2 percentage points during 2008, from 53.4% in 2007 to 53.2% in 2008.

Year ended December 31, 2007 compared with the year ended December 31, 2006

Operating Revenues

Premiums earned, net for the segment increased by $2.0 million, or 2.3%, to $88.9 million during the year ended December 31, 2007 as compared to the year ended December 31, 2006, principally reflecting the acquisition of GA Life effective January 31, 2006. This increase is principally the result of the following:

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• The premiums earned generated by the segment increased by $5.5 million, or 6.0%, to $97.4 million during the 2007 period. Premiums earned by GA Life during the month of January 2006 were $6.6 million, which are not reflected in our consolidated financial statements. Eliminating the effect of GA Life’s premiums for the month of January 2006, the premiums earned in the segment decreased by $1.1 million primarily the result of lower sales in the Group Disability and Group Life businesses offset in part by an increase in the premiums of the Individual Life and Cancer businesses.

• On December 22, 2005, we entered into a coinsurance funds withheld agreement with GA Life pursuant to which our former subsidiary SVTS assumed 69% of all the business written by GA Life (prior to its acquisition by us) as of and after the effective date of the agreement. Our results reflect premiums assumed under this agreement of $4.4 million, which represents our share of premiums for the month of January 2006 under the coinsurance agreement. The effects of the reinsurance transactions corresponding to this agreement were eliminated for consolidated financial statement purposes for the period following January 31, 2006.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred during the year ended December 31, 2007 increased by $2.1 million, or 4.8%, to $45.7 million in the 2007 period when compared to the 2006 period, principally reflecting the acquisition of GA Life effective January 31, 2006. Policy benefits and claims incurred by GA Life during the month of January 31, 2006, net of the effect of the coinsurance agreement, were $1.0 million. Eliminating the effect of GA Life’s policy benefits and claims incurred for the month of January 2006, this segment presented an increase of $1.1 million. This increase is primarily driven by increases in the benefits of the Cancer and Group Life businesses, as well as to an increase in policy surrenders. These increases were partially offset by decreases in the benefits of the Group Disability and Individual Life businesses. The segment’s loss ratio increased by 1.2 percentage points, from 50.2% in 2006 to 51.4% in the 2007 period, principally as a result of the inclusion of twelve months of GA Life benefits and claims incurred in the 2007 period (as compared to eleven months in 2006) and a higher loss ratio in the cancer business.

Underwriting and Other Expenses

Underwriting and other expenses for the segment increased by $1.7 million, or 3.7%, to $47.5 million during the year ended December 31, 2007. Considering the effect of underwriting and other expenses of $1.7 million incurred by GA Life during the month of January 2006, net of the effect of the coinsurance agreement, the underwriting and other expenses of the segment remained flat during the 2007 period. The segment’s operating expense ratio increased by 0.7 percentage points during the year 2007, from 52.7% in 2006 to 53.4% in 2007.

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Property and Casualty Insurance Operating Results

(Dollar amounts in millions)	2008			2007			2006
Years ended December 31,
Operating revenues:
Premiums earned, net:
Premiums written	$	168.0			170.9			158.9
Premiums ceded		(72.1	)		(69.1	)		(65.7	)
Change in unearned premiums		(2.1	)		(4.9	)		(4.7	)
Premiums earned, net		93.8			96.9			88.5
Net investment income		12.5			11.8			9.6
Total operating revenues		106.3			108.7			98.1
Operating costs:
Claims incurred		42.1			44.9			41.7
Underwriting and other operating expenses		51.1			53.1			45.2
Total operating costs		93.2			98.0			86.9
Operating income	$	13.1			10.7			11.2
Additional data:
Loss ratio		44.9	%		46.3	%		47.1	%
Expense ratio		54.5	%		54.8	%		51.1	%
Combined ratio		99.4	%		101.1	%		98.2	%

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Year ended December 31, 2008 compared with the year ended December 31, 2007

Operating Revenues

Total premiums written during the year ended December 31, 2008 decreased by $2.9 million, or 1.7%, to $168.0 million. This fluctuation is mostly due to the decrease in the premiums written for the Commercial Auto and inland marine insurance policies amounting to $7.3 million. These decreases were partially offset by increases in the Commercial Multi-Peril and Dwelling insurance policies of $4.4 million. The Commercial products are under soft market conditions reducing premiums and increasing competition for renewals and new business. The Auto insurance products have been affected by lower economic activity in sales and auto loan originations.

Premiums ceded to reinsurers increased by $3.0 million, or 4.3%, to $72.1 million during the year ended December 31, 2008. The ratio of premiums ceded to premiums written increased by 2.5 percentage points, from 40.4% in 2007 to 42.9% in 2008, primarily due to the effect of non-proportional reinsurance treaties in relation to the level of premiums written as well as to the mix of business. The cost of non-proportional treaties is negotiated for the whole year based on expected premium volume; however, since volume for the year was lower than expected, the cost of reinsurance as a percentage of premiums was higher.

The change in unearned premiums presented a decrease of $2.8 million when compared to the prior year as the result of the lower volume of business written during the period.

Claims Incurred

Claims incurred during the year ended December 31, 2008 decreased by $2.8 million, or 6.2%, to $42.1 million. The loss ratio decreased by 1.4 percentage points during this period, to 44.9% in 2008, primarily as the result of the segment’s underwriting guidelines focus on good selection, disciplined pricing, well diversified business, and with a low risk profile. In addition, we have made enhancements to the claims handling process to speed up claims processing. These efforts have resulted in improved loss ratios in the Commercial Multi-Peril and Liability coverages.

Underwriting and Other Operating Expenses

Underwriting and other operating expenses for the year ended December 31, 2008 decreased by $2.0 million, or 3.8%, to $51.1 million. The operating expense ratio decreased by 0.3 percentage points during the same period, to 54.5% in 2008. This decrease is primarily due to a lower net commission expense resulting from the segment’s lower volume of business.

Year ended December 31, 2007 compared with the year ended December 31, 2006

Operating Revenues

Total premiums written during the year ended December 31, 2007 increased by $12.0 million, or 7.6%, to $170.9 million, principally as a result of increases in the commercial multi-peril, auto and dwelling lines of business of $11.2 million.

Premiums ceded to reinsurers increased by $3.4 million, or 5.2%, to $69.1 million during 2007. The ratio of premiums ceded to premiums written decreased by 0.9 percentage points, from 41.3% in 2006 to 40.4% in 2007 primarily as a result of lower costs of facultative reinsurance and the effects of the mix of business.

Claims Incurred

Claims incurred during the year ended December 31, 2007 increased by $3.2 million, or 7.7%, to $44.9 million. The loss ratio decreased by 0.8 percentage points during this period, to 46.3% in 2007, primarily as the result of the segment’s adherence to underwriting guidelines and enhancements to the claims handling process, which included hiring additional in-house claim adjusters. These efforts have resulted in improved loss ratios in the commercial multi-peril, general liability, auto liability and commercial auto physical damage lines of business.

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Underwriting and Other Operating Expenses

Underwriting and other operating expenses for the year ended December 31, 2007 increased by $7.9 million, or 17.5%, to $53.1 million. The operating expense ratio increased by 3.7 percentage points during the same period, to 54.8% in 2007. This increase is primarily due to increases in net commission expense, payroll and payroll related expenses, corporate costs allocations and a provision for a possible loss contingency. The segment has also experienced an increase in its depreciation expense, including the depreciation and amortization expense related to the segment’s investment in a new IT system.

Liquidity and Capital Resources

Cash Flows

A summary of our major sources and uses of cash for the periods indicated is presented in the following table:

(dollar amounts in millions)	2008			2007			2006
Years ended December 31,
Sources of cash:
Cash provided by operating activities	$	—			115.9			75.6
Net proceeds from investments sold		—			1.0			—
Proceeds from long-term borrowings		—			—			35.0
Proceeds from annuity contracts		8.0			6.1			6.0
Net proceeds from initial public offering		—			70.3			—
Other		18.3			—			—
Total sources of cash		26.3			193.3			116.6
Uses of cash:
Cash used in operating activities		(3.0	)		—			—
Net purchases of investment securities		(178.6	)		—			(9.3	)
Acquisition of GA Life, net of cash acquired		—			—			(27.8	)
Capital expenditures		(22.4	)		(9.4	)		(11.9	)
Dividends		—			(2.4	)		(6.2	)
Payments of long-term borrowings		(1.6	)		(12.1	)		(2.5	)
Payments of short-term borrowings		—			—			(1.7	)
Surrenders of annuity contracts		(7.1	)		(7.4	)		(16.0	)
Repurchase and retirement of common stock		(7.6	)		—			—
Other		—			(3.4	)		(8.7	)
Total uses of cash		(220.3	)		(34.7	)		(84.1	)
Net increase (decrease) in cash and cash equivalents	$	(194.0	)		158.6			32.5

Year ended December 31, 2008 compared to year ended December 31, 2007

Cash flows from operating activities decreased by $118.9 million for the year ended December 31, 2008, principally due to the effect of an increase in the amount of claims paid of $246.3 million; offset in part by an increase in premiums collected of $128.2 million. These fluctuations are primarily the result of the higher volume and increased utilization trends in our managed care segment, particularly in the Medicare business. The increase in premiums collected would have been higher when considering the $22.8 million of managed care premiums collected in December 2007 but corresponding to January 2008. In addition, as of December 31, 2008 the managed care segment experienced a significant increase in its premiums receivable amounting to $41.1 million, mostly from the government of Puerto Rico and its instrumentalities. A significant amount of these balances has been collected by the managed care segment subsequent to December 31, 2008.

The increase in the other sources of cash of $18.3 million is attributed to a higher balance in outstanding checks over bank balances in 2008.

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Net acquisitions of investment securities increased by $179.6 million during the year ended December 31, 2008, principally as the result of acquisitions of available for sale securities mainly in our managed care segment and the effect of purchases of investments with trade date in December 2007 and a settlement date in January 2008, amounting to $117.5 million.

Capital expenditures increased by $13.0 million as a result of the capitalization of costs related to the new systems initiative in our managed care segment.

On December 8, 2008 we announced the immediate commencement of our $40.0 million share repurchase program. As of December 31, 2008, we have paid approximately $7.6 million under our stock repurchase program.

We repaid upon its maturity on August 1, 2007 the outstanding balance of $10.5 million of one of our secured term loans.

In March 2007, we declared and paid dividends to our stockholders of $2.4 million.

Year ended December 31, 2007 compared to year ended December 31, 2006

Cash provided by operating activities increased by $40.3 million, or 53.3%, to $115.9 million for the year ended December 31, 2007, principally due to the net effect of an increase of $14.2 million in net proceeds received from the sale of trading securities, a reduction in claims paid of $54.4 million, a reduction in cash paid to suppliers and employees of $8.6 million, partially offset by a reduction in premiums collected of $16.2 million. These fluctuations were impacted by the termination of the contract for the Metro-North region of our managed care segment. In addition, in 2007 there was an increase of $23.1 million in the amount of income taxes paid that is the result of the higher taxable income in 2007 of our managed care subsidiary, which has a higher effective tax rate than the other segments.

Proceeds from long-term borrowings amounted to $35.0 million during 2006 as a result of the issuance and sale of our 6.7% senior unsecured notes during the first quarter of 2006, which were used for the acquisition of GA Life.

On December 2007, the Corporation received net proceeds amounting to $70.3 million upon our initial public offering.

On January 31, 2006, we acquired GA Life at a cost of $27.8 million, net of $10.4 million of cash acquired.

Capital expenditures decreased by $2.5 million as the result of the completion of the renovation of a building adjacent to our corporate headquarters which was completed during the last quarter of 2006. In addition, our property and casualty insurance segment acquired new hardware and software as part of its new insurance application during 2006.

In March 2007, we declared and paid dividends to our stockholders amounting to $2.4 million.

On August 1, 2007, we repaid the outstanding balance of $10.5 million of one of our secured term loans upon its maturity.

Financing and Financing Capacity

We have several short-term facilities available to address timing differences between cash receipts and disbursements. These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements. As of December 31, 2008, we had $131.0 million of available credit under these facilities. There were no outstanding short-term borrowings under these facilities as of December 31, 2008.

As of December 31, 2008, we had the following senior unsecured notes payable:

• On January 31, 2006, we issued and sold $35.0 million of our 6.7% senior unsecured notes payable due January 2021 (the 6.7% notes). The 6.7% notes were privately placed to various institutional accredited investors. The notes pay interest each month until the principal becomes due and payable. These notes can be redeemed after five years at par, in whole or in part, as determined by us. The proceeds obtained from this issuance were used to finance the acquisition of 100% of the common stock of GA Life effective January 31, 2006.

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• On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes due December 2020 (the 6.6% notes). The 6.6% notes were privately placed to various institutional accredited investors. The notes pay interest each month until the principal becomes due and payable. These notes can be redeemed after five years at par, in whole or in part, as determined by us. The proceeds obtained from this issuance were used to pay the ceding commission to GA Life on the effective date of the coinsurance funds withheld reinsurance agreement.

• On September 30, 2004, our managed care subsidiary issued and sold $50.0 million of its 6.3% senior unsecured notes due September 2019 (the 6.3% notes). The 6.3% notes are unconditionally guaranteed as to payment of principal, premium, if any, and interest by us. The notes were privately placed to various institutional accredited investors. The notes pay interest semiannually until the principal becomes due and payable. These notes can be prepaid after five years at par, in whole or in part, as determined by our managed care subsidiary. Most of the proceeds obtained from this issuance were used to repay $37.0 million of short-term borrowings. The remaining proceeds were used for general business purposes.

The 6.3% notes, the 6.6% notes and the 6.7% notes contain certain covenants. At December 31, 2008, we and our managed care subsidiary, as applicable, are in compliance with these covenants.

In addition, as of December 31, 2008 we are a party to a secured term loan with a commercial bank, FirstBank Puerto Rico. This secured loan bears interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus 100 basis points and requires monthly principal repayment of $0.1 million. As of December 31, 2008, this secured loan had an outstanding balance of $24.3 million and an average annual interest rate of 2.4%.

This secured loan is guaranteed by a first lien on our land, buildings and substantially all leasehold improvements, as collateral for the term of the agreements under a continuing general security agreement. This secured loan contains certain covenants which are customary for this type of facility, including, but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control. As of December 31, 2008, we are in compliance with these covenants. Failure to meet these covenants may trigger the accelerated payment of the secured loan’s outstanding balances. Principal repayments on this loan are expected to be paid out from our operating and investing cash flows.

We were also a party to another secured loan whose outstanding balance of $10.5 million was repaid upon its maturity on August 1, 2007.

We anticipate that we will have sufficient liquidity to support our currently expected needs.

Planned Capital Expenditures

During 2005, our managed care business began a project to change a significant part of its operations computer system. This project is expected to be carried out in phases until 2012 at a cost of approximately $64.0 million. Our managed care business expects to incur costs of approximately $26 million during 2008. We estimate that $17 million of the costs expected to be incurred in 2009 will be capitalized over the system’s useful life and the remaining amount will be expensed. This amount is expected to be paid out of the operating cash flows of our managed care business.

Contractual Obligations

Our contractual obligations impact our short and long-term liquidity and capital resource needs. However, our future cash flow prospects cannot be reasonably assessed based solely on such obligations. Future cash outflows, whether contractual or not, will vary based on our future needs. While some cash outflows are completely fixed (such as commitments to repay principal and interest on borrowings), most are dependent on future events (such as the payout pattern of claim liabilities which have been incurred but not reported).

The table below describes the payments due under our contractual obligations, aggregated by type of contractual obligation, including the maturity profile of our debt, operating leases and other long-term liabilities, and excludes an estimate of the future cash outflows related to the following liabilities:

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• Unearned premiums — This amount accounts for the premiums collected prior to the end of coverage period and does not represent a future cash outflow. As of December 31, 2008, we had $110.1 million in unearned premiums.

• Policyholder deposits — The cash outflows related to these instruments are not included because they do not have defined maturities, such that the timing of payments and withdrawals is uncertain. There are currently no significant policyholder deposits in paying status. As of December 31, 2008, our policyholder deposits had a carrying amount of $48.7 million.

• Other long-term liabilities — Due to the indeterminate nature of their cash outflows, $64.5 million of other long-term liabilities are not reflected in the following table, including $44.1 million of liability for the pension benefits and $11.2 million in liabilities to the Federal Employees’ Health Benefits Plan Program.

			Contractual obligations by year
(Dollar amounts in millions)	Total		2009		2010		2011		2012		2013		Thereafter
Long-term borrowings (1)	$	283.4		11.7		11.6		11.6		11.5		11.5		225.5
Operating leases		16.9		6.0		4.4		2.7		1.2		0.5		2.1
Purchase obligations (2)		151.6		148.5		1.3		1.1		0.5		0.2		—
Claim liabilities (3)		293.3		206.2		52.3		11.3		10.5		5.5		7.5
Estimated obligation for future policy benefits (4)		994.9		70.2		61.3		57.8		55.0		52.6		698.0
	$	1,740.1		442.6		130.9		84.5		78.7		70.3		933.1

(1)	As of December 31, 2008, our long-term borrowings consist of our managed care subsidiary’s 6.3% senior unsecured notes payable (which are unconditionally guaranteed as to payment of principal, premium, if any, and interest by us), our 6.6% senior unsecured notes payable, our 6.7% senior unsecured notes payable, and a loan payable to a commercial bank. Total contractual obligations for long-term borrowings include the current maturities of long term debt. For the 6.3%, 6.6% and 6.7% senior unsecured notes, scheduled interest payments were included in the total contractual obligations for long-term borrowings until the maturity dates of the notes in 2019, 2020, and 2021, respectively. We may redeem the notes starting five years after issuance; however no redemption is considered in this schedule. The interest payments related to our loan payable were estimated using the interest rate applicable as of December 31, 2008. The actual amount of interest payments of the loans payable will differ from the amount included in this schedule due to the loans’ variable interest rate structure. See the “Financing and Financing Capacity” section for additional information regarding our long-term borrowings.
(2)	Purchase obligations represent payments required by us under material agreements to purchase goods or services that are enforceable and legally binding and where all significant terms are specified, including: quantities to be purchased, price provisions and the timing of the transaction. Other purchase orders made in the ordinary course of business for which we are not liable are excluded from the table above. Estimated pension plan contributions amounting to $7 million were included within the total purchase obligations. However, this amount is an estimate which may be subject to change in view of the fact that contribution decisions are affected by various factors such as market performance, regulatory and legal requirements and plan funding policy.
(3)	Claim liabilities represent the amount of our claims processed and incomplete as well as an estimate of the amount of incurred but not reported claims and loss-adjustment expenses. This amount does not include an estimate of claims to be incurred subsequent to December 31, 2008. The expected claims payments are an estimate and may differ materially from the actual claims payments made by us in the future. Also, claim liabilities are presented gross, and thus do not reflect the effects of reinsurance under which $30.4 million of reserves had been ceded at December 31, 2008.
(4)	Our life insurance segment establishes, and carries as liabilities, actuarially determined amounts that are calculated to meet its policy obligations when a policy matures or surrenders, an insured dies or

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becomes disabled or upon the occurrence of other covered events. A significant portion of the estimated obligation for future policy benefits to be paid included in this table considers contracts under which we are currently not making payments and will not make payments until the occurrence of an insurable event not under our control, such as death, illness, or the surrender of a policy. We have estimated the timing of the cash flows related to these contracts based on historical experience as well as expectations of future payment patterns. The amounts presented in the table above represent the estimated cash payments for benefits under such contracts based on assumptions related to the receipt of future premiums and assumptions related to mortality, morbidity, policy lapses, renewals, retirements, disability incidence and other contingent events as appropriate for the respective product type. All estimated cash payments included in this table are not discounted to present value nor do they take into account estimated future premiums on policies in-force as of December 31, 2008, and are gross of any reinsurance recoverable. The $994.9 million total estimated cash flows for all years in the table is different from the liability of future policy benefits of $207.5 million included in our audited consolidated financial statements principally due to the time value of money. Actual cash payments to policyholders could differ significantly from the estimated cash payments as presented in this table due to differences between actual experience and the assumptions used in the estimation of these payments.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Restriction on Certain Payments by the Corporation’s Subsidiaries

Our insurance subsidiaries are subject to the regulations of the Commissioner of Insurance of the Commonwealth of Puerto Rico. These regulations, among other things, require insurance companies to maintain certain levels of capital, thereby restricting the amount of earnings that can be distributed by the insurance subsidiaries to TSM. Our managed care subsidiary is required to have minimum capital of $1.0 million, our life insurance subsidiary is required to have minimum capital of $2.5 million and our property and casualty insurance subsidiary is required to have minimum capital of $3.0 million. As of December 31, 2008, our insurance subsidiaries were in compliance with such minimum capital requirements.

During 2008, the Commissioner of Insurance approved the requirement to use the National Association of Insurance Commissioners’ (NAIC) RBC Model Act by all local insurers in determining minimum capital level. This requirement goes into effect in 2009, and will be phased in over a five-year period.

These regulations are not directly applicable to us, as a holding company, since we are not an insurance company.

Our secured term loan restricts the amount of dividends that we and our subsidiaries can declare or pay to shareholders. Under the secured term loan, dividend payments cannot be made in excess of the accumulated retained earnings of the paying entity.

We do not expect that any of the previously described dividend restrictions will have a significant effect on our ability to meet our cash obligations.

Solvency Regulation

To monitor the solvency of the operations, the BCBSA requires us and our managed care subsidiary to comply with certain specified levels of risk-based capital (RBC). RBC is designed to identify weakly capitalized companies by comparing each company’s adjusted surplus to its required surplus (RBC ratio). The RBC ratio reflects the risk profile of insurance companies. At December 31, 2008, both we and our managed care subsidiary’s estimated RBC ratio were above the 200% of our RBC required by the BCBSA and the 375% of our RBC level required by the BCBSA to avoid monitoring.

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Other Contingencies

Legal Proceedings

Various litigation claims and assessments against us have arisen in the course of our business, including but not limited to, our activities as an insurer and employer. Furthermore, the Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, regularly make inquiries and conduct audits concerning our compliance with applicable insurance and other laws and regulations.

Based on the information currently known by our management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have a material adverse effect on our financial position, results of operations and cash flows. However, given the inherent unpredictability of these matters, it is possible that an adverse outcome in certain matters could, from time to time, have an adverse effect on our operating results and/or cash flows. See “Item 3—Legal Proceedings”.

Guarantee Associations

To operate in Puerto Rico, insurance companies, such as our insurance subsidiaries, are required to participate in guarantee associations, which are organized to pay policyholders contractual benefits on behalf of insurers declared to be insolvent. These associations levy assessments, up to prescribed limits, on a proportional basis, to all member insurers in the line of business in which the insolvent insurer was engaged. During the years ended December 31, 2008 and 2007, no assessment or payment was made in connection with insurance companies declared insolvent. During 2006, we paid assessments in connection with insurance companies declared insolvent in the amount of $1.0 million. It is the opinion of management that any possible future guarantee association assessments will not have a material effect on our operating results and/or cash flows, although there is no ceiling on these payment obligations.

Pursuant to the Puerto Rico Insurance Code, our property and casualty insurance subsidiary is a member of Sindicato de Aseguradores para la Suscripción Conjunta de Seguros de Responsabilidad Profesional Médico-Hospitalaria (SIMED) and of the Sindicato de Aseguradores de Responsabilidad Profesional para Médicos. Both syndicates were organized for the purpose of underwriting medical-hospital professional liability insurance. As a member, the property and casualty insurance segment shares risks with other member companies and, accordingly, is contingently liable in the event the previously mentioned syndicates cannot meet their obligations. During 2008, 2007 and 2006, no assessment or payment was made for this contingency. It is the opinion of management that any possible future syndicate assessments will not have a material effect on our operating results and/or cash flows, although there is no ceiling on these payment obligations.

In addition, pursuant to Article 12 of Rule LXIX of the Insurance Code, our property and casualty insurance subsidiary is a member of the Compulsory Vehicle Liability Insurance Joint Underwriting Association (the Association). The Association was organized in 1997 to underwrite insurance coverage of motor vehicle property damage liability risks effective January 1, 1998. As a participant, the segment shares the risk proportionally with other members based on a formula established by the Insurance Code. During the years 2008, 2007 and 2006, the Association distributed a dividend based on the good experience of the business amounting to $1.1 million, $1.0 million and $0.8 million, respectively.

Critical Accounting Estimates

Our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K have been prepared in accordance with GAAP applied on a consistent basis. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate the accounting policies and estimates we use to prepare our consolidated financial statements. In general, management’s estimates are based on historical experience and various other assumptions it believes to be reasonable under the circumstances. The following is an explanation of our accounting policies considered most significant by management. These accounting policies require us to make estimates and assumptions that affect the amounts reported in the financial statements and

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accompanying notes. Such estimates and assumptions could change in the future as more information is known. Actual results could differ materially from those estimates.

The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. For all these policies, management cautions that future events may not necessarily develop as forecasted, and that the best estimates routinely require adjustment. Management believes that the amounts provided for these critical accounting estimates are adequate.

Claim Liabilities

Claim liabilities as of December 31, 2008 by segment were as follows:

					Property and
	Managed		Life		Casualty
(Dollar amounts in millions)	Care		Insurance		Insurance		Consolidated
Claims processed and incomplete (1)	$	78.2		31.3		46.6		156.1
Unreported losses (2)		119.3		8.3		22.5		150.1
Unpaid loss-adjustment expenses (3)		4.4		0.3		12.8		17.5
	$	201.9		39.9		81.9		323.7

(1)	The liability for claims processed and incomplete represents those claims that have been incurred and reported to us that remain unpaid as of the balance sheet date. This amount includes claims that have been investigated and adjusted but have not been paid as well as those reported claims that have not gone through the investigation and adjustment process.
(2)	The liability for estimated unreported losses is the amount needed to provide for the estimated ultimate cost of settling those claims related to insured events that have occurred but have not been reported to us.
(3)	The liability for unpaid loss-adjustment expenses is the amount needed to provide for the estimated ultimate cost required to investigate and adjust claims related to insured events that have occurred as of the balance sheet date, whether or not the claims have been reported to us at that date.

Management continually evaluates the potential for changes in its claim liabilities estimates, both positive and negative, and uses the results of these evaluations to adjust recorded claim liabilities and underwriting criteria. Our profitability depends in large part on our ability to accurately predict and effectively manage the amount of claims incurred, particularly those of the managed care segment and the losses arising from the property and casualty and life insurance segment. Management regularly reviews its premiums and benefits structure to reflect our underlying claims experience and revised actuarial data; however, several factors could adversely affect our underwriting results. Some of these factors are beyond management’s control and could adversely affect its ability to accurately predict and effectively control claims incurred. Examples of such factors include changes in health practices, economic conditions, change in utilization trends, healthcare costs, the advent of natural disasters, and malpractice litigation. Costs in excess of those anticipated could have a material adverse effect on our results of operations.

We recognize claim liabilities as follows:

Managed Care Segment

At December 31, 2008, claim liabilities for the managed care segment amounted to $201.9 million and represented 62.4% of our total consolidated claim liabilities and 19.0% of our total consolidated liabilities.

Liabilities for reported but incomplete claims are recorded at the contractual rate. Liabilities for unreported losses are determined employing actuarial methods that are commonly used by managed care actuaries and meet Actuarial Standards of Practice, which require that the claim liabilities be adequate under moderately adverse circumstances. The segment determines the amount of the liability for unreported losses by following a detailed actuarial process that entails using both historical claim payment patterns as well as emerging medical cost trends to project a best estimate of claim liabilities. Under this process, historical claims incurred dates are compared to actual dates of claims payment. This information is analyzed to

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create “completion” or “development” factors that represent the average percentage of total incurred claims that have been paid through a given date after being incurred. Completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period. Actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the total expected claims incurred. The majority of unpaid claims, both reported and unreported, for any period, are those claims which are incurred in the final months of the period. Since the percentage of claims paid during the period with respect to claims incurred in those months is generally very low, the above-described completion factor methodology is less reliable for such months. In order to complement the analysis to determine the unpaid claims, historical completion factors and payment patterns are applied to incurred and paid claims for the most recent twelve months and compared to the prior twelve month period. Incurred claims for the most recent twelve months also take into account recent claims expense levels and health care trend levels (trend factors). Using all of the above methodologies, our actuaries determine based on the different circumstances the unpaid claims as of the end of period.

Because the reserve methodology is based upon historical information, it must be adjusted for known or suspected operational and environmental changes. These adjustments are made by our actuaries based on their knowledge and their estimate of emerging impacts to benefit costs and payment speed.

Circumstances to be considered in developing our best estimate of reserves include changes in enrollment, utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing system conversions and changes, claim inventory levels, regulatory and legislative requirements, claim processing patterns, and claim submission patterns. A comparison or prior period liabilities to re-estimated claim liabilities based on subsequent claims development is also considered in making the liability determination. In the actuarial process, the methods and assumptions are not changed as reserves are recalculated, but rather the availability of additional paid claims information drives our changes in the re-estimate of the unpaid claim liability. Changes in such development are recorded as a change to current period benefit expense. The re-estimates or recasts are done monthly for the previous four calendar quarters. On average, about 77% of the claims are paid within three months after the last day of the month in whish they were incurred and about 13% are within the next three months, for a total of 90% paid within six months after the last day of the month in which they were incurred.

Management regularly reviews its assumptions regarding claim liabilities and makes adjustments to claims incurred when necessary. If management’s assumptions regarding cost trends and utilization are significantly different than actual results, our statement of earning and financial position could be impacted in future periods. Changes to prior year estimates may result in an increase in claims incurred or a reduction of claims incurred in the period the change is made. Further, due to the considerable variability of health care costs, adjustments to claims liabilities are made in each period and are sometimes significant as compared to the net income recorded in that period. Prior year development of claim liabilities is recognized immediately upon the actuary’s judgment that a portion of the prior year liability is no longer needed or that an additional liability should have been accrued. Health care trends are monitored in conjunction with the claim reserve analysis. Based on these analyses, rating trends are adjusted to anticipate future changes in health care cost or utilization. Thus, the managed care segment incorporated those trends as part of the development of premium rates in an effort to keep premium rating trends in line with claims trends.

As described above, completion factors and claims trend factors can have a significant impact on determination of our claim liabilities. The following example provides the estimated impact on our December 31, 2008 claim liabilities, assuming the indicated hypothetical changes in completion and trend factors:

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(Dollar amounts in millions)
Completion Factor1		Claims Trend Factor2
(Decrease) Increase		(Decrease) Increase
	In unpaid claim	In claims trend	In unpaid claim
In completion factor	liabilities	factor	liabilities
(0.6)%	$11.2	(0.6)%	$6.0
(0.4)%	7.5	(0.4)%	4.0
(0.2)%	3.7	(0.2)%	2.0
0.2%	(3.7)	0.2%	(2.0)
0.4%	(7.4)	0.4%	(4.0)
0.6%	(11.0)	0.6%	(6.0)

1	Assumes (decrease) increase in the completion factors for the most recent twelve months.
2	Assumes (decrease) increase in the claims trend factors for the most recent twelve months.

The segments’ reserving practice is to consistently recognize the actuarial best estimate as the ultimate liability for claims within a level of confidence required by actuarial standards. Management believes that the methodology for determining the best estimate for claim liabilities at each reporting date has been consistently applied.

Amounts incurred related to prior years vary from previously estimated liabilities as the claims are ultimately settled. Liabilities at any year-end are continually reviewed and re-estimated as information regarding actual claims payments, or run-out becomes known. This information is compared to the originally established year-end liability. Negative amounts reported for incurred claims related to prior years result from claims being settled for amounts less than originally estimate. The reverse is true of reserve shortfalls. Medical claim liabilities are usually described as having a “short tail: which means that they are generally paid within several months of the member receiving service from the provider. Accordingly, the majority, or approximately 95%, of any redundancy or shortfall relates to claims incurred in the previous calendar year-end, with the remaining 5% related to claims incurred prior to the previous calendar year-end. In 2005, the managed care segment began offering Medicare Advantage products for the first time. There has been a rapid growth in this line of business-from minimal enrollment in 2005 to approximately 75,000 members by the end of 2008. There have been some increases in both completion and trend factors because of the growth of this business. The effect should lessen with the maturity of this business. Management has not noted any significant emerging trends in claim frequency and severity, other than as described above, and the normal fluctuations in utilization trends from year to year.

The following table shows the variance between the segment’s incurred claims for current period insured events and the incurred claims for such years had they been determined retrospectively (the “Incurred claims related to current period insured events” for the year shown plus or minus the “Incurred claims related to prior period insured events” for the following year as included in note 8 to the audited consolidated financial statements). This table shows that the segments’ estimates of this liability have approximated the actual development.

(Dollar amounts in millions	2007			2006			2005
Years ended December 31,
Total incurred claims:
As reported (1)	$	1,156.8			1,184.3			1,148.2
On a retrospective basis		1,149.2			1,160.7			1,137.5
Variance	$	7.6			23.6			10.7
Variance to total incurred claims as reported		0.7	%		2.0	%		0.9	%

(1) Includes total claims incurred less adjustments for prior year reserve development.

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Management expects that substantially all of the development of the 2008 estimate of medical claims payable will be known during 2009 and that the variance of the total incurred claims on a retrospective basis when compared to reported incurred claims will be similar to the prior years.

In the event this segment experiences an unexpected increase in health care cost or utilization trends, we have the following options to cover claim payments:

• Through the management of our cash flows and investment portfolio.

• We have the ability to increase the premium rates throughout the year in the monthly renewal process, when renegotiating the premiums for the following contract year of each group as they become due. We consider the actual claims trend of each group when determining the premium rates for the following contract year.

• We have available short-term borrowing facilities that from time to time address differences between cash receipts and disbursements.

For additional information on our credit facilities, see section “Financing and Financing Capacity” of this Item.

Life Insurance Segment

At December 31, 2008, claim liabilities for the life insurance segment amounted to $39.9 million and represented 12.3% of total consolidated claim liabilities and 3.7% of our total consolidated liabilities.

The claim liabilities related to the life insurance segment are based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. The estimate of claim liabilities for this segment is based on the amount of benefits contractually determined and on actuarial estimates of the amount of loss inherent in that period’s claims, including losses for which claims have not been reported. This estimate relies on actuarial observations of ultimate loss experience for similar historical events. Principal assumptions used in the establishment of claim liabilities for this segment are mortality, morbidity and claim submission patterns, among others.

Claim reserve reviews are generally conducted on a quarterly basis, in light of continually updated information, and include participation of the segment’s external actuaries. Our actuaries review reserves using the current inventory of policies and claims data. These reviews incorporate a variety of actuarial methods, judgments and analysis.

The key assumption with regard to claim liabilities for our life insurance segment is related to claims included prior to the end of the year, but not yet reported to our subsidiary. A liability for these claims is estimated based upon experience with regards to amounts reported subsequent to the close of business in prior years. There are uncertainties attendant to these estimates; however, in recent years our estimates have proved to be slightly conservative.

Property and Casualty Insurance Segment

At December 31, 2008, claim liabilities for the property and casualty insurance segment amounted to $81.9 million and represented 25.3% of the total consolidated claim liabilities and 7.7% of our total consolidated liabilities.

Estimates of the ultimate cost of claims and loss-adjustment expenses of this segment are based largely on the assumption that past developments, with appropriate adjustments due to known or unexpected changes, are a reasonable basis on which to predict future events and trends, and involve a variety of actuarial techniques that analyze current experience, trends and other relevant factors. Property and casualty insurance claim liabilities are categorized and tracked by line of business. Medical malpractice policies are written on a claims-made basis. Policies written on a claims-made basis require that claims be reported during the policy period. Other lines of business are written on an occurrence basis.

Individual case estimates for reported claims are established by a claims adjuster and are changed as new information becomes available during the course of handling the claim. Our property and casualty business, other than medical malpractice, is primarily short-tailed business, where losses (e.g. paid losses and case reserves) are generally reported quickly.

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Claim reserve reviews are generally conducted on a quarterly basis, in light of continually updated information. Our actuaries certify reserves for both current and prior accident years using current claims data. These reviews incorporate a variety of actuarial methods, judgments, and analysis. For each line of business, a variety of actuarial methods are used, with the final selections of ultimate losses that are appropriate for each line of business selected based on the current circumstances affecting that line of business. These selections incorporate input from management, particularly from the claims, underwriting and operations divisions, about reported loss cost trends and other factors that could affect the reserve estimates.

Key assumptions are based on the consideration that past emergence of paid losses and case reserves is credible and likely indicative of future emergence and ultimate losses. A key assumption is the expected loss ratio for the current accident year. This expected loss ratio is generally determined through a review of the loss ratios of prior accident years and expected changes to earned pricing, loss costs, mix of business, and other factors that are expected to impact the loss ratio for the current accident year. Another key assumption is the development patterns for paid and reported losses (also referred to as the loss emergence and settlement patterns). The reserves for unreported claims for each year are determined after reviewing the indications produced by each actuarial projection method, which, in turn, rely on the expected paid and reported development patterns and the expected loss ratio for that year.

At December 31, 2008, the actuarial reserve range determined by the actuaries was from $79.2 million to $89.7 million. Management reviews the results of the reserve estimates in order to determine any appropriate adjustments in the recording of reserves. Adjustments to reserve estimates are made after management’s consideration of numerous factors, including but not limited to the magnitude of the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indications in the period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of business. In general, changes are made more quickly to more mature accident years and less volatile lines of business. Varying the net expected loss ratio by +/-1% in all lines of business for the six most recent accident years would increase/decrease the claims incurred by approximately $5.3 million.

Liability for Future Policy Benefits

Our life insurance segment establishes, and carries as liabilities, actuarially determined amounts that are calculated to meet its policy obligations when a policy matures or surrenders, an insured dies or becomes disabled or upon the occurrence of other covered events. We compute the amounts for actuarial liabilities in conformity with GAAP.

Liabilities for future policy benefits for whole life and term insurance products are computed by the net level premium method, using interest assumptions ranging from 5.0% to 5.4% and withdrawal, mortality and morbidity assumptions appropriate at the time the policies were issued (or when a block of business was purchased, as applicable). Accident and health reserves are stated at amounts determined by estimates on individual claims and estimates of unreported claims based on past experience. Liabilities for universal life policies are stated at policyholder account values before surrender charges. Deferred annuity reserves are carried at the account value.

The liabilities for all products, except for universal life and deferred annuities, are based upon a variety of actuarial assumptions that are uncertain. The most significant of these assumptions is the level of anticipated death and health claims. Other assumptions that are less significant to the appropriate level of the liability for future policy benefits are anticipated policy persistency rates, investment yields, and operating expense levels. These are reviewed frequently by our subsidiary’s external actuaries, to assure that the current level of liabilities for future policy benefits is sufficient, in combination with anticipated future cash flows, to provide for all contractual obligations. For all products except for universal life and deferred annuities, according to Statement of Financial Accounting Standards (SFAS) No. 60, Accounting and Reporting by Insurance Enterprises, the basis for the liability for future policy benefits is established at the time of issuance of each contract and would only change if our experience deteriorates to the point that the level of the liability is not adequate to provide for future policy benefits. We do not currently expect that level of deterioration to occur.

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Deferred Policy Acquisition Costs and Value of Business Acquired

Certain costs for acquiring life and property and casualty insurance business are deferred. Acquisition costs related to the managed care business are expensed as incurred.

The costs of acquiring new life business, principally commissions, and certain variable underwriting, agency and policy issue expenses of our life insurance segment, have been deferred. These costs, including value of business acquired (VOBA) recorded upon our acquisition of GA Life (now TSV), are amortized to income over the premium-paying period of the related whole life and term insurance policies in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue, and over the anticipated lives of universal life policies in proportion to the ratio of the expected annual gross profits to the expected total gross profits. The expected premiums revenue and gross profits are based upon the same mortality and withdrawal assumptions used in determining the liability for future policy benefits. For universal life policies, changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on the amortization of deferred policy acquisition costs of revisions to estimated gross profits is reported in earnings in the period such estimated gross profits are revised.

The schedules of amortization of life insurance deferred policy acquisition costs (DPAC) and VOBA are based upon actuarial assumptions regarding future events that are uncertain. For all products, other than universal life and deferred annuities, the most significant of these assumptions is the level of contract persistency and investment yield rates. For these products according to FASB No. 60 the basis for the amortization of DPAC and VOBA is established at the issue of each contract and would only change if our segment’s experience deteriorates to the point that the level of the liability is not adequate. We do not currently expect that level of deterioration to occur. For the universal life and deferred annuity products, amortization schedules are based upon the level of historic and anticipated gross profit margins, from the date of each contract’s issued (or purchase, in the case of VOBA). These schedules are based upon several actuarial assumptions that are uncertain, are reviewed annually and are modified if necessary. The most significant of these assumptions are anticipated universal life claims, investment yield rates and contract persistency. Based upon the most recent actuarial reviews of all of the assumptions, we do not currently anticipate material changes to the level of these amortization schedules.

The managed care and property and casualty business acquisition costs consist of commissions incurred during the production of business and are deferred and amortized ratably over the terms of the policies.

Impairment of Investments

Impairment of an investment exists if a decline in the estimated fair value is below the amortized cost of the security. When this happens, an evaluation of whether that impairment is other than temporary is necessary. This evaluation is subjective and requires a high degree of judgment. Management regularly reviews each investment security for impairment based on criteria that include the extent to which cost exceeds estimated fair value, general market conditions (like changes in interest rates), our ability and intent to hold the security until recovery in estimated fair value, the duration of the estimated fair value decline and the financial condition and specific prospects for the issuer. Management regularly performs market research and monitors market conditions to evaluate impairment risk. A decline in the estimated fair value of any available-for-sale or held-to-maturity security below cost, which is deemed to be other than temporary, results in a reduction of the carrying amount to its fair value. The impairment is charged to operations when that determination is made and a new cost basis for the security is established.

During the years ended December 31, 2008, 2007 and 2006 we recognized other-than-temporary impairments amounting to $16.5 million, $1.1 million and $2.1 million, respectively, on equity securities and perpetual preferred stocks classified as available for sale. As of December 31, 2008, of the total amount of investments in securities of $1,010.3 million, $32.2 million, or 3.2%, are classified as trading securities, and thus are recorded at fair value with changes in estimated fair value recognized in the statement of operations. The remaining $978.1 million is classified as either available-for-sale or held-to-maturity and consists of high-quality investments. Of this amount, $805.0 million, or 82.3%, are securities in obligations of U.S. government-sponsored enterprises, U.S. Treasury securities, obligations of the Commonwealth of Puerto Rico, municipal securities, obligations of U.S. states and its political subdivisions, mortgage backed and collateralized mortgage obligations that are U.S. agency-backed. The

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remaining $173.1 million, or 17.7%, are from corporate fixed, equity securities and mutual funds. Gross unrealized losses as of December 31, 2008 of the available-for-sale and held-to-maturity portfolios amounted to $7.9 million.

The impairment analysis as of December 31, 2008 and 2007 indicated that, other than the equity security for which an other-than-temporary impairment was recognized, none of the securities whose carrying amount exceeded its estimated fair value was other-than-temporarily impaired as of that date; however, several factors are beyond management’s control, such as the following: financial condition of the issuer, movement of interest rates, specific situations within corporations, among others. Over time, the economic and market environment may provide additional insight regarding the estimated fair value of certain securities, which could change management’s judgment regarding impairment. This could result in realized losses related to other-than-temporary declines being charged against future income.

Our fixed maturity securities are sensitive to interest rate fluctuations, which impact the fair value of individual securities. Our equity securities are sensitive to equity price risks, for which potential losses could arise from adverse changes in the value of equity securities. For additional information on the sensitivity of our investments, see “Item 7A — Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 10-K.

A detail of the gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2008 and 2007 is included in note 3 to the audited consolidated financial statements.

Allowance for Doubtful Receivables

We estimate the amount of uncollectible receivables in each period and establish an allowance for doubtful receivables. The allowance for doubtful receivables amounted to $14.7 million and $15.9 million as of December 31, 2008 and 2007, respectively. The amount of the allowance is based on the age of unpaid accounts, information about the customer’s creditworthiness and other relevant information. The estimates of uncollectible accounts are revised each period, and changes are recorded in the period they become known. In determining the allowance, we use predetermined percentages applied to aged account balances, as well as individual analysis of large accounts. These percentages are based on our collection experience and are periodically evaluated. A significant change in the level of uncollectible accounts would have a material effect on our results of operations.

In addition to premium-related receivables, we evaluate the risk in the realization of other accounts receivable, including balances due from third parties related to overpayment of medical claims and rebates, among others. These amounts are individually analyzed and the allowance determined based on the specific collectivity assessment and circumstances of each individual case.

We consider this allowance adequate to cover potential losses that may result from our inability to subsequently collect the amounts reported as accounts receivable. However, such estimates may change significantly in the event that unforeseen economic conditions adversely impact the ability of third parties to repay the amounts due to us.

Other Significant Accounting Policies

We have other accounting policies that are important to an understanding of the financial statements. See note 2 to the audited consolidated financial statements.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 157, Fair Value Measurements. FAS 157 defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. FAS 157 does not require any new fair value measurements. We adopted FAS 157 on January 1, 2008. This adoption did not have an impact on our financial position or results of operations. See Note 8 to the audited consolidated financial statements for disclosure related to FAS 157.

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In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. FAS 159 allows entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under the fair value option. We adopted FAS 159 on January 1, 2008. We have chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with GAAP. Accordingly, the adoption of FAS 159 did not have an impact on our financial position or operating results.

In March 2008, the FASB issued FAS 161, Disclosures about Derivative Instruments and Hedging Activities. FAS 161 requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, Accounting for Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. This statement expands the current disclosure framework in FAS 133. FAS 161 is effective prospectively for periods beginning on or after November 15, 2008. We do not expect the adoption of FAS 161 to have a material impact on our consolidated financial statements.

In May 2008, the FASB issued FAS 163, Accounting for Financial Guarantee Insurance Contracts — an Interpretation of FASB Statement No. 60. FAS 163 prescribes the accounting for premium revenue and claims liabilities by insurers of financial obligations, and requires expanded disclosures about financial guarantee insurance contracts. FAS 163 applies to financial guarantee insurance and reinsurance contracts issued by insurers subject to FAS 60, Accounting and Reporting by Insurance Enterprises. The Statement does not apply to insurance contracts that are similar to financial guarantee insurance contracts such as mortgage guaranty or trade-receivable insurance, financial guarantee contracts issued by noninsurance entities, or financial guarantee contracts that are derivative instruments within the scope of FAS 133. Statement 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years, except for certain disclosure requirements about the risk-management activities of the insurance enterprise that are effective for the first quarter beginning after the Statement was issued (May 23, 2008). Except for those disclosures, early application is prohibited. This standard has no impact on our consolidated financial statements.

In December 2008, the FASB issued a FASB Staff Position (FSP) amending FASB 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. This FSP requires employers to disclose information about fair value measurements of plan assets that would be similar to the disclosures about fair value measurements required by FAS 157, Fair Value Measurements. The disclosures about plan assets required by this FSP are required for fiscal years ending after December 15, 2009. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. Earlier application of the provisions of this FSP is permitted.

There were no other new accounting pronouncements issued during the year ended December 31, 2008 that had a material impact on our financial position, operating results or disclosures.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. We are also subject to additional market risk with respect to certain of our financial instruments. We must effectively manage, measure, and monitor the market risk associated with our invested assets and interest rate sensitive liabilities. We have established and implemented comprehensive policies and procedures to minimize the effects of potential market volatility.

Market Risk Exposure

We have exposure to market risk mostly in our investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. Analytical tools and monitoring systems are in place to assess each one of the elements of market risks.

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As in other insurance companies, investment activities are an integral part of our business. Insurance statutes regulate the type of investments that the insurance segments are permitted to make and limit the amount of funds that may be invested in some types of securities. We have a diversified investment portfolio with a large portion invested in investment-grade, fixed income securities.

Our investment philosophy is to maintain a largely investment-grade fixed income portfolio, provide adequate liquidity for expected liability durations and other requirements, and maximize total return through active investment management.

We evaluate the interest rate risk of our assets and liabilities regularly, as well as the appropriateness of investments relative to our internal investment guidelines. We operate within these guidelines by maintaining a diversified portfolio, both across and within asset classes.

The board of directors monitors and approves investment policies and procedures. Investment decisions are centrally managed by investment professionals based on the guidelines established in our investment policies and procedures. The investment portfolio is managed following those policies and procedures.

Our investment portfolio is predominantly comprised of obligations of U.S. government-sponsored enterprises, U.S. Treasury securities, obligations of state and political subdivisions, obligations of the Commonwealth of Puerto Rico, municipal securities and obligations of U.S. states and its political subdivisions and obligations from U.S. and Puerto Rican government instrumentalities. These investments comprised approximately 82.3% of the total portfolio value as of December 31, 2008, of which 15.0% consisted of U. S. agency-backed mortgage backed securities and collateralized mortgage obligations. The remaining balance of the investment portfolio consists of an equity securities portfolio that seeks to replicate the S&P 500 Index, a large-cap growth index, a large-cap value index, mutual funds, investments in local stocks from well-known financial institutions and investments in corporate bonds.

We use a sensitivity analysis to measure the market risk related to our holdings of invested assets and other financial instruments. This analysis estimates the potential changes in fair value of the instruments subject to market risk. The sensitivity analysis was performed separately for each of our market risk exposures related to our trading and other than trading portfolios. This sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. Our actual losses in any particular year could exceed the amounts indicated in the following paragraphs. Limitations related to this sensitivity analysis include:

• the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on mortgages; and

• the model assumes that the composition of assets and liabilities remains unchanged throughout the year.

Accordingly, we use such models as tools and not as a substitute for the experience and judgment of our management.

Interest Rate Risk

Our exposure to interest rate changes results from our significant holdings of fixed maturity securities. Investments subject to interest rate risk are held in our other-than-trading portfolios. We are also exposed to interest rate risk from our variable interest secured term loan and from our policyholder deposits.

Equity Price Risk

Our investments in equity securities expose us to equity price risks, for which potential losses could arise from adverse changes in the value of equity securities. Financial instruments subject to equity prices risk are held in our trading and other-than-trading portfolios.

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Risk Measurement

Trading Portfolio

Our trading securities are a source of market risk. As of December 31, 2008, our trading portfolio was comprised of investments in publicly-traded common stocks. The securities in the trading portfolio are believed by management to be high quality and are diversified across industries and readily marketable. Trading securities are recorded at fair value, and changes in fair value are included in operations. The fair value of the investments in trading securities is exposed to equity price risk. Assuming an immediate decrease of 10% in the market value of these securities as of December 31, 2008 and 2007, the hypothetical loss in the fair value of these investments would have been approximately $3.2 million and $6.7 million, respectively.

Other than Trading Portfolio

Our available-for-sale and held-to-maturity securities are also a source of market risk. As of December 31, 2008 approximately 96.8% and 100.0% of our investments in available-for-sale and held-to-maturity securities, respectively, consisted of fixed income securities. The remaining balance of the available-for-sale portfolio is comprised of equity securities. Available-for-sale securities are recorded at fair value and changes in the fair value of these securities, net of the related tax effect, are excluded from operations and are reported as a separate component of other comprehensive income (loss) until realized. Held-to-maturity securities are recorded at amortized cost and adjusted for the amortization or accretion of premiums or discounts. The fair value of the investments in the other-than-trading portfolio is exposed to both interest rate risk and equity price risk.

Interest Rate Risk

We have evaluated the net impact to the fair value of our fixed income investments of a significant one-time change in interest rate risk using a combination of both statistical and fundamental methodologies. From these shocked values a resultant market price appreciation/depreciation can be determined after portfolio cash flows are modeled and evaluated over instantaneous 100, 200 and 300 basis point rate shifts. Techniques used in the evaluation of cash flows include Monte Carlo simulation through a series of probability distributions over 200 interest rate paths. Necessary prepayment speeds are compiled using Salomon Brothers Yield Book, which sources numerous factors in deriving speeds, including but not limited to: historical speeds, economic indicators, street consensus speeds, etc. Securities evaluated by us under these scenarios include mortgage pass-through certificates and collateralized mortgage obligations of U.S. agencies, and private label structures, provided that cash flows information is available. The following table sets forth the result of this analysis for the years ended December 31, 2008 and 2007.

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(Dollar amounts in millions)
	Expected		Amount of			%
Change in Interest Rates	Fair Value		Decrease			Change
December 31, 2008:
Base Scenario	$	910.7
+100 bp		891.0		(19.7	)		(2.2	)%
+200 bp		844.9		(65.8	)		(7.2	)%
+300 bp		787.7		(123.0	)		(13.5	)%
December 31, 2007:
Base Scenario	$	867.5
+100 bp		819.3		(48.2	)		(5.6	)%
+200 bp		777.3		(90.2	)		(10.4	)%
+300 bp		732.6		(134.9	)		(15.6	)%

We believe that an interest rate shift in a 12-month period of 100 basis points represents a moderately adverse outcome, while a 200 basis point shift is significantly adverse and a 300 basis point shift is unlikely given historical precedents. Although we classify 97.5% of our fixed income securities as available-for-sale, our cash flows and the intermediate duration of our investment portfolio should allow us to hold securities until maturity, thereby avoiding the recognition of losses, should interest rates rise significantly.

Equity Price Risk

Our equity securities in the available-for-sale portfolio are comprised primarily of stock of several Puerto Rican financial institutions and mutual funds. Assuming an immediate decrease of 10% in the market value of these securities as of December 31, 2008 and 2007, the hypothetical loss in the fair value of these investments would have been approximately $6.9 million and $7.1 million, respectively.

Other Risk Measurement

We are subject to interest rate risk on our variable interest secured term loan and our policyholder deposits. Shifting interest rates do not have a material effect on the fair value of these instruments. The secured term loan has a variable interest rate structure, which reduces the potential exposure to interest rate risk. The policyholder deposits have short-term interest rate guarantees, which also reduce the accounts’ exposure to interest rate risk.

We have invested in derivative instruments with a market value of approximately $11.1 million and $14.6 million as of December 31, 2008 and 2007 in order to diversify our investment in securities and participate in foreign stock markets.

In 2005, we invested in $5.0 million in each of two structured note agreements, under which the interest income received is linked to the performance of the Dow Jones Euro STOXX 50 and Nikkei 225 Equity Indices (the Indices). Under these agreements the principal invested by us is protected, the only amount that varies according to the performance of the Indices is the interest to be received upon the maturity of the instruments. Should the Indices experience a negative performance during the holding period of the structured notes, no interest will be received and no amount will be paid to the issuer of the structured notes. The contingent interest payment component within the structured note agreements meets the definition of an embedded derivative. In accordance with the provisions of SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, as amended, the embedded derivative component of the structured note is separated from the structured notes and accounted for separately as a derivative instrument. The derivative component of the structured notes exposes us to credit risk and market risk. We minimize credit risk by entering into transactions with counterparties that we believe to be high-quality based on their credit ratings. The market risk is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. As of December 31, 2008 and 2007, the fair value of the derivative component of the structured notes amounted to $1.7 million and $6.3 million,

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respectively, and is included within “other assets” in the consolidated balance sheets. Assuming an immediate decrease of 10% in the period-end Indices as of December 31, 2008 and 2007, the hypothetical loss in the estimated fair value of the derivative component of the structured notes would have been approximately $0.2 million and $0.6, respectively. The investment component of the structured notes, which had a fair value of $9.4 million and $8.3 million as of December 31, 2008 and 2007, respectively, is accounted for as a held-to-maturity debt security and is included within “investment in securities” in the consolidated balance sheet and its risk measurement is evaluated along the other investments in “— Other Than Trading Portfolio” above.

Item 8. Financial Statements and Supplementary Data.

Financial Statements

For our audited consolidated financial statements as of December 31, 2008 and 2007 and for the three years ended December 31, 2008 see Index to financial statements in “Item 15—Exhibits and Financial Statement Schedules” to this Annual Report on Form 10-K.

Selected Quarterly Financial Data

For the selected unaudited quarterly financial data corresponding to the years 2008 and 2007, see note 28 of the audited consolidated financial statements as of December 31, 2008 and 2007 and for the three years ended December 31, 2008.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.

None.

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Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Annual Report on Form 10-K, we conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as such term is defined under Exchange Act Rule 13a-15(e)), under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or mistake. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on this evaluation, our chief executive officer and our chief financial officer have concluded that as of December 31, 2008, which is the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were not effective due to the material weakness described in Management’s Report on Internal Control Over Financial Reporting, below.

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of “internal control over financial reporting,” as defined under Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s chief executive officer and chief financial officer, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:

(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 based on criteria described in the “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment and those criteria, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2008 due to the material weakness described below.

Our processes, procedures, and controls are not designed or operating effectively to ensure that other-than-temporary impairment (“OTTI”) on available for sale investment securities were recorded in accordance with generally accepted accounting principles. Specifically, our policies and procedures were not designed effectively to identify a complete population of available for sale investments that should be analyzed for OTTI. Also, our monitoring controls are not designed to consider factors that may indicate a decline in the value of available for sale investments is other than temporary in accordance with generally accepted accounting principles. These control deficiencies constitute a material weakness that resulted in material errors in net realized investment losses in our preliminary 2008 annual consolidated financial statements which were corrected prior to issuance of the Company’s consolidated financial statements.

KPMG LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has also issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008.

(c) Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting (as such term is defined in the Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended December 31, 2008 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(d) Remediation of Material Weakness

We are currently taking steps to enhance our OTTI evaluation and remediate this material weakness in our internal control over financial reporting, including in particular:

1.	Improving the governance process over the Company’s investment activities, by including OTTI analysis as a quarterly agenda at the meetings of our Investment Committee and report at least quarterly at the meetings of our Audit Committee.
2.	Amending and expanding our OTTI evaluation selection criteria for impaired investments to require an individual OTTI analysis for all impaired investments if such investments are impaired for more than one month over a materiality level to be determined.
3.	Preparing more robust supporting documentation and related reports used for the OTTI analysis by including additional information for those impaired investments described in the previous paragraph, addressing the reasons for the decline in value, period for which the decline has been observed, an estimate of the anticipated recovery period and its related probability of recoverability, credit ratings for the issue and issuer (where available) and any changes thereto.
4.	Implementing a procedure designed to effectively disseminate the most recent authoritative accounting pronouncements related to OTTI to ensure that our employees involved in the evaluation receive the information on a timely basis.

Management believes that these steps will remediate the material weakness by improving our systems of disclosure controls and procedures and internal control over financial reporting; however, during execution their effectiveness will be subject to testing by us, and there can be no assurance at this time that the plan will effectively remediate the material weakness described above.

Page 88

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Triple-S Management Corporation and Subsidiaries:

We have audited Triple-S Management Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Triple-S Management Corporation and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Item 9A(b)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the other-than-temporary impairment of investment securities has been identified and included in management’s assessment. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Triple-S Management Corporation and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and this report does not affect our report dated March 18, 2009, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, Triple-S Management Corporation and Subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG LLP

San Juan, Puerto Rico
March 18, 2009

Stamp No. 2376408 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.

Item 9B. Other Information.

None.

Part III

Item 10. Directors, Executive Officers and Corporate Governance.

The Board has established a code of business conduct and ethics that applies to our employees, agents, independent contractors, consultants, officers and directors. The complete text of the Code of Business Conduct and Ethics is available at the Corporation’s website at www.triplesmanagement.com.

The remaining information required by this item is incorporated by reference to the sections “Nominees for Election”, “Executive Officers”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Standing

Page 89

Committees—Corporate Governance and Nominations Committee”, “Standing Committees—Audit Committee”, and “Standing Committees—Audit Committee Financial Experts” included in the Corporation’s definitive Proxy Statement.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to the sections “Compensation Discussion and Analysis” and “Standing Committees—Compensation Committee Interlocks and Insider Participation” included in the Corporation’s definitive Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference to the sections “Principal Shareholders”, “Stock Ownership of Directors and Executive Officers” and “Compensation Discussion and Analysis” included in the Corporation’s definitive Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference to the section “Other Relationships, Transactions and Events” and “Board of Directors Independence” included in the Corporation’s definitive Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the section “Disclosure of Auditor’s Fees” included in the Corporation’s definitive Proxy Statement.

Item 15. Exhibits and Financial Statements Schedules.

Financial Statements and Schedules

Financial Statements	Description
F-1	Report of Independent Registered Public Accounting Firm
F-2	Consolidated Balance Sheets as of December 31, 2008 and 2007
F-3	Consolidated Statements of Earnings for the years ended December 31, 2008, 2007 and 2006
F-4	Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended December 31, 2008, 2007 and 2006
F-5	Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
F-7	Notes to Consolidated Financial Statements — December 31, 2008, 2007 and 2006

Financial Statements Schedules	Description
S-1	Schedule II — Condensed Financial Information of the Registrant
S-2	Schedule III — Supplementary Insurance Information

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Financial Statements Schedules	Description
S-3	Schedule IV — Reinsurance
S-4	Schedule V — Valuation and Qualifying Accounts

Schedule I — Summary of Investments was omitted because the information is disclosed in the notes to the audited consolidated financial statements. Schedule VI — Supplemental Information Concerning Property Casualty Insurance Operations was omitted because the schedule is not applicable to the Corporation.

Exhibits

Exhibits	Description
3(i)(a)	Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3(i)(d) to TSM’s Annual Report on Form 10-K for the Year Ended December 31, 2007 (File No. 001-33865).
3(i)(b)	Amendment to Article Tenth of the Amended and Restated Articles of Incorporation of Triple-S Management Corporation, incorporated by reference to Exhibit 3(i)(b) to TSM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-33865).
3(i)(c)	Articles of Incorporation of Triple-S Management Corporation, as currently in effect, incorporated by reference to Exhibit 3(i)(c) to TSM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-33865).
3(ii)	Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.1 to TSM’s Current Report on Form 8-K filed on October 23, 2007 (File No. 001-33865)).
10.1	Agreement between the Puerto Rico Health Insurance Administration and Triple-S, Inc. for the provision of health insurance coverage to eligible population in the North and South-West Regions (incorporated herein by reference to Exhibit 10.1 to TSM’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2008 (File No. 001-33865)).
10.2	Extension to the agreement between the Puerto Rico Health Insurance Administration and Triple-S, Inc. for the provision of health insurance coverage to eligible population in the North and South-West regions (incorporated herein by reference to Exhibit 10.1 of TSM’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2008 (File No. 001-33865)).
10.3	Federal Employees Health Benefits Contract (incorporated herein by reference to Exhibit 10.5 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)).
10.4	Credit Agreement with FirstBank Puerto Rico in the amount of $41,000,000 (incorporated herein by reference to Exhibit 10.6 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)).
10.5	Credit Agreement with FirstBank Puerto Rico in the amount of $20,000,000 (incorporated herein by reference to Exhibit 10.7 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)).
10.6	Non-Contributory Retirement Program (incorporated herein by reference to Exhibit 10.8 to TSM’s General Form of Registration of

Page 91

Exhibits	Description
	Securities on Form 10 (File No. 001-33865)).
10.7	BCBSA Licensure Documents (incorporated herein by reference to Exhibit 10.10 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)).
10.8*	Blue Shield License and other Agreements with Blue Cross Blue Shield Association.
10.9	Stock Purchase Agreement by and between Triple-S Management Corporation and Great American Financial Resources, Inc. dated December 15, 2005 (incorporated herein by reference to Exhibit 10.9 to TSM’s Registration Statement on Form S-1 filed on November 16, 2007 (File No. 001-33865)).
10.10	Reinsurance Agreement between Great American Life Assurance Company of Puerto Rico and Seguros de Vida Triple-S, Inc. dated December 15, 2005 (incorporated herein by reference to Exhibit 10.14 to TSM’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-33865)).
10.11	6.30% Senior Unsecured Notes Due September 2019 Note Purchase Agreement, dated September 30, 2004, between Triple-S Management Corporation, Triple-S, Inc. and various institutional accredited investors (incorporated herein by reference to Exhibit 10.15 to TSM’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-33865)).
10.12	6.60% Senior Unsecured Notes Due December 2020 Note Purchase Agreement, dated December 15, 2005, between Triple-S Management Corporation and various institutional accredited investors (incorporated herein by reference to Exhibit 10.16 to TSM’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-33865)).
10.13	6.70% Senior Unsecured Notes Due December 2021 Note Purchase Agreement, dated January 23, 2006, between Triple-S Management Corporation and various institutional accredited investors (incorporated herein by reference to Exhibit 10.1 to TSM’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2006 (File No. 001-33865)).
10.14	Triple-S Management Corporation 2007 Incentive Plan, dated October 16, 2007 (incorporated herein by reference to Exhibit C to TSM’s 2007 Proxy Statement (File No. 001-33865)).
10.15	Software License and Maintenance Agreement between Quality Care Solutions, Inc, and Triple-S, Inc. dated August 16, 2007 (incorporated herein by reference to Exhibit 10.15 to TSM’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-33865)).
10.15(a)	Addendum Number One to the Software License and Maintenance Agreement between Quality Care Solutions, Inc, and Triple-S, Inc. (incorporated herein by reference to Exhibit 10.15(a) to TSM’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-33865)).
10.15(b)	Addendum Number Two to the Software License and Maintenance

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Exhibits	Description
	Agreement between Quality Care Solutions, Inc, and Triple-S, Inc. (incorporated herein by reference to Exhibit 10.15(b) to TSM’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-33865)).
10.15(c)	Addendum Number Three to the Software License and Maintenance Agreement between Quality Care Solutions, Inc, and Triple-S, Inc. (incorporated herein by reference to Exhibit 10.15(c) to TSM’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-33865)).
10.16	Work Order Agreement between Quality Care Solutions, Inc. and Triple-S, Inc. (incorporated herein by reference to Exhibit 10.16 to TSM’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-33865)).
10.17*	Agreement between the Puerto Rico Health Insurance Administration and Triple-S, Inc. for the provision of act as Third Party Administrator in the Metro-North Region.
11.1	Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part II of this Annual Report on Form 10-K.
12.1	Statement re computation of ratios; an exhibit describing the computation of the loss ratio, expense ratio and combined ratio has been omitted as the detail necessary to determine the computation of the loss ratio, operating expense ratio and combined ratio can be clearly determined from the material contained in Part II of this Annual Report on Form 10-K.
21.1	List of Subsidiaries of Triple-S Management Corporation (incorporated herein by reference to Exhibit 21 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)).
31.1*	Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
31.2*	Certification of the Vice President of Finance and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
32.1*	Certification of the President and Chief Executive Officer required pursuant to 18 U.S. Section 1350.
32.2*	Certification of the Vice President of Finance and Chief Financial Officer required pursuant to 18 U.S. Section 1350.

All other exhibits for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted.

* Filed herein.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Triple-S Management Corporation Registrant
By:	/s/ Ramón M. Ruiz-Comas	Date:	March 18, 2009
	Ramón M. Ruiz-Comas President and Chief Executive Officer
By:	/s/ Juan J. Román	Date:	March 18, 2009
	Juan J. Román Vice President of Finance and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ Luis A. Clavell-Rodríguez	Date:	March 18, 2009
	Luis A. Clavell-Rodríguez, MD Director and Chairman of the Board
By:	/s/ Vicente J. León-Irizarry	Date:	March 18, 2009
	Vicente J. León-Irizarry, CPA Director and Vice-Chairman of the Board
By:	/s/ Jesús R. Sánchez-Colón	Date:	March 18, 2009
	Jesús R. Sánchez-Colón, DMD Director and Secretary of the Board
By:	/s/ Adamina Soto-Martínez	Date:	March 18, 2009
	Adamina Soto-Martínez, CPA Director
By:	/s/ Ms. Carmen Ana Culpeper-Ramírez	Date:	March 18, 2009
	Ms. Carmen Ana Culpeper-Ramírez Director

Page 94

By:	/s/ Valeriano Alicea-Cruz	Date:	March 18, 2009
	Valeriano Alicea-Cruz, MD Director
By:	/s/ Mr. José Arturo Álvarez-Gallardo	Date:	March 18, 2009
	Mr. José Arturo Álvarez-Gallardo Director
By:	/s/ Porfirio E. Díaz-Torres	Date:	March 18, 2009
	Porfirio E. Díaz-Torres, MD Director
By:	/s/ Mr. Antonio F. Faría-Soto	Date:	March 18, 2009
	Mr. Antonio F. Faría-Soto Director
By:	/s/ Manuel Figueroa-Collazo	Date:	March 18, 2009
	Manuel Figueroa-Collazo, PE, Ph.D. Director
By:	/s/ José Hawayek-Alemañy	Date:	March 18, 2009
	José Hawayek-Alemañy, MD Director
By:	/s/ Jaime Morgan-Stubbe	Date:	March 18, 2009
	Jaime Morgan-Stubbe, Esq. Director
By:	/s/ Roberto Muñoz-Zayas	Date:	March 18, 2009
	Roberto Muñoz-Zayas, MD Director
By:	/s/ Juan E. Rodríguez-Díaz	Date:	March 18, 2009
	Juan E. Rodríguez-Díaz, Esq. Director

Page 95

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(With Independent Auditors’ Report Thereon)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Table of Contents

	Page
Report of Independent Registered Public Accounting Firm		1
Consolidated Balance Sheets		2
Consolidated Statements of Earnings		3
Consolidated Statements of Stockholders’ Equity and Comprehensive Income		4
Consolidated Statements of Cash Flows		5
Notes to Consolidated Financial Statements		7

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Triple-S Management Corporation:

We have audited the accompanying consolidated balance sheets of Triple-S Management Corporation and Subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Triple-S Management Corporation and Subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in note 16 to the consolidated financial statements, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, as of December 31, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Triple-S Management Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 18, 2009 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

March 18, 2009

Stamp No. 2376402 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2008 and 2007

(Dollar amounts in thousands, except per share data)

	2008			2007
Assets
Investments and cash:
Equity securities held for trading, at fair value (cost of $40,847 in 2008 and $54,757 in 2007)	$	32,184			67,158
Securities available for sale, at fair value:
Fixed maturities (amortized cost of $879,663 in 2008 and $816,536 in 2007)		887,684			823,629
Equity securities (cost of $70,060 in 2008 and $66,747 in 2007)		68,629			71,050
Securities held to maturity, at amortized cost:
Fixed maturities (fair value of $23,063 in 2008 and $43,849 in 2007)		21,753			43,691
Policy loans		5,451			5,481
Cash and cash equivalents		46,095			240,153
Total investments and cash		1,061,796			1,251,162
Premium and other receivables, net		237,158			202,268
Deferred policy acquisition costs and value of business acquired		126,347			117,239
Property and equipment, net		58,448			43,415
Net deferred tax asset		25,195			6,783
Other assets		39,515			38,675
Total assets	$	1,548,459			1,659,542
Liabilities and Stockholders’ Equity
Claim liabilities:
Claims processed and incomplete	$	156,137			186,065
Unreported losses		150,079			149,996
Unpaid loss-adjustment expenses		17,494			17,769
Total claim liabilities		323,710			353,830
Liability for future policy benefits		207,545			194,131
Unearned premiums		110,141			132,599
Policyholder deposits		48,684			45,959
Liability to Federal Employees’ Health Benefits Program		11,157			21,338
Accounts payable and accrued liabilities		148,713			228,980
Borrowings		169,307			170,946
Liability for pension benefits		44,103			29,221
Total liabilities		1,063,360			1,177,004
Stockholders’ equity:
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 9,042,809 and 16,042,809 at December 31, 2008 and 2007, respectively		9,043			16,043
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,104,989 and 16,266,554 shares at December 31, 2008 and 2007, respectively		22,105			16,266
Additional paid-in capital		179,504			188,935
Retained earnings		292,112			267,336
Accumulated other comprehensive loss, net		(17,665	)		(6,042	)
		485,099			482,538
Commitments and contingencies
Total liabilities and stockholders’ equity	$	1,548,459			1,659,542

See accompanying notes to consolidated financial statements.

2

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings

Years ended December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Revenues:
Premiums earned, net	$	1,695,457			1,483,548			1,511,626
Administrative service fees		19,187			14,018			14,089
Net investment income		56,253			47,194			42,657
Total operating revenues		1,770,897			1,544,760			1,568,372
Net realized investment (losses) gains		(13,940	)		5,931			837
Net unrealized investment (loss) gain on trading securities		(21,064	)		(4,116	)		7,699
Other income (loss), net		(2,467	)		3,217			2,323
Total revenues		1,733,426			1,549,792			1,579,231
Benefits and expenses:
Claims incurred		1,434,914			1,223,775			1,258,981
Operating expenses		251,887			237,533			236,065
Total operating costs		1,686,801			1,461,308			1,495,046
Interest expense		14,681			15,839			16,626
Total benefits and expenses		1,701,482			1,477,147			1,511,672
Income before taxes		31,944			72,645			67,559
Income tax expense (benefit):
Current		11,542			15,906			15,407
Deferred		(4,388	)		(1,779	)		(2,381	)
Total income taxes		7,154			14,127			13,026
Net income	$	24,790			58,518			54,533
Basic net income per share	$	0.77			2.15			2.04
Diluted net income per share		0.77			2.15			2.04

See accompanying notes to consolidated financial statements.

3

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity
and Comprehensive Income

Years ended December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

													Accumulated
	Class A			Class B			Additional						other			Total
	common			common			paid-in			Retained			comprehensive			stockholders’
	stock			stock			capital			earnings			income (loss)			equity
Balance, December 31, 2005	$	26,712			—			124,052			162,964			(5,025	)		308,703
Dividends declared		—			—			—			(6,231	)		—			(6,231	)
Adjustment to initially apply SFAS No. 158, net of tax		—			—			—			—			(16,081	)		(16,081	)
Other		21			—			(21	)		—			—			—
Comprehensive income:
Net income		—			—			—			54,533			—			54,533
Net unrealized change in fair value of available for sale securities		—			—			—			—			(3,212	)		(3,212	)
Net change in minimum pension liability		—			—			—			—			4,952			4,952
Net change in fair value of cash flow hedges		—			—			—			—			(65	)		(65	)
Total comprehensive income																	56,208
Balance, December 31, 2006		26,733			—			124,031			211,266			(19,431	)		342,599
Dividends declared		—			—			—			(2,448	)		—			(2,448	)
Sale of stock in public offering		(10,813	)		16,100			64,992			—			—			70,279
Grant of restricted Class B common stock		—			166			—			—			—			166
Share-based compensation								34									34
Other		123			—			(122	)		—			—			1
Comprehensive income:
Net income		—			—			—			58,518			—			58,518
Net unrealized change in fair value of available for sale securities		—			—			—			—			9,549			9,549
Defined benefit pension plan:
Prior service cost, net		—			—			—			—			3,935			3,935
Actuarial loss		—			—			—			—			155			155
Net change in fair value of cash flow hedges		—			—			—			—			(250	)		(250	)
Total comprehensive income																	71,907
Balance, December 31, 2007		16,043			16,266			188,935			267,336			(6,042	)		482,538
Conversion of Class A common stock to Class B common stock		(7,000	)		7,000			—			—			—			—
Share-based compensation		—			—			3,268			—			—			3,268
Grant of restricted Class B common stock		—			20			—			—			—			20
Repurchase and retirement of common stock		—			(1,181	)		(12,699	)		—			—			(13,880	)
Other		—			—			—			(14	)		—			(14	)
Comprehensive income:
Net income		—			—			—			24,790			—			24,790
Net unrealized change in fair value of available for sale securities		—			—			—			—			(3,952	)		(3,952	)
Defined benefit pension plan:
Prior service credit, net		—			—			—			—			(266	)		(266	)
Actuarial loss		—			—			—			—			(7,349	)		(7,349	)
Net change in fair value of cash flow hedges		—			—			—			—			(56	)		(56	)
Total comprehensive income																	13,167
Balance, December 31, 2008	$	9,043			22,105			179,504			292,112			(17,665	)		485,099

See accompanying notes to consolidated financial statements.

4

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Cash flows from operating activities:
Net income	$	24,790			58,518			54,533
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,367			7,562			6,443
Net amortization of investments		953			354			511
Provision for doubtful receivables		(1,180	)		(2,305	)		5,125
Deferred tax benefit		(12,725	)		(1,779	)		(2,381	)
Net loss (gain) on sale of securities		13,940			(5,931	)		(837	)
Net unrealized (gain) loss on trading securities		21,063			4,116			(7,699	)
Share-based compensation		3,268			200			—
Proceeds from trading securities sold or matured:
Equity securities		24,640			43,614			27,919
Acquisition of securities in trading portfolio:
Equity securities		(10,737	)		(23,921	)		(22,409	)
Gain on sale of property and equipment		11			28			22
(Increase) decrease in assets:
Premiums receivable		(39,788	)		(8,458	)		(27,951	)
Agent balances		(5,617	)		(4,061	)		395
Accrued interest receivable		(3,439	)		(309	)		588
Other receivables		58			(3,637	)		(4,521	)
Funds withheld reinsurance receivable		—			—			118,635
Reinsurance recoverable on paid losses		16,576			(17,872	)		(6,147	)
Deferred policy acquisition costs and value of business acquired		(9,108	)		(5,822	)		(7,026	)
Other assets		4,785			(3,179	)		(4,031	)
Increase (decrease) in liabilities:
Claims processed and incomplete		(29,928	)		38,854			2,803
Unreported losses		83			(739	)		3,342
Loss-adjustment expenses		(275	)		1,033			1,791
Liability for future policy benefits		13,414			13,711			14,022
Liability for future policy benefits related to funds withheld reinsurance		—			—			(118,635	)
Unearned premiums		(22,458	)		19,017			15,579
Policyholder deposits		1,902			1,800			1,810
Liability to FEHBP		(10,181	)		7,775			9,207
Accounts payable and accrued liabilities		15,322			7,359			1,903
Income tax payable		(5,718	)		(10,034	)		12,595
Net cash (used in) provided by operating activities		(2,982	)		115,894			75,586

5

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold	$	228,436			299,561			51,519
Fixed maturities matured		91,732			41,248			32,826
Equity securities		4,450			1,000			1,209
Securities held to maturity:
Fixed maturities matured		22,875			13,246			492
Acquisition of investments:
Securities available for sale:
Fixed maturities		(505,896	)		(327,409	)		(81,496	)
Equity securities		(19,636	)		(18,379	)		(11,620	)
Securities held to maturity:
Fixed maturities		(554	)		(8,244	)		(2,197	)
Acquisition of business, net of $10,403 of cash acquired		—			—			(27,793	)
Net repayment (disbursements) for policy loans		30			(287	)		(415	)
Capital expenditures		(22,411	)		(9,390	)		(11,871	)
Net cash used in investing activities		(200,974	)		(8,654	)		(49,346	)
Cash flows from financing activities:
Net proceeds from initial public offering		—			70,279			—
Repurchase and retirement of common stock		(7,645	)		—			—
Change in outstanding checks in excess of bank balances		18,353			(3,076	)		(8,224	)
Change in short-term borrowings		—			—			(1,740	)
Repayments of long-term borrowings		(1,639	)		(12,141	)		(2,503	)
Proceeds from long-term borrowings		—			—			35,000
Dividends		—			(2,448	)		(6,231	)
Proceeds from annuity contracts		8,018			6,150			6,008
Surrenders of annuity contracts		(7,195	)		(7,416	)		(16,036	)
Other		6			1			—
Net cash provided by financing activities		9,898			51,349			6,274
Net (decrease) increase in cash and cash equivalents		(194,058	)		158,589			32,514
Cash and cash equivalents, beginning of year		240,153			81,564			49,050
Cash and cash equivalents, end of year	$	46,095			240,153			81,564

See accompanying notes to consolidated financial statements.

6

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(1)	Nature of Business
	Triple-S Management Corporation (the Company or TSM) was incorporated under the laws of the Commonwealth of Puerto Rico on January 17, 1997 to engage, among other things, as the holding company of entities primarily involved in the insurance industry.
	The Company has the following wholly owned subsidiaries that are subject to the regulations of the Commissioner of Insurance of the Commonwealth of Puerto Rico (the Commissioner of Insurance): (1) Triple-S, Inc. (TSI) a managed care organization that provides health benefits services to subscribers through contracts with hospitals, physicians, dentists, laboratories, and other organizations located mainly in Puerto Rico; (2) Triple-S Vida, Inc. (TSV), which is engaged in the underwriting of life and accident and health insurance policies and the administration of annuity contracts; and (3) Seguros Triple-S, Inc. (STS), which is engaged in the underwriting of property and casualty insurance policies. Effective February 16, 2009, TSI and STS change their name to Triple-S Salud, Inc. and Triple-S Propiedad, Inc., respectively. The Company and TSI are members of the Blue Cross and Blue Shield Association (BCBSA).
	Effective January 31, 2006, the Company completed the acquisition of 100% of the common stock of Great American Life Assurance Company of Puerto Rico (GA Life) (now Triple-S Vida, Inc.) and, effective June 30, 2006, the Company merged the operations of its former life and accident and health insurance subsidiary, Seguros de Vida Triple-S, Inc. (SVTS), into GA Life. The results of operations and financial position of GA Life are included in the Company’s consolidated financial statements for the period following January 31, 2006. Prior to completing the acquisition of GA Life, the operations of SVTS were the sole component of the Company’s life insurance segment. Effective November 1, 2007, GA Life changed its name to Triple-S Vida, Inc.
	The Company also has two other wholly owned subsidiaries, Interactive Systems, Inc. (ISI) and Triple-C, Inc. (TC). ISI is mainly engaged in providing data processing services to the Company and its subsidiaries. TC is mainly engaged as a third-party administrator for TSI in the administration of the Commonwealth of Puerto Rico Health Care Reform’s (the Reform) business. Also, TC provides healthcare advisory services to TSI and other health insurance-related services to the health insurance industry.
	A substantial majority of the Company’s business activity is with insurers located throughout Puerto Rico, and as such, the Company is subject to the risks associated with the Puerto Rico economy.

(2)	Significant Accounting Policies
	The following are the significant accounting policies followed by the Company and its subsidiaries:

(a)	Basis of Presentation
	The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP).

7 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(b)	Use of Estimates
	The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The most significant items on the consolidated balance sheets that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the near future are the allowance for doubtful receivables, deferred policy acquisition costs and value of business acquired, claim liabilities, the liability for future policy benefits, and liability for pension benefits. As additional information becomes available (or actual amounts are determinable), the recorded estimates will be revised and reflected in operating results of the period they are determined. Although some variability is inherent in these estimates, the Company believes the amounts provided are adequate.
(c)	Reclassifications
	Certain amounts in the 2007 and 2006 consolidated financial statements were reclassified to conform to the 2008 presentation.
(d)	Cash Equivalents
	The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash equivalents of $2,564 and $192,534 at December 31, 2008 and 2007, respectively, consist principally of obligations of government-sponsored enterprises and certificates of deposit with an initial term of less than three months.
(e)	Investments
	Investment in securities at December 31, 2008 and 2007 consists mainly of obligations of government-sponsored enterprises, U.S. Treasury securities and obligations of U.S. government instrumentalities, obligations of the Commonwealth of Puerto Rico and its instrumentalities, municipal securities, obligations of states of the United States and political subdivisions of the states, corporate bonds, mortgage-backed securities, collateralized mortgage obligations, and equity securities. The Company classifies its debt and equity securities in one of three categories: trading, available for sale, or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Securities classified as held to maturity are those securities in which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held to maturity are classified as available for sale.
	Trading and available-for-sale securities are recorded at fair value. The fair values of debt securities (both available for sale and held to maturity investments) and equity securities are based on quoted

8 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	market prices at the reporting date for those or similar investments. Held-to-maturity debt securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts. Unrealized holding gains and losses on trading securities are included in operations. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are included in earnings and are determined on a specific-identification basis.
	Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains and losses are recognized in operations for transfers into trading securities. Unrealized holding gains or losses associated with transfers of securities from held to maturity to available for sale are recorded as a separate component of other comprehensive income. The unrealized holding gains or losses included in the separate component of other comprehensive income for securities transferred from available for sale to held to maturity, are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security.
	A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other than temporary results in an impairment to reduce the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, market conditions, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.
	Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.
	The Company regularly invests in mortgaged-backed securities and other securities subject to prepayment and call risk. Significant changes in prevailing interest rates may adversely affect the timing and amount of cash flows on such securities. In addition, the amortization of market premium and accretion of market discount for mortgaged-backed securities is based on historical experience and estimates of future payment speeds on the underlying mortgage loans. Actual prepayment speeds will differ from original estimates and may result in material adjustments to amortization or accretion recorded in future periods.
(f)	Revenue Recognition

(i)	Managed Care
	Subscriber premiums on the managed care business are billed in advance of their respective coverage period and the related revenue is recorded as earned during the coverage period.

9 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Managed care premiums are billed in the month prior to the effective date of the policy with a grace period of up to two months. If the insured fails to pay, the policy can be canceled at the end of the grace period at the option of the Company. Managed care premiums are reported as earned when due.

Premiums for the Medicare Advantage (MA) business are based on a bid contract with the Centers for Medicare and Medicaid Services (CMS) and billed in advance of the coverage period. MA contracts provide for a risk factor to adjust premiums paid for members that represent a higher or lower risk to the Company. Retroactive rate adjustments are made periodically based on the aggregate health status and risk scores of the Company’s MA membership. These risk adjustments are evaluated quarterly based on actuarial estimates. Actual results could differ from these estimates. As additional information becomes available, the recorded estimate will be revised and reflected in operating results.

TSI offers prescription drug coverage to Medicare eligible beneficiaries as part of its MA plans (MA-PD) and on a stand-alone basis (stand-alone PDP). Premiums are based on a bid contract with CMS that considers the estimated costs of providing prescription drug benefits to enrolled participants. MA-PD and stand-alone PDP premiums are subject to adjustment, positive or negative, based upon the application of risk corridors that compare the estimated prescription drug costs included in the bids to CMS to actual prescription drug costs. Variances exceeding certain thresholds may result in CMS making additional payments to the TSI or in TSI refunding CMS a portion of the premiums collected. TSI estimates and records adjustments to earned premiums related to estimated risk corridor payments based upon actual prescription drug costs for each reporting period as if the annual contract were to end at the end of each reporting period.

Administrative service fees include revenue from certain groups which have managed care contracts that provide for the group to be at risk for all or a portion of their claims experience. For these groups, the Company is not at risk and only handles the administration of the insurance coverage for an administrative service fee. The Company pays claims under self-funded arrangements from its own funds, and subsequently receives reimbursement from these groups. Claims paid under self-funded arrangements are excluded from the claims incurred in the accompanying consolidated financial statements. Administrative service fees under the self-funded arrangements are recognized based on the group’s membership or incurred claims for the period multiplied by an administrative fee rate plus other fees. In addition, some of these self-funded groups purchase aggregate and/or specific stop-loss coverage. In exchange for a premium, the group’s aggregate liability or the group’s liability on any one episode of care is capped for the year. Premiums for the stop-loss coverage are actuarially determined based on experience and other factors and are recorded as earned over the period of the contract in proportion to the coverage provided. This fully insured portion of premiums is included within the premiums earned, net in the accompanying consolidated statements of earnings.

10 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	The Company also handles the administration of the insurance coverage for the Reform Metro-North region for an administrative fee per member. The Company is not at risk and pays claims from such region from the Commonwealth of Puerto Rico funds.
(ii)	Life and Accident and Health Insurance
	Premiums on life insurance policies are billed in advance of their respective coverage period and the related revenue is recorded as earned when due. Premiums on accident and health and other short-term policies are recognized as earned primarily on a pro rata basis over the contract period. Premiums on credit life policies are recognized as earned in proportion to the amounts of insurance in-force. Revenues from universal life and interest sensitive policies represent amounts assessed against policyholders, including mortality charges, surrender charges actually paid, and earned policy service fees. The revenues for limited payment contracts are recognized over the period that benefits are provided rather than on collection of premiums.
(iii)	Property and Casualty Insurance
	Premiums on property and casualty contracts are recognized as earned on a pro rata basis over the policy term. The portion of premiums related to the period prior to the end of coverage is recorded in the consolidated balance sheets as unearned premiums and is transferred to premium revenue as earned.

(g)	Allowance for Doubtful Receivables
	The allowance for doubtful receivables is based on management’s evaluation of the aging of accounts and such other factors, which deserve current recognition. Actual results could differ from these estimates. Receivables are charged against their respective allowance accounts when deemed to be uncollectible.
(h)	Deferred Policy Acquisition Costs and Value of Business Acquired
	Certain costs for acquiring life and accident and health, and property and casualty insurance business are deferred by the Company. Acquisition costs related to the managed care business are expensed as incurred.
	In the life and accident and health business deferred acquisition costs consist of commissions and certain expenses related to the production of life, annuity, accident and health, and credit business. In the event that future premiums, in combination with policyholder reserves and anticipated investment income could not provide for all future maintenance and settlement expenses, the amount of deferred policy acquisition costs would be reduced to provide for such amount. The related amortization is provided over the anticipated premium-paying period of the related policies in proportion to the ratio of annual premium revenue to expected total premium revenue to be received over the life of the policies. Interest is considered in the amortization of deferred policy acquisition cost and value of business acquired. For contracts accounted for under SFAS No. 60, Accounting and Reporting by Insurance Enterprises, interest is considered at a level rate, set at the time of issue

11 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	of each contract and, in the case of the value of business acquired, at the time of any acquisition. For SFAS No. 60 contract interest is currently set as 5.4%. For contracts accounted for under SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, deferred amounts are amortized at historical and forecasted credited interest rates, in accordance with the requirements set forth in that statement. Expected premium revenue is estimated by using the same mortality and withdrawal assumptions used in computing liabilities for future policy benefits. The method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated net realizable value. In determining estimated net realizable value, the computations give effect to the premiums to be earned, related investment income, losses and loss-adjustment expenses, and certain other costs expected to be incurred as the premium is earned. Costs deferred on universal life and interest sensitive products are amortized as a level percentage of the present value of anticipated gross profits from investment yields, mortality and surrender charges. Estimates used are based on the Company’s experience as adjusted to provide for possible adverse deviations. These estimates are periodically reviewed and compared with actual experience. When it is determined that future expected experience differs significantly from that assumed, the estimates are revised for current and future issues.
	The value assigned to the insurance in-force of TSV at the date of the acquisition is amortized using methods similar to those used to amortize the deferred policy acquisition costs of the life and accident and health business.
	In the property and casualty business, acquisition costs consist of commissions incurred during the production of business and are deferred and amortized ratably over the terms of the policies.
(i)	Property and Equipment
	Property and equipment are stated at cost. Maintenance and repairs are expensed as incurred. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Costs of computer equipment, programs, systems, installations, and enhancements are capitalized and amortized straight-line over their estimated useful lives. The following is a summary of the estimated useful lives of the Company’s property and equipment:

	Estimated
Asset category	useful life
Buildings	20 to 50 years
Building improvements	3 to 5 years
Leasehold improvements	Shorter of estimated useful life or lease term
Office furniture	5 years
Computer software	3 to 10 years
Computer equipment, equipment, and automobiles	3 years

12 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(j)	Software Development Costs
	In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which provides guidance on accounting for such costs. SOP 98-1 requires computer software costs that are incurred in the preliminary project stage to be expensed as incurred. Once the capitalization criteria of SOP 98-1 have been met, directly attributable development costs should be capitalized. It also provides that upgrade and maintenance costs should be expensed. The Company treatment of such costs is consistent with SOP 98-1, with the costs capitalized being amortized over the expected useful life of the software. During the year ended December 31, 2008 the Company capitalized approximately $16,408 associated with the implementation of new software. No software development costs were capitalized during the year ended December 31, 2007.
(k)	Long-Lived Assets
	In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheets.
	Goodwill and intangible assets that have indefinite useful lives are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. For goodwill, the impairment determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.
(l)	Claim Liabilities
	Claims processed and incomplete and unreported losses for managed care policies represent the estimated amounts to be paid to providers based on experience and accumulated statistical data. Loss-adjustment expenses related to such claims are currently accrued based on estimated future expenses necessary to process such claims.

13 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	TSI contracts with various independent practice associations (IPAs) for certain medical care services provided to some policies subscribers. The IPAs are compensated on a capitation basis. In the Reform business and one of the MA policies, TSI retains a portion of the capitation payments to provide for incurred but not reported losses. At December 31, 2008 and 2007, total withholdings and capitation payable amounted to $24,462 and $29,119, respectively, which are recorded as part of the liability for claims processed and incomplete in the accompanying consolidated balance sheets.
	Unpaid claims and loss-adjustment expenses of the life and accident and health business are based on a case-basis estimates for reported claims, and on estimates, based on experience, for unreported claims and loss-adjustment expenses. The liability for policy and contract claims and claims expenses has been established to cover the estimated net cost of insured claims.
	The liability for losses and loss-adjustment expenses for the property and casualty business represents individual case estimates for reported claims and estimates for unreported losses, net of any salvage and subrogation based on past experience modified for current trends and estimates of expenses for investigating and settling claims.
	The above liabilities are necessarily based on estimates and, while management believes that the amounts are adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates and for establishing the resulting liability are continually reviewed, and any adjustments are reflected in the consolidated statements of earnings in the period determined.
(m)	Future Policy Benefits
	The liability for future policy benefits has been computed using the level-premium method based on estimated future investment yield, mortality, and withdrawal experience. The interest rate assumption is 5.0% for all years in issue. Mortality has been calculated principally on select and ultimate tables in common usage in the industry. Withdrawals have been determined principally based on industry tables, modified by Company’s experience.
(n)	Policyholder Deposits
	Amounts received for annuity contracts are considered deposits and recorded as a liability. Interest incurred on such deposits, which amounted to $1,902, $1,800, and $1,810, during the years ended December 31, 2008, 2007, and 2006, respectively, is recorded as interest expense in the accompanying consolidated statements of earnings.
(o)	Reinsurance
	In the normal course of business, the insurance-related subsidiaries seek to limit their exposure that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers.
	Reinsurance premiums, commissions, and expense reimbursements, related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and

14 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	the terms of the reinsurance contracts. Accordingly, reinsurance premiums are reported as prepaid reinsurance premiums and amortized over the remaining contract period in proportion to the amount of insurance protection provided.
	Premiums ceded and recoveries of losses and loss-adjustment expenses have been reported as a reduction of premiums earned and losses and loss-adjustment expenses incurred, respectively. Commission and expense allowances received by STS in connection with reinsurance ceded have been accounted for as a reduction of the related policy acquisition costs and are deferred and amortized accordingly. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy.
(p)	Derivative Instruments and Hedging Activities
	The Company accounts for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities in accordance with the provisions of Statement of SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, as amended, which requires entities to recognize all derivative instruments, whether or not designated in hedging relationships, as either assets or liabilities in the balance sheet at their respective fair values. Changes in the fair value of derivative instruments are recorded in earnings, unless specific hedge accounting criteria are met in which case the change in fair value of the instrument is recorded within other comprehensive income.
	On the date the derivative contract designated as a hedging instrument is entered into, the Company designates the instrument as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair-value hedge), a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash-flow hedge), a foreign currency fair-value or cash-flow hedge (foreign-currency hedge), or a hedge of a net investment in a foreign operation. For all hedging relationships the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives that are designated as fair-value, cash-flow, or foreign-currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income to the extent that the derivative is effective as hedge, until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of derivatives that are highly effective as hedges and that are designated and qualify as foreign-currency hedges are recorded in either earnings or other comprehensive income, depending on whether the hedge transaction is a fair-value

15 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	hedge or a cash-flow hedge. However, if a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in the cumulative translation adjustments account within other comprehensive income. The ineffective portion of the change in fair value of a derivative instrument that qualifies as either a fair-value hedge or a cash-flow hedge is reported in earnings. Changes in the fair value of derivative trading instruments are reported in current period earnings.
	The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is de-designated as a hedging instrument, because it is unlikely that a forecasted transaction will occur, a hedged firm commitment no longer meets the definition of a firm commitment, or management determines that designation of the derivative as a hedging instrument is no longer appropriate.
	In all situations in which hedge accounting is discontinued and the derivative is retained, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the Company no longer adjusts the hedged asset or liability for changes in fair value. The adjustment of the carrying amount of the hedged asset or liability is accounted for in the same manner as other components of the carrying amount of that asset or liability. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the Company removes any asset or liability that was recorded pursuant to recognition of the firm commitment from the balance sheet, and recognizes any gain or loss in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting if not already done and recognizes immediately in earnings gains and losses that were accumulated in other comprehensive income.
(q)	Income Taxes
	Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date. Beginning with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) as of January 1, 2007, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Prior to the adoption of FIN 48, the Company recognized the effect of income tax positions only if such positions were probable of being sustained.

16 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	The Company records any interest and penalties related to unrecognized tax benefits within the operating expenses in our consolidated statement of earnings.
(r)	Insurance-Related Assessments
	The Company accounts for insurance-related assessments in accordance with the provisions of SOP No. 97-3, Accounting by Insurance and Other Enterprises for Insurance-related Assessments. This SOP prescribes liability recognition when the following three conditions are met: (1) the assessment has been imposed or the information available prior to the issuance of the financial statements indicates it is probable that an assessment will be imposed; (2) the event obligating an entity to pay (underlying cause of) an imposed or probable assessment has occurred on or before the date of the financial statements; and (3) the amount of the assessment can be reasonably estimated. Also, this SOP provides for the recognition of an asset when the paid or accrued assessment is recoverable through either premium taxes or policy surcharges.
(s)	Commitments and Contingencies
	Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of costs from third parties, which are probable of realization, are separately recorded as assets, and are not offset against the related liability.
(t)	Share-Based Compensation
	The Company accounts for share-based compensation in accordance with the provisions of SFAS No. 123 (R), Share-Based Payment. This statement requires that all share-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. The Company recognizes compensation expense based on estimated grant date fair value using the Black-Scholes option-pricing model.
(u)	Earnings Per Share
	The Company calculates and presents earnings per share in accordance with SFAS No. 128, Earnings per Share. Basic earnings per share excludes dilution and is computed by dividing net income available to all classes of common stockholders by the weighted average number of all classes of common shares outstanding for the period, excluding nonvested restricted stocks. Diluted earnings per share is computed in the same manner as basic earnings per share except that the number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. Dilutive common shares are included in the diluted earnings per share calculation using the treasury stock method. See note 22 for additional earnings per share information. As disclosed in note 19, the accompanying consolidated financial statements gave retroactive effect to the 3,000-for-one stock split of shares of common stock effected on May 1, 2007.

17 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(v)	Fair Value
	We adopted FAS 157, Fair Value Measurements, on January 1, 2008. This adoption did not have an impact on the Company’s financial position or results of operations. Additional information pertinent to the fair value measurement is included in note 8.
	In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, or FSP 157-2. FSP 157-2 defers the effective date of FAS 157 to fiscal years beginning after November 15, 2008 for certain nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Therefore, disclosures related to the nonfinancial assets and nonfinancial liabilities that are measured at fair value on a nonrecurring basis have not been included.
	In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities —Including an Amendment of FASB Statement No. 115. FAS 159 allows entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under the fair value option. We adopted FAS 159 on January 1, 2008. The Corporation has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with GAAP. Accordingly, the adoption of FAS 159 did not have an impact on the Company’s financial position or operating results.
	The fair value information of financial instruments in the accompanying consolidated financial statements was determined as follows:

(i)	Cash and Cash Equivalents
	The carrying amount approximates fair value because of the short-term nature of such instruments.
(ii)	Investment in Securities
	The fair value of investment securities is estimated based on quoted market prices for those or similar investments. Additional information pertinent to the estimated fair value of investment in securities is included in note 3.
(iii)	Policy Loans
	Policy loans have no stated maturity dates and are part of the related insurance contract. The carrying amount of policy loans approximates fair value because their interest rate is reset periodically in accordance with current market rates.
(iv)	Receivables, Accounts Payable, and Accrued Liabilities
	The carrying amount of receivables, accounts payable, and accrued liabilities approximates fair value because they mature and should be collected or paid within 12 months after December 31.

18 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(v)	Policyholder Deposits
	The fair value of policyholder deposits is the amount payable on demand at the reporting date, and accordingly, the carrying value amount approximates fair value.
(vi)	Borrowings
	The carrying amounts and fair value of the Company’s borrowings are as follows:

	2008				2007
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Loans payable to bank	$	24,307		24,307		25,946		25,946
6.3% senior unsecured notes payable		50,000		46,250		50,000		47,625
6.6% senior unsecured notes payable		60,000		55,800		60,000		57,825
6.7% senior unsecured notes payable		35,000		34,059		35,000		33,950
Totals	$	169,307		160,416		170,946		165,346

	The carrying amount of the loans payable to bank approximates fair value due to its floating interest-rate structure. The fair value of the senior unsecured notes payable was determined using market quotations. Additional information pertinent to long-term borrowings is included in note 11.
(vii)	Derivative Instruments
	Current market pricing models were used to estimate fair value of interest-rate swap agreement and structured notes agreements. Fair values were determined using market quotations provided by outside securities consultants or prices provided by market makers. Additional information pertinent to the estimated fair value of derivative instruments is included in note 12.

(w)

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141R, Business Combinations (Statement 141R) and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51 (Statement 160). Statements 141R and 160 require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both Statements are effective for periods beginning on or after December 15, 2008, and earlier adoption is prohibited. Statement 141R will be applied to business combinations occurring after the effective date. Statement 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. The Company currently does not expect the adoption of Statement 141R and Statement 160 to have an impact on its results of operations and financial position.

19 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

In March 2008, the FASB issued FAS 161, Disclosures about Derivative Instruments and Hedging Activities. FAS 161 requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, Accounting for Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. This statement expands the current disclosure framework in FAS 133. FAS 161 is effective prospectively for periods beginning on or after November 15, 2008. We do not expect the adoption of FAS 161 to have a material impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued FAS 163, Accounting for Financial Guarantee Insurance Contracts — an Interpretation of FASB Statement No. 60. FAS 163 prescribes the accounting for premium revenue and claims liabilities by insurers of financial obligations, and requires expanded disclosures about financial guarantee insurance contracts. FAS 163 applies to financial guarantee insurance and reinsurance contracts issued by insurers subject to FAS 60, Accounting and Reporting by Insurance Enterprises. The Statement does not apply to insurance contracts that are similar to financial guarantee insurance contracts such as mortgage guaranty or trade-receivable insurance, financial guarantee contracts issued by noninsurance entities, or financial guarantee contracts that are derivative instruments within the scope of FAS 133. Statement 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years, except for certain disclosure requirements about the risk-management activities of the insurance enterprise that are effective for the first quarter beginning after the Statement was issued. Except for those disclosures, early application is prohibited. This standard has no impact on the Company’s consolidated financial statements.

In April 2008, the FASB issued a FASB Staff Position (FSP) amending the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles (GAAP). This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of the FSP did not have a material impact on the Company’s consolidated financial statements.

In December 2008, the FASB issued a FSP amending FASB 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. This FSP requires employers to disclose information about fair value measurements of plan assets that would be similar to the disclosures about fair value measurements required by FAS 157, Fair Value Measurements. The disclosures about plan assets required by this FSP are required for fiscal years ending after December 15, 2009. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. Earlier application of the

20 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

provisions of this FSP is permitted. The adoption of the FSP did not have a material impact on the Company’s consolidated financial statements.

(3)	Investment in Securities
	The amortized cost for debt and equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale, and held-to-maturity securities by major security type and class of security at December 31, 2008 and 2007 were as follows:

	2008
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Trading securities:
Equity securities	$	40,847		2,781		(11,444	)		32,184

	2007
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Trading securities:
Equity securities	$	54,757		15,170		(2,769	)		67,158

21 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Securities available for sale:
Obligations of government-sponsored enterprises	$	422,038		7,991		(220	)		429,809
U.S. Treasury securities and obligations of U.S. government instrumentalities		78,024		11,961		—			89,985
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		121,934		448		(6,077	)		116,305
Municipal securities		31,415		390		(6	)		31,799
Obligations of states of the United States and political subdivisions of the states		4,196		36		(110	)		4,122
Corporate bonds		100,745		1,625		(7,399	)		94,971
Mortgage-backed securities		17,420		425		(3	)		17,842
Collateralized mortgage obligations		103,891		1,287		(2,327	)		102,851
Total fixed maturities		879,663		24,163		(16,142	)		887,684
Equity securities		70,060		1,752		(3,183	)		68,629
Total	$	949,723		25,915		(19,325	)		956,313

22 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2007
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Securities available for sale:
Obligations of government-sponsored enterprises	$	479,525		7,311		(238	)		486,598
U.S. Treasury securities and obligations of U.S. government instrumentalities		85,396		3,034		—			88,430
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		75,951		254		(1,176	)		75,029
Municipal securities		15,223		228		(16	)		15,435
Obligations of states of the United States and political subdivisions of the states		2,116		19		(2	)		2,133
Corporate bonds		86,061		246		(2,717	)		83,590
Mortgage-backed securities		14,138		75		(85	)		14,128
Collateralized mortgage obligations		58,126		416		(256	)		58,286
Total fixed maturities		816,536		11,583		(4,490	)		823,629
Equity securities		66,747		7,354		(3,051	)		71,050
Total	$	883,283		18,937		(7,541	)		894,679

	2008
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Securities held to maturity:
Obligations of government-sponsored enterprises	$	9,082		240		—			9,322
Mortgage-backed securities		1,749		—		(7	)		1,742
U.S. Treasury securities and obligations of U.S. government instrumentalities		1,488		379		—			1,867
Corporate bonds		8,698		698		—			9,396
Certificates of deposit		736		—		—			736
Total	$	21,753		1,317		(7	)		23,063

23 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2007
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Securities held to maturity:
Obligations of government-sponsored enterprises	$	31,507		227		(20	)		31,714
Mortgage-backed securities		3,134		—		(48	)		3,086
Corporate bonds		8,348		—		(1	)		8,347
Certificates of deposit		702		—		—			702
Total	$	43,691		227		(69	)		43,849

Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2008 and 2007 were as follows:

	2008
	Less than 12 months					12 months or longer					Total
			Gross					Gross					Gross
	Estimated		unrealized			Estimated		unrealized			Estimated		Unrealized
	fair value		losses			fair value		losses			fair value		losses
Securities available for sale:
Obligations of government-sponsored enterprises	$	16,550		(191	)		2,956		(29	)		19,506		(220	)
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		79,045		(5,230	)		8,932		(847	)		87,977		(6,077	)
Municipal securities		—		—			1,276		(6	)		1,276		(6	)
Obligations of states of the United States and political subdivisions of the states		2,223		(75	)		183		(35	)		2,406		(110	)
Corporate bonds		31,324		(2,688	)		29,044		(4,711	)		60,368		(7,399	)
Mortgage-backed securities		1,374		(2	)		36		(1	)		1,410		(3	)
Collateralized mortgage obligations		5,797		(2,327	)		—		—			5,797		(2,327	)
Total fixed maturities		136,313		(10,513	)		42,427		(5,629	)		178,740		(16,142	)
Equity securities		18,571		(2,190	)		9,651		(993	)		28,222		(3,183	)
Total for securities available for sale	$	154,884		(12,703	)		52,078		(6,622	)		206,962		(19,325	)
Securities held to maturity:
Mortgage-backed securities	$	—		—			1,741		(7	)		1,741		(7	)

24 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2007
	Less than 12 months					12 months or longer					Total
			Gross					Gross					Gross
	Estimated		unrealized			Estimated		unrealized			Estimated		unrealized
	fair value		losses			fair value		losses			fair value		losses
Securities available for sale:
Obligations of government- sponsored enterprises	$	12,875		(134	)		34,957		(104	)		47,832		(238	)
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		—		—			28,841		(1,176	)		28,841		(1,176	)
Municipal securities		1,259		(16	)		—		—			1,259		(16	)
Obligations of states of the United States and political subdivisions of the states		1,214		(2	)		—		—			1,214		(2	)
Corporate bonds		56,185		(1,398	)		10,654		(1,319	)		66,839		(2,717	)
Mortgage-backed securities		—		—			8,265		(85	)		8,265		(85	)
Collateralized mortgage obligations		6,718		(104	)		16,528		(152	)		23,246		(256	)
Total fixed maturities		78,251		(1,654	)		99,245		(2,836	)		177,496		(4,490	)
Equity securities		14,454		(1,408	)		17,911		(1,643	)		32,365		(3,051	)
Total for securities available for sale	$	92,705		(3,062	)		117,156		(4,479	)		209,861		(7,541	)
Securities held to maturity:
Obligations of government- sponsored enterprises	$	—		—			10,831		(20	)		10,831		(20	)
Mortgage-backed securities		—		—			3,086		(48	)		3,086		(48	)
Corporate bonds		—		—			8,347		(1	)		8,347		(1	)
Total for securities held to maturity	$	—		—			22,264		(69	)		22,264		(69	)

The Company regularly monitors and evaluates the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes evaluating the length of time and the extent to which cost exceeds fair value, the prospects and financial condition of the issuer, and the Company’s intent and ability to retain the investment to allow for recovery in fair value, among other factors. This process is not exact and further requires consideration of risks such as credit and interest rate risks. Consequently, if an investment’s cost exceeds its fair value solely due to changes in interest rates, impairment may not be appropriate. If after monitoring and analyzing, the Company determines that a decline in the estimated fair value of any available-for-sale or held-to-maturity security below cost is other than temporary, the carrying amount of the security is reduced to its fair value. The impairment is charged to operations and a new cost basis for the security is established. During the three year-period ended December 31, 2008, 2007, and 2006, the Company recognized other-than-temporary impairments amounting to $16,522, $1,087, and $2,098, respectively, on some of its fixed maturities and equity securities classified as available for sale.

25 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

We continue to review the investment portfolios under the Company’s impairment review policy. Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and additional material other-than-temporary impairments may be recorded in future periods.

Obligations of Government-sponsored Enterprises, U.S. Treasury Securities and Obligations of U.S. Government Instrumentalities, Obligations of States of the United States and Political Subdivisions of the States, and Obligations of the Commonwealth of Puerto Rico and its Instrumentalities: The unrealized losses on the Company’s investments in obligations of government-sponsored enterprises, U.S. Treasury securities and obligations of U.S. government instrumentalities, obligations of states of the United States and political subdivisions of the states, and in obligations of the Commonwealth of Puerto Rico and its instrumentalities were mainly caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

Corporate Bonds: The Company’s unrealized losses on investments in corporate bonds are comprised of small unrealized losses in most of the corporate bonds. Unrealized losses of these bonds were principally caused by interest rate increases. Because the decline in fair value is principally attributable to changes in interest rates and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

Mortgage-Backed Securities and Collateralized Mortgage Obligations: The unrealized losses on investments in mortgage-backed securities and collateralized mortgage obligations were caused by interest rate increases. The contractual cash flows of these securities are guaranteed by a U.S. government-sponsored enterprise. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

Equity Securities: The Company’s investment in equity securities classified as available for sale consist mainly of investments in common and preferred stock of domestic banking institutions and investments in several mutual funds. The unrealized loss experienced in the investment in common stocks of domestic banking institutions is mainly due to the general economic conditions in the past three years. The unrealized loss related to the Company’s investments in preferred stock of domestic banking institutions and in investments in several mutual funds investing in fixed income securities is mainly caused by interest rate increases. Because the unrealized losses on equity securities were mainly caused by interest rate increases and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery, these investments are not considered other-than-temporarily impaired.

26 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Maturities of investment securities classified as available for sale and held to maturity were as follows at December 31, 2008:

	Amortized		Estimated
	cost		fair value
Securities available for sale:
Due in one year or less	$	5,423		5,423
Due after one year through five years		74,981		70,489
Due after five years through ten years		245,224		252,822
Due after ten years		432,724		438,257
Collateralized mortgage obligations		103,891		102,851
Mortgage-backed securities		17,420		17,842
	$	879,663		887,684
Securities held to maturity:
Due in one year or less	$	1,601		1,606
Due after one year through five years		11,322		12,058
Due after five years through ten years		3,799		3,850
Due after ten years		3,282		3,807
Mortgage-backed securities		1,749		1,742
	$	21,753		23,063

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

Investments with an amortized cost of $5,356 and $5,249 (fair value of $5,602 and $5,220) at December 31, 2008 and 2007, respectively, were deposited with the Commissioner of Insurance to comply with the deposit requirements of the Insurance Code of the Commonwealth of Puerto Rico (the Insurance Code). Investment with an amortized cost of $554 and $527 (fair value of $554 and $527) at December 31, 2008 and 2007, respectively, were deposited with the Commissioner of Insurance of the Government of the U.S. Virgin Islands.

Investments with a face value of $510 (fair value of $508) at December 31, 2007, were held by a financial institution as collateral for the Company’s interest-rate swap agreement (see note 12).

27 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Information regarding realized and unrealized gains and losses from investments for the years ended December 31, 2008, 2007, and 2006 is as follows:

	2008			2007			2006
Realized gains (losses):
Fixed maturity securities:
Securities available for sale:
Gross gains from sales	$	1,876			1,208			—
Gross losses from sales		(225	)		(1,797	)		(687	)
Gross losses from other-than-temporary impairments		(3,872	)		—			—
Total debt securities		(2,221	)		(589	)		(687	)
Equity securities:
Trading securities:
Gross gains from sales		3,358			8,873			4,318
Gross losses from sales		(3,132	)		(1,558	)		(1,488	)
Gross losses from other-than-temporary impairments		(28	)		—			—
		198			7,315			2,830
Securities available for sale:
Gross gains from sales		881			292			792
Gross losses from sales		(176	)		—			—
Gross losses from other-than-temporary impairments		(12,622	)		(1,087	)		(2,098	)
		(11,917	)		(795	)		(1,306	)
Total equity securities		(11,719	)		6,520			1,524
Net realized gains (losses) on securities	$	(13,940	)		5,931			837

28 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Changes in unrealized gains (losses):
Recognized in income:
Equity securities — trading	$	(21,064	)		(4,116	)		7,699
Recognized in accumulated other comprehensive loss:
Fixed maturities — available for sale	$	928			18,640			(2,434	)
Equity securities — available for sale		(5,734	)		(7,251	)		(1,581	)
	$	(4,806	)		11,389			(4,015	)
Not recognized in the consolidated financial statements:
Fixed maturities — held to maturity	$	1,152			1,266			(114	)

The deferred tax liability on unrealized gains and losses recognized in accumulated other comprehensive income during the years 2008, 2007, and 2006 aggregated $854, $1,840, and $803, respectively.

As of December 31, 2007, investments in obligations that are payable from and secured by the same source of revenue or taxing authority, other than investment instruments of the U.S. and the Commonwealth of Puerto Rico governments, did not exceed 10% of stockholders’ equity. As of December 31, 2008 and 2007, no investment in equity securities individually exceeded 10% of stockholders’ equity.

(4)	Net Investment Income
	Components of net investment income were as follows:

	Years ended December 31
	2008		2007		2006
Fixed maturities	$	48,197		37,205		35,217
Equity securities		5,451		5,271		3,821
Policy loans		387		394		336
Cash equivalents and interest-bearing deposits		1,003		2,187		1,903
Other		1,215		2,137		1,380
Total	$	56,253		47,194		42,657

29 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(5)	Premium and Other Receivables, Net
	Premium and other receivables as of December 31 were as follows:

	2008		2007
Premium	$	90,315		54,330
Self-funded group receivables		35,749		31,344
FEHBP		9,600		10,202
Agent balances		38,491		34,164
Accrued interest		11,802		8,363
Reinsurance recoverable on paid losses		42,181		58,757
Other		23,765		21,033
		251,903		218,193
Less allowance for doubtful receivables:
Premium		10,467		11,753
Other		4,278		4,172
		14,745		15,925
Premium and other receivables, net	$	237,158		202,268

30 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(6)	Deferred Policy Acquisition Costs and Value of Business Acquired
	The movement of deferred policy acquisition costs (DPAC) and value of business acquired (VOBA) for the years ended December 31, 2008, 2007, and 2006 is summarized as follows:

	DPAC			VOBA			Total
Balance, December 31, 2005	$	81,568			—			81,568
Capitalization upon acquisition of GA Life		—			22,823			22,823
Termination of coinsurance funds withheld agreement		(60,000	)		—			(60,000	)
Acquisition of business ceded in coinsurance funds withheld agreement		—			60,000			60,000
Additions		44,056			—			44,056
VOBA interest at an average rate of 5.29%		—			4,427			4,427
Amortization		(26,799	)		(14,658	)		(41,457	)
Net change		(42,743	)		72,592			29,849
Balance, December 31, 2006		38,825			72,592			111,417
Additions		46,898			—			46,898
VOBA interest at an average rate of 5.27%		—			3,874			3,874
Amortization		(32,508	)		(12,442	)		(44,950	)
Net change		14,390			(8,568	)		5,822
Balance, December 31, 2007		53,215			64,024			117,239
Additions		49,470			—			49,470
VOBA interest at an average rate of 5.40%		—			3,425			3,425
Amortization		(33,442	)		(10,345	)		(43,787	)
Net change		16,028			(6,920	)		9,108
Balance, December 31, 2008	$	69,243			57,104			126,347

The amortization expense of the deferred policy acquisition costs and value of business acquired is included within the operating expenses in the accompanying consolidated statement of earnings.

31 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The estimated amount of the year-end VOBA balance expected to be amortized during the next five years is as follows:

Year ending December 31:
2009	$	9,428
2010		8,116
2011		7,273
2012		6,493
2013		5,805

(7)	Property and Equipment, Net
	Property and equipment as of December 31 are composed of the following:

	2008		2007
Land	$	6,531		6,531
Buildings and leasehold improvements		44,791		43,664
Office furniture and equipment		16,208		15,868
Computer equipment and software		56,482		36,361
Automobiles		461		539
		124,473		102,963
Less accumulated depreciation and amortization		66,025		59,548
Property and equipment, net	$	58,448		43,415

(8)	Fair Value Measurements
	The Corporation adopted FAS 157 on January 1, 2008. Beginning on this date, assets recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by FAS 157, are as follows:

Level Input:	Input Definition:
Level 1	Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2	Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3	Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

32 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The following table summarizes fair value measurements by level at December 31, 2008 for assets measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3		Total
Equity securities held for trading	$	32,184		—		—		32,184
Securities available for sale:
Fixed maturity securities		89,985		796,418		1,281		887,684
Equity securities		31,506		36,037		1,086		68,629
Derivatives (reported within other assets in the consolidated balance sheets)		—		1,674		—		1,674
Total	$	153,675		834,129		2,367		990,171

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2008 is as follows:

	Fixed
	Maturity			Equity
	Securities			Securities		Total
Beginning balance	$	4,280			989		5,269
Total gains or losses:
Realized in earnings		(3,883	)		—		(3,883	)
Unrealized in other accumulated comprehensive income		884			97		981
Purchases and sales		—			—		—
Transfers in and/or out of Level 3		—			—		—
Ending balance	$	1,281			1,086		2,367

During the year ended December 31, 2008, certain debt securities were thinly traded due to issuer liquidity concerns. Consequently, broker quotes or other observable inputs were not always available and the fair value of these securities was estimated using internal estimates for inputs including, but not limited to, credit spreads, default rates and benchmark yields. An other-than-temporary impairment was recorded on these securities during the year ended December 31, 2008.

33 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(9)	Claim Liabilities
	The activity in claim liabilities during 2008, 2007, and 2006 is as follows:

	2008			2007			2006
Claim liabilities at beginning of year	$	353,830			314,682			297,563
Reinsurance recoverable on claim liabilities		(54,834	)		(32,066	)		(28,720	)
Net claim liabilities at beginning of year		298,996			282,616			268,843
Claim liabilities acquired from GA Life		—			—			8,771
Claims incurred:
Current period insured events		1,432,843			1,241,866			1,264,871
Prior period insured events		(9,918	)		(31,007	)		(19,669	)
Total		1,422,925			1,210,859			1,245,202
Payments of losses and loss-adjustment expenses:
Current period insured events		1,195,414			1,004,346			1,045,771
Prior period insured events		233,229			190,133			194,429
Total		1,428,643			1,194,479			1,240,200
Net claim liabilities at end of year		293,278			298,996			282,616
Reinsurance recoverable on claim liabilities		30,432			54,834			32,066
Claim liabilities at end of year	$	323,710			353,830			314,682

As a result of differences between actual amounts and estimates of insured events in prior years, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred.

The credits in the claims incurred and loss-adjustment expenses for prior period insured events for 2008, 2007 and 2008 are due primarily to better than expected utilization trends. Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in the accompanying consolidated financial statements.

The claims incurred disclosed in this table exclude the change in the liability for future policy benefits amounting to $11,989, $12,916 and $13,779 during the years ended December 31, 2008, 2007 and 2006, respectively.

(10)	Federal Employees’ Health Benefits Program (FEHBP)
	TSI entered into a contract, renewable annually, with OPM as authorized by the Federal Employees’ Health Benefits Act of 1959, as amended, to provide health benefits under the FEHBP. The FEHBP covers postal and federal employees resident in the Commonwealth of Puerto Rico and the United States Virgin

34 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Islands as well as retirees and eligible dependents. The FEHBP is financed through a negotiated contribution made by the federal government and employees’ payroll deductions.

The accounting policies for the FEHBP are the same as those described in the Company’s summary of significant accounting policies. Premium rates are determined annually by TSI and approved by the federal government. Claims are paid to providers based on the guidelines determined by the federal government. Operating expenses are allocated from TSI’s operations to the FEHBP based on applicable allocation guidelines (such as, the number of claims processed for each program).

The operations of the FEHBP do not result in any excess or deficiency of revenue or expense as this program has a special account available to compensate any excess or deficiency on its operations to the benefit or detriment of the federal government. Any transfer to/from the special account necessary to cover any excess or deficiency in the operations of the FEHBP is recorded as a reduction/increment to the premiums earned. The contract with OPM provides that the cumulative excess of the FEHBP earned income over health benefits charges and expenses represents a restricted fund balance denoted as the special account. Upon termination of the contract and satisfaction of all the FEHBP’s obligations, any unused remainder of the special reserve would revert to the Federal Employees Health Benefit Fund. In the event that the contract terminates and the special reserve is not sufficient to meet the FEHBP’s obligations, the FEHBP contingency reserve will be used to meet such obligations. If the contingency reserve is not sufficient to meet such obligations, the Company is at risk for the amount not covered by the contingency reserve.

The contract with OPM allows for the payment of service fees as negotiated between TSI and OPM. Service fees, which are included within the other income, net in the accompanying consolidated statements of earnings, amounted to $931, $895, and $861, respectively, for each of the years in the three-year period ended December 31, 2008.

A contingency reserve is maintained by the OPM at the U.S. Treasury, and is available to the Company under certain conditions as specified in government regulations. Accordingly, such reserve is not reflected in the accompanying consolidated balance sheets. The balance of such reserve as of December 31, 2008 and 2007 was $23,365 and $18,004, respectively. The Company received $2,540, $5,512, and $4,850, of payments made from the contingency reserve fund of OPM during 2008, 2007, and 2006, respectively.

The claim payments and operating expenses charged to the FEHBP are subject to audit by the U.S. government. Management is of the opinion that an adjustment, if any, resulting from such audits will not have a significant effect on the accompanying financial statements. The claim payments and operating expenses reimbursed in connection with the FEHBP have been audited through 2004 by OPM.

35 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(11)	Borrowings
	A summary of the borrowings entered by the Company at December 31, 2008 and 2007 is as follows:

	2008		2007
Senior unsecured notes payable of $50,000 issued on September 2004; due September 2019. Interest is payable semiannually at a fixed rate of 6.30%	$	50,000		50,000
Senior unsecured notes payable of $60,000 issued on December 2005; due December 2020. Interest is payable monthly at a fixed rate of 6.60%		60,000		60,000
Senior unsecured notes payable of $35,000 issued on January 2006; due January 2021. Interest is payable monthly at a fixed rate of 6.70%		35,000		35,000
Secured loan payable of $41,000, payable in monthly installments of $137 through July 1, 2024, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 2.43% and 6.24% at December 31, 2008 and 2007, respectively)		24,307		25,946
Total borrowings	$	169,307		170,946

Aggregate maturities of the Company’s borrowings as of December 31, 2008 are summarized as follows:

Year ending December 31:
2009	$	1,640
2010		1,640
2011		1,640
2012		1,640
2013		1,640
Thereafter		161,107
	$	169,307

All of the Company’s senior notes can be prepaid at par, in total or partially, five years after issuance as determined by the Company. The Company’s senior unsecured notes contain certain covenants with which TSI and the Company have complied with at December 31, 2008.

Debt issuance costs related to each of the Company’s senior unsecured notes were deferred and are being amortized over the term of its respective senior note. Unamortized debt issuance costs related to these senior unsecured notes as of December 31, 2008 and 2007 amounted to $1,140 and $1,239, respectively, and are included within the other assets in the accompanying consolidated balance sheets.

The secured loan payable previously described is guaranteed by a first position held by the bank on the Company’s land, building, and substantially all leasehold improvements, as collateral for the term of the

36 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

loan under a continuing general security agreement. This secured loan contains certain covenants, which are customary for this type of facility, including but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control. The Company was also a party to another secured loan whose outstanding balance of $10,500 was repaid upon its maturity on August 1, 2007.

Interest expense on the above borrowings amounted to $10,451, $11,565, and $11,695, for the years ended December 31, 2008, 2007, and 2006, respectively.

(12)	Derivative Instruments and Hedging Activities
	The Company uses derivative instruments to manage the risks associated with changes in interest rates and to diversify the composition of its investment in securities.
	By using derivative financial instruments the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty is obligated to the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties.
	Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, currency exchange rates, commodity prices, or market indexes. The market risk associated with derivative instruments is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

(a)	Cash Flow Hedge
	The Company had invested in an interest-rate related derivative hedging instrument to manage its exposure on its debt instruments.
	The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company’s outstanding or forecasted debt obligations as well as the Company’s offsetting hedge positions. The risk management control systems involve the use of analytical techniques to estimate the expected impact of changes in interest rates on the Company’s future cash flows.
	The Company had a variable-rate debt that was used to finance the acquisition of real estate from subsidiaries (see note 11). The debt obligations expose the Company to variability in interest payments due to changes in interest rates. On December 6, 2002, management entered into an interest-rate swap agreement, with an effective date of April 1, 2003, to manage fluctuations in cash flows resulting from interest rate risk. The interest-rate swap agreement matured on March 30, 2008. Changes in the fair value of the interest-rate swap, designated as a hedging instrument that effectively offsets the variability of cash flows associated with the variable-rate of the long-term debt

37 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

obligation, was reported in accumulated other comprehensive income, net of the related tax effect. This amount was subsequently reclassified into interest expense as a yield adjustment of the hedged debt obligation in the same period in which the related interest affects earnings. During the year ended December 31, 2008, the Company recorded $2 of interest expense related to this agreement. During the years ended December 31, 2007 and 2006 the Company’s interest expense was reduced by $419 and $379, respectively, of interest received related to this agreement. No amount representing cash-flow hedge ineffectiveness was recorded since the terms of the swap agreement allow the Company to assume no ineffectiveness in the agreement.

As of December 31, 2007, the fair value of the interest rate swap amounted to $93 and was included within the other assets in the accompanying consolidated balance sheets.

(b)	Other Derivative Instruments
	The Company has invested in other derivative instruments in order to diversify its investment in securities and participate in the foreign stock market.
	During 2005 the Company invested in two structured note agreements amounting to $5,000 each, where the interest income received is linked to the performance of the Dow Jones Euro STOXX 50 and Nikkei 225 Equity Indexes (the Indexes). Under these agreements the principal invested by the Company is protected, the only amount that varies according to the performance of the Indexes is the interest to be received upon the maturity of the instruments. Should the Indexes experience a negative performance during the holding period of the structured notes, no interest will be received and no amount will be paid to the issuer of the structured notes. The contingent interest payment component within the structured note agreements meets the definition of an embedded derivative. In accordance with the provisions of SFAS No. 133, as amended, the embedded derivative component of the structured notes is separated from the structured notes and accounted for separately as a derivative instrument.
	The changes in the fair value of the embedded derivative component are recorded as gains or losses in earnings in the period of change. During the years ended December 31, 2008 and 2007 the Company recorded a loss associated with the change in the fair value of this derivative component of $4,658 and $45, respectively. During the year ended December 31, 2006 the Company recorded a gain associated with the change in the fair value of this derivative component of $1,046. The change in the fair value of the embedded derivative component is included within the other income, net in the accompanying consolidated statement of earnings.
	As of December 31, 2008 and 2007, the fair value of the derivative component of the structured notes amounted to $1,674 and $6,332, respectively, and is included within the Company’s other assets in the accompanying consolidated balance sheets. The investment component of the structured notes is accounted for as held-to-maturity debt securities and is included within the investment in securities in the accompanying consolidated balance sheets. As of December 31, 2008 the fair value and amortized cost of the investment component of both structured notes amounted to $9,396 and $8,698, respectively. As of December 31, 2007 the fair value and amortized cost of the investment component of both structured notes amounted to $8,347 and $8,348, respectively.

38 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(13)	Agency Contract and Expense Reimbursement
	TSI processes and pays claims as fiscal intermediary for the Medicare — Part B Program. Claims from this program, which are excluded from the accompanying consolidated statements of earnings, amounted to $312,358, $322,930, and $413,806, for each of the years in the three-year period ended December 31, 2008.
	TSI is reimbursed for administrative expenses incurred in performing this service. For the years ended December 31, 2008, 2007, and 2006, TSI was reimbursed by $8,678, $10,783, and $13,073, respectively, for such services, which are deducted from operating expenses in the accompanying consolidated statements of earnings.
	The operating expense reimbursements in connection with processing Medicare claims have been audited through 2002 by federal government representatives. Management is of the opinion that no significant adjustments will be made affecting cost reimbursements through December 31, 2008.
	On September 12, 2008, the Centers for Medicare and Medicaid Services (CMS) announced that First Coast Service Options (FCSO), a non-affiliated third party organization based in Jacksonville, Florida, was awarded the Medicare Administrative Contract (MAC) for Jurisdiction 9 (Florida, Puerto Rico and the U.S. Virgin Islands). FCSO proposed TSM subsidiary, TSI as a subcontractor in MAC Jurisdiction 9 to perform certain provider customer service functions, among others, in Puerto Rico, effective March 1, 2009.

(14)	Reinsurance Activity
	The effect of reinsurance on premiums earned and claims incurred is as follows:

	Premiums earned									Claims incurred(1)
	2008			2007			2006			2008			2007			2006
Gross	$	1,780,765			1,564,873			1,584,857			1,443,046			1,249,554			1,266,610
Ceded		(85,308	)		(81,325	)		(77,644	)		(20,121	)		(38,695	)		(22,869	)
Assumed					—			4,413						—			1,461
Net	$	1,695,457			1,483,548			1,511,626			1,422,925			1,210,859			1,245,202

⁽¹⁾ The claims incurred disclosed in this table exclude the change in the liability for future policy benefits amounting to $11,989, $12,916 and $13,779 during the years ended December 31, 2008, 2007 and 2006, respectively.

(a)

Reinsurance Ceded Activity

TSI, STS and TSV, in accordance with general industry practices, annually purchase reinsurance to protect them from the impact of large unforeseen losses and prevent sudden and unpredictable changes in net income and stockholders’ equity of the Company. Reinsurance contracts do not relieve any of the subsidiaries from their obligations to policyholders. In the event that all or any of the reinsuring companies might be unable to meet their obligations under existing reinsurance

39 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

agreements, the subsidiaries would be liable for such defaulted amounts. During 2008, STS placed 12% of its reinsurance business with one reinsurance company. During 2007, and 2006, STS placed 9% of its reinsurance business with one reinsurance company.

TSI has two excess of loss reinsurance treaties whereby it cedes a portion of its premiums to third parties. Reinsurance contracts are primarily for periods of one year, and are subject to modifications and negotiations in each renewal date. Premiums ceded under these contracts amounted to $5,623, $3,349 and $2,249 in 2008, 2007 and 2006, respectively. Claims ceded amounted to $8,407, $2,957 and $3,766 in 2008, 2007 and 2006, respectively. Principal reinsurance agreements are as follows:

• Organ transplant excess of loss treaty covering 100% of the claims up to a maximum of $1,000 per person, per life.

• Routine medical care excess of loss treaty covering 100% of claims from the amount of $100 and up to a maximum of $900 per covered person, per contract year.

STS has a number of pro rata and excess of loss reinsurance treaties whereby the subsidiary retains for its own account all loss payments for each occurrence that does not exceed the stated amount in the agreements and a catastrophe cover, whereby it protects itself from a loss or disaster of a catastrophic nature. Under these treaties, STS ceded premiums of $72,115, $69,137, and $65,723, in 2008, 2007, and 2006, respectively.

Reinsurance cessions are made on excess of loss and on a proportional basis. Principal reinsurance agreements are as follows:

• Property quota share treaty covering for a maximum of $20,000 for any one risk. Under this treaty 40% of the risk is ceded to reinsurers. The remaining exposure is covered by a property per risk excess of loss treaty that provides reinsurance in excess of $500 up to a maximum of $12,000, or the remaining 60% for any one risk. In addition, STS has an additional property catastrophe excess of loss contract that provides protection for losses in excess of $5,000 resulting from any catastrophe, subject to a maximum loss of $10,000.

• Personal property catastrophe excess of loss. This treaty provides protection for losses in excess of $5,000 resulting from any catastrophe, subject to a maximum loss of $70,000.

• Commercial property catastrophe excess of loss. This treaty provides protection for losses in excess of $5,000 resulting from any catastrophe, subject to a maximum loss of $195,000.

• Property catastrophe excess of loss. This treaty provides protection for losses in excess of $70,000 and $195,000 with respect to personal and commercial lines, respectively, resulting from any catastrophe, subject to a maximum of $175,000.

• Personal lines quota share. This treaty provides protection of 11.75% on all ground-up losses, subject to a limit of $1,000 for any one risk.

40 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

• Reinstatement premium protection. This treaty provides a maximum limit of approximately $4,700 for personal lines and $13,700 in commercial lines to cover the necessity of reinstating the catastrophe program in the event it is activated.

• Casualty excess of loss treaty. This treaty provides reinsurance for losses in excess of $225 up to a maximum of $12,000.

• Medical malpractice excess of loss. This treaty provides reinsurance in excess of $150 up to a maximum of $1,500 per incident.

• Builders’ risk quota share and first surplus covering contractors’ risk. This treaty provides protection on a 20/80 quota share basis for the initial $2,500 and a first surplus of $10,000 for a maximum of $12,000 for any one risk.

• Surety quota share treaty covering contract and miscellaneous surety bond business. This treaty provides reinsurance of up to $5,000 for contract surety bonds, subject to an aggregate of $10,000 per contractor and $3,000 per miscellaneous surety bond.

Facultative reinsurance is obtained when coverage per risk is required. During the year 2007 the ceded claims incurred of STS include approximately $23.4 million related to one policy ceded under a facultative reinsurance treaty. No individually significant policies were ceded during the years 2008 and 2006. All reinsurance contracts are for a period of one year, on a calendar basis, and are subject to modifications and negotiations in each renewal.

The ceded unearned reinsurance premiums on STS arising from these reinsurance transactions amounted to $20,357 and $22,963 at December 31, 2008 and 2007, respectively, and are reported as other assets in the accompanying consolidated balance sheets.

TSV also cedes insurance with various reinsurance companies under a number of pro rata, excess of loss and catastrophe treaties. Under these treaties, TSV ceded premiums of $7,570, $8,839, and $9,672, in 2008, 2007, and 2006, respectively. Principal reinsurance agreements are as follows:

• Group life pro rata agreement, reinsuring 50% of the risk up to $250 on the life of any participating individual of certain groups insured.

• Group life insurance facultative agreement, reinsuring risk in excess of $25 of certain group life policies and a combined pro rata and excess of loss agreement effective July 1, 2008, reinsuring 50% of the risk up to $200 and ceding the excess.

• Group life insurance facultative excess of loss agreements in which TSV retains a portion of the losses on the life of any participating individual of certain groups insured. Any excess will be recovered from the reinsurer. This agreement provides for various retentions ($25, $50 and $75) of the losses.

• Facultative pro rata agreements for the long-term disability insurance, reinsuring 65% of the risk.

41 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

• Accidental death catastrophic reinsurance covering each and every accident arising out of one event or occurrence resulting in the death or dismemberment of five or more persons. The retention for each event is $250 with a maximum of $1,000 for each event and $2,000 per year.

• Several reinsurance agreements, mostly on an excess of loss basis up to a maximum retention of $50. For certain new life products that have been issued after 1999, the retention limit is $175.

• TSV assumes 100% of the organ transplant risk, since January 31, 2007. Based on the experience of relatively low claims for this risk, the Company believes any single event of this nature will not have a significant adverse effect on the consolidated financial statements.

(b)	Reinsurance Assumed Activity
	On December 22, 2005, the Company’s former life insurance subsidiary SVTS entered into a coinsurance funds withheld agreement with GA Life. Under the terms of this agreement SVTS assumed 69% of all the business written as of and after the effective date of the agreement. On the effective date of the agreement, SVTS paid an initial ceding commission of $60,000 for its participation in the business written by GA Life as of and after the effective date of the agreement. This amount was considered a policy acquisition cost and was included within the deferred policy acquisition costs as of December 31, 2005. This amount, upon the acquisition of GA Life, was transferred to the value of business acquired when the agreement was canceled.
	As in other coinsurance funds withheld agreements, GA Life invests the premiums received from policyholders, pays commissions, processes claims and engages in other administrative activities. GA Life also carries the reserves for the policies written as well as the underlying investments purchased with the premiums received from policyholders.
	On January 31, 2006 the Company completed the acquisition of 100% of the common stock of GA Life. The results of operations and financial position of GA Life are included in the Company’s consolidated financial statements for the period following January 31, 2006. Effective June 30, 2006, the Company merged the operations of its former life insurance subsidiary, SVTS, into GA Life after receiving required regulatory approvals. The coinsurance funds withheld agreement was canceled effective February 1, 2006, subsequent to the acquisition of GA Life. Premiums earned and claims incurred assumed during the month ended January 31, 2006 amounted to $4,413 and $1,461, respectively.

(15)

Income Taxes

Under Puerto Rico income tax law, the Company is not allowed to file consolidated tax returns with its subsidiaries. The Company and its subsidiaries are subject to Puerto Rico income taxes. The Company’s insurance subsidiaries are also subject to U.S. federal income taxes for foreign source dividend income. As of December 31, 2008, tax years 2004 through 2007 of the Company and its subsidiaries are subject to examination by Puerto Rico taxing authorities.

42 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

On January 1, 2007, the Company adopted the provisions of FIN 48, no adjustment was required upon the adoption of this accounting pronouncement.

TSI and STS are taxed essentially the same as other corporations, with taxable income determined on the basis of the statutory annual statements filed with the insurance regulatory authorities. Also, operations are subject to an alternative minimum income tax, which is calculated based on the formula established by existing tax laws. Any alternative minimum income tax paid may be used as a credit against the excess, if any, of regular income tax over the alternative minimum income tax in future years.

TSV operates as a qualified domestic life insurance company and is subject to the alternative minimum tax and taxes on its capital gains. After the merger of GA Life and SVTS, SVTS ceased to exist and its tax responsibilities are now assumed by TSV.

Federal income taxes were recognized by the Company’s insurance subsidiaries amounted to approximately $112, $164, and $148, in 2008, 2007, and 2006, respectively.

TSM, TCI, and ISI are subject to Puerto Rico income taxes as a regular corporation, as defined in the P.R. Internal Revenue Code, as amended.

43 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The income tax expense differs from the amount computed by applying the Puerto Rico statutory income tax rate to the income before income taxes as a result of the following:

	2008			2007			2006
Income before taxes	$	31,944			72,645			67,559
Statutory tax rate		39.0	%		39.0	%		39.0	%
Income tax expense at statutory rate of 39%		12,458			28,332			26,348
Increase (decrease) in taxes resulting from:
Exempt interest income		(13,561	)		(9,990	)		(9,196	)
Effect of taxing life insurance operations as a qualified domestic life insurance company instead of as a regular corporation		(1,336	)		(1,115	)		(1,674	)
Effect of using earnings under statutory accounting principles instead of
GAAP for TSI and STS		6,406			371			(1,718	)
Effect of taxing capital gains at a preferential rate		(237	)		(1,406	)		(541	)
Dividends received deduction		(810	)		(821	)		(325	)
Other permanent disallowances, net		5,564			2,308			2,626
Adjustment to deferred tax assets and liabilities for changes in effective tax rates		—			(2,131	)		(2,009	)
Other adjustments to deferred tax assets and liabilities		(300	)		(423	)		(399	)
Tax credit benefit		(1,286	)		—			—
Other		256			(998	)		(86	)
Total income tax expense	$	7,154			14,127			13,026

44 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Deferred income taxes reflect the tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. The net deferred tax asset at December 31, 2008 and 2007 of the Company and its subsidiaries is composed of the following:

	2008			2007
Deferred tax assets:
Allowance for doubtful receivables	$	5,325			5,422
Liability for pension benefits		14,681			9,885
Employee benefits plan		4,214			4,856
Postretirement benefits		1,454			1,789
Deferred compensation		1,661			1,519
Accumulated depreciation		334			356
Impairment loss on investments		2,816			565
Contingency reserves		—			50
Unrealized loss on trading securities		1,300			—
Unrealized loss on derivative instruments		82			—
Alternative minimum income tax credit		940			830
Purchased tax credits		8,337			—
Other		767			544
Gross deferred tax assets		41,911			25,816
Deferred tax liabilities:
Deferred policy acquisition costs		(7,531	)		(7,102	)
Catastrophe loss reserve trust fund		(5,495	)		(5,035	)
Unrealized gain upon acquisition of GA Life		(1,753	)		(2,092	)
Unrealized gain on trading securities		—			(1,859	)
Unrealized gain on securities available for sale		(988	)		(1,842	)
Unrealized gain on derivative instruments		—			(383	)
Unamortized bond issue costs		(347	)		(383	)
Cash-flow hedges		—			(37	)
Contingency reserves		(302	)		—
Other		(300	)		(300	)
Gross deferred tax liabilities		(16,716	)		(19,033	)
Net deferred tax asset	$	25,195			6,783

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management believes that it is more likely than not that the Company will realize the benefits of these deductible differences.

45 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(16)	Pension Plans
	On December 31, 2006, the Company adopted the recognition and disclosures provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans.

Noncontributory Defined-Benefit Pension Plan

The Company sponsors a noncontributory defined-benefit pension plan for all of its employees and for the employees for certain of its subsidiaries who are age 21 or older and have completed one year of service. Pension benefits begin to vest after five years of vesting service, as defined, and are based on years of service and final average salary, as defined. The funding policy is to contribute to the plan as necessary to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended, plus such additional amounts as the Company may determine to be appropriate from time to time. The measurement date used to determine pension benefit measures for the pension plan is December 31.

46 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The following table sets forth the plan’s benefit obligations, fair value of plan assets, and funded status as of December 31, 2008 and 2007, accordingly:

	2008			2007
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	89,598			88,774
Service cost		5,287			5,489
Interest cost		5,458			5,072
Benefit payments		(7,926	)		(5,141	)
Actuarial losses (gains)		(7,641	)		1,774
Plan amendments		—			(6,370	)
Projected benefit obligation at end of year	$	84,776			89,598
Accumulated benefit obligation at end of year	$	62,371			66,042
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	63,614			59,520
Actual return on assets (net of expenses)		(16,588	)		4,234
Employer contributions		5,000			5,000
Benefit payments		(7,926	)		(5,140	)
Fair value of plan assets at end of year	$	44,100			63,614
Funded status at end of year	$	(40,677	)		(25,984	)
Amounts in accumulated other comprehensive income not yet recognized as a component of net periodic pension cost:
Development of prior service cost (credit):
Balance at beginning of year	$	(5,822	)		606
Amortization		450			(58	)
Prior service cost (credit) arising during the year		—			(6,370	)
Unrecognized net prior service cost (credit)		(5,372	)		(5,822	)
Development of actuarial loss:
Balance at beginning of year		30,373			30,409
Amortization		(1,788	)		(1,959	)
Loss arising during the year		13,975			1,923
Unrecognized actuarial loss		42,560			30,373
Sum of deferrals	$	37,188			24,551
Net amount recognized	$	(3,489	)		(1,433	)

47 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The amounts recognized in the balance sheets as of December 31, 2008 and 2007 consist of the following:

	2008		2007
Pension liability	$	40,676		25,984
Accumulated other comprehensive loss, net of a deferred tax of $14,383 and $9,501 in 2008 and 2007, respectively		22,805		15,050

The components of net periodic benefit cost and other amounts recognized in other comprehensive income for 2008, 2007, and 2006 were as follows:

	2008			2007			2006
Components of net periodic benefit cost:
Service cost	$	5,287			5,489			5,459
Interest cost		5,458			5,072			4,655
Expected return on assets		(5,027	)		(4,383	)		(3,858	)
Amortization of prior service cost (benefit)		(450	)		58			48
Amortization of actuarial loss		1,788			1,959			2,435
Net periodic benefit cost	$	7,056			8,195			8,739

Net periodic pension expense may include settlement charges as a result of retirees selecting lump-sum distributions. Settlement charges may increase in the future if the number of eligible participants deciding to receive distributions and the amount of their benefits increases.

The estimated net loss and prior service benefit that will be amortized from accumulated other comprehensive loss into net periodic pension benefits cost during the next twelve months is as follows:

Prior service cost	$	(449	)
Actuarial loss		2,291

The following assumptions were used on a weighted average basis to determine benefit obligations of the plan and in computing the periodic benefit cost as of and for the years ended December 31, 2008, 2007, and 2006:

	2008			2007			2006
Discount rate		6.75	%		6.25	%		5.75	%
Expected return on plan assets		8.00			8.00			8.00
Rate of compensation increase	Graded; 3.50%			Graded; 3.50%			Graded; 3.50%
	to 8.00%			to 8.00%			to 8.00%

48 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The basis used to determine the overall expected long-term rate of return on assets assumption was an analysis of the historical rate of return for a portfolio with a similar asset allocation. The assumed long-term asset allocation for the plan is as follows: 53% — 67% equity securities; 26% — 36% debt securities; 4% — 12% real estate; and 0% — 3% cash. It is common on December 31 to have an increased cash position due to incoming cash contributions as well as outgoing cash disbursements.

Using historical investment returns, the plan’s expected asset mix, and adjusting for the difference between expected inflation and historical inflation, the 25th to 75th percentile range of annual rates of return is 6.4% — 9.0%.

The assumed discount rate of 6.75% at December 31, 2008 reflects the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants on that date. The Company determined the discount rate based on a range of factors, including a yield curve comprised of the rates of return on high-quality, fixed-income corporate bonds available at the measurement date and the related expected duration for the obligations.

The Company selected a rate from within this range of 8.00%, which reflects the Company’s best estimate for this assumption based on the historical data described above, information on the historical returns on assets invested in the pension trust, and expected future conditions. This rate is net of both investment related expenses and a 0.25% reduction for other administrative expenses charged to the trust.

(a)	Plan Assets
	The Company’s weighted average asset allocations at December 31, 2008 and 2007 were as follows:

Asset category	2008			2007
Equity securities		58	%		59	%
Debt securities		31			31
Real estate		9			9
Other		2			1
Total		100	%		100	%

The Company’s plan assets are invested in the National Retirement Trust. The National Retirement Trust was formed to provide financial and legal resources to help members of the BCBSA offer retirement benefits to their employees.

The investment program for the National Retirement Trust is based on the precepts of capital market theory that are generally followed by institutional investors, who by definition, are long-term oriented investors. This philosophy holds that:

• Increasing risk is rewarded with compensating returns over time, and therefore, prudent risk taking is justifiable for long-term investors.

49 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

• Risk can be controlled through diversification of asset classes and investment approaches, as well as diversification of individual securities.

• Risk is reduced by time, and over time the relative performance of different asset classes is reasonably consistent. Over the long-term, equity investments have provided and should continue to provide superior returns over other security types. Fixed-income securities can dampen volatility and provide liquidity in periods of depressed economic activity.

• The strategic or long-term allocation of assets among various asset classes is an important driver of long-term returns.

• Relative performance of various asset classes is unpredictable in the short-term and attempts to shift tactically between asset classes are unlikely to be rewarded.

Investments will be made for the sole interest of the participants and beneficiaries of the programs participating in the National Retirement Trust. Accordingly, the assets of the National Retirement Trust shall be invested in accordance with these objectives:

• Ensure assets are available to meet current and future obligations of the participating programs when due.

• Earn a minimum rate of return no less than the actuarial interest rate.

• Earn the maximum return that can be realistically achieved in the markets over the long-term at a specified and controlled level of risk in order to minimize future contributions.

• Invest the assets with the care, skill, and diligence that a prudent person acting in a like capacity would undertake. In the process, the Administration of the Trust has the objective of controlling the costs involved with administering and managing the investments of the National Retirement Trust.

(b)	Cash Flows
	The Company expects to contribute $7,000 to its pension program in 2009.
	The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Year ending December 31:
2009	$	3,726
2010		4,143
2011		4,408
2012		5,008
2013		6,244
2014 — 2018		42,060

50 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	Noncontributory Supplemental Pension Plan
	In addition, the Company sponsors a noncontributory supplemental pension plan. This plan covers employees with qualified defined benefit retirement plan benefits limited by the U.S. Internal Revenue Code maximum compensation and benefit limits. At December 31, 2008 and 2007, the Company has recorded a pension liability of $3,426 and $3,237, respectively. The charge to accumulated other comprehensive loss related to the noncontributory pension plan at December 31, 2008 and 2007 amounted to $464 and $602, respectively, net of a deferred tax asset of $296 and $384, respectively.
(17)	Catastrophe Loss Reserve and Trust Fund
	In accordance with Chapter 25 of the Insurance Code, as amended, STS is required to record a catastrophe loss reserve. This catastrophe loss reserve is supported by a trust fund for the payment of catastrophe losses. The reserve increases by amounts determined by applying a contribution rate, not in excess of 5%, to catastrophe written premiums as instructed annually by the Commissioner of Insurance, unless the level of the reserve exceeds 8% of catastrophe exposure, as defined. The reserve also increases by an amount equal to the resulting return in the supporting trust fund and decreases by payments on catastrophe losses or authorized withdrawals from the trust fund. Additions to the catastrophe loss reserve are deductible for income tax purposes.
	This trust may invest its funds in securities authorized by the Insurance Code, but not in investments whose value may be affected by hazards covered by the catastrophic insurance losses. The interest earned on these investments and any realized gains (loss) on investment transactions are part of the trust fund and are recorded as income (expense) of the Company. An amount equal to the investment returns is recorded as an addition to the catastrophe loss reserve.
	The assets in this fund, which amounted to $31,349 and $29,096 as of December 31, 2008 and 2007, respectively, are to be used solely and exclusively to pay catastrophe losses covered under policies written in Puerto Rico.
	STS is required to make deposits to the trust fund, if any, on or before January 30 of the following year. Contributions are determined by a rate imposed by the Commissioner of Insurance for the catastrophe policies written in that year. Additions in 2008 and 2007, amounting to $850 and $822, respectively, were determined by applying a rate of 1% to catastrophe premiums written.
	The amount in the trust fund may be withdrawn or released in the case that STS ceases to underwrite risks subject to catastrophe losses. Also, authorized withdrawals are allowed when the catastrophe loss reserve exceeds 8% of the catastrophe exposure, as defined.
	Retained earnings are restricted in the accompanying consolidated balance sheets by the total catastrophe loss reserve balance, which as of December 31, 2008 and 2007 amounted to $32,200 and $29,918, respectively.

51 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(18)	Business Combinations
	Effective January 31, 2006, the Company acquired 100% of the common stock of GA Life. As a result of this acquisition, the Corporation became one of the leading providers of life insurance policies in Puerto Rico. The acquisition was accounted by the Company in accordance with the provisions of SFAS No. 141, Business Combinations. The results of operations and financial condition of GA Life are included in the accompanying consolidated financial statements for the period following the effective date of the acquisition. The aggregate purchase price of the acquired entity amounted to $38,196; of this amount $37,500 was paid in cash on January 31, 2006 and $696 was direct costs related to the acquisition.
	The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

Current assets	$	219,747
Property and equipment		1,500
Value of business acquired		22,823
Total assets acquired		244,070
Total liabilities assumed		(205,874	)
Net assets acquired	$	38,196

The estimated fair value of the value of business acquired was actuarially determined by discounting after-tax profits at a risk rate of return equal to approximately 12%. After-tax profits were forecasted based upon models of the insurance in-force, actual invested assets as of acquisition date and best-estimate actuarial assumptions regarding premium income, claims, persistency, expenses and investment income accruing from invested assets plus reinvestment of positive cash flows. The best-estimate actuarial assumptions were based upon GA Life’s recent experience in each of its major life and health insurance product lines. The amount of value of business acquired is to be amortized, considering interest, over the anticipated premium-paying period of the related policies in proportion to the ratio of annual premium revenue to the expected total premium revenue to be received over the life of the policies.

The following unaudited pro forma financial information presents the combined results of operations of the Company and GA Life as if the acquisition had occurred at the beginning of 2006. The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations that would have been reported had the acquisition been completed as of the beginning of the 2006 period presented and should not be taken as indicative of the Company’s future consolidated results of operations.

Operating revenues	$	1,576,492
Net income		54,850
Basic net income per share		2.05

52 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(19) Stockholders’ Equity

(a)	Common Stock
	On April 24, 2007, the Company’s board of directors (the Board) authorized a 3,000-for-one stock split of its Class A common stock effected in the form of a dividend of 2,999 shares for every one share outstanding. This stock split was effective on May 1, 2007 to all stockholders of record at the close of business on April 24, 2007. The total number of authorized shares and par value per share were unchanged by this action. The par value of the additional shares resulting from the stock split was reclassified from additional paid in capital to common stock. All references to the number of shares and per share amounts in this consolidated financial statements are presented after giving retroactive effect to the stock split.
	In May 2007, the Company cancelled 24,000 director qualifying shares. Since February 2007, Board members are no longer required to hold qualifying shares to participate in the board of directors of the Company.
	In December 7, 2007, the Company completed the initial public offering (IPO) of its Class B common stock. In this public offering the Company sold 16,100,000 shares, 10,813,191 of which were shares previously owned by selling shareholders. Proceeds received under this public offering amounted to $70,279, net of $6,380 of expenses directly related to the offering.
	For a period of five years after the completion of the IPO, subject to the extension or shortening under certain circumstances, each holder of Class B common stock will benefit from anti-dilution protections provided in the Company’s amended and restated certificate of incorporation.
	On December 8, 2008, the Company converted 7 million issued and outstanding Class A shares into Class B shares, in conjunction with the expiration of the lockup agreements signed by holders of Class A shares at the time of the Company’s initial public offering.
(b)	Stock Repurchase Program
	The Company may repurchase its common stock under a $40,000 share repurchase program authorized by the Company’s Board of Directors in October 2008. Repurchases may be conducted through open-market purchases and privately-negotiated transactions of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During 2008, the Company repurchased and retired approximately 1,181,500 shares at an average per share price of $11.75, for an aggregate cost of $13,880. Therefore, as of December 31, 2008, $26,120 remained authorized by the Company’s Board of Directors for future repurchases. At December 31, 2008, the Company had unsettled shares repurchases amounting to $6,235. Such amount is included in the accompanying consolidated balance sheet as account payable and accrued liabilities. The timing and extent of any purchases under the program will depend on market conditions, the trading price of the shares and other considerations, and the program may be suspended or terminated at any time.

53 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(c)	Preferred Stock
	Authorized capital stock includes 100,000,000 of preferred stock with a par value of $1.00 per share. As of December 31, 2008 and 2007, there are no issued and outstanding preferred shares.
(d)	Dividends
	On March 12, 2007, the Board declared a cash dividend of $2,448 distributed pro rata among all of the Company’s issued and outstanding Class A common shares, excluding those shares issued to the representatives of the community that are members of the Board (the qualifying shares). All stockholders of record as of the close of business on March 23, 2007, except those who only hold qualifying shares, received a dividend per share of $0.09 for each share held on that date.
	On January 13, 2006, the Board declared a cash dividend of $6,231 distributed pro rata among all of the Company’s issued and outstanding Class A common shares, excluding qualifying shares. All stockholders of record as of the close of business on January 16, 2006, except those who only hold qualifying shares, received a dividend per share of $0.23 for each share held on that date.
(e)	Liquidity Requirements
	As members of the BCBSA, the Company and TSI are required by membership standards of the association to maintain liquidity as defined by BCBSA. That is, to maintain net worth exceeding the Company Action Level as defined in the National Association of Insurance Commissioners’ (NAIC) Risk-Based Capital for Insurers Model Act. The companies are in compliance with this requirement.

(20)	Comprehensive Income
	The accumulated balances for each classification of other comprehensive income are as follows:

										Accumulated
	Unrealized			Liability						other
	gains (losess) on			for pension			Cash-flow			comprehensive
	securities			benefits			hedges			loss
Beginning balance	$	9,554			(15,652	)		56			(6,042	)
Net current period change		(16,856	)		(7,615	)		(56	)		(24,527	)
Reclassification adjustments for gains and losses reclassified in income		12,904			—			—			12,904
Ending balance	$	5,602			(23,267	)		—			(17,665	)

54 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The related deferred tax effects allocated to each component of other comprehensive income in the accompanying consolidated statements of stockholders’ equity and comprehensive income in 2008 and 2007 are as follows:

	2008
				Deferred tax
	Before-tax			(expense)			Net-of-tax
	amount			benefit			amount
Unrealized holding losses on securities arising during the period	$	(18,944	)		2,088			(16,856	)
Less reclassification adjustment for gains and losses realized in income		14,138			(1,234	)		12,904
Net change in unrealized loss		(4,806	)		854			(3,952	)
Liability for pension benefits		(12,411	)		4,796			(7,615	)
Cash-flow hedges		(93	)		37			(56	)
Net current period change	$	(17,310	)		5,687			(11,623	)

	2007
				Deferred tax
	Before-tax			(expense)			Net-of-tax
	amount			benefit			amount
Unrealized holding gains on securities arising during the period	$	10,005			(1,622	)		8,383
Less reclassification adjustment for gains and losses realized in income		1,384			(218	)		1,166
Net change in unrealized gain		11,389			(1,840	)		9,549
Liability for pension benefits		6,697			(2,607	)		4,090
Cash-flow hedges		(409	)		159			(250	)
Net current period change	$	17,677			(4,288	)		13,389

55 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2006
				Deferred tax
	Before-tax			(expense)			Net-of-tax
	amount			benefit			amount
Unrealized holding losses on securities arising during the period	$	(6,008	)		1,201			(4,807	)
Less reclassification adjustment for gains and losses realized in income		1,993			(398	)		1,595
Net change in unrealized loss		(4,015	)		803			(3,212	)
Liability for pension benefits		7,915			(2,963	)		4,952
Cash-flow hedges		(105	)		40			(65	)
Adjustment to initially apply SFAS No.158		(26,233	)		10,152			(16,081	)
Net current period change	$	(22,438	)		8,032			(14,406	)

(21)

Share-Based Compensation

In December 2007 the Company adopted the 2007 Incentive Plan (the Plan), which permits the board of directors the grant of stock options, restricted stock awards and performance awards to eligible officers, directors and key employees. The Plan authorizes grants to issue up to 4,700,000 of Class B common shares of authorized but unissued stock. At December 31, 2008, there were 3,367,583 additional shares available for the Company to grant under the Plan. Stock options can be granted with an exercise price at least equal the stock’s fair market value at the date of grant. The stock option awards vest in equal annual installments over 3 years and its expiration date cannot exceed 7 years. The restricted stock and performance awards are issued at the fair value of the stock on the grant date. Restricted stock awards vest in equal annual installments over 3 years. Performance awards vest on the last day of the performance period, provided that at least minimum performance standards were achieved.

56 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that used the weighted average assumptions in the following table. In absence of adequate historical data, the Company estimates the expected life of the option using the shortcut method allowed by Staff Accounting Bulletin (SAB) No. 107. Since the Company was a newly public entity, expected volatility was computed based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option was based on the U.S. Treasury zero-coupon bonds yield curve in effect at the time of grant.

The following assumptions were used in the development of fair value of option awards:

	2007
Expected dividend yield		0.00	%
Expected volatility (per year)		33.00	%
Expected term (in years)		4.50
Risk-free interest rate		3.51	%

Stock option activity during the periods indicated is as follows:

			Weighted		Weighted
			average		average		Aggregate
	Number of		exercise		contractual		intrinsic
	shares		price		term (years)		value
Outstanding balance at January 1, 2008		999,309	$	14.50
Grants		—
Outstanding balance at December 31, 2008		999,309	$	14.50		5.93	$	—
Exercisable at December 31, 2008		333,100	$	14.50		5.93	$	—

During 2007, 999,309 options were granted. The weighted average grant date fair value of options granted during the year 2007 was $14.50. There were no options exercised during the year ended December 31, 2008 and 2007. No options were granted in 2008.

57 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

A summary of the status of the Company’s nonvested restricted and performance shares as of December 31, 2008, and changes during the year ended December 31, 2008, are presented below:

	Restricted awards					Performance awards
				Weighted				Weighted
				average				average
	Number of			exercise		Number of		exercise
	shares			price		shares		price
Outstanding balance at January 1, 2008		166,554		$	14.50		166,554	$	14.50
Granted		19,935			18.81		—
Lapsed		(55,516	)		14.50		—
Outstanding balance at December 31, 2008		130,973		$	15.16		166,554	$	14.50
Excercisable at end of year		55,516		$	14.50		—	$	—

	The weighted average grant date fair value of restricted shares granted during the year 2008 and 2007 were $18.81 and $14.50, respectively. There were no restricted shares exercised during the year ended December 31, 2008 and 2007.
	At December 31, 2008 and 2007, there was $5,956 and $8,590, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.92 years. The Company currently uses authorized and unissued Class B common shares to satisfy share award exercises.
(22)	Net Income Available to Stockholders and Basic Net Income per Share
	The following table sets forth the computation of basic and diluted earnings per share for the three-year period ended December 31, 2008.

	2008		2007		2006
Numerator for earnings per share:
Net income available to stockholders	$	24,790		58,518		54,533
Denominator for basic earnings per share — Weighted average of common shares	$	32,120,461		27,200,067		26,729,500
Effect of dilutive securities — Nonvested restricted stock awards		42,094		2,038		—
Denominator for diluted earnings per share		32,162,555		27,202,105		26,729,500
Basic net income per share	$	0.77		2.15		2.04
Diluted net income per share		0.77		2.15		2.04

During the years ended December 31, 2008 and 2007, the weighted average of stock option shares of 999,309 and 83,276, respectively, were excluded from the denominator for diluted earnings per share

58 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	because the stock options were anti-dilutive. There were no anti-dilutive stock options during the year ended December 31, 2006.
(23)	Commitments
	The Company leases its regional offices, certain equipment, and warehouse facilities under noncancelable operating leases. Minimum annual rental commitments at December 31, 2008 under existing agreements are summarized as follows:

Year ending December 31:
2009	$	6,039
2010		4,408
2011		2,731
2012		1,119
2013		473
Thereafter		2,134
Total	$	16,904

	Rental expense for 2008, 2007, and 2006 was $3,532, $4,007, and $3,962, respectively, after deducting the amount of $265, $303, and $348, respectively, reimbursed by CMS for the administration of the Medicare Part B Program (see note 13).
(24)	Contingencies

(a)	Legal Proceedings
	As of December 31, 2008, the Company is a defendant in various lawsuits arising in the ordinary course of business. We are also defendants in various other claims and proceedings, some of which are described below. Furthermore, the Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, regularly make inquiries and conduct audits concerning the Corporation’s compliance with applicable insurance and other laws and regulations.
	Management believes that the aggregate liabilities, if any, arising from all such claims, assessments, audits and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of the Corporation. However, given the inherent unpredictability of these matters, it is possible that an adverse outcome in certain matters could have a material adverse effect on the Company’s financial condition, operating results and/or cash flows. Where the Corporation believes that a loss is both probable and estimable, such amounts have been recorded. In other cases, it is at least reasonably possible that the Corporation may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Corporation is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution.

59 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Hau et al Litigation (formerly known as Jordan et al)

On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against the Corporation, TSI and others in the Court of First Instance for San Juan, Superior Section (the “Court”), alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, antitrust violations, unfair business practices, RICO violations, breach of contract with providers, and damages in the amount of $12 million. Following years of complaint amendments, motions practice and interim appeals up to the level of the Puerto Rico Supreme Court, the plaintiffs amended their complaint on June 20, 2008 to allege with particularity the same claims initially asserted but on behalf of a more limited group of plaintiffs, and increase their claim for damages to approximately $207 million. At a status conference held on August 18, 2008, the parties informed the Court that they had reached an agreement to try to simplify the case. Based on the agreement, which was approved by the Court, the defendants sent a letter to the plaintiffs on September 19, 2008 explaining the reasons why the allegations of the amended complaint should be dismissed. We are currently waiting for the plaintiffs to reply.

Thomas Litigation

On May 22, 2003, Kenneth A. Thomas, M.D. and Michael Kutell, M.D. filed a putative class action suit against the Blue Cross Blue Shield Association and substantially all of the other Blue Cross and Blue Shield plans in the United States, including TSI. The complaint alleges that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to doctors so that they are not paid in a timely manner for the covered medically necessary services they render. TSI, along with the other defendants, moved to dismiss the complaint on multiple grounds, including but not limited an arbitration right and the applicability of the McCarran Ferguson Act. The parties announced a Settlement Agreement on April 27, 2007 and on April 19, 2008, the Court granted final approval of the settlement. A small group of physicians filed an appeal of the settlement that is pending in the Eleventh Circuit. The Company recorded an accrual for the settlement that is included within accounts payable and accrued liabilities in the accompanying consolidated financial statements.

Colón Litigation

On October 15, 2007, José L. Colón-Dueño, a former holder of one share of TSI predecessor stock, filed suit against TSI and the Puerto Rico Commissioner of Insurance (the Commissioner) in the Court of First Instance for San Juan, Superior Section. The sale of that share to Mr. Colón-Dueño was voided in 1999 pursuant to an order issued by the Commissioner in which the sale of 1,582 shares to a number of TSI shareholders was voided. The Puerto Rico Court of Appeals upheld the order on March 31, 2000. The plaintiff requests that the court direct TSI to return his share of stock and pay damages in excess of $500,000 and attorney’s fees. Management plans to vigorously contest this lawsuit because, among other reasons, the Commissioner’s order is final and cannot be collaterally attacked in this litigation.

60 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Puerto Rico Center for Municipal Revenue Collection

On March 1, 2006 and March 3, 2006, respectively, the Puerto Rico Center for Municipal Revenue Collection (CRIM) imposed a real property tax assessment of approximately $1.3 million and a personal property tax assessment of approximately $4.0 million upon TSI for fiscal years 1992-1993 through 2002-2003. During that time, TSI qualified as a tax-exempt entity under Puerto Rico law pursuant to rulings issued by the Puerto Rico tax authorities. In imposing the tax assessments, CRIM revoked the tax rulings retroactively, based on its contention that a for-profit corporation such as TSI is not entitled to such an exemption. On March 28, 2006 and March 29, 2006, respectively, TSI challenged the real and personal property tax assessments in the Court of First Instance for San Juan, Superior Section. The court granted summary judgment affirming the real property and personal property tax assessments on October 29, 2007 and December 5, 2007, respectively.

After unsuccessfully filing motions for reconsideration in both cases, TSI appealed the court’s decisions before the Puerto Rico Court of Appeals on November 29, 2007 and February 21, 2008, respectively. TSI also requested a consolidation of both cases, which the Court of Appeals approved on April 17, 2008. On May 27, 2008, TSI submitted a motion to the Court of Appeals requesting the Court to take notice of a recent decision of the Puerto Rico Supreme Court that addresses administrative law issues involving other parties and which TSI believes confirms its position that the rulings issued by the Puerto Rico tax authorities may not be revoked on a retroactive basis. On June 30, 2008 the Court of Appeals confirmed the summary judgment issued by the Court of First Instance in both property tax cases. On September 29, 2008, TSI timely filed a certiorari petition with the Puerto Rico Supreme Court, which is currently pending. Management believes that these municipal tax assessments are improper and expects to prevail in this litigation.

Dentists Association Litigation

On February 11, 2009, the Puerto Rico Dentists Association (Colegio de Cirujanos Dentistas de Puerto Rico, or “CCD”) filed a complaint in the Puerto Rico Court of First Instance for San Juan against 24 health plans operating in Puerto Rico that offer dental health coverage. The Company, TSI, and Triple-C, Inc., a Company subsidiary, were included as defendants. This litigation purports to be a class action filed on behalf of Puerto Rico dentists who are similarly situated; however, the complaint does not include a single dentist as a class representative nor a definition of the intended class.

The complaint alleges that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to dentists so that they are not paid in a timely and complete manner for the covered medically necessary services they render. The complaint also alleges, among other things, violations to the Puerto Rico Insurance Code, antitrust laws, the Puerto Rico racketeering statute, unfair business practices, breach of contract with providers, and damages in the amount of $150 million. In addition, the complaint claims that the Puerto Rico Insurance Companies Association (“ACODESE” for its Spanish acronym) is the hub of an alleged conspiracy concocted by the member plans to defraud dentists.

61 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	There are numerous available defenses to oppose both the request for class certification and the merits. The Company intends to vigorously defend this claim.
	Claims by Heirs of Former Shareholders
	The Company and TSI are also defending four individual lawsuits and one purported class action, all filed in state court, from persons who claim to have inherited a total of 90 shares of the Company or one of its predecessors (before giving effect to the 3,000-for-one stock split). While each case presents unique facts, the lawsuits generally allege that the redemption of the shares by the Company pursuant to transfer and ownership restrictions contained in the Company’s (or its predecessor’s) articles of incorporation and bylaws was improper. On February 18, 2009, the Court of First Instance for San Juan, Superior Section, issued an order granting our motion to dismiss the purported class action suit, on grounds that the claim was time barred under the Puerto Rico Securities Act. Motions to dismiss are pending in a majority of the remaining cases and discovery has begun in all of them. Management believes all these claims are time barred under one or more statutes of limitations, and intends to vigorously defend against them.
(b)	Guarantee Associations
	Pursuant to the Insurance Code, STS is a member of Sindicato de Aseguradores para la Suscripción Conjunta de Seguros de Responsabilidad Professional Médico-Hospitalaria (SIMED) and of the Sindicato de Aseguradores de Responsabilidad Professional para Médicos. Both syndicates were organized for the purpose of underwriting medical-hospital professional liability insurance. As a member, the subsidiary shares risks with other member companies and, accordingly, is contingently liable in the event that the above-mentioned syndicates cannot meet their obligations. During 2008, 2007, and 2006, no assessments or payments were made for this contingency.
	Additionally, pursuant to Article 12 of Rule LXIX of the Insurance Code, STS is a member of the Compulsory Vehicle Liability Insurance Joint Underwriting Association (the Association). The Association was organized during 1997 to underwrite insurance coverage of motor vehicle property damage liability risks effective January 1, 1998. As a participant, STS shares the risk, proportionately with other members, based on a formula established by the Insurance Code. During the three-year period ended December 31, 2008, the Association distributed good experience refunds. STS received refunds amounting to $1,131, $1,023, and $769, in 2008, 2007, and 2006, respectively.
	STS is a member of the Asociación de Garantía de Seguros de Todas Clases, excepto Vida, Incapacidad y Salud and TSI, TSV are members of the Asociación de Garantía de Seguros de Vida, Incapacidad y Salud. As members, they are required to provide funds for the payment of claims and unearned premiums reimbursements for policies issued by insurance companies declared insolvent. During 2008 and 2007 no assessment or payment was made by STS in connection with insurance companies declared insolvent. During 2006, STS paid assessments of $995. Moreover, no assessments were attributable to TSI and Triple-S Vida, Inc. during 2008, 2007, and 2006.

62 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(25)	Statutory Accounting
	TSI, TSV and STS (collectively known as the regulated subsidiaries) are regulated by the Commissioner of Insurance. The regulated subsidiaries are required to prepare financial statements using accounting practices prescribed or permitted by the Commissioner of Insurance, which differ from GAAP.
	The accumulated earnings of TSI, TSV, and STS are restricted as to the payment of dividends by statutory limitations applicable to domestic insurance companies. Such limitations restrict the payment of dividends by insurance companies generally to unrestricted unassigned surplus funds reported for statutory purposes. As more fully described in note 17, a portion of the accumulated earnings of STS are also restricted by the catastrophe loss reserve balance (amounting to $31,349 and $29,918 as of December 31, 2008 and 2007, respectively) as required by the Insurance Code.
	The net admitted assets, unassigned surplus, and capital and surplus of the insurance subsidiaries at December 31, 2008 (preliminary) and 2007 are as follows:

	2008
	TSI		STS		TSV
Net admitted assets	$	593,781		270,684		332,041
Unassigned surplus		62,089		57,508		(13,318	)
Capital and surplus		212,089		96,525		48,742

	2007
	TSI		STS		TSV
Net admitted assets	$	702,125		273,601		310,428
Unassigned surplus		67,768		57,346		(17,021	)
Capital and surplus		217,768		95,765		45,039

The statutory net income of the insurance subsidiaries for the years ended December 31, 2008 (preliminary), 2007, and 2006 is as follows:

	TSI		STS		TSV
2008	$	26,838		4,767		2,624
2007		41,742		14,608		7,736
2006		24,723		9,270		7,077

63 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(26) Supplementary Information on Noncash Transactions Affecting Cash Flow Activities

	2008			2007			2006
Supplementary information:
Noncash transactions affecting cash flows activities:
Change in net unrealized gain on securities available for sale, including deferred income tax liability of $854, $1,840, and $803 in 2008, 2007, and 2006, respectively	$	(3,952	)		9,549			(3,212	)
Change in cash-flow hedges, including deferred income tax liability of $37, $159 and $40 in 2008, 2007, and 2006, respectively		(56	)		(250	)		(65	)
Change in liability for pension benefits, and deferred income tax asset of $4,796, $2,189, and $7,189, in 2008, 2007, and 2006, respectively		(7,615	)		4,090			4,952
Adjustment to initially apply SFAS No. 158, including deferred income tax effect of $10,152 in 2006.					—			(16,081	)
Unsettled shares repurchases		6,235			—			—
Unsettled investment acquisitions		—			117,706			226
Unsettled investment sales		(1,500	)		—			(13	)
Other:
Income taxes paid		25,597			25,940			2,813
Interest paid		14,330			14,102			14,215

On January 31, 2006, the Company acquired GA Life (now TSV). Refer to note 18 for a summary of assets acquired and liabilities assumed as part of the acquisition.

64 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(27)	Segment Information
	The operations of the Company are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance. Business segments were identified according to the type of insurance products offered. These segments and a description of their respective operations are as follows:

• Managed Care segment — TSI is engaged in the sale of managed care products to the commercial market sector (including corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare supplement) as well as to the Medicare Advantage, the Commonwealth of Puerto Rico Health Reform (the Reform) and stand-alone PDP. The following represents a description of the major contracts by sector:

• Commercial — The premiums for this business are mainly originated through TSI’s internal sales force and a network of brokers and independent agents. TSI is a qualified contractor to provide health coverage to federal government employees within Puerto Rico. Earned premiums revenue related to this contract amounted to $124,239, $121,126, and $113,355 for the three-year period ended December 31, 2008, 2007, and 2006, respectively (see note 10). Under its commercial business, TSI also provides health coverage to certain employees of the Commonwealth of Puerto Rico and its instrumentalities. Earned premium revenue related to such health plans amounted to $40,686, $46,649, and $54,143, for the three-year period ended December 31, 2008, 2007, and 2006, respectively. TSI also processes and pays claims as fiscal intermediary for the Medicare — Part B Program in Puerto Rico and is reimbursed for operating expenses (see note 13).

• Medicare — TSI provides services through its Medicare health plans pursuant to a limited number of contracts with CMS. These contracts generally have terms of one year and must be renewed each year. Each of our contracts with CMS is terminable for cause if TSI breaches a material provision of the contract or violate relevant laws or regulations. The premiums for this business are mainly originated through TSI’s internal sales force and a network of brokers and independent agents. Earned premium revenue related to the Medicare business amounted to $438,723, $255,570, and $170,820 the three-year period ended December 31, 2008, 2007, and 2006, respectively.

• Reform — TSI participates in the Reform to provide health coverage to medically indigent citizens in Puerto Rico. The Reform program provides health coverage to medically indigent citizens in Puerto Rico, as defined by the laws of the Commonwealth of Puerto Rico. The Reform consists of a single policy with the same benefits for each qualified medically indigent citizen. Earned premium revenue related to this business amounted to $340,123, $327,544, and $455,891, for three-year period ended December 31, 2008, 2007, and 2006, respectively. Since the Reform’s inception in 1995, TSI had been the sole provider for two to three regions each year. The contract for each geographical area is subject to termination in the event of any noncompliance by the insurance company, which is not corrected or cured to the satisfaction of the government entity overseeing the Reform, or on ninety days’ prior written notice in the event that the government determines that there is an insufficiency of funds to finance the Reform. These contracts usually have one-year terms and expire on June 30. Upon the

65 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

expiration of the contract for a geographical area, of the Commonwealth of Puerto Rico usually commences an open bidding process to select the carrier for each area. In October 2006, TSI was informed that the new contract to serve one of these regions, Metro-North, had been awarded to another managed care company effective November 1, 2006. The contracts for the other two areas were renewed for additional terms ending June 30, 2009. Effective November 2008, the Company was awarded with the Metro-North Region as an Administrative Service Only (ASO) contract for the term of one year. Administrative service fee for the Metro-North Region for the year ended December 31, 2008 amounted to $2,712; which is included in the Administrative service fee in the accompanying consolidated statement of earnings.

• Life Insurance segment — This segment offers primarily life and accident and health insurance coverage, and annuity products. The premiums for this segment are mainly subscribed through TSV’s internal sales force and a network of independent brokers and agents.

• Property and Casualty Insurance segment —The predominant insurance lines of business of this segment are commercial multiple peril, auto physical damage, auto liability, and dwelling. The premiums for this segment are originated through a network of independent insurance agents and brokers. Agents or general agencies collect the premiums from the insureds, which are subsequently remitted to STS, net of commissions. Remittances are due 60 days after the closing date of the general agent’s account current.

The Company evaluates performance based primarily on the operating revenues and operating income of each segment. Operating revenues include premiums earned, net, administrative service fees and net investment income. Operating costs include claims incurred and operating expenses. The Company calculates operating income or loss as operating revenues less operating costs.

The accounting policies for the segments are the same as those described in the summary of significant accounting policies included in the notes to consolidated financial statements. Services provided between reportable segments are done at transfer prices which approximate fair value. The financial data of each segment is accounted for separately; therefore no segment allocation is necessary. However, certain operating expenses are centrally managed, therefore requiring an allocation to each segment. Most of these expenses are distributed to each segment based on different parameters, such as payroll hours, processed claims, or square footage, among others. In addition, some depreciable assets are kept by one segment, while allocating the depreciation expense to other segments. The allocation of the depreciation expense is based on the proportion of asset used by each segment. Certain expenses are not allocated to the segments and are kept within TSM’s operations.

The following tables summarize the operations by operating segment for each of the years in the three-year period ended December 31, 2008, 2007, and 2006.

66 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Operating revenues:
Managed care:
Premiums earned, net	$	1,509,778			1,298,776			1,337,070
Fee revenue		19,187			14,018			14,089
Intersegment premiums/fee revenue		6,538			6,229			5,531
Net investment income		23,091			19,673			18,852
Total managed care		1,558,594			1,338,696			1,375,542
Life:
Premiums earned, net		92,469			88,505			86,595
Intersegment premiums		374			356			293
Net investment income		16,482			15,016			13,749
Total life		109,325			103,877			100,637
Property and casualty:
Premiums earned, net		93,211			96,267			87,961
Intersegment premiums		610			616			591
Net investment income		12,545			11,849			9,589
Total property and casualty		106,366			108,732			98,141
Other segments — intersegment service revenues*		46,578			44,971			53,375
Total business segments		1,820,863			1,596,276			1,627,695
TSM operating revenues from external sources		4,135			656			467
Elimination of intersegment premiums		(7,523	)		(7,201	)		(6,415	)
Elimination of intersegment service revenue		(46,578	)		(44,971	)		(53,375	)
Consolidated operating revenues	$	1,770,897			1,544,760			1,568,372

* Includes segments that are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of health insurance services.

67 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Operating income:
Managed care	$	52,632			57,392			45,472
Life		12,489			10,716			11,196
Property and casualty		13,147			10,740			11,250
Other segments*		985			891			1,115
Total business segments		79,253			79,739			69,033
TSM operating revenues from external sources		4,135			656			467
TSM unallocated operating expenses		(9,283	)		(7,846	)		(6,648	)
Elimination of TSM charges		9,991			10,903			10,474
Consolidated operating income		84,096			83,452			73,326
Consolidated net realized investment gains (losses)		(13,940	)		5,931			837
Consolidated net unrealized gain (loss) on trading securities		(21,063	)		(4,116	)		7,699
Consolidated interest expense		(14,681	)		(15,839	)		(16,626	)
Consolidated other income, net		(2,468	)		3,217			2,323
Consolidated income before taxes	$	31,944			72,645			67,559

	2008		2007		2006
Depreciation expense:
Managed care	$	4,339		4,277		3,788
Life		656		677		750
Property and casualty		1,450		1,488		775
Total business segments		6,445		6,442		5,313
TSM depreciation expense		922		1,120		1,130
Consolidated depreciation expense	$	7,367		7,562		6,443

* Includes segments that are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of health insurance services

68 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007
Assets:
Managed care	$	678,889			762,422
Life		460,109			430,807
Property and casualty		337,869			375,415
Other segments*		12,620			11,255
Total business segments		1,489,487			1,579,899
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments		58,480			82,980
Property and equipment, net		21,648			22,523
Other assets		4,079			2,280
		84,207			107,783
Elimination entries — intersegment receivables and others		(25,235	)		(28,140	)
Consolidated total assets	$	1,548,459			1,659,542

	2008			2007
Significant noncash items:
Net change in unrealized gain on securities available for sale:
Managed care	$	(4,359	)		2,928
Life		538			3,253
Property and casualty		1,139			3,085
Total business segments		(2,682	)		9,266
Amount related to TSM		(1,270	)		283
Consolidated net change in unrealized gain on securities available for sale	$	(3,952	)		9,549
Net change in liability for pension benefits:
Managed care	$	(4,946	)		2,838
Life		(81	)		35
Property and casualty		(490	)		275
Other segments*		(1,948	)		844
Total business segments		(7,465	)		3,992
Amount related to TSM		(150	)		98
Consolidated net change in liability for pension benefits	$	(7,615	)		4,090

* Includes segments that are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of health insurance services.

69 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(28) Quarterly Financial Information (Unaudited)

	2008
	March 31			June 30			September 30			December 31			Total
Revenues:
Premiums earned, net	$	404,399			419,157			433,219			438,682			1,695,457
Administrative service fees		3,713			3,920			4,448			7,106			19,187
Net investment income		13,432			14,302			14,072			14,447			56,253
Total operating revenues		421,544			437,379			451,739			460,235			1,770,897
Net realized investment gains (losses)		609			(1,741	)		(1,101	)		(11,707	)		(13,940	)
Net unrealized investment loss on trading securities		(6,250	)		(951	)		(3,605	)		(10,257	)		(21,063	)
Other income (loss), net		(1,521	)		1,360			(1,147	)		(1,160	)		(2,468	)
Total revenues		414,382			436,047			445,886			437,111			1,733,426
Benefits and expenses:
Claims incurred		350,207			354,780			365,585			364,342			1,434,914
Operating expenses		60,031			61,399			63,572			66,885			251,887
Total operating costs		410,238			416,179			429,157			431,227			1,686,801
Interest expense		3,673			3,926			3,749			3,333			14,681
Total benefits and expenses		413,911			420,105			432,906			434,560			1,701,482
Income before taxes		471			15,942			12,980			2,551			31,944
Income tax expense (benefit):
Current		(184	)		4,291			4,580			2,855			11,542
Deferred		(547	)		(486	)		(1,071	)		(2,284	)		(4,388	)
Total income taxes		(731	)		3,805			3,509			571			7,154
Net income	$	1,202			12,137			9,471			1,980			24,790
Basic net income per share	$	0.04			0.38			0.29			0.06			0.77
Diluted net income per share		0.04			0.38			0.29			0.06			0.77

70 (Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2007
	March 31			June 30		September 30			December 31			Total
Revenues:
Premiums earned, net	$	348,465			377,346		375,803			381,934			1,483,548
Administrative service fees		3,509			3,617		3,908			2,984			14,018
Net investment income		11,121			11,047		11,229			13,797			47,194
Total operating revenues		363,095			392,010		390,940			398,715			1,544,760
Net realized investment gains (losses)		1,196			3,784		1,183			(232	)		5,931
Net unrealized investment gain (loss) on trading securities		(1,925	)		573		588			(3,352	)		(4,116	)
Other income (loss), net		209			2,158		(525	)		1,375			3,217
Total revenues		362,575			398,525		392,186			396,506			1,549,792
Benefits and expenses:
Claims incurred		297,318			308,023		310,033			308,401			1,223,775
Operating expenses		56,137			59,358		57,944			64,094			237,533
Total operating costs		353,455			367,381		367,977			372,495			1,461,308
Interest expense		3,952			4,058		3,938			3,891			15,839
Total benefits and expenses		357,407			371,439		371,915			376,386			1,477,147
Income before taxes		5,168			27,086		20,271			20,120			72,645
Income tax expense (benefit):
Current		1,060			5,938		4,575			4,333			15,906
Deferred		(397	)		343		206			(1,931	)		(1,779	)
Total income taxes		663			6,281		4,781			2,402			14,127
Net income	$	4,505			20,805		15,490			17,718			58,518
Basic net income per share	$	0.17			0.78		0.58			0.62			2.15
Diluted net income per share		0.17			0.78		0.58			0.62			2.15

71

Triple-S Management Corporation and Subsidiaries
Schedule III — Supplementary Insurance Information
For the years ended December 31, 2008, 2007 and 2006

(Dollar amounts in thousands)

	Deferred																	Amortization of
	Policy																	Deferred Policy
	Acquisition				Liability for				Other									Acquisition
	Costs and Value				Future				Policy Claims					Net				Costs and Value		Other			Net
	of Business		Claim		Policy		Unearned		and Benefits		Premium			Investment		Claims		of Business		Operating			Premiums
Segment	Acquired		Liabilities		Benefits		Premiums		Payable		Revenue			Income		Incurred		Acquired		Expenses			Written
2008
Managed care	$	—	$	201,849	$	—	$	5,585	$	—	$	1,513,025		$	23,091	$	1,345,371	$	—	$	160,591		$	1,513,025
Life insurance		101,243		39,948		207,545		3,370		—		92,843			16,482		47,432		16,404		33,000			92,843
Property and casualty insurance		25,104		81,913		—		101,186		—		93,821			12,546		42,111		27,383		23,725			95,867
Other non-reportable segments, parent company operations and net consolidating entries.		—		—		—		—		—		(4,232	)		4,134		—		—		(9,216	)		—
Total	$	126,347	$	323,710	$	207,545	$	110,141	$	—	$	1,695,457		$	56,253	$	1,434,914	$	43,787	$	208,100		$	1,701,735
2007
Managed care	$	—	$	201,604	$	—	$	27,923	$	—	$	1,301,792		$	19,673	$	1,133,241	$	—	$	148,063		$	1,301,792
Life insurance		93,564		35,485		194,131		2,931		—		88,861			15,016		45,669		16,033		31,459			88,861
Property and casualty insurance		23,675		116,741		—		101,745		—		96,883			11,849		44,865		28,917		24,210			101,747
Other non-reportable segments, parent company operations and net consolidating entries.		—		—		—		—		—		(3,988	)		656		—		—		(11,149	)		—
Total	$	117,239	$	353,830	$	194,131	$	132,599	$	—	$	1,483,548		$	47,194	$	1,223,775	$	44,950	$	192,583		$	1,492,400
2006
Managed care	$	—	$	185,249	$	—	$	17,812	$	—	$	1,339,807		$	18,852	$	1,173,622	$	—	$	156,448		$	1,339,807
Life insurance		88,590		35,164		180,420		1,960		—		86,888			13,749		43,619		16,339		29,483			84,752
Property and casualty insurance		22,827		94,269		—		93,810		—		88,552			9,589		41,740		25,118		20,033			93,252
Other non-reportable segments, parent company operations and net consolidating entries.		—		—		—		—		—		(3,621	)		467		—		—		(11,356	)		—
Total	$	111,417	$	314,682	$	180,420	$	113,582	$	—	$	1,511,626		$	42,657	$	1,258,981	$	41,457	$	194,608		$	1,517,811

See accompanying independent registered public accounting firm’s report and notes to consolidated financial statements.

Triple-S Management Corporation and Subsidiaries
Schedule IV — Reinsurance
For the years ended December 31, 2008, 2007 and 2006

(Dollar amounts in thousands)

									Percentage
			Ceded to		Assumed				of Amount
	Gross		Other		from Other		Net		Assumed
	Amount		Companies (1)		Companies		Amount		to Net
2008
Life insurance in force	$	10,503,170		2,823,647		—		7,679,523		0.0	%
Premiums:
Life insurance	$	100,413		7,570		—		92,843		0.0	%
Accident and health insurance		1,518,648		5,623		—		1,513,025		0.0	%
Property and casualty insurance		167,982		72,115		—		95,867		0.0	%
Total premiums	$	1,787,043		85,308		—		1,701,735		0.0	%
2007
Life insurance in force	$	10,321,749		2,459,100		—		7,862,649		0.0	%
Premiums:
Life insurance	$	97,700		8,839		—		88,861		0.0	%
Accident and health insurance		1,305,141		3,349		—		1,301,792		0.0	%
Property and casualty insurance		170,884		69,137		—		101,747		0.0	%
Total premiums	$	1,573,725		81,325		—		1,492,400		0.0	%
2006
Life insurance in force	$	10,433,690		6,957,946		—		3,475,744		0.0	%
Premiums:
Life insurance	$	89,736		9,397		4,413		84,752		5.2	%
Accident and health insurance		1,341,952		2,145		—		1,339,807		0.0	%
Property and casualty insurance		158,975		65,723		—		93,252		0.0	%
Total premiums	$	1,590,663		77,265		4,413		1,517,811		0.3	%

(1) Premiums ceded on the life insurance business are net of commission income on reinsurance amounting to $287, $258 and $275 for the years ended December 31, 2008, 2007 and 2006.

See accompanying independent registered public accounting firm’s report and notes to consolidated financial statements.

Triple-S Management Corporation and Subsidiaries
Schedule V — Valuation and Qualifying Accounts
For the years ended December 31, 2008, 2007 and 2006

(Dollar amounts in thousands)

			Additions
	Balance at		Charged to		Charged to					Balance at
	Beginning of		Costs and		Other Accounts		Deductions —			End of
	Period		Expenses		— Describe (1)		Describe (2)			Period
2008
Allowance for doubtful receivables	$	15,925		821		—		(2,001	)		14,745
2007
Allowance for doubtful receivables	$	18,230		6,661		—		(8,966	)		15,925
2006
Allowance for doubtful receivables	$	12,240		8,570		1,380		(3,960	)		18,230

(1)	Represents amount of allowance for doubtful accounts acquired upon the purchase of GA Life and other adjustments.
(2)	Deductions represent the write-off of accounts deemed uncollectible.

See accompanying independent registered public accounting firm’s report and notes to consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Financial Statements

December 31, 2008, 2007, and 2006

(With Independent Auditors’ Report Thereon)

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Triple-S Management Corporation:

Under date of March 18, 2009, we reported on the consolidated balance sheets of Triple-S Management Corporation and Subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008 as contained in the 2008 annual report to stockholders. Our reports refers to the adoption of the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158 Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans as of December 31, 2006. These consolidated financial statements and our report thereon are included in the annual report on Form 10-K for the year 2008. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedules as listed in the Item 15. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP                    

San Juan, Puerto Rico
March 18, 2009

Stamp No. 2376401 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Balance Sheets

December 31, 2008 and 2007

(Dollar amounts in thousands, except per share data)

	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	1,952			47,772
Receivables:
Due from subsidiaries		8,956			597
Other		70			25
Total receivables		9,026			622
Investment in securities		56,528			35,208
Prepaid income tax		385			111
Net deferred tax assets		414			367
Accrued interest		868			173
Other assets		115			198
Total current assets		69,288			84,451
Note receivable from subsidiary		37,000			57,000
Accrued interest on note receivable from subsidiary		11,339			8,151
Net deferred tax assets		1,459			543
Investments in wholly owned subsidiaries		484,535			448,579
Property and equipment, net		21,648			22,523
Other assets		768			863
Total assets	$	626,037			622,110
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	1,640			1,640
Due to subsidiary		197			6,015
Accounts payable and accrued expenses		14,154			8,045
Total current liabilities		15,991			15,700
Long-term debt		117,667			119,306
Liability for pension benefits		7,280			4,566
Total liabilities		140,938			139,572
Stockholders’ equity:
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issue and outstanding 9,042,809 and 16,042,809 shares at December 31, 2008 and 2007		9,043			16,043
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issue and outstanding 22,104,989 and 16,266,554 at December 31, 2008 and December 31, 2007		22,105			16,266
Additional paid-in capital		179,504			188,935
Retained earnings		292,112			267,336
Accumulated other comprehensive loss, net		(17,665	)		(6,042	)
		485,099			482,538
Commitments and contingencies
Total liabilities and stockholders’ equity	$	626,037			622,110

See accompanying independent registered public accounting firm’s report and notes to financial statements.

2

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Statements of Earnings

Years ended December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Rental income	$	7,361			7,096			6,897
Management fees		2,805			3,880			3,650
General and administrative expenses		(9,283	)		(7,846	)		(6,648	)
Operating income		883			3,130			3,899
Other revenue (expenses):
Equity in net income of subsidiaries		26,103			57,980			53,632
Interest expense, net of interest income of $6,093, $5,477, and $6,088, in 2008, 2007, and 2006, respectively		(1,941	)		(2,557	)		(2,078	)
Other income		13			397			—
Total other revenue, net		24,175			55,820			51,554
Income before income taxes		25,058			58,950			55,453
Income tax expense (benefit):
Current		631			520			772
Deferred		(363	)		(88	)		148
Total income tax expense, net		268			432			920
Net income	$	24,790			58,518			54,533

See accompanying independent registered public accounting firm’s report and notes to financial statements.

3

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Statements of Stockholders’ Equity and Comprehensive Income

Years ended December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

													Accumulated
	Common			Common			Additional						other
	stock			stock			paid-in			Retained			comprehensive
	Class A			Class B			capital			earnings			income (loss)			Total
Balance, December 31, 2005		26,712			—			124,052			162,964			(5,025	)		308,703
Dividends declared					—			—			(6,231	)		—			(6,231	)
Adjustment to initially apply SFAS No. 158, net of tax					—			—			—			(16,081	)		(16,081	)
Other		21						(21	)								—
Comprehensive income:
Net income		—			—			—			54,533			—			54,533
Net unrealized change in fair value of available for sale securities		—			—			—			—			(3,212	)		(3,212	)
Net change in minimum pension liability		—			—			—			—			4,952			4,952
Net change in fair value of cash-flow hedges		—			—			—			—			(65	)		(65	)
Total comprehensive income																	56,208
Balance, December 31, 2006		26,733			—			124,031			211,266			(19,431	)		342,599
Dividends declared		—			—			—			(2,448	)		—			(2,448	)
Sale of stock in public offering		(10,813	)		16,100			64,992			—			—			70,279
Grant of resticted Class B common stock		—			166			—			—			—			166
Share-based compensation		—			—			34			—			—			34
Other		123			—			(122	)		—			—			1
Comprehensive income:
Net income		—			—			—			58,518			—			58,518
Net unrealized change in fair value of available for sale securities		—			—			—			—			9,549			9,549
Defined benefit pension plan:
Prior service cost, net		—			—			—			—			3,935			3,935
Actuarial loss		—			—			—			—			155			155
Net change in fair value of cash-flow hedges		—			—			—			—			(250	)		(250	)
Total comprehensive income																	71,907
Balance, December 31, 2007	$	16,043			16,266			188,935			267,336			(6,042	)		482,538
Conversion of Class A common stock to Class B common stock		(7,000	)		7,000			—			—			—			—
Share-based compensation		—			—			3,268			—			—			3,268
Grant of restricted Class B common stock		—			20			—			—			—			20
Repurchase and retirement of common stock		—			(1,181	)		(12,699	)		—			—			(13,880	)
Other		—			—			—			(14	)		—			(14	)
Comprehensive income:
Net income		—			—			—			24,790			—			24,790
Net unrealized change in fair value of available for sale securities		—			—			—			—			(3,952	)		(3,952	)
Defined benefit pension plan:
Prior service credit, net		—			—			—			—			(266	)		(266	)
Actuarial loss		—			—			—			—			(7,349	)		(7,349	)
Net change in fair value of cash flow hedges		—			—			—			—			(56	)		(56	)
Total comprehensive income																	13,167
Balance, December 31, 2008	$	9,043			22,105			179,504			292,112			(17,665	)		485,099

See accompanying independent registered public accounting firm’s report and notes to financial statements.

4

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Statements of Cash Flows

Years ended December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	2008			2007			2006
Cash flows from operating activities:
Net income	$	24,790			58,518			54,533
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity in net income of subsidiaries		(26,103	)		(57,980	)		(53,632	)
Depreciation and amortization		922			1,120			1,130
Share-based compensation		3,268			200			—
Provision for obsolescence		—			—			(83	)
Deferred income tax (benefit) expense		(607	)		(88	)		148
Other		1,965			(394	)		—
Changes in assets and liabilities:
Receivables		(8,404	)		(233	)		1,062
Accrued interest		(3,883	)		(4,244	)		(1,842	)
Prepaid income tax and other assets		(189	)		(146	)		517
Accounts payable, accrued expenses, liability for pension benefit and due to subsidiary		(3,475	)		(3,945	)		6,807
Income taxes payable		—			(291	)		291
Net cash (used in) provided by operating activities		(11,716	)		(7,483	)		8,931
Cash flows from investing activities:
Acquisition of investment in securities classified as available for sale		(70,684	)		(28,202	)		—
Proceeds from sale and maturities of investment in securities classified as available for sale		45,905			4,393			335
Notes receivable from subsidiaries		—			22,000			4,000
Acquisition of business		—			—			(38,196	)
Net retirement (acquisition) of property and equipment		(47	)		149			(162	)
Net cash used in investing activities		(24,826	)		(1,660	)		(34,023	)
Cash flows from financing activities:
Dividends		—			(2,448	)		(6,231	)
Repayments of long-term borrowings		(1,639	)		(12,141	)		(2,503	)
Proceeds from long-term borrowings		—			—			35,000
Net proceeds from initial public offering		—			70,279			—
Repurchases and retirement of common stock		(7,645	)		—			—
Other		6			1			—
Net cash (used in) provided by financing activities		(9,278	)		55,691			26,266
Net increase (decrease) in cash and cash equivalents		(45,820	)		46,548			1,174
Cash and cash equivalents, beginning of year		47,772			1,224			50
Cash and cash equivalents, end of year	$	1,952			47,772			1,224
Supplemental information:
Income taxes paid	$	1,149			922			402
Interest paid		7,357			7,751			7,809
Noncash activities:
Change in net unrealized gain on securities available for sale, including deferred income tax liability of $854, $1,840, and $803 in 2008, 2007 and 2006, respectively	$	(3,952	)		9,549			(3,212	)
Change in cash-flow hedges, including deferred tax liability of $37 and $159, $40 in 2008, 2007 and 2006, respectively		(56	)		(250	)		(65	)
Change in liability for pension benefits and deferred income tax asset of $4,796, $2,189, and $7,189 in 2008, 2007, and 2006, respectively		(7,615	)		4,090			4,952
Adjustment to initially apply SFAS No. 158, including deferred income tax effect of $10,152 in 2006		—			—			(16,081	)
Unsettled shares repurchases		6,235			—			—

See accompanying independent registered public accounting firm’s report and notes to financial statements.

5

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(1)	Organization
	Triple-S Management Corporation (the Company or TSM) was incorporated under the laws of the Commonwealth of Puerto Rico on January 17, 1997 to engage, among other things, as the holding company of entities primarily involved in the insurance industry.
	The Company has the following wholly owned subsidiaries that are subject to the regulations of the Commissioner of Insurance of the Commonwealth of Puerto Rico (the Commissioner of Insurance): (a) Triple-S, Inc. (TSI) a managed care organization, that provides health benefits services to subscribers through contracts with hospitals, physicians, dentists, laboratories, and other organizations located mainly in Puerto Rico; (b) Triple-S Vida, Inc. (TSV), which is engaged in the underwriting of life and accident and health insurance policies and the administration of annuity contracts; and (c) Seguros Triple-S, Inc. (STS), which is engaged in the underwriting of property and casualty insurance policies. Effective February 16, 2009, TSI and STS change their name to Triple-S Salud, Inc. and Triple-S Propiedad, Inc., respectively. The Company and TSI are members of the Blue Cross and Blue Shield Association (BCBSA).
	Effective January 31, 2006, the Company completed the acquisition of 100% of the common stocks of Great American Life Assurance Company of Puerto Rico (GA Life) (now Triple-S Vida, Inc.) and effective June 30, 2006, the Company merged the operations of its former life and accident and health insurance subsidiary, Seguros de Vida Triple-S, Inc. (SVTS), into the GA Life. The results of operations and financial position of GA Life are included as part of equity in net income of subsidiaries in the accompanying statements of earnings for the period following January 31, 2006. Effective November 1, 2007 GA Life changed its name to Triple-S Vida, Inc.
	The Company also has two other wholly owned subsidiaries, Interactive Systems, Inc. (ISI) and Triple-C, Inc. (TC). ISI is mainly engaged in providing data processing services to the Company and its subsidiaries. TC is mainly engaged as a third party administrator for TSI in the administration of the Commonwealth of Puerto Rico Health Care Reform business (the Reform). Also, TC provides health care advisory services to TSI and other health insurance-related services to the health insurance industry.
	A substantial majority of the Company’s business activity through its subsidiaries is with insureds located throughout Puerto Rico and, as such, the Company is subject to the risks associated with the Puerto Rico economy.
(2)	Significant Accounting Policies
	The significant accounting policies followed by the Company are set forth in the notes to the consolidated financial statements of the Company referred to in Item 15 to the Annual Report on Form 10-K.

(Continued)

6

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(3)	Property and Equipment, Net
	Property and equipment as of December 31 are composed of the following:

	2008			2007
Land	$	6,531			6,531
Buildings and leasehold improvements		27,825			27,778
		34,356			34,309
Less accumulated depreciation and amortization		(12,708	)		(11,786	)
Property and equipment, net	$	21,648			22,523

(4)	Investment in Wholly Owned Subsidiaries
	Summarized combined financial information for the Company’s wholly owned subsidiaries as of and for the years ended December 31, 2008 and 2007 is as follows:

	2008		2007
Assets
Cash, cash equivalents, and investments	$	1,003,316		1,168,182
Receivables, net		250,644		216,525
Other assets		235,527		195,192
Total assets	$	1,489,487		1,579,899
Liabilities and Equity
Claim liabilities	$	323,710		353,830
Future policy benefits		207,545		194,131
Unearned premiums		110,141		132,599
Annuity contracts		48,764		46,083
Accounts payable and other liabilities		314,792		404,677
Total liabilities		1,004,952		1,131,320
Stockholders’ equity		484,535		448,579
Total liabilities and equity	$	1,489,487		1,579,899

The net income of the subsidiaries during the three-year period ended December 31, 2008 was $26,103, $57,980, and $53,632. The Company allocates to its subsidiaries certain expenses incurred in the administration of their operations. Total charges including other expenses paid on behalf of the subsidiaries amounted to $8,596, $4,989 and $4,346, in the three-year period ended December 31, 2008.

(Continued)

7

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(5)	Long-Term Borrowings
	A summary of the long-term borrowings entered by the Company at December 31, 2008 and 2007 follows:

	2008			2007
Senior unsecured notes payable of $60,000 issued on December 2005; due December 2020. Interest is payable monthly at a fixed rate of 6.60%.	$	60,000			60,000
Senior unsecured notes payable of $35,000 issued on January 2006; due January 2021. Interest is payable monthly at a fixed rate of 6.70%.		35,000			35,000
Secured loan payable of $41,000, payable in monthly installments of $137 through July 1, 2024, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 2.43% and 6.24% at December 31, 2008 and 2007, respectively).		24,307			25,946
		119,307			120,946
Less current maturities		(1,640	)		(1,640	)
Total loans payable to bank	$	117,667			119,306

Aggregate maturities of the Company’s long term borrowings as of December 31, 2008 are summarized as follows:

2009		1,640
2010		1,640
2011		1,640
2012		1,640
2013		1,640
Thereafter		111,107
	$	119,307

All of the Company’s senior notes can be prepaid at par, in total or partially, five years after issuance as determined by the Company.

Debt issuance costs related to each of the Company’s senior unsecured notes were deferred and are being amortized over the term of its respective senior note. Unamortized debt issuance costs related to these senior unsecured notes as of December 31, 2008 and 2007 amounted to $710 and $768, respectively, and are included within the other assets in the accompanying balance sheets.

(Continued)

8

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	The secured loan note payable previously described is guaranteed by a first position held by the bank on the Company’s and its subsidiaries land, building, and substantially all leasehold improvements, as collateral for the term of the loans under a continuing general security agreement. This secured loan contains certain covenants, which are customary in this type of facility, including but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitation on changes in control.
	The Company was also a party to another secured loan whose outstanding balance of $10,500 was repaid upon its maturity on August 1, 2007.
	Interest expense on the above long-term borrowings amounted to $7,301, $8,415 and $8,545, in the three-year period ended December 31, 2008.
(6)	Income Taxes
	The Company is subject to Puerto Rico income taxes. Under Puerto Rico income tax law, the Company is not allowed to file consolidated tax returns with its subsidiaries. As of December 31, 2008, tax years 2004 through 2007 are subject to examination by Puerto Rico taxing authorities.
	On January 1, 2007, the Company adopted the provisions of FASB Interpretation No.48, Accounting for Uncertainty in income Taxes and Interpretation of FASB statement No.109; no adjustment was required upon the adoption of this accounting pronouncement.
	The income tax expense differs from the amount computed by applying the Puerto Rico statutory income tax rate to net income before income taxes as a result of the following:

	2008			2007			2006
Income tax expense at statutory rate of 39%	$	9,772			22,990			21,626
Increase (decrease) in taxes resulting from:
Equity in net income of wholly owned subsidiaries		(10,180	)		(22,612	)		(20,916	)
Disallowances		678			154			37
Other, net		(2	)		(100	)		173
Total income tax expense	$	268			432			920

(Continued)

9

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

Deferred income taxes reflect the tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. The net deferred tax asset at December 31, 2008 and 2007 is composed of the following:

	2008			2007
Deferred tax assets:
Employee benefits plan	$	535			388
Accumulated depreciation		334			356
Liability for pension benefits		440			344
Deferred compensation		198			155
Unrealized loss on securities available for sale		217			—
Impairment loss on investments		299			—
Tax credit		243			—
Other		—			37
Gross deferred tax assets		2,266			1,280
Deferred tax liabilities:
Unamortized bond issue costs		(180	)		(196	)
Postretirement benefits		(136	)		(54	)
Other		(77	)		(120	)
Gross deferred tax liabilities		(393	)		(370	)
Net deferred tax asset	$	1,873			910

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management believes that it is more likely than not that the Company will realize the benefits of these deductible differences.

(Continued)

10

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

(7)	Transaction with Related Parties
	The following are the significant related-party transactions made for the three-year period ended December 31, 2008, 2007 and 2006:

	2008		2007		2006
Rent charges to subsidiaries	$	7,286		7,023		6,824
Interest charged to subsidiary on notes receivable		3,189		4,821		5,620

As of December 31, 2008 the Company has a note receivable from a subsidiary pursuant to the provisions of Article 29.30 of the Puerto Rico Insurance Code.

• On December 22, 2005, TSV borrowed $57,000 from TSM; this note receivable bears interest at an annual rate 6.6%. Accrued interest at December 31, 2008 and 2007 amounted to $11,339 and $8,150, respectively.

	The note receivable from subsidiary are due on demand; however, pursuant to the requirements established by the Commissioner of Insurance of the Commonwealth of Puerto Rico (Commissioner of Insurance), the parties agreed that no payment of the total principal nor the interest due on the loan will be made without first obtaining written authorization from the Commissioner of Insurance within at least 60 days prior to the proposed payment date. Written authorization to convert $20,000 of the TSV’s note receivable into a capital contribution was obtained from the Commissioner of Insurance during 2008.
(8)	Contingencies
	At December 31, 2008 and 2007, the Company is defendant in various lawsuits in the ordinary course of business. In the opinion of management, with the advice of its legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the position and results of operations of the Company.
(9)	Stockholders’ Equity

(a)

Common Stock

On April 24, 2007, the Company’s Board of Directors (the Board) authorized a 3,000-for-one stock split of its Class A common stock affected in the form of a dividend of 2,999 shares for every one share outstanding. This stock split was effective on May 1, 2007 to all stockholders of record at the close of business on April 24, 2007. The total number of authorized shares and par value per share were unchanged by this action. The par value of the additional shares resulting from the stock split was reclassified from additional paid in capital to common stock. All references to the number of shares and per share amounts in these consolidated financial statements are presented after giving retroactive effect to the stock split.

11

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

	In May 2007, the Company cancelled 24,000 director qualifying shares. Since February 2007, Board members are no longer required to hold qualifying shares to participate in the Board of Directors of the Company.
	In December 7, 2007, the Company completed the initial public offering (IPO) of its Class B common stock. In this public offering the Company sold 16,100,000 shares, 10,813,191 of which were shares previously owned by selling shareholders. Proceeds received under this public offering amounted to $70,279, net of $6,248 of expenses directly related to the offering.
	For a period of five years after the completion of the IPO, subject to the extension or shortening under certain circumstances, each holder of Class B common stock will benefit from anti-dilution protections provided in the Company’s amended and restated certificate of incorporation.
	On December 8, 2008, the Company converted 7 million issued and outstanding Class A shares into Class B shares, in conjunction with the expiration of the lockup agreements signed by holders of Class A shares at the time of the Company’s IPO.
(b)	Stock Repurchase Program
	The Company may repurchase its common stock under a $40,000 share repurchase program authorized by the Company’s Board of Directors in October 2008. Repurchases may be conducted through open-market purchases and privately-negotiated transactions of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During 2008, the Company repurchased and retired approximately 1,181,500 shares at an average per share price of $11.75, for an aggregate cost of $13,880. Therefore, as of December 31, 2008, $26,120 remained authorized by the Company’s Board of Directors for future repurchases. At December 31, 2008, the Company had unsettled shares repurchases amounting to $6,235. Such amount is included in the accompanying consolidated balance sheet as account payable and accrued liabilities. The timing and extent of any purchases under the program will depend on market conditions, the trading price of the shares and other considerations, and the program may be suspended or terminated at any time.
(c)	Preferred Stock
	Authorized capital stock includes 100,000,000 of preferred stock with a par value of $1.00 per share. As of December 31, 2008 and 2007, there are no issued and outstanding preferred shares.
(d)	Dividends
	On March 12, 2007, the Board declared a cash dividend of $2,448 distributed pro rata among all of the Company’s issued and outstanding Class A common shares, excluding those shares issued to the representatives of the community that are members of the Board (the qualifying shares). All stockholders of record as of the close of business on March 23, 2007, except those who only hold qualifying shares, received a dividend per share of $0.09 for each share held on that date.

12

TRIPLE-S MANAGEMENT CORPORATION
(Parent Company Only)

Notes to Financial Statements

December 31, 2008, 2007, and 2006

(Dollar amounts in thousands, except per share data)

On January 13, 2006, the Board declared a cash dividend of $6,231 distributed pro rata among all of the Company’s issued and outstanding Class A common shares, excluding qualifying shares. All stockholders of record as of the close of business on January 16, 2006, except those who only hold qualifying shares, received a dividend per share of $0.23 for each share held on that date.

13

EX-10.8

EXHIBIT 10.8

BLUE SHIELD LICENSE AGREEMENT
(Includes revisions, if any, adopted by Member Plans through their November 13, 2008 meeting)

     This agreement by and between Blue Cross and Blue Shield Association (“BCBSA”) and The Blue Shield Plan, known as                      (the “Plan”).

Preamble

     WHEREAS, the Plan and/or its predecessor(s) in interest (collectively the “Plan”) had the right to use the BLUE SHIELD and BLUE SHIELD Design service marks (collectively the “Licensed Marks”) for health care plans in its service area, which was essentially local in nature;

     WHEREAS, the Plan was desirous of assuring nationwide protection of the Licensed Marks, maintaining uniform quality controls among Plans, facilitating the provision of cost effective health care services to the public and otherwise benefiting the public;

     WHEREAS, to better attain such ends, the Plan and the predecessor of BCBSA executed the Agreement(s) Relating to the Collective Service Mark “Blue Shield”; and

     WHEREAS, BCBSA and the Plan desire to supercede said Agreement(s) to reflect their current practices and to assure the continued integrity of the Licensed Marks and of the BLUE SHIELD system;

     NOW, THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

Agreement

     1. BCBSA hereby grants to the Plan, upon the terms and conditions of this License Agreement, the right to use BLUE SHIELD in its trade and/or corporate name (the “Licensed Name”), and the right to use the Licensed Marks, in the sale, marketing and administration of health care plans and related services in the Service Area set forth and defined in paragraph 5 below. As used herein, health care plans and related services shall include acting as a nonprofit health care plan, a for-profit health care plan, or mutual health insurer operating on a not-for-profit or for-profit basis, under state law; financing access to health care services; when working with a bank that holds the relevant license to use the Licensed Name and Marks, offering: (i) tax-favored savings accounts for medical expenses and means for accessing such accounts, such as debit cards or checks, that are provided solely to support access to such tax-favored savings accounts, all pursuant to such license, or (ii) prepaid rewards cards that are provided for completion of a wellness program, all pursuant to such license; providing health care management and administration; administering, but not underwriting, non-health portions of Worker’s Compensation insurance; and delivering health care services, except hospital services (as defined in the Guidelines to Membership Standards Applicable to Regular Members).

     2. The Plan may use the Licensed Marks and Name in connection with the offering of: a) health care plans and related services in the Service Area through Controlled Affiliates, provided that each such Controlled Affiliate is separately licensed to use the Licensed Marks and Name under the terms and conditions contained in the Agreement attached as Exhibit 1 hereto (the “Controlled Affiliate License Agreement”); and: b) insurance coverages offered by life insurers under the applicable law in the Service Area, other than those which the Plan may offer in its own name, provided through Controlled Affiliates, provided that each such Controlled Affiliate is separately licensed to use the Licensed Marks and Name under the terms and conditions contained in the Agreement attached as Exhibit 1A hereto (the “Controlled Affiliate License Agreement Applicable to Life Insurance Companies”) and further provided that the offering of such services does not and will not dilute or tarnish the unique value of the Licensed Marks and Name; and c) administration and underwriting of Workers’ Compensation Insurance Controlled Affiliates, provided that each such Controlled Affiliate is separately licensed to use the Licensed Marks and Name under the terms and conditions contained in the Agreement attached as Exhibit 1 hereto (the “Controlled Affiliate License.”); and d) regional Medicare Advantage PPO Products in cooperation with one or more other Plans through jointly-held Controlled Affiliates, provided that each such Controlled Affiliate is separately licensed to use the Licensed Marks and Name under the terms and conditions contained in the Agreement attached as Exhibit 1B hereto (the “Controlled Affiliate License Agreement Applicable to Regional Medicare Advantage PPO Products”); and e) regional Medicare Part D Prescription Drug Plan products in cooperation with one or more other Plans through jointly-held Controlled Affiliates, provided that each such Controlled Affiliate is separately licensed to use the Licensed Marks and Name under the terms and conditions contained in the Agreement attached as Exhibit 1C hereto (the “Controlled Affiliate License Agreement Applicable to Regional Medicare Part D Prescription Drug Plan Products”). As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner that it is subject to the bona fide control of a Plan or Plans and, if the entity meets the standards of subparagraph B but not subparagraph A of this paragraph, the entity, its owners, and persons with authority to select or appoint members or board members, other than a Plan or Plans, have received written approval of BCBSA. Absent written approval by BCBSA of an alternative method of control, bona fide control with respect to the Controlled Affiliate Licenses authorized in clauses a) through c) of this Paragraph 2 shall mean that a Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant to this License Agreement(s) with BCBSA, other than such Controlled Affiliate’s License Agreement(s), (for purposes of subparagraphs 2.A. and 2.B., the “Controlling Plan(s)”), must have:

Amended as of September 18, 2008

A.

The legal authority, directly or indirectly through wholly-owned subsidiaries: (a) to select members of the Controlled Affiliate’s governing body having more than 50% voting control thereof; (b) to exercise control over the policy and operations of the Controlled Affiliate; (c) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not concur. In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries shall own more than 50% of any for-profit Controlled Affiliate; or

B.

The legal authority directly or indirectly through wholly-owned subsidiaries (a) to select members of the Controlled Affiliate’s governing body having not less than 50% voting control thereof; (b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not concur; (c) to exercise control over the policy and operations of the Controlled Affiliate at least equal to that exercised by persons or entities (jointly or individually) other than the Controlling Plan(s). Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval by the Controlling Plan(s) before the Controlled Affiliate can:

1. Change its legal and/or trade name;

2. Change the geographic area in which it operates;

3. Change any of the types of businesses in which it engages;

4. Create, or become liable for by way of guarantee, any indebtedness, other than indebtedness arising in the ordinary course of business;

5. Sell any assets, except for sales in the ordinary course of business or sales of equipment no longer useful or being replaced;

6. Make any loans or advances except in the ordinary course of business;

7. Enter into any arrangement or agreement with any party directly or indirectly affiliated with any of the owners of the Controlled Affiliate or persons or entities with the authority to select or appoint members or board members of the Controlled Affiliate, other than the Plan or Plans (excluding owners of stock holdings of under 5% in a publicly traded Controlled Affiliate);

8. Conduct any business other than under the Licensed Marks and Name;

     Amended as of June 11, 1998

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9. Take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks or Names.

In addition, a Plan or Plans directly or indirectly through wholly owned subsidiaries shall own at least 50% of any for-profit Controlled Affiliate. With respect to the Controlled Affiliate License Agreements authorized in clauses d) and e) of this Paragraph 2, and absent written approval by BCBSA of an alternative method of control, bona fide control shall mean that the Controlled Affiliate is organized and operated in such a manner that it meets the following requirements:

C.	The Controlled Affiliate is owned or controlled by two or more Plans authorized to use the Licensed Marks pursuant to this License Agreement with BCBSA (for purposes of this subparagraph 2.C. through subparagraph 2.E., the “Controlling Plans”);
D.	Each Controlling Plan is authorized pursuant to this Agreement to use the Licensed Marks in a geographic area in the Region (as that term is defined in such Controlled Affiliate License Agreements) and every geographic area in the Region is so licensed to at least one of the Controlling Plans; and
E.	The Controlling Plans must have the legal authority directly or indirectly through wholly-owned subsidiaries (a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control thereof; (b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plans do not concur; and (c) to exercise control over the policy and operations of the Controlled Affiliate. Notwithstanding anything to the contrary in (a) through (c) of this subparagraph E., the Controlled Affiliate’s establishing or governing documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:

1.	Change its legal and/or trade names;
2.	Change the geographic area in which it operates (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);

Amended as of March 17, 2005

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3.	Change any of the type(s) of businesses in which it engages (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
4.	Take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks and Name.

In addition, the Controlling Plans directly or indirectly through wholly- owned subsidiaries shall own 100% of any for-profit Controlled Affiliate.

     3. The Plan may engage in activities not required by BCBSA to be directly licensed through Controlled Affiliates and may indicate its relationship thereto by use of the Licensed Name as a tag line, provided that the engaging in such activities does not and will not dilute or tarnish the unique value of the Licensed Marks and Name and further provided that such tag line use is not in a manner likely to cause confusion or mistake. Consistent with the avoidance of confusion or mistake, each tag line use of the Plan’s Licensed Name: (a) shall be in the style and manner specified by BCBSA from time-to-time; (b) shall not include the design service marks; (c) shall not be in a manner to import more than the Plan’s mere ownership of the Controlled Affiliate; and (d) shall be restricted to the Service Area. No rights are hereby created in any Controlled Affiliate to use the Licensed Name in its own name or otherwise. At least annually, the Plan shall provide BCBSA with representative samples of each such use of its Licensed Name pursuant to the foregoing conditions.

     4. The Plan recognizes the importance of a comprehensive national network of independent BCBSA licensees which are committed to strengthening the Licensed Marks and Name. The Plan further recognizes that its actions within its Service Area may affect the value of the Licensed Marks and Name nationwide. The Plan agrees (a) to maintain in good standing its membership in BCBSA; (b) promptly to pay its dues to BCBSA, said dues to represent the royalties for this License Agreement; (c) materially to comply with all applicable laws; (d) to comply with the Membership Standards Applicable to Regular Members of BCBSA, a current copy of which is attached as Exhibit 2 hereto; and (e) reasonably to permit BCBSA, upon a written, good faith request and during reasonable business hours, to inspect the Plan’s books and records necessary to ascertain compliance herewith. As to other Plans and third parties, BCBSA shall maintain the confidentiality of all documents and information furnished by the Plan pursuant hereto, or pursuant to the Membership Standards, and clearly designated by the Plan as containing proprietary information of the Plan.

Amended as of March 17, 2005

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     5. The rights hereby granted are exclusive to the Plan within the geographical area(s) served by the Plan on June 30, 1972, and/or as to which the Plan has been granted a subsequent license, which is hereby defined as the “Service Area,” except that BCBSA reserves the right to use the Licensed Marks in said Service Area, and except to the extent that said Service Area may overlap areas served by one or more other licensed Blue Shield Plans as of said date or subsequent license, as to which overlapping areas the rights hereby granted are nonexclusive as to such other Plan or Plans only.

     6. Except as expressly provided by BCBSA with respect to National Accounts, Government Programs and certain other necessary and collateral uses, the current rules and regulations governing which are attached as Exhibit 3 and Exhibit 4 hereto, and are contained in other documents referenced herein, or as expressly provided herein, the Plan may not use the Licensed Marks and Name outside the Service Area or in connection with other goods and services, nor may the Plan use the Licensed Marks or Name in a manner which is intended to transfer in the Service Area the goodwill associated therewith to another mark or name. Nothing herein shall be construed to prevent the Plan from engaging in lawful activity anywhere under other marks and names not confusingly similar to the Licensed Marks and Name, provided that engaging in such activity does and will not dilute or tarnish the unique value of the Licensed Marks and Name. In addition to any and all remedies available hereunder, BCBSA may impose monetary fines on the Plan for the Plan’s use of the Licensed Marks and Names outside the Service Area, and provided that the procedure used in imposing a fine is consistent with procedures specifically prescribed by BCBSA from time to time in regulations of general application. In the case of regional Medicare Advantage PPO and regional Medicare Part D Prescription Drug Plan products offered by consenting and participating Plans in a region that includes the Service Areas, or portions thereof, of more than one Plan, such fine may be imposed jointly on the consenting and participating Plans for use of the Licensed Marks and Name in any geographic area of the region in which a Plan having exclusive rights to the Licensed Marks and Name does not consent to and participate in such offering, provided that the basis for imposition of such fine is consistent with rules specifically prescribed by BCBSA from time to time in regulations of general application.

     7. The Plan agrees that it will display the Licensed Marks and Name only in such form, style and manner as shall be specifically prescribed by BCBSA from time-to-time in regulations of general application in order to prevent impairment of the distinctiveness of the Licensed Marks and Name and the goodwill pertaining thereto. The Plan shall cause to appear on all materials on or in connection with which the Licensed Marks or Name are used such legends, markings and notices as BCBSA may reasonably request in order to give appropriate notice of service mark or other proprietary rights therein or pertaining thereto.

Amended as of November 16, 2006

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     8. BCBSA agrees that: (a) it will not grant any other license effective during the term of this License Agreement for the use of the Licensed Marks or Name which is inconsistent with the rights granted to the Plan hereunder; and (b) it will not itself use the Licensed Marks in derogation of the rights of the Plan or in a manner to deprive the Plan of the full benefits of this License Agreement, provided that BCBSA shall have the right to use the Licensed Marks in conjunction with any national offering under the Federal Employees Health Benefits Program in the manner set forth in Exhibit 4, Paragraph 4 (including subparagraphs) to this License Agreement. The Plan agrees that it will not attack the title of BCBSA in and to the Licensed Marks or Name or attack the validity of the Licensed Marks or of this License Agreement. The Plan further agrees that all use by it of the Licensed Marks and Name or any similar mark or name shall inure to the benefit of BCBSA, and the Plan shall cooperate with BCBSA in effectuating the assignment to BCBSA of any service mark or trademark registrations of the Licensed Marks or any similar mark or name held by the Plan or a Controlled Affiliate of the Plan, all or any portion of which registration consists of the Licensed Marks.

     9. (a). Should the Plan fail to comply with the provisions of paragraphs 2-4, 6, 7 and/or 12, and not cure such failure within thirty (30) days of receiving written notice thereof (or commence curing such failure within such thirty day period and continue diligent efforts to complete the curing of such failure if such curing cannot reasonably be completed within such thirty day period), BCBSA shall have the right to issue a notice that the Plan is in a state of noncompliance. Except as to the termination of a Plan’s License Agreement or the merger of two or more Plans, disputes as to noncompliance, and all other disputes between or among BCBSA, the Plan, other Plans and/or Controlled Affiliates, shall be submitted promptly to mediation and mandatory dispute resolution pursuant to the rules and regulations of BCBSA, a current copy of which is attached as Exhibit 5 hereto, and shall be timely presented and resolved. The mandatory dispute resolution panel shall have authority to issue orders for specific performance and assess monetary penalties. If a state of noncompliance as aforesaid is undisputed by the Plan or is found to exist by a mandatory dispute resolution panel and is uncured as provided above, BCBSA shall have the right to seek judicial enforcement of the License Agreement. Except, however, as provided in paragraphs 9(d)(iii), 15(a)(i)-(viii), and 15(a)(x) below, no Plan’s license to use the Licensed Marks and Name may be finally terminated for any reason without the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans.

Amended as of March 16, 2006

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          (b). Notwithstanding any other provision of this License Agreement, a Plan’s license to use the Licensed Marks and Name may be forthwith terminated by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans at a special meeting expressly called by BCBSA for the purpose on ten (10) days written notice to the Plan advising of the specific matters at issue and granting the Plan an opportunity to be heard and to present its response to Member Plans for: (i) failure to comply with any minimum capital or liquidity requirement under the Membership Standard on Financial Responsibility; or (ii) impending financial insolvency; or (iii) the pendency of any action instituted against the Plan seeking its dissolution or liquidation or its assets or seeking appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business or seeking the declaration or establishment of a trust for any of its property of business, unless this License Agreement has been earlier terminated under paragraph 15(a); or (iv) such other reason as is determined in good faith immediately and irreparably to threaten the integrity and reputation of BCBSA, the Plans and/or the Licensed Marks.

          (c). To the extent not otherwise provided therein, neither: (i) the Membership Standards Applicable to Regular Members of BCBSA; nor (ii) the rules and regulations governing Government Programs and certain other uses; nor (iii) the rules and regulations governing mediation and mandatory dispute resolution, may be amended unless and until each such amendment is first adopted by the affirmative vote of three-fourths of the Plans and of three-fourths of the total then current weighted vote of all the Plans. The rules and regulations governing National Accounts and other national programs required by the Membership Standards Applicable to Regular Members of BCBSA (Exhibit 2) are contained, in addition to those set forth in Exhibit 3, in the following documents, as amended from time to time: (1) the Transfer Program Policies and Provisions; (2) the Inter-Plan Programs Policies and Provisions; (3) Inter-Plan Medicare Advantage Program Policies and Provisions. The voting requirements specified in rules and regulations governing such national programs may not be amended unless and until each such amendment is first adopted by the affirmative vote of three-fourths of the Plans and of three-fourths of the total then current weighted vote of all the Plans.

Amended November 15, 2007

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          9. (d). The Plan may operate as a for-profit company on the following conditions:

     (i) The Plan shall discharge all responsibilities which it has to the Association and to other Plans by virtue of this Agreement and the Plan’s membership in BCBSA.

     (ii) The Plan shall not use the licensed Marks and Name, or any derivative thereof, as part of its legal name or any symbol used to identify the Plan in any securities market. The Plan shall use the licensed Marks and Name as part of its trade name within its service area for the sale, marketing and administration of health care and related services in the service area.

     (iii) The Plan’s license to use the Licensed Marks and Name shall automatically terminate effective: (a) thirty days after the Plan knows, or there is an SEC filing indicating that, any Institutional Investor, has become the Beneficial Owner of securities representing 10% or more of the voting power of the Plan (“Excess Institutional Voter”), unless such Excess Institutional Voter shall cease to be an Excess Institutional Voter prior to such automatic termination becoming effective; (b) thirty days after the Plan knows, or there is an SEC filing indicating that, any Noninstitutional Investor has become the Beneficial Owner of securities representing 5% or more of the voting power of the Plan (“Excess Noninstitutional Voter”) unless such Excess Noninstitutional Voter shall cease to be an Excess Noninstitutional Voter prior to such automatic termination becoming effective; (c) thirty days after the Plan knows, or there is an SEC filing indicating that, any Person has become the Beneficial Owner of 20% or more of the Plan’s then outstanding common stock or other equity securities which (either by themselves or in combination) represent an ownership interest of 20% or more pursuant to determinations made under paragraph 9(d)(iv) below (“Excess Owner”), unless such Excess Owner shall cease to be an Excess Owner prior to such automatic termination becoming effective; (d) ten business days after individuals who at the time the Plan went public constituted the Board of Directors of the Plan (together with any new directors whose election to the Board was approved by a vote of 2/3 of the directors then still in office who were directors at the time the Plan went public or whose election or nomination was previously so approved) (the “Continuing Directors”) cease for any reason to constitute a majority of the Board of Directors; or (e) ten business days after the Plan consolidates with or merges with or into any person or conveys, assigns, transfers or sells all or substantially all of its assets to any person other than a merger in which the Plan is the surviving entity and immediately after which merger, no person is an Excess Institutional Voter, an Excess Noninstitutional Voter or an Excess Owner: provided that, if requested by the affected Plan in a writing received by BCBSA prior to such automatic termination becoming effective, the provisions of this paragraph 9(d)(iii) may be waived, in whole or in part,

Amended as of September 17, 1997

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upon the affirmative vote of a majority of the disinterested Plans and a majority of the total then current weighted vote of the disinterested Plans. Any waiver so granted may be conditioned upon such additional requirements (including but not limited to imposing new and independent grounds for termination of this License) as shall be approved by the affirmative vote of a majority of the disinterested Plans and a majority of the total then current weighted vote of the disinterested Plans. If a timely waiver request is received, no automatic termination shall become effective until the later of: (1) the conclusion of the applicable time period specified in paragraphs 9(d)(iii)(a)-(d) above, or (2) the conclusion of the first Member Plan meeting after receipt of such a waiver request.

In the event that the Plan’s license to use the Licensed Marks and Name is terminated pursuant to this Paragraph 9(d)(iii), the license may be reinstated in BCBSA’s sole discretion if, within 30 days of the date of such termination, the Plan demonstrates that the Person referred to in clause (a), (b) or (c) of the preceding paragraph is no longer an Excess Institutional Voter, an Excess Noninstitutional Voter or an Excess Owner.

     (iv) The Plan shall not issue any class or series of security other than (i) shares of common stock having identical terms or options or derivatives of such common stock, (ii) non-voting, non-convertible debt securities or (iii) such other securities as the Plan may approve, provided that BCBSA receives notice at least thirty days prior to the issuance of such securities, including a description of the terms for such securities, and BCBSA shall have the authority to determine how such other securities will be counted in determining whether any Person is an Excess Institutional Voter, Excess Noninstitutional Voter or an Excess Owner.

     (v) For purposes of paragraph 9(d)(iii), the following definitions shall apply:

     (a) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended and in effect on November 17, 1993 (the “Exchange Act”).

     (b) A Person shall be deemed the “Beneficial Owner” of and shall be deemed to “beneficially own” any securities:

          (i) which such Person or any of such Person’s Affiliates or Associates beneficially owns, directly or indirectly;

Amended as of September 17, 1997

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          (ii) which such Person or any of such Person’s Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or

          (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person’s Affiliates or Associates) has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) relating to the acquisition, holding, voting (except to the extent contemplated by the proviso to (b)(ii)(B) above) or disposing of any securities of the Plan.

Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase “then outstanding,” when used with reference to a Person’s Beneficial Ownership of securities of the Plan, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder.

     (c) A Person shall be deemed an “Institutional Investor” if (but only if) such Person (i) is an entity or group identified in the SEC’s Rule 13d-1(b)(1)(ii) as constituted on June 1, 1997, and (ii) every filing made by such Person with the SEC under Regulation 13D-G (or any successor Regulation) with respect to such Person’s Beneficial Ownership of Plan securities shall have contained a certification identical to the one required by item 10 of SEC Schedule 13G as constituted on June 1, 1997.

     (d) “Noninstitutional Investor” means any Person who is not an Institutional Investor.

     (e) “Person” shall mean any individual, firm, partnership, corporation, trust, association, joint venture or other entity, and shall include any successor (by merger or otherwise) of such entity.

Amended as of September 17, 1997

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     10. This License Agreement shall remain in effect: (a) until terminated as provided herein; or (b) until this and all such other License Agreements are terminated by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans; (c) until terminated by the Plan upon eighteen (18) months written notice to BCBSA or upon a shorter notice period approved by BCBSA in writing at its sole discretion.

     11. Except as otherwise provided in paragraph 15 below or by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans, or unless this and all such other License Agreements are simultaneously terminated by force of law, the termination of this License Agreement for any reason whatsoever shall cause the reversion to BCBSA of all rights in and to the Licensed Marks and Name, and the Plan agrees that it will promptly discontinue all use of the Licensed Marks and Name, will not use them thereafter, and will promptly, upon written notice from BCBSA, change its corporate name so as to eliminate the Licensed Name therefrom.

     12. The license hereby granted to Plan to use the Licensed Marks and Name is and shall be personal to the Plan so licensed and shall not be assignable by any act of the Plan, directly or indirectly, without the written consent of BCBSA. Said license shall not be assignable by operation of law, nor shall Plan mortgage or part with possession or control of this license or any right hereunder, and the Plan shall have no right to grant any sublicense to use the Licensed Marks and Name.

     13. BCBSA shall maintain appropriate service mark registrations of the Licensed Marks and BCBSA shall take such lawful steps and proceedings as may be necessary or proper to prevent use of the Licensed Marks by any person who is not authorized to use the same. Any actions or proceedings undertaken by BCBSA under the provisions of this paragraph shall be at BCBSA’s sole cost and expense. BCBSA shall have the sole right to determine whether or not any legal action shall be taken on account of unauthorized use of the Licensed Marks, such right not to be unreasonably exercised. The Plan shall report any unlawful usage of the Licensed Marks to BCBSA in writing and agrees, free of charge, to cooperate fully with BCBSA’s program of enforcing and protecting the service mark rights, trade name rights and other rights in the Licensed Marks.

     14. The Plan hereby agrees to save, defend, indemnify and hold BCBSA and any other Plan(s) harmless from and against all claims, damages, liabilities and costs of every kind, nature and description which may arise exclusively and directly as a result of the activities of the Plan. BCBSA hereby agrees to save, defend, indemnify and hold the Plan and any other Plan(s) harmless from and against all claims, damages, liabilities and costs of every kind, nature and description which may arise exclusively and directly as a result of the activities of BCBSA.

Amended as of June 16, 2005

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     15. (a). This Agreement shall automatically terminate upon the occurrence of any of the following events: (i) a voluntary petition shall be filed by the Plan or by BCBSA seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief, or (ii) an involuntary petition or proceeding shall be filed against the Plan or BCBSA seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief and such petition or proceeding is consented to or acquiesced in by the Plan or BCBSA or is not dismissed within sixty (60) days of the date upon which the petition or other document commencing the proceeding is served upon the Plan or BCBSA respectively, or (iii) an order for relief is entered against the Plan or BCBSA in any case under the bankruptcy laws of the United States, or the Plan or BCBSA is adjudged bankrupt or insolvent (as that term is defined in the Uniform Commercial Code as enacted in the state of Illinois) by any court of competent jurisdiction, or (iv) the Plan or BCBSA makes a general assignment of its assets for the benefit of creditors, or (v) any government or any government official, office, agency, branch, or unit assumes control of the Plan or delinquency proceedings (voluntary or involuntary) are instituted, or (vi) an action is brought by the Plan or BCBSA seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business, or (vii) an action is instituted by any governmental entity or officer against the Plan or BCBSA seeking its dissolution or liquidation of its assets or seeking appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business and such action is consented to or acquiesced in by the Plan or BCBSA or is not dismissed within one hundred thirty (130) days of the date upon which the pleading or other document commencing the action is served upon the Plan or BCBSA respectively, provided that if the action is stayed or its prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the stay or injunction, and provided further, that the Association’s Board of Directors may toll or extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or other custodian for any of the Plan’s or BCBSA’s property or business is appointed, or the Plan or BCBSA is ordered dissolved or liquidated, or (ix) the Plan shall fail to pay its dues and shall not cure such failure within thirty (30) days of receiving written notice thereof, or (x) if, due to regulatory action, the Plan together with any applicable Controlled Affiliate becomes unable to do business using the Names and Marks in any State or portion thereof included in its Service Area, provided that: (i) automatic termination shall not occur prior to the exhaustion by any such Plan of its rights to appeal or challenge such regulatory action; and (ii) in the event the Plan is licensed to do business using the Names and Marks in multiple States or portions of States, the termination of its License Agreement shall be solely limited to the State(s) or portions thereof in which the regulatory action applies. By not appealing or challenging such regulatory action within the time prescribed by law or regulation, and in any event no later than 120 days after such action is taken, a Plan shall be deemed to have exhausted its rights to appeal or challenge, and automatic termination shall proceed.

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Notwithstanding any other provision of this Agreement, a declaration or a request for declaration of the existence of a trust over any of the Plan’s or BCBSA’s property or business shall not in itself be deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other custodian for purposes of subparagraphs 15(a)(vii) and (viii) of this Agreement.

Amended as of September 14, 2004

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     (b). BCBSA, or the Plans (as provided and in addition to the rights conferred in Paragraph 10(b) above), may terminate this Agreement immediately upon written notice upon the occurrence of either of the following events: (a) the Plan or BCBSA becomes insolvent (as that term is defined in the Uniform Commercial Code enacted in the state of Illinois), or (b) any final judgment against the Plan or BCBSA remains unsatisfied or unbonded of record for a period of sixty (60) days or longer.

     (c). If this License Agreement is terminated as to BCBSA for any reason stated in subparagraphs 15(a) and (b) above, the ownership of the Licensed Marks shall revert to each of the Plans.

     (d). Upon termination of this License Agreement or any Controlled Affiliate License Agreement of a Larger Controlled Affiliate, as defined in Exhibit 1 to this License Agreement, the following conditions shall apply, except that, in the event of a partial termination of this Agreement pursuant to Paragraph 15 (a)(x)(ii) of this Agreement, the notices, national account listing, payment and audit right listed below shall be applicable solely with respect to the geographic area for which the Plan’s license to use the Licensed Names and Marks is terminated:

(i)

The terminated entity shall send a notice through the U.S. mails, with first class postage affixed, to all individual and group customers, providers, brokers and agents of products or services sold, marketed, underwritten or administered by the terminated entity or its Controlled Affiliates under the Licensed Marks and Name. The form and content of the notice shall be specified by BCBSA and shall, at a minimum, notify the recipient of the termination of the license, the consequences thereof, and instructions for obtaining alternate products or services licensed by BCBSA, subject to any conflicting state law and state regulatory requirements. This notice shall be mailed within 15 days after termination or, if termination is pursuant to paragraph 10(c) of this Agreement, within 15 days after the written notice to BCBSA described in paragraph 10(c).

(ii)

The terminated entity shall deliver to BCBSA within five days of a request by BCBSA a listing of national accounts in which the terminated entity is involved (in a Control, Participating or Servicing capacity), identifying the national account and the terminated entity’s role therein. For those accounts where the terminated entity is the Control Plan, the Plan must also indicate the Participating and Servicing Plans in the national account syndicate.

Amended as of June 16, 2005

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(iii) Unless the cause of termination is an event stated in paragraph 15(a) or (b) above respecting BCBSA, the Plan and its Licensed Controlled Affiliates shall be jointly liable for payment to BCBSA of an amount equal to the Re-Establishment Fee (described below) multiplied by the number of Licensed Enrollees of the terminated entity and its Licensed Controlled Affiliates; provided that if any other Plan is permitted by BCBSA to use marks or names licensed by BCBSA in the Service Area established by this Agreement, the Re-Establishment Fee shall be multiplied by a fraction, the numerator of which is the number of Licensed Enrollees of the terminated entity and its Licensed Controlled Affiliates and the denominator of which is the total number of Licensed Enrollees in the Service Area. The Re-Establishment Fee shall be indexed to a base fee of $80. The Re-Establishment Fee through December 31, 2005 shall be $80. The Re-Establishment Fee for calendar years after December 31, 2005 shall be adjusted on January 1 of each calendar year up to and including January 1, 2010 and shall be the base fee multiplied by 100% plus the cumulative percentage increase or decrease in the Plans’ gross administrative expense (standard BCBSA definition) per Licensed Enrollee since December 31, 2004. The adjustment shall end on January 1, 2011, at which time the Re-Establishment Fee shall be fixed at the then-current amount and no longer automatically adjusted. For example, if the Plans’ gross administrative expense per Licensed Enrollee was $278.60, $285.00 and $290.00 for calendar year end 2004, 2005 and 2006, respectively, the January 1, 2007 Re-Establishment Fee would be $83.27 (100% of the base fee plus $1.84 for calendar year 2005 and $1.43 for calendar year 2006). Licensed Enrollee means each and every person and covered dependent who is enrolled as an individual or member of a group receiving products or services sold, marketed or administered under marks or names licensed by BCBSA as determined at the earlier of (a) the end of the last fiscal year of the terminated entity which ended prior to termination or (b) the fiscal year which ended before any transactions causing the termination began. Notwithstanding the foregoing, the amount payable pursuant to this subparagraph (d)(iii) shall be due only

Amended as of June 16, 2005

-8a-

to the extent that, in BCBSA’s opinion, it does not cause the net worth of the Plan to fall below 100% of the Health Risk-Based Capital formula or its equivalent under any successor formula, as set forth in the applicable financial responsibility standards established by BCBSA (provided such equivalent is approved for purposes of this sub paragraph by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans), measured as of the date of termination and adjusted for the value of any transactions not made in the ordinary course of business. This payment shall not be due in connection with transactions exclusively by or among Plan or their affiliates, including reorganizations, combinations or mergers, where the BCBSA Board of Directors determines that the license termination does not result in a material diminution in the number of Licensed Enrollees or the extent of their coverage. At least 50% of the Re-Establishment Fee shall be awarded to the Plan (or Plans) that receive the new license(s) for the service area(s) at issue; provided, however, that such award shall not become due or payable until all disputes, if any, regarding the amount of and BCBSA’s right to such Re-Establishment Fee have been finally resolved; and provided further that the award shall be based on the final amount actually received by BCBSA. The Board of Directors shall adopt a resolution which it may amend from time to time that shall govern BCBSA’s use of its portion of the award. In the event that the terminated entity’s license is reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdicition, BCBSA shall reimburse the Plan (and/or its Licensed Controlled Affiliates, as the case may be) for payments made under this subparagraph only to the extent that such payments exceed the amounts due to BCBSA pursuant to subparagraph 15(d)(vi) and any costs associated with reestablishing the Service Area, including any payments made by BCBSA to a Plan or Plans (or their Licensed Controlled Affiliates) for purposes of replacing the terminated entity.

(iv)

The terminated entity shall comply with all financial settlement procedures set forth in BCBSA’s License Termination Contingency Plan, as amended from time

Amended as of June 16, 2005

-8b-

to time and shall work diligently and in good faith with BCBSA, any Alternative Control Licensee or Replacement Licensee and any existing or potential new account for Blue-branded products and services to minimize the disruption of termination, and honor, to the fullest extent possible, the desire of accounts to continue to receive or obtain Blue-branded products and services through a new Licensee (“Transition”). Such diligence and good faith on the part of the terminated entity shall include, but not be limited to: (a) working cooperatively with BCBSA to protect the Names and Marks from potential harm; (b) cooperating with BCBSA’s use of the Names and Marks in the terminated entity’s former service area during the termination and Transition; (c) transmitting, upon the request of an existing Blue account or of BCBSA with consent and on behalf of an existing Blue account, all member and account-data relating to the Federal Employee Program to BCBSA, and all member and account data relating to other programs to an Alternative Control Licensee or Replacement Licensee; (d) working with BCBSA and the Alternative Control or Replacement Licensee with respect to potential new Blue accounts headquartered in the terminated entity’s former service area; (e) continuing to service Blue accounts during the Transition; (f) continuing to comply with National Programs, Federal Employee Program and NASCO policies and procedures and all voluntary BCBSA programs, policies and performance standards, such as Away From Home Care, including being responsible for payment of all penalties for non-compliance duly levied in conformity with the License Agreements, Membership Standards, or the Federal Employee Program agreements, that may arise during the Transition; (g) maintaining and providing access to its provider networks, as defined by Federal Employee Program agreements and National Account Program Policies and Provisions, and Inter-Plan Programs Policies and Provisions, and making those networks and discounts available to members and providers who participate in National Programs and the Federal Employee Program during the Transition; (h) maintaining its technical connections and processing capabilities during the Transition; and (i) working diligently to conclude all financial settlements and account reconciliations as negotiated in the termination transition agreement.

Amended as of November 16, 2006

-8c-

(v)	Notwithstanding any other provision in this Agreement, BCBSA shall have the right, with the approval of its Board of Directors, to assess additional fines against the terminated entity during the Transition in the event it fails to maintain and provide access to provider networks as defined by Federal Employee Program agreements, National Account Program Policies and Provisons, and Inter-Plans Programs Policies and Provisions, and/or pass on applicable discounts. Such fines shall be in addition to any other assessments, fees or liquidated damages payable herein, or under existing policies and programs and shall be imposed to make whole BCBSA and/or the Plans. Terminated entity shall pay any such fines to BCBSA no later than 30 days after they are approved by the Board of Directors.
(vi)	BCBSA shall have the right to examine and audit and/or hire at terminated entity’s expense a third-party auditor to examine and audit the books and records of the terminated entity and its Licensed Controlled Affiliates to verify compliance with the terms and requirements of this paragraph 15(d).
(vii)	Subsequent to termination of this Agreement, the terminated entity and its affiliates, agents, and employees shall have an ongoing and continuing obligation to protect all BCBSA and Blue Licensee data that was acquired or accessed during the period this Agreement was in force, including but not limited to all confidential processes, pricing, provider, discount and other strategic and competitively sensitive information (“Blue Information”) from disclosure, and shall not, either alone or with another entity, disclose such Blue Information or use it in any manner to compete without the express written permission of BCBSA.
(viii)	As to a breach of 15 (d) (i), (ii), (iii), (iv), (vi), or (vii) the parties agree that the obligations are immediately enforceable in a court of competent jurisdiction. As to a breach of 15 (d) (i), (ii), (iv), (vi), or (vii) by the Plan, the parties agree there is no adequate remedy at law and BCBSA is entitled to obtain specific performance.

Amended as of November 16, 2006

-8d-

(ix) In the event that the terminated entity’s license is reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdiction, the Plan and its Licensed Controlled Affiliates shall be jointly liable for reimbursing BCBSA the reasonable costs incurred by BCBSA in connection with the termination and the reinstatement or court action, and any associated legal proceedings, including but not limited to: outside legal fees, consulting fees, public relations fees, advertising costs, and costs incurred to develop, lease or establish an interim provider network. Any amount due to BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of Directors in its sole discretion.

     (e). BCBSA shall be entitled to enjoin the Plan or any related party in a court of competent jurisdiction from entry into any transaction which would result in a termination of this License Agreement unless the License Agreement has been terminated pursuant to paragraph 10 (d) of this Agreement upon the required six (6) month written notice.

     (f). BCBSA acknowledges that it is not the owner of assets of the Plan.

Amended as of June 16, 2005

-8e-

     16. This Agreement supersedes any and all other agreements between the parties with respect to the subject matter herein, and contains all of the covenants and agreements of the parties as to the licensing of the Licensed Marks and Name. This Agreement may be amended only by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.

     17. If any provision or any part of any provision of this Agreement is judicially declared unlawful, each and every other provision, or any part of any provision, shall continue in full force and effect notwithstanding such judicial declaration.

     18. No waiver by BCBSA or the Plan of any breach or default in performance on the part of BCBSA or the Plan or any other licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent breach or default in performance of said terms, covenants or conditions.

     19a. All notices provided for hereunder shall be in writing and shall be sent in duplicate by regular mail to BCBSA or the Plan at the address currently published for each by BCBSA and shall be marked respectively to the attention of the President and, if any, the General Counsel, of BCBSA or the Plan.

Amended as of November 20, 1997

-8f-

     19b. Except as provided in paragraphs 9(b), 9(d)(iii), 15(a), and 15(b) above, this Agreement may be terminated for a breach only upon at least 30 days’ written notice to the Plan advising of the specific matters at issue and granting the Plan an opportunity to be heard and to present its response to the Member Plans.

     19c. For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest whole number, with 0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-nine (39) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in favor of the question.

Amended as of June 16, 2005

(The next page is page 9)

-8g-

     20. Nothing herein contained shall be construed to constitute the parties hereto as partners or joint venturers, or either as the agent of the other, and Plan shall have no right to bind or obligate BCBSA in any way, nor shall it represent that it has any right to do so. BCBSA shall have no liability to third parties with respect to any aspect of the business, activities, operations, products, or services of the Plan.

     21. This Agreement shall be governed, construed and interpreted in accordance with the laws of the State of Illinois.

IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed, effective as of the date of last signature written below.

BLUE CROSS AND BLUE SHIELD ASSOCIATION

By

Title

Date

The Plan:

By

Title

Date

-9-

EXHIBIT 1

BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
(Includes revisions adopted by Member Plans through their November 13, 2008 meeting)

     This Agreement by and among Blue Cross and Blue Shield Association (“BCBSA”) and                      (“Controlled Affiliate”), a Controlled Affiliate of the Blue Shield Plan(s), known as                      (“Plan”), which is also a Party signatory hereto.

     WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;

     WHEREAS, Plan and Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design service marks (collectively the “Licensed Marks”) as service marks and be entitled to use the term BLUE SHIELD in a trade name (“Licensed Name”);

     NOW THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

     1. GRANT OF LICENSE

     Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled Affiliate the right to use the Licensed Marks and Name in connection with, and only in connection with: (i) health care plans and related services, as defined in BCBSA’s License Agreement with Plan, and administering the non-health portion of workers’ compensation insurance, and (ii) underwriting the indemnity portion of workers’ compensation insurance, provided that Controlled Affiliate’s total premium revenue comprises less than 15 percent of the sponsoring Plan’s net subscription revenue.

This grant of rights is non-exclusive and is limited to the Service Area served by the Plan. Controlled Affiliate may use the Licensed Marks and Name in its legal name on the following conditions: (i) the legal name must be approved in advance, in writing, by BCBSA; (ii) Controlled Affiliate shall not do business outside the Service Area under any name or mark; and (iii) Controlled Affiliate shall not use the Licensed Marks and Name, or any derivative thereof, as part of any name or symbol used to identify itself in any securities market. Controlled Affiliate may use the Licensed Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.

     2. QUALITY CONTROL

     A. Controlled Affiliate agrees to use the Licensed Marks and Name only in connection with the licensed services and further agrees to be bound by the conditions regarding quality control shown in attached Exhibit A as they may be amended by BCBSA from time-to-time.

Amended as of November 16, 2000

     B. Controlled Affiliate agrees to comply with all applicable federal, state and local laws.

     C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by Plan or by BCBSA) a report or reports to Plan and BCBSA demonstrating Controlled Affiliate’s compliance with the requirements of this Agreement including but not limited to the quality control provisions of this paragraph and the attached Exhibit A.

     D. Controlled Affiliate agrees that Plan and/or BCBSA may, from time-to-time, upon reasonable notice, review and inspect the manner and method of Controlled Affiliate’s rendering of service and use of the Licensed Marks and Name.

     E. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner, that it meets the following requirements:

(1) A Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), must have the legal authority directly or indirectly through wholly-owned subsidiaries to select members of the Controlled Affiliate’s governing body having not less than 50% voting control thereof and to:

     (a) prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not concur;

     (b) exercise control over the policy and operations of the Controlled Affiliate at least equal to that exercised by persons or entities (jointly or individually) other than the Controlling Plan(s); and

Notwithstanding anything to the contrary in (a) through (b) hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval by the Controlling Plan(s) before the Controlled Affiliate can:

(i)	change its legal and/or trade names;
(ii)	change the geographic area in which it operates;
(iii)	change any of the type(s) of businesses in which it engages;

2

(iv)	create, or become liable for by way of guarantee, any indebtedness, other than indebtedness arising in the ordinary course of business;
(v)	sell any assets, except for sales in the ordinary course of business or sales of equipment no longer useful or being replaced;
(vi)	make any loans or advances except in the ordinary course of business;
(vii)	enter into any arrangement or agreement with any party directly or indirectly affiliated with any of the owners or persons or entities with the authority to select or appoint members or board members of the Controlled Affiliate, other than the Plan or Plans (excluding owners of stock holdings of under 5% in a publicly traded Controlled Affiliate);
(viii)	conduct any business other than under the Licensed Marks and Name;
(ix)	take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks and Name.

In addition, a Plan or Plans directly or indirectly through wholly owned subsidiaries shall own at least 50% of any for-profit Controlled Affiliate.

Or

(2) A Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority directly or indirectly through wholly-owned subsidiaries to select members of the Controlled Affiliate’s governing body having more than 50% voting control thereof and to:

(a)	prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not concur;
(b)	exercise control over the policy and operations of the Controlled Affiliate.

In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries shall own more than 50% of any for-profit Controlled Affiliate.

3

     3. SERVICE MARK USE

     A. Controlled Affiliate recognizes the importance of a comprehensive national network of independent BCBSA licensees which are committed to strengthening the Licensed Marks and Name. The Controlled Affiliate further recognizes that its actions within its Service Area may affect the value of the Licensed Marks and Name nationwide.

     B. Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks and Name, including but not limited to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks and Name and shall comply with such rules (generally applicable to Controlled Affiliates licensed to use the Licensed Marks and Name) relative to service mark use, as are issued from time-to-time by BCBSA. Controlled Affiliate recognizes and agrees that all use of the Licensed Marks and Name by Controlled Affiliate shall inure to the benefit of BCBSA.

     C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a manner that transfers or is intended to transfer in the Service Area the goodwill associated therewith to another mark or name, nor may Controlled Affiliate engage in activity that may dilute or tarnish the unique value of the Licensed Marks and Name.

     D. If Controlled Affiliate meets the standards of 2E(1) but not 2E(2) above and any of Controlled Affiliate’s advertising or promotional material is reasonably determined by BCBSA and/or the Plan to be in contravention of rules and regulations governing the use of the Licensed Marks and Name, Controlled Affiliate shall for ninety (90) days thereafter obtain prior approval from BCBSA of advertising and promotional efforts using the Licensed Marks and Name, approval or disapproval thereof to be forthcoming within five (5) business days of receipt of same by BCBSA or its designee. In all advertising and promotional efforts, Controlled Affiliate shall observe the Service Area limitations applicable to Plan.

     E. Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this Agreement, Controlled Affiliate shall use its best efforts to promote and build the value of the Licensed Marks and Name.

4

     4. SUBLICENSING AND ASSIGNMENT

     Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate, sell, encumber or mortgage, by operation of law or otherwise, the rights granted hereunder and any such act shall be voidable at the sole option of Plan or BCBSA. This Agreement and all rights and duties hereunder are personal to Controlled Affiliate.

     5. INFRINGEMENT

     Controlled Affiliate shall promptly notify Plan and Plan shall promptly notify BCBSA of any suspected acts of infringement, unfair competition or passing off that may occur in relation to the Licensed Marks and Name. Controlled Affiliate shall not be entitled to require Plan or BCBSA to take any actions or institute any proceedings to prevent infringement, unfair competition or passing off by third parties. Controlled Affiliate agrees to render to Plan and BCBSA, without charge, all reasonable assistance in connection with any matter pertaining to the protection of the Licensed Marks and Name by BCBSA.

     6. LIABILITY INDEMNIFICATION

     Controlled Affiliate and Plan hereby agree to save, defend, indemnify and hold BCBSA harmless from and against all claims, damages, liabilities and costs of every kind, nature and description (except those arising solely as a result of BCBSA’s negligence) that may arise as a result of or related to Controlled Affiliate’s rendering of services under the Licensed Marks and Name.

     7. LICENSE TERM

     A. Except as otherwise provided herein, the license granted by this Agreement shall remain in effect for a period of one (1) year and shall be automatically extended for additional one (1) year periods unless terminated pursuant to the provisions herein.

     B. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further action by any party or entity in the event that: (i) the Plan ceases to be authorized to use the Licensed Marks and Name; or (ii) pursuant to Paragraph 15(a)(x) of the Blue Cross License Agreement the Plan ceases to be authorized to use the Licensed Names and Marks in the geographic area served by the Controlled Affiliate provided, however, that if the Controlled Affiliate is serving more than one State or portions thereof, the termination of this Agreement shall be limited to the State(s) or portions thereof in which the Plan’s license to use the Licensed Marks and Names is terminated. By not appealing or challenging such regulatory action within the time prescribed by law or regulation, and in any event no later than 120 days after such action is taken, a Plan shall be deemed to have exhausted its rights to appeal or challenge, and automatic termination shall proceed.

Amended as of September 14, 2004

5

     C. Notwithstanding any other provision of this Agreement, this license to use the Licensed Marks and Name may be forthwith terminated by the Plan or the affirmative vote of the majority of the Board of Directors of BCBSA present and voting at a special meeting expressly called by BCBSA for the purpose on ten (10) days written notice to the Plan advising of the specific matters at issue and granting the Plan an opportunity to be heard and to present its response to the Board for: (1) failure to comply with any applicable minimum capital or liquidity requirement under the quality control standards of this Agreement; or (2) failure to comply with the “Organization and Governance” quality control standard of this Agreement; or (3) impending financial insolvency; or (4) for a Smaller Controlled Affiliate (as defined in Exhibit A), failure to comply with any of the applicable requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A; or (5) the pendency of any action instituted against the Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business or seeking the declaration or establishment of a trust for any of its property or business, unless this Controlled Affiliate License Agreement has been earlier terminated under paragraph 7(e); or (6) failure by a Controlled Affiliate that meets the standards of 2E(1) but not 2E(2) above to obtain BCBSA’s written consent to a change in the identity of any owner, in the extent of ownership, or in the identity of any person or entity with the authority to select or appoint members or board members, provided that as to publicly traded Controlled Affiliates this provision shall apply only if the change affects a person or entity that owns at least 5% of the Controlled Affiliate’s stock before or after the change; or (7) such other reason as is determined in good faith immediately and irreparably to threaten the integrity and reputation of BCBSA, the Plans, any other licensee including Controlled Affiliate and/or the Licensed Marks and Name.

     D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should Controlled Affiliate fail to comply with the provisions of this Agreement and not cure such failure within thirty (30) days of receiving written notice thereof (or commence a cure within such thirty day period and continue diligent efforts to complete the cure if such curing cannot reasonably be completed within such thirty day period) BCBSA or the Plan shall have the right to issue a notice that the Controlled Affiliate is in a state of noncompliance. If a state of noncompliance as aforesaid is undisputed by the Controlled Affiliate or is found to exist by a mandatory dispute resolution panel and is uncured as provided above, BCBSA shall have the right to seek judicial enforcement of the Agreement or to issue a notice of termination thereof. Notwithstanding any other provisions of this Agreement, any disputes as to the termination of this License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall not be subject to mediation and mandatory dispute resolution. All other disputes between BCBSA, the Plan and/or Controlled Affiliate shall be submitted promptly to mediation and mandatory dispute resolution. The mandatory dispute resolution panel shall have authority to issue orders for specific performance and assess monetary penalties. Except, however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license to use the Licensed Marks and Name may not be finally terminated for any reason without the affirmative vote of a majority of the present and voting members of the Board of Directors of BCBSA.

6

     E. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further action by any party or entity in the event that:

     (1) Controlled Affiliate shall no longer comply with item 2(E) above;

     (2) Appropriate dues, royalties and other payments for Controlled Affiliate pursuant to paragraph 9 hereof, which are the royalties for this License Agreement, are more than sixty (60) days in arrears to BCBSA; or

          (3) Any of the following events occur: (i) a voluntary petition shall be filed by Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief, or (ii) an involuntary petition or proceeding shall be filed against Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief and such petition or proceeding is consented to or acquiesced in by Controlled Affiliate or is not dismissed within sixty (60) days of the date upon which the petition or other document commencing the proceeding is served upon the Controlled Affiliate, or (iii) an order for relief is entered against Controlled Affiliate in any case under the bankruptcy laws of the United States, or Controlled Affiliate is adjudged bankrupt or insolvent as those terms are defined in the Uniform Commercial Code as enacted in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled Affiliate makes a general assignment of its assets for the benefit of creditors, or (v) any government or any government official, office, agency, branch, or unit assumes control of Controlled Affiliate or delinquency proceedings (voluntary or involuntary) are instituted, or (vi) an action is brought by Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business, or (vii) an action is instituted by any governmental entity or officer against Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business and such action is consented to or acquiesced in by Controlled Affiliate or is not dismissed within one hundred thirty (130) days of the date upon which the pleading or other document commencing the action is served upon the Controlled Affiliate, provided that if the action is stayed or its prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the stay or injunction, and provided further, that the Association’s Board of Directors may toll or extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or other custodian for any of Controlled Affiliate’s property or business is appointed or the Controlled Affiliate is ordered dissolved or liquidated. Notwithstanding any other provision of this Agreement, a declaration or a request for declaration of the existence of a trust over any of the Controlled Affiliate’s property or business shall not in itself be deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other custodian for purposes of subparagraphs 7(e)(3)(vii) and (viii) of this Agreement.

Amended as of March 18, 2004

7

     F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall immediately discontinue all use of the Licensed Marks and Name, including any use in its trade name.

     G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of its customers that it is no longer a licensee of BCBSA and, if directed by the Association’s Board of Directors, shall provide instruction on how the customer can contact BCBSA or a designated licensee to obtain further information on securing coverage. The notification required by this paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall have the right to audit the terminated entity’s books and records to verify compliance with this paragraph.

     H. In the event this Agreement terminates pursuant to 7(b) hereof, or in the event the Controlled Affiliate is a Larger Controlled Affiliate (as defined in Exhibit A), upon termination of this Agreement, the provisions of Paragraph 7.G. shall not apply and the following provisions shall apply, except that, in the event of a partial termination of this Agreement pursuant to Paragraph 7(B)(ii) of this Agreement, the notices, national account listing, payment, and audit right listed below shall be applicable solely with respect to the geographic area for which the Plan’s license to use the Licensed Names and Marks is terminated:

     (1) The Controlled Affiliate shall send a notice through the U.S. mails, with first class postage affixed, to all individual and group customers, providers, brokers and agents of products or services sold, marketed, underwritten or administered by the Controlled Affiliate under the Licensed Marks and Name. The form and content of the notice shall be specified by BCBSA and shall, at a minimum, notify the recipient of the termination of the license, the consequences thereof, and instructions for obtaining alternate products or services licensed by BCBSA, subject to any conflicting state law and state regulatory requirements. This notice shall be mailed within 15 days after termination.

     (2) The Controlled Affiliate shall deliver to BCBSA within five days of a request by BCBSA a listing of national accounts in which the Controlled Affiliate is involved (in a control, participating or servicing capacity), identifying the national account and the Controlled Affiliate’s role therein.

     (3) Unless the cause of termination is an event respecting BCBSA stated in paragraph 15(a) or (b) of the Plan’s license agreement with BCBSA to use the Licensed Marks and Name, the Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be jointly liable for payment to BCBSA of an amount equal to the Re-Establishment Fee (described below) multiplied by the number of Licensed Enrollees of the Controlled Affiliate; provided that if any other Plan is permitted by BCBSA to use marks or names licensed by BCBSA in the Service Area established by this Agreement, the Re-Establishment Fee shall be multiplied by a fraction, the numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates and the denominator of which is the total number of Licensed Enrollees in the Service Area.

Amended as of June 16, 2005

8

The Re-Establishment Fee shall be indexed to a base fee of $80. The Re-Establishment Fee through December 31, 2005 shall be $80. The Re-Establishment Fee for calendar years after December 31, 2005 shall be adjusted on January 1 of each calendar year up to and including January 1, 2010 and shall be the base fee multiplied by 100% plus the cumulative percentage increase or decrease in the Plans’ gross administrative expense (standard BCBSA definition) per Licensed Enrollee since December 31, 2004. The adjustment shall end on January 1, 2011, at which time the Re-Establishment Fee shall be fixed at the then-current amount and no longer automatically adjusted. For example, if the Plans’ gross administrative expense per Licensed Enrollee was $278.60, $285.00 and $290.00 for calendar year end 2004, 2005 and 2006, respectively, the January 1, 2007 Re-Establishment Fee would be $83.27 (100% of base fee plus $1.84 for calendar year 2005 and $1.43 for calendar year 2006. Licensed Enrollee means each and every person and covered dependent who is enrolled as an individual or member of a group receiving products or services sold, marketed or administered under marks or names licensed by BCBSA as determined at the earlier of (i) the end of the last fiscal year of the terminated entity which ended prior to termination or (ii) the fiscal year which ended before any transactions causing the termination began. Notwithstanding the foregoing, the amount payable pursuant to this subparagraph H. (3) shall be due only to the extent that, in BCBSA’s opinion, it does not cause the net worth of the Controlled Affiliate, the Plan or any other Licensed Controlled Affiliates of the Plan to fall below 100% of the Health Risk-Based Capital formula, or its equivalent under any successor formula, as set forth in the applicable financial responsibility standards established by BCBSA (provided such equivalent is approved for purposes of this sub paragraph by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans); measured as of the date of termination, and adjusted for the value of any transactions not made in the ordinary course of business. This payment shall not be due in connection with transactions exclusively by or among Plans or their affiliates, including reorganizations, combinations or mergers, where the BCBSA Board of Directors determines that the license termination does not result in a material diminution in the number of Licensed Enrollees or the extent of their coverage. At least 50% of the Re-Establishment Fee shall be awarded to the Plan (or Plans) that receive the new license(s) for the service area(s) at issue; provided, however, that such award shall not become due or payable until all disputes, if any, regarding the amount of and BCBSA’s right to such Re-Establishment Fee have been finally resolved; and provided further that the award shall be based on the final amount actually received by BCBSA. The Board of Directors shall adopt a resolution which it may amend from time to time that shall govern BCBSA’s use of its portion of the award. In the event that the Controlled Affiliate’s license is reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdiction, BCBSA shall reimburse the Controlled Affiliate (and/or the Plan or its other Licensed Controlled Affiliates, as the case may be) for payments made under this subparagraph 7.H.(3) only to the extent that such payments exceed the amounts due to BCBSA pursuant to paragraph 7.M. and any cost associated with reestablishing the Service Area, including any payments made by BCBSA to a Plan or Plans (or their Licensed Controlled Affiliates) for purposes of replacing the Controlled Affiliate.

Amended as June 16, 2005

9

     (4) BCBSA shall have the right to examine and audit and/or hire at terminated entity’s expense a third party auditor to examine and audit the books and records of the Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan to verify compliance with this paragraph 7.H.

     (5) Subsequent to termination of this Agreement, the terminated entity and its affiliates, agents, and employees shall have an ongoing and continuing obligation to protect all BCBSA and Blue Licensee data that was acquired or accessed during the period this Agreement was in force, including but not limited to all confidential processes, pricing, provider, discount and other strategic and competitively sensitive information (“Blue Information”) from disclosure, and shall not, either alone or with another entity, disclose such Blue Information or use it in any manner to compete without the express written permission of BCBSA.

     (6) As to a breach of 7.H.(1), (2), (3), (4) or (5) the parties agree that the obligations are immediately enforceable in a court of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there is no adequate remedy at law and BCBSA is entitled to obtain specific performance.

     I. This Agreement shall remain in effect until terminated by the Controlled Affiliate upon not less than eighteen (18) months written notice to the Association or upon a shorter notice period approved by BCBSA in writing at its sole discretion, or until terminated as otherwise provided herein.

     J. In the event the Controlled Affiliate is a Smaller Controlled Affiliate (as defined in Exhibit A), the Controlled Affiliate agrees to be jointly liable for the amount described in H.3.and M. hereof upon termination of the BCBSA license agreement of any Larger Controlled Affiliate of the Plan.

     K. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court of competent jurisdiction from entry into any transaction which would result in a termination of this Agreement unless the Plan’s license from BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d) of the Plan’s license agreement upon the required 6 month written notice.

     L. BCBSA acknowledges that it is not the owner of assets of the Controlled Affiliate.

     M. In the event that the Plan has more than 50 percent voting control of the Controlled Affiliate under Paragraph 2(E)(2) above and is a Larger Controlled Affiliate (as defined in Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D) above shall require the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans.

Amended as of June 16, 2005

10

     N. In the event this Agreement terminates and is subsequently reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdicition, the Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be jointly liable for reimbursing BCBSA the reasonable costs incurred by BCBSA in connection with the termination and the reinstatement or court action, and any associated legal proceedings, including but not limited to: outside legal fees, consulting fees, public relations fees, advertising costs, and costs incurred to develop, lease or establish an interim provider network. Any amount due to BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of Directors in its sole discretion.

     8. DISPUTE RESOLUTION

     The parties agree that any disputes between them or between or among either of them and one or more Plans or Controlled Affiliates of Plans that use in any manner the Blue Shield and Blue Shield Marks and Name are subject to the Mediation and Mandatory Dispute Resolution process attached to and made a part of Plan’s License from BCBSA to use the Licensed Marks and Name as Exhibit 5 as amended from time-to-time, which documents are incorporated herein by reference as though fully set forth herein.

     9. LICENSE FEE

     Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the formula(s) set forth in Exhibit B.

     10. JOINT VENTURE

     Nothing contained in the Agreement shall be construed as creating a joint venture, partnership, agency or employment relationship between Plan and Controlled Affiliate or between either and BCBSA.

Amended September 20, 2007

11

     11. NOTICES AND CORRESPONDENCE

     Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall be addressed in duplicate to the last known address of each other party, marked respectively to the attention of its President and, if any, its General Counsel.

     12. COMPLETE AGREEMENT

     This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This Agreement may only be amended by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.

     13. SEVERABILITY

     If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such findings shall in no way affect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits of this Agreement.

     14. NONWAIVER

     No waiver by BCBSA of any breach or default in performance on the part of Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent breach or default in performance of said terms, covenants or conditions.

     14A. VOTING

For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest whole number, with 0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-nine (39) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in favor of the question.

Amended as of June 16, 2005

12

THIS PAGE IS INTENTIONALLY BLANK.

13

     15. GOVERNING LAW

     This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Illinois.

     16. HEADINGS

     The headings inserted in this agreement are for convenience only and shall have no bearing on the interpretation hereof.

     IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed and effective as of the date of last signature written below.

Controlled Affiliate:

By:

Date:

Plan:

By:

Date:

BLUE CROSS AND BLUE SHIELD ASSOCIATION

By:

Date:

14

EXHIBIT A

CONTROLLED AFFILIATE LICENSE STANDARDS
November 2008
PREAMBLE

The standards for licensing Controlled Affiliates are established by BCBSA and are subject to change from time-to-time upon the affirmative vote of three-fourths (3/4) of the Plans and three-fourths (3/4) of the total weighted vote. Each licensed Plan is required to use a standard Controlled Affiliate license form provided by BCBSA and to cooperate fully in assuring that the licensed Controlled Affiliate maintains compliance with the license standards.

The Controlled Affiliate License provides a flexible vehicle to accommodate the potential range of health and workers’ compensation related products and services Plan Controlled Affiliates provide. The Controlled Affiliate License collapses former health Controlled Affiliate licenses (HCC, HMO, PPO, TPA, and IDS) into a single license using the following business-based criteria to provide a framework for license standards:

• Percent of Controlled Affiliate controlled by parent: Greater than 50 percent or 50 percent?

• Risk assumption: yes or no?

• Medical care delivery: yes or no?

• Size of the Controlled Affiliate: If the Controlled Affiliate has health or workers’ compensation administration business, does such business constitute 15 percent or more of the parent’s and other licensed health subsidiaries’ member enrollment?

Amended September 19, 2002

15

EXHIBIT A (continued)

For purposes of definition:

• A “smaller Controlled Affiliate:” (1) comprises less than fifteen percent (15%) of Plan’s and its licensed Controlled Affiliates’ total member enrollment (as reported on the BCBSA Quarterly Enrollment Report, excluding rider and freestanding coverage, and treating an entity seeking licensure as licensed);* or (2) underwrites the indemnity portion of workers’ compensation insurance and has total premium revenue less than 15 percent of the sponsoring Plan’s net subscription revenue.

• A “larger Controlled Affiliate” comprises fifteen percent (15%) or more of Plan’s and its licensed Controlled Affiliates’ total member enrollment (as reported on the BCBSA Quarterly Enrollment Report, excluding rider and freestanding coverage, and treating an entity seeking licensure as licensed.)*

Changes in Controlled Affiliate status:

If any Controlled Affiliate’s status changes regarding: its Plan ownership level, its risk acceptance or direct delivery of medical care, the Controlled Affiliate shall notify BCBSA within thirty (30) days of such occurrence in writing and come into compliance with the applicable standards within six (6) months.

If a smaller Controlled Affiliate’s health and workers’ compensation administration business reaches or surpasses fifteen percent (15%) of the total member enrollment of the Plan and licensed Controlled Affiliates, the Controlled Affiliate shall:

Amended September 19, 2002

16

EXHIBIT A (continued)

1.	Within thirty (30) days, notify BCBSA of this fact in writing, including evidence that the Controlled Affiliate meets the minimum liquidity and capital (BCBSA “Health Risk-Based Capital (HRBC)” as defined by the NAIC and state-established minimum reserve) requirements of the larger Controlled Affiliate Financial Responsibility standard; and
2.	Within six (6) months after reaching or surpassing the fifteen percent (15%) threshold, demonstrate compliance with all license requirements for a larger Controlled Affiliate.

If a Controlled Affiliate that underwrites the indemnity portion of workers’ compensation insurance receives a change in rating or proposed change in rating, the Controlled Affiliate shall notify BCBSA within 30 days of notification by the external rating agency.

*For purposes of this calculation,

The numerator equals:

Applicant Controlled Affiliate’s member enrollment, as defined in BCBSA’s Quarterly Enrollment Report (excluding rider and freestanding coverage).

The denominator equals:

Numerator PLUS Plan and all other licensed Controlled Affiliates’ member enrollment, as reported in BCBSA’s Quarterly Enrollment Report (excluding rider and freestanding coverage).

Amended September 19, 2002

17

EXHIBIT A (continued) STANDARDS FOR LICENSED CONTROLLED AFFILIATES As described in Preamble section of Exhibit A to the Affiliate License Agreement, each controlled affiliate seeking licensure must answer four questions. Depending on the controlled affiliate’s answers, certain standards apply:
1. What percent of the controlled affiliate is controlled by the parent Plan? More than 50% 50% 100% and Primary Business is Government Standard 1A, 4 Standard 1B, 4 Non-Risk Standard 4*,10A Standard 1B, 4 * Applicable only if using the names and marks. IN ADDITION, 2. Is risk being assumed?

Yes            No Controlled            Controlled            Controlled            Cont rolled            Controlled            Controlled Affiliate            Affiliate comprises            Affiliate comprises            Affiliate comprises            Affiliate comprises            Affiliate’s Primary underwrites any < 15% of total > 15% of total < 15% of total > 15% of total            Business is indemnity portion            member enrollment            member enrollment            member enrollment            member enrollment            Government Non-Risk of workers’ of Plan and its            of Plan and its            of Plan and its            of Plan and its            Standard 10B compensation            licensed            licensed            licens ed affiliates            licensed affiliates insurance            affiliates, and            affiliates, and            Standard 2 — Standards 7A-7E, 12 does not underwrite            does not underwrite (Guidelines            Standard 6H the indemnity            the indemnity 1.1,1.3) and portion of workers’ portion of workers’ Standard 11 compensation            compensation insurance            insurance Standard 2 — (Guidelines            Standard 6H 1.1,1.2) and Standard 11 IN ADDITION, 3. Is medical care being directly provided? Yes            No Standard 3A            Standard 3B IN ADDITION,
4. If the controlled affiliate has health or workers’ compensation administration business, does such business comprise 15% or more of the total member enrollment of Plan and its licensed controlled affiliates? Yes            No Standards 6A-6J            Controlled Affiliate             Controlled            Controlled            Controlled is not a former            Affiliate is a            Affiliate is not a            Affiliate’s Primary primary licensee            former primary            former primary            Business is and elects to            licensee            licensee            Government Non-Risk participate in            Standards            and does not elect            Standards 8, 10(C),12 BCBSA national 5,8,9A,11,12 to participate in programs            BCBSA national Standards 5,8,9B,12 programs Standards 5,8,12

EXHIBIT A (continued)

Standard 1 — Organization and Governance

1A.) The Standard for more than 50% Plan control is:

A Controlled Affiliate shall be organized and operated in such a manner that a licensed Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority, directly or indirectly through wholly-owned subsidiaries: 1) to select members of the Controlled Affiliate’s governing body having more than 50% voting control thereof; and 2) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not concur; and 3) to exercise control over the policy and operations of the Controlled Affiliate. In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries shall own more than 50% of any for-profit Controlled Affiliate.

1B.) The Standard for 50% Plan control is:

A Controlled Affiliate shall be organized and operated in such a manner that a licensed Plan or Plans authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant to separate License Agreement(s) with BCBSA, other than such Controlled Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), have the legal authority, directly or indirectly through wholly-owned subsidiaries:

1)	to select members of the Controlled Affiliate’s governing body having not less than 50% voting control thereof; and
2)	to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plan(s) do(es) not concur; and
3)	to exercise control over the policy and operations of the Controlled Affiliate at least equal to that exercised by persons or entities (jointly or individually) other than the Controlling Plan(s).

19

EXHIBIT A (continued)

Notwithstanding anything to the contrary in 1) through 3) hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval by the Controlling Plan(s) before the Controlled Affiliate can:

o change the geographic area in which it operates

o change its legal and/or trade names

o change any of the types of businesses in which it engages

o create, or become liable for by way of guarantee, any indebtedness, other than indebtedness arising in the ordinary course of business

o sell any assets, except for sales in the ordinary course of business or sales of equipment no longer useful or being replaced

o make any loans or advances except in the ordinary course of business

o enter into any arrangement or agreement with any party directly or indirectly affiliated with any of the owners or persons or entities with the authority to select or appoint members or board members of the Controlled Affiliate, other than the Plan or Plans (excluding owners of stock holdings of under 5% in a publicly traded Controlled Affiliate)

o conduct any business other than under the Licensed Marks and Name

o take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks and Name.

In addition, a Plan or Plans directly or indirectly through wholly-owned subsidiaries shall own at least 50% of any for-profit Controlled Affiliate.

20

EXHIBIT A (continued)

Standard 2 — Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of its contractual obligations to its customers. If a risk-assuming Controlled Affiliate ceases operations for any reason, Blue Cross and/or Blue Cross Plan coverage will be offered to all Controlled Affiliate subscribers without exclusions, limitations or conditions based on health status. If a nonrisk-assuming Controlled Affiliate ceases operations for any reason, sponsoring Plan(s) will provide for services to its (their) customers.
The requirements of the preceding two sentences shall apply to all lines of business unless a line of business is specially exempted from the requirement(s) by the BCBSA Board of Directors.

Standard 3 — State Licensure/Certification

3A.) The Standard for a Controlled Affiliate that employs, owns or contracts on a substantially exclusive basis for medical services is:

A Controlled Affiliate shall maintain unimpaired licensure or certification for its medical care providers to operate under applicable state laws.

3B.) The Standard for a Controlled Affiliate that does not employ, own or contract on a substantially exclusive basis for medical services is:

A Controlled Affiliate shall maintain unimpaired licensure or certification to operate under applicable state laws.

Standard 4 — Certain Disclosures

A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in disseminating public statements of 1) the structure of the Blue Cross and Blue Shield System; and 2) the independent nature of every licensee; and 3) the Controlled Affiliate’s financial condition.

Standard 5 — Reports and Records for Certain Smaller Controlled Affiliates

For a smaller Controlled Affiliate that does not underwrite the indemnity portion of workers’ compensation insurance, the Standard is:

Amended as of June 16, 2005

21

EXHIBIT A (continued)

A Controlled Affiliate and/or its licensed Plan(s) shall furnish, on a timely and accurate basis, reports and records relating to these Standards and the License Agreements between BCBSA and Controlled Affiliate.

Standard 6 — Other Standards for Larger Controlled Affiliates

Standards 6(A) — (I) that follow apply to larger Controlled Affiliates.

Standard 6(A): Board of Directors

A Controlled Affiliate Governing Board shall act in the interest of its Corporation in providing cost-effective health care services to its customers. A Controlled Affiliate shall maintain a governing Board, which shall control the Controlled Affiliate, composed of a majority of persons other than providers of health care services, who shall be known as public members. A public member shall not be an employee of or have a financial interest in a health care provider, nor be a member of a profession which provides health care services.

Standard 6(B): Responsiveness to Customers

A Controlled Affiliate shall be operated in a manner responsive to customer needs and requirements.

Standard 6(C): Participation in National Programs

A Controlled Affiliate shall effectively and efficiently participate in each national program as from time to time may be adopted by the Member Plans for the purposes of providing portability of membership between the licensees and ease of claims processing for customers receiving benefits outside of the Controlled Affiliate’s Service Area.

Such programs are applicable to licensees, and include:

1.	Transfer Program;
2.	BlueCard Program;

22

EXHIBIT A (continued)

3.	Inter-Plan Teleprocessing System (ITS);
4.	National Account Programs;
5.	Business Associate Agreement for Blue Cross and Blue Shield Licensees, effective April 14, 2003; and
6.	Inter-Plan Medicare Advantage Program.

Standard 6(D): Financial Performance Requirements

In addition to requirements under the national programs listed in
Standard 6C: Participation in National Programs, a Controlled Affiliate shall take such action as required to ensure its financial performance in programs and contracts of an inter-licensee nature or where BCBSA is a party.

Standard 6(E): Cooperation with Plan Performance Response Process

A Controlled Affiliate shall cooperate with BCBSA’s Board of Directors and its Plan Performance and Financial Standards Committee in the administration of the Plan Performance Response Process and in addressing Controlled Affiliate performance problems identified thereunder.

Standard 6(F): Independent Financial Rating

A Controlled Affiliate shall obtain a rating of its financial strength from an independent rating agency approved by BCBSA’s Board of Directors for such purpose.

Standard 6(G): Local and National Best Efforts

Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this License Agreement, during each year, a Controlled Affiliate shall use its best efforts to promote and build the value of the Blue Shield Mark.

Standard 6(H): Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of its contractual obligations to its customers.

Amended as of November 15, 2007

23

EXHIBIT A (continued)

Standard 6(I): Reports and Records

A Controlled Affiliate shall furnish to BCBSA on a timely and accurate basis reports and records relating to compliance with these Standards and the License Agreements between BCBSA and Controlled Affiliate. Such reports and records are the following:

A)	BCBSA Controlled Affiliate Licensure Information Request; and
B)	Biennial trade name and service mark usage material, including disclosure material; and
C)	Changes in the ownership and governance of the Controlled Affiliate, including changes in its charter, articles of incorporation, or bylaws, changes in a Controlled Affiliate’s Board composition, or changes in the identity of the Controlled Affiliate’s Principal Officers, and changes in risk acceptance, contract growth, or direct delivery of medical care; and
D)	Quarterly Financial Report, Semi-annual “Health Risk-Based Capital (HRBC) Report” as defined by the NAIC, Annual Financial Forecast, Annual Certified Audit Report, Insurance Department Examination Report, Annual Statement filed with State Insurance Department (with all attachments), and
E)	Quarterly Enrollment Report.

Amended March 14, 2002

24

EXHIBIT A (continued)

Standard 6(J): Control by Unlicensed Entities Prohibited

No Controlled Affiliate shall cause or permit an entity other than a Plan or a Licensed Controlled Affiliate thereof to obtain control of the Controlled Affiliate or to acquire a substantial portion of its assets related to licensable services.

Standard 7 — Other Standards for Risk-Assuming Workers’ Compensation Controlled Affiliates

Standards 7(A) — (E) that follow apply to Controlled Affiliates that underwrite the indemnity portion of workers’ compensation insurance.

Standard 7 (A): Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of its contractual obligations to its customers.

Standard 7(B): Reports and Records

A Controlled Affiliate shall furnish, on a timely and accurate basis, reports and records relating to compliance with these Standards and the License Agreements between BCBSA and the Controlled Affiliate. Such reports and records are the following:

A.	BCBSA Controlled Affiliate Licensure Information Request; and
B.	Biennial trade name and service mark usage materials, including disclosure materials; and
C.	Annual Certified Audit Report, Annual Statement as filed with the State Insurance Department (with all attachments), Annual NAIC’s Risk-Based Capital Worksheets for Property and Casualty Insurers, Annual Financial Forecast; and
D.	Quarterly Financial Report, Quarterly Estimated Risk-Based Capital for Property and Casualty Insurers, Insurance Department Examination Report, Quarterly Enrollment Report; and

Amended September 19, 2002

25

EXHIBIT A (continued)

E.	Notification of all changes and proposed changes to independent ratings within 30 days of receipt and submission of a copy of all rating reports; and
F.	Changes in the ownership and governance of the Controlled Affiliate including changes in its charter, articles of incorporation, or bylaws, changes in a Controlled Affiliate’s Board composition, Plan control, state license status, operating area, the Controlled Affiliate’s Principal Officers or direct delivery of medical care.

Standard 7(C): Loss Prevention

A Controlled Affiliate shall apply loss prevention protocol to both new and existing business.

Standard 7(D): Claims Administration

A Controlled Affiliate shall maintain an effective claims administration process that includes all the necessary functions to assure prompt and proper resolution of medical and indemnity claims.

Standard 7(E): Disability and Provider Management

A Controlled Affiliate shall arrange for the provision of appropriate and necessary medical and rehabilitative services to facilitate early intervention by medical professionals and timely and appropriate return to work.

Amended November 16, 2000

26

EXHIBIT A (continued)

Standard 8 — Cooperation with Controlled Affiliate License Performance Response Process Protocol

A Controlled Affiliate and its Sponsoring Plan(s) shall cooperate with BCBSA’s Board of Directors and its Plan Performance and Financial Standards Committee in the administration of the Controlled Affiliate License Performance Response Process Protocol (ALPRPP) and in addressing Controlled Affiliate compliance problems identified thereunder.

Standard 9(A) — Participation in National Programs by Smaller Controlled Affiliates that were former Primary Licensees

A smaller controlled affiliate that formerly was a Primary Licensee shall effectively and efficiently participate in certain national programs from time to time as may be adopted by Member Plans for the purposes of providing ease of claims processing for customers receiving benefits outside of the Controlled Affiliate’s service area and be subject to certain relevant financial and reporting requirements.

A. National program requirements include:

• BlueCard Program;

• Inter-Plan Teleprocessing System (ITS);

• Transfer Program;

• National Account Programs.

B. Financial Requirements include:

• Standard 6(D): Financial Performance Requirements and Standard 6(H): Financial Responsibility; or

• A financial guarantee covering the Controlled Affiliate’s Inter-Plan Programs obligations in a form, and from a guarantor, acceptable to BCBSA.

Amended November 15, 2007

EXHIBIT A (continued)

27

Standard 9(A) — Participation in National Programs by Smaller Controlled Affiliates that were former Primary Licensees

C. Reporting requirements include:

• The Semi-annual Health Risk-Based Capital (HRBC) Report.

Amended June 13, 2002

28

Exhibit A (continued)

Standard 9(B) — Participation in National Programs by Smaller Controlled Affiliates

A smaller controlled affiliate that voluntarily elects to participate in national programs in accordance with BlueCard and other relevant Policies and Provisions shall effectively and efficiently participate in national programs from time to time as may be adopted by Member Plans for the purposes of providing ease of claims processing for customers receiving benefits outside of the controlled affiliate’s service area and be subject to certain relevant financial and reporting requirements.

A. National program requirements include:

• BlueCard Program;

• Inter-Plan Teleprocessing System (ITS);

• National Account Programs.

B. Financial Requirements include:

• Standard 6(D): Financial Performance Requirements and Standard 6(H): Financial Responsibility; or

• A financial guarantee covering the Controlled Affiliate’s Inter-Plan Programs obligations in a form, and from a guarantor, acceptable to BCBSA.

Amended November 15, 2007

29

EXHIBIT A (continued)

Standard 10 — Other Standards for Controlled Affiliates Whose Primary Business is Government Non-Risk

Standards 10(A) — (C) that follow apply to Controlled Affiliates whose primary business is government non-risk.

Standard 10(A) — Organization and Governance

A Controlled Affiliate shall be organized and operated in such a manner that it is 1) wholly owned by a licensed Plan or Plans and 2) the sponsoring licensed Plan or Plans have the legal ability to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which it does not concur.

30

EXHIBIT A (continued)

Standard 10(B) — Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of its contractual obligations to its customers.

Standard 10(C):- Reports and Records

A Controlled Affiliate shall furnish, on a timely and accurate basis, reports and records relating to compliance with these Standards and the License Agreements between BCBSA and the Controlled Affiliate. Such reports and records are the following:

A.	BCBSA Affiliate Licensure Information Request; and
B.	Biennial trade name and service mark usage materials, including disclosure material; and
C.	Annual Certified Audit Report, Annual Statement (if required) as filed with the State Insurance Department (with all attachments), Annual NAIC Risk-Based Capital Worksheets (if required) as filed with the State Insurance Department (with all attachments), and Insurance Department Examination Report (if applicable)*; and
D.	Changes in the ownership and governance of the Controlled Affiliate, including changes in its charter, articles of incorporation, or bylaws, changes in the Controlled Affiliate’s Board composition, Plan control, state license status, operating area, the Controlled Affiliate’s Principal Officers or direct delivery of medical care.

31

EXHIBIT A (continued)

Standard 11- Participation in Inter-Plan Medicare Advantage Program

A smaller controlled affiliate for which this standard applies pursuant to the Preamble section of Exihibit A of the Controlled Affiliate License Agreement shall effectively and efficiently participate in certain national programs from time to time as may be adopted by Member Plans for the purposes of providing ease of claims processing for customers receiving benefits outside of the controlled affiliate’s service area.

National program requirements include:

A. Inter-Plan Medicare Advantage Program.

Amended November 15, 2007

32

EXIHIBIT A (continued)

Standard 12: Participation in Master Business Associate Agreement by Smaller Controlled Affiliate Licensees

Effective April 14, 2003, all smaller controlled affiliates shall comply with the terms of the Business Associate Agreement for Blue Cross and Blue Shield Licensees to the extent they perform the functions of a business associate or subcontractor to a business associate, as defined by the Business Associate Agreement.

Amended September 19, 2002

33

EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT

Controlled Affiliate will pay BCBSA a fee for this license in accordance with the following formula:

FOR RISK AND GOVERNMENT NON-RISK PRODUCTS:

For Controlled Affiliates not underwriting the indemnity portion of workers’ compensation insurance:

An amount equal to its pro rata share of each sponsoring Plan’s dues payable to BCBSA computed with the addition of the Controlled Affiliate’s members using the Marks on health care plans and related services as reported on the Quarterly Enrollment Report with BCBSA. The payment by each sponsoring Plan of its dues to BCBSA, including that portion described in this paragraph, will satisfy the requirement of this paragraph, and no separate payment will be necessary.

For Controlled Affiliates underwriting the indemnity portion of workers’ compensation insurance:

An amount equal to 0.35 percent of the gross revenue per annum of Controlled Affiliate arising from products using the marks; plus, an annual fee of $5,000 per license for a Controlled Affiliate subject to Standard 7.

For Controlled Affiliates whose primary business is government non-risk:

An amount equal to its pro-rata share of each sponsoring Plan’s dues payable to BCBSA computed with the addition of the Controlled Affiliate’s government non-risk beneficiaries.

Amended June 14, 2007

34

EXHIBIT B (continued)

FOR NONRISK PRODUCTS:

For third-party administrative business, an amount equal to its pro rata share of each sponsoring Plan’s dues payable to BCBSA computed with the addition of the Controlled Affiliate’s members using the Marks on health care plans and related services as reported on the Quarterly Enrollment Report with BCBSA. The payment by each sponsoring Plan of its dues to BCBSA, including that portion described in this paragraph, will satisfy the requirement of this paragraph, and no separate payment will be necessary.

For non-third party administrative business (e.g., case management, provider networks, etc.), an amount equal to 0.24 percent of the gross revenue per annum of Controlled Affiliate arising from products using the marks; plus:

1)	An annual fee of $5,000 per license for a Controlled Affiliate subject to Standard 6 D.
2)	An annual fee of $2,000 per license for all other Controlled Affiliates.

The foregoing shall be reduced by one-half where both a BLUE CROSS® and BLUE SHIELD® License are issued to the same Controlled Affiliate. In the event that any license period is greater or less than one (1) year, any amounts due shall be prorated. Royalties under this formula will be calculated, billed and paid in arrears.

Amended June 14, 2007

35

EXHIBIT 1A

CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO LIFE INSURANCE COMPANIES
(Includes revisions adopted by Member Plans through theirNovember 13, 2008 meeting)

     This agreement by and among Blue Cross and Blue Shield Association (“BCBSA”)                                                              (“Controlled Affiliate”), a Controlled Affiliate of the Blue Shield Plan(s), known as                                                              (“Plan”).

WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;

WHEREAS, the Plan and the Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design service marks (collectively the “Licensed Marks”) as service marks and be entitled to use the term BLUE SHIELD in a trade name (“Licensed Name”);

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

     1. GRANT OF LICENSE

          Subject to the terms and conditions of this Agreement, BCBSA hereby grants to the Controlled Affiliate the exclusive right to use the licensed Marks and Names in connection with and only in connection with those life insurance and related services authorized by applicable state law, other than health care plans and related services (as defined in the Plan’s License Agreements with BCBSA) which services are not separately licensed to Controlled Affiliate by BCBSA, in the Service Area served by the Plan, except that BCBSA reserves the right to use the Licensed Marks and Name in said Service Area, and except to the extent that said Service Area may overlap the area or areas served by one or more other licensed Blue Shield Plans as of the date of this License as to which overlapping areas the rights hereby granted are non-exclusive as to such other Plan or Plans and their respective Licensed Controlled Affiliates only. Controlled Affiliate cannot use the Licensed Marks or Name outside the Service Area or in its legal or trade name; provided, however, that if and only for so long as Controlled Affiliate also holds a Blue Shield Affiliate License Agreement applicable to health care plans and related services, Controlled Affiliate may use the Licensed Marks and Name in its legal and trade name according to the terms of such license agreement.

Amended as of June 12, 2003

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     2. QUALITY CONTROL

       A. Controlled Affiliate agrees to use the Licensed Marks and Name only in relation to the sale, marketing and rendering of authorized products and further agrees to be bound by the conditions regarding quality control shown in Exhibit A as it may be amended by BCBSA from time-to-time.

     B. Controlled Affiliate agrees that Plan and/or BCBSA may, from time-to-time, upon reasonable notice, review and inspect the manner and method of Controlled Affiliate’s rendering of service and use of the Licensed Marks and Name.

     C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by Plan or by BCBSA) a report to Plan and BCBSA demonstrating Controlled Affiliate’s compliance with the requirements of this Agreement including but not limited to the quality control provisions of Exhibit A.

     D. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner that it is subject to the bona fide control of a Plan or Plans. Absent written approval by BCBSA of an alternative method of control, bona fide control shall mean the legal authority, directly or indirectly through wholly-owned subsidiaries: (a) to select members of the Controlled Affiliate’s governing body having not less than 51% voting control thereof; (b) to exercise operational control with respect to the governance thereof; and (c) to prevent any change in its articles of incorporation, bylaws or other governing documents deemed inappropriate. In addition, a Plan or Plans shall own at least 51% of any for-profit Controlled Affiliate. If the Controlled Affiliate is a mutual company, the Plan or its designee(s) shall have and maintain, in lieu of the requirements of items (a) and (c) above, proxies representing 51% of the votes at any meeting of the policyholders and shall demonstrate that there is no reason to believe this such proxies shall be revoked by sufficient policyholders to reduce such percentage below 51%.

     3. SERVICE MARK USE

     Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks, including but not limited to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks, and shall comply with such rules (applicable to all Controlled Affiliates licensed to use the Marks) relative to service mark use, as are issued from time-to-time by BCBSA. If there is any public reference to the affiliation between the Plan and the Controlled Affiliate, all of the Controlled Affiliate’s licensed services in the Service Area of the Plan shall be rendered under the Licensed Marks. Controlled Affiliate recognizes and agrees that all use of the Licensed Marks by Controlled Affiliate shall inure to the benefit of BCBSA.

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     4. SUBLICENSING AND ASSIGNMENT

     Controlled Affiliate shall not sublicense, transfer, hypothecate, sell, encumber or mortgage, by operation of law or otherwise, the rights granted hereunder and any such act shall be voidable at the option of Plan or BCBSA. This Agreement and all rights and duties hereunder are personal to Controlled Affiliate.

     5. INFRINGEMENTS

     Controlled Affiliate shall promptly notify Plan and BCBSA of any suspected acts of infringement, unfair competition or passing off which may occur in relation to the Licensed Marks. Controlled Affiliate shall not be entitled to require Plan or BCBSA to take any actions or institute any proceedings to prevent infringement, unfair competition or passing off by third parties. Controlled Affiliate agrees to render to Plan and BCBSA, free of charge, all reasonable assistance in connection with any matter pertaining to the protection of the Licensed Marks by BCBSA.

     6. LIABILITY INDEMNIFICATION

     Controlled Affiliate hereby agrees to save, defend, indemnify and hold Plan and BCBSA harmless from and against all claims, damages, liabilities and costs of every kind, nature and description which may arise as a result of Controlled Affiliate’s rendering of health care services under the Licensed Marks.

     7. LICENSE TERM

     The license granted by this Agreement shall remain in effect for a period of one (1) year and shall be automatically extended for additional one (1) year periods upon evidence satisfactory to the Plan and BCBSA that Controlled Affiliate meets the then applicable quality control standards, unless one of the parties hereto notifies the other party of the termination hereof at least sixty (60) days prior to expiration of any license period.

     This Agreement may be terminated by the Plan or by BCBSA for cause at any time provided that Controlled Affiliate has been given a reasonable opportunity to cure and shall not effect such a cure within thirty (30) days of receiving written notice of the intent to terminate (or commence a cure within such thirty day period and continue diligent efforts to complete the cure if such curing cannot reasonably be completed within such thirty day period). By way of example and not for purposes of limitation, Controlled Affiliate’s failure to abide by the quality control provisions of Paragraph 2, above, shall be considered a proper ground for cancellation of this Agreement.

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     This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further action by any party or entity in the event that:

     A. Controlled Affiliate shall no longer comply with Standard No. 1 (Organization and Governance) of Exhibit A or, following an opportunity to cure, with the remaining quality control provisions of Exhibit A, as it may be amended from time-to-time; or

     B. Plan ceases to be authorized to use the Licensed Marks; or

     C. Appropriate dues for Controlled Affiliate pursuant to item 8 hereof, which are the royalties for this License Agreement are more than sixty (60) days in arrears to BCBSA.

     Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall immediately discontinue all use of the Licensed Marks including any use in its trade name.

     In the event of any disagreement between Plan and BCBSA as to whether grounds exist for termination or as to any other term or condition hereof, the decision of BCBSA shall control, subject to provisions for mediation or mandatory dispute resolution in effect between the parties.

     Upon termination of this Agreement, Licensed Controlled Affiliate shall immediately notify all of its customers that it is no longer a licensee of the Blue Cross and Blue Shield Association and provide instruction on how the customer can contact the Blue Cross and Blue Shield Association or a designated licensee to obtain further information on securing coverage. The written notification required by this paragraph shall be in writing and in a form approved by the Association. The Association shall have the right to audit the terminated entity’s books and records to verify compliance with this paragraph.

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8. DUES

     Controlled Affiliate will pay to BCBSA a fee for this license in accordance with the following formula:

     Ÿ An annual fee of five thousand dollars ($5,000) per license, plus

     •.05% of gross revenue per year from branded group products, plus

     •.5% of gross revenue per year from branded individual products plus

     •.14% of gross revenue per year from branded individual annuity products.

The foregoing percentages shall be reduced by one-half where both a BLUE CROSS® and BLUE SHIELD® license are issued to the same entity. In the event that any License period is greater or less than one (1) year, any amounts due shall be prorated. Royalties under this formula will be calculated, billed and paid in arrears.

Plan will promptly and timely transmit to BCBSA all dues owed by Controlled Affiliate as determined by the above formula and if Plan shall fail to do so, Controlled Affiliate shall pay such dues directly.

Amended as of November 20, 1997

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          9. JOINT VENTURE

          Nothing contained in this Agreement shall be construed as creating a joint venture, partnership, agency or employment relationship between Plan and Controlled Affiliate or between either and BCBSA.

          9A. VOTING

               For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest whole number, with 0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-nine (39) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in favor of the question.

          10. NOTICES AND CORRESPONDENCE

     Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall be addressed in duplicate to the last known address of each other party, marked respectively to the attention of its President and, if any, its General Counsel.

Amended as of June 16, 2005

(The next page is page 5)

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          11. COMPLETE AGREEMENT

          This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This Agreement may only be amended by a writing executed by all parties.

          12. SEVERABILITY

          If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such finding shall in no way effect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits of this Agreement.

          13. NONWAIVER

          No waiver by BCBSA of any breach or default in performance on the part of the Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent breach or default in performance of said terms, covenants or conditions.

          14. GOVERNING LAW

          This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Illinois.

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IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed, effective as of the date of last signature written below.

BLUE CROSS AND BLUE SHIELD ASSOCIATION

By:

Date:

Controlled Affiliate

By:

Date:

Plan

By:

Date:

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EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 1 of 2

PREAMBLE

The standards for licensing Life Insurance Companies (Life and Health Insurance companies, as defined by state statute) are established by BCBSA and are subject to change from time-to-time upon the affirmative vote of three-fourths (3/4) of the Plans and three-fourths (3/4) of the total weighted vote of all Plans. Each Licensed Plan is required to use a standard controlled affiliate license form provided by BCBSA and to cooperate fully in assuring that the licensed Life Insurance Company maintains compliance with the license standards.

An organization meeting the following standards shall be eligible for a license to use the Licensed Marks within the service area of its sponsoring Licensed Plan to the extent and the manner authorized under the Controlled Affiliate License applicable to Life Insurance Companies and the principal license to the Plan.

Standard 1 — Organization and Governance

The LIC shall be organized and operated in such a manner that it is controlled by a licensed Plan or Plans which have, directly or indirectly: 1) not less than 51% of the voting control of the LIC; and 2) the legal ability to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the LIC with which it does not concur; and 3) operational control of the LIC.

If the LIC is a mutual company, the Plan or its designee(s) shall have and maintain, in lieu of the requirements of items 1 and 2 above, proxies representing at least 51% of the votes at any policyholder meeting and shall demonstrate that there is no reason to believe such proxies shall be revoked by sufficient policyholders to reduce such percentage below 51%.

Standard 2 — State Licensure

The LIC must maintain unimpaired licensure or certificate of authority to operate under applicable state laws as a life and health insurance company in each state in which the LIC does business.

Standard 3 — Records and Examination

The LIC and its sponsoring licensed Plan(s) shall maintain and furnish, on a timely and accurate basis, such records and reports regarding the LIC as may be required in order to establish compliance with the license agreement.

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EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 2 of 2

LIC and its sponsoring licensed Plan(s) shall permit BCBSA to examine the affairs of the LIC and shall agree that BCBSA’s board may submit a written report to the chief executive officer(s) and the board(s) of directors of the sponsoring Plan(s).

Standard 4 — Mediation

The LIC and its sponsoring Plan(s) shall agree to use the then-current BCBSA mediation and mandatory dispute resolution processes, in lieu of a legal action between or among another licensed controlled affiliate, a licensed Plan or BCBSA.

Standard 5 — Financial Responsibility

The LIC shall maintain adequate financial resources to protect its customers and meet its business obligations.

Standard 6 — Cooperation with Affiliate License Performance Response Process Protocol

The LIC and its Sponsoring Plan(s) shall cooperate with BCBSA’s Board of Directors and its Plan Performance and Financial Standards Committee in the administration of the Affiliate License Performance Response Process Protocol (ALPRPP) and in addressing LIC compliance problems identified thereunder.

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Exhibit 1B

BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO REGIONAL MEDICARE ADVANTAGE PPO PRODUCTS
(Adopted by Member Plans at their November 13, 2008)

     This Agreement by and among Blue Cross and Blue Shield Association (“BCBSA”) and                      (“Controlled Affiliate”), a Controlled Affiliate of the Blue Cross Plan(s), known as                      (“Controlling Plans”), each of which is also a Party signatory hereto.

     WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;

     WHEREAS, under the Medicare Modernization Act, companies may apply to and be awarded a contract by the Centers for Medicare and Medicaid Services (“CMS”) to offer Medicare Advantage PPO products in geographic regions designated by CMS (hereafter “regional MAPPO products”).

     WHEREAS, some of the CMS-designated regions include the Service Areas, or portions thereof, of more than one Plan.

     WHEREAS, the Controlling Plans and Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design service marks (collectively the “Licensed Marks”) as service marks and be entitled to use the term BLUE SHIELD in a trade name (“Licensed Name”) to offer regional MAPPO products in a region that includes the Service Areas, or portions thereof, of more than one Controlling Plan;

     NOW THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. GRANT OF LICENSE

     Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled Affiliate the right to use the Licensed Marks and Name in connection with, and only in connection with the sale, marketing and administration of regional MAPPO products and related services.

     This grant of rights is non-exclusive and is limited to the following states:                      (the “Region”). Controlled Affiliate may use the Licensed

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Marks and Name in its legal name on the following conditions: (i) the legal name must be approved in advance, in writing, by BCBSA; (ii) Controlled Affiliate shall not do business outside the Region under any name or mark except business conducted in the Service Area of a Controlling Plan provided that Controlled Affiliate is separately licensed by BCBSA to use the Licensed Marks and Name in connection with health care plans and related services in the Service Area of such Controlling Plan; and (iii) Controlled Affiliate shall not use the Licensed Marks and Name, or any derivative thereof, as part of any name or symbol used to identify itself in any securities market. Controlled Affiliate may use the Licensed Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.

     2. QUALITY CONTROL

     A. Controlled Affiliate agrees to use the Licensed Marks and Name only in connection with the licensed services and further agrees to be bound by the conditions regarding quality control shown in attached Exhibit A as they may be amended by BCBSA from time-to-time.

     B. Controlled Affiliate agrees to comply with all applicable federal, state and local laws.

     C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by the Controlling Plans or by BCBSA) a report or reports to the Controlling Plans and BCBSA demonstrating Controlled Affiliate’s compliance with the requirements of this Agreement including but not limited to the quality control provisions of this paragraph and the attached Exhibit A.

     D. Controlled Affiliate agrees that the Controlling Plans and/or BCBSA may, from time-to-time, upon reasonable notice, review and inspect the manner and method of Controlled Affiliate’s rendering of service and use of the Licensed Marks and Name.

     E. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner, that it meets the following requirements:

     (1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;

     (2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least one of the Controlling Plans; and

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     (3) The Controlling Plans must have the legal authority directly or indirectly through wholly-owned subsidiaries:

     (a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control thereof;

     (b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plans do not concur;

     (c) to exercise control over the policy and operations of the Controlled Affiliate; and

Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:

(i)	change its legal and/or trade names;
(ii)	change the geographic area in which it operates (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iii)	change any of the type(s) of businesses in which it engages (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iv)	take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks and Name.

In addition, the Controlling Plans directly or indirectly through wholly owned subsidiaries shall own 100% of any for-profit Controlled Affiliate.

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     3. SERVICE MARK USE

     A. Controlled Affiliate recognizes the importance of a comprehensive national network of independent BCBSA licensees which are committed to strengthening the Licensed Marks and Name. The Controlled Affiliate further recognizes that its actions within the Region may affect the value of the Licensed Marks and Name nationwide.

     B. Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks and Name, including but not limited to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks and Name and shall comply with such rules (generally applicable to Controlled Affiliates licensed to use the Licensed Marks and Name) relative to service mark use, as are issued from time-to-time by BCBSA. Controlled Affiliate recognizes and agrees that all use of the Licensed Marks and Name by Controlled Affiliate shall inure to the benefit of BCBSA.

     C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a manner that transfers or is intended to transfer in the Region the goodwill associated therewith to another mark or name, nor may Controlled Affiliate engage in activity that may dilute or tarnish the unique value of the Licensed Marks and Name.

     D. Controlled Affiliate shall use its best efforts to promote and build the value of the Licensed Marks and Name in connection with the sale, marketing and administration of regional MAPPO products and related services.

     4. SUBLICENSING AND ASSIGNMENT

     Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate, sell, encumber or mortgage, by operation of law or otherwise, the rights granted hereunder and any such act shall be voidable at the sole option of any Controlling Plan or BCBSA. This Agreement and all rights and duties hereunder are personal to Controlled Affiliate.

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     5. INFRINGEMENT

     Controlled Affiliate shall promptly notify the Controlling Plans and the Controlling Plans shall promptly notify BCBSA of any suspected acts of infringement, unfair competition or passing off that may occur in relation to the Licensed Marks and Name. Controlled Affiliate shall not be entitled to require the Controlling Plans or BCBSA to take any actions or institute any proceedings to prevent infringement, unfair competition or passing off by third parties. Controlled Affiliate agrees to render to the Controlling Plans and BCBSA, without charge, all reasonable assistance in connection with any matter pertaining to the protection of the Licensed Marks and Name by BCBSA.

     6. LIABILITY INDEMNIFICATION

     Controlled Affiliate and the Controlling Plans hereby agree to save, defend, indemnify and hold BCBSA harmless from and against all claims, damages, liabilities and costs of every kind, nature and description (except those arising solely as a result of BCBSA’s negligence) that may arise as a result of or related to Controlled Affiliate’s rendering of services under the Licensed Marks and Name.

     7. LICENSE TERM

     A. Except as otherwise provided herein, the license granted by this Agreement shall remain in effect for a period of one (1) year and shall be automatically extended for additional one (1) year periods unless terminated pursuant to the provisions herein.

     B. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further action by any party or entity in the event that: (i) any one of the Controlling Plans ceases to be authorized to use the Licensed Marks and Name; or (ii) pursuant to Paragraph 15(a)(x) of the Blue Shield License Agreement any one of the Controlling Plans ceases to be authorized to use the Licensed Names and Marks in the Region.

     C. Notwithstanding any other provision of this Agreement, this license to use the Licensed Marks and Name may be forthwith terminated by the Controlling Plans or the affirmative vote of the majority of the Board of Directors of BCBSA present and voting at a special meeting expressly called by BCBSA for the purpose on ten (10) days written notice to the Controlling Plans advising of the specific matters at issue and granting the Controlling Plans an opportunity to be heard and to present their response to the Board for: (1) failure to comply with any applicable minimum capital or liquidity requirement under the quality control standards of this

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Agreement; or (2) failure to comply with the “Organization and Governance” quality control standard of this Agreement; or (3) impending financial insolvency; or (4) failure to comply with any of the applicable requirements of Standards 2, 3, 4, or 5 of attached Exhibit A; or (5) the pendency of any action instituted against the Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business or seeking the declaration or establishment of a trust for any of its property or business, unless this Controlled Affiliate License Agreement has been earlier terminated under paragraph 7(E); or (6) such other reason as is determined in good faith immediately and irreparably to threaten the integrity and reputation of BCBSA, the Plans (including the Controlling Plans), any other licensee including Controlled Affiliate and/or the Licensed Marks and Name.

     D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should Controlled Affiliate fail to comply with the provisions of this Agreement and not cure such failure within thirty (30) days of receiving written notice thereof (or commence a cure within such thirty day period and continue diligent efforts to complete the cure if such curing cannot reasonably be completed within such thirty day period) BCBSA or the Controlling Plans shall have the right to issue a notice that the Controlled Affiliate is in a state of noncompliance. If a state of noncompliance as aforesaid is undisputed by the Controlled Affiliate or is found to exist by a mandatory dispute resolution panel and is uncured as provided above, BCBSA shall have the right to seek judicial enforcement of the Agreement or to issue a notice of termination thereof. Notwithstanding any other provisions of this Agreement, any disputes as to the termination of this License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall not be subject to mediation and mandatory dispute resolution. All other disputes between or among BCBSA, any of the Controlling Plans and/or Controlled Affiliate shall be submitted promptly to mediation and mandatory dispute resolution. The mandatory dispute resolution panel shall have authority to issue orders for specific performance and assess monetary penalties. Except, however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license to use the Licensed Marks and Name may not be finally terminated for any reason without the affirmative vote of a majority of the present and voting members of the Board of Directors of BCBSA.

     E. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further action by any party or entity in the event that:

     (1) Controlled Affiliate shall no longer comply with item 2(E) above;

     (2) Appropriate dues, royalties and other payments for Controlled Affiliate pursuant to paragraph 9 hereof, which are the royalties for this License Agreement, are more than sixty (60) days in arrears to BCBSA; or

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     (3) Any of the following events occur: (i) a voluntary petition shall be filed by Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief, or (ii) an involuntary petition or proceeding shall be filed against Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief and such petition or proceeding is consented to or acquiesced in by Controlled Affiliate or is not dismissed within sixty (60) days of the date upon which the petition or other document commencing the proceeding is served upon the Controlled Affiliate, or (iii) an order for relief is entered against Controlled Affiliate in any case under the bankruptcy laws of the United States, or Controlled Affiliate is adjudged bankrupt or insolvent as those terms are defined in the Uniform Commercial Code as enacted in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled Affiliate makes a general assignment of its assets for the benefit of creditors, or (v) any government or any government official, office, agency, branch, or unit assumes control of Controlled Affiliate or delinquency proceedings (voluntary or involuntary) are instituted, or (vi) an action is brought by Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business, or (vii) an action is instituted by any governmental entity or officer against Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business and such action is consented to or acquiesced in by Controlled Affiliate or is not dismissed within one hundred thirty (130) days of the date upon which the pleading or other document commencing the action is served upon the Controlled Affiliate, provided that if the action is stayed or its prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the stay or injunction, and provided further, that the Association’s Board of Directors may toll or extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or other custodian for any of Controlled Affiliate’s property or business is appointed or the Controlled Affiliate is ordered dissolved or liquidated. Notwithstanding any other provision of this Agreement, a declaration or a request for declaration of the existence of a trust over any of the Controlled Affiliate’s property or business shall not in itself be deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other custodian for purposes of subparagraphs 7(E)(3)(vii) and (viii) of this Agreement.

     F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall immediately discontinue all use of the Licensed Marks and Name, including any use in its trade name, except to the extent that it continues to be authorized to use the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan.

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     G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of its customers to whom it provides products or services under the Licensed Marks pursuant to this Agreement that it is no longer a licensee of BCBSA and, if directed by the Association’s Board of Directors, shall provide instruction on how the customer can contact BCBSA or a designated licensee to obtain further information on securing coverage. The notification required by this paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall have the right to audit the terminated entity’s books and records to verify compliance with this paragraph.

     H. In the event this Agreement terminates pursuant to 7(B) hereof, upon termination of this Agreement the provisions of Paragraph 7(G) shall not apply and the following provisions shall apply, except that, in the event that Controlled Affiliate is separately licensed by BCBSA to use the Licensed Marks in the Service Area of a Controlling Plan and termination of this Agreement is due to a partial termination of such Controlling Plan’s license pursuant to Paragraph 15(a)(x)(ii) of the Blue Shield License Agreement, the notices, national account listing, payment, and audit right listed below shall be applicable solely with respect to the Region and the geographic area for which the Controlling Plan’s license to use the Licensed Names and Marks is terminated:

     (1) The Controlled Affiliate shall send a notice through the U.S. mails, with first class postage affixed, to all individual and group customers, providers, brokers and agents of products or services sold, marketed, underwritten or administered by the Controlled Affiliate under the Licensed Marks and Name. The form and content of the notice shall be specified by BCBSA and shall, at a minimum, notify the recipient of the termination of the license, the consequences thereof, and instructions for obtaining alternate products or services licensed by BCBSA. This notice shall be mailed within 15 days after termination.

     (2) The Controlled Affiliate shall deliver to BCBSA within five days of a request by BCBSA a listing of national accounts in which the Controlled Affiliate is involved (in a control, participating or servicing capacity), identifying the national account and the Controlled Affiliate’s role therein.

     (3) Unless the cause of termination is an event respecting BCBSA stated in paragraph 15(a) or (b) of the Plan’s license agreement with BCBSA to use the Licensed Marks and Name, the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for payment to BCBSA of an amount equal to $25 multiplied by the number of Licensed Enrollees of the Controlled Affiliate; provided that if any Plan other than a Controlling Plan is permitted by BCBSA to use marks or names licensed by BCBSA in a geographic area in the Region, the payment for Licensed Enrollees in such

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geographic area shall be multiplied by a fraction, the numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans in such geographic area and the denominator of which is the total number of Licensed Enrollees in such geographic area. Licensed Enrollee means each and every person and covered dependent who is enrolled as an individual or member of a group receiving products or services sold, marketed or administered under marks or names licensed by BCBSA as determined at the earlier of (i) the end of the last fiscal year of the terminated entity which ended prior to termination or (ii) the fiscal year which ended before any transactions causing the termination began. Notwithstanding the foregoing, the amount payable pursuant to this subparagraph H. (3) shall be due only to the extent that, in BCBSA’s opinion, it does not cause the net worth of the Controlled Affiliate, the Controlling Plans or any other Licensed Controlled Affiliates of the Controlling Plans to fall below 100% of the Health Risk-Based Capital formula, or its equivalent under any successor formula, as set forth in the applicable financial responsibility standards established by BCBSA (provided such equivalent is approved for purposes of this subparagraph by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans); measured as of the date of termination, and adjusted for the value of any transactions not made in the ordinary course of business. This payment shall not be due in connection with transactions exclusively by or among Plans (including the Controlling Plans) or their affiliates, including reorganizations, combinations or mergers, where the BCBSA Board of Directors determines that the license termination does not result in a material diminution in the number of Licensed Enrollees or the extent of their coverage. In the event that the Controlled Affiliate’s license is reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdiction, BCBSA shall reimburse the Controlled Affiliate (and/or the Controlling Plans or their other Licensed Controlled Affiliates, as the case may be) for payments made under this subparagraph 7.H.(3) only to the extent that such payments exceed the amounts due to BCBSA pursuant to paragraph 7.K. and any costs associated with reestablishing the terminated Controlling Plan’s Service Area or the Region, including any payments made by BCBSA to a Plan or Plans (including the other Controlling Plans), or their Licensed Controlled Affiliates, for purposes of replacing the Controlled Affiliate.

     (4) BCBSA shall have the right to audit the books and records of the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans to verify compliance with this paragraph 7.H.

     (5) As to a breach of 7.H.(1), (2), (3) or (4), the parties agree that the obligations are immediately enforceable in a court of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there is no adequate remedy at law and BCBSA is entitled to obtain specific performance.

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     I. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court of competent jurisdiction from entry into any transaction which would result in a termination of this Agreement unless a Controlling Plan’s license from BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d) of such Controlling Plan’s license agreement upon the required 6 month written notice.

     J. BCBSA acknowledges that it is not the owner of assets of the Controlled Affiliate.

     K. In the event this Agreement terminates and is subsequently reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdiction, the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for reimbursing BCBSA the reasonable costs incurred by BCBSA in connection with the termination and the reinstatement or court action, and any associated legal proceedings, including but not limited to: outside legal fees, consulting fees, public relations fees, advertising costs, and costs incurred to develop, lease or establish an interim provider network. Any amount due to BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of Directors in its sole discretion.

     8. DISPUTE RESOLUTION

     The parties agree that any disputes between or among them or between or among any of them and one or more Plans or Controlled Affiliates of Plans that use in any manner the Blue Shield and Blue Shield Marks and Name are subject to the Mediation and Mandatory Dispute Resolution process attached to and made a part of each Controlling Plan’s License from BCBSA to use the Licensed Marks and Name as Exhibit 5 as amended from time-to-time, which documents are incorporated herein by reference as though fully set forth herein.

     9. LICENSE FEE

     Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the formula(s) set forth in Exhibit B.

     10. JOINT VENTURE

     Nothing contained in this Agreement shall be construed as creating a joint venture, partnership, agency or employment relationship between the Controlling Plans and Controlled Affiliate or between either and BCBSA.

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     11. NOTICES AND CORRESPONDENCE

     Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall be addressed in duplicate to the last known address of each other party, marked respectively to the attention of its President and, if any, its General Counsel.

     12. COMPLETE AGREEMENT

     This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This Agreement may only be amended by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.

     13. SEVERABILITY

     If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such findings shall in no way affect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits of this Agreement.

     14. NONWAIVER

     No waiver by BCBSA of any breach or default in performance on the part of Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent breach or default in performance of said terms, covenants or conditions.

     14A. VOTING

     For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest whole number, with

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0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-nine (39) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in favor of the question.

     15. GOVERNING LAW

     This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Illinois.

     16. HEADINGS

     The headings inserted in this agreement are for convenience only and shall have no bearing on the interpretation hereof.

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IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed and effective as of the date of last signature written below.

Controlled Affiliate:

By:

Date:

Controlling Plan:

By:

Date:

Controlling Plan:

By:

Date:

BLUE CROSS AND BLUE SHIELD ASSOCIATION

By:

Date:

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EXHIBIT A

CONTROLLED AFFILIATE LICENSE STANDARDS
APPLICABLE TO REGIONAL MEDICARE
ADVANTAGE PPO PRODUCTS
November 2008

PREAMBLE

The standards for licensing Controlled Affiliates for Medicare Advantage PPO Products are established by BCBSA and are subject to change from time-to-time upon the affirmative vote of three-fourths (3/4) of the Plans and three-fourths (3/4) of the total weighted vote. Each Controlling Plan is required to use a standard Controlled Affiliate license form provided by BCBSA and to cooperate fully in assuring that the licensed Controlled Affiliate maintains compliance with the license standards.

Standard 1 — Organization and Governance

A Controlled Affiliate is defined as an entity organized and operated in such a manner, that it meets the following requirements:

     (1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;

     (2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least one of the Controlling Plans; and

     (3) The Controlling Plans must have the legal authority directly or indirectly through wholly-owned subsidiaries:

          (a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control thereof;

          (b) prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plans do not concur;

          (c) exercise control over the policy and operations of the Controlled Affiliate; and

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EXHIBIT A (continued)

Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:

(i)	change its legal and/or trade names;
(ii)	change the geographic area in which it operates (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iii)	change any of the type(s) of businesses in which it engages (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iv)	take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks and Name.

In addition, the Controlling Plans directly or indirectly through wholly-owned subsidiaries shall own 100% of any for-profit Controlled Affiliate.

Standard 2 — Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of its contractual obligations to its customers.

Standard 3 — State Licensure/Certification

A Controlled Affiliate shall maintain appropriate and unimpaired licensure and certifications.

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EXHIBIT A (continued)

Standard 4 — Certain Disclosures

A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in disseminating public statements of:

a.	the structure of the Blue Cross and Blue Shield System; and
b.	the independent nature of every licensee.

Standard 5 — Reports and Records for Controlled Affiliates

A Controlled Affiliate and/or its Controlling Plans shall furnish, on a timely and accurate basis, reports and records relating to these Standards and the License Agreements between BCBSA and Controlled Affiliate.

Standard 6 — Best Efforts

During each year, a Controlled Affiliate shall use its best efforts to promote and build the value of the Blue Shield Marks.

Standard 7 — Participation in Certain National Programs

A Controlled Affiliate shall effectively and efficiently participate in certain national programs from time to time as may be adopted by Member Plans for the purposes of providing ease of claims processing for customers receiving benefits outside of the Controlled Affiliate’s service area.

National program requirements include:

a.	Inter-Plan Teleprocessing System (ITS); and
b.	Inter-Plan Medicare Advantage Program.

Standard 8 — Participation in Master Business Associate Agreement

Controlled Affiliates shall comply with the terms of the Business Associate Agreement for Blue Cross and Blue Shield Licensees to the extent they perform the functions of a business associate or subcontractor to a business associate, as defined by the Business Associate Agreement.

Amended November 15, 2007     

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EXHIBIT B

ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENTS
APPLICABLE TO REGIONAL MEDICARE ADVANTAGE PPO PRODUCTS

Controlled Affiliate will pay BCBSA a fee for this license in accordance with the following formula:

An amount equal to its pro rata share of each Controlling Plan dues payable to BCBSA computed with the addition of the Controlled Affiliate’s members using the Marks on regional MAPPO products and related services as reported on the Quarterly Enrollment Report with BCBSA. The payment by each Controlling Plan of its dues to BCBSA, including that portion described in this paragraph, will satisfy the requirement of this paragraph, and no separate payment will be necessary.

Amended June 14, 2007     

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Exhibit 1C

BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO REGIONAL MEDICARE PART D PRESCRIPTION DRUG PLAN
PRODUCTS
(Adopted by Member Plans at their November 13, 2008)

     This Agreement by and among Blue Cross and Blue Shield Association (“BCBSA”) and                      (“Controlled Affiliate”), a Controlled Affiliate of the Blue Cross Plan(s), known as                      (“Controlling Plans”), each of which is also a Party signatory hereto.

     WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;

     WHEREAS, under the Medicare Modernization Act, companies may apply to and be awarded a contract by the Centers for Medicare and Medicaid Services (“CMS”) to offer Medicare Part D Prescription Drug Plan products in geographic regions designated by CMS (hereafter “regional PDP products”).

     WHEREAS, some of the CMS-designated regions include the Service Areas, or portions thereof, of more than one Plan.

     WHEREAS, the Controlling Plans and Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design service marks (collectively the “Licensed Marks”) as service marks and be entitled to use the term BLUE SHIELD in a trade name (“Licensed Name”) to offer regional PDP products in a region that includes the Service Areas, or portions thereof, of more than one Controlling Plan;

     NOW THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. GRANT OF LICENSE

     Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled Affiliate the right to use the Licensed Marks and Name in connection with, and only in connection with the sale, marketing and administration of regional PDP products and related services.

     This grant of rights is non-exclusive and is limited to the following states:                      (the “Region”). Controlled Affiliate may use the Licensed

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Marks and Name in its legal name on the following conditions: (i) the legal name must be approved in advance, in writing, by BCBSA; (ii) Controlled Affiliate shall not do business outside the Region under any name or mark except business conducted in the Service Area of a Controlling Plan provided that Controlled Affiliate is separately licensed by BCBSA to use the Licensed Marks and Name in connection with health care plans and related services in the Service Area of such Controlling Plan; and (iii) Controlled Affiliate shall not use the Licensed Marks and Name, or any derivative thereof, as part of any name or symbol used to identify itself in any securities market. Controlled Affiliate may use the Licensed Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.

     2. QUALITY CONTROL

     A. Controlled Affiliate agrees to use the Licensed Marks and Name only in connection with the licensed services and further agrees to be bound by the conditions regarding quality control shown in attached Exhibit A as they may be amended by BCBSA from time-to-time.

     B. Controlled Affiliate agrees to comply with all applicable federal, state and local laws.

     C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by the Controlling Plans or by BCBSA) a report or reports to the Controlling Plans and BCBSA demonstrating Controlled Affiliate’s compliance with the requirements of this Agreement including but not limited to the quality control provisions of this paragraph and the attached Exhibit A.

     D. Controlled Affiliate agrees that the Controlling Plans and/or BCBSA may, from time-to-time, upon reasonable notice, review and inspect the manner and method of Controlled Affiliate’s rendering of service and use of the Licensed Marks and Name.

     E. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner, that it meets the following requirements:

     (1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;

     (2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least one of the Controlling Plans; and

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     (3) The Controlling Plans must have the legal authority directly or indirectly through wholly-owned subsidiaries:

     (a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control thereof;

     (b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plans do not concur;

     (c) to exercise control over the policy and operations of the Controlled Affiliate; and

Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:

(i)	change its legal and/or trade names;
(ii)	change the geographic area in which it operates (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iii)	change any of the type(s) of businesses in which it engages (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iv)	take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks and Name.

In addition, the Controlling Plans directly or indirectly through wholly owned subsidiaries shall own 100% of any for-profit Controlled Affiliate.

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     3. SERVICE MARK USE

     A. Controlled Affiliate recognizes the importance of a comprehensive national network of independent BCBSA licensees which are committed to strengthening the Licensed Marks and Name. The Controlled Affiliate further recognizes that its actions within the Region may affect the value of the Licensed Marks and Name nationwide.

     B. Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks and Name, including but not limited to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks and Name and shall comply with such rules (generally applicable to Controlled Affiliates licensed to use the Licensed Marks and Name) relative to service mark use, as are issued from time-to-time by BCBSA. Controlled Affiliate recognizes and agrees that all use of the Licensed Marks and Name by Controlled Affiliate shall inure to the benefit of BCBSA.

     C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a manner that transfers or is intended to transfer in the Region the goodwill associated therewith to another mark or name, nor may Controlled Affiliate engage in activity that may dilute or tarnish the unique value of the Licensed Marks and Name.

     D. Controlled Affiliate shall use its best efforts to promote and build the value of the Licensed Marks and Name in connection with the sale, marketing and administration of regional PDP products and related services.

     4. SUBLICENSING AND ASSIGNMENT

     Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate, sell, encumber or mortgage, by operation of law or otherwise, the rights granted hereunder and any such act shall be voidable at the sole option of any Controlling Plan or BCBSA. This Agreement and all rights and duties hereunder are personal to Controlled Affiliate.

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     5. INFRINGEMENT

     Controlled Affiliate shall promptly notify the Controlling Plans and the Controlling Plans shall promptly notify BCBSA of any suspected acts of infringement, unfair competition or passing off that may occur in relation to the Licensed Marks and Name. Controlled Affiliate shall not be entitled to require the Controlling Plans or BCBSA to take any actions or institute any proceedings to prevent infringement, unfair competition or passing off by third parties. Controlled Affiliate agrees to render to the Controlling Plans and BCBSA, without charge, all reasonable assistance in connection with any matter pertaining to the protection of the Licensed Marks and Name by BCBSA.

     6. LIABILITY INDEMNIFICATION

     Controlled Affiliate and the Controlling Plans hereby agree to save, defend, indemnify and hold BCBSA harmless from and against all claims, damages, liabilities and costs of every kind, nature and description (except those arising solely as a result of BCBSA’s negligence) that may arise as a result of or related to Controlled Affiliate’s rendering of services under the Licensed Marks and Name.

     7. LICENSE TERM

     A. Except as otherwise provided herein, the license granted by this Agreement shall remain in effect for a period of one (1) year and shall be automatically extended for additional one (1) year periods unless terminated pursuant to the provisions herein.

     B. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further action by any party or entity in the event that: (i) any one of the Controlling Plans ceases to be authorized to use the Licensed Marks and Name; or (ii) pursuant to Paragraph 15(a)(x) of the Blue Shield License Agreement any one of the Controlling Plans ceases to be authorized to use the Licensed Names and Marks in the Region.

     C. Notwithstanding any other provision of this Agreement, this license to use the Licensed Marks and Name may be forthwith terminated by the Controlling Plans or the affirmative vote of the majority of the Board of Directors of BCBSA present and voting at a special meeting expressly called by BCBSA for the purpose on ten (10) days written notice to the Controlling Plans advising of the specific matters at issue and granting the Controlling Plans an opportunity to be heard and to present their response to the Board for: (1) failure to comply with any applicable minimum capital or liquidity requirement under the quality control standards of this

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Agreement; or (2) failure to comply with the “Organization and Governance” quality control standard of this Agreement; or (3) impending financial insolvency; or (4) failure to comply with any of the applicable requirements of Standards 2, 3, 4, or 5 of attached Exhibit A; or (5) the pendency of any action instituted against the Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business or seeking the declaration or establishment of a trust for any of its property or business, unless this Controlled Affiliate License Agreement has been earlier terminated under paragraph 7(E); or (6) such other reason as is determined in good faith immediately and irreparably to threaten the integrity and reputation of BCBSA, the Plans (including the Controlling Plans), any other licensee including Controlled Affiliate and/or the Licensed Marks and Name.

     D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should Controlled Affiliate fail to comply with the provisions of this Agreement and not cure such failure within thirty (30) days of receiving written notice thereof (or commence a cure within such thirty day period and continue diligent efforts to complete the cure if such curing cannot reasonably be completed within such thirty day period) BCBSA or the Controlling Plans shall have the right to issue a notice that the Controlled Affiliate is in a state of noncompliance. If a state of noncompliance as aforesaid is undisputed by the Controlled Affiliate or is found to exist by a mandatory dispute resolution panel and is uncured as provided above, BCBSA shall have the right to seek judicial enforcement of the Agreement or to issue a notice of termination thereof. Notwithstanding any other provisions of this Agreement, any disputes as to the termination of this License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall not be subject to mediation and mandatory dispute resolution. All other disputes between or among BCBSA, any of the Controlling Plans and/or Controlled Affiliate shall be submitted promptly to mediation and mandatory dispute resolution. The mandatory dispute resolution panel shall have authority to issue orders for specific performance and assess monetary penalties. Except, however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license to use the Licensed Marks and Name may not be finally terminated for any reason without the affirmative vote of a majority of the present and voting members of the Board of Directors of BCBSA.

     E. This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further action by any party or entity in the event that:

     (1) Controlled Affiliate shall no longer comply with item 2(E) above;

     (2) Appropriate dues, royalties and other payments for Controlled Affiliate pursuant to paragraph 9 hereof, which are the royalties for this License Agreement, are more than sixty (60) days in arrears to BCBSA; or

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     (3) Any of the following events occur: (i) a voluntary petition shall be filed by Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief, or (ii) an involuntary petition or proceeding shall be filed against Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or debtor relief and such petition or proceeding is consented to or acquiesced in by Controlled Affiliate or is not dismissed within sixty (60) days of the date upon which the petition or other document commencing the proceeding is served upon the Controlled Affiliate, or (iii) an order for relief is entered against Controlled Affiliate in any case under the bankruptcy laws of the United States, or Controlled Affiliate is adjudged bankrupt or insolvent as those terms are defined in the Uniform Commercial Code as enacted in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled Affiliate makes a general assignment of its assets for the benefit of creditors, or (v) any government or any government official, office, agency, branch, or unit assumes control of Controlled Affiliate or delinquency proceedings (voluntary or involuntary) are instituted, or (vi) an action is brought by Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business, or (vii) an action is instituted by any governmental entity or officer against Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business and such action is consented to or acquiesced in by Controlled Affiliate or is not dismissed within one hundred thirty (130) days of the date upon which the pleading or other document commencing the action is served upon the Controlled Affiliate, provided that if the action is stayed or its prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the stay or injunction, and provided further, that the Association’s Board of Directors may toll or extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or other custodian for any of Controlled Affiliate’s property or business is appointed or the Controlled Affiliate is ordered dissolved or liquidated. Notwithstanding any other provision of this Agreement, a declaration or a request for declaration of the existence of a trust over any of the Controlled Affiliate’s property or business shall not in itself be deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other custodian for purposes of subparagraphs 7(E)(3)(vii) and (viii) of this Agreement.

     F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall immediately discontinue all use of the Licensed Marks and Name, including any use in its trade name, except to the extent that it continues to be authorized to use the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan.

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     G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of its customers to whom it provides products or services under the Licensed Marks pursuant to this Agreement that it is no longer a licensee of BCBSA and, if directed by the Association’s Board of Directors, shall provide instruction on how the customer can contact BCBSA or a designated licensee to obtain further information on securing coverage. The notification required by this paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall have the right to audit the terminated entity’s books and records to verify compliance with this paragraph.

     H. In the event this Agreement terminates pursuant to 7(B) hereof, upon termination of this Agreement the provisions of Paragraph 7(G) shall not apply and the following provisions shall apply, except that, in the event that Controlled Affiliate is separately licensed by BCBSA to use the Licensed Marks in the Service Area of a Controlling Plan and termination of this Agreement is due to a partial termination of such Controlling Plan’s license pursuant to Paragraph 15(a)(x)(ii) of the Blue Shield License Agreement, the notices, national account listing, payment, and audit right listed below shall be applicable solely with respect to the Region and the geographic area for which the Controlling Plan’s license to use the Licensed Names and Marks is terminated:

     (1) The Controlled Affiliate shall send a notice through the U.S. mails, with first class postage affixed, to all individual and group customers, providers, brokers and agents of products or services sold, marketed, underwritten or administered by the Controlled Affiliate under the Licensed Marks and Name. The form and content of the notice shall be specified by BCBSA and shall, at a minimum, notify the recipient of the termination of the license, the consequences thereof, and instructions for obtaining alternate products or services licensed by BCBSA. This notice shall be mailed within 15 days after termination.

     (2) The Controlled Affiliate shall deliver to BCBSA within five days of a request by BCBSA a listing of national accounts in which the Controlled Affiliate is involved (in a control, participating or servicing capacity), identifying the national account and the Controlled Affiliate’s role therein.

     (3) Unless the cause of termination is an event respecting BCBSA stated in paragraph 15(a) or (b) of the Plan’s license agreement with BCBSA to use the Licensed Marks and Name, the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for payment to BCBSA of an amount equal to $25 multiplied by the number of Licensed Enrollees of the Controlled Affiliate; provided that if any Plan other than a Controlling Plan is permitted by BCBSA to use marks or names licensed by BCBSA in a geographic area in the Region, the payment for Licensed Enrollees in such

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geographic area shall be multiplied by a fraction, the numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans in such geographic area and the denominator of which is the total number of Licensed Enrollees in such geographic area. Licensed Enrollee means each and every person and covered dependent who is enrolled as an individual or member of a group receiving products or services sold, marketed or administered under marks or names licensed by BCBSA as determined at the earlier of (i) the end of the last fiscal year of the terminated entity which ended prior to termination or (ii) the fiscal year which ended before any transactions causing the termination began. Notwithstanding the foregoing, the amount payable pursuant to this subparagraph H. (3) shall be due only to the extent that, in BCBSA’s opinion, it does not cause the net worth of the Controlled Affiliate, the Controlling Plans or any other Licensed Controlled Affiliates of the Controlling Plans to fall below 100% of the Health Risk-Based Capital formula, or its equivalent under any successor formula, as set forth in the applicable financial responsibility standards established by BCBSA (provided such equivalent is approved for purposes of this subparagraph by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans); measured as of the date of termination, and adjusted for the value of any transactions not made in the ordinary course of business. This payment shall not be due in connection with transactions exclusively by or among Plans (including the Controlling Plans) or their affiliates, including reorganizations, combinations or mergers, where the BCBSA Board of Directors determines that the license termination does not result in a material diminution in the number of Licensed Enrollees or the extent of their coverage. In the event that the Controlled Affiliate’s license is reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdiction, BCBSA shall reimburse the Controlled Affiliate (and/or the Controlling Plans or their other Licensed Controlled Affiliates, as the case may be) for payments made under this subparagraph 7.H.(3) only to the extent that such payments exceed the amounts due to BCBSA pursuant to paragraph 7.K. and any costs associated with reestablishing the terminated Controlling Plan’s Service Area or the Region, including any payments made by BCBSA to a Plan or Plans (including the other Controlling Plans), or their Licensed Controlled Affiliates, for purposes of replacing the Controlled Affiliate.

     (4) BCBSA shall have the right to audit the books and records of the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans to verify compliance with this paragraph 7.H.

     (5) As to a breach of 7.H.(1), (2), (3) or (4), the parties agree that the obligations are immediately enforceable in a court of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there is no adequate remedy at law and BCBSA is entitled to obtain specific performance.

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     I. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court of competent jurisdiction from entry into any transaction which would result in a termination of this Agreement unless a Controlling Plan’s license from BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d) of such Controlling Plan’s license agreement upon the required 6 month written notice.

     J. BCBSA acknowledges that it is not the owner of assets of the Controlled Affiliate.

     K. In the event this Agreement terminates and is subsequently reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdiction, the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for reimbursing BCBSA the reasonable costs incurred by BCBSA in connection with the termination and the reinstatement or court action, and any associated legal proceedings, including but not limited to: outside legal fees, consulting fees, public relations fees, advertising costs, and costs incurred to develop, lease or establish an interim provider network. Any amount due to BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of Directors in its sole discretion.

     8. DISPUTE RESOLUTION

     The parties agree that any disputes between or among them or between or among any of them and one or more Plans or Controlled Affiliates of Plans that use in any manner the Blue Shield and Blue Shield Marks and Name are subject to the Mediation and Mandatory Dispute Resolution process attached to and made a part of each Controlling Plan’s License from BCBSA to use the Licensed Marks and Name as Exhibit 5 as amended from time-to-time, which documents are incorporated herein by reference as though fully set forth herein.

     9. LICENSE FEE

     Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the formula(s) set forth in Exhibit B.

     10. JOINT VENTURE

     Nothing contained in this Agreement shall be construed as creating a joint venture, partnership, agency or employment relationship between the Controlling Plans and Controlled Affiliate or between either and BCBSA.

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     11. NOTICES AND CORRESPONDENCE

     Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall be addressed in duplicate to the last known address of each other party, marked respectively to the attention of its President and, if any, its General Counsel.

     12. COMPLETE AGREEMENT

     This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This Agreement may only be amended by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.

     13. SEVERABILITY

     If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such findings shall in no way affect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits of this Agreement.

     14. NONWAIVER

     No waiver by BCBSA of any breach or default in performance on the part of Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent breach or default in performance of said terms, covenants or conditions.

     14A. VOTING

     For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest whole number, with

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0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-nine (39) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in favor of the question.

     15. GOVERNING LAW

     This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Illinois.

     16. HEADINGS

     The headings inserted in this agreement are for convenience only and shall have no bearing on the interpretation hereof.

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IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed and effective as of the date of last signature written below.

Controlled Affiliate:

By:

Date:

Controlling Plan:

By:

Date:

Controlling Plan:

By:

Date:

BLUE CROSS AND BLUE SHIELD ASSOCIATION

By:

Date:

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EXHIBIT A

CONTROLLED AFFILIATE LICENSE STANDARDS
APPLICABLE TO REGIONAL MEDICARE
PART D PRESCRIPTION DRUG PLAN PRODUCTS
November 2008

PREAMBLE

The standards for licensing Controlled Affiliates for Medicare Part D Prescription Drug Plan Products are established by BCBSA and are subject to change from time-to-time upon the affirmative vote of three-fourths (3/4) of the Plans and three-fourths (3/4) of the total weighted vote. Each Controlling Plan is required to use a standard Controlled Affiliate license form provided by BCBSA and to cooperate fully in assuring that the licensed Controlled Affiliate maintains compliance with the license standards.

Standard 1 — Organization and Governance

A Controlled Affiliate is defined as an entity organized and operated in such a manner, that it meets the following requirements:

     (1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;

     (2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least one of the Controlling Plans; and

     (3) The Controlling Plans must have the legal authority directly or indirectly through wholly-owned subsidiaries:

          (a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control thereof;

          (b) prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which the Controlling Plans do not concur;

          (c) exercise control over the policy and operations of the Controlled Affiliate; and

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EXHIBIT A (continued)

Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:

(i)	change its legal and/or trade names;
(ii)	change the geographic area in which it operates (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iii)	change any of the type(s) of businesses in which it engages (except such approval shall not be required with respect to business of the Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iv)	take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the Licensed Marks and Name.

In addition, the Controlling Plans directly or indirectly through wholly-owned subsidiaries shall own 100% of any for-profit Controlled Affiliate.

Standard 2 — Financial Responsibility

A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of its contractual obligations to its customers.

Standard 3 — State Licensure/Certification

A Controlled Affiliate shall maintain appropriate and unimpaired licensure and certifications.

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EXHIBIT A (continued)

Standard 4 — Certain Disclosures

A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in disseminating public statements of:

a.	the structure of the Blue Cross and Blue Shield System; and
b.	the independent nature of every licensee.

Standard 5 — Reports and Records for Controlled Affiliates

A Controlled Affiliate and/or its Controlling Plans shall furnish, on a timely and accurate basis, reports and records relating to these Standards and the License Agreements between BCBSA and Controlled Affiliate.

Standard 6 — Best Efforts

During each year, a Controlled Affiliate shall use its best efforts to promote and build the value of the Blue Shield Marks.

Standard 7 — Participation in Master Business Associate Agreement

Controlled Affiliates shall comply with the terms of the Business Associate Agreement for Blue Cross and Blue Shield Licensees to the extent they perform the functions of a business associate or subcontractor to a business associate, as defined by the Business Associate Agreement.

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EXHIBIT B

ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENTS
APPLICABLE TO REGIONAL MEDICARE PART D PRESCRIPTION DRUG PLAN PRODUCTS

Controlled Affiliate will pay BCBSA a fee for this license in accordance with the following formula:

An amount equal to its pro rata share of each Controlling Plan dues payable to BCBSA computed with the addition of the Controlled Affiliate’s members using the Marks on regional PDP products and related services as reported on the Quarterly Enrollment Report with BCBSA. The payment by each Controlling Plan of its dues to BCBSA, including that portion described in this paragraph, will satisfy the requirement of this paragraph, and no separate payment will be necessary.

Amended June 14, 2007

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EXHIBIT 2

Membership Standards
Page 1 of 5

Preamble

The Membership Standards apply to all organizations seeking to become or to continue as Regular Members of the Blue Cross and Blue Shield Association. Any organization seeking to become a Regular Member must be found to be in substantial compliance with all Membership Standards at the time membership is granted and the organization must be found to be in substantial compliance with all Membership Standards for a period of two (2) years preceding the date of its application. If Membership is sought by an entity which controls or is controlled by one or more Plans, such compliance shall be determined on the basis of compliance by such Plan or Plans.

The Regular Member Plans shall have authority to interpret these Standards.

A Regular Member Plan that operates as a “Shell Holding Company” is defined as an entity that assumes no underwriting risk and has less than 1% of the consolidated enterprise assets (excludes investments in subsidiaries) and less than 5% of the consolidated enterprise net general and administrative expenses.

A Regular Member Plan that operates as a “Hybrid Holding Company” is defined as an entity that assumes no underwriting risk and has either more than 1% of the consolidated enterprise assets (excludes investments in subsidiaries) or more than 5% of the consolidated enterprise net general and administrative expenses.

Standard 1: A Plan shall maintain a governing Board, which shall control the Plan and ensure that the Plan follows appropriate practices of corporate governance. A Plan’s Board shall not be controlled by any special interest group, shall make an annual determination that a majority of its directors are independent, and shall act in the best interest of its Corporation and its customers. The Board shall be composed of a majority of persons other than providers of health care services, who shall be known as public members. A public member shall not be an employee of or have a financial interest in a health care provider, nor be a member of a profession which provides health care services.

Amended as of March 15, 2007

EXHIBIT 2
Membership Standards
Page 2 of 5

Standard 2: A Plan shall furnish to the Association on a timely and accurate basis reports and records relating to compliance with these Standards and the License Agreements between the Association and the Plans. Such reports and records are the following:

A.	BCBSA Membership Information Request;
B.	Biennial trade name and service mark usage material, including disclosure material under Standard 7;
C.	Changes in the governance of the Plan, including changes in a Plan’s Charter, Articles of Incorporation, or Bylaws, changes in a Plan’s Board composition, or changes in the identity of the Plan’s Principal Officers;
D.	Quarterly Financial Report, Semi-annual “Health Risk-Based Capital (HRBC) Report” as defined by the NAIC, Annual Financial Forecast, Annual Certified Audit Report, Insurance Department Examination Report, Annual Statement filed with State Insurance Department (with all attachments), Plan, Subsidiary and Affiliate Report; and

• Plans that are a Shell Holding Company as defined in the Preamble hereto are required to furnish only a calendar year-end “Health Risk-Based Capital (HRBC) Report” as defined by the NAIC.

Amended as of November 15, 2001

EXHIBIT 2

Membership Standards
Page 3 of 5

E. Quarterly Enrollment Report and Member Touchpoint Measures Index (MTM).

• Plans that are a Shell Holding Company as defined in the Preamble hereto are not required to furnish a Quarterly Enrollment Report.

• For purposes of MTM reporting only, a Plan shall file a separate MTM report for each Geographic Market and on an enterprise basis, except that the enterprise report shall not include the Geographic Market as defined in section (c) of footnote 2 to the guidelines to administer Regular Member Standard 4.

Standard 3:	A Plan shall be operated in a manner that provides reasonable financial assurance that it can fulfill its contractual obligations to its customers.
Standard 4:	A Plan shall be operated in a manner responsive to customer needs and requirements.
Standard 5:	A Plan shall effectively and efficiently participate in each national program as from time to time may be adopted by the Member Plans for the purposes of providing portability of membership between the Plans and ease of claims processing for customers receiving benefits outside of the Plan’s Service Area.
	Such programs are applicable to Blue Cross and Blue Shield Plans, and include:

A.	Transfer Program;
B.	Inter-Plan Teleprocessing System (ITS);
C.	BlueCard Program;
D.	National Account Programs;
E.	Business Associate Agreement for Blue Cross and Blue Shield Licensees, effective April 14, 2003; and
F.	Inter-Plan Medicare Advantage Program.

Amended as of November 15, 2007

EXHIBIT 2

Membership Standards
Page 4 of 5

Standard 6:	In addition to requirements under the national programs listed in Standard 5: Participation in National Programs, a Plan shall take such action as required to ensure its financial performance in programs and contracts of an inter-Plan nature or where the Association is a party.
Standard 7:	A Plan shall make adequate disclosure in contracting with third parties and in disseminating public statements of (i) the structure of the Blue Cross and Blue Shield System, (ii) the independent nature of every Plan, and (iii) the Plan’s financial condition.
Standard 8:	A Plan shall cooperate with the Association’s Board of Directors and its Plan Performance and Financial Standards Committee in the administration of the Plan Performance Response Process and in addressing Plan performance problems identified thereunder.
Standard 9:	A Plan shall obtain a rating of its financial strength from an independent rating agency approved by the Association’s Board of Directors for such purpose.
Standard 10:	Notwithstanding any other provision in this License Agreement, during each year, a Plan and its Controlled Affiliate(s) engaged in providing licensable services (excluding Life Insurance and Charitable Foundation Services) shall use their best efforts to promote and build the value of the Blue Shield Marks.
Standard 11:	Neither a Plan nor any Larger Controlled Affiliate shall cause or permit an entity other than a Plan or a Licensed Controlled Affiliate thereof to obtain control of the Plan or Larger Controlled Affiliate or to acquire a substantial portion of its assets related to licensable services.

Amended as of June 16, 2005

EXHIBIT 2

Membership Standards
Page 5 of 5

Standard 12:	No provider network, or portion thereof, shall be rented or otherwise made available to a National Competitor if the Licensed Marks or Names are used in any way with such network.
	A provider network may be rented or otherwise made available, provided there is no use of the Licensed Marks or Names with respect to the network being rented.

Amended as of March 18, 2004

EXHIBIT 3

GUIDELINES WITH RESPECT TO USE OF
LICENSED NAME AND MARKS IN CONNECTION WITH NATIONAL
ACCOUNTS

Page 1 of 3

1. The strength of the Blue Cross/Blue Shield National Accounts mechanism, and the continued provision of cost effective, quality health care benefits to National Accounts, are predicated on locally managed provider networks coordinated on a national scale in a manner consistent with effective service to National Account customers and consistent with the preservation of the integrity of the Blue Cross/Blue Shield system and the Licensed Marks. These guidelines shall be interpreted in keeping with such ends.

2. A National Account is an entity with employee and/or retiree locations in more than one Plan’s Service Area. Unless otherwise agreed, a National Account is deemed located in the Service Area in which the corporate headquarters of the National Account is located. A local plant, office or division headquarters of an entity may be deemed a separate National Account when that local plant, office or division headquarters 1) has employee locations in more than one Service Area, and 2) has independent health benefit decision-making authority for the employees working at such local plant, office or division headquarters and for employees working at other locations outside the Service Area. In such a case, the local plant, office or division headquarters is a National Account that is deemed located in the Service Area in which such local plant, office or division headquarters is located. The Control Plan of a National Account is the Plan in whose Service Area the National Account is located. A participating (“Par”) Plan is a Plan in whose Service Area the National Account has employee and/or retiree locations, but in which the National Account is not located. In the event that a National Account parent company consolidates health benefit-decision making for itself and its wholly-owned subsidiary companies, the parent company and the subsidiary companies shall be considered one National Account. The Control Plan for such a National Account shall be the Plan in whose Service Area the parent company headquarters is located.

3. The National Account Guidelines enunciated herein below shall be applicable only with respect to the business of new National Accounts acquired after January 1, 1991.

4. Control Plans shall utilize National Account identification cards complying with then currently effective BCBSA graphic standards in connection with all National Accounts business to facilitate administration thereof, to minimize subscriber and provider confusion, and to reflect a commitment to cooperation among Plans.

Amended June 12, 2003

Exhibit 3

Page 2 of 3

5. Disputes among Plans and/or BCBSA as to the interpretation or implementation of these Guidelines or as to other National Accounts issues shall be submitted to mediation and mandatory dispute resolution as provided in the License Agreement. For two years from the effective date of the License Agreement, however, such disputes shall be subject to mediation only, with the results of such mediation to be collected and reported in order to establish more definitive operating parameters for National Accounts business and to serve as ground rules for future binding dispute resolution.

6. The Control Plan may use the BlueCard Program (as defined by IPPC) to deliver benefits to employees and non-Medicare eligible retirees in a Participating Plan’s service area if an alternative arrangement with the Participating Plan cannot be negotiated. The Participating Plan’s minimum servicing requirement for those employees and non-Medicare retirees in its service area is to deliver benefits using the BlueCard Program. Account delivery is subject to the policies, provisions and procedures of the BlueCard Program.

7. For provider payments in a Participating Plan’s area (on non-BlueCard claims), payment to the provider may be made by the Participating Plan or the Control Plan at the Participating Plan’s option. If the Participating Plan elects to pay the provider, it may not withhold payment of a claim verified by the Control Plan or its designated processor, and payment must be in conformity with service criteria established by the Board of Directors of BCBSA (or an authorized committee thereof) to assure prompt payment, good service and minimum confusion with providers and subscribers. The Control Plan, at the Participating Plan’s request, will also assure that measures are taken to protect the confidentiality of the data pertaining to provider reimbursement levels and profiles.

Amended as of June 14, 1996

Exhibit 3

Page 3 of 3

8. The Control Plan, in its financial agreements with a National Account, is expected to reasonably reflect the aggregate amount of differentials passed along to the Control Plan by all Participating Plans in a National Account.

9. Other than in contracting with health care providers or soliciting such contracts in areas contiguous to a Plan’s Service Area in order to serve its subscribers or those of its licensed Controlled Affiliate residing or working in its Service Area, a Control Plan may not use the Licensed Marks and/or Name, as a tag line or otherwise, to negotiate directly with providers outside its Service Area.

Amended March 13, 2003

EXHIBIT 4

GOVERNMENT PROGRAMS AND CERTAIN OTHER USES

Page 1 of 10

1. A Plan and its licensed Controlled Affiliate may use the Licensed Marks and Name in bidding on and executing a contract to serve a Government Program, and in thereafter communicating with the Government concerning the Program. With respect, however, to such contracts entered into after the 1st day of January, 1991, the Licensed Marks and Name will not be used in communications or transactions with beneficiaries or providers in the Government Program located outside a Plan’s Service Area, unless the Plan can demonstrate to the satisfaction of BCBSA’s governing body that such a restriction on use of the Licensed Marks and Name will jeopardize its ability to procure the contract for the Government Program. As to both existing and future contracts for Government Programs, Plans will discontinue use of the Licensed Marks and Name as to beneficiaries and Providers outside their Service Area as expenditiously as circumstances reasonably permit. Effective January 1, 1995, except as provided in the first sentence above, all use by a Plan of the Licensed Marks and Name in Government Programs outside of the Plan’s Service Area shall be discontinued. Incidental communications outside a Plan’s Service Area with resident or former resident beneficiaries of the Plan, and other categories of necessary incidental communications approved by BCBSA, are not prohibited. For purposes of this Paragraph 1, the term “Government Programs” shall mean Medicare Part A, Medicare Part B and other non-risk government programs.

2. In connection with activity otherwise in furtherance of the License Agreement, a Plan and its Controlled Affiliates that are licensed to use the Licensed Marks and Name in its Service Area pursuant to the Controlled Affiliate License Agreements authorized in clauses a) through c) of Paragraph 2 of the Plan’s License Agreement with BCBSA may use the Licensed Marks and Name outside the Plan’s Service Area in the following circumstances which are deemed legitimate and necessary and not likely to cause consumer confusion:

a.	sending letterhead, envelopes, and similar items solely for administrative purposes (e.g., not for purposes of marketing, advertising, promoting, selling or soliciting the sale of health care plans and related services);
b.	distributing business cards other than in marketing and selling;
c.	contracting with health care providers or soliciting such contracts in areas contiguous to the Plan’s Service Area in order to serve its subscribers or those of such licensed Controlled Affiliates residing or working in its service area;

Amended as of March 17, 2005

EXHIBIT 4

Page 2 of 10

d.	issuing a small sign containing the legal name or trade name of the Plan or such licensed Controlled Affiliates for display by a provider to identify the latter as a participating provider of the Plan or Controlled Affiliate;
e.	advertising in publications or electronic media solely to persons for employment;
f.	advertising in print, electronic or other media which serve, as a substantial market, the Service Area of the Plan or licensed Controlled Affiliate, provided that no Plan or Controlled Affiliate may advertise outside its Service Area on the national broadcast and cable networks and that advertisements in national print media are limited to the smallest regional edition encompassing the Service Area;
g.	advertising by direct mail where the addressee’s zip code plus 4 includes, at least in part, the Plan’s Service Area or that of a licensed Controlled Affiliate.
h.	negotiating rates with a health care provider for services to a specific member, provided that all of the following conditions are met:

(1)	the health care provider does not have a contract, applicable to the services rendered or to be rendered, with the Licensee (or any of the Licensees in the case of overlapping Service Areas) in whose Service Area the health care provider is located; and
(2)	the Plan or Controlled Affiliate reasonably determines that the member did/does not have a reasonable opportunity to access a participating provider whose contract applies to the services rendered or to be rendered; and
(3)	at least one of the following circumstances exists:

(i) the member received emergency services and the Plan or Controlled Affiliate knows or reasonably anticipates that the charges on the claim will meet or exceed $5,000; or

Amended as of June 19, 2008

EXHIBIT 4

Page 3 of 10

(ii)	a provider, in consultation pre- or post- treatment with the Plan or Controlled Affiliate, makes/made a treatment recommendation or referral to a non-par provider or to a par provider whose contract does not apply to the services to be rendered; or
(iii)	the member inadvertently accessed a non-par provider or non-contracted services in the course of receiving services from a par provider (e.g., the member sees a non-par consulting specialist in a participating hospital); and

(4) the Licensee (and in the case of overlapping Service Areas, all of the Licensees) in whose Service Area the health care provider is located consent(s) in advance.

Amended as of June 19, 2008

EXHIBIT 4

Page 4 of 10

i.	contracting with a pharmacy management organization (“Pharmacy Intermediary”) to gain access to a national or regional pharmacy network to provide self-administered prescription drugs to deliver a pharmacy benefit for all of the Plan’s or licensed Controlled Affiliate’s members nationwide, provided, however, that the Pharmacy Intermediary may not use the Licensed Marks or Name in contracting with the pharmacy providers in such network;
j.	contracting with the corporate owner of a national or regional retail pharmacy chain to gain access to the pharmacies in the chain to provide self-administered prescription drugs to deliver a pharmacy benefit for all of the Plan’s or licensed Controlled Affiliate’s members nationwide, provided that (1) the Plan and the Controlled Affiliate may not contract directly with pharmacists or pharmacy stores outside the Plan’s Service Area, and (2) neither the Plan’s or the Controlled Affiliate’s name nor the Licensed Marks or Name may be posted or otherwise displayed at or by any pharmacy store outside the Plan’s Service Area;
k.	contracting with a dental management organization (“Dental Intermediary”) to gain access to a national or regional dental network to deliver a routine dental benefit for all of the Plan’s or licensed Controlled Affiliate’s members nationwide, provided, however, that the Dental Intermediary may not use the Licensed Marks or Name in contracting with the dental providers in such network;
l.	contracting with a vision management organization (“Vision Intermediary”) to gain access to a national or regional vision network to deliver a routine vision benefit for all of the Plan’s or licensed Controlled Affiliate’s members nationwide, provided, however, that the Vision Intermediary may not use the Licensed Marks or Name in contracting with the vision providers in such network;
m.	contracting with an independent clinical laboratory for analysis and clinical assessment of specimens that are collected within the Plan’s Service Area;

Amended as of March 17, 2005

EXHIBIT 4

Page 5 of 10

n.	contracting with a durable medical equipment or home medical equipment company for durable medical equipment and supplies and home medical equipment and supplies that are shipped to a location within the Plan’s Service Area;
o.	contracting with a speciality pharmaceutical company for non-routine biological therapeutics that are ordered by a health care professional located within the Plan’s Service Area;
p.	contracting with a company that operates provider sites in the Plan’s Service Area, provided that the contract is solely for services rendered at a site (e.g., hospital, mobile van) that is within the Plan’s Service Area;
q.	contracting with a company that makes health care professionals available in the Plan’s Service Area (e.g., traveling home health nurse), provided that the contract is solely for services rendered by health care professionals who are located within the Plan’s Service Area.
r.	entering into a license agreement between and among BCBSA, the Plan and a debit card issuer located outside the Plan’s Service Area, and entering into a corresponding operating agreement or agreements, in order to offer a debit card bearing the Licensed Marks and Name to eligible persons as defined by the aforementioned license agreement.
s.	in conjunction with contracting with a National Account as Control Licensee or Alternate Control Licensee (as those terms are defined in the Inter-Plan Programs Policies and Provisions (“IP Policies”)) to offer Blue-branded Health Coverage to the National Account, offering Blue-branded Health and Wellness Programs to all members of the National Account, including members who have not enrolled in the Blue-branded Health Coverage (“non-Blue Health Coverage members”), provided that:

(i) the Plan and/or licensed Controlled Affiliate has no contact or interaction with providers outside of the Plan’s Service Area regarding such non-Blue Health Coverage members, except in cases of urgent medical need; and

Amended as of November 13, 2008

EXHIBIT 4

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(ii)

if in accordance with IP Policies another Licensee is soliciting or servicing under the Brands a local plant, office or division of the account that is outside of the Plan’s Service Area, the Plan and/or licensed Controlled Affiliate may not offer Blue-branded Health and Wellness Programs to any employees working at such local plant, office or division without the consent of such other Licensee; and

(iii)

if the Plan and/or licensed Controlled Affiliate provides an information card to the non-Blue Health Coverage members, the card may not display the Symbols in the masthead, must contain a prominent disclosure conveying that it is not a health insurance card, and otherwise must be designed so that it is dissimilar to a Blue member identification card.

For purposes of this subparagraph s, the following definitions apply:

“Health and Wellness Program” shall mean a program that includes at least one of the following elements or a related element:

— Health Risk Assessment and/or Preventive Screenings

— Exercise and Fitness Programs

— Health and Wellness Events (e.g., attendance at a health fair, a 5K walk)

— Nutrition and Weight Management

— Health Education (e.g., smoking cessation classes)

— Prenatal and Parenting Education

— Disease or Chronic Condition Management

The above listing is intended to represent examples of the types of programs that may be offered, and other programs, including those offered through different media such as the internet or telephonically, may also be deemed Health and Wellness programs.

“Health Coverage” shall mean providing or administering medical, surgical, hospital, major medical, or catastrophic coverage, or any HMO, PPO, POS or other managed care plan for the foregoing services.

Amended as of November 13, 2008

EXHIBIT 4

Page 7 of 10

3. In connection with activity otherwise in furtherance of the License Agreement, a Controlled Affiliate that is licensed to use the Licensed Marks and Name pursuant to a Controlled Affiliate License Agreement authorized in clauses d) or e) of Paragraph 2 of the Plan’s License Agreement with BCBSA may use the Licensed Marks and Name outside the Region (as that term is defined in such respective Controlled Affiliate License Agreements) in the following circumstances which are deemed legitimate and necessary and not likely to cause consumer confusion:

a.	sending letterhead, envelopes, and similar items solely for administrative purposes (e.g., not for purposes of marketing, advertising, promoting, selling or soliciting the sale of health care plans and related services);
b.	distributing business cards other than in marketing and selling;
c.	contracting with health care providers or soliciting such contracts in areas contiguous to the Region in order to serve its subscribers residing in the Region, provided that the Controlled Affiliate may not use the names of any of its Controlling Plans in connection with such contracting unless the provider is located in a geographic area that is also contiguous to such Controlling Plan’s Service Area;
d.	issuing a small sign containing the legal name or trade name of the Controlled Affiliate for display by a provider to identify the latter as a participating provider of the Controlled Affiliate, provided that the Controlled Affiliate may not use the names of any of its Controlling Plans on such signs unless the provider is located in a geographic area that is also contiguous to such Controlling Plan’s Service Area;
e.	advertising in publications or electronic media solely to persons for employment;

Amended as of March 17, 2005

EXHIBIT 4

Page 8 of 10

f.	advertising in print, electronic or other media which serve, as a substantial market, the Region, provided that the Controlled Affiliate may not advertise outside its Region on the national broadcast and cable networks and that advertisements in national print media are limited to the smallest regional edition encompassing the Region, and provided further that any such advertising by the Controlled Affiliate may not reference the name of any of its Controlling Plans unless the respective Controlling Plan is authorized under paragraph 2 of this Exhibit 4 to advertise in such media;
g.	advertising by direct mail where the addressee’s zip code plus 4 includes, at least in part, the Region, provided that such advertising by the Controlled Affiliate may not reference the name of any of its Controlling Plans unless the respective Controlling Plan is authorized under paragraph 2 of this Exhibit 4 to send direct mail to such zip code plus 4.
h.	[Intentionally left blank, pending review by the Inter-Plan Programs Committee of the applicability of the case management rule to such Controlled Affiliates.]
i.	contracting with a pharmacy management organization (“Pharmacy Intermediary”) to gain access to a national or regional pharmacy network to provide self-administered prescription drugs to deliver a pharmacy benefit for the Controlled Affiliate’s regional Medicare Advantage PPO or regional Medicare Part D Prescription Drug members enrolled under the Licensed Marks pursuant to such respective Controlled Affiliate License Agreements, provided, however, that the Pharmacy Intermediary may not use the Licensed Marks or Name in contracting with the pharmacy providers in such network;
j.	contracting with the corporate owner of a national or regional retail pharmacy chain to gain access to the pharmacies in the chain to provide self-administered prescription drugs to deliver a pharmacy benefit to the Controlled Affiliate’s regional Medicare Advantage PPO

Amended as of March 17, 2005

EXHIBIT 4

Page 9 of 10

	or regional Medicare Part D Prescription Drug members enrolled under the Licensed Marks pursuant to such respective Controlled Affiliate License Agreements, provided that (1) the Controlled Affiliate may not contract directly with pharmacists or pharmacy stores outside the Region, and (2) neither the Controlled Affiliate’s name nor the Licensed Marks or Name may be posted or otherwise displayed at or by any pharmacy store outside the Region;
k.	contracting with a dental management organization (“Dental Intermediary”) to gain access to a national or regional dental network to deliver a routine dental benefit for the Controlled Affiliate’s regional Medicare Advantage PPO members enrolled under the Licensed Marks pursuant to such Controlled Affiliate License Agreement, provided, however, that the Dental Intermediary may not use the Licensed Marks or Name in contracting with the dental providers in such network;
l.	contracting with a vision management organization (“Vision Intermediary”) to gain access to a national or regional vision network to deliver a routine vision benefit for the Controlled Affiliate’s regional Medicare Advantage members enrolled under the Licensed Marks pursuant to such Controlled Affiliate License Agreement, provided, however, that the Vision Intermediary may not use the Licensed Marks or Name in contracting with the vision providers in such network;
m.	contracting with an independent clinical laboratory for analysis and clinical assessment of specimens that are collected within the Controlled Affiliate’s Region;
n.	contracting with a durable medical equipment or home medical equipment company for durable medical equipment and supplies and home medical equipment and supplies that are shipped to a location within the Controlled Affiliate’s Region;
o.	contracting with a specialty pharmaceutical company for non-routine biological therapeutics that are ordered by a health care professional located within the Region;

Amended as of March 17, 2005

EXHIBIT 4

Page 10 of 10

p.	contracting with a company that operates provider sites in the Region, provided that the contract is solely for services rendered at a site (e.g., hospital, mobile van) that is within the Region;
q.	contracting with a company that makes health care professionals available in the Region (e.g., traveling home health nurse), provided that the contract is solely for services rendered by health care professionals who are located within the Region.

4. BCBSA shall retain the right to use the Licensed Marks in conjunction with the Federal Employee Program and with any other national offering made to federal employees pursuant to the Federal Employees Health Benefits Program (FEHBP), including the right to license such use to its vendors, but ony in the following manner.

a.	the Licensed Marks may only be used by BCBSA with the term “Federal Employee Program”, “Federal”, “FEP”, or similar language identifying the program as a benefit program for federal employees;
b.	the Licensed Marks may not be used by BCBSA with the name(s) of a specific Plan or Plans and;
c.	any use by BCBSA in conjunction with a new national FEHBP program proposed after the enactment of this amendment will require the approval of the BCBSA Board of Directors.

Amended as of March 16, 2006

EXHIBIT 5

Page 1 of 23

MEDIATION AND MANDATORY DISPUTE RESOLUTION (MMDR) RULES

     The Blue Cross and Blue Shield Plans (“Plans”) and the Blue Cross Blue Shield Association (“BCBSA”) recognize and acknowledge that the Blue Cross and Blue Shield system is a unique nonprofit and for-profit system offering cost effective health care financing and services. The Plans and BCBSA desire to utilize Mediation and Mandatory Dispute Resolution (“MMDR”) to avoid expensive and time-consuming litigation that may otherwise occur in the federal and state judicial systems. Even MMDR should be viewed, however, as methods of last resort, all other procedures for dispute resolution having failed. Except as otherwise provided in the License Agreements, the Plans, their Controlled Affiliates and BCBSA agree to submit all disputes to MMDR pursuant to these Rules and in lieu of litigation.

1. Initiation of Proceedings

     A.      Pre-MMDR Efforts

     Before filing a Complaint to invoke the MMDR process, the CEO of a complaining party, or his/her designated representative, shall undertake good faith efforts with the other side(s) to try to resolve any dispute.

     B.      Complaint

     To commence a proceeding, the complaining party (or parties) shall provide by certified mail, return receipt requested, a written Complaint to the BCBSA Corporate Secretary (which shall also constitute service on BCBSA if it is a respondent) and to any Plan(s) and/or Controlled Affiliate(s) named therein. The Complaint shall contain:

i.	identification of the complaining party (or parties) requesting the proceeding;
ii.	identification of the respondent(s);
iii.	identification of any other persons or entities who are interested in a resolution of the dispute;
iv.	a full statement describing the nature of the dispute;
v.	identification of all of the issues that are being submitted for resolution;

Amended as of November 21, 1996

EXHIBIT 5

Page 2 of 23

vi.	the remedy sought;
vii.	a statement as to whether the complaining party (or parties) elect(s) first to pursue Mediation;
viii.	any request, if applicable, that the matter be handled on an expedited basis and the reasons therefor; and
ix.	a statement signed by the CEO of the complaining party affirming that the CEO has undertaken efforts, or has directed efforts to be undertaken, to resolve the dispute before resorting to the MMDR process.

The complaining party (or parties) shall file and serve with the Complaint copies of all documents which the party (or parties) intend(s) to offer at the Arbitration Hearing and a statement identifying the witnesses the party (or parties) intend(s) to present at the Hearing, along with a summary of each witness’ expected testimony.

     C.      Answer

     Within twenty (20) days after receipt of the Complaint, each respondent shall serve on BCBSA and on the complaining party (or parties):

i.	a full Answer to the aforesaid Complaint;
ii.	a statement of any Counterclaims against the complaining party (or parties), providing with respect thereto the information specified in Paragraph 1.B., above;
iii.	a statement as to whether the respondent elects to first pursue Mediation; and
iv.	any request, if applicable, that the matter be handled on an expedited basis and the reasons therefor.

The respondent(s) shall file and serve with the Answer or by the date of the Initial Conference set forth in Paragraph 3.C., below, copies of all documents which the respondent(s) intend(s) to offer at the Arbitration Hearing and a statement identifying the witnesses the party (or parties) intend(s) to present at the Hearing, along with a summary of each witness’ expected testimony.

Amended September 20, 2007

EXHIBIT 5

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     D.      Reply To Counterclaim

     Within ten (10) days after receipt of any Counterclaim, the complaining party (or parties) shall serve on BCBSA and on the responding party (or parties) a Reply to the Counterclaim. Such Reply must provide the same information required by Paragraph 1.C., above.

2. Mediation

     To facilitate the mediation of disputes between or among BCBSA, the Plans and/or their Controlled Affiliates, the BCBSA Board has provided for Mediation under these Rules. Mediation may be pursued in lieu of or in an effort to obviate the Mandatory Dispute Resolution process, and all parties are strongly urged, but not required, to exhaust the mediation procedure provided for herein. In the event any party refuses to proceed with Mediation, the parties shall proceed immediately to Mandatory Dispute Resolution, as provided in Section 3.

     A.      Selection of Mediators

     If all parties agree to pursue Mediation, they shall promptly attempt to agree upon: (i) the number of mediators desired, not to exceed three mediators; and (ii) the selection of experienced mediator(s) from an independent entity to mediate all disputes set forth in the Complaint and Answer (and Counterclaim and Reply, if any). In the event the parties are unable to agree upon the selection or number of mediators, both within five (5) days of the service of the Answer or Reply to Counterclaim, whichever is later, the BCBSA Corporate Secretary shall immediately refer the matter to a nationally recognized professional ADR organization (such as CPR or JAMS) for mediation by a single mediator to be selected by the ADR organization.

     B.      Binding Decision

     Before the Mediation Hearing described below, the BCBSA Corporate Secretary shall contact the parties to determine whether they wish to be bound by any recommendation of the selected mediator(s) for resolution of the disputes. If all wish to be bound, the Corporate Secretary will send appropriate documentation to them for their signatures before the Mediation Hearing begins.

Amended September 20, 2007

EXHIBIT 5

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     C.       Mediation Procedure

     The Mediator(s) shall apply the mediation procedures and processes provided for herein (not the rules of the ADR organization with which they are affiliated) and shall promptly advise the parties of a scheduled Mediation Hearing date. Unless a party requests an expedited procedure, or unless all parties to the proceeding agree to one or more extensions of time, the Mediation Hearing set forth below shall be completed within forty (40) days of BCBSA’s receipt of the Complaint. The selected mediator(s), unless the parties otherwise agree, shall adhere to the following procedure:

i.	Each party must be represented by its CEO or other representative who has been delegated full authority to resolve the dispute. However, parties may send additional representatives as they see fit.
ii.	Each party will be given one-half hour to present its case, beginning with the complaining party (or parties), followed by the other party or parties. The parties are free to structure their presentations as they see fit, using oral statements or direct examination of witnesses. However, neither cross-examination nor questioning of opposing representatives will be permitted. At the close of each presentation, the selected mediator(s) will be given an opportunity to ask questions of the presenters and witnesses. All parties must be present throughout the Mediation Hearing. The selected mediator(s) may extend the time allowed for each party’s presentation at the Mediation Hearing. The selected mediator(s) may meet in executive session, outside the presence of the parties, or may meet with the parties separately, to discuss the controversy.
iii.	After the close of the presentations, the parties will attempt to negotiate a settlement of the dispute. If the parties desire, the selected mediators, or any one or more of the selected mediator(s), will sit in on the negotiations.

Amended September 20, 2007

EXHIBIT 5

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iv.	After the close of the presentations, the selected mediator(s) may meet privately to agree upon a recommendation for resolution of the dispute which would be submitted to the parties for their consideration and approval. If the parties have previously agreed to be bound by the results of this procedure, this recommendation shall be binding upon the parties.
v.	The purpose of the Mediation Hearing is to assist the parties to settle their grievances short of mandatory dispute resolution. As a result, the Mediation Hearing has been designed to be as informal as possible. Rules of evidence shall not apply. There will be no transcript of the proceedings, and no party may make a tape recording of the Mediation Hearing.
vi.	In order to facilitate a free and open discussion, the Mediation proceeding shall remain confidential. A “Stipulation to Confidentiality” which prohibits future use of settlement offers, all position papers or other statements furnished to the selected mediator(s), and decisions or recommendations in any Mediation proceeding shall be executed by each party.
vii.	Upon request of the selected mediator(s), or one of the parties, BCBSA staff may also submit documentation at any time during the proceedings.

     D.      Notice of Termination of Mediation

     If the Mediation cannot be completed within the prescribed or agreed time period due to the lack of cooperation of any party, as determined by the selected mediator(s), or if the Mediation does not result in a final resolution of all disputes at the Mediation Hearing or within ten (10) days after the Mediation Hearing, any party or any one of the selected mediator(s) shall so notify the BCBSA Corporate Secretary, who shall promptly issue a Notice of Termination of Mediation to all parties, to the selected mediator(s), and to the MDR Administrator. Such notice shall serve to bring the Mediation to an end and to initiate Mandatory Dispute Resolution. Upon agreement of all parties and the mediator(s), the Mediation process may continue at the same time the MDR process is invoked. In such case, the Notice of Termination of Mediation described above serves to initiate the MDR proceeding, but does not terminate mediation proceedings, which may proceed simultaneous with the MDR proceeding.

Amended September 20, 2007

EXHIBIT 5

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3. Mandatory Dispute Resolution (MDR)

     If any party elects not to first pursue Mediation, or if a Notice of Termination of Mediation is issued as set forth in Paragraph 2.D., above, then the unresolved disputes set forth in any Complaint and Answer (and Counterclaim and Reply, if any) shall be subject to mandatory binding arbitration (herein referred to as “MDR”).

     A.      MDR Administrator

     The Administrator for purposes of Mandatory Arbitration shall be an independent nationally recognized entity such as CPR or JAMS, specializing in alternative dispute resolution. In the event the parties pursued Mediation with CPR, JAMS or a similar organization, that organization also shall serve as the MDR Administrator, unless all parties notify the BCBSA Corporate Secretary in writing within two (2) days of receiving the Notice of Termination of Mediation that they wish to pursue MDR with another nationally recognized organization serving as MDR Administrator.

     In the event the parties (i) did not pursue Mediation, (ii) pursued mediation with a Mediator not affiliated with an ADR organization that offers a panel of arbitrators, or (iii) all parties that pursued Mediation notified the BCBSA Corporate Secretary that they wish to have an MDR Administrator that is different from the organization with which their mediator was affiliated, they shall promptly attempt to agree on a nationally recognized ADR entity that supplies a panel of arbitrators. If they reach such agreement within five (5) days of the Notice of Termination of Mediation or receipt of the Answer or Reply to Counterclaim (whichever is later), the parties shall promptly inform the BCBSA Corporate Secretary of their agreed upon ADR organization. In the event the parties are unable to reach agreement on an MDR Administrator within that timeframe, the BCBSA Corporate Secretary shall immediately refer the matter to CPR, JAMS or a similar organization for MDR.

     Any person who served as a Mediator shall not serve as an arbitrator for the same or similar dispute for purposes of MDR.

     B.      Rules for MDR

     The rules controlling all aspects of MDR shall be exclusively those provided for herein. The rules promulgated or otherwise used by the MDR Administrator organization shall not apply.

Amended September 20, 2007

EXHIBIT 5

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     C.      Initial Conference

     Within seven (7) days after a Notice of Termination has issued, or the matter has otherwise been referred to an MDR Administrator, or within five (5) days after the time for filing and serving the Answer or Reply to any Counterclaim (whichever is later) if the parties elect first not to mediate, the parties shall confer with the Administrator to discuss selecting a dispute resolution panel (“the Panel”). This conference (the “Initial Conference”) may be by telephone. The parties are encouraged to agree to the composition of the Panel and to present that agreement to the Administrator at the Initial Conference. If the parties do not agree on the composition of the Panel by the time of the Initial Conference, or by any extension thereof agreed to by all parties and the Administrator, then the Panel Selection Process set forth in subparagraph D, below, shall be followed.

     D.      Panel Selection Process

     The Administrator shall designate, prior to the Initial Conference, at least seven potential arbitrators. Each party shall be permitted to strike any designee for cause and the Administrator shall determine the sufficiency thereof in its sole discretion. The Administrator will designate a replacement for any designee so stricken. Each party shall then be permitted one peremptory strike from the list of designees. The Administrator shall set the dates for exericising all strikes, which shall be set to encourage the prompt selection of arbitrators.

     After the parties exercise any designee strikes for cause and their peremptory strike against any designee of their choice, the parties shall each rank the remaining panel members in order of preference and provide the Administrator, without serving on any other party, their ranked list. The Administrator shall not disclose any party’s ranked list to members of the panel or to other parties.

     From the remaining designees, and after considering opportunities to maximize, so far as possible, the collectively stated arbitrator preferences provided by the parties on their ranked lists, the Administrator shall select a three member Panel. The Panel Selection Process shall be completed no later than ten (10) days after the Initial Conference.

     Each Arbitrator shall be compensated at his or her normal hourly rate or, in the absence of an established rate, at a reasonable hourly rate to be promptly fixed by the Administrator for all time spent in connection with the proceedings and shall be reimbursed for any travel and other reasonable expenses.

Amended September 20, 2007

EXHIBIT 5

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     E.      Duties Of The Arbitrators

     The Panel shall promptly designate a Presiding Arbitrator for the purposes reflected below, but shall retain the power to review and modify any ruling or other action of said Presiding Arbitrator. Each Arbitrator shall be an independent Arbitrator, shall be governed by the Code of Ethics for Arbitrators in Commercial Disputes, and shall at or prior to the commencement of any Arbitration Hearing take an oath to that effect. Each Arbitrator shall promptly disclose in writing to the Panel and to the parties any circumstances, whenever arising, that might cause doubt as to such Arbitrator’s compliance, or ability to comply, with said Code of Ethics, and, absent resignation by such Arbitrator, the remaining Arbitrators shall determine in their sole discretion whether the circumstances so disclosed constitute grounds for disqualification and for replacement. With respect to such circumstances arising or coming to the attention of a party after an Arbitrator’s selection, a party may likewise request the Arbitrator’s resignation or a determination as to disqualification by the remaining Arbitrators. With respect to a sole Arbitrator, the determination as to disqualification shall be made by the Administrator.

     There shall be no ex parte communication between the parties or their counsel and any member of the Panel.

     F.      Panel’s Jurisdiction And Authority

     The Panel’s jurisdiction and authority shall extend to all disputes between or among the Plans, their Controlled Affiliates, and/or BCBSA, except for those disputes excepted from these MMDR procedures as set forth in the License Agreements.

     With the exception of punitive or treble damages, the Panel shall have full authority to award the relief it deems appropriate to resolve the parties’ disputes, including monetary awards and injunctions, mandatory or prohibitory. The Panel has no authority to award punitive or treble damages except that the Panel may allocate or assess responsibility for punitive or treble damages assessed by another tribunal. Subject to the above limitations, the Panel may, by way of example, but not of limitation:

Amended September 20, 2007

EXHIBIT 5

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i.	interpret or construe the meaning of any terms, phrase or provision in any license between BCBSA and a Plan or a Controlled Affiliate relating to the use of the BLUE CROSS® or BLUE SHIELD® service marks.
ii.	determine whether BCBSA, a Plan or a Controlled Affiliate has violated the terms or conditions of any license between the BCBSA and a Plan or a Controlled Affiliate relating to the use of the BLUE CROSS® or BLUE SHIELD® service marks.
iii.	decide challenges as to its own jurisdiction.
iv.	issue such orders for interim relief as it deems appropriate pending Hearing and Award in any Arbitration.

     It is understood that the Panel is expected to resolve issues based on governing principles of law, preserving to the maximum extent legally possible the continued integrity of the Licensed Marks and the BLUE CROSS/BLUE SHIELD system. The Panel shall apply federal law to all issues which, if asserted in the United States District Court, would give rise to federal question jurisdiction, 28 U.S.C. § 1331. The Panel shall apply Illinois law to all issues involving interpretation, performance or construction of any License Agreement or Controlled Affiliate License Agreement unless the agreement otherwise provides. As to other issues, the Panel shall choose the applicable law based on conflicts of law principles of the State of Illinois.

     G.      Administrative Conference

     Within five (5) days of the Panel being selected, the Presiding Arbitrator shall confer with the parties and the other members of the Panel and shall schedule, in writing, a conference in which the parties and the Panel shall participate (the “Administrative Conference”). The Administrative Conference shall take place no later than fifteen (15) days after the Panel is selected. At the Administrative Conference the parties and the Panel shall discuss the scheduling of the Arbitration Hearing and any other matter appropriate to be considered, including but not limited to: any written discovery in the form of requests for production of documents or requests to admit facts; the identity of any witness whose deposition a party may desire and a showing of exceptional good cause for the taking

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of any such deposition; the desirability of bifurcation or other separation of the issues; the need for and the type of record of conferences and hearings, including the need for transcripts; the need for expert witnesses and how expert testimony should be presented; the appropriateness of motions to dismiss and/or for full or partial summary judgment; consideration of stipulations; the desirability of presenting any direct testimony in writing; and the necessity for any on-site inspection by the Panel. If the parties agree, the Administrative Conference may be by telephone.

     H.      Discovery

i.

Requests for Production of Documents: All requests for the production of documents must be served no later than five (5) days after the date of the Initial Conference. Within twenty (20) days after receipt of a request for production of documents, a party shall (a) serve responses and objections to the request, (b) produce all responsive, non-privileged documents to the requesting party, and (c) to the extent any responsive documents are withheld on the grounds of attorney-client privilege or work product, produce a log identifying such documents in the manner specified in Fed. R. Civ. P. 26(b)(5). If, after reviewing a privilege log, the requesting party believes attorney-client privilege or work product protection was improperly claimed by the producing party with respect to any document, the requesting party may ask the Presiding Arbitrator to conduct an in-camera inspection of the same. With respect to documentary and other discovery produced in any MDR proceeding by BCBSA, the fact that a party’s CEO or other senior officers may serve on the BCBSA Board of Directors, BCBSA Board Committees or other BCBSA work groups, task forces and the like, shall not be a basis for defeating an otherwise valid claim of attorney-client privilege or work product protection over such documentary or other discovery materials by BCBSA.

ii.

Requests for Admissions: Requests for Admissions may be served up to twenty-one (21) days prior to the discovery cut-off set by the Presiding Arbitrator. A party served with Requests For Admissions must respond within twenty (20) days of receipt of said request. The good faith use of and response to Requests for Admissions is encouraged, and the Panel shall have full discretion, with reference to the Federal Rules of Civil Procedure, in awarding appropriate sanctions with respect to abuse of the procedure.

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iii.	Depositions: As a general rule, the parties will not be permitted to take party or non-party deposition testimony for discovery purposes. The Presiding Arbitrator, in his or her sole discretion, shall have the authority to permit a party to take such deposition testimony upon a showing of exceptional good cause. The parties will be permitted to take de bene esse deposition1 testimony to the fullest extent permitted by law of any witness who cannot be compelled to testify at the Arbitration Hearing. No deposition, for discovery purposes or otherwise, shall exceed three (3) hours, excluding objections and colloquy of counsel. Depositions may be recorded in any manner recognized by the Federal Rules of Civil Procedure and the parties shall specify in each notice of deposition or request for permission to take deposition testimony the manner in which such deposition shall be recorded.
iv.	Expert witness(es): If a party intends to present the testimony of an expert witness during the oral hearing, it shall provide all other parties with a written statement setting forth the information required to be provided by Fed. R. Civ. P. 26(a)(2)(B) ten (10) days prior to the discovery cut-off set by the Presiding Arbitrator. If a party intends to present the testimony of a rebuttal expert witness during the Arbitration Hearing, it shall provide all other parties with a written statement setting forth the information required to be provided by Fed. R. Civ. P. 26(a)(2)(B) within twenty (20) days after the date on which the written statement of the expert witness whose testimony is to be rebutted was produced.
v.	Discovery cut-off: The Presiding Arbitrator shall determine the date on which the discovery period will end, but the discovery period shall not exceed thirty (30) days from the date of the Administrative Conference without the agreement of all parties.

¹ As used in these Rules, “de bene esse deposition” means a deposition that is not taken for discovery purposes, but is taken for the purpose of reading part or all of the deposition transcript into the record at the Arbitration Hearing, to the extent permitted by the Panel, because the witness cannot be compelled to testify at the Arbitration Hearing or has exercised a right provided under these Rules to provide deposition testimony in lieu of testimony at the Arbitration Hearing.

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vi.	Additional discovery: Any additional discovery will be at the discretion of the Presiding Arbitrator.
vii.	Discovery Disputes: Any discovery disputes shall be raised by motion to the Presiding Arbitrator, who is authorized to resolve all such disputes, and whose resolution will be binding on the parties unless modified by the Arbitration Panel. Prior to raising any discovery dispute with the Presiding Arbitrator, the parties shall meet and confer, telephonically or in person, in an attempt to resolve or narrow the dispute. If a party refuses to comply with a decision resolving a discovery dispute, the Panel, in keeping with Fed. R. Civ. P. 37, may refuse to allow that party to support or oppose designated claims or defenses, prohibit that party from introducing designated matters into evidence or, in extreme cases, decide an issue submitted for resolution adversely to that party.
viii.	Extensions: The time for responding to discovery requests may be extended by the Presiding Arbitrator for good and sufficient cause shown. Any request for such an extension shall be made in writing.

     I.      Panel Suggested Settlement/Mediation

     At any point during the proceedings, the Panel at the request of any party or on its own initiative, may suggest that the parties explore settlement and that they do so at or before the conclusion of the Arbitration Hearing, and the Panel shall give such assistance in settlement negotiations as the parties may request and the Panel may deem appropriate. Alternatively, the Panel may direct the parties to endeavor to mediate their disputes as provided above, or to explore a mini-trial proceeding, or to have an independent party render a neutral evaluation of the parties’ respective positions. The Panel shall enter such sanctions as it deems appropriate with respect to any party failing to pursue in good faith such Mediation or other alternate dispute resolution methods.

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     J.      Subpoenas on Third Parties

     Pursuant to, and consistent with, the Federal Arbitration Act, 9 U.S.C. § 9 et seq., and subject to Paragraph 3.G(iii) above, a party may request the issuance of a subpoena on any third party, including but not limited to any third party Blue Plan or any officer, employee or director of a third party Blue Plan, to compel deposition testimony or the production of documents, and, if good and sufficient cause is shown, the Panel shall issue such a subpoena.

     K.      Arbitration Hearing

     An Arbitration Hearing will be held within thirty (30) days after the Administrative Conference if no discovery is taken, or within thirty (30) days after the close of discovery, unless all parties and the Panel agree to extend the Arbitration Hearing date, or unless the parties agree in writing to waive the Arbitration Hearing. The parties may mutually agree on the location of the Arbitration Hearing. If the parties fail to agree, the Arbitration Hearing shall be held in Chicago, Illinois, or at such other location determined by the Presiding Arbitrator to be most convenient to the participants. The Panel will determine the date(s) and time(s) of the Arbitration Hearing(s) after consultation with all parties and shall provide reasonable notice thereof to all parties or their representatives.

     L.      Arbitration Hearing Memoranda

     Twenty (20) days prior to the Arbitration Hearing, each party shall submit to the other party (or parties) and to the Panel an Arbitration Hearing Memorandum which sets forth the applicable law and any argument as to any relevant issue. The Arbitration Hearing Memorandum will supplement, and not repeat, the allegations, information and documents contained in or with the Complaint, Answer, Counterclaim and Reply, if any. Ten (10) days prior to the Arbitration Hearing, each party shall submit to each other party a list of all expert and fact witnesses (but not including rebuttal fact witness) that such party intends to have testify at the Arbitration Hearing and a brief summary of the testimony each such witness is expected to give. In addition, no later than five (5) days prior to the Arbitration, each party may submit to each other party and to the Panel a Response Arbitration Hearing Memorandum which sets forth any response to another party’s Arbitration Hearing Memorandum.

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     M.      Notice For Testimony

     Ten (10) days prior to the Arbitration Hearing, any party may serve a Notice on any other party (or parties) requesting the attendance at the Arbitration Hearing of any officer, employee or director of the other party (or parties) for the purpose of providing noncumulative testimony. If a party fails to produce one of its officers, employees or directors whose noncumulative testimony during the Arbitration Hearing is reasonably requested by an adverse party, the Panel may refuse to allow that party to support or oppose designated claims or defenses, prohibit that party from introducing designated matters into evidence or, in extreme cases, decide an issue submitted for mandatory dispute resolution adversely to that party; provided, however, that a party may refuse to produce a director to testify if, within two (2) days of receiving a notice requesting the attendance of such director at the Arbitration Hearing, the party agrees to make the director available for a de bene esse deposition at a mutually convenient time at any location within fifty (50) miles of the director’s primary residence chosen by the party requesting the director’s testimony. This Rule may not be used for the purpose of burdening or harassing any party, and the Presiding Arbitrator may impose such orders as are appropriate so as to prevent or remedy any such burden or harassment.

     Pursuant to, and consistent with, the Federal Arbitration Act, 9 U.S.C. § 9 et seq., twenty (20) days or more prior to the Arbitration Hearing, a party may request the issuance of a subpoena on any third party, including but not limited to any third party Blue Plan, BCBSA or any officer, employee or director of a third party Blue Plan or BCBSA for the purpose of providing noncummulative testimony at the Arbitration Hearing, and, if good and sufficient cause is shown, the Panel shall issue such a subpoena; provided however, that a director of a third party Blue Plan or BCBSA may refuse to testify if, within two (2) days of receiving a subpoena requesting the attendance of such director at the Arbitration Hearing, the director agrees to make him/herself available for a de bene esse deposition at a mutually convenient time at any location within fifty (50) miles of the director’s primary residence chosen by the party requesting the director’s testimony. Each Blue Plan agrees to waive, on its own behalf and on behalf of its directors and officers, any objection it otherwise might have to any such subpoena based on service, venue or extraterritoriality.

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     N.      Arbitration Hearing Procedures

i.	Attendance at Arbitration Hearing: Any person having a direct interest in the proceeding is entitled to attend the Arbitration Hearing. The Presiding Arbitrator shall otherwise have the power to require the exclusion of any witness, other than a party or other essential person, during the testimony of any other witness. It shall be discretionary with the Presiding Arbitrator to determine the propriety of the attendance of any other person.
ii.	Confidentiality: The Panel and all parties shall maintain the privacy of the Arbitration Proceeding. The parties and the Panel shall treat the Arbitration Hearing and any discovery or other proceedings or events related thereto, including any award resulting therefrom, as confidential except as otherwise necessary in connection with a judicial challenge to or enforcement of an award or unless otherwise required by law.
iii.	Stenographic Record: Any party, or if the parties do not object, the Panel, may request that a stenographic or other record be made of any Arbitration Hearing or portion thereof. The costs of the recording and/or of preparing the transcript shall be borne by the requesting party and by any party who receives a copy thereof. If the Panel requests a recording and/or a transcript, the costs thereof shall be borne equally by the parties.
iv.	Oaths: The Panel may require witnesses to testify under oath or affirmation administered by any duly qualified person and, if requested by any party, shall do so.
v.	Order of Arbitration Hearing: An Arbitration Hearing shall be opened by the recording of the date, time, and place of the Arbitration Hearing, and the presence of the Panel, the parties, and their representatives, if any. The Panel may, at the beginning of the Arbitration Hearing, ask for statements clarifying the issues involved.

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	Unless otherwise agreed, the complaining party (or parties) shall then present evidence to support their claim(s). The respondent(s) shall then present evidence supporting their defenses and Counterclaims, if any. The complaining party (or parties) shall then present evidence supporting defenses to the Counterclaims, if any, and rebuttal.
	Witnesses for each party shall submit to questions by adverse parties and/or the Panel.
	The Panel has the discretion to vary these procedures, but shall afford a full and equal opportunity to all parties for the presentation of any material and relevant evidence.
vi.	Evidence: The parties may offer such evidence as is relevant and material to the dispute and shall produce such evidence as the Panel may deem necessary to an understanding and resolution of the dispute. Unless good cause is shown, as determined by the Panel or agreed to by all other parties, no party shall be permitted to offer evidence at the Arbitration Hearing which was not disclosed prior to the Arbitration Hearing by that party. The Panel may receive and consider the evidence of witnesses by affidavit upon such terms as the Panel deems appropriate.
	The Panel shall be the judge of the relevance and materiality of the evidence offered, and conformity to legal rules of evidence, other than enforcement of the attorney-client privilege and the work product protection, shall not be necessary. The Federal Rules of Evidence shall be considered by the Panel in conducting the Arbitration Hearing but those rules shall not be controlling. All evidence shall be taken in the presence of the Panel and all of the parties, except where any party is in default or has waived the right to be present.
	Settlement offers by any party in connection with Mediation or MDR proceedings, decisions or recommendations of the selected mediators, and a party’s position papers or statements furnished to the selected mediators shall not be admissible evidence or considered by the Panel without the consent of all parties.

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vii.	Closing of Arbitration Hearing: The Presiding Arbitrator shall specifically inquire of all parties whether they have any further proofs to offer or witnesses to be heard. Upon receiving negative replies or if he or she is satisfied that the record is complete, the Presiding Arbitrator shall declare the Arbitration Hearing closed with an appropriate notation made on the record. Subject to being reopened as provided below, the time within which the Panel is required to make the award shall commence to run, in the absence of contrary agreement by the parties, upon the closing of the Arbitration Hearing.
	With respect to complex disputes, the Panel may, in its sole discretion, defer the closing of the Arbitration Hearing for a period of up to thirty (30) days after the presentation of proofs in order to permit the parties to submit post-hearing briefs and argument, as the Panel deems appropriate, prior to making an award.
	For good cause, the Arbitration Hearing may be reopened for up to thirty (30) days on the Panel’s initiative, or upon application of a party, at any time before the award is made

     O.      Awards

     An Award must be in writing and shall be made promptly by the Panel and, unless otherwise agreed by the parties or specified by law, no later than thirty (30) days from the date of closing the Arbitration Hearing. If all parties so request, the Award shall contain findings of fact and conclusions of law. The Award, and all other rulings and determinations by the Panel, may be by a majority vote.

     Parties shall accept as legal delivery of the Award the placing of the Award or a true copy thereof in the mail addressed to a party or its representative at its last known address or personal service of the Award on a party or its representative.

     Awards are binding only on the parties to the Arbitration and are not binding on any non-parties to the Arbitration and may not be used or cited as precedent in any other proceeding.

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     After the expiration of twenty (20) days from initial delivery, the Award (with corrections, if any) shall be final and binding on the parties, and the parties shall undertake to carry out the Award without delay.

     Proceedings to confirm, modify or vacate an Award shall be conducted in conformity with and controlled by the Federal Arbitration Act. 9 U.S.C. § 1, et seq.

     P.      Return of Documents

     Within sixty (60) days after the Award and the conclusion of any judicial proceedings with respect thereto, each party and the Panel shall return any documents produced by any other party, including all copies thereof. If a party receives a discovery request in any other proceeding which would require it to produce any documents produced to it by any other party in a proceeding hereunder, it shall not produce such documents without first notifying the producing party and giving said party reasonable time to respond, if appropriate, to the discovery request.

4. Miscellaneous

     A.      Expedited Procedures

     Any party to a Mediation may direct a request for an expedited Mediation Hearing to the Chairman of the Mediation Committee, to the selected Mediators, and to all other parties at any time. The Chairman of the Mediation Committee, or at his or her direction, the then selected Mediators, shall grant any request which is supported by good and sufficient reasons. If such a request is granted, the Mediation shall be completed within as short a period as practicable, as determined by the Chairman of the Mediation Committee or, at his or her direction, the then selected Mediators.

     Any party to an Arbitration may direct a request for expedited proceedings to the Administrator, to the Panel, and to all other parties at any time. The Administrator, or the Presiding Arbitrator if the Panel has been selected, shall grant any such request which is supported by good and sufficient reasons. If such a request is granted, the Arbitration shall be completed within as short a time as practicable, as determined by the Administrator and/or the Presiding Arbitrator.

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     B.      Temporary or Preliminary Injunctive Relief

     Any party may seek temporary or preliminary injunctive relief with the filing of a Complaint or at any time thereafter. If such relief is sought prior to the time that an Arbitration Panel has been selected, then the Administrator shall select a single Arbitrator who is a lawyer who has no interest in the subject matter of the dispute, and no connection to any of the parties, to hear and determine the request for temporary or preliminary injunction. If such relief is sought after the time that an Arbitration Panel has been selected, then the Arbitration Panel will hear and determine the request. The request for temporary or preliminary injunctive relief will be determined with reference to the temporary or preliminary injunction standards set forth in Fed. R. Civ. P. 65.

     C.      Defaults and Proceedings in the Absence of a Party

     Whenever a party fails to comply with the MDR Rules in a manner deemed material by the Panel, the Panel shall fix a reasonable time for compliance and, if the party does not comply within said period, the Panel may enter an Order of default or afford such other relief as it deems appropriate. Arbitration may proceed in the event of a default or in the absence of any party who, after due notice, fails to be present or fails to obtain an extension. An Award shall not be made solely on the default or absence of a party, but the Panel shall require the party who is present to submit such evidence as the Panel may require for the making of findings, determinations, conclusions, and Awards.

     D.      Notice

     Each party shall be deemed to have consented that any papers, notices, or process necessary or proper for the initiation or continuation of a proceeding under these rules or for any court action in connection therewith may be served on a party by mail addressed to the party or its representative at its last known address or by personal service, in or outside the state where the MDR proceeding is to be held.

     The Corporate Secretary and the parties may also use facsimile transmission, telex, telegram, or other written forms of electronic communication to give the notices required by these rules.

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     E.      Expenses

     The expenses of witnesses shall be paid by the party causing or requesting the appearance of such witnesses. All expenses of the MDR proceeding, including compensation, required travel and other reasonable expenses of the Panel, and the cost of any proof produced at the direct request of the Panel, shall be borne equally by the parties and shall be paid periodically on a timely basis, unless they agree otherwise or unless the Panel in the Award assesses such expenses, or any part thereof against any party (or parties). In exceptional cases, the Panel may award reasonable attorneys’ fees as an item of expense, and the Panel shall promptly determine the amount of such fees based on affidavits or such other proofs as the Panel deems sufficient.

     F.      Disqualification or Disability of A Panel Member

     In the event that any Arbitrator of a Panel with more than one Arbitrator should become disqualified, resign, die, or refuse or be unable to perform or discharge his or her duties after the commencement of MDR but prior to the rendition of an Award, and the parties are unable to agree upon a replacement, the remaining Panel member(s):

i.	shall designate a replacement, subject to the right of any party to challenge such replacement for cause.
ii.	shall decide the extent to which previously held hearings shall be repeated.

     If the remaining Panel members consider the proceedings to have progressed to a stage as to make replacement impracticable, the parties may agree, as an alternative to the recommencement of the Mandatory Dispute Resolution process, to resolution of the dispute by the remaining Panel members.

     In the event that a single Arbitrator should become disqualified, resign, die, or refuse or be unable to perform or discharge his or her duties after the commencement of MDR but prior to the rendition of an Award, and the parties are unable to agree upon a replacement, the Administrator shall appoint a successor, subject to the right of any party to challenge such successor for cause, and the successor shall decide the extent to which previously held proceedings shall be repeated.

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     G.      Extensions of Time

     Subject to the provisions of Paragraph 3.H.(viii), any time limit set forth in these Rules may be extended upon agreement of the parties and approval of: (1) the Mediator if the proceeding is then in Mediation; (2) the Administrator if the proceeding is in Arbitration, but no Arbitration Panel has been selected; or (3) the Arbitration Panel, if the proceeding is in Arbitration and the Arbitration Panel has been selected.

     H.      Intervention

     The Plans, their Controlled Affiliates, and BCBSA, to the extent subject to MMDR pursuant to their License Agreements, shall have the right to move to intervene in any pending Arbitration. A written motion for intervention shall be made to: (1) the Administrator, if the proceeding is in Arbitration, but no Arbitration Panel has been selected; or (2) the Arbitration Panel, if the proceeding is in Arbitration and the Arbitration Panel has been selected. The written motion for intervention shall be delivered to the BCBSA Corporate Secretary (which shall also constitute service on the BCBSA if it is a respondent) and to any Plan(s) and/or Controlled Affiliate(s) which are parties to the proceeding. Any party to the proceeding can submit written objections to the motion to intervene. The motion for intervention shall be granted upon good cause shown. Intervention also may be allowed by stipulation of the parties to the Arbitration proceeding. Intervention shall be allowed upon such terms as the Arbitration Panel decides.

     I.      BCBSA Assistance In Resolution of Disputes

     The resources and personnel of the BCBSA may be requested by any member Plan at any time to try to resolve disputes with another Plan.

     J.      Neutral Evaluation

     The parties can voluntarily agree at any time to have an independent party render a neutral evaluation of the parties’ respective positions.

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     K.      Recovery of Attorney Fees and Expenses

i. Motions to Compel

Nothwithstanding any other provisions of these Rules, any Party subject to the License Agreements (for purposes of this Section K and all of its sub-sections only hereinafter referred to collectively and individually as a “Party”) that initiates a court action or administrative proceeding solely to compel adherence to these Rules shall not be determined to have violated these Rules by initiating such action or proceeding.

ii Recovery of Fees, Expenses and Costs

The Arbitration Panel may, in its sole discretion, award a Party its reasonable attorneys’ fees, expenses and costs associated with a filing to compel adherence to these Rules and/or reasonable attorneys’ fees, expenses and costs incurred in responding to an action filed in violation of these Rules; provided, however, that neither fees, expenses, nor costs shall be awarded by the Arbitration Panel if the Party from which the award is sought can demonstrate to the Arbitration panel, in its sole discretion, that it did not violate these Rules or that it had reasonable grounds for believing that its action did not violate these Rules.

iii Requests for Reimbursement

For purposes of this Section K, any Party may request reimbursement of fees, expenses and/or costs by submitting said request in writing to the Arbitration Panel at any time before an award is delivered pursuant to Paragraph 3.O above, with a copy to the Party from which reimbursement is sought, explaining why it is entitled to such reimbursement. The Party from which reimbursement is sought shall have twenty (20) days to submit a response to such request to the Arbitration Panel with a copy to the Party seeking reimbursement.

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L. Calculation of Time and Deadlines

     In computing any period of time prescribed or allowed under these rules, the day of the act or event from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Saturday, a Sunday, or a legal holiday, in which event the period runs until the end of the next day which is not one of the aforementioned days. When the period of time prescribed is less than six (6) days, intermediate Saturdays, Sundays and legal holidays shall be excluded in the computation. As used in this rule, “legal holiday” includes New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day and any other day appointed as a holiday by the President or the Congress of the United States.

Amended September 20, 2007

EX-10.17

Exhibit 10.17

TABLE OF CONTENTS

SECTIONS		Page
Section 1:	Definitions		6
Section 2:	Eligibility, Enrollment & Disenrollment, Conversion		21
Section 3:	Benefit & Services; Fraud & Abuse; Grievance System		37
Section 4:	TPA Contracts with HCOs and Participating Providers; Quality of Health and Performance Program		72
Section 5:	Fees and Payment Structure; Payment Guarantees and Obligations; Third Party Liability for Payments		101
Section 6:	Records, Information Systems & Liaisons		115
Section 7:	Financial & Actuarial Requirements; Insurance; Payment & Performance Bond; Certifications		133
Section 8:	General Contract Clauses		140
	Entire Agreement		154
Appendix	A Mental Health Integration Model 2008-2009
Appendix	B Asthma Pilot Program Guidelines
Appendix	C Government Health Insurance Coverage
Appendix	D Protocol for Payment of Claims
Appendix	E Guide for Special Coverage Procedures

1

2008-000053

AGREEMENT BETWEEN
THE PUERTO RICO HEALTH INSURANCE ADMINISTRTION
AND
TRIPLE S, INC

THE PUERTO RICO HEALTH INSURANCE ADMINISTRATION, a public instrumentality of the Commonwealth of Puerto Rico, organized under Law No. 72 of September 7, 1993, as amended, represented by its Executive Director, Minerva Rivera González (hereinafter referred to as the “ADMINISTRATION / ASES”);

AND

TRIPLE, INC., an Insurance Company duly organized and authorized to do business under the laws of the Commonwealth of Puerto Rico, with Employer Social Security Number ###-##-####, (hereinafter referred to as “TRIPLE S/ TPA”), and represented by its Chief Executive Officer, Ms. Socorro Rivas, whom TRIPLE S has duly authorized to appear and execute this AGREEMENT to bind TRIPLE S to all terms and conditions set forth herein;

WITNESSETH:

WHEREAS: Pursuant to Law No. 72 of September 7, 1993 of the Laws of the Commonwealth of Puerto Rico, the ADMINISTRATION has been empowered to seek, negotiate and enter into contracts to provide health insurance to enrollees of the Health Insurance Plan of the Commonwealth of Puerto Rico (hereinafter Government Health Insurance Plan, “GHIP” or “the Plan”) residing in Puerto Rico, in accordance with the applicable provision of the Code of Federal Regulations to ensure the approval of the Centers for Medicare and Medicaid Services (hereinafter “CMS”) as well as the continued availability of federal and Commonwealth funds for the Plan;

2

WHEREAS: The Board of Directors of the Puerto Rico Health Insurance Administration, upon completion of an RFP process, selects Humana Health Plans of Puerto Rico, Inc. to act as Third Party Administrator (TPA) in the Metro-North Region of Puerto Rico, which includes the municipalities of Bayamón, Cataño Comerío Corozal, Dorado, Guaynabo, Naranjito, Toa Alta, Toa Baja and Vega Alta. After the second year period, the Administration terminates Humana contract and entered into an agreement with TRIPLE S for the continuation of the Integrated Model. This Model of Services will be accomplished through payment by the ADMINISTRATION to the TPA of an administrative fee and capitation payments by the TPA, on behalf of THE ADMINISTRATION, to the HCOs to cover the benefits extended pursuant to the GHIP for the aforementioned region;

WHEREAS: The parties hereto jointly shall continue the development and implementation in the Metro-North Region the Integrated Regional Service Model characterized by:

a.	A Network of Services model that integrates Academic Medical Centers and State and Municipal Health Care Facilities and Services, which will be considered as first choice for enrollee referrals, except in emergency cases or when said facilities are operating at full capacity; shall be clearly incorporated in HCOs’ contracts.
b.	Different models of risk distribution arrangements in accordance with HCOs’ capacity to negotiate and contract with health care providers, ancillary services and solvency to assume risks. HCOs will be permitted to have their own, closed provider networks with mental and physical health providers; either risk sharing or not.
c.	Primary care provided through the HCOs, physician groups, allied healthcare professionals and other primary care providers, as established in State and Federal regulations.

3

d.	Strict measures of utilization control without compromising access and quality of care, which shall meet applicable guidelines and criteria approved by the Administration.
e.	Support the Commonwealth Department of Health and ASSMCA in prevention, promotion and health education efforts that focus, at a minimum, on lifestyles, HIV/AIDS, drug and substance abuse and maternal and child health.
f.	The integration of physical and mental healthcare services to be provided in the Health Region during the Contract term. See Appendix A
g.	Develop a Therapy Management Pilot Program with Asthma patients following guidelines set forth in Appendix B.

4

WHEREAS: TRIPLE S, as the contracted TPA for the Metro-North Region, must comply with the following objectives:

a.	Establish a provider network that guarantees GHIP beneficiaries access to physical and mental health care services. This network must include Academic Medical Centers, State and Municipal health facilities, which must be considered as first choice for the delivery of health care services.
b.	Assure and implement a service model that provides eligible beneficiaries access to preventive, high quality, early diagnosis, curative and rehabilitative health care.
c.	Assure beneficiaries selection of HCOs and primary care physicians (PCP) within a Managed Care Model.
d.	Provide GHIP beneficiaries emergency room service under a 24-hour basis, 7 day delivery model in each of the municipalities throughout Puerto Rico, free of municipality residency restrictions.
e.	The TPA must have a mechanism in place to determine a course of treatment for enrollees or obtain regular care monitoring under Special Health Care, in order to allow direct access to a specialist as appropriate for their conditions and needs.
f.	The TPA must contract providers for Specialty Services as detailed in GHIP Special Coverage (Home Infusion Pharmacy and Specialty Pharmacy) to be given to their patients (as the first line of services.)
g.	Assure the implementation of different health insurance coverages for all categories of eligible beneficiaries, including public employees and retirees of the Commonwealth of Puerto Rico.
h.	The integrated physical and mental approach is intended to eventually provide healthcare services in a unified primary care program. TPA must continue the implementation of this initiative by providing mental health

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	services in collaboration with the behavioral service provider at the beginning date of the awarded contract.
i.	Guarantee timely and efficient payments to health care providers, assuring compliance with the state and federal regulations.
j.	Establish an efficient enrollee orientation, customer service and outreach process to protect enrollee and provider rights.
k.	Establish an efficient information system that allows the storage of enrollee encounters, claims processing and rapid transmission of all the information required by THE ADMINISTRATION.
l.	Provide an efficient grievance and appeals process in compliance with state and federal laws and regulations.
m.	Assure that contracted entities guarantee 100% of the coverage required by the State Plan (42 CFR §1396 (a) and Law 72 of September 3, 1993, as amended; Government Health Insurance Plan Coverage; included as Appendix C.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties enter this AGREEMENT subject to the following:

TERMS AND CONDITIONS
Section 1: Definitions

ACCESS: Adequate availability of all necessary health care services included in the plan being contracted to fulfill the needs of the beneficiaries of the program.

ACTION: Shall mean (1) the denial or limited authorization of a requested service, including the type or level of service; (2) the reduction, suspension, or termination of a previously authorized service; (3) the denial, in whole or in part, of payment for a service; (4) the failure to provide services within the time frames established by this Contract or ADMINISTRATION’s directives. The parties agree that this definition is

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triggered whenever any of those actions actually limited in whole, or in part, the access to medical services or the level of services received by an enrollee; and enrollee itself is required to make payment for a medical service.

ADMINISTRATION: Puerto Rico Health Insurance ADMINISTRATION.

ADMINISTRATIVE FEE: The monthly amount that THE ADMINISTRATION will pay to the MCO on per member per month (PMPM) basis, as a result of having assumed the administration for providing the benefits to the GHIP beneficiaries.

ADVANCE DIRECTIVES: Shall mean a written instruction, such as a living will or durable power of attorney for health care, recognized under Law No. 160 of November 17, 2001 of the Commonwealth of Puerto Rico, relating to the provision of health care when the individual is under a persistent, vegetative state as defined in Law No. 160 of November 17, 2001; or is affected by a terminal and irreversible health condition which has been medically diagnosed, and according to illustrated medical judgment, will result in the patient’s death within a term not longer than six (6) months.

AGREEMENT TERM: The term of effectiveness of the agreement; it is also referred in this document as “contract term”.

ANCILLARY SERVICES (Ancillary Charges): Supplemental services, including laboratory, radiology, physical therapy, and inhalation therapy, which are provided in conjunction with medical or hospital care.

APPEAL: Shall mean the request for a review of an action.

ASES: Spanish Acronym for Puerto Rico Health Insurance Administration.

ASSMCA - Mental Health and Substance Abuse ADMINISTRATION: Spanish acronym for the Puerto Rico Mental Health and Substance Abuse ADMINISTRATION, the state

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agency that has been delegated the responsibility for the planning, establishment of mental and substance abuse policies and procedures, the coordination, development and monitoring of all mental health and substance abuse services rendered to beneficiaries under the Puerto Rico Health Insurance Program.

AWP: Average Wholesale Price. The standardized cost of a drug, which managed care plans frequently use for determining drug benefits.

BENEFICIARY: An individual certified as eligible to receive Medicaid, or a person eligible under other categories of eligibility pursuant to Law No. 72, to receive the GHIP benefits, and enrolled by the THE ADMINISTRATION contracted MCO. A beneficiary is also known as “GHIP enrollee”.

BUSINESS TRANSACTIONS: Shall mean any sales, exchange or lease of any property between the HCO, as applicable, or TPA, and a party in interest; any lending of money or other extension of credit, any furnishing for consideration of goods, services (including, but not limited to, management services between the HCO and TPA as applicable, and a party of interest.

CAPITATION: A method of risk sharing reimbursement, whereby an HCO receives fixed payments on a per member per month basis (pmpm) for the contracted benefits provided to the beneficiaries under the GHIP.

CMS: Acronym for the Centers for Medicare and Medicaid Services.

CO-INSURANCE: Percentage based participation of the enrollee on each loss or portion of the cost of receiving a service.

COLD CALL MARKETING: Means any unsolicited personal contact by the MCO and HCO, PIHP, PAHP, or PCCM with a potential enrollee for the purpose of marketing .

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COMMONWEALTH: Shall mean the Commonwealth of Puerto Rico.

COMPREHENSIVE RISK CONTRACT: A risk contract covers comprehensive services, that is, inpatient hospital services and any of the following services, or any three or more of the following services: 1)Outpatient hospital services; 2) Rural health clinic services; 3) FQHC services; 4) Other laboratory and X-ray services; 5) Nursing facility (NF) services; 6) Early and periodic screening, diagnosis, and treatment (EPSDT) services; 7) Family planning services; 8) Physician services; 9) Home health services.

CONTINUOUS CARE MANAGEMENT PROGRAM: Shall mean the protocols that the TPA must develop and implement based on the goals and targets of the ADMINISTRATION for the diseases and conditions specified in Section (A) (3)(l)(1-6) of the Benefits of Coverage.

CONTRACT: The present contractual relationship between the ADMINISTRATION and the TPA, and to which, 1) Law 72 of September 7, 1993, 2) the Request for Proposal, 3) the TPA’s Proposal documents.

CO-PAYMENT/COPAY: A cost-sharing technique whereby an enrollee pays a specified amount of money directly to a provider at the time services is rendered. Usually is a fixed amount. Any cost-sharing charges the MCO imposes on Medicaid enrollees pursuant herein shall be in accordance with the requirements set forth in 42 CFR 447.50 through 447.60 for cost-sharing charges imposed by the Commonwealth of Puerto Rico.

DAY(S): Unless otherwise specified days will be calendar days.

DEDUCTIBLE: A fixed amount that the beneficiary has to pay to the provider as part of the cost of receiving a health care service, as provided in Addendum I of this contract.

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ELECTIVE SURGERY: A surgical procedure that, even though medically necessary and prescribed by a physician, does not need to be performed immediately because no imminent risk to life, permanent damage of a vital organ or permanent impairment is present, and which therefore can be scheduled.

EMERGENCY MEDICAL CONDITION: (Prudent Layperson Standard) a medical condition presenting symptoms of sufficient severity that a person with average knowledge of health and medicine would reasonably expect the absence of immediate medical attention to result in (i) placing their health or the health of an unborn child in immediate jeopardy, (ii) serious impairment of bodily functions, or (iii) serious dysfunction of any bodily organ or part.

EMERGENCY SERVICES: Medical services given for a serious medical condition resulting from injury, sickness or mental illness that arises suddenly and requires immediate care and treatment to evaluate and stabilize to avoid jeopardy to the life or health of an individual.

ENCOUNTER: A contact (face to face meeting) between a patient and health professional for evaluation or treatment.

ENROLLEE: Any person that, under federal and state Law, Rules and Regulations, as amended, that has been deemed eligible to receive medical services and has completed the GHIP enrollment/subscription process. The enrollee is known as “GHIP beneficiary”.

EARLY AND PERIODIC SCREENING, DIAGNOSTIC, AND TREATMENT (EPSDT): — Medicaid’s comprehensive and preventive child health program for individuals under the age of 21. Periodicity schedules for Periodic Screening, Vision, and Hearing must be provided at intervals that meet reasonable standards of medical practice. Dental services must be provided at intervals that meet reasonable standards of dental practices. Screening Services must include all of the following services:

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• Comprehensive health and developmental history-(including assessment both, physical and mental health development)

• Comprehensive unclothed physical exam

• Appropriate immunizations

• Laboratory tests

• Health Education

• Vision Services

• Dental Services

• Hearing Services

• Other Necessary Health Care

EXTERNAL QUALITY REVIEW ORGANIZATION (EQRO): Means an organization that meets the competence and independence requirements set forth in 42 CFR §438.354 and performs external quality review through the analysis and evaluation of aggregated information on quality, timeliness, and access to the health care services that an MCO or PIHP, or their contractors furnish to Medicaid recipients.

GHIP: Acronym for Government Health Insurance Plan.

GRIEVANCE: Shall mean the expression of dissatisfaction about any matter, other than an action, as such term is defined in this section. Possible subject for grievances include, but are not limited to, the quality of care or services provided, and aspects of interpersonal relationships such as rudeness of a provider or employee, or failure to respect enrollee’s rights.

HEALTH CARE ORGANIZATION / HCO: A health care entity supported by a network of providers and which is based on a managed care system and accessed through a primary care physician (PCP).

HEALTH CARE PROFESSIONAL: Shall mean a licensed physician or any of the following licensed professionals; a podiatrist, optometrist, psychologist, psychiatrist,

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dentist, physical or occupational therapist, therapist assistant, speech language pathologist, audiologist, registered or practical nurse (including nurse practitioner, clinical nurse specialist, and certified registered nurse), certified social worker, registered respiratory therapist and respiratory therapy technician.

HOME INFUSION PHARMACY: Pharmacy based, decentralized patient care organization with expertise in USP 797 compliant sterile drug compounding that provides care to patients with acute or chronic conditions generally pertaining to parenteral administration of drugs, biologics and nutritional formulae administered through catheters and/or needless in home and alternate sites. Extensive professional pharmacy services, care coordination, infusion nursing services, supplies and equipment are provided to optimize efficacy and compliance.

HIPAA: The Health Insurance Portability and Accountability Act of 1996 is a federal legislation (Public law 104-191) approved by Congress in August 21,1996 regulating the continuity and portability of health plans, mandating the adoption and implementation of administrative simplification standards to prevent, fraud, abuse, improve health plan overall operations and guarantee the privacy and confidentiality of individually identifiable health information.

INDIVIDUAL PRACTICE ASSOCIATION (IPA): A managed care delivery model in which the ADMINISTRATION contracts with a physician organization which, in turn, contracts with individual physicians. The IPA physicians practice in their own offices and continue to see their fee-for-service patients. This type of system combines prepayment with the traditional means of delivering health care, a physician office/private practice. For the purpose of this contract, an IPA will be considered a Health Care Organization (HCO).

HCO: A health care entity supported by a network of providers and which is based on a manage care system and accessed through a primary care physician ( PCP).

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LAW NO. 72: Shall mean the organic law which created the Puerto Rico Health Insurance ADMINISTRATION, approved on September 7, 1993, as amended.

MARKETING: Means any communication, from an MCO, PIHP, PAHP or PCCM to a Medicaid recipient who is not enrolled in that entity, that can reasonably be interpreted as intended to influence the recipient to enroll in that particular MCO’s, PIHP’s, PAHP’s, or PCCM’s Medicaid product, or either to not enroll in, or to disenroll from, another MCO’s, PIHP’s, PAHP’s, or PCCM’s Medicaid product.

MARKETING MATERIALS: Means materials that are produced in any medium, by or on behalf of an MCO, PIHP, PAHP, or PCCM and can reasonably be interpreted as intended to be marketed to potential enrollees.

MANAGED BEHAVIORAL HEALTH ORGANIZATION (MBHO): Entity constituted by Mental Health Participating Providers, organized with the purpose of negotiating contracts to provide mental health and substance abuse services.

MANAGED CARE ORGANIZATION: An entity that has, or is seeking to qualify for a comprehensive risk contract, and that is — 1) A Federally qualified HMO that meets the advance directives requirements of subpart I of part 489; or — 2) Any public or private entity that meets the advance directives requirements and is determined to also meet the following conditions: (i) Provides the services to its Medicaid enrollees as accessible (in terms of timeliness, amount, duration, and scope) as those services that are provided to other Medicaid recipients within the area served by the entity; and (ii) Meets the solvency standards of 42 CFR438.116.

MEDICALLY NECESSARY SERVICES: Shall mean services or supplies provided by an institution, physician, or other providers in order to identify or treat an enrollee’s illness, disease, or injury and which are:

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• Consistent with the symptoms or diagnosis and treatment of the enrollee’s illness, disease, or injury; and, Appropriate with regard to standards of good medical practice; and

• Not solely for the convenience of an enrollee, physician, institution or other provider; and,

• Is the most appropriate level of service which can safely be provided to an enrollee. When applied to the care of an inpatient, it further means that services for the enrollee’s medical symptoms or condition require that the services cannot be safely provided to the enrollee as an outpatient; and

• Are appropriate for achieving age-appropriate growth and development, or, when applied to enrollees under 21 years of age, services shall be provided in accordance with EPSDT requirements including federal regulations as described in 42 CFR Part 441, Subpart B, and the Omnibus Budget Reconciliation Act of 1989; and,

• Proper for the prevention, diagnosis and treatment of health impairments; and an Adequate for attaining, maintaining or regaining functional capacity.

• An MCO, PIHP, or PAHP that would otherwise be required to provide, reimburse for, or provide coverage of, a counseling or referral service is not required to do so if the MCO, PIHP, or PAHP objects to the service on moral or religious grounds, consistent with 42 CFR 438.102(a)(2). If the MCO, PIHP, or PAHP elects not to provide, reimburse for, or provide coverage of, a counseling or referral service because of an objection on moral or religious grounds, it shall, consistent with 42 CFR 438.102(b)(1), furnish information about the services it does not cover as follows: (1) to the Commonwealth of Puerto Rico via the ADMINISTRATION; (2) with its application for a Medicaid contract; whenever it adopts the policy during the term of the contract; and (3)(i) it must be consistent

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with the provisions of 42 CFR 438.10, (ii) it must be provided to potential enrollees before and during enrollment and (iii) it must be provided to enrollees within 90 days after adopting the policy with respect to any particular service.

MEDICARE: Federal health insurance program for people 65 or older, people of any age with permanent kidney failure, and certain disabled people according to Title XVIII of the Social Security Act. Medicare has two parts: Part A and Part B. Part A is the hospital insurance that includes inpatient hospital care and certain follow up care. Part B is medical insurance that includes doctor services and many other medical services and items. A Medicare recipient is a person who has either Part A or Part A and B insurance.

MEDICARE ADVANTAGE (Formerly known as Medicare + Choice): A type of contract under which a payment is received from CMS for each member, based on demographic characteristics and health status (also referred to as Risk). In a Risk or M+C contract, the MCO accepts the risk if the payment does not cover the cost of services (but keeps the differences if the payment is greater than the cost of services). Risk is managed by having a membership where the high cost for very sick members can be balanced by the lower cost for a larger number of relatively healthy members.

MEDICARE BENEFICIARY: Any person aged 65 and older and certain disabled people less than 65 years old, recipients of Medicare Part A or Medicare Part A and B.

MEDICARE PLATINO: A Medicare Advantage wraparound program provided by THE ADMINISTRATION as an alternative to the GHIP beneficiaries that have Medicare Part A and B.

MENTAL HEALTH CARVE-OUT: Specified psychiatric, behavioral, and substance abuse services covered under the Puerto Rico Health Insurance Plan provided through a contract with a separate entity.

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MENTAL HEALTH FACILITIES: Any premises (a) owned, leased, used or operated or indirectly by or for the Managed Behavioral Health Organization (MBHO) or its affiliates for purposes related to this Agreement; or (b) maintained by a subcontractor or provider to provide mental health services on behalf of the Managed Behavioral Health Organization.

METRO-NORTH REGION: The geographical Area/Region as defined by the ADMINISTRATION.

NON-PARTICIPATING PROVIDER: All health care service providers that do not have a contract in effect with the ADMINISTRATION or TPA.

PARTY OF INTEREST: Shall mean (1) Any director, officer, partner, agent or employee of TRIPLE S or HCO responsible for managing, administering or otherwise represent TRIPLE S or HCO; any person who is or indirectly the beneficial owner of more than 5% of the equity of TRIPLE S or HCO’s assets; any person who is beneficial owner of a mortgage, deed of trust, note, or other secured interest, and valuing more than 5% of the TRIPLE S of HCO’s assets; or in the case of an HCO organized as a non-profit corporation, an incorporator or member of such corporation under Commonwealth of Puerto Rico law; (2) Any organization, in which a person described in subpart one (1) of this definition is a director, officer or partner; has a direct or indirect beneficial interest of more than 5% of the equity of TRIPLE S or HCO’s assets; or has a mortgage, deed of trust, note, or other interest valuing more than 5% of the assets of TRIPLE S or HCO; (3) Any person or indirectly controlling, controlled by, or under common control with the TRIPLE S or HCO; or (4) Any spouse, child, or parent of an individual described under the above sections 1, 2 and 3.

PARTICIPATING PHYSICIAN: A doctor of medicine that is legally authorized to practice medicine and surgery within the Commonwealth of Puerto Rico and has in effect a contract with the ADMINISTRATION or TPA.

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PARTICIPATING PROVIDER: All health care service providers that have a contract in effect with the ADMINISTRATION or TPA.

PERSON WITH AN OWNERSHIP OR CONTROL INTEREST: Shall mean a party of interest, as defined herein.

PHARMACY BENEFITS MANAGER (PBM): Acronym for Pharmacy Benefits Manager. A management company that offers an array of pharmacy benefits services, including claims processing, formulary management, drug utilization review, and pharmacy network management among others.

PHARMACY PROGRAM ADMINISTRATOR (PPA): An entity responsible for implementing and offering support to THE ADMINISTRATION and the contracted PBM’s in the negotiation of rebates, management of the rebates program, development of MAC list, the administration of PBFC and any other financial aspects of the Pharmacy Benefits Financial Committee.

PHYSICIAN-HOSPITAL ORGANIZATION (PHO): Shall mean a domestic corporation duly organized and in good standing under the laws of the Commonwealth of Puerto Rico, which meets the definition of a managed care organization (MCO); is authorized under Law No. 72 to enter into contracts with the ADMINISTRATION; has a comprehensive, risk-contract for the purpose of providing health care services, making the services it provides as accessible (in terms of timeliness, amount, duration and scope) as those services for other non-Medicaid recipients within the Metro-North Region served by the entity.

POTENTIAL ENROLLEE: A Medicaid eligible, or a person eligible under other category of eligibility pursuant to Law No. 72 to receive the health insurance benefits provided herein, whose eligibility has been certified by the Medicaid Office of the Commonwealth’s Department of Health, but has not yet enrolled with TRIPLE S, PHO

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or MBHO. It is understood that a potential enrollee, which is the same as a potential beneficiary, becomes so as of the date specified in the ADMINISTRATION’s notification to TRIPLE S.

POSTSTABILIZATION CARE SERVICES: Shall mean covered services related to an emergency medical condition, provided after an enrollee is stabilized in order to maintain a stabilized condition; or under the circumstances described in Section 3.4 of this Contract, to improve or resolve the enrollee’s condition.

PRE-AUTHORIZATION: A written or electronic authorization issued by the MCO granting an enrollee authorization to receive a service under the Special Coverage of the GHIP. The preauthorization binds the MCO to pay the service thus authorized.

PRICO: Acronym for the Puerto Rico Insurance Commissioner’s Office, the state agency responsible for regulating, monitoring, and licensing insurance business in Puerto Rico.

PRIMARY CARE PHYSICIAN (PCP): A doctor of medicine legally authorized to practice medicine and surgery within the Commonwealth of Puerto Rico, who initially evaluates and provides treatment to beneficiaries. He/she is responsible for determining the services required by the beneficiaries, provides continuity of care, and refers the beneficiaries to specialized services if deemed medically necessary. Primary physicians will be considered those professionals accepted as such in the local and federal jurisdictions. The following are considered primary care physicians: Pediatricians, Obstetrician/Gynecologist, Family Physicians, Internists and General Practitioners. Each female enrollee with a pregnancy factor has to select an obstetrician-gynecologist as her primary care physician. Once the pregnant woman completes her maternity care period, she will be allowed to continue with her primary care physician.

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QUALITY IMPROVEMENT (QI): The ongoing process of responding to data gathered through quality monitoring efforts, in such a way as to improve the quality of health care delivered to individuals. This process necessarily involves follow-up studies of the measures taken to effect change in order to demonstrate that the desired change has occurred.

REINSURANCE/STOP LOSS: A means by which one party protect itself against the risk of losses by paying a premium to the reinsurer. A fixed pmpm or fixed dollar amount (also known as the attachment point) is agreed between two parties as the maximum liability to be incurred by one party; the other party (reinsurer) agrees to assume responsibility for costs in excess of the agreed attachment point. For purposes of this contract, this concept will apply to:

     1. $10,000 stop-loss to be provided by the ADMINISTRATION to the HCOs.

     2. Reinsurance to be provided by the TPA to the ADMINISTRATION

RESERVES: Monetary sums set aside by an insurance company as a liability to fulfill future obligations.

RISK CONTRACT: A contract under which the contractor: 1) assume risk for the cost of the services covered under the contract; and 2) incurs loss if the cost of furnishing the service exceeds the payments under the contract.

SERVICE AUTHORIZATION REQUEST: Shall mean the enrollee’s request for the provision of service.

SERVICE FEE: The monthly amount that the ADMINISTRATION agrees to pay to the TPA as a result of having assumed the operational functions for providing the benefits to the beneficiaries covered. Method of payment is referred to hereunder as per member per month (PMPM).

SECOND MEDICAL OPINION: A consultation with a peer requested by the enrollee, the HCO, a Participating Physician or the TPA to assess the appropriateness of a previous recommendation for surgery or medical treatment.

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SECONDARY or SPECIALTY PHYSICIAN: A physician who provides professional services to a patient based on a referral from a Primary Care Provider (PCP), such a dermatologist, urologist or cardiologist, and so on. A referral from the Gatekeeper (PCP) is always required.

SPECIALTY PHARMACY: A pharmacy that dispenses generally low volume and high cost medications to patients who are undergoing intensive therapies for illnesses that are generally chronic, complex and potentially life threatening. Often these therapies require specialized delivery and administration. Require patient counseling/ support/compliance management.

SUPPORT PARTICIPATING PROVIDERS: Other health care service providers, not considered secondary or specialty physicians, who are needed to complement and provide support services to the Primary Care Physicians and who have a contract with the TPA to provide said services. A referral from the Gatekeeper is necessary. The following will be considered support participating providers, among others: Pharmacies, Hospitals, Health Related Professionals, Clinical Laboratories, Radiological Facilities, Podiatrists, Optometrists, and all those participating providers that may be needed to provide services under the basic and special coverage considering the specific health problems of the Area/Region.

SUPPORT PARTICIPATING PHYSICIANS: Doctors of Medicine legally authorized to practice medicine and surgery within Puerto Rico who are needed to complement and Provide support service to the Primary Care Physicians and who have a contract with the TPA to provide said services. A referral from the PCP is necessary.

THIRD PARTY ADMINISTRATOR (TPA): MCO contracted for the provision of administrative, infrastructure support services related to utilization management, claims processing and provider’s network.

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URGENT CARE CENTERS: A facility which provides care for injury, illness or another type of condition not usually life threatening, which should be treated within 24 hours. Such facilities normally provide after hours care.

UTILIZATION MANAGEMENT (UM): The process of evaluating necessity, appropriateness and efficiency of healthcare services through the revision of information about hospital, service or procedure from patients and/or providers to determine whether it meets established guidelines and criteria approved by the ADMINISTRATION, the HCO and TPA as applicable.

Section 2
Eligibility, Enrollment &
Disenrollment, Conversion

2.1 Eligibility

2.1.1	Eligibility shall be determined according to Article VI, Section 5 of Law 72 of September 7, 1993 and the federal laws and regulations governing eligibility requirements for the federal Medicaid Program.
2.1.2	The TPA must inform beneficiaries who are also Medicare recipients with Part A, Part B or Parts A and B, at the time of enrollment, that if they choose to become GHIP beneficiaries, the benefits provided under said contract will be accessed exclusively through the primary care physicians chosen by the enrollee under the GHIP. The TPA must notify in writing to beneficiaries with Medicare Parts A and B their right to select Medicare Platino, including providing a summary of the benefits upon enrollment into the plan.
2.1.3	The TPA guarantees that it shall maintain adequate services in the Metro-North Region, and shall ensure prompt and voluntary enrollment of all potential

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enrollees, on a daily basis and in the order in which they apply without restriction. TPA shall maintain sufficient facilities within the Metro-North Region. The enrollee shall be responsible for visiting the designated facility in order to complete all requirements towards enrollment. TPA shall be responsible for issuing the official health insurance plan identification card(s) on the same day that the potential enrollee completes the enrollment requirements.

2.2. SUBSCRIPTION PROCESS AND IDENTIFICATION CARDS

2.2.1.	The TPA agrees to comply and implement in full all instructions and guidelines contained in the ADMINISTRATION’s Instructions to TPAs for Implementation of Orientation and Subscription Process. The ADMINISTRATION reserves the right to modify this process.
2.2.2.	The TPA, at its sole cost, shall issue to each enrollee a card of durable plastic material that provides proper identification to access the benefits covered under this Contract.
2.2.3.	The card’s contents, design and layout shall have prior approval of the ADMINISTRATION.
2.2.4.	The TPA shall be responsible to assure delivery of the cards at a location accessible to the beneficiaries in each municipality.
2.2.5.	The TPA shall deliver the card on the same day that the enrollee completes the enrollment process.
2.2.6.	The identification cards shall contain the following information:

          a. Name of Enrollee

          b. MCO Group Number

          c. Enrollee Contract Number

          d. Master Patient Index (MPI-to be provided by THE ADMINISTRATION)

          e. Relationship of beneficiary with enrollee (if applicable)

          f. Rx BIN and Rx PCN (defined by THE ADMINISTRATION’ PBM)

          g. Issue Date

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          h. Type of Contract (individual or family)

          i. Coverage effective date

          j. Other Insurance code

          k. Medicare Part A, or, Part A and B, or Part B indicators.

          l. Co-payment

2.2.7.	The TPA will replace lost, stolen or, mutilated cards and will have the right to charge beneficiaries/enrollees five dollars ($5.00) for each card replaced. This charge will not be applicable to Medicaid Beneficiaries, who are categorized within indigence level 0 (0%-50%) and indigence level 1 of the federal poverty level (FPL), as defined in the Puerto Rico State Plan .
2.2.8.	The TPA will replace, free of charge, the identification card whenever a change of HCO is made.
2.2.9.	Identification cards are the property of the TPA and they shall be returned by the enrollee/enrollee upon losing plan eligibility or when a change of HCO is made.
2.2.10.	The TPA shall be responsible for notifying each enrollee that the identification card is for the personal identification of the enrollee to whom it has been issued, and that lending, transferring or in any other way consenting to the use of the card by any other person constitutes fraud.

2.3 ENROLLMENT

2.3.1 An individual becomes a potential enrollee as of the date specified in THE ADMINISTRATION’ report to the TPA. The TPA agrees to maintain active enrollment for those potential enrollees who complete the enrollment process and of whose eligibility the Administration notifies the TPA. Coverage under the plan shall begin the day that the enrollment process has been completed. Notification of potential enrollees will be made through electronic transmissions or machine readable media. The ADMINISTRATION will forward this data to the TPA in the format agreed to by both parties in accordance with the Daily

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	Update/Carrier Eligibility File Format as required in the RFP, which is incorporated fully hereto. The TPA will guarantee that it will be ready to notify the ADMINISTRATION, at its request, of all new enrollees through electronic or magnetic media on a daily basis. This notification to the Administration shall include all new beneficiaries as of the day before the notification is issued.
	The TPA agrees to maintain an Enrollment Data Base which includes each potential and actual enrollees; and contains the information technically defined in the Carrier Billing File/Carrier Eligibility File formats.
	The TPA/HCO shall secure any authorization required from enrollees under the laws of the Commonwealth of Puerto Rico to allow the U.S. Department of Health and Human Services, the ADMINISTRATION and/or their designees to review their medical records, in order to assess quality, appropriateness, timeliness and cost of services performed under this Contract.
	TPA acknowledges it shall maintain policies and procedures to comply with the Commonwealth Patient’s Bill of Rights Act (Law 194 of August 25, 2000) and the Medicaid regulations at 42 CFR 438.100; to guarantee that the enrollees rights are not adversely affect.
2.3.2	Service fees shall be paid on a monthly basis as of the date that the enrollment process was completed and the official identification card has been issued, through the end of the month, as specified in the TPA’s notification to the ADMINISTRATION. Service fee payments for newborns will accrue as of the date of birth of the child, provided that the enrollment process is completed per the terms of this Contract. Service fees payments for newborns shall be retroactive to the date of birth, upon proof of enrollment, which must include a copy of the birth certificate. The ADMINISTRATION shall make payments directly to the providers for services rendered to a non-enrolled newborn during ninety (90) days from the date of birth; or up to the date of death of the newborn within

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	said ninety-days period or until the date the newborn looses eligibility within said ninety-day period; whichever occurs first.
	The PCP or HCO will instruct the new mother-enrollee or other legal guardian of the newborn to go to the TPA’s office with the necessary documentation to receive a manual certification for the newborn. Upon written request of the ADMINISTRATION, the TPA shall provide written evidence of all newborn deliveries in the Metro-North Region and their corresponding certifications.
	In any case in which the family unit ceases to be eligible before the newborn is registered at the Department of Health’s Medicaid Office, the TPA must provide THE ADMINISTRATION with written proof of the newborn’s birth. THE ADMINISTRATION will then pay service fees from such newborn’s date of birth until the family’s eligibility termination.
2.3.3	In any case where an individual has been certified as eligible by the Department of Health’s Medicaid Office but has not completed the enrollment process, and the individual or his/her dependents need emergency services, such services shall be provided as if the individual were already enrolled, provided that the TPA receives copy of the written statement from the Department of Health’s Medicaid Office to the ADMINISTRATION certifying such individual as a potential enrollee. The ADMINISTRATION shall notify TPA in writing the results of the verification process and, if the individual was eligible to receive the benefits provided hereunder, such individual shall be deemed an enrollee for purposes of payments under this contract, and TPA shall, upon receipt of said notification, issue the corresponding identification card. Upon such written notification, TPA shall make payment to the corresponding health care facility and/or provider in accordance with the prompt payment deadlines established in Law No. 104 of July 19, 2002 (known in Spanish as “Ley de Pronto Pago”), with the understanding that the 90-days period for submission of a claim under said law shall be deemed to have commenced upon receipt of the claim in the

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	Department of Health’s Medicaid Office; provided, however, that if such claim is received by TPA after the expiration of the 90-days period, the deadlines established in such law to pay and/or object to such claim shall commence upon receipt of the claim by TPA. The corresponding service fee shall be paid to TPA on a monthly basis from the moment that service to treat the emergency medical condition was provided or the identification card was issued, whichever occurred first. In the event that emergency services were provided at a facility with which TPA had no contract regulating such services, Article 8(c) of Law No. 194 of August 25, 2000 known in Spanish as “Carta de Derechos y Responsabilidades del Paciente”) shall apply and TPA shall comply therewith in processing payments due non-participating providers.
2.3.4	The TPA/HCO shall not in any way discriminate nor terminate coverage of any enrollees due to adverse changes in enrollees health; or based on expectations that an enrollee will require high cost care; or based on an enrollee’s need of health services; or any reason whatsoever, except that, as set forth in written procedures promptly to be issued by the Administration to implement this provision, TPA/HCO may terminate coverage of any enrollee, after prior notification and approval by the ADMINISTRATION, for non-payment of claims or service fees or for fraudulent use of benefits or participation in fraudulent acts in connection therewith.
	The TPA shall not discriminate against any enrollment eligible individual on the basis of race, color, or national origin nor shall it adopt any policy or practice that has the effect of discriminating on the basis of race, color or national origin.
2.3.5	The TPA agrees to notify the ADMINISTRATION immediately of any change in the place of residence of the enrollee, insofar as the enrollee makes the change known to the TPA. Address changes will be forwarded through electronic and/or machine-readable media.

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2.3.6	TPA shall properly advise enrollees of the date of benefits termination to assure that they have adequate opportunity to complete the recertification process prior to the date of termination. TPA shall issue an initial benefits termination notice at least ninety (90) days prior to the effective date of termination, which notice shall be delivered by U.S. Mail, delivery confirmation requested. Upon written request of the ADMINISTRATION, TPA shall provide a report containing information about enrollees whose eligibility certification by the Department of Health’s Medicaid Office was scheduled for termination within 90 days, and the corresponding written evidence of delivery of the initial termination notice required herein.
2.4	PLAN HANDBOOK, ORIENTATION PROGRAMS AND MARKETING PROVISIONS
2.4.1	TPA shall be responsible, at its sole cost, for the preparation, printing, and distribution of Spanish language Handbooks, which shall describe the plan, the benefits covered and the rights of enrollees. An English language translation of the Handbook shall be made available for use by English-speaking enrollees and for revision by federal authorities. Handbooks shall be delivered to each enrollee upon enrollment, along with the required identification card(s).
2.4.2	The Handbook shall serve as guarantee of the benefits to be provided and must be provided to enrollees and potential enrollees in easily understandable format and in other appropriate alternative formats considering the special needs of enrollees that may be visually impaired or of limited reading proficiency. In the event that oral interpretation services are necessary in a language other than Spanish, TPA shall make those services available free of charge, and inform the enrollee and potential enrollee how to access such formats. The Handbook shall contain the following information:

a) Schedule of benefits covered, amount, duration and scope of all services and items that are available and that are covered, services requiring

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	referrals and/or prior authorization, a written description of how and where GHIP services may be obtained. A description of after hours and emergency services coverage including (1): what constitutes an emergency medical condition, emergency services and post stabilization care services with reference to definitions on 42 CFR 438.114( a); (2) the fact that prior authorization is not required for emergency service; (3) the process for obtaining emergency services, including use of the 911- telephone system; (4) locations of emergency settings at which providers and hospitals furnish emergency care and post- stabilization services; and (5) that enrollees have a right to use any hospital or setting for emergency care and post- stabilization services rules as set forth at 42 CFR 422.113(c) and subject to applicable Contract limitations.
b)	Benefit’s exclusions and limitations. For benefits that enrollees are entitled to, but are not available through the HCO, a written description on how and where to obtain benefits and a description of procedures for requesting disenrollments/changes.
c)	Enrollee’s rights and responsibilities, in accordance with specific rights and requirements set forth in 42 CFR 438.100 of the Medicaid Regulations; the Puerto Rico Patient Bill of Rights, Law 194 of August 25, 2000; the Puerto Rico Mental Health Code, Law No.408 of October 2, 2000, as amended; and Law No. 11 of April 11, 2001, which creates the Office of the Patients’ Solicitor General.
d)	Instructions on how to access benefits, including a list of (1) available HCOs and its participating providers, PCPs or Specialists (their telephone numbers, address and qualifications) and identification of the providers that are not accepting new patients; (2) providers from which to obtain benefits under the Special Coverage. Said list can be provided in a separate booklet that shall be updated as appropriate. e) Explanations and information regarding the grievance, appeal and fair hearing procedures and timeframes as provided in 42 CFR 438.400 through 438.424.

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f)	In the event a Physician Incentive Plan affects the use of referral services and/or places physicians at substantial risk, the TPA/HCO shall provide the following information upon enrollee’s requests: the type of incentive arrangements, whether stop-loss insurance is provided and the survey results of any enrollee or disenrollment surveys that are required to be conducted by the HCO/TPA.
g)	Explanations of instances in which a enrollee’s disenrollment may be requested without his/her consent by a provider or TPA/HCO and information on the enrollee’s right to request disenrollment when the ADMINISTRATION interposes intermediate sanctions specified in 42 CFR 438.702(a)(3).
h)	Explanations of the right of beneficiaries to transfer from HCO at any time for cause and to transfer or change within the first ninety (90) days of enrollment or receipt of the notice of enrollment, whichever date is latest, and once every (12) months thereafter without cause.
i)	Advance Directives in accordance with Commonwealth law and 42 CFR 438.6(i).
j)	A description of further information items available upon request, such as information on the structure and operation of the TPA/HCO.
k)	Cost Sharing Charges and notice that any cost-sharing charges the MCO imposes on Medicaid enrollees pursuant herein shall be in accordance with the requirements set forth in 42 CFR 447.50 through 447.60 for cost-sharing charges imposed by the Commonwealth of Puerto Rico.

2.4.3 The Handbook shall be approved by the ADMINISTRATION prior to its printing, distribution, and dissemination in compliance with Law 194 of August 25, 2000. TPA shall notify enrollees, in writing, 30 days prior to adopting any Handbook changes pertaining to benefits limitations, or other rights and benefits beneficiaries may be entitled to. Said changes shall be effective only upon the ADMINISTRATION’s written confirmation of approval thereof, after which date, and such changes could be printed in the Handbook.

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2.4.4	The TPA shall also be responsible for the preparation, printing and distribution, at its own cost, of an Informative Bulletin, in the Spanish language, that describes the plan, services and benefits covered therein as well as the GHIP managed care concept. This Bulletin shall be distributed among the HCOs, their network of participating providers and the TPA’s participating providers.
2.4.5	The ADMINISTRATION will monitor and evaluate all marketing activities performed by the TPA/HCO, its contractor, sub-contractors or any provider of services under this Contract.
2.4.6	The TPA/HCO, contractor or subcontractor or any providers of services must distribute the marketing material to its entire service area/region. Any marketing material addressed to enrollees must be accurate and sufficient to assist the enrollee in reaching an informed decision on enrollment. TPA/HCO must comply and guarantee that its marketing materials do not contain any assessment or statement that the recipient must enroll with a particular provider in order to obtain/retain benefits, or that the providers are endorsed by CMS and/or Federal or State Government Agencies. Marketing materials shall be approved by the ADMINISTRATION prior to dissemination.
	The parties herein expect that the Advisory Committee of the Commonwealth’s Medicaid Office, as required by 42 C.F.R. Part 431, will assist the ADMINISTRATION in the evaluation and review of any marketing or informational material addressed to Medicaid recipients concerning health services provided under this Contract.
2.4.7	All marketing activities and the information material thus far referred to in this Agreement shall be limited to the following:

a)	A clear description of health care benefits coverage and exclusions;
b)	An explanation of how, when, and where are benefits available;

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c)	An explanation of how to access emergency care, family-planning services, and services that do or do not require referrals and authorizations;
d)	An explanation of any benefits enrollees are entitled to that are not available through the HCO, and how to obtain them;
e)	Enrollees’ rights and responsibilities;
f)	Grievance and appeal procedures.

2.4.8.	The TPA/HCO, its agents, contractors or sub-contractors with respect to services set forth hereunder shall not engage in cold-call marketing with the purpose of influencing potential enrollees to enroll with any particular contractor. Also telephone, door-to-door or telemarketing for the same purpose is hereby prohibited.
2.4.9.	Neither the TPA/HCO, its contractors, subcontractors, nor any participating providers may offer a enrollee compensation, rewards, gifts or any other kind of inducement to enroll in their health group. The TPA/HCO, its contractors, subcontractors or providers are prohibited from influencing individual enrollment with the sale of any other insurance.
2.4.10	In the event of a final determination reached by the ADMINISTRATION that the TPA/HCO, its agents, or any of its contractors or subcontractors has/have failed to comply with any of the provisions set forth in this section 2.4, or any of its 10 subparts, the ADMINISTRATION will commence sanctions proceedings as set forth in Section 8.14 herein.
2.5.	DISENROLLMENT
	Coverage of benefits shall end, and service fees shall be paid until the date the enrollee is no longer qualified for benefits under Medicaid or Law No. 72, whichever applies to that enrollee. Disenrollment will be effected exclusively by a

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notification issued by the ADMINISTRATION. In the event of disenrollment on the last day of the month of coverage while the enrollee is under inpatient status at a hospital, and the individual continues such inpatient status during the month following the enrollee’s disenrollment, the ADMINISTRATION will cover the payment of the services for that following month. However, if the enrollee remains hospitalized in subsequent months, the conversion clause of Section 2.7 of this Contract will be triggered automatically.

The enrollee ceases to be eligible as of the disenrollment date specified in THE ADMINISTRATION’ report to the TPA. If the ADMINISTRATION notifies the TPA that the enrollee ceased to be eligible on or before the last working day of the month in which eligibility ceases, the disenrollment will be effective on the first day of the following month. Disenrollment will be effected exclusively by a notification issued and delivered by the ADMINISTRATION to enrollee. If following disenrollment, an enrollee’s contract is reinstated and the enrollee is re-enrolled on the same month of disenrollment, the contract will be reinstated as of the date of re-enrollment.

The TPA/HCO has a limited right to request disenrollment of a enrollee from HCO services without the enrollee’s/enrollee’s consent. The ADMINISTRATION must approve any TPA/HCO disenrollment request of a enrollee for cause.

Disenrollment of a enrollee/enrollee may be permitted under the following circumstances:

a)	Enrollee misuses or loans his/her membership card to another person to obtain services.
b)	Enrollee is disruptive, unruly, threatening or uncooperative to the extent that enrollee’s membership seriously impairs TPA’s or provider’s ability to

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provide services to enrollees or to obtain new enrollees, and enrollee’s behavior is not caused by a physical or mental health condition.

The TPA/HCO must undertake reasonable measures to allow a enrollee to improve his/her behavior prior to requesting disenrollment and must notify, in writing, said enrollee of its intent to disenroll. Reasonable measures may include, without limitation, providing education and counseling regarding the offensive acts or behavior.

TPA/HCO must notify the enrollee in writing of its decision to disenroll after reasonable measures have failed to remedy the problem. Said written notification shall include information pertaining to the availability of the Complaints and Grievances System set forth hereunder and the ADMINISTRATION’s fair hearing process, as provided by Law 72 of September 7, 1993, as amended.

2.6.	Disenrollment requested by an enrollee
2.6.1	The request for disenrollment by an enrollee may be either oral or in writing and may be requested by enrollee when the ADMINISTRATION imposes intermediate sanctions specified in 42 CFR 438.702(a) (3).
2.6.2	Disenrollment timeframe:
	The effective date of an approved disenrollment must be no later than the first day of the second month following the month in which enrollee or TPA files the request. If the TPA or the ADMINISTRATION (whichever is responsible) fails to make a disenrollment determination within said timeframe, the disenrollment shall be considered approved.

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If enrollee seeks redress for a disenrollment determination through the TPA grievance system set forth separately in this Contract, the grievance process must be completed in time to permit the disenrollment (if approved) to be effective in accordance with the timeframe specified above. If as a result of the grievance process the TPA approves disenrollment, the ADMINISTRATION is not required to make such determination.

2.7.

CONVERSION CLAUSE

2.7.1.

DIRECT PAYMENT POLICIES. If during the term of this contract, the coverage for an enrollee terminates because the enrollee ceases to be eligible and is disenrolled, such person has the right to receive a direct payment policy from TPA without submitting evidence of eligibility. The direct payment policy will be issued by the TPA without taking into consideration pre-existing conditions or waiting periods. The written request for a direct payment policy must be made, and the first service fee must be submitted to TPA on or before thirty-one (31) days after the date of disenrollment, bearing in mind that:

a)

The direct payment policy should be an option of such person, through any of the means which at that date TPA has currently made available according to the age and benefits requested. The enrollee will be subject to the terms and conditions of the direct payment policy.

b)

The premium for the direct payment policy will be in accordance with the rate then in effect at TPA, applicable to the form and benefits of the direct payment policy, in accordance with the risk category the person falls in at the moment, and the age reached on the effective date of the direct payment policy. The health condition at the moment of conversion will have no bearing on that person’s eligibility nor will it be an acceptable base for the risk classification.

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c)	The direct payment policy should also provide for coverage to any other individuals, if these were considered eligible beneficiaries at the termination date of the health insurance under this contract. At TPA’s discretion, a separate direct payment policy may be issued to cover the other individuals who formerly were eligible beneficiaries.
d)	The direct payment policy will be effective upon termination of coverage under the health insurance plan.
e)	TPA will not be obligated to issue a direct payment policy covering a person who has the right to receive similar services provided by any insurance coverage or under the Medicare Program of the Federal Social Security legislation, as subsequently amended, if such benefits, jointly provided under the direct payment policy, result in an excess of coverage (over insurance), according to the standards of the TPA.

2.7.2.	When coverage under this contract terminates due to its expiration, all persons formerly considered eligible beneficiaries, who have been insured for a period of three (3) years prior to the termination date, will be eligible for a TPA direct payment policy, subject to the conditions and limitations stipulated in clause 2.1.
2.7.3.	Subject to the conditions and limitations stipulated in clause 2.7.1, the conversion privilege will be granted:

a)	to all eligible beneficiaries whose GHIP coverage is terminated due to their easing to be eligible beneficiaries and disenrollment;
b)	to any eligible enrollee whose GHIP coverage ceases because s/he no longer qualifies as an eligible enrollee, regardless of whether the principal enrollee and/or any other eligible enrollee retains GHIP coverage;

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2.7.4	In case a GHIP enrollee suffers a loss covered by the direct payment policy described in clause 2.7.1, during the period he/she would have qualified for a direct payment policy and before its effective date, the benefits for which he/she would have a right to collect under such direct payment policy shall be paid as a claim under the direct payment policy, subject to having requested the direct payment policy and the payment of the first premium.
2.7.5	If any GHIP eligible enrollee subsequently acquires the right to obtain a direct payment policy, under the terms and conditions of the TPA’s policies without providing evidence of qualifications for such insurance, subject to the request, and payment of the first premium during the period specified in the policy; and if this person is not notified of the existence of this right, at least fifteen (15) days prior to the expiration of such period, such person will be granted an additional period during which time he/she can claim his/her right, none of the above implying the continuation of a policy for a period longer than stipulated in said policy. The additional period will expire fifteen (15) days after the person is notified, but in no case will it be extended beyond sixty (60) days after the expiration date of the policy. Written notification handed to the person or mailed to the last known address of the person, as acknowledged by the policy holder, will be considered as notification, for the purposes of this paragraph. If an additional period is granted for the right of conversion as hereby provided, and if the written application for direct payment, enclosed with the first premium, is made during the additional period, the effective date of the direct payment policy will be the termination date of GHIP eligibility.
2.7.6	Subject to the preceding conditions, eligible beneficiaries will have the right to conversion, up to one of the following dates:

a)	date of termination of his/her GHIP eligibility; or
b)	termination date of this contract; or

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c) date of amendment of this contract, if said amendment in any way eliminates the beneficiaries’ eligibility.

Section 3:
Benefits & Services; Fraud
& Abuse; Grievance System

3.1	GENERAL DESCRIPTION OF BENEFITS
3.1.1	The TPA/HCO, agrees to provide to GHIP enrolled beneficiaries the benefits included in Appendix B of this contract. The benefits to be provided are divided in three types of coverage. 1) The Basic Coverage that includes preventive, medical, hospital, surgical, diagnostic tests, clinical laboratory tests, x-rays, emergency room, ambulance, ambulatory rehabilitation, maternity services and prescription drug services; 2) Dental Coverage, based on the right to choose one among the participating dentists from the TPA’s network; and 3) Special Coverage, which includes benefits for catastrophic conditions, expensive procedures and specialized diagnostic tests.
3.1.2	The TPA/HCO, may not modify, change, limit, reduce, or otherwise alter said benefits nor the agreed terms and conditions for their delivery without the express, prior, written consent of the ADMINISTRATION.
3.1.3	Coverage shall extend to Medicare beneficiaries as follows:

(a)	Beneficiaries with Medicare, Part A — The TPA/HCO will pay for all services not included in Part A of Medicare, and included in GHIP coverage. The TPA/HCO, will not pay the applicable Part A deductibles and coinsurance.
(b)	Beneficiaries with Medicare Part A and Part B — TPA/HCO will pay for prescription drugs prescribed by PCP and dental coverage. TPA/HCO will

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	not cover the payment of the applicable Part A deductibles and coinsurance, but will cover the payment of the applicable Part B deductible and co-insurance.
(c)	Access to services contemplated herein will be through a selected HCO. Beneficiaries with Part A may select from other Medicare providers, in which case the benefits under this contract would not be covered.
	The Medicare enrollee may select a Part A provider from the Medicare Part A providers’ list, but shall select an HCO for Part B services (from a GHIP provider).

3.2	RIGHT TO CHOOSE:
3.2.1	Each principal subscriber must have the right to select an HCO from those available in the Metro-North Region.
	The right of beneficiaries to transfer or change from an HCO shall be exercised orally or in writing to TPA by the enrollee at any time, without cause, during the first 90 days following the date of the enrollee’s initial enrollment or the date enrollment notice is sent to THE ADMINISTRATION, whichever is later, and at most once every twelve (12) months thereafter. An enrollee may change his/her enrollment for cause, at any time, for the following reasons: (1) the enrollee moves out of the area of service of the HCO and is not within a reasonable distance from the area of service of the HCO; (2) the HCO does not cover the service because of moral or religious objections; (3) the enrollee needs related services to be performed at the same time; not all related services are available within the network; and the enrollee’s primary care provider or another provider determines that receipt of services separately would subject the enrollee to unnecessary risk; and, (4) other reasons, including but not limited to, poor quality of care and lack of access to experienced providers capable of handling the enrollee’s health care needs. The enrollee shall assure proper written or

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oral notification of his/her desire to exercise the right to change from HCO, in a standard form to be provided by TPA, at least 60 days prior to the end of each 12 month enrollment period.

If the request for a change of HCO is filed with the TPA on or before the fifth day of a month, the change of HCO will become effective on the first day of the following month. If the change is filed after the fifth day of the month, the change of HCO will be effective on the first day of the second succeeding month.

3.2.2	Each HCO network will have available at least one of each specialist considered a primary care physician, and shall meet the network and ratio criteria specified in Section 3.3 for all the services specified in this Contract. Furthermore, the ADMINISTRATION expects that TPA establish and contract with networks of Medical Groups and Mental Health Care Providers for the region (HCOs, EPOs, and PPOs, as applicable; sufficient to satisfy the GHIP population needs.
3.2.3	The enrollee shall have the right to choose his or her primary care physician from those available within the HCO selected by the principal enrollee. Said right also encompasses the change of the selected primary physician at any time by making the proper administrative arrangements within the HCO in conformity with the HCO’s established policy.
	The TPA or HCO, as applicable, shall guarantee that providers, including, but not limited to, the selected primary care physician or the substitute on-duty primary care physician within the HCO be available to attend to the health care needs of a enrollee on a twenty four (24) hour basis, seven (7) days a week, including emergencies and/or telephone consultations. Each HCO must have available all of the categories of primary care physicians (family physicians,

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	internists, general practitioners, pediatricians and obstetrician-gynecologists) subject to waivers in the case of unavailability of a specific provider.
3.2.4	A particular primary care physician may act as such in only one (1) HCO within the Metro-North Region of this Contract. The ADMINISTRATION may, at its discretion, allow a particular primary care physician to act as such in up to two (2) different HCOs as long as they serve the GHIP Metro-North Region, and the ratio of 1:1,700 established in Section 3.3 is not exceeded.
3.2.5	Each female enrollee may select either a primary care physician or an obstetrician-gynecologist as her primary care physician. If the female is pregnant, the obstetrician-gynecologist selected within the HCO will automatically become her primary care physician. If an obstetrician-gynecologist was not previously selected, the pregnant female enrollee will be required to choose one as her primary care physician. Once the pregnant woman completes her maternity care period, she will be allowed to continue with her original primary care physician.
3.2.6	The enrollee shall have the right to choose the provider to be referred to from those participating providers within the HCO’s network or PCPs that are under contract with the TPA for GHIP benefits.
3.2.7	Dental services will be provided through the TPA’s network of dentists. Each enrollee will have the right to select a dentist within the TPA’s network to receive dental services. The accepted dentist/enrollee ratio shall be one (1) dentist for each one thousand three hundred fifty (1,350) beneficiaries.
3.2.8	In the event that HCO’s under Section 330 of Public Health Act have contracts with specialists, support participating providers, or support participating physicians, either on a fee-for-service basis or on a salary basis, the TPA will be responsible for gathering and reporting all required data hereunder including the data supporting the payment of services.

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3.2.9	The TPA will provide to each enrollee a complete list of all participating providers, with their addresses, phone numbers and specialties or health-related services offered. Said list shall be submitted to the ADMINISTRATION upon the execution date of this Contract.
3.2.10	The enrollee shall also have the right to choose a pharmacy and any other participating providers among those contracted by the TPA/HCO for basic and/or special coverage services, following the guidelines established by the ADMINISTRATION in this Contract.
3.2.11	The TPA may contract with any HCO effectively to disseminate an orientation program in order to ensure that all eligible beneficiaries are aware of their rights under this Contract, including their right to choose physicians and providers. The ADMINISTRATION, prior to approval and implementation of such orientation program reserves the right to make changes, modifications and recommendations thereto, which changes shall be coordinated with and mutually agreed to by the parties herein.
3.2.12	The ADMINISTRATION retains the right to expand, limit or otherwise amend the provision of services herein and/or to negotiate, in coordination with the TPA, cost saving and efficiency improvement measures. In those cases in which the ADMINISTRATION changes the provision of services, it shall notify the TPA no later than 30 days prior to implementation of such change.

3.3: ACCESS TO BENEFITS

3.3.1 The HCO and TPA must contract with all available providers which meet the credentialing process, and agree with contractual terms related to assure timely access to benefits and ensure sufficient participating providers to satisfy the demand of covered services with adequate service capacity. These may not be construed to (i) require that TPA/HCO contract with providers beyond the

41

numbers necessary to meet the needs of its enrollees; (ii) preclude TPA/HCO from using different reimbursement amounts for different specialties; (iii) or preclude TPA/HCO from establishing measures that are designed to maintain quality of services and costs control, as long as they are consistent with their responsibilities to enrollees and any applicable guidelines established by the ADMINISTRATION. Consistent with 42 CFR 438.214(c), the TPA/HCO provider selection policies and procedures cannot discriminate against particular providers that serve high-risk populations or specialize in conditions that require costly treatment.

In establishing and maintaining an adequate network of providers, TPA/HCO shall consider the following criteria:

(i)	Network Criteria
•	The anticipated Medicaid enrollment;

The expected utilization of services considering the specific population characteristics and special health care needs in the Metro-North Region;

•	Integration of State, Academic Medical Centers, and Municipal Health Care Facilities and services in order that these facilities are considered as a primary choice for referral of the enrollee when the service is required, except in emergency cases or when said facilities are operating at full capacity;
•	The number and type of providers required to furnish the requested services considering experience, training and specialties;
•	The number of providers not accepting new patients;
•	The geographic location of providers and enrollees considering distance, travel time, the means of transportation ordinarily used by enrollees and whether the location provides physical access to enrollees with disabilities or special needs.
(ii)	Network ratios

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The expected ratio of providers to enrollees in the Metro-North Region must be as follows:

• One PCP for every 1,700 enrollees (1:1,700);

• One type of a particular specialist for every 2,200 enrollees (1:2,200);

• One dentist for every 1,350 enrollees (1:1,350); and

• taking all physicians in consideration, one physician for every 1,600 enrollees (1:1,600);

The network ratios established herein must be maintained regardless of whether the HCO treats patients other than GHIP beneficiaries. The TPA or HCO, as applicable, shall assure compliance with said physician/enrollee ratio.

(iii) In-Network Providers

The TPA must have under contract Health Care Organizations (HCO) with
primary care physicians (PCPs) to attend to the medical needs of the beneficiaries. The required types of physicians are:

a)	General Practitioners
b)	Internists
c)	Family Physicians
d)	Pediatricians
e)	Obstetricians and Gynecologists

The TPA or HCOs, as applicable, must contract providers according with ASES’ policy of having State, Municipal and Academic Healthcare facilities as a primary choice for beneficiaries. The TPA or HCOs, as applicable, must have available and under contract the following types of support participating providers:

a)	Specialty Services Providers
b)	Optometrists
c)	Podiatrists

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d)	Clinical laboratories — (The TPA must assure that all laboratory testing sites providing services under this contract have either a clinical laboratory improvement amendment (CLIA) certificate with the registration and (CLIA) identification number or a waiver certification)
e)	Radiology facilities
f)	Allied Healthcare Professionals
g)	Hospitals
h)	Mental health service providers and facilities
i)	All those participating providers that may be needed to provide services under the basic, special and dental coverage considering the specific health problems of the region.

(iv) Out-of-Network Providers

If the TPA or HCO is unable to provide necessary medical services to a particular enrollee through its provider network in the Metro-North Region, it will cover these services utilizing out-of-network providers, for as long as necessary. TPA or HCO must assure that out-of-network providers utilized in these circumstances are paid and credentialed at the level required by the TPA. TPA or HCO must assure that any cost to the enrollee is not greater than it would have been if the services were furnished within the network.

The TPA shall contract for all the necessary health care services and with participating providers, including State and Municipal Health Care Facilities and Services, to assure that all the benefits covered under the Basic, Dental, Mental and Special Coverage of the plan are rendered through participating providers with the timeliness, amount, duration, and scope as those services rendered to non-Medicaid recipients within the Metro North region.

(v).      Physical and Mental Health Integrated Approach

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TPA or HCO shall take steps for physical and mental healthcare services to be provided in an integrated primary care program. In this regard, upon the effective date of the Contract, TPA should begin implementing this integrated initiative by providing mental services in collaboration with behavioral service providers. The integrated model must be fully developed and implemented before the end of the 3 year contract period. This Integration policy must first focus on ensuring that clinical integration occurs and then the structures must be designed and financing mechanisms put in place to support it.

(vi)	Collaborative, integrated approach includes:
a)	The requirements that mental health agencies furnishing on-site primary care must meet, -related to delivery of care (health assessments, prevention and treatment)-, the development of a unified plan of care, information-sharing and case management services.
b)	The responsibility of primary care services to individuals with serious mental illnesses must be clearly placed on one entity.
c)	Initiatives to improve communication and understanding between the physical and mental health care components should be clearly established in the contract with network providers. Use of case managers shall play an important role in linking beneficiaries to all providers. Information-system problems should be addressed by facilitating the adoption of electronic records and developing standard simplified forms for sharing information with primary care providers.
d)	To facilitate the integration of mental health information beneficiaries should be encouraged to consent to information-sharing, allowing them to participate in decisions about what information will be shared among providers, to facilitate the integration of mental health information.

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e)	Access could be improved if primary care providers receive information on local mental health resources and understand how to access care from the public mental health system and community based organizations.
f)	Consultations could be readily available to ensure that primary care providers have sufficient behavioral health support. Psychiatric phone consulting lines and mobile mental health teams may be ways to provide backup when prompt responses are needed.
g)	Funding strategies include the use of performance measures, coupled with incentives, for health plans to ensure greater collaboration with behavioral health providers or carve-out plans. Resources could be provided for extra time to meet the primary care needs of individuals with serious mental disorders and for the time to engage in collaboration across systems.

3.3.2

Every enrollee shall be able to select from at least two (2) HCO’s with sufficient enrollment capacity in his or her municipality, one of which could be a government facility, if available and subject to compliance with ADMINISTRATION requirements for HCO’s. [If the enrollee moves outside his or her municipality, the Enrollee shall also be able to choose an HCO in the new domicile, as provided for in Section 3.2, paragraph 1 of this contract.]

3.3.3

TPA or HCO shall require all contracted providers to meet the ADMINISTRATION’s standards for timely services access, taking into account the enrollee’s needs. The TPA or HCO, as applicable, shall guarantee that the providers’ network offers hours of operation that are no less than the hours of operation offered to persons who are not GHIP enrollees and that round-the-clock services are provided seven days a week as required elsewhere herein.

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	The TPA or HCO shall, as applicable, establish mechanisms to ensure and regularly monitor that network providers timely comply with access requirements, assessing compliance and undertaking necessary corrective actions.
	The HCO or TPA, as applicable, shall allow enrollees to have a second opinion from a qualified health care professional within the network, or arrange, at no cost to the enrollee, for a second opinion from a professional outside of the network.
3.3.4	HCO enrollment shall be conditioned to the availability of adequate health care services. It shall be the TPA’s responsibility constantly to evaluate each HCO’s enrollment capacity in light of the adequate level of services required by the ADMINISTRATION, in order that the ADMINISTRATION may certify to CMS that both comply with the Manage Care Act standards for service availability. The TPA or HCO shall notify the ADMINISTRATION any time there is a significant change in the operations that would affect the adequacy and capacity of the services and integrated services model including changes in services or enrollment of a new population in the region.
3.3.5	The HCO and TPA, as applicable, shall be responsible for communicating to their participating providers the public policy that prohibits them from making inquiries to determine eligibility of the enrollee under Law 72 of September 7, 1993.
3.3.6	The HCO/TPA shall be responsible for the development and implementation of written policies and procedures to guarantee an adequate health services referrals system and services authorization processing. The referral system shall be approved by the ADMINISTRATION and audited periodically by the TPA and the ADMINISTRATION.

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	The TPA/HCO shall develop and conduct semi-annual orientations to all participating providers on the drug formularies available for the services provided herein, their proper use, and their interaction with the PBM.
	All referral systems must comply with the timeframes established in this Contract. It is unacceptable to force the enrollee to move to another facility to obtain referrals. If the TPA/HCO develop an electronic referral system, all contracted primary care physicians shall have access privileges to it.
3.3.7	The TPA/HCO shall prohibit participating providers in their respective networks from imposing quotas or restraining medically needed ancillary services offered by subcontracted providers. (E.g. laboratory, pharmacies or other services).
3.3.8	The TPA shall expedite access to benefits for beneficiaries diagnosed with Special Coverage conditions as established in the Appendix of Coverage of Benefits.
3.3.9	Any denial, unreasonable delay or rationing of services to beneficiaries is expressly prohibited. The HCO and TPA shall require strict compliance with this prohibition by its participating providers or any other entity rendering medical care services to GHIIP beneficiaries. Any action in violation of this prohibition shall be subject to the provisions of Article VI, Section 6 of Law 72 of September 7, 1993 as amended.
3.3.10	The TPA shall make certain that HCOs and participating providers have a mix of patients distributed between private pay and eligible beneficiaries hereunder to avoid any possibility of discrimination by reason of medical indigence. No participating provider, or its agents, may deny a enrollee access to medically necessary health care services, except for the reasons specified in Article VI, section 6 of Law 72 of September 7, 1993.

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3.3.11 The HCO and TPA shall assure that physicians and services providers provide the full range of medical counseling that is appropriate for each enrollee’s condition. In no way shall the TPA/HCO or any of its contractors interfere, prohibit, or restrict any health care professional from advising or advocating, within their scope of practice, on behalf of an enrollee who is their patient, as follows:

a)	For the enrollee’s health status, medical care or treatment options, including any alternative treatment that may be self-administered.
b)	For any information the enrollee needs in order to decide among all relevant treatment options.
c)	For the risks, benefits and consequences of treatment or non-treatment.
d)	For the enrollee’s right to participate in decisions regarding his/her health care, including the right to refuse treatment and to express preferences about future treatment decisions.

3.3.12

The TPA/HCO assure the ADMINISTRATION that their Physician Incentive Plan does not directly or indirectly compensate individual physicians, groups of physicians or subcontractors as an inducement to reduce or limit medically necessary services furnished to individual enrollees and that said plan meets or exceeds the stop-loss protection and enrollee survey and disclosure requirements of the Social Security Act. The ADMINISTRATION shall ensure that at the intermediate level all physician provider groups have adequate stop-loss protection within Medicaid Program regulations required thresholds.

3.3.13

The ADMINISTRATION shall provide an adequate stop-loss at no more than ten thousand ($10,000) dollars to protect physicians from loss and comply with 42 CFR 422.208 risk thresholds. If the ADMINISTRATION places physicians at substantial risk it shall conduct enrollment/disenrollment surveys not later than one year after the effective date of the Contract and at least once annually thereafter.

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3.3.14 Timeframes for Access Requirements.

The TPA/HCO must assure that its providers comply with the standards for timely care and services, considering the urgency of required services. TPA/HCO must have a providers network to guarantee enrollees access to routine, urgent, and emergency services; telephone appointments; advice and enrollee service lines. These services must be accessible to enrollees within the following timeframes:

• Urgent Care within twenty four (24) hours of request;

• Routine care within two (2) weeks of request;

• Physical/Wellness Exams for adults shall be provided within 8 to 10 weeks of the request;

• Referrals: Whenever medically necessary, enrollees must be referred to a specialist; referral appointments must be delivered or notice thereof provided to enrollees within five (5) days from the date prescribed by provider who issued the referral. The services from said specialist must be delivered within a reasonable period, as medically needed by the enrollee, but never later than thirty (30) days from the date the appointment was made, except in cases where the particular nature of the services rendered by the specialist require additional waiting time because of unavailability of a specialty service. A reasonable period of time may be, for example, the average commercial sector waiting time for such services.

• Implement procedures to assure that each enrollee has access to mental health outpatient and inpatient services

3.3.15 Primary Care and Coordination of Services.

TPA/HCO shall implement procedures to make certain each enrollee has access to an adequate, ongoing source of primary care and that the PCP

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responsible for the enrollee adequately coordinates referrals for other health services the enrollee may need, such as mental health services.

3.3.16	Assessment of enrollees with special health care needs.
	The TPA/HCO shall require participating providers to have mechanisms in place and appropriate health care professionals effectively to monitor and assess enrollees with special health care needs, who require a particular course of treatment or just regular care.
	For enrollees determined to need a course of treatment or regular care monitoring, the TPA/HCO shall have a mechanism in place to allow enrollees directly to access a specialist as appropriate for the enrollee’s condition and identified needs, consistent with 42 CFR 438.208(c)(4).
3.3.17	The HCO must establish policies and procedures to ensure access to EPSDT Checkups within ninety (90) days of new enrollment, except in the case of newborn beneficiaries who must be seen within two (2) weeks of enrollment. Such policies and procedures must be consistent with the American Academy of Pediatrics and EPSDT periodicity schedule and the ADMINISTRATION’s guidelines. The HCO must advise beneficiaries about their right to have an annual check-up.
3.3.18	The TPA/HCO must contract within providers for Specialty Services (Home Infusion Pharmacy and Specialty Pharmacy) to be given to their patients as the first line of Service.
3.4	EMERGENCIES
3.4.1	EMERGENCY SERVICES & POST-STABILIZATION SERVICES
	The TPA/HCO agrees to provide access to the emergency services and post stabilization care services established herein. In doing so, HCO shall abide by

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the Medicaid Manage Care Regulation managed care rules and may not limit what constitutes an emergency medical condition based on lists of diagnoses or symptoms, nor refuse to cover emergency services based on the emergency room or hospital that provides the services. The TPA/HCO or fiscal agent must notify the enrollee’s primary care provider of the enrollee’s screening and treatment within 10 calendar days of presentation for emergency services.

Emergency services shall consist of whatever is necessary to stabilize the patient’s condition, unless the expected medical benefits of a transfer outweigh the risk of not undertaking the transfer, and the transfer conforms to all applicable requirements. Stabilization services shall include all treatment necessary to assure within reasonable medical probability that no material deterioration of the patient’s condition is likely to result from or occur during discharge of the patient or transfer thereof to another facility.

In the event of a disagreement with the provider concerning whether a patient is stable enough to be discharged or transferred or whether the medical benefits outweigh the risk, the judgment of the attending emergency physician treating the enrollee shall prevail and bind the HCO. Such services shall be provided in such manner as to allow the enrollee to be stable for discharge or transfer, as defined by EMTALA, in order safely to return the enrollee to the corresponding HCO or to an appropriate participating provider for continuation of treatment.

• FINANCIAL RESPONSIBILITY OF THE TPA OR HCO FOR POST-STABILIZATION CARE SERVICES

Pursuant to 42 CFR 438.114(e) and 42 CFR 422.113(c), after stabilization of an emergency medical condition, the TPA or HCO must ensure that the enrollee can access services necessary to maintain the stabilized condition; or under the circumstances established in (iii) (A)-(C) below, to improve or resolve the enrollee’s condition.

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The TPA or HCO shall make the corresponding payment for post-stabilization services as follows:

(i)	The TPA or HCO (consistent with 42 CFR 422.214) for post-stabilization care services obtained within or outside its network that are pre-approved by the TPA, or other TPA representative;
(ii)	The TPA or HCO for post-stabilization care services obtained within or outside its network that are not pre-approved by the TPA or other TPA representative, but administered to maintain the enrollee’s stabilized condition within one hour of a request to the TPA or HCO for pre-approval of further post-stabilization care services, or any more stringent timeframe that may be established from time to time by the TPA;
(iii)	The TPA or HCO is responsible for the payment of post-stabilization care services obtained within or outside its network that were not pre-approved by the TPA or HCO representative, but administered to maintain, improve, or resolve the enrollee’s stabilized condition, if:

(A)	the TPA or HCO does not respond to a request for pre-approval within one hour, or any other timeframe established by the TPA; or
(B)	the TPA or HCO representative cannot be contacted; and
(C)	the TPA/HCO representative and the treating physician cannot reach an agreement concerning the enrollee’s care and a plan physician is not available for consultation, the treating physician may continue with care of the patient until a plan physician is reached or one of the criteria in 42 CFR 422.113 ( c)(3) is met; and

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(iv)	Must limit charges to enrollees for post-stabilization care services to an amount no greater than what the organization would charge the enrollee if s/he had obtained the services through the TPA or HCO organization.
	The TPA or HCO may conduct post-utilization review of what constitutes an emergency medical condition, as defined herein, in accordance with the Medicaid Managed Care regulations.

PAYMENTS

1. TPA or HCO, as applicable, shall cover and pay for emergency services provided to beneficiaries regardless of whether the provider or entity furnishing the services has a contract with the plan, or the immediate need of medical care occurs within its network or outside of its network or the Metro-North Region or the HCO’s contracted emergency care facility. The TPA or HCO may not deny payment for medical screening examinations or other medically necessary emergency services under either of the following circumstances:

a)	When an enrollee had an emergency medical condition, in which the absence of immediate medical attention would not have had the outcomes specified in paragraphs (1), (2), and (3) of the definition of emergency medical condition in Section 3.4.1 of this Contract; or
b)	When the TPA or an HCO representative or any other provider instructs the enrollee to seek emergency care within or outside its Metro-North Region network. In this case, no prior authorization is needed for the provision of emergency care. The TPA or HCO shall comply with the ADMINISTRATION’S rules and guidelines on emergency services.

3.4.2 Since emergency care is of utmost concern to the ADMINISTRATION, the TPA or HCO must assure that adequate ambulance transportation and emergency

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	medical care are available in each municipality of the Metro North Region, including ground, air and maritime ambulance transportation, 24 hours a day, and 365 days a year.
3.4.3	The required access to emergency ambulance transportation services should be provided by the HCOs within their respective facilities, through their contracted participating providers or through contracts with third parties, assuring that the ambulances thereby contracted are properly equipped and in good mechanical condition to offer prompt, effective ambulance transportation service.
3.4.4	The TPA or HCO will establish Urgent Care Centers within the Metro-North Region. Such Centers may include physician offices and clinics with extended hours. These Urgent Care Centers may complement emergency care services but they cannot satisfy the requirement on TPA/HCOs to have emergency care services and ambulance transportation available at each municipality 24 hours a day, 7 days a week and 365 days yearly.
3.4.5	The TPA/HCO must provide beneficiaries access to a 24-hour-a-day toll-free hotline with licensed qualified professionals to help beneficiaries with questions about particular medical conditions and guide them to appropriate facilities if necessary (emergency rooms, and urgent care centers, among others).
3.4.6	The TPA or HCO may establish a reasonable triage fee in its contracts with providers in accordance with the Medicaid Managed Care Regulations.
3.4.7	The TPA or HCO shall not hold an enrollee liable for payment of subsequent screening and treatment needed to diagnose or stabilize the emergency medical condition as long as access to services was provided in accordance with this Contract.

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3.5 PHARMACY BENEFITS MANAGEMENT (PBM):

3.5.1

The TPA and HCO, as appropriate, shall collaborate with the Pharmacy Benefit Manager (PBM) the ADMINISTRATION selects. This includes cooperating with the PBM to facilitate claims processing within specified periods, working with the PBM to specify, develop and implement the optimum flow of information, utilization review and customer service protocols, as well as assisting the Pharmacy Program Administrator (PPA) in billing and collection of drug manufacturers’ rebates.

3.5.2

The PBM and PPA and the ADMINISTRATION and the TPA/HCO shall provide, with respect to pharmacy benefits, the services that follow, as further described in the appropriate attachments or amendments hereto:

		Services the
	Services PBM and PPA Shall	Administration and
Item	Provide	TPA shall Provide
Claims Processing and Administrative Services	§    Contracting and administration of the pharmacy network. The PBM will create a network of Participating Pharmacies, which will provide pharmacy services for Members at specified fees and discounts. §    Claims payments summary reports for each payment cycle every two weeks. §    Notify the ADMINISTRATION of the payment process, systems involved (NCPDP 2.0) and relevant time line. §    Processing and mailing of pharmacy checks and remittance reports. §    Reconciliation of zero balance accounts.	§    ADMINISTRATION assumes cost of implementing and maintaining on-line connections. The ADMINISTRATION will be responsible for all of its own costs of implementation, including but not limited to payment processes, utilization review and approval processes, connection and line charges, and other costs incurred to implement the payment arrangements for pharmacy claims.

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		Services the
	Services PBM and PPA Shall	Administration and
Item	Provide	TPA shall Provide
	§    Generate list of participating pharmacies. §    Coordination of Benefits. §    On-line access to current eligibility and claims history. §    Plan set-up. §    Develop policies and procedures for denials and rejections. §    Process reasonable denials. §    Maintenance of plan. §    Adjudication of electronic claims. The PBM will adjudicate claims submitted by Participating Pharmacies to the PBM based on the participating pharmacy’s agreement with the PBM and including online edits for preauthorization requirements and other edits that may be deemed necessary for accurate claims payment. §    Approval and rejection of claims consistent with plan design and concurrent Drug Utilization Review (DUR). §    Standard electronic eligibility. §    Maintain call center. §    Loading of HCO and TPA providers in network and eligible members. §    Develop remedies for addressing problems with pharmacies. §    Pharmacy audits.	§    Review bi-monthly claim payments summary reports for each payment cycle and approve transfer of funds (TPA). §    Review denials and rejections (TPA). §    Maintain call center — TPA will operate a customer call center to provide for preauthorization of drugs, according to its policies and the approved formulary. §    Electronically submit a list of all TPA providers in network and eligible members to PBM (TPA).
Concurrent Fraud Investigations	§    Develop process for TPA to notify the PBM of fraud and abuse complaints made by their beneficiaries. §    Track and Investigate fraud and abuse allegations.	§    Forward fraud and abuse complaints from members to PBM. (TPA)

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		Services the
	Services PBM and PPA Shall	Administration and
Item	Provide	TPA shall Provide
Formulary Management Program	§    Incorporate TPA related issues, such as providing guidance into development of the Preferred Drug List (PDL), into the existing ADMINISTRATION’s Pharmacy and Therapeutic Committee. §    Administer the Pharmacy Benefits Financial Committee (PBFC), a cross functional sub-committee tasked with rebate maximization. The subcommittee will take recommendations on the PDL from the P&T committee and will manage the PDL.	§    Designate and maintain a representative to assist on the P&T Committee in developing the official formulary. (TPA) §    Submit candidates who are primary care physicians for the Pharmacy and Therapeutic Committee. (HCO) §    Select two (2) representatives of the TPA to serve on the Pharmacy Benefits Financial Committee (PBFC), a cross functional committee tasked with rebate maximization. The subcommittee will take recommendations on the PDL from the P&T committee and will update and manage the PDL. (TPA)
Drug Utilization Review /Drug Utilization Evaluations	§    Incorporate DUR reports and evaluation reviews into the tasks of the Pharmacy Benefits Financial Committee (PBFC), §    Evaluate new therapeutic classes and determine if drugs need to be added or deleted from PDL. §    Therapeutic intervention and switching.	§    Perform disease management functions consistent with minimum standards of the ADMINISTRATION or that may be required by the Medicaid program. (TPA)
Reports	§    According to Agreements.	§    Meet with PBM to determine which reports should be the PBM’s sole responsibility, TPA’s and those that should

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		Services the
	Services PBM and PPA Shall	Administration and
Item	Provide	TPA shall Provide
		be duplicated to cross check.
Rebates and Discounts	§    Develop and maintain contracts with drug manufacturers for rebates. §    Utilize the Pharmacy Benefits Financial Committee (PBFC),) to maximize rebates.
Optional Services	§    Custom Management Reports. §    Manual Claims Input. §    Special Programming.

3.5.3 The TPA/HCO shall comply with the payment process that follows:

a)	The ADMINISTRATION will assume claims costs, and administrative fees for Special Coverage and Dental Coverage prescription. The HCO will assume the claims cost and administrative fee for Basic Coverage prescription. Every two weeks, the PBM will provide the TPA with the proposed claims listing. The TPA will promptly review the payment listing, and process, on behalf of the ADMINISTRATION, the payment to the PBM.
b)	The ADMINISTRATION will submit funds for claims payment to a designated zero-balance account by wire transfer or otherwise submit payment within two business days to a bank account established for claims payment.
c)	Payment of PBM and Collection of Rebates and Discounts: The ADMINISTRATION will collect rebates and provide for the payment of reasonable PBM fees for defined services. The ADMINISTRATION will share such rebates with the primary care providers according to their negotiated risk.
d)	Other Savings: The ADMINISTRATION and the PBM shall cooperate to identify additional savings opportunities, including special purchasing opportunities, changes in network fees, etc.

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e) All PBM service fees will be paid by the ADMINISTRATION.

3.6 CLAIMS PROCESSING:

With respect to the processing of claims, TPA shall provide the following services:

1.	Take any and all necessary steps to ensure the effective and smooth execution of all claims processing functions.
2.	Process and adjudicate for payment all claims in accordance with the terms of the Self Insured Plan. TPA will be responsible for taking any and all necessary actions to correct any discrepancies, including but not limited to, collection efforts.
3.	Process payment of claims to participating providers every week exclusively from funds provided by the ADMINISTRATION, as the case may be, or within such other time period as may be agreed to by the ADMINISTRATION and TPA, provided, however, that such disbursements shall not exceed the time limitation standards of Law No. 104 of July 19, 2002 (known In Spanish as “Ley de Pronto Pago”). In no event shall TPA be liable to pay claims other than with funds provided by the ADMINISTRATION for that purpose.
4.	Disburse claims payments to participating providers after withholding any corresponding [charges that are the financial responsibility of the participating providers].
5.	Provide the ADMINISTRATION with the adjudicated claims data and reports, in a form mutually agreed to by the parties [from time to time]; and provide participating providers with adjudicated claims data and reports in a form mutually agreed to by the parties from time to time.
6.	TPA will adjudicate claims submitted by participating providers based on the provider’s agreement with the ADMINISTRATION, TPA or any other arrangement agreed to by the parties, including edits for prior authorization and other edits that may be necessary for accurate claims payment.
7.	Funding of Claims. The ADMINISTRATION represents to TPA that, on a weekly basis, the ADMINISTRATION shall transfer to a zero balance bank account to be set

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up by the ADMINISTRATION, sufficient funds to cover claims payments due participating Providers required herein to be made by TPA.

3.7 FRAUD AND ABUSE TRACKING:

TPA/HCOs and any other health service providers under contract shall assist the ADMINISTRATION in documenting all cases of GHIP benefit fraud and abuse. TPA shall document and report to the ADMINISTRATION any such cases pursuant to policies and procedures developed jointly by TPA and the ADMINISTRATION. Such information shall be sent in writing to the ADMINISTRATION for review and appropriate action based on the policy and procedure developed in connection herewith.

TPA acknowledges it has the administrative and managerial capability, policies and procedures, and that it has adopted the standards of conduct necessary to comply with State and Federal laws and regulations pertaining to fraud and abuse prevention, as set forth in 42 CFR § 438.608 (a).

3.8 GRIEVANCES, APPEALS & “FAIR HEARINGS”

3.8.1 Grievance System

3.8.1.1 The TPA/HCOs shall establish a system for prompt, adequate handling and resolution of all grievances and complaints made by GHIP beneficiaries or participating providers with respect to actions or decisions of the TPA/HCOs. Said system shall have the ADMINISTRATION’S prior approval and shall meet all applicable Medicaid regulations and pertinent, conforming provisions of Commonwealth’s Law No. 94 of August 25, 2000 (known as the “Patient’s Bill of Rights and Responsibilities”), Law No. 11 of April 11, 2001 (known as the “Organic Law of the Office of the Patient’s Advocate”), Law No. 194 of August 25, 2002, and Law No. 408 of August 25, 2000 (“Mental Health Law”). This

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	System shall consist of a grievance process, an appeals process, and access to the ADMINISTRATION’s fair hearing process, described further below.
3.8.1.2	The TPA/HCOs shall ensure that their respective providers on contract and subcontractors are duly informed of the grievance, appeals, and fair hearing procedures, as well as their respective timeframes and deadlines, including, without limitation:

a)	the right of enrollees or providers to file grievances and appeals, their requirements and filing timeframes;
b)	the enrollee’s right to a fair hearing before the ADMINISTRATION, how to obtain a hearing, and representation rules thereat;
c)	the availability of assistance in filing grievances;
d)	toll-free numbers to file oral grievances and appeals;
e)	the enrollee’s right to request continuation of benefits during an appeal or during the pendency of the ADMINISTRATION’s fair hearing process, and that if the TPA/HCOs action were upheld, the enrollee may be liable for the cost of any continued benefits; and

3.8.1.3 TPA/HCOs grievance forms shall have the ADMINISTRATION’s prior approval. The approved grievance forms shall be made available to all beneficiaries, HCOs, HCOs’ networks of participating providers and TPA’s participating providers. TPA/HCOs shall maintain complete, permanent, written or electronic records of grievances and appeals. A grievance or appeal may be filed orally or in writing; however, TPA/HCOs shall make available adequate forms to record oral complaints or appeals and shall prepare complete, permanent, written or electronic records of all grievances or appeals filed orally. All grievance and appellate records at the very least shall contain the following: date; identification of the individual filing the complaint; identification of the individual recording the complaint; nature of the complaint; disposition of the

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complaint; corrective action required; date resolved; date and format of notification to the complaining party of disposition of the grievance/appeal.

3.8.2

GRIEVANCE PROCESS.

3.8.2.1

The TPA/HCO`s grievance procedure shall include adequate guidance to enrollees and providers with respect to how grievances will be handled. TPA/HCOs shall provide enrollees or providers any reasonable assistance necessary for completing grievance forms and other procedural steps, including, without limitation; (a) providing interpreter services; (b) providing toll-free numbers with telecommunications relay services for persons with disabilities; (c) acknowledging receipt of grievances and appeals; (d) guarantees that decision-makers on grievances and appeals not be involved in previous levels of review or decision-making; and (e) that health care professionals with clinical expertise in treating the enrollee’s condition or disease will participate in the grievance/appeals process if any of the following applies:

• a denial of an appeal based on lack of medical necessity;

• a grievance regarding denial of expedited resolutions of an appeal; or

• any grievance or appeal involving clinical issues.

	Upon filing of the complaint, the TPA/HCO shall provide adequate notice to the complainant explaining the action taken by TPA/HCO or that will be taken by TPA/HCO, which notice shall advise the complainant of TPA/HCO’s official Grievance Procedure.
3.8.2.2	The TPA/HCOs shall advise beneficiaries of their right to file a grievance with the Office of the Patient’s Advocate of the Commonwealth of Puerto Rico.
3.8.2.3	Disposition and notification.

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	The TPA/HCO shall dispose of each grievance and provide notice, as expeditiously as the enrollee’s health condition requires, and within the established timeframes, but in no case shall disposition notice exceed 90 days from the day the grievance is filed with TPA/HCO.
3.8.2.4	Format of disposition notice.
	The TPA/HCO shall notify the enrollee in writing of the disposition of a grievance, including a detailed disposition rationale explanation and explaining the steps necessary to file an appeal thereof with TPA/HCO. The TPA/HCO will submit to the ADMINISTRATION, on a monthly basis, a written report detailing all grievances and routine complaints received, solved, and pending solution; and/or copies of the complaint forms with the notation of the action taken. All grievance files and complaint forms shall be made available to the ADMINISTRATION for auditing. All grievance documents and related information shall be considered as containing protected health information and shall be treated in accordance with HIPAA regulations and other applicable laws of the Commonwealth.
3.8.2.5	The TPA/HCOs’ Grievance Procedure shall contain the necessary provisions to uphold the due process rights of affected parties. The TPA/HCO shall have written policies and procedures for receiving, tracking, and reviewing, reporting and resolving enrollee’s or provider’s complaints. The procedures shall have the ADMINISTRATION’S prior review and written approval. Any potential changes or modifications to the procedures shall be submitted to THE ADMINISTRATION for approval at least thirty (30) days prior to the effective date of the proposed change.
	The TPA/HCOs’ complaints procedures shall be provided to enrollees in writing and in alternative communication formats, if appropriate. A written description of TPA/HCO’s complaints procedures shall be in a language and at an

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	appropriate level of understanding by enrollees in the Metro-North Region. The TPA/HCO shall also include a written description of such procedures in the enrollee’s handbook. TPA shall maintain at least one local and one toll-free telephone number for filing complaints. In the event that changes are proposed to the existing Grievance Procedure, a copy of the proposed changes shall be made available to the ADMINISTRATION for approval prior to their implementation. TPA acknowledges that the arbitration process contemplated in the Grievance Procedure shall not be applicable to disputes between the ADMINISTRATION and the TPA.
3.8.2.6	The Grievance Procedure shall assure the participation of persons with authority to require corrective action. The TPA/HCO shall designate in writing an officer who shall have primary responsibility for ensuring that complaints are resolved pursuant to this Contract. For such purposes, an officer shall mean a president, vice president, secretary, treasurer, or chairperson of the Board of Directors of the TPA, subsidiary, the sole proprietor, the managing general partner of a partnership, or a person having similar executive authority in the organization so long as such person is appointed by the Executive President.
3.8.2.7	The TPA/HCOs shall have a routine process to detect patterns of complaints and disenrollment, and involve management and supervisory staff in developing policy and procedural improvements to address complaints. The TPA/HCOs shall cooperate with the ADMINISTRATION with complaints relating to enrollment and disenrollment.
	The Grievance Procedures shall comply with the minimum standards and timeframes for prompt resolution of grievances and appeals set forth Section 3 and 4of this Contract;
3.8.3	APPEALS PROCESS.

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3.8.3.1	The TPA/HCO shall treat an appeal as a request for review of an action or decision, including, without limitation, disposition of a complaint or grievance disposition. An enrollee or provider may file an appeal in the TPA. A provider acting on behalf of the enrollee and with the enrollee’s written consent may file an appeal.
	An enrollee or provider may file an appeal not earlier than 20 days from the date of the notice of TPA/HCO’s action or decision or later than 90 days therefrom. The appeal may be oral or written, except that expedited appeals must be followed up by the appellant as reasonably soon as possible with a written form to be provided by TPA/HCO.
	The requirements of the appeals process shall be binding for all types of appeals, including expedited appeals, unless specific requirements are otherwise established for expedited appeals.
3.8.3.2	The appeal process shall guarantee the following:

• That oral inquiries seeking to appeal an action are treated as formal appeals (to establish the earliest possible filing date for the appeal), but must be confirmed by the enrollee or provider in writing, unless the enrollee or the provider requests expedited resolution;

• Reasonable opportunity to present evidence, and allegations of fact or law, in person as well as in writing;

• That the process afford the enrollee or provider, and his/her/its representative, the opportunity, before and during the appeals process, to examine the pertinent enrollee’s case file, including medical records, and any other applicable documents and records;

• That the process shall treat the provider or enrollee, its representative, or an estate representative of a deceased enrollee as parties to the appeal.

3.8.3.3 Resolution of the Appeal and Notification Thereof:

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3.8.3.3.1	The TPA/HCO shall resolve each appeal and provide notice to the provider or enrollee as expeditiously as the enrollee’s health condition requires and within the ADMINISTRATION’s established timeframes, which may not exceed forty-five (45) days from the day the TPA/HCO received the appeal.
3.8.3.3.2	Format and content of appeal resolution notice.

The TPA/HCO shall provide written notice of disposition of the appeal, which shall include the date of resolution and the results. All appeals resolutions adverse to the appellant enrollee (or provider) shall include the following:

• The right to request further appellate review through the ADMINISTRATION’s “fair hearing” mechanism,

• How to request such hearing,

• The right to continue to receive benefits while the hearing is pending,

• How to request the continuation of benefits, and the enrollee’s liability for the cost of any continued benefits if the TPA/HCO’s action ultimately is upheld

3.8.4	Extension of Deadlines.
	The TPA/HCO may extend the complaint/grievance or appellate review timeframes by up to fourteen (14) calendar days if the enrollee requests the extension; or the HCO or TPA, as applicable, shows that there is need for additional information and that the delay is in best interest of the enrollee.
	For any extension not requested by the enrollee, the TPA/HCO shall give the enrollee written notice of the reason for the delay.
3.8.5	Continuation of benefits:

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3.8.5.1 The TPA/HCO shall continue the enrollee’s benefits during the requested appeal to the ADMINISTRATION;

• When the appeal is filed timely (on or before the intended effective date of the proposed action or within 10 days of the postmarked date on the notice mailed to enrollee, whichever occurred last.)

• When the appeal involves the termination, suspension, or reduction of a treatment previously authorized.

• When the services were ordered by an authorized provider;

• When the authorization period has not expired and the enrollee requests an extension of benefits.

3.8.5.2	Duration of continued or reinstated benefits.
	If the TPA/HCO continues or reinstates the enrollee’s benefits while the appeal is pending, the benefits shall be continued until one of following occurs:

• When the enrollee withdraws the appeal;

• When the enrollee does not request a hearing within 10 days of receiving an adverse decision;

• When the ADMINISTRATION hearing decision is adverse to the enrollee.

• When the authorization expires or authorization service limits are met.

3.8.5.3	Enrollee responsibility for services received while the appeal is pending.
	TPA/HCO, in representation of the ADMINISTRATION, may recover the cost of the continuation of services furnished to the enrollee while the appeal was pending, if the ADMINISTRATION in its final resolution of the appeal upholds the TPA/HCO’s action.
3.8.5.4	Provision of services not furnished.

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	TPA/HCO shall authorize the provision of the disputed services as expeditiously as the enrollee’s health condition requires if the services were not furnished while the appeal was pending, and the ADMINISTRATION’s hearing officer reverses a decision to deny, limit, or delay services.
3.8.5.5	When services were furnished during the appeal process.
	The TPA/HCO, shall pay for disputed services, in accordance with the ADMINISTRATION’s policy and regulations, if the ADMINISTRATION’s hearing officer reverses a decision to deny authorization of services.
3.8.6	Expedited appeal process.
3.8.6.1	The TPA/HCO shall establish and maintain an expedited review process for appeals when the process for a standard resolution could seriously jeopardize the enrollee’s life or health, or its ability to attain, maintain, or regain maximum function.
3.8.6.2	The enrollee or provider may file an expedited appeal either orally or in writing. No additional enrollee follow-up is required. The TPA/HCO shall inform the enrollee of the limited time available to present evidence and allegations in person and in writing.
3.8.6.3	Expedited Appeal Process: Resolution and Notification.
	Consistent with 42 CFR 438.408(a), (b)(3) and (e), the TPA/HCO shall resolve each expedited appeal and provide notice, as expeditiously as the enrollee’s health condition requires within timeframes not to exceed three (3) working days after the TPA/HCO receives the appeal.
	The TPA/HCO may extend the expedited appeal timeframes by up to fourteen (14) days if the enrollee requests the extension or if the TPA/HCO shows that

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	there is need for additional information and how the delay is in the enrollee’s interest. For any extension not requested by the enrollee, the TPA/HCO shall give the enrollee written notice of the reason for the delay.
	In addition to a written notice, the TPA/HCO shall also make reasonable efforts to provide oral notice to the parties in interest.
3.8.6.4	Expedited Appeal Process: Punitive action.
	TPA/HCO is prohibited from undertaking any punitive action against a provider who requests an expedited resolution or supports an enrollee’s appeal.
3.8.6.5	Expedited Appeal Process: Action following denial of a request for expedited resolution.
	The following actions should be taken whenever a request for an expedited resolution of an appeal is denied:

• Transfer the appeal to the standard timeframe (no longer than forty-five days (45) days) from the day the TPA/HCO receives the appeal with a possible fourteen-day (14) extension; and

• Make reasonable efforts to give the enrollee prompt oral notice of the denial and written notice of the denial within two (2) calendar days.

3.8.7.	“FAIR HEARINGS” BEFORE THE ADMINISTRATION.
3.8.7.1	The TPA/HCO shall explain to enrollees their rights and the procedures concerning “fair hearings” before the ADMINISTRATION.
	The parties at a hearing must include the TPA/HCO, as well as the enrollee, its representative, or an estate representative of a deceased enrollee.

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	The enrollee or provider may file an appeal within a reasonable timeframe that cannot be less than 20 days, and may not exceed 90 days from the date of the notice of TPA/HCO’s disposition of the appeal concerning a complaint/grievance or other action.
3.8.7.2	The ADMINISTRATION’s hearing decision shall be within the following timeframe:

a)	Ninety (90) Days for standard resolutions: The ADMINISTRATION shall reach its decision within 90 days of the date the enrollee filed the appeal with the TPA/HCO, excluding the days the enrollee took to file the request for a fair hearing before the ADMINISTRATION.
b)	Three (3) Days for Expedited Resolutions before TPA/HCO or Administration. If an expedited the appeal was filed with the TPA/HCO or the ADMINISTRATION, the ADMINISTRATION’S decision shall be reached within three (3) working days from receipt of a hearing request.

3.8.7.4 “Fair hearings” before the ADMINISTRATION shall be conducted subject to the applicable provisions of the Uniform Administrative Procedure Act, Law No. 170 of August 12, 1988, as amended, including that decisions issued by the ADMINISTRATION through “fair hearings” are subject to review before the San Juan Panel of the Court of Appeals of the Commonwealth of Puerto Rico.

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Section 4:
TPA Contracts with HCOs
and Participating Providers;
Quality of Healthcare and Performance Program

4.1 Contracts with HCOs and Participating Providers

	The TPA and HCOs may contract in connection herein with all providers necessary to render the medical services required to provide beneficiaries the benefits included in GHIP coverage as specified in Appendix B of this Contract. All participating physicians and providers must comply with all applicable provisions in this Contract.
1.	Contracting a network of providers at an appropriate reimbursement level is the sole responsibility of the TPA. THE ADMINISTRATION recognizes that each HCO risk pool will have unique operational characteristics. The TPA must clearly describe the financial arrangement that will be applicable to HCOs in their contracts, with respect to which THE ADMINISTRATION reserves the right of prior review and approval of negotiated reimbursement levels. No adjustment will be made to either claims or the PMPM cost limits, as established in Section 5 of this contract, based on actual reimbursement levels negotiated, unless THE ADMINISTRATION requires a higher level reimbursement than that agreed to between the provider and the TPA.
2.	If the TPA’s contracts with providers include payment on a capitation basis, such capitation must be submitted and reimbursed as any other claim. Reimbursement of capitation amounts must be subject to documentation presented by the TPA that must include the provider name, the number of health selected participants included in each capitation arrangement and the amount of the capitation.

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3.	Contracts between the TPA and HCOs and participating providers shall be independent, written contracts that expressly incorporate all terms and conditions contained in this Contract including, without limitation, the development and implementation of Case Management, Disease Management and Prenatal Care and the provision of an Education and Prevention Program set forth elsewhere herein. TPA shall provide THE ADMINISTRATION a copy of every provider’s contract. Beneficiaries’ coverage under this Contract constitutes a direct obligation on the part of the participating providers, who must comply with all terms and conditions contained herein.
4.	TPA/HCO shall be responsible for evaluating the prospective subcontractors’ ability to perform the activities to be delegated and for specifying the activities and reporting obligations delegated to the subcontractor. TPA/HCO shall oversee the responsibility delegated to any subcontractor and hereby acknowledge that TPA/HCO will be held accountable if fail to monitor subcontractors and intervene, when necessary. Any contract with a subcontractor shall provide for revoking delegation or imposing other sanctions for sub-contractors’ inadequate performance. Subcontractor contracts must include the HCO/TPA’s responsibility to monitor the subcontractor’s performance on an ongoing basis, in a periodic schedule established by the ADMINISTRATION and consistent with the ADMINISTRATION established standards, directives and applicable laws and regulations. All subcontracts shall comply with the requirements of 42 CFR Part 438 that are appropriate to the service or activity delegated under the subcontract. TPA/HCO shall put in place all measures necessary to ensure identification of deficiencies or areas for improvement with respect to which TPA/HCO and the subcontractor must undertake corrective action.
5.	The TPA/HCO may not discriminate with respect to participation, reimbursement or indemnification against any provider who is acting within the scope of its license or certification under applicable Commonwealth Law.

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	When TPA/HCO declines to include an individual or group of providers in its network, a written notice must be given to the affected providers explaining the reason for the decision.
	To assure access to benefits, TPA/HCO must notify in writing each enrollee of the termination of their primary care contracted providers within (15) fifteen days of termination of said contract.
6.	The TPA/HCO shall certify, represent, attest and assure that to the best of their knowledge, such knowledge being based on reasonable due diligence, none of their contractors, subcontractors or providers of services consults, employs or procures services from (1) any individual, affiliate or provider that has been debarred or suspended from participation in any federal health care program under either section 1128 or 1128A of the Social Security Act or otherwise has been excluded from participating in procurement activities under the Federal Acquisition Regulation or from participating in non-procurement activities under regulations issued under Executive Order No. 12549, guidelines implementing Executive order No. 12549; or (2) with parties with a beneficial ownership interest exceeding more than 5% of their organization’s equity; or (3) procures self-referral of services to any provider in which they may have, directly or indirectly, any economic or proprietary interest .
7.	TPA shall document and certify that it has provided complete written instructions to all HCOs and providers that describe the procedures to be used for compliance with all duties and obligations arising under this Contract. The instructions shall include the following information: free selection of providers by enrollees, covered services, practice guidelines, reporting requirements, record-keeping requirements, grievance procedures, deductibles and co-payment amounts, confidentiality, and prohibitions against denial or rationing of

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	services. Copy of these instructions will be kept by the ADMINISTRATION, which reserves the right to request modifications or amendments thereto.
8.	In the event TPA/HCO does not comply with the provisions concerning affiliation with debarred or suspended individuals, the ADMINISTRATION: (1) shall notify the Secretary of Health and Human Services of such non-compliance; or (2) may continue the existing contract with the HCO and TPA, unless the Secretary, in consultation with the Department’s Inspector General, directs otherwise. The TPA acknowledges that Federal Financial Assistance shall not be available for amounts expended for providers excluded by Medicare, Medicaid, or SCHIP, except for emergency services.
9	The TPA shall incorporate in its contracts with participating providers and HCO the following provisions, among others contained in this contract:

a)	A time schedule for payment of services rendered that shall not exceed the time limitation standards set forth in Law No. 104 of July 19, 2002 (known in Spanish as “Ley de Pronto Pago”).
b)	A warranty by the HCO assuring that the method and system used to pay for the services rendered by the HCO’s network of participating providers are reasonable and that negotiated terms do not jeopardize or infringe upon the quality of the services provided.
c)	The procedure established at the Administration level to allow participating providers to recover monies owed for services rendered and not paid by HCO.
d)	That payments received for services rendered under the GHIP shall constitute full and complete payment except for: (i) the deductibles contained in Appendix B of this contract, and (ii) services rendered not covered by the

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	GHIP. TPA/HCO will assure compliance with Section 5.2 and 5.5 of this contract.
e)	A release clause authorizing the ADMINISTRATION or any of its agents access to the participating providers’ Medicare billing data for GHIP beneficiaries. This access shall be at all times subject to CMS and HIPAA regulation requirements mentioned elsewhere in this Contract.
f)	That the ADMINISTRATION, HCO or TPA, as applicable, will cover the payment of Medicare Part B deductibles and co-insurance for services rendered to a enrollee under Medicare Part B, accessed through the HCO’s network of participating providers with the primary care physician’s authorization. Payment is the responsibility of the party that has assumed the risk for the service rendered.
g)	Co-insurance and deductibles for Part A or Part B services provided on an outpatient basis to hospital clinics and other institutional care providers, other than physician services, will be considered as a covered bad debt reimbursement item under the Medicare program cost. In this instance, the ADMINISTRATION, HCO and TPA, as applicable, will only pay for the co-insurance and deductibles related to the physician services provided as a Part A or Part B service.
h)	That coverage provided to beneficiaries under this contract constitutes a direct obligation on HCO and participating providers. HCO and Participating Providers must comply with all applicable terms and conditions contained herein.
i)	The HCO/TPA will establish directives for allowing providers to write prescriptions for psychotropic drugs in accordance with the applicable agreement with the ADMINISTRATION’s Pharmacy Benefit Manager (PBM).

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j)	All applicable timeframes, administrative standards and network managed care requirements established under this Contract.
k)	That compensation to individuals or entities that conduct utilization management activities may not be structured to provide incentives for providers to deny, limit, or discontinue medically necessary services to any enrollee.
l)	ADVANCE DIRECTIVES: TPA shall require in its contracts with participating providers and HCOs compliance with 42 CFR 438, Part 489, Subpart I relating to maintaining written policies and procedures regarding advance directives as established under Law No. 160 of November 17, 2001 (“Law No. 160”). The parties to said contracts shall acknowledge their obligations under Law No. 160 to inform and distribute written information to adult individuals concerning instructions on advance directives, any limitations on implementing advance directives due to creed or belief, the right to file complaints for non-compliance with these requirements, as well as the continuous duty to provide written information of any changes in Commonwealth law pertaining to advance directives, not later than ninety (90) days after the effective date of such changes.

10.

The HCO agrees to provide to the TPA/ADMINISTRATION a detailed description of the payment methodology used to pay for services rendered by the HCO’s network of providers. Said payment methodology description will also address the HCO’s procedures to distribute, among participating providers, capitation payments, fee for service payments or other basis for payment of services to HCO providers. The HCO will submit to the ADMINISTRATION a monthly report detailing all payments made to the HCO’s network of participating providers.

11.

The TPA/HCO represent that neither the service fee,capitates payments nor capitates payments with a fee-for-service component, made to HCOs, to HCOs’

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	networks of participating providers, or to the TPA’s participating providers include payment for services covered under the Medicare Program.
12.	The TPA/HCOs shall provide all reasonable means necessary to assure that the contracting practices between its participating HCOs and providers are in compliance with federal anti-fraud provisions and, particularly, that said practices are consistent with the limitations and prohibitions of the False Claims Act, the Anti-Kickback statute and regulations, and the Stark II Law and regulations prohibiting self-referral to designated medical services by participating medical providers.
13.	To the extent feasible within TPA/HCO, existing claims processing systems should have a single or central address to which providers must submit claims. If a central processing center is not possible within the TPA/HCO’s existing claims processing system, they may provide each network provider a complete list of all entities to whom the providers must submit claims for processing and/or adjudication. The list must include the name of the entity, the address to which claims must be sent, an explanation to determine the correct claims payor based on services rendered, and a phone number the provider may call to make claims inquiries. The TPA/HCO must notify providers in writing of any changes in the claims filing list at least 30 days prior to the effective date of any change. If TPA/HCO are unable to provide the afore-mentioned 30 days notice, providers must be given a 30-day extension on their claims filing deadline to guarantee claims are routed to the correct processing center.
14.	The ADMINISTRATION and the Department of Health’s Medicaid Fraud Control Unit shall be allowed to conduct private interviews of providers, their employees, contractors, and patients. Providers and their employees and contractors must fully cooperate in making themselves available in person for interviews, consultation, grand jury proceedings, pre-trial conferences, hearings, and trials, or in any other process, including investigations. Providers shall comply with the ADMINSTRATION request for information.

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15.	PROVIDER MANUAL AND PROVIDER TRAINING
	The TPA/HCO must prepare and issue a Provider Manual to providers in the HCO network and to newly contracted providers in the network within five (5) working days from the provider’s inclusion in the network. The Provider Manual must contain sections relating to special requirements.
	The TPA/HCO must provide training to all network providers and their staff related to Managed Care Act regulations, the ADMINISTRATION’s requirements set for time herein, TPA/HCO contracts, and special needs of beneficiaries under the health care plan.
	All HCO providers and participating providers are required annually to receive at least fifteen (15) hours of orientation, education and familiarization with aspects of managed care related to this Contract. Failure to comply with this requirement shall be sufficient grounds to exclude the provider from GHIP. If at the expiration of the participating provider’s contract term, provider has not fully complied with this requirement, provider shall be excluded as participating provider for subsequent periods. At the discretion of the ADMINISTRATION and for good cause, the excluded provider’s contract may be reinstated if the provider afterwards complies with this education requirement during the subsequent contract term.
	The Education and Prevention Program: TPA/HCO, whoever is responsible for this program, will hold, -with the participation of all providers under this contract,- diverse seminars throughout the Metro-North Region, in order properly to orient and familiarize providers with all aspects and requirements related to the Preventive Medicine Program, benefits and coverage under this Contract, and the managed care concept. Seminars will be organized, scheduled, conducted and offered at the expense of the TPA/HCO and the curriculum for said seminars will be coordinated with and approved by the ADMINISTRATION healthcare coordinators.

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	Training for all providers must be completed no later than 30 days after the effective date of a new contracted provider’s contract. Moreover, the TPA/HCO must provide on-going training to new and existing providers.
	TPA must maintain and make available to the ADMINISTRATION upon request enrollment or attendance rosters dated and signed by each attendee or other written evidence of training of each network provider.
	In the event of a final determination reached by the ADMINISTRATION that the TPA/HCO, its agents, or any of its contractors or subcontractors has/have failed to comply with any of the provisions set forth in this section 15, or any subpart hereof, the ADMINISTRATION will commence sanctions proceedings as set forth in Section 8.14 herein.
16.	PROVIDER QUALIFICATIONS — GENERAL
	The providers in the HCO/TPA network must meet the following qualifications:

FQHC	A Federally Qualified Health Center is an entity that provides outpatient health services pursuant to 42 U.S. C. 201 et. seq., meets the standards and regulations established by federal law, and is an eligible provider enrolled in the Medicaid Program.
Physician	An individual who is licensed to practice medicine as an M.D. or a D.O. in Puerto Rico either as a primary care provider or in the area of specialization with respect to which they will provide medical services under contract with MCO who is a provider enrolled in the Medicaid program; and who has a valid Drug Enforcement Agency registration number and a Puerto Rico Controlled Substance Certificate, if either is required in their practice.
Hospital	An institution licensed as a general or special hospital by the Puerto Rico Health Department under Chapter 241 of the Health and Safety Code and Private Psychiatric Hospitals under Chapter 577 of the Health and Safety Code (or is a provider that is a component part of a State or Federal government entity which does not require a license under the laws of the Commonwealth of Puerto Rico),

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	which is enrolled as a provider in the Puerto Rico Medicaid Program.
Non-Physician Practitioner Provider	An individual holding a license issued by the applicable licensing agency of the Commonwealth of Puerto Rico who is enrolled in the Puerto Rico Medicaid Program or an individual trained to provide health support services who practices under the direct supervision of a licensed professional.
Clinical Laboratory	An entity having a current certificate issued under the Federal Clinical Laboratory Improvement Act (CLIA) and has a license issued by the Puerto Rico Department of Health.
Rural Health Clinic (RHC)	A health facility that has been determined by the Secretary of the Department of Health and Human Services to meet the requirements of section 1861(aa) (2) of the Act and part 491 of this chapter; and has filed an agreement with the Secretary to provide RHC services under Medicare and pursuant to 42 CFR 405.2402.
State Health Department	A State health department established pursuant to the Health and Safety Code, Title 2, Local Public Health Reorganization Act §121.031ff.
Non-Hospital Facility Provider	A provider of health care services that is licensed and credentialed to provide services, and with contract with GHIP.
School Based Health Clinic (SBHC)	Health Clinics and services located at school campuses that provide children and adolescents on-site primary and preventive care.

17.	PROVIDER PRACTICE GUIDELINES
	The TPA/HCO shall adopt, disseminate and follow practice guidelines that are based on valid and reliable clinical evidence, or a consensus of health care professionals in the particular field. The practice guidelines shall consider the needs of the enrollees, shall be adopted in consultation with the contracting health care professionals, and shall be reviewed and updated periodically as

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	appropriate. These guidelines shall be distributed to each provider, and upon request, to enrollees and potential enrollees. The TPA/HCO must assure that the guidelines are applied consistently in decisions related to utilization management, enrollee education, coverage of services and other applicable areas.
18.	POLICIES AND PROCEDURES FOR SERVICE AUTHORIZATIONS AND PROCESSING REQUESTS
	The TPA/HCO and its subcontractors shall have and comply with written policies and procedures in processing requests for initial and continuing authorization of services. These procedures shall guarantee the consistent application of review criteria for authorization decisions and consultation with the requesting provider, if necessary. Any decision to deny a service authorization request, or to authorize a service in an amount, duration, or scope that is less than requested, shall be made by a health care professional who has appropriate clinical expertise in treating the enrollee’s condition or disease.
	The TPA/HCO shall notify the requesting provider and give the enrollee written notice of any decision to deny a service authorization request, or to authorize a service in an amount, duration, or scope that is less than requested; provided, however, that such notice to the enrollee shall be sent whenever the service received by the enrollee was limited, in whole or in part. Although notice to the provider need not be in writing, the enrollee’s written notice shall meet the following requirements:

a) Language. The notice shall be in Spanish, in easily understandable format and in other appropriate alternative formats considering the special needs of enrollees who may be visually impaired or have a limited reading proficiency. In the event that oral interpretation of services were necessary in a language other than Spanish, TPA/HCO shall make those

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	services available free of charge, and inform the enrollee how to access such services.
b)	Content of Notice. The notice shall explain the following information:

•	Action taken by the TPA/HCO, or its contractor, or their intention;
•	Reasons for the action;
•	Right of enrollee to file an appeal with the TPA/HCO;
•	Right to a fair hearing before the ADMINISTRATION, after enrollee’s exhaustion of TPA/HCO appellate procedures;
•	Procedures the enrollee shall take to exercise the rights described herein;
•	Circumstances under which expedited resolutions are available and how to request them; and
•	Enrollees’ right to continuation of benefits pending resolution of the appeal, how to request that benefits be continued, and the circumstances under which enrollees may be required to pay the cost of these services, in accordance with grievance procedures set forth herein.
c)	Timing of Notice. The TPA/HCO shall notify enrollee about the following actions within the timeframes set forth herein:

(i) Termination, suspension or reduction of the services

The TPA/HCO shall give notice, at least 10 days before the date of action, of any termination, suspension, or reduction of a previously authorized covered service; if probable fraud by enrollee has been verified; said period of advance notice will be shortened to five (5) days.

TPA/HCO shall notify the ADMINISTRATION of the date the action occurred in the following circumstances:

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•	upon the death of a recipient;
•	when the action is triggered by a signed written statement from enrollee requesting service termination or by information provided to the TPA/HCO requiring termination or reduction of services (where enrollee understands that this shall be the result of supplying such that information);
•	if the enrollee becomes ineligible for further services due to his/her admission to an institution;
•	when the enrollee’s address is unknown and mail directed to enrollee has no forwarding address;
•	when the enrollee has been accepted for Medicaid services by another local jurisdiction;
•	when the enrollee’s physician prescribes a change in the level of medical care;
(ii)	For denial of payment, the TPA/HCO shall give notice to the enrollee at the time of any action affecting the claim.
(iii)	For standard service authorization decisions that deny or limit services, the HCO shall provide notice as expeditiously as the enrollee’s health condition requires and within the ADMINISTRATION’s established timeframes, which may not exceed fourteen (14) calendar days following receipt of the request for service. If the enrollee, or the provider, or the TPA/HCO justifies a need for additional information or if it is in the best interest of the enrollee, an extension up to 14 additional calendar days can be granted.

Timing of Notice: If the HCO extends the timeframe, the contractor must give the enrollee written notice of the reason for the decision to extend the timeframe, and inform the enrollee of the right to file a grievance if he or she disagrees with the decision.

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(iv)	Service authorization decisions not reached within the timeframes for either standard or expedited service authorizations.
	The TPA shall give notice to the HCO on the date that the applicable timeframe expires. A service authorization decision not reached within such timeframe constitutes a denial and shall thus be considered an adverse action.
(v)	For denial of expedited authorization decisions.
	In cases in which a provider indicates to the TPA/HCO that following the standard timeframe could seriously jeopardize the enrollee’s life or health, or ability to attain, maintain, or regain maximum function, the TPA/HCO shall make an expedited authorization decision and provide notice as expeditiously as the enrollee’s health condition requires and no later than three (3) working days after receipt of the request for service. If the enrollee, or the provider, or the TPA/HCO justifies a need for additional information or if it is in the best interest of the enrollee, an extension up to 14 additional calendar days may be granted.
	The TPA/HCO agrees fully to cooperate with the Advisory Committee of the Commonwealth’s Medicaid Office set up as requested by 42 Code of Federal Regulations Part 431, which advises the Medicaid agency about health and medical care services. The ADMINISTRATION and the TPA shall coordinate any and all efforts geared at cooperating with said Advisory Committee to the extent permissible by law.

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4.2	QUALITY OF HEALTHCARE AND PERFORMANCE PROGRAM
	In order to comply with the responsibilities as the agent of the State Medicaid Office, the ADMINISTRATION, through the implementation of its Quality of Healthcare and Performance Program (QHPP) and in strict compliance with federal and state regulations, must perform a series of activities to guarantee the delivery of quality healthcare by all MCOs and PIHPs contracted to furnish health services for the GHIP population.
	The ADMINISTRATION will request each TPA and HCO an ongoing quality assessment and performance improvement program for the services furnished to the enrolled population, according to 42 CFR 438 Subparts D and E.
	The TPA must develop and implement the QHPP in accordance with such protocols and guidelines or any national performance measures and levels that may be identified and developed by the State and CMS. The QHPP includes, but is not limited, to the following components:

1.	Quality Initiative and Improvement Program
2.	Clinical and Preventive Management Program
3.	Statistical Reporting Program
4.	Performance Metrics Program

A.

Quality Initiative and Improvement Program (QIP)

The TPA and HCO must execute the QHPP through the management of protocols. The TPA and HCO must have in place a Quality Initiative and Improvement Program to address those activities regarding the quality of healthcare services according to the mandatory activities described in 42 CFR §§ 438.358, 438.240 and 438.204 and will measure and report to ADMINISTRATION on an annual basis the. The components of the QIP are as follows:

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1.	Performance Improvement Projects (PERIP)
	The TPA and HCO must design, conduct, and report a PERIP in a methodologically sound manner as specified by the ADMINISTRATION. The ADMINISTRATION will require one or more PERIPs according to the GHIP population needs. The PERIP will be focused on clinical or non-clinical areas as stipulated on 42 CFR §§ 438.240 and §438.358(b)(1), and Law No. 72 of September 7, 1993, as amended.
	In addition, the ADMINISTRATION will require, on an annual basis, of the TPA and/or HCO, an Enrollee/Provider Annual Satisfaction Survey (EPASS) as a compulsory PERIP, which may be a CAHPS or any other type of survey provided by the TPA.
2.	Quality Performance Measures
	The ADMINISTRATION will require of the TPA and/or the HCO that: 1) HEDIS be the quality performance measures to use as determined by the Puerto Rico Department of Health; 2) the specifications and methodology to be followed in calculating the measures, and the format and mechanisms for reporting these measures to the State must be according to the National Committee for Quality Assurance (NCQA) Guidelines. In addition, the TPA and HCO must comply with the following activities:

a)	The TPA and HCO Information Systems must have the capability for collecting and integrating data from all components of its network, in order to enable valid measurement of its performance on dimensions of care specified by the ADMINISTRATION.
b)	Validate the measurement of the TPA and HCO performance using a hybrid methodology (administrative plus medical record review data) in collecting the

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	data to compute the HEDIS performance measures selected for each measurement year.
c)	The data will be retroactive up to the previous three- year period, or up to the date when the previous MCO initiated operations in the region, including the termination date of the contract, using the service date field in the formats specified/agreed with the Administration.
d)	The MCO leaving the Health Region will not be responsible for the HEDIS’ process, except for assuming responsibility of the historical/utilization data, providing it during the transition term. The HEDIS’ will be assumed by the MCO entering the Health Region, on an operational and administrative basis according to NCQA guidelines and schedule.
e)	Timeliness in reporting to the ADMINISTRATION the specified performance measures in the NCQA defined format.

3.	Plan Compliance Evaluation Program (PCEP)
	The TPA and HCO must demonstrate their capability to fulfill the following standards sets forth in 42 CFR §§ 438.206 to 424 that includes, without limitation:

a.	Enrollee Rights and Protections (42 CFR § 438.100)
b.	Availability of Services (42 CFR § 438.206)
c.	Coordination of Continuity of Care (42 CFR § 438.208)
d.	Coverage and Authorization of Services (42 CFR § 438.210)
e.	Provider Selection (42 CFR § 438.214)
f.	Enrollee Information (42 CFR § 438.218)
g.	Confidentiality (42 CFR § 438.224)
h.	Enrollment and Disenrollment (42 CFR §§ 438.226, 438. 56)
I.	Grievances and Appeals system (42 CFR §§ 438.402 to 438.424)
j.	Sub contractual Relationships and Delegation (42 CFR § 438.230)
k.	Practice Guidelines (42 CFR § 438.236)

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l.	Quality Assessment and Performance Improvement Program (42 CFR § 438.240)
m.	Health Information Systems (42 CFR § 438.242)

4.	An External Quality Review Organization (EQRO) will be performing at a minimum the evaluation to the extent specified in 42 CFR § 438.358.
5.	The ADMINISTRATION reserves the right to add any other compliance standards, HEDIS performance measures or PERIP it may deem necessary given the GHIP population needs.

B. Clinical and Preventive Management Programs (CPMP)

1.	The TPA together with the HCO are responsible for providing all preventive services as described in the GHIP Basic Coverage, including, but not limited to: PAP Smears, Colorectal Screening, Mammograms, Prostate Screening Antigen (PSA), Cholesterol Screening, Sigmoidoscopy as indicated by the medical guidelines adopted by the Department of Health, and, the Early Prevention Screening and Diagnostic Tests (EPSDT) guidelines as required by Federal laws and regulations.
2.	The TPA must collaborate with the Secretaría Auxiliar de Promoción de la Salud (“Assistant Secretary for Health Promotion”) of the Commonwealth Department of Health, to whom it shall provide a copy of the quarterly Preventive Services Report discussed in the SRP Section.
3.	The TPA, in coordination with the HCO, shall be responsible for developing and implementing the following clinical management programs:

a) DISEASE MANAGEMENT PROGRAM — The TPA must develop a Disease Management Program (DMP) following the Puerto Rico Department of Health protocols and guidelines, addressing

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	standardization processes for major chronic diseases including, but not limited to: Asthma, Diabetes, Hypertension and Congestive Heart Failure. This program shall include identification (Identification Process established by the MCOs and ADMINISTRATION’s Disease Management Committee), treatment protocols, guidelines and surveillance/monitoring. A provision of the outcomes shall be sent to the Puerto Rico Department of Health.
b)	CASE MANAGEMENT PROGRAM — The TPA must develop and effectively implement a case management system in order to monitor high risk cases and provide assistance to the covered health care needs of the beneficiaries and dependents within the said category. The Case Management System must coordinate with services available and provided in the beneficiaries’ communities and homes as needed. Not limited to the physician’s office, mental health provider professionals office, or specialty center.
c)	PRENATAL CARE PROGRAM — The TPA must develop and effectively implement a Prenatal Care Program, which shall include, without limitation:

1.	A Comprehensive Prenatal Care Program based on the Department of Health’s clinical protocol and guidelines.
2.	Reduction of prenatal complications and incidence of low birth weight newborns.
3.	Assure the appropriate discharge of mother and baby from the hospital based on clinical judgment.
4.	Assure that all pregnant women are screened for alcohol using the Department of Health clinical guidelines and protocols. (TWEAK)

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5.	Assure that all pregnant women obtain counseling and testing for HIV and standard followed by an appropriate treatment, if results are positive.
6.	Assure that all pregnant women obtain at least two oral evaluations during the second trimester of gestation.
7.	Assure that all pregnant women are properly educated about Pregnancy, Breastfeeding, Family Planning, Nutrition, Pregnancy Complications, Dental, Mental Health, among others.

4. The TPA will be responsible to provide under the CPMP other programs such as the PROVIDER INCENTIVE BASED PROGRAM and the PROVIDER EDUCATION PROGRAM.

a) The PROVIDER INCENTIVE BASED PROGRAM includes, at a minimum, the following components:

1.	The program will deliver the incentive on a monetary basis to those PCPs which comply and reach a minimum target of eighty percent (80%) of those preventive services furnished and required in Section B.1.
2.	The TPA will review the medical records at the HCO level to ascertain and evidence the preventive services provided by the PCP to the GHIP beneficiaries. The ADMINISTRATION requires through this review that the PCP comply with the appropriate documentation within on record as established in the Department of Health and EPSDT guidelines.
3.	Provide that each PCP must comply with at least twelve (12) hours on an annual basis, or, its equivalent of three (3) hours

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	and thirty (30) minutes on a quarterly basis regarding the Providers Education Program requirements.
4.	Provide a quarterly report on this program, which shall contain:

a)	TPA Health Region
b)	HCO Name
c)	HCO Number
d)	Provider ID
e)	Provider Name
f)	Federal Tax ID
g)	Preventive Services Compliance Percentage
h)	Providers Education Contact Hours
I)	Providers Compliance with Proper Medical Record Documentation Percentage

5.	Provide the incentive based on a mathematically-sound formula, which shall have the ADMINISTRATION’s prior written approval.
6.	The TPA will grant the incentive to those PCPs that complied with the preceding requirements on an annual basis.

b) The PROVIDER EDUCATION PROGRAM components include, without limitation:

1.	The TPA will be responsible for the Providers Education Program (PEP).
2.	The HCO will provide five (5) contact hours of seminars or any similar activity to all its PCPs on a quarterly basis. The HCO may require sponsorship from any governmental and non-

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	governmental entities to provide such activities. Nevertheless, the sponsorship from any non-governmental commercial entity shall not promote a product, or, services for these purposes.
3.	The HCO in coordination with the TPA shall offer at least one seminar, workshop, or continuing education activity on mental health clinical or non-clinical topics.
4.	The TPA and the HCO shall organize, schedule, and offer the PEP at the expense of the TPA.
5.	The HCO must be responsible to conduct and assure the attendance of all providers under contract to the various seminars, and any other similar activity, held throughout its Region, in order properly to educate and assist them with all GHIP aspects and requirements, on clinical and/or non-clinical topics.
6.	The TPA must require the HCO a seventy percent (70%) participation of all PCPs.
7.	The TPA will submit the PEP work plan and curriculum, and obtain ADMINISTRATION’s Clinical Affairs Division’s approval thereof. The work plan must include but will not be limited to the following:

C. Statistical Reports Program (SRP)

1. THE ADMINISTRATION will require from the TPA and HCO the following quarterly statistical reports that include, without limitation:

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a)	Claims Cost Distribution by Line of Service (SRP-001)
b)	PMPM Summary with Total Cost Percentage (SRP-002)
c)	Encounters Estimate Cost Distribution by Line of Service (SRP-003)
d)	Aggregate Stop Loss/Reinsurance (SRP-004)
e)	Early Periodic Screening Diagnostics Tests (EPSDT) (SRP-005)
f)	Providers Network Credentialing (SRP-006)
g)	Medical Record Review (SRP-007)
h)	Hospital Concurrent Review (SRP-008)
i)	Retrospective Medical Record Review (SRP-009)
j)	Fraud and Abuse (SRP-010)
k)	Pre-authorizations (SRP-011)
l)	Coordination of Benefits (SRP-012)
m)	Incurred But Not Reported (IBNR) Surplus and Deficit Analysis (SRP-013)
n)	Complaints and Grievances (SRP-014)
o)	Administrative Expenses Report (SRP-015)
p)	Capitation Settlement (SRP-016)
q)	Preventive Services Report (SRP-017)

2.	The TPA shall be responsible to provide to the ADMINISTRATION all quarterly reports detailing the services furnished under the Preventive Program.
3.	The TPA shall deliver all quarterly reports by the twenty-fifth (25th) day of the month following the reporting quarter. The reports will be delivered on electronic media (i.e., CD Rom disc) accompanied with a letter of submission to the ADMINISTRATION’s Planning and Clinical Affairs Office Director. Concurrently, such letter must be copied to the ADMNISTRATION’s Compliance Office Director.

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4. The ADMINISTRATION and the TPA will agree on the format for compliance with the reporting requirements in this Section, that could be accomplish through electronic or magnetic media.

D.		Performance Metrics Program (PMP)
	The TPA and HCO must comply at a minimum with the following metrics, including, without limitation:

1.	The TPA shall submit all (100%) of the quarterly reports by the 15th day of the month after the corresponding reporting quarter, except where a different submission date has been stated herein.
2.	The TPA and the HCO shall solve at least 95% of any filed enrollee complaints within thirty-days (30) of receipt, through the corresponding notification letter.
3.	The TPA must provide through the HCO’s Providers Education Program (PEP) at least five (5) hours of workshops, seminars, and conferences as well as any other type of similar activity on a quarterly basis regarding any GHIP clinical and/or non-clinical topics, with a minimum of 70% participation of the HCO’s PCPs.
4.	The TPA must provide through the HCO’s PEP at least one workshop, seminar, conference and any other similar activity, every six (6) months, related to mental health topics, regarding the GHIP managed care model, with a minimum of 70% participation of the HCO’s PCPs.
5.	The ADMINISTRATION will require from the TPA a compliance target of at least seventy percent (70%) for the provision of preventive services from each PCP.

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6. The TPA guarantees that the enrollee/provider satisfaction rate (EPSR) for each policy period must be 95% or greater, and shall be executed on a policy year basis.

a.	The EPASS Response Rate must be greater than 70%. The response rate means the number of enrollees/providers responding to the survey.
b.	The ADMINISTRATION must provide timely approvals of survey materials and methodology 60 calendar days prior to the execution of a survey.
c.	The sampling size will be randomly chosen and not less than 400 in the case of the enrollees, and 30% of the providers participating in the region.
d.	The submission of the survey results to the ADMINISTRATION will be ninety-days (90) after the end of the fiscal year.
e.	The TPA must make available a toll-free customer service telephone number for use by beneficiaries. The TPA guarantees that the target Average Speed of Answer (ASA) of this toll-free customer service telephone line each quarter must be no greater than thirty-seconds (30) ASA means the time elapsed between a caller choosing the option to speak with a customer service agent and the agent attending the phone call.

7.	The TPA guarantees that the customer service lines for a GHIP enrollee must have an Abandon Rate (AR) no greater than 5% out of all incoming calls per policy year. AR means the percent of calls where the caller chooses the option to speak with an agent but hangs up while waiting (in the queue) for an agent to answer.
8.	The TPA guarantees that the Blockage Rate of the toll-free customer service line for the GHIP enrollee must be 3% or less of all incoming calls each quarter.

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Blockage Rate means the percent of Local Exchange Carrier (LEC) Total Call Volume, which cannot be routed to the TPA’s Automatic Call Distributor (ACD) system, which results in the GHIP enrollee receiving a busy signal.

E.	The TPA guarantees that its and the HCO network complies with the following providers/enrollees ratios: 1:1,700 for PCPs, 1:1,350 for Dentists, 1:2,200 for Specialists (including mental health Psychiatrist and Psychologists), and, 1:1,600 for all Physicians participating, on a quarterly basis monitoring report.
F.	The TPA will contract all available private providers that meet its credentialing process and agree to its contractual terms, in order to assure sufficient participating providers to satisfy the coverage demands of GHIP beneficiaries.
G.	The providers’ credentialing and re-credentialing evaluation process must be performed every three (3) years.
H.	The TPA’ Credentialing of providers and Re-credentialing process shall include, without limitation:

1.	Copy(ies) of all professional school degrees or certificates, or evidence of qualifying course work.
2.	Copy(ies) of all Federal, State, and/or local (city, county) business licenses, certifications and/or registration specifically required to operate a health care facility.
3.	Written confirmation from the IRS confirming Tax Identification and Legal Business Name (This information is needed if the applicant is enrolling a professional corporation, professional association, or limited liability company with this application or enrolling as a sole proprietor using an Employer Identification Number).
4.	Copy of the National Provider Identifier notification received from the National Plan and Provider Enumeration System (NPPES).

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I.	The HCO will provide the TPA with statistical records of beneficiaries’ medical services utilization. The TPA shall notify the ADMINISTRATION on a quarterly basis of all findings in the Clinical Database System. The ADMINISTRATION may review and/or audit the Clinical Database System records and reports at any time.
J.	The TPA will establish an Outcome Review Program to assess the quality of inpatient and ambulatory care management provided by the HCOs. The TPA shall notify the ADMINISTRATION on a quarterly basis of all findings in the Outcome Review Program. The ADMINISTRATION may review and/or audit the program findings at any time.
K.	The TPA must provide with the Fraud and Abuse quarterly report to the ADMINISTRATION all its findings including, without limitation:

1.	The number of complaints of fraud and abuse made to the GHIP that warrant a preliminary investigation.
2.	The TPA must include in its quarterly report pursuant to Section C.1.j., at a minimum, the following information:

a.	Provider’s name and number
b.	Source of the complaint
c.	Type of provider
d.	Nature of the complaint
e.	Approximate range of dollars involved
f.	Legal and/or administrative disposition of status of the case

L. The TPA agrees to maintain a program to determine that the services provided to beneficiaries comply with established quality parameters for dental health providers. TPA shall notify the ADMINISTRATION quarterly of all findings of said review

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	program.The ADMINISTRATION may review and/or audit the program findings at any time.
M.	The TPA shall implement a program that addresses EPSDT screening and Migrant services indicators for preventive diagnostic tests according to age in all areas/regions and shall notify the ADMINISTRATION on a quarterly basis all findings therein. TPA shall comply with Section 1905(r) of the Social Security Act and applicable protocols adopted by the Department of Health to implement these Programs.
N.	The EPSDT information must considers the procedure codes described in the ICD-9 in order to develop the quarterly table indicated in Section C.1.e.
O.	All services furnished shall be identified by Current Procedure Terminology, International Classification of Diseases, Clinical Modifications Diagnostic Statistics Manual, and American Dental Association’s Current Dental Terminology, as applicable.
P.	Should the TPA and/or HCO fail to meet any of the preceding QHPP standards, the TPA and/or HCO will pay the ADMINISTRATION twenty-five thousand dollars ($25,000.00) for each occurrence, no later than the tenth (10) day of the month following the reporting quarter, or at the end of the fiscal year, at the ADMINISTRATION’s discretion.
Q.	The ADMINISTRATION reserves the right to request additional statistical reports, performance metrics, or any other related quality and compliance standard it may deem necessary in accordance with the operational and financial needs that may arise throughout the contract period.
R.	In addition, whenever the State Medicaid Agency, Centers for Medicare and Medicaid Services (CMS), Department of Health of Puerto Rico, or any other state or

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	federal government agency deem it necessary to request information from the ADMINISTRATION or the TPA and HCO, such shall be provided without undue delay.
S.	Access to Information: The TPA must require its contracted providers and HCOs to allow the Puerto Rico Department of Health, THE ADMINISTRATION, CMS, Comptroller of Puerto Rico, Comptroller of the US, Inspector General, External Quality Review Organizations (EQRO), and their duly authorized agents access to all records and documents required for audits or inspections to evaluate quality, adequacy, timeliness, and costs of services, as well as any other issue related to GHIP beneficiaries.
T.	All the required programs, processes, and reports herein referred to; will also be an obligation on the part of the TPA participating providers, i.e. the HCOs. The TPA will assure compliance therewith on the part of said TPA’s participating providers and/or HCOs.
U.	The ADMINISTRATION reserves the right to require the TPA to implement additional specific cost and utilization measure controls, subject to prior consultation and cost negotiation with the TPA.
V.	The TPA must inform the ADMINISTRATION on a quarterly basis all cancellation of providers, and shall provide an updated version of its Providers Directory to the ADMINISTRATION’s Clinical Affairs Division, Planning and Quality Affairs Office as well as to GHIP beneficiaries.
W.	In order to assure that all enrollee’s encounters are registered and recorded, the TPA shall conduct audits of statistical samples, through unannounced personal audits of the TPA’s and participating provider’s facilities, to assure that medical records conform with encounters reported therein. Corrective measures shall be taken in cases of violations of the TPA’s regulations regarding encounter registration

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	and reporting. The TPA shall provide quarterly reports to the ADMINISTRATION of all the findings and corrective measures taken with respect to any regulation violations.
X.	The TPA’s and HCOs’ compliance with the ADMINISTRATION’s Quality of Healthcare and Performance Program (QHPP) is of the essence and vital to this Contract and shall be a determining factor in all ADMINISTRATION decisions pertaining to the renewal or non-renewal of this contract. Failure comply therewith may result in termination of this Contract.
	The ADMINISTRATION agrees to furnish the TPA with the required Quality of Healthcare and Performance Program protocols and criteria prior to their implementation and to communicate TPA any change thereto as necessary throughout the contract period.

Section 5:
Fees and Payments Structure;
Payment Guarantees and Obligations;
Third Party Liability for Payments

5.1 Administrative Fees, Claim Cost Allocation and Capitation

5.1.1. THE ADMINISTRATION will pay an administrative fee of seven dollars and twenty cents ($7.20) and a reinsurance premium of one dollar and fifty one cents ($1.51) on a monthly basis which will not exceed eight dollars and seventy one cents per member per month ($8.71 PMPM) to the TPA. The ADMINISTRATION will assume financial responsibility for claims costs for Basic, Special and Dental Coverage risks not negotiated with the HCO’s up to a maximum of 105% of claim costs.( See Appendix E) Expected claim cost has been established at one hundred two dollars and eighty

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seven cents ($102.87 pmpm). TPA will assume financial responsibility for all costs in excess of 105% of expected claim cost (in excess of $108.01). Excess costs determination will include all claims paid after 6 months of the end of the contract year and an agreed IBNR reserve. Expected claim costs do not include $9.20 for Mental Health Services and the costs associated with the Asthma Therapy Management Project.

5.1.2 The TPA is financed on a self-funded basis and the contract includes reinsurance arrangement and performance incentives to assure proper administration of TPA. A financial incentive has been agreed between the ADMINISTRATION and the TPA. This incentive will apply if incurred costs are less than the agreed percentage (3%) below the expected medical costs submitted in the proposal ($102.87 pmpm). Savings below the threshold amount will be split 50/50 between the ADMINISTRATION and the TPA. Therefore, if actual medical costs are less than $99.78 pmpm, 50% of savings below that amount will be paid to the TPA. Calculation of the incurred amount will be made on May 2010 (after the end of the 6 month run off period after the end of the contract year). At that time, a settlement of 75% of savings, if any, will be made and will be subject to a final settlement after 6 additional months (on November 2010). For example purposes, if on May 2010 costs are calculated to be $97.78 pmpm ($2 pmpm below the threshold amount), $0.75 pmpm will be paid to the TPA as a partial settlement on or before July 15, 2010, subject to final verification on November 2010. If on November 2010 medical costs are is still calculated at $97.78 pmpm, the remaining $0.25 pmpm (or whatever amount is determined to be the final number) will be paid on or before December 31, 2010 as final settlement of the financial incentive. In the event the July 2010 partial settlement is determined to be in excess of the final incentive payable, the TPA will reimburse the difference to the ADMINISTRATION on or before December 31, 2010 and this reimbursement will also be considered a final settlement of the financial incentive.

The Contract will be for administrative services, network management, and utilization review services.

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5.1.3 THE ADMINISTRATION will deposit funds for claims payment in a zero-balance account. It will provide funds, wire transfers or otherwise submit payment within two business days to the bank account established for claims payment.

5.1.4 The TPA shall cooperate with the selected PBM to facilitate claims processing, to specify, develop and implement the flow of information, utilization review and customer service protocols.

5.2 PAYMENT OF SERVICE FEES

1.	The TPA is financed on a self-funded basis; this Contract also includes re- insurance arrangements. The Administration will pay the TPA an administrative fee to cover the cost incurred in the performance of all services to include network management and utilization review services.
2.	The payment for the first month of services will be made upon certification by the TPA that it has complied with the implementation process to initiate services; to the satisfaction of the ADMINISTRATION and after the first week of commencement.
	For subsequent months, the ADMINISTRATION shall pay TPA the corresponding monthly service fee within five (5) working days following submission of an invoice containing an electronic file listing the beneficiaries enrolled for the month of the invoice, and a hard-copy certification of amounts billed. The timing of the five-days period shall start running upon receipt by the ADMINISTRATION of said electronic and hard-copy requirements. Should either the hard-copy certification or the electronic file need to be resubmitted by TPA, said five-days’ term shall be reset to start on the date the ADMINISTRATION receives the missing requirement.

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	The TPA shall not, at any time, increase the administrative fee herein agreed, which will be guaranteed for contract year, nor reduce the benefits agreed to, as defined in Appendix B of this Contract.
3.	If any differences arise in the Administration’s payment of service fees to the TPA, the latter will analyze the differences between the original bill it submitted and the amount paid by the ADMINISTRATION. The TPA will then submit to the ADMINISTRATION a diskette as well as all relevant documentation that supports and details the TPA’s monthly payment deficiency claim no later than thirty (30) working days after payment on the original bill has been made. If said term ends without TPA having submitted the required materials in support of a monthly payment deficiency claim, TPA shall irrevocably lose any right to claim payment of said deficiency and the ADMINISTRATION shall thereby be released from any obligations to TPA with respect thereto.
4.	The TPA guarantees that the rate and any applicable deductibles or co-payments under the special coverage provisions herein constitute full payment for the benefits contracted under the plan, and that support network participating providers cannot collect any additional amount from beneficiaries. Balance billing is expressly prohibited.
	Upon a determination made by the ADMINISTRATION that the TPA or its agents has engaged in balance billing, the ADMINISTRATION will proceed to enforce provisions as established in Section 8.
5.	The TPA understands that the payment of the service fee by the ADMINISTRATION and the ADMINISTRATION’s payments to TPA/HCOs’ network of participating providers shall be considered as full and complete payment for all services rendered except for any deductible authorized by the ADMINISTRATION; or any amount pending reconciliation.
6.	For Medicare beneficiaries with Part A, any recovery by the provider for Part A deductibles and/or co-insurance shall be made exclusively through the Medicare Part A Program as bad debts. Beneficiaries shall neither pay reimbursement for

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	rendered services to a participating provider nor pay deductibles not authorized by the ADMINISTRATION.
7.	For Medicare beneficiaries with Part B, any recovery by the participating provider for Part B deductibles and/or co-insurance, other than services provided on an outpatient basis to hospital clinics, will be made through the TPA and/or the HCOs. In this instance, beneficiaries would neither pay reimbursement for rendered services to a participating provider nor pay deductibles not authorized by the ADMINISTRATION.
8.	Co-insurance and deductible for Part B services provided on an outpatient basis in hospital clinics, other than physician services, will be considered as a covered bad debt reimbursement item under the Medicare program cost. In this instance, the TPA/HCO will pay for co-insurance and deductibles related to the physician services provided as a Part B service, through the capitation paid to the HCO.
9.	The TPA understands that if the Federal Government submits an alternative to the set forth in this section 5.2 on agreement hereof that is more cost effective and for the benefit of the Government of the Commonwealth Puerto Rico, the ADMINISTRATION along with the TPA shall attempt to renegotiate the coverage for Medicare beneficiaries with Part A or Part A and B.
5.3	GUARANTEE OF PAYMENT
1.	The ADMINISTRATION expressly guarantees payment for all medically necessary covered services rendered to beneficiaries by any participating providers. TPA/HCO shall guarantee that providers will be compensated and the implemented compensation systems will not compromise access to services or their quality.

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2.	The insolvency, liquidation, bankruptcy or breach of contract by an HCO or contracted participating provider shall not release said party from its obligation and guarantee to pay for all services rendered as authorized herein.
	The ADMINISTRATION’s obligation to guarantee payment to all HCOs, providers or subcontractors for services rendered under this Contract is subject to compliance with established claim proceedings and requisites set forth herein. The HCO will answer to the TPA with respect to compliance of all Contract terms.
3.	Consistent with the payments rights guaranteed by paragraphs (4) and (5), the providers and subcontractors shall claim direct payments due from the TPA/HCO to the ADMINISTRATION, which shall deduct any amounts payable to providers or subcontractors from paid due to the TPA/HCO.
4.	ADMINISTRATION agrees to pay the HCOs and/or participating providers according to the payment schedule agreed in their respective contracts, provided any such contract complies with Law No. 104 of July 19, 2002, the terms set forth herein, and related guidelines of the Office of the Insurance Commissioner, other than [for] capitation payments, which shall be made in accordance with item six (6) of this section 5.3. Subject to having received from the ADMINISTRATION the claims payment authorization, TPA payments to participating providers shall be made no later than fifty (50) days from the date that TPA has received a ready-to-process claim, as such term is defined in Law No. 104, whenever any participating provider has submitted to TPA a ready-to-process claim within ninety (90) days of having rendered the services. TPA shall have in place all internal systems necessary to promptly pay its providers as dispose by Law No. 104 ready-to-process claim , and to avoid unjustifiable delay in payment [caused] by [having] [submitted] any such claim to audits and evaluation [as] a contested claims, [which results in noncompliance with deadlines Law No. 104.
5.	Any objection to a claim submitted by a participating provider shall be notified in writing to the provider within forty (40) days of claim receipt, with the information Law No. 104 requires, including the reasons why said claim is not ready to be

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	processed and the documents or information needed to cure the defect. The participating provider, in turn, shall have forty-five (45) calendar days upon receipt of notice of said contested claim to cure the defect. If the aforementioned 40 days elapse without TPA/HCO notifying that a claim is contested it shall be deemed an admission by TPA/HCO that said claim is ready to be processed. Likewise, if the participating provider fails to respond to the notice that a claim is contested within the allotted forty-five (45) days, such failure to act shall be deemed an admission by the provider that the objections to the claim were correct. Upon expiration of any of the aforementioned terms, any payment overdue shall accrue interest as established by Law No. 104. In the event that TPA/HCO erroneously notifies that a claim is not a ready-to-be-processed claim, such action shall not interrupt the fifty-day term for payment to participating providers set forth in the preceding paragraph.
6.	The TPA agrees and warrants that TPA will be the central payer on behalf of the ADMINISTRATION for all valid claims generated throughout the contracted, participating network of providers.
7.	The TPA agrees and warrants that the method used to pay for the services rendered by the HCOs and their participating providers is reasonable and does not jeopardize the quality of the services provided.
8.	The guarantee of payment will be reinforced through the establishment of different alternatives to guarantee that TPA/HCO and participating providers are paid in full for contracted services in accordance with established budgets. Said alternatives are subject to the Administration’s approval prior to implementation.
9.	TPA/HCOs shall incorporate in their contracts with participating provider’s authorization for TPA to adjudicate and determine the validity of any claim or dispute between the HCO and participating providers stemming from any controversy concerning the validity of claims submitted for services. Said provision shall assure that payment to the HCOs network of participating providers for valid claims for services is not improperly withheld, and that in no

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	event payment is made more than fifty (50) days from the date that the claim or dispute is received by TPA. It shall be TPA’s responsibility to verify the pertinent terms binding the HCO and its network of participating providers, the claim’s reasonableness given the services rendered and that payment has been made.
10.	The guarantee of payment and the schedule of payments to HCOs and participating providers shall be enforceable at the expiration of this Contract and until any new terms subsequently are agreed to by the parties hereto.
11.	The TPA agrees to provide the ADMINISTRATION a monthly electronic, detailed report of all payments made to HCOs’ network of participating providers, claims not being paid to the HCO, and to the TPA’s participating providers during the month immediately preceding the report, as well as an inventory of all claims received but not paid by reason of accounting or administrative objections. The intention of this clause is for the ADMINISTRATION to be able to determine on a monthly basis the amount of money paid to each participating provider, the amount billed by and not paid to each participating provider, and the reasons for non-payment, to keep track of the regularity of payments by the TPA and the HCOs and their compliance herewith.
12.	The TPA also agrees to provide to HCOs and to the ADMINISTRATION, on a monthly basis, by electronic or machine readable media format, a detailed report classified by beneficiaries, providers, diagnosis, procedure, date of service and real cost of all payments made by the TPA which entails a deduction from the gross monthly payment to said HCO’s.
13.	HCO must report each encounter to the TPA on a monthly basis, classified by each participating provider within the HCO, as well as the real cost of the services of each encounter of service. The TPA must submit to the ADMINISTRATION the capitation distribution, if applicable, within each HCO as established in the Actuarial Reports formats required by the ADMINISTRATION.
14.	TPA will abide by the Administration’s efforts to implement cost reduction measures and future implementation of payment methods based on fee

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schedules or diagnosis related group that may be established. In no way shall a enrollee be discriminated, shall health services be rationed based on diagnosis or illness or an expectation that the enrollee may require high cost care.

5.4 ADMINISTRATION’S PAYMENT OBLIGATIONS

Payment of Funds to Satisfy Claims

The ADMINISTRATION shall be responsible to provide every week the funds for the payment of claims to be processed by TPA in accordance with this Contract. The payment of such claims shall be funded and processed according to the protocol and procedures established and approved by the Administration and TPA. The protocol is set forth in Appendix D which is made part of this Contract. The ADMINISTRATION, upon receipt and approval of a certified pre-check register from TPA, in the electronic format requested by the ADMINISTRATION, shall send a written notification to TPA, upon written approval of claims, within a period of one (1) working day, and deposit such amounts due in the corresponding bank accounts, as required, to fund the unpaid claims.

Also, for the payment of pharmacy claims, the ADMINISTRATION is responsible for the funding of, and TPA is responsible to execute the payment of, the bi-weekly transfer for claims to be paid to Caremark on behalf of the network of pharmacies. The TPA acknowledges its obligation with respect to the validation and payment of pharmacy claims, and timely notification, and certification to the ADMINISTRATION with respect to the process and payment of those claims. Caremark’s switching and transaction fees are to be paid by the ADMINISTRATION with corresponding validation by the TPA. The ADMINISTRATION acknowledges that the TPA is undertaking the process of validation and payment of those claims on behalf of the ADMINISTRATION and the TPA is not responsible in any manner for the liability and/or risk of pharmacy

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coverage within the TPA responsibilities, other than for reasons solely attributable to TPA, its employees and agents.

The TPA will ensure compliance with the Prompt Payment Law, and document the payment to the ADMINISTRATION. In the event that the ADMINISTRATION could not deliver on time its authorization of the pre-check register of the claims to be paid to the providers; then the ADMINISTRATION will be fully responsible to pay the interests established by said Law and to respond for any adverse audit opinion in connection therewith.

Monthly TPA Administrative Fee Payments

The ADMINISTRATION, upon receipt of the monthly enrollment certification issued by the MIS Department of the ADMINISTRATION, shall pay the corresponding TPA Administrative fees within ten (10) working days of receipt of the certification, provided fund availability. If any problems arise with certification or the enrollment information submitted by SSS, the ADMINISTRATION has the right to waive such term and pay in the meantime the administrative fee equivalent to 90% of the prior month. Once the data is corrected, the ADMINISTRATION shall pay off the remaining 10% based on the number of enrollees enrolled or if less than the 90% amount that should have been paid, the ADMINISTRATION shall retain that amount from TPAs next month’s pmpm. The ADMINISTRATION will issue the corresponding payment accompanied by a certification of the covered enrollees adjusted.

The invoices submitted by TPA, as well as the aforementioned pre-check register, shall be certified in accordance with this Contract and any federal requirement. The certification must attest, based on best knowledge, information, and belief, as to the accuracy, completeness and truthfulness of the enrollment data, encounter data, and any other data required in this Contract.

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TPA shall also certify that the services rendered have not been paid and the correction of the total amount billed, and shall include the following certification:

“Bajo pena de nulidad absoluta certifico que ningún servidor público de ASES es parte o tiene algún interés en las ganancias o beneficios producto del contrato objeto de esta factura y, de ser parte o tener interés en las ganancias o beneficios productos del contrato, ha mediado una dispensa previa, la única consideración para suministrar los bienes o servicios objeto del contrato han sido el pago acordado con el representante autorizado de ASES. El importe de esta factura es justo y correcto. Los trabajos han sido realizados, los productos y servicios han sido entregados y/o prestados y no han sido pagados.”

[Under penalty of absolute nullity, I certify that no employee of THE ADMINISTRATION is a party to or has any interest in the payments or benefits arising from the Contract that underlies this invoice or, alternatively, that if an employee thereof is a party to or has an interest in the payments or benefits arising of said Contract, that the necessary waiver was obtained in connection hereto. The payment agreed upon with the appropriate, duly authorized representative of THE ADMINISTRATION constitutes the sole consideration for providing the services called for in the Contract. The amount billed in this invoice is just and correct. The services billed for in this invoice have been performed according to the Contract’s terms and have not been paid.”]

If the parties cannot agree, within ten (10) working days of the date of receipt of any invoice by the Administration, as to amounts payable, either for a particular claim or service item in the invoice, then, at the expiration of said ten (10) days term, the amounts billed for claims or other charges for which there is no controversy or objection for payment, shall become payable forthwith.

With respect to the amounts payable for claims or items in the invoice not agreed upon within ten (10) days from the receipt of the invoice by the Administration, the same shall be submitted to a reviewing committee, appointed by the ADMINISTRATION.

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5.5 THIRD PARTY LIABILITY FOR PAYMENTS

1.	The ADMINISTRATION, TPA or HCO shall be the last payer to any other party liable in any claim for services to a enrollee, including but not limited to: Medicare; other TPA/HCOs or managed care organizations; health maintenance organizations; non-profit MCO’s operating under Law No. 152 of May 9, 1942, as amended; “Asociación de Maestros de Puerto Rico”; “Auxilio Mutuo de Puerto Rico”; medical plans sponsored by employee organizations, labor unions, and any other entity that results liable for the benefits claimed against the ADMINISTRATION or TPA/HCO for coverage to beneficiaries. It shall be TPA’s responsibility that applicable provisions of Law 72 of September 7, 1993 are enforced and that TPA acts as secondary payor to any other medical insurance.
2.	Co-insurance and deductible for Medicare Part B services provided on an outpatient basis by hospital clinics, other than physician services, will be considered as a covered bad debt reimbursement item under the Medicare programs cost. THE ADMINISTRATION will pay for co-insurance and co-payment related to the physician services provided as a Part B service through the capitation paid to the HCO, when services are accessed through the primary care physician.
3.	GHIP beneficiaries with Medicare A and B are eligible for enrollment in a Medicare Platino Plan contracted by THE ADMINISTRATION. If the enrollee elects to continue under the GHIP plan and move to a Medicare Advantage Plan, other than those contracted by THE ADMINISTRATION for Medicare Platino, the enrollee shall be responsible for the payment of premiums, co-pay and co insurance of the Medicare Advantage Plan. The HCO is responsible for coordinating with MCO’s the payments of those health services covered under the GHIP plan that are not covered under the Medicare Advantage Plan.

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4.	To ensure access and availability of dialysis services for patients with End Stage Renal Disease (ESRD) that are eligible for Medicaid and Medicare, the co-payments and deductibles associated with these services are covered by the GHIP as follows:
	If the total amount of Medicare’s established liability for the services is:

a)	Equal to or greater than the negotiated contract rate between the MCO and the provider for the services minus any Medicaid cost sharing requirements, the provider is not entitled to, and the MCO shall not pay, any additional amounts for the services.
b)	Less than the negotiated contract rate between the MCO and the provider for the services minus any Medicaid cost sharing requirements, the provider is entitled to, and MCO will pay an amount which is the lesser of:

1.	The Medicare cost sharing (deductibles and coinsurance) payment amount for which the Medicaid recipient is responsible under Medicare, or
2.	An amount which represents the difference between (I) the negotiated contract rate between the MCO and the provider for the service minus any Medicaid cost sharing requirements and (ii) the established Medicare liability for the services.

5.	The ADMINISTRATION and TPA shall cooperate in the exchange of third party health insurance benefit information. The TPA will fully comply with the “Carta Normativa N-E-5-95-98” issued by the Office of the Insurance Commissioner of Puerto Rico and applicable HIPAA regulations provisions.
6.	The TPA/HCO, on behalf of the ADMINISTRATION shall make best efforts to determine if beneficiaries have third party coverage and utilize such coverage

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	when applicable. The TPA shall be permitted to retain 100% of collections obtained from subrogation, to the extent of the risk assumed by the TPA and that of the participating providers at risk. The TPA shall share with at-risk providers the collections obtained, with respect to the commensurate risk borne by said party in proportion of the reimbursement collected. The TPA’s experience will be credited with the amount collected from the primary payer, once payment is made and the TPA/HCO recovers payments. If a provider detects that an enrollee has other health plan coverage not identified in the enrollee card, the provider should bill the primary payer and provide the third party coverage information to the TPA.
	The TPA must implement and execute an effective and diligent mechanism in order to assure the collection from primary payors of all benefits covered under this contract. Said program, mechanism and implementation methods shall be reported to the ADMINISTRATION as of the first date of effectiveness of this contract.
7.	The TPA/HCO must report quarterly to the ADMINISTRATION the amounts collected from third parties for health services provided in accordance with the standard format adopted by the ADMINISTRATION. Said reports must provide a detailed description of the enrollee ‘s name, contract number, third party payer name and address, date of service, diagnosis and provider’s name and address and identification number.
8.	The TPA shall develop specific procedures for the exchange of information, collection and reporting of other primary payer sources and to verify its own eligibility files for information on whether or not the enrollee has private health insurance with the TPA’s .
9.	THE TPA shall determine liability as a secondary payor, assuming there are no other third parties liable for payment for the services, with respect to services to

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beneficiaries covered under Medicaid for which Medicare is liable for payment as primary payor. If the total amount of Medicare’s established liability for the services is:

(1) Equal to or greater than the negotiated contract rate between the TPA and the provider of the services minus any Medicaid cost-sharing requirements, the provider is not entitled to, and the TPA shall not pay, any additional sums for the services;

(2) Less than the negotiated contract rate between the TPA and the provider of the services, minus any Medicaid cost-sharing requirements, the provider is entitled to, and the TPA shall pay an amount which shall be the lesser of:

(i) the Medicaid cost-sharing (deductibles and coinsurance) payment amount for which the Medicaid recipient is responsible under Medicare; or

(ii) an amount that represents the difference between (a) the negotiated contract rate between the TPA and the provider for the service minus any Medicaid cost-sharing requirements and (b) the established Medicare liability for the services.

10. Failure of the TPA to comply with this Section 5.5 may, at the discretion of the ADMINISTRATION, constitute sufficient cause for the application of the penalty provisions under Section 8.

Section 6:
Records, Information Systems & Liaisons

6.1 General Record Confidentiality Provisions

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Any individually identifiable health information of potential or actual enrollees held or disclosed in any form or medium to and by TPA, shall be confidential and shall be used and disclosed by TPA, HCO and/or its participating providers, all of which are covered entities under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), only for purposes connected with performance of the obligations contained in this Contract and in strict compliance with HIPAA’s privacy and security requirements, and any other applicable laws of the Commonwealth of Puerto Rico. Medical records and management information data necessary to provide medical care and quality, peer’s or enrollee’s grievance review of such medical care, and other treatment, payment and health care operations functions under this Contract concerning any enrollee shall be confidential and shall be disclosed within and outside the TPA’s organization, in accordance with HIPAA, Medicaid regulations and any other applicable laws of the Commonwealth of Puerto Rico.

The confidentiality provisions herein contained shall survive the termination of this Contract and shall bind TPA, HCO’s, and TRIPLE S’s participating providers as long as they maintain any protected health information relating to beneficiaries, as such term is defined by 45 CFR Parts 160 and 164.

TPA represents to the ADMINISTRATION that it has adopted and implemented the necessary physical, administrative and technical policies and procedures to safeguard the privacy, integrity and security of all protected health information related to this contract, as such term is defined under HIPAA as well as comply with the electronic transactions, security and privacy requirements of the HIPAA regulations as provided in 45CFR 160 and 142 et seg.

Disclosure of individually identifiable health information to any business associate as defined in 45 CFR 164.504(e) of the HIPAA regulations by TPA shall be subject to the legal obligations set forth therein.

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6.2 COMPLIANCE AND AGREEMENTFOR INSPECTION OF RECORDS

Since funds from the Commonwealth Plan under Title XIX and Title XXI of the Social Security Act Medical Assistance Programs (Medicaid) and SCHIPS as well as from Title V of the Social Security Act are used to finance part of the GHIP, TPA/HCO shall agree to comply with the requirements and conditions of the Centers for Medicare and Medicaid Services (CMS), the Comptroller General of the United States, the Comptroller of Puerto Rico and the ADMINISTRATION, as to the maintenance of records related to this contract and audit rights thereof, as well as all other legal obligations, including, but not limited to, non-discrimination, coverage benefit eligibility as provided by the Puerto Rico State Plan and Law 72 of September 7, 1993, Anti-Fraud and Anti-Kickback laws. All disclosure obligations and access requirements set forth in this Article or any other Article shall be subject at all times, and to the extent mandated by law and regulation, to the HIPAA regulations described elsewhere in this Agreement.

The TPA/HCO and all participating providers, shall maintain an appropriate record system for services rendered to beneficiaries, including separate medical files and records for each enrollee necessary to record all clinical information, including notations of personal contacts, primary care visits, diagnostic studies and all other services. The TPA/HCO shall also maintain records to document fiscal activities and expenditures relating to compliance of this Agreement. The TPA/HCO and all participating providers shall preserve, and retain in readable, accessible form, the records mentioned herein during the term of this contract and for a period no less than six (6) years thereafter.

At all times during the term of this contract and for a period of no less than six (6) years thereafter, the TPA/HCO, and all participating providers shall provide the ADMINISTRATION, CMS, the Comptroller of Puerto Rico, the Comptroller General of the United States of America and/or their authorized representatives, reasonable access to all records related to the services provided, in compliance

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of this Contract, for the purpose of examination, audit or copying of such records. The audits of such records include examination and review of the sources and applications of funds pursuant to this Contract. The TPA/HCO shall also permit inspection and audit by the ADMINISTRATION, CMS, the Comptroller of Puerto Rico, the Comptroller General of the United States of America and/or their authorized representatives of any financial record relating to the solvency of the TPA/HCO to bear the risk of potential financial losses in connection herewith.

The TPA/HCO shall be subject to annual external independent review of quality outcomes, timeliness of, and access to the services covered under the Contract. To that effect the ADMINISTRATION and TPA shall ensure that the HCOs and all participating providers and their subcontractors furnish to the ADMINISTRATION or the external independent review organization, at their respective discretion, reasonable on-site access to, and/or copies of, patient care records, as needed to evaluate quality of care.

The ADMINISTRATION and CMS shall have the right to inspect, evaluate, copy and audit any pertinent books, documents, papers and records of the TPA related to this Contract and those of any HCO or participating provider in order to evaluate the services performed, determination of amounts payable, reconciliation of benefits, liabilities and compliance with this Contract.

The TPA shall provide for the review of services offered (including both in-and out-patient services) covered by the plan for the purpose of determining whether such services meet professionally recognized standards of health care, including whether the services were provided in an appropriate setting. It shall also provide for review of the quality of services provided by random sampling of written complaints filed by beneficiaries or their representatives, and the results thereof.

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The TPA agrees that the ADMINISTRATION and CMS may conduct inspections and evaluations, at all reasonable times, through on-site audits, systems tests, assessments, performance review and regular reports to assure the quality, appropriateness, timeliness and cost of services furnished to the beneficiaries.

The ADMINISTRATION and CMS have the right to inspect all of the TPA/HCO financial records related to this contract to assure that the ADMINISTRATION pays no more than its fair share of general overhead costs as contracted.

The TPA acknowledges the Administration’s authority to evaluate, through inspection or other means, the facilities of the TPA/HCO participating providers. All facilities shall comply with the applicable licensing and certification requirements established by regulations of the Department of Health of Puerto Rico. It shall be the TPA’s responsibility to ascertain that all facilities contracting with TPA comply with the required licensing and certification regulations, and to terminate the contract of any facility not in compliance therewith.

Failure to adequately monitor the licensing and certification of facilities may result in the termination of this Contract as provided in Section 8.12.

The TPA/HCO and participating providers agree that the ADMINISTRATION’s right s to inspect, evaluate, copy and audit records shall survive the termination of this Contract for a period of six (6) years from said termination date unless:

a)	The ADMINISTRATION determines there is a special need to retain a particular record or group of records for a longer period and so notifies TPA at least thirty (30) days before the normal record disposition date;
b)	There has been a termination, dispute, fraud, or similar fault, in which case the retention may be extended to three (3) years from the date of any resulting final settlement;
c)	The ADMINISTRATION determines that there is a reasonable possibility of fraud, in which case it may reopen a final settlement at any time; or

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d) There has been an audit intervention by CMS, the office of the Comptroller of Puerto Rico, the Comptroller General of the United States or the ADMINISTRATION, in which case the retention may be extended until the conclusion of the audit and publication of the final report thereof.

6.3 INFORMATION SYSTEMS AND REPORTING REQUIREMENTS

1.

The TPA shall be responsible for the data collection and other statistics of all services provided including, but not limited to, encounter and real cost per service, claims services and any other pertinent data from all HCOs, participating providers or any other entity that provides services to GHIP beneficiaries. Consistent with 42 CFR 438.242(b)(2), the TPA shall ensure that data received from providers is accurate and complete by: (1) verifying the accuracy and timeliness of reported data; (2) screening the data for completeness, logic and consistency; and (3) collecting service information in standardized formats to the extent feasible, appropriate and as set forth herein. The data must be classified by provider, enrollee, diagnosis, procedure and service rendering date. TPA shall also provide information on utilization, grievances and appeals and disenrollment for other than loss of Medicaid eligibility. Said data must be forwarded to the ADMINISTRATION on a monthly basis in electronic or machine readable media format. The data fields and specific data elements required to be transmitted are contained in the document titled “Carrier to THE ADMINISTRATION Data Submissions, New File Layouts,” which defines files for the delivery of data in claims, services, provider, IPA and capitation files, already provided to the TPA. The ADMINISTRATION reserves the right to modify, expand or delete the requirements contained therein or issue new requirements, subject to consultation with the TPA and cost negotiation, if necessary.

Accordingly, the TPA must submit to the ADMINISTRATION a Systems Requirements Inventory Report detailing the following:

a) Plan’s compliance with each information system requirement;

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b)	Action plan of TPA’s response to the requirements;
c)	Actual date that each system requirement will be completely operational, not to exceed the effective date of coverage under this contract.

2.	The TPA shall submit to the ADMINISTRATION the System Inventory Report for final approval not later than the date of the signing of this Contract.
3.	All Management Information Systems Requirements shall be fully operational as of the first day of coverage under this Contract and shall remain as such for the duration of the Contract. TPA’s noncompliance with this requirement shall trigger cancellation of this Contract.
4.	The TPA shall collect and report to the ADMINISTRATION or, upon request, to CMS, all required data and information in electronic or machine readable media commencing on the effective date of coverage of this Contract.

4.1.1

Data that must be certified by TPA. The data that must be certified includes, and is not limited to, documents specified by the ADMINISTRATION, enrollment information, encounter data and other information required in this Contract. Any payment by the ADMINISTRATION that is based on data submitted by the TPA must comply with the certification as set forth in 42 CFR 438.606. The certification must attest, based on best knowledge, information and belief, as to the accuracy, completeness and truthfulness of the document and data. The certification must be submitted concurrently with the certified data and documents.

4.1.2

The data and documents submitted by TPA to the ADMNISTRATION must be certified by one of the following:

• TPA’S Chief Executive Officer

• TPA’S Chief Financial Officer

• An individual who has delegated authority to sign for, and who reports directly to, TPA’S Chief executive Officer or Chief Financial Officer.

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5.	The information systems of all HCOs shall be compatible with the systems in use by the TPA.
6.	The TPA shall supply, on a daily basis, eligibility information to the HCOs and, upon request, to all participating providers. Said information shall be secured through on-line access with the TPA.
	EXCHANGE OF DATA REPORTS AND OTHER INFORMATION
	The ADMINISTRATION will make available a secure FTP server, accessible via the Internet, for receipt of electronic files and reports from the TPA. The TPA will provide a similar system for the ADMINISTRATION to transmit files and reports deliverable by the ADMINISTRATION to the TPA. When such systems are not operational, the ADMINISTRATION and the TPA with agree mutually on alternate methods for file exchange.
	TPA agrees to submit to the ADMINISTRATION, in such form and detail as indicated in the “Carrier to THE ADMINISTRATION Data Submissions, New File Layouts” document, and any other formats the ADMINISTRATION may require, the following information, in the timeframes specified herein:

a) On a Daily basis

• Enrollment data

b) Within five (5) calendar days of the end of each month

• Data pertaining to health insurance services provided to beneficiaries in the form of files for Services, Claims, Providers, IPAs/HCOs, Capitation Payments and Administrative Expenses. Such files will be submitted according to the latest version of the “Carrier to THE ADMINISTRATION Data Submissions, New File Layouts” document in effect at the time of the submission.

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c) As required by the ADMINISTRATION:

• Any other reports or data that the ADMINISTRATION may require after consultation and negotiation with TPA.

The ADMINISTRATION will deliver data to the TPA, according to the layouts defined by the ADMINISTRATION for the following information in the timeframes specified herein:

d) On a Daily basis

• Enrollment rejects and errors

e) On Daily and Monthly Basis

• Eligibility data (including the incorporation of enrollment information).

f) On a Monthly basis:

• Payment of Premiums/Administrative Fees

• Error Return files and Processing Summary reports for monthly files submitted by TPA under b) above.

The TPA will update its system with eligibility data delivered to the TPA within one (1) business day of receipt.

Files that record the enrollment or changes in enrollment of a member in the TPA must be delivered to the ADMINISTRATION by the first business day following the enrollment of the member or change of enrollment status of the member.

CLAIMS AND ENCOUNTERS: All files that report Claims, Services, Providers, IPAs/HCOs, Capitation and Administrative expenses according to the “Carrier to

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THE ADMINISTRATION Data Submissions, New File Layouts” document must be submitted to the ADMINISTRATION by the fifth (5^th) day of the month following the month being reported, or as required by the ADMINISTRATION. Files delivered by the TPA will be rejected if the ADMINSTRATION cannot process them for validation. Files will be validated and, to be accepted, must not exceed 1% (one percent) of records in error. Files which are rejected for failing the error threshold must be corrected and re-submitted in their entirety. Files for any month’s deliverables will not be accepted by the ADMINISTRATION if a rejected file from a prior month remains outstanding. On accepted files, the ADMINISTRATION will report records with errors to the TPA and such records must be corrected and such corrected records must be included in the next month’s file.

Failure to deliver files on a timely basis, the ADMINISTRATION’s rejection of delivered files as described above, failure by the TPA to correct and resubmit previously rejected files or failure by the TPA to correct records reported in error, shall constitute failures to comply with this Agreement and shall be sufficient cause for the imposition on the TPA of the penalties provided for in Section 8.

7.

The TPA agrees to report to the ADMINISTRATION on a daily basis all information pertaining to enrollment, disenrollment, and other enrollee transactions as required by the ADMINISTRATION. All records shall be transmitted: 1) through approved ADMINISTRATION systems contractors; or 2) over data transmission lines directly to the ADMINISTRATION; or 3) on machine readable media. All machine readable media or electronic transmissions shall be consistent with the relevant ADMINISTRATION’s record layouts and specifications.

9.

The TPA will submit to the ADMINISTRATION on a quarterly basis reports and data generated electronically that permits the ADMINISTRATION’s:

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a.	Evaluation of the effectiveness of the delivery of services by providers and the adequacy of these services.
b.	Monitoring and evaluation of the efficiency and propriety of the services that are being received by the beneficiaries and their dependents.
c.	Comparison of experience with that of other providers.
d.	Comparison of health care services utilization and cost tendencies within the community and the group that renders service.
e.	Demonstration of how the quality of care is being improved for the enrollee and their dependents.
f.	Comparison of TPA’s administrative measures agreed upon benchmarks evaluates the progress towards constant improvement.
g.	Compliance with the information requirements and reports of Federal Programs such as: Title II of the Health Insurance Portability and Accountability Act; Title IV-B Part 1 and 2, Title IV-E, Title V, Title XIX, and Title XXI of the Social Security Act; applicable state laws such as the Child Abuse Act (“Ley de Maltrato de Menores”), Public Law 75 of May 28,1980; the Protection and Assistance to Victims and Witnesses Act (“Ley de Protección y Asistencia a Víctimas de Delitos y Testigos”), Public Law 77 of July 9,1986, and any other federal or state applicable information requirements.
h.	Evaluation of each service provided with separate identification by enrollee, provider, diagnosis, diagnostic code, procedure code, date and place of service. The provider must be identified by his/her/its provider’s identification number or his/her/its social security account/employer identification number.

10.	The TPA shall provide the ADMINISTRATION with a uniform system for data collection.
11.	The TPA’S Information Systems must provide a continuous flow of information to measure the quality of services rendered to beneficiaries. The purpose of these

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systems must be to assist the ADMINISTRATION and the TPA in achieving continuous improvement in service quality and cost-effectiveness.

12.	TPA’s daily reports are due by the end of the following business day. Weekly reports are due on the first business day of the following week. Monthly reports are due twenty-five (25) days after the end of each month. Quarterly reports are due thirty (30) days after the end of each quarter. Said reports shall be delivered to the Information System Office.
13.	The TPA must report to the Administration, on a monthly basis, all cancellations and disenrollments of providers. Said information shall be delivered on or before the 10th day of the next month.
14.	The TPA shall coordinate the enrollment of beneficiaries.
15.	The TPA shall assure adequate and efficient operation of information systems and should obtain adequate insurance against economic loss due to system failure or data loss.
16.	In order to ensure that all enrollee encounters are registered and recorded, the TPA shall conduct audits of statistical samples and unannounced personal audits of the HCOs’ and participating provider’s facilities to assure that medical records conform with the encounter reported; corrective measures will be taken in case of any violation of the TPA’s regulations regarding encounter registration and reporting. The TPA shall provide quarterly reports to the ADMINISTRATION of all findings and corrective measures, if any, taken with respect to regulation violations.
17	The TPA shall guarantee the following:

a. The security and integrity of the information and communication systems through:

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1.	Regular Backups on a daily basis
2.	Controlled Access to the physical plant
3.	Control logical access to information systems
4.	Verification of the accuracy of the data and information

b. The continuity of services through:

1.	Regular maintenance of the systems, programs and equipment
2.	A staff of duly trained personnel
3.	An established and proven system of Disaster Recovery
4.	Cost Effective systems.

c.	Identification of the enrollee via the use of plastic cards.
d.	Automated system of communication with statistics of the management of calls (Occurrence of busy lines, etc.)
e.	A comprehensive health insurance claim processing system to handle receiving, processing and payment of claims and encounters.
f.	Analysis/Control of utilization (The TPA must provide said analysis to the ADMINISTRATION on a monthly basis in the format outlined by the ADMINISTRATION):

1.	by patient/family
2.	by region, area/region town, (zip codes)
3.	by provider (provider’s identification number or social security account numbers)
4.	by diagnosis
5.	by procedure or service
6.	by date of service

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g.	System of Control for claims payment that includes payment history.
h.	Computerized pharmacy system that permits its integration to the procedures for payment to providers.
i.	Outcome Analysis.
j.	Electronic creation of data files related to mortality, morbidity, and vital statistics.
k.	Integration to central systems

1.	Procedures and communications protocol compatibility;
2.	Ability to transmit reports and/or files via electronic means.

l. Electronic Handling of:

1.	The process of Admission to hospitals and ambulatory services
2.	Verification of eligibility and subscription to the plan
3.	Verification of benefits
4.	Verification of Financial information (Deductibles, Co-payments, etc.)
5.	Verification of individual demographic data
6.	Coordination of Benefits.

m.	Computerized applications for general accounting.
n.	As to HCOs and all Participating Providers the information system shall provide for:

1.	On line access to service history for each enrollee.
2.	Register of diagnosis and procedures for each service rendered.
3.	Complete demography on line, including the aspect of coverage and financial responsibility of the patient.
4.	Individual and family transactions

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5.	Annotations on line (General notes such as allergies, reminders or other clinical aspects (free form)
6.	Analysis of activity by:

a.	department
b.	provider
c.	diagnosis
d.	procedures
e.	age
f.	sex
g.	origin
h.	others, as mutually agreed upon.

7.	Diagnosis history by patient with multiple codes per service.
8.	Ad Hoc Reports
9.	Referrals Control
10.	Electronic Billing
11.	Pharmacy system
12.	Dental system
13.	Ability to handle requirements of Medicare programs such as RBRVS (Relative Base Relative Value System).
14.	Ability to collect data as to the quarter in which the pregnant female enrollee commences her ob-gyn treatment. The format for the collection of this data shall be approved by the ADMINISTRATION prior to its implementation.

Failure to comply with the requirements contained herein will be sufficient cause for the imposition on the TPA of penalties set forth in Section 8 of this Contract.

18. The TPA agrees to report all procedure and diagnostic information using the current versions of Current Procedural Terminology, International Classification

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of Diseases, Clinical Modification, Diagnostic Statistic Manual and American Dental Association’s Current Dental Terminology, respectively. This does not prevent the adoption by TPA of the ANSI X-12 electronic transactions for standards set forth in the HIPAA regulations.

19.	Non compliance with any of the Information Systems and Reporting Requirements; with any requirements related to the electronic standards transactions to be implemented within the schedule set forth by the HIPAA regulations, or with other requirements contained herein, shall be subject to the provisions of this Contract and Law No. 72 of September 7, 1993, which provides the right of the ADMINISTRATION to enforce compliance through the Court of Appeals of Puerto Rico, San Juan Panel.
20.	The TPA shall provide the ADMINISTRATION’s authorized personnel access to TPA’s on-line computer applications. Such access shall allow the ADMINISTRATION use of the same systems and access to the same information as used by the TPA and enable inquiry on beneficiaries, providers, and statistics files related to this Contract. The preferred access method will be via a secure Internet connection; the TPA shall supply the ADMINISTRATION’s designated personnel with the required user-ids, passwords and instructions to access the systems. In the event that secure Internet access is not possible, the TPA and the ADMINISTRATION will mutually agree on alternate access methods.
21.	The TPA agrees to submit to the ADMINISTRATION reports as to the data and information gathered through the use of the Health Plan Employer Data and Information Set (HEDIS) and the work plan required by the ADMINISTRATION.
22.	TPA TELEPHONE ACCESS REQUIREMENTS
	TPA must have adequately-staffed telephone lines available. Telephone personnel must receive customer service telephone training. TPA must ensure

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that telephone staffing is adequate to fulfill the standards of promptness and quality listed below:

1.	80% of all telephone calls must be answered within an average of 30 seconds;
2.	The lost (abandonment) rate must not exceed 5%;
3.	TPA cannot impose maximum call duration limits but must allow calls to be of sufficient length to ensure adequate information is provided to Beneficiaries or Providers.

The TPA shall abide by the present Information Systems and Reporting Requirements established in this Agreement and shall cooperate with the ADMINISTRATION in the development and implementation of any future systems.

6.4	ALTERATIONS TO ELECTRONIC DATA
	Except for the daily update of Potential Enrollees herein, and unless it receives the prior authorization of the ADMINISTRATION, TPA/HCO will not alter, change or modify any electronic data and information related to Potential Enrollees or covered services that the ADMINISTRATION will deliver on a daily basis to TPA during the term of this Agreement. TPA, will however, be responsible for notifying the ADMINISTRATION and the Participating Providers as soon as reasonably possible upon becoming aware of any actual or potential errors that may exist in relation to such data and information transmitted to TPA by the ADMINISTRATION.
6.5	INFORMATION TECHNOLOGY SUPPORT
	TPA shall provide on-line or dial-in access to the ADMINISTRATION’s authorized personnel to TPA’s claims processing and adjudication system for inquiry purposes.

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In addition, TPA shall provide on-line access to HCO’s and Participating Providers’ claims processing and adjudication system to allow them access to information on current eligibility, prior authorizations and Enrollees claims history. The Participating Providers are responsible for the payment of set up fees installation and payment of their communication lines to TPA’s, license fees, equipment, and professional fee for technical services.

6.6	TPA / ADMINISTRATION RESPONSIBILITIES AND PROVIDERS ELECTRONIC MANAGEMENT
	The TPA must provide the ADMINISTRATION on line access to its systems and data, with user accounts for a minimum of three THE ADMINISTRATION staff members.
	The TPA must require from the HCO’s and participating providers, the electronic handling of:

a.	Hospital admissions and ambulatory services
b.	Verification of eligibility
c.	Verification of benefits
d.	Verification of financial information (co-payments, co-insurance)
e.	Verification of individual demographic data
f.	Coordination of Benefits

The TPA must require from the HCO’s and participating providers, automated systems that provide for:

a.	On line history services for each patient.
b.	Register of diagnosis and procedures for services provided
c.	Complete demographic data on line, including coverage and financial responsibility of patients
d.	On line annotations (general notes such as allergies, remainders or other clinical information in free form)
e.	Analysis of activity by different data elements.

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6.7	ADMINISTRATION AND TPA LIAISONS
	Upon execution of this contract, and from time to time, as changes may require, TPA shall provide in writing the names and positions of the persons designated by TPA to administer this Contract on a day to day basis.
6.7.1	Liaison Between the TPA / ADMINISTRATION and Contracted Providers
	From time to time, as may be required, the parties herein shall inform each other in writing the names and positions, telephone and fax numbers and electronic mail addresses of the persons designated to administer the daily implementation and operational issues. In their contracts with HCO’s and Contracted Providers, the TPA shall require them to provide THE ADMINISTRATION with the same information as to those persons that may be contacted by TPA in its discharge of its obligation hereunder.
6.7.	Information to TPA
	The ADMINISTRATION shall advise and provide to TRIPLE S on an ongoing basis, and in similar conditions to the procedures used to inform the TPA/HCOs, updated information on the operational policies, procedures and regulations of the Plan that affects the scope of services required from TPA herein. Accordingly, TPA will be included in any mailing list for the purposes described in this section, and in any advisory committee or general meetings celebrated by the ADMINISTRATION, PBM, or any other organization which objectives are to instruct TPA/HCOs on modifications to policies or benefits coverage.

Section 7:
Financial & Actuarial Requirements; Insurance;
Payment & Performance Bond; Certifications

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7.1	FINANCIAL REQUIREMENTS
1.	TPA shall comply with a minimum 150% of risk based capital. The Administration reserves the right to require additional capital guarantees if deemed necessary. TPA must comply with Article 19.140 of the Insurance Code of Puerto Rico, with respect to insolvency protection.
2.	TPA shall notify the ADMINISTRATION of any loans and other special financial arrangements that may be made between the TPA/HCO, participating providers or related parties. Any such loans shall comply strictly with Anti-Fraud and Anti-Kickback laws and regulations.
3.	TPA shall provide to he ADMINISTRATION copies of audited financial statements issued consistent with Generally Accepted Accounting Principles (GAAP) in the United States and copy of the report to the Insurance Commissioner of Puerto Rico in the format agreed to by the National Association of Insurance Commissioners (NAIC), for the year ended on December 31, 2008 and subsequently thereafter annually for the Contract term, due with THE ADMINISTRATION on or before March 15 of each subsequent year.
4.	The TPA will maintain adequate procedures and controls to assure that any payments it issues pursuant to this Contract are properly made. In establishing and maintaining such procedures the TPA shall maintain separate certification and disbursement functions.
5.	The TPA must submit to the ADMINISTRATION the following:

v	Audited financial statements as of October 31 of each Contract year.
v	A SAS-70 audit report Type I, as of October 31 of each Contract year.

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v	Financial Statements, even if these are not formally audited, for each quarter during the term of the Contract, no later than 45 days after the end of the quarter.
v	Annual audited financial statements of all the operations (including private business) for TPA fiscal years, no later than 90 days after the end of the fiscal year.
v	Annual audited financial statement of TPA’s affiliated entities, not later than 90 days after the end of the fiscal year of the affiliated entities.

6. The TPA agrees to pay the accounting firm contracted by the ADMINISTRATION to perform audits for this contract period and to provide and make available to said firm or to the ADMINISTRATION any and all working papers of its external auditors related to this Contract. The parties agree, and TPA shall incorporate in its contracts with subcontractors, that GHIP is a government-funded program and as such the administrative costs that are deemed allowable shall be in accordance with cost principles and Commonwealth’s applicable guidelines, primarily recognizing that:

(1)	a cost shall be reasonable and of the type generally recognized as ordinary and necessary, in its nature and amount, taking into consideration the purpose for which it was disbursed, and it does not exceed that which would be incurred by a prudent person in the ordinary course of business under the circumstances prevailing at the time the decision was made to incur the cost; and
(2)	is allocable or related to the cost objective that compels cost association.

7. Runoff period: Following termination of the Contract, for any reason, the TPA must continue to be responsible for processing and paying claims incurred during the term of the Contract for up to 180 days, received in conformity with the

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	Prompt Payment Law of the Commonwealth of Puerto Rico (Law No. 104 of July 19, 2002). Administrative fees will not be paid following termination of the Contract.
8.	TPA agrees to provide to the ADMINISTRATION a monthly, detailed statement of administrative expenses TPA incurs in a format mutually agreed upon by the parties.
7.2	ACTUARIAL REQUIREMENTS

1.	The determination of future service fees shall be based exclusively on the results of the cost of health care services, and administrative functions provided to the beneficiaries covered under this Contract. The TPA shall maintain all the utilization and financial data related to this Contract segregated from its regular accounting system, but not limited to the General Ledger and the necessary Accounting Registers classified by the Region object of this contract. Separate allocations of expenses from the TPA’s regular business, related companies, parent company or other entities shall be reflected or made a part of the financial and accounting records described.
2.	Any pooling of operating expenses with other of the TPA’s groups, cost shifting, financial consolidation or the implementation of other combined financial measures is expressly forbidden.
3.	Amounts paid for claims under the Special Coverage resulting from services determined to be medically unnecessary by the TPA will not be considered in the Contract’s experience.
4.	Payments of capitation fees and claims to the HCO and providers, and any other payments by virtue of this Contract shall be computed on an actuarially sound basis.

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5. The ADMINISTRATION and TPA acknowledge that:

• The services provided to enrollees under this Contract are those services established in the State Plan and the GHIP approved coverage. The parties herein agree that in the event TPA/HCO or participating providers provide any service that is not included in GHIP coverage, the cost of such service shall not be included when determining capitation rates or claims paid by the TPA.

• The ADMINISTRATION may develop the FFS rate schedule or an actuarially equivalent rate for services rendered by FQHC and RHCs only. The ADMINISTRATION may not include the FQHC/RHC encounter rate, cost-settlement, or prospective payment amounts in determining the capitations rate or claims paid by the TPA. The ADMINISTRATION must pay FQHCs and RHCs not less than it pays non-FQHCs and non-RHCs.

7.3

INSURANCE COVERAGE

TPA shall obtain insurance coverage that extends to all the obligations TPA has assumed herein, with coverage and liability limits as set forth below. The insurance carrier(s) shall be an insurance company (ies) licensed by the Commonwealth of Puerto Rico and acceptable to the ADMINISTRATION. All such insurance coverage shall require the selected insurance company(ies) to cover, defend and appear on behalf of the ADMINISTRATION in any and all claims or suits which may be brought against the ADMINISTRATION on account of the obligations herein assumed by TPA. TPA shall provide to the ADMINISTRATION proof of said insurance coverage, in companies rated by A.M. Best at a minimum of A+, as evidenced by a certificate of insurance, annually for the duration of this Contract with minimum limits of liability as follows:

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Fidelity: $500,000 Per Occurrence and Annual Aggregate

General Liability: $1,000,000 Per Occurrence and Annual Aggregate

Worker’s Compensation: Statutory

Managed Care Errors and Omissions: $1,000,000 Per Occurrence and Annual Aggregate

Excess Liability: $1,450,000.00 Per Occurrence & Annual Aggregate Protection against system failure or data loss

7.4	PAYMENT AND PERFORMANCE BOND
	TPA shall obtain and provide to the ADMINISTRATION, to the latter’s satisfaction, a performance and payment bond. The bond will name the ADMINISTRATION as oblige, securing a financial guarantee for TPA’s obligations to the ADMINISTRATION under this Contract. Said bond shall be issued in the amount of fifty percent (50%) of the annual TPA total estimated fees under this Contract (based on the number of enrollees enrolled in the Metro-North Region as of November 1st, 2008 as determined by the ADMINISTRATION) and identify cash payment as the sole remedy of the payment and performance bond. The bond shall be issued by a surety licensed by the Commonwealth of Puerto Rico that is acceptable to the ADMINISTRATION. The payment and performance bond required herein shall comply with the applicable provisions of the Puerto Rico Insurance Code. The bond, whose text shall be pre-approved by the ADMINISTRATION, must be delivered to the ADMINISTRATION at the time of the execution of this Contract.
7.5	CERTIFICATIONS
	It is an essential condition of this Contract that TPA provides to the ADMINISTRATION the certifications and other documents set forth below. In the event that the certifications, documents, acknowledgments or any other representations or assurances on TPA’s part elsewhere in this Contract are not promptly submitted or are false, in whole or in part, it shall be sufficient cause for

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the ADMINISTRATION to terminate this Contract. Upon such eventuality, TPA shall reimburse any sums of monies received from the ADMINISTRATION; provided, however, that the amount reimbursed shall not exceed the amount of outstanding debt, less any payments made by TPA in satisfaction of such debt.

Certifications to be submitted by TPA:

Within thirty (30) calendar days of the execution of this Contract, TPA shall provide to the ADMINISTRATION the following certifications:

1.	Certification issued by the Treasury Department of Puerto Rico (Model SC-2888)of that TPA has filed income tax returns in the past five years or evidence of TPA’s non-profit, tax free status;
2.	Certification from the Treasury Department of Puerto Rico that TPA has no outstanding debt with the Department or, if such a debt exists, it is subject to a payment plan or pending administrative review under applicable law or regulation (Model SC-3537);
3.	Certification from the Center for the Collection of Municipal Revenues (“CRIM”), for its Spanish acronym) certifying that there is no outstanding debt or, if a debt exists, that such debt is subject to payment plan or pending administrative review under applicable law or regulations;
4.	Certification from the Department of Labor and Human Resources certifying compliance with unemployment insurance, temporary disability insurance and/or chauffeur’s social security, if applicable;
5.	Certification of Incorporation and of Good Standing issued by the Department of State of Puerto Rico;
6.	Certification of current municipal patents, if applicable;

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7. Certification issued by the Minor Children Support Administration (“ASUME”, by its Spanish acronym) of no outstanding alimony or child support debts, if applicable.

Documentation Requirements:

Within thirty (30) calendar days of the execution of this Contract, TPA shall provide to the ADMINISTRATION the following documents:

1.	A list of all contracts TPA has with government agencies, public corporations or municipalities, including those contracts in the process of being signed.
2.	A letter indicating if any of its directors serves as member of any governmental board of directors or commission.
3.	A certificate of the Corporate Resolution authorizing the person signing this Agreement to appear on behalf of TPA.
4.	Evidence of compliance with Compensation System for Work-Related Accidents Act (“Fondo del Seguro del Estado de Puerto Rico”).
5.	A copy of the Insurance Coverage as requested in Section 7.3.

After such thirty (30) days, no fees shall be paid to TPA for the contracted services until the foregoing documents have been provided to the ADMINISTRATION’s satisfaction or adequate evidence is provided to the ADMINISTRATION that reasonable efforts have been made to obtain the documents.

Section 8: General Contract Clauses

8.1. TPA ORGANIZATION AND ADMINISTRATION

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TPA must maintain the staff, organizational and administrative capacity and capabilities to carry out all duties and responsibilities under this Contract.

TPA must maintain administrative offices in the Metro-North Region (local office), which must be approved by THE ADMINISTRATION. Any change in office location, quantity and staff must be consulted and approved by THE ADMINISTRATION. The local office must comply with the American with Disabilities Act (ADA) requirements for public buildings.

TPA must provide training and development programs to all assigned staff to ensure they know and understand the service requirements under this Contract including the reporting requirements, the policies and procedures, cultural and linguistic requirements and the scope of services to be provided. The training and development plan must be submitted to the ADMINISTRATION.

TPA must notify the ADMINISTRATION immediately, but no later than 15 days after the effective date of this Contract, of any changes in its organizational chart as previously submitted to the ADMINISTRATION. TPA must notify THE ADMINISTRATION immediately (within fifteen (15) working days) of any change regarding TPA’s Key Management personnel or office location.

8.2 THIRD PARTY DISCLAIMER

None of the obligations, covenants, duties, and responsibilities incurred or assumed under the present Contract, the Request For Proposal, Proposal, or the representations and assurances provided at the clarification meeting by either the TPA to the ADMINISTRATION or any government agencies, or by the ADMINISTRATION to the TPA, shall be deemed as the assumption by the TPA or the ADMINISTRATION, as the case may be, of any legal liability or responsibility towards a third party in the event that a negligent or intentional injury, malpractice, damage or wrongdoing, or any harm whatsoever is incurred based on alleged acts or omissions attributed to or caused by the TPA/HCOs,

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their subcontractors, network of participating providers or individual members thereof; or towards a third party in the event that a negligent or intentional injury, malpractice, damage or wrongdoing, or any harm whatsoever is incurred based on alleged acts or omissions attributed to or caused by the ADMINISTRATION, its officers, agents, servants and/or employees.

8.3 HOLD HARMLESS CLAUSE

The TPA warrants and agrees to indemnify and save harmless the ADMINISTRATION from and against any loss or expense by reason of any liability imposed by law upon the ADMINISTRATION and from and against claims against the ADMINISTRATION for damages because of bodily injuries, including death, at any time resulting therefrom or for accidents sustained by any person or for damage to property arising out of or in consequence of the performance of this Contract, whether such injuries to persons or damage to property are due or claimed to be due to any negligence of the TPA, or the TPA’s subcontractors, participating HCO providers, their agents, servants, or employees or any other person.

PHRIA shall indemnify and hold Triple-S harmless from and against all losses, damages, fines, costs, penalties, liabilities and claims of every kind, to which Triple-S may be subjected, by any IPA, Provider, Insured on account of Humana’s conduct, performance, execution, decisions, representations, correspondence, letters and communications made during Humana’s tenure and administration of the Metro North Region. PHRIA agrees that Triple S shall not be liable for the financial condition of any IPA or Provider who served a subscriber of the Metro North Region or for monies owed or that may be owed by Humana to such IPA or Provider. PHRIA agrees to pay Triple-S’s attorney’s fees and costs incurred in defending any type of claim from an IPA, Provider or Insured based on or related to Humana’s conduct, performance, execution, decisions, representations, correspondence, letters and communications made during Humana’s tenure and administration of the Metro North Region.

8.4 INTELLECTUAL PROPERTY

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The ADMINISTRATION acknowledges that prior to the execution of this Contract and in contemplation of the same, TPA has developed and designed certain programs and systems such as standard operating procedures, programs, business plans, policies and procedures, which the ADMINISTRATION acknowledges are the exclusive property of TPA.

The ADMINISTRATION acknowledges also that any programs and systems solely designed or developed by TPA pursuant to and during the term of this Contract shall be the exclusive property of TPA.

Nevertheless, in case of default by TPA, the ADMINISTRATION will be authorized to use such properties for a period of ninety (90) days to effect an orderly transition to any new service provider. TPA acknowledges that the ADMINISTRATION shall be the exclusive owner of any and all documents paid by and delivered to the ADMINISTRATION, including, but not limited to, Ad Hoc or Custom Management Reports pursuant to the terms of this Contract.

Modifications or additions to Facets Healthcare System or any other system licensed to TPA by third parties are excluded from this disposition.

8.5 APPLICABLE LAW

This Contract shall be interpreted and construed according to the laws of the Commonwealth of Puerto Rico. The parties voluntarily hereby submit to the jurisdiction of the First Instance Court of the Commonwealth of Puerto Rico, San Juan Part with respect to any controversy that shall arise regarding the interpretation or performance of this Agreement.

8.6 EFFECTIVE DATE AND TERM

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1.	This Agreement shall be in effect for one (1) year starting at 12:01 AM, Puerto Rico time on November 1, 2008, which shall be the first day that coverage begins for which payment of service fees is due until October 31, 2009.
2.	This Contract may not be assigned, transferred or pledged by the TPA without the express written consent of the ADMINISTRATION.
3.	If TPA is found not to be in compliance with provisions concerning affiliation with debarred or suspended individuals, the ADMINISTRATION may not renew or extend the duration of this Contract with TPA, unless the Secretary (in consultation with the Inspector General of the DHHS) provides the ADMINISTRATION a written statement describing compelling reasons for renewing or extending the Contract.

8.7 CONFLICTS OF INTEREST

Any officer, director, employee, servant or agent of the ADMINISTRATION, the Government of the Commonwealth of Puerto Rico, its municipalities or corporations cannot be part of this Contract or derive any economic benefit that may arise from its execution.

8.8 INCOME TAXES

The TPA certifies and guarantees that at the time of execution of this contract, 1) it is a corporation duly authorized to conduct business in Puerto Rico that has filed income tax returns for the preceding five years; 2) that TPA complied with and paid unemployment insurance taxes, disability insurance taxes (Law 139), and social security for drivers (“seguro social choferil”), if applicable; 3) it filed its report due with the Office of the Commissioner of Insurance during the five (5) years preceding this Contract, and 4) that it does not owe taxes of any kind to the Government of the Commonwealth of Puerto Rico.

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8.9 OWNERSHIP AND THIRD PARTY TRANSACTIONS

The TPA shall report ownership, control interest, and related information to the ADMINISTRATION and, upon request, to the Secretary of the Department of Health and Human Services, the Inspector General of the Department of Health and Human Services, and the Comptroller General of the United States, in accordance with Sections 1124 and 1903 (m) (4) of the Federal Social Security Act.

TPA must notify and disclose information to the ADMINISTRATION of any special financial arrangements or business transactions existing between TPA and a party of interest, as such term is defined in Section.

8.10 MODIFICATION OF CONTRACT

If the ADMINISTRATION finds that modification of this Contract is necessary due to amendments to Law 72 of September 7, 1993, or by reason of budget reductions, or subsequent Federal or local legislative changes that affect this Contract, or because of any reasons deemed by the ADMINISTRATION to be in the best interest of the Government of Puerto Rico in carrying out the provisions of said Law 72, or in order to perform demonstration projects pursuant to legislative enactment, the ADMINISTRATION may modify any of the requirements, terms and conditions set forth herein, including modification of services to be performed by the TPA hereunder. However, prior to any such modification, the ADMINISTRATION shall afford the TPA an opportunity to consult and participate in planning for adjustments which may thus be necessary and, in any case, providing the TPA written notice that the modification is to be made no later than ninety (90) days prior to the effective date of the modification. Said modifications shall take place after consultation and cost negotiation with the TPA.

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Except as otherwise stated elsewhere herein, a modification or waiver of any of the provisions of this Agreement shall be effective only if made in writing and executed with the same formality as this Agreement. The failure of either party to insist upon strict performance of any of the provisions herein shall not be construed as a waiver of any subsequent default of the same or similar nature, except that waiver shall issue as expressly stated elsewhere herein and with respect to the matters so expressed.

8.11

CENTERS FOR MEDICARE AND MEDICAID SERVICES CONTRACT REQUIREMENTS & FEDERAL GOVERNMENT APPROVAL

8.11.1

TPA must comply with all applicable Federal and Commonwealth laws and regulations, including, without limitation, Title VI of the Civil Rights Act of 1964; Title IX of the Education Amendments Act of 1972; the Age Discrimination Act of 1975; the Rehabilitation Act of 1973; the Americans with Disabilities Act; applicable standards, orders or requirements issued under section 306 of the Clean Air Act (42 USC § 1857 (h)); § 508 of the Clean Water Act (33 USC § 1368); Executive Order No. 11738; Environmental Protection Agency regulations (40 CFR part 15); Equal Employment Opportunity Act provisions; the Byrd Anti-Lobbying Amendments, and mandatory standards and policies relating to energy efficiency that are contained in the State energy conservation plan issued in compliance with the Energy Policy and Conservation Act (Pub. L. 94-165.)

TPA acknowledges that no federal funds under this contract have been used nor shall be used for lobbying activities.

TPA shall comply with reporting patent rights under any contract involving research, developmental, experimental or demonstration work with respect to any discovery or invention that arises or is developed in the course of or under such contract and shall also comply with the Commonwealth’s requirements and regulations pertaining to copyrights and rights in data.

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The ADMINISTRATION and TPA agree to comply with the Medicaid Manage Care Regulation and directives set forth in this Contract.

8.11.2 The ADMINISTRATION represents that neither the capitates amount paid to each HCO nor the administrative fee amount paid to the TPA includes payment for services covered under the Federal Medicare Program. The primary care physicians, the participating providers or any other physician contracted on a salary basis cannot receive duplicate payments for those beneficiaries that have Medicare Part A, Part B or Part A and B coverage. The TPA represents and warrants that it will audit and review its claims data to avoid duplicate payment for services covered by the Medicare Program. The TPA must report its findings to the ADMINISTRATION on a quarterly basis. The ADMINISTRATION reserves the right to audit and review Medicare claims data for Part A or Part B payment for beneficiaries eligible for said Federal Program.

8.11.3	FEDERAL GOVERNMENT APPROVAL
1.	Inasmuch as the use of federal funds to finance the health services contracted herein is contingent upon approval of this Contract by the Centers for Medicare and Medicaid Services (CMS), this Contract is entered subject to any modifications necessary to secure said approval.
2.	Any provision of this Contract that could conflict with any applicable Federal laws (including, for example, the Federal Medicaid Statutes and the Health Insurance Portability and Accountability Act), Federal regulations or CMS policy guidance, shall hereby be amended to conform with any such provisions. Such Contract amendments shall be effective as of the effective date of the statutes or regulations necessitating it, and shall be binding on the parties even though such

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amendment may not have been reduced to writing and herein formally agreed upon and executed by the parties.

8.12	CONTRACT TERMINATION & PHASE OUT
8.12.1	CONTRACT TERMINATION
1.	The ADMNISTRATION may terminate this Contract if it finds, after reasonable notice to TPA and adequate opportunity for TPA to be heard, that TPA has failed substantially to fulfill the terms and conditions of this Contract, as provided in the Section below.
2.	In the event of TPA’s failure to comply with any clause of this Contract, the ADMINISTRATION shall notify the TPA in writing, indicating the items of non-compliance. The TPA shall be granted the opportunity to present and discuss its position regarding the issue within fifteen (15) days from the date of the notification. After considering the allegations presented by the TPA, following adequate hearing and the opportunity to present all necessary evidence in support of TPA’s position, if the ADMINISTRATION formally determines that TPA has failed to comply herewith, the ADMINISTRATION may, at its discretion, cancel this Agreement, providing TPA thirty (30) days’ prior written notice of the effective date of cancellation.
3.	In the event of TPA’s failure to remedy, correct or cure the material deficiencies noted in the Plan Compliance Evaluation Report, as provided for in this Contract, and following the opportunity for TPA to present and argue evidence in support of its position, if the ADMINISTRATION confirms the deficiency, the ADMINISTRATION may, at its discretion, cancel this Agreement providing TPA thirty (30) days’ prior written notice of the effective date of cancellation.
	Moreover, after the ADMINISTRATION notifies the TPA that it intends to terminate this contract, consistent with 42 CFR 438.722, the ADMINISTRATION

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may give enrollees written notice that it intends to terminate this contract and may allow enrollees to disenroll immediately without cause.

4. If the event TPA were declared insolvent, if TPA files for bankruptcy or is placed under liquidation, the ADMINISTRATION shall have the option to cancel and immediately terminate this Contract, in which case any enrollees shall not be liable for payments under this Contract.

In the event that this Contract is terminated, the TPA shall promptly provide the ADMINISTRATION all necessary information for reimbursement of any pending and outstanding Claims. The TPA hereby recognizes that in the event of termination under this Section it shall be bound reasonably to cooperate with the ADMINISTRATION, beyond the effective date of termination hereof, in order adequately to transition to any new TPA or service provider taking over the region included in this Contracts coverage, and for such length of time as is necessary for the ADMINISTRATION to complete said transition.

The TPA agrees and acknowledges that the ADMINISTRATION has the right to terminate this Contract, effective as of ninety (90) days of the date of written notice to the TPA, in the event there are not sufficient funds for payment of the service fee set forth in this Contract. Both parties reserves the right to terminate this Contract, for any reason whatsoever, effective upon ninety (90) days’ prior written notification to TPA.

The ADMINISTRATION reserves the right to terminate at any time this Pilot Project contract in the event the TPA had no comply with any material obligations of the implementation process of this contract or unnecessary or improperly delay to meet any of the material requirements proposed during the adjudication or implementation process.

8.12.2 CONTRACT PHASE-OUT

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1.	If the Contract were terminated, the TPA shall continue to provide services for a reasonable term to guarantee uninterrupted services until the ADMINISTRATION has made adequate, alternate arrangements to continue the rendering of health care benefits to beneficiaries in the areas affected by termination. The duration of such transition term shall not exceed sixty (60) days. Adjustments in the monthly service fee during the transition term shall not be borne or agreed upon by ADMINISTRATION, in the event of a termination based on default or breach of Contract by the TPA.
2.	Upon the expiration or termination of the Contract, the TPA shall provide to the ADMINISTRATION the historical/utilization data of services rendered to beneficiaries in the area/region in specified formats agreed with the ADMINISTRATION, to prevent fraud and double billing of services by the incoming TPA or TPA/HCO.
3.	Any TPA’s phasing out of a Health Region shall guarantee processing of pending claims for services rendered to beneficiaries under the Contract subject to phase out. Failure to do so shall entail, in accordance with the fair hearing process set forth in Art, the retention of a determined amount of service fee payments due TPA under the Contract. The amount to be retained shall be sufficient to cover the amount owed. The ADMINISTRATION will continue the payment of service fees to cover the services provided during the phase out period.
8.13	FORCE MAJEURE

The computation of any period of time prescribed herein for action to be taken by the TPA or the ADMINISTRATION respectively shall not include, and TPA or the ADMINISTRATION, as the case may be, shall not be liable or responsible for, any delays due to strikes, acts of God, shortages of labor or materials not under TPA’s or the ADMINISTRATION’s reasonable control, war, terrorism,

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government acts, laws, regulations or restrictions or any other causes of any kind whatsoever reasonably beyond the TPA’s or the ADMINISTRATION’s control.

8.14 PENALTIES AND SANCTIONS

1. In the event that TPA/HCO does not comply with any of its obligations related to this contract, that included, but is not limited, to the following acts or fails:

• Fails substantially to provide medically necessary services that the TPA/HCO is required to provide, under law or under this contract, to an enrollee covered under this contract.

• Imposes on enrollees premiums or charges that are in excess of the premiums or charges permitted under this contract.

• Acts to discriminate among enrollees on the basis of their health status or need for health care services.

• Misrepresents or falsifies information that it furnishers to CMS or to the ADMINISTRATION.

• Misrepresents or falsifies information that furnishes to an enrollee, potential enrollee, or health care provider.

• Fails to comply with the requirements for physician incentive plans, as set forth (for Medicare) in 42 CFR 422.208 and 422.210.

• Has distributed directly or indirectly through any agent or independent contractor, marketing materials that have not been approved by the State or that contain false or materially misleading information.

• Has violated any of the other applicable requirements of sections 1903(m) or 1932 of the Act and any implementing regulations.

• Has violated any of the other applicable requirements of sections 1932 or 1905 (t)(3) of the Social Security Act and any implementing regulations.

The ADMINISTRATION may: (1) Retain one monthly premium payable for each month in default,: (2) Impose a monetary penalty between five hundred dollars

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($500.00) to a maximum of one hundred thousand dollars ($100,000.00) for each violation; (3) Impose any other economic sanction or remedy establish by in any other law of Puerto Rico and (4) terminate or cancelled this contract.

2. The ADMINISTRATION may impose the following intermediates sanctions:

Civil monetary penalties in the following specified amounts:

§	A maximum of $25,000 for each determination of failure to provide services; misrepresentation or false statements to enrollees, potential enrollees or health care providers; failure to comply with physician incentive plan requirements; or marketing violations.
§	A maximum of $100,000 for each determination of discrimination; or misrepresentation or false statements to CMS or the ADMINISTRATION.
§	A maximum of $15,000 for each recipient the ADMINISTRATION determines was not enrolled because of a discriminatory practice (subject to the $100,000 overall limit above).
§	A maximum of $25,000 or double the amount of the excess charges, (whichever is greater) for charging charges in excess of the amounts permitted under the Medicaid program. The ADMINISTRATION must deduct from the penalty the amount of overcharge and return it to the affected enrollee(s).
§	Appointment of temporary management for a TPA/HCO as provided in 42 CFR 438.706.
§	Granting enrollees the right to terminate enrollment without cause and notifying the affected enrollees of their right to disenroll.
§	Suspension of all new enrollments, including default enrollment, after the effective date of the sanction.

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§ Suspension of payment for recipients enrolled after the effective date of the sanction and until CMS or the ADMINISTRATION is satisfied that the reason for imposition for the sanction no longer exists and is not likely to recur.

3.	If the TPA/HCO owes money to the ADMINISTRATION as a result of the imposition of penalties, failure of payment to providers, excess premiums paid or any other reason, the ADMINISTRATION may withhold such amount from any payments due related to the same contract or any other contracts between the parties.
4.	In addition to the penalties mention in Sections 1 and 2, the ADMINISTRATION may impose sanctions and civil monetary penalties in accordance with, 42CFR 438.706 (Special rules for temporary management), 42CFR 438.708 (Termination of an TPA/HCO contract) and, 42CFR 438.730 (Sanction by CMS: Special rules for TPA/HCO).
5.	Before imposing any intermediate sanctions, the ADMINISTRATION shall give TPA timely written notice that explains the basis and nature of the sanction and any other due process protection that the ADMINISTRATION elects to provide.
6.	Before terminating a TPA/HCO contract under 42 CFR 438.708, the ADMINISTRATION shall provide TPA/HCO a pre-termination hearing and the terms set forth in section 8.12.1 herein shall apply. The ADMINISTRATION shall: (1) give the TPA/HCO written notice of its intent to terminate, the reason for termination, and the time and place of hearing; (2) give the TPA/HCO, after the hearing, written notice of the decision affirming or reversing the proposed termination of the contract and, for an affirming decision, the effective date of termination; and (3) for an affirming decision, give enrollees notice of the termination and information, consistent with 42 CFR 438.10, on their options for receiving services following the effective date of termination.

8.15 SEVERABILITY

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          If any provision of this Agreement is held invalid or unenforceable, all other provisions herein shall nevertheless continue in full force and effect.

ENTIRE AGREEMENT

          The parties agree that they accept, consent to and promise to abide by each and every one of the clauses set forth herein and that this Contract, with its corresponding appendixes, contains the entire agreement of the parties, who so acknowledge by placing their respective initials at the margin of each page herein and by affixing their respective signatures as follows, this 9 day of December, 2008, in San Juan, Puerto Rico.

	December 9, 2008
MINERVA RIVERA GONZÁLEZ, ESQ.	Date of Signature
Executive Director	(month/day/year)
Puerto Rico Health Insurance Administration
	December 9, 2008
SOCORRO RIVAS	Date of Signature
Chief Executive Officer	(month/day/year)
Triple S, Inc.
	December 9, 2008
LUIS A. MARINI, DMD	Date of Signature
Chief Executive Officer	(month/day/year)
Triple C, Inc.

Cifra cuenta 5000-100

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Appendix B

ASTHMA THERAPY MANAGEMENT PILOT PROGRAM

ASES request Triple-C the implementation of a Pilot Program at the Metro North Region for Asthma patients. Based on utilization data from the other regions administered by Triple-C; design, administer and provide oversight of a therapy management program.

The pilot program must address the following:

1.	Improve utilization of medications based on the National Asthma Education and Prevention Program (NAEPP) and the Department of Health Guide for Prevention, Management and Asthma control in Adults; 2006-2007 revision.
2.	Decrease emergency room visits from the current eighty percent of Asthmatics visiting the emergency room.
3.	Decrease hospital visits and average length of stays from the 7.49 percent of members with hospital stays and an average of a 4 day length of stay.
4.	Decrease the total Health Care cost of the Asthmatic patients enrolled in the program while improving their quality of life.
5.	Document the Return on Investment to ASES in regards to optimal medication therapy for the treatment of Asthma versus the current medication utilization.
6.	Recruit the participation of the physicians in the Metro North Region to ensure a successful program.
7.	Recruit the participation of the pharmacy providers in the Metro North Region to ensure a successful program.
8.	Create analysis tools necessary for a successful program.
9.	Provide initial and ongoing data analysis of the program.
10.	Develop pharmacy intervention guidelines.
11.	Assist in the development of phone scripts for prescription interventions.
12.	Develop communication materials for physicians.

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13. Develop a physicians report to allow the physicians to compare their practice to their colleagues in regards to the treatment of asthma and with NAEPP guidelines.

Scope of Work

Description of Services

The services would include the review of the ASES asthma medication utilization on a monthly basis. From the analysis of the monthly medication utilization data, Triple-C will:

1.	Identify opportunities for improved medication cost management.
2.	Identify opportunities for improved medication therapy.
3.	Identify physicians that are performing outside the levels of the standard physician practice in regards to medication therapy and cost management.
4.	Identify patients that may need support from the Triple-C, Inc. case management department.
5.	Identify potential fraud, waste or abuse in regards to medication utilization.
6.	Develop Outcomes Data to document the financial and quality of life results of the Therapy Management programs.
7.	Recruit the participation of the physicians in the Metro North Region to ensure a successful program. This would be in conjunction with Triple-C current physician education program. This will ensure the physicians are aware that participation in the program will not adversely impact them financially.
8.	Recruit the participation of the pharmacy providers in the Metro North Region to ensure a successful program. This is to gain support from the pharmacies to assist members in obtaining the medications as prescribed. This will also provide valuable insight in regards to barriers members encounter in regards to accessing the proper medication.
9.	Establish a call center to provide improved communications and information to the appropriate individuals to best improve outcomes. The call center will make calls to physicians in regards to notification of opportunities for improved medication therapy for their asthma patients and to patients to gain baseline data, remind the patients to refill their prescriptions, educate the members on proper medication usage and document any barriers to care the members experience.

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10.	Create analysis tools necessary for a successful program. These analysis tools will be utilized to identify; candidates for the program, outliers in compliance, outliers in preferred protocols and assist in providing valid documentation of the outcomes of the program.
11.	Provide initial and ongoing data analysis of the program.
12.	Develop pharmacy intervention guidelines. These guidelines would be in conjunction with ASES. preferred medication lists and protocols. These guidelines would also be established to ensure that they do not adversely effect the ability of the patients to access medication.
13.	Develop of phone scripts for prescription interventions. This is to ensure the information communicated from the call center is correct and approved by ASES.
14.	Develop communication materials for physicians. This is to ensure the physicians have the information necessary to properly participate in the program.
15.	Develop a physicians report to allow the physicians to compare their practice to their colleagues in regards to the treatment of asthma. This will allow physicians to see how they compare to their contemporaries in regards to treating asthma. This will also allow the physicians to compare their patients medication utilization with the National Guidelines.

Prepare data for reporting and presentation. This is one of the most important components of the program. This data will provide the return on investment information needed to ensure optimal medication protocols and allow ASES the information needed to make decisions on addressing Asthma treatment for the entire population.

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Appendix C

PUERTO RICO HEALTH INSURANCE ADMINISTRATION
GOVERNMENT HEALTH INSURANCE PLAN (GHIP)
COVERAGE

The proposed Health Insurance will have a wide coverage with minimal exclusions. There will not be exclusions or limitations for pre-existing conditions nor a waiting period when coverage is granted to the beneficiary. The beneficiary’s eligibility date will determine the contracted benefit coverage even if the required treatment or procedure has already been recommended previous to said date.

Table of Contents

PREVENTIVE SERVICES	159
DENTAL SERVICES	160
DIAGNOSTIC TEST SERVICES	160
AMBULATORY REHABILITATION SERVICES	160
MEDICAL AND SURGICAL SERVICES	161
AMBULANCE SERVICES	161
MATERNITY SERVICES	162
EMERGENCY ROOM SERVICES	162
HOSPITALIZATION SERVICES	163
MENTAL HEALTH SERVICES	163
MENTAL HEALTH HOSPITALIZATION	164
PHARMACY SERVICES	164
BASIC COVERAGE EXCLUSIONS	164
SPECIAL COVERAGE	166
SPECIAL COVERAGE EXCLUSIONS	168
MEDICARE COVERAGE	168
CO-PAYS & CO-INSURANCE	169

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PREVENTIVE SERVICES

§	Vaccines – Provided by the Puerto Rico Health Department (PRHD). The GHIP covers the administration of the vaccines according to the schedule established by PRHD.
§	Healthy Child Care — An annual comprehensive evaluation (1) by a certified health professional. This annual evaluation, complements services for children and young adults provided to the periodicity scheme by “The American Academy of Pediatrics” and Title XIX (EPSDT).
§	Eye exam.
§	Hearing exam, including hearing screening for newborns previous to leaving nursery.
§	Evaluation and nutritional screening.
§	Laboratories and all exams and diagnostic tests according to age, sex and beneficiary’s health condition.
§	Prostate and gynecological cancer screening according to accepted medical practice, including Papanicolaou, mammograms and P.S.A. tests when medically necessary and according to the beneficiary’s age.
§	Puerto Rico’s public policy establishes the age of 40 as the starting point for mammograms and breast cancer screening.
§	Sigmoidoscopy and colonoscopy for colon cancer detection in adults 50 years and over, classified in risk groups according to the accepted medical practices.
§	Healthy child care for the first 2 years of life.
§	Nutritional, oral and physical health education.
§	Reproductive health counseling (family planning). The Health Care Organizations will insure access to contraceptive methods which will be provided (“at your disposal”) by the Health Department.
§	Syringes for home medicine administration.
§	Health Certificates that are covered under the Government Health Insurance Plan (Any other Health Certificates is excluded)

ü	Health Certificates that include VDRL and tuberculin (TB) tests. The certificate must posses the seal of the Health Department and will be provided by a credited Health Care Organization, up to $5.00.
ü	Any certification for the GHIP beneficiaries related to eligibility for the Medicaid Program (i.e. Medication History) will be provided to the beneficiary at no charge.
ü	Any deductibles applicable for necessary procedures and laboratory testing related to the emission of a Health Certificate will be the beneficiary’s responsibility.

§ Annual physical exam and follow up to diabetic patients according to the diabetic patient treatment guide and Health Department protocols.

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DENTAL SERVICES

§	Preventive (children)
§	Preventive (adults)
§	Restorative

Covered dental services will be identified using the published codes of the American Dental Association (ADA) for procedures established by ASES.

§	One comprehensive oral exam.
§	One periodical exam every six months.
§	One defined problem-limited oral exam.
§	One full series of intra-oral radiographies, including bite, every three years.
§	One initial periapical intra-oral radiography.
§	Up to five additional periapical/intra-oral radiographies per year.
§	One single film-bite radiography.
§	One two-film bite radiography per year.
§	One panoramic radiography every three years.
§	One adult cleanse every six months.
§	One child cleanse every six months.
§	One topical fluoride application every six month for beneficiaries under 19 years.
§	Fissure sealants for life for beneficiaries up to 14 years old inclusive. Includes decidual molars up to 8 years old when clinically necessary because of cavity tendencies.
§	Amalgam restoration.
§	Resin restorations.
§	Root canal.
§	Palliative treatment
§	Oral surgery

DIAGNOSTIC TEST SERVICES

§	Hi-tech Lab
§	Clinical Laboratories
§	X Rays
§	Special Diagnostic Tests
§	Clinical laboratories, including but not limited to, any laboratory order for disease diagnostic purposes even if the final diagnosis is an excluded condition or disease.
§	X Rays
§	Electrocardiograms
§	Radiotherapy
§	Pathology
§	Arterial gases and pulmonary function test
§	Electroencephalograms

AMBULATORY REHABILITATION SERVICES

§	A minimum of 15 physical therapy treatments per beneficiary condition per year when indicated by an orthopedist or physiatrist.
§	Occupational therapy, without limitations.
§	Speech therapy, without limitations.

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MEDICAL AND SURGICAL SERVICES

§	Primary care provider visits, including primary care physicians and nursing services.
§	Specialist treatment, once referred by the selected primary care physician.
§	Sub-specialist treatment, once referred by the selected primary care physician.
§	Physician home visits when medically necessary.
§	Respiratory therapy, without limitations.
§	Anesthesia services.
§	Radiology services.
§	Pathology services.
§	Surgery.
§	Ambulatory surgery facility use.
§	Diagnostic services for cases that present learning disorder symptoms.
§	Practical nurse services.
§	Voluntary sterilization to men and women of appropriate age previously informed about medical procedure implications. The physician must evidence patient’s written consent.
§	Public Health nursing services.
§	Prosthetics: Includes supply of all body extremities including therapeutic ocular prosthetics, segmental instrument tray and spine fusion in scoliosis and vertebral surgery.
§	Ostomy equipment for ambulatory level ostomized patients.
§	Blood. Plasma and it’s derivates, without limitations, including authologal and irradiated blood: monoclonal factor IX with a certified hematologist previous authorization; intermediate purity concentrated ant hemophilic factor (Factor VIII); monoclonal type antihemophilic factor with a certified hematologist previous authorization; activated protrombine complex (Autoflex and Feibawith a certified hematologist previous authorization.
§	Services to patients with chronic renal disease in the first two levels/ (Levels 3 to 5 are included in the Special Coverage.)

The following is a description of chronic renal disease stages¹:

Level 1- GFR (Glomerular Filtration – ml/min. per 1.73m² per corporal area surface) over 90, could be slight damage when protein is present in the urine.

Level 2- GFR between 60 and 89, a slight decrease in kidney function.

When glomerular filtration decreases under <60 ml/min per 1.73m² patient must be referred to nephrologist for proper management. This patient will become part of the Special Coverage.

AMBULANCE SERVICES

§ Maritime, aerial and ground transportation will be covered in emergency cases² within the territorial limits of Puerto Rico. These services do not require pre-authorization or pre-certification.

1	Taken from the National Kidney Foundation, Kidney Disease Outcomes Quality Initiative
2	The definition of emergency includes transportation for patients that, due to their medical condition, cannot travel in other vehicles. This includes dialysis patients to receive treatment and other in similar circumstances, as determined by the insurer.

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MATERNITY SERVICES

§	Women will have the right to freely choose an OBGYN among the MCO’s Providers Network, subject to final coordination with said provider. Differential diagnostic interventions up to the confirmation of pregnancy diagnostic are not part of this coverage. Any procedure after confirmation of pregnancy diagnostic will be at the MCO’s risk.
§	Pre-natal services
§	Medical services, during and post-partum.
§	Physician and nurse obstetrical services during normal delivery, cesarean and any other complication that may occur.
§	Maternity or secondary to pregnancy to conditions hospitalization, when medically recommended. The selected Insurance Company has to make sure that at least a 48 hour hospitalization is given to the mother and the newborn in case of a vaginal delivery and a 96 hour hospitalization in case of a cesarean.
§	Anesthesia.
§	Incubator use, without limitations.
§	Fetal monitoring services during hospitalization only.
§	Nursery room routine care for newborns.
§	Circumcision and dilatation services for newborn babies.
§	Tertiary facilities newborn transport.
§	Pediatrician assistance during cesarean or high risk delivery.

EMERGENCY ROOM SERVICES

§	Emergency Room Visits
§	Trauma
§	Pre-authorization or pre-certification will not be required to access these services.
§	Emergency room and operation room use.
§	Medical attention.
§	Routine and necessary services in emergency room.
§	Respiratory therapy, without limitations.
§	Specialist and sub-specialist treatment when required by the emergency room physician.
§	Anesthesia.
§	Surgical material.
§	Laboratory tests.
§	X Rays.
§	Drugs, medicine and intravenous solutions to be used in the emergency room.
§	Blood. Plasma and it’s derivates, without limitations, including authologal and irradiated blood: monoclonal factor IX with a certified hematologist previous authorization; intermediate purity concentrated ant hemophilic factor (Factor VIII); monoclonal type antihemophilic factor with a certified hematologist previous authorization; activated protrombine complex (Autoflex and Feibawith a certified hematologist previous authorization.

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HOSPITALIZATION SERVICES

§	Hospitalizations
§	Nursery
§	Semi — private room bed available 24 hours a day, every day of the year.
§	Isolation room for medical reasons.
§	Food, including specialized nutrition services.
§	Regular nursing services.
§	Specialized room use, such as, operation, surgical, recovery, treatment and maternity without limitations.
§	Drugs, medicine and contrast agents, without limitations.
§	Materials, such as, bandages, gaze, plaster or any other therapeutic or healing material.
§	Therapeutic and maintenance care services, including the use of the necessary equipment to offer the service.
§	Specialized diagnostic tests, such as, electrocardiograms, electroencephalograms, arterial gases and other specialized tests available at the hospital and are necessary during beneficiary’s hospitalization.
§	Supply of oxygen, anesthetics and other gases including administration.
§	Respiratory therapy, without limitations.
§	Rehabilitation services while patient is hospitalized, including physical, occupational and speech therapy.
§	Ambulatory surgery facility use.
§	Blood. Plasma and it’s derivates, without limitations, including authologal and irradiated blood: monoclonal factor IX with a certified hematologist previous authorization; intermediate purity concentrated ant hemophilic factor (Factor VIII); monoclonal type antihemophilic factor with a certified hematologist previous authorization; activated protrombine complex (Autoflex and Feibawith a certified hematologist previous authorization.

MENTAL HEALTH SERVICES

§	Evaluation, screening and treatment to individuals, couples, families and groups.
§	Ambulatory services with psychiatrists, psychologists and social workers.
§	Hospital or ambulatory services for substance and alcohol abuse.
§	Intensive ambulatory services.
§	Emergency and crisis intervention services 24 hours a day, seven days a week.
§	Detox services for beneficiaries intoxicated with illegal substances, suicide attempts or accidental poisoning.
§	Long lasting injected medicine clinics.
§	Escort/professional assistance and ambulance services when needed.
§	Prevention and secondary education services.
§	Pharmacy coverage and access to medicine in a period not greater than 24 hours.
§	Medically needed laboratories.
§	Treatment for ADD diagnosed patients with or without hyperactivity. This includes but is not limited to, neurologist visits and tests related to this diagnosis’s treatment.
§	Consulting and coordinating with other agencies.

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MENTAL HEALTH HOSPITALIZATION

§	Partial hospitalization services for cases referred by the diagnostic and primary treatment phase psychiatrist according to parity dispositions in Law 408 from October 2, 2000.
§	Hospitalization for cases that present a mental pathology other than substance abuse when referred by the diagnostic and primary treatment phase psychiatrist according to parity dispositions in Law 408 from October 2, 2000.

PHARMACY SERVICES

§	Co-pays for prescribed medicine
§	Drugs included in the Preferred Drug List (PDL).
§	Drugs included in Master Formulary are covered through the exceptions process.

BASIC COVERAGE EXCLUSIONS

§	Services to non-eligible patients.
§	Services for non-covered diseases or trauma.
§	Services for automotive accidents covered by the Automotive Accident Compensation Administration (ACAA).
§	Work accidents covered by the State Insurance Law (CFSE).
§	Services covered by any other insurance or entity with primary responsibility (“third party liability”).
§	Special nurse services for beneficiaries’ comfort when not medically necessary.
§	Hospitalizations for ambulatory services.
§	Patient hospitalization for diagnostic purposes solely.
§	Expenses for personal comfort material or services, such as, telephone, television, admission kit, etc.
§	Services rendered by close family relatives (fathers, sons, brothers, grandparents, grandchildren, spouse, etc.).
§	Organ transplant.
§	Laboratories that need to be processed outside Puerto Rico.
§	Weight control treatment (obesity or weight gain) for esthetic reasons.
§	Sports Medicine, Music Therapy and Natural Medicine.
§	Tubeplasty, vasovasectomy and any other procedure to restore procreation ability.
§	Cosmetic surgery or physical defects correction surgery.
§	Services, diagnostic testing or treatment ordered or rendered by naturopaths, naturists, chiropractor, iridologist or osteopath.
§	Mammoplasty or basic breast reconstruction for esthetic purposes only.
§	Ambulatory use of fetal monitor.
§	Services, treatments or hospitalizations as a result of a provoked abortion, non-therapeutic or its complications. The following are considered to be provoked abortions (code and description):

ü	59840 – Induced abortion — dilatation and curettage.
ü	59841 – Induced abortion — dilatation and expulsion.

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BASIC COVERAGE EXCLUSIONS

ü	59850 — Induced abortion — intra amniotic injection.
ü	59851 — Induced abortion — intra amniotic injection.
ü	59852 — Induced abortion — intra amniotic injection.
ü	59855 — Induced abortion, by one or more vaginal suppositories (eg, prostaglandin) with or without cervical dilatation (eg, laminar), including hospital admission and visits, fetus birth and secundines.
ü	59856 — Induced abortion, by one or more vaginal suppositories (eg, prostaglandin) with dilatation and curettage/or evacuation.
ü	59857 — Induced abortion, by one or more vaginal suppositories (eg, prostaglandin) with hysterectomy (omitted medical expulsion). Any certification for the GHIP beneficiaries related to eligibility for the Medicaid Program (i.e. Medication History) will be provided to the beneficiary at no charge.

§	Rebetron or any other medication prescribed for Hepatitis C treatment, of which treatment and drugs are excluded from mental and physical health coverage.
§	Epidural anesthesia services.
§	Polisomnograpphy study.
§	Services that are neither reasonable nor necessary according to the accepted medical practice. Norms or services rendered in excess to the normally required for diagnosis, prevention, disease, reatment, injury or organ system dysfunction or pregnancy condition.
§	Mental health services that are neither reasonable nor necessary according to the medical psychiatric practice accepted norms or services rendered in excess to the normally required for diagnosis, prevention, treatment of a mental health disease.
§	Chronic pain treatment if it is determined that the pain has psychological or psychosomatic origin.
§	Stop smoking treatment.
§	Transportation expenses for non-emergency cases. Except when the patient life depends of the transportation. Determination related to this exception is an insurer responsibility.
§	Educational tests, educational services.
§	Peritoneal dialysis or hemodialysis services. (Covered under the special coverage.)
§	New and/or experimental procedures that have not been approved by the Administration to be included in the basic coverage.
§	Custody services, rest or convalescence once the disease is controlled or in terminal irreversible cases.
§	Expenses for payments issued by the beneficiary to a participating provider without a contractual boundary with the provider to do so.
§	Services ordered or rendered by non-participant providers, with the exception of real and verified emergency cases or previous authorization by the health care organization or the insurer.
§	Neurological and cardiovascular surgery and related services. (Service covered under the special coverage).
§	Services received outside the territorial limits of the Commonwealth of Puerto Rico.
§	Expenses incurred for the treatment of conditions, resulting from procedures or benefits not covered under this program. Maintenance prescriptions and required laboratories for the continuity of a stable health condition, as well as any emergencies which could result alter the preferred procedure is covered.
§	Judicially ordered evaluations for legal purposes.
§	Psychological/ psychometric and psychiatric tests and evaluations to obtain employment, insurance or administrative/judicial procedure related.
§	Travel expenses, even when ordered by the primary care physician are excluded.
§	Eyeglasses, contact lenses and hearing aids.
§	Acupuncture services.
§	Rent or purchase of durable medical equipment (DME), wheelchair or any other

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BASIC COVERAGE EXCLUSIONS

transportation method for the handicapped, either manual or electric, and any expense for the reparation or alteration of said equipment, except when the patient’s life depends on this service. Determination related to this exception is the insurer’s responsibility.

§	Sex change procedures.
§	Treatment services for infertility and/or related to conception by artificial means.

SPECIAL COVERAGE

Benefits provided under this coverage are subject to pre-authorization by the contracted insurer. Beneficiaries will have the right to freely choose the providers of these services, among those in the insurer’s network, pending final coordination with said provider. Differential diagnostic interventions, up to final diagnostics verification are not part of the special coverage. Any procedure posterior to final diagnostic verification will be at the insurer’s risk.

Medications, laboratories, diagnostic tests, and other related procedures specified in this coverage that are necessary for the ambulatory treatment or convalescence care are part of this coverage and do not require pre-authorization of the primary care physician or the Health Care Organization. The Insurance Company must identify the patients included in this coverage for easy access to the contracted services. The Health Care Plan special coverage will be activated when any other special coverage under any other plan that the beneficiary may have reaches it’s limit for services covered under the plan’s coverage.

Benefits under this coverage are:

§	Coronary and intensive care services, without limits.
§	Maxillary surgery
§	Neurosurgical and cardiovascular procedures, including pacemakers, valves and any other instrument or artificial devices.(Pre-authorization required).
§	Peritoneal dialysis, hemodialysis and related services (Pre-authorization required).
§	Pathological and clinical laboratories that are require to be sent outside Puerto Rico for processing (Pre-authorization required).
§	Neonatal intensive care unit services, without limits.
§	Radioisotope, chemotherapy, radiotherapy and cobalt treatments.
§	The following procedures and diagnostic tests, when medically necessary (Pre-authorization required):

ü	Computerized Tomography
ü	Magnetic resonance test
ü	Cardiac catheters
ü	Holter test
ü	Doppler test
ü	Stress tests
ü	Lithotripsy
ü	Electromyography
ü	SPECT test
ü	OPG test
ü	Impedance Plesthymography
ü	Other neurological, cerebrovascular and cardiovascular procedures, invasive and

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SPECIAL COVERAGE

	noninvasive.
ü	Nuclear tests
ü	Diagnostic endoscopies
ü	Genetic studies

§	Up to 15 additional physical therapy treatments per beneficiary condition per year when indicated by an orthopedist or physiatrist after insurer pre-authorization.
§	General anesthesia.

ü General anesthesia for dental treatment of special needs children.

§ Hyperbaric Chamber

§ Immunosuppressive medicine and laboratories required for maintenance treatment of post-surgical patients of any transplant that insure the stability of the beneficiary’s health, and emergencies that may occur after said surgery.

§ Treatment for the following conditions after confirmed laboratory results and established diagnostic:

ü	HIV Positive factor and/or Acquired Immunodeficiency Syndrome (AIDS) – Ambulatory and hospitalization services are included. No referral or pre-authorization from the Health Care Organization or the primary care physician is required for beneficiary’s visits and treatment at the Health Department’s Regional Immunology Clinics.
ü	Tuberculosis
ü	Leprosy
ü	Lupus
ü	Cystic Fibrosis
ü	Cancer
ü	Hemophilia
ü	Special needs children, including the prescribed conditions in the Special Needs Children Diagnostic Manual by the Health Department, Health Protection and Promotion auxiliary Secretary, Habilitation Division (“the manual”) which is part of this document, except:

o Asthma and diabetes, which are included in the “Disease Management Program”

o Mental Disorders; and

o Mental Retardation, behavioral manifestations will be managed by mental health providers within the Basic Coverage, with the exception of a catastrophic disease. The Insurance Company must seek the Administration’s authorization for any other special condition not included in the manual for which the primary care physician or medical group solicit special coverage activation. Said request must contain the total economical impact of the inclusion. The Administration will consult with the Health Department and issue a decision which will be binding between the parties.

§	Scleroderma
§	Multiple Sclerosis
§	Services for treatment of conditions resulting from self-inflicted damage or as a result of a felony by a beneficiary or negligence.
§	Chronic renal disease in levels three (3), four (4) and five (5). (Levels 1 and 2 are included in the Basic Coverage.)

The following is a description of chronic renal disease stages³:

Level 3 – GFR (Glomerular Filtration – ml/min. per 1.73m² per corporal surface area) between 30 and 59, a moderate decrease in kidney function

Level 4 - GFR between 15 and 29, a severe decrease in kidney function

³ Taken from the National Kidney Foundation, Kidney Disease Outcomes Quality Initiative

167

SPECIAL COVERAGE

Level 5 – GFR under 15, renal failure that will probably dialysis or kidney transplant

§ Required medicine for the ambulatory treatment of Tuberculosis and Leprosy, under the Special Coverage, are included. Required medicine for the ambulatory treatment or hospitalization for AIDS diagnosed beneficiaries or HIV positive beneficiaries are under the special coverage, with the exception of Protease inhibitors which will be provided by PASET.

SPECIAL COVERAGE EXCLUSIONS

§ Special coverage excludes all those exclusions and limitations under basic coverage that are not expressly included under the special coverage.

MEDICARE COVERAGE

For Part A or Parts A and B eligible beneficiaries, the following factors will be taken into account to determine the offered coverage:

§ Part A eligible beneficiaries:

ü	Offer regular GHIP coverage, excluding Part A benefits until they reach their limit. In other words, once Medicare Part A benefits reach its limit GHIPs coverage will be activated.
ü	Part A deductible will not be included.
ü	Regular coverage deductible payment will be in accordance to table for payment capacity provided to every GHIP beneficiary.

§ Parts A and B eligible beneficiaries:

ü	Offer regular pharmacy and dental GHIP coverage.
ü	Part A deductible will not be included.
ü	Part B deductible and co-pay will be included.

168

CO-PAYS & CO-INSURANCE

	Coverage Code
Service	010		011			012		013		ELA4
HOSPITAL
Admission	$	0	$	3		$	5	$	15	$	50
Nursery	$	0	$	0		$	0	$	0	$	0
EMERGENCY ROOM (ER)
Emergency Room (ER) Visit	$	0	$	1		$	2	$	5	$	20
Trauma	$	0	$	0		$	0	$	0	$	0
AMBULATORY VISITS TO
Primary Care Physician (PCP)	$	0	$	1		$	2	$	2	$	3
Specialist	$	0	$	1		$	2	$	3	$	7
Sub-Specialist	$	0	$	1		$	2	$	4	$	10
Pre-natal services	$	0	$	0		$	0	$	0	$	0
OTHER SERVICES
High-Tech Laboratories	$	0		50	¢	$	1	$	2		0	%
Clinical Laboratories	$	0		50	¢	$	1	$	2		20	%
X-Rays	$	0		50	¢	$	1	$	2		20	%
Special Diagnostic Tests	$	0	$	1		$	1	$	5		40	%
Therapy – Physical	$	0	$	1		$	1	$	2	$	5
Therapy – Occupational	$	0	$	1		$	1	$	1	$	5
Vaccines	$	0	$	0		$	0	$	0	$	2
Healthy Child Care	$	0	$	0		$	0	$	0	$	0
DENTAL
Preventive (Child)	$	0	$	0		$	0	$	0	$	0
Preventive (Adult)	$	0	$	1		$	2	$	3	$	3
Restorative	$	0	$	1		$	2	$	3	$	10
PHARMACY
Generic (except children under 2)	$	0		50	¢	$	1	$	3	$	5
Brand (except children under 2)										$	10
Generic (Children under 2)	$	0	$	0		$	0	$	0	$	5
Brand (Children under 2)										$	10

⁴ Co-pays and Co-insurance under this column applies only to non-Medically indigent (above 200% poverty level as defined in the PR State Plan) employees of the Commonwealth of PR that, under the provisions of Law 72, elect the GHIP as their health plan. They are commonly referred to as: ELA-PURO.

169

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

Documento del Modelo Integración en la Región Metro Norte

     2008-
     2009

Documento que recoge lo propuesto por las entidades contratadas Triple C y APS y aprobadas por la Administración de Seguros de Salud (ASES) para el desarrollo e implantación del modelo de integración de salud mental en la región metro norte a partir del noviembre de 2008 a octubre 2008 para las fases de colaboración y colocación.

1

Tabla de Actividades Propuestas por Fases para la continuación de la implantación del Modelo de Integración en la Región Metro Norte
Noviembre 2008- Octubre 2009

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
Fase I (Colaboración)	Nov 2006 a Oct. 2007)
1.   Diseñar hoja de confidencialidad	C	APS diseñó el documento de autorización de divulgación de información. El propósito del documento fue el facilitar el compartir información entre los proveedores de salud física y mental. Este documento se utiliza fue provisto a la red de proveedores de salud mental y se monitorea su uso. El MCO envió la información a los IPA’s para su uso. El MCO monitorea el su uso en los IPA’s.	Entendemos que la misma esta siendo utilizada con éxito. El MCO obtendrá la opinión legal sobre este requisito. Si no hace falta se elimina este requisito. Se entiende que son entidades protegidas por lo cual no hace falta este documento. Se recibirá opinión legal.	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. ASES quiere que se confirme que los PCP conocen y entienden los instrumentos. Como, cuando y porque utilizarlos. ASES quiere que se continué con la capacitación de estos instrumentos y el fortalecimiento de su uso, para el mejor cumplimiento. Se requeriría una auditoria para verificar que % de los expedientes de pacientes vistos en el último año tienen esta hoja. La misma debería estar presente en el 100% de los mismos.	Esperar opinión legal Cantidad de PCP que la utilizan	Entiendo que se debe de reportar por lo menos de forma Trimestral.

2

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
2.   Diseñar hoja de comunicación con el PCP (Esta hoja se utiliza para el plan de tratamiento y el resumen de alta)?????	C	APS diseñó formato electrónico donde se le envía al MCO toda la data de utilización de salud mental de los pacientes activos de cada IPA. El MCO pasa esa información en un CD y lo entrega mensualmente al Administrador del IPA para integrar la información en el expediente de salud física del paciente.	Necesitamos retroalimentación de la utilización de la misma Necesitamos que se pueda adquirir retroalimentación de parte de los IPAs en cuanto a la utilización de los mismos. ¿Se han realizado auditorias para verificar que en los expedientes se encuentren los resúmenes de alta.	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. El MCO debe asegurarse de que los expedientes contengan la hoja y se anote toda la información relevante con respecto a: Dx, los medicamentos y el plan de tratamiento. ASES quiere que se confirme que los PCP conocen y entienden los instrumentos. Como, cuando y porque utilizarlos. Que se continué con la capacitación de estos instrumentos y el fortalecimiento de su uso, para el mejor cumplimiento.	APS debe indicar cuantos planes de tratamiento están enviando al MCO. Se estará incluyendo como parte del informe trimestral Indicar con que frecuencia y si los mismo requieren algún tipo de permisología de parte del paciente para que sean acomodados en los expedientes de los mismos. MCO realizara auditorias anuales con el propósito de verificar si el documento se esta incluyendo como parte del expediente clínico	Entiendo que se debe de reportar por lo menos de forma Trimestral. Anual
3.   Diseñar hoja de referido	C	APS diseñó el formulario de referido a utilizarse entre los proveedores de salud física y salud mental. Documento se está utilizando en el 100% de los pacientes de nuevo ingreso en el sistema de clínicas de APS. A través del proceso de auditorías a los proveedores de la red, se monitorea su utilización. No se tienen estadísticas de cuantos referidos son contestados por el PCP. El MCO monitorea el su uso en los IPA’s.	Necesitamos información de seguimiento del mismo	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. El MCO debe asegurarse de que los expedientes contengan la hoja y se anote: quien lo atendió, Dx, los medicamentos, plan de tratamiento. ASES quiere que se confirme que los PCP conocen y entienden los instrumentos. Como, cuando y porque utilizarlos.	Cantidad de referidos hechos Cantidad de respuesta al referido de parte MCO y MBHO Cantidad de PCP que utilizan la hoja	Entiendo que se debe de reportar por lo menos de forma Trimestral.

3

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
				Ver área relacionada a educación a proveedores	Deben establecerse indicadores de acceso como: Accessibility &Timeliness % abandon calls, ASA, Treatment record review ( cuán bien está llena la forma de referido) Tasas de utilización de servicios Ver plan de trabajo
4.   Diseñar hoja de Screenings Tool (depresión y ansiedad)	C	APS diseñó cuatro documentos: cernimiento para depresión, cernimiento para ansiedad, cernimiento para la memoria y el cuestionario de necesidades médicas de los cuales se implementaron dos: uno para identificar pacientes a riesgo de depresión y el de necesidad médica El documento para cernir depresión documento es utilizado por el PCP. No tenemos información estadística de su utilización. El MCO monitorea el su uso en los IPA’s El cuestionario de necesidades médicas es utilizado por la red de proveedores de APS. No tenemos información estadística.	Necesitamos información de la utilización del mismo Instrumento de cernimiento será revisado para hacerlo auto administrable Ver plan de trabajo	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. El MCO debe monitorear la utilización de la misma	Cantidad de casos cernidos Cantidad de casos referidos Cantidad de casos vistos por el Psiquiatra Cantidad de PCP que están utilizando el instrumento monitorear % de utilización de la forma en la población general adulta.	trimestral

4

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
5.   Preparar procedimientos y políticas a seguir	C	APS proveyó las siguientes políticas, que fueron compartidas y aprobadas por el MCO antes de su implementación: UM. 7.1 “Referral between mental health provider and primary physician, UM 7.2 “Informed Consent to share PHI”, UM.7.3 “Release of PHI by Member via telephone”, UM. 7.4 “Depression screening tool” UM. 7.5 “Processing Hospital discharge summary”, UM. 7.6 “Follow up High ER Utilizers Program” UM.7.7 “Identification of members with mental health needs by MCO. CP003 Orientación Al Momento De La Admisión, DR.001 Derechos Y Responsabilidades Del Paciente, CP.07 Registro De Asistencia Del Paciente, DR.004 Consentimiento Informado, L.016 Inicio Del Expediente Médico, CP.006 Documentación En El Expediente Clínico, PC.002 Evaluación Inicial Integrada, DR.010 Confidencialidad De La Información, CP.012 Participación De Los Familiares En El Tratamiento Del Paciente, CP.004 Plan De Tratamiento Individualizado, DR.009 Divulgación De Información: Copia Del Expedientes.	Estos tendrán que ser actualizados una ves la Fase II se re-estructure y entre Triple S a brindar los servicios.	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. Copia de las políticas y procedimientos actualizados MCO debe monitorear su utilización y practica	Cantidad de PCP que las están utilizando Divulgación de las políticas a los proveedores Ver plan de trabajo y área de educación a proveedores	trimestral

5

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
6.   Realizar reuniones con los Administradores y los PCP	C	Actividad coordinada a través del MCO. APS fue invitado a participar al comienzo del modelo; posteriormente se sostuvieron reuniones con el IPA 318. . El MCO establece la frecuencia de las mismas	Se realizaron dos. Entendemos que se deben de dar con una frecuencia establecida, sugiero una cada tres meses.	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. Crear agenda de las reuniones de seguimiento con los Administradores y los PCP. APS debe tener presencia física en las mismas para darle seguimiento a asuntos de Salud Mental SE DEBE CONTINUAR LAS REUNIONES DE UTILIZACION ENTRE EL MCO-MBHO-ASES	Entrega de un calendario de las reuniones y planes de trabajo Minutas de los acuerdos La métrica será la cantidad de reuniones realizadas y la participación. Agenda, minutas, hojas de asistencia	Entiendo que se debe de reportar por lo menos de forma mensual. MENSUAL Trimestral

6

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
7.   Análisis de morbilidad del IPA seleccionado	C	APS realizó un análisis de morbilidad del IPA 309. Esta información fue provista al MCO. Finalmente el MCO tomó la determinación de seleccionar al IPA 318 tomando en consideración otros factores. La decisión fue discutida con ASES.	Resultados? Necesitamos que APS nos haga llegar el análisis que indica que realizo del IPA 318 Documento debe ser solicitado a Humana	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento. ASES debe continuar recibiendo la utilización del IPA 318	Identificación y manejo de casos en los utilizadores más altos de salas de emergencias, hospitalización Condiciones más frecuentes en salud física y mental	Mensual
8.   Diseñar un hoja de consentimiento informado	C	APS diseñó la forma y fue distribuída entre los proveedores de salud física y de salud mental.	Entendemos que la misma esta siendo utilizada con éxito. Sugerimos que se haga una auditoria de los expedientes de los IPA’S de aquellos pacientes que se hayan atendido durante el ultimo año para identificar que % de expedientes que contienen dicho consentimiento.	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento. MCO realice la auditoria para verificar su utilización.	Cantidad de expedientes que contienen la hoja en su expediente	Trimestral

7

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
			Favor referirse al punto uno, se recomienda la eliminación de esta actividad luego de obtener la recomendación legal sobre el intercambio de información
9.   Se iba hacer un estudio de vidas y de morbilidad para determinar que IPA era el más indicado a ser seleccionado para la implantación del modelo	C	APS realizó un análisis de morbilidad del IPA 309. Esta información fue provista al MCO. Finalmente el MCO tomó la determinación de seleccionar al IPA 318 tomando en consideración otros factores. La decisión fue discutida con ASES.	Necesitamos resultados	Completado
10.  Tenían que determinar los criterios de inclusión tanto para los IPAs participantes como de las condiciones a tratar.	C	Originalmente el MCO y APS estuvieron de acuerdo en que la población a impactar serían los pacientes con condiciones crónicas (ej. Cancer, diabetes, cardiácos..) altos utilizadores de sala de emergencia y alto costo y los utilizadores de medicamentos controlados tanto en salúd física como mental.	Necesitamos resultados	Completado

8

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
11.  Se iba a coordinar salas de emergencias cercanas para conocer la accesibilidad y disponibilidad	NC	El MCO tiene la relación contractual con las salas de emergencia física. El MCO se encontraba en el proceso de incluir este requisito en su proceso de renovación de contrato con los hospitales	Ver plan de trabajo	Que se inicie esta actividad según esta propuesta. Necesitamos que se establezca una sala de estabilización de 23 horas par a pacientes con condiciones emocionales. Que se presente evidencia de su cumplimiento.
12.  Se iba a coordinar con el Hospital Regional la presencia de un psiquiatra consultor en la sala de emergencia	NC	La iniciativa era establecer una unidad de evaluación y estabilización en crisis en el Hospital Regional de Bayamón. Se sometió propuesta al Dept. de Salud la cual no ha sido contestada. El MCO y ASES recibieron copia de la propuesta y se comprometieron a trabajar con APS en el logro de esta iniciativa. Actualmente se están evaluando otras alternativas.	ver plan de trabajo	Que se inicie esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento. Como alternativas discutidas tenemos: Establecer con el hospital de mas utilización de salud física del área, un sistema de consulta psiquiátrica, Entre las sugerencias se encuentra: •   Tener un medico primario con experiencia en salud mental para consultas, que pueda discutir el caso con el psiquiatra de turno. •   Tener psiquiatras disponibles para consultas en sala de emergencia e intra hospitalarias de ser necesario.	Presentar evidencias de : •   gestiones •   arreglos administrativos •   comunicaciones

9

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
13.  Diseñar una hoja de Risk Tools Assessment (PCP y Case Manager)	C	APS diseñó esta herramienta para ser utilizada por el personal de manejo de caso del MCO, con el propósito de identificar pacientes bajo sus programas a riesgo de padecer una condición de salud mental. No se creó con la intención de ser utilizada por el PCP. La misma se incorporó al proceso de referidos de casos de manejo.	Nos parece que la utilización de los mismos ha sido pobre \ Se revisara el instrumento Ver plan de trabajo	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas.	Cantidad de cernimientos realizados Cantidad de referidos hechos Cantidad de respuesta al referido Cantidad de referidos manejados por ambos entidades (MCO y MBHO) Coordinaciones realizadas Se van a estar definiendo métricas, ver score card	Trimestral
14.  Crear un Comité de Delegados	C	El MCO coordinó reuniones de preparación e implementación del modelo de integración las cuales se realizaban bi-semanalmente o con mayor frecuencia, dependiendo de la necesidad. Cada dos meses, se llevaba a cabo reuniones donde APS presentaba las estadísticas de utilización. Además el departamento de farmacia de APS participada de reuniones mensuales, también relacionadas al proyecto de Metro Norte. Una vez se implementó la fase de co-location, se realizaban reuniones bi-semanles con el IPA. Las hojas de asistencia está en posesión del MCO. Ver sección de minutas.	ASES nunca recibió los nombres del comité ni minutas de las reuniones realizadas Se estructura el comité Ver plan de trabajo	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento.	Someter calendario de las reuniones programadas Cantidad de proveedores participantes por especialidad	trimestral

10

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
15.  Desarrollar un programa de polifarmacia Intercambio de información de utilización de medicamentos de salud física y salud mental	NC	El departamento legal del MCO indicó no poder brindar acceso en línea de la información de farmacia, por lo que APS no se pudo desarrollar el programa. No obstante, hubo comunicación continua entre el departamento de farmacia y el MCO para intercambio de información de s pacientes en particular y poder accesar información en la eventualidad de no tener sistema electrónico de farmacia.	Se diseñará plan de intercambio de información de farmacia. Ver plan de trabajo	Que se inicie esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. MCO y MBHO deben acordar como se va a dar el intercambio ya sea electrónico o escrito	Someter informes periódicos de la utilización de farmacología por IPA Presentar informes de su aplicación y resultados	Reportar a ASES de forma trimestral.

11

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
16.  Desarrollar un Plan de Educación Continua con los PCP	C	APS desarrolló y coordinó un plan de educación a los proveedores y coordinó 7 actividades educativas. Los temas presentados fueron los siguientes: La Esquizofrenia y los Trastornos Metabólicos( se llevó a cabo en dos ocasiones), Presentación del Modelo de Integración Alzheimer - Indicaciones para el Tratamiento, Manejo del Abuso de Benzodiacepinas /Pacientes de Salud Mental con Condiciones Metabólicas Co mórbidas, ADHD Síntomas y Tratamientos, Diabetes y Medicamentos Psicotrópicos, Procedimiento para Hospitalización Involuntaria por trastornos emocionales (ofrecido al IPA 318). El MCO mantiene evidencia de las hojas de asistencia. También APS sometía trimestralmente una artículo para el periódico del MCO ha ser distribuido entre los proveedores de Metro Norte.	Se estará diseñando plan de educación, ver plan de trabajo.	Que se inicie esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas.	Entrega de un calendario de las actividades programadas. Entrega de boletines o artículos desarrollados.	Reportar a ASES de forma trimestral

12

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
17.  Diseñar un cuestionario auto administrado por el paciente para conocer su percepción del estado de salud	C	APS diseñó un cuestionario para identificar necesidades de salud física el cual se está brindando a todos los pacientes nuevos. No se ha estado monitoreando su uso. APS diseñó un cuestionario para identificar depresión, el cual debía ser utilizado ya fuera por el PCP o el paciente en el escenario de salud física. El MCO monitorea su utilización	Se estará re-enfocando esta actividad a la fase de colocación, coordinación de servicios médicos , ver pan de trabajo	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. MCO debe monitorear el uso del mismo y ofrecer resultados	Cantidad de pacientes a los que se administro el cuestionario Informe de las necesidades más comunes.	Reportar a ASES de forma trimestral
19   Iniciar un programa de alcance comunitario colaborativo para pacientes con alta utilización medica yde ER que no se encuentre en tratamiento de salud mental	C	Se estableció una iniciativa donde el MCO identificaba los pacientes con alta utilización médica, alta utilización de servicios de sala de emergencia (más de 10 visitas en un mes) y alta utilización en farmacia. Ese listado se enviaba a APS para identificar cuales de esos pacientes tenían tratamiento activo de salud mental. Si tenían tratamiento, APS los incluía en su programa de manejo de casos. Al MCO se le devolvía el listado con los pacientes que no tenían tratamiento de salud mental. El MCO llevaba a cabo el “outreach” de esos pacientes y coordinaba la autorización para la intervención de APS.	ASES no tiene conocimiento si esta iniciativa se realizo. Humana no presento hojas de asistencia ni minutas Se diseñará un programa de identificación de riesgo en casos presentando alta utilización. ver plan de trabajo	Que se inicie esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. En conjunto con el área de Educación y Prevención del MCO y el MBHO realizar el alcance comunitario y coordinar las intervenciones.	Entrega de un calendario de las actividades programadas. Cantidad de beneficiarios impactados.	Reportar a ASES de forma trimestral

13

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
20   Implementar un mecanismo de comunicación para alertar al psiquiatra de interacciones entre medicamentos psiquiátricos prescritos y los medicamentos médicos prescritos	NC	El departamento legal del MCO indicó no poder brindar acceso en línea de la información de farmacia, por lo que APS no se pudo desarrollar el programa. No obstante, hubo comunicación continua entre el departamento de farmacia y el MCO para intercambio de información de s pacientes en particular. ASES tuvo conocimiento de la situación y indicó que trabajaría con su división legal la situación.	ASES no recibió información de esta propuesta Ver plan de trabajo	Que se inicie esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas.	Informes de utilización	Reportar a ASES de forma trimestral
21   APS tendría asistencia en las reuniones de los MCOs y los IPAs		Al inicio del modelo de integración APS participó de varias reuniones organizadas por el MCO para explicar el concepto del modelo de integración a los IPAs. En todas las reuniones coordinadas por el MCO donde APS fue invitado, hubo participación activa. APS participó en alrededor de 8 reuniones en el IPA 318 como parte del proceso de implementación del piloto del “co-location”. APS participó de 4 reuniones coordinadas por el MCO y llevadas a cabo en ASES donde se le presentó a los IPA’s los resultados de la evaluación del modelo de colaboración. El sicólogo asignado al IPA 318 ha sido invitado en varias ocasiones a participar de las reuniones de facultad del IPA 318. El MCO realiza reuniones mensuales con los IPA’s a las cuales asisten los administradores.	ASES no recibió los calendarios de las reuniones programadas ver plan de trabajo	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas. La asistencia del MBHO es fundamental para el proceso de la integración y de su efectividad.

14

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
22   Programa de Educación y prevención	NC	Este programa no se concretó debido a discrepancias en los requisitos. El MCO se comprometió a discutir este asunto con ASES. APS participó activamente en el proceso de orientación a proveedores y pacientes relacionados a la transición. Personal de APS estuvo presente el los centros de inscripción del MCO. También APS contactó a los IPA’s y para llevar a cabo actividades educativas a los pacientes. APS realizó actividades educativas en sus clínicas relacionados con temas de salud física. Mensualmente se envía informe al MCO.	ver plan de trabajo	Que se inicie esta actividad según esta propuesta. MCO en conjunto con el MBHO deben coordinar con el área de Educación y Prevención las actividades a realizar.	Someter calendario de las actividades programadas Cantidad de proveedores impactados. Cantidad de beneficiarios impactados. Informe labor realizada	Reportar a ASES de forma trimestral

15

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
23   Establecimiento de Métricas		Las métricas para este modelo se limitaron a métricas de utilización.	ver score card	Que se inicie esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento.
24  Línea directa para los médicos primarios		APS estableció una línea directa 24/7 para que los PCP’s pudieran consultar con un siquiatra. Los PCP’s le dieron el número a los pacientes. El MCO no desarrolló una iniciativa similar para que los profesionales de salud mental pudieran discutir casos.		Completado y descontinuado.
Fase II (Colocation Model)	Nov 2007 a Oct 2008)
1.   Colocar un profesional de la conducta en el IPA 318	C	A partir del 3 de marzo del 2008 se inició el proyecto piloto del “co-location”. Al mismo se asignó un psicólogo el estaría disponible en el IPA, 5 días a la semana en el horario de 8:00am a 5:00pm. A solicitud del IPA, se modificó el horario de 9:00am a	Entendemos que se debe de optimizar este servicio en el IPA de forma en que pueda recibir la mayoría de sus servicios de salud mental en un solo lugar. Esto aplicaría a aquellos pacientes con condiciones leves a moderadas.	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas. Ver plan de trabajo y score card	Cantidad de casos atendidos Cantidad de casos referidos a la clínica Utilización de los pacientes a las ER	Reportar a ASES de forma mensual

16

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
		6:00pm. Posteriormente se realizó otro ajuste, eliminando días de servicios sicológicos debido al bajo volumen de referidos realizados por los PCP’s y con la intención de añadir el servicio de terapia de grupos.	Entendemos que se pueden identificar aquellos pacientes que pertenezcan al IPA y que ya reciban tratamiento en las clínicas de APS que cumplan con este criterio para que se atiendan directamente en le IPA y no en la clínica de APS.		Utilización de hospitalización Utilización de Farmacología Promedio de pacientes nuevos atendidos por mes.
2.   La función básica de ese profesional seria realizar un “triage”	C	La intención de proveer servicios sicológicos en el IPA 318 fue la de ofrecer servicios de salud mental a pacientes que normalmente no acuden a buscar los servicios y proveer terapia a corto plazo. La población ha ser impactada eran pacientes con condiciones co-mórbidas y aquellos con condiciones de salud mental leves. La función del sicólogo es , hacer una evaluación inicial y determinar el nivel de servicio requerido, entiéndase referidos al nivel de servicio correspondientes y ofrecer sicoterapia a pacientes con condiciones leves.	Inicialmente, luego comenzó a ofrecer psicoterapia. Entendemos que el modelo debe de cambiar para que incluya servicio de todo tipo, no solo de “triage”. Actualmente el modelo contempla terapias a corto plazo (6) individuales y grupales	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas.	Cantidad de casos atendidos Cantidad de casos referidos a la clínica Utilización de los pacientes a las ER Utilización de hospitalización Utilización de Farmacología Promedio de pacientes nuevos atendidos por mes. Ver plan de trabajo y score card	Reportar a ASES de forma mensual

17

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
3.   Los casos a seleccionar serian las condiciones leves y moderadas (agudas)	C	El sicólogo del IPA está atendiendo a pacientes con condiciones leves que pudieran beneficiarse de un tratamiento a corto plazo (6 sesiones). Los pacientes con condiciones moderadas que requieren medicación o intervención por un equipo multidisciplinario se han estado refiriendo al sistema de clínicas de APS.	Básicamente las condiciones que se están atendiendo son condiciones leves. Nuevamente entendemos que el modelo debe de cambiar para que incluya servicio de todo tipo. Este debe de incluir farmacoterapia y la posibilidad de que obtenga la misma a través de su medico primario. Esto requería que se tuviera a un psiquiatra consultor en el IPA ciertos días al mes. La frecuencia sugerida podría ser de una vez a la semana, o a una vez cada dos semanas; dependiendo de la necesidad de este IPA. Se evaluara el modelo, ver plan de trabajo	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas.		Reportar a ASES de forma mensual

18

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
4.   El profesional de la conducta tendría presencia en el IPA 318 todos los días	C	Actualmente hay presencia de un profesional de salud mental asignado al IPA 318; tres días de servicios sicológicos y dos días de trabajo social clínico. El trabajador social clínico tiene el conocimiento para evaluar pacientes y llevar a cabo referidos.	Al principio comenzó asistir todos los días, luego tres veces por semana alternados con la trabajadora social. Su tiempo se debe de optimizar según la necesidad.	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas.	Se revisara el proceso, ver plan de trabajo	Reportar a ASES de forma mensual
5.   Los casos iban a ser referidos por los PCP al profesional de la conducta	C	Los PCP’s han estado refiriendo casos, no obstante el volumen de referidos no ha sido el esperado. El promedio es de 1.5 pacientes por día, a pesar de que se amplió la población ha se impactada.	Se debe de optimizar este servicio para que los pacientes que cualifiquen puedan recibir todos los servicios necesarios en su IPA en ves de en la Clínica de APS.	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas.	Se revisara el proceso, ver plan de trabajo	Reportar a ASES de forma mensual
6.   El profesional de la conducta sostendría reuniones periódicas con los PCP para notificarle sobre su presencia y coordinar las citas.	C Parcial	El sicólogo ha participado en tres reuniones de facultad con los PCP’s del IPA 318 y en las mismas ha tenido a su cargo presentaciones relacionados a su rol en el IPA. Los temas ofrecidos fueron: Ley 408, El Rol Del Sicólogo En El Contexto De Medicina Primaria y la Comunicación Efectiva. Al inicio del proyecto piloto, el sicólogo envió una carta a los PCP’s donde se presentó y facilitó un cuestionario para identificar las necesidades de salud mental en el IPA. La respuesta al cuestionario fue pobre. A través del personal del IPA se realiza la coordinación de citas.	No sabemos con certeza cuantas reuniones se realizaron. Se debe de establecer por lo menos una fecha o un tiempo determinado mensualmente para que haya discusiones de caso entre el PCP y los proveedores de salud mental. Se revisara el proceso, ver plan de trabajo.	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas. Que se optimice la presencia del Psicólogo en el IPA 318: Ampliando las condiciones a tratar Desarrollando otras iniciativas	Cantidad de casos discutidos con los PCP Reuniones con el equipo multidisciplinario	Reportar a ASES de forma mensual

19

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
7.   Desarrollar un case management program y DMP	NC	Se estableció una iniciativa de referido de casos para manejo a través del MCO. También se llevaron a cabo varias reuniones para establecer un programa de manejo de condiciones donde se trabajara con el paciente con co-morbilidades (diabetes y depresión) pero dicho programa no se concretó. APS está listo para comenzar.	ASES desconoce si se llegó a desarrollar. Entendemos que se quería realizar un programa de Case management unido en el cual la manejadora de caso pueda dar seguimiento tanto al área física como mental del paciente. Se revisara el modelo , ver plan de trabajo	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas. Coordinar con el programa de educación y prevención tanto del MCO con el MBHO la monitoria del programa	Cantidad de llamadas recibidas y realizadas Condiciones más comunes atendidas Cantidad de intervenciones realizadas y resultados Coordinaciones realizadas	Reportar a ASES de forma mensual

20

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
8.   Establecimiento de Métricas	PC	El sicólogo asignado al IPA 318 lleva las siguientes estadísticas: número de pacientes evaluados, número de pacientes admitidos, número de servicios, razón del referido, nombre del proveedor que refiere, disposición del caso y los casos discutidos con el PCP. El IPA realizó una encuesta de satisfacción de los servicios de salud mental ofrecidos en el IPA 318, utilizando un formulario diseñado por el sicólogo. El IPA recopila estadísticas relacionadas con el proyecto.	Se revisaran , ver plan de trabajo	Es fundamental conocer si el modelo ha tenido algún impacto en la población de la región de metro norte y en sus proveedores Es fundamental conocer cual es la percepción de los proveedores. Realizar encuestas de satisfacción de los servicios ofrecidos en la región y en el IPA seleccionado Evaluar si las estrategias que se están utilizando para la promoción y divulgación del modelo han tenido un efecto satisfactorio Mejorar el alcance comunitario Conocer que medidas preventivas se pueden desarrollar ya sea para impactar la población con condiciones crónica como aguda.	•     % utilización en la salas de emergencias •     % utilización en las admisiones siquiátricas y físicas •     % utilización en la parte de farmacología •     % casos referidos a las clínicas de APS •     % de casos referidos a otros especialistas como neurólogos, endocrinólogos, etc. •     % de pacientes que acceden el teléfono libre de cargos de ese IPA •     % de utilización de los proveedores de salud mental •     % de discusiones de casos de los pacientes de salud mental. •     Ver score card
9.   Políticas y procedimientos para el ofrecimiento de servicios de salud mental en el IPA 318	C	Se establecieron políticas y procedimientos que fueron compartidas y aprobadas por el MCO antes de su implementación. Ver sección de políticas y procedimientos en la carpeta provista.	Se deben de actualizar una vez se cambie y se determine el nuevo modelo a seguir Se revisaran, ver plan de trabajo	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas. Agenda de preparación y entrega de las políticas y procedimientos a seguir en el IPA que tenga salud mental incorporada

21

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
10.  Contrato con el IPA 318	PC	La relación contractual con el IPA 318 es entre el MCO y el IPA. Como APS tiene personal en el IPAy se lleva a cabo un proceso de divulgación de información entre ambas entidades, APS desarrollo dos contratos, uno de arrendamiento nominal y otro para establecer el intercambio de información. Ambos contratos están pendientes de la firma del IPA. El MCO llevaría a cabo la coordinación para la firma del mismo	Esto se determinara según acordado entre el MCO y APS en la negociación final. Se definirá un acuerdo colaborativo , ver plan de trabajo
11  Discusión de casos con el PCP	PC	Proceso debe re-evaluarse ya que no se ha facilitado	Se debe de verificar con el IPA para determinar el mejor tiempo en que las mismas deban de ocurrir Se revisara el proceso , ver plan de trabajo	Que se continué con esta actividad según esta propuesta por ASES. Que se presente evidencia de su cumplimiento a través de métricas. Tiene que haber copia del “feedback” del psiquiatra al primario en el expediente. APS tiene que confirmar si esa acción se está dando.	Cantidad de casos discutidos con el PCP	Entendemos que deben de ocurrir por lo menos una vez al mes.

22

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
12.  Incorporación de estrategias psicoeducativas en la población del IPA como mecanismo de promoción y educación	En Desarrollo		Se revisara el proceso, ver plan de trabajo	Que se continué con esta actividad según esta propuesta. Que se presente evidencia de su cumplimiento a través de métricas.	Calendarizar actividades y someter a ASES
13.  Coordinar disponibilidad de Psiquiatras en Hospitales Generales y salas de emergencias médicas para consultas.	En Desarrollo		Debe de estar en pie para Enero de 2009 Se esta trabajando en la consecución de esta meta ver plan de trabajo
14.  Crear un centro de atención y estabilización de 23 horas para pacientes psiquiátricos.	En Desarrollo		Debe de estar en pie para Enero de 2009 Se esta trabajando en la consecución de esta meta ver plan de trabajo
15.  Nivel de conocimiento que el asegurado tiene sobre el modelo de integración	En Desarrollo		Debe de estar en pie para Enero de 2009 Se desarrollara encuesta y plan de educación. Ver plan de trabajo	Que se mida ese nivel de conocimiento Que se evalúen los resultados	Presentar resultados de la encuesta o evaluación

23

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
16.  Nivel del conocimiento que tienen los PCP sobre la implantación del modelo	En Desarrollo		Debe de estar en pie para Enero de 2009 Se desarrollaran estrategias para la medición, ver plan de trabajo	Que se mida ese nivel de conocimiento Que se evalúen los resultados	Presentar resultados de la encuesta o evaluación
17.  Realización de un estudio comparativo del comportamiento de otros IPAs (que no tienen el modelo) vs el IPA 318 (seleccionado) en términos de utilización a ER, hospitalización, farmacología, que posean características similares ej. Cantidad de vidas	En Desarrollo		Debe de estar en pie para Enero de 2009 Se revisaran los datos de utilización, ver plan de trabajo	Que se continúe con esta actividad propuesta por ASES.	Presente el informe del estudio
18.  Tiene que haber presencia física del siquiatra por lo menos: una vez por semana, cada dos semanas o una vez al mes	En Desarrollo		Debe de estar en pie para Enero de 2009 Se establecerán las actividades y frecuencia del psiquiatra en el IPA, ver plan de trabajo	Necesitamos recibir la retroalimentación del uso de las hojas de comunicación entre el PCP y el Psiquiatra o proveedor de SM. Necesitamos retroalimentación de la utilización y efectividad de la herramienta de Diseñar hoja de “Screenings Tool” entregada a los PCP’s Que el psiquiatra coordine con el PCP la farmacoterapia que el paciente está recibiendo y determinar si una vez el Psiquiatra asesore al PCP puede el PCP continuar prescribiendo con el consentimiento del Psiquiatra.

24

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
19.  Desarrollo de iniciativas	En Desarrollo		Debe de estar en pie para Enero de 2009 Se establecerán los procedimientos para cumplir las iniciativas, ver plan de trabajo	El modelo de integración propicia un ambiente que permite que se realicen una serie de iniciativas y actividades conducentes a mejorar la calidad de la prestación de los servicios y por ende el estado de salud de los beneficiarios. Por tal razón, como parte de la integración ASES quiere aprovechar esta oportunidad para desarrollar varias iniciativas de forma colaborativa con el MCO. Ambas organizaciones contractualmente tienen la responsabilidad de cumplir con los programas de prevención y educación (artículos XI y XII, anteriormente artículo XX). De esta forma ASES propone que: a.     Se inicie en este IPA un proceso de cernimiento de depresión post parto utilizando la prueba auto administrable Edinburgh y los casos que arrojen alto riesgo sean referidos al Psicólogo. b.     ASES quiere que este IPA sirva de proyecto para que aquellas embarazadas que arrojen un alto riesgo en la prueba del TWEAK sean referidas al Psicólogo.	Se debe someter evidencia a la ASES de estas iniciativas. 2a. •     % de mujeres cernidas •     % de mujeres que arrojan alto riesgo •     % de mujeres referidas al Psicólogo o Psiquiatra 2b. •     % de mujeres embarazadas cernidas •     % de mujeres embarazadas que arrojan alto riesgo •     % de mujeres referidas al Psicólogo o Psiquiatra

25

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

	Cumplidas/
Actividades por fase	No cumplidas/				Metricas o Parámetros a
propuestas por MBHO	En proceso	Comentarios de APS	Comentarios adicionales	Que quiere ASES que se haga	medir	Frecuencia
				c.    ASES quiere que se inicie una intervención temprana en la niñez (edades de 0 a 5 años) como parte de la política pública de la Ley ___del ___. Para ello se deben cernir a todos los niños de este IPA en las edades de 18 meses y ___con el instrumento Ages & Stages Socio Emotional. Aquellos niños que arrojen alto riesgo en la prueba sean referidos al Psiquiatra o Psicólogo dependiendo del problema de desarrollo presentado (social, emocional). d.    De la misma forma ASES quiere que se inicie un proceso de cernimiento en depresión en la población geriátrica. Para ello se recomienda la prueba de cernimiento auto administrable ___. Aquellos casos que arrojen un alto riesgo sean referidos al Psiquiatra o Psicólogo para una evaluación mas completa.	2c. •     % de niños cernidos •     % de niños que arrojan alto riesgo •     % de niños referidas al Psicólogo o Psiquiatra o cualquier otro especialista. 2d. •     % de envejecientes cernidos •     % de envejecientes que arrojan alto riesgo •     % de envejecientes referidas al Psicólogo o Psiquiatra o cualquier otro especialista.

26

Preguntas para la Fase II (Colocation Model)

2. Una vez lo ve el psicólogo, psiquiatra o TS que pasa? Se establece un plan de tratamiento dependiendo de la necesidad. El paciente puede ser referido al sistema de clínicas de APS, al hospital, a otro proveedor o puede ser dado de alta por no tener criterios para el servicio.

a.	se refiere a la clínica de APS? Ver respuesta anterior.
b.	se ve al paciente en el IPA en su segunda visita? Si el paciente tiene una condición de salud mental leve, puede continuar recibiendo servicios en el IPA hasta un máximo de 6 visitas. De necesitar tratamiento adicional, se refiere a la clínica de APS.
c.	cuando se le vuelve a ver, una semana, dos semanas, un mes? Dependiendo del plan de tratamiento establecido para el paciente.
d.	se le notifica al PCP que se paciente ha sido atendido? La contestación del referido se incluye como parte del expediente del IPA del paciente.
e.	se coordina alguna prueba de medición inicial ej CBC, urinalisis, glucosa, colesterol, tiroide??? No en el IPA, pero si el paciente es referido a la clínica y si como parte de su evaluación farmacológica, es requerido, el siquiatra los ordena.

3.	Discuten el caso ambos profesionales primario y profesional de conducta? Proceso debe re-evaluarse ya que no se ha facilitado.
4.	Como saben que la condición de SF ha mejorado? Puede ser a través de la información que provee a el PCP o a través de informes de utilización. Establecer métricas y proceso de medición
5.	Qué medidas iníciales le hacen al paciente? Evaluación sico-social inicial
6.	Como monitorean la condición? A nivel individual, con el paciente a través del plan de tratamiento. Si se desea tener información de la población en general hay que establecer métricas y proceso de medición.
7.	Con que frecuencia lo citan? Dependiendo del plan de tratamiento establecido para el paciente.
8.	Quien está a cargo de la sicoterapia? El sicólogo.
9.	Se reúne el psicólogo, psiquiatra y el TS con el PCP para observar los cambios? El sicólogo y la trabajadora social están disponibles para discutir los casos con el PCP. Proceso debe re-evaluarse ya que no se ha facilitado.
10.	Que otras estrategias de intervención tienen con los pacientes? Terapias de grupo en el IPA. En la clínica, además de los servicios de salud mental en general se ofrecen actividades educativas sobre salud física.
11.	Si el paciente no acude a su cita hay alguien que le da seguimiento? El programa de manejo de caso del IPA.
12.	Han tenido casos auto referidos? Si la respuesta es sí, cuantos? Solo uno.
13.	Tienen los pacientes conocimientos de la presencia del profesional de la conducta en el IPA? El plan de comunicación con los pacientes se coordina a través del IPA.

27

Administración de Seguros de Salud
Documento del Modelo Integración en la Región Metro Norte

14.	Se lo han notificado a otros IPAs? El plan de comunicación con los IPA’s se coordina a través del MCO.
15.	Que criterios de medición van a evaluar para conocer el impacto del modelo? Establecer métricas y proceso de medición.
16.	Como los van a medir? Va a depender de las métricas y procesos establecidos
17.	Como se puede maximizar la fase II? Sugerimos que se complete la evaluación del proyecto piloto de colocación según fuera establecido con el propósito de entender los resultados. Se debe tomar en consideración los beneficios, retos y costo efectividad y el impacto que representa al Plan de Salud del Gobierno de Puerto Rico. Ciertamente estamos comprometidos con implementar los acuerdos a que se lleguen.
1.	Desarrollar estrategias de intervención no terapéuticas ej. Dialécticas, grupos de apoyo, promoción, módulos educativos — Una vez se comience el proceso de transición con el nuevo MCO se procederá a planificar esta iniciativa.
2.	Encuestas de satisfacción- Una vez se comience el proceso de transición con el nuevo MCO se procederá a planificar esta iniciativa.
3.	Desarrollo de Cuestionario (pre-test y post test) para conocer el estado de salud del paciente que arrojen posibles riesgos como ideas suicidas, problemas sociales, económicos, familiares, adicción, alcoholismo, obesidad, uso de cigarrillo, maltrato, violencia, conducta agresiva, desempleo, deserción escolar, etc. — Una vez se comience el proceso de transición con el nuevo MCO se procederá a planificar esta iniciativa.
4.	Medir la utilización de los servicios a ER, visitas médicas, hospitalizaciones, Rx- Una vez se comience el proceso de transición con el nuevo MCO se procederá a planificar esta iniciativa.
5.	Hacer análisis actuariales de costo efectividad — Una vez se comience el proceso de transición con el nuevo MCO se procederá a planificar esta iniciativa.
6.	Hacer estudio comparativo con otros IPAs que no tienen el modelo y evaluar su comportamiento que tengan características similares ej cantidad de vidas, patrones de morbilidad.- Una vez se comience el proceso de transición con el nuevo MCO se procederá a planificar esta iniciativa.

28

Documentación de Procedimiento de Control de Producción

ID	DIA 05-a	Título	Procedimiento de Manejo de Cheques con Firmas Digitalizadas
Fecha	06/30/06	Preparado por	Martha Detres
Fecha Revisado	07/31/07	Revisado por	Aida Martinez
Herramientas utilizadas
Trabajos	Hr1j0030
Plataformas	Mainframe
Aplicaciones	Reclamaciones
Otros
Procedimiento

Procedimiento Manejo de Cheques con firmas digitalizadas

I. REQUISICIÓN

A. El mensajero del área de Control de Producción del Centro de Cómputos, basándose en el inventario que lleva de las formas de cheques (esta tarea está dentro de la función del mensajero), requisa cheques personalmente (cantidad de cajas que necesita para reestablecer su inventario que no sea mayor de 15 cajas) al personal del Departamento de Tesorería.

B. El personal del Departamento de Tesorería le entrega la hoja (Inventario de Control de Cheques) (Anejo 1) debidamente cumplimentada con el número de cajas que se está autorizando a despachar (el Departamento de Tesorería mantendra copia de la hoja hasta que se reciba la misma firmada por los diferentes usuarios del proceso) y la llave de la jaula del almacén de Triple-S donde se guardan para recoger los cheques.

C. El mensajero entrega la hoja (Anejo 1) al almacén y recibe las cajas selladas de los cheques, según están desglosados en la hoja de Inventario de Control de Cheques. El personal del almacén certifica la entrega firmando dicha hoja.

D. El mensajero lleva los cheques al área de Buchanan, solicita la llave del armario de seguridad a la supervisora del área de Control de Producción, guarda los cheques en el anaquel correspondiente y entrega la Hoja a la Coordinadora de Control, quien verifica el contenido de la hoja con las cajas que se archivaron en el armario y la archiva en un expediente en el archivo del área de Control de Producción como evidencia de registro de los cheques recibidos.

E. En el próximo viaje del mensajero al edificio principal, éste devuelve la llave de la jaula del almacén donde se guardan los cheques al Departamento de Tesorería y una copia de la hoja firmada (Inventario de Control de Cheques). El oficinista de contabilidad verifica las firmas en la hoja y archiva la misma junto a la copia original en el expediente de Inventario de Cheques y el supervisor del Área de Transacciones Múltiples custodia la llave.

II. PREPARACIÓN PARA EL PAGO

A. El Especialista de Control solicita la llave a la supervisora del área de Control de Producción o en la Oficina de Administración del Centro de Cómputos, verifica el número del primer cheque disponible en el armario en la hoja (Movimiento de Cheques en el Centro de Cómputos) (Anejo 2) y se lo informa a Apoyo Técnico en la hoja (Cheques Disponibles para el Próximo Pago) (Anejo 3).

El Especialista de Control saca del armario un estimado de los cheques que va a necesitar y devuelve la llave a la persona encargada. El estimado de cheques se hace basándose en el tipo de pago que se va a correr. De ser necesario abrir una nueva caja durante el proceso, el Especialista de Control verifica el primer y último cheque con el “label” que trae la caja y anotará sus iniciales en dicho “label”. Esta información se llena en el cuadro pequeño en la parte inferior izquierda del Anejo 2.

B. El personal de Apoyo Técnico verifica el Check Control File (archivo perpetuo en el sistema “mainframe” que guarda la numeración de los cheques que se imprimen) y prepara el set-up del pago (proceso interno del Área de Apoyo Técnico).

Documentación de Procedimiento de Control de Producción

III. IMPRESIÓN DE CHEQUES

A. Cuando corre el proceso del pago, el Área de Control realiza el cuadre (Hoja de Cuadre Pago Reclamaciones) (Anejo 4), da el visto bueno (la señora Apolina Rivera da el visto bueno) y procede a la impresión de los cheques. (En los pagos de proveedores y Reforma se espera por el visto bueno de ambas áreas de Finanzas, quienes hacen sus cuadres y nos envían un e-mail autorizando la impresón de cheques).

B. Durante el proceso de impresión el armario deberá permanecer cerrado.

IV. CUADRE Y ENVÍO DE CHEQUES

A. Luego de finalizada la impresión, el Especialista de Control recibe los cheques y procede con lo siguiente:

1.	Verifica la impresión de cada cheque, si encuentra problemas saca los cheques para reimpresión. Entrega a apoyo técnico la Solicitud de re-impresión de cheques (Anejo 5) con los números de los cheques cancelados para eliminarlos del sistema, la cantidad de cheques a recrear y el próximo cheque disponible para recrearlos. El personal de Apoyo Técnico prepara el “set-up” y corre el proceso. El Especialista de Contol imprime los cheques tan pronto están disponible en el “queue”.
2.	El Especialista de Control prepara la Hoja de Cuadre de Cheques Procesados (Entrega de Cheques Triple-S) (Anejo 6). De haber cheques VOID se ponchan como cancelados y se incluyen en la hoja. Los mismos se envían al Departamento de Tesorería para ser destruidos.
3.	El Especialista de Control da el visto bueno para continuar con los procesos.
4.	El Especialista de Control prepara hoja de envío de cheques al correo (Hoja de Trámite Pago Triple-S) (Anejo 7).
5.	El Especialista de Control del próximo turno continúa con el proceso.
6.	Anota en Hoja de Estatus de Control (Tareas para Seguimiento Diario) (Anejo 8) el primer y el último número de cheques de la caja abierta. Esto es un proceso interno de verificación del pago que tiene como propósito dejar la verificación y certificación del pago para el próximo turno.
7.	Solicita llaves a la supervisora del área de Control de Producción o en la Oficina de Administración del Centro de Cómputos persona encargada para devolver los cheques sobrantes al armario y abrir la valija de transportar cheques.
8.	El pago del viérnes se imprimirá y se mantendrá en un locker con llave en el área de control de producción para su manejo el lunes en la mañana, de igual forma si se procesa otro pago durante el fin de semana.
9.	El Especialista de Control procede a certificar el envío (firmando la Hoja Tareas para Seguimiento Diario), esto es, verificar nuevamente la calidad de impresión, los cuadres (verificación de la información que contienen los Anejos 6 y 7) y que estén todos los informes que se necesitan, guarda los cheques impresos en la valija con llave, en la cual serán transportados hasta el Área de Correo. Luego, entrega la llave a la Supervisora de Control de Producción persona encargada de custodiar la misma y entrega la valija al mensajero que la va a transportar a Triple-S, Inc.

Documentación de Procedimiento de Control de Producción

V. RECIBO DE CHEQUES EN EL ÁREA DE CORREO

A. El mensajero entrega la valija de los cheques procesados al área de correo y notifica al encargado en el área de correo de la presencia de la valija de los cheques procesados con los informes de salida de caja y la hoja de control.

B. El encargado en el área de correo llama al Departamento de Tesorería para notificarle de la llegada de los cheques procesados.

C. El Supervisor del Area de Transacciones Múltiples procede a buscar la llave y se la entrega al Oficinista de Contabilidad que va a bajar al Área de Correo para abrir la valija de cheques procesados. Inmediatamente de abrir la valija procede con el cuadre del pago. El mismo consiste en verificar que los que están separados (forma contínua) sigan una secuencia. Además, verifica que los números del primer y último cheque son los mismos que se informaron en el Informe de la Salida de Caja y Hoja de Entrega de Cheques. De estar correcta procede a firmar el Anejo 6. El mensajero y la persona encargada del Departamento de Correo estarán presente durante el cuadre del pago.

D. Una vez se complete la verificación y cuadre del pago, el mensajero se lleva vacía la valija de seguridad de los cheques y el encargado en el Área de Correo lleva los cheques a la caja fuerte en espera del visto bueno del Área de Reclamaciones.

Otros (si aplica)

Anejos (si aplica)

v	Anejo 1 — INVENTARIO DE CONTROL DE CHEQUES
v	Anejo 2 — MOVIMIENTO DE CHEQUES EN EL CENTRO DE COMPUTOS
v	Anejo 3 — CHEQUES DISPONIBLES PARA PROXIMO PAGO
v	Anejo 4 — HOJA DE CUADRE PAGO RECLAMACIONES
v	Anejo 5 — SOLICITUD DE RE-IMPRESION DE CHEQUES
v	Anejo 6 — ENTREGA DE CHEQUES TRIPLE-S
v	Anejo 7 — HOJA DE TRAMITE PAGO TRIPLE-S
v	Anejo 8 — TAREAS PARA SEGUIMIENTO DIARIO

Documentación de Procedimiento de Control de Producción

Anejo 1- Dia05-a
     Se utiliza como conduce para recoger los cheques del almacén.

INVENTARIO CONTROL DE CHEQUES

AIDA MARTINEZ
CONTROL

MARISEL ESPADA
TESORERIA

ENTREGA DE CHEQUES RECLAMACIONES TRIPLE-S

NUMERO CAJA DESDE HASTA CANTIDAD

PREPARADO POR:                                          FECHA:                     
(Tesoreria)

ENTREGADO POR:                     
(Almacén)

RECIBIDO POR:                     
(Mensajero C.Computos)

VERIFICADO POR:                     
(Control de producción)

Documentación de Procedimiento de Control de Producción

ANEJO 2 – Dia05-a
Se utiliza para mantener un inventario de los cheques que se mueven del armario.

FECHA	SECUENCIA DEL PAGO		TOTAL			PROXIMO	FIRMA
CICLO	DESDE	HASTA	CKS.	VOIDS	# CAJA	CHEQUE	CNTL

	SECUENCIA
# CAJA	DESDE	HASTA

Documentación de Procedimiento de Control de Producción

ANEJO 3 — Dia05-a
- -Se informa por escrito a apoyo técnico el número de cheque para el set-up.

misc03

INTERACTIVE SYSTEMS, INC.
AREA DE CONTROL
CHEQUES TRIPLE — S

FECHA:                     

CHEQUES DISPONIBLES PROXIMO PAGO TRIPLE-S

CAJA NUM.	1ER. CHEQUE
	ULTIMO CHEQUE
	TOTAL DE CHEQUES

PREPARADO POR:                                         

Documentación de Procedimiento de Control de Producción

ANEJO 4 — Dia05-a
Hoja de cuadre de los procesos del pago.

Interactive System, Inc.
HOJA DE CUADRE PAGO RECLAMACIONES

     dia05

JOB NAME		Desde                               Hasta                              Cks.		FECHA DEL CICLO:
HR1J0010	A	HR1R0201 PAYMENT SELECTION STATISTISC REPORT
		LINEA — TOTAL AMOUNT SELECT FOR PAYMENT						$	—
		LINEA — AMOUNT PENDING FOR PAYMENT				(+	)
		LINEA — AMOUNT READY TO PAY				(=	)	$	—
		* SE SUMA O SE RESTA LA CANTIDAD
HR1J0030	B	HR1R0030 — TOTAL IMPORTE						$	—
		HR1R0605 LINEA — CANTIDAD A PAGAR TOTAL FIN.				(+	)	$	—
		HR1R0201 LINEA — AMOUNT PENDING FOR PAYMENT				(+	)	$	—
		Total				(=	)	$	—
HRFJ6001		HRFR6003 Cantidad adicinal para pago (Pago de reforma)				(-	)	$	—
		TOTAL                                dif.	$	—		(=	)	$	—
HR1J9000	C	HR0R4416 — RECLAMACIONES PEND. DE PAGO PROVEEDORES
		LINEA — TOTALES FINALES ( 1RA. CANTIDAD )
HR1J0050		HR1R0801 — Cuadrar con este informe cuando es pago sin edito
		LOS TOTALES A, B Y C DEBEN SER IGUALES PARA DAR EL VISTO BUENO PARA LA IMPRESION DE LOS CHEQUES.			OK impresión
HR1J0030	D	HR1R0700 INTERESES PAGADOS
HR1J0030		HR1R0030 — IMPORTE            OK - 30
HR1J0034 - 36		HR1R0034 — IMPORTE            OK - 34
		ESTOS DOS TOTALES TIENEN QUE SER IGUALES. DIF:						$	—
HR8JWKLY		DE TENER DIFERENCIA Y ES VIERNES VERIFICAR: INFORME HR8R0023
		FINAL — FECHA — COLUMNA DEL MEDIO — CANTIDAD AJUSTE
HR1J2000	E	HR1R0603 TOTAL — NUM. CHEQUES / CANTIDAD
HR1J0030	F	HR1R0030 (final) — TOTAL DE PAGO
HAFJCAJA	G	HARD2020 — TOTAL FINAL
HR1JSCEX	H	HARD2020 — TOTAL FINAL
HABJBANK	I	HABRCNTL — CANTIDAD
		* LOS TOTALES DEBEN SER IGUALES EN E, F, G, H, I .
FECHA:			FIRMA:

Documentación de Procedimiento de Control de Producción

ANEJO 5 — Dia05-a
Se da apoyo técnico los datos necesarios para recrear cheques

misc02

INTERACTIVE SYSSTEMS, INC.
Area de control

Solicitud de re-impresión de cheques:

Cheques void:	desde	hasta
	desde	hasta
	desde	hasta
	desde	hasta
	desde	hasta
	desde	hasta
	desde	hasta
Cantidad de cheques void:
Próximo cheque disponible:

Solicitado por :	Fecha/hora :
Procesado por :	Fecha/hora :

Documentación de Procedimiento de Control de Producción

ANEJO 6 — Dia05-a
Se cuadra los cheques utilizados incluyendo los dañados en el proceso.

Marisel Espada
Departamento de Tesorería

Aida L. Martínez Torres
Interactive System, Inc.

ENTREGA DE CHEQUES TRIPLE-S

FECHA DE PAGO:                     

CHEQUES IMPRESOS

DESDE:	HASTA:	CANTIDAD:
DESDE:	HASTA:	CANTIDAD:
DESDE:	HASTA:	CANTIDAD:
CHEQUES VOID
DESDE:	HASTA:	CANTIDAD:
DESDE:	HASTA:	CANTIDAD:
DESDE:	HASTA:	CANTIDAD:

Preparado por:	Control — Fecha	Hora
Recibido por:	Tesorería — Fecha	Hora
Recibido por:	Correo — Fecha	Hora
Entregado por:	Mensajero — Fecha	Hora

Documentación de Procedimiento de Control de Producción

ANEJO 7- Dia05-a
- - Se resume el envío del pago al correo con los informes correspondientes para procesarlo.

dia01

Interactive Systems, Inc.
Centro de Cómputos
Área de Control

HOJA DE TRAMITE Y ENTREGA DEL PAGO TRIPLE S

Fecha del ciclo: ___/___/___ Fecha de pago: ___/___/___

Informe	Usuario	Descripción del informe	Incluído
Cheques	Tesoreria	Cks. — Total:                      Cajas
HR1R0602	Correo	EOB — Pags.                      Cajas
HR1R0604	Correo	EOB — Pags.                      Cajas
HARD2020	Tesoreria	Registro diario de cheques
HARD2021	Correo	Registro diario de cheques

Enviado por:	Control — Fecha	Hora
Recibido por:	Correo — Fecha	Hora
Entregado por:	Mensajero — Fecha	Hora

Documentación de Procedimiento de Control de Producción

ANEJO 8 — Dia05-a
- -Se certifica el envío de cheques y se anota el número de cheque disponible para el próximo pago.

misc01	TAREAS PARA SEGUIMIENTO DIARIO
	Area de Control
	Fecha
	TAREA	INICIALES
Primer Turno
	Verificar Turn-Over (Cuadres y Tareas Realizadas)
	Verificar Status Producción Diaria
	Verificar Status de transmisiones /peticiones
	Cotejar trabajos en Schedule
	Certificar envio de cheques (guardar cheques)
	Cuadre de Crossover (COBA) ( 1ra. parte)
	Cheques disponibles Caja num.
	Sec.                     a _                      Total
	Cuadre de ITS
***	Anotar total cajas : Forma Standard
	Cheques
	Facturas
	Hojas Correcciones
***	(Esta tarea se hará solamente Lunes, Miércoles y Viérnes)
Segundo Turno
	Entregar Support Set-Up Cheques Triple S
	Cuadres de data (APPLICA)
	Verificar Status de transmisiones / peticiones
	Cuadre de Crossover (COBA) ( 2da. parte)
Tercer Turno
	Entregar hojas de cuadres completadas al 1er turno
	Cuadre de pago y certificar calidad de cheques
	Producción de ID CARDS
	Cuadre transmisión HR0JCOBA (bisemanal-martes)
	Certificar envio de producción ITS
	Trabajos con prioridad (ITSJSF20 -ITSJNF20)

Guías para casos de cubierta especial y riesgos asumidos
por ASES en vigor a partir del 1^ro. de noviembre de 2008

A continuación se describe el procedimiento para aquellos casos en que el asegurado es diagnosticado con alguna condición que son parte del riesgo asumido por ASES.

Aunque el asegurado tenga una condición considerada como riesgo asumido de ASES, es de suma importancia que se mantenga la coordinación del cuidado por lo cual el médico primario debe continuar brindando toda la atención médica necesaria de aquellas condiciones de salud que no corresponden a este riesgo.

Es importante conocer cuando la condición médica detectada, llena los criterios para clasificarse como caso de cubierta especial. Sólo los casos de cáncer, VIH/SIDA, enfermedad crónica renal en etapa 3, 4 y 5, fibrosis quística, obstetricia, niños con necesidades especiales de salud, trasplantes de órganos, esclerosis múltiple, escleroderma sistémica, hemofilia y lupus eritematoso sistémico requieren ser registrados con un formulario diseñado para ésto. Las definiciones y criterios de cada condición se detallan en este documento.

Si la solicitud de registro en la cubierta especial se realiza dentro de los primeros 120 días de efectuada la(s) prueba(s) y procedimientos que confirmaron el diagnóstico, la efectividad de la cubierta será a la fecha de efectuarse las mismas. Si el IPA o el PCP se exceden de los 120 días en solicitar el registro, la efectividad será de 90 días previo a la solicitud.

ACCIDENTES CEREBROVASCULARES AGUDOS (CVA)

Los servicios prestados durante una hospitalización o visita a sala de emergencias de un asegurado con este diagnóstico serán riesgos de ASES El seguimiento médico y de rehabilitación de este asegurado, una vez es dado de alta del hospital, es riesgo de la IPA.

No es requisito registrar a estos asegurados.

AFÉRESIS TERAPÉUTICA

Los procedimientos de aféresis terapéutica estarán incluidos en los riesgos asumidos por ASES. Estos procedimientos requieren precertificación a través de Manejo y Apoyo Clínico de Triple-C, Inc., vía fax al (787) 774-4835.

No es requisito registrar a estos asegurados.

AMBULANCIAS

Los servicios de ambulancia para transporte de emergencias, sea terrestre o aérea, son riesgos asumidos de ASES y no requieren precertificación. El transporte de asegurados a citas médicas o al hogar, cuando es dado de alta del hospital, no está cubierto por el Plan de Salud del Gobierno de Puerto Rico. Algunos casos son precertificados a través del Programa de Manejo y

1

Apoyo Clínico, como por ejemplo; Asegurados recibiendo servicios de terapia intravenosa (IVF) o ventilación mecánica en el hogar. Los criterios utilizados para la precertificación son detallados en la carta circular M0305P03 del 2 de mayo de 2003.

CÁMARA HIPERBÁRICA MULTIPLAZA

El pago por la utilización de la cámara hiperbárica multiplaza y el servicio médico asociado a ésta son riesgos asumidos de ASES. Este servicio requiere preautorización a través de Manejo y Apoyo Clínico vía fax al (787) 774-4835. Los servicios de emergencia podrán ser enviados posterior al servicio, el próximo día laborable, para procesar la autorización de los mismos.

CÁNCER

Los servicios cubiertos para el tratamiento de cáncer para los asegurados con este diagnóstico comenzarán a considerarse riesgos de ASES desde el momento en que se realice la toma de la muestra que confirme el diagnóstico. La hospitalización y el procedimiento para realizar el diagnóstico se considerará riesgo de ASES. Esta cubierta dependerá de que el asegurado sea incluido en nuestro Registro de Cáncer y se extenderá hasta que se complete el tratamiento con quimioterapia y radioterapia. En casos donde no pueda obtenerse una confirmación por patología serán considerados mediante los estudios especializados realizados, a discreción de Triple-S, Inc.

Los diagnósticos de cáncer de piel y carcinoma in situ sólo se considerarán como cubierta especial al momento de la cirugía. Los casos de cáncer de piel como melanoma invasivo, o los de células escamosas con evidencia de metástasis o que por su extensión requieran radioterapia y/o cirugía reconstructiva, serán incluidos en la cubierta por el tiempo que dure la radioterapia o se complete el procedimiento quirúrgico.

Una vez que el tumor se elimina, no exista evidencia de metástasis, haya remisión o no exista la necesidad de continuar con tratamientos de quimioterapia y radioterapia, los servicios dejarán de considerarse riesgos de ASES. Los casos de asegurados que hayan sido diagnosticados en el pasado con cáncer y estén libres de enfermedad al presente, no se consideran como riesgos de ASES (ej. asegurado con cáncer de colon en 1989, que se le practicó una colostomía). El seguimiento por el oncólogo, cirujano, etc. de asegurados en remisión, será riesgo de la IPA.

Es necesario que al solicitar el registro de un asegurado con diagnóstico de cáncer, se envíe la hoja de registro completada con copia de los resultados de patología, otros estudios que confirmen el diagnóstico, la información del tratamiento recomendado y el tiempo que lo estará recibiendo. Si no se provee toda esta información, el asegurado se registrará temporalmente por cuatro (4) meses, mientras la IPA o el especialista nos envía la información necesaria para el registro definitivo. El registro puede ser solicitado por el médico primario, cirujano, ginecólogo, urólogo, oncólogo o radioterapeuta a cargo del asegurado y enviarse a través del facsímile, (787) 774-4837.

Los casos de reactivación se registraran a la fecha de la evidencia de reactivación de la condición (ej: evidencia de aparición de metástasis mediante biopsia o estudio que confirme el diagnóstico) hasta un máximo de seis (6) meses previo a la fecha de solicitud, lo que sea menor.

La quimioterapia y radioterapia para cáncer son riesgos de ASES, esté el asegurado registrado o no.

2

CIRUGÍAS CARDIOVASCULARES

Se consideran riesgos de ASES, los procedimientos invasivos como cateterismos, angioplastías, marcapasos y todas las cirugías cardiovasculares y periferovasculares, así como la porción de la hospitalización asociada a estos procedimientos (ej; la hospitalización de un asegurado por un diagnóstico de infarto de miocardio que durante el 5^to día se le realiza un cateterismo será riesgo de ASES solo el día asociado al cateterismo). La clasificación de caso de cubierta especial termina cuando el cirujano da de alta del hospital donde fue realizada la cirugía o procedimiento al asegurado.

Una vez de alta, el seguimiento por el cardiólogo y los medicamentos recetados no son parte de la cubierta especial. Este seguimiento debe continuar a través del médico primario y del cardiólogo consultor.

Algunos de los procedimientos cardiovasculares invasivos y cirugías cardiovasculares requieren precertificación a través del Programa de Precertificaciones de Triple-C, Inc. En los casos electivos, esta precertificación debe gestionarla el médico primario del asegurado. Sólo en aquellos casos en que, como resultado de una emergencia, se desarrollan síntomas que requiere un procedimiento o una intervención quirúrgica de emergencia, el cirujano cardiovascular, el cardiólogo o el hospital, será quien gestionará la precertificación a través del Centro de Llamadas de Precertificaciones de Triple-C, Inc. al 1-800-322-4384.

No se requiere llenar solicitud de registro en estos casos, los mismos se identifican por los códigos de las cirugías y procedimientos realizados.

CIRUGIAS MAXILARES

Los procedimientos realizados por los cirujanos maxilofaciales con códigos de CPT relacionados a reconstrucción de maloclusión dental o corrección de mordida, serán riesgos de ASES y requieren precertificación a través del Departamento de Reclamaciones Dentales de Triple-S, Inc. La solicitud y los documentos requeridos deben ser enviados al apartado postal 383628, San Juan, Puerto Rico 00936-3628 a la atención del Departamento indicado.

DENTAL Y MEDICAMENTOS DEL FORMULARIO DENTAL RECETADOS POR DENTISTAS

Los procedimientos definidos en el Manual CDT e incluidos en la cubierta dental definida por ASES. Los medicamentos incluidos en el formulario dental que hayan sido recetados por un dentista serán riesgos de ASES. Los antibióticos serán despachados hasta cinco (5) días y los analgésicos hasta tres (3) días.

EMERGENCIAS Y HOSPITALIZACIONES PARA EL TRATAMIENTO DE CONDICIONES RESULTANTES DE DAÑOS AUTOINFLIGIDOS O FELONÍAS REALIZADAS POR EL ASEGURADO

Los servicios de emergencia y hospitalizaciones resultantes de esta emergencia con códigos diagnósticos E950.0 a E989.0 serán riesgos de ASES. Los asegurados no requieren ser registrados ya que las reclamaciones de servicios con los códigos diagnósticos y el lugar de servicio serán identificados por sistema. Los servicios de sala de emergencia y hospitalización de los casos rechazados por ACAA están incluidos bajo la cubierta especial.

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ENFERMEDAD RENAL CRÓNICA

Los casos de asegurados con enfermedad renal crónica son clasificados en etapas del 1 al 5 por su Tasa Filtrado Glomerular (GFR).

Nivel 1	GFR mayor de 90
Nivel 2	GFR entre 60 y 89
Nivel 3	GFR entre 30 y 59
Nivel 4	GFR entre 15 y 29
Nivel 5	GFR menor de 15

Las visitas al nefrólogo y algunos laboratorios relacionados (urianálisis, albumina, bilirrubina, calcio, dióxido de carbono, cloro, creatinina, glucosa, fosfatasa alcalina, fósforo inorgánico, potasio, proteínas totales, sodio, enzimas hepáticas y bun) a la condición renal de los asegurados en el nivel 3 y 4 son considerados riesgos de ASES. Los asegurados del nivel 5 serán cambiados a las IPAs renales y todos los servicios del asegurado en estas IPAs son riesgos de ASES.

Es importante el monitoreo continuo de los pacientes a riesgo de esta condición para la identificación temprana y registro de éstos, previo a comenzar diálisis.

La cirugía necesaria para realizar la fístula requerida para la hemodiálisis y la inserción de catéteres para diálisis se consideran parte del riesgo de ASES, aún cuando el asegurado no esté registrado. Una vez realizada la fístula, aún cuando el asegurado no haya comenzado diálisis, puede ser suscrito en una IPA renal.

En los casos de fallo renal agudo que recuperan su función renal, sólo se considerará riesgo de ASES el procedimiento de diálisis peritoneal o hemodiálisis.

La diálisis peritoneal y la hemodiálisis se consideran riesgos de ASES, aún cuando el asegurado no haya sido registrado en una IPA renal.

Una vez se autoriza el Registro por Condición Renal Crónica, el asegurado recibe una notificación por correo, indicándole los cambios en su cubierta o cambio de IPA a una de las IPAs Renales.  El cambio de IPA será efectivo el mes en que se efectúa la solicitud del cambio. De este momento en adelante, la IPA cesa de recibir el pago per cápita correspondiente a este asegurado.  Los servicios recibidos por el asegurado, previo al cambio de IPA o registro del asegurado, son riesgos de la IPA, excepto los relacionados directamente con la diálisis. Los servicios ambulatorios, no de emergencia, que se les brinde a estos asegurados en la IPA Renal, tienen que coordinarse mediante referido del nefrólogo, quien pasará a ser el médico primario de estos asegurados.

Los requisitos para otorgar la cubierta renal dependen del GFR:
           

GFR = 186 x (P_Cr)^-1.154 x (age)^-0.203 x (0.742 if female) x (1.210 if black)

De necesitar información adicional con respecto a la formula, recomendamos la página electrónica del National Kidney Foundation (www.kidney.org).

El médico primario, el nefrólogo o el centro renal debe completar el formulario de Registro de

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Cubierta Especial y debe incluir: Copia de laboratorio que evidencie la creatinina, edad y sexo. En caso de ser de mujer y/o de raza negra se debe especificar, pues esta información se utiliza para calcular el GFR. En los casos que aplique debe acompañar copia de la forma HCFA #2728.  Estos documentos deben enviarse a través del fax (787) 774-4835 al Departamento de Manejo y Apoyo Clínico.

ESCLERODERMA SISTÉMICA

Los asegurados diagnosticados con esta condición, son riesgos de ASES una vez sean incluidos en el Registro de Cubierta Especial. Estos asegurados deben ser registrados a través del Departamento de Manejo y Apoyo Clínico con la evidencia de las pruebas diagnósticas y biopsia de piel, consulta con dermatólogo, consultas y pruebas realizadas con neumólogo y/o reumatólogo que confirman la condición. Se continuará pagando la porción del pago per cápita del médico primario a la IPA para que el médico primario pueda seguir ofreciendo los servicios médicos necesarios a estos asegurados. Estos documentos deben enviarse a través del fax (787) 774-4835 al Departamento de Manejo y Apoyo Clínico.

ESCLEROSIS MÚLTIPLE

Los asegurados diagnosticados con esta condición, son riesgos de ASES una vez sean incluidos en el Registro de Cubierta Especial. Estos asegurados deben ser registrados a través del Departamento de Manejo y Apoyo Clínico con la evidencia del diagnóstico Se continuará pagando la porción del pago per cápita del médico primario a la IPA para que el médico primario pueda seguir ofreciendo los servicios médicos necesarios a estos asegurados.

La evaluación para realizar el diagnóstico debe incluir en todos los casos, MRI del cerebro, de ser necesario MRI de cordón espinal, tipo de esclerosis múltiple certificada por neurólogo y pruebas de laboratorios que descartan otras enfermedades con síntomas similares. Estos documentos deben enviarse a través del fax (787) 774-4835 al Departamento de Manejo y Apoyo Clínico.

ESTUDIOS DE MEDICINA NUCLEAR

Los estudios de Medicina Nuclear (códigos 78000 @ 79999) y los contrastes fármaco-radiológicos necesarios para realizar los estudios serán riesgo de ASES. Continuará el requisito de precertificar para algunos de éstos a través del Programa de Precertificaciones de Triple-C, Inc. al 1-800-322-4384.

FIBROSIS QUÍSTICA

Todos los servicios médicos de asegurados con evidencia de diagnóstico de fibrosis quística registrados en cubierta especial se consideran riesgos de ASES. Estos casos deben ser registrados a través del Departamento de Manejo y Apoyo Clínico por el pneumólogo, pediatra o médico primario que le brinde los servicios médicos al asegurado. Debe completar el Formulario de Cubierta Especial y acompañarlo de la evidencia de la condición (prueba de sudor, tratamiento y certificación del neumólogo). Por estos casos, la IPA no recibirá pago per cápita y su médico primario pasará a ser el neumólogo. Estos documentos deben enviarse a través del fax (787) 774-4835 al Departamento de Manejo y Apoyo Clínico.

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HEMOFILIA

El tratamiento con factor antihemofilico para los asegurados con hemofilia se considera riesgo asumido de ASES. Para el registro de estos asegurados deben enviar una certificación de las Clínicas de Hemofilia que evidencie la condición. Estos documentos deben enviarse a través del fax (787) 774-4835 al Departamento de Manejo y Apoyo Clínico.

INTENSIVO NEONATAL (NICU)

Todos los casos de bebés con criterios de admisión a las Unidades de Cuidado Intensivo Neonatal (NICU), se consideran riesgos de ASES. Una vez que se da de alta de NICU al bebé, cesa de considerarse riesgo de ASES. El seguimiento médico continuará a través de su médico primario y los otros profesionales especialistas y subespecialistas que sean consultados.

No es requisito registrar a estos asegurados, los mismos son identificados por medio de los códigos relacionados a la facturación del Intensivo Neonatal y el per diem de cuidado crítico de neonatología.

INTENSIVO PEDIÁTRICO (PICU) Y DE ADULTOS (ICU)

Todos los servicios hospitalarios cubiertos a los asegurados en las unidades de Cuidado Intensivo de Pediátrico y de Adultos serán riesgos de ASES. Una vez el asegurado cumple con los criterios médicos para ser trasladado a otro nivel de cuidado se considerará riesgo de la IPA.

No es requisito registrar a estos asegurados, los mismos son identificados por medio de los códigos relacionados a la facturación del Intensivo.

LABORATORIOS DE CITOGENÉTICA

Los laboratorios de citogenética son riesgo asumido por ASES. Los códigos que corresponden a este tipo de laboratorios son 88230 @ 88299.

No es requisito registrar a estos asegurados, los mismos se identifican por los códigos antes descritos.

LITOTRICIA

El procedimiento de litotricia, tanto la parte institucional como la porción de servicios médicos, es un riesgo asumido por ASES. Este procedimiento requiere precertificación, la cual debe gestionarse a través del Centro de Llamadas de Precertificaciones de Triple-C, Inc. al 1-800-322-4384.

No es requisito registrar a estos asegurados, los mismos son identificados por medio de los códigos relacionados a la facturación del procedimiento.

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LUPUS ERITEMATOSO SISTÉMICO

Todos los servicios brindados a los asegurados con diagnóstico de Lupus Eritematoso Sistémico son riesgos de ASES. Deberán ser registrados en la cubierta de condiciones especiales. Para registrar el asegurado, el PCP o especialista deberá enviar evaluación de reumatología y resultados de laboratorios de ANA Test y DS-DNA. Estos documentos deben enviarse a través del fax (787) 774-4835 al Departamento de Manejo y Apoyo Clínico.

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ASES asumirá el gasto de las reclamaciones incurridas por servicios prestados a aquellos asegurados certificados como elegibles por Asistencia Médica y ASES y que a la fecha del servicio no han completado el proceso de suscripción con Triple-S, Inc.

El asegurado certificado para Triple-S, Inc, es aquel que ha completado el proceso de suscripción. Cuando el asegurado complete este proceso escogiendo una IPA, las reclamaciones de la cubierta básica serán riesgo de la IPA.

MAMOGRAFIAS

Las mamografías de cernimiento y diagnósticas forman parte del riesgo asumido por ASES.

MEDICAMENTOS ESPECIALES

Los siguientes medicamentos forman parte del riesgo asumido por ASES:

Antivirales para HIV *	Tobi
Quimioterapias para cáncer **	Pulmozine
Medicamentos de Hemofilia	Epogen, Procrit, Aranesp
Sandostatin	Neupogen
Desmopresina (DDAVP)	Neumega
Copaxone	Synagis
Rebif	Agrylin
Betaseron	Inmunosupresores
Avonex	Carnitol *
Hormona de crecimiento	Gammaglobulina
Botox	Remicade
Cerezyme	Pentamidine
Thalomid	Leucovorin *
Casodex	Aromasin
Fareston	Megace *
Faslodex	Vesanoid
Eulexin	Arimidex *
Hydrea *	Femara
Rilutek	Nolvaldex *
Phoslo *	Calciferol *
Renagel	Rocaltrol *
Sensipar

*	No requieren precertificación.
**	Algunas quimioterapias requieren precertificación.

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La precertificación de los mismos debe gestionarse a través del Departamento de Manejo y Apoyo Clínico mediante el fax (787) 774-4826.

NEUROCIRUGÍA

Todas las neurocirugías son clasificadas como riesgos de ASES. Esta clasificación termina cuando el asegurado es dado de alta del cuidado por el neurocirujano en el hospital. El seguimiento médico de los profesionales y especialistas, posterior al alta del asegurado no es parte del riesgo de ASES y debe ser coordinado a través del médico primario.

No es necesario el registro de estos asegurados, los mismos son identificados por medio de los códigos de las neurocirugías efectuadas.

Una vez se determina que el asegurado requiere una neurocirugía, el médico primario enviará el referido a facilidades y los referidos necesarios para el proceso de preadmisión (referido, laboratorios, radiografía y cernimiento pre-operatorio).

Las admisiones de neurocirugías que requieran ser admitidas desde la sala de emergencia, se registran a través del SES WEB, como cualquier otra admisión a través de sala de emergencia.

NIÑOS CON NECESIDADES ESPECIALES DE SALUD

Triple-S, Inc. tendrá disponible un Programa de Manejo de Casos para pacientes pediátricos. El requisito para cualificar es que tengan múltiples condiciones médicas que requieran visitas frecuentes a más de dos especialistas (4 o más visitas por especialista al año). La enfermera encargada del manejo de esta población será responsable de garantizar el acceso del asegurado a los especialistas, pruebas diagnósticas y tratamiento médico necesario. Se evaluará de acuerdo a la cubierta del Plan de Salud del Gobierno y al Formulario de Medicamentos. El riesgo financiero de los servicios ofrecidos a esta población será de la IPA hasta alcanzar el stop loss. 

Todos los servicios médicos para asegurados en nuestro Registro de Niños con Necesidades Especiales de Salud son riesgos de ASES. La IPA recibirá el subfondo del médico primario en su pago per cápita, ya que continuará siendo el coordinador de los servicios primarios. Las visitas al médico primario continuarán registrándose como encuentros. El médico primario será responsable de proveerle al niño el cuidado preventivo de acuerdo a la edad, recetas, precertificaciones y referidos (de laboratorios, estudios, especialistas, cirugías electivas, etc) que el niño necesite aunque éstos no serán descontadas de su pago per cápita. Para incluir un niño en este registro debe completar el Formulario de Registro de Niños con Necesidades Especiales de Salud con la siguiente información:

• Evidencia de condición médica de acuerdo a la lista de diagnósticos de niños con necesidades especiales de salud

• Laboratorios pertinentes a la condición

• Cirugías pendientes para corregir la condición

• Tratamiento farmacológico actual

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La determinación de incluir el niño en el registro se realizará tomando en consideración la edad (hasta los 21 años), diagnósticos y cirugías pendientes. Estos documentos deben enviarse a través del fax (787) 774-4835 al Departamento de Manejo y Apoyo Clínico.

El registro se realizará a la fecha en que se realiza el diagnóstico o tres (3) meses retroactivos a la fecha de envío del registro, lo que sea menor.

OBSTETRICIA

Los beneficios de maternidad provistos a las beneficiarias del Plan de de Salud del Gobierno de Puerto Rico suscritas con Triple-S, Inc. y registradas como embarazadas, son riesgos asumidos por ASES. Triple-S cuenta con un proceso electrónico para el registro de embarazadas del Plan de Salud del Gobierno de Puerto Rico. Mediante este proceso el obstetra podrá realizar el registro a través de nuestra página de Internet www.ssspr.com/sesweb. Esto permitirá entregarle la carta de certificación de registro a la asegurada en la primera visita para que pueda realizarse las pruebas de laboratorio y buscar sus medicamentos sin necesidad de la autorización o referido del médico primario.

En caso de que el obstetra no tenga acceso a Internet, deberá completar el Formulario de Registro de Casos de Obstetricia y enviarlo vía fax (787-774-4835 para Reforma y al 787-774-4836 para Medicare Advantage) o a la dirección de correo electrónico cubiertasespeciales@ssspr.com.

Una vez se registra el caso, se enviará por correo una certificación de obstetricia a la asegurada. Una vez registrada, todos los servicios médicos cubiertos serán riesgos de ASES. El obstetra solo podrá recibir pago por la visita inicial obstétrica y no por las subsiguientes, si la asegurada no está registrada. Esta visita inicial se considerará siempre riesgo de ASES.

Los procedimientos obstétricos que requieren ser precertificados por Triple-S, Inc. a través del Centro de Llamadas de Precertificaciones de Triple-C, Inc. (1-800-322-4384) son los siguientes:

•     Sonogramas obstétricos en oficina del obstetra	•     “Biophysical profile”
•     Sonografía endovaginal en oficina	•     “Non-stress test” en oficina

Los medicamentos fuera del formulario de Obstetricia y las cirugías electivas durante el embarazo deben ser precertificados a través del Departamento de Manejo y Apoyo Clínico. Debe completar el formulario de solicitud de precertificación y enviarlo vía fax al (787) 774-4835.

Los casos de esterilizaciones fuera del parto serán responsabilidad de la IPA, por lo que deberán ser evaluados por ésta para autorización posterior al parto. La IPA no recibirá pago per cápita por esta asegurada durante el tiempo que esté registrada.

Los niños recién nacidos mientras tengan el contrato de la madre y hasta que termine el registro de obstetricia (41 días posterior a la fecha estimada de parto), serán riesgos de ASES. Se pagará el pago per cápita del recién nacido una vez la madre salga del registro y/o el recién nacido sea certificado por la madre, lo que ocurra primero.

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POST TRASPLANTES DE ÓRGANOS

Todos los servicios cubiertos a asegurados post trasplantes de órganos son riesgos de ASES. Los asegurados post trasplantes de riñón serán incluidos en el registro de asegurados con enfermedad crónica renal o en IPAs renales. Los asegurados post trasplantes de corazón, hígado, pulmón y médula ósea serán incluidos en un registro especial para trasplantados. La IPA deberá enviar evidencia médica del trasplante y de los inmunosupresores que utiliza el asegurado. El registro terminará cuando el asegurado no utilice más inmunosupresores. Todos los servicios médicos de estos asegurados, mientras estén registrados serán riesgos de ASES. Deben recordar que el procedimiento para realizar un trasplante de órgano no está cubierto por el Plan de Salud del Gobierno de Puerto Rico. Deben enviar el Formulario de Registro al fax (787) 774-4835.

PRÓTESIS

Las siguientes prótesis están cubiertas y forman parte del riesgo asumido por ASES:

•	Marcapasos	•	Prótesis de extremidades*
•	Válvulas cardíacas y neuroquirúrgicas	•	Prótesis de ojo
•	Bandeja ortopédica de instrumentación para escoliosis, (tornillos, clavos y varillas) y reemplazo de articulaciones	•	Hueso de cadáver*

* La precertificación de las mismas debe gestionarse a través del Centro de Llamadas de Precertificaciones de Triple-C, Inc. al 1-800-322-4384.

Triple-S, Inc. sólo reembolsará el costo de la prótesis al proveedor, por lo cual, la factura deberá estar acompañada de la evidencia de este costo.

El cargo por el lente intraocular no se considera un riesgo de ASES y recae en la responsabilidad de la IPA. Este servicio es facturado directamente por el Centro de Cirugía Ambulatoria.

RADIOCIRUGÍAS

El procedimiento de radiocirugía es riesgo asumido por ASES y requiere precertificación a través del Departamento de Manejo y Apoyo Clínico vía fax (787) 774-4837. La precertificación puede ser gestionada por el médico primario, el neurocirujano o la facilidad que va a realizar el procedimiento.

Para la evaluación de los casos se requiere enviar:

•	Consulta de radioterapia y neurocirujano	•	Resultado de venograma (si aplica)
•	Resultado de MRI que evidencie el tamaño de la lesión	•	Escala de Karnofski (KPS)

No es necesario registrar estos casos como cubierta especial, ya que los servicios son identificados por sus códigos de procedimientos.

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SALUD MENTAL

Todos los servicios de salud mental quedan excluidos de la cubierta de Triple-S, Inc. para los asegurados del Plan de Salud del Gobierno de Puerto Rico. Estos servicios serán brindados por American Psych System (APS). Los medicamentos psicotrópicos continuarán siendo riesgo del médico primario cuando éste o cualquier médico del IPA firme la receta. La evaluación de asegurados para descartar condiciones físicas será riesgo de la IPA. Esto incluye laboratorios y estudios requeridos para las evaluaciones a niños con sospecha de ADD o Hiperactividad, las evaluaciones de pacientes con sospecha de demencias, el tratamiento no psiquiátrico para éstas y las visitas a Sala de Emergencia de asegurados con síntomas (ejemplo: dolor de pecho) aunque el diagnóstico final sea uno de salud mental. En estos casos la intervención de la Sala de Emergencia u Hospital se limita a descartar una condición de salud física y no está dirigida al tratamiento de la condición psiquiátrica. La evaluación de asegurados para descartar condiciones físicas será riesgo de la IPA. Las pruebas diagnosticas tales como: electroencefalogramas, CT Scan, MRI, únicamente cuando son referidas por un siquiatra, serán riesgo de ASES.

TUBERCULOSIS

Los servicios de hospitalización, antibióticos para tratamiento de tuberculosis y consultas al neumólogo relacionados al tratamiento de asegurados con el diagnóstico de Tuberculosis son riesgos de ASES.

No es requisito registrar a estos asegurados.

VACUNAS

El incentivo de $4.00 que se ofrece a las IPAs por la administración de las vacunas indicadas en el esquema de vacunación del Departamento de Salud, es un riesgo asumido por ASES. Este servicio puede ofrecerse y facturarse a Triple-S, Inc. para cualquier suscriptor, irrespectivo de la IPA a la que pertenezca y sin mediar referido médico. Se facturará la administración de una sola vacuna aunque ésta contenga varios antígenos (Ej. DPT).

El incentivo no aplica a los asegurados Medicare A y B, ya que Medicare cubre el costo y la administración de las vacunas. Las vacunas que no son parte del esquema de vacunación del Departamento de Salud y son médicamente necesarios serán riesgo de la IPA.

VIH + / SIDA

Los asegurados VIH positivos deben ser registrados con evidencia de prueba de VIH positiva confirmada por la prueba de Western Blot. Los asegurados con SIDA deben ser registrados con CD-4 menor de 200 o evidencia de enfermedad oportunista. El registro se realizará a la fecha del laboratorio o tres (3) meses previos a la solicitud del registro lo que sea menor. Todos los servicios médicos ofrecidos a este asegurado posterior al registro serán riesgos de ASES. Los asegurados en tratamiento con medicamentos antiretrovirales serán identificados mensualmente e incluidos en el Registro de VIH/SIDA.

Los medicamentos antiretrovirales inhibidores de la transcriptasa y las hospitalizaciones con los

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siguientes diagnósticos serán asumidos bajo el riesgo de ASES, aún cuando el asegurado no haya sido registrado:

• Candidiasis esofágica o en bronquio, tráquea o pulmón

• Cáncer cervical invasivo

• Coccidioidomycosis diseminado o extrapulmonar

• Cryptococcosis extrapulmonar

• Cryptosporidiosis intestinal crónica (más de un mes de duración)

• Enfermedad por Cytomegalovirus en hígado, vasos o nódulos

• Retinitis por Cytomegalovirus con pérdida de visión

• Encefalopatía, relacionada a VIH

• Bronquitis, Pneumonitis o Esofagitis por Herpes Simple

• Histoplasmosis diseminado o extrapulmonar

• Isosporasis crónico intestinal (más de un mes de duración)

• Sarcoma de Kaposi

• Lymphoma Burkitt (o término equivalente)

• Lymphoma Inmunoblástico ( o su término equivalente)

• Lymphoma primario de cerebro

• Mycobacterium Avium complex o Tipo M, Kanasii diseminado o extrapulmonar

• Mycobacterium tuberculosis (cualquier lugar pulmonar o extrapulmonar)

• Otras especies de Mycobacterium sin identificar, diseminado o extrapulmonar

• Pneumonía por pneumocystis carinii

• Pneumonía recurrente

• Leucoencefalopatía progresiva multifocal

• Toxoplasmosis del cerebro

Todas las recetas de medicamentos antiretrovirales de HIV incluidos en la cubierta se consideran riesgos de ASES, irrespectivo de que el asegurado haya sido registrado. Los asegurados en tratamiento con inhibidores de proteasa deben ser referidos a las Clínicas de Inmunología del Departamento de Salud para tratamiento, ya que éstos no están incluidos en la cubierta establecida por ASES para los asegurados del Plan de Salud del Gobierno de Puerto Rico.

Un niño se considera con diagnóstico definitivo de infección por VIH, si tiene evidencia de anticuerpos VIH después de los 18 meses de edad o tiene dos de las siguientes pruebas positivas: Antígeno P24, Prueba de Carga Viral y Cultivo de Virus. En los casos pediátricos, todo niño nacido de madre seropositiva debe considerarse infectado y requiere manejo, según el protocolo establecido para estos fines y disponible en las Clínicas de Inmunología del Departamento de Salud u otros centros dedicados al tratamiento de esta condición. Estos infantes se catalogan de “Infección Indeterminada” según el CDC de Atlanta y si son seropositivos luego de los primeros 18 meses, continuarán con un diagnóstico clasificado como riesgos de ASES. Los casos de infantes mayores de 18 meses que no posean anticuerpos, cesarán de considerarse como riesgos de ASES

12

Anejo 1

CÓDIGOS RELACIONADOS A LOS RIESGOS ASUMIDOS POR ASES
(Efectivos a partir del 1^ro. de noviembre de 2008)

ACCIDENTES CEREBROVASCULARES AGUDOS (CVA)

Lugar de Servicio:	H (21) y E (23), todo tipo de servicio
ICD-9:	430.00-438.00
Tipo de Servicio:	Todos

AFÉRESIS TERAPÉUTICA

Lugar de Servicio:	H (21 y E (23)
Procedimientos:	36511 @ 36516 y 36522

AMBULANCIAS

Tipo de Servicio	A
Procedimientos:	A0021-A0999

Requiere precertificación cuando el trasporte no es de emergencia.

CÁMARA HIPERBÁRICA (Requiere precertificación)

Lugar de Servicio:	H (21)
Código:	111 @ 114-413
Tipo de Servicio:	1
Código:	99183

CÁNCER

Asegurado independientemente esté o no esté registrado:

Cualquier Tipo de Servicio
Procedimientos:

J0207, J0285, J0640, J1190, J1260, J1440, J1441,
J1626, J1950, J2352 @ J2355, J2405, J2505,
J2820, J3487, J9000 @ J9999, Q0179, Q0180
Q4052 @ Q4055, Q9920 @ Q9940
GPI- 21, Thalomid — 99392070
CPT — 55876, 77261 @ 77999, 96400 @ 96549

Asegurado registrado:

Todo servicio en H (21, 22) y E (23)
Lugar de servicio O (11)
Todo servicio prestado por especialidad #34, 44, #48 y #49
Tipo de Servicio:	4, 5, 6, O
Lugar de servicio:	O (11)
Procedimientos:

J0460, J0702, J0704, J0880, J1100, J1190, J1200,
J1460, J1470, J1480, J1490, J1500, J1510, J1520,
J1530, J1540, J1550, J1563, J1564, J2150, J2175,
J2180, J2185, J2270, J2271, J2275, J2410, J2430,
J2780, J2920, J2930, J7030, J7040, J7042, J7050
J7051, J7060, J7070, J7120, J7637, J8520, J8521

13

J8530, J8560, J8600, J8610, J8700, Q0136, Q0137
Q0163 @ Q0178

Tipo de servicio:	1, 2 y 3
ICD-9 de cáncer o relacionado a cáncer:

ICD-9 Cáncer:	Relacionados:
140.0 @ 208.9	038, 112.5, 112.8, 275.4
230.0 @ 239.9	276.0, 280.0, 280.9, 284.8
	285.9, 288.0, 336.9, 348.4,
	348.5, 423.9, 451.1 @ 453.9,
	459.0, 459.2, 511.9, 560.9,
	567.9, 586.0, 780.0, 780.39
	789.0 @ 789.9

CIRUGÍAS CARDIOVASCULARES

Lugar de servicio:	H (21 y 22)
Tipo de Servicio: Procedimientos:	1, 2, 7 y 8

33010 @ 33979, 36002 @ 36015,
36822 @ 36870, 92978 @ 92998
93501 @ 93581, 93745

Lugar de Servicio:	H (21)
Procedimientos:

TOB 111 @ 114 — Revenue Code 210 + ICD-9 (35.41, 35.73,
35.42, 35.81, 35.52, 35.62, 35.72, 39.61, 35.71)
TOB 111 @ 114 — Revenue Code 400 + CPT (47500, 74320,
75605, 75625, 75630, 75741, 75743, 75746, 75660, 75662,
75665, 75671, 75676 ó 75680
TOB 111 @ 114 — RC 400 + CPT (35470 @ 35476, 75962,
75966, 75978, 75964 ó 75968
TOB 111 @ 114 —RC 400 + CPT (37204, 75894)
TOB 111 @ 114 —RC 400 + CPT (74328, 74363)
TOB 111 @ 114 — RC 621
TOB 111 @ 114, 831 — RC 481 + CPT (93501, 93510, 93524-93533)
TOB 111 @ 114 — RC 480 + ICD-9 (37.21, 37.22 ó 37.23 + 36.10,
36.11, 36.12, 36.14, 36.16 ó 36.17) (37.21, 37.22 ó 37.23 +
36.01, 36.02 ó 36.05) (36.10-36.17) (35.20-35.22) (35.23, 35.24,
35.27, 35.28) 9 (35.23, 35.24, 35.27, 35.28 + 36.10-36.17) (36.03,
36.09, 36.11 @ 36.17, 36.19, 39.61, 37.61, 37.64)
TOB 111 @ 114 —RC 480 + CPT (92980) (92981)
TOB 111 @ 114 — RC 100 + CPT (93619-93624, 93640, 93642. 93650 @ 93652)
TOB 111 @ 114 — 100 + ICD-9 (39.5-39.59)

• Periferovascular

Tipo de Servicio:	1, 2, 7, 8 y H
Procedimientos:	34001 @ 35907; 37140 @ 37660
	TOB 111 @114 — Revenue Code 323 + ICD-9 (39.29)
	Anestesia — 00350

• Estudios y procedimientos electrofisiológicos

Tipo de Servicio:	1
Procedimientos:	93600 @ 93660
	111 @ 114 — RC 100 + ICD-9 (37.94-37.99)
	Anestesia - 00537

14

Marcapasos =     TOB 111 @ 113 — Revenue Code 275 / Anestesia — 00530

CIRUGÍAS MAXILARES

Especialidad:	019 y 005
Lugar de Servicio:	21 y 22
Tipo de servicio:	2 y 7
Procedimientos: 21025 @ 21070, 21110, 21125, 21127, 21195 @ 21249, 21299, 21421 @ 21490, 21497, 30580 @ 30600, 40700 @ 40720, 40800 @ 40845, 41000 @ 41520, 41800 @ 42440

DENTAL Y MEDICAMENTOS DEL FORMULARIO DENTAL RECETADOS POR DENTISTAS

Todos los códigos de CDT-5

Medicamentos de PDL Dental recetados por especialidad 015, 017, 019, 071, 088, 089 y 115

EMERGENCIAS Y HOSPITALIZACIONES PARA EL TRATAMIENTO DE CONDICIONES RESULTANTES DE DAÑOS AUTOINFLIGIDOS O FELONÍAS REALIZADAS POR EL ASEGURADO

Lugares de Servicio:	21 y 23
ICD-9:	E950.0 a E989.0

ENFERMEDAD CRÓNICA RENAL / DIÁLISIS Y HEMODIÁLISIS

Asegurado en IPA Renal (43-47 y 49) — Todos los servicios

Asegurado no registrado en IPA Renal:

Lugar de Servicio:	H (21)
Procedimientos:
	TOB 721 @ 724 — Revenue Codes 801, 820 y 821

Tipo de Servicios: 1 y 2
Procedimientos:	90918 @ 90999,     36145,
	36800 @ 36871,     49420 @ 49422

Medicamentos:
	Epogen — GPI 82401020	Aranesp — GPI 82401015
	Phoslo — GPI 52800020	Renagel — GPI 52800070
	Sensipar — GPI 30905225	Calciferol — GPI 77202030
	Rocaltrol — GPI 77202036

Asegurados en registro de cubierta especial renal para los niveles de GFR 3 y 4

Especialidades: 035 y 039

Códigos: 99201 @ 99292 en cualquier lugar de servicio

Laboratorios:

80053 @ 80069, 81000 @ 81015, 82040, 82247
82310, 82374, 82435, 82565, 82947, 84075, 84100
84132, 84155, 84295, 84450, 84460, 84520

15

ESCLERODERMA SISTÉMICA (ICD-710.1)

Si el asegurado está registrado, todos los servicios, procedimientos y medicamentos excepto 99201-99205 y 99212-99215 de los médicos de la IPA del asegurado. Se pagará capitación a la IPA solo por el subfondo del PCP

ESCLEROSIS MÚLTIPLE (ICD-340)

Si el asegurado está registrado, todos los servicios, procedimientos y medicamentos excepto 99201-99205 y 99212-99215 de los médicos de la IPA del asegurado. Se pagará capitación a la IPA solo por el subfondo del PCP.

ESTUDIOS DE MEDICINA NUCLEAR

Tipo de Servicio:	6
Lugar de Servicio:	Todos
Procedimientos:	78000 @ 79999

Suplido de agentes radio-farmacológicos:

Códigos estándares	Códigos criollos
(a partir de febrero 2003)	(previos a febrero 2003)
A4641, A4642, A9500, A9502,	V7620, V7621, V7622, V7623
A9503, A9504, A9505, A9507,	V7625, V7626, V7627, V7628
A9508-00, A9508-QQ, A9510-00,	V7629, V7630, V7631, V7650
A9510-KO, A9517, A9518, A9521-00	V7651, V7652, V7653, V7654
A9521-KX, A9536, A9537, A9538,	V7655, V7656, V7657, V7661
A9539, A9540, A9541, A9547, A9548,
A9549, A9550, A9551, A9552, A9556
A9557, A9558, A9560, A9561, A9562
A9563, A9564, A9565, A9567, A9600 A9605, A9699, J0150, J1245, J1250
J1265, J2805, J3240, Q9945, Q9946
Q9947, Q9948, Q9949, Q9950, Q9952

FIBROSIS QUÍSTICA

Si el asegurado está registrado, todos los servicios, procedimientos y medicamentos excepto 99201-99205 y 99212-99215 de los médicos de la IPA del asegurado. Se pagará capitación a la IPA solo por el subfondo del PCP.

HEMOFILIA

Todos los medicamentos antihemofílicos (GPI 8510).

INTENSIVO NEONATAL (NICU)

Lugar de Servicio:	H (21)
Procedimiento:	99293 @ 99296
Lugar de Servicio:	H (21)
Especialidades:	41 y 95
ICD-9:	76400 @ 77999
Procedimiento:	99221 @ 99223, 99231 @ 99233
Lugar de Servicio:	H (21)
Procedimiento:	TOB 111- 114 Revenue Code 173
Lugar de Servicio:	H (21)

16

Procedimiento:		TOB 111-114 Revenue Code 170
ICD-9		76400 @ 77999
Lugar de Servicio		H (21)
ICD-9		76400 @ 77999
	(Synagis — requiere precertificación)

INTENSIVO PEDIÁTRICO (PICU) / INTENSIVO ADULTOS (ICU)

Lugar de Servicio:	H (21)
Tipo de servicio:  H
Códigos:	TOB 111 – 114 Revenue Code 200 – 203, 207, 208, 208, 210, 211
	99291 y 99292; 99293 y 99294

LABORATORIOS DE CITOGENÉTICA

Códigos: 88230 @ 88299

LITOTRICIA (Requiere precertificación)

Lugar de Servicio:	H (21)
Revenue Code:  TOB 111- Revenue Code 790; 799,
Tipos de Servicio	2 y 7
Procedimientos:	50590

LUPUS ERITEMATOSO SISTÉMICO

Si el asegurado está registrado, todos los servicios, procedimientos y medicamentos excepto 99201-99205 y 99212-99215 de los médicos de la IPA del asegurado. Se pagará capitación a la IPA solo por el subfondo del PCP.

MAMOGRAFÍAS

Tipo de Servicio:	4
Lugar de Servicio:	11, 21, 22 y 23
Procedimientos:	77051, 77052, 77055 @ 77057
	G0202, G0204, G0206

MEDICAMENTOS ESPECIALES

Antivirales para HIV *	Tobi
Quimioterapias para cáncer **	Pulmozine
Medicamentos de Hemofilia	Epogen, Procrit, Aranesp
Sandostatin	Neupogen
Desmopresina (DDAVP)	Neumega
Copaxone	Synagis
Rebif	Agrylin
Betaseron	Inmunosupresores
Avonex	Carnitol *
Hormona de crecimiento	Gammaglobulina
Botox	Remicade
Cerezyme	Petamidine

17

Thalomid	Leucovorin *
Casodex	Aromasin
Fareston	Megace *
Faslodex	Vesanoid
Eulexin	Arimidex *
Hydrea *	Femara
Rilutek	Nolvaldex *
Phoslo *	Calciferol *
Renagel	Rocaltrol *
Sensipar

*	No requieren precertificación
**	Algunas quimioterapias se precertifican.

NEUROCIRUGÍA

Tipo de Servicio:	2, 7, 8
Procedimientos:
	22318 @ 22899, 61000 @ 61619
	61680 @ 61711, 61850 @ 61888
	62000 @ 62269, 62287 @ 62294
	63000 @ 63746, 64702 @ 64999
Terapia endovascular:
Tipo de Servicios:	2, 7 y 8
Procedimientos:	61623 @ 61626
	TOB 111@114 - Revenue Code 360 – ICD-9 38.91, 38.8
Cirugía esterotáctica:
Tipo de Servicios:	2, 7 y 8
Procedimientos:	61720 @ 61795
	TOB 831 ó 131 – Revenue Code 490 – CPT – 65920, 66983,
	67038, 67039, 67040, 67108, 67112

Nota: Revenue Codes 100, 120 ó 164 acompañado de un procedimiento antes mencionado desde fecha de procedimiento en adelante.

NIÑOS CON NECESIDADES ESPECIALES

Si el asegurado está registrado, todos los servicios, procedimientos y medicamentos excepto 99201-99205 y 99212-99215 de los médicos de la IPA del asegurado. Se pagará capitación a la IPA solo por el subfondo del PCP.

OBSTETRICIA

• Pacientes en registro de obstetricia — Todos los servicios de la madre y del recién nacido mientras dure el registro.

• Si la paciente no está en registro y tenga ICD-9:	V22 @ V22.2,	V23 @ V23.99,
	V24 @ V24.2,	630 @ 633.9,
	634 @ 634.99,	637 @ 637.99,
	639 @ 639.99,	640 @ 648.99,
	650 @ 677

Tipo de servicio:	Todos
Lugar de Servicio:	H (21, 22 y 23)
Procedimientos:

111 @ 114 – Revenue Code 100, 120,	99231 @ 99233, 99234 @ 99236
164, 200, 202, 208;	99238 – 99239, 99251 @ 99255,
	99261 @ 99263, 99281 @ 99285,
	99291- 99292, 99293 @ 99299,
	99356 – 99357, 99360,
	99431 @ 99440, 99217 @ 99220
	99221 @ 99223, 59000 @ 59899

18

Tipo de servicio:	1 — Especialidades 16 y 61
Lugar de servicio:	O (11)
Procedimientos:	99201 @ 99205, 99212 @ 99215

POST TRANSPLANTES DE ÓRGANOS

Si el asegurado está registrado, todos los servicios, procedimientos y medicamentos excepto 99201-99205 y 99212-99215 de los médicos de la IPA del asegurado. Se pagará capitación a la IPA solo por el subfondo del PCP.

PRÓTESIS (Requiere precertificación)

Tipo de servicio:	9
Procedimientos:	L5000 @ L9900 ; V2623 @ V2629 ; D5911 @ D5999
Lugar de Servicio:	111 @ 114 – Revenue Code 278; 111 @ 114 –
	Revenue Code 279 + A4550

RADIOCIRUGÍAS

Tipo de Procedimiento H (21)
Procedimiento TOB 111 @ 114 – Revenue Code 947 + G0173

TUBERCULOSIS

Lugar de Servicio	21
ICD-9:	010.00 @ 017.99
Farmacia	GPI 0999

VACUNAS

Solo se pagará $4.00 por la administración de las vacunas indicadas en el esquema de vacunación del Departamento de Salud

Tipo de Servicio:	1
Lugar de Servicio:	11
Procedimientos:	90465 @ 90749

VIH + \ SIDA

Asegurado registrado — Todos los servicios, procedimientos y medicamentos excepto 99201-99205 y 99212-99215 de los médicos de la IPA del asegurado. Se pagará capitación a la IPA solo por el subfondo del PCP.

Asegurado no registrado:

GPI – 1210
Lugar de servicio:	11, 21, 22 y 23
Códigos de procedimientos:	87536 y 87901
Lugar de Servicio:	H (21)
ICD-9:

003.1, 003.21 @ 003.24, 007.4, 008, 018.0, 031.0 @ 031.2,
039.0 @ 039.4, 042, 046.3, 053.0, 078.5, 0.79.53, 112.4,
112.5, 112.81, 112.83 @ 112.85, 114.0 @ 114.9,
115.0 @ 115.9, 116.0 @ 116.2, 117.3, 117.5, 136.3,
176.0 @ 176.9, 200.0 @ 200.8, 201.0 @ 201.9
202.0 @ 202.6

Procedimientos: Todos (CPT, Revenue Codes y HCPCS)

19

Anejo 2

CONDICIONES PARA INCLUIR PACIENTES EN EL REGISTRO
DE NIÑOS CON NECESIDADES ESPECIALES DE SALUD

Diagnóstico Principal	Especificaciones	ICD-9
A. Desórdenes Metabólicos	1. Desórdenes específicos de amino ácidos	270.0 - 270.8
	2. Desorden no específico del metabolismo de los aminoácidos	270.9
	3. Desórdenes de transporte y metabolismo de carbohidratos	271.0 -271.9
	a. Glicogenosis	271.0
	b. Galactosemia	271.1
	c. Intolerancia a la fructosa	271.2
	d. Desórdenes específicos de transporte y metabolismo de carbohidratos	271.8
	e. Desórdenes no específicos de transporte y metabolismo de carbohidratos	271.9
	4. Desórdenes de metabolismo de lípidos	272.0 - 272.7
	a. Desórdenes de lipoproteínas	272.5
	b. Lipidosis	272.7
	5. Otros desórdenes de metabolismo no específicos	277.0 - 277.6
	a. Desórdenes de metabolismo de porfirina, purina y pirimidina	277.1 - 277.2
	b. Amiloidosis	277.3
	c. Mucopolisacaridosis	277.5
	d. Deficiencia de enzimas de circulación	277.6
B. Enfermedades hereditarias y del sistema nervioso central	1. Degeneración cerebral	330
	a. Leucodistrofia	330.0
	b. Lipidosis cerebral	330.1 - 330.8
	2. Enfermedades espinocerebelares	334.0 - 334.9
	3. Enfermedades demielinizantes del sistema nervioso central	341.0 - 341.9
	4. Perlesía Cerebral	343.0 - 343.9
	5. Otros síndromes de parálisis	344.0
	6. Neuropatías periferales hereditarias	356.0 - 356.9
	7. Distrofia Muscular y otras miopatías, desórdenes miotónicos	359.0 - 359.2
C. Desórdenes Músculo esqueletales	1. Tortícolis	723.5
	a. Espástica, congénita, tortícolis del músculo esternocleidomastoideo	754.1
	2. Osteocondritis juvenil de pelvis y cadera	732.1
	3. Ostocondritis juvenil de la extremidad inferior, excluye el pie	732.4
	4. Otras deformidades adquiridas de tobillo y pie	736.70 - 736.72
	5. Curvatura de espina	737.0 - 737.3
	6. Espina bífida	741.0 - 741.03,
		741.9 - 741.93
	7. Otras anomalías congénitas del sistema nervioso central	742.0 - 74.59,
		742.8 - 742.9

20

Diagnóstico Principal	Especificaciones	ICD-9
D. Anomal—as Congénitas*	1. Anomalías congénitas del ojo
	a. Anoftalmo	743.0-743.06,
	b. Microftalmo, Buftalmo	743.10 - 743.12,
		743.2 - 743.22
	c. Cataratas congénitas y anomalía en el lente	743.3 - 743.39
	d. Coloboma y otras anomalías del segmento anterior del ojo	743.4 - 743.49
	e. Anomalías congénitas del segmento posterior del ojo	743.5 - 743.59
	f. Anomalías congénitas del parpado, sistema lacrimal y órbita	743.6 - 743.9
	2. Anomalías congénitas del oído, cara y cuello
	a. Anomalías auditivas	744.0 - 744.3
	b. Atresia congénita de coanas y otras anomalías	744.4 - 744.5,
	congénitas de la nariz, laringe, traquea y	744.8 - 744.9
	bronquios	748.0 - 748.9
	c. Paladar y labio hendido (Cleft lip and palate)	749.0 - 749.25
	d. Otras anomalías congénitas del tracto alimentario superior	750.0 - 750.9
	3. Deformidades musculoesqueletales congénitas	754.0 - 754.79
		755, 755.21,
		755.31,755.58 y
		755.59
	4. Osteodistrofia Congénita	756.5 - 757.39
	5. Anomalías de los cromosomas	758.0 - 758.89,
		759.5-759.9
E. Desórdenes en los órganos sensoriales	1. Pérdida auditiva conductiva	389.0 - 389.08
	2. Pérdida auditiva sensorineural	389.1 - 389.9
	3. Ceguera y visión pobre	369.0 - 369.04
	4. Estrabismo y otros desórdenes de movimiento ocular	378
	a. Esotropia
	b. Exotropia	378.0 - 378.08
	c. Heterotropia intermitente	378.1 - 378.18
		378.2 - 378.9
F. Quemaduras y Traumas	1. Quemadura con cicatrices incapacitantes	906.9
	2. Condiciones de cicatrices y filrosis de la piel	709.2
G. Desórdenes hematológicos severos**	1. Mielodisplasia	238.7
	2. Anemia Aplástica	284.0 - 284.9
H. Enfermedades del colágeno**	1. Lupus eritematoso sistémico	710.0
	2. Artritis Reumatoidea Juvenil	714.0
I. Deficiencia de Hormona de Crecimiento		253.3

*	Las anomalías congénitas que requieran corrección quirúrgica permanecerán en el registro tres meses post-cirugía o hasta ser dados de alta por el médico que realizó la cirugía.
**	Se evaluará cada caso individualmente de acuerdo al tratamiento y severidad de la condición.

21

Subsidiaria de Triple-S Management Corporation Ave. Franklin D. Roosevelt 1441 PO Box 11961 San Juan, PR 00922-1961 Tel. 793-8383 cubiertasespeciales@ssspr.com

FORMULARIO DE REGISTRO DE CUBIERTA ESPECIAL Anejo 3

INFORMACIÓN DEL ASEGURADO Y MÉDICOS QUE LE ATIENDEN

Nombre del asegurado: Nombre del PCP: Nombre del Especialista:

Número de Contrato: Número de Proveedor PCP: Número de Proveedor Especialista:

Tel. asegurado: Tel. PCP: Tel. Especialista:

Fax PCP: Fax Especialista:

DIAGNÓSTICO

HIV+ / SIDA            FIBROSIS QUÍSTICA

Requisitos que debe incluir con este formulario: Requisitos que debe incluir con este formulario: ? Contaje de CD4 (menos de 200) ? Prueba de sudor ? Prueba de Western Blot+ con historial de enfermedad ? Certificación neumólogo sobre diagnóstico oportunista. ? Evidencia de medicamentos que utiliza para la condición

ESCLEROSIS MÚLTIPLE            ESCLERODERMA SISTÉMICA

Requisitos que debe incluir con este formulario: Requisitos que debe incluir con este formulario: ? MRI de Cerebro ? Evidencia de Pruebas diagnósticas ? MRI de Cordón Espinal ? Biopsia de Piel

FALLO CRÓNICO RENAL            POST TRASPLANTE

Lugar donde recibe tratamiento: ___Requisitos que debe incluir con este formulario: Requisitos que debe incluir con este formulario: Tipo de Trasplante:_ Fecha de inicio diálisis: // Fecha de trasplante: / / Mes            Día            Año            Mes            Día            Año ? Documento 2728 ? Evidencia médica del trasplante ? Laboratorio creatinina, edad y sexo ? Inmunosupresores utilizados por el paciente Indicar si asegurado tiene: ? Medicare A ? Medicare B ? Medicare A y B

LUPUS ERITEMATOSO SISTÉMICO

Requisitos para evaluación: ? Evaluación de reumatología ? Laboratorios de ANA Test y DS-DNA

Comentarios adicionales:

NOTA: NOTNFavor de enviar este formulario acompañado de toda la información pertinente, por fax al 774-4835 para Reforma ó 774-4836 pabdfbdfdf para Medicare Selecto o vía correo electrónico a la siguiente dirección: cubiertasespeciales@ssspr.com.

Refadfcmcvcvc Revisado:27 de octubre de 2008

Subsidiaria de Triple-S Management Corp Ave. Franklin D. Roosevelt 1441 PO Box 11961 San Juan, PR 00922-1961 Tel. 793-8383 Fax 774-4835 cubiertasespeciales@ssspr.com

REGISTRO DE NIÑOS CON NECESIDADES ESPECIALES Anejo 4

INFORMACIÓN DEL SUSCRIPTOR Y MEDICOS QUE LE ATIENDEN

Nombre del suscriptor: Edad: Número de contrato: Teléfono del suscriptor: Núm. de IPA:

Dirección postal del suscriptor: Nombre del PCP: Núm. de Proveedor:

Tel. PCP: Fax PCP: Núm. Expediente:

Nombre del Especialista: Núm. de Proveedor:

Tel. Especialista            Fax Especialista            Núm. Expediente: DIAGNÓSTICOS DIAGNÓSTICOS            INDIQUE TRATAMIENTO Diagnóstico (ICD9) Fecha Diagnóstico: Mes / Día / Año Diagnóstico (ICD9) Fecha Diagnóstico: Mes / Día / Año Diagnóstico (ICD9) Fecha Diagnóstico: Mes / Día / Año Diagnóstico (ICD9) Fecha Diagnóstico: Mes / Día / Año INDIQUE CLÍNICAS ESPECIALIZADAS QUE VISITA Y LA FRECUENCIA DE LAS VISITAS

INDIQUE HOSPITALIZACIONES RECIENTES (SI ALGUNA) FECHA            HOSPITAL

INDIQUE PROCEDIMIENTOS QUIRURGICOS RECIENTES Y/O PENDIENTES (SI ALGUNO) PROCEDIMIENTOS QUIRURGICOS            DESCRIPCION            FECHA            CODIGO DE CPT            LUGAR DE SERVICIO

Nombre y firma de persona que completa este formulario: Fecha:

Revisado: 27 de octubre de 2008

Subsidiaria de Triple-S Management Corporation Ave. Franklin D. Roosevelt 1441 PO Box 11961 San Juan, PR 00922-1961 Tel. 793-8383 Fax 774-4837 cubiertasespeciales@ssspr.com

FORMULARIO INICIAL DE REGISTRO DE ONCOLOGIA Anejo 5

Parte A. Información del Asegurado Nombre del Asegurado: # de contrato:

ICD9: Estadío(TNM):

Fecha de Patología: _/___/___Teléfono del paciente:

Comorbilidad: ÿ Alergias ___ ÿ Diabetes ÿ Hipertensión ÿ Enfermedad Cardíaca ÿ Enfermedad Pulmonar ÿ Otros ___ Comentarios:

Parte B: Tratamientos Recibidos Tratamiento            Fecha Aproximada # Tratamientos            Descripción del Tratamiento ÿ Cirugía ÿ Radioterapia ÿ Terapia hormonal ÿ Trasplante de médula ósea Quimioterapia /Agentes Hormonales            Fecha Aproximada            Dosis            Frecuencia            Duración Ruta            Periferal            Línea Central            S/C            IM            PO Anti-eméticos            Compazine            Decadron            Reglan            Zofran            Anzemet Otros Medicamentos:

Parte C: Proveedores Nombre            Número proveedor            Teléfono            Fax ÿ Cirujano ÿ Radioterapeuta ÿ Oncólogo ÿ Otros

IMPORTANTE: Este documento es para uso de individuos o entidades a las que se le envía y puede contener información que es CONFIDENCIAL y libre de divulgaciones bajo la ley. Si no es el receptor correcto, se le notifica que cualquier distribución, divulgación o copia de este documento está estrictamente prohibido. Si recibe este documento por equivocación, favor notifíquelo inmediatamente por teléfono y devuelva el original por correo a la dirección arriba mencionada.

Persona que documenta: Fecha: ___

Revisado: 27 de octubre de 2008

Subsidiaria de Triple-S Management Corporation Ave. Franklin D. Roosevelt 1441 PO Box 11961 San Juan, PR 00922-1961 Tel. 793-8383 cubiertasespeciales@ssspr.com

REGISTRO DE CASOS DE OBSTETRICIA Y            Anejo 6

REFERIDOS AL PROGRAMA EDUCATIVO

INFORMACIÓN DE LA PACIENTE

Nombre de la Paciente            Edad            IPA

Número de Contrato            Teléfonos de la Paciente

Fecha Primera Visita            Semana de Embarazo al Momento de Primera Visita            Fecha de Ultima Menstruación            Fecha estimada del Parto

Mes            Día            Año            Mes            Día            Año             Mes            Día            Año

INFORMACIÓN DEL OBSTETRA

Nombre del Obstetra:

Número de Proveedor            NPI

Teléfono de Oficina            Número de Fax

HISTORIAL CLINICO

¿Abortos recientes? Si o No Historial Gineco-Obstétrico            Sí, favor de llenar

G            P            A            SB

Mes            Día            Año

Si es un embarazo de alto riesgo, escoja entre las siguientes indicando el orden de relevancia de las condiciones: (1 Primario, 2 Secundario, 3 Terciario) Diagnóstico: Relevancia:

· Diabetes

· Condición respiratoria

· Hipertensión

· Cardiovascular

· Cáncer

· VIH

· Historial de parto prematuro

· Otro, especifique:

Comentarios:

Firma del Obstetra            Fecha X

Puede enviar este formulario a los siguientes faxes: 774-4835 para Reforma ó 774-4836 para Medicare Selecto o vía correo electrónico a la siguiente dirección: cubiertasespeciales@ssspr.com

Revisado: 27 de octubre de 2008

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ramón M. Ruiz-Comas, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Triple-S Management;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 18, 2009	By:	/s/ Ramón M. Ruiz-Comas
		Ramón M. Ruiz-Comas
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Juan J. Román, certify that:

1.	I have reviewed this annual report on Form 10-K of Triple-S Management Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
a)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 18, 2009	By:	/s/ Juan J. Román
		Juan J. Román
		Vice President of Finance and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Annual Report of Triple-S Management Corporation (the Corporation) on Form 10-K for the period ended December 31, 2008 as filed with Securities and Exchange Commission on the date hereof (the “Report”), I, Ramón M. Ruiz-Comas, President and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.	The fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods covered by the Report.

Date: March 18, 2009	By:	/s/ Ramón M. Ruiz-Comas
		Ramón M. Ruiz-Comas
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Annual Report of Triple-S Management Corporation (the Corporation) on Form 10-K for the period ended December 31, 2008 as filed with Securities and Exchange Commission on the date hereof (the “Report”), I, Juan J. Román, Vice President of Finance and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.	The fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods covered by the Report.

Date: March 18, 2009	By:	/s/ Juan J. Román
		Juan J. Román
		Vice President of Finance and Chief Financial Officer