PREMIER BEHAVIORAL SYSTEMS OF TENNESSEE .. LLC.

STATEMENT OF OPINION ON ACCURACY AND COMPLETENESS OF RECORDS

December 31, 2008

I, Michael D. Fotinos, of Magellan Health Services hereby affirm that the records, listings, summaries of policies in force as of December 31, 2008, and other relevant data, prepared for and submitted to Ernst & Young, LLP, were prepared under my direction and, to the best of my lrnowledge and belief, are accurate and complete. I hereby affirm that the claims incurral dates, claims paid dates, and contract totals are, to the best of my knowledge and belief, accurately stated on the aforementioned records, listing, summaries, and other relevant data.

I further affitm that, to the best of my knowledge and belief, Premier Behavioral Systems of Tennessee, LLC. has no obligation or commitments with respect to which actuarial reserves are required or appropriate other than those to which data in the aforementioned records, listings, summaries, and other relevant data relate.

Michael D. Fotinos Finance Director, Public Sector Magellan Health Services Columbia, Maryland February 26, 2009

ill ERNST & YOUNG Quality In E.-erything We Do

Ernst & Young LLP 5 Times Square New York, New York 100366530

STATEMENT OF ACTUARIAL OPINION

February 25, 2009

Board of Directors Premier Behavioral Systems, LLC

Phone: (212) 773-3000 www.ey.com

I, Michael J. Cellini, am a member of the American Academy of Actuaries ("the Academy"), and a Senior Manager and Consulting Actuary with the firm of Ernst & Young LLP. I have been retained by Premier Behavioral Systems, LLC, ("the Company") to issue this opinion. I meet the Academy qualification standards for issuing this opinion, and I am familiar with the valuation requirements applicable to the Company.

I have reviewed the actuarial assumptions and actuarial methods used in determining the reserves and related actuarial items listed below and as shown in the Quarterly fmancial statement of the Company, as prepared by the management of the Company for filing with state regulatory officials, as of December 31, 2008. My responsibility is to express an opinion on these reserves and related actuarial items based on my review. The actuarial methods,· considerations and analyses used in forming my opinion conform to the appropriate Actuarial Standards of Practice and Actuarial Compliance Guidelines as promulgated by the Actuarial Standards Board, and form the basis of this statement of opinion.

Financial Statement Reference Item

Claims Unpaid

Page-Line

3-1

Amount

$6.434.188

The reserves and related actuarial items listed above represent the estimates made by management of the Company for all unpaid claims as of December 31, 2008. Considerable uncertainty and variability are inherent in such estimates, and, accordingly, the subsequent development of the unpaid claims liability may not conform to the assumptions used in the determination of the unpaid claims liability and therefore may vary from the amounts in the foregoing table.

I have relied on listings and summaries of claims and other relevant data, and upon management's representations regarding the collectibility of reinsurance recoverable amounts, as expressed in the attached statement. I have relied upon Mr. Michael D.

Fotinos, Finance Director, for the accuracy of the data, as expressed in the attached statement.

In other respects, my examination included such review of the actuarial assumptions and actuarial methods, including comparing prior years' estimates of unpaid claims liabilities to their subsequent development and such other tests of the actuarial calculations, as I considered necessary.

In my opinion, the reserves and related actuarial items identified above:

(a) Are computed in accordance with presently accepted actuarial standards consistently applied, and are fairly stated in accordance with sound actuarial principles, except that consideration of the adequacy of the Company's reserves and related actuarial items in conjunction with the assets which support them has not been performed;

·(b) Are based on actuarial assumptions relevant to contract provtstons and appropriate to the purpose for which the financial statement was prepared, and provide for all reasonably anticipated unpaid claims under the contracts;

(c) Meet the requirements of the insurance laws and regulations of the State of Tennessee;

(d) Are computed on the basis of assumptions consistent with those used in computing the corresponding items in the Annual Statement of the preceding year, with any exceptions noted below;

(e) Include provision for all actuarial reserves and related actuarial items which ought to be established; and,

(f) Make good and sufficie~t provision for all unpaid claims and other actuarial liabilities of the Company under the terms of its contracts and agreements, by which I mean that the estimated liabilities is an appropriate measure of reasonably anticipated payments on incurred claims under potentially moderately adverse development, although, consistent with the scope of my review, the adequacy of the Company's reserves and related actuarial items in conjunction with the assets which support them has not been considered,

My review did not include asset adequacy analysis, as such analysis is not in the scope of my assignment. I have not reviewed any of the Company's assets and I have not formed any opinion as to their validity or value. My opinion rests on the assumption that the Company's December 31, 2008 statutory-basis unpaid claims liability is funded by valid assets that have suitably scheduled maturities and/or adequate liquidity to meet future cash flow requirements.

As part of my review, I conducted analysis consistent with Section 3.6, "Follow-Up Studies", contained in ASOP Number 5, "Incurred Health and Disability Claims'', adopted by the Actuarial Standards Board in December 2000.

My review relates only to those reserves and related actuarial items identified herein, and I do not express an opinion on the Company's fmancial statements taken as a whole.

This opinion has been prepared solely for the Board and the management of the Company and for filing with state regulatory officials and is not intended for any other purpose.

Michael J. Cellini, ASA, FCA, MAAA Associate, Society of Actuaries Fellow, Conference of Consulting Actuaries Member, American Academy of Actuaries Ernst & Young, LLP 5 Times Square New York, New York 10036-6530 (212) 773-0873

02/24/2009 12:44 FAX 4109535205

liiiA G E L L A N • :: · · ·.,.· ~:i: .. H E A L T H S E R V I C E S"

0 ·:: •• • ~ • ~ ..... : l··. ' · .· ;' · :·:.;,':.Gmin& Bmtr AlJ rh~ Ttmr·

February 24, 2009

Mr. Michael Cellini, ASA, MAAA Ernst & Young LLP 5 Times Square New York, NY 10036

FIN DF.P Ia] 003

I, Michael Fotinos, Finance Director for Premier Behavioral Systems of Tennessee, LLC ("the Company"), hereby affirm that the listings and summaries of claims, exposures and other relevant data as of December 31, 2008, prepared for and submitted to Michael Cellini, aU of which are detailed in the attached schedule, were prepared under my direction and, to the best of my knowledge and belief, are accurate and complete, and are the same as or derived from the in force records and other data which form the basis for the Company1s 2008 Annual Filing. I further affirm that the line of business classifications, claim incurral dates, claim payment dates, development intervals, reinsurance data and premium rate infonnation contained in such listings, summaries, and related data are, to the best of my knowledge and belief, accurately stated. I further affrrm that the Underwriting and Investment Exhibit of the Annual Statement was prepared consistent with the claim incurral and claim payment dates of the data provided to support determination of the liability for unpaid claims. I further affmn that the listings, summaries, line of business classifications, to the best of my knowledge and belief, are compiled on a basis consistent with comparable data at December 31, 2007.

Policy reserves, the liability for unpaid claims, and tmearned premiums are net of reinsw-ance ceded amounts. All such reinsurance recoverable amounts are collectible at December 31, 2008. I am unaware of any material adverse change in the financial condition of the Company's reinsurers that might raise conce~n about their ability to honor their reinsurance commitments. The reinsurance contracts provided to you by the Company represent the Company's complete agreements ·with its ceding and assuming companies, and there are no modifications, either written or oral, of the tenns of the Company's reinsurance contracts or additional reinsurance agreements that have not been provided to you.

I further affirm that, to the best of my knowledge and belief, the Company has no obligations or commitments at December 3 1, 2008 with respect to which actuarial reserves are required or appropriate, except those for which reserves and liabilities are included in the following exhibits and line items on page· 3 of the Company's 2008 Annual Filing:

Claims unpaid

Finance Department

$6,434,188

-~D-~ Michael D. Fotinos/ Finance Director

6950 Columbia Gateway Drive Columbia. Maryland 21046

4101953-1000 tel 410/953-5205 fax www.MagellanHealth.com

Premier Behavioral Systems ReconcilaUon of Net Premium Income and Uncollected Premiums A: December 31, 2008

Gross Rovenuo Paid Chango In Rotro Revenuo Accrual Total Reveue

Retro Revenue Accrual Balance, December 31,2007 2008 Change In Balance Balance, December 31, 2008

Uncal!ocll!d Pmmlums December 2008 2.5% Withhold Retro l;levenuo Accrual Miscellaneous Difference Total

1.2

1,2

Jan-08 7,806,769.01

(23.440.97) 7,783,328.04

1,204,729.01 (163.313.18)

1,041,415.84

124,537.17 1,041,415.84

1,165,953.01

f!!l:2! 7,301,444.8!1

329.765.88 7,7t1,210.n

Ml!r:2i &u:.lli 8,087,551.20 7,013,841.82 (336 467.76) __ _.1....,1,:::.24.:.:2:.:..;.4:::.2

7, 751,083.44 7,825,084.24

~ 7,846,517.90

8,693.90 7,855,21 t.BO

Jun-08 8'Jii7.644.73 (240.170.73)

7,858,474.00

1. DUB to liming ol priority status assessment being submitted to U1o Stnto and entered Into payments system, at the limo ollnlllel payment certain mombors w110 would quallly (or payment al the higher priority rates 81e paid at the non priority rates. PBS records an accrual related to lhls mlsclasslllcallon.

2. AIID'Nanc8 lor retroactive member additions. Comparison of romiltance to eligibility

~ 8,058.553.67 (510,815.74)

7,547,737.93

Aug-08 8,435,497.57 (872.935.23)

7,562,562.34

~ 6,746,697.48 1,621,817.35 8,358,514.83

Oct-08 7,627,127.45

103,840.06 7,730,967.51

Nov-08 ~ !g!!! 5,005,681.94 4,981,486.98 87,898,814.64 (521.832.92> ----'2""7_,.5.:::.990=.56:.::. --~P""'G3~,3""1'-3:..;..ta::~)

4,483,849.02 5,257,477.54 87,735,601.46

PREMIER BEHAVIORAL SYSTEM 12/31/2008 IBNR

FFS Claims FFS PAD CMHC Claims Cutoff

Reinvestment ·

TOTAL

Premier 4,310,628

301,747 588,696

1,094,303 6,295,373

138,815

6,434,188

TennCare Partners Program Reconcilation of IBNR per MLR to Quarterly Filing December 31,2008

PBS TBH

IBNR Per MLR Report 4,899,323 1,232,128

Adjustments Claims Cutoff ( 1 ) 1,094,303 647,404 FFS PAD (2) 301,747 59,367 Reinvestment Reserve 138,815 427,050

Total Adjustments 1,534,865 1,133,821

IBNR Per Monthly Filing 6,434,188 2,365,949

(1) Claims processed during month but not paid until January. Included as a component of paid claims on the MLR reports.

(2) Ernst & Young requiring a 7% PAD above point estimate for FFS IBNR. Is an allowance for adverse deviation. Not reflected in MLR reports.

East

13,095,876

2,257,480 652,869

2,910,349

16,006,225

TennCare Partners Program Reconcilation of Medical Expense per MLR to Quarterly Filing December 31,2008

PBS

Medical Expense Per MLR Report 72,665,033

Adjustments Adjustment to Prior Period IBNR (1) (1 ,840,030) FFS PAD (2) 301,261

Total Adjustments (1,538,769)

Medical Expense Per Monthly Filing 71,126,264

TBH 30,519,261

(2, 119,040) 59,349

(2,059,691)

28,459,570

(1) Adjustment to IBNR for 12/31/07 and prior dates of service. Ties to underwriting and investment exhibit.

(2) Portion pertaining to 2008 only.

East

123,592,335

(1 ,867,590) 638,275

(1,229,315)

122,363,020

TennCare Partners Program Reconcilation of Revenue per MLR to Quarterly Filing December 31,2008

Revenue Per MLR Report

Adjustments 2007 retro membership {1)

Total Adjustments

Revenue Per Monthly Filing

PBS

87,641,422

94,079

94,079

87,735,501

TBH East

38,219,223 160,951,375

~189,302) {463,501)

(189,302) (463,501)

38,029,921 160,487,874

(1} Change in 2007 revenue between December 2007 MLR report and December 2008 MLR report.

BllO ~nllet Reba vi~~ lena on~nnes:ICC u.c

RtP«Ilm: Month l.le<.OS

s-IIDOI

Ttaac.:.n Capllallou PayaHAI

Pa,_at. C.r.Moatal Raallh aaol Su- AIM,.. S.,.icu !or lho Moalh l:piZioa Pa,_ brllz CJama "'-"' Syrtem Outpllxa l'lyn;eaU b7Uoo Clailm ~ Sys~em S.,.,....l!ouiac Payo"""" by lllo Clama Pt..-.q S)"Wtl .._,,.. OWpaDcz& Pay .. ,.. by lllo a.m."""'-"" Syaam Paai&l ~Paymo.u bylllo C1lllm s-ial Syoocm llliAMno Pa,.,.... bylllo Clama --SJ*ID ~Pay..-.t>rllzCWmr.~Sf1'em ,-_,..n...JiocuPay- tor tbo ewn. """-iq $)Wm

OIHCc.p.toaoDPa-Otbo<Capilatioo~

GAAPa-Noa-R'S .. atiot ~Paynaaa (..,Motuilic<ltllud-.-..Mcoo S.rvM& ........ .,.p.,.....,,. Oilier Pay-.IA4Juot""tLI to Mooull"'-!lh ud SUb ...... A ..... CotLI

Ina:

"'"-lld>-Roc:owrioo 1101 &!kcl&d in Payn•,..l>r lllc c.;... 8yslom

TCUI Pa,- tortbo m>W. ~JDNRtortbo~

Pa)-.a aaol Jt.a~ainU.,lJINR !or tho manlb

MdlaiL-Jt.llo

MEDICAL LOSS RATIO REPORT. TOTAL MII)I)Llt WI!ST .IIKCIONS

JUn., l'oriad

611·1~1.91

1:10.116.660

27.11SI.I63 S.C1 .. 7$6 ol.lm.ool4 1.39«.975

32t.l34 l.»f.H5 7,927,224

39,901 q,-17.1l17-'40 17,234,675

0 ::.J(7,160

0 Yri!JJ'j

0

.506.-404 117,7:10.629

ll7.73!U2'l

IUt.Y .. EhWI:ztll 121J1/l002

UUS4.711

s...axm• ll.Hl.ll'Jt t.JOU17 3.100.~

$64,1.19

5,737,061

'~ 2L7M

.,.00.~

l&,m,on ::S..S31,•21 I,41UI3 :z.m.m

0

I.JJJ.uo

l,l9U/6

!46 .• il6.7CO

z•uU.740

lb...,Y .. l!nlcd1~1 12/JII3lOJ

260.'1UJ5

&U9:Z.II7 11.9Jl.u& ,,,,161 1,7l0.402

&a:!.U6 5,&40,7&1 ~)t

... ,S7 SI,41J,4JO

4L27ol.9A Zol.693.4JJ 6,m.m 1,100.976

0

2.75:1,340

741,1V

W.l/11.605

U1.1111.60$

F..._Y_ i'AWI2/J1 1~1t.llllol

2\l.m,,,.

37.112.129 ll~1.1S1

l,Q)..I'U

),25'1,16)

274,45)

3.Jt2."' 3,9)2.601

ss.na IQUUI7

J.u77.KS

'J:lJJ47W 6,151.114

ts.._7H 0 z.,,.,,l

:!43.719 lll.m.lta

!ll.lttl91

l'orb.Y­&dall:ztl1 12131/2005

l2S.l1&.9U

lJ.IS6.66J ICI,IU.272 f.:zA<,IOl

:Z.W.:St 192.~

ol.l$7.!110 .s,dS,ll&

14,134 61.263,767 lG,OOS.3I6

17,1Jt,lll U27.15&

7&7.311

231-'21

IIJ,2U.701

IJI3.2U.701

Fccm.Y .. lblodi2/JI l:ztltal06

m.JOt • .SI

47,54) ... )

1.409,927 6-'H.SO 2.27Uil

67.4:7 :z.m.:u 5,2H,l'N

S.9S7 GI!JJ',7U

21,7S7,m ll.ol0,774

0 105.1&2

0

6S.711

175.l!.t.l75

17S.ZU,I75

lbh~ Fccmo~ &dod 1:/131 &dodl:/131 l:ztllllW7 12/lJflOOI

129.739.417

36.WI.224 S.21U21 :.us.ua l,ltMU

n,rn 3,9&1,165

2.S72.11l 'Z,Q'

37,2UU7J 0

I.U6.U6

401,94t 0

IU,lU

~1.622ml

6.943 9t.67Jt.976

7.7a3,157

'1.5 .... &47 llol.&M 174,l01t 67,15f IQ,lO$

29ol.SU t7,9st

0

2.:91.605 0

503.5U 0

:1&.011

I.SSI

6,llS.6to

3.099 6.340.719

7.111.159

:1,30!,091

JOS.4l5 170.731 '/1,415 ,..,

l:IIUJt 107.$11

~'Zia:n• 0

503,$&4

Zol.ru 0

600

6.090,016

7.:39 6,W/.JI•

7,703.1:!0

:Z.UI,S'/3 lll.lll :!0'1,116 &a.m

191 J)l,l)lO

IOU27

2.301.4&7

&76.675 0

2ol.990 0

(6,122)

6.l1ol.631 10,604

6,121.2JS

7,911,Ul

Z.&71.71J l46-'61 21M.6U 0,210

416

:rii.SOS la.&SI

l.417.35S 0

•n.m

:c.u2 0

2,402

6.5)S.'!S

tM611 6.57:!.00

t.022.0t7

Z.Siof.$71 155,9" 223,106 SJ.096

420.2.,

1&2,412 0

Z,3ol2.911

•77.nl 0

2ol.119 0

1,132

6.!al ... ~ 17.612

6.651.51:7

l.lm-'611

:Z.f60.'24 359.570 237,2U

61.110 0

.4()5,10.1

14s.1l0 0

2,351.1)43 0

lClUII

25 .... 3 0

3JI2

'-'3J.l95 13.331

'.salm

,,,..no

:!.)U.OII

:ri6.0ZJ la.~Wt

S&,'l67 0

363.330 lf'.UOZ

2,337,l05

cti,JU 0

lol.rn

6,163

Ul$,964

190.'/CO 6.606.7U

,,....70S

l.lll,l:ll

IU.all 2)),)91

5).117 0

:r/S,I&S

137.251 0

'Z.Ils.J74

40,417

0 24,494

Q

:!.UI

6,09:1,200

(1;11.269

6.699 ... 9

7.6-4t.U3

:z.w.m 115.130 217,927 5!,4lS ,.

400,.1£9

UI.S21 0

2,401,:139

a:JO.I74 0

2S.m

IIJ14

6.32&.ZU 42SM6

6,7SUIO

7,763.777

2.164-'21 JU!JJ4 190.601 51.$11 1,423

417.717 165.651

0

2.271,241

UJ,al1 0

24,90$ 0

1.911

6.131,~1

0'724.17 UlO.att

4.715,till

1199,9'13

171.U4 IUJO 2L2))

395,412

56-'07

l,ll.UOG

1&&.111 0

5.214 0

ol.427

2.s..t0,621 713-lll

l-'SMJI

ol.ln.l<S

01,711

""" 1.7"-2 9-'IS

0

4L74J

IP/&,432

150.171 0

S.941 0

3,1)62

L.,.9.019

::.::03.602 1 •• ~'1.621

!7.641.422

Zol.S70.9&7 J,IIOUII

'Z.I2S.M7 '<O.ffl llJJO

ol.l0036 1.46(1.610

0

2!,36C.Ol2

5nnou

261.601 0

3ol.4tl

17.771.65} ... 1'92310

n.o<s~.o"

1 90m.l 11.1'1.! '16.~1 au~! 78.ll'l.! -1 •u~! 12.K! •1.7'1.!--ru..J- --u:.!ii.! - -uJ~!- Kli.0'1.! 7SA1!.! 75.ar xu11.!

���������������������������������� � �������������������������������������������� !�� ��"��##� ��$���%

�����������%������ ������ � ����������������� ����������������

�����������������������

���&�'� �����(�� ��

�� ��������� ��!���"#�����"�������������!��#�������"#���"����� ����������!��������"�" ��$ ����������������� %����"����� �����#� "�����&������"��

��� � ��!��""�������" �������� ����������'��#������������������������������"�&���������� ���� ���!��#�$��������� ���������� ���� ��������"#���$ ������������

�� ���������"���&��������������������� ������� �#" ������ �������� ��!��� � �������'������� ������������� �����#���!� ������������'�������� ��"�" ���� ���������""������� ����#"���""� ��"� ���"���� �������� ��!��� � �( �����������������

�� )��� ������� ������ ����"�!����������������� ��� "�" �����������"���"� �������� ��!��� � �����!������ �&� ��������"����� ���� ������ �� "�&� ��� "�!�� "����� �������� ���������""����&�������� �!���"� � ��������"��'���������������� ��������������� � ���*"���"���������'������� ������������� �������"�����������" ���������������� � � �&�����) ���������������������������� �"������ ���� ����� ���!������ (� �����������������

�����'���� %�����)�����������%������ ��

� � +��#��,�����" ���

-������.��������.�"� ��� ���

�

/���

0

1��#"

2+���3 ����

,�����" ���

4

�� �"

� ���������������������������� ���� ��� ��������������������������� ���5 ��� ��������������������������� ���4 ��

�� �������������� ����!���"����#��������$������� ���� %&�'()� &)�**)� �� '*�&&*��������������� ����!���"����#��������$������� ���5 '��*%�� )�+,%� �� '-�-*%��������������� ����!���"����#��������$������� ���4 �� �� �� ��

�� #�����.�/�����!�0�����1���������!� ���� -+�'%�� �� �� -+�'%��#�����.�/�����!�0�����1���������!� ���5 *+�(%�� �� �� *+�(%��#�����.�/�����!�0�����1���������!� ���4 �� �� �� ��

�� 2�����3��������"�����4���0����5�6�1������ ���� )+��)�� *�)(%� �� -)�),%�2�����3��������"�����4���0����5�6�1������ ���5 --�+,'� *��,*� �� -(�,,��2�����3��������"�����4���0����5�6�1������ ���4 �� �� �� ��

0� 7������� ��$��1�����������������#������� ���� )'�,-'� -�,)+� �� -��+'*�7������� ��$��1�����������������#������� ���5 -)�'',� *�,&%� �� -(�%+*�7������� ��$��1�����������������#������� ���4 -&�%�,� %�),�� '-� -'�+')�

2� ���� �����5 �����4 ��

4� ���� �����5 �����4 ��

5� ���� �����5 �����4 ��

�� ���� �����5 �����4 ��

6� ���� �����5 �����4 ��

���*�'�) ��%���%������ ��

�

-������.��������.�"� �������3��#� ����

�,�����" ����.������ ������������/��'���"�

"� ���� ��

�+���3 ����

,�����" ����.������ �������

0

�� �"

04�