Market Conduct Examination
Anthem Health Plans of Maine, Inc.
(d.b.a. Anthem Blue Cross Blue Shield of Maine)

NAIC Company Code #52618
NAIC Exam Tracking System #ME008-M3

and

Maine Partners Health Plan, Inc.

NAIC Company Code #95728
NAIC Exam Tracking System #ME008-M4

Both located at:

2 Gannett Drive
South Portland, Maine 04106

Examination Period:
4/01/02 thru 6/30/02

TABLE OF CONTENTS

SALUTATION
SCOPE OF EXAMINATION
HISTORY AND PROFILE
METHODOLOGY
STANDARDS
APPLICATION OF TESTS
COMMENTS & RECOMMENDATIONS

January 11, 2003

SALUTATION

Honorable Alessandro Iuppa
Superintendent of Insurance
State of Maine
Bureau of Insurance
State House Station #34
Augusta, Maine 04333

Dear Superintendent Iuppa:

Pursuant to the provisions of 24-A M.R.S.A. § 221 and in conformity with your instructions, a targeted market conduct examination has been made of:

Anthem Health Plans of Maine, Inc.

and its subsidiary;

Maine Partners Health Plan, Inc.

Hereinafter collectively referred to as the “Company” or as “Anthem”. The Company is organized and incorporated under the laws of the State of Maine. The examination reviewed only the operations of Anthem as they impact residents and policyholders residing in the State of Maine or claimants involved in losses in, or related to, Maine claims. The on-site phase of the examination was conducted at the offices of Anthem servicing Maine business located at:

110 Free Street
Portland, Maine 04101

Maine Partners Health Plan, Inc. is a Maine licensed HMO that is 100% owned by Anthem Health Plans of Maine, Inc. All administrative services are provided by Anthem Health Plans of Maine, Inc. to Maine Partners Health Plan, Inc. via management services agreement.

The following report is respectfully submitted.

SCOPE OF EXAMINATION

Prompt payment of claims has become a national issue. Many states are conducting or have conducted market conduct examinations regarding the issue of prompt payment of claims. On the state level, the Maine Bureau of Insurance (hereinafter the “Bureau”) has received inquiries from the provider and legislative communities of the payment practices of the insurance industry. Based on the national spotlight coupled with concern at the state level, the Superintendent has decided that targeted market conduct examinations regarding the prompt payment of claims will be performed on all managed-care organizations operating in the State of Maine over the course of 2002 and 2003.

This examination includes claims paid during the 2nd quarter 2002 including April 1, 2002 through June 30, 2002. The 2nd quarter was chosen since it was the first complete quarter operating with a newly implemented claim payment system. This was a targeted examination limited in scope to the examination of prompt payment issues as outlined in 24-A M.R.S.A. § 2436 (1) (2) and (3) and the documentation standards outlined in 24-A M.R.S.A. § 3408.

The examination was performed in accordance with examination standards and guidelines as set forth in the National Association of Insurance Commissioner’s (NAIC) Market Conduct Examiners Handbook (hereinafter the “Handbook”) and the rules and regulations prescribed by the State of Maine through tests developed by the Bureau. Sampling was used in accordance with Handbook standards.

Readers of this report must recognize that due to the targeted focus of the examination, only matters pertaining to prompt payment of claims have been reviewed in the course of this examination. Statutory cites and regulation references are as of the period under examination unless otherwise noted.

HISTORY AND PROFILE

Anthem Health Plans of Maine, Inc. (AHP) was formerly known as Associated Hospital Service of Maine d/b/a Blue Cross and Blue Shield of Maine (AHS). AHS was a nonprofit corporation licensed as a nonprofit hospital and medical service organization in Maine since 1939.

In September 1999, AHS owned 50% of Maine Partners Health Plans, Inc. and 57% of Machigonne, Inc. During September 1999, AHS and Anthem Insurance Companies, Inc. submitted the required filings to the Superintendent of Insurance for the conversion and sale of AHS and certain subsidiaries to Anthem Insurance Companies.

These filings were ultimately approved via a Decision and Order dated May 25, 2000 allowing AHS to convert from a nonprofit hospital and medical service organization to a stock insurance company which immediately sold all its assets to AHP, a newly formed health insurance company. The process included AHP obtaining 50% ownership and deemed control of Maine Partners Health Plans, Inc. and Machigonne, Inc.

METHODOLOGY

This examination is based on the Standards and Tests for a Market Conduct Examination of a health insurance company as found in Chapter XVII of the Handbook, specifically as it relates to claims payment practices. The standards were tested through detailed review of a random sample of 100 claim files paid during the 2nd quarter 2002 using sampling methodology described in the Handbook.

Standards were evaluated using tests designed to adequately measure how the examinee met the standard and legal requirements of 24-A M.R.S.A. § 2436. Each test applied is described and the result of testing is provided in the “STANDARDS” section of this report. The standard, its statutory authority under Maine law, and its source in the Handbook are stated and contained within a bold border.

STANDARDS

The specific Handbook standards and tests developed by the examiners are outlined in this section.

Standard L-3 Claims are settled in a timely manner as required by statues, rules and regulations. NAIC Market Conduct Examiners Handbook – Chapter XVII, § L, Standard 3; and 24-A M.R.S.A. § 2436

Standard L-4 The company responds to claim correspondence in a timely manner. NAIC Market Conduct Examiners Handbook – Chapter XVII, § L, Standard 4; and 24-A M.R.S.A. § 2436

Standard L-5 Claim files are adequately documented. NAIC Market Conduct Examiners Handbook – Chapter XVII, § L, Standard 5; and 24-A M.R.S.A. § 2436 & 3408 (1)

This examination was designed to determine the compliance of the Company with 24-A M.R.S.A. § 2436 (1), (2) and (3) by applying specific tests to the sampled items based on Standards L-3, L-4 and L-5 of the Handbook. The results of the testing reflect compliance or noncompliance with the standards and statute.

TEST 1: Standard L-3 establishes a general framework for the timely settlement of claims. The corresponding Maine statute, 24-A M.R.S.A. § 2436 (1), states in part:

“A claim for payment of benefits under a policy or certificate of insurance delivered or issued for delivery in this State is payable within 30 days after proof of loss is received by the insurer and ascertainment of the loss is made either by written agreement between the insurer and the insured or beneficiary or by filing with the insured or beneficiary of an award by arbitrators as provided for in the policy. For purposes of this section, “insured” or “beneficiary”; includes a person to whom benefits have been assigned. A claim that is neither disputed nor paid within 30 days is overdue.”

TEST 1: Based on 24-A M.R.S.A. § 2436 subsection (1), a claim must be paid within 30 days after proof of loss is received and ascertainment of the loss is made by the insurer, otherwise it is considered overdue.

TEST 2: In addition to the standards outlined in Test 1, Title 24-A M.R.S.A. § 2436 (1) outlines the standards to apply when additional information is needed by the Company in order to process an undisputed claim as contemplated in Standard L-4. The subsection continues as follows:

“If, during the 30 days, the insurer, in writing, notifies the insured or beneficiary that reasonable additional information is required, the undisputed claim is not overdue until 30 days following receipt by the insurer of the additional required information;”

The standards of documentation outlined in Standard L-5 are further solidified by 24-A M.R.S.A. § 2436 (2) which states:

“An insurer may dispute a claim by furnishing to the insured or beneficiary, or a representative of the insured or beneficiary, a written statement that the claim is disputed with a statement of the grounds upon which it is disputed. The statement must be based upon a reasonable investigation of the claim and must include sufficient detail to permit the insured or beneficiary to understand and respond to the insurer's position.”

TEST 2: Based on 24-A M.R.S.A. § 2436 (1) and (2), a claim file must contain adequate documentation of the claims process including written notification to the claimant of reasonable additional or disputed information is required by law.

TEST 3: If the Company fails to pay an undisputed claim within the 30 day timeframe required by law, there is a late payment interest penalty assessed. This is a further testing requirement of Standard L-3. The application of the interest penalty is addressed in 24-A M.R.S.A. § 2436 (3) which states:

“If an insurer fails to pay an undisputed claim or any undisputed part of the claim when due, the amount of the overdue claim or part of the claim bears interest at the rate of 1 1/2% per month after the due date.”

TEST 3: Title 24-A M.R.S.A § 2436 (3) requires an insurer to pay an interest penalty to the claimant if the insurer fails to pay undisputed claims within 30 days of proof of loss.

APPLICATION OF TESTS

This section outlines the application of the tests developed to the random sample of 100 items selected from the population of paid claims items during the 2nd quarter 2002. The results of applying the criteria outlined in the tests are as follows:

TABLE 1:

Test #	Type	Sampled	N/A	Pass	Fail	% Pass
TEST 1 Paid < 30 days	Paid Items	100	2 1	85	13	87%
TEST 2 Adequate Documentation	Paid Items	100	0	100	0	100%
TEST 3 Interest on Claims > 30 days	Paid Items	100	87 2	11	2	85%

¹ The Company participates in a Periodic Interim Payment (PIP) program with some large institutional providers. The Company’s position is that providers participating in the PIP program do not qualify for penalty interest payments for claims taking longer than 30 days to process because the provider is being pre-paid for their services. There were two items exceeding the 30 day processing period in the sample that fell in this category.

² The original sample of 100 contained 87 claims that were paid within the 30 day timeframe and therefore not subjected to Test 3.

The thirteen claim items that were not paid within 30 days and therefore failed Test 1 were then subjected to Test 3 to determine Company compliance with the interest penalty portion of 24-A M.R.S.A § 2436 (3). Of the thirteen claims that were not paid within 30 days, two were found to have not paid interest. Therefore the error rate for compliance is 2% based on the random sample of 100 paid claim files.

Based on examiner inquiry, the examiners determined that the two claims were not paid interest due to a system error whereby current system software does not recognize claims that have been “adjusted” after original receipt and processing has taken place as being eligible for penalty interest payments. (See COMMENT #3)

One of the claims that had been adjusted was of the age where services had been rendered and original payments had been made prior to April 1, 2002. As part of the examination, the examiners inquired as to how interest payments were made prior to April 1, 2002 and found that system software to automate the recognition, calculation and payment of penalty interest was implemented effective 4/1/02. Prior to this date, payment of penalty interest was done on a complaint or request basis. (See COMMENT #1)

The other claim related to an adjustment needed to reinstate paid policy deductibles due to the improper transition of paid policy deductibles during the system migration which occurred prior to the scope of this examination. (See COMMENT #2)

COMMENTS & RECOMMENDATIONS

COMMENT #1:	System software to automate the recognition, calculation and payment of penalty interest was implemented effective 4/1/02. Prior to this date, payment of penalty interest was done on a complaint or request basis.
RECOMMENDATION:	The Superintendent should consider investigating the Company’s compliance with 24-A M.R.S.A. §2436 for the period of September 1999 through March 2002.
COMMENT #2:	Some paid policy deductibles did not transition to the new automated claims system.
RECOMMENDATION:	The Company should report to the Bureau in a verifiable fashion the dollar amount of the error and a corrective plan of action outlining the process by which restitution will be achieved.
COMMENT #3:	Current system software does not recognize claims that have been “adjusted” after original receipt and processing has taken place as being eligible for penalty interest payments.
RECOMMENDATION:	The Company should report to the Bureau in a verifiable fashion the dollar amount of interest not paid due to this system error and the corrective action plan outlining the process by which restitution will be achieved.

STATE OF MAINE
COUNTY OF KENNEBEC, SS

Joel S. Thomsen, CPA, CFE, being duly sworn according to law, deposes and says that in accordance with the authority vested in him by Alessandro Iuppa, Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, he has made an examination of the condition and affairs of the

Anthem Health Plans of Maine Inc.

of South Portland, Maine as of 2nd quarter 2002, and that the foregoing report of examination subscribed to by him is true to the best of his knowledge and belief.

The following examiners from the Bureau of Insurance assisted:

Van E. Sullivan
Carolee B. Nichols
Paul C. Greenier

_____________________________________
Joel S. Thomsen, CPA, CFE
Director of Financial Affairs and Solvency

Subscribed and sworn to before me this ____ day of _______________, 2003

_________________________________
Notary Public
My Commission Expires:

I hereby certify that the attached report of examination dated January 11, 2003 shows the condition and affairs of the Anthem Health Plans of Maine, Inc., South Portland, Maine as of 2nd quarter 2002 and has been filed in the Bureau of Insurance as a public document.

This report has been reviewed.

________________________
Eric A. Cioppa
Deputy Superintendent

This _____ day of _____________, 2003

 

Maine.gov | Professional and Financial Regulation | Privacy | Accessibility | Disclaimer