Document 38 : Docket No. 99-14 : Hearing Decision : Bureau of Insurance

STATE OF MAINE
DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
BUREAU OF INSURANCE

IN RE:

APPLICATION OF ASSOCIATED HOSPITAL SERVICE OF MAINE, d/b/a BLUE CROSS AND BLUE SHIELD OF MAINE, TO CONVERT TO A STOCK INSURER AND VOLUNTARILY LIQUIDATE AND DISSOLVE

And

IN RE:

APLICATION OF ANTHEM HEALTH PLAN OF MAINE, INC. TO ACQUIRE THE ASSETS OF ASSOCIATED HOSPITAL SERVICE OF MAINE, d/b/a BLUE CROSS AND BLUE SHIELD OF MAINE, AND RELATED TRANSACTIONS

Consolidated Docket No. INS 99-14

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NOTICE OF HEARING

This Notice of Hearing is issued in the above-captioned proceeding by Alessandro A. Iuppa, Superintendent of the Maine Bureau of Insurance, for purposes of the following:

I. PUBLIC HEARING

Pursuant to 24-A M.R.S.A. §§ 231 and 222(7)(A), 24 M.R.S.A. § 2301(9-D)(C), and 5 M.R.S.A. § 9052, notice is hereby given that the Superintendent of Insurance will hold a public hearing in the above-captioned proceeding. The hearing will commence with the taking of public comment in accordance with the following schedule:

PUBLIC COMMENT SCHEDULE
Date	Time	Location
January 24, 2000	4:00 p.m. to 8:00 p.m.	In Presque Isle at the University of Maine at Presque Isle – Wieden Auditorium.
January 25, 2000	1:00 p.m. to 4:00 p.m. & 5:00 p.m. to 8:00 p.m.	In Orono at the University of Maine at Orono – Wells Conference Center.
January 26, 2000	5:00 p.m. to 8:00 p.m.	In Gardiner at the offices of the Bureau of Insurance – Central Conference Room.
January 27, 2000	1:00 p.m. to 4:00 p.m. & 5:00 p.m. to 8:00 p.m.	In Lewiston at the Ramada Inn – Ritz Room.
January 28, 2000	1:00 p.m. to 4:00 p.m. & 5:00 p.m. to 8:00 p.m.	In Portland at the University of Southern Maine – Room 113, Masterton Hall.

Following public comment, the hearing will continue with the presentation of witnesses by the applicants commencing on April 3, 2000 at 9:00 a.m. located at the Central Conference Room of the offices of the Bureau of Insurance, 124 Northern Avenue, Gardiner, Maine. Additional days of hearing will be scheduled as necessary, to be determined by the Superintendent at the close of each hearing day. Members of the public are invited to attend.

II. PENDING PROCEEDING

The public hearing has been instituted upon the application by Associated Hospital Service of Maine (d/b/a Blue Cross and Blue Shield of Maine) ("BCBSME"), a Maine non-profit hospital and medical service organization, seeking approval of the following:

its plan of conversion to a domestic stock insurer pursuant to 24 M.R.S.A. § 2301(9-D);
its plan to liquidate and dissolve pursuant to 24-A M.R.S.A. § 3484; and
its agreement to reinsure its business in force with Anthem Health Plan of Maine, Inc. (d/b/a Anthem Blue Cross Blue Shield of Maine) ("Anthem Health Plan"), a subsidiary of Anthem Insurance Companies, Inc. ("Anthem"), pursuant to 24-A M.R.S.A. § 3483;
and the application by Anthem seeking approval of the following:
the establishment of Anthem Health Plan as a Maine domestic stock health insurer and the authorization for it to transact insurance in this State, pursuant to 24-A M.R.S.A. §§ 400 - 428; and
the acquisition by Anthem, through Anthem Health Plan, of the business and assets of BCBSME (the "Acquisition"), including the transfer of its licenses and permits and its stock interests in its two HMO subsidiaries, Maine Partners Health Plan, Inc. ("Maine Partners") and Central Maine Partners Health Plan ("Central Maine Partners"), pursuant to 24-A M.R.S.A. §§ 222 and 3476, and all other applicable law.

Specifically, Anthem will incorporate and seek a Certificate of Authority for a domestic health insurer in Maine, to be named Anthem Health Plan. Anthem Health Plan will be a wholly owned subsidiary of Anthem East, Inc., which, in turn, is a wholly owned stock subsidiary of Anthem. Pursuant to the Asset Purchase Agreement between Anthem and BCBSME dated as of July 13, 1999 (the "Asset Purchase Agreement"), Anthem Health Plan agrees to assume substantially all obligations and liabilities of BCBSME, excluding (a) any unknown Medicare program liabilities in excess of 3% of the total consideration (after adjustments), (b) BCBSME taxes, and (c) certain other exclusions as set forth in the Asset Purchase Agreement.

Pursuant to 5 M.R.S.A. § 194-A(5) and 24 M.R.S.A. § 2301(9-D), BCBSME seeks to convert to a stock insurer. If the conversion is approved, BCBSME will sell and assign, and Anthem Health Plan will purchase and assume, all insurance contracts of BCBSME in force at the closing, together with all assets of BCBSME, including the stock of its subsidiaries and its investments in affiliates (excluding Patriot Mutual Insurance Company, d/b/a Blue Alliance Mutual Insurance Company, and its subsidiary, Patriot Life Insurance Company, as discussed in more detail below). The assets to be acquired include BCBSME’s ownership of 50% of the common voting stock of each of Maine Partners and Central Maine Partners. Immediately after the closing, the policy and contract holders of BCBSME will become policy or contract holders of Anthem Health Plan, without any break in continuity of benefits and services. At closing, Anthem Health Plan will utilize BCBSME’s (and, indirectly, Maine Partners’ and Central Maine Partners’) then-existing network of physicians and other providers.

The Acquisition as proposed does not include the purchase by Anthem of Patriot Mutual Insurance Company, d/b/a Blue Alliance Mutual Insurance Company ("Patriot Mutual"), and its subsidiary, Patriot Life Insurance Company ("Patriot Life") ("Patriot Mutual" and "Patriot Life" collectively referred to as "Patriot"). However, if requested by Patriot, Anthem Health Plan will continue to provide management and administrative support services to Patriot for at least two (2) years after the closing under the existing service agreements between Patriot and BCBSME. In addition, Anthem Health Plan seeks to acquire from Patriot Mutual its 43% ownership interest in Machigonne, Inc., a Maine corporation, which, combined with BCBSME’s existing 57% ownership interest in Machigonne, Inc, would result in Anthem Health Plan’s ownership of 100% of Machigonne, Inc.

Upon the closing of the Acquisition, BCBSME seeks the approval of the Superintendent to liquidate and dissolve. If the plan of liquidation and dissolution is approved then, pursuant to 5 M.R.S.A. § 194-A(5), the net cash proceeds of the asset sale that are paid to BCBSME, after payment of BCBSME’s remaining obligations and expenses, will be transferred to an independent charitable trust (the "Trust") to be established by BCBSME in accordance with a charitable trust plan that must be approved by the Superior Court in a proceeding in which the Superintendent has the right to intervene. The anticipated role of the Trust is to fund programs having purposes consistent with 5 M.R.S.A. § 194-A(5)(B)(2).

III. STANDARD OF REVIEW

The purpose of the hearing is to consider the pending applications. Consistent with statutory mandate, the issues to be considered by the Superintendent in this proceeding include the following legal standards of review:

(1) whether, after the proposed change of control, Anthem Health Plan could satisfy the requirements for the issuance of a certificate of authority according to requirements in force at the time of the issuance of its certificate of authority to do the insurance business which it intends to transact in this State (24-A M.R.S.A. §§ 222(7)(A)(1), 400 - 428, and 3476(2)(B));

(2) whether the effect of the proposed purchase of BCBSME by Anthem, or the proposed transfer to Anthem Health Plan of BCBSME’s contracts through bulk reinsurance, may be substantially to lessen competition in insurance in this State or tend to create a monopoly therein, or would violate the laws of this State or of the United States relating to monopolies or restraints of trade (24-A M.R.S.A. §§ 222(7)(A)(2), 3476(2)(D) and 3483(2)(E));

(3) whether the financial condition of Anthem is such as would jeopardize the financial stability of BCBSME or its two HMO subsidiaries, Maine Partners and Central Maine Partners, or prejudice the interest of their policyholders or enrollees (24-A M.R.S.A. § 222(7)(A)(3));

(4) whether Anthem Health Plan’s proposed plans or proposals to liquidate, to sell the assets of, to merge, or to make any other major change in the business or corporate structure or management of BCBSME or its two HMO subsidiaries, Maine Partners and Central Maine Partners, are unfair or prejudicial to policyholders or enrollees (24-A M.R.S.A. §§ 222(7)(A)(4));

(5) whether the competence, experience and integrity of those persons who propose to control the operation of Anthem Health Plan and BCBSME’s two HMO subsidiaries, Maine Partners and Central Maine Partners, indicate that it would not be in the interest of policyholders, enrollees or the public to permit them to do so (24-A M.R.S.A. § 222(7)(A)(5));

(6) whether Anthem is qualified by character, experience and financial responsibility to control and operate Anthem Health Plan and BCBSME’s two HMO subsidiaries, Maine Partners and Central Maine Partners, or cause them to be operated, in a lawful and proper manner (24-A M.R.S.A. § 3476(2)(A));

(7) whether Anthem Health Plan, or any of its directors, officers or other managers are found by the Superintendent to be incompetent, dishonest, untrustworthy, of unfavorable business repute, or so lacking in insurance company managerial experience in operations of the kind proposed in this State as to make such operation, currently or prospectively, hazardous to, or contrary to the best interests of, the insurance-buying or investing public of this State, or which the Superintendent has good reason to believe is affiliated directly or indirectly with any person or persons of unfavorable business repute, or whose business operations in this State or elsewhere are or have been marked, to the injury of insurers, stockholders, policyholders, creditors or the public, by illegality, or by manipulation of assets, or of accounts, or of reinsurance or by bad faith (24-A M.R.S.A. § 407(2));

(8) whether the proposed acquisition of control of BCBSME by Anthem, including the proposed acquisition of the stock of BCBSME’s two HMO subsidiaries, Maine Partners and Central Maine Partners, would tend to affect adversely the contractual obligations of BCBSME or its two HMO subsidiaries, Maine Partners and Central Maine Partners, or their ability and tendency to render service in the future to their policyholders, enrollees and the public (24-A M.R.S.A. § 222(7)(A)(7));

(9) whether the interests of BCBSME, its two HMO subsidiaries, Maine Partners and Central Maine Partners, policyholders of those entities, or other stockholders of BCBSME’s two HMO subsidiaries, Maine Partners and Central Maine Partners, would be impaired through the proposed change of control (24-A M.R.S.A. § 3476(2)(C));

(10) whether the terms and conditions of BCBSME’s proposed conversion plan are fair and equitable; and whether BCBSME’s proposed conversion plan would adversely affect, in any manner, the services to be rendered to subscribers (24 M.R.S.A. §§ 2301(9-D)(E)(1) and (9-D)(L));

(11) whether BCBSME’s proposed conversion plan has been subject to approval by the vote of not less than 2/3 of BCBSME’s board of directors (24 M.R.S.A. § 2301(9-D)(E)(2);

(12) whether BCBSME’s proposed conversion plan provides for the issuance of capital stock or assets of the converted stock insurer or a combination of stock and assets, without consideration, to the charitable trust equal to the charitable interest set forth in BCBSME’s statement of ownership interests and charitable purposes, exclusive of any shares issued pursuant to 24 M.R.S.A. § 2301(9-D)(G) (24 M.R.S.A. § 2301(9-D)(E)(3));

(13) whether, immediately after, and giving effect to the terms of, BCBSME’s proposed conversion, the converted stock insurer would be in safe and sound financial condition and would have paid-in capital stock and surplus in amounts not less than the minimum paid-in capital stock and surplus set forth under Title 24-A, section 410 required of a domestic stock insurer authorized to transact like kinds of insurance (24 M.R.S.A. § 2301(9-D)(E)(5));

(14) whether BCBSME’s management has, through reduction in volume of new business written or cancellation or through any other means, sought to reduce, limit, or affect the number or identity of BCBSME’s subscribers to be entitled to participate in the conversion plan or to secure for the individuals comprising management any unfair advantage through the conversion plan (24 M.R.S.A. § 2301(9-D)(E)(6));

(15) whether the proposed charitable trust has control, as defined in Title 24-A, section 222, of the converted stock insurer such that statutory provisions relating to the issuance of shares by the converted insurer subsequent to the conversion, and any related dilution, are inapplicable and, if so, whether the proposed charitable trust must comply with the filing and approval requirements of Title 24-A, section 222 (24 M.R.S.A. § 2301(9-D)(E)(7) and 24-A M.R.S.A. § 222);

(16) whether BCBSME’s proposed conversion plan is consistent with the proposed charitable trust plan and does not adversely affect the distribution of BCBSME’s value to the charitable trust (24 M.R.S.A. § 2301(9-D)(E)(8));

(17) whether BCBSME’s proposed conversion plan complies with all applicable law (24 M.R.S.A. § 2301(9-D)(E)(9));

(18) whether the appraisal of the fair market value, or range of values, of the converted insurer was prepared by persons independent of BCBSME, experienced and expert in the area of corporate appraisal and acceptable to the Superintendent; and whether BCBSME has submitted information demonstrating to the satisfaction of the Superintendent the independence and expertise of any person preparing the appraisal or related materials (24 M.R.S.A. §§ 2301(9-D)(I)(2) and (6));

(19) whether the proposed plan and agreement of bulk reinsurance between BCBSME and Anthem Health Plan is unfair and inequitable to any insurer or to policyholders involved (24-A M.R.S.A. § 3483(2)(A));

(20) whether the proposed bulk reinsurance agreement between BCBSME and Anthem Health Plan, if effectuated, would substantially reduce the protection or service to the policyholders of BCBSME or its two HMO subsidiaries, Maine Partners and Central Maine Partners (24-A M.R.S.A. § 3483(2)(B));

(21) whether the proposed bulk reinsurance agreement between BCBSME and Anthem Health Plan embodies adequate provisions by which Anthem Health Plan becomes liable to the original insureds of BCBSME for any loss or damage occurring under the policies reinsured in accordance with the original terms of such policies (24-A M.R.S.A. § 3483(2)(C));

(22) whether Anthem Health Plan is authorized to transact such insurance in this State, is qualified for such authorization and will appoint the Superintendent and his successors as its irrevocable attorney for service of process, so long as any policy so reinsured or claim thereunder remains in force or outstanding (24-A M.R.S.A. § 3483(2)(D));

(23) whether the proposed bulk reinsurance agreement between BCBSME and Anthem Health Plan is free of other reasonable objections (24-A M.R.S.A. § 3483(2)(F));

(24) whether BCBSME’s proposed plan of voluntary dissolution is unlawful or unfair or inequitable or prejudicial to the interests of any stockholder, policyholder or creditor (24-A M.R.S.A. § 3484(2));

(25) whether the proposed acquisition of control of BCBSME by Anthem requires compliance with the filing and approval requirements of the Maine Insurance Code with respect to Patriot Mutual (24-A M.R.S.A. § 222(4-A)); and

(26) whether the proposed acquisition of control of BCBSME and its HMO Maine line of business by Anthem requires compliance with the filing and approval requirements of the Maine Insurance Code with respect to the issuance of a certificate of authority to a health maintenance organization (24-A M.R.S.A. §§ 4203 - 4204).

All issues designated by any party to this proceeding for consideration by the Superintendent must relate to the above-identified standards of review.

IV. INTERVENTION

At this time, the parties to this proceeding have been identified as Associated Hospital Service of Maine (d/b/a Blue Cross and Blue Shield of Maine), Anthem Insurance Companies, Inc., Anthem Health Plan of Maine, Inc., and the State of Maine Attorney General. Persons wishing to intervene as parties in this proceeding shall file their application in writing with the Superintendent of Insurance, Maine Bureau of Insurance, 34 State House Station, Augusta, Maine 04333-0034 no later than 3:00 p.m. (eastern standard time) on December 10, 1999. Applications for intervention as of right pursuant to 5 M.R.S.A. § 9054(1) shall contain a statement explaining how the applicant is or may be a member of a class which is or may be substantially and directly affected by the proceeding or identifying the applicant’s status as an agency of federal, state or local government. Applications for permissive intervention pursuant to 5 M.R.S.A. §9054(2) shall contain a statement explaining and substantiating the applicant’s interest in the proceeding. Late-filed applications will not be granted without a compelling showing of good cause.

Members of the public, including persons who have not been authorized to intervene as parties in this proceeding, may make unsworn statements or testify under oath at the hearing with respect to the proposed transactions. Persons who present testimony under oath are subject to questioning by the parties. The Superintendent, as a basis for his decision concerning the proposed transactions, only may rely upon testimony that has been presented under oath.

A person need not intervene in order to testify at the hearing. Intervenor status should be sought only by those persons willing to undertake the responsibilities placed upon parties under Maine law and the Superintendent’s Procedural Order issued on November 4, 1999.

Applications for intervention either should be mailed to the Superintendent at the following address:

Alessandro A. Iuppa, Superintendent of Insurance

c/o Lyndy Morgan

Docket No. INS-99-14

Maine Department of Professional and Financial Regulation

Bureau of Insurance

#34 State House Station

Augusta, Maine 04333-0034

or hand delivered to the Superintendent at the offices of the Bureau of Insurance, 124 Northern Avenue, Gardiner, Maine.

V. HEARING PROCEDURE

This proceeding will be conducted in accordance with the procedures of the Maine Administrative Procedure Act, 5 M.R.S.A. chapter 375, subchapter IV; 24-A M.R.S.A. §§ 229 and 236; and Bureau of Insurance Rule 350. All parties to this proceeding have the right to present evidence and witnesses at the hearing and have the right to be represented by counsel. Failure of a party to appear at the designated time and place of the hearing will not affect the validity of the hearing, however, such failure may result in a disposition by default with respect to that party which default may be set aside by the Superintendent only for good cause shown.

The Department of Professional and Financial Regulation does not discriminate on the basis of disability in admission to, access to or operation of its programs, services or activities. Individuals in need of auxiliary aid for effective communication at the hearings are invited to make their needs and preference known to the Superintendent sufficiently in advance of the hearings so that appropriate arrangements can be made.

DATED: November 5, 1999

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ALESSANDRO A. IUPPA

Superintendent of Insurance