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 |
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| IN RE: APPLICATION 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 Docket NO. INS 99-14 (CONSOLIDATED) |
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MHA, INC.’s MOTION SEEKING RULING ON
SURPLUS REQUIREMENTS APPLICABLE TO ANTHEM HMO ACTIVITIES
April 5, 2000 |
NOW COMES Intervenor, MHA, Inc. (MHA) and through its undersigned counsel, respectfully
seeks a clarifying ruling from the Superintendent that both of the following
statutory requirements governing surplus and capital standards are applicable to the
ongoing HMO-related activities of BCBSME and Anthem, and the Partners HMO plans:
- Title 24-A M.R.S.A. §4204-A, establishing surplus requirements for health maintenance
organizations; and
- Chapter 79 of the Insurance Code, made applicable to HMOs by 24-A §6541-A, as amended
by P.L. 1999, Ch. 113, § 24, effective September 18, 1999; 24-A M.R.S.A. §6451 et. seq.,
relating to risk-based capital standards.
In the absence of the requested clarification, MHA fears there will be continued
confusion on the part of witnesses and counsel for the various parties on these points,
and this confusion will inhibit timely resolution of the underlying issues, especially
Superintendent Issue 26, relating to satisfaction by Anthem of the requirements of HMO
licensure standards.
Background
The MHA and its counsel seek the preceding ruling in the interests of clarifying a
point of some confusion in the course of the April 3, 2000 hearing. It was evident in the
course of Attorney Doyle’s examination of BCBSME’s Senior Vice President and
Treasurer, Frank McGinty, that MHA and Mr. McGinty had quite different perceptions of the
surplus standards applicable to BCBSME as they related to BCBSME-HMO activities.
BCBSME witness McGinty perceived that the provisions of Chapter 79, risk-based capital
standards, 24-A M.R.S.A. §6451 et. seq. were the exclusive statutory provisions governing
surplus and capital requirements applicable to BCBSME.
MHA, on the other hand, contended that BCBSME was also obligated to fulfill the
statutory requirements of 24-A M.R.S.A. §4204-A, establishing a formula for minimum
surplus requirements for HMOs. Mr. McGinty asserted these were out-moded and no longer
applicable to HMO activities.
Later in the day, Assistant AG Judith Chamberlain, on further examination of Mr.
McGinty, elicited from him that he viewed Chapter 79 as applicable to BCBSME by virtue of
24-A M.R.S.A. §6451-A.
Need for Clarification
The MHA urges that a ruling from the Superintendent will simplify and streamline
further proceedings, and provide the parties with a clear understanding of the
Superintendent’s position on the applicable standard to be fulfilled by Anthem in
these proceedings. It is further directly relevant to the resolution of MHA’s issues:
(1) Maine domiciled corporation; (2) Parental Guarantee; and (9) surplus standards and
reserve requirements sufficient to meet provider needs. It is also directly pertinent to
Superintendent’s Issue 26.
Such ruling will provide direction to MHA, Anthem and Blue Cross (as well as other
parties) for purposes of carrying out further testimony, and cross-examination, in the
remaining days of the hearing, and in briefing issues thereafter.
MHA counsel anticipates that such a ruling will serve to facilitate, and focus
subsequent examination of Anthem witnesses, and any redirect of BCBSME witnesses, in light
of such clarification.
The MHA seeks to establish, absent any dispute over applicable statutory provisions:
- Whether BCBSME for FYE 1999, is in compliance with applicable provisions of §4204-A;
- What are the proper calculations of BCBSME surplus for FYE 1999 under these standards;
- Whether the statutorily required surplus under §4204-A is greater than, less than or
equal to the NAIC risk-based capital standards under Chapter 79.
- What are the proper calculations of surplus amounts for Anthem for the preceding years,
under §4024-A?
- Do the Anthem projections of surplus satisfy these requirements?
Beyond MHA’s advocacy, such information is necessary for the Superintendent to
resolve his inquiry. See Issue No. 26 of his Notice of Hearing, described below. Further,
depending upon the responses to these questions, the MHA well conclude that the existing
law, §4204-A, if enforced according to its terms, would satisfy, in whole or in part, the
concerns of Maine hospitals that there be sufficient reserves and surplus to meet the Blue
Cross and Anthem obligations to Maine hospitals.
Points and Authorities
HMO Requirements
In support of the preceding position, MHA calls to the Superintendent’s attention
the following applicable provisions of the Insurance Code and related notices and rulings.
First, the Superintendent’s Notice of Hearing sets forth as Issue No. 26 the
following:
(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).
Section 4203(3)(R) requires an Applicant to provide:
R. A description of procedures to be implemented to meet the protection against
insolvency requirements in section 4204, subsection 2-A, paragraph D and section
4204-A; and … (emphasis added)
Section 4204(2-A)(D) is not entirely clear in that it refers to "the minimum
surplus requirements of this section", but does not reference where "in this
section" such requirements reside. The remainder of subsection (2-A)(D) suggests that
the Superintendent has some discretion in establishing the appropriate amount based
upon a variety of factors laid out in §4204(2-A)(D)(2).
Section 4204-A is quite explicit (and is expressly referenced in Section 4203(3)(R) as
noted above). This Section establishes a minimum surplus requirement of $1.5 million.
Subsection 2 goes on to require BCBSME and Anthem to maintain, as a minimum requirement,
one of the several standards set forth in that particular section. Certain of these focus
upon annual health care expenses and annual hospital expenditures, including a minimum
surplus equal to the greater of:
B. Two percent of annual premium revenues as reported in the annual financial
statement covering the health maintenance organization's immediately preceding fiscal year
as filed with the superintendent on the first $150,000,000 of premium and 1% of annual
premium on the premium in excess of $150,000,000;
C. An amount equal to the sum of 3 months uncovered health care expenditures as
reported on the financial statement covering the health maintenance organization's
immediately preceding fiscal year as filed with the superintendent; or
D. An amount equal to the sum of:
- Eight percent of annual health care expenditures except those paid on a
capitated basis or managed hospital payment basis as reported on the financial statement
covering the health maintenance organization's immediately preceding fiscal year as filed
with the superintendent; and
- Four percent of annual hospital expenditures paid on a managed hospital payment
basis as reported on the financial statement covering the health maintenance
organization's immediately preceding fiscal year as filed with the superintendent. (Emphasis
added)
Risk-Based Capital Standards
Under §6451-A, as amended by P.L. 1999, Chapter 113, Section 24, effective September
18, 1999, the provisions of Chapter 79 are made applicable to Health
Maintenance Organizations. Prior to the enactment and effective date of §6451-A, these
risk-based capital standards were not applicable to HMOs. §6452(2) made them applicable
to life and health insurers, but did not expressly reference HMOs. Further, §4222-B of
Title 24-A, in the HMO Chapter, purports to expressly list all other provisions of the
Insurance Code that are made applicable to HMOs. This listing does not include a reference
to Chapter 79. Thus, a review of the provisions of Chapter 56, standing alone, suggests
the that Chapter 79 is not applicable to HMOs.
However, §6451-A does make Chapter 79 applicable to HMOs, is a more recent enactment,
and thus establishes this requirement for HMOs.
Requirements of Chapter 191 of BOI Rules.
Section 7 of Chapter 191 describes "financial standards". Section 7(B)
establishes a minimum surplus requirement for HMOs with a net premium of between $0.00 and
$50 million as being the greater of $1.0 million, the prior month’s medical expenses,
or the par value of the stock.
This rule does not describe a surplus standard for HMOs with an annual premium
exceeding $50 million.
Additional Surplus Requirements.
§4204-A(2-A) sets forth authority to require additional surplus in the case of an HMO
that also offers a point of service product. Here, the Superintendent is authorized to
establish a reasonable amount in relationship to the indemnity risks assumed.
In addition, the Blue Cross conversion statute, 24 M.R.S.A. §§2301(9-D)(P), states
that:
The superintendent may adopt rules, not inconsistent with the provisions of this
subsection, the superintendent determines necessary or desirable and appropriate to effect
the purposes of this subsection. Rules adopted under this subsection are routine technical
rules pursuant to Title 5, chapter 375, subchapter II-A.
The Superintendent has wide authority to propose and adopt rules to effectuate the
purposes of this subsection. One of these rules could impose specific surplus requirements
on Anthem in order to avoid the problem faced by providers from the Tufts Health Plan
liquidation and related exposures.
In all events, this is an important and significant issue to Maine’s hospitals and
other related providers, and the Superintendent has ample authority to address and resolve
their concerns.
Both §4204-A and Chapter 79 are applicable to HMOs.
Based upon the preceding, it is MHA’s position that both §4204-A (surplus
requirements) and §6451-A (risk-based capital standards), are applicable to the
HMO-related activities of Anthem and Blue Cross.
Further, as noted above, §4204-A gives the Superintendent authority to establish
additional surplus requirements for HMOs with point of service products.
Significance of Applicable Standard
It is very significant to MHA at the practical level whether one, or both, of these
statutory standards are deemed applicable to Blue Cross and Anthem in this proceeding, and
whether these entities fulfill that standard. Mr. McGinty testified that the $30.3 million
surplus level of Blue Cross at FYE 99, was consistent with NAIC requirements. This amount
represents .85 of one month’s medical payments.
Conversely, §4204-A sets forth in subsection 2 several alternative standards, one of
which, subsection (2)(D) requires the maintenance of a surplus equal to "8% of annual
health care expenditures and 4% of annual hospital expenditures paid on a managed care
basis". MHA contends that the aggregate of these figures is very likely to be
different from, and higher than the $30.3 million reported by Mr. McGinty as fullfilling
the sole standard, risk-based capital requirements in chapter 79, to which Blue Cross was
required to conform.
In addition, for the reasons noted above, the Superintendent has the authority to order
additional surplus requirements.
The MHA will continue to maintain the position that the surplus required of Anthem or
Blue Cross in this proceeding should at least equal two-months medical payments projected
to be owed to all health care providers, in order to have a fair and equitable situation,
recognizing the providers obligations to continue to provide service under §4204(8) and
their inability to bill patients under the hold harmless provisions of §4204(6). Here, it
is worth noting that Mr. Ryan referred in his testimony to an earkier requirement the BOI
had previously imposed on Blue Cross to maintain a surplus which was between 2 and 3
months. MHA witness Behre, in his Supplemental Prefiled Testimony, calculates a two month
requirement for Blue Cross for 1999 would exceed $72 million, building on Mr.
McGinty’s figure of $30.3 million as constituting 85% of one month’s health care
expenditures for Blue Cross.
The MHA believes that enforcement by the Superintendent of the formula set forth in
existing law, §4204-A(2), will go a long way toward meeting MHA’s goal, and will
cause Blue Cross to be required to increase its reserves to an amount substantially closer
to the MHA desired amount. Further, any difference between the formula amount dictated by
§4204-A(2) and the two months standard sought by MHA can and should be addressed by the
Superintendent through exercise of his authority under §4204-A(2-A).
Any remaining gap can and should be addressed by the Superintendent through exercise of
his authority under 24 M.R.S.A. §2301(9-D)(P), his residual rulemaking authority.
In all events, the requested ruling of MHA will greatly assist the parties to elicit in
the course of this proceeding, the proper information to delineate the surplus
requirements applicable to Blue Cross and Anthem under existing law, as well the proper
surplus requirements to be imposed upon them prospectively under such authorities.
WHEREFORE, MHA seeks a ruling from the Superintendent regarding the statutory surplus
requirements, and the powers of the Bureau to impose additional surplus requirements,
applicable to BCBSME and Anthem HMO-related activities. Witnesses and counsel for the
Parties will then be proceeding from a common set of assumptions regarding the proper
legal standards governing surplus requirements for HMOs. They will thereby avoid
attenuated and time-consuming examination in which one or another party’s witness or
counsel is proceeding from an incorrect or incomplete set of assumptions.
Respectfully submitted,
DATED: April 5, 2000
______________________________ _____________________________
Sandra L. Parker, Esq. Esq. John P. Doyle, Jr., Esq.
Attorney for MHA, Inc. Attorney for MHA, Inc
MHA, Inc. PRETI, FLAHERTY, BELIVEAU,
150 Capitol Street PACHIOS & HALEY, LLC
Augusta, Maine 04330 One City center
e-mail: sparker@themha.org P.O. Box 9546
Portland, Maine 04112-9546
(207) 791-3000
jdoyle@preti.com
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on April 5, 2000, a copy of MHA, INC.’s
MOTION SEEKING RULING ON SURPLUS REQUIREMENTS APPLICABLE TO ANTHEM HMO ACTIVITIES, was
served via hand delivery, regular mail or electronic mail on each of the persons listed
below.
Jeffrey M. White, Esq.
Catherine R. Connors, Esq.
PIERCE ATWOOD
One Monument Square
Portland, Maine 04101
(207) 791-1100
(Anthem Insurance Companies, Inc )
Robert S. Frank, Esq.
HARVEY & FRANK
Two City center, Fourth Floor
P.O. Box 126
Portland, Maine 04101
(207) 775-1300
e-mail: frank@harveyfrank.com
(Blue Cross/Blue Shield of Maine)
Judith Chamberlain, Esq.
State of Maine
Department of the Attorney General
286 Water Street
Augusta, Maine 04333-0006
e-mail: judy.chamberlain@state.me.us
(Bureau of Insurance)
William H. Laubenstein, Esq.
State of Maine
Department of the Attorney General
286 Water Street
Augusta, Maine 04333-0006
e-mail: bill.laubenstein@state.me.us
(Office of the Attorney General)
Gregory A. Brodek, Esq.
Duane, Morris & Heckscher, LLP
15 Columbia Street, 4th Floor
Bangor, Maine 04401-6355
e-mail: gabrodek@duanemorris.com
(Maine Health Alliance)
Joseph P. Ditre, Esq.
Consumer Health Law Program
One Weston Court, Level One
P.O. Box 2490
Augusta, Maine 04338-2490
e-mail: jditre@mainecahc.org
(Consumers for Affordable Health Care Foundation/Coalition)
Michele M. Garvin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
e-mail: Mgarvin@Ropesgray.com
(Central Maine Healthcare Corporation; Central Maine Partners Health Plan)
Robert I. Goldman
Maine Council of Senior Citizens
27 Bowery Beach Road
Cape Elizabeth, Maine 04107
e-mail: Rgoldma1@maine.rr.com
(Maine Council of Senior Citizens)
Bonnie Post
Executive Director of the Maine Ambulatory Care Coalition
P.O. Box 390
Manchester, Maine 04351
e-mail: bdpmacc@mint.net
(Sacopee Valley Health center, Regional Medical center at Lubec, Eastport Health Care,
Inc., and the Maine Ambulatory Care Coalition)
John Dieffenbacher-Krall
Executive Director
Maine People’s Alliance
192 State Street
Portland, Maine 04101
e-mail: MPA@gwi.net
(Maine People’s Alliance)
Gordon H. Smith, Esq.
Maine Medical Association
30 Association Drive
P.O. Box 190
Manchester, Maine 04351
e-mail: gsmith@ctel.net
(Thomas D. Hayward, M.D.,
Maroulla S. Gleaton, M.D.,
And the Maine Medical Association)
Michel Lafond, Esq.
Sulloway & Hollis
P.O. Box 1256
Concord, New Hampshire 03302-1256
mal@sulloway.com
(co-counsel for Maine Medical Association)
Donald E. Quigley, Esq.
General Counsel
465 Congress Street, Suite 600
Portland, Maine 04101-3537
e-mail: quigld@mail.mmc.org
(Maine Medical center)
Sandra L. Parker, Esq.
Attorney for MHA, Inc.
150 Capitol Street
Augusta, Maine 04330
e-mail: sparker@themha.org
(MHA, Inc.)
Kellie P. Miller, M.S.
Executive Director
Maine Osteopathic Association
693 Western Avenue
Manchester, Maine 04351
e-mail: meosteo@mint.net
(Maine Osteopathic Association)
DATED: April 5, 2000
_____________________________
John P. Doyle, Jr., Esq.
Attorney for MHA, Inc
PRETI, FLAHERTY, BELIVEAU, PACHIOS & HALEY, LLC
One City center
P.O. Box 9546
Portland, Maine 04112-9546
(207) 791-3000
