Opinion ID: 1664239
Heading Depth: 1
Heading Rank: 7

Heading: does pa 350 constitute an unconstitutional delegation of legislative authority to bcbsm and other private persons?

Text: BCBSM further challenges 1980 PA 350 as an unconstitutional attempt by the Legislature to delegate legislative power to BCBSM and private individuals. BCBSM claims that three areas in the statute permit such a delegation: the alleged directive to BCBSM to establish a statewide health care financing system, the creation of a panel of three actuaries to resolve risk factor disputes, and the appointment of independent hearing officers to settle rate challenges. We find only § 205(6), which establishes the actuary panel, to be constitutionally infirm.
As a threshold matter, BCBSM asserts that the essential purpose of the statute is to thrust upon BCBSM the legislative task of formulating a health care finance system for all persons in the State of Michigan. BCBSM argues that the policy formulation entailed in the establishment of a statewide health care financing program may not be delegated to a private corporation. [38] However, we may speedily dispose of this delegation challenge for the simple reason that the statute makes no attempt to establish a statewide health program, much less delegate the development and administration of the program to BCBSM. See Part II(C)(1).
BCBSM next challenges § 205(6), which establishes a panel of three actuaries to resolve risk factor disputes. BCBSM charges that § 205(6) is an unconstitutional delegation of legislative authority in that it lacks adequate standards to guide the panel's action. [39] Challenges of unconstitutional delegation of legislative power are generally framed in terms of the adequacy of the standards fashioned by the Legislature to channel the agency's or individual's exercise of the delegated power. See, e.g., Osius v St Clair Shores, 344 Mich 693, 698; 75 NW2d 25 (1956). Although for many years this and other courts evaluated delegation challenges in terms of whether a legislative (policymaking) or administrative (factfinding) function was the subject of the delegation, this analysis was replaced by the standards test as it became apparent that the essential purpose of the delegation doctrine was to protect the public from misuses of the delegated power. The Court reasoned that if sufficient standards and safeguards directed and checked the exercise of delegated power, the Legislature could safely avail itself of the resources and expertise of agencies and individuals to assist the formulation and execution of legislative policy. The criteria this Court has utilized in evaluating legislative standards are set forth in Dep't of Natural Resources v Seaman, 396 Mich 299, 309; 240 NW2d 206 (1976): 1) the act must be read as a whole; 2) the act carries a presumption of constitutionality; and 3) the standards must be as reasonably precise as the subject matter requires or permits. The preciseness required of the standards will depend on the complexity of the subject. Argo Oil Corp v Atwood, 274 Mich 47, 53; 264 NW 285 (1935). Additionally, due process requirements must be satisfied for the statute to pass constitutional muster. State Highway Comm v Vanderkloot, 392 Mich 159, 174; 220 NW2d 416 (1974). Using these guidelines, the Court evaluates the statute's safeguards to ensure against excessive delegation and misuse of delegated power. BCBSM complains that § 205(6) contains absolutely no standards to guide the actuaries in their determination of risk factors. We generally agree. (1) The Statute Risk factor is defined in § 205(13)(c) as the relative probability of loss associated with a given line of business, expressed as a percentage of incurred claims and incurred expenses for a calendar year. Sections 205(4), (5), and (6) establish a three-part procedure to formulate risk factors. First, the health care corporation must assign a risk factor for each line of the corporation's business. Section 205(4) directs that the risk factor shall be established in accordance with sound actuarial practices.... Second, the Insurance Commissioner must either approve or disapprove the factors proposed by the health care corporation, § 205(5). No guidelines are provided to direct the Insurance Commissioner's response. [40] Third, if the risk factors are disapproved, a panel of three actuaries shall determine a risk factor for each line of business, § 205(6). No further directions are set forth to guide the panel. The act provides no administrative or judicial review to challenge either the Insurance Commissioner's or the actuary panel's decision. (2) Adequacy of the Standards In order to properly evaluate BCBSM'S contention that the act provides absolutely no standards to guide these ad hoc actuaries, each of the interrelated procedures must be examined. The only direction given to the health care corporations is that sound actuarial practices shall be used. Yet this apparently broad, general directive in fact invokes a body of guidelines. Determination of risk factors is an integral part of actuarial science. Guidelines to standardize this statistical determination are published by the society of actuaries and the casualty actuarial society. Of course, determination of risk factors is not a mechanical calculation; there is no one correct risk factor because there is no one correct actuarially sound method of computation. See Beard, Pentikainen & Pesonen, Risk Theory (London: Methuen & Co Ltd., 1969); cf. Kosa v State Treasurer, 408 Mich 356, 372-373; 292 NW2d 452 (1980). Nonetheless, given the technical nature of actuarial science and the body of guidelines promulgated by the professional associations, the section provides a set of concrete standards to guide and constrain the health care corporations' actions. In contrast, the power delegated to the Insurance Commissioner is completely open-ended. The commissioner is starkly directed to approve or disapprove the proposed risk factors; the basis of the evaluation is not addressed. In fact, it is impossible to determine even the nature of the Insurance Commissioner's inquiry  whether the commissioner is deciding (1) that the health care corporation's proposed risk factors are actuarially sound, or (2) that, although the proposed factors are actuarially sound, a different set of actuarially sound risk factors are preferred by the commissioner. [41] This ambiguity is central to the dispute; the nature of the inquiry considerably alters the standards required to prevent an abuse of discretion. For instance, if the Insurance Commissioner merely reviews the proposed factors to ensure that they are in accordance with sound actuarial practices, it is unlikely that any further standard is required. If, however, the Insurance Commissioner may reject actuarially sound risk factors proposed by the health care corporation simply because of a preference for alternate risk factors, some criteria must be included to guide the Insurance Commissioner's preference of one risk factor over another. Without additional standards, the Insurance Commissioner has de facto veto power over the health care corporation's risk factors. This lack of clarity regarding the Insurance Commissioner's function permits the Insurance Commissioner to define the authority of the commissioner. Finally, the ambiguous nature of the Insurance Commissioner's inquiry affects the function of the actuary panel. If the commissioner's power is confined to vetoing actuarially unsound risk factors, the directive to the panel to establish actuarially sound risk factors, without more, may sufficiently tailor the panel's inquiry to pass constitutional muster. On the other hand, it is equally plausible to read the panel's function as an arbitration procedure: the panel must choose between the factors proposed by the corporation and the Insurance Commissioner, or reject both and choose a third risk factor. If this is the function delegated to the panel, the standards provided are wholly inadequate. The act is completely devoid of any indication why one factor should be preferred over another; no underlying policy has been articulated, nor has the Legislature detailed the criteria to be employed by the panel in making this determination. [42] This complete lack of standards is constitutionally impermissible. Osius v St Clair Shores, supra . Thus, the lack of standards defining and directing the Insurance Commissioner's and the actuary panel's authority renders this dispute resolution mechanism constitutionally defective.
Finally, BCBSM argues that the Legislature unconstitutionally delegated authority to the hearing officers who resolve part 5 rate disputes, § 514, and rate filing disputes, § 613, because they are wholly unaccountable to anyone. We disagree. (1) § 514 Very briefly, § 514 provides that all appeals under part 5 of the act (which deals with contracts between the health care corporation and health care facilities and professionals) shall be held before an independent hearing officer. The appeals may be brought to review various actions or determinations of the Insurance Commissioner. The selection of the hearing officers is quite detailed. Section 514 directs the State Court Administrator to compile a list of possible officers who meet certain qualifications: the hearing officer must be a retired circuit court judge, a Michigan resident not involved in the provision of health care services and not an employee or officer of a health care provider or health care corporation or an employee of the state. The hearing officers are randomly selected from the compiled list by the Insurance Commissioner; they serve per appeal. BCBSM articulates its challenge to the section: Basic determinations with respect to provider class plans, which control BCBSM'S contracts and reimbursement arrangements with health care providers, are placed in the hands of hit and run independent hearing officers (§ 514) who are again wholly unaccountable to anyone, who are not members of any public body, and who are not removable by any public representative. We must disagree with BCBSM'S claim. The hearing officers' fidelity to the statutory role assigned them is monitored in several ways. First, § 514(4) requires the Insurance Commissioner to report to the appropriate legislative standing committees information on the hearing officers' performance. The data include: the number of appeals heard; the nature of the controversy; the disposition of the appeal; the existence of a judicial appeal, and its result. One may safely assume that the legislative committee will review this information and alter the statute if the hearing officers do not act in conformity with the statute. Second, the list of possible hearing officers is compiled by the State Court Administrator, a person appointed by and thus responsible to the Supreme Court, an elected body. One may assume that the State Court Administrator will thus carefully select the hearing officer candidates and attentively monitor their performance. Also, contrary to BCBSM'S contention, the individuals may be removed from the list of potential hearing officers at the discretion of the State Court Administrator. Third, the hearing officers' decisions are not immune from challenge. The statute specifically provides for judicial review of the hearing officers' decisions, §§ 501(2), 502(7). Section 518 provides: An appeal from a final determination of an independent hearing officer shall be conducted pursuant to chapter 6 of the administrative procedures act, except that the appeal shall be taken within 30 days after the final determination, upon leave granted, in the court of appeals. Chapter 6 of the Administrative Procedures Act, MCL 24.301-24.306; MSA 3.560(201)-3.560(206), sets forth the procedures to be followed for direct review by the courts of an administrative decision. The court's standard of review is carefully delineated: (1) Except when a statute or the constitution provides for a different scope of review, the court shall hold unlawful and set aside a decision or order of an agency if substantial rights of the petitioner have been prejudiced because the decision or order is any of the following: (a) In violation of the constitution or a statute. (b) In excess of the statutory authority or jurisdiction of the agency. (c) Made upon unlawful procedure resulting in material prejudice to a party. (d) Not supported by competent, material and substantial evidence on the whole record. (e) Arbitrary, capricious or clearly an abuse or unwarranted exercise of discretion. (f) Affected by other substantial and material error of law. [MCL 24.306; MSA 3.506(206).] This provision ensures that the reviewing court has broad enough authority to rectify a decision of a hearing officer which is repugnant to or in contravention of the statute. This avenue of judicial review, in conjunction with the Legislature's express intent to review the hearing officers' performance and the State Court Administrator's interest in recommending only qualified individuals, contradicts BCBSM'S assertion that the hearing officers are wholly unaccountable; the hearing officers' decisions will be measured against the statutory requirements to ensure against abuse of the delegated authority. (2) § 613 Finally, BCBSM focuses on § 613 which provides for independent hearing officers to conduct hearings between the health care corporation and the requesting party on whether proposed rate filings meet the requirements of the act. Again, BCBSM alleges that the independent hearing officers are wholly unaccountable. We disagree. Section 613(1) directs that the independent hearing officer shall be appointed by the Insurance Commissioner, an appointee of the Governor with the consent of the Senate. MCL 500.202; MSA 24.1202. The individual appointee must meet certain criteria: In appointing an independent hearing officer, the commissioner shall select a person qualified to conduct hearings, who has experience or education in the area of health care corporation or insurance rate determination and finance, and who is not otherwise associated financially with a health care corporation or a health care provider. The person selected shall not be currently or actively employed by this state. The independent hearing officer must conduct the hearing according to the Administrative Procedures Act, § 613(2). Within thirty days after receipt of the hearing officer's proposed decision, the Insurance Commissioner shall render a decision which includes a statement of findings, § 613(4). The commissioner's decision may be reviewed directly by the courts, § 615. Thus, the hearing officers' decisions are filtered through the politically and judicially accountable Insurance Commissioner. This procedure provides sufficient checks on the delegation of legislative power. The Legislature has included adequate safeguards to restrain the hearing officers from abusing or misusing the delegated power.