Opinion ID: 2598249
Heading Depth: 1
Heading Rank: 12

Heading: Increase in premiums

Text: In addressing the issue of the Commissioner's concerns about an increase in premiums, the district court relied heavily upon an excerpt from Blue Cross & Blue Shield v. Bell, 227 Kan. 426, 439, 607 P.2d 498 (1980), stating that one risk group should not be subsidized at the expense of others. According to the district court: Thus, it is contrary to the law of Kansas for an insurance company to use the proceeds from one line of insurance to subsidize another, each line being required to `stand alone.' The court then concluded that the Commissioner's order violates this Kansas law because it requires the continued subsidization of small groups and individuals by others, e.g., the elderly and infirm in Medicare plans. As we will hereafter show, the district court's reading of the Commissioner's order is erroneous and its reliance upon Bell is misplaced. In response to the district court decision, the Commissioner argues that the court  and in turn Anthem and BCBSKS  have misinterpreted her order. She contends that contrary to BCBSKS's specific allegation, and the district court's inherent finding, that she was commanding cross-subsidization, she was not. According to the Commissioner, she was merely denying the acquisition because she found Anthem would raise rates significantly higher than BCBSKS would have in order for Anthem to reach its goal of higher underwriting margins, i.e., to reach its 2.5%  instead of BCBSKS's current projection of 0%  by 2005, and that these increases would be concentrated in the small group and individual markets where BCBSKS was currently losing money. She listed several factors that affect, e.g., increase, an insurance company's underwriting margins other than increasing the premiums. She found that while Anthem argued these factors, there simply was insufficient or unpersuasive evidence presented to her to demonstrate that Anthem would increase its underwriting margins via any of these alternatives. In short, based upon the evidence before her, Anthem would not have the ability to increase its underwriting margins to 2.5% by 2005 without substantially increasing rates for small groups and individuals. Our examination of the Commissioner's order reveals no mention of commanding, requiring, or directing cross-subsidization. We agree with the Commissioner that merely because she analyzed various factors that would likely impact Anthem's post-acquisition underwriting margins, and ultimately made those determinations against the proposed acquisition, does not mean that she is commanding cross-subsidization. She is instead doing what the statute requires, which is to examine the proposed transaction from the perspective of policyholders, the insurance-buying public, and the public interest based on the statute's standards. We also find that the district court's sole reliance upon one excerpt from Bell, 227 Kan. 426, to be misplaced. In Bell, Blue Cross and Blue Shield of Kansas (BCBSK) filed suit in district court against Bell, the Commissioner of Insurance, to seek review of his order denying all requests for an increase in rates for the year 1979 which BCBSK requested. BCBSK had submitted its request seeking increases in all 21 risk group classifications to the Commissioner per a statute which obligated him to approve the filing unless he found it did not meet the requirements of the act or established an unreasonable, excessive, or unfairly discriminatory rate. The Commissioner denied the request for a number of reasons. These included, among other things, his belief that the administrative expenses were not conservative and therefore were unreasonable, as well as his belief that the company's contingency reserve levels were adequate and did not require any rate increase proposed by BCBSK. This court reversed the district court decision which had affirmed the Commissioner. Of first, and paramount, concern to the court was the Commissioner's failure to specify the findings of fact, as required by the statutes, supporting his conclusion that the rates should not be increased. Bell, 227 Kan. at 433-34. This court determined that there were no findings upon which to base the Commissioner's conclusion that BCBSK had failed to address cost containment provisions in provider contracts. It further determined that the record was devoid of evidence with which to support such a conclusion. 227 Kan. at 437. As for the second basis for denial  that the company's contingency reserve levels did not require a rate increase  this court held that the Commissioner's findings also were wholly unsupported by the evidence. 227 Kan. at 441. The third issue (with which the district court's 12-word excerpt is concerned) was who is to have the final authority to group risks into classifications for the establishment of rates on individual policies and on group policies. 227 Kan. at 437. After several pages of analyzing this issue, this court concluded that while the Commissioner had a measure of statutory control, the laws did not give him authority to govern the everyday management details of BCBSK, or to substitute his judgment for that of the boards of directors of those companies as to either the wisdom and expediency of business policies or the methods of carrying on the business of the companies. 227 Kan. at 439. Within this discussion, the court concluded that [t]he Commissioner should not substitute his judgment for that of the directors of BCBSK when it comes to grouping and classifying risks for the purpose of establishing rates on individual policies or on group policies. 227 Kan. at 438. Additionally within this discussion, the Bell court concluded that the Commissioner should not require BCBSK to continue subsidizing one risk group at the expense of other groups and that BCBSK, via management decisions, could make the rates for each group self-sustaining, which entailed raising the past rates of the high risk group. It was within this competing authority context that the Bell court made the comment cited by the district court. As this court cautioned in McKinney, Administrator v. Miller, 204 Kan. 436, 437, 464 P.2d 276 (1970), [e]very statement in a judicial opinion must be interpreted in the light of the structure of the particular case then before the court; otherwise a phrase meaningful for one case might erroneously become dogma for all cases despite essential differences. It is also important to acknowledge that the district court cited only a fragment of the Bell language. The Bell court's full statement is: [H]owever, the goal should be that one risk group should not be subsidized at the expense of others. (Emphasis added.) 227 Kan. at 439. Consistent with our statement in Bell, the BCBSKS Chief Financial Officer, Donald Lynn, testified in the instant case that the company's previous decision to reduce premiums temporarily on its small group market was motivated in part by a desire to improve its market share and the quality of its risk pool, and that whether the acquisition occurred or not, BCBSKS has already raised premiums for the small group market and had no intention to operate at a loss or subsidize any particular line of business or subset of policyholders by charging low rates unless it has a valid business reason to do so. Bell is further distinguished from our case factually. Bell concerned a projected raise in rates for several groups of subscribers to eliminate subsidization in a domestic insurer that was not being acquired by a foreign corporation. Acquisition is an issue in the instant case, however, and this difference is essential. See McKinney, 204 Kan. at 437. As further discussed below, the Commissioner has greater discretion in this situation. We agree with Bell's statement that the Commissioner under the circumstances of that case cannot get involved in the board's management decisions. She can, however, deny an acquisition based upon their management decisions because of her authority pursuant to the acquisition statute, e.g., when it is not in the public interest. We hold the district court erroneously relied upon Bell.