Court Opinion

ID: 5077334
Source: CourtListenerOpinion
Date Created: 2021-10-01 11:34:34.793734+00
Date Added: 2024-06-11T08:20:04.111069
License: Public Domain

VANCE, Justice,
dissenting.
We live in a time when medical costs seem to many of us to be completely out of control. We must realize, however, that when health insurance premiums rise at a phenomenal rate they simply reflect the fact that physician and hospital charges are rising at a phenomenal rate. Health insurance companies are business enterprises, and unlike the federal government they cannot continue to exist when they pay out more than they take in.
In matters involving premiums charged by a health insurer, the important consideration for the insurance commissioner should be whether the proposed rate is reasonable. K.R.S. 304.14-130(l)(d) dictates that the amount of premium charged in relation to the benefits provided by the policy shall be the basis for the determination of the reasonableness of the premium. When benefit payments are equal to or greater than 55% of the premium charged, it is considered by the Department, under regulations promulgated by it, that the premium is deemed to be reasonable.
The proof at the hearing before the commissioner was that the anticipated payment of benefits under the rates proposed by Blue Cross and Blue Shield of Kentucky would equal approximately 85% of the premiums collected, far in excess of the 55% standard for reasonableness set forth in the Department’s regulations. After the payment of anticipated benefits, only 15% of each premium dollar collected would remain for the payment of overhead and administrative expenses.
There was absolutely no evidence at the hearing to indicate that the proposed rates were unreasonable in the relationship of benefits paid to the premium charged. The commissioner concedes that fact.
The commissioner rejected the proposed rates by applying Section 12 of the insurance code. Section 12 relates to unfair methods of competition and unfair and deceptive practices in the insurance business. Various subsections of Section 12 relate to such matters as false and misleading advertising, false financial statements, advertisement of assets and liabilities, and proscriptions against defamation, boycotts, intimidation, discrimination, rebates, and illegal inducements by an insurer.
None of the proscribed unfair practices even remotely refer to rates, and the trial court correctly held that Section 12 does not apply to rate proposals.
K.R.S. Section 304.12-130 does authorize the commissioner to give notice and hold hearings on any other method of competition or practices which he considers to be unfair, deceptive, or not in the public interest. Under this section, but without the required notice of the specific charge to Blue Cross and Blue Shield, the commissioner determined that the “full implementation of the demographic rates” occurring at a time when a general rate increase was requested, amounted to an unfair trade practice.
In a prior hearing, Blue Cross and Blue Shield, as well as its major competitors, were allowed to classify its policyholders according to age and sex. Policyholders were divided into age classifications, encompassing ten-year periods, instead of all policyholders, regardless of age, being in the same classification. The premium rates for each classification thereafter were based upon the amount of benefits *636paid to the members of that class. Because experience has shown that older people generally require much more medical services than younger persons, the premium charge was necessarily higher for those in the older classification than for those in the younger classification. As a practical matter, people in the oldest classification paid significantly more, and those in the younger classification paid less, than when all subscribers were in the same classification. This is simply the nature of insurance in general. The risk of loss is spread evenly among all the members of the same classification.
The phrase, “full implementation of demographic rates” used by the commissioner as a basis for his finding of an unfair trade practice is in itself a misleading and deceptive phrase. Its meaning is not clear. It ought to mean the implementation of the maximum, or the full rate in each demographic classification, which would yet be reasonable under the Department regulations, namely, a return which would result in a payment of 55% of each premium dollar as benefits to policyholders. Obviously, the Blue Cross and Blue Shield proposal is not a full implementation of the demographic rate because its proposal is to pay out 85% of premium dollars in benefits. Under the Department’s regulations, much higher rates than those proposed by Blue Cross and Blue Shield would, nevertheless, be deemed to be reasonable.
In my view, a rate which pays out in policy benefits 30% more of each premium dollar than is required by Department regulations, is, as a matter of law, a reasonable rate, and the implementation of such a rate cannot constitute an unfair trade practice. If a proposed rate for a particular demographic classification which has been approved by the Department is necessary to cover the costs generated by the members of that classification, the rate, though it may seem oppressive and harsh in its consequences, is nevertheless not an unfair rate. Any unfairness which may exist in this matter lies in the demographic classifications which have been approved by the Department, and not in the rates which are necessary to pay the benefits in each classification.
As I noted earlier, Blue Cross and Blue Shield formerly included all of its policyholders in one classification. The breakup of policyholders into narrow ten-year age classifications has resulted in the necessity of a huge increase in the premiums for those persons in the 50-60 year age classification, and for those 60 and older.
The commissioner has concluded that the increase in premiums should have been phased in gradually rather than abruptly. This could have been accomplished by a more gradual narrowing of the demographic age categories, but as the dissenting opinion of Justice Gant points out, the demographic classifications were suggested by the Department and approved by it in previous years. A similar classification has been approved for other health insurance companies which compete with Blue Cross and Blue Shield. The denial to one company of the use of a demographic classification for rate purposes which has been allowed to other companies, might very well constitute an unfair trade practice in itself.
I cannot fail to recognize the fact that spiraling costs have placed adequate health care insurance beyond the reach of many in our society and have caused great hardship to many others. Yet, I cannot ignore the fact that to continue in business, the premium charged by a health insurance company must be sufficient to meet the benefits provided by the policies it issues. A fair interpretation of the insurance code compels me to affirm the decision of the trial court.
GANT, J., joins in this dissenting opinion.