Bankers Life and Cas. Co. v. Commissioner of Ins.

• Decision Date: 23 March 1998
• Citation: 691 N.E.2d 929,427 Mass. 136
• Parties: , Medicare & Medicaid Guide P 46,157 BANKERS LIFE AND CASUALTY COMPANY v. COMMISSIONER OF INSURANCE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 929

691 N.E.2d 929

427 Mass. 136, Medicare & Medicaid Guide P 46,157

BANKERS LIFE AND CASUALTY COMPANY v. COMMISSIONER OF INSURANCE.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Feb. 2, 1998.

Decided March 23, 1998.

Curtis J. Dickinson, Indianapolis, IN (Steven L. Goldblatt, Boston, with him), for plaintiff.

Edward J. DeAngelo, Assistant Attorney General, for the defendant.

Before WILKINS, C.J., and ABRAMS, LYNCH, GREANEY, FRIED, MARSHALL and IRELAND, JJ.

MARSHALL, Justice.

On joint motion of the parties, a single justice of this court reserved and reported without decision the petition of Bankers Life and Casualty Company (Bankers Life) for judicial review of the decision of the Commissioner of Insurance (commissioner) disapproving its request for rate increases for two of its Medicare supplement insurance plans. Bankers Life argues that the commissioner exceeded her authority under G.L. c. 176K, § 7, which governs rate-setting procedures for Medicare supplement insurance policies, ¹ in using a methodology to determine the "reasonableness" of Bankers Life's proposed rates on grounds other than compliance with the statutory minimum loss ratio. Related to that argument is Bankers Life's claim that the disapproval of the proposed rates is, in any event, based on findings that are speculative and unsupported by substantial evidence. We conclude that, consistent with Federal law and the Minimum Standards Model Act of the National Association of Insurance Commissioners (NAIC), ² the commissioner may consider information other than data necessary to validate the statutory minimum loss ratio if she deems it essential to her determination whether a proposed rate is "reasonable." We direct judgment to enter in the county court affirming the decision of the commissioner.

On November 14, 1995, Bankers Life submitted to the division of insurance (division) for review and approval pursuant to G.L. c. 176K, § 7, and 211 Code Mass. Regs. §§ 69.00 et seq. (1994), a proposed schedule of premiums for six different insurance plans providing Medicare supplement insurance. Bankers Life sought a rate increase of 21.5 per cent for its "core" Medicare supplement plan, and a rate increase of 30 per cent for its "Medicare Supplement 2" plan that provides core coverage and additional benefits including skilled nursing and prescription drugs. On January 5, 1996, the commissioner issued notice that, pursuant to G.L. c. 176K, § 7(g), there would be a public hearing on the proposed rates on February 1, 1996. The Attorney General and the State Rating Bureau (SRB) intervened in the proceeding to oppose the submitted rate increases.

After conducting evidentiary hearings and accepting written testimony and other submissions, a hearing officer of the division issued a decision disapproving Bankers Life's proposed rates on June 28, 1996. On the same day, the commissioner approved the decision. On July 17, 1996, in response to the commissioner's decision, Bankers Life submitted revised rate filings that proposed increases of 15.5 per cent for its core policy, and 13.1 per cent for its Medicare Supplement 2 policy. These rates were approved. On July 18, 1996, pursuant to G.L. c. 176K, § 7(i), Bankers Life filed its petition in the county court for judicial review of the June 28 decision.

1. The commissioner's methodology for approving proposed rate increases. Bankers Life's claims rest all but entirely on its assertion that, in determining whether a proposed rate is reasonable, the commissioner may consider only whether the rate meets the minimum loss ratio standards ³ imposed by G.L. c. 176K, § 7(d), (e). ⁴ According to Bankers Life, the statutory minimum loss ratio represents "the supreme, definitive and exclusive measure" of whether a rate is reasonable, and the commissioner exceeded her authority in applying a test for reasonableness that included non-loss ratio factors such as administrative expenses or accounting for investment income. The commissioner responds that the statutory minimum loss ratio is a threshold requirement for rate approval that is independent of, and does not replace, the "reasonableness" test mandated by G.L. c. 176K, § 7(d) and (g), that the test for reasonableness requires consideration of other factors, including an insurer's other expenses and income, and that the minimum loss ratio is only one of several criteria that an insurer must meet.

Our review of the commissioner's actions is governed by G.L. c. 176K, § 7(i), which provides that we are "limited to the record of proceedings before the commissioner," and that we shall "uphold the commissioner's action, order, finding, or decision if it is consistent with the standards set forth in [G.L. c. 30A, § 14(7) ]." We shall not disturb the commissioner's decision "unless it is based on an error of law, unsupported by substantial evidence, arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law." Blue Cross & Blue Shield of Mass., Inc. v. Commissioner of Ins., 420 Mass. 707, 710, 652 N.E.2d 135 (1995). See G.L. c. 30A, § 14(7)(c), (e), and (g). In addition, as the challenging party, the burden is on Bankers Life to demonstrate that the decision of the commissioner was incorrect. G.L. c. 30A, § 14(7)(d). See Aristocratic Restaurant of Mass., Inc. v. Alcoholic Beverages Control Comm'n (No. 1), 374 Mass. 547, 551, 374 N.E.2d 1181, appeal dismissed, 439 U.S. 803, 99 S.Ct. 58, 58 L.Ed.2d 96 (1978).

General Laws c. 176K, enacted in January of 1994, governs all policies for Medicare supplement insurance. St.1993, c. 495, § 45. Of particular relevance to our inquiry is § 7, which governs premium increases, annual reporting requirements, approval by the commissioner of proposed rates, and judicial review. Subsection 7(d) provides that the commissioner may disapprove proposed rates for Medicare supplement insurance policies "if the benefits provided therein are unreasonable in relation to the rate charged, or if they are excessive, inadequate or unfairly discriminatory or do not otherwise comply with the requirements of this chapter." If the commissioner does not disapprove the proposed rates, the rates are generally deemed approved, provided that the rates comply with the anticipated "minimum loss ratio standard" imposed by subsection 7(e).

General Laws c. 176K, § 7(g), sets out additional requirements in cases, such as here, where the insurer submits rate increases that exceed ten per cent of the premium previously charged. Those proposed rates are "subject to the prior approval of the commissioner as set forth in this subsection," and the subsection requires that the commissioner determine whether "the benefits provided therein are unreasonable in relation to the rate charged" or whether the proposed rates are "excessive, inadequate or unfairly discriminatory or do not otherwise comply with the requirements of this chapter." G.L. c. 176K, § 7(g). The subsection also requires the commissioner to conduct a public hearing and to determine, on the basis of information submitted by the insurer, that the carrier utilizes techniques "which have had or are expected to have a demonstrated impact on the prevention of reimbursement by the carrier for services which are not medically necessary." Id.

Bankers Life claims that G.L. c. 176K was enacted to conform State Medicare insurance policy regulations to definitive standards required under Federal law, and that, once an insurer demonstrates that it has met the statutory minimum loss ratio, in this case 65 per cent, no further inquiry as to the reasonableness of the proposed rates is permitted by the commissioner. The enabling statute, it says, may not be construed to require a commercial insurer to set rates any lower than are reasonably necessary to meet the statutory 65 per cent loss ratio. We do not agree.

In Blue Cross & Blue Shield of Mass., Inc. v. Commissioner of Ins., supra, we had occasion to comment on G.L. c. 176K, § 7(d) and (g). We said that the commissioner must give deference to proposed rates "so long as they fall within a range of reasonableness." Id. at 709, 652 N.E.2d 135. See Blue Cross of Mass., Inc. v. Commissioner of Ins., 397 Mass. 117, 119, 489 N.E.2d 1249 (1986). The plaintiff in Blue Cross & Blue Shield, unlike Bankers Life, did not dispute the methodology used by the commissioner to determine whether its proposed rate increase was unreasonable. Nevertheless, our conclusion in that case that a proposed rate must fall within a "range of reasonableness" is entirely inconsistent with the assertion that compliance with the minimum loss ratio is the sole determining factor on which the commissioner must rely. A "range of reasonableness" standard is not incompatible with the present statutory provisions, and there is no basis on which to conclude that in 1994 the Legislature intended to replace that standard with the enactment of a fixed, minimum loss ratio standard. ⁵

The argument advanced by Bankers Life also violates a basic tenet of statutory construction that a statute must be construed "so that effect is given to all its provisions, so that no part will be inoperative or superfluous." 2A B. Singer, Sutherland Statutory Construction § 46.06 (5th ed.1992). See Pentucket Manor Chronic Hosp., Inc. v. Rate Setting Comm'n, 394 Mass. 233, 242, 475 N.E.2d 1201 (1985); International Org. of Masters, Mates & Pilots, Atl. & Gulf Maritime Region v. Woods Hole, Martha's Vineyard & Nantucket S.S. Auth., 392 Mass. 811, 813, 467 N.E.2d 1331 (1984). The claim that the minimum loss ratio mandated by G.L. c. 176K, § 7(d), (i), and (e), preempts all other statutory requirements, reduces to a nullity at the very least the commissioner's obligation to determine that the proposed benefits are not "unreasonable in relation to the rates charged" or "excessive" under G.L. c. 176K, § 7(d) and (g), and the obligation imposed on the commissioner by G.L. c. 176K, § 7...