Blue Cross & Blue Shield of Rhode Island v. McConaghy

• Decision Date: 05 March 2002
• Docket Number: C.A. 01-1570
• Court: Rhode Island Superior Court
• Parties: BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Plaintiff v. MARILYN SHANNON McCONAGHY, in her capacity as DIRECTOR of the RHODE ISLAND DEPARTMENT OF BUSINESS REGULATION, Defendant

BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Plaintiff v. MARILYN SHANNON McCONAGHY, in her capacity as DIRECTOR of the RHODE ISLAND DEPARTMENT OF BUSINESS REGULATION, Defendant

C.A. No. 01-1570

Superior Court of Rhode Island

March 5, 2002

DECISION

SILVERSTEIN J.

Before this Court is an administrative appeal wherein the appellant Blue Cross and Blue Shield of Rhode Island (Blue Cross) seeks reversal of the Decision and Order issued by the Director (Director) of the Department of Business Regulation (Department or DBR) on March 16, 2001 (First Decision) and subsequently modified by the Supplemental Decision issued on November 5, 2001 (Second Decision), in which the Director adopted sanctions recommended by the Hearing Officer against Blue Cross for its violation of the Small Employer Health Insurance Availability Act, G.L. 1956 § 27-50-1 et seq., as amended by P.L. 2000, chs. 200 and 229 (Act). Jurisdiction is pursuant to G.L. 1956 §§ 42-35-15 and 8-2-13.

Facts/Travel

The parties to this action agreed to bifurcate this administrative appeal. In the first phase, the parties agreed to have this Court, on an expedited basis, address the dispositive legal issue of whether the Act mandated that, as of October 1, 2000, Blue Cross had to provide a four-tier rating system based on the types of family composition set forth in G.L. 1956 § 27-50-3(q). This Court rendered a decision on this stipulated issue in Blue Cross &amp Blue Shield of Rhode Island v. McConaghy, C.A. No 01-1570, Sept. 5, 2001, Silverstein, J. The facts as set forth in that decision are adopted here though more detail as to the facts and travel regarding the sanctions imposed by the Department against Blue Cross will be provided.

In the First Decision issued on March 16, 2001, the Director adopted the recommendations of the Hearing Officer and found that "[t]he Act mandates a four tier rating system based on the four different categories of 'family composition' as defined by the Act." (First Decision at 20.) In addition, the Director held that "[t]he Department has authority to impose sanctions in this matter pursuant to [G.L. 1956] § 42-14-16. The recommended sanctions are appropriate and necessary in order for the Department to enforce the mandates of the Act." Id. The Department imposed the following sanctions:

"A. Respondent be ordered to cease and desist from issuing and/or renewing any health benefit plans to small employers pursuant to the Act unless and until the rating system used by Respondent to establish the rates for said coverage uses all four tiers within the definition of "family composition" under R.I. Gen. Laws § 27-50-3(q)(1-4).

B. With respect to all health insurance plans previously issued or renewed for small employers pursuant to the Act during the Period, Respondent shall develop a four tier rating system applicable to said plans. Respondent shall take whatever steps necessary to recalculate premium rates for each health benefit plan issued and/or renewed during the Period, and determine what premiums would have been payable by each such plan using the mandatory four tier rating system. The Respondent shall provide to the Hearing Officer an accounting of and supporting documentation for all premium payments made under said health benefit plans (using a two tier system) which exceed the rate that would have been payable had the rates initially been determined using the four tier system. The difference between the higher premium paid under the two tier system and the lower premium that would have been paid for the Period using the four tier rating system shall be refunded to the person/entity that made the payments.

C. In recalculating the premiums for the Period, if the Respondent determines that any person/entity paid less in premiums under the two tier system than it would have paid under a four tier system, Respondent shall provide the Hearing Officer with an accounting of and supporting documentation for all premium payments made using a two tier system under said health benefit plans which are less than the premium payments that should have been paid for the Period. Since it would be inequitable for persons/entities to be retroactively charged for underpayments caused by Respondent's use of a two tier as opposed to a four tier system, the difference between said lower premium paid for the Period and the higher premium that would have been paid for the Period using the four tier rating system shall constitute part of the administrative penalty payable in this matter by Respondent.

D. All Premiums due for periods subsequent to the date of this Decision for health benefit plans issued and/or renewed during the Period shall be calculated using a four tier rating system consistent with the definition of "family composition" under the Act.

E. In addition to the administrative penalty referred to in C above, Respondent shall pay an administrative penalty of ten thousand dollars ($10,000.00) for its failure to use a four tier rating system consistent with the definition of "family composition" in R.I. Gen. Laws § 27-50-5(a)(5).

F. Respondent shall submit the above referenced accountings and documentation to the Hearing Officer and Department by April 12, 2001.

G. A hearing to (i) review the accountings and supporting documentation submitted pursuant to this Decision; (ii) set the date by which the above referenced refunds shall be made and (iii) calculate the exact amount of the administrative penalty under this Decision shall be held on April 19, 2001 at 9:30 a.m."

On March 28, 2001, Blue Cross timely filed an administrative appeal to this Court and moved for a stay and/or temporary restraining order to which the Director objected. On March 29, 2001, this Court granted a stay of section VII(D) of the First Decision with regard to Blue Cross's billings for the April 1, 2001 billing cycle and granted a temporary restraining order preventing the Department from enforcing section VII(D) with respect to the same period. Thus the Court allowed Blue Cross to issue April 1, 2001 bills using a two-tier system to all persons or entities whose health plans were issued or renewed during the period between October 1 2000 and the date of the First Decision, March 16, 2001.

On April 19, 2001, the Hearing Officer held a hearing regarding Section VII(G) as required by the First Decision. The Hearing Officer recognized that the parties had agreed to stay all enforcement aspects of the Decision, except for section VII(D), until sixty (60) days after this Court rendered a decision on the underlying legal issue. On April 23, 2001 the Department denied Blue Cross's request to stay enforcement of section VII(D) of the Decision with respect to the May 1, 2001 billing cycle. On April 25, 2001, Blue Cross filed a Motion for Further Stay and/or Restraining Order to which the Department objected. Blue Cross sought an order that would stay section VII(D) of the Decision and temporarily restrain the Director and Department from enforcing or causing to be implemented section VII(D) of the Decision until sixty (60) days after the Court rendered its decision on the underlying legal issue. On April 26, 2001, this Court granted Blue Cross's request and issued an order (Order) stating:

"Section VII.D. of the Decision of the Department of Business Regulation dated March 16, 2001 and designated D.B.R. No. 00-I-0146 (the "Decision") is hereby further stayed and the Director of the Department of Business Regulation and/or the Department of Business Regulation are further temporarily restrained from enforcing or causing to be implemented Section VII.D. of the Decision until sixty (60) days after this Court has rendered a decision on the legal issue specified in paragraph 1 of the attached Order entered on April 23, 2001; provided, however, the stay and temporary restraining order are conditioned upon Plaintiff refunding for periods from and after April 1, 2001, any excess premiums paid by small employers on October 2000 through March 2001 rating cycles who continue to be charged by Plaintiff on a two-tier basis as opposed to a four-tier basis if (and only if) the Court decides that the Act (as defined in the attached Order) mandated Plaintiff to provide coverage in the small employer market for four-tiers of family composition and thereby prevented Plaintiff from continuing to write two-tier family composition coverage from and after October 1, 2000."^[1]

On September 5, 2001, this Court issued a decision on the stipulated issue of whether the Act required Blue Cross, as of October 1, 2000, to provide a four-tier rating system. This Court held that:

"[t]he Director neither exceeded her authority nor erred as a matter of law in determining that the Act requires small employer carriers to use a four-tier rating methodology pursuant to the four types of family composition set forth in § 27-50-3(q) (1-4). Accordingly, Blue Cross's appeal with respect to the issue of law is denied, and the Decision with respect to the Act's mandating the use of a four-tier rating system is hereby affirmed. Further the petitioner's request for an Order that the Act 'does not require the mandatory use of all four tiers of family composition' is denied." Blue Cross & Blue Shield of Rhode Island v. McConaghy, C.A. No. 01-1570, Sept. 5, 2001, Silverstein, J.

The Court carefully noted, however, that "[t]his decision . . . resolves only the controversy surrounding the Director's interpretation of the Act, as applied to the instant facts." Id.

On October 4, 2001, the Department held a hearing to receive testimony regarding the calculation of the difference in premiums between the two-tier and four-tier rating system during the Stay Period. On October 31, 2001, Blue Cross filed a Motion for Further Stay of the...