Blue Cross of Massachusetts, Inc. v. Commissioner of Ins.

• Decision Date: 18 March 1986
• Citation: 489 N.E.2d 1249,397 Mass. 117
• Parties: BLUE CROSS OF MASSACHUSETTS, INC. et al. v. COMMISSIONER OF INSURANCE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1249

489 N.E.2d 1249

397 Mass. 117

BLUE CROSS OF MASSACHUSETTS, INC. et al. v. COMMISSIONER OF INSURANCE.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Nov. 8, 1985.

Decided March 18, 1986.

Jeffrey Swope (Molly H. Sherden, with him), for plaintiffs.

Stephen S. Ostrach, Asst. Atty. Gen. (Cheryl L. Conner, Asst. Atty. Gen., with him), for Com'r of Ins.

Thomas I. Elkind & Robert H. Kelley, for Massachusetts Ass'n of Older Americans, amicus curiae, submitted a brief.

Before HENNESSEY, C.J., and ABRAMS, NOLAN and LYNCH, JJ.

LYNCH, Justice.

Blue Cross of Massachusetts, Inc., and Blue Shield of Massachusetts, Inc., seek a review of a decision of the Commissioner of Insurance (commissioner) disapproving filings proposing an increase in nongroup rates. On appeal Blue Cross and Blue Shield argue that the commissioner's decision contains several errors of law and is based upon findings which are unsupported by substantial evidence. We affirm.

On January 2, 1985, Blue Cross and Blue Shield filed proposed revised rates for nongroup subscribers to be effective May 1, 1985, seeking a composite rate increase of 11.5 per cent for Blue Cross and 3.8 per cent for Blue Shield. ¹ See G.L. c. 176A, § 6 (1984 ed.); G.L. c. 176B, § 4 (1984 ed.). The Attorney General and the Massachusetts Medical Society (M.M.S.) intervened as parties. The State Rating Bureau (S.R.B.) also participated in the proceedings. The Attorney General, M.M.S., and the S.R.B. all made advisory filings, but only the Attorney General recommended a proposed rate increase (less than that which was sought). On July 25, 1985, the commissioner filed his findings and order disapproving the proposed revision.

A single justice of this court allowed a Blue Cross and Blue Shield motion to transfer, consolidate, and fuse a similar action pending in the Superior Court, and reserved and reported the case for decision by the full court.

1. Standard of review. In this type of proceeding, the commissioner does not set rates but instead is empowered to review proposed rates. G.L. c. 176A, § 6. G.L. c. 176B, § 4. See Massachusetts Ass'n of Older Americans, Inc. v. Commissioner of Ins., 393 Mass. 404, 407, 471 N.E.2d 1281 (1984). Compare G.L. c. 176A, § 10 (1984 ed.). Contrast G.L. c. 175, § 113B (1984 ed.) (commissioner shall fix and establish automobile insurance rates). No proposed rates can be approved if they are "excessive, inadequate or unfairly discriminatory." G.L. c. 176A, § 6. G.L. c. 176B, § 4. Further, under G.L. c. 176B, § 4, the commissioner may not approve proposed rates if the benefits provided are "unreasonable in relation to the rate charged." The commissioner "may not require that [rates] be at the figures he finds reasonable." Massachusetts Medical Serv. v. Commissioner of Ins., 344 Mass. 335, 339, 182 N.E.2d 298 (1962). See Massachusetts Ass'n of Older Americans, Inc. v. Commissioner of Ins., supra 393 Mass. at 407 & n. 6, 471 N.E.2d 1281. The commissioner must give deference to proposed rates so long as they fall within a range of reasonableness. Id. But the burden is on the insurers to furnish evidence which enables the commissioner to establish a range of reasonableness, Massachusetts Ass'n of Older Americans, Inc., supra 393 Mass. at 407-408, 471 N.E.2d 1281, Liberty Mut. Ins. Co. v. Commissioner of Ins., 366 Mass. 35, 42, 313 N.E.2d 897 (1974), and "[t]he statute does not require the commissioner to approve elements of filings which would lead to rates falling within a range of excess, no matter how small." Workers' Compensation Rating & Inspection Bureau of Mass. v. Commissioner of Ins., 391 Mass. 238, 264, 461 N.E.2d 1178 (1984).

Our review must accord "the deference due the commissioner's specialized knowledge, technical competence, and experience, regarding issues within the scope of his statutorily delegated authority." Workers' Compensation Rating & Inspection Bureau of Mass., supra at 245-246, 461 N.E.2d 1178. See Massachusetts Ass'n of Older Americans, Inc., supra 393 Mass. at 414, 471 N.E.2d 1281.

Our review of the rates is governed by both G.L. c. 176A and G.L. c. 176B, §§ 12, 17 (1984 ed.) Review under G.L. c. 176A, § 6, is governed by G.L. c. 30A, § 14(7) (1984 ed.). Massachusetts Ass'n of Older Americans, Inc., supra at 408 & n. 9, 471 N.E.2d 1281. Thus we shall not disturb the commissioner's decision unless it is based upon an error of law unsupported by substantial evidence arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law. G.L. c. 30A, § 14(7)(c ), (e ) and (g ) (1984 ed.).

Review pursuant to G.L. c. 176B, § 12, is limited to whether there is reasonable support in the evidence for the commissioner's findings. The standard of review to be applied to such a determination is the same under G.L. c. 176B, § 12, as under G.L. c. 176A, § 6. Massachusetts Ass'n of Older Americans, Inc., supra at 409, 471 N.E.2d 1281. It is axiomatic that we retain the power to review the commissioner's decision for errors of law and to insure that his decision is in accordance with law under G.L. c. 176B, § 12. ²

2. Substantial evidence. Blue Cross argues that the commissioner's disapproval was not based on substantial evidence to the extent he found "unsupported inconsistencies" in the Blue Cross filing. The thrust of the argument is that the commissioner relied on the testimony of a witness, nonexpert in the particular area in question, to disapprove the filing. Blue Cross argues that this violates the substantial evidence test because it was "contrary to the recommendations of all experts who testified at the hearing." Medical Malpractice Joint Underwriting Ass'n of Mass. v. Commissioner of Ins., 395 Mass. 43, 55, 478 N.E.2d 936 (1985), quoting Massachusetts Auto. Rating & Accident Prevention Bureau v. Commissioner of Ins., 362 Mass. 43, 46, 283 N.E.2d 862 (1972). A review of the facts underlying the issue demonstrates the fundamental errors in this position.

To determine the anticipated cost of inpatient hospital services to nongroup subscribers, the projected number of days they will be in the hospital ³ must be multiplied by the average cost per hospital day. ⁴ In determining average cost per day, a factor is used known as "total or overall incidence." It was assumed by all parties that, during the period in question, there would be a decline in both over-all and nongroup incidence rates. To the extent that the decline in over-all incidence exceeds the decline in nongroup incidence, the nongroup premium should be higher because that group would be using a greater proportion of inpatient hospital services.

Blue Cross originally projected a decrease in nongroup incidence for 1985 and 1986, compounded, between 5.9 per cent and 8.0 per cent. It projected decline in total incidence for the same period compounded to 6.4 per cent. Thus, Blue Cross based its original filing on the factual assumption that nongroup incidence could decline faster than total incidence. After an employee of the Rate Setting Commission (R.S.C.) testified, a Blue Cross actuary revised the estimate for total incidence compounded to 10.7 per cent. Blue Cross did not adjust the estimates for nongroup incidence, however. The R.S.C. employee testified that reliance on the original estimate for nongroup incidence was "inherently wrong" and went on to testify that there was no evidence to justify revision of the total incidence without revising nongroup incidence as well.

The commissioner noted the "selective revisions" made to the original projection, and pointed out that the revised estimate increased the Blue Cross nongroup rate but did not provide any "evidence to support [the] reversal in its [initial] assumption about the relative magnitude of rates of decline in total hospital days and nongroup incidence." As he pointed out, Blue Cross "went from assuming that the decline in nongroup incidence would almost equal or exceed the reduction in total hospital days to assuming that nongroup incidence would decline much more slowly than total hospital days." The commissioner specifically held that the burden was on Blue Cross to provide adequate evidence to enable him to make a determination of reasonableness, and that on the basis of the record before him ⁵ the "unsupported inconsistencies between the projected rates of decline in nongroup incidence and total hospital days" were unreasonable.

Blue Cross's reliance on Medical Malpractice Joint Underwriting Ass'n of Mass., supra, is misplaced. In that case we rejected rates fixed by the commissioner because the necessary substantial evidence test was not met, although we were critical of the commissioner's decision to combine "different rate components proposed by various expert witnesses to arrive at a lower insurance rate than any of these experts proposed." Id. 395 Mass. at 55, 478 N.E.2d 936. We held that that method of computation was not "by itself sufficient proof that his decision was not based on substantial evidence in the record." Id. at 56, 478 N.E.2d 936. The statutes circumscribing the commissioner's discretion in that case required the rates fixed by the commissioner to be "actuarially sound" and "self-supporting." Id. at 57, 478 N.E.2d 936. See St. 1975, c. 362, § 6. Thus, we required only that if the commissioner sets rates below a level suggested by every actuarial expert, he "must clearly demonstrate that each selected rate component is truly independent and is supported by substantial evidence." Id. at 57. What was lacking there was "greater specificity in [the] administrative findings and conclusions." Id. Thus, we did not categorically rule out the possibility that the commissioner could set rates which no actuarial expert supported.

Essentially, Blue Cross would have us hold that if it can marshal its experts unanimously to one position, and if no expert testifies to the contrary, then the commissioner must err for lack of substantial...