IN RE BLUE CROSS AND BLUE SHIELD
| Decision Date | 12 April 2001 |
| Docket Number | No. C5-99-1383.,C5-99-1383. |
| Citation | 624 N.W.2d 264 |
| Parties | In the Matter of the EXCESS SURPLUS STATUS OF BLUE CROSS AND BLUE SHIELD OF MINNESOTA. |
| Court | Minnesota Supreme Court |
David Aafedt, Assistant Attorney General, St. Paul, for appellant.
Meagher and Geer, P.L.L.P., John J. McDonald, Jr., Jenneane L. Jansen, Minneapolis, for appellant/intervenor.
Robins, Kaplan, Miller & Ciresi, L.L.P., Michael V. Ciresi, Deborah J. Palmer, David W. Beehler, and Joel A. Mintzer, Minneapolis, for respondent.
Alan I. Gilbert, Chief Deputy and Solicitor General; Chestnut and Cambronne, P.A., Karl L. Cambronne and Jeffrey D. Bores; Heins Mills & Olson, P.C., Samuel D. Heins, Daniel E. Gustafson, and Daniel C. Hedlund; Lockrige Grindal Nauen, P.L.L.P., Hugh V. Plunkett and Robert K. Shelquist, for amicus.
Heard, considered and decided by the court en banc.1
Respondent BCBSM, Inc., d/b/a Blue Cross and Blue Shield of Minnesota (hereinafter BCBSM) initiated legal proceedings against Philip Morris, Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, B.A.T. Industries P.L.C., Lorillard Tobacco Company, The American Tobacco Company, Liggett Group, Inc., The Council for Tobacco Research-U.S.A., Inc., and The Tobacco Institute, Inc. in 1994 alleging that as a result of the unlawful conduct of the tobacco companies, BCBSM has been damaged by paying substantially higher claims to its contracted health care providers due to smoking-related illnesses. A settlement was reached in 1998 providing for the payment to BCBSM of approximately $469 million with an estimated present value of $434 million at the time of the administrative proceedings in this matter. BCBSM was notified by the Department of Commerce (department) that receipt of the settlement proceeds would cause BCBSM to exceed its allowable surplus under Minn.Stat. § 62C.09 (2000) and therefore it must submit a plan for the department's approval to adjust its operations to bring the surplus into compliance. Upon submission and consideration of the plan in a contested case proceeding, the administrative law judge (ALJ) presiding over the evidentiary hearing recommended approval of the plan, but the Deputy Commissioner of Commerce (deputy commissioner), acting pursuant to a delegation of authority from the Commissioner of Commerce to make the final decision in the matter, disagreed and denied approval. On certiorari to the court of appeals, the court concluded that the record "manifestly" supported approval of the BCBSM plan, reversed the deputy commissioner's order disapproving the plan and remanded the matter to the commissioner for implementation. Following a thorough review of the record herein we reverse the court of appeals.
The statutory framework relating to review of BCBSM's proposed plan is the Nonprofit Health Service Plan Corporations Act2 prescribing, among a variety of regulations, the capital structure of nonprofit health service plan corporations such as BCBSM. See Minn.Stat. § 62C.09. With respect to the matter before the court, the act requires BCBSM to maintain adequate cash reserves to pay its health service claims and related administrative expenses and retain sufficient surplus funds to serve as a volatility cushion. Minn.Stat. § 62C.09, subds. 2 and 3 (2000). Directly on point here, the act further provides that if BCBSM has excess surplus, its "operations shall be adjusted to correct the condition, according to a written plan proposed by the corporation and approved by the commissioner [of commerce]." Minn.Stat. § 62C.09, subd. 4 (2000).
The legislature has granted the commissioner, under Minn.Stat. § 60A.03, subd. 2 (2000), the authority to administer and enforce "all the laws of this state relating to insurance," including monitoring the financial condition of nonprofit health service plan corporations like BCBSM, and the commissioner's authority to approve a written plan submitted by a nonprofit health services corporation to correct its excess surplus condition is a part of that broad authority. Minn.Stat. ch. 62C. The commissioner is entrusted inter alia with ensuring that BCBSM charges reasonable rates "in relation to the benefits, considering actuarial projection of the cost of providing or paying for the health services, considering costs of administration, and in relation to reserves and surplus required by law." Minn.Stat. § 62C.15, subd. 1 (2000) (emphasis added). As a nonprofit health service plan corporation, BCBSM is subject to a minimum surplus reserve of the greater of the initial surplus minus $100,000 or 16 2/3 percent of the sum of all health service claims and administrative expenses incurred in the most recent calendar year, and a maximum surplus of 33 1/3 percent of claims and expenses in the most current calendar year. See Minn. Stat. § 62C.09, subd. 3. This is known as the "surplus corridor." Believing that the settlement would cause BCBSM to have surplus in excess of the 33 1/3 percent allowable, the commissioner notified BCBSM that it must submit a plan of action to eliminate the excess surplus, and determined that a hearing relating to the plan would be conducted pursuant to the contested case procedures under the Minnesota Administrative Procedures Act (MAPA).
MAPA sets forth the statutory procedural requirements imposed on administrative agencies in the course of carrying out their powers and duties, see Minn.Stat. ch. 14 (2000), including those related to monitoring levels of reserves and surplus. The approval of a plan submitted by a health service plan corporation under Minn.Stat. § 62C.09, subd. 4 (2000) is a determination of the rights of specific parties rather than an agency statement of general applicability and future effect. See Minn.Stat. § 14.02, subds. 3 and 4 (2000) (definitions). The parties' constitutional due process rights must be respected in the context of a contested case proceeding but the commissioner also has the authority to dispose of contested cases through stipulation, agreed settlement, consent order or default. See Minn.Stat. § 14.59 (2000).
Following the $469 million settlement, BCBSM and the department entered into a consent cease and desist order shaping the issues in dispute by providing that the commissioner had jurisdiction over the BCBSM surplus, that BCBSM would refrain from spending the settlement funds until its proposed plan had been approved with the exceptions that BCBSM could satisfy tax liability incurred as a result of the settlement and reduce its tax liability by making a donation to a charitable organization upon consultation with the commissioner. BCBSM then filed a corrective action plan with the commissioner proposing to reduce its excess surplus by creating a "Tobacco Cessation Pharmacy Reserve" (pharmacy reserve) and "Tobacco Cessation and Other Health Risk Behavior Programs" (health behavior program). The pharmacy reserve would pay for pharmaceutical smoking cessation aids for insured members of BCBSM for the next 20 years without imposing any premium charge on subscribers for the drug benefit. The health behavior program would educate insured members of BCBSM for the next 20 years about the benefits of adopting healthy habits such as quitting smoking, getting immunizations, exercising, and following safety precautions.
Although not required by Minn.Stat. § 62C.09, the commissioner exercised his authority under Minn.Stat. § 45.027, subd. 1(3) (2000) and Minn.Stat. § 60A.03, subd. 2 to call a public hearing and provide all interested parties an opportunity to be heard regarding the BCBSM plan. The notice of hearing issued by the commissioner invited intervention by interested parties, solicited public comment and provided that the contested case proceeding would determine whether the commissioner should approve or disapprove BCBSM's plan for adjustment of its operations to correct its excess surplus status pursuant to Minn.Stat. § 62C.09. The notice identified the issues to be addressed at the hearing: 1) whether the proposed plan meets the requirements of Minn.Stat. § 62C.09; 2) whether the proposed plan is fair and equitable to the subscribers of BCBSM; 3) the impact of the proposed plan on the regulation and orderly operation of the insurance and health industries in Minnesota; and 4) whether the proposed plan is in the public interest of the citizens of Minnesota.
The notice of hearing appointed an administrative law judge (ALJ) and granted the ALJ the authority to issue orders pertaining to pre-hearing discovery and admissibility of evidence, conduct an evidentiary hearing and prepare a report and recommendation for the commissioner. The commissioner directed the ALJ to certify motions and questions to the commissioner or commissioner's designee where appropriate upon consideration of the factors listed in Minn. R. 1400.7600 (1999). The commissioner reserved for the agency decision-maker the authority to issue the final findings of fact, conclusions of law and order approving or disapproving the plan, along with the authority to make the final decision regarding scheduling, party intervention and standing, and other items. The commissioner determined the department would participate as an advocate in the matter and delegated the agency decision making authority in the matter to Deputy Commissioner LaVasseur (deputy commissioner) under Minn.Stat. § 45.024, subd. 2 (2000).3 The commissioner and Deputy Commissioner Nelson, head of the insurance and registration division, acted as department advocates in the proceedings.
Following the initiation of the public hearing4 and the delegation of authority to the deputy commissioner, the commissioner and other department staff continued to engage in discussion of the plan with BCBSM. In response to a statement by the commissioner that the plan should contain more immediate benefits for BCBSM members, BCBSM amended its plan to redirect $80 million of the funds originally...
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