IN RE EXCESS SURPLUS STATUS
| Decision Date | 29 February 2000 |
| Docket Number | No. C5-99-1383.,C5-99-1383. |
| Citation | 606 N.W.2d 697 |
| Parties | In the Matter of the EXCESS SURPLUS STATUS OF BLUE CROSS AND BLUE SHIELD OF MINNESOTA. |
| Court | Minnesota Court of Appeals |
Review Granted April 25, 2000.1
Michael V. Ciresi, Deborah J. Palmer, David W. Beehler, Joel A. Mintzer, Robins, Kaplan, Miller & Ciresi, L.L.P., Minneapolis, for relator Blue Cross and Blue Shield.
Mike Hatch, Attorney General, David M. Aafedt, Assistant Attorney General, St. Paul, MN, for respondent Commissioner of Commerce.
John J. McDonald, Jr., Thomas E. Propson, Jenneane L. Jansen, Meagher & Geer, P.L.L.P., Minneapolis, for intervenor Scott Johnson.
Jack L. Chesnut, Karl L. Cambronne, Jeffrey Donald Bores, Chestnut & Cambronne, P.A., Minneapolis, and Samuel D. Heins, Daniel E. Gustafson, Daniel C. Hedlund, Heins, Mills & Olson, P.L.C., Minneapolis, Hugh V. Plunkett, III, Robert K. Shelquist, Plunkett, Schwartz & Peterson, Minneapolis, for amicus American Continental Inc.
Considered and decided by DAVIES, P.J., CRIPPEN, and PETERSON, JJ.
After recovering $469 million as part of the 1998 settlement of Minnesota tobacco litigation, relator Blue Cross and Blue Shield of Minnesota found itself with a quantity of surplus prohibited by law for a nonprofit health service plan corporation. These are administrative proceedings in which the respondent Commissioner of Commerce has explored the question of whether to approve the plan that Blue Cross developed to adjust its operations so that its surplus condition would be corrected.
Striking or altering more than 50 of the 200 findings of fact of an administrative law judge who recommended approval of relator's plan—and setting aside the prior judgment of the Department of Commerce that the plan, as amended to meet earlier objections, was fair and adequate, Deputy Commissioner Gary A. LaVasseur, acting for the commerce commissioner, determined in July 1999 that the plan must be disapproved.
By ordering a contested case proceeding and then designating both agency advocates and an adjudicator, the commissioner established an approval-process setting in which the law requires of the adjudicator significant deference to both the agency experts and the ALJ. Also, the commissioner's determination of whether a nonprofit health service plan corporation has complied with the law puts upon the agency a burden to show non-compliance. Finally, the lawful scope of the commissioner's decision is narrowed by a statutory mandate to adjust future operations of the nonprofit, principally in altering premium-setting practices. Because the deputy commissioner's order exceeds his authority in its scope and in its assessment of the evidence of record, we reverse the disapproval order and remand the case for the commissioner's implementation of his predecessor's January 1999 consent order. On the record that has been made, having due regard for agency expertise and the ALJ's fact-finding, it is evident that the amended Blue Cross plan deals pragmatically and fairly with the nonprofit's surplus condition.
In August 1994, Blue Cross and Blue Shield of Minnesota initiated a lawsuit against cigarette manufacturers seeking to hold the industry financially accountable for the increased health care costs imposed on Blue Cross, to obtain and publicize documents regarding the industry's marketing strategies, and to change the culture of tobacco use. On May 8, 1998, Blue Cross settled its lawsuit against the tobacco companies for $469 million, which has a present value of $434 million. In a consent cease and desist order, former Deputy Commissioner of Commerce Patrick Nelson and former Commerce Commissioner David Gruenes approved Blue Cross's intended expenditure of $75 million for its tax liabilities and $21 million for Blue Cross's charitable contribution to the Blue Cross Blue Shield of Minnesota Foundation. This dispute involves Blue Cross's intended expenditure of the remaining $338 million of tobacco settlement proceeds on a tobacco-cessation pharmacy reserve, a member health awareness program, and a tobacco-cessation-and-other-risk-behavior program.
Relator's plan intends to spend $109.9 million to establish a pharmacy reserve, entitled the Tobacco Cessation Pharmacy Reserve, to cover the expense of creating a pharmaceutical benefit for tobacco-cessation programs offered to its subscribers over the next twenty-two years. Through this reserve, Blue Cross intends to provide its subscribers coverage for nicotine patches, nicotine gum, and other smoking-cessation drugs. Blue Cross estimates the reserve program will save subscribers one billion dollars over the next twenty-two years. Numerous Blue Cross providers and members of the community submitted either written or oral comments generally supporting Blue Cross's tobacco-cessation initiatives.
Blue Cross also proposed the allocation of $148.1 million to create a health-risk-behavior program entitled the Tobacco and Other Health Risk Cessation Program. Although the initial focus of the program appears to be directed at tobacco use, Blue Cross foresees the program evolving over the next ten years to focus primarily on risk behaviors and education on such issues as: (a) immunization; (b) physical activity; (c) maintaining a balanced diet; (d) seatbelt safety; (e) other safety precautions; (f) prenatal care; and (g) screening for early detection of cancer. Blue Cross explained that the program is directed at both individual and community-focused prevention. It will: (a) deliver treatment in a variety of settings and locations; (b) be continuously evaluated for effectiveness; and (c) require enhanced technical capacities to support the programs. Numerous Blue Cross health care providers submitted comments in support of Blue Cross's plan because it would reduce smoking and promote better health for all Minnesotans. Blue Cross estimates the program will save approximately $1.25 billion in health care costs over the next twenty-two years.
In addition, Blue Cross proposed the allocation of $80 million to establish a health awareness program, entitled the Member Health Awareness Program. Essentially, the program is intended to provide subscribers with a menu of options for ways to improve their health and safety. For instance, Blue Cross explained that the program might focus on home safety for a period of time, providing information on the leading causes and preventive techniques for home injuries. At other times, the program may focus on issues such as youth, family and senior safety; life-long fitness; nutrition; and emotional health. In addition, the program may give away free items, such as cookbooks, vegetable steamers, food scales, food storage containers, and stress-test wallet cards to Blue Cross subscribers, in an attempt to promote and facilitate healthy lifestyles. Blue Cross does not anticipate any long-term savings from the program. Instead, it estimates that the program's funds will be exhausted 2½ years after the inception of the program.
By statute in Minnesota, when a nonprofit health service plan corporation has a surplus in excess of 33 1/3% of the sum of all health service claims incurred, plus administrative expenses incurred within the most recent calendar year, the corporation must design a plan to adjust its operations to correct the condition. See Minn. Stat § 62C.09, subd. 3 (1998) (). Relator does not dispute, for purposes of this litigation, that the entire $338 million expenditure plan deals with funds in excess of its permissible surplus corridor.
Recognizing that its May 8, 1998 settlement with the tobacco industry would result in an excess-surplus condition, Blue Cross submitted a plan to correct the condition for the commissioner's approval on September 23, 1998. See Minn. Stat § 62C.09, subd. 4 (1998) (). Following submission of the plan, discussions between Blue Cross and the Department of Commerce began. Because Commissioner Gruenes wanted the plan to contain a more immediate benefit to Blue Cross members and the department suggested including a member health awareness program, Blue Cross submitted an amendment to its original plan in late October 1998. Blue Cross continued discussions with the department throughout the fall of 1998 to address concerns regarding oversight, financial reporting, and the need for structure and detail in the plan.
On December 31, 1998, the department and Blue Cross entered into a consent order that resolved the department's objections to Blue Cross's plan. The consent order added a reporting framework, provided for an independent analysis of the relator's plan at least every three years— with regard to the spending of tobacco-settlement proceeds and possible marketplace-competition advantages accruing to Blue Cross—and established a regulatory framework. Moreover, the consent order required Blue Cross to outline its spending plans for the health awareness and risk-behavior programs for the commissioner's approval or disapproval. Under the consent order, relator was precluded from appealing the commissioner's disapproval of these spending plans.
After discussions between the department, relator Blue Cross, and the intervenors, HealthPartners and Scott Johnson, the department issued an amended consent order on January 22, 1999, to delineate the fiscal and accounting segmentation of the tobacco settlement proceeds and to facilitate the regulatory monitoring of the tobacco-settlement funds. The amended consent order supercedes the December 31 consent order and includes the department's...
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