INSURERS'ACTION COUNCIL, INC. v. Markman

• Decision Date: 21 May 1980
• Docket Number: Civ. No. 3-76-440.
• Citation: 490 F. Supp. 921
• Parties: INSURERS' ACTION COUNCIL, INC., a Nebraska Corporation, Woodmen Accident & Life Company, a Nebraska Corporation; Time Insurance Company, a Wisconsin Corporation; Mutual of Omaha Insurance Company, a Nebraska Corporation; Business Men's Assurance Company of America, a Missouri Corporation; the Midwest Life Insurance Company of Lincoln, Nebraska; Mutual Protection Insurance Company, a Nebraska Corporation; American Republic Insurance Company, an Iowa Corporation; American Home Assurance Company, a New York Corporation; Illinois Mutual Life & Casualty Company, an Illinois Corporation; Physicians Mutual Insurance Company, a Nebraska Corporation, Plaintiffs, v. Michael MARKMAN, Commissioner of Insurance, the Minnesota Department of Commerce, Insurance Division, and Minnesota Comprehensive Health Association, Defendants, v. UNITED CEREBRAL PALSY, Minnesota Epilepsy League, Minnesota Association for Retarded Citizens, Michael L. Berde and Carole T. Berde, Intervenors.
• Court: U.S. District Court — District of Minnesota

490 F. Supp. 921

INSURERS' ACTION COUNCIL, INC., a Nebraska Corporation, Woodmen Accident & Life Company, a Nebraska Corporation; Time Insurance Company, a Wisconsin Corporation; Mutual of Omaha Insurance Company, a Nebraska Corporation; Business Men's Assurance Company of America, a Missouri Corporation; the Midwest Life Insurance Company of Lincoln, Nebraska; Mutual Protection Insurance Company, a Nebraska Corporation; American Republic Insurance Company, an Iowa Corporation; American Home Assurance Company, a New York Corporation; Illinois Mutual Life & Casualty Company, an Illinois Corporation; Physicians Mutual Insurance Company, a Nebraska Corporation, Plaintiffs, v. Michael MARKMAN, Commissioner of Insurance, the Minnesota Department of Commerce, Insurance Division, and Minnesota Comprehensive Health Association, Defendants, v. UNITED CEREBRAL PALSY, Minnesota Epilepsy League, Minnesota Association for Retarded Citizens, Michael L. Berde and Carole T. Berde, Intervenors.

Civ. No. 3-76-440.

United States District Court, D. Minnesota, Third Division.

May 21, 1980.

Frank Claybourne, Doherty, Rumble & Butler, St. Paul, Minn., and Robert J. Schmit, Joseph R. Kernan, Jr., McGovern, Opperman & Paquin, Minneapolis, Minn., for plaintiffs.

Warren Spannaus, Atty. Gen., by Richard B. Allyn, Chief Deputy Atty. Gen., and Richard S. Slowes and Reynaud Harp, Sp. Asst., Attys. Gen., St. Paul, Minn., for defendants Michael Markman, Commissioner of Ins., and the Minnesota Dept. of Commerce, Ins. Div.

Warren Spannaus, Atty. Gen., by Richard B. Allyn, Chief Deputy Atty. Gen., John F. Stone and Margo S. Struthers, Minneapolis, Minn., for defendant Minnesota Comprehensive Health Association.

Patricia A. Suita, Legal Aid Society of Minneapolis, Inc., Minneapolis, Minn., for defendant intervenors.

Warren Spannaus, Atty. Gen., by John A. Breviu, Sp. Asst. Atty. Gen., Minneapolis, Minn., for amicus Commissioner of Health.

Richard W. Johnson, Grand Marais, Minn., for amicus, Health Ins. Ass'n of America.

MEMORANDUM AND ORDER

DEVITT, Chief Judge.

This declaratory judgments action by accident and health insurance carriers against Minnesota Insurance regulatory officials challenges the constitutionality of the Minnesota Comprehensive Health Insurance Act which makes minimum health insurance benefits available to all persons in the state. The law, first enacted in 1976 and amended in 1977, 1978, 1979 and 1980 requires insurance carriers to offer certain minimum levels of coverage and to participate in a pool to provide major medical coverage for persons not ordinarily insurable. These and other provisions of the law are challenged on due process, equal protection, impairment of contract, commerce clause, and other grounds.

The court denied a preliminary injunction against implementation of the new law in December 1976, Insurers Action Council v. Heaton, 423 F.Supp. 921 (D.Minn.1976) finding that plaintiffs then had not shown a substantial probability of success on the merits.

The matter was assigned to the magistrate for a hearing and report pursuant to 28 U.S.C. § 636(b)(2) and Rule 53(e) Fed.R. Civ.P.

The magistrate received evidence, made findings and recommended that the Act, and Minn.Stat. §§ 62A.16, 62A.17, be declared unconstitutional. Defendants filed objections to the magistrate's report and recommendations and appealed to the court.

Briefs have been received and argument heard. The court finds the challenged laws a proper exercise of legislative authority within the Constitution. To the extent that the magistrate's findings are clearly erroneous and his conclusions of law are in error, the court sets them aside and makes its own findings and draws its own legal conclusion.

Introduction

Plaintiffs are foreign insurance companies and an association of insurance carriers which sell or have sold accident and health insurance in the state of Minnesota. Defendants are Michael Markman, Commissioner of Insurance, the Insurance Division of the Minnesota Department of Commerce, and the Minnesota Comprehensive Health Association, a non-profit corporation established by the Act. United Cerebral Palsy, Minnesota Epilepsy League, Minnesota Association for Retarded Citizens, Michael L. Berde and Carol T. Berde intervened as defendants in support of the Act. The Minnesota Catholic Conference, Minnesota Public Interest Research Group, Senior Citizens' Coalition of Greater St. Paul, Inc., Senior Citizens' Legislative Council of St. Paul, and Metropolitan Senior Federation, Inc., appeared as amici curiae in support of the Act; the Health Insurance Association of America participated as amicus curiae in opposition to the Act.

The Comprehensive Health Insurance Act, Minn.Stat. § 62E.01 et seq., (Act), seeks to make available adequate health care coverage to Minnesota residents by: 1) requiring insurers writing accident and health insurance in this state to offer a qualified plan which meets certain basic levels of coverage, including major medical coverage, Minn.Stat. §§ 62E.04, subd. 4, 62E.06 and by 2) creating a state plan to provide qualified plan coverage for "uninsurables," which is financially underwritten by members of an Association mandatorily consisting of all companies writing accident and health insurance, Minn.Stat. § 62E.08, .10, .11 and by 3) requiring that persons insured under a group plan be permitted, upon termination of affiliation with the group, to convert the group policy to an individual policy which meets the qualified plan requirements. Minn.Stat. § 62E.16.

The magistrate recommended that the Act be declared unconstitutional on due process, impairment of contract, equal protection, and commerce clause grounds. The magistrate also held that the Insurance Commissioner's rule making authority under the law violated the non-delegation doctrine. The court considers each of those grounds making a de novo review of the law and adopting the magistrate's finding unless clearly erroneous. Rule 53(e), Fed.R. Civ.P.

1. Due Process

The magistrate held that the mandatory coverage provisions were arbitrary and unreasonable and bore no rational relationship to a legitimate government purpose and that forcing all accident and health insurers into the major medical field, unconstitutionally conditions plaintiffs entry into the state upon the surrender of their constitutional rights.

The court's starting point in a due process analysis must be the appropriate standard of review. Duke Power Company v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 98 S.Ct. 2620, 57 L.Ed.2d 595 (1978). The Minnesota Comprehensive Health Insurance Act is social-economic legislation designed to assure adequate health care coverage for all Minnesota residents. It is well established that

. . . such legislative Acts . . come to the Court with a presumption of constitutionality, and that the burden is on the one complaining of a due process violation to establish that the legislature has acted in an arbitrary or irrational way.

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (1976). The Act is part of a broader bill, ". . . relating to health care, providing for establishment and administration of certain plans of health insurance to make minimum benefits available to all persons in the state . . .." 1976 Minn. Laws ch. 296. It was enacted after 18 months of hearings which showed that thousands of Minnesotans suffered because they did not have adequate health care coverage.

The investigation by the Special Senate Subcommittee on Health Costs revealed rapidly rising health care costs: medical care increased threefold and hospital rooms increased sevenfold between 1947-1972, (Report of Special Senate Subcommittee on Health Costs, March 5, 1975, Defendants' trial Exhibit N at p. 4) (hereafter Report), and a significant number of residents who did not have or could not obtain adequate health care coverage: 28.2% of those under 65 did not have major medical, Report at 192, 12.2% had no coverage for hospital bills, Id., and an estimated 5% could not obtain coverage. Id. at 196. The testimony revealed that the high medical costs imposed significant hardship on residents: Dr. Warren Warwick testified that many of his patients must choose between using their money for living expenses or for needed medical care, a study of 75 bankruptcy cases filed in the United States District Court in St. Paul showed that medical bills constituted more than 25% of the bankrupt's debts in 14% of the cases, Id. at 178-79, a similar study in Ohio showed that 26% of the bankruptcies filed in one week were directly due to high medical costs and the lack of insurance to cover the costs, Id., and evidence the committee had before it indicated that the economic effect of health care was minor in 40% of the cases, moderate in 31%, severe in 20% and very severe in 9%. Id. at 178. In addition the Subcommittee investigation showed an increasing burden on local, state and federal governments in shouldering the health care costs, Minnesota medical assistance payments increased from $69 million in 1967 to $227 million in 1974 and were projected to rise to $336 million in 1977. Id. at 201-203. The testimony also indicated that consumer confusion contributed to the lack of adequate health care coverage. Id. at 184-85.

Based on the findings of the Senate Subcommittee Report, the legislature properly could have concluded that the social and financial hardships caused by high health care costs were due, in part, to the unavailability of insurance providing an adequate amount and breadth of coverage and to consumer confusion concerning the availability of coverages.

Viewed in light of the applicable standard of review the Act does bear a rational relationship to the legislature's concern for assuring the availability of adequate health care coverage to all residents. The mandatory coverage provisions assure that all persons...