New Hampshire-Vermont Physician Service v. Durkin, HAMPSHIRE-VERMONT

• Decision Date: 28 December 1973
• Docket Number: O,HAMPSHIRE-VERMONT,No. 6685,6685
• Parties: NEWPHYSICIAN SERVICE v. John A. DURKIN, Insurance Commissioner. riginal.
• Court: New Hampshire Supreme Court

Page 416

313 A.2d 416

113 N.H. 717

NEW HAMPSHIRE-VERMONT PHYSICIAN SERVICE v. John A. DURKIN, Insurance Commissioner.

No. 6685, Original.

Supreme Court of New Hampshire.

Dec. 28, 1973.

Sulloway, Hollis, Godfrey & Soden, Concord (James B. Godfrey, Concord, orally) for plaintiff.

Warren B. Rudman, Atty. Gen., and Edward A. Haffer, Bow, attorney for defendant.

KENISON, Chief Justice.

The major issue in this case is whether the defendant insurance commissioner's order of May 14, 1973 in reference to the operation of the Blue Shield plan in New Hampshire was within his statutory authority under RSA ch. 420. This order required the plaintiff to decrease its rates not later than July 1, 1973, by the amount of $718,610, an annualized decrease of 9 percent. It was accompanied by supplemental orders requiring the plaintiff among other things to:

1. Eliminate existing distinctions in coverage and rates between group and nongroup subscribers;

2. Upgrade insurance contracts offering unrealistically low benefits to new subscribers;

3. Increase the major medical lifetime benefits from $30,000 to $250,000 per covered claimant and provide a maximum coinsurance payable clause no greater that $1,000 per year per covered claimant without an upward adjustment in the rate level.

Also attached were recommendations urging the plaintiff in part to:

a. Accomplish the merger of Blue Cross and Blue Shield as soon as possible, but not later than December 31, 1973, and reconstitute the membership of their boards so that a majority comes from the nonprofessional working men and women of the state who compose the majority of their subscribers;

b. Submit proposals to underwrite enlarged psychiatric benefits;

c. Explore the possibility of providing adequate student accident coverage to all school children in the respective states.

An original petition for a writ of certiorari was filed by the plaintiff challenging the legality of the defendant's orders and recommendations, and this court, by order dated June 22, 1973, granted the plaintiff's motion to suspend the rate decrease under bond, pending a determination of its legality. New Hampshire-Vermont Physician Service v. Durkin, N.H., 306 A.2d 62 (1973).

The history of the present case is closely tied to RSA 420:6. This statute provides that a nonprofit medical service corporation, such as Blue Shield, is prohibited from '(entering) into any contract with subscribers unless and until it shall have filed with the insurance commissioner of the state a full schedule of rates to be paid by the subscribers and shall have obtained the said commissioner's approval. The commissioner may refuse such approval if he finds such rates are excessive, inadequate or discriminatory.'

In accordance with these provisions, the plaintiff filed for a 25% increase in its Blue Shield rate schedule on July 19, 1971. After a series of hearings and several modifications of the proposed rate schedule, the defendant commissioner approved on July 27, 1972, an annualized increase of 4.5% in Blue Shield's total revenue for 1972. The modifications were made necessary as a result of a dispute between the plaintiff and the defendant commissioner over the appropriate size of Blue Shield's 'contingency reserve.' This reserve functions to protect the plaintiff from a condition of temporary insolvency which could result from unusually large claims arising from a catastrophe or epidemic. The plaintiff's actuary, who serves as a consultant for a number of Blue Shield plans in other States, recommended a rate schedule which would maintain the contingency reserve at a level of two months of claims and administrative expenses in 1972, a sum equal to approximately $3,200,000. However, two actuaries on the staff of the New Hampshire Insurance Department and an independent actuary hired by the commissioner took the position that one month of claims and expenses, $1,600,000, would be adequate. In the course of negotiation, the plaintiff agreed to maintain a one month reserve on a trial basis and accordingly revised its request to the 4.5% rate increase. The commissioner approved this rate increase with the following qualification: 'I find that a surplus equivalent to one month's operating costs is adequate for (Blue Shield) under the circumstances of the present filing. . . . (L)esser amounts may be adequate in the reasonably near future, especially with the advent of prospective rating and the annual review of rates and experience to be conducted in December or no later than the first two weeks of January.'

On December 6, 1972, Blue Shield filed with the department experience data and projections for 1973. Although the projections indicated that the contingency reserve would drop below the one-month level during the year, Blue Shield informed the defendant commissioner by letter on December 14, 1972 that it would not apply at that time for an increase in rates, but it reserved the right for such an application at any time during 1973 if its reserve eroded as expected. On December 27, 1972, however, the department initiated over the objection of the plaintiff a series of public hearings which examined in part the effect of a continuation of Blue Shield's existing rates in 1973 and culminated in the May 14, 1973 order.

The scope of judicial review under a writ of certiorari, see RSA 490:4 (Supp. 1972), is restricted to a determination of whether an administrative body has acted illegally in respect to jurisdiction, authority or observance of law. State v. Salvucci, Inc., 110 N.H. 502, 504, 272 A.2d 854, 855 (1970). Certiorari is not available to review issues of fact, except in regard to the question of law as to whether an agency's findings could have been reasonably made. See Quinn v. Concord, 108 N.H. 242, 245, 233 A.2d 106, 108 (1967); Sinkevich v. Nashua, 97 N.H. 262, 264, 86 A.2d 562, 563 (1952).

The plaintiff's principal contention challenges the legality of the defendant commissioner's order to Blue Shield to reduce its existing rates by an annualized decrease of 9%. The plaintiff essentially argues that the commissioner is only authorized under RSA 420:6 to disapprove rates if he finds them excessive, inadequate or discriminatory and has no power to prescribe lower rates. The defendant commissioner asserts in response that the legislature did not so intend to restrict the commissioner's authority and finds an implied grant of power in RSA 420:6 which would permit the commissioner to establish and endorse rate levels within the standards set forth in the statute.

The commissioner's basic authority in supervising the affairs of insurance companies in New Hampshire is defined in RSA ch. 400-A (Supp. 1972). RSA 400-A:15 I (Supp. 1972) is particularly relevant to this case and states that 'The commissioner shall have full power and authority to make, promulgate, amend and rescind reasonable rules and regulations for, or as an aid to, the administration or effectuation of any provision or provisions of this title and such other rules and regulations as are reasonably necessary to implement the provisions of this title' (emphasis added). When this provision is read in conjunction with the provisions of RSA ch. 420, it is apparent that the legislature vested discretionary power in the commissioner to regulate certain aspects of medical service corporations. See Associated Hosp. Serv. v. Mahoney, 161 Me. 391, 400-402, 213 A. 712, 718 (1965); 2 G. Couch, Insurance § 21:5 (2d ed. R. Anderson 1959, Supp. 1972).

One such aspect deals with rates charged by the corporations for their services. RSA 420:6 not only grants authority to approve or disapprove rates under the 'excessive, inadequate or discriminatory' standard, but it also permits him to employ an actuary to assist in the determination of 'proper' rate levels. In facilitating the administration of these provisions, we believe that the commissioner is acting within his authority in issuing regulations which define the criteria that the medical service corporations must satisfy before their rates will comply with the standards set forth by the statute. See Hospital Serv. Corp. v. West, R.I., 308 A.2d 489, 495-496 (1973); Thaler v. Stern, 44 Misc.2d 278, 253 N.Y.S.2d 622, 630-634 (1964); Massachusetts Medical Serv. v. Commissioner, 344 Mass. 335, 339-341, 182 N.E.2d 298, 301-302 (1962). See also 2 G. Couch, Insurance § 21:14 (2d ed. R. Anderson 1959, Supp. 1972); Brown, Rule Making by Adjudication in Rate-Making Proceedings-Same Notes on the Regulation of Blue Cross, 604 Ins.L.J. 264 (1973); MacIntyre, Thirty Years of Blue Cross and Blue Shield, J. Am. Soc'y (C.L.U.) 189 (1964).

In the present case, the defendant commissioner's order of May 14, 1973, established the departmental rule that a contingency reserve fund equivalent to ten days of claims and expenses was adequate...