Maine SC agrees insurer's proposed rate hike excessive

Jessica M. Karmasek Mar. 7, 2012, 1:20pm

AUGUSTA, Maine (Legal Newsline) - The Maine Supreme Court last month upheld a ruling by the state's superintendent of insurance that a health insurer's proposed rate increase was excessive.

Anthem Health Plans of Maine Inc., d/b/a Anthem Blue Cross and Blue Shield, appealed a superior court's judgment, affirming the superintendent's decision.

In Maine, the rates for Anthem's group health insurance products are unregulated and subject to market forces, while rates for its individual health insurance products are regulated pursuant to state code.

In particular, Section 2736(1) provides that "every insurer shall file for approval by the superintendent every rate, rating formula, classification of risks and every modification of any formula or classification that it proposes to use in connection with individual health insurance policies."

The superintendent is vested with the authority "to determine whether such filing meets the requirements that rates not be excessive, inadequate or unfairly discriminatory."

In this case, the superintendent determined that Anthem's proposed rate increase for its individual health insurance products -- an increase of 9.2 percent that contained a built-in risk and profit margin of 3 percent for those products -- was excessive and unfairly discriminatory.

The superintendent, instead, approved an average rate increase of 5.2 percent, containing a built-in risk and profit margin of 1 percent for the period from July 1, 2011 through June 30, 2012.

On appeal, Anthem argued the superintendent's decision violates state code and the U.S. and Maine Constitutions because the approved rate increase eliminates its opportunity to earn a "reasonable profit."

The state's high court, in its Feb. 28 ruling, disagreed.

The Court said there is no provision in state code requiring the superintendent to consider an insurer's reasonable profits in approving rates for individual health insurance products.

"If the Legislature had intended that the Superintendent give 'due consideration' to a reasonable profit margin or include in the approved rate a reasonable profit margin guaranteeing a health insurer's profits somewhere near the industry-wide average of 3 percent -- either through the definition of 'inadequate' or through a standalone profit provision -- then the Legislature could have affirmatively imposed those requirements in 24-A M.R.S. § 2736, as it did in other sections of the Maine Insurance Code," Justice Joseph M. Jabar wrote in the Court's 22-page opinion.

"The Superintendent's interpretation of the term 'inadequate' passes the reasonableness test, not only because her definition incorporates the various definitional components of 'inadequate' used by a significant majority of other jurisdictions, but also because 24-A M.R.S. § 2736 is devoid of any language suggesting that the Superintendent must consider an insurer's profit in approving rates for individual health insurance products."

As for Anthem's claim of confiscatory taking, in violation of the U.S. and Maine Constitutions, the Court said the company does not face such a situation in this case.

Confiscatory taking occurs in the insurance rating field when the approved rate denies a regulated entity the "opportunity to realize a reasonable return on (its) investment" and where "the inadequate return results directly from the rate approval process and not from other causes," the Court explained.

"By Anthem's own estimation, the approved 5.2 percent average rate increase, which includes a 1 percent risk and profit margin, is projected to produce a nearly $4,000,000 profit for the rate year 2011-12," Jabar wrote.

"Because Anthem suffers no losses, and indeed anticipates that it will earn a profit on the rates approved by the Superintendent, neither the rating nor the method used in arriving at the approved rate results in an unconstitutional taking."

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