DC Appleseed Center for Law and Justice, Inc. v. District of Columbia Department of Insurance, Securities and Banking

         Argued April 17, 2019

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          On Petitions for Review of Orders of the District of Columbia Department of Insurance, Securities and Banking (MIE-19-14 and MIE-27-14)

         Walter Smith, with whom Richard B. Herzog, Marialuisa Gallozzi, Beth Brinkmann, and Bradley K. Ervin, Washington, DC, were on the brief, for petitioner-intervenor DC Appleseed Center for Law and Justice, Inc.

         Lisa H. Schertler, with whom David Schertler and Danny C. Onorato, Washington, DC, were on the brief, for petitioner-intervenor Group Hospitalization and Medical Services, Inc.

         James C. McKay, Jr., Washington, DC, with whom Karl A. Racine, Attorney General for the District of Columbia, Loren L. AliKhan, Solicitor General, and Caroline Van Zile, Deputy Solicitor General, were on the brief, for respondent.

         Michelle S. Kallen, with whom Toby J. Heytens, Solicitor General for the Commonwealth of Virginia, and Matthew R. McGuire, Principal Deputy Solicitor General at the time the brief was filed, were on the brief, for intervenor Mark Herring, Attorney General of the Commonwealth of Virginia.

         Gary Thompson was on the brief for amicus curiae Mary M. Cheh, District of Columbia Councilmember, in support of petitioner-intervenor DC Appleseed Center for Law and Justice, Inc.

         Before Glickman and McLeese, Associate Judges, and Washington, Senior Judge.

         OPINION

         McLeese, Associate Judge:

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          Petitioners-intervenors DC Appleseed Center for Law & Justice, Inc. (Appleseed) and Group Hospitalization and Medical Services, Inc. (GHMSI) seek review of orders of respondent, the District of Columbia Department of Insurance, Securities and Banking (DISB), determining that GHMSI’s 2011 surplus was excessive, that the excess surplus attributable to the District was approximately $50 million, and that GHMSI was required to distribute its excess surplus in the form of rebates to eligible subscribers of GHMSI. We remand for further proceedings.

          I. Factual and Procedural History

         This matter has previously been before this court. D.C. Appleseed Ctr. for Law & Justice, Inc. v. District of Columbia Dep’t of Ins., Sec., & Banking (Appleseed I), 54 A.3d 1188 (D.C. 2012). The following background material is taken in significant part from our prior opinion, supplemented and revised as necessary to reflect subsequent developments.

          A. GHMSI

         GHMSI is the successor to Group Hospitalization, Inc., a nonprofit organization created in 1939 by congressional charter to provide health-care services and medical insurance. Pub. L. No. 76-395, § § 3, 8, 53 Stat. 1412, 1413-14 (1939); Pub. L. No. 98-493, § 1, 98 Stat. 2272 (1984). Organized as a "charitable and benevolent institution," GHMSI "shall be conducted for the benefit of [its] certificate holders." Pub. L. No. 76-395, § § 3, 8, 53 Stat. 1413-14. GHMSI conducts business in the District, Maryland, and Virginia.

         Although GHMSI initially was not subject to the statutes regulating the business of insurance in the District, Congress amended GHMSI’s charter in 1993 to domicile GHMSI in the District and place GHMSI under the District’s regulatory authority. Pub. L. No. 103-127, § 138, 107 Stat. 1336, 1349 (1993). Such regulatory authority includes review and approval of GHMSI’s proposed health-insurance premium rates. D.C. Code § 31-3311.01 et seq. (2012 Repl.). D.C. law also requires GHMSI to maintain certain risk-based capital levels and to report those levels on an annual basis to the DISB Commissioner. D.C. Code § 31-3451.01 et seq. (2019 Supp.).

          In 1998, GHMSI affiliated with CareFirst of Maryland, Inc. GHMSI and CareFirst of Maryland jointly own CareFirst BlueChoice, Inc. GHMSI is a licensee of the Blue Cross Blue Shield Association (BCBSA).

          B. The Medical Insurance Empowerment Amendment Act

         In 2009, the Council of the District of Columbia enacted the Medical Insurance

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Empowerment Amendment Act (MIEAA). D.C. Law 17-369, 56 D.C. Reg. 1346 (Feb. 13, 2009) (codified as amended at D.C. Code § 31-3501 et seq. (2012 Repl. & 2019 Supp.)). The MIEAA authorizes the Commissioner of DISB to determine whether a medical-services corporation’s surplus is "excessive" and to order that any excess surplus be reinvested in "community health." D.C. Code § 31-3506(e), (g)(1) (2019 Supp.). Specifically, the MIEAA and subsequent amendments added a new subsection to D.C. Code § 31-3506, which now states in relevant part:

The Commissioner may, on an annual basis, and shall, on a basis no less frequently than every 3 years, review the portion of the surplus of the corporation that is attributable to the District and may issue a determination as to whether the surplus is excessive. Any such review shall be undertaken in coordination with the other jurisdictions in which the corporation conducts business. The surplus may be considered excessive only if:

(1) The surplus is greater than the appropriate risk-based capital requirements as determined by the Commissioner for the immediately preceding calendar year; and

(2) After a hearing, the Commissioner determines that the surplus is unreasonably large and inconsistent with the corporation’s obligation under § 31-3505.01.

D.C. Code § 31-3506(e); see also D.C. Law 18-104, 56 D.C. Reg. 9182 (Dec. 4, 2009); D.C. Law 19-171, 59 D.C. Reg. 6190 (June 1, 2012).

         D.C. Code § 31-3505.01 requires GHMSI and similar entities to "engage in community health reinvestment to the maximum feasible extent consistent with financial soundness and efficiency." The MIEAA also provides that "[i]n implementing the provisions of the [MIEAA], the Commissioner shall consider the interests and needs of the jurisdictions in the corporation’s service area." D.C. Code § 31-3506.01(b) (2012 Repl.).

          C. Surplus Requirements and Excess Surplus Determination

         GHMSI is required to maintain a surplus of capital to cover its projected risk, development costs, and growth. D.C. Code § 31-3451.01 et seq. The National Association of Insurance Commissioners (NAIC) has developed widely accepted risk-based capital (RBC) formulae to determine the minimum amount of capital an insurer should hold to support its business operations. The baseline figure in the RBC formula is the authorized control level (ACL), which is a reference value that accounts for the insurer’s size, structure, and volume of risk. The District of Columbia has adopted statutory minimum requirements for insurance companies’ surplus levels, expressed as an RBC-ACL ratio. D.C. Code § § 31-2001 to -2013 (2012 Repl. & 2019 Supp.).

         If a health insurer’s RBC-ACL ratio falls under certain statutory levels, company or regulatory action is authorized or required. D.C. Code § § 31-3451.01 to .06. For example, if an insurer’s surplus falls below 200% RBC-ACL, the insurer must submit a plan to the Commissioner identifying the conditions that led to that event and proposing corrective actions to bring the surplus up to a safer level. D.C. Code § § 31-3451.01(6), .03. If an insurer’s surplus falls to lower RBC-ACL levels, the Commissioner is authorized or obligated take increasingly corrective actions. D.C. Code § § 31-3451.04 to .06. Additionally, as a licensee of BCBSA, GHMSI is subject to contractual RBC-ACL standards set by BCBSA. Specifically, early-warning monitoring is triggered if a BCBSA licensee’s surplus falls below 375% RBC-ACL, and the licensee must take certain corrective actions. The Commissioner is required to consider NAIC’s RBC requirements and

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BCBSA’s capital requirements in determining whether a medical-services corporation’s surplus is excessive. 26A DCMR § 4601.4 (2019).

         Regulations promulgated by DISB in 2009 establish further procedures for the Commissioner’s review of medical-services corporations’ surplus. 26A DCMR § 4600 et seq. (2019). The regulations require medical-services corporations such as GHMSI to file an annual financial report with DISB detailing "the company’s surplus and examin[ing] whether the company’s surplus is considered excessive under the [MIEAA]." 26A DCMR § 4601.1. If the Commissioner preliminarily determines that the company’s surplus is excessive, the regulations require a public hearing "to determine whether the company’s surplus is excessive and unreasonably large." 26A DCMR § 4601.5. If the Commissioner makes a final determination that a company’s surplus that is attributable to the District is excessive, the Commissioner must order the company to submit a plan for dedication of the excess surplus to community-health reinvestment. D.C. Code § 31-3506(g)(1); 26A DCMR § 4603.1.

         D. DISB’s 2008 Surplus Determination and Appleseed I Decision

         In 2010, the Commissioner concluded that GHMSI’s 2008 year-end surplus was neither unreasonably large nor excessive. Appleseed, which is a consumer of health insurance, a subscriber of GHMSI, and an organization with goals including improving access to healthcare in the District, challenged the Commissioner’s ruling. Appleseed I, 54 A.3d at 1201, 1210. On review, this court held, in pertinent part, that the Commissioner’s analysis of GHMSI’s 2008 surplus was incomplete, because that analysis considered whether GHMSI’s surplus was unreasonably large without considering whether the surplus was inconsistent with GHMSI’s statutory obligation to engage in community-health reinvestment. Id. at 1212-15. We emphasized that the Commissioner, when deciding whether an insurer’s surplus is excessive, must keep in mind both statutory goals: (A) the insurer’s financial soundness and (B) maximization of community-health reinvestment. Id. We also concluded that the Commissioner’s order did not adequately explain ...