DC APPLESEED CENTER FOR LAW AND JUSTICE, INC., et al., Petitioners/intervenors,
v.
DISTRICT OF COLUMBIA DEPARTMENT OF INSURANCE, SECURITIES AND BANKING, Respondent.
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 GHMSIs 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 Dept 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
GHMSIs charter in 1993 to domicile GHMSI in the District and
place GHMSI under the Districts regulatory authority.
Pub. L. No. 103-127, § 138, 107 Stat. 1336, 1349
(1993). Such regulatory authority includes review and
approval of GHMSIs 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 corporations 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
corporations 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 corporations 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 insurers 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 insurers 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
insurers 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 insurers 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 licensees surplus falls below 375% RBC-ACL, and the
licensee must take certain corrective actions. The
Commissioner is required to consider NAICs RBC requirements
and
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BCBSAs capital requirements in determining whether a
medical-services corporations surplus is excessive. 26A DCMR
§ 4601.4 (2019).
Regulations
promulgated by DISB in 2009 establish further procedures for
the Commissioners 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
companys surplus and examin[ing] whether the companys
surplus is considered excessive under the [MIEAA]." 26A
DCMR § 4601.1. If the Commissioner preliminarily determines
that the companys surplus is excessive, the regulations
require a public hearing "to determine whether the
companys surplus is excessive and unreasonably large."
26A DCMR § 4601.5. If the Commissioner makes a final
determination that a companys 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.
DISBs 2008 Surplus Determination and
Appleseed I
Decision
In
2010, the Commissioner concluded that GHMSIs 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 Commissioners ruling. Appleseed I, 54 A.3d at
1201, 1210. On review, this court held, in pertinent part,
that the Commissioners analysis of GHMSIs 2008 surplus was
incomplete, because that analysis considered whether GHMSIs
surplus was unreasonably large without considering whether
the surplus was inconsistent with GHMSIs statutory
obligation to engage in community-health reinvestment.
Id. at 1212-15. We emphasized that the Commissioner,
when deciding whether an insurers surplus is excessive, must
keep in mind both statutory goals: (A) the insurers
financial soundness and (B) maximization of community-health
reinvestment. Id. We also concluded that the
Commissioners order did not adequately explain ...