STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF INSURANCE, )
)
Petitioner, )
)
vs. )
) UNITED WISCONSIN LIFE INSURANCE ) COMPANY, )
)
Respondent. )
Case No. 01-2295
)
RECOMMENDED ORDER
Upon due notice, this cause came on for a disputed-fact hearing on January 8-10, 2002, in Tallahassee, Florida, before Ella Jane P. Davis, a duly-designated Administrative Law Judge of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Michael H. Davidson, Esquire
Dennis Silverman, Esquire Department of Insurance
200 East Gaines Street 612 Larson Building
Tallahassee, Florida 32399-0333
For Respondent: John Radey, Esquire
Harry O. Thomas, Esquire
Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A.
106 East College Avenue, 12th Floor Post Office Box 1877
Tallahassee, Florida 32302
STATEMENT OF THE ISSUES1
Whether Respondent has violated the following statutes as charged within the Administrative Complaint:
Count I: Sections 627.6425(1), 627.6425(3)(a)2.,
and 624.418(2)(a), Florida Statutes.
Count II: Sections 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2., 626.9541(1)(g) 2.,
and 624.418(2)(a), Florida Statutes.
Count III: Sections 626.9521, 626.9541(1)(g)2., and 624.418(2)(a), Florida Statutes.
Count IV: Sections 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2., 626.9541(1)(g)2.,
626.418(2)(a), and 627.6425(3), Florida
Statutes.
Count V: Sections 624.418(2)(a), 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2.,
and 626.9541(1)(g)2., Florida Statutes.
Count VI: Sections 624.418(2)(a), 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2.,
and 626.9541(1)(g)2., Florida Statutes.
Count VII: Sections 624.418(2)(a), 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2., and
626.9541(1)(g)2., Florida Statutes
Count VIII: Sections 624.418(2)(a), 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2., and
627.6675(17), Florida Statutes.2 PRELIMINARY STATEMENT
This case devolved upon the undersigned due to the recusal of the previously-assigned Administrative Law Judge.
At the commencement of the disputed-fact hearing, Respondent moved ore tenus to strike each paragraph "B" at the
end of Counts II, IV, V, VI, VII, and VIII of the Administrative Complaint herein. The motion was denied.3 Respondent further moved ore tenus to strike each paragraph "C" following the allegations of Counts II, IV, V, VI, and VII of the Administrative Complaint. This motion was likewise denied.4
The parties' Joint Pre-hearing Stipulation has been utilized as appropriate in this Recommended Order.
Petitioner Department of Insurance (Department) presented the oral testimony of James Modoff, Dennis Fagin, Frank Dino, James Bracher, Jerry Fickes, and Shaneen Wahl, and had Exhibits P1-12, 13A-13U, 14, 20, and 22 admitted in evidence.5
Respondent United Wisconsin Life Insurance Company (United Wisconsin) presented the oral testimony of Kip May, James Modoff, and Mark Littow, and had Exhibits R1-2, 3A-3B, 4A-4C, 5-9, 10A-10D, 11, and 13-26 admitted in evidence.
Some of the foregoing exhibits included transcribed depositions.
Ruling was reserved on the admissibility of P-15 (VHS deposition, taken in the instant case, of Ms. Arlene Shallan) and P-16 (transcribed deposition of John McVey, corporate representative of United Wisconsin, taken in prior litigation between these parties). Both exhibits have been reviewed in light of Respondent's objections, and in accord with Chapters 90 and 120, Florida Statutes, and case law. Both exhibits are
admitted in evidence. This admission process does not constitute any pronouncement on the weight or credibility of either item.
Official recognition was also taken of several items (including R-21), as reflected in the Transcript.
A Transcript was filed in due course. Both parties' timely-filed Proposed Recommended Orders and Memoranda have been considered.6
FINDINGS OF FACT
At all times material, Respondent United Wisconsin was a foreign insurer domiciled in the State of Wisconsin and operating under a subsisting certificate of authority to transact the business of insurance in the State of Florida.
At all times material, American Medical Security, Inc. (AMS) was a Florida-licensed administrator authorized to market and administer United Wisconsin's out-of-state group health insurance plans in Florida. United Wisconsin and AMS are wholly-owned subsidiaries of American Medical Security Group,
Inc.
Section 627.6515(2), Florida Statutes, is found in Part
VII (7) of the Florida Insurance Code, and provides, in pertinent part:
627.6515 Out-of-state groups. -
Any group health insurance policy issued or delivered outside this state under which a resident of this state is provided coverage shall comply with the provisions of this part in the same manner as group health policies issued in this state.
This part does not apply to a group health insurance policy issued or delivered outside this state under which a resident of this state is provided coverage if:
(a) The policy is issued to . . . an association group to cover persons associated in any other common group, which common group is formed primarily for purposes other than providing insurance; a group that is established primarily for the purpose of providing group insurance. . .
* * *
In or about May 1993, United Wisconsin, through AMS, filed with the Department, pursuant to Section 627.6515(2), Florida Statutes, an out-of-state group health insurance policy to be offered through an Alabama-sitused Trust, formed primarily for the purpose of providing group insurance. In June 1993, the Department accepted this filing as meeting the requirements of Section 627.6515(2), Florida Statutes.
In November 1996, United Wisconsin, through AMS, filed with the Department, pursuant to Section 627.6515(2), Florida Statutes, an out-of-state group health insurance policy (the MedOne Choice plan) to be offered through an Ohio-sitused association called the Taxpayers' Network, Inc. (TNI), formed
primarily for purposes other than providing insurance. In January 1997, said filing was accepted by the Department as meeting the requirements of Section 627.6515(2), Florida Statutes.
On or about September 22, 1998, United Wisconsin notified the Department that the Alabama-sitused Trust plans in Florida were being discontinued, effective as of each certificate holder's 1999 renewal date.
On or about September 25, 1998, United Wisconsin notified all certificate holders issued coverage through the Alabama-sitused Trust that the Alabama-sitused Trust plans in Florida were being discontinued, effective as of each certificate holder's 1999 renewal date.
Upon discontinuance of the Alabama-sitused Trust plans, the only United Wisconsin health insurance plans available in Florida were the MedOne Choice plans offered through the Ohio- sitused association TNI, to members of TNI.
Membership in TNI was available to anyone, conditioned upon submitting an application form and paying the membership fee.
Via the September 25, 1998 notice, (see Finding of Fact No. 7), United Wisconsin guaranteed each Trust certificate holder that, upon joining TNI and upon request, s/he would be
issued coverage under the Classic Benefit Plan (one of the TNI MedOne Choice plans) without regard to his or her health status.
Certificate holders were also advised that, if they desired coverage under a MedOne Choice plan other than the guaranteed issue Classic Benefit Plan, they could apply for any of the other TNI MedOne Choice plans. If the applicant met the underwriting guidelines of the plan they applied for, he or she would be issued coverage under that MedOne Choice plan.
After the September 22, 1998 notice (see Finding of Fact 6) from United Wisconsin, the Department raised questions and concerns about United Wisconsin's decision to discontinue the Trust plans and whether the plan of discontinuance was in compliance with Section 627.6425, Florida Statutes.
Section 627.6425, Florida Statutes, provides, in pertinent part, that an insurer discontinuing an individual policy form must offer the option of coverage by another of its policies uniformly, without regard to any health-status-related factor, to all enrolled individuals.
Section 627.6425, Florida Statutes, addresses "renewability of individual coverage" and is located within Part VI (6) of the Florida Insurance Code. It arguably does not apply to out-of-state group insurers registered in Florida, pursuant to Section 627.6515, Florida Statutes, because such out-of-state insurers are only bound by Section 627.6515,
Florida Statutes, to comply with Part VII (7) of the Florida Insurance Code. It also arguably does not apply to a discontinuance of coverage where the entity discontinuing a policy form has no other policy to offer. (See Conclusions of Law.)
United Wisconsin corresponded with, and met with, Department representatives between October 1998 and early January 1999. Ultimately, United Wisconsin met with James J. Bracher, the Department's Chief of the Bureau of Life & Health Forms & Rates, on January 14, 1999, and entered into an agreement with the Department to offer to Trust certificate holders an additional guaranteed issue TNI plan, and to cap the rate for the guaranteed issue plans at no more than twice (200%) the rate (premium) currently being paid by Trust certificate holders for the discontinued Trust plan.
In accordance with the foregoing agreement, on or about January 19, 1999, United Wisconsin notified Trust certificate holders of the additional guaranteed issue option available to them.
In 1999, United Wisconsin discontinued the Trust plans in accordance with the agreement negotiated with Mr. Bracher.
At the time of the discontinuance of the Trust plans, the TNI association coverage was the only health insurance coverage United Wisconsin had qualified through the Department
for sale in Florida. Accordingly, the TNI association's plan(s) were the only health insurance coverage United Wisconsin could legally offer in the Florida market.
The discontinued Trust certificate holders were offered alternative coverage through TNI. They were not given the option to renew or continue their prior coverage through the Trust because the Trust had been discontinued.
Only one Trust policy form was discontinued. All discontinued Trust certificate holders were invited to join TNI and get coverage under the association group policy issued to TNI. United Wisconsin's offer continued to be to TNI, and through TNI, to that association's members.
There were approximately 11,800 Trust certificate holders who were Florida residents in 1998-1999 when the Trust was discontinued. Of these 11,800 discontinued Trust certificate holders, 4,498 applied for continued coverage through the TNI plan.
Trust certificate holders qualified for membership in the TNI association, and thus qualified for its insurance plan(s) by completing a membership application, agreeing to pay
$5.00 per month in association dues, and sending it all to TNI by a date established relative to their renewal date for their discontinued Trust policy.
The Department was fully informed, in 1998-1999, before the Trust coverage was discontinued, as to the type of coverage United Wisconsin offered through TNI, including the fact that individuals wanting coverage through TNI would be required, as a prerequisite, to become TNI association members.
There is no evidence any Trust certificate holder was not allowed to join TNI.
There is no evidence any Trust certificate holder who wanted to obtain coverage through TNI was refused by United Wisconsin.
United Wisconsin had a conversion policy available.
The Department has determined that United Wisconsin's rate for the conversion policy is within 200% of the standard risk rate, as was agreed between United Wisconsin and the Department, and that the statutorily required notice of conversion privilege (to convert from group to individual coverage) was contained in the certificates of coverage issued to Florida residents.
Throughout 1999, the Department received various consumer inquiries about United Wisconsin's discontinuance of the Alabama-sitused Trust certificates in Florida and defended to consumers United Wisconsin's right to discontinue the Trust policies as agreed between United Wisconsin and the Department. In its responses, the Department consistently reiterated that United Wisconsin had adhered to underwriting guidelines; had
violated no Florida statutes or administrative rules; and was not discriminating against individual certificate holders, because this was a situation in which an entire plan (policy form) was being cancelled/discontinued. The Department also asserted that the new insurance was "being offered on a guarantee issue basis," and that United Wisconsin had a right to underwrite and charge an additional premium on such a basis.
Moreover, the Department repeatedly stated that it had no regulatory power over the rates of out-of-state insurers, such as United Wisconsin.
Even now, the Department concedes that it has no authority to set premiums for out-of-state insurers like United Wisconsin.
On March 30, 2000, the Department questioned the implementation of the January 1999 agreement in correspondence sent to United Wisconsin. At least partly on the theory that the Department had focused on capping the overall premium of previous Trust policyholders to the exclusion of every other consideration, the Department notified United Wisconsin that in March 2000, the Department now believed the discontinuance of the Trust plans, in accordance with the January 1999 agreement between United Wisconsin and the Department, may have violated Section 627.6425, Florida Statutes. The Department reached this conclusion only after United Wisconsin had relied on the
agreement, fully complied with the agreement, and changed its position so as to fulfill the agreement.
Beginning approximately August 2000, the Department pursued this matter, framed by a variety of legal theories, through at least an Order to Show Cause and an Amended Order to Show Cause, each voluntarily dismissed.
The instant Administrative Complaint was referred to the Division of Administrative Hearings on or about June 7, 2001, and is largely directed to rate-setting practices that occurred in 1999 and 2000, for the TNI coverage. The factual charges originally were that "illegal tier blocking" occurred during the switchover in 1999 and again in the year 2000, at each certificate holder's annual renewal date.
It is general insurance industry practice to adjust (usually increase) premiums by class when the time for renewal occurs, if loss experience justifies the premium increase. The Department would not oppose United Wisconsin's raising premiums across an entire class of health insureds.
It is permissible underwriting practice in the health insurance industry to consider health, among a host of other actuarial considerations, when initially developing premium rates.
It is not uncommon in the health insurance industry for members of a group to be divided into classes based on risk.
The riskiest group (substandard) pay premiums higher than those with average health risks (manual), who pay more than those policy holders who are designated "preferred." Insureds may be designated "preferred" because they are either very healthy or because they make the fewest claims. This rating system is variously called "tier rating," "tier blocking," or "tier pricing." The terms are synonymous.
The parties agree that the 1999 discontinuance of the Trust certificates was a "guaranteed renewable" situation, but they disagree as to the meaning of that term.
As of the date of hearing herein, the Department's position was that an out-of-state insurer may not tier block premiums on a "guaranteed renewable" policy at any time other than at the initiation of the policy, when the original underwriting is done. The Department also asserted that United Wisconsin's underwriting methodology is discriminatory, due to its ranking of health hazards and lack of oversight/review of its underwriters, whose discretion is allegedly too broad.
The evidence did not establish that United Wisconsin did any reclassification by tiers of premium levels of any of the Trust certificate holders at the switchover. It is now conceded by the Department that tier blocking did not occur during 1999, as specifically alleged in paragraph 19 of the
instant Administrative Complaint. See greater detail in Finding of Fact 56, infra.
This Administrative Complaint also makes allegations with regard to the federal Health Insurance Portability and Accountability Act (HIPAA).
Chapter 96-223, Laws of Florida, created Section 627.6425, Florida Statutes, effective May 25, 1996. Chapter 97- 179, Laws of Florida, substantially amended Section 627.6425, Florida Statutes, effective May 30, 1997. This statute, along with Sections 627.6571 and 627.6487, Florida Statutes, are among those state statutes adopted to implement HIPAA.
HIPAA was created primarily to preclude discrimination in insurance premiums and coverage on the basis of race and gender, but for purposes of the instant case, the basic theory of HIPAA, and the derivative State statutes, is that an insurance company cannot simply cancel a health insurance policy without providing other options. HIPAA provides for continuation of an insured's health policy, but does not limit the premiums the insurer can charge for health coverage. An individual who, through no fault of his own, loses his group health insurance coverage, is guaranteed by the statutes an opportunity to obtain substitute coverage.
HIPAA laws do not regulate premium rates or have anything to do with what rates are allowable.
No Trust certificate holders subject to the 1999 discontinuation process, authorized by the Department in January 1999 and followed by United Wisconsin, were HIPAA-eligible.
This Administrative Complaint further asserts, however, that conditioning the new TNI association policy on a requirement that certificate holders join the TNI association and pay a TNI membership fee offends the concept of "guaranteed renewable" coverage, that including the requisite notice of conversion privilege in the certificates of coverage was insufficient, and that such notice should have been sent to inquiring certificate holders.
United Wisconsin made full disclosure to the Department as to how TNI membership worked and its dues before the Department entered into the January 1999 agreement with United Wisconsin. The Department did not protest the imposition of the TNI fee and membership conditions prior to United Wisconsin's complying with their agreement and did not raise these issues until it initiated the first administrative action in August 2000. Departmental concern about a failure to fully advise in relation to the conversion notice is even more recent.
Ms. Shaneen Wahl, a former Trust certificate holder, testified that she protested having to join TNI to get coverage after the Trust discontinuance, but this protest was apparently
oral and occurred while the Department was still defending United Wisconsin's actions in accord with their agreement.
Ms. Wahl also made a lot of phone calls to her insurance agent and to United Wisconsin, over some indeterminate period of time, during which she asked "almost everybody" she talked to whether there was anything else she could do besides take a guaranteed issue TNI plan at twice the premium of her Trust coverage, whether there was another policy, and whether she could be put in a different group. She never specifically asked for information about a conversion policy, because she had never heard that term (despite the notice of conversion privilege in her Trust certificate). This testimony falls short of clear notice to United Wisconsin that Ms. Wahl was considering applying for a conversion policy.
Except for repeated premium increases, allegedly based on their individual health status and medical claims, both
Ms. Wahl and Ms. Arlene Shallan testified that they had overall good coverage and service from Respondent.
The evidence shows that only one eligible individual requested information about conversion policies, and United Wisconsin provided that person the required forms. He did not apply for a conversion policy.
During the 1999 discontinuing of Trust certificates and issuing of TNI association coverage, all 4,498 Floridians
who obtained coverage through TNI were given coverage irrespective of their health status.
About 85% of the 4,498 Trust certificate holders who switched over to TNI in 1999 had the same health risk factor they had with the Trust carried over for the TNI association coverage, without reference to updated health information.
The other 15% of Trust certificate holders who switched over were those that the Department now primarily seeks to protect from allegedly grossly inflated premiums due to perceived uninsurability.
Nonetheless, despite the perception that due to current health status (potentially high claims), this 15% was essentially uninsurable, United Wisconsin guaranteed them health insurance coverage through TNI at the 1999 switchover under two different plan options, pursuant to its January 1999 agreement with the Department.
However, at the switchover, each TNI application required certain information on eight underwriting factors, including, but not limited to, the applicant's medical history, geographic location, age, gender, and smoker or non-smoker status. TNI/United Wisconsin continues to request similar information prior to each annual renewal date. At each renewal date, United Wisconsin uses such information to set premiums by tiers based, in part, on health/claim history.
The Department hired Dennis Fagin, an expert life and health underwriter, to perform an on-site audit of United Wisconsin's 1999 discontinuance of Trust certificates and switchover to TNI insurance.
The Department has complained that there was a lack, or complete absence, of underwriting worksheets associated with the 1999 switchover, but the thrust of Mr. Fagin's testimony was that worksheets were unnecessary because the situation in 1999 had been controlled by the terms of United Wisconsin's January 1999 agreement with the Department, that United Wisconsin's underwriting manual was used in this initial review in accord with that agreement, and that the underwriting manual was consistently applied among the Trust certificate holders under consideration for TNI association coverage.
The Department's on-site audit confirmed that in 1999, United Wisconsin considered health status solely to answer one question: whether the Trust certificate holder would otherwise qualify for TNI coverage at all. If the applicant did qualify, s/he was accepted into a preferred tier. If s/he did not qualify, the premium was capped at two times (200%) the Trust policy's premium, in accord with United Wisconsin's agreement with the Department.
Trust certificate holders who had purchased after the effective date of Section 627.6425(3) had been provided
certificates that expressly stated that premium levels could be adjusted by United Wisconsin in the future.
It was not demonstrated that any of the policies involved in this case contain any language guaranteeing original premium classifications or guaranteeing a level premium, or any "guaranteed renewable" language. The TNI brochure provided in 1998 to Trust certificate holders contains no "guaranteed renewability" language, but does state "We have the right to change the premium rate once it is in effect for 12 consecutive months." The TNI certificates of coverage repeat this language.
The TNI certificates of coverage provide that premiums may change at any time after one year. After an individual's premium rate has been in effect for one year, United Wisconsin determines an annual renewal premium rate but guarantees renewed coverage at that renewal premium rate. United Wisconsin changes its TNI base rates quarterly, based on medical costs, changes in technology, medical care utilization, and historic claim utilization, but covered individuals' premiums are only adjusted on an annual basis at their respective 12 months' renewal date.
United Wisconsin considers all Florida TNI certificate holders to constitute a single class of business, its "actuarially supportable class." Its "actuarially supportable premium" overall is established by considering three factors: estimated claims, expenses, and reasonable profit.
United Wisconsin's practice in the year 2000 became to move insureds between tiers. For instance, a person in the preferred tier who experienced costly medical services in the preceding year might be moved to a manual or substandard tier, resulting in that person paying a greatly increased premium. It is theoretically possible that one can move into a decreased risk category based on giving up smoking, changing geographical location, or making fewer claims, but it is unlikely, since one factor always considered is an insured's inevitably increasing age.
As is the nature of group insurance, the result of United Wisconsin's rating methodology is that there is cross- subsidization of less healthy insureds by healthy insureds. Overall, for TNI coverage, United Wisconsin pays out 21 cents per premium dollar in claims by the healthiest individuals; 48 cents per premium dollar in claims by less healthy individuals, and $1.71 per premium dollar in claims by the least healthy individuals.
The thrust of the Department's concern with tier- blocking relates to a potential "death spiral." This term is not defined by a Florida Statute or rule. It refers to the belief, widely held in the insurance industry, that the practice of moving insureds among classes means that when a substandard class becomes populated with persons experiencing costly claims,
premiums can increase to the point that substandard class members cannot afford the premium, or if they can afford the premium, premiums for the other less costly classes may still increase to the point the members of those "actuarially better" classes may seek insurance elsewhere. If premiums inflate to the point that benefits utilization in relation to the amount of premiums paid cause enough of the healthy members to leave the plan, the plan will become economically unsound, will perish, and no one will be able to purchase health insurance coverage.
The "death spiral" concept seems logical, and an enormous amount of energy has been devoted to nationwide discussion of it. There is some evidence to the effect that most insurers have a 20-25% lapse rate and United Wisconsin's lapse rate is 30-35%, but there is no guarantee that lapse rate is the result solely of changed health factors United Wisconsin rated at renewal. Likewise, there is no definitive proof that a "death spiral" will be the inevitable outcome of United Wisconsin's actions here complained of. The Department's approach to proving that a death spiral will be the inevitable result of United Wisconsin's tier methodology at renewal is anecdotal and limited to one or two prior TNI members (Ms. Wahl and Ms. Shallan) who did not renew due to premiums which increased as much as 60% at their respective annual renewals. United Wisconsin has undertaken a study to prove a death spiral
cannot happen and that its rating method could result in the retention of more healthy people as plan members. However, as presented at hearing, this study is flawed and neither weighty nor credible. Accordingly, there is no persuasive evidence herein that United Wisconsin's tier blocking of premiums at annual renewal will result in a death spiral or that it will minimize the incentive for healthy people to leave TNI to seek coverage elsewhere.
The Administrative Complaint charges that United Wisconsin's 2000 tier blocking constituted a "knowing and willful" unfair insurance trade practice, pursuant to Sections 626.9521 and 626.9541, Florida Statutes, because the Department allegedly warned United Wisconsin it was illegal to tier block and United Wisconsin promised that it would never tier block.
On February 8, 1996, the Department extended time for review of the Alabama Trust's then-pending rate filing to allow United Wisconsin time to provide additional information and included the following language:
This filing also has the problems of tier rating at the time of renewal to solve (P-1).
This missive cited Rule 4-149.005(10), Florida Administrative Code. On February 28, 1996, the rate filing was disapproved for several reasons, including:
Your follow-up material of February 22, 1996, has been reviewed. The problem of tier rating has not been addressed . . .
The methodology described in Exhibit H is considered an Unfair Practice in accord with Florida Statute 626.9541. In addition, the rating practice described is considered to be a prohibition under Florida Rule 4- 149.005(10) (P-1).
Florida Rule 4-149.005(10), Florida Administrative Code, is not applicable to out-of-state insurers such as United Wisconsin.
It applies to rate filings of in-state insurers. See Part I, Chapter 4-149, particularly, Rule 4-149.002(1)(b), Florida Administrative Code.
By a November 1996 revised MedOne rate filing, United Wisconsin attempted to settle an administrative action challenging the Department's disapproval of a prior rate filing, and therein stated that it had eliminated the tier rating approach of the disapproved filing. The Department questioned language in the new filing, which still sounded like a tier ranking approach, and advised that the product involved was covered by HIPAA so as to restrict underwriting options. United Wisconsin withdrew its new rate filing. Whether or not that rate filing involved HIPAA considerations or not is debatable. However, the instant case clearly does not.
By a January 27, 1997, letter, American Medical Security, Inc., referring to plans at that time to close out the
Alabama Trust book of business in Florida and issue only through TNI by May 1997 advised the Department:
. . . we will underwrite at new business and assign a risk factor to those we accept, as we do now, which will not change at renewal. We will not tier rate at renewal: a person's underwriting factor will never be adversely changed . . . (P-2).
The foregoing "promise" not to tier rate at renewal was clearly conditioned upon United Wisconsin being able to reject some applicants and assign a new risk factor for those who were accepted. However, the Alabama Trust business was not closed out in 1997, pursuant to this offer, and new negotiations ensued.
Subsequent 1998 correspondence (P-8) indicates that as of February 1, 1997, United Wisconsin had ceased tier rating at renewal by agreement with the Department (P-7), but this is hardly an everlasting promise for the future regardless of changed circumstances.
The foregoing 1996-1998 correspondence amounts to United Wisconsin sequentially devising a variety of tier rating systems, each of which was, in turn, rejected by the Department for reasons (Rule 4-149.005(10), Florida Administrative Code, and HIPAA) not necessarily applicable to United Wisconsin as an out-of-state insurer or to the situation at bar. While United Wisconsin might legitimately disagree with the Department's
legal analysis in this correspondence and could guess it might be prosecuted for an unfair practice if it tier rated in any form, the foregoing correspondence does not amount to the Department giving United Wisconsin notice it could not annually review and adjust TNI premiums by tiers after the 1999 switchover or a promise from United Wisconsin not to tier block upon renewal of TNI coverage in 2000.
It was neither pled nor proven that the Department (Mr. Bracher) relied on any of this correspondence in entering into the January 1999 agreement with United Wisconsin. By all accounts, tier rating at renewal was never discussed in relation to that agreement.
The January 1999 agreement, for reasons more properly discussed in the Conclusions of Law, superceded all prior negotiations.
Finally, subsequent pronouncements by the Department have amounted to admissions that the current statutes do not prohibit tier blocking at renewal by out-of-state insurers. (See Finding of Fact 94.)
It is also alleged that United Wisconsin failed to inform certificate holders during the 1999 switchover that tier blocking would occur in the year 2000, as each policy came up for renewal, and that this failure to inform that United Wisconsin would annually "re-underwrite" on the basis of
individual health status factors constituted a "knowing misrepresentation," a "knowing material omission," and a "knowing omission of a true statement," by United Wisconsin, pursuant to Sections 624.418, 626.9541, and 626.9521, Florida Statutes. However, the Department did not demonstrate that any requirement exists at law or through the Department's January 1999 agreement with United Wisconsin which affirmatively required United Wisconsin to make such a disclosure stating it would "tier block" based on health/claims. The term "tier block" and its permutations are not even statutory terms. The Department did not demonstrate that any requirement exists at law or by the agreement that required United Wisconsin to advise certificate holders if it intended annual underwriting of premiums beginning in 2000. (See Conclusions of Law.)
Moreover, the Department offered no plausible explanation how, based on the contents of the new offering and solicitation of health information, the Department or certificate holders could have failed to expect that United Wisconsin would make annual premium alterations. (See Findings of Fact 57-59.)
The Department admits United Wisconsin disclosed its intent to reclassify certificate holders coming into TNI in 1999. The Department views it as appropriate for United Wisconsin to establish different premium rates for individuals
upon the factors utilized by United Wisconsin at the outset of coverage, but objects to increased premiums by tier blocking based on certificate holders' current health status on the respective renewal anniversary date of each TNI policy.
Despite United Wisconsin's completely fulfilling the January 1999 agreement at the switchover, the Department now considers it illegal tier-blocking and discriminatory if insureds were reclassified based on current claim/medical health history subsequent to their having been initially placed in a class (in this case by the Trust) based on claim/medical health history.
United Wisconsin's expert actuaries and underwriter testified that TNI certificate holders with the "same health hazard" are treated the same at annual renewals. The Department presented no evidence that United Wisconsin's review of health status at the 2000 renewals has resulted in disparate premiums between individuals with "essentially the same hazard."
In the course of the onsite audit, Mr. Fagin reviewed the underwriting manual utilized by United Wisconsin for the 2000 anniversary renewals and annual premium calculations.
Mr. Fagin acknowledged that United Wisconsin's renewal process selectively gives the largest premium increases to those who have made claims within the last year or who have the expectation of claims in the next year.
However, Mr. Fagin opined that the underwriting manual used by United Wisconsin "was generally reasonable; it's flawed in certain respects; generally consistent with the kind that might have been used by other companies as well." The derivation of United Wisconsin's underwriting manual was originally from another insurance company. Its major aspects are not unique to United Wisconsin, although United Wisconsin uses tiers in a different way from other companies.
Mr. Fagin stated that for some health conditions, United Wisconsin's underwriting manual had a narrow range of points; for other conditions, it had a broad range of points; for some conditions, such as the health risk presented by blood pressure, much instruction was provided to underwriters by the manual; and for other conditions, the underwriters had to rely on their education, training, and experience, with only general directions provided in the manual itself.
In Mr. Fagin's opinion, it is "not a good business practice" if underwriters have broad latitude in arriving at diagnostic factors for premium renewal with little further underwriting review.
A "bad business practice" does not necessarily equate with a statutorily proscribed "unfair competitive practice" or "unfair or deceptive insurance trade practice."
In Mr. Fagin's opinion, if underwriters have broad latitude in arriving at diagnostic factors for premium renewal it can potentially lead to arbitrary, capricious decision- making, but he presented no proof that United Wisconsin's underwriters actually had made arbitrary, capricious decisions in setting renewal diagnostic factors or premiums, nor did any other witness.
Mr. Fagin questioned a "limited" number of the diagnostic factors assigned by United Wisconsin underwriters, but did not pronounce any TNI renewal customer as wrongly underwritten or discriminated against by commonly accepted underwriting standards.
At the switchover in 1999 and at renewals in 2000, some certificate holders may have revised coverage levels, added or subtracted dependents, moved to another geographical area and/or made other changes to their TNI coverage. There was no evidence tying specific amounts of premium increases and decreases to each factor, so it is impossible to determine which factors actually resulted in premium differences or to what extent United Wisconsin's TNI premiums changed due to any single specific factor, including current health status.
What effect health or claims factors played in the 2000 renewal premiums was not calculated by Mr. Fagin.
The Department agrees with United Wisconsin that for TNI coverage, the entire block of Florida business is the single "actuarially supportable class." (See Finding of Fact 60.) Frank Dino, agency representative and Chief Actuary for the Department, even conceded that the statutory term "actuarially supportable class" does not mean that all certificate holders must be charged the same premium and that there may be legitimate different premium levels within a class, based on how (and probably when) the insureds came into the class.
Mr. Dino defined a "hazard" as "a specific situation that increases the probability of the occurrence of a loss arising from a peril," only because Merit Publishing's Glossary of Insurance Terms defines it that way. No statute or rule containing that definition was put forth. Mr. Dino also believes that because the term "actuarially supportable class and essentially the same hazard" is used in Section 626.9541, Florida Statutes, the entire body of actuarial literature, including the Code of Conduct and Standards of Practice, bears on that statutory term. Furthermore, Mr. Dino believes that because some actuarial literature introduced at hearing states, or may be interpreted to mean, that the "same hazard" can only be assessed at the initiation of the policy and may not be reassessed during the life of the policy, that also means that the Florida statute prohibits an out-of-state insurer from
raising premiums based on health, in tiers within the single class, at annual renewal.
United Wisconsin's expert actuaries disagreed with Mr. Dino's actuarial opinion.
Mr. Dino does not administer the statutes under which United Wisconsin is charged in this Administrative Complaint.
One of the so-called "professional standards" introduced by the Department is ambiguous. All of the professional literature is subject to interpretation. None of this literature has been adopted into a Florida statute or a rule of the Department which would apply to this case.
In May 2001, the Department circulated an official publication for insurance agents and adjusters throughout Florida. That document posed the question, "What kind of practices in use would be prohibited if Florida's rating laws applied to out-of-state coverage?" (emphasis supplied.) It also gave the answer: "Tier rating, whereby carriers move your clients from the underwriting basis or class in which they were issued coverage to one that is of a lesser standard and subject to higher renewal rate." Although the date of this document means it could not have been relied upon by United Wisconsin in 1996-2000, the document still constitutes an admission of the Department that as of May 2001, it had no statutory authority over out-of-state insurers who tier rate. At a minimum, it
demonstrates that Mr. Dino's opinion is not the only statutory interpretation within the Department.
Mr. Fagin, Mr. Dino, and Mr. Jerry Fickes, an outside consultant who was accepted as an expert in insurance regulatory matters and practice of the insurance industry, defined "guaranteed renewable" as a continuation of an existing form of coverage at the option of the insured. United Wisconsin does not dispute that limited definition. However, all of the foregoing Department witnesses further understand the term "guaranteed renewable" to also mean that the premium may not be changed unless it is changed for everyone in the same class, by the same amount. No Florida statute or rule adopts or specifies their definition. Respondent's experts disagree with their definition. No expert denied that premiums can legitimately change with new coverage and with each renewal.
Various treatises relied on by the Department's experts were introduced in evidence. Some of the literature is old. Some applies to individual or disability insurance. All describe common, usual, and general meanings of the term "guaranteed renewable." These items purportedly support the Department's definition that a "guaranteed renewable" policy cannot change premiums except identically across an entire class after the initial underwriting at the inception of the policy. However, all these treatises vary in one respect or another from
agreed, stipulated, or proven components of the present situation, and most of them recognize that laws are not uniform among all the states and that each state's law is controlling.
Not all of these Codes, Standards, or treatises are universally accepted in the insurance industry. None have been adopted by a Departmental rule or by statute.
Although Section 627.6425, Florida Statutes, does not contain the phrase, "guaranteed renewable," its gist is that, except under specified circumstances, if an insured has an individual health insurance policy, that person has a right to continued coverage, at his option. The Department contends that there also can be no reclassification or movement between classes at the time of renewal, i.e. no adjustment of premiums except for an entire class.
The Department has not presented or argued any adopted rule containing or defining the phrase "guaranteed renewable." Apparently, the Department concedes that none of its rules governs the present situation, including those rules it has adopted to define "guaranteed renewable" and "discrimination." Neither has either party referred to any statute or rule adopting a "standards of the insurance industry" test for how the term "guaranteed renewable" is to be interpreted.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties and subject matter to this proceeding. Sections 120.569 and 120.57(1), Florida Statutes (2001).
The duty to go forward and to prove all elements of a charged violation is upon the prosecuting agency. Dept. of Banking and Finance v. Osborne Stern & Co., 670 So. 2d 932 (Fla. 1996), Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).
It is axiomatic that statutes which are penal in nature must be strictly construed, with any doubt resolved in favor of the licensee, and in penal proceedings, a Respondent cannot be held to answer for charges not contained in the Administrative Complaint or of which the Administrative Complaint gives no notice. Cottrill v. Dept. of Insurance, 685 So. 2d 1371 (Fla. 1st DCA 1996); Whitaker v. Dept. of Insurance, 680 So. 2d 528 (Fla. 1st DCA 1996).
Count III of the Administrative Complaint constitutes allegations of HIPAA violations. It may be disposed of quickly because the Department has acknowledged that it presented no evidence to support the allegations of Count III.
As to the remaining Counts of the Administrative Complaint, Respondent United Wisconsin defends upon one or more of the following theories:
The statutes under which Respondent has been charged do not apply to the out-of-state Trust, association and/or insurance company;
Estoppel applies to anything covered by the January 1999 agreement with the Department; and/or
Assuming, arguendo, the charging statutes apply, the factual allegations of the Administrative Complaint have not been established by clear and convincing evidence.
By Counts I, II, and IV of the Administrative Complaint, the Department is clearly ignoring or repudiating the January 1999 agreement it entered into with United Wisconsin and upon which United Wisconsin relied.
Even the Department's Proposed Recommended Order acknowledges that an estoppel or penalty amelioration argument can be made as to Counts I, II, and IV, and that the Department only seeks prospective relief (future compliance with the law) relative to Counts I and II.7
Courts have traditionally been reluctant to apply the doctrine of equitable estoppel against the State, and opinions have drawn a line that where an agency makes a mistake of law, as opposed to one of fact, estoppel will not lie. Salz v. Dept.
of Administration, 432 So. 2d 1376 (Fla. 3d DCA 1983); Austin v. Austin, 350 So. 2d 102 (Fla. 1st DCA 1977). Agencies also have
not been penalized by an estoppel for prosecuting under a statute simply because they have failed to do so in the past, provided there is no prospective "selective enforcement" of a statute. Likewise, an agency's prior misinterpretation of a statute or rule has not created an estoppel for the agency to later enforce that statute/rule. Coastal Petroleum Co. v.
Florida Wildlife Federation, Inc., 766 So. 2d 266 (Fla. 1st DCA 1999); State Dept. of Revenue v. Anderson, 403 So. 2d 397 (Fla. 1981). However, that is not the situation with regard to estoppel based on mixed questions of fact and law or facts alone.
The elements of estoppel are (1) a representation as to a material fact that is contrary to a later-asserted position; (2) reliance on that representation; and (3) a change in position detrimental to the party claiming estoppel, caused by the representation and reliance thereon. Greenhut Construction Co. v. Henry A. Knott, Inc., 247 So. 2d 517 (Fla. 1st DCA 1971).
Counts I, II, and IV of the Administrative Complaint are predicated on United Wisconsin's actions fully disclosed and approved by the Department as complying with Florida law. By the 1999 agreement, United Wisconsin had agreed to offer more policies than required by statute, and to cap premiums for the transferees at 200%. These promises, which United Wisconsin
fulfilled, were in addition to what was required by statute. Herein, the agreement goes beyond innocent misinterpretation of a statute or forbearance from enforcement of an ambiguous regulation. It established a course of conduct for United Wisconsin which was intended to reconcile any conflicting statutory interpretations of the Trust's or association's status or obligations and borders on the Department's agreement not to prosecute if United Wisconsin altered its original transition plan to accommodate the Department's concerns.
Dolphin Outdoor Advertising v. Dept. of
Transportation, 582 So. 2d 709 (Fla. 1st DCA 1991) and Tri-State Systems, Inc. v. Dept. of Transportation, 500 So. 2d 212 (Fla.
1st DCA 1986), stand for the proposition that a representation by a regulating agency that the permittee/licensee meets statutory requirements is a predicate for estoppel against the agency. See also Chipley Motel v. Dept of Transportation, 498 So. 2d 1357 (Fla. 1st DCA 1986). The instant case is most analogous to Kuge v. State, Dept. of Administration, 449 So. 2d
389 (Fla. 3d DCA 1984), wherein the Court found that the agency's "representations were based on a misunderstanding of the law, but this does not convert the factual representations into legal representations." Therein, the court held that estoppel would lie. Here, estoppel lies against the Department
as to Counts I, II, and IV. That said, however, these Counts also fail on other grounds.
As to Counts I, II, IV, V, VI, VII, and VIII, the Department now construes the word "coverage" to take precedence over all other words of logic, art, or even plain meaning in the respective statutes. In short, the Department views it as immaterial to its regulatory authority whether "coverage" is provided through a trust, association, corporation, partnership, or other entity.
The thrust of Count I is that the Department now views the imposition of the TNI fee and membership conditions on the Alabama Trust certificate holders as violative of Sections 627.6425(1), 627.6425(3)(a)2., and 624.418(2)(a), Florida Statutes, while conceding that Section 627.6425, Florida Statutes, permits an insurer to discontinue a particular policy form through which coverage is provided if the insurer offers another policy form available to certificate holders to continue their coverage.
To this end, the Department puts forth that Section 624.6425(1), Florida Statutes, defines the term "individual health insurance" as "health insurance coverage, as described in Section 627.6561(5)(a)2., offered to an individual in this state
.. . ." Section 627.6425(1) states, "an insurer that provides individual health coverage to an individual shall renew or
continue in force such coverage at the option of the insured," and Section 627.6425(3)(a) states, in pertinent part, that "[I]n any case in which an insurer decides to discontinue offering a particular policy form for health insurance coverage offered in the individual market, coverage under such form may be discontinued only if: (2) The insurer offers to each individual in the individual market provided coverage currently being offered by the insurer for individuals in the state. . ." (emphasis supplied). The Department's argument is not persuasive.
The line of insurance in this case is health insurance. The Legislature has been fit to organize the Department's regulatory authority into individual (Chapter 627, Part VI, Florida Statutes) and group (Chapter 627, Part VII, Florida Statutes) insurance.
In 1998-1999, United Wisconsin discontinued a Trust group policy, filed with the Department pursuant to Section 627.6515(2), Part VII, Florida Statutes. The TNI association policy was also a group policy per Section 627.6515(2), Part VII, Florida Statutes. (See Findings of Fact 3-5.) The Department is now prosecuting United Wisconsin pursuant to Section 627.6425, Florida Statutes, which is part of Part VI. Section 627.601(2), Florida Statutes, provides the scope of Part VI, (wherein Section 627.6425 is located) stating, with
exceptions not pertinent here, that "nothing in this part applies to or affects . . . any group or blanket policy[.]" (emphasis supplied.) Accordingly, Section 627.6425, Florida Statutes, should not apply to either the Trust or the association here.
To the extent that Section 627.6425, Florida Statutes, as a more recent enactment, might be viewed as creating a narrow exception to Section 627.601(2), Florida Statutes, it would be the following language in Section 627.6425 (1).
For the purpose of this section, the term, "individual health insurance" means health insurance coverage, as described in Section 627.6561(5)(a)2., offered to an individual in this state, including certificates of coverage offered to individuals in this state as part of a group policy issued to an association outside this state [.] (emphasis supplied.)
TNI is an out-of-state "association . . . formed primarily for purposes other than providing insurance." See Section 627.6515(2), Florida Statutes. As such, the foregoing limited exception may make Section 627.6425, applicable to the TNI policy now marketed by United Wisconsin through TNI, but the discontinued Trust policy was issued to an out-of-state Trust formed primarily for purposes of insurance, not an association, and Florida law has seen fit not to treat the entities the same. See Section 627.6515(2)(a), Florida Statutes, which
distinguishes an association from other types of groups. Accordingly, Section 627.6425, Florida Statutes, pertaining to renewability of individual coverage, cannot be applied to the association TNI product.
It would therefore follow that, because the policy that was discontinued was issued to a Trust, and not an association, and the Department concedes that it has no authority to set premium rates for out-of-state insurers like United Wisconsin, so long as TNI meets the definition of "association," within Chapter 627, Part VII, the Department does not have authority over the level of rates charged for TNI coverage. Those rates are subject to regulation only by the state wherein TNI is sitused.
Despite the Department's able argument, it is concluded, for the foregoing reasons, that even if estoppel does not apply, Section 627.6425, Florida Statutes, is not applicable to TNI, nor to the facts as proven in relation to this Administrative Complaint.
In 1999, United Wisconsin could not have offered any coverage in Florida other than through TNI because it did not market to individuals in Florida, and the Trust plans were being discontinued. Upon discontinuance of the Trust plans, the only United Wisconsin health insurance plans available in Florida were the plans offered through TNI. After United Wisconsin's
full disclosure to the Department of association membership requirements in order to obtain the association insurance, the Department fostered, approved, and oversaw the entire switchover procedure. Assuming arguendo that Section 627.6425, Florida Statutes, applied, if TNI did not qualify as other United Wisconsin coverage, United Wisconsin had no obligation to provide TNI coverage to the discontinued Trust certificate holders. The Department's suggestion now, after the fact, that United Wisconsin had a duty to create, apply for, register, and have the Department approve a new and different type of coverage solely to provide a different product that did not require association membership dues is not supported by any statute, rule, or standard of the practice of insurance.
Finally, no discrimination or failure to disclose was proven with regard to Count I.
The thrust of Count II is the allegation that all persons who joined TNI in 1999 were unlawfully and unfairly discriminated against because some were reclassified based on their 1999 health status, rather than being retained in the class to which they had been assigned when the Trust policy was initially issued, resulting in a higher premium than they had been charged before discontinuation of the prior Trust policy form of coverage; and that this constituted an unfair insurance
practice, violative of Sections 626.9521, 626.9541(1)(e)2., and 626.9541(1)(g)2., Florida Statutes.
Section 626.9521, Florida Statutes, prohibits "unfair methods of competition or deceptive acts or practices" and assigns penalties. Section 626.9541, Florida Statutes, defines "unfair methods of competition and unfair or deceptive acts or practices." Subsection (1)(e)2. relates to insurers making knowing false statements or omissions. Subsection (1)(g)2. relates to discrimination between individuals of the "same actuarially supportable class and essentially the same hazard."
The Department now concedes that "tier blocking" did not occur during 1999 as alleged in Count II, but maintains that by assigning a diagnostic factor which maintained insureds' old premium or one which raised the premium by 200%, as provided for in the January 1999 agreement, United Wisconsin "set up" tier blocking for the year 2000 annual renewals.
The credible evidence does not support the factual allegations of Count II. It shows that health status was only considered in 1999 in relation to the January 1999 agreement United Wisconsin reached with the Department. Switchover applicants qualified for new TNI coverage were accepted at the health status they had formerly with the Trust. If they were not qualified, then, pursuant to United Wisconsin's agreement
with the Department, United Wisconsin treated them uniformly at the 200% premium rate cap negotiated with the Department.
The evidence also does not clearly and convincingly support a finding that there was a diagnostic factor assigned in 1999 which was not already approved by the Department through its agreement with United Wisconsin, or that United Wisconsin camouflaged in any way its intent to re-underwrite, on the basis of health or claims experience, at each annual renewal anniversary. The solicitation by United Wisconsin of insureds' medical and claims information was clearly made known to the Department and all certificate holders in 1999, and this, together with notices of potential annual increases, amounted to a disclosure that health hazards would affect annual premiums. See Findings of Fact 53, and 56-59.
Section 627.6425, Florida Statutes, does not apply, and with regard to Count II's unfair competition or deceptive practices issue, see discussion of "discrimination" and "guaranteed renewable" infra.
Count IV alleges that Section 627.6425, Florida Statutes, statutorily determined that the Alabama Trust's Prescription for Good Health Plan was "guaranteed renewable," as that term is used and understood in the insurance industry; that the term "guaranteed renewable" means that once an insurer classifies an insured as a member of an actuarially supportable
class, that insured may not be charged a premium different from any other member of the same class and may not be relocated to any other class; that United Wisconsin did the foregoing acts and that in doing so, United Wisconsin discriminated against such insureds. Moreover, Count IV alleges that United Wisconsin failed to inform potential switchover insureds of its intent to re-underwrite premiums annually through the Ohio-based TNI association, based on health, and thereby violated a lawful Departmental order, rule, or statute. See Sections 624.418(2)(a), 627.6425(3), 626.9521, 626.9541(1)(a)1., and
626.9541(1)(g)2.
Count IV is based on the concept that the phrase, "guaranteed renewable" does not just mean that a health care insurer cannot cancel an insured or refuse to continue to cover an insured due to that insured's changing health risk, but that the phrase somehow intrinsically incorporates the concept that in order to raise that single insured's premium, based on his individual increased health risk, the insurer must simultaneously, similarly, raise the premium of every other member of the same class. It is an "all members or no members" mindset.
For the reasons previously stated, Section 627.6425 Florida Statutes, does not apply to Count IV. However, assuming
arguendo that it does apply, Section 627.6425 does not use the term "guaranteed renewable."
The Department has demonstrated no lawful Departmental "order or rule" which has been offended.
The Department did show that its correspondence concerning Trust rate filings 1996-1998 cited probably inapplicable statutes and rules as they existed in those years and that during some periods AMS/United Wisconsin made conditional promises not to tier block. However, United Wisconsin's knowledge that it could be prosecuted at some point for some type of willful tier blocking is immaterial unless tier blocking itself violates some statute or rule. Moreover, if the Department can notify Florida agents and adjusters after the instant case began that tier blocking at renewal by out-of-state group insurers is legal, it cannot be taken seriously in claiming that United Wisconsin had prior notice that tier blocking was illegal.
Counts II, IV, and V, as well as Counts VI and VII, to a lesser degree, are based on the Department's premise that "guaranteed renewable" coverage allows only one opportunity to classify the risk (evaluate the individual) according to health status and that singular opportunity arises only at the outset of initial coverage and never recurs. However, that term has not been defined by a Florida statute or rule applicable to this
situation and this type of proceeding cannot provide that uncodified definition. See further discussion, infra.
Counts II, IV, and V also depend upon an uncodified definition of the term "same actuarially supportable class and essentially the same hazard," contained in Section 626.9541(1)(g)2., which calls it an unfair act and "unfair discrimination" if an insurer is
Knowingly making or permitting any unfair discrimination between individuals of the same actuarially supportable class and essentially the same hazard, in the amount of premium, policy fees, or rates charged for any policy or contract of accident, disability, or health insurance, in the benefits payable thereunder, in any of the terms or conditions of such contract, or in any other manner whatsoever. (emphasis supplied.)
Count V alleges that on the one year renewal date, TNI transferees were reclassified, without notice, by United Wisconsin, based on health status, resulting in up to 60% increases in premiums, and that this practice is a willful and knowing violation of the Florida Insurance Code due to the 1996- 1998 correspondence. The statutes charged are: Sections 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2., 626.9541(1)(g)2., and 624.418(2)(a), Florida Statutes.
The factual allegations were not proven precisely as to the 60% increases solely being health-related. However, anecdotal and expert testimony show increases to be substantial
for some insureds. Because of the many possible permutations of changed coverage at renewal, what premium percentage increase was attributable to health/claims history is not known.
As with the term "guaranteed renewable," the Department seeks to engraft a definition never adopted by a rule or statute applicable to TNI. Here, the definition urged is based on interpretation of actuarial treatises defining "guaranteed renewable" and professional actuary ethical standards, which the Department wants read into the statutory word "actuarially." Then, since "actuarially" modifies "supportable class," in Section 626.9541(g)2., the Department seeks to freeze the policy class at the initiation of the policy. No Florida statute or rule applicable to TNI does this, and this forum is not empowered to do it.
The Department's interpretation of Section 626.9541(1)(g)2. does not account for the words "essentially the same hazard." The parties agree the entire book of Florida business is the "actuarially supportable class," but the Department has failed to show that United Wisconsin has treated any insureds with "essentially the same hazard" in a discriminatory manner.
Quite obviously, if there is no limit on the amount of premium that health insurers can charge at each renewal and each renewal premium increase becomes compounded, a guarantee of
renewal can be meaningless. Florida regulation of domestic insurers' rates has solved that problem to a degree, but that regulation of rates is not extraterritorial. The Department's good intentions in this case require a statutory predicate, which it does not have. Count V must fail.
Count VI alleges that within the three tier blocks initially established at the 1999 switchover, United Wisconsin unlawfully established sub-classifications based on health factors pertinent to individuals within that class and continues to do this annually resulting in individuals within the same class being charged different premiums, and further alleges, on the basis of the prior correspondence, that this sub- classification within each tier is a knowing and willful violation of the Florida Insurance Code, due to the prior correspondence. See Sections 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2., 626.9541(1)(g)2., and 624.418(2)(a), Florida Statutes.
Three tier blocks were not established in 1999; the 1999 agreement was complied-with; Section 627.6425, Florida Statutes, does not apply; and Count VI further fails for all the reasons Counts II, IV, and V fail.
Count VII alleges that United Wisconsin used a point debit system where points are assigned to a corresponding health hazard, working out to the higher the cumulative debit score,
the higher the premium, and if the cumulative debit score is high enough, United Wisconsin will decline to insure at all. The assignment of points by individual underwriters with no criteria for decision-making is allegedly an arbitrary and discriminatory act. See Section 626.9541(1)(g)2.
Citing the prior correspondence, the Department also alleges that United Wisconsin is willfully attempting to circumvent the law and avoid the responsibility of issuing guaranteed renewable coverage by unlawfully changing insureds' classification and premium to the point it becomes unaffordable
i.e. "the death spiral." See Sections 626.9521, 626.9541(1)(a)1., 626.9541(1)(e)2., and 624.418(2)(a), Florida Statutes.
Count VII fails for all the reasons Counts II, IV, and V fail.
The plain words of the unfair discrimination statutes, without reference to treatises, manuals, or the phrase "guaranteed renewable," garnered from another statutory section, do not give notice of a one-time limitation on health/claim factor underwriting. The phrase "actuarially supportable class and essentially the same hazard" do not, standing alone, give notice of a one-time limitation on health/claim underwriting. Statutory amendments may be in order. The Department also has rule-making authority pursuant to Section 626.9611, Florida
Statutes, to adopt rules defining specific acts of unfair trade practices under Section 626.9541, Florida Statutes. Rulemaking may be in order. However, at this place and time, the Department cannot prevail on Counts I-VII.
As was said in Breesman v. Dept. of Professional Regulation, Bd. Of Medicine, 567 So. 2d 469 (Fla. 1st DCA 1990),
Basic due process requires that a professional or business licensee not be suspended or revoked without adequate notice to the licensee of the standard of conduct to which he or she must adhere. The opinions of the expert witnesses offered by the parties cannot make certain, after the fact, those standards of conduct that are not clearly set forth in statute or a rule.
Count VIII charges United Wisconsin with knowingly failing to provide the form required by Section 627.6675(17), Florida Statutes, thereby offending all previously-cited statutes.
Section 627.6675(17), Florida Statutes, provides:
(17) NOTIFICATION.–A notification of the conversion privilege shall be included in each certificate of coverage. The insurer shall mail an election and premium notice form, including an outline of coverage, on a form approved by the department, within 14 days after an individual who is eligible for a converted policy gives notice to the insurer that the individual is considering applying for the converted policy or otherwise requests such information. The outline of coverage must contain a description of the principal benefits and coverage provided by the policy and its principal exclusions and limitations,
including, but not limited to, deductibles and coinsurance. (emphasis supplied.)
Upon Findings of Fact 26 and 44-48, there is no evidence that any eligible person who gave notice of considering applying for a converted policy was unheeded by United Wisconsin. The Department did prove that one person, Ms. Wahl, made a vague oral request for information that should have resulted in her receiving conversion information and a form, but this is a de minimus offense at worst. Count VIII must fail.
Finally, there is no evidence in this record that supports a conclusion that Sections 626.9541(1)(a)1. or 626.9541(1)(e)2., Florida Statutes, have been violated.
Upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that all Counts of the Administrative Complaint be dismissed.
DONE AND ENTERED this 25th day of April, 2002, in Tallahassee, Leon County, Florida.
ELLA JANE P. DAVIS
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with Clerk of the
Division of Administrative Hearings this 25th day of April, 2002.
ENDNOTES
1/ The Issues as stated have been edited per Endnotes 2 and 3 below. It is also noted that Petitioner Department acknowledges that it presented no evidence to support the allegations of Count III.
2/ Count VIII also seems to contain language related to Sections 624.420, 624.421, 624.4211 and 627.6571(3)(a)3.,
Florida Statutes, without any clear allegation of an act or omission by Respondent related thereto. Respondent contends this language is residual language from an earlier Order to Show Cause. The Department has not put forth any argument directed to this portion of Count VIII. Therefore, this portion of Count VIII is not addressed herein.
3/ The Administrative Complaint cites, "Section 626.9541(1)(2), Florida Statutes," but utilizes the language "knowingly omitting to make a true statement pertaining to the business of United Wisconsin." There is no Section 626.9541(1)(2), Florida Statutes, and counsel for Department of Insurance represented that Section 626.9541(1)(e)2. should have been cited in the Administrative Complaint. The language of the Administrative Complaint and the corrected statutory citation are grossly similar. Despite the wrong statutory citation, adequate notice of the charges was given by the Administrative Complaint, and the disputed-fact hearing proceeded with the understanding that the Department had the obligation to prove, by clear and convincing evidence, all elements of Section 626.9541(1)(e)2. in order to penalize Respondent under paragraph B of each count cited. Cf - Conclusions of Law as to lack of notice of proscribed conduct in the statute itself, and lack of proof.
4/ The motion sought to strike the language "knowingly making or permitting any unfair discrimination between individuals of the same actuarially supportable class and essentially the same hazard" and referred to Section 626.9541(1)(g)2. Florida Statutes, on the theory that Section 626.9541(1)(g) fails to give insurers, especially Respondent herein, notice of proscribed conduct. The Administrative Complaint clearly charges Section 626.9541(1)(g)2. If the Department is to prevail, the duty to go forward and burden to prove the elements
of that statute by clear and convincing evidence is upon the Department. Cf - Conclusions of Law as to lack of notice of proscribed conduct in the statute itself.
5/ It is debatable whether P-6 was formally admitted, but it was never objected to and both parties have treated it as admitted in evidence.
6/ The undersigned takes this opportunity to note that the Transcript's table of contents pages contain errors obvious in the body of the Transcript and that each party failed to abide by the rules and format for Proposed Recommended Orders.
7/ This prayer for relief is confusing, given that the events related in Counts I and II are clearly past.
COPIES FURNISHED:
Michael H. Davidson, Esquire Dennis Silverman, Esquire Department of Insurance
200 East Gaines Street 612 Larson Building
Tallahassee, Florida 32399-0333
John Radey, Esquire Harry O. Thomas, Esquire
Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A.
106 East College Avenue, 12th Floor Post Office Box 1877
Tallahassee, Florida 32302
Honorable Tom Gallagher
State Treasurer/Insurance Commissioner Department of Insurance
The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0330
Mark Casteel, General Counsel Department of Insurance
The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Jul. 24, 2002 | Agency Final Order | |
| Apr. 25, 2002 | Recommended Order | Out-of-state insurer that tier-blocked health insurance premiums on renewal had not offended variety of statutes charged against it. State was estopped by prior agreement. Some statutes charged did not give notice of proscribed activity. |
