The Issue Whether Respondent committed the offenses set forth in the Administrative Complaint and, if so, the penalty that should be imposed.
Findings Of Fact At all times material hereto, Respondent was licensed by Petitioner as an insurance agent in the State of Florida licensed to sell health insurance. At all times material hereto, Respondent was not formally affiliated with Cleveland Insurance Agency. However, Cleveland Insurance Agency often referred clients to Respondent for health and Medicare supplement policies because Cleveland Insurance Agency did not handle those type policies. Prior to November 1987, Respondent, working in conjunction with Cleveland Insurance Company, sold to Irene Goldberg a health insurance policy issued through Provider's Fidelity Insurance Company (Provider's Fidelity). On November 29, 1987, Ms. Goldberg paid $1,504.56 as the annual renewal premium for this health insurance policy which extended her coverage through December 4, 1988. In March of 1988, Ms. Goldberg contacted Cleveland Insurance Agency and requested that someone review her health insurance coverage. Cleveland Insurance Agency referred Ms. Goldberg's request to Respondent. Respondent was familiar with the terms and conditions of the health insurance coverage Ms. Goldberg had in place and he knew that she had paid the premium for this policy through December 1988. Upon visiting with Irene Goldberg on or about March 10, 1988, Respondent presented Ms. Goldberg with a business card that intentionally misrepresented his status with Cleveland Insurance Company. Because Ms. Goldberg had placed most of her insurance needs through Cleveland Insurance Agency during the past few years, Respondent intentionally misled Ms. Goldberg into thinking that he was formally affiliated with Cleveland Insurance Agency. During that visit, Respondent recommended to Ms. Goldberg that she purchase a policy of insurance issued by First National Life Insurance Company (First National) to replace her Provider's Fidelity policy. Ms. Goldberg specifically discussed with Respondent a preexisting medical condition which required periodic medical treatment and the need for the treatment required by this condition to be covered by the new policy. Respondent assured Ms. Goldberg that the preexisting condition would be covered by the new policy. Respondent also told Ms. Goldberg that he would cancel the Provider's Fidelity policy and that he would secure on her behalf a pro rated refund of the premium she had paid to Provider's Fidelity. Based on Respondent's representations, Ms. Goldberg agreed to purchase the First National policy. On March 30, 1988, Ms. Goldberg gave to Respondent a check made payable to First National Life Insurance Company in the amount of $1,892.00, the amount Respondent had quoted as the full annual premium. A few days later, Respondent contacted Ms. Goldberg and advised her that there would be an additional premium in the amount of $1,360.00, which Ms. Goldberg paid on April 4, 1988. This additional premium was, according to Respondent, for skilled nursing care coverage which First National had added as a mandatory feature of the policy Ms. Goldberg had purchased. The skilled nursing care coverage was, in fact, a separate policy which was not a mandatory feature of the policy Ms. Goldberg thought she was purchasing from First National. Respondent misled Ms. Goldberg as to the terms of the policies he had sold her and as to the number of policies he had sold her. Respondent represented that the premiums he had collected on behalf of First National were in payment of a single health insurance policy. Respondent had sold Ms. Goldberg four separate policies, and he collected a commission for each of the policies. When Ms. Goldberg received her insurance documents from First National, she learned for the first time that Respondent had sold her four separate policies of insurance, including a cancer policy that she and Respondent had never discussed. In addition to the health and cancer policies, Respondent sold Ms. Goldberg a home convalescent care policy and a separate skilled nursing care policy. Respondent had sold Ms. Goldberg policies of insurance that Ms. Goldberg had not requested and that she did not know she was buying. Upon reading the health policy, Ms. Goldberg discovered that her new First National Life policy excluded her preexisting condition. Ms. Goldberg contacted Respondent who told her that he had not cancelled the Provider's Fidelity policy as he had agreed to do and that he had not tried to get the pro rated refund of the Provider's Fidelity premium. Respondent told her that any claim she might have for the preexisting condition should be filed under the Provider's Fidelity policy. Ms. Goldberg then complained to First National which, after an investigation, refunded to Ms. Goldberg the premiums she had paid for the three policies. Respondent had received a commission on the policies of insurance he had sold to Ms. Goldberg. As of the time of the hearing, Respondent had not reimbursed First National for the commission he had received based on the premiums that were subsequently refunded to Ms. Goldberg. In February 1988, Respondent met with Helen Krafft to discuss her health insurance needs. During the course of the meeting, Respondent presented to Ms. Krafft a business card which intentionally misrepresented his affiliation with Cleveland Insurance Agency. This business card misled Ms. Krafft into believing that Respondent was formally affiliated with Cleveland Insurance Agency. On February 18, 1988, Respondent sold to Ms. Krafft a health insurance policy through First National and a health insurance policy issued through American Sun Life, at which time he collected a premiums in the total amount of $519.80 for six months of coverage from each of the two policies. In July 1988, Respondent visited with Ms. Krafft at her place of work and told her that she should pay her renewal premiums for the health insurance policies on or before August 1, 1988, to avoid a premium increases. Respondent knew, or should have known, that there were no premium increases scheduled for those policies and that there were no discounts for early payment of the premiums The renewal premiums Respondent quoted Ms. Krafft for the two policies totaled $485.40. At Respondent's instructions Ms. Krafft delivered to Respondent her signed check dated July 18, 1988, in the amount of $485.40 with the payee's name left blank. Respondent accepted these trust funds from Ms. Krafft in a fiduciary capacity. Instead of using these funds to pay the premiums as he had agreed to do, Respondent filled his name in on Ms. Krafft's check and cashed it. Ms. Krafft learned that Respondent had not used the funds she had given him to renew her two policies when she started getting late payment notices from the two insurance companies with accompanying threats of cancellation if the premiums were not paid. In late September 1988, Respondent paid to Ms. Krafft the sum of $485.40 in cash. In June of 1988, Steven R. and Marilyn Hill applied, through Respondent, for a health policy with First National. The Hills paid the initial premium of $304.37 by check made payable to First National on June 26, 1988. Because of underwriting considerations, First National informed Respondent that the Hills would have to pay a higher premium to obtain the insurance they wanted. The Hills were not willing to pay the higher premium and requested a refund of the amount they had paid. First National made the refund check payable to Steven Hill and mailed the check to Respondent. There was no competent, substantial evidence as to what happened to the check other than First National Life stopped payment on the check and it never cleared banking channels. A second refund check was later delivered to Steven Hill. First National contended at the hearing that Respondent had accrued a debit balance in the amount of $2,692.45 as a result of his dealings as an agent of the company. Respondent contended that he is entitled to certain offsets against the amount First National claims it is owed based on commissions he contends that he had earned but had not been paid. First National had not, prior to the hearing, submitted to Respondent any type of accounting of sums due, nor had it explicitly demanded any specific sum from Respondent. Instead, First National had made a blanket demand that Respondent return all materials belonging to First National and advised that future commission checks would be held in escrow. From the evidence presented it could not be determined that Respondent was indebted to First National.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final order which finds that Respondent committed the multiple violations of the Florida Insurance Code as set forth in the Conclusions of Law portion of this Recommended Order and which further revokes all licenses issued by the Department of Insurance and Treasurer to Respondent, John Richard Klee. DONE AND ENTERED this 30th day of November, 1989, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Hearing Officer The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division Of Administrative Hearings this 30th day of November, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-3269 The following rulings are made on the proposed findings of fact submitted by Petitioner: The proposed findings of fact in paragraph 1 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in material part by paragraph 12 of the Recommended Order. The proposed findings of fact in paragraph 3 are rejected in part as being a conclusion of law. The proposed findings of fact in paragraph 4 are adopted in material part by paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph 5 are adopted in material part by paragraph 3 of the Recommended Order. The proposed findings of fact in paragraph 6 are adopted in material part by paragraph 4 of the Recommended Order. The proposed findings of fact in paragraph 7 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 8 are adopted in material part by paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph 9 are adopted in material part by paragraphs 5 and 6 of the Recommended Order. 10 are adopted in material part 11 are adopted in material part 12 are adopted in material part 13 are adopted in material part 14 are adopted in material part 15 are adopted in material part 16 are adopted in material part 17 are adopted in material part 18 are adopted in material part 19 are adopted in material part 20 are adopted in material part 21 are adopted in material part 22 are adopted in material part 23 are adopted in material part 24 are adopted in material part 25 are rejected as being The proposed findings of fact in paragraph by paragraphs 5 and 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph by paragraphs 5 and 7 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 10 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 11 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 11 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 12 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 2 and 10 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 13 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 13 of the Recommended Order. The proposed findings of fact in paragraph by paragraph 13 of the Recommended Order. The proposed findings of fact in paragraph unsubstantiated by the evidence. The proposed findings of fact in paragraph 26 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 27 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 28 are rejected as being unsubstantiated by the evidence. The proposed findings of fact in paragraph 29 are adopted in material part by paragraph 14 of the Recommended Order. The proposed findings of fact in paragraph 30 are adopted in material part by paragraph 14 of the Recommended Order. COPIES FURNISHED: Roy H. Schmidt, Esquire Office of the Treasurer Department of Insurance 412 Larson Building Tallahassee Florida 32399-0300 Greg Ross, Esquire 400 Southeast Eighth Street Fort Lauderdale, Florida 33316 Don Dowdell General Counsel The Capitol Plaza Level Tallahassee, Florida 32399-0300 Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Recommendation Based upon the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that Respondent, Department of Administration, enter a Final Order that Petitioner, Marvin Brownlee, is owed a total of $158.56 under the State of Florida Employees' Group Health Insurance Program consisting of $126.08 of expenditures previously conceded to be eligible coverage but not yet paid, plus $32.48 of expenditures for bed underpads or chucks determined after final hearing to be covered. RECOMMENDED this 10th day of February, 1986, in Tallahassee, Florida. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of February, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 84-0806 Rulings On Petitioner's Proposed Findings Of Fact. Rejected as unnecessary and irrelevant. No items before the effective date of the State's self-insurance program, May 1, 1978, were found to be covered. Covered by Findings 2 through 6. Rulings On Respondent's Proposed Findings Of Fact. 1-2. Covered by Finding 1. Covered by Finding 7. 4-6. To the extent necessary and relevant, covered by Findings 8 through 11. Rejected as not supported by the totality of the evidence; covered by Findings 2 through 6. Covered by Finding 6. Covered by Findings 3 through 6. Covered by Findings 2 and 5. Second sentence specifically rejected as not supported by the totality of the evidence. As found, the specific use of the underpads is to catch and absorb Brownlee's excrement. But they are part of an overall method for control of Brownlee's bowels and, as such, aid in his physical well-being. See Conclusion 3. Rejected. First, it is unnecessary to recite the agency's preliminary decision. Second, there was no evidence of the qualifications of the persons determining that the underpads are not "medically necessary." Third, the determination is not supported by the totality of the evidence. See Findings 2 and 5. (The part on prescription drugs is covered by Findings 3 through 6 and 10.) COPIES FURNISHED: Marvin Brownlee Route 3, Box 581 Havana, Florida 32333 Augustus D. Aikens, Esquire Department of Administration 435 Carlton Building Tallahassee, Florida 32301 Gilda Lambert Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32301
Findings Of Fact The Petitioner, at all times pertinent hereto was an employee of the Department of Health and Rehabilitative Services. The Respondent is an agency of the State of Florida charged with administering the group self-insurance health insurance program and other insurance programs such as life insurance and is the agency charged with accepting or rejecting applications for coverage under those programs, such as the application at issue. On January 11, 1980 the Petitioner commenced employment with the State of Florida, Department of Health and Rehabilitative Services as a District Intake Counselor in District eleven of the Department. Shortly after commencing employment the Petitioner attended an orientation meeting during which all insurance benefits and other benefits available for state employees were explained. Ernestine Thurston, the HRS employee who conducted the orientation session on January 11, 1980 informed all employees present at that orientation meeting, including the Petitioner, of the available benefits and the means by which they were to avail themselves by proper application, of those benefits, including the fact that the Petitioner had thirty days to enroll in the State Group Health Insurance Program without the necessity of obtaining medical approval for insurability. A second orientation meeting was held during which insurance benefits were explained for a second time to the employees whose names were depicted on the recruitment log, which names include the Petitioner 's. The Petitioner was present at both orientation sessions. At the first orientation session on January 11, 1980 the Petitioner received an HRS Employee Handbook which included the following language concerning insurance benefits: "Employees may enroll within 30 days of date of employment without evidence of insurability. "Application at a later date requires proof of insurability. Consult your supervisor, personnel manager, or district/central personnel office for additional information." The Petitioner admitted that she signed a receipt on January 11, 1980 acknowledging receipt of a complete copy of that Employee Handbook and which receipt included the following language: "I understand that it is my responsibility to review the pamphlet in detail and request any clarification needed from my supervisor or personnel office." Petitioner conceded that she did not read the pamphlet or handbook, but instead put it in her desk drawer at her office. On January 14, 1980, knowing of the need to apply for insurance benefits within 30 or 31 days of her employment during the open enrollment period, the Petitioner applied for various insurance -overages and submitted the pertinent enrollment forms through her District 11 personnel office. She applied for and received State Supplemental Health Insurance coverage through the Gulf Life Insurance Company (then called the "20/20" plan). This supplemental health insurance coverage was designed to complement the overall state group health insurance program or plan. The Petitioner at that time was covered under the overall state group health insurance plan (The Plan) through her husband's family coverage since he was an employee covered under that plan at the time. The Petitioner also timely applied for and received coverage under the state life insurance program as well. The Petitioner did not submit a new enrollee form requesting to participate in the State of Florida Employee's Group Health Self Insurance Plan within 31 calendar days of January 11, 1980. The Hearing Officer has considered the Petitioner's testimony as well as that of Ms. Thurston and the other evidence surrounding the circumstances of her initial employment, the explanation of insurance coverage benefits, including the time limit for the open enrollment without medical approval which the Petitioner did not avail herself of insofar as the group health self-insurance plan is concerned. The Petitioner did not apply for the overall group health self-insurance plan because she was already covered under that plan through her husband's coverage and not because, as Petitioner maintains, that it was never explained that she had 30, or actually 31, calendar days from January 11, 1980 to apply for that plan. Indeed it was explained to her as Ms. Thurston established and Respondent admits receiving the handbook further explaining the time limit to apply for that coverage without medical approval. She signed a receipt acknowledging her responsibility to read that pamphlet or manual and ask for clarification, if needed, concerning coverage benefits and she admitted that she did not read it. Thus it is found that at the time of her initial employment all pertinent insurance benefits and entitlements were explained to the Petitioner both verbally and in writing and she failed to avail herself of the automatic coverage provision referenced above in a timely way, for the reason stated above. In any event, on July 28, 1980 the Petitioner elected to submit a new enrollee form which was submitted with a medical statement form requesting participation in the State Plan. After correspondence with the State Plan administrator requesting additional medical information, on October 22, 1980 the Department of Administration, by letter, advised the Petitioner that she had not been approved by the plan administrator and she was denied coverage for medical reasons. Accordingly, on October 24, 1980 the Petitioner enrolled in the South Florida Group Health, Inc. Plan which is a health maintenance organization plan (HMO) and she was allowed enrollment in that plan without regard to her current medical condition. The Petitioner remained enrolled in the HMO and requested and was granted leave of absence without pay from her employment position commencing May 29, 1981. Her employing agency advised her that it was her individual responsibility to forward premium payments for the HMO health insurance premiums as well as the state life insurance coverage herself. In other words, she was to pay by cash or her own personal check for this coverage during the time she was not being paid by the state, that is, the premiums for that coverage were not being payroll deducted because she was temporarily off the payroll. Her employment with the State did not lapse during this period commencing May 29, 1981, rather she remained employed, but was on leave without- pay status. The Petitioner knew of her responsibility to pay the premiums for the HMO coverage and the state life insurance coverage itself during the period she was on leave of absence without pay as evidenced by the check she and her husband submitted in June 1981 to pay the premiums on her state life insurance coverage. The Petitioner and her husband moved from Miami to Fort Myers during early June 1981 and the Petitioner remained on leave of absence without pay. When her husband changed employment and moved to the Fort Myers area in June 1981 the Petitioner was a covered dependent under the health insurance coverage available to her husband through his new employment. I n August 1981 the South Florida Group Health, Inc., the HMO in the Miami are of which Petitioner was a member, terminated the Petitioner's health insurance coverage effective August 1, 1981 due to the Petitioner's failure to pay the premiums for that coverage. Shortly thereafter the Petitioner interviewed with personnel officials of HRS in District 8 in Fort Myers and obtained an employment position as a district intake counselor for District 8. She became an active payroll employee of HRS in District 8 by transfer in August 1981. Before the effective date of her transfer the Petitioner was interviewed by Judy Graham, an HRS employee assigned to process her transfer from her former active employment in District 11 in Miami. The Petitioner failed to advise Judy Graham at the time of the interview of her HMO coverage, merely inquiring of Ms. Graham concerning the details of continuation of her state life insurance coverage and concerning her credit union membership. Thereafter, more than 31 calendar days after the effective date of her transfer, (August 24, 1981), indeed, in excess of two years later, the Petitioner completed a new enrollee form again and applied for the state employee's group self- insurance plan benefits. The Department of Administration denied the Petitioner participation upon the determination that she was not medically approvable for insurability by the Plan's claims administrator, Blue Cross and Blue Shield of Florida, Inc. In any event, the Petitioner's continuous employment with the state and with HRS had never lapsed since she was initially hired January 11, 1980. She was merely on inactive/leave-without-pay status as a state employee from May 29, 1981 until August 24, 1981, as that relates to any right to a second 31-day open enrollment period.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties it is, therefore, RECOMMENDED that a final order be entered by the Department of Administration denying the Petitioner's requested enrollment in the State Group Health Insurance Plan without medical approval. DONE AND ORDERED this 31st day of December, 1985, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 31st day of December, 1985. APPENDIX The following specific rulings are made on the Proposed Findings of Facts submitted by the parties: Petitioner's Proposed Findings of Fact Accepted. Accepted, but subordinate and not material to disposition of the issues at bar. Accepted, but subordinate and not material to disposition of the issues at bar. Accepted, but subordinate and not material to disposition of the material issues at bar. Rejected as not being in accordance with the competent, substantial, credible testimony and evidence adduced. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Rejected as not being in accordance with the competent, substantial, credible testimony and evidence adduced. Accepted, but this Proposed Finding of Fact in itself is not dispositive of the material issues of fact and law resolved herein. Accepted. Rejected as not in accordance with the competent, substantial, credible evidence and testimony adduced. Accepted. Accepted. Respondent's Proposed Findings of Facts The Respondent failed to number its Proposed Findings of. Fact, therefore its Proposed-Findings of Fact will be specifically ruled upon in the order the various paragraphs containing its Proposed Findings of Fact were presented. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. COPIES FURNISHED: Gilda Lambert Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32301 Curtright C. Truitt, Esq. Post Office Box 2706 Ft. Myers, Florida 33902 Richard L. Kopel, Esq. Department of Administration 435 Carlton Building Tallahassee, Florida 32301
The Issue The issue in these consolidated cases is whether the Agency for Health Care Administration ("AHCA") properly disallowed Petitioners' expense for liability insurance and accrued contingent liability costs contained in AHCA's audit of Petitioners' Medicaid cost reports.
Findings Of Fact Based upon the oral and documentary evidence presented at the final hearing, and on the entire record of this proceeding, the following findings of fact are made: Petitioners operate licensed nursing homes that participate in the Florida Medicaid program as institutional providers. The 14 Palm Gardens facilities are limited liability companies operating as subsidiaries of New Rochelle Administrators, LLC, which also provides the facilities with management services under a management contract. AHCA is the single state agency responsible for administering the Florida Medicaid program. One of AHCA's duties is to audit Medicaid cost reports submitted by providers participating in the Medicaid program. During the audit period, Petitioners provided services to Medicaid beneficiaries pursuant to Institutional Medicaid Provider Agreements that they entered into with AHCA. The Provider Agreements contained the following relevant provision: (3) Compliance. The provider agrees to comply with local, state, and federal laws, as well as rules, regulations, and statements of policy applicable to the Medicaid program, including Medicaid Provider Handbooks issued by AHCA. Section 409.908, Florida Statutes (2002)1, provided in relevant part: Reimbursement of Medicaid providers.-- Subject to specific appropriations, the agency shall reimburse Medicaid providers, in accordance with state and federal law, according to methodologies set forth in the rules of the agency and in policy manuals and handbooks incorporated by reference therein. These methodologies may include fee schedules, reimbursement methods based on cost reporting, negotiated fees, competitive bidding pursuant to s. 287.057, and other mechanisms the agency considers efficient and effective for purchasing services or goods on behalf of recipients. . . . * * * (2)(a)1. Reimbursement to nursing homes licensed under part II of chapter 400 . . . must be made prospectively. . . . * * * (b) Subject to any limitations or directions provided for in the General Appropriations Act, the agency shall establish and implement a Florida Title XIX Long-Term Care Reimbursement Plan (Medicaid) for nursing home care in order to provide care and services in conformance with the applicable state and federal laws, rules, regulations, and quality and safety standards and to ensure that individuals eligible for medical assistance have reasonable geographic access to such care. . . . AHCA has adopted the Title XIX Long-Term Care Reimbursement Plan (the "Plan") by reference in Florida Administrative Code Rule 59G-6.010. The Plan incorporates the Centers for Medicare and Medicaid Services ("CMS") Publication 15-1, also called the Provider Reimbursement Manual (the "Manual" or "PRM"), which provides "guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services furnished under the Health Insurance for the Aged Act of l965, as amended." CMS Pub. 15-1, Foreword, p. I. The audit period in these cases spans two versions of the Plan: version XXIII, effective July 1, 2002, and version XXIV, effective January 1, 2003. It is unnecessary to distinguish between the two versions of the Plan because their language is identical as to the provisions relevant to these cases. Section I of the Plan, "Cost Finding and Cost Reporting," provides as follows, in relevant part: The cost report shall be prepared by a Certified Public Accountant in accordance with chapter 409.908, Florida Statutes, on the form prescribed in section I.A. [AHCA form 5100-000, Rev. 7-1-90], and on the accrual basis of accounting in accordance with generally accepted accounting principles as established by the American Institute of Certified Public Accountants (AICPA) as incorporated by reference in Rule 61H1-20.007, F.A.C., the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Reimbursement, the Provider Reimbursement Manual (CMS-PUB. 15-1)(1993) incorporated herein by reference except as modified by the Florida Title XIX Long Term Care Reimbursement Plan and State of Florida Administrative Rules. . . . Section III of the Plan, "Allowable Costs," provides as follows, in relevant part: Implicit in any definition of allowable costs is that those costs shall not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII Principles of Reimbursement, CMS-PUB. 15-1 (1993) and this plan, to exceed the level that a prudent buyer would incur, then the excess costs shall not be reimbursable under the plan. The Plan is a cost based prospective reimbursement plan. The Plan uses historical data from cost reports to establish provider reimbursement rates. The "prospective" feature is an upward adjustment to historical costs to establish reimbursement rates for subsequent rate semesters.2 The Plan establishes limits on reimbursement of costs, including reimbursement ceilings and targets. AHCA establishes reimbursement ceilings for nursing homes based on the size and location of the facilities. The ceilings are determined prospectively, on a semiannual basis. "Targets" limit the inflationary increase in reimbursement rates from one semester to the next and limit a provider's allowable costs for reimbursement purposes. If a provider's costs exceed the target, then those costs are not factored into the reimbursement rate and must be absorbed by the provider. A nursing home is required to file cost reports. The costs identified in the cost reports are converted into per diem rates in four components: the operating component; the direct care component; the indirect care component; and the property component. GL/PL insurance costs fall under the operating component. Once the per diem rate is established for each component, the nursing home's reimbursement rate is set at the lowest of four limitations: the facility's costs; the facility's target; the statewide cost ceiling based on the size of the facility and its region; or the statewide target, also based on the size and location of the facility. The facility's target is based on the initial cost report submitted by that facility. The initial per diem established pursuant to the initial cost report becomes the "base rate." Once the base rate is established, AHCA sets the target by inflating the base rate forward to subsequent six- month rate semesters according to a pre-established inflation factor. Reimbursement for cost increases experienced in subsequent rate semesters is limited by the target drawn from the base rate. Thus, the facility's reimbursement for costs in future rate semesters is affected by the target limits established in the initial period cost report. Expenses that are disallowed during the establishment of the base rate cannot be reclaimed in later reimbursement periods. Petitioners entered the Medicaid program on June 29, 2002. They filed cost reports for the nine- month period from their entry into the program through February 28, 2003. These reports included all costs claimed by Petitioners under the accrual basis of accounting in rendering services to eligible Medicaid beneficiaries. In preparing their cost reports, Petitioners used the standard Medicaid Cost Report "Chart of Accounts and Description," which contains the account numbers to be used for each ledger entry, and explains the meaning of each account number. Under the general category of "Administration" are set forth several subcategories of account numbers, including "Insurance Expense." Insurance Expense is broken into five account numbers, including number 730810, "General and Professional Liability -- Third Party," which is described as "[c]osts of insurance purchased from a commercial carrier or a non-profit service corporation."3 Petitioners' cost report stated the following expenses under account number 730810: Facility Amount Palm Garden of Clearwater $145,042.00 Palm Garden of Gainesville $145,042.00 Palm Garden of Jacksonville $145,042.00 Palm Garden of Largo $171,188.00 Palm Garden of North Miami $145,042.00 Palm Garden of Ocala $217,712.00 Palm Garden of Orlando $145,042.00 Palm Garden of Pinellas $145,042.00 Palm Garden of Port St. Lucie $145,042.00 Palm Garden of Sun City $145,042.00 Palm Garden of Tampa $145,042.00 Palm Garden of Vero Beach $217,712.00 Palm Garden of West Palm Beach $231,151.00 Palm Garden of Winter Haven $145,042.00 AHCA requires that the cost reports of first-year providers undergo an audit. AHCA's contract auditing firm, Smiley & Smiley, conducted an examination4 of the cost reports of the 14 Palm Gardens nursing homes to determine whether the included costs were allowable. The American Institute of Certified Public Accountants ("AICPA") has promulgated a series of "attestation standards" to provide guidance and establish a framework for the attestation services provided by the accounting profession in various contexts. Attestation Standards 101 and 601 set out the standard an accountant relies upon in examining for governmental compliance. Smiley & Smiley examined the Palm Gardens cost reports pursuant to these standards. During the course of the audit, Smiley & Smiley made numerous requests for documentation and other information pursuant to the Medicaid provider agreement and the Plan. Petitioners provided the auditors with their general ledger, invoices, audited financial statements, bank statements, and other documentation in support of their cost reports. The examinations were finalized during the period between September 28, 2006, and October 4, 2006. The audit report issued by AHCA contained more than 2,000 individual adjustments to Petitioners' costs, which the parties to these consolidated proceedings have negotiated and narrowed to two adjustments per Palm Gardens facility.5 As noted in the Preliminary Statement above, the first adjustment at issue is AHCA's disallowance of Palm Gardens' accrual of expenses for contingent liability under the category of GL/PL insurance, where Palm Gardens could not document that it had purchased GL/PL insurance. The second adjustment at issue is ACHA's disallowance of a portion of the premium paid by Palm Gardens for the Mature Care Policies. The total amount of the adjustment at issue for each facility is set forth in the Preliminary Statement above. Of that total for each facility, $18,849.00 constituted the disallowance for the Mature Care Policies. The remainder constituted the disallowance for the accrual of GL/PL related contingent liabilities. Janette Smiley, senior partner at Smiley & Smiley and expert in Medicaid auditing, testified that Petitioners provided no documentation other than the Mature Care Policies to support the GL/PL entry in the cost reports. Ms. Smiley testified that, during much of the examination process, she understood Petitioners to be self-insured. Ms. Smiley's understanding was based in part on statements contained in Petitioners' audited financial statements. In the audited financial statement covering the period from June 28, 2002, through December 31, 2002, Note six explains Petitioners' operating leases and states as follows, in relevant part: The lease agreement requires that the Company maintain general and professional liability in specified minimum amounts. As an alternative to maintaining these levels of insurance, the lease agreement allows the Company to fund a self-insurance reserve at a per bed minimum amount. The Company chose to self-insure, and has recorded litigation reserves of approximately $1,735,000 that are included in other accrued expenses (see Note 9). As of December 31, 2002, these reserves have not been funded by the Company. . . . The referenced Note nine, titled "Commitments and Contingencies," provides as follows in relevant part: Due to the current legal environment, providers of long-term care services are experiencing significant increases in liability insurance premiums or cancellations of liability insurance coverage. Most, if not all, insurance carriers in Florida have ceased offering liability coverage altogether. The Company's Florida facilities have minimal levels of insurance coverage and are essentially self-insured. The Company has established reserves (see Note 6) that estimate its exposure to uninsured claims. Management is not currently aware of any claims that could exceed these reserves. However, the ultimate outcome of these uninsured claims cannot be determined with certainty, and could therefore have a material adverse impact on the financial position of the Company. The relevant notes in Petitioner's audited financial statement for the year ending December 31, 2003, are identical to those quoted above, except that the recorded litigation reserves were increased to $4 million. The notes provide that, as of December 31, 2003, these reserves had not been funded by Petitioners. Ms. Smiley observed that the quoted notes, while referencing "self-insurance" and the recording of litigation reserves, stated that the litigation reserves had not been funded. By e-mail dated April 21, 2005, Ms. Smiley corresponded with Stanley Swindling, the shareholder in the accounting firm Moore Stephens Lovelace, P.A., who had primary responsibility for preparing Petitioners' cost reports. Ms. Smiley noted that Petitioners' audited financial statements stated that the company "chose to self-insure" and "recorded litigation reserves," then wrote (verbatim): By definition from PRM CMS Pub 15-1 Sections 2162.5 and 2162.7 the Company does in fact have self-insurance as there is no shifting of risk. You will have to support your positioning a letter addressing the regs for self-insurance. As clearly the financial statement auditors believe this is self- insurance and have disclosed such to the financial statement users. If you cannot support the funding as required by the regs, the provider will have to support expense as "pay as you go" in accordance with [2162.6] for PL/GL. * * * Please review 2161 and 2162 and provide support based on the required compliance. If support is not complete within the regulations, amounts for IBNR [incurred but not reported] will be disallowed and we will need to have the claims paid reports from the TPA [third party administrator] (assuming there is a TPA handling the claims processing), in order to allow any expense. Section 2160 of the Manual establishes the basic insurance requirement: A. General.-- A provider participating in the Medicare program is expected to follow sound and prudent management practices, including the maintenance of an adequate insurance program to protect itself against likely losses, particularly losses so great that the provider's financial stability would be threatened. Where a provider chooses not to maintain adequate insurance protection against such losses, through the purchase of insurance, the maintenance of a self-insurance program described in §2161B, or other alternative programs described in §2162, it cannot expect the Medicare program to indemnify it for its failure to do so. . . . . . . If a provider is unable to obtain malpractice coverage, it must select one of the self-insurance alternatives in §2162 to protect itself against such risks. If one of these alternatives is not selected and the provider incurs losses, the cost of such losses and related expenses are not allowable. Section 2161.A of the Manual sets forth the general rule as to the reimbursement of insurance costs. It provides that the reasonable costs of insurance purchased from a commercial carrier or nonprofit service corporation are allowable to the extent they are "consistent with sound management practice." Reimbursement for insurance premiums is limited to the "amount of aggregate coverage offered in the insurance policy." Section 2162 of the Manual provides as follows, in relevant part: PROVIDER COSTS FOR MALPRACTICE AND COMPREHENSIVE GENERAL LIABILITY PROTECTION, UNEMPLOYMENT COMPENSATION, WORKERS' COMPENSATION, AND EMPLOYEE HEALTH CARE INSURANCE General.-- Where provider costs incurred for protection against malpractice and comprehensive general liability . . . do not meet the requirements of §2161.A, costs incurred for that protection under other arrangements will be allowable under the conditions stated below. . . . * * * The following illustrates alternatives to full insurance coverage from commercial sources which providers, acting individually or as part of a group or a pool, can adopt to obtain malpractice, and comprehensive general liability, unemployment compensation, workers' compensation, and employee health care insurance protection: Insurance purchased from a commercial insurance company which provides coverage after a deductible or coinsurance provision has been met; Insurance purchased from a limited purpose insurance company (captive); Total self-insurance; or A combination of purchased insurance and self-insurance. . . . part: Section 2162.3 of the Manual provides: Self-Insurance.-- You may believe that it is more prudent to maintain a total self- insurance program (i.e., the assumption by you of the risk of loss) independently or as part of a group or pool rather than to obtain protection through purchased insurance coverage. If such a program meets the conditions specified in §2162.7, payments into such funds are allowable costs. Section 2162.7 of the Manual provides, in relevant Conditions Applicable to Self-Insurance.-- Definition of Self-Insurance.-- Self- insurance is a means whereby a provider(s), whether proprietary or nonproprietary, undertakes the risk to protect itself against anticipated liabilities by providing funds in an amount equivalent to liquidate those liabilities. . . . * * * Self-Insurance Fund.-- The provider or pool establishes a fund with a recognized independent fiduciary such as a bank, a trust company, or a private benefit administrator. In the case of a State or local governmental provider or pool, the State in which the provider or pool is located may act as a fiduciary. The provider or pool and fiduciary must enter into a written agreement which includes all of the following elements: General Legal Responsibility.-- The fiduciary agreement must include the appropriate legal responsibilities and obligations required by State laws. Control of Fund.-- The fiduciary must have legal title to the fund and be responsible for proper administration and control. The fiduciary cannot be related to the provider either through ownership or control as defined in Chapter 10, except where a State acts as a fiduciary for a State or local governmental provider or pool. Thus, the home office of a chain organization or a religious order of which the provider is an affiliate cannot be the fiduciary. In addition, investments which may be made by the fiduciary from the fund are limited to those approved under State law governing the use of such fund; notwithstanding this, loans by the fiduciary from the fund to the provider or persons related to the provider are not permitted. Where the State acts as fiduciary for itself or local governments, the fund cannot make loans to the State or local governments. . . . The quoted Manual provisions clarify that Ms. Smiley's message to Mr. Swindling was that Petitioners had yet to submit documentation to bring their "self-insurance" expenses within the reimbursable ambit of Sections 2161 and 2162 of the Manual. There was no indication that Petitioners had established a fund in an amount sufficient to liquidate its anticipated liabilities, or that any such funds had been placed under the control of a fiduciary. Petitioners had simply booked the reserved expenses without setting aside any cash to cover the expenses. AHCA provided extensive testimony regarding the correspondence that continued among Ms. Smiley, Mr. Swindling, and AHCA employees regarding this "self-insurance" issue. It is not necessary to set forth detailed findings as to these matters, because Petitioners ultimately conceded to Ms. Smiley that, aside from the Mutual Care policies, they did not purchase commercial insurance as described in Section 2161.A, nor did they avail themselves of the alternatives to commercial insurance described in Section 2162.A. Petitioners did not purchase commercial insurance with a deductible, did not self- insure, did not purchase insurance from a limited purpose or "captive" insurance company, or employ a combination of purchased insurance and self-insurance. Ms. Smiley eventually concluded that Petitioners had no coverage for general and professional liability losses in excess of the $25,000 value of the Mutual Care Policies. Under the cited provisions of the Manual, Petitioners' unfunded self- insurance expense was not considered allowable under the principles of reimbursement. Petitioners were uninsured, which led Ms. Smiley to further conclude that Section 2162.13 of the Manual would apply: Absence of Coverage.-- Where a provider, other than a governmental (Federal, State, or local) provider, has no insurance protection against malpractice or comprehensive general liability in conjunction with malpractice, either in the form of a limited purpose or commercial insurance policy or a self-insurance fund as described in §2162.7, any losses and related expenses incurred are not allowable. In response to this disallowance pursuant to the strict terms of the Manual, Petitioners contend that AHCA should not have limited its examination of the claimed costs to the availability of documentation that would support those costs as allowable under the Manual. Under the unique circumstances presented by their situation, Petitioners assert that AHCA should have examined the state of the nursing home industry in Florida, particularly the market for GL/PL liability insurance during the audit period, and further examined whether Petitioners had the ability to meet the insurance requirements set forth in the Manual. Petitioners assert that, in light of such an examination, AHCA should have concluded that generally accepted accounting principles ("GAAP") may properly be invoked to render the accrued contingent liabilities an allowable expense. Keith Parnell is an expert in insurance for the long- term care industry. He is a licensed insurance broker working for Hamilton Insurance Agency, which provides insurance and risk management services to about 40 percent of the Florida nursing home market. Mr. Parnell testified that during the audit period, it was impossible for nursing homes to obtain insurance in Florida. In his opinion, Petitioners could not have purchased commercial insurance during the audit period. To support this testimony, Petitioners offered a study conducted by the Florida Department of Insurance ("DOI") in 2000 that attempted to determine the status of the Florida long-term care liability insurance market for nursing homes, assisted living facilities, and continuing care retirement communities. Of the 79 companies that responded to DOI's data call, 23 reported that they had provided GL/PL coverage during the previous three years but were no longer writing policies, and only 17 reported that they were currently writing GL/PL policies. Six of the 17 reported writing no policies in 2000, and five of the 17 reported writing only one policy. The responding insurers reported writing a total of 43 policies for the year 2000, though there were approximately 677 skilled nursing facilities in Florida. On March 1, 2004, the Florida Legislature's Joint Select Committee on Nursing Homes issued a report on its study of "issues regarding the continuing liability insurance and lawsuit crisis facing Florida's long-term care facilities and to assess the impact of the reforms contained in CS/CS/CS/SB 1202 (2001)."6 The study employed data compiled from 1999 through 2003. Among the Joint Select Committee's findings was the following: In order to find out about current availability of long-term care liability insurance in Florida, the Committee solicited information from [the Office of Insurance Regulation, or] OIR within the Department of Financial Services, which is responsible for regulating insurance in Florida. At the Committee's request, OIR re-evaluated the liability insurance market and reported that there has been no appreciable change in the availability of private liability insurance over the past year. Twenty-one admitted insurance entities that once offered, or now offer, professional liability coverage for nursing homes were surveyed by OIR. Six of those entities currently offer coverage. Nine surplus lines carriers have provided 54 professional liability policies in the past year. Representatives of insurance carriers that stopped providing coverage in Florida told OIR that they are waiting until there are more reliable indicators of risk nationwide to re-enter the market. Among the Joint Select Committee's conclusions was the following: In the testimony the Committee received, there was general agreement that the quality of care in Florida nursing homes is improving, in large part due to the minimum staffing standards the Legislature adopted in SB 1202 during the 2001 Session. There was not, however, general agreement about whether or not lawsuits are abating due to the tort system changes contained in SB 1202. There was general agreement that the long-term care liability insurance market has not yet improved. After hearing the testimony, there is general agreement among the members of the Joint Select Committee that: * * * General and professional liability insurance, with actual transfer-of-risk, is virtually unavailable in Florida. "Bare- bones" policies designed to provide minimal compliance with the statutory insurance requirement are available; however, the cost often exceeds the face value of the coverage offered in the policy. This situation is a crisis which threatens the continued existence of long-term care facilities in Florida. To further support Mr. Parnell's testimony, Petitioners offered actuarial analyses of general and professional liability in long-term care performed by AON Risk Consultants, Inc. (AON) on behalf of the American Health Care Association. The AON studies analyzed nationwide trends in GL/PL for long-term care, and also examined state-specific issues for eight states identified as leading the trends in claim activity, including Florida. They provided an historical perspective of GL/PL claims in Florida during the audit period. The 2002 AON study for Florida was based on participation by entities representing 52 percent of all Florida nursing home beds. The study provided a "Loss Cost per Occupied Bed" showing GL/PL liability claims losses on a per bed basis. The 2002 study placed the loss cost for nursing homes in Florida at $10,800 per bed for the year 2001. The 2003 AON study, based on participation by entities representing 54 percent of Florida nursing home beds, placed the loss cost for nursing homes in Florida at $11,810 per bed for the year 2002. The studies showed that the cost per bed of GL/PL losses is materially higher in Florida than the rest of the United States. The nationwide loss per bed was $2,360 for the year 2001 and $2,880 for the year 2002. The GL/PL loss costs for Texas were the second-highest in the country, yet were far lower than the per bed loss for Florida ($5,460 for the year 2001 and $6,310 for the year 2002). Finally, Petitioners point to the Mature Care Policies as evidence of the crisis in GL/PL insurance availability. The aforementioned SB 1202 instituted a requirement that nursing homes maintain liability insurance coverage as a condition of licensure. See Section 22, Chapter 2001-45, Laws of Florida, codified at Subsection 400.141(20), Florida Statutes. To satisfy this requirement, Petitioners entered the commercial insurance market and purchased insurance policies for each of the 14 Palm Gardens facilities from a carrier named Mature Care Insurance Company. The policies carried a $25,000 policy limit, with a policy premium of $34,000. These were the kind of "bare bones" policies referenced by the Joint Select Committee's 2004 report. The fact that the policies cost more than they could ever pay out led Mr. Swindling, Petitioners' health care accounting and Medicaid reimbursement expert, to opine that a prudent nursing home operator in Florida at that time would not have purchased insurance, but for the statutory requirement.7 The Mature Care Policies were "bare bones" policies designed to provide minimal compliance with the statutory liability insurance coverage requirement. The policies cost Petitioners more than $37,000 in premium payments, taxes, and fees, in exchange for policy limits of $25,000. In its examination, AHCA disallowed the difference between the cost of the policy and the policy limits, then prorated the allowable costs because the audit period was nine months long and the premium paid for the Mature Care Policies was for 12 months. AHCA based its disallowance on Section 2161.A of the Manual, particularly the language which states: "Insurance premiums reimbursement is limited to the amount of aggregate coverage offered in the insurance policy." Petitioners responded that they did not enter the market and voluntarily pay a premium in excess of the policy limits. They were statutorily required to purchase this minimal amount of insurance; they were required to purchase a 12-month policy; they paid the market price8; and they should not be penalized for complying with the statute. Petitioners contend they should be reimbursed the full amount of the premiums for the Mature Care Policies, as their cost of statutory compliance. Returning to the issue of the contingent liabilities, Petitioners contend that, in light of the state of the market for GL/PL liability insurance during the audit period, AHCA should have gone beyond the strictures of the Manual to conclude that GAAP principles render the accrued contingent liabilities an allowable expense. Under GAAP, a contingent loss is a loss that is probable and can be reasonably estimated. An estimated loss from a loss contingency may be accrued by a charge to income. Statement of Financial Accounting Standards No. 5 ("FAS No. 5"), Accounting for Contingencies, provides several examples of loss contingencies, including "pending or threatened litigation" and "actual or possible claims and assessments." Petitioners assert that the contingent losses reported in their cost reports were actual costs incurred by Petitioners. The AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, provides: The ultimate costs of malpractice claims, which include costs associated with litigating or settling claims, are accrued when the incidents that give rise to the claims occur. Estimated losses from asserted and unasserted claims are accrued either individually or on a group basis, based on the best estimates of the ultimate costs of the claims and the relationship of past reported incidents to eventual claims payments. All relevant information, including industry experience, the entity's own historical experience, the entity's existing asserted claims, and reported incidents, is used in estimating the expected amount of claims. The accrual includes an estimate of the losses that will result from unreported incidents, which are probable of having occurred before the end of the reporting period. Section 8.10 of AICPA Guide provides: Accrued unpaid claims and expenses that are expected to be paid during the normal operating cycle (generally within one year of the date of the financial statements) are classified as current liabilities. All other accrued unpaid claims and expenses are classified as non-current liabilities. As noted above, Petitioners' audited financial statements for the fiscal years ending December 31, 2002, and December 31, 2003, showed that the accrual was incurred and recorded by Petitioners during the audit period. Mr. Swindling prepared Petitioners' cost reports, based on information provided by Petitioners, including trial balances reflecting their costs, statistics on patient days, cost data related to square footage, and revenue information. Mr. Swindling advised Petitioners to include the accrued losses. He believed that the loss contingency was probable and could be reasonably estimated. The losses were probable because it was "a given in the state of Florida at that time period that nursing homes are going to get sued." Mr. Swindling testified that the accrual reflected a per bed loss amount of $1,750, which he believed to be a reasonable estimate of the contingent liabilities faced by Petitioners during the audit period. This amount was much less than the per bed loss indicated by the AON studies for Florida. Mr. Swindling used the criteria set forth in Section 8.05 of the AICPA Guide to establish the estimate. He determined that the lesser amount was adequate based on his discussions with Petitioners' management, who indicated that they had a substantial risk management program. Management also disclosed to Mr. Swindling that Petitioners' leases required $1,750 per bed in liability coverage. See Finding of Fact 22, supra. Mr. Swindling believed that the estimated loss per bed was reasonable based on the AON studies and his knowledge and experience of the state of the industry in Florida during the audit period, as further reflected in the DOI and Joint Committee on Nursing Homes materials discussed above. Mr. Swindling's opinion was that the provisions of the Manual relating to GL/PL insurance costs do not apply under these circumstances. The costs at issue in this proceeding are not general and professional liability insurance costs subject to CMS Pub. 15-1; rather, they are loss contingencies related to general and professional liability, including defense costs, litigation costs, and settlement costs. Mr. Swindling placed the loss contingency under number 730810, "General and Professional Liability -- Third Party" because, in the finite chart of accounts provided by Medicaid, that was the most appropriate place to record the cost.9 Despite the initial confusion it caused the agency's auditors, the placement of the loss contingency under number 730810 was not intended to deceive the auditors. Mr. Swindling opined that, under these circumstances, Sections 2160 through 2162 are in conflict with other provisions in the Manual relating to the "prudent buyer" concept, and further conflict with the Plan to the extent that the cited regulations "relate to a retrospective system as opposed to prospective target rate-based system." Mr. Swindling agreed that the application of Sections 2160 through 2162 to the situation presented by Petitioners would result in the disallowance of the loss contingencies. Mr. Swindling observed, however, that Sections 2160 through 2162 are Medicare regulations. Mr. Swindling testified that Medicare reimbursements are made on a retrospective basis.10 Were this situation to occur in Medicare -- in which the provider did not obtain commercial insurance, self-insurance, or establish a captive insurer -- the provider would be deemed to be operating on a pay-as-you-go basis. Though its costs might be disallowed in the current period, the provider would receive reimbursements in subsequent periods when it could prove actual payment for its losses. Mr. Swindling found a conflict in attempting to apply these Medicare rules to the prospective payment system employed by Florida Medicaid, at least under the circumstances presented by Petitioners' case. Under the prospective system, once the contingent loss is disallowed for the base period, there is no way for Petitioners ever to recover that loss in a subsequent period, even when the contingency is liquidated. During his cross-examination, Mr. Swindling explained his position as follows: . . . Medicare allows for that payment in a subsequent period. Medicaid rules would not allow that payment in the subsequent period; therefore you have conflict in the rules. When you have conflict in the rules, you revert to generally accepted accounting principles. Generally accepted accounting principles are what we did. Q. Where did you find that if there's a conflict in the rules, which I disagree with, but if there is a conflict in the rules, that you follow GAAP? Where did you get that from? I mean, we've talked about it and it's clear on the record that if there is no provision that GAAP applies, but where did you get that if there's a conflict? Just point it out, that would be the easiest way to do it. A. The hierarchy, if you will, requires providers to file costs on the accrual basis of accounting in accordance with generally accepted accounting principles. If there's no rules, in absence of rules -- and I forget what the other terms were, we read it into the record before, against public policy, those kind of things -- or in my professional opinion, if there is a conflict within the rules where the provider can't follow two separate rules at the same time, they're in conflict, then [GAAP] rules what should be recorded and what should be reimbursed. * * * Q. [T]he company accrued a liability of $2 million for the cost reporting period of 2002-2003, is that correct? A. Yes. * * * Q. Do you have any documentation supporting claims paid, actually paid, in 2002-2003 beyond the mature care policy for which that $2 million reserve was set up? A. No. Q. So what did Medicaid pay for? A. Medicaid paid the cost of contingent liabilities that were incurred by the providers and were estimated at $1,750 per bed. Generally accepted accounting principles will adjust that going forward every cost reporting period. If that liability in total goes up or down, the differential under [GAAP] goes through the income statement, and expenses either go up or they go down. It's self-correcting, which is similar to what Medicare is doing, only they're doing it on a cash basis. Mr. Swindling explained the "hierarchy" by which allowable costs are determined. The highest governing law is the Federal statutory law, Title XIX of the Social Security Act, 42 U.S.C. Subsection. 1396-1396v. Below the statute come the federal regulations for implementing Title XIX, 42 C.F.R. parts 400-426. Then follow in order Florida statutory law, the relevant Florida Administrative Code provisions, the Plan, the Manual, and, at the bottom of the hierarchy, GAAP. Mr. Swindling testified that in reality, a cost report is not prepared from the top of the hierarchy down; rather, GAAP is the starting point for the preparation of any cost report. The statutes, rules, the Plan and the Manual are then consulted to exclude specific cost items otherwise allowable under GAAP. In the absence of an applicable rule, or in a situation in which there is a conflict between rules in the hierarchy such that the provider is unable to comply with both rules, the provider should fall back on GAAP principles as to recording of costs and reimbursement. John A. Owens, currently a consultant in health care finance specializing in Medicaid, worked for AHCA for several years up to 2002, in positions including administrator of the audit services section and bureau chief of the Office of Medicaid Program Analysis. Mr. Owens is a CPA and expert in health care accounting and Medicare/Medicaid reimbursement. Mr. Owens agreed with Mr. Swindling that AHCA's disallowance of the accrued costs for GL/PL liability was improper. Mr. Owens noted that Section 2160 of the Manual requires providers to purchase commercial insurance. If commercial insurance is unavailable, then the Manual gives the provider two choices: self-insure, or establish a captive program. Mr. Owens testified that insurers were fleeing the state during the period in question, and providers were operating without insurance coverage. Based on the state of the market, Petitioners' only options would have been to self-insure or establish a captive. As to self-insurance, Petitioners' problem was that they had taken over the leases on their facilities from a bankrupt predecessor, Integrated Health Services ("IHS"). Petitioners were not in privity with their predecessor. Petitioners had no access to the facilities' loss histories, without which they could not perform an actuarial study or engage a fiduciary to set up a self-insurance plan.11 Similarly, setting up a captive would require finding an administrator and understanding the risk exposure. Mr. Owens testified that a provider would not be allowed to set up a captive without determining actuarial soundness, which was not possible at the time Petitioners took over the 14 IHS facilities. Thus, Petitioners were simply unable to meet the standards established by the Manual. The options provided by the Manual did not contemplate the unique market situation existing in Florida during the audit period, and certainly did not contemplate that situation compounded by the problems faced by a new provider taking over 14 nursing homes from a bankrupt predecessor. Mr. Owens agreed with Mr. Swindling that, under these circumstances, where the requirements of the Manual could not be met, Petitioners were entitled to seek relief under GAAP, FAS No. 5 in particular. In situations where a loss is probable and can be measured, then an accounting entry may be performed to accrue and report that cost. Mr. Owens concluded that Petitioners' accrual was an allowable cost for Medicaid purposes, and explained his rationale as follows: My opinion is, in essence, that since they could not meet -- technically, they just could not meet those requirements laid out by [the Manual], they had to look somewhere to determine some rational basis for developing a cost to put into the cost report, because if they had chosen to do nothing and just moved forward, those rates would be set and there would be nothing in their base year which then establishes their target moving forward. So by at least looking at a rational methodology to accrue the cost, they were able to build something into their base year and have it worked into their target system as they move forward. Steve Diaczyk, an audit evaluation and review analyst for AHCA, testified for the agency as an expert in accounting, auditing, and Medicaid policy. Mr. Diaczyk was the AHCA auditor who reviewed the work of Smiley & Smiley for compliance with Medicaid rules and regulations, and to verify the accuracy of the independent CPA's determinations. Mr. Diaczyk agreed with Mr. Swindling's description of the "hierarchy" by which allowable costs are determined. Mr. Diaczyk affirmed that Petitioners employed GAAP rather than Medicaid regulations in preparing their cost reports. Mr. Diaczyk testified regarding the Notes to Petitioners' audited financial statements, set forth at Findings of Fact 22-24, supra, which left AHCA's auditors with the understanding that Petitioners were self-insuring. Mr. Diaczyk pointed out that Section 2162.7 of the Manual requires a self- insurer to contract with an independent fiduciary to maintain a self-insurance fund, and that the fund must contain monies sufficient to cover anticipated losses. The fiduciary takes title to the funds, the amount of which is determined actuarially. Mr. Diaczyk explained that, in reimbursing a provider for self-insurance, Medicaid wants to make sure that the provider has actually put money into the fund, and has not just set up a fund on its books and called it "self-insurance" for reimbursement purposes. AHCA's position is that it would be a windfall for a provider to obtain reimbursement for an accrued liability when it has not actually set the money aside and funded the risk. Medicaid wants the risk transferred off of the provider's books and on to the self-insurance fund. Mr. Diaczyk testified as to the differing objectives of Medicaid and GAAP. Medicaid is concerned with reimbursing costs, and is therefore especially sensitive regarding the overstatement of costs. Medicaid wants to reimburse a provider for only those costs that have actually been paid. GAAP, on the other hand, is about report presentation for a business entity and is concerned chiefly with avoiding the understatement of expenses and overstatement of revenue. Under GAAP, an entity may accrue a cost and not pay it for years. In the case of a contingent liability, the entity may book the cost and never actually pay it. Mr. Diaczyk described the self-insurance and liquidation provisions of 42 C.F.R. Section 413.100, "Special treatment of certain accrued costs." The federal rule essentially allows accrued costs to be claimed for reimbursement, but only if they are "liquidated timely." Subsection (c)(2)(viii) of the rule provides that accrued liability related to contributions to a self-insurance program must be liquidated within 75 days after the close of the cost reporting period. To obtain reimbursement, Petitioners would have had to liquidate their accrued liability for GL/PL insurance within 75 days of the end of the audit period. Mr. Diaczyk also noted that, even if the 75-day requirement were not applicable, the general requirement of Section 2305.2 of the Manual would apply. Section 2305.2 requires that all short-term liabilities must be liquidated within one year after the end of the cost reporting period in which the liability is incurred, with some exceptions not applicable in this case. Petitioners' accrued liability for general and professional liability insurance was not funded or liquidated for more than one year after the cost reporting period. It was a contingent liability that might never be paid. Therefore, Mr. Diaczyk stated, reimbursement was not in keeping with Medicaid's goal to reimburse providers for actual paid costs, not for potential costs that may never be paid. Petitioners responded that their accrued liabilities constituted non-current liabilities, items that under normal circumstances will not be liquidated within one year. Mr. Parnell testified that there is great variation in how long it takes for a general and professional liability claim against a nursing home to mature to the point of payment to the claimant. He testified that a "short" timeline would be from two to four years, and that some claims may take from eight to eleven years to mature. From these facts, Petitioners urge that 42 C.F.R. Section 413.100 and Section 2305.2 of the Manual are inapplicable to their situation. As to Section 2305.2 in particular, Petitioners point to Section 2305.A, the general liquidation of liabilities provision to which Section 2305.2 provides the exceptions discussed above. The last sentence of Section 2305.A provides that, where the liability is not liquidated within one year, or does not qualify under the exceptions set forth in Sections 2305.1 and 2305.2, then "the cost incurred for the related goods and services is not allowable in the cost reporting period when the liability is incurred, but is allowable in the cost reporting period when the liquidation of the liability occurs." (Emphasis added.) Petitioners argue that the underscored language supports the Medicare/Medicaid distinction urged by Mr. Swindling. In its usual Medicare retroactive reimbursement context, Section 2305.2 would operate merely to postpone reimbursement until the cost period in which the liability is liquidated. Applied to this Medicaid prospective reimbursement situation, Section 2305.2 would unfairly deny Petitioners any reimbursement at all by excluding the liability from the base rate. Mr. Diaczyk explained that, where the Medicaid rules address a category of costs, the allowable costs in a provider's cost report are limited to those defined as allowable by the applicable rules. He stated that if there is a policy in the Manual that addresses an item of cost, the provider must use the Manual provision; the provider cannot use GAAP to determine that cost item. In this case, Mr. Diaczyk agreed with Ms. Smiley as to the applicable rules and the disallowance of Petitioners' contingent liability costs. According to Mr. Diaczyk, GAAP may be used only if no provisions farther up the chain of the "hierarchy" are applicable. In this case, the Medicaid rules specifically addressed the categories of cost in question, meaning that GAAP did not apply. Under cross-examination, Mr. Diaczyk testified that the accrual made by Petitioners in their cost reports would be considered actual costs under GAAP, "[a]ssuming that they had an actuarial study done to come up with the $1.7 million that they accrued." Mr. Diaczyk acknowledged that AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, does not limit the provider to an actuarial study in estimating losses from asserted and unasserted claims. See Finding of Fact 49, supra, for text of Section 8.05. Mr. Diaczyk pointed out that the problem in this case was that Petitioners gave AHCA no documentation to support their estimate of the accrual, despite the auditor's request that Petitioners provide documentation to support their costs. Mr. Diaczyk's testimony raised a parallel issue to Mr. Swindling's concern that Medicaid's prospective targeting system permanently excludes any item of cost not included in the base rate. Mr. Swindling solved the apparent contradiction in employing Medicare rules in the Medicaid scenario by applying GAAP principles. Responding to the criticism that GAAP could provide a windfall to Petitioners by reimbursing them for accrued costs that might never actually result in payment, Mr. Swindling responded that GAAP principles would adjust the cost for contingent liabilities going forward, "truing up" the financial statements in subsequent reporting periods. This truing up process would have the added advantage of obviating the agency's requirement for firm documentation of the initial accrual. Mr. Swindling's "truing up" scenario under GAAP would undoubtedly correct Petitioners' financial statements. However, Mr. Swindling did not explain how the truing up of the financial statements would translate into a correction of Petitioners' reimbursement rate.12 If costs excluded from the base rate cannot be added to future rate adjustments, then costs incorrectly included in the base rate would also presumably remain in the facility's rate going forward.13 Thus, Mr. Swindling's point regarding the self-correcting nature of the GAAP reporting procedures did not really respond to AHCA's concerns about Petitioners' receiving a windfall in their base rate by including the accrual for contingent liabilities. On April 19, 2005, Petitioners entered into a captive insurance program. Petitioners' captive is a claims-made GL/PL policy with limits of $1 million per occurrence and $3 million in the aggregate. Under the terms of the policy, "claims-made" refers to a claim made by Petitioners to the insurance company, not a claim made by a nursing home resident alleging damages. The effective date of the policy is from April 21, 2005, through April 21, 2006, with a retroactive feature that covers any claims for incidents back to June 29, 2002, a date that corresponds to Petitioners' first day of operation and participation in the Medicaid program. The Petitioners' paid $3,376,906 for this policy on April 22, 2005. Mr. Parnell testified that April 2005 was the earliest time that the 14 Palm Gardens facilities could have established this form of insurance program. In summary, the evidence presented at the hearing regarding the contingent liabilities established that Petitioners took over the 14 Palm Gardens facilities after the bankruptcy of the previous owner. Petitioners were faced with the virtual certainty of substantial GL/PL expenses in operating the facilities, and also faced with a Florida nursing home environment market in which commercial professional liability insurance was virtually unavailable. Lacking loss history information from their bankrupt predecessor, Petitioners were unable to self-insure or establish a captive program until 2005. Petitioners understood that if they did not include their GL/PL expenses in their initial cost report, those expenses would be excluded from the base rate and could never be recovered. Petitioners' leases for the facilities required them to fund a self-insurance reserve at a per bed minimum amount of $1,750. Based on the AON studies and the general state of the industry at the time, Petitioners' accountant concluded that, under GAAP principles, $1,750 per bed was a reasonable, conservative estimate of Petitioners' GL/PL loss contingency exposure for the audit period.14 Based on all the evidence, it is found that Petitioners' cost estimate was reasonable and should be accepted by the agency. Petitioners included their GL/PL loss contingency expenses in their initial Medicaid cost report, placing those expenses under a heading indicating the purchase of insurance from a third party. The notes to Petitioners' audited financial statements stated that the facilities were "essentially self- insured." These factors led AHCA to request documentation of Petitioners' self-insurance. Petitioners conceded that they were not self-insured and carried no liability insurance aside from the Mature Care policies. The parties had little dispute as to the facts summarized above. The parties also agreed as to the applicability of the "hierarchy" by which allowable costs are determined. Their disagreement rests solely on the manner in which the principles of the hierarchy should be applied to the unique situation presented by Petitioners in these cases.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that AHCA enter a final order that allows Petitioners' accrual of expenses for contingent liability under the category of general and professional liability ("GL/PL") insurance, and that disallows the Mature Care policy premium amounts in excess of the policy limits, prorated for a nine- month period. DONE AND ENTERED this 24th day of October, 2008, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 the Clerk of the Division of Administrative Hearings this 24th day of October, 2008.
The Issue 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
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.
Recommendation 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.
The Issue Whether the Petitioner, Robbie Reynolds, is eligible for family medical insurance coverage for medical expenses incurred by the Petitioner's son?
Findings Of Fact The Parties. At all times relevant to this proceeding, the Petitioner, Robbie W. Reynolds, was an employee of Department of Corrections, an agency of the State of Florida. The Respondent, the Department of Management Services, Division of State Employees' Insurance (hereinafter referred to as the "Division"), is an agency of the State of Florida. The Division is responsible for managing the State's employee health insurance system. Participation in the State of Florida Health Insurance Plan. The State of Florida makes health insurance available to its employees (hereinafter referred to as the "State Health Plan"). Employees may choose health insurance through the State of Florida Employees' Group Health Self Insurance Plan or through various health maintenance organizations (hereinafter referred to as "HMOs"). The Division has promulgated Chapter 60P, Florida Administrative Code, regulating the State Health Plan. Employees pay part of the premiums for their health insurance and the State contributes a part of the cost of premiums. The amount of premiums paid by an employee and the State depends on the type of coverage selected. Employees may elect coverage only for themselves ("individual" coverage), or coverage for themselves and certain qualified dependents ("family" coverage). Female employees who elect individual coverage are eligible for the payment of maternity or pregnancy benefits. Included in these benefits are certain benefits for the newborn child referred to as "well-baby care." In order for medical expenses attributable solely to a newborn baby that is ill at or after birth to be covered by the State Health Plan, an employee must elect family coverage for the employee and the child. The family coverage must be effective as of the date the medical expenses are incurred for the child. Open Enrollment Periods. Once an employee selects the type of health insurance he or she desires, that employee generally may change the election only during certain designated periods of time, referred to as "open enrollment periods." During an open enrollment period, an employee may change from HMO coverage to the State of Florida Employees' Group Health Self Insurance Plan, or vice versa, may change from individual coverage to family coverage, or vice versa, and may add or delete dependents to the employee's family coverage. Changes to an employees' State Health Plan coverage made during an open enrollment period are effective for the calendar year immediately following the open enrollment period. Other Changes in Health Insurance Coverage. An exception to the requirement of the State Health Plan that changes in coverage only be made during an open enrollment period is provided for certain specified events, referred to as "qualifying events." The acquisition of an "eligible dependent" during a year may constitute a qualifying event. For example, if an employee marries, the employee may elect family coverage for himself or herself and the employee's spouse. A change from individual coverage to family coverage may also be made if an employee or an employee's spouse gives birth to a child. The change to family coverage as a result of marriage or the birth of a child must be made within thirty-one days after the eligible dependent is acquired. An employee may also elect family coverage as a result of the employee or the employee's spouse becoming pregnant. If the employee or employee's spouse elects family coverage in time for the family coverage to be effective at the time of the child's birth, the child may then be added as a dependent to the family coverage by notifying the Division of the child's birth within thirty-one days after the child is born. In order to change to family coverage when an employee or employee's spouse becomes pregnant, the employee, must apply for the change to family coverage in time for the employee to make a month's premium payment on the first day of at least the month during which the child is born or an earlier month. For example, if an employee elects to change from individual coverage to family coverage for a yet to be born child in July effective for September, the first full month's premium is paid on September 1, and the child is born on September 2, the employee has family coverage for all of September and the child will be covered if the Division is notified of the child's birth within thirty-one days after the date of birth. In order for an employee to make a change in coverage as the result of a qualifying event, the employee must file a Change of Information form with the employee's personnel office. The personnel office forwards the form to the Division. Ms. Reynolds' Health Insurance. Ms. Reynolds, as an employee of the State of Florida, was eligible for state health insurance. She elected to participate in the HMO that was available in the Gainesville area where she is employed. AvMed is the name of the HMO for the Gainesville area and Ms. Reynolds' insurer. Although married, Ms. Reynolds initially elected individual coverage. Ms. Reynolds did not elect family coverage for her husband because he received health insurance benefits from his employer. During 1992, Ms. Reynolds became pregnant. The baby's projected due date was April 15, 1993. The Open Enrollment Period for 1993. The open enrollment period for the next calendar year (1993) after Ms. Reynolds became pregnant took place in October of 1992. During the October 1992 open enrollment period the Department of Corrections, through its personnel office, conducted meetings with employees to discuss health care benefits and coverage available to its employees. Two benefits consultants, trained by the Division, conducted the meetings, providing information to, and answering questions from, employees concerning the open enrollment period. Ms. Reynolds, who was approximately three months pregnant at the time of the benefit consultation meetings, attended one of the sessions. Ms. Reynolds attended the session for the purpose of determining what steps she should take to insure that her yet-to-be-born infant was covered by health insurance. Ms. Reynolds spoke for some time with Gail Page and Jordaina Chambers, benefits consultants of the Department of Corrections. Ms. Reynolds informed the benefits consultants that she was pregnant and that she wanted to insure that her yet-to-be-born infant was covered by her health insurance. Ms. Reynolds was incorrectly told that she could not elect family coverage for just her and her yet-to-be-born infant. This incorrect advice, however, did not have any effect on the effective date Ms. Reynolds ultimately decided to begin her family coverage. Ms. Reynolds also informed the benefits consultants that the baby was due April 15, 1993. The benefits consultants informed Ms. Reynolds that her pregnancy constituted a qualifying event and that she could, therefore, switch to family coverage in order to cover her baby. She was also informed that she would have to notify the Division of her child's birth with thirty-one days after birth to add the child to the policy. After being told that she would have to switch her coverage from individual coverage to family coverage, adding her husband as a dependent, Ms. Reynolds asked the benefits consultants when she should switch to family coverage. Consistent with the policies of the Division, and the training the benefits consultants had received from the Division, the benefits consultants advised Ms. Reynolds that she should elect family coverage effective two or three months prior to her due date. The Division makes this recommendation so that employees can save the increased premiums for family coverage a reasonable period of time before the child is born. In light of the fact that Ms. Reynolds' conversation with the benefits consultants took place during the 1992 open enrollment period and the fact that January 1, 1993 was three and one-half months prior to Ms. Reynolds' due date, Ms. Reynolds was advised by the benefits consultants that it would be reasonable to switch from individual coverage to family coverage through the open enrollment period. Based upon this advice, Ms. Reynolds' family coverage would be effective January 1, 1993. The benefits consultants did not advise Ms. Reynolds of any possible consequences of not electing to switch from individual coverage to family coverage with an effective date prior to January 1, 1993. The benefits consultants also did not tell Ms. Reynolds that she could not choose to switch from her individual coverage to family coverage with an effective date prior to January 1, 1993. On or about October 15, 1992, Ms. Reynolds executed and filed with the Division an Annual Benefit Election Form. Respondent's exhibit 1. Pursuant to this form Ms. Reynolds elected to change her health insurance coverage from individual to family effective January 1, 1993. Ms. Reynolds elected to add her husband as a covered dependent. Based upon the election made by Ms. Reynolds, her family coverage became effective on January 1, 1993. If her child was born before that date, any expenses attributable solely to medical services received by the child would not covered by Ms. Reynolds' medical coverage. If the child was born on or after that date and Ms. Reynolds notified the Division of the child's birth within thirty-one days after the child's birth, any expenses attributable solely to medical services received by the child would be covered by Ms. Reynolds' medical coverage. The evidence failed to prove that the advice given by the benefits consultants in October 1992 was not reasonable based upon the information available to them and to Ms. Reynolds. The evidence also failed to prove that either the benefits consultants or Ms. Reynolds unreasonably failed to realize that the child would be born more than three and one-half months premature. Ms. Reynolds, while reasonably relying on the advice of the benefits consultants, knew or should have known that the ultimate decision as to when to begin family coverage was hers to make. Ms. Reynolds also should have been somewhat wary of the advice she was given, in light of the fact that Ms. Reynolds admitted that she was told by the benefits consultants that they "did not know that much about what she was asking." Despite this warning, Ms. Reynolds testified during the final hearing that she followed their advice because she felt there was "no reason to believe they would be wrong." The Premature Birth of the Reynolds' Child. On December 29, 1992, Ms. Reynolds underwent surgery, due to unforeseen medical complications, to deliver her child. The child died on January 1, 1993. In order to add the child as a dependent to her medical insurance when the child was born, Ms. Reynolds had to have family coverage in effect as of December 1, 1992 or earlier. Unfortunately for Ms. Reynolds, on December 29, 1992 when her child was born, Ms. Reynolds only had individual coverage. The rules governing medical benefits of state employees do not allow employees with individual coverage to add dependents. Therefore, even though Ms. Reynolds attempted to get the Division, through the personnel office of the Department of Corrections, to add her child by notifying the personnel office of the birth of the child immediately after December 29, 1993, the child could not be added to her individual coverage. The child received medical services and incurred medical expenses between December 29, 1992 and January 1, 1993. Those expenses were not covered by the well-baby care provided by Ms. Reynolds' individual coverage. Because Ms. Reynolds did not have family coverage at the time the child was born and the child could not be added to her individual coverage, the medical expenses incurred for the child were not covered by Ms. Reynolds' health insurance. Although the child should be added as a dependent to Ms. Reynolds family coverage which took effect as of January 1, 1993, the evidence failed to prove that any medical expenses incurred for the care of the child on January 1, 1993, were not attributable to a preexisting condition. Therefore, expenses incurred for the care of the child on January 1, 1993, are not eligible for reimbursement. Should the Division be Estopped from Denying Coverage? The Division relies on benefits consultants to assist the Division in administering the State Health Plan. Benefits consultants are trained by the Division, they are state employees and they hold themselves out as representing the State in general and the Division in particular. The Division's rules provide for the active involvement of the various personnel offices in administering the State Health Plan. See, Rule 60P- 2.003(1), Florida Administrative Code. The Annual Benefit Election Forms issued by the Division during the open enrollment specifically provide that the forms are to be turned in to employees' personnel offices. The Division allows personnel offices of the various state agencies to hold themselves out to employees as agents of the Division. In this case, Ms. Reynolds was given advice by benefits consultants, on behalf of the Division and consistent with Division policy, which played a role in Ms. Reynolds making a decision which resulted in medical expenses incurred upon the premature birth of her child not being covered by her medical insurance. While Ms. Reynolds was given some incorrect advice, she was not given incorrect advice concerning the effective date of her family coverage. The advice given to Ms. Reynolds concerning when to start her family coverage was reasonable at the time given and, as she admitted during the hearing, there was no reason in October of 1992 to doubt the wisdom of the advice she received. Ultimately, it was Ms. Reynolds decision. While she may not have understood that advice, she made the decision to make choices and act on the advice even after being warned that the benefits consultants were not knowledgeable about what she was asking.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Employees' Insurance enter a Final Order dismissing Robbie W. Reynolds' petition in this matter. DONE AND ENTERED this 19th day of November, 1993, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of November, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-3731 The Division has submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Ms. Reynolds did not file a proposed recommended order. The Division's Proposed Findings of Fact Accepted in 2-3 and 19. Accepted in 4-5, 9 and hereby accepted. Hereby accepted. Accepted in 6 and 9. Accepted in 11-17. Accepted in 7-8. Accepted in 1 and 18-19. Accepted in 23-26. Accepted in 20, 28 and 30-32. But See 27-20. See 29-30. But see 27. Accepted in 34 and 38. See 40. Hereby accepted. Accepted in 40-41 COPIES FURNISHED: Robbie W. Reynolds 2635 South West 35th Place, #1304 Gainesville, Florida 32608 Augustus D. Aikens, Jr. Chief of Bureau of Benefits and Legal Services Division of State Employees' Insurance Department of Management Services 2002 Old St. Augustine Road, B-12 Tallahassee, Florida 32301-4876 William H. Lindner, Secretary Department of Management Services Knight Building, Suite 307 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950 Sylvan Strickland, Esquire Department of Management Services Knight Building, Suite 309 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950
The Issue Should discipline be imposed by Petitioner against Respondent's insurance agent licenses as, Life (2-16), Life and Health (2-18), and Health (2-40), held pursuant to Chapter 626, Florida Statutes?
Findings Of Fact The Parties Petitioner was created in accordance with Section 20.13, Florida Statutes. Petitioner has been conferred general power by the Legislature, to regulate the insurance industry in Florida, in accordance with Section 624.307, Florida Statutes. Chapter 626, Florida Statutes, grants Petitioner the authority to license and discipline insurance agents doing business in Florida. Petitioner issued Respondent license No. A140590. At times relevant to the inquiry, Respondent has been licensed in Florida as agent for insurance in Life (2-16), and Life and Health (2-18). On December 2, 1992, Respondent had been issued a Health (2-40) license, but that license is no longer valid having been voluntarily cancelled. The cancellation occurred at a time previous to December 18, 2003, when a license history document was prepared, Petitioner's Exhibit numbered 1. Respondent conducts business as an insurance agent under the name Business Insurance Cafeteria. The business is located at 828 Hamilton Avenue, St. Augustine, Florida. Respondent has been licensed as an insurance agent for over 50 years, 44 years of which have been in Florida. Acting as an insurance agent has been Respondent's principal occupation. During that time the emphasis in his business has been on health insurance. TRG Affiliation In April 2001, an acquaintance and insurance agent Ellen Averill introduced Respondent to Robert Trueblood, Sr. Respondent understood that Mr. Trueblood was the Managing General Agent for TRG. Mr. Trueblood, at the time, was from Hobe Sound, Florida. Mr. Trueblood gave information to Respondent about TRG pertaining to its involvement in the insurance business. Mr. Trueblood told Respondent that individuals within TRG were personal friends of Mr. Trueblood. In turn, Respondent made a call to Petitioner at the end of April or first part of May 2001. Someone that he spoke to, whose identity and position within the Petitioner's hierarchy was not established in the record, made a comment which cannot be established as fact given its hearsay nature. Nonetheless, following this conversation, Respondent became affiliated with the TRG organization which Respondent understood to be an ERISA program, not subject to Petitioner's oversight. At that time, Respondent's knowledge of what an ERISA program entailed was based upon reading he had done in the past. Respondent was of the impression that the ERISA program was under the auspices of the federal government, as opposed to the state government. Respondent had never taken specific courses concerning the ERISA program before his engagement with TRG. Respondent's involvement with TRG was his first effort to market what he considered to be ERISA program insurance. When Respondent commenced his participation with TRG, he believed that an ERISA program was instituted by a document filed with the Department of Labor outlining insurance benefits and that TRG had put up reserves associated with the ERISA program. Respondent did not obtain anything in writing from the Department of Labor concerning TRG as an ERISA program. To begin with, Respondent believed that ERISAs had to involve 51 or more lives in being before coverage could be obtained. Again, this was not a market that Respondent had worked in but he understood that ERISAs involved coverage of that number of individuals. From conversations with Mr. Trueblood and Tom Dougherty, another managing General Agent for TRG, of Cocoa Beach, Florida, Respondent became persuaded that ERISAs could be marketed to companies with a single life being insured or two to three lives in a small group market. Respondent relied on Mr. Trueblood when Mr. Trueblood told Respondent that ERISA, as a federal program did not have to be licensed by the state. Mr. Dougherty made a similar comment to Respondent. Ms. Averill also commented to Respondent concerning her impression about TRG as an ERISA program. From this record, Respondent was not officially told by persons within the Petitioner's agency, that the TRG program was an ERISA program that did not have to be licensed in Florida. TRG provided Respondent marketing material. Respondent was impressed with the "very professional" appearance of that material. Respondent's Exhibit numbered 1 admitted into evidence is constituted of material provided to Respondent by TRG. It refers to the TRG health plan under "the Redwood Group." It refers to marketing under an organization identified as Premier Financial Group USA, Inc. It describes PPO networks available with the TRG products. The document refers to the TRG/USA health plan (the Redwood Group, L.L.C./USA Services Group, Inc.) and various versions of employer health and welfare benefit plans and a client fee schedule effective May 1, 2001, for enrollees in the 80/60 plan and 90/70 plan. Participant co- pays for physician office visits are related. Those plans identified in the material describe the amount of deductibles according to age groups and participation by members and additional family participants. The TRG document speaks of benefits attributable to the 80/60 and 90/70 health plans. This information contained comments about the Redwood Companies- Corporate Overview. Respondent's Exhibit numbered 1 comments upon the ERISA program and the provision of health benefits for employees through self-funded employee health and welfare benefit plans as a means, according to the document, to exempt those plans from state insurance regulation. Respondent's Exhibit numbered 1 touts what it claims are savings to be derived compared to current health insurance plans held by prospective purchasers. Respondent's Exhibit numbered 1 contains an associate application agreement setting forth policies and procedures that Respondent would be obligated to meet as an associate with TRG acting as an independent contractor. Respondent's Exhibit numbered 1 contains an application format for prospective enrollees in the TRG preferred provider plans to execute in applying for coverage. Respondent's Exhibit numbered 1 refers to Robert W. Trueblood, Sr., as being affiliated with Premier Financial Group, USA Inc., under the TRG banner. Mr. Trueblood sent Respondent's Exhibit numbered 1 to Respondent. Respondent began his contacts with TRG in May 2001 and wrote his first enrollment contract in association with TRG in August or September 2001. Beyond that time, Respondent was notified on November 27, 2001, that effective November 30, 2001, a cease and desist order had been issued against TRG's offering its health coverage in Florida. The commissions earned by Respondent in selling the TRG health insurance product ranged from five to seven percent. Respondent earned less than $1,000.00 in total commissions when selling TRG health insurance products. The persons who participated with TRG in its preferred provider plan were referred to the claims administrator of USA Services. Participants in the TRG preferred provider plan sold by Respondent received information outlining the benefits. Participants received medical I.D. cards. This information was provided directly to the participants. Respondent was aware of the information provided to the participants. An example of this information is set out in Respondent's Exhibit numbered 2. In offering the TRG health coverage, Respondent told his customers that this plan was not under the purview of the Department of Insurance in Florida, that this was an ERISA program. Respondent told his customers that any problems experienced with the program could be addressed through resort to the federal court. Respondent did remind the customers that making the Florida Department of Insurance aware of their claims could create a record in case they went to federal court. Respondent is familiar with the prohibition against acting as an insurance agent for companies not authorized to transact business in Florida. But he held to the opinion that TRG was an ERISA program under the federal auspices and not subject to Petitioner's control. At the inception, Respondent believed that offering the TRG health insurance coverage would be an acceptable choice. That proved not to be true. When it was discovered that TRG would not pay claims related to health coverage for policies Respondent sold to his customers, Respondent made an attempt to find replacement coverage. To this end, Respondent had received information reflected in Respondent's Exhibit numbered 5. The document discussed the prospect that insurance would be provided from the Clarendon Insurance Company (Clarendon), using the provider Network Beechstreet, with Baftal/Quik Quote Insurance Brokers in Plantation, Florida, being involved in the process to substitute coverage for TRG. Baftal is the shorthand reference for Bertany Association for Travel and Leisure, Inc. Baftal is an insurance agency. Respondent made some explanation to his customers insured through TRG of the prospect of using Clarendon to take over from TRG, which had not honored any of the claims for reimbursement made by Respondent's customers. A copy of this December 28, 2001, correspondence from Respondent to TRG's insureds who had been sold policies through Respondent, is reflected in Respondent's Exhibit numbered 6. As described in Respondent's Exhibit numbered 7, Baftal sent information concerning health care coverage to business owners, to include Respondent's customers, as described in the Amended Administrative Complaint. This correspondence indicated that the benefit plan would become effective December 1, 2001, upon condition that the insured meet applicable underwriting standards. This communication was made following receipt of premiums paid by the insured. Reimbursement for claims were to be processed through Advancement Administration in Maitland, Florida. Baftal did not assume the claims that had not been honored by TRG, and Clarendon did not become the insurer for those customers. Baftal did not follow through with the offer to provide health benefits to Respondent's customers who had begun with TRG. On February 11, 2002, as evidenced by Respondent's Exhibit numbered 8, Baftal wrote the customers to advise that health benefits would not be provided. That exhibit mentions American Benefit Plans through a Mr. David Neal and some intention for Mr. Neal's organization to provide a benefits program, including insurance through Clarendon, as administered through Advanced Administration. The Baftal communication goes on to say that Baftal had learned that Clarendon was not an insurer on the program, that the only insurer on the program was an offshore insurance company about which Baftal had not received credible information. The letter remarks that premiums paid to Baftal by the customers were being returned. On April 4, 2002, as related in Respondent's Exhibit numbered 9, TRG wrote to persons who were identified as health plan participants, to include Respondent's customers who are the subject of the Amended Administrative Complaint. The letter stated that due to a problem with USA Services Group, the claims administrator on November 30, 2001, when the TRG plan ended, claims were not being paid. The correspondence remarks about difficulties with USA Services experienced by TRG, promising that TRG would fulfill obligations to the customers who were participants in the health plan. Contrary to this promise, TRG has not honored claims for those customers who are the subject of the Amended Administrative Complaint. On December 12, 2001, as reflected in Respondent's Exhibit numbered 4, Petitioner had written consumers who had enrolled in the TRG health plan to advise that the Petitioner did not consider the TRG health plan to be an ERISA program. Under the circumstances, the correspondence indicated that TRG should have sought authorization from Petitioner to sell health plans in Florida, which had not been done. The correspondence refers to some acknowledgement by TRG that it was not an ERISA program and needed to be licensed in Florida to conduct business. The correspondence advises the consumer to cease payment of any further premiums to TRG, to include the cancellation of automatic bank drafts for payment of premiums. The correspondence advises the consumer to obtain replacement insurance through Florida licensed insurance companies or HMOs. The letter goes on to remind the consumer of certain plans that were not licensed in Florida to conduct business because they were perceived to be illegitimate companies. The communication urged the consumer not to enroll in those health insurance plans. Respondent was made aware of this communication. Count I: Vicki Brown Vicki Brown has a business known as Rainbows End Ranch located in St. Johns County, Florida. This is a one-person business involving boarding and training of horses. Ms. Brown was interested in obtaining permanent health insurance, in that her COBRA policy was expiring. As a consequence, she was referred to Respondent by a friend. Respondent met Ms. Brown at her place of business. She explained to him her health insurance needs. Respondent suggested obtaining health insurance through TRG. Ms. Brown agreed. Ms. Brown paid $165.00 to TRG by check to cover the premium for September 2001. Two additional amounts of $165.00 were withdrawn from her checking account to pay premiums to TRG for the months that followed. Subsequently, Ms. Brown received Petitioner's December 12, 2001, letter informing her that TRG was not allowed to conduct business in Florida, Petitioner's Exhibit numbered Beyond that point, Ms. Brown had difficulties in her attempt to be reimbursed for her medical treatment, presumably covered by the TRG plan, by seeking reimbursement through another insurance firm other than by TRG. That process was pursued through Baftal in relation to insurance offered by Clarendon. Ms. Brown made Respondent aware that she had problems with reimbursement and of the receipt of Petitioner's letter. Respondent told her not to worry about the situation, that things were going to be taken care of by Clarendon taking over where TRG left off. Ms. Brown received Respondent's form correspondence dated December 28, 2001, explaining the switch from TRG to Clarendon, Petitioner's Exhibit numbered 6. Ms. Brown also received information from Advancement Administration concerning Clarendon as the insurance company, Beechstreet as the provider network, mentioning Baftal/Quik Quote Insurance as brokers, Petitioner's Exhibit numbered 7. Following her difficulties with TRG, on January 2, 2002, Ms. Brown wrote a check to the Baftal Escrow Account in the amount of $513.40 for premiums in relation to Clarendon. As can be seen, the payment to Clarendon represented an increase in premium compared to TRG. The check for $513.40 had been written out to LPI Clarendon and changed by Respondent to reflect the Baftal Escrow Account. In January 2002, Ms. Brown called Respondent and was told that the paperwork he was filling out was wrong and that he needed to complete new forms for Baftal "Insurance Brokers." According to Respondent, that explained why the coverage through Baftal had not gone into effect. Ms. Brown had received Petitioner's Exhibit numbered 11, the communication from Baftal calling for additional information as a prerequisite to obtaining insurance benefits effective December 1, 2001. Information provided in the document concerning issues related to her coverage was not useful to Ms. Brown when she made inquiry consistent with the instructions contained in the document. Concerning her claims for reimbursement, Ms. Brown had a health problem with her throat. In addressing the condition, she was told by her primary care doctor, that when trying to arrange for a specialist to attend her care through the Beechstreet Provider Network, which was part of the health care offered through the Baftal Agency, it was reported that Beechstreet was bankrupt. Then Ms. Brown called Respondent to ask his advice. Respondent told her he was not sure how to respond "right now things are in a haywire." Beyond that point Ms. Brown found out that Clarendon, part of the Baftal arrangement was not going to insure her business. In particular, Ms. Brown received the February 11, 2002, communication from Baftal commenting that insurance would not be provided through Baftal, remarking that Clarendon was not an insurer. This communication is Petitioner's Exhibit numbered 12. After the TRG and Baftal experiences, Ms. Brown tried to be placed on her husband's health insurance policy but had trouble getting a certificate to allow her to obtain that coverage. This was in relation to the need for the existence of continuing coverage before being placed on the husband's policy. Fortunately, Ms. Brown was eventually able to get insurance through her husband's policy. Ms. Brown was dismayed by the difficulty experienced in obtaining health insurance when she discovered that TRG and Baftal would not meet her health insurance needs. From the evidence, it has been determined that the TRG plan purchased by Ms. Brown was the 80/60 plan with the $1,000.00 deductible. Although Ms. Brown testified that her medical bills in the period in question would total close to $1,000.00, the evidence found in Petitioner's Exhibit numbered 8, constituted of medical bills around that time do not approximate than amount. Ms. Brown had received a TRG benefit handbook and membership card, Petitioner's Exhibits numbered 9 and 10, associated with her participation in the 80/60 plan with a $1000.00 deductible and co-pay of $10.00 for a physician office visit and $20.00 for a specialist office visit. In summary, none of the companies from whom Ms. Brown purchased insurance through Respondent, commencing with TRG, have paid for any of her claims for reimbursement for medical care during the relevant time period. In addition to not receiving a reimbursement for premiums paid to TRG, Ms. Brown did not receive the return of her premium paid to Baftal either. Count II: Alicia Moore Alicia Moore at one time was employed by Respondent. The position Alicia Moore held with Respondent's insurance agency was that of general office clerk. Ms. Moore has never been licensed in any capacity by Petitioner, related to the sale of insurance and has not taken courses to educate herself about the insurance business. In addition to her employment with Respondent, she purchased health insurance through Respondent with TRG around September 2001. Ms. Moore purchased the TRG health insurance policy in the interest of her husband's subchapter S corporation, small business. Her husband's name is Randy Moore. The name of the company operated by the husband is M-3 Enterprises, Inc. The husband's company has one employee, Randy Moore. The Moores resided in St. Augustine, Florida, at times relevant to the inquiry. The husband's business had been insured for health coverage by Humana, until Humana determined that it was not willing to provide health insurance for the company and the Moores decided that the individual policies offered by Humana in substitution for the group policy were too expensive. The Moores chose TRG for health insurance after Respondent had discussed several health insurance plans including individual or group policies. The reason for the choice was the premium price. On September 19, 2001, Randy Moore paid $434.00 for the health insurance premium to Redwood Group, in the interest of obtaining health insurance from TRG. On November 2, 2001, an additional $434.00 was debited from the checking account for M-3 Enterprises, to TRG for premiums related to the health insurance coverage. Ms. Moore recalls Respondent telling her that the TRG health plan was an ERISA plan but she has no knowledge about ERISA plans being regulated under federal law. In that connection, Ms. Moore commented in a statement given by affidavit, that Respondent told her that TRG was not regulated by Petitioner. Respondent explained to Ms. Moore that the premium payments to TRG were lower in costs because TRG was an ERISA program. TRG sent correspondence to the Moores as participants in the health plan. This is found as Petitioner's Exhibit numbered 15. It enclosed a membership issued to Randy Moore setting forth the $10.00 co-pay for a physician visit, $20.00 co-pay for a specialist office visit, and $50.00 co-pay for emergency room visits associated with the participation in Plan 8033. The nature of the plan that the Moores had was a member- plus family. The cover letter listed the telephone number for the claims administrator USA Services to address claims or customer services questions. Ms. Moore also received a packet from TRG explaining the process of filing claims for health care. After obtaining the TRG health coverage, Ms. Moore and her son received treatment for medical conditions contemplated under the terms in the TRG plan. Notwithstanding the submission of information for reimbursement related to the charges, the charges were not paid under the TRG plan. The total of these claims was approximately $727.00. That $727.00 was less co- payments already made for the medical services. Ms. Moore made the Respondent aware that TRG was not reimbursing her for medical bills. Respondent gave Ms. Moore the telephone number for Tom Dougherty, Managing General Agent for TRG, expecting Mr. Dougherty to be able to assist Ms. Moore in dealing with outstanding medical bills. Ms. Moore called Mr. Dougherty several times, but this did not lead to the payment of the medical bills. Ms. Moore also sent TRG a certified letter in August 2002 concerning bills outstanding since October 2001, attaching the bills and information concerning payment of premiums for the coverage. This is reflected in Petitioner's Exhibit numbered 18. Petitioner's Exhibit numbered 21 is a compilation of information concerning the outstanding medical bills, and a statement from Medical Accounts Services, Inc. (Medical Accounts) concerning a current balance on June 17, 2002, of $229.00. The Moores had to make an arrangement to repay the money which was being collected through Medical Accounts. It is not clear from the record the exact nature of the member with family plan that had been purchased by the Moores. Consequently, the deductible in force when claims were submitted for reimbursement is not readily apparent. Ms. Moore in her testimony was unable to recall the amount of the deductible for the policy issued from TRG. It does appear from a review of the fee schedule associated with the 80/60 plan and the 90/70 plan offered by TRG, that the premium payments made did not entitle the Moores to coverage associated with a $500.00 deductible or $250.00 deductible. The other possible amount for the deductible, by process of elimination is $1,000.00. The Moores received correspondence dated November 28, 2001, sent to Randy Moore as a TRG enrollee, indicating that the coverage would end effective November 30, 2001, and reminding Mr. Moore that, according to the correspondence, he would have to find other health coverage as of December 1, 2001. This correspondence, as with other similar correspondence that has been discussed, promised to continue to process claims for covered services incurred before the coverage ended. The TRG letter terminating coverage for the Moores was received by the Moores five days after the date upon which the correspondence indicated that the coverage would no longer be in effect. This circumstance was very disquieting to Ms. Moore. The claims by Ms. Moore and her child were within the covered period for the TRG policy as to their dates. The letter received from TRG is Petitioner's Exhibit numbered 17. Ms. Moore spoke to Respondent about obtaining coverage when TRG discontinued its coverage. Respondent suggested that the Moores affiliate with Baftal. The Moores made a premium payment to Baftal but within a week of being accepted for coverage, Baftal wrote to advise that coverage had been declined. Beyond that time, the Moores obtained coverage from Medical Savings Insurance, a company that they still use for health insurance. Concerning Baftal, by correspondence dated February 11, 2002, Baftal wrote the Moores as a member, the form letter that has already been described, in which the Moores were told that they would not be provided health benefits. Given the problem described with Clarendon Insurance Company, the letter noted the return of the premium paid for coverage through Baftal. A copy of the letter sent to the Moores is Petitioner's Exhibit numbered 19. Baftal did not reimburse the Moores for the outstanding claims totaling approximately $727.00. Count III: Bruce Chambers Bruce Chambers was another customer who bought TRG health insurance from Respondent. Mr. Chambers was a Florida resident at the time he purchased the TRG coverage. Mr. Chambers and his wife moved to Florida from Georgia earlier in 2001. When they moved, the prior health insurance coverage that the Chambers held carried a high premium given Ms. Chambers diabetic condition. Moving from one state to the next also increased that premium. Under the circumstances, the Chambers agreed to purchase the TRG Health Plan. At one time related to the transaction promoted by Respondent, Mr. Chambers believed that TRG was licensed in Florida. He held this belief even in the instance where Respondent had commented that TRG was an ERISA program. Mr. Chambers also executed a coverage disclaimer in November 2001, upon a form from Respondent's agency noting that the health, welfare program applied for was not under the auspices of the Florida Department of Insurance. This is found as Petitioner's Exhibit numbered 36. After purchasing the TRG policy, the wife developed an illness, and costs were incurred for services by the family's personal physician and for hospitalization. In addition Mr. Chambers had medical expenses. Exclusive of co-pays and the deductibles that are applicable, Mr. Chambers paid $7,478.46 for the health care he and his wife received. None of that amount has been reimbursed through TRG as expected under the terms of the TRG coverage. Mr. Chambers paid $487.00 a month, plus $18.00 in other fees, for two months related to coverage effective October 1, 2001, extending into November 2001, a total of $1,010.00 in premiums and fees paid to TRG. No premiums and fees paid to TRG have been reimbursed. The amount of premium paid by Mr. Chambers corresponds under the client fee schedule in effect May 1, 2001, associated with the TRG Health Plan, as pertaining to an 80/60 plan for a member and family with a $1,000.00 deductible. Petitioner's Exhibit numbered 26 is constituted of the calculation of the expenses, $7,478.46 and attaches billing information, some of which is for services and care received prior to December 1, 2001, and some of which is for services and care beyond that date. When Mr. Chambers discovered that TRG was not reimbursing the costs which it was obligated to pay for health care received by the Chambers, he contacted the Respondent and TRG to gain satisfaction. He also contacted Petitioner. When Mr. Chambers enrolled in the TRG plan he received the transmittal letter enclosing his benefits card, Petitioner's Exhibit numbered 23. The membership card identified his participation in plan 8033, with a co-pay for physician office visits of $10.00, specialty office visits of $20.00, and emergency room visits of $50.00. Mr. Chambers received notice from the Petitioner, presumably the December 12, 2001, notification concerning the lack of authority for TRG to business in Florida and the advice that CHEA (Consumer Health Education Association) was not authorized to do business in Florida either. On December 20, 2001, the Chambers wrote Respondent concerning the unavailability of insurance through TRG and CHEA. The Chambers asked Respondent to give them advice about a list of "small group market carriers" they understood to offer health plans. This letter to Respondent is found within Petitioner's Exhibit numbered 25. Also, within Petitioner's Exhibit numbered 25 was a copy of the letter from Respondent to TRG insureds dated December 28, 2001, which made mention of Clarendon as an alternative to TRG. Within that same exhibit is correspondence dated January 21, 2002, from the Respondent to enrollees in the TRG plan, to include the Chambers, discussing Baftal and the prospect that the latter company might honor TRG claims. Finally, Petitioner's Exhibit numbered 25 contains an August 21, 2002, letter from Mr. Chambers to TRG asking TRG to pay for its portion of the medical expenses as reimbursement. Petitioner's Exhibit numbered 27 is the December 1, 2001, application by Mr. Chambers to obtain medical benefits through CHEA. The application also refers to EOS Health Services. This predates Petitioner's warning about CHEA and EOS being licensed to do business in Florida. On December 1, 2001, Mr. Chambers paid $487.00 for premium payments to EOS Health Services and provided a voided check for future payments for premiums by automatic withdrawal from his account. This effort was made as a follow on to obtain health coverage when TRG no longer provided health insurance to the Chambers. To obtain health coverage, Mr. Chambers paid $1,465.88 to the Baftal Escrow Account. This payment was made by a check dated January 14, 2002. That money was refunded by Baftal on January 12, 2002, and no coverage was offered through that company for health insurance. Mr. Chambers had been provided information about the opportunity to obtain insurance from Baftal as reflected in Petitioner's Exhibit numbered 31. Respondent had also suggested that Mr. Chambers apply for health insurance from American Benefit Plan, following the discontinuance of the TRG coverage. Mr. Chambers applied for that coverage by documents dated February 18, 2002, in the interest of his company, Bruce A. Cambers, CFP. Information concerning that application is found in Petitioner's Exhibit numbered 32. American Benefit Plans was listed by Petitioner as an entity not allowed to conduct business in Florida in the December 12, 2001, letter of advice to insurance consumers following the problem with TRG. Mr. Chambers wrote two checks, one in the amount of $628.60 to Independent Managers Association and one for $799.68 to the Association of Independent Managers, Petitioner's Exhibits numbered 35 and 33 respectively. The two checks were written on February 18, 2002. Those checks were voided in relation to payment for monthly insurance premiums and association dues. The effect was to not accept those checks for premium payments to obtain health insurance. On March 5, 2002, ACH Corporation of America wrote Mr. Chambers stating that because of incorrect procedures, or untimely submission, health coverage would not be extended, pertaining to an application for Ultra Med Choice EPO. Ultra Med was another health insurance business which Petitioner in its December 12, 2001, correspondence to health care consumers had been identified as unlicensed to conduct health insurance business in Florida. The letter declining coverage from ACH and application information for a policy sought to become effective December 1, 2001, is found within Petitioner's Exhibit numbered This application was in relation to Bruce Chambers, CFP as employer. Mr. Chambers remains out of pocket for payments he had to make for health care extended, principally to his wife, for which TRG was obligated to provide reimbursement in part. None of the other policies that Mr. Chambers attempted to obtain worked out to substitute for the TRG obligation for reimbursement for health care claims. Eventually the Chambers were able to obtain health insurance. At present the Chambers have a two-man group policy through Mr. Chambers' business to provide health coverage. Because of the problem with health insurance coverage, Ms. Chambers was required to return to work. Her employment was outside Mr. Chambers' company, as well as within his company. As a result of Ms. Chambers' failure to make payments to Flagler Hospital, where Ms. Chambers had received care, under terms that should have involved TRG providing reimbursement for costs, the bills were turned over to a collection agency compromising the credit standing of the Chambers. For the most part, the credit problems have been resolved. Due Diligence As established by testimony from Linda Davis, Analyst II in Petitioner's Jacksonville Office, there is a means to determine whether an insurance company has the necessary certificate of authority to conduct insurance business in Florida. This is accomplished by resort to the electronic data base maintained by Petitioner. A certificate of authority is an indication that the insurance company has completed the necessary requirements to be licensed or authorized to sell insurance in Florida. As established through Petitioner's Exhibit numbered 39, TRG/USA Health Plans, TRG Marketing L.L.C. was not authorized to do business in Florida. An insurance agent licensed in Florida, to include the time frame envisioned by the Amended Administrative Complaint, would have had access to the data base identifying whether an insurance company had the necessary certificate of authority to conduct insurance business in Florida and could properly have been expected to seek this information before engaging in the sale of products from a company such as TRG. Rather than avail himself of that opportunity, Respondent made some form of inquiry to Petitioner on the subject of TRG, while apparently ignoring the more fundamental consideration of whether TRG had been granted a certificate of authority to conduct its business in Florida, which should have been pursued. Ascertaining the existence or nonexistence of a certificate of authority, constitutes "due diligence" incumbent upon an agent before engaging in the sale of insurance from a prospective insurance company. Respondent's Disciplinary History Petitioner has not taken disciplinary action against Respondent before this case.
Recommendation Upon the consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That a Final Order be entered finding Respondent in violation of Sections 624.11, 626.611(7) and (8), 626.621(2) and (6), 626.901(1), Florida Statutes (2001); suspending his licenses for nine months; placing Respondent on two-years probation; and requiring attendance at such continuing education classes as deemed appropriate. DONE AND ENTERED this 2nd day of April, 2004, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS 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 the Clerk of the Division of Administrative Hearings this 2nd day of April, 2004. COPIES FURNISHED: David J. Busch, Esquire Department of Financial Services Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Joseph O. Stroud, Jr., Esquire Rogers Towers, P.A. 1301 Riverplace Boulevard, Suite 1500 Jacksonville, Florida 32207 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue Whether the charges contained in the Administrative Complaint, which is the subject of Case Number 01-2295, reflect statements of agency policy which should have been adopted as rules pursuant to Chapter 120, Florida Statutes.
Findings Of Fact The Parties United is a foreign insurer, domiciled in the State of Wisconsin holding a certificate of authority from the Department to transact the business of insurance in this state. It is a wholly-owned subsidiary of American Medical Securities Group, Inc. The Department, through its agency head, the Treasurer and Insurance Commissioner, has regulatory jurisdiction over United in connection with certain matters set forth in the Complaint. The regulatory scheme for out-of-state health insurance companies Health insurance companies operating pursuant to in-state regulatory schemes are subject to oversight regulation of the corporate entity including financial solvency and market conduct. Rates are required to be filed and approved prior to being used in the state. The review process involves a review of the rates to determine if they are reasonable in relation to the benefits provided. In regard to this, the Department has rules which it has adopted pursuant to Chapter 120, Florida Statutes, which it uses to determine the standards and formulae for making that determination. Certain out-of-state health insurers, such as United, are not subject to such stringent regulation. No review of premium rates is conducted by the Department in the case of these insurers, but it would be incorrect to state that they are not subject to regulation by the Department at all. Approximately 40 percent of the health insurance market in Florida is written through out-of-state group arrangements that do not provide policyholders consumer protections afforded to policyholders holding in-state policies regulated by the Department. United is required by Florida law to provide certain types of coverage. United must also ensure that certificates of coverage provided to residents of Florida contain the following language: The benefits of the policy providing your coverage are governed primarily by the law of a state other than Florida. Indent Background At all times pertinent, American Medical Security, Inc. (AMS), was a Florida-licensed administrator authorized to market and administer United's out-of-state group health insurance plans in Florida. AMS, like United, is a wholly-owned subsidiary of American Medical Securities Group, Inc. In May 1993, United, through AMS, filed for approval with the Department pursuant to Section 627.5515(2), Florida Statutes (1993), as an out-of-state group health insurer who would provide policies to be offered through an Alabama entity called the Prescription For Good Health Trust, which was formed primarily for the purpose of providing group insurance. The Department approved this filing. On March 2, 1995, the Department participated by conference call in a Regulatory Task Force of the National Association of Insurance Commissioners. The mission of the task force was to attempt to address a number of problems facing the insurance market. One of the problems discussed was rate protection for consumers when faced with "tier rating" or "tier blocking." The two terms are synonymous and mean, as to group health insurance, reclassifying insureds subsequent to having been initially placed in a class. This practice will be discussed in more detail below. In 1996, United made a filing for the Prescription For Good Health Trust which proposed tier rating. Sometime during 1996, after the Department objected to the filing, United withdrew it. The Department had never seen such a filing previously. United is the only health insurer to assert before the Department that reclassification by movement between classes would be permissible under the Florida Insurance Code. Section 627.6515(1), Florida Statutes, provides that a group health insurance policy issued or delivered outside this state under which a resident of Florida is provided coverage, shall comply with the provisions of Part VII, of Chapter 627, Florida Statutes, in the same manner as health policies issued within the state. Part VII of Chapter 627, Florida Statutes, provides for a comprehensive regulatory scheme for group health insurance. Section 627.6515(2), Florida Statutes, however, sets forth a number of exemptions. Section 627.6515(2), Florida Statutes, provides an exemption for an insurer like United, which provides health insurance through an association formed for a purpose other than that of offering insurance, which provides the language referred to in paragraph 5, supra, on the face of the certificate, and which offers the bundle of coverages provided in Subsection (c). This exemption applied to the Prescription For Good Health Trust. The Department concedes that it has no authority to set premium rates for out-of-state insurers like United. In November 1996, United through AMS, filed with the Department, pursuant to Section 627.6515(2), Florida Statutes, a request for approval of an out-of-state group health insurance policy termed the "MedOne Choice" plan. This plan was to be offered through an Ohio association called the Taxpayers' Network, Inc. (TNI). The association was formed primarily for purposes other than providing insurance. In January, 1997, the filing was accepted by the Department as meeting the requirements of Section 627.6515(2), Florida Statutes. Chapter 96-223, Laws of Florida, created Section 627.6425, Florida Statutes, effective May 25, 1996. When created, the section only addressed the renewability of individual coverage. Chapter 97-179, Laws of Florida, substantially amended Section 627.6425, Florida Statutes, effective May 30, 1997. Subsequent to the amendment, the section addressed certificates of coverage offered to individuals in the state as part of a group policy. This statute, along with Sections 627.6571 and 627.6487, Florida Statutes, implemented the federal Health Insurance Portability and Accountability Act (HIPAA). The basic theory of the HIPAA legislation is that an insurance company cannot simply cancel a health insurance policy without providing other options. On or about September 25, 1998, United, through AMS, notified all Prescription For Good Health Trust certificate holders that the policy forms through which their coverage had been provided were being discontinued, effective as of each certificate holder's 1999 renewal date. Upon discontinuance of the Prescription For Good Health Trust Plans, the only United health insurance plans available in Florida were the MedOne Choice plans offered through TNI. Membership in TNI was available to anyone upon submitting an application form and paying the membership fee. Membership in TNI was a prerequisite to continuance of a persons' health insurance coverage under United's MedOne Choice plan. United guaranteed each certificate holder, upon joining TNI, that upon request, they would be issued coverage under the Classic Benefit Plan (one of the TNI MedOne Choice plans) without regard to their health status. However, there was no guarantee that premiums would not rise. 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 plans. Only if the applicant met the underwriting guidelines for the plan for which they applied, would they be issued coverage under another MedOne Choice plan. Between October 1998 and early January 1999, United responded to questions and concerns raised by the Department about the decision to discontinue the Prescription For Good Health Trust plan, and whether the plan of discontinuance was in compliance with Section 627.6425, Florida Statutes. Specifically, discussions were had concerning the movement of insureds from the class in which they were originally assigned to another class at the time of renewal. United entered an agreement with the Department on January 14, 1999, whereby United would offer to certificate holders an additional guaranteed issue TNI plan and would cap the rate for the guaranteed issue plans at no more than twice the premium then currently being paid for the discontinued Prescription For Good Health Trust plan. In accordance with this agreement, United notified certificate holders of the additional guaranteed issue option available to them. Later in 1999, United discontinued the trust plan in accordance with their agreement with the Department. During the process of discontinuance, no certificate holder requested conversion coverage under Section 627.6675, Florida Statutes. Section 627.6675, Florida Statutes, provides that an insured may assert his or her right to a "converted policy," which provides for certain health insurance continuation rights. The Department determined that United's rate for the conversion policy, pursuant to the agreement, was within 200 percent of the standard risk rate and that the notice of the conversion privilege was contained in the certificate of coverage issued to Florida residents. Thus, the Department concluded that United was in compliance with the agreement of January 14, 1999. On May 19, 1999, a Department letter informed a consumer that the discontinuance of her coverage by United did not mean she was being discriminated against because the policy had been terminated for all members. The letter further recited that the Department did not have the ability to regulate United because it was not domiciled in Florida and her insurance was being provided to a group, referring to TNI, that was not registered in Florida. On July 27, 1999, a Department letter informed a consumer that United had an obligation to offer a replacement policy but that United had the right to underwrite the policy and charge additional premium. This statement also referred to TNI. Section 627.6425(1), Florida Statutes, provides that "except as otherwise provided in this section, an insurer that provides individual health insurance coverage to an individual shall renew or continue in force such coverage at the option of the individual." For the purpose of the aforementioned Section, the term "individual health insurance" means health insurance coverage, as described in Section 627.6561(5)(a)2, Florida Statutes, offered to an individual in the state, "including certificates of coverage offered to individuals in the state as part of a group policy issued to an association outside this state. " As noted earlier, Section 627.6425, Florida Statutes, is one of the statutes enacted in Florida which implemented HIPAA. HIPAA provides for continuation of health insurance of an insureds health policy but does not limit the premiums which an insurer can charge for coverage. Although Section 627.6425, Florida Statutes, does not have the words "guaranteed renewable" contained within the statute, the gist of the statute is that if a person has a health policy, the person has the right to continued coverage. The Department contends that the statute also means that there can be no reclassification or movement between classes at the time of renewal. On March 30, 2000, the Department notified United that it believed the discontinuance of Prescription For Good Health Trust plan, in accordance with the January 1999 agreement, may have violated Section 627.6425, Florida Statutes. A Department publication dated January 4, 2001, entitled, "The Florida Health Insurance Market, Issues and Possible Market Reform Measures," noted that there are "an increasing number of carriers attempting to establish HIPAA eligible individuals as a separate rating class with premium charges ranging from 300 to 500 percent of standard rates. While the Department has found such a rating practice to be in violation of the Florida Insurance Code, many carriers have continued to protest this interpretation. Carriers contend the surcharge practice is both actuarially sound and interpreted as a HIPAA permissible practice by other states." In the 2001 legislative session, the Department sought additional regulatory authority concerning out-of-state group insurers, such as United, along with numerous other changes to the Florida Insurance Code which are unrelated to the issues addressed in this Order. The Florida Legislature failed to approve the requested legislation. Tier rating When a group health policy is underwritten, the members of the group may be divided into classes. The classes are based on risk, which is a function of the probability of claims and the cost of claims. Classes may be denominated, for example, as preferred, manual, and substandard. Very healthy persons are put in the preferred class and pay lower premiums relative to other classes. Average persons are put in the manual class because the likelihood and cost of claims may be average. Persons who for actuarial reasons are determined to have an above-average likelihood of claims and whose claims are apt to be costly, are placed in the substandard class. It, perhaps, goes without saying that the individuals in the substandard class must pay higher premiums for the same coverage as others in the group. If the group health policy is guaranteed renewable, certificate holders may continue their coverage. However, premiums within a class can be increased. It is general industry practice to increase the premiums by class when the time for renewal occurs, if the loss experience is such that there is a requirement to increase premiums. As earlier noted, the Department asserts that only by raising premiums for an entire class may premiums be raised. The Department insists that this requirement is part of the definition of "guaranteed renewable." It became United's practice to move insureds between classes. Therefore, for instance, if a person in the group who had been a member of the preferred class experienced the need for costly medical services, then that person might be moved to the manual or substandard class. This would inevitably result in that person paying an increased premium. On the other hand, a person in the substandard class, who was subsequently determined to be a good risk, might be moved to the preferred or manual class and experience reduced premiums as a result. When a substandard class becomes populated with persons who cause the payment of costly claims, premiums increase within that class. Premiums may increase to the point where persons egress the plan, which leaves the class with fewer and sicker members. Eventually, under such a plan, there will be no members, because the premiums will inflate to the point that the benefits, in relation to the amount of the premium, will render the plan uneconomical. This sequence of events is often referred to as the health insurance "death spiral." One of the asserted evils which the Department seeks to combat in the Complaint is the "death spiral." HIPAA eligibles In 1996, when HIPAA became law and Florida enacted laws to implement it, a practice sometimes referred to as "rating up" occurred among some carriers in the industry. As noted earlier, HIPAA and the state statutes implementing it, guarantee that an individual, who through no fault of his own, loses his or her group health insurance coverage has the opportunity to obtain substitute health insurance. A person in this category is referred to as HIPAA eligible. Companies providing insurance under these laws are cognizant of the fact that persons in good health generally decline to purchase this type of insurance but that persons who are in bad health, and who will, therefore, likely have costly claims, will purchase it if they can afford it. This results in a desire on the part of insurers, to charge higher premiums for HIPAA eligible persons than they might charge persons in a comparable, non-HIPAA plan. It is a permissible underwriting practice to take into consideration age, health, and a myriad of other actuarial considerations when developing premium rates for HIPAA eligibles. If an insurer factors in the knowledge that unhealthy persons are more likely than healthy persons to obtain a policy based on HIPAA and charge higher premiums as a result, then "rating up" occurs. The Department contends in its Complaint that "rating up" is discriminatory and, therefore, forbidden by the Unfair Insurance Trade Practices Act (UITPA), Section 626.951, et seq., Florida Statutes. United allegedly arrives at rates for HIPAA eligibles solely based on the fact that the individuals are HIPAA eligible which if true, would be "rating up." Immediately prior to April 30, 1998, the Department received a memorandum from the federal Health Care Financing Administration addressing three general problems with insurance practices regarding HIPAA eligibles. One of the three problems addressed in the memorandum was the practice of "rating up." In response, the Department issued Informational Memorandum 98-103M on April 30, 1998, addressing the three problems. The Department announced that it had concerns similar to that of the Health Care Financing Administration, and would address them in administrative rules implementing HIPAA and Chapter 97-179, Laws of Florida. However, no rules addressing these concerns have been adopted. Insurance carriers disagree with the Department as to whether "rating up" is unfairly discriminatory and therefore a violation of the UITPA. The Department is addressing these differences on a case-by-case basis in the course of market conduct examinations. The evidence adduced at the hearing did not elucidate exactly what "addressing these differences on a case-by-case basis in the course of market conduct examinations" means. Count Three in the Complaint represents the first time an administrative action has been brought against an insurer addressing this practice. The definition of guaranteed renewable Chapter 4-149, Florida Administrative Code, is entitled "Filing of Forms and Rates for Life and Health Insurance." Rule 4-149.006(4)(o)3, Florida Administrative Code, provides for a definition of "guaranteed renewable." However, Chapter 4-149, Florida Administrative Code, does not address out-of-state group health insurers, such as United, because the Department has no authority to require the filing of forms and rates in the case of out-of-state health insurers like United. A life and health insurance treatise written by Black and Skipper states that the definitions of the categories of renewable health insurance policies are not uniform among the states. It is the Department's position that Section 627.6425, Florida Statutes, applies to out-of-state trusts, such as United's Prescription For Good Health Trust, even though the word "trust" is not used in the statute. It is apparent that if there is no limit on the amount of premium a health insurer can charge at the time of renewal, a guarantee of renewal can be meaningless. This fact is ameliorated by rate-setting in the case of highly regulated health insurers such as domestic insurers. In the context of this case, it is not the renewability of a policy that is the gist of the problem. Rather, it is whether rates can be increased on persons through the movement of insureds from one class to another. The allegations of the Complaint In order to determine which statements are alleged to be unadopted rules, it is necessary to refer to Counts Two through Seven of the Complaint. These counts will be summarized, in seriatim. Count Two alleges that persons who continued their participation in TNI were unlawfully and unfairly discriminated against because some members were reclassified based on their health status present at that time (1999), rather than being retained in the class in which they resided when the policy was initially issued. The Petition alleges, inter alia, that this practice violated Section 626.9541(1)(g)2., Florida Statutes, which is a section in the UITPA. This statement is alleged in the Petition to be a statement of general applicability. Count Three alleges that all of those individuals formerly covered through the Prescription For Good Health Trust who were at the time of their discontinuance HIPAA eligible, were, arbitrarily and without regard to health status, assigned a premium rate of either three or five times the base rate for TNI as a whole. Count Three alleges that this assignment unfairly discriminated against the HIPAA eligible individuals who were of the same actuarially supportable class and essentially the same hazard. Count Three further alleges, inter alia, that this violated Section 626.9541(1)(g)2., Florida Statutes. This statement is alleged in the Petition to be a statement of general applicability. Count Four alleges that the enactment of Section 627.6425, Florida Statutes, in 1996, as amended in 1997, statutorily determined that the Prescription For Good Health Trust plan was "guaranteed renewable" as that term is used and understood in the insurance industry. It further alleged that the term "guaranteed renewable” means that once an insurer classifies an individual as a member of an actuarially supportable class for rate and premium applicable to the specified coverage, that individual may not thereafter be charged a premium which is different from any other member of the same class and cannot be moved to another class. The complaint states that United unlawfully moved insureds from one class to another. Count Four additionally alleged that when United discontinued the Prescription For Good Health Trust, the prerequisite for individuals to obtain renewed health insurance coverage was reclassification of some of those individuals to different actuarially supportable classes based on their health status then pertinent to those individuals. It was further alleged that higher premiums were charged to approximately 70 percent of those who renewed or continued, and that premium increases of 200 percent to 300 percent were experienced. Count Four asserted that Section 627.6425(3), Florida Statutes, prohibits such reclassification. Count Four also alleges, inter alia, that this violated Section 626.9541(1)(g)2., Florida Statutes, because such reclassification was discriminatory. This statement is alleged in the Petition to be a statement of general applicability. Count Five alleges that on the one year anniversary of renewal with TNI, United unlawfully reclassified additional individuals which resulted in a premium increases of up to 60 percent. Count Five alleges, inter alia, that this violated Section 626.9541(1)(g)2., Florida Statutes, because this action was discriminatory. This statement is alleged in the Petition to be a statement of general applicability. Count Six alleges that within the tier blocks described in Count Two, United unlawfully established numerous sub- classifications based on health related factors pertinent to each individual within that class. It is alleged in the Complaint that these sub-classifications resulted in individuals within the same class being charged a different premium than are other members of the class. Count Six alleges, inter alia, that this violated Section 626.9541(1)(g)2., Florida Statutes, because this action was discriminatory. This statement is alleged in the Petition to be a statement of general applicability. Count Seven alleges that United used a point debit system where an arithmetic number of points are assigned to a corresponding health hazard. The higher the cumulative debit score, the higher the premium. United will decline to insure at all if the cumulative debit score gets sufficiently high. Count Seven alleges that the assignment of points with no criteria for decision-making results in arbitrary and discriminatory point scores. Count Seven alleges, inter alia, that this violated Section 626.9541(1)(g)2., Florida Statutes. This statement is alleged in the Petition to be a statement of general applicability. In summary, the three statements alleged to be rules are: Practicing tier rating is discriminatory and violates the UITPA. Placing HIPAA-eligible individuals in a premium classification solely on the basis of their HIPAA eligible status is discriminatory and violates the UITPA. The term "guaranteed renewable" prohibits the classification of individuals in a health insurance group at a time other than at the inception of coverage.
The Issue Whether petitioner owes respondent premiums on account of insurance coverage (Family I) under the State Employees Group Health Insurance Program from March 1, 1979, to August 31, 1981? If so, whether petitioner is obligated to pay the underpayment as a condition of continued insurance coverage?
Findings Of Fact Until December 6, 1978, petitioner, who has worked as a forest ranger for Florida's Department of Agriculture and Consumer Services since 1967 or 1968, was married to Betty R. Brogdon, the mother of his two children. Betty Brogdon was employed by Florida's Department of Health and Rehabilitative Services at the time of the dissolution of her marriage to petitioner. A provision of the dissolution decree required petitioner to maintain health insurance in effect for the children. During the marriage, in April of 1978, petitioner applied for, and received Family I insurance in the Florida Employees Group Health Self Insurance Plan, Respondent's Exhibit No. 1, continuing the coverage under a predecessor policy. Petitioner paid a premium for the Family I coverage reduced by certain employer contributions, after formally bringing to his supervisor's attention the fact that Betty R. Brogdon was also a state employee, and signing forms to that effect. Before August 1, 1979, the employer contributed 75 percent of the amount of the premium for Individual I coverage for each employee. From August 1, 1979, until August 1, 1980, the employer contributed, in addition, 25 percent of the family premium. On and after August 1, 1980, the employer contribution for each employee increased to 75 percent of the amount of the premium for Individual I coverage plus 50 percent of the family premium. Since this amount exceeds the total premium for Family I, families with this coverage in which both spouses work for state government have paid no insurance premium for Family I coverage since April 1, 1980. After the marriage ended, Betty Brogdon applied, on February 6, 1979, for Individual I health insurance, by submitting a form through the personnel office at the Sunland Center in Marianna, where she was employed. Since she had been a beneficiary under the family policy that her husband kept in force while they were married, her application reflected no change in that policy. When it reached the Bureau of Insurance of the Department of Administration, it was indistinguishable from any other new application by an employee who had not signed up when beginning work. After medical approval on May 7, 1979, she received Individual I coverage for herself only. Petitioner works with four other forest rangers and a supervisor at a site seven miles west of Marianna. There is no "personnel technician" stationed there and none visits. He told his supervisor of the divorce and, on March 2, 1979, filled out a "personnel action request" form furnished by a district office of the Department of Agriculture and Consumer Services in Bonifay, Florida, indicating "[m]arital and dependent change," which reached the Director of the Division of Forestry on March 9, 1979. Like other forms of its kind, this form never reached the Bureau of Insurance of the Department of Administration. The Bureau of Insurance did receive, however, on August 13, 1981, a "change of information" form reporting the Brogdons' dissolution of marriage on December 6, 1978. Respondent's Exhibit No. 3. Effective the following month, on advice of the Bureau of Insurance, the Department of Agriculture and Consumer Services subtracted from petitioner's paychecks the same insurance premium other employees not married to state employees paid for Family I coverage. The Bureau of Insurance lacks authority to make such deductions itself. Between March of 1980 and December 31, 1982, the only claims submitted under the policy were for petitioner himself. But for the $100.00 deductible, these claims were paid. The difference between what a state employee married to another state employee paid for Family I insurance coverage between July 1, 1979, and August 31, 1981, and what a state employee not married to another state employee paid for the same coverage amounts to $864.42.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent direct petitioner to pay the sum of eight hundred sixty-four dollars and forty two cents ($864.42) within ninety (90) days of entry of final order. If petitioner fails to make timely payment, that respondent cancel his Family I State Employees Group Health Insurance Program policy. DONE and ENTERED this 11th day of May, 1983, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of May, 1983. COPIES FURNISHED: Ben R. Patterson, Esquire 1215 Thomasville Road Tallahassee, Florida 32315 Daniel C. Brown, Esquire Department of Administration 435 Carlton Building Tallahassee, Florida 32301 Nevin G. Smith, Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32301
