05-000159RP Golden Rule Insurance Company vs. Department Of Financial Services, Office Of Insurance Regulation Status: Closed DOAH Final Order on Wednesday, June 8, 2005.

Summary: The proposed amendment to Florida Administrative Code Rule 69O-149.041 is an invalid amendment within the requirements of Subsection 120.52(8), Florida Statutes.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GOLDEN RULE INSURANCE COMPANY, )

)

Petitioner, )

)

vs. ) Case No. 05 - 0159RP

)

DEPARTMENT OF FINANCIAL )

SERVICES, OFFICE OF INSURANCE )

REGULATION, )

)

Respondent. )

)

FINAL ORDER

Administrative Law Judge Don W. Davis of the Division of

Administrative Hearings (“DOAH”) held a final hearing in the

above - styled case, commencing on February 24, 2005, and

continuing on March 7 and March 30, 2005, in Ta llahassee,

Florida.

APPEARANCES

For Petitioner Golden Rule Insurance Company (“Golden

Rule”):

Daniel C. Brown, Esquire

Daniel Hernandez, Esquire

Carlton Fields, P.A.

Post Office Drawer 190

Tallahassee, Florida 32302 - 0190

Frank J . Santry, Esquire

Frank J. Santry, P.L.

2533 Noble Drive

Post Office Box 16337

Tallahassee, Florida 32317 - 6337

For Respondent Department of Financial Services, Office of

Insurance Regulation (“OIR”):

James H. Harris, Esquire

Jamie Metz, Esquire

Office of Insurance Regulation

200 East Gaines Street

612 Larson Building, Room 645A - 5

Tallahassee, Florida 32399 - 4206

STATEMENT OF THE ISSUE

Whether the proposed amendment to Florida Administrative

Code Rule 69O - 149.041 c onstitutes an invalid exercise of

delegated legislative authority.

PRELIMINARY STATEMENT

In 1992, the Florida Legislature enacted the Employers

Health Care Access Act (Section 627.6699, Florida Statutes) to

promote the availability of health insurance cov erage for

employees of small employers. The act mandated the development

of a Standard and a Basic Benefit Plan. § 627.6699, Fla. Stat.

(1992).

In 1992, Florida’s Insurance Commissioner assembled a Small

Employer Benefit Plan Committee (“Committee”) to develop

Standard and Basic Benefit Plans, pursuant to Section 627.6699.

In 1995, the Committee completed its work and produced what is

now commonly referred to as the 1995 Standard and Basic Health

Benefit Plans (the “1995 SHBP” and the “1995 BHBP”, coll ectively

referred to hereafter as the “1995 S&BHBPs”). Later that same

year, in Florida Administrative Code Rule 4 - 149.041 (the

predecessor to Florida Administrative Code Rule 69O - 149.041),

the 1995 S&BHBPs were adopted by rule. Rule 69O - 149.041, as OIR

now proposes to amend it, is the Rule at issue in this

proceeding.

In 2002, Florida’s Insurance Commissioner assembled a new

Committee to consider updated Standard and Basic Health Benefit

Plans (the”2003 SHBP” and the “2003 BHBP”, collectively referred

t o hereafter as the “2003 S&BHBPs”). On July 25, 2003, OIR

issued Order 69745 - 03 - CO, approving the 2003 S&BHBPs, but did

not repeal or amend Florida Administrative Code Rule 69O -

149.041, which incorporated by reference the 1995 S&BHBPs.

Until the proposed rule challenged in this proceeding was

proposed, the 2003 S&BHBPs were not noticed for adoption as a

rule.

In a letter dated September 24, 2004, OIR disapproved a

rate filing made by Golden Rule which listed the 1995 SHBP as a

conversion policy made ava ilable to terminating policyholders.

As a basis for disapproving Golden Rule’s rate filing, OIR noted

that Golden Rule had failed to make the 2003 SHBP available to

terminating individuals in violation of Order 69745 - 03 - CO.

On October 6, 2004, in DOAH Case No. 04 - 3634RU, Golden Rule

filed a petition challenging Order 69745 - 03 - CO as an agency

statement that violated Section 120.54(1)(a), Florida Statutes.

On October 8, 2004, OIR published a notice of rule development

in the Florida Administrati ve Weekly in which OIR proposed to

amend Rule 69O - 149.041 to strike the reference to the 1995

S&BHBPs and incorporate the 2003 S&BHBPs. On October 18, 2004,

OIR filed a motion to stay the proceedings in DOAH Case No. 04 -

3634RU, pending the outcome of the rulemaking process, and the

motion was granted by the undersigned. As of the date of this

final order, DOAH Case No. 04 - 3634RU remains in abeyance.

On January 21, 2005, Golden Rule filed the petition in this

case challenging OIR’s proposed amendment to F lorida

Administrative Code Rule 69O - 149.041. Subsequently, OIR filed a

motion for summary final order and a motion to dismiss Golden

Rule’s petition. Both motions were denied.

At the final hearing, Golden Rule presented the testimony

of Mark Litow, an e xpert witness actuary, and Robert Roth, an

expert witness regarding HIPAA requirements. OIR presented the

testimony of James Swenson as an expert witness actuary, along

with testimony of Glen Volk, Kenney Shipley, Amy Hardee, Frank

Dino, and Richard Roble to. Golden Rule’s Exhibits 1 – 16 and

Golden Rule’s Rebuttal Exhibits 1 – 3 were received into evidence.

OIR’s Exhibits 1 – 6 and 8 – 19 were received into evidence.

A transcript of the final hearing was filed with DOAH on

April 14, 2005. The parties request ed, and were granted, leave

to file their proposed final orders more than 10 days after the

filing of the transcript. Each party timely submitted its

proposed final order. A review of these post - hearing submittals

has been completed and utilized where pr acticable in the

composition of this final order.

Absent contrary indication, citations to Florida Statutes

refer to the 2004 edition.

FINDINGS OF FACT

1. Golden Rule is a foreign insurer authorized to conduct

insurance business in Florida and holds a certificate of

authority authorizing it to transact the following lines of

insurance in Florida: life, group life and annuities, and

accident and health. 1/

2. Pursuant to its certificate of authority, Golden Rule

issues group health insurance polici es in other states under

which residents of Florida are provided coverage for hospital,

surgical, or major medical expenses, or a combination of these,

on an expense - incurred basis.

3. Golden Rule’s group health insurance certificates have

been issued pursuant to several master group contracts entered

into between Golden Rule and group plan sponsors. The only

conversion benefit for Florida certificate holders terminating

their group health insurance policies under each of these master

group contracts, which could have represented the agreed - upon

consideration of the contracting parties, was the then - existing

1995 SHBP.

4. Part VII of Chapter 627, Florida Statutes, governs

group health insurance policies issued in Florida. Section

627.6675, Florida Statutes, 2/ governs conversion insurance

policies issued to terminating members of insured group health

plans in Florida and provides, in pertinent part, as follows:

Subject to all of the provisions of this

section, a group policy delivered or issued

for delivery in this state by an insurer or

nonprofit health care services plan that

provides, on an expense - incurred basis,

hospital, surgical, or major medical expense

insurance, or any combination of these

coverages, shall provide that an employee or

member whose insurance under the group

policy has been terminated for any reason,

including discontinuance of the group policy

in its entirety or with respect to an

insured class, and who has been continuously

insured under the group policy, and under

any group policy providing similar benefits

that the terminated group policy replaced,

for at least 3 months immediately prior to

termination, shall be entitled to have

issued to him or her by the insurer a policy

or certificate of health insurance, referred

to in t his section as a "converted policy."

* * *

(10) REQUIRED OPTION FOR MAJOR MEDICAL

COVERAGE. -- Subject to the provisions and

conditions of this part, the employee or

member shall be entitled to obtain a

converted policy providing major medical

coverage un der a plan meeting the following

requirements:

(a) A maximum benefit equal to the lesser

of the policy limit of the group policy from

which the individual converted or $500,000

per covered person for all covered medical

expenses incurred during the cover ed

person's lifetime.

(b) Payment of benefits at the rate of 80

percent of covered medical expenses which

are in excess of the deductible, until 20

percent of such expenses in a benefit period

reaches $2,000, after which benefits will be

paid at the rate of 90 percent during the

remainder of the contract year unless the

insured is in the insurer's case management

program, in which case benefits shall be

paid at the rate of 100 percent during the

remainder of the contract year. For the

purposes of this pa ragraph, "case management

program" means the specific supervision and

management of the medical care provided or

prescribed for a specific individual, which

may include the use of health care providers

designated by the insurer. Payment of

benefits for ou tpatient treatment of mental

illness, if provided in the converted

policy, may be at a lesser rate but not less

than 50 percent.

(c) A deductible for each calendar year

that must be $500, $1,000, or $2,000, at the

option of the policyholder.

(d) The te rm "covered medical expenses," as

used in this subsection, shall be consistent

with those customarily offered by the

insurer under group or individual health

insurance policies but is not required to be

identical to the covered medical expenses

provided in the group policy from which the

individual converted.

(11) ALTERNATIVE PLANS. -- The insurer shall,

in addition to the option required by

subsection (10), offer the standard health

benefit plan, as established pursuant to s.

627.6699(12). The insurer ma y, at its

option, also offer alternative plans for

group health conversion in addition to the

plans required by this section. (Emphasis

added)

5. The underscored portion of Section 627.6675(11) above

was enacted by Chapter 97 - 179, Laws of Florida, and became

effective on May 30, 1997.

6. In 1997, when the Legislature amended Section

627.6675(11) as indicated in paragraph 4 above, Section

627.6699(12) read, in pertinent part, as follows:

1. By May 15, 1993, the commissioner shall

appoint a health bene fit plan committee

composed of four representatives of carriers

which shall include at least two

representatives of HMOs, at least one of

which is a staff model HMO, two

representatives of agents, four

representatives of small employers, and one

employee o f a small employer. The carrier

members shall be selected from a list of

individuals recommended by the board. The

commissioner may require the board to submit

additional recommendations of individuals

for appointment. As alliances are

established under s. 408.702, each alliance

shall also appoint an additional member to

the committee.

2. The committee shall develop changes to

the form and level of coverages for the

standard health benefit plan and the basic

health benefit plan, and shall submit the

f orms and levels of coverages to the

department by September 30, 1993. The

department must approve such forms and

levels of coverages by November 30, 1993,

and may return the submissions to the

committee for modification on a schedule

that allows the depar tment to grant final

approval by November 30, 1993.

* * *

5. After approval of the revised health

benefit plans, if the department determines

that modifications to a plan might be

appropriate, the commissioner shall appoint

a new health benefit plan com mittee in the

manner provided in subparagraph 1. to submit

recommended modifications to the department

for approval.

§ 672.6699(12), Fla. Stat. (Supp. 1996), Compare § 627.6699(12),

Fla. Stat. (1999) (containing the same language).

7. In 1997, when th e Legislature amended Section

627.6675(11), as indicated in paragraph 4 above, the 1995

S&BHBPs had been adopted by reference and incorporated in

Florida Administrative Code Rule 4 - 149.041 (the predecessor to

Florida Administrative Code Rule 69O - 149.041). 3 / Given the

adoption of the specific S&BHBPs by rule in 1995, given the

language of Section 627.6699(12), Florida Statutes, in 1997

(which referred to the approval and adoption of a specific set

of benefits on a specified time schedule), and given the mea ning

in the law and in common usage of the word "established,” 4/ it is

reasonable to conclude, and it is concluded, that the statutory

language in Section 627.6675(11) as passed in 1997 -- “the

standard health benefit plan, as established pursuant to s.

627. 6699(12)” -- referred to the 1995 SHBP, which was then in

existence and had been specifically adopted by rule at the time

of enactment of Chapter 97 - 179, Laws of Florida.

8. On October 8, 2004, in Volume 30, No. 41 of the Florida

Administrative Weekly, OIR noticed a proposed amendment to

Florida Administrative Code Rule 690 - 149.041, which would

substitute the 2003 S&BHBPs, developed by a benefits committee

convened in 2002, in place of the 1995 S&BHBPs, and would

incorporate, by reference, Order 69745 - 03 - CO into the proposed

rule. The proposed amendment states, in the portion relevant to

this challenge, as follows:

(d) New and renewal policies for the Basic

and Standard policies issued on or after

August 1, 2003 , May 1, 1995, must include

the Basic an d Standard Health Benefit Plans

approved by Order 69745 - 03 - CO signed by the

Director on July 25, 2003 , (OIR B2 95)

pursuant to Section 627.6699(12), F.S.,

which is incorporated herein by reference .

. . .

9. As specific authority for the proposed amend ment to the

Rule, OIR cited Section 626.9611, Florida Statutes (2004), which

authorizes the Department of Financial Services or the Financial

Services Commission (“FSC”) to adopt rules necessary or proper

to identify specific methods of competition or acts or practices

which are prohibited by the Unfair Insurance Trade Practices

Act; Section 627.6699(13)(i), Florida Statutes (2004), which

provides that the FSC may establish regulations setting forth

additional standards to provide for the fair marketing and broad

availability of health benefit plans to small employers in this

state; and Section 627.6699(16), Florida Statutes, which

addresses the applicability of other state laws to Florida small

employer groups.

10. As the laws being implemented by the p roposed

amendment to the Rule, OIR cited to Sections 626.9541(1)(b),

(g)2., (x)3., and 627.6699(3)(g), (v), (5)(a), (7), (12)(c),

(13)(b), Florida Statutes. The proposed amendment to the Rule,

however, clearly also “ implements, interprets, or prescribes l aw

or policy,” 5/ as to Section 627.6675(11), Florida Statutes, and

would appear to require insurers offering Conversion Policies

under Section 627.6675 to offer the 2003 SHBP, rather than the

1995 SHBP, as the Conversion Policy option referred to in

Sectio n 627.6675(11), Florida Statutes. Section 120.54(3)(a),

Florida Statutes, requires OIR to make reference in its notice

of proposed rulemaking to the sections or subsections of the

Florida Statutes being implemented. OIR did not do so with

respect to Sect ion 627.6675 or Subsection (11) thereof.

11. The FSC has not approved the proposed amendment to the

rule.

12. As Litow and others testified, a mandatory conversion

policy, sometimes referred to as a guaranteed issue policy, must

be issued to an individ ual (whether previously insured in a

small group market, or another group market) upon his request,

without consideration of his risk characteristics (without

underwriting). In contrast, an underwritten policy is an

insurance policy issued after the healt h status of the

individual applying for coverage is evaluated, and the insurance

company makes a decision whether to accept or reject the risk.

13. In the Small Employer Group market, governed by

Section 627.6699, Florida Statutes, it is the employer who makes

the decision about whether or not to purchase the health

insurance policy at the quoted premium rate. By contrast, in

the Converted Policy market, it is the covered individual who

makes the decision about whether or not to purchase the health

insur ance policy at the quoted premium rate.

14. The concept of anti - selection in health insurance is

that only those persons who would tend to benefit most from

purchasing an insurance product would have incentive to do so,

and others would not.

15. The cr edible and convincing testimony of Litow,

corroborated by the testimony of OIR’s own expert, James

Swenson, shows that the benefits under the 2003 SHBP are more

expansive than the benefits offered under the 1995 SHBP. For

example, the lifetime benefits un der the 2003 SHBP is five

million dollars, as compared to one million dollars under the

1995 SHBP. Where the 1995 SHBP had a benefit limitation of

$200,000 for organ transplants, the 2003 SHBP has no limitation

and also covers several organ transplants, i ncluding liver,

pancreas, and kidney, not covered under the 1995 SHBP.

Additionally, the 2003 SHBP includes a new benefit for alcohol

and substance abuse not available under the 1995 SHBP.

16. As established by expert actuarial testimony at the

final h earing, the actuarial impact on the Conversion Policy

market ( See Section 627.6675) of utilizing the 2003 SHBP instead

of the 1995 SHBP would be to increase the expected average

claims losses experienced by insurers participating in the

Conversion Policy m arket.

17. While asserting the position that the 2003 SHBP would

apply to Converted Policies for all insurers required to issue

such policies under Section 627.6675(11), Florida Statutes, OIR

has never reviewed or analyzed the actuarial impact of the 2 003

SHBP mandated by the Department for use in the Converted Policy

market.

18. The 2003 SHBP increases and/or adds benefits in the

area of organ transplants, lifetime coverage limits, emergency

room and hospital, and alcohol and drug abuse treatment. T he

actuarial impact of replacing the 1995 SHBP with the 2003 SHBP

in the Converted Policy market governed under Section 627.6675

is substantial. However, the minutes of the 2002 Small Employer

Benefits Plan Committee meetings between June 6, 2002, and

Se ptember 27, 2002, in evidence in this proceeding, offers no

reference to analysis of this type.

19. Also in evidence as Golden Rule Exhibit 7, the Florida

Small Employer Benefit Plan Committee Report of 2002, does not

refer to any data review or analysi s of the impact of changes in

the Converted Policy market. Nor is reference to data review or

analysis of the impact of the Standard Health Benefit Plan

changes in the Converted Policy market contained in the order

approving the small employer standard an d basic health benefit

plans, signed by Insurance Commissioner McCarty on July 25,

2003.

20. Frank Dino, OIR’s chief actuary and that agency’s

designated representative at this hearing, was an advisor to the

Florida Small Employer Benefit Plan Committee. He testified

that he did not know whether actuary members of the 2002

Committee ever analyzed differences between the 1995 and 2003

SHBPs using any sub - standard market data. He admitted, in his

opinion as an actuary, that the use of substandard market d ata,

as opposed to standard (underwritten) market data, would make a

difference in the analysis.

21. By previous deposition taken in these proceedings,

Dino testified that he was unable to formulate any actuarial

opinion on whether Conversion Policies ha ve a higher level of

anti - selection than small employer carrier policies. He also

testified that he did not know whether an increase of lifetime

benefits from $1 million to $5 million would have a greater

actuarial effect in the Converted Policy market th an the Small

Employer market.

22. Similarly, Dino was without an opinion regarding the

difference in effect between the Small Employer market and the

Converted Policy market regarding other changes from the 1995

SHBP to the 2003 SHBP. As previously note d, compared to the

1995 SHBP, the 2003 SHBP eliminates the emergency room

deductible, doubles outpatient rehabilitation benefits, adds

alcohol and substance abuse benefits, adds benefits for

preventative care, and removes caps on organ transplant

benefits. Dino testified that it was unlikely that anyone at

OIR would have a higher level of information about any of these

topics than he.

23. Richard Robleto, the Deputy Insurance Commissioner,

asserted that he attended every meeting of the 2002 Florida

Small Employer Benefit Plan Committee. He was unable to recall

any discussion by the 2002 Committee about whether changes from

the 1995 SHBP to 2003 SHBP would have a different impact on

Conversion Policies than on Small Employer policies.

24. Glen Volk, a c onsulting actuary, was a member of the

2002 Florida Small Employer Benefit Plan Committee. He

performed a premium pricing comparison between the 1995 SHBP and

the 2003 SHBP, but neither his database nor his assumptions

included data from the Converted Pol icy market.

25. An OIR analysis of the actuarial impact of the 2003

SHBP in the Converted Policy market, undertaken by Dino

following his deposition and before his hearing testimony on

March 30, 2005, uses data provided by James Swenson of Blue

Cross/Blu e Shield of Florida, which confirms Litow’s opinion

that a very small number of very high claims, which would result

from the benefit increases from the 1995 SHBP to the 2003 SHBP,

are extremely detrimental to the insurer issuing Converted

Policies. Swens on’s Blue Cross data shows the following: 98.8

percent of claims averaged $10,000; only 1.2 percent of claims

were over $100,000; but that 1.2 percent of the claims resulted

in 22.3 percent of total the claims costs. Because the 2003

SHBP increases the p otential of high cost benefits, and results

in higher utilization of high cost medical services, the result

is a very high trend increase in the whole insurance plan.

26. OIR and personnel have failed to take into account

medical cost trends from the dat e of the collected data to the

projected current date. The medical cost trend from 1988 to

2005 has averaged in excess of 10 percent per year. For high

cost claims (such as organ transplantation claims), the average

annual increase is even higher, as mu ch as 25 percent. At this

rate of trend, claims costs for high expense procedures will

double in less than three years.

27. When claims costs for Converted Policies exceed what

can be legally charged to the converted policyholders, that

excess must be e ither absorbed by the carrier or passed on to

the individually underwritten group members in the form of

increased premiums. Those individually underwritten

policyholders who are healthy, and can pass medical underwriting

for new insurance coverage, will do so to lower their premiums.

The result is that as the remaining insureds on average become

less and less healthy as a result of this anti - selection

process; and as claims among a carrier’s insureds become higher

as a percentage of the total number of i nsureds, claims costs

will tend inevitably to spiral still higher than rate increases

can cover. In these circumstances, the insurer, particularly a

small to medium - sized insurer, can never collect enough premium

to cover claim losses.

28. Applying appr opriate actuarial analysis to the

determination of the Impact of the 1995 SHBP contrasted to the

2003 SHBP, in the Converted Policy market, the evidence shows a

significant adverse actuarial impact on Petitioner and similarly

situated insurers of Converte d Policies under Section 627.6675,

Florida Statutes.

29. Actuarial impact is determined by comparing the cost

of one insurance scenario to another. One first analyzes a base

scenario, then makes a change in the base scenario, and compares

the expec ted cost of the base scenario to the expected cost of

the changed scenario.

30. Contrasting the base scenario (the 1995 SHBP) to the

changed scenario (the 2003 SHBP), a variety of actuarially

significant changes occur. The 2003 SHBP increases benefits f or

organ transplants, both in terms of types of transplants

covered, and the removal of the dollar limit on coverage. The

1995 SHBP limited coverage of organ transplants to $200,000.

The 2003 SHBP provides unlimited coverage and additional types

of organ transplants not covered under the 1995 SHBP. These

additional transplant procedures are extremely expensive,

ranging currently in price from $200,000 to more than $400,000.

Further, the 1995 SHBP limited lifetime benefits to $1 million --

the 2003 SHBP raises that limit five - fold.

31. Using actuarial standards and practices developed by

the Society of Actuaries, Litow opined, and it is found, that

the actuarial impact of the changes from the 1995 SHBP to the

2003 SHBP in the Converted Policy market co uld reasonably result

in increased insurance claims costs of 40 percent or more.

32. The likely increased utilization caused by using the

2003 SHBP in the Converted Policy market is obvious when

comparing the out - of - pocket expenses of someone needing a

$ 350,000 transplant under the 1995 SHBP, compared to the 2003

SHBP. Assuming the transplant would have been covered at all

under the 1995 SHBP, the patient’s out - of - pocket costs would

have been $150,000. Under the 2003 SHBP, the out - of - pocket cost

is $10, 000. When out - of - pocket costs to the patient for the

same procedure drop so dramatically, utilization will increase.

33. Consequently, the challenged rule’s proposal to

abandon the 1995 SHBP for use as a Converted Policy option and

to substitute the 200 3 SHBP in its place arbitrarily and

capriciously exposes group carriers to unrecoverable business

losses from Converted Policies issued under Section

627.6675(11).

34. OIR’s asserted position and evidence presented in

support of that position that compl iance with the Federal Health

Insurance Portability and Accountability Act of 1996 (“HIPAA”),

Pub. Law 104 - 191, requires that Sections 627.6675(11) and

627.6699(12), Florida Statutes, be read as requiring that the

most current standard plan (policy form) d eveloped for use in

the Small Employer Group market under Section 627.6699(12)

(presently, the 2003 SHBP), be the available Conversion Policy

option under Section 627.6675(11), is not credited. Such an

interpretation of the pertinent statutes in that mann er, as a

condition of Florida’s maintaining an acceptable “State

Alternative Mechanism” (“SAM”) to HIPAA’s guaranteed

availability requirements in the individual market, is

unpersuasive in view of the more credible testimony at hearing

from Robert Roth, a n expert witness regarding HIPAA

requirements.

35. Roth’s testimony establishes that HIPAA did not

require Florida (or any state) to adopt a SAM. When the State

of Florida elected to adopt a SAM, nothing in HIPAA required the

SAM to include the offering o f conversion plans as an element of

the SAM. The vast majority of states with a SAM do not require

the offering of conversion plans to satisfy HIPAA’s guaranteed

availability requirements. Florida’s SAM would not violate

HIPAA, even if neither of the Sma ll Employer Group standard

plans (the “1995 SHBP” or the “2003 SHBP”) were offered as a

Conversion Policy.

36. The provisions of 45 CFR Section 148.128

(a)(1)(iii)(A), allows Florida’s SAM to offer comprehensive

coverage offered in the individual market. Availability of such

coverage pursuant to Section 627.6675(10), Florida Statutes,

allows Florida’s SAM to meet those requirements without regard

to the SHBPs. HIPAA allows Florida the flexibility to adopt a

SAM that complies with either 45 CFR Section 1 48.128

(a)(1)(iii)(A) or 45 CFR Section 148.128 (a)(1)(iii)(B). In

order for a SAM to be in compliance with HIPAA, there is no

requirement that HIPAA eligible individuals be offered policies

under both sub - paragraphs (A) and (B) of that regulation.

37. Even if Florida repealed Section 627.6675(11), Florida

Statutes, altogether, such action would have no effect on

Florida’s SAM under HIPAA.

38. There is no evidence in the record that OIR referred

to HIPAA in any of its notices or deliberations concernin g

development of the 2003 SHBP or the rule being challenged in

these proceedings.

39. The activities of the 2002 Benefits Committee

constituted free - form agency action, and offered no point of

entry concerning whether the 2003 SHBP could or should be a

required Converted Policy form.

40. OIR’s Order 69745 - 03 - CO provided no pre - final order

point of entry under Chapter 120, Florida Statutes.

41. The proposed rule is arbitrary and capricious.

CONCLUSIONS OF LAW

42. The Division of Administrative Heari ngs has

jurisdiction over the parties and this proceeding.

43. Section 120.56(1)(a), Florida Statutes, provides that

any person substantially affected by a rule or a proposed rule

may seek an administrative determination of the invalidity of

the rule on the ground that the rule is an invalid exercise of

delegated legislative authority.

44. Golden Rule is licensed to transact life and health

insurance, including group and individual insurance, and it

issues conversion policies to covered persons who are

terminating from their group health insurance policies, under

Section 627.6675, Florida Statutes. Golden Rule is

substantially affected by the proposed rule.

45. OIR’s proposed amendment to Rule 69O - 149.041, which

purports to strike the incorporated refe rence in the existing

rule to the 1995 SHBP and substitute the 2003 SHBP in its place,

will substantially affect Golden Rule.

46. Golden Rule has standing to challenge the proposed

rule. E.g. Ortiz v. Department of Health, Board of Medicine ,

882 So. 2d 4 02 (Fla. 4th DCA 2004); Cole Vision Corporation v.

Department of Business and Professional Regulation, Board of

Optometry , 688 So. 2d 404 (Fla. 1st DCA 1997); Ward v. Board of

Trustees of the Internal Improvement Trust Fund , 651 So. 2d 1236

(Fla. 4th DCA 1 995); Florida Dep’t of Prof. Reg. v. Florida

Dental Hygienist Ass’n. , 612 So. 2d 646 (Fla. 1st DCA 1993).

47. Consideration of the validity of OIR’s proposed

amendment to the Rule must necessarily commence with Section

120.52(8), Florida Statutes. Sec tion 120.52(8), Florida

Statutes, states, in relevant part, as follows:

(8) "Invalid exercise of delegated

legislative authority" means action which

goes beyond the powers, functions, and

duties delegated by the Legislature. A

proposed or existing rule i s an invalid

exercise of delegated legislative authority

if any one of the following applies:

(a) The agency has materially failed to

follow the applicable rulemaking procedures

or requirements set forth in this chapter;

(b) The agency has exceeded its grant of

rulemaking authority, citation to which is

required by s. 120.54(3)(a)1.;

(c) The rule enlarges, modifies, or

contravenes the specific provisions of law

implemented, citation to which is required

by s. 120.54(3)(a)1.;

* * *

(e) The rule is arbitrary or capricious. A

rule is arbitrary if it is not supported by

logic or the necessary facts; a rule is

capricious if it is adopted without thought

or reason or is irrational;

48. OIR’s proposed rule amendment violates Section

120.52(8)(a), bec ause OIR failed to follow the rulemaking

procedures or requirements set forth in Section 120.54(3)(a)1.,

Florida Statutes, which provides as follows:

Prior to the adoption, amendment, or repeal

of any rule other than an emergency rule, an

agency, upon app roval of the agency head,

shall give notice of its intended action,

setting forth a short, plain explanation of

the purpose and effect of the proposed

action ; the full text of the proposed rule

or amendment and a summary thereof; a

reference to the specifi c rulemaking

authority pursuant to which the rule is

adopted; and a reference to the section or

subsection of the Florida Statutes or the

Laws of Florida being implemented,

interpreted, or made specific . (emphasis

supplied)

49. Adoption of the rule amend ment in the form proposed

would require the offering of the 2003 SHBP as a Conversion

Policy option under Section 627.6675(11), Florida Statutes, in

lieu of the 1995 SHBP. OIR’s notices regarding the proposed

rule amendment were silent in this regard, and did not list

Section 627.6675 among the sections of laws to be implemented by

the proposed rule, even though, as proposed, the rule amendment

would implement, interpret or prescribe policy in relation to

Section 627.6675(11).

50. As rulemaking authorit y, OIR first cites to Section

626.9611, Florida Statutes, which provides that the FSC may, in

accordance with Chapter 120, adopt reasonable rules as are

necessary or proper to identify specific methods of competition

or acts or practices which are prohibit ed by Sections 626.9541

or 626.9551, Florida Statutes. The proposed rule amendment does

not purport to identify any methods of competition or acts or

practices prohibited by the referenced sections. Thus, the

proposed rule amendment exceeds the rulemakin g authority granted

to OIR under Section 626.9611.

51. None of the rulemaking authorities cited in the

proposed rule amendment grant OIR the authority to require

companies that participate in the expense - incurred, group

hospital, surgical or major medica l expense market to offer the

2003 SHBP as a Converted Policy. An agency’s authority to adopt

an administrative rule must be based on an explicit power or

duty identified in the enabling statute; otherwise, the rule is

not a valid exercise of delegated le gislative authority.

Southwest Florida Water Management District v. Save the Manatee

Club, Inc. , 773 So. 2d 594, 599 (Fla. 1st DCA 2000).

52. OIR has the authority to carry out preliminary

rulemaking activities under Sections 120.536 – 120.565, Florida

Sta tutes, on behalf of the FSC. The OIR’s delegated authority

does not, however, include final rule - adoption authority, which

is maintained by the FSC. § 20.121, Fla. Stat.

53. The proposed rule amendment violates Section

120.52(8)(e) because it is arbit rary and capricious. An

“arbitrary” decision is one not supported by facts or logic, or

is despotic. A “capricious” decision is one taken irrationally,

or without thought or reason. Board of Clinical Laboratory

Personnel v. Florida Association of Blood Banks , 721 So. 2d 317,

318 (Fla. 1st DCA 1998). Under any of the standards provided by

the cited case, the proposed amended rule is arbitrary and

capricious. There is no evidence in the rulemaking record for

the proposed amended rule that imposing the 20 03 SHBP as a

Converted Policy form is supported by logic, facts, or reason.

Moreover, the evidence shows that OIR did not consider the

actuarial impact of substituting the 2003 SHBP for the 1995

SHBP, as a required Conversion Policy option, even though t he

actuarial impact of doing so is substantial. The proposed

amended rule is therefore arbitrary and capricious, as a matter

of fact and law.

54. The proposed rule amendment would impair preexisting

group policies, and preexisting master group policies, such as

Golden Rule’s. From the evidence, it appears likely that the

Legislature had in mind the then - existing Small Employer Group

Health Benefit Plan (the 1995 SHBP) when it adopted Section

627.6675(11), Florida Statutes, in 1997, which provided that

“t he standard health benefit plan, as established pursuant to s.

627.6699(12)” (emphasis added) was to be offered as a Conversion

Policy option.

55. The word "established" has a definite meaning in the

law and in common usage. "To establish is to make stabl e or

firm; to fix in permanence and regularity, to settle or secure

on a firm basis, to settle firmly or to fix unalterably." Wells

Lamont Corp. v. Bowles , 149 F.2d 364, 366 (Emerg. Ct. App.

1945). Similarly, Webster's 3rd International Dictionary , p.

77 8 (G.&C. Merriam Co. 1976) defines "establish" as: "to make

firm or stable; to settle; to bring into existence, create, or

make permanent."

56. “Establish” is distinguished in meaning from words

such as “prescribe” -- an alternative choice of wording the

Leg islature has chosen in other portions of the Insurance Code,

including in Section 627.6699, the statute which Subsection

627.6675 (11) explicitly cross - references. 6/ In contrast to

“establish,” “prescribe” means “to lay down authoritatively as

a guide.” Black’s Law Dictionary , p. 1183 (6th Ed., West 1990)

(emphasis added). 7/ It is thus reasonable to conclude that, if

the Legislature intended in Subsection 627.6675(11) merely to

“lay down a guide” or a “direction or rule of action” that

future changes to the Standard Health Benefit Plan made under

Subsection 627.6699(12) were to then become a Conversion Policy

form that must be offered under Subsection 627.6675(11), the

Legislature would have chosen the phrase “ as prescribed pursuant

to s. 627.6699(12),” or some similar phrase connoting a

legislative intention to direct change over time. Instead, the

Legislature chose the phase “as established pursuant to s.

627.6699(12),” which connotes a fixed or permanent object – - the

then - existing, precisely defined be nefit levels in the 1995

SHBP.

57. When the Legislature uses terms having distinct

meanings, particularly in two statutes that are expressly cross -

referenced and which are therefore to be read in pari materia ,

the well - established rule of statutory const ruction is that the

Legislature is presumed to have intended differing meanings in

selecting the language enacted. See , e.g. , State v. Cyphers ,

873 So. 2d 471 (Fla. 2nd DCA 2004); State v. Bradford , 787 So.

2d 811 (Fla. 2001).

58. OIR asserts that Subsect ions 627.6675(11) and

627.6699(12) should be read to mean that any benefit plan change

made under Subsection 627.6699(12) for use in the Small Employer

Group market automatically, by force of law, becomes the

Converted Policy form thereafter to be required under Subsection

627.6675(11). This is the entire underpinning for OIR’s

argument -- that the proposed rule only implements Section

627.6699. OIR asserts that its interpretation should be given

deference.

59. The deference, however, commonly granted an agency's

interpretation is not absolute. The agency’s interpretation

must be, for instance, a permissible one. Department of Natural

Resources v. Wingfield Dev. Co. , 5 81 So. 2d 193 (Fl a. 1st DCA

1991) See also Secret Oaks Owner's Ass’n, Inc. v. Departme nt of

Environmental Protection , 704 So. 2d 702, (Fla. 5th DCA 1998).

When an agency's construction amounts to an unreasonable

interpretation, it cannot stand. Woodley v. Department of

Health & Rehabilitative Servs. , 505 So. 2d 676, 678 (Fla. 1987).

In a ddition, the agency’s interpretation should be measured

against established rules of statutory construction.

60. In this regard, it must be observed that a reasonable

construction of statutes under review that avoids constitutional

issues and preserves th e constitutionality of the statutes in

question should be chosen whenever possible. E.g. , Weber v.

State , 649 So. 2d 253, (Fla. 2nd DCA 1994); Rinzler v. Carson ,

262 So. 2d 661 (Fla. 1972).

61. OIR’s interpretation of Sections 627.6675 and

627.6699, neces sarily inherent in the proposed rule, is not

entitled to deference. It is at odds with the commonly

understood meaning of the key statutory language in Subsection

627.6677(11). It raises the specter of serious constitutional

defects, rather than avoiding them; and constitutes the

impairment of pre - existing contract rights and breach of the

separation of powers requirement of Article II, section 3, of

the Florida Constitution. 8/

62. Insurers operating under Subsection 627.6675(11)

bargained for a level o f benefits to be offered under Conversion

Policies no greater than the benefits afforded to converters

under the 1995 SHBP, and, as discussed above, the 1997 law

creating Subsection 627.6675(11) is fairly read to require no

more than that level of benefits as a Conversion Policy option.

The evidence plainly shows that the actuarial cost of replacing

the 1995 SHBP level of benefits with the benefits of the 2003

SHBP as a Conversion Policy form is substantial, that insurers

will not be able to recoup those a dditional costs from

converters, and will likely not be able to pass those costs on

in the form of increased premiums to the underwritten market.

Insurers therefore would suffer unrecoupable losses in the

Conversion Policy market by virtue of the proposed rule, losses

they did not bargain to undertake when issuing group policies

governed by Section 627.6675, when they issued group contracts.

63. Article I, section 10, of the Florida Constitution

provides that "[n]o . . . law impairing the obligation of

c ontracts shall be passed." That provision is to be rigorously

applied. See , e.g ., Yamaha Parts Distributors, Inc. v. Ehrman ,

316 So. 2d 557, 559 (Fla. 1975) ("Virtually no degree of

contract impairment has been tolerated in this state.");

Department of T ransportation v. Chadbourne , 382 So. 2d 293, 297

(Fla. 1980) ("This Court has generally prohibited all forms of

contract impairment."); Pomponio v. Claridge of Pompano

Condominium, Inc. , 378 So. 2d 774, 780 (Fla. 1979)(recognizing

that the Yamaha standard compels less tolerance of contract

impairment than would be acceptable under traditional federal

contract clause analysis).

64. The courts have repeatedly recognized that the

application of changed laws to insurance contracts entered into

before the effect ive date of such change constitutes an

impermissible impairment of contracts . See , e.g . , Smith v.

Department of Insurance , 507 So. 2d 1080 (Fla. 1987)(provision

of insurance and tort reform statute that required a special

credit or premium rebate was unco nstitutional because it changed

the agreed - to premiums of policies written before the statute's

effective date); Fireman's Fund Ins. Co. v. Pohlman , 485 So. 2d

418 (Fla. 1986)(retrospective application of statute permitting

stacking of uninsured motorist c overage); State Farm Mut. Auto.

Ins. Co. v. Gant , 478 So. 2d 25 (Fla. 1985)(retrospective

application of statute permitting stacking of uninsured motorist

coverage); Dewberry v. Auto - Owners Insurance Co. , 363 So. 2d

1077, 1079 - 80 (Fla. 1978)(retrospective application of statute

prohibiting stacking of uninsured motorist coverage);

Metropolitan Property and Liability Insurance Co. v. Gray , 446

So. 2d 216, 218 (Fla. 5th DCA 1984)(retrospective application of

statute removing antistacking provisions of earlier uninsured

motorist legislation); Lumbermens Mut. Cas. Co. v. Ceballos , 440

So. 2d 612, 613 (Fla. 3d DCA 1983)(retroactive application of

statute regarding insurer's liability for PIP benefits an

unconstitutional impairment of contracts).

65. The proposed rule, implicitly construing Sections

627.6675 and 627.6699 as it does, and in a manner that would

impose unrecoupable losses on insurers in the Conversion Policy

market - – losses that insurers did not bargain to undertake when

issuing group policies -- would c reate a substantial risk of

impairment of contracts.

66. Moreover, Sections 627.6675 and 627.6699 should not be

interpreted in a manner that creates a substantial risk of

running afoul of the non - delegation clause in Article II,

section 3, of the Florida Constitution. That constitutional

article requires that the l egislature not delegate open - ended

authority to OIR, or to a committee appointed by OIR, to

prescribe what the law shall be. B.H. v. State , 645 So. 2d 987

( Fla. 1994.) It prohibits the Legisl ature, and any other branch

of government, from engrafting future undelimited decisions of

non - legislative bodies into the governing law of the state. E.g

State v. Welch 279 So. 2d 11, 14 (Fla. 1973). The only

exception to this uniform prohibition is tha t the Legislature

may direct an executive agency to use a precise, well - defined

ministerial method, such as the consumer price index, to

ascertain a future value. Eastern Air Lines, Inc. v. Department

of Revenue , 455 So. 2d 311 (Fla. 1984).

67. OIR may no t lawfully interpret the in pari materia

provisions of Sections 627.6675 and 627.6699 as allowing

adoption of an undelineated future Standard Health Benefit Plan,

to be arrived at without legislative delimitation as to its

terms and limits, as a required Conversion Policy form under

Subsection 627.6675(11). That is the result, however, of the

rule amendment as OIR proposes it.

68. Nothing in HIPAA required Florida, in adopting a state

alternative mechanism (“SAM”) to meet HIPAA guaranteed

availability re quirements in the individual market to:

a. Amend Section 627.6675, Florida Statutes, to add

Subsection (11) in 1997 to receive certification of a SAM, or

b. Ensure that one of the conversion plans offered to

HIPAA - eligible individuals be the sa me as a standard plan

offered in the Small Employer Group market.

69. Nothing in HIPAA or HIPAA’s implementing regulations

mandated that OIR adopt the 2003 SHBP by rule or otherwise.

70. OIR’s reliance upon HIPAA in support of the challenged

rule in this case is not persuasive. The proposed rule has the

effect by its structure and terms of requiring the use of the

2003 SHBP as a Converted Policy form. Golden Rule has the right

under Chapter 120 to challenge the proposed rule in this

proceeding. OIR rep resented in companion Case No. 04 - 3634RU

that the proposed rule was being adopted to address the policy

position of OIR assailed by Golden Rule in that case. Golden

Rule does not assail the development or terms of the 2003 SHBP

for use as a policy form in the Small Employer Group market.

Golden Rule instead challenges the structure and terms of the

instant proposed rule, which, as proposed by OIR, would

implement the relevant Florida Statutes to require that the 2003

SHBP be offered as a Converted Policy option to individuals

losing group health insurance coverage. Accordingly, OIR’s

March 29, 2005 Motion to Dismiss is denied.

71. For the foregoing reasons, Golden Rule established,

and OIR failed to refute, that the proposed amendment to Florida

Administ rative Code Rule 69O - 149.041, constitutes an invalid

exercise of delegated legislative authority.

ORDER

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is ORDERED that the proposed amendment to Florida

Administrative Code Rule 69O - 149 .041, constitutes an invalid

exercise of delegated legislative authority within the meaning

of Subsection 120.52(8), Florida Statutes.

DONE AND ORDERED this 8th day of June, 2005, in

Tallahassee, Leon County, Florida.

S

DON W. DAVIS

Administrative Law Jud ge

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 Heari ngs

this 8th day of June, 2005.

ENDNOTES

1/ Golden Rule’s certificate of authority allows it to transact

in the small group employer health line of insurance in Florida,

should Golden Rule elect to do so. T. 479; P.1; P. 2 (p. 57,

lines 15 – 22); T. 61 - 62.

2/ Although Golden Rule’s group policies covering Florida

residents were issued in other states [P.2 (portions of the

deposition of William Williams); P3, P.4], Section 627.6515

(2)(c), Florida Statutes, requires that these plans comply with

Sect ion 627.6675, Florida Statutes.

3/ Rule 4 - 149.041 provided in pertinent part as follows:

(g) New and renewal policies for the Basic and

Standard policies issued on or after May 1, 1995, must

include the 1995 Basic and Standard Health Benefit

Plans (I - 9 5) pursuant to section 627.6699(12), Florida

Statutes, which is incorporated herein by reference

and can be obtained from the Bureau of Life and Health

Forms and Rates.

4/ “To establish is to make stable or firm; to fix in permanence

and regularity, to s ettle or secure on a firm basis, to settle

firmly or to fix unalterably." Wells Lamont Corp. v. Bowles ,

149 F.2d 364,366 (Emerg. Ct. App. 1945) (emphasis added). See

also Webster's 3rd International Dictionary , p. 778 (G.&C.

Merriam Co. 1976).

5/ § 120 .52(15)(a), Fla. Stat.

6/ E.g. § 627.6699 (5)(d), Fla. Stat. (“A small employer carrier

must file with the office, in a format and manner prescribed by

the committee, a standard health care plan”); § 627.351, Fla.

Stat. (“requirements prescribed by the D epartment of Highway

Safety and Motor Vehicles”); § 627.192, Fla. Stat. (“ as

prescribed by law or rating organization procedures”).

7/ Similarly, the Merriam Webster On - Line Dictionary defines

“prescribe” as “ to lay down as a guide, direction, or rule o f

action. . . .”

8/ The Division is to consider constitutional infirmities that

would result from a proposed rule in a challenge to a proposed

rule. Department of Env. Reg. v. Leon County , 344 So.2d 297,

298 (Fla. 1st DCA 1977). By eliminating the 19 95 SHBP entirely,

rather than preserving its use for Conversion Policies while

adopting the 2003 SHBP for use in the Small Employer Group

market governed by Section 627.6699, the proposed rule results

in serious constitutional questions which must be consi dered in

this proceeding.

COPIES FURNISHED :

Daniel C. Brown, Esquire

Carlton Fields, P.A.

Post Office Box 190

Tallahassee, Florida 32302 - 0190

Frank J. Santry, Esquire

Frank J. Santry, P.L.

2533 Noble Drive

Post Office Drawer 190

Tallahassee, Florida 32317 - 6337

James H. Harris, Esquire

Department of Financial Services

Office of Insurance Regulation

200 East Gaines Street

612 Larson Building, Room 645A - 5

Tallahassee, Florida 32399 - 4206

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Carlos G. Muniz, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

THE NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the ori ginal Notice of Appeal with the agency Clerk of

the Division of Administrative Hearings and a copy, accompanied

by filing fees prescribed by law, with the District Court of

Appeal, First District, or with the District Court of Appeal in

the Appellate Distr ict where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed.