Collester, Lynch and Michels. The opinion of the court was delivered by Lynch, J.A.D.
Plaintiffs*fn1 appeal from a summary judgment which declared that defendants Hospital Service Plan of New Jersey ("Blue Cross") and Medical-Surgical Plan of New Jersey ("Blue Shield")*fn2 acted within their statutory powers in selling student accident insurance.*fn3 The judgment also sustained the action of defendant McDonough, Commissioner of Insurance, in approving the policy so issued.
Appellants contend that, in issuing the student accident policies, the Plans acted beyond their statutory power and were acting as health and accident indemnity insurers without being qualified as such, without the burdens of the stringent financial requirements of the General Insurance Laws (N.J.S.A. 17:17-6 and 7), while at the same time enjoying certain tax exemptions (N.J.S.A. 17:48-18 and N.J.S.A. 17:48A-24), whereas the insurance companies for whom plaintiffs sell student accident insurance are subject to those requirements and have no such exemptions.
By letter opinion the trial judge held that (1) defendant McDonough, having approved the form of policy offered by the Plans, his action was within his statutory authority and
is "entitled to considerable weight in the courts"; (2) the plan for student coverage is "consistent with, rather than contrary to, the basic conception of Blue Cross-Blue Shield functions authorized by N.J.S.A. 17:48-1 et seq. and by N.J.S.A. 17:48A-1 et seq., as well as by the respective corporate charters"; (3) the proposed student coverage contract furnishes "basically the kind of protection" which has traditionally*fn4 been offered by the Plans, and the fact that "the proposed contract concentrates upon particular groups (students and schools) or limited area (accidents) appears unimportant since the concentration does not change the type of protection to be furnished." Finally, it was held that " N.J.S.A. 17:48-13 and N.J.S.A. 17:48A-20 give to the Commissioner of Insurance broad powers to regulate hospital and medical service plans * * *."
With all due respect to the learned trial judge, his reference to the "broad powers" of the Commissioner to regulate "hospital and medical service plans" begs the real question here: Is the student accident insurance here offered by the Plans a "hospital and medical service plan" -- or is it simply "insurance," without the dominant characteristics of the "service" plans which Blue Cross and Blue Shield are concededly authorized to offer, and have traditionally provided? We note that the trial judge omitted to point out any express statutory language which authorized the Plans to issue the subject policies.
The distinction between "medical service corporations" and "health and accident insurers" was clearly set forth by our Supreme Court in Group Health Ins. of N.J. v. Howell, 40 N.J. 436 (1963), as follows:
The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to provide prepaid medical services through participating physicians,
thus relieving subscribers of any further financial burden, while the latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy. The ordinary health and accident insurer makes no attempt to provide medical services as such. The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical service corporation's plan, not only will the subscribers be deprived of the protection which they might reasonably have expected would be provided, but the corporation will, in effect, be doing business solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject to the more stringent financial requirements of the General Insurance Laws, N.J.S.A. 17:17-1 et seq. Compare N.J.S.A. 17:48A-4 with N.J.S.A. 17:17-6 and 7. [at 451; emphasis added]
Thus it is that the statutes under which Blue Cross and Blue Shield operate are respectively headed "Hospital Service Corporations" (emphasis added), N.J.S.A. 17:48-1, and "Medical Service Corporations" (emphasis added), N.J.S.A. 17:48A-1. A hospital service plan is defined as a plan "whereby health care services are provided by a hospital service corporation or by a health care facility with which the corporation has a contract for such health care services * * *." (Emphasis added). N.J.S.A. 17:48-1. It is because the corporation has such "contracts" that it has a "fund" of hospitals through which it is able to supply hospital service. And "health care services" shall include "health care" provided by health care facilities described in N.J.S.A. 17:48-1. The corporation is to be operated for the benefit of its subscribers with whom it has contracted to " provide hospital service." The concept of " furnishing services " or providing "hospital care or medical care" permeates the entire statute. N.J.S.A. 17:48-1.7, 6, 6.3, 6.6 and 7. Again, thus it is that Blue Cross subscription certificates provide that the corporation will be liable "for hospital care and services" rendered by an "Approved Hospital," and payment is made directly to such hospital unless a subscriber has made payment to it for services for which the Plan is liable, in which event the subscriber is reimbursed in such amount as the Plan would be required to pay such hospital.
So, too, under N.J.S.A. 17:48A-1 et seq., the concept of furnishing medical "services" is the power granted to "Medical Service Corporations." Such powers -- and not the power to do business as a "health and accident indemnity insurer" -- are those granted to such corporations. So it was held in Group Health Ins. of N.J. v. Howell, supra.
We note that N.J.S.A. 17:48A-1 provides that a medical service corporation is organized "for the purpose of establishing, maintaining and operating nonprofit medical service plans, or to provide or pay for medical services * * *." It might be argued that the corporation is therefore authorized to "pay for" such services as an insurer -- a right not granted to Hospital Service Plan corporations under N.J.S.A. 17:48-1 et seq. -- and that the statute gives a power of indemnity to a Medical Service Plan corporation. We note also, however, that the payment is principally to be made to the physician. Thus it is that Blue Shield's subscription certificate provides that payments thereunder shall be made to the "Participating Physician" or other "Eligible Physician" unless the physician certifies he has been paid, is a non-participating physician, or the charge is made by a corporation, hospital clinic or group which includes other than participating physicians. In those cases payment may be made to the subscribers.
Despite the provisions of the statute just recited, the dominant theme of the relevant statute is, in line with the holding in Group Health Ins. of N.J. v. Howell, supra, that the Medical Service corporation is to provide service. It is to that end that "participating physicians" agree in writing to perform the medical services, and thus there is created the "fund" of physicians which enables the corporation to fulfill its function of providing medical services. As Chief Justice Weintraub said in his dissent in the second Group Health Ins. case, 43 N.J. 104 (1964):
As was pointed out in our earlier opinion in this litigation, Group Health Ins. of N.J. v. Howell, 40 N.J. 436, 451 (1963), the essential
difference between the plan authorized by the statute and the usual contract of insurance is that whereas the usual insurance contract provides for the payment of fixed dollar indemnities, the plan before us contemplates that the medical service will be furnished under agreements between the medical plan and participating physicians requiring the physician to accept scheduled payments from the medical plan in full payment for his services. [at 115-116; emphasis added]
We therefore hold that the "pay for" provision in the Medical Service Corporation Act does not grant insurance powers to the corporation, and must be merely incidental to its main purpose, i.e., providing "services."
Indeed, the Plans do not here contest the contention that, in offering the student accident policies, they are acting as "insurers." They point out that the Plans ...