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In re Challenges by Chubb Colonial Life Insurance Company of America

August 28, 2007


On appeal from the New Jersey Individual Health Coverage Program Board of Directors, 06-IHC-01.

Per curiam.


Argued May 2, 2007

Before Judges Stern, A. A. Rodríguez and Sabatino.

Appellants, health insurance carriers, appeal from a June 20, 2006 administrative decision of the Board of Directors of the Individual Health Coverage Program ("IHCP") denying their challenge to the Board's decision to recalculate their loss assessment for 1996. Appellants argue that the additional assessments were wrongfully based on "the second-tier methodology invalidated by the Supreme Court two years earlier" in In re N.J. Individual Health Coverage Program's Readoption of N.J.A.C. 11:20-1 et seq. (In re N.J. IHCP's Readoption), 179 N.J. 570 (2004). Appellants specifically assert that we should vacate the new assessments, because the "Board's actions were patently unlawful," its "equitable arguments are disingenuous," appellants' "challenge was timely," and "a refund will not require the expenditure of public funds." We treat appellants' challenge as timely but uphold the challenged assessments.


Appellants are seven members of the IHCP. They argue that the Board's second-tier assessment methodology*fn1 was invalidated by the Supreme Court in In re N.J. IHCP's Readoption, supra, 179 N.J. 570, because it allowed both full and pro-rata exempt members "to pay nothing for second tier assessments." They assert that the Board nevertheless used that methodology to calculate the interim reconciliations for the 1996 IHCP loss assessments. We are asked to vacate the assessment and remand the matter to the Board with instructions to recalculate the entire 1996 assessment using a methodology that accords with the Supreme Court's decision. Intervenors, CIGNA Healthcare of Northern New Jersey, CIGNA Healthcare of New Jersey, Connecticut General Life Insurance, and Aetna Health, support the methodology used by the Board.

On December 15, 1997, the Board issued its 1996 calendar-year IHCP annual loss assessments to all members of the IHCP, including appellants and intervenors.*fn2 All members paid without protest. Subsequently, the intervenors challenged their 1996 loss assessments in separate appeals, but did not prevail. In both appeals, we declined to address the validity of the second-tier assessment methodology and good faith marketing policy. In re Appeal by U.S. Life Ins. Co. of the City of N.Y. of Its Loss Assessments by the Individual Health Coverage Program Bd. for the 1993, 1994, 1995 & 1996 Calculation Periods, No. A-1453-04 (App. Div. Nov. 21, 2006); In re Request by CIGNA Healthcare of N.J., Inc., Along with Affiliated Carriers CIGNA Healthcare of N.J., Inc., Ins. Co. of N. Am., & Life Ins. Co. of N. Am., for Exemption from Assessment for 1996 Reimbursable Losses, No. A-1847-02 (App. Div. Aug. 23, 2005). On March 9, 2006, the Board issued an "Interim Reconciliation-1996 Assessment[,]" an adjustment to the 1996 loss assessments. However, this time, appellants challenged the Board's methodology for calculating the assessments and requested a hearing. The Board consolidated the seven appeals, and subsequently denied appellants' requests for hearings and their challenges to the interim reconciliation of the 1996 loss assessment. Appellants thereafter appealed to us. We granted intervenors' motions to intervene.


In 1992, the Legislature created the IHCP through the Individual Health Insurance Reform Act ("the Act"), effective November 30, 1992. N.J.S.A. 17B:27A-2 to -16.5; L. 1991, c. 161, §§ 1-17, § 21.

In In re N.J. IHCP's Readoption, Justice Albin described the Act's purposes as follows:

In 1992, the Legislature enacted the Individual Health Insurance Reform Act (the Reform Act or the Act), N.J.S.A. 17B:27A-2 to -16.5, to address a looming health care crisis that was making health care coverage both unavailable and unaffordable to many of this State's residents. Before passage of the Reform Act, health insurance carriers were reluctant to enter the high-risk market of individual health care coverage because of the losses associated with offering such coverage. Those carriers followed the profits, which were to be found in issuing group coverage to employers and sizeable organizations. That grim market reality inevitably created a dearth of affordable individual health insurance coverage (also known as "non-group" coverage). At the time, under State law, Blue Cross and Blue Shield of New Jersey was "the health insurer of last resort" for the individual health insurance market, and, therefore, bore a disproportionate share of the losses associated with that market. Those losses drove up the cost of the policies to the point that many residents could no longer purchase health care for themselves and their families.

The purpose of the Reform Act was to create a market that would provide affordable individual health care coverage to self-employed and unemployed residents as well as others who did not have the option of purchasing employer-based or group health coverage. The Act created the IHCP, which mandates that all health insurance carriers "offer individual health benefits plans" as a condition of issuing health insurance in this State. The aim of the IHCP is to spread the cost of providing individual coverage among New Jersey's entire health care insurance industry, thereby making that coverage more available and affordable to consumers not insured by group policies. In order to achieve that aim, the IHCP creates incentives for all carriers to write individual policies. [In re N.J. IHCP's Readoption, supra, 179 N.J. at 573-74 (citations and footnotes omitted).]

See also id. at 573-78; In re Individual Health Coverage Program Final Admin. Orders Nos. 96-01 and 96-22, 302 N.J. Super. 360, 363-64 (App. Div. 1997) (quoting Health Maint. Org. of N.J., Inc. v. Whitman, 72 F.3d 1123, 1124-26 (3d Cir. 1995) (further discussion of the Act's background and purpose).

Under the statute, each health insurance carrier, as a condition of issuing health benefit plans in New Jersey, must either "offer individual health benefit plans . . . on an open enrollment, community-rated basis," N.J.S.A. 17B:27A-4(a), or pay an annual assessment to reimburse carriers that wrote a disproportionate share of individual health policies for their net losses, N.J.S.A. 17B:27A-12(a)(2), after subtracting any full or pro-rata exemption received, N.J.S.A. 17B:27A-12(d).

The IHCP Board administers reimbursements and apportionment of losses in the individual health care market among all health insurers in proportion to their total market share of the overall health insurance market. N.J.S.A. 17B:27A-12. The Board's initial 1996 loss assessments were calculated using N.J.S.A. 17B:27A-12, which has since been amended.*fn3 The statute effective in 1996 and applied by the Board on December 15, 1997 read:

The board shall establish procedures for the equitable sharing of program losses among all members in accordance with their total market share as follows:

a. (1) By March 1, 1993 and following the close of each calendar year thereafter, on a date established by the board:

(a) every carrier issuing health benefits plans in this State shall file with the board its net earned premium for the preceding calendar year ending December 31; and

(b) every carrier issuing individual health benefits plans in the State shall file with the board the net earned premium on policies or contracts . . . and the claims paid and the administrative expenses attributable to those policies or contracts. If the claims paid and reasonable administrative expenses for that calendar year exceed the net earned premium and any investment income thereon, the amount of the excess shall be the net paid loss for the carrier that shall be reimburseable [sic] under this act. . . .

(2) Every member shall be liable for an assessment to reimburse carriers issuing individual health benefits plans in this State which sustain net paid losses for the previous year, unless the member has received an exemption from the board pursuant to subsection d. of this section and has written a minimum number of non-group persons as provided for in that subsection. The assessment of each member shall be in the proportion that the net earned premium of the member for the calendar year preceding the assessment bears to the net earned premium of all members for the calendar year preceding the assessment.

(3) A member that is financially impaired may seek from the commissioner a deferment in whole or in part from any assessment issued by the board. . . . If an assessment against a member is deferred in whole or in part, the amount by which the assessment is deferred may be assessed against the other members in a ...

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