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In re Challenges By Chubb Colonial Life Insurance Company of America

April 3, 2009


On appeal from the New Jersey Individual Health Coverage Program Board of Directors.

Per curiam.


Argued March 4, 2009

Before Judges Stern, Rodríguez and Payne.

In this appeal a number of health insurers challenge the Individual Health Coverage Program ("IHCP") Board's assessments for the years 1993-1996, which were promulgated after the Supreme Court's invalidation of the second-tier assessment methodology in In re N.J. Indiv. Health Coverage Program's Readoption of N.J.A.C. 11:20-1 et seq., 179 N.J. 570 (2004). The appeal is from the promulgation of N.J.A.C. 11.20-2.17, effective on December 18, 2006. Appellants contend that the Board should have reassessed for the years 1993-1996 as it did for the years 1997-2000 under the new regulations. They essentially assert that "[t]he Board's second-tier methodology [employed for years 1993-1996] was fundamentally flawed because it allowed carriers who were only entitled to a partial (or prorata) assessment exemption... to pay nothing in the second tier" and that there was "no difference in the governing law from 1993 to 2000" with respect to the general formula. They further argue that the 1997 amendment to the statute did not change the language of N.J.S.A. 17B:27A-12(d)(5) and that the Legislature did not intend to treat assessments under the pre-1997 amendment differently than subsequent assessments. Therefore, appellants ask us to vacate the amended regulation and remand to the Board with instructions to recalculate the assessments for 1993-1996 using a methodology which accords with the Supreme Court opinion and the assessments for 1997 forward.

In an unpublished opinion filed in August 2007, we concluded that L. 1997, c. 146 ("Chapter 146") and its repeal of N.J.S.A. 17B:27A-12(e) did not apply to pre-1997 loss assessments and that "there is no basis on which to conclude that regulations adopted or amended after adoption of the statutory amendments in 1997 should apply retroactively." In re Challenges by Chubb Colonial Life Ins. Co., No. A-6116-05 (App. Div. Aug. 28, 2007) (slip op. at 30). We therefore upheld the Board's second-tier methodology for 1996. See id. at 31. See generally R. 1:36-3. Appellants now argue that we "should invalidate the Board's new assessment regulation to the extent that it does not correct the 1993-1996 assessments," but our determination in In re Chubb Colonial resolved that issue. Appellants therefore argue that the regulation violates the Equal Protection Clause of the State and Federal Constitutions.

The Board, joined by intervenors Aetna Healthcare, Inc. and CIGNA Healthcare, argues that the distinctions in assessing years before and after 1997 are rational and lawful. We agree.


In 1992, the Legislature created the IHCP through the Individual Health Insurance Reform Act ("the Act" or the "Reform 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 574-78; In re Indiv. Health Coverage Program Final Admin. Orders Nos. 96-01 & 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)) (discussion of the Act's background and purpose).

Pursuant to the Act, 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 1993-1996 loss assessments were calculated using N.J.S.A. 17B:27A-12, which has since been amended by L. 1997, c. 146, § 6, effective July 1, 1997. See L. 1997, c. 146, § 29. Before its amendment in 1997, the statute 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 manner consistent with the basis for assessment set forth in this section....


c. Payment of an assessment made under this section shall be a condition of issuing health benefits plans in the State for a carrier. Failure to pay the assessment shall be grounds for forfeiture of a carrier's authorization to issue health benefits plans of any kind in the State, as well as any other penalties permitted by law. [N.J.S.A. 17B:27A-12 (1996).]

As an alternative to paying the assessment, a carrier that elected to offer individual health benefits plans could request "an exemption from the assessment and reimbursements for losses" by agreeing to cover and then enrolling a proportional share of the individual coverage market, as determined by the Board. N.J.S.A. 17B:27A-12(d)(1); see also N.J.S.A. 17B:27A-12(a)(2). The level of required compliance under an exemption was phased in until the Legislature amended the Act in 1997 and required full coverage of the proportional share. See N.J.S.A. 17B:27A-12(d); L. 1997, c. 146, § 6(11)(d)(6). If the carrier fell short of its target number, the carrier was assessed "by the board on a pro rata basis for any differential between the minimum number established by the board and the actual number enrolled or insured by the carrier." N.J.S.A. 17B:27A-12(d)(5) (1996).

In addition, as it stood prior to 1997, the Act declared that no carrier was liable for an assessment that "exceed[ed] 35% of the aggregate net paid losses of all carriers" and any shortfalls would be distributed among the ...

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