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In the Matter of the Appeal of

January 12, 2011

IN THE MATTER OF THE APPEAL OF PROTECTIVE LIFE INSURANCE COMPANY OF THE INDIVIDUAL HEALTH COVERAGE PROGRAM BOARD OF DIRECTORS'


On appeal from the New Jersey Department of Banking and Insurance, Individual Health Coverage Program, Agency No. 09-1HC-02.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

FINAL DECISION DENYING REQUEST FOR INDEPENDENT ADJUDICATORY HEARING.

Argued December 15, 2010 - Decided Before Judges Fisher, Simonelli and Fasciale.

Protective Life Insurance Company (Protective) appeals a final decision of the Board of Directors (the Board) of the New Jersey Individual Health Coverage Program (the Program) that required Protective to repay with interest all its loss reimbursements and assessment credits for the two-year period between 1997 and 1998. Because the Board's determination was neither arbitrary nor capricious, we affirm.

I

A. Applicable Legislation

And Regulations

The Individual Health Insurance Reform Act of 1992, N.J.S.A. 17B:27A-2 to -56 (the Reform Act), created the Program "as part of a comprehensive overhaul of New Jersey's individual and small employer health insurance marketplaces." In re Individual Health Coverage Program Final Admin. Orders Nos. 96-01 and 96-22, 302 N.J. Super. 360, 363 (App. Div. 1997). The Act was intended to increase the availability of health care coverage by spreading the cost of insuring higher risk individuals among the entire industry. In re N.J. Individual Health Coverage Program's Readoption of N.J.A.C. 11:20-1, 179 N.J. 570, 573-74 (2004). As one court explained:

In group health plans, the cost of insuring higher-risk people, individuals who require expensive medical treatment, is spread among the entire insured population. In contrast, when people are individually insured, these costs must be borne by either the individual or the insurance company. As a result, insurance sold on an individual basis may be prohibitively expensive for the consumer and unprofitable for the insurance company.

Through the [loss] assessment, the Reform Act attempts to spread the cost of insuring higher-risk individuals among New Jersey's entire insurance industry in order to reduce the cost to the individual while increasing the profitability of insuring those individuals. [Health Maint. Org. of N.J., Inc. v. Whitman, 72 F.3d 1123, 1125 (3d Cir. 1995).]

The Program requires all authorized or licensed insurance carriers that issue health benefits plans in New Jersey to offer individual health benefits plans as a condition of issuing any type of plan within the State. N.J.S.A. 17B:27A-4. The collective losses of all such carriers in a given calendar year comprise the Program losses for that year. N.J.S.A. 17B:27A-11, -12. Each New Jersey insurance carrier is required to pay a loss assessment, which is used to defray the financial losses of those carriers that supply a disproportionate share of higher risk individual health insurance policies. Ibid. In other words, "[t]he assessments provide a mechanism whereby carriers offering individual health benefits plans to New Jersey residents which sustain losses on those higher risk plans are able to seek reimbursement for their losses." Final Admin. Orders Nos. 96-01 and 96-22, supra, 302 N.J. Super. at 364-65; see also N.J.S.A. 17B:27A-12(a)(1)(b).

The annual assessments are pooled and used to reimburse carriers that incur losses. Final Admin. Orders Nos. 96-01 and 96-22, supra, 302 N.J. Super. at 364. If a member's claims paid exceed 115% of that member's net earned premium and the net investment income earned thereon, the excess is the reimbursable net paid loss. N.J.S.A. 17B:27A-12(a)(1)(b); N.J.A.C. 11:20-8.5(e).

The Board is charged with the duty of ensuring that losses are equitably shared by Program members. See N.J.S.A. 17B:27A-11, -12. In meeting this obligation, the Board promulgated regulations that enable it to audit members filing for reimbursements to guarantee the accuracy of their reported losses. N.J.A.C. 11:20-2.8, -8.8. These regulations require that Program members seeking reimbursement provide specific information to the Board and its auditor. N.J.A.C. 11:20-2.8(c). With respect to any premiums earned, the Program member must submit an Exhibit K ...

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