5793439 Insurance, Securities and Banking, Department of - Surplus Review and Determination for Group Hospital and Medical Services, Inc., a Subsidiary of CareFirst, Inc. - February 8, 2016
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DISTRICT OF COLUMBIA
DEPARTMENT OF INSURANCE, SECURITIES AND BANKING
NOTICE OF PUBLIC HEARING
Surplus Review and Determination for
Group Hospital and Medical Services, Inc., a Subsidiary of CareFirst, Inc.
February 8, 2016
10:00 a.m.
Old Council Chambers
441 – 4th Street, NW
Washington, DC 20005
Pursuant to section 7 of the Hospital and Medical Services Corporation Regulatory Act of 1996, effective April 9, 1997 (D.C. Law 11-245; D.C. Official Code § 31- 3506), as amended by the Medical Insurance Empowerment Amendment Act of 2008, effective March 25, 2009 (D.C. Law 17-369; D.C. Official Code §§ 31-3501 et seq.) (collectively the “Act”), the Commissioner of the Department of Insurance, Securities and Banking (“Department”) hereby gives notice of his intent to conduct a public hearing to review the 2014 surplus Group Hospitalization and Medical Services, Inc. (“GHMSI”), a subsidiary of CareFirst, Inc. (See attached Preliminary Determination). As set forth in the Act, the public hearing is being conducted to determine: (1) whether the portion of the company’s surplus attributable to the District is unreasonably large; and (2) whether the company has engaged in community health reinvestment to the maximum extent feasible consistent with financial soundness and efficiency.
The public hearing will be conducted in accordance with the Procedures for the Determination of Excess Surplus, 26A DCMR § 4600 et seq., and the Department’s Rules of Practice and Procedure for Hearings, 26A DCMR § 3800 et seq. Information concerning the review of GHMSI’s surplus, briefing schedule, applicable rules, and further instructions to the public will be posted on the Department’s website at www.disb.dc.gov.
All inquiries, correspondence, and informational filings should be sent to the attention of the Adam Levi, Assistant Attorney General: District of Columbia Department of Insurance, Securities and Banking, 810 First Street, NE, Suite 701, Washington, DC 20002. Persons who wish to testify at the public hearing should contact Adam Levi, Assistant Attorney General, at the address above or by email at adam.levi@dc.gov. The record for the public hearing will remain open for seven (7) business days following the hearing for the submission of rebuttal or other written statements.
If a party or witness is deaf, has a hearing impediment, or otherwise cannot readily understand or communicate in English, the party or witness may apply to the Department for the appointment of a qualified interpreter. In addition, if any party or witness requires any other special accommodations, please contact the Hearing Officer at least ten (10) business days prior to the hearing.
PRELIMINARY DETERMINATION:
Group Hospitalization and Medical Services Inc.’s
Surplus as of December 31, 2014
Group Hospitalization and Medical Services, Inc. (“GHMSI”) is a District of Columbia hospital and medical services corporation that is licensed and regulated pursuant to the Hospital and Medical Services Corporation Regulatory Act of 1996, effective April 9, 1997 (D.C. Law 11-245; D.C. Official Code § 31- 3501 et seq.), as amended by the Medical Insurance Empowerment Amendment Act of 2008, effective March 25, 2009 (D.C. Law 17-369; 56 DCR 1346) (collectively, the “Act”).
D.C. Official Code § 31-3506(e) authorizes the Commissioner of the Department of Insurance, Securities and Banking (“Department”) to annually, but no less frequently than every three (3) years, review the portion of a hospital and medical services corporation’s surplus attributable to the District of Columbia and issue a determination whether such surplus is excessive. As an initial step in the review process, the Department, pursuant to § 31-3506(e)(1), is required to preliminarily review GHMSI’s surplus to determine whether it is “greater than the appropriate risk-based capital requirements as determined by the Commissioner for the preceding calendar year.” If GHMSI’s surplus exceeds this standard, then the Commissioner is required to hold a hearing to determine whether GHMSI’s surplus is excessive pursuant to § 31-3506(e)(2).
For the reasons provided, the Department conducted its review and finds that GHMSI’s surplus, as of December 31, 2014 (“2014 Surplus”) is greater than the National Association of Insurance Commissioners’ (“NAIC”) Risk Based Capital Company Action Level Event threshold of 200% RBC-ACL and the BlueCross/BlueShield Association (“BCBSA”) Early Warning threshold of 375% RBC-ACL, and determines that a hearing, at a date and time to be published in the D.C. Register in accordance with 26A DCMR § 4601.
Appropriate Risk-Based Capital Requirements
The Act’s implementing regulations state that in making a preliminary determination, the Commissioner shall consider the “National Association of Insurance Commissioners’ Risk Based Capital Requirements for health insurers . . . and the Blue Cross/Blue Shield Association capital requirements.” See 26A DCMR § 4601. The NAIC’s Risk Based Capital requirements for health insurers was adopted in the District with the enactment of the District Health Organizations RBC Amendment Act of 2002, effective June 18, 2003 (D.C. Law; D.C. Official Code § 31-3851.01 et seq.). The District’s Health RBC law requires health insurers, including GHMSI, to maintain a RBC-ACL ratio of at least 200%, which is defined as the Company Action Level RBC. See D.C. Official Code § 31- 3851.01(6).
The BCBSA, for which GHMSI is a member and maintains a licensing agreement to use the BlueCross/BlueShield trademark, establishes an “Early Warning” capital threshold of 375% RBC-ACL in order for its member plans to comply with the terms of the licensing agreement. If a member plan falls below 200% RBC-ACL, BCBSA retains the right to unilaterally terminate the licensing agreement.
As such, to determine whether GHMSI’s surplus is “greater than the appropriate risk-based capital requirements,” the Commissioner will use the Company Action Level RBC threshold of 200% RBC-ACL and the BCBSA “Early Warning” threshold of 375% RBC-ACL.
Current and Historical Surplus of GHMSI
Table 1 illustrates GHMSI’s historical surplus, including the company’s RBC ratio.
Table 1
2014
2013
2012
2011
2010
Surplus
($000’s)934,409
934,751
941,071
963,581
969,499
RBC
877.6%
932.3%
921.3%
998.3%
1,097.8%
Table 2 illustrates the NAIC minimum required RBC, as compared to GHMSI’s actual RBC in 2014.
Table 2
2014
NAIC
Minimum Required RBC
200.0%
Actual RBC
877.6%
TAC ($000’s)
934,409
CAL ($000’s)
212,948
ACL ($000’s)
106,474
Table 3 illustrates the BCBSA minimum RBC-Based thresholds. The two key thresholds involving surplus are: Early Warning Monitoring – 375.0%, and Loss of Trademark – 200.0%.
Table 3
2014
BCBSA
BCBSA
Minimum Required RBC
375.0%
200.0%
Actual RBC
845.2%
877.6%
TAC ($000’s)
934,409
934,409
EWML ($000’s)
399,277
212,948
ACL ($000’s)
106,474
106,474
Preliminary Determination of GHMSI’s 2014 Surplus
Accordingly, based upon the review of GHMSI’s 2014 Surplus, the Commissioner has determined that the 2014 Surplus is “greater than the appropriate risk-based capital requirements as determined by the Commissioner” and cited above. See D.C. Official Code § 31-3506(e)(1). Further, pursuant to D.C. Official Code § 31-3506(e) and 26A DCMR § 4601.5, a public hearing will be held to review GHMSI’s 2014 Surplus to determine if the surplus is excessive as defined by the Act. At a date and time to be determined, a Public Notice for the hearing will be published in the D.C. Register and posted on the Department’s website.
