Court clerk: This is SJC-13238
Lori San Clark and others v the Attorney General.
-: Okay, attorney Heuer.
-: Chief justice, but may it please the court.
Tad Huber on behalf of the plaintiffs with me virtually are
Andrew London and Seth Reiner.
This petition fails to demonstrate operational relatedness
for at least three reasons.
First, the section three annual reports
are not operationally related
to implementing the section two medical loss ratio, the MLR.
Much less to regulating dental insurance rates,
which is the Attorney General's proposed common purpose.
These reports require additional data,
beyond that in section two, that's unnecessary
for verifying an MLR.
They require extensive entity wide insurance data,
that goes well beyond just dental insurance.
They contain no mechanism by which
the division of insurance, the DOI could use
backward looking historical data to regulate
forward looking rates.
And they even require extensive data to be reported
by self-insured groups,
which are groups to which the Attorney General admits
in her brief that the MLR doesn't even apply.
It's very difficult to conceive of a situation
where two elements are related, where one provision,
the reporting, doesn't apply to the second provision,
the MLR, particularly for these self-insured groups.
Now the Attorney General calls--
-: Can you address the issue
of the Attorney General's response
that you are narrowly focused on the MLR
and section two actually is much broader than that.
-: Sure, the MLR is one element of section two.
I would say that narrow focusing isn't the test
that this court applies.
We apply operational relatedness narrowness.
-: No, the accusation is your narrowly focusing on MLR.
I know that's the title, but could you address the argument
that section two is much more than MLR.
-: It may be much more than MLR,
but it's not significantly more than MLR,
and it's not about rates, right?
And that's the distinction here.
Even the petitioner doesn't believe
this section is about rates.
They say it's about how much of a premium is going to be
used towards paying for dental costs.
Are there other elements in here?
We have MLR, we have administrative load,
and we have contribution to surplus.
All of those are percentages of how much your rate
is being expended.
So your rate could be $5, $15, $50.
All that section two says is how, what percentage of that
has to go towards each of these components.
It doesn't regulate the rate that would say there's a rate
cap, or a rate floor, or something else along those lines.
But even if section two does regulate rates
as the Attorney General suggests.
And even if it's broader than just an MLR,
section three doesn't have any relationship
to those section two rate settings.
We know this for a couple of reasons.
One is that it requires significantly more information,
right?
So, and it's on an entity wide basis,
which again is important.
So it's very difficult to understand, for instance,
how knowing information about the number of life insurance
beneficiaries an insurer has.
Or the claim operating expenses for its disability insurance
line, for instance,
would help the division of insurance determine whether
a dental rate is excessive or not.
It almost can't.
More to the point, in Oberlies this court rejected
that argument, right?
This court said that shining the light on something that was
the argument that the petitioners made there.
They said they're all connected on patient safety grounds,
but it helps shine the light to have this additional
financial information.
-: But Oberlies was a case in which...
That was the nursing ratio case, is that right?
That's correct, your honor.
So there, we've got nursing ratios
and then all this financial data
about hospitals, here at least
it's a rate overview provision, right?
I mean, there's some relation.
It may be too tangential,
but there is some relationship isn't there?
It's different than Oberlies.
-: It's not different from Oberlies.
We don't think because, Oberlies agreed that there was a
marginal relationship.
That's the term the court used,
but that wasn't sufficient for Oberlies to find that there
was operational relatedness in order to save the petition.
-: Well, wasn't the issue in Oberlies
that the hospital was going to have to implement the ratios
no matter what their financial status was.
And the distinction in this case is overhead has something
to do with rate setting and premiums charged, correct?
-: No, your honor.
As I just noted, certain of the entities,
the self-insured entities,
don't have to comply with the MLR.
It's not obligated.
We know that from section four they're exempt.
So they'd be making reporting, just for reporting sake.
It would have no relation to the rate
because they're not subject to the MLR rate.
That's a key distinction.
Another distinction is that here--
-: Tad Heuer, I'm sorry to interrupt your argument also,
but are those entities subject to the commissioner's
disapproval of any proposed rate changes that are excessive,
inadequate, or unreasonable under section 16.
-: No, because section four of the petition
expressly exempts them.
Right, so if you go all the way to the end
section four says,
"Except is otherwise provided below, this chapter shall not
"apply to dental benefit plans, insured, delivered,
"or renewed to a self-insured group."
Right, so section four clears the field.
We've pointed out that strangely section three doesn't.
So there's a provision section three,
that section three C that applies to self-insured groups.
We've said that is facially internally inconsistent,
but that's not the point.
The point is that they're exempted in section two.
-: Where are you reading in section four
that it doesn't apply to the self-insured group.
-: Second line, not section four of the petition.
-: Okay.
-: That's except other wise, look at joint appendix 28.
It will be section four of the proposed law.
-: Okay. Thank you.
-: Section four of the proposed law expressly says,
as this chapter shall not apply to dental benefit plans
issued, delivered, or renewed to a self-insured group.
-: Okay. Thank you.
-: Additionally, when we're talking about Oberlies
and whether Oberlies has this mandate or not,
the MLR is mandated for anyone to whom it applies.
You must comply with the MLR,
regardless of your reporting obligation.
Simply we're making your report here.
Doesn't excuse you from the MLR saying,
"I've got a lot of financial difficulties
"as shown in this report."
Doesn't mean you don't need to produce an 83% MLR.
What Oberlies said is that if you have a situation
where they are an inflexible mandate, right?
So you have a situation in which you aren't allowed to say
on one hand, I have an MLR, but I don't need to comply
with it because of my financial obligation,
but that's related only at this marginal level.
And that's what Oberlies said was impermissible
not something that they said was permissible.
-: Mr Heuer, I may have missed it,
but go back to your other argument.
Our self-insured subjects, the financial disclosures,
I thought they were just exempted from everything,
but they have to comply in your view
with the financial disclosure.
-: Not in my view, but in the petition's view.
Let's look at joint appendix 27 section three C.
-: You know the sarcasm's great,
but you just answered my question.
-: So section three C--
-: Right?
-: So section three C says--
-: Do self-insurers have to comply
with the financial disclosures?
-: Yes, they do.
Section three C says any carrier required
to report under the section,
which provide administrative services to one or more
self-insured groups shall include as an appendix to report
the following information, including sub V, sub five
Roman B, information for all the carriers
self-insured customers,
sub eight,
the percentage of the carrier self-insured customers that
include each of the benefits
and sub 10, administrative service receipts
paid by each of the carriers self-insured customers.
Section three clearly says that self-insured customers are
reporting under section three,
but as we know from section four,
they don't have an obligation
to produce an MLR of 83% under section two,
they would be reporting without having any relationship to
the MLR that's created a section two.
If the petition is, has to be related,
then those two provisions have to be related.
And by definition, they're not.
In addition we know that the Attorney General here
and the proponents
are having some difficulty in identifying a common purpose
that accurately describes what at core is only a two section
petition and isn't too abstract.
And we know that this notion of abstraction is important for
relatedness because you can't have elements related only at
too high of level of abstraction that's carny.
And in Anderson,
this court described the difficulty in articulating
a purported common purpose as telling and not in a good way.
And it's telling here as well,
when we talk about regulation of dental insurance rates,
that's the Attorney General's proposal.
That's both inaccurate as we've noted before,
because we don't believe it applies to rates.
And quite frankly, nor to the petitioners,
they say it's about a medical loss ratio,
not the amount of money that's being spent, capped, floored.
And it also doesn't go to section three
because section three doesn't have any implication
for how you set your rates.
We know from section three,
that you're just providing additional information.
You're just telling how much information,
how much you're spending on certain elements,
how many members you have in your plans,
but it doesn't provide the division of insurance with any
authority whatsoever to use that information, to set a rate,
or to change a rate, or to modify a rate.
All they can do is issue--
-: Or even disapprove of a rate change.
-: Or disapprove of a rate--
-: What is that last part?
How is the financial disclosure not helpful
in determining whether to disapprove of a rate under section
two C of the petition.
-: It's useful.
So there is a financial disclosure provision in section two.
We know that section two has a whole range of things that
the division of insurance is able to used to verify or
calculate whether these MLRs, that are being submitted.
And again, in section two,
we know that you need to submit your current
and your projected MLR.
So that information is at the division,
and the division uses the information in section two
to have a discussion with itself about whether that--
-: So I'm sorry to interrupt you
but just to cut to the chase,
you're saying that section three of the initiative requires
additional disclosures over those of section two.
And that those additional disclosures are not helpful at all
in approval or disapproval of rate changes.
-: It's not their helpless, that they're entirely unrelated.
And we know that because it's requiring it
on an entity wide basis.
So if you are a insurer that offers disability, life--
-: So are you saying they're helpful?
Are you conceding they're helpful?
-: They're helpful only to the extent that that's what's
required in section two.
We know from section two, that that's what--
-: No, no.
So let's stop, the additional disclosures required under
section three, are they helpful?
-: I don't think--
-: In determining whether to approve or disapprove
the rate changes?
-: No, because they're backward looking, right?
Section three requires reporting historical data.
What you had the previous year,
section two is about your current and proposed MLR
that's going forward.
And we know that if you have, for instance, let's say 2023,
the first year you'll report your current MLR
and your proposed MLR for 2024.
In 2024, you'll present your current MLR for 2024
and your proposed MLR for 2025, right?
-: So your position is that it's not helpful to get backward
looking financial data if you,
let's say the commissioner needs to approve the adequacy
appropriateness of the rate change.
So it seems to me that that might not actually,
as a matter of logic work,
isn't it important to know where you've been,
where you are, and where you're going,
in order to figure out
whether the rate change is appropriate.
-: Is that so unreasonable?
-: Yes, exactly the language from the initiative, thank you.
-: No, because again, you're looking at backward looking data
that can't inform your future rate.
There's no way to say in 2024,
that you'll be able to use that data that you will have from
2022, to determine whether your 2024 rate is reasonable.
That's what section two does.
It asks for all that information precisely to allow
the commissioner to make that determination.
But the other thing you don't need is the information about
your disability line, your vision line,
your life insurance line,
to inform whether an excessive rate on the dental side
is excessive or not.
You could have significant amounts of information
that are entirely unrelated
to the dental provisions of section two.
Section two only relates to dental.
Section three asks for entity wide information
from the insurers across their entire insurance line.
That's anything they ensure.
There's hard to say that that has relationship beyond any
marginal relationship, or minimal relationship to what the
insurer is allowed to provide
or what the dental insurance plan needs,
and the division of insurance needs
to determine a section two MLR.
-: Even though these overhead costs could be
spread across the different lines?
-: It's not quite clear how that would work.
So first of all--
-: Yeah, it's not clear to me.
That's why I'm asking the question.
But I mean in response, I think that the AG gave.
-: It is, and it sounds ominous, of course, right?
It sounds like it's concerning,
but I think we need to look at two things.
The first is this not evident,
it's even permissible consistent within carriers,
fiduciary duties,
to say that you can take risk based capital
or other elements that were collected for one more riskier
line and then subsidize a dental line with them,
that may not even be permissible,
but second, even if it's permissible.
and let's say for the sake of argument it is,
nothing in the petition indicates that that constitutes
a violation of section two.
Section two says,
"We want you to reach an 83% MLR one way or the other."
We know that it petition can address foreseeable
consequences, that's Tinsley and that's Wiener,
but it doesn't allow any potential hypothetical future
consequence to establish relatedness that would vitiate the
relatedness requirement.
So here let's look at the two possibilities
that would be suggested.
One is that you have an insurer
that is over the 83% dental MLR.
The concern seems to be that they move administrative
expenses from other lines into the dental line.
So as to reduce the MLR,
but the plan in that situation would still meet 83%.
That's what the petition wants to happen.
The other alternative is that you move your administrative
expenses from the dental line out to other lines, right?
So again, bring your MLS maybe below 83%, up to 83%,
but that means that those costs
aren't being born by your dental beneficiaries,
which again is what the petitioners want.
So regardless, you're in compliance,
I think the sum is how the insurers get there is not
operational related to their obligation to get there.
-: Hey, thank you very much.
-: Thank you, your honor.
-: Attorney Hornstine.
-: Good morning.
And it may please the court Adam Hornstine,
I'm an Assistant Attorney General.
My pronouns are he, him, his,
and together with Anne Sterman and Michael McKenzie.
I'm here today on behalf of the defendants,
I would like to begin by answering
justice Wendlandt's question,
and picking up on her colloquial with plaintiffs counsel.
And I'd like to begin by telling you three ways in which
section three and its reporting obligations and its
enforcement mechanisms are not just helpful,
but are related to what is happening in section two of the
petition with the Attorney General's proffered unified
statement of public purpose.
First, let me pick up with the idea of accounting chicanery.
This is the idea that section three,
which contemplates entity wide reporting.
In other words, from each line of an insurance
carrier's business,
this by inquiring insurance companies to report
on a line by line basis,
what their various business lines do.
It prevents them from shuffling overhead expenses from say,
disability insurance or life insurance to...
excuse me from dental insurance to disability,
or life insurance in a way that would inflate
other overhead expense lines
while simultaneously decreasing the overhead expenses
shown in dental insurance.
And as plaintiff's council acknowledges,
this is a way in which the petition addresses
potential knock on effects of section two
with not just medical loss ratio,
but it's other two yards--
-: But that's section two set up
a process and a formula for preventing abuse
in the dental insurance line.
So isn't it self enforcing?
What difference does it make if there's something going on
in another totally unrelated potentially, you know,
a market that's much tougher and everything else,
if section two does the work for it?
-: Well, section two does a lot of the work, your honor,
but it doesn't necessarily do all of the work.
The fear here as we apprehend it from the petition's
language is that let's suppose a situation in which there is
a salesperson who works both in
dental insurance and life insurance.
How are the section two reports going to capture what
portion of that salary is attributable to dental insurance
versus life insurance, unless the fuller picture
is disclosed to the commission.
So that is how it attempts to address that concern,
but even leaving that aside,
there are still two other ways that section three
ties back to section two.
One is actually flagged by the Amicus brief,
which was filed after the Red brief.
This is the idea that the section three reports can be used
to evaluate the overall financial health and liquidity of a
dental insurance carrier.
And you'll realize that section two D of the proposed law
contemplates that the commissioner can give a waiver to the
medical loss requirement, if it would result in substantial
financial impairment to the carrier.
Again, the reports in section three make patent,
what an insurer overall financial health is,
and indeed the CMR provisions--
-: So again like in Oberlies, you know
the ratios were gonna have to happen anyway,
but the argument was made, look, you know,
this is gonna be fought out hard.
So we're gonna have to show
that the hospitals have plenty of money.
And we still said that wasn't enough.
And let me give you another case
that I actually think maybe even more important is Gray,
because you know the curriculum was analyzed,
but then we didn't allow standardized test results,
which I'm not sure Gray is hard to interpret,
but I don't see how you can square your case with Gray?
-: Well, let me attempt Oberlies first
and then we'll turned to Gray.
In Oberlies the petition was...
Or excuse me, the proposed law was rejected because
the nursing staffing ratios were as the court observed,
quote, mandatory and inflexible,
but section two D of this proposed law,
makes clear that medical loss ratio
is neither mandatory nor inflexible.
It is one, just a presumptive yard stick,
but two, two D contains a waiver provision
that permits the division of insurance
to wave medical loss ratio requirements
under certain circumstances.
And those circumstances would be illuminated by the reports
contemplated by both sections two and section three.
Gray I fully recognize is a more challenging case.
And there, let me make two distinctions.
One, whereas the curricular,
the common core reform portion of Gray
was unmoored from just general notions
of financial transparency promoted by tests...
excuse me, by promoted, by disclosing
prior years test questions.
That is not the case here, as I think plaintiff's counsel
admitted and then walked back.
The section three financial reports are helpful in making
the section two determination,
but section three itself has its own mechanism
for encouraging insurers to reduce the cost of their plans
or for improving patient care.
This is in section three E of the proposed law.
It contemplates that carriers who have too much surpluses
measured by the risk-based capital ratio are required to
tell the division of insurance, how they're going to again,
reduce the cost of their plans or improve patient care.
Again, this is a direct link to what
this proposed law is all about,
and that's creating the scheme to comprehensively regulate
dental insurance rates that are excessive and--
-: How about the self insurers then?
What's the point about the self insurers?
Why are they in place.
-: Terrific question, your honor,
I have two responses to plaintiff's counsel's discussion of
the self-insure issue.
Section four of the proposed law certainly exempts them from
section two of the proposed law.
That is as plain is day,
but what section three C of the proposed law says is that
these self-insured plans also need to make
entity wide reports.
And they too are subject
to the section three D direct regulation mechanism.
That again makes carriers including self-insured plans,
dedicate excess surplus to reducing costs or improving
patient care.
So even the self-insured plans are subject to what my
office has identified as the statement of public policy
hear, though they may be exempt from section two
self-insured plans--
-: As a practical, I thought the...
again, and I don't fully understand this yet.
So I don't mean to well the question,
but I thought that the division can't do anything with this
section three information to the off insurance.
So they're collecting it,
but they can't use it in any way to, am I missing...
Am I wrong on that?
-: I don't think you're wrong about that with respect to
section two, your honor.
So the division wouldn't be doing anything with that
information with respect to section two quote section two,
but, and this is the critical point overlooked
by plaintiffs here
is that the self-insured plans still need to make the
reporting under section three A and three C.
And that information in turn can be used by the division in
section three E to make self-insured companies
submit testimony on their financial status
and the need for a large surplus
and to make public findings in light of this testimony about
how the carrier, including self-insured carriers
can dedicate this excess surplus to reducing
the cost of their plans or for improving
patient care.
This is three E.
-: But they can't do anything.
They can shame them, but they can't do...
they can have a public beating,
but they can't do anything with the information.
Is that right?
-: Well, so there is the public hearing.
I wouldn't call it shaming.
I mean, it's not just a public hearing
for the sake of a public hearing, your honor.
It is--
-: What is it?
What is it?
-: It's a public hearing in which a carrier would be required
to give testimony as to ways in which it can improve patient
care or can reduce costs,
and then the division is empowered
to make findings about that.
I'd like to think that as a government employee,
when the government speaks and makes findings,
it's not just a tree falling in the wood
that doesn't make a sound, that it has some real
tangible impact, in a way that--
-: Usually there is some real tangible impact
as opposed to berating and criticizing
without doing anything.
I'm not sure I know other examples,
I'm sure there are other examples of this,
but it's a little odd that you don't do anything with the
information that you collect.
-: Again. -: Besides.
Yeah, surface it.
-: It's not doing nothing,
again, there's the hearing mechanism,
there's the public finding mechanism.
So I wouldn't say it's doing nothing,
but even still it's the whole thrust of this ties back to
the public policy point,
which is that it relates to the regulation of dental
insurance rates in relation to benefits
furnished to policy holders.
That's what that mechanism is all about.
It may not be as strong as the court prefers,
but that just is a matter of scope.
It's a matter of drafting and the petitioners enjoys--
-: But can I just follow up?
So they run a sloppy life insurance business.
Why is that part of this dental business inquiry?
'Cause, well, you know,
these insurance companies can be massive, right?
They can have 20 lines of insurance and they're gonna report
on 19 of them because
the dentist issue requires more supervision?
I mean, I get section two
and I even get section three of it.
We're confined to dentist stuff,
but once it starts getting into six, you know,
huge reporting requirements on all these
other lines of insurance,
and by the way that the legislature is just rejected in the
medical context, doesn't it sound like it's unrelated.
-: Respectfully, your honor.
Again, this goes to the scope of the petition.
The petitioners are allowed to essentially reenact laws that
were repealed by the legislature.
This is one way in which these proposed...
the drafters of this proposed law saw fit to mitigate or to
address a potential consequence of what's going on in
section two, that it could be stronger,
that it could be different.
These are all points that plaintiff makes,
but that is not dispositive on the relatedness issue.
It just needs to be operationally related,
which the Attorney General submits that it is.
Unless the court has any further questions.
I'm sure that Mr. Perry can adequately address anything
that I have missed.
And I thank you for your time and it urge you to affirm the
Attorney General's certification here.
-: Okay. Thank you, attorney Perry.
-: Thank you madam chief justice.
Good morning.
May it please the court Matthew Perry,
on behalf of the interveners.
I'd like to respectfully just submit
a couple key considerations for the court.
First, it is true as appellants counsel has noted
that the Attorney General and the interveners have described
two different common purposes for the initiative,
but rather than showing some sort of discord or disparity,
the fact that these two bases exist shows that the
initiatives parts are so interrelated,
that it passes the relatedness test in at least two ways.
Or in other words, there are at least two common threads
running throughout the initiative
that pass the relatedness test.
Despite this the appellants have,
for the most part only attacked
the Attorney General's relatedness requirements,
by claiming that certain data cannot be used in
the rate making process.
Even if that were true,
and even if that were actually problematic
for the Attorney General, which I don't believe it is,
the appellants claim does not undermine the relatedness
described by the interveners,
which is that all parts of the initiative are intended to
ensure that an adequate amount of dental premiums
are spent on patient care.
There's been no meaningful attack on this purpose,
as it doesn't even mention rate making.
Second, the data in section three can be used
to help verify the accuracy of carriers MLRs.
The appellants have apparently conceded in their reply brief
at least that carriers could
utilize financial accounting practices
in order to manipulate the MLR.
So just as it was conceivable in the Wiener case
that lifting restrictions on alcohol sales could lead to
increased sales to minors.
It is also conceivable here that implementing a new
financial restriction on carriers
could lead to financial manipulation.
Finally, I would just like to briefly address
justice Kafker's comment about how
the public beating that is required under
section three for self-insured carriers.
It's more than just as one would say,
"A public beating."
What it actually does,
and if you look at the language closely,
it mandates the insurers to come up with a plan
as to how to reduce costs or increase the
improvements of quality care.
So this mandate for self-insured carriers
I wanna also be clear here that--
-: So how does that mandate work?
So you go to the hearing and one of the self insurers
is running it poorly or whatever.
What happens?
What is the mandate?
They have to fix themselves?
Or does the AG or somebody have the
ability to mandate anything?
I like the word mandate.
What's the mandate?
-: So the mandate is in the form of testimony that indicates
that the carrier will not merely can,
but will use any certain amount of excess capital,
but beyond the 700% risk based capital,
that will go either towards patient care
or towards improving the quality of care.
It does not mandate in the sense that--
-: So it mandates testimony
that's gonna result in perjury violate.
I'm confused, what happens to that testimony?
-: Well, yes, your honor, theoretically,
that could be grounds for perjury.
And while certain there is--
-: I think I get it.
Can I shift you for a second?
So, you know, initiatives, we want the public,
You know the public has a limited capacity to, you know
time and energy to focus on these things.
So we want sort of rifle shots that they can understand.
I don't understand all of the...
I get there's something very useful about requiring
insurance companies to produce all of their financial data.
That's useful, but I also don't understand it.
That seems to me a very different proposition than
monitoring dental rates.
To me those are separate enough that a voter may have
different views on that.
Particularly when it costs money.
If the insurance companies have to spend a lot of money
generating this data, it gets passed on to somebody.
They don't eat the costs themselves.
So are we really asking voters to vote
on a unified related proposal?
Or are we asking him on two potentially good ideas,
but separate.
-: Respectfully, your honor,
I believe this is a unified idea.
With respect to the fact that carriers have to report
across various lines of business.
This goes to the issue of the carrier solvency, right?
And so as the appellants have tried to suggest,
the medical loss ratio is going to have
some sort of financial impact on carriers, right?
And they have even suggest that
this may lead to insolvency, right?
So it is untenable to assert on the one hand that these
medical loss ratios are going to bankrupt carriers.
But on the other hand that the commissioner cannot monitor
that for various purposes under the petition,
which includes as attorney Hornstine mentioned,
the waiver requirements under section two D
that allows the commissioner to waive
the rebate requirement,
if carriers are financially impaired,
one way you can determine financial impairment would be
through looking through
the solvency metrics across all lines of business.
The second piece of it with respects to the cost involved
with regards to the reporting of these metrics
that may go to some degree of burden
with respect to section three,
but it is not go to the issue of relatedness.
And I would just briefly note,
the Amicus brief has suggested that the insurance carriers
are already required to report much or all of these
same metrics for an entirely different statute.
Ironically they suggest that therefore
this would make it burdensome,
but in actuality it would not be burdensome
because assuming they're correct,
and they already report these metrics for another statute,
they can just simply call that data into this report under
section three.