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Original WP 5.1 Version (NOTE: This decision was approved by the court for publication.) This case can also be found at 302 N.J. Super. 360.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION A-4638-95T1 IN THE MATTER OF INDIVIDUAL HEALTH COVERAGE PROGRAM FINAL ADMINISTRATIVE ORDERS NOS. 96- 01 AND 96-22. ________________________________________ Argued telephonically May 28, 1997 - Decided June 26, 1997 Before Judges Petrella, Wallace and Kimmelman. On appeal from the New Jersey Department of Insurance - Individual Health Coverage Program Board. Benjamin Clarke argued the cause for appellant (DeCotiis, Fitzpatrick & Gluck, attorneys; Mr. Clarke and Elizabeth G. Litten, on the brief). Maria M. Smyth, Deputy Attorney General, argued the cause for respondent (Peter Verniero, Attorney General, attorney; Joseph L. Yannotti, Assistant Attorney General, of counsel; Ms. Smyth, on the brief). The opinion of the court was delivered by KIMMELMAN, J.A.D. At issue are two consolidated appeals filed by First Option Health Plan of New Jersey (First Option), a health maintenance organization (HMO), contesting assessments levied upon it for the years 1994 and 1995 representing reimbursable losses and administrative expenses as administered by the New Jersey Individual Health Coverage Program (IHC Program). N.J.S.A. 17B:27A-2 to -16.5, as part of a comprehensive overhaul of New Jersey's individual and small employer health insurance marketplaces. The purpose and operation of the IHC Act has been well summarized in Health Maintenance Organization of New Jersey, Inc. v. Whitman, 72 F.3d 1123 (3d. Cir. 1995), as follows: In response to this nation's growing health care crisis, New Jersey enacted the Reform Act to ensure that all its citizens would receive the benefits of individual health care coverage. (Individual health care coverage is coverage offered by an insurance company or health maintenance organization directly to an individual and his or her family. By increasing the availability of individual health care coverage, the State intends to reduce the number of uninsured selfemployed or unemployed residents, who often do not have the option of purchasing employer-based or group health coverage).

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Rutgers School of Law

Under the Reform Act, a non-compensated, nine-member Board of Directors "shall establish the policy and contract forms and benefit levels to be made available" . . . [ N.J.S.A. 17B:27A-4. Concurrently, carriers issuing health benefits plans are subject to an assessment to reimburse IHC Program losses. N.J.S.A. 17B:27A-12 and N.J.A.C. 11:20-8.1 to 8.9. The 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. The collective losses of all carriers offering individual health benefits plans in a given calendar year constitute the IHC Program losses for that year. See N.J.S.A. 17B:27A-11 and -12. The assessment mechanism of the IHC Act serves as a financial safety net for carriers offering individual health benefits plans. The IHC Act provides options to enable carriers to fulfill their obligations under the Act. Carriers may elect not to offer any individual health benefits plans and instead pay an assessment. In the alternative, a carrier which elects to offer individual health benefits plans may request an exemption from assessment by agreeing to enroll its fair share of individuals as determined by the IHC Board. See N.J.S.A. 17B:27A-12d. Carriers that seek exemptions may thus reduce or avoid assessment altogether if they meet their enrollment targets. The IHC Act further mandates that the individual health benefits plans to be offered by carriers shall be standard plans developed by the IHC Board of Directors. N.J.S.A. 17B:27A-4. The IHC Board has developed five standard indemnity plans and an HMO plan which are set forth in the Program regulations at N.J.A.C. 11:20 (Appendix A through F). While every carrier is required to offer all of the five standard plans, the IHC Act, N.J.S.A. 17B:27A-4b, a federally qualified HMO may offer an HMO plan in compliance with federal law in lieu of the five standard plans required by the IHC Act. In electing to enter New Jersey's health benefits marketplace, we deem First Option to have been fully aware of the requirements of the IHC Act and the potential for assessment based on premiums earned on group business written in 1994 and 1995. In re Kovalsky, 195 N.J. Super. 91, 98 (App. Div. 1984). The IHC Board determined that because First Option was licensed and in the business of issuing health benefits plans in New Jersey, it was subject to assessment under the IHC Program. First Option claims that the IHC Board erroneously determined that First Option was liable for 1994 and 1995 IHC Program losses. First Option further argues that it was legally precluded from offering any of the standard plans and thus was incorrectly assessed by the IHC Board. The IHC Board determined that First Option's position was without merit because it was based on an incorrect interpretation of the IHC Act. On June 1, 1994, First Option received its certificate of authority to operate as an HMO in New Jersey. On August 29, 1994, First Option applied to the federal authorities for federal qualification as an HMO so that it could offer and issue a standard HMO plan in compliance with federal law pursuant to the Health Maintenance Organization Act of 1973, codified at 42 U.S.C.A.

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