Dated: 7/26/94
TO: Brian Joyce, Esq.
Boston Mutual Life Insurance Company
120 Royall Street
Canton, Massachusetts 02021
FROM: Dean Blake, Esq. for Reinsurance Management,. Inc., Calabasas, Ca.
RE: Davis Vision PPO billing of 102% of premium to self-insured schools of Xxxxxx County, Ca.
FACTS: There are several question posed in your telefax dated 7/25/94;
1. Can the PPO billing of 102% be characterized as an unlawful rebate?
2. Can public school employee insureds be billed more than premiums under a self-insured plan without revealing the 2% taking by the District as 'fees'?
REPLY:In short, no, this entity falls under an exception to the rebate laws. As the insured we need only concern ourselves with the first question; unlawful rebate under California Insurance Code (CIC) Sec. 750. That section refers to unlawful rebates, including lawful rebates as authorized by Proposition 103 enacted by the electorate 11/8/88 and implemented in 1991. You have contacted me as a local counsel because the Insurance Commissioner has declared such rebates as against public policy. In the latest incarnation of the related lawsuit, the Commissioner's position to make this determination has been upheld by the courts, but I think we need not delve that for in to these facts.
LAWS: CIC Sec. 750 Prohibited Practices, states that one: "who offers, delivers, receives, or accepts any rebate, refund, commission, or other consideration, whether in the form of money or otherwise, as compensation or inducement to or from any person for the referral of procurement of clients, cases patients, or customers, is guilty of a crime.
CIC Sec. 'Soliciting, Referring or Procuring Claims' states in pertinent part that: CIC Sec.750 does not apply to any person . . . association . . . which both of the following:
(a) Operating on behalf of an insurer or self-funded person, company, association or group.
(b) Operating pursuant to and within the scope of a certificate ... or pursuant to and within the scope of a license pursuant to Article 3 (commencing with Section 1400 et seq.) . . .
CIC Sec.1400 refers generally to licensing and CIC Sec. 14022 to exemptions therefrom states in pertinent part: 'Exempt Persons' (b) an officer or employee of . . . this state or a political subdivision thereof, while such officer or employee is engaged in the performance or his or her official duties.
ANALYSIS: The question could be restated" "Can the 2% administrative fee be characterized as a dodge and under CIC Sec.750 be an unlawful rebate to a person where the insurer permits a commission of money for procuring insurance customers of employees.?"
The insurer permits its agents' (PPO) subagent (District) to collect 102% of insureds premium (school teachers) and retain 2%. The money is collected by a public employee in the performance of his duties to administer a welfare benefits plan. The money is received by a public school district that is itself a political subdivision of the State of California. Therefor the parties are exempt parties under law.
Taking the above laws in combination, it appears that CIC Sec. 750.4 exempting the District from the unlawful rebate law, and is satisfied as to part (a) by a person acting on behalf of a group (District) and satisfies part (b) with a licensing exemption for public employees found at CIC Sec. 14022; therefore Sec.750 regarding unlawful rebate does not apply to the facts presented.
CONCLUSION: The sum discovered by the auditors appears to be within the law as to the insurer's role by reason of an exemption to the state affords to its own subdivisions. The teachers' union contract probably accounts for the term 'fee'.
LIABILITY: No violation of CIC Sec. 750 - unlawful rebate law evident as to the insurer.