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STATE OF MAINE
DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
BUREAU OF INSURANCE
FORM A APPLICATION OF
AETNA INC. TO ACQUIRE CONTROL
OF NYLCARE HEALTH PLANS OF
MAINE, INC., a subsidiary of NEW YORK
LIFE INSURANCE COMPANY
Docket No. INS-98-5
|DECISION AND ORDER
On March 20, 1998, Aetna, Inc. ("Aetna") filed an application
pursuant to 24-A M.R.S.A. §222(4-A) and (4-B) to acquire control of NYLCare
Health Plans of Maine, Inc. ("NYLCare - Maine") as set forth
in more detail below. The application was deemed complete by order of
the Superintendent dated May 11, 1998. Aetna and the Bureau of Insurance
Advocacy Panel were the sole parties to the proceeding. A hearing on the
application took place on May 29, 1998. Superintendent of Insurance Alessandro
Iuppa presided and was assisted on the hearing panel by Richard Diamond,
Life and Health Actuary, and Judith Shaw Chamberlain, Assistant Attorney
General. Also present were Nancy Johnson, Deputy Superintendent of Insurance,
Joel Thomsen, Director of Financial Solvency, and Glenn Griswold, Health
Policy Analyst, comprising the Bureau of Insurance Advocacy Panel. The
Advocacy Panel was represented by Jeffrey Frankel, Assistant Attorney
General. The applicants were represented by James Kaplan, Esq. Testimony
on behalf of the Applicants was provided by James Brown, Regional General
Counsel at Aetna U.S. Healthcare, Sal J. Uglietta, Aetna U.S. Healthcare's
Regional Vice President for the Northeast, Ellen Whaley of Aetna U.S.
Healthcare, and Dr. Daniel Fishbein, President of NYLCare Health Plans
of Maine, Inc.
One application for intervention was filed by Joseph Ditre, Esq. on behalf
of Consumers for Affordable Healthcare. That application was denied by
the Superintendent by an Order dated May 27, 1998. Mr. Ditre filed a Motion
for rehearing of the application for intervention which motion was heard
on May 29, 1998. The motion was denied by an Order dated May 29, 1998.
Following the close of the record, the Applicants and the Advocacy Panel
submitted a proposed Decision and Order to the Superintendent. The proposal
was filed on June 12, 1998, and had not been reviewed by the Superintendent
prior to that date.
Based on the testimony and exhibits introduced into the record, the Superintendent
makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
- NYLCare - Maine, the domestic insurer, is a wholly-owned subsidiary
of NYLCare Health Plans, Inc. NYLCare Health Plans, Inc. is a wholly-owned
subsidiary of NYLIFE Healthcare Management, Inc., which in turn is ultimately
controlled by New York Life Insurance Company.
- Aetna and New York Life Insurance Company have entered into a contract
under which Aetna will purchase from NYLIFE Healthcare Management, Inc.
all of the outstanding capital stock of NYLCare Health Plans, Inc. The
exact amount of the final purchase price is dependent upon a number
of adjustments and contingencies, but is expected to be approximately
$1.05 billion dollars.
- This transaction is nationwide in scope. Upon consummation of the
transaction, Aetna will own health insurers, health maintenance organizations,
preferred provider organizations and related management companies in
sixteen states that are currently owned by NYLife Healthcare Management,
Inc. See the New York Life Managed Care Organization Chart attached
as Exhibit A to the application. NYLCare - Maine will be one of the
- The transaction is contingent upon the approval of regulatory authorities
in a number of states, including Maine.
- As part of the transaction, Aetna intends to transfer ownership
of the new acquisitions to Aetna U.S. Healthcare Inc. ("AUSHC"),
Aetna's wholly-owned subsidiary.
- NYLCare - Maine was issued a Certificate of Authority and approved
to conduct the business of an HMO in Maine pursuant to a Decision and
Order dated November 1, 1995 in the matter of Application of New York
Life Insurance Company, etc., dkt. no. INS-95-20. Based on the anticipated
monthly medical expenses of the new HMO, the aforementioned Decision
and Order required two New York Life affiliates, Sanus Corp. Health
Systems and New York Life and Health Insurance Company, to unconditionally
guaranty that NYLCare - Maine would maintain a minimum capital and surplus
in the amount of $4 million. Sanus Corp. Health Systems has since changed
its name to NYLCare Health Plans, Inc.
- Since NYLCare - Maine's commencement of operations, the New York
Life affiliates have invested $3.1 million in the HMO, all of which
is supported by currently outstanding debentures issued by NYLCare -
Maine pursuant to the terms of the Decision and Order and accompanying
- Due to antitrust and trade secret concerns pending a closing on
this transaction between nationwide competitors, Aetna asserts it has
been unable to formulate a business plan for NYLCare - Maine in a form
and manner that would be acceptable to the Superintendent. However,
Aetna has submitted in satisfactory form updated pro forma financial
projections prepared by the current management of NYLCare - Maine covering
calendar years 1998 -2000. Aetna has accepted this information even
though Aetna has chosen not to examine this information itself due to
the aforementioned concerns. While the Superintendent believes Aetna
could have made a greater effort to review the future plans of NYLCare-Maine,
Aetna's representations are accepted given Aetna's willingness to file
with the Superintendent an updated business plan for NYLCare-Maine.
- It appears from the updated pro forma financial projections that
the highest amount of projected monthly medical expenses for 1998 is
$5.3 million, and that the average amount of projected monthly medical
expenses for 2000, based on a projected annual figure, is $12 million.
- Aetna intends to begin integrating the former NYLCare operations
into AUSHC's operations immediately following the close of the transaction.
In its integration planning, Aetna intends to first address smaller
former NYLCare subsidiaries, such as NYLCare - Maine.
- Aetna anticipates completion of its integration planning for NYLCare
- Maine within six months of the close of the transaction. As part of
the integration planning, Aetna will be examining the overall operation
of NYLCare - Maine and the competitive climate in which the HMO does
business. Upon completion of this process, Aetna will file a business
plan with the Superintendent. This six-month review period is an internal
Aetna target. Aetna may submit the business plan either before or after
the expiration of this six month period, however, if the submission
is to be made beyond the six month period, Aetna must so notify the
Superintendent and provide a target date for submission.
- For at least six months following closing, Aetna does not plan
to relocate NYLCare - Maine's Portland office and does not plan to make
any substantial changes to those aspects of the business that relate
to customers, members and network providers. These include sales, account
service, enrollment, most case administration and billing aspects, member
services, claims processing, medical and quality management and network
development. Other functions that are currently performed to some degree
outside of Portland, such as finance, human resources, network support,
legal and regulatory affairs, and MIS will migrate from New York Life's
home office to Aetna.
- Aetna has no plans or proposals to cause NYLCare - Maine to declare
any extraordinary dividend or to make any other distribution from NYLCare
- In 1997, the total indemnity health insurance premium written in
Maine was $808,395,228 and the total HMO health insurance premium written
in Maine was $325,393,145, for an overall 1997 Maine health insurance
premium of $1,133,788,373.
- AUSHC, through Aetna Life Insurance and Annuity Company and Aetna
Life Insurance Company, wrote $2,027,616 in health insurance premium
in Maine in 1997. This premium amount is the entire extent of AUSHC's
activity in the Maine health insurance market, and represents .18% of
the 1997 overall Maine health insurance premium.
- NYLCare - Maine has enrolled 19,415 Maine residents in its HMO
as of December 31, 1997. NYLCare - Maine wrote $15,418,051 in health
insurance premium in 1997, which represents 1.36% of the 1997 overall
Maine health insurance premium. As of May 1, 1998, NYLCare-Maine was
serving 34,600 plan members, including 5,900 Medicaid enrollees and
95 Medicare enrollees.
CONCLUSIONS OF LAW
24-A M.R.S.A. § 222(2)(B)
Definition of "control"
Aetna will control NYLCare - Maine as a result of this transaction.
24-A M.R.S.A. § 222(7)(A)(1)
Satisfaction of requirements for issuance of certificate of authority
Standing alone, NYLCare - Maine may not meet the capitalization requirements
for a certificate of authority set forth in 24-A M.R.S.A. §§ 410 and 4204-A.
This deficiency is overcome by the Unconditional Guaranty and Subordinated
Surplus Debenture discussed below.
24-A M.R.S.A. § 222(7)(A)(2)
The acquisition will not substantially lessen competition in this State
or violate any law of Maine or the United States relating to monopolies
or restraint of trade.
24-A M.R.S.A. § 222(7)(A)(3)
Financial condition of Aetna
The Advocacy Panel, on behalf of the Superintendent did not conduct a
separate and independent evaluation of the financial condition of Aetna,
the acquiring entity, although testimony was presented on this issue by
Mr. Sal Uglietta, Aetna's Regional Vice President for the Northeast. Specifically,
Mr. Uglietta testified that on a GAAP basis at December 31, 1997, Aetna
had total assets of over $96 billion and shareholders equity of over $11
million. Aetna's net income for 1997 was $901 million. However, the Superintendent
is no stranger to Aetna-controlled insurance companies. Aetna Health and
Life Insurance Company, NAIC #78700, Aetna Insurance Company of America,
NAIC #76953; Aetna Insurance Company of Connecticut, NAIC #36153; Aetna
Life Insurance & Annuity Company, NAIC #86509; Aetna Life Insurance
Company, NAIC #60054; and Corporate Health Insurance Company, NAIC #72052
are authorized to do business in the Maine and the financial position
of those authorized insurance companies are routinely reviewed by Bureau
of Insurance financaial staff. At this point, all Aetna companies licensed
in Maine are in compliance with the financial requirements of Maine law.
24-A M.R.S.A. § 222(7)(A)(4)
Plans or proposals of Aetna
Aetna has no plans to liquidate NYLCare - Maine, sell its assets or merge
or consolidate it with any person. Aetna's plan to integrate the company
into AUSHC is not unfair or prejudicial to shareholders.
24-A M.R.S.A. § 222(7)(A)(5)
Competence, experience and integrity of controlling persons
The Advocacy Panel on behalf of the Superintendent did not independently
evaluate the competence, experience and integrity of the persons who would
control the operation of NYLCare - Maine, although information exists
in the Form A application that relates to this statutory criterion. The
Superintendent accepts the representations of the Advocacy Panel that
the Maine-licensed insurers that are part of the Aetna family of companies
have experienced no regulatory issues regarding the competence, integrity
and experience of their managers. Nor have any regulatory issues arisen
regarding the control of those entities by Aetna Inc.
24-A M.R.S.A. § 222(7)(A)(6) and compliance with 24-A M.R.S.A.
Title 24-A M.R.S.A. § 3474 are inapplicable in that the proposed
transaction does not include the merger of a domestic insurer.
24-A M.R.S.A. § 222(7)(A)(7)
Contractual obligations; continued service
Nothing in the proposed transaction would tend to affect adversely the
contractual obligations of NYLCare - Maine or its ability and tendency
to render service in the future to its policyholders and the public.
The application of Aetna Inc. to acquire control of NYLCare Health Plans
of Maine, Inc. is hereby GRANTED, subject to the following conditions:
- Appended to this Decision and Order as Exhibit 1 is a document setting
forth the terms of a negotiated Unconditional Guaranty under which NYLCare
Health Plans, Inc. and Aetna U.S. Healthcare Inc. resolve to provide
NYLCare - Maine with necessary capital infusions as specified within
the document. Appended to this Decision and Order as Exhibit 2 is a
negotiated Subordinated Surplus Debenture form for use by NYLCare -
- Within seven calendar days of the closing of Aetna's acquisition
of NYLCare - Maine, a finalized Subordinated Surplus Debenture Form
in the initial amount of $5.3 million and four fully-executed
copies of the Unconditional Guaranty shall be provided to the Superintendent.
Upon the Superintendent's receipt and approval of these documents, the
Superintendent shall issue an order releasing Sanus Corp. Health Systems
and New York Life and Health Insurance Company from their guaranty dated
April 15, 1996 and approving payment by NYLCare - Maine of all outstanding
subordinated surplus debentures issued to those two companies.
- Aetna shall make no substantial change to those operational aspects
of NYLCare - Maine discussed in finding of fact 12 until such time as
the Superintendent has received and approved a business plan for NYLCare
- NYLCare - Maine shall maintain in effect its existing deposit with
the Superintendent in the amount of $100,000 as required by 24-A M.R.S.A.
- Pursuant to 24-A M.R.S.A. § 4204(2-A)(H), NYLCare - Maine shall
maintain in effect its existing fidelity bond or fidelity insurance
policy of not less than $250,000 covering all contracted or employed
individuals and officers who receive, collect, disburse or invest funds
on behalf of the HMO.
- Approval of Aetna's acquisition of control of NYLCare Health Plans
Inc. requires the approval by the Departments of Insurance in Connecticut,
New York and Texas. Any material changes to the Aetna acquisition required
by the regulators in those three states must be filed as amendments
to the Form A with the Superintendent.
NOTICE OF APPEAL RIGHTS
Pursuant to 5 M.R.S.A. § 11002 and 24-A M.R.S.A. § 236, any
party to this proceeding may seek judicial review of this Decision and
Order by filing a petition for review in the Maine Superior Court within
thirty days of such party's receipt of this Decision and Order.
Any person not a party to this proceeding who is aggrieved by this Decision
and Order may seek judicial review thereof by filing a petition for review
in the Maine Superior Court within forty days of the date appearing below.
|Dated: June , 1998
ALESSANDRO A. IUPPA
Superintendent of Insurance
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