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Steven Ostlund 1
Freedom Court Reporting, Inc 877-373-3660
1 IN THE UNITED STATES DISTRICT COURT
2 FOR THE NORTHERN DISTRICT OF ALABAMA
3 SOUTHERN DIVISION
4
5 IN RE: BLUE CROSS BLUE SHIELD
6 Master File No. 2:13-CV-20000-RDP
7 ANTITRUST LITIGATION
8 MDL NO. 2406
9
10
11 CONFIDENTIAL VIDEO DEPOSITION OF
12 STATE OF ALABAMA DEPARTMENT OF INSURANCE 30(b)(6)
13 (THROUGH DEPONENT STEVEN OSTLUND)
14 Department of Insurance
15 RSA Tower
16 201 Monroe Street
17 Montgomery, Alabama
18 August 4, 2016
19
20
21
22 REPORTED BY: Laura H. Nichols
23 Certified Realtime Reporter,
24 Registered Professional
25 Reporter and Notary Public
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Steven Ostlund 2
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S
2
3 FOR THE DEPARTMENT OF INSURANCE:
4 Mr. J. Fairley McDonald, III
5 Chief Counsel, Legal Division
6 and Ms. Kathleen Healey
7 Attorneys at Law
8 State of Alabama
9 Department of Insurance
10 RSA Tower, 201 Monroe Street
11 P.O. Box 303351
12 Montgomery, Alabama 36130-3351
13 334.241.4120
16
17 FOR THE SUBSCRIBER PLAINTIFFS:
18 Mr. Cyril V. Smith
19 Attorney at Law
20 Zuckerman Spaeder LLP
21 100 East Pratt Street
22 Suite 2440
23 Baltimore, Maryland 21202-1031
24 410.949.1145
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Steven Ostlund 3
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S (Continuing)
2
3 FOR THE SUBSCRIBER PLAINTIFFS:
4 Ms. Melissa Willett
5 Attorney at Law
6 Boies, Schiller & Flexner LLP
7 5301 Wisconsin Avenue Northwest
8 Washington, DC 20015
9 202.237.2727
11
12 FOR THE SUBSCRIBER PLAINTIFFS:
13 Mr. David J. Hodge
14 Attorney at Law
15 Morris, King & Hodge
16 200 Pratt Avenue Northeast
17 Huntsville, Alabama 35801
18 256.536.0588
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Steven Ostlund 4
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S (Continuing)
2
3 FOR THE SUBSCRIBER PLAINTIFFS:
4 Mr. Gregory Louis Davis
5 Attorney at Law
6 Davis & Taliaferro, LLC
7 7031 Halcyon Park Dr
8 Montgomery, Alabama 36117-7763
9 334.832.9080
11
12 FOR THE PROVIDER PLAINTIFFS:
13 Mr. W. Tucker Brown
14 Attorney at Law
15 Whatley Kallas, LLC
16 2001 Park Place North
17 1000 Park Place Tower
18 Birmingham, Alabama 35203
19 205.488.1200
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Steven Ostlund 5
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S (Continuing)
2
3 FOR THE DEFENDANT, BLUE CROSS BLUE SHIELD
4 ASSOCIATION:
5 Ms. Anne Salomon
6 Attorney at Law
7 Kirkland & Ellis
8 300 North LaSalle
9 Chicago, Illinois 60654
10 312.862.2000
12
13 FOR THE DEFENDANT, CAPITAL BLUECROSS
14 (VIA TELECONFERENCE):
15 Mr. Jess R. Nix
16 Attorney at Law
17 Spotswood Sansom & Sansbury
18 One Federal Place
19 1819 Fifth Avenue North
20 Suite 1050
21 Birmingham, Alabama 35203
22 205.986.3620
24
25
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Steven Ostlund 6
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S (Continuing)
2
3 FOR THE DEFENDANT, BLUE CROSS BLUE SHIELD OF
4 ALABAMA:
5 Messrs. James L. "Jim" Priester
6 and Carl S. Burkhalter
7 Attorneys at Law
8 Maynard, Cooper & Gale, P.C.
9 2400 Regions Harbert Plaza
10 1901 Sixth Avenue North
11 Birmingham, Alabama 35203
12 205.254.1000
15
16 FOR THE DEFENDANT C&M DEFENDANT PLANS
17 (VIA TELECONFERENCE):
18 Ms. Allyson M. McKinstry
19 Attorney at Law
20 Crowell Moring
21 590 Madison Avenue
22 20th Floor
23 New York, New York 1002-2544
24 212.223.4000
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Steven Ostlund 7
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S (Continuing)
2
3 ALSO FOR THE CO-DEFENDANTS:
4 Mr. Thomas M. Trucksess
5 Attorney at Law
6 Hogan Lovells
7 Park Place II
8 7930 Jones Branch Drive
9 Ninth Floor
10 McLean, Virginia 22102
11 703.610.6100
13
14 FOR THE DEFENDANT, BLUE CROSS BLUE SHIELD OF
15 MISSISSIPPI (VIA TELECONFERENCE):
16 Mr. M. Patrick McDowell
17 Attorney at Law
18 Brunini, Grantham, Grower & Hewes, PLLC
19 190 East Capitol Street
20 Suite 100
21 Jackson, Mississippi 39201
22 601.960.6925
24
25
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Steven Ostlund 8
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S (Continuing)
2
3 FOR THE DEFENDANT, USABLE MUTUAL INSURANCE COMPANY,
4 d/b/a ARKANSAS BLUE CROSS AND BLUE SHIELD
5 (VIA TELECONFERENCE):
6 Ms. Samantha A. Robbins
7 Attorney at Law
8 Foley & Lardner LLP
9 Washington Harbour
10 3000 K Street Northwest
11 Suite 600
12 Washington, D.C. 20007-5109
13 202.672.5300
15
16 OTHERS PRESENT:
17 Mr. Michael J. Velezis
18 Vice President, Legal Services
19 450 Riverchase Parkway East
20 Birmingham, Alabama 35244
21 205.220.5384
23
24
25
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Steven Ostlund 9
Freedom Court Reporting, Inc 877-373-3660
1 A P P E A R A N C E S (Continuing)
2
3 OTHERS PRESENT, CONTINUING:
4 Mr. Scott Pierce, Videographer
5 Freedom Court Reporting
6 2031 Shady Crest Drive
7 Hoover, Alabama 35216
8 205.397.2397
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Steven Ostlund 10
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1 INDEX OF EXAMINATION
2
3 Page:
4 EXAMINATION BY MR. SMITH 18
5 EXAMINATION BY MR. PRIESTER 239
6 REEXAMINATION BY MR. SMITH 301
7
8
9
10
11 INDEX OF PLAINTIFFS' EXHIBITS
12
13 Page:
14 PX-Ostlund001 21
15 (Plaintiffs' First Amended Notice
16 Duces Tecum of Rule 30(b)(6) Deposition of
17 State of Alabama Department of Insurance)
18 PX-Ostlund002 59
19 (Alabama Department of Insurance
20 Request for Proposal for Professional
21 Actuarial Consulting Services)
22 PX-Ostlund003 62
23 (Section 10A-20-6 from the Alabama
24 Code)
25
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1 INDEX OF PLAINTIFFS' EXHIBITS, CONTINUING
2
3 Page:
4 PX-Ostlund004 67
5 (Email dated 3/4/2016 from Steven
6 Ostlund with Rate Review Response
7 attachment)
8 PX-Ostlund005 80
9 (Email string, beginning with an
10 email from Steven Ostlund dated 03/04/2016)
11 PX-Ostlund006 86
12 (The State of Alabama Department of
13 Insurance, Life, Annuity & Health Filing
14 Information, March 1, 2011 (Revised
15 February 2012)
16 PX-Ostlund007 89
17 (CONFIDENTIAL-Document beginning
18 with Bates Number BCBSAL_0000003153)
19 PX-Ostlund008 91
20 (CONFIDENTIAL-Document beginning
21 with Bates Number BCBSAL_0000047418)
22 PX-Ostlund009 92
23 (Alabama Department of Insurance,
24 Insurance Regulation, Chapter 482-1-116,
25 Alabama Small Employer Allocation Program)
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1 INDEX OF PLAINTIFFS' EXHIBITS, CONTINUING
2
3 Page:
4 PX-Ostlund010 100
5 (Alabama Department of Insurance,
6 Insurance Regulation, Chapter 482-1-024)
7 PX-Ostlund011 115
8 (Health Insurance Rate Review Grant
9 Program, Cycle I Final Report: Alabama
10 Department of Insurance)
11 PX-Ostlund012 127
12 (CONFIDENTIAL-Document beginning
13 with Bates Number BCBSAL_0000000041)
14 PX-Ostlund013 131
15 (CONFIDENTIAL-Document beginning
16 with Bates Number BCBSAL_0000004068)
17 PX-Ostlund014 134
18 (Withdrawn)
19 PX-Ostlund014 (Re-marked) 135
20 (Email from Noel Carden to Steven
21 Ostlund, dated March 9, 2012)
22 PX-Ostlund015 155
23 (Email string, beginning with an
24 email from Jim Ridling to Steven Ostlund,
25 dated July 25, 2016)
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1 INDEX OF PLAINTIFFS' EXHIBITS, CONTINUING
2
3 Page:
4 PX-Ostlund016 162
5 (Final Report on the Medical Loss
6 Ratio Examination of Blue Cross and Blue
7 Shield of Alabama for the 2013 MLR
8 Reporting Year)
9 PX-Ostlund017 172
10 (Code of Alabama 27-13-2)
11 PX-Ostlund018 174
12 (ALDOI- Rates & Forms FAQs)
13 PX-Ostlund019 203
14 (CONFIDENTIAL-Document beginning
15 with Bates Number BCBSAL_0000180911)
16 PX-Ostlund020 203
17 (CONFIDENTIAL-Document beginning
18 with Bates Number BCBSAL_0000180930)
19 PX-Ostlund021 210
20 (CONFIDENTIAL-Document beginning
21 with Bates Number BCBSAL_0000001975)
22 PX-Ostlund022 215
23 (CONFIDENTIAL-Document beginning
24 with Bates Number BCBSAL_0000011445)
25
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1 INDEX OF PLAINTIFFS' EXHIBITS
2
3 Page:
4 PX-Ostlund023A 233
5 (State of Alabama Department of
6 Insurance, Montgomery, Alabama, Report of
7 Limited-Scope Examination of Blue Cross and
8 Blue Shield of Alabama, Birmingham, Alabama
9 as of December 31, 2010)
10 PX-Ostlund023B 233
11 (State of Alabama Department of
12 Insurance, Montgomery, Alabama, Report of
13 Limited-Scope Examination of Blue Cross and
14 Blue Shield of Alabama, Birmingham, Alabama
15 as of December 31, 2010)
16 PX-Ostlund023C 233
17 (Email string beginning with an
18 email from Tori Bean to Kathleen Healey,
19 dated June 13, 2011)
20
21
22
23
24
25
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1 INDEX OF DEFENDANTS' EXHIBITS
2
3 Page:
4 DX-Ostlund001 274
5 (CONFIDENTIAL-Document beginning
6 with Bates Number BCBSAL_0000048942)
7 DX-Ostlund002 287
8 (Email from Steven Ostlund to
9 Dennis Yu, dated August 20, 2015)
10 DX-Ostlund003 293
11 (CONFIDENTIAL-Document beginning
12 with Bates Number BCBSAL_0000180968)
13
14
15
16
17
18
19
20
21
22
23
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Steven Ostlund 16
Freedom Court Reporting, Inc 877-373-3660
1 S T I P U L A T I O N
2 IT IS STIPULATED AND AGREED, by and
3 between the parties, through their respective
4 counsel, that the deposition of STATE OF ALABAMA
5 DEPARTMENT OF INSURANCE 30(b)(6), THROUGH DEPONENT
6 STEVEN OSTLUND, may be taken before Laura H.
7 Nichols, Commissioner, Certified Realtime Reporter,
8 Registered Professional Reporter and Notary Public;
9 That it shall not be necessary for
10 any objections to be made by counsel to any
11 questions, except as to form or leading questions,
12 and that counsel for the parties may make
13 objections and assign grounds at the time of trial,
14 or at the time said deposition is offered in
15 evidence, or prior thereto;
16 That any objection as to the form of
17 a question shall be deemed to have been made on
18 behalf of all other parties and on all applicable
19 grounds.
20
21
22
23
24
25
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Steven Ostlund 17
Freedom Court Reporting, Inc 877-373-3660
1 I, Laura H. Nichols, a Certified
2 Realtime Reporter and Registered Professional
3 Reporter of Birmingham, Alabama, and a Notary
4 Public for the State of Alabama at Large, acting as
5 Commissioner, certify that on this date, as
6 provided by the Federal Rules of Civil Procedure of
7 the United States District Court, and the foregoing
8 stipulation of counsel, there came before me at the
9 offices of the Department of Insurance, RSA Tower
10 201 Monroe Street, Montgomery, Alabama, on
11 August 4, 2016, commencing at 8:44 a.m.,STATE OF
12 ALABAMA DEPARTMENT OF INSURANCE 30(b)(6), THROUGH
13 DEPONENT STEVEN OSTLUND, witness in the above
14 cause, for oral examination, whereupon the
15 following proceedings were had:
16 * * *
17 THE VIDEOGRAPHER: This begins Disk
18 Number 1 in the deposition of Steve Ostlund in the
19 matter of Blue Cross-Blue Shield Antitrust
20 Litigation, Case Number 2:13-CV-20000-RDP. We are
21 on the record at 8:44 a.m. on Thursday, August 4th,
22 2016. This deposition is taking place in
23 Montgomery, Alabama. My name is Scott Pierce
24 representing Freedom Court Reporting. Would the
25 court reporter please swear in the witness?
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Steven Ostlund 18
Freedom Court Reporting, Inc 877-373-3660
1 STATE OF ALABAMA DEPARTMENT OF INSURANCE 30(b)(6)
2 (THROUGH DEPONENT STEVEN OSTLUND),
3 having been first duly sworn, was examined and
4 testified as follows:
5
6 EXAMINATION BY MR. SMITH:
7 Q. Good morning, Mr. Ostlund. Could you
8 state for the record your age and your title here
9 at the Department of Insurance?
10 A. I am sixty-seven, and I am the life
11 and health actuary for the Alabama Department of
12 Insurance.
13 Q. Okay. We met just a moment ago. I
14 think you understand my name is Cy Smith. I
15 represent the subscriber, insurer subscriber
16 plaintiffs in this case. And we are going to take
17 your videotaped deposition under oath today. Have
18 you ever testified under oath, whether at a
19 deposition or otherwise?
20 A. I am not positive. I believe I have.
21 Q. Okay. Deposition, do you think it
22 was?
23 A. Deposition.
24 Q. What kind of case was it?
25 A. It was an insurance case back in
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Freedom Court Reporting, Inc 877-373-3660
1 the '70s.
2 Q. Okay. So arising out of your work
3 here at Alabama?
4 A. No.
5 Q. Oh.
6 A. It was in Madison, Wisconsin.
7 Q. I see. Did it arise out of your
8 work?
9 A. Yes, it did.
10 Q. Do you remember what the case was
11 about?
12 A. I have no --
13 Q. No recollection?
14 A. No memory at all.
15 Q. Then a refresher course if it has
16 been forty years. We are going to put the
17 questions to you I hope one at a time. I hope they
18 make sense to you. If they don't, if you don't
19 understand something, let me know. I will try and
20 rephrase it for you. And if I put the question to
21 you and I don't hear, you know, something like
22 that, like I didn't get it, I didn't hear it, then
23 I will assume that you heard the question, that you
24 understood the question and you are doing best that
25 you can personally to give me a truthful, accurate
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Freedom Court Reporting, Inc 877-373-3660
1 and complete answer. Is that satisfactory?
2 A. Sure.
3 Q. Okay. And this deposition is being
4 videotaped because there's a possibility we might
5 play back some or all of it for a jury later on in
6 the case. So that is why we have all the equipment
7 here.
8 Do you understand that you are here
9 testifying today not just personally but as a
10 representative of the Department of Insurance?
11 A. I do.
12 Q. Okay. And did you review a
13 deposition notice that listed a bunch of topics?
14 Does that ring a bell? Let me show you one.
15 A. I do not remember.
16 MR. PRIESTER: Cy, while Greg's
17 grabbing that, this is usual stipulations?
18 MR. SMITH: If it is the ones we
19 talked about the last time, objections for
20 everybody and all you have to do is state objection
21 to the form.
22 MR. PRIESTER: Yes. Our word for it
23 down here.
24 MR. SMITH: If you could mark this as
25 Number 1.
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Steven Ostlund 21
Freedom Court Reporting, Inc 877-373-3660
1 (PX-Ostlund001 was marked for
2 identification.)
3 Q. (BY MR. SMITH:) So, Mr. Ostlund, we
4 have handed you Exhibit Number 1, which is the
5 Plaintiffs' First Amended Notice of a Deposition.
6 And if you will flip to Pages 6 to 7 of that
7 document, you will see that there are eight topics
8 on which we have asked the Department of Insurance
9 to provide a representative to testify. Have you
10 seen those topics before today?
11 A. I believe I have.
12 Q. And have you done work to prepare
13 yourself to testify about those eight topics?
14 A. Some work, yes.
15 Q. Okay. About how much time would you
16 say you have spent preparing to testify about
17 those?
18 A. Three or four hours.
19 Q. Do you consider yourself
20 knowledgeable about each of those eight topics?
21 A. I believe, yes.
22 Q. Okay. And in particular, you are
23 knowledgeable about Number 2 there, the laws,
24 regulations and procedures that govern the
25 submission and the review and the oversight of
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1 health insurance rates in the state of Alabama?
2 A. I do.
3 Q. All right. And what did you do in
4 that three or four hours? What kind of preparation
5 did you do to prepare as a representative of the
6 Department of Insurance?
7 A. I reviewed some emails that were
8 provided in a folder that our attorneys provided to
9 me. And I was told what would happen in a
10 deposition.
11 Q. Just in terms of the format and the
12 procedure?
13 A. Correct.
14 Q. And did those emails refresh your
15 recollection about some of the events that may have
16 occurred over the last seven or eight years?
17 A. Yes, they did.
18 Q. And what kind of things did you read
19 that refreshed your recollection, brought back some
20 memories of those?
21 A. I read some emails about
22 correspondence between myself and Blue Cross-Blue
23 Shield on some of the rate filings. It reminded me
24 of some of the preparation I did in the first rate
25 reviews in 2008, 2007 where I looked at previous
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1 correspondence to make myself familiar with the
2 process.
3 I looked at some correspondence
4 relative to what we did in terms of correspondence
5 with the federal government when the ACA was
6 being -- had just been adopted.
7 Q. Okay. And in addition to looking at
8 emails and so on, did you interview anyone or talk
9 to anyone in person or on the phone to prepare and
10 to get your facts straight?
11 A. I did not.
12 Q. Let me go back to something you said,
13 that you were reminded of work you did back in 2007
14 and '08 when you had to go back and look at prior
15 correspondence to understand how things had been.
16 Is there any kind of official record of rate
17 filings and correspondence related to them that is
18 kept here at the Department of Insurance?
19 A. The rate filings that Blue Cross-Blue
20 Shield provides to the department was what I looked
21 at. I looked at the 2006 rate filings in
22 preparation for doing the 2007 filings.
23 Q. I see. So the rate filings would be
24 the official record; is that right?
25 A. Correct.
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Freedom Court Reporting, Inc 877-373-3660
1 Q. Okay. Now, we have been told that
2 some portion of the electronic records, that is to
3 say emails, digital copies of files and so on for
4 the Department of Insurance are maintained by the
5 Department of Finance. Do you know anything about
6 that?
7 A. I do not.
8 Q. Okay. There was a deposition taken
9 in this case last Friday, July 30th, of Noel
10 Carden. Did you know that?
11 A. I was aware that he was being
12 deposed.
13 Q. And how was it you were aware of
14 that?
15 A. It was conversation that he
16 apologized that I had to be deposed as well.
17 Q. I see. When did you talk to him
18 about that?
19 A. Talked to him last Wednesday when we
20 were discussing another matter.
21 Q. Okay. And did you talk to him after
22 his deposition?
23 A. I have not.
24 Q. Have you talked to anyone about his
25 deposition?
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1 A. I have not.
2 Q. Have you seen a transcript or a
3 summary of any of the testimony he provided?
4 A. I have not.
5 Q. Has anyone described even in summary
6 form what happened at his deposition?
7 A. I have -- nothing.
8 Q. Okay.
9 A. No one.
10 Q. All right. And have you -- before
11 today, have you met with Mr. Priester, who is
12 seated across from me?
13 A. I don't believe I have meet
14 Mr. Priester prior to today.
15 Q. Okay. Have you spoken to him on the
16 phone?
17 A. I have not.
18 Q. Have you either spoken to or met with
19 anyone from the law firm that represents Blue
20 Cross-Blue Shield of Alabama, which is, just for
21 your reference, is Maynard Cooper?
22 A. I do not believe I have. Definitely
23 I have not talked to them about anything regarding
24 this case.
25 Q. Okay. Where are you from? Where did
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Freedom Court Reporting, Inc 877-373-3660
1 you grow up? And then let's just talk a little bit
2 about your education, your career.
3 A. I was born in Estherville, Iowa, grew
4 up in Lincoln, Nebraska, went to college in
5 Augustana and Sioux Falls, South Dakota.
6 Q. Okay.
7 A. After graduation, I went to Chicago
8 and worked for Continental Casualty, CNA Companies.
9 Then came back to Lincoln, Nebraska and worked for
10 what was then Bankers Life Nebraska. Then moved to
11 Madison, Wisconsin where I spent most of -- good
12 share of my career with CUNA Mutual Insurance
13 Company.
14 Q. I'm sorry. What was the name of
15 that?
16 A. CUNA Mutual, Credit Union National
17 Association.
18 Q. Okay.
19 A. Then held several jobs from 2000 to
20 2007 and then joined the department in 2007.
21 Q. And what were you doing between 2000
22 and 2007?
23 A. I worked for three different
24 insurance companies. I was downsized out of
25 Madison, Wisconsin and then worked for different
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1 insurance companies. But each of them -- I was
2 working on the credit insurance, and they would
3 merge or something and I would be downsized out of
4 that as well.
5 Q. So 2007, you came to Alabama?
6 A. That's correct.
7 Q. And I understand that for a period of
8 time, you worked at -- in the state of Florida as
9 an actuary; is that right?
10 A. That's correct.
11 Q. So tell me, take me from 2007 up
12 until today. Tell me what the break in service
13 was, so to speak.
14 A. 2007 until September of 2012 I worked
15 at the department -- 2000 -- September of 2012, I
16 accepted a position with the Florida Department of
17 Insurance. It is actually their -- I don't
18 remember what their title is, but, I mean, it is
19 the Department of Insurance there.
20 Q. Uh-huh.
21 A. And I worked for them until May of
22 2013 when I returned to the Alabama Department of
23 Insurance.
24 Q. Okay. When you were working in
25 Madison, Wisconsin, I think you said that was in a
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1 state regulatory capacity?
2 A. No, it was with a -- it was with an
3 insurance company --
4 Q. Oh, I see.
5 A. -- that insured, provided insurance
6 for credit unions.
7 Q. Got it. Got it. So before you came
8 to Alabama, did you have any health insurance
9 actuarial experience?
10 A. My whole career has been in health
11 insurance.
12 Q. Oh, okay. Including Continental
13 Casualty and CNA?
14 A. Correct.
15 Q. And when you were in Florida, I
16 assume that was health regulatory?
17 A. That's right, as well as life
18 regulatory.
19 Q. Okay. So why did you leave here in
20 '12 and go off to Florida?
21 A. Financial for one reason and I was --
22 it provided an opportunity that I was interested
23 in, in working in a state that provided -- had more
24 influence. And I just thought it would be a good
25 move to make.
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Freedom Court Reporting, Inc 877-373-3660
1 Q. Okay. You said a state that had more
2 influence. Influence over the rates or what?
3 A. They had a larger population, so --
4 Q. So --
5 A. They were like the third, fourth
6 largest state in the union, so, I mean, it was just
7 being able to accomplish more.
8 Q. Uh-huh.
9 A. There was a staff that I would be
10 supervising.
11 Q. Right. And then you left after about
12 a year, so explain why that happened.
13 A. The person who hired me left the
14 department. They had hired me to make certain
15 changes in how they handled various things. And
16 the person that replaced that person did not want
17 to make those changes. So I was kind of left high
18 and dry.
19 Q. Uh-huh. What sort of changes were
20 you brought in to make in Florida?
21 A. It was to develop a more -- it was to
22 perform the rate reviews in a fashion which was
23 less combative.
24 Q. Okay.
25 A. So it was just to try and do a more
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1 cooperative fashion of the rates.
2 Q. And the person who hired you into
3 Florida, were they familiar with your work here in
4 Alabama?
5 A. They were.
6 Q. And what was the name of that person?
7 A. I am terrible with names. Her first
8 name is Michelle, and I could --
9 Q. Well, I will just call her Michelle,
10 okay?
11 A. Thank you.
12 Q. No disrespect to her. So how did
13 Michelle know about your work here in Alabama?
14 A. She was the deputy insurance
15 commissioner and she -- I worked at -- I
16 volunteered at the National Association of
17 Insurance Commissioners. And so she was familiar
18 with my work there.
19 Q. I see. And did she learn from her
20 experience at NAIC and otherwise that you adopted
21 what you called a less combative approach to rate
22 regulation?
23 A. I think she appreciated the way that
24 I ran the task forces, the committees. I would try
25 and balance consumer interests and industry
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1 interests in dealing with the problems that came up
2 to -- before the -- before our committees. And
3 she -- I think that -- I can't speculate beyond
4 that. I mean she had the opportunity to see how I
5 worked at the NAIC. She may have consulted --
6 presumably she consulted with people who knew what
7 I did here.
8 Q. Did she ask for a reference from
9 anyone in Alabama before she hired you?
10 A. I do not know.
11 Q. And what was Florida's reputation
12 going into that position in 2012 in terms of the
13 combativeness or whatever, the type of metric you
14 want to use to describe its relationship with
15 the -- with the insureds -- insurers?
16 A. I am not sure I quite understand.
17 Q. Well, you --
18 A. Would you repeat the question?
19 Q. You were hired to go in and make some
20 changes, right? True?
21 A. Correct.
22 Q. Okay. And what was Florida's
23 reputation going in? What was it you understood
24 you needed to change?
25 UNIDENTIFIED VOICES ON
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1 TELECONFERENCE: Is the phone out for everybody
2 else? Yes, I am not hearing everything.
3 MS. HEALEY: It is on mute.
4 MR. SMITH: All right. We are back
5 in. Thank you. I'm sorry. It has been on mute.
6 Q. (BY MR. SMITH:) I am going to reask
7 the question. You told me you were hired to go
8 into Florida and make some changes. And my
9 question is, what was the reputation of Florida and
10 what were the specific things that you understood
11 you needed to try and change?
12 A. Their staff -- my understanding was
13 that their staff would dictate what had to be done
14 and the companies were expected to comply with
15 that, that there was not room for a compromise in
16 terms of how the material was presented, that they
17 did not -- they corresponded by paper, did not call
18 the company to issue -- you know, figure out
19 questions.
20 I wasn't there before, so it wasn't
21 completely clear. But I was asked to -- you know,
22 my style of dealing. And they were also looking
23 for a more professional, more involvement in the
24 NAIC, which I brought to the table. They were
25 looking for somebody to do more training for their
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1 students. So it was -- it was just to try and, you
2 know, develop a more cooperative department.
3 Q. Okay. You said at the beginning of
4 your entry, you mentioned something about your
5 style and how you dealt with insurers here in
6 Alabama. How would you characterize that style?
7 A. I try and understand what it is that
8 they present to me. If there's something in the
9 rate filing that I do not understand, rather than
10 assume that I know what is happening, I will
11 contact the insurance company --
12 Q. Uh-huh.
13 A. -- and try and have them explain that
14 to me. I have not established a format that every
15 insurance company must provide. I allow them to
16 use their systems to provide the format that we
17 review. And if I don't understand that format,
18 then I work with the insurance company to develop
19 that understanding. If it is something that I
20 still require something else, then I will ask them
21 to present it in a different format.
22 Q. Okay. And while you were gone, was
23 that a year, year and a half? About how long were
24 you gone?
25 A. About nine months.
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1 Q. Nine months. Okay. So who handled
2 your duties or actuarial duties here in your
3 absence?
4 A. I have seen correspondence that
5 indicates that there was a consulting actuary who
6 reviewed filings.
7 Q. And who was that, to your knowledge?
8 A. That was Harland Dyer, D-Y-E-R.
9 Q. And is he by himself or with a firm?
10 A. He is a -- I think he is the only
11 person in his consulting firm.
12 Q. Is that here in Alabama?
13 A. He is in Mississippi.
14 Q. Mississippi. Is it called Dyer &
15 Associates or something like that?
16 A. It is two other names and Dyer.
17 Q. Got it. Okay. You mentioned that
18 you did some work with the NAIC. And what
19 particular work groups have you been a part of in
20 that?
21 A. I will start with the Life Actuarial
22 Task Force and the Health Actuarial Task Force,
23 Life Risk-Based Capital Working Group, the Health
24 Risk-Based Capital Working Group, represented the
25 commissioner on the Life A Committee.
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1 Q. Life A, like the letter A?
2 A. Yes. The NAIC structure has A for
3 life, B for health, C for casualty --
4 Q. Got it.
5 A. -- D for market regulation, E for
6 finance.
7 Q. Could be time to update that, do you
8 think?
9 A. What?
10 Q. Could be time to update that?
11 A. I don't know.
12 Q. Okay. So did you ever work on the
13 health, on the B Committee?
14 A. Yes.
15 Q. Okay. And was that it? Other --
16 A. I worked with the B Committee.
17 Q. Okay.
18 A. The commissioner -- the
19 representation on the A and the B Committee is the
20 commissioner. The commissioner served on the Life
21 Committee as opposed to the B Committee.
22 Q. Got it.
23 A. Being on the chair of the Health
24 Actuarial Task Force that reports to the
25 B Committee and I make reports to the B Committee
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1 at every meeting.
2 Q. Okay. Got you. All right. Other
3 sort of professional groups? I have seen something
4 about the AHIP. Does that acronym ring a bell,
5 something about health insurance plans?
6 A. Well, there's the Alabama Health
7 Insurance Plan.
8 Q. Okay.
9 A. But that is not a professional group.
10 That was a state group here. And I monitored what
11 they did there, although we had somebody else on
12 that committee.
13 Q. Okay.
14 A. There's also the -- I think the
15 Association of Health Insurance Plans.
16 Q. Okay.
17 A. That is an industry group.
18 Q. Right.
19 A. And they testify before my committee,
20 but I am not a part of any of that.
21 Q. Have you ever participated in --
22 sorry. You said it was the Association of Health
23 Insurance Plans?
24 A. (Nodding.)
25 Q. Okay. Have you ever participated in
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1 any of their conferences or presented there?
2 A. I have not.
3 Q. Okay. Other than the NAIC, do you
4 ever travel outside of Alabama for professional
5 purposes to meet with other groups, present at
6 other conferences, anything like that?
7 A. I have.
8 Q. Tell us about that, please.
9 A. There's the Professional Association
10 of Actuaries called the Society of Actuaries, and
11 they have educational meetings. And I have
12 presented on panels, spoke on -- at various
13 meetings that they have had. There is an
14 organization called the Southeastern Actuaries
15 Conference, and I have spoken at their meetings,
16 again on -- they're in educational, primarily.
17 In 2010, when the Affordable Care Act
18 was passed, I was the chair of a significant
19 committee that provided some information to CMS,
20 Centers for Medicare and Medicaid Services --
21 Q. Right.
22 A. -- on their medical loss ratio. And
23 following that, I was invited to speak at various
24 events around the country, describing what was
25 coming with that.
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1 Q. When you say you were invited to
2 various events, were they government entity events
3 or were they private industry or what?
4 A. Primarily private industry, trade.
5 Q. Okay. Anything else? I mean that
6 is -- I'm not saying that is not a lot. Society of
7 Actuaries, Southeastern Actuaries Conference and
8 then the ACA presentations plus the NAIC. Is that
9 about it?
10 A. I think there's the Southeast
11 Regulators Association, and there was the
12 Association of Insurance Compliance.
13 Q. Okay.
14 A. AIR. I'm not positive what they are
15 called. Probably others --
16 Q. All right.
17 A. -- that I don't remember right now.
18 Q. Sure. So in the NAIC meetings, which
19 it sounds like took most of this part of your work
20 outside of Alabama, were any of the Blue Cross
21 entities sponsors? Did they help underwrite any of
22 those NAIC events?
23 A. No.
24 Q. How about the Society of Actuaries,
25 any of the Blue Cross entities, whether it is Blue
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1 Cross of Alabama or somebody else, did they put on
2 events or sponsor these activities?
3 A. Not to my knowledge.
4 Q. Southeast Actuaries Conference?
5 A. Not to my knowledge again.
6 Q. And when I say sponsor, hospitality
7 suites, things of that nature, any of that going on
8 that were sponsored by the Blues?
9 A. I have never been to a Blue
10 Cross-sponsored, you know, hospitality suite.
11 Q. Okay.
12 A. So I would not -- I'm not familiar --
13 I'm not aware --
14 Q. Okay.
15 A. -- of that. We have gone to dinner
16 with the Blue Cross Association of Alabama at
17 different times. But that has generally been with
18 the Commissioner.
19 Q. And by the way, when we have been
20 talking about Blue Cross of Alabama, that is just
21 shorthand for Blue Cross-Blue Shield of Alabama, if
22 that is all right with you.
23 Well, tell me about the dinners.
24 About how often would the commissioner and you go
25 off to dinner with Blue Cross of Alabama?
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1 A. Less than once a year.
2 Q. What was the purpose?
3 A. It was just social.
4 Q. Okay. Any discussion of business at
5 those dinners?
6 A. In a general fashion, I guess.
7 Q. Okay.
8 A. There was discussion like of the
9 Affordable Care Act.
10 Q. Right. Since you came to the
11 Department of Insurance here in Alabama in 2007,
12 have you interviewed for any private industry jobs?
13 A. I have not.
14 Q. Have you been approached about any
15 private industry jobs?
16 A. I have.
17 Q. By whom?
18 A. It has been professional recruiters
19 who have not said the company that they
20 represented.
21 Q. Other than those professional
22 recruiters, no outreach to you from private
23 industry since 2007?
24 A. Not that I remember.
25 Q. Okay. And when I said a moment ago
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1 have you interviewed with private industry, have
2 you -- putting aside formal interviews, have you
3 ever made an expression of interest, had any type
4 of discussion, whether it is email, phone, in
5 person with anyone from private industry about a
6 job outside of Alabama?
7 A. I have not.
8 Q. You mentioned the dinners that you
9 would have from time to time with the commissioner
10 of insurance and Blue Cross of Alabama. Other than
11 that, can you tell me about any sort of socializing
12 or outside the, you know, work, working hours
13 contact that you would have with Blue Cross of
14 Alabama?
15 A. About six years ago, we had an intern
16 from eastern Europe, and we made arrangements with
17 Blue Cross-Blue Shield to have her be able to see
18 the senior golf tournament in Birmingham. And I
19 accompanied her to that event. Let's see. About
20 five years ago, I had lunch with two of the
21 employees with Blue Cross-Blue Shield in New
22 Orleans at a Society of Actuaries meeting.
23 Q. Uh-huh.
24 A. I don't remember any other time.
25 Q. Okay. Can I go back to Florida for a
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1 second? What kind of rate review regime did
2 Florida have? When I say regime, I mean did it
3 have a file-and-use statute? Did it approve bands?
4 What was the basic organization with respect to
5 health insurance rates?
6 A. They had to approve the rates before
7 they could be used.
8 Q. There had to be a positive action of
9 approval? Is that fair?
10 A. There always was. I don't think
11 there was ever a rate deemed. There is a provision
12 within their law that allows -- I'm fairly certain
13 there's a provision that allows a company to deem
14 the rates if they are not acted upon within a
15 certain time period.
16 Q. I see. But Florida always took
17 positive action one way or the other to approve or
18 disapprove?
19 A. Correct. To my knowledge. I'm
20 sorry.
21 Q. Of course.
22 A. During my period of time.
23 Q. During your period of time.
24 A. Right.
25 Q. I also assume when you were at
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1 Florida you did some investigation like you did in
2 Alabama to see how they had done it historically;
3 is that right?
4 A. Correct.
5 Q. Okay. What would you -- what's your
6 term for that kind of rate regime where it can be
7 deemed approved if there's no action within a
8 stated period of time?
9 A. I --
10 Q. You don't know?
11 A. I guess it is just a Deemer.
12 Q. Deemer, okay.
13 A. Deemers, yeah.
14 Q. All right. That is a term you have
15 also heard in the field, right? I mean people at
16 the NAIC refer to Deemer statutes?
17 A. That's correct.
18 Q. And does Alabama have a Deemer
19 statute?
20 A. They do.
21 Q. And what's the -- what's the
22 deadline, thirty days from submission?
23 A. Thirty days, which can be extended an
24 additional thirty days.
25 Q. Okay. These dinners that you
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1 mentioned with the commissioner of insurance and
2 Blue Cross, who was there, typically, from Blue
3 Cross of Alabama?
4 A. Their chief actuary, Noel Carden, has
5 been. I remember he has had an accountant,
6 somebody from their accounting department,
7 somebody -- one of his own staff. There was one
8 where the president of Blue Cross.
9 Q. Okay.
10 A. There may have been other people but,
11 I mean, that's who --
12 Q. That is who you remember?
13 A. That is who I remember.
14 Q. Right. Other than these dinners and
15 you mentioned also perhaps some lunches a little
16 while ago, have you socialized with Mr. Carden or
17 members of his staff? And when I say socialized, I
18 mean outside of business hours, you know, contact.
19 A. I have not.
20 Q. When you came here in 2007, were
21 there any other actuaries on staff here at the
22 Department of Insurance that dealt with health
23 insurance?
24 A. There was not.
25 Q. Were you replacing someone who had
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1 been the actuary?
2 A. Yes.
3 Q. So there had been one person on staff
4 dealing with health insurance actuarial matters,
5 and then you replaced that person?
6 A. Right. There was a time period in
7 between --
8 Q. Oh, okay.
9 A. -- you know, when he left and I
10 joined.
11 Q. Got it. Who was your predecessor?
12 What was that person's name?
13 A. I apologize again. I can't remember.
14 It was John --
15 Q. John? Okay.
16 A. I can look up his name.
17 Q. Does John know Michelle or --
18 A. What?
19 Q. Does John know Michelle?
20 A. No.
21 Q. Okay. And do you know why John left
22 the Department of Insurance?
23 A. He lived in Kansas City. His wife
24 remained in Kansas City when he took the job here,
25 so he was commuting from Kansas City to Montgomery.
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1 Q. Right.
2 A. And he was offered a position with
3 the NAIC in the Kansas City offices and --
4 Q. Hard to beat.
5 A. -- took that position.
6 Q. Right. And from 2007 until now, have
7 there been any other health insurance actuaries on
8 staff here at the Department of Insurance?
9 A. No.
10 Q. And would you say that the workload
11 from 2007 until now has -- for health insurance
12 matters, has it increased, decreased or stayed
13 about the same?
14 A. It has increased.
15 Q. Can you gauge it in terms of the
16 numbers of filings? Have those increased by
17 twenty-five percent, fifty percent, some other
18 number?
19 A. I think the number of filings
20 probably has been fairly constant. It is the
21 difficulty or, you know, the volume -- you know,
22 the filings related to the ACA, the Affordable Care
23 Act --
24 Q. Right.
25 A. -- have been more complicated. There
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1 is -- I think it is just more complicated.
2 Long-term care filings have been much more
3 complicated.
4 Q. And I should have asked this before.
5 You, obviously, have responsibility today for
6 health insurance rate submissions. What else do
7 you cover, if anything?
8 A. Pretty much anything that is
9 actuarial that the commissioner needs advice on in
10 terms of life and health actuarial, so issues that
11 come up from the NAIC, issues that the federal
12 government has with the state relative to life and
13 health. I guess -- I mean I am the actuarial -- I
14 am the life and health actuary, so anything
15 actuarial.
16 Q. Right. Right. And I guess those
17 federal government matters you mentioned, those
18 have been much more numerous in the last what, five
19 or six years since the ACA was passed?
20 A. Correct.
21 Q. Has the complexity of the filings by
22 Blue Cross of Alabama increased since then?
23 A. They have.
24 Q. In what ways?
25 A. They are required to provide a -- the
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1 filings in a format that is dictated by the federal
2 government. And that format is significantly
3 different than what they used before. The --
4 there's just -- the ACA requires certain plans,
5 certain provisions, so they have to comply with
6 that.
7 Q. Let me just ask you about the first
8 point in terms of format. You said there's a
9 standard format that is required now. Was there
10 any sort of required format in Alabama for health
11 insurance rate filings before the ACA?
12 A. There was not. I would take the
13 format that the company provided.
14 Q. All right. Is there new information
15 of any kind, putting aside the changes in the
16 format, the style of things, since the ACA?
17 A. They do require additional
18 information, yes.
19 Q. Can you give me some examples?
20 A. They require that expenses be broken
21 out in terms of profit, commissions, expenses,
22 quality improvement expenses. They require that
23 the various plans have -- be run by an actuarial
24 value calculator.
25 Q. Can I stop you there for just a
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1 second?
2 A. Certainly.
3 Q. Is the point of that to understand
4 what the value of the plan is after cost sharing
5 has been imposed with the consumer? Is that
6 correct?
7 A. The actuarial value is between
8 different plans. So there's a silver plan and a
9 gold plan.
10 Q. Right.
11 A. The silver plan is supposed to have a
12 seventy percent actuarial value plus or minus three
13 percent. Gold plan is supposed to have an eighty
14 percent plus or minus three percent. That
15 actuarial value is based on a calculator that the
16 federal government has developed.
17 Q. Uh-huh. Okay. I interrupted you.
18 You were telling me about important differences and
19 new information in the health insurance rate
20 submissions. Anything besides the fact you have to
21 break out the expenses, you have to provide an
22 actuarial value calculation in a specified format?
23 What else is important, that you recall?
24 A. They want detail on various trend
25 factors, so they want a trend by incidence as well
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1 as by changes in benefits. It's -- much of it
2 is -- there may be other factors, but, I mean,
3 those are the significant changes.
4 Q. Do you remember there's also some
5 required changes in terms of the actuarial memo or
6 the actuarial certification that is submitted with
7 the rate filings since the ACA was passed?
8 A. They have dictated the format of that
9 actuarial memorandum.
10 Q. For example, does the actuarial memo
11 now have to state the sources of information that
12 were relied upon in order to present the rates?
13 A. There is a reliance statement within
14 the actuarial memorandum, and I believe that they
15 are required to within that reliance state they --
16 who was the source of the information.
17 Q. Is that something that's helpful to
18 you as a regulator in determining the
19 reasonableness of the rates that have been
20 submitted, to know the sources of information that
21 were relied upon?
22 A. In Alabama law, is not required for
23 the approval of the Alabama rates or rates in
24 Alabama.
25 Q. Okay. Is that because the Alabama
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1 law simply says that the rate has to be not
2 unreasonable?
3 MR. PRIESTER: Object to the form.
4 MR. MCDONALD: Go ahead.
5 Q. (BY MR. SMITH:) He wants to say
6 objection, but you've got to go ahead and answer
7 the question.
8 A. You have to repeat the question,
9 please.
10 Q. Sure. Is it correct that Alabama law
11 merely states that the rate has to be not
12 unreasonable, the health insurance rate?
13 MR. PRIESTER: Same objection.
14 A. I am not sure that is the reason.
15 And I am not positive that that is the -- what the
16 law states. I know the law states something
17 similar to that, but I am not sure if that is the
18 language that is used in the law.
19 Q. (BY MR. SMITH:) From the standpoint
20 of an actuary who is trying to determine whether or
21 not a health insurance rate filing should be
22 approved under the applicable standard here in
23 Alabama, is it helpful, not helpful or a wash to
24 know what kind of sources of information the
25 insurer relied upon to prepare the rate?
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1 A. If you could clarify by sources. I
2 mean sources can be the data or it can be the
3 person who provided that data. Is your question
4 about the person or the --
5 Q. Sure.
6 A. -- data?
7 Q. My question is about the actuarial
8 memo and certification, which now I think you told
9 me has to include a statement of reliance, right?
10 You have to say yes or no.
11 A. Yes.
12 Q. Okay. And the statement of reliance
13 requires the submitter of the rate to lay out the
14 sources that they relied upon in determining the
15 rate and presenting it to you; is that -- am I
16 correct about that?
17 A. I believe that is correct.
18 Q. Right. And so then my question is,
19 from the standpoint of the person who is receiving
20 the submission, is it helpful, not helpful or
21 irrelevant to you to know what sources of
22 information were relied upon to prepare the rate
23 that was submitted to you?
24 A. I -- if I questioned whether the data
25 was correct, having a reliance statement saying
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1 that I relied upon Person X to make my -- for the
2 source of my data, I could go to Person X to check
3 that data. So in that sense it could be helpful.
4 Q. What about the first factor you
5 mentioned that now since the ACA, Blue Cross of
6 Alabama has to break out its expenses, so profit,
7 quality improvement you mentioned, other factors
8 that comprise the retention factor, is that helpful
9 for you as a regulator in determining whether or
10 not these rate submissions complied with Alabama
11 law?
12 A. Alabama law indicates that there has
13 to be a similar relationship from year to year in
14 the expenses to the claims. And it does not
15 dictate that I need to evaluate what those expenses
16 are.
17 Q. Okay. So again, from the standpoint
18 of someone who has to approve or recommend approval
19 of a rate filing, is it helpful, not helpful or
20 irrelevant to know the breakdown of those expenses
21 that comprise the retention factor?
22 A. It is not required for Alabama law.
23 Q. Do you think it is helpful to you as
24 a regulator in determining compliance with that
25 law?
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1 A. It is not helpful.
2 Q. And is it true that before the ACA,
3 Blue Cross of Alabama would not break down its
4 retention factor beyond to state a summary
5 percentage number?
6 A. That's correct.
7 Q. And did you ever ask, after Blue
8 Cross of Alabama submitted a rate for any kind of
9 breakdown, as to what comprised the expense or
10 retention factor?
11 A. I do not believe I ever asked that.
12 Q. What about the actuarial value
13 calculation that you testified about under the ACA,
14 is that something that is helpful to you as a
15 regulator in determining whether or not a rate
16 filed by Blue Cross of Alabama should be approved?
17 A. It is not something I need for
18 Alabama law.
19 Q. And having it is not helpful to you?
20 A. That's correct.
21 Q. How about the detail on the trend
22 factor that you mentioned, is that something that
23 is helpful to you in determining whether or not
24 Blue Cross's -- Blue Cross of Alabama's rate should
25 be approved?
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1 A. That is helpful.
2 Q. And there is detail today that did
3 not exist before the ACA; is that right?
4 A. There was a breakdown of the
5 aggregate trend.
6 Q. And that is required today but did
7 not exist before the ACA?
8 A. That is correct.
9 Q. Are there any other new rate filing
10 requirements embodied in the ACA in terms of
11 information that has to be submitted that you
12 consider helpful to you as someone who has to
13 approve or disapprove the rates submitted by Blue
14 Cross of Alabama?
15 A. Would you repeat that question,
16 please?
17 Q. Besides the four things that you have
18 listed for me, so expense breakdown, AV calculator,
19 details on trends and reliance, are there any other
20 new requirements under the ACA in terms of
21 information that Blue Cross of Alabama has to
22 submit to you in its rate filing that you consider
23 helpful in performing your function of approving or
24 disapproving a submitted rate?
25 A. More helpful than prior?
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1 Q. Yes.
2 A. No.
3 Q. Now, you mentioned or I think I asked
4 you how many actuaries have been part of the staff
5 here at the Department of Insurance responsible for
6 life and health. You told me that there was one
7 all the way through, and I think you also told me
8 that the complexity and the demands of the job had
9 increased somewhat. Are you familiar with any
10 particular budget restraints on the department's
11 capacity for reviewing life and health insurance
12 rate submissions?
13 A. The insurance department has a budget
14 that they have to meet.
15 Q. Right.
16 A. The commissioner can submit, you
17 know, his budget request, so he can allocate his
18 budget as he wishes, I guess.
19 Q. Right.
20 A. Not as he wishes but, it is his
21 prerogative.
22 Q. Sure. And then the legislature has
23 to approve the budget, right?
24 A. Yes.
25 Q. Or some part of it, right?
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1 A. Yes.
2 Q. Okay. And my question was simply in
3 the, I guess, almost nine years with a break that
4 you have been here, have there been budget
5 constraints, times when the budget didn't get
6 approved, got reduced in some way that impacted the
7 ability of the department to review these health
8 insurance rate submissions?
9 A. I believe not.
10 Q. Okay. Was there a time when you were
11 here at D0I when the department sought consulting
12 actuarial services, putting aside the time when you
13 were off in Alabama, but was there a time when you
14 all put out any request for consulting actuarial
15 services?
16 A. Yes.
17 Q. Tell me about -- just one time?
18 A. Every year.
19 Q. Oh, every year? Okay. I see. So
20 every year, there's been someone supplementing the
21 work that you provide on health insurance rate
22 review? Do I have that right or wrong?
23 A. We have had a consulting actuary
24 every year. He has primarily performed services in
25 the financial review, examinations of companies.
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1 Q. I see.
2 A. At various times, we have assigned
3 rate filings to the consulting -- consultant when
4 there's been a backlog or some reason we are not
5 able to deal with them in a timely fashion.
6 Q. And has it been a single actuary or a
7 single firm from 2007 until now?
8 A. Primarily, it is possible that
9 early -- well, in fact, I know in 2007 that we had
10 a different actuary who helped train me.
11 Q. Okay. And after that initial person,
12 it has been the same firm or the same person?
13 A. Correct.
14 Q. And who is that?
15 A. Harland Dyer.
16 Q. The same fellow, Harland Dyer?
17 A. Yes.
18 Q. Okay. And you think he may have from
19 time to time worked on health insurance rate
20 submissions?
21 A. Yes, he has.
22 Q. Can you identify any in particular,
23 even by year? Is that possible?
24 A. Well, he clearly did the health
25 actuarial from 2012 through 2013.
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1 Q. Right. Right. Anything besides
2 that?
3 A. At different times, he has handled
4 backlog or, you know -- and there's never been -- I
5 guess the answer is that sometimes, yes.
6 Q. Let me show you our next exhibit.
7 (PX-Ostlund002 was marked for
8 identification.)
9 Q. (BY MR. SMITH:) Exhibit 2 is an RFP
10 for actuarial services, professional actuarial
11 consulting services. Is that document dated --
12 looks like it is sometime in 2009. Is that
13 document familiar to you?
14 A. I have seen similar requests for
15 proposal. I would not say -- I can't remember that
16 I saw this one specifically.
17 Q. Okay. Were you typically asked to
18 review RFPs to make sure they were consistent with
19 the department's needs?
20 A. I have been, yes.
21 Q. You just don't recall if you might
22 have been in this particular case?
23 A. I don't know when I started --
24 Q. I understand.
25 A. -- doing this.
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1 Q. Can you take a look at Page 10 of
2 Exhibit 2? Do you see an Item 2.2.1 on Page 10
3 that the first item in terms of services for the
4 offeror or the respondent is going to be --
5 A. Excuse me. I was on the wrong page.
6 Q. Oh, I'm sorry. All right. You are
7 on Page 10 now?
8 A. I am now on Page 10.
9 Q. Section 2.2.1, do you have that?
10 A. I do.
11 Q. All right. So the first item
12 requested from the respondent is services related
13 to developing policy governing the financial and
14 actuarial aspects of -- then it goes on to say life
15 insurers, HMOs and then healthcare service plans
16 operating in Alabama. Do you see that?
17 A. I do.
18 Q. All right. So policy about the
19 actuarial aspects of healthcare service plans, am I
20 correct that Blue Cross of Alabama is a healthcare
21 service plan?
22 A. I understand that is the case.
23 Q. Right. And am I also correct that it
24 is the only healthcare service plan that does --
25 that submits rates in Alabama?
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1 A. I'm not positive about that. I
2 thought that there was another that provided some
3 other Medicare or Medicaid supplement. They are
4 the only ones that provide the commercial health
5 insurance --
6 Q. For individual and small group?
7 A. Correct.
8 Q. Okay. So it says that consulting
9 actuaries needed to develop policy about the
10 actuarial aspects of healthcare service plans,
11 which would include Blue Cross of Alabama. Did --
12 at the time that this was prepared, sometime it
13 looks like in 2009, did you or the department have
14 any written standards or policies that governed the
15 review of health rate submissions by Blue Cross of
16 Alabama or any other healthcare service plan, if
17 there are any?
18 A. I'm not aware of that. I'm not aware
19 of any.
20 Q. Okay. Have you ever drafted any
21 policy, rules or guidelines that govern the
22 submission of health insurance rate filings by
23 healthcare service plans or by Blue Cross of
24 Alabama?
25 A. I do not remember drafting any.
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1 Q. And you have never seen any; is that
2 fair?
3 A. I am not aware of any, that is
4 correct.
5 Q. Can I ask you to look at our next
6 exhibit, which is one of the laws that I understand
7 governs the review and submission of health
8 insurance rates?
9 (PX-Ostlund003 was marked for
10 identification.)
11 Q. (BY MR. SMITH:) Mr. Ostlund, I have
12 handed you a copy of the statute that is called
13 Section 10A-20-6 from the Alabama Code. And is it
14 your understanding that that is one of the laws
15 that governs, in this case, talks about certain
16 types of health insurance providers? Is that
17 right?
18 A. Correct.
19 Q. And are you generally familiar with
20 this statute? Is it something you employ day to
21 day?
22 A. Not daily, but I am -- I am --
23 Q. Weekly? Monthly maybe?
24 A. Yes, routinely.
25 Q. Okay. Sure. Can I ask you to flip
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1 to -- there's a lot of provisions, but flip to the
2 one, the subprovision called 6.10, the 10th
3 provision here. And 6.10 talks about regulations
4 of rates and charges and fees and dues. And it has
5 got a sentence about a third of the way down there.
6 You see that it says that a healthcare service
7 corporation shall file with the commissioner
8 changes in its rates? Do you see that?
9 A. I do.
10 Q. Do you understand or -- well, do you
11 understand that that provision applies to rate
12 filings made by Blue Cross of Alabama?
13 A. I do.
14 Q. And what is the -- what's the
15 standard that is set forth in there in terms of
16 what should be considered in reviewing a rate
17 filing? Do you see in the first sentence there's a
18 reference to the rates being not unreasonably high
19 or excessive? Do you see that?
20 A. I do.
21 Q. All right. Is that the standard that
22 you seek to apply to rate submissions made by Blue
23 Cross of Alabama?
24 MR. PRIESTER: Object to the form of
25 the question.
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1 A. This law states the standards that I
2 employ, that is correct.
3 Q. (BY MR. SMITH:) Okay. And do you
4 have any policies, rules, guidelines that lay out
5 how you determine whether something is unreasonably
6 high or excessive?
7 A. I use the standard applied here.
8 Q. You use the words itself "not
9 unreasonably high or excessive"?
10 MR. PRIESTER: Object to the form.
11 A. I understand that that criteria is
12 governed by the relationship between the rates and
13 the expense portion to determine if it is
14 unreasonably high.
15 Q. (BY MR. SMITH:) All right. Well,
16 let me ask you about that for a second. Because
17 there is a reference in here to the relationship
18 between the expense or retention portion of the
19 rate submission and the overall rate, correct?
20 A. Correct.
21 Q. And when we say -- when we talk about
22 relationship, we mean the proportion between the
23 two, right, what proportion is retention or expense
24 and what proportion is actually delivering medical
25 care or paying for medical care? Is that right?
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1 A. That's correct.
2 Q. All right. And so if your expenses
3 are ten percent or fifteen percent and your -- the
4 medical care part of it, is that sometimes called
5 pure premium? Is that right?
6 A. That is -- some people have called --
7 yes.
8 Q. Okay. Then the balance of eighty
9 percent or eighty-five percent in this case would
10 be the pure premium, the parts that is actually
11 used to pay for medical care, right?
12 A. Correct.
13 Q. And do I hear you correctly that as
14 long as the relationship, the expense factor hasn't
15 changed as part of the total premium or rate, then
16 that rate is going to be not unreasonably high
17 or excessive?
18 A. That is the legal standard.
19 Q. Is that the standard you apply?
20 A. That is the standard.
21 Q. So let me just give you sort of a
22 hypothetical set of numbers, just to make sure I
23 get this right. So if I -- if one year I charge a
24 premium of a hundred dollars and my retention is
25 fifteen percent so the balance that is used to
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1 actually pay claims would be eighty-five percent or
2 eighty-five dollars, let's just say that is the
3 first rate that gets approved. Are you with me?
4 A. I am.
5 Q. And then let's say the next year I
6 change my premium to two hundred dollars and this
7 time around my expense factor is thirty dollars,
8 fifteen percent, and the balance of it for claims
9 is a hundred and seventy. Are you with me?
10 A. Correct.
11 Q. So in those two examples, the
12 relationship between the retention or expense and
13 the pure premium or the amount paid for covering
14 claims is identical, correct?
15 A. That's correct.
16 Q. And is it your testimony that if I
17 double my premiums from Year 1 to Year 2, as long
18 as I keep the relationship between the retention
19 and the part used to pay claims the same, that that
20 second year premium would also be not unreasonably
21 high or excessive?
22 A. That's correct.
23 Q. All right. And other than that
24 relationship factor that you have just described to
25 me that we have been talking about, do you apply
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1 any other test in determining whether or not a
2 proposed rate is unreasonably high or excessive?
3 A. I examine the assumptions used to
4 come up with those ratios and the components of
5 those to determine if it is reasonable.
6 Q. Okay. Do you do any testing in your
7 examination to determine whether the retention
8 amount that is stated by the submitter, Blue Cross
9 of Alabama, is accurate, is correct?
10 A. I am looking at the loss ratio. The
11 retention is what is remaining. So how they use
12 their retention, you know, that is their
13 operations. So my examination concentrates on is
14 the consumer receiving the claim benefits as a
15 proportion of that total premium that is
16 appropriate, you know, based on the standard.
17 Q. Okay. So to use those two examples
18 we just had, your focus would be on the eighty-five
19 or the one hundred and seventy piece of the premium
20 and not on the fifteen or the thirty part; is that
21 fair?
22 A. Correct.
23 Q. Let me show you our next exhibit,
24 please.
25 (PX-Ostlund004 was marked for
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1 identification.)
2 MR. PRIESTER: Cy, do you mind if we
3 take a break after you conclude this exhibit?
4 MR. SMITH: Yes, that will be fine.
5 And I will try and keep it short.
6 MR. PRIESTER: No.
7 MR. SMITH: What are we up to,
8 Number 4?
9 THE REPORTER: (Nodding.)
10 Q. (BY MR. SMITH:) Mr. Ostlund, you
11 have been handed Exhibit Number 4, which is an
12 email with an attachment. The email is from you to
13 someone at HHS on March 4th of 2016. And can you
14 just satisfy yourself that that is your email and
15 the attachment is what is stated on your -- on the
16 email?
17 A. It is.
18 Q. And the attachment is some kind of
19 survey or responses