Attorneys for Appellants Attorneys for Appellees
David J. Bodle Wayne C. Turner
Robert L. Hartley Anne L. Cowgur
Indianapolis, Indiana Michael R. Limrick
Indianapolis, Indiana
John A. Biek
Melissa A. Connell Attorney for Amicus
Curiae
Chicago, Illinois Indiana High
School Athletic
Association, Inc.
Attorney for Amicus Curiae Robert M. Baker III
Physicians’ Health Plan of Indianapolis, Indiana
Northern Indiana, Inc.
Arend J. Abel
Indianapolis, Indiana
____________________________________________________________________________
__
In the
Indiana Supreme Court
_________________________________
No. 49S02-0312-CV-605
M-Plan, Inc., Advantage Health
Plan, Inc., and Partners National
Health Plans of Indiana, Inc.,
Appellants (Plaintiffs below),
v.
Indiana Comprehensive Health
Insurance Association and Sally
McCarty, in her official capacity
as indiana insurance commissioner,
Appellees (Defendants below).
_________________________________
Appeal from the Marion Superior Court, No. 49D07-0207-PL-1136
The Honorable Gerald S. Zore, Judge
_________________________________
On Petition for Transfer from the Indiana Court of Appeals, No. 49A02-209-
CV-759
_________________________________
June 8, 2004
Boehm, Justice.
The Plan of Operation of the Indiana Comprehensive Health Insurance
Association requires any challenge to the Association’s assessment of its
members to be presented to the Association’s Board, subject to a right of
appeal to the Commissioner of Insurance. We hold that these remedies are
required to be pursued before a member may challenge an assessment in
court.
Factual and Procedural Background
The Indiana Comprehensive Health Insurance Association (ICHIA) was
created by statute in 1981. Its purpose is to provide health insurance for
those who may not otherwise be able to obtain coverage. Ind. Code § 27-8-
10-2.1(a) (2003). Every health insurer, health maintenance organization
(HMO), limited service HMO, and self-insurer of health care coverage is
required to be a member. Id. Individuals eligible for coverage through
ICHIA are Indiana residents who have been denied coverage by a medical
insurance carrier without accepting material underwriting restrictions or
who are unable to obtain health insurance except at a rate above the ICHIA
premium. I.C. § 27-8-10-5.1(a).
A nine-member board of directors manages ICHIA.[1] I.C. § 27-8-10-
2.1(b). At its formation, ICHIA was required to submit to the Commissioner
a Plan of Operation “necessary or suitable to assure the fair, reasonable,
and equitable administration of the association.” I.C. § 27-8-10-2.1(c).
The Plan and amendments are required to be approved by the Commissioner
after notice and hearing, based on a determination that they meet the
requirements that they (1) assure the fair and equitable administration of
the Association and (2) “provide for the sharing of association losses on
an equitable, proportionate basis among the member carriers, health
maintenance organizations, limited service health maintenance
organizations, and self-insurers.” Id.
By statute, ICHIA premiums are to be no greater than 150% of the
average charged by the five carriers with the largest premium volume in
Indiana during the preceding calendar year. I.C. § 27-8-10-2.1(g).
Because its rates are subject to this statutory cap and because ICHIA
insures high-risk individuals, ICHIA incurs substantial losses every year.
Associated Ins. Co. v. Ind. Dep’t of State Revenue, 655 N.E.2d 1271, 1272
(Ind. Tax Ct. 1995). The statute authorizes ICHIA to assess these losses
“to all members in proportion to their respective shares of total health
insurance premiums . . . or any other equitable basis as may be provided in
the plan of operation.” I.C. § 27-8-10-2.1(n). Members are permitted by
statute to take a credit for their assessment payments against their
liability for premium tax, adjusted gross income tax, and certain other
state taxes up to the aggregate of their assessments less any refunds from
ICHIA. I.C. § 27-8-10-2.1(n)(1).
ICHIA’s current Plan of Operation has been approved by the
Commissioner. It provides for an internal appeal procedure for member
associations to follow to present any challenge to ICHIA’s actions.
Specifically, if a member wishes to challenge ICHIA’s Plan of Operation or
assessment methodology, the member is directed to appeal first to the ICHIA
Board of Directors. If the member is unhappy with the Board’s decision, or
if the Board does not act on the member’s complaint within thirty days, the
member can appeal to the Commissioner. The Plan provides that a member
association may commence suit against ICHIA or the Commissioner only after
this appeal procedure is completed.
The plaintiffs in this case are HMOs who allege they are not subject
to the relevant state taxes in amounts sufficient to benefit from the
credit. Thus, they argue, ICHIA’s assessment method allocates a
disproportionate share of ICHIA’s losses to the HMOs after taking into
consideration their tax effect. The plaintiffs brought this lawsuit in
Marion Superior Court against ICHIA and the Commissioner seeking a
declaratory judgment that ICHIA’s assessments of the plaintiffs violate the
fair and equitable apportionment requirements of the Indiana Insurance
Code. They also contend the assessments denied rights guaranteed under the
Due Course of Law and Privileges and Immunities Clauses of the Indiana
Constitution, and resulted in an unconstitutional taking of their property
without compensation.
The Commissioner and ICHIA moved to dismiss the case for lack of
subject matter jurisdiction, arguing that the HMOs failed to exhaust
required administrative remedies because they did not appeal to the ICHIA
Board of Directors or to the Commissioner before initiating this suit in
court. The trial court granted the motion and dismissed the complaint as
to both ICHIA and the Commissioner. The Court of Appeals reversed, holding
that the HMOs were not required to exhaust administrative remedies before
filing their complaint because ICHIA was not a state agency and therefore
could not invoke the requirements of the Indiana Administrative Orders and
Procedures Act (AOPA) to exhaust administrative remedies before challenging
its action. M-Plan, Inc. v. ICHIA, 784 N.E.2d 546, 551 (Ind. Ct. App.
2003). This Court granted transfer.
I. Exhaustion of Administrative Remedies
Indiana has viewed failure to exhaust administrative remedies as a
matter of subject matter jurisdiction of the trial court. Austin Lakes
Joint Venture v. Avon Utils., Inc., 648 N.E.2d 641, 644 (Ind. 1995). If
the facts before the trial court are undisputed, then an issue of subject
matter jurisdiction presents a pure question of law and is reviewed de
novo. GKN Co. v. Magness, 744 N.E.2d 397, 401 (Ind. 2001). That is the
case here.
The HMOs contend that the internal dispute resolution procedure set
out in ICHIA’s Plan of Operation is not the exclusive remedy for a member
aggrieved by ICHIA’s actions. They further argue that if this procedure is
intended to be the exclusive remedy, it cannot be mandatory because it is
not statutorily authorized. The first contention is easily resolved. The
Plan provides that:
Any member aggrieved by an act of the Association shall appeal to
the Board of Directors before appealing to the Commissioner of the
Indiana Department of Insurance . . . . If such member is aggrieved
by the final action or decision of the Board, or if the Board does not
act on such complaint within 30 days, the member may appeal to the
Commissioner within 30 days . . . .
The use of “shall” is normally mandatory. United Rural Elec. Membership
Corp. v. Ind. & Mich. Elec. Co., 549 N.E.2d 1019, 1022 (Ind. 1990). We see
no reason to construe the term differently here. The Plan therefore
purports to require an appeal to the Board, and permits an appeal to the
Commissioner to resolve any dispute between a member and ICHIA. The issue
then becomes whether the Commissioner and ICHIA are authorized to adopt and
approve a Plan requiring the administrative remedy at issue. If so, the
HMOs must exhaust this remedy.
The Court of Appeals reasoned that because ICHIA’s motion to dismiss
for lack of subject matter jurisdiction was based on failure to exhaust
procedures prescribed by ICHIA’s Plan of Operation, the central question is
whether ICHIA is an agency subject to the Administrative Orders and
Procedures Act. M-Plan, Inc. v. Ind. Comprehensive Health Ins. Ass’n, 784
N.E.2d 546, 549 (Ind. Ct. App. 2003). We agree that ICHIA is not a state
agency, at least for most purposes. But we do not agree that this issue
controls disposition of this case. Rather, we conclude that the procedures
prescribed in the Plan of Operation—appeal to the Board of Directors and
then to the Commissioner—are required to be pursued because the plaintiffs
are members of ICHIA and thereby bound by validly adopted provisions of the
Plan of Operation, irrespective of the character of ICHIA.
First, even if ICHIA is viewed as a private association, exhaustion of
internal dispute mechanisms may be required. Courts will rarely interfere
with the internal affairs of an association. 3 Ind. Law Encyclopedia,
Associations, Clubs & Societies § 9, at 263 (1978). Just as a court will
not hear a dispute with an administrative agency before the challenger has
exhausted available administrative remedies, so may a dispute between an
association and one of its members be subject to exhaustion of internal
reviews provided by the association. United States Auto Club, Inc. v.
Woodward, 460 N.E.2d 1255, 1258 (Ind. Ct. App. 1984). Private associations
enjoy this deference even where membership in the association is
involuntary. See Ind. High Sch. Athletic Ass’n v. Carlberg, 694 N.E.2d
222, 227 (Ind. 1997) (although a student’s attendance is not voluntary,
because the school is a member of IHSAA, exhaustion of IHSAA remedies is
appropriate before bringing suit to challenge an athletics eligibility
ruling). Similarly, in states where membership in the state bar
association is required of all attorneys, members of those associations
must exhaust internal review procedures provided by the association before
challenging its acts in court. See Sullivan v. Alaska Bar Ass’n, 551 P.2d
531, 534 (Alaska 1976); In re Chapman, 509 A.2d 753, 756 (N.H. 1986). Just
as an attorney who elects to practice law in a state with an integrated bar
must become a member of the bar association and abide by the association’s
internal review procedures, an insurer electing to write health insurance
in Indiana must be a member of ICHIA and adhere to ICHIA’s rules and
procedures.
Apart from any general doctrines requiring exhaustion of internal
association remedies, ICHIA is something of a hybrid and has some
characteristics of a state agency. ICHIA is authorized by statute to
create a Plan of Operation for carrying out the requirements of the
statute. I.C. § 27-8-10-2.1(c) (2003). The statute provides that the plan
is to be “necessary or suitable” for the fair administration of ICHIA. Id.
The statute goes on to provide that ICHIA may include any additional
provisions in its Plan of Operation that are necessary or proper for fair
administration of ICHIA. The statute requires the Commissioner’s approval
of the Plan before it is effective and the Plan was so approved after
notice and a hearing. Upon approval, its status is essentially the same as
an administrative regulation. Id.
The Indiana Court of Appeals has found a similar statutory structure
sufficient to create an administrative remedy that must be exhausted. Ind.
State Dep’t of Welfare v. Stagner, 410 N.E.2d 1348, 1351 (Ind. Ct. App.
1980). In that case, a speech and hearing pathologist sued the Indiana
Department of Welfare in trial court based on the Department’s denial of
the pathologist’s claim for Medicaid reimbursement. The Department of
Welfare argued that the pathologist was required to pursue administrative
remedies before going to court and the Indiana Court of Appeals agreed.
Id. The court pointed out that it is true that the exhaustion doctrine
assumes an available statutory remedy at the time judicial relief is
sought, but explained that a remedy did exist because the legislature gave
the Department of Welfare the authority to promulgate rules and regulations
to deny payment to any provider for claims made for services or materials
determined not medically reasonable and necessary. The Department,
pursuant to this delegated authority, established standards for the denial
of reimbursement claims and provided a procedure for appeals from claim
denial within the Department. Id.
Here we are faced with a similar situation to that in Stagner. By
directing ICHIA to create a plan of operation necessary or proper to
fulfill the goals of the statute, the ICHIA statute gives ICHIA and the
Commissioner broad authority. Pursuant to this authority ICHIA and
ultimately the Commissioner decided that an ICHIA member aggrieved by an
ICHIA action is to raise the matter first with the Board, then with the
Commissioner. Therefore, ICHIA and the Commissioner have provided an
administrative remedy pursuant to their statutory authority that the HMOs
must pursue. This process does not foreclose judicial review. Whatever
ICHIA’s status, the Commissioner is plainly a state agency. As such, her
decisions are subject to review under AOPA. I.C. § 4-21.5-5-3 (those who
have standing to obtain judicial review of an agency action).
The Plan’s provision for internal dispute resolution in the first
instance is grounded in sound policy. This Court has often addressed the
value of completing administrative proceedings before resorting to suit in
trial court. See, e.g., Ind. Dep’t Envtl. Mgmt. v. Twin Eagle, L.L.C., 798
N.E.2d 839, 844 (Ind. 2003). If administrative remedies are utilized, “(1)
premature litigation may be avoided; (2) an adequate record for judicial
review may be compiled; and (3) agencies retain the opportunity and
autonomy to correct their own errors.” Id. The reasons for requiring
exhaustion of administrative remedies apply in full force in this case.
ICHIA and the Commissioner are charged with the very technical duties of
administering the ICHIA statute. This is a task for which ICHIA and
ultimately the Commissioner are particularly suited. In addition, because
of the nature and membership of ICHIA, any decision made as to the
liabilities of the plaintiffs in this case will affect the liabilities of
all other members. As a practical matter, requiring resort first to the
Board and then to the Commissioner may avoid, by negotiation, issues raised
by a complex formula that necessarily works from time to time to the
advantage or disadvantage of individual members. For these reasons, it is
appropriate for ICHIA and the Commissioner to adopt a Plan that requires
ICHIA’s members to pursue internal appeal procedures and seek resolution by
the Commissioner and once an administrative remedy is put in place, it is
required to be exclusive whether or not a statute or regulation explicitly
requires exhaustion. Austin Lakes, 648 N.E.2d at 644.
In sum, whether ICHIA is viewed as a private association or a state
agency, exhaustion of its internal remedies is required before a member may
resort to litigation to challenge an assessment.
II. Exceptions to the Exhaustion Requirement
The HMOs argue that even if the doctrine of exhaustion of
administrative remedies applies to ICHIA’s Plan of Operation, exceptions to
that doctrine excuse exhaustion in this case.
A. Futility
The HMOs argue that they need not exhaust their administrative
remedies because exhaustion would be futile. Exhaustion of administrative
remedies may be excused if the exercise would be futile. Town Council of
New Harmony v. Parker, 726 N.E.2d 1217, 1224 (Ind. 2000). However, “the
exhaustion requirement . . . should not be dispensed with lightly on
grounds of ‘futility.’” Id. The HMOs’ argument as to futility is based on
the affidavit of the president of M-Plan in which he reports conversations
he had with the president of ICHIA and the Commissioner of Insurance and
says the Commissioner did not demand that the HMOs pursue administrative
appeal and told him that legal action may be the only option for the HMOs.
Even if accepted at face value, this conversation does not rise to the
status of an act of the Department of Insurance. The HMOs were aware of
the administrative remedy in the plan of operation and do not claim lack of
notice of the procedure. To prevail upon a claim of futility, “one must
show that the administrative agency was powerless to effect a remedy or
that it would have been impossible or fruitless and of no value under the
circumstances.” Smith v. State Lottery Comm’n, 701 N.E.2d 926, 931 (Ind.
Ct. App. 1998) (quoting Ind. State Bldg. And Constr. Trades Council v.
Warsaw Cmty. Sch. Corp., 493 N.E.2d 800,806 (Ind. Ct. App. 1986)). The
HMOs have not suggested that either ICHIA or the Commissioner is powerless
to effect a remedy. Even if the HMOs are unsuccessful in an administrative
challenge, resort to the Commissioner may produce a reasoned explanation of
the considerations going into adoption and approval of this allocation of
costs of a statutorily mandated program. That in itself is of value before
resort to the courts to resolve such an issue. Turner v. City of
Evansville, 740 N.E.2d 860, 862 (Ind. 2001) (one of the benefits of
exhaustion of administrative remedies is that a record for judicial review
may be created).
B. Invalidity of an Administrative Rule
The HMOs contend exhaustion of administrative remedies is not required
because the challenged assessment methodology is both unauthorized and
unconstitutional. Citing Indiana Department of Insurance v. Golden Rule
Insurance Co., 639 N.E.2d 339, 342 (Ind. Ct. App. 1994), the HMOs assert
that when an administrative rule is challenged as facially invalid,
administrative remedies are not required. The HMOs challenge the
application of ICHIA Plan of Operation to them, not the fundamental issue
of ICHIA’s power to make such allocations. Different members of ICHIA are
affected in different ways by ICHIA’s assessment method. The HMOs
essentially argue that ICHIA’s methods, in concert with taxation of HMOs,
is unfair to HMOs. ICHIA responds that taxation of HMOs is essentially a
function of the HMOs’ election to do business in that form. These
questions are specific to the HMOs’ situation and can best be resolved by
the agency in the first instance.
C. Refusal to Act as Required by Law
The HMOs argue that they are relieved from the exhaustion requirement
by the agency’s failure to act on their petition. The HMOs cite MHC
Surgical Center Associates, Inc. v. State Office of Medicaid Policy and
Planning, 699 N.E.2d 306, 309 (Ind. Ct. App. 1998), for this proposition.
In that case, the court held that the plaintiffs were not required to
exhaust administrative remedies because the agency had not taken action on
the petitioner’s claims in over four years. Id. No such delay is asserted
here. Nor have the HMOs have shown that ICHIA has otherwise deliberately
refused to follow the law.
Conclusion
The judgment of the trial court is affirmed.
Shepard, C.J., Dickson, Sullivan, and Rucker, J.J., concur.
-----------------------
[1] Seven members of the Board are appointed by the Commissioner: four of
these are representatives of members of ICHIA, one is a representative of
an HMO, two represent policyholders and one is a representative of health
care providers. The remaining two Board members are the state budget
director or her designee and the Commissioner or her designee. The
Commissioner appoints the chairman of the Board. At the time M-Plan filed
this claim the Board consisted of seven members including one HMO
representative. I.C. § 27-8-10-2.1(b) (1998).