C. What to Do With the Dearth of Case Law on HCSMs
The general dearth of case law on HCSMs means the Kentucky Supreme Court dealt with HCSMs by making analogies to certain egregious cases involving other agencies, as noted above. Interestingly, the Reinhold majority did cite Iowa's Barberton case, the only other reported case on point. (284) The Reinhold majority did not distinguish Barberton's holding or explain why the Reinhold case required the opposite result. However, no other reported cases deal with the specific issues of whether HCSMs are engaged in the business of insurance and whether the "safe harbor" statute applies. (285) In order to deal with this lack of case law, this Article first examines precedent from the U.S. Supreme Court, secondly argues that courts should apply the "safe harbor" statutes to HCSMs, and lastly offers some analysis on whether HCSMs should be compared to other types of organizations to determine whether HCSMs are insurance, as the Kentucky Supreme Court did.
1. Some Guidance from U.S. Supreme Court Precedent
The assumption of the risk is a key element for insurance. (286) The key question here is, given the fact HCSMs specifically disclaim any assumption of the risk, whether HCSM members indeed assume the risk of payment of medical costs among themselves. However, while the assumption of risk is a key element, it is not the only element of insurance. (287) Three U.S. Supreme Court precedents in the area of insurance law provide helpful guidance for cases beyond the borders of Iowa and Kentucky.
First, the U.S. Supreme Court defined insurance as "an arrangement for transferring and distributing risk" in Group Life & Health Company v. Royal Drug Company. (288) In Group Life, certain pharmacists alleged some pharmacy agreements violated the Sherman Act. (289) The question was whether these pharmacy agreements were the "business of insurance." (290) The Group Life Court stated, "[t]he primary elements of an insurance contract are the spreading and underwriting of a policyholder's risk." (291) The court explained, "[i]t is characteristic of insurance that a number of risks are accepted, some of which involve losses, and that such losses are spread over all the risks so as to enable the insurer to accept each risk at a slight fraction of the possible liability upon it." (292) The Court further explained, "[t]he Pharmacy Agreements thus do not involve any underwriting or spreading of risk ... they are not the "business of insurance." (293)
Second, the U.S. Supreme Court provided a more complete definition of "the business of insurance" in Metropolitan Life Ins. Co. v. Massachusetts (294) Three relevant criteria indicate whether a particular practice falls within "the business of insurance:"
(1) whether the practice has the effect of transferring or spreading a policyholder's risk; (2) whether the practice is an integral part of the policy relationship between the insurer and the insured; and (3) whether the practice is limited to entities within the insurance industry. (295)
Third, in Securities and Exchange Commission v. Variable Annuity Life Insurance Company, the U.S. Supreme Court considered whether variable annuities were "contracts for insurance." (296) variable annuity benefit payments vary with the success of the investment. (297) The annuitant "cannot look forward to a fixed monthly or yearly amount." (298) variable annuities share characteristics with fixed annuities, including periodic payments continuing until the annuitant's death or the end of a fixed term. (299) Issuers "assume the risk of mortality ... an actuarial prognostication that a certain number of annuitants will survive to specified ages." (300) The annuity contract reflects the mortality prediction, which is a risk "assumed both by respondents and by those who issue fixed annuities." (301) The "[respondents ... urge [this feature] ... is basically an insurance device. …