                                                                              Michigan Supreme Court
                                                                                    Lansing, Michigan
                                                        Chief Justice:          Justices:



Opinion                                                 Robert P. Young, Jr. Michael F. Cavanagh
                                                                             Marilyn Kelly
                                                                             Stephen J. Markman
                                                                             Diane M. Hathaway
                                                                             Mary Beth Kelly
                                                                             Brian K. Zahra

                                                                         FILED MAY 17, 2011

                              STATE OF MICHIGAN

                                    SUPREME COURT


 PRIORITY HEALTH,

                Petitioner-Appellant,

 v                                                               No. 139189

 COMMISSIONER OF THE OFFICE OF
 FINANCIAL AND INSURANCE
 SERVICES,

                Respondent-Appellee.


 BEFORE THE ENTIRE BENCH

 MARILYN KELLY, J.
         This appeal involves the small employer group health coverage act,1 which

 establishes requirements for insurance carriers that offer health insurance benefit plans to

 small employers in Michigan. We address the narrow issue of whether § 3711(2) of the




 1
     MCL 500.3701 et seq.
act, MCL 500.3711(2), prevents a carrier from requiring a small employer to pay a

minimum percentage of its employees’ health insurance premiums.2

         Both the Court of Appeals and the Commissioner of the Office of Financial and

Insurance Services (OFIS)3 concluded that minimum employer contribution provisions

are inconsistent with the act. They reasoned that an employer’s failure to pay a minimum

percentage of its employees’ premiums is not among the reasons in MCL 500.3711(2)

that a carrier may refuse to renew an insurance plan. We disagree with this rationale and

reverse their decisions. We hold that merely because the Legislature did not include

noncompliance with a minimum employer contribution provision among the reasons for

nonrenewal does not render the provision unreasonable or inconsistent with § 3711(2).

                                      BACKGROUND4

         Priority Health is a nonprofit corporation that the state of Michigan has licensed as

a health maintenance organization. It offers health benefit plans to many employers in

Michigan, including small-employer groups covered by the act. Its policies require




2
  We decline to address the broader issue of whether such required contributions are
unreasonable or inconsistent with the act for any other reason. The commissioner and the
lower courts based their rulings on the determination that minimum employer
contribution requirements conflict with MCL 500.3711(2).              We reverse that
determination and therefore need not address arguments on which no definitive ruling
was issued below.
3
    OFIS has since been renamed the Office of Financial and Insurance Regulation.
4
  Because this dispute involves an OFIS declaratory ruling, no administrative agency
hearing was conducted, and the record consists of those facts specifically identified by
Priority Health in its request for a declaratory ruling. Mich Admin Code, R 500.1043(2).



                                               2
minimum employer contributions.5        Employers contracting with it must agree to

contribute a certain portion of the insurance premium. Priority Health asserts that a

minimum employer contribution requirement combats “adverse selection”—the tendency

of healthy people to decline health insurance because of its cost—by encouraging a

greater number of healthy employees to participate in the plan, thereby allowing carriers

to charge lower premiums.6

      In April 2006, Priority Health requested a declaratory ruling from OFIS.7 It asked

whether a health maintenance organization may require small employers to contribute a

specific minimum in payment of the premiums if that minimum is reasonable and is

applied uniformly.    Priority Health asserted that a minimum employer contribution

requirement is designed to address adverse selection. It argued that, by ensuring that a

portion of the cost is borne by the employer, the financial burden on the employees is

lessened. This makes it more likely that healthy employees will participate in the plan.

      The commissioner8 issued a declaratory ruling in which she concluded that the

mandated employer contribution in Priority Health’s policies is unreasonable and

5
  A minimum employer contribution provision requires an employer to contribute a
portion of an employee’s premium. Minimum contribution requirements set a ceiling on
the health insurance expenses an employer may pass on to its employees. This ceiling is
often expressed as a percentage of the premium.
6
 See In re Priority Health Declaratory Ruling Request, entered June 7, 2006, Order No.
06-021-M (OFIS Ruling), p 5.
7
  See MCL 24.263, which permits an agency to issue a declaratory ruling on the
application of a statute to particular facts.
8
 At the time, the commissioner was Linda Watters. The current commissioner is Kevin
Clinton.



                                            3
inconsistent with the act. She reasoned that an employer’s failure to pay a portion of the

premiums is not one of the conditions in MCL 500.3711(2) that permits a carrier to refuse

to renew coverage.

         Priority Health appealed the ruling in the circuit court, which affirmed it.

Applying the standard of review in MCL 24.306(1), the circuit court concluded that the

commissioner’s interpretation of the act was not arbitrary or capricious. As a result, it

concluded that the ruling should be affirmed.9

         Priority Health sought leave to appeal in the Court of Appeals, arguing that the

OFIS ruling and the circuit court’s decision conflicted with the language of the act. It

further argued that its minimum employer premium contribution requirement advances

the act’s purposes because it encourages employee participation and protects against

adverse selection. The Court of Appeals denied Priority Health’s application for leave to

appeal, with Judge SMOLENSKI indicating that he would grant the application.10

However, this Court remanded the case to the Court of Appeals as on leave granted.11

         On remand, the Court of Appeals affirmed the decision of OFIS in a published

opinion per curiam.12 Most significant to our analysis, it agreed with the commissioner’s

9
 The circuit court applied an improperly high standard when reviewing the OFIS ruling.
The arbitrary-or-capricious standard does not apply to the interpretation of statutory
provisions. In re Complaint of Rovas Against SBC Mich, 482 Mich 90, 103; 754 NW2d
259 (2008).
10
  Priority Health v Comm’r of the Office of Fin & Ins Servs, unpublished order of the
Court of Appeals, entered October 12, 2007 (Docket No. 278373).
11
     Priority Health v Comm’r of the Office of Fin & Ins Servs, 480 Mich 1073 (2008).
12
 Priority Health v Comm’r of the Office of Fin & Ins Servs, 284 Mich App 40; 770
NW2d 457 (2009).


                                             4
legal conclusion. Consequently, it held that the act does not permit carriers to impose a

minimum employer contribution requirement on small employers as a condition for

issuing a health benefit plan.13

          This Court granted leave to appeal to determine (1) whether, as part of a plan, an

insurer or licensed health maintenance organization can require an employer to pay a

specific percentage of the premium charged for each employee and (2) whether MCL

500.3711(2) limits the provisions that can be included in such policies.14

                                   STANDARD OF REVIEW

          We review OFIS declaratory rulings in the same manner as any agency final

decision or order issued in a contested case.15 Here, OFIS was requested to interpret a

statute.     Statutory interpretation is a question of law, which we review de novo.16

However, an agency’s interpretation of a statute regarding matters it is charged with

regulating is entitled to respectful consideration and should not be overruled without

cogent reasons.17




13
     Id. at 47.
14
     Priority Health v Comm’r of the Office of Fin & Ins Servs, 485 Mich 1069 (2010).
15
     MCL 24.263.
16
     Hunter v Hunter, 484 Mich 247, 257; 771 NW2d 694 (2009).
17
     In re Rovas Complaint, 482 Mich at 103.



                                               5
                              KEY PROVISIONS OF THE ACT

         The act regulates small employer group health coverage in Michigan.               The

Legislature adopted it in 2003 in an effort to resolve problems specific to the small-

employer market. The act requires every insurance carrier wishing to provide health care

benefits to small employers in Michigan to offer all of its small-employer health plans to

all small employers.18 At MCL 500.3707(1), it also requires a small-employer carrier to

issue any health benefit plan it markets to any small employer that: (1) applies for the

plan, (2) agrees to pay the required premium, and (3) agrees to satisfy other reasonable

provisions of the health benefit plan not inconsistent with the act.

         The act provides that the carriers of small-employer benefit plans must renew the

policies they issue to small employers, except under very limited circumstances. At

MCL 500.3711, it states:

                (1) Except as provided in this section, a small employer carrier that
         offers health coverage in the small employer group market in connection
         with a health benefit plan shall renew or continue in force that plan at the
         option of the small employer or sole proprietor.
                (2) Guaranteed renewal under subsection (1) is not required in cases
         of: fraud or intentional misrepresentation of the small employer or, for

18
     MCL 500.3701(p) defines “small employer” as follows:

                [A]ny person, firm, corporation, partnership, limited liability
         company, or association actively engaged in business who, on at least 50%
         of its working days during the preceding and current calendar years,
         employed at least 2 but not more than 50 eligible employees. In
         determining the number of eligible employees, companies that are affiliated
         companies or that are eligible to file a combined tax return for state taxation
         purposes shall be considered 1 employer.



                                               6
        coverage of an insured individual, fraud or misrepresentation by the insured
        individual or the individual’s representative; lack of payment;
        noncompliance with minimum participation requirements; if the small
        employer carrier no longer offers that particular type of coverage in the
        market; or if the sole proprietor or small employer moves outside the
        geographic area.

Hence, MCL 500.3707 and MCL 500.3711 read together require every carrier of small-

employer benefit plans to make all its plans available to all small employers. With six

exceptions, the carrier must renew the coverage at the employer’s option.

                                       ANALYSIS

        The act does not expressly permit carriers of small-employer benefit plans to

mandate a minimum employer contribution in their policies. However, it does permit

them to include provisions that are “reasonable” and “not inconsistent” with the act.19 As

a consequence, minimum employer contribution requirements are permissible so long as

they are “reasonable” and “not inconsistent” with the act.

        In her ruling, the commissioner relied on her interpretation of the guaranteed-

renewal provisions in MCL 500.3711. They require small-employer carriers to guarantee

renewal of their health plans at the option of the employer, except in six expressly

identified circumstances. Failure to comply with a minimum employer contribution

requirement is not one of those circumstances. Hence, the commissioner concluded that

a carrier must renew coverage without regard to the level of an employer’s contribution

to the total cost of the plan.


19
     MCL 500.3707(1).



                                             7
          She reasoned that it would be inconsistent to “allow a minimum contribution

requirement at the time coverage is issued, yet mandate renewal without regard to the

employer’s share.”20 And she concluded that Priority Health’s minimum contribution

requirement was unreasonable because it was inconsistent with the guaranteed-renewal

provisions of MCL 500.3711.21

          Likewise, the Court of Appeals based its decision on the guaranteed-renewal

provisions in MCL 500.3711. Following a rationale similar to that of the commissioner,

the Court found it “unreasonable and inconsistent to require [minimum employer]

contributions as a prerequisite for initial coverage when renewal could not be denied on

the basis of a failure to pay those contributions.”22

          Both the commissioner and the Court of Appeals improperly relied on the

guaranteed-renewal provisions of MCL 500.3711 to conclude that minimum employer

contribution requirements are impermissible in small-employer policies. Our reading of

chapter 37 of the Insurance Code, in which the act is found, persuades us that minimum

employer contribution requirements are not inconsistent with MCL 500.3711.           The

guaranteed-renewal provisions do not limit the initial coverage that can be included in a

policy.      Rather, they mandate renewal of the initial policy that was offered to the




20
     OFIS Ruling, p 16.
21
     Id. at 30.
22
     Priority Health, 284 Mich App at 47.



                                              8
employer once it is in effect. Any provisions included in the initial policy are part of the

policy that must be renewed at the employer’s option according to MCL 500.3711(1).

       If a minimum employer contribution requirement is included as a provision of the

initial policy, it is part of the policy being offered for renewal.        If the employer

determines that it cannot or does not wish to make such a contribution, it is free to decline

to renew the policy. This differs from a situation where the carrier refuses to renew the

policy for a reason not among the permissible reasons enumerated in MCL 500.3711(2).

Nothing in chapter 37 prevents an employer from declining to renew the policy.

       Moreover, under the Court of Appeals’ rationale, any proposed health benefit plan

provision which MCL 500.3711(2) does not expressly permit would be unreasonable and

inconsistent with chapter 37. This means that a carrier could not require an employer to

agree to an arbitration clause, merger or integration clause, or other common provision

that it did not write into the initial policy. According to the Court of Appeals’ reasoning,

small-employer carriers would not be able to include any provisions in their plans that the

act does not expressly permit.

       Yet chapter 37 does not require a proposed policy provision to be expressly

authorized by chapter 37 before a small-employer carrier can include it in a policy. Such

an interpretation would effectively read out of the act the language of MCL 500.3707(1)

that permits a carrier to include “other reasonable provisions of the health benefit plan not

inconsistent with this chapter.” If the only provisions a carrier could include in a policy

were those expressly enumerated in the exceptions to guaranteed renewal, it could never

include other reasonable provisions. A critical tenet of statutory construction is to give


                                             9
meaning to every portion of a statute, and interpretation of a provision that renders any

part of the statute surplusage is to be avoided.23

         Assuredly, the guaranteed-renewal provisions could be said to conflict with, and

thus preclude, the inclusion of certain provisions in a health benefit plan for initial

coverage. MCL 500.3711(2) lists only six reasons why a carrier can terminate or refuse

to renew a health plan that has already been issued. A provision that attempted to

broaden those exceptions would conflict with MCL 500.3711 and would be

impermissible in a policy for initial coverage.

         For example, a termination-at-will provision cannot be reconciled with the

guaranteed-renewal provisions and therefore would be prohibited. But MCL 500.3711

does not preclude a carrier from including a reasonable provision in a policy for initial

coverage that does not conflict with the enumerated reasons for nonrenewal.

                                      CONCLUSION

         We give respectful consideration to the commissioner’s interpretation of chapter

37. But MCL 500.3711(2) does not support her conclusion that a minimum employer

premium contribution provision is inconsistent with the act. An insurance carrier is not

prohibited from including a provision in plans offered to small employers simply because

it is not listed in MCL 500.3711(2) among the reasons for nonrenewal. Rather, unless a

provision directly conflicts with the enumerated reasons, it may be included in a plan so



23
     In re MCI Telecom Complaint, 460 Mich 396, 414; 596 NW2d 164 (1999).



                                              10
long as it is reasonable and not inconsistent with chapter 37.24 We do not reach the

question of whether Priority Health’s minimum employer premium contribution

provision is unreasonable or inconsistent with the act for reasons not presented in this

case. We reverse the judgment of the Court of Appeals, vacate the OFIS declaratory

ruling, and remand this case to OFIS for reconsideration of plaintiff’s motion for

declaratory judgment in light of this opinion.



                                                      Marilyn Kelly
                                                      Michael F. Cavanagh
                                                      Stephen J. Markman
                                                      Diane M. Hathaway
                                                      Mary Beth Kelly
                                                      Brian K. Zahra




24
     MCL 500.3707(1).



                                            11
                             STATE OF MICHIGAN

                                    SUPREME COURT


PRIORITY HEALTH,

               Petitioner-Appellant,

v                                                           No. 139189

COMMISSIONER OF THE OFFICE OF
FINANCIAL AND INSURANCE
SERVICES,

               Respondent-Appellee.


YOUNG, C.J. (concurring).
         I concur with the majority opinion because I believe that the Commissioner of the

Office of Financial and Insurance Services (OFIS)1 erroneously concluded that minimum

employer contribution requirements are inconsistent with the small employer group

health coverage act (SEGHCA)2 because noncompliance with a minimum employer

contribution requirement is not listed among the exceptions to the guaranteed renewal

provisions contained in the act.3 I offer several observations for the commissioner to

consider on remand.



1
 Executive Order 2008-02 changed the name of the agency from the Office of Financial
and Insurance Services (OFIS) to the Office of Financial and Insurance Regulation
(OFIR).
2
    MCL 500.3701 et seq., which is chapter 37 of the Insurance Code.
3
    MCL 500.3711.
         The petitioner in this matter, a Michigan health maintenance organization (HMO),

requires that all small employers4 pay either 75 percent of the single premium amount or

50 percent of the total premium amount, at the employer’s option, as a condition of

coverage. A small employer cannot obtain health insurance from petitioner unless the

employer agrees to pay 50 or 75 percent of the premium,5 even if the premiums are

otherwise paid in full.

         The SEGHCA establishes various requirements for carriers6 that offer health




4
    A “small employer” is defined as a

         person, firm, corporation, partnership, limited liability company, or
         association actively engaged in business who, on at least 50% of its
         working days during the preceding and current calendar years, employed at
         least 2 but not more than 50 eligible employees. In determining the number
         of eligible employees, companies that are affiliated companies or that are
         eligible to file a combined tax return for state taxation purposes shall be
         considered 1 employer. [MCL 500.3701(p).]

5
  Petitioner requested a declaratory ruling after OFIS posted its informal opinion under
the “Small Employer Group Health Coverage Act FAQ” section of its website:

         Q. Can a small employer carrier require a minimum contribution level
         (either dollar or percentage) by the employer as a condition of coverage?

         A. No, Chapter 37 does not allow small employer carriers to require a
         contribution level that must be paid by the employer sponsor.

<http://www.michigan.gov/dleg/0,1607,7-154-10555_13648-82698--,00.html#Q17>
(accessed April 29, 2011) (emphasis added).
6
 A “carrier” is defined as including commercial insurance companies, HMOs, nonprofit
health care corporations, and multiple employer welfare arrangements.         MCL
500.3701(d).



                                             2
insurance benefit plans7 to small employers in Michigan. As a condition of transacting

business with small employers in Michigan, a small employer provider is required to

offer its entire menu of small employer health plans to any small employer. MCL

500.3707(1) provides:

               As a condition of transacting business in this state with small
        employers, every small employer carrier shall make available to small
        employers all health benefit plans it markets to small employers in this
        state. A small employer carrier shall be considered to be marketing a health
        benefit plan if it offers that plan to a small employer not currently receiving
        a health benefit plan from that small employer carrier. A small employer
        carrier shall issue any health benefit plan to any small employer that
        applies for the plan and agrees to make the required premium payments
        and to satisfy the other reasonable provisions of the health benefit plan not
        inconsistent with this chapter [chapter 37 of the Insurance Code, MCL
        500.100 et seq.].[8]

Thus, under the SEGHCA, an insurer “shall issue” health insurance coverage to any

small employer who does three things: (1) applies for the plan, (2) agrees to make the

required premium payments, and (3) satisfies the other reasonable provisions of the

health benefit plan not inconsistent with chapter 37, in which the SEGHCA is codified.

        The issue in this case is whether requiring a minimum employer contribution as a

condition of coverage is a “reasonable provision” that is not “inconsistent with” chapter

37 of the Insurance Code. By including the adjective “reasonable,” the Legislature has

indicated that the reasonableness of small employer health insurance plan provisions may



7
  A “health benefit plan” or “plan” means “an expense-incurred hospital, medical, or
surgical policy or certificate, nonprofit health care corporation certificate, or health
maintenance organization contract.” MCL 500.3701(k).
8
    Emphasis added.


                                              3
be considered and evaluated, even if the contractual provision at issue does not otherwise

conflict with the statutory provisions contained in the SEGHCA.9

         However, it is not within the purview of the judicial branch to determine whether a

particular insurance provision is “reasonable.” Rather, “the explicit ‘public policy’ of

Michigan is that the reasonableness of insurance contracts is a matter for the executive,

not judicial, branch of government.”10 This is because “the Legislature has assigned the

responsibility of evaluating the ‘reasonableness’ of an insurance contract to the person

within the executive branch charged with reviewing and approving insurance policies: the

Commissioner of Insurance.”11

         Moreover, the commissioner’s determination regarding the reasonableness of a

contractual provision is entitled to great deference under the limited standard of review

that Michigan courts apply when reviewing the decisions of administrative agencies.12 If

the commissioner were to conclude on remand that compulsory minimum employer

contributions are not “reasonable,” the petitioner would bear the burden of establishing




9
  In considering whether minimum employer contribution requirements are consistent
with the SEGHCA, I note that the Legislature has identified only one circumstance under
which a small employer carrier may impose “a condition of coverage” and “deny
coverage to a small employer” if the condition is not met: when the small employer had
failed to meet the minimum participation rules described in MCL 500.3709.
10
     Rory v Continental Ins Co, 473 Mich 457, 476; 703 NW2d 23 (2005).
11
     Id. at 475; see also MCL 500.2236; MCL 500.2242.
12
   MCL 500.244(1) provides that judicial review of the commissioner’s actions is
provided by the Administrative Procedures Act, MCL 24.201 et seq.



                                              4
that its substantial rights have been prejudiced13 because the commissioner’s

reasonableness determination was “[a]rbitrary, capricious or clearly an abuse or

unwarranted exercise of discretion.”14 The commissioner’s declaratory ruling identified

several factors that could support a determination that the imposition of minimum

employer contribution requirements is not reasonable.

      Because it is the responsibility of the commissioner to make the determination in

the first instance regarding whether a minimum employer contribution requirement is a

“reasonable provision” that is not “inconsistent with” the SEGHCA, I concur with the

majority opinion and concur in remanding this case for reconsideration of petitioner’s

motion for declaratory judgment.



                                                        Robert P. Young, Jr.




13
  It is unclear whether petitioner has a “substantial right” to require minimum employer
contributions as a condition of coverage in its health insurance contracts. Black’s Law
Dictionary (8th ed), p 1349, defines “substantial right” as “[a]n essential right that
potentially affects the outcome of a lawsuit and is capable of legal enforcement and
protection, as distinguished from a mere technical or procedural right.” (Emphasis
added.)
14
   MCL 24.306(1)(e) provides that a court shall set aside a decision of an administrative
agency “if substantial rights of the petitioner have been prejudiced because the decision
or order” is “[a]rbitrary, capricious or clearly an abuse or unwarranted exercise of
discretion.” Any factual findings in support of the reasonableness determination are
affirmed if “supported by competent, material and substantial evidence on the whole
record.” MCL 24.306(1)(d).



                                           5
