Steven Ostlund 1bcbsantitrust.com/wp-content/uploads/2016/10/To-read-the-Deposition-of... · Steven Ostlund 2 Freedom Court Reporting, Inc 877-373-3660 1 A P P E A R A N C E S 2 3

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

Steven Ostlund 2


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

14 [email protected]


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


Steven Ostlund 3


1 A P P E A R A N C E S (Continuing)

2


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


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


20

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25

Steven Ostlund 4



2


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


21

22

23

24

25

Steven Ostlund 5



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


22 205.986.3620


24

25

Steven Ostlund 6



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


12 205.254.1000



15

16 FOR THE DEFENDANT C&M DEFENDANT PLANS


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


Steven Ostlund 7



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

Steven Ostlund 8



2

3 FOR THE DEFENDANT, USABLE MUTUAL INSURANCE COMPANY,

4 d/b/a ARKANSAS BLUE CROSS AND BLUE SHIELD


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


21 205.220.5384


23

24

25

Steven Ostlund 9



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

9 [email protected]

10

11

12

13

14

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25

Steven Ostlund 10


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

Steven Ostlund 11


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



22 PX-Ostlund009 92

23 (Alabama Department of Insurance,

24 Insurance Regulation, Chapter 482-1-116,

25 Alabama Small Employer Allocation Program)

Steven Ostlund 12



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







18 (Withdrawn)

19 PX-Ostlund014 (Re-marked) 135

20 (Email from Noel Carden to Steven

21 Ostlund, dated March 9, 2012)


23 (Email string, beginning with an

24 email from Jim Ridling to Steven Ostlund,

25 dated July 25, 2016)

Steven Ostlund 13



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)


12 (ALDOI- Rates & Forms FAQs)













25

Steven Ostlund 14


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

Steven Ostlund 15


1 INDEX OF DEFENDANTS' EXHIBITS

2

3 Page:

4 DX-Ostlund001 274



7 DX-Ostlund002 287

8 (Email from Steven Ostlund to

9 Dennis Yu, dated August 20, 2015)

10 DX-Ostlund003 293



13

14

15

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23

24

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Steven Ostlund 16


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

Steven Ostlund 17


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?

Steven Ostlund 18


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

Steven Ostlund 19


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

Steven Ostlund 20


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.

Steven Ostlund 21


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

Steven Ostlund 22


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

Steven Ostlund 23


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.

Steven Ostlund 24


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?

Steven Ostlund 25


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

Steven Ostlund 26


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

Steven Ostlund 27


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?


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

Steven Ostlund 28


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.

Steven Ostlund 29


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

Steven Ostlund 30


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

Steven Ostlund 31


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

Steven Ostlund 32


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

Steven Ostlund 33


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.

Steven Ostlund 34


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.

Steven Ostlund 35


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

Steven Ostlund 36


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

Steven Ostlund 37


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.

Steven Ostlund 38


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

Steven Ostlund 39


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?

Steven Ostlund 40


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

Steven Ostlund 41


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

Steven Ostlund 42


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

Steven Ostlund 43


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?


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

Steven Ostlund 44


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

Steven Ostlund 45


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.

Steven Ostlund 46


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

Steven Ostlund 47


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

Steven Ostlund 48


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

Steven Ostlund 49


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

Steven Ostlund 50


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

Steven Ostlund 51


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?

Steven Ostlund 52


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

Steven Ostlund 53


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?

Steven Ostlund 54


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?


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?


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?

Steven Ostlund 55


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?

Steven Ostlund 56


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?

Steven Ostlund 57


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.

Steven Ostlund 58


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.

Steven Ostlund 59


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.


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.

Steven Ostlund 60


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?

Steven Ostlund 61


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.

Steven Ostlund 62


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?


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

Steven Ostlund 63


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.

Steven Ostlund 64


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?

Steven Ostlund 65



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

Steven Ostlund 66


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?


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?


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

Steven Ostlund 67


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.


Steven Ostlund 68


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

Documents

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