Health Net Life Ins. Co. v. Dept. of Rev.

514 May 3, 2021 No. 23

IN THE OREGON TAX COURT

REGULAR DIVISION

HEALTH NET LIFE INSURANCE COMPANY,

Plaintiff,

v.

DEPARTMENT OF REVENUE,

Defendant.

(TC 5371)

On cross-motions for summary judgment, Plaintiff argued that the mini-

mum corporation excise tax under ORS 317.090 is preempted by 42 USC sec-

tion 1395w-24(g), when applied to Medicare Advantage (MA) organizations.

Defendant Department of Revenue (the department) argued that ORS 317.090

is not preempted because the tax imposed is not a “premium tax” imposed exclu-

sively on gross premiums received by insurers. Applying federal statutory inter-

pretation principles, Oregon’s minimum tax is a premium tax as applied to MA

organizations because it is “imposed, directly or indirectly,” “on direct premi-

ums,” not on net income. Because Congress had clearly expressed its intention

to exempt MA organizations from such a tax, the tax under ORS 317.090 is pre-

empted by 42 USC section 1395w-24(g).

Oral argument on cross-motions for summary judgment

was held March 9, 2020, in the courtroom of the Oregon Tax

Court, Salem.

Gregg D. Barton, Perkins Coie LLP, Seattle, filed the

motion and argued the cause for Plaintiff.

Darren Weirnick, Senior Assistant Attorney General,

Department of Justice, Salem, filed the cross-motion and

argued the cause for Defendant.

Decision for Plaintiff rendered May 3, 2021.

ROBERT T. MANICKE, Judge.

On cross-motions for summary judgment, the par-

ties ask the court to determine whether federal law pre-

empts imposition of Oregon’s minimum tax on corporations

under ORS 317.090.1 The facts are stipulated.

1

Unless otherwise noted, all references to the Oregon Revised Statutes

(ORS) are to the 2017 edition.

Cite as 24 OTR 514 (2021) 515

I. FACTS

At all relevant times, Plaintiff (taxpayer) was a

“Medicare Advantage” (MA) health plan provider operat-

ing in Oregon.2 As an “MA organization” under 42 USC

section 1395w-28(a)(1),3 taxpayer provided “health benefit

coverage to MA eligible members.”4 In exchange, taxpayer

received payments pursuant to 42 USC section 1395w-23

from the Centers for Medicare & Medicaid Services (CMS),

a part of the federal Department of Health and Human

Services (DHHS). Taxpayer also received premiums from

enrollees to whom it provided benefits.

Taxpayer was an “insurer” under ORS 317.010(11)

and was required to file returns under ORS 317.650. On or

about September 13, 2017, taxpayer made an estimated tax

payment of $100,000 to Defendant Department of Revenue

(the department). On or about March 29, 2018, taxpayer filed

an original Oregon Insurance Excise Tax Return (Form

OR-20-INS) for 2017 on which it reported an Oregon tax-

able loss and claimed it owed only the minimum tax of $150.

Taxpayer made a $150 payment on or about April 3, 2018.5

On June 8, 2018, the department sent taxpayer a notice of

deficiency that adjusted taxpayer’s minimum tax liability

under ORS 317.090 to $100,000 and imposed $812 of inter-

est, resulting in a net balance due of $662.

Taxpayer paid the $662 within 30 days of receiv-

ing the notice and, on or about February 6, 2019, filed an

amended Form OR-20-INS for 2017 on which it claimed a

$100,662 refund. In a memorandum attached to its amended

return, taxpayer asserted that 42 CFR section 422.404

2

Taxpayer also operates outside of Oregon. Taxpayer’s apportionment of

income is not an issue in this case.

3

All references to the United States Code (USC) and the Code of Federal

Regulations (CFR) are to the 2017 editions unless otherwise noted.

4

The court understands the stipulated term “members” to refer to individu-

als to whom taxpayer provides health insurance as an MA organization. Certain

exhibits refer to “enrollees” and “beneficiaries.” For purposes of this order, the

court understands these terms to be interchangeable with “members.”

5

The department points out, and taxpayer does not dispute, that taxpayer’s

original return neglected to report that taxpayer had previously made the esti-

mated tax payment of $100,000. This fact is not material to this order, except to

explain why taxpayer paid the additional $150 when it did.

516 Health Net Life Ins. Co. v. Dept. of Rev.

preempted imposition of Oregon’s minimum tax on the

amounts taxpayer received from CMS and MA enrollees.

Taxpayer explained that, despite its name, substantially all

of its Oregon premiums ($324,156,271 out of $324,160,186)

were from CMS and enrollees; the remaining $3,915 consist-

ing of life insurance premiums.6 The department denied tax-

payer’s refund claim. Taxpayer timely appealed.7 The par-

ties have cross-moved for summary judgment as to whether

the minimum tax under ORS 317.090, as applied to MA

organizations, is preempted by 42 USC section 1395w-24(g)

(the MA Preemption Statute) (text reprinted below and in

Appendix).

II. BACKGROUND ON THE OREGON TAX

ORS 317.070 imposes an annual “excise tax” on

every corporation “for the privilege of carrying on or doing

business * * * within this state.” See also ORS 317.010(5)

(defining “excise tax” as a “tax measured by or according to

net income imposed upon * * * business corporations for the

privilege of carrying on or doing business in this state”). The

excise tax is measured by the corporation’s “Oregon taxable

income.” ORS 317.070.

For most corporations, the starting point to deter-

mine “Oregon taxable income” is “taxable income” as deter-

mined under federal income tax law. See ORS 317.010(8),

ORS 317.010(10). However, Oregon applies industry-specific

tax laws to insurers. First, ORS 317.655(1) provides a unique

definition of “Oregon taxable income”:

“For purposes of the tax imposed under ORS 317.070,

the Oregon taxable income of an insurer shall be the insur-

er’s ‘net gain from operations’ or ‘net income’ determined

in the manner prescribed by the Department of Consumer

and Business Services on its Annual Statement Form for

6

The record does not state the portion of $324,156,271 attributable to pay-

ments made by enrollees or payments made by CMS.

7

The department originally denied that taxpayer “ ‘timely’ sought the refund

that resulted in th[e February 28, 2019, Notice of Proposed Refund Adjustment].”

Although the department denied that taxpayer timely appealed the “assessed

deficiency within the time required under ORS 305.265(14) and ORS 305.280(3),”

the department concedes that taxpayer’s “First Amended Complaint may be

treated as a timely appeal of the department’s earlier assessment as provided in

ORS 305.280(3).”

Cite as 24 OTR 514 (2021) 517

the taxable year, as adjusted pursuant to ORS 317.010(11),

317.122 and 317.650 to 317.665.”

Unlike other corporations, therefore, an insurer uses as its

starting point “net income” as determined for purposes of

reporting to the Department of Consumer and Business

Services (DCBS). “Net income” for DCBS reporting purposes

includes premiums and certain annuity considerations, net

investment income, fees from investment management, and

certain other specified items, less specified expenditures.

The excise tax law then requires various adjustments to

net income, including the addition of any realized gains

and losses on the sale or exchange of property. See ORS

317.655(2).

After any adjustments, an insurer doing business

in more than one state must apportion its “net income” to

arrive at “Oregon taxable income.” To do so, the insurer mul-

tiplies its net income by the “insurance sales factor.” ORS

317.660(1)(a).

“The insurance sales factor shall consist of a fraction,

the numerator of which is the amount of direct premiums

(excluding reinsurance accepted and without deduction of

reinsurance ceded) received or earned by the insurer during

the tax year on policies and contracts that are allocated to

this state and to other jurisdictions in which the insurer

is not authorized to do business, and the denominator of

which is the total of such premiums received or earned by

the insurer during the tax year on policies and contracts

that had been sold within and without this state.”

ORS 317.660(1)(b). “Premiums” is defined as follows:

“ ‘Premiums’ means sums properly included in those

schedules of the annual statement filed by the insurer with

the Director of the Department of Consumer and Business

Services that appropriately allocate premiums by jurisdic-

tion. If the exclusion of reinsurance premiums results in

an insurance sales factor that does not fairly represent the

extent of the taxpayer’s activity in this state, the taxpayer

may petition for and the Department of Revenue may per-

mit, or the Department of Revenue may require, the inclu-

sion of reinsurance premiums in the insurance sales fac-

tor. If the annual statement of the insurer does not report

518 Health Net Life Ins. Co. v. Dept. of Rev.

received premiums then the insurance sales factor shall be

determined based on earned premiums.”

ORS 317.660(2)(b) (emphasis added). In sum, for an insurer

that operates both in Oregon and other jurisdictions, “Oregon

taxable income” is determined annually by multiplying the

insurer’s “net income” (after specified adjustments) by a

fraction, the numerator of which consists of Oregon direct

premiums (plus direct premiums from “jurisdictions in

which the insurer is not authorized to do business”) and the

denominator of which consists of all direct premiums.

ORS 317.710(1) imposes the requirement that each

corporation file an excise tax return. Some analysis typi-

cally is required to determine whether a corporation must

join in a consolidated return or file separately; rules under

subsections (2) through (5) govern that analysis. However, in

the case of an insurer, subsection (7) requires each insurer

to file a separate return; no insurer may be included in a

consolidated excise tax return.

ORS 317.090(2) imposes a “minimum tax,” for the

“privilege of carrying on or doing business” in Oregon, mea-

sured as a dollar amount of tax applied to specified tiers of

“Oregon sales.” The amount of the tax ranges from $150 (if

Oregon sales are less than $500,000) to $100,000 (if Oregon

sales are $100 million or more). The minimum tax is an

exception to the excise tax. See ORS 317.070 (“[E]very * * *

business corporation * * * doing business within this state,

except as provided in * * * ORS 317.090, shall annually pay to

this state, for the privilege of carrying on or doing business

by it within this state, an excise tax according to or mea-

sured by its Oregon taxable income * * *.” (Emphasis added.)).

ORS 317.090(1) defines “Oregon sales” by reference

to whether the corporation apportions its income pursuant to

Oregon’s version of the Uniform Division of Income for Tax

Purposes Act under ORS 314.650 to 314.665 (UDITPA). If

the corporation apportions income under UDITPA (or if the

corporation would apportion under UDITPA if it had sales

in more than one state (see ORS 317.090(1)(a)(B))), “Oregon

sales” means total “sales” in Oregon during the tax year as

defined in UDITPA. ORS 317.090(1)(a). Under the version

Cite as 24 OTR 514 (2021) 519

of UDITPA in effect for the tax year at issue, “sales” gen-

erally included all gross receipts except those required to

be allocated to a specific state, as well as the net gain from

certain intangible assets. See former ORS 314.610(7) (2015);

former ORS 314.665(6) (2015); Or Laws 2017, ch 622 (amend-

ing UDITPA provisions for tax years beginning on or after

January 1, 2018).8 For all other corporations, ORS 317.090

(1)(a)(C) authorizes the department to define “Oregon sales”

by administrative rule. The department has adopted an

administrative rule containing specific definitions of “Oregon

sales” for 14 categories of corporations that do not apportion

income under UDITPA, in each case defining “Oregon sales”

for minimum tax purposes by reference to the numerator of

the sales factor as defined for apportionment purposes under

an existing rule or statute. See OAR 150-317-0170(4)(a) to (n).

Those categories include insurers, public utilities, and finan-

cial organizations (which are excluded from UDITPA by ORS

314.615 and are instead subject to apportionment under ORS

314.280), interstate broadcasters subject to ORS 314.680 to

314.690, and others. See ORS 314.615. As relevant here, the

rule states: “ ‘Oregon sales’ means the numerator of the sales

factor for * * * [i]nsurers (as defined in ORS 317.010(11)), as

provided in ORS 317.660(1) * * *.” OAR 150-317-0170(4)(m).

Therefore, under the department’s rule, the amount of an

insurer’s tax under ORS 317.090 is measured by the amount

of “direct premiums * * * received or earned by the insurer

during the tax year on policies and contracts that are allo-

cated to this state and to other jurisdictions in which the

insurer is not authorized to do business.”

III. ISSUE

Does the MA Preemption Statute prohibit the

department from imposing the tax under ORS 317.090 on

taxpayer, an MA organization?

IV. ANALYSIS

When interpreting a federal statute, the overall

task of the court is to “identify and carry out the intent of

8

The 2017 edition of the ORS does not reprint the version of the sales factor

statute (ORS 314.665) that was in effect for tax years ending before January 1,

2018, which includes the period at issue in this case.

520 Health Net Life Ins. Co. v. Dept. of Rev.

Congress when it enacted the statute in question.” Julian v.

Dept. of Rev., 339 Or 232, 235, 118 P3d 798 (2005). Under the

Supremacy Clause of the United States Constitution, fed-

eral laws preempt conflicting state laws. US Const, Art VI,

§ 2. However, “[i]n recognition of a state’s power to tax in the

absence of conflicting federal authority, federal law requires

this court to read narrowly any federal exemptions preempt-

ing a state’s power to tax, to avoid recognizing an exemption

from state taxation that Congress did not express clearly.”

Julian, 339 Or at 235 (holding that federal Amtrak Act pre-

empted Oregon personal tax on compensation of interstate

truck driver).

Under federal principles of statutory interpretation,

courts consider a statute’s text, structure, and legislative

history. See Etter v. Dept. of Rev., 360 Or 46, 52, 377 P3d 561

(2016) (holding that 49 USC section 40116(f) did not preempt

Oregon personal income tax on compensation of air car-

rier employee).9 If Congress’s intent as to the specific issue

remains unclear after that analysis, courts must defer to an

agency regulation that resolves the statutory ambiguity if

the regulation was promulgated in the exercise of Congress’s

delegation of authority to the agency generally to make rules

carrying the force of law, and the regulation is based on a

permissible construction of the statute. See United States

v. Mead Corp., 533 US 218, 226-27, 121 S Ct 2164, 150 L

Ed 2d 292 (2001); Chevron, U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 US 837, 842-45, 104 S Ct 2778, 81

L Ed 2d 694 (1984); Friends of the Columbia River Gorge,

Inc., 346 Or at 378 (explaining that Oregon courts must

apply Chevron deference when interpreting federal statutes

“if the federal interpretative methodology so demands”).

Finally, an “agency’s reasonable interpretations of its own

regulations will warrant deference” if certain criteria apply.

Eastern Oregon Mining Assoc. v. DEQ, 365 Or 313, 347, 445

P3d 251 (2019); see id. at 352-53 (applying criteria in Kisor

9

The Oregon Supreme Court also has described Oregon’s method of inter-

preting a federal statute as an examination of the statute’s “text, context, and

legislative history.” Friends of the Columbia River Gorge, Inc. v. Columbia River

Gorge Comm’n, 346 Or 366, 378, 213 P3d 1164 (2009) (citing Corp. of Presiding

Bishop v. City of West Linn, 338 Or 453, 463, 111 P3d 1123 (2005)). The court

understands “context” and “structure” to refer to similar subjects of analysis,

including related statutes.

Cite as 24 OTR 514 (2021) 521

v. Wilkie, 588 US ___, 139 S Ct 2400, 2414-18, 204 L Ed 2d

841 (2019)).

A. Text

The MA Preemption Statute states:

“No State may impose a premium tax or similar tax

with respect to payments to [MA] Organizations under sec-

tion 1395w-23 of this title or premiums paid to such organi-

zations under this part.”10

42 USC § 1395w-24(g). The parties dispute the plain mean-

ing of the phrase “premium tax,” which the statute does not

define. Generally, when interpreting text, the job of a court

“is to interpret the words consistent with their ‘ordinary

meaning . . . at the time Congress enacted the statute.’ ”

Wisconsin Central Ltd. v. U.S., ___ US ___, 138 S Ct 2067,

2070-71, 201 L Ed 2d 490 (2018) (ellipsis in original) (quot-

ing Perrin v. United States, 444 US 37, 42, 100 S Ct 311, 62

L Ed 2d 199 (1979)).

For the plain meaning of terms, the court turns,

at least initially, to contemporaneous dictionaries, in this

case, dictionaries in existence in 1997.11 Cf. id. (interpreting

plain meaning of “money remuneration” by reference to con-

temporaneous dictionaries). “Premium tax” was not defined

in the contemporaneous edition of Webster’s Third New Int’l

Dictionary (unabridged ed 1993).12 Black’s Law Dictionary

defined “premium tax”: “Tax paid by insurer on gross insur-

ance premiums sold in state.” Black’s Law Dictionary 1181

(6th ed 1990). The parties agree that a tax imposed on gross

10

The referenced “part” is 42 USC, chapter 7, subchapter XVIII, Part C,

which consists of 42 USC sections 1395w-21 through 1395w-28. “Payments to

[MA] Organizations under section 1395w-23 of this title” refers to the monthly

payments that the Secretary of DHHS (the secretary) makes to MA organizations

“with respect to coverage of an individual” under the Medicare Advantage pro-

gram. See 42 USC § 1395w-23(a)(1)(A).

11

As discussed below, the phrase “premium tax or similar tax” appeared in

the predecessor of the MA Preemption Statute enacted as part of the Balanced

Budget Act of 1997 (reprinted in relevant part below). See Pub L 105-33, § 1854(g),

111 Stat 312 (codified as 42 USC § 1395w-24(g)). With respect to preemption, the

court agrees with the department that the “2003 amendment did not change the

meaning of ‘premium tax or similar tax’ adopted in 1997 or shed further light on

the meaning of that phrase.”

12

Nor did a definition appear in the 1997 edition of West’s Tax Law Dictionary.

522 Health Net Life Ins. Co. v. Dept. of Rev.

premiums received by insurers is a premium tax. The term

“premium” is not at issue, as neither party has sought to

distinguish the two sources of taxpayer’s receipts with

respect to the Medicare Advantage program—payments

from enrollees, as opposed to payments from CMS. Yet this

definition does not resolve the preemption issue. The depart-

ment argues in its motion that the Black’s definition of “pre-

mium tax” implies that a tax is a premium tax only if it is

imposed exclusively on gross premiums received by insurers,

and that a tax that also is imposed on other kinds of receipts

or other kinds of taxpayers is outside the definition and is

thus not preempted: “[A] premium tax, being a tax on insur-

ance premiums, is peculiar to, or exclusively imposed upon,

insurance companies with respect to those premiums.”

Taxpayer in its response disagrees: “We disagree with the

department’s contention that exclusivity is a feature.” The

court concludes that the dictionary definition alone does not

resolve whether Oregon’s tax is a “premium tax” because

the definition simply does not specify whether the tax must

apply exclusively in any respect, whether exclusively to pre-

miums, exclusively to insurers, or to both.

The parties also disagree as to the plain meaning

of the undefined term “similar.” The contemporaneous defi-

nition in Webster’s is, in pertinent part:

“1 : having characteristics in common : very much alike

: comparable <for shaping slots, keyways . . . or [simi-

lar] cuts –H. D. Burghardt & Aaron Axelrod> <instruc-

tion for children in daily ethics, religion . . . and [similar]

subjects –S. P. Chase & J. K. Snyder> <extremists of the

right – so [similar] in so many ways to the extremists of

the left –J. B. Oakes> 2 : alike in substance or essentials

: corresponding <no two animal habitats are exactly [simi-

lar] –W. H. Dowdeswell>[.]”

Webster’s at 2120 (bold text and ellipses in original).

Taxpayer argues that a tax is similar to a premium tax if it

“exhibit[s] the essential characteristic of a premium tax—a

tax on gross receipts and not net income.” The department

argues that, in the context of this case, the fact that the

tax under ORS 317.090 is imposed on gross receipts is not

sufficient to make the tax similar to a “premium tax”: “A

‘similar tax’ must take its meaning from ‘premium tax’

Cite as 24 OTR 514 (2021) 523

as a tax that is ‘alike in substance or essentials’ to a pre-

mium tax, not merely ‘having characteristics in common.’ ”

“[A]pplying the noscitur a sociis canon, it is clear that

Congress intended ‘similar tax’ to take its meaning from

‘premium tax’ as a tax that is ‘alike in substance or essen-

tials’ to a premium tax.” The department thus relies on its

premise that a “premium tax” must be imposed exclusively

on gross premiums and exclusively on insurers; from there,

it asserts: “For example, calling a tax imposed exclusively on

insurers’ gross premiums something else, such as a special

excise or privilege tax on insurers, would be a ‘similar tax.’ ”

Even if the court were to accept the department’s

definition of “premium tax,” the court must conclude that the

department’s understanding of “similar” misses the mark: A

tax that is a premium tax in operation but is called something

else is a premium tax. Cf. Hunt-Wesson, Inc. v. Franchise Tax

Bd. of Cal., 528 US 458, 464, 120 S Ct 1022, 145 L Ed 2d 974

(2000) (“[A]s this Court once put the matter, a ‘tax on sleeping

measured by the number of pairs of shoes you have in your

closet is a tax on shoes.’ ” (Quoting Trinova Corp. v. Michigan

Dept. of Treasury, 498 US 358, 374, 111 S Ct 818, 112 L Ed 2d

884 (1991).)). To give effect to all of the words in the statute,

“similar tax” must refer to taxes that are not premium taxes

but that share some of the characteristics, substance, or

essentials of a premium tax. The text of the MA Preemption

Statute does not, however, specify the characteristics that

Congress considered relevant in assessing similarity.

The court concludes that the plain meaning of the

key terms in the statutory text, “premium tax” and “simi-

lar,” remains ambiguous as applied in this case. Cf. Group

Health Cooperative v. Department of Revenue, 8 Wash App 2d

210, 220, 438 P3d 158 (2019) (concluding that Washington

business and occupation tax was “similar” to a premium tax

“under the plain language of 42 USC section 1395w 24(g)”).

B. Structure, Legislative History, and Agency Interpretations

Both parties refer to an earlier preemption provi-

sion, and associated legislative history and agency interpre-

tations, adopted as part of the Federal Employees Health

Benefits Program (FEHBP). For ease of reference, and

524 Health Net Life Ins. Co. v. Dept. of Rev.

before further analysis, the court sets forth a chronology of

the development of the relevant text, legislative history, and

agency interpretations of the preemption provisions applica-

ble to the FEHBP (1990), as well as the “Medicare+Choice”

(M+C) program (1997) and M+C’s successor program,

Medicare Advantage (2003).

1. The FEHBP

The FEHBP is a group health insurance program,

enacted in 1959, that covers current and retired employees

of the federal government and their family members. Pub L

86-382, 73 Stat 708-717 (1959); see Travelers Insurance

Co. v. Cuomo, 14 F3d 708, 711-12 (2d Cir 1993) (citing

5 USC § 8902). It is sponsored by the federal government as

employer, which enters into contracts with insurers to pro-

vide health care coverage to enrollees:

“Under [Federal Employees Health Benefits Act (FEHBA)],

the United States does not act as an insurer, but, through

the Office of Personnel Management (‘OPM’), contracts

with various insurance carriers to develop health care

plans with varying coverages and costs. 5 USC § 8902.

Prospective enrollees can select coverage from any one of

the participating carriers in their region. 5 USC § 8905.”

Travelers Insurance, 14 F3d at 711-12. The federal govern-

ment pays the insurers from a fund consisting of government

contributions and contributions the government collects

from employees, generally through payroll withholding. See

5 USC § 8909(a) (establishing fund); id. § 8906 (providing

for contributions to the fund).

In 1990, Congress added a preemption provision

(the “FEHBP Preemption Statute”) that states:

“(1) No tax, fee, or other monetary payment may be

imposed, directly or indirectly, on a carrier or an underwrit-

ing or plan administration subcontractor of an approved

health benefits plan by any State, the District of Columbia,

or the Commonwealth of Puerto Rico, or by any political

subdivision or other governmental authority thereof, with

respect to any payment made from the Fund.

“(2) Paragraph (1) shall not be construed to exempt

any carrier or underwriting or plan administration

Cite as 24 OTR 514 (2021) 525

subcontractor of an approved health benefits plan from

the imposition, payment, or collection of a tax, fee, or other

monetary payment on the net income or profit accruing to

or realized by such carrier or underwriting or plan admin-

istration subcontractor from business conducted under this

chapter, if that tax, fee, or payment is applicable to a broad

range of business activity.”

5 USC § 8909(f); see Pub L 101-508, Title VII, § 7002(c), 104

Stat 1388-330 (Nov 5, 1990) (also reprinted in Appendix).13

An October 16, 1990,14 report by the House Com-

mittee on the Budget (the “1990 House Budget Committee

Report”) stated:

“Section 8002(c) amends section 8909 of title 5, United

States Code, by adding a new subsection (f) to the sec-

tion. The new subsection would exempt from any tax, fee,

or other monetary payment (imposed by any State, the

District of Columbia, or the Commonwealth of Puerto Rico,

or any political subdivision or other governmental author-

ity thereof) any carrier or underwriting or plan admin-

istration subcontractor of an approved health benefits

plan with respect to payments made from the Employees

Health Benefits Fund. This State premium tax exemp-

tion is intended to be similar in nature and application

to the existing premium tax exemptions applicable to the

Employees’ Life Insurance Fund, as set forth in section

8714 of title 5, United States Code.”

HR Rep No 881, 101st Cong, 2d Sess, reprinted in 1990

USCCAN 2017, 2184 (emphasis added).15

13

5 USC section 8909(f) has not been amended to date.

14

The portion of the bill that became the FEHBP Preemption Statute was

not amended between October 16, 1990, and enactment. Compare 136 Cong Rec

29,782 (Oct 16, 1990) (providing language of House Resolution (HR) 5835; amend-

ing 5 USC section 8909 to include subsection (f)) with 5 USC section 8909(f).

A Conference Committee Report issued 10 days after the 1990 House Budget

Committee Report did not discuss preemption. HR Conf Rep No 964, 101st Cong,

2nd Sess, reprinted in 1990 USCCAN 2374.

15

The referenced statute applicable to the Employees’ Life Insurance Fund

provides:

“(1) No tax, fee, or other monetary payment may be imposed or collected

by any State, the District of Columbia, or the Commonwealth of Puerto Rico,

or by any political subdivision or other governmental authority thereof, on,

or with respect to, any premium paid under an insurance policy purchased

under this chapter.

526 Health Net Life Ins. Co. v. Dept. of Rev.

Shortly after Congress enacted the FEHBP Pre-

emption Statute, the OPM issued proposed regulations,

explaining in the preamble:

“The proposed regulation also amends part 1631 of title

48 of the Code of Federal Regulations to implement sec-

tion 7002(c) of Public Law 101-508, which exempts FEHB

Program carriers, underwriters, and plan administrators,

from State taxes on FEHB premiums. Under the provisions

of the Federal Acquisition Regulation [FAR 31.205-41], such

taxes have previously been chargeable to the FEHB con-

tract. The new law necessitates a clarification to this pro-

vision in OPM’s implementing regulations at 1631.205-41

stating that the charge of a premium tax by a carrier to the

FEHB contract will not be an allowable cost.”

56 Fed Reg 20575 (May 6, 1991) (emphasis added; brackets

in original).16 A proposed regulation provided:

“(2) Paragraph (1) of this subsection shall not be construed to exempt

any company issuing a policy of insurance under this chapter from the impo-

sition, payment, or collection of a tax, fee, or other monetary payment on the

net income or profit accruing to or realized by that company from business

conducted under this chapter, if that tax, fee, or payment is applicable to a

broad range of business activity.”

5 USC § 8714(c)(1) (1988) (added by Omnibus Budget Reconciliation Act 1980,

Pub L 96-499, § 405, 94 Stat 2607 (Dec 5, 1980)). A House Budget Committee

report explains that “[Federal Employees’ Group Life Insurance (FEGLI)] premi-

ums should [not] be subject to state taxation since the FEGLI program is, in effect,

a self-insured program.” HR Rep No 1167, 96th Cong, 2d Sess, reprinted in 1980

USCCAN 5526, 5653. The later Conference Committee report incorporated the

House provision. See HR Conf Rep No 1479, 96th Cong, 2d Sess, reprinted in 1980

USCCAN 5903, 5912. Regulations regarding preemption were not adopted until

1993. See 58 Fed Reg 40377 (July 28, 1993) (adopting 48 CFR § 2129.302(a) (“5 USC

8714(c)(1) prohibits the imposition of taxes, fees, or other monetary payment on

FEGLI Program premiums by any State * * *. [The foregoing provision] shall not be

construed to exempt * * * from * * * a tax, fee, or other monetary payment on the net

income or profit * * * from business conducted under the FEGLI Program if the tax,

fee, or payment is applicable to a broad range of business activity.”).

16

At the time, the Federal Acquisition Regulations provided in part:

“(a) The following types of costs are allowable:

“(1) Federal, State, and local taxes (see part 29), except as otherwise pro-

vided in paragraph (b) below that are required to be and are paid or accrued

in accordance with generally accepted accounting principles.”

48 CFR § 31.205-41(a) (1990). Taxes not allowable as costs under paragraph

(b) included federal income taxes, and taxes on the value, use, possession or

sale of real or personal property not used in connection with work on govern-

ment contracts. See 48 CFR § 31.205-41(b) (1990). The reference to “Part 29” in

48 CFR section 31.205-41(a) (1990) was to 48 CFR sections 29.000 to 29.402-2,

which prescribes policies and procedures for asserting the federal government’s

Cite as 24 OTR 514 (2021) 527

“5 USC 8909(f)(1) prohibits the imposition of taxes,

fees, or other monetary payment, directly or indirectly, on

FEHB premiums by any State, the District of Columbia, or

the Commonwealth of Puerto Rico, or by any political sub-

division or other governmental authority of those entities.

Therefore, FAR 31.205-41 is modified to include those taxes

as unallowable costs.”

Id. During the comment period that followed, OPM received

the following comments:

“Two commenters thought that the regulations con-

cerning premium taxes should be amended to state that

such taxes are unallowable costs, except when the carrier,

underwriter, or administrative subcontractor is compelled

by a court order to pay such taxes. OPM does not feel that

we need to regulate on this issue.

“Another commenter proposed additional wording to the

premium tax regulations to clarify their applicability. We

have revised the regulations to incorporate this change,

with modification from the legislative language.

“One commenter suggested that a section of the [Federal

Employee Health Benefits Acquisition Regulation (FEHBAR)]

defining premium taxes be removed, since it is not fully

consistent with the current law. The definition has been

revised in accordance with the revised premium tax lan-

guage elsewhere in the FEHBAR.”

56 Fed Reg 57496 (Nov 12, 1991). In response, OPM added

the text italicized below to the regulation, which has not

since been amended:

“5 USC 8909(f)(1) prohibits the imposition of taxes,

fees, or other monetary payment, directly or indirectly, on

FEHB premiums by any State, the District of Columbia, or

the Commonwealth of Puerto Rico, or by any political sub-

division or other governmental authority of those entities.

Therefore, FAR 31.205-41 is modified to include those taxes

as unallowable costs. The prohibited payments, referred to

elsewhere in these regulations as ‘premium taxes,’ applies to

all payments directed by States or municipalities, regardless

of how they may be titled, to whom they must be paid, or

the purpose for which they are collected, and it applies to

all forms of direct and indirect measurements on FEHBP

constitutional immunity from state and local taxes, as well as statutory exemp-

tions from federal excise taxes and from state and local taxes. See 48 CFR § 29.000.

528 Health Net Life Ins. Co. v. Dept. of Rev.

premiums, however modified, to include cost per contract or

enrollee, with the sole exception of a tax on net income or

profit, if that tax, fee, or payment is applicable to a broad

range of business activity.”

48 CFR § 1631.205-41 (emphasis added) (the “FEHBP

Preemption Regulation”) (also reprinted in Appendix); see

56 Fed Reg 57496-97 (Nov 12, 1991).

2. Medicare+Choice

In 1997, Congress enacted the predecessor of Medi-

care Advantage, known as Medicare+Choice (M+C), as part

of the Balanced Budget Act of 1997 (BBA 1997). Pub L 105-33,

Title IV, Subtitle A, Ch 1, Subch A, § 4001, 111 Stat 275-327

(Aug 5, 1997). M+C became the third “part” of the ultimately

four-part Medicare program: Part A (Hospital Insurance);

Part B (Medical Insurance); Part C (Medicare Advantage);

and Part D (Drug Coverage (added in 2005)). See generally

63 Fed Reg 34968 (June 26, 1998) (preamble to M+C interim

regulations); 70 Fed Reg 4589-90 (Jan 28, 2005) (preamble

to Part D regulations). M+C was an overlay on the “original”

fee-for-service Medicare program (Parts A and B), in which

the federal government generally pays health care service

providers directly without an insurer intermediary.17 See 42

USC § 1395g(a) (Part A: “The * * * provider of services shall

be paid, * * * from the Federal Hospital Insurance Trust

Fund, the amounts so determined * * *.”).

As later explained by DHHS, the goal of M+C was

to provide enrollees with more benefits than they received

under original Medicare, but at costs lower than they would

pay under private health insurance:

“[T]he primary goal of the M+C program is to provide

Medicare beneficiaries with a wider range of health plan

choices to complement the Original Medicare option.

Alternatives available to beneficiaries under the M+C

program include both the traditional managed care plans

(such as HMOs) that have participated in Medicare on a

capitated payment basis under section 1876, as well as a

17

As exceptions to the “original” fee-for-service model, certain health main-

tenance organizations and other types of managed care plans participated in the

Medicare program beginning in the 1970s. See HR Conf Rep No 391, 108th Cong,

1st Sess, reprinted in 2003 USCCAN 1808, 1895-96.

Cite as 24 OTR 514 (2021) 529

broader range of plans comparable to those now available

through private insurance.”

See 63 Fed Reg 34968 (preamble to 1998 regulations).

M+C enrollees received their health coverage from an eli-

gible insurer (called an “M+C organization”). See 42 USC

§ 1395w-25(a) (requiring licensure as health insurer). M+C

organizations were required to enter into contracts with

the federal government. See 42 USC § 1395w-27 (2000);

cf. 42 USC § 1395w-27 (same for MA organizations in

2017). An M+C organization agreed to offer certain bene-

fits in exchange for payments from CMS and premiums

from enrollees in amounts approved by DHHS. See 42 USC

§§ 1395w-23, 1395w-24 (2000) (payments from CMS); cf. 42

USC §§ 1395w-23, 1395w-24 (same for MA organizations in

2017); 42 USC § 1395w-24(a)(5) (2000) (premium approval

under M+C); 42 USC § 1395w-24(a)(5) (premium approval

under MA).

The BBA 1997 included a preemption provision for

payments from CMS to M+C organizations:

“No State may impose a premium tax or similar tax with

respect to payments to Medicare+Choice organizations

under section 1853 [codified at 42 USC § 1395w-23].”

Pub L 105-33, § 1854(g), 111 Stat 312 (1997) (codified at 42

USC § 1395w-24(g)). Congressional committees described

the preemption provision in two publications:

“10. Preemption of State Premium Taxes:

“The current law on federal preemption of state pre-

mium taxes or fees on Federal payments from the FEHB

fund to health plans will be extended to Federal payments

to Medicare+Choice plans and other health plans receiving

capitated payments from the Medicare Trust Funds.”

News Release, Committee on Finance, Summary of Medicare

Provisions in the Conference Report on the Balanced Budget

Act of 1997 (July 30, 1997) (“1997 Senate Finance Committee

News Release”) (emphasis added; underscoring in original).

“h. Prohibition of State Imposition of Premium Taxes.

No state could impose a premium tax or similar tax on the

premiums of MedicarePlus plans or the offering of such plans.

530 Health Net Life Ins. Co. v. Dept. of Rev.

“Reason for Change. The Committee believes it is

important to continue to allow beneficiaries to share in the

efficiency gains of private managed care plans by receiv-

ing extra benefits. To assure that these benefits are pro-

vided at the appropriate levels, the Secretary is instructed

to perform periodic auditing of the financial records of the

MedicarePlus organizations.

“Because States may not impose taxes on the traditional

Medicare fee-for-service program, the Committee believes

it is appropriate to limit the imposition of State premium

taxes and similar premium charges on MedicarePlus plans.

A similar rule applies to health plans offered to federal gov-

ernment employees and dependents through the FEHBP.”

Balanced Budget Act of 1997, Report of the Committee on the

Budget, HR Rep No 149, 105th Cong, 1st Sess (1997), 1266

(“1997 House Budget Committee Report”) (emphasis in last

paragraph added).18

In 1998, CMS published an interim final regula-

tion, with a 60-day comment period, providing in part:

“(a) Basic rule. No premium tax, fee, or other similar

assessment may be imposed by any State, the District of

Columbia, the Commonwealth of Puerto Rico, the Virgin

Islands, Guam, and American Samoa, or any of their polit-

ical subdivision or other governmental authorities with

respect to any payment HCFA[19] makes on behalf of M+C

enrollees under subpart F of this part.

18

The 1997 House Budget Committee Report refers to the as-introduced ver-

sion of HR 2015, which was amended before its enactment as BBA 1997. The

court does not consider the amendments (shown below in strike-through and

bold) material to the Budget Committee’s comments on the “similar rule” of pre-

emption under the FEHBP act:

“No state may impose a premium tax or similar tax with respect to pre-

miums on MedicarePlus plans or the offering of such plans payments to

Medicare+Choice organizations under section 1853.”

1997 House Budget Committee Report at 108 (providing text of preemption pro-

vision as introduced); Pub L 105-33 § 1854(g), 111 Stat 312 (Aug 5, 1997) (text of

preemption provision as enacted).

19

The HCFA was the Health Care Finance Administration. The HCFA was

renamed to the Centers for Medicare & Medicaid Services in 2001. Press Release:

The New Centers for Medicare & Medicaid Services (June 14, 2001), available at http://

cdn.ca9.uscourts.gov/datastore/library/2013/02/26/Providence_pressrelease.pdf

(last visited Mar 31, 2021). Except when quoting other sources, this order refers

to the agency as “CMS” before and after the name change.

Cite as 24 OTR 514 (2021) 531

“(b) Construction. Nothing in this section shall be con-

strued to exempt any M+C organization from taxes, fees,

or other monetary assessments related to the net income

or profit that accrues to, or is realized by, the organization

from business conducted under this part, if that tax, fee, or

payment is applicable to a broad range of business activity.”

63 Fed Reg 35099 (June 26, 1998) (adopting 42 CFR § 422.404).

In the preamble, DHHS explained:

“The BBA does not define the phrase ‘premium or

other similar tax,’ other than by reference to the applica-

bility of such a tax to revenue received from the Federal

Government for health plan enrollees. Relying again on

the FEHBP statute, we have included a provision in the

regulations (§ 422.404(b)) that serves to clarify the scope

of what constitutes a prohibited premium tax. The FEHBP

statute expressly permits States to impose taxes on the

profits arising from participation as an FEHBP plan, to

the extent that the tax on profits, or other taxes or fees, are

general business taxes. We have included a similar excep-

tion because such taxes are not taxes applied directly and

exclusively to premium revenues, and therefore should not

be prohibited under section 1854(g).”

63 Fed Reg 35014 (June 26, 1998). Under the BBA 1997, only

payments from CMS to M+C organizations were preempted

from taxation; premium payments by enrollees to M+C

organizations were not preempted. See id. at 35013 (“This

prohibition [on premium taxes] does not apply to enrollee

premium payments made to M+C plans, which are autho-

rized under section 1854.”).

3. Medicare Advantage

By 2003, Congress became aware of problems with

the M+C program. The number of enrollees in Medicare pri-

vate plans had fallen from 6.2 million in 1998 to 4.6 million in

November 2003, and the number of plans had fallen from 346

to 155. HR Conf Rep No 391, 108th Cong, 1st Sess, reprinted in

2003 USCCAN 1808, 1896 (the “MA Conference Committee

Report”). Congress identified the cause, in part, as “unpre-

dictable and insufficient payments” compared to the growth

in payments under traditional fee-for-service Medicare. Id.

Congress responded by enacting the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003 (the

532 Health Net Life Ins. Co. v. Dept. of Rev.

MMA 2003), replacing M+C with Medicare Advantage.20 See

Pub L 108-173, Title II, 117 Stat 2176-2221 (Dec 8, 2003).

Goals of the MMA 2003 included increasing payments to

MA organizations in order to keep pace with fee-for-service

Medicare and, in turn, requiring MA organizations to sub-

mit bids to DHHS that incorporate “all their revenue needs,

both the medical costs of providing benefits and associated

administrative costs (including profits or retained earnings).”

MA Conference Committee Report at 527 (increasing pay-

ments); id. at 542 (requiring bids). The MMA 2003 granted

DHHS negotiating authority that was similar to the author-

ity of OPM to negotiate bids under the FEHBP. Id. at 543. As

later described by DHHS, the general goal was to enable bet-

ter coverage at lower costs for enrollees, thus attracting more

enrollees:

“Over time, participating plans will be under continued

competitive pressure to improve their benefits, reduce their

premiums and cost sharing, and improve their networks

and services, in order to gain or retain enrollees.”

70 Fed Reg 4589 (Jan 28, 2005) (preamble to final regulations).

The MMA 2003 expanded the scope of the MA

Preemption Statute, addressing BBA 1997’s omission of any

preemption for enrollee premiums by adding the text shown

in italics below:

“No State may impose a premium tax or similar tax with

respect to payments to [MA] Organizations under section

1395w-23 of this title or premiums paid to such organiza-

tions under this part.”21

Pub L 108-173, Title II, § 232(b), 117 Stat 2066, 2208 (Dec 8,

2003) (codified at 42 USC § 1328w-24(g)) (also reprinted in

Appendix) (emphasis added). DHHS then amended its reg-

ulations to reflect the broader scope of preemption, adding

to the body of subsection (a) the text shown in italics below:

“(a) Basic rule. No premium tax, fee, or other similar

assessment may be imposed by any State, the District of

20

The MMA 2003 also deemed all references to M+C as references to Medicare

Advantage. Pub L 108-173, Title II, § 201(b), 117 Stat 2176 (Dec 8, 2003).

21

“This part” refers to 42 USC chapter 7, subchapter XVIII, Part C, which

encompasses 42 USC sections 1395w-21 through 1395w-28.

Cite as 24 OTR 514 (2021) 533

Columbia, the Commonwealth of Puerto Rico, the Virgin

Islands, Guam, and American Samoa, or any of their polit-

ical subdivisions or other governmental authorities with

respect to any payment CMS makes on behalf of MA enroll-

ees under subpart G of this part,[22] or with respect to any

payment made to MA plans by beneficiaries, or payment to

MA plans by a third party on a beneficiary’s behalf.

(b) Construction. Nothing in this section shall be

construed to exempt any MA organization from taxes, fees,

or other monetary assessments related to the net income

or profit that accrues to, or is realized by, the organization

from business conducted under this part, if that tax, fee, or

payment is applicable to a broad range of business activity.”

42 CFR § 422.404 (2006) (the “MA Preemption Regulation”)

(also reprinted in Appendix) (second emphasis added). The

preamble to the final regulations states:

“Medicare law prohibiting State taxes on section 1853

payments to M+C organizations, that is, payments made

by CMS to health plans contracting with Medicare, was

established by the Balanced Budget Act of 1997. That pro-

hibition did not apply to enrollee premium payments made

to M+C plans.

“Section 232(b) of the MMA 2003 has expanded the pro-

hibition on State taxes for MA plans, addressed in statute

at section 1854(g), to apply to both section 1853 payments

to MA plans and to section 1854 enrollee premium pay-

ments to MA plans.”

70 Fed Reg 4693 (Jan 28, 2005). Responding to comments

submitted during the notice-and-comment period, DHHS

stated:

“Comment: A commenter encourages CMS to clearly

communicate the provisions of the new law and regulations

relating to both preemption of State law and restrictions

on States imposing premium tax on funds collected from

enrollees to all States. The commentator states that they

have already received questions from States related to pre-

mium tax and believe a communication from CMS would

help clear up any confusion the States may have.

22

“Subpart G of this part” refers to the regulations under 42 USC sec-

tion 1395w-23 (Payments to [MA] Organizations). See 42 CFR Part 422 Subpart G

(Payments to Medicare Advantage Organizations).

534 Health Net Life Ins. Co. v. Dept. of Rev.

“Response: We believe the MA regulations at [42 CFR]

§ 422.404 are absolutely clear that States cannot levy a

premium tax, fee, or any other fee on the payment CMS

makes to MA organizations (on behalf of MA enrollees) or

payments made by MA enrollees to MA plans or by a third

party to a MA plan on a beneficiaries behalf.”

70 Fed Reg 4665 (Jan 28, 2005) (italics in original).

C. Analysis of Structure and Legislative History

Regarding the structure or context of the MA

Preemption Statute, the court first concludes that substan-

tial connections support treating BBA 1997 (establishing

M+C) and the 1990 FEHBP Preemption Statute as rel-

evant context. The court views the M+C program as the

direct predecessor to the Medicare Advantage program. See

Pub L 108-173, Title II, § 201, 117 Stat 2176 (Dec 8, 2003)

(deeming all references to “M+C” as references to Medicare

Advantage and requiring DHHS to “provide for an appro-

priate transition in the use of the terms ‘Medicare+Choice’

and ‘Medicare Advantage’ ”). The framers of both M+C and

the Medicare Advantage program also drew significantly on

Congress’s experience with the FEHBP, which was the first

large health care program administered by private insurers

selected and paid by the federal government, with contribu-

tions from enrollees. See, e.g., Pub L 108-173, § 222(a)(1)(A),

117 Stat 2195 (Dec 8, 2003) (amending 42 USC § 1395w-24

(a)(6)(B)(ii); applying certain FEHBP standards in Medicare

Advantage bidding process); 1997 House Budget Committee

Report at 1266 (describing FEHBP preemption as a “similar

rule”); 1997 Senate Finance Committee News Release (“The

current law on federal preemption of state premium taxes

or fees on Federal payments from the FEHB fund to health

plans will be extended” to Medicare+Choice plans.).

Having concluded that the requisite connection

exists among the three laws, the court first turns to the

legislative history of the MMA 2003 itself for insights on

the meaning of “premium tax or similar tax.” This legisla-

tive history shows that Congress’s overall purpose was to

expand Medicare coverage while controlling costs, but the

legislative history includes nothing that directly clarifies

the meaning of the MA Preemption Statute.

Cite as 24 OTR 514 (2021) 535

The legislative history of the MMA 2003’s prede-

cessor act, BBA 1997, includes the 1997 Senate Finance

Committee News Release and the 1997 House Budget

Committee Report. The Senate publication states that the

“current law on federal preemption of state premium taxes

or fees on Federal payments from the FEHB fund to health

plans will be extended” to the payments under the Medicare

Advantage act, while the House publication describes the

FEHBP’s preemption provision as “similar” to the MA

Preemption Statute. The Senate Finance Committee’s term

“extended” implies an intention to increase the reach of the

preemption provisions under the FEHBP and to make that

same law also apply to M+C payments under the 1997 BBA.23

On the other hand, the House Budget Committee’s term

“similar” is broader and could imply either an extension of

the FEHBP act preemption laws (with the only difference

being the type of benefit program and premiums to which

those laws apply), or an intention to incorporate only certain

features of the FEHBP Preemption Statute. See Webster’s at

2120 (defining “similar” as, in part, “having characteristics

in common : very much alike : comparable” and “alike in

substance or essentials”). The court reserves a conclusion,

for now, on whether Congress intended to import the law

of preemption from the FEHBP act, or instead to create a

similar but distinct preemption regime for the M+C act. The

court turns to the FEHBP act to better understand what the

1997 committee members were referring to and what they

23

The contemporaneous definition of “extend” was, in relevant part:

“5a: to cause to stretch out or reach (as from one point to another) <[extend]-

ing the railroad to the next city> : cause to span an interval (as of distance,

space, or time <a rope bridge was [extend]ed over the chasm> : push to a

farther point <[extend]ing the frontiers of knowledge> <city boundaries were

[extend]ed to take in the entire county * * *> : open out (a compass) b : to cause

to be longer : lengthen, prolong, protract * * * d : to bring to a further degree

of development, the Anglo-Saxons [extend]ed the use of the plow * * *> : cause

to be more nearly complete or perfect : advance, further <[extend]ing man’s

knowledge of the universe> <the rest of the decade consolidated and [extend]ed

those gains * * * [6]b : to increase the scope, meaning, or application of

<[extend]ing the sense of a word> <the name . . . was easily [extend]ed to

the new land * * *> <[extend] the force of the laws> : increase the action or

capacity of <beauty, I suppose, opens the heart, [extend]s the consciousness

* * *> : make more comprehensive, inclusive, or intensive : broaden, amplify

<[extend]ing the range of their duties>[.]”

Webster’s at 804 (unabridged ed 1993) (italics omitted; boldface in original).

536 Health Net Life Ins. Co. v. Dept. of Rev.

could have meant by “extending” the FEHBP preemption

provision or crafting a “similar” provision for the M+C act.

In contrast to the MA Preemption Statute, which

refers simply to a “premium tax or similar tax” without

any definition, the text of the FEHBP Preemption Statute

never uses the term “premium tax.” Instead, the FEHBP

Preemption Statute uses a comparatively lengthy and broad

description of the types of state government charges that

are preempted, referring to any “tax, fee, or other mone-

tary payment,” whether imposed “directly or indirectly.” It

also includes an equally lengthy express saving clause that

exempts from preemption a tax, fee or payment on the “net

income or profit” of the insurer or other private organiza-

tion “if that tax, fee, or payment is applicable to a broad

range of business activity.” Reading the FEHBP Preemption

Statute side by side with the MA Preemption Statute (see

Appendix), the court is struck by the exhaustive length of

the former and the brevity of the latter. The court sees no

indication that Congress in 1997 intended to create a new

preemption regime with any material difference from the

FEHBP Preemption Statute. The court sees in this compar-

ison a textual clue suggesting that Congress in 1997 may

have used the phrase “premium tax or similar tax” as short-

hand for the detailed regime it had enacted seven years

earlier.

Further context is found in the 1990 House Budget

Committee Report, which uses the term “premium tax”

to refer to the charges that the FEHBP act preempts. See

1990 House Budget Committee Report at 976-77 (“The

conference agreement includes the House and Senate pro-

visions: requiring that FEHBP carriers implement cost-

containment measures; exempting the FEHBP from state

premium taxes[.]” (Emphasis added.)). The court finds it sig-

nificant that a Congressional committee that helped craft

the FEHBP Preemption Statute put that two-word term

into the public record in 1990 to denote the various types

of state charges described in the statute. The court finds

it reasonable to conclude that Congress in 1997 used the

short term “premium tax or similar tax” to refer to the

same subject matter. Based on this context, the court tenta-

tively concludes that Congress intended the MA Preemption

Cite as 24 OTR 514 (2021) 537

Statute, 42 USC section 1328w-24(g), as enacted in 1997,

and amended in 2003, to preempt the same class of taxes as

the FEHBP Preemption Statute in 5 USC section 8909(f).

Although the FEHBP Preemption Statute fleshes

out the meaning of a “premium tax or similar tax,” it stops

short of addressing the key issue in this case. Subsection (1)

prohibits a tax that “directly or indirectly” is imposed “with

respect to” the premiums that the federal government pays,

and subsection (2) saves a tax on “net income or profit” if

“applicable to a broad range of business activity.” The text

does not specify whether a tax not imposed on or measured

by net income, and not imposed exclusively on gross premi-

ums received by insurers, is preempted. Neither the pre-

emption statute applicable to Employees’ Life Insurance

Fund premiums nor the legislative history of the FEHBP

Preemption Statute adds to the analysis. The court proceeds

to the applicable regulations.

D. Analysis of Regulations

The court considers three regulations relevant. The

MA Preemption Regulation as amended in 2005 to imple-

ment the MA Preemption Statute obviously is relevant as

an interpretation of the statute at issue. The same regula-

tion as originally adopted under the BBA 1997 is relevant

because it interprets the predecessor statute, which enacted

today’s phrase “premium tax or similar tax.” And the

FEHBP Preemption Regulation is relevant both because it

interprets a statute to which two congressional committees

referred in 1997, and because the regulation itself poten-

tially has the force of law and therefore may be part of the

“current law on federal preemption” to which the Senate

Committee referred when creating the M+C program in the

1997 BBA.

Applying principles of federal interpretation, the

court first considers what weight to assign to the regula-

tions. In general, the court must (1) determine whether the

statute in question is ambiguous, and if so, defer to an agency

regulation that addresses the ambiguity if (2) the regulation

“was promulgated in the exercise” of Congress’s delegation

of authority to the agency “generally to make rules carry-

ing the force of law,” and (3) the regulation is based on a

538 Health Net Life Ins. Co. v. Dept. of Rev.

“permissible construction” of the statute. Mead Corp., 533

US at 226-27; Chevron, 467 US at 842-45; see Friends of the

Columbia River Gorge, Inc., 346 Or at 378 (explaining that

Oregon courts must apply Chevron deference when inter-

preting federal statutes “if the federal interpretative meth-

odology so demands”).

The court first concludes that each statute is ambig-

uous for the reasons already discussed. The MA Preemption

Statute does not define “premium tax or similar tax,” leav-

ing ample room for DHHS’s interpretation. The FEHBP

Preemption Statute also leaves an ambiguity because it

defines in subsection (1) which taxes are preempted and in

subsection (2) which taxes are saved, but it does not expressly

state whether the taxes saved by subsection (2) are the only

taxes that a state may impose with respect to premiums.

Second, the court readily finds that all three sets

of regulations satisfy the procedural criterion, as all were

promulgated in the exercise of a Congressional delegation

of authority to “make rules carrying the force of law.” See

Mead Corp., 533 US at 226-27. In the case of the M+C and

Medicare Advantage programs, the BBA 1997 expressly

delegated authority to the secretary of DHHS to issue

regulations:

“The Secretary shall establish by regulation other stan-

dards * * * for [MA] organizations and plans consistent

with, and to carry out, this part. The Secretary shall pub-

lish such regulations by June 1, 1998. In order to carry out

this requirement in a timely manner, the Secretary may

promulgate regulations that take effect on an interim basis,

after notice and pending opportunity for public comment.”

Pub L 105-33, Title IV, § 1856(b)(1), 111 Stat 319 (Aug 5, 1997).

All regulations were published in the Federal Register and

were subject to a notice-and-comment period. See 70 Fed Reg

4588 (Jan 28, 2005) (announcing final Medicare Advantage

regulations following public notice-and-comment period); 63

Fed Reg 34968 (June 26, 1998) (announcing interim final

M+C rule with comment period).

In the case of the FEHBP regulations, the delegation

of authority appears in 5 USC section 8913(a), which states:

Cite as 24 OTR 514 (2021) 539

“The Office of Personnel Management may prescribe regu-

lations necessary to carry out this chapter.”24

See 56 Fed Reg 20575 (May 6, 1991). OPM published pro-

posed regulations in the Federal Register, took comments,

and published its responses to commenters when it pub-

lished the final regulations. Id. at 20574 (proposing rule;

providing for comment period); 56 Fed Reg 57496 (Nov 12,

1991) (publishing final rule after comment period).

Finally, the court considers whether each set of

regulations is a “permissible construction” of its respec-

tive statute. As to the MA Preemption Statute, the regula-

tions (1) add to the undefined term “premium tax or similar

tax” a reference to a “fee, or other similar assessment” and

(2) add a saving clause to prevent preemption of “taxes, fees,

or other monetary assessments related to the net income or

profit * * * if that tax, fee, or payment is applicable to a broad

range of business activity.” 42 CFR § 422.404. The court

does not find the addition of “fee” or “assessment” signifi-

cant for purposes of this case, as there is no dispute that the

Oregon charge at issue is a “tax.” The saving clause in the

MA Preemption Regulation uses language similar to the

saving clause expressly codified in the FEHBP Preemption

Statute. The court readily finds the saving clause in the

regulation a permissible construction of the MA Preemption

Statute for the reasons discussed above: the act that created

Medicare Advantage cross-references the FEHBP statutes,

and the legislative history of the act creating the M+C pro-

gram refers directly to the FEHBP Preemption Statute. See

Pub L 108-173, § 222(a)(1)(A), 117 Stat 2195 (Dec 8, 2003);

1997 House Budget Committee Report at 1266; 1997 Senate

Finance Committee News Release. However, although the

MA Preemption Regulation is entitled to deference, it does

not resolve the issue whether all state taxes, other than

those covered by the saving clause, are preempted.

The court proceeds to the FEHBP Preemption

Regulation. In response to comments on the proposed ver-

sion, the final regulation declares that a broadly applicable

24

The text of 5 USC section 8913(a) was identical when OPM promulgated

the FEHBP Preemption Regulation.

540 Health Net Life Ins. Co. v. Dept. of Rev.

net income tax is the “sole exception” to preemption under

the FEHBP Preemption Statute:

“The prohibited payments, referred to elsewhere in these

regulations as ‘premium taxes,’ applies to all payments

directed by States or municipalities, regardless of how they

may be titled, to whom they must be paid, or the purpose

for which they are collected, and it applies to all forms of

direct and indirect measurements on FEHBP premiums,

however modified, to include cost per contract or enrollee,

with the sole exception of a tax on net income or profit, if

that tax, fee, or payment is applicable to a broad range of

business activity.”

56 Fed Reg 57496-497 (Nov 12, 1991) (emphasis added) (pub-

lishing the final version of 48 CFR § 1631.205-41). Under

the FEHBP Preemption Regulation, the only type of tax

allowed to be imposed on premiums, directly or indirectly,

is a tax on net income or profit, and only if the tax is appli-

cable to a broad range of business activity. This language

resolves any ambiguity about the scope of the preemption

and saving clauses in subsections (1) and (2) of the FEHBP

Preemption Statute by preempting all state taxes on pre-

miums other than broadly imposed net income taxes. As

applied in this case, this text would preempt imposition of

the tax under ORS 317.090 and allow only the net income

taxes under ORS 317.070 and, if applicable, ORS 318.020.

The court finds this interpretation “permissible” because of

the broad language found in subsection (1) of the FEHBP

Preemption Statute: “No tax, fee, or other monetary payment

may be imposed, directly or indirectly, * * * by any State * * *

with respect to any payment made from the Fund.” 5 USC

§ 8909(f)(1) (emphases added). That language is consistent

with the broad range of taxes that previously had been

allowed as reimbursable costs under the Federal Acquisition

Regulations. See 48 CFR § 31.205-41(a), (b) (1990) (allow-

ing “Federal, State, and local taxes * * *”; disallowing only

“Federal income and excess profits taxes,” taxes on prop-

erty used solely in connection with work other than on gov-

ernment contracts, and other taxes not relevant here). The

court concludes that OPM reasonably could read the FEHBP

Preemption Statute as an effort to eliminate the need to

reimburse contractors for all taxes within the very broad

category that contractors otherwise would have claimed as

Cite as 24 OTR 514 (2021) 541

a reimbursable expense, except broad-based state or local

net income taxes.

The court concludes that the FEHBP Preemption

Regulation is dispositive. As to the substantive issue in this

case, that regulation resolves the “exclusivity” ambiguity by

declaring with the force of law that only a broadly applicable

tax on net income or profits may be imposed on premiums—

at least premiums paid under the FEHBP. And the court is

persuaded that Congress in 1997 intended to import this

meaning into the MA Preemption Statute by using, without

definition, the same two-word phrase “premium tax” that

the House Budget Committee, and OPM by regulation, had

recently used to describe the charges preempted under the

FEHBP. Under Chevron, the FEHBP Preemption Regulation

was part of the “current law on federal preemption of state

premium taxes” that the Senate Committee in 1997 stated

would be “extended” to payments under the 1997 BBA.

E. The Parties’ Arguments Based on Structure, Regulations,

and Other Agency Interpretations

The department argues that the tax under ORS

317.090 is not preempted because it is protected by the sav-

ing clause in the MA Preemption Regulation, which provides:

“Nothing in this section shall be construed to exempt

any MA organization from taxes, fees, or other monetary

assessments related to the net income or profit that accrues

to, or is realized by, the organization from business con-

ducted under this part, if that tax, fee, or payment is appli-

cable to a broad range of business activity.”

42 CFR § 422.404(b) (emphases added). First, the depart-

ment asserts that the tax under ORS 317.090 is “related to”

net income or “related to” Oregon’s net income tax. In its

opening brief, the department argues:

“As a floor to the broad-based tax measured by the net

income and the equivalent to a phase-out of deductions in

which the phase-out varies based on the amount of gross

income, the minimum tax is a tax ‘related to the net income

or profit’ realized by [taxpayer].”25

25

Similarly, the department argues that the tax under ORS 317.090 is “a

part of” the net income tax because it is a floor to the net income tax.

542 Health Net Life Ins. Co. v. Dept. of Rev.

On reply, the department stresses the relationship

of the tax under ORS 317.090 to the tax that is measured by

or according to net income under ORS 317.070: “[T]he mini-

mum tax, as a floor to the tax measured by net income under

ORS chapter 317, is related to that tax on net income[.]” “[T]he

minimum tax amount under ORS 317.090 is ‘related to’ the

tax measured by net income. A minimum tax, by the very

fact that it is a ‘minimum,’ can be determined only by refer-

ence or relation to that to which it is a minimum.”

The department relies on the ambiguous term

“related to” in the saving clause of 42 CFR section 422.404(b),

which arguably can encompass a broad range of connections

between the tax and the concept of “net income.” In theory,

a tax “related to” net income might range from a tax actu-

ally “imposed on” or “measured by” net income,26 to, con-

ceivably, a tax imposed on or measured by a different tax

base but connected with a net income tax by the statutory

structure or by the intention of the state legislature that the

tax operate in tandem with a net income tax. See Webster’s

at 1916 (defining “relation” as, in part, “an aspect or qual-

ity (as resemblance, direction, difference) that can be predi-

cated only of two or more things taken together : something

perceived or discovered by observing or thinking about two

or more things at the same time : connection”). However,

based on the analysis above of the statutory text, structure

and legislative history, as well as the applicable regulations,

the court concludes that Congress and DHHS intended only

the narrow meaning in the saving clause of the FEHBP

Preemption Statute, which saves only a “tax * * * on the net

income or profit” of the insurer (and only “if that tax * * *

is applicable to a broad range of business activity”). 5 USC

§ 8909(f)(2) (emphasis added).27

26

The corporation excise tax under ORS 317.060 is “measured by or accord-

ing to net income,” while its complementary corporation income tax is “imposed

* * * upon” Oregon-source taxable income. See Capital One Finance, Inc. v. Dept. of

Rev., 363 Or 441, 442-45, 423 P3d 80 (2018) (explaining relationship and require-

ment to construe the taxes together).

27

Similarly, the department argues that the regulation under the MA

Preemption Statute does not preempt the tax under ORS 317.070 because, unlike

its counterpart under the FEHBP Preemption Statute, “[D]HHS did not make net

income taxes or taxes relating to net income taxes the ‘sole exception’ from the fed-

eral preemption, in contrast to 48 CFR § 1631.205-41.” While it is correct that the

saving clause in the Medicare Advantage regulation, 42 CFR section 422.404(b),

Cite as 24 OTR 514 (2021) 543

The department also likens the tax under ORS

317.090 to “a phase-out of deductions in which the phase-

out varies based on the amount of gross income,” arguing

that the legislature could have achieved the same economic

result as the minimum tax by designing a feature within

the structure of the net income tax. The court need not con-

sider whether a nominally net income tax containing a hypo-

thetical provision that gradually eliminates deductions and

essentially converts the tax into a tax on gross receipts would

be preempted. The tax before the court is relatively straight-

forward: It is imposed by a statute that describes (1) its sub-

ject (corporations “carrying on or doing business” in Oregon

and filing returns under ORS 317.710); (2) the tax base

(Oregon sales); and (3) the amount that must be paid ($150

to $100,000, depending on Oregon sales). For an insurer, the

tax base is further defined as expressly and solely measured

by “direct premiums” reported to DCBS as explained above.

See ORS 317.090(1)(a)(C); OAR 150-317-0170(4)(m); ORS

317.660(1)(b). The tax under ORS 317.090 is not imposed

“on the net income or profit” of an insurer. On the contrary,

ORS 317.655(1) expressly makes “net income” the tax base

of the excise tax under ORS 317.070. ORS 317.090 deviates

from that tax base by ignoring other sources of revenue, as

well as all deductions. (Net income takes into account reve-

nue from premiums, annuity considerations, net investment

income, fees from investment management and other reve-

nue sources, as well as various expenses.) The court can only

conclude that the tax under ORS 317.090 is not “related to”

“net income or profit” under 42 CFR section 422.404(b) and

therefore is a “premium tax or similar tax” within the mean-

ing of 42 USC section 1328w 24(g).28

The department argues further that the tax under

ORS 317.090 is not preempted because it is not a “tax[ ]

applied directly and exclusively to premium revenues” as

does not contain a counterpart to the “sole exception” clause, neither does it negate

an intention to make net income taxes the sole exception. The Medicare Advantage

regulation is silent on that point. For the reasons discussed, the court construes

that ambiguity in favor of consistency with the FEHBP regulation.

28

Having concluded that the tax under ORS 317.090 is not “related to” net

income, the court finds it unnecessary to consider whether the tax satisfies the

second condition in 42 CFR section 422.404(b), that the tax be “applicable to a

broad range of business activity.” The court expresses no view on that question.

544 Health Net Life Ins. Co. v. Dept. of Rev.

described in the preamble to the interim final regulation

adopted under the BBA 1997. 63 Fed Reg 35014 (June 26,

1998). Leaving aside whether the court must defer to this

passage,29 the court disagrees with the department’s inter-

pretation of it. First, the court considers the quoted phrase

in the context of the entire paragraph in the preamble:

“The BBA does not define the phrase ‘premium tax or

other similar tax,’ other than by reference to the applica-

bility of such a tax to revenue received from the Federal

Government for health plan enrollees. Relying again on the

FEHBP statute, we have included a provision in the regula-

tions (§ 422.404(b)) that serves to clarify the scope of what

constitutes a prohibited premium tax. The FEHBP statute

expressly permits States to impose taxes on the profits aris-

ing from participation as an FEHBP plan, to the extent that

the tax on profits, or other taxes or fees, are general busi-

ness taxes. We have included a similar exception because

such taxes are not taxes applied directly and exclusively to

premium revenues, and therefore should not be prohibited

under section 1854(g) [(42 USC § 1395w-24(g))].”

63 Fed Reg 35014 (June 26, 1998). The sentences preceding the

passage quoted by the department refer twice to the FEHBP

and show that DHHS is “[r]elying again on the FEHBP stat-

ute.” Id. The passage the department quotes merely states

DHHS’s rationale for that reliance; the court does not read

it as implicitly deviating from the scope of the FEHBP stat-

ute. Moreover, the quoted passage does not explain what is

meant by “taxes applied directly and exclusively to premium

revenues.” The department appears to assume that “exclu-

sively” means that the tax is imposed only on insurers and

not on other taxpayers. However, given that the saving clause

exempts net income taxes from preemption, a more plausi-

ble interpretation is that DHHS intended to distinguish a

29

The court has concluded above that the text of the MA Preemption

Regulation is, by itself, ambiguous, but its meaning is clear when read together

with the FEHBP Preemption Regulation. The court questions, therefore, whether

the MA Preemption Regulation is “genuinely ambiguous” as required for defer-

ence to sub-regulatory interpretations under Auer v. Robbins, 519 US 452, 117

S Ct 905, 137 L Ed 2d 79 (1997). See Kisor v. Wilkie, ___ US ___, 139 S Ct 2400,

2415, 204 L Ed 2d 841 (2019) (“First and foremost, a court should not afford

Auer deference unless the regulation is genuinely ambiguous.”); Eastern Oregon

Mining Assoc., 365 Or at 363 (discussing “genuinely ambiguous” test).

Cite as 24 OTR 514 (2021) 545

tax applied “exclusively to premium revenues” from a tax

applied to premiums and other revenues, less expenses, i.e.,

a tax on net income or profit. Because the quoted passage

reasonably can be so read, it does not change the court’s con-

clusion that Congress intended the MA Preemption Statute,

42 USC section 1328w-24(g), to have the same meaning

as the FEHBP Preemption Statute, as interpreted by the

FEHBP Preemption Regulation.

V. CONCLUSION

Multiple indicators persuade the court that Congress

in 1997 intended the undefined phrase “premium taxes or

similar taxes” to mean the same kinds of taxes and other

charges that it had defined exhaustively seven years earlier

in the FEHBP Preemption Statute. When writing the rele-

vant text of the MA Preemption Statute in 1997, Congress

had before it a record consisting of its own 1990 committee

comments, as well as the FEHBP Preemption Regulation,

labeling those taxes and charges as “premium taxes.” The

FEHBP Preemption Regulation also declared, with the

force of law, that broadly applicable taxes “on” net income

are the “sole exception” to preemption under the FEHBP

Preemption Statute. Importing the scope and meaning of

the FEHBP Preemption Statute and Regulation was con-

sistent with Congress’s clearly stated goals to control

the cost of the M+C and Medicare Advantage programs

because it prevented insurers from claiming reimbursement

for state taxes other than broadly applicable net income

taxes.

When viewed in isolation, the MA Preemption

Statute and the MA Preemption Regulation use terms that

are ambiguous. However, when viewed within the context of

the FEHBP Preemption Statute and Regulation, Congress

and DHHS “expressed clearly” their intention to resolve those

ambiguities in ways that cut against the department here.

Oregon’s minimum tax under ORS 317.090 is not a tax “on”

net income. It is a “premium tax or similar tax” as applied

to MA organizations because it is “imposed, directly or indi-

rectly” on “direct premiums.” The tax under ORS 317.090 is

therefore preempted by 42 USC section 1395w-24(g). Now,

therefore,

546 Health Net Life Ins. Co. v. Dept. of Rev.

IT IS ORDERED that Plaintiff’s Motion for

Summary Judgment is granted; and

IT IS FURTHER ORDERED that Defendant’s

Cross-Motion for Summary Judgment is denied.

Cite as 24 OTR 514 (2021) 547

APPENDIX

Selected Statutes and Regulations

MA Preemption Statute, FEHBP Preemption Statute,

42 USC § 1395w-24(g) 5 USC § 8909(f)

“No State may impose a pre- “(1) No tax, fee, or other

mium tax or similar tax with monetary payment may be

respect to payments to [MA] imposed, directly or indi-

Organizations under section rectly, on a carrier or an

1395w-23 of this title or premi- underwriting or plan admin-

ums paid to such organizations istration subcontractor of

under this part.” an approved health bene-

fits plan by any State, the

District of Columbia, or the

Commonwealth of Puerto

Rico, or by any political sub-

division or other governmen-

tal authority thereof, with

respect to any payment made

from the Fund.

“(2) Paragraph (1) shall not

be construed to exempt any

carrier or underwriting or

plan administration subcon-

tractor of an approved health

benefits plan from the imposi-

tion, payment, or collection of

a tax, fee, or other monetary

payment on the net income or

profit accruing to or realized

by such carrier or underwrit-

ing or plan administration

subcontractor from business

conducted under this chap-

ter, if that tax, fee, or pay-

ment is applicable to a broad

range of business activity.”

548 Health Net Life Ins. Co. v. Dept. of Rev.

MA Preemption FEHBP Preemption

Regulation, Regulation,

42 CFR § 422.404 48 CFR § 1631.205-41

“(a) Basic rule. No premium “5 USC 8909(f)(1) prohibits

tax, fee, or other similar assess- the imposition of taxes, fees,

ment may be imposed by any or other monetary payment,

State, the District of Columbia, directly or indirectly, on FEHB

the Commonwealth of Puerto premiums by any State, the

Rico, the Virgin Islands, District of Columbia, or the

Guam, and American Samoa, Commonwealth of Puerto Rico,

or any of their political subdi- or by any political subdivision

visions or other governmental or other governmental author-

authorities with respect to any ity of those entities. Therefore,

payment CMS makes on behalf FAR 31.205-41 is modified to

of MA enrollees under subpart include those taxes as unal-

G of this part, or with respect lowable costs. The prohibited

to any payment made to MA payments, referred to else-

plans by beneficiaries, or pay- where in these regulations as

ment to MA plans by a third ‘premium taxes,’ applies to all

party on a beneficiary’s behalf. payments directed by States

or municipalities, regardless

“(b) Construction. Nothing in of how they may be titled, to

this section shall be construed whom they must be paid, or

to exempt any MA organiza- the purpose for which they are

tion from taxes, fees, or other collected, and it applies to all

monetary assessments related forms of direct and indirect

to the net income or profit that measurements on FEHBP

accrues to, or is realized by, premiums, however modified,

the organization from business to include cost per contract or

conducted under this part, enrollee, with the sole excep-

if that tax, fee, or payment is tion of a tax on net income or

applicable to a broad range of profit, if that tax, fee, or pay-

business activity.” ment is applicable to a broad

range of business activity.”