Myers v. California State Board of Equalization CA2/3

Filed 4/24/23 Myers v. California State Board of Equalization CA2/3

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

MICHAEL D. MYERS, B307981

Plaintiff and Appellant, Los Angeles County

Super. Ct. Nos.

v. BS143436, BS157999,

BS158655

CALIFORNIA STATE BOARD

OF EQUALIZATION et al.,

Defendants and Respondents;

CALIFORNIA PHYSICIANS’

SERVICE et al.,

Real Parties in Interest and

Respondents.

APPEALS from judgments of the Superior Court of Los

Angeles County, Maren E. Nelson, Judge. Affirmed.

Law Office of Martin N. Buchanan, Martin N. Buchanan;

Gianelli & Morris, Timothy J. Morris; Ajalat, Polley, Ayoob,

Matarese & Broege, Richard J. Ayoob; Consumer Watchdog,

Jerry Flanagan, Pamela Pressley, and Benjamin Powell for

Plaintiff and Appellant.

Kenneth B. Schnoll, Lucy F. Wang, and Harry J. LeVine for

Ricardo Lara, Insurance Commissioner of the State of California,

as Amicus Curiae on behalf of Plaintiff and Appellant.

Manatt, Phelps & Phillips, Gregory N. Pimstone, Ronald B.

Turovsky, and Joanna S. McCallum for Real Party in Interest

and Respondent California Physicians’ Service dba Blue Shield of

California.

Hogan Lovells US, Neal Kumar Katyal, William E.

Havemann, Vanessa O. Wells, Michael M. Maddigan, Jordan D.

Teti, Katherine B. Wellington, and Nathaniel Zelinsky for Real

Party in Interest and Respondent Blue Cross of California dba

Anthem Blue Cross.

Morgan, Lewis & Bockius, Thomas M. Peterson, and Molly

Moriarty Lane for Real Party in Interest and Respondent Health

Net of California, Inc.

Sheppard, Mullin, Richter & Hampton, John T. Brooks,

Moe Keshavarzi, and Matthew G. Halgren for Real Party in

Interest and Respondent Kaiser Foundation Health Plan, Inc.

Sonia R. Fernandes, Shelia F. Gonzalez, and Johnny A.

Colon for California Department of Managed Health Care as

Amicus Curiae on behalf of Real Parties in Interest and

Respondents.

_______________________________________

2

INTRODUCTION

These appeals arise out of related taxpayer suits brought

by appellant Michael D. Myers under Code of Civil Procedure

section 526a. Myers seeks to compel the California State Board of

Equalization, the Insurance Commissioner of the State of

California, and the Controller of the State of California to collect

the gross premium tax (GPT) imposed by article XIII, section 28

of the California Constitution from certain health care service

plans (HCSPs), which are regulated by the Department of

Managed Health Care (DMHC) under a different regulatory

scheme than insurers.

In Myers v. Board of Equalization (2015) 240 Cal.App.4th

722 (Myers I), a different panel of this Division rejected the

argument that the regulatory status of HCSPs determines

whether they are subject to the GPT, and adopted a standard for

deciding whether HCSPs are insurers for taxation purposes that

requires balancing the indemnity aspects of the business against

the direct service aspects and determining whether indemnity

constitutes a significant financial proportion of the business. Real

Parties in Interest and respondents Blue Cross of California dba

Anthem Blue Cross (Blue Cross), California Physicians’ Service

dba Blue Shield of California (Blue Shield), Health Net of

California, Inc. (Health Net), and Kaiser Foundation Health

Plan, Inc. (Kaiser) (together, Real Parties in Interest) moved for

summary judgment, arguing that the undisputed evidence

demonstrated that they were not insurers where less than 10

percent of the expenses incurred for medical services under their

plans during the relevant periods constituted indemnity under

the Myers I standard. The trial court agreed and granted

summary judgment in their favor.

3

Myers contends that the trial court incorrectly understood

the meaning of indemnity under the Myers I standard and that it

should have applied a different test to determine whether Real

Parties in Interest are insurers. Myers further contends that the

court erred in excluding portions of expert declarations and other

evidence he submitted in opposition to summary judgment. We

conclude that we are bound by the standard adopted in Myers I,

that the trial court did not err in its application of this standard

to the undisputed facts, and that the court did not abuse its

discretion in excluding certain evidence submitted by Myers. We

therefore affirm.

FACTS AND PROCEDURAL BACKGROUND

1. Taxation of Insurers in California

Article XIII, section 28 of the California Constitution

imposes a tax of 2.35 percent on the amount of gross premiums

received each year by “each insurer doing business in this state.”

(Cal. Const., art. XIII, § 28, subds. (b), (d).) The Constitution

defines “insurers” as including “insurance companies or

associations and reciprocal or interinsurance exchanges together

with their corporate or other attorneys in fact considered as a

single unit, and the State Compensation Insurance Fund.” (Id.,

subd. (a).)1

The GPT is imposed on insurers “in lieu of all other taxes

and licenses, state, county, and municipal, upon such insurers

1 Article XIII, section 28 was preceded by former article XIII, chapter

14 of the Constitution, which was adopted in 1910 and provided that

“[e]very insurance company or association doing business in this state ”

would be subject to an exclusive GPT.

4

and their property,” with limited exceptions. (Cal. Const., art.

XIII, § 28, subd. (f); see also Mutual Life Ins. Co. v. City of Los

Angeles (1990) 50 Cal.3d 402, 408 (Mutual Life Ins. Co.).) All

other businesses, except for banks and financial corporations, are

subject to a corporate franchise tax which is calculated on the

basis of the business’s net income. (Rev. & Tax. Code, § 23151,

subds. (a), (f).)

According to a July 2008 report by the Legislative Analyst’s

Office, “ ‘[t]he economics of the insurance industry is a key reason

for the special treatment of insurance companies’ with respect to

taxation in California. The report explains the rationale as

follows: ‘Most [corporate franchise tax] taxpayers calculate their

income by subtracting costs incurred in the production of a good

or service from the revenues received from their sale. Insurance

companies, by contrast, collect their revenues up front [in the

form of premiums], then make payments to policyholders based

on contingent events that occur many months or years later.

Thus, it can be difficult to “match up” revenues to related

expenses. In an income tax framework, insurers ideally would be

allowed to deduct the current value of all future obligations

(claims) covered by the insurance policies they have written when

calculating their taxable income for a given year. [However,]

[b]ecause the actual amount of these obligations is uncertain, as

are the amount of investment earnings on accumulated

premiums received during the intervening period, an accurate

determination of the theoretically appropriate amount of taxable

income proves very difficult to achieve in practice.’ ‘For this

reason,’ the Legislative Analyst’s Office report concludes, ‘a

[gross] premiums tax was adopted.’ ” (Myers I, supra, 240

5

Cal.App.4th at p. 736, quoting Legis. Analyst, Investment Income

and the Insurance Gross Premiums Tax (July 2008) p. 3.)

2. Legislation and Case Law Concerning the Oversight

and Taxation of HCSPs

2.1. The Origins of HCSPs in California

In 1939, the Legislature passed a bill creating section 593a

of the Civil Code, which authorized the formation of health

service corporations. (California Physicians’ Service v. Garrison

(1946) 28 Cal.2d 790, 792–793, 802, fn. 1 (Garrison).)

In Garrison, supra, 28 Cal.2d 790, the Supreme Court held

that California Physicians’ Service (CPS), which served as an

agent to secure medical care for low-income individuals in

exchange for the payment of monthly membership dues through

an employer or professional organization, was not engaged in the

business of insurance under California law. CPS’s contract with

employers and professional organizations provided that the

amounts paid by the employers or professional group “are

accepted by [CPS] and its professional members as full payment

and compensation for all medical and surgical services rendered

during the immediately preceding dues period, and they and each

of them agree to perform the services herein included, without

other, further or additional charge of any kind whatsoever to

those beneficiary members . . . .” (Id. at p. 796.) The Insurance

Commissioner argued that section 593a was invalid, that “[a]ll of

the elements of insurance are present in [CPS’s] plan,” and that

“[t]here is no real distinction between service and insurance, and

by its contracts the corporation has obligated itself to furnish

medical care.” (Id. at pp. 798–799.) CPS argued that it was “not

engaged in the insurance business but is rendering personal

6

service, as distinguished from indemnity, compensation for which

is limited to the resources of a pooled fund; that the professional

members, not the Service, assume any and all risk; and that it is

actually a producer-consumer cooperative.” (Id. at p. 799.)

The Supreme Court observed that “it is a matter of common

knowledge that there is great social need for adequate medical

benefits at a cost which the average wage earner can afford to

pay,” and that “the Legislature, by enacting section 593a of the

Civil Code, expressly authorized the organization of corporations

such as [CPS]. By this enactment, the state’s social policy in

regard to the corporate practice of medicine, to the limited extent

specified, has been determined and the courts are bound

thereby.” (Garrison, supra, 28 Cal.2d at pp. 801–802, fn. omitted.)

The court stated that “ ‘[t]he question of classification is generally

one for the legislative power, to be determined by it in the light of

its knowledge of all the circumstances and requirements, and its

discretion will not be overthrown unless it is palpably arbitrary.

[Citation.]’ ” (Id. at p. 802.) It further observed that “the

Legislature has defined insurance as ‘a contract whereby one

undertakes to indemnify another against loss, damage, or

liability arising from a contingent or unknown event’ (Ins. Code,

§ 22; Civ. Code, § 2527[]),” and “ ‘insurance generally may be

defined as an agreement by which one person for a consideration

promises to pay money or its equivalent, or to perform some act of

value, to another on the destruction, death, loss, or injury of

someone or something by specified perils.’ [Citation.]” (Id. at

pp. 803–804.) The court concluded that CPS was not an insurer

because it did not assume risk; rather, because the physicians

received pro rata payments per member, “the amount of

compensation of the professional members is variable and may be

7

high or low, depending upon the incidence of sickness and the

number of beneficiary members paying dues. Stated in terms of

insurance, all risk is assumed by the physicians, not by the

corporation.” (Id. at pp. 804–805.)

The court stated that a further, “more compelling reason

for holding that the Service is not engaged in the insurance

business” was that “[a]bsence or presence of assumption of risk or

peril is not the sole test to be applied in determining its status.

The question, more broadly, is whether looking at the plan of

operation as a whole, ‘service’ rather than ‘indemnity’ is its

principal object and purpose. [Citations.]” (Garrison, supra, 28

Cal.2d at p. 809.) The Garrison court explained that the objects

and purposes of CPS “have a wide scope in the field of social

service.” (Ibid.) It therefore concluded that CPS was not engaged

in the business of insurance within the meaning of the regulatory

statutes. (Id. at p. 811.)

2.2. The Knox-Mills Plan Act

In 1965, the Legislature enacted the Knox-Mills Plan Act

(Knox-Mills Act), which specifically governed health plans. Under

the Knox-Mills Act, health plans were required to register with

the Attorney General and to meet minimum tangible net equity

requirements. In addition, the Attorney General was empowered

to enforce prohibitions against fraudulent advertising. (Sen. Com.

on Health and Welfare, Analysis of Assem. Bill No. 138 (Knox)

(1975–1976 Reg. Sess.) as amended June 27, 1975, p. 1.)

In People ex rel. Roddis v. California Mut. Assn. (1968) 68

Cal.2d 677, 679 (Roddis), the Supreme Court considered whether

California Mutual Association (CMA) was an insurer subject to

the supervision of the Insurance Commissioner or an HCSP

pursuant to the Knox-Mills Act and thus subject to the

8

supervision of the Attorney General. CMA’s stated purpose was

to make payments in limited amounts for medical and hospital

services rendered to its members using funds derived from

periodic dues. (Id. at p. 678.) At the start of trial, CMA had

contracts with 17 physicians who agreed to render services to

members and to look exclusively to CMA for the payment of the

scheduled fee. (Id. at pp. 678–679.) It was also stipulated that a

majority of CMA’s members were treated by physicians affiliated

with the San Bernardino Foundation for Medical Care and the

Riverside Foundation. (Id. at p. 679.) CMA did not have contracts

with the individual affiliated doctors at either foundation. (Ibid.)

By the end of trial, CMA had terminated its contract with the

San Bernardino foundation and had contracted with 38

physicians who agreed to render services to CMA’s members and

to look exclusively to CMA for payment of the scheduled fee.

(Ibid.) CMA also had about seven physicians who agreed to serve

members but did not restrict themselves as to the source of

payment. (Ibid.) CMA encouraged its members to use the services

of physicians with whom it had contracts, but also paid the bills

of physicians independently chosen by a member in areas where

it did not have contracts for medical services. (Ibid.)

The Supreme Court observed that the Knox-Mills Act

“permits a health care service plan to ‘reimburse’ a member and

thus indicates that service plans may include some indemnity

features” but also excludes “ ‘insurer’ from the definition of a

‘health care service plan[,]’ ” thus “evinc[ing] an intention to limit

the extent of indemnity features permissible.” (Roddis, supra, 68

Cal.2d at p. 681.) It fell to the court to determine the limit of

indemnity features permissible for an HCSP. (Ibid.) The court,

citing Garrison, observed that there are two policy considerations

9

that must be considered in determining the nature of a plan:

“Where indemnity features are present, the member bears the

risk of personal liability for medical services. This is the

insurance risk which can be protected against by financial

reserves to assure that the member will receive the benefits for

which he has paid. On the other hand, there is a strong social

policy to encourage the services which health plans provide the

public.” (Id. at p. 682.) The court concluded “that where

indemnity is a significant financial proportion of the business,

the organization must be classified as an ‘insurer’ for the

purposes of the Knox-Mills Plan Act.” (Id. at p. 683.) “[T]his

determination involves balancing the indemnity aspects against

the direct service aspects of the business, but only in the context

of the plan as a whole can it be determined whether the

indemnity feature is so significant as to warrant imposing the

Insurance Code financial reserve requirements.” (Ibid.)

The court observed that “[a]lthough CMA’s contracts with

the 38 physicians provide for direct service without indemnity,

the remainder of the plan is one of insurance[,]” as members were

liable for services procured from the Riverside foundation, from

the seven physicians who did not limit themselves exclusively to

payments from CMA, and from physicians with whom CMA did

not have contracts. (Roddis, supra, 68 Cal.2d at p. 683.) The court

observed that it was unclear from the record “what proportion of

CMA’s members is treated by the 38 physicians” and thus “to

what extent indemnity features are still present” and therefore

instructed the court on retrial “to determine as of that time in

accordance with the views expressed in this opinion the status of

CMA as a health care service plan or as an insurer.” (Id. at

pp. 683–684.)

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2.3. The Knox-Keene Health Care Service Plan Act of

1975

The Knox-Mills Act was repealed in 1975, effective July 1,

1976. (Stats. 1975, ch. 941, § 1, p. 2070.) In 1975, the Legislature

adopted the Knox-Keene Health Care Service Plan Act of 1975

(Knox-Keene Act) with the express intent and purpose to

“promote the delivery and the quality of health and medical care

to the people of the State of California who enroll in, or subscribe

for the services rendered by, a [HCSP] by accomplishing all of the

following: [¶] (a) Ensuring the continued role of the professional

as the determiner of the patient’s health needs. . . . [¶]

(b) Ensuring that subscribers and enrollees are educated and

informed of the benefits and services available. . . . [¶]

(c) Prosecuting malefactors who make fraudulent solicitations or

who use deceptive methods. . . . [¶] (d) Helping to ensure the best

possible health care for the public at the lowest possible cost by

transferring the financial risk of health care from patients to

providers. [¶] (e) Promoting effective representation of the

interests of subscribers and enrollees. [¶] (f) Ensuring the

financial stability thereof by means of proper regulatory

procedures. [¶] (g) Ensuring that subscribers and enrollees

receive available and accessible health and medical services

rendered in a manner providing continuity of care. [¶]

(h) Ensuring that subscribers and enrollees have their grievances

expeditiously and thoroughly reviewed by the [DMHC].” (Health

& Saf. Code, § 1342.)

In relevant part, the Knox-Keene Act defines HCSPs that

are subject to the law’s regulations as “[a]ny person who

undertakes to arrange for the provision of health care services to

subscribers or enrollees, or to pay for or to reimburse any part of

11

the cost for those services, in return for a prepaid or periodic

charge paid by or on behalf of the subscribers or enrollees.”

(Health & Saf. Code, § 1345, subd. (f)(1).)2 HCSPs as defined in

and regulated by the Knox-Keene Act are under the jurisdiction

of the DMHC. (Id., § 1341.) Though such entities are authorized

to provide direct payment or reimbursement coverage for their

enrollees’ medical expenses, HCSPs are statutorily exempted

from the Department of Insurance’s jurisdiction and are not

subject to the Insurance Code’s regulations. (Ins. Code, § 740,

subd. (g).) This exemption extends to HCSPs offering fee-for-

service coverage through a preferred provider organization plan.

(Id., § 742, subd. (a).)

Under the Knox-Keene Act, HCSPs must “establish and

maintain provider networks, policies, procedures, and quality

assurance monitoring systems and processes sufficient to ensure

compliance with this clinical appropriateness standard.” (Health

& Saf. Code, § 1367.03, subd. (a)(1).) They must also ensure a

legally prescribed ratio of members to primary care physicians

(id., § 1375.9; Cal. Code Regs., tit. 28, § 1300.51, subd. (d)(H)(i))

and comply with requirements concerning the timely availability

of appointments. (Cal. Code Regs., tit. 28, § 1300.67.2.2,

subd. (c).) HCSPs must also establish procedures to “continuously

2 Originally, the Knox-Keene Act defined an HCSP as “any person who

undertakes to arrange for the provision of health care services, to

subscribers or enrollees, or to pay for or reimburse any part of the cost

for such services in return for a prepaid or periodic charge paid by or

on behalf of such subscribers or enrollees, and who does not

substantially indemnify subscribers or enrollees for the cost of provided

services.” (Former Health & Saf. Code, § 1345, subd. (f), italics added.)

In 1980, the Legislature removed the reference to indemnity from the

definition. (Stats. 1980, ch. 628, § 2, p. 1716.)

12

review[] the quality of care, performance of medical personnel,

utilization of services and facilities, and costs” (Health & Saf.

Code, § 1370) and must establish and maintain a system,

approved by DMHC, that allows members to submit their

grievances to the plan. (Id., § 1368, subd. (a); Cal. Code Regs.,

tit. 28, § 1300.68.)

Because HCSPs include, by definition, entities that agree to

“pay for or to reimburse” enrollees for the cost of medical services

in exchange for a “prepaid or periodic charge” (Health & Saf.

Code, § 1345, subd. (f)(1)), the Knox-Keene Act includes

capitalization requirements and vests financial oversight

authority in the DMHC. (Id., §§ 1376, 1377, 1399, subd. (c).)

California law further requires that every contract between a

plan and a health care services provider must state that “the

subscriber or enrollee shall not be liable to the provider for any

sums owed by the plan.” (Id., § 1379, subd. (a).) Moreover, even if

the contract fails to include this provision, the statute provides

that “the contracting provider shall not collect or attempt to

collect from the subscriber or enrollee sums owed by the plan.”

(Id., subd. (b).) Thus, “[t]he clear import of section 1379 is to

protect patients with health care service plan coverage from any

collection attempts by providers of such medical care as

emergency room services.” (Dameron Hospital Assn. v. AAA

Northern California, Nevada & Utah Ins. Exchange (2014) 229

Cal.App.4th 549, 563.)

2.4. Recent Legislation Concerning the Taxation of

HCSPs

In 2016, new legislation—Senate Bill No. X2-2—was

enacted in response to positions taken by the federal government

regarding the conditions necessary to receive federal monies

13

funding the Medi-Cal program. The purpose of Senate Bill No.

X2-2 was to “[r]eform[] the existing managed care organization

(MCO) provider tax that is only paid by Medi-Cal managed care

plans (MCPs) and replace[] it with a tax that would be assessed

on health care service plans licensed by the [DMHC], and/or

managed care plans contracted with the Department of Health

Care Services (DHCS) to provide services to Medi-Cal

beneficiaries, unless exempted, from July 1, 2016 to July 1,

2019.” (Sen. Bill No. X2-2, Proposed Conference Report No. 1,

Feb. 22, 2016, p. 1.) The bill thus imposed an MCO tax on many

HCSPs for the first time. Some health plans, including those of

some of the Real Parties in Interest, also operate an admitted

health insurer. As to those entities, the new statute temporarily

reduced the GPT to 0 percent. (Stats. 2015–2016, 2nd Ex. Sess.,

ch. 2, p. 6030.)

Assembly Bill No. 115, which became effective July 1, 2019,

“establish[ed] a managed care organization provider tax, with

substantially similar provisions [to the 2016 MCO tax], that

would become effective and operative on the effective date of the

federal approval necessary for receipt of federal financial

participation, as specified[]” and “specif[ied] the applicable tax

amounts for each taxing tier for the 2019–20, 2020–21, and 2021–

22, fiscal years, and the first 6 months of the 2022–23 fiscal

year.” (Stats. 2019–2020, ch. 348, p. 3232.) This bill, like the prior

MCO tax, was intended to comply with federal requirements that

allow states to receive “federal financial participation for

expenditures using health care-related taxes, as long as the taxes

are broad-based, uniformly imposed, and contain no hold-

harmless provision.” (Sen. Rules Com., Off. of Sen. Floor

14

Analyses, 3d reading analysis of Assem. Bill No. 115 (2019–2020

Reg. Sess.) as amended Aug. 29, 2019, p. 1.)

3. Real Parties in Interest

3.1. Blue Cross

In the mid-to-late 1980’s, Blue Cross operated as a

nonprofit hospital service plan and was facing financial

difficulties. To address Blue Cross’s dire situation, to help ensure

its survival, and to prevent adverse impacts on consumers and

the California health benefits market, the Legislature enacted

Senate Bill No. 785. (Stats. 1990, ch. 1043.) Senate Bill No. 785

essentially required Blue Cross to transition from being a

nonprofit hospital service plan under Chapter 11A of the

Insurance Code to being a health care service plan regulated by

the Department of Corporations (DOC) under the Knox-Keene

Health Care Service Plan Act. Blue Cross undertook a number of

changes required by the DOC and is now a Knox-Keene Act-

licensed HCSP regulated by the DMHC.3

Blue Cross offers its members access to health maintenance

organization (HMO) and preferred provider organization (PPO)

health plans. Under HMO and PPO plans, members have access

to a network of medical providers, hospitals, and other facilities

that have contracted with Blue Cross to provide medical services

to Blue Cross members at agreed upon rates. For Blue Cross’s

commercial HMO and PPO plans, groups and members pay Blue

Cross a fixed periodic fee for coverage, called the “premium,”

which does not change during the coverage period based on the

3The regulation of HCSPs has transferred from the DOC to the

DMHC.

15

amount of medical services a member uses. Under Blue Cross’s

HMO and PPO plans, the member also may be responsible for a

portion of the costs of the medical care they receive, generally in

the form of deductibles,4 copayments (or “co-pays”),5 or

coinsurance,6 which are sometimes called the “cost share.”

For both HMO and PPO plans, Blue Cross’s in-network

providers have agreed to accept Blue Cross’s payment at the rate

agreed upon in their contract with Blue Cross as payment-in-full

for the covered services they render to Blue Cross members. Blue

Cross’s in-network providers are contractually prohibited from

billing Blue Cross members for any difference between their

contractually agreed upon rate and their usual charges for the

covered services they provide to Blue Cross members (a practice

known as “balance billing”). For the years 2005 through 2016,

Blue Cross’s HMO and PPO plans have included the following (or

4 A deductible is an amount that a particular plan may require the

member to pay before Blue Cross has any obligation to cover medical

services for that member (e.g., if the plan has a $500 annual

deductible, the member must pay the first $500 of medical services she

receives during the coverage year, and Blue Cross would not cover the

first $500 in medical services). Blue Shield’s, Kaiser’s, and Health

Net’s member contracts contain substantially similar definitions.

5A copayment is an amount the member pays directly to the medical

provider at the time medical services are rendered, and this amount is

not covered by Blue Cross. Blue Shield’s, Kaiser’s, and Health Net’s

member contracts contain substantially similar definitions.

6A plan may require the member to pay a portion of the amount Blue

Cross has negotiated as the price for a particular service, which is

sometimes called “coinsurance” (e.g., a plan may require Blue Cross to

pay 80 percent of the allowed amount for any covered services, while

the member is obligated to pay 20 percent of the cost of those services).

Kaiser’s member contract contains a substantially similar definition.

16

substantially similar) language: “In accordance with California

law, Members will not be required to pay any Participating

Provider for amounts owed to that provider by Anthem (other

than Copayment/Coinsurance and Deductibles) even in the

unlikely event that Anthem fails to pay the provider. Members

are liable, however, to pay Non-Participating Providers for any

amounts not paid to them by Anthem.”

For the years 2005 through 2016, Blue Cross’s agreements

with participating physicians, hospitals, and medical facilities

stated that, except for copayments, coinsurance, and deductible

amounts required by the applicable agreement, the physicians,

hospitals, and medical facilities would not invoice or balance bill

a member for any difference between the billed charges and the

reimbursement paid by Blue Cross for services provided to the

member. For the same period, Blue Cross’s agreements with

participating physician associations and medical groups required

that the physician association or medical group accept a monthly

capitation payment from Blue Cross as payment in full for

services provided or arranged and not to invoice, balance bill or

otherwise seek payments or compensation from members for

“Covered Medical Services.” Similarly, Blue Cross’s agreements

with participating hospitals and medical facilities during that

period included language stating that the hospital or facility

would look solely to Blue Cross for payment, subject to limited

exceptions, and cannot seek compensation from any member.

Blue Cross’s PPO plans between 2005 and 2016 included

language generally providing that, for covered out-of-network

services, Blue Cross would cover (i) an amount that is “customary

and reasonable” for medical providers in the same geographical

area to accept for such services, (ii) an amount determined with

17

reference to a separate payment schedule (e.g., the Medicare fee

schedule), (iii) an amount based on the provider’s billed charges,

or (iv) a specifically negotiated amount. For the same period,

Blue Cross’s PPO plans have included the following language, or

substantially similar language: “When you use an Out-of-

Network Provider, You may have to pay the difference between

the Out-of-Network Provider’s billed charge and the Maximum

Allowed Amount in addition to any Coinsurance, Copayments,

Deductibles and non-covered charges. This amount can be

substantial.” Blue Cross’s PPO plans generally cover a lower

percentage of the covered amount for out-of-network services

than the percentage they cover for in-network services.

The annual percentage of Blue Cross’s reported in-network

medical expenses as compared to its total medical expenses for its

commercial plans for the years 2005 to 2016, as reported by Blue

Cross to the DMHC, ranged from approximately 92.1 percent to

96.8 percent. During that period, Blue Cross reported aggregate

expenses for out-of-network claims that were 5.8 percent of its

total claims expenses, and aggregate expenses for in-network

claims that were 94.2 percent of its total claims expenses.

Between 2005 and 2016, Blue Cross paid between

approximately 87.7 percent and 90.4 percent of claims expenses

incurred for medical services provided to its members within the

same calendar year as the year the services were rendered. For

each year during this period, Blue Cross paid over 99 percent of

claims expenses incurred for medical services provided to its

members by the end of August the following year.

3.2. Blue Shield

Blue Shield is an HCSP regulated by the DMHC under the

Knox-Keene Act. Blue Shield arranges and pays for medical care

18

to its members through a variety of managed health care

products, including HMO and PPO plans. In addition to paying

and processing member claims, Blue Shield engages in the

provision of other health care services to its members and spends

more than $100 million annually on service functions other than

processing and paying claims. Examples include developing and

maintaining networks of health care providers, credentialing

contracted providers, reviewing quality of care and performance

of medical personnel, and ensuring appropriate referrals to

specialists.

Blue Shield contracts with providers who agree in advance

to render services to Blue Shield PPO and HMO plan members at

contracted rates and not to seek payment from the members,

other than contractually required member cost share amounts

(i.e., deductibles, copayments, and coinsurance). Blue Shield’s

HMO and PPO contracts with members also reflect the

prohibition on member financial liability to contracted providers.

Some non-contracted providers are also prohibited from

attempting to collect from plan members, including non-

contracted providers of emergency services, non-contracted

providers who provide services authorized by the plan that

cannot be rendered in-network, and continuity of care services

when a contracted provider becomes a non-contracted provider.

In the case of HMO plans, members must use contracted

providers for nearly all care for that care to be covered under the

plan. HMO members are required to choose an in-network

primary care physician upon enrollment, and the primary care

physician is responsible for coordinating the medical services

provided to the HMO member. Services from non-contracted

providers are not covered for HMO members except in limited

19

circumstances, such as emergencies and instances where a

service or specialist is not available within the contracted

network. HMO members typically are responsible for only a

deductible and/or a copayment for services obtained within their

network, and Blue Shield or the contracted medical group is

responsible for the remainder.

PPOs offer medical care through a network of providers

who have contracted with Blue Shield to provide services at

predetermined rates. Although PPO members, unlike HMO

members, may choose to obtain services from non-contracted (out-

of-network) providers, PPO plans incentivize the use of

contracted providers by setting lower member deductibles,

copayments, and/or coinsurance rates for services from contracted

providers, and protecting members from the difference between

what Blue Shield pays and the balance of the contracted

providers’ billed rates. PPO members may also be responsible for

deductibles, copayments, or coinsurance.

Between 2005 and June 2016, Blue Shield’s expenditures to

contracted providers, as reported to the DMHC on quarterly and

year-end financial statements, ranged from 94 percent to 97

percent, averaging 96 percent, and expenditures to non-

contracted providers averaged 4 percent.

3.3. Kaiser

Kaiser is an HCSP licensed under the Knox-Keene Act and

regulated by the DMHC. Kaiser provides medical and hospital

services to its members through a nonprofit organization, Kaiser

Foundation Hospitals, Inc. (KFH), and two medical groups, The

Permanente Medical Group, Inc. and Southern California

Permanente Medical Group (together, the Permanente Medical

Groups). Collectively, these separate legal entities operate under

20

the trade name “Kaiser Permanente.” KFH and the Permanente

Medical Groups employ tens of thousands of physicians and

nurses and operate dozens of hospitals and hundreds of other

medical facilities. Kaiser contracts with KFH to directly provide

hospital facilities and related hospital services to Kaiser’s

members. KFH owns all the Kaiser hospitals in California, and

Kaiser and KFH own or lease all the medical offices used by

Kaiser Permanente clinicians to provide care to Kaiser members

in California. To the extent community hospital and related

services are needed to supplement Kaiser’s hospital services,

KFH arranges with community hospitals and providers for such

services. Kaiser and KFH are separate corporations but are

historically and operationally intertwined, with overlapping

boards of directors and top executives in common.

There are two Hospital Services Agreements between

Kaiser and KFH, one applicable to its Northern California service

area and one applicable to its Southern California service area.

The Permanente Medical Groups are responsible for directly

providing or arranging all the professional medical services that

Kaiser’s California members are entitled to under their

membership agreement with Kaiser. The Permanente Medical

Groups do not contract to provide care to members of other health

care service plans and do not contract with indemnity health

insurers. Since 1990, Kaiser’s contracts with the Southern

California Permanente Medical Group have contained exclusivity

provisions, and from 2006 to 2016, Kaiser’s contracts with The

Permanente Medical Group, Inc. have contained exclusivity

provisions.

Kaiser and KFH report their financial results on a

combined basis. Until 2016, Kaiser directly reimbursed KFH’s

21

net operating expenses as the primary form of compensation for

the provision of hospital services to Kaiser members. In addition,

Kaiser and KFH shared a portion of any combined annual net

operating revenue gain or loss in proportion to the parties’

respective share of financed assets. Beginning in 2016, the

payment structure was modified in part so that, in addition to

continuing to reimburse certain expenses of KFH, Kaiser began

to also pay KFH using a combination of per capita and other

payments.

Kaiser does not sell contracts that allow members to seek

covered health care services from any provider or hospital of their

choice, nor does Kaiser, with limited exceptions, promise to

reimburse members for care they receive outside of Kaiser

Permanente. Every Kaiser Evidence of Coverage document (EOC)

issued in California between 2005 and 2016 contained the

following (or substantially similar) language: “Kaiser

Permanente provides Services directly to our Members through

an integrated medical care program. Health Plan, Plan Hospitals,

and the Medical Group work together to provide our Members

with quality care. Our medical care program gives you access to

all of the covered Services you may need, such as routine care

with your own personal Plan Physician, hospital care, laboratory

and pharmacy Services, Emergency Services, Urgent Care, and

other benefits described in this Evidence of Coverage. Plus, our

health education programs offer you great ways to protect and

improve health.” Further, every Kaiser EOC sold in California

between 2005 and 2016 states: “As a Member, you are selecting

our medical care program to provide your health care. You must

receive all covered care from Plan Providers inside our Service

Area, except as described in the sections below for the following

22

Services[,]” including “ ‘authorized referrals,’ ‘emergency

ambulance Services,’ ‘Emergency Services, Post -Stabilization

Care, and Out-of-Area Urgent Care,’ and ‘Hospice Care.’ ” Every

Kaiser EOC sold in California between 2005 and 2016 also

stated: “Our contracts with Plan Providers provide that you are

not liable for any amounts we owe.” However, Kaiser members

are responsible for copayment, coinsurance, and deductible

amounts when they seek medical care from KFH and the

Permanente Medical Groups.

The EOCs sold in California between 2005 and 2016

further stated: “If you receive Emergency Services, Post-

Stabilization Care, or Out-of-Area Urgent Care from a Non-Plan

Provider as described in this ‘Emergency Services and Urgent

Care’ section, or emergency ambulance Services described under

‘Ambulance Services’ in the ‘Benefits and Your Cost Share’

section, you are not responsible for any amounts beyond your

Cost Share for covered Emergency Services. However, if the

provider does not agree to bill us, you may have to pay for the

Services and file a claim for reimbursement. Also, you may be

required to pay and file a claim for any Services prescribed by a

Non-Plan Provider as part of covered Emergency Services, Post-

Stabilization Care, and Out-of-Area Urgent Care even if you

receive the services from a Plan Provider, such as a Plan

Pharmacy.”

Every Kaiser EOC in California between 2005 and 2016

required the member or their employer to prepay premiums on a

periodic basis. Thus, at the time that a service was rendered, the

member’s financial responsibility for covered services was limited

to the member’s cost share (including copayments).

23

The relevant contracts between Kaiser and The

Permanente Medical Group, Inc., Southern California

Permanente Medical Group and KFH, respectively, have member

non-liability provisions, as do Kaiser’s contracts with providers

outside of Kaiser Permanente.

Between 2007 and 2016, measured by dollars,

approximately 1 to 4 percent of Kaiser’s healthcare expenses

were paid to noncontracting providers or directly reimbursed to

members. The portion of expenses consisting of payments to non-

contracted providers or reimbursements to members mainly

consists of situations in which Kaiser has no control over what

provider a member visits, such as emergency room treatment

which Kaiser is required by law to cover regardless of whether it

is contracted with the emergency provider.

For the years 2007 through 2014, measured by discrete

visits or consultations, approximately 95 percent of the covered

health services provided to Kaiser members were rendered by

Kaiser Permanente providers (i.e., Kaiser Foundation Hospitals,

Inc., The Permanente Medical Group, Inc., and the Southern

California Permanente Medical Group). In 2015, measured by

discrete visits or consultations, approximately 93.3 percent of the

covered health services provided to Kaiser members were

rendered by Kaiser Permanente providers, while only

approximately 6.7 percent of services were rendered by

contracted or non-contracted providers outside Kaiser

Permanente. In 2016, measured by discrete visits or

consultations, approximately 94.7 percent of the covered health

services provided to Kaiser members were rendered by Kaiser

Permanente providers, while only approximately 5.3 percent of

24

services were rendered by contracted or non-contracted providers

outside Kaiser Permanente.

Kaiser’s contracts with the Permanente Medical Groups

provide for compensation to be paid largely on a prepayment

basis, in which the amount of compensation is determined in

advance (based on factors such as number of members) and not

based on the amount of services actually provided to members.

The principal form of such prepayment is capitation. Kaiser’s

contracts with the Permanente Medical Groups each require

Kaiser to make per capita (capitated)7 payments based on the

number of members served by the medical group, regardless how

many members actually seek services during a given period and

regardless of the amount of services used by the members.

Capitated payments thus represent a substantial majority of the

payments made by Kaiser to the two medical groups.

3.4. Health Net

Health Net is a Knox-Keene Act licensed HCSP. Health

Net offers access to HMO plans to its members, as well as Point

of Service, Medicare, and Medi-Cal plans. ) Health Net does not

offer PPO plans or traditional health and accident insurance

plans to its members.

7“ ‘ “[C]apitated basis” ’ is defined by regulation to mean ‘fixed per

member per month payment or percentage of premium payment

wherein the provider assumes the full risk for the cost of contracted

services without regard to the type, value or frequency of services

provided.’ ” (Centinela Freeman Emergency Medical Associates v.

Health Net of California, Inc. (2016) 1 Cal.5th 994, 1004, fn. 8, quoting

Cal. Code Regs., tit. 28, § 1300.76, subd. (d).) In contrast, non-capitated

payments include fee-for-service payments.

25

When enrolled in Health Net’s commercial HMO plans,

members (or their employers) pay a fixed periodic fee for

coverage. A Health Net commercial HMO member may be

responsible for cost-share responsibilities, such as copayments,

coinsurance, and deductibles, when they obtain medical services.

Health Net sets its premiums based on the anticipated aggregate

cost of providing future medical and hospital care to members,

which it estimates by predicting future costs of providing medical

care based on past claims “experience” and anticipated changes

in the health care needs of new membership, changes in benefits,

the introduction of new medical treatments, and prescription

drug inflation among other factors.

When members initially enroll in a Health Net commercial

HMO plan, they are required to choose an in-network primary

care physician. Health Net’s contracted primary care physicians

(in some instances, along with a designated physician group)

coordinate medical services provided to commercial HMO

members and assist members with securing their medical care,

including preventative care and specialist referrals.

Sample Evidence of Coverage documents for Health Net’s

commercial HMO plans issued in California during the 2007

through 2016 period contain the following (or substantially

similar) language: “When you enroll in this Plan, you must select

a contracting Physician Group where you want to receive all of

your medical care. That Physician Group will provide or

authorize all medical care.” Sample Evidence of Coverage

documents for Health Net’s commercial HMO plans issued in

California during the 2007 through 2016 period contain the

following (or substantially similar) language: “Your Physician

Group will authorize and coordinate all your care, providing you

26

with medical services or supplies. You are financially responsible

for any required Copayment . . . . However, you are completely

financially responsible for medical care that the Physician Group

does not provide or authorize except for Medically Necessary care

provided in a legitimate emergency. You are also financially

responsible for care that this Plan does not cover.”

Health Net’s commercial HMO provider contracts with in-

network providers between 2007 and 2016 contain the following

(or substantially similar) language: “Provider agrees that in no

event shall Provider bill, charge, collect a deposit from, seek

compensation, remuneration, or reimbursement from, or have

any recourse against Beneficiaries or persons acting on their

behalf other than Health Net or a Payor for Contracted Services

provided pursuant to this Agreement except for Copayments,

Coinsurance, Deductibles, Excluded Services or permitted third

party liens.” Health Net compensates health care providers on

both a capitated and fee-for-service basis.

Health Net maintains a network of providers for its HMO

members, which includes approximately 264 California facilities

and 59,000 California professional providers for Health Net’s

broadest commercial HMO network. Out-of-network care is

restricted within Health Net’s commercial HMOs. Sample

Evidence of Coverage documents for Health Net’s commercial

HMO plans issued in California during the 2007 through 2016

period contain the following (or substantially similar) language:

“Except in an emergency or other urgent medical circumstances,

the covered services of this plan must be performed by your

Physician Group or authorized by them to be performed by

others. You may use other providers outside your Physician

Group only when you are referred to them by your Physician

27

Group.” Health Net or a designated physician group, and not

commercial HMO members, are responsible for paying all covered

out-of-network services rendered to commercial HMO members.

The annual approximate percentage of Health Net’s

reported in-network expenses as compared to its total medical

expenses for all Health Net product lines for the years 2007 to

2016 as reported by Health Net to the DMHC was between 96

percent to 99 percent. In the combined period of 2007 through

2016, approximately 98.6 percent of Health Net’s reported health

care expenses were made to in-network providers as defined by

the DMHC.8

4. Procedural Background

In 2013, Myers filed this taxpayer action under Code of

Civil Procedure section 526a against the State Board of

Equalization, the Insurance Commissioner, and the State

Controller (collectively, the State Defendants), to compel the

State Defendants to assess and collect the GPT against Blue

Cross and Blue Shield. Myers alleged that Blue Cross and Blue

Shield are among the largest health “insurers” in this state by

virtue of the significant premiums they collect in exchange for

agreeing to indemnify their enrollees against contingent medical

expenses, largely through preferred provider organization plans.

Myers further alleged that Blue Cross and Blue Shield have not

8 Myers disputed these facts before the trial court. The court concluded

that no material dispute existed because Myers did not identify any

errors or issues with the data relied upon for these conclusions, but

instead relied on deposition testimony concerning another issue and

based on different data. We agree that no material dispute of fact

exists as to these percentages, a point that is not contested on appeal.

28

paid the gross premium tax that is paid by other companies that

issue similar fee-for-service indemnity health insurance

contracts. He therefore sought mandamus requiring the State

Defendants to assess and collect back GPT payments for the

preceding eight years, during which the State Controller had not

directed the collection of the GPT from Blue Cross or Blue Shield.

The trial court sustained demurrers filed by Blue Cross and

Blue Shield, both on res judicata grounds9 and because Blue

Cross’s and Blue Shield’s status as HCSPs meant that they were

not subject to the statutes regulating insurers and that they were

therefore not “insurers” for GPT purposes. A panel of this

Division reversed the judgment and vacated the order sustaining

the demurrers. (Myers I, supra, 240 Cal.App.4th at p. 745.) As

discussed in greater detail infra, the court in Myers I rejected the

argument that Blue Cross and Blue Shield were not insurers for

GPT purposes because they are regulated as HCSPs and held

that the applicable standard was set forth in Roddis: a court

must “ ‘balanc[e] the indemnity aspects against the direct service

aspects of the business’ ” and determine whether “ ‘indemnity is a

significant financial proportion of the business,’ ” in which case it

is an insurer. (Id., at p. 740.) Applying the Roddis standard to the

allegations of the petitions, the court concluded that Myers had

9 In November 2004, the Foundation for Taxpayer and Consumer

Rights (FTCR) petitioned the court to compel the state agencies to

collect the GPT from Blue Cross. The central theory in the FTCR case

was that Blue Cross must be considered and taxed as an “insurer”

since a substantial portion of its plans were PPO products which are in

the nature of insurance. The court in the FTCR case ruled against

FTCR as a matter of law, holding that (1) FTCR had no standing to

bring an action to enjoin or prevent the collection of a tax, and (2) Blue

Cross, as an HCSP, is not an “insurer” and the GPT does not apply.

29

adequately alleged that a significant financial proportion of Blue

Cross’s and Blue Shield’s business was indemnity. (Id. at pp.

740–741.) The court further held that the public interest

exception to the res judicata doctrine applied. (Id. at pp. 742–

743.)

In 2015, Myers filed two further actions seeking to compel

the State Defendants to assess and collect the GPT against

Kaiser and Health Net. Myers once again sought mandamus

requiring the State Defendants to assess and collect back GPT

payments for the preceding eight years. Both actions were found

to be related with the Blue Cross and Blue Shield action and

were reassigned to the same judge.

Following the enactment of Senate Bill No. X2-2 in 2016,

Myers stipulated that he seeks the collection of the GPT prior to

June 30, 2016 and does not seek the collection of the GPT against

Real Parties in Interest after June 30, 2016.10 In 2017, Kaiser

and Health Net demurred and Blue Cross and Blue Shield moved

for judgment on the pleadings, arguing that the change in law

demonstrated that they were not insurers and that Myers I was

no longer binding. In 2018, the court found that many of the facts

urged by the moving parties were not properly subject to judicial

notice and therefore denied the motions for judgment on the

pleadings and overruled the demurrers. Blue Shield filed a

petition seeking writ review of the denial of the motion. A panel

of this Division issued an order to show cause why the motion

should not be granted. Following briefing, another panel

10 Accordingly, the relevant period for Blue Cross and Blue Shield is

2005 through 2016, and the relevant period for Kaiser and Health Net

is 2007 through 2016.

30

discharged the order, having determined that review of the issues

raised in this proceeding should await entry of a final judgment

in the trial court.11

In 2019 and 2020, Real Parties in Interest moved for

summary judgment, arguing that they were not insurers under

the Roddis standard adopted in Myers I because more than 90

percent of their medical expenses during the relevant period were

for in-network services, for which members are not personally

responsible beyond cost-share payments. In support of these

contentions, Real Parties in Interest submitted declarations from

executives, advisors, and actuaries, annual reports made to the

DMHC, and sample contracts with members and providers,

among other evidence.

Myers did not dispute the majority of the evidence relied

upon by Real Parties in Interest.12 However, Myers argued that

the correct test for whether Real Parties in Interest are insurers

is whether they spread and underwrite a policyholder’s risk, and

submitted evidence, including policy forms, agreements, actuarial

memoranda and certifications, and deposition testimony, to

support that Real Parties in Interest engage in risk-shifting and

11 We grant Blue Shield’s motion for judicial notice filed February 2,

2022, which sought judicial notice of this order, as well as briefs filed

by the Insurance Commissioner of the State of California in the Myers

I appeal. (Evid. Code, § 452, subd. (d); Glaski v. Bank of America (2013)

218 Cal.App.4th 1079, 1090 [“Courts can take judicial notice of the

existence, content and authenticity of public records and other

specified documents . . . .”].)

12 In many instances, Myers disputed inferences that might be drawn

from facts he did not dispute. The trial court correctly concluded that

disputing facts with argument is insufficient to create a dispute of

material fact.

31

held themselves out as insurers. In support of his oppositions,

Myers also filed declarations from Ian Duncan, Ph.D., who opined

that Real Parties in Interest use actuaries to calculate reserves

and premium rates, hold free capital, and effectively operate in

the same manner as insurers.

Real Parties in Interest raised evidentiary objections to

portions of the Duncan declarations, primarily on relevancy and

foundation grounds, and argued that whether Real Parties in

Interest assume risk and distribute it among their members, how

they set rates and compensate healthcare providers, and their

actuarial practices have no bearing on whether they are insurers

under the Roddis standard. Health Net and Blue Cross further

objected to evidence of the payouts they received as insurers

under the federal Affordable Care Act. Blue Cross and Blue

Shield also objected to evidence that the PPO plans offered by

companies affiliated with Blue Cross and Blue Shield are similar

to those offered by Blue Cross and Blue Shield and that their

websites and actuarial certificates refer to both as insurers, on

grounds that such evidence was irrelevant.

In 2020, the trial court granted the summary judgment

motions of Real Parties in Interest. The court concluded that the

Roddis test adopted in Myers I controlled and that indemnity

under this test means whether the member bears the risk of

personal liability for medical services.13 The court further

concluded that, although Real Parties in Interest take on the risk

that they will pay for the health care needed for their members,

the record demonstrated that Real Parties in Interest were

13As to Blue Cross and Blue Shield, the court concluded that Myers I is

law of the case.

32

largely in the business of providing health care and their model is

therefore one primarily of “service” rather than of “indemnity” as

those terms are used in Roddis and Myers I. The court sustained

most of the objections Real Parties in Interest made to the

Duncan declarations, primarily on relevancy grounds. It also

sustained many of the additional objections made by Blue Cross,

Blue Shield, and Health Net on relevancy grounds.

Myers timely appealed.

CONTENTIONS

Myers argues that the trial court incorrectly applied the

Roddis standard adopted in Myers I. His amicus curiae, the

Insurance Commissioner, echoes this argument.14 Myers further

contends that the court in Myers I held that non-capitated

payments constitute indemnity and that Real Parties in Interest

are insurers because their payments to healthcare providers are

primarily non-capitated. He asserts that this court should follow

federal and California cases that have held that HMOs are

insurers for purposes of federal preemption law. Myers also

argues that the business of Real Parties in Interest implicates

the reasoning underlying the adoption of the GPT.

Real Parties in Interest and their amicus, the DMHC,

contend that the trial court correctly understood and applied the

Roddis standard. They argue that Real Parties in Interest are not

insurers because it is undisputed that over 90 percent of their

respective claims costs during the relevant periods were for in-

14Although identified as a respondent by Myers, the Insurance

Commissioner argues that summary judgment was not sought against

him and that he is “not clearly a respondent.” He therefore sought and

obtained permission to file an amicus curiae brief in support of Myers.

33

network services, for which members bear no risk of liability.

Although Blue Shield and Blue Cross argue that they are not

insurers under the standard adopted in Myers I, they argue that

this court should determine that Myers I is no longer the law of

the case following the adoption of the 2016 MCO tax, which they

contend demonstrates the Legislature’s understanding that the

GPT does not apply and never has applied to HCSPs. The DMHC

similarly contends that the Legislature has never defined or

treated HCSPs as insurers. Blue Cross also argues that, if this

court concludes that the law of the case doctrine applies and that

it is an insurer under the Myers I standard, we should not apply

Myers I retroactively.

DISCUSSION

1. The court correctly granted summary judgment in

favor of Real Parties in Interest.

1.1. Standard of Review

“ ‘In evaluating the propriety of a grant of summary

judgment our review is de novo, and we independently review the

record before the trial court. [Citation.] In practical effect, we

assume the role of a trial court and apply the same rules and

standards which govern a trial court’s determination of a motion

for summary judgment. [Citation.]’ [Citation.] Section 437c,

subdivision (c) provides that a motion for summary judgment

shall be granted if all the papers submitted show there is no

triable issue as to any material fact such that the moving party is

entitled to judgment as a matter of law. [¶] Where the trial court

grants summary judgment solely upon the basis of its

interpretation of statutory and case law, ‘[i]t is well settled that

the interpretation and application of a statutory scheme to an

34

undisputed set of facts is a question of law [citation] which is

subject to de novo review on appeal. [Citation.]’ [Citation.] In

such a case, the appellate court is not bound by the trial court’s

interpretation. [Citations.]” (City of San Diego v. Dunkl (2001) 86

Cal.App.4th 384, 395.)

1.2. Under Myers I, Roddis supplies the relevant

standard for determining whether Real Parties in

Interest are insurers.

The first issue before us is the appropriate law to apply to

the undisputed facts to determine whether Real Parties in

Interest are insurers for purposes of imposing the GPT tax. The

trial court concluded that Myers I is law of the case as to Blue

Cross and Blue Shield and applied the Myers I standard to the

motions brought by all Real Parties in Interest. Myers and Real

Parties in Interest argue in the first instance that the trial court’s

decision was error or correct by reference to Myers I. Thus, we

begin our analysis with an examination of Myers I before turning

to the parties’ competing interpretations of that decision.

1.2.1. Myers I

In Myers I, a panel of this Division concluded that Myers’s

petition adequately alleged that Blue Cross and Blue Shield are

insurers under the GPT provision in the Constitution. (Myers I,

supra, 240 Cal.App.4th at p. 737.) The allegations of the

complaint focused on Blue Cross’s and Blue Shield’s PPO plans

and alleged that Blue Shield paid over three times for non-

capitated medical expenses than for capitated medical expenses

and that Blue Shield’s fee-for-services payments on behalf of

members are five to six times larger than its prepaid capitation

payments. (Id. at pp. 730–731.) Myers therefore alleged that Blue

35

Cross and Blue Shield “receive a substantial portion of their

premiums each year in exchange for agreeing to indemnify their

enrollees against a risk of loss occasioned by contingent medical

expenses, and in doing so, [Blue Cross’s and Blue Shield’s]

contracts effectively spread the financial risk posed by those

contingent medical events among the millions of Californians

who pay premiums to enroll in [Blue Cross’s and Blue Shield’s]

plans.” (Id. at pp. 738–739.) Myers argued that the trial court

erred in resolving the “factual issue” of whether Blue Cross and

Blue Shield are insurers based on their regulatory status as

HCSPs and that the court “should have applied the test set forth

in Roddis to assess whether the complaint’s allegations

concerning [Blue Cross’s and Blue Shield’s] business activities

supported the claim that they are “insurers” under the

Constitution’s gross premium tax.” (Id. at p. 739.)

The Myers I court discussed the taxation of insurance

companies under California law and the regulatory regime

applicable to HSCPs before turning to relevant case law. The

court summarized Roddis, including the “ ‘two policy

considerations’ ” that drove the Supreme Court’s analysis: “First,

. . . ‘[w]here indemnity features are present, the member bears

the risk of personal liability for medical services. This is the

insurance risk which can be protected against by financial

reserves to assure that the member will receive the benefits for

which he has paid.’ [Citation.] As for the second consideration,

the court emphasized, ‘there is a strong social policy to encourage

the services which health plans provide the public,’ and the

Insurance Code’s financial reserve requirements should not

inhibit the development of health plans to meet that need.

[Citation.]” (Myers I, supra, 240 Cal.App.4th at p. 740.) The court

36

then concluded that “Roddis provides the appropriate standard

for determining whether an entity should be regarded as an

‘insurer’ for purposes of assessing the gross premium tax under

article XIII, section 28 of the Constitution.” (Id. at pp. 740–741.)

It further concluded that the “the critical role that financial

solvency concerns played in the Supreme Court’s formulation of

the Roddis test” constituted “a distinction without difference”

when it came to assessing whether an entity is an “insurer”

under the Constitution’s GPT provision. (Id. at p. 741.)

The Myers I court also cited another Supreme Court

decision, Metropolitan Life Ins. Co. v. State Bd. of Equalization

(1982) 32 Cal.3d 649 (Metropolitan Life), for the proposition that

“the gross premium tax’s purpose is to ‘exact payments from

insurers doing business in California’ by ‘approximat[ing] the

volume of business done in this state, and thus the extent to

which insurers have availed themselves of the privilege of doing

business in California[,]’ ” and that courts must therefore “ ‘look

beyond the formal labels the parties have affixed to their

transactions” and instead “ ‘discern the true economic substance’

of the arrangement.” (Myers I, supra, 240 Cal.App.4th at p. 741,

quoting Metropolitan Life, at p. 656.)

With this background in mind, the Myers I court concluded

that the mere fact that Blue Cross and Blue Shield were

designated HCSPs for regulatory purposes was not

determinative. (Myers I, supra, 240 Cal.App.4th at p. 741.) It

observed that “the underlying reason for this state’s adoption of

the gross premium tax was to simplify the taxation of insurance

companies that, in contrast to other businesses, have difficulty

calculating their net profits in a given tax year because they

collect revenues up front in the form of premiums, then make

37

indemnity payments to policyholders based on contingent events

that occur many months or years later.” (Id. at pp. 741–742.)

Because Myers had alleged that “under [Blue Cross’s and Blue

Shield’s] PPO policies they collect premiums up front, but do not

make payments on the policies unless and until a contingent

medical event occurs” and that “a significant financial portion of

their business operations allegedly consist of indemnity

contracts, the underlying rationale for applying the gross

premium tax to other insurance companies applies equally to

Blue Cross and Blue Shield.” (Id. at p. 742.)

1.2.2. The Roddis definition of indemnity was not

dictum.

Myers contends that the Myers I court did not intend to

adopt the definition of indemnity set forth in Roddis—that is,

that indemnity aspects are present where a member bears the

risk of personal liability for medical services. He argues that

Roddis’s definition of indemnity does not apply because it was a

case concerning regulatory statutes rather than the GPT, and

Myers I’s reference to that definition was mere dictum. Relying

on Metropolitan Life, Myers argues that Blue Cross’s and Blue

Shield’s PPO plans and the HMO plans of all Real Parties in

Interest constitute insurance under the California Constitution

because their plans involve the shifting and distribution of risk.

Real Parties in Interest contend that the Myers I court gave no

indication that it was adopting the Roddis standard but not its

definition of indemnity, nor did it suggest that Metropolitan Life’s

discussion of the elements of insurance supplied the relevant

definition. We agree with Real Parties in Interest that the Myers

I court’s adoption of the Roddis standard included its definition of

indemnity.

38

With respect to Myers’s first contention, the court in

Myers I recognized that Roddis arose in a different context than

the case before it and acknowledged that financial solvency

concerns played a “critical role” in the Supreme Court’s

determination of Roddis, but concluded that it was “a distinction

without difference.” (Myers I, supra, 240 Cal.App.4th at p. 741.)

The court explained that, “[i]n Roddis, the court’s concern over

financial solvency stemmed from the fact that CMA had promised

to pay for future contingent medical expenses, yet its ultimate

liability for such expenses was unknown at the time it collected

dues from its covered members. The same concern supported

adoption of the gross premium tax. According to the Legislative

Analyst’s Office, the economics of insurance indemnity

arrangements—that is, the fact that insurers receive premiums

up front, without knowing what related expenses will be paid on

those premiums in the future, thereby rendering them unable to

determine the net profits attributable to those premiums at the

end of the tax year—was the ‘key reason’ for adopting the gross

premium tax.” (Ibid., italics added.) We find the Myers I court’s

reasoning persuasive.

Moreover, there is no indication that the Myers I court

considered the definitions of indemnity and service set forth in

Roddis dicta when it summarized and quoted Roddis at length

and adopted the standard it set forth. (Myers I, supra, 240

Cal.App.4th at pp. 739–740.) Had the Myers I court intended to

adopt other definitions of terms that are fundamental to the

Roddis standard, it presumably would have made that intention

clear for the benefit of the parties and the trial court.

Second, although the court in Myers I relied on

Metropolitan Life for the proposition that the court must look

39

beyond labels and “ ‘discern the true economic substance’ of the

arrangement” to determine whether an HSCP is an insurer

(Myers I, supra, 240 Cal.App.4th at p. 741, quoting Metropolitan

Life, supra, 32 Cal.3d at p. 656), we find no basis to conclude that

Metropolitan Life provides the relevant standard for making that

determination.

The issue before the Supreme Court in Metropolitan Life

was “whether certain amounts, though never formally paid to

Metropolitan Life Insurance Company (Metropolitan),

nevertheless are to be included within the gross premiums

measure of the tax imposed on its business done in California.”

(Metropolitan Life, supra, 32 Cal.3d at p. 652.) Metropolitan’s

“Mini-Met” plan was the subject of the controversy before the

court. Prior to Mini-Met, Metropolitan offered employers a

standard group policy pursuant to which the employers paid a

premium in return for Metropolitan’s assumption of the entire

obligation to provide health coverage to benefitted employees.

(Ibid.) To reduce the cost of insurance coverage for employers and

to improve their cash-flow situation, Metropolitan developed the

Mini-Met rider to the standard group policy, which shifted

certain cash-flow advantages to the employers and sought to

substantially reduce Metropolitan’s GPT liability. (Id. at p. 653.)

“The Mini-Met rider required employers to assume the obligation

to pay all employee claims for benefits up to a ‘trigger-point’

amount, defined as the actuarially predicted, monthly average

level of aggregate employee claims. Metropolitan remained

obligated to pay all claims in excess of that amount.” (Ibid.) For

the three tax years in question, Metropolitan argued that it was

entitled to a 90 percent reduction in its GPT liability as a

consequence of the Mini-Met rider, but the California Insurance

40

Commissioner levied a tax based upon the sum of the amounts

employers paid to Metropolitan as premiums plus the aggregate

yearly claims paid to employees from employers’ funds. (Ibid.)

Metropolitan sued for a refund of the tax assessments and

interest it had paid the State Board of Equalization and obtained

a judgment for the full amount requested, which the Board

appealed. (Id. at p. 654.)

Ruling in bank, the Supreme Court reversed. (Metropolitan

Life, supra, 32 Cal.3d at p. 662.) The court observed that

“insurance necessarily involves two elements: (1) a risk of loss to

which one party is subject and a shifting of that risk to another

party; and (2) distribution of risk among similarly situated

persons. [Citations.]” (Id. at p. 654.) The court explained that

“[t]he presence or absence of insurance risk on the part of the

employers is not alone determinative of Metropolitan’s tax

liability . . . . In attempting to fulfill the purpose of the gross

premiums tax, it is preferable to look beyond the formal labels

the parties have affixed to their transactions and seek, rather, to

discern the true economic substance of the Mini-Met

arrangement.” (Id. at pp. 656–657.) The court concluded that “the

employers under the Mini-Met arrangement functioned not as

independent insurers but as ‘mere [agents] or [distributors] of

funds[,]’ ” as Metropolitan “determined the amount of all benefits

to be paid in satisfaction of employee claims, both above and

below the trigger point.” (Id. at p. 657.) The court concluded that

“that there was but one insurer under the Mini-Met package and

that the employers functioned as agents of that insurer.” (Id. at

p. 659.)

Thus, Metropolitan Life was not a case concerning the

classification of HCSPs for regulatory or taxation purposes, nor

41

was there any dispute in that case as to whether Metropolitan

was an insurer or subject to the GPT. Further, and more

importantly for our purposes, the Myers I court stated

unequivocally that Roddis provides the relevant standard. (Myers

I, supra, 240 Cal.App.4th at p. 740.) The court was clearly aware

of Metropolitan Life and could have concluded that the presence

of the two elements of insurance described in Metropolitan Life

determined whether an HCSP is an insurer. It did not do so.

Indeed, to conclude that the presence of risk of loss and

distribution of risk settle the question would not comport with

Metropolitan Life’s acknowledgment that “[t]he presence or

absence of insurance risk” is not determinative of GPT liability

(Metropolitan Life, supra, 32 Cal.3d at pp. 656–657), or with the

Supreme Court’s observation in Garrison that the “[a]bsence or

presence of assumption of risk or peril is not the sole test to be

applied in determining its status” and that the more important

question is “whether looking at the plan of operation as a whole,

‘service’ rather than ‘indemnity’ is its principal object and

purpose. [Citations.]” (Garrison, supra, 28 Cal.2d at p. 809.)

Thus, while Metropolitan Life is relevant to our analysis, we find

no basis to prioritize language in that decision over the standard

expressly adopted by the Myers I court.

1.2.3. Whether the payments made by Real Parties in

Interest for in-network services were capitated

or non-capitated is not part of the standard

adopted in Myers I.

Myers further argues that the trial court incorrectly

applied the law when it concluded that whether payments made

by Real Parties in Interest were capitated or non-capitated was

irrelevant under Roddis. In Myers I, the court recited the

42

allegations that Blue Shield’s and Blue Cross’s non-capitated

payments exceeded their capitated payments. (Myers I, supra,

240 Cal.App.4th at p. 730.) The complaint alleged that non-

capitated payments were indemnity payments and that capitated

payments were not. The Myers I court accepted these allegations

and concluded that Myers had adequately stated a claim that

Blue Cross and Blue Shield should be regarded as “insurers” for

purposes of the GPT. (Id. at p. 742.) Myers therefore argues that

the court in Myers I made a legal determination that non-

capitated payments constituted indemnity. We again disagree.

Myers fails to explain how we can reconcile the Myers I

court’s explicit adoption of Roddis as the relevant standard with

a legal conclusion that non-capitated payments constitute

indemnity for purposes of determining whether an HCSP is an

insurer. The payments CMA made to the 38 physicians in Roddis

were non-capitated—that is, CMA paid its contracted physicians

scheduled fees for services rendered, rather than fixed amounts

per member (Roddis, supra, 68 Cal.2d at pp. 678–679)—and the

court concluded that “CMA’s contracts with the 38 physicians

provide for direct service without indemnity[]” because the

physicians had agreed not to seek reimbursement from CMA’s

members. (Id. at p. 683, italics added.) If non-capitated payments

constituted indemnity under the standard set forth in Roddis, the

Supreme Court could have concluded that CMA was primarily in

the business of indemnity without instructing the trial court to

retry the case and determine what proportion of CMA’s members

was treated by the 38 contracted physicians.

Further, the conclusion that non-capitated payments are

indemnity does not follow logically from the Roddis standard.

The method an HCSP chooses to compensate its healthcare

43

providers has no bearing on whether its members are at risk of

personal liability for medical services. If we accepted Myers’s

contention that the Myers I court made a legal determination

that non-capitated payments constitute indemnity because they

“effectively spread the financial risk posed by those contingent

medical events among the millions of Californians who pay

premiums to enroll in Real Parties in Interest’s . . . plans,” as

Myers alleged (Myers I, supra, 240 Cal.App.4th at p. 739), it

would follow that Myers I did not actually follow the Roddis

standard, as it claimed to do. The Roddis opinion does not

mention risk shifting or spreading, much less state that the

spreading of risk is the test for indemnity. Rather, citing

Garrison, the Supreme Court observed that “ ‘[a]bsence or

presence of assumption of risk or peril is not the sole test to be

applied in determining its status[,]’ ” and instead adopted a test

in which indemnity was associated with a member’s risk of

personal liability. (Roddis, supra, 68 Cal.2d at p. 682.)

Faced with two possible standards, one of which the Myers

I court expressly adopted and the other which may, at best, be

implied by the conclusion it reached based on the allegations of

the complaint, which it was required to accept as true (Myers I,

supra, 240 Cal.App.4th at p. 727, fn. 1), we choose the former. We

therefore agree with the trial court that whether payments are

capitated or non-capitated does not determine whether Real

Parties in Interest are insurers.

1.3. The law of the case doctrine requires us to apply

the Roddis standard in this appeal.

Having established our understanding of the standard

adopted in Myers I, we consider whether we remain bound by

that decision. “Under the law of the case doctrine, when an

44

appellate court ‘ “states in its opinion a principle or rule of law

necessary to the decision, that principle or rule becomes the law

of the case and must be adhered to throughout [the case’s]

subsequent progress, both in the lower court and upon

subsequent appeal . . . .” ’ [Citation.] Absent an applicable

exception, the doctrine ‘requir[es] both trial and appellate courts

to follow the rules laid down upon a former appeal whether such

rules are right or wrong.’ [Citation.] As its name suggests, the

doctrine applies only to an appellate court’s decision on a

question of law; it does not apply to questions of fact. [Citation.]”

(People v. Barragan (2004) 32 Cal.4th 236, 246.) “The doctrine of

law of the case . . . governs later proceedings in the same case

[citation] with regard to the rights of the same parties who were

before the court in the prior appeal. [Citations.]” (In re

Rosenkrantz (2002) 29 Cal.4th 616, 668.) Myers, Blue Cross and

Blue Shield do not dispute that the adoption of the Roddis

standard was necessary to the court’s decision in Myers I, or that

they were parties to the prior appeal.15 Thus, unless an exception

to the law of the case principle applies, we are bound by the legal

standard set forth in Myers I.

15Though Health Net and Kaiser are not bound by Myers I under the

law of the case doctrine because they were not parties in the prior

appeal, both argue that the Roddis standard should apply. Although

we are generally not bound by decisions made by a different panel of

this Division (Tourgeman v. Nelson & Kennard (2014) 222 Cal.App.4th

1447, 1456, fn. 7), “ ‘[w]e respect stare decisis . . . which serves the

important goals of stability in the law and predictability of decision.’ ”

(People v. The North River Ins. Co. (2019) 41 Cal.App.5th 443, 455.)

Since neither Kaiser nor Health Net advances a “ ‘good reason to

disagree[]’ ” with the standard adopted in Myers I (ibid.), we decline to

consider whether a different rule of law should apply to those parties.

45

Exceptions to the law of the case doctrine are limited to two

situations: if its application will result in an unjust decision or if

the controlling rules of law have changed in the interim. (People

v. Stanley (1995) 10 Cal.4th 764, 787.) For the “unjust decision”

exception to apply, “there must at least be demonstrated a

manifest misapplication of existing principles resulting in

substantial injustice.” (People v. Shuey (1975) 13 Cal.3d 835, 846,

disapproved on another ground in People v. Bennett (1998) 17

Cal.4th 373, 389, fn. 5.) An intervening change in the law exists

“ ‘where the controlling rules of law have been altered or clarified

by a decision intervening between the first and the second

determinations of the appellate courts.’ [Citation.]” (In re

Saldana (1997) 57 Cal.App.4th 620, 625.) This includes

legislative changes or clarifications. (Renee J. v. Superior Court

(2002) 96 Cal.App.4th 1450, 1463 (Renee J.).)

Although Myers repeatedly states that Myers I is law of the

case and thus binding on this court, he argues that this court

should follow cases that were not mentioned in the Myers I

opinion and which conclude that HMOs are insurers for purposes

of federal preemption law. He also contends that the Roddis

standard yields results that are both inconsistent with the

purpose underlying the GPT and absurd when applied to other

insurers. Notwithstanding the inconsistency of these contentions,

we opt to consider whether Myers demonstrates that Myers I

constitutes “a manifest misapplication of existing principles

resulting in substantial injustice” that would permit us to apply

another legal standard. (People v. Shuey, supra, 13 Cal.3d at

p. 846.) We further address Blue Cross’s and Blue Shield’s

contention that the 2016 MCO tax constitutes a change in the

controlling law that requires us to set Myers I aside. We conclude

46

that neither exception applies and that Myers I remains law of

the case.

1.3.1. Cases defining insurance for purposes of federal

preemption law do not override the application

of the law of the case doctrine.

Myers argues that cases concluding that HMOs are

insurers for purposes of federal preemption dictate the conclusion

that Real Parties in Interest are insurers subject to the GPT.

These cases are inapposite and do not demonstrate that Myers I’s

adoption of the Roddis standard is inconsistent with existing

legal principles or substantially unjust.

In Rush Prudential HMO, Inc. v. Moran (2002) 536 U.S.

355, 359, the United States Supreme Court considered whether

an Illinois statute, which “provides recipients of health coverage

by such organizations with a right to independent medical review

of certain denials of benefits,” was preempted by the Employee

Retirement Income Security Act of 1974 (ERISA). “To ‘safeguard

. . . the establishment, operation, and administration’ of employee

benefit plans, ERISA . . . contains an express preemption

provision that ERISA ‘shall supersede any and all State laws

insofar as they may now or hereafter relate to any employee

benefit plan[,]’ ” but a “saving clause then reclaims a substantial

amount of ground with its provision that ‘nothing in this

subchapter shall be construed to exempt or relieve any person

from any law of any State which regulates insurance, banking, or

securities.’ ” (Id. at p. 364.) The court adopted a “ ‘common-sense

view of the matter[,]’ ” under which “ ‘a law must not just have an

impact on the insurance industry, but must be specifically

directed toward that industry.’ [Citation.]” (Id. at pp. 365–366.)

This inquiry also “focuses on ‘primary elements of an insurance

47

contract[, which] are the spreading and underwriting of a

policyholder’s risk.’ [Citation.]” (Id. at p. 366.) The court observed

that “ ‘[t]he defining feature of an HMO is receipt of a fixed fee

for each patient enrolled under the terms of a contract to provide

specified health care if needed.’ [Citation.] ‘The HMO thus

assumes the financial risk of providing the benefits promised: if a

participant never gets sick, the HMO keeps the money

regardless, and if a participant becomes expensively ill, the HMO

is responsible for the treatment . . . .’ ” (Id. at p. 367.) The court

concluded that the defendant, an HMO, “cannot checkmate

common sense by trying to submerge HMOs’ insurance features

beneath an exclusive characterization of HMOs as providers of

health care” in order to argue that the Illinois law was preempted

by ERISA. (Id. at p. 370.)

The court also “test[ed] the results of the commonsense

enquiry by employing the three factors used to point to insurance

laws spared from federal preemption under the McCarran-

Ferguson Act, 15 U.S.C. § 1011 et seq. [(McCarran-Ferguson

Act)].” (Rush Prudential HMO, Inc. v. Moran, supra, 536 U.S. at

p. 366.) “A law regulating insurance for McCarran-Ferguson

purposes targets practices or provisions that ‘have the effect of

transferring or spreading a policyholder’s risk; . . . [that are] an

integral part of the policy relationship between the insurer and

the insured; and [are] limited to entities within the insurance

industry.’ ” (Id. at p. 373.) The court concluded that at least the

second and third requirements were “clearly satisfied” by the

Illinois statute at issue. (Ibid.)

In Smith v. PacifiCare Behavioral Health of California, Inc.

(2001) 93 Cal.App.4th 139 (Smith), the issue before the court was

“whether a health care service plan may enforce an arbitration

48

clause contained in the plan and in related subscriber

agreements which does not comply with the [state] statutory

disclosure requirements applicable to such clauses.” Specifically,

the court considered whether the McCarran-Ferguson Act

overrode the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and

precluded its preemptive impact on the state statute on the

ground that the statute “constitutes a regulation of the business

of insurance within the meaning of McCarran-Ferguson.” (Id. at

p. 143.) This Division observed that “HMO’s or health care

service plans . . . are engaged in providing a service that is a

substitute for what previously constituted health insurance.” (Id.

at p. 157.) The court concluded that, for purposes of the

McCarran-Ferguson Act, the defendant, “PacifiCare, as a health

care service plan (or HMO), is engaged in the business of

insurance.” (Ibid.) The Smith court noted that “the Legislature

has reached the same conclusion in a very public way. It has

expressly recognized that health care service plans in California

are engaged in the business of insurance within the meaning of

the McCarran-Ferguson Act[]” by enacting the Managed Health

Care Insurance Accountability Act of 1999, Statutes 1999,

chapter 536 (Sen. Bill No. 21) section 2, partially codified at Civil

Code section 3428. (Id. at p. 158.) “In an uncodified section 2 to

the act, the Legislature stated: ‘SEC. 2. (a) The Legislature finds

and declares as follows: [¶] “(1) Based on the fundamental nature

of the relationships involved, a health care service plan and all

other managed care entities regulated under the Health and

Safety Code are engaged in the business of insurance in this state

as that term is defined for purposes of the McCarran-Ferguson Act

. . . . Nothing in this act shall be construed to impose the

49

regulatory requirements of the Insurance Code on health care

service plans regulated by the Health and Safety Code.” ’ ” (Ibid.)

The Smith court rejected PacifiCare’s reliance on Williams

v. California Physicians’ Service (1999) 72 Cal.App.4th 722 for

the proposition that it was not in the business of insurance for

McCarran-Ferguson purposes, noting that Williams “did not even

address the issue before us. Williams simply held that a health

care service plan regulated by the Knox-Keene Act was not

necessarily the equivalent to an insurance company for

regulatory purposes. Williams did not purport to address the

issue confronting this court. Rather, it simply recognized that the

Legislature has elected to subject insurers and health care service

plans to distinct regulatory regimes.” (Smith, supra, 93

Cal.App.4th at pp. 158–159.)

The cases on which Myers relies do not purport to address

whether HCSPs are insurers for state taxation purposes and thus

do not bear on our determination of whether Real Parties in

Interest are insurers for purposes of taxation under California

law. “The clear purpose of McCarran-Ferguson was . . . to insure

that the states would continue to enjoy broad authority in

regulating the dealings between insurers and their

policyholders.” (Smith, supra, 93 Cal.App.4th at p. 153.) This

purpose has no relevance to the case before us.

Article XIII, section 28 of the California Constitution

defines “insurer” as including, among other things, “insurance

companies”—not as any company or association that is “in the

business of insurance,” the test applied in the ERISA and

McCarran-Ferguson contexts. Courts interpreting McCarran-

Ferguson have declined to limit its reach to laws specifically

concerning insurance companies. (See Barnett Bank of Marion

50

County, N.A. v. Nelson (1996) 517 U.S. 25, 39–41 [law that

permitted banks to act as agents of insurance companies was

related to the business of insurance, even if statute did not

“relate predominantly to insurance” but to banking]; Gordon v.

Ford Motor Credit Co. (N.D. Cal. 1992) 868 F.Supp. 1191, 1194

[rejecting auto financing company’s contention that the

McCarran-Ferguson Act exemption should apply only to

traditional insurers].) Further, as set forth in Smith, it is

sufficient for McCarran-Ferguson Act purposes that a company is

“engaged in providing a service that is a substitute for what

previously constituted health insurance.” (Smith, supra, 93

Cal.App.4th at p. 157.) In contrast, in Roddis, the California

Supreme Court discussed how “a health plan is similar to

insurance in that it purports to cover a future contingency,” yet

concluded that whether HCSPs were insurers depended on the

application of the balancing of its service and indemnity

functions. (Roddis, supra, 68 Cal.2d at p. 681.) In other words,

our Supreme Court declined to hold that the mere assumption

and transfer of risk, or the fact that insurers and HCSPs fulfill

similar functions, rendered HCSPs insurers for regulatory

purposes. We see no reason why these similarities would be

sufficient to render an HCSP an insurer for tax purposes under

California law either.

Further, our Legislature has acknowledged that HCSPs are

insurers for purposes of the McCarran-Ferguson Act while

making it clear that such interpretation does not render them

subject to regulation as insurers for purposes of state law.

(Smith, supra, 93 Cal.App.4th at p. 158.) Just as the court in

Smith concluded that Williams v. California Physicians’ Service,

supra, 72 Cal.App.4th 722 did not provide guidance as to whether

51

an HCSP is in the business of insurance for McCarran-Ferguson

purposes because it concerned California regulations, cases

holding that HCSPs are insurers for purposes of McCarran-

Ferguson and ERISA are not instructive in determining whether

Real Parties in Interest are insurers for state taxation purposes.

(Smith, at pp. 158–159.)

Thus, the Myers I court did not misapply existing legal

principles under California law when it declined to adopt the

assumption of risk as its standard for whether an entity is an

insurer.

1.3.2. Myers fails to otherwise establish the

application of the Roddis standard will yield

unjust or absurd results.

Myers also argues that the businesses of Real Parties in

Interest implicate the key reason for adopting the GPT. Because

the Roddis standard does not require the court to consider

whether HCSPs are able to match their revenues and related

expenses, we understand this to be another contention that Myers

I adopted a standard that is inconsistent with existing legal

principles and results in unjust outcomes.

As discussed, the GPT was adopted because it is difficult

for traditional insurers to match revenues with related expenses

because they “collect their revenues up front [in the form of

premiums], then make payments to policyholders based on

contingent events that occur many months or years later.” (Myers

I, supra, 240 Cal.App.4th at p. 736, quoting Legis. Analyst,

Investment Income and the Insurance Gross Premiums Tax (July

2008) p. 3.) Accordingly, “an accurate determination of the

theoretically appropriate amount of taxable income proves very

difficult to achieve in practice.” (Ibid.) Myers contends Real

52

Parties in Interest do not know the total expenses incurred by

members, or their net profits by the end of each year. Myers

relies on reports Real Parties in Interest filed with the DMHC,

which reflect that Real Parties in Interest had incurred but not

reported (INBR) claims and claims payable as of December 31 of

each year. Because Real Parties in Interest were unable to fully

match revenues and expenses by the end of the year, he argues

that their businesses implicate the purpose behind the GPT.

Real Parties in Interest offer several responses to this

contention. First, Real Parties in Interest point out the business

of HCSPs differs from that of traditional insurers in a

fundamental way. A claim for an automobile accident or work

injury encompasses all costs associated with that accident or

injury and will not close until all costs relating to the triggering

event are paid, which results in the possibility that a claim may

be open for years or even decades. In contrast, HCSP claims are

defined by the individual medical service provided. A claim is

incurred when the service is provided and closes when the bill for

that specific service is paid, and HCSPs are required by law to

pay claims within a short period: 30 working days for PPOs and

45 working days for HMOs. (Health & Saf. Code, § 1371, subd.

(a)(1).) Health Net notes that, under its plans, charges for

member coverage are paid for services rendered within the period

associated with the charge. In other words, a monthly charge to a

member is associated with and covers that month of coverage,

and thus there can be no significant temporal disconnect between

its revenues and expenses.

Kaiser argues that the short delay in pinning down its

expenses is an artifact of the accounts payable cycle and is not

because it has potential liabilities stretching months or years into

53

the future. An HCSP may incur expenses late in the calendar

year which a provider may not immediately submit, and the

HCSP then has another 30 or 45 working days to pay or contest

that claim under the Knox-Keene Act. Further, Kaiser notes that

the DMHC reports on which Myers relies demonstrate that the

vast majority of its revenues and expenses are known with

certainty as of the end of the tax year. As an example, in 2014,

Kaiser’s DMHC reports show that 97.4 percent of its revenues

and related expenses occurred and were known as of December

31, 2014—that is, Kaiser’s total medical and hospital expenses

were approximately $50.6 billion and its claims payable and

INBR totaled approximately $1.4 billion.

Similarly, Blue Shield contends that Myers has failed to

dispute the trial court’s conclusion that the nature of Blue

Shield’s payment obligations shows the rationale for applying the

GPT to insurers does not exist. Blue Shield submitted evidence to

the trial court that it pays most claims within 30 days and almost

all claims within 90 days. For example, in 2015, Blue Shield paid

an average of approximately 77 percent of claims within 30 days

of receiving them and paid approximately 97 percent within 90

days. Blue Shield also contends that its INBR claims and claims

payable reports establish that Blue Shield can and does match

revenues and expenses because they show known costs that have

been incurred and will be paid shortly, and thus are comparable

to a short-term accounts payable.

Finally, Blue Cross argues that the December 31 cutoff in

the DMHC reports on which Myers relies is not pertinent to its

business. During the relevant period, Blue Cross submitted its

tax returns by the state and federal due date (under extension) of

October the following year, by which time it had paid more than

54

99 percent of its claims expenses. For each tax year during the

relevant period, Blue Cross was able to and did use its actual

claims expenses from January through August of the following

tax year for purposes of determining its taxable income for that

tax year. Thus, by the time it paid its taxes, Blue Cross knew all

but the smallest fraction of its expenses.

Myers’s sole response to these varied arguments is that

Real Parties in Interest cannot actually identify the bulk of their

expenses by the time that they must pay their taxes because

“they collectively report billions of dollars in ‘Incurred But Not

Reported’ and ‘Unpaid Claims’ in their annual statements at the

end of each calendar year that attempt to estimate those

unknown claim costs.” However, Myers makes no attempt to

contextualize this figure. As noted, Kaiser’s total medical and

hospital expenses in 2014 were approximately $50.6 billion. The

record indicates that Blue Cross’s total medical and hospital

expenses for the same year were approximately $9.6 billion, Blue

Shield’s were approximately $9.5 billion, and Health Net’s were

approximately $6.4 billion. Thus, the fact that Real Parties in

Interest collectively reported billions in INBR and claims payable

to the DMHC does not refute their contention that they do not

face unknown expenses extending far into the future that are

significant in the context of their businesses. We further reject

Myers’s suggestion that any unknown expenses as of December

31 demonstrates that the logic underlying the GPT applies. We

conclude that Myers has failed to identify evidence supporting

that the application of Myers I would be substantially unjust

considering the purpose underlying the GPT’s adoption.

Myers also argues that the Roddis standard adopted in

Myers I would yield absurd results if applied to certain types of

55

insurers. For example, an insured has no personal liability for

risks covered by life or disability insurance. Thus, entities

providing those types of insurance would be found not to be

insurers under the Roddis standard. However, as Kaiser points

out, Roddis did not set forth an all-purpose test for determining

whether any entity is an insurer. The Roddis court observed that

“[h]ealth care service plans were given special legislative

treatment because of the direct service feature” and made clear

that any workable test to determine whether an HCSP is an

insurer must take that function into consideration. (Roddis,

supra, 68 Cal.2d at p. 683.) Insurers that do not have a direct

service component to their business have no grounds to argue

that this standard applies to them. Accordingly, this argument

does not persuade us that the adoption of the Roddis standard is

absurd or unjust.

1.3.3. The 2016 MCO tax does not constitute an

intervening change or clarification of law that

overrides the law of the case doctrine.

Blue Cross and Blue Shield argue that the 2016 MCO tax

constitutes an intervening clarification of the law that overrides

the application of the law of the case. They argue that the

Legislature could not impose an MCO tax on HCSPs if it

understood them to be insurers, which are subject to the GPT in

lieu of nearly all other taxes. Thus, even though the HCSPs were

not subject to an MCO tax during the relevant periods for this

litigation, the 2016 MCO tax demonstrated the Legislature’s

understanding that HCSPs are not and never were insurers

under article XIII, section 28 of the Constitution.

Myers contends that this argument is flawed for two

reasons. He argues that the Legislature lacks the authority to

56

limit a constitutional tax like the GPT. He also contends that the

legislative history demonstrates that the Legislature did not

enact the 2016 MCO tax or the subsequent 2019 tax with the

intent of removing HCSPs from the definition of insurers subject

to the GPT.

With respect to the first contention, Myers argues that the

Legislature lacks the authority to interpret the definition of

insurer because the Supreme Court “perceive[d] no ambiguity

either patent or latent in section 28 that would authorize us to

look beyond the plain meaning of the words.” (Mutual Life Ins.

Co., supra, 50 Cal.3d at p. 407.)16

“[A]n act of the [L]egislature which conflicts with the

Constitution is void [citation] . . . .” (Robison v. Payne (1937) 20

Cal.App.2d 103, 106.) The constitutional amendment providing

for the GPT was originally adopted in 1910 (Bankers Life Co. v.

Richardson (1923) 192 Cal. 113, 114–116; former Article XIII,

§ 14, subd. (b)), but was enacted in its current form in 1974,

decades after the advent of HCSPs. If the constitutional

definition of insurers included HCSPs, the Legislature would lack

the authority to exclude them from the GPT. It does not.

Moreover, “ ‘[i]nsurer’ ” is defined by the Constitution to

“include[] insurance companies or associations and reciprocal or

interinsurance exchanges . . . and the State Compensation

Insurance Fund.” (Cal. Const., art. XIII, § 28, subd. (a), italics

added.) “The term ‘includes’ is ordinarily a word of enlargement

16In Mutual Life, there was no dispute that Mutual Life Insurance

Company of New York was an insurer, only whether it was subject to

the GPT when it owned and rented out property and operated a

parking lot in California but did not conduct insurance business in the

state. (Mutual Life Ins. Co., supra, 50 Cal.3d at p. 406.)

57

and not of limitation.” (People v. Western Air Lines, Inc. (1954) 42

Cal.2d 621, 639.) “When a word in the California Constitution . . .

is capable of several interpretations, a statutory construction of

that word is to be afforded substantial deference. [Citation.] This

rule of deference arises from the fact that the state Constitution,

unlike the federal Constitution, is a limitation on the power of

the Legislature rather than a grant of power to it. Any

constitutional limitation on legislative power is to be narrowly

construed, and a strong presumption of constitutionality supports

the Legislature’s acts. [Citation.] The Legislature’s efforts to

interpret a word in the state Constitution are to be upheld ‘unless

they are disclosed to be unreasonable or clearly inconsistent with

the express language or clear import of the Constitution.’

[Citation.]” (People v. 8,000 Punchboard Card Devices (1983) 142

Cal.App.3d 618, 620–621; cf. Heckendorn v. City of San Marino

(1986) 42 Cal.3d 481, 488.) The plain language of the GPT

provision leaves open the possibility that other entities than

those expressly listed may be insurers subject to the GPT. Since

the Legislature has the authority to determine what, if any,

entities beyond insurance companies, interinsurance exchanges,

and the State Compensation Insurance Fund constitute insurers,

it follows that the Legislature has the authority to determine

that an entity not expressly listed in the constitutional definition

is not an insurer. Thus, we reject Myers’s contention that the

Legislature lacks the authority to exclude HCSPs from the

definition of “insurers” under the Constitution.

Whether Senate Bill No. X2-2 overrides the application of

the law of the case doctrine presents a closer question. The

legislative history of Senate Bill No. X2-2 reflects that its purpose

was to reform the existing MCO provider tax, which was paid

58

only by Medi-Cal plans, and replace it with a tax that would be

imposed on all HCSPs for a period of three years with the goal of

“generat[ing] an amount of nonfederal funds for the Medi-Cal

program, equivalent to the sales tax currently imposed on MCPs”

and thus “comply[ing] with federal Medicaid requirements.”

(Former Welf. & Inst. Code, § 14199.50; Sen. Bill No. X2-2,

Proposed Conference Report No. 1, Feb. 25, 2016, p. 1.) The 2016

MCO tax would not be collected unless and until DHCS received

approval from the federal government that the tax was

permissible under federal regulations. (Stats. 2015–2016, 2nd Ex.

Sess., ch. 2, pp. 6029–6030.) Thus, although we agree with Blue

Cross and Blue Shield that the imposition of the MCO tax on

HCSPs is inconsistent with an understanding that HCSPs are

insurers subject to the GPT, the history and language of Senate

Bill No. X2-2 does not support that its purpose was to address

Myers I or to clarify that HCSPs are not “insurers” under the

Constitution for periods before the MCO tax took effect. We

therefore consider whether the 2016 legislation may be

understood as a change or clarification of the law that overrides

the application of the law of the case doctrine, even if the

Legislature did not express this intent.

As our Supreme Court has explained, “[i]t is true that if the

courts have not yet finally and conclusively interpreted a statute

and are in the process of doing so, a declaration of a later

Legislature as to what an earlier Legislature intended is entitled

to consideration. [Citation.] But even then, ‘a legislative

declaration of an existing statute’s meaning’ is but a factor for a

court to consider and ‘is neither binding nor conclusive in

construing the statute.’ [Citations.] This is because the

‘Legislature has no authority to interpret a statute. That is a

59

judicial task. The Legislature may define the meaning of

statutory language by a present legislative enactment which,

subject to constitutional restraints, it may deem retroactive. But

it has no legislative authority simply to say what it did mean.’ ”

(McClung v. Employment Development Dept. (2004) 34 Cal.4th

467, 473.)

Contrary to Myers’s contention, neither Roddis nor

Metropolitan Life offers a final and conclusive interpretation of

the Knox-Keene Act with respect to the issues raised in this

appeal, as Roddis arose under a prior legislative scheme and did

not address taxation issues, and Metropolitan Life did not

concern HCSPs at all. Nevertheless, McClung is instructive. To

the extent Senate Bill No. X2-2 addressed the appropriate

taxation of HCSPs before July 2016 in light of the Knox-Keene

Act, it did so only implicitly. Senate Bill No. X2-2 did not “define

the meaning of statutory language by a present legislative

enactment”—for example, by enacting language establishing that

HCSPs regulated under the Knox-Keene Act are not insurers

under article XIII, section 28—or deem any such definition

retroactive. (McClung v. Employment Development Dept., supra,

34 Cal.4th at p. 473.) Thus, even if we accept that Senate Bill No.

X2-2 reflects the Legislature’s understanding of what an earlier

Legislature intended with respect to the effect of the Knox-Keene

Act on the tax treatment of HCSPs, the Legislature’s non-binding

interpretation of existing law does not appear to constitute a

change or clarification of the law that would override the

application of the law of the case doctrine.

Renee J., supra, 96 Cal.App.4th 1450 provides further

guidance. In that case, the appellant argued that the trial court

had erred in terminating her reunification services based upon a

60

Supreme Court decision at an earlier phase of proceedings that

interpreted the relevant statute, since the Legislature

subsequently amended that statute. (Id. at p. 1459.)17 Quoting

Western Security Bank v. Superior Court (1997) 15 Cal.4th 232,

the court in Renee J. explained that “ ‘a legislative declaration of

an existing statute’s meaning is neither binding nor conclusive in

construing the statute. Ultimately, the interpretation of a statute

is an exercise of the judicial power the Constitution assigns to the

courts. [Citations.] Indeed, there is little logic and some

incongruity in the notion that one Legislature may speak

authoritatively on the intent of an earlier Legislature’s

enactment when a gulf of decades separates the two bodies.

[Citation.] Nevertheless, the Legislature’s expressed views on the

prior import of its statutes are entitled to due consideration, and

we cannot disregard them . . . . [E]ven if the court does not accept

the Legislature’s assurance that an unmistakable change in the

law is merely a “clarification,” the declaration of intent may still

effectively reflect the Legislature’s purpose to achieve a

17The statute at issue was Welfare and Institutions Code section

361.5, former subdivision (b)(10). (Renee J., supra, 96 Cal.App.4th at p.

1455.) The question before the Supreme Court was whether a clause

stating that reunification services must be provided if the parent has

made a reasonable effort to treat the problems that led to the child ’s

removal was applicable to subpart (A) of former subdivision (b)(10),

which stated that reunification services need not be provided where

past efforts at reunification proved unsuccessful after removal of

another child, and where parental rights to another child have been

severed. (Id. at pp. 1455–1457.) After the Supreme Court concluded

that it was not applicable, the Legislature introduced an amendment

that “restructured the clauses of subdivision (b)(10), creating a new

subparagraph (b)(11), to clarify that the ‘no reasonable effort’ clause

did apply” to subpart (A). (Id. at p. 1457.)

61

retrospective change. [Citation.] Whether a statute should apply

retrospectively or only prospectively is, in the first instance, a

policy question for the legislative body enacting the statute.

[Citation.] Thus, where a statute provides that it clarifies or

declares existing law, “[i]t is obvious that such a provision is

indicative of a legislative intent that the amendment apply to all

existing causes of action from the date of its enactment. In

accordance with the general rules of statutory construction, we

must give effect to this intention unless there is some

constitutional objection thereto.” [Citations.]’ [Citation.]”

(Renee J., at pp. 1460–1461, italics added.)

The court in Renee J. observed that “the Legislature acted

swiftly to clarify an existing law in the wake of court

interpretation . . . at the express invitation of the Supreme Court,

which declared the prior law to be ambiguous” and that the

Senate Rules Committee “explain[ed] that the amendment of the

statute [was] necessary merely to rectify a perceived problem

with the prior version, and not the product of any desire to take

the law in a new direction.” (Renee J., supra, 96 Cal.App.4th at

pp. 1461–1462.) Thus, “it was the intent of the Legislature to give

its clarification retroactive effect” and “the Legislature’s

clarification . . . is properly applied to all open cases, including

this one.” (Id. at pp. 1461, 1463.) Accordingly, “the new

legislation should have been applied, and properly overrode the

effect of the Supreme Court’s decision, which would otherwise

have been law of the case.” (Id. at p. 1463.)

Here, unlike in Renee J., the 2016 legislation imposed a

new MCO tax on HCSPs for a period of three years and was

clearly intended to take the law in a new direction to comply with

new federal funding requirements. The statutory language did

62

not provide or declare that the imposition of the new MCO tax

demonstrated its understanding that HCSPs under the Knox-

Keene Act are not insurers for any purposes, including in

preceding periods, and the legislative history did not discuss

Myers I or the appropriate taxation of HCSPs when explaining

the purpose of the legislation.18 In the absence of any of the facts

that supported overriding the law of the case doctrine in Renee J.,

we cannot conclude that Senate Bill No. X2-2 effected a change or

clarification of the law such that Myers I is no longer binding.

Myers also contends that the 2016 tax was one in a series

of MCO taxes imposed by the Legislature and thus cannot

constitute an intervening change in the law. Although the earlier

legislation imposed MCO taxes on Medi-Cal plans and facilities,

we agree that this history is relevant. For example, in 2009, the

Legislature enacted Assembly Bill No. 1422, which temporarily

extended the GPT to Medi-Cal managed care (MCMC) plans on

an urgency basis. The Assembly concurrence to Senate

amendments to the bill noted that “[m]ost MCMC plans are

Knox-Keene licensed health plans[]” and that “Knox-Keene

licensed plans do not pay the gross premiums tax.” (Concurrence

in Senate Amendments of Assem. Bill No. 1422, Sept. 3, 2009,

pp. 1–2, 5; Stats. 2009, ch. 157, p. 820.) As of 2009, the

Legislature apparently understood that Knox-Keene Act licensed

plans were not insurers for any purposes and were generally not

subject to the GPT, notwithstanding its imposition of the GPT on

certain plans. In 2013, the Legislature passed Senate Bill No. 78,

18The legislative history refers to Myers I and subsequent proceedings

in this matter only in the context of discussing litigation related to the

legislation, and expresses no opinion about the decision in Myers I.

63

which set a sunset date for the GPT tax and imposed a sales and

use tax on MCMCs from 2013 to 2016. (Stats. 2013, ch. 33, pp.

1116–1117; Senate Third Reading of Sen. Bill No. 78 (2013–2014

Reg. Sess.) as amended June 13, 2013, p. 1.) Thus, at the time

that Myers I was decided, the Legislature had already passed

legislation reflecting its understanding—repeated in a 2015

report from the Assembly Public Health and Developmental

Services Committee cited by Blue Cross—that Knox-Keene Act

licensed plans are not insurers and thus “are not generally

prohibited from other taxation.” (Assem. Pub. Health &

Developmental Services Comm., Informational Hearing:

Supporting and Enhancing California’s Medi-Cal and

Developmental Services Programs (2015–2016 2d Ex. Sess.) July

9, 2015, p. 9.) The 2016 MCO tax did not communicate this

understanding in a more direct or explicit manner than the prior

legislation, which further undermines the claim that it

constitutes an intervening change or clarification of the law.

In support of its arguments, Blue Shield cites a letter

printed in the Assembly Daily Journal which stated that, through

the 2016 MCO legislation, “the Legislature levied an MCO tax on

licensed health care service plans, recognizing that health care

service plans are not and have not been insurers as defined by

Article XIII, §28 of the California Constitution and California

Insurance Code §§ 22 and 23.” (Assem. Daily Journal, Sept. 14,

2019, p. 3589.) Myers argues that the letter, written three years

after Senate Bill No. X2-2 was signed into law, is not relevant to

our determination of the Legislative intent behind the 2016 MCO

tax. We agree.

“When construing a statute, our task is to ascertain the

intent of the Legislature as a whole. [Citation.] Generally, the

64

motive or understanding of an individual legislator is not

properly received as evidence of that collective intent, even if that

legislator was the author of the bill in question. [Citation.] Unless

an individual legislator’s opinions regarding the purpose or

meaning of the legislation were expressed in testimony or

argument to either a house of the Legislature or one of its

committees, there is no assurance that the rest of the Legislature

even knew of, much less shared, those views. [Citation.]

Moreover, if a legislator’s views were never expressed in a

legislative forum, those legislators or other interested parties

with differing opinions as to the bill’s meaning and scope had no

opportunity to present their views in rebuttal. [Citation.]”

(McDowell v. Watson (1997) 59 Cal.App.4th 1155, 1162, fn. 3.)

The author of the letter voted on Senate Bill No. X2-2 in 2016 but

was not the author of the bill. Even if he had been, his

understanding of legislation passed three years prior is not

determinative of the understanding of the Legislature as a whole

as to the purpose of Senate Bill No. X2-2 absent any evidence

that it was shared with the Legislature at that time.

In sum, although the Legislature has the authority to pass

legislation stating that Knox-Keene Act licensed plans are not

insurers for any purposes, the 2016 MCO tax had the stated

purpose of complying with federal funding requirements after the

periods relevant to this litigation and contains no express

statement that it was intended to be an exercise of that

authority. Thus, no intervening clarification of existing law

overrides the application of the law of the case doctrine.19

19 Blue Cross and Blue Shield assert that, in the absence of a bright

line test, HCSPs will continue to face uncertainty as to how they are

65

1.4. Applying the Roddis standard to the undisputed

facts, Real Parties in Interest are not insurers.

Having concluded that Roddis supplies the applicable

standard and that we remain bound by the Myers I court’s

adoption of that standard under the law of the case doctrine, we

now apply it to the undisputed facts before us.

Pursuant to Roddis, we balance the direct service aspects of

the businesses of Real Parties in Interest against the indemnity

aspects and determine whether indemnity is a significant

financial proportion of the business. (Roddis, supra, 68 Cal.2d at

p. 683.) As discussed, indemnity exists where a member bears the

risk of personal liability for medical services—i.e., the healthcare

provider may seek payment directly from the member for medical

services, who must then seek reimbursement from the HCSP. (Id.

at p. 682.) “On the other hand, there is a strong social policy to

encourage the services which health plans provide the public.”

(Roddis, supra, 68 Cal.2d at p. 682.) Roddis indicates that the

direct service offered by HCSPs is the provision of medical

services to members for which they are not personally liable.

(Ibid.)

taxed. Considering that Real Parties in Interest have consistently paid

over 90 percent of claims costs to in-network providers every year for

approximately 10 years and members of their plans (including PPO

plans) have strong incentives to seek care from in-network providers, it

seems unlikely that the application of the Roddis balancing test would

yield different results for the parties before us if further litigation

arose. In any event, these concerns are best addressed by the

Legislature, which may wish to enshrine in law its understanding that

Knox-Keene Act licensed plans are not insurers for any purpose and

are not subject to the GPT.

66

Further, although Myers I held that an HCSP’s regulatory

status does not determine whether it is an insurer for tax

purposes, we agree with the trial court that the Knox-Keene Act

is a relevant consideration when considering the service functions

of HCSPs. Health and Safety Code section 1342 demonstrates

that the Legislature contemplated that HCSPs would provide

various services, including “ensur[ing] the best possible health

care for the public at the lowest possible cost by transferring the

financial risk of health care from patients to providers.” (Health

& Saf. Code, § 1342, subd. (d).) The regulatory scheme also

imposes additional obligations on HCSPs, such as requiring the

establishment and maintenance of provider networks (id.,

§ 1367.03), quality assurance monitoring processes (id., § 1370),

and a system for submitting grievances (id., § 1368, subd. (a);

Cal. Code Regs., tit. 28, § 1300.68).

As HCSPs licensed under the Knox-Keene Act, the Health

and Safety Code requires that the contracts between Real Parties

in Interest and their providers state that a plan member will not

be liable to the provider for amounts owed for services provided

under the plan. (Health & Saf. Code, § 1379, subd. (a).) Even if a

provider contract does not include this provision, the contracting

provider is barred by law from attempting to collect the amounts

owed under the plan from the member. (Id., subd. (b).) Because

HCSP members bear no risk of personal liability for in-network

care, only out-of-network care provided to members may be

equated to “indemnity” under Roddis and Myers I.

With this legal framework and regulatory background in

mind, we turn to the undisputed evidence. We conclude that Real

Parties in Interest are not insurers as a matter of law under the

relevant standard.

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1.4.1. Blue Cross

Under Blue Cross’s HMO and PPO plans, members have

access to a network of medical providers, hospitals, and other

facilities that have contracted with Blue Cross to provide medical

services to Blue Cross members at agreed upon rates. From 2005

through 2016, Blue Cross’s contracts with these providers stated

that members would not be required to pay providers for amounts

owed to that provider by Blue Cross, other than copayments,

coinsurance, or deductibles, even if Blue Cross fails to pay the

provider. Thus, beyond copayments, coinsurance, or deductibles,20

a member could never be liable for payments owed by Blue Cross

to providers of in-network services. Between 2005 and 2016,

between approximately 92 and 97 percent of Blue Cross’s claim

costs (for both HMO and PPO plans) were for in-network claims,

for which providers may only seek payment from Blue Cross.

Thus, approximately 3 to 8 percent of its claim costs were

indemnity payments for out of network services for which

members were liable.

Thus, a far greater proportion of Blue Cross’s business was

devoted to direct service than to indemnity under Myers I and

Roddis.21

20Myers does not argue on appeal that member cost share payments

constitute indemnity.

21 Because we conclude that Blue Cross is not an insurer under Myers

I, we do not address its alternative argument that the court should not

subject it to retroactive liability under Myers I.

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1.4.2. Blue Shield

Under Blue Shield’s HMO plans, members must use

contracted providers for nearly all care for the care to be covered

under the plan. Although PPO members, unlike HMO members,

may choose to obtain services from non-contracted (out-of-

network) providers, PPO plans incentivize the use of contracted

providers. Blue Shield’s provider contracts make clear that “in no

event” may providers seek payment from plan members for

covered services. Blue Shield’s HMO and PPO contracts with

members also reflect the prohibition on member financial liability

to contracted providers. Even under HMO plans, certain non-

contracted providers are prohibited from attempting to collect

from plan members, including out-of-network providers of

emergency services or services authorized by the plan that cannot

be rendered by a contracted provider, and continuity of care

services when a contracted provider becomes non-contracted.

During the relevant period of 2005 to June 2016, Blue

Shield’s direct payments to contracted providers for which its

members bore no financial responsibility beyond cost share

payments ranged from 94 percent to 97 percent, and averaged 96

percent, of its total payments for members’ health care. Blue

Shield’s expenditures to non-contracted providers over the same

period averaged 4 percent. Emergency services and other out-of-

network services for which members are not liable are included in

the 4 percent, meaning that the proportion of Blue Shield’s

indemnity is likely lower, though the record does not identify

what portion of this figure was for emergency services.

Even if the indemnity payments made by Blue Shield were

no lower than approximately 3 to 6 percent during the relevant

period, the proportion of Blue Shield’s business that constituted

69

indemnity was not significant in comparison to the portion that

comprised direct service.

1.4.3. Kaiser

Kaiser does not sell contracts that allow members to seek

covered health care services from any provider or hospital of their

choice, nor does Kaiser, with limited exceptions, promise to

reimburse members for care they receive outside of Kaiser

Permanente. During the relevant period, Kaiser members were

responsible for copayment, coinsurance, and deductible amounts

when they sought medical care from KFH and the Permanente

Medical Groups. However, Kaiser’s EOCs during the relevant

period stated: “Our contracts with Plan Providers provide that

you are not liable for any amounts we owe.” To the extent that

the out-of-network care was in connection with emergency

services, Kaiser’s contracts with its members provide that

members are not responsible for any amounts beyond cost share

payments.

Between 2007 and 2016, measured by dollars,

approximately 1 to 4 percent of Kaiser’s healthcare expenses

were paid to noncontracting providers or directly reimbursed to

members. For the years 2007 through 2014, measured by discrete

visits or consultations, approximately 95 percent of the covered

health services provided to Kaiser members were rendered by

Kaiser Permanente providers. In 2015, approximately 93.3

percent of the covered health services provided to Kaiser

members were rendered by Kaiser Permanente providers, and in

2016, approximately 94.7 percent of the covered health services

provided to Kaiser members were rendered by Kaiser

Permanente providers.

70

Even disregarding that some portion of the out-of-network

visits and expenses were likely for emergency services for which

members are not personally liable, the portion of Kaiser’s

business that constitutes indemnity was not significant compared

to the direct service component.

1.4.4. Health Net

During the relevant period, Health Net’s EOCs for its

commercial HMO plans provided that members must choose a

physician group that would provide or authorize all medical care

and that members were completely financially responsible for

medical care that was not authorized by that physician group,

with the exception of emergency medical care. Between 2007 and

2016, Health Net’s commercial HMO provider contracts with in-

network providers required the provider to agree not to bill or

seek compensation or reimbursement from members for

contracted services they provided to members, except for

copayments, coinsurance, or deductibles.

The annual approximate percentage of Health Net’s

reported in-network expenses as compared to its total medical

expenses for all Health Net product lines for the years 2007 to

2016 was between 96 percent to 99 percent. In the combined

period of 2007 through 2016, an average of approximately 98.6

percent of Health Net’s reported health care expenses were made

to in-network providers as defined by the DMHC. Thus, the

portion of Health Net’s business that constituted indemnity

(between approximately 1 and 4 percent) was not significant.

71

2. The trial court did not abuse its discretion in

sustaining the evidentiary objections of Real Parties in

Interest.

2.1. Standard of Review

Myers asserts that there is a split of authority in California

as to the appropriate standard of review of evidentiary rulings.

He contends that Pipitone v. Williams (2016) 244 Cal.App.4th

1437, which in turn cites Reid v. Google, Inc. (2010) 50 Cal.4th

512, supports that the de novo standard should apply. However,

in Reid, the Supreme Court applied the de novo standard of

review to evidentiary objections on which the trial court had

failed to rule, reasoning that “because there was no exercise of

trial court discretion, the Court of Appeal had no occasion to

determine whether the trial court abused it.” (Reid, at p. 535.)

The Supreme Court expressly declined to consider “whether a

trial court’s rulings on evidentiary objections based on papers

alone in summary judgment proceedings are reviewed for abuse

of discretion or reviewed de novo.” (Ibid.) “[T]he weight of

authority since Reid supports application of the abuse of

discretion standard. Cases considering this question and applying

the abuse of discretion standard after Reid have been published

by the First District, Second District, Third District, Fourth

District (Division One), Fifth District, and Sixth District— in

other words, essentially every district of the appellate courts of

the State of California . . . .” (Doe v. SoftwareONE, Inc. (2022) 85

Cal.App.5th 98, 103, fn. omitted; LAOSD Asbestos Cases (2020)

44 Cal.App.5th 475, 485 [“The weight of authority in this state is

that we apply an abuse of discretion standard when we review

trial court evidentiary rulings.”].)

72

As courts have observed, “application of the abuse of

discretion standard is eminently sensible in light of the practical

realities of evidentiary objections in summary judgment

proceedings.” (Doe v. SoftwareONE, Inc., supra, 85 Cal.App.5th

at p. 103; cf. Ducksworth v. Tri-Modal Distrib. Servs. (2020) 47

Cal.App.5th 532, 544, revd. on other grounds in Pollock v. Tri-

Modal Distribution Services, Inc. (2021) 11 Cal.5th 918.) Given

the large number of evidentiary objections that frequently

accompany summary judgment motions, “trial courts typically

rule on evidentiary objections in summary fashion, which often

prevents us from determining the precise nature (i.e., principally

legal or factual) of the trial court’s ruling. And rulings on

evidentiary objections often ‘involve trial courts making

qualitative and sometimes equitable determinations,’ which are

the sort of decisions we typically review for abuse of discretion.

[Citation.]” (Doe, at p. 103; cf. Ducksworth, at p. 544 [“Because of

the daunting complexity, volume, and pace of [the trial court’s]

decisionmaking task, the latitude implied by the abuse-of-

discretion standard thus does make ‘great sense.’ [Citation.]”].)

We therefore follow the weight of authority and apply the

abuse of discretion standard. Under this standard, “[a]n

‘erroneous evidentiary ruling requires reversal only if “there is a

reasonable probability that a result more favorable to the

appealing party would have been reached in the absence of the

error.” [Citation.]’ [Citation.” (Daimler Trucks North America

LLC v. Superior Court (2022) 80 Cal.App.5th 946, 960.)

2.2. The court did not err in sustaining the

evidentiary objections of Real Parties in Interest.

The trial court sustained multiple evidentiary objections to

the Duncan declarations, primarily on relevance and foundation

73

grounds. These objections related to statements in the Duncan

declarations that Real Parties in Interest employ actuaries and

engage in actuarial analyses, make the majority of their

payments to providers on a fee-for-service basis, hold reserves

and free capital, assume and spread risk, file the same

documents as insurers do, and thus that Real Parties in Interest

operate as insurers, among others.

As discussed above, the Roddis standard does not require a

court to consider whether an HCSP engages in risk pooling or

spreading, whether its payments to providers are fee-for-service

or capitated, or whether it otherwise operates in a manner

comparable to insurers. Thus, the trial court did not abuse its

discretion in concluding that the portions of the Duncan

declarations to which Real Parties in Interest objected were

irrelevant.

Evidence that Health Net and Blue Cross received payouts

as insurers under the federal Affordable Care Act was also

properly excluded. The trial court did not abuse its discretion in

concluding that such payments are immaterial, as “the question

of whether a law applies to HCSPs as well as insurers depends on

the purpose of the law” and is not determined by labels that may

apply to Real Parties in Interest in different contexts. This

determination is consistent with Myers I, which instructed that

courts must “ ‘look beyond the formal labels the parties have

affixed to their transactions’ ” and instead “ ‘discern the true

economic substance’ of the arrangement.” (Myers I, supra, 240

Cal.App.4th at p. 741, quoting Metropolitan Life, supra, 32 Cal.3d

at pp. 656–657.) The standard adopted in Myers I to determine

the true economic substance of an HCSP’s business does not

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require a court to consider whether the HCSP is classified as an

insurer by the federal government.

Finally, the trial court did not abuse its discretion when it

excluded evidence that PPO plans offered by insurance

companies affiliated with Blue Cross and Blue Shield are similar

to the PPO plans offered by Blue Cross and Blue Shield and that

their websites and actuarial certificates refer to both as insurers.

Whether HCSPs and related insurers offer similar plans or fulfill

similar functions has no bearing under the Roddis standard.

Moreover, as discussed, whether Blue Cross and Blue Shield

refer to their PPO plans as insurance in certain contexts is a

question of labeling, not economic substance, and is therefore of

no relevance under Myers I.

In sum, the court did not abuse its discretion in excluding

evidence that had no bearing on the application of the controlling

legal standard. For the same reason, there is no reasonable

probability that Myers would have reached a more favorable

result had this evidence been admitted.

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DISPOSITION

The judgments are affirmed. Real Parties in Interest shall

recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

LAVIN, Acting P.J.

WE CONCUR:

EGERTON, J.

NGUYEN, J.*

*Judge of the Los Angeles Superior Court, assigned by the Chief

Justice pursuant to article VI, section 6 of the California Constitution.

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