Opinion ID: 2019452
Heading Depth: 1
Heading Rank: 4

Heading: Reasonableness of Classification.

Text: It is the position of the city that commercial insurance companies that issue policies, which indemnify the policy-holders for expenses incurred for hospital care of themselves and their dependents, perform the same function as does the plaintiff. From this assumed premise the city argues that an arbitrary and unconstitutional classification is made by sub. (8) of sec. 182.032, Stats. 1955 and 1957, in granting exemption to the property of the plaintiff and not that of such commercial insurance companies. In the case of Price v. State (1919), 168 Wis. 603, 613, 171 N. W. 77, this court, after citing and quoting from a number of earlier cases, said: These, among other authorities which might be cited almost indefinitely, thoroughly establish the proposition that as to matters of classification the legislature has a very broad discretion, and that its judgment with reference thereto will be respected and enforced by the courts unless the classification is so arbitrary that there is no conceivable basis in reason therefor. (Emphasis supplied.) Furthermore, a legislature has much-more leeway in granting exemptions in taxation statutes than it does in regulatory measures enacted under its police power without running athwart of the equal-protection-of-the-laws clause of the Fourteenth amendment. Hillside Transit Co. v. Larson (1954), 265 Wis. 568, 583, 62 N. W. (2d) 722. Sec. 182.032, Stats., the enabling act under which the plaintiff was organized, and its contracts with its participating and service hospitals and also with its subscribers, make it clear that the plaintiff is but the arm of such hospitals for collecting prepayment for hospital services. These hospitals, including those operated by the state, or a political subdivision thereof, are all nonprofit hospitals enjoying tax exemption. If the legislature can confer tax exemption upon those of such hospitals, which are not operated by the state or a political subdivision thereof, we can perceive of no valid reason why it should not be permitted to do the same with the plaintiff which is but an instrumentality of such hospitals. There is a marked difference in method of operation between a Blue Cross hospital-service corporation and a commercial insurance company that sells hospital-care indemnity insurance. We recently had occasion to point this out in Kopp v. Home Mut. Ins. Co. (1959), 6 Wis. (2d) 53, 57, 94 N. W. (2d) 224, wherein we stated: There are two widely used methods whereby a person can purchase protection against future hospitalization costs. One is to purchase an insurance policy providing for the reimbursement to the insured for future hospital costs falling within the limits of the policy. The other is to enroll under the Blue Cross plan whereby all affiliated hospitals agree to provide such person free hospital service falling within a certain specified scale of benefits. Thus a Blue Cross hospital-service corporation, through its participating and service hospitals, provides hospital service directly to the subscriber, or his dependents, while the commercial insurance company provides money indemnity. There is nothing to prevent a policyholder from using the indemnity payment received by him for purposes other than paying his hospital bill. Thus, while the policyholder is protected, the hospital which provided the service is not. The state's interest in protecting the financial status of its state, county, municipal, and voluntary nonprofit hospitals is a further justification for treating Blue Cross hospital-service corporations differently taxwise than it does commercial insurance companies writing hospital-care indemnity insurance. There is a split of authority as to whether nonprofit medical and hospital-service corporations are engaged in the insurance business, a majority of the decisions holding that they are not. Anno. 167 A. L. R. 322. However, Ohio, which is one of the jurisdictions that holds that such corporations are engaged in the insurance business, nevertheless has upheld the constitutionality of a statute which exempted them from the payment of a general franchise tax imposed upon other insurance corporations. Cleveland Hospital Service Asso. v. Ebright (1943), 142 Ohio St. 51, 49 N. E. (2d) 929. In State ex rel. Bernhard Stern & Sons v. Bodden (1917), 165 Wis. 75, 160 N. W. 1077, a statute granting exemption from tax was attacked on the ground of violating sec. 1, art. VIII, Const., requiring uniformity of taxation. This court found the classification reasonable and upheld the constitutionality of the tax. In its opinion the court cited with approval the following extract from an earlier opinion in Black v. State (1902), 113 Wis. 205, 219, 89 N. W. 522 (p. 81): `There may indeed be classification; and if the classification be founded upon real differences, affording rational grounds for a distinction, such classification will not violate the rule of uniformity and equality.' Enough has been said to indicate that the classification made by sub. (8) of sec. 182.032, Stats. 1955 and 1957, does rest upon real differences existing between nonprofit hospital-service corporations and commercial insurance companies writing hospital-care indemnity insurance. Therefore, such statute does not impose an arbitrary or unreasonable classification and is constitutional.