Court Opinion

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Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

12-26-1995

Health Mainten. Org. of New Jersey, Inc. v.
Whitman
Precedential or Non-Precedential:

Docket 94-5698

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                 UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT
                          ___________

                          No. 94-5698
                          ___________

          THE HEALTH MAINTENANCE ORGANIZATION OF NEW
          JERSEY, INC., d/b/a HMO/NJ

                               Appellant,

                         vs.

          CHRISTINE TODD WHITMAN, in her capacity as
          Governor of the State of New Jersey;
          ELIZABETH RANDALL, in her capacity as
          Commissioner of the Department of Insurance
          of the State of New Jersey; CHARLES
          WOWKANECH, in his capacity as Chairman of the
          Individual Health Coverage Program

                               Appellees.

                          ___________

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF NEW JERSEY
                  (D.C. Civil No. 93-cv-05775)
                          ___________

                     ARGUED OCTOBER 11, 1995
     BEFORE:   GREENBERG, LEWIS and ROSENN, Circuit Judges.

                    (Filed December 26, 1995)
                           ___________

Alan J. Davis (ARGUED)
Ballard, Spahr, Andrews & Ingersoll
1735 Market Street
51st Floor
Philadelphia, PA 19103

          Attorney for Appellant

                               1
Michael E. Goldman (ARGUED)
Office of Attorney General of New Jersey
Department of Law & Public Safety
Richard J. Hughes Justice Complex
Trenton, NJ 08625

          Attorney for Appellees

Frank W. Hunger
 Assistant Attorney General
Faith S. Hochberg
 United States Attorney
Anthony J. Steinmeyer
Jeffrey Clair
United States Department of Justice
Appellate Civil Division, Room 3617
Washington, DC 20530-0001

          Attorneys for United States as Amicus Curiae

B. John Pendleton, Jr.
McCarter & English
100 Mulberry street
Four Gateway Center
Newark, NJ 07101-0652

          Attorney for Blue Cross and Blue Shield
          New Jersey as Amicus Curiae

                             ___________

                         OPINION OF THE COURT
                             ___________

LEWIS, Circuit Judge.

          This appeal requires us to address the delicate balance

between federal and state authority established under the

Supremacy Clause of the United States Constitution.   The Health

Maintenance Organization of New Jersey ("HMO/NJ") appeals from

the district court's grant of summary judgment to defendants

                                  2
Christine Todd Whitman, the Governor of New Jersey, Elizabeth

Randall, the Commissioner of the New Jersey Department of

Insurance, and Charles Wowkanech, the Chairman of the New Jersey

Individual Health Coverage Program (collectively, "the State").

The sole issue we address in this appeal is whether the Federal

Employee Health Benefits Act, 5 U.S.C. §§ 8901, et. seq.

("FEHBA") preempts certain provisions of the New Jersey Health

Insurance Reform Act, N.J.S.A. §§ 17B:27A-2 - 27A-16.4 (the

"Reform Act").   HMO/NJ argues that the premium assessments under

the Reform Act are preempted by FEHBA because they will increase

the cost of individual health care benefits to federal employees,

benefits which are payable from the Federal Employee Health

Benefits Fund.   We agree.   For the reasons set forth below, we

hold that section 8909(f) of FEHBA preempts premium assessments

under the Reform Act when applied to insurance plans governed by

FEHBA, and will reverse the district court's order on the issue

of FEHBA preemption.

                                 I.

                                 A.

            In response to this nation's growing health care

crisis, New Jersey enacted the Reform Act to ensure that all its

citizens would receive the benefits of individual health care

coverage.   (Individual health care coverage is coverage offered

by an insurance company or health maintenance organization

directly to an individual and his or her family.    By increasing

the availability of individual health care coverage, the State

intends to reduce the number of uninsured self-employed or

                                 3
unemployed residents, who often do not have the option of

purchasing employer-based or group health coverage).

          Under the Reform Act, a non-compensated, nine-member

Board of Directors "shall establish the policy and contract forms

and benefit levels to be made available" under an Individual

Health Coverage Program.   N.J. Stat. Ann. § 17B:27A-7.   In 1993,

the Board of Directors devised a program whereby state residents

would be offered five standardized individual health plans.1    The

program requires New Jersey health insurance companies and health

maintenance organizations (collectively referred to in the Reform

Act as "carriers") to offer state residents the five standardized

policies as a condition of continuing to issue any type of health

benefit plans in the state.     See N.J. Stat. Ann. §§ 17B:27A-4,

17B:27A-(a)(3)(c).   Carriers were required to start offering the

five plans on August 1, 1993.

          The central component of the Reform Act is the

requirement that all carriers in the state pay an "assessment"

1
     The five standardized plans are intended to offer residents
a range of coverage with varying co-payment levels and a choice
of deductibles. These plans are guaranteed, which ensures that
an eligible applicant (in general, one is eligible for a
standardized plan if unable to procure group coverage, Medicare,
or Medicaid) will not be denied coverage. See N.J. Stat. Ann.
§17B:27A-6(a). The plans are also "community rated," so that a
carrier must offer a standard plan to everyone at the same rate
regardless of the applicant's age, gender, profession, health
status, or place of residency within the state. See id. If an
uninsured resident applies for one of the standard plans, and
that applicant has a pre-existing health condition, the carrier
is allowed to deny coverage for the preexisting condition for one
year, but thereafter must cover all conditions. N.J. Stat. Ann.
§ 17B:27A-7(b). With the goal of making the individual policy
market a competitive one, the State does not regulate the rates
charged by carriers for the five plans.

                                  4
that is used to defray financial losses incurred by those

companies that provide a disproportionate share of the "higher-

risk" individual health insurance coverage in the state.    In

group health plans, the cost of insuring higher-risk people,

individuals who require expensive medical treatment, is spread

among the entire insured population.   In contrast, when people

are individually insured, these costs must be borne by either the

individual or the insurance company.   As a result, insurance sold

on an individual basis may be prohibitively expensive for the

consumer and unprofitable for the insurance company.    Through the

assessment, the Reform Act attempts to spread the cost of

insuring higher-risk individuals among New Jersey's entire

insurance industry in order to reduce the cost to the individual

while increasing the profitability of insuring those individuals.

          New Jersey carriers are required to "pay or play" with

respect to the individual health insurance market.     For each

carrier, the Board establishes a target goal of individual

policies, or more specifically "non-group" policies, that the

carrier must issue in a calendar year if it wishes to obtain an

exemption from the assessment.   In general, a carrier's target

number of non-group policies for the exemption is calculated

based on the carrier's proportion of the overall state-wide

health coverage market.   See N.J. Stat. Ann. § 17B:27A-12(d)(3).

           The State pools the money collected pursuant to the

annual assessment and uses it to reimburse carriers who suffer

losses in the individual insurance market during the calendar

year.   The assessment is calculated as the proportion of the

                                 5
carrier's "net earned premium" for the calendar year preceding

the assessment in relation to the net earned premium of all

carriers for the calendar year preceding the assessment.    N.J.

Stat. Ann. § 17B:27A-12(a)(2).   The Reform Act uses a carrier's

net earned premium as a proxy for the carrier's market share.       A

simplified example would be if a carrier earned 15% of all health

insurance premiums in New Jersey, then it would be assessed 15%

of the total losses incurred by carriers issuing individual

policies.   The "net earned premium" is all premiums earned in New

Jersey by a carrier on any of its health benefit plans, including

"the aggregate premiums earned on the carrier's insured group and

individual business and health maintenance organization

business[.]"   N.J. Stat. Ann. § 17B:27A-2.   Notably, premiums

from self-insured plans administered by a carrier are not

included in the assessment calculation.    In addition, carriers

are assessed their proportion of the administrative expenses

incurred by the Individual Health Coverage Program.

§ 17B:17A-11(a).

                                 B.

            FEHBA provides health benefits for federal employees,

their families, and federal retirees.     See 5 U.S.C. § 8901 et

seq.   The program is administered by the Office of Personnel

Management ("OPM"), which is authorized to negotiate contracts

with qualified carriers for the provision of health benefits to

federal employees and other enrollees.    Premiums for enrollment

in a health plan are set annually and determined in OPM's

contract negotiations with each participating carrier.

                                 6
           The costs of enrolling in a health plan are paid by

contributions from the enrollee and the federal government.      The

government's share is equal to 60% of the average premium charged

by major participating health plans and may not exceed 75% of the

total charge for enrollment.    5 U.S.C. § 8906.    The balance of

the enrollment charge is paid by the enrollee and withheld from

the enrollee's salary or retirement annuity.       These contributions

are then paid into a specifically-designated account in the

United States Treasury:    the Employee Health Benefits Fund (the

"Fund").   5 U.S.C. § 8909.   Payments and reimbursements to

participating insurance carriers are then made from the Fund.

           As part of the Omnibus Budget Reconciliation Act of

1990, Pub.L. 101-508, Congress amended FEHBA by adding subsection

8909(f) which provides that:
          (1) No tax, fee, or other monetary payment
          may be imposed, directly or indirectly, on a
          carrier or an underwriting or plan
          administration subcontractor of an approved
          [FEHBA] health benefits plan by any State
          * * * or by any political subdivision or
          other governmental authority thereof with
          respect to any payment made from the Fund.

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

           exempt any carrier underwriting or plan

           administration subcontractor of an approved

           health benefits plan from the imposition,

           payment, or collection of a tax, fee, or

           other monetary payment on the net income or

           profit accruing to or realized by such

           carrier or underwriting or plan

                                 7
            administration subcontractor from business

            conducted under [FEHBA], if that tax, fee, or

            payment is applicable to a broad range of

            business activity.

5 U.S.C. 8909(f).

                                 C.

            HMO/NJ, a wholly owned subsidiary of U.S. Healthcare,

Inc., is a health maintenance organization licensed by New Jersey

to provide health care benefit plans to employers and individuals

in the state.   Specifically, HMO/NJ also has a contract with the

federal government to provide health care benefits to federal

employees and federal enrollees who select HMO/NJ as their

provider.   For the 1992 calendar year, HMO/NJ was assessed

$429,783 under the Reform Act's premium assessment program.      The

total 1992 assessment for all program members was $2,613,005.

HMO/NJ paid its assessment, and it did not receive a 1992

reimbursement under the assessment program.     In 1993, HMO/NJ paid

an assessment of $6.4 million, again without receiving a

reimbursement under the program.      Like other carriers, HMO/NJ

began to issue the five standardized plans on August 1, 1993.       In

1993 to qualify for an exemption from the assessment HMO/NJ's

target number of non-group policies was 10,000; as of

December 27, 1993, HMO/NJ had issued only 428 non-group member

policies.   In contrast, to compensate for losses on its

individual policies during that year, Blue Cross & Blue Shield of

New Jersey received a 1993 program reimbursement of approximately

$54 million.

                                 8
          The Reform Act's assessment provision is at the heart

of HMO/NJ's preemption claim.   HMO/NJ claims that "as a result of

having to pay into the premium assessment program, without

receiving any of the proceeds therefrom, HMO/NJ has been forced

to include a provision in its rates to subscribers -- principally

private sector employee benefit plans and federal employee plans

-- to cover the cost of the premium assessment."   See Appellant's

Brief p.12 (emphasis added).    A direct result of the 1993

assessment has been that HMO/NJ increased the cost of health care

benefits to its subscribers by "about one percent."    As a result,

HMO/NJ argues that "[t]he assessment is . . . a state imposed

tax, fee or monetary payment on FEHBA plans.    Accordingly, it

falls within the realm of FEHBA preemption."   Id., p.16.

          HMO/NJ filed a lawsuit in the federal district court

for the District of New Jersey asserting that the State's premium

assessment program is preempted by both the Employee Retirement

Income Security Act ("ERISA") and by 5 U.S.C. § 8909(f) of FEHBA.

Ruling on cross-motions for summary judgment, the district court

held that neither federal statute preempted the relevant

provisions of the Reform Act.    (For the purposes of this appeal

our review is limited to the issue of FEHBA preemption).      The

court concluded that FEHBA did not preempt the State scheme

because the statute itself allows states to impose assessments

"applicable to a broad range of business activity," 5 U.S.C.

§ 8909(f)(2), and the New Jersey statute fell within this savings

provision because the state law "does not specifically target

FEHBA plans."   The Health Maintenance Organization of New Jersey

                                 9
v. Christine Todd Whitman, No. 93-5775, slip op. at 8 (D. N.J.

Oct. 3, 1994).   This appeal followed.

                                II.

           The district court had jurisdiction over this matter

under 28 U.S.C. § 1331.2   We have jurisdiction under 28 U.S.C.

§ 1291.3   Our review of the district court's grant of summary

judgment is plenary, Public Interest Research of N.J. v. Powell

Duffryn Terminals, Inc., 913 F.2d 64, 71 (3d Cir. 1990); Wheeler

v. Towanda Area School Dist., 950 F.2d 128, 129 (3d Cir. 1991),

as is our review of all questions of law.    Epstein Family

Partnership v. Kmart Corp., 13 F.3d 762, 765-66 (3d Cir. 1994).

                                III.

           Under the Supremacy Clause, U.S. Const. Art. VI, cl. 2,

federal law preempts state law "either by express provision, by

implication, or by a conflict between federal and state law." New

York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 115 S. Ct. 1671, 1676 (1995).    In other

words, "[w]here a state statute conflicts with or frustrates

federal law, the former must give way."    CSX Transportation v.
Easterwood, 123 L.Ed.2d 387, 396 (1993).    In order to avoid an

unintended encroachment on state authority, the Supreme Court has

made clear that when interpreting a federal statute, courts

2
      "The district court shall have original jurisdiction of all
civil actions arising under the Constitution, laws, or treaties
of the United States." 28 U.S.C. § 1331.
3
      "The courts of appeals (other than the United States Court
of Appeals for the Federal Circuit) shall have jurisdiction of
appeals from all final decisions of the district courts of the
United States . . ." 28 U.S.C. § 1291.

                                 10
should be reluctant to find preemption.   Id. at 396; Travelers,

115 S. Ct. at 1676.   Instead, we begin with the presumption that

Congress does not intend to preempt state law.     Travelers, 115 S.

Ct. at 1676.   State law will only be preempted when it is the

"clear and manifest purpose of Congress."     CSX, 123 L.Ed.2d at

396 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230

(1947)); Travelers, 115 S. Ct. at 1676; Cipollone v. Liggett

Group, Inc., 112 S. Ct. 2608, 2617-18 (1992); Metropolitan Life

Ins. Co. v. Massachusetts, 472 U.S. 724, 740 (1985).

          To determine Congress' intent, we begin with the text

of the statute in question, and then move on to "the structure

and purpose of the Act in which it occurs."    Travelers, 115 S.

Ct. at 1677. As the Supreme Court has stated:
          If the statute contains an express pre-
          emption clause, the task of statutory
          construction must in the first instance focus
          on the plain wording of the clause, which
          necessarily contains the best evidence of
          Congress' preemptive intent.

CSX, 123 L.Ed.2d at 396.    If Congressional intent is unclear,

however, courts should defer to an implementing agency's
interpretation of the statute, as long as that interpretation is

reasonable.    See Chevron U.S.A. v. Natural Resources Defense

Council, 467 U.S. 837, 843 (1984) ("[I]f the statute is silent or

ambiguous with respect to the specific issue, the question for

the court is whether the agency's answer is based on a

permissible construction of the statute.").    With these

principles in mind, we conclude that Congress intended to preempt

state law in this instance.

                                 11
                                  A.

           The plain language of subsection 8909(f)(1) of FEHBA

preempts the New Jersey Reform Act's premium assessment.     In

interpreting any statute, we begin with the plain language of the

statute itself.    Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494

U.S. 827, 835 (1990); In re Segal, 57 F.3d 342, 345 (3d Cir.

1995) ("[W]e begin with the familiar canon that the starting

point for interpreting a statute is its plain language.") (citing

Mansell v. Mansell, 490 U.S. 581, 588 (1989)); Resolution Trust

Corp. v. Cityfed Financial Corp., 57 F.3d 1231, 1237 (3d Cir.

1995).   While the expression "plain language" may in certain

instances be an oxymoron, In re Segal, 57 F.3d at 346, unless

there is a clear expression of legislative intent to the

contrary, Kaiser, 494 U.S. at 835, "courts must presume that a

legislature says in a statute what it means and means in a

statute what it says."     Connecticut Nat'l Bank v. Germain, 112 S.

Ct. 1146, 1149 (1992).

           Title 5 of the United States Code, at section

8909(f)(1) provides that:

           (1)    No tax, fee, or other monetary payment

           may be imposed, directly or indirectly, on a

           carrier or an underwriting or plan

           administration subcontractor of an approved

           [FEHBA] health benefits plan by any State

           * * * or by any political subdivision or

           other governmental authority thereof with

           respect to any payment made from the Fund.

                                  12
5 U.S.C. 8909(f).    Under section 8909(f)(1), state regulation is

preempted if it is (1) a state or local tax, fee, or other

monetary payment; (2) imposed directly or indirectly on a

carrier; and (3) with respect to payments made from the Employee

Health Benefits Fund.     See Travelers Ins. Co. v. Cuomo, 14 F.3d

708, 715 (2d Cir. 1993) (holding that a state surcharge on

hospital rates was preempted by both ERISA and FEHBA), reversed

on other grounds, New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 115 S. Ct. 1671 (1995)

(holding that ERISA did not preempt the state surcharge).

Although there is no dispute that the premium assessment

satisfies the second criteria, the state argues that the

assessment does not meet the first and third criteria.

            The State argues that the Reform Act's premium

assessment is not preempted by section 8909(f)(1) for two

reasons.    First, the State argues that Congress only intended

FEHBA preemption to apply to "premium taxes," and that the

premium assessment cannot be considered a premium tax because it

is "apportioned on the basis of market share, not premiums."

(Appellees' Br. at 42) (emphasis in original).     (Premium taxes

are defined as those taxes "imposed on FEHB premiums by any State

. . ."     48 C.F.R. § 1652.216-71 (1992)).   The State's argument is

based on language in the statute's legislative history4 as well

4
      H.R. No. 101-881, 101st Cong., 2d Sess. 173 reprinted in
1990 U.S.C.C.A.N. at 2181 ("exempts the FEHB from state premium
taxes"); H.R. No. 101-881, 101st Cong., 2d Sess. 176 reprinted in
1990 U.S.C.C.A.N. at 2184 ("This state premium tax exemption is
intended to be similar in nature and application to the existing
premium tax exemptions applicable to the Employee's Life

                                  13
as its title in section 7002(c) of OBRA ("EXEMPTION FROM STATE

PREMIUM TAXES").   Second, the State argues that even if the

assessment falls within section 8909(f)(1)'s definition of "tax,

fee, or other monetary payments," it is not made "with respect to

any payment from the fund."     (Appellees' Br. at 42-43). According

to the State, the premium assessment simply represents a general

cost of doing business.    The fact that this cost is passed on to

FEHBA enrollees is a purely voluntary decision made by the

carrier.    Neither the Reform Act nor its implementing regulations

mandate such a result.     In presenting these arguments, the State

argues that we must reject the Second Circuit's reasoning in

Travelers.

            We find these arguments unpersuasive.   By its terms,

section 8909(f)(1) prohibits the imposition of taxes, fees, or

other monetary payments.    The plain language of the statute is

therefore not limited to "premium taxes," and the assessment

clearly falls within the definition of a "fee" or "other monetary

payment."    As a result, the only genuine question is whether the

premium assessment program is imposed "with respect to any

payment from the Fund."     Contrary to the State's position, OPM's

interpretation of the statute and the statute's general

legislative history support a broad interpretation of the

statute's third criterion.     Because the Second Circuit addressed

Insurance Fund, as set forth in section 8714 of title 5, United
States Code."); H.R. Conf. Rep. No. 101-964, 101st Cong., 2d
Sess. 2184, reprinted in 1990 U.S.C.C.A.N. at 2374, 2681 ("the
conference agreement includes the House and Senate provisions
. . . exempting the FEHBP from State premium taxes").

                                  14
these very same issues and we agree with its reasoning in

Travelers, we will discuss the decision in greater detail.

           In facts very similar to those before us, the Second

Circuit in Travelers concluded that FEHBA preempted several New

York hospital surcharges.   In its effort to contain health care

costs and guarantee the availability of hospital insurance

coverage to needy New Yorkers, New York enacted three hospital

surcharges.   New York Public Health Law § 2807-c(1)(b) required

insurance carriers other than Blue Cross & Blue Shield, an HMO,

or a government insurance such as Medicaid, to pay a 13%

surcharge directly to the hospital.    New York Public Health Law

§ 2807-c(11)(i) (McKinney Supp. 1993) required an additional 11%

surcharge charged to patients covered by commercial insurance,

and New York Public Health Law § 2807-c(2-a)(a) (McKinney Supp.

1993) required an assessment of up to 9% on HMOs which failed to

enroll a target number of Medicaid-eligible persons.    The

proceeds from the 11% and 9% surcharges were paid into a

statewide pool, and subsequently ended up in the State's general

fund.   Travelers, 14 F.3d at 712.   The court found that the

primary purpose of the 11% surcharge was to increase the cost of

commercial insurance thereby making Blue Cross & Blue Shield more

competitive, while the purpose of the 9% surcharge was to

"encourage HMOs to enroll Medicaid recipients, thereby lowering

the costs of the Medicaid program."   Id.   Like the New Jersey

Reform Act's premium assessment, the overall purpose of these

surcharges was to spread the cost of insuring individuals who are

unable to obtain individual health care insurance.     The Second

                                15
Circuit found that the New York surcharges were preempted under

ERISA and FEHBA.   (The Supreme Court granted certiorari only on

the issue of ERISA preemption and reversed the Second Circuit in

New York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 115 S. Ct. 1671 (1995)).

          In addressing the issue of FEHBA preemption, the court

found that the plain language of section 8909(f)(1) preempted New

York's surcharges, and that this conclusion was consistent with

OPM's interpretation of the statute as well as the Act's overall

purpose of reducing government expenditures.   In Travelers, the

appellants, like the State in this action, argued that FEHBA

preemption was limited to "premium taxes."   In rejecting this

position, the court stated that "[t]o adopt the defendants'

crabbed view of preemption would undermine" the revenue-saving

purpose of section 8909(f)(1), FEHBA, and OBRA in general.    14

F.3d at 716.   The court then concluded that "[b]ecause payments

from the Fund are directly affected by what the hospitals charge

for their services, and because the surcharges increase the

amounts carriers draw from the Fund, the surcharges are clearly

imposed `with respect to . . . payment[s] made from the Fund.'"

Id.   We agree.

          As mentioned earlier, the plain language of section

8909(f)(1) prohibits the imposition of taxes, fees, or other

monetary payments.   Section 8909(f)(1) clearly states that "[n]o

tax, fee, or other monetary payment may be imposed . . ."    The

language used in the statute makes no reference to "premium

taxes," and provides no indication that the statute is limited to

                                16
that particular form of tax.     Interpreting the plain language of

the statute, we conclude that Congress intended to preempt the

imposition of any tax, fee, or monetary payment on FEHBA carriers

with respect to payments from the Fund.

             Even if we were to find that the statute's language is

ambiguous, based upon the statute's legislative history and

administrative regulations our conclusion would be the same.

Although the statute's legislative history does occasionally use

the term premium taxes, see supra note 4, the same legislative

history describes section 8909(f) as exempting FEHBA from "any

tax, fee, or other monetary payment . . ."     H.R. No. 101-881,

p.176, reprinted in 1990 U.S.C.A.A.N. at 2184.     According to OPM,

the phrase "premium taxes" represents a shorthand reference to

the more cumbersome clause itself.     See Travelers, 14 F.3d at

717.     As a result, OPM interprets the statute as follows:   "[t]he

prohibited payments, referred to elsewhere in these regulations

as `premium taxes,' applies to all payments directed by States or

municipalities, regardless of how they may be titled, to whom

they must be paid, or the purpose for which they are collected

. . ."    48 C.F.R. § 1631.205-41 (emphasis added).   Given the

statute's plain language, OPM's interpretation of the statute is

reasonable and compels us to reject the State's narrow reading of

FEHBA's preemption provision.    See Chevron, 467 U.S. at 843.     See

also Louisiana Public Service Com. v. FCC, 476 U.S. 355, 368-69

(1986) ("[A] federal agency acting within the scope of its

congressionally delegated authority may pre-empt state

regulation."); Fidelity Federal Sav. & Loan Ass'n v. De La

                                  17
Cuesta, 458 U.S. 141, 153-54 (1982) (valid federal regulation

intended to displace state law has no less preemptive effect than

a federal statute); Freehold Cogeneration Associates v. Board of

Regulatory Comm'rs of the State of New Jersey, 44 F.3d 1178, 1190

(3d Cir. 1995) ("Under the Supremacy Clause of the United States

Constitution, a federal agency acting within the scope of its

congressionally delegated authority has the power to preempt

state regulation and render unenforceable state or local laws

which are otherwise not inconsistent with federal law.").5

          The interpretation of "with respect to any payment made

from the Fund" is a slightly harder question.    Neither the

statute or the legislative history defines this specific

criterion.   Once again, however, OPM's regulations provide us

with guidance.   According to OPM, section 8909(f)(1)'s

prohibition applies to "all forms of direct and indirect

measurements on FEHBP premiums, however modified . . ."     48

C.F.R. § 1631.205-41.     The court in Travelers understood this to

include any direct or indirect tax that resulted in increased

payments from the Fund.    14 F.3d at 716.   As discussed earlier,

FEHBA participants and the federal government contribute payments

to the Federal Employees Health Benefits Fund.    Carriers like

HMO/NJ who have a contract with the federal government to provide

health benefits coverage are paid for their services directly

from the Fund.   5 U.S.C. § 8909(a)(1) (premium contributions to

5
      There is no dispute that OPM is vested with the authority
to administer, oversee, and promulgate regulations for the FEHBA
program. See 5 U.S.C. §§ 8902, 8909(a) and 8913.

                                  18
the Fund are available for all payments to approved health

benefits plans); 48 C.F.R. § 1632.170(a) ("OPM will pay to

carriers of community-rated plans the premium payments received

for the plan . . . .   Premium payments will be due and payable no

later than 30 days after receipt by the Federal Employees Health

Benefits (FEHB) Fund.").6   Given this payment scheme, the Reform

Act's premium assessment is imposed "with respect to any payment

made from the fund" because the amount OPM must pay to HMO/NJ is

based on HMO/NJ's premiums which have increased in part as a

result of the premium assessment.     Because payments from the fund

are directly affected by what HMO/NJ charges for its services,

and the premium assessment increases the amount OPM must pay from

the Fund, New Jersey's premium assessment are imposed "with

respect to . . . payment[s] made from the Fund."      Although this

may be characterized as an indirect imposition because the

increased payment is based upon HMO/NJ's voluntary decision to

pass the costs of the premium assessment along to FEHBA plans,

the plain language of FEHBA section 8909(f)(1) unequivocally

6
      HMO/NJ's plans are community rated plans. "Community rate
means a rate of payment based on a per member per month
capitation rate or its equivalent that applies to a combination
of the subscriber groups for a comprehensive medical plan." 48
C.F.R. § 1602.1702(a). The plans addressed in Travelers were
experience-rated plans whose contribution rates "are based on the
plan's actual paid claims, administrative expenses, and other
allowable `retentions.'" 14 F.3d at 715-716 n.2 (citing 48
C.F.R. § 1602.170-6 (1992)). Although both types of plans
receive funds directly from the Fund, their methods of payment
are differ. Community rated plans have their premiums paid
directly from the Fund, 48 C.F.R. § 1632.170(a), while experience
rated plans must draw against letter-of-credit accounts on a
"checks presented" basis. 48 C.F.R. § 1632.170(b).

                                 19
preempts indirect as well as direct taxes, fees, or other

monetary payments, 5 U.S.C. § 8909(f)(1) ("No tax, fee, or other

monetary payment may be imposed, directly or indirectly . . .")

(emphasis added).

          Our interpretation of FEHBA section 8909(f)(1) is

consistent with the Act's overall purpose.   The general purpose

of the FEHBA program is to:
          protect federal employees against the high
          and unpredictable costs of medical care and
          to assure that federal employee health
          benefits are equivalent to those available in
          the private sector so that the federal
          government can compete in the recruitment and
          retention of competent personnel.

National Federation of Federal Employees v. Devine, 679 F.2d 907,

913 n.9 (D.C.Cir. 1982) (quoting AFGE v. Devine, 525 F. Supp.

250, 252 (D. D.C. 1981)).   FEHBA section 8909(f) was enacted in

1990 to achieve budgetary savings without sacrificing the quality

of health care protection provided by FEHBA or impairing the

government's ability to attract and retain talented personnel.

See H.R. No. 101-881, 101st Cong., 2d Sess. 173, 181 (1990),

reprinted in 1990 U.S.C.C.A.N. 2181, 2190.   It was passed in

response to a U.S. General Accounting Office report indicating

that the government could cut costs by exempting FEHBA carriers

from state taxes.   See United States General Accounting Office,

Federal Compensation:   Premium Taxes Paid by the Health Benefits

Program, GAO/GGD 29-102 (August 8, 1989) (Joint Appendix at 530).

According to the legislative history, the savings presumably

would "result from reduced program costs which in turn reduce the

employer premiums the Government pays."   H.R. No. 101-881, 101st

                                20
Cong., 2d Sess. 190 (1990), reprinted in 1990 U.S.C.C.A.N. 2198.

The New Jersey assessment, which increases the cost of providing

health care to the federal government and its employees,

frustrates these congressional objectives.   Based upon the plain

language of the FEHBA preemption statute, OPM's implementing

regulation, and the federal policies and objectives underlying

the statute's enactment, we conclude that the New Jersey Reform

Act's assessment scheme is preempted by FEHBA section 8909(f)(1).

Having reached this conclusion, we now address whether the scheme

is nonetheless "saved" by FEHBA section 8909(f)(2).

                                B.

           FEHBA section 8909(f) is best understood as Congress'

effort to exempt FEHBA plans from certain generally applicable

laws.   We must interpret section 8909(f)(2) in order to determine

the scope of that exemption.   FEHBA section 8909(f)(2) provides:

           Paragraph (1) shall not be construed to

           exempt any carrier underwriting or plan

           administration subcontractor of an approved

           health benefits plan from the imposition,

           payment, or collection of a tax, fee, or

           other monetary payment on the net income or

           profit accruing to or realized by such

           carrier or underwriting or plan

           administration subcontractor from business

           conducted under [FEHBA], if that tax, fee, or

           payment is applicable to a broad range of
          business activity.

                                21
5 U.S.C. 8909(f)(2) (emphasis added).    In other words, a tax,

fee, or other monetary payment that would otherwise be preempted

under subsection 8909(f)(1) is "saved" if it is "applicable to a

broad range of business activity."     In upholding the New Jersey

scheme, the district court concluded that the premium assessment

was applicable to a broad range of business activity.     The court

reasoned that "for FEHBA plans to be exempt from state-imposed

premium taxes, the state tax must be specifically levied against

the FEHBA plan."   The Health Maintenance Organization of New

Jersey v. Christine Todd Whitman, No. 93-5775, slip op. at 8 (D.

N.J. Oct. 3, 1994).   We disagree.

          The plain language of the statute requires a more

expansive exemption for FEHBA plans.    According to section

8909(f)(2), states are preempted from imposing any tax, fee, or

other monetary payment on carriers of FEHBA plans except those

taxes, fees, or other monetary payments that are "applicable to a

broad range of business activity."   By definition, "broad range"

is synonymous with "wide range" or "extensive" business

activities.   See The Random House College Dictionary 171 (Rev.

ed. 1982); Webster's New World Dictionary 176 (3d ed 1988)
(broad:   "wide in range; not limited").   If Congress had intended

only to preempt taxes specifically targeting FEHBA plans, it

would have said so expressly.   Instead, the statute's language

reflects an intent to exempt FEHBA plans from all taxes and fees

except those generally applicable to other commercial industries.

           In addition to the plain language of the statute, our

interpretation is justified by the statute's underlying purpose.

                                22
As discussed earlier, FEHBA section 8909(f) was enacted as a cost

saving measure.    If we were to accept the district court's

interpretation of subsection 8909(f)(2), it would render all of

section 8909(f) superfluous.    The Constitution itself prohibits

states from specifically targeting the Federal Government and

Federal programs.    Under the Supremacy Clause, "state taxes on

contractors are constitutionally invalid if they discriminate

against the Federal Government, or substantially interfere with

its activities."     United States v. New Mexico, 455 U.S. 720, 735,

n.11 (1982).    A statute preempting such action is therefore

unnecessary, and if subsection 8909(f)(2) was intended to preempt

only state taxes specifically targeting FEHBA plans, FEHBA

section 8909(f) as a whole would not save the Federal Government

any money because those taxes are already prohibited by the

Constitution.

          The district court's narrow interpretation would also

undermine one of the statute's specific objectives - exempting

FEHBA plans from state premium taxes.    As the State has

consistently argued, FEHBA section 8909(f)(1) was enacted to

exempt FEHBA plans from state premium taxes.    (As we discussed

earlier, section 8909(f) exempts other taxes, fees, and monetary

payments as well).    Because premium taxes do not specifically

target FEHBA plans, under the district court's interpretation,

they would be saved from preemption by section 8909(f)(2).      This

result is clearly inconsistent with one of the statute's

principal goals, and must be rejected.    The goal of preempting

state premium taxes also guides our interpretation of what

                                  23
Congress considered "a broad range of business activity." Because

premium taxes are applicable to the entire insurance industry, it

would appear that a tax, fee, or other monetary payment is

imposed on "a broad range of business activity" when, at the very

least, it applies to more than a single industry.    A less

inclusive definition, like the one adopted by the district court,

would permit states to impose a tax that Congress specifically

meant to preempt.   Given Congress' objective, a tax applicable to

only a single industry like insurance, banking, or real estate,

cannot be treated as applying to a broad range of business

activity.   At the very least, the tax must apply to more than a

single industry or business activity.

            The New Jersey Reform Act's premium assessment scheme

is not imposed on "a broad range of business activity."     Unlike a

state premium tax, the Reform Act's premium assessment is not

even imposed on the insurance industry as a whole.    The

assessment "applies only to the health insurance business and,

even within that limited field, carves out a list of health

insurance activities that are not subject to the statutory levy."

(United States as Amicus Curiae, Br. at 16).   The New Jersey

statutory scheme excludes certain accident policies, Medicare

coverage, and other types of insurance plans that offer health

benefits.   See N.J.S.A. § 17B:27-A-2.   As such, the premium

assessment is imposed on a rather limited range of business

activity, and is not saved by subsection 8909(f)(2). Accordingly,

the Reform Act's premium assessment scheme is preempted as

applied to FEHBA plans.   We hasten to add, however, that we hold

                                 24
only that FEHBA preempts New Jersey's premium assessment scheme

as applied to FEHBA plans.    We do not hold that the Reform Act's

assessment provisions are preempted or inapplicable to all of the

insurance activities of carriers like HMO/NJ.

                                IV.

            Although we hold that FEHBA preempts the New Jersey

Reform Act's premium assessment program as applied to FEHBA

plans, we are compelled to note that we are somewhat troubled

that our ruling today impedes the State's legitimate effort to

reform the existing health care system and provide needed health

care coverage to all its citizens.     We are mindful that Congress'

failure to reform the provision of health care at the national

level has increased the need for a state by state resolution of

this problem.   Until Congress amends FEHBA, however, our decision

is dictated by the plain language of the statute, its legislative

history, and the Act's overall purpose.    We cannot grant the

states authority which Congress, in a legitimate exercise of its

authority, specifically denied.    Accordingly, the district

court's order with respect to FEHBA preemption will be reversed.

            In view of our conclusions, the district court's order

with respect to FEHBA preemption will be reversed.    We will

remand this matter to the district court for further proceedings

to fashion a remedy.   In this regard we note that in its amicus

curiae brief the United States suggests a method to implement a

holding that the Reform Act is preempted with respect to FEHBA

policies.   On the remand the district court should consider this

                                  25
proposal as well as any other suggestions the parties may make to

give effect to this opinion.

                               26