Court Opinion

ID: 4436521
Source: CourtListenerOpinion
Date Created: 2019-09-09 13:08:32.69322+00
Date Added: 2024-06-11T14:51:16.349710
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Pennsylvania Life and Health Insurance :
Guaranty Association,                  :
                  Petitioner           :
                                       :
            v.                         :        Nos. 940 - 947 C.D. 2018
                                       :        Argued: March 13, 2019
Pennsylvania Insurance Department,     :
                  Respondent           :

BEFORE:      HONORABLE MARY HANNAH LEAVITT, President Judge
             HONORABLE RENÉE COHN JUBELIRER, Judge
             HONORABLE PATRICIA A. McCULLOUGH, Judge
             HONORABLE ANNE E. COVEY, Judge
             HONORABLE MICHAEL H. WOJCIK, Judge
             HONORABLE CHRISTINE FIZZANO CANNON, Judge
             HONORABLE ELLEN CEISLER, Judge

OPINION
BY PRESIDENT JUDGE LEAVITT                                   FILED: September 9, 2019

             The Pennsylvania Life and Health Insurance Guaranty Association
(PLHIGA) petitions for review of an adjudication of the Insurance Commissioner
sustaining the appeals of nine member health insurers (Health Insurers)1 and
reversing the assessments imposed by PLHIGA on Health Insurers’ Medicare Parts
C and D premium accounts. In doing so, the Commissioner concluded that the
assessments, which PLHIGA imposed pursuant to the dictates of its enabling
legislation (PLHIGA Act),2 are preempted by federal law. Discerning no error by
the Commissioner, we affirm.

1
  They are American Progressive Life and Health Insurance Company of New York, WellCare
Prescription Insurance, Inc., Geisinger Indemnity Insurance Company, SilverScript Insurance
Company, Pennsylvania Life Insurance Company, Accendo Insurance Company, Envision
Insurance Company, Humana Insurance Company, and Humana Benefit Plan of Illinois, Inc.
2
  Article XVII of The Insurance Department Act of 1921, Act of May 17, 1921, P.L. 682, as
amended, added by the Act of December 18, 1992, P.L. 1519, 40 P.S. §§991.1701 – 991.1718.
                                      I. Background
              This appeal involves the interplay of federal Medicare law and
Pennsylvania’s life and health insurance guaranty association law. Accordingly, we
begin with an overview of the law relevant to the issues raised by PLHIGA in its
challenge to the Commissioner’s holding on preemption.
                                     A. Relevant Law
                     1997 Balanced Budget Act and Regulations
              As part of the Balanced Budget Act of 1997 (Balanced Budget Act),
Pub. L. No. 105-33, 111 Stat. 251 (August 5, 1997), Congress created Medicare Part
C, then known as Medicare+Choice or “M+C,” and now commonly referred to as
Medicare Advantage or “MA.”              Under Medicare Part C, eligible Medicare
beneficiaries may elect to receive Medicare benefits through either the traditional
Medicare fee-for-service program or an M+C plan. Part C provides Medicare
beneficiaries with a wider range of health plan choices to complement their
traditional Medicare option.
              The Balanced Budget Act also included measures to control costs and
ensure uniformity across Part C plans. To that end, the Balanced Budget Act states:

              No State may impose a premium tax or similar tax with respect
              to payments to Medicare+Choice organizations under section
              1395w-23[3] of this title or premiums paid to such organizations
              under this part.

42 U.S.C. §1395w-24(g) (emphasis added). To implement this and other parts of
the Act, Congress directed the United States Secretary of Health and Human

3
  The Balanced Budget Act requires the Department of Health and Human Services to pay
Medicare Part C plans each month in advance for their coverage of individuals enrolled in their
plans. 42 U.S.C. §1395w-23.
                                              2
Services to “establish by regulation other standards ... for Medicare+Choice
organizations and plans consistent with, and to carry out, this part.” 42 U.S.C.
§1395w-26(b)(1).
                In 1998, the Department of Health and Human Services published a
proposed preemption regulation to implement Medicare Part C. In 2000, following
a public comment period, the Department issued its final regulation, which states, in
pertinent part, as follows:

                (a) Basic rule. No premium tax, fee, or other similar assessment
                may be imposed by any State … or any of [its] political
                subdivisions or other governmental authorities with respect to
                any payment CMS [(Center for Medicare and Medicaid
                Services)] makes on behalf of MA enrollees[.]

42 C.F.R. §422.404(a) (as amended) (emphasis added).
                            2003 Medicare Modernization Act
                Enacted in 2003, the Medicare Modernization Act4 created Medicare
Part D, which provides Medicare beneficiaries with a prescription drug benefit. A
Conference Committee report accompanying the House version of the bill stated that
the Act sought to address “some confusion in recent court cases” by reiterating that
Medicare Part C “is a federal program operated under Federal rules[,]” and that
“[s]tate laws, do not, and should not apply, with the exception of state licensing laws
or state laws related to plan solvency.” H.R. Report No. 108-391, at 557 (2003)
(Conf. Rep.). The report reiterated that “no state may impose a premium, or similar,
tax on premiums paid to MA organizations under this bill.” Id.
                In furtherance of these objectives, Congress included a new, broader
preemption provision stating as follows:

4
    Pub. L. No. 108-173, 117 Stat. 2066 (December 8, 2003).
                                                3
               The standards established under this part shall supersede any
               State law or regulation (other than State licensing laws or State
               laws relating to plan solvency) with respect to MA plans which
               are offered by MA organizations under this part.

42 U.S.C. §1395w-26(b)(3). Congress applied preemption equally to Part C and
Part D plans. See 42 U.S.C. §1395w-112(g) (“The provisions of sections 1395w-
24(g) and 1395w-26(b)(3) of this title shall apply with respect to [Medicare Part D]
plans under this part in the same manner as such sections apply to … plans under
[P]art C.”).
               In 2005, the Department of Health and Human Services issued final
regulations implementing the Medicare Modernization Act.               The regulation
pertaining to Part C plans states:

               The standards established under this part supersede any State law
               or regulation (other than State licensing laws or State laws
               relating to plan solvency) with respect to the MA plans that are
               offered by MA organizations.

42 C.F.R. §422.402. The regulation pertaining to Part D states, in pertinent part:

               (a) Federal preemption of State law. The standards established
               under this part supersede any State law or regulation (other than
               State licensing laws or State laws relating to plan solvency) for
               Part D plans offered by Part D plan sponsors.

               (b) State premium taxes prohibited—

                     (1) Basic rule. No premium tax, fee, or other similar
                     assessment may be imposed by any State … or any
                     of [its] political subdivisions or other governmental
                     authorities for any payment CMS makes on behalf
                     of [a] Part D plan[.]

42 C.F.R. §423.440 (emphasis added).

                                           4
                                   PLHIGA Act
             PLHIGA is a nonprofit, unincorporated association created by the
legislature to provide protection to Pennsylvania policyholders whose coverage was
provided by an insolvent life and health insurer. A life and health insurance
company is required to become a member of PLHIGA as a condition of its license
or certificate of authority to do the business of insurance in the Commonwealth.
Section 1704(a) of the PLHIGA Act, 40 P.S. §991.1704(a). The PLHIGA Act
protects Pennsylvania policyholders and their beneficiaries, payees and assignees
against failure in the performance of contractual obligations under life and health
insurance policies and annuity contracts due to the impairment or insolvency of the
member insurer that issued the policies or contracts. Section 1701 of the PLHIGA
Act, 40 P.S. §991.1701. The entry of a court order that an insurer is insolvent and
should be liquidated triggers PLHIGA’s statutory duties. Subject to statutorily
established limits, PLHIGA guarantees, assumes or reinsures the policy obligations
of the insolvent insurer itself or causes the obligations to be guaranteed, assumed or
reinsured by a solvent insurer. See Section 1706(a)-(c) of the PLHIGA Act, 40 P.S.
§991.1706(a)-(c). PLHIGA steps in, not only to pay claims, but also to continue the
insurance coverage for which the policyholders residing in Pennsylvania have
bargained, within specified coverage limits.      It does this by contracting with
assuming insurers, third-party administrators, vendors, service providers and
professionals to provide necessary policyholder services and benefits promptly after
a liquidation order is entered. 40 P.S. §991.1706(n).
             PLHIGA funds its consumer protection obligations through its statutory
claims against the insolvent insurer’s remaining assets; from premiums the
policyholders must pay to PLHIGA to keep their policies in force; and through

                                          5
assessments of its member insurers for the balance of the amount necessary for
PLHIGA to provide coverage. See Sections 1706(m) and 1712(c) of the PLHIGA
Act, 40 P.S. §§991.1706(m), 991.1712(c) (PLHIGA’s rights to insolvent insurer’s
assets), Section 1706(g) of the PLHIGA Act, 40 P.S. §991.1706(g) (premiums from
policyholders due to PLHIGA), and Section 1707(c)(2) of the PLHIGA Act, 40 P.S.
§991.1707(c)(2) (PLHIGA’s assessment of member insurers). The assessments are
referred to as Class B assessments.
            PLHIGA calculates a Class B assessment by determining the average
proportionate share of each member insurer’s relevant insurance business (in this
case for the health insurance account) in the Commonwealth over the three previous
calendar years.   Section 1707(a), (c) and (e) of the PLHIGA Act, 40 P.S.
§991.1707(a), (c), (e). The assessment is divided among the member insurers in
accordance with their average proportionate share of health insurance business
conducted in the Commonwealth over that period. Id. Health insurance business is
measured by the member insurers’ premium volume in Pennsylvania.
                             B. Procedural History
            On March 1, 2017, this Court entered orders of liquidation, with
findings of insolvency, to Penn Treaty Network America Insurance Company
(PTNA) and American Network Insurance Company (ANIC), both Pennsylvania
life insurers specializing in long-term care insurance covering skilled nursing,
nursing home, and assisted living and home health care for individuals with chronic
illnesses or disabilities. The Court’s entry of the liquidation orders triggered
PLHIGA’s powers and duties under Section 1706 of the PLHIGA Act, 40 P.S.
§991.1706. On March 31, 2017, PLHIGA issued Class B assessments to its member
insurers, including Health Insurers, to fund its obligations to PTNA and ANIC

                                        6
policyholders. To calculate the assessments, PLHIGA determined the average
proportionate share of each member insurer’s health insurance business in
Pennsylvania for calendar years 2013, 2014 and 2015. PLHIGA included each
member insurer’s Medicare Part C and D premiums as reported in Pennsylvania
when calculating their proportionate shares.5
              Health Insurers paid the assessments under protest, arguing that
PLHIGA’s inclusion of the Medicare premiums in their assessments was preempted
by federal law. PLHIGA denied the appeals, and Health Insurers appealed to the
Commissioner. The Commissioner sustained the appeals and ordered PLHIGA to
reverse the assessments.
              In doing so, the Commissioner identified the dispositive issue as
whether federal law preempts the PLHIGA Act to the extent it authorizes
assessments based upon premiums attributed to Medicare Part C and D plans.
Unlike its counterparts in 48 other states, the PLHIGA Act does not expressly
prohibit such assessments. The Commissioner held that Pennsylvania law was
preempted.
              The Commissioner observed that the federal regulations at 42 C.F.R.
§422.404(a) and 42 C.F.R. §423.440(b)(1) specifically preempt state laws which
allow an assessment against Part C and Part D plans, respectively.                      The
Commissioner rejected PLHIGA’s argument that the Department of Health and

5
  The assessments of Health Insurers’ Medicare Part C and D premiums in Pennsylvania totaled
all of the $761,450 assessed against WellCare; part of the $951,736 assessed against American
Progressive; the majority of the $3,225,505 assessed against Geisinger; all of the $3,664,885
assessed against SilverScript; a portion of Pennsylvania Life Insurance Company’s $20,979
assessment; all of Accendo’s $610 assessment; all of Envision’s $461,880 assessment; all of
Humana’s $6,842,453 assessment; and all of the $1,956,557 assessment against Humana Benefit
Plan of Illinois.
                                             7
Human Services’ preemption regulations exceeded the scope of the Balanced Budget
Act. The Commissioner concluded that the regulations fit “squarely within the scope
of” 42 U.S.C. §1395w-24(g), which prohibits states from imposing “a premium tax
or similar tax.” Commissioner Adjudication, 6/12/2018, at 30. The Commissioner
explained that the federal government’s comprehensive nationwide regulation of
Medicare plans prevents the diminution of premium dollars by a state or other
governmental authority. All of the premium dollars must be available for plan
benefits and expenses consistently in every state.
             In response to PLHIGA’s argument that because it is not a state agency
its assessments are not “taxes,” the Commissioner concluded that “focusing on the
nature of [PLHIGA] as an entity is not necessary to find that federal law has
preempted the assessment of Medicare Part C and D premium[s].” Id. at 32. No
matter how one characterizes PLHIGA’s legal status, the assessments at issue are
mandated by the PLHIGA Act, and PLHIGA is required to impose them if they are
not preempted by federal law. The Commissioner observed that if Pennsylvania law
is preempted to the extent it requires assessment of Medicare Part C and D
premiums, then PLHIGA lacks the authority to impose the assessments, regardless
of whether it is an agency or instrumentality of the Commonwealth.             The
Commissioner declined to hold that PLHIGA is a Commonwealth agency. She did
observe, however, that PLHIGA acts “as an instrumentality of the state pursuant to
the state statute and under the supervision of” the Commissioner “when performing
its statutory duties and functions[.]” Id. at 31.
             Finally, the Commissioner concluded that it was not necessary to
address the 2003 Medicare Modernization Act’s broad general preemption of state
regulation of Medicare plans because Pennsylvania law is preempted by the federal

                                           8
regulations specific to premium taxes and assessments. Thus, it was unnecessary to
address whether the carveout in the Medicare Modernization Act for state laws
related to licensing and solvency was applicable. Even so, the Commissioner found
the PLHIGA Act did not fit into either of those categories.
               PLHIGA has petitioned for this Court’s review of the Commissioner’s
adjudication.
                                           II. Appeal
               On appeal,6 PLHIGA raises three issues. First, it argues that the
Commissioner erred in determining that it is subject to the prohibition on
assessments in the Balanced Budget Act and regulations because it is not a state,
political subdivision or governmental authority.                   Concomitantly, PLHIGA
challenges the Commissioner’s finding that it is an instrumentality of the
Commonwealth when it assesses member insurers.7 Second, it argues that the
Commissioner erred because the assessments at issue are not a “premium tax or
similar tax” preempted by federal law. Relatedly, PLHIGA contends that additional
prohibitions on “fees” and “assessments” do not apply to private guaranty
associations such as PLHIGA. Third, it argues that because the PLHIGA Act is a
state licensing law and a state law relating to plan solvency, it is not preempted by
the Medicare Modernization Act. We address these issues ad seriatim.

6
  This Court’s review of an agency adjudication determines “whether the adjudication violates
constitutional rights, is not in accordance with agency procedure or with applicable law, or any
finding of fact necessary to support the adjudication is not based upon substantial evidence.” Cope
v. Insurance Commissioner, 955 A.2d 1043, 1048 (Pa. Cmwlth. 2008) (quoting Allen v. Insurance
Department, 903 A.2d 65, 67 n.9 (Pa. Cmwlth. 2006)). As to issues of statutory interpretation,
our scope of review is plenary and the standard of review is de novo. Id.
7
  The National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) has
filed a brief of amicus curiae challenging only the Commissioner’s characterization of PLHIGA
as an instrumentality of the Commonwealth. NOLHGA takes no position on whether the PLHIGA
Act is preempted by federal law.
                                                9
                                  III. Discussion
                           A. PLHIGA’s Entity Status
             PLHIGA argues that it is not subject to the preemption provisions of
the Balanced Budget Act and the Department of Health and Human Services’
regulations because those provisions apply only to states, political subdivisions and
governmental authorities. See 42 U.S.C. §1395w-24(g); 42 C.F.R. §422.404(a); 42
C.F.R. §423.440(b)(1). PLHIGA is none of those, a point which PLHIGA views as
dispositive. PLHIGA also argues that the Commissioner erred in determining that
PLHIGA is acting as an instrumentality of the Commonwealth when it assesses its
member insurers. Echoing the Commissioner’s reasoning, Health Insurers counter
that PLHIGA’s entity status is irrelevant to the central issue of whether the
assessment provisions of the PLHIGA Act are preempted by federal law to the extent
they base assessments on Medicare Part C and D premiums. We agree.
             PLHIGA’s position rests on the premise that the assessments are not
mandated by statute but, rather, are issued at the discretion of PLHIGA’s board of
directors. In support, PLHIGA cites language in Section 1707(a) of the PLHIGA
Act stating that “the board of directors shall assess the member insurers … at such
time and for such amounts as the board finds necessary.” 40 P.S. §991.1707(a). It
also cites Section 1707(d), which allows PLHIGA’s board to “abate or defer, in
whole or in part, the assessment of a member insurer if, in the opinion of the board,
payment of the assessment would endanger the ability of the member insurer to
fulfill its contractual obligations.” 40 P.S. §991.1707(d). PLHIGA argues that given
this discretion, it cannot be an instrumentality of the Commonwealth.
             PLHIGA’s arguments are based on an erroneous construction of the
PLHIGA Act. The assessments are imposed by state statute, not by PLHIGA. In

                                         10
enacting the PLHIGA Act, the legislature plainly stated that “members of [PLHIGA]
are subject to assessment to provide funds” to carry out the purposes of the Act. 40
P.S. §991.1701. Section 1707(a) states that PLHIGA’s “board of directors shall
assess the member insurers.” 40 P.S. §991.1707(a) (emphasis added). Although it
is true, as PLHIGA notes, that the board shall do so “at such time and for such
amounts as the board finds necessary[,]” id., the phrase “finds necessary” does not
grant the board discretion to assess or not assess. It must impose assessments on its
members in the amount necessary to pay benefits to and continue coverages for the
policyholders of insolvent insurers up to statutorily established limits. To that end,
Section 1707(b)(2) further provides that “Class B assessments shall be made to the
extent necessary to carry out the powers and duties of [PLHIGA] under section 1706
with regard to an impaired or an insolvent insurer.” 40 P.S. §991.1707(b)(2)
(emphasis added). The statute goes on to specify the formula that PLHIGA must
use to calculate the assessment for each insurer. 40 P.S. §991.1707(c)(2).8 Section
1706(j) provides for the Commissioner’s takeover of PLHIGA if it fails to discharge
its obligations with respect to insolvent insurers. 40 P.S. §991.1706(j).
                 In short, the PLHIGA Act mandates the imposition of assessments upon
member insurers. PLHIGA’s board may have some discretion in administering the
assessments, but it has no discretion about the imposition of assessments or how to

8
    It states:
        Class B assessments against member insurers for each account and subaccount shall
        be in the proportion that the premiums received on business in this Commonwealth
        by each assessed member insurer for policies or contracts covered by each account
        for the three (3) most recent calendar years for which information is available
        preceding the year in which the insurer became impaired or insolvent, as the case
        may be, bears to such premiums received on business in this Commonwealth for
        such calendar years by all assessed member insurers.
40 P.S. §991.1707(c)(2).
                                              11
calculate them.9 Health Insurers do not pay the assessments pursuant to a private
arrangement between PLHIGA and its members. The assessments are extractions
of funds mandated by Pennsylvania’s duly enacted law, i.e., the PLHIGA Act.
PLHIGA is the conduit, nothing more, nothing less.                           We agree with the
Commissioner that PLHIGA’s entity status is irrelevant.10 The only issue for this
Court to resolve is whether Pennsylvania’s PLHIGA Act is preempted by federal
law with respect to basing assessments on Medicare Part C and D premiums.

                                    B. Federal Preemption
               In determining the preemption question, we are mindful that duly
promulgated federal regulations have the force of law. Public Utilities Commission

9
  Although PLHIGA’s board can abate or defer the assessment of a member insurer, it may do so
only if the assessment would endanger the ability of the insurer to fulfill its contractual obligations.
Section 1707(d) of the PLHIGA Act, 40 P.S. §991.1707(d). This narrow exception to the
requirement that all member insurers be subject to an assessment cannot swallow the rule.
Moreover, even if PLHIGA exercises this power, it is still obligated to ensure the assessment will
generate sufficient funds to discharge its obligations to the policyholders of the impaired insurer.
It will shift the burden to all other member insurers to make up any shortfall.
10
   Although the Commissioner held that PLHIGA’s entity status is not outcome determinative, she
observed that PLHIGA acted as an instrumentality of the Commonwealth when it assessed Health
Insurers’ Medicare Part C and D premiums. We discern no error in the Commissioner’s narrow
observation, which was obiter dictum. The Commissioner emphasized that PLHIGA is an
instrumentality of the Commonwealth only with respect to the actions it took in this case. The
Commissioner’s decision does not automatically apply outside the context of this case. Both this
Court and our Supreme Court have made clear that an entity’s status varies “depending on the
issue for which the determination is being made.” James J. Gory Mechanical Contracting, Inc. v.
Philadelphia Housing Authority, 855 A.2d 669, 677 (Pa. 2004) (quoting Pennsylvania State
University v. Derry Township School District, 731 A.2d 1272, 1274 (Pa. 1999)). See also Pysher
v. Clinton Township Volunteer Fire Co., 209 A.3d 1116, 1121 (Pa. Cmwlth. 2019). That PLHIGA
acts as an instrumentality of the Commonwealth when it assesses its members as required by state
law is self-evident. As noted above, PLHIGA is a statutory facility that functions as little more
than a conduit. Whether PLHIGA is a Commonwealth entity in the other contexts suggested by
PLHIGA and NOLHGA in its amicus brief is a question beyond the scope of this appeal that we
decline to answer.
                                                  12
of State of California v. United States, 355 U.S. 534, 542 (1958). See also Paul v.
United States, 371 U.S. 245, 255 (1963). A federal regulation preempts state law on
the same subject matter. United Transportation Union v. Pennsylvania Public
Utility Commission, 68 A.3d 1026, 1036-37 (Pa. Cmwlth. 2013).                     Here, the
Commissioner held that the federal regulations specifically preempt state laws that
allow assessments against Medicare Part C and D premiums.
              We begin with the language of the applicable regulations. The first
pertains to Part C premiums, and it states, in pertinent part:

              (a) Basic rule. No premium tax, fee, or other similar assessment
              may be imposed by any State … or any of [its] political
              subdivisions or other governmental authorities with respect to
              any payment CMS [(Center for Medicare and Medicaid
              Services)] makes on behalf of MA enrollees[.]

42 C.F.R. §422.404(a) (as amended).             Similarly, with respect to Part D, the
regulation states:

              (b) State premium taxes prohibited—
                     (1) Basic rule. No premium tax, fee, or other similar
                     assessment may be imposed by any State … or any
                     of [its] political subdivisions or other governmental
                     authorities for any payment CMS makes on behalf
                     of [a] Part D plan[.]

42 C.F.R. §423.440(b)(1). The language is clear and unequivocal. No premium tax,
fee, or other similar assessment may be imposed by any state. We agree with the
Commissioner that the PLHIGA Act is preempted by federal law to the extent it
allows assessments to be based on Medicare Part C and D premiums.11

11
  Because we decide the assessments constitute a “fee[] or other assessment” under the federal
regulations, we need not decide whether the assessments are a “premium tax or similar tax.”
                                             13
            PLHIGA argues that the Commissioner erred in determining that the
assessments at issue are a “fee[] or other assessment” preempted by the regulations.
In support, PLHIGA cites an exchange between the Department of Health and
Human Services and a commenter during the notice and comment period before the
final regulation at 42 C.F.R. §422.404 was issued. The commenter asked the
Department to clarify whether the Balanced Budget Act’s preemption of a state’s
ability to assess premium taxes precludes assessments issued by private guaranty
associations. The Department responded that, “[t]o the extent the commenter is
referring to a guaranty fund operated by a private association, the prohibition on
premium taxes would not apply.” Medicare+Choice Program, 65 Fed. Reg. 40170,
40261 (June 29, 2000). PLHIGA contends that the Department’s response answers
the question before this Court today. We disagree with PLHIGA’s interpretation of
the Department’s statement, which is taken out of context.
            When the Department issued its proposed Part C regulations in 1998, it
explained that guaranty association assessments were preempted by the Balanced
Budget Act because the Act’s “premium tax prohibition does not provide for any
exception to the prohibition based on the purpose of the tax.” Establishment of the
Medicare+Choice Program, 63 Fed. Reg. 34968, 35014 (June 26, 1998). The
Department noted, as an example, that some states were using a broadly applicable
premium tax to fund a state guaranty fund for the benefit of enrollees of an M+C
plan in the event of the plan’s insolvency. While acknowledging that such taxes
may provide a “social good” and “yield a direct benefit to M+C organizations and
their enrollees,” the Department reiterated that “there are no exceptions to the
premium tax prohibition included in the [Balanced Budget Act] or in these
regulations.” Id. That said, the Department decided a Medicare Advantage plan

                                        14
could “choose to voluntarily pay premium taxes in order to participate in such a
fund.” Id.
                 Two years later, when promulgating its final regulations, the
Department responded to two comments on voluntary payments to a guaranty
association.       Medicare+Choice Program, 65 Fed. Reg. at 40261.                     The first
commenter argued the “fee[] or other similar assessment” language in the regulation
was too broad and not encompassed by the prohibition on a “premium tax or other
similar tax” in the Balanced Budget Act. Id. The commenter further argued that
assessments to fund state high risk pools should be permitted. The Department
responded that “any mandatory fee or assessment imposed on premium revenues
clearly would fall within the reference to a premium tax or ‘other similar tax.’” Id.
(emphasis added). The Department considered, and rejected, an exemption for an
assessment to fund an insolvency insurance pool because “if the assessment was
mandatory, it amounted to a tax” and was preempted. Id. Nevertheless, the
Department reiterated its earlier comment that “an M+C organization that wished to
rely on the proceeds [of] such a pool as part of its plan for insolvency protection
could voluntarily contribute [to the] pool.” Id.
                 It was the next commenter’s objection that gave rise to the statements
cited by PLHIGA. This commenter objected to the Department’s suggestion that an
M+C organization may participate in a guaranty fund by paying premium taxes
voluntarily because some state laws do not require M+C organizations to be
members of state guaranty associations.12 The commenter argued that the scope of

12
     In full, the comment and response was as follows:
           Comment: A commenter objected to statements in the preamble to the interim final
           rule (63 [Fed. Reg.] 35014) suggesting that an M+C organization may participate
           in a “guaranty fund” by paying premium taxes voluntarily. The commenter pointed
           out that the NAIC [National Association of Insurance Commissioners] Life and
                                                 15
the preemption regulation should not include those funds, or at least that the
Department should explicitly acknowledge that Medicare Advantage plans are not
deemed member insurers under some state guaranty association laws (and not
subject to mandatory guaranty association contributions), and these laws are not
preempted. Id. The Department responded that the preemption did not extend to
purely private and voluntary guaranty associations, which is the language PLHIGA
relies on here. But then the Department immediately elaborated by repeating that
“the mandate to contribute premium revenue” to a “State mandated insurance pool”
“would be preempted.” Id.
              In sum, considered in context, the distinction drawn by the Department
in the exchange of comments was not the “public versus private” one that PLHIGA
tries to find. Instead, it was “mandatory versus voluntary.” Mandatory assessments
by state guaranty associations like PLHIGA are preempted, but voluntary
contributions to associations created by Medicare Advantage plans are not
preempted. The public or private nature of the operator of the association is beside
the point; what matters is whether contributions are required by state law or are
optional. As discussed previously in this opinion, there is no debate that the

      Health Insurance Guaranty Association Model Act excludes managed care
      organizations from its definition of a “membered insurer.” The commenter
      recommended that we clarify that State life and health insurance guaranty
      associations are excepted from the preamble discussion of “guaranty funds,” or at
      least note that under many States’ life and health guaranty association laws, M+C
      organizations would not be considered member insurers.
      Response: To the extent the commenter is referring to a guaranty fund operated by
      a private association, the prohibition on premium taxes would not apply. Our
      reference in the preamble to voluntary contribution to a guaranty fund involved a
      State mandated insurance pool established and operated by the government. In this
      case, the mandate to contribute premium revenue would be preempted, but an M+C
      organization could voluntarily participate.
Medicare+Choice Program, 65 Fed. Reg. at 40261.
                                             16
assessments imposed by PLHIGA on Health Insurers’ Medicare Part C and D
premiums are mandatory. As such, they are preempted.
             The Commissioner held that the assessments are preempted under the
1997 Balanced Budget Act and the regulations discussed above. Accordingly, she
decided it was not necessary to address whether the assessments are also preempted
under the 2003 Medicare Modernization Act. The preemption language in that
statute is even broader than its predecessor, and provides an alternative basis for
affirming the Commissioner’s decision. In the 2003 law, Congress expressly stated
that any Medicare Part C and D regulations promulgated by the Department of
Health and Human Services “shall supersede any State law or regulation (other than
State licensing laws or State laws relating to plan solvency) with respect to MA
plans[.]” 42 U.S.C. §1395w-26(b)(3). See also 42 U.S.C. §1395w-112(g) (applying
preemption provisions of Balanced Budget Act and Medicare Modernization Act to
Part D plans). Thus, any state law allowing assessment of Part C and D premiums
is preempted unless it falls into one of two narrow categories: a state licensing law
or plan solvency law. PLHIGA argues that the PLHIGA Act is both. We disagree.
             PLHIGA argues that the PLHIGA Act is a state licensing law because
Section 1704(a) requires insurers to be members of PLHIGA as a condition of their
authority to transact business in the Commonwealth. 40 P.S. §991.1704(a). This
argument is unpersuasive.     The Department of Health and Human Services’
explanation of this carveout is more convincing. The Department explained that the
“State licensing laws” exception “must be limited to State requirements for
becoming State licensed,” and does not “extend to any requirement that the State
might impose on licensed health plans that -- absent Federal preemption -- must be
met as a condition for keeping a State license.” Establishment of the Medicare

                                         17
Advantage Program, 69 Fed. Reg. 46866, 46904 (August 3, 2004). Otherwise, states
could impose virtually any requirement they wished without it being preempted.
Furthermore, Congress’s intent to broaden the scope of federal preemption through
the Medicare Modernization Act means that the exception “must be limited” and
“not extended to rules that apply to State licensed health plans.” Id.
               Based on the above, we agree with the Commissioner that the PLHIGA
Act is not a law “directly related” to “becoming state licensed.” 13 Rather, Section
1704(a) states that insurers must “remain members of the association as a condition
of their authority to transact insurance in this Commonwealth.”                             40 P.S.
§991.1704(a). As explained above, requirements that “must be met as a condition
for keeping a State license” are not “State licensing laws.” 69 Fed. Reg. at 46904.
For these reasons, we agree with the Commissioner that the PLHIGA Act would not
be subject to the carveout for licensing statutes as set forth in 42 U.S.C. §1395w-
26(b)(3) and the regulations.
               PLHIGA also argues that the PLHIGA Act is a “[s]tate law[] relating
to plan solvency” for purposes of the exception in 42 U.S.C. §1395w-26(b)(3). In
support, PLHIGA cites Section 1701 of the Act, which requires PLHIGA to protect
policyholders “against failure in the performance of contractual obligations …
because of the impairment or insolvency of the member insurer that issued the
policies or contracts.” 40 P.S. §991.1701 (emphasis added). PLHIGA further
contends that it has a statutory duty to monitor the solvency of its members and,

13
   Pennsylvania has detailed qualifications that an insurer must satisfy to be granted a license or
certificate of authority to do the business of a life and health insurer. See, e.g., Section 215 of The
Insurance Company Law of 1921, Act of May 17, 1921, P.L. 682, as amended, 40 P.S. §405
(requirements for domestic insurer to obtain certificate of authority to transact business in
Pennsylvania); Section 301 of The Insurance Company Law of 1921, 40 P.S. §421 (requisites for
foreign companies to do business in Pennsylvania).
                                                 18
when appropriate, make recommendations to the Commissioner if the continued
solvency of a member is in doubt. PLHIGA cites various provisions in Section 1706
of the PLHIGA Act, 40 P.S. §991.1706, as well as Section 1710(d), 40 P.S.
§991.1710(d).
               We disagree with PLHIGA’s characterization of its enabling legislation
as relating to plan solvency. PLHIGA’s purpose, as defined in Section 1701 of the
PLHIGA Act, is to protect policyholders and their beneficiaries, assignees and
payees against failure in the performance of contractual obligations by a member
insurer that is already impaired or insolvent.              Similarly, Section 1706 details
PLHIGA’s powers over a member insurer who is impaired or insolvent, and its
duties to take certain actions to assume or fund the member’s obligations. These
provisions have nothing to do with regulating the ongoing solvency of an insurer, a
responsibility that belongs to the Insurance Department. Solvency laws are those
regulating an insurer’s minimum net worth, financial planning, cash flow, surplus,
financial resources and state deposits. See generally Sections 501-A – 515-A of The
Insurance Department Act of 1921, Act of May 17, 1921, P.L. 789 (Article V-A), as
amended, added by the Act of June 25, 1997, P.L. 349, 40 P.S. §§221.1-A – 221.15-
A.14 While it is true, as PLHIGA notes, that Section 1710(d) of the PLHIGA Act

14
  The National Association of Insurance Commissioners (NAIC) has devised a risk-based capital
(RBC) system to measure the adequacy of an insurer’s capital given the insurer’s risk. The RBC
system has two main components: (1) a formula that establishes a minimum capital level for an
insurer and (2) a model law that grants authority to a state’s insurance regulator to take action
based upon the insurer’s level of impairment. Pennsylvania has adopted the NAIC model law on
RBC requirements, and it is codified in Article V-A, 40 P.S. §§221.1-A – 221.15-A. Pursuant to
Section 502-A of Article V-A, every domestic insurer must file an RBC report with the
Commissioner by March 1. 40 P.S. §221.2-A. There are four action levels under the RBC system:
(1) a “company action level event,” where the insurer must identify what caused its capital
deficiency and take steps to correct its financial condition; (2) a “regulatory action level event,”
where the insurer files an action plan and the Commissioner examines and analyzes the insurer’s
                                                19
contains a “monitoring” provision,15 this minor duty of PLHIGA’s board does not
make the PLHIGA Act a law regulating the ongoing solvency of a plan. 40 P.S.
§991.1710(d). In short, we reject PLHIGA’s argument that its enabling legislation
falls under the carveout in 42 U.S.C. §1395w-26(b)(3) for state laws relating to plan
solvency.
                                        IV. Conclusion
               In summary, we agree with the Commissioner that the PLHIGA Act is
preempted by federal law to the extent it authorizes PLHIGA to assess Medicare Part
C and D premiums collected by its member insurers. Thus, the Commissioner did
not err in sustaining Health Insurers’ appeals and reversing the challenged
assessments. Accordingly, the Commissioner’s order is affirmed.

                                         _____________________________________
                                         MARY HANNAH LEAVITT, President Judge

business and operations and issues corrective orders; (3) an “authorized control level event,” where
the Commissioner may take control of the insurer; and (4) a “mandatory control level event,”
where the Commissioner is required to take control of the insurer. Sections 506-A – 509-A of
Article V-A, 40 P.S. §§221.6-A – 221.9-A. Nothing in the PLHIGA Act gives PLHIGA this level
of oversight of an insurer’s solvency.
15
   Section 1710(d) states: “It shall be the duty of the board of directors, upon majority vote, to
notify the commissioner of any information indicating any member insurer may be an impaired or
insolvent insurer.” 40 P.S. §991.1710(d).
                                                20
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Pennsylvania Life and Health Insurance :
Guaranty Association,                              :
                  Petitioner           :
                                       :
            v.                         :    Nos. 940 - 947 C.D. 2018
                                       :
Pennsylvania Insurance Department,     :
                  Respondent           :

                                  ORDER

            And now this 9th day of September, 2019, the order of the Insurance
Commissioner of the Commonwealth of Pennsylvania in the above-captioned
matters dated June 12, 2018, is AFFIRMED.

                                 _____________________________________
                                 MARY HANNAH LEAVITT, President Judge