Opinion
No. 21-0080
06-17-2022
Glenn HEGAR, Comptroller of Public Accounts of the State of Texas, and Ken Paxton, Attorney General of the State of Texas, Petitioners, v. HEALTH CARE SERVICE CORPORATION, Respondent
Alison D. Andrews, Office of the Attorney General, Deputy Chief, Tax Division, Austin, W. Kenneth Paxton Jr., Attorney General of Texas Office of the Attorney General, Austin, Jack Hohengarten, Asst. Attorney General, Financial Litigation Division, Tax Division, Austin, Ray H. Langenberg, Texas Comptroller of Public Accounts, Austin, Ari Cuenin, Office of the Solicitor General, Austin, Ethan Glenn, S. Grant Dorfman, Shawn Cowles, Brent Webster, Texas Office of the Attorney General, Austin, for Petitioners. Richard W. Moore III, Doug Sigel, Ryan Law Firm, PLLC, Austin, for Respondent.
Alison D. Andrews, Office of the Attorney General, Deputy Chief, Tax Division, Austin, W. Kenneth Paxton Jr., Attorney General of Texas Office of the Attorney General, Austin, Jack Hohengarten, Asst. Attorney General, Financial Litigation Division, Tax Division, Austin, Ray H. Langenberg, Texas Comptroller of Public Accounts, Austin, Ari Cuenin, Office of the Solicitor General, Austin, Ethan Glenn, S. Grant Dorfman, Shawn Cowles, Brent Webster, Texas Office of the Attorney General, Austin, for Petitioners.
Richard W. Moore III, Doug Sigel, Ryan Law Firm, PLLC, Austin, for Respondent.
Justice Bland delivered the opinion of the Court, in which Chief Justice Hecht, Justice Lehrmann, Justice Boyd, and Justice Huddle joined.
Employers who self-fund health insurance for their employees often purchase "stop-loss" policies that reimburse the employer when the employer's self-insured health-care costs exceed individual or aggregate thresholds. The question before us today is whether the Comptroller properly taxed an insurer based on premiums it received from sales of these stop-loss policies, under Insurance Code Chapters 222 and 257. Because the governing statutes unambiguously impose these taxes on the insurer's premiums, we hold that the Comptroller properly assessed them.
I
Health Care Service Corporation does business as Blue Cross Blue Shield, a household-name insurance carrier in Texas. The Texas Department of Insurance approved Blue Cross to sell stop-loss policies to employers who self-fund their employees’ health insurance. The Blue Cross policies indemnify the policyholder for amounts paid to reimburse health-care claims above a specific threshold, called the "Point of Attachment." Blue Cross's standard policy provides coverage for both individual and aggregate points of attachment. This means that Blue Cross reimburses its policyholders when health-care costs exceed the point of attachment for any covered individual and for the covered population. For example, if the individual point of attachment is $35,000 and an employee incurs $500,000 in health-care costs during the policy period, then Blue Cross reimburses the employer $465,000. If the aggregate point of attachment is $1 million, and the covered individuals collectively incur $1.5 million in health-care costs, Blue Cross reimburses the employer $500,000.
Blue Cross provided these example figures in its motion for summary judgment.
In calendar year 2012, the period at issue, Blue Cross received over $7 billion in Texas insurance premiums, including $171.6 million in premiums from stop-loss policies. With respect to the stop-loss premiums, Blue Cross paid $3,005,270.13 in premium taxes and $68,691.89 in maintenance taxes—less than 2% of those sales.
The source of the Comptroller's authority to collect premium taxes is Chapter 222 of the Insurance Code. Chapter 222 imposes an annual tax on premiums received "from any kind of ... insurance policy or contract covering risks on individuals or groups" arising from the business of health insurance:
Except as otherwise provided by this section, in determining an insurer's taxable gross premiums or a health maintenance organization's taxable gross revenues, the insurer or health maintenance organization shall include the total gross amounts of premiums, membership fees, assessments, dues, revenues, and other considerations received by the insurer or health maintenance organization in a calendar year from any kind of health maintenance organization certificate or contract or insurance policy or contract covering risks on individuals or groups located in this state and arising from the business of a health maintenance organization or the business of life insurance, accident insurance, health insurance, life and accident insurance, life and health insurance, health and accident insurance, life, health, and accident insurance, including variable life insurance, credit life insurance, and credit accident and health insurance for profit or otherwise or for mutual benefit or protection.
The premium tax rate is fixed by statute at 1.75%.
Id. § 222.003(a).
The source of the Comptroller's authority to collect maintenance taxes is Chapter 257 of the Insurance Code. Chapter 257 provides that "[a]n insurer shall pay maintenance taxes under this chapter on the correctly reported ... gross premiums collected from writing life, health, and accident insurance in this state." The maintenance-tax rate varies annually and is intended to generate "the amount the commissioner determines is necessary to pay the expenses during the succeeding year of regulating life, health, and accident insurers."
Id. § 257.003.
Id. § 257.002(b).
In this suit, Blue Cross seeks a refund of its 2012 premium and maintenance taxes collected from its stop-loss policies, principally arguing that its stop-loss policies do not cover risks on "individuals or groups" and are not "health insurance."
Blue Cross and the Comptroller filed cross-motions for summary judgment. The trial court ruled for Blue Cross, and the court of appeals affirmed. The court of appeals concluded that "[s]top-loss insurance touches on and involves a group policy but does not cover risks to the individual members of the group," reading the policies to cover "the employer's risk, providing a cap for the employer's costs in paying for its employees’ medical care." Referencing "an ancient pro-taxpayer presumption," the court of appeals "strictly construe[d] the language of section 222.002(b) against taxation" and held that Blue Cross does not owe taxes on stop-loss premiums. The court similarly held the maintenance tax inapplicable because the stop-loss policies "protect an employer from risk incurred from deciding to pay its employees’ healthcare costs," and that Blue Cross did not collect the premiums from writing health insurance. Finally, the court of appeals determined that Blue Cross presented sufficient evidence to support the amount of its refund claim.
––– S.W.3d ––––, 2020 WL 7294614, at *11 (Tex. App.—Austin Dec. 11, 2020).
Id. at *5.
Id. at *2 (quoting TracFone Wireless, Inc. v. Comm'n on State Emergency Commc'ns , 397 S.W.3d 173, 182 (Tex. 2013) ).
Id. at *5.
Id. at *6.
Id. at *11. The Comptroller does not challenge this portion of the court of appeals’ opinion.
We granted the Comptroller's petition for review.
II
The burden of proving entitlement to a tax refund lies with the taxpayer. When the material facts are undisputed, we interpret the statute de novo.
Lockheed Martin Corp. v. Hegar , 601 S.W.3d 769, 774 (Tex. 2020).
Id.
As in any statutory interpretation case, "[o]ur objective is to ascertain and give effect to the Legislature's intent." In doing so, we enforce the plain meaning of statutory text, informed by its context. Words that in isolation are amenable to two textually permissible interpretations are often not ambiguous in context. As we observed in another tax case: "If an undefined term has multiple common meanings, it is not necessarily ambiguous; rather, we will apply the definition most consistent with the context of the statutory scheme." Further, our inquiry is not whether the statute has an ambiguous scope, but whether the language itself is ambiguous. If the language of the statute proves ambiguous, however, we apply the presumption in favor of the taxpayer.
In re D.S. , 602 S.W.3d 504, 514 (Tex. 2020).
Creative Oil & Gas, LLC v. Lona Hills Ranch, LLC , 591 S.W.3d 127, 133 (Tex. 2019).
See id. at 135 (resolving the meaning of the phrase "good, product, or service in the marketplace" in the Texas Citizens Participation Act by preferring the interpretation that "comports with the text's context within the statute's explanation of the well-worn phrase ‘matter of public concern’ ").
Sw. Royalties, Inc. v. Hegar , 500 S.W.3d 400, 405–06 (Tex. 2016) (employing the rule against surplusage to interpret "processing" and concluding tax statute was unambiguous).
Id. at 406.
TracFone Wireless , 397 S.W.3d at 182 ("The reach of an ambiguous tax statute must be construed ‘strictly against the taxing authority and liberally for the taxpayer.’ " (quoting Morris v. Hous. Indep. Sch. Dist. , 388 S.W.3d 310, 313 (Tex. 2012) )). Canons that express policy preferences (such as construing contracts against drafters, or the presumption in favor of the taxpayer) only come into play after a determination that the text is ambiguous—in other words, such preferences cannot themselves create ambiguity.
As a threshold matter, Chapter 222 applies to premiums received from "any kind of ... insurance policy or contract covering risks on individuals or groups." The statute instructs the reader not to be misled by distinctions of kind; premiums from any kind of policy or contract are taxable, so long as the policy "cover[s] risks on individuals or groups" and "aris[es] from the business of ... health insurance ...."
Id.
The ellipses hide the robustness of the statute. The premium tax applies not just to the business of health insurance, but also to life insurance, accident insurance, and to every possible combination thereof: "life and accident insurance, life and health insurance, health and accident insurance, life, health, and accident insurance." This thoroughness is mirrored in the listing of types of taxable income: "premiums, membership fees, assessments, dues, revenues, and other considerations." Nothing about Chapter 222 is narrowly tailored or exacting. Rather, the statute employs language to maximize its applicability.
Id.
Id.
With this context established, we turn to the contested components of the premium tax the Comptroller assessed in this case: first, whether the Blue Cross stop-loss policies cover "risks on individuals or groups," and second, whether the premiums Blue Cross collected arose from "the business of ... health insurance."
Id.
A
Blue Cross interprets "individuals" to mean natural persons and "groups" to mean multiple natural persons, and it argues that a self-insured employer is neither. It argues that stop-loss policies "cover the risks on a juridical entity: an employer and its self-funded health benefit plan," and thus the policies do not cover risks on natural persons or groups of natural persons. To support its position, Blue Cross points to insurance industry descriptions of stop-loss policies as "third-party" coverage that "insure[ ] only the employer."
The Comptroller responds that the Blue Cross policies cover risks on individuals and groups because the policies reimburse health-care claims above individual and aggregate attachment points, which directly ties reimbursement to the payment of individual and group health-care claims. In addition, the surrounding statutory provisions show that the Legislature contemplated that sales of stop-loss policies be subject to the premium tax.
We agree with the Comptroller. The Blue Cross stop-loss policies cover risks on both individuals and groups. The policies provide coverage when any individual's health-care costs exceed the individual point of attachment as well as when all covered individuals’ health-care costs exceed the aggregate point of attachment. Insurance policies are a hedge against risk. Here, the particular risk hedged against is an uncertainty that lies on people and their health care—the risk that the individuals will either collectively or individually incur health-care costs above a particular amount that the self-funded plan is obligated to pay. That a corporate entity is the one paying a premium to offset this risk is irrelevant; nothing in Section 222.002(b) concerns the identity of the ultimate payor. The stop-loss policies are among "any kind of" policy "covering risks on individuals or groups," which is all the statute requires. Relying in part on the doctrine that courts strictly construe taxing statutes against the taxing authority, the court of appeals conflated the statutory "risks on individuals or groups" with "risks to the individual members of [a] group." The text does not supply such a limitation, and the presumption in favor of the taxpayer cannot either. The presumption in favor of the taxpayer, though ancient, is a rule of last resort—a feather to tip the scale between equally plausible interpretations. Blue Cross indemnifies the employer against excess individual or aggregate health-care costs that it incurs during the coverage period—costs that self-insured employers are obligated to fund. Because the statute is not ambiguous, the presumption is not implicated here.
Id. Like the court of appeals, the dissent differentiates between health-care risks and financial risks associated with paying for health care, but in this instance, they are one and the same. "Direct" health insurance does not provide health care: it reimburses the payor for the cost of health care. The stop-loss policies similarly cover the costs of health care above a certain threshold by reimbursing the self-funded payor for those costs; these policies do not cover market risks, interest-rate risks, or some other financial risk.
Compare Tex. Ins. Code § 222.002(b) (emphasis added), with 2020 WL 7294614, at *5 (emphasis added).
See TracFone Wireless , 397 S.W.3d at 183 ("[W]e will not extend the reach of an ambiguous tax by implication, nor permit tax collectors to stretch the scope of taxation beyond its clear bounds.").
If there remains any doubt about whether stop-loss policy premiums are taxable, the statutory context resolves it. First, the statute identifies stop-loss policies issued to health maintenance organizations as "reinsurance" that is explicitly exempted from the tax. "When specific exclusions or exceptions to a statute are stated by the Legislature, the intent is usually clear that no others shall apply." The HMO exemption bolsters the interpretation that Chapter 222 otherwise covers stop-loss premiums earned from non-HMO policies. The exemption does not "extend the reach of an ambiguous tax by implication" but instead makes clear that the Blue Cross policies fall within "any kind" of policy or contract and that premiums earned from sales of such policies are taxable.
Unigard Sec. Ins. Co. v. Schaefer , 572 S.W.2d 303, 307 (Tex. 1978) (refusing to recognize unenumerated exception for unauthorized drivers in statute requiring personal-injury protection coverage in automobile liability insurance policies).
See TracFone Wireless , 397 S.W.3d at 183.
Blue Cross argues that the exception should carry no interpretive weight because it is vestigial. Before 2007, the statute taxed policies received from premiums "covering a person." The Legislature amended the statute in 2007, however, broadening its scope from "covering a person" to "covering risks on individuals or groups." Blue Cross argues that the Legislature implicitly repealed its tax on stop-loss policies at that point but declined to strike a now-ineffective exemption for HMOs, perhaps, it suggests, for reasons of political expediency.
See Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 1, 2003 Tex. Gen. Laws 3611, 3621 (codified at Tex. Ins. Code § 222.002(b) ).
Repeals by implication are disfavored. In this case, there is no compelling textual reason to conclude that the 2007 amendment was a repeal. The change from "covering a person" to "covering risks on individuals or groups" merely clarifies that the tax applies to group insurance, not just individually negotiated policies. We decline to adopt Blue Cross's speculative reason for according the statutory exemption no weight.
Kroger Co. v. Keng , 23 S.W.3d 347, 351 (Tex. 2000) ; Gordon v. Lake , 163 Tex. 392, 356 S.W.2d 138, 139 (1962).
The dissent suggests that, with the 2007 amendment, the Legislature may have narrowed the tax inadvertently. Post at 52 (Blacklock, J., dissenting). We presume, however, that the Legislature acted deliberately, and that it did so consistently with its preservation of the statutory exemptions. See Tex. Lottery Comm'n v. First State Bank of DeQueen , 325 S.W.3d 628, 635 (Tex. 2010) ("We presume the Legislature selected language in a statute with care and that every word or phrase was used with a purpose in mind."). The change to "covering risks on individuals or groups" was the only change made to Chapter 222. See Act of May 28, 2007, 80th Leg., R.S., ch. 932, § 2, 2007 Tex. Gen. Laws 3194, 3195. The text is more reasonably read to broaden the kinds of risks a given policy may cover, not narrow them.
Even if we accepted Blue Cross's argument that the risk covered by stop-loss policies is not a hedge against the risk on the uncertainty of individual health-care costs, we would still conclude that an employer is a "group" for the purposes of the taxation statute. The strongest evidence that a single entity covering individuals qualifies as a "group" for the purposes of the statute is the use of "group" in Section 222.002(c)(5) to describe a single insured:
(c) The following are not included in determining an insurer's taxable gross premiums or a health maintenance organization's taxable gross revenues:
....
(5) premiums or revenues paid on group health, accident, and life polices or contracts in which the group covered by the policy or contract consists of a single nonprofit trust established to provide coverage primarily for employees of [certain governmental entities].
Tex. Ins. Code § 222.002(c) (emphases added).
If a "single nonprofit trust" is a "group" otherwise subject to the tax, so too is an employer. As we have recognized, "when a word is used throughout a statute, we generally construe the statute to provide consistent meaning to that word."
Beeman v. Livingston , 468 S.W.3d 534, 539 (Tex. 2015).
The dissent finds the canon of consistent usage "unconvincing" because a trust purchasing group coverage "bears no resemblance" to a self-insured corporation. The point, however, is that the Legislature considered such trusts—single, juridical entities, in Blue Cross's parlance—to be "groups" that, absent the statutory exception, would otherwise fall within the ambit of Section 222.002(b). Absent the statutory exception, a policy premium paid by such a trust is taxable because the trust qualifies as a "group" under Section 222.002(b), even though the risks are on an entity, not on individual natural persons.
Post at 54 (Blacklock, J., dissenting).
See, e.g. , Tex. Loc. Gov't Code § 157.101(b) ("The commissioners court may provide [group health and related benefits] through insurance, self-insurance, or a contract with a county-operated hospital, a hospital operated jointly by a municipality and county, or a private hospital."); id. § 157.102(a) ("The commissioners court may establish a fund to pay for the group health and related benefits. The fund may take the form of a single nonprofit trust as described by Section 222.002(c)(5)(A), Insurance Code.").
We hold that Blue Cross's stop-loss policies cover risks on individuals or groups, and thus the premiums Blue Cross collected are taxable under Chapter 222 if they arise from the business of health insurance.
B
The second component of the premium tax that Blue Cross challenges is whether the stop-loss policies "aris[e] from the business of ... health insurance." Blue Cross argues that stop-loss policies are not health insurance under Insurance Code Chapter 1201, which defines and regulates "health insurance" in the insurance context. The taxing statute, however, does not require that stop-loss policies be health insurance, so long as the policies "aris[e] from" the business of health insurance. Chapter 222 taxes a broader array of policies than those Chapter 1201 regulates.
Blue Cross further argues that "the Comptroller fails to establish any connection between stop-loss policies in general and health insurance." Such a connection, however, is present. Blue Cross sells stop-loss insurance to limit employer liability when their employees’ health-care costs exceed certain thresholds. The example policy in the record indemnifies the policyholder for "the amount paid pursuant to the [self-funded Group Health Plan of the Policyholder] ... in excess of the Point of Attachment specified." Because such payments directly relate to the obligation to provide health-care coverage above certain thresholds, we conclude that Blue Cross's receipt of premiums for these policies arises from "the business of ... health insurance."
III
We next turn to the maintenance tax, imposed on premiums "collected from writing life, health, and accident insurance in this state."
Id. § 257.003(a)(1).
The Comptroller argues that the policies fall within Chapter 257 because stop-loss policies reimburse employers for medical expenses, which Blue Cross is obligated to pay by indemnifying the policyholder for "the amount paid pursuant to the [self-funded Group Health Plan of the Policyholder] ... in excess of the Point of Attachment specified." Blue Cross's certificate of authority authorizes it to be in the business of "Health" insurance; stop-loss policies must be authorized by its certificate to permit Blue Cross to sell them. The Comptroller further cites Blue Cross's availment of a regulatory exception that characterizes stop-loss policies as health insurance, and relies on the characterization of stop-loss insurance as "direct insurance in the nature of health insurance" in Texas Department of Insurance v. American National Insurance Co. Finally, the Comptroller points to the purpose of the maintenance tax—which covers the costs of regulating insurers—as favoring its interpretation.
Id. § 801.052.
See 28 Tex. Admin. Code § 3.4004(e)(2)(J) (exempting "group stop loss/excess loss policies containing an attachment point of $5,000 or more" from the filing requirements applicable to Insurance Code Chapter 1701); Tex. Ins. Code § 1701.002(1)(A) (applying Chapter 1701 to "accident or health insurance, including group accident or health insurance").
410 S.W.3d 843, 855 (Tex. 2012).
Blue Cross responds that stop-loss policies are not health insurance because the losses covered by health insurance—bodily injury, death, or sickness—are suffered by natural persons, not employers. Blue Cross argues that the fact that it is generally in the business of health insurance does not mean that every policy it sells is subject to the maintenance tax, relying on a definition of "accident and health insurance policy" found in the Insurance Code. The statutory definition of "[a]ccident and health insurance policy" is limited to the chapter substantively regulating health insurance, however, and therefore is of little help in determining whether the stop-loss policies qualify as a type of "health insurance" for the purposes of collecting the maintenance tax.
See Tex. Ins. Code § 1201.001 ("In this chapter: (1) ‘Accident and health insurance policy’ includes any policy or contract that provides insurance against loss resulting from: (A) accidental bodily injury; (B) accidental death; or (C) sickness.").
Id. ; see also id. § 1201.002 (describing the purpose of Chapter 1201).
The purpose of the maintenance tax is to collect funds to cover the costs of regulating the industry. The question is therefore whether these stop-loss policies are administratively regulated as life, health, and accident insurance in this state. The summary-judgment evidence confirms that they are.
See id. § 257.002(b) (varying the tax rate to produce the amount necessary to recover regulatory costs).
Blue Cross's certificate of authority authorizes it to transact "in the business of Accident; Health; Reinsurance on all lines authorized to be written on a direct basis; and the authority to transact business as a Health Maintenance Organization offering Basic Health Care Service Plan." As Blue Cross's expert agreed, the Texas Department of Insurance "provides stop-loss writers authority to issue stop-loss under the category of health insurance." The Department does not issue separate permits to issue stop-loss insurance policies. If stop-loss policies are not a kind of health insurance, then in the broadest regulatory sense, Blue Cross would lack authority to sell it. Blue Cross concedes in its briefing that stop-loss policies are "treated, for administrative and regulatory purposes, as accident and health insurance."
Our decision in American National supports the conclusion that stop-loss policies are regulated as health insurance. In that case, we examined whether stop-loss policies are "direct health insurance" or "reinsurance"—and therefore not subject to state regulation. The State argued that stop-loss policies are "direct insurance in the nature of health insurance because the stop-loss policies are purchased by the plans to cover ultimate claims associated with their health-care expenses." We deferred to the State's "reasonable," "formally promulgated" construction, which was "not expressly contradicted by the Insurance Code." Though we did not hold stop-loss policies to be equivalent to traditional health insurance, we endorsed the State's position that stop-loss policies are—for regulatory purposes—of that variety.
Am. Nat'l Ins. Co. , 410 S.W.3d at 845.
Id. at 847.
Id. at 855.
Because stop-loss insurance is regulated as health insurance and Blue Cross is not authorized to sell stop-loss insurance apart from its certificate to sell health insurance, we conclude that stop-loss premiums are subject to Chapter 257's maintenance tax.
* * *
We hold that Blue Cross's stop-loss policies cover risks on individuals and groups and arise from the business of health insurance. Accordingly, the premiums Blue Cross collects on these policies are subject to taxation under Chapter 222. Because, for administrative and regulatory purposes, Blue Cross collects these premiums under its authority to write health insurance, we further hold that they are subject to Chapter 257's maintenance tax. We reverse the court of appeals’ judgment and render judgment for the Comptroller.
Justice Blacklock filed a dissenting opinion, in which Justice Devine, Justice Busby, and Justice Young joined.
Justice Blacklock, joined by Justice Devine, Justice Busby, and Justice Young, dissenting. "We have consistently applied an ancient pro-taxpayer presumption: The reach of an ambiguous tax statute must be construed strictly against the taxing authority and liberally for the taxpayer. In other words, a tax must apply unequivocally." TracFone Wireless, Inc. v. Comm'n on State Emergency Commc'ns , 397 S.W.3d 173, 182 (Tex. 2013) (cleaned up) (quoting Morris v. Hous. Indep. Sch. Dist. , 388 S.W.3d 310, 313 (Tex. 2012) ). This venerable presumption traces its roots to "an old English rule that the sovereign is bound to express its intention to tax in clear and unambiguous language." Id. (citation, internal quotation marks omitted). This Court has long employed it. E.g., Tex. Unemployment Comp. Comm'n v. Bass , 137 Tex. 1, 151 S.W.2d 567, 570 (1941).
This well-established default rule demands clarity from the Legislature before taxes may be imposed. It should not be invoked lightly, as its injudicious use would allow taxpayers to unfairly escape their obligations. Courts must strive to understand the Legislature's meaning, even when its choice of words makes that task difficult. But in the face of a tax statute that cannot be applied with confidence one way or another, the default rule acknowledges that it is better for courts to admit that the statute is unclear and require the Legislature to clarify itself than to side with the government and thereby risk judicially imposing a tax the Legislature never authorized. By invoking the default rule in favor of taxpayers when indeterminate statutes yield indeterminate results, courts ensure that the Legislature, not the Comptroller or the judiciary, imposes the taxes collected by the State.
The presumption in favor of taxpayers should control today's case. The primary question presented is whether the "premium tax" imposed on health insurers by the Insurance Code applies to "stop-loss" policies issued to employers who provide self-funded health coverage to their employees. See TEX. INS. CODE § 222.002(b). To answer that question, the Court must decide whether these insurance policies "cover[ ] risks on individuals or groups." Id. The Court and the Comptroller have a reasonable reading of the Code under which Blue Cross must pay the premium tax on these policies. But the court of appeals and Blue Cross likewise have a reasonable reading. Because the Code's text provides no unambiguous answer, we should rule for the taxpayer. If this causes an unanticipated or undesirable gap in the tax's application, the Legislature should amend the statute to express its wishes more clearly.
I respectfully dissent in part.
I agree with the Court that the stop-loss policies are unambiguously subject to the "maintenance tax," and I join that portion of the Court's opinion. See Tex. Ins. Code § 257.003.
I.
The premium tax applies to "premiums ... received by the insurer ... from any kind of ... insurance policy or contract covering risks on individuals or groups located in this state and arising from the business of ... health insurance ...." TEX. INS. CODE § 222.002(b). The parties dispute whether the stop-loss policies sold by Blue Cross "aris[e] from the business of ... health insurance." I agree with the Court that they do. The real question is whether the stop-loss policies "cover[ ] risks on individuals or groups." The premium tax has been amended in the not-too-distant past in a way that bears directly on this question. The premium tax previously applied to premiums from policies "covering a person located in this state." After a 2007 amendment, the tax now applies to premiums from policies "covering risks on individuals or groups." Id. Because "person" typically includes business entities, the parties agree that corporate purchasers of Blue Cross's stop-loss policies are "person[s] located in this state." They therefore agree that the pre-2007 version of the premium tax would have applied to the stop-loss policies at issue. The parties disagree on what to make of the 2007 amendment, although there is little question it should be given some effect. Hunter v. Fort Worth Cap. Corp. , 620 S.W.2d 547, 551 (Tex. 1981) ("[T]he legislature is never presumed to do a useless act.").
The Court emphasizes the statute's instruction that the tax applies to "any kind " of "policy or contract covering risks on individuals or groups" (emphasis added). Ante at 43. Of course, a policy must first cover risks on individuals or groups before it can be "any kind" of policy that does so. The words "any kind" do not expand the range of taxable premiums beyond those derived from policies covering individuals or groups. We are left with the question of whether these stop-loss policies cover "risks on individuals or groups." The words "any kind" have no direct bearing on that question, and any oblique suggestion that might be derived from them lacks the clarity required of tax statutes.
Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 1, sec. 222.002(b), 2003 Tex. Gen. Laws 3611, 3621.
In construing the amendment's meaning, the Comptroller relies in part on a "bill analysis" prepared by legislative staff. This document indicates that, in the mind of the staff who wrote the bill analysis, the amendment was intended to expand the scope of the premium tax. The Court correctly ignores this appeal to legislative history, which should play no role in statutory interpretation. Yet even if the "bill analysis" made any difference, an overall legislative desire to expand the tax's application to previously uncovered premiums would not preclude the possibility that the amendment also had the effect—intended or not—of shielding some premiums from the tax. Indeed, skilled players of the legislative game may find ways of making such things happen without those who write the "bill analysis" being any the wiser, which is one of the many reasons courts should give legislative history no weight.
House Comm. on Ways & Means, Bill Analysis, Tex. H.B. 3315, 80th Leg., R.S. (2007) ("The bill amends Section 222.002(b), Insurance Code, to clarify that the life, accident and health premiums subject to taxation are those premiums for risks on individuals or groups located in the state of Texas. The current wording limits taxation to a person.").
"The law as it passed is the will of the majority of both houses, and the only mode in which that will is spoken is in the act itself." In re Facebook, Inc. , 625 S.W.3d 80, 88 n.4 (Tex. 2021) (quoting Aldridge v. Williams , 44 U.S. (3 How.) 9, 24, 11 L.Ed. 469 (1845) ).
What does it mean for an insurance policy to cover "risks on " individuals or groups? One natural way of understanding this phrasing would be to equate it with "risks to " individuals or groups. Sticklers might object that this gives no meaning to the Legislature's use of "on" instead of "to." But parsing the statute's confounding choice of preposition gets us no closer to understanding its meaning. I see no basis in the statutory text or in the common usage of these prepositions that would justify interpreting "risks on" any differently from "risks to."
Blue Cross's position, with which the court of appeals agreed, is that stop-loss policies cover financial risk "on" the corporate insured that offers self-funded healthcare coverage to its employees. Because the company purchasing the insurance to cover its own risk is neither an "individual" nor a "group," Blue Cross reasons, the premium tax does not apply. This simple, text-based approach to the statute's application has much to commend it. "Individual" typically refers to a natural person, not a business entity. And "group" typically refers to multiple individuals, or at least multiple persons. Absent a legislative definition or some other textual indication to the contrary, it would be quite odd to categorize a single company as either an "individual" or a "group."
E.g., Individual , Webster's Third New International Dictionary (2002) ("a single human being as contrasted with a social group or institution"); Tex. Ins. Code §§ 4001.003(5) (" ‘Individual’ means a natural person."); 6002.002(5) (" ‘Individual’ means a natural person, including an owner, manager, officer, occupant, or other individual.").
E.g., Group , Webster's Third New International Dictionary (2002) ("a number of individuals bound together by a community of interest, purpose, or function").
The Comptroller responds that even if the company is neither an individual nor a group, the stop-loss policy nevertheless covers "risks on" the employees—who themselves are individuals or groups. Under this argument, although the employer buys the policy to protect its own financial interests, the risks covered are ultimately the risks that individual employees face from illness or injury. The employer assumes these risks on "individuals" (or "groups" of employees) when it offers a self-funded health plan, and the stop-loss policy offers protection against excess "risks on individuals or groups" that the employer might face. This is not an unreasonable reading of section 222.002(b), if one reads it as applying to "an insurance policy or contract indirectly covering risks on individuals or groups." But the word "indirectly" is not found in the statute, and courts should not "add words that are not implicitly contained in the language of the statute." Jones v. Liberty Mut. Ins. Co. , 745 S.W.2d 901, 902 (Tex. 1988).
Blue Cross's position is that only policies directly covering risks on individuals or groups are subject to the tax. Of course, the word "directly" is not in the statute either. The statute does, however, expressly require the "policy" to "cover" risks "on" individuals or groups. One straightforward way to think of what it means for a policy to "cover risks on" someone is to ask what risk the policy is actually written to cover. Correctly identifying the precise "risk" a policy "covers" is an important question to ask about any insurance policy. The covered risk may arise from other risks or relate to other risks in various ways, but that does not make those related risks the covered risks. Stop-loss insurance policies are written to "cover" only financial risks on the employing entity—not healthcare risks on employees, who are owed benefits by their employer whether the stop-loss policy pays or not. As the court of appeals reasoned, "stop-loss insurance insures the employer against the excess risk the employer assumes when it takes responsibility for its group members’ medical costs—it does not insure the group of members against individual medical costs or losses." ––– S.W.3d ––––, 2020 WL 7294614, at *5 (Tex. App.—Austin Dec. 11, 2020).
That the insured's reason for insuring against one risk is to protect against a second risk does not convert the second risk into the risk "covered" by the policy. Insurance policies are carefully written to cover only certain risks, and this one was written to cover only the employer's financial risk, not the employees’ healthcare risk. If the only risk covered is a "risk on" the employer, which is neither an individual nor a group, then the tax described by this statute does not apply.
The Comptroller responds that Blue Cross's reading of "individual" would lead to the absurd result that premiums paid by a corporate employer would not be subject to premium taxes, but premiums paid by an individual proprietor would. This does seem like an oddity, but the concern may be purely theoretical. The Comptroller is correct that stop-loss premiums paid by an "individual" employer acting without having formed any business entity would be subject to the tax under Blue Cross's reading of the statute. But it is not absurd to suggest that the Legislature may not have accounted for unincorporated sole proprietorships when it amended a statute in a way that creates a distinction between "individuals" and business entities. Very few businesses operate as individual proprietorships, and very few that do so are in the market for stop-loss insurance. Such oversights or odd results in outlier cases are not the kind of true absurdities that would compel us to read "individuals or groups" to include entities that are neither.
The Comptroller also argues that, read in context, "individuals" and "groups" are antonyms reflecting the Legislature's attempt to include all health insurance policies. As the Comptroller sees it, "the only reasonable interpretation is that the Legislature intended the two antonyms to be all-inclusive so that there would be no gaps in the premium taxes." This is not an entirely unreasonable way to read the statute, although, yet again, it requires interpreting "individuals or groups" to include entities that are neither. Had the Legislature sought such an all-inclusive result, expansive words like "anyone" or "any insured" were available. The Legislature chose, instead, the apparently limiting words "individuals or groups." Why use these words of limitation unless there are some insureds whose healthcare-related policies are not covered by the tax? What purpose does "individuals or groups" serve in the statute if not to carve out policies covering insureds who are neither? It is not the courts’ job to make sure there are no "gaps" in a tax's application. "Tax policy gap-filling ... is best left to legislators, not courts or agencies." TracFone , 397 S.W.3d at 176.
The Court and the Comptroller note that Chapter 222 expressly makes an exception for only a specific type of stop-loss policy, which suggests that other types of stop-loss policies are subject to the tax. Section 222.002(c)(3) provides that "premiums received from an insurer for reinsurance" are not subject to the tax. Section 222.002(d) then states: "For purposes of Subsection (c)(3), a stop-loss or excess loss insurance policy issued to a health maintenance organization is considered reinsurance." Reinsurance premiums are not subject to the premium tax. TEX. INS. CODE § 222.002(c)(3). The Comptroller argues that if all stop-loss policies were not covered by the premium tax, there would be no reason for the Legislature to specifically exclude HMOs’ stop-loss policies in section 222.002(d).
Blue Cross responds with a plausible theory explaining the exception. Subsection (d) is specific to HMOs, which are not "insurers" in the statute's parlance but which nevertheless must pay premium taxes. See id. § 222.002(b) (imposing premium tax on both "an insurer" and a "health maintenance organization"). Whereas insurers concerned about their own excess risk would purchase "reinsurance," HMOs concerned about their excess risk could not buy reinsurance, which only insurers can buy. Instead, an HMO would buy a stop-loss policy to cover the same risk insurers cover with reinsurance. Reinsurance premiums are excluded altogether from the premium tax. Id. § 222.002(c)(3). Thus, to ensure HMOs are treated comparably to insurers, the Legislature enacted section 222.002(d) to denominate stop-loss policies issued to HMOs as "reinsurance" in order to categorically exclude them from the tax and ensure equal treatment as between insurers and HMOs.
See Tex. Dep't of Ins. v. Am. Nat'l Ins. Co. , 410 S.W.3d 843, 848 (Tex. 2012) ("Reinsurance, on the other hand, has been described as the transfer of all or part of one insurer's risk to another insurer, which accepts the risk in exchange for a percentage of the original premium. The true reinsurer is merely an insurance company or underwriter which deals only with other insurance companies." (cleaned up)).
The Comptroller's argument regarding the subsection (d) exception has some appeal. If Blue Cross's stop-loss plans were not taxed because they do not cover "risks on individuals or groups," then an HMO's stop-loss plan would likely not be taxed, because it covers "risks on" the HMO, which is certainly not an "individual" and probably not a "group." If that is how the statute works, then section 222.002(d) seems to have little independent effect. We often presume "the Legislature did not intend to do a useless thing by putting a meaningless provision in a statute." Barr v. Bernhard , 562 S.W.2d 844, 849 (Tex. 1978). But this canon is not absolute, and must sometimes yield to other concerns. Rigid application of the canon assumes that legislators would never employ a belt-and-suspenders approach to clearly resolve a discrete question about the statute's application without commenting on its other applications.
See Marx v. Gen. Revenue Corp. , 568 U.S. 371, 385, 133 S.Ct. 1166, 185 L.Ed.2d 242 (2013) ("The canon against surplusage is not an absolute rule ...."); Antonin Scalia & Bryan A. Garner , Reading Law: The Interpretation of Legal Texts 176 (2012) ("Put to a choice, however, a court may well prefer ordinary meaning to an unusual meaning that will avoid surplusage. So like all other canons, this one must be applied with judgment and discretion, and with careful regard to context.").
Here, the canon of surplusage-avoidance does not dictate the statute's meaning because the Legislature changed "person" to "individual or group" after section 222.002(d) was already part of the statute. Thus, as the statute used to read, section 222.002(d) carved out stop-loss plans issued to a particular category of "person"—HMOs. If, however, the change from "person" to "individuals or groups" is given its natural effect, then a broader category of stop-loss plans is no longer subject to the tax. In light of the statute's history, section 222.002(d) ’s apparent superfluity does not mean the Legislature "did a useless act." See In re Mo. Pac. R.R. , 998 S.W.2d 212, 216 (Tex. 1999). Instead, its continued presence in the statute merely indicates the Legislature did not bother to repeal it—a repeal which would surely have been vigorously opposed by HMOs, who valued their explicit carve out in section 222.002(d).
"[T]his is the history of the legislation, not legislative history.... [N]obody should quarrel with examining how an enacted statute changes over time." Pruski v. Garcia , 594 S.W.3d 322, 328 n.2 (Tex. 2020) (quoting Ojo v. Farmers Grp., Inc. , 356 S.W.3d 421, 445 n.31 (Tex. 2011) (Willett, J., concurring in part)).
Ultimately, the Comptroller's argument is that the non-repeal of an exception covering a subset of stop-loss policies implies that other stop-loss policies are generally taxable—even though it is hard to see how these policies cover "risks on individuals or groups." But this kind of reasoning is particularly suspect in tax cases: "[W]e will not extend the reach of an ambiguous tax by implication." TracFone , 397 S.W.3d at 183.
Finally, the Court reasons that another exception found in section 222.002 shows that an employer can be viewed as a "group." Section 222.002(c)(5) exempts from the premium tax policies "in which the group covered ... consists of a single nonprofit trust established to provide coverage" to certain governmental employees. If such a trust could be a "group," the Court says, then so could an employer purchasing stop-loss insurance. This argument is unconvincing. The Court takes from subsection (c)(5) a suggestion that a single entity, a "trust established to provide coverage" to individuals, can be a "group." From this suggestion, it extrapolates that the statute's use of "group" must include any single business entity—which would be a wholesale departure from the ordinarily plural meaning of "group."
I see no reason to think that "group" bizarrely includes any singular business entity just because "group" can mean a certain kind of insurance trust. The only trust that subsection (c)(5) suggests can be a "group" is a trust "established to provide coverage" to government employees. In such a scenario, the coverage is directly for the employees, and the trust is just the vehicle by which their group coverage is accomplished. Calling such an entity a "group" for insurance purposes bears no resemblance to calling a single corporation insuring against its financial risk a "group." The former sounds like typical insurance parlance, while the latter altogether defies the ordinary meaning of "group."
II.
I honestly cannot tell whether, under the peculiar, amended wording of section 222.002, stop-loss policies cover "risks on individuals or groups." Rather than pretend it has discovered the statute's one true meaning, the Court should require the Legislature to speak more clearly. Like the court of appeals, we should "strictly construe the language of section 222.002(b) against taxation to conclude that a stop-loss policy issued to a self-insured employer is not an ‘insurance policy or contract covering risks on individuals or groups.’ " 2020 WL 7294614, at *5 (quoting TEX. INS. CODE § 222.002(b) ); see also TracFone , 397 S.W.3d at 182. The court of appeals’ judgment on the premium tax should be affirmed. Because the Court does otherwise, I respectfully dissent in part.