In Pennsylvania Life & Health Ins. Guar. Ass’n v. Pennsylvania Ins., the Commonwealth Court of Pennsylvania addressed an appeal by the Pennsylvania Life and Health Insurance Guaranty Association (PLHIGA) of the decision by the Insurance Commissioner (“Commissioner”) to sustain the appeals of nine member health insurers and reverse assessments imposed by PLHIGA on the health insurers’ Medicare Parts C and D premium accounts. During the initial agency adjudication, the Commissioner determined that the assessments, which PLHIGA imposed on all member insurers pursuant to its enabling act, were preempted by federal law. The Commonwealth Court agreed with the Commissioner’s order and found that the PLHIGA Act is preempted by federal law to the extent that it authorizes PLHIGA to assess Medicare Part C and D premiums collected by its member insurers.
This case arose after the Commonwealth Court entered orders of liquidation with findings of insolvency for two Pennsylvania life insurers. Upon the Court’s entry of liquidation, PHLIGA’s powers and duties under the PHLIGA Act arose and it issued a class B assessment to its member insurers to fund its obligations to policyholders from the insolvent companies. To calculate its assessment, PHLIGA determined the average proportionate share of each member’s health insurance business in Pennsylvania, including Medicare Part C and Part D premiums. The health insurers paid the assessment under protest, arguing that the inclusion of Medicare premiums was preempted by federal law. The Commissioner held that federal regulations 42 C.F.R. §422.404(a) and 42 C.F.R. §423.440(b)(1) prohibited States from imposing any tax or assessment against Part C and Part D premiums and preempted State laws that allowed an assessment against those plans. PLHGA appealed the Commissioner’s order.
On appeal, PLHIGA first argued that it was not a state and thus not subject to the prohibition on assessments. PLHIGA’s argument rested on the premise that the assessments were not mandated by statute, but instead were issued at the discretion of the board of directors. However, the court found this argument unpersuasive and instead held that the PLHIGA Act in its plain language mandated assessment upon the member insurers. The court found that the assessments were imposed by State statute and not by PLHIGA, when the legislature plainly stated, “[PLHIGA’s] board of directors shall assess the member insurers. 40 P.S. §991.1707(a). The board had no discretion over whether or not to assess.
PLHIGA’s second argument was that the assessment was not a tax and thus not preempted by federal law. In response, the court found the federal preemption language clear and unequivocal. “No premium tax, fee, or other similar assessment may be imposed by any State.” Pennsylvania Life & Health Ins. Guar. Ass’n v. Pennsylvania Ins., (emphasis included) citing 42 C.F.R. §423.440(b)(1). PLHIGA attempted to draw a distinction between public entities and private entities making an assessment. The court found that the PLHIGA’s distinction was misguided and instead determined that the true distinction was between “mandatory and voluntary” assessments. The court held that the fact at issue was whether contributions “are required by State law or are optional.” If a Medicare Advantage plan chose to voluntarily contribute to an association, then the assessment would be allowed. If, however State law required it, then it would be preempted.
PLHIGA’s final argument rested on the 2003 Medicare Modernization Act, which states “[Medicare part C and D regulations] shall supersede any State law or regulation (other than State licensing law or State laws relating to plan solvency).” PLHIGA argued that the PLHIGA Act fell within these narrow exceptions. The court again found PLHIGA’s argument unpersuasive. The court determined that the assessments were not related to the licensing process, but rather a condition to keeping a license. Thus, the requirement did not fall within the exception. Finally, the court also found that the PHLIGA Act is not a “state law relating to plan solvency,” because its stated purpose is to protect policyholders against failure in the performance by member insurers that are already insolvent, rather than regulating ongoing solvency.
In sum, the court agreed with the Commissioner that the PLHIGA Act is preempted by federal law to the extent that it authorized PLHIGA to assess Medicare Part C and D premiums collected by its member insurers, and accordingly affirmed the Commissioner’s order.
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