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Official Opinion 98-17

Official Opinion 98-17

October 5, 1998
To: 

Commissioner of Insurance

Re: 

The Insurance Commissioner has the authority to tax HMO receipts of Medicaid premium payments.

This is in response to your request for an official opinion. You have asked whether you, in your capacity as Insurance Commissioner, have the authority to tax health maintenance organizations (“HMO’s”) on premium payments they receive from Medicaid. For the reasons set forth below, the Commission has such authority.

The Commissioner is required to collect a premium tax on insurance companies. “All foreign, alien, and domestic insurance companies doing business in this state shall pay a tax of 2 1/4 percent upon the gross direct premiums received by them on and after July 1, 1955.” O.C.G.A. § 33-8-4 (emphasis added). HMO’s, as insurers, are subject to the premium tax. See O.C.G.A. § 33-21-1(7). Consequently, the premium tax applies generally to all premiums paid to insurance companies including HMO’s.

In some instances, the premiums received by HMO’s are paid by Medicaid. Because Medicaid is jointly funded and administered by federal and state governments, 42 U.S.C.A. § 1396b (West 1992 & Supp. 1998), at least two questions arise: (1) whether federal law preempts the state from applying the premium tax to premiums paid by Medicaid; and (2) whether state law otherwise prohibits applying the premium tax to premiums paid by Medicaid.

Federal law does not preempt applying the premium tax to premiums paid by Medicaid. In fact federal law specifically contemplates that states would assess taxes of various forms against Medicaid related health care services. 42 U.S.C.A. § 1396b(w) (West Supp. 1998); 42 C.F.R § 433.50 et seq. (1997). In instances where states impose impermissible taxes, doing so will lead to a reduction in the amount of federal financial participation that is available in that state’s Medicaid program. 42 U.S.C.A. § 1396b(w)(1)(A) (West Supp. 1998); 42 C.F.R. § 433.60 (1997). Because the premium tax is broad based, uniformly imposed and does not disproportionately fall upon health care providers, the tax does not constitute an impermissible tax. 42 U.S.C.A. § 1396b(w)(1)(A) (West Supp. 1998); 42 C.F.R. §§ 433.55, 433.68 (1997). As a result, there is no federal prohibition against assessing the premium tax against premiums paid to HMO’s by Medicaid. Neither is there any state prohibition.

It has been recognized in some contexts that it is anomalous and improper for the state to tax itself “in order that the functions of government be not unduly impeded, and that the government be not forced into the inconsistency of taxing itself in order to raise money to pay over to itself.” Penick v. Foster, 129 Ga. 217, 225 (1907). However, this principle of law does not prohibit the state from imposing nondiscriminatory taxes upon benefits received by third parties from the state or federal governments. See Graves v. New York ex rel. O’Keefe, 306 U.S. 466, 486-87 (1939) (governmental employees not exempt from nondiscriminatory taxes). Consequently, no impermissible tax on the state exists with regard to the premium tax.

Based on the foregoing, I see no legal impediment that would prohibit the Commissioner from complying with his statutory duty to assess the premium tax against HMO receipts of premiums from Medicaid.

Prepared by:

HAROLD D. MELTON
Senior Assistant Attorney General