Glenn Hegar, Comptroller of Public Accounts of the State of Texas and Ken Paxton, Attorney General of the State of Texas v. Health Care Service Corporation

Supreme Court of Texas
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No. 21-0080
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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

═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Third District of Texas
═══════════════════════════════════════

Argued February 3, 2022

JUSTICE BLAND delivered the opinion of the Court, in which Chief
Justice Hecht, Justice Lehrmann, Justice Boyd, and Justice Huddle
joined.

JUSTICE BLACKLOCK filed a dissenting opinion, in which Justice
Devine, Justice Busby, and Justice Young 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. 1
In calendar year 2012, the period at issue, Blue Cross received
over $7 billion in Texas insurance premiums, including $171.6 million

1Blue Cross provided these example figures in its motion for summary
judgment.

2
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. 2
The premium tax rate is fixed by statute at 1.75%. 3
The source of the Comptroller’s authority to collect maintenance
taxes is Chapter 257 of the Insurance Code. Chapter 257 provides that

2 Tex. Ins. Code § 222.002(b).
3 Id. § 222.003(a).

3
“[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.” 4 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.” 5
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. 6 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.” 7 Referencing “an ancient pro-taxpayer
presumption,” 8 the court of appeals “strictly construe[d] the language of
section 222.002(b) against taxation” and held that Blue Cross does not

4 Id. § 257.003.
5 Id. § 257.002(b).
6 __ S.W.3d __, 2020 WL 7294614, at *11 (Tex. App.—Austin Dec. 11,
2020).
7 Id. at *5.
Id. at *2 (quoting TracFone Wireless, Inc. v. Comm’n on State
8

Emergency Commc’ns, 397 S.W.3d 173, 182 (Tex. 2013)).

4
owe taxes on stop-loss premiums. 9 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. 10 Finally, the court of appeals determined that
Blue Cross presented sufficient evidence to support the amount of its
refund claim. 11
We granted the Comptroller’s petition for review.
II
The burden of proving entitlement to a tax refund lies with the
taxpayer. 12 When the material facts are undisputed, we interpret the
statute de novo. 13
As in any statutory interpretation case, “[o]ur objective is to
ascertain and give effect to the Legislature’s intent.” 14 In doing so, we
enforce the plain meaning of statutory text, informed by its context. 15
Words that in isolation are amenable to two textually permissible

9 Id. at *5.
10 Id. at *6.
11Id. at *11. The Comptroller does not challenge this portion of the court
of appeals’ opinion.
12 Lockheed Martin Corp. v. Hegar, 601 S.W.3d 769, 774 (Tex. 2020).
13 Id.
14 In re D.S., 602 S.W.3d 504, 514 (Tex. 2020).
15Creative Oil & Gas, LLC v. Lona Hills Ranch, LLC, 591 S.W.3d 127,
133 (Tex. 2019).

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interpretations are often not ambiguous in context. 16 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.” 17 Further, our
inquiry is not whether the statute has an ambiguous scope, but whether
the language itself is ambiguous. 18 If the language of the statute proves
ambiguous, however, we apply the presumption in favor of the
taxpayer. 19
As a threshold matter, Chapter 222 applies to premiums received
from “any kind of . . . insurance policy or contract covering risks on
individuals or groups.” 20 The statute instructs the reader not to be
misled by distinctions of kind; premiums from any kind of policy or

16 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’”).
17Sw. 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).
18 Id. at 406.
19 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.
20 Tex. Ins. Code § 222.002(b).

6
contract are taxable, so long as the policy “cover[s] risks on individuals
or groups” and “aris[es] from the business of . . . health insurance . . . .” 21
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.” 22 This
thoroughness is mirrored in the listing of types of taxable income:
“premiums, membership fees, assessments, dues, revenues, and other
considerations.” 23 Nothing about Chapter 222 is narrowly tailored or
exacting. Rather, the statute employs language to maximize its
applicability.
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.” 24
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

21 Id.
22 Id.
23 Id.
24 Id.

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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

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“covering risks on individuals or groups,” which is all the statute
requires. 25
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.” 26 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. 27 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.
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

25 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
26

7294614, at *5 (emphasis added).
27See 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.”).

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tax. 28 “When specific exclusions or exceptions to a statute are stated by
the Legislature, the intent is usually clear that no others shall apply.” 29
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. 30
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.” 31 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.

28 Tex. Ins. Code. § 222.002(c)–(d).
29Unigard 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).
30 See TracFone Wireless, 397 S.W.3d at 183.
See Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 1, 2003 Tex. Gen.
31

Laws 3611, 3621 (codified at Tex. Ins. Code § 222.002(b)).

10
Repeals by implication are disfavored. 32 In this case, there is no
compelling textual reason to conclude that the 2007 amendment was a
repeal. 33 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.
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:
....

Kroger Co. v. Keng, 23 S.W.3d 347, 351 (Tex. 2000); Gordon v. Lake,
32

356 S.W.2d 138, 139 (Tex. 1962).
33 The dissent suggests that, with the 2007 amendment, the Legislature
may have narrowed the tax inadvertently. Post at 8 (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.

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(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]. 34
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.” 35
The dissent finds the canon of consistent usage “unconvincing”
because a trust purchasing group coverage “bears no resemblance” to a
self-insured corporation. 36 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. 37

34 Tex. Ins. Code § 222.002(c) (emphases added).
35 Beeman v. Livingston, 468 S.W.3d 534, 539 (Tex. 2015).
36 Post at 12 (Blacklock, J., dissenting).
37 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.”).

12
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.” 38 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

38 Tex. Ins. Code § 222.002(b).

13
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.” 39
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. 40 The Comptroller further
cites Blue Cross’s availment of a regulatory exception that characterizes
stop-loss policies as health insurance, 41 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. 42 Finally, the Comptroller points to the purpose

39 Id. § 257.003(a)(1).
40 Id. § 801.052.
41 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”).
42 410 S.W.3d 843, 855 (Tex. 2012).

14
of the maintenance tax—which covers the costs of regulating insurers—
as favoring its interpretation.
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. 43 The statutory
definition of “[a]ccident and health insurance policy” is limited to the
chapter substantively regulating health insurance, 44 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.
The purpose of the maintenance tax is to collect funds to cover the
costs of regulating the industry. 45 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.

43 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.”).
44 Id.; see also id. § 1201.002 (describing the purpose of Chapter 1201).
See id. § 257.002(b) (varying the tax rate to produce the amount
45

necessary to recover regulatory costs).

15
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. 46 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.” 47 We deferred to the State’s “reasonable,” “formally
promulgated” construction, which was “not expressly contradicted by
the Insurance Code.” 48 Though we did not hold stop-loss policies to be

46 Am. Nat’l Ins. Co., 410 S.W.3d at 845.
47 Id. at 847.
48 Id. at 855.

16
equivalent to traditional health insurance, we endorsed the State’s
position that stop-loss policies are—for regulatory purposes—of that
variety.
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.

Jane N. Bland
Justice

OPINION DELIVERED: June 17, 2022

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