In Dr. Seuss’ classic book, a determined baby bird is searching for his mother but does not know what she looks like. Under Medicare Secondary Payer (MSP), certain insurers encounter similar problems trying to figure out whether it is a Primary Plan with Section 111 and reimbursement obligations.
On October 10, 2019, the United States Court of Appeals for the Ninth Circuit, filed its 20-page opinion in California Insurance Guarantee Association (CIGA) v. Azar, et al. (940 F.3d 1061), reversing and remanding the decision of the District Court for the Central District of California, California Insurance Guarantee Association v. Azar, et al. Specifically, the Ninth Circuit held that CIGA had no obligation to reimburse payments made by the Centers for Medicare & Medicaid Services (CMS), under 42 U.S.C. §1395y(b)(2)(B)(iii), because CIGA is not a workers compensation law of plan (Primary Plan) under the Medicare Act’s Secondary Payer (MSP) provisions at 42 U.S.C. §1395y(b)(2)(A)(ii). Significantly, insurers (and self-insured entities) should look closely at the court’s reasoning to better understand what it means to be a Primary Plan and ultimately whether any duty arises to report under Section 111 or repay any amount to CMS under conditional payment claims.
In the instant case, CIGA alerted CMS that they were administering claims by several Medicare beneficiaries, and CMS demanded reimbursement from CIGA for medical expenses paid. The reimbursement dispute could not be resolved, and, subsequently, CIGA brought an action for declaratory relief against the Secretary of Health & Human Services and CMS. The district court ruled in favor of CMS finding that CIGA was a Primary Plan administering workers’ compensation claims and that MSP preempted California law prohibiting CIGA from reimbursement.
The 9th Circuit court, in reviewing de novo CIGA’s appeal, opens with an important history lesson: Congress withdrew its threat to legislate in the area of guaranty funds given insurance industry efforts in the 1960s which eventually resulted in every State adopting some type of insurance insolvency plan. The Court also discusses the “cornerstone” legal principles governing preemption: the purpose of Congress, and State powers are not superseded by federal law unless Congress’ intention to do so is clear in the statutory language and entire framework.
The Court continues by reciting key provisions under the California Insurance Code and how CIGA, a creature of statute, is regulated under that State law. For example, since 1969, insurers in California providing workers compensation coverage are required to participate in CIGA to protect the public from the problem of insurer insolvency. The Court shows how California classifies insurers into various categories including workers compensation insurance; however, CIGA is in a distinct class of insolvency insurance which is regulated under different State laws than workers compensation insurance which is regulated under its Labor Code. Cal. Ins. Code §119.5, 1063-1063.18. CIGA collects premiums and administers the comprehensive insolvency fund which pays certain obligations that insolvent insurers could not pay under its policy. Policyholders of the insolvent insurer assign their claims against the insolvent insurer’s estate to CIGA which becomes a creditor in the insolvency proceeding sharing in the assets of the insolvent company on final distribution. After paying covered claims, CIGA applies any reimbursements from the liquidator and unused member premiums to reduce future premium charges. State law limits the kinds of claims CIGA may pay and expressly prohibits CIGA from reimbursing State and federal governmental entities. Further, any claimant must exhaust their rights under any public insurance program, like Medicare, before seeking recovery from CIGA for remaining claims. In other words, if an insurer becomes insolvent, then CIGA pays covered workers compensation claims as a last resort.
The Court’s analysis turns to federal MSP laws and regulations which do not traditionally preempt State insurance laws and regulations. Consequently, per the 9th Circuit, courts must presume MSP provisions do not preempt State insurance laws unless Congress clearly manifests an intent to do so. The 9th Circuit found that Congress did not manifest any intent for MSP to interfere with State plans which protect the public against insolvent workers compensation insurers. The Court also provides another important history lesson: During the 1980s, to cut Medicare costs, Congress amended MSP several times by expanding secondary payer situations and the federal government’s reimbursement targets. Relevant to CIGA, under MSP, the Court explains that the term “Primary Plan” means a workmen’s compensation law or plan, an automobile or liability insurance plan (including a self-insured plan) or no-fault insurance.” 42 U.S.C. §1395y(b)(2)(A). MSP does not define “workers’ compensation law or plan” but supporting regulations provide examples dissimilar to CIGA which include “…plans of the 50 States, the District of Columbia, American Samoa, Guam, Puerto Rico, and the Virgin Islands, as well as the systems provided under the Federal Employees’ Compensation Act and the Longshoremen’s and Harbor Workers’ Compensation Act.” 42 C.F.R. §411.40(a). The Court observes that MSP regulations are more than 50 years old and have changed over time, yet Congress never included insurer insolvency plans like CIGA suggesting a deliberate omission. The Court also found further evidence of preemption in other parts of the Medicare Act which serve to confirm Congress did not intend to disrupt State laws governing insurer insolvency. Further, the Court points out that MSP forbids Medicare payments when a Primary Plan is reasonably expected to make payment for the same medical care; however, when payment cannot be expected promptly, then Medicare may make the payment conditioned on reimbursement including filing a lawsuit against the Primary Plan irrespective of whether or not the Primary Plan disbursed the payment for the medical care at issue. 42 U.S.C. §1395y(b)(2)(A)-(B). The Court could not reconcile how a payer of last resort, like CIGA, would be a Primary Plan under MSP.
Finally, the Court discusses the nature of insurance which affords contractual protection against a contingency or loss. CIGA protects against an insurer’s insolvency, not merely an employee’s work-related injury, which differentiates CIGA from a workers’ compensation law or plan. The 9th Circuit disagreed with the district court’s focus on the type of benefits payable, rather than the contractual loss protected against, and cited to a number of supporting case law decisions. Mason v. Am. Tobacco Co., 346 F.3d 36, 40 (2nd Cir. 2003); Or. State Bar Prof’l Liab. Fund v. U.S. Dept. Health & Human Servs., 2012 U.S. Dist. LEXIS 43790 (D. Or. March 29, 2012); Thompson v. Goetzmann, 337 F. 3d 489, 499 (5th Cir. 2003). The 9th Circuit also found a Rhode Island insolvency-guarantor fund different from CIGA because the Rhode Island statute expressly declares the fund as the insurer to the extent of the obligations under the insolvent policy.
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