In an October 10, 2019 decision
from the U.S. Court of Appeals for the Ninth Circuit, the California Insurance
Guarantee Association (CIGA) was found not to be a primary plan under the
Medicare Secondary Payer (MSP) Act. The
result of this decision, if not reversed on further appeal, is that CIGA would
have no responsibility to reimburse Medicare for conditional payments or to
allocate funds in a Medicare Set-Aside (MSA) for future medical. Whether this decision applies to other state guaranty
associations or funds depends on whether that state is located within the Ninth
Circuit and on the statutory language that established the fund.
Background on CIGA Case
CIGA is a statutorily created association that requires its
insurer members to pay premiums, which are then used to discharge an insolvent
insurer’s covered claims. The statute
specifically indicates CIGA is a payor of last resort and cannot reimburse
state and federal government agencies, including Medicare.
Tower previously reported on CIGA’s suit against Medicare, Federal
Court Holds Against Medicare Practice of Over-Inclusive Reimbursement Demands
and U.S.
District Court Declares CMS Practice of Over-Inclusive Reimbursement Demands to
be Unlawful, but Withholds Injunction.
In the lower court, the judge had quickly dismissed CIGA’s argument that
it was not a primary plan, subject to the provisions of the MSP Act, by
focusing on CIGA’s obligation to pay for workers’ compensation medical benefits
for the insolvent insurer. The judge
went on to address the CMS practice of claiming reimbursement for a charge that
includes both injury-related and non-injury-related services. While the District Court for the Central
District of California found CMS’s practice unlawful as the state law requires
only payment for injury-related charges, the court did not issue an injunction
stopping this CMS practice.
Appeals Court Holds CIGA is Not a Primary Plan
On appeal, the focus shifted back to whether CIGA was a
primary plan and thus subject to the MSP Act.
The appellate court indicated the question is not whether CIGA made workers’
compensation payments on a claim from an insolvent insurer, but whether
CIGA is a workers’ compensation plan.
The MSP Act, 42 U.S.C. § 1395y(b)(2)(A)(ii), defines entities that are
primary plans to Medicare as follows:
payment has been made or can reasonably be expected to be
made under a workmen’s compensation law or plan of the United States or a State
or under an automobile or liability insurance policy or plan (including a
self-insured plan) or under no fault insurance.
The court found CIGA does not fall into any of these
categories and instead falls into the category or class of “insolvency insurance”
as it is “an insurer of last resort.”
Based upon a review of the MSP Act and its history, the court found that
the primary plan provisions do not preempt state law. (Federal preemption means
that when federal and state law are in conflict, the federal law is followed
rather than the state law).
To argue its position that the state law is preempted, the
federal government cited the 1996 decision from the U.S. Court of Appeals,
First Circuit, in U.S. v. Rhode Island Insurer’ Insolvency Fund, 80 F.3d
616 (1st Cir. 1996), in which the court found this guaranty fund’s
statutory provision requiring claimants to seek recovery from any governmental
insurance, e.g., Medicare, before seeking reimbursement from the fund, to be
preempted by the MSP Act.
The Ninth Circuit distinguishes its decision by noting the
Rhode Island statutory scheme deems the fund to be the new insurer upon
insolvency of the old insurer. In other
words, the Rhode Island fund steps into the shoes of the insolvent
carrier. In contrast, the court holds that
based on the state statute, CIGA does not become the insurer. Instead, CIGA is
only authorized to disburse funds for “covered claims” from the insolvent
insurer. A key distinction for the
court.
Practical Implications
This decision is only binding upon the federal courts within
the Ninth Circuit, namely Alaska, Arizona, California, Hawaii, Idaho, Montana,
Nevada, Oregon, and Washington. To determine whether this decision may apply to
guaranty funds in those states, each fund would need to review its statutory language
against the California statutory language that was determinative in this case. For funds located outside the Ninth Circuit,
this decision may be persuasive to federal district and circuit courts if asked
to rule on the issue.
CMS has the option to first appeal the decision to the full
circuit (called en banc), meaning all judges sitting in the Ninth Circuit
would hear the case. If this is turned
down, which is likely, then an appeal can be filed with the U.S. Supreme Court,
which may or may not choose to hear the case.
Finally, compliments to CIGA for maintaining this litigation,
which has resulted in decisions addressing the extent of Medicare conditional
payment recovery and defining whether a guaranty fund is a primary plan under
the MSP Act.
If you have any questions, please contact Tower’s Chief
Compliance Officer, Dan Anders, at daniel.anders@towermsa.com
or (888) 331-4941.