By Rebecca Mayo, J.D.
Although an insolvency insurer scheme may pay covered costs for the insolvent insurer, including medical costs, it does so as a benefit of the plan and not as an actual insurer.
The Ninth Circuit Court of Appeals reversed a district court opinion that held that federal law preempted California law to the extent it prohibited California Insurance Guarantee Association (CIGA) from reimbursing Medicare. The circuit court noted that the district court’s preemption analysis turned on the conclusion that CIGA is a primary plan, making it impossible for CIGA to comply with both Medicare’s demand for reimbursement and the Guarantee Act’s prohibition of paying a government agency. The circuit court held that the district court erred in this conclusion and found that CIGA is not a primary payer under the definition of Medicare (California Insurance Guarantee Association v. Azar, October 10, 2019, Nguyen, J.).
California’s Guarantee Act. CIGA was established in 1969 to insure against loss arising from the failure of an insolvent insurer to discharge its obligations under its insurance policies, and insurer participation is mandatory. When a member insurer becomes insolvent, CIGA may discharge certain of the defunct insurer’s obligations referred to as "covered claims." CIGA’s obligation is general limited to a claim by the original claimant under the insurance policy in his or her own name and does not cover claims asserted by assignees or obligations to insurers. CIGA is an insurer of last resort because it does not assume responsibility for claims were there is any other insurance available. It is specifically prohibited from paying any obligations to a state or to the federal government.
Medicare second payer. Medicare is prohibited from making payment when a primary plan is reasonably expected to make payment for the same medical care unless the primary insurer cannot reasonably expected to pay promptly. In that case, Medicare may make a conditional payment later that must be reimbursed. Medicare is entitled to recover payment by filing a lawsuit against the primary plan. The term "primary plan" is defined as a workmen’s compensation law or plan, an automobile or liability insurance policy or plan or no fault insurance.
The claim. CIGA administered the worker’s compensation claims of several Medical beneficiaries whose insurers became insolvent. When CIGA alerted CMS that the individuals may be Medicare beneficiaries, CMS demanded that CIGA reimburse it for conditional payments that CMS had made on the Medicare beneficiaries’ behalf. CIGA filed suit against CMS seeking declaratory and injunctive relief. The district court determined CIGA is a primary plan for the worker’s compensation claims it was administering and that CMS was entitled to reimbursement for the conditional payments. It further held that state law prohibitions against reimbursing state or federal government obligations were preempted.
Primary plan. The court held that CIGA does not fall within the plain meaning of the definition of "primary plan" as used in the statute because it is not a workers’ compensation law or plan. State law classifies insurances as either workers’ compensation insurance, automobile insurance, and liability insurance. The Guarantee Act established CIGA as an insolvency insurance that protects against defaults by insurers of these three classes. This distinction is reflected in two separate state statutory schemes, as well as state court decisions.
The court also noted that obligations under a workers’ compensation insurance plan are triggered by an employee’s work related injury, while the obligations under the insolvency insurance are triggered by the insolvency of the member insurance company. Since the insured employee’s work-related injury is insufficient to trigger CIGA’s obligations, CIGA is not a worker’s compensation insurer. Paying for medical care is a benefit provided by CIGA but is not the loss that it protects against. It was not created to act as an ordinary insurance company and it’s authority to disperse funds is limited to "covered claims," which means it does not stand in the shoes of the insolvent insurer for all purposes.
Further, Medicare regulations do not define "a workers’ compensation law or plan" but they do provide examples. The examples are not an exhaustive list; however an insurer insolvency scheme is dissimilar to all of them. In the, roughly, fifty years since all states have adopted insurance guaranty funds, CMS has expanded its examples of a "works’ compensation law or plan" to include U.S. territories, but failed to include any mention of the state insurer solvency schemes. The court found this to be suggestive that the omission was deliberate.
This case is No. 17-5626 and 17-56528.
Attorneys: Hugh Balsam (Locke Lord LLP) for California Insurance Guarantee Association. Daniel Tenny, U.S. Department of Justice, for Alex M. Azar II and Center for Medicare and Medicaid Services.
Companies: California Insurance Guarantee Association
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