Anders: U.S. Appellate Court Holds Guaranty Fund Not a Primary Plan Under MSP Act
Wednesday, October 23, 2019 | 224 | 0 | min read
In an Oct.10 decision from the U.S. Court of Appeals for the 9th 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 9th 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 payer 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’ 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 pre=empt state law. (Federal pre-emption 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 pre-empted, the federal government cited the 1996 decision from the U.S. Court of Appeals, 1st Circuit, in U.S. v. Rhode Island Insurers’ Insolvency Fund, 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 pre-empted by the MSP Act.
The 9th 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 authorized to disburse funds only for “covered claims” from the insolvent insurer. A key distinction for the court.
This decision is binding only upon the federal courts within the 9th 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 9th 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 9th 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.
Dan Anders is chief compliance officer at Tower MSA Partners LLC. This entry is republished with permission from the Tower MSP Compliance Blog.