Ninth Circuit Says California’s Insolvency Fund Need Not Reimburse CMS for Medicare’s Conditional Payments

Yesterday (October 10, 2019), the Ninth Circuit Court of Appeals reversed a decision by a U.S. District Court for the Central District of California in which the lower court had found that the California Insurance Guarantee Association (“CIGA”)—the Golden State’s guaranty fund for insolvent insurers—was required to reimburse Medicare for conditional payments Medicare had made concerning the medical expenses of certain individuals whose workers’ compensation benefits CIGA was administering [California Ins. Guar. Ass’n v. Azar, 2019 U.S. App. 30339 (9th Cir. Oct. 10, 2019)]. The Ninth Circuit found that the district court erred in concluding that California law, which prohibited CIGA from reimbursing state and federal governmental agencies, including Medicare, was preempted by federal law. The Ninth Circuit panel held that CIGA was specifically not a “workmen’s compensation law or plan,” that insurance regulation was a field traditionally occupied by the states, and that nothing in the Medicare statute or its implementing regulations suggested that Congress meant to interfere with state schemes to protect against insolvent insurers.

Background

California, like all other states, requires insurers providing certain types of coverage to participate in the California Insurance Guarantee Association (“CIGA”), which provides funding when a member insurer becomes insolvent and unable to pay its insureds’ claims. State law prohibits CIGA from reimbursing state and federal government agencies, including Medicare.

CIGA filed a declaratory action after Medicare paid for and demanded reimbursement from CIGA for medical expenses of certain individuals whose workers’ compensation benefits CIGA was administering. The federal district court ruled in favor of Medicare, concluding that federal law preempted California law to the extent it prohibited CIGA from reimbursing Medicare.

Medicare Statute

The Medicare Act provides that when “payment has been made, or can reasonably be expected to be made … under a workmen’s compensation law or plan,” any payment by Medicare for the medical service “shall be conditioned on reimbursement” [Health Insurance for the Aged Act, Pub. L. No. 89-97, § 1862(b), 79 Stat. 286, 325 (1965) (codified at 42 U.S.C. § 1395y(b)(2)(A)(ii), (b)(2)(B)(i))]. When a primary insurer cannot reasonably be expected to pay promptly, the state permits Medicare to make a conditional payment that later must be reimbursed.

CIGA Alerted CMS

CIGA administered the workers’ compensation claims of several Medicare beneficiaries whose insurers became insolvent. CIGA alerted Medicare’s administrator, the Center for Medicare Services (“CMS”), that these individuals might be Medicare beneficiaries. CMS, which contended that CIGA was a primary payer of medical expenses related to these individuals’ work injuries, demanded that CIGA reimburse it for conditional payments that CMS had made on the Medicare beneficiaries’ behalf. When the parties could not resolve their dispute over CIGA’s liability for the conditional payments, CIGA filed suit against CMS and related government defendants seeking declaratory and injunctive relief.

The district court determined that under the Medicare Act, CIGA was a primary plan for the workers’ compensation claims it was administering and that CMS was entitled to reimbursement for the conditional payments it had made because any contrary provisions in California’s Guarantee Act were preempted.

Ninth Circuit: Medicare’s Secondary Payer Provisions Do Not Apply to CIGA

The Ninth Circuit panel said the district court’s preemption analysis turned on the lower court’s conclusion that CIGA was a “primary plan,” making it impossible for CIGA to comply both with Medicare’s demand for reimbursement and the Guarantee Act’s prohibition of paying a government agency. The panel said, however, that CIGA was actually an “insurer of last resort” and thus assumed responsibility for claims “only when no secondary insurer is available.” The panel added that while it was certainly true that if a state agency functioned like an insurance company, it would be treated like one, the situation was different for CIGA. CIGA is not, and was not created to act as, an ordinary insurance company. CIGA’s obligations were triggered not by the worker’s injury, but rather by the insurer’s insolvency.

Medicare Act Not Intended to Disrupt State Insurance Law

The panel continued that the Medicare statute was not intended to disrupt state laws concerning insurer insolvency. Indeed, the statute contained a preemption provision. The panel acknowledged that originally the courts applied the preemption provision broadly to any state law that was inconsistent with federal requirements. The Ninth Circuit added, however, that in 2003, after “some confusion in recent court cases,” Congress clarified that the preemption provision did not apply to “State laws relating to plan solvency” [42 U.S.C. § 1395w-26(b)(3)].

Court’s Conclusion

The Court concluded that because CIGA was not a primary plan under the Medicare Act’s secondary payer provisions, it had no obligation to reimburse CMS for conditional payments made on behalf of workers’ compensation insureds.