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The 9th Circuit Provides Guidance on the Role of State Insurance Guarantee Associations

On October 10, 2019, the United States Ninth Circuit Court of Appeals issued a decision in the matter of CIGA v Azar. CIGA is the California Insurance Guarantee Association. Like all state guarantee associations, it stands in the shoes of one of its members (insurance carrier or self-insured) when the member becomes insolvent and is therefore unable to pay its insured’s claims. Alex M. Azar is the United States Secretary of Health and Human Services.

The case addresses several important issues for the Medicare Secondary Payer Community.

This matter began when Medicare paid for medical benefits that were properly chargeable to the beneficiary’s workers’ compensation carrier. Medicare is a secondary payer when medical bills are the responsibility of a primary carrier. In this case the underlying primary payer carrier failed to pay because it was insolvent. In California, bills that are the obligation of an insolvent workers’ compensation carriers become the responsibility of CIGA. This is because California requires workers’ compensation insurers to participate in their insurance guarantee association.

In the typical secondary payer circumstance, after making conditional payments Medicare sends notice of the payment to the responsible party and later seeks reimbursement. In this matter, a reimbursement demand was made to CIGA. Reimbursement as requested was not made and legal process followed in the form of a declaratory judgement action filed by the Association. Through this filing CIGA sought a determination of its obligation to Medicare. The Trial Court ruled in favor of Medicare concluding Federal law preempted California law to the extent it prohibited CIGA from reimbursing Medicare. The Association appealed.

The Court first considered and gave historical context to the California insurance Guarantee Act. In doing so, we learn insurer participation is mandatory, the association is an insurer of last resort and it is prohibited from paying any obligation to a state or to the federal government. This author has studied guarantee fund statutes and this language is not unusual or unique. Most state statutes establishing guarantee funds have similar, if not identical, restrictions.

The Court next reviewed the applicable Medicare statutory language with care to explore the secondary payer provisions. It noted the bills in question could be expected to be paid “under a workmen’s compensation law or plan.” It observed the law has been amended over the years and now, “it forbid[s] Medicare payments when a primary plan … is reasonably expected to make payment for the same medical care.” Relevant to the Court’s analysis is an understanding of the term “primary payer." The Court informs us, “primary plan means … a workmen’s compensation law, an automobile or liability insurance policy or plan (including self-insurance) or no-fault insurance."

The Court discussed the procedural history of the case, jurisdiction, the standard of review, and the legal principles on federal preemption. It determined the district court’s preemption analysis turned on its conclusion, that CIGA is a “primary plan." The analysis of what constitutes a primary plan by this Court leads to the conclusion CIGA does not fit within the plain meaning of the statutory definition because, “it is not a workers’ compensation law or plan.” It made no sense to this Court to interpret the phrase “primary plan” to include a guarantee association as a payer of last resort. The Court bolsters its thinking by noting there is no definition of “primary plan” in its regulations. It does however provide examples of such plans and a guarantee association is dissimilar to all the examples. The justices observe guarantee associations have existed for more than fifty years and Congress has not incorporated them into the statute. The Court concludes this omission must be intentional. It finishes its analysis with a discussion insurance coverage and primary plans.

Ultimately the Court found and held that CIGA is not a primary payer and based on that status it has no obligation to reimburse Medicare for its conditional payments. It then reversed and remanded the decision rendered by the district court.

What does this decision mean? The short answer is that this is a significant decision for state Insurance Guarantee Associations/Funds. Pursuant to the 9th Circuit, they are not primary payers and as such have none of the statutory responsibility assigned primary payers under Medicare.

Our title suggests CIGA v Azar provides some guidance. That is true. What happens next will be important to all involved in the MSP world. Will Azar file an appeal? Will Medicare Set Aside (MSA) policy change? Will Congress amend the MSP statute to include guarantee associates? Would the Supreme Court take the case? Will the other Circuits follow the analysis and holding of the 9th in this claim? Time will tell. In the interim, there will be a great deal of speculation on how to apply CIGA and whether other imprecise and unaddressed issues in the MSP world will receive similar treatment by our Courts.

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