California Insurance Guarantee Association is not a primary payer under Medicare

December 19, 2019

On October 10, 2019, the United States Court of Appeals for the Ninth Circuit published its opinion on California Insurance Guarantee Association v. Azar, concluding that CIGA is not a primary plan under the Medicare secondary payer provisions, but an insurer of last resort, therefore, is under no obligation to reimburse CMS for conditional payments made on behalf of workers’ compensation insureds.

About CIGA and Medicare Secondary Payer Act

CIGA was established to insure against loss arising from the failure of an insolvent insurer to meet its policy obligations. An insurer's participation in CIGA is mandatory. When a member insurer becomes insolvent, the Guarantee Act authorizes CIGA to discharge the insurer's obligations. CIGA funds the covered claims in part by collecting premiums from its member insurers in proportion to their market share. California law also indicates CIGA is prohibited from paying obligations to a state or to the federal government (California Insurance Code INS § 1063.1(c)(4)).

The Medicare secondary payer statute bans Medicare from making payments when a primary plan is reasonably expected to make payment for the same medical care (42 U.S.C. § 1395y(b)(2)). The term “primary plan” means a workers’ compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance.

Facts and history of the case

CIGA administers the workers' compensation claims of several Medicare beneficiaries whose insurers became insolvent. The Center for Medicare Services (CMS) contends that CIGA is a primary payer of medical expenses related to these individuals' work injuries, and 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 seeking declaratory and injunctive relief.

The district court determined that under the Medicare Act, CIGA is 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 the Guarantee Act were preempted by federal law. CIGA appealed to the US Court of Appeal, Ninth Circuit, which covers the following districts: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

Court findings and conclusions

Medicare regulations define "primary plan" in the context in which Medicare is the secondary payer, as “a group health plan or large group health plan, a workers' compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan), or no-fault insurance" 42 U.S.C. § 1395y(b)(2)(A). The Court here concludes CIGA does not fall within this definition because it is not a workers' compensation law or plan.

According to the Court, CIGA is "an insurer of last resort" and thus "assumes responsibility for claims only when no secondary insurer is available.” Therefore, because well-established preemption principles favor upholding state law if it can plausibly coexist with the federal statute, the Court concludes CIGA is not a primary plan under the Medicare Act's secondary payer provisions and therefore has no obligation to reimburse CMS for conditional payments made on behalf of workers' compensation insureds.

Is this issue headed to the U.S. Supreme Court?

The Court indicates that because insurance regulation is a field traditionally occupied by the states, “the Court must presume that the Medicare secondary payer provisions do not preempt state insurance laws unless Congress clearly manifested its intent to do so.” To this end, the Court finds “nothing in the Medicare statute or its implementing regulations to suggest that Congress meant for CIGA to be categorized as a primary payer.” However, as the Court indicates in its opinion, per California Insurance Code INS § 1063.1(c)(4), the California legislature already contemplated this possibility by prohibiting CIGA from paying "any obligations to a state or to the federal government." This is contrary to 42 C.F.R. § 411.32, stating “Medicare benefits are secondary benefits even if state law or the primary payer states that its benefits are secondary to Medicare benefits.”

Additionally, this Ninth Circuit opinion seems to be in direct conflict with a prior First Circuit opinion. In United States v. Rhode Island Insurers’ Insolvency Fund (RIIF), 80 F.3d 616 (USCA First Circuit 1996), the First Circuit Court rejected RIIF’s arguments that it was not a primary plan and that it was not responsible for reimbursing Medicare conditional payments. The First Circuit found RIIF to be responsible for the covered claims, deemed to be the insurer for such claims, and therefore the primary plan responsible for reimbursement of conditional payments made by Medicare in such claims. So, is this issue headed to U.S. Supreme Court? Will CMS appeal? Stay tuned.