The Ninth Circuit Court of Appeals ruled yesterday that the California Insurance Guaranty Association (CIGA) is not a “primary payer under the Medicare Act’s secondary payer provisions,” expunging conditional payment obligations allegedly owed by CIGA and possibly creating larger implications for specialty insurance programs across the country.
The decision in the case, California Insurance Guarantee Association v. Azar, represents a surprising reversal of a lower court ruling that represented a mixed bag for both CIGA and Medicare.
As we have previously outlined, CIGA is the insurance guaranty fund for California and is responsible for taking the reins and handling claims on behalf of insolvent insurance companies. The lower court ruling, by the U.S. District Court for the Central District of California, focused on Medicare’s conditional payment recovery scheme in detail. The District Court identified defects in Medicare’s conditional payment recovery processes – specifically regarding bundled codes – and largely ignored the question of whether or not CIGA was even a primary payer.
CIGA: Not a Primary Payer
Rather than address conditional payment recovery in detail, the Ninth Circuit focused entirely on the question of whether or not the MSP applies to CIGA and concluded that CIGA was not a primary payer. The key question for the court centered on whether or not CIGA is a “workers’ compensation law or plan” under the MSP. If CIGA is a “workers’ compensation law or plan,” then the MSP applies and the court would address the remaining points under appeal. But, if the court ruled that CIGA was not a “workers’ compensation law or plan,” then CIGA is exempt from MSP compliance writ large and the court need not decide any other issue.
The court closely reviewed the California law that created CIGA and focused on the fact that CIGA acts as the insurer of “last resort” and that it does not pay its own obligations, but rather the obligations of insolvent California insurers. The court also noted that under California law CIGA is prevented from paying “any obligations to the state of federal government.” Of course, the Medicare Secondary Payer provisions of the Medicare Act make Medicare the secondary payer and “workers’ compensation laws or plans” primarily responsible for medical payments attributable to the workers’ compensation claim.
To resolve the conflict between the California law and the MSP, the court first addressed the issue of federal / state pre-emption and next evaluated the applicability of the MSP provisions in general. In deciding that the CIGA enabling act was not pre-empted by the Federal MSP law and regulations, the court noted that insurance is typically an area of law reserved for the states and that Congress took no steps to incorporate insurance guaranty funds into the MSP provisions when it applied them to “workers’ compensation laws or plans.” Under California law, CIGA is designated as “insolvency insurance” separate and apart from California workers’ compensation and credited California state cases that limited CIGA’s responsibilities as “not coextensive with those of solvent insurers.”
The court next evaluated whether or not CIGA qualified as a “workers’ compensation law or plan” under Medicare regulations, find that “CIGA, an insurer insolvency scheme, is dissimilar to all [examples cited in the regulations], suggesting that it is not a workers’ compensation plan.” Medicare has never updated regulations to incorporate “insolvency schemes” and the court wrote that “five decades of Congressional and agency inaction regarding insurer insolvency schemes further suggests that their omission from the Medicare statute and regulations was deliberate.”
CIGA is Not a Workers’ Compensation Law or Plan
Rather than focus on claim-specific obligations triggered by the injury of an employee whose workers’ compensation claim must be paid by CIGA, the court focused on CIGA’s obligations writ large. CIGA’s obligations, the court wrote, are not triggered merely by an employee’s injury. Rather CIGA’s obligations to pay the claim are triggered by an insurer’s insolvency. After all, CIGA would have no obligation to pay for an applicant’s treatment unless or until the insurer becomes insolvent. This, the court wrote, means that CIGA is not a workers’ compensation law or plan under the Medicare Act.
The court held, simply, that “because CIGA is not a primary plan under the Medicare Act’s secondary payer provisions, it has no obligation to reimburse CMS for conditional payments made on behalf of workers’ compensation insureds.”
This decision could go in a number of different directions, but here are some key questions to consider:
CMS can appeal this ruling and petition for an en banc review by the full Ninth Circuit Court of Appeals. If this request is granted, then the all judges sitting on the Ninth Circuit will hear the case rather than the three judge panel this time around. Whether or not the Ninth Circuit hears the case, the next appellate level is the U.S. Supreme Court. While it’s too early to speculate on what will happen next, it would be surprising if CMS did not appeal this decision given implications that it presents.
As astute readers will recall, there are three key obligations under the Medicare Secondary Payer provisions: mandatory reporting under Section 111 of the MMSEA Act of 2007, repayment obligations triggered whenever Medicare makes a conditional payment, and Medicare Set Asides to prevent parties from shifting the burden for post-settlement medical care to the Medicare program. These obligations fall on both primary payers as well as Medicare beneficiaries and by suggesting that CIGA is not a primary plan could lead to domino effects. First, CIGA would appear to be off the hook for Section 111 reporting which is an obligation that falls only on primary payers. With regard to conditional payments and Medicare Set Asides, applicants settling claims with CIGA may find themselves the target of recovery but presumably would point to this decision as evidence that the underlying settlement is not a primary payment because it was not made by a primary payer. Even though CMS can’t target CIGA, beneficiaries and their attorneys may find themselves targeted independently so they would be wise to closely scrutinize this decision.
The court was careful to distinguish this decision from an analysis other state laws and other guaranty funds. While it is fair to say that the Ninth Circuit’s decision creates a narrow framework for determining whether or not an insolvency fund is a “primary payer,” other state guarantee associations may be organized to appear more like “workers’ compensation laws or plans.” It is noteworthy, for instance, that the Ninth Circuit took care to distinguish CIGA v. Azar from a prior First Circuit decision that essentially classified the Rhode Island Insolvency Fund as an insurers. The court noted, “If an state agency functions like an insurance company than it is treated like one.” Here, the court is saying, CIGA does not function like an insurance company.
What Employers and Insurers Need to Know
Insurers and employers should watch this case closely. While it is impossible at this hour to predict whether CMS will appeal and whether any appeal will be heard, it is possible that the agency or Congress will react to bring organizations like CIGA into the secondary payer fold. In the past, Congress has reacted to court decisions which limit the applicability of the MSP by amending the statute itself. The 2003 Medicare Modernization Act, for instance, brought self-insurance into the MSP fold.
We will continue to watch this case closely. For questions about CIGA v. Azar, please reach contact email@example.com or 781-517-8085.