Last week, the Ninth Circuit United States Court of Appeals issued an important decision involving the Centers for Medicare & Medicaid Services, and the California Insurance Guaranty Fund (CIGA) in Cal. Ins. Guarantee Ass’n v. Azar, Nos. 17-56526, 17-56528, 2019 U.S. App. LEXIS 30339 (9th Cir. Oct. 10, 2019). We last discussed this case in 2017, when the District Court, held that CMS’ practices of bundling charges and seeking recovery for services and items not covered by a primary payer’s legal obligation was unlawful.  However, the decision from the lower Court did not fully address the issue of whether CIGA was a primary plan as related to the specific claims associated with the conditional payments for which CMS sought recovery.   In this most recent decision, the Court reversed the lower Court’s determination and found that CIGA, as an insolvency insurer, does not have an obligation to reimburse Medicare for conditional payments made on behalf of workers’ compensation insureds on claims which are not covered, pursuant to Cal. Ins. Code § 1063.  This distinction between covered claims and not covered claims is pivotal to the finding in this matter, and will likely continue to be an important distinction as the case has been remanded back to the lower court for further proceedings.   

By way of a bit of background, CIGA was created under California law in order to pay for some, but not all, workers’ compensation claims of injured workers within the coverage of policies issued by California insurers that have been declared insolvent and ordered into liquidation by a California court or a court within the state in which the insurer is domiciled.  CIGA is authorized to pay and discharge only certain “covered claims” as defined under California Insurance Code Sections §1063.1 and §1063.2.  The “covered claims” that CIGA is authorized to pay may be more restricted in coverage than those that would have been allowed under the initial policy issued by the insolvent and liquidated insurer.  Most importantly in order to satisfy the definition of  a ”covered claim” the claim must meet the  requirements set forth in California Insurance Code Sections §1063.1 and §1063.2, including the specific requirement that the claim must be presented to the liquidator, or to CIGA on or before the last date fixed for the filing of claims in the liquidation proceeding

Court Finds that CIGA is Not a “Primary Plan” with Respect to Non-Covered Claims

Pursuant to the Medicare Secondary Payer Act (MSP), Medicare is statutorily prohibited from making payments for medical services or treatment when a primary plan is reasonably expected to make payment.  When Medicare makes a payment in situations where a primary plan has the legal obligation to pay, the payment is conditioned upon Medicare obtaining reimbursement from the plan.  Medicare regulations define a primary plan to mean “in the context in which Medicare is the secondary payer, 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 C.F.R. § 411.21.  However, the regulations do not specifically define what is considered to be a “workers’ compensation law or plan.”  In the instant matter, in order to address whether CIGA had an obligation to reimburse Medicare conditional payments, the court made the distinction between a workers’ compensation plan and CIGA.  CIGA acts as an insurer of “last resort” and assumes responsibility for claims only when there is no secondary insurance available.  Therefore, the Court noted that CIGA is clearly distinguished from a traditional workers’ compensation plan, which becomes a primary payer once a legal obligation to pay has been established.  The court reasoned that, [i]t makes little sense to interpret the statutory phrase “primary plan” to refer to “a payer of last resort” as CIGA.   CIGA’s underlying obligation to pay is created by the California statutory provisions.  When a claim is not a covered claim, CIGA is not legally obligated to pay, and the MSP provisions requiring payment do not come into play.  The distinction once again is that CIGA is a payer of last resort; until there is an established legal obligation to pay.  The opinion also directly compared CIGA’s status as a payer of last resort to Medicaid, which is also a payer of last resort.  In cases involving only Medicare and Medicaid, Medicare is the primary payer.

CIGA, as an Insolvency Insurer, is Different than a Workers’ Compensation Insurer

The Court also discussed the framework of California’s statutory structure for workers’ compensation insurers and insolvency insurers, and how it specifically relates to the MSP.  This discussion is important because the Court went to great lengths to discuss when the MSP can preempt, or disrupt California Law which governs CIGA’s legal obligations to pay.  The Court noted that parts of the MSP confirm that Congress did not intend to disrupt state laws governing insurer solvency, specifically because the MSP contains a preemption provision that Medicare standards “shall supersede any State law or regulation.”   However, this preemption provision relates to Medicare Advantage plans and prescription drug plans under Part D, but was originally applied broadly to any state.  As a result, Congress clarified that the preemption provision did not apply to State laws relating to plan solvency.  This is important because CIGA’s obligations are triggered by an insurers’ insolvency not an insured employee’s work-related injury.  Therefore, the intention of the MSP is not to preempt a state law as related to an insolvency plan, such as, CIGA.   This is relevant to the instant matter because CIGA, as an insolvency insurer, cannot be found liable for that which it is not obligated, pursuant to state law.  Therefore, the MSP cannot preempt California state law which governs CIGA’s obligations.

The Court also made a clear distinction between CIGA and other similarly situated insurance insolvency-guarantors, by clarifying that just because an insurer insolvent fund is statutorily created is in itself irrelevant to whether it is a primary plan.  It is more important to determine if an insolvent insurer functions like an insurance company; and if so, then it is treated like one.  However, “CIGA is not, and was not created to act as, an ordinary insurance company,” and it “does not ‘stand in the shoes’ of the insolvent insurer for all purposes.”  Id. At 20 (emphasis added).  Particularly because CIGA is only authorized by statute to pay the “covered claims” of an insolvent insurer.   The case at issue did not involve such covered claims and CIGA did not stand in the shoes of an insurer for all purposes.  The very important and distinguishing fact in this case is that CIGA did not act as a workers’ compensation insurer, or primary plan, in the matter at issue and did not take on legal obligation for all of the claims presented.  CIGA is only obligated to pay for covered claims, which are those which specifically meet the definition per the California Insurance Code. 

Practical Considerations Following this Decision:

For now, this victory for CIGA is limited to CIGA’s position as a guaranty fund and an insolvency insurer on a specific subset of cases, or those which were not considered “covered claims.”  Moreover, this decision is only binding in the 9th Circuit, but perhaps we will see more challenges by similarly situated entities in other circuits.  Of utmost significance, this decision does not disrupt the 2017 determination that CMS may not recover conditional payments from a primary payer that are not the primary payer’s legal obligation.  From a practical perspective, payers should continue to diligently dispute and challenge unrelated claims and charges. 

In addition, this latest decision may further impact Medicare Secondary Payer obligations, particularly because it is likely CMS will appeal or attempt to clarify this decision.  Furthermore, as generally discussed here on our blog, the focus moving into 2020 will be on satisfying Medicare Secondary Payer obligations, and this case may have just placed an even greater focus on finding ways to clarify and meet those obligations.  We will be sure to update our readers on any further developments, as related to this case.