CIGA Required to Reimburse Medicare Conditional Payments despite California Law
Heather Sanderson
March 22, 2016

In an opinion out of California District Court for the Central District of California, CIGA v. Burwell, 2016 U.S. Dist. LEXIS 34163 (March 16, 2016), California Insurance Guaranty Association (“CIGA”) filed a declaratory and injunctive relief action against Defendants Sylvia Mathews Burwell, United States Department of Health and Human Services, and the Centers for Medicare and Medicaid Services (collectively, “United States”) that it was not required to reimburse the United States for Medicare benefits paid to individuals whose losses may also be covered by CIGA.

CIGA is a statutorily-created and unincorporated association of insurers admitted to transact certain classes of insurance business in California. CIGA was created by the California Legislature to establish a fund from which insureds could obtain financial and legal assistance in the event their insurers became insolvent. CIGA acknowledged that it was currently paying several workers’ compensation claims on behalf of insolvent insurers wherein Medicare had also made conditional payments. CIGA argued that it was not required to reimburse Medicare for these conditional payments for the following reasons: First, that the United States did not file timely proofs of claim under the California Guarantee Act. Second, CIGA argued that the Guarantee Act prohibits the United States from asserting claims against CIGA as either an assignee or subrogee of the insured (or insurer).

While the United States argued that claims made by the United States could never be defeated by a state-imposed time limit, CIGA argued that the California Guarantee Act is a state law that regulates the business of insurance,” and thus supersedes any general federal law allowing claims to be filed outside the Guarantee Act’s filing deadline. In reply, the United States argued that McCarran-Ferguson does not apply because (1) the Guarantee Act’s claims filing statute does not regulate the “business of insurance,” and (2) that the Medicare Secondary Payer statute is at any rate a federal statute that specifically regulates the business of insurance.

Ultimately, the Court held that the McCarran-Ferguson Act did not subject the United States to California’s claims filing deadline because the Act was never intended to waive the federal government’s sovereign immunity. CIGA’s claims against the United States were dismissed to the extent that they were based on the United States’ failure to file timely proofs of claim under California’s Guarantee Act.

Commentary: This decision may have ended in an entirely different result had it been argued differently. Perhaps a better legal argument to defeat Medicare’s right to recovery would have been that a proper workers’ compensation claim did not exist under California law for these claims, therefore Medicare would be primary for these payments. This would be similar to the argument that was made in the Caldera v. The Insurance Company of the State of Pennsylvania, which was successful.

Is Medicare able to pursue reimbursement if a valid claim does not exist statutorily under state workers’ compensation law?  This was the precise question that was discussed in Caldera.  This case was not even raised in the opinion, and it is interesting to see how the Court would have reconciled that decision with the present outcome.  There is no doubt Medicare’s reimbursement claim would preempt state law, but doesn’t that claim have to be valid one?  For example, could Medicare wait beyond the state period of limitations to present its loss?  Probably not, and it’s for this reason we believe Caldera would have bearing on the outcome.  After all, liability under the Medicare Secondary Payer Act only occurs to the extent liability is established.  How can liability be established if the presentation of the claim itself is defective?

Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP
Chief Legal Officer
Franco Signor LLC