9th Circuit Court of Appeal Rules that CIGA, a Guaranty Fund, is not Subject to Medicare Secondary Payer Act Obligations
Heather Sanderson
October 11, 2019

Franco Signor has been following the CIGA (California Insurance Guaranty Association) litigation filed against HHS/CMS for some time. CIGA is California’s largest workers’ compensation provider as the insurer of last resort for employers where the employer/insurer is insolvent and unable to pay claims. Last we blogged about the case in 2017, the litigation was entitled CIGA v. Price, and the District Court held that CMS’ recovery practices of recovering bundled/unrelated conditional payment recovery charges was unlawful under the Medicare Secondary Payer Act (MSP). Our prior blog can be found here.

A new decision has been issued out of the 9th Circuit Court of Appeal, which is now entitled CIGA v. Azar (due to changes in HHS secretaries since the 2017 decision), and the Circuit Court’s ruling takes an interesting twist: The 9th Circuit Court of Appeal has now held that CIGA as a Guaranty Fund is not a “primary plan” under the MSP, due to the fact that CIGA pays for medical care only if the insurer is insolvent, and as such the WC claim does not trigger coverage automatically. Instead, CIGA is an insolvency insurer of last resort. The 9th Circuit further noted that insurance regulation is a field traditionally occupied by states, and that the Court must presume that the MSP does not preempt state insurance laws unless Congress clearly manifested its intent to do so. Additionally, nothing in the MSP or its implementing regulations suggests that Congress meant to interfere with state schemes designed to protect against insurer insolvencies.

Further, the 9th Circuit held that CIGA is not a primary plan because CIGA’s authority to disperse funds to the insured is limited to “covered claims,” see Cal. Ins. Code § 1063.2, and accordingly, it “does not ‘stand in the shoes’ of the insolvent insurer for all purposes.” The 9th Circuit made an interesting comparison to legal malpractice insurance, which according to the 9th Circuit, also would not be considered a primary plan under the MSP. In discussing legal malpractice insurance, which the Court noted is not a “primary plan” under the Medicare Act, and is distinct from personal liability insurance, which is a “primary plan.” Yet if an attorney mishandles a physically injured client’s case and the attorney’s legal malpractice insurer pays the client money as damages for the client’s unrecovered medical expenses, the legal malpractice insurance does, in some sense, “assume legal liability for injury.” 42 C.F.R. § 411.21.  But the legal malpractice insurance “does not have primary responsibility to pay for the claimant’s medical injuries. That primary responsibility falls on the insurers who insure the parties involved in the incident.”

Commentary: The 9th Circuit’s analysis here on the definition of “primary plans” under the MSP is a novel one. Numerous questions over the years regarding insurance policies that may inadvertently pay for a Medicare beneficiary’s medical care but are not standard workers’ compensation, general liability, or no-fault insurance plans (such as Guaranty Plans and professional malpractice insurance) and whether MSP compliance is required under these plans have arisen as CMS has not yet to date explicitly defined what constitutes a primary plan. Obviously if a plan is not a “primary plan” under the MSP this would mean that conditional payments are not required to be reimbursed, MSAs are not a consideration, and Section 111 reporting would not be required. This decision may provide some guidance to such plans, but this decision is only binding in the 9th Circuit. Further, we suspect that CMS/HHS will appeal this decision as over the years CMS has generally taken the position that if medicals for a Medicare beneficiary have been claimed and/or released against an insurance plan, it is generally reportable/subject to the MSP.

Let’s take a look back at a February 23, 2011 CMS Section 111 teleconference in which CMS was asked about whether professional liability claims would be reportable and fall under the MSP: “Let’s see – professional liability insurance of all types, particularly other than medical malpractice, we’ve been requested to look again at the issue of whether or not there’s some way we can exclude most of the reporting for that, particularly if medicals are not claimed. And mostly, if we move forward along that line, it would definitely have to limited to situations where medicals are not claimed. And most likely, at best, we could accommodate situations where there was a broad general release. Any specific release of medicals would definitely trigger reporting.” (see page 5)

We are not aware of CMS ever specifically excluding these types of policies as primary plans, and based upon the Section 111 teleconference comments as noted above, CMS would seem to generally view insurance policies as subject to MSP obligations if there is a specific release of medicals in the settlement agreement. In the meantime, we recommend that primary plans not change any MSP best practices at this time, until this decision is further appealed and/or clarified. Further, we assert that the premise of the 2017 decision in CIGA is still legally supported- Medicare cannot recover for conditional payments that would not otherwise be covered under the policy or workers’ compensation state law.

For questions, contact Heather.Sanderson@francosignor.com.