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Ninth Circuit Holds That California Insurance Guarantee Association Is Not a Primary Plan

The United States Court of Appeals for the Ninth Circuit recently issued a significant decision for State Guarantee Associations. In California Insurance Guarantee Association v. Azar, 2019 U.S. App. LEXIS 30339 (9th Cir. 2019), the Court held that CIGA is not a primary payer under the Medicare Secondary Payer Act (MSPA) and thus, is not responsible to reimburse Medicare for its conditional payments. CIGA is an insolvency insurer under California law and pays certain covered claims when its insured employers become insolvent and unable to pay. CIGA had alerted CMS that they were administering workers’ compensation claims for some individuals that were Medicare beneficiaries and CMS demanded reimbursement for conditional payments Medicare had made on behalf of those individuals. CIGA disputed their liability, arguing that they are not a primary plan, and filed suit seeking declaratory and injunctive relief.

Under the MSPA, Medicare is a secondary payer and entitled to seek reimbursement for its conditional payments from primary payers. The MSPA defines a “primary plan” as a workers’ compensation law or plan, an automobile or liability insurance policy or plan (including self-insurance) or no fault insurance. 42 U.S.C. ∫ 1395y(b)(2)(A). CIGA asserted that it does not fall within this definition of a primary plan because it is not a workers’ compensation law or plan. Instead, it is an insolvency insurer and payer of last resort under California’s insurance laws. The Court agreed. In reaching its decision, the Court first determined that the federal Medicare Secondary Payer provisions do not preempt California state insurance laws. Insurance regulation is a field traditionally left to the states. The Court presumed that the MSP provisions were not intended to preempt state insurance regulations, absent clear and manifest intent by Congress to do so. Notably, under California’s laws, CIGA is specifically prohibited from reimbursing state and federal government agencies, including Medicare. Thus, it would have been impossible for CIGA to comply with both Medicare’s demand and the applicable California statute if it were a primary plan.

The Court then analyzed California’s insurance laws and distinguished CIGA from traditional workers’ compensation plans. It pointed out that California has separate statutory schemes for workers’ compensation and insolvent insurers, like CIGA, and cited state court decisions that also distinguish CIGA from a workers’ compensation carrier. Another important difference the Court noted is the contingency that triggers the obligation to pay. CIGA’s obligation is triggered by an insured employer’s insolvency. This is an entirely different trigger than that of a workers’ compensation plan, an insured employee’s work-related injury.

For now, clients should continue their current MSP practices. This case is only binding in the Ninth Circuit and may be appealed. We will continue to follow this case and keep you apprised of all developments. We will also update you if similar case law develops in other jurisdictions.

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