Federal Courts Disagree Whether State Guarantee Funds are Subject to MSP Reporting Obligations

10.29.2021 Blog

Two state insurance guarantee funds challenged CMS’ definition of a “primary plan” in order to exclude themselves from conditional payments and Section 111 reporting requirements.  The most recent request, made by the North Carolina Insurance Guarantee Association (NCIGA), was made in the wake of a successful challenge in California.  However, the NCIGA’s challenge was found to be premature.  Both decisions signal the growing concern of Section 111 reporting obligations in light of Civil Monetary Penalties’ (CMP), impact what entities must comply with the MSP provisions, and affect the Medicare compliance obligations of parties in cases involving insolvent insurers and guarantee funds.

CIGA Successfully Establishes It Is Not a Primary Plan

In October 2019, the Ninth Circuit Court of Appeals found the California Insurance Guarantee Association (CIGA) was not a primary plan for purposes of the Medicare Secondary Payer (MSP) statute.  The case originated from CIGA’s challenge to conditional payment demands made by CMS.  Cal. Ins. Guar. Ass’n v. Burwell, 170 F. Supp. 3d 1270 (C.D. Cal. 2016); Cal. Ins. Guar. Ass’n v. Burwell, 227 F. Supp. 3d 1101 (C.D. Cal. 2017).

California state law, which created CIGA, prohibits CIGA from reimbursing state and federal agencies.  Although the guarantee funds take over claims when the underlying insurer become insolvent, they do not have the same rights and obligations as the original insurer.  Initially, the District Court held CIGA was a primary plan, and that California law was preempted by the MSP Act.  The District Court did find, however, that CMS was prohibited from seeking reimbursement for comingled claims or codes. Cal. Ins. Guar. Ass’n v. Burwell, 227 F. Supp. 3d at 1113.

On appeal, the Ninth Circuit found CIGA was not a primary plan based on the statute and CMS’ regulations which both define “primary plan,” in the context of Medicare as a secondary payer, as “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 USC § 1395y(b)(2)(a); 42 CFR 411.21; Cal. Ins. Guar. Ass’n v. Azar, 940 F.3d 1061, 1068–71 (9th Cir. 2019).  Notably, the statutory provision for Section 111 reporting also applies to “liability insurance (including self-insurance), no-fault insurance, and workers’ compensation laws and plans.”  42 USC § 1395y(b)(8)(F).

After reviewing the definitions in the MSP statute and regulations and noting that California law has separate statutory schemes that create workers’ compensation insurance and insurance insolvency schemes, the Ninth Circuit found CIGA is not a “workers’ compensation law or plan,” and therefore, not a primary plan for purposes of MSP provisions.  Additionally, the Ninth Circuit found California’s law prohibiting CIGA’s reimbursement to federal agencies was not preempted based on the MSP statute’s lack of reference to insolvency schemes—which Congress had discussed and deferred to the states in the 1960’s, around the same time MSP provisions were initially created—and “the 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 v. Azar, at 1069.

On May 21, 2020, CMS confirmed in an opinion letter to CIGA that CIGA was no longer required to comply with the MSP statute’s reporting requirements.

NCIGA’s Claim is Rejected

Although NCIGA had historically been treated as a primary plan by CMS, in light of the CIGA v. Azar decision and resulting opinion letter, NCIGA attempted to get ahead of the looming CMP rules.  On June 1, 2020, NCIGA wrote to CMS requesting an opinion letter stating it is not a primary plan, and therefore, is exempt from mandatory reporting requirements.  On August 12, 2020, CMS rejected NCIGA’s argument and asserted that the Ninth Circuit’s opinion did not apply to NCIGA.

NCIGA then sought declaratory relief in the District Court for the Eastern District of North Carolina. N.C. Ins. Guar. Ass’n v. Becerra, 2021 U.S. Dist. LEXIS 179473 (E.D.N.C. Sep. 21, 2021).  Although NCIGA argued that the looming CMP rules would force them to incur expenses in complying with reporting requirements, unlike CIGA’s claim, NCIGA’s did not reference any ongoing conditional payment demands or recovery efforts.

The District Court felt there was not enough to provide injury for purposes of standing, and the prospect of being subject to CMP rules, which are still being drafted, was too speculative. In addition, the Court noted NCIGA’s brief did not sufficiently tie the alleged future costs of coerced compliance to the imminent CMP rules.  Additionally, it noted that the CMPs were prospective in nature, and further, the regulations made the imposition of penalties optional.  The Court also found that CMS’ letter to NCIGA was not a “credible threat of sufficiently imminent enforcement of civil monetary penalties.”  Finally, the Court found the claim was not ripe, nor did it satisfy the requirements of federal question jurisdiction.

Impact and Takeaways

As prospective CMP rules loom over the horizon, payers and plans are already starting to think about potential implications and impact on their Section 111 reporting practices.  Despite the standing issue, the Ninth Circuit’s definition of a primary plan should seem to apply to NCIGA equally, however, CMS has signaled they are not backing down from opportunities to enforce MSP provisions until they are forced to do so by the courts.

Although NCIGA will need to continue to wait and see whether they are subject to Section 111 reporting requirements, the Ninth Circuit’s preemption decision raises further questions about conflicts between state workers’ compensation laws and MSP requirements such as when mandatory workers’ compensation payments create a demonstration of responsibility, utilization review, and other statutory limits to medical care.

The Ninth Circuit’s opinion finding that a guarantee fund is not a primary plan also begs the question: When insolvent claims have conditional payments, will CMS seek recovery from the Claimant, their attorney, or possibly the insured?  Will the finding that guarantee funds are not primary plans similarly apply to future medical implications?  If so, who will fund MSAs in situations involving insolvent insurers?

NBKL will continue to follow these developments and provide updates.  If you or your Association have any questions regarding compliance with the MSP provisions, or have your own disputes with CMS, our MSP Compliance Division is always available to assist.

The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.