California Federal District Court Rules that Despite State Filing Deadline Law, State Guarantee Association Owes Medicare Conditional Payments

073115_1834_FloridaFede1.jpgOn March 16, 2016, the United States District Court for the Central District of California published its opinion on California Insurance Guarantee Association v. Burrell, HHS, and CMS, granting the United States’ Motion to Dismiss. The Court dismissed CIGA’s claims against the United States to the extent that they are based on the United States’ failure to file timely proofs of claim under the Guarantee Act or based on the United States’ alleged position as an assignee or subrogee of either the insured or the insurer. Therefore, despite state law indicating otherwise, CIGA is required to reimburse the United States for any conditional payments made by Medicare in the claims referenced.

The California Insurance Guarantee Association (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. To that end, CIGA is currently paying several claims under various workers’ compensation policies issued by now-insolvent insurers. These same claimants also received payments from Medicare for items and services that were otherwise covered by these policies.

Where Medicare pays benefits for a loss that is also covered by another insurer, the Medicare Secondary Payer statute, 42 U.S.C. § 1395y, designates Medicare as the “secondary payer” and generally requires those other insurance plans (called “primary plans”) to reimburse Medicare for all benefits Medicare paid. Concluding that the workers’ compensation policies were “primary plans” within the meaning of the statute, the United States demanded that CIGA reimburse it for the Medicare benefits paid to these claimants. CIGA refused, prompting the United States to commence collection proceedings.

CIGA filed this action seeking a judicial declaration that it is not required to reimburse the United States for any conditional payments made by Medicare to these claimants. The United States moved to dismiss the Complaint. CIGA timely opposed, and the United States timely replied.

The Court granted the United States’ prior Motion to Dismiss on the grounds that CIGA was a “primary plan” within the meaning of the Medicare Secondary Payer statute, and that the statute’s reimbursement requirements preempted any contrary California statutes. However, CIGA was given leave to amend to assert other grounds on which the United States may be prohibited from seeking reimbursement.

In its Second Amended Complaint, CIGA asserts two such grounds. First, CIGA asserts that the United States did not file timely proofs of claim under the California Guarantee Act. Second, CIGA argues that the Guarantee Act prohibits the United States from asserting claims against CIGA as either an assignee or subrogee of the insured (or insurer). The United States challenges both theories.

The United States contends that claims made by the United States can never be defeated by a state-imposed time limit. CIGA responds that the McCarran-Ferguson Act is an exception to this rule. That Act provides that “no Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, unless such Act specifically relates to the business of insurance.” 15 U.S.C. § 1012(b). CIGA argues 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 argues that McCarran-Ferguson does not apply because the Guarantee Act’s claims filing statute does not regulate the “business of insurance,” and the Medicare Secondary Payer statute is a federal statute that specifically regulates the business of insurance.

The Court begins with the familiar rule that “when the United States becomes entitled to a claim, acting in its governmental capacity and asserts its claim in that right, it cannot be deemed to have abdicated its governmental authority so as to become subject to a state statute putting a time limit upon enforcement.” United States v. Summerlin, 310 U.S. 414, 417, 60 S. Ct. 1019, 84 L. Ed. 1283, 1940-2 C.B. 435 (1940). This common law rule has its origins in the concept of sovereign immunity—just as the states cannot sue the federal government without its consent, the states cannot enact laws that purport to bind the federal government without its consent. Congress can, of course, waive sovereign immunity. Similarly, the federal government can consent to state regulation. However, there must be “a clear congressional mandate and specific legislation which makes the authorization of state control over the federal government clear.” The Court finds that absent such a waiver, Summerlin clearly controls here.

The California Guarantee Act requires all claims against CIGA to be presented to the liquidator of the defunct insurer “on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings.” Cal. Ins. Code § 1063.1(c)(1)(C). CIGA alleges that this deadline passed several years ago with respect to the defunct insurers at issue in this lawsuit, and that the United States’ claims for reimbursement are therefore barred. However, the Court concludes that as a state law that “undertakes to invalidate the claim of the United States so that it cannot be enforced at all,” the Guarantee Act’s claims filing deadline “transgresses the limits of state power” and is thus inapplicable to claims by the United States.

Therefore, the Court indicates that the only question is whether Congress waived Summerlin in the insurance context. CIGA argues that the McCarran-Ferguson Act authorizes the states to bind the federal government to a claims filing deadline in the insurance context. As previously noted, the McCarran-Ferguson Act provides that “no Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, unless such Act specifically relates to the business of insurance.” 15 U.S.C. § 1012(b).

The McCarran-Ferguson Act was enacted in response to the Supreme Court’s decision in United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944). “Prior to that decision, it had been assumed that issuing a policy of insurance was not a transaction of commerce subject to federal regulation. However, in South-Eastern Underwriters, the Supreme Court held that an insurance company that conducted a substantial part of its business across state lines was engaged in interstate commerce and thereby was subject to the antitrust laws. In response, Congress moved quickly to restore the supremacy of the States in the realm of insurance regulation by enacting McCarran-Ferguson.”

CIGA relies on Ruthardt v. United States, 164 F. Supp. 2d 232 (D. Mass. 2001), aff’d, 303 F.3d 375 (1st Cir. 2002), for the proposition that McCarran-Ferguson was intended as a waiver of Summerlin. The Court however disagrees.

First, the court points out that the Act, by its express terms, does not apply to Summerlin. The Act refers only to “Acts of Congress” as not preempting state statutes that regulate the insurance industry. § 1012(b). The rule laid down in Summerlin is not an “Act of Congress,” nor is it derived from any Act of Congress; it is a common law rule that stems from principles of sovereign immunity that long predate this country’s founding, and that is now enshrined in the Supremacy Clause. Nor does Summerlin bind the states by preempting state law “through” a federal statute; rather, it is a stand-alone principle that delineates the states’ power (or lack thereof) over the federal government.

Second, the purpose of the Act was to ensure that the regulation of the insurance business stayed with the states (unless Congress specifically provided otherwise). The Summerlin principle does not substantially affect the state’s regulation of the insurance industry. It is not a legislative enactment that imposes requirements that all businesses and policyholders in the California insurance market must adhere to; rather, it simply governs one aspect of CIGA’s claims process where the United States acts as a claimant.

Third, and perhaps most importantly, protecting the insurance business from unwitting federal legislative control is a far cry from subjecting the federal government as a sovereign to state control. “That Congress intended the former cannot be reasonably construed as intending the latter.”

For these reasons, the Court grants the United States’ Motion to Dismiss. The Court dismisses CIGA’s claims against the United States to the extent that they are based on the United States’ failure to file timely proofs of claim under the Guarantee Act or based on the United States’ alleged position as an assignee or subrogee of either the insured or the insurer.

This is the latest in a long line of cases that have essentially made it clear that the Medicare Secondary Payer Act preempts state law when it comes to pursuing and collecting Medicare conditional payments. Therefore, whether a public or private entity, whether the original debtor or insurer, or a recently appointed or contracted responsible payer of the claim, you must research and resolve Medicare conditional payments associated with the claim. As Medicare gets more aggressive in its pursuit of conditional payments, and the courts get tougher on debtors, it necessarily means that you, as the primary payer, or your designated representative or agent, must identify whether the claimant is a Medicare beneficiary, learn whether Medicare has made any payments, investigate whether such payments are related to the claim, timely dispute and appeal reimbursement of any amount not due, communicate and negotiate with Medicare contractors, and ultimately reimburse Medicare the amount it is appropriately due on a timely basis.

Whether a workers’ compensation, liability, auto, no-fault, med pay, medical malpractice, nursing home, products liability, or class action, our conditional payments resolution team, made up of attorneys, nurses, pharmacists, and claims specialists with years of experience saving millions of dollars for our customers, can help. Please contact us at 888.672.7674, or at contactus@helioscomp.com.

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About Rafael Gonzalez

As vice president of strategic solutions, Rafael Gonzalez serves as a thought leader on all aspects of Medicare and Medicaid compliance issues, including mandatory insurer reporting, conditional payments resolution, Medicare set aside allocations, CMS approval, and professional administration of Medicare set asides and special needs trusts. Prior to joining Helios, over the last 30 years, Rafael served as director of Medicare & Medicaid compliance and post settlement administration for Gould & Lamb in Bradenton, Florida. Before that, he served as chief executive officer for the Center for Lien Resolution, the Center for Medicare Set Aside Administration and the Center for Special Trusts Administration in Clearwater, Florida. Prior to that, he served as corporate counsel for FCCI Insurance, a workers’ compensation/property casualty insurance company in Sarasota, Florida. And before that, he practiced social security disability, workers’ compensation, longshore and personal injury law in Tampa, Florida. Rafael Gonzalez received his Bachelor of Science degree from the University of Florida and his Jurisprudence Doctorate degree from the Florida State University.

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