CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff-Appellee/Cross-Appellant, v. ALEX M. AZAR II, Secretary of Health and Human Services; U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES; CENTER FOR MEDICARE AND MEDICAID SERVICES, Defendants-Appellants/Cross-Appellees.
Nos. 17-56526, 17-56528
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
October 10, 2019
940 F.3d 1061
Before: Jacqueline H. Nguyen and John B. Owens, Circuit Judges, and Michael M. Baylson, District Judge.
D.C. No. 2:15-cv-01113-ODW-FFM. Appeal from the United States District Court for the Central District of California, Otis D. Wright II, District Judge, Presiding. Argued and Submitted May 16, 2019, Pasadena, California.
OPINION
Opinion by Judge Nguyen
SUMMARY**
Medicare / Preemption
The panel reversed the district court‘s judgment in favor of Medicare in an action brought by the California Insurance Guarantee Association (“CIGA“), seeking declaratory relief after Medicare paid for and demanded reimbursement from CIGA for medical expenses of certain individuals whose workers’ compensation benefits CIGA was administering.
CIGA provides funding when one of its member insurers becomes insolvent and unable to pay its insureds’ claims. California state law prohibited CIGA from reimbursing state and federal government agencies, including Medicare. The district court concluded that federal law preempted California law to the extent it prohibited CIGA from reimbursing Medicare.
The panel held that as a “secondary payer,” Medicare was entitled to seek reimbursement from a beneficiary‘s “primary payer,” typically private insurance. The panel further held that CIGA was not a primary plan, and specifically not a “workmen‘s compensation law or plan,”
COUNSEL
Daniel Tenny (argued) and Alisa B. Klein, Appellate Staff; Nicola T. Hanna, United States Attorney; Joseph H. Hunt, Assistant Attorney General; Civil Division, United States Department of Justice, Washington, D.C.; for Defendants-Appellants/Cross-Appellees.
Steven T. Whitmer (argued), Hugh S. Balsam, and Julie L. Young, Locke Lord LLP, Chicago, Illinois, for Plaintiff-Appellee/Cross-Appellant.
Benjamin F. Aiken, Orrick Herrington & Sutcliffe LLP, Washington, D.C.; John Blatt, National Conference of Insurance Guaranty Funds, Indianapolis, Indiana; Thomas Welsh, Orrick Herrington & Sutcliffe LLP, Sacramento, California; for Amicus Curiae National Conference of Insurance Guaranty Funds.
Xavier Becerra, Attorney General; Diane S. Shaw, Senior Assistant Attorney General; Lisa W. Chao, Supervising Deputy Attorney General; Laura E. Robbins, Deputy Attorney General; Office of the Attorney General, Los Angeles, California; for Amicus Curiae Dave Jones, Insurance Commissioner of the State of California.
NGUYEN, Circuit Judge:
California requires insurers providing certain types of coverage to participate in the California Insurance Guarantee Association (“CIGA“), which provides funding when a member insurer becomes insolvent and unable to pay its insureds’ claims. State law prohibits CIGA from reimbursing state and federal government agencies, including Medicare.
CIGA filed this declaratory action after Medicare paid for and demanded reimbursement from CIGA for medical expenses of certain individuals whose workers’ compensation benefits CIGA was administering. The district court ruled in favor of Medicare, concluding that federal law preempted California law to the extent it prohibited CIGA from reimbursing Medicare. We reverse.
As a “secondary payer,” Medicare is entitled to seek reimbursement from a beneficiary‘s “primary payer,” typically private insurance. But CIGA is not a primary plan, and specifically not a “workmen‘s compensation law or plan.”
I. Background
A. California‘s Guarantee Act
Beginning in the 1930s, individual states experimented with insurance guaranty funds to address the problem of insurer insolvencies. See, e.g., Carpenter v. Pac. Mut. Life Ins. Co. of Cal., 74 P.2d 761, 773 (Cal. 1937) (recognizing California‘s “comprehensive statutory scheme” regarding “the rehabilitation and liquidation of insurance companies“), aff‘d sub nom. Neblett v. Carpenter, 305 U.S. 297 (1938); see also Michael P. Duncan, The NAIC Model Property and Casualty Post-Assessment Guaranty Funds, in American Bar Association, Law and Practice of Insurance Company Insolvency 460 (David M. Spector ed., 1986). At first, these funds concerned a single type of insurance, such as workers’ compensation or taxicab liability. Duncan, supra, at 460. Following a spate of insolvencies by automobile insurers in the 1950s and 60s, Congress entertained various legislative proposals that would have created a nationwide scheme. Id. The first proposed bill was limited to automobile insurance, but a later proposal would have covered virtually all property and casualty insurance. See Linda M. Lasley et al., Insurance Guaranty Funds: The New “Money Pit“?, in Practicing Law Institute, Insolvency and Solidity of Insurance Companies 115-18 (1987).
Under the threat of federal regulation, the insurance industry in the late 1960s successfully lobbied individual states to enact guaranty funds, most based on the National Association of Insurance Commissioners’ model act. Id. at 116-19. Congress dropped plans to legislate in this area, and today every state has some form of insurer insolvency scheme. Id. at 119. California‘s scheme, CIGA, was established in 1969 by the Guarantee Act,
An insurer‘s participation in CIGA is mandatory. See id. (citing
As an insolvency insurer, CIGA “provides a limited form of protection for the public, and not for the protection of insurers.” Interstate Fire & Cas. Ins. Co. v. CIGA, 178 Cal. Rptr. 673, 677 (Ct. App. 1981). CIGA “does not assume responsibility for claims where there is any other insurance available,” and is thus “an insurer of last resort.” R. J. Reynolds Co. v. CIGA, 1 Cal. Rptr. 2d 405, 408 (Ct. App. 1991); see
In particular, CIGA is prohibited from paying “any obligations to a state or to the federal government.”
B. The Medicare Act and Secondary Payer Provisions
Medicare is a federally funded health insurance program that primarily benefits aged and disabled persons. Palomar Med. Ctr. v. Sebelius, 693 F.3d 1151, 1154-55 (9th Cir. 2012). Since its 1965 enactment, Medicare has paid claims covered by workers’ compensation on a secondary basis. The Medicare Act provides that when “payment has been made, or can reasonably be expected to be made . . . under a workmen‘s compensation law or plan,” any payment by Medicare for the medical service “shall be conditioned on reimbursement.” Health Insurance for the Aged Act, Pub. L. No. 89-97, § 1862(b), 79 Stat. 286, 325 (1965) (codified at
Other than medical services covered by workers’ compensation insurance, Medicare was originally the primary payer of its beneficiaries’ medical costs, “even when such services were covered by other insurance.” Zinman v. Shalala, 67 F.3d 841, 843 (9th Cir. 1995). During the 1980s, to cut the program‘s burgeoning costs, Congress amended the Medicare Act several times by expanding the situations in which Medicare was a secondary payer and facilitating Medicare‘s ability to seek reimbursement from primary payers.1 See Haro v. Sebelius, 747 F.3d 1099, 1105 (9th Cir. 2014).
The statute now “forbid[s] Medicare payments when a primary plan . . . is reasonably
“[W]hen a primary insurer cannot reasonably be expected to pay promptly,” the statute permits Medicare to make a conditional payment that later must be reimbursed. Haro, 747 F.3d at 1105 (citing
C. Procedural History
CIGA administers the workers’ compensation claims of several Medicare beneficiaries whose insurers became insolvent. CIGA alerted Medicare‘s administrator, the Center for Medicare Services (“CMS“), that these individuals may be Medicare beneficiaries. CMS, which contends that CIGA is a primary payer of medical expenses related to these individuals’ work injuries, demanded that CIGA reimburse it for conditional payments that CMS had made on the Medicare beneficiaries’ behalf. When the parties could not resolve their dispute over CIGA‘s liability for the conditional payments, CIGA filed suit against CMS and related government defendants seeking declaratory and injunctive relief.
The district court determined that under the Medicare Act, CIGA is a primary plan for the workers’ compensation claims it was administering and that CMS was entitled to reimbursement for the conditional payments it had made because any contrary provisions in the Guarantee Act were preempted. After the district court‘s resolution of subsidiary issues,3 the parties stipulated to entry of judgment, from which both sides appeal.
II. Jurisdiction and Standard of Review
The district court had jurisdiction under
III. Discussion
A. Legal Principles Governing Preemption
Every preemption case is guided by two jurisprudential cornerstones. First, “the purpose of Congress is the ultimate touchstone.” Wyeth v. Levine, 555 U.S. 555, 565 (2009). Second, courts “start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress,” “particularly in those [cases] in which Congress has ‘legislated . . . in a field which the States have traditionally occupied.‘” Id. Insurance is such a field. See, e.g., Galilea, LLC v. AGCS Marine Ins. Co., 879 F.3d 1052, 1058 (9th Cir. 2018); see also McCarran-Ferguson Act, Pub. L. No. 79-15, § 2(b), 59 Stat. 33, 34 (1945) (“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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance . . . .“) (codified at
Congressional intent “primarily is discerned from the language of the preemption statute and the statutory framework surrounding it.” Omnipoint Commc‘ns, Inc. v. City of Huntington Beach, 738 F.3d 192, 193 (9th Cir. 2013) (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 486 (1996)). In addition, courts consider “the structure and purpose of the statute as a whole,” including “the way in which Congress intended the statute and its surrounding regulatory scheme to affect . . . the law and parties whose actions are affected by the statute.” Id. (quoting Lohr, 518 U.S. at 486) (internal quotation mark omitted). Agency regulations that reasonably interpret the statute are accorded Chevron deference when determining the statute‘s preemptive effect. See Reid v. Johnson & Johnson, 780 F.3d 952, 964 (9th Cir. 2015) (citing Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984)).
When determining the meaning of a particular term, courts “look to the ordinary meaning.” Ass‘n des Eleveurs de Canards et d‘Oies du Quebec v. Becerra, 870 F.3d 1140, 1147 (9th Cir. 2017), cert. denied, 139 S. Ct. 862 (2019). In both express and conflict preemption, “when the text of a pre-emption clause is susceptible of more than one plausible reading, courts ordinarily ‘accept the reading that disfavors pre-emption.‘” McClellan v. I-Flow Corp., 776 F.3d 1035, 1039 (9th Cir. 2015) (quoting Altria Grp., Inc. v. Good, 555 U.S. 70, 77 (2008)).
B. Medicare‘s Secondary Payer Provisions do not Apply to CIGA
The district court ruled that the Medicare Act‘s secondary payer provisions applied to CIGA because they preempted the Guarantee Act both expressly and
Medicare regulations define “primary plan” to mean, “in the context in which Medicare is the secondary payer, 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.”
California categorizes insurance into various “classes,” see
This distinction is reflected in California‘s two separate statutory schemes for workers’ compensation and insurer insolvencies. See
CIGA is “an insurer of last resort” and thus “assumes responsibility for claims only when no secondary insurer is available.” Denny‘s Inc. v. Workers’ Comp. Appeals Bd., 129 Cal. Rptr. 2d 53, 59 (Ct. App. 2003); see also R. J. Reynolds Co. v. CIGA, 1 Cal. Rptr. 2d 405, 408 (Ct. App. 1991) (“[W]here an insured has overlapping insurance policies and one insurer becomes insolvent, the other insurer, even if only a secondary or excess insurer, is responsible for paying the claim [rather than CIGA].“). Denny‘s distinguished CIGA‘s obligation to provide “insolvency insurance” from a workers’ compensation insurer‘s obligation to provide “insurance against loss from liability imposed by law upon employers to compensate employees . . . for injury . . . arising out of and in the course of the employment.” 129 Cal. Rptr. 2d at 56-58.
In CIGA v. Workers’ Compensation Appeals Board, 39 Cal. Rptr. 3d 721 (Ct. App. 2006), the court confronted a dispute over CIGA‘s responsibility to reimburse another government agency—California‘s
It makes little sense to interpret the statutory phrase “primary plan” to refer to a payer of last resort. The Medicare statute describes Medicare only as “secondary.” Under agency regulations, the term “secondary” refers to benefits that “are payable only to the extent that payment has not been made and cannot reasonably be expected to be made under other coverage that is primary to Medicare.”
Medicare regulations do not define “a workers’ compensation law or plan.” They do, however, provide illuminating examples. The term “includes the workers’ compensation plans of the 50 States, the District of Columbia, American Samoa, Guam, Puerto Rico, and the Virgin Islands, as well as the systems provided under the Federal Employees’ Compensation Act and the Longshoremen‘s and Harbor Workers’ Compensation Act.”
The agency first adopted this regulation in 1966. See Rules and Regulations: Exclusions, Recovery of Overpayment, and Liability of a Certifying Officer, 31 Fed. Reg. 13,534, 13536 (Oct. 20, 1966). Almost all states adopted insurance guaranty funds shortly thereafter. See Lasley et al., supra, at 119. More than half a century later, the agency has expanded its examples of a “workers compensation law or plan” to include the workers’ compensation plans of American Samoa, Guam, and the Virgin Islands, yet the regulation continues to omit any mention of the state insurer solvency schemes. Given a state‘s “important and vital interest in the liquidation or reorganization of [insurance companies],” Carpenter, 74 P.2d at 774, 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.
Insurance is “[a] contract by which one party . . . undertakes to indemnify another party . . . against risk of loss, damage, or liability arising from the occurrence of some specified contingency.” Insurance, Black‘s Law Dictionary (11th ed. 2019). As the district court correctly recognized, “in the case of a workers’ compensation insurance plan,” the “specified contingency . . . is the insured employee‘s work-related injury.” And, as the court acknowledged, CIGA “is an arrangement through which other California insurers provide health benefits or medical care for [the insured‘s illness, injury, or loss] when one of its member insurance companies become insolvent” (emphasis added). See also Olivier v. Merritt Dredging Co., 979 F.2d 827, 830 (11th Cir. 1992) (explaining that insurance guarantee funds “aid and benefit numerous citizens who have suffered losses due to the insolvency of their insurers” (emphasis added)). Thus, CIGA‘s obligations are triggered by an entirely different contingency—an insurer‘s insolvency—than are those of a workers’ compensation plan. Because an insured employee‘s work-related injury is insufficient to trigger CIGA‘s obligations, CIGA is not a workers’ compensation insurer.
By focusing on CIGA‘s obligation to pay for medical care, the district court improperly classified it as a workers’ compensation plan based on the benefits it provides rather than the loss it protects against. See Mason v. Am. Tobacco Co., 346 F.3d 36, 40 (2d Cir. 2003) (rejecting argument that corporations were “primary plans” just “because the corporate structure through which each conducts its business has the purpose and legal effect, in part, to assume legal liability for injury“). This mode of analysis would lead to strange results.
For example, legal malpractice insurance, which is not a “primary plan” under the Medicare Act, typically does not cover physical injuries that an attorney causes. It 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.”
to Medicare because the statute “explicitly speaks in terms of insurance plans that provide primary medical coverage“).9 The legal malpractice insurer does not become obligated for medical expenses without the occurrence of some intervening event—the attorney‘s negligence—that has nothing to do with the medical injuries.
CMS cites to the First Circuit‘s decision in RIIIF, in which Rhode Island‘s analogue to CIGA argued that it is neither a “plan,” “because an insurance insolvency guarantor statute . . . is not an insurance ‘policy,‘” nor a primary plan, “because it is not the Medicare beneficiaries’ private insurance carrier, but rather a non-profit governmental agency.” 80 F.3d at 623. The First Circuit summarily rejected both arguments: “The [Rhode Island statute] itself provides that, upon a declaration of insolvency, the Fund is ‘deemed the insurer to the extent of the obligations [under the policy] on the covered claims,’ subject solely to specified limitations on the amount of coverage. Thus, the Fund is deemed the private insurer, and hence a ‘primary plan’ . . . .” Id. (alteration in original) (citation omitted) (quoting R.I. Gen. Laws § 27-34-8(a)(2)).
We agree with RIIIF that an insurer insolvency fund‘s status as a statutorily created nonprofit government entity is irrelevant to whether it is a primary plan. If a state agency functions like an insurance company, then it is treated like one. See, e.g.,
Finally, even if CIGA could be construed as a workers’ compensation law or plan, and hence a primary payer, a contrary interpretation is more than plausible. Well-established preemption principles favor upholding state law if it can plausibly coexist with the federal statute. See Altria Grp., 555 U.S. at 77.
IV. Conclusion
Because CIGA is not a primary plan under the Medicare Act‘s secondary payer provisions, it has no obligation to reimburse CMS for conditional payments made on behalf of workers’ compensation insureds. Therefore, we reverse and remand for further proceedings consistent with this opinion.
REVERSED and REMANDED.