Cal. Ins. Guarantee Ass’n v. Azar (9th Cir. 2019) 940 F.3d 1061

Medicare Act does not preempt California law governing insolvent insurers.

The California Insurance Guarantee Association (CIGA) is a state-run entity that pays covered claims against insolvent insurers. California law prohibits CIGA from reimbursing state and federal agencies, like Medicare. In contrast, the Medicare Act contains a Secondary Payer Provision that requires a primary insurer to reimburse Medicare for any medical care included under the beneficiary’s policy with a primary insurer. In this case, CIGA administered workers’ compensation claims for several individuals whose insurers were insolvent. CIGA notified the Center for Medicare Services that some of the beneficiaries were entitled to medical care under Medicare, and Medicare paid for those expenses. CMS contended CIGA was the primary insurer required to reimburse Medicare for those expenses. CIGA sought a declaratory judgment to the contrary, but the district court ruled that federal law preempted California law, obligating CIGA to reimburse CMS.

The Ninth Circuit reversed, holding that insurance regulation is a field traditionally occupied by the states, and that nothing in the Medicare Act suggested that Congress intended to interfere with state regulation of insolvent insurers. Specifically, the Court determined that the Secondary Payer Provision did not apply to CIGA, so it was not obligated to reimburse Medicare for the medical expenses at issue. CIGA is not a workers compensation plan within the meaning of the Medicare regulations—an insured employee’s work-related injury is insufficient to trigger CIGA’s obligations, even though CIGA happened to pay covered claims against an insolvent workers compensation plan here. CIGA is simply an insurer of last resort that pays covered claims when there is no other insurer available.

The bulletin describing the Ninth Circuit’s decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.