Another Landmark MSP Decision for State Guaranty Funds: Is a State Guaranty Fund a “Primary Plan” as Defined Under the Medicare Secondary Payer Act?
Written by: Brendon De Souza, Esq. and Neha Pellegrino, Esq.
Almost six years ago, the California Insurance Guarantee Association (CIGA) was the first state insolvency insurer[1] since 1996 to successfully argue in federal court that it was not a “primary plan” within the meaning of the Medicare Secondary Payer (MSP) Act, and thus not required to either reimburse Medicare for conditional payment liens or report claims involving Medicare beneficiaries pursuant to Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007. CIGA v. Azar, 940 F.3d 1061 (9th Cir. 2019).
Since that time, several other state insolvency insurers have unsuccessfully attempted to obtain federal court determinations confirming that they are similarly not “primary plans” as defined under the MSP Act. See, e.g., North Carolina Ins. Guar. Ass'n v. Becerra, 55 F.4th 428 (4th Cir. 2022); Illinois Ins. Guar. Fund v. Becerra, 33 F.4th 916 (7th Cir. 2022). This week, the Illinois Insurance Guaranty Fund (IIGF) has now broken through to become only the third state insolvency insurer since the Rhode Island Insurers’ Insolvency Fund in 1996 and CIGA in 2019 to be federally deemed as a non-primary plan. Ill. Ins. Guar. Fund v. Becerra, No. 24 C 1522, 2025 U.S. Dist. LEXIS 9461, (N.D. Ill. Jan. 17, 2025).
Factual Overview of IIGF January 2025 Decision
In 1998, J.A., a Medicare beneficiary suffered a workplace injury covered by a workers’ compensation insurer. Medicare made conditional payments for J.A.’s workplace injury totaling $12,844.12, but J.A.’s workers’ compensation insurer became insolvent. The Medicare program sought reimbursement from the insolvency insurer, IIGF, but IIGF appealed through Medicare’s administrative conditional payment appeals process and later filed suit in federal court challenging its “primary payer” status and its obligation to reimburse Medicare for the alleged conditional payment liens owed.
Sanderson Firm Commentary
While it is unclear which specific stages of Medicare administrative appeals IIGF completed,[2] it is noteworthy that IIGF at least completed a level three Administrative Law Judge (ALJ) appeal. Prior state insolvency insurer challenges to their “primary payer” status failed only because they prematurely filed suit in federal court before exhausting Medicare’s administrative appeals process as required by the MSP Act.
Ultimately, the Illinois district court reached a sensible conclusion in this Illinois case. The MSP Act unambiguously defines a “primary plan” as “[group health plans] and a workmen's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no-fault insurance.” 42 U.S.C. § 1395y(b)(2)(A)(ii). IIGF does not fall under any of these plan types; it does not issue insurance policies, does not collect premiums, and does not insure against any risk. It is simply a function of Illinois’ statutory scheme which requires the Director of Illinois Department of Insurance, acting as a court-appointed liquidator, to pay “covered claims” as defined by Illinois law.
Sanderson Firm has been retained as expert counsel in various settlements where a Medicare beneficiary has or will receive a lump sum compensation from a state insolvency insurer and the underlying claim arises out of a workers’ compensation, liability, or no-fault injury. Generally, the federal government will aggressively seek conditional payment reimbursement from the state insolvency insurer, and the insolvency insurer, in an effort to save time and avoid unnecessary legal fees, will instinctively files suit in federal court seeking a declaratory judgment to “protect” them from Medicare’s overreach. However, prior case law from various circuits confirms that this is a fatal error.
The IIGF case serves as an encouraging reminder that a state insolvency insurer may prevail in federal court and become exempt from MSP compliance requirements so long as it first attempts resolution through Medicare’s existing administrative conditional payment appeal process. If your organization has a question regarding this case or is seeking assistance on your state insolvency issue, please contact us.
[1] Though rare, an insurance carrier may go out of business. Insolvency insurers are established to protect the public/direct policyholders should their insurance carrier become insolvent.
[2] The first level of appeal is performed via the Medicare contractor who issued the recovery demand; the second level of appeal is performed by a Qualified Independent Contractor; the third level of appeal is performed by an Administrative Law Judge; the fourth level of appeal is performed by the Medicare Appeals Council; and the fifth level of appeal is judicial review performed by a federal district court.
