On October 10, 2019, the 9th Circuit Court of Appeals issued a landmark decision holding that the California Insurance Guaranty Association (CIGA) was not a primary plan under the Medicare Secondary Payer Act (MSP) (CIGA v. Azar, 2019 WL 5076945 (9th Cir., Oct. 10, 2019) (link to 9th Cir. Opinion)). The court’s ruling alleviates CIGA’s responsibility to reimburse the Center for Medicare and Medicaid Services (CMS) for conditional payments made on behalf of workers’ compensation claimants and may also obviate its need to adhere to Medicare Set-Asides for claim settlements.
The ruling stems from a lawsuit filed by CIGA seeking to curtail conditional payment reimbursement requests from CMS that were unrelated to covered claims. CIGA asked the court for a declaratory judgment holding that 1) CIGA is not a primary plan under the MSP, 2) that CMS must adhere to the claims bar date, and 3) that CMS’s all-or-nothing billing practice is improper and must not continue. The district court found in favor of CMS on the first two issues but agreed that CMS should only seek reimbursement for conditional payments from CIGA where the diagnostic code related to a covered claim. The parties cross-appealed.
The 9th Circuit focused exclusively on the preeminent issue; whether CIGA was a primary plan under the MSP. Like the district court, the 9th Circuit examined the issue in terms of federal preemption. The court began by reviewing the MSP to determine whether CIGA could be deemed a primary plan. While MSP does not define “primary plan”, it provides examples, such as state workers’ compensation acts. The court found that CIGA shares little with state workers’ compensation laws. While it may pay workers’ compensation claims, CIGA is triggered by an insolvency, not a work-related injury. Further, the California insurance laws specifically define CIGA’s as insolvency insurance. The court cited numerous examples of CIGA being deemed an “insurer of last resort”; a term antithetical to being a primary plan.
Finding that CIGA could not be deemed a primary plan under the MSP, the court turned its attention to whether Congress intended the MSP to preempt state laws governing insurer solvency. Congressional intent is derived from the statutory language and surrounding framework. Nothing in the MSP expressly related to insurer solvency. The closest indication the court could find was that the MSP supersedes state law with respect to Medicare Advantage plans under Part C and prescription drug plans under Part D, but that Congress clarified that those provisions did not apply to state laws relating to plan solvency. Thus, the 9th Circuit reversed.
What happens next is still an open question. CMS has until November 24, 2019 to seek an en banc appeal (review by the full 9th Circuit panel of judges) and until January 8, 2020 to file a writ of certiorari to the U.S. Supreme Court. It also has the option of amending the MSP to expressly apply to guaranty funds. Until then, this ruling is good law in the 9th Circuit and persuasive elsewhere. The application of the ruling to other guaranty funds requires a state-by-state analysis, though there is benefit to be gained from coordination. The NCIGF Legal Committee will be working with members to ensure the most effective response.
If you have any questions or comments, please reach out to John Blatt (email@example.com).
“This is the Essence of What the Guaranty Funds Exist to Do…” – Brad Roeber
One of the highlights of the 2019 Fall Workshop was a panel entitled, Disaster Sight: Listening to History for Creative Problem Solving. Among the panelists was Brad Roeber, Executive Director of the California Insurance Guarantee Association (CIGA). Mr. Roeber gave a brief overview regarding a creative solution he employed in late 2018 when it came to the liquidation of Merced Property & Casualty Company, a small California Central Valley insurer impacted by the California wildfires. This is a closer look at that situation as well as a challenge from Mr. Roeber to all Guaranty Funds to secure the future of the system by leveraging creativity as well as compassion.
Robin Webb, NCIGF Communications & Member Support Manager: Brad, you’re the current Executive Director over at CIGA, tell me about stepping into that role as a former Industry representative.
Brad Roeber, Executive Director, CIGA: I served on the NCIGF Board as an industry member for a number of years so I have a fairly unique point of view, especially given that I ended up choosing to work with the guaranty funds for a living, now being the CIGA executive director. I believe in the mission very much and I thought that, at this time in our history, there was an opportunity to lead in a different way. We exist solely to serve consumers who have no place else to go. Everything that I’m doing and everything I’m encouraging my employees to do is to think about the people that are sitting there with nothing…whether it’s an injured worker in the comp world or it’s a claimant of a non-standard auto insured who has gone down or the folks up in Paradise, California who, in one day, lost everything and then a few weeks later, lost their insurance too.
Robin: And you’d only been in your role a short time when the California wildfires tore through this heavily wooded area in the Butte County? Tell me about getting creative when it came to helping those claimants from Merced who lost their homes.
Brad: Yes. Whether you call it creative solutions or just finding answers where maybe there are no obvious ones, to me that’s what we need to do. I’m not the first person who’s hired existing staff to handle an insolvency, but it goes beyond that. Now we’re leveraging those people [from Merced] who did a great job for us to do more work and keep them on the payroll longer, so there is an economic value to how we handled it. And, talking about Merced specifically, we are going to handle that estate with an administrative expense load that’s exceptionally low. And that is because we didn’t have to pay southern California salaries to those folks, and we didn’t have to pay the overhead of southern California. We paid the overhead in a little farm town in the middle of the agricultural part of the state. There are all kind of little savings like that just from being open to new possibilities. And like I’ve said, utilizing existing staff is not a new idea, but I think the way we leveraged it in this particular case was a little different.
Robin: Take us back to the very beginning. What happened with Merced?
Brad: The story of Merced is a pretty simple one. I had gotten here at the end of September 2018 and on November 8th, the fire starts. We got a call saying that there was this little central valley carrier that was a hundred years old and it was likely to go under. Most of their book of business was property and so it was pretty clear that something was going to go down. As it turns out, some of their employees knew within a week that they were done because the company had about $30 million in assets and the exposure was within the $100million range. So, we knew…it’s going to go.
Robin: In your time in the insurance world, had you ever experienced a disaster like this?
Brad: One of the things that was interesting here, and it’s a good lesson for the future of the guaranty funds, was I was among just a few people at CIGA that had ever actually been involved in a property disaster and had adjusted property claims. My experience, a lot of which was in the Midwest, was with tornadoes and things of that nature. I had been on site in multiple places where a tornado had ripped through and the houses were completely gone. There was one that happened a little east of Peoria a few years back where people were sitting at home on a Sunday morning eating breakfast and the next thing they know, the alarm is going off, they are running to the basement and the house is just gone. So, I had some pretty unique experience around those types of situations and adjusting those property claims.
Robin: When you heard about Merced, what was your first step?
Brad: I decided to go up there and see the people (and this was before the liquidation order). I went up to the Merced offices and talked with the claims staff and told them that it appeared that the company is in trouble but that the guaranty funds are the backstop for it and at CIGA I didn’t have anybody that knows how to adjust claims on property…so, would you be willing to work with us? We tried to be creative about engaging them and we set up a ‘stay bonus’ system to reward them if they stayed until the end of the insolvency.
We had our people lined up to handle everything and then it started. We went to work and began adjusting the claims. The fire had started on November 8th and right after Thanksgiving the fire finally got put out, so it burned fully for about three weeks. Then, on December 3rd the company was declared insolvent. Because of the pre-planning we had done and the fact that there was not a huge number of claims, we actually started issuing checks on that Friday, December 7th. The next week, in earnest, we were producing more checks for those folks, allowing the coverage gap to be minimal, almost nonexistent.
Robin: You mentioned specifically some creative solutions in regard to claim caps, tell me more about that.
Brad: The CIGA statute says that we could pay a maximum of $500,000 per claim for non-workers compensation claims. We talked in advance with our counsel and discussed the option of looking at the caps differently. Instead of one homeowner’s claim, we look at the homeowner’s policy in multiple parts where there are four basic coverages – dwelling, structures, contents and additional living expenses. We developed the option of treating this as four claims as opposed to one single claim.
Robin: Why was this solution so important to you?
Brad: This is the lens I was looking through: If we don’t find a creative way to deal with this part of it, then we will not represent the insurance industry as a safety net. Because of this four-coverage approach, we were able to cover the entirety of people’s claims with the exception of just a few (maybe 30-40 whose domicile exceeded the $500,000 cap). It created a productive solution out of a situation that was really awful for these people. It allowed them to move on with their lives.
Robin: And there was another area, the contents portion of the coverage, that you dealt with pretty swiftly as well, right?
Brad: Yes. When you adjust a property claim and there is contents damage, typically it’s handled by the consumer providing an inventory and the adjuster going through the list of all of the homeowner’s items and coming up with a cash value for all of those items. Then, when the consumer actually goes out and purchases those items, they provide proof, and only then can they be paid the difference. Obviously, it’s a pretty arduous process. Well, we decided to offer to pay eighty percent of whatever the contents coverage amount was, without an inventory. No questions asked. Again, that piece of it, that type of solution had been done before but not very often and not so efficiently or at such a high percentage amount. And with the exception of just a handful of claimants, we have had no complaints.
Robin: Where did the Merced employees end up?
Brad: We’ve given them additional work to do. We have other work that had been done by third-party administrators and I’m starting to feed them additional files to adjust. It saves us money and also keeps them employed. We wanted to reward them for being loyal to us and seeing this insolvency through to the end.
Robin: Thank you for sharing that story. It’s incredibly compelling.
Brad: It’s important to remember that this is not a tale of woe. This is not a story about a bunch of greedy insurance companies who try to do the wrong thing. This is a group of really well-intentioned people who have gotten educated and want to do a better job for the policyholders. The guaranty funds were there. We served these people who literally had no place else to go.
Robin: How do you balance the idea of going above and beyond to some who maybe have the mindset of not being a charity organization or taking up the mantle that their job is, in fact, to minimize the claims they pay?
Brad: I’m compelled because I’ve been on a disaster site before. The first time I went to a disaster site and looked into the eyes of one of my customers who had lost everything, that was a seminal moment for me almost fifteen years ago. At the time, I had forgotten why I’d gotten into the business – I had gotten caught up in making money and driving combined ratio and cutting claims cost and all of those things. I realized then that it wasn’t about any of that. It was about doing the right thing and taking care of these people. That was the promise. When you think about NCIGF, it’s about the promise. The promise isn’t that we make a lot of money…if it happens, then that’s great. But the promise is that we take care of people when they’ve lost everything and have no place else to go. It is a noble business.
(Originally published in the Spring 2019 issue of The Insurance Receiver and is reprinted with the permission of IAIR)
On January 1, I began a one-year term as Chairman of the International Forum of Insurance Guarantee Schemes (IFIGS). My colleague at NOLHGA, Peter Gallanis has been involved since the earliest days of IFIGS and I joined him a few years ago.
The objectives of the Forum are to facilitate and to promote international cooperation between Insurance Guarantee Schemes and other stakeholders in the development of policyholders’ protection. From time to time it may communicate views, ideas and experiences to interested parties. IFIGS is a voluntary not for profit membership network. It is independent of any government authority. Currently there are twenty-five members and the membership is growing.
I took on this responsibility because of my very strong sentiment that the insurance industry is absolutely essential to the world economy. The insurance promise makes opportunity a possibility. Our support of it keeps the industry strong and gives comfort and peace of mind to policyholders. Guaranty mechanisms ready to protect insurance consumers undergird the sanctity of the insurance promise by assuring the viability, commitment and reputation of the insurance industry.
IFIGS is well-positioned to be the global definitive expert on supporting the insurance promise. All protections do not have to be structured the same way, but the important role of policyholder protection mechanisms must be articulated clearly and effectively to regulators as they work as overseers of the global insurance industry.
To build the value of the organization, IFIGS members have set three long-term strategic objectives:
Information Sharing. IFIGS will collect information and be the global expert regarding insurance guarantee schemes and will be an active resource for IFIGS members, supervisors and standard-setters.
Member Outreach. IFIGS will develop a plan for actively recruiting new members and encouraging more active participation and leadership by existing members.
Reputation Enhancement. IFIGS will work to heighten its profile with supervisors and standard setters, including those that may be involved in developing new insurance guarantee schemes.
Examples of IFIGS effectiveness are not hard to find:
1. The consultation paper published by the IAIS in mid-November, 2018 concerned a proposed holistic framework for the assessment and mitigation of systemic risk in the insurance sector. The initial IAIS consultation included the following statement:
“In addition to the direct economic effects of an insurer’s failure to pay claims on consumption, by a reduction of policyholders’ wealth, a number of correlated failures could have additional knock-on effects, such as through some insurance guarantee schemes.”
IFIGS, in partnership with NOLHGA and NCIGF, commented on the consultation paper and strongly objected to that statement. The offending comment was removed from the revised paper.
It would have been nothing short of a disaster for global regulators to continue their consideration of approaches to insurer oversight if they believed that policyholder protection schemes could spread contagion! It could take decades to change that thinking and no one country could do that alone. But by working together, IFIGS and its members played a strong advisory role that regulators took seriously. That is the value of being collaborative and building on that strategy.
2. A July 2017 paper published by EIOPA (European Insurance and Occupational Pensions Authority) stated that a minimum degree of harmonization of policyholder protection schemes in the European Union would benefit policyholders, the insurance market and the financial stability of the EU. IFIGS was invited to present on the role that insurance guarantee schemes can play in resolution during an EIOPA recovery and resolution seminar.
Thanks to our active participation in IFIGS, the U.S. made a joint presentation (with Greece) to an audience of European regulators and companies, and our presentation drew more interest from the audience than any other presentation over the day and half seminar. From this experience it was confirmed what we had already learned; that European regulators are very curious about our state-based system of policyholder protection. As EIOPA continues to deliberate on harmonization, the background we provided should prove useful.
3. Finally, on another occasion, Peter Gallanis and I, joined by a colleague from Canada, were asked to represent IFIGS before a working group of international regulators (including James Kennedy from the Texas DOI and Alex Hart from the Federal Insurance Office) who were drilling down on the relationship between regulators and policyholder protection mechanisms. My understanding is that we were helpful in providing background on ways to collaborate to provide a more effective safety net to consumers.
A primary goal is to spread the value of our engagement with IFIGS to IAIR and the NAIC. And to take that back to the IFIGS membership and international regulators. Our resolution mechanism—composed of receivers and guaranty funds– is by far the most experienced and effective system in the world. The broader the expertise we can bring to the table, the more impactful we can be on behalf of the individual policyholders and claimants we serve.
Recently, a number of NCIGF members, board members and staff took Capitol Hill by storm to do some updating on the state guaranty fund system. Meetings like these are critical, especially after an election year that saw a shift in power in the House of Representatives and the election of 100 new members of Congress, many of whom are without a background in financial services. Here are a few quick takes from the day:
16 total meetings; 15 of which were with members of the Senate Banking and House Financial Services Committees.
Cross-section of senior members and freshman members, including:
Senate Banking Committee Chairman, Mike Crapo
Housing, Community Development, and Insurance Subcommittee Chairman, Lacy Clay
Housing, Community Development, and Insurance Ranking Member, Sean Duffy
4 House Financial Services Committee freshmen
Overarching theme in the meetings was support for the state system.
Members and staff expressed appreciation for NCIGF’s engagement.
Many thanks to those who participated, along with John Blatt, Amy Clark and me (from NCIGF staff): Chad Anderson (WGFS), Charlie Breitstadt (Nationwide), Allan Patek (WI), Barbara Law (GFMS), Barry Miller (DE), Brad Roeber (CA) and Frank Knighton (GA). I feel confident we are off to a good start with this Congress. We’ve invested large amounts of resources, especially since the financial crisis, to assure federal lawmakers that the state-based safety net is prepared to protect consumers. Now is not the time to let up.