2. Primary Payer

Central to the entire concept of the MSP is the existence of a primary plan that has a connection with the Medicare beneficiary. The expansion of the definition of primary plan has been a key driver to the expansion of the MSP.

Group Health Plans

The MSP sets out rather complicated conditions under which a group health plan is or is not a primary payer. The definition includes "a group health plan or large group health plan, to the extent that clause (i) applies, FN 1, and clause (i) in turn refers to a payment as required by paragraph (1). FN 2. Paragraph (1) in turn breaks down the analysis to three categories of beneficiary, aged workers, disabled workers, and workers with End Stage Renal Disease [ESRD]. The statute borrows two definitions from the Tax Code, FN 3, as follows:

(1) Group health plan.--The term “group health plan” means a plan (including a self-insured plan) of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families.

(2) Large group health plan.--The term “large group health plan” means a plan of, or contributed to by, an employer or employee organization (including a self-insured plan) to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families, that covers employees of at least one employer that normally employed at least 100 employees on a typical business day during the previous calendar year. For purposes of the preceding sentence--

(A) all employers treated as a single employer under subsection (a) or (b) of section 52 shall be treated as a single employer,

(B) all employees of the members of an affiliated service group (as defined in section 414(m)) shall be treated as employed by a single employer, and

(C) leased employees (as defined in section 414(n)(2)) shall be treated as employees of the person for whom they perform services to the extent they are so treated under section 414(n).

A group health plan [GPH] that covers a current employee over the age of 65 is a primary payer, unless the employer has less than 20 employees, or in the case of a multi-employer plan, and the employer elects to be exempted. Separate rules apply to the aged worker who also has ESRD.

Where the employee is disabled and does not have ESRD, the status of the primary plan is afforded only to plans meeting the above definition of large group health plan [LGHP].

In the case of an employee who has ESRD, any GHP is a primary plan, and a 12 month coordination of benefits scheme is established.

Workers' Compensation

In the definition of primary plan, the statute refers only to "a workmen's compensation law or plan." However, just above the definition, the same statute refers to "a workmen's compensation law or plan of the United States or a State." CMS has taken as broad a view of this language as is possible. Of course it includes the state workers' compensation laws, and the MSP considers federal equivalents to be within the definition. This would include the Federal Employees' Compensation Act, the U.S. Longshoremen's and Harbor Workers' Compensation Act, and the Federal Coal Mine Health and Safety Act of 1969 as amended (the Federal Black Lung Program). FN 4. The Federal Employer's Liability Act is not considered a workers' compensation law, but instead is covered as liability insurance. The CMS takes the position that workers' compensation laws in the territories, including District of Columbia, American Samoa, Guam, Puerto Rico, and the Virgin Islands. FN 5. An employer who has contracted with an insurance carrier to provide workers' compensation coverage to its employees is not a primary plan. FN 6.

Automobile and Liability Insurance Policy or Plan

CMS takes the position that this phrase encompasses all insurance policies which "provides payment based on the policyholder’s alleged legal liability for injury or illness or damage to property". FN 7. According to its manual, the term "includes, but is not limited to homeowners' liability insurance, malpractice insurance, product liability insurance and general casualty insurance". FN 8. A recent District Court case has ruled that a Lawyer Professional Liability policy is not a primary plan, and merits following. FN 9.

No-Fault Insurance

While the term No-Fault Insurance includes the statutory benefit scheme established by many states for the benefit of victims of motor vehicle accidents, it is broader than that. It includes medical payments coverages found in many automobile policies, as well as such coverages that are found in connection with policies covering premises. FN 10. Many statutory No-Fault systems provide for self insurance, and a motor vehicle owner who participates as a self insurer would be included as a primary payer. Since medical payment coverage is a contractual plan, there is no similar self insurance issue. However, if a motor vehicle or property owner had a policy of providing medical expense payments, such owner might be a primary plan if the policy meets the definition of a plan. FN 11.

Self Insured Plans

How to treat self-insured tortfeasors has been the subject of much debate and litigation. In 1980, when no-fault, automobile and liability insurance were added as primary plans, the text included the phrase "including a self-insured plan" was added parenthetically in a way that appeared to only modify liability insurance. FN 12. As the class action became a popular tool to destroy unpopular businesses as well as a fund raiser for the plaintiff bar, extremely large settlement packages were being put together, often funded by the businesses themselves. The government took a number of positions in attempt to obtain portions of the settlements. These were mostly rejected, FN 13, but the Government had some success. The heart of the problem was that the regulations sought to expand the provisions of the statute beyond their plain meaning.

In 2003, Congress sought to address this issue in the MMA. FN 15. The MMA added the definitional phrase “[a]n entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part.” It is accepted that this amendment was directed at the court decisions which held that the MSP was not directed at tortfeasors without a formal plan of self insurance. FN 16. It is not at all clear, however, that Congress intended to transform any tortfeasor with an uninsured exposure into a primary payer. FN 17. At least one District Court has held that the mere showing of a settlement by an alleged tortfeasor was insufficient to create primary plan status, requiring that it be shown that there was an ex-ante plan to pay claims. FN 18. It has been suggested that the definition of self insured plan added by the MMA applies only to tortfeasors. FN 19. The language of the MMA amendment limits the self insured plan to businesses and professionals, so an individual homeowner or tenant can safely permit grandma to visit without being concerned with becoming indentured to CMS. Clearly, a business that creates a self insured trust, or insures with a self insured retention, is a primary plan. CMS takes the position that a deductible creates a self insured plan. By the same token, if a tortfeasor becomes insured without intending to self insure (for example, the insurer becomes insolvent), this should be insufficient to create primary plan status. It remains how an excess judgment would be treated. If a conscious decision was made to insure above a certain amount, then it could be argued that this constitutes an ex-ante plan. But what if a business intended to be fully insured but is made subject to an award in excess of what the business thought was sufficient insurance? As always, CMS appears to take a position much broader than can be justified by the statute and its own regulations. FN 20. Such a fact pattern, although unlikely to occur in practice, would put the Court to the test in determining where primary plan ends and mere uninsured tortfeasor begins.

Third Party Administrators

The term primary plan is directed at those who are actually responsible for making the payment under the plan, not a third party who merely administers the plan. FN 21. An effort by Medicare to extend primary plan status to third party administrators by regulation in 1989 was rejected by the courts. FN 22. One court noted that treating a third party administrator as one who is required to pay would be the same as imposing liability on a bank which, by negotiating the benefit check, was required to pay. FN 23. This same logic would apply to an number of entities who act as an intermediary in the claim handling process.

FN 1. 42 U.S.C. §1395y(b)(2)(A).

FN 1. 42 U.S.C. §1395y(b)(1).

FN 3. 26 U.S.C. §5000.

FN 4. Medicare Secondary Payer Manual, Chapter 1, §10.4.

FN 5. Id.

FN 6. Manning v. Utilities Mut. Ins. Co., 2004 WL 235256 (S.D.N.Y. 2004).

FN 7. Medicare Secondary Payer Manual, Chapter 1, §10.6.

FN 8. Id.

FN 9. Oregon State Bar Professional Liability Fund v. U.S. Dept. of Health and Human Services, 2012 WL 1071127 (D.Or. 2012). The opinion dealt with reporting requirements, but as noted in the opinion the definition of "primary plan" and "applicable plan" is the same.

FN 10. Medicare Secondary Payer Manual, Chapter 1, §10.5.

FN 11.Plan means any arrangement, oral or written, by one or more entities, to provide health benefits or medical care or assume legal liability for injury or illness. 42 C.F.R. §411.21.

FN 12.Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2599 (1980). §953 provided in pertinent part: "by inserting 'or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance' before the period at the end of the first sentence". In United States v. Rhode Island Insurer's Insolvency Fund, 80 F.3d 616 (1st Cir. 1996), the Court observed that the definition of primary plan was limited to entities clearly within the insurance industry. Id. at 622. See also Brown v. Thompson, 252 F.Supp.2d 312 (E.D. Va. 2003), affirmed, 374 F.3d 253 (4th Cir. 2004)(holding a health care provider was a self insured plan where it maintained a seperate reserve on its financial statements for malpractice claims, with the amount of reserves set by an independent source, and excess insurance was purchased to cover losses beyond a certain amount.)

FN 13.In United States v. Phillip Morris, Inc., 116 F.Supp.2d 131 (D. D.C. 2000) the government sought to recover tobacco related health care expenses from tobacco companies, and the Court stated that it was clear that Congress did not intend the Medicare Secondary Payer statutes to be used to sue tortfeasors unless they had established a self inurance plan. Id. at 146. Where the drug manufacturer defendants set up a settlement fund in a class action, the government unsuccessfully argued that the settlement fund was a "self insured plan". In re Orthopedic Bone Screw Products Liability Litigation, 202 F.R.D. 154, 2001 WL 880755 (E.D. Pa. 2001); In re Diet Drugs Product Liability Litigation, 2001 WL 283163 (E.D. Pa. 2001). In United States v. Philip Morris, Inc., 156 F.Supp.2d 1 (D. D.C. 2001), the Court expounded on its prior holding, and in so doing noted that the existing HCFA regulations actually stated that the mere absence of insurance was not sufficient to create a self-insured plan. The Court also rejected the argument that the tobacco companies should be treated as self-insured plans because they were sophisticated corporations. Id. at 7. In In re Silicone Gel Breast Implants Products Liability Litigation, 174 F.Supp.2d 1242 (N.D. Ala. 2001), the Court rejected the government claim that a tortfeasor who had a deductible was by reason of same a self insured plan. See also Mason v. American Tobacco Co., 212 F.Supp.2d 88 (E.D.N.Y. 2002), affirmed, 346 F.3d 36 (2nd Cir. 2003).

FN 14. See United States v. Baxter International, Inc., 345 F.3d 866 (11th Cir. 2003).

FN 15. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, §301, 117 Stat. 2066 (2003).

FN 16. Brown v. Thompson, 374 F.3d 253, 262 (4th Cir. 2004).

FN 17. The Brown Court observed:

This amendment does not make entirely clear whether the absence of insurance purchased from a carrier-without some additional indication of at least an informal pre-arrangement to self-fund liability claims as they arise-suffices to create a self-insured plan. However, the uncontroverted record evidence demonstrates that Kaiser did have what MMA clarifies will suffice to constitute a self-insured "primary plan" - an ex ante arrangement to pay for liability claims.

Id. (footnote omitted).

FN 18. Sorrell v. Lakeview Regional Medical Center, 2012 WL 1836264 (E.D. La. 2012).

FN 19. Bio-Medical Applications of Tennessee, Inc. v. Central States Southeast and Southwest Areas Health and Welfare Fund, 656 F.3d 277, 289-90 (6th Cir. 2011).

FN 20. According to the Medicare Secondary Payer Manual Chapter 1, §10.6, "An entity that engages in a business, trade, or profession is considered to be self-insured for liability purposes to the extent that it has not purchased liability insurance." This language would include any uninsured exposure, whether intended or not.

FN 21.United States v. Blue Cross and Blue Shield of Michigan, 726 F.Supp. 1517, 1521, 1989 WL 155636 (E.D.Mich. 1989)

FN 22.Provident Life and Acc. Ins. Co. v. U.S., 740 F.Supp. 492, 1990 WL 85093 (E.D.Tenn. June 14, 1990)

FN 23. Health Ins. Ass'n of America, Inc. v. Shalala, 23 F.3d 412, 416, 1994 WL 180090 (D.C. Cir. May 13, 1994). The Court observed: " The essence of the appellants' argument is that HCFA is wrong to equate the statutory phrase 'responsible ... to pay' with the phrase 'responsible for making ... payment'." Id.