U.S. v. Rhode Island Insurers' Insolvency Fund

• Decision Date: 12 January 1996
• Docket Number: No. 95-1964,95-1964
• Citation: 80 F.3d 616
• Parties: , 50 Soc.Sec.Rep.Ser. 492, Medicare & Medicaid Guide P 44,118 UNITED STATES of America, Plaintiff, Appellee, v. RHODE ISLAND INSURERS' INSOLVENCY FUND, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 616

80 F.3d 616

64 USLW 2637, 50 Soc.Sec.Rep.Ser. 492,

Medicare & Medicaid Guide P 44,118

UNITED STATES of America, Plaintiff, Appellee, v. RHODE ISLAND INSURERS' INSOLVENCY FUND, Defendant, Appellant.

No. 95-1964.

United States Court of Appeals First Circuit.

Heard Jan. 12, 1996.

Decided April 5, 1996.

Appeal from the United States District Court for the District of Rhode Island, Hon. Francis J. Boyle, Senior U.S. District Judge.

Margaret A. Robbins, with whom Joseph C. Tanski and Hutchins, Wheeler & Dittmar, Boston, MA, were on brief for appellant.

Clifford M. Pierce, Assistant Regional Counsel, Department of Health and Human Services, Boston, MA, with whom Sheldon Whitehouse, United States Attorney, and Michael P. Iannotti, Providence, R.I., Assistant United States Attorney, were on brief for appellee.

Before TORRUELLA, Chief Judge, CYR and STAHL, Circuit Judges.

CYR, Circuit Judge.

The question in this appeal is whether section 1395y(b)(2)(A) of the Medicare Secondary-Payer Act, 42 U.S.C. § 1395y(b)(2)(A) (the "MSP provision"), preempts various sections of the Rhode Island Insurers' Insolvency Fund Act (the "RIIIFA") which purport to shift financial responsibility for "primary" insurance coverage from the Rhode Island Insurers' Insolvency Fund (the "Fund") to the federal Medicare program. The district court held the challenged RIIIFA provisions preempted, the Fund appealed, and we now affirm.

I BACKGROUND

Enacted by the Rhode Island Legislature in 1988, the RIIIFA requires all insurers licensed in Rhode Island to make pro rata monetary contributions to the Fund to meet certain types of insurance claims lodged against licensed Rhode Island insurers which have become insolvent, R.I.Gen.Laws § 27-34-3 (listing excluded classes of insurance claims). Upon a declaration of insolvency by a licensed Rhode Island insurer, the Fund is "deemed [to be] the insurer to the extent of the obligations [under the policy] on the covered claims," id. § 27-34-8(a)(2), subject to In 1989-90, the federal Medicare program disbursed approximately $14,000 in medical benefits to three Medicare beneficiaries who had sustained injuries in automobile accidents. When their Rhode Island-licensed automobile insurance carrier, the American Universal Insurance Company ("AUIC"), was declared insolvent, the three Medicare beneficiaries filed claims against the Fund. The Fund allowed their claims but deducted the $14,000 previously disbursed to them under the federal Medicare program, citing RIIIFA §§ 27-34-5(8)(ii)(C) and 27-34-12(b). The United States promptly challenged the deductions on the ground that RIIIFA §§ 27-34-5(8)(ii)(C) and 27-34-12(b), which purport to shift "primary" insurance coverage from the Fund to Medicare, are inconsistent with federal law, and thus preempted.

                specified limitations on the amount of coverage, see, e.g., id. § 27-34-8(a)(1)(iii) (setting $300,000 cap per claim).   The RIIIFA defines the term "covered claim" as "an[y] unpaid [insurance] claim ... submitted by a claimant," id. § 27-34-5(8), but excludes any amount "due any ... [other] insurer as subrogation recoveries or otherwise," id. § 27-34-5(8)(ii)(C).   A "nonduplication of recovery" provision requires all Fund claimants to exhaust in the first instance any "claim or legal right of recovery under any governmental insurance or guaranty program which is also a covered claim," and permits the Fund to reduce its payments on covered claims by the amount thus recoverable.   Id. § 27-34-12(b)
                

The pertinent MSP provision, found in Title XVIII of the Social Security Act, 42 U.S.C. § 1395y(b) (Omnibus Budget Reconciliation Act of 1980), was enacted by Congress for the express purpose of lowering overall federal Medicare disbursements by requiring Medicare beneficiaries to exhaust all available private automobile insurance coverage before resorting to their Medicare coverage. See H.R.Rep. No. 1167, 96th Cong., 2d Sess. 389, reprinted in 1980 U.S.C.C.A.N. 5526; infra note 3. To that end, the MSP provision prohibits Medicare payments to a beneficiary for medical expenses if "payment has been made, or can reasonably be expected to be made promptly (as determined in accordance with regulations) under ... an automobile or liability insurance policy or plan (including a self-insured plan) or under no-fault insurance." 42 U.S.C. § 1395y(b)(2)(A); see also 42 C.F.R. § 411.32(a) ("Medicare benefits are secondary to benefits payable by a third party payer even if the State law or the third party payer states that its benefits are secondary to Medicare benefits or otherwise limits its payments to Medicare beneficiaries.") (emphasis added). ¹ Moreover, once the Medicare program makes a payment on a claim covered by private insurance, the United States becomes subrogated to the rights of the insured, id. § 1395y(b)(2)(B)(iii), and may sue the "primary [insurance] plan" for reimbursement in the form of double damages, id. § 1395y(b)(2)(B)(ii) & (b)(3)(A).

When the Fund balked at voluntary reimbursement, the United States filed suit in federal district court for $28,000, see id. The United States alleged that the MSP provision does not permit the 1989-90 Medicare payments to be characterized as "primary" liability payments, since the injuries to the three Medicare beneficiaries were covered under a "primary plan"--their AUIC automobile insurance policies--and therefore the Fund, as the "deemed" insurer, must meet the maximum $300,000 primary AUIC insurance coverage cap under each beneficiary's policy before Medicare could be held liable. See R.I.Gen.Laws § 27-34-8(a)(2). The United States moved for judgment on the pleadings, based on its preemption claim. The Fund filed a cross-motion for judgment on the pleadings, arguing, among other things, that the first clause of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), see infra note 2, forecloses the preemption claim.

The district court granted judgment for the United States. United States v. Rhode Island Insurers' Insolvency Fund, 892 F.Supp. 370 (D.R.I.1995). First, the court ruled the McCarran-Ferguson Act's anti-

                preemption presumption inapplicable because the MSP provision is a federal statute "specifically relat[ing] to the business of insurance," thus coming within an express exception to the anti-preemption presumption.  Id. at 374-79.   Employing conventional preemption analysis, the district court went on to conclude that the MSP provision, ordaining that Medicare provides "secondary" medical coverage only, cannot coexist with RIIIFA's shift of primary liability to the federal Medicare program as a subrogee-insurer.  Id. at 379-80
                

II

DISCUSSION

A. Standard of Review

We review judgments on the pleadings de novo, accepting all allegations and reasonable inferences favorable to the appellant. See Santiago de Castro v. Morales Medina, 943 F.2d 129, 130 (1st Cir.1991). Similarly, a federal preemption ruling presents a pure question of law subject to plenary review. See New Hampshire Motor Transp. Ass'n v. Town of Plaistow, 67 F.3d 326, 329 (1st Cir.1995).

B. The McCarran-Ferguson Act

As this court has recognized, "[f]ederal preemption under the Supremacy Clause, see U.S. Const. art. VI, cl. 2, will be found only if there is 'clear' evidence of a congressional intent to preempt state law, or we are persuaded that the federal and state statutes, by their very terms, cannot coexist." Summit Inv. and Dev. Corp. v. Leroux, 69 F.3d 608, 610 (1st Cir.1995); see also Louisiana Pub. Servs. Comm'n v. FCC, 476 U.S. 355, 368-69, 106 S.Ct. 1890, 1898-99, 90 L.Ed.2d 369 (1986). In the field of insurance regulation, however, the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, may preclude the application of normal federal preemption principles provided three conditions are met. ²

First, the federal statute--here, the MSP provision in Title XVIII--must not "specifically relat[e] to the business of insurance." Second, the state law--here, the RIIIFA--must have been enacted "for the purpose of regulating the business of insurance." Third, the MSP provision must "invalidate, impair, or supersede" the RIIIFA provisions which purport to make the United States the "primary" insurer. See United States Dep't of the Treasury v. Fabe, 508 U.S. 491, 500-02, 113 S.Ct. 2202, 2208, 124 L.Ed.2d 449 (1993); Villafane-Neriz v. FDIC, 75 F.3d 727, 735 (1st Cir.1996).

The district court ruled the McCarran-Ferguson Act inapplicable because the first precondition recited above was not met; that is, it found that the MSP provision does "specifically relat[e] to the business of insurance." See Barnett Bank of Marion County v. Nelson, --- U.S. ----, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996) (holding that a federal statute, 12 U.S.C. § 92, which expressly permits national banks to sell insurance in small towns, is a statute which "specifically relates to the business of insurance," and preempts a state statute which prohibits banks from selling insurance). On appeal, the Fund argues that the MSP provision does not come within the definition of the term "business of insurance" set forth in Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982). The United States responds that Pireno, a case decided under the second or "antitrust" clause of 15 U.S.C. § 1012(b), see supra note 2, is not applicable in the present case. Because we conclude that the MSP provision is a statute "specifically relating to the business of insurance," irrespective of any formal application of the Pireno test, see Pireno, 458 U.S. at 129, 102 S.Ct. at 3008-09 (noting that no one factor is

                dispositive, and that the three-part standard contemplates a balancing test), we need not reach this issue.   See Barnett Bank, at ----, 116 S.Ct. at 1109 (citing Pireno as "context[ ]," but foregoing extended three-factor analysis);  Owensboro Nat'l Bank v. Stephens, 44 F.3d 388, 391 (6th Cir.1994), cert. denied --- U.S. ----, 116 S.Ct. at 1350,

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