Ill. Ins. Guar. Fund v. Becerra, 21-1942

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
PartiesIllinois Insurance Guaranty Fund, Plaintiff-Appellant, v. Xavier Becerra, Secretary of Health and Human Services, et al., Defendants-Appellees.
Docket Number21-1942
Decision Date06 May 2022

Illinois Insurance Guaranty Fund, Plaintiff-Appellant,

Xavier Becerra, Secretary of Health and Human Services, et al., Defendants-Appellees.

No. 21-1942

United States Court of Appeals, Seventh Circuit

May 6, 2022

Argued December 3, 2021

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:20-cv-05920 - Robert W. Gettleman, Judge.

Before Rovner, Hamilton, and Jackson-Akiwuml Circuit Judges.

Hamilton, Circuit Judge.

Plaintiff-appellant Illinois Insurance Guaranty Fund is the state-created insolvency insurer for member insurance companies in Illinois. When a member insurer becomes insolvent, the Fund steps in to pay covered claims. In the case of an insolvent health insurer, many claims are for patients who are eligible for both Medicare benefits


and private health insurance. Figuring out how to allocate overlapping coverage for patients covered by both Medicare and private health insurance can be challenging in the best of times. When the insurer becomes insolvent, it gets worse.

In this case, the Illinois Fund sued the federal government seeking a determination that it is not subject to reporting requirements under section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. No. 110-173, § 111, 121 Stat. 2492, 2497-500 (2007), codified at 42 U.S.C. § 1395y(b)(7) & (b)(8). Section 111 requires primary plans, including many private medical insurers, to file certain reports about plan participants and claimants to help the government identify when a primary plan is responsible for repaying medical expenses that Medicare covers conditionally. The Medicare Secondary Payer Act cuts Medicare spending by placing financial responsibility for medical costs with available primary plans first. See United States v. Baxter Intl, Inc., 345 F.3d 866, 874-78 (11th Cir. 2003) (recounting history of Medicare Secondary Payer Act); Zinman v. Shalala, 67 F.3d 841, 845 (9th Cir. 1995) (describing Medicare Secondary Payer Act as serving the "overarching statutory purpose of reducing Medicare costs"). Recognizing that time may be of the essence in medical treatment, though, Congress also authorized the government to make conditional payments to cover medical expenses for Medicare beneficiaries insured by a primary plan, subject to later reimbursement from a primary plan. See 42 U.S.C. § 1395y(b)(2)(B)(i).

To help the government recoup these conditional payments, section 111 imposes reporting requirements on health insurers so that the government can identify the primary plan responsible for payment. See § 1395y(b)(7) & (b)(8). These


reporting requirements differ between group health plans and other types of primary plans, which are placed in a catchall category termed "applicable plan." See id. The Illinois Fund believes that it is not an "applicable plan" and thus need not make reports under section 111. It filed this suit seeking a declaratory judgment to that effect. The defendants moved to dismiss for lack of subject-matter jurisdiction, arguing in part that the district court lacked jurisdiction unless and until the government makes a final decision through its administrative processes. The district court agreed and granted the motion to dismiss. We agree with the district court that 42 U.S.C. § 405(h) forecloses subject-matter jurisdiction in this case. The Fund can obtain judicial review of its claim in a federal court only by channeling its appeal through the administrative process provided under 42 U.S.C. § 405(g). We recognize that using the administrative process increases costs and delay for the Fund, but precedent requires (and prudent policy for the massive Medicare program is consistent) that we not permit the Fund's desired shortcut to federal court. We also explain below how, under these particular statutes, the usually-wai-vable defense of failure to exhaust administrative remedies has become a jurisdictional bar here.

I. Factual and Legal Background

The Fund's case centers on the interaction between different provisions of the Medicare Act designed to allow the government to recoup medical expenses it has paid conditionally. We begin by introducing the Fund, the Medicare Secondary Payer Act, and section 111 reporting. Also, because this suit was in part a reaction to a similar suit involving the California insolvency insurer, this section closes with a discussion of the


California suit and the path the Illinois Fund took to court in this case.

A. The Illinois Fund

The plaintiff Fund is a nonprofit, unincorporated legal entity created by the Illinois legislature to manage consequences for claimants and policyholders when an Illinois insurance company becomes insolvent. See 215 Ill.Comp.Stat. 5/532(a), 535; Lucas v. Illinois Insurance Guaranty Fund, 367 N.E.2d 469, 470 (111. App. 1977). The Fund assumes the obligation for covered claims against an insolvent insurance company and helps distribute its assets. See 215 Ill.Comp.Stat. 5/532, 534.3, 537.4; Roth v. Illinois Insurance Guaranty Fund, 852 N.E.2d 289, 295-97 (111. App. 2006) (discussing limits on covered claims); see also California Insurance Guarantee Ass'n v. Azar, 940 F.3d 1061, 1064 (9th Cir. 2019) (summarizing history of state insurance guaranty funds), abrogated on other grounds by R.J. Reynolds Tobacco Co. v. County of Los Angeles, 29 F.4th 542, 553 n.6 (9th Cir. 2022).

The Fund pays for its activities by levying assessments on Illinois insurance companies. See 215 Ill.Comp.Stat. 5/537.6. As a matter of state law, the Fund is "considered 'a source of last resort.'" Illinois Insurance Guaranty Fund v. Virginia Surety Co., 979 N.E.2d 503, 506 (111. App. 2012), quoting Illinois Insurance Guaranty Fund v. Farmland Mutual Insurance Co., 653 N.E.2d 856, 857 (111. App. 1995). The Fund generally steps into the shoes of the insolvent insurer when the Fund assumes the obligations on a policy, but the Fund is authorized to pay only "covered claims" as defined by Illinois law. See 215 Ill.Comp.Stat. 5/534.3, 537.2; Hasemann v. White, 686 N.E.2d 571, 573 (111. 1997) (noting that Fund's liability on a covered claim is subject to statutory limits, such as a maximum amount); Barbee v. Illinois Insurance Guaranty Fund,


915 N.E.2d 871, 873 (111. App. 2009).

B. Medicare as a Secondary Payer

Medicare is the familiar federal health insurance program for the elderly and people with disabilities. See 42 U.S.C. §§ 1395-1395///; Abraham Lincoln Memorial Hospital v. Sebelius, 698 F.3d 536, 541 (7th Cir. 2012). The Secretary of Health and Human Services is responsible for Medicare and administers the program through the Centers for Medicare and Medicaid Services, also known as CMS.

Medicare originally provided primary health coverage even when an insurer such as a group health plan or a liability insurer might also have been responsible for paying the cost of a beneficiary's care, with limited exceptions. See Social Security Amendments of 1965, Pub. L. No. 89-97, § 1862(b), 79 Stat. 286, 325 (barring Medicare from paying for items or services under a workers' compensation law or plan); Zinman, 67 F.3d at 843. That changed in the 1980s when Congress acted repeatedly to cut costs by making Medicare the secondary payer for health care when other insurance was available to cover patients. California Insurance Guarantee Ass 'n, 940 F.3d at 1065 & n.l (summarizing how Medicare Secondary Payer Act changed Medicare); Baxter Intl, 345 F.3d at 874-75.[1]


The Medicare Secondary Payer Act bars Medicare from paying for a beneficiary's health care when payment has already been made by a primary plan but also when such a payment could reasonably be expected. 42 U.S.C. § 1395y(b)(2)(A). In many cases, however, the other payer may refuse or delay payment. For example, if a Medicare beneficiary is injured in a traffic accident, disputes about liability may delay payments by an automobile liability insurer. To avoid leaving beneficiaries helpless in such cases, Congress authorized Medicare to make immediate payments for care but required that primary plans later reimburse Medicare when they bear ultimate responsibility for conditional payments. § 1395y(b)(2)(B)(i) & (B)(ii).

Medicare contractors can recoup a conditional payment owed to CMS by sending the primary plan an initial determination explaining the reimbursement due. § 1395ff(a)(1); 42 C.F.R. §§ 405.904(a)(2), 405.924(b)(16). If a primary plan disagrees with an initial determination, it has a right to appeal through the administrative review process. 42 U.S.C. § 1395y(b)(2)(B)(viii). Congress incorporated provisions of the Social Security Act into Medicare so that an individual or primary plan must exhaust administrative remedies before seeking relief in federal court. See § 1395ii (incorporating bar on federal-question jurisdiction from § 405(h) of Social Security Act); § 1395ff(b)(1)(A) (incorporating provisions for administrative and judicial review from § 405(b) and (g) of Social Security Act).


The appeals process for an initial determination by CMS has four steps. 42 C.F.R. § 405.904(a)(2). First, the plan can ask the contractor making initial determinations on behalf of CMS to perform a redetermination. § 405.940. Next, the plan can seek reconsideration from a "qualified independent contractor." § 405.960. Then the plan can request a hearing before an administrative law judge, who conducts a review de novo. §§ 405.1000, 405.1042. Finally, a plan can seek de novo review from the Medicare Appeals Council, which issues the Secretary's final decision on the matter. §§ 405.1100, 405.1130.

Under 42 U.S.C. § 405(b), a district court has jurisdiction to review a decision by the Medicare Appeals Council. See also 42 C.F.R. §§ 405.1130, 405.1136(a). Section 405(h) bars federal-question jurisdiction for such appeals at any point in the review process. The only statutory...

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