DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Hawaii Department of Human Services
Docket No. 88-59
Decision No. 983
Date: September 1, 1988
DECISION
The Hawaii Department of Human Services appealed the disallowance by
the
Health Care Financing Administration (HCFA) of $2949 in federal
funding
claimed under Title XIX (Medicaid) of the Social Security Act
(Act).
HCFA determined that the State had claimed Medicaid reimbursement
for
medical services for an individual in contravention of section
1903(o)
of the Social Security Act. Section 1903(o) prohibits federal
funding
in expenditures on behalf of an individual eligible for assistance
under
a state Medicaid plan
to the extent that a private insurer . . . would
have been
obligated to provide such assistance but
for a provision of its
insurance contract which has
the effect of limiting or excluding
such obligation
because the individual is eligible for or is
provided medical assistance under the plan.
For the reasons discussed below, we find that the Agency's application
of
section 1903(o) is fully supported by the statutory language and we
uphold
the disallowance.
Background
On March 20, 1985, the United States General Accounting Office
(GAO)
issued a report to HCFA's Administrator on GAO's review of
Hawaii's
Medicaid operations. (Agency Ex. C) The report had as
one of its
conclusions that
Hawaii's no-fault insurance law excludes coverage of
no-fault
medical benefits for Medicaid recipients
who receive the insurance
without charge. As a
consequence, Medicaid pays the medical costs
for a
Medicaid recipient who was injured in an automobile
covered
by insurance obtained without charge to the
recipient although this
insurance's no-fault
benefits would cover the medical costs for
non-Medicaid passengers or a non-Medicaid driver in the
same
vehicle. Under state law, therefore,
Medicaid is treated as the
primary payer.
Section 1903(o), in our opinion, precludes federal
participation in Medicaid payments made because of this
exclusion.
(pp. 2-3)
Acting on the GAO report, the Agency undertook a follow-up review
to
evaluate the impact of Hawaii's no-fault insurance law on the
Medicaid
program. (Agency Ex. D) The review involved analysis of
Medicaid
claims for the period July 1, 1981 through June 30, 1984 for
medical
treatment associated with motor vehicle accidents. The review
focused
on 54 case file records in each of which total medical costs
claimed
exceeded $10,000 per accident. The Agency found one automobile
accident
in which Hawaii had made a claim under Medicaid for medical
assistance
payments of $5897 (federal share $2949) in violation of section
1903(o).
The Agency then issued a disallowance for that case, which is now
the
subject of this appeal.
Hawaii statutes provide that a no-fault policy issued at no cost to
a
public assistance recipient for accidental harm caused by a
motor
vehicle accident shall not include benefits covering medical
expenses,
therapy and rehabilitation expenses, and expenses from earnings
loss
(benefits which in any event would be subject to an aggregate limit
of
$15,000 per person). Hawaii Revised Statutes (H.R.S.),
section
294-2(10). Similarly, State insurance regulations specifically
provide
that where a no-fault policy is issued to a public assistance
recipient,
the policy shall not include any medical coverage. See Rules
of the
Insurance Division, State of Hawaii, ch. 23, sections 16-23-5
and
16-23-73 (State Ex. B).
The State's uniform or model insurance agreement providing basic
benefits
to public assistance recipients at no cost implements the
exclusion for
medical benefits. See the exhibit attached to Agency
letter dated June
17, 1988. The insurance agreement provides that the
insurance company
will pay no-fault benefits on account of accidental
harm arising out of the
operation of a motor vehicle. The agreement
provides that no-fault
benefits consist of the following: medical
expenses, rehabilitation
expenses, work loss, substitute service
expenses, funeral expenses,
survivors' loss, attorney's fees and costs,
and other appropriate and
reasonable expenses. The agreement
subsequently provides, however, that
a no-fault policy issued to
certified public assistance recipients at no cost
shall not include
benefits consisting of medical expenses, rehabilitation
expenses and
work loss for any person receiving public assistance
benefits.
The facts behind the particular Medicaid claim at issue here are
as
follows. The Medicaid recipient (Ms. B.) was very seriously
injured
while an occupant of a vehicle that was owned by Mrs. K., who was
also a
public assistance recipient and who was covered by a free
no-fault
policy. The policy was issued by State Farm Insurance
Company. (It is
undisputed that the policy is the same as the uniform
insurance
agreement applicable to public assistance recipients that was
described
above.) If Ms. B. had not been a Medicaid recipient at the
time, the
insurer of the vehicle in which she was riding would have been
obligated
to pay no-fault medical benefits to her regardless of who was at
fault
in causing the accident. See, for example, the terms of the
applicable
uniform agreement quoted above and H.R.S. section
294-4(1)(A);
294-2(10)(A); 294-3. The no-fault "medical" benefits that
would have
been available included $15,000 in medical, rehabilitation and
wage loss
benefits. Nevertheless, since Ms. B. was a Medicaid
recipient, she was
categorically excluded by a provision of Mrs. K.'s
insurance contract
from receiving the medical benefits. While Ms. B.
was able to make
liability claims against Mrs. K.'s policy as well as against
the other
driver, $14,000 in medical expenses resulting from the accident
were
paid for by the Medicaid program. Although the State was
subsequently
able to recoup some of what it had initially paid under the
Medicaid
program by virtue of a lien it asserted on any recovery for
liability
damages Ms. B. might receive in a lawsuit against the driver of
the
other car involved in the accident, it settled its lien claim
by
receiving only 60% of the approximately $14,000 in claims it had
paid
under the Medicaid program. The State was left having to
pay
approximately $6000 for medical expenses, and the precise Federal
share
of that payment, the amount of this disallowance, was $2949. The
State
did not dispute that without the exclusion in Mrs. K.'s policy,
the
$6000 in medical expenses covered by Medicaid would have been covered
by
the insurance policy.
Analysis
The statutory provision at issue, section 1903(o), which was quoted at
the
beginning of this decision, precludes any Federal payment to a state
for
program expenditures for medical assistance under the state plan
where 1) a
private insurer (as defined by the Secretary by regulation),
2) would have
been obligated to provide such medical assistance, 3) but
for a provision of
its insurance contract which has the effect of
excluding such obligation
because the individual is eligible for
Medicaid.
We conclude that all elements of the statutory provision are met in
the
instant case. Under the State's program, a public welfare recipient
can
select any insurer participating in the State's no-fault program he
or
she wishes. The driver of the car, Mrs. K., who was a public
assistance
recipient, had a free no-fault policy issued by State Farm
Insurance.
(State Supp. Br., p. 1) While a joint underwriting plan
involving all
participating insurance companies funded the policies for
public
assistance recipients (rather than the recipients themselves),
the
policy in question here was certainly issued and administered by
a
private insurer within the regulatory definition at 42
C.F.R.
433.136(1). The regulations provide that a "private insurer"
means:
"[a]ny commercial insurance company offering health or
casualty
insurance to individuals . . . ." Thus, we find that the first
element
of the statute was met.
We also find that the policy would have covered the medical services
in
question but for a provision of the policy that excluded
coverage
because the individual making the claim was a Medicaid
recipient. As a
passenger in the car that was involved in an accident,
Ms. B. clearly
would have been entitled to claim medical, rehabilitation and
wage loss
expenses up to $15,000 under Mrs. K.'s policy. However, that
policy
contained a specific clause that excluded those expenses for any
person
receiving public assistance benefits (which would include
Medicaid
benefits). Thus, we find that the Agency's application of the
statutory
provision at issue here was based on the plain meaning of the
provision.
Moreover, the fact that Ms. B. was able to obtain liability
compensation
from the two drivers involved in the accident in no way detracts
from
the applicability of section 1903(o) in this instance. As the
Agency
argued, section 1903(o) prohibits any provision in insurance
contracts
which has the effect of limiting coverage for medical benefits
to
recipients without regard to other avenues of compensation that may
be
open to an injured party. (Agency Supp. Br., p. 3) Here, the
State is
claiming under the Medicaid program for medical services which
would
have been covered by Mrs. K.'s contract. As long as the
Medicaid
program would be paying for Ms. B.'s medical services that could
have
been covered under Mrs. K.'s insurance contract but for Ms.
B.'s
Medicaid status, Ms. B's liability claims against the drivers
are
irrelevant.
It is also noteworthy that section 1903(o) is not limited to
situations
where the recipient's own policy contains the exclusionary
rule. It
applies to any instance in which an insurer would have been
obligated to
compensate a Medicaid recipient, regardless of whether the
insurer has a
contractual relationship with the individual or not.
While not disputing in its supplemental brief that the disallowance
is
supported by the literal language of section 1903(o), the
State
questioned whether it is supported by the legislative purpose
behind
section 1903(o). One of the primary arguments of the State is
that the
legislative history of section 1903(o) suggests that the
provision
applies only to liability coverage exclusions. The relevant
legislative
history, which is contained in S. Rep. No. 453, 95th Cong., 1st
Sess.,
p. 30 (1977), states:
Under current law, States or local agencies
administering medical
assistance plans are required
to take all reasonable measures to
ensure that third
parties legally liable to pay for any medical
care
rendered to medicaid recipients meet their legal
obligations.
However, some private insurance
policies contain a provision that
limits the
insurance companies' liability to the amount not
covered
by medicaid. In some cases, State
insurance commissioners have not
taken action to
stop this practice. When it occurs, the
medicaid
program is forced to assume the costs
despite the existing
subrogation requirement.
The bill would provide an incentive to States to
stop this practice
by stopping all Federal matching
payments for expenditures made
under the plan for
care or services provided to the extent the
private
insurer (as defined by the Secretary) would have
been
obligated to pay except for a provision of its
contract which has
the effect of limiting or
excluding such obligation because the
individual is
receiving assistance under medicaid.
We can find nothing from this passage that suggests that section
1903(o)
applies only to "liability" insurance. As the Agency noted, the
Report
refers to "insurance policies," and "insurers," generally without
any
indication that the statute was meant to apply only to a particular
type
of insurance coverage. Neither the statute nor the history makes
any
reference to any particular type of coverage. Moreover, the
statute
provides that the Secretary is to define what is meant by
"private
insurer." The Secretary has promulgated regulations including
"[a]ny
commercial insurance company offering health or casualty insurance
to
individuals or groups . . . ." 42 C.F.R. 433.136(1). This
definition
is not limited to traditional "liability" insurance and
encompasses
Hawaii's no-fault insurance. Finally, when the report
refers to
instances where the Medicaid program had been forced to
assume
responsibility for medical costs despite the existing
subrogation
requirement, it simply refers to situations such as those raised
here
where a policy exclusion eliminates the obligation of the
insurance
company to pay for medical costs and thus effectively
bypasses
subrogation requirements which would require the company to
reimburse
the Medicaid program if in fact the company had the legal
obligation to
pay for medical costs claimed under the program. See
Subpart D of 42
C.F.R. Part 433 concerning third party liability in the
Medicaid
program.
Even though the State conceded that section 1903(o) was enacted in
order
to prevent insurance companies from making Medicaid the "primary
payor"
for medical services that would otherwise be covered by insurance,
the
State's no-fault program tends to institutionalize this very
effect. As
the Agency argued, the provision of no-cost insurance
exclusive of
medical benefits in effect enables the insurance industry in
Hawaii to
disclaim responsibility for medical costs incurred by injured
Medicaid
recipients (which would be covered for all other persons)
thereby
substituting Medicaid as the primary medical insurer. According
to the
Agency,
[t]he only difference between this system and the
practice of
individual insurers attempting to
incorporate Medicaid exclusions
directly into
individual insurance contracts is that in Hawaii
this
strategy actually has been endorsed by the
State. (Agency Supp.
Br., p.
5)
The underlying thread that runs throughout the State's arguments is
that
the Agency's position is unfair to the State's insurance program and
to
its insurance industry. The State argued that Hawaii would face
a
"Hobson's choice" if the Agency's interpretation is sustained:
"either
abolish its automobile insurance program for [public
assistance]
recipients or force the insurance carriers who underwrite these
policies
to bear the medical costs of persons whose care would normally
be
covered by Medicaid." State's Br., pp. 1-2. The fairness of
the
Agency's position as it applies to particular state insurance
programs
and the effect of that position on bringing about changes in a
state's
program are policy issues that are outside the scope of the
Board's
review. Thus, this argument is not a basis for reversing
the
disallowance. Nevertheless, a number of the assumptions
underlying
Hawaii's argument concerning the fairness of the Agency's position
are
either unsubstantiated or untrue. It begs the question to say that
the
medical costs of individuals such as the individual involved in
the
accident here would "normally" be covered by Medicaid in view of
the
wide-ranging scope of the section 1903(o) prohibition on payment.
Where
medical costs would otherwise be covered by an insurance policy
(and,
indeed, here the state's program requires that specified
medical
benefits be provided in all of its standard policies except
those
applicable to public assistance recipients), those costs can not
be
viewed as "normally" Medicaid costs in view of the section
1903(o)
prohibition. That prohibition effectively keeps funding for
such
medical costs in the hands of the insurance industry or ultimately
in
the hands of the persons paying the premiums for the policies.
Moreover, in cases where the Medicaid recipient pays for his or her
own
policy (as apparently takes place in all states other than Hawaii),
any
medical benefits provided by the policy, although covered by
the
insurance company under the policy, would ultimately be funded by
the
recipient's own premiums. This result, using the State's line
of
reasoning, might also be viewed as inequitable since Medicaid
recipients
would have to fund their own medical costs. Nevertheless,
the State did
not argue that this result is not sanctioned by the statute,
and,
indeed, there is no indication in section 1903(o) or its
legislative
history that the provision does not apply to policies issued to
Medicaid
recipients who pay their own premiums.
Finally, as the Agency pointed out, even if the State abolished
its
program for public assistance recipients, the State's decision would
not
necessarily have an adverse monetary impact on the Medicaid
program,
since there is no indication in the record that public
assistance
recipients, if faced with the substantial penalties that apply
to
uninsured motorists in Hawaii, would not get their own insurance
policy
in the absence of no-cost policies from the State. Thus,
section
1903(o) would still operate to prevent the Medicaid program from
paying
for medical services resulting from automobile accidents.
Conclusion
For the foregoing reasons, we uphold the disallowance in full.
________________________________ Cecilia Sparks Ford
________________________________ Alexander G. Teitz
________________________________ Donald F. Garrett
Presiding
Board