Blue Cross and Blue Shield of Texas, Inc. v. Shalala ( 1993 )

United States Court of Appeals,
Fifth Circuit.
No. 92-1534.
BLUE CROSS AND BLUE SHIELD OF TEXAS, INC., Plaintiff-Appellee,
v.
Donna SHALALA, Secretary of Health and Human Services, Defendant-Appellant.
July 13, 1993.
Appeal from the United States District Court for the Northern District of Texas.
Before JOLLY and DAVIS, Circuit Judges, and BRAMLETTE1, District Judge.
W. EUGENE DAVIS, Circuit Judge:
This declaratory judgement action raises a single issue of statutory interpretation: whether
the 1989 amendment to the Medicare as Secondary Payer (MSP) statute, codified at 42 U.S.C. §
1395y(b)(1)(C), requires group health care plans to offer continuation coverage to individuals who
are eligible for Medicare because they have End Stage Renal Disease (ESRD). We conclude that it
does not, and therefore affirm the district court's ruling.
I.
Blue Cross and Blue Shield of Texas, Inc. (Blue Cross) administers group health insurance
plans for employers located in Texas. The Department of Health and Human Services (HHS)
oversees Medicare, an extensive federally funded program that provides health insurance for persons
who are aged, disabled, or afflicted with ESRD. See 42 U.S.C. § 1395 et seq.
The dispute between Blue Cross and HHS involves two statutory schemes. The first scheme,
generally known as COBRA, is part of the Employee Retirement Income Security Act of 1974
(ERISA). COBRA requires that certain group health plans, under certain conditions, offer coverage
to plan participants for a specific period after coverage would otherwise have terminated under the
terms of the plan. See 29 U.S.C. § 1161 et seq. This coverage serves as a bridge for a period of time
until the group plan participant can find replacement coverage. Brock v. Primedica, Inc., 904 F.2d
1
District Judge of the Southern District of Mississippi, sitting by designation.
295, 297 (5th Cir.1990). Rather, COBRA does not invariably require the group plan to provide
bridge coverage following the participant's termination from the plan. COBRA o nly requires the
group plan to continue coverage to participants who lose coverage because of "qualifying events,"
such as termination of employment or a reduction in employment hours. 29 U.S.C. § 1161. A group
plan participant is entitled to continued coverage under COBRA only for a limited time, generally 18
or 36 months. 29 U.S.C. § 1162(2)(A). However, continuation coverage can be cut short by the
occurrence of certain events, such as an individual becoming entitled to Medicare. 29 U.S.C. §
1162(2)(D). This provision is particularly important to the resolution of the lawsuit, and provides
that COBRA coverage must not end earlier than:
The date on which the qualified beneficiary first becomes, after the date of the election—
******
(ii) in the case of a qualified beneficiary other than a qualified beneficiary described in section
1167(3)(C) of this title [a retiree, or its dependent , of a bankrupt company], entitled to
[Medicare] benefits.
29 U.S.C. § 1162(2)(D)(ii).
The second statutory scheme involved in this lawsuit is Medicare. Although Medicare
primarily benefits the aged and the disabled, ESRD patients become entitled to Medicare benefits
without regard to their age or disability status. 42 U.S.C. § 426-1(a)(2). Part A of Medicare
provides insurance for inpatient institutional services, home-health services and other post-hospital
services, 42 U.S.C. §§ 1395c-1395i. Part B covers physician, outpatient hospital and various other
health services, 42 U.S.C. §§ 1395j-1395w. Both Part A and Part B contain deductible and
coinsurance provisions. Id. As a result, Medicare does not pay the entire cost of health care that is
provided to beneficiaries.
This lawsuit focuses on the meaning of a provision of Medicare known as the MSP statute,
which is found at 42 U.S.C. § 1395y(b). The MSP statute deals with situations in which a Medicare
beneficiary has an alternate source of payments for health care services, such as a group health plan.
Section 1395y(b)(1) of the MSP statute generally requires that group health plans "may not take into
account" the fact that beneficiaries are also entitled to Medicare benefits and prohibits the plans from
differentiating between the benefits they provide to those beneficiaries and other participants covered
under the plan. Congress designed the MSP statute to prevent group health plans from providing that
the plan will be the secondary payer if Medicare coverage exists. See United States v. Blue Cross
and Blue Shield of Michigan, 726 F. Supp. 1517, 1519 (E.D.Mich.1989).
HHS believes that § 1395y(b)(1)(C) of the MSP statute modifies § 1162(2)(D)(ii) of COBRA.
Under HHS's interpretation, COBRA coverage must continue for beneficiaries with ESRD even
though the beneficiaries are entitled to Medicare payments. Blue Cross, on the other hand, argues
that individuals with ESRD, like other COBRA participants, lose coverage when they become entitled
to Medicare. In Blue Cross's view, the MSP statute does nothing to modify the plain language of §
1162(2)(D)(ii).
Blue Cross filed this declaratory judgment action, asking that the district court declare that
COBRA coverage terminates when a person with ESRD becomes entitled to Medicare benefits. The
district court granted Blue Cross's motion for summary judgment, denied HHS's motion to dismiss
based on lack of subject matter jurisdiction, and denied HHS's motion for summary judgment.
In so ruling, the district court concluded, first, that HHS's interpretation stretches the MSP
statute "beyond its natural purpose," which is to "provide for the order of payments of benefits when
dual coverage exists under Medicare and some other insurance." According to the district court, the
MSP statute presupposes dual coverage, but does not "extend coverage or require coverage that does
not exist."
Second, observed the court, HHS's position makes sense only if Congress intended for the
MSP statute to amend COBRA; yet the evidence of Congress's intent points in the opposite
direction. Congress has shown that it knows how to expressly provide an exception to the mandate
that COBRA coverage t erminate when a person becomes entitled to Medicare benefits. Section
1162(2)(D)(ii) of COBRA provides that entitlement to Medicare benefits does not terminate COBRA
coverage for a narrowly defined class of retirees of bankrupt companies. Given this express
exception, which makes no reference to ESRD, the court refused to find the implied exception urged
by HHS.
In its third reason, the court explained that HHS's interpretation, applied to the MSP
provisions relating to the working aged, working disabled, and ESRD patients, would render §
1162(2)(D)(ii) of COBRA largely meaningless. Finally, the court said that HHS's position conflicted
with the MSP statute's nondiscrimination policies. The MSP statute prohibits a group plan from
differentiating in the benefits it provides to individuals with ESRD and other individuals covered by
the plan. However HHS's interpretation would require discrimination in favor of those with ESRD;
those with ESRD would receive continuation benefits under COBRA despite their entitlement to
Medicare, while plan participants without the disease who were entitled to Medicare would not. This
appeal followed.
II.
Our standard of review is familiar. "When a court reviews an agency's construction of the
statute which it administers," it must first ask "whether Congress has directly spoken to the precise
question at issue." Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837, 842, 104 S. Ct. 2778,
2781, 81 L. Ed. 2d 694 (1984). (Chevron) "If a court, employing traditional tools of statutory
construction, ascertains that Congress had an intention on the precise question at issue, that intention
is the law and must be given effect." Chevron, 467 U.S. at 842-43 n. 9, 104 S. Ct. at 2781-82 n. 9.
On the other hand, "if the statute is silent or ambiguous with respect to the specific issue," the court
asks whether the agency's answer is based on a "permissible construction," or "reasonable
interpretation," of the statute. Chevron, 467 U.S. at 843-44, 104 S.Ct. at 2782-83.
HHS first argues that the district court erred in not deferring to HHS's "reasonable"
interpretation of the 1989 amendment to the MSP statute. Before the 1989 amendment, §
1395y(b)(2)(A) provided that for "an individual who is entitled to [Medicare] benefits solely by
reason of [having ESRD], payment under [Medicare] may not be made" with respect to an item or
service for which payment was made or would be made under a group health plan. The amended
version, found in § 1395y(b)(1)(C) provides that a group health plan "may not take into account that
an individual is entitled to [Medicare] benefits solely by reason of [having ESRD]" for a period of 18
months. Moreover, a group health provider "may not differentiate in the benefits it provides between
individuals having end stage renal disease and other individuals covered by such plan on the basis of
the existence of end stage renal disease...."2
According to HHS, the earlier version of the MSP statute merely took as a given whatever
coverage the plan provided. HHS believes that the new language is "more prohibitory" and does
more than "passively take as a given whatever coverage is afforded under the terms of the private
plan." In addition, HHS asserts that its interpretation furthers the MSP statute's underlying purpose
because it "shifts primary responsibility for affected ESRD beneficiaries from Medicare to the group
health plan during the 18-month period."
We conclude that § 1395y(b)(1)(C)'s context and legislative history make it clear that
Congress did not intend for that section to create or extend coverage. Congress's intention is the law
and must be followed.3 The crucial phrase in § 1395y(b)(1)(C) is "may not take into account." For
the reasons below, we conclude that the "take into account" language does not apply to a health
plan's decision to terminate continuation coverage. Rather, it applies to a plan's payments of benefits
to an individual already covered by the plan.
To begin with, the MSP statute, since its 1980 enactment, has only dealt with benefits. Before
2
As amended in 1989, 42 U.S.C. § 1395y(b)(1)(C) provides: A group health plan
"(i) may not take into account that an individual is entitled to benefits under this
subchapter solely by reason of section 426-1 of this title during the 18-month
period which begins with the first month in which the individual becomes entitled
to benefits under part A under the provisions of section 426-1 of this title, or, if
earlier, the first month in which the individual would have been entitled to benefits
under such part under the provisions of section 426-1 of this title if the individual
had filed an application for such benefits.;
and (ii) may not differentiate in the benefits it provides between individuals having
end stage renal disease and other individuals covered by such plan on the basis of
the existence of end stage renal disease, the need for renal dialysis, or in any other
manner;
except that clause (ii) shall not prohibit a plan from taking into account that an individual
is entitled to benefits under this subchapter solely by reason of section 426-1 of this title
after the end of the 18 month period described in clause (i)."
3
This conclusion makes it unnecessary to consider Blue Cross's argument that the
Department's interpretation is not entitled to deference because (1) the interpretation affects
COBRA, a statutory scheme that HHS does not administer; and (2) the interpretation is not a
final product of HHS's rule-making process.
1980, if a Medicare beneficiary had an alternate source of payment, such as private insurance or an
employee group health plan, Medicare was the primary payer, and the health plan was the secondary
payer, liable only for the costs that remained after Medicare made its payments. Blue Cross and Blue
Shield Ass'n v. Sullivan, 794 F. Supp. 1166, 1168-69 (D.D.C.1992). Private insurers even wrote this
practice into their health insurance contracts. Congress enacted the MSP statute to reverse the order
of payment in cases where Medicare beneficiaries have an alternate source of payment for health care.
Blue Cross and Blue Shield of Michigan, 726 F. Supp. at 1519. Thus, the MSP statute has never
created or extended coverage; it has only dictated the order of payment when Medicare beneficiaries
already have alternate sources of payment for health care. Even HHS acknowledges that the original
version of the MSP statute did not create or extend alternate health care coverage, conceding that
it "appeared to take as a given whatever coverage the plan provided." HHS's interpretation of the
MSP statute departs significantly from the MSP statute's original purpose and application. One
would therefore expect to find equally significant support in the 1989 amendment for this
interpretation, for example a cross-reference to COBRA or use of the term "coverage."
Yet the opposite is true; the amended MSP statute continues to address only benefits, and
makes no mention of coverage. For example, the 1989 amendment's effective date provision makes
it "applicable to items and services furnished after Dec. 19, 1989." (Emphasis added.) Similarly, in
changing the provision's 12-month period to an 18-month period the section again refers only to
"items and services." Section 1395y(b)(1)(C)(ii) likewise refers only to "benefits." Finally, the
relevant House conference report describes the amendment at issue under the subheading "Uniform
enforcement and coordination of benefits." H.R.Conf.Rep. No. 386, 101st Cong., 1st Sess. 822
(1989), reprinted in 1989 U.S.C.C.A.N. 1906, 3018, 3425 (emphasis added).
Congress's demonstrated ability to clearly amend COBRA renders HHS's interpretation of the
MSP statute especially unpersuasive. Before 1986, § 1162(2)(D) of COBRA provided that a health
plan could terminate continuation coverage for any individual who had become eligible for Medicare
benefits. In 1986 Congress amended that section to exclude retirees of bankrupt companies. 42
U.S.C. § 1162(2)(D). Congress incorporated that amendment in the text of the very section it sought
to amend, § 1162(2)(D). Moreover, the statute speaks in terms of coverage. § 1162(2)(D). Finally,
the relevant House report describes the amendment under the subheading, "Continuation coverage
for retirees in cases of bankruptcies," and explains that it provides "a new period of coverage for
certain retirees." H.R.Rep. No. 727, 99th Cong., 2nd Sess. 464 (1986), reprinted in 1986
U.S.C.C.A.N. 3607, 3861. Congress knows how to modify § 1162(2)(D) t o provide for "a new
period of coverage." The fact that it did not do so in the 1989 amendment to the MSP statute is
strong evidence that it did not intend to do so.4
III.
For the reasons stated above, we conclude that 42 U.S.C. § 1395y(b)(1)(C) does not require
health plans to provide continuation coverage to individuals who become entitled to Medicare
benefits because they have ESRD. Accordingly, we affirm the district court's order granting Blue
Cross's motion for summary judgment and denying HHS's motion to dismiss and denying the
Department's motion for summary judgment.
AFFIRMED.
4
The Department correctly argues that Congress could, if it desired, use the MSP statute to
modify COBRA. Nevertheless, it has not shown that Congress intended to do so. In addition,
HHS argues that (1) its interpretation of the MSP statute does not conflict with COBRA; (2)
even if there is a conflict, HHS's interpretation of the MSP statute should take precedence over
COBRA because the 1989 amendment is the later-enacted and more specific of the two; and (3)
HHS's interpretation of the MSP statute does not conflict with the MSP statute itself. If HHS's
reading of the MSP statute had a basis in the text or history of that statute, we would need to
address these arguments. However, HHS's position has no statutory basis. So we need not
consider these secondary issues.