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MEDICARE BENEFICIARIES' DEFENSE FUND v. EMPIRE BLU

August 22, 1996

MEDICARE BENEFICIARIES' DEFENSE FUND, and RENEE ZERNAY, ALBERT KLASS on behalf of HILDA KLASS, and GERTRUDE CONSTANTINE, Plaintiffs, against EMPIRE BLUE CROSS BLUE SHIELD, Defendant.


The opinion of the court was delivered by: TRAGER

 TRAGER, District Judge:

 Plaintiffs are an advocacy organization for Medicare recipients and three elderly persons who are or were at the pertinent time enrolled in group health insurance provided by defendant Empire Blue Cross and Blue Shield as the result of their own or their spouses' employment while they (or their spouse) were working for an employer with twenty or more employees. The individual plaintiffs, Renee Zernay, *fn1" Albert Klass (on behalf of his deceased wife Hilda), and Gertrude Constantine, are proposed representatives of a class consisting of:

 
All Medicare eligible individuals who incurred or will incur medical expenses while working, or at a time their spouses were working, in groups covered by the Medicare Secondary Payer Program:
 
(b) who on or after March 2, 1989 were denied insurance reimbursement by Empire, or who received less reimbursement than the amounts provided under the groups' primary employer group health insurance plan, based on the fact that they were eligible for Medicare at the time the medical expenses were incurred, and
 
(c) who have either paid for or still owe their health care providers for the unreimbursed amounts described above. *fn2"

 Plaintiffs assert that some of their claims for benefits were denied by Empire, under both their private Medigap insurance and Medicare, so that they were either forced to pay the costs of their health care themselves or their provider has remained unpaid. Empire has filed third-party complaints against the Klass' former employer, The Jewish Press, Inc., and Mrs. Constantine's former employer, Albert Constantine and Sons, Inc. ("Constantine Sons").

 Empire has replied that, while Ms. Zernay's claim was denied in error, *fn3" its denial of the Klass and Constantine claims on behalf of Medicare and their employers' group health plans was correct because The Jewish Press and Constantine Sons, respectively, had incorrectly enrolled Mrs. Klass and Mrs. Constantine in supplemental (Medigap) health plans. Empire argues that if it is liable to Mrs. Constantine and the estate of Mrs. Klass, then Constantine Sons and The Jewish Press must indemnify Empire because they misrepresented the employment status of the insureds that caused Empire's fault in violation of 42 U.S.C. § 1395y(b)(1)(A)(i) and because these employers were unjustly enriched by their misrepresentation through incurring lower costs for their group health plan as the result of the misenrollment.

 Plaintiffs seek damages from Empire's misenrollment of them in Medigap coverage in violation of 42 U.S.C. § 1935y(b)(1)(A)(i) and its consequent failure to pay or, at least, to pay fully, their health care claims pursuant to the terms of their policies, damages under ERISA, damages for "emotional distress," and lastly, treble damages under N.Y. Gen. Bus. L. § 349(h). Plaintiffs also seek a preliminary injunction "enjoining Empire from continuing to deny insurance reimbursement to the named plaintiffs, and a permanent injunction directing Empire to identify all class members, to make appropriate corrective payments to them . . ." Compl. Request for Relief P 5.

 For the reasons stated below, a revised class, specified below, is conditionally certified under Fed. R. Civ. P. 23(b)(3) and 23(c)(i).

 Background

 1. Medicare Insurance Coverage

 Under the law in effect since 1986, after an employee (or the employee's spouse) reaches the age of sixty-five and the employee retires from employment, Medicare becomes the retiree's primary payor for health care costs. However, because Medicare does not pay 100 percent of expenses, many retirees choose to purchase additional coverage which is sometimes offered by their former employer. Empire offers such insurance policies to individuals and to employers' group health plans (for retirees) to cover health care costs not covered by Medicare. These policies will be collectively referred to as "Medigap" policies. Medigap becomes the retiree's secondary payer for health care costs, meaning that it pays the amount (or a portion of the amount) not paid or reimbursed by Medicare. Under present law, Medigap may also be the secondary payor for Medicare-eligible employees of employers with fewer than twenty employees.

 When an individual continues working past sixty-five or past the date when his or her covered spouse becomes sixty-five, the Medicare Secondary Payor ("MSP"), 42 U.S.C. § 1395y(b)(1)(A), statute becomes applicable, so long as his employer employs twenty or more employees. MSP requires employers with 20 or more employees to provide active employees and their spouses sixty-five years of age or older the same health care benefits as the employer provides to active employees and spouses under sixty-five. At the same time, active employees sixty-five years of age or older are also entitled to Medicare benefits. In such a situation, Medicare becomes the secondary payor for health care costs while any employer-provided plan remains the primary payor. Although employers are not required by the MSP statute to provide any particular level of benefits under their private plans, employers may not take into account the older employees' (or their spouses') entitlement to Medicare benefits in determining the benefits to which those employees are entitled to under the employers' primary plans.

 The MSP "working aged" provisions were enacted between 1980 and 1986. Prior to the enactment of MSP, effective in 1983, Medicare was the primary health care payor for all persons over sixty-five, regardless of their employment status. In 1983, Congress adopted the first Medicare Secondary Payer (MSP) provisions applicable to employed individuals (but not their spouses) aged sixty-five through sixty-nine. In 1985 the MSP statute was extended to employees' spouses aged sixty-five through sixty-nine. In 1986 the statute was amended to remove the age-limitation from MSP for both working aged and their spouses.

 It may be a curiosity without greater significance, but all of the plaintiffs may have been unaffected by the first two modifications in the law. *fn4" That is, all were appropriately enrolled in Medigap coverage from the time they became sixty-five until the law was changed in 1986 to eliminate any age limit for MSP. In 1983, Mrs. Constantine was eight-one, Ms. Zernay seventy-five, and Mr. Klass was seventy-three, all over its age limit for Medicare secondary status. When the 1986 amendment became effective, Mrs. Constantine was eighty-three, Ms. Zernay seventy-eight, Mr. Klass seventy-six and Mrs. Klass seventy-two.

 Plaintiffs have submitted six Explanation of Benefits forms Mrs. Klass or her husband (Mrs. Klass' date of death is not clear from the papers) received from Medicare, three of which paid Medicare primary for portions of her expenses, and three of which denied coverage on grounds that her group health plan was primary. The total for the unpaid bills is $ 498.42. Pltf. Ex. B. Mrs. Constantine wrote in a May 25, 1994 letter Empire Blue Cross Blue Shield that her unpaid bills exceeded $ 2,000. Pltf. Ex. C. Plaintiff Zernay's bills exceeded $ 5,000 and were paid by Empire only after a two year period of repeated denials. Golick Aff. dated March 6, 1995 P 17.

 2. Widespread Misenrollment of the Working Aged in Empire Medigap Plans

 A 1994 audit of Empire's compliance with the MSP law performed by the Office of the Inspector General (OIG) of the United States Department of Health and Human Services found widespread misenrollment of the working aged by Empire in its Medigap plans (or, at least, erroneous processing of claims as Medicare Primary). That report indicated that between January 1, 1983 and November 20, 1989:

 Ex. A attached to Golick Aff. dated July 18, 1995 at 1-2, 4 (emphasis added).

 Empire argues that it has corrected the problem since the OIG report was issued in 1994, that it has always done a competent job of informing employers of the MSP law and that most working-aged individuals covered by the MSP law were correctly insured under primary policies. Empire also claims that it has only received complaints from two other similar situated individuals. It argues that, because of the high cost of health care, if there were other individuals similarly situated, it would have heard from them. Ventriello Aff. dated June 23, 1995, P 19. Finally, Empire argues that given Medicare's "pay and pursue" policy (of which Empire may be expected to have special knowledge, as it was the Medicare processing agent for New York in the relevant period), the situation in which named plaintiffs have been found -- being denied both Medicare and private insurance -- is very unusual.

 3. Empire's Notifications to Employers About MSP Requirements

 From the materials submitted by Empire showing the directions it provided to employers with regard to MSP enrollment, it seems that only in August 1994, following the OIG audit, did Empire require certification by the employer that all enrollees were correctly enrolled in either Medigap or Medicare Primary coverage. Def. Ex. E, attached to Ventriello Aff. dated March 28, 1996. Prior to that date all Empire's efforts, were directed at initial enrollment considerations, with no directions regarding correction of incorrect enrollment. Some of the early notices are couched in language suggesting that the working aged may "elect" Medicare, with only an off-hand observation that such an election would mean that the employee would have to for employer's Medigap coverage as a result. See Def. Ex. A

 a. Empire's 1983 Notification to Employers

 In 1983, Empire wrote employers about MSP provisions: "Employees, age 65 through 69, must be offered in writing the opportunity to elect Medicare or your current group health insurance as primary coverage." Although seeming to stress the "opportunity to elect Medicare," it noted parenthetically, "Although the statute is silent, the new regulations prohibit employers from offering employees affected . . . any Medicare supplementary coverage." It also noted:

 
While 65 to 69 year olds are higher than average users of health care, their subscription rates will not be higher than rates for your other employees, individual or family as the case may be. The impact of adding older employees will, however, affect rates for all community-rated group coverage in future years.

 Def. Ex A.

 b. Empire's 1985 Notification to Employers

 The 1985 amendment required that no Medigap (secondary) coverage be offered to spouses of employees aged 65-69 and that the same coverage be offered to employees' spouses aged 65-69 as to spouses under 65. Empire described this change in a January 23, 1985 letter to employers as follows:

 
Spouses (ages 65-69) of active employees may now elect group health plan coverage as primary to Medicare even if the active employee has not yet reached age 65.
 
Previously, the law required employers subject to TEFRA [Tax Equity and Fiscal Responsibility Act -- the measure in which the first MSP provisions were enacted] to make available to active employees age 65-69 and their spouses the same group health plan coverage which was provided for employees under 65. This change in the law permits spouses ages 65-69 to elect group plan coverage before the active employee reaches age 65 or after age 70.

 Def. Ex. B, emphasis in the original.

 The directions to employers continued:

 
If your group is affected by the amended TEFRA regulations and you have active employees with spouses age 65 through 69 who select your group health plan benefits as primary coverage, the enclosed application card must be completed and returned with your next remittance. . . .
 
Upon receiving the names of all affected spouses who elect your group coverage as primary, we will advise you if a premium is necessary for this 65 through 69 year old rider. Whether or not a premium increase is necessary, the impact of adding older employees will be ...

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