D.C. Circuit Holds that Individuals May Not Disclaim Legal Entitlement to Medicare to Obtain Additional Private Health Insurance Benefits

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Jason M. Brocks | Bloomberg Law Hall v. Sebelius, No. 11-5076, 2012 BL 29618 (D.C. Cir. Feb. 7, 2012) In a case whose conclusion raises issues fit for the current election-year debates over the U.S. health care system, the U.S. Court of Appeals for the District of Columbia Circuit upheld a decision of the federal district court concluding that there is no statutory avenue for Medicare-eligible individuals to disclaim their entitlement to Medicare Part A benefits. Three Medicare Part A-eligible individuals argued that the federal government should allow them to disclaim their Medicare Part A benefits so that they could obtain “enhanced coverage” to which they were allegedly not entitled from private health insurers as long as they were eligible for Medicare Part A benefits.

Entitlement to Medicare Part A Benefits Affects Private Insurance Coverage

Medicare Part A provides hospital coverage (Medicare Parts B, C, and D provide coverage for physician services, services provided to members of certain managed care plans, and prescription drugs, respectively). Pursuant to 42 U.S.C. § 426(a), Medicare Part A benefits are available to any individuals who are 65 years old and entitled to Social Security retirement benefits. Significantly, the entitlement to Social Security retirement benefits leads “automatically” to entitlement for Medicare Part A benefits. The plaintiffs claimed that they would be able to receive enhanced health insurance coverage in the form of “additional benefits” from private insurance companies if they were not entitled to Medicare Part A benefits. Specifically, the plaintiffs argued that because of their eligibility for Medicare Part A, their private insurance plans either reduced coverage without a matching reduction in premium or stopped acting as a primary payer. The plaintiffs recognized that they could legally decline Medicare Part A payments in favor of paying for the services on their own. In addition, however, they argued that there was a statutory mechanism for them to disclaim their Medicare Part A benefits, but that the Social Security Administration (SSA), through provisions in its Program Operations Manual, unlawfully prevented them from disclaiming the benefits to which they were otherwise entitled. The plaintiffs sought a declaration in some form from the federal government that they are no longer legally entitled to Medicare Part A benefits.

No Statutory Avenue for Eliminating Entitlement to Medicare Part A Benefits

As a preliminary matter, the court found that the plaintiffs made a sufficient showing in their pleadings that they suffered injury-in-fact, namely, that their health insurance coverage had been curtailed because they were legally entitled to Medicare Part A benefits. As a result, the court found that the plaintiffs had standing. The court did not find any of the plaintiffs’ four arguments in support of their request to be persuasive. First, the plaintiffs argued that the statutory text provided them with the opportunity to accept or reject Medicare Part A. The court determined that the statute permitted the plaintiffs to accept or reject the hospital benefits themselves. Second, the plaintiffs suggested that the voluntary nature of Medicare Part A meant that they should be able to fully disclaim any entitlement to benefits under the program. Rather, the court wrote, “the fact that the program is voluntary does not mean there must be a statutory avenue for plaintiffs to disclaim their legal entitlement.” The court dispensed with the plaintiffs’ third argument by affirming that the plaintiffs mistakenly characterized enrollment in Medicare Part A benefits as a prerequisite to Social Security benefits, rather than the other way around. Fourth, the plaintiffs argued that they had to affirmatively apply for Social Security benefits before becoming entitled to them, and that they also therefore needed to affirmatively apply for Medicare Part A benefits. The court concluded, however, that while the plaintiffs’ entitlement to Social Security benefits may have been voluntary, once they signed up for Social Security benefits, the plaintiffs were automatically entitled to Medicare Part A benefits without any additional affirmative activity. According to the court, the plaintiffs were statutorily permitted to decline their Medicare benefits and pay for health care services out of their own funds or through other insurance. However, the court wrote, “under the law, plaintiffs remain legally entitled to the benefits regardless of whether they accept them.” The court suggested that this was an unavoidable result of Medicare Part A benefits being an entitlement. While recognizing the plaintiffs’ “frustration with their insurance situation” and “their desire for better private insurance coverage,” the court concluded that the fact of their entitlement to Medicare Part A benefits under federal law was “insurmountable” and affirmed the judgment of the district court in favor of the government. The dissent characterized the issue in the case as whether the SSA’s regulations governing the process for withdrawing from Social Security, and Medicare Part A, was within the scope if the agency’s authority. The dissent answered that question in the negative, writing that the SSA’s regulations on the matter were ultra vires. According to the dissent, the SSA was not permitted within the scope of its authority to require the plaintiffs to forego Social Security retirement benefits as a condition of their decision to forego Medicare Part A benefits. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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