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Cross v. Shalala

decided: July 13, 1993.


Appeal from the United States District Court for the Northern District of Texas. D.C. DOCKET NUMBER 3:91-CV-2760-H. JUDGE Barefoot Sanders

Before Jolly and Davis, Circuit Judges, and Bramlette*fn1, District Judge.

Author: Davis

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.


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 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 only 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 ...

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