The Relationship between Medicare and A Vessel Owner's Duty to Provide Cure: A New Medicare Scam?

This paper will discuss a vessel owner's duty to provide cure to a seaman who becomes ill or injured while "in service to the ship" and its relationship to Medicare. Two recent cases are discussed which introduce a method for the vessel owner to shift the duty to pay for cure from itself to the United States government.

1. The Duty to Provide Cure

   Maintenance and cure is a contractual form of compensation given by general maritime law to a seaman who becomes ill while in service to his vessel. The shipowner's obligation is deep-rooted in maritime law and is an incident or implied term of a contract for maritime employment.⁽¹⁾

2. Cure is a Contractual Obligation

   The obligation of the vessel owner to provide for the maintenance and cure of seamen becoming ill or injured during the period of their service is an implied contractual obligation imposed by general maritime law as one annex to the employment.⁽²⁾

3. Who is Entitled to Cure

   All who are members of the ship's company are entitled to maintenance and cure when ill or injured in the vessel's service and without culpable misconduct on their part. A master, although not coming within the many protective wage statutes covering seamen, is regarded as a seaman for purposes of the Jones Act and is also entitled to maintenance and cure.⁽³⁾ Any member of the crew, including the Captain of a vessel, is entitled to maintenance and cure and therefore entitled to have the vessel owner pay for all reasonable and necessary medical expense.

4. "In the Service of the Ship"

   The phrase "in the service of the ship" has had a liberal interpretation throughout history. The Aguilar⁽⁴⁾ decision expanded and elasticized the meaning and extent of the phrase "in the service of the ship." At the present time, it encompasses virtually all of the seaman's activities from the time he first boards the vessel to the time he departs from her after signing off, and perhaps, for a reasonable time thereafter, should any illness manifest itself traceable to his activities while in the ship's service.⁽⁵⁾

5. Medicare Defined

   Medicare is a Federal Act (Health insurance for the Aged Act) that provides hospitalization and medical insurance for aged and disabled persons under the Social Security Act.⁽⁶⁾

6. How a Seaman Becomes Eligible For Medicare

   There are two situations in which a Jones Act seaman may be eligible for Medicare benefits. First, if a seaman is sixty-five years or older during the pendency of a cure claim, he is eligible for Medicare benefits. This situation is explained more fully in the discussion of Toulson v. Ampro Fisheries, Inc.⁽⁷⁾ in Section III(B) of this paper. Second, a Jones Act seaman may be eligible for Medicare benefits if, during the pendency of a cure claim, the seaman applies for and is determined eligible for social security disability. This situation is explained in greater detail in the discussion of Moran Towing and Transportation Co. v. Lombas⁽⁸⁾ which is found in Section III(A) of this paper.

1. A History Lesson

   From 1798 until 1981, the federal government provided free medical care to seamen who became ill or injured while in service to the vessel and were subsequently treated in hospitals and clinics operated in recent times by the Public Health Service. During this period of time, admiralty courts routinely took judicial notice of the free medical care afforded to seamen and denied awards against shipowners for medical services available at the government's expense.⁽⁹⁾

   From 1798 until 1907, marine hospitals were funded by a tonnage tax assessed against vessel owners. From 1907 until 1981, the funding for marine hospitals was financed by general revenues.⁽¹⁰⁾ In 1981, Congress abolished the Public Health Service hospitals.⁽¹¹⁾

2. Closing of the Public Health Hospitals

   In 1981, Congress enacted the Omnibus Budget Reconciliation Act.⁽¹²⁾ The Budget Act, as its name implies, was a comprehensive appropriations bill that adjusted the eligibility requirements and amounts budgeted for a large number of federal programs. Among its other provisions, the Budget Act ordered the closure and transfer to non-federal control of the public health hospitals and clinics. Section 986 of the Act terminated the right of out-patient seamen to obtain free medical care in the facilities after October 1, 1981, while Section 988 allowed continued free care for a maximum of one additional year for in-patient seamen hospitalized prior to October 1.⁽¹³⁾

3. Seamen Challenge the Omnibus Reconciliation Act of 1981

   In Jones v. Reagan, the Plaintiffs, a class of merchant seamen who had been declared permanently not fit for duty because of physical ailments or injuries, challenged sections 1986 and 1988 of the Omnibus Budget Reconciliation Act of 1981, which terminated a seaman's right to free medical care in government facilities.⁽¹⁴⁾ The seamen contended that the termination of care at public health service hospitals violated equal protection, due process, the separation of powers, contract law and equity. The Court struck down all of their claims except for their equitable argument which the Court stated was not ripe.⁽¹⁵⁾ The Budget Reconciliation Act of 1981 required that seamen seek private medical care and look to their employers for payment under the vessel owner's duty to provide cure. This system of private health care paid for by the vessel owner rocked along without incident until 1994.

Ironically, in this era of personal responsibility and efforts to cut back Medicare costs, an inventive new way of avoiding personal responsibility and shifting the responsibility for cure to the American taxpayer has emerged. Two recent cases reveal a unique way to shift the costs of cure from the vessel owner to the taxpayers of the United States. In Moran Towing and Transportation Co. v. Lombas⁽¹⁶⁾ and Toulson v. Ampro Fisheries, Inc.,⁽¹⁷⁾ Federal Courts allowed vessel owners to shift the duty to provide cure to the American taxpayer.

1. Moran Towing and Transportation Co. v. Lombas

   In Moran Towing, Moran, the vessel owner, filed a Declaratory Judgment action in the Southern District of New York, asking the Court to determine whether a shipowner has a cure obligation when Medicare is available to the seaman.⁽¹⁸⁾ Moran paid cure to Lombas for a period of time. At some point in time (not stated in the Court's opinion), Lombas applied for and started receiving social security disability benefits which made him eligible for Medicare. At some point before Lombas commenced litigation, a surgeon recommended that Lombas undergo additional cervical surgery. Lombas then contacted Moran, insisting that it cover the expense of the surgery. Moran took the position that Lombas should select a competent surgeon who would accept the Medicare allowance and that, unless no such surgeon was available, its "cure" obligation was satisfied by the availability of Medicare.⁽¹⁹⁾ The district court ruled on cross-motions for summary judgment in Moran's favor, reasoning that "Medicare is the functional equivalent of the previously available free treatment at public health services hospitals."⁽²⁰⁾ The district court's conclusion was based on two assumptions: First, that Lombas qualified for Medicare; and second, that there were available within reasonable distance of his residence surgeons competent to perform the indicated procedures and willing to accept the Medicare allowance in full payment of their fees.⁽²¹⁾

   Lombas further argued that the collateral source rule should prevent Moran from claiming the benefit of Medicare since the vessel owner had neither directly nor indirectly funded Medicare. On appeal, the Second Circuit rejected this argument, stating that the collateral source rule is a tort based doctrine which prevents the tortfeasor from reducing its liability by the amount of payments which the injured party receives from insurance unless the insurance was procured by the tortfeasor. The Second Circuit ruled that the collateral source rule did not apply because the doctrine of cure is "unrelated to the negligence of the employer."⁽²²⁾

   Finally, Lombas argued that a Medicare beneficiary is responsible for a 20% co-payment for the total medical expense incurred, and that therefore, he should be reimbursed for the 20% of his co-payment. The Second Circuit did not reach this issue because the record was not complete as to whether Lombas had actually been required to pay the 20% co-payment.

2. Toulson v. Ampro Fisheries, Inc.

   In Toulson, the Plaintiff was a sixty-seven year old seaman who qualified for Medicare benefits due to his age. The injured seaman brought a Jones Act/general maritime claim for his injuries, and as part of his case, he made a claim for maintenance and cure for injuries sustained while in service to the ship. The vessel owner moved for summary judgment (as the vessel owner had in Moran Towing), stating that the availability of Medicare satisfied the vessel owner's obligation to provide cure.⁽²³⁾ The district court, citing Moran Towing, ruled that if a seaman is eligible for free medical care through Medicare, the vessel owner is thereby relieved of its duty to provide cure to its seaman.

   The decision does not discuss whether or not Toulson had to pay a 20% co-payment. The court stated that ". . . the record wholly fails to reveal that Plaintiff has incurred any 'out-of-pocket' expenses whatsoever."⁽²⁴⁾ I think it is safe to assume from this language that Toulson did not incur a co-payment and therefore did not make a claim for out-of-pocket expenses which were not covered by Medicare.

Moran Towing and Toulson make it clear that some Federal Courts are more than willing to shift the responsibility for cure of an ill or injured seaman from the responsible party, the vessel owner, to the American taxpayer. This may become the Medicare scam of the 1990's.

1. Attorney for the Vessel Owner

   The attorney who represents the vessel owner presumably is under an obligation to save his client whatever money he can. Until this loop-hole in the law is closed, the vessel owner's attorney should probably advise his client to investigate whether an ill or injured seaman is eligible for Medicare benefits and, if so, to insist that the injured seaman seek his cure under Medicare.

2. The Seaman's Attorney

   The injured seaman's attorney must determine whether the injured seaman is eligible for Medicare. If the injured seaman is eligible for Medicare because of his age, the seaman's attorney should investigate whether there is a qualified physician within a reasonable distance from the seaman's home and if yes, whether the physician is willing to accept the Medicare allowance in full payment of his charges. If there is no qualified physician within a reasonable distance or the physician will not accept Medicare in full payment of his charges, the seaman's attorney should insist that the vessel owner provide cure.

   If the injured seaman is under the age of sixty-five and wants to be able to choose to receive his cure in the private health care system, the injured seaman's attorney should advise him not to apply for social security disability -- at least until he has reached maximum medical cure. If the seaman has already become entitled to receive social security disability, then the seaman's attorney should once again determine if there is a qualified physician within a reasonable proximity to the seaman's home and whether the physician will accept the Medicare fee schedule in full payment of his services. If there is no such physician, the seaman should demand cure in the private health care system at the vessel owner's expense.

   Forcing the vessel owner to live up to its responsibility under the general maritime law to provide cure will accomplish three things: First, make the responsible party pay for the cure; second, allow the seaman to receive the best and most widely available health care; and third, eliminate any possibility that the injured seaman might have to reimburse Medicare out of funds received in settlement or judgment of his Jones Act/general maritime claim.