Overview of Medicare Secondary Payer Provisions (Benefit Minute)

Posted in: Benefit Minute, Employee Benefits

The Medicare Secondary Payer (MSP) requirements are a method by which the federal government shifts primary payment responsibility from Medicare to group health plans when an individual is covered by both.

It applies when a Medicare-entitled individual is covered by a group health plan by virtue of his/her own current employment status or a family member’s current employment status.  It also requires group health plans to offer Medicare-entitled individuals the same benefits as are available to all other plan participants and to avoid taking any action that would discourage group health plan participation by these individuals.

When the Group Health Plan is Primary

For an employer with 20 or more employees (full-time or part-time), the group health plan is primary when a Medicare-entitled individual age 65 or older and/or the spouse age 65 or older is covered or seeks to be covered under the group health plan by virtue of the individual’s current employment status with the employer. The 20-employee threshold is based on having 20 or more employees for each working day of 20 or more calendar weeks in the current or preceding calendar year.   Self-employed individuals are not included in the employee count.

If a disability-based Medicare-entitled individual is covered or seeks to be covered under a large group health plan by virtue of the individual’s or family member’s current employment status, the group health plan is primary. A large group health plan is a plan of an employer that employed at least 100 full-time or part-time employees on at least 50% of its regular business days during the previous calendar year.  Self-employed individuals are not included in the employee count.  A family member is an individual who has large group health plan coverage because of a relationship to an individual with current employment status. 

A group health plan cannot take into account an individual’s end stage renal disease based Medicare entitlement during the 30-month coordination period, which generally begins on the first day of the fourth calendar month of dialysis.  During the 30-month coordination period, the group health plan is the primary coverage. This is without regard to the employer’s size or the employment status of the individual or the spouse.

Current Employment Status

An individual has current employment status if he or she is actively working as an employee, is the employer or is associated with the employer in a business relationship. An individual who is not actively at work will have current employment status if he is receiving disability benefits from an employer for up to six months or if he retains employment rights in the industry, has not been terminated and has group health plan coverage that is not pursuant to COBRA.

MSP Prohibitions

A group health plan subject to MSP must offer the same benefits under the same terms and conditions to current employees and spouses age 65 and older as offered to those under age 65.  An employer cannot impose restrictions for Medicare-entitled individuals that do not apply to others enrolled in the group health plan.  Impermissible actions include:

  • failing to pay as primary coverage;
  • terminating coverage when an individual is eligible for Medicare;
  • charging higher premiums to individual entitled to Medicare; or
  • defining eligible dependents to exclude individuals enrolled in Medicare.

A general opt-out credit offered to all eligible employees under the same terms and conditions is generally permissible.  In addition, an employee who is Medicare-eligible can voluntarily reject group health plan coverage (thereby making Medicare primary); however, the employer cannot offer any inducement or incentive to reject the coverage, including:

  • offering or paying for coverage that is complementary or supplemental to Medicare;
  • offering financial or other incentives to decline or terminate group health plan coverage; or
  • providing misleading or incomplete information that has the effect of inducing an individual to reject the group health plan.

Consequences of MSP Violations

Payments made by Medicare are conditional payments.  If Medicare identifies a group health plan that should have paid as primary, payments made in error can be recovered.  A group health plan is required to repay the amount Medicare paid in error or the amount that should have been paid by the group health plan, whichever is less.  For self-insured group health plans, the plan sponsor is responsible for repayment to Medicare.  For fully insured group health plans, the insurer is generally responsible, but the employer can be held liable if the insurer does not make the repayment. If CMS has to sue to recover the payment, the agency can collect double damages.

A group health plan that violates the MSP provisions is a nonconforming plan, and the employer could be subject to an excise tax imposed by the Internal Revenue Service that is equal to 25% of the annual expenses related to all group health plans to which the employer contributed.  The tax penalty is based on the calendar year in which the error occurs.

Additionally, a civil monetary penalty of up to $9,239/offer may be imposed on any employer that improperly offers financial or other incentive for a Medicare-entitled individual not to enroll or to terminate enrollment under a group health plan that would be primary to Medicare.  A separate penalty of $1,504/day/individual may also be imposed for failure to provide information regarding group health plan coverage requested by CMS.

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