What are the Medicare Secondary Payer Rules?
The best summation of the law is from the Centers for Medicare and Medicaid Services (CMS) website on Medicare Secondary Payer:
Under the federal Medicare Secondary Payer law, a group health plan pays first if the following conditions apply:
- An employee is age 65 or older and covered by a group health plan because of current employment or the current employment of a spouse of any age.
- The employer has 20 or more employees and covers any of the same services as Medicare.
This means that the group health plan pays first on your hospital and medical bills. If the group health plan didn’t pay a bill in total, the doctor or provider should send that bill to Medicare for secondary payment. Medicare will review what your group health plan paid, and pay any additional costs up to the Medicare-approved amounts. The Medicare-eligible individual will have to pay the costs of services that Medicare or the group health plan doesn’t cover.
Could we change our group health plan rules to exclude eligibility for employees (or dependents) who are Medicare-eligible?
No. Under various sections of Medicare laws (and numerous court cases), group health plans and employers may not consider that an individual is entitled to Medicare for the purpose of eligibility or claims payment in any of the following situations:
- Beneficiaries aged 65 or older who are covered by an employer who employs at least 20 employees by virtue of the individual’s current employment status or the current employment status of a spouse of any age.
- Beneficiaries who are eligible for or entitled to Medicare based on End-Stage Renal Disease (ERSD) and who are covered by a group health plan without regard to the number of individuals employed and regardless of current employment status during the first 30 months of ESRD-based Medicare eligibility or entitlement.
- Beneficiaries under age 65 who are entitled to Medicare because of disability and who are covered under a group health plan of an employer who employs at least 100 employees and are covered under the plan by virtue of the individual’s or a family member’s current employment status.
Some examples of the kind of actions that are strictly prohibited include:
- Offering to individuals entitled to Medicare coverage that is secondary to Medicare (the penalty for offering any incentive under Medicare rules is $10,360 for 2023).
- Terminating coverage because the individual has become entitled to Medicare, except as permitted under COBRA continuation coverage provisions.
- Providing less comprehensive health care coverage, excluding benefits, reducing benefits, charging higher deductibles or coinsurance, or providing for lower annual or lifetime benefit limits or more restrictive preexisting illness limitations on benefits for a Medicare-entitled individual that does not apply to others enrolled in the plan.
- Charging the Medicare-entitled individual higher premiums.
- Providing misleading or incomplete information that could have the effect of inducing a Medicare-entitled individual to reject the employer plan, thereby making Medicare the primary payer.
What if we have a corporate policy that allows an employee to use their cafeteria dollars for Medicare Secondary instead of on the group health plan?
Any corporate policy to allow employees to use their benefits dollars to purchase, when applicable, Medicare Supplemental policies, as well as Part B and Part D premiums, is likely to be determined by the Centers for Medicare and Medicaid Services (“CMS”) to be in violation of federal Medicare Secondary Payer laws. These laws state in relevant part:
Any similar practice is, in my opinion, in violation of the federal statute and regulations concerning Medicare Secondary Payer laws, even though if the employer is providing the same level of benefit dollars on a monthly basis to all of your employees, regardless of whether they are Medicare eligible or not.
Could the employer ask their Medicare-eligible employees to go off the group health plan and elect Medicare instead?
They could but there are penalties for simply suggesting this under the Medicare Secondary Payer rules. Under IRS and HHS regulations, any act by the employer to encourage a Medicare-eligible employee to take Medicare instead of staying on the group health plan incurs a penalty of $10,360 per incident for 2023.
Additionally, they can require the employer to reimburse Medicare for any claims paid primary that should have been paid secondary. This can often be a significant sum. Here’s how that works:
When Medicare is the secondary payer, the healthcare provider first submits a claim to the beneficiary’s primary payer, who processes the claim according to the terms of the coverage contract. If the primary payer does not pay the full charges for the service, Medicare secondary payments may be made if the service is covered by Medicare. In no case can the actual amount paid by Medicare exceed the amount it would pay as primary payer. Any primary payments from a third-party payer for Medicare-covered services are credited toward the beneficiary’s Medicare Part A and Part B deductibles and, if applicable, coinsurance amounts. However, if the primary payment is less than the deductible, the beneficiary may be responsible for paying his/her unmet Medicare deductibles and coinsurance amounts.
The Medicare secondary payment amount is subject to certain limits. For some services, such as inpatient hospital care, the combined payment by the primary payer and Medicare cannot exceed Medicare’s recognized payment amount (without regard to beneficiary cost-sharing charges).
As one example of how Medicare would decide its secondary payment amount for inpatient hospital services, assume that an individual received inpatient hospital services costing $6,800. The primary payer paid $4,360 for the Medicare-covered services. No part of the inpatient hospital deductible ($1,024 in 2008) had previously been met. Medicare’s gross payment amount, without regard to the deductible, is $4,700. As the secondary payer, Medicare would pay the lowest of
- Medicare’s gross payment amount, without regard to deductible, minus the primary payer’s payment—$4,700-$4,360 = $340;
- Medicare’s gross payment amount minus the Medicare inpatient deductible— $4,700-$1,024 = $3,676;
- the hospital charge minus the primary payer’s payment—$6,800-$4,360 = $2,440;
- the hospital charge minus the Medicare inpatient deductible—$6,800-$1,024 = $5,776.
In this case, Medicare would pay $340. The combined payment made by the primary payer and Medicare is $4,700. The beneficiary has no liability for Medicare-covered services since the primary payer’s payment satisfied the $1,024 inpatient deductible. If Medicare’s payment amount had been lower than the primary payer’s amount, it would not have made a secondary payment.
In other cases, such as physicians’ services, the Medicare secondary payment amount cannot exceed the lowest of the calculation of the following three options. For example, assume that a physician charges $175 for a service; the primary payer’s allowable charge is $150, of which it pays 80%, or $120; and Medicare’s recognized payment amount for the service is $125, of which it pays 80%, or $100. The options are described below:
- actual provider charge minus the primary payer’s allowable charge, adjusted for copayment: $175-$120 = $55;
- Medicare’s payment amount, adjusted for copayment: .80 x $125 = $100;
- primary payer’s allowable charge of $150 is compared to the Medicare recognized payment amount of $125, and the higher of the two (which in this case is the primary payer’s charge of $150) minus the employer plan’s payment of $120: 150-$120 = $30.
Because Medicare’s secondary payment is based on the lowest of these three options, Medicare would pay $30.
In the past, my client did something that looks like it could be a problem (paid for Medicare Supplemental plan coverage or paid employees who took Medicare “voluntarily” more in salary to offset those costs). What do they do now?
Changing their past practices would show good faith on their side, but certainly would not absolve them from past mistakes. It is important to make a change because with recent changes to the law, these groups are much more likely to get caught.
Why is there a bigger concern now than in the past?
Since late 2009, all health insurers (for insured plans) and employers (for self-funded plans) are required to file quarterly electronic reports with CMS which will allow for accurate tracking of the individuals who are potentially Medicare recipients but may be eligible for group health plan enrollment. These Section 111 information mandates will result, the government hopes, in a significant increase in their “catch” rate of ineligible claims (from approximately 2% to nearly 90%).
Beginning in earnest in early 2016, CMS has partnered with IRS and the Social Security Administration to use the online Data Match questionnaire to collect data about individuals who are enrolled in Medicare and being paid by an employer. We believe this process is designed to identify closer to their goal of 100% of potential Medicare overpayment situations that they believe exist today.
This process has been initiated by letters being sent jointly from the three agencies which have a 30-day deadline to reply. There are penalties for failure to provide the information (according to their website):
- Assessing a civil monetary penalty of $1,000 for each person named in the inquiry for whom the employer has either not responded or provided incomplete information (pursuant to 42 USC § 1395y(b)(5));
- Subpoenaing business records and members of the organization to enforce compliance with law (pursuant to 42 USC §§ 405(d) and 1395(ii)); and
- Investigating the employer’s GHP or large group health plan (LGHP) for a determination of nonconformance, and if so found, make a referral to the IRS for the imposition of an excise tax on the employer (pursuant to § 5000 of the Internal Revenue Code and 42 CFR § 411.100 et seq.).
Could an employee who is Medicare-eligible voluntarily come off the group health plan in favor of Medicare A, B, and D and Medicare Supplemental coverage?
Yes, if an employee a completely voluntary decision to take Medicare and the employer has done nothing to encourage this choice, then that is permissible. There is no requirement that they are covered. Often this occurs when the cost of coverage or the level of benefits on the group plan is significantly different than what being covered on Medicare with Med Supplemental (or Medicare Advantage) would provide.
Do these “secondary payer” rules only apply to Medicare?
No, since 2009, Congress expanded this secondary payer rule to include the federal military retiree plan (TRICARE). As a result, employers must be careful to not offer similar incentives or encouragement to a military retiree who is eligible and covered by TRICARE to not enroll or to drop group coverage. While they may maintain their health coverage as a military retiree, that coverage must be secondary to their group health plan benefits.
Health Savings Accounts
Please be mindful of the Health Savings Account regulatory prohibitions on deposits into those accounts by individuals who are Medicare eligible. Any person who is 65 or older, and enrolled on a qualified high-deductible health plan (HDHP), can not contribute to a health savings account because they are eligible for (not necessarily enrolled in) Medicare. Any eligible employees who fall into this category should be reminded of this restriction as they select their group health plan options.