Medicare Coordination of Benefits

Group health plans must determine whether the plan or Medicare is the primary payer (pays a health claim first) for Medicare eligible individuals.  The term “Coordination of Benefits (“COB”)” is used when assigning responsibility for first and second payment.  The Medicare Secondary Payer Rules (“MSP Rules”) are used between Medicare and group health plans.

CMS has stated that if a same-sex couple is validly married under the laws of a State that recognizes same-sex marriage, they will be regarded as married for all purposes under Medicare. The expanded rules for the definition of “spouse”, including proper reporting to CMS as described below, must be implemented with a start date for the coverage in question no later than January 1, 2015.

MSP – Working Aged

The working aged MSP Rules apply only to group health plans of employers with 20 or more employees for each working day in at least 20 weeks of the current or preceding calendar year. In determining whether this threshold has been met, the employer must count full and part-time employees, leased employees and employees of employers in an “affiliated service group” or or considered a “single employer” for purposes of the Internal Revenue Code.

Multi-employer Plans (e.g., a union plan) and multiple employer group health plans (e.g., an association-based MEWA) must have at least one employer who employs 20 or more employees for the working aged MSP Rules to apply.

• A multi-employer group health plan or MEWA that has at least one employer with 20 or more employees may prospectively request to except employees (and their spouses) of identified employers with fewer than 20 employees from the working aged provision.
• Such members and their spouses are not subject to the working aged provision once an exception has been granted as long as the employer continues to meet the requirements for the exception.

Medicare is secondary payer to group health plans for individuals age 65 or over if their group health coverage is by virtue of the individual’s current employment status or the current employment status of the individual’s spouse.

• Group health insurance plans for retirees or the spouses of retirees do not meet this condition and are not primary to Medicare.

The law requires employers to offer to their employees age 65 or over and spouses who are 65 and over of employees (of any age) the same coverage as they offer to employees and employees’ spouses under age 65.

• For example, a group health plan may not provide benefits that are less for individuals age 65 or over or charge participants contributions that are higher for individuals age 65 or over since this would create an incentive for these individuals to reject the GHP coverage and make Medicare the primary payer.
• This provision applies whether or not the individual age 65 or over is entitled to Medicare. This equal benefit rule applies to coverage offered to full-time and part-time employees.

Medicare beneficiaries are free to reject employer plan coverage, in which case they retain Medicare as their primary coverage. However, employers are prohibited from giving incentives to Medicare-eligible individuals to decline employer coverage. See Taking Account of Medicare below.

• When Medicare is primary payer, employers cannot offer such employees or their spouse’s secondary coverage of items and services covered by Medicare.
• Where an employer’s group health plan is the primary payer, but does not pay in full for the services, secondary Medicare benefits may be paid to supplement the amount it paid for Medicare-covered services.
• If an employer’s group health plan denies payment for services because they are not covered by the plan as a plan benefit bought for all covered individuals, primary Medicare benefits may be paid if the services are covered by Medicare.

MSP – End Stage Renal Disease (“ESRD”)

Medicare is secondary payer to group health plans for individuals eligible for, or entitled to Medicare benefits based on End-Stage Renal Disease (“ESRD”) during a 30 month coordination period described below. This applies regardless of employer size and regardless of whether any individual has current employment status. It applies to current and former employees. 

If Medicare was not the proper primary payer for an individual on the basis of age or disability at the time the individual became eligible for or entitled to Medicare on the basis of End Stage Renal Disease, Medicare is secondary payer to group health plans for items and services furnished during a period of up to 30 consecutive months which begins with the earlier of:

• The month in which a regular course of renal dialysis is initiated, or
• If the patient undergoes a course of self-dialysis training, the first day of the month in which the training occurred, or
• If an individual received a kidney transplant, the first month in which the individual became entitled.

See ESRD Medicare Guidelines.

MSP – Disabled Beneficiary

Medicare is secondary payer to “large group health plans” for individuals under age 65 entitled to Medicare on the basis of disability and whose plan coverage is based on the individual’s current employment status or the current employment status of a family member.

A plan is “large group health plan” if it covers the employees of at least one employer that employed 100 or more full-time or part-time employees on 50% or more of its business days during the previous calendar year.  Counting rules similar to those for small employers of the working aged (see above) apply.  Unlike the working aged rules, if any employer in a multi-employer plan or MEWA meets the 100-employee threshold, all employers in the plan are subject to this rule.

Medicare is not secondary under the MSP for the disabled provision for individuals:

• Who work or whose family member works for employers of fewer than 100 employees unless the group health plan is a multi-employer plan in which at least one employer of 100 or more employees participates.
• Covered by a group health plan as a result of past employment (e.g., as a retired former employee or as the spouse of a retired former employee) and whose coverage is not also based on current employment status of their own or a family member’s current employment status.
• Covered by a health plan other than a group health plan (e.g., one that is purchased by the individual privately and not through an employer).
• Who have FEHB coverage under the Spouse Equity Act.

Current Employment Status

“Current employment status” is a key factor in determining whether an employer plan is primary or secondary to Medicare for those entitled to Medicare based on age or disability.  An individual has current employment status if he or she is an active employee.  Individuals who are not active employees are nevertheless considered to have current employment status if:

• They are receiving disability benefits from an employer for up to six months; or
• They retain employment rights in the industry and have not had their employment terminated by the employer, if the employer provides the coverage (or have not had their membership in the employee organization terminated, if the employee organization provides the coverage); they are not receiving disability benefits from an employer for more than 6 months; they are not receiving disability benefits from Social Security; and, they have GHP coverage that is not pursuant to COBRA continuation coverage.  This includes:
  • Persons who are temporarily laid off or are on sick leave;
  • Teachers and other seasonal workers who do not normally work throughout the year; and
  • Persons who have coverage that extends beyond or between active work periods (for example, union plans that use an hours bank to determine eligibility for coverage).

Taking Account of Medicare

A group health plan may not take age- or disability-based Medicare entitlement into account in providing benefits to persons covered under a plan by virtue of an individual’s current employment status.  Examples of taking Medicare into account include:

• failure to pay primary benefits;
• offering coverage that is secondary to Medicare to individuals entitled to Medicare;
• terminating coverage because the individual has become entitled to Medicare, except as permitted under COBRA;
• in the case of a large group health plan, denying or terminating coverage because an individual is entitled to Medicare on the basis of disability without denying or terminating coverage for similarly situated individuals who are not entitled to Medicare on the basis of disability;
• imposing limitations on benefits for a Medicare-entitled individual that do not apply to others enrolled in the plan, such as providing less comprehensive health care coverage, excluding benefits, reducing benefits, charging higher deductibles or co-insurance, providing for lower annual or lifetime benefit limits, or providing more restrictive preexisting condition limitations;
• charging a Medicare-entitled individual higher premiums;
• requiring a Medicare-entitled individual to wait longer for coverage to begin;
• paying providers and suppliers less for services furnished to a Medicare beneficiary than for the same services furnished to an enrollee who is not entitled to Medicare;
• providing misleading or incomplete information that would have the effect of inducing a Medicare-entitled individual to reject the employer plan, thereby making Medicare the primary payer;
• including in its health insurance cards, claims forms, or brochures distributed to beneficiaries, providers, and suppliers instructions to bill Medicare first for services furnished to Medicare beneficiaries without stipulating that such an action may be taken only when Medicare is the primary payer; and
• refusing to enroll an individual for whom Medicare would be the secondary payer, when enrollment is available to similarly situated individuals for whom Medicare would not be the secondary payer.

In addition, employers may not offer Medicare-entitled employees financial or other incentives not to participate in the employer’s plan.

In the case of individuals entitled to Medicare based on ESRD, plans may not differentiate between those persons and others covered under the plan.

The regulations provide the following examples of actions that constitute an impermissible differentiation in benefits between individuals with ESRD and others enrolled in the plan:

• terminating coverage of individuals with ESRD, when there is no basis for such termination unrelated to ESRD (such as a failure to pay plan premiums) that would result in termination for individuals who do not have ESRD;
• imposing on persons who have ESRD, but not on others enrolled in the plan, benefit limitations such as less-comprehensive health plan coverage, reductions in benefits, exclusions of benefits, a higher deductible or co-insurance, a longer waiting period, a lower annual or lifetime benefit limit, or more restrictive preexisting illness limitations;
• charging higher premiums to individuals with ESRD;
• paying providers and suppliers less for services furnished to individuals who have ESRD than for the same services furnished to those who don’t have ESRD;
• failing to cover routine maintenance dialysis or kidney transplants, when a plan covers other dialysis services or other organ transplants; and
• terminating coverage because the individual has become entitled to Medicare, except as permitted under COBRA continuation coverage provisions.

MSP Reporting

The Medicare, Medicaid and SCHIP Extension Act established mandatory insurer reporting requirements.  These reports are intended to help the CMS enforce the MSP rules.

For coverage with a start date of January 1, 2015 or later, entities must use the expanded rules for the definition of “spouse” when reporting to CMS as described below.

Group health plans must provide reports to the Centers of Medicare and Medicaid Services (CMS) about plan participants who also have Medicare coverage.

Insurers, TPAs and Administrators of group health plans that are self-insured are responsible for submitting the new reports to CMS.

• Employers should verify that their insurer or TPA or administrator has the data elements necessary to complete this reporting.
• Employers should amend their contracts with the appropriate service provider to assign responsibility for reporting and to limit liability for noncompliance.

Under the reporting rules, health Flexible Spending Accounts (FSAs) are not group health plans for MSP purposes and should not be included in the reporting to CMS.  Health Savings Accounts (HSAs) also do not have to be reported, as long as Medicare beneficiaries do not make current year contributions.  However, a Health Reimbursement Accounts (HRA) is considered to be a group health plan and must be reported if it has an annual benefit of $5,000 or more (including any roll-overs from prior years) as of the beginning of the year. Typically, stand-alone dental and vision care coverage need not be reported, but reporting entities are responsible for being aware of situations where dental or vision care services are covered by Medicare and should be paid primary to Medicare.

The penalty for noncompliance is up to $1,000 per day of noncompliance for each individual not reported.

Please note that most insurers and TPAs already supply this data to the CMS on a voluntary basis and should experience little additional burden to complete these reports.

Click Here for more information from the CMS.

Mandatory Reporting for Primary Prescription Drug Coverage Information Begins January 2020

Currently, the reporting process includes the option to exchange primary prescription drug coverage information to coordination benefits relating to Medicare Part D. Beginning January 1, 2020, this voluntary submission will become mandatory for Responsible Reporting Entities (RREs). Typically, the employer is not the RRE.

• For fully insured plans, the RRE is generally the insurer. However, if a TPA processes group health plan claims for the insurer, then the TPA is the RRE.
• For self-insured plans, the TPA is the RRE.
• For self-insured and self-administered plans without a TPA, the employer is the RRE.

Even though employers are typically not a RRE, they may be asked to assist their insurers or TPAs in compiling information about participants in their group health plans. CMS has emphasized the importance of cooperation between employers and RREs to ensure compliance with these reporting requirements.

Tricare COB

Tricare is the health services component of the military health system.  It provides health benefits to retired members (and their families) of the Armed Forces, National Guard and Reserves.

If a participant in an employer sponsored group health plan is also covered by Tricare, the coordination of benefits is similar to Medicare: the employer sponsored plan pays first.

The final rule from the Office of the Secretary of the Department of Defense generally prohibits employer-endorsed TRICARE supplemental plans as an option for health coverage under an employer-sponsored group health plan to TRICARE-eligible beneficiaries. This type of benefit cannot be offered as part of a cafeteria plan because the employer, by endorsing this type of plan, effectively offers an improper incentive targeted only at TRICARE beneficiaries for not enrolling in the employer’s main health plan option or options.

However, employers who adhere to the requirements of section 125 cafeteria plans and offer all similarly situated employees without regard to TRICARE eligibility a choice between health insurance and cash payment equivalents are not considered in violation of the law (42 U.S.C. 1395y(b)(3)(C)). Therefore, if a TRICARE beneficiary elects the cash payment option as a benefit offered via the employer’s cafeteria plan, one which meets section 125 requirements, then the employer would not be in violation of these provisions.

Penalties for violation of the final rule include a civil monetary penalty of up to $5,000 for each violation. Employers are liable under the MSP rules for claims mistakenly paid on a primary basis, regardless of whether the employer’s plan is fully insured of self-insured. Therefore, Medicare can collect its incorrect primary payment directly from the employer.

Additional Resources

Click Here for the Medicare Secondary Payer – CRS Report for Congress.

Click Here for the End-Stage Renal Disease Medicare Guidelines.

Click Here for information on the MSP Reporting Requirements.