Recently, a client asked us to explain the rules around how much Medicare and carriers pay. They were surprised to hear from an employee that their carrier was not going to pay a claim unless the participant was enrolled in both Medicare Part A and Part B. Fortunately, the employee had reached out to the carrier prior to obtaining services and was able to avoid costly out-of-pocket expenses by enrolling in Medicare.
We thought a refresher of the Medicare Secondary Payer rules might be in order. In addition, we will discuss how some of the carrier’s practices vary.
Medicare Secondary Payer (MSP)
The MSP statute determines when an employer group plan must pay first or when it may pay second when an individual is covered by both a group health plan and Medicare.
| Circumstances | Additional Conditions | Primary Payer | Secondary Payer |
|---|---|---|---|
| Age-based Medicare entitlement + coverage due to current employment status | Employer has 20 or greater employees | Group health plan | Medicare |
| Employer has fewer than 20 employees1 | Medicare | Group health plan | |
| Age-based Medicare entitlement + retiree health coverage or coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) | N/A | Medicare | Group health plan |
| Disability-based Medicare entitlement + coverage due to current employment status | Employer has 100 or greater employees | Group health plan | Medicare |
| Employer has fewer than 100 employees2 | Medicare | Group health plan | |
| Disability-based Medicare entitlement + retiree health coverage or COBRA | N/A | Medicare | Group health plan |
| ESRD-based Medicare eligibility or entitlement + group health coverage (including coverage due to current employment status, retiree health coverage, or COBRA) | First 30 months of Medicare eligibility or entitlement | Group health plan | Medicare |
| After 30 months of Medicare eligibility or entitlement | Medicare | Group health plan |
1 If the employer participates in a multi-employer or multiple-employer plan and any one employer has 20 or more employees, all of the participating employers will be treated as if they have 20 or more employees for purposes of the MSP rules.
2 If the employer participates in a multi-employer or multiple-employer plan and any one employer has 100 or more employees, all of the participating employers will be treated as if they have 100 or more employees for purposes of the MSP rules.
How do employers determine their Medicare payer status?
Every year, an employer should determine their size and inform their medical carrier(s) of any change. Employer size is determined by the number of employees on each working day in each of 20 or more calendar weeks in the current or preceding year. The “20-employee” test must be performed at the time the individual receives the services for which Medicare benefits are claimed. Employers that are close to 20 employees need to monitor their status closely.
How do carriers determine how much to pay if a member is eligible but not enrolled in Part B?
Per MSP rules, carriers use a Medicare estimation process to determine their secondary payment amount when Medicare is the primary payer.
Medicare estimation reduces the plan’s payment for eligible covered benefits by the amount primary Medicare Part B would have paid if the eligible member were enrolled in Medicare Part B. This primary payment that Medicare Part B would have paid is not covered by the fully insured plan.
California carrier practices vary.
In California, it has been the practice of most carriers to pay as primary for Part B claims regardless of employer size or member enrollment in Part B.
No carrier pays as primary for Part A.
In December 2022, UnitedHealthcare (UHC) announced they were changing their methodology for estimating how much to pay when a member is eligible for but not enrolled in Medicare Part B.
In the small group market, UHC no longer pays before Medicare when Medicare is primary. They will only pay the balance as if Medicare had paid primary. The change was effective January 1, 2023, for new fully insured small group business. For renewing fully insured small group businesses, it was effective July 1, 2023.
For large group, fully insured businesses, UHC changed their Medicare estimation methodology from 20% of the billed amount to the Medicare allowable amount.
Anthem Blue Cross of California, Blue Shield of California and Kaiser continue to pay claims for Part B expenses regardless of whether the participant is enrolled in Medicare Part B when they are eligible.
Employers whose Plans are primary to Medicare are prohibited from offering incentives to drop group coverage for Medicare.
In situations where Medicare pays secondary to an employer-sponsored group health plan, the MSP statute prohibits employers from discouraging Medicare-eligible participants from enrolling in the employer’s group health plan or from encouraging them to drop employer-provided coverage. One such prohibited action is incentivizing (whether financially or otherwise) a Medicare-eligible individual to not enroll or terminate enrollment in the employer’s plan. CMS specifically states in the MSP Manual that this prohibition applies even if the incentive is offered to other individuals eligible for the employer plan. According to CMS, this law is violated every time a prohibited offer is made, whether made orally or in writing.
Once enrolled in Medicare, an individual can no longer contribute to their own Health Savings Account.
Individuals enrolled in any part of Medicare are no longer eligible to contribute to a Health Savings Account (HSA). In the calendar year in which they enroll in Medicare, the individual must pro-rate the annual contribution limit. For example, if Medicare is effective May 1, the individual can only contribute for January through April, or a third of the annual max.
Once on Medicare, they are allowed to use their HSA funds to reimburse medical expenses pre-tax. This includes premiums for Medicare Part B or Part D. If you aren’t covered by social security and voluntarily enroll in Part A, those premiums are also a medical expense reimbursable from an HSA.
If you aren’t enrolled in both Medicare Part A and Part B you have options.
Members who are eligible for Medicare but not enrolled in Parts A and B need to enroll to avoid being billed for the claim amount normally covered by Medicare.
If you do not have Part A, you must contact Social Security to apply for Medicare.
If you have Part A and waived Part B or did not sign up for it when you applied for Medicare, you can complete an Application for Enrollment in Medicare Part B (Medical Insurance).
The Medicare.gov website has information specific to different eligibility scenarios at Get Started with Medicare.
EPIC Employee Benefits Compliance Services
For further information on this or any other topics, please contact your EPIC consulting team.
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EPIC offers this material for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this document and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.
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