Understanding Coordination of Benefits and Compliance with Federal Laws

When employees have both Medicare and a Group Health Plan (GHP) through their employer, determining which insurance pays first—known as the “Medicare Secondary Payer” (MSP) rules—can be complex. These rules are crucial for both employers and employees to ensure compliance with federal regulations and to manage healthcare costs effectively. This blog explains the MSP rules, outlines who pays first in various scenarios, and discusses the importance of non-discriminatory practices.

Background on Medicare Secondary Payer (MSP) Rules

The MSP rules establish the circumstances under which Medicare will be the primary or secondary payer for individuals covered under both Medicare and a GHP. Understanding these rules helps prevent costly mistakes and ensures that claims are processed smoothly.

Primary vs. Secondary Payer: Key Scenarios

1. Employer Size and Impact on Payer Status:
   • Less than 20 Employees: Medicare acts as the primary payer. If an employee declines Medicare Part B under the assumption that the GHP will cover all costs, they might find themselves without necessary coverage for certain services.
   • 20 or More Employees: The GHP is the primary payer, and Medicare is secondary. In this case, employees can delay enrollment in Medicare without penalty, provided they or their spouse (who provides their coverage) is still actively employed.
2. Special Considerations for Disabled Employees:
   • If the employer has 100 or more employees, the GHP will be the primary payer for disabled employees who are also entitled to Medicare.
3. Retirees and COBRA Participants:
   • Retirees: For individuals who are covered under an employer-sponsored retiree plan, Medicare generally pays first.
   • COBRA: If an individual has COBRA continuation coverage and Medicare, Medicare will be the primary payer.

Non-discriminatory Treatment of Medicare-Entitled Individuals

Federal law prohibits employers from discriminating against employees who are entitled to Medicare. Employers with 20 or more employees must adhere to the following guidelines:

• Prohibited Actions:
  • They cannot charge higher premiums to Medicare-entitled individuals.
  • They cannot terminate coverage simply because an employee becomes entitled to Medicare.
  • Offering financial incentives for Medicare-entitled employees to opt out of or drop their employer plan is illegal.
• Voluntary Changes:
  • An individual may voluntarily drop employer coverage in favor of Medicare, but the employer cannot encourage this action.

Why These Rules Matter

• Cost Management: Proper understanding and implementation of MSP rules help manage health care costs for both employers and employees by ensuring that the responsible party pays first.
• Compliance: Adhering to these rules is not only a matter of regulatory compliance but also protects employers from potential penalties and lawsuits.
• Employee Benefits: For employees, especially those nearing retirement or with disabilities, understanding these rules can significantly affect their healthcare coverage and out-of-pocket costs.

Practical Tips for Employers

• Educate Your Team: Ensure that your HR team understands MSP rules and can provide accurate information to employees.
• Regular Review: Regularly review your health plan’s coordination of benefits provision to ensure compliance with MSP requirements.
• Communications: Clearly communicate these rules to all employees, especially those who are Medicare-eligible, to prevent misinformation and potential distress.

Conclusion: Ensuring Smooth Coverage Transition and Compliance

The Medicare Secondary Payer rules are designed to clarify payment responsibilities and protect Medicare funds. Both employers and employees have crucial roles in complying with these rules, which helps in maintaining the integrity of both Medicare and employer-sponsored health plans. By staying informed and adherent to these regulations, companies can not only avoid financial penalties but also support their employees in making the best use of their entitled health benefits.