Let’s be honest: nobody wakes up on a Tuesday morning and thinks, “I can’t wait to dive into the federal Medicare Secondary Payer (MSP) statutes!” Unless, of course, you work here at Total Benefit Solutions Inc. For the rest of the sane world, MSP rules are about as exciting as watching paint dry, until you get hit with a penalty that costs more than your company’s holiday party.
If you are a small to medium-sized business owner, you are likely already juggling group health insurance for employers while trying to keep costs down. You might even be exploring affordable group health insurance options like Level funded health insurance or Reference based pricing. But if you have employees (or their spouses) who are 65 or older, you are officially in the MSP splash zone.
Medicare Secondary Payer rules determine who pays the bill first: your group health plan or Medicare. Get it wrong, and the government doesn't just send a polite "oops" letter; they send a bill. Here are 15 things you absolutely need to know to stay compliant and keep your money where it belongs, in your business.
1. The Magic Number is 20
For employees who have Medicare because they are 65 or older, the MSP rules generally kick in once you hit 20 employees. If you have 20 or more employees, your group health plan is "Primary" (it pays first), and Medicare is "Secondary." If you have fewer than 20, Medicare typically takes the lead. (Pro tip: This count includes part-timers too!)
2. The 100-Employee Rule (The Disability Factor)
Age isn't the only way people get Medicare. If an employee is on Medicare due to a disability (other than kidney failure), the threshold jumps. Your group plan only becomes primary if you have 100 or more employees. If you’re at 50 employees, Medicare stays primary for your disabled staff.
3. The "Working Aged" Provision
Medicare uses the term "Working Aged" to describe employees 65+ who are still active in the workforce. Even if they love their job and plan to work until they’re 90, if you have 20+ employees, you must offer them the same benefits as your 25-year-old social media manager. You cannot force them onto Medicare just because they’ve reached the magic age.
4. Counting "Weeks," Not Just Heads
You don't just count your employees on the day a claim is filed. The 20-employee rule applies if you had 20 or more employees for at least 20 weeks in either the current or the preceding calendar year. If you hit that number last year, you’re stuck with "Primary" status for the whole of this year, even if you downsized in January.
5. The Multi-Employer Plan Trap
Think you’re safe because you only have 5 employees? Not so fast. If you participate in a multi-employer group health plan (like an association plan) and any employer in that plan has 20 or more employees, the MSP rules apply to everyone in the plan. Suddenly, your tiny business is playing by big-league rules.
6. The "Small Employer Exception" (The Golden Ticket)
If you are in one of those multi-employer plans mentioned above but actually have fewer than 20 employees, you can apply for a "Small Employer Exception." This allows Medicare to remain primary for your employees. But beware: this isn't automatic. You have to apply and get approved by CMS (the Centers for Medicare & Medicaid Services). At Total Benefit Solutions Inc, we help our clients navigate these specific hoops so they don't get stuck paying primary when they shouldn't.
7. Financial Incentives are a Big "No-No"
It might be tempting to tell an older employee, “Hey, if you drop our health plan and just use Medicare, we’ll give you a $200 monthly bonus!” Don't do it. This is a direct violation of MSP rules. You cannot offer any financial or other incentive for a Medicare-eligible individual to not enroll (or to terminate enrollment) in a group health plan that would be primary to Medicare.
8. Spousal Coverage Matters
MSP rules don't just apply to your employees; they apply to their spouses too. If your employee is 40 but their spouse is 66 and covered under your plan, the same 20-employee rule applies. Your plan is primary for that spouse. Neglecting this is a fast track to a compliance headache.
9. COBRA vs. Medicare: The Ultimate Showdown
This is where things get messy. Usually, if someone has COBRA and then gets Medicare, COBRA can be terminated. However, if they have Medicare first and then qualify for COBRA, they can keep both. In the world of MSP, COBRA is almost always secondary to Medicare. Coordination here is vital to avoid double-paying or, worse, not paying at all.
10. Section 111 Reporting
If you are a "Responsible Reporting Entity" (usually the insurer or the plan administrator), you have to report coverage for Medicare-eligible individuals to CMS. This is how the government keeps track of who should be paying first. For small businesses using Level funded health insurance, your provider usually handles this, but as the employer, the buck ultimately stops with you.
11. The Daily Penalty ($1,325+ and Counting)
The government does not play around with MSP enforcement. Failure to report properly or violating the "no incentives" rule can result in civil monetary penalties. Currently, these can reach over $1,325 per day, per individual. Yes, you read that right. One administrative error over a year could theoretically cost you hundreds of thousands of dollars. (Which is why having an advocate like us is a lot cheaper than the alternative!)
12. ESRD: The 30-Month Coordination Period
End-Stage Renal Disease (ESRD) has its own special rulebook. Regardless of your company size, if an employee has ESRD, your group health plan is primary for the first 30 months of their Medicare eligibility. After that 30-month "coordination period," Medicare becomes primary.
13. Conditional Payments and the "Right of Recovery"
If Medicare accidentally pays a bill that your group plan should have paid (as the primary payer), Medicare will make a "conditional payment" to ensure the doctor gets paid. But don't think they’ve forgotten. They will come looking for that money later, and they have the legal right to recover double the amount if you don't pay up.
14. Integrating Level Funded Plans
Many small businesses are switching to Level funded health insurance because it offers the predictability of fully insured plans with the cost-savings of self-funding. However, you must ensure your level-funded contract is properly set up to handle MSP coordination. Since these plans are technically "self-funded" (with stop-loss), the reporting requirements and primary/secondary logic must be airtight.
15. The Role of Reference Based Pricing
If you’re using Reference based pricing (RBP), where you pay providers a percentage over Medicare rates instead of using a traditional network, MSP rules become even more critical. You are already using Medicare as a "reference," so you need to be crystal clear on when Medicare is actually the "payer." This is where we thrive, acting as the intermediary between you, the insurance carrier, and the healthcare system.
Why You Need a Benefit Advocate
Navigating the Medicare Secondary Payer rules feels like walking through a minefield in the dark. One wrong step regarding your group health insurance for employers could lead to massive fines or lawsuits.
At Total Benefit Solutions Inc, we don't believe in "good enough." We are independent brokers who shop around to find you the most affordable group health insurance while ensuring every T is crossed and every I is dotted for compliance. Whether you are dealing with the complexities of medicare secondary payer rules or trying to slash costs with Level funded health insurance, we are in your corner. We never accept "no" as an answer when fighting for your benefits.
Don't let bureaucracy win. Let us be your "Benefit Fighter."
Ready to audit your compliance or find a better plan?
Visit us at www.totalbenefits.net or give us a call at (215) 355-2121. We’re here to help you navigate the system, so you can get back to running your business.
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