Let’s be honest: most small business owners would rather read the fine print on a shampoo bottle than dive into the federal register. But when it comes to Medicare Secondary Payer (MSP) rules, “ignorance is bliss” is a high-speed ticket to a financial car crash.
At Total Benefit Solutions Inc, we spend our days navigating the labyrinth of health insurance regulations so you don’t have to. We’ve seen it all, from small shops accidentally triggering massive fines to large corporations tripping over the “Section 111” paperwork monster. If you are providing group health insurance for employers, you are already in the crosshairs of these rules.
To help you stay on the right side of Uncle Sam, we’ve put together the ultimate “don’t get sued” guide. Here are 15 things you absolutely need to know about Medicare Secondary Payer rules to avoid penalties that could make your eyes water.
1. The Magic Number is 20 (The “Working Aged” Rule)
If you have 20 or more employees, Medicare says, “You first, pal.” For employees aged 65 and over (the “working aged”), your group health insurance is the primary payer, and Medicare is secondary. If you have fewer than 20 employees, Medicare is typically the primary payer. It sounds simple, but wait until we start counting.
2. Counting Heads is Harder Than It Looks
You can’t just count the people sitting in the office today. To hit the 20-employee threshold, the law looks at whether you had 20 or more employees for each working day in at least 20 calendar weeks during the current or preceding year. Part-timers? They count. Seasonal workers? They count. If you’re hovering around the 18-19 employee mark, you need to be watching your roster like a hawk.
3. The 100-Employee Disability Threshold
If an employee is entitled to Medicare because of a disability (not age), a different rule kicks in. For these “Large Group Health Plans,” the threshold jumps to 100 employees. If you have 100 or more employees, your plan is primary for the disabled employee. If you have 99 or fewer, Medicare usually stays in the driver’s seat.
4. The ESRD 30-Month Coordination Window
End-Stage Renal Disease (ESRD) is the wild card of MSP rules. Regardless of your company size, if an employee or their dependent has ESRD, your group plan is the primary payer for the first 30 months of their Medicare eligibility. After that 30-month “coordination period,” Medicare finally takes over as primary. (Pro tip: This is where affordable group health insurance plans can suddenly become very expensive if you aren’t prepared.)
5. “Current Employment Status” is the Key
The entire MSP system hinges on whether the person has “current employment status.” If they are an active employee, your plan is likely primary. If they are a retiree or on COBRA, they usually don’t have “current employment status,” meaning Medicare steps up to pay first.
6. The “No Incentive” Rule (Don’t Buy Them Out!)
This is where many well-meaning employers get into hot water. You cannot offer any financial or other incentive for a Medicare-eligible employee to drop your group plan and sign up for Medicare. You might think you’re being helpful by offering to pay for their Medicare Part B and a fat Medigap policy instead of keeping them on your expensive group plan, but CMS (the Centers for Medicare & Medicaid Services) views this as an illegal bribe.
7. Same Benefits for Everyone
You are legally required to offer your employees age 65 and older the exact same benefits under the same conditions as your younger employees. You can’t offer a “Senior Lite” version of your plan or hike their premiums just because they qualify for Medicare. (At Total Benefit Solutions, we help our clients design plans that remain compliant while still being cost-effective.)
8. Section 111 Reporting (The Paperwork Trap)
Welcome to the administrative headache known as Section 111. Certain entities (usually the insurer or TPA, but sometimes the employer in self-insured setups) must report every single Medicare beneficiary covered by their plan to CMS. If this isn’t done correctly, the system won’t know who is primary, and the billing chaos begins.
9. The $1,325 Per Day Penalty
We weren’t joking about the penalties. Failing to report correctly under Section 111 can result in a civil money penalty of up to $1,325 per day, per individual. Do the math: if you fail to report three employees for a year, you’re looking at a penalty that could literally bankrupt a small business.
10. Controlled Groups Can’t Hide
Think you can split your 40-person company into two 20-person LLCs to avoid the rules? Think again. The IRS and CMS use “controlled group” rules. If there is common ownership, all employees across all those entities are counted together. Trying to game the system is a great way to get a very unpleasant audit.
11. Conditional Payments: Medicare Wants Its Money Back
Sometimes, Medicare pays a bill because the group plan was slow or didn’t respond. This is called a “conditional payment.” But don’t think you got away with it. Medicare tracks these and will eventually send you a bill for reimbursement, with interest.
12. Level Funded Health Insurance and MSP
Many of our clients are moving toward Level funded health insurance because it offers the flexibility of self-insuring with the predictable cost of a fully-insured plan. However, you must ensure your TPA (Third Party Administrator) is aggressively managing MSP coordination. Just because your plan is “level funded” doesn’t mean you’re exempt from the rules.
13. Reference Based Pricing (RBP) Complications
Reference based pricing is a fantastic way to keep costs down by paying providers based on a percentage of Medicare rates. But when Medicare is actually the secondary payer, things get complicated. You need an advocate who understands how RBP interacts with MSP rules to ensure providers aren’t “balance billing” your employees.
14. HSA Eligibility and the Medicare “Kill Switch”
This is a huge “gotcha” for HR departments. Once an employee enrolls in any part of Medicare (even just the free Part A), they are no longer eligible to contribute to a Health Savings Account (HSA). If you continue to contribute to their HSA after they’ve joined Medicare, you’re looking at tax penalties.
15. Why You Need an Independent Advocate
The rules change, the penalty amounts are adjusted for inflation annually, and the insurance companies aren’t always looking out for your bottom line. At Total Benefit Solutions Inc, we act as the intermediary. We shop around, compare options, and most importantly, we act as your advocate when the bureaucracy gets messy. We never accept “no” for an answer when fighting for your rights.
Ready to Shield Your Business from Penalties?
Navigating Medicare Secondary Payer rules shouldn’t be a solo mission. Whether you are looking for affordable group health insurance or need help auditing your current compliance, we are here to help.
Visit our Senior Benefits page to learn more about how we handle Medicare coordination, or browse our full range of services.
Total Benefit Solutions Inc
(215) 355-2121
www.totalbenefits.net
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