When Medicare Pays Second to an Employer Plan

Answer first: three conditions, and a headcount

The operative regulation states when Medicare pays second in three numbered conditions. Medicare Part A and Part B benefits are secondary to benefits payable by a group health plan for services furnished in any month in which the individual is aged, is entitled to Part A benefits, and meets one of two further conditions: being "covered under a GHP of an employer that has at least 20 employees (including a multi-employer plan in which at least one of the participating employers meets that condition), and coverage under the plan is by virtue of the individual's current employment status," or being the aged spouse, including a divorced or common-law spouse, of an individual of any age covered under such a plan by virtue of that individual's current employment status.

The headcount has its own definition. An employer is considered to employ 20 or more employees "if the employer has 20 or more employees for each working day in each of 20 or more calendar weeks in the current calendar year or the preceding calendar year."

The scope regulation situates this among the other secondary payer rules. Medicare is secondary for group health plans of employers with at least 20 employees covering beneficiaries 65 or older with current employment status; for group health plans covering individuals with end-stage renal disease, without regard to employer size and irrespective of current employment status, during a stated initial period; and for large group health plans, meaning plans of employers with at least 100 employees, covering beneficiaries under 65 entitled on the basis of disability with current employment status.

There is an exception for small employers inside multi-employer plans. The requirements do not apply to individuals enrolled in a multi-employer plan if they are covered by virtue of current employment status with an employer that has fewer than 20 employees and the plan requests an exception and identifies those individuals.

"Current employment status" is a defined term, and it is broader than working

The definition has two branches. An individual has current employment status if they are "actively working as an employee, is the employer (including a self-employed person), or is associated with the employer in a business relationship." Or if they are not actively working and either receive disability benefits from an employer for up to six months — the first six months of employer disability benefits being subject to FICA taxes — or retain employment rights in the industry under a set of conditions the regulation lists.

That second branch is the one worth reading closely. It requires that employment has not been terminated by the employer where the employer provides the coverage, or that membership in the employee organization has not been terminated where the organization provides it; that the person is not receiving employer disability benefits for more than six months; that they are not receiving Social Security disability benefits; and that the group health plan coverage is not COBRA continuation coverage. The regulation then adds: "Whether or not the individual is receiving pay during the period of nonwork is not a factor."

The regulation gives examples of people who retain employment rights: those who are furloughed, temporarily laid off or on sick leave; teachers and seasonal workers who normally do not work throughout the year; and people whose health coverage extends beyond or between active employment periods, such as under an hours bank arrangement common among active union members.

Coverage "by virtue of current employment status" requires two things at once: coverage based on employment, including coverage based on a number of hours worked or a level of commissions earned at any time, and current employment status with that same employer.

Self-employed people get a specific test. A self-employed individual is considered to have such coverage during a tax year "only if, during the preceding tax year, the individual's net earnings, from work in that year related to the employer that offers the group health coverage, are at least equal to" the statutory self-employment income amount.

The reemployed retiree rule closes a gap the other way. A reemployed retiree or annuitant covered by a group health plan who performs sufficient services to qualify for coverage on that basis "is considered covered 'by reason of current employment status'" even if the employer provides the same coverage to retirees, or the plan premiums are paid from a retirement or pension fund.

What a plan may not do about someone's Medicare entitlement

The statutory prohibition is that plans "may not take into account" that the individuals described are entitled to Medicare on the basis of age or disability, or eligible for or entitled to Medicare on the basis of end-stage renal disease. The regulations then give a list of actions that constitute taking it into account, and the list is long and concrete.

It includes failing to pay primary benefits as required; offering coverage that is secondary to Medicare to individuals entitled to Medicare; terminating coverage because the individual became entitled to Medicare, except as the COBRA provisions permit; imposing benefit limitations on a Medicare-entitled individual that do not apply to others — less comprehensive coverage, excluded or reduced benefits, higher deductibles or coinsurance, lower annual or lifetime limits, more restrictive pre-existing illness limitations; charging a Medicare-entitled individual higher premiums; requiring them to wait longer for coverage to begin; paying providers less for services furnished to a Medicare beneficiary than for the same services furnished to a non-entitled enrollee; and refusing to enroll an individual for whom Medicare would be secondary when enrollment is available to similarly situated individuals for whom it would not be.

Two items on the list are about information rather than money. One is "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" — with the regulation's own example being telling a beneficiary they may accept or reject the plan without telling them that rejecting it means the plan will not be permitted to provide or pay for secondary benefits. The other is putting instructions on insurance cards, claims forms or brochures to bill Medicare first "without stipulating that such action may be taken only when Medicare is the primary payer."

Two equal-treatment requirements sit alongside the prohibition. Plans of employers with 20 or more employees must provide any employee or spouse 65 or older "the same benefits, under the same conditions," as employees and spouses under 65, and that requirement applies "regardless of whether the individual or spouse 65 or older is entitled to Medicare."

The regulation also lists permissible actions. A plan that makes benefit distinctions among categories of individuals for reasons unrelated to disability — length of employment, occupation, marital status — may make the same distinctions among Medicare-entitled individuals whose coverage is based on current employment status. And a plan may pay benefits secondary to Medicare for an aged or disabled beneficiary who has current employment status where the plan coverage is COBRA continuation coverage because of reduced hours, because in that case the coverage arises from the COBRA law rather than from current employment status.

What declining the employer plan actually does

The regulation addresses this in three short sentences, and they matter. "An employee or spouse may refuse the health plan offered by the employer." If they do, "Medicare is primary payer for that individual," and "the plan may not offer that individual coverage complementary to Medicare."

So refusal is permitted, and it changes the payment order — but it also forecloses the employer plan from wrapping around Medicare for that person. Those are two separate consequences of the same choice, and the misleading-information item in the taking-into-account list exists precisely because the second one is easy to omit when explaining the first.

Where Medicare does pay secondary, it "pays secondary benefits, within the limitations specified" in the cited sections, "to supplement the primary benefits paid by the group health plan if that plan pays only a portion of the charge for the services."

The definitions section is worth knowing here because it decides what counts as a group health plan in the first place. The term covers arrangements by one or more employers or employee organizations to provide health care to current or former employees, the employer, others associated with the employer in a business relationship, or their families, subject to three stated conditions. It expressly includes self-insured plans, plans of federal, state and local governmental entities, union and employee organization plans, and employee-pay-all plans that receive no financial contributions from the employer or organization. It expressly excludes "a plan that is unavailable to employees; for example, a plan only for self-employed persons."

"Employer" is defined broadly too — individuals including self-employed persons and organizations engaged in a trade or business, plus tax-exempt entities such as religious, charitable and educational institutions, and the governments of the United States, the states and the listed territories along with their agencies, instrumentalities and political subdivisions.

Why this determines an enrollment deadline, not just a claim

The same phrase that decides who pays first also decides whether someone can enroll in Part B later without a penalty. The Part B special enrollment period regulation's special rule for people 65 or over requires that group health plan coverage be "by reason of the current employment status of the individual or the individual's spouse," and it takes its definitions of group health plan and large group health plan from the secondary payer definitions section.

The duration rule Part B borrows from the Part A provision states that the special enrollment period "includes any month during any part of which" the individual is enrolled in a qualifying plan by reason of current employment status, and "ends on the last day of the eighth consecutive month during which the individual is at no time enrolled" in such a plan by reason of current employment status.

That is why retiree coverage and continuation coverage sit outside this framework in both directions. Neither is coverage by reason of current employment status, so neither makes Medicare the secondary payer under this subpart, and neither preserves a special enrollment period. The regulation's own definition of current employment status excludes COBRA continuation coverage by name.

The aged determination has its own timing rules. An individual attains a particular age "on the day preceding the anniversary of his or her birth," the period during which someone is considered aged begins on the first day of the month in which they attain age 65, and for services furnished on or after May 1, 1986, "the period has no upper age limit."

Whether a specific employer meets the headcount, whether a specific person has current employment status, and which payer is primary for a specific claim are determinations made on the facts of that case. This article describes the rules; it decides nothing.