Unless you are an attorney familiar with personal injury litigation, you have probably never heard of the Medicare Secondary Payer (MSP) rules. These are a complicated set of rules to determine whether Medicare or other insurance pays for health claims first, and which also govern repayment to Medicare if someone’s accident injuries are paid by it and there is a subsequent insurance settlement or court judgment.
The federal government has just issued a report pointing out that many small businesses are in violation of the requirements that they report health coverage for Medicare beneficiaries to the government. Failure to do so could result in the business facing a substantial fine, so it is important to understand these rules. Now that the earnings limit on Social Security benefits has been removed for workers age 65 and older, we may see more and more employees with such dual coverage. The rules are also important for beneficiaries to understand, since they are often confused about whether Medicare or their insurance will pay a claim.
The general rule for when Medicare will be the secondary payer is this. If someone who has Medicare coverage because of age also has health coverage (whether through insurance or an employer funded plan) through an employer, the employer health coverage pays first and Medicare pays second. There is an exception for small employers with fewer than 20 employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year; such small employers may have health plans which pay secondary to Medicare. Where Medicare coverage is provided due to disability, Medicare will be the secondary payer if employer coverage is provided under a “large group health plan,” which covered 100 or more employees on a typical business day the prior calendar year. Special rules apply for individuals receiving Medicare due to end stage renal disease (kidney failure).
The problem faced by Medicare is that it does not necessarily know whether a beneficiary is covered under an employer health plan. In order to help determine this, Congress passed a law in 1989 permitting data matches between Social Security, income tax and Medicare records to identify individuals potentially covered by employer plans. A Medicare contractor sends out requests to employers for information about whether identified individuals are covered under the employer’s health plan. While there has been an 87 percent response rate, the 13 percent of non-responding employers had over 1.2 million employees that could have primary health insurance other than Medicare. The government has estimated that there would be about $282 million of savings lost because of these non-responding employers.
Since 1994 the law has also permitted the government to assess a civil monetary penalty of up to $1,000 for each employee for whom an inquiry was made but not answered, but as of this summer no such assessments had ever been made. However, in response to an audit by the Office of Inspector General, the government has decided to bring a “test case” against a large employer which has not responded to several such requests for health plan information. The government also has authority to subpoena health plan information and potentially to refer the employer to the IRS for imposition of an excise tax on the employer in the amount of 25% of its contributions to the health plan in a calendar year. Given the recent initiatives undertaken by the government against health care providers for alleged violations of Medicare rules, which have become a major profit center for the government, it is likely that claims against employers may rise exponentially over the next few years as well.
For those Medicare beneficiaries involved in accidents where payment for their resulting medical expenses have been paid in whole or part by Medicare, when there is a settlement or judgment resulting in a monetary recovery for the accident, the rule is simple. Medicare expects to be paid back. This is the case whether the settlement or lawsuit purports to cover medical expenses or not. If Medicare is not paid back, its remedies include recovering interest and damages in an amount of twice the amount of the claims Medicare paid. Many people may be liable for such a claim, if they in any way received a part of the third-party reimbursement from the accident. This includes beneficiaries, physicians, other providers, and attorneys.
Medicare has discovered that such recoveries are also a profit center. Attorneys handling tort cases have seen a marked increase in the number of demands for repayment emanating from Medicare, and they generally are aware that part of their responsibility in disbursing proceeds from a tort recovery is to reimburse Medicare. If they do not, Medicare may recover its share directly from the attorney.
Both employers and Medicare beneficiaries find these rules confusing, but while there are a few complex exceptions, the general rule is much more simple. Medicare usually pays second to any employer health plan and usually gets paid back if there is any other source of subsequent payment for health care expenses.