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What's Next! - Medicare Coverage Rules

As more and more older Americans stay in the workforce, employers may have questions about how employees’ Medicare entitlement impacts their group health plan coverage. Employers sponsoring group health plans that cover individuals enrolled in Medicare should understand:

  • Medicare’s coordination of benefits rules, which determine whether the group health plan or Medicare pays first on claims;

  • The Medicare secondary payer (MSP) rules, which prohibit many employers from taking into account an individual’s Medicare entitlement; and

  • The special continuation coverage rules under COBRA that apply to Medicare beneficiaries.

Retiree health plans are subject to more flexible rules that allow employers to implement Medicare carve-outs and similar plan designs. Compliance Reminder – As a general rule, retiree health plans are not subject to the MSP rules when Medicare entitlement is based on age.

How Does Coordination of Benefits Work?

  • If an employer has 20 or more employees, its group health plan is the primary payer for employees 65 or older.

  • If an employer has 20 or less employees, its Medicare is the primary payer for employees 65 or older.

  • If an employer has 100 or more employees, its group health plan is the primary payer for disabled employees under age 65.

What Are The Medicare Secondary Payor Rules (MSP)?

Employers with group health plans that are primary to Medicare:

  • Must offer employees age 65 or older the same health benefits, under the same conditions, that they offer to other employees

  • Cannot take into account an individual’s Medicare entitlement

  • Cannot offer incentives to not enroll in the group health plan. A violation of the prohibition on offering incentives can trigger financial penalties of up to $8,908 (adjusted annually for inflation).

Prohibited Actions that “Take Into Account”

Prohibited actions that “take into account” an individual’s Medicare entitlement include (but are not limited to) the following:

  • Offering coverage that is secondary to Medicare to individuals entitled to Medicare;

  • Terminating coverage because the individual has become entitled to Medicare (except as permitted for COBRA coverage);

  • Imposing limitations on benefits for an individual entitled to Medicare that do not apply to others enrolled in the plan, such as excluding benefits or charging higher deductibles;

  • Charging higher premiums to Medicare-entitled individuals;

  • Requiring Medicare-entitled individuals to wait longer for coverage to begin;

  • Paying providers and suppliers no more than the Medicare payment rate for services furnished to a Medicare beneficiary, but making payments at a higher rate for the same services to an enrollee who is not entitled to Medicare;

  • Providing misleading or incomplete information that would induce a Medicare-entitled individual to reject the employer’s group health plan, which would make Medicare the primary payer; and

  • Refusing to enroll an individual for whom Medicare would be the secondary payer when enrollment is available to similarly situated individuals for whom Medicare would not be secondary payer.


Medicare is a federally funded health benefits program administered by the Centers for Medicare and Medicaid Services. Generally, Medicare is available for people age 65 or older, younger people with disabilities and people with end-stage renal disease (ESRD), permanent kidney failure requiring dialysis or a transplant.

Medicare’s eligibility rules work as follows:

  • AGE - An individual is entitled to Medicare benefits based on age if he or she has attained age 65 and is receiving retirement benefits from Social Security or the Railroad Retirement Board (RRB), or is eligible to receive these retirement benefits, but has not yet applied for them.

  • DISABILITY - An individual is entitled to Medicare benefits based on disability if he or she is under age 65 and has been entitled to Social Security or RRB disability benefits for 24 months. For individuals who have ALS (amyotrophic lateral sclerosis, also called Lou Gehrig’s disease), Medicare benefits automatically begin when disability benefits begin.

  • ESRD - An individual who needs regular dialysis or a kidney transplant is eligible for Medicare if he or she has worked the required amount of time under Social Security, the RRB or as a government employee, or is already receiving (or eligible to receive) Social Security or RRB benefits. An individual who has ESRD and is the spouse or dependent child of a person who meets these requirements is also eligible for Medicare. ESRD-based Medicare entitlement generally begins on the first day of the third month after the individual begins a regular course of dialysis (earlier entitlement may occur when an individual receives a kidney transplant or participates in a self-dialysis program).

Medicare has two main parts—Medicare Part A (hospital insurance) and Medicare Part B (physician and outpatient services). Medicare also offers prescription drug coverage (Medicare Part D) to everyone with Medicare. While most people do not have to pay premiums for Medicare Part A, Medicare beneficiaries are required to pay for their Part B and Part D coverage.

Coverage under Medicare Parts A and B typically begins automatically for individuals eligible for Medicare based on disability and for individuals eligible based on age who are already receiving monthly retirement benefits from Social Security or the RRB.

Individuals can drop Medicare Part B, but they are not permitted to waive Medicare Part A and retain Social Security benefits. If an individual who has already started receiving Social Security benefits waives Medicare Part A, he or she is responsible for refunding the Social Security payments already received, as well as any Medicare benefits paid on his or her behalf.

Individuals whose Medicare coverage does not begin automatically—that is, individuals who are not receiving retirement benefits from Social Security or the RRB at age 65 and individuals who are eligible for Medicare based on ESRD—must submit an application for Medicare benefits.


This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

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