Medicare Secondary Payer (MSP)

Medicare Secondary Payer is the name for the statutory rules, at 42 U.S.C. 1395y(b), under which Medicare does not have primary payment responsibility for an item or service because another payer does. The Centers for Medicare & Medicaid Services describes it as "the term generally used when the Medicare program does not have primary payment responsibility, that is, when another entity has the responsibility for paying before Medicare." Medicare was the primary payer for nearly everything when it began in 1966; a 1980 statute and its successors moved a defined list of situations the other way.

The rules work from two directions at once. In the group health plan cases, the statute regulates the plan rather than Medicare: a group health plan "may not take into account" that a covered person is entitled to Medicare, and must give employees 65 and older the same benefits on the same conditions as anyone younger. In the accident and injury cases, it regulates Medicare: payment may not be made where payment "has been made, or can reasonably be expected to be made" under workers' compensation, no-fault or liability insurance. The statute calls whichever plan comes first the primary plan.

The employee-count tests are two different tests, and the wrong one gives the wrong answer. For someone entitled to Medicare because of age, the working-aged rule applies only where the plan "is a plan of, or contributed to by, an employer that 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." Meet that test and the group plan pays first. Fall below it and Medicare pays first, which is the outcome most people working at a small employer do not expect. For someone entitled to Medicare because of disability, the rule reaches only a large group health plan, which the Internal Revenue Code defines as a plan covering employees of at least one employer that "normally employed at least 100 employees on a typical business day during the previous calendar year." Both tests look through corporate structure: employers treated as a single employer under the controlled-group rules count as one, affiliated service groups count as one, and leased employees count for the business they work for. A self-employed person counts as an employer for this purpose.

"Current employment status" is the hinge, and it is defined narrowly. The statute says an individual has current employment status if the individual "is an employee, is the employer, or is associated with the employer in a business relationship." A retiree on an employer's retiree plan satisfies none of those, and neither does someone continuing coverage under COBRA. That is why CMS's own table puts Medicare first against both retiree coverage and COBRA at 65, and first against COBRA for a disabled beneficiary. The exception is end-stage renal disease, where COBRA coverage is primary for the coordination period like any other group coverage. The practical consequence reaches beyond claims: the coverage that lets someone delay Part B without penalty is coverage by virtue of current employment, so the two rules use the same concept and get confused together.

End-stage renal disease runs on a 30-month clock. A group health plan may not take renal-disease-based Medicare entitlement into account during the coordination period that begins with the first month of entitlement, or the first month entitlement would have begun had an application been filed, whichever is earlier. The statute was written with a 12-month period, and its text still carries that number alongside the amendments that replaced it, with 18 months applying from 1991 and 30 months from 5 August 1997. Thirty months is the operative figure, and the plan is primary for that whole period regardless of employer size, which is the point most easily lost. When the period ends, Medicare becomes primary.

Outside group coverage, the primary payers are the accident-and-injury ones. Where a workers' compensation plan, an automobile or liability policy, or no-fault insurance is responsible, Medicare may not pay to the extent payment has been made or can reasonably be expected to be made. Because those cases can take years to resolve, the statute lets Medicare make a conditional payment, which is exactly what the name implies: the money is advanced on the condition that it is repaid. A primary plan, and an entity that receives payment from one, must reimburse the Trust Fund once responsibility is demonstrated, and responsibility can be demonstrated "by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability)," or by other means. If reimbursement is not made within 60 days of the notice, interest may be charged. The United States may sue any responsible entity, may collect double damages, and is subrogated to the individual's own right to payment from the primary plan. One protection runs the other way: an individual who is furnished an item or service for which Medicare benefits were incorrectly paid is not liable to repay them unless the payment was made to the individual.

1. Establish why the person has Medicare. Age, disability or end-stage renal disease sends the question down a different branch.

2. Ask whether the other coverage comes from current employment. Retiree coverage and COBRA do not count as current employment, so outside the renal cases Medicare pays first against them.

3. Apply the right employee count. Twenty or more for the age-65 branch; a large group health plan, meaning at least 100 employees normally employed on a typical business day in the previous calendar year, for the disability branch.

4. Bill the primary payer first. Providers are required to determine whether Medicare is primary before billing it.

5. Medicare considers the remainder. As the secondary payer it may pay toward what the primary plan left, under its own payment rules, and it does not simply pay whatever balance remains.

6. In accident cases, expect a conditional payment and a payback. Medicare may advance the money while liability is unresolved, and the primary plan or the entity that received its payment must reimburse the Trust Fund once responsibility is shown, within 60 days of notice to avoid interest.

Take an example. Nadia is 67, still working, and covered by her employer's plan at a firm with 22 employees. She has surgery with an allowed amount of $18,600. Because the firm is over the 20-employee line and the coverage comes from current employment, the employer plan is primary and is billed first. It applies her $2,000 deductible, leaving $16,600, and pays 80% of that, which is $13,280. Her share is the $2,000 deductible plus 20% of $16,600, or $3,320, so $5,320 in total. Medicare then considers that remaining $5,320 as the secondary payer under its own payment rules. Change one fact and the whole sequence inverts: had the firm employed 15 people, Medicare would have been primary and the employer plan would have paid second. Nothing about Nadia's coverage changed, only the employer's headcount.

Pros

• Two sources of coverage generally mean less out of pocket than one, since the secondary payer can pay toward what the primary plan leaves.
• The rules are protective of the beneficiary at the plan level: a group health plan may not take Medicare entitlement into account, and may not give workers 65 and older lesser benefits than younger ones.
• Conditional payments keep care moving while an accident claim is unresolved, rather than leaving the bills unpaid for years.
• A beneficiary is not personally liable to repay benefits that were incorrectly paid, unless the payment went to them.
• Knowing the order in advance prevents the commonest billing failure, which is a claim sent to the wrong payer first and denied.

Cons

• The employer-size thresholds are invisible to the person they affect, and nothing on a Medicare card or a plan ID card reveals which way the order runs.
• The two thresholds differ by entitlement reason, so a household can face opposite answers for two people covered by the same plan.
• Getting the order wrong produces denied claims and rebilling, often months after the care.
• In accident cases, a settlement can carry an obligation to repay Medicare that the claimant did not price into the number they agreed to.
• The 30-month renal coordination period ends on a date nobody is reminded of, and the payment order changes when it does.