SSA - POMS: HI 00620.178 - Medicare as Secondary Payer for Disabled Individuals

A. General

Under section 1862(b)(4) of the Act Medicare is secondary payer to “large group health plans” for “active individuals” (as defined in C.3.) under age 65 entitled to Medicare on the basis of disability. Under the law a large group health plan (LGHP) may not “take into account” that an “active individual” is eligible for or receives benefits based on disability. The individual’s coverage under the LGHP must be based on the individual’s employment or the employment of a family member, as explained in paragraph C.3. The following provides instructions dealing with implementation of this provision. In addition, the instructions in HI 00620.177E.2. and HI 00620.177F. also apply where Medicare is secondary payer for disabled individuals. Where those sections refer to an EGHP of 20 or more employees, substitute the term “large group health plan” as defined in paragraph C.1., for the purpose of applying them to disabled individuals.

B. Effective date

This provision is effective for items and services furnished on or after January 1, 1987 and before January 1, 1992. The effective dates are fixed by law.

C. Definitions

1. Large group health plan

Means any health plan of, or contributed to by an employer or by an employee organization (including a self-insured plan) that provides health care directly or through other methods such as insurance or reimbursement, to employees or former employees, the employer, others associated, or formerly associated, with the employer in a business relationship, or their families, and that covers employees of at least one employer that normally employed at least 100 full or part-time employees on a typical business day during the previous calendar year. The term employer for purposes of this provision has the same meaning as the term has for purposes of the working aged provision. That definition is in HI 00620.177B.1. It includes the Federal government and other governmental entities. Note, however, that the tax penalty for nonconforming LGHPs does not apply to Federal and other government entities. (See paragraph G.). A group health plan that covers employees of at least one employer that had 100 or more employees on 50% or more of its business days during the preceding calendar year is considered to meet the above definition of LGHP. If the plan is a multiemployer plan, such as a union plan, which covers employees of some small employers and also employees of at least one employer that meets the 100 or more employees requirement, Medicare is secondary for all employees enrolled in the plan including those that work for small employers. Note that this differs from the rule for multiemployer plans under the working aged. (See HI 00620.177B.2.)

2. Nonconforming large group health plan

Means an LGHP that at any time during a calendar year takes into account that an active individual is eligible for or receives benefits based on disability e.g., an LGHP fails to pay primary benefits for disabled individuals under age 65 for whom Medicare is secondary payer in accordance with paragraph C.3.

NOTE: Although the term “large group health plan” includes a plan for former employees or persons formerly associated with the employer in a business relationship, or their families, these individuals are not included within the definition of “active individual” in C.3., i.e., Medicare is not secondary for them.

These individuals are included within the definition of LGHP for tax purposes. (See the tax penalty described in paragraph G.)

3. Active individuals subject to this limitation on payment

An “active individual” is an employee, an employer (e.g., proprietor or partner), an individual associated with the employer in a business relationship (e.g., suppliers and contractors who do business with the employer and their employees) or a member of the family of any of these persons such as the spouse, parent or child of such an individual. Medicare is secondary payer under this provision for active individuals entitled to Medicare based on disability who have coverage under an LGHP.

In some cases, the disabled individual may be the employee, employer, or individual associated with the employer in a business relationship. In other cases, the disabled person may be the “family member” of the employee, employer, or individual associated with the employer in a business relationship. This means that a disabled person who is not an employee, as defined in paragraph C.4., but who is covered under an LGHP of a spouse, parent, or any other family member is considered to be an “active individual.”

4. Employee

Means an individual who is actively working for an employer or, since disabled persons are not usually working, a person whose relationship to an employer is indicative of employee status. Whether or not such a person is an employee is established by the unique facts applicable to the person’s relationship to the employer. The question to be decided is whether the employer treats a disabled individual who is not working as an employee, in light of commonly accepted indicators of employee status rather than whether the person is categorized in any particular way by the employer. In general, an individual who is not actively working is considered an employee if any of the following factors is present:

a.

The individual receives payments from an employer which are subject to taxes under the Federal Insurance Contributions Act (FICA) or would be subject to such taxes except that the employer is one that is not required to pay such taxes under the Internal Revenue Code.
b.

The individual is termed an employee under State or Federal law or in accordance with a court decision.
c.

The employer pays the same taxes for the individual as the employer pays for actively working employees.
d.

The individual continues to accrue vacation time or receives vacation pay.
e.

The individual participates in an employer’s benefit plan in which only employees may participate.
f.

The individual has rights to return to duty if the individual's condition improves.
g.

The individual continues to accrue sick leave.

D. Individuals not subject to this limitation on payment

Medicare is not secondary for individuals:

1.

Entitled, or who would upon application be entitled, to Medicare under the ESRD provision, i.e, individuals who have ESRD even though their current Medicare entitlement is on the basis of disability. However, in accordance with HI 00620.177A., Medicare is secondary payer for persons under age 65 with ESRD during a period of up to 12 months regardless of the number of employees;
2.

Who are covered by an EGHP of employer(s) of less than 100 employees, unless the EGHP is a multiemployer plan in which there is at least one employer of 100 or more employees (see paragraph C.1.); or
3.

Whose coverage by an LGHP is not based on either employment or a relationship to an employee, employer, or an individual associated with an employer in a business relationship. For example, Medicare is primary for a disabled individual who is covered under an LGHP as a retired former employee or the spouse of a retired former employee.

E. Recovery of primary medicare payments

Under the law, the government recovers incorrect primary Medicare benefits from any LGHP which is primary payer. To recover Medicare payments the government:

1.

May bring legal action against the LGHP and may collect double damages.
2.

May take legal action to recover its benefits from any entity that has been paid by the LGHP for items and services furnished an individual who meets the conditions in paragraph C.3.
3.

May join or intervene in any legal action against the LGHP related to the events that gave rise to the need for the items or services.
4.

Is subrogated, to the extent it paid for items or services, to the rights of any individual who is entitled to receive primary payment from an LGHP.

F. Claimant’s right to take legal action against large group health plan

Any claimant including an individual who received services, and the provider or supplier, has the right to take legal action against an LGHP that fails to pay primary benefits for services covered by both the LGHP and Medicare and to collect double damages.

G. Tax penalty for noncompliance

An excise tax is imposed by Section 5000 of the Internal Revenue Code (IRC) on any employer or employee organization that contributes to a nonconforming LGHP (see paragraph C.2. for definition) during a calendar year. The amount of tax is 25 percent of the total amount that the employer or employee organization contributed to LGHPs during that year. This tax penalty does not apply to Federal and other governmental entities.

H. Referral of cases to CMS regional office action

Refer to the CMS RO, Attention: Associate Regional Administrator, Program Operations, any cases which come to your attention of a nonconforming LGHP which either offers secondary coverage for individuals for whom Medicare is secondary under paragraph C.3., or which refuses to reimburse Medicare for any primary benefits paid to or on behalf of such individuals. Include, in addition to the individual’s name and Medicare number, the name and address of the employer and the LGHP, the individual’s group health plan identification number, and a full explanation of the reasons for the referral. The CMS RO considers possible legal action to collect double damages from nonconforming LGHPs. The CMS RO also refers such cases to the Internal Revenue Service for imposition of the tax penalty described in paragraph G on the contributing employer or employee organization.

Social Security

Program Operations Manual System (POMS)

HI 00620.178 Medicare as Secondary Payer for Disabled Individuals