When that scary letter comes in the mail and it’s really bad news.

Each month I look for topics for blog articles. As is often the case, the question that arises multiple times during the month becomes my blog topic. This month, the topic of whether Medicare pays primary or secondary for employees over the age of 65 and enrolled on a group medical plan, came up three times.  Now, my expertise is in alphabet soup programs, not Medicare, so I’m dipping my toe in deeper waters but on this particular question, given my recent experience, I’m confident in posting on this particular topic.

Here is what drives my confidence of this answer. A client of mine received a scary letter from the Centers for Medicare & Medicaid Services (CMS) last year notifying them (the company) that they owed thousands of dollars to Medicare for expenses paid by Medicare for a Medicare-eligible, group-health-plan participant. This over-the-age-of-65 participant had some medical claims and Medicare paid them first. Much later, CMS sent the employer a letter saying Medicare was supposed to pay secondarily and not primarily and laid the responsibility on the employer to fix the problem or repay Medicare $18,625.30 for the participant’s medical claims within sixty days.

Wait. What? How did this happen? It all goes back to the size of the company and how the group master application (GMA) for the medical plan is completed. Remember the GMA you completed when you renewed your medical plan? That’s where you told them whether you were over or under the 20-employee mark. (It’s probably right above or below where to you told them you were or were not a COBRA eligible employer.) Guess what? There are entities actually paying attention to the boxes you check on these forms.

Here’s the rule: under federal law, if an employer had 20 or more full-time and part-time employees during 20 or more weeks in the preceding or current calendar year (they do not have to be consecutive weeks), the employer’s medical plan pays primary, and Medicare pays secondary. If the employer has less than 20 employees and isn’t part of a multi-employer or multiple employer group health plan, then Medicare pays first, and the group medical plan pays second.  It is the Group’s responsibility to accurately determine its Medicare status. Note that this rule is not the same as determining if you are or are not a COBRA eligible employer.

In my client’s case, they mistakenly or inadvertently indicated on their GMA that they were under 20 or more employees. How did CMS discover this error? Well, the medical insurance company takes those answers and shares them with CMS. CMS cross references the carrier data with IRS W-2 data and maybe DOL and 5500 filing and makes the determination as to whether they pay primary. In my client’s case this review concluded that my client exceeded the 20+ employee threshold; Medicare was not the primary payor, the group health plan was. And CMS wanted their money back. Reading that letter must’ve had the same effect on the pit of their stomachs as when I receive an IRS letter.

Over the years, I’ve had clients who have made mistakes on forms. I’ve also had generous small employers who would like to offer COBRA even though they aren’t eligible and may be tempted to fudge a bit on the form. But those errors and oversights can trigger scary letters from miserly bureaucratic government entities seeking to recoup overpayments – sometimes accumulating at astronomical interest rates and/or assessing egregious fines.

Here’s my sage advice:

  • Be honest when you tell the insurance carrier your TEFRA numbers (Tax Equity and Fiscal Responsibility Act of 1982). This law recognized Medicare as the secondary payer for health services to individuals covered by private group insurance. It may cost you to not answer this question thoughtfully, you may get the same scary letter my client was sent stating it’s your problem to figure this billing mess out or pay the claims if you can’t.
  • Be honest when you tell the insurance carrier whether you are a COBRA eligible employer on the group master application. As I said, I’ve had many small employers say they want to behave as if they are COBRA eligible employers. Bad idea. When a “COBRA participant” has a big fat medical claim, the carrier may decide to audit your group plan and determine you are not a COBRA eligible employer and refuse to pay the claim. You’re on the hook for it.
  • Remember that a Health Reimbursement Arrangement (HRA) plan is a medical plan. We report to CMS if the HRA pays $5,000 or more per individual for groups with 20 employees or more. 

A final thought:  George Orwell’s Nineteen Eighty-Four novel reminds us that one’s actions and intentions are being monitored by the government as a means of making sure you complete your group master applications correctly…or else.  OK, maybe I embellished a bit – but when you get that scary letter in the mail, you might agree with me.

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