Author: Carlton Harker, FSA, MAA

What is Medicare Secondary Payer?

Medicare Secondary Payer (MSP) is the term used by Medicare when Medicare is not responsible for paying as primary. The private insurance industry generally talks about Coordination of Benefits when assigning responsibility for first and second payment.

The term Medicare Secondary Payer is sometimes confused with Medicare Supplement. A Medicare Supplement (Medigap) policy is a private health insurance designed specifically to fill in some of the gaps in Medicare’s coverage when Medicare is the primary payer. Medicare supplement policies typically pay for expenses that Medicare does not pay because of deductible or coinsurance amounts or other limits under the Medicare program.

Statutory Basis for Medicare Secondary

Federal law takes precedence over state law and private contracts. Thus, for the categories of people described in the regulations discussed below, Medicare is the secondary payer regardless of state law or plan provisions. The federal requirements are found in Section 1862(b) of the Social Security Act {42 USC §1395y(b)(5)}. Applicable regulations are found at 42 CFR Part 411 (1990).

Employer Responsibilities with Medicare Secondary

The responsibilities of the employer are as follows:

  • Assure that its plans identify those individuals to whom the MSP requirement applies
  • Assure that its plans provide for proper primary payments when the law make Medicare the secondary payer
  • Assure that its plan do not discriminate against employees and employees’ spouses age 65 or over, people who suffer from permanent kidney failure, and disabled Medicare beneficiaries for whom Medicare is secondary payer
  • Accurately complete and submit Data Match reports in a timely way on identified employees.

Medicare Secondary Payer and Medigap Policies

An employer cannot offer, subsidize, or be involved in the arrangement of a Medicare supplement policy where the law makes Medicare the secondary payer. If employers purchase an individual Medigap policy for their workers, this policy is considered a group health plan (GHP) under Medicare law and the Internal Revenue Code. Even if the employer does not contribute to the premium, but merely collects it and forwards it to the appropriate individual’s insurance company, the Medigap policy must be a primary payer to Medicare. Because the plan takes into account the Medicare entitlement of the beneficiary, the plan is a non-conforming GHP, which would subject all employers participating in the plan to excise taxes. See IRC § 5000.

Enforcing Medicare Secondary Payer Provisions

A COB contractor has the responsibility for virtually all initial MSP development activities formerly performed by Medicare intermediaries and carriers. This means the COB contractor is charged with ensuring the accuracy and timely update of data populated on Medicare’s eligibility database regarding other health insurance that is primary to Medicare. The COB contractor also handles MSP-related inquiries, including those seeking general MSP information, but not those related to specific claims or recoveries.

The COB contractor is primarily an information gathering entity. A variety of methods and programs are used to identify situations in which Medicare beneficiaries have other health insurance that is primary to Medicare:

  • First Claim Development

When a Medicare intermediary or carrier receives the first claim for a Medicare beneficiary, the claim is processed, and a questionnaire is sent to the provider to collect information on the existence of other insurance that may be primary to Medicare.

  • Secondary Claim Development

When a claim is submitted with an explanation of benefits (EOB) attached from an insurer other than Medicare, a questionnaire is sent to the beneficiary to collect information on the existence of other insurance that may be primary to Medicare.

  •  Trauma Code Development

When a diagnosis appears on a claim that indicates a traumatic accident, injury or illness, which might form the basis of MSP, a questionnaire is sent to the beneficiary to collect information on the existence of other insurance that may be primary to Medicare.

  • Self-Development Report

A self-report covers the full spectrum of MSP situations. Any source that contacts the COB contractor initiates this type of development process in order to address these inquiries and to assure that the information provided is accurate.

The goal of these MSP information-gathering activities is to identify MSP situations rapidly, thus ensuring correct primary and secondary payments by the responsible party. Provider, physicians and other suppliers benefit from this activity because the total payments received for services provided to Medicare beneficiaries are greater when Medicare is a secondary payer to a group health plan than when medical is the primary payer. See 42 CFR § 411.25.

When Medicare Is Secondary

These are the instances where Medicare is secondary to other health care benefits:

  • Automobile accidents and liability situations
  • Workers’ compensation (injury or illness that occurred at work)
  • Working Aged (people age 65 years and older) that are covered by a Group Health Plan through their own or their spouses current employer
  • Disabled (people age 64 and under) that are covered by a Large Group health Plan (100 or more employees) through their own or a family member’s current employment
  • Medicare beneficiaries with ESRD of 30 months duration covered under a Group Health Plan
  • Black lung disease covered under the Federal Black Lung Program
  • Veterans Administration Benefits
  • Federal Research Grant Program.

New Medicare Law

The Medicare Prescription Drug Improvement and Modernization Act of 2003 §301 amended the MSP law to provide the federal government with powers to recover Medicare payments from certain settlement proceeds. The provisions are retroactive which in effect permits Medicare to effectively recover in those instances which a court has denied such recovery.

Two types of recovery are dealt with in the new MSP amendment:

  • Involving product liability
  • Involving subrogation.

Involving Product Liability

Several recent court decisions have prevented the federal government from recovering benefits paid by Medicare and other government health care programs from uninsured manufacturers that entered into multi-million-dollar settlements of class-action lawsuits alleging product liability. The courts had unanimously rejected the federal government’s argument that uninsured manufacturers were really self-insured. The new law makes clear that any Medicare payment prior to such settlement is conditioned upon reimbursing Medicare and that an uninsured manufacturer had, in fact, a self-insured plan. The new law provides that an uninsured manufacturer, as a primary plan, is responsible for reimbursing Medicare if it makes any “payment conditioned upon the recipient’s compromise, waiver or release (whether or not there is a determination or admission of liability)”. The existence of settlement proceeds of a class-action lawsuit is sufficient to establish the responsibility to reimburse Medicare, even if there is an express disclaimer of admission of liability.

Involving Subrogation

The new law also provides for recovery by Medicare from any entity that has received payment from a so-called primary plan which includes any entity that acts as an escrow agent of the settlement proceeds or otherwise holds the funds prior to disbursement. Thus, the MSP program and similar programs of other federal agencies were entitled to recover the benefits they paid from those employers and/or the trustees of any settlement proceeds, and the manufacturers and/or trustees had the burden of finding Medicare of other federal health care beneficiaries who were scheduled to receive those proceeds.


Employed Individuals

The term Employed Individuals means the following:

  1. Employees and Related

Refers not only to employees, but also to self-employed persons such as directors of corporations, and owners of businesses. If a self-employed individual enrolled in an EGHP, the employer plan may be primary for both that individual and the spouse. The term also includes member of the clergy and members of religious orders who are reimbursed for their services by a church, religious order, or other employing entity.

  1. Clergy and Religious Orders
  1. Individuals Over Age 65 or Disability

A person aged 65 or older and receiving disability payments from an employer is considered employed if the payments are subject to taxes under FICA. Employer disability payments are subject to FICA tax for the first six months of disability after the last calendar month in which the employee worked for that employer.

  1. Insurance Agents

A self-employed insurance agent is considered employed if such agent conducts business on behalf of the company. The fact that a self-employed insurance agent is authorized to represent the company; e.g., to write policies on behalf of the company, does not itself confer the status of employed individual. An insurance company that offers EGHP coverage to any self-employed insurance agent who writes policies on its behalf, must offer the same coverage under the same circumstances to older and younger agents. For example, a company that provide EGHP coverage for younger insurance agents who sell at least $10,000 of insurance during a calendar year is required to furnish the same coverage under the same conditions to agents age 65 or over, including retirees who sell at least $10,000 of insurance during the same time period. Since a full-time life insurance agent is considered an employee for social security purposes, such an individual is also considered an employee for the working aged provision.

  1. Senior Federal Judges
  1. Volunteers

Volunteers are not considered employees unless they perform services or are available to perform services for an employer and receive remuneration for their services.

  1. Corporate Directors

Directors, i.e., persons serving on a Board of Directors of a corporation, who are not officers of the corporation, are self-employed. (Officer of a corporation are employees). Directors who receive no remuneration for serving on the Board (unpaid directors) are not considered employed.

However, remuneration may consist of deferred compensation; i.e., amounts earned but not payable until some future date, usually when the individual reaches age 70 and is no longer subject to the social security retirement test. A director receiving deferred compensation is an employed individual.


The term Employer means not only individuals and organizations engaged in a trade or business, but also organizations exempt from income tax, such as religious, charitable, and educational institutions. Excluded are the governments of the United States, the States, the Virgin Islands, Guam, American Somoa, the Northern Mariana Islands, Puerto Rico and the District of Columbia. Only employers with 20 or more employees are required to offer the same (primary) coverage to their age 65 or over employees and the age 65 or over spouses of employees of any age that they offer to younger employees and spouses. This requirement is met if an employer has 20 or more full-time and/or part-time employees for each working day in each of 20 or more calendar weeks in the current or preceding year. Self-employed individuals who participate in an employer plan are not counted as employees in determining if the 20 or more employees requirement is met. When an employer does not have 20 or more employees in the preceding year, he is required to offer his employees and spouses age 65 or over, primary coverage when he has 20 of more employees on each working day of 20 calendar weeks of the current year. The employer is then required to offer primary coverage for the remainder of that year and throughout the following year, even if the number of employees subsequently drops below 20. The 20 or more employees requirement must be met when the individual received the services for which Medicare benefits are claimed. If at that time, the employer has met the 20 or more employees requirement in the current year or in the preceding calendar year, the EGHP is primary payer. An employer that meets this requirement must provide primary coverage even if less that 20 employees participate in the employer plan. Employers are not required to provide coverage to self-employed individuals. However, any coverage provided to self-employed persons age 65 or older and age 65 or older spouses of self-employed persons of any age, by an employer of 20 or more employees must be the same as coverage provided to younger self-employed persons, that is, coverage primary to Medicare. The employer must also provide primary coverage to older self-employed individuals even if there are no younger self-employed individuals enrolled in the plan. Assume for developing claims and that requirement that EGHPs be billed before Medicare that, in the absence of evidence to the contrary, an employer in whose health plan a beneficiary is enrolled because of employment meets the definition of employer and employs at least 20 people. Accept an employer’s allegation that the 20-employee requirement is not met or a multiemployer.

Employer Group Health Plan (EGHP)

This term means any health plan that is of, or contributed to, by an employer of 20 or more employees which provides medical care, directly or through other methods such as insurance or reimbursement, to current or former employees, or to current or former employees and their families. This includes a multi-employer group health plan that has at least one employer with 20 or more employees. These plans may identify members who are employees of employers with fewer than 20 employees. A plan that does not have any employees as enrollees, e.g., a plan for self-employed persons only, does not meet the definition of EGHP and Medicare is not secondary to it. Thus, if an insurance company established a plan solely for its self-employed insurance agents, other than full-time life insurance agents, the plan is not considered an EGHP. But if the plan includes full-time life insurance agents or other employees or former employees, it would be considered an EGHP. The Federal Employees Health Benefits program meets the definition of an EGHP. Employee-pay-all plans, i.e., group health plans which are under the auspices of an employer and which do not receive any contributions from the employer, also meet the definition of an EGHP. Coverage by the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) is secondary to Medicare, since it is not considered to meet the definition of an EGHP. Assume, in the absence of evidence to the contrary, that any health plan (including a union plan) in which a beneficiary is enrolled because of the beneficiary’s or the beneficiary’s spouse’s employment, meets this definition. Medicare is secondary to the EGHP coverage only if the EGHP coverage is by reason of the employed person’s current employment. Health insurance plans for retirees or the spouses of retirees do not meet this condition and are not primary to Medicare.

The term plan means any arrangement by an employer or by more than one employer, or by an employee organization to provide health benefits or medical care to employees. An arrangement by more than one employer is a single plan if the arrangement provides for common administration of the health benefits, for example, by the employers directly, by a benefit administrator, by a multi-employer trust, or by an insuring organization under a contract or contracts which stipulate that the organizations provide all employees enrolled in the plan the same benefits or the same benefit options.

The term secondary with respect to Medicare payment, means that Medicare is the residual payer to all EGHPs under which the Medicare beneficiary is covered by reason of current employment and will not pay for any expenses reimbursable by any such plan(s). Workers’ compensation and automobile and liability insurance will be considered.

The term spouse means any individual who has spousal coverage under the employer plan.

Medicare Secondary Payer Rules

 The best way to comprehend the Medicare Secondary Payer Rules is to view the process from Medicare’s point of view. Medicare carefully defines how and when it will be secondary; in all other instances it will be primary. Many of these rules are addressed directly to the Medicare provider.

Medicare As Secondary Payer

Under current federal regulations, it is possible for Medicare to make a secondary payment, even if the primary insurer (or self-funder) pays more than the Medicare allowed amount on a claim. The amount of Medicare secondary payment is the lower or (a) or (b):

  1. The amount that Medicare would pay if there was no other insurer
  2. The higher allowed amount (either the primary insurer’s allowed amount of Medicare’s allowed amount) minus the primary insurer’s payment

Mandatory Claims Filing Under MSP

If a provider is aware that the patient has other primary insurance, such provider may (but is not required to) send a claim to the primary insurer. If such provider receives the claim determination directly from the primary insurance, such provider is responsible for submitting a claim to Medicare for secondary benefits. If such provider did not accept assignment on the primary insurance but the beneficiary furnished a copy of the primary insurer’s EOB and requests that such provider submit a claim to Medicare, such provider much submit a Medicare claim on their behalf.

When to Bill Medicare as a Secondary Payer

When a patient has other insurance that is primary, Medicare may be used as, and should be used as, a secondary payer of benefits after such other insurance.

Employer Group Health Plan Coverage

Working Aged: Patients 65 years or older who have Employer Group Health Plan (EGHP) coverage through their own employment or employment of spouse. An EGHP is a health insurance or benefit plan that is offered through an employer of 20 or more employees.

Disabled: Patients under age 65 entitled to Medicare on the basis of permanent disability who have insurance coverage under a Large Group Health Plan (LGHP) either through the coverage of family members or from their own employment. A LGHP is a health insurance or benefit plan that is offered through an employer who has 100 or more employees or is part of a multi-employer trust or association which has at least one employer of 100 or more employees.

End Stage Renal Disease Beneficiaries Covered Under an Employer Group Health Plan

Medicare benefits are secondary to an EGHP regardless of size when the beneficiary is entitle to benefits under the Medicare program due to End Stage Renal Disease (ESRD). Medicare is secondary for a period of up to 30 months for beneficiaries entitled to Medicare.

In the Appendices is a questionnaire to be completed by the Medicare beneficiary where other coverage may be an issue.

Other Coverage

Workers’ Compensation

Medicare payment may not be made for covered items or services to the extent that payment has been made or can reasonably be expected to be made under a workers’ compensation law or plan. However, Medicare secondary, primary or conditional payments may be made in certain situations.

Secondary payment may be made by Medicare if the workers’ compensation plan does not pay the supplier’s full charge. However, if the supplier accepts or is required under workers’ compensation law to accept the workers’ compensation payment as payment in full, Medicare secondary payment is not allowed. When submitting claims to Medicare for secondary payment, suppliers should attach a copy of the workers’ compensation EOB.

Generally speaking, Medicare primary payment may be made for services not covered under workers’ compensation, assuming the services are otherwise covered by Medicare. Primary payment may also be made by Medicare for services that are clearly unrelated to the injuries covered under workers’ compensation.

Conditional Medical payments may be made when a workers’ compensation claim is contested. This is allowed in order to avoid imposing a hardship on the Medicare beneficiary since a long delay may occur between the occurrence of an injury or illness and the final decision regarding the case by the workers’ compensation agency. Conditional payments issued by Medicare are subject to recovery by Medicare when the workers’ compensation case is settled.

Liability Insurance

Medicare is secondary to any liability insurance (e.g., automobile liability insurance and malpractice insurance). When a medical provider has reason to believe that it provided covered services to a Medicare beneficiary for which payment under liability insurance may be available, the medical provider should bill only the liability insurer, unless it has evidence that the liability insurer will not pay within the 120 day prompt-payment period. If it has such evidence, it may bill Medicare for conditional payment, provided it supplies documentation to support the fact that payment will not be made promptly. After the 120 day prompt-payment period has ended, the medical provider may (but is not required to) bill Medicare for conditional payment if the liability insurance claim is not finally resolved.

If the medical provider chooses to bill Medicare, it must withdraw claims against the liability insurance or a lien placed on the beneficiary’s settlement. If it chooses to continue its claims against the liability insurance settlement, it may not also bill Medicare. The medical provider may not collect payment from the beneficiary until after the proceeds of liability insurance are available to the beneficiary.

No-Fault Automobile

Medicare is secondary to both automobile and non-automobile no-fault insurance. No-fault insurance is insurance that pays for medical expenses due to injuries sustained on the property or premises of the insured, or in the use, occupancy, or operation of an automobile regardless of who may have been responsible for causing the accident. It is sometimes called medical payments coverage, personal injury protection or medical expense coverage. Services covered under no-fault insurance must be billed to the no-fault insurer first. If the charges are not paid in full, a claim may be submitted to Medicare for possible secondary benefits. Claims for services covered under no-fault insurance should be submitted with an explanation of benefits from the no-fault insurer or evidence that the no-fault insurance benefits have been exhausted.

Federal Black Lung Benefits

Medicare is secondary payer for beneficiaries entitle to benefits under the Federal Black Lung Program for items and services provided for certain respiratory conditions. Claims with black lung diagnoses should have an EOB or payment determination from the Federal Black Ling Program in order for Medicare to consider payment.

Veteran Administration (VA)

Veterans who are also entitled to Medicare can choose which program will be responsible for payment when services are covered by both programs. However, Medicare cannot pay for services received from the VA hospital or other VA facilities, except for certain emergency hospital services and generally cannot pay if the VA pays for VA authorized services provided in a non-VA hospital or from a non-VA physician.

Beneficiaries do not have to submit claims involving a veteran to the VA for denial before submitting the claim to Medicare. Claims for services for which the veteran elects Medicare coverage should be submitted to Medicare in the normal manner. Claims cannot be submitted at the same time to both programs for the same dates and type of treatment. If a veteran elects Medicare coverage, a claims should not be submitted to the VA for the Medicare deductible or coinsurance.

Medicare and the VA will perform periodic computer data matches to assure that instances of duplicate payment are identified. When duplicate payments are found, Medicare will pursue recovery of its payment and will develop information for potential referral to the Internal Revenue Service of the Office of Inspector General.

Federal Public Health

Medicare will not make payment for services authorized and eligible under another federal program such as Federal Public health.

Claims for services authorized or guaranteed under other federal programs should be submitted to that program for payment. No claim should be submitted to Medicare until after the authorizing agency has processed the claim.

If a claim if filed to Medicare because of a denial or a balance owed after the other program pays, a copy of the denial notice or explanation of benefits from the other program should be submitted with the Medicare claim.

Administrative Consideration

MSP Overpayment Refunds

It is the medical provider’s responsibility to refund overpayments on MSP claims. To expedite the refund process, such medical provider should provide the following information/items:

  1. Explanation of benefits from the third party payer
  2. Type of primary insurance (i.e., EGHP, liability, workers’ compensation)
  3. Medicare Explanation of Benefits
  4. Check in the amount of the original Medicare payment.

The claim will then be adjusted according to the MSP guidelines and any additional benefits will be issued at that time.

Medicare Secondary Claim Filing Tips

  • A claim should be submitted to the primary insurer first.
  • An EOB or payment determination from the primary insurer must accompany each claim submitted to Medicare.
  • If Medicare is secondary to an EGHP, item 11, 11a, 11b and 11c of the HCFA 1500 must be completed.
  • If the claim is due to an accident, item 10a, 10b and 10c should be completed.
  • Do not enter the primary insurer’s payment amount in item 29 of the HCFA 1500. Complete the field only if payment is received from the beneficiary.
  • The claim should be submitted for the total charge, not the difference between the provider’s usual charge and the primary insurer’s payment (i.e., co-pay). The total charge should not be reduced to reflect the Medicare or primary insurer’s allowed amounts.
  • Refer to the patient responsibility (PT RESP) field on the Medicare Remittance Notice (MRN) to determine how much to bill the beneficiary. The coinsurance (COINS) and deductible (DEDUCT) fields are calculated based on the Medicare primary payment and do not apply to a secondary claim.

Identifying Beneficiary Insurance Coverage

The reporting of Medicare Secondary Payer (MSP) has been mandated by the Centers for Medicare and Medicaid Services (CMS). Prior to billing Medicare, medical providers must take an active role in the identification of MSP claims/cases.

Information obtained at the time of contact with the beneficiary is essential in making the Medicare primary or secondary determination. After a Medicare beneficiary leaves the medical provider’s office, it is often difficult for pertinent information to be obtained for billing purposes.

A recommended Medicare Secondary Payer Questionnaire to be completed by the beneficiary or registration personnel is included in the Appendices. When providing services to a Medicare beneficiary, use of this form should facilitate the identification and proper billing of MSP cases. This will help maximize the reimbursement and shorten the claim-processing time.

Medicare Secondary payer on Capped Rental Items

A medical provider must offer the beneficiary a purchase option on capped rental items in the 10th month of continuous rental. When Medicare is the secondary payer we will make secondary payments for these ten months if all guidelines are met and we could have made a primary payment. A copy of the primary payer’s explanation of benefits must be attached to each Medicare claim. If the beneficiary chooses to purchase the item in the 10th month and Medicare is secondary, we will make secondary rental payments for up to 13 continuous months. The claims must always be filed with the primary insurance first and the submitted to Medicare with a copy of the primary payer’s explanation of benefits. Medicare as secondary payer can, under no circumstances, pay more than we would have paid as a primary payer. If the primary insurance pays for the lump sum purchase of a capped rental item (excluded electric wheelchair), Medicare cannot make a secondary payment. Medicare would not make a primary payment; therefore, we could not make a secondary payment for the lump sum purchase of capped rental items.

Electric wheelchairs are the only exception to capped rental guidelines. Medicare as primary payer could pay for purchase or rental. When Medicare is secondary payer, the primary insurance must be filed first and Medicare would process the claim secondary.

Medicare may not pay secondary benefits when the primary payer pays the supplier’s charges in full, or when the supplier is either obligated to accept, or voluntarily accepts, the primary payer’s payment as payment in full.

End Stage Renal Disease – Historical Perspective – Prior to 1990

Initially, Medicare generally paid benefits for covered services regardless of any other health insurance coverage.

Under Pub. L. 97-35 (1990) Medicare became secondary payer in ESRD cases for a period of up to 12 months when the patient was entitled to Medicare solely on the basis of ESRD, and was covered under a group health plan (GHP). The 12 month period began the earlier of:

  • The month in which a regular course of renal dialysis was initiated
  • The first month in which the individual would have been eligible for Medicare, in the case on an individual who received a kidney transplant.

This period usually began before the month the individual became entitled to Medicare, e.g., where the individual became entitled after a waiting period. In such cases, Medicare paid secondary benefits for the portion of the 12-month period during which the individual was entitled to Medicare benefits. The ESRD MSP provisions applied to individuals covered under GHPs based either n current employment or based on retirement. The differed from MSP provisions applicable to the aged and the disabled which applied only when group health plan coverage was based on current employment status. However, they did not apply to dually-entitled individuals who were covered under GHPs based on retirement.

Period 1990-1993

Under Pub. L. 101-508 (OBRA 90), the 12-month period was redefined as beginning with the first month of Medicare eligibility (the first month for which Medicare benefits would have been payable had a timely application for entitlement been filed). The redefined coordination period did not include months in the 3-month disability qualifying period needed to gain Medicare because of total disability. Also under OBRA 90, the 12-month period was extended to 18 months.

Period 1993-1997

Under Pub. L. 103-66 (OBRA 93), the 18-month ESRD coordination period was extended.

Period 1997 to Date

Section 4631(b) of the Balanced Budget Act of 1997 permanently extended the coordination period to 30 months for any individual whose coordination period began on or after 1996. Therefore, individuals who had not completed an 18 month coordination period by 1997, had a 30 month coordination period under the new law. This provision did apply to individuals who would have reached the 18 month point on or before 1997. They had continued to have an 18 month coordination period.

Dual Coverage with ESRD

Medicare is the secondary payer for the full ESRD coordination period even if the individual subsequently becomes entitled to Medicare on the basis of age or disability. If an individual who is entitled to Medicare on the basis of age or disability and covered under a GHP based on current employment status subsequently becomes eligible for Medicare because of total disability, Medicare becomes secondary payer for the ESRD coordination period. At the end of the coordination period, Medicare becomes the primary payer even if the individual remains covered under the GHP based on current employment status. However, if an individual entitled to Medicare on the basis of age or disability and covered under a GHP based on retirement subsequently becomes eligible for Medicare because of total disability, Medicare remains the primary payer (i.e, there is no ESRD coordination period).

Court Cases

Third Party Payers

When Health Care Financing Administration (now CMS) attempted to hold third party payers responsible for the mispaid Medicare payment, the two major representative associations objected. The court held that when the Medicare program mistakenly pays claims that should be paid by an employer group health plan, the Health Care Financing Administration may recover the mistaken payments directly from the plan’s TPA, even though the TPA is not financially responsible for claims under the plan. This expansive interpretation of the Medicare Secondary Payer rules allows recovery from a group health plan, insurance companies which administer claims under ASO arrangement as well as TPAs, rather than pursue claims against the self-funded employer plans. The decision would make third party administrators liable for payment in any situation, including those where they do not have their principal’s funds available, where their principal has refused payment, or where their relationship with the principal is not in force in regard to the payment at issue. (This problem will also create difficulties between TPAs, employers and stop-loss carriers regarding ultimate responsibility for reimbursement or erroneous Health Care Financing Administration payments).

Blue Cross & Blue Shield Association v. Sullivan and HIAA v. Sullivan, 794 F.Supp.1166 (D. D.C. 1992)

Third Party Payers

In this instance, Blue Cross acted in the following roles:

  • Plan supervisor of self-funded health care plans under ASO arrangements
  • Medicare fiscal intermediary and carrier
  • Basic insurer of fully insured plans

When the federal government sought recovery from Blue Cross across the board, Blue Cross refused; the federal government sued. As with Provident Life and Accident Insurance Company v. United States, the court held that Blue Cross, acting as plan supervisor of self-funded plans under ASO arrangements, could not be held financially accountable for the claims recovered by Medicare. It was not the insurer as contemplated by the Medicare statue.

United States v. Blue Cross and Blue Shield of Michigan, 726 F.Supp. 1517 (E.D. Mich. 1989)

Medicare Recovery by Subrogation

Medicare paid the patient’s medical expenses. The patient then brought an action in state court against the driver of the other vehicle and also named Wisconsin’s Medicare intermediary and carrier as nominal defendants. A judgment was decided in state court awarding the patient and his attorney $25,000, the limit of the other driver’s liability policy. The state court also held, however, that because the intermediary and carrier were placed on notice of the lawsuit and failed to assert any claims, their subrogation rights were extinguished. The government brought this action against the patient and his attorney, seeking reimbursement under the Medicare Secondary Payer statute. The patient maintained that the intermediary and carrier were agents of the government and that the default judgment entered against them in state court prohibited the government from recovering the insurance proceeds. The court noted, however, that neither the federal government nor any of its agencies or officers were named as defendants in that lawsuit. Therefore, the court held no default judgment existed against the government. Further, the court held that the doctrine of equitable estoppel was inapplicable. The Medicare Secondary Payer statute and regulations provided provided the government with an independent right of action for reimbursement of its conditional payments.

United States v. Sosnowski, ___F.Supp.___ (W.D. Wisc. 1993)

Medicare and VA Hospital Care

Veterans, in a class action suit, had all received medical treatment for non-service related ailments at a VA facility. Each veteran at the time services was rendered was covered under Medicare and a Blue Cross Medigap policy. The VA facility submitted claims to Blue Cross for reimbursement and Blue Cross denied them. Had these same veterans received medical treatment in a non-VA facility, the primary payer would have been Medicare. The court held that the United States may recover from Capital Blue Cross reasonable costs for care provided by VA hospitals to veterans insured under a Blue Cross Medigap policy. Why did not the VA bill directly to the primary provide-Medicare-originally? Reason is that they are not allowed to do so by federal law.

TPA Alert:

  • Retiree is John.
  • John has Medicare.
  • John has Medigap.

Should John be hospitalized for a non-service condition?

  • VA hospital – plan is primary.
  • Regular hospital – plan is secondary.

United States v. Capital Blue Cross, 992 F.2d (3rd Cir. 1993)

Role of ASO Insurer in Recovery

Provident became involved in this matter because it was the plan supervisor of a self-funded health care plan by means of as ASO arrangement. Clearly the Medicare Recovery Statute gave the federal government the authority to recovery mispayments from the insurer. In this instant case, Provident was only the payer and not the insurer. Provident sought to have the federal district court dismiss it from the suit. The court held that the person who has the responsibility for payment should be sought; in this instance, it would be the employer and not the plan supervisor under the ASO arrangement. This does not mean that Provident cannot be attacked where it does have the final claims responsibility, however. An example would be a minimum premium plan.

Provident Lift and Accident Insurance Company v. United States, 740 F.Supp. 492 (E.D. Tenn. 1990)

Role of ASO Insurer in Recovery

The Health Care Financing Administration claimed that the Travelers, when acting as an administrator of an employer group health plan (ASO arrangement) must reimburse the Government for claims paid by Medicare that should have been paid by some other primary payer. The Government argued that it should have the right to recover funds from administrators because they process claims and arrange for payment with the employer’s funds. The Government asserts that the claims in issue would have been presented to The Travelers first instead of directly to Medicare but for the negligence of the Travelers in failing to educate claimants as to the proper claims filing procedure and, therefore, the Travelers is liable for payment in such instances. The Government concluded that TPAs (Travelers in the instance) are subject to a Government recovery action. This court believed that the statute was ambiguous and therefore relied upon the interpretation of the statute found in the Health Care Financing Administration regulations. The court concluded that the Government did not have a claim against the Travelers when the insurer acted in the capacity of an administrator of an employer group health plan. The court said that when a statute is clear and unambiguous, courts must look to the expressed intent of Congress, and cannot pay deference to a contrary agency interpretation. A plain reading of the statute supported the view that the United States’ right to recover for primary payments wrongfully withheld is directed at those who are responsible to actually make the payment, i.e; the self-funded employer plan itself, and not those who merely undertake to administer the payment process.

United States v. Travelers Insurance Company, 815 F.Supp. 521 (D.Conn. 1992)

End Stage Renal Disease

When John, with COBRA, became eligible for Medicare while under 65, due to end-stage renal, is Medicare treated the same as though John were over 65? HCFA (in name of Shalala said no; Blue Cross said yes). The HCFA regulations were in question. Blue Cross won. The Medicare Secondary Payer statute does not require group health plans to offer continuation coverage to individuals with end-stage renal disease who are eligible for Medicare, since Congress did not intend such statute to create or extend group health coverage.

Blue Cross and Blue Shield of Texas v. Shalala, ___F.2d___ (10th Cir. 1993)

Medicare and Subrogation

Medicare beneficiary had huge medical expenses with a hip joint replacement. It later developed that the prosthesis with defective. The beneficiary (Goetzmann) collected a big settlement from the manufacturer. On subrogation theory, the HHS (Thompson) sued Goetzmann. The court said the subrogation theory advanced by HHS was not effective because of the way in which the Medicare law was crafted. The problem was that HHS could subrogate against plans (insured or self-funded) but Goetzmann was not under a plan.

Thompson v. Goetzmann, 315 F.3d 457 (5th Cir. 2003).

Vicious Circle Exception Rule

In this case the court held when self-funded ERISA plans do not include the vicious circle exception into their COB provisions, the plan covering the person directly (usually as a retiree) will be primary, a federal appeals court ruled. The vicious circle occurs with a plan covering an individual is primary and the plan covering that individual as a dependent is secondary under the first COB standard order of benefit determination rule. However, if the individual is covered by: (1) Medicare; (2) Medicare supplemental coverage; and (3) as a dependent of an actively-employed spouse, this rule operated to create a vicious circle where each plan is secondary to the other. Similar rulings have been made in Baptist Memorial Hospital v. United Food and Commercial Workers District Unions, 45 F.3d 992 (6th Cir. 1994); and Perry v. United Food and Commercial Workers District Unions, 64 F.3d 238 (6th Cir 1995).

Harris Corp. v. Humana, 253 F.3d 598 (11th Cir. 2001).