Medicare Secondary Payer: Coordination of Benefits
Medicare Secondary Payer —
Coordination of Benefits
Updated July 10, 2008
Specialist in Health Insurance and Financing
Domestic Social Policy Division
Medicare Secondary Payer — Coordination of Benefits
Medicare is the nation’s health insurance program for qualifying individuals
who are 65 and older, disabled, and those with End Stage Renal Disease (ESRD).
Generally, Medicare is the “primary payer” — that is, it pays health claims first, and
if a beneficiary has other insurance, that insurance may fill in all or some of
Medicare’s gaps. However, in some situations the Medicare Secondary Payer (MSP)
rules prohibit Medicare from making payments for any item or service when payment
has been made or can reasonably be expected to be made by a third-party payer.
Under certain conditions, the law makes Medicare the secondary payer to insurance
plans and programs for beneficiaries covered through (1) a group health plan based
on either their own or a spouse’s current employment; (2) auto and other liability
insurance; (3) no-fault liability insurance; and (4) workers’ compensation situations,
including the Black Lung program. The purpose of the MSP program is to shift costs
from Medicare to private sources of payment, thus reducing Medicare expenditures.
Additionally, the Medicare statutes exclude Medicare coverage for items and services
paid for directly or indirectly by a government entity, subject to certain limitations.
This includes the Department of Veterans Affairs, among others. The circumstances
detailing when Medicare is primary or secondary are discussed in this report.
The law authorizes several methods to identify cases when an insurer other than
Medicare is the primary payer and to facilitate recoveries when incorrect Medicare
payments have been made. One such method is the data match program, where
Medicare recipients are matched against data contained in Social Security
Administration and Internal Revenue Service files to identify cases in which a
working beneficiary (or working spouse) may have employer-based health insurance
coverage. Most recently Congress passed the Medicare, Medicaid, and SCHIP
Extension Act of 2007 (P.L. 110-173) expanding information requirements for group
health plans, liability insurance (including self-insurance), no fault insurance, and
workers’ compensation laws and plans. These entities must submit information to
the Secretary of HHS to enhance efforts for coordination of benefits and for any
applicable recovery claims.
Efforts by both the federal government and private citizens to use the MSP as
a vehicle to recover payments made on behalf of beneficiaries for treatment of
tobacco-related illnesses to date have not been successful.
This report will be updated as necessary to reflect legislative changes.
MSP for Employer Group Health Plans.............................1
Persons with End-Stage Renal Disease (ESRD)..................3
MSP and Workers’ Compensation, No-Fault, Automobile, and
Liability Insurance ........................................4
Automobile Medical or No-Fault Insurance.....................5
Other Liability Insurance....................................5
Medicare Coordination of Benefits with Other Federal Programs........5
Medicare and the Department of Veterans Affairs (VA)............5
Resources for Determining Primary Payer Status.....................6
Coordination of Benefits Contractor...........................6
Initial Enrollment Questionnaire (IEQ).........................7
IRS/SSA/CMS Data Match Program...........................7
Voluntary Data Sharing Agreement (VDSA)....................7
Recent Legislative Action.......................................8
MSP Postpayment Recoveries....................................8
Provider, Beneficiary, and Employer Responsibilities................10
Determining Medicare Secondary Payment Amounts.................10
MSP and Tobacco Industry Lawsuits..............................12
List of Tables
Table 1. MSP Savings for 2001-2007..................................9
Medicare Secondary Payer —
Coordination of Benefits
Generally, Medicare is the “primary payer” — that is, it pays health claims first,
and if a beneficiary has other insurance, that insurance may fill in all or some of
Medicare’s gaps. However, §1862(b) of the Social Security Act authorizes the
Medicare Secondary Payer (MSP) program, which identifies specific conditions
under which another party pays first and Medicare is only responsible for qualified
secondary payments, thereby reducing expenditures under the Medicare program.
The law prohibits Medicare payments for any item or service when payment has been
made or can reasonably be expected to be made by a third-party payer. Medicare is
the secondary payer to insurance plans and programs, under certain conditions, for
beneficiaries covered through (1) a group health plan based on either their own or a
spouse’s current employment; (2) auto and other liability insurance; (3) no-fault
liability insurance; and (4) workers’ compensation situations, including the Black
Lung program. Additionally, under §1862(a) of the Social Security Act, items and
services paid for directly or indirectly by a government entity, subject to certain
limitations, are excluded from Medicare coverage. This includes the U.S.
Department of Veterans Affairs, among others. As a result, Medicare also
coordinates benefits for cases involving the Veterans Health Administration. The
circumstances detailing when Medicare is primary or secondary are discussed below.
In some circumstances, Medicare may make a conditional payment; however, this
payment is subject to repayment.
MSP for Employer Group Health Plans
Medicare is the primary payer for services provided to Medicare beneficiaries
who are retired, even if they have retiree health insurance coverage through their
former employer. However, the rules for secondary coverage are different for
Medicare beneficiaries who are working (often referred to as the “working aged”)
and offered health insurance through their employer. Employer-sponsored group
health insurance1 offered to current workers, regardless of Medicare status,2 is
1 Group health plans include health insurance coverage that is provided by private sector
employers, government and self-employed entities, employee organizations such as labor
unions, and self-insured plans (i.e., the employer assumes the risk of insurance rather than
passing the risk to an insurance company).
2 Generally, individuals are entitled to Medicare Part A (Hospital Insurance) when they turn
65, and must be enrolled in Part B (Supplementary Medical Insurance) during an initial
enrollment period or face a permanent monthly penalty of increased Part B monthly
premiums if they chose to enroll at a later date. However, the law waives the Part B late
enrollment penalty for current workers as long as the beneficiary has primary coverage
generally the primary payer for individuals covered through their own or a spouse’s
current employment. A conditional payment may be made in certain situations —
for example, if an employer does not pay a properly filed claim. However, Medicare
may seek repayment. When the group health plan is primary, but does not pay in full,
Medicare may make a secondary payment, as prescribed by law.
Medicare has been the secondary payer for the working aged since the passage
of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982. Secondary payer
rules for the disabled were first established in the Omnibus Budget Reconciliation
Act (OBRA) of 1986, and Medicare secondary payer rules for persons with End
Stage Renal Disease (ESRD) have been in effect since the passage of OBRA 1981.
The MSP rules for employer group health plans have been amended in subsequent
Working Aged. Subject to certain conditions, Medicare payments are
secondary to employer-sponsored health insurance offered to employees. An3
employer with 20 or more employees must offer workers aged 65 and over the same
group health insurance coverage offered to other employees. In fact, the statutes
prohibit a group health plan from taking into account that an individual or his/her
spouse who is covered by the plan, by virtue of the individual’s current employment
status, is entitled to Medicare benefits. Any individual age 65 or older (and his/her
spouse age 65 or older) who has current employment status is entitled to the same
benefits under the employer’s group health plan, under the same conditions as any
such individual (or his/her spouse) under age 65.
Such employees must be in “current employment status” — that is, they must
be individuals who are (1) actively working as an employee, (2) the employer, or (3)
associated with the employer in a business relationship (such as a supplier included
on the employer’s group health plan). If the employer offers health insurance
coverage to spouses, it must also offer the coverage to any employee’s spouse,
including those who are aged 65 and older.
Working aged employees have the option of accepting or rejecting the
employer’s coverage. If a working aged individual accepts coverage, the employer
plan is the primary payer and Medicare is secondary, for both the employee and the
employee’s spouse. For Medicare-enrolled employees who reject employer-
through the individual’s or spouse’s employer-sponsored plan. These individuals have a
special enrollment period, once their employer coverage ends, and as long as they enroll in
Part B during this time, they will not be subject to penalty. For a complete discussion of the
premium penalty, see CRS Report RS21731, Medicare: Part B Premium Penalty, by
3 In order to meet this requirement, employers must have 20 or more full and/or part-time
employees for each working day in each of 20 or more calendar weeks in the current
calendar year or the preceding calendar year. The 20 weeks do not have to be consecutive.
The requirement is based on the number of employees, not the number of people covered
under the plan. Employers who did not meet the requirement during the previous calendar
year may meet it at some point during the new calendar year, and at that point Medicare
would become the secondary payer for the remainder of that year and through the next year.
sponsored coverage, Medicare is primary. However, the statutes prohibit the
employer from paying for supplemental benefits for Medicare-covered services, so
as not to provide any financial incentives for employees to reject the employer-
sponsored coverage in favor of less expensive supplemental coverage.
These MSP requirements also apply to multiple employer plans (a plan
sponsored by more than one employer) and to multi-employer plans (a plan jointly
sponsored by the employers and unions under the Taft-Hartley law). When each of
the employers in the group has less than 20 employees, Medicare is primary. When
all employers have 20 or more employees, or if at least one employer has 20 or more
employees, Medicare is secondary. An employer in the group with fewer than 20
employees may request an exemption for its working aged employees. In that case,
Medicare would be primary for the exempted employees, and the employer could
offer those individuals coverage that supplements Medicare.
Working Disabled. Similarly, Medicare is the secondary payer for disabled
Medicare beneficiaries who have employer-sponsored health insurance based on their
own current employment or a spouse’s current employment.4 One difference
between the working aged and working disabled requirements is the size of the
employee group. For the disabled, the MSP rule applies to a large group health plan
— that is, a plan offered by an employer with 100 or more employees on at least
50% or more of its business days during the preceding calendar year. This applies
to smaller plans that are part of a multiple or multi-employer plan if at least one of
the employers in the plan has 100 or more employees. Unlike the working aged rules
that allow for an exemption, a multiple or multi-employer plan may not exempt
people enrolled though an employer with less than 100 employees.
Persons with End-Stage Renal Disease (ESRD). For individuals with
Medicare entitlement based solely on ESRD,5 MSP rules apply for those covered by
an employer-sponsored group plan, regardless of the employer size or current
4 Prior to August 1993, Medicare was the secondary payer for “active individuals” entitled
to Medicare on the basis of disability. Active individuals included people who were not
actually working, who had employee status as indicated by their relationship to their
employer. For example, the employer might have been paying the individual sick or
disability pay that was subject to Federal Insurance Contributions Act (FICA) taxes or the
individual might have participated in an insurance plan that was available only to
employees. The standard for disabled Medicare beneficiaries was changed to “current
employment status” in 1993 to be consistent with the standard for the working aged. Those
previously covered by the “active individual” standard, whose status changed, have
Medicare as their primary payer.
5 Medicare entitlement based on ESRD usually begins with the third month after the month
in which the beneficiary starts a regular course of dialysis, referred to as the three-month
waiting period. This waiting period may be waived, in part or entirely, if, during that time
(1) the individual takes an approved home dialysis training program in self-dialysis; (2) the
individual is admitted to a Medicare-approved hospital for a kidney transplant or for health
care services needed before the transplant, if the transplant takes place during that month
or the following two months; or (3) the individual is scheduled for a transplant that is
delayed more than two months after the beneficiary is admitted to the hospital or for health
employment status. For individuals whose Medicare eligibility is based solely on
ESRD, any group health plan coverage they receive through their employer or a
spouse’s employer is the primary payer for the first 30 months of ESRD benefit
eligibility, referred to as the 30-month coordination period. After 30 months,
Medicare becomes the primary insurer.
Similarly, for working individuals (or spouses) who qualify for and remain
eligible for Medicare based on both ESRD and age or disability, any group health
plan coverage they receive through their employer or a spouse’s employer is the
primary payer during the 30-month coordination period. After 30 months, Medicare
becomes primary, even if the individual has employer-sponsored health insurance
based on current employment status. However, there is one exception to the MSP
rules for this group. Medicare would be primary immediately for these individuals
if both of the following conditions were met: (1) the individual was first entitled to
Medicare on the basis of age or disability and then also became eligible on the basis
of ESRD, and (2) the MSP provisions for age or disability did not apply because the
plan coverage was not “by virtue of current employment status,” or the employer did
not meet the test of size for either the aged or disabled.
For retirees, rather than workers, who first qualify for Medicare based on ESRD
and then turn 65 during the 30-month coordination period, their retiree health
insurance would remain primary for the entire 30-month period.
Medicare coverage ends 12 months after the month the beneficiary stops dialysis
treatment or 36 months after the month the beneficiary has a successful kidney
transplant. However, if Medicare coverage ends, and then begins again, based on
ESRD, the 30-month coordination period will also begin again.
MSP and Workers’ Compensation,
No-Fault, Automobile, and Liability Insurance
Medicare is the secondary payer when payment has been or can reasonably be
expected to be made under workers’ compensation, automobile medical insurance,
and all forms of no-fault and liability insurance. Medicare has been secondary for
workers’ compensation since the beginning of Medicare on July 1, 1966, while the
MSP rules for automobile medical or no-fault and other liability insurance were
included in OBRA1980, effective December 5, 1980.
Workers’ Compensation. Medicare is the secondary payer for items or
services covered under a workers’ compensation law or plan of the United States or
a state. In the case of a contested claim, the workers’ compensation board must notify
the beneficiary, and pending the decision, Medicare may be billed. A Medicare
conditional primary payment may be made if the compensation carrier will not pay
promptly, but follow-up action must be taken to recover the payment. If a beneficiary
exhausts all appeals under workers’ compensation, Medicare would be the primary
According to CMS, a Workers’ Compensation Medicare Set-aside Arrangement
(WCMSA) is used to allocate a portion of a worker’s compensation settlement for
future medical expenses. The amount of the set aside is determined on a
case-by-case basis and should be reviewed by CMS, when appropriate.
Additionally, Medicare coordinates benefits with the Federal Black Lung
Program, which is considered to be a federal workers’ compensation program.
Medicare does not pay for services covered under the Federal Black Lung Program
for Medicare beneficiaries entitled to Black Lung medical benefits in accordance
with the Federal Coal Mine Act. Medicare can be billed for Medicare-covered
services not covered by the Federal Black Lung Program. If the services are solely
for a non-Black Lung condition, Medicare would be billed as primary.
Automobile Medical or No-Fault Insurance. Medicare is the secondary
payer of claims for medical items and services to the extent that payment has been
made, or can reasonably be expected to be made for items or services under
automobile liability insurance, uninsured motorist insurance, or under-insured
motorist insurance. Conditional payments may be made in a case where the insurer
will not pay promptly. Conditional payments are subject to recovery if the individual
later receives payment from the automobile or no-fault insurer.
Other Liability Insurance. Similarly, Medicare is the secondary payer for
medical items and services under homeowner’s liability insurance, malpractice
insurance, product liability insurance, and general casualty insurance. Conditional
payments may be made if a proper claim has been filled. This payment is also
subject to recovery if the individual later receives payment from the liability carrier.
Medicare Coordination of Benefits
with Other Federal Programs
Items and services furnished by federal providers, a federal agency, or under a
federal law or contract are excluded from Medicare coverage. This includes U.S.
military hospitals, the U.S. Department of Veterans Affairs, and research grants,
among others. This exclusion from Medicare coverage does not include health
benefits offered to employees of federal entities, rural health clinic services, federally
qualified health centers, and other exemptions that may be specified by the Secretary
of Health and Human Services.
Medicare and the Department of Veterans Affairs (VA). Medicare
coordinates benefits with VA health benefits, effective July 1, 1966. In general,
Medicare does not pay for the same services covered by VA benefits for its Medicare
beneficiaries who are also entitled to VA benefits.6 The VA, at its expense, may
6 Another health insurance option available to certain uniformed service Medicare-eligible
retirees, their spouses, and survivors, entitled to Medicare Part A and enrolled in Medicare
Part B is TRICARE for Life (TFL), a program option of TRICARE (the Department of
Defense’s medical entitlement program). The rules for primary and secondary coverage of
this group are not included in the Medicare statutes, but rather are included under Title 10
of the U.S. Code §1095. For beneficiaries who have both Medicare and TFL coverage,
Medicare is the primary payer for services covered by both programs. Medicare pays the
authorize private physicians and other suppliers to provide services to certain
veterans with service-connected disabilities and, in certain circumstances, with non-
service-connected disabilities. Medicare can reimburse veterans for (or credit toward
the Medicare deductible or coinsurance amounts) VA copayment amounts charged
for VA-authorized services furnished by non-VA sources.
If the VA authorizes hospital services in a non-VA hospital, Medicare can pay
for any covered services that fall outside of the VA authorization. For example, if
the VA authorizes a five-day hospital stay, but the patient remains in the hospital two
more days, Medicare can pay for the services received during the two additional days,
subject to its payment rules.
Furthermore, when a physician accepts a veteran as a patient and bills the VA,
the physician must accept the VA charge determination as payment in full. Medicare
may supplement VA payments when a VA claim is for physician services and is filed
by the veteran, not the physician. When the Medicare claim is submitted, it must
indicate which services were billed to the VA and whether or not the beneficiary
submitted a claim to the VA for payment.
Resources for Determining Primary Payer Status
Coordination of Benefits Contractor. The Centers for Medicare and
Medicaid Services (CMS) established a centralized Coordination of Benefits
operation, which consolidates activities under a single contractor entity, the
Coordination of Benefits Contractor (COBC). The COBC is responsible for the
performance of activities that support the collection, management, and reporting of
other insurance coverage for Medicare beneficiaries. Its duties focus on activities to
ensure that Medicare makes proper payments by identifying the correct payer before
payments are made. It is primarily an information-gathering entity. The prepayment
activities carried out by the COBC were previously the responsibility of the Medicare
Fiscal Intermediaries (FIs) and Carriers.
The COBC does not process any claims, nor does it handle any mistaken
payment recoveries or claim-specific inquiries. The COBC has responsibility for
establishing individual beneficiary MSP records on the Common Working File
(CWF), the official source of beneficiary information for Medicare.
As described below, the COBC is also responsible for the Initial Enrollment
Questionnaire (IEQ) and the data match. It also carries out all activities necessary to
ensure that the primary payer, whether or not it is Medicare, pays first and then
makes arrangements for transferring the claims automatically to the secondary payer
for further processing.
allowable amount for the care, and TRICARE pays the Medicare cost-sharing amounts and
Medicare deductible. For services covered under Medicare but not TRICARE, beneficiaries
must pay the Medicare cost-sharing amounts and the deductible. For health care services
covered under TRICARE but not Medicare, beneficiaries must pay the TRICARE cost-
sharing amounts or deductibles.
Initial Enrollment Questionnaire (IEQ). A voluntary IEQ, approved by the
Office of Management and Budget (OMB), is mailed to beneficiaries three months
before their Medicare entitlement begins. The questionnaire asks about employment
status and spouse’s employment status, health insurance coverage such as Black
Lung, workers compensation, liability coverage, and any health insurance purchased
through an employer. If the questionnaire is not returned within 45 days, a follow-up
survey is sent to the beneficiary.
IRS/SSA/CMS Data Match Program. The Social Security Act authorizes
a data match program intended to identify cases where an insurer other than Medicare
is the primary payer. Each October, the Social Security Administration (SSA) sends
a file to the Internal Revenue Service (IRS). The IRS has 40 business days to match
this file against its tax records. The file is returned to SSA, which has another 40
business days to process the “Data Match Employer-Employee File” for CMS. The
COBC reviews and analyzes these data in preparation for use in contacting employers
concerning possible other insurance coverage that is primary to Medicare. The
purpose of the data match is to identify secondary payer situations before Medicare
makes a payment, and to facilitate recoveries when incorrect Medicare payments
have been made. Each year, the COBC receives information on about 350,000
employers and 1 million workers. Certain employers are removed from the file,
including those who do not meet the employer-size requirements. The current year
data match only includes new Medicare beneficiaries, workers, or those who were not
in the prior data match.
The COBC sends selected employers a questionnaire to determine which
employers offer health insurance, and to determine the insurance status of specific
beneficiaries. The information becomes part of the CWF. CMS may impose civil
monetary penalties on employers who do not respond to the questionnaire. FIs and
carriers use this information to identify claims on an ongoing basis for which
Medicare should not be the primary payer.
Voluntary Data Sharing Agreement (VDSA). Alternatively, employers
and insurers may enter into a Voluntary Data Sharing Agreement (VDSA) with CMS,
electronically providing group health insurance information and Medicare entitlement
data on a scheduled basis. The VDSA partner agrees to provide group health plan
quarterly information about employees and dependents to the COBC. The CMS
provides the VDSA partner with Medicare entitlement information for those
employees and dependents entitled to Medicare.
Expanded MSP Requirements for Medicare Part D Prescription
Drug Coverage. The establishment of the Medicare Part D prescription drug
program resulted in additional requirements for MSP. Coordination between CMS,
state programs, insurers, employers, and other payers of prescription drug coverage
is necessary to ensure that the benefits provided to Part D beneficiaries are paid for
correctly. CMS and the COBC have responsibility for providing the True Out of
Pocket (TrOOP) facilitation contractor and Part D plans with the secondary non-
Medicare prescription drug coverage information that they must have to facilitate
payer determinations and the accurate calculation of the TrOOP expenses for
The VDSA agreements and the Coordination of Benefits Agreement data
exchange processes have been expanded to include Part D information. CMS is also
allowing employers, insurers, and other entities with a VDSA, who are also
participating in the Retiree Drug Subsidy (RDS)7 program, to use the VDSA process
to submit subsidy enrollment files to the RDS contractor. CMS has also developed
data exchanges for entities that have not coordinated benefits with Medicare before,
including Pharmaceutical Benefit Manager (PBMs), State Pharmaceutical Assistance
Program (SPAPs), and other drug payers.
Recent Legislative Action
Most recently, Congress passed the Medicare, Medicaid, and SCHIP Extension
Act of 2007 (P.L. 110-173), which requires group health plans to provide the
Secretary of HHS with information identifying situations where the plan is or has
been primary to Medicare. This requirement, which would be effective January,
2009, would affect all group health plans, while currently, most of the emphasis on
collecting information about health insurance coverage other than Medicare focuses
on employers. Insurers can currently enter in the voluntary data sharing agreement,
with CMS, but this change will require that they provide information to CMS.
Additionally, effective June 2009, in the case of liability insurance (including
self-insurance), no fault insurance, and workers’ compensation laws and plans, these
entities must also submit information to the Secretary, including (1) the claimant’s
identity and (2) other information specified by the Secretary to enable an appropriate
determination concerning coordination of benefits and any applicable recovery
claims. The Secretary must share information on Medicare Part A entitlement and
Part B enrollment with entities, plan administrators, and fiduciaries. The Secretary
may share this information with other entities for the proper coordination of benefits.
MSP Postpayment Recoveries
As of October 2, 2006, CMS consolidated all functions and workloads related
to MSP postpayment recoveries into a single MSP recovery contract (MSPRC). The
MSPRC responsibilities include, but are not limited to, the following (1) identifying
mistaken MSP payments for recovery, (2) providing interim conditional payment
amounts and determining amounts that are potentially subject to recovery, (3) issuing
recovery demand letters, (4) making beneficiary waiver determinations, (5) providing
MSP litigation/negotiation support to CMS, (6) referring delinquent MSP debt to the
Department of the Treasury, and (7) tracking MSP debt.
In addition to its responsibility for all new MSP recovery demand letters and
subsequent CMS actions, the MSPRC is responsible for work on all pending
recovery cases, if a recovery demand letter had not been issued by October 2, 2006.
There are a few exceptions when the MSPRC will not be responsible for the new or
pending postpayment activities: (1) when the recovery demand letter is issued by the
MSP recovery Audit contractors (RACs) implemented as a demonstration under the
Medicare Moderation Act of 2003; and (2) when the MSP recovery demand letters
7 For more information on the retiree drug subsidy, see CRS Report RL33041, Medicare
Drug Benefit: Retiree Provisions, by Jennifer O’Sullivan.
is issued by the claims processing contractors to providers, physicians, and other
suppliers. Further, the MSPRC is responsible for all further CMS collection actions
for MSP recovery demand letters issued before October 2, 2006, unless the demand
letter was issued by one of a few contractors.8
CMS’s annual MSP savings report shows total MSP savings of $6.5 billion for
2007, increasing from $3.6 billion in 2001.9 As shown in Table 1, most of the
increase over time in MSP savings is for the working aged and the disabled. Looking
at total savings each year, about half of the savings were for the working aged. The
second-largest category is for working disabled individuals, accounting for about
another one-third of the savings. The numbers in the table include both prepayment
and post-payment savings, but do not include any associated administrative costs.
CMS estimates that for 2007, total MSP expenditures for administrative costs were
Table 1. MSP Savings for 2001-2007
(dollars in millions)
ESRD 172 200 206 233 281 299 278
Working 1,278 1,509 1,604 1,640 1,921 2,034 1,939
Worker’s a 96 106 122 113 102 93 877
Li ability 220 224 240 281 325 410 232
Veterans N/A N/A N/A N/A 17 29 26
Tot a l $3,644 $4,279 $4,593 $4,829 $5,671 $6,089 $6,505
Source: CMS unpublished data — MSP Savings Report (Crowd System).
Note: Totals may not add due to rounding.
a. The 2007 savings for Worker’s Compensation includes $770 million for Worker’s Compensation
Medicare Set-aside Arrangements (WCMSA), which is not reported in other years.
8 Empire - Syracuse, New York or Harrisburg, Pennsylvania; First Coast Service Options -
Jacksonville, Florida; Mutual of Omaha - Omaha, Nebraska; Palmetto - Augusta, Georgia,
or Columbia, South Carolina or Columbus, Ohio; and Trailblazer - Denison, Texas.
9 The 2007 savings include $770 million for the Workers’ Compensation Medicare Set-aside
Arrangement (WCMSA) which was not included in previous years.
Provider, Beneficiary, and Employer Responsibilities
Provider Responsibilities. Medicare providers, including hospitals,
physicians, and outpatient hospital departments, among others, must ask beneficiaries
a series of standardized questions before providing services to ascertain whether
another insurer should be primary to Medicare. For recurring outpatient hospital
services, the MSP information needs to be verified once every 90 days. While the
information is not required to be collected for every visit, but rather only every 90
days, incorrect Medicare payments are still subject to repayment. Providers must
agree to bill other primary payers before billing Medicare.
The provider must notify the COBC promptly if an attorney or insurance
company requests a copy of a medical record or bill concerning a Medicare patient.
Further, if a provider receives a primary payment from both Medicare and a third-
party payer, as well as any deductible or coinsurance amounts from the beneficiary,
the provider must refund the beneficiary up to the full amount that he or she paid.
Any amount paid by the third-party payer greater than the deductible and coinsurance
amount is considered to be a debt to Medicare, because it duplicates any payment
made by Medicare. Medicare must be reimbursed within 60 days of the provider’s
receipt of the duplicate payment.
Beneficiary Responsibilities. Beneficiaries are asked, but not required to
respond to, the Initial Enrollment Questionnaire (IEQ). Beneficiaries receiving
health care services should tell their physician, other providers, and the COBC about
any changes in health insurance. They (or their lawyers, if applicable) should also
contact the COBC if (1) they take legal action or an attorney takes legal action on
their behalf for a medical claim, (2) they are involved in an automobile accident, or
(3) they are involved in a workers’ compensation case.
Employer Responsibilities. Employers must (1) assure that their health
plans identify those individuals to whom the MSP requirements apply; (2) assure that
their plans provide for proper primary payments where, by law, Medicare is the
secondary payer; (3) assure that their plans do not discriminate against employees and
their spouses age 65 or over, people who suffer from permanent kidney failure, and
disabled Medicare beneficiaries for whom Medicare is the secondary payer; and (4)
accurately complete and submit timely Data Match reports on identified employees
or a VDSA.
Determining Medicare Secondary Payment Amounts
When Medicare is the secondary payer, the health care provider first submits a
claim to the beneficiary’s primary payer, who processes the claim according to terms
of the coverage contract. If the primary payer does not pay the full charges for the
service, Medicare secondary payments may be made if the service is covered by
Medicare. In no case can the actual amount paid by Medicare exceed the amount it
would pay as primary payer. Any primary payments from a third-party payer for
Medicare-covered services are credited toward the beneficiary’s Medicare Part A and
Part B deductibles and, if applicable, coinsurance amounts. However, if the primary
payment is less than the deductible, the beneficiary may be responsible for paying
his/her unmet Medicare deductibles and coinsurance amounts.
The Medicare secondary payment amount is subject to certain limits. For some
services, such as inpatient hospital care, the combined payment by the primary payer
and Medicare cannot exceed Medicare’s recognized payment amount (without regard
to beneficiary cost-sharing charges). As one example of how Medicare would decide
its secondary payment amount for inpatient hospital services, assume that an
individual received inpatient hospital services costing $6,800. The primary payer
paid $4,360 for the Medicare-covered services. No part of the inpatient hospital
deductible ($1,024 in 2008) had previously been met. Medicare’s gross payment
amount, without regard to the deductible, is $4,700. As the secondary payer,
Medicare would pay the lowest of
!Medicare’s gross payment amount, without regard to deductible,
minus the primary payer’s payment — $4,700-$4,360 = $340;
!Medicare’s gross payment amount minus the Medicare inpatient
deductible — $4,700-$1,024 = $3,676;
!the hospital charge minus the primary payer’s payment — $6,800-
$4,360 = $2,440;
!the hospital charge minus the Medicare inpatient deductible —
$6,800-$1,024 = $5,776.
In this case, Medicare would pay $340. The combined payment made by the primary
payer and Medicare is $4,700. The beneficiary has no liability for Medicare-covered
services, since the primary payer’s payment satisfied the $1,024 inpatient deductible.
If Medicare’s payment amount had been lower than the primary payer’s amount, it
would not have made a secondary payment.
In other cases, such as physicians’ services, the Medicare secondary payment
amount cannot exceed the lowest of the calculation of the following three options.
For example, assume that a physician charges $175 for a service; the primary payer’s
allowable charge is $150, of which it pays 80%, or $120; and Medicare’s recognized
payment amount for the service is $125, of which it pays 80%, or $100. The options
are described below:
!actual provider charge minus the primary payer’s allowable charge,
adjusted for copayment: $175-$120 = $55;
!Medicare’s payment amount, adjusted for copayment: .80 x $125 =
!primary payer’s allowable charge of $150 is compared to the
Medicare recognized payment amount of $125, and the higher of the
two (which in this case is the primary payer’s charge of $150) minus
the employer plan’s payment of $120: 150-$120 = $30.
Because Medicare’s secondary payment is based on the lowest of these three options,
Medicare would pay $30.
Conditional Payments. As previously discussed, in some MSP instances,
Medicare will make a conditional primary payment if (1) Medicare could reasonably
expect payment to be made under a workers’ compensation or no-fault insurance
claim, and Medicare determines that the payment will not be paid or will not be made
promptly (within 120 days); (2) a beneficiary’s employer-sponsored plan denies a
properly filed claim, in some cases; or (3) a properly filed claim is not made due to
the physical or mental incapacity of the beneficiary.
Medicare must be repaid for these conditional payments by the primary payer
or anyone who has received the primary payment, if it is demonstrated that another
payer, such as a liability insurer, had a responsibility to make a payment. Recovery
efforts can begin as soon as Medicare becomes aware that a payment has been or
could be made. The program may recover the lower of the Medicare payment or the
primary payer’s payment amount.
Conditional payments may not be made if the claim is denied for one of the
following reasons (1) the third-party payer plan alleges that it is secondary to
Medicare; (2) the plan limits payment when the individual is entitled to Medicare;
(3) the services are covered for younger employees and spouses, but not for
employees and spouses who are 65 and older; (4) a proper claim is not filed, or not
filed in a timely manor, for any reason other than the physical or mental incapacity
of the beneficiary; and (5) the group health plan fails to furnish information requested
by CMS as necessary to determine whether or not the employer plan is primary to
Subrogation. Typically, subrogation occurs when an insurance company
which pays its insured client for injuries, losses, or medical expenses, seeks to
recover its payment. An insurer, in this case Medicare, may reserve the “right of
subrogation” in the event of a loss. This means that they may choose to take action
to recover the amount of a claim paid for services provided to a beneficiary if the loss
was caused by a third party. For example, if a beneficiary is injured in a car accident,
Medicare may seek to recover its payment from any money collected by the
beneficiary, or it may sue on behalf of the beneficiary to recover its payment, from
automobile liability insurance, uninsured motorist insurance, or under-insured
CMS is subrograted to any individual, provider, supplier, physician, private
insurer, state agency, attorney, or any other entity entitled to payment by a primary
payer. Medicare will reduce its recovery to take account of the beneficiary’s cost of
procuring a judgment or settlement. If the Medicare payment is less than the
judgment or settlement amount, Medicare will prorate the procurement costs. If the
payment equals the judgment or settlement, it may recover the total amount minus
total procurement costs.
MSP and Tobacco Industry Lawsuits10
In 1999 the federal government brought a massive civil action against the
tobacco industry to recover health care expenditures incurred by all federal health
10 This section was written by Kathleen S. Swendiman, legislative attorney in the American
Law Division, Congressional Research Service.
programs except Medicaid (which was addressed in the state tobacco settlement) in
treating tobacco-related illnesses such as lung cancer, emphysema, and heart disease.
The federal government’s claims against the tobacco industry were premised upon
the defendant tobacco companies’ alleged fraudulent conduct involving a conspiracy
to deceive and mislead the American public about the harmful nature of tobacco
products and the addictive nature of nicotine. One of the government’s claims was
that the Medicare program had made conditional payments for treatment of tobacco-
related illnesses, and that the tobacco industry must reimburse Medicare for these
payments under the MSP provisions. In United States v. Philip Morris, Inc.,11 Judge
Gladys Kessler dismissed the government’s MSP claim, stating that the MSP
provisions only allow suits to be brought against insurance entities, and that the
government had not shown that the defendant tobacco companies, against whom the
suit was brought, were either insurance companies or entities that had established
“self-insured plans.” Since the MSP provisions only allow recovery of conditional
Medicare payments from an insurance entity responsible for making health care
payments, the government could not directly sue the tobacco industry. The court also
stated that “it is clear that Congress did not intend MSP to be used as an across-the-
board procedural vehicle for suing tortfeasors, which is precisely how the
Government attempts to use the statute in this case.”12
In 2003 Congress enacted P.L. 108-173, the Medicare Prescription Drug,
Improvement, and Modernization Act (MMA), and included several amendments to
the MSP provisions, one of which provided for a broader definition of “primary
plan.” Prior to that time the MSP did not define “self-insured plan,” and the courts
had split over what constituted a self-insurance plan under the statute.13 Congress,
in MMA, provided that an entity that “engages in a business, trade, or profession
shall be deemed to have a self-insured plan if it carries its own risk (whether by a
failure to obtain insurance, or otherwise), in whole or in part.”14 This clarification
was added to address those court cases that allowed “firms that self-insure for
product liability ... to avoid paying Medicare for past medical payments related to the
claim.”15 Congress also clarified the means available for demonstrating a primary
plan’s responsibility to reimburse Medicare. Such a responsibility “may be
demonstrated by a judgement, a payment conditioned upon the recipient’s
11 116 F.Supp.2d 131 (D.D.C. 2000). The federal government amended its MSP claim to
allege that the companies were self-insured plans that carried their own risks, but the court
held that there was no showing that there was a “plan” with arrangements for reserves or
claims-handling procedures. United States v. Philip Morris Inc., 156 F.Supp. 2d 1 (D.D.C.
12 116 F.Supp 2d at 135.
13 Some courts held that a primary plan of self-insurance had to have a specific arrangement
for a source of funds and procedures for disbursing those funds when claims were madeth
against the entity (see Brown v. Thompson, 374 F.3d 253, 261 (4 Cir. 2004)), while others
found that a self-insured plan merely had to have some kind of “arrangement,” which did
not need to involve any setting aside of funds or formal procedures (see United States v.th
Baxter Int’l. Inc., 345 F.3d 866, 895-98 (11 Cir. 2003)).
14 Section 301(b)(1) of P.L. 108-173.
15 H.Rept. 108-178 (II) at 189-90 (2003).
compromise, waiver, or release (whether or not there is a determination or admission
of liability) of payment for items or services included in a claim against the primary
plan or the primary plan’s insured, or by other means.”16
In the wake of the federal government’s unsuccessful attempt to use the MSP
provisions to recover Medicare payments relating to tobacco illnesses, a number of
suits were brought under the MSP’s private cause of action provision by individuals
and private sector entities to recover Medicare payments and obtain damages.17 This
provision gives private citizens an incentive, in the form of double damages, to assist
the government in recovering funds “in the case of a primary plan which fails to
provide for primary payment.”
In one case, Glover v. Philip Morris,18 individual Medicare beneficiaries filed
suit as private attorneys general under the MSP statute to recover expenditures
Medicare made in Florida after May 26, 1998, for the treatment of illnesses
attributable to cigarette smoking. The plaintiff Medicare beneficiaries alleged that
defendant tobacco companies were tortfeasors in that they had “battered” Medicare
beneficiaries by exposing them to the addictive properties of nicotine, and that, as
such, the tobacco companies were liable for the victims’ smoking-related medical
expenses to the extent that Medicare had made payment for such costs. Defendant
tobacco companies argued that the MSP does not provide a private cause of action
against an alleged tortfeasor, only against an entity that has been shown to be
responsible to pay for medical expenses under a primary plan, and that as accused
tortfeasors they had not yet been found liable for any medical payments, so they
could not be said to have “failed” to make payments to Medicare under their
insurance plans. The court in Glover held that while the tobacco companies might
meet the expanded definition of a “self-insured plan” following the 2003
amendments to the MSP, they had not yet been shown to be responsible for any
Medicare payments for smoking-related illnesses, so an MSP lawsuit to recover
Medicare payments was premature.19 In other words, the MSP only provides a
private cause of action to recoup Medicare payments from an insurance plan after the
tortfeasor’s liability has been established in a previous legal action, by agreement, or
otherwise. The Court of Appeals for the Eleventh Circuit affirmed the district court’s
dismissal of the plaintiff’s case on August 14, 2006.20
In another case, United Seniors Association, Inc. v. Philip Morris USA,21 a
nationwide non-profit “taxpayer protection” association sued several tobacco
companies as a private attorney general on behalf of the Medicare program to recover
medical payments made by Medicare to treat Medicare recipients for illnesses
attributable to cigarette smoking. The United Seniors Association alleged that the
16 Section 301(b)(2)(A) of P.L. 108-173.
17 Section 1862(b)(3)(A) of the Social Security Act, 42 U.S.C. § 1395y(b)(3)(A).
18 380 F.Supp.2d 1279 (M.D. Fla. 2005).
19 Id. at 1295.
20 Glover v. Liggett Group, Inc., 459 F.3d 1304 (11th Cir. 2006) (per curiam).
21 2006 U.S. Dist. LEXIS 60729 (D. Mass., August 28, 2006).
defendant tobacco companies were tortfeasors in that “ they have ‘battered’ Medicare
beneficiaries by exposing them to the addictive evils of nicotine” without their
consent, and so should be held liable for the resultant injuries and Medicare medical
payments.22 Here again the court held that an established obligation to pay medical
expenses is a condition precedent to bringing an MSP claim to recoup Medicare
payments that another insurance entity should have paid for as a primary plan.23
Since the tobacco companies’ liability to pay for smoking-related illnesses had not
yet been determined, the district court dismissed plaintiff’s MSP claims to recover
Medicare payments. On August 20, 2007, the First Circuit Court of Appeals
affirmed the lower court’s ruling, stating that the United Seniors Association lacked
standing to sue the various tobacco companies on behalf of the Medicare program.24
An appeal to the U.S. Supreme Court by United Seniors Association, Inc. was denied
on January 22, 2008.25
22 Id. at 1.
23 Id. at 4, citing the Glover decision.
24 United Seniors Association, Inc. v. Philip Morris USA, 500 F.3d 19 (2007).
25 United Seniors Association, Inc. v. Philip Morris USA, 128 S. Ct. 1125, 169 L. Ed. 2d 950
(2008), petition for writ of certiorari denied.