Medicare rules for small businesses

When an individual is covered under both a group health plan and Medicare, the Medicare Secondary Payer (MSP) rules specify when a group health plan must pay primary and when it may pay secondary. In determining the primary payer for Medicare beneficiaries, the reason for an individual’s entitlement must be considered (i.e., age, disability or end-stage renal disease (ESRD)) among other things.

The below chart summarizes when an employer’s group health plan must pay primary and when it can pay secondary.

Understandably, most employers would prefer to pay secondary to Medicare. Medicare is aware of this and the MSP rules contain certain prohibitions to prevent employers from taking advantage of the system. Under the MSP rules, employers may not offer individuals entitled to Medicare financial or other incentives to opt out of employer-provided group health coverage and they prohibit certain actions that “take into account” an individual’s Medicare entitlement.

Offering Financial or Other Incentives

The MSP statute prohibits employers from discouraging employees from enrolling in their group health plans or from offering any financial or other incentive for an individual entitled to Medicare not to enroll (or to terminate enrollment) under a group health plan that would otherwise be a primary plan. For example, an employer cannot offer a plan that pays supplemental benefits for Medicare covered services or pay for those benefits in any way in order to entice employees to enroll in Medicare rather than the employer’s group health plan.

Taking Into Account Medicare Entitlement

In general, the MSP rules prohibit group health plans from “taking into account” the Medicare entitlement of a current employee or a current employee’s spouse or family member. The regulations provide examples of what constitutes “taking into account” and include the following among other examples:

Terminating coverage because the individual has become entitled to Medicare, except as permitted under COBRA  

Imposing limitations on benefits for a Medicare-entitled individual that don’t apply to others enrolled in the plan, such as providing less comprehensive health care coverage, excluding benefits, reducing benefits, charging higher deductibles or co-insurance, providing for lower annual or lifetime benefit limits or providing more restrictive pre-existing condition limitations

Charging a Medicare-entitled individual higher premiums or requiring a Medicare-entitled individual to wait longer for coverage to begin

Providing misleading or incomplete information that would have the effect of inducing Medicare-entitled individuals to reject the employer plan, thereby making Medicare the primary payer Small Employers

Certain small employers are excepted from some, but not all of the above prohibitions. The prohibition against taking into account Medicare entitlement based on age applies only to group health plans of employers with 20 or more employees; the prohibition against taking into account Medicare entitlement based on a disability applies only to large group health plans (at least 100 employees).


According to CMS, Medicare law is violated every time a prohibited offer is made, whether orally or in writing. A violation can lead to civil penalties of up to $5,000 per violation. The chart set forth above may be used to help determine coordination of benefits with Medicare, and employers should be cognizant of the prohibitions contained in the MSP rules.

Click Here for the Chart: