The Centers for Medicare and Medicaid Services (CMS) issued guidance in December 2014 clarifying their Medicare Secondary Payer (MSP) policies regarding employees who are subject to federal prevailing wage statutes. 

The MSP rules make other types of health insurance the primary payer for health claims. Medicare will only pay the balance of the bill up to full Medicare benefit levels.  In other words, the primary payer pays first and Medicare pays second, but only up to the Medicare maximum amount. 

Penalties for non-compliance with MSP can be extremely expensive. They correlate to the amount of benefits paid by Medicare that would have originally been paid for by the primary insurance, plus interest. In addition, owners and officers can be personally liable for violations and do not receive protection through corporate entities or bankruptcy, and there is no statute of limitations. 

According to the MSP policy statement, employees subject to the Davis Bacon Act who participate in Medicare may not waive coverage in their employer-paid health plan due to Medicare coverage if the employer provides other benefits, such as providing other welfare benefits or additional retirement plan contributions or if they pay the difference as cash wages to meet the contract requirements. 

Employees eligible for Medicare can waive participation in the employer’s plan if they are covered by other primary insurance, such as under a spouse’s employer group health plan, but not for their own Medicare coverage. 

The logic employed by CMS is that by providing other benefits or cash in place of benefits to meet the contract wage requirements, the employer is providing a financial incentive to the employee to decline coverage which would increase Medicare costs. 

The CMS clarification is very brief and provides few details. Employers should review their employees’ enrollment status in health plans for possible problems and to ensure compliance during enrollment periods. 

To read the entire release, click here. For more information on our Strategic Partner, Fringe Benefit Group’s compliance and ethics support, contact Jim Cunningham at (800) 662-6177, ext. 303, or [email protected]. You can contact one of their local regional offices here.