How Medicare Secondary Payer Rules Affect You

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Medicare Compliance

Federal regulations under the Patient Protection and Affordable Care Act (PPACA) affect how employers and other small businesses receive group healthcare coverage. Of course, there are many factors and guidelines that govern how employees can use Medicare as a secondary payer. For example, these guidelines prohibit companies larger than 20 employees from incentivizing older employees (age 65 or older) to elect Medicare instead of a group health plan.

As we review the basics of Medicare secondary payer rules, there are many questions that arise over the specific provisions of the law. This guide is designed to answer some of the most frequently asked questions related to employers’ use of Medicare as a secondary payer.

  • Who is affected by changes in the Medicare Secondary Payer rules?

The biggest group affected by these changes are currently employed individuals or spouses who are at least 65 years of age and use a group health plan through an employer with at least 20 employees. This does not apply to eligible employees who instead elect to use Medicare, nor does it apply to individuals who use retiree group health plans.

  • Are employers with 20+ employees required to offer health coverage to older, Medicare-eligible employees?

Yes, small and medium-sized employers are required to offer the same health coverage options that are offered to younger employees. This also means that Medicare-eligible families also receive the same spousal benefits that their non-eligible counterparts do.

  • Can Medicare-eligible employees elect either group health coverage or Medicare?

Older employees that are eligible for Medicare have the option to, but are not required to, use Medicare coverage. At no point is an employer allowed to induce these individuals to opt out of group healthcare coverage. If these employees elect the group health plan, they can also use secondary Medicare coverage after enrollment.

  • If an eligible employee elects Medicare as their primary insurance provider, can the employee use the group health plan for secondary coverage?

No, this is prohibited. On the other hand, this works in the opposite direction, where employees can use Medicare as their secondary insurer.

  • Does Medicare know if an employee has the option of using a group health plan through their current employer?

Yes, The Centers for Medicare and Medicaid (CMS) generally use questionnaires and other forms of verification to see if an employee can seek primary coverage through another plan. Individuals usually cannot receive entitlements from Medicare Part A or Medicare Part B until this information is complete.

  • Are there any reporting requirements regarding this secondary payer system?

A responsible reporting entity (RRE) is required to collect data from group health sponsors and participants, and then send this information to CMS quarterly. An RRE can be an insurer, third-party administrator, or plan administrator depending on the nature of the group health plan. This information is contained in Medicare Section 111.

  • Are part-time employees included in the 20-employee baseline for Medicare Secondary Payer coverage? How do employers know when they have reached the mark?

Each part-time employee is counted as one full employee. In other words, employers with 20 part-time employees must still meet these Medicare guidelines. This also means that employees that are not included in the group health plan are also part of the 20-employee benchmark. At the same time, self-employed individuals in the group health plan are not included in this number.

The basic requirement is that if there are 20 or more employees (both full or part-time) employed by the company for each day of a 20-week period, then these Medicare guidelines fall into place.

  • What happens when an employer exceeds 20 employees in a 20-week calendar period?

No matter how many employees worked in the previous year, once an employer has at least 20 registered employees for each day of a 20-week period, they must offer primary insurance coverage. Even if that number later drops to below 20, then this standard still applies.

  • Can a business with fewer than 20 employees reimburse employees for Medicare Part B or Medicare Part D premiums?

For businesses that have fewer than 20 employees, the Medicare Secondary Payer rules are much different. The Patient Protection and Affordable Care Act (PPACA) places strict limits on an employer’s ability to reimburse individual premiums, so unless the employer’s reimbursements is specifically outlined as part of a group health plan, then these payments are viewed as non-compliant and subject to monetary penalties of $100 per day per employee.

  • How can a Medicare reimbursement plan be integrated into a group health plan?

In order for an employer to integrate a Medicare reimbursement plan into their group health coverage plan, they need to meet the following criteria:

  • The group health plan must be offered to all employees, regardless of age or Medicare eligibility status;
  • Any employee who receives premium reimbursement payments must be enrolled in Medicare Part A, and either Part B or Part D;
  • Premium reimbursement programs can only be used for Medicare Part B or Medicare Part D premiums, in addition to excepted benefits from Medigap premiums.
  • If a small business (with less than 50 employees) has been using a system that reimburses employees for Medicare premiums, are they at-risk for a $100 per day penalty?

 Yes. This change took effect June 30, 2015 and all employer Medicare reimbursement plans after this date that do not meet the qualifications of the PPACA will be subject to fines and monetary penalties.

  • What are the penalties that the CMS will hand out if an employer violates the PPACA’s rules on Medicare Secondary Payers or premium reimbursements?

Medicare’s Civil Monetary Penalties refer to numerous violations that will cost an employer big time if they violate the law. For example:

  • Any organization that incentivizes an employee, whether through written or verbal means, to forgo group health coverage will be fined up to $5,000 per offer.
  • If an organization fails to report required group health information as specified under Section 111, the CMS can issue a fine of $1,000 per day for each instance of non-compliance.

In addition, there may also be penalties from the IRS. For instance:

  • Organizations that participate in non-conforming group health plans may be subject to an excise tax levied by the IRS which equates to 25% of the employer’s group health expenses for that year. A non-conforming group health plan is classified as one that: (1) does not take Medicare-eligibility into account when developing plans for individual employees, (2) fails to provide the same benefits to individuals 65 or over, (3) offers different levels of coverage for employees with end-stage renal disease (ESRD), or (4) fails to offer a refund for incorrect Medicare payments.
  • Furthermore, if an employer reimburses an individual for Medicare premiums that are not part of the group health plan, they can be fined $100 per day per violation by the IRS.
  • Are there other PPACA rules that affect individuals who qualify for Medicare through disability or ESRD?

Yes. For disability, individuals that are under 65 years of age and Medicare-eligible will still use Medicare as the secondary payer, as long as they are covered by a large group health plan of 100 employees or more.

For employees that are Medicare-eligible through ESRD, the group health plan will be the primary payer for the first 30 months. After that period, Medicare becomes the primary payer.


Employers must navigate a complex web of new regulations in order to comply with strict federal standards. Medicare’s secondary payer rules certainly change the way that thousands of small businesses have been using health insurance for years. The average employer could run the risk of CMS or IRS penalties if they do not adopt new health insurance policies. Because the June 30th deadline has already passed, we advise all employers with more than 20 employees to promptly review their group health plans to make sure they comply with the PPACA’s guidelines.

Without a partner to help guide your company through these new regulations, the health insurance world can be vastly complicated. Call Providence Insurance Group today to understand how these Secondary Payer rules might affect your business.


Health Care Accounts

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Explaining the Different Between HRA’s, HSA’s, and FSA’s

When employers create a group health plan, they need to create a health spending account to manage how covered individuals receive care for current and future medical expenditures. There are three basic types of consumer-driven spending accounts: health reimbursement arrangements (HRA’s), health savings accounts (HSA’s), and healthcare flexible spending accounts (FSA’s).

These plans offer favorable benefits concerning taxes and allow each employee to have their own account under the group health plan. But, the Affordable Care Act (ACA) has changed how these types of spending accounts operate. Your consumer-driven plan might be affected by updated ACA guidelines, so we encourage users to review the Frequently Asked Questions below:

Who is eligible to participate in these plans?

  • FSA: Any individual whose employer offers an FSA group health plan is eligible to participate. This also included retired individuals as long as most participants are current employees.
  • HRA: Any individual whose employers offer an HRA group health plan is eligible (this includes spouses and retired individuals). Retiree-only HRA plans are not required to meet the same medical coverage standards.
  • HSA: To qualify for an HSA, individuals cannot be covered by any health coverage plan except for a high-deductible health plan (HDHP). In addition, to maintain an HSA account, participants cannot receive Medicare benefits or appear as a dependent on a spouse or parent’s tax return.

Can an employer impose other eligibility requirements other than those stated above?

  • FSA: So long as the eligibility guidelines are non-discriminatory, employers may require other preconditions to apply for an FSA.
  • HRA: Just like an FSA, employers may apply further requirements to become eligible for their HRA accounts.
  • HSA: Employers may not limit the amounts that employees contribute to an HSA. Because these accounts belong to the individual as a health savings plan, employers are also permitted to limit their own contributions to HSA accounts.

Can an employee contribute to the designated account? Can someone else contribute to the account?

  • FSA: As of 2015, employees are permitted to contribute up to $2,550 by default or whatever the maximum is as specified by the plan. At the same time, another person cannot make contributions.
  • HRA: No, employees cannot make contributions to an HRA account. Other individuals also cannot make contributions.
  • HSA: Yes, but there are different contribution limits depending on certain criteria. For instance, the 2015 contribution limit for self-coverage is $3,350 and the limit for family coverage is $6,550. Individuals over the age of 65 can also deposit an additional $1,000 for health-related costs. Anyone can contribute to the HSA as long as they stay within these contribution limits.

Can an employer contribute to the account? If so, how much?

  • FSA: Yes, an employer can contribute up to double the employee’s contribution, plus an extra $500.
  • HRA: Yes, employers can make contributions to the account.
  • HSA: Yes, but the employer must remain within the contribution limits.

Does the spouse’s health coverage affect the account?

  • FSA:
  • HRA: In many cases, an employer will integrate a spouse’s health plan into an HRA account, even though the employer is not required to do so.
  • HSA: If an employee currently receives health coverage through their spouse’s non-HDHP, the employee is not eligible to participate in the HSA.

Does the PPACA require a formal account?

  • FSA: No, these bookkeeping standards are not required.
  • HRA: No, these bookkeeping standards are also not required.
  • HSA: Yes, a trust account or custodial account through a bank/credit union is almost always required.

Is a Section 125 Cafeteria Plan necessary?

  • FSA: Yes, this must be a part of the Section 125 Plan.
  • HRA: No, an HRA account cannot be part of a Section 125.
  • HSA: An HSA may, but is not required to, be part of a Section 125 Plan.

Can all health expenses be reimbursed?

  • FSA: All medical expenses covered by Code 213 can be reimbursed by an FSA program (which includes dental and vision). Healthcare premiums may not be reimbursed.
  • HRA: Again, all medical expenses (including dental and vision) are covered. The employer can reimburse group coverage premiums as long as they are pre-tax, but cannot provide reimbursements for individual policy premiums.
  • HSA: All medical expenses are covered. Most of the time, this does not include premiums, except in the cases of long-term care insurance, COBRA, or Medicare supplements.

Can non-health expenses be reimbursed, as well?

Only HSA’s can reimburse employees for non-medical expenditures. This will also include income taxes and a 20% excise tax.

Under the policy, whose expenses can be reimbursed by the employer?

The actual employee, spouse, children under the age of 27, and any other dependents can receive reimbursements from the employer for health-related costs during the coverage period.

Can an employer set a limit on non-reimbursable expenses?

  • FSA: Yes, an employee can design a “limited purpose” FSA to include only specific expense. For instance, it would be possible for the FSA to provide reimbursements for only dental and vision.
  • HRA: Similar to FSA’s, an employer may also create a “limited purpose” HRA program to covered a narrower scope of reimbursements.
  • HSA: In this plan, employers are not permitted to set limits on reimbursable expenses.

How are standard medical expenses reimbursed?

For both FSA’s and HRA’s the process is fairly straightforward. The coverage holder simply submits the claim to the policy administrator. On the other hand, for an HSA, the employee is expected to pay for the expense directly from the HSA account and maintain a record of the transaction on their own.

Can employees continue to receive reimbursements after being terminated?

COBRA, a federal program that allows employees to keep health coverage after employment is terminated, can be elected if the employee so chooses for both FSA’s and HRA’s. On the other hand, an employee can always continue to use an HSA after his or her employment has been terminated.

Will unused contributions in the account carry over from year to year?

Understanding how unused contributions work are a focal point of these spending accounts. For FSA’s, these do not carry over from year to year – only in very rare circumstances will this actually happen. For HSA’s, these can always transfer to the following year because the account belongs to the individual. The same applies for HRA’s as long as a carry-over policy is specified by the plan.

Can employees access funds even before they have been contributed to the account?

Only with FSA’s must an employee have access to funds prior to contribution. In fact, FSA coverage must begin the first day of the policy, regardless of contributions. For other types of health spending accounts, this policy must be specified in advance.

Can an employee participate in multiple health spending accounts?

Yes, employees have the option of participating in multiple health coverage programs as long as the other programs are “limited purpose.” Generally speaking, an HRA will pay before an FSA policy, unless otherwise noted by the coverage plan.

Is a Summary Plan Description (SPD) required? What about a 5500 tax report?

In almost all cases of FSA’s and HRA’s, an SPD is required by employers. This standard does not apply to church and government policies. For HSA’s, this is indirectly required by the pre-existing HDHP. For 5500 forms, these only need be submitted when the employer has more than 100 employees.

What other requirements must these specialized spending accounts follow?

  • W-2 reporting: employer contributions are only noted on W-2 forms for HSA accounts
  • PCORI fees: Most often, this applies to self-funded HRA plans (but these apply only to employees, not dependents).
  • Health insurance provider fees: No, these fees do not apply to any of the related health coverage programs.
  • Transitional reinsurance fee: No, these do not apply.
  • Cadillac tax: Yes, in most cases, contributions to the account are applied to the Cadillac tax. This additional tax may apply to both employee and employer depending on the nature of the account (i.e. if Section 125 plan).
  • HIPAA privacy: These are almost always mandated in the healthcare industry, but are not directly required by an HSA, even though they may be required by a related HDHP.
  • Minimum essential coverage: Only an HRA account qualifies as minimum essential coverage.

What This Means For Employers and Employees

Does your company offer the option of an HRA, HSA, or FSA? If so, then there are hundreds of regulations that affect how you and your employer can utilize the account. Failing to understand this vast network of eligibility requirements and contribution rules can sometimes lead to severe IRS penalties or even decreased health coverage. To understand how you, your family, and your business can understand the basics of FSA, HSA, and HRA compliance, call the health insurance experts at Providence Insurance Group.

health insurance

UBA Welcomes New Partner Firm

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Family-owned Agency Adds To UBA’s Growing Network of Independent Employee Benefits Advisory Firms Spanning North America and Europe

Indianapolis, Ind. – September 9, 2014 – United Benefit Advisors (UBA), the nation’s leading independent employee benefits advisory organization, is pleased to announce Providence Insurance Group as its newest Partner Firm.

Founded as Georgia Health Administrators in 1984 in Marietta, Georgia, Providence Insurance Group has remained dedicated to serving small and mid-size employers.  Since 2009, they have experienced more than 25% organic growth year over year with more than $50 million in annualized premiums.

With an average of 17 years of industry experience, the Providence Insurance Group team has grown to 21 employees and is comprised of a unique blend of tenured veterans and youthful energy.  Providence Insurance Group is one of the few agencies that maintain a full-time Certified Medicare Specialist on staff and each employee is devoted to meticulously helping clients manage the responsibility of providing health insurance for themselves, their employees, and families.  To learn more about Providence Insurance Group, visit

“We are excited about becoming a Partner Firm of UBA.  We believe this partnership will help us deliver the technical support in the ever changing landscape of employee benefits,” said Karle Stinehour, President of Providence Insurance Group.

As the newest Partner of UBA, Providence Insurance Group joins a network of more than 130 employee benefits advisory firms that serve employers of all sizes across the United States, Canada, and Europe.  As a combined group, UBA’s annual employee benefit revenues rank it among the top five employee benefit advisory organizations in the U.S.  UBA is a unique community, which provides its Partner Firms the ability to tap the expert knowledge of nearly 2,000 benefit professionals and offers world class products and services to best meet the needs of employers offering competitive benefits packages.

“As UBA’s network of Partner Firms expands, it’s always gratifying to add successful, family-owned agencies like Providence Insurance Group,” said Les McPhearson, CEO of United Benefit Advisors.  “Having been in the industry for quite some time, insurance to them has become more than just a business.  It has become a way of life — one that has allowed them to form lasting friendships and cultivate a tremendous sense of pride with their clientele.  It is truly a pleasure to welcome them to UBA.”

About United Benefit Advisors

United Benefit Advisors is the nation’s leading independent employee benefits advisory organization with more than 200 offices throughout the United States, Canada and the United Kingdom.  As trusted and knowledgeable advisors, UBA Partners collaborate with more than 2,200 fellow professionals to deliver expertise, thought leadership and best-in-class solutions that positively impact employers and make a real difference in the lives of their employees and families.  Employers, advisors and industry-related organizations interested in obtaining powerful results from the shared wisdom of our Partners should visit UBA online at