Issue #53    April 17, 2009
 

COORDINATION OF BENEFITS BETWEEN MEDICARE AND GROUP HEALTH PLANS – WHO IS THE SECONDARY PAYER?[1]

 

By, John J. Campbell, CELA, MSCC

 

Introduction

         

          It is not unusual for a plaintiff or claimant in a worker's compensation (WC) or liability settlement to have access to more than one source for payment of their injury related medical expenses. For example, the claimant or plaintiff may be covered under WC, no-fault insurance or Medicare and also have access to coverage under a spouse's group health plan (GHP); or to continued coverage by the claimant's or plaintiff's own GHP.

 

            In cases where a disabled claimant or plaintiff may have access to GHP coverage as well as Medicare, WC or no-fault insurance, it is important to consider the coordination of these available medical benefits. This can allow counsel to ensure that the settlement adequately provides for the claimant's or plaintiff's future medical needs; and to advise the claimant or plaintiff on how to plan for the most comprehensive health care coverage available following settlement.

 

            Three separate pieces of federal legislation govern the coordination of benefits and coverage under GHP’s, WC, no-fault insurance and Medicare: the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”); the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”); and the Medicare Secondary Payer (MSP) statute, as amended by the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). To understand the complexities of the coordination of medical benefits under a GHP, Medicare and WC or no-fault insurance, it is essential to have a basic understanding of these three laws and how they interact.

 

COBRA

 

            Congress passed COBRA in 1985, amending the Employee Retirement Income Security Act of 1974 (“ERISA”). The main purpose of COBRA was to provide extended health care in instances where it would otherwise be lost due to an event terminating eligibility of an employee or an employee’s family for GHP coverage.

 

            COBRA requires that certain employer-sponsored GHP’s offer employees and their dependents the option to purchase continued health coverage for a specified extension period in the case of certain qualifying events.  These qualifying events include: termination of employment; reduced hours of employment; death of the employee spouse or parent; divorce or legal separation from an employee spouse; enrollment in Medicare; or the end of a child’s dependency under a parent’s GHP.

 

          The COBRA extension period most often applicable is the 18 month period provided for qualifying events due to termination of employment or loss of employment hours.  When the qualifying event is due to the death of the employee, divorce or legal separation, or the end of a child’s dependency, the COBRA extension period available to the employee’s spouse or child is 36 months.  Further, the usual 18 month COBRA period for loss of employment or loss of employment hours can be extended in certain circumstances.

 

          If another qualifying event occurs within 18 months of termination of employment or a loss of employment hours, the COBRA extension period is doubled to 36 months.  This period begins on the date of the initial termination or loss of hours.  

 

          An 18 month COBRA extension following loss of employment or employment hours can also be extended to 29 months, provided the qualified employee is determined to have become disabled under the Social Security Act within 60 days from the inception of a COBRA extension period, and the employer receives notice of the disability determination before the expiration of the initial 18 month extension period.  During the 30th month after disability, the employee will become eligible for Medicare if the disability determination resulted in his or her eligibility for Social Security Disability Insurance Benefits (SSDIB). 

 

          Following a COBRA election, once the employee or other qualified beneficiary becomes eligible for Medicare, or obtains coverage under another GHP with no applicable pre-existing condition exclusion, that person’s COBRA extension period will end.  However, if an employee or other qualified beneficiary is eligible for Medicare or is covered under another GHP before a qualifying event occurs, that person will be entitled to the full applicable COBRA extension period, in spite of other coverage.  Further, if the qualifying event is due to a loss of employment or loss of hours and the qualifying event occurs within 18 months after an employee becomes entitled to Medicare, the employee’s spouse and dependent children will have an extended COBRA period of 36 months. 

 

          In IRS Announcement 98-22, the IRS verified that a group health plan is not permitted to cease making COBRA coverage available merely because of other coverage (including Medicare) that began before the date of the election for COBRA.  However, other coverage, including Medicare, that began after the COBRA election will permit COBRA to terminate coverage immediately.

         

          Three months later, in Geissal v. Moore Medical Corp., 118 S.Ct. 1869, 141 L.Ed.2d 64 (1998), the U.S. Supreme Court unanimously found that employers cannot deny COBRA coverage to qualified beneficiaries who had other GHP coverage before the date of their COBRA election. COBRA coverage can only be terminated if: (1) the qualified beneficiary gets coverage under another GHP after the date of COBRA election; and (2) the other GHP coverage does not limit or exclude the qualified beneficiary from coverage for preexisting conditions.

 

          Like IRS Announcement 98-22, the holding in Geissal is equally applicable in the cases where qualified beneficiaries become entitled to Medicare.  If they became entitled to Medicare before they elected COBRA coverage, their COBRA coverage cannot be terminated due to Medicare eligibility. The COBRA plan may only terminate based on entitlement to Medicare if the qualified beneficiary becomes entitled to Medicare following his or her COBRA election.   

 

HIPAA

 

          Under HIPAA, a GHP is defined as a plan to provide health care to employees, former employees, or their families by the employer.  The law includes Health Maintenance Organizations.  One of the primary effects of HIPAA is to place significant restrictions on the ability of a GHP to limit or deny coverage based upon a preexisting medical condition.  Under HIPAA, a “preexisting condition exclusion” means the exclusion of certain medical benefits from coverage because the condition the medical benefits were intended to cover was diagnosed at least 6 months before an individual enrolled for coverage, whether or not the individual was treated prior to the date of enrollment.

 

          HIPAA provides that a GHP may not impose a preexisting condition exclusion unless: (1) the exclusion relates to a condition (whether physical or mental) for which medical advice or treatment was either recommended or received 6 months or more prior to the enrollment date; (2) the exclusion does not last for more than 12 months (18 months in the case of a “late enrollee”)  after the date the individual enrolled in the plan or the first day of the waiting period for such enrollment, if earlier; and (3) the length of any preexisting condition exclusion is offset by the aggregate of the periods of any “creditable coverage” that applies to the participant or beneficiary on the date of enrollment.

 

          “Creditable coverage” means health insurance coverage from any of the following: (1) a GHP; (2) a private health plan; (3) Medicare; (4) Medicaid; (5) a medical and dental program for members of the Armed Forces; (6) a medical care program of the Indian Health Service or of a tribal organization; (7) a state health benefits risk pool; (8) a health plan offered under legislation entitled “Health Insurance for Civil Servants”; (9) a public health plan; or (10) a health benefit plan under §5(e) of the Peace Corps Act.  Worker’s compensation (WC) and no-fault insurance do not constitute “creditable coverage” under HIPAA.

 

          Therefore if the individual had creditable coverage on the date of enrollment, the period during which he or she was covered under the earlier plan will offset the length of any preexisting condition exclusion.  However, if there was a gap when the individual was not insured by any creditable coverage for a continuous period of 63 days or more, the individual is susceptible to either a full 12 month or 18 month exclusionary period when enrolling in a new plan. 

 

          A gap in creditable coverage can be determined by counting the days between the last day of creditable coverage and the enrollment date under any other means of creditable coverage.  Any “affiliation period,” “probationary period,” or other period during which an individual must wait to receive coverage under a GHP will not be counted in determining the 63 day continuous period.

 

          Once any initial exclusionary period has expired, no new preexisting condition exclusions may ever be imposed on an individual who maintains coverage without a 63 day gap in creditable coverage.  This is why it is essential for disabled individuals to maintain their health insurance coverage, even if they lose their employment or become eligible for WC coverage or coverage under a no-fault policy.

 

          An individual who is eligible to enroll in a GHP, but who does not enroll within the first eligibility period, is generally considered a “late enrollee” and is subject to an 18 month exclusionary period.  Often, an individual, spouse or dependent has creditable coverage under another GHP during the initial eligibility period for the new GHP and chooses not to enroll in the new GHP for that reason.  If such an individual, spouse or dependent later loses coverage under the old GHP, HIPAA provides for a special enrollment period for the new GHP.  If an eligible individual, spouse or dependent becomes enrolled in the new GHP during such a special enrollment period, he or she is not considered a “late enrollee”.

 

          A GHP must permit an eligible employee, spouse or dependent to enroll during a special enrollment period if the following conditions are met: 1) the employee, spouse or dependent had another GHP or health insurance coverage at the time the individual was initially eligible for coverage under the new GHP; 2) the employee, spouse or dependent stated in writing that enrollment in the other plan was the reason for declining offered coverage (if this is required by the GHP); 3) the employee’s, spouse’s or dependent’s previous coverage was lost because of the exhaustion of a COBRA election period, divorce, loss of employment, termination of the plan or another triggering event; and 4) the employee, spouse or dependent requests coverage under the new GHP within 30 days of the loss of the previous coverage.

 

          In HCFA Bulletin 99-01 (June, 1999), the Health Care Financing Administration (now the Centers for Medicare and Medicaid Services, or "CMS") stated that group health plans are subject to the provisions of HIPAA and are not “excepted benefits” just because primary coverage may be under Medicare or some other group health plan.  Therefore, even where an individual has both GHP and Medicare coverage, the GHP must comply with HIPAA. 

 

The MSP Statute and OBRA ‘93

 

          The federal MSP statute provides that Medicare is always the secondary payer (except in specific circumstances) when a payment has been made or can reasonably be expected to be made for an item covered under a group health plan, a worker's compensation law or plan, a liability policy or plan, or under no-fault insurance.  The only exceptions to this general rule have to do with Medicare's relationship to group health plan (GHP) coverage.  Where the third party payer is a workers' compensation law or plan, a liability policy or plan, or no-fault insurance, Medicare will always be secondary.

 

          When Congress enacted OBRA ‘93, it resulted in an extremely important change to the MSP statute.  Specifically, OBRA ‘93  clarified that, where a disabled individual is covered under both a large GHP (i.e. a GHP offered by an employer with at least 100 employees) and Medicare, Medicare is the primary payer when the individual’s participation in the large GHP is not due to his employment status.

 

          Regulations enacted in 1995 pursuant to OBRA ’93 further clarify that an individual not actively working, who participates in a GHP and who also either receives SSDIB benefits or whose participation in the GHP is pursuant to a COBRA election is not considered to have “employment status.”  Therefore, if such an individual is also eligible for Medicare, Medicare is primary to the GHP.  With Medicare as the primary payer in this circumstance, the GHP essentially becomes a supplemental policy, covering medical expenses not covered by Medicare.  However, there is no requirement that the GHP be limited to the various standardized combinations of benefits reserved for Medigap policies.

 

          Another important provision of OBRA ’93 provides a second exception to the general rule that Medicare is always the secondary payer where an individual is entitled to Medicare benefits because of end stage renal disease (ESRD).  If the ESRD beneficiary is covered under any GHP, Medicare will be secondary with regard to the GHP for the first 30 months of Medicare eligibility only.  After that, Medicare becomes the primary payer with regard to the GHP.

 

          OBRA ’93 states that the ESRD exception "shall apply. . . to an item or service furnished in a month to an individual if for the month the individual is entitled to [Medicare] benefits" because of ESRD.  The Medicare secondary payer regulations also provide that, except for certain persons with dual eligibility for Medicare effective before August 9, 1993, the ESRD exception applies, "without regard to the number of individuals employed and irrespective of employment status".   As a result, the ESRD exception affects even small GHP's and GHP's providing extended coverage under COBRA.

 

Planning for Medical Care

 

           When the claimant or plaintiff is disabled, assurance of future medical care is often the most important consideration in a WC or liability settlement. Failure to plan properly for future medical coverage can result in unexpected, unpleasant, and sometimes disastrous results for the claimant or plaintiff.

 

            When an individual becomes injured or develops ESRD at work or as the result of an injury for which a third party is liable, the individual often is covered under a GHP.  The individual then may become disabled as the result of his or her injuries and can no longer work.  If the individual was injured on the job, he or she will be eligible for WC benefits.  In some states, when the individual is injured in an accident involving a motor vehicle, the individual may be eligible for payment of injury related medical expenses under a no-fault policy.

 

            It is extremely important to remember that WC or no-fault insurance will only pay for injury related medical care.  Even in cases where the individual is so seriously injured that all medical care is considered to be injury related, WC or no-fault coverage will no longer be available after a settlement that closes out future medical expenses.  Medical expenses not covered under WC or no-fault insurance will be the responsibility of the individual if he or she has no other medical coverage.

 

          In many cases where the claimant or plaintiff has GHP coverage, that coverage is provided under a COBRA extension.  COBRA's usual extension period is 18 months following the termination of the beneficiary's GHP eligibility.  However, COBRA provides a longer extension period of 29 months for persons who become disabled and apply for SSDIB within the first 60 days of the COBRA extension period.  Therefore, for disabled individuals or ESRD patients who can no longer work due to their disabilities, it is important to apply for SSDIB benefits as soon as possible to extend the COBRA period, even though they may already be eligible for Medicare due to ESRD.  However, individuals who file for SSDIB and who were not eligible for Medicare due to ESRD prior to making their COBRA election, COBRA coverage will end when they become eligible for Medicare due to SSDIB eligibility for more than 24 months.

 

          During the COBRA extension period, the GHP must continue to provide the same coverage to the beneficiary, as long as the beneficiary pays his or her premiums.  However, once the COBRA extension period expires, the GHP can and will terminate the beneficiary's medical coverage altogether.  Unless the beneficiary then has access to coverage under a spouse's GHP, that beneficiary will be virtually uninsurable.

 

          The law has created exceptions to Medicare's status as secondary payer for SSDIB beneficiaries belonging to large GHPs and for ESRD beneficiaries belonging to either large or small GHPs.  If a Medicare beneficiary with ESRD has coverage under a GHP, Medicare retains its status as secondary payer for the first 30 months.  After that, Medicare becomes primary payer.  For individuals on SSDIB who have coverage under a large GHP, Medicare will become primary as soon as the individuals have been eligible for SSDIB for 24 months and, as a result, qualify for Medicare.  However, these exceptions apply only to GHP's, the only third party payers not legally liable to provide coverage beyond contractual or COBRA requirements.

 

          Even during the period in which a GHP is primary to Medicare, the GHP will not generally be required to cover medical expenses that are covered under worker’s compensation (WC) or no-fault insurance.  If the beneficiary is receiving medical benefits under a WC or no-fault plan, the GHP can, and usually will, deny coverage.  However, it is important to remember that medical coverage under a WC or no-fault plan is not considered “creditable coverage” under HIPAA.  If an individual is able to maintain GHP coverage, even while there is WC or no-fault coverage, he or she should do so.  Even though the GHP will not pay for items covered under WC or no-fault insurance, maintaining GHP coverage will prevent a gap in creditable coverage that my result in pre-existing condition exclusions when the individual enrolls in a GHP after the WC or no-fault claim has been settled or resolved. 

 

          Any payment that the GHP might make for injury related medical expenses in this situation will be subject to the GHP’s right of subrogation or indemnity, giving it the right to assert a lien against the proceeds of any later WC or no-fault settlement or award.  Similarly, if a GHP is paying for injury related medical care that is the subject of a beneficiary’s liability claim against a third party torfeasor, GHP payments will generate a subrogation claim or lien against any eventual judgment or settlement of the liability claim. 

 

          However, once the WC or liability claim has been resolved by a judgment, settlement or award, the WC or liability carrier will have no further responsibility to pay for the beneficiary’s injury related medical care.  Payments by the GHP for injury related medical expenses after the judgment, settlement or award is final will no longer result in a subrogation claim or lien. 

 

          Finally, in many states, Medicare beneficiaries who are under age 65 and qualify due to ESRD or SSDIB eligibility may not be able to obtain a Medicare Supplemental Insurance or “Medigap” policy.  For these individuals, maintaining GHP eligibility both before and after the judgment, settlement or award may be the only means to ensure coverage of medical expenses beyond what is paid by Medicare.  Any of these individuals who have the opportunity to qualify for GHP coverage after COBRA coverage ends, such as through the GHP of a spouse’s employer, should seriously consider doing so.

 

Conclusion

 

            Not every claimant or plaintiff in a WC or liability case who is disabled or who suffers from ESRD will have access to insurance through a GHP, but many will.  For these individuals, federal law governing the coordination of benefits and coverage between GHP’s, WC, no-fault insurance and Medicare will have a profound effect on these individuals’ ability to pay for current and future medical care.

 

            Both WC and liability counsel should be sensitive to these issues in advising their clients on possible settlement and post-settlement planning.  Taking full advantage of federal laws ensuring continued and thorough insurance coverage for future medical expenses can result in a dramatic increase in the amount of settlement dollars available for non-medical needs.