Health insurance is a critically important benefit since illness and injury are unpredictable, and the high cost of medical care makes it unaffordable to most people absent insurance.
Because the U.S. lacks a single national health insurance program or standardized medical insurance policies, the scope of coverage and even eligibility issues can be confounding. Nowhere is that confusion more problematic than in situations where someone is receiving health insurance through their employer and becomes eligible for Medicare due to the so-called Medicare as secondary payer rules.[1]
A ruling that was published earlier this month from the U.S. District Court for the District of New Jersey pointed out that the question of whether Medicare is the primary or secondary payer of benefits can prove very expensive to the insured.
In Venusti v. Horizon Blue Cross and Blue Shield of New Jersey,[2] a fully insured individual was subjected to thousands of dollars of unexpected health care expenses because he failed to understand that he needed to be enrolled in Medicare, which was his primary coverage.
The case was decided on a motion for summary judgment filed by Horizon Blue Cross and Blue Shield of New Jersey, which underwrote health insurance for the business Ramsey Autobody & Collision Inc. — an automobile repair shop located in Upper Saddle River, New Jersey — where James Venusti was both owner and employee.
Like most employees, Venusti received his insurance through a health benefit plan governed by the Employee Retirement Income Security Act and provided by his employer. Because he continued working past the age of 65 and remained insured through the business, Venusti mistakenly believed that he could defer enrolling in Medicare.
But because Ramsey Autobody had fewer than 20 employees, that proved to be a serious mistake. Since Venusti was eligible to enroll in Medicare, Horizon only reimbursed him for medical expenses above what Medicare would have paid, which left Venusti liable for the underlying charges.
The plan documents explained that the rules designating when Medicare is a secondary payer provide that Medicare is only secondary coverage if the plan provides coverage for more than 20 employees. Because Venusti’s employer had fewer than 20 employees, he was deemed liable for the charges Medicare would have paid had he enrolled.
Venusti challenged the plan’s determination, but Horizon refused to reconsider. The district court upheld Horizon’s determination, ruling, “In evaluating and paying Plaintiff’s claims, Horizon did not consider Medicare as a secondary insurer because the Medicare Eligibility Provision under the Plan’s MSP section ‘[g]enerally applies to employer groups with 20 or more employees,'” which did not include Ramsey.
The court relied on the U.S. Court of Appeals for the Third Circuit’s 2002 ruling in Glatthorn v. Independence Blue Cross,[3] which had reached the same conclusion.
Although Venusti claimed Horizon’s determination required him to enroll in Medicare Part B, the court pointed out that Medicare enrollment was voluntary despite the draconian consequences of failing to do so.
Moreover, the court found that the plan terms clearly explained the Medicare secondary payer rules and that Horizon warned Venusti that if he did not apply for Medicare, his benefits under the plan “will be reduced by amounts that could have been covered under Medicare” and he “may be left with substantial un-reimbursed medical expenses.”
This case serves as a reminder that employees who continue working after age 65 may be confused about whether they remain fully insured if they remain on their employer’s health benefit plan. Few people know or understand the Medicare secondary payer rules, and most employees would assume that if they remain eligible for employer-sponsored health insurance then they need not incur a second premium to pay for Medicare.
However, as the Venusti ruling shows, it is not nearly that clear-cut. For starters, the health plan must insure more than 20 employees for Medicare to be considered secondary coverage.[4] But it becomes even more complicated.
The distinctions made by the Medicare secondary payer rules do not only impact workers who work for organizations with fewer than 20 employees. Many employees, especially if they are union members, work for smaller employers but participate in multiemployer welfare arrangements that may have thousands of participants.
If the actual employer has fewer than 20 employees, though, Medicare would afford primary coverage unless the plan elects treatment as a large employer.[5]
There is also special consideration given to employees with disabilities as well as employees who suffer end stage renal disease, or ESRD. For employees with ESRD, the group health plan pays first for 30 months so long as the employee remains covered — either through their own employment or through dependent coverage from a spouse — and then Medicare is primary.[6]
As if this is not confusing enough, extension of health care coverage through the Consolidated Omnibus Budget Reconciliation Act is not considered a group health plan.
Typically, COBRA ends when Medicare eligibility begins,[7] but if the employee is on Medicare when COBRA eligibility begins, the employee is entitled to elect COBRA.[8] However, that may not be a good choice, and many workers older than age 65 are tripped up when they leave their employment and choose to elect COBRA without enrolling in Medicare.
After such employees cease working, even if they worked for large employers, Medicare is deemed primary because COBRA is not considered a group health plan (even though it is an extension of group coverage by definition). Thus, it is essential for such workers to apply for Medicare and schedule it to commence concurrently with the end of employment.
Finally, on a related note, another potential trap for employees is if they are in health benefit plans that include a health savings account, or HSA. Once the employee enrolls in Medicare, they are no longer able to contribute to an HSA, so any contributions made on their behalf to HSA plans constitute taxable income.
As the discussion above shows, Venusti learned an expensive lesson based on the complexities of the Medicare secondary payer rules and what appears to be an arbitrary distinction between health plans with more than 20 employee participants versus plans with fewer participants
Although Medicare has issued a number of helpful publications that address these issues, and most health plans include appropriate disclosures, few employees who continue their employment past the age of 65 fully comprehend the Medicare secondary payer rules, especially when it may seem foolish to pay premiums for both employer-sponsored and Medicare coverage concurrently.
Nonetheless, forewarned is forearmed, and until major changes are made to America’s health care system, the Medicare secondary payer rules control who pays first.
Mark DeBofsky is a shareholder at DeBofsky Law.
This article was first published by Law360 on June 16, 2021.
[1] See, 42 U.S.C. § 1395y(b)(1)(A)(ii)).
[2] 2021 U.S. Dist. LEXIS xxxx, 2021 WL 2310095 (D.N.J. June 7, 2021).
[3] 34 F. App’x 420, 422 (3d Cir. 2002).
[4] 42 U.S.C. § 1395y(b)(1)(A).
[5] 42 U.S.C. § 1395y(b)(1)(A)(ii9).
[6] 42 U.S.C. § 1395y(b)(1)(C); “Medicare and Other Health Benefits: your Guide to Who Pays First,” available at https://www.medicare.gov/Pubs/pdf/02179-medicare-coordination-benefits-payer.pdf.
[7] 29 U.S.C. § 1162(2)(D).
[8] See, Geisal v. Moore Medical, 524 U.S. 74 (1998) (holding that becoming eligible for Medicare after COBRA commences terminates COBRA but not vice versa).
