Secondary Insurance: What It Means for Employers

What it means in practice

What the term means. HealthCare.gov defines coordination of benefits as a way to figure out who pays first when two or more health plans are responsible for paying the same claim. Medicare.gov explains that the primary payer pays up to the limits of its coverage, and the secondary payer pays only costs the primary payer did not cover. CMS says coordination keeps total payments from exceeding 100% of the claim. For an employer, the key question is when its employee benefits plan must pay ahead of Medicare.

Federal rules come first. The Medicare Secondary Payer (MSP) provisions are in 42 U.S.C. 1395y(b) and 42 CFR Part 411. CMS says federal law takes precedence over state laws and private contracts,, even if a plan's own terms say it is secondary. CMS says employers must ensure their plans identify the people the MSP rules apply to, pay primary where Medicare is secondary by law, and do not discriminate against aged, disabled or kidney failure beneficiaries.

The working aged rule. Under 42 CFR 411.172, Medicare is secondary for an aged person entitled to Part A who is covered through current employment by the plan of an employer with at least 20 employees, or who is the aged spouse (including a divorced or common-law spouse) of a covered worker of any age. The test is 20 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year (42 CFR 411.170). Under 42 CFR 411.106, related employers under Internal Revenue Code section 52, affiliated service groups and leased employees are counted together. Under 42 CFR 411.102(b), the plan must give employees and spouses 65 or older the same benefits under the same conditions as younger employees and spouses. See also our baby boomers page on older workers.

Small employers and multi-employer plans. CMS says the working aged rules do not apply to a single-employer plan of an employer with fewer than 20 employees; there, Medicare pays first and the plan second. If a small employer joins a multi-employer or multiple employer plan in which at least one employer has 20 or more employees, the rules apply to everyone. The plan can request a Small Employer Exception from the Benefits Coordination & Recovery Center (BCRC), which applies only to named beneficiaries and age-based entitlement.

Current employment status. Under 42 CFR 411.104, a person has current employment status if actively working as an employee, is the employer, or is associated with the employer in a business relationship. A person who is not working still qualifies if receiving employer disability benefits for up to 6 months, or if he or she retains employment rights (for example, furloughed, temporarily laid off, or on sick leave) and the coverage is not COBRA.

The disability rule. Under 42 CFR 411.204, Medicare is secondary for a person entitled to Medicare based on disability who is covered by a large group health plan through his or her own or a family member's current employment. 42 CFR 411.201 lists family members as including a spouse, a natural, adopted, foster or stepchild, a parent, or a sibling. Below 100 employees, Medicare pays first for these employees (CMS MLN006903).

The ESRD coordination period. For people entitled to Medicare because of end-stage renal disease, 42 U.S.C. 1395y(b)(1)(C), as amended in 1997, makes the group health plan primary for 30 months. CMS says this applies regardless of the number of employees and whether coverage is based on current employment, and applies to COBRA and retiree coverage. The plan may not terminate coverage, limit benefits, or charge higher premiums because of ESRD, and there is a separate 30-month coordination period each time a person enrolls in Medicare based on kidney failure.

What "taking into account" Medicare means. 42 CFR 411.108 lists prohibited actions, including failing to pay primary when required, offering coverage that is secondary to Medicare to people entitled to Medicare, terminating coverage because of Medicare entitlement (except as COBRA permits), charging higher premiums, and giving misleading or incomplete information that leads someone to reject the plan. A plan may still apply distinctions unrelated to Medicare, such as length of service.

No incentives to drop the plan. 42 CFR 411.103 bars an employer or insurer from offering Medicare beneficiaries financial or other benefits as incentives not to enroll in, or to drop, a plan that would be primary to Medicare. That includes offering an alternative, such as drug coverage, unless the person has other primary coverage. Under 42 CFR 411.172(c), an employee or spouse may refuse the plan; Medicare then pays first, and the plan may not offer coverage complementary to Medicare. 10 U.S.C. 1097c applies the same incentive ban to TRICARE-eligible employees at employers with 20 or more employees.

Enforcement and recovery. CMS may determine that a plan is nonconforming, for example for failing to pay primary or to refund conditional Medicare payments (42 CFR 411.110). After appeals are exhausted, CMS refers the determination to the IRS, which applies the 25% excise tax in 26 U.S.C. 5000; governmental employers are excluded from that tax. When Medicare paid first by mistake, the CMS Commercial Repayment Center issues demand letters, and the statute lets the United States collect double damages from responsible entities, including a sponsoring employer (42 U.S.C. 1395y(b)(2)(B)).

Section 111 reporting. Section 111 of a 2007 Medicare law, codified at 42 U.S.C. 1395y(b)(7), requires the insurer or third party administrator of a group health plan, or the plan administrator or fiduciary of a self-insured, self-administered plan, to collect information from the plan sponsor and participants and report it to CMS. CMS says these reporting entities file quarterly about employees and dependents who are Medicare beneficiaries with coverage that may be primary. The employer supplies the data its insurer or administrator requests.

When Medicare pays second. Under 42 CFR 411.33, for services paid on a fee schedule, the Medicare secondary payment is the lowest of three amounts: the charge minus the primary payment; what Medicare would pay if there were no primary payer; or the higher of the Medicare amount or the primary payer's allowable charge, minus the primary payment. Under 42 CFR 411.32(b), Medicare pays nothing secondary if the provider must accept the primary payment as full payment.

COBRA and Medicare. The EBSA employer's guide to COBRA says that if someone is enrolled in both COBRA and Medicare, Medicare generally pays first and COBRA second, and some plans pay as if secondary to Medicare even if the person is not enrolled. If Medicare starts after the COBRA election, the plan may end COBRA; if it started on or before the election, it cannot. A worker who loses job-based coverage after the Medicare initial enrollment period generally has an 8-month special enrollment period. Spouses and dependents can get up to 36 months of COBRA when the employee became entitled to Medicare less than 18 months before the termination or hours reduction. The guide also lists the employee's Medicare entitlement as a COBRA event for dependents who would lose coverage; see qualifying life event.

Retiree, Medicaid and TRICARE coverage. CMS and Medicare.gov say Medicare pays first for a retiree age 65 or older, with retiree coverage second. Medicaid.gov says all other third party resources, including group health plans, must pay before Medicaid, and ERISA section 609(b) (29 U.S.C. 1169(b)) requires group health plans to disregard Medicaid eligibility when enrolling people or paying benefits. TRICARE.mil says TRICARE pays after other health insurance, including employer coverage, with limited exceptions such as Medicaid.

Interaction with an HSA. IRS Publication 969 (2025) says an employee's HSA contribution limit is zero beginning with the first month of Medicare enrollment, including retroactive coverage. It also requires no other health coverage beyond what it permits, so a spouse's plan can affect eligibility for a health savings account (HSA).

Where states differ. When two non-Medicare plans cover the same person, such as an employee's plan and a spouse's plan, the order usually comes from plan terms and state insurance rules built on the NAIC Coordination of Benefits Model Regulation. Two examples: the Connecticut Office of the Healthcare Advocate says your own employer's plan is generally primary for you and an active employer plan is primary over COBRA. New Mexico's Office of Superintendent of Insurance Bulletin 2025-015 tells insurers it will accept language matching NAIC Model Regulation section 6(D)(2): for parents who are married or living together, the plan of the parent whose birthday falls earlier in the calendar year is primary, and if birthdays match, the plan that has covered a parent longer; for separated parents, a court decree or custody decides. Check the summary plan description.

Step by step for an employer. (1) Count employees each calendar year against the 20-employee and 100-employee tests, using the aggregation rules. (2) Tell your insurer or administrator which employees and spouses are Medicare beneficiaries so Section 111 files are accurate. (3) Remove bill-Medicare-first instructions from plan materials. (4) Offer no opt-out incentives. (5) Send Part D creditable coverage notices before October 15 and file the CMS disclosure within 60 days after the plan year starts. (6) Coordinate COBRA notices with Medicare entitlement dates.

Example 1 (illustration): fee schedule calculation. A physician charges $200. The employer plan, which is primary, allows $160 and pays 80%, or $128. The Medicare fee schedule amount is $140, and the Part B deductible has been met. Under 42 CFR 411.33, Medicare pays the lowest of $200 minus $128 ($72); 80% of $140 ($112); or $160 (higher than $140) minus $128 ($32). Medicare pays $32.

Example 2 (illustration): ESRD timing. An employee in the group plan becomes entitled to Medicare based on ESRD effective March 1, 2026. The plan pays first for 30 months, March 2026 through August 2028, and Medicare becomes primary in September 2028.

Example 3 (illustration): COBRA for a spouse. An employee becomes entitled to Medicare 5 months before employment ends. Under the EBSA guide's formula, the spouse's COBRA coverage must be available for up to 31 months (36 minus 5).

Question: Does an employer with 15 employees have to pay primary for a 66-year-old worker? Not under the working aged rule for a single-employer plan; CMS says Medicare pays first. The ESRD rule still applies regardless of employer size.

Question: Does network coverage matter? Medicare.gov warns that if a primary employer plan is a health maintenance organization (HMO) or preferred provider organization and the person goes outside its network, possibly neither the plan nor Medicare will pay.

Why it matters and common mistakes

How Remindax helps

Related terms

See all terms in Benefits & Insurance or browse the full HR Glossary.