Medicare Secondary Payer

Medicare as Secondary Payer (MSP) legislation was enacted as part of the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA). This legislation was enacted to ensure that Medicare, like Medicaid, always would be payer of last resort in instances where multiple sources of coverage were available.

Under the new rules, any Medicare-eligible citizen who elected to decline employerbased coverage in favor of Medicare could no longer use an employer-based plan to supplement Medicare. Likewise, elderly workers who decline coverage from work are expected to pay for Medicare Part B premiums, assume all Medicare cost-sharing and lose any coverage for prescription drugs or other health benefits available through the employer’s plan.1 Employers are barred from compensating employees for dropping their group coverage. Federal law has priority over state laws or private contracts. Coordination of benefit rules require that Medicare be considered a secondary payer whenever an individual has coverage through a) group health insurance; b) automobile or liability insurance; c) workmen’s compensation. MSP applies to any Medicare-eligible individual who is eligible for employer-based health insurance coverage. The Duke Center for Health Policy has developed a draft working paper assessing the costs and benefits of MSP.

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