Medicare Coordination of Benefits: Who'll Pay For Your Healthcare?

Image: Medicare.gov.

Medicare is an essential program for those 65 or older, with tens of millions of Americans taking advantage of the program to help pay for their healthcare. What many people don't realize, however, is that Medicare doesn't cover all of your costs. If you have other healthcare coverage, the Medicare coordination of benefits rules kick in to establish whether Medicare or your other coverage will be the first one on the hook to pay your healthcare expenses.

The types of other coverage you can have
For many Americans, Medicare is the only program that helps cover medical expenses after you retire. However, there are many situations in which you might have both Medicare and another benefit provider potentially covering the same healthcare expenses.

The most common situation involves those who have coverage through an employer health plan, either because they're still working after age 65 or because their spouse's plan covers them. Alternatively, some employers provide retiree health insurance benefits to former workers. If you have low income and limited financial resources, you might qualify for Medicaid as well as Medicare coverage. Veterans and those who are covered under the military's TRICARE health and medical program can also qualify for Medicare, and if you've been in an accident covered by liability insurance or suffered an injury or illness that workers' compensation covers, those benefits can help pay medical costs related to your condition.

Who pays first?
The big question with coordination of benefits when you have multiple sources of coverage is who's responsible for paying first. The answer depends on the particular situation, with Medicare sometimes being the primary payer and sometimes being a secondary payer.

Some coordination of benefits situations are quite straightforward. For instance, those who have both Medicare and Medicaid always have Medicare as the primary payer. Medicaid benefits cover gaps that Medicare doesn't pay for. Similarly, in interacting with veterans' or TRICARE benefits, Medicare pays for the services it covers, while veterans' coverage pays for services authorized by the Veterans' Administration, and TRICARE pays for services from military hospitals and other federal providers. If you have COBRA coverage, it almost always pays second after Medicare.

For accident or workers' compensation claims, Medicare always takes a secondary role. The program waits to see what services a liability or no-fault insurance provider or workers' compensation benefits will pay. Typically, there's nothing left for Medicare to cover after that happens, but sometimes, Medicare will make conditional payments if an award or settlement hasn't yet been determined.

The toughest situation: group health coverage
The most complicated coordination of benefits situations involve employer-provided health insurance. If the reason you have coverage is that you or your spouse still works, then the big question is how large an employer you work for. For employers with 20 or more employees, the group health plan is the primary payer, with Medicare taking a secondary role. Smaller employers, though, Medicare takes the primary role, leaving the group health plan as secondary payer.

A similar distinction exists for those who are disabled and entitled to Medicare. For employers with 100 or more employees, the group health plan pays first before Medicare. For smaller employers, though, Medicare becomes the primary payer.

By contrast, if the reason you have coverage is that your former employer has given you retiree coverage, Medicare always becomes the primary payer. Your retiree coverage pays second.

Finally, some special situations apply to those with end-stage renal disease. For the first 30 months of eligibility for Medicare because of ESRD, a group health plan or COBRA coverage is the primary payer, with Medicare paying second. After 30 months, though, Medicare assumes the primary role, with other coverage become the secondary payer.

Medicare can be a complex program even when it's the only program helping you with your healthcare costs. If you have other coverage as well, you can't afford not to know how Medicare's coordination of benefits rules apply to you. Otherwise, you could end up with a nasty surprise in discovering any gaps in your overall healthcare coverage.