River City Fraternal Order of Police Lodge 614, Inc. v. Ky. Retirement Sys., 2019 WL 1301968 (E.D. Ky. 2019)
A state retirement board decided to terminate state-funded retiree medical coverage for a group of retirees who had become covered under other group health plans and who were becoming eligible for Medicare by reaching age 65. The retirees sued, arguing (among other things) that terminating their coverage violated the Medicare Secondary Payer (MSP) rules because it was predicated on their eligibility for Medicare. (In addition to specifying when a group health plan must pay primary and when it may pay secondary if an individual is covered under both a group health plan and Medicare, the MSP rules prohibit certain actions that “take into account” an individual’s Medicare entitlement when determining benefits.) The retirement board responded that the MSP rules required termination of the retirees’ coverage because the rules prohibited the state from offering coverage that was secondary to Medicare.
The court dismissed the MSP claim, explaining that the aged-based MSP rules apply only to individuals who are covered under a plan by reason of current employment status. Here, it was undisputed that the coverage was provided by virtue of retiree status. Explaining that the MSP rules were “wholly inapplicable,” the court held that the MSP requirements did not prohibit the retirement system from using Medicare eligibility as a classification for determining retiree coverage. For the same reason, the court rejected the retirement board’s argument that the MSP rules required it to terminate the retirees’ coverage. The court ultimately ruled in favor of the retirees, concluding that state law required that they receive retiree medical coverage at no cost.
EBIA Comment: This case serves as a reminder that the MSP rules are complex and not always well understood. Former employees and their family members who are participating in a group health plan generally will not be subject to the MSP rules (e.g., Medicare will be the primary payer) for Medicare, based on age or disability. As noted by the court, however, the ESRD-based MSP rules are different; they apply regardless of whether the individual has coverage by virtue of current employment status. There are also other differences—for example, the ESRD-based MSP rules do not include an exception for small employers. For more information, see EBIA’s Group Health Plan Mandates manual at Sections XXIV.A (“What Are the Medicare Secondary Payer (MSP) Requirements and Who Must Comply?”) and XXIV.C (“Overview of Medicare”). See also EBIA’s COBRA manual at Section XXX.D (“Medicare Secondary Payer (MSP) Rules”) and EBIA’s Self-Insured Health Plans manual at Section XXV.C (“Coordination of Benefits With Medicare, TRICARE, and Medicaid”). You may also be interested in our webinar “Medicare and COBRA: Understanding the Interaction and Avoiding Common Mistakes” (recorded on 2/14/2019).
Contributing Editors: EBIA Staff.