Crackdown on Employers Who Shunt Employees To Medicare

The Centers for Medicare and Medicaid Services (CMS) is stepping up efforts to root out employers who have improperly put workers who were eligible for the company’s group health plan into Medicare. Under the law, employers with 20 or more employees are prohibited from offering incentives of any kind to a Medicare-eligible individual and/or dependents to enroll in Medicare instead of the employer’s health plan.

The fine for encouraging an employee or dependent to take Medicare is $5,000 per situation, but that’s not the largest potential penalty. However, the larger penalty is the bill for any claims that Medicare paid as a primary payer versus what it should have paid as a secondary payer. This claim can be huge depending on how much care an individual that should have been in a company health plan sought out while on Medicare.

And now the CMS has decided to step up its recovery of these improper payouts and aims to increase the number of successful recoveries from below 5% to nearly 100%. It has joined forces with the Internal Revenue Service (IRS) and the Social Security Administration to specifically look for instances where an individual is enrolled in Medicare and is also an employee of a group. They are checking when someone’s social security number is showing up both on the income tax withholding list for an employer and also on the Medicare rolls.

Recently, many employers have received letters from a Data Matching project sponsored by the Social Security Administration, the CMS and the IRS. The goal of this new project is to increase the recovery of improperly paid Medicare benefits. Whatever you do, don’t ignore this letter. It has a 30-day deadline for you to answer the questionnaire and you should take this exercise seriously. If you take a nonchalant attitude towards filling it out, you could later be subjected to a large penalty from Medicare.

Calculating employees

If a company has fewer than 20 employees, it’s generally accepted that Medicare would pay first for a Medicare-eligible employee who is also on a health plan. However, employers on the cusp of this “20 or more” rule should calculate the average number of employees they had in the prior year, according to the CMS.

Under the law, an employer is considered to have 20 or more employees for each working day of a particular week if the employer has at least 20 full-time or part-time employees on its employment rolls each working day of that week. This condition is met as long as the total number of individuals on the employer’s rolls adds up to at least 20 regardless of the number of employees who work or who are expected to report for work on a particular day.


It’s understandable that you as employers look for ways to be cost efficient, especially those who have thin profit margins. This includes saving on your employee benefits.  It also stands to reason that incentivizing your employees who are Medicare qualified to dis-enroll from your group health plan and using their Medicare benefits may, in some cases, give them a plan with less out-of-pocket expenses. It is against the law to do this and will cost you more later if you do