When Medicare Becomes Secondary: Understanding the 20-Employee Rule

September 29, 2025
Medicare’s rules about who pays first — Medicare or a group health plan — are not just confusing; they can be expensive if misunderstood. Both brokers and employers should pay attention, because if Medicare pays when the group plan should have, it can come back years later to recover those payments (“clawbacks”). These recoveries can target the insurer on a fully insured plan or the employer/plan sponsor on a self-funded plan (CMS: Group Health Plan Recovery).That’s why many carriers ask employers to complete an annual Medicare Secondary Payer (MSP) questionnaire — to establish who is primary and protect against future recovery actions.

The 20-Employee Threshold

Under the MSP “Working Aged” rules, Medicare is secondary (and the group plan is primary)
if the employer is considered “large.” According to CMS guidance (MSP Manual, Ch. 2), an employer is large if it had 20 or more employees on each working day in at least 20 calendar weeks in the current year or the prior year. The weeks do not need to be consecutive (see the CMS Working Aged MSP fact sheet).

  • Part-time employees count toward the 20, so long as they are on the employer’s rolls each working day of the counted weeks.
  • Once the threshold is met, the employer is treated as “large” for the rest of that year and all of the following year, even if headcount later dips (per the CMS MSP Manual).

When the Switch Happens

  • If the test was met in the prior calendar year: the group plan is primary for the entire current year (Medicare secondary).
  • If the test is first met during the current year: the group plan becomes primary once the 20th qualifying week is reached. From that point forward, it is primary for the rest of the current year and the full following year.

Example: If an employer first reaches 20 employees in March and has 20+ for at least 20 total weeks during 2025 (weeks do not need to be consecutive), the group plan becomes primary starting with week 21 of 2025 and remains primary through all of 2026 (CMS MSP Manual, Ch. 2;
CMS Working Aged).

Why Carriers Ask for the MSP Report

Each year, many carriers and TPAs send an MSP questionnaire requesting headcount and Medicare-eligibility details. This is not busywork — carriers use these data to determine who is primary and to avoid paying claims incorrectly. For employers, responding accurately helps prevent disputes and potential clawbacks later.

The Risk of Medicare Clawbacks

If Medicare mistakenly pays as primary when it should have been secondary, it has the legal right to demand repayment. According to the CMS MSP Recovery Manual (MSP Manual, Ch. 7: Recovery),
Medicare can issue a demand letter within three years of the date of service — and longer if fraud or misrepresentation is suspected. Years after claims are paid, employers or insurers can be asked to return the money, plus interest (CMS: Group Health Plan Recovery).

Frequently Asked Questions

Do part-time employees count toward the 20?

Yes. If they are employed each working day of a counted week, they count, regardless of hours (CMS MSP Manual).

What if we had 20+ last year but dropped below this year?

If you met the test last year, you are considered large for the entire current year no matter what happens with headcount (CMS MSP Manual).

What if we cross 20 employees for the first time this year?

You become large once the 20th qualifying week is reached. From that point forward, the plan is primary for the rest of this year and the full following year (CMS MSP Manual).

Do the 20 weeks have to be consecutive?

No. The law does not require consecutive weeks (CMS Working Aged).

What happens if we get this wrong?

Medicare can seek repayment years later. Carriers may also retroactively adjust claims or hold the employer responsible for miscoordination (CMS MSP Recovery Manual).

Compliance Checklist for Employers & Brokers

  • Track employee headcounts weekly (including part-timers).
  • Keep records showing when the 20-week threshold is met.
  • Complete carrier MSP questionnaires promptly and accurately.
  • Flag growth or staffing changes to your broker and TPA/carrier.
  • Educate HR staff about the 20-employee rule and documentation needs.
  • Plan for potential recovery exposure — especially if self-funded.

Bottom Line

The 20-employee test determines whether Medicare or the group health plan pays first. Getting it wrong can lead to years-later clawbacks, costly disputes, and unhappy employees. By documenting headcounts, completing MSP questionnaires, and staying proactive, brokers and employers can avoid surprises and keep both their plans and their people protected.