Compliance Corner: Considerations for Employees or Dependents Becoming Eligible for Medicare

As employees of companies near age 65, they become eligible for Medicare, which has a lot of implications for their health coverage. This article contains answers to frequently asked questions to help you and your employees make the best decision and stay compliant.

Can I require my employee or their spouse take Medicare instead of our group plan?

No. This is considered discrimination based on age. Employees who reach age 65 and who are still working (also referred to as “Active”) have the option to choose between Medicare products and/or supplements versus their employer’s plan at each open enrollment.

In addition, for groups with less than 20 employees, insurance companies or health plans may require the employee elect Part B with their Part A coverage. Their plans usually pay second to Medicare regardless of whether the employee has purchased Part B. This can leave employees with potential unexpected expenses if they have not enrolled in both Medicare Parts.

Why would my employee or their dependent opt to stay on my plan when they could have Medicare, Medicare Supplements, or even Medicare Advantage plans?

There are many reasons why a member may stay on their group health plan. The two most common reasons are:

1. They have a spouse and/or dependents who still need coverage.
2. If the employer pays most of the cost of coverage, it may be less expensive for them to stay on the employer’s coverage. This is particularly true for plans where the employer picks up 100 percent of the cost. Unfortunately, for a group under 20 employees, this could backfire if the employee doesn’t understand they need to also purchase Part B if required by their insurance plan.

What are common issues for employees or their spouses who reach age 65 and are automatically enrolled in Medicare Part A?

1. There are several issues that can come up if employees don’t have a good understanding of the Medicare Secondary Payer rules. These rules impact which insurer pays first–– Medicare or the employer plan. This is dependent on the size of the employer. For more detail, click here for a guide from Medicare.gov regarding the payment rules.
2. Members over age 65 must ensure their prescription drug coverage continues to be creditable for Part D (notices we ask you to distribute each October). If the plan is not creditable, the member will have to pay a higher price later for Part D coverage. We recently helped a long-time employee of a customer retiring at age 80 to find all their Part D notices for the past 15 years so that they could prove they have been covered by creditable coverage.
3. If you offer an HSA-qualified plan and the employee is making contributions, they’ll want to review the rules and perhaps consult their tax advisor. Once you turn 65, qualified U.S. citizens are automatically enrolled in Part A, which prevents HSA contributions to be made by both the employer and the employee. In addition, there is a six-month look-back period for which the individual may not make contributions. This may also impact spousal contributions to their HSA even if the spouse is under age 65.
4. If your plan is a MEWA (Multiple Employer Welfare Arrangement), additional paperwork will be needed to submit to CMS/Medicare and the insurer to get claims paid correctly. Without the proper forms, the employer plan will pay primary and typically the employer is charged a higher premium for those employees.

This can be very difficult for employers to explain to employees. We’ve prepared a document that can be shared with employees to guide them in learning what works best for themselves and their families. Click here to access.

How do I know if my plan pays secondary or primary to Medicare?

Like the 20-employee rule used for COBRA, the count includes all full-time and part-time employees from the prior calendar year. 

Will it save money on my premiums if individuals aged 65 or older leave the employer’s plan?

Not necessarily. In some cases, healthy individuals can help the overall risk of your group regardless of their age. This primarily helps groups that are medically underwritten (e.g., grandmothered status, level-funded, or in a multiple-employer plan). Plans with age-banded rates such as ACA plans, are going to reduce premiums for the employer.

If there are alternative “Medicare Rates,” those are typically shown on the renewal or proposal. They are only offered if the member provides proof to the insurer that they are enrolled in Medicare A and B. Generally, ACA plans do not have a reduced premium for employees with Medicare.

Can I pay for the employee’s Medicare product or supplement?

The law considers any incentives or disincentives to be discriminatory when used to encourage Medicare aged employees, spouses and/or dependents to opt for Medicare instead of the employer’s medical plan.

If the incentive was offered to all employees who opt for other coverage, regardless of their age, this would be permitted. This is called “Cash In Lieu of Benefits.” Payments under these terms are reported as taxable income to the employee but they must be consistent regardless of the age of the employee or any dependents. The employer can choose to only offer the incentive for their employees and not spouses or children.

Can I set up a Health Reimbursement Arrangement (HRA) to pay for Medicare premiums?

There are no permissible HRAs for the reimbursement of Medicare premiums for active employees if the employer offers a group plan. They are permitted for retirees.

An option exists if the employer disbands their group coverage. The employer can offer either an Individual Coverage HRA (ICHRA) or Qualified Small Employer HRA (QSEHRA). These types of HRAs are the only vehicles available for reimbursing premiums for all eligible employees. The downside is that the employer can no longer offer a group medical plan and all employees would need to secure individual coverage. ARC Benefit Solutions has assisted clients with establishing ICHRAs to replace traditional group coverage. If you’re interested in exploring this for your group, please contact your ARC representative.