Medicare enrollment rules are among the most confusing for employers, employees and their advisors. Among the complications are whether an employee works for a small or large employer or whether an employee has a health savings account (HSA).
This issue of Legislative Review addresses some of the nuances of Medicare while offering tips and cautions.
Most employers are familiar with the idea of coordination of benefits when an employee has coverage from two different health plans. One plan, depending on facts, will pay first with the other plan paying on a secondary basis. So it is with Medicare.
Medicare is the secondary payer to some group health plans for services provided to:
“Working aged” refers to persons who are employed at age 65 and over and people with employed spouses of any age who have group health plan coverage because of their or their spouse’s employment status.
Medicare is the secondary payer to a group health plan for the working aged where a single employer of 20 or more employees sponsors or contributes to a group health plan or two (2) or more employers sponsors or contributes to a group health plan and at least one of the sponsors or contributors has 20 or more employees.
It’s important to note that 20 employees does not refer to full-time employees. The threshold is met “whenever an employer has 20 or more employees for 20 or more calendar weeks in the current calendar year or preceding calendar year. The threshold is determined by the number of employees on the payroll on any given workweek. And, the 20 weeks don’t have to be consecutive.
As a result of this rule, an employer can come under MSP rules in the middle of the employer’s plan year. Once an employer has had 20 or more employees on “each working day of 20 calendar weeks” of the current year, the employer is primary for the “remainder of that year and throughout the following year” according to the Medicare Secondary Payer (MSP) Manual. This requirement to follow MSP for the following year stands even if the number of employees drops below 20.
As importantly, when determining whether an employer is subject to the Medicare Secondary rules (MSP), the employer must consider all entities that are part of a controlled group following the IRS rules on controlled – or aggregated – groups. And, whether an employer has 20 or more employees for MSP purposes is totally unrelated to the number of employees who are eligible for or actually are enrolled in the group health plan.
One of the pitfalls employers may face occurs when an employer subject to the MSP rules encourages workers to enroll in Medicare versus the employer’s plan or when employers purchase a Medicare supplement for an employee in lieu of the employer’s plan.
The Medicare Secondary Payer (MSP) Manual states:
Medicare beneficiaries are free to reject employer plan coverage, in which case they retain Medicare as their primary coverage. When Medicare is primary payer, employers cannot offer such employees or their spouses secondary coverage for items and services not covered by Medicare. Employers may not sponsor or contribute to individual Medigap or Medicare supplement policies for beneficiaries who have or whose spouse has current employment status.
The MSP rules are different if Medicare coverage is due to disability or end-stage renal disease. If the individual becomes eligible for Medicare due to ESRD, Medicare is secondary during a period of up to 30 months.
If an individual qualifies for Medicare based on disability, then Medicare pays on a secondary basis if the individual’s current employment is with an employer that has 100 employees or more.
Medicare is also secondary to workers’ compensation (WC) plans. In fact, a worker who receives a WC settlement or award will find that funds are set aside to address future costs that would otherwise be reimbursable by Medicare. These are called Medicare Set-Aside Arrangements.
The CMS booklet titled Medicare & Other Health Benefits: Your Guide to Who Pays First is helpful in determining many of the rules regarding coordination of benefits and how Medicare interacts with other types of health coverage. The guide includes a handy chart that details when Medicare pays first and when a group health plan or other plan pays first. A snippet of the chart appears on the next page. The booklet is found at https://www.medicare.gov/Pubs/pdf/02179-Medicare-Coordination-Benefits-Payer.pdf.
High-deductible plans and health savings accounts (HSAs) can also pose Medicare compliance issues. Individuals are no longer eligible to make a contribution to an HSA if they are enrolled in Medicare. And, Part A coverage begins six (6) months back from the date a person applies for Medicare, but no earlier than the first month they were eligible for Medicare. This six (6) month retroactive coverage poses particular problems for HSA participants.
Individuals may decide to take social security benefits beginning at age 62. If they are s ll working, they may stay on their employer health plan. What they may not realize is that by enrolling in social security, they automatically become enrolled in Medicare Part A. This fact disqualifies a person from HSA eligibility.
Though a person covered by Medicare can’t contribute to an HSA, they may use money that is in their account. If a person contributes to their HSA after Medicare coverage has started they may face a tax penalty.
Another concern for employees with HDHPs is whether their HDHP coverage qualifies as creditable coverage for Medicare Part D. If the HDHP does not qualify, then a person who chooses to remain on the employer’s health plan will face a penalty when they decide to enroll in Medicare Part D since coverage was not creditable.
CMS has guidance to help determine whether a plan is creditable. The document is titled “Creditable Coverage Simplified Determination.”
COBRA causes considerable confusion when Medicare is considered. COBRA is not creditable coverage for Medicare Part B. An employee who goes on COBRA rather than enrolling in Medicare is not eligible for a Special Enrollment Period for Medicare Part B when COBRA ends. COBRA is not considered “coverage based on current employment.” Someone in this situation will face the Part B late enrollment penalty of 10% per year for life.
COBRA may be creditable coverage for Medicare Part D, prescription drug coverage. In this case, a person will have a Special Enrollment Period to join a Medicare drug plan without paying a penalty when COBRA coverage ends.
The book Medicare & You from the Centers for Medicare & Medicaid Services is an excellent source for brokers, employers and employees. It is updated annually and covers a wide variety of Medicare related information including enrollment, benefits and the like.
Medicare’s interaction with employer-provided health plans is one of the trickier issues that employers face as this issue of Legislative Review illustrates. And, employees are often confused about the options available to them.
And, we didn’t even include the underwriting rules and requirements that insurers may use. These rules can be especially important for smaller employers.
Karen Knippen, RHU, REBC Senior Vice President