Medicare And Employer Coverage: What Employers Need to Know
An estimated 13 million Americans aged 65 and older will be in the labor force by 2024. As more Baby Boomers continue to work past the Medicare eligible age of 65 and the Social Security full retirement age soon increases to 67, you’ll likely have Medicare-eligible employees who are participating in your employee health benefit plans. If this sounds like you, you may be wondering how Medicare and employer coverage work when your employees may be eligible for both types of coverage. The answer can be a little complicated.
At Complete Payroll Solutions, we work as a benefits broker to over 10,000 companies on health plan design and administration. We know the rules when it comes to enrollment in both Medicare and group coverage and how they impact employers.
To help you understand how to handle Medicare eligible employees, here we’ll discuss:
- What is the Medicare eligibility criteria?
- Is Medicare mandatory if an employee has employer coverage?
- What happens if an employee is required to sign up for Medicare but doesn’t?
- Can I force my employees to enroll in Medicare?
- How does Medicare participation affect employees’ Health Savings Accounts (HSAs)?
- What is the impact of enrolling in Medicare on COBRA?
After reading this article, you’ll know you and your employees’ responsibilities when it comes to Medicare so you can ensure your group coverage remains in compliance.
What is the Medicare eligibility criteria?
Generally, Medicare is available to those 65 and older as well as younger people with disabilities and individuals with end-stage renal disease.
There are 4 Parts to Medicare:
- Part A, or Hospital Insurance
- Part B, which is Medical Insurance
- Part C, which is Medicare Advantage Plans (administered by private insurance companies)
- Part D, or Prescription Drug Plans (administered by private insurance companies)
Employees who are 65 or older and worked (or their spouse worked) and paid Medicare taxes for at least 10 years can get Part A coverage without having to pay premiums if they are receiving Social Security benefits or eligible to receive them but haven’t filed yet. While most people don’t have to pay a premium for Part A, everyone must pay for Part B.
How do Medicare and employer coverage work when employees are eligible for both?
When it comes to coverage for your Medicare-eligible workers, your employees may have several options available to them:
- Stay on your plan and delay enrolling in Medicare
- Decline your coverage and rely just on Medicare
- Have both Medicare and employer coverage at the same time
The choice often comes down to the size of your company, which impacts whether eligible employees are required to enroll in Medicare as well as whether your coverage is primary or secondary to Medicare:
- Less than 20 Employees: If you have fewer than 20 employees, your Medicare-eligible employees may need to enroll because Medicare technically is supposed to become their primary insurance that is billed first before your employer plan. So, if an employee doesn’t sign up for Medicare, they could be left uncovered since the Group Health Plan will have the option to determine if they will accept the responsibility of being the primary payer or not.
- 20 or More Employees: If you have 20 or more employees, then your employer-sponsored health care coverage is primary, and Medicare is secondary. This is referred to as the Medicare Secondary Payer (MSP) rules. In these workplaces, your workers can choose whether they want to enroll in Medicare while they’re still employed with you. An employee may opt to stay on their Group Health plan and just sign up for Part A.
It’s important to note that your employee count includes all employees regardless of Medicare eligibility as well as both full-time and part-time employees. And even if you drop below 20 employees while subject to the MSP rules, you remain subject through at least the remainder of the current calendar year.
What happens if Medicare-eligible employees don’t sign up?
If an employee who is required to doesn’t sign up for Medicare Part A, Part B or even Part D, they may face penalties in the form of higher Medicare premiums unless they meet certain requirements.
Specifically, they risk a 10 percent surcharge on their Part A and Part B premiums for each 12-month period they go without coverage upon being eligible. And for Part D, the penalty is 1% of the national base beneficiary premium times the number of full, uncovered months the senior didn’t have Part D or creditable coverage. They generally must pay this penalty for as long as they have Part D coverage.
Can I require Medicare-eligible employees to enroll?
While eligible employees who work at companies with less than 20 employees may need to enroll in Medicare, if you have 20 or more employees, you can’t require – or even persuade with financial or other incentives – your employees to drop your employer plan and sign up for Medicare. You must treat those age 65 and older the same as younger employees and continue to offer them employer health insurance.
The only exception is for those workers who are turning 65 and have end-stage renal disease; they can be required to get Medicare. In that case, your health plan would pay first for the first 30 months after the employee becomes eligible to enroll in Medicare and then Medicare would pay first.
You should encourage your employees to consult with a Medicare expert to evaluate their options for Medicare and employer coverage. In many cases, Medicare will offer superior benefits at a lower cost point for the employee depending on their own unique situation.
How does Medicare participation affect employees’ Health Savings Accounts (HSAs)?
Per IRS regulations, Medicare-eligible employees can’t contribute to an HSA if they are enrolled in Medicare Part A and/or B or they could face a significant tax penalty. While employees can still enroll in HSA-eligible plans and utilize the funds in their account for eligible expenses, they can’t add to them, either by their own contributions or employer contributions.
So, if you have employees who want to continue making contributions to their HSA, they should not enroll in any part of Medicare.
Employees should also be aware that if they enroll in Medicare past the age of 65, their Part A start date will automatically be backdated by up to 6 months or their 65th birthday. As a result, it’s a best practice for workers to stop contributing to their HSA 6 months before enrolling to avoid penalties.
What is the impact of enrolling in Medicare on COBRA?
COBRA requires two things to occur before continuation coverage is available: a qualifying event and a loss of coverage. Although a loss of coverage occurs when employees voluntarily remove themselves from your health plan, obtaining other coverage, specifically Medicare, is not deemed a qualifying event.
However, if your employee’s spouse is on your plan when the employee enrolls in Medicare, but the spouse is not yet eligible, the spouse will have the opportunity to continue coverage through COBRA if you decide not to keep them on the plan moving forward.
How to Best Handle Medicare-Eligible Employees
Having Medicare-eligible employees leave your group health insurance plan can potentially lower your employer contributions, improve your census, and remove high-cost claims that are considered at renewal time. But as you can see, not all Medicare-eligible employees will or must enroll in Medicare -- or may choose to have both Medicare and employer coverage in some cases.
To help you understand how to best handle Medicare-eligible employees in your workforce, Complete Payroll Solutions can provide employer and employee education events, offer expertise on enrollment decisions, and act as a resource for individuals who want to make informed Medicare decisions.
Read our next article on Complete Payroll Solutions’ brokerage services to learn more about how we can help you and your employees get the right coverage at an affordable price.