Medicare Eligible and Group Coverage

Medicare Eligible and Group Coverage

Posted: August 9, 2016  

Important Facts that Employers need to know

Under federal regulations, Medicare is a secondary payer for many individuals who have an employer group health plan available to them, either as an employee or the dependent spouse or child of the employee. Rules prohibit employers with more than 20 employees from incentivizing an active employee age 65 or older to elect Medicare instead of the group health plan.  Incentives include offering to pay any part or portion on the Medicare premium. There are very limited situations under the Patient Protection and Affordable Care Act (PPACA) where an employer could provide a reimbursment for Medicare premiums, however, if the employer has more than 20 employees it is absolutely prohibited due to Medicare Secondary Payer rules.

Q1. Who do Medicare Secondary Payer rules affect?

A1. For anyone engaged in “current employment of the individual or spouse” with an employer who offers a group health and employs 20 or more employees unless the employee elects Medicare. Health insurance plans for retirees, or spouses of retirees, do not apply because retirement is not “current employment.” Individuals who are eligible for Medicare based on disability or end-stage renal disease (ESRD) are also affected.  In these cases, the employment number is set at 100 employees.

Q2. If I am an employer with 20 or more active employees, what am I required to offer?

A2. You must offer employees age 65 or over the same group health plan coverage offered to younger workers. If you have workers that have Medicare-entitled dependents, they must be offered the same benefits as employees with dependents that are not Medicare-entitled.

Q3. If I am an employer who is impacted by Secondary Payor Rules, are my employees who are entitled for Medicare required to elect their group health coverage or Medicare?

A3. The election is totally discretionary for the employee.  Employees that elect their group health plan will then have secondary Medicare coverage if they also enroll in Medicare. IMPORTANT:  As an employer you cannot induce or provide incentives to select Medicare as their primary coverage.

Q4. How does Medicare know if an individual has the option of enrolling in a group health plan through their employer?

A4. The Centers for Medicare and Medicaid (CMS) mails questionnaires to individuals before they become entitled to benefits under Medicare Part A or enroll in Medicare Part B to determine if they are eligible for primary coverage under another plan. 

Q5. Am I subject to reporting for Medicare Secondary Payor purposes?

A5. Yes, under Medicare Section 111. Depending on circumstances, a responsible reporting entity (RRE) can be an insurer, a third party administrator, or a plan administrator. The RRE is responsible for collecting data from plan sponsors and participants and reports to CMS quarterly. Failure to report this information can lead to penalties of $1,000 for each day of non-compliance.

Q6. How do I count my employees for Medicare Secondary Payer purposes?

A6. If your company employs 20 or more full-time and/or part-time employees for each work day in each of 20 or more calendar weeks in the current or preceding year. Remember, a part-time employee counts as a full employee. Employees that are not enrolled in a group health plan are included. Self-employed individuals participating in the group health plan are not counted.

Q7. What happens when I go over 20 employees for 20 weeks?

A7. Once your company goes over 20 or more employees working on each day of 20 calendar weeks in a current year, no matter how few employees there were in the preceding year, it must offer primary coverage for the remainder of that year and throughout the following year, even if the number of employees drops under 20 during that time.

Q8. The Patient Protection and Affordable Care Act (PPACA) severely limits an employer’s ability to reimburse individual premiums. However, if an employer has fewer than 20 employees, is it permissible to reimburse an employee’s Medicare Part B or Part D premium?

A8. Unless the employer payment plan is integrated with a group health plan, reimbursing Medicare Part B or Part D premiums will result in a non-compliant group health plan, subject to $100 per employee per day penalties.  Note: You should use extreme caution when setting up an integrated plan and should absolutely consult your insurance broker/consultant for specific guidance.

Q9. What are the penalties for violating Medicare Secondary Payer or PPACA premium reimbursement rules?

A9. There are numerous penalties that exist for violation.

Medicare Civil Money Penalties:

1. Any entity that makes a prohibited offer or incentive to an employee, whether oral or in writing, is subject to a civil money penalty of up to $5,000 per offer.
2. Failure on the part of a group health plan to fulfill reporting requirements under Section 111 to allow for the coordination of benefits can result in a civil money penalty of $1,000 a day for each day of non-compliance for each individual for which the information should have been submitted.

IRS penalties:

1. Contributing to a “nonconforming” group health plan is subject to an additional excise tax imposed by the Internal Revenue Service (IRS) of 25% of the employer’s or employees’ group health plan expenses for the relevant year. A “nonconforming” group health plan is one that: (1) improperly takes into account that an individual is entitled to Medicare; (2) fails to provide the same benefits under the same conditions to employees and spouses age 65 or over as it provides younger employees and spouses; (3) improperly differentiates between individuals with ESRD and others; or (4) fails to refund an erroneous conditional Medicare payment.
2. If an employer reimburses an individual’s Medicare premium that is not integrated with a group health plan (see Question 10), they are subject to a $100 IRS penalty, per employee, per day for violating individual premium reimbursement rules under PPACA. For practical purposes, employers with more than 20 employees will not be able to reimburse premiums that are integrated with group health plans, because they will violate Medicare Secondary Payer prohibitions.

As a practice, it is critical that all employers understand the intersection of Medicare and the Group coverage they offer.  In addition to Medicare Secondary Payor Rules, there are many pitfalls and risk that impact small employers and their employees.  Always take time to consult with a professional when developing your policies and procedures to make sure you are handling this very important issue correctly.