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More employees than ever before are working beyond age 65, and this is the age when most people in America quality for Medicare. Employers and plan administrators need to understand their options and/or requirements when an employee is eligible for both a group health plan and Medicare. Before we get to that, let’s start with some basics.
Medicare is comprised of four different parts, each of which is identified by a letter.
Although technically not a “part” of Medicare, there is one other plan to point out. Medicare Supplement plans, also known as Medigap plans, are available to people enrolled in Original Medicare. These plans cover some of the deductibles and out-of-pocket costs associated with Parts A and B.
Most people qualify for Medicare on the first day of the month that they turn age 65. For example, if your birthday was on May 15th, your eligibility for Medicare will start on May 1st.
Some people qualify for Medicare under age 65 because of a disability. These people are eligible for Medicare on the first day of the 25th month of receiving Social Security Disability Income benefits. People under age 65 with end-stage renal disease (ESRD) or amyotropic lateral sclerosis (ALS) can qualify for Medicare earlier.
Employers and plan administrators should be prepared to answer questions from employees as they enroll or consider enrolling in Medicare while still working or having coverage through a spouse who is still working. The federal government has a set of rules in place, referred to as Medicare Secondary Payer rules (MSP rules), that determines which health plan is primary and secondary when an employee is enrolled in both a group health plan and Medicare. This is primarily based on the size of the employer, and when determining the size, employers should include full-time and part-time employees in the count.
Some employers or plan administrators may be interested in providing an alternative benefit to employees who are eligible for Medicare. This alternative benefit generally involves a financial incentive to disenroll in the group health plan and pursue coverage exclusively through Medicare. This could create savings to the employer, coverage under Medicare may be better than the group health plan, or it could be a combination of both.
The MSP rules that were discussed above also dictate when a financial incentive which may encourage disenrollment from the group health plan can be offered. These MSP rules are in place to protect the solvency of the Medicare Program.
Medicare entitlement of the employee is listed as a COBRA qualifying event, however, it is rarely a qualifying event. In situations where it is a qualifying event, it is only a qualifying event for the spouse or children that are covered under the group health plan.
For Medicare entitlement of the employee to be a qualifying event, the terms of the group health plan must specify that the employee is no longer eligible for coverage under the group health plan once entitled to Medicare. This is prohibited in most instances by the MSP rules, and thus, Medicare entitlement of the employee is rarely a COBRA qualifying event. This is best illustrated by an example.
John works for XYZ Company which has 200 employees and is subject to COBRA and the MSP rules. John is enrolled in the group health plan offered by XYZ Company, and he also has elected to cover his spouse Jill under the plan. John just turned age 65 and has become eligible for Medicare, but Jill is only 62 years old and is not yet eligible for Medicare. John has decided to enroll in Medicare, and consequently, Jill will be losing coverage under the group health plan.
Does XYZ Company have to offer COBRA to Jill? No.
John voluntarily dropped coverage under the group health plan. XYZ Company did not, and is prohibited from, changing John’s eligibility for coverage under the group health plan because he enrolled in Medicare. John could have continued coverage under the group health plan even while enrolled in Medicare. As a result, John’s Medicare entitlement does not trigger a COBRA qualifying event for Jill.
As previously mentioned, Part D is the prescription drug program available to those individuals who are enrolled in Medicare Parts A and/or B. Upon becoming eligible for Medicare, each person has the option to sign up for a Part D plan. If a person delays enrollment in Part D, they will be charged a late enrollment penalty equal to 1% of the “national base beneficiary premium” multiplied by the number of months not enrolled in a Part D plan. However, if a person delays enrollment in Part D and is enrolled in a plan from their employer which includes prescription drug coverage, they will most likely have that penalty waived if they sign up for Part D later.
The Medicare rules provide that employers or plan administrators must do two things:
Model notices and access to the online site to complete the reporting can be found HERE.
Employers and plan administrators should educate themselves about the interaction between Medicare and group health plans. It’s important for compliance reasons, but it’s also important to help employees understand what does (or doesn’t) change upon becoming eligible or enrolled in Medicare.
Part A covers hospitalizations and inpatient care.
Part B covers office visits and outpatient care.
Part C combines Part A and B benefits into a single plan administered by private insurance companies. This is referred to as the Medicare Advantage plan.
Part D covers prescription drugs, and many Part C plans also include Part D coverage.
There are also Medicare Supplement plans, sometimes called Medigap plans, which are available to people covered under Parts A and B. These plans cover some of the deductible and out-of-pocket expenses associated with Medicare.
Usually, if the employer has fewer than 20 employees, Medicare will be your primary insurance coverage. Likewise, if the employer has 20 or more employees, the group health plan will usually be your primary insurance coverage. Check with the employer to be certain.
Generally, you’ll need to sign up for both Medicare Part A and B even if you continue the group health plan. The group health plan usually won’t pay for what Medicare would otherwise cover
Yes. Enrolling in either Part A or B will eliminate your ability to contribute to an HSA.
Not if you delay enrollment because you are covered by a group health plan based on your current employment or your spouse’s employment. However, once employment is terminated, you must sign up for coverage within 8 months even if you elect COBRA. Failure to sign up for Medicare Part A and/or B during this time could limit when you can enroll and/or result in a penalty.
Your acceptance is guaranteed with every insurance company within 6 months of enrolling in Part B. Even if you’ve been enrolled in Part B for more than 6 months, most plan options will be available to you at a later date provided you delayed enrollment in a Medicare Supplement plan because you were covered by a group health plan. You’ll need to act quickly after losing coverage under the group health plan. You’ll have 63 days to sign up.
You’ll have a 7-month initial enrollment period that starts 3 months before you’re eligible for Medicare, includes the month of Medicare eligibility, and concludes 3 months thereafter. If you delay enrollment in either plan because you were covered by a group health plan, you’ll have at least 60 days to sign up for either plan after you lose the group health plan.
Please be aware that if you delay enrollment in Part D you could be charged a late enrollment penalty unless you have creditable prescription drug coverage elsewhere. The employer is supposed to provide you with a notice prior to October 15th of each year which indicates if the drug coverage on the group health plan is creditable. The term creditable means the prescription drug coverage on the group health plan is at least as good as the standard Part D plan. Most group health plans provide creditable prescription drug coverage.
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The Internal Revenue Service (IRS) recently published Revenue Procedure 2022-38.
The Great Unwinding is the undoing of several health coverage