Health Plan Rules for Employees Enrolled in Medicare?
Question: We have some older employees (and spouses) who are enrolled in Medicare but still participating in our health plan. Is there a permissible way to exclude them from our health plan or offer them incentives to not enroll?
Answer: Older employees are staying in the workforce longer, which means that employers are more likely to have Medicare-eligible employees participate in their group health plans. When this occurs, employers often have questions about the rules for Medicare beneficiaries, including how claims are paid and whether Medicare-eligible employees can be encouraged to drop the employer’s coverage.
In general, most employers should not apply special eligibility restrictions or offer incentives to Medicare beneficiaries to avoid violating the Medicare Secondary Payer (MSP) rules. The MSP rules apply when Medicare coverage and employer-sponsored health coverage overlap and are designed to protect Medicare’s secondary payer status. Violations of these rules can trigger significant civil penalties for employers in certain situations.
Medicare’s coordination of benefits rules determine which payer (that is, Medicare or other health coverage) pays first on a health care claim. The primary payer pays what it owes on a health care claim first and, if the primary payer does not pay the health care claim in full, the claim is sent to the secondary payer to pay any remaining covered portion. If an individual has both Medicare and employer-sponsored health coverage, the payer status of each depends on a few factors, including the reason for Medicare entitlement and, in some cases, the size of the employer.
In general, if an employer has 20 or more employees, its health plan is the primary payer for employees (and spouses) age 65 or older. If the employer has fewer than 20 employees, Medicare is the primary payer in this situation.
Under the MSP rules, when an employer’s health plan is the primary payer, the employer cannot terminate an employee’s (or spouse’s) eligibility for coverage when he or she becomes entitled to Medicare. In addition, when an employer’s health plan is the primary payer, the employer must comply with the following MSP requirements:
Prohibited actions that “take into account” an individual’s Medicare entitlement include charging higher premiums, imposing a longer waiting period or providing misleading or incomplete information to induce a Medicare beneficiary to not enroll in an employer’s health plan, for example.