We frequently receive questions from our clients or their employees about how their group health coverage is impacted by an employee’s or a spouse’s eligibility for Medicare.
Medicare and the rules that govern it can be confusing. Medicare is federal health insurance that covers individuals who are 65 or over, certain younger people with disabilities, and people with End Stage Renal Disease (ESRD). It is also frequently confused with Medicaid which is health insurance for low income individuals.
Understanding how Medicare works with group health insurance can have a significant impact on health plan design and costs for both the employer and employee.
First we will look at it from the Employers’ perspective.
Their questions often take the form of:
- “One of my employees (or dependents) is turning 65, does he/she need to sign up for Medicare?”
- “Can I require employees to go onto Medicare when they turn 65?”
The first thing we might ask is: “How many TOTAL employees do you have?” That is because the answers are different if you employ more than, or fewer than 20 employees. This can be a tricky question for employers with fluctuating employee counts, but the threshold is met “if an employer has 20 or more full time and/or part time employees for each working day in each of 20 or more calendar weeks in the current or preceding year”.
In most cases, if you have fewer than 20 employees you can require employees to enroll in Medicare, and you can offer those employees a Medicare “supplement” plan. In fact, some health plans require the employee or spouse to enroll in Medicare in order to maintain coverage through the employer group. This may have a cost advantage for the employer when premiums are calculated because a major factor in these calculations is the age of the subscribers. Your age factor will be lowered if those individuals are placed in a different census “bucket” since most Medicare eligible individuals are over age 65.
We have one client with 4 owners and spouses who over the age of 65. The company had maintained an employee count of over 20 for many years, so they stayed on the same plan as other employees. However in 2015 the number of employees dropped below 20 and held steady at that number. At the next health plan renewal we advised the over 65 members to enroll in Medicare, and we added a Medicare supplement to their group plan. As a result their overall premium decreased significantly because the age factor had improved.
If you have 20 or more employees you MUST offer current employees/spouses age 65 and older the same health benefits, under the same conditions, that you offer employees under 65. This equal benefit rule applies to coverage offered to all employees (full and part time). You cannot offer these employees or their spouses secondary coverage for items and services covered by Medicare. In addition, you cannot sponsor or contribute to individual Medigap or Medicare supplement policies. Medicare beneficiaries are free to reject employer coverage as long as it is their choice to do so.
Employees who are turning 65 frequently have questions about whether they should enroll in Medicare and/or maintain their employer group coverage when possible. There is no simple answer to this question because it depends on multiple factors.
The size of the employer may determine whether you are able to delay enrollment without paying a penalty if you enroll later.
- If the employer has 20 or more employees AND you want to continue this coverage then you can decline Medicare when you are first eligible and you will not have to pay a penalty.
- If your employer has fewer than 20 employees and their health plan will allow you to maintain the same coverage as all other employees, then you can decline Medicare when you are first eligible and you will not have to pay a penalty.
You can also decline coverage without future penalty if you are covered by your spouse’s group health insurance.
The total cost of coverage can also be a determining factor. The monthly payroll cost of employer sponsored coverage might be more expensive than enrollment in Medicare plus an individual supplemental plan. As such, it makes sense for individuals to do a comparison of cost and benefits.
We recently became aware of a situation with one of our clients where the spouse of an employee had enrolled in Medicare when she turned 65 in order to avoid Medicare late enrollment penalties. She also continued her coverage through her husband’s group health plan. In this case she could have declined Medicare and enrolled without penalty when she no longer had spousal coverage. This would have saved her hundreds of dollars in Medicare Part B premiums.
Please contact MillBrook Benefits if you have any questions concerning this topic. We will be happy to assist you.