If you’re seeing a lot more grey heads in your workforce these days, it shouldn’t be surprising. 

Americans aren’t retiring at the “official” age of 65 like they used to. In fact, nearly 19 percent of them in that age group, or almost 9 million people, stay on the job well past the time their parents chose to retire. Any number of reasons are behind it, but the fact that we are living longer and saving less says a lot: The median retirement savings of families between 56 and 61 is a paltry $17,000. 

Due to the increasing number of “working-aged” employees, employers need to get smarter about Medicare. Employers must understand how Medicare coordinates with their benefit programs; the rules surrounding enrollment in Medicare; and the penalties that can be assessed against employers, or their employees, if they fail to follow Medicare rules. 

What are the rules anyway, and why?
These rules were adopted under the 1980 Medicare Secondary Payer law (MSPR). MSPR  established rules to allow the Medicare program to become secondary insurance payer to certain  plans, so that Medicare wasn’t inequitably assuming the health care costs of older or disabled workers who were  covered by an employer’s plan. With the enactment of Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), enforcement of MSPR became widespread, as it mandated insured and self-insured plans as well as others to electronically report to Medicare all payments made to Medicare beneficiaries.

What does this mean in terms of our group health benefits?

First of all, the rules differ depending on how many employees your company has. If you have fewer than 20 employees (including full-time and part-time) in the prior or current year, Medicare will always be the “primary payer” (pay first) for employees age 65 or older. As Medicare is the primary payer, insurance carriers will take into account what Medicare would have paid, even if the employee is not enrolled in Medicare.  If you have 20 or more employees, in most cases, your group health plan will be the primary payer and Medicare will be the secondary payer. This means that your employees age 65 and older, in most cases, can choose to remain enrolled in your group health plan and delay enrolling in Medicare (Parts A, B and D) without becoming subject to late enrollment penalties.  

Should we encourage our employees reaching retirement age to sign up for Medicare?

Yes, if you have fewer than 20 employees. Medicare would always be their primary plan, even if they remain enrolled in your group plan -- just be mindful of unintended age discrimination claims. Offering resources to your employees and their spouses would be helpful given Medicare’s complexities. Remember that if your eligible employees are not enrolled in Medicare, carriers will reduce their reimbursement by what Medicare would have paid, making your employees liable for out-of-pocket expenses, which can be sizeable. You’ll want to help them avoid that landmine.

Larger employers, though, need to step very carefully. You can do your older workers a big favor by providing them with resources to understand and navigate their way through Medicare. However, you cannot induce, incentivize or coerce an employee to enroll in Medicare over your plan. That is prohibited by the Medicare Secondary Payer Rules, as your plan is deemed primary payer. Trying to circumvent Medicare Secondary Payer Rules can earn you substantial fines.

Just how big a fine are we talking about?
As much as $5,000 per employee per violation, in addition to having claims reprocessed to reflect your plan as primary payer.

Is it just retirement-aged employees that we have to be concerned about?

No. Medicare Secondary Payer Rules also extend to disabled individuals and those with end-stage renal disease (ESRD). Remember that these rules do not apply to employers with fewer than 20 employees, as Medicare is the primary payer. For larger employers, though, the rules are different.

  • For disabled individuals: For employers with 20 through 99 employees, Medicare is primary and the group health plan is secondary. For those with 100 or more employees, the group health plan is primary and Medicare is secondary.
  • For those with ESRD: Employers with 20 or more employees, the group health plan is primary. Medicare is secondary for the first 30 months of the individual’s entitlement to ESRD.

There are other aspects to the Medicare Secondary Payer Rules that employers need to be aware of, such as the interaction of Medicare with COBRA or retiree health care plans, and how Medicare impacts individuals’ eligibility for a Health Savings Account. Please contact your HUB representative or HUB Medicare specialists to learn more about Medicare and your group health plans.