By: HUB’s EB Compliance Team

When employees become eligible for Medicare, due to age or disability, employers often wonder what they can or cannot do with respect to letting employees know about Medicare and other health options. A complex set of rules, known as the Medicare Secondary Payer Rules (the “Rules”) generally require that group health plans pay claims first for individuals who are covered under both a group health plan and Medicare. In addition, the Rules also prohibit employers from “taking into account” Medicare, as discussed below.

Overview of Medicare Secondary Payer Rules

The purpose of the Rules is to protect Medicare financially in two ways. First, if an individual has both Medicare coverage and group health coverage as a result of their own active employment or the active employment of their spouse or parent, the group health plan coverage is “primary” to Medicare (i.e., the group health plan pays first). This prevents Medicare from paying claims that can be covered by a group health plan. We discussed situations where Medicare or a group health plan pays primary in this prior article.

Secondly, the Rules prevent employers (whose plans would pay before Medicare) from coercing, inducing, or incentivizing employees, their spouses, or dependents to elect Medicare over employer-sponsored coverage. This article will focus on this part of the Rules.

The Rules apply to active employees and their spouses regardless of how they become eligible for Medicare (age or disability).

The Rules also apply to dependents who are eligible for Medicare due to a disability or end-stage renal disease (ESRD), (i.e., kidney failure). Under the ESRD portion of the Rules, the group health plan pays primary to Medicare for the first 30 months (plus an up to 3-month Medicare waiting period) and then Medicare pays primary after that. This applies to active employee coverage, but also to COBRA and retiree coverage.

Current penalties for violating these rules are $9,239 per violation (adjusted annually) in addition to an excise tax equivalent to 25% of the total expenses incurred by the employer (premiums for an insured plan or total costs of a self-funded plan) for all group health plans sponsored by the employer. Additionally, Medicare has the right to seek payment from the insurer or self-funded plan for claims the plan should have paid. Therefore, the financial risk for violating the Rules is steep.

Employers Subject to the Rules

These Rules generally apply to employers who have 20 or more employees (full-time and part-time) worldwide. The “employer” is based on controlled group rules, meaning entities that are part of the same corporate group, or that have similar owners may be aggregated together for purposes of the 20-employee account. For Medicare purposes, employers are considered to be over 20 employees as long as they have 20 or more employees for each working day in at least 20 weeks during the current or previous calendar year (the weeks do not need to be consecutive). There are many variables involved in determining employee counts, so it is not as simple as just counting heads.

Additionally, a separate part of the Rules applies to individuals who become eligible for Medicare due to disability. When Medicare is gained due to a disability other than ESRD, a group health plan is secondary to Medicare if the employer has less than 100 employees.

Prohibited Actions under the Rules

Employers subject to the Rules, are “prohibited from offering Medicare beneficiaries financial or other benefits as incentives not to enroll in, or to terminate enrollment in, a GHP [Group Health Plan] that is, or would be, primary to Medicare” (See, 42 CFR 411.103). A few examples of prohibited actions include, but are not limited to:

  • Reimbursing Medicare Part A (if applicable), Part B, or Part D premiums to active employees, spouses, or dependents eligible for Medicare.
  • Paying for or reimbursing the costs of a Medicare Supplement or Medicare Advantage Plan.
  • Offering financial incentives, rewards, or other form of remuneration to Medicare-eligible individuals to drop employer coverage.
  • Telling the Medicare eligible population (or even a single Medicare eligible employee) they “can’t enroll in the employer plan” because they are eligible for Medicare.
  • Imposing longer waiting periods for coverage, or terminating coverage for employees or their dependents once they become Medicare-eligible.
  • Limiting plan benefits or plan reimbursement levels for employees or covered dependents with end stage renal disease/kidney failure.
  • Imposing higher employee contributions only on Medicare eligible employees and their dependents if they choose to enroll in an employer sponsored plan

This is not an exhaustive list, so other actions are also prohibited. However, this list is intended to provide a sense of what types of actions are not permitted.

Some Reminders and Takeaways

Employees, spouses, or dependents who are Medicare eligible can always voluntarily choose to enroll in Medicare rather than (or in addition to) an employer plan. Additionally, retiree-only plans pay secondary to Medicare (except for the first 30 months of ESRD) and are permitted to require retirees, spouses, and their dependents eligible for Medicare to enroll in Medicare.

Finally, employers can provide information about Medicare, but should be very careful not to encourage employees to enroll in Medicare instead of employer coverage. Employers considering providing information should use information from, or direct employees to, medicare.gov for additional information.

While this is not a complete discussion of the Rules, employers should be aware of the restrictions described above. Some employers may incorrectly believe that they can provide incentives like those described above to active employees and their dependents, and should reevaluate these practices as soon as possible.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.