How Medicare Affects Employer Health Coverage

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How Medicare Affects
Employer Health Coverage

Agenda
Medicare Secondary Payer Rules
Medicare Part D
COBRA
Other areas

Medicare Secondary
Payer Rules

Can an employer in any way encourage active employees to elect out
of employer sponsored health coverage when they are eligible for
Medicare?
• No. The Medicare Secondary Payer statute prohibits a group health plan from
“taking into account” the Medicare entitlement of a active employees or family
members if such employees are still considered in “current employment status.”
• Employers are prohibited from discouraging employees from enrolling in their
group health plan or from offering “financial or other incentive for an individual
entitled to Medicare” not to enroll (or to terminate enrollment) under” a group
health plan that would otherwise be a primary plan.
• The above prohibition does not apply to employers with less than 20
employees for each working day in at least 20 weeks in either the current or the
preceding calendar year.
• This test must be run at the time the individual receives the services for which
Medicare benefits are claimed.

What does “current employment status” mean?
A person has current employment status if he or she is actively working as an
employee, is the employer (including a self-employed person), or is associated with
the employer in a business relationship.

Can an employer drop employees or dependents who become
disabled from employer sponsored health coverage when they
become eligible for Medicare if such employees are considered in
“current employment status”?
No. The Medicare Secondary Payer statute prohibits a group health plan from
“taking into account” the Medicare entitlement of disabled employees or a family
member.
An otherwise covered individual who isn’t actively working is nevertheless
considered to be in “current employment status” if he or she (a) is receiving
disability benefits from an employer for up to six months; or (b) retains employment
rights in the industry, hasn’t had his or her employment terminated by the employer,
isn’t receiving disability benefits from an employer for more than six months or from
Social Security, and has group health coverage other than COBRA coverage
(whether or the individual receives pay).

This prohibition does not apply to employers with less than 100 employees on a
typical business day during the previous calendar year.
This means that the employer must have 100 or more employees, whether full-time
or part-time, on at least 50% of its regular business days during the previous
calendar year.

Who is considered a "disabled individual" under the MSP
rules?
Disabled individuals generally are those individuals who are under age 65 and who
have been entitled to Social Security disability benefits for 24 months.

Which employees are counted in determining the number
of employees for the “small employer exception”?
In counting an employer’s employees for purposes of the small employer
exceptions, the following rules apply:
• Leased employees must be counted if they would be counted as employees
under Code § 414(n);
• All of the employees of the members of an “affiliated service group” (as defined
in Code § 414(m)) must be counted as if they were employees of a single
employer; and
• All of the employers that are considered to be a “single employer” under Code
§ 52(a) or 52(b) must be treated as a single employer.

What does it mean to “take into account” Medicare
entitlement?
Under the MSP statute, a group health plan may not take into account:
• The age-based Medicare entitlement of an individual (or the individual’s
spouse) who is covered under the plan by virtue of the individual’s current
employment status; or
• The disability-based Medicare entitlement of an individual (or the individual’s
family member) who is covered under the plan by virtue of the individual’s
current employment status.
A plan must provide a current employee or a current employee’s spouse who is age
65 or older with the same benefits, under the same conditions, as are provided to
employees and spouses who are under age 65.

Examples of employer or insurer actions that constitute an
impermissible “taking into account” are provided in the regulations
and include the following:
• Failure to pay primary benefits;
• Offering coverage that is secondary to Medicare to individuals entitled to
Medicare;
• Terminating coverage because the individual has become entitled to Medicare,
except as permitted under COBRA;
• Denying or terminating coverage because an individual is entitled to Medicare
on the basis of disability without denying or terminating coverage for similarly
situated individuals who are not entitled to Medicare on the basis of disability;
• Imposing limitations on benefits for a Medicare-entitled individual that don’t
apply to others enrolled in the plan;

Charging a Medicare-entitled individual higher premiums;
Requiring a Medicare-entitled individual to wait longer for coverage to begin;
Paying providers and suppliers less for services furnished to a Medicare beneficiary than for
the same services furnished to an enrollee who is not entitled to Medicare;
Providing misleading or incomplete information that would have the effect of inducing a
Medicare-entitled individual to reject the employer plan, thereby making Medicare the primary
payer;
Including in its health insurance cards, claims forms, or brochures distributed to beneficiaries,
providers, and suppliers instructions to bill Medicare first for services furnished to Medicare
beneficiaries without stipulating that such an action may be taken only when Medicare is the
primary payer; and
Refusing to enroll an individual for whom Medicare would be the secondary payer, when
enrollment is available to similarly situated individuals for whom Medicare would not be the
secondary payer.

What are considered “incentives” under the rules?
Employers are prohibited from discouraging employees from enrolling in their group
health plans or from offering any “financial or other incentive” for an individual
entitled to Medicare “not to enroll (or to terminate enrollment) under” a group health
plan that would otherwise be a primary plan.
The prohibition applies “even if the payments or benefits are offered to all other
individuals who are eligible for coverage under the plan.”

Can an Medicare or Medigap premiums be reimbursed by
an employer for an active employees?
Generally no, but under Notice 2015-17, certain exceptions apply.
If an employer offers to reimburse Medicare premiums for its active employees, it
creates an employer payment plan because Medicare is not considered employer
group coverage.

An employer payment plan that pays for or reimburses Medicare Part B or
Part D premiums is integrated with another group health plan offered by the
employer for purposes of the annual dollar limit prohibition and the
preventive services requirements if:
• The employer offers a group health plan (other than the employer payment plan) to the
employee that does not consist solely of excepted benefits and offers coverage providing
minimum value;
• The employee participating in the employer payment plan is actually enrolled in Medicare
Parts A and B;
• The employer payment plan is available only to employees who are enrolled in Medicare
Part A and Part B or Part D; and
• The employer payment plan is limited to reimbursement of Medicare Part B or Part D
premiums and excepted benefits, including Medigap premiums.

Note that to the extent such an arrangement is available to active employees, it may
be subject to restrictions under other laws such as the Medicare secondary payer
provisions.
An employer payment plan that has fewer than two participants who are current
employees (for example, a retiree-only plan) on the first day of the plan year is not
subject to the market reforms and, therefore, integration is not necessary to satisfy
the market reforms.

Do any special rules apply if an employer participates in
multiemployer or multiple employer plan?
• Yes, With respect to age-based Medicare entitlement, the MSP statute provides
that if at least one of the employers in the plan has 20 or more employees, then
the group health plan will be subject to the MSP rules.
• However, the plan may elect not to have the age-based MSP rules apply to
employees of employers in the plan that have fewer than 20 employees.
• A different rule applies to multiemployer and multiple employer plans under the
disability-based Medicare entitlement provisions.
• Under these provisions, if any one employer in the plan employed 100 or more
employees on at least 50% of its regular business days during the previous
calendar year, the plan will be considered to be a large group health plan
subject to the MSP rules for disabled employees.

Are there any special rules for Medicare eligibility or
entitlement based on ESRD?
• Yes, a group health plan (including a retiree medical plan) cannot take into
account an individual’s ESRD-based Medicare eligibility or entitlement for the
first 30 months of such eligibility or entitlement.
• Medicare generally must be the secondary payer for the first 30 months of an
ESRD patient’s Medicare eligibility or entitlement (and will be primary
thereafter.)
• A plan may not otherwise differentiate in benefits provided under the plan
between ESRD patients and other individuals covered under the plan based on
the existence of ESRD, the need for renal dialysis, or in any other manner.

These prohibitions apply regardless of whether the individual has coverage by virtue
of current employment status, and there is no exception for small employers.
Medicare will remain primary, however, for an individual who was entitled to
Medicare due to age or disability on a primary basis at the time he or she becomes
eligible for ESRD-based Medicare.

Does an employer’s prescription drug plan have to be
coordinated with employee’s Medicare Part D drug plan?
Yes. The MSP rules are triggered when individuals who are enrolled in group health
plans offering prescription drug coverage also enroll in Part D plans.
Part D plans and group health plans are generally required to comply with MSP
laws and any other federal and state laws establishing payers of last resort.

Can an employee elect out of employer coverage on their
own and elect Medicare?
There is nothing preventing an employee electing out of employer coverage on his
or her on his or her own.

Are Health FSAs, HRAs Archer MSAs or HSAs subject to
these rules?
• Health FSAs, HSAs, and Archer MSAs are not subject to the MSP Rules;
• HRAs are subject to the MSP Rules.
• CMS has indicated that for MSP purposes, health FSAs (as well as HSAs and
Archer MSAs) aren’t group health plans and aren’t subject to being a primary
payer under MSP laws.
• HRAs, however, are group health plans subject to the MSP rules—information
about HRAs should be reported to CMS in the same manner as group health
plan information is reported.

If an employee continues to be covered under an employer provided health
coverage, will he or she be penalized when he or she decides to elect
Medicare?
• No It is extremely important that an employee enrolls in Medicare during his or her initial
enrollment period.
• If an employee does not, he or she will be subject to late charges or a premium
surcharge
• The Part B premium goes up 10 percent for each 12-month period the employee was
eligible but does not enroll. The increase in the Part A premium (if the employee has to
pay a premium) is 10 percent no matter how late the employee enrolls.
• The employee may enroll in Part B or premium Part A at any time he or she is covered
under another group health plan.
• However, the employee may also choose to wait and enroll during a special eight-month
period. This special period would start with the month the employee or his or her spouse
stops working or when he or she is no longer covered by the employer plan, whichever
comes first.

Once a retiree becomes eligible for Medicare, can retiree
coverage be coordinated with Medicare?
Yes, EEOC provided final regulations that allows employers that provide retiree
health benefits to continue the longstanding practice of coordinating those benefits
with Medicare (or comparable state health benefits) without violating the Age
Discrimination in Employment Act (ADEA).

Are there any penalties if an employer violates these
Medicare Secondary Payer rules?
• The federal government and Medicare recipients are authorized to recover
double damages from group health care plans that treat Medicare as the
primary payer in violation of the rules.
• Violation of the financial incentives prohibition is subject to a civil money
penalty of up to $5,000 for each violation.
• Code Section 5000 also imposes an excise tax of 25% of expenses on all
employers, other than certain governmental entities, or employee organizations
whose group health care plans fail to comply with the Medicare secondary
payer rules. Employers or employee organizations may appeal HCFA
determinations of a failure to comply with Code Section 5000.
• The government has three years to collect health care payments that were
wrongly paid by Medicare from the primary party.

Is there any reporting requirements under the Medicare
Secondary Payer Rules?
Yes Under Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of
2007 (MMSEA), new mandatory reporting requirements was added for group health
plans and for non-group health plan arrangements (liability insurance including self-
insurance, no-fault insurance and workers' compensation).

Who Is required to report the mandatory reporting
information to CMS?
The responsibility for reporting information to help identify whether a group health
plan is (or has been) a primary plan to Medicare falls upon the “entity serving as an
insurer or third party administrator for a group health plan...and, in the case of a
group health plan that is self-insured and self-administered, a plan administrator or
fiduciary.”
CMS refers to entities that are responsible for complying with the reporting
requirements under Section 111 as “responsible reporting entities” (RREs).

What plans are subject to the Section 111 reporting
requirements?
Many types of group health plans are subject to the MSP rules in general.
Health FSAs and HSAs are not, but HRAs are.
• No reporting if annual benefits are less than $5,000.

What information should be reported to CMS?
CMS must be provided information regarding all individuals meeting the definition of
an “active covered individual.”
In general, an active covered individual is someone who may be Medicare eligible
and currently is employed, or the spouse or other family member of a worker who is
covered by the employed individual's group health plan and who may be eligible for
Medicare and for whom Medicare would be secondary payer.

For mandatory reporting purposes, CMS has defined
“active covered individuals” in its User Guide to include
all individuals covered in the group health plan who—
• Are ages 45 through age 64 with coverage based on their own or a family
member’s current employment status;
• Are age 65 and older with coverage based on their own or a spouse’s current
employment status;
• Have been receiving kidney dialysis or have received a kidney transplant,
regardless of their own or a family member's current employment status; or
• Are under age 45, are known to be entitled to Medicare, and have coverage in
the plan based on their own or a family member’s current employment status
regardless of their age.

How and when should information be reported to
CMS?
• Information may be submitted only through an electronic process under which
new group health plan RREs will register online through a secure website using
an interactive web portal designed for that purpose.
• Once data has been submitted, CMS will work with the RREs to set up the data
reporting and response process, and it will use the information to ensure that
payment is made in the proper order and to pursue recovery activities.
• CMS has indicated that RREs must submit information on a quarterly basis.

What the penalties for failure to comply with section 111
reporting requirements?
Entities that fail to comply with the MMSEA Section 111 reporting requirements are
subject to a civil monetary penalty of $1,000 for each day of noncompliance for
each individual for which information should have been submitted.
This fine is in addition to any other penalties prescribed by law and any potential
claims under the MSP regulations (e.g., a claim by Medicare that the group health
plan should have paid primary to Medicare).

Medicare Part D
For those employee who are eligible for Medicare Part D
benefits, what disclosure must an employer provide
them?
Each year ( between 10/15 and 12/07) an employer must provide a notice to those
eligible employees whether its prescription drug plan is either “creditable” or
“noncreditable.”

Medicare Part D
In what other situations must the Notice be distributed?
• Prior to an individual's initial enrollment period (IEP) for Part D—the timing of
the IEP varies according to several factors;
• Prior to the effective date of coverage for any Part D eligible individual that
enrolls in the employer's prescription drug coverage—the timing of the effective
date of coverage varies for each individual;
• Whenever the employer no longer offers prescription drug coverage or changes
it so that it is no longer creditable or becomes creditable—the timing of a
change in coverage generally varies according to the employer's actions; and
• Upon request by the Part D eligible individual—the timing of a request varies
according to the individual's actions.

Medicare Part D
Why does an employer have to give this notice?
• If an employer’s prescription drug coverage is not considered “creditable,” the
employee may be subject to an late enrollment penalty.
• A late enrollment penalty may apply after experiencing a lapse in creditable
prescription drug coverage for any continuous period of 63 days or longer at
any time after the end of the individual’s IEP for Part D.
• The penalty amount will be the base beneficiary premiums that would otherwise
apply will be increased by the greater of (1) an amount that CMS determines is
actuarially sound for each uncovered month in the same continuous period of
eligibility; or (2) 1% of the base beneficiary premium for each uncovered month
in the period.

Medicare Part D
Are there any penalties if an employer either does not
provide the notice or provides an incorrect notice to
employees?
Neither the law nor the regulations provide mechanisms for CMS to enforce
penalties or other sanctions against employers that fail to comply with the disclosure
requirements, other than those claiming the retiree drug subsidy.
However, employers that don’t comply with such requirements are likely to
encounter adverse employee relations issues.

Medicare Part D
Are there any other disclosures that an employer must
make under Medicare Part D?
• Group health plan sponsors must also notify CMS about creditable coverage
status.
• Part D plans, however, are exempted from this requirement, as are certain
employers that have been approved for the retiree drug subsidy.
• Notice must be given annually within 60 days after the end of the plan year.

COBRA
When can the entitlement of Medicare terminate COBRA
coverage?
When any qualified beneficiary (including the covered employee) first becomes
entitled to Medicare after electing COBRA coverage, his or her COBRA coverage
can be terminated early (i.e., before the end of the maximum coverage period).
This rule does not, however, affect the COBRA rights of other qualified beneficiaries
in a family unit who are not entitled to Medicare (for example, the spouse and
dependent children of a Medicare-entitled former employee.

COBRA
When does entitlement to Medicare extend the period of
COBRA coverage?
When a covered employee’s qualifying event (i.e., a termination of employment or
reduction of hours) occurs within the 18-month period after the employee becomes
entitled to Medicare, the employee’s spouse and dependent children (but not the
employee) become entitled to COBRA coverage for a maximum period that ends 36
months after the covered employee becomes entitled to Medicar.e
The covered employee remains entitled to a basic maximum period that ends 18
months after the termination of employment or reduction of hours.

COBRA
Does the entitlement to Medicare before electing COBRA
terminate COBRA coverage?
• No. When any qualified beneficiary (including the covered employee) is entitled
to Medicare before electing COBRA, he or she still has the right to elect
COBRA coverage.
• The COBRA offer cannot be withheld because of Medicare entitlement.
• And this coverage may not be terminated early because of the Medicare
entitlement.

COBRA
Is entitlement to Medicare ever a first qualifying event to
trigger COBRA?
• The covered employee’s entitlement to Medicare is one of COBRA’s listed
qualifying events.
• It is a qualifying event only for the spouse and dependent children, not for the
covered employee,
• But because Medicare entitlement will only infrequently cause a loss of
coverage under a group health plan, it will rarely be a COBRA qualifying event.
• It is permissible under the MSP rules for Medicare entitlement to cause a loss
of coverage for covered retired employees (and their spouses and dependent
children).

COBRA
Will enrolling in Medicare preserve an employee’s special
enrollment rights under Medicare?
COBRA coverage is not considered a group health plan based upon current
employment.
Individuals who, in order to retain their COBRA coverage, do not enroll in Medicare
when first eligible will not have special enrollment rights under Medicare and may
expect to pay more for Medicare when COBRA coverage ends.

COBRA
Must a plan still offer COBRA coverage to retirees when
alternative retiree coverage is offered?
Yes. Alternative retiree coverage might be offered under the plan covering active
employees, or it might be offered under a separate retiree plan.
In either case, the employer cannot avoid its obligation to offer COBRA coverage in
connection with the employee’s retirement simply by providing alternative retiree
coverage.

COBRA
Must a plan offer COBRA to retirees when alternative
retiree coverage expires?
The regulations make it clear that if a retiree (and his or her family) are offered but
do not elect COBRA and instead choose alternative retiree coverage available for a
fixed period of time, no COBRA election must be offered when the retiree coverage
expires.
This result would be the same whether retiree coverage is offered under a
combined retiree/active plan or under a retiree-only plan.

HSAs
When is an individual no longer eligible to contribute to an
HSA?
• Code § 223(b)(7) reads as follows: “Medicare eligible individuals. The
[contribution limit] under this subsection for any month with respect to an
individual shall be zero for the first month such individual is entitled to benefits
under title XVIII of the Social Security Act and for each month thereafter.
• An individual can become entitled to Medicare benefits (under Title XVIII of the
Social Security Act) for three reasons: age, disability, or end-stage renal
disease (ESRD).
• Entitlement to Medicare Part A is automatic for some individuals (i.e., a
separate application is not required) because they have already applied for and
are receiving Social Security or Railroad Retirement Act benefits.
• Other individuals must file an application in order to become entitled to Part A
benefits.

HSAs
Can an HSA be used to reimburse an individual for
Medicare premiums?
• Yes Deductible health insurance premiums (other than for a Medicare
supplemental policy) for an account holder who is age 65 or older can be paid
or reimbursed through an HSA on a tax-free basis, including medical premiums
for an employer’s insured or self-insured retiree health coverage.
• When premiums for Medicare Part A (hospital and inpatient services), Part B
(physician and outpatient services), Part C (Medicare HMO and PPO plans), or
Part D (prescription drugs) are deducted from Social Security benefit payments
received by an account holder who is age 65 or older, he or she can take a tax-
free HSA distribution equal to the Medicare premium deduction.
• HSAs generally cannot be used by retired account holders for their health
insurance premiums prior to age 65—with the exception of COBRA coverage
(or premiums paid while receiving unemployment.

HIPAA
Is Medicare coverage considered “creditable coverage”
for HIPAA purposes?
Medicare is subject to HIPAA’s certification requirements under the PHSA and thus
count as creditable coverage, but they are not otherwise subject to HIPAA’s
portability provisions (e.g., PCEs, special enrollments, and nondiscrimination)
because they do not constitute “group health plan” coverage as defined in the
PHSA, ERISA, or the Code.

Contact Information
Larry Grudzien, Attorney at Law
Phone: 708-717-9638
Email: larry@larrygrudzien.com
Website: www.larrygrudzien.com

How Medicare Affects Employer Health Coverage

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